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Global Success and the Role of Strategic Steering and Management Accounting Systems
1. INTRODUCTION
Research approach
The objective of the present study is to evaluate corporate global success and some of its
determinants as a single case study of Nokia Group. The rationale for the research
approach of a single case is that Nokia represents an extreme and unique case of reaching
global success in telecommunications industry (see Yin 1994: 39). Global success in the
scale like Nokia occurs so rarely that we have been unable to establish any common
patterns for success. Thus, any single case is worth documenting and analyzing. For global
success cases see for example Benjamin (1993) for Honda, Shibata (1993) for Sony, and
Pulkkinen (1997) for Nokia (see also Zhan 1998). In general terms global success is a
determinant of large number of factors, such as environment, management, products,
strategy system, and information systems. In this study we shall concentrate mainly on
three such factors: environment, strategy system and management accounting systems. The
case description and analysis is based on several sources, for example papers, articles,
researches and books published of Nokia in English and in Finnish, Nokias internet pages,
and presentations of Nokias strategic managers. No direct interviews of Nokias
management are used at the present stage of research.
We have organized the paper in nine smaller sections. First, the introduction describes the
research approach and the background of Nokias strategy. The second section introduces
Nokias business organization while the third section gives background figures about its
financial success. We mainly define success in terms of growth and profitability but pay
attention also to finance. Especially, we are interested to see how MASs in Nokia have
succeeded to balance growth and profitability to control finance. The fourth section deals
with business environment describing the strategic challenges that Nokia is facing. Fifthly,
we evaluate corporate strategy to introduce a framework for assessment. The sixth section
describes Nokias current strategic management and control system in this framework while
the seventh section shortly concentrates on Nokias way to build its strategy. Thus this
section tries to assess the importance of the strategy system to success. The characteristics
of MASs implemented in Nokia are critically discussed in the eighth section to show their
role in success. Finally, the last section makes a summary and an evaluation of the case.
Background of the case
Nokias history dates back to 1865 when the Finnish mining engineer Fredrik Idestam
established a wood-pulp mill in Southern Finland and started manufacturing paper. Since
those early days, the company has evolved first into a conglomerate encompassing several
industries ranging from paper to chemicals and rubber products and in the 1990s with a
clearly defined strategy into a dynamic, global telecommunications company. The
groundwork for telecommunications was already laid in the 1960s, as Nokia was
researching the field of radio transmission in its electronics department. In the late 1970s,
mobile phones and telecommunications infrastructure products were developed for both
domestic and international customers. In the 1980s and 1990s, Nokia became a global
leader in digital communication technologies.
From the very beginning, Nokia has faced competition from established international
competitors in the open domestic telecommunications markets. Among other factors, the
ability to exploit the opportunities created by continuous technological and market change
has helped Nokia develop into the company it is today. Rumelt et al (1995: 567-568)
present two competing approaches as regards to the role of corporate level in multibusiness
firms. Corporate-level strategic management can give:
1. Emphasis on value creation or
2. Emphasis on loss prevention.
According to the first viewpoint, the headquarters unit formulates the overall strategy for
the corporation, including its degree of diversification and organizational form. Also, it
manages the process of resource allocation among constituent businesses. It maintains the
existence of key shared resources and manages the processes by which business units share
these resources. We can call this approach entrepreneurial.
The other approach, the loss prevention-school of thought sees management as reviewing
strategies of business units, apparently to make sure that egregious logical errors are not
made. The headquarters monitors the operations of subunits, providing surer supervision
than independent board of directors. HQ can also extract free cash flow at a lower cost
than can unaided capital markets. We can call this approach administrative. Our window to
the Nokia case will use the entrepreneurial, value creating approach. By making this
choice we have already made an important decision on the role of the headquarters unit in
a multibusiness firm.
We are assuming that value creation in a global, fast moving business environment is more
important than careful administrative control of activities. Clearly both are needed, but the
first has to dominate over the second. Why? The answer sounds almost trivial. Timing is
the key. Hokkanen and Kivikko (1996: 18-19) have noted in their article about Nokia
Mobile Phones that in the new global competition every player tries to achieve
technologically dominant designs, de facto standards. The key factor to success is speed.
This further accelerates the overall speed of competition and growth.
For firms the situation of new growth seems very complex and impossible to forecast. The
interrelated network of technology, customers, and competitors has too many unknown
factors to be managed in an efficient way. On the other hand, this "chaos" contains the
elements for success, which can be reached by building such capabilities that survival in
change requires. Many times this means the capability to manage paradoxes: highly
organized behavior in a highly flexible manner. So, the entrepreneurial and administrative
approaches are both needed as parts of the recipe. The question is how much of each to use
in a particular situation. Although the basic elements of the recipe are the same, the
application differs depending on the business environment, industry, and the organization
and resources of the firm.
Based on their analysis on Nokia Mobile Phones, Hokkanen and Kivikko (1996) have
created an approach of steps needed in managing high growth:
1. The challenge to create the framework of growth
2. The challenge to integrate new personnel
3. The challenge to be humble in success
Hokkanen and Kivikko (1996: 32-34) argue that a high growth firm has to be able for
effective implementation simultaneously questioning its doings. This requirement is built
in all core processes. For example all product development processes have to be
understood also as learning processes, where new information is identified in a systematic
way and used in future projects.
In strategic control and business development firms have to make assumptions about the
business environment continuously. At the same time, firms have to test the validity of
these assumptions and sense signal of alternative possibilities. The key is to understand
fundamental changes and crucial turning points. In strategy formulation, firms built
scenarios around these turning points. The result of this work should be understand timing,
the right moment to take action. Even as early as 1987 it was said inside Nokia that we
must prepared for time when mobile phones will be sold like candies. History has proved
this strategy to be highly successful. Silberman (1999) in one of the most influential
journals of the digital economy The WIRED journal, can write "Nokia designs look like
mobile phones to us."
Pulkkinen (1997) has analyzed the role of design in the breakthrough of Nokia Mobile
Phones. He argues that even in a peripheral geographical position and with limited
resources a firm can rise to industry leadership by utilizing specific institutional traits in
home markets. Pulkkinens study supports the view that firm breakthroughs stem from
managements ability to exploit these contextual traits in the competitive environment and
turn tem into internal capabilities of the firm. According to Pulkkinen (1997) a new
Nokia-case would require at least three coincidental preconditions, that is:
1. A solid technological infrastructure (e.g. standards to facilitate the firm/ industry
growth)
2. Sophisticated demand
3. An incremental growth pattern (to avoid need for complementary assets)
The above historical example presents a typical case where a firm tries to adapt to the
business environment created by other players. The industry leaders have a different
challenge. They must create the future. After several years of success, Nokia has also
entered the small club of industry leaders with the mission to create the future.
Global success may however be impossible without information systems that support
management in strategic decision making. The role of management accounting systems
(MASs) in the global success of Nokia may have not been decisive. We want however to
stress that the efficiency of these systems is a necessary condition for success. This
efficiency is by no means the sufficient reason for success but, without it, it is almost
certainly impossible to reach a global growth and financial success. We emphasize that
performance measurent is one of the core areas of MASs. This are is closely tied within the
strategy systems as stated by Ittner and Larcker (1998: 205): "Performance measurement
systems play a key role in developing strategic plans, evaluating the achievement of
organizational objectives, and compensating managers." However, many managers feel
that traditional MASs are inefficient in modern fast-growing technology-based companies
like Nokia, and do not properly fulfill these functions (see for example Johnson and
