The Nokia story in recent years is on the surface about the struggle to build winning software platforms around OVI, Symbian and MeeGo. This is a story, which already has been told by BloombergBusinessWeek, the Economist and many others.
What has not been so much in focus is what lessons Nokia’s story holds for Nordic and European innovation policy makers. I will argue here that Nokia’s slide in competitiveness towards notably Apple and Google holds important insights into the stickiness and path dependency of national innovation systems and related policies within education as well as the supply base of entrepreneurs and partners in the innovation eco-system.
The vantage point of this article is that of two interrelated questions:
First, why is Nokia being squeezed out of their own game from both US companies like Apple and Google and Chinese, Taiwanese and Korean companies like Huawei, MediaTek and Samsung?
Second, how did European innovation policy fail in respect to Nokia’s decline, and how can European innovation policies use the Nokia case to better prepare for tomorrow within new industries?
From the standpoint of innovation policy and supporting institutions the success of Nokia and mobile telephony originated with the Nordic decision to create the common standard Nordic Mobile Telephony (NMT).
This provided Nokia with a common Nordic market of 20 million techno savvy customers before anywhere else in the world. And it provided a perfect platform for ‘infant industry development’. When Nokia had grown sufficiently large on the back of this market it was blessed by the European Union’s decision to create a common European standard for mobile telephony – GSM. Nokia was among the best positioned companies to take advantage of this the then world’s largest uniform market for mobile hand sets. Moreover, the US market didn’t manage to develop a common standard, which prevented US companies like Motorola from competing on par with Nokia globally.
Moreover, Nokia’s management did all the right things. It understood that design and being user friendly was more important than being over-engineered and Nokia mobiles appealed to more age groups and customer segments than any of its competitors.
Finland’s innovation policy was a good match with a long history of supporting and nurturing design innovation and a world-class business framework conditions. In addition a vibrant ecosystem of Nokia supporting start-ups and entrepreneurs emerged in Finland and Europe. Indeed, creating a world-beater within mobile phones like Nokia did, out of a company with a history in rubber galoshes and cable works, could not have been done without bold management, timing and a conducive innovation eco-system.
For almost twenty years Nokia enjoyed being the undisputed global market leader in mobile handsets. This fortunate situation has, however, come to and end. An end which for Nokia particularly came to a halt with Apples decision to enter the market with its smart phone – i-Phone and related i-Tune platform for music and applications of all sorts.
In addition, as chips for mobile handsets became more and more powerful the mobile handset went from a mobile phone to a mini computer with increasing possibilities for software applications ranging from banking to gaming and city maps. Consequently, the physical mobile handset is today the least important part of a mobile phone and where the least added value accrues.
The answer to the first question as to why Nokia suddenly finds itself squeezed out of its own game starts from the vantage point of mobile platforms. In today’s competition within the mobile phone industry the key issue is to have a platform for developers and to add new applications.
This is so because the mobile phone has apart from communication also become a device for banking, gaming, education, music and the list goes on.
Apple and Google’s mobile platforms attract today developers from all over the world and these developers constitute a global eco-system of entrepreneurs and for innovation of new applications.
The 2010 IBM Tech Trends Survey was conducted online and covered responses from 2,000 IT developers and specialists from 87 countries. More than half (55 percent) said they think mobile software application development will eclipse development on all other traditional computing platforms by 2015. The findings are in line with a recent analysis by Gartner, the ICT research firm. Gartner forecasts big spending on mobile development over the next several years. Gartner expects around $29 billion to be spent on mobile applications in 2013, a growth rate fivefold from 2010 in three years.  Developers cite cloud computing as the other significant game changer within the coming years.
Nokia’s management apparently failed for too long to understand these game-changes going on within the mobile industry and failed to install a sense of urgency for change throughout the organisation. The management stuck for too long within its ‘comfort zone’ of design and superior mobile cameras. And it seems that Nokia forfeited a connection with mobile software developers and thereby missed out on the opportunities of getting new applications from global co-creation among entrepreneurs and innovation eco-systems. Incidentally, the most successful app for i-Phone is the game ‘Angry Birds’ developed by a Finnish company.
To paraphrase Henry Kissinger ‘who should Nokia have called in Europe to reboot its strategy, develop a platform and tap into a vibrant eco-system of application developers’? The verdict from international commentators is that when mobile handsets went from competing on technology and the design of a physical product to platforms and open source applications the game in the industry changed profoundly.
Unfortunately, Nokia had nowhere to go in Finland, the Nordics or Europe for that matter, to solve the challenge of transforming itself from a mobile handset device manufacturer to a company competing on platform and software development.
In hindsight experts conclude that Nokia should have moved to Silicon Valley five years ago and tapped into the world-leading ecosystem of software developers existing there. The important question from an innovation policy point is: Why didn’t any of the public and private institutions within the Finnish and European innovation eco-system seemingly develop capabilities to match the changes going on within mobile telephony?
Assuming this is the case, it calls two decades of European innovation policy into question in the sense that one can ask: What is the relevance of national and European innovation policies if they don’t manage to move with and change according to the business cycle and industry changes of their leading and most promising companies and sectors?
Clearly, high-class business framework conditions and clusters are important, and many European and Nordic countries compare well on these conditions. Yet, often they are no longer more than at best the entrance ticket for being in the game of global competition.
Moreover, why didn’t Europe’s investments in university spin-outs, tech-transfer offices, incubators and science parks come up with just one environment capable of offering Nokia and the European mobile industry a framework, cluster or eco-system sufficiently conducive to pick up the gauntlet and challenge Apple and Google in perhaps the only industry where Europe had a lead and global success story to tell within the ICT industry?
What policy lessons will be learned from the case of Nokia and the European mobile industry? Could it be that European innovation policies essentially have become stuck in a kind of Marxist interpretation of Neo-Schumpeterianism – a kind of technological determinism? And what in policy terms if the application and success of new products and solutions are not so much a question of superior technology but just as much a question of social construct and appeal to human emotions?
As a first step in answering these questions it would be instructive to look into e.g. the last five year’s Science, Innovation and Technology programmes of the EU and individual member states and sum up how much funding has been dedicated to programmes for technology and science development? And how much funding has gone into innovation within areas such as strategic marketing, value-chain organisation, innovation on management and partnerships, communication and new channels for reaching out to customers?
These latter areas of company activities seem to be under-represented in calls for proposals in European innovation and technology programmes. But as anyone who has been in an Apple store or owns an i-Phone understands, these are all areas where Apple has developed a successful innovation strategy and differentiated from all of its competitors.
The next couple of years within the mobile industry will undoubtedly be interesting to follow and should be watched carefully by European innovation policy makers. This is so because, what is now happening in the global mobile or rather smart phone industry might very well hold what is in the store for tomorrow in other industries.
Cloud computing is another area, which resembles the mobile phone industry, and cloud computing is fast evolving into a significant innovation eco-system, changing patterns of consumption as it does so. In fact, cloud computing is a new platform for computing and just as likely to disrupt existing business models as witnessed within the mobile industry and experienced the hard way by Nokia. Yet, due to 27 different judicial regulations Europe’s evolution and build up of world class eco-system is in danger of being much slower than in e.g. the US market.
One place for European Innovation policy to begin would be to remember what made Europe and Nokia a global world-beater within the mobile industry. The common European GSM standard provided a strong platform in the 1990s and was a key to Europe’s success within the industry. Arguably, the full implementation of the Single European Market within services would most likely have a much more conducive impact for Europe’s companies than any other single initiative imaginable. The provision of more unified platforms within application services is central to this end.
Another point of departure for European innovation policy could be to make a review of current programmes and initiatives in view of the fact that around 70% of gross domestic product (GDP) and employment is within services in the OECD and EU economies. Service innovation operates from a different logic than that of manufacturing. To capture value within service innovation requires new understandings of knowledge and organisation from management. And it requires new skills and capabilities of both management and employees.
As the management guru Gary Hamel has put it ‘If you look at a hundred year period of industrial history, typically it is management innovation that has allowed organisations to reach new performance thresholds — more than any other kind of innovation’.
European innovation policy might produce longer-term benefits if more resources and funding were dedicated to programmes for experimentation with new management, leadership and organisational models and less on product and technology driven innovation. Without some change of focus in its innovation policy Europe increasingly risks running into the Galapagos phenomenon of producing leaders without followers.
By Jørn Bang Andersen
Senior Innovation Advisor to the Nordic Innovation Centre under the Nordic Council of Ministers. The views expressed in this article only represent those of the author.
Jørn Bang Andersen is currently senior advisor to the Nordic Innovation Centre on innovation and globalization. Prior to this he has worked as special advisor to the Ministry of Business and Industry on innovation and technology development, deputy director to the Ministry of Foreign Affairs of Denmark’s unit invest in Denmark as marketing and business development manager and special advisor to the Trade Council of Denmark on the global innovation strategy.
Internationally Andersen has worked for the European Commission on international business, trade and technology co-operation, responsible for notably China, India, Vietnam. Andersen has served as Denmark’s government’s senior advisor to Estonia and Latvia on their transition to market economies and EU memberships. Embedded in the Ministry of Economic Affairs in Estonia, Tallinn.
Private sector engagements have inter alia been as founder of Hansa Consulting House and Nordic and East European Area Manager for Interlace. Andersen received a MA in political science from Aarhus University, Denmark, and a MA in Western European Politics and International Economics from University of Essex as part of an Erasmus scholarship. Jørn B. Andersen has published books and articles on innovation and lectured on the issue in Denmark and internationally.