Breakthrough Ideas (continued)
Nokia and Europe’s Contrasting Strategy.
Qualcomm was committed to a 2G strategy called a performance play: to use CDMA'a unique revolutionary advantages to gain customers in the mobile wireless business landscape. The certain to come competitive business challenges came from incumbents experienced in both first and second generation wireless: AT&T, Motorola, Ericsson, and Nokia. During the process of setting the technically compromised multi-flavored 3G standards, the EU itself posed a serious political challenge. As the coalition leader in this standards war, the strategy of Nokia furnishes a compelling contrast to Qualcomm’s. Taken together, these divergent strategies defined the standards war in this competitive business landscape.
In "The Nokia Revolution: The Story of an Extraordinary Company That Transformed an Industry," the author Dan Steinbock (2001), who was once approached by a Sr. V.P. of Marketing at Nokia to write its story, dramatically asked what is Nokia’s secret code? Although it is not really a “secret sauce,” Nokia’s strategy is: homogenize rival’s upstream innovative processes to increase competitive advantage in its own strong downstream innovative processes.
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Nokia’s CEO Jorma Ollila conceptualized a coming mobile information society in which Nokia’s special edge was mobile voice and data terminals. Since becoming its CEO in 1992, Ollila’s vision for Nokia was that it was to become a horizontal tiger, patterned after Japan and the Asian tigers, with a focused but global strategy. He narrowed Nokia’s business focus to the mobile information society to maximize its coverage of international consumer markets. Using a strategy of global segmentation specifically geared to this chosen target segment, Nokia could achieve a tighter fit to its target segment than its bigger, less tightly focused, vertical competitors. Thus, Nokia’s profit zone moved downstream: selling branded mobile terminals to global mass-market customers.
In contrast with a traditional value chain, Nokia’s vaunted process chain consisted of three links: R&D, upstream, and downstream processes. Taking Sony as its model, Nokia excelled in innovative downstream processes: segmenting global markets by size and lifestyle, designing cell phones as fashion statements, and building global branding (the fifth most valuable global brand in 2000). Upstream processes included the development of platforms, standards, logistics, and supplier- or partner-management. Their global R&D was focused on improving its process chain primarily rather than on innovating technology upstream.
Instead of technology innovation, according to Steinbock, Nokia co-opts rivals into strategic alliances to set upstream standards. Strategic coalitions are intended to unlock benefits that Nokia cannot obtain internally, and ultimately, to provide them with strategic open and modular architectural building blocks that interchangeably fit into its variously segmented mobile terminals. That is, like a commodity player, Nokia transforms open standardized specifications into modular building blocks to be used within its branded global wireless consumer products, where downstream global branding and market segmentation--for example, by colors of changeable covers--can appeal to a specific psychodemographiclifestyle--say, the “cool” youthful, fashion segment.
Steinbock identified four typical benefits of strategic coalitions--access to expertise, scale economies and learning, shaping rivalry, risk reduction¾and one benefit he considered unique to Nokia--upstream standardization. Steinbock (p. 237, emphasis added) concluded, “By promoting open standards built upon externalization, Nokia has weakened its competitor’s strengths (upstream innovation) while increasing its own (downstream innovation).”
If Nokia could even out any strategic differences in which rivals are advantaged by upstream R&D, evening them out by strategically managing coalitions that set open standards, then its advantages in downstream processes alone could determine its focused global success in marketing and distributing branded mobile terminals to defined market segments.
Nonetheless, there is a second contrapuntal and discordant hegemonic theme in Nokia’s strategy as well, perhaps suggesting internal discord or the recently awakened significance they assign to IPR, that engenders a vertical counterpoint to its horizontal focus. Instead of being content to assemble open modular components and excelling in marketing, distribution, and branding downstream, Nokia also moved vertically by seeking its own intellectual property in GSM to rival it Big Five partners and in 3G to rival Qualcomm.
If, as I claim, Qualcomm succeeds in establishing its dominance of 3G, then Nokia will adapt eventually by using Qualcomm ASICs. To stay competitive, however, it must switch rather than fight before the Asian tigers, led by Samsung, roar into the global market.
Thus, the contrasts between the Nokia and Qualcomm strategies are: (a) political control of a European standard versus architectural control of a de facto standard; (b) cross-licensing only within the grand alliance of European GSM market-leaders versus selectively open fee-based licensing of intellectual property; (c) homogenize upstream processes to compete downstream versus innovative upstream abilities; (d) preemption and expectation’s management versus demonstrate excellence to prove excellence; (e) adapt to emerging opportunities by exploiting existing GSM network effects versus shape new innovative opportunities to create universal CDMA network effects. |
