Fast Company

Calling for a Renewable Future

How Nokia has tackled the ultimate creative act: building innovation into the company's culture.

As workers quietly eat lunch in the cafeteria at Nokia House, a slide projector flips from pictures of summer cottages in Rauhalahti to snapshots of someone's favorite Finnish hound. Taken with camera phones by some of the 1,500 employees who work at Nokia's wood, steel, and glass headquarters in Espoo -- Finland's second-largest city -- the pictures are part of an internal corporate competition that rewards staff creativity.

These photographs won't ever grace the cover of National Geographic. But they do illustrate Nokia's sharpest insight: Creativity doesn't begin and end on an R&D lab bench. The first user-changeable handset cover? Engineer Aulis Perttula invented it -- after he had watched some of his colleagues customize their phones with car paint. Predictive text? Stephen Williams, a junior applications designer, suggested it after he had seen disabled people make good use of it on their PCs. The list of innovative firsts at Nokia that came from unlikely places goes on. That's why Nokia, a 137-year-old Scandinavian titan with annual sales of $30.8 billion across 130 countries, has been out in front for most of the mobile-phone industry's short history. Nokia sells five phones every second. Its global market share, 38%, is greater than that of its nearest three rivals combined, and it boasts a 50% share of Western Europe.

But Nokia isn't just the world's biggest mobile-phone company. In an industry that's all about innovation, Nokia has tackled the ultimate creative act: It has installed a culture where innovation is built into the way the company operates.

Innovation as a System

Seven out of 10 Europeans and 50% of the population of the United States now own a mobile phone. Which means that Nokia's handset division, Nokia Mobile Phones (NMP), faces a huge challenge. Since 2000, sales of phones have slowed as debt-laden wireless networks have both slashed spending and delayed new services that many had hoped would spark new demand.

Nokia's response? NMP has its foot on the accelerator. In 2001, NMP launched 15 new products. In 2002, it doubled that to 30 new products. In 2003, it expects to launch at least that many -- and maybe more.

Why? Because peddling the same old goods to the same old customers simply doesn't work in this fiercely competitive business. Handsets that are white-hot today will be stone-cold in six months. The market demands it: NMP has to keep churning out a steady stream of new products. Which means that the company's real business isn't phones; it's innovation.

A look at the competitive landscape shows that Nokia has moved faster than its rivals in introducing new features. Last June, when NMP introduced its 7650 handset, the first to feature a built- in camera, Nokia had the European market to itself for nearly six months. NMP's color-screen 3510i, launched in September, displays 4,096 colors. The product's closest rival, Sony Ericsson's T300, has only 256 colors.

To be sure, rivals such as Motorola, Samsung, and Siemens display their creativity with new offerings, such as a clamshell design or a built-in flash. But NMP is relentlessly innovative. In the last quarter alone it has unleashed nine new models in Europe. One -- the 5100 -- features a rubberized case, flashlight, thermometer, calorie counter, stopwatch, and radio. Another -- the 6800 -- comes with a foldout QWERTY keyboard so that you can use your phone for email.

At NMP, innovation isn't a one-off event, an exceptional idea, or an accident. Like one of Nokia's handset SIM cards, innovation is a capability fused to the core of the organization. Nokia even has a watchword for its culture of continuous innovation -- "renewal" -- and it comes to life in a few places across the company.

Renewing the Organization

Nokia is a company that refuses to grow big, grow old, or grow slow. The idea is simple: Small, nimble, creative units are much more likely to bubble up new ideas. Nokia's structural approach is to propagate more autonomous units and back them with cost-effective central services. In other words, build innovation into the company's organization.

Last year, when NMP splintered itself into nine small, autonomous business units, it furthered its ability to redeploy its people into completely new areas, such as entertainment and imaging. Each unit taps into Nokia's central research lab for basic technology and product design and hands over end products to a shared operations-and-logistics group. But each independent team is a profit-and-loss center with the autonomy to create its own business model, conduct its own advanced R&D and marketing, and draft its own product road maps.

"By allowing teams the space they need to dig deeper into their area of interest, we've enabled them to create a big business and do it fast," says Matti Alahuhta, president of NMP and principal architect of the changes there. "Big companies lose sensitivity. People need to feel that they can make a difference. And they need to have the power to make their ideas happen. We've created a small-company soul inside a big-company body."

Renewing the Individual

If the end goal is innovation, the raw material is talent. Very simply, when it comes to great new ideas, the team with the best people wins. And yet Nokia's total head count is static. Its R&D costs have stabilized at just under 10% of sales. But the company keeps proliferating new products at a head-spinning pace. How does that work?

In part, it's a direct result of the extraordinary intellectual and technical resources at Nokia's disposal: The company boasts an annual R&D budget of $3 billion, and 40% of its 52,000 employees are involved in R&D. Most Nokia business units have at least three R&D sites. Those sites are located in 15 countries and are usually adjacent to leading universities and relevant industry clusters.

But just as important, says Alahuhta, is the emphasis that Nokia puts on continuous productivity development. "It's a combination of putting people in the right environment to generate ideas and giving them the power to make those ideas happen," he says. Nokia makes a healthy habit of giving its people fresh challenges in completely new areas. Job rotation is routine, even for senior managers. Lawyers have become country managers. Network engineers have moved into handset design. The goal, Alahuhta says, is to bring new thinking to familiar problems.

Renewing the Venture

Any sound approach to innovation includes both internal and external venturing activities. Nokia has refined both practices. In an effort to find fresh thinking from sources outside the company, Nokia's Insight & Foresight teams seek out disruptive technologies, new business models, and promising entrepreneurs beyond Nokia's walls. Innovent, its U.S. team, goes a step further, identifying early-stage entrepreneurs, buying options in their work, and introducing them to people at Nokia headquarters.

Internal venturing prevents ideas from ending up on the scrap heap or in the hands of competitors -- and keeps Nokia's finger on the pulse of innovation. An incubation unit, New Growth Businesses, develops stand-alone businesses that are closely linked to Nokia's core activities.

In the race to take digital content mobile, Nokia will need to prove its creativity beyond technology. But the Finnish company has been practicing renewal for a lifetime: In its history, it has gone from manufacturing paper to making rubber boots, then raincoats, then hunting rifles, and then consumer electronics, until finally betting the farm on mobile phones. It's all part of an ongoing emphasis on renewal.

Sidebar: N-Gaging Ideas

One sure way to stifle innovation is to think that your company is the business model. So says Gary Hamel, author of Leading the Revolution: How to Thrive in Turbulent Times by Making Innovation a Way of Life (Harvard Business School Press, 2002). Hamel believes that when your employees no longer challenge the day-to-day definition of your business model, you're in trouble.

Nokia Mobile Phones is breaking free of the handset model, giving one of the business units it launched last year the freedom to explore mobile possibilities in the worlds of gaming and entertainment. "Ninety percent of the time, it feels like I'm running my own company," says Ilkka Raiskinen, head of Nokia's Entertainment and Media Business Unit (EMBU).

"We've been given the freedom to decide what the rules are, what the value chain is, and what the 'story' is in the media world, and then to develop our own vision, strategy, and road map," says Raiskinen. "I consult the Nokia board the same way that a startup would consult its investors."

EMBU's first product -- the Nokia N-Gage mobile phone and game console (see photo, page 46) -- will enable players to square off against each other wirelessly.

EMBU fired the starting pistol on its entertainment entry last May. Within 10 months, the group was testing prototypes among gaming journalists. "Time to market has been the driver," Raiskinen says. "We want to be the first, to be the dominant design, and to define the rules. The first shot has to be meaningful if we want game developers to come on board."

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