Future X and Open Innovation at Nokia

Anticipating the technical revolution around the corner, Nokia took a longer view and made a strategic shift to become a wireless-equipment company. Recognizing limitations in its research, manufacturing, and human capabilities, Nokia invested in open innovation to improve product development. In 2014, Nokia scaled down its Research Center from 1,300 people to 80 people and acquired Bell Labs, whose culture centered around innovation. Bell Labs has 17 research centers and a Nobel Prize-winning team. It launched Bell Labs Prize competition to encourage innovators around the globe to create 10x game-changing ideas and proposals in the general field of information and communications technologies. By leveraging open innovation, will Nokia achieve Future X? What are some challenges it should anticipate?

To meet the future, the Nokia[i] is leveraging open innovation[ii] to establish a footprint in the market for Internet of Things (IoT).  In February 2018, Nokia launched its new strategy called Future X, which is its vision for “Industry 4.0.” Industry 4.0 is a world where industries leverage cloud and analytic technologies to achieve new levels of agility, efficiency, and productivity across multiple industries.  Nokia’s focus has shifted from communication in the physical world to digitization of the physical world to ultimately automate and optimize it.  The firm has made an initial investment of $350M to crowdsource new ideas for undefined problems. [iii]  Its goal is to support companies with novel ideas get-to-market[iv].  Several concerns around cybersecurity and its strategy make the viability of Future X questionable.

How open innovation works at Nokia?[v]

Bell Labs Prize is an annual open competition.  The problem is undefined, but the themes are centered around digitization.  Participants submit a 250-word essay on their idea and are encouraged to demonstrate a prototype. Proposals are evaluated on three criteria as described in the table below. 10 finalists are invited to pitch their ideas during a two-day workshop in Helsinki, Finland.

Table 1: Bell Labs Prize’s criteria for evaluation of proposal submissions[vi]

Criterion Description
10x Innovation Potential The proposal involves “out of the box” thinking that could result in a 10x change in performance
Technical Merit The proposal must be technically sound. It must also be balanced on current principles and further/future advancements and innovations
Feasibility Can a proof of concept, simulation or demonstration be built in the course of the competition? What is required to do so? In order to build a commercially viable (revenue and profit-generating) solution, what more would be required?

Stage 2 candidates are invited to work at Bell Labs’ 17 research centers with a Nobel Prize-winning team[ix]. The top three winners altogether are awarded $175,000 in seed-funding and the opportunity to join Bell Labs to work towards commercial viability.

In February 2018, Nokia Capital Group (NCG) established a $350 M Investment Fund for the competition[vii][viii]. Ideas generated thus far are fascinating. For example, the 2017 winner Continuum Technologies’ created fabrics embedded with nanotechnology. The product provides real-time monitoring of vital signs and health data. This technology has massive potential for the IoT landscape.

Why are Internet of Things (IoT) and open innovation important to Nokia?

IoT is considered the next generation of advanced communication[x].  IoT is defined as sensors and actuators connected by networks to computing systems that autonomously exchange data between them”[xi].  McKinsey estimates that by 2020, there will be 50 billion “things” (machines, sensors, and gadgets) connected to the internet that will increase efficiencies and improve customer service in the Industrial marketplace. Nokia envisions that sensors can be used in a range of industries, including home, retail, oil and gas, shipping, etc.  IoT is estimated to generate $1.1 Trillion (including consumer surplus) per year in 2025 across nine business settings[xii].

How does open innovation fit into the short-term and long-term?

Nokia leverages open innovation to diversify its core business beyond its tradition business segments.  Since Nokia does not have sufficient resources, it leverages the competition to identify potential partners – universities, start-ups, and companies – with ideas and capabilities.  In the short term, Nokia plans to be one of the first movers and early adopters of the latest technologies in IoT.   In the long term, Nokia plans to create Future X.  It also wants to expand its product mix to include a portfolio of gadgets for the next generation that solve complex industrial problems.  Furthermore, it aims to be the biggest player in terms of research (an incubator) for IoT.

Recommendations for Nokia

Future X is a massive undertaking.  Nokia must develop practical solutions to several challenges to achieve scale.  First, it needs strict protocols for data due to potential security risks[xiii].  Although Nokia has been strategic by investing in cybersecurity (CS), there are concerns about the potential impact an attack could have[xiv].   Secondly, Nokia needs to narrow its scope. Future X casts a wide net in terms of target industries. Is Nokia spreading itself thin? It risks the agility to adapt and respond to consumer demands quickly.  Finally, Nokia should consider expanding coverage beyond developed markets.  McKinsey reports that a 40% potential increase in emerging markets, albeit their limited infrastructure at-present.

Author’s corner: A few open-ended questions for you?

Cyber security (CS) is a major risk. How can Nokia (and others in its position) think about CS?[xv] [xvi] There’s no certainty of IoT as the next frontier. If Industry 4.0 does happen, would Nokia be the customers’ choice and how does it ensure that?

Word count: 884

[i] “Nokia Corporation”. 2018. Www-Capitaliq-Com.Ezp-Prod1.Hul.Harvard.Edu. Accessed November 13 2018. https://www-capitaliq-com.ezp-prod1.hul.harvard.edu/CIQDotNet/company.aspx?companyId=205573.

[ii] “Open Innovation Challenge | Nokia”. 2018. Nokia. Accessed November 13 2018. https://www.nokia.com/about-nokia/news-events/events-calendar/open-innovation-challenge/.

[iii] “Networking solutions for the new age of industry”. 2018. Onestore.Nokia.Com. Accessed November 13 2018. https://onestore.nokia.com/asset/205709.

[iv] “Nokia Growth Partners Announces $350M Fund Focused On Iot”. 2018. Techcrunch. Accessed November 13 2018. https://techcrunch.com/2016/02/21/nokia-growth-partners-announces-350m-fund-focused-on-iot/.

[v] “The Bell Labs Prize”. 2018. Bell-Labs.Com. Accessed November 14 2018. https://www.bell-labs.com/prize/faqs.

[vi] Surden, Esther, and Esther Surden. 2016. “Weldon Says Bell Labs Acquisition By Nokia Is Good For The Labs And For New Jersey”. Njtechweekly.Com. Accessed November 14 2018. https://njtechweekly.com/2016/05/09/weldon-says-bell-labs-acquisition-by-nokia-is-good-for-the-labs-and-for-new-jersey/.

[vii] Crunchbase.com. (2018). Nokia Growth Partners IoT investment Fund. [online] Available at: https://www.crunchbase.com/fund/nokia-growth-partners-raised-nokia-growth-partners-iot-investment-fund–3b63b128 [Accessed 13 Nov. 2018].

[viii] “NGP Capital”. 2018. Www-Capitaliq-Com.Ezp-Prod1.Hul.Harvard.Edu. Accessed November 13 2018. https://www-capitaliq-com.ezp-prod1.hul.harvard.edu/CIQDotNet/company.aspx?companyId=22690459&fromSearchProfiles=True.

[ix] Surden, Esther, and Esther Surden. 2016. “Weldon Says Bell Labs Acquisition By Nokia Is Good For The Labs And For New Jersey”. Njtechweekly.Com. Accessed November 14 2018. https://njtechweekly.com/2016/05/09/weldon-says-bell-labs-acquisition-by-nokia-is-good-for-the-labs-and-for-new-jersey/.

[x] “Sign In With Insider Inc.”. 2018. Intelligence.Businessinsider.Com. Accessed November 13 2018. https://intelligence.businessinsider.com/post/tink-labs-300-million-round-could-enable-smart-hotels-lg-developing-robotic-carts-to-automate-shopping-samsung-opening-up-bixby.

[xi] “The Internet of Things: Mapping the Value Beyond the Hype”. 2018. Mckinsey.Com. Accessed November 14 2018. https://www.mckinsey.com/~/media/McKinsey/Business%20Functions/McKinsey%20Digital/Our%20Insights/The%20Internet%20of%20Things%20The%20value%20of%20digitizing%20the%20physical%20world/The-Internet-of-things-Mapping-the-value-beyond-the-hype.ashx.

[xii] “The Internet of Things: Mapping the Value Beyond the Hype”. 2018. Mckinsey.Com. Accessed November 14 2018. https://www.mckinsey.com/~/media/McKinsey/Business%20Functions/McKinsey%20Digital/Our%20Insights/The%20Internet%20of%20Things%20The%20value%20of%20digitizing%20the%20physical%20world/The-Internet-of-things-Mapping-the-value-beyond-the-hype.ashx.

[xiii] Marie-Helen Maras; Internet of Things: security and privacy implications, International Data Privacy Law, Volume 5, Issue 2, 1 May 2015, Pages 99–104, https://doi.org/10.1093/idpl/ipv004

[xiv] Hardcastle, Jessica. 2018. “Cisco, Nokia, Microsoft Back $85M Team8-Led Security Fund – Sdxce”. Sdxcentral. Accessed November 14 2018. https://www.sdxcentral.com/articles/news/cisco-nokia-microsoft-back-85m-team8-security-fund/2018/10/.

[xv] Marie-Helen Maras; Internet of Things: security and privacy implications, International Data Privacy Law, Volume 5, Issue 2, 1 May 2015, Pages 99–104, https://doi.org/10.1093/idpl/ipv004

[xvi] Business, 12. 2017. “The Internet Of Things And Its Growing Role In Business – Navigate”. Navigate. Accessed November 14 2018. https://www.navigatecorp.com/the-internet-of-things-and-its-growing-role-in-business/.

 

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11 thoughts on “Future X and Open Innovation at Nokia

  1. Nokia’s Future X open innovation model reminds me of Xiaomi’s strategy. Xiaomi offers many different types of IoT products, most of which it does not manufacture by itself (with the exception of its smartphones). It is able to do so by investing in companies and helping them with financing, strategy and incorporating them into the overall ecosystem (since IoT does not have any value without being in a large-enough ecosystem).

    Having said that, I question the long term viability of Nokia’s strategy. Firstly, it only requires that participants submit a 250 word essay and are “encouraged” to submit a prototype. From an efficiency standpoint, I believe Nokia will most likely receive a lot of random submissions that would not have any value at all. In contrast, Xiaomi’s open innovation model involves having a dedicated venture capital team looking at early stage companies and bringing them under the company’s umbrella early on. My guess is that Xiaomi’s approach is arguably more efficient and potentially more effective than Nokia’s.

    In addition, given the early stage nature of the submissions (since only a 250 word essay and an optional prototype is required), I wonder how long it will actually take for these ideas to enter production. Given that IoT is not new and has been around for a couple of years, will the new products and services developed through Nokia still be relevant when they are launched?

  2. Very interesting to hear about Nokia’s push for open innovation and its movement into the IoT space. In regards to your question on Industry 4.0, I definitely feel that Nokia has taken the correct steps to date to place itself as the customers’ choice. I believe this is driven by Nokia’s use of crowdsourcing through its Bell Labs Prize competition, which signals to the market that Nokia embraces innovation and truly values the ideas brought forth by potential consumers. As a result, as the world becomes more interconnected through the use of new technology, it will be the companies that have developed this type kind of strong network amongst innovators that will flourish and sustain a competitive advantage.

  3. So interesting! I had never heard of the Bell Labs Prize — I look forward to exploring more.

    For me, Nokia and IoT are a tough mix. Given their acquisition and subsequent sale of IoT startup Withings, I find it hard to believe that they’ll be able to find success in the space leveraging ‘out of the box’ ideas developed through the Bell Labs Prize. It seemed that Nokia really struggled to further commercialize Withing’s products which were basic (smart scale, watch etc.) but well regarded in the space. Perhaps, though, they have learnt their lesson and now have the capabilities in place to execute on IoT.

  4. This is very interesting – thanks for submitting. I’m a bit short on cash these days so maybe I’ll see if I can find an engineer to submit to the Bell Labs Prize with me! My biggest concern with this issue would echo what CambridgeCappuccino wrote above; I worry about Nokia’s ability to successfully execute on commercializing this long pipeline of innovative projects. It seems that Nokia needs to develop the internal capacity to effectively filter which projects can be actionable with the company’s existing capabilities, and which will require additional internal growth to support.

  5. I think it’s really interesting that Nokia in the recent past has shifted its focus to Industry 4.0. Industry 4.0 and IoT has generated so much interest within the tech community that there are a lot of companies moving into IoT and Industry 4.0. I wasn’t really sure what Nokia’s strategy was in protecting the knowledge created in their open innovation environment, especially with so many players moving into IoT. With its central research center cut down to only 80 people and relying on Bell Labs which is heavily using an open innovation strategy, I am worried that Nokia will generate a lot of ideas for other companies to take to market.

  6. Thanks for the post, very interesting. From working with former Bell Labs employees in my time pre-HBS, I agree that the Bell Labs culture + talent level was a smart way to achieve “radical change” within an otherwise sluggish Company. Nokia’s divestment of legacy telecom assets, and more, has likely allowed them the opportunity to pivot. However, I’m not sure Crowdsourcing is the best way to determine a future strategy. Moreover, this model looks like Nokia is just playing Venture Capitalist – what real synergies does Nokie provide its entrpreneurs? What is the discount rate associated with that investment? Is this an example of the “conglomerate fallacy” at work? Thanks for sharing.

  7. Very interesting essay and very interesting shift in company strategy. I initially thought this was a smart strategic move on behalf of Nokia, but I agree with WilliamKnightly’s comment above that the creation of this new environment provides ideas for other companies to use. I also worry about Nokia’s ability to execute on this going forward.

  8. I like that Nokia is using open innovation to populate the front end of its innovation funnel, but I worry about Nokia’s ability to take these ideas and turn them into viable businesses or products. Nokia is effectively running a corporate venture capital arm, and therefore, Nokia’s ability/willingness to commercialize ideas will be limited to products that are adjacent to its existing/aspirational business lines. I doubt that Nokia is well positioned to take moonshot ideas and commercialize them if they are not somehow synergistic with Nokia’s other business lines. Nokia is not GoogleX. Perhaps Nokia can incubate ideas and sell them to other businesses, but I worry that this would be too far a departure from Nokia’s core competencies.

  9. Thanks for this article, really interesting read. My concern, in line with some of the earlier comments made is Nokia’s ability to sustain and help these moon shots project for a long period of time from cash point of view. Like Google has Google Ads and Amazon has AWS, I believe a company needs to have a very strong core product to be able to exhibit the patience and cash required for such projects. What is that hero product of Nokia?, Is Nokia doing anything to build that?

  10. This was a very interesting read – thanks for sharing! I think that Nokia’s forward-looking focus on innovation and the IoT is smart, but I am inclined to agree with those who have commented above that it feels like Nokia is casting too wide a net, here. Nokia’s engagement with the Bell Labs Prize competition might help the company to shape its long-term vision and strategy in the digital space. But it seems like Nokia should be shifting some of their funds towards soliciting more actionable, short-term ideas too. I wonder if they could design their own Open Innovation program more focused on the context of Nokia’s specific business challenges?

  11. Great article. Cyber Security considerations are very important, especially in tech and IOT. As Nokia continues to think about these areas I think it will be important for them to keep in mind that although it can be helpful to collect as much data as possible through new technologies, this should not be done at the expense of the customer experience, else risk losing these customers and hence the data. I hope that Nokia is able to retain principles like these around customer-centric products as they continue to use open innovation.

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