Posted by Juho Hyvärinen
I had an honor of participating in Doctoral Dissertation of Anna Salonen in wonderful settings of Runeberginkatu 22-24. The title of dissertation was “Essays on globalization and evolving competitive strategies of Finnish MNEs: Transitioning from products to services and solutions”. As opponents were Professor, PhD Kazuhiro Asakawa from Keio University and Professor, PhD Peter W. Liesch from University of Queensland. Professor Elizabeth L. Rose acted as custos.
This study focuses on four different Finnish companies in different industries. These are Wärtsilä, Kone, Perlos and Nokia. These companies operate in four distinctive markets with very little or any overlapping. All of them have unique challenges and problems which must be faced and overcome in order to survive and thrive in global market place.Study follows phenomenological research tradition which strives to discuss the issues at hand from the perspective of those experiencing them first hand. It is a qualitative research method with main research method being in-depth interviews which can be complemented with the help of documentary analysis and participant observation. The case study companies where chosen through purposeful sampling where doctoral candidate chose companies based on their information rich nature and ability to help better understand the research question.
Case study organizationsNokia faced with increasingly mature handset market has concentrated production in low cost countries and paid attention to lower costs in value chain as well as manufacturing. Furthermore as any other mobile handset manufacturer Nokia is focusing on digital convergence in order to maintain sufficient profit levels.
Kone is a Finnish manufacturer of elevators, automatic doors and escalators. Until 90’s Kone didn’t pay much attention to value chain efficiency. However it finally dawned to the company that only way to prosper in the market place in a long run is to rationalize value chain and costs. As a result it has divested in several European countries. Competitive advantage was based as of recently in technological innovation (for example elevator without a need for separate engine room). Now Kone is also moving on into solutions and services. Its focus is on managing people flows and access solutions.
Wärtsilä is Finnish company concentrated on providing customers with power solutions for marine and energy markets. It was established in 19th Century and was first of Finnish conglomerates concentrating on such diverse fields as porcelain, locks and diesel engines. Currently power solutions form the core of the company. In ship building industry there was a seismic shift in global ship building market when most of the building industry moved into Far East. This compelled Wärtsilä to start global restructuring program in 90’s which lead to major savings in their manufacturing side. Wärtsilä also reinvented itself as a provider of lifecycle power solutions and started an acquisition program designed to give it ability to better control this side of their business.
Perlos is or actually was a manufacturer of plastic components until it was acquired by Taiwanese sub contractor Lite On. Perlos became successful as one of the key sub contractors of Nokia in nineties and early 2000. Perlos established first international production plant during 80’s into UK. Large scale internalization only started during 90’s. Perlos started experiencing problems mainly because of their relationship with Nokia had become too big part of company’s existence. This coupled with maturation of industry and resulting cost pressures coupled with emergence of new kind of OMD manufacturers lead to Perlos being acquisitioned by Taiwanese competitor.
This thesis discusses how changing dynamics in global market place have forced companies to find alternative solutions in order to maintain and even strengthen their market share. Traditionally speaking Finnish MNEs have based their success on product differentiation and technological advances born out of strong research and development. Globalization has created pressure to maintain low costs which is important part of maintaining healthy business model. How companies have succeeded in this has varied a great deal.
Four companies in this study can be put in three classes. In first one are Kone and Wärtsilä which have fared the globalization storm pretty well and are optimistic about their future. In second class there is Nokia, which faces uncertain future due to several different reasons. In last class there is Perlos, whose story as an independent company has already ended. Reasons for different levels of success are complex and were discussed in examination.
One of the main reasons for success for Kone and Wärtsilä is the nature of industry where they are operating. There is a constant change ongoing but the speed of it is nowhere near as quick or disruptive than say in high tech industry where Nokia is operating. Marketing theory describes multinational company as one that carries the competitive advantage developed in home market to different markets enabling it to overcome the challenge of foreignness. This can be regarded as being true but is not alone enough anymore. In current global competitive environment organization must also in addition to maintaining existing competitive advantages continuously be on the lookout for new ones. This all has to be done within existing constraints of organizational capabilities. It was not specifically mentioned but Salonen refers to “learning organization” here. The most important point of learning organization is that only true competitive advantage can be obtained by maintaining highly skilled workforce capable of adapting to new situations quickly.
Kone and Wärtsilä both have been able to create new competitive advantages to complement or even surpass the existing ones. It has been evolution rather than revolution. Both have purposefully built service organizations to take care of their large base of products resulting in these divisions becoming most profitable in both companies. They have also moved away from single minded engineering perspective to customer focus. In Kone’s case this means concentrating on such priorities as speeding up construction processes and improving people flows, both which are important for builders and building owners. Wärtsilä’s integrated solutions on the other hand help customers in terms of ecological friendliness, equipment lifecycle and fuel efficiency.
Nokia unfortunately has not found this so easy to achieve. There are several reasons for this. Maybe the most important is that the change in market place has been extremely rapid and has lead to commoditization of Nokia’s core product in less than ten years. This has driven Nokia as well as other hand set manufacturers to look other sources of competitive advantage and lead companies trying to reach so-called digital convergence. Content creation and user experience can be regarded as central to digital convergence. This is something that is difficult to achieve for company of Nokia’s background and resources. There is no direct link with capabilities developed over decades and requirements of 21st century. It represents discontinuous evolution. As can be seen from Finnish newspapers almost on a weekly basis cannot be regarded as success at least not yet.
Perlos was also victim of same dynamic and rapid change that has faced field of mobile communications over last decade. It failed to adapt to a changing market place, leaving it too late to start thinking about cost leadership by maintaining production plants in high cost countries. It also didn’t start to evolve the operations in order to better face the challenge of OMD’s capable of taking care of the whole manufacturing of mobile phones by means of vertical integration. This lead to company being acquired by competitor in 2007.
If doctoral dissertation of Anna Salonen is looked from the perspective of Laurea SID degree program it can be argued that there are many similarities between dissertation and some central tenets of Dissertation and central tenets of Service Innovation and Design program. This study promotes the transition of Finnish MNEs from focusing on engineering perspective and R & D to begin offering customers services and solutions. Study recognizes that this is easier said than done due to several different factors. Most important of these factors are company-level resources and possibilities for controlled evolution from products to more service-oriented business model and the external market place and its pace of change.
Wärtsilä and Kone have prospered because operating environment has given them ample opportunities to evolve and develop new competitive advantages to supplement and replace the existing ones that better can answer to the challenges of modern global market. Nokia is currently in the middle of major reconfiguration of their whole operating model brought by the rapid change during last ten years. At the moment it is unclear what the end result will be. Perlos failed to see signs early and as a result no longer exist as independent entity.
The central message of the examination and dissertation is that by understanding the importance of strategic change and driving it coupled with internal restrictions based on existing resources is a must to companies willing to survive and prospect in global market place. Study supports the notion that this should be possible in some sense for all the companies, although the degree of difficulty to achieve this mode differs greatly. Strategic change should be concentrated to moving business more in the direction of solutions and services which are designed around end user processes. Study recognizes that this might be very difficult depending on external situation but something that should be tried to done nevertheless.
Study is connected in many respects to SID framework. Most important of which is Salonen’s recognition of end user processes and supplier integration to them as a key for value creation for companies operating in international environment. This is achieved by offering customers solutions and building competitive advantage around these solutions based on constantly evolving organizational resources and capabilities rather than traditional engineering perspective and R & D.