Optimizing Open Innovation: With Nokia As Case

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. Open innovation the theory .................................................................................... 21
4. 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
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
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
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
A smartphone is a combination between phone and a small handheld computer
2
Kenney et al (2011), page 240
3
Steinbock (2010), page 230
4
2
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
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.
4
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)
5
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
6
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
Steinbock (2010), page 1-2
8
9
10
11
7
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
Kenney et al (2011), page 246-7
13
14
15
16
Dalziel (2010)
17
BBC Mobile (2011)
18
19
20
CNN Money (2011)
21
Dediu I (2011)
8
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
Vogelstein (2008), page 1+3
23
Samra (2011)
24
Osterwalder et al (2010), page 47
25
26
Camm-Jones (2011)
9
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
Evans I (2011)
28
Dediu I (2011)
29
Republic (2008)
30
Team PI (2011)
31
Kiju (2011)
32
Tofel (2011)
33
Evans II (2011)
10
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
CNN Money (2011)
35
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.
11
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
Gartner (2011)
40
Elmer-DeWitt (2011)
41
Elmer-DeWitt (2011)
42
Mohindru (2011)
12
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
Tode (2011)
44
Mobile Phones UK (2011)
45
Elmer-DeWitt (2011)
46
Kloyer (2011), page 51
13
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
Haupt et al (2007), page 388
48
Harrison (2011)
49
Williams (2011)
50
De La Merced (2011)
51
Carson (2011)
52
Garner et al (2011)
53
Howley (2011)
14
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 Nokia Lumia 80054 Apple iPhone 4S55 Samsung Galaxy S256
Design 9 8 9
Display 9 10 8
Cameras 7 9 8
Reception/Call qual. 8 7 7
Performance 8 8 9
Software 8 9 7
Battery life 7 8 8
Ecosystem (apps) 6 10 8
Sum 62 69 64
Source: www.theverge.com
54
Savov (2011)
55
Topolsky (2011)
56
Ziegler (2011)
15
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
Meritt (2011)
58
Ogg (2011)
16
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
Informative report (2011)
60
Dediu I (2011)
61
ben-Aaron (2011)
62
Ragnetti (2011)
63
Reising (2011)
64
Gartenberg (2011)
17
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
Petric (2011)
66
Solomon (2011)
67
Petric (2011)
68
Roumeliotis (2011)
69
Kim II (2011)
70
Dediu I (2011)
71
Camm-Jones (2011)
18
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
Kwan (2011)
73
Fitzgerald (2011)
74
Warren (2011)
75
Niccolai (2011)
76
Brian II (2011)
77
Wilhelm (2011)
19
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 H Integrated portfolio

Techno. attract. H
H
Market attract.
Environment
L
L
L
L Competitive strength H L Competitive strength H L Company H
= 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.
20
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
Chesbrough (2003), page xx
79
Chesbrough (2003), page 33
80
Chesbrough (2003), page xxiiI
81
21
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
Lichtenthaler (2011), page 76
83
84
85
86
87
Chesbrough (2003), page xxv
88
Chesbrough (2003), page xxvi
89
Mowery (2009), page 13
90
Lichtenthaler (2011), page 79-80
22
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-found-
elsewhere.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
Chesbrough (2003), page xxvii
93
Huston et al (2007), page 21
94
95
96
97
23
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
24
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
Tidd et al (2009), page 461
101
Slowinski et al (2010), page 39
25
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
Stefan Lindegaard is an author, speaker and advisor within open innovation - some of this is
done through www.15inno.com
104
Lindegaard (2009)
105
106
107
Slowinski et al (2010), page 43-44
26
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
Slowinski et al (2010), page 44-45
109
Euchner (2011)
110
27
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
Vogelstein (2008)
112
Vogelstein (2008)
113
Kuang (20 11)
114
Breillatt (2008)
115
Grossman 2005
28
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
Bry (2011)
117
Vogelstein (2008), page 4
118
Bry (2011)
119
Apple (2011)
120
Breillatt (2008)
121
Ragnetti (2011)
122
Dediu I (2011)
29
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
Breillatt (2008)
124
Breillatt (2008)
125
Bry (2011)
126
Caulfield (2010)
127
iPhone Gadgets (2011)
30
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
The Economic Times (2011)
129
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)
31
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
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
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)
34
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
The Economist II (2011)
140
Tofel (2011)
141
Gabriel (2011)
142
Tyrsina )2011)
143
Staska (2011)
144
Kane et al (2011)
35
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
S. Lars (2011)
146
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)
36
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
Paul (2011)
155
Neary (2011)
37
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
Liedtke (2011)
157
The Economist II (2011)
38
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.
39
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
Meritt (2011)
160
Hiner (2011)
161
162
163
164
165
40
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
168
169
170
Constantinescu (2011)
171
172
41
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
175
176
177
178
179
Orlowski (2011)
180
Orlowski (2011), page 2
181
Orlowski (2011), page 3
42
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
Greenfield (2011)
183
184
185
186
187
43
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
190
191
192
193
194
Nokia (2012)
44
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
Weintraub (2011)
196
Neary (2010)
197
Neary (2011)
198
Bass (2011)
199
Hingley (2011)
45
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
Kim I (2011)
201
Brian I (2011)
202
Meyer (2011)
203
Zeman (2011)
204
Kurlyandchik (2011)
205
46
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
206
207
Lawton (2011)
208
209
210
211
212
Arild (2011)
47
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
Wessel (2011)
214
215
216
48
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)
49
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
4.4 Partial conclusion Table 2: Companies use of OI tools

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
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
Table 3: Companies in the Want, Find, Get, Manage model

Nokia Apple Samsung
Want Cost / hardware Design / ease of use Cost / hardware
through OS
Find OS / hardware: Hardware/apps: OS:
Limited - not the Have a long list of Open to all available
industry leader, but potential hardware OS suppliers
OS providers were suppliers industry
interested in leaders
supplying Nokia
Get Was easy since Use their size to Not so problematic
Microsoft paid a lot lower the hardware because of their
for the agreement parts cost open OS approach
Manage Have a lot of open Impressively well A bit problematic
innovation partners since the hardware since the hardware
to manage. is well integrated and OS is not
Impressive with the OS optimally integrated
management of the
OS integration as
Lumia seems to be a
success.
Source: Own table
52
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 Apple
Primary goal Cost Design and ease of use
R&D cost 2010 $3.9 billion >$1 billion
R&D employees 2010 17,200 3,200
User survey Yes, e.g. a 74,000 user No
study
Local adaptation Yes No
Number of models pr year 40 - 12 of them 1
smartphones
Segments Almost all including Higher end
emerging countries
Use of OI tools Almost every possible tools 30 hardware suppliers +
including 100 universities, apps developers
users, interfirm etc.
Design team 340 members 20 members
Own OS No, WP7.5 Yes, iOS
Complementary tech. No, but Microsoft have OS Tablets, computers and
on complementary products MP3 players
Share of profit in 2nd >0% 66.3 %
quarter 2011
Source: Own table
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
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
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
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
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
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.
58
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
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
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?
61
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touch-review (accessed 25/1-2012).
71
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
Elgin (2005)
219
Tippin (2011)
220
Google investor relations (2011)
221
Tippin (2011)
222
223
72
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 2010 2009 2009

Company Units Market share(%) Units Market
share(%)
Symbian 111,576.7 37.6 80,878.3 46.9
Android 67,224.5 22.7 6,798.4 3.9
RIM 47,451.6 16.0 34,346.6 19.9
iOS 46,598.3 15.7 24,889.7 14.4
Microsoft 12,378.2 4.2 15,031.0 8.7
Other Oss 11,417.4 3.8 10,432.1 6.1
Total 296,646.6 100.0 172,376.1 100.0
Source: Gartner III (2011)
224
Gartner II (2011)
225
Gartner (2011)
73
Appendix B Mobile phone and smartphone market shares
Table 6: Worldwide mobile device sales to end users in 2010 (thousands of units)
2010 2010 2009 2009

Company Units Market Units Market
share(%) share(%)
Nokia 461,318.2 28.9 440,881.6 36.4
Samsung 281,065.8 17.6 235,772.0 19.5
LG Electronics 114,154.6 7.1 121,972.1 10.1
RIM 47,451.6 3.0 34,346.6 2.8
Apple 46,598.3 2.9 24,889.7 2.1
Sony Ericsson 41,819.2 2.6 54,956.6 4.5
Motorola 38,553.7 2.4 58,475.2 4.8
ZTE 28,768.7 1.8 16,026.1 1.3
HTC 24,688.4 1.5 10,811.9 0.9
Huawei 23,814.7 1.5 13,490.6 1.1
Others 488,569.3 30.6 199,617.2 16.5
Total 1,596,802.4 100.0 1,211,239.6 100.0
Source: Gartner III (2011)
Table 7: Global smartphone vendor market share (millions of units)
Q211 Q211 Q210 Q210

Company Units Market share Units Market share
(%) (%)
Apple 20.3 18.5 8.4 13.5
Samsung 19.2 17.5 3.1 5.0
Nokia 16.7 15.2 23.8 38.1
Others 53.8 48.9 27.1 43.4
Total 110.0 100.0 62.4 100.00
Source: Mohindru (2011)
74
Table 8: Smartphone market shares 2008 and 2009

2008 2009
Company Units (mill.) Market share Units (mill.) Market share
Nokia (08 Symbian 80 46 % 68 39 %
mostly Nokia)
RIM 37 20 % 37 20 %
Apple 25 15 % 25 15 %
HTC xx xx 9 5%
Samsung xx xx 7 4%
Source: Ahonen (2010)
Table 9: Worldwide mobile communications device open OS sales to end users by

OS (thousands of units)
OS 2010 2011 2012 2015

Symbian 111,577 89,930 32,666 661
Market share 37.6 19.2 5.2 0.1
(%)
Android 67,225 179,873 310,088 539,318
Market share 22.7 38.5 49.2 48.8
(%)
RIM 47,452 62,600 79,335 122,864
Market share 16.0 13.4 12.6 11.1
(%)
iOS 46,458 90,560 118,848 189,924
Market share 15.7 19.4 18.9 17.2
(%)
Microsoft 12,378 26,346 68,156 215,998
Market share 4.2 5.6 10.8 19.5
(%)
Other Oss 11,417 18,392 21,384 36,134
Market share 3,8 3,9 3,4 3,3
(%)
Total market 296,647 467,701 630,476 1,104,898
Increase in % -- 37 26 43*
*Annual growth from 2013-2015 = 14.33 %
Source: Gartner (2011)
75
Appendix C Specifications for smartphones
Table 10: Specifications for the three competitors best smartphone
Phones Nokia Lumia 800 iPhone 4S Samsung Galaxy

S2
OS WP 7.5 iOS 5 Android
Processor 1.4GHz scorpion Apple A5 1GHz dual 1.2 dual-core Orion
core Cortex-9
RAM 512MB 512MB 1GB
Screen size 3.7 inch 3.5 inch 4.27 inch
Resolution 480x800 640x960 480x800
Display AMOLED Retina Display Super AMOLED
Plus
Camera 8 MP 8 MP 8 MP
Front camera No VGA 2 MP
Keyboard Virtual Virtual Virtual
LED Flash Yes dual Yes Yeas dual
Video Recording 720p 1080p HD 1080p HD
Adobe flash No No Yes
Storage 16GB 16/32/64GB 8/32GB
Wi-Fi 802.11 b/g/n 802.11 b/g/n 802.11 b/g/n
Bluetooth Yes 2.1 Yes 4.0 Yes 3.0
Thickness 12.1 mm 9.3 mm 8.49 mm
Accelerometer Yes Yes Yes
GPS Yes Yes Yes
Open GL support Yes Yes Yes
Store WP marketplace App store Android market
Number Apps 50,000+ 500,000+ 400,000+
available
4G Network No No Yes LTE enabled
Source: Afnan (2012)
76
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)
77

Optimizing Open Innovation: With Nokia As Case

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Optimizing open innovation

With Nokia as case

Aarhus School of Business

Department of Management and Statistics

6. Conclusion and further research ............................................................................... 59

1.1 Problem statement

1.3 Scope and delimitation

1.4 Structure of the thesis

Figure 1: structure of thesis

2. The smartphone industry

2.1 Description of smartphone vendors

Number of employees: Samsung Electronics had over 190,000 employees by July

2.2 The integrated portfolio

2.2.1 The market portfolio

Market attractiveness vertical axis

Competitive strength horizontal axis

2.2.2 The technology portfolio

Technology attractiveness vertical axis

Table 1: Review of the three smartphones

2.2.3 The evolution of the integrated portfolio

Place and trajectory for the three companies

Figure 2: The three companies in the integrated portfolio

Market portfolio Technology portfolio H Integrated portfolio

L Competitive strength H L Competitive strength H L Company H

= Nokia = Samsung = Apple

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

3. Open innovation the theory

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

Source: Chesbrough (2003), page xxv

Want, Find, Get, Manage approach98

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

Want What are our resource needs? Which ones should we

Find How do we find and evaluate the external sources of

Get What processes will we use to plan, structure and

Manage What tools and metrics will we use to implement and

Source: Slowinski et al (2010), page 39

innovation by supporting it and by implementing the right processes.100 Their approach

4. The companies innovation processes

4.1 Apples innovation processes

4.1.1 Apples internal innovation process

4.1.2 Apples use of open innovation

Interfirm collaboration: Apple have a network of suppliers to manufacture the iPhone

4.1.3 Assessment of Apples innovation processes

Figure 5: Apples innovation processes

Source: Own figure

Suggestions for improving Apples use of open innovation:

4.2 Samsungs innovation processes

4.2.1 Samsungs internal innovation process

4.2.2. Samsungs use of open innovation

4.2.3 Assessment of Samsungs innovation processes

Figure 6: Samsungs innovation processes

Source: Own model

Suggestions for improving Samsungs use of open innovation:

4.3 Nokias innovation processes

4.3.1. Nokias internal innovation processes

4.3.2 Nokias use of open innovation

4.3.3. Assessment of Nokias innovation processes

Figure 7: Nokias innovation processes

Source: Own model

4.4 Partial conclusion Table 2: Companies use of OI tools

Table 3 is a short resume of the three companies Want-Find-Get-Manage results. It

Table 3: Companies in the Want, Find, Get, Manage model

5. Discussion - Where have Nokia failed?