“The mobile industry is undergoing the biggest change in its 20 year history,” Nokia CEO Olli-Pekka Kallasvuo said during the companys Q2-2009 earnings conference call, going on to outline the companys approach to the changing environment.
Kallasvuo said that Nokia can no longer have only a product focus, and rely on its tranditional advantages of supply chain management, among others, with the line between computers and devices blurring. “There will be a new classes of devices. Our ambition is to become a leading provider of not just devices but integrated mobile solutions as well. The companies that will win in this new world are yet to be determined.”
Nokia is setting targets accordingly for the next few years, and interestingly, the key metric that has been identified by the company for judging its performance and driving organizational change, is an Internet metric – of Active Users.
The Solutions Approach To Devices And Services
Nokia created separated Devices and Services as a separate reporting segment, but realizes the need to do more to drive organizational change. With the focus on Solutions, Kallasvuo said that it all starts from the consumer need for solutions, and the Solutions roadmap helps define what is needed on the services and devices side, and it all starts from the consumer experience. “It has not been easy,” Kallasvuo said.
Kallasvuo elaborated on five key points that define the companys approach to the changing environment:
— Changes In The Industry: “A new industry is emerging, and available to be shaped by Nokia. It is being shaped by mobile handset industry, the Internet, the PC world and Media and content. Advancements in mobile handsets and the Internet are reasonable catalysts. As such, competition has been increasing in the smart phone markets as many players rush into one of the few growing consumer markets.”
“It is however a two way street. The next billion users will access the Internet from a mobile device, not a PC. Being connected to the Internet while on the move is changing the way we communicate. Our mobile solutions will be aware of our social networks and location, and help us connect to people, placed and information that are uniquely available to us.”
— Accelerating The Change Within Nokia: “Accelarating the change of pace towards a solutions mode of operations. Historically, our mode of operation has been based on our brand, scale and distribution advantages. On volumes and efficiency. This products focused mode remains appropriate for a significant portion of our business, and we intend to continue. However, consumers will expect devices and services designed as integrated solutions that deliver seamless and intuitive user experiences.”
“We are developing a solution for a mode of operations that is optimised for speed, flexibility and innovation. This transformation started in 2008, when we created the devices and services business. In our solutions mode, we start with a consumer experience and user interface first, and then integrate R&D processes for devices and services. Our sales and marketing approach is now about focusing on consumer, from previously being focused on channel incentives and advertising.”
— A Competitive Differentiator: “A big competitive differentiator: we have a strong and fast growing community of partners, including developers, operators, content companies and other industry players, with strategic and financial objectives closely allied. The symbian foundation is a cornerstone of this ecosystem. You will hear from them today about an innovative application partnership program. For Nokia, combining Symbian and huge bouquet allows developers to build innovative applications that leverage the capabilities of our Ovi services platform.”
“Equally important to it is that we are sharing the newly created value with developers and operators. Working together we will accelerate the adoption of innovative solutions much more than companies that work alone.”
— Sustainable Ecosystem: “Inherent in our solutions mode is our committment to build direct and continuous consumer relationships. This is important because greater consumer understanding will enable future innovations, including the delivery of new and more relevant content. Our solutions will learn from consumers and adapt to their needs. Consumers will always be in control, able to modify, engage or stop these features at will.”
— Measuring Performance: Finally, how will we ensure that we stay on track? We will measure and link employee incentives to clear targets like Active Users. We are setting six month targets that will take us to 300 million active Nokia users by the end of 2011. This call reflects the first step towards a success as a leading mobile solutions company.”
“It measures our success in acquiring, retaining and deepening consumer relationships, which is the new battleground in this evolving industry. At the beginning of Q3, we have approximately, 46 million active users. At the end of 2009, our goal is to have 80 million active users.”
EVP and CFO Rick Simonson added that the Active Users metric will include both users of Nokia services and third party services; both free and paid. And asserted that it is changing the way the organization works – “We’re seeing different behavior day by day in the organization. You do get what you measure. We’ve got it down to one the target which most captures that change – Active Users.”
Why The Focus On Services?
Later in the call, responding to a question on the services focus, Simonson elaborated on the reasons behind the services focus: “It’s not the same margin profile (for products and services). To be clear, we expect it (services margins) to be better and higher. We want our fair share – a fairly large share.”
“If this the solutions market will ramp up the way we believe, if that continues to take place, we have a possibilty to enter and be in a business where the margin dynamics are not the as same in the products business. How the two – products and solutions – will play out, depends on how successful we are (at changing).”