Optimizing open innovation

With Nokia as case

Aarhus School of Business Aarhus University March 2012

Department of Management and Statistics Author: Lars Rasmussen Academic supervisor: Martin Kloyer

NOKIA and open innovation

Contents
Abstract ............................................................................................................................. 1 1. Introduction................................................................................................................. 2 1.1 Problem statement ................................................................................................... 3 1.2 Methodology............................................................................................................. 3 1.3 Scope and delimitation ............................................................................................. 5 1.4 Structure of the thesis............................................................................................... 6 2. The smartphone industry ............................................................................................ 7 2.1 Description of smartphone vendors .......................................................................... 7 2.1.1 Nokia ................................................................................................................. 7 2.1.2 Apple ................................................................................................................. 9 2.1.3 Samsung ......................................................................................................... 10 2.2 The integrated portfolio........................................................................................... 11 2.2.1 The market portfolio ......................................................................................... 11 2.2.2 The technology portfolio................................................................................... 13 2.2.3 The evolution of the integrated portfolio ........................................................... 20 3. 4. Open innovation the theory .................................................................................... 21 The companies innovation processes ...................................................................... 28 4.1 Apples innovation processes ................................................................................. 28 4.1.1 Apples internal innovation process .................................................................. 28 4.1.2 Apples use of open innovation ........................................................................ 30 4.1.3 Assessment of Apples innovation processes................................................... 31 4.2 Samsungs innovation processes ........................................................................... 34 4.2.1 Samsungs internal innovation process ............................................................ 34 4.2.2. Samsungs use of open innovation.................................................................. 36 4.2.3 Assessment of Samsungs innovation processes............................................. 37 4.3 Nokias innovation processes ................................................................................. 40 4.3.1. Nokias internal innovation processes ............................................................. 40 4.3.2 Nokias use of open innovation ........................................................................ 43 4.3.3. Assessment of Nokias innovation processes.................................................. 48 4.4 Partial conclusion ................................................................................................... 51 5. Discussion - Where have Nokia failed?..................................................................... 53

NOKIA and open innovation 6. Conclusion and further research ............................................................................... 59 6.1 Conclusion ............................................................................................................. 59 6.2 Suggestions for further research ............................................................................ 61 Bibliography..................................................................................................................... 62 Books ........................................................................................................................... 62 Articles/slides ............................................................................................................... 62 Internet sources ........................................................................................................... 63 Appendix A A short description of OS suppliers ............................................................ 72 Appendix B Mobile phone and smartphone market shares ........................................... 74 Appendix C Specifications for smartphones .................................................................. 76 Appendix D Apples hardware suppliers:....................................................................... 77

Figures

Figure 1: structure of thesis ........................................................................................ 6 Figure 2: The three companies in the integrated portfolio ......................................... 20 Figure 3: The open innovation paradigm for managing industrial R&D...................... 21 Figure 4: The Want, Find, Get, Manage Model ......................................................... 24 Figure 5: Apples innovation processes..................................................................... 33 Figure 6: Samsungs innovation processes............................................................... 39 Figure 7: Nokias innovation processes..................................................................... 50

Tables

Table 1: Review of the three smartphones................................................................ 15 Table 2: Companies use of OI tools ......................................................................... 51 Table 3: Companies in the Want, Find, Get, Manage model................................... 52 Table 4: Some of the differences between Nokia and Apple ..................................... 53 Table 5: Worldwide smartphone sales to end users by operating system in 2010 (thousands of units) .................................................................................................. 73 Table 6: Worldwide mobile device sales to end users in 2010 (thousands of units) .. 74 Table 7: Global smartphone vendor market share (millions of units) ......................... 74 Table 8: Smartphone market shares 2008 and 2009 ................................................ 75 Table 9: Worldwide mobile communications device open OS sales to end users by OS (thousands of units) .................................................................................................. 75 Table 10: Specifications for the three competitors best smartphone......................... 76

NOKIA and open innovation

Abstract
This paper is about the former industry leader within the smartphone industry, Nokia against the two current industry leaders, Samsung and Apple. Open innovation is a necessity for the participants within the smartphone industry since many technologies need to be mastered. But the focus is not only on open innovation since the paper also assesses other strategies within customer focus, marketing strategy and their own R&D strategy. These parts have a direct or indirect effect on the companies use of open innovation. Secondary sources are used to evaluate how the companies innovate. Slowinskis Want-Find-Get-Manage approach for managing open innovation is used to assess Nokias innovation strategies which are compared to its two main competitors innovation strategies. The model shows where Nokia might have failed and it is primarily within the want-/goal part. The market and technology leader, Apple know what they want and how to reach those goals. Their strategies have created the most efficient money generating machine within the smartphone industry. Nokia want to serve a lot of segments and they also wanted to have their own OS, the Symbian, which was inadequate. Nokia primarily focus on cost, but they also want to provide proper hardware, good design and serve all segments, which includes the feature phone- and the emerging markets. They are the ones who use the most open innovation tools and have also spent the most on R&D. Nokias situation has, however, improved after they started to cooperate with Microsoft and abandoned their own OSs. They created the new Lumia-line together which has made the two companies a new serious contender within the smartphone industry. It is assessed that Nokia have several opportunities to improve their situation. Nokia have rejected potentially good ideas since the managers could not assess the ideas properly or were too focused on cost. It is advised that they start to focus on value first and focus on cost when value has been proven. It is also advised that they leave the feature phone market since it is a low profit area with tough competition. Nokia should focus their R&D and their use of open innovation within the smartphone market. They should then make a super smartphone line which is the most profitable area. The super smartphone strategy has some specific requirements and the Lumia-line has already breached some of those requirements. Their narrower focus can improve Nokias R&D figures and their use of open innovation. Suggestions for further improvement of their use of open innovation are although not within the scope of this thesis since the goal analysis is the main analysis area. Nokias open innovation opportunities have been mentioned in the further research. 1

NOKIA and open innovation

1.

Introduction

Nokia have enjoyed being the market leader within mobile phone industry for a long time. The long period of industry leadership is impressive when considering how volatile the mobile phone industry is. However, during the last decade a new product emerged, the smartphone,1 which eventually shook Nokias world. Nokia were able to dominate the smartphone industry at first and enjoyed large market shares. But their situation changed as new competitors from the Internet service- and personal computing industries became a part of the smartphone industry. These new competitors had been industry leaders within their former industry and they had different core competencies and strategies,2 compared to the traditional mobile phone companies. Nokia, nonetheless, felt ready for the new smartphone challenge as they were proud of their ability to change.3 Nokia continued to dominate the smartphone industry when Apple entered the industry in 2007 and later in 2008 when Google entered. But the different competencies and strategies made it difficult for Nokia to maintain their position and they were losing market shares every year. They were finally passed by Apple and Samsung, a competitor who uses Googles Android, in the second quarter of 2011. This is a critical situation for Nokia as the smartphone is the most lucrative product compared to the traditional mobile phone market, the feature phone. The very volatile market and the need for different core competencies are good arguments for using open innovation. Open innovation is about having an open approach towards ideas and technologies to improve and speed up the R&D processes. Open innovation will be explained further in the theory section. Nokia have although practiced open innovation since the mobile industry, according to Nokia, have: escalating R&D expenditures, ever-shorter product life cycles, rising entry barriers, increasing needs for global economies of scale and, particularly in technology-intensive industries, the growing importance of global standards.4 Nokia thought that they were ready for the new challenges and were aware of the opportunities that open innovation gave. But Nokia still lost their market shares within the smartphone industry after a good start and this leads to the following problem statement:
1 2

A smartphone is a combination between phone and a small handheld computer Kenney et al (2011), page 240 3 Steinbock (2010), page 230 4 Steinbock (2010), page 192

NOKIA and open innovation

1.1 Problem statement

The optimal use of open innovation should lead to faster speed to market, cheaper and more efficient R&D. Something has although gone wrong for Nokia since they have abandoned their own software solutions due to slow development and their R&D expenses are higher than their competitors. This leads to the following problem statement: Can Nokia optimize their use of open innovation to regain the industry leadership within the smartphone market? In order to explore Nokias use of open innovation within the smartphone industry, I have developed the following research questions: Where are Nokia placed in the integrated portfolio compared to the two industry leaders, Apple and Samsung? Which innovation processes do the two industry leaders use? Why did Nokia lose their market shares within the smartphone industry when they use open innovation?

1.2 Methodology
This is a practical oriented thesis rather than a theoretical thesis. There is not much theory and only few theories have been included. The thesis includes two models, which are the The Integrated Portfolio and the Want-Find-Get-Manage-model. The integrated portfolio gives a current position of the competitors through the market portfolio and a long term position through the technological portfolio. The model will be used to find the industry leader and the two followers. Their position will also affect how the followers should act to gain on the industry leader. The other model is called the Want-Find-Get-Manage model which is about how to optimize the use of open innovation. The model will be further described in the theory section. The model was an eye-opener since it is able to categorize the different stages of open innovation and it clarifies where Nokia can have failed. It has been a struggle to find alternative models for how to optimize the use of open innovation. There exist a lot of texts about why to adapt open innovation, but not many about managing open innovation. However, the thesis is not going to be an assignment about why Nokia and the companies should use open innovation since they all use open innovation to some degree. 3

NOKIA and open innovation The thesis primarily uses secondary sources since contacting the three companies would have required a lot of basic knowledge. A user survey was also an opportunity within the technology portfolio as respondents could assess the different parts of each companys smartphones. The survey would assess the companies best smartphone models. Apple have started this best smartphone5 competition and Samsung have followed by introducing the Samsung Galaxy S-line. The user survey could give satisfying results for the iPhone 4S and Samsung Galaxy II, as those two have plenty of users. But there would only be very few respondents for Nokias new smartphone and such a survey would not have given reliable results for all three models. The secondary sources used for this thesis are primarily articles and blogs from the smartphone world. The secondary sources are potential victims for bias and this has been the case for the smartphone industry. The different newspapers, bloggers or homepages have in many cases a favorite amongst the different hardware or the software suppliers. Many of these sources almost have a religious approach to how they assess the different smartphone solutions. There are lots of Phandroids (Android fans) or Apple-holics out there as some prefer the more free approach which Android offers, while others prefer Apples ease of use. There are currently not many Nokia- or Microsoft fans out there, but this might change after the introduction of Nokias new and improved product line. The bias has created several problems during the thesis period. When the integrated portfolio was written, it was possible to find different technological winners through different homepages. Apple were winners in most of the homepages, while Samsung also were a winner once in a while. It was not possible to find Nokia as winner, but a lot of homepages agreed that Nokia had come closer to the two industry leaders with the introduction of their newest smartphone, Lumia 800. Potential bias was checked by searching the authors background whenever certain words or sentences were too positively or negatively loaded. By seeing the authors other texts or background, I usually got an answer about his or her religion and knew that it might be biased information. The bias problem was solved by having multiple sources about the biased information to find a more sophisticated view of the situation. One of the main sources for this thesis is the Nokia book: Winning across global markets: How Nokia creates strategic advantage in a fast-changing world. This was a book written as Nokia were losing their smartphone market shares, but the book was still very optimistic and described Nokia positively. The whole book only has three sentences in the end of the
5

These best smartphones will be termed as super smartphones in the rest of the thesis.

NOKIA and open innovation book where Nokia acknowledged that Apple was a serious threat. The book is clearly written for Nokia since it only mentions Nokia in positive terms. However, the bias was apparent since Nokia had gone through and are still fighting a crisis period where things become more obvious. The book is relevant for this thesis as it mention a lot about Nokias internal processes and their use of open innovation.

1.3 Scope and delimitation

The thesis will primarily focus on smartphone vendors, which include hardware manufacturers and developers, since Nokia is the main story. It will also include the two industry leaders, Apple and Samsung, as they will be the ones for Nokia to capture. The software part is, however, the main differentiator within the smartphone market,6 and it is not possible to exclude the software part totally. The intention was originally to include software and hardware competitors, but the thesis would have been too chaotic and the analysis would have been too superficial if both parts were included equally. Some companies are more interesting than other and this has also characterized the smartphone market. It has been easy to find articles and reports about Apples success and Nokias former success. A lot of these articles are although often superficial as they conclude that the companies have success, but they usually do not reflect about how they got into that position. But it has been a challenge to find information about Samsungs success on the smartphone market and their innovation processes. A lot of time has been spent on searching for information that was available for Apple and Nokia, but the same information was not available for Samsung. Samsung have a lot of other business areas and finding the right search term has been a challenge. After many hours of wasted search I had to draw a line. This means that the written parts about Apple and Nokia are more detailed while the parts about Samsung are less detailed. I found some market research reports about the smartphone industry and one of them was made by Research and Market. However, their electronic report cost 3,495, which most of the smartphone reports cost. Access to the report would have been a time saver, but information about the smartphone industry is very valuable. This may also mean that the gathered information is sometimes superficial, but without access to the industry reports the collected sources will have to do. The market portfolio was written in October 2011 and the market shares are for the second quarter of 2011. This chapter has not changed even though newer markets shares have
6

Garner (2010)

NOKIA and open innovation come up. The two next quarters are also distorted by customers waiting for the next iPhone, creating low figures in the third quarter for Apple, while Apples sales figures exploded in the next quarter. The rest of the thesis will use the newest, available sources.

1.4 Structure of the thesis

Figure 1: structure of thesis The introduction is about how Nokia are user of open innovation and still managed to lose market shares within the smartphone market. The problems statement is about whether Nokia can optimize their use of open innovation to regain their lost smartphone market shares? The starting point includes the integrated portfolio, which give a picture of where the competitors are today and where they are headed. The next part is about the open innovation theories which first describes the general open innovation theories and then include the Want-Find-Get-Manage model. The model is used as a detection tool for where Nokia have failed. Following that is a description of the two industry leaders innovation processes, which includes both internal innovation processes and their use of open innovation tools, to compare them to Nokia innovation processes. The comparison of their innovation processes will possibly show where Nokia failed. This leads to recommendations for how Nokia can overcome these problems to improve their market shares. The last part is the conclusion and further research. The conclusion will answer the three research question and the problem statement to sum up the findings. The further research will come with suggestions within this topic, Nokia and open innovation.
Source: Own figure

NOKIA and open innovation

2.

The smartphone industry

The smartphone industry is characterized by having quite a diverse set of players. There are hardware developers, software developers, apps developers, manufacturers, companies who only license their patents, carriers, old players, newcomers and many others. Some companies are active within most areas while others only focus on a single or few areas. As mentioned in the delimitation, the thesis will primarily focus on the smartphone vendors. A short description of the operating systems (OS) providers can be seen in appendix A. The next section will be a short description of the three chosen smartphone vendors in the smartphone industry.

2.1 Description of smartphone vendors

The first company to be described is the main company in this thesis, Nokia, and will be followed by the two industry leaders, Apple and Samsung: 2.1.1 Nokia History and background: Nokia are one of the traditional players and they were the industry leader in the total mobile phone industry in 2010 which can be observed in table 6 appendix B. Nokia started as a company in 1865 and have been a forestry-, a rubber-, a cable-, an electronics- and a mobile phone company during its lifetime.7 Nokia began to experiment with telecom equipment during the 60s, but the first many years were not successful.8 Their mobile phone business became a success when present chairman of the board, Jorma Ollila, started as CEO in January 1992. Nokia sold a lot of business divisions and began to focus on mobile phones.9 Nokia and Ericsson were pioneers within GSM and when the European countries chose GSM as standard, the two companies got a good start within the mobile phone industry.10 Ollila has been a huge contributor for Nokias overall success since Nokia went from $3.5 billion in revenues by 1992 to $54.3 billion when he retired as CEO in 2006. The number of employees also more than doubled during that period, since Nokia went from having 27,000 to 68,000 employees.11

7 8

Steinbock (2010), page 1-2 Steinbock (2010), page 114-115 9 Steinbock (2010), page 30 10 Steinbock (2010), page 32 11 Steinbock (2010), page 34

NOKIA and open innovation Nokia were well aware of the convergence between the Internet and mobile phones. In 1998 they joined up with Ericsson, Motorola and Psion to develop Symbian, 12 since they realized that the future competition would be within software. 13 Nokia would rather compete within the hardware part, which is one of Nokias main forces and wanted to neutralize the software competition by developing a common software base. 14 In 2002 Nokia began to focus even more on the smartphone business and invested intensely because of pressure from Microsoft.15 Nokia got a good start within the smartphones market, but their success did not last as their dominance was shrinking. In 2010 Samsung and Sony Ericsson were the last to leave Symbian in favor of Android.16 Nokia reacted by hiring the former head of Microsofts business division, Stephen Elop, as their new CEO by September 2010. Elop quickly realized that Nokia could not deliver the same experience as Apple or Android and he knew that something radical had to happen. 17 By February 11th 2011 Stephen Elop announced that Nokia were going to cooperate with their former competitor, Microsoft to adopt Windows Phone 7.5 (WP7.5) and that their own smartphone OSs, Symbian and Meego, would be phased out. Business model: Nokia differentiate themselves by being a manufacturer of the smartphones compared to the new smartphone competitors.18 Nokia claim that manufacturing is one of their main competences and this will be further described in the section about their innovation processes. Nokia have prioritized cost since they are aware of decreasing prices during a products life cycle.19 This means that they primarily earn their money by selling their own produced smartphone with Microsofts OS installed. Number employees: Nokia had over 132,000 employees by mid 2011,20 and Nokia had manufacturing employees. By 2010 Nokia had 17,200 R&D employees,21 but Nokia have fired several R&D employees after they started the collaboration with Microsoft to make their R&D department more efficient.

12 13

Kenney et al (2011), page 246-7 Steinbock (2010), page 126 14 Kenney et al (2011), page 247 15 Steinbock (2010), page 126 16 Dalziel (2010) 17 BBC Mobile (2011) 18 Kenney et al (2011), page 255 19 Steinbock (2010), page 232 20 CNN Money (2011) 21 Dediu I (2011)

NOKIA and open innovation 2.1.2 Apple History and background: Apple are a newcomer within the mobile industry and they have a background from the computing industry. Apple introduced a MP3 music player, the iPod, during the first years of the last decade which became a huge success. Apple were forced to join the smartphone industry, since there was a convergence between mobile phones, Blackberries and MP3 players. Apple wanted to protect their iPod revenues. They tried to cooperate with Motorola to create a common phone in 2004, but the cooperation was a failure since Motorola could not come up with a successor after their blockbuster, RAZR. Apple realized in 2005 that they had to make their own mobile phone. It was a struggle to find their first smartphone OS since making a smaller version of their Macintosh OS, their laptop OS, seemed too difficult. Apple then considered Linux, but Steve Jobs would not use anothers OS. This meant that they scaled down their Macintosh OS to make their smartphone OS.22 Apple introduced their first iPhone in June 2007 and the first iPhone was unique with its touch screen, minimal hardware and its advanced features.23 The first iPhone created a revolution within the smartphone industry as it disrupted the previous smartphone models. Business model: Apple sell their own mobile phone; they have their own OS with a lot of complementary apps and have online stores. They sell complementary products which will be mentioned in their innovation processes. Apple have only used their own OS during the iPhones existence. In the smartphone industry Apple primarily earn their money by selling smartphones and by selling music, videos or apps through iTunes or App store. Apples iTunes model for searching for, selling and listening to the music is simple and easy to use. Apple negotiated contracts with all the major record companies and have created the largest online music store.24 Apple sell smartphones in the high-end of the mobile phone industry, but they also sell their former models cheaper when new models are introduced. Apples entrance to the smartphone market has surprised the traditional players of the mobile phone industry and Nokia have struggled to provide the same offerings since. 25 Number of employees: Apple have 60,400 employees, but 36,000 of them are store employees since Apple have 357 stores worldwide.26. This means that their organizational structure is different from the two other competitors who also have manufacturing
22 23

Vogelstein (2008), page 1+3 Samra (2011) 24 Osterwalder et al (2010), page 47 25 Kenney et al (2011), page 247 26 Camm-Jones (2011)

NOKIA and open innovation employees. Apple have chosen to outsource their manufacturing since Apple cannot pay industry standard wages without being criticized.27 It is estimated that Apple had 3,200 R&D employees for the iPhone.28 2.1.3 Samsung History and background: Samsung are also one of the traditional players within the mobile phone industry and they released their first mobile phone in 1988.29 Samsung are one of Nokias main competitors and the two companies compete in both the smartphone market and the feature phone market. In 2010 Samsung sold 281.1 million mobile phones compared to Nokias 461.3 million, making Samsung the second largest player within the whole mobile phone industry see table 6 in Appendix B to see the total mobile phone sales. Samsung did, however, not get the best start within the smartphone market as they only shipped 5.5 million smartphones in 2009 which added up to a market share of 3.2 %.30 One of the reasons was that Samsung did not have the sufficient OS to become a success within the smartphone industry. Samsung were, nonetheless, able to change their strategy and have become one of the main players of the smartphone industry by introducing smartphones that used Android and maintain their hardware advantages.31 Samsung gained a lot of market share by introducing the Samsung Galaxy S-line in June 2010,32 which is their main contender against Apples iPhone. Business model: Samsung earn their money by selling mobile phones, but also by selling spare parts. Samsung are, as one of the traditional players like Nokia, quite interested in scale. They become specialist within certain parts and their goal is to sell those parts to as many as possible. Samsung have a complex relationship to Apple since they are fierce competitors fighting for the industry leadership in the smartphone industry. But Samsung are also one of Apples key suppliers of flash memory, displays and processors. Apple have become the single largest customer for Samsung as 4 % of Samsungs revenue in 2010 originated from Apple.33 Samsung use several smartphone OSs, but their main OS is Android which will be elaborated in Samsungs innovation processes.

27 28

Evans I (2011) Dediu I (2011) 29 Republic (2008) 30 Team PI (2011) 31 Kiju (2011) 32 Tofel (2011) 33 Evans II (2011)

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NOKIA and open innovation Number of employees: Samsung Electronics had over 190,000 employees by July 2011,34 but it is uncertain how many worked within the mobile phone business part since Samsung Electronics have several business areas. They have an unrevealed number of employees within the manufacturing, but Samsung have assessed that they had about 8,500 employees involved in mobile phones R&D.35

2.2 The integrated portfolio

The integrated portfolio, which consists of the market portfolio and the technological portfolio, will compare Nokia against its two main competitors; Apple and Samsung. The market portfolio is the current position of the competitors strength within the market. The technological portfolio gives a long-term competitive position for each of the competitors. 36 The two portfolios put together create the integrated portfolio and all three figures, including the three competitors, are shown in the end of this chapter. 2.2.1 The market portfolio The market portfolio consists of the market attractiveness, which will be the same for all competitors even when the different segments have different attractiveness. The competitive market strength will be assessed for each of the smartphone vendors. The competitive strength will evaluate the competitors market- and profit share. Profitability is usually considered to be correlated to the market share and therefore the emphasis is usually on market share.37 The correlation between market share and profits within this industry is non-existing and the profits will also be included. Market attractiveness vertical axis In 2010 the smartphone vendors sold 296 million smartphones compared to 172 million smartphones in 2009 which is an increase of 72.1 %. The smartphone share compared to the total mobile phone sales rose from 14.2 % in 2009 to 18.5 % in 2010. The smartphone market will continue to grow with double digits forecast until 2015, but the growth will decline according to Gartner38 which can be observed in table 9 - appendix B. Gartner expects that the smartphone sales will pass 1 billion units by 2015 and account for 47 % of

34 35

CNN Money (2011) Levine et al (2011) 36 Ernst et al (2003), page 543 37 Ernst et al (2003), page 543 38 Gartner is one of the world's leading information technology research and advisory company.

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NOKIA and open innovation the total mobile device market.39 The smartphone industry is also the most lucrative which will be shown in Apples part within the competitive strength. There are still plenty of opportunities for growth and smartphones will continue to be a very attractive market. Gartners analysis shows that the smartphone growth will top this year which indicates that the smartphone market is still in the growth phase and moving into the mature stage. Competitive strength horizontal axis Nokia were by far the biggest player on the smartphone market just some years ago. Nokia had approximately half of the smartphone market in 2008, but the market shares fell to 39 % in 2009 see table 8 in appendix B. Their decreasing market shares continued during 2011 and Nokia were passed by Apple and Samsung in the second quarter of 2011. Nokia had 15.2 % of the smartphone market shares in the second quarter of 2011 and they were the third largest competitor within the smartphone market see table 7 in appendix B. Nokia had well over 50 % of the total profits in the second quarter of 2007 within the mobile industry, but Nokia actually lost money in the second quarter of 2011.40 Nokia have the lowest score in the second quarter of 2011 between the three hardware producers when it comes to market share and profits share. Nokia are although close to the two others competitors when it comes to market share, indicating a high score on the horizontal axis of the market portfolio, but still well beneath the two industry leaders since they had no profits. Apple had 18.5 % of the smartphone market shares in the second quarter of 2011 see table 7 in appendix B. Their sales increase rose by 141.7 % compared to the same quarter 2010. Apple became the market leader of the smartphone market in the second quarter of 2011. The difference between the competitors becomes more obvious when it comes to profits: Apple only had 5.6 % of the total mobile phone market share in the second quarter of 2011, but Apples share of total profits were 66.3 %.41 Apple were able to dominate that quarter with the older iPhone 4 model,42 which is impressive since the smartphone industry is evolving fast. Apple have the highest score when it comes to market share and profits compared to its competitors which give Apple the highest score on the horizontal axis.
39 40

Gartner (2011) Elmer-DeWitt (2011) 41 Elmer-DeWitt (2011) 42 Mohindru (2011)

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NOKIA and open innovation Samsung have experienced a lot of growth during the last couple of years. They only had 5 % of the smartphone market share in the second quarter of 2010 while they had 17.5 % of the market share in the second quarter of 2011 see table 7 in appendix B. Samsung grew by 519 % when it comes to number of sold smartphones. One of the main reasons for their smartphone success was strong sales from the Samsung Galaxy S2.43 Samsung have, to some degree adapted, Apples one super smartphone model per year, as the first Samsung Galaxy S was introduced in June 2010, while Galaxy S2 was introduced in June 2011.44 The smartphones are also adapted for carriers different requests. Both Nokia and Samsung have not been able to capitalize the smartphone market as well as Apple. Samsung were, nonetheless, able to capture 15 % of the total profits,45 but this number also includes profits from other smartphones and their feature phones. Samsung have a high score when it comes to market share and profits since their market share and profits are between Apple and Nokia. This also means that Samsung lies between Apple and Nokia on the horizontal axis of the market portfolio. The companies position in the market portfolio is observable in the end of this chapter. 2.2.2 The technology portfolio The technology portfolio consists of technology attractiveness and resource strength of each of the companies. The technology attractiveness, the vertical axis, will be an assessment of the external factors, such as acceptance, potential for advancement and application scope. This will be the same for all three companies since this will be an assessment of the companies super smartphone. The resource strength of each company, the horizontal axis, will be an assessment of the internal factor, e.g. their level of technology, their potentials and the strength of their patents.46 Technology attractiveness vertical axis Acceptance: As more mobile phone users are switching to smartphones this indicates that smartphones are generally accepted by the broader masses. Technology life cycle (TLC): The attractiveness of the technology can be estimated by the patent situation. But the measurement of the patent situation requires a complete
43 44

Tode (2011) Mobile Phones UK (2011) 45 Elmer-DeWitt (2011) 46 Kloyer (2011), page 51

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NOKIA and open innovation statistical survey of all patent applications within the technological field of the industry, 47 which is almost impossible due to the massive numbers of patents and applications within the mobile phone industry. There will instead be an assessment of the overall patent situation within the smartphone industry. A patent war rages within the smartphone market and it is a battle to have the most important patents. There has been an explosion in patent lawsuits since 2010.48 Android experienced 37 patent disputes within a year,49 and Google are the one that many of the big players are going for. This indicates that the technology is attractive for the individual players. When a patent war ends companies usually prefers to cross license rather than losing money in the courts,50 and this indicates the smartphone industry is still attractive. Potential for advancement: Apple introduced a radical improvement of the smartphone in 2007 and the iPhone as the dominant design indicates that the time of radical product innovation is over. This means that the smartphone industry is within the period of incremental product innovation. There will be a continuing battle to have the best software and have the optimal screen resolution, touch screen, camera and other hardware parts. It is predicted that some of the main competition areas for hardware parts will be within processors, connection to the Internet (4G) and cloud computing. Dual core processors have been introduced by almost all companies and the next battle within processors is about quad core processor. Quad core processors do need much better battery solutions and this has created reluctance amongst the vendors.51 The emergence of 4G will give cloud computing and Internet surfing better circumstances. The users of smartphones have been constrained by the carriers when it comes to Internet usage and speed. 4G will solve the demand for more data and improve the experience of cloud computing. Cloud computing enables customers to see full length movies in HQ and listen to music without taking hard disk space from the smartphones. 52 The right cloud computing strategy is important since shifting from one cloud service provider to another is complicated for the users. This can make a customer stay at their current cloud service provider longer and make the customer stay longer at the same smartphone vendor.53

47 48

Haupt et al (2007), page 388 Harrison (2011) 49 Williams (2011) 50 De La Merced (2011) 51 Carson (2011) 52 Garner et al (2011) 53 Howley (2011)

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NOKIA and open innovation Place on vertical axis: The 4G, better processors and cloud computing indicates that the smartphone market has not reached its full potential yet. More opportunities will emerge when 4G and cloud computing becomes a fully integrated part of the smartphones. The patent war also indicates that the technology is still attractive. It is assessed that the smartphone technology is within the growth stage, but moving towards the mature stage since many of the new incremental improvements have been invented and are about to be implemented. Resource strength The first part within this section will be an external assessment between the three competitors super smartphones as the super smartphone account for the most of their smartphone revenues. Apple were, as mentioned earlier, the one who started the super smartphone competition. Apples iPhone 4S is by far their largest smartphone revenue contributor and Samsung Galaxy S2 is Samsungs biggest profit contributor. Nokias newest smartphone and their current flagship, Lumia 800, will be compared to find out who has the brightest future of the three companies. See Appendix C which shows the three models specification. Table 1 is reviews made by The Verge who have assessed the three models as following: Table 1: Review of the three smartphones Specs / Model Design Display Cameras Reception/Call qual. Performance Software Battery life Ecosystem (apps) Sum
Source: www.theverge.com
54 55

Nokia Lumia 80054 9 9 7 8 8 8 7 6 62

Apple iPhone 4S55 8 10 9 7 8 9 8 10 69

Samsung Galaxy S256 9 8 8 7 9 7 8 8 64

Savov (2011) Topolsky (2011) 56 Ziegler (2011)

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NOKIA and open innovation As mentioned in the methodology part, it was possible to find different winners. Nokia Lumia have a high score in this review compared to other reviews, but almost all reviewers think that Nokia have gone into the right direction by introducing the Lumia-line. The Verge was chosen since this was one of the few reviews with several criteria and with assessments of each part. Other reviews did not use the same criteria and it was not possible to compare several reviews. Other reviews were simpler, since they assessed that the iPhone 4S won over Galaxy S2 and Lumia 800 within a certain part. The Verges reviews are also unweighted comparisons which do not give a correct picture of their technological position as e.g. software is the most important part. It was not possible to find a homepage which had reviews with several criteria evaluated and the same criteria weighted. This will be mentioned as a part within the further research. The following will be a review of the vendors abilities within hardware partly through table 1; by evaluating their patent situation and what their potentials are. After each competitors evaluation there will be an assessment of the three companies place on the horizontal axis of the technological portfolio. Nokia Product: Nokia have not installed 4G or dual core on their Lumia 800 which can be observed in Appendix C. This is a bit critical since those two parts are mentioned as the new competition areas within the hardware parts. The two other smartphone vendors have dual core, but Nokia has been set back by the cooperation with Microsoft since WP7.5 does not support dual core yet.57 Nokia are known for their design capabilities which are confirmed in table 1. A small positive surprise is that Nokia in this review have better design capabilities than Apple. Nokia are also known for their excellent hardware parts, but the review of camera and battery life show a negative surprise as Nokia have received the lowest scores within those two parts. Nokias cooperation with Microsoft has paid off as they have the second highest score for software, but their ecosystem still lacks. Patents: Nokia are one of the traditional players within the mobile phone industry and they have over 11,000 patents. They have successfully forced several of the major and newer mobile producers to pay licenses for the use of Nokias patents.58 Nokia for example won a

57 58

Meritt (2011) Ogg (2011)

16

NOKIA and open innovation lawsuit against Apple in June 2011 and Apple had to pay an undisclosed onetime payment for the millions of iPhones they had sold since 2007 plus ongoing royalties. 59 Potentials: Nokia had approximately R&D 17,200 employees before the cooperation with Microsoft. Their number of R&D employees exceeds Apple by more than a fivefold.60 The agreement between Microsoft and Nokia has meant layoffs in Nokia and they hope for a more efficient R&D department. Nokia had $9 billion in cash reserve by July 2011. Their sales of smartphones have continued to drop after the announcement of the collaboration between Nokia and Microsoft. Nokia might have been forced to use some of its cash reserves,61 but their situation may have improved after their launch of the Lumia-line. Trajectory: Nokia have some of the best design in the industry and they have a solid patent pool. Their cooperation with Microsoft is also an upside, but a surprise is that Nokia are lacking within some of the hardware parts which are considered as some of Nokias forces. Nokia have more R&D employees hired than Apple, but they have a much smaller cash reserve than Apple. Their lacking dual core technology, inferior hardware parts, lacking ecosystem and their questionable potentials are pulling Nokia down, but their excellent design and their big pool of patents save them. Nokia are placed high, but still beneath the two industry leaders. Apple Product: Apple are focusing more on user experience than implementing the newest technology,62 and this is well illustrated by the missing 4G on their iPhone. The current solution for 4G requires two chips and Apple will wait for the one chip that has both technologies installed. They introduced dual core on the iPhone 4S by October 2011. There was some disappointments about the release of the iPhone 4S as a lot expected the iPhone 5. But Apple were still able to beat all sales records since they sold 4 million iPhone 4S during the first weekend.63 Apple also introduced Siri when the iPhone 4S was introduced, which is a voice assistant. It is only for the English speaking persons, but was considered as a revolutionary app.64 Apples focus on user experience has paid off since
59 60

Informative report (2011) Dediu I (2011) 61 ben-Aaron (2011) 62 Ragnetti (2011) 63 Reising (2011) 64 Gartenberg (2011)

17

NOKIA and open innovation they receive the highest total score amongst the three competitors which can be observed in the reviews. The reviews show a surprise since Apple received the lowest score within the design part which is considered as one of their forces. Apples iOS have the best software and they also have the best ecosystem. Patents: Apple have 4,000 patents,65 which is relatively few compared to its competitors. Some of their patents are although important to the smartphone industry, e.g. the touchscreen patent.66 The relatively few patents have not stopped Apple from litigating and they are amongst the most aggressive to litigate. Apple have for example managed to get a larger share of the $40 royalties for each smartphone HTC sell with Android installed. 67 Apple also won a lawsuit against Samsung and were banned from selling some of their smartphone models in the Netherlands for a period.68 Apple were, however, forced to pay licenses to Nokia as mentioned earlier. Another lawsuit against Apple came from Samsung who believe that Apple are infringing some of Samsung wireless patents.69 Potentials: Apple have an efficient R&D department compared to its competitors. Apple only spent 2.5 % of their phone sales in 2010 to develop their iPhones. They only had about 3,200 R&D employees in 2010 for the whole iPhone package which is significantly fewer than their competitors.70 One questionable factor is if Apple can continue their success after Steve Jobs death. Steve Jobs was the primus motor and an extreme perfectionist. Has he successfully transferred his genes to Apple and his employees? Apple have the largest cash reserves within the technological industry and are among the cash reserve leaders in the whole business world. Apple had $81.6 billion in cash reserves after the last fiscal year which ended at 24 September 2011.71 Trajectory: Apple do not always implement the newest technology into their products, but their products are put together so well that it enhances the user experience. Apple have received the highest total score within the reviews, but they received the lowest score within the design part. Steve Jobs death is a questionable factor which may pull Apple in the other direction. But their highest total score, their cash reserves and their efficient R&D department place Apple close to the top on the horizontal axis. They will continue their dominance since they are also rated as the technology leader.
65 66

Petric (2011) Solomon (2011) 67 Petric (2011) 68 Roumeliotis (2011) 69 Kim II (2011) 70 Dediu I (2011) 71 Camm-Jones (2011)

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NOKIA and open innovation Samsung Product: Samsung are the ones who focus most on having the newest technology installed. Samsung already had 4G and dual core processors installed on their Samsung Galaxy S2 by July 2011.72 Samsung Galaxy S2 is considered as one of the best Android smartphones and it is also one of the thinnest and lightest smartphones in the market. The reviews show that they have better design ratings than Apple and have the best performance of all three models. However, their focus on having the best technology installed has not paid off since their total score is below Apple, but just above Nokia. Patents: Samsung do not have the best patent situation and they are trying to improve their patent situation.73 Their exact number of mobile phone patents could not be found. Apple won a case against them as mentioned earlier, and Samsung have also agreed to pay approximately $10 to Microsoft for every smartphone sold with Android installed. 74 Samsungs patent situation might improve as Google acquired Motorola Mobility. Google claimed that they wanted to protect their hardware vendors.75 Potentials: Samsung are well aware of their poor patent situation since they will invest $9.3 billion in their electronics area R&D. Samsung have a large electronic department, but most of the investment will be spent on improving their smartphone patent situation.76 Samsung are a relatively small player when it comes to cash reserves compared to Apple. They only had $9.04 billion in cash reserves by 2011. 77 Trajectory: Samsung are more willing to have the newest technology installed in their smartphones since they had 4G and dual core installed before Nokia and Apple. Their focus on newest technology has although not been received well since they dont get the highest overall score, but they have decent scores amongst all the parts. Samsung have a weak patent base, but Googles investments in Motorola might improve their situation. Their situation is a bit like Nokias since they have almost equal scores and have almost the same cash reserves. Nokia do, nonetheless, have a better patent situation, but Samsung have a better product since Samsung were winners in several other reviews. This places Samsung just above Nokia, but they are close to each other.

72 73

Kwan (2011) Fitzgerald (2011) 74 Warren (2011) 75 Niccolai (2011) 76 Brian II (2011) 77 Wilhelm (2011)

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NOKIA and open innovation 2.2.3 The evolution of the integrated portfolio Place and trajectory for the three companies Figure 2 show the dynamics of the integrated portfolio. The market portfolio shows that the smartphone market is attractive because of high growth and high profits. This explains the high placing on the market portfolios vertical axis. Apple have the highest market share and the highest profit share and are placed highest on the horizontal axis. Nokia receive the lowest placing since they do not have any profits and have the lowest market share amongst the three. Samsung are placed in the middle. The next figure is the technology portfolio which is a trajectory of the competitors future market shares. The technology is moving from the high growth area where they are now towards the lower right corner, which is the cash cow area. The trajectory is shown in the last figure, the integrated portfolio, where the companies position is visible for today and where they are headed. Apple will continue to be the industry leader while the two other competitors are close to each other.

Figure 2: The three companies in the integrated portfolio

Market portfolio Technology portfolio Integrated portfolio

Techno. attract. H

Market attract.

Competitive strength H

L Competitive strength H

L
L

Environment

Company

= Nokia

= Samsung

= Apple

Source: Kloyer (2011), page 17 & 18 with companies plotted

The placing of the three competitors is now known and the next part will be the theory chapter. This will be followed by how the two industry leaders got to their position by analyzing their innovation processes and compare them to Nokias innovation processes.

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NOKIA and open innovation

3.

Open innovation the theory

The old innovation paradigm is called the closed innovation paradigm where companies control their own innovation in order to become successful. Companies came up with their own ideas, developed them, built them and generally did everything by themselves. This was a time when: If you want something done right, youve got to do it yourself .78 This paradigm created some tension between the researchers and the development team. A lot of the researchers ideas were not realized and were placed on a shelf, potentially discouraging the researchers.79 At the end of last century the closed innovation paradigm was challenged by a lot of factors and a crucial one was time to market. Another factor was that the customers and suppliers ideas became more important and companies could not continue to ignore that knowledge if they wanted to stay competitive.80 This was the starting point of a new innovation paradigm, open innovation. Henry Chesbrough defines open innovation as: Open Innovation means that valuable ideas can come from inside or outside the company and can go to market from inside or outside the company as well.81 The following figure shows how open innovation operates:

Figure 3: The open innovation paradigm for managing industrial R&D

Source: Chesbrough (2003), page xxv

78 79

Chesbrough (2003), page xx Chesbrough (2003), page 33 80 Chesbrough (2003), page xxiiI 81 Chesbrough (2003), page 43

21

NOKIA and open innovation A company can either use open innovation by external knowledge exploration, by external knowledge exploitation or by external knowledge retention. External knowledge exploration is about acquiring knowledge while external knowledge exploitation is selling about knowledge, e.g. by license technology out.82 External knowledge retention is about having access to knowledge which is not within the firms organization, e.g. through alliance partners and a company can use all the different variations simultaneously.83 A company has to do own R&D to improve its absorptive capacity for the external knowledge exploration or retention.84 It is a challenge for a company to manage open innovation and a company needs to build up organizational abilities to manage open innovation. This can either be done by creating dedicated organizational structures or by creating incentives to the employees.85 There is no single best way to manage open innovation and it is not possible to generalize, since it depends on internal and external circumstances. Optimizing open innovation is about finding the right mix between internal and external innovation processes to create synergies.86 Open innovation is able to pick false positives out (projects that seemed appealing, but turned out not to be) as the closed innovation paradigm can, but it can also detect false negatives (project that did not seem appealing, but turned out to be).87 The latter can be tested by spinning the technology out or by licensing it out. When a company adopts open innovation they acknowledge that not all the smart people are working within the company; that there are a lot of good ideas outside a company and that the company does not need to come up with the good idea to leverage from it.88 Open innovation is not an entirely new paradigm created by Henry Chesbrough. Some have even called open innovation old wine in new bottles since US companies already performed open innovation several years ahead of Chesbroughs book from 2003.89 Some argue that open innovation does not fulfill the requirements for being a new theory and can instead be considered as a framework.90

82 83

Lichtenthaler (2011), page 76 Lichtenthaler (2011), page 77 84 Lichtenthaler (2011), page 81 85 Lichtenthaler (2011), page 84 86 Lichtenthaler (2011), page 85 87 Chesbrough (2003), page xxv 88 Chesbrough (2003), page xxvi 89 Mowery (2009), page 13 90 Lichtenthaler (2011), page 79-80

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NOKIA and open innovation Open innovation need a lot of theoretical and empirical work,91 but open innovation is still very relevant for the companies in competitive industries. One of the top open innovation users is P&G. They claimed that P&G had 8,600 scientists working for the company, but that they had 1.5 million outsiders who came up with new ideas or technologies for P&G. Their goal was to get 50 % of their innovation from their workforce from outside.92 Open innovation exploit the massive pool of talents and ideas placed outside the company and a company should try to leverage from this. P&G started Connect and Develop (C&D) to improve their use of open innovation. Their goal was to increase value not to cut cost. This is not done by outsourcing R&D, but insourcing creativity and by co-creation with external developers. C&D is about finding a need, describe it and send it to outside developers to get proposals back. If the proposals are usable, the need might turn into a product.93 P&G do not have scaling as their first priority. They instead want to know whether they can deliver proper value to the customers and then scale it up when this has been confirmed.94 A company has to be committed in C&D as it takes time to become a success and management support is important to make C&D a success.95 P&G changed the mentality from not-invented-here to proudly-foundelsewhere.96 For C&D to become a success, a company needs to employ people who are good at scouting, others who are good at screening and finally some ones who are good at making deals. A company has to nurture the relationship with external R&D developers by building up trust and giving them incentives to work with the company. Relationship management is important for P&G as they have 1.5 million external developers.97 However, elaborating other positive aspects of open innovation is not necessary as all companies mentioned in this thesis are all users of open innovation which will be elaborated in the next chapter.

91 92

Lichtenthaler (2011), page 80 Chesbrough (2003), page xxvii 93 Huston et al (2007), page 21 94 Huston et al (2007), page 22 95 Huston et al (2007), page 22 96 Huston et al (2007), page 23 97 Huston et al (2007), page 24

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NOKIA and open innovation Want, Find, Get, Manage approach98 Managing innovation is crucial for companies today since the industries are constantly changing. Innovation is a necessity if companies want to keep or grow their businesses, but companies can have difficulties to manage innovation optimally.99 To concur these problems, Gene Slowinski has developed a model for optimizing the use of open innovation called the Want, Find, Get, Manage approach. In this approach Slowinski has made open innovation more manageable by organizing the different stages within open innovation. The approach is showed in the following figure:

Figure 4: The Want, Find, Get, Manage Model

Want

What are our resource needs? Which ones should we internally develop? Which ones should we find externally?

Find

How do we find and evaluate the external sources of technology and capabilities that will fulfill out Wants?

Get

What processes will we use to plan, structure and negotiate an agreement to access external resources?

Manage

What tools and metrics will we use to implement and manage ongoing collaborative relationships?

Source: Slowinski et al (2010), page 39

Tidd and Bessant have developed a six stage approach for managing corporate ventures which could also be used for optimizing the use of open innovation. Their approach has three stages for the definition part and three stages for the development part. They mention that the most important part is to create an entrepreneurial environment, but this is also the hardest stage. Managers should be highly committed to the venturing/open

98

The original source is Reinventing corporate growth by Gene Slowinski, but it was not possible to get the original source. 99 Chesbrough (2003), page xvii

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NOKIA and open innovation innovation by supporting it and by implementing the right processes.100 Their approach could be an alternative model for how Nokia could optimize the use of open innovation, but the Want-Find-Get-Manage model is better suited for this thesis as it elaborates the goal/want part which will be one of the main topics in the analysis: Want: A want can be achieved through internal R&D and when this is the case, no further open innovation actions are needed. If internal solutions are not sufficient, the company can look for ideas outside of the company and the use of open innovation becomes an opportunity. A company should assess the trade-offs between internal development and external open innovation opportunities as some companies underestimate the time usage and cost of developing the asset internally. Companies should be aware of the external sources of ideas in the want phase as companies could change their path to the goal:

A+E=C A is the companys own R&D and assets, while E are the externally available tools for reaching C, which is the goal. Setting the right goals is crucial since it affects the next phases.101 The E consists of all the different open innovation tools which typically are: University collaboration User driven innovation Venture capital Acquisitions Inter-firm collaboration (includes supplier and competitors) Joint ventures Spin-outs Learning networks Licensing (in and out) The open innovation tools will be elaborated in Nokias open innovation processes since they use all of the above mentioned tools.

100 101

Tidd et al (2009), page 461 Slowinski et al (2010), page 39

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NOKIA and open innovation Find: The first phase within the find practice is to figure out what the employees know. They might not have the final solution, but they are potential experts within the new technology and can ease the find process since the company might know what to search for. The company can also look for patent opportunities, literature searches and talk to universities to gain a better understanding. This once again makes the companys search more efficient and can reduce the search costs. When a company is searching for a potential partner, the company should understand that potential partners are also looking for the best partner. There might be a competition to find the best partner and this is the case within the electronics industries.102 This is also confirmed by Stefan Lindegaard,103 who argues that being technology leader is very important since the leader typically becomes the preferred partner. The advantage of being the preferred partner is that the technology leader gets first access to the newest ideas or technologies which enable them to get a head start. Lindegaard mentions P&Gs competitors as an example who only saw the ideas and proposals which P&G had rejected.104 The find phase will give the company new information about the technology and potential partners which could lead to an altered want list. The company should then restart the process and send the new wants out to its employees and other sources who can contribute to get new feedback.105 Get: The find phase should end up with a find list which includes external sources and something about each source. The get process is about ranking these sources and assessing whether an alliance with a potential partner is possible. Once again it should be stated that the opposite part is also assessing possible partners in this phase.106 This is the phase where negotiations are going to take place so most of the misunderstandings are diminished. This requires that both parties are satisfied with the contract to create a successful alliance. This can although be a challenge since both parties try to get benefits over the opposite part. This could potentially harm the alliance and the two parts should strive for an agreement that is perceived as fair. A fair agreement is a good starting point for the cooperation and will enhance the chances for success.107

102 103

Slowinski et al (2010), page 41 Stefan Lindegaard is an author, speaker and advisor within open innovation - some of this is done through www.15inno.com 104 Lindegaard (2009) 105 Slowinski et al (2010), page 42 106 Slowinski et al (2010), page 42 107 Slowinski et al (2010), page 43-44

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NOKIA and open innovation Manage: This is the phase where the companies try to integrate what they agreed about in the get phase. This is reality and the collaboration will be a test of how solid the agreement is. If problems occur, the management should immediately try to overcome these problems since the problems could grow into larger problems and potentially destroy the collaboration. During this phase it might become apparent that the two companies have misunderstood the agreement and such misunderstandings have to be resolved through meetings between the two companies representatives. Their common understanding after their meetings should be passed on to their employees so everybody have a common understanding about the agreement. 108 Open innovation has its advantages, but a company should not outsource their entire R&D through open innovation. Chesbrough argues that it is important for a company to have an internal R&D and not just rely on open innovation. New technologies do usually not come to the company as a finished product and the technology has to be integrated into a companys own products in some cases. The company still has to do some improvements and implementations and this requires some knowledge which is gained through own R&D. And a company also needs to have knowledge about which is the right or best technology to determine what the insufficient technologies are. Internal R&D keeps a company up to date within a technology and this knowledge can be used to figure out who the best potential partners are. If a company only relies on acquiring technologies this could end up in a horrible failure.109 A company needs to have a balance between internal R&D and open innovation. Some of the new goals for the internal R&D will be:110 Be able to find/select the right technology from the myriad of external knowledge Be able to fill out the missing technology pieces that are not externally developed Integrate internal and external knowledge to create new systems and architectures Make profits by licensing out

The following chapters will therefore include a description of the three companies internal R&D processes besides their use of open innovation to get a full picture of their innovation processes.

108 109

Slowinski et al (2010), page 44-45 Euchner (2011) 110 Chesbrough (2003), page 53

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NOKIA and open innovation

4.

The companies innovation processes

This chapter will first assess how the two industry leaders, Apple and Samsung, got their success by evaluating their innovation strategies. By starting with those two, it becomes easier to understand Nokias innovation processes and to figure out where they have possibly failed. The description of their internal innovation processes will have the same structure and will also include other aspects, such as segments, marketing etc, since these affect their R&D processes. The sections about open innovation will not have the same structure as they use different open innovation tools.

4.1 Apples innovation processes

4.1.1 Apples internal innovation process Innovation strategy and their goal: In 2005 Steve Jobs asked 200 of Apples top engineers to start working on the iPhone, and two years later the first iPhone was sold. 111 The first iPhone in 2007 was a game changer since their radical improvement of user experience and design set a new dominant design for the smartphones. The competitors had to improve their former smartphone solutions to be a part of the competition. The first well functioning iPhone was important since Apple had been able to shift the powers between carriers and smartphone vendors when they signed the agreement with AT&T. Carriers were used to set specific requirements to the smartphone vendors, but Apple had been able to set their own specific requirements and even managed to get $10 per month from every iPhone customer at AT&T, which was an unthinkable situation before the iPhone period.112 Apple have gotten successful by primarily focusing on design and usability. This is best exemplified by how even small children are able to use Apples products and by having no instructions for their products due to their simplicity.113 Apple have optimized the ease of use by designing and developing their own products. This means that they own the OS, the software and design the hardware themselves.114 Steve Jobs once said: One company makes the software. The other makes the hardware... Its not working .115 He argued that innovation would be too slow and that the ease of use would suffer as the two parts cannot be perfectly integrated.
111 112

Vogelstein (2008) Vogelstein (2008) 113 Kuang (20 11) 114 Breillatt (2008) 115 Grossman 2005

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NOKIA and open innovation Apple are known for their extreme secrecy within their processes and when launching new products. Managers have been disciplined to keep a secret and there are certain rooms where only key employees are allowed to enter.116 The software developers did not know what the hardware looked like and vice versa when the first iPhone was built.117 This ensured that only few people knew what the final product looked like. The secrecy gives a lot of buzz and Apple have turned the one smartphone introduction per year into an event to receive a lot of free marketing. When a new product is launched, Apple make sure that the press get a bit of information or make a stunt, like forgetting the newest iPhone at a bar, to keep the buzz growing. It has been estimated that one of their iPhone launches received free media coverage for about $400 million.118 Number of models: Apple only launch one new iPhone model per year, but they also have products in different product categories, such as tablets, laptops, MP3 players etc. They also launch few products every year within the other product categories.119 The few product launches per year make it possible for Apple to work intensively on few products and thereby ensure higher quality.120 The few products have also made it possible for Apple to have only one R&D department for almost all of its product categories. One R&D department ensures that the user experience is the same across all product categories and thereby increases user trust. The extra focus on user experience has meant that Apple are more interested in user friendly technologies rather than technical performance,121 which was described earlier. Apples narrow product focus in every product category has paid off since they have more efficient R&D figures when comparing them to Nokias R&D figures. Apple spent 2.5 % of phone sales on phone R&D in 2010 while Nokia spent 10.2 %. Nokias total phone R&D cost were $3.9 billion in 2010 while Apple did not spend over $1 billion. 122 Design and market research: Apple do not perform any market research since the customers, according to Apple, cannot predict what they want. It would only be incremental improvements rather than radical new products. Apple instead have a small
116 117

Bry (2011) Vogelstein (2008), page 4 118 Bry (2011) 119 Apple (2011) 120 Breillatt (2008) 121 Ragnetti (2011) 122 Dediu I (2011)

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NOKIA and open innovation design team of 20 designers, led by Jonathan Ive, who try to figure out what they want themselves. To ensure high quality Apple only hire the best designers in the world and the designers are paid 50 % more on average than designers at other organizations. 123 The designers are working with a principle called 10 to 3 to 1. They first come up with 10 different, but good ideas when considering a new feature. Three ideas are chosen and the Apple team spends months improving the three options. The final concept is chosen after a longer work process. This means that only 10 % of their ideas are utilized, but Apple believe that this approach enhances creativity and overcomes past restriction. 124 Apple do also fail once in a while since they had problems with their antenna on the first iPhone 4, which was nicknamed the Antenna-gate. 4.1.2 Apples use of open innovation Acquisitions: Apple do not hesitate to acquire a company or buy expertise to gain faster access to a technology.125 Interfirm collaboration: Apple have a network of suppliers to manufacture the iPhone parts since they primarily want to focus on design, software and ease of use. Apple are leveraging from others inventions and technologies when it comes to the iPhones internal parts.126 Apple have a lot of collaboration partners to make the iPhone look at appendix D to see most of them. It has been estimated that Apple have over 30 partners for manufacturing the different parts and that Foxconn are assembling the different parts. The last part is uncertain since Foxconn have claimed that they do not assemble the iPhone. 127 This is another aspect of Apples use of secrecy since nobody should know who assembles their products. Samsung are a very important partner since they accounted for 26 % of the iPhones total cost. This is an awkward situation for the two companies since they are fierce competitors in the smartphone industry but also have an important supplier/buyer relationship with each other. The collaboration between the two has been endangered because of Apples lawsuit victory against Samsung in the Netherlands. Samsung reacted by counter-suing Apple for infringements. The two companies have, however, agreed to continue their buyer/supplier relationship and thereby maintain their

123 124

Breillatt (2008) Breillatt (2008) 125 Bry (2011) 126 Caulfield (2010) 127 iPhone Gadgets (2011)

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NOKIA and open innovation love/hate relationship with each other some years ahead.128 Samsung have also benefited from this relationship as they have been able to scale up their production and thereby lowered their unit prices.129 In 1999 Apple invested $100 million in Samsung to boost their production of flat-panel computer displays to ensure a constant supply, 130 so it can be concluded that these two companies have a complicated relationship with each other. Apple bought components and sources for $7.9 billion in the beginning of 2011 and the huge quantities forced the unit prices down for Apple. On contrary the unit prices got higher for Apples competitors because of a parts shortage created by Apple. 131 The manufacturing partners are also controlled by Apple in a tight grip to ensure secrecy. A confidentiality clause is signed when a supplier signs a contract with Apple which includes harsh penalties if anything is breached. Apple have multiple suppliers to, once again, ensure that only very few know what the final product looks like.132 Apple have a large base of external apps developers and apps are important since they keep customers loyal to the smartphone vendors.133 Apple had over 500,000 approved apps at Apple app store, which can be observed in appendix C. Apple have higher requirements for their apps developers and Apple are frequently checking the apps quality.134 The apps developers also need to have software developer skills which are not a requirement for Android apps system.135 The iPhone users buy more apps at App Store compared to their competitors, as Apple sold for nearly $5 billion compared to Androids $350 million making Apple the most attractive apps partner. It is a profitable business for the apps developers since Apple keep 30 % while the developers get the rest. 136 Licensing: Apple have been forced by the courts to license in and license out which was mentioned in the technological portfolio. 4.1.3 Assessment of Apples innovation processes Want: Apple are very focused when it comes to goal setting as they primarily focus on design, software and ease of use. Apples use of open innovation consists of suppliers to
128 129

The Economic Times (2011) P.K. (2011) 130 Davis et al (1999) 131 Bajarin (2011) 132 Pomfret et al (2010) 133 Dowell (2010) 134 Vikitech (2011) 135 Nystedt (2010) 136 Burgess (2011)

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NOKIA and open innovation every iPhone hardware part and apps suppliers. They only introduce one smartphone per year and make a smartphone that they want to use themselves. Introducing one universal smartphone per year is one of their main advantages, but also a brave action, as it gives the R&D department much more time to improve their iPhones. Apple do not need to have the latest technology installed, but instead prefer to have the most user-friendly technology installed. An example is that they were late comers within dual core and they still do not have 4G installed since the technology requires two chips. Their clarity within the goal part eases up the following phases. Find: Apple enjoy that the suppliers are more than happy to supply Apple with its parts or apps. As mentioned in the theory it has been claimed that technology leaders get access to new technologies/ideas before their competitors and that the competitors see the ideas that the champion has turned down. Apple are not interested in having all the newest technologies installed, as Samsung prefer, but they might exploit their position to make agreements that are in their favor. Even Samsung, a fierce competitor and a supplier, are very interested in being Apples supplier. Apps developers may also prefer Apples app system as it generates more revenue which was shown in Apples interfirm collaboration. It would appear that Apple do not have difficulties to find suppliers since suppliers seem to prefer them and Apple have the luxury to pick amongst the best partners. Get: Apple seem to have an extraordinary ability to make contracts that are best for themselves and the politics seem to be my way or the high way. Suppliers and customers have felt this since Apple have been able to negotiate lower prices from the suppliers, get more money from the carriers and demand secrecy on top of that. The get-theory mentions that an agreement should be perceived as fair for both parties and this does not appear to be the case for Apples suppliers or customers. Their negotiation skills partly explain Apples huge cash reserves and it might also be possible to maintain these politics when Apple make the products that others strive for. However, their aggressive style could harm future collaborations since the suppliers or customers can get tired of being pushed around by Apple. What happens when one of their future products fail? Their aggressive collaboration history will probably not be an advantage for them and companies within the smartphone industry should avoid getting too aggressive. The smartphone industry has been characterized by competitors collaborating when a company gets too large. The current enemy is Google and a good 32

NOKIA and open innovation example of competitor collaboration was when Apple, Microsoft, RIM, Sony etc. bought Nortels pool of patents by outbidding Google by a fivefold.137 For now the focus has been on Google, but who is next in line when and if Google gets tamed? Manage: The internal hardware parts of the iPhone are innovations and technologies from over 30 different parts suppliers. Collaborating with 30 suppliers must require a lot of work by Apple to manage and check the suppliers work when considering Apples high requirements for quality and secrecy. Apple are controlling their suppliers by making agreements with harsh penalties. If secrets are breached, Apple do not hesitate to sue a supplier. Apple must be good at this part since the suppliers hardware is well integrated into Apples software which is shown by the iPhone 4S review. With a limited knowledge about Apples innovation system, Apple seem to be a part of the closed innovation paradigm since they keep all their own ideas and technologies to themselves. They are very proprietary about their own technologies and this is not a part of the open innovation paradigm. However, by evaluating the iPhones hardware parts and their apps, it becomes apparent that Apple are users of the open innovation. Apple use open innovation by external knowledge exploration since they acquire the technology. Their innovation processes can be characterized as in the following figure: Figure 5: Apples innovation processes

Source: Own figure

137

Nicholson (2011)

33

NOKIA and open innovation Figure 5 shows that the ideas/technologies are only going in one direction and Apple make sure that the integration between hardware and software is optimal. The grey area is what Apple are doing themselves. The software circle is bigger than the hardware circle, since software is perceived as more important. Apple have developed their own version of open innovation: a tightly controlled open innovation system. Their extreme level of secrecy required by all involving participants cannot be a part of the true spirit of open innovation. They are although very open within the hardware part and are also users of open innovation within the software part, since they cooperate with apps developers which are shown by the little circle at the software part. Suggestions for improving Apples use of open innovation: Apple have several other options to improve their use of open innovation since they primarily focus on collaboration and acquiring knowledge. Apple could license or spin out some of the nine ideas within their 10-3-1 design principle, which are currently not utilized. This could encourage their designers more since the designers will see that their work is not entirely wasted. Another option could be to license their iOS to other smartphone vendors, e.g. to Samsung who is one of Apples most important suppliers to improve their relationship with Samsung. It has not been possible to find any collaboration between Apple and universities. Such cooperation could be another inspiration for future products since universities primarily work on basic research. But it seems that Apple are quite satisfied with their position and they might not be interested in improving their use of open innovation. Apple use their own version of open innovation and their current approach has been very successful. Apple have managed to place themselves on the top of the food chain by primarily concentrating on design, software and ease of use and by being good at making agreements with suppliers and customers.

4.2 Samsungs innovation processes

4.2.1 Samsungs internal innovation process Innovation strategy and their goal: Samsung are known to make a lot of incremental improvement on others radical innovations. Samsung receive a lot of patents and they were number two in US when it came to granted patents.138 Samsungs overall strategy is to be a fast follower when the radical design has proven to be a success. Samsung are
138

The Economist III (2011)

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NOKIA and open innovation particularly interested in business areas that are small, but fast growing. The new industries have to be capital intensive and they prepare for the new industry by doing research within the new technology to increase their knowledge. When the timing is right, Samsung invest a lot of money in production facilities to gain cost advantages from start. They want to become a key supplier to as many as possible to lower their manufacturing cost. Their strategy usually pays off since Samsung become a success within the new industry.139 This has also been the case for the smartphone industry where Samsung currently are one of the industry leaders and are providing Apple with several chips to get higher volume. Samsung are one of the leading suppliers of flash memory for the smartphones which means that Samsung will not experience shortage supplies of chips and flash memory as some of the competitors might experience.140 Samsung are also manufacturing their own smartphones and their manufacturing advantages have enabled them to fight competitors in several price segments.141 Samsung are more focused than Apple to have the newest technology installed which has already been mentioned. Samsung came up with a long list when Apple introduced the iPhone 4S which showed that the Samsung Galaxy S2 was technologically superior against the iPhone 4S. Samsung claimed that they had the superior smartphone.142 Number of models: The exact number of mobile phone introductions from Samsung is not known, but they have a lot of introductions per year since they have phones within the smartphone and feature phone market for every segment. Samsung have had the same smartphone strategy as Nokia, since Samsung have several models for the low, middle and high end of the market.143 Samsung are also able to provide much of the same entertainment package as Apple, since they produce tablets, laptops and many other electronic products. Samsung are fighting both Apple and Nokia in several price and product categories. Design and market research: Samsung have been accused of copying the iPhones design and have also been sued by Apple for infringements.144 Samsung have acted as a fast follower within this part which is confirmed when looking at pictures of the iPhone and
139 140

The Economist II (2011) Tofel (2011) 141 Gabriel (2011) 142 Tyrsina )2011) 143 Staska (2011) 144 Kane et al (2011)

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NOKIA and open innovation comparing it to a Samsung Galaxy S2. The Samsung Galaxy S2 is just bigger than the iPhone.145 Samsung have also copied some of Apples other accessories since they copied a USB adaptor, a power adaptor and the boxes for some other products are almost alike.146 A US judge has although rejected the accusations since she does not think that Apple has suffered irreparably - Apple reacted by appealing this decision.147 There is no available information about whether Samsung conducts market research. 4.2.2. Samsungs use of open innovation Interfirm collaboration: Samsung are accused of not being users of open innovation,148 but Samsung are quite active in one area since they cooperate with several smartphone OS providers. This has also always been their software approach, since they already in 2002 were users of Symbian, Microsoft and the Palm operating system. 149 Their current OS approach includes Android, WP7.5, their own OS, Bada and they have just started a new cooperation with Intel to develop Tizen. Samsung have Android for the high end of the smartphone market while Bada are for the lower segments.150 Samsung integrated Android late since they, like other smartphone competitors, had missed the first Android opportunity.151 Android has become a very important factor for Samsungs success. It is estimated that 15.4 million out of 19.9 million Samsung smartphone sales in the second quarter of 2011 were phones with Android installed,152 which means that Android accounted for 77 % of Samsungs smartphone sales. Samsung and Google have the second largest pool of apps since they have about 400,000 apps which can be observed in appendix C. This partly explains why Samsung have sales close to Apple since apps are an important part for a smartphones success. Google have not been entirely satisfied with the hardware manufacturers integration of Android since the manufacturers have delayed the Android updates with several months. The integration delay has been mentioned as one of the reasons that Google have acquired Motorola Mobility to ensure that the latest version of Android is installed faster.153 Ensuring better integration between software and hardware has also been mentioned as a reason.
145 146

S. Lars (2011) Chubb (2011) 147 Levine (2011) 148 Lindegaard (2009) 149 The Economist (2002) 150 Dano (2011) 151 Kiju (2011) 152 Dediu II (2011) 153 Rosoff (2011)

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NOKIA and open innovation Samsungs newest cooperation, Tizen OS, with Intel and Linux is a replacement of Meego, which Nokia and Intel had abandoned in 2011. But Samsungs involvement is unsure since they already have invested a lot in Android, WP7.5 and their own Bada. Tizen could be another alternative to Googles Android as Samsung seem to prefer several OS alternatives after Googles acquisition of Motorola Mobility. 154 Samsung fear that Google will prioritize Motorola higher than their other hardware manufacturers. It will be hard work for Samsung and Intel to make Tizen work, since the two companies have very different cultures. It will also be a challenge for them to attract developers as a lot of developers are disappointed after the failures of Maemo (Nokia), Moblin (Intel) and Meego (Nokia/Intel). Meego will be described further in Nokias open innovation part. Tizen is predicted to have a slim chance for success.155 Licensing: Samsung have also been forced to pay licenses to e.g. Apple which was mentioned in the technological portfolio. 4.2.3 Assessment of Samsungs innovation processes Want: Samsungs primary focus is to lower their manufacturing cost as much as possible. This is best exemplified by their complex relationship with Apple. Samsung also search for inspiration from Apple to find a quick shortcut within the design part. They are apparently not the ones with the radical innovations, but are a quick follower who comes up with a lot of incremental improvements. Their E is to have an open approach towards smartphone OSs and let others do the innovation within this field. They are not interested in having one OS provider, but prefer to have multiple OS providers to ensure that they do not get too dependent on one OS supplier. Google is, nonetheless, by far their largest OS provider since they accounted for 77 % of their smartphone sales in the second quarter of 2011. Find/get: Their primary use of open innovation, smartphone OS cooperation, does not require a thorough review within the find/get phases since Samsung are open towards every available OS. This has been their OS strategy for a long time and will also be their OS strategy for the future. However, Googles acquisition of Motorola Mobility has required some changes within the management parts.

154 155

Paul (2011) Neary (2011)

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NOKIA and open innovation Manage: Samsung have become quite unsure whether Google have some hidden intensions or not. Google claimed that they bought Motorola Mobility to protect their hardware manufacturers by buying Motorolas patents. This has been questioned since Google could have bought Motorolas patents instead of buying the whole company. Googles cooperation history tells that a company cannot always trust Google since they had a seat within Apples board before the launch of Android. Apple were very disappointed with Google when they introduced Android since they were close partners.156 Samsung have reacted by intensifying their cooperation with Microsoft and begun a new cooperation with Intel to make a new OS, Tizen. But it is a tricky situation: Many of the smartphone manufacturers would turn to Microsoft if Google went solo and Google would really like avoid this. Their primary smartphone revenue source is ads revenue generated through Androids browsers which is described in appendix A. Samsung would also have difficulties to replace 77 % of their market shares with another OS. Google will probably keep providing Android for free, but they will try to install Android updates faster on their own smartphones and ensure that the software and hardware integration improves. When assessing Apples and Samsungs path to success it becomes apparent that the two have chosen entirely different paths. Apple are a newcomer compared to the two other competitors and they are not interested in manufacturing. Samsung are one of the traditional players within the smartphone industry and their main focus is lowering manufacturing cost. Samsung also try to find inspiration from Apples design and having several smartphone OS suppliers. With a limited knowledge about Samsungs innovation processes it would appear that Samsung have a proprietary innovation approach. They also use external knowledge exploration since they acquire OS technologies. Samsung have although realized that they need to open more up by increasing their cooperation with partners and acquire more companies. Samsung have, to some degree, been a part of the closed innovation paradigm when assessing their overall innovation strategies. Samsung do not have the best experience with other open innovations tools other than software cooperation. They tried to acquire a PC maker in the 1990s, but the integration was a huge failure. Samsung are although aware of the necessity to get access to external knowledge through sales channels and customers.157 The review of Samsungs innovation processes ends up in the following figure:
156 157

Liedtke (2011) The Economist II (2011)

38

NOKIA and open innovation Figure 6: Samsungs innovation processes

Source: Own model

Figure 6 shows that Samsung are cooperating with several OS providers, but that the integration is suffering. Samsung do not take full responsibility for the integration and this explains the lacking grey area in the integration part. Google have become aware of this and have bought Motorola Mobility and their strategy might be to provoke the other hardware manufacturers to take more responsible for the integration. Samsung have gotten a lot of success without a perfect integration of the two parts, but could they get even more success, if the two parts were better integrated?

Suggestions for improving Samsungs use of open innovation: Samsung do know that there are more open innovation opportunities since they want to use more tools. They only use interfirm collaboration within smartphone OS. A suggestion could be to use open innovation within the design area even though they received a high score in the reviews. They could find design partners and create their own design instead of being inspired by others design. A complete review of their open innovation opportunities is not within the scope of this thesis since they have a lot of other open innovation possibilities.

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NOKIA and open innovation

4.3 Nokias innovation processes

4.3.1. Nokias internal innovation processes Innovation strategy and their goal: Nokia are not always the first company to come up with a new innovation, but they try to be at the market at the right time. 158 Nokia do not have 4G or dual core installed on their smartphones. Nokia have been set back by the cooperation with Microsoft since WP7.5 does not support dual core yet.159 Nokia are known for their hardware and design capabilities since they make excellent screens, cameras and other hardware parts. Some would even argue that they are as good as Apple when it comes to the hardware and design parts.160 The reviews in the technological portfolio confirm the design part, but they are lacking within some of the hardware parts. Nokia focus a lot on cost and Nokia consider cost as one of their primary reasons for their success. Chairman Ollila once stated: Nokias leadership is about cost, cost and cost . Nokia argue that they prepare themselves for prices erosion since they are aware of declining prices during a products life time. Their cost advantages enable Nokia to enjoy when people buy more expensive products during good times and during bad times where customers might trade down. 161 Nokia can enjoy cost advantages since they focus on modularity. This means that many of their phones are 60-80 % alike while the rest of the phone is for local adaptations and to differentiate the phones for the different segments. This enables economies of scale within R&D, production and sourcing. 162 Nokia have several factories placed all over the world to be able to respond to local demand fluctuation,163 and let the local factories specialize in the local adaptations. Nokia are planning to keep the manufacturing part for a while since they still are more efficient than possible suppliers. The manufacturing part might be outsourced if possible manufacturing suppliers become more efficient than Nokia.164 Nokia have a long term- and a short term R&D department. The long term R&D is done by Nokia Research Center (NRC) which in 2010 had 400 researchers employed all over the world.165 NRCs primary work area is trying to predict mobility in 3-7 years and to disrupt the current technologies. NRC are also supporting the short term R&D so the units can
158 159

Steinbock (2010), page 118 Meritt (2011) 160 Hiner (2011) 161 Steinbock (2010), page 232 162 Steinbock (2010), page 143 163 Steinbock (2010), page 147 164 Steinbock (2010), page 148 165 Steinbock (2010), page 122

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NOKIA and open innovation master the new technologies.166 NRCs purpose is to improve Nokias IPR situation, which is an important mission. Nokia have invested $60 billion in R&D during the last two decades which have given Nokia about 11,000 patents and most of these patents are very important for the mobile industry.167 Nokias investments in R&D rose by a fivefold during the 90s and Nokia seemed to be proud of spending more on R&D than Apple. 168 Short term R&D is done by Nokia Units and their mission is to implement the innovations as smooth as possible into Nokias organization. The risks from a new technology have been reduced through NRCs work and Nokia Units will try to scale up the new technology to gain cost efficiencies.169 Number of models: Nokia had plans to launch 40 new mobile phones in 2011 and 10-12 of those would be new smartphone models. Their plan was to release two smartphones for the low end, 4-5 to the middle end and 3-4 for the high end.170 This is a much different approach than Apples one smartphone introduction per year for the high end. Nokias multiple model introductions could potentially make their own products compete against each other. One reason for Nokias many introductions is that they do not consider mobile phones as a rich man toy. Nokia believe in their slogan which says: Connecting people and it is about making mobile phones available to everybody. Nokia want to serve all segments in the industrialized- and the emerging countries as well. The focus on emerging markets has grown the last couple of years since Nokia want to exploit their cost advantages. In 2009 they were able to sell a mobile phone for $30 to the emerging countries.171 The emerging countries are increasing their parts of the worlds total GDP and Nokia are interested in selling to these countries from start.172 Design and market research: Cost is not their only strength since Nokia are known for their hardware and design capabilities. Nokia want to produce products that people want and love to use. Nokia had a large design team which employed 340 designers, psychologists, researchers, anthropologists and technology specialists. They were placed all over the world, e.g. in Finland, England, China, USA etc. and they tried to spot the next
166 167

Steinbock (2010), page 123-4 Steinbock (2010), page 125 168 Steinbock (2010), page 120 169 Steinbock (2010), page 127 170 Constantinescu (2011) 171 Steinbock (2010), page 173 172 Steinbock (2010), page 199

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NOKIA and open innovation consumer trend.173 Nokias vision is to be: ... recognized as the most consumer-focused, customer-centric organization on the planet.174 Nokia try to achieve this by conducting huge researches, e.g. by a survey which included 74,000 respondents from 26 countries, to figure out what the customers needs are.175 In this research, it was concluded that consumers only spend the phone for calling 20 % of the time,176 and that the consumers are using the smartphone for texting, taking pictures, recording videos, watching TV, play games, surfing, emailing, navigating, scheduling etc.177 Nokia extras Nokias software problems: Nokia knew that software was the differentiating part since they claimed that 75-80 % of the value was created through software.178 Nokia had spent over a decade to develop and improve Symbian, when Nokia chose to shut it down in February 2011. It was important for Nokia to have their own smartphone OS since having their own software would secure their independence. Symbian was considered as an excellent platform for the phone part, but the ease of use and program for applications were terrible compared to the iOS and the Android. The user experience is important since it is the interaction with the customer. It is argued, that Symbian failed because of mismanagement by Nokias executives.179 Nokia did not have the right software engineers employed for the different parts. There were competitive teams amongst the software department, but nobody was actually focusing on user experience and to improve the software.180 Nokias main focus was on hardware and the management did not take the software development seriously. However, just before Elop was hired, the Symbian OS was almost becoming a proper OS and it had become easier for 3rd party developers to make apps for Symbian. One developer assessed that Symbian was about 80 % correct and were close to the last 20 %.181 Nokia also tried to develop Meego with Intel as an alternative to Symbian which will be mentioned in interfirm collaboration later in this section.

173 174

Steinbock (2010), page 178 Steinbock (2010), page 164 175 Steinbock (2010), page 165 176 Steinbock (2010), page 221 177 Steinbock (2010), page 223 178 Steinbock (2010), page 126 179 Orlowski (2011) 180 Orlowski (2011), page 2 181 Orlowski (2011), page 3

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NOKIA and open innovation Critique of Nokias focus on cost: One of the reasons for failing within the smartphone market might be because of Nokias ranking between cost and innovation according to a former employee. Nokia had several good ideas from talented employees, but Nokias primary focus was on economies of scale. Nokia claimed that a possible technology did not have to become a blockbuster, but Nokia were in reality only interested in products that could sell to tens of millions. Nokia have shut some promising products down since they thought it could not become a blockbuster. Nokia had also grown too big and were not able to encourage their employees to be creative and in some cases discouraged them. Nokias managers were also not able to evaluate the employees ideas well enough and trashed good ideas. Another problem was that employees were hired with the wrong competencies and that affected the user experience. Nokia, for example, did not have enough employees who focused on usability and ease of use.182 There are several comments from former employees available about Nokia who claim that costs are Nokias ultimate goal. These are comments from former employees and there is a huge possibility for bias, but their comments could be a possible explanation for Nokias lacking R&D results. 4.3.2 Nokias use of open innovation Nokia have a long history of using open innovation since Nokia is a small country multinational. Nokia do not have the sufficient access to talents, ideas or capital through their home country.183 Nokia were already cooperating with universities in the 1960s,184 and later in the 90s Nokia were cooperating with universities, research institutes and other telecom and mobile companies.185 Nokia are proud of their use of open innovation and claim that they are more open compared to their competitors. Nokia know that one company does not have all the good ideas themselves and that a lot of ideas are placed outside the company, e.g. at customers, competitors etc.186 University collaboration: Nokia are cooperating with about 100 universities all over the world,187 including universities from USA, Western Europe, China, India and Africa to

182 183

Greenfield (2011) Steinbock (2010), page 128 184 Steinbock (2010), page 114 185 Steinbock (2010), page 118 186 Steinbock (2010), page 132 187 Steinbock (2010), page 122

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NOKIA and open innovation ensure that Nokia capture local trends.188 They are working closely with two Finnish universities within user experience, mobile security, power management, computing architecture, cognitive radio, sensing and context, media representation, social media, mixed reality solutions and 3D platforms. But the cooperation with the universities does not always give positive results. A company has to go through a lot of complex negotiation with the university to make sure that the investments give positive results.189 User driven innovation: Nokia are cooperating with end users by engaging them through Nokia Beta labs. When Nokia have made new user applications, Nokia beta test them to get reactions from the users. Nokia also have Nokia Pilots where users are implemented in the development process. It is a program where users can send in their ideas and come up with possible improvements. Nokia will consider implementing these suggestions to improve their products.190 Venture capital: Nokia have a venture company, called Nokias Growth Partners (NGP), and they are searching for companies in the growth stages. NGP managed a portfolio of interesting mobile companies worth of $250 million in 2010 and also managed other investments worth of $100 million. NGP have offices in Silicon Valley, Finland, China and India.191 NGP usually invest around $5-15 million and are searching for companies that can turn into a $100 million company. The companies have to be placed in USA, Europe or Asia; have commercially available products or services; have growing revenues in growing markets and have the experience of being a supplier for a major industry participant. The companies should be supported by Nokia so they can become a global leader within their field.192 Acquisitions: Nokia have acquired several companies and the focus has primarily been within Internet service companies and software companies during the last couple of years.193 Since December 1997 Nokia have acquired 43 companies which include several network, multimedia and service companies.194 The most expensive acquisition is Navteq
188 189

Steinbock (2010), page 130-1 Steinbock (2010), page 230 190 Steinbock (2010), page 133 191 Steinbock (2010), page 135 192 Steinbock (2010), page 136 193 Steinbock (2010), page 194 194 Nokia (2012)

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NOKIA and open innovation which they bought for $8.1 billion. Navteq is a mapping service and it has been mentioned as one of the reasons that Nokia chose WP7.5 instead of Android since Google offers the free Google Maps.195 Interfirm collaboration: Nokia have cooperated with several companies, and one of the more intensive collaboration areas is within the smartphone OS part. Nokia had spent over a decade to develop and improve the Symbian project, but they also looked for alternatives. One of them was the Meego project, where Nokia cooperated with Intel. The two mixed their two former OSs, which were Maemo (another Nokia OS project) and Moblin (Intel) to create Meego. However, the two had problems from start since they had different chips for their smartphone solutions. The first edition of Meego should have been done and installed on a smartphone during 2010,196 but the first Nokia smartphone with Meego installed was delayed and introduced in 2011. It was announced that Nokias two OS solutions would be abandoned within a couple of years when they announced their cooperation with Microsoft in February 2011. Intel were embarrassed by Nokia when Nokia left Meego and Intel also left the Meego project in September 2011 to join Samsung to create Tizen.197 One of Nokias newer interfirm collaboration is the cooperation between Nokia and Microsoft which was announced by February 2011. Nokia were considering both Android and WP7.5, but Nokia chose WP7.5 since Microsoft had fewer hardware partners and Nokia had better opportunities to get more attention. Microsoft would deliver the software while Nokia would provide the hardware. Nokia also received $1 billion for promoting WP7.5, but they will pay licenses for every smartphone sold with WP7.5 installed. Microsoft will also pay licenses for using Nokias patent portfolio.198 Their goal was to innovate with greater speed to give their customers better products. This was not the first collaboration agreement between Nokia and Microsoft since they also had cooperated in May 2009, May 2010 and August 2010 within different areas.199 When the newest cooperation was announced there were lots of negative reactions and many said that two losers do not make a winner. Some thought that this was the beginning of the end for Nokia as a company. However, few also believed that the cooperation could be good for
195 196

Weintraub (2011) Neary (2010) 197 Neary (2011) 198 Bass (2011) 199 Hingley (2011)

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NOKIA and open innovation both parties and especially for Nokia, since they did not have the right software engineers employed. Those instead asked why it took Nokia so long to realize that their own OS solutions were inadequate. Others questioned why Nokia only chose Microsoft as a sole OS supplier when they should have done like Samsung and have several OS suppliers.200 Up to a thousand employees from Nokias offices in Oulu and Tampere left their offices in protest when the announcement was made.201 The cooperation has turned out to be a surprise since Nokia and Microsoft were able to release their first smartphone in mid November 2011.202 The cooperation has given Nokia and Microsoft a comeback within the smartphone industry, which was unlikely before the launch of Lumia 800. Nokias cooperation with Microsoft is open innovation at best since Nokia have become a proper competitor once again after the introduction of the Lumia-line. Nokia had tried to make their own software for over a decade, but with limited success, while the new cooperation gave much faster and better results. Nokia and Microsoft only have 50,000 apps which can be observed in appendix C. Their apps number is much lower than the two competitors who almost have half a million and improving that number is a necessity. Nokia have struggled with rumors about Microsoft wanting to buy Nokia. Even Danske Bank have speculated whether Microsoft would buy Nokia in the first half of 2012. These speculations seem to be fiction since Microsoft always have been a software company and mixing Microsofts management into Nokias organization could turn out bad. One of the positive aspects would be that Microsoft would acquire Nokias very valuable mobile phone patents.203 Nokias CEO Stephen Elop, a former Microsoft executive for two years, has been accused of being a trojan horse. And the fact that Stephen Elop still has 130,000 shares in Microsoft, worth $3.18 million, is extra fuel for the many conspiracy thinkers.204 It may be an unthinkable situation for now, but Nokia still have to consider them as serious threats since the rumors are continuing. Nokia have suppliers for their components, e.g. about half a dozen chipset suppliers. The collaboration with their suppliers is managed by Nokias Units, the ones who also manage the short term R&D.205 It is difficult for companies to become a supplier for Nokia since they have high requirements. It usually results in a long term relationship when a company

200 201

Kim I (2011) Brian I (2011) 202 Meyer (2011) 203 Zeman (2011) 204 Kurlyandchik (2011) 205 Steinbock (2010), page 127

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NOKIA and open innovation becomes a supplier for Nokia.206 Nokias smartphone crisis has also had consequences for Nokias suppliers and the strength of Nokias crisis has been a surprise for the suppliers. Nokias suppliers have been struggling to find new customers since the two industry leaders, Samsung and Apple, have chosen other suppliers, e.g. chips suppliers. Texas instrument, who once was a market leader within applications chips, had a market share of 34.5 % in the first quarter of 2010, but a year later they only had 19.2 % because of Nokias crisis. These suppliers are trying to find new customers among the ones who have lower smartphone market shares and companies in other industries.207 Joint ventures: Nokia are active within joint venture and Nokia try to find a local partner with local knowledge when entering a new market. Nokia did this when they entered China in the 90s.208 They also started a joint venture with Siemens called the Nokia-Siemens-Network, NSN. Nokia realized that they could not invest in the emerging network type LTE (Long-Term Evolution and one of the candidates for 4G today) by themselves and had to partner up with another company.209 They joined forces in 2005 and started the production in 2007. By 2008 NSN has grown into a huge business since they had over 60,000 employees and had customers in over 150 countries.210 Nokia and Siemens had troubles in the beginning since the two companies have different organizations. Siemens organizational structure is split up country wise while Nokias business units are responsible for all country units that refer to that business unit. But both companies wanted NSN to succeed and have managed to keep it alive.211 Nokia and Siemens have, however, tried to sell NSN or find a third partner in 2011 since NSN was a money losing business. By September 2011 both companies had to provide 500 million in capital to keep NSN alive. The joint venture will officially end in 2013.212 Spin-outs: Nokia have tried a different type of spin out when Nokia had to close their Danish division. 1,000 former employees were encouraged to start their own company and 40 of them were able to start their own business. Nokia helped them by giving them money
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Steinbock (2010), page 148 Lawton (2011) 208 Steinbock (2010), page 194 209 Steinbock (2010), page 188-9 210 Steinbock (2010), page 189 211 Steinbock (2010), page 190 212 Arild (2011)

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NOKIA and open innovation and allowing them to stay in Nokias building as long as Nokia rented that building. The Danish manager wonders if this could be an option during good times.213 Learning networks: Nokia search for emerging trends and radical innovation,214 and do this partly through conferences, trade shows, industry alliances, discussion forums, roundtables, partner network events, cooperate with venture capitalists, investors, enterprises, startups and universities.215 Licensing: The mobile phone industry was used to cross license and only a few were actual net payers,216 but this has changed, partly because of Apple. Nokia have now forced many of the new competitors, e.g. Apple, to pay licenses. This was mentioned in the technological portfolio. 4.3.3. Assessment of Nokias innovation processes Want: Nokia have the same overall goal as Samsung since Nokia want to be a cost leader. Their focus on cost will be one of the main topics in the discussion chapter. Another goal is to provide good design and good hardware. To reach their goals, Nokia use a long list of open innovation tools, which includes cooperation with over 100 universities all over the world; joint ventures; including customers; have suppliers; acquiring a lot of companies and by having a venture capital company. For a decade, Nokia also wanted to provide their OSs, but in the beginning of 2011 they realized that they could not provide this part as well. They finally gave up their own software part and began to cooperate with Microsoft. Find: Nokia were for many years the market leader and technology leader within the mobile phone industry which eased the processes of finding the best partners. However, times have changed and Nokia do not enjoy these titles any longer. This has complicated their find processes since Nokia have to compete against Apple and Samsung who are currently placed higher than Nokia within the integrated portfolio. Nokias situation may force them to cut some of their suppliers which do not make this phase easier. Potential suppliers will prefer to cooperate with Apple and Samsung to ensure future revenues.
213 214

Wessel (2011) Steinbock (2010), page 134 215 Steinbock (2010), page 257 216 Steinbock (2010), page 125

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NOKIA and open innovation There were not that many OS providers for the OS part so the find part within the OSs was quite simple. There were only two OS providers, Microsoft and Google, who were large enough to serve Nokia. Get: When Nokia decided to find an OS supplier, the two biggest OS suppliers, Google and Microsoft, were fighting to become Nokias OS suppliers. Android was supporting Nokias former Symbian strategy to neutralize the OS competition between smartphone vendors, but Nokia still did not prefer Android. A huge onetime payment and cross licensing have helped Nokia to choose Microsoft against Google. Manage: Nokia do a lot of open innovation and the many open innovation partners must require a lot of management from Nokia. Nokia say for example that cooperating with a university requires a lot of preparation to ensure, that a company gets usable output. How much work does it require to cooperate with over 100 universities all over the world? When Nokia began to cooperate with Microsoft it required a lot of management. Employees were transferred to implement WP7.5 as fast as possible while a lot of people were fired since Nokia stopped the development of Symbian and Meego. The cooperation seemed to have rough conditions: How would a Finnish organization cooperate with an American organization? The two companies are huge in each of their area, potentially leading to frictions between the two companies. However, Nokia and Microsoft were able to introduce their first common smartphone in November 2011 which was a huge surprise for many. An even bigger surprise was that the Lumia 800 was a well functioning, competitive smartphone, which Nokia had tried to achieve for years by themselves. It has been estimated that Nokia have sold about 1 million Lumia 800 smartphones from when they introduced it until ultimo 2011. It is a decent start, but still far from 30 million iPhones, which Apple sold in the last quarter of 2011.217 The integration between Nokias hardware and Microsoft OS seem to be a success and there is not much information about frictions between Nokia and Microsoft during the first collaboration period. Nokia and Microsoft have collaborated before and that may have eased up the managing phase. A serious aspect is the continuing rumors about Microsoft wanting to buy Nokia. The two other mayor OS players within the smartphone industry, Apple and Google, are also selling smartphones which may start a new trend and force Microsoft to buy Nokia. Google was also only a software developer once and this could be a serious situation for Nokia.
217

ben-Aaron (2012)

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NOKIA and open innovation When assessing Nokias innovation processes it becomes apparent that Nokia want to do a lot and be a part of several areas. They want to produce smartphones and feature phones in every price category which are adapted to local trends. This is completely different than Apples approach who only introduces one smartphone per year. Nokia are the ones who use the most open innovation tools compared to the other two competitors, who have a very narrow focus within open innovation tools. Nokia have felt that they were forced to use open innovation since Finland did not have enough talents or ideas. They use all three types of open innovation which was described in the theory part. Nokia use external knowledge exploration by acquiring knowledge/technologies; they use external knowledge exploitation by licensing out and use external knowledge retention since they are a part of learning networks to enhance their knowledge base. The following figure shows what Nokias innovation processes look like:

Figure 7: Nokias innovation processes

Source: Own model

Figure 7 shows that Nokia use a lot of open innovation tools and that they take responsibility for the integration part which is marked by the grey area. From this figure it would almost seem that they are the industry leaders since they use so many open innovation tools. However, this is not the case and Nokia are currently not benefitting from the $60 billion investments in R&D and their extensive use of open innovation. Their R&D inefficiencies will be the main discussion area in chapter 5. 50

NOKIA and open innovation

4.4 Partial conclusion

Table 2 is a list made from the assessments of the three companies use of open innovation. It shows that Nokia are the ones who use most open innovation tools, but they are not the most successful ones which can be observed in 2.2 - The integrated portfolio. It almost seems that Nokia want to be the ones who use the most open innovation tools. Apple are instead focusing their use of open innovation within the hardware parts and perform own R&D within the software part, which is the differentiating part. Samsung have the narrowest use of open innovation tools amongst the three competitors. Samsung are also threatened

Table 2: Companies use of OI tools

by their main software provider, Google, after the acquisition of Motorola Mobility. Open innovation is a necessity within the smartphone industry since there are many technologies that need to be mastered. A glance at Apples hardware suppliers list, which can be observed in appendix D, illustrates how many technologies a company needs to master if they want to do all the parts themselves. On top of that hardware list, a company also has to master the most important part, which is the software solution. All these technologies are good circumstances for using open innovation since a company can find suppliers who are better than the company within several technologies. Table 3 is a short resume of the three companies Want-Find-Get-Manage results. It shows that the two traditional companies are focusing on cost and hardware while Apple are focusing on ease of use and design. Apple enjoy the technology leadership, but they do not use that position to install the newest technology as they prefer the most user friendly technology. They instead use their size to lower the prices for the hardware parts which was described in 4.1.2 within the interfirm collaboration part. Apple and Nokia are best to implement the two parts while Samsung are having some troubles with the integration. 51

NOKIA and open innovation Table 3: Companies in the Want, Find, Get, Manage model Want Find Nokia Cost / hardware OS / hardware: Limited - not the industry leader, but OS providers were interested in supplying Nokia Was easy since Microsoft paid a lot for the agreement Have a lot of open innovation partners to manage. Impressive management of the OS integration as Lumia seems to be a success. Apple Design / ease of use through OS Hardware/apps: Have a long list of potential hardware suppliers industry leaders Use their size to lower the hardware parts cost Impressively well since the hardware is well integrated with the OS Samsung Cost / hardware OS: Open to all available OS suppliers

Get Manage

Not so problematic because of their open OS approach A bit problematic since the hardware and OS is not optimally integrated

Source: Own table

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NOKIA and open innovation

5.

Discussion - Where have Nokia failed?

When comparing the three companies innovation processes it becomes apparent that Nokia have not profited from their investments in R&D. The differences between Nokia and market leader Apple become much more apparent in table 4:

Table 4: Some of the differences between Nokia and Apple Nokia Primary goal R&D cost 2010 R&D employees 2010 User survey Local adaptation Number of models pr year Segments Use of OI tools Design team Own OS Complementary tech. Share of profit quarter 2011
Source: Own table

Apple Design and ease of use >$1 billion 3,200 No No 1 Higher end 30 hardware suppliers + apps developers 20 members Yes, iOS Tablets, computers and MP3 players 66.3 %

Cost $3.9 billion 17,200 Yes, e.g. a 74,000 user study Yes 40 - 12 of them smartphones Almost all including emerging countries Almost every possible tools including 100 universities, users, interfirm etc. 340 members No, WP7.5 No, but Microsoft have OS on complementary products >0%

in

2nd

The table is made by information from chapter 2 and chapter 4. Nokia almost have a the bigger, the better approach. They are the largest in almost all parts: they have the highest R&D costs, most R&D employees, the largest user surveys, most mobile phone introductions, most segments, most OI tools and have largest design team, but they have the smallest share of the profits. Apple, on the other hand, seem to apply their simplicity mantra into their business strategy. They do not perform user surveys since they make products that they want themselves and the products are not locally adapted. They only introduce one smartphone per year for the high end segment and receive a lot of free marketing since the one introduction per year has been turned into a yearly event. Apple seem to have found the right mix between open innovation and own R&D. Apple have 53

NOKIA and open innovation managed all these parts so well that they have created the most efficient money generating machine in the industry. But it is not possible for Nokia to copy Apples approach as Apple have focus on the software part. However, copying another companys innovation approach is not what a company should strive for. Competitors have different competencies and need different open innovation solutions to optimize their products. But Nokia can find inspiration from the industry leaders to figure out where they have failed: Possible failing areas for Nokia: 1. Symbian 2. Too focused on cost not always appreciated employees ideas 3. Acted as an industry leader for too long 4. Too many segments -> too many mobile phone models 5. They do not have a super smartphone line 6. Do not have sufficient complementary products 7. Not benefited from their extensive use of OI tools 1. Symbian Problem: The Symbian OS might be the best answer for answering why Nokia are placed as they are today which was described in 4.3.1. The OS is the most important part within the smartphones which was mentioned in the scope and delimitation part. The Symbian OS was not optimal and have given Nokia a lot of serious scars. They kept Symbian for over a decade when even better and cheaper OS solutions existed within the industry. Suggestions: Nokia have a lot of marketing work to do to repair the serious scars that Symbian gave them. Nokia have already taken the first step by cooperating with Microsoft and this has solved Nokias serious software problem since they have become a competent smartphone contender once again. The cooperation has although created problems for some of the hardware parts as WP7.5 still does not support dual core. Nokia could also have a multiple OS approach, like Samsung, so they do not get too dependent on one OS supplier. This could also be a solution for the rumors about Microsofts acquisition plans. But Nokia seem satisfied with the fact that they are now considered as a serious smartphone contender and the WP7.5 is one of the main reasons for that. Even though the cooperation has helped Nokia a lot, it is assessed that several other strategy factors can improve Nokias situation even further. 54

NOKIA and open innovation 2. Too focused on cost not always appreciated employees ideas Problem: Nokias claim that their competitive advantages are to scale their production as Ollila once claimed in 4.3.1. But it is ironic, that both Nokia and Samsung have cost as their main goal, but Apple are the ones who have become the most efficient money making machine partly by exploiting other companies focus on cost. One could ask why Nokia have invested so much in innovation when their primary goal is to be the cost leader. Being cost leader within R&D has not been a goal since their R&D spending spree indicates that they wanted to be the R&D spending leaders. Nokia were even proud of the fact that they spent more on R&D than Apple. Some of the R&D investments have been spent on improving their cost leadership, but they have also spent a lot on improving their software- and other hardware parts. The mismatch between cost and R&D might explain why Nokia have below $10 billion in cash reserves when Nokia have invested over $60 billion in R&D and do a lot of open innovation. Nokia have also stopped promising projects because of their focus on cost which was described in 4.3.1. Not appreciating the employees ideas is a serious aspect since this could have made Nokias R&D investments much more efficient. Nokia might have had their own OS today if they had listened to their employees during the Symbian period. This is a management problem, since their employees seemed to have the good ideas, but they were in some cases not rewarded for their creativeness. Suggestion: Cost is still important, but it should not be their primary goal. Nokia should instead focus on value first and scale it up when the value has been confirmed. This is the approach that P&G use which was described in the theory part. The transition period will take some time since cost is very important for Nokia, but appreciating value will be a necessity if they want to improve their R&D investments. 3. Acted as an industry leader for too long Problem: Nokia have invested too much in R&D, which can be observed in table 4, as they invested four times more than Apple in 2010. They should focus their R&D investments by letting the wealthier ones do more R&D. This will mean more layoffs for Nokia and a reorganization of their R&D department since Nokia cannot afford to continue their investing spree in R&D. This could lead to R&D underfunding in the smartphone industry since the two industry leaders might not invest as much as Nokia have done. But this cannot be Nokias problem, since they have done their fair share of investing in the mobile phone industry. 55

NOKIA and open innovation Suggestion: Nokia must acknowledge that they are not the industry leaders any longer and that they have to change their strategies. This has partly been done by their cooperation with Microsoft, but they must become even more efficient. There is a mismatch between their R&D expenses, their extensive use of open innovation and the innovation output. Nokia should apply Samsungs approach and become a fast follower. The next parts include suggestions for how Nokia can make their R&D more efficient. 4. Too many segments -> too many mobile phone models Problem: Nokia want to connect everybody and thereby have almost everybody as a segment. Nokia introduced 40 mobile phone models in 2011 and 10-12 of those were smartphone models. They focus a lot on emerging markets and this may be a good investment for the future. But the emerging markets only give very small profits and there are a lot of Eastern Asian competitors within these segments. Suggestion: The tough competition for the low margins should make Nokia withdraw from the feature phone market. Leaving the feature phone market would strive against Nokias overall cost strategy since the feature phone market is a good scaling area. Abandoning the feature phone market would phase out 28-30 of the 40 model introductions which leave 10-12 smartphone introductions. 10-12 new smartphones are still a lot compared to Apples one smartphone introduction per year and Nokia are creating potential competitors with their current smartphone strategies. Nokia should although not adapt Apples one smartphone per year approach since there are other lucrative smartphone segments beneath the high end which Apple primarily focus on. Nokia could instead have one super smartphone line for the high end segment, and have 2-3 models for the each of the two lower segments. The fewer models would give Nokias R&D departments more time to focus on each of the models and to optimize them. By decreasing their segments Nokia can make more focused surveys since it would not include the feature phone market. It might not be possible to copy Apples no survey approach, but fewer segments would limit the areas that Nokia have to find information within. The next part is about the super smartphone line as it is assessed that Nokia have already breached some of the super smartphone principles by their Lumia line. 5. They do not have a super smartphone line Problem: The two industry leaders have one super smartphone for the high end segment and a company should apparently not try to differentiate it too much. Apple are able to 56

NOKIA and open innovation dominate the mobile industry by introducing one smartphone per year and the only differentiations are iPhones with different colors. Nokia have started the Lumia line and introduced Lumia 800 and Lumia 710 in November 2011. There are rumors that they will introduce the Lumia 900 in the beginning of 2012. It seems to be important for a brand to signal superiority with only one introduction per year and the Lumia-brand have already failed that aspect because of their multiple Lumia introductions. The many introductions exclude the event opportunity which is the upside by only one introduction per year and they also create competitors amongst the models. A company should not blend cheaper smartphones within the superior line since mixing cheaper smartphones into the superior brand will devalue the superior brand. Suggestion: Nokia should have a short term goal of creating a super smartphone with only one introduction per year to signal superiority. The one introduction per year should be turned into a yearly event to create as much attention as possible. The Lumia line could instead be for the low and middle end of the smartphone market. 6. Do not have sufficient complementary products Problem: The two industry leaders have complementary product to support their smartphone sales, which was describes in Apples and Samsungs internal innovation processes. The two other competitors are not only delivering a smartphone to the customers, they are delivering entire entertainment packages. Apple and Samsung have tablets, laptops and MP3 players to support their smartphone sales and these are important aspects for a smartphones success. If a customer is considering a new smartphone and already has a tablet, the customers tend to buy the same brand as the tablet. Suggestion: Some argue that a tablet is just a big smartphone and tablets are thus an obvious opportunity for Nokia. Their cooperation with Microsoft is yet another upside for Nokia since Microsofts other software products are available on complementary products. Nokia and Microsoft should, however, consider integrating the different products better to deliver the same user experience across the whole entertainment package as Apple is able to provide. 7. Not benefited from their extensive use of OI tools Problem: Nokia are the ones who use the most open innovation tools amongst the three competitors which can be observed in table 2. Nokia claim that they have limited access to 57

NOKIA and open innovation talent and ideas within Finland and are forced to perform open innovation. But are they also the ones who actually practice the most open innovation? Apple have claimed that a company should own their hardware and software to ensure proper integration between the two parts. But Apple are actually doing almost nothing within the hardware part since they acquire all the hardware parts from external partners. They might know who the best suppliers are and know how to put the different parts together. Suggestion: Nokia could find inspiration from Apples approach since they could find even more hardware suppliers for the internal parts of the smartphone. Finding more hardware suppliers might have become extra relevant for Nokia since they received low evaluations within some of their hardware parts in the reviews. Nokia have about half a dozen of suppliers, but they could find even more suppliers by looking at Apples list of hardware suppliers. Nokia could ask some of Apples suppliers if they want to become Nokias suppliers as well. Samsung and maybe other suppliers would certainly be interested since they focus much on scale. Nokia should also try to encourage their employees to look for external solutions when they start on a new innovation process. Nokia already use a lot of different open innovation tools and Nokia could get a more efficient R&D department if they start their research processes by looking for external solutions (proudly-found-elsewhere) before developing the solutions themselves. This was mentioned as one of P&Gs processes which were described in the theory part.

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6.

Conclusion and further research

6.1 Conclusion
The conclusion will first answer the three research questions and then answer the problem statement to sum up the thesis findings: Where are Nokia placed in the integrated portfolio compared to the two industry leaders, Apple and Samsung? Nokia were, in the smartphone market portfolio, well behind of Samsung and Apple in the second quarter of 2011. Figure 2 in chapter 2.2 showed that Apple had the highest smartphone market share and, by far, the largest profit shares. Nokias situation will improve as their technological smartphone abilities are close to Samsung, but still below Apple. Nokia had the smartphone leadership for many years, which was mentioned in the market portfolio and a position they should strive for again. Which innovation processes do the two industry leaders use? Apple focus on design and ease of use and let others do the hardware innovations. They have the biggest apps pool and these are the two open innovation tools that Apple use which was shown in figure 5 chapter 4.1.3. Apple prefer the user friendly technologies instead of the newest technologies to enhance user experience. They are proprietary within their own technologies and are secretive. They have complementary products to support smartphone sales and have one R&D department for almost all product categories to ensure consistent user experience which were described in chapter 4.1.1. Samsung primarily focus on hardware and have several OSs for their smartphones which can be observed in figure 6 chapter 4.2.3. Samsung are a traditional player and focus on cost. They install the newest technology to claim superiority within smartphones. Samsung are masters within incremental innovations, but do not come up with many radical innovations which were described in chapter 4.2.1. They find inspiration from Apple and have been accused of stealing their design. Samsung compete against Apple in several other products areas and they have, with Google, the second largest pool of apps. Why did Nokia lose their market shares within the smartphone industry when they use open innovation? Based on chapter 5 it can be concluded that Nokia lost their market shares when better OSs emerged while Nokia stubbornly kept Symbian. Their new CEO realized that it was 59

NOKIA and open innovation inadequate and their solution was to cooperate with Microsoft which has improved their situation. Nokia also have other questionable internal innovation processes which possibly made Nokia lose their industry leadership which was also described in chapter 5. They have in some cases been too focused on scale since they turned potentially good products down. Nokia have spent too much on R&D and not leveraged from their investments in R&D. Nokia also deliver locally adapted mobile phone models for almost every segment. The many introductions per year may create competition amongst the models. Nokia also lack a super smartphone line as the Lumia line has breached several criteria and they lack complementary products to support their smartphone sales. They have not leveraged from their extensive use of open innovation tools as they have the most expensive R&D department. Their innovation processes can be observed in figure 7 chapter 4.3.3. Can Nokia optimize their use of open innovation to regain the industry leadership within the smartphone market? The answer for the problem statement is based on chapter 4 and 5 and by the answers of the three research questions. This question requires a two way answer, since there is an open innovation- and some aspects about the internal innovation processes: Nokia use a lot of open innovation tools which is shown in table 2 chapter 4.4. Nokia have a long history of using open innovation since they did not have enough talents in Finland. It is recommended in chapter 5 that the use of open innovation should be focused to smartphones and Nokia can find inspiration from Apples hardware list - appendix D. They should also make their employees look for external solutions before inventing the technology themselves. Nokia are already cooperating with Microsoft which is a success. The two companies have integrated the software- and hardware parts impressively fast which are one of the advantages of using open innovation. But Nokia and Microsoft should attract more apps developers to develop more apps since the two have the fewest apps. Nokia have been too focused on cost and should start by focusing on value first. They can focus on cost when the value has been proven which was mentioned in chapter 5. Nokias limited return from their R&D strategy suggests that Nokia should become a market follower. They could start by limiting their segments and the number of model introductions per year by leaving the low profit feature phone market. They should also create a super smartphone line with only one introduction per year and turn it into a yearly event. The Lumia line could be for the low- and middle end of the smartphone market. Nokia could also make a tablet as it is a big smartphone and a contributing factor for success. 60

NOKIA and open innovation

6.2 Suggestions for further research

The further research within open innovation and Nokia could include a user survey for the technological portfolio. The current technological comparison is an unweighted comparison of the different smartphone parts. This does not give a true position of the three companies technological position as some of the parts weigh more than other parts. The software part, for example, is the most important part within the smartphone and this is not shown through the current reviews. There were not enough Lumia owners to conduct such a survey, but the sales of Lumia 800 are increasing and this could make such a survey possible since more Lumia users will emerge. The first part of the survey would either be an assessment of the three most important parts within the smartphone, e.g. rating the parts from table 1, or rate all smartphone parts from the most important to the least important part. The next part would be how well each company is performing within each smartphone part. Such a survey could be included in a House of Quality which is a weighted comparison between the competitors. Another user survey about the most important factors for a smartphones success could also be interesting. There are a lot of factors that affect the customers when they buy a smartphone, e.g. same tablet brand, apps, software, cloud computing, hardware parts etc. and the ranking between those could be interesting and useful information. The further research could also include which tools Nokia should use compared to the integrated portfolio and in which stage the technology is placed within the technology lifecycle (TLC). This was the original intention with the thesis, but Nokias goal/Want part became the main analysis area. The tool section would be a more extensive assessment of Nokias Find-Get-Manage parts as the Want part has been assessed thoroughly. The following questions could be potential research questions: What open innovation tools are most appropriate compared to the current TLC stage of the smartphones and how can Nokia use those tools optimally to reach the industry leaders? What risks are there by using the different tools and how can a company minimize those threats? How can Nokia minimize the possible acquisition risks if they want to be an independent company?

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NOKIA and open innovation Evans, Johnny II. "Samsung Demands Apple Hand Over iPad 3 and iPhone 5." (29/52011), http://blogs.computerworld.com/18379/samsung_demands_apple_hand_over_ipad_3 _and_iphone_5 (accessed 20/9-2011). Fitzgerald, Sandy. "Samsung Considering Deals to Strengthen Software." (17/8-2011), http://www.mobiledia.com/news/103271.html (accessed 27/10-2011). Gabriel, Caroline. "Samsung to Diversify Smartphone Range to Chase Volume." (19/72011), http://www.rethink-wireless.com/2011/07/19/samsung-diversify-smartphonerange-chase-volume.htm (accessed 6/12-2011). Garner, Ryan. "The Smartphone Market is there to be Won... in 2011 the 'Mobile Ecosystem' Will be Critical to Driving Loyalty." (30/11-2010), http://www.gfktechtalk.com/2010/11/30/the-smartphone-market-is-there-to-be-won-in2011-the-mobile-ecosystem-will-be-critical-to-driving-loyalty/ (accessed 2/2-2012). Garner, Ryan and Rob Barrish. "The Path to 4G: A Walk through the Cloud." (25/7-2011), http://www.gfktechtalk.com/2011/07/25/the-path-to-4g-a-walk-through-the-cloud/ (accessed 21/9-2011). Gartenberg, Michael. "IPhone 4S and iOS 5 Raise the Smartphone IQ Once again." (18/10-2011), http://www.computerworld.com/s/article/9220968/iPhone_4S_and_iOS_5_raise_the_s martphone_IQ_once_again?taxonomyId=75&pageNumber=2 (accessed 2/2-2012). Gartner. "Gartner Says Android to Command nearly Half of Worldwide Smartphone Operating System Market by Year-End 2012." (7/4-2011), http://www.gartner.com/it/page.jsp?id=1622614 (accessed 15/9-2011). Gartner II. "Gartner Says Sales of Mobile Devices in Second Quarter of 2011 Grew 16.5 Percent Year-on-Year; Smartphone Sales Grew 74 Percent." (11/8-2011), http://www.gartner.com/it/page.jsp?id=1764714 (accessed 27/9-2011). Gartner III. "Gartner Says Worldwide Mobile Device Sales to End Users Reached 1.6 Billion Units in 2010; Smartphone Sales Grew 72 Percent in 2010." (9/2-2011), http://www.gartner.com/it/page.jsp?id=1543014 (accessed 2/10-2011). Google investor relations. "2011 Financial Tables.", http://investor.google.com/financial/tables.html (accessed 5/9-2011). Greenfield, Adam. "Nokia: Culture Will Out." (19/2-2011), http://speedbird.wordpress.com/2011/02/19/nokia-culture-will-out/ (accessed 17/12012). Grossman, Lev. "How Apple does it." (26/10-2005): 1-4, http://www.time.com/time/magazine/article/0,9171,1118384-3,00.html (accessed 20/92011). 66

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NOKIA and open innovation Nicholson, Chris V. "Apple and Microsoft Beat Google for Nortel Patents." (1/7-2011), http://dealbook.nytimes.com/2011/07/01/apple-and-microsoft-beat-google-for-nortelpatents/ (accessed 6/12-2011). Nokia. "Acquisition and Divestments." http://www.nokia.com/global/aboutnokia/investors/acquisitions-and-divestments/acquisitions-and-divestments/. Nystedt, Dan. "Google App Inventor Lets Anyone make Android Smartphone Apps." (12/72010), http://www.pcworld.com/businesscenter/article/200887/google_app_inventor_lets_any one_make_android_smartphone_apps.html (accessed 3/2-2012). Ogg, Erica. "Nokia-Microsoft Shakes Patent Battlefield." (13/2-2011), http://www.zdnet.com.au/nokia-microsoft-shakes-patent-battlefield-339309174.htm (accessed 5/10-2011). Orlowski, Andrew. "Why Nokia Failed: "Wasted 2,000 Man Years" on UIs that Didn't Work." (10/3-2011), http://www.theregister.co.uk/2011/03/10/nokia_ui_saga/ (accessed 1/12-2011). P.K. "Slicing an Apple." (10/8-2011), http://www.economist.com/node/21525685 (accessed 1/12-2011). Paul, Ryan. "Meego Rebooted as Intel and Samsung Launch New Tizen Platform." (October 2011), http://arstechnica.com/open-source/news/2011/09/meego-rebootedas-intel-and-samsung-launch-new-tizen-platform.ars (accessed 6/12-2011). Petric, Dragan. "Who Will Win the Patent War." (9/9-2011), http://www.brighthand.com/default.asp?newsID=18149&news=patent+infringement+la wsuits+apple+microsoft+google+htc+samsung (accessed 20/9-2011). Pomfret, James and Kelvin Soh. "For Apple Suppliers, Loose Lips can Sink Contracts." (17/2-2010), http://www.reuters.com/article/2010/02/17/us-apple-asia-secrecyidUSTRE61G3XA20100217 (accessed 15/10-2011). Ragnetti, Andrea. "Apple's Competitive Advantage." (19/7-2011), http://andrearagnetti.com/applescompetitiveadvantage/ (accessed 15/11-2011). Reisinger, Don. "Apple Sells 4 Million iPhone 4S Units in First Weekend." (17/10-2011), http://news.cnet.com/8301-13506_3-20121273-17/apple-sells-4-million-iphone-4sunits-in-first-weekend/ (accessed 2/2-2012). Republic. "A Brief History of Samsung Mobile." (18/12-2008), http://www.zimbio.com/New+Mobile+Phones/articles/3923/brief+history+Samsung+M obile (accessed 15/12-2011). Rosoff, Matt. "Buying Motorola Helps Google Solve these Three Problems." (25/8-2011), http://articles.businessinsider.com/2011-08-15/tech/30002497_1_android-andy-rubinmotorola-mobility (accessed 15/12-2011). 69

NOKIA and open innovation Roumeliotis, Greg. "Apple Wins Ban on some Samsung Smartphone Sales." (24/8-2011), http://www.reuters.com/article/2011/08/24/us-samsung-apple-banidUSTRE77N41O20110824 (accessed 20/9-2011). S, Lars. "[Vergleich] Samsung Galaxy S2 Vs. iPhone 4 - Welches Smartphone Beitet Die Bessere Optik Und Haptik." (26/5-2011), http://samsung-blog.com/vergleich-samsunggalaxy-s2-vs-iphone-4/2011/05/26 (accessed 7/12-2011). Samra, Sandy. "The History of the iPhone." (19/5-2011), http://www.brighthub.com/mobile/iphone/articles/82615.aspx (accessed 7/9-2011). Savov, Vlad. "Nokia Lumia 800 Review." (3/11-2011), http://www.theverge.com/2011/11/3/2534861/nokia-lumia-800-review (accessed 25/12012). Solomon, Kate. "Apple Wins Major Touchscreen Patent." (22/6-2011), http://www.techradar.com/news/phone-and-communications/mobile-phones/applewins-major-touchscreen-patent-969477 (accessed 7/10-2011). Staska. "New Smartphone Naming Scheme for Samsung. Galaxy R, W and Y on the Way." (11/8-2011), http://www.unwiredview.com/2011/08/11/new-smartphonenaming-scheme-for-samsung-galaxy-r-w-and-y-on-the-way/ (accessed 27/10-2011). Team PI. "The Global Smartphone Market, Nokia Rules, Samsung and HTC Grows." (8/22011), http://www.pluggd.in/global-smartphone-market-share-297/ (accessed 19/92011). The Economic Times. "Samsung Electronics to Maintain its Component Partnership with Apple: Samsung's COO Lee Jae-Yong." (19/10-2011), http://economictimes.indiatimes.com/tech/hardware/samsung-electronics-to-maintainits-components-partnership-with-apple-samsungs-coo-lee-jaeyong/articleshow/10413383.cms (accessed 6/12-2011). The Economist. "The Fight for Digital Dominance." (21/11-2002), http://www.economist.com/node/1454300 (accessed 1/10-2011). The Economist II. "The Next Big Bet." (1/10-2011), http://www.economist.com/node/21530976 (accessed 6/12-2011). The Economist III. "Asia's New Model Company." (1/10-2011), http://www.economist.com/node/21530984 (accessed 6/12-2011). Tippin, Chilton. "How does Android make Money?" (3/3-2011), http://signalnews.com/howdoes-android-make-money (accessed 20/8-2011). Tode, Chantal. "Strong Galaxy S2 Sales Propel Samsung to Lead Smartphone Spot." (31/10-2011), http://www.mobilecommercedaily.com/2011/10/31/strong-galaxy-s2sales-propel-samsung-to-lead-smartphone-spot (accessed 25/1-2012). 70

NOKIA and open innovation Tofel, Kevin C. "Why Samsung is about to Become the Smartphone King." (13/6-2011), http://gigaom.com/mobile/why-samsung-is-about-to-become-the-smartphone-king/ (accessed 19/9-2011). Topolsky, Joshua. "IPhone 4S Review." (11/10-2011), http://www.theverge.com/apple/2011/10/12/2484524/iphone-4s-review (accessed 25/1-2012). Tyrsina, Radu. "Galaxy S2 is Better than iPhone 4s, Samsung Releases Comparison to Prove it." (5/10-2011), http://www.itproportal.com/2011/10/05/galaxy-s2-better-iphone4s-samsung-comparison-prove-it/ (accessed 15/11-2011). Vikitech. "Android Market Apps Reaches Half a Million, Apple App Store Still Leads with 600,000 Apps." (21/11-2011), http://www.vikitech.com/7071/android-market-reacheshalf-million-apps (accessed 5/12-2011). Vogelstein, Fred. "The Untold Story: How the iPhone Blew Up the Wireless Industry." (01/09-2008), http://www.wired.com/gadgets/wireless/magazine/1602/ff_iphone?currentPage=1 (accessed 6/9-2011). Warren, Tom. "Microsoft Signs Android Patent and Windows Phone Marketing Deal with Samsung." (28/9-2011), http://www.winrumors.com/microsoft-signs-android-patentand-windows-phone-marketing-deal-with-samsung/ (accessed 27/10-2011). Weintraub, Seth. "Intel CEO to Nokia's Elop: I would have Gone Google." (17/2-2011), http://tech.fortune.cnn.com/2011/02/17/intel-ceo-to-nokias-elop-i-would-have-gonegoogle/ (accessed 15/10-2011). Wessel, Lene. "Lukning Af Nokia Skabte Uventet Energi i Organisationen." (11/12-2011), http://ing.dk/artikel/124900-lukningen-af-nokia-skabte-uventet-energi-i-organisationen (accessed 4/1-2012). Wilhelm, Alex. "Big Money: The Companies with the Biggest Cash Piles in Tech." (22/82011), http://thenextweb.com/insider/2011/08/22/big-money-the-companies-with-thebiggest-cash-piles-in-tech/ (accessed 3/11-2011). Williams, Alex. "A Big Google Problem: 37 Android Related Patent Disputes [Infographic]." (23/3-2011), http://www.readwriteweb.com/cloud/2011/03/37-android-related-patentdisputes.php (accessed 28/10-2011). Zeman, Eric. "Danish Bank Believes Nokia Will Sell to Microsoft." (14/12-2011), http://www.informationweek.com/news/mobility/smart_phones/232300523 (accessed 16/1-2012). Ziegler, Chris. "Samsung Galaxy S II Epic 4G Touch Review." (20/9-2011), http://www.theverge.com/2011/10/24/2494448/sprint-samsung-galaxy-ii-epic-4gtouch-review (accessed 25/1-2012).

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Appendix A A short description of OS suppliers

Google Google have their background from the Internet industry and became a part of the smartphone market when they acquired Android in 2005. They acquired Android because of the talent mass that it possessed.218 In 2008 the first smartphone with Android OS installed was sold. The Android system is a free OS for smartphone manufacturers and this have made Google a very tough competitor for the other software developers since Googles business model for the smartphone market is so different. Google entered the smartphone industry because mobile Internet usage is predicted to pass desktop Internet usage within five years,219 and 96 % of their revenues were generated by online advertises in 2010.220 Googles search engine is included in every smartphone that has the Android system installed. Google had 91.4 % of the mobile search market in the beginning of 2011,221 and their smartphone strategy has been a success for now. As an extra source of smartphone revenue Google charge 30 % of the transaction fee for every sold app on Android market place. Android became attractive for the hardware producers with a weak software base and Android gave them the opportunity to become large players within the smartphone industry.222 Android have enjoyed great success and they have the largest market share within the OS market. Android had 43.4 % of the smartphone OS market in the second quarter of 2011. HTC, Samsung, LG, Sony Ericsson, Ophone and many other hardware producers are using Android as their primary software solution. Google also tried to sell their own smartphone, Google Nexus, but it failed because of carriers resistance.223 Googles role within the smartphone market changed on August 15th 2011, when Google announced that they had bought Motorola Mobility for $12.5 billion. Google said that it was not to become a hardware developer, but mainly wished to get access to Motorola Mobilitys patents to protect their hardware partners who had been litigated for using Android.

218 219

Elgin (2005) Tippin (2011) 220 Google investor relations (2011) 221 Tippin (2011) 222 Kenney et al (2011), page 249 223 Kenney et al (2011), page 244

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NOKIA and open innovation Microsoft Nokias new partner and software provider is not a new contender within the smartphone market. Microsoft was the second largest smartphone OS provider in 2007 and had 13 % of the OS market, which they got by licensing their software to Asian handset makers like Samsung and HTC. Their success did not last, as Microsoft had to stop the development of their former smartphone OS in December 2008. Their software solution was inferior compared to the free Android OS and Apples iOS. In October 2010 Microsoft introduced their new OS contender for the smartphone market, Windows Phone 7. WP7 is, like Android, used by several hardware developers and was introduced on HTC surround; Samsung Focus. Microsoft have become Nokias smartphone OS provider, but their software solution has not been well received by the market. It has been a challenge for Microsoft to license WP7 to the smartphone vendors against the free Android OS. Microsoft are losing market shares as they only had 1.6 % of the smartphone OS market in the second quarter of 2011.224 The cooperation with Nokia might solve the problem for Microsoft - Gartner predicts that WP7.5 will be the second largest OS in 2015.225

Table 5: Worldwide smartphone sales to end users by operating system in 2010 (thousands of units) 2010 Units 111,576.7 67,224.5 47,451.6 46,598.3 12,378.2 11,417.4 296,646.6 2010 Market share(%) 37.6 22.7 16.0 15.7 4.2 3.8 100.0 2009 Units 80,878.3 6,798.4 34,346.6 24,889.7 15,031.0 10,432.1 172,376.1 2009 Market share(%) 46.9 3.9 19.9 14.4 8.7 6.1 100.0

Company Symbian Android RIM iOS Microsoft Other Oss Total

Source: Gartner III (2011)

224 225

Gartner II (2011) Gartner (2011)

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Appendix B Mobile phone and smartphone market shares

Table 6: Worldwide mobile device sales to end users in 2010 (thousands of units) 2010 Units 461,318.2 281,065.8 114,154.6 47,451.6 46,598.3 41,819.2 38,553.7 28,768.7 24,688.4 23,814.7 488,569.3 1,596,802.4 2010 Market share(%) 28.9 17.6 7.1 3.0 2.9 2.6 2.4 1.8 1.5 1.5 30.6 100.0 2009 Units 440,881.6 235,772.0 121,972.1 34,346.6 24,889.7 54,956.6 58,475.2 16,026.1 10,811.9 13,490.6 199,617.2 1,211,239.6 2009 Market share(%) 36.4 19.5 10.1 2.8 2.1 4.5 4.8 1.3 0.9 1.1 16.5 100.0

Company Nokia Samsung LG Electronics RIM Apple Sony Ericsson Motorola ZTE HTC Huawei Others Total

Source: Gartner III (2011)

Table 7: Global smartphone vendor market share (millions of units) Q211 Units 20.3 19.2 16.7 53.8 110.0 Q211 Market share (%) 18.5 17.5 15.2 48.9 100.0 Q210 Units 8.4 3.1 23.8 27.1 62.4 Q210 Market share (%) 13.5 5.0 38.1 43.4 100.00

Company Apple Samsung Nokia Others Total

Source: Mohindru (2011)

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NOKIA and open innovation Table 8: Smartphone market shares 2008 and 2009 Company Nokia (08 Symbian mostly Nokia) RIM Apple HTC Samsung
Source: Ahonen (2010)

2008 Units (mill.) 80 37 25 xx xx

Market share 46 % 20 % 15 % xx xx

2009 Units (mill.) 68 37 25 9 7

Market share 39 % 20 % 15 % 5% 4%

Table 9: Worldwide mobile communications device open OS sales to end users by OS (thousands of units) OS 2010 2011 Symbian 111,577 Market share 37.6 (%) Android 67,225 Market share 22.7 (%) RIM 47,452 Market share 16.0 (%) iOS 46,458 Market share 15.7 (%) Microsoft 12,378 Market share 4.2 (%) Other Oss 11,417 Market share 3,8 (%) Total market 296,647 Increase in % -*Annual growth from 2013-2015 = 14.33 %
Source: Gartner (2011)

89,930 19.2 179,873 38.5 62,600 13.4 90,560 19.4 26,346 5.6 18,392 3,9 467,701 37

2012

32,666 5.2 310,088 49.2 79,335 12.6 118,848 18.9 68,156 10.8 21,384 3,4 630,476 26

2015

661 0.1 539,318 48.8 122,864 11.1 189,924 17.2 215,998 19.5 36,134 3,3 1,104,898 43*

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Appendix C Specifications for smartphones

Table 10: Specifications for the three competitors best smartphone Phones OS Processor RAM Screen size Resolution Display Camera Front camera Keyboard LED Flash Video Recording Adobe flash Storage Wi-Fi Bluetooth Thickness Accelerometer GPS Open GL support Store Number Apps available 4G Network
Source: Afnan (2012)

Nokia Lumia 800 WP 7.5 1.4GHz scorpion 512MB 3.7 inch 480x800 AMOLED 8 MP No Virtual Yes dual 720p No 16GB 802.11 b/g/n Yes 2.1 12.1 mm Yes Yes Yes WP marketplace 50,000+ No

iPhone 4S iOS 5 Apple A5 1GHz dual core Cortex-9 512MB 3.5 inch 640x960 Retina Display 8 MP VGA Virtual Yes 1080p HD No 16/32/64GB 802.11 b/g/n Yes 4.0 9.3 mm Yes Yes Yes App store 500,000+ No

Samsung Galaxy S2 Android 1.2 dual-core Orion 1GB 4.27 inch 480x800 Super AMOLED Plus 8 MP 2 MP Virtual Yeas dual 1080p HD Yes 8/32GB 802.11 b/g/n Yes 3.0 8.49 mm Yes Yes Yes Android market 400,000+ Yes LTE enabled

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Appendix D Apples hardware suppliers:

Simplo Technologies and Dynapack International Technology: Batteries TPK Holding and Wintek: Touch panel modules Catcher: Chassis Largan Precision: Webcam (maybe also 8MP camera lens modules) OmniVision and Sony: 8 MP CMOS image sensors Intel: Processors Samsung: Video processors IC Infineon Technology: Baseband IC Sharp and Sanyo: 3.5 inch displays Balda AG: Touch sensitive modules Balda AG: Scratch resistant glass Cambridge Silicon Radio: Bluetooth module Marvell: Wi-Fi chips Broadcom: Networking and interface chips (Most chips designed in Europe, but manufactured in Asia) TSMC and UMC: Chip makers Unimicron Technology Corp: Printed circuit boards SkyWorks: Radio amplifier Samsung: NAND flash chips and video processor chip National Semi and Novatek: Display driver chips Delta Electronics: Battery charger TXC: Timing crystal Cheng Uei and Entery: Connector and cables Cyntec: Passive components Foxconn: Claimed to be responsible for assembly
Source: iPhone Gadgets (2011)

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