Nokia’s Bureaucracy Stifled Innovation

This New York Times article on Nokia’s Bureaucracy Stifled Innovation has several interesting lessons for R&D managers. It appears that Nokia had a smart phone before others, but cancelled it:

A few years before Apple introduced the iPhone in early 2007, the prototype of an Internet-ready, touch-screen handset with a large display made the rounds among upper management at Nokia. The prototype developed by Nokia’s research centers in Finland was seen as a potential breakthrough by its engineers that would have given the world’s biggest maker of mobile phones a powerful advantage in the fast-growing smartphone market.

I am not sure that having a prototype in 2004 and choosing not to bring it to market was such a bad decision. Apple itself had a prototype for a smart phone working with a large consumer electronics company in 2004. They too chose not to bring it to market. I do not think technology existed to actually build successful smart phones in 2004 – that included fast enough processors, low power LED backlit screens and abundant DRAM/FLASH. R&D Managers need to make touch choices at times and they can all not be the right choices. This one example does not directly prove that all decisions made at Nokia were bad – or that even this decision was a bad one.

On the other hand, the article mentions a couple of times that Nokia got complacent because of its own success:

… former employees depicted an organization so swollen by its early success that it grew complacent, slow and removed from consumer desires. As a result, they said, Nokia lost the lead in several crucial areas by failing to fast-track its designs for touch screens, software applications and 3-D interfaces.

“Nokia in a sense is a victim of its own success,” said Jyrki Ali-Yrkko, an economist at the private Research Institute of the Finnish Economy. “It stayed with its playbook too long and didn’t change with the times. Now it’s time to make changes.”

This is clearly a problem. How do R&D mangers keep from falling into this trap? I guess one has a better more formal portfolio balancing process that allows decisions to be based on qualitative and quantitative criteria that can be discussed rationally. This was NOT the case at Nokia:

Juhani Risku, a manager who worked on user interface designs for Symbian from 2001 to 2009, said his team had offered 500 proposals to improve Symbian but could not get even one through.

“It was management by committee,” Mr. Risku said, comparing the company’s design approval processes to a “Soviet-style” bureaucracy. Ideas fell victim to fighting among managers with competing agendas, he said, or were rejected as too costly, risky or insignificant for a global market leader. Mr. Risku said he had left in frustration at its culture; he now designs environmentally sound buildings.

The key phrase in portfolio balancing is BOTH qualitative and quantitative criteria. A strict focus on ROI will kill high-risk high-return innovative projects. Fundamental technology development is also a difficult area to measure ROI because technology has impact on multiple products and ROI is impossible to compute (Symbian could be seen as a fundamental technology with impact on multiple product platforms):

Proposals were often rejected because their payoffs were seen as too small, he said. But “successful innovations often begin small and become very big.”

In fact, R&D managers should set a portion of their budgets for innovation (10-20%). These projects should not have any ROI requirements. Another way to encourage manager risk taking is to reward failure.