This was the individual assignment on Nokia's Innovation Strategy, written for the Innovation, Entrepreneurship and Design module for my MBA at Imperial College.

1. M100 Individual Assignment – Nokia’s Innovation Strategy 1
Innovation - Individual Assignment 2012
Analysing Nokia’s Innovation Strategy
Raj Sambwani
This individual assignment is focused on Nokia, once the world’s largest and most profitable mobile
phone products and services manufacturer and distributor globally. I have previously worked at Nokia
and have seen some of the transitions the company has gone through on the inside as well as an
outsider, and am personally interested in understanding disruptions in the mobile phone and services
market.
Nokia was an industry leader for a very long period while the industry continued to be in a consolidated
market, delivering incremental innovation in the marketplace. When Apple introduced the iPhone, it
revolutionized and redefined the mobile phone industry, shifting the main focus from the device to the
full service experience for the consumer and an ecosystem within the industry.
Nokia is currently viewed as a laggard by both industry analysts and industry pundits, primarily based on
its current performance in the marketplace as well as non-performing strategic partnership with
Microsoft (at least the current snapshot view).
Samsung is now the No.1 mobile phone provider as of Q1 2012, replacing Nokia from the position it has
held since 1998.

2. M100 Individual Assignment – Nokia’s Innovation Strategy 2
Nokia within the Industry Structure
Nokia within the Industry Structure
Era of Ferment/Disruption
Growth
Consolidation
Maturity
Pioneering Innovation
“Fast Follower”
Innovation
Incremental Innovation
Business Model
Innovation
Nokia Feature Phones (Low end)
Nokia Smartphones (High end)
Nokia OVI Services

3. M100 Individual Assignment – Nokia’s Innovation Strategy 3
Nokia seemed to be playing in 2 parallel industries before the introduction of the iPhone:
1. A high growth, high end market for smartphones and mobile services, which was attracting
innovation from Samsung, HTC and quite a large number of new entrants but where the
software platform and the services strategy was a clear differentiator, and
2. A consolidated, low end feature phone market where there was a drive towards pushing new
features into the phone at the lowest possible price point.
Synergies and cross-learnings across the two areas were leveraged as much as possible within the
company, but this was largely an incumbent trying to maintain their market position, focusing on
managing a large portfolio of phones and software platforms and believing that their innovation
strategy was right on track, until Apple introduced the iPhone.
The innovation strategy was one of focusing mainly on improving the mobile phone, innovating on
software features tied to new camera features (better camera, better phone calls, smaller and larger
screen formats). The focus was also on innovating across all market segments and introducing mobile
phones to satisfy the needs of every user on the planet, while playing on a global basis.
There was also the clear challenge of the business strategy clashing with the innovation strategy
globally. While Nokia’s success was largely driven by its major success and hence market share growth in
Western Europe, the success was driven by Nokia’s innovation in product features, and a strong set of
distribution relationships in retail as well as the operators. Supply chain innovation and efficiencies
meant that Nokia could easily satisfy the needs of retail.
However, with regions outside Europe, the operators largely controlled the distribution channel to
consumers, and were much more stringent about how the mobile phones needed to be customized to
meet user needs. This required a different co-development and innovation approach with the operators,
or a concerted bet to somehow disrupt the market. While market shares in Western Europe reached 30-
40% in major markets, Nokia’s market share remained below 5% in North America since the right
flexible innovation model could not be developed to tackle the operators in the market.
Step Change in the mobile phone industry
2 key changes in the market caused Nokia’s innovation strategy and market share to be questioned. At
the high end, Apple pursued an innovation strategy that disrupted the high end smartphone market,
blurring the lines between the product and the services experienced, and creating a powerful ecosystem
that ensured that Apple was reaping financial rewards by being a middleman for services (mobile
applications and music) while creating the richest product/service experience in the market.
On the low end, extremely low cost Chinese and Taiwan manufacturers were entering the market at a
rapid pace. In Shenzhen, there were small 20 people sweatshops that could create mobile phones for
less than US$ 40 and also fulfill order sizes from 50 to 1000s. These low end phones could complete with
90% of the basic features of the Nokia phones in the market, which were priced at ~US$ 50.

4. M100 Individual Assignment – Nokia’s Innovation Strategy 4
Innovation Portfolio
Nokia Innovation Projects with the Portfolio Matrix
Several innovation projects are evidently currently in progress within Nokia:
1. New Feature Phones
Feature phones continue to be a key volume driver within the Nokia business, and innovation
(improvements in product, process and service with a heavy focus on operational efficiency) continues
to be key to keep the momentum, while continued focus on operational efficiency improvements help
with keeping price points competitive. Price competitiveness is a key requirement to compete against
low cost Chinese competitors and for price sensitive consumers in emerging markets.
2. “Nokia OVI”
The Nokia Ovi mobile data service was shut down as part of the strategic Microsoft platform
relationship, and replaced with Microsoft’s Windows Marketplace (similar to Apple’s AppStore). This
“me-too” product continues to be key to ensuring a full product-service experience similar to the Apple
iPhone experience. Nokia’s innovation centres on being able to influence the developments within
Windows Marketplace, although the level of influence and impact on Microsoft’s plans is unknown.
3. Location Platform
Innovation in location-based services is critical to Nokia’s future and also to continue to justify the
US$8B acquisition of Navteq, provider of world class mapping technology. Some parts of this platform is
New Core Product Benefit New Improvement Variant No Change
Next Generation
Incremental
Base
EnablingTechnology
Consumer Value Perception
Radical
Windows
Phone
Platform
Location
Platform
New
Feature
Phones
"Nokia
OVI"
Nokia
Lumia

5. M100 Individual Assignment – Nokia’s Innovation Strategy 5
already in use in Microsoft’s Bing Maps search engine, and differentiation in these type of services is one
cornerstone of Nokia’s innovation and growth strategy, both from a consumer experience as well as
marketing and positioning.
4. Nokia Lumia
The new smartphone, Nokia Lumia, has received mixed responses as the first product from the
Microsoft/Nokia strategic alliance, although some enthusiasts claim that it is a pretty good high end
mobile phone. The halo effect from this innovation has to be sustained while Nokia tries to continue the
release of new product innovations for consumers.
5. Windows Phone Platform
Stephen Elop, Nokia’s CEO, has been clear that the Microsoft partnership is critical to the success of the
company, and the bet on the Windows Phone platform is the innovation platform to create new core
experiences that Nokia has not been able to develop itself to compete in the marketplace.
Conclusions and Recommendations on Nokia’s innovation portfolio
The Microsoft strategic relationship is financially lucrative for Nokia, but patience is wearing thin with
investors as a result of the lack of direct impact in the marketplace. The innovation and product release
roadmap has been fuzzy at best, and the recent launch of Nokia Lumia has made very little progress in
helping with the market share erosion.
Nokia’s innovation strategy seems to be weak based on the innovation portfolio and analysis through
the matrix.

6. M100 Individual Assignment – Nokia’s Innovation Strategy 6
Comparing to Samsung
Nokia could take some learnings from the Samsung innovation approach – one of placing several bets in
a fast moving market and delicately balancing strong partnering with go-it-alone approaches.
Samsung has placed bets on 3 different OS approaches: Android to ride on Google’s market leadership,
Windows Phone to hedge and not rule Microsoft out as well as announcing their internally developed
OS strategy to potentially compete on being able to innovate on next generation experiences.
Samsung also has a parallel development going to tackle the lucrative and high growth Tablets market,
capturing at least some mindshare with the release of a competing 7” form factor to the iPad.
Samsung’s App Store is based on the Google Android AppStore, but is also branded their own and they
are rapidly recruiting app partners as part of their own drive.
The Samsung SIII has also been a hit product and ensured that Samsung is considered as a credible
alternative to Apple products.
Recommendations on useful changes
In my opinion, there are several changes to the innovation portfolio that are critical for Nokia to improve
its position in innovation, hence several recommendations are outlined below that could be taken to
reverse the downward spiral the company is on:
1. Re-evaluate the Microsoft relationship
A critical review of the Microsoft relationship is required to ensure that Nokia is capturing value from
the co-development relationship with Microsoft, beyond financial returns.
Radical
EnablingTechnology
Next Generation
Incremental
Base
New Core Product Benefit New Improvement Variant No Change
Consumer Value Perception
Android
+ Win Phone
+ Internally
developed OS
Strong
Partnering
Samsung
AppStore
Samsung
SIIISamsung
Tablets

7. M100 Individual Assignment – Nokia’s Innovation Strategy 7
2. Distribution relationships, especially online
In my opinion, Nokia needs a reevaluation of the distribution relationships across all markets, in
particular online. While negotiating power may have been reduced as a result of their loss of the
leadership position, they have an opportunity to innovate and capitalize on direct sales through the
online channel as a key channel to reach consumers, and iron out the inherent challenges with a new
distribution model.
3. Flexibility in the US
Nokia is capitalizing on the Microsoft relationship as a key growth strategy for the US, and I believe that
there is an opportunity to drive their innovation strategy directly through improving the partnerships
with smaller content players as a way of drawing ideas and product development opportunities in-
house.
4. Mobile standards Patent war
Nokia’s arsenal of patents is powerful, and yet Nokia has been extremely silent through the patent wars
that have started between Apple and Samsung. While not directly related purely to the innovation
strategy, there is a need for Nokia to get some voice in the wars to improve their image as an innovation
company.
5. Multiplatform OS strategy
Betting on a single horse is always a very risky strategy, and one that Nokia has chosen at this point.
While there are pros and cons of every approach, the Android/Google ecosystem is becoming a strong
competitor to the Apple ecosystem. Innovation for multiple platforms seems like a logical decision for
Nokia, in conjunction with the review of the Microsoft relationship.
6. Positioning as a platform/service/ecosystem provider
Nokia’s positioning as a company, and hence its approach to innovation, requires some revision. By
leveraging the Microsoft relationship, Nokia increasingly is looking like a mobile phone manufacturer
more than a real innovative player in the ecosystem, and developers are increasingly moving away from
them as a development platform.
References:
Gartner Press Release, May 2012 “Gartner Says Worldwide Sales of Mobile Phones Declined 2 Percent in
First Quarter of 2012; Previous Year-over-Year Decline Occurred in Second Quarter of 2009”
http://www.gartner.com/it/page.jsp?id=2017015