Nokia’s Rise and (Relative) Fall. What Lessons for European Innovation Policy?

The tale of Nokia being squeezed from the top by Apple and Google and from the bottom by companies from Taiwan and India holds just as important lessons for European innovation polices as it does for Nokia.

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?

Nordic Mobile Telephony and Nokia – A Success Unfolding

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.

Hanging On The Mobile Phone

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.  [1] 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.

What Can European Innovation Policy Learn from Nokia?

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.

So what could Europe do about it?

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’.[2]

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.


[1] http://www.devx.com/enterprise/Article/45682?trk=DXRSS_LATEST

[2] http://www.management-issues.com/2006/5/24/mentors/gary-hamel-management-innovation.asp

 

About 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. 

  • http://www.agilityinnovation.com Paul Hobcraft

    You cover many different aspects of failure within the EU and I’m not so sure that many of your points are linked or even should be although they are all ‘points of value’ within any debate.

    Nokia had a spectacular failure to see the significant changes, it fell in love with its engineering, stayed focued on utility of mobile phones and did not see the dramatic shifts and when it did failed to respnd. It now faces catch up and that has proven extremely hard from where they seem to be standing.

    Did European policy fail them? Definitely no they had significant chance to influence and lead significan change. Working from Finland, constantly consolidating into Finland its centres of research cut it further of from diversity and changing preferences. It should have spread out more than drawn in. Again the EU was not party to this although keeping jobs in Europe is more than welcome.

    Nokia could have developed a more open platform to engage all the parties you mention and more, it had all the means to do this. To some degree it did stay within a closed system of innovation but on the limited scope of what it saw, not what the future brought it.

    Of course the EU programmes as seperate matter have not been the success they should have been. There are significant problems that even today will NOT be addressed by the present strategy for 2020 as it is proposed.

    European Council President Barroso presented to the EU leaders on 4th February the following list of issues with some short explainations from me:

    -Poor availability of finance, venture capital appetite
    Costly patenting, I think this costs up to 10 times more, and takes three times longer than registration in the US.
    -Lack of legal and tax level-playing field as each country still insists on managing this independently
    -Outdated regulations and procedures that are set by each country to protect, promote their own interests
    -Slow standard-setting with significant reluctance for the countries to ‘embrace’ a union.
    -Weaknesses in public education and innovation systems with no degree focus, low engagement with the public on the value and needs of innovation
    -Failure to use public procurement strategically, whereas USA has woken up far more to this but still no so far ahead.
    -Fragmentation of efforts with consistent barriers, lack of coordination between regions within countries and their national policies, duplication of efforts and little cross border collaboaration.

    Not a pretty picture.

    Do we gain lessons from Nokia’s present struggles to respond, no different than that of General Motors in the car industry for changes in policy- no. They both failed to see the change in the markets they serve- simply put- market failures not attributed to policy failures. Failure within the system possibly.

    You rightly mention GSM with European pride what about WiFi, funded in Europe, lost to the US due to too slow standard setting or agreements.

    We will regretfully lose more and more unless we make more radical changes. Sure, Nokia gives us one BIG lesson but the structural, political and economic challenges of 27 seperate countries determined to ‘hold their own’ is so outdated I’m not sure on its own it can work but it is a fundimental, rapidly changing one for ‘us’ to recognize and respond too.

    That one lesson is open collaboration, not giving away sovereignty but recognizing the need to build a EU wide eco platform for all to work upon and let the activity move where the value is seen. The EU ecosystem platform for innovation.

    Nokia see this today,only since the arrival of a new CEO. To quote Stephen Erop, CEO of Nokia “the battle is now a war of ecosystems, entire ecosystems”.

    “Ecosystems thrive when they reach scale, when they are filled by energy and innovation and when they provide benefits and value to each person or company (or country) that participates”

    He finishes will the REAL LEARNING value for the EU by recognizing the need to put these ecosystems in place “This means we are going to have to decide how we either build, catalyse or join an ecosystem”.

    We can’t afford not too. Then policy will fail as organizations will seek out these platform ecosystems whereever they are offered. This is the EU challenge to rise up too. To build them

  • Sam Kondo Steffensen

    Does Nokia’s self-inflicted situation really have anything to do with European innovation policy – whatever that is – or is it just another tale of lack of timely proactive action, courage, and right mindset?

  • Hansahouse

    Dear Sam,

    Thanks for your comment on Nokia and European innovation policy. Nokia’s situation is rightly as you write the responsibility of Nokia’s management. I do, however, think it also has something to do with European innovation policies because the history of Nokia is closely linked to European policies for standards and the initial platforms that NMT and GSM provided for Nokia and Europe’s success story in mobile telephony. The GSM standard was arguably a timely and proactive action within European innovation policy. And although the fate of companies is a matter of management decisions, I do think that public incentive programmes influence on strategic management decisions and thereby play an indirect role within companies like Nokia. Hence, the linkage to European innovation policy in the article.

  • Hansahouse

    Sorry mistake in name

  • www.sjoham.com

    I am not so sure it is entirely a European innovation policy phenomenon. The case rings a familiar bell to the infamous IBM / Microsoft case. Failure to see that hardware excellence does not secure profits, when the main product really is becomes software. IBM failed then, but has since reinvented itself. Let us see if Nokia does not manage to do that as well. It is interesting to see the next level of mobile business: it is likely not 5G… 6G etc. but a completely new “soft” gadget that consolidates mobile services and solutions: Identification, Payment, Authorization, Healthcare, Social benefits, etc. If Nokia can become a leader on any of those, their game certainly is not lost. But there is no doubt that their original advantages such as: great reception, good sound, and durability has become insignificant deciding factors when customers choose their handset. Any backyard electronics company in China can manage that now – also without innovation policy!

  • http://twitter.com/skoldsoe Steen Koldsoe

    Once up a time Nokia UI was famous, customers was waiting to get the next new Nokia Mobile Phone, that was more than 10 years ago!
    Nokia was the first with design.. to have a look and feel of the phone.
    Nokia had a great innovation culture, it was a great place to work, with pride, from the 90′s, first half of 200x decade. Then it start to change..

    As every company Nokia had it’s time…. maybe they will come back, only the future will tell…

    Nokia did not manage to make a “product” competing with the Ipod… in 2004… production volume was under 1 million pieces….

    Nokia had too much focus on the BOM cost! Missing to focus on the total cost of the product.

    Nokia failed to look broad enough on the marked possibilities, only the young and sexy was counting…

    Nokia succeed to launch Vertu (the very exclusive mobile phone in the beg. of 2000) but they never did the same type of spin-off again…?

    Nokia was not able to focus and cut in to the bone.. . it was always “all singing and dancing” in other words make a real simple product that by e.g. could only make a phone call and do sms…

    Nokia might have had the best technology performance, but failed to make continuous value out of it…

    When the form factor game changed in 2003 (Samsung always doing flip phones and Nokia always doing mono blocks) Nokia had the wrong system architecture.

    Former CEO Jorm Ollila Leadership values have suffered servilely the last 5 years = lack of good innovation culture, people management and good leadership… all leading to strong technology silo’s with almost no cross-functional cooperation back.

    In 2009 Apple did 2 products compared to Nokias ~40 products / year…
    Apple turnover in 3. quarter of 2009 was double of Nokia’s (around 1.6 billion $ compared to Nokia’s 0.8 billion $).

    Just some of my insights :)

    I guess that many get framed by their own view of the reality….

  • http://twitter.com/skoldsoe Steen Koldsoe

    Once up a time Nokia UI was famous, customers was waiting to get the next new Nokia Mobile Phone, that was more than 10 years ago!
    Nokia was the first with design.. to have a look and feel of the phone.
    Nokia had a great innovation culture, it was a great place to work, with pride, from the 90′s, first half of 200x decade. Then it start to change..

    As every company Nokia had it’s time…. maybe they will come back, only the future will tell…

    Nokia did not manage to make a “product” competing with the Ipod… in 2004… production volume was under 1 million pieces….

    Nokia had too much focus on the BOM cost! Missing to focus on the total cost of the product.

    Nokia failed to look broad enough on the marked possibilities, only the young and sexy was counting…

    Nokia succeed to launch Vertu (the very exclusive mobile phone in the beg. of 2000) but they never did the same type of spin-off again…?

    Nokia was not able to focus and cut in to the bone.. . it was always “all singing and dancing” in other words make a real simple product that by e.g. could only make a phone call and do sms…

    Nokia might have had the best technology performance, but failed to make continuous value out of it…

    When the form factor game changed in 2003 (Samsung always doing flip phones and Nokia always doing mono blocks) Nokia had the wrong system architecture.

    Former CEO Jorm Ollila Leadership values have suffered servilely the last 5 years = lack of good innovation culture, people management and good leadership… all leading to strong technology silo’s with almost no cross-functional cooperation back.

    In 2009 Apple did 2 products compared to Nokias ~40 products / year…
    Apple turnover in 3. quarter of 2009 was double of Nokia’s (around 1.6 billion $ compared to Nokia’s 0.8 billion $).

    Just some of my insights :)

    I guess that many get framed by their own view of the reality….

  • Zufi Deo, www.bizstuff.co

    I agree with the need to change the emphasis from technology to management and leadership. In my experience most companies still believe technology will solve all their concerns not realising the management of the technology is of greater importance than having new and innovative technology.

    I think using the Nokia example to make this point I feel diverts attention away from the impact the company has had on the local economy. If we were to look at the impact of the company in a more holistic way, ie factoring in impact on local society, you find it has helped to generate an eco system which has allowed global skills and expertise to be available locally which then has spun off other companies who are innovative in their own ways.

    Education would be a good example here. Most of the local universities educate Nokia’s staff. This encourages the local universities to offer standards and courses which meet their global needs. Given these courses are open to non Nokia staff it helps them gain from the demanding standards they have. This then helps other companies in the region to indirectly benefit from these skills and expertise.

    I donot want to draw attention away from some of the cultural problems the company has had in not accurately understanding changes in its customers tastes. For example, in 1990′s it was one of the last phone providers not to offer the Start Trek style flip phones. However, I feel if we were to look at the more holistic impact it has had economically and socially the picture may not be as dire as commonly thought.

  • http://www.facebook.com/people/Jørn-B-Andersen/100000657813318 Jørn B. Andersen

    Dear Steen Koldsoe,

    Thanks for the comment. I think your description of Nokia’s lack of good innovation culture touches upon an important issue: how do you develop and sustain a healthy and vibrant innovation culture? Nokia is not the first company to struggle with this in the history of large corporations. HP, Digital Equipment Corp, Kodak are just a few other examples. Moreover, your comparison between Nokia and Apple in terms of launch of products is also interesting from an innovation policy perspective. The standard indicators within the EU and elsewhere for measuring innovation capacity among companies and countries is to look at R&D budget, patents and products launched. However, as the Apple vs Nokia case shows, a couple of successful commercial launches like i-Phone and i-Pad are much more decisive for the company than how much money is spent on R&D and new products. Incidently, Apple had within the first nine months of i-Pad 1 revenues around 10 billion USD. And it is estimated that i-Pad 2 by itself will become a Fortune 500 company.

  • http://www.facebook.com/people/Jørn-B-Andersen/100000657813318 Jørn B. Andersen

    Dear Zufi Deo,

    Thanks for the comment. I agree with you that Nokia has had a big role in building up a local innovation ecosystem in Finland. And I also believe that many of the skills and competences within this ecosystem can be utilized broader than just in relation to Nokia. The big question seems though to be: how dependent is the local ecosystem on Nokia’s performance? According to the Finnish govt. the structural changes within Nokia could be a threat to research and development work in Finland. And Nokia’s structural changes are also the biggest process of structural change that Finland has ever seen in the new technology sector.

  • Bmcgarvie

    Jorn writes about the need for management innovation, given 75% of the EU economy is service oriented. I agree. It seems to me that one of the ways to think about the new eco-system is to search the most innovative companies today and ascertain how they do it. Accenture has some research on this topic.

  • http://creativerealities.com Clay Maxwell

    Interesting insights and a good thought-starter. I referenced this topic in my Top 10 innovation retweets from February 2011 http://bit.ly/dCHZW4

    Clay Maxwell (@bizinovationist)

  • http://www.facebook.com/people/Jørn-B-Andersen/100000657813318 Jørn B. Andersen

    Paul Hobcraft,

    I think we agree on the EU innovation policy part. A couple of years ago the UK organisation NESTA.org wrote an interesting policy paper about how research and academia had captured the innovation agenda in Europe, and why the science and innovation policies should be separated. Maybe this mismatch between science and innovation policy is the essential answer as to why EU innovation policies have failed to deliver on their promises. And maybe this is the reason that there might only be a slim chance that EU innovation policy will or can learn from a case like Nokia and the underlying market dynamics. Put differently, EU innovation policies are not about market needs and innovation but primarily about science and academia and their needs and interests.

    Regards,

    Jørn B. Andersen

  • Adonisforall

    Too technical a piece…

  • Adonisforall

    Hi.  I feel it was arrogance that did the undoing for nokia.  There was never much of a change in the things you could do with a nokia phone – basically phone and sms.  Symbian would hang frequently.  The Nokia Priority stores charge a hefty sum (10% of the phone value) for an upgrade.  Nokia phones never delivered value for money – something that typically happens to all organizations who enjoy a dominant position in the market.

    Nokia never focused on the apps.  A cell phone had this big box and a cd where all software were trial applications.  Even when the net developed, Nokia has a lousy ecosystem.

    The phones had no system to block unwanted calls or messages.  How could Nokia  miss this?  It chose instead to dish out expensive apps for so simple a facility.

    Symbian had a lovely interface…But what was the difference between a Nokia 6600, the N73 and the E71?  Nothing great.

    Nokia heavily advertised phones it was phasing out.  This was unethical too.  Samsung changed this and soon Nokia learnt not to promote their older phones.

    Just my input sir…

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