To talk about Nokia is to talk about one of the most successful companies in the world. Its history of more than 100 years is exciting, full of sobering events. Especially its history in the telecommunications and cellular telephony market, which is the best known to all and is the focus of this article.

To diagnose the causes that led it from market dominance in mobile telephony (cell phones) to the sale of this business unit to Microsoft is a risky task, since the diagnosis will surely be incomplete due to the great complexity of the overall situation. However, the main objective is to gather lessons that will help us to germinate a better understanding of innovation processes, their high complexity and their great risks.

A dream is a seed.

It all started with a dream or an idea in the mind of Mining Engineer Fredrik Idestam, who in 1865 established a pulp mill in Tampere, Finland and soon after a second one in the city of Nokia.

Cunning and alliances.

Six years later, Fredrik Idestam joined forces with his friend Leo Michelin, a prominent politician in Finland, with whom he founded the company Nokia Ab. Two decades later, after Fredrik’s retirement, Leo expanded into electricity generation and formed an alliance with a rubber manufacturer “Finnish Rubber Works” and later with a cable producer “Kaapelitehdas” under the direction of Polon. Thus the conglomerate Nokia Corporation was formed.

Integration vs. innovation.
From cellulose production to electricity generation, a lateral movement, but later the cable and the rubber were added, which started the production of products for military use, such as respirators. Their main customer, Russia, would now lead them to develop a radio for military use and with that the trajectory towards the electronics industry began. From 1970 until the 80’s an aggressive acquisition strategy began in the electronics industry and later television and even computer manufacturers.

The acquisition strategy proved to be successful for the business and allowed it to evolve into the field of electronics, which was the eminent future. However, it is no longer an evolution that comes from within the organization…time will tell if the company’s innovative culture was annihilated.

Diversification vs. Specialization.

In the mid 80’s and 90’s Nokia begins to focus on the very broad field of electronics. It divested the tire business and later sold the entire Finnish Rubber Works division and also sold the cable division. Instead, it makes a series of acquisitions ranging from telecommunications (Schaub-Lorenz, Mobira, among others), television set manufacturers (Salora and the French company Oceanic) and computer equipment manufacturers (Switzerland Datasaab, the computer division of Ericsson). In this way Nokia participates in the telecommunications, computer and television market, in fact, it is the third largest manufacturer of television sets in the world.

While it is true that absolute specialization implies a huge financial risk due to market cycles, disruptive competition or advances in technology, excessive diversification also brings with it the challenge of losing competitiveness and, above all, the opportunity cost due to lack of human or financial resources to successfully attack a niche. Balance? Perhaps easier said than done, we will see later if Nokia’s strategy would be a winning one.

The first worldwide.

It took Nokia about 15 years to become number one worldwide in cellular telephony.

In the mid-1990s Nokia divested its TV and computer manufacturing businesses and its CEO, Jorma Ollila, focused Nokia on a telecommunications and cell phone company. However, this takes time because still in 2000 ViewSonic acquires the Nokia Displays division for personal computers.

The acquisition of the telecommunications company Mobira was the basis for Nokia’s focus on telecommunications. Mobira had already launched the first international cellular network (Nordic Mobile Telephone, “NMT”) in 1981 and produced the first fully portable Mobira Cityman 900 phone in 1987. In the same years Nokia actively participated in the development of the GSM communications standard and in 1992 launched the first cellular phone, the Nokia 1011, which operated on the GSM communications standard.

By December 1998 Nokia had manufactured more than 100 million cell phones, taking the world leadership from Motorola, and two years later Nokia employed around 55,000 people worldwide and had 30% of the cell phone market (almost twice as much as its closest competitor, Motorola).

How is it that Nokia would move to the last places after being the absolute leader in the cell phone market? We will see this in the next article.