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NOKIA, 10 YEARS AFTER THE STRATEGIC MOVE

«A Consistent Record of Strong Business Execution»

AN INTERVIEW WITH JORMA OLLILA, CEO

By Jorge Nascimento Rodrigues, in Espoo, Finland

The Book at Amazon.com - Nokia, The Inside Story

Jorma Ollila became CEO of the Nokia Group in January 1992, following is success at the Mobile Phones Division and also in the financial side as vice-president. He was de facto elected in December and presented a memo with strategic ideas for Nokia's future development to Board Members of the group. In the memo he pointed the new core business areas - telecommunications and mobile phones. And talked of divesting from historical areas of the conglomerate (paper, tires, cables, consumer electronics like TVs). His strategy was to focus and "dismantle" the conglomerate logic followed since the formation of the group in the twenties.

Ollila was 41 at the time and have only 6 years of Nokia. He moved over to Nokia in 1985 coming from Citibank that opened offices in Helsinki where Ollila was placed as part of the team. The young Ollila received a scholarship to study at Atlantic College in Wales (UK) at the age of 17. Then he studied political sciences and economics in Helsinki and take some master degrees, including one from the London School of Economics. He began his professional career at Citibank in the City of London.

After 10 years of leadership of Nokia group he appeared in the cover of Business Week, Wired and Fortune, for instance. Nokia is now the 5th most valuable brand in the world. It's the only one outside of US in the 10 world's most valuable brands ranking. Sales are 25% of Finland GNP and its market value is 100% Finland GDP. Its market value is more than the double of Ericsson from Sweden that tried to buy Nokia in 1991. Since 1998, Nokia is the world leader in mobile phones, a market for more than 420 million a year, 4 times the PC production and 8 times the auto output.

Nokia oldest original company was established in 1865 in the forest business near a river called Nokia in the city of Tampere, and later moved to the small city of Nokia also in the river of the same name. Nokia name comes from a dark, furry rodent, member of the weasel family! The official merger of the three original companies was only in 1967.

Why Nokia decided to focus on a new area in the 90's, out of its historical Finnish roots?

There are several factors behind the new strategy. Nokia had a background in telecommunications since early 1960's - so we were not totally new in this business area. Also, deregulation of operators opened competition in the field of telecommunications equipment, previously controlled by national telecom monopolies. Thirdly, analogue communications technology gradually gave way to digital tech, enabling operators to offer a host of new services and creating steadily expanding market. Finally, pan-European GSM networks first introduced in 1991 grew rapidly both in geographical scope and in functions offered.

Why the group decided to go for a global strategy, out of Finland?

Finland is such a small marketplace that Nokia as well as other Finnish companies had to seek growth beyond their home borders. It was important that also, in the 1980's, the deregulatory political winds out of the US and the United Kingdom introduced competition to the telecom operator sector that previously had been controlled by national monopolies. New operators quickly adopted the latest tech, forcing established operators to react by upgrading their networks and systems. Combined with the introduction of GSM, this provided equipment manufacturers with a growing market.

Our secret? The strong value base, straightforward thinking, fast decision-making and open company culture, which allow for both long-term vision and high flexibility, even in turbulent conditions.

Despite born in the "wrong" place - as said by professor Yves Doz of INSEAD in his study about metanational companies -, Nokia outperformed the incumbent manufacturers in US, Europe (Germany and Sweden for instance) and Asia in the last decade. What was the secret?

There is never just ONE reason behind the "secret", but I want to highlight the following: the strong value base, straightforward thinking, fast decision-making and open company culture, which allow for both long-term vision and high flexibility, even in turbulent conditions.

And what were the basic principles followed in Nokia operations?

The constant and vigorous investment in research and development - around 10% of group sales -, as well as design and changing the product portfolio by simplifying the technology and allowing economies of scale in production. Also, Nokia has a consistent record of strong business execution.

May be the American readers will be interested to know that the Nokia Design Center was established in 1995 in Los Angeles and was lead by Frank Nuovo, a designer from Monterrey... But, in the present situation, with a storm menacing telecom industry (bear stock markets, collapse of some big companies, huge indebtment of operators) and the apparent advantage of Japanese standard DoCoMo, how Nokia see the next future?

The competition has always been tough, it is tough today and it will be tough tomorrow. But, we have always been very careful to keep a tight lid on costs, and while the current market environment has had inevitable impact on our top line growth, we have continued to translate our core strengths of strong brand, excellence in execution and winning products into profitable results and a strong cash flow position.

You expect a lot from the new growth phase in the mobile paradigm?

The mobile industry has been in a transition during the past 18 months as voice growth has slowed down and the new data driven products or services have not yet reached mass-market maturity. However, this autumn of 2002 we start to see the mass-market emergence of the new mobile paradigm, which will accelerate from 2003 onwards. These new devices and services are being rolled out as we speak, and we have strong confidence in their potential and attractiveness. We see ourselves as very competitively positioned to lead the industry into the next mobile communications growth phase.



NOKIA BY ITS HISTORIAN

«The Secret? Flexibility, Flexibility, Flexibility»

Say author Martti Haikio

Nokia-The Inside Story was just published in London by Pearson Education by arrangement with Nokia and the Finnish Edita Publishing. The book is authored by Professor Martti Haikio, professional historian and senior lecturer at Helsinki University, who studied the company in the last five years, since the Board of Directors decided in January 1997 to commission a corporate history that would tell the full story from the beginning till today.

The complete history was published in Finnish at the end of 2001 by Edita as Nokia Oyj:n historia, comprising three volumes: The Merger, covering the evolution from the three original companies since the first one was founded in 1865 to the development of a conglomerate, until 1982; Sturn und Drang, covering the global conglomerate strategy and the internal turbulence from 1983 to 1991; Globalization, the story of Nokia's emergence as a global focused telecom company from 1992 to 2001. Haikio was given free access to Nokia personnel and documents for his research and reveals some confidential memos that give some light about the strategic moves and debates inside the group.

Martti is 52 and have published more than tem history books, lately about telecom revolution, innovation and telecom industry.

"This book was been written for two purposes. First: Nokia is the market leader on mobile phones and this is the first real history book based on company archives, interviews and academic critical judgement. Second: to understand the ongoing third industrial revolution we must understand one of the key industries, telecom sector, and the transformation of old Finnish paper producing company of the XIX century to become the global leader in that new field.

The true secret I found was the flexibility to adapt to the radical changes in environment in the past 137 years - world and civil wars, regulation and deregulation, new innovations, birth of EU and globalisation, etc. Of course the main reason is that there has been NO BANKRUPCY - any company must be profitable to survive in the long run.

The most critical period was 1991. The consumer electronics division (TV production) was making huge losses, the profitable Soviet market collapsed, there began a deep recession in Finland and a milder one in Western Markets, the corporate governance structure of the company was in deep crisis, the owners were contemplating to sell the company...

Finland became the lead market in mobilewear because for historical reasons we had two independent telecom camps - one state and the other private - to start competition in the mobile phones operating when deregulation reached ours shores.

Brand of Nokia is world wide, very positive and modern. It has strengthened the international image of Finland as a modern high-tech industrial society".


Professor Haikio can be contacted by email at martti.haikio@kolumbus.fi



SEVEN LESSONS FROM NOKIA

A Testimony by Professor Erkko Autio, a Finnish specialist in "born global" companies

«In Nokia, humbleness is almost a religion. By being humble you can stay nimble and avoid becoming arrogant. This may turn out to be the most difficult lesson of all to follow in the long-term, as you start becoming more successful»

Erkko Autio is a Professor at Technology University of Helsinki and a specialist in born global companies and the new internationalisation strategy theory.

"Unlike often believed, the strategy change in Nokia from a toilet paper, industrial rubber, and rubber foot manufacturer actually started early on. The first strategy meetings to discuss Nokia's long-term future were held in early 1960's.

My predecessor, professor Martti M. Kaila remembers receiving invitation from Nokia's then CEO to discuss Nokia's future options. He and many others were taken to a large room with a bright green carpet. There were no chairs. Their instructions were: "you cannot come out from this room before you have a proposition for a long-term strategy for Nokia".

So these wise men out their heads together and decided that Nokia's future would be in electronics. This decision led the company to start its phone modem division in the 1970's, thereby paving the way for Nokia's future transformation that was carried through at ever more hectic pace starting from 1980's.

This transformation did not happen without mistakes, even major ones. Early on, Nokia thought that it should compete in consumer electronics business. Hence their acquisitions of TV manufacturing plants in Germany, for example, in mid-1980's. These moves were disastrous and almost destroyed the company. By the end of 1980's Nokia was in deep crisis.

Industrial clusters and cluster policies were not widely recognised and understood at that time. But the fact was that Finland's had been one of the worlds's most sophisticated and deregulated telephone operator markets for well over a century! The per capita telephone density in Finland has always been among the very highest in the world. Already in the 1910's there were some 300 independent regional phone operators, so the conditions for sophisticated demand and local competition were there.

Yet, Nokia more or less stumbled, almost accidentally, on mobile phones. In this it was greatly helped by the introduction of the world's then most sophisticated common standard for mobile phones, shared by the Scandinavian countries, the NMP (Nordic Mobile Phone standard). This was a crucial thing, since it created early critical mass for Nokia to develop and market its mobile phones to. The rest is history.

So, what can we learn?

1. You must have a clear will and lots of ambition. Nokia possessed both of these, lots of each.
2. Particularly if you are established player with a long history, you must be prepared to change, to carry out even painful restructure and cuts when necessary. Nokia's technological transformation stands without parallel in European industrial history, but it was not an easy one. You must have lots of determination and will to implement your long-term strategy
3. You must have a long-term view indeed. Unlike often thought, Nokia's strategy considerations were initiated already in early 60's.
4. You must be prepared to pay for your mistakes and learn the hard lessons. Nokia's attempt to become a dominant TV manufacturer almost destroyed the company. To that date, Nokia committed some of the largest mistakes in the Finnish industrial history.
5. You must have a charismatic leader that can see the changes through. Nokia possessed one, Kari Kairamo. But the transformation was not easy: exhausted by the vast undertaking and depressed by his mistakes in the TV industry, Kairamo committed suicide in late 80's.
6. You must have your share of good luck and be in the right place at a right time. Nokia was lucky to enjoy the proximity of a sophisticated market for telephony, and the NMP standard gave it early lead in the mobile phone market. A later stroke of luck was GSM, in which Nokia was also able to steal early crucial lead,
7. You must be humble. In Nokia, humbleness is almost a religion. By being humble you can stay nimble and avoid becoming arrogant. This may turn out to be the most difficult lesson of all to follow in the long-term, as you start becoming more successful.


Professor Autio can be contacted by email at erkko.autio@hut.fi

© Janelanaweb.com, Jorge Nascimento Rodrigues, August 2002

 
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