Agile and Organisational Resilience – Part 4: Nokia & Ericsson case study

This series of articles examines how organisations can create opportunity following a crisis and unforeseen change. I will argue that as the world becomes more complex and undiscernable, how organisations prepare and deal with inevitable failure can give them a competitive advantage. So much so that intentional failure can provide more upside than the downside.

In the last article, I explained how, by creating a wide portfolio of business interests, Nokia has remained adaptive to unforeseen change. Having a wide variation allows the organisation to weather the unforeseeable downturn in one area by offsetting it against the unforeseeable rise in another. This ensures survivability and selection.

This article is a case study of how Nokia and Ericsson handled an unforeseen incident differently resulting in the ongoing success of Nokia and the loss of market share for Ericsson.

Diverging fortunes resulting from a 10-minute incident

At the start of the century, Nokia and Ericsson were two dominant mobile phone manufacturers. Both firms were using microchips manufactured by Philips. In the year 2000, a fire in Philips New Mexico factory caused damage to the plant resulting in a halt to the chip supply.

On initial evaluation, Philips assured their customers that production would resume within a week. Nokia was doubtful of Philips assessment and so worked with Philips to find alternatives. They partnered with Philips to find another chipset design to allow manufacturing to continue in other Philips plants.

On the other hand, Ericsson believed Philips assessment that production would be restored within the week. It actually took six weeks. The extended delay caused Ericsson to suffer a critical shortage of chips during a time when handsets were in huge demand. Sales dropped, unused inventory piled up, and their market share declined.

The fire, which took Philips 10 minutes to extinguish, cost Ericsson $200 million in losses in Q2. In contrast, Nokia reported a Q3 profit rise of 42 percent. Ericsson never quite recovered, resulting in Nokia dominating the market for many more years.

Conclusion and the next article

Nokia recognised the fire created vulnerability to its operations and to its market share. It detected the problem early and responded quickly by finding workarounds with their supplier. Ericsson was blind to the threat and lethargic in response.

This capability to detect problems early, and the ability to respond rapidly, enable organisations to be adaptive to unforeseen change and proactively handle crises. To such an extent that they can capitalise on such disruptions to gain an advantage, just like Nokia’s ability to gain market share over its close competitor as a consequence of an unforeseen disruption to their supply chain.

This capability is a demonstration of organisational resilience. It’s a strategic asset that will make or break an organisation.

The concept of resilience is what I’ll be introducing in the next article.

Further reading

You can read more about the Nokia-Ericsson case in Erica Seville’s excellent book Resilient Organizations.

The Economist has written a special report on the incident: When the chain breaks.

 

Agile and Organisational Resilience – Part 3: Nokia’s adaptability

This series of articles examines how organisations can create opportunity following a crisis and unforeseen change. I will argue that as the world becomes more complex and undiscernable, how organisations prepare and deal with inevitable failure can give them a competitive advantage. So much so that intentional failure can provide more upside than the downside.

In the last article, I explained that Agile and Lean ways of working are particularly appropriate for handling known problems and opportunities. I stated that during a crisis, and during unforeseen change, there’s little knowledge and understanding, and so Agile and Lean ways of working have little application.

In this article, I’ll be telling the story of Nokia, a company that has fallen out of favour yet has an impressive history of handling crises and capitalising on unforeseen change.

Nokia has a deep history of innovation, market exploitation and adaptability. It started in 1865 with a single paper mill operation producing paper consumer goods such as toilet paper. Over the proceeding decades, it sought and found success in a wide number of industries such as cabling, rubber consumer products, and telecommunication infrastructure.

A montage of products Nokia has produced and infrastructure projects it’s been involved with since 1865.

Nokia’s broad range of pursuits is a result of active variation, where the success or failure of each pursuit is hard to initially determine. Where unforeseen changes make a particular product or service become more viable, Nokia would invest further involvement. It would de-invest involvement in activities showing less success. Success or failure, and so investment or de-investment decisions, are emergent and impossible to confidently predict up front.

For example, 1980s deregulation of European Telecommunications industries opened a new market for telephony. Since Nokia had already developed an awareness and competency in this field it was one of the first to recognise and respond to the opportunity. It produced the first fully digital telephone exchange in Europe and released one of the first car phones. Further to this investment, it de-invested and reduced focus in other activities.

The discipline to ensure a mixed portfolio of activities that adapt to unforeseen market changes is the application of Palchinsky’s Principles:

  1. Seek out new ideas and try new things
  2. When trying something new, do it on a scale where failure is survivable
  3. Seek out feedback and learn from your mistakes as you go along

This essentially means that in order to create an organisation that can handle unforeseen change, the organisation must create a portfolio that exhibits variation, survivability and selection.

The next article will be a case study comparing Nokia with Ericsson in 2000 – at the time, two major rivals in the mobile handset market. I’ll be explaining how their differing response to an apparently innocuous event resulted in a crisis that led to the demise of one and the ongoing success of the other.

 

Agile and Organisational Resilience – Part 2: Beyond Agile & Lean

This series of articles examines how organisations can create opportunity following a crisis. I will argue that as the world becomes more complex and undiscernable, how organisations prepare and deal with inevitable failure can give them a competitive advantage. So much so that intentional failure can provide more upside than the downside.

Many readers will be from the fields of Agile and Lean. Following on from my introduction to this series, this article will consider the maturity of these ways of working, but then put them to one-side until the end of this article series.

Why put them to one-side, especially considering I’m an Agile Coach? Well, to be frank, their current application is becoming commoditised. Their essence and original intent are being over-shadowed by large consultancies, large-scale change initiatives, sheep-dip training programmes and certification one-upmanship. Such organisations and initiatives often pay little more than lip-service to Agile’s and Lean’s simple yet powerful approach.

Using Geoffrey Moore’s Adoption Curve, there’s a lot to suggest Agile application is travelling across Early Majority. My opinion isn’t unique; Dave Snowden and many in the agile community recognise this trend.

Where would you place the maturity of agile and lean the adoption curve?

If we consider ourselves as change-agents, co-developing new emerging ways of working to help our clients and colleagues, we need to look beyond Agile and Lean – particularly in its current commodified application. This is my intent for this series of articles.

Another reason why I shan’t dwell on Agile and Lean is that I believe they have little application during an organisation’s crisis. However, later I will argue they play an important role once a crisis has been stabilised.

There’s a great deal of literature on how Agile and Lean deliver customer value at pace in a complex environment. I’m not going to repeat it here other than to say these approaches are particularly useful when dealing with known problems and opportunities. The challenge is that knowledge and understanding do not exist during shock events and crises that will inevitably engulf an organisation.

There’s a degree of overlap and complementarity between Scrum, Lean and Lean Startup, yet each has distinct emphasis.

Putting Agile and Lean to one-side, in my next article I’ll be returning to organisational resilience. I’ll be telling the story of Nokia, a company that has fallen out of favour yet has an impressive history of resilience.

This post was originally published on latchana.co.uk/resilience-2

 

Agile and Organisational Resilience – Part 1: Introduction

Only a crisis produces real change.
When that crisis occurs, the actions that are taken depend on the ideas that are lying around.

Milton Friedman

When last have you listened to Maurice Ravel’s Boléro? It’s a beautiful piece built on a steady crescendo which leads to a sudden finale of collapsing flutes, trumpets, cellos and violas. This crescendo and finale is a wonderful musical metaphor that is facing many organisations.

These are crescendos that lead to profound alterations in an organisation’s existence and direction. They end in a sudden cascade of chaos, disorientation and bewilderment. Often they lead to deep changes which cannot be anticipated or rehearsed.

Such cascades are unforeseen shock events. These events trigger a crisis. How organisations deal with these crises depend on their awareness, preparedness, experience and adaptability. These intangible factors cannot be directly engineered or copied from another organisation.

The management of a crisis, if done poorly, can lead to an organisation’s demise. If handled well they can lead to recovery and a return to normal.

However, if and when the situation has been stabilised, I believe these crises are opportunities to grow beyond normality. This is important because, in a fast-changing competitive market, returning to “business-as-usual” is likely to lead to more undesirable failure.

The Agile and Organisational Resilience article series

In this series of articles, I will examine how organisations can create opportunity following a crisis. I will argue that as the world becomes more complex and undiscernable, how organisations prepare and deal with inevitable failure can give them a competitive advantage. So much so that intentional failure can provide more upside than the downside from the moments of chaos and confusion.

This is an illustration which I’ll be returning to throughout this series of articles.

Many readers will be from the fields of Agile or Lean. For other readers, they may be new. In the next article, I will be explaining the current maturity of these concepts and then set them aside to return to the theme of organisational resilience. Towards the end of these series, I will explain how Agile and Lean can provide competitive advantage immediately following a crisis.

There will be about ten articles in this series. To help keep your attention, I will be keeping each article to no more than about 500 words.

Shares, comments and considered counter-arguments are always welcome.

Lastly, listen again to Ravel’s Boléro: