Calling for a Renewable Future

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."