Decision making: Nokia case study entry A story of success and a bankruptcy, a survival struggle of the two biggest companies in the phone industry in 2000. One company not only survived but also increased its market share while the other went bankrupt. The strongest won, but what does it mean to be the strongest in business, or rather in the phone industry? This industry is changing rapidly as innovations are frequent, therefore time management is essential for survival: identify problems in time, make decisions as soon as possible, implement them as soon as possible and most importantly understand what kind of decision you have to take, strategic or operational. The companies managed the situation in different ways. Nokia In the past 150 years, Nokia has grown from a paper company to a global electronics company. Over the years, it has produced rubber boots and chains for cars, worked in the electric power industry, produced televisions and recently focused solely on the telephone industry. Nokia adapted to the environment. After seeing that the production of paper, rubber, power and TVs were not very profitable, he focused on the telephone industry, an industry quite different from the first. Why this change? The answer is written on the Nokia website: "Changing with the times, disrupting the status quo - it's what we've always done" 1 (Nokia Corporation, 2013). In short, Nokia's strategy could be summed up: " strategy as a fit", which means adapting to the external and internal environment. It started with the paper industry, as it had access to the forests of Finland, but over time, the trees were thinning, the cost of labor was increasing and the problem of respect for the environment was becoming critical. Nokia decided to focus on a more profitable industry, the energy industry and later the phone industry. Nokia is one of the leading phone companies in the world. In 2006, sales revenue was greater than the Finnish state budget (Innovation Leaders, 2012). Nokia has manufacturing plants in 8 different countries and its products are sold in more than 150 countries. It is an international company, constantly growing through mergers/acquisitions and innovations (Nokia Corporation, 2013). Nokia's culture is based on several values: ability to adapt to the environment, small power distance, aggressive and individualistic culture and speed and flexibility in making decisions. It is precisely these elements of culture that will determine its success. The fire at the Philips factory. On Friday, March 27, 2000, lightning struck the Philips building in Albuquerque, New Mexico. Room no. 22 started to catch fire. Fire detectors were immediately activated and trained Philips staff began to extinguish the fire. When firefighters arrived, the fire was out. They just checked the place and filled the report. The first investigation showed that the damage caused by the fire was minor, so the corporate headquarters was not notified and the news was not even published in the newspapers. The fire was out, the damage at first sight was minor, but the real drama had just begun (Sánchez Garcí, 2010). The area that caught fire was the factory that produced "chip-e", a small electronic device that is very sensitive to dust and dirt. The rooms in which it is produced must always be kept clean. The smoke of the fire had spread to all the production rooms, not only to no. 22 and also the inspection of fire extinguishers had contaminated every room, as they had entered every room to inspect. All rooms should be cleaned and sanitized (Sheffi, 2005). more to repair the damage . " It's like the devil is playing with us," said one of the Philips managers who was involved in the cleanup process, "Between the sparks and the smoke, everything that could go wrong did." (Latour, 2001, p. 3). On March 30 they called their customers, and in particular Nokia and Ericsson, since 40% of the manufactured devices had been ordered from them. They were told that in a week they would be able to fulfill their order (Latour, 2001). But realistically, the delay would be more than a week. A problem that at first seemed small caused a lot of losses, for Philips, Nokia and in particular for Ericsson. Nokia's reaction Nokia's headquarters in Finland noticed that some numbers were appearing on their computer screens, indicating that Philips shipments had been delayed. On Monday, 3 days after the fire, Philips called Tappio Markki, the manager responsible for purchasing components, to explain the delay. They gave him detailed information and said that production would return to normal in a week. A week delay is normal for global companies, so the problem would not be serious as Nokia had some components in stock. Customers would not notice anything (Sheffi, 2005). Mr. Markki wasn't too alarmed, but he did report everything to Mr. Korkonen, the director of supply chain issues. He always says, “We encourage bad news to spread fast. We don't want to hide the problems” (Latour, 2001, p. 3). The first thing Mr. Korkonen did was to send 2 engineers to the Philips factory to help them recover quickly. Philips refused their help as the visitors would create more confusion . Mr. Korkonen then agreed to check and monitor their situation every day, in particular the situation of the 5 components that Nokia received from them. Monitoring and control is normally done every week. Mr. Korkonen organized a meeting in Helsinki, and during the meeting he emphasized the importance of coordinated action to face the problem. Philips managers realized that he was more upset about the problem than they were, it was a matter of life or death for Nokian (Sheffi, 2005). Two weeks later Philips called Nokia again, to tell you that it took more than two weeks to repair all the damage. Production would return to normal after a month. If Nokia didn't have the components, it wouldn't have been able to produce 4 million phones , which accounted for 5% of sales at the time. The situation was really bad , but Mr. Korkonen did not give up. He organized an extraordinary meeting to review the situation. Three components were not critical because other suppliers could produce them, but the other two were critical because only Philips could produce them. He asked Philips if his other factories could supply him with those components. Some factories in the US and Japan supplied it, but not in the quantity that Nokia needed. Then Mr. Korkonen asked the engineers to modify the components so that they could also be produced by other suppliers. He was also involved in a project with Philips to discover a method to produce as many components as possible in the future (Latour, 2001). Ericsson's reaction On March 30, Philips also called Ericsson to explain the situation and to inform them that their orders would be delayed by a week. The manager responsible for purchasing the components was not concerned and did not inform his superiors (Sheffi, 2005). After a week, they realized that the delay would last longer, but the employees did not inform their superiors, as they were only concerned about important matters. Two weeks later, Philips informed them that the delay would be at least a month. This was indeed a problem, as the peak sales season was approaching and they needed to launch the new product. Superiors learned the truth only in April. They asked Philips for help, but it could not help because it was cooperating with Nokia (Sheffi, 2005). Ericsson also had no back-up suppliers, and all other suppliers were cooperating with Nokia (Latour, 2001). Performance of Nokia and Ericsson after the problem Nokia's revenue after the problem that happened did not decrease but increased. The same cannot be said for Ericsson. At Nokia, a small decrease was felt, of 0.45 of net profits in relation to total income, while at Ericsson, the decrease was greater, 2.2. Ericsson decided not to distribute dividends in 2001 and Nokia distributed dividends but with a smaller value than in 2000. Nokia's R&D investments were not affected at all by the problem that occurred while Ericsson's were greatly affected. Table 1: Key financial indicators of Nokia and Ericsson 2000/2001 son Sales revenue sales revenue -0.45 Dividends R&D/ net profit 2.6% -5% -2.2 -3% +13 -100% -10 Source: (Ericsson, 2002) (Nokia Corporation, 2002). Nokia's balance sheets show that sales in the phone division increased by 66% and net profits by 57%. So the phone division was not affected by the problem that occurred. Ericsson's performance was negative after the problem, as can be seen from the data in the table. But we cannot say that this performance could only be the result of the problem that occurred. In July 2000, Ericsson stated that the phone division suffered a loss of 1.8 billion kroner due to component shortages from the fire at the Philips factory. Fire losses for Ericsson were around 3-4 billion kroner (BBC News, 2000). At the end of 2000, Ericsson recorded a loss of 16.2 billion kroner in the telephone division. In January 2001, the company announced that it would give this division to Flextronics Inc., as it could produce at lower costs. After 3 months it created a 50/50 joint venture with Sony, and the new company was called Sony-Ericsson (Williams, 2001). So Nokia after the problem that happened increased its market share by 14% while Ericsson reduced its market share by 46%. Questions for discussion 1. Identify the problems faced by the two companies. Were those decisions structured or unstructured? How were they handled by the managers of each company? 2. Analyze the stages of decision making at Nokia and Ericsson. What was neglected by Ericsson and what was handled better by Nokia.
