FORTUNE: Nokia market cap may shoulder Microsoft and Cisco aside....
Analysis of The Nokia Phenomenon at Fortune.com: an exciting story of success in 6 parts.
2000-04-25
Fortune: Vol. 141, No. 9May 1, 2000
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Chapter 1:
Nokia's Secret Code.
Perhaps the least hierarchical big company in the world, Nokia has been winning big in wireless. But its Finnish recipe for innovation is about to be put to the test.
By Justin Fox
When MIT economist Bengt Holmstrom joined the board of Nokia a year ago, he had a question for the company's CEO, Jorma Ollila. "What's your secret code?" Holmstrom wanted to know. "Because you've got to have something."
That could be one of the great business questions of our age. Nokia, as just about everybody knows by now, passed Motorola in 1998 to become the world's leading maker of mobile phones. In 1999, Nokia's market share continued to grow, to 27% (with second-place Motorola at 17%, according to Dataquest), and the company claimed close to 70% of the profits earned in mobile-phone manufacturing. It possesses the world's 11th most valuable brand (right after Marlboro), as judged by consulting firm Interbrand. Its stock market value, $250 billion as of mid-April, is the highest of any European company (although Vodafone should top it after swallowing Mannesmann). While that market cap is but half that of U.S. tech superstars Cisco and Microsoft and Intel, one can make at least a plausible argument that, as the mobile phone displaces the PC as the essential appliance of the Information Age, Nokia could shoulder those titans aside.
What makes all this especially remarkable--indeed, it has already been remarked upon in the pages of virtually every business publication on earth, including this one--is that Nokia is a 135-year-old corporation headquartered in the previously unremarkable welfare state of Finland. The company has a home market of just five million people. Not all that long ago its major product lines included diapers and rubber boots. So, yes, Mr. Ollila, what is that secret code? (Or, since Ollila and Holmstrom--another Finn--were speaking their native tongue, Mika on salaisuutesi?)
"We went on for an hour or two on what it could be" is how Ollila recalls his response. "There is no secret code. But it is a good way of asking the question."
In fact, some top technology companies do possess a secret code that generates huge profits and keeps competitors at bay. The proprietary software code that is Windows, for example, has given Microsoft a lock on the PC market that no competitor has been able to break (although a federal judge seems to be giving it a try). To a lesser extent, Cisco and Intel have also been able to exploit their market leadership and unique technology to make their products a close-to-inevitable choice for buyers. This is what economists call lock-in.
Nokia's market share in phones isn't big enough to lock in anybody--a mobile phone that could talk only to other phones by the same maker would be worthless. And in Nokia's other main business, network equipment for cellular operators, it's not even the market leader; Sweden's Ericsson is. What's more, Nokia executives seem almost religiously committed to open standards and inter-operability in wireless. They're constantly signing deals with competitors to develop shared operating systems and standards. The idea is that the easier it is to use phones and other wireless devices, and the better they work together, the more people will want to buy them. This makes a lot of sense. It also means that for Nokia to prosper, it has to come out again and again with better, more appealing, more innovative products than its competitors.
With Nokia's stock trading at about 100 times earnings, this may be a sobering truth for investors to contemplate. But it also puts into focus just how magnificent the company's performance has been over the past decade. Throughout the 1990s, Nokia did, in fact, again and again come out with better products than anybody else. It wasn't always technologically ahead; it just made things that better suited the moods of the market and the needs of the moment--phones that didn't require two hands to use, with switchable covers and changeable ringing tones, with the most logical and adaptable user interface, with the right overall look. It was also generally able to get them out to retailers and cellular operators in the right quantity and at the right time. There are three possible explanations for this: (1) Nokia was very lucky; (2) Jorma Ollila is really smart; or (3) something about the way Nokia works makes it more pragmatic, more focused, and more flexible than other companies. There's truth in all three explanations, but when you talk to Ollila about the company's secret, it's clear he's partial to the third.
"It's the way the organization creates a meeting of minds among people," he says. "How do you send a very strong signal that this is a meritocracy, and this is a place where you are allowed to have a bit of fun, to think unlike the norm, where you are allowed to make a mistake?" Yes, this sounds kind of squishy and vague. And it may seem a slender reed upon which to balance $250 billion in market cap. But spend time around Nokia asking what has made the company so successful, and it's as definite an answer as you'll get. Not that people who work at Nokia dislike talking about the place; they, too, just seem to have trouble putting a finger on what's different about it.
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Chapter 2:
Many outsiders have had no trouble putting their finger on Nokia's secret
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Chapter 3:
Ollila, who had been Nokia's account officer at Citibank, came onboard in 1985
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Chapter 4:
Streamlining the company and courting big investors obviously wasn't enough...
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Chapter 5:
Mitchell, a production manager at Nokia's phone factory in Fort Worth, is nowhere near the top of the organization chart of the 55,000-employee company. But like just about any Nokia middle manager one comes across, he's perfectly comfortable explaining the company's philosophy to a reporter.....
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Chapter 6:
Nokia is a big, strong company taking a leading role in the move toward linking wireless and the Internet....
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