the nokia revolution

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Success Factors of an Extraordinary Company

THE NOKIAREVOLUTIONTHE SUMMARY IN BRIEF

In its transformation from a small pulp mill in Finland to the leadingworldwide force in cellular and mobile information technology, the NokiaCorp. has irrefutably redefined the term “evolution” in the context of globalbusiness.

In The Nokia Revolution, Dan Steinbock traces, with pinpoint detail, thesteps Nokia took to gain and maintain its position at the head of such a rap-idly changing technology field, as well as the occasional misstep thathelped the company learn important lessons and come back stronger.Among the things that have made Nokia special are the following:

● Strategic Intent. As it moved into increasingly deregulated markets,Nokia faced a bevy of new challenges and competitive shifts, all of which ittackled by fearlessly addressing new opportunities outside its organizationand a new process focus within its organization.

● Global Focus. Nokia’s propensity for thriving in times of upheavalserved it well in the cellular industry, where the company was forced to setglobal objectives or fall behind its competitors.

● Strategic Market-Making. By considering both unique competen-cies and market-based industry segments, Nokia’s executive board hit upona strategy that has served it well in a dynamic environment.

● Focus on People. Nokia treats human resource management issueswith the same focus as it has tackled more strategic business issues. Indoing so, the company has defined the key values and key challenges for its“Nokians” to address in the short- and long-term.

● Global R&D. At Nokia, research and development apply across theentire value chain, rather than simply in more technical sectors of the com-pany, enabling the company to strike a necessary balance between techno-logical factors of its business (upstream processes) and more people- orservice-related factors (downstream processes).

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Concentrated Knowledge™ for the Busy Executive Vol. 23, No. 10 (2 parts) Part 2, October 2001 • Order # 23-25

CONTENTSStrategic Intent: NewCustomers, New RulesPages 2, 3

A Process-DrivenOrganizationPage 3

Global Focus:Nokia TargetsNiche MarketsPages 3, 4

Strategic Market-MakingPages 4, 5

‘Nokians’ and HumanResource ManagementPage 5

Nokia’s Global R&DPages 5, 6

Upstream InnovationPages 6, 7, 8

Downstream InnovationPage 8

By Dan Steinbock

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Strategic Intent:New Customers, New Rules

In the 1980s and 1990s, mobile communications mar-kets were changing dramatically, and Nokia found itselfhaving to change its structure and strategies in order tokeep up. The company’s leadership knew it had to trans-form its organization, developing new capabilities, build-ing new strategic advantages on those capabilities, andglobalizing its efforts. Nokia’s customer focus — alwaysa strong point — would need to become even stronger.

In this period, Nokia’s customer base moved from thetraditional, state-owned and regulated Postal, Telegraphand Telephone (PTT) customers to deregulated markets.As a result, it found lots of old rules changing.

● Regulations. Customers that were once driven bycompliance to regulation were now free of those regu-lations; private sector customers replaced government-owned and -operated businesses as Nokia’s chief cus-tomers and target audiences.

● Orders. Nokia could previously count on ordersfor a particular product line; as the market changed,customers demanded more integrated turnkey solutionson common platforms.

● Work force. In the past, the typical work forcewas technically driven. When the market shifted, sodid the work force’s specialties — away from strictlytechnical expertise, toward more business- and market-ing-driven work.

● Business cycles. Prior to the change in the market,Nokia could rely on highly predictable order and deliv-ery cycles. When the rules changed, so did thosecycles, which became increasingly less predictable.

● Competitive pressures. Whereas Nokia’s chiefcompetition was national in nature before the mobilecommunications market changed, the market shift sawNokia and its competitors forced to go global, to keep upwith one another. The steady evolution of product pricesand price structures eroded rapidly in this period, whiledelivery times grew increasingly faster. Service alsobecame a key competitive issue; customers demandedhigher levels of service than ever before, forcing Nokiaand its competitors to comply or step aside.

Nokia addressed competitive shifts by fearlessly jump-ing into new opportunities as deregulation spread acrossEurope, enabling the company to establish strongfootholds in the United Kingdom and Germany, amongother newly open markets. By the late 1990s, Nokia wasknown for its ability to listen and respond to market devel-opments in a rapid, efficient and flexible manner; the com-pany was more agile and entrepreneurial than many of itslarge competitors — a trait not lost on customers lookingfor a flexible, responsive mobile communications vendor.

The Price of SuccessNokia’s success caused its share of problems. By

May 1996, the company experienced staggering dropsin profit (a 70 percent decline in the first quarter) andoperating profit (a 62 percent decline), whichstemmed, in large part, from several years of hyper-growth and its accompanying logistics challenges:

● Newer, larger work force. In 1995 alone, Nokiaadded 7,000 employees to its work force to meet cus-tomer demand for its phones in Europe and Asia.

● Productivity. Problems with suppliers and deliveryof components caused the company’s productivity levelto tail off considerably, from 15 percent to 3 percent.

● A stagnant American market. The market fordigital handsets in the United States did not grow asexpected, due to regulatory delays.

● Cheap analog. Analog phone manufacturers cutprices as much as 50 percent in this period, as themove to digital technology in many countries washung up in regulations.

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THE NOKIA REVOLUTIONby Dan Steinbock

— THE COMPLETE SUMMARY

The author: Dan Steinbock is an affiliate researcher atthe Columbia Business School Institute forTeleInformation (CITI), and a visiting virtual professor atthe Helsinki School of Economics and BusinessAdministration. Steinbock is the author of The Birth ofInternet Marketing Communications and Triumph andErosion in the American Media and EntertainmentIndustries.

Copyright© 2001 by AMACOM. Summarized by per-mission of the publisher, AMACOM, 1601 Broadway,New York, NY 10019. 375 pages. $27.95. 0-8144-0636-X.

Soundview Executive Book Summaries®

Published by Soundview Executive Book Summaries (ISSN 0747-2196), 10 LaCrue Avenue, Concordville, PA 19331 USA, a division of ConcentratedKnowledge Corporation. Publisher, George Y. Clement. V. P. Publications, Maureen L. Solon. Editor-in-Chief, Christopher G. Murray. Published monthly.Subscriptions: $195 per year in U.S., Canada & Mexico, and $275 to all other countries. Periodicals postage paid at Concordville, PA and additional offices.

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PART I: GLOBAL FOCUS STRATEGY

(continued on page 3)

Despite understandable market anxiety, Nokia heldfirm to its focus strategy, even in the midst of its logis-tics problems, which the company understood, correctly,to have stemmed from its reorganization just prior to themarket shift. The company’s leadership knew it had tonot only catch up and adapt to its external environment,it also had to upgrade and innovate its IT strategies, thenalign those strategies with a new strategic direction. ■

A Process-Driven OrganizationThe origins of Nokia’s recovery and market superiori-

ty can be traced to 1992, when Mikko Kosonen, thecompany’s vice president of corporate planning,launched an IT strategy study that helped move Nokiatoward process-based management. The study identi-fied two core business processes common to all busi-nesses at Nokia Telecommunications: product develop-ment (R&D) and customer commitment (order fulfill-ment). This realization led to the institution of a newaccount management structure that would serve as aninterface between all the company’s divisions and theircustomers, rather than between the customer and a sin-gle product line, as had been the case in the past.

The goal of the study was to increase Nokia’s cus-tomer orientation, looking at its businesses from thecustomer’s perspective, leading to new performancemeasures that focused on customer value. Such a focusalso benefited the company’s efforts at innovation,which had always flowed through the entire valuechain, rather than being strictly the responsibility of aproduct development or R&D arm.

Two Types of Operational ProcessesBy the mid-1990s, Nokia’s operational processes

could be divided into two broad types:● Business processes. Processes associated with the

physical or virtual creation of the product, its sale andtransfer to the buyer, and post-sale servicing. In prac-tice, they can be divided into upstream and downstreamprocesses.● Corporate processes. Processes that reinforce busi-

ness activities by providing purchased inputs, technologydevelopment, human resources management and a varietyof company-wide functions. In practice, these processescan be seen in management, performance measurementand control, HR management, and R&D activities.

Nokia put these processes into action in its processchain by firming up its commitment to partners, chan-nels, suppliers and buyers, creating long-standing rela-tionships through a commitment to customers. The next

step was to turn the company into an industry giant. ■

Global Focus: Nokia TargetsNiche Markets

In global competition, short product life cycles forcedcompanies to emphasize innovation, as well as to rec-ognize new opportunities and exploit them with bettertiming. Because of high R&D costs, however,economies of scale were critical.

Nokia’s leadership recognized that in this new environ-ment, the ability to segment markets and target nichesegments within those markets was a key success factor.

As Nokia saw a niche opportunity, it tailored its strat-egy to the narrow segment. Since the company wasfaster, more flexible and more responsive than its larger

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The Nokia Revolution — SUMMARY


Strategic Intent andSenior Management

In its attempts to move from old-style strategicplanning to new management and strategic meth-ods, Nokia’s leadership recognized that simple cost-cutting measures were not enough to compensatefor past excesses — the company simply had todevelop future-driven strategies. Nokia neededstrategic intent that would motivate every employee,not strategic memos drafted at headquarters for theinvestment community. Nokia’s then-current capa-bilities and resources would not accomplish this.

In addition to restructuring efforts designed to cutcosts, Nokia focused on three key themes in its strate-gic intent for future competition — globalization,strategy and structure, and volatile environments.These phases involved competing for intellectual lead-ership, shaping and shortening migration pathsbetween current and future markets and industrystructures, and competing for market power and posi-tion as new opportunities helped form new industrystructures.

As part of developing a strategic intent, Nokia’sleadership had to create a sense of urgency in amanagement environment that was, at best, skepti-cal. Titles were not important — teamwork was.Nokia challenged its managers to rely less on actualresources, concentrating instead on buildingresourcefulness, just as it had to exploit the pace atwhich new competitive advantages had to be built todeter rivals. Japanese companies in the 1970s and1980s were able to create new global brand fran-chises in this manner; Nokia was eager to followtheir example.


Strategic Intent: New Customers, New Rules(continued from page 2)

competitors, it could use its niche to gain access to theentire market. In the course of this competitive effort,Nokia moved from low-end to high-end markets; whileit kept many of its defense and government contracts, italso targeted customers around the globe as its cellularproducts got smaller and more popular.

How to Lead GloballyFor Nokia’s leadership, global growth strategies for

companies in its high-technology markets encompassedseveral critical determinants, each of which precipitatedNokia’s success in global wireless markets:

● Set global objectives and enter lead marketearly. Fast-growing challengers establish global orien-tation and objectives prior to the start of a high growthphase; they enter lead markets during the earliest phas-es of their evolution.

● Exploit industry shifts. Global challengers exploitfirst-mover advantage, optimizing industry shifts andachieving fast-paced growth.

● Develop global products. Global challengers mustdevelop innovative, high-quality products and achieverapid geographic spread for those products.● Build selective, functional foreign investments.

Global challengers must accumulate selective foreignassets and closely spaced investments, in order to sus-tain their competitive strategies.

● Nurture global coordination and learning.Global challengers must nurture global coordinationand increase learning, distributing skills and developingglobal functional networks and a global mindset. ■

Strategic Market-Making By 1999, Nokia was comprised of three core business

groups — Nokia Networks, Nokia Mobile Phones andNokia Communications Products — as well as a corpo-rate research unit (Nokia Research Center, or NRC).While the company was well on its way to pioneeringthe mobile digital economy, its segment of “other oper-ations” (most of which were contained within theCommunications Products group) experienced a sub-stantial operating loss that year. As a result, Nokia’sleadership recognized that, to compete in rapidlyexpanding markets (such as the multimedia-enabledthird-generation systems, or 3G, market), it would haveto build new capabilities from scratch and prepare onceagain for organizational transition.

The company founded Nokia Ventures Organization(NVO), a five-part entity whose goals were to push thelimits of Nokia’s growth beyond the scope of its current

businesses and to introduce and develop new businessideas. The NVO consisted of Internet and home com-munications entities, a mobile display appliances entity,and two venturing units — each reflecting the conver-gence of wide-area mobile communications and local-area computing, creating innovative types of high-speedmobile multimedia services.

Nokia also leveraged strategic leadership through its“collective mind” — its executive board, creating a flatyet potent organizational structure that has served thecompany well in the fast moving environments inwhich Nokia has so remarkably excelled. In the year2000, the board consisted of chairman Jorma Ollila andeight chief executives, representing key strategic pointsthroughout the company. Because the board memberseach bring something unique to the table, the entity as acollective is able to refine Nokia’s corporate strategy ona continuous basis.

As Ollila and the board gained more experience inthe industry and began to ponder the transition fromtraditional cellular businesses to the mobile Internet,Nokia’s leadership aimed to create a “new managementparadigm,” designed to cope with developments andchallenges in the dynamic markets into which the com-pany was stretching. The paradigm combined twomajor schools of thought in strategic management:

The first school of thought was the resource-basedview, which focused on unique competencies.Companies that bought into this view competed by max-imal leverage of the competencies in current and/orfuture market spaces. The problems Nokia saw in focus-ing on this view alone were that it was too slow, toodriven by past performance, and too focused on history.

The second school of thought was the market-basedview, which focused on the most attractive industry seg-

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Global Focus: Nokia Targets Niche Markets(continued from page 3) Rising Tigers, Falling Dragons

Nokia’s global strategies in the mid-1990s wereshaped mostly by the global business paradigm ofstrategist and consultant Jean-Pierre Jeannet.Jeannet noted that, in changing environmental cir-cumstances, old-style vertical giants (or “dragons,”in Jeannet’s parlance) had been descending, whilenew-style horizontal players (“horizontal tigers”) hadbeen ascending. The horizontal tigers would dictatethe future, he wrote, because companies would haveto carefully pick the businesses they want to global-ize — thus the shift from broad-based, unfocusedbusinesses to niche companies focused on the glob-al imperative.

ments. Companies using this view compete by differen-tiation, low cost or focus.

Taken separately, neither view could meet the fullrange of Nokia’s needs; when employed as a combina-tion — as part of the company’s market-making strate-gies — Nokia’s leadership found a paradigm that couldtackle head-on the new management challenges facedby global companies in fast-changing markets. Theapproach would allow the company to focus on bothforesight and execution, and to compete by timing andspeed — essential aspects for Nokia, which wanted tolead in rapidly evolving mobile cellular markets. ■

“Nokians” and HumanResource Management

Nokia’s strategic intent would never have succeededwithout its people; thus, the company has treatedhuman resource management (HRM) issues as strategicissues, with the same focus it has used to tackle global-ization and innovation. At Nokia, HRM encompassesvalue activities such as recruiting, hiring, training,development and compensation; it also supports busi-ness and corporate processes and the entire value chain.While the company struggled at first with inconsisten-cies arising from the dispersion of HRM activitiesthroughout the company, it joined its internal forces inthe effort to maintain four key values:

1. A drive to achieve customer satisfaction2. Respect for the individual3. Willingness to achieve and belief in continuous

learning4. Encouraging sharing (information and respon-

sibility) and openness (to each other and to newideas)

Nokia believes that the combined competencies ofthe whole organization, its operational mode, and effi-cient processes, serve as the foundation for future suc-cess and growth. This manifests itself in many ways:daily work is often carried out in cross-functionalteams; social interaction skills are stalwart course mate-rials in the Nokia Learning Centers; feedback is solicit-ed from employees, and is acted upon.

Nokia also engaged its “Nokians” to identify criticalchallenges for companies operating in a rapid-growthenvironment, challenges that hold particular importancefor Nokia. The challenges they identified were as follows:

● Create organizational conditions for rapid growth.Nokia must maintain its entrepreneurial spirit, creating anorganizational structure that enables the expansion andincreased number of employees that growth requires with-out slowing or stifling core processes.

● Don’t recruit — marinate. Recruiting criteriashould be kept clear. Employees must be aligned quicklywith the processes and values of the company and mustbe able to deal with the kinds of unpredictability anduncertainty that accompany rapid growth. This alignmentshould be forged by team training at the beginning andend of orientation — a “marinating” that eliminates theboundaries between “work” and “learning.”● Reinforce humility. The history of the cellular

industry is one of cyclical successes and failures. Ascompanies boost their capabilities, it is easy for rigidityand, eventually, arrogance, to slip into the organiza-tion’s operations, rendering it vulnerable to quicker,more innovative, less arrogant competitors. Nokians aretrained to recognize external changes and respond rap-idly to them; they are also trained to respect humilityrather than arrogance. ■

Nokia’s Global R&DIn most companies, research and development (R&D)

encompasses a range of activities, reflecting efforts toimprove products and processes. At Nokia, R&Dapplies across the entire value chain, rather than just thetraditional engineering department, influencing both theupstream (operations, logistics, new product develop-ment) and downstream (marketing, sales, service)processes in unique and strategic ways.

Nokia’s R&D activities increased steadily throughoutthe 1990s, even as the national innovation system in thecompany’s home country of Finland also increased (upto 3 percent of GDP by 1998); indeed, it can be said thatthe growth of Finnish R&D was, for all practical purpos-

es, driven by the expansion of Nokia. Nokia’s innovationstrategies integrated R&D into the entire corporate struc-ture, across business units and particularly at the NRC,where its many innovation-related activities embodiedthe entrepreneurial spirit of a small organization expand-ing to meet the needs of the global environment.

Nokia often spends less on R&D than its rivals. At theheight of its focus on cellular technologies, Nokia spentbetween four to seven percent of its revenues on R&D,far behind the 16 percent investment made by closecompetitor Ericsson by the end of the 1990s. WhatNokia’s R&D efforts lack in comparative funding, theycompensate for in efficiencies in leveraging and exploit-

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Strategic Market-Making(continued from page 4)

PART II: TOWARD THE MOBILE INFORMATION SOCIETY

ing new knowledge. The company’s R&D strategy wasto develop generic platforms that could be quicklyadapted to different standards. Nokia also chose tofocus on software development, the primary value-added component in a handset. This allowed Nokia toconcentrate its R&D on high-margin, high-quality prod-ucts, while selling older models to the low-end market.

Nokia’s global network of R&D outposts also distin-guishes it from many of its competitors. Whereas in thepast, many industry leaders have located their R&D activi-ties in their home base, close to where strategic decisionsare made, by the end of the 1990s, many established R&Dnetworks were housed in foreign countries, to tap valuablewells of knowledge and/or address needs specific to thatmarket. Nokia is no different although, considering the suc-cesses for which their network has been responsible, thecompany has not released information on the location or onits key R&D programs, due to competitive interests.

When selecting new R&D sites, contemporary globalcompanies tend to find it helpful to carefully articulatethe primary objective of each site. While Nokia’s R&Dexpenditures have been dwarfed by competitors likeEricsson, its successes have come because each site hasdeveloped objectives based on a radical approach, onethat relied on three central tenets:● Focus on applied science. Throughout the 1990s,

Nokia’s R&D became increasingly focused, practical,and applied, and continued to be extended globallythough networked research communities and intensifiedcollaboration.

● Diverse base of suppliers and partners. The impor-tance Nokia placed on platforms triggered a wide array oftechnology and standards coalitions, mirroring an indus-try-wide push toward using an increasingly diverse baseof suppliers and partners to foster innovation.

● Tightly knit teams. Industry leaders often formtightly knit teams of experts to develop new generationsof major products and processes, teams that provide aknowledge center and continuity over several genera-tions of products. At Nokia, the significance of theexecutive board, as well as key product process andcustomer commitment teams, has been extraordinary.

The team aspect of Nokia’s R&D efforts are of par-ticular interest. The common denominator of Nokia’sR&D stems from concurrent engineering efforts inwhich product development, sales, and production unitsact in cooperation, from the beginning of a project to itsconclusion. For example, when product developmentbegins, so does marketing planning; sales is alsoinvolved, explaining how features might be embedded

in a product, to make it easier for customers to use.While these different business units might approach

R&D from different angles, the R&D process chainitself consists of three phases:

1. Research and technologies (the initial genericdevelopment level).

2. Technology and platforms (defining goals andlooking beyond immediate product development).

3. Concurrent engineering (focusing advanced prod-uct development on creating products that fulfill cus-tomer needs. This approach is intended to cause develop-ers, from the outset, to consider all elements of the prod-uct life cycle, from conception through disposal). ■

Upstream InnovationWith a process chain that was designed to satisfy

existing and potential customer needs, Nokia has beenactive in both upstream and downstream innovation. Itsupstream efforts have been focused not on technologyinnovation (which has been more prominent for com-petitors like Ericsson and Motorola), but in the buildingof new capabilities and the leveraging of strategic stan-dards coalitions.

Building New CapabilitiesNokia’s approach to creating and sustaining its vision

of the mobile information society has always followed asingle motto — “Look at the next challenge.” For exam-ple, the company’s efforts to develop a portable machinethat could utilize Internet and computer technologies (firstseen in the Nokia Communicator in 1996) stemmed fromNokia’s ability to build new capabilities by doing threekey things: managing development capabilities, movingfrom development to product usage, and fostering growthopportunities that emanated from those efforts.

In the turbulent cellular environment, superior man-agement of development capabilities was Nokia’s keyto competitive advantage. Development projects in mostcompanies tend to fall into one of five categories:

● Applied research or advanced developmentprojects. These projects aim at inventing new scienceor capturing new know-how for application in specificdevelopment projects.

● Alliance or partnered projects. These projects findthe company “buying” a newly designed product and/orprocess from another firm to leverage in-house develop-ment efforts. Nokia’s efforts with Bluetooth, Symbian,and others are an example of a partnered approach.● Breakthrough development projects. These proj-

ects create the first generation of an entirely new prod-uct and process, breaking new conceptual and/or tech-

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Nokia’s Global R&D(continued from page 5)

nological ground for the company, as theCommunicator did for Nokia.

● Platform or generational development projects.These projects typically have a design life of severalyears and establish the basic architecture for a set ofderivative projects to follow.

● Derivative development projects. The projects,such as Nokia’s niche product lines, tend to be signifi-cantly narrower in scope and resource requirementsthan platform projects.

Nokia, like many other technology companies, under-stands that long-term success depends on the sustainedability to build on excellent products, a capabilities-to-development continuum that is fueled by great people, aswell as through what it termed “transformational acqui-sitions.” In the late 1990s, Nokia proceeded through thisdual development of capabilities in five phases:● Assessment of acquisition needs. These predevel-

opment investigations (of market, technologies, etc.)made use of information available through externalchannels (venture capitalists, customers, channel inter-mediaries, etc.).

● Expansion of due diligence. In this phase, Nokiaidentified potential targets and defined capabilityrequirements● Integration and retention. In this phase, Nokia’s

focus moved to the internal organization (on suchissues as cooperative work efforts), in order to integratethe target company into Nokia’s capabilities and toretain key employees.

● Development projects. Nokia’s focus shifted inthe fourth stage to individual projects seeking to meetgoals on timing, budget, and performance.● New product introductions. In this last phase, the

role of the business unit diminished as focus shiftedtoward introducing new products into the marketplace.Conversely, other units (logistics, marketing, etc.)began to play a larger part.

It was this view of acquisition that would motivateNokia’s interest in Silicon Valley in the late 1990s, ele-vating their investigation of and investments in newbusinesses and technologies by establishing the NVO, aseparate organization running parallel to the company’sother three core business groups, whose purpose was tofoster growth opportunities beyond the scope of theexisting business groups. The NVO sought to developareas with growth potential over a five year period,exploring new business areas facilitating future growthand boosting Nokia’s product and business develop-ment in key areas, including the Internet, mobile dis-

play appliances, and multimedia terminals.

Standards CoalitionsNokia’s other upstream strength lies in its develop-

ment of and participation in standards coalitions; indeed,over time, the company has co-opted rivals into strategicalliances and identified key technologies that have led tothe creation of key coalitions, including the following:

● Symbian. Nokia cobbled together a coalition of itsclosest competitors, along with palmtop softwaremaker Psion and electronics giant Matsushita, to foundSymbian, a company designed to speed up the evolu-tion of wireless information devices. In the course ofSymbian’s development efforts, Nokia took a dominat-ing role in the creation of such future-looking terminalsas featurephones, smartphones and communicators.

● Bluetooth. Nokia also co-launched this consortiumfor wireless connectivity, which consists of nearly1,200 active members, aiming to create an open stan-dard for short-range communications between differentelectronic devices.

● WAP. The Wireless Application Protocol is thecommunication standard that allows mobile phones tohave access to the Internet. This standard came aboutas a result of cooperation between Nokia, Ericsson, andMotorola, but it was Nokia’s active leadership in devel-oping the standard that enabled it to bridge the gapbetween second- and third-generation markets.

In technology sectors, complexity requires coopera-tion. Nokia obtained from external sources those com-plexities that had become too costly in terms of strate-gic flexibility and financial resources. They expectedtheir coalitions to unlock benefits unobtainable throughinternal means, or by simple mergers. In particular, thecompany sought five kinds of benefits:

● Access to expertise. Strategic coalitions enable theparticipants to acquire, pool, or sell access to the knowl-edge or ability to perform activities. For Nokia, access

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Upstream Innovation(continued from page 6)


Nokia’s R&D MisstepSince the 1980s, Nokia’s R&D has played a criti-

cal role in executing the company’s strategic intent,especially in scenarios for the future. The compa-ny’s successes, however, were not achieved withoutsome failures.

One of those was “Nokia Future Watch,” a state-of-the-art strategy and knowledge-creating projectvital to the NRC. The failure of this project illus-trates the fact that companies must sometimesgamble on the future in emerging markets, andthat, sometimes, that gamble does not pay off.

to knowledge likely contributed to its involvement withSymbian, which allowed the company to catch up withhandheld technology leaders.● Scale economies and learning. Pooling volume

serves to raise the scale of the activity or the rate oflearning about how to perform over that of each compa-ny operating separately.

● Shaping rivalry. Companies employ coalitions tohelp others entering an industry to develop a technolo-gy that would affect its competitors’ business, or toshape competition in their favor.● Risk reduction. Because no single partner bears

the full risk and cost of the coalition activity, such part-nerships provide attractive mechanisms to reduce risk.

● Upstream standardization. This benefit wasunique to Nokia, in that, by initiating upstream coali-tions and promoting open standards built on external-ization, Nokia has weakened its competitor’s strengths(upstream innovation) while increasing its own (down-stream innovation). ■

Downstream InnovationIn anticipation of new products and markets, Nokia

does not proceed from upstream to downstream process-es (technology over customers), but from downstream toupstream (customers over technology). Two key areas inwhich this approach is evident are in the company’sstrategies on market segmentation and branding.

Market SegmentationFrom the beginning of the cellular era, Nokia

excelled in product and market segmentation, becausethe company listened to its customers, anticipated needsand met them head-on. In this customer-focusedapproach, marketing strategy has played a critical role,in terms of the type and timing of segmentation, partic-ularly in the following areas:

● Lifestyle. Nokia’s market strategies have beenfocused on researching how their customers use theirproducts in real life situations. Only by listening to andunderstanding its customers can the company obtain thespecific information needed to differentiate its productsfrom competitors on the basis of usage and needs.

● Design. Using its unerring focus on the needs of itscustomers, Nokia developed creative product designsthat fulfilled those needs, enabling buyers to gain realbenefits from those products.

● Technology-Adoption Life Cycles. In transitioningbetween upstream and downstream activities, Nokia

found it had to deal with a chasm framework focused onthe gaps between different life-cycle markets: movingfrom business-to-business to consumer markets, andmaintaining its industry leadership by creating new prod-uct generations. Nokia bridged the chasm by developing amodel of its target customers, then developing strategiesto capture the lead segments in each target, enabling theirproducts to “trickle down” to other segments as well.

BrandingEarly in the cellular age, Nokia’s key branding objec-

tive was to make its mobile phones a global brand prod-uct, with the key messages being inspired technology,ease of use and durability. It — like such brand leaders asNike, Daimler-Benz, and Phillip Morris before it — mar-keted its products as a single brand, considering the brandin every aspect of the value chain, from design to produc-tion to distribution. Such a holistic approach to brandingdictated that Nokia would have to penetrate its entireorganization with its unifying branding message.

By attempting to brand its entire company, Nokiafocused on several distinct strategic endeavors, includ-ing the following:

● Listening to the customer. The point was not how acertain technology worked, but whether or not it con-tributed to customer satisfaction. Cellular standardswould change and shift, but brand awareness would not.● Consistent look and feel. Nokia’s branding made

sure the look and feel of its mobile phones would bethe same worldwide. Although each market had its ownunique requirements, there were sufficient similaritiesfor a single, unified approach to branding.

● Communicating humanity. Rather than focus onthe technical features of their products, Nokia sought tocommunicate in its branding the emotional benefits ofpurchasing a Nokia product. Their phones were “mosthuman,” “designed for you and I,” etc. ■

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Upstream Innovation(continued from page 7) Standardization and

Downstream InnovationUnlike some of its key cellular rivals, Nokia has opted

not to run its own semiconductor production, choosinginstead to purchase components from outside vendors.While the company has been able to avoid the heavyexpenditures and risks inherent to semiconductors, it isnevertheless more vulnerable than its competitors todistribution and market fluctuations.

This decision is, however, typical of Nokia’semphasis on downstream innovation, at the expenseof upstream innovation; while its rivals have devel-oped new technologies, Nokia has been more intenton listening to its customers.

the nokia revolution

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