GRIN - A Strategic Exploration of Nokia's Success (2024)

Table of Content

Preface

Nokia’s Strategy Process
Nokia’s Rise in the Telecommunication-Sector
Nokia’s Knowledge-Competence as means for Innovation
From Internal to External Capabilities

Strategic Drifts and the Understanding of Inflection Points

Forecast and Challenges for Nokia

Finale

References

Preface

Nokia’s became in a few decades a global player and market leader in the mobile phone sector, its achievement is based on exclusive strategy decisions which this working paper attempts to explore. Nokia managed to overcome its path dependency and redefined itself continuously until it became a world leader in its core businesses; mobile phones and network equipments. Nokia started its evolvement as wood company for nearly 150 years and Nokia’s business portfolio covered amongst others power, cable, rubber, toilet paper, televisions, radiophone, radar et cetera until Nokia focused on its core businesses. The question we try to explore in this paper is; what were the strategic key success factors which enabled Nokia to become a world leader in telecommunication. The examination starts with the adaptive strategy process of Nokia and how the market circ*mstances leveraged Nokia’s rose and success in the communication industry in the 90s. In the next step we identify Nokia’s competitive advantage based on knowledge integration and strategic capabilities. In the course of the knowledge integration we analyse Nokia’s network strategy and its ability to understand early inflection points to survive the slowdown in 2000. Finally, we consider some hazards for Nokia and proof its sustainability through its latest innovative progress.

Nokia’s Strategy Process

Nokia’s roots go back to the year 1865 in Finland, when it was founded as Forest Company. Later on, the Finnish Rubber Works (1898) and the Finnish Cable Works (1912) joined and assembled the Nokia Group in 1967 (Häikiö, 2002). During this period Nokia changed its core businesses and strategy several times to divest from unprofitable and invest in more lucrative businesses. Engine of Nokia’s evolutionary strategy process was their dynamic strategy process and their refuse of the linear strategy process (Chandler, 1962; Cannon, 1968) where the world is rational and can be changed by the company/ management. Rather was Nokia’s strategy approach adaptive to the complex and changing environment and to assess the environment to benefit from emergent opportunities and risks (Chaffee, 1985). Thus Nokia challenged their paradigms, overcame its path dependency and evolved from a forest company to a global leading mobile phone producer. And still, Nokia is generating new worlds -conjecture strategy (Chaffee, 1985)- through its innovations in their handsets which customers use in unpredictable forms. For instance the Snake game in handsets became so popular that competitions are organised with rankings of the best scores. Further innovative features in handsets are: Short Message Service (SMS), video/ -camera, MP3 Player, Internet access, calendar et cetera which opened new markets for Nokia. This innovative and adaptive strategy approach helped Nokia finally to grow and succeed in the technology sector.

Nokia’s Rise in the Telecommunication-Sector

Nokia’s focus and victory in mobile phones and infrastructure is based on internal decisions as well as external conditions; which gave rise to Nokia’s competitive advantage. As main external reasons for Nokia’s success in the telephone sector identifies Häikiö (2002):

- the early deregulation of the Finnish telecommunication market
- the from Nokia developed pan-European GSM (Global System for Mobile Communication) mobile phone standard network expanded very fast
- the innovation of the cellular telephone and its triumphant launch as mass product

Through Finland’s early deregulation of the telecommunication sector in the 80s Nokia was able to make first experiences in telecommunication commercialisation and to develop innovative telecommunication technology. The new developed cellular technology consists mainly of the networks and of the handsets. The infrastructure is sold to the operator and the handset to the end-user. Nokia produced, designed and marketed successful these products in Finland. Basically is Nokia’s image built on its mobile phone marketing but its infrastructure business was sometimes more successful than the handset business. The reason is that Nokia set up the first GSM network in Finland in 1991 (Häikiö, 2002) and as the telecommunication deregulation in other European countries and America followed had Nokia already the latest technology and introduced it internationally. As the new network equipment and phones were based on the GSM technology, the GSM innovation became self-reinforcing (Porter, 1990); the need on the one hand and the constantly development on the other hand pushed the innovation process and helped Nokia to gain continuously market share.

The second major and today more essential business of Nokia is the mobile phone unit. At the beginning of the area in 1987 it was a niche market for businessmen but through the innovations it became lighter, smaller and cheaper and evolved to a mass product. Thus the second generation of cellular phones in the early 90s attracted late adopter businessmen and early adopter consumers (Rogers, 2003) but the real break through was the third generation of cellular phones in the mid 90s. According to Gladwell (2000) was the tipping point with an explosive demand caused by a strong network effect. The demand increased as more people in that network used it and the actual demand exceeded every forecast and Nokia ran into some supply difficulties to respond to this huge demand (Steinbock, 2001). The new handsets increased in technical features –mentioned earlier- and simultaneously, the network improved and increased the operating distance and security. In the mid 90s Nokia Networks was supplying its GSM system to 59 operators in 31 countries and was operating in every cellular standard system (Steinbock, 2001). In the same way has the number of cellular users increased from 23 million to approximately 506 million in the period from 1992-2001 (Leinbach and Brunn, 2002). As the popularity of mobile phones increased the price dropped simultaneously through the economies of scale -costs per unit decrease by increasing production- and the new market segment became more profitable. These new and fast growing markets leveraged Nokia to become an international recognised company and market leader.

Nokia’s Knowledge-Competence as means for Innovation

Nokia established successful its competitive advantage through its highly valued products, services and innovations. According to Grant (1996) is the competitive advantage based on strategic capabilities is more sustainable for a company than merely positioning (Porter, 1992). The reason is that positioning is imitable but strategic capabilities not because they are complex, causal ambiguity and historical evolved (Johnson et al, 2008). Strategic capabilities are based on knowledge integration whereby the integration process the linkage between knowledge and technology is. The competencies are founded on the different resources of the company (finance, human, technology, values, procedures etc.) and can be distinguished into tangible or intangible and threshold or unique (Johnson et al, 2008). The core competences of a company are built on the unique tangible and intangible resources because they lead to inimitable strategic capabilities and finally to the desired competitive advantage by its exclusiveness (Hamel and Prahalad, 1990; Grant, 1991). According to this approach Nokia built its product leadership through the successful knowledge integration and the flourishing knowledge assimilation grants Nokia the competencies to perform repeatedly high value creation and innovation for its customers. As complex the knowledge of a company becomes as difficult becomes its integration but protects the company from imitations through its uniqueness. In a global hypercompetitive environment (D’Aveni, 1994) a company has to be able to meet changing customer needs and thus has to renew and recreate strategic capabilities. As means to reinforce core competencies dynamic capabilities are the base (Teece et al, 1997). In comparison to knowledge integration generate dynamic capabilities new knowledge and reconfigure existing knowledge through “architectural-innovations” (Abernathy and Clark 1985). Henderson (1995) defines architectural innovations as the “integration of knowledge across disciplinary and organisational boundaries within the firm”. Typical examples for Nokia are the integrated camera, video camera, Internet access et cetera. In this context is the convergence of industries considerable (Van den Berghe, Verweire, 2000); especially for Porter’s (1980) five forces model because the definition of an industry becomes more complex if they change their activities and technologies. Nokia as mobile phone producer is now, through its camera and video features, competing with camera producers like Kodak. However other companies take advantage through their economies of scope –the reusing of knowledge- like Sony who has already produced cameras and started to integrate them into their mobile phones. Hence Nokia expanded its knowledge resources in the telecommunication sector by creating a joint venture with the radio telephone company Mobira Oy in 1979, reinvested heavily in R&D and created a learning culture inside the organisation (Senge, 1990; Mullins, 2002). Today, Nokia has R&D research centres in 10 countries and the R&D expenses are 11 per cent from the net sales (Nokia.com, 2008; Erkinheimo, 2007). The vision of Nokia reflects this apparently, “Nokia connects people in new and better ways” (Nokia.com, 2008). These investments are essential to sustain Nokia’s competitive advantage because the product life cycle of handsets is usually less than one year (Leinbach and Brunn, 2002). Additionally, seeks Nokia further differentiation by expanding its service businesses. A significant tool for companies to identify strategic capabilities is the value chain (Porter, 1985). It identifies important activities, profit pools and cost drivers and helps the management to understand its value creation. A company should eliminate cost drivers by outsourcing or off shoring and focusing on its profit pools. Hence the new CEO of Nokia in 1992 made the strategic decision to focus on the core competencies mobile phones and telecommunication systems and divested all other businesses.

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