Global Success and the Role of Strategic Steering and Management Accounting Systems

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, Nokia's internet pages, and presentations of Nokia's strategic managers. No direct interviews of Nokia's 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 Nokia's strategy. The second section introduces Nokia's 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 Nokia's current strategic management and control system in this framework while the seventh section shortly concentrates on Nokia's 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

Nokia's 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.