Nokia’S Strategic Change By Means Of Alliance Networks

Nokia’s strategic change by means of alliance networks. A case of adopting the open innovation paradigm?

Koen Dittrich RSM Erasmus University kdittrich@rsm.nl

Abstract In this paper, it is shown in which way Nokia used innovation networks to deal with a changing technological environment, namely the development of mobile telephony. Nokia used mainly international innovation networks inbecoming a world leader in the mobile phone industry. This study is mainly theory-oriented in that it seeks to test and where possible refine theories on R&D collaboration strategies of large firms. The theoretical framework builds on the seminal work of March (1991) who distinguished exploration and exploitation for strategic change of large firms. The findings of this study can also help managersof other companies in the ICT industry to refine the collaboration strategies of their companies. The research methodology is both quantitative (alliance database analysis) and qualitative (semi-structured interviews). The most interesting result of this case study is that Nokia has been collaborating much more through joint R&D, outsourcing and standardization consortia, but has at the samemanaged to develop and maintain a strong brand name and corporate identity. Nokia effectively uses an open innovation strategy (Chesbrough 2003) in the development of new products and services and in setting technology standards for current and future use of mobile communication applications. Keywords: exploration/exploitation, innovation networks, R&D alliances, open innovation

IntroductionStrategic change is often considered as a necessity for companies to survive in a turbulent environment (Hamel and Prahalad 1994). Intense international competition and rapid technological change are often mentioned as primary motives for companies to adapt their corporate strategy (Christensen 1998; Eisenhardt and Tabrizi 1995; Sadowski et al. 2003). One way of facilitating strategic change is toengage in alliances for the exploration of new capabilities and the exploitation of the existing knowledge base of the corporation (March 1991). Alliances are a means of learning from alliance partners (Kale et al. 2000; Khanna et al. 1998). The process of learning boils down to the exchange of technological knowledge or capabilities. Technological capabilities are the accumulated technical skillsand know-how in an organization. In order to come up with a more refined view on learning, I will make use of March’s (1991) seminal distinction between exploitative and explorative learning. Exploitation is generally associated with the refinement and extension of existing technologies. Exploration on the other hand deals with experimentation with new alternatives and the exploration of a new(technological) field. In this paper, I argue that there are important differences between both types of learning (March, 1991; Chesbrough, 2003), which significantly affect the way in which companies make use of their external technology networks. For firms, one way of dealing with the pressure of highly competitive environments and short-life cycle of especially high-tech products is tocollaborate with other firms for the development and manufacturing of new products. By doing so, risk and rewards are spread among two or more companies. Essential for the innovation process is sharing ideas, among often ‘rivalry’ business firms, on the development of new products. This type of collaboration is in contrast to what was common practice in the early days of the large business firm. I willrefer to these collaborate innovation processes as “innovation networks”, since business firms seem to have constructed a network of firms around them with which they develop a wide variety of new products over longer periods of time.

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Innovation networks are particularly important in industries where technology changes rapidly and product life cycles are short. This research focuses on...