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The Rise and Fall of Nokia II
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Do curso por IE Business School
Perspectivas Críticas na Gestão de Empresas
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Case Studies
We look at the examples of two companies whose recent experiences encapsulate many of the core ideas of the course. The first is Apple, which, in the context of reporting their quarterly earnings in the Spring of 2013, committed an unprecedented amount of its capital reserves to a share repurchase scheme and dividend increase. We will look at the motivation and logic for this move. The second is Nokia (which has subsequently sold off its mobile phone business to Microsoft). We will look at how the company rose - and then dramatically fell - from its position as market leader in mobile communications.
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Rolf Strom-OlsenProfessor
Humanities
[BLANK_AUDIO]
That's certainly one of the key Nokia insights was to
recognize that this was going to become a mass consumer item.
But it's not that alone because it was not the only
group out there that was sort of interested in this market.
As I say, Motorola was also an early driver of this market.
So Nokia also did something in terms of how it
drove that market that helped it to enable that, that vision.
In other words, how do we make these big clunky devices, sort of necessary
consumer, consumer good.
And I'd like to focus on a couple of other insights that
I think Nokia brought to the marketplace in the 1990s that helped to
drive its growth, helped to drive its strategy that ultimately led it to
be the dominant player in cellular telephony by the end of the decade.
And some of these I think, are probably relevant in a universal sense.
One of the things that, for example, Nokia was able to do early on and quite
successfully was implement a global strategy.
How do I move from being a Finnish company to a global company?
How do I take products that I know how to market in
a Northern European context and move them in an Indian market, or
move them in an American market, how do I create that kind
of, of knowledge, expertise that I need in order to generate good sales?
And what we find that Nokia does is it embraces a
global strategy; which is we might think of an cheap and
easy phrase of you know think global act local.
They actually did that right?
So they, when they expanded globally the way they did it was, they
didn't sort of take a model from Finland and simply import it over elsewhere.
They tried to grow organically operations in individual countries, so
that they had local knowledge on the ground that knew
the local market that thereby was able to bring local
insights about how best to gain entry into that market.
So that global strategy was certainly another
key insight that Nokia had in terms of what was driving its success.
Another thing that I think we should point to Nokia for as a, as a good
example was it was thinking innovative, in innovative
ways about how best to sell this item.
If you think about it, today it's obvious, but back at the time
it seems less obvious, how do you sell a consumer a cell phone?
Now, today we all know that the easiest way to sell a consumer a cell phone
is through a cell phone provider, through a contract right?
Lock them into a contract then you give them the phone.
But that strategy isn't immediately obvious, because it means in
fact you have a kind of indirect relationship to the consumer.
You're going through any number of providers, and you're kind of
dependent upon them in order to drive your strategy for it.
But at the same time, it allows you to lock long
term relationships into place so that you can actually create key relationships
with critical partners in order to create a very compelling consumer item.
That's another key Nokia insight that we find the company pursuing,
which helps to find its success in the course of the 1990s.
I think there are some other things as well that we should focus on with Nokia.
Another key insight that Nokia had when it was
developing this market and I think it's an insight that
we often attribute mistakenly to Apple and I think it,
we should put it back where it belongs, it belongs
to Nokia.
Which was to recognize that a cell phone is as
much about its software as it is about its hardware.
Nokia phones and those of you who have owned a Nokia phone will know this.
One of the nice things about a Nokia phone was
whichever model you bought from model to model to model,
it had the same kind of internal characteristics so that
the software that drove gave you a kind of familiarity.
Once you learned how to use it you could continue to know, you
would continue to know how to use it even if you upgraded your device.
In fact, if I go [NOISE] how many of you instinctively
reach for your pocket and go [NOISE] right, to unlock the, screen?
That's the kind of consumer knowledge that you want to
have people that you want people to have about your product.
Because it indicates that they've got a certain level of buy in.
And I think that many of us would probably,
are able to confirm this anecdotally that when you had
your Nokia device and you went to the store and
you were thinking, okay I'm going to upgrade my cell phone.
What kind of device do I want to buy?
Nokia was a compelling and interesting choice in
part because you already knew what the phone was.
You knew how to use it.
You knew where to get your contacts. You had a kind of familiarity.
Well that sense of familiarity is driven by the internal ecosystem,
driven by the software, so that understanding that a phone is as
much about the software that runs it as the hardware that
you're using I think we should give Nokia, I think we should
give Nokia the credit for that, for that insight.
And for a long time Nokia's operating system
Symbian, was the gold standard for mobile telephony.
It was an elegant, easy, easy software that worked very well
in the kind of limited memory, limited computational environment of a phone,
and so, for many years, when you thought of optimal, when
you thought of a very good operating system for a mobile syst,
a mobile phone you thought Symbian.
And they put a lot of money into Symbian to
generate, to create this operating system, and to continually upgrade it.
I would be remiss if I didn't also mention another great Nokia insight called Snake.
[LAUGH]
And it comes up over and over again when
people think of their Nokia phone, people think of Snake.
Give consumers things that they want.
It may seem an in obvious thing, but actually it
turns out that it was a tremendous driver of Nokia phones.
When you were thinking about a phone to buy, Nokia has Snake,
I love Snake, right, it's the best way to kill two hours.
I've got I've got my lecture tomorrow, I don't know what I'm going to do.
He doesn't allow computers in there, but I can play Snake underneath the desk, and
that'll be great, right?
So Snake and similar kinds of things were, were key.
Which is in other words another way of saying, right, that
the software that you're building into the phone is actually critical.
And that's again, I think, another inobvious insight.
In retrospect, it seems pretty clear, but at
the time, when you thought of a phone, if
you think about the phone, about where it
fits as a consumer item, it's a mechanical gadget.
You pick it up, you dial some numbers, you make a call.
You don't think
of it as an instrument for delivering software to you, that you can use.
So this idea that the phone can serve these multiple purposes, that
I think we should credit Nokia with in terms of pushing that idea.
Another thing I think that we should give Nokia credit for in the
course of 1990s, to recognize that a phone is always not a phone.
There are many kinds of phones.
You can build phones across all kinds of different
market segments from very basic to more advanced.
They found other things to do to make.
To allow phones to be customizable.
I'm always astonished at how many people care what
the color of the keyboard cover of their phone is.
Right?
Like I mean it's black, it's blue.
Right? But no people get pink or something.
Did you see John he had a phone cover that was you know, bright orange.
Right? I want one of those.
So this idea of being able to customize your phones, and
sort of make it a kind of personal object to you.
Although not exclusive to Nokia was certainly
something that Nokia was able to achieve.
So when we look at the expanding stable of Nokia products
through the 1990s, what we find is that the company's actually very
good at thinking about its customers and building a wide range of
devices that matches or meets a lot of those different customer expectations.
Another insight for Nokia that I want to give them credit for in the 1990s.
Build in products
obsolescence without pissing off your customers.
Nokia gave you a device, and kind of built in obsolescence.
It didn't build the obsolescence actually into the device, it built
it in through this sort of constant additional, or addition of features.
So you buy a phone and it would work well, and you like it and you'd be playing snake
And then your friend would show up, and they'd
also be playing Snake but their phone had FM radio.
Damn, I gotta go get a phone
that has FM radio.
Then you get your phone with FM radio and that's great,
but then like six months later your sister has a Nokia phone.
It's got a camera on it.
Aah! I gotta get a camera on my phone, right?
And so on and so on.
And then you get a camera, but it's not very good,
and then somebody shows up with a better camera, and so.
That building in, that product obsolescence, constantly pushing people
back, is I think still a feature of the market.
When we buy a phone, you yourselves can think
about this.
What is your expectation for owning that phone?
I doubt very much that most of you think it's say
three or four years, and that would probably be at the outset.
Do you expect to own a phone for more than four years.
And I would, I'd argue that that's unlikely.
Well why do you expect to be changing your phone at the most every four years.
Because of that idea that the phone has a kind of
short shelf life through being driven by the addition of features.
Where does that come from?
That comes from Nokia which was one of the pioneers in thinking about its consumers.
Thinking about the customer in that way and
providing a stable of products that fit that need.
It's a great business model.
I mean if you think about it, you sell somebody a phone.
Six months later at more or less the
same price, you sell somebody else a better phone.
Shouldn't that make you angry?
Right?
f you think about it, that's not rational, shouldn't we be annoyed?
I just spend $199 on a phone, six months later somebody just
spent $199 on phone got exactly what I got, plus a camera.
You think that would engender a certain amount of hostility towards
the company that did that to you, but no it's simply
part of how we understand the evolution of that marketplace so
the idea that there's this constant we might call it innovation.
So cons.
Well, let's call it feature.
Feature driven market so constantly adding new features.
They're driving the consumer back.
And because Nokia had this insight of making the
phone about the operating system and not about the hardware.
It meant
that when people were constatly going back into the market place to pick up
another phone, they were often going for
a Nokia because the learning curve was there.
So that although there were many phones that offered cameras
and FM radio, and all these other things, Nokia was able
to sort of build up a brand loyalty because of
the knowledge investment that you had made in, in their devices.
That is to say that when you bought a new phone, you
wanted to make sure that when your mom called you, it went [NOISE].
[NOISE] because that's just reassuring and
happy sound. [NOISE] Right?
That's the sound of a phone call being made, and that's so strange.
We have a kind of a cultural attachment to these, to these kinds of things.
All of that is Nokia, is a Nokia insight. It's an extraordinary thing.
If you think back about it, if we
think back about how that company helped develop the
entire cellular telephony market, established a series of
practices and a series of standards that informed that
market, many of them are still with us today.
Many of them come from how Nokia and Nokia
engineers, Nokia management, thought about that market in the 1990s.
[BLANK_AUDIO]
Today, we would still say a phone is much
more about the software than it is about the hardware.
Back to the point now, where we talk about phones, less in
terms of the manufacturer and more in terms of Android or iOS.
Which is means, actually, we've reduced the manufacturing part, the harder part of
the phone, and we've replaced the conversation
merely with an assessment of its functionality.
Where does that come from? Comes from Nokia.
And I think that also, that idea of the built-in product obsolescence Apple has
successfully brought up, or, and Samsung has successfully adopted the Nokia model.
They constantly are updating their phones.
There's a new Galaxy, there's a new iPhone that does this, it
has more memory, it has higher pixels, I don't know, whatever it is.
A year after they just introduced the last one.
Or two years after they just introduced the last one.
And they can do that.
And they cannot make you angry by doing that because you're used to it.
Because when you think of a phone that's what you think of.
You think oh well it only is going to be good
for 12 months before something better is going to come along.
You don't think damn you Apple.
How come you did this to me.
That comes, that idea of how you read the consumer market comes from Nokia.
There's some other things, too, I think, that we
should credit Nokia with, in terms of this market.
How many of you were surprised to learn the first internet tablet.
Who made it?
Nokia. How many of you were surprised to learn
that the first phone that essentially served as a music player, backed
by a third-party, online music platform That that idea came from Nokia.
That smart phones are essentially a Nokia idea.
That when we look in fact at what we
think of as the rapid developments in this marketplace.
When we think of all these innovations that have driven this marketplace.
When you go back ad fontes as they say. Back to the source.
Who did it first?
And over, and over, and over again, the company that comes out is Nokia.
These guys were true innovation leaders.
They were really thinking well about this market, they were really
focused on the customer, they were really thinking about all of
the different ways that they could generate value by providing customers
with different kinds of experiences, and yet, despite all of this extraordinary
a, achievement, where is Nokia today?
How is it that a company that was able to
do all that, has ended up where it is today?
I'll give you a small anecdote about how inobvious
this development is because many of you are to
young to be able to appreciate I think the
way in which this market was moving in the 1990s.
When I first showed up to Spain as a Fulbright
Scholar I'd been living in Europe all ready for a while.
And while I was there, while I was living in Europe, I had wanted to get a phone.
Those of you who've tried to get a fixed
line from a major European telecom provider will know
that that's nearly impossible, takes like
six months and then some grouchy technician
shows up at your home and he tells you it can't be done.
So it looked like if I wanted to get a fixed line in my apartment, I would
probably be out of the country before somebody would
get around to hooking me up to the line.
Plus it was expensive and so on. So I decided to buy a cell phone.
1997 as a graduate student. That was not an obvious decision.
Graduate students don't own cell phones. Who owns cell phones?
Fancy executives with MBA's.
Those guys maybe own cell phones because
they're important people and they're talking on their
phone all the time but literally graduate
students impoverished eating noodles, learning big vocabulary words.
They don't own cell phones, that's not a product class for them.
So, as a graduate student, you're very unlikely to buy a cell phone.
So it was a big decision for me, and I
remember spending a lot, I went into some shop, and looked
at this wall of all these phones. Never owned a cell phone.
Never thought of owning a cell phone. Guy talked me up on one.
Said [FOREIGN] So I showed up in Spain and, and I was at the Fulbright
reunion or the, the opening ceremony for all of the Fulbright scholars.
There were like 30 of us who arrived in Spain on our Fulbright Scholarship.
And, so I was there at this sort of
opening wine and cheese that they had organized for us.
Sort of, meet and greet.
So I was going around, and I was pulling my phone out of my pocket, saying give
me your details, you know, that's just great to meet you and so on and so forth.
And they were looking at me, who's this guy?
Like, who does he think he is?
Right, he's just another graduate student like the rest of us.
He's pulling out his phone like he's a big shot, like he's a somebody, like
he thinks he's all that, and so and
so forth, alright, didn't make a good impression.
And I'm like, no no, you're going to need one of these, like this
isn't, you're all Americans, no this isn't, you're
going to have to get a phone, and he's
like no, I don't need a phone, it's a luxury thing, it's like not for me.
But by the end of the year, guess what.
Of course they all had phones.
They all had phones within the first month, right?
because the pace of usage in Europe at
the time will outpace that of the United States.
So, suddenly lowly graduate students were buying phones in that kind of a context.
Well, it just tells you that in 1997 that
was still the image of the cellphone.
That someone like me, a lowly graduate student, thought of the cell phone as
a sort of device that was a little bit outside of my cultural identity.
A little bit outside of my my world.
By 1998, 1999 the cell phone has really become a very ubiquitous object.
In fact I would argue that today it's the reverse.
If you don't own a cell phone today, you're kind of being rude, are you not?
It's like saying I don't care.
I'm too important to be, to, to let you contact me right?
Little people own cell phones, important don't actually have to be traceable
24 7, so we had a come up to a complete Reversal,
well that driving the market, that making the market for cell phones
into something where we all look at it now as an indispensable good.
I want to give a lot of the credit for that to Nokia, I think they deserve it.
I think that they, the quality of the goods,
the, the, phones that they made, the way in
which they penetrated different markets, the kinds of
strategies they used to move phones into people's pockets.
They deserve a lot of credit for making the phone
the device that it is today in our consumer culture.
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