A Strategic Exploration of Nokia's Success

Table of  Content  

  Preface  3

  Nokia s Strategy Process  3

  Nokia s Rise in the Telecommunication-Sector  4

  Nokia s Knowledge-Competence as means for Innovation  5

  From Internal to External Capabilities  7

  Strategic Drifts and the Understanding of Inflection Points  9

  Forecast and Challenges for Nokia  10

  Finale  11

  References  12

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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 circumstances 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

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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):

N the early deregulation of the Finnish telecommunication market

N the from Nokia developed pan-European GSM (Global System for Mobile

Communication) mobile phone standard network expanded very fast

N 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

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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

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