Page 91 - DCOM506_DMGT502_STRATEGIC_MANAGEMENT

Unit 5: Organisational Appraisal: Internal Assessment 1

Notes
time. “My brief was to decide whether to sell it or keep it. After four months, I proposed
we keep it. We had good people, we had know-how and there was market growth
opportunity”, explained Ollila.
In 1992, Nokia chose to develop two existing divisions that had related technologies:
mobile telephone and telecommunications equipment (switches and exchanges).
Subsequently, it focused mainly on the mobile business but did not pull completely out of
the telecommunications equipment market.
There were four criteria to justify the strategic choice to focus on mobile telephones:
1. It was judged that the mobile telephone market had great worldwide growth
potential and was growing fast.
2. Nokia already had profitable businesses in this area.
3. Deregulation and privatisation of tele-communications markets around the world
were providing specific opportunities.
4. Rapid technological change – especially the new pan-European GSM mobile system
– provided the opportunity to alter fundamentally the balance between competitors.
Clearly, all the above judgements carried significant risk. In addition, the company’s
strategic choice was limited by constraints on its resources. The heavy losses of the group
overall were a severe financial constraint. In addition, it was not able to afford the same
level of expenditure on research and development as its two major rivals, Motorola (US)
and Ericsson (Sweden). Moreover, although it had the in-house skills and experience of
working with national deregulated telecommunications operators through competing in
world markets in the 1970s and 1980s, it would need many more employees if it was to
develop the market opportunities. However, by selling off its other interests and
concentrating on mobile telephones it was able to overcome some of the difficulties.
Looking back on that time, Ollila commented: “In order to be really successful you have
to globalise your organisation and focus your business portfolio. We have been able to
grow and be global and maintain our agility and be fast at the same time”. What Ollila did
not say was that Finland is a small country, so to build any sizeable business, it is essential
to think beyond the country’s national boundaries.
1992-2000: Building Global Leadership
One of Ollila’s first tasks was to build a management team. He chose two new, young
executives as part of his team: Sari Baldauf as head of Nokia networks and Matti Alahuhta
as head of Nokia mobile telephones. Alahuhta had recently attended IMD Business School
in Switzerland where he had written a dissertation on how to turn a medium-size
technology-based company into a world-class enterprise against larger rivals with greater
resources. He clearly had in mind how Nokia could compete with competitors like its
Swedish rivals Ericsson, the Dutch company Philips, the French company Alcatel and the
American company Motorola, all of whom had considerably greater resources in terms of
finance and technical knowledge. Alahuhta identified three important factors to help
Nokia: first, it was important to find a new technology that would change the rules of the
game and turn all existing competitors into beginners; second, it was essential to move
fast internationally and respond flexibly as international markets developed; third, the
company had to assess and deliver what customers really wanted from mobile telephones.
Alahuhta did not especially identify one technology development that proved highly
valuable in the early 1990s. This was the agreement within the European Union to adopt
the GSM technical standard for mobile telephones. This allowed company like Nokia to
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