It was around 1992-93 that Nokia made the important decision of adopting modularity in mobile phones, recounts Dan Steinbock in ‘Winning Across Global Markets’ (www.josseybass.com).
The basic idea, as he explains, was to go for 60-80 per cent homogeneity that provided the global basis for success; the balance would be for local adaptation, providing the local basis for success. With modularity, Nokia could enjoy the economies of scale in product development, production, and sourcing, while at the same time ensuring local responsiveness to those features that cannot be shared across markets, the author elaborates.
But, back in 1992, Nokia still had a country-based IT (information technology) structure in which every country and each business had its own IT system. And if that structure had prevailed during the high-growth years of the late 1990s, the result would have been a catastrophe, the book informs.
Responding to a crisis
The spur to change came in the form of the logistics crisis of 1995, when Nokia suffered a breakdown in its logistics and supply-chain management. “Rapid growth outpaced the capacity of its systems. The company was plunged into crisis for months as back orders piled up, and it had to issue a profit warning in the fourth quarter,” recounts Andy Reinhardt in an August 2006 story (www.businessweek.com).
“The memory of those dark days still haunts veteran production managers, who remember it as a turning point in how Nokia approached information technology and manufacturing planning.”
The crisis allowed Nokia’s leadership to see IT as a strategic asset that must be managed in a centralised way, Steinbock observes. It enabled the company to build worldwide systems and processes by putting in place a unified backbone of systems architecture, he adds.
“It was then that Nokia renewed successfully its internal management systems by employing a very robust SAP system coupled with a central IT philosophy, including bringing together financial information. By 2002 Nokia had joint worldwide IT systems and unified processes that supported fast decision making and reallocation of resources.”
A striking contrast is what you see in many other companies, struggling with fragmented IT. They may have a CIO (chief information officer) at the corporate level, but often with a relatively small staff, the author rues; and the real IT work takes place in the business groups which have larger staffs.
In the recently-released first quarter results, commenting on the repercussions of the ash cloud from the Icelandic volcano Eyjafjallajökull, the Finnish phone giant speaks of having adjusted its logistics operation so as to ensure the availability of products and components.
Even while shipping millions of phones, Nokia is keenly listening to technology and market signals, for creating solutions with technology as an enabler, and also building on fundamentals in behaviour. Several companies – including Intel, Motorola, and Microsoft – employ trained anthropologists to study potential customers, whereas Nokia’s researchers more often have degrees in design, notes Steinbock.
“Rather than sending someone to Vietnam or India as an emissary for the company – loaded with products and pitch lines, as a marketer might be – the idea is to reverse it, to have a patently good listener enlighten the company on how they live and what they’re likely to need from a cell phone, allowing that to inform its design.”
This sort of on-the-ground intelligence gathering is central to what is known as human-centred design that has become vital to high-tech companies trying to figure out how to write software, design laptops, or build cell phones that people find useful and unintimidating and will thus spend money on, he reasons.
Technology innovation and market creation
Tracing the story of research in Finland, the author finds that the private sector accounts for over 70 per cent of total R&D (research and development), with the academic institutions and the public sector accounting for 20 and 10 per cent, respectively.
Much of the R&D increase accrues to Nokia, whether measured by input indicators (R&D) or output indicators (patents), he adds. “Since the late 1990s, Nokia has dominated more of the ‘stock’ of Finnish patents issued in the US than all other Finnish companies together.”
In relative terms, the company’s R&D spend was at less than 5 per cent of net sales through the 1980s, but climbed to 9 per cent in the 1990s; and, as the book documents, R&D expenditures in mobile handsets exceeded those in mobile infrastructure with value migrating from the infrastructure to the devices.
The key to Nokia’s success, however, is not the relative level of its R&D funding, Steinbock decodes. “Over the past three decades, Nokia has almost consistently invested less in R&D than most of its direct rivals, such as Motorola, Ericsson, and Qualcomm. Rather, the key to Nokia’s success is how it is using the funding in the overall context of innovation – that is, innovation as a strategic capability.”
A key lesson is that technology innovation is a necessary but insufficient requirement for success. “It must be accompanied by complementary market creation. Industry leaders have been successful in developing new technologies and new markets.”
And, employing almost a third of its total workforce in R&D, Nokia is morphing into a mobile Internet company, no longer very far behind the R&D of Microsoft and Google, the author states. “It has already left Apple and RIM (Research in Motion, the company that makes BlackBerry) far behind in R&D expenditures.”
To know how R&D is done at Nokia, delve into the section of the book that describes NRC (Nokia Research Centre). Founded in 1986 from the Nokia Electronics R&D unit with just 86 people on staff, NRC now has people of more than fifty nationalities. It is a global network of research centres and laboratories that Nokia maintains, often in collaboration with outside partners, informs the author.
He reminisces how Bell Labs had its period, when telecom paced the prevailing trends, and the era of Microsoft research peaked with applications research in the PC business. “We’re now in the wireless era of mobile computers,” reads a quote of the current NRC head, Henry Tirri, cited in the book.
NRC’s strategic agenda, updated annually, aims to look at the world and mobility three to seven years into the future, developing a vision of how the physical world will fuse with the digital world in the future through mobile technologies. The four focus areas, as identified at the beginning of 2009, were rich context modelling, new user interface, high-performance mobile platform, and cognitive radio.
The last, for instance, is about empowering a new realm of devices and services through optimised connectivity, as http://research.nokia.com/research mentions. For, ‘cognitive radio’ bets on a world ‘moving towards a fundamentally disruptive new era where mutually-conscious intelligent devices leverage awareness of environmental circumstances and user needs to determine how to communicate on the fly via dynamic spectrum use for improved connectivity and capacity.’
Talent that makes a difference
In a section on R&D talent, the author compares the culture of Finland with that of the US which has great universities and good basic research, and says that the question is whether the US academics can talk with a company in operational terms as accomplished researchers are expected to do in Finland.
“For instance, Nokia used to have the Oxygen Project with MIT (focusing on pending developments in wireless networking and embedded computing), which cost about $1 million annually. Yet the actual benefits of the project were considered inadequate in proportion to expenditures.” It was ‘too abstract, not really anchored in business realities,’ fret the Nokia executives.
So, what is the type of talent Tirri scouts for? The hands-on PhDs, ‘who write papers but have an industrial research mindset.’ Not people who are famous now, but people who will be famous in the next ten to fifteen years!
To Terri, NRC is ‘a kind of future Xerox Park, the legendary research lab that was founded as a division of Xerox in 1970 and has contributed to many technology innovations, including laser printing, the Ethernet, the PC graphical user interface, ubiquitous computing, and advancing very large-scale integration,’ reports Steinbock.
“The latest T-20 cricket game which I have on my PC…”
“Plays the IPL out?”
“Yes, with the additional facility to choose between the ‘fixed’ and the ‘unfixed’ modes!”