Nokia : Crisis and Opportunity Sogang Pro MBA 2011 61기 2조 M61012 박 경 준 M61016 배 진 영 M61038 장 순 창 M61049 홍 성 철 1 Nokia is the world leader in the field of telecommunications and leading the industry of Mobile Phone, Smart Phone, Wired and IP Network based on experienced, innovative, user- friendly and reliable solution. By adding mobility to Internet, Nokia creates the new opportunity for enterprise and enrich the people daily lives. Nokia’s stock has been one of actively traded in the global 6 major stock exchanges now. Nokia’s success in mobile telephony industry is very surprising news. Who would have expected a pulp manufacturer springing from the barren fringes of northern Europe would come to lead the global mobile business main stream? As compared with most industry players and direct competitors, Nokia developed very unique and creative strategic view. When everyone saw mobile phone as a luxurious gadget or professional service, Nokia’s executives saw it as consumer and fashion product. Rather than predict five or ten percent maximum penetration rate, Nokia quickly imagined that everyone in the world has their own mobile phone for personal use and that would connect each people. Not like other wired telephone company, Nokia has quickly found that wireless technology would dominate the future telephone industry and heavily supported the development of newly licensed entrepreneurial mobile service providers. As Jorma Ollila, prior Nokia’s Chairman who led the development at that time, said : The “planetary alignment” was right, a unique combination of trends and changes created a massive opportunity, but no one else saw it, or was able to capitalized on it. Nokia’s success in mobile telephone moved from imagination to reality through : An organizational flexibility that yields resource fluidity A combination of a global approach to business building, bypassing the conventional 2 wisdom of needing large national subsidiaries for international expansion An emphasis on globally integrated business processes that provided the underpinnings for Nokia’s accelerated growth in the late 1990s Despite of glorious and brilliant success since 1990, Nokia has been surrendered by multiple problem of internal and external at the same time. The former CEO, Olli-Pekka Kallasvuo resigned and Stephen Elop who was in charge of Microsoft Business Division have succeeded. Elop promptly grasp the situation that Nokia has faced is not easy and very painful to go through. Finally he has started his survival plan of Nokia as sending a internal mail to every employee. That mail’s subject is ‘Burning Platform’ in northern sea. Today we would tell the reason why Nokia has fallen and what’s our recommendation to great mobile phone industry giant. Company History Once upon a time, by the Nokia river Start-up of Nokia group is a little bit different from other general company foundation process, complicated and also didn’t start from one company. In fact, Nokia has 3 different roots. In 1865, mining engineer Fredrik Idestam founds his first wood pulp mill at the Tammerkoski Rapids in south-western Finland. A few years later he opens a second mill on the banks of the Nokianvirta river, which inspires him to name his company Nokia Ab in 1871. It’s the beginning of the greatest communication company in history. After starting up the plant, demand of general paper and packaging cardboard in Finland and Europe underway of industrialization exploded and Nokia plant continues expansion. Of course, factory 3 workers and their families increased. Nameless town flourished as a small and villagers decided to name the town following the company name. This is similar with case that village of Toyota plant has replaced their name following Toyota company name by prosperity. President Yideseutam turned oversea early as demand for paper has increased offshore. The product of Nokia was not exported to neighborhood Russia but also United Kingdom and France. In 1930s, it was exported to China. In 1915, the shares of Nokia has been traded initially on the Helsinki Stock Exchange. Finnish Rubber Works and cable company Finnish Rubber Works(FRW) has been established in 1898 close to Helsinki. Finland has a long winter and its road is always very muddy due to heavy snow. Given the climatic conditions, FRW mainly made of rubber boots and sold to people in Finland. Two executives of FRW accidently passed by Nokia village and found the town is very beautiful town and available for the hydroelectric power. Thus they have moved the factory aside. From 1920 they decided to use ‘Nokia’ brand for their products like rubber shoes, tier, rubber band, industrial band, rain coat, rubber mats, rubber ball, toys made of rubber and increased the product line with Nokia brand. In 1912, Finnish Cable Works(FCW) was established in the Helsinki city center. FCW started from small company with a few employee first but soon grew to large companies. At that time, demand for the cable was increased sharply due to dramatic boom of telegraph, telephone industry. After World War II, FCW mainly exported products to Soviet Union and to several European companies. Someone said that success of FCW is just lucky and this means Russian dynasty. Russian dynasty considered telegraph as core national strategic 4 facilities but newly emerging telephone as local communication tool. Because of Russian emperor’s policy, colonial Finnish people’s establishment of telephone company was easily accepted. In 1930s, there were 815 telephone company that makes people who lived scattered in large country communicate each other easily. Accordingly, the telephone company of Finland learn how to harmonize the competition and cooperation early. In progress of merger and acquisition, only two companies could survive and led the industry. Rapid diversification and Nokia in crisis at first Share holders of FRW bought most of FCW stock and ownership of three companies Nokia, FRW and FCW gradually passed over into hands of the same shareholders in 1922. Finally three companies in 1967 are integrated into the Nokia Group. After the integration into Nokia Group, Nokia diversified its business very rapidly and acquired a lot of other industrial companies. As a result, Nokia became the biggest umbrella group in Finland with more than 20 subsidiaries. But Nokia expanded into unrelated areas and synergy between affiliates couldn’t be expected. Los went to snowball. Nokia focused on communication switch manufacturing in early 1980s and eyes to abroad market due to narrow local market. It competed with large companies in Europe like Ericson, Siemens and Alcatel and struggled. In 1988, Nokia is the biggest television manufacturer and top computer company in Scandinavia. However in late 1980s, Nokia had been bitten on the crisis. CEO Jorma Ollila called Jack Welch in northern Europe and other executive members of board directors rescued the Nokia from severe crisis. After election of CEO, Ollila promptly 5 shut down the business that was not business No 1 or was not likely to be business top level same as Jack Welch did in GE. He abandoned rubber, paper, pulp, tire, home appliances, desktop and focused their resources on mobile devices, information technologies and infra structure business. Especially closing the paper pulp business means denying the corporate identity of Nokia that started from it. Penetration into long-distance communications industry and digital technology Nokia’s long-distance telecommunications sector started from creating the electronics department in cable factory of FCW in 1960. At that time, the president of FCW, Bjorn Westlund were tapping the potential of the semiconductor technology and founded ‘Electronics Department’. And then, he appointed Kurt Wikstedt as a director and instantly began to produce the product that market demanded. He called himself ‘digitally crazed’ person. The first products were shipped in 1962 as a radio transmitter. At that time, developed semiconductor technologies moved into the field from laboratory and all of the company in that business is almost at elementary level, without difference between first mover and follower. Thus companies such as Nokia doesn’t need to pay for the late comer’s disadvantage. The electronic department was accounting only 3% of total Nokia in 1967 when Nokia Group was officially born was a small business unit with 460 employees. Development of phone that transmit radio was begun in 1963 and so called ‘Radio phone’ that was used for the military, government, public sector and emergency was the main stream for professional mobile radio. In 1970s Nokia continued to grow in wire communication and micro wave 6 transmission equipment market, and exported it to neighbor Sweden, Soviet Union and then all the world. Customers are mainly gas companies, oil companies and railroad companies. Nokia’s electronic department in 1975 was divided into 3 units and one of them was Telecommunications. After in charge of Sakari Salminen, this unit grew very fast. Although at that time, demand for digital exchanges was not big, Nokia developed digital switching devices and this Nokia DX200 was the starting point. Based on this product, Nokia had huge success in this business. DX200 had been gradually improved and become the multiple platform and was developed to Nokia’s mobile or wired network switching device base facilities. Motorola CVP(Chief Vice President) James Cale said “The reason why Nokia has been rising is that they saw digital wave 10 years ago. At that time many companies blamed Nokia’s rashness for abandoning the profitable wire & penetration into wireless but now they greatly regret now.” The world’s largest manufacturer of mobile phones GSM(Global System for Mobile Telecommunication) is the European standard wireless communication type. CDMA(Code Division Multiple Access) type was mainly adopted by US and Korea, each standard competed each other targeting global standard.