NOKIA

Nokia, originally a Finnish forestry products company formed is 1865, is now the world's top seller of mobile phones. Over the years, Nokia has made everything from toilet paper to television sets and tires. But in 1992, incoming CEO Jorma Ollila focused all of the company's resources on telecommunications. Nokia's first digital phones appeared on the market in 1993. At the time, Nokia expected to sell only about 400,000 units.

Instead, it sold 20 million. By 1998, Nokia was selling 40 million mobile phones per year, surpassing Motorola to become the world's biggest mobile phone company. Nokia now has nearly 40 percent market share in a global market that is expected to see nearly half a billion handsets shipped in 2004. How did Nokia get so successful? Back in the 1990s, cell phone companies like Motorola were following the Henry Ford motto of "you can have a car (or phone) in any color as long as it is black." Cell phones were black, businesslike, and boring. Nokia realized that cell phones were personal accessories and that many consumers wanted more than just a utilitarian phone. So it introduced phones with a sense of style, a riotous profusion of interchangeable faceplates, and a growing list of ring-tones. In 2001, Nokia's Mobile Phones (NMP) division launched 15 new products.

In 2002, it launched 30 new products. In 2003, just 10 years after its entry into the market, Nokia outsold Motorola, its nearest rival, by a two-to-one margin. The new products sell well because they're more than just minor tweaks in color or case design. Nokia was the first company to mass-market a cell phone with the antenna inside, the first to offer a user-changeable faceplate, the first to feature a built-in camera, the first with a unique short-message chat function. The latest model features a rubberized case, flashlight, thermometer, calorie counter, stop watch, and radio. Another comes with a fold-out QWERTY keyboard that looks like wings on a large color screen. Why all these innovations? Because the market demands it. Customers' desire for fashion, new features, and small size drives Nokia to invest heavily in R&D. And an ever-expanding set of technical standards like WCDMA, GPRS, 3G, and IPv6 drive Nokia to innovate the internal components and network infrastructure that give next year's cell phone more features than last year's cell phone.

The company plows 10 percent of revenues back into R&D- giving Nokia a $3 billion-per-year budget for pushing the envelope and getting outside the box. NOKIA Nokia's secret to creating products that people will buy lies in how it organizes for innovation. One-third of Nokia's 52,000 employees work in R&D. But they don't work in a central lab. They work as small, autonomous teams. Nokia has some 69 R&D teams located from Boston to Bangalore, and it gives these small teams the power to create new ideas for new market needs. "Big companies lose sensitivity," said Matti Alahuhta, president of NMP. "People need to feel they can make a difference. And they need to have the power to make their ideas happen. We've created a small-company soul inside a big-company body." Although Nokia does maintain a central research lab for basic technology and product design, each small unit has P&L responsibility to create its own business model and do its own advanced R&D and marketing.

"Ninety percent of the time, it feels like I'm running my own company," said likka Raiskinen, head of Nokia's Entertainment and Media Business Unit. "We've been given the freedom to decide what the rules are, what the value chain is I consult the Nokia board the same way that a start-up would consult its investors." From its humble beginnings in the far north of Europe, Nokia made the shift from a natural resources company of the nineteenth century to a high-tech leader in the twenty-first century. Now some 300 million people across 130 countries use Nokia phones. The company's ability to reinvent itself and unleash the creativity of its people has made Nokia the sixth most recognized brand in the world. But the company cannot rest on its laurels and must continue to innovate. When Nokia missed the boat on clamshell phones early in 2004, causing a rare drop in revenue, the firm accelerated the introduction of new models for the latter half of the year.

Discussion Questions

1. What have been the key success factors for Nokia?

2. Where is Nokia vulnerable? What should it watch out for?

3. What recommendations would you make to senior marketing executives going forward? What should they be sure to do with its marketing?