Innovative Organisations: Nokia Company - Case Study Example

Innovative Organisations This paper is an attempt to study the importance of innovation in the mobile industry. Nokia is one of mobile giants which have been able to achieve their market leadership because of the constant efforts for developing a corporate structure which fostered innovation. Innovation is the conversion of a new idea that generates profits or it may be defined as the entire process in an organization that generates new ideas or creative technological ideas (invention) which convert these ideas into novel, useful and viable products or services and practices for the economic gain. An invention is a new idea which is converted into tangible product or service. For every innovation, invention should be taken place. In every organization innovation is the key idea which helps in shaping corporate life, helping leaders conceive previously unimagined strategic options. Innovation provides an edge to enter into new markets faster and deeper. One of the key aspects applicable to very organization is that innovation helps to create customers by attracting new users and also by building stronger loyalty among current users. NOKIA: Nokia, the global telecom giant, has transformed itself from a small pulp mill to a global telecommunication MNC and it is the well known mobile manufacturing company which is known for its innovation and launching of new phones. Nokia, which concentrated primarily on the mass market, entered the luxury phone segment with the aim of converting the mobile phone into the status symbol and mode of self expression. Nokia was able to achieve market leadership because of its constant efforts towards developing a corporate culture, which fostered innovation. Nokia gave a lot of importance to innovation and creativity and made a conscious effort to create and maintain a culture which focused on diversity and the benefits that accrued from it. All the policies of the company aimed at creating, what the company called “an inclusive environment,” i.e. a culture which seeks to uphold and benefit from diversity. The R&D system was also an open one where any idea, no matter how absurd it sounded initially, was given due consideration. A number of such absurd sounding ideas later emerged as star products or features in the Nokia line up. Nokia’s culture was responsible for the number of ‘firsts’ it had to its credit. (Spulber 2004, p. 48). HISTORY: The history of Nokia can be traced back to the year 1865, when, Fredrik Idestam, a mining engineer, established a forest industry enterprise on the banks of the river Nokia in South Western Finland to manufacture paper. The enterprise was called the Nokia Company. Later in 1898, Carl Henrik Lampen, a shop keeper and J.E Segerberg, an engineer set up the Finnish Rubber Works Ltd (FRW) to manufacture rubber and associated chemicals. In 1912, Konstantin Wikstrom, an engineer, set up the Finnish Cable Works (FCW), to manufacture electrical cables for lighting purposes. These 3 companies were merged in 1967 to form the Nokia Corporation. The three companies then started working in cooperation and managed to capture market leadership in their respective areas. In 1967, the original Nokia Company was merged with the FRW and the FCW to form the Nokia Corporation. This new company had four major businesses - forestry, rubber, cable and electronics. In the 1960s, Nokia had entered the telecommunications market with the manufacture of radio telephones and data modems. In the 1980s, Nokia was a major producer of computer monitors and television sets. Nokia has emerged as the strongest brand in the mobile handset industry and was able to hold its own against companies like Motorola, Song- Ericsson, Samsung, Siemens, etc. It had a market share of about 36 percent, which was much larger than of its competitors. Proportion of Market Share Company 2002 sales (‘000) 2002 market share (%) 2001 sales(in thousands) 2001 market share (%) Nokia 151421.8 35.8 1396772.2 35.0 Motorola 64640.1 15.3 59092.2 14.8 Samsung 41684.4 9.8 28233.5 7.1 Siemens 34618.0 8.2 29752.8 7.4 Sony Ericson 23112.9 5.5 26955.9 6.7 Others 107941.4 25.5 115876.6 29.0 Total 423418.5 100.00 399583.2 100.00 (Gartner Dataquest 2003). Nokia is the world’s leading producer of mobile phones. Their market share has increased from 35 to 40 percent at the end of 2002. It is estimated to have accounted for 1 ¾ percentage of GDP growth in 2000. (Oced 1999, p.23). Competitive Strategy : Nokia’s business strategy reflects primarily on some areas namely; Lead and to win in the mobile devices Grow in the area of consumer internet services Adoption of business solutions Leveraged scale and transform to solutions Three competitive strategies were adopted by Nokia; first it concentrated on niche marketing because technology is constantly lowering the entry barrier to industries. The second is that it concentrated on cost leadership. Lowering the price of a product is not in itself a competitive strategy. Cost of bringing the product to the market is the same for competitors. Cost leadership is that ability to produce the same or an equivalent product at a lower cost than the competitor. A business that is a cost leader can produce a product of equivalent quality to that produced by a competitor but at a lower cost. In a price war it can lower its price further than its competitor without losing money. Its margins will be greater than its competitor and this enables it to spend more on research and development, marketing, product innovation, and advertising etc, than its competitor. The third competitive strategy followed by Nokia is differentiation .This involves differentiating its product from that of competitor in a way that makes it more attractive to the customer than the offering of the competitor. Nokia is the major supplier of mobile phones in the world and it is located in one of the smallest countries in the world and one of the more remote countries in the Western economy. Nevertheless, it has grown this enormous enterprise by simply being a cost leader and using its cost advantage to constantly bring about product innovation and participate aggressively in the market place. (Grünewälder 2008, p.13). Main challenges faced in the future: Nokia focused on the growth strategy to become the world’s leading mobile manufacturer. It also became the world’s leading supplier of mobile and fixed telecom networks and offered a wide variety of services to its customers. Nokia also offered different services to the network operators, service providers and corporations as well. The growth strategy of Nokia was driven by its products and the innovations in the technical field and the acquisitions of the business in the telecommunications industry. There are lots of challenges that are faced by the Nokia Company, but in spite of these challenges it continues its operations in a unique way from that of its competitors and the competitors find it difficult to match with Nokia’s innovations. Nokia carries out its operations efficiently and effectively to be the status leader in the mobile technology. Nokia has been a major competitor to many other mobile manufacturing companies, and other mobile manufacturing companies find it harder to beat Nokia in order to stand first in the telecom sector. (K Sangeetha & P Sivarajadhanavel 2009). Fostering Innovation in Nokia: Innovation can be defined as the creation of an idea. The mission and the vision of the company play a vital role in fostering innovation. The vision of Nokia was to create and operate in an environment that is inclusive and it believed that diversity was the key determinants for its success. Diversity helped the company in increasing the creativity that mirrored the market place and this also helped in the continuous improvement of the human resources. According to the vision of Nokia the differences in the perception and experience of an individual play an important role in the creation of idea that fosters the innovation. It was reflected in every work carried out by the company, the relationship between the employers and the employees inside the company, how the company treats its customers and its business partners. Nokia also plays a two sided role, it utilizes the resources from the innovation system and at the same time it also produces these resources from outside the company. This added to its advantage of differentiating it from that of its competitors. “Innovation system refers to the operation and the interaction of universities , research institutes other public sector organizations and private business which together influence the creation, diffusion and utilization of novel know –how” (Ali-Yrkko & Hermans 2004, p.106). Most innovative products /services in Nokia: In order to target the basic segment, Nokia provides its products to the customers at very low price. Nokia 8890, Nokia 7650, Nokia 5210, Nokia 6340, Nokia 8260, Nokia 8390 are some of the innovative products. Nokia also picked up the Most Innovative Product award for the Nokia N91. This device has been recognized as a true mobile music experience and is the flagship music device from the groundbreaking high performance multimedia Nokia N series range. (Kerin, William Hartley & Rudelius 2003, p.204). Types of innovation in the new product and the reason to develop this product: Nokia has designed its most innovative products in different segments: Expression segment: Nokia 5210 and Nokia 6340 - these products are designed for adult to have fun while they are communicating with friends. The features include removable shell, a built-in stop watch, downloadable game packs, and a personalized logo. This product is of low price range. Fashion segment: Nokia 8390 and Nokia 8890. These products are designed for those people who want a phone to show off and it is of heavy use. Features of these products are FM radio, messaging machine with full key board, a game platform with game controllers. Communicator segment: Nokia 7650. This product is mainly designed for communication purpose. Features of this product are built-in digital camera, colour display, enhanced user interface, multimedia messaging.(Kerin, William Hartley & Rudelius 2003, p.204). Product Lifecycle: The product lifecycle of Nokia has 5 stages. They are: Product development: This stage begins when the company develops a new product idea and at this stage the sales will be zero. In the product development stage Nokia’s investment costs are higher and the profits will be negative. Introduction: This is the second stage in the product life cycle. In this stage it targets more on innovations and concentrates less on competition. In this stage the sales will be zero and the profits will be negative. Marketing strategies are adopted by Nokia at this stage. It offers a basic product to the users and the price fixed is on the basis of cost plus and it builds a selective distribution channel in which it concentrates more on sales promotion and advertising. It concentrates more on advertising in order to build awareness among the early adopters and also among the dealers and sellers. Growth: This is the third stage in the product lifecycle. At this stage Nokia concentrates on early adopters and there will be high competition. At this stage there will be a rise on profit as well as sales. Nokia offers product extensions, services and warranties in order to attract more customers. At this stage it adopts penetration pricing and it builds on intensive distribution. It concentrates on advertising in order to build awareness and interest in the mass market. It concentrates less on sales promotion. Maturity: This is the fourth stages in the product lifecycle. At this stage sales will be at the peak and the profits will be high. It offers products at low cost and it concentrates more on middle majority customer. Competition begins to decline. It builds more intensive distribution channel. Decline: This is last the last stage in the product life cycle. In this stage the profits and sales start declining. Competition also starts declining. It concentrates more on laggards. It uses selective distribution channel because of the unprofitable outlets. (New product development and life cycle strategies). Secrets of products success: Bold strategic intent. Nokia broadly rushes forward to seize new opportunities and products and does not debate and agonize over first mover strategies. Innovation through the value chain: Nokia brings into everything it does, be it technology or marketing. This helped the company to grow and gain a large market share within a short period. Global R&D network: Nokia has R&D network all over the world and collaborates with major research institutes worldwide. It also exploits new technology more efficiently than its direct rivals to reap greater benefits. Technological coalitions have helped the company internalize new know-how. Customer satisfaction: The most important factor contributing to Nokia’s success is its willingness to listen to customers and focus all its activities on customer satisfaction. This fact is apparent in its strategy, structure, resource allocation, as well as its product and services. Conclusion: Innovation provides an edge in being able to be a market leader in any sector. This case describes the organizational culture at Nokia and explains how it helped the company become one of the most innovative ones in the industry. The focus of the case is on innovation and how, by constantly upgrading and introducing new features, Nokia became the market leader in the mobile phone market and its fostering innovations help it to enter into new markets faster and deeper. As a market leader, the best contribution Nokia made was to conduct business in a responsible way throughout globally. This belief drives commitment to creating ethically sound policies and principles that guide its work. As Nokia became more and more of a global entity, its obligations towards stakeholders started to grow. No business can grow without being competitive, and there are only a few simple rules to stick with to make that happen. While considering the current trend and fashion, Nokia has designed a dual colour and the colour scheme is also very attractive and eye appealing. It comes in the range of sleek phones as well. Nokia has achieved all these by its faster innovations. Appendices Appendices I: Logo (Nokia 2009). Appendices II: The Nokia House, Nokias head office located by the Gulf of Finland in Keilaniemi, Espoo, was constructed between 1995 and 1997. It is the workplace of more than 1,000 Nokia employees (File Nokia HQ. jpg). Appendices III: Innovations that by Nokia to reduce the size of the phones (Nokia 2009). Reference Ali-Yrkko, Jyrki & Hermans, Raine 2004, Nokia a giant in the finnish innovation system, Edward Elgar Publishing, viewed 5 May 2009, http://books.google.co.in/books?id=7edlqxCAgUQC&pg=PA106&dq=nokias+innovation&ei=BnL1Sd3fO6ewkQTKusWICg&client=firefox-a Gartner dataquest 2003, Press.Gartner.Com Grunewalder, Arend 2008, Analysis of Nokia’s corporate, business, and market strategies, Grin Verlag, viewed 5 May 2009, http://books.google.co.in/books?id=N0AvP7UdSfQC&pg=PA13&dq=Competitive+Strategy+of+nokia&lr=&client=firefox-a File Nokia HQ. jpg, Wikipedia: the Free Encyclopedia, viewed 5 May 2009, http://en.wikipedia.org/wiki/File:Nokia_HQ.jpg K Sangeetha & P Sivarajadhanavel 2009, Nokia inc- a global mobile leader, Flipkart.com, viewed 5 May 2009, http://www.flipkart.com/nokia-inc-global-mobile-leader/8131412134-tu23f98vj4 Kerin, Roger A, William Hartley, Steven & Rudelius, William 2003, Marketing: the core, McGraw Hill Proffessional, viewed 5 May 2009, http://books.google.co.in/books?id=wAMsaLJoykYC&pg=PA204&dq=Most+innovative+products+/services+in+Nokia&lr=&client=firefox-a New product development and life cycle strategies: chapter 9, viewed 5 May 2009, http://72.14.235.132/search?q=cache:uaHmFzgUlrwJ:www.marketing.auburn.edu/hguffey/mt331/kotler09_basic.ppt+stages+of+product+life+cycle+in+nokia&cd=8&hl=en&ct=clnk&gl=in&client=firefox-a Nokia: historical logos 2009, Wikipedia: the Free Encyclopedia, viewed 5 May 2009, http://en.wikipedia.org/wiki/Nokia Nokia: recent history 2009, Wikipedia: the Free Encyclopedia, viewed 5 May 2009, http://en.wikipedia.org/wiki/Nokia Oced 1999, Oced economic surveys: Finland 2003, OECD Publishing, viewed 5 May 2009, http://books.google.co.in/books?id=hgI9qooPSDIC&pg=PA23&dq=market+share+of+nokia+1999&lr=&client=firefox-a Spulber, Daniel F 2004, Management strategy, McGraw Hill Professional, viewed 5 May 2009, http://books.google.co.in/books?id=P3Qj65-ilrAC&pg=PA48&dq=history+of+nokia+company&client=firefox-a Read More