The Upside of Turbulence: How Innovation Saved Nokia

Don Sull teaches "International and Strategic Management" at the London Business School. His new book is The Upside of Turbulence: Seizing Opportunities in an Uncertain World. In the first part of our discussion last week, we discussed what "turbulence" is and how some firms have taken advantage of it to become industry leaders. This week, we'll hear about how Nokia and others have survived turbulent times through a willingness to reconsider even their core business.

BNET: You've mentioned "active inertia" [the tendency for companies to intensify the activities that worked well for them in the past] as something that has led to great problems in the face of turbulence and different types of competitive threats. Could you give us an example?

Sull: People say IBM didn't respond to changes in the computer marketplace -- with the PC in particular. That's just demonstrably not true. IBM had, very early on, two teams with very high level support building personal computers. They quickly gained volume leadership in the PC segment. The problem was not that they "didn't do anything." The problem was that in the decade preceding the PC, they had committed themselves to a view of IBM as a mainframe company. So, the PC was viewed through this blinder. Over time, this frame of reference shaped all of their decisions and responses. "Why did they give away their operating system?" Well, it didn't work on a mainframe. "Why did they give away the microprocessor?" Well, it didn't work on a mainframe. "Why did it take IBM so long to recognize the potential of the services business?" Well, mainframes don't break down that often or need so much service. So, they were locked into a certain way of working even when the environment changed.

BNET: What are some companies who have saved themselves during times of turbulence and even learned to grab new opportunities?

Sull: The good news is there are a lot of examples. Nokia was for decades a successful Finnish conglomerate. The Berlin Wall falls in 1989 and sets off the worst recession in Finnish history. Nokia was in a lot of trouble. Ericsson offered to buy them and they turned it down. The chairman of Nokia killed himself. It was just a complete disaster. A new leadership team came in, Jorma Ollila and some other young Finns, and they recognized that they needed to make dramatic changes.

Although they had been a diversified conglomerate, they revisited their portfolio and asked in the early 90s "what are the things we can really make a go of?" They had a relatively small mobile phone business representing about 10 percent of revenues and decided that this was the business they could make money on. It illustrates a couple of points about operating and prospering in volatile markets. First, you have to be willing to revisit your historical "commitments." You can't get trapped in the mode of "we are a conglomerate" or "we make toilet paper and rubber boots," which they did back then. You have to be willing to change almost anything. The second thing is that there is a portfolio component of adapting to change and turbulence. Sure, it is about getting into stuff -- innovation new product development and so forth -- and a lot of people talk about that. But it also means getting out of stuff, and they were quite disciplined about that, too. This pruning gave the mobile telephony business a lot of agility and the ability to seize opportunities.

BNET: What are some of the companies we are looking at today who are taking advantage of turbulence to make a mark for themselves? Who are the companies you might write about in a sequel to this book ten years from now?

Sull: I don't want to dodge this question, but it's a hard question to answer. The kinds of changes companies make to do well in volatile markets typically are changes in organization, leadership, compensation, kind of "organizational hydraulics" that you can't observe from newspaper reports. This is a pattern we see playing out over and over again. It's a long gestation period where they are under the radar and then they kind of burst onto the scene. That said, I think there are some companies who, because they had that gestation period earlier, are well positioned for a volatile market. If you look at banking for instance, Santander has positioned itself quite well. They did well with the ABN-Amro deal, and they've done very well in Latin America. I think Royal Bank of Canada is an interesting case because they were very conservative in their core domestic market when everyone else was going crazy. As the debris is clearing they are still standing strong.

Next week, we'll talk about the lessons from his book that managers at many levels in organizations can put into daily practice.