At the Forefront of Innovation

By Christopher Brown-Humes

It is the biggest company in one of the world's fastest-growing industries. Not only is Nokia selling three out of every ten mobile handsets being made - it overtook Motorola last year to become the world's biggest mobile phone maker - but its market share is rising fast.

The dramatic success gives the Finnish group, led by Chief Executive Jorma Ollila, an obvious claim to membership of any league ranking the world's most respected companies. According to one of the respondents to the FT/PwC survey, the company has quite simply ‘changed the future’.

Success has happened in less than a decade. Moreover, it has happened in a country, on Europe's outer fringes, which has a population of just 5m and where the traditional industry - pulp and paper is anything but high tech. Luck has played a part too: nobody quite realized a decade ago that the mobile phone would move so quickly from being an expensive status symbol to a popular mass-market product. The group's deci­sion to concentrate on the GSM segment was also a fortuitous one, because GSM has become the de facto world standard.

Back in 1992, shortly after Mr Ollila took over as Chief Executive, he wrote down the four phrases which he saw as the key to the group's future. They were 'telecom-orientated', 'global', 'focus' and 'value-added'.

Nobody can say he did not stick to his own brief. Focus meant turning Nokia from a sprawling conglomerate, with a promising mobile business, into a dedicated mobile phone company. Out went much of 'the baggage' – chemicals, tyres, cables and television-set manufac­turing were among the businesses offloaded during the early 1990s.

On the telecommunica­tion side, the company has succeeded in establishing a strong brand that is recog­nized throughout the world. There may even have been an initial benefit from some customers l thinking it was a Japanese company. In fact, the name comes from a town in southern Finland.

The group has out-stripped its rivals, Motorola and Ericsson, because it has allied engi­neering excellence with great marketing flair. Analysts say it has usually produced more fashion­able, reliable, and user-friendly handsets than its competitors.

Moreover, it has kept at the forefront of innovation, shortening product cycles, and launching new models just when the margins on old ones are starting to dive. It has a consistent record of increasing vol­umes by more than enough to offset falling prices. Also, the company has been able to manage its growth - staff numbers have grown from 25,000 in 1993 to 44,000 today – and bureaucracy has not been allowed to stifle the culture of innovation.

If success is measured by market capitalisation, Nokia can have few equals. In January 1994, it was worth just €3.5bn. In mid-November 1999, the figure had risen to €142bn. The company is Europe's fifth largest and singlehandedly accounts for more than 50 per cent of the Helsinki stock exchange and a sub­stantial chunk of Finnish GDP growth.

Analysts, not surprisingly, are fulsome in their praise. 'Nokia has a 30 per cent and growing share of the handsets market and more than 60 per cent of the profit in the sector. It is incredibly efficient, with the best products, the best brand and the best logis­tics,' says Lauri Rosendahl, analyst at Aros Securities in Helsinki.

So far, the company has defied predictions that its rivals will catch up. So far, it has managed growth. And so far, the US Internet giants have stayed out of the mobile arena. But even more advanced technologies are on their way, rivals are snapping at its heels, and living up to the mar­ket's high-placed expecta­tions will be an ever more daunting challenge.

From the Financial Times

D. What is the most successful company in your country? Explain your answer.

VOCABULARY

A. Match the prefixes over- and out- to the verbs below.

bid book charge manoeuvre number run strip subscribe take vote

B. Do any of the verbs above take both prefixes?

C. Complete these sentences using the prefixes over- or out-, and the correct form of the verbs above. Use each prefix and verb combination only once.

  1. Nokia …………..Motorola last year to become the world's biggest mobile phone maker.
  2. The group has ……………….. its rivals Motorola and Ericsson.
  3. AT&T ............... two of Mexico's largest suppliers to win the right to build 6o% of the network.
  4. The CEO and three other board members combined to ............................. the three non-executive directors.
  5. We were completely ............................. in the negotiation and ended up paying too high a price.
  6. In our company, females …................ males four to one.
  7. The airline offers cash as compensation for passengers when flights are ………… .
  8. They refused to commit themselves in case the project's costs ............... its budget.
  9. He is alleged to have ................... them for production and repair work.
  10. The share issue was a success and was hugely ….................. .

D. What is the basic meaning of the prefixes over- and out-?

E. Choose the best definition of the verbs in italics in these extracts.

1. Nokia has a consistent record of increasing volumes by more than enough to offset falling prices.

a) to make one thing less than another resulting in a great difference

b) to cause something to happen

c) to balance one amount against another so that there is no great difference as a result

2. Chemicals, tyres, cables and television-set manufacturing were among the businesses offloaded during the early 1990s.

a) to sell a company at a higher price than expected

b) to get rid of something you do not want by giving or selling it to someone

c) to sell a company at a lower price than expected

3. You can use your frequent flyer mileage to upgrade to business class.

a) to get something earlier than you expected

b) to get something better than you paid for

c) to pay less money than you expected

F. Match each verb with its definition.

downsize to be more successful than another company, country, etc
outflank to improve, to make more efficient
undersell to reduce the number of employees and levels of management that a company has
underspend to sell goods at a much lower price than the competitor
upgrade to spend less than you intended or than you are allowed

G. Complete the following sentences using the correct form of a verb from exercise F

1. Last year we ………………….. our budget by 21%, so unfortunately our budget this year has been reduced accordingly.

2. The CEO’s ideas were ……………………. by those of the directors.

3. Why don’t you have your PC ………………… if it’s so slow?

4. We’ll cut our expenses and ………………. our operations in order to become more competitive on the market.

5. We are looking for ways of …………………… our rivals. No one will be cheaper us.

PAIR WORK

A. Work in pairs. One of you reads New Coke for Old, the other reads Ford Edsel: Remember My Name. When you finished, tell your partner about what mistakes were made and why.

New Coke for Old

By 1979 Coca-Cola's lead in the US soft drink market was down to 4% although it was spending $ioom more on advertising than its great rival Pepsi. So, after 99 successful years Coca-Cola decided to change its original formula and launch New Coke. Coke spent two years and $4m on new flavour research. By 1984 their market lead was down to 2% but in blind taste tests people seemed to prefer New Coke to Pepsi and in the biggest test 61% preferred it to original Coke.

Within 24 hours of its launch on 23 April 1985, 81% of the US population knew of the change to New Coke. However, once it was realised that New Coke was to replace rather than to be available as well as original Coke, the complaints started. By the middle of June there were 8,000 a day. Coke also received 40,000 letters. On 11 July Coke executives apologised, admitted their mistake and re-introduced original Coke as Coca-Cola Classic.

The failure of New Coke had cost more than $4111. Sales of New Coke continued to fall while sales of Classic rose. Loyalty to the original was stronger than ever and Coca-Cola regained its place as the nation's favourite soft drink.

Ford Edsel: Remember My Name

In the late 1940s Ford decided it needed a medium-price model to compete with General Motors - 'a car for every purse and purpose' - which would appeal both to the young executive and the professional family on the way up. Named after Henry Ford's son, Ford spent 10 years and $250m on the Edsel's planning and development. With $50m being spent on advertising, the launch in September 1957 was the most expensive for any commercial product to date.

Problems began when, due to an increase in road deaths, the US Automobile Manufacturers' Association agreed not to advertise a car's power and performance - two of the Edsel's main features. Also motoring journalists said the car was not the great innovation which Ford claimed. What's more, it had a conflicting image of speed against suitability for young families more interested in safety and comfort. Finally, many Edsels were faulty. Word spread and sales fell. Despite this, Ford spent $400,000 on a TV broadcast with Frank Sinatra and Bing Crosby, Next they sent a mailshot to 1.5m car owners offering a test drive. An economic recession in the US contributed further to disappointing sales. On 19 November 1959 production was stopped. In total only 109,466 Edsels were sold (although only one was ever reported stolen) making a total loss of $350m. As Time magazine said, ‘It was a classic case of the wrong car for the wrong market at the wrong time’.

C. What would you have done in the situations descried in the articles? What lessons can be learned?

SUPPLEMENATARY READING

A. Write down three qualities that you consider essential for success and explain why. Then compare your answers with your group-mates.

B. Read the article “Keeping Your Confidence Up” by Dennis O’Grady. See the meaning of the highlighted words in the box below the text.