1. The same knife cuts bread and finger
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How does Nokia‘s Path-dependency affect its
Innovation Strategy?
Management and Economics of Innovation
Hanjun, Jinping, Nan, Corinna – 21.11.2011
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1. Main results of our study 1/2
The innovation strategy depends on the path dependency a lot.
1. Nokia takes the prospector strategy to go into the phone market and the
smart phone market.
2.The high confidence and great advantage on the phone market result in
Nokia taking the defender innovation strategy to compete with Apple, Samsung
and the other companies.
The path dependency plays both positive and negative roles.
The path dependence let Nokia turn his role quickly from a
telecommunication company to a mobile phone company and then the smart
phone compnay with NO.1 market share. However, it also makes Nokia lose the
leader position in the fast competition today.
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1. Main results of our study 2/2
• If the company has been in one market for a long
time, it should be careful of the path dependency.
Contributions:
we show that the path-dependency effect the innovation
strategy. And also the theoretical framework can be used to
study other companies in the same industry or even in other
industries because Miles & Snow's types of innovation
strategy are not specific for one industry.
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2. Introduction
Problem discussion:
• smart phones = very common nowadays + highly technologically advanced
• high market growth rate and many innovations in that industry
• Nokia = first mover (smart phone) and one of the first using Symbian OS
BUT: Nokia‘s market share is declining why?
Purpose:
• find reasons why Nokia changed slowly
• describe the development of Nokia understand effects of path-dependency
• identify the innovation strategies of Nokia
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3. Empirical Data 1/3
• The world’s largest mobile handset manufacturer.
• Converging Internet and communications industries
• 132,000 employees in 120 countries, sales in more than 150 countries
• Global annual revenue of over €42 billion and operating profit of €2
billion as of 2010.
• By the second quarter 2011, its global device market share was 23%.
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3. Empirical Data 2/3
1996 Nokia Communicator was released-
world first smart phone
1998 Symbian was established
2000 The first communicator based on Symbian
2001 The first 2.5 G smart phone 7650
2008 Accomplished the acquisition of Symbian
Company
2008 The first touch screen-equipped smart phone
5800XM
2011 Give up Symbian and cooperate with Microsoft on the
new system --- Windows 7 phone
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3. Empirical Data 3/3
• In 2007, Nokia’s sales volume reached 0.437 million cell phone all
over the world, and the market share increased from 34% to 40%.
• From 2008, when iPhone came to the market, Nokia’s Profit began to
go down from3.5 billion to 1.3 billion US dollar.
• In the smart phone market, Nokia’s smart phone is not so competitive
than Apple's iPhone, or blackberry.
• In 2009, The Nokia’s smart phone market share has fallen from about
41 % in previous quarter to 35 %.
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4. Frame of reference 1/3
Types of innovation strategy typology of Miles & Snow (1978)
Entrepreneurial Engineering choices Administrative choices
delimitation
- broad product-market - new technology - desire for first-mover
Prospector - new market opportuni. - fast repsond to trends - very high cutomer focus
- limited product range - ignore new technology - desire: secure position
Defender - avoid opportunities - only proved technolo. - higher quality or service
- slower than prospector - product development - desire: 2nd/3rd to market
Analyzer - high quality standard - fast respond to product - seldom first mover
- no consistent orientat. - no new technology - no desire: late to market
Reactor - no competive strategy - external pressure - no aggressive marketing
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4. Frame of reference 2/3
• path-dependency = actions of the past determine actions of future
Effects of path-dependency:
responds rate to changing customer demands (management of change)
development of the firm (internal perspective)
development of the market (external perspective)
resource allocation (relationships with suppliers)
past barriers (learnings from challenges)
organizational structure (degree of formalization)
coporate culture (working practices)
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4. Frame of reference 3/3
Combination of Miles and Snow‘s typology and path-dependency theory:
Entrepreneurial • response rate to changing customer demands
delimitations • past barriers
• resource allocation
Engineering • development of the firm
choices • development of the market
Administrative • organizational structure
choices • corporate culture
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5. Analysis 1/6 – Nokia: First Mover to Smart Phone
Nokia Communicator 9000 (1996)
First Smart Phone in the World
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5. Analysis 2/6
Path Dependency Innovation Strategy
Response rate to changing Fast response to market trend
demand Notice the market demand of PDA
From forestry, rubber and cable to
electronic, cellular and mobile
Seeking new market opportunity
phone industries Creatively combine mobile phone with
Positively PDA functions
Development of technology
The innovation ability based on Use new technology
manufacturing mobile phones, Inter’s CPU with 8G memory;
cables, electronic products 640×200 monochrome STN screen
full keyboard
Resource allocation
Big risk
Organizational structure Too advanced technology and high
Focus on telecommunications and price
sold other business
High customer focus
Company culture only focus on high-end business people
innovation, flexibility and rapid
responsiveness
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5. Analysis 3/6 – Golden Age of Nokia’s Smart Phone
Nokia 7650 (2001)
First 2.5 G Smart Phone with Symbian System
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5. Analysis 4/6
Path Dependency Innovation Strategy
Response rate to changing Fast response to market trend
demand mobile phone with systems like PC
In 1997, catch customer's demand of Periodically market changing and
high level mob ability and internet reframing
Development of firm GMS mobile phone leader to smart
Positively phone leader
Business process from technological
innovation to customer fit Broad product market domain
Most products among 1000 to 9000
Resource allocation
series after 2001 are smart phones
Organizational structure
Networks; Mobile Phone; Use new technology
Communicator Products; Venture First 2.5 G smart phone; Symbian OS
Organization; Research Center system, series 60 platform device; first
built-in camera; first 32-bit RISC CPU
Development of technology
Invest in Symbian and out source Initiator of competition
system innovation Palm OS in 2001, Microsoft Pocket PC
OS in 2001 and BlackBerry OC in 2002
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5. Analysis 5/6 – OS Spells Hard Time for Nokia
Nokia 5800 (2008)
Nokia's First Touch Screen Smart Phone
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5. Analysis 6/6
Path Dependency Innovation Strategy
Response rate to changing Prefers relatively stable
demand product
Long-term market leader's success Keep key board style until 5800 in
blind their eyes 2008; almost same interface and
Negatively
system
Development of market
Both Nokia's smart phone and
operations system Symbian were Avoiding new opportunity
market leaders easily handle and more open
operation system such as Android
Resource allocation
Invest too much resource in
Only use new technology been
Symbian: 47.9% share holder to
wholly acquisition proved and can support secure
position
Start Ovi store after the success of
Iphone Store and Android Market
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6. Questions for discussion
1. What are the risks and benefits of path-dependency
in respect of innovation?
2. How can a company deal with path-dependency?
