Nokia: innovator extraordinaire

This case study examines how Nokia utilised hard-to-copy organisational processes to continuously innovate, repeatedly staying a few steps ahead of its competitors.

Nokia, a company that takes its name from a small river outside the Finnish city of Tampere, began life in 1865 as a wood pulp and paper producer. Over its history, it has manufactured rubber boots, tyres and television sets and generated electricity. Nokia found its way into telecommunications in the early 1960s. Since then, in a mere 40 years, Nokia has developed and refined its telecommunications focus, and by concentrating on mobile communications it has become a global technology leader and the world’s fifth most valuable brand.

Nokia’s results speak for themselves:

• In 2000, Nokia sold 128 million phones, with sales of $26.1 billion and pretax profits of $5.25 billion.
• By August of 2001, Nokia had 35 per cent of the worldwide mobile phone market, with almost three times the volume of its nearest rival Motorola.
• Further, Nokia’s margins were dramatically better than those of its competitors. Nokia’s 20 per cent pretax margins – about $28 per phone – put Motorola’s 2 per cent margin – less than $3 per handset – to shame.

How has Nokia thrived in this admittedly cutthroat industry, in which most competitors have fared less well? ‘Superior processes’, says telecom expert Andrew Tausz.13 ‘Namely, processes that allow for and encourage innovation.’ Nokia’s support for innovation comes in two key areas: people (and the capabilities they bring) and corporate venturing.

Acquiring capabilities

In any technology-focused company, having the right human capital is a necessity. Not only did Nokia need clever people with experience and creativity, but the company also looked for people who fit within Nokia’s culture. Because the knowledge and capabilities they needed were not available at home, in a country of only 5 million people, Nokia had to attract and develop skills from abroad.

Nokia’s human resource policies and processes played a vital role in attracting the best and the brightest. The company’s human resource management included a rigorous and extensive interview process and team-based compensation methods. The company’s culture, including the organization’s structure, learning environment, team focus and job flexibility also contributed to Nokia’s human resource acquisition and retention.

The result, according to Dan Steinbock, whose book chronicles the Nokia revolution, was that Nokia acquired ‘the most technologically savvy individuals in all of Scandinavia’. Put simply, Nokia was a great place to work. Nokia’s human resources policies and culture worked with its structure and organizational processes to keep new ideas alive.

Nokia also prided itself on being a learning organization. Employees were encouraged to be inventive and to share ideas. ‘If you have a good idea at Nokia, it will be hard to find someone who will stop you’, said Marcus Kajanto, corporate manager of strategy development. Such an environment was attractive to just the types of people Nokia wanted – inventive, motivated, team players.

Exceptional organizational processes

Innovation is imperative to staying afloat in the business world, especially in high-tech businesses. But promoting innovation in a large company can be cumbersome. For Nokia, like other growing organizations, the challenge that faced the company was how to stay innovative as it grew. ‘You can’t force people to be innovative; you can foster it, encourage it, nourish it, but you can’t force it’, said Nokia’s senior vice-president for corporate communications Lauri Kivinen. ‘It’s a spirit of trying to think outside the box, trying to look around the corner, trying to imagine the outcome of a chain of developments’, says Kivinen, who adds there is no secret formula to the company’s success. ‘It has to be something that is nurtured all the time; you allow mistakes, allow people to take bold moves, you try to spread energy.’

But talk is cheap. It’s easy to say your company will remain innovative, but how has Nokia really done it? Processes are its key, and some of Nokia’s key processes are those in the Nokia Ventures Organization (NVO), the company’s formal approach to fostering, encouraging and nourishing innovation. The NVO was created to develop new business opportunities that fell outside of the current focus of Nokia’s core businesses.20 The NVO sought to develop both internally generated projects as well as external projects. Once ideas were developed, either they were moved into one of Nokia’s business units or they were sold.

To implement such a strategy, the NVO had a collection of corporate venturing tools and capabilities. In particular, there were four specific initiatives for driving innovation and developing new businesses:

• The Insight & Foresight group identified disruptive technologies and developed new business models for Nokia.
• The New Growth Businesses group took business ideas and made them a reality, transforming them into sustainable businesses.
• The US-based Innovent was a team that collaborated with external entrepreneurs to offer expertise and resources that helped clarify their visions and could accelerate the process between concept development and commercialization in emerging areas of interest to Nokia.
• Finally, the organization’s Nokia Venture Partners (NVP) raised capital from Nokia as well as from external investors to invest in mobile telecommunications and related start-ups.

Processes tough to imitate

Nokia’s innovation processes were unique to its culture and difficult to imitate. The NVO allowed the company to concentrate on its core businesses while simultaneously nurturing innovation as efficiently as a smaller company. Further, with an organization like the NVO, Nokia could alter its innovative processes easily. If the company felt it should concentrate on internally developed ideas, then the NVO could direct funds to internal projects. On the other hand, if Nokia wanted to look outside the company for ideas, then the NVO could direct monies elsewhere. This kind of flexibility is difficult to establish and maintain in most large, international companies.

Distinctive advantage can result from superior organizational processes and capabilities, as the Nokia case history demonstrates. The results for Nokia were outstanding performance compared with that of their industry peers. Will Nokia’s superior performance continue in the topsy-turvy world that is telecoms today? Time will tell, but 135 years of continuing adaptation suggests that Nokia has long been a very good bet.

Lessons learned from Nokia

Entrepreneurs who can build superior organizational processes and capabilities into their companies can, like Nokia, maintain distinctive advantage over their current and future competition without patent protection. Nokia’s processes for attracting and retaining skilled people and for managing innovation enabled the company to remain innovative and agile, even as its organization grew quite large. Thus, one thing entrepreneurs should think about in assessing an opportunity is whether the opportunity offers ways in which hard-to-imitate processes and systems can be built that can keep the new firm at least a few steps ahead of its current and future competitors.