Nokia and Ollila's legacy
Kallasvuo takes on Zander in battle of handset titans
Analysis Nokia CEO Jorma Ollila, the architect of the Finnish giant in its current form, is to step down next June, although he will remain as non-executive chairman. Although widely rumored to be after a career in Finnish politics, he has announced that he will take over the chairmanship of oil giant Shell instead.
Olli-Pekka Kallasvuo, currently head of the Mobile Phones unit, takes on the task of retaining the number one position in handsets, while building on Ollila’s key strategies of making Nokia software platforms a true rival to Microsoft’s in the enterprise, as well as boosting revenue and margins with advanced multimedia devices.
These strategies represent Ollila’s second revolution at Nokia, and it is likely that Kallasvuo will continue on the same broad path rather than making any radical about-turns. He will face a far stronger challenge from Motorola than his predecessor faced. Zander is in the process of effecting a turnaround at Motorola almost as impressive as that created by Ollila in the mid-1990s
Much of Zander’s strategy is focused on infrastructure – which is a far larger part of the Motorola revenue base than it is at Nokia – and the ability to offer soup-to-nuts solutions, from handset to base station to IP software, for multi-network convergence and what the company terms ‘seamless mobility’. But there is a special place in the new-look company for the handset, as epitomized by the hugely successful slimline RAZR.
This is not only the unifying design concept behind most of Motorola’s planned high end devices, including music phones and dual-mode Wi-Fi/cellular devices, but also represents the company’s desire to become a consumer brand like Apple or Sony, an ambition cherished for the past few years by Nokia too.
Nokia has a headstart in this respect, being better regarded as a consumer brand than the old Motorola ever was, but it has not had a single device with the same consumer impact as the RAZR. Its N-Gage games console phone, for instance, was an interesting concept, illustrating Nokia’s belief that the handset should become the unified portable device, combining the functions of the music player, business PDA, gaming platform and television. But it did not make a big impact on the market, although Nokia is giving it a new lease of life this fall with the release of the NGage QD Silver Edition.
Now both companies are battling to capture the carriers’ and consumers’ imagination with their latest handsets. Motorola recently launched its Q device, which takes on the RIM Blackberry as an email-oriented, ultraslim handset. The next iteration of the RAZR, called SLVR, will debut in the fourth quarter. This will be a candybar design rather than a clamshell like RAZR, but will be similarly slim. It will come in phones will ship in low, medium and high end models.
In the third quarter, Motorola plans to release another clamshell, the PEBL, as well as the long awaited iTunes music phone, jointly developed with Apple.
Over at Nokia, legendary chief of design, Frank Nuovo, has unveiled his latest creation, the stainless steel 8800, which has just gone on sale in Europe. Nuovo claims the model "reintroduces phone lust” – a claim that could equally be made for RAZR. But the 8800 has a list price of $800, compared to its rival’s $500.
Like the RAZR, the 8800 is designed to be the basis of a whole generation of different handsets over the next five years or more. Of course, there is more to success in handsets than cutting edge design, especially when the companies look at emerging markets and at the budget end of the user base. Out of the marketing limelight, Nokia remains supreme in terms of its streamlined supply chain and huge cost efficiencies, and Zander knows that catching up must be a priority for Motorola.
He has already announced a more integrated structure, unifying the four independent business units – handsets, infrastructure, home broadband and government systems – around the single strategy of seamless mobility and multiple broadband networks.
Now he has hired Stuart Reed to rework Motorola’s global supply chain, and cut costs by reducing the number of suppliers and so increase negotiating power.
Reed says Motorola will also restructure its IT operations, outsource where appropriate, and develop a standard approach to product quality. “Motorola does not have a best in class supply chain,” he says, and has a deadline of the end of 2006 to change that.
The first step is to reduce the number of handset chip suppliers to just three – Qualcomm for CDMA, former Motorola unit Freescale for GSM and W-CDMA and Texas Instruments for DSPs and low end platforms. Motorola has already reduced the number of components it buys for its phones from 300,000 to less than 100,000 and aims to use only 25,000 unique components a year from now.
However, despite the great advantage of its efficient supply chain and the massive purchasing power its market share brings it, Nokia’s famous margins are under increasing stress and, with Motorola hitting gold with RAZR, Nokia – which makes over 85% of its revenue from phones – will need to push the 8800 hard.
The pressure on the CEO-in-waiting will be intense. Kallasvuo, who was chief financial officer before taking over the phones unit, has certainly reinvigorated the Nokia portfolio in the past year, notably by taking advantage at an earlier stage than rivals of the rising demand from emerging economies, and by introducing clamshell phones. But he has been forced to sacrifice margins to market share with some aggressive price cutting.
Kallasvuo not only has future challenges to meet, but he has a tough legacy to live up to, and will need to create a strong new management team. He is one of the last remaining members of the close-knit management clique that has run Nokia since Ollila took over in 1992. Pekka Ala-Pietila, Nokia's president and Ollila’s chief confidant, has also resigned and will leave in February.
Ollila insisted to the Finnish press that Ala-Pietila had not wanted the CEO job. Other members of the team that transformed Nokia - Matti Alahuhta, chief strategy officer, Sari Baldauf, head of the network division, and Jukka Bergqvist, also a manager in the network division - have all left the company in the past year.
Although Nokia has been under pressure in terms of margins and market share in the past two years, Ollila has been a remarkable success story since he took the momentous decision to pull the Finnish conglomerate out of all its businesses – which included rubber goods, computers and even bedroom slippers – and focus only on mobile communications.
His team spotted, well ahead of the rest of the market, that cellphones would become fashion accessories, and led the field in shrinking handsets and adopting advanced battery life technology. However, Nokia slipped in 2003 by failing to spot the boom in clamshell models, and it has been losing US market share.
Ollila has laid the foundations for a new revolution at Nokia with the creation of the Enterprise and Multimedia units, the real growth engines for the company. As the margins on devices fall, it will rely increasingly on its software platforms, which it seeks to establish as standards – most importantly, the Series 60 user interface, which Nokia will combine with Java, Linux and various elements such as virtual private networks and push email, to create an enterprise platform to rival Windows in the mobile environment.
His legacy to his successor is strong – the company has stabilized again, and the future growth plan, though ambitious, is well defined and reflects Ollila’s deep and creative strategic thinking, a quality that some fear Kallasvuo lacks. Although a strong tactical operator and with a sharp eye for trends, there is speculation that he will not be the match of Motorola’s Zander in terms of big picture thinking.
Copyright © 2005, Wireless Watch
Wireless Watch is published by Rethink Research, a London-based IT publishing and consulting firm. This weekly newsletter delivers in-depth analysis and market research of mobile and wireless for business. Subscription details are here.