Excerpts from the book Confronting Complexity: X-Events, Resilience, and Human Progress by
John L. Casti
Roger D. Jones
Michael J. Pennock
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Time for a Change
In the mid 1860s, mining engineer Fredrik Idestam established two ground wood pulp mills on the Nokianvirta River near Tampere, Finland giving rise to the name of the firm we all know today as Nokia. How that company trans- formed itself from a wood pulp company producing paper products to what was up until a few years ago the world’s largest cell phone manufacturing firm is a circuitous tale. This story is a fascinating account of how alert management can shift the focus of an entire organization in time with changes in the outside world so as to more effectively deploy available resources. At one time or another, Nokia proceeded from the production of paper to producing rubberized cables for telephone and electrical firms, as well as bicycle tires, and rubber boots. In the mid-twentieth century, Nokia expanded its repertoire to include consumer electronics by manufacturing electricity generation machinery, personal computers, and communication equipment. In 1992, the firm decided to abandon consumer electronics and focus solely on the rapidly growing telecommunication sector. This decision sowed the seeds of Nokia’s early dominance of the cell phone business when the company used its expertise to develop the GSM technology, which was later adopted as a de facto standard for mobile telephony in the 1990s. It’s estimated that by 2008 worldwide GSM connections were growing at a rate of over one million per day.
The opportunistic path from a small wood pulp manufacturer to the world’s largest cell phone company is a textbook example of how a firm can adapt to a changing environment and consumer needs. Of course, nothing lasts forever, not even a sense of how to shift product lines in tune with the changing winds of fortune. The beginning of the end of Nokia’s dominance of the cell phone market was the launch of the iPhone by Apple in 2007. And by 2010, the Apple iOS and Google’s Android-based phones pushed Nokia out of the top spot in the world’s cell phone sales. By then, Nokia’s slide was clear to see as they failed to really penetrate the North American market with its Symbian-based smart phone. And in early 2011, Nokia and Microsoft announced a business partnership, and from early 2011 through 2013 Nokia fell from first place in global smart phone sales to number ten. Finally on September 2, 2013, Microsoft acquired all of Nokia’s mobile device business, effectively putting Nokia totally out of the cell phone business.
While Nokia’s story of rags to riches and back to rags again is particularly dramatic, the annals of business are filled with similar stories of firms that began their life with a product line that dramatically shifted over the course of time to something entirely different. Here are a few examples:
- Avon: This firm began in 1886 with founder David McConnell selling books door-to-door. He always gave perfume samples to the women who bought a book from him. When he realized how much the ladies liked the perfume, McConnell started the California Perfume Company and hired female sales reps since he believed that they would be better at networking with female customers. The rest is history.
- Samsung: Samsung Sanghoe formed his firm as a trading company in 1938. His business then was shipping dried Korean fish, vegetables, and their private brand of noodles to customers in Manchuria and Beijing. No electronics, no cars, no high-tech, simply very low-tech food products. But times change—and so did Samsung!
- Wrigley: We’re all familiar with chewing gum and the Wrigley name stands at the top of the list of suppliers of such staples as Juicy Fruit, Orbit, and the like. But Wrigley started its life in 1891 as a firm that sold a product that you certainly would keep as far from your mouth as possible: soap!
- Colgate: At its founding in 1806, Colgate was a manufacturer of soap, candles, and starch. It made its first toothpaste only 67 years later.
So what do these stories tell us? Mostly, they chronicle how a company with a forward-looking management can jump from one line of business to something quite different and make a huge success of it. In general, the companies started small and adapted to the market as times changed. The management of all the firms understood one simple principle: to grow as a firm, you have to adjust with the times. This is the essence of adaptation. In just a bit more detail, the corporate management had to combine two lines of thought into one by answering the following pair of questions: 1) What resources—human, financial, operational, and otherwise do I have at my disposal? 2) What kind of products could I produce with these resources that could more well serve the market today and tomorrow better than the market of yesterday? All of these stories illustrate successful answers to these questions. Of course, there are no guarantees in life and there certainly exist many examples of wrong answers to the questions, too. How to separate the right from the wrong is part of our story in this chapter. So by way of contrast, let’s recount a few of those wrong answers just to see how things can go off the tracks instead.