Battle Of The Nordic Giants

It’s a good thing it didn’t–for Nokia, at least. The fortunes of the two companies have now been reversed. Under Jorma Ollila, who took over as CEO in 1992, Nokia not only turned itself around but smoked the competition. It first swept aside the United States’ Motorola–the market leader at the beginning of the 1990s–then Ericsson of Sweden, then other competitors, ending up with more than 38 percent of the market this year. It has made no difference that Ericsson had been around since 1876 and was building phone systems in tropical jungles and along mountainsides when the Finnish company in the early 20th century was still making rubber boots and toilet paper along the Nokia River. Nokia’s secret is in its consumer savviness. It has grown to be the world’s No. 1 mobile-phone supplier and was, at one dizzy point during the ’90s, the most highly valued company in Europe.

Ericsson, on the other hand, stumbled through the ’90s. It continues to be the world’s largest supplier of telecommunications infrastructure, but it sometimes seemed lost in the ever-shifting cell-phone market. In just three years, starting in 1998, its market share in cell phones shrank from 18 percent to 5 percent at a time when the business was experiencing phenomenal growth. Today its market share in cell phones–now sold under the name Sony Ericsson–has fallen behind both the hard-charging Samsung of South Korea as well as Siemens of Germany. (Samsung’s share was the fastest growing last quarter.) And the current global telecom slump isn’t helping Ericsson. Its shares began in September at 10-year lows.

What happened? From afar, Nokia and Ericsson don’t look so different: two companies separated by a slender strand of the Baltic Sea. But, in fact, they are hugely different. Though consumers know them by their branded phones, Nokia and Ericsson focus on different ends of the same business: Ericsson on systems (90 percent) and Nokia on the phones (78 percent). Ericsson grew up selling to governments and big, old-style phone companies; Nokia understood retail.

Moreover, while they may be global companies with tens of thousands of employees, Nokia is distinctively Finnish, and Ericsson Swedish. Each is the biggest company in its home country: Nokia had sales of $28 billion last year, and Ericsson $22 billion. Nokia, the product of a country toughened over the centuries by war on its borders, is aggressive, quick and flexible. Ericsson is more consensus-driven, more egalitarian and slower. “These are two companies people tend to lump together,” says Dan Steinbock of the Institute for Mobile Market Research in Atlanta. “But it’s like Swedish meatballs and Finnish potatoes: they taste very different.”

Nokia would probably not be the force it is today if it had not gone through what company biographer Martti Haikio calls the annus horribilis of 1988. Kairamo had transformed a pulp- and rubber-products company into an electronics firm. He did so with such speed and conviction that he came to be known as the “turbo executive.” His suicide–he was suffering from depression–stunned the company. Nokia didn’t get fully back on its feet until Ollila, a former banker, took charge. He assembled an executive team of like-minded Finns, many of whom had attended the same schools, and drove everybody without apology.

The company ethos at Ericsson was, and is, different. Ericsson has been about technology and engineering since Lars Magnus Ericsson began repairing telegraph equipment in 1876. Ericsson strung telephone systems around the world the way Britain constructed railroads. It sold entire systems to big customers. “It’s like we had 76 customers,” says one executive, “and they were all countries.” Business came relatively easily to Ericsson, like many Swedish companies. Physically untouched by World War II, Swedish industries didn’t even need marketing departments afterward; business just flowed in. But when the wireless revolution came along, Ericsson was weighted down by its history. A former senior executive remembers what it was like: “To these guys, mobile phones were the cat that came in with garbage.”

Suddenly, the cats were everywhere. Between 1991 and 2000 the number of mobile phones in use worldwide went from 6.2 million to 402 million. As Ericsson’s market share contracted, Nokia’s expanded. It was not always smooth going for the Finns, but when things did get rough, the Nokians quickly rebounded. They approached each setback with sisu–a Finnish fighting spirit legendarily honed over centuries of sporadic warfare with Russia. So when there weren’t enough phones to meet demand in the mid-’90s, Nokia lost market share and was forced to speed up supply lines and keep better track of inventory. By 1998 Nokia was back on track.

Nokia’s comeback has been particularly dispiriting for Ericsson. For a brief moment during Nokia’s decline, the rivals were neck and neck in terms of market share. Then, in less than four years, Ericsson’s share plunged (from 18 percent to 5 percent) and Nokia’s soared (18 to 35). After that wild ride, both Nokia and Ericsson are struggling to restructure during the current telecom slowdown. Some industry analysts believe Nokia’s market share has peaked; they especially doubt the company can hold on to its 50 percent market share in Europe. Hoping to outflank competition from low-cost Asian phone makers, Nokia this year split its mobile-phone unit into nine profit-and-loss centers as a way of more sharply targeting different markets. It has also trimmed its payroll of 60,000 by more than 12 percent.

Ericsson has had to take even more drastic measures. It’s raising emergency cash, looking for business units to unload and slashing its global payroll from 107,000 to 60,000–with some analysts baying for additional cuts of 10,000 or more. For several years Ericsson has been trying to engineer another change that may be even more difficult to pull off–nothing less than a “culture shift,” as COO Per-Arne Sandstrom says. CEO Kurt Hellstrom, 59, and his senior managers want to re-create companywide the “pizza climate” of the late-working, Jolt Cola-downing techies on the R&D side of Ericsson. The hope is to decentralize and speed up the company’s decision-making. “We were always on the cutting edge of technology,” says Sandstrom.

So far the results seem mixed. If nothing else, Ericsson’s poor performance has profoundly shaken the upper echelons of the company. But some critics complain that the company has yet to get beyond the bureaucratic inertia of the past. The executive hierarchy is “like the Politburo in the Soviet Union,” says Bryan Prohm, an analyst at Gartner Dataquest who used to work for Ericsson. A year ago the company spun off its mobile-phone business into a joint venture with Sony. Industry watchers applauded the move, but said it should have happened sooner.

With all the talk of “culture shift,” there will undoubtedly be more change. It would be churlish to say Ericsson is trying to turn Swedes into Finns. But the qualities Ericsson is looking for are not unlike those that helped turn Nokia into the telecom juggernaut it’s been since the early ’90s. In some ways, 2002 is 1991 all over again–with the roles reversed. This time Nokia’s up and Ericsson’s down. While they’re scarfing down their pizzas and trying to get back some of that old magic feeling–maybe even a little imported sisu–Ericsson workers can take heart: Nokia’s been there, and come back.

title: “Battle Of The Nordic Giants” ShowToc: true date: “2022-12-24” author: “Daniel George”

It’s a good thing it didn’t–for Nokia at least. The fortunes of the two companies have been reversed. Under Jorma Ollila, who took over as CEO in 1992, Nokia not only turned itself around but smoked the competition. It first swept aside the United States’ Motorola–the market leader at the beginning of the 1990s–then Ericsson of Sweden, then other competitors, ending up with more than 38 percent of the market this year. It made no difference that Ericsson had been around since 1876 and was building phone systems in tropical jungles and along mountainsides when the Finnish company in the early 20th century was still making rubber boots and toilet paper along the Nokia River. Nokia’s secret was in being consumer-savvy. It grew to be the world’s No. 1 mobile-phone supplier and was, at one dizzy point during the ’90s, the most highly valued company in Europe.

Ericsson, on the other hand, stumbled through the ’90s. It continues to be the world’s largest supplier of telecommunications infrastructure, but it sometimes seemed lost in the ever-shifting cell-phone market. In just three years, starting in 1998, its market share in cell phones shrank from 18 percent to 5 percent at a time when the business was experiencing phenomenal growth. Today its market share in cell phones–now sold under the name Sony Ericsson–has fallen behind both the hard-charging Samsung of South Korea as well as Siemens of Germany. (Samsung’s share was the fastest-growing last quarter.) And the current global telecom slump isn’t helping Ericsson. Its shares began last month at 10-year lows.

What happened? From afar, Nokia and Ericsson don’t look so different: two companies separated by a slender strand of the Baltic Sea. But in fact, they are hugely different. Though consumers know them by their branded phones, Nokia and Ericsson actually focus on different ends of the same business: Ericsson on systems (90 percent) and Nokia on the phones (78 percent). Ericsson grew up selling to governments and big, old-style phone companies; Nokia understood retail.

Moreover, while they may be global companies with tens of thousands of employees, Nokia is distinctively Finnish and Ericsson, Swedish. Each is the biggest company in its home country: Nokia had sales of $28 billion last year, and Ericsson $22 billion. Nokia, the product of a country toughened over the centuries by war on its borders, is aggressive, quick and flexible. Ericsson is more consensus-driven, more egalitarian and slower. “These are two companies people tend to lump together,” says Dan Steinbock of the Institute for Mobile Market Research in Atlanta. “But it’s like Swedish meatballs and Finnish potatoes: they taste very different.”

The company ethos at Ericsson was, and is, different. Ericsson has been about technology and engineering since Lars Magnus Ericsson began repairing telegraph equipment in 1876. Ericsson strung telephone systems around the world in the way Britain constructed railroads. It sold entire systems to big customers. “It’s like we had 76 customers,” says one executive, “and they were all countries.” Business came relatively easily to Ericsson, like many Swedish companies. Physically untouched by World War II, Swedish industries didn’t even need marketing departments afterward; business just flowed in. But when the wireless revolution came along, Ericsson was weighted down by its history. A former senior executive remembers what it was like: “To these guys, mobile phones were the cat that came in with garbage.”

Suddenly, the cats were everywhere. Between 1991 and 2000 the number of mobile phones in use worldwide went from 6.2 million to 402 million. As Ericsson’s market share contracted, Nokia’s expanded. It was not always smooth-going for the Finns, but when things did get rough, the Nokians quickly rebounded. They approached each setback with sisu–a Finnish fighting spirit legendarily honed over centuries of sporadic warfare with Russia. So, when there weren’t enough phones to meet demand in the mid-’90s, Nokia lost market share and was forced to speed up supply lines and keep better track of inventory. By 1998 Nokia was back on track.

Nokia’s comeback was particularly dispiriting for Ericsson. For a brief moment during Nokia’s decline, the rivals were neck and neck in terms of market share. Then, in less than four years, Ericsson’s share plunged (from 18 percent to 5 percent) and Nokia’s soared (18 to 35). After that wild ride, both Nokia and Ericsson are struggling to restructure during the current telecom slowdown. Some industry analysts believe Nokia’s market share has peaked; they especially doubt the company can hold on to its 50 percent market share in Europe. Hoping to outflank competition from low-cost Asian phone makers, Nokia this year split its mobile-phone unit into nine profit-and-loss centers as a way of more sharply targeting different markets. It has also trimmed its payroll of 60,000 by more than 12 percent.

Ericsson has had to take even more drastic measures. It’s raising emergency cash, looking for business units to unload and slashing its global payroll from 107,000 to 60,000–with some analysts baying for cuts of 10,000 or more. For several years Ericsson has been trying to engineer another change that may be even more difficult to pull off–nothing less than a “culture shift,” as COO Per-Arne Sandstrom says. CEO Kurt Hellstrom, 59, and his senior managers want to re-create companywide the “pizza climate” of the late-working, Jolt Cola-downing techies on the R&D side of Ericsson. The hope is to decentralize and speed up the company’s decision-making processes. “We were always on the cutting edge of technology,” says Sandstrom.

So far the results seem mixed. If nothing else, Ericsson’s poor performance has profoundly shaken the upper echelons of the company. But some critics complain the company has yet to get beyond the bureaucratic inertia of the past. The executive hierarchy is “like the Politburo in the Soviet Union,” says Bryan Prohm, an analyst at Gartner Dataquest who used to work for Ericsson. A year ago the company spun off its mobile-phone business into a joint venture with Sony. Industry watchers applauded the move, but said it should have happened sooner.