Profitable Innovations

BACKGROUND

When companies were smaller and the world was less competitive, companies could rely on internal R&D - resided within their own four walls - to drive growth (Huston & Sakkab, 2006). In today's vibrant business atmosphere, innovation is a key for continued existence and the companies that create innovations with the greatest value will have a significant competitive advantage (Chesbrough, 2003). The ability to develop and commercialize profitable innovations is a strategic skill (Bartlett and Ghoshal, 1989) and companies have to consider the changes in the nature of technology, demographics and the global economy that are taking place and giving rise to new trends, such as online communities, collaboration and self-organization (Tapscott & Williams, 2006).

WHAT IS INNOVATION

“Innovation is the specific instrument of entrepreneurship... the act that endows resources with a new capacity to create wealth.” Drucker, F Peter

APPROACH OF INNOVATION

Innovation isn't only about new products or technology, most of the companies they limit their effort only exploiting and generating ideas for the new product and technology. There is no doubt about that new product and technology is one kind of innovation but apart from these there are various dimension of innovation.

  1. Product/Service Innovation
  2. Operational Innovation.
  3. Business model Innovation.
  4. Strategic Alliance i.e. Partnership, Merger
  5. Portfolio Innovation

These are the major sort of innovation moreover there are6 :

  1. Industry Innovation
  2. Experience Innovation
  3. Cost innovation

OPEN INNOVATION

Innovation processes, it's always changing, along with changes in the economic climate, the industrial development and globalization among other things (Rothwell, 1994). Recently, both in Academic as well as in management, the “open innovation” concept has gained certain attention. The term open innovation was first introduced by Chesbrough and gained international recognition with the book "Open Innovation: The New Imperative for Creating and Profiting from Technology" (2003), in which Chesbrough explains how companies have shifted from what he calls closed innovation processes towards more open ones.

In closed innovation processes - the traditional way of innovating - the product development and marketing of new products occurred within the company's boundaries (Chesbrough 2003).

CLOSE INNOVATION

In this process idea comes from outside the organization and after that ideas are screened and filtered during the research process. The succeed ideas in this phase promote them for further to development, and flow out to the market on the right. Research and development is linked and internally focused in closed innovation. The closed innovation model is intended to diminish false positives; that is projects that might be fit in the beginning but later there is no use to the company. The objective of the model is to weed out projects that potentially have the greatest chance of success in the market with series of internal screens.

OPEN INNOVATION

The open innovation model abolishes the boundaries of the firm and enables it to cooperate more with its surroundings. Projects can be initiated from the surroundings as well as from the inside, regardless of stage of progress. The paths to market are also broadened to include other markets through other parties in the firms surrounding, rather than only the firm's current market. Options as licensing out and spin-offs are additional ways to new market.

MOBILE TELECOM INDUSTRY

In the last 20 years telecom industry has grown and evolved at an incredible pace, people changing the communication way dramatically and transforming everyday life along the way. Already mobile phones penetrate the half of the globe, now people cannot thing without it. In the developed nation mobile phone industry is in maturity stage and some mature market surpassing 100% penetration. The rapid growth has promoted a dynamic and competitive evolving technology and innovation. It is an exciting and demanding time for a device manufacturer, service provider or a software developer. The first commercial fully automated cellular network (1G Generation) was launched by the Japan by NNT (Nippon Telegraph and Telephone Corporation) in 1979 and the network coverage was full metropolitan area of Tokyo. Within five years NNT had been covered the full country and became the first 2G Network provider. After Japan Nordic Mobile Telephone was launched 1G network simultaneously Denmark, Finland, Sweden, and Norway. In the early 1980 several countries like UK, Canada, and Mexico had launched 1G Network and the first 1G network was launched in the USA in 1883. In the year 2001, again Japan commercially launched the first 3G network .Now we are using 4G networks which means Broadband Fourth Generation. The time line of the mobile industry is not that much old but already it has gone long way. Six out of ten people around the world now have mobile phone subscriptions. Association of Telecommunication union estimate that by the end of 2009 mobile subscription reach 4.6 billion globally .In 2008 it was 4.1 billion globally compared with 1 billion in 2002.

According to this graph in 1997, only 1% inhabitant was using mobile phone where as in 2002 it was 11%. By the 5 years, user of the mobile phone increased by 10%. 97% people from the developed country, they were using mobile phone in 2007 and globally it was 45%. In 2009 this ratio is more than 50%.

MOBILE DEVICE MANUFACTURER

In mobile phone handsets, in Q3/2008,Nokiawas the world's largest manufacturer of mobile phones, with a global device market share of 39.4%, followed bySamsung (17.3%),Sony Ericsson(8.6%),Motorola(8.5%) andLG Electronics(7.7%). These manufacturers accounted for over 80% of all mobile phones sold at that time. Other manufacturers includeAppleInc.Audioox(nowUTStarcom),Benefon,BenQ-Siemens,CECT,HTC Corporation,Fujitsu,,Philips,RIM,Sagem etc.

Smart Phone is the new and advance phone which is differs from the typical mobile handset in two ways. Its almost like PC, its run by the operating system and user can get the maximum facilities from this sort of phone. Currently there are many smart phone manufactures in the globe i.e. Symbian, RIM Blackberry, Apple iPhone, Windows mobile etc.

Among of all Symbian is the market leader. Symbian is the treaty of some leading mobile manufacturing company who use the unified software. In this partnership, companies are Sony-Ericson, Nokia, Samsung, Motorola Siemens etc.

NOKIA AND TELECOM INDUSTRY

Nokia is now the largest mobile phone company in the world and they currently captured the almost 40% market share in the world. Nokia is the Leading Finish origin multinational company, its operate business in 120 countries with more than 128,445 employees. In Q3 2009, Nokia's total global market share is 38%; it was at the same level as Q3 2008.

Mobile phone device is key product of Nokia. Nokia also provide internet service moreover 'Nokia-Siemens Network' is the leading telecommunication network solution provider in the globe.

HISTORY OF NOKIA

“Nokia's History is a story about change”1

NOKIA AND INNOVATION

Nokia Corporation has succeeded to become a world leader in the development and manufacturing of mobile telecommunications (Dittrich & Duysters, 2007). The company developed by a number of mergers and acquisitions (M&as) (Dittrich, 2005), and was one of the main actors in the development of the mobile telecom industry in the 1980's and 1990's (Chesbrough et al., 2006; Dittrich & Duysters, 2007). Nokia start their journey in the year 1865 as a paper and power manufacturing firm .By the course of time they change their business operation, strategy, mission and vision. In the year 1992 Jorma Ollila became president and CEO of Nokia and he made a crucial strategic decision: to focus on telecommunication and take out the company from the other business.After that company gradually sold their rubber, cable and consumer electronic division and focus to concentrate on telecommunication.

“Nokia's core competencies to be in three fields: mobile handsets, network technology and middleware.”

MOVING TOWARDS OPEN INNOVATION STRATEGY

Nokia had taken open innovation strategies early, which strengthened their position in the mobile telecommunications industry. In the development of 2nd generation standards, GSM (Global System for Mobile Communication) was by far the most successful cellular technology (Bekkers et al., 2001). Much of the design belonged to Nokia and Ericsson and they had the most home market knowledge among the European manufacturers (Chesbrough et al., 2006).

The standardization of GSM is often considered as a case of open standardization (West, 2005). When the proposal of standardizing GSM in Europe was taken, the European network operators were in fear of competition from Japanese manufacturers . They realize the need to reduce possible uncertain-ties from the suppliers (Bekkers et al., 2001). First of allthis new GSM technology would be standardized whole over the Europe and no foreign technologies would be allowed (Chesbrough et al., 2006). Secondly, they worried about the GSM patent cross-licensing, which enabled suppliers of important innovations incorporate in the standard to attain royalties on the equipment sales by competitors, including both the handsets sold to consumers and the network infrastructure sold to mobile phone operators.

The development of the GSM standard shows an early form of Open Innovation, where the innovators attained income from licensing fees from the standards they developed, and later entrants were blocked by high entry barriers (West & Bekkers, 2006). The effect of these open innovation strategies for Nokia was that the company remained active, vertically integrated manufacturers and developed both new technologies and continued to be a major global supplier of cellular handsets (Chesbrough et al., 2006). While, at the same time, many equipment manufacturers realized they were losing money on the handset business and exited.

Nokia's Strategy & Business Model

Just before end of the 1990's, while Nokia trying to retain its leading position in the development of 3rd generation mobile technology and they made a vital to change strategy from exploitation to exploration. The change of strategy has led to, among other things, the development of Nokia's famous international innovation network (Dittrich, 2005) and effective use of open innovation (Chesbrough 2003), which offer them flexibility, speed, innovation, and a capacity to adjust efficiently to shifting market conditions and new strategic prospects (Dittrich & Duysters, 2007).

During 1997 and 1998 - the time period preceding Nokia's strategic change from exploitation to exploration - Nokia had 11 partners (Dittrich, 2005).

Between 2001 and 2002, after changing strategy and at some stage in the development of 3rd generation standards, a substantial increase happen in Nokia's alliance network. During this period of time, Nokia's alliances increase to include 44 partners (Dittrich, 2005).

Furthermore, the company's allied partners and products also changed. The increased need of stan-dards during the development of the 3rd generation mobile technologies made partnerships with competitors vital. Also, while Nokia was more focused on telecom equipment during and prior the 2nd generation standards, the need for software development became more important. During 2001 and 2002, almost half of Nokia's alliance agreements were related to software development. What's further interesting is that 88% of Nokia's strategic alliances during this time were with entirely new partners - some of which in entirely new areas of business for the company. Nokia continues to develop its international innovation network -shifting from M&As to strategic alliances - reinforcing their core competencies, and extensively uses networking strategies for the development of new products (Dittrich, 2005). The company divests and refocuses its business activities instead of diversifying them. Core competencies are now defined as mobile handsets, network technology and middleware, and speed has become the most critical element for the strategy as the technological environment changes rapidly.

Nokia only codevelops with external parties on product and software if the partnership meets the competencies necessary and indicates good possibilities of being first to market (Dittrich & Duysters, 2007). If those requirements are not met, they rather choose some form of collaboration or out-sourcing with a company that has the necessary competency and/or speed. Nokia classifies products outside core as “context”. Those are generally outsourced since there are no economies of scale for Nokia in producing them. Agreements for “context” products differ from strategic partnerships to buyer-supplier relationships.

NOKIA RESEARCH CENTER

One of the key factors in Nokia's innovation is continuous high investment in R&D. According to Nokia's official web site As of December 2008, they employed 39350 people in research over the 16 different research centre located in i6 countries. This figure represents the 31% of Nokia's total workforce and the total expense was EUR 5968 million in 2008 which was 11.8% of the total net sales in 2008.

Nokia's researcher gives the continuous support to the production development units to master key technologies and their evolution. This helps Nokia's to develop competitive products efficiently. According to Nokia it is the short and medium term strategy. In the long run perspective, they research in the different dimension of the technological aspect. By researching they always try to keep their organization up date and also encourage taking different ideas for new business development.

NRC both actively advocates and employs open innovation in their work. One important open innovation strategy is to benefit from selective and deep research collaborations with world-leading institutions (Nokia.com, Nokia Research Centre, Open Innovation). In collaborations, NRC believes in sharing resources, leveraging on ideas, and tapping each others' expertise. According to NRC, their collaboration network gives them the capability to

  • Creating new exciting innovation ecosystems
  • Multiply efforts on projects
  • Gear up innovation speed and efficiency
  • Creating more value for the organization and end-customers as well.

ACADEMIC COLLABORATION

Nokia's has a effective academic network , according to the company, a sign of its objective to cultivate innovation, deal with important technical challenges and uncover global business opportunities (Nokia.com, Nokia Research Centre, Open Innovation). The following figure illustrates Nokia's worldwide open innovation network of collaborations within Academic (Nokia.com, Research).

More Open Innovation Functions Applied by Nokia

To apply open innovation, Nokia uses many different types of tools, technologies and processes. A selection of the most commonly used practices is presented below.

Nokia Innovation Centre

Nokia Innovation Centre (NIC) is a quite new open innovation network.. NIC was founded 2007 and occupies nearly 80 researchers. The leading collaborative partner is the Finnish Tampere University of Technology (TUT).The main purpose of this centre to collect information and disseminate these information to the collaborator and researcher.

Open Threads

Nokia issues a newsletter called “Open Threads”. They issued it seven times a year. The main target group of this news letters are Nokia, Nokia Innovation Center, Tapere University (TUT) and NRC as well as their respective interest groups (Saarinen & Pitknen, 2008). Other major target groups are the local and global research community and business and technology management.

Nokia Media Laboratory

The main centre of attention for Nokia Media Laboratory (NML) is finding innovative media and communications solutions to new human practices and social trends (Nokia.com, NRC Media laboratory).

Nokia Beta Labs

It is a great opportunity to Nokia's users to contribute to software development by using proto-types of products and giving feedback. Nokia Beta Labs is a community built to support innovativeness, where users' suggestions are realized by the company (Nokia.com, About Nokia Beta Labs). Users are encouraged to give the feedback, suggestion for the further development of the company.

Forums & Communities

There are many forums and communities are linked to Nokia's website, both for users and developers (No-kia.com, Forum Nokia). Nokia users can discuss and share opinion online in local and global communities provided by the company (Nokia.com, Nokia Support Discussions) moreover nokia arrange the online discussion, training and contest among the developer eho are interested in software development. Recently Nokia opened up their Symbian platform for development. Although the new Android platforms are made available by Google under one of the most progressive, developer-friendly open-source licenses (Google.com, Google Press Center; Press Release), Nokia has decided to carry on using (the now fully Nokia owned) Symbian platforms for their mobile devices (Stadigs, 2008).

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