Nokia set up an intranet soapbox last spring known as Blog-Hub, opening it to employee bloggers around the world. Posting under aliases such as the Hulk and the Needle, the workers can be savage as they flame their employer for everything from its purchasing practices to the speed of mobile-phone software. Rather than shutting them down, Nokia managers want them to fire away. No charismatic leader, genius algorithm, or cultural quirk explains Nokia's dominance in mobile phones. Instead, company insiders credit its growth to a history of encouraging employees to say whatever's on their minds, with faith that smarter ideas will result. "I don't think you can mandate innovation," says Mary T. McDowell, a Nokia executive vice-president who is responsible for corporate strategy, including research and development. "Our role is to keep the skids greased."
Especially now. While the Espoo (Finland)-based company controls 38% of the global handset market—twice the share of No. 2 Samsung—it has lost an even bigger lead in high-end smartphones. Nokia launched the world's first smartphone with its Nseries in 2005, two years ahead of Apple's (AAPL) iPhone. Despite the head start, in the first quarter Nokia's smartphone share dropped to 37% from 41% a year earlier, as Apple and BlackBerry maker Research in Motion (RIMM) won over customers with easier-to-use devices.
Earnings for the quarter are down, too, plunging 96%, to $121 million, as customers around the world put phone purchases on hold. Revenue dropped 27%, to $12.6 billion, forcing job cuts at a company that for years did nothing but hire. Nokia closed an R&D center in Finland this year and is shedding more than 2,000 employees worldwide.
39,000 R&D WORKERS
But the company is fully maintaining its network of laboratories elsewhere, including in Helsinki, Beijing, and Palo Alto, Calif., and continuing to boost overall R&D spending, which hit 16.2% of sales in the first quarter of 2009. "Any intelligent company in high technology knows there is absolutely no way that research investment can fluctuate like other business investments," says Henry Tirri, head of Nokia Research Center. "Research is long-term."
The company hiked R&D spending by 35% from 2006 to 2008, to $7.6 billion, or 12% of its $50.7 billion in annual revenue. Almost one in three employees, or 39,000, works in research. Nokia sets challenges for them, such as inventing a service that's based on a customer's physical location or a handset shell that can't get grimy. Contest winners could receive bonuses every six months.
To regain lost ground, Nokia is hustling out new products. Its touchscreen 5800 XpressMusic handset has sold 3 million units since the device was launched last November. In June the company will begin selling its top-of-the-line N97 featuring a touchscreen as well as a slide-out miniature keyboard for writing e-mail. And Nokia is pushing ahead in emerging markets such as China and India where its North American competitors are bit players.
The company is also running with a suggestion that came from a company-sponsored social networking site dubbed Sphere, where workers are invited to offer up product ideas or post critiques. In October a sales rep in China logged on to ask why the styluses sold with touchscreen handsets are always gray. Why not offer customers a palette? Later this year Nokia will begin shipping phones with spare styluses in different colors.
Listening to people grumble can be tiresome, of course, but Nokia proves it's important to always keep an open ear: You never know what you might learn. Return to the IN: Inside Innovation Table of Contents