Google & Apple effect: Nokia changes, adopts external R&D

MUMBAI: In a major strategy change, handset major Nokia is re-engineering its research and development (R&D) model world-wide to tackle growing competition from unconventional sources of competition like Apple���s iphone and Google���s mobile phone platform Android.

Taking a cue from companies like P&G, Nokia which till now largely carried out in-house innovation and R&D, is looking at external collaborations for product innovation. Nearly 50% of its new innovations are expected to come from external sources, a fact which is expected to help the company cut R&D costs significantly. It is expected to spare higher resources for product design and marketing, reduce time-to-market and improve return on investment (ROI), sources said.

The Finnish giant���s move, which will be implemented throughout the company, is based on findings that breakthrough innovation sometimes originates from external sources. The company has also initiated a company-wide cultural change program, called `Living it working��� to directly involve and expose employees to consumers

The major change in the way Nokia will now look at R&D has been caused by a slew of reasons. Not only are consumer preferences changing faster than ever, competition is emerging from hitherto unknown quarters. Computermaker Apple has swept the world with its iPhone, which now poses a huge challenge for Nokia. Google, which started as a search engine, has now launched a mobile phone platform called Android and the first handsets from this initiative are expected in the second half of this year.



Analysts say several innovative consumer companies are adopting the concept of open innovation since it ensures that a huge reduction in R&D expenditure and enables the resource to be redeployed behind their billion dollar brands ���While the emphasis on internal R&D will continue as before, nearly 50% of Nokia���s new innovation is expected to come from external sources. Besides getting the best innovation into the Nokia system, it will also leave enough time for the company to focus on design and marketing,��� sources told ET.

Nokia has R&D centres in 10 countries and employs 30,415 people in research and development, representing nearly 27% of its total workforce. It spent 5.6 billion euros ($8.7 billion) on R&D in 2007.

Amid all this, Nokia wants to be sure that it does not miss out on any technology innovation. Its new strategy is to get the best product to the market in the shortest possible time, whether it is developed internally or externally. A major cost component for handset vendors is R&D, an area in which they have to pump in money for maintaining a steady stream of innovative products.

Nokia���s top brass is of the view that insight is getting diluted during the product development cycle. There also remains the daunting task of recovering investments in innovations or new launches in the first three months against six to nine months earlier. All this has brought Nokia under pressure to look at every possible source of innovation even as it remains the global leader in the handset market.

Nokia sold 115.2 million mobile phones in January-March 2008, with a market share of 39.1%. It has been able to maintain market leadership due to the richness of its portfolio, which appeals to users in both emerging and mature markets.