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Change Management

Consulting is our passion.


Juha Lipponen

A few weeks ago, many of the Finns almost choke on their morning coffee as they heard the news of Nokia mobile phones business to be sold to Microsoft. Last week, we heard about one of our traditional ”crown jewels” of Finnish industry, Metso, shutting down one of its main production facilities. At the same time, 660 people of top expertise will lose their jobs.

The backround of the lay-offs are the plummeted demand of paper machines worldwide. When I started my own career in Valmet Paper Machinery 20 years ago (later Metso Paper, to be re-branded to Valmet again), large, hundreds of millions of euros paper machines were delivered in double digits every year. Now, the whole market is perhaps one in every three years. The reason of course is declining demand of printing papers. So, in that respect, the facilities shutting down and the layoffs were inevitable.

Both of those decisions – made basically at gunpoint – were of course justified as itself, as the management of both companies pretty much had no choice in the end.

Of course, the blogosphere has been filled with wannabe-managers who definitely would have managed these companies better than their actual executives. Nevertheress, is there something to learn here from the innovation standpoint? I Bet there is. And, many excellent aspects have been brought up already. Here, I’ll try to contribute into the discussion

One interesting aspect here could also be to stop and think of how the original core business innovations came to see the light in these companies in the first place. Nokia, as many people know, was a conglomerate with dozens of branches from rubber boots and toilet tissue to per-sonal computers up until the 1980’s. Businesses even remotely resembling today´s mobile technology represented something like 5% of the total turnover in early 1990’s. Jorma Ollila has then been said to be behind the decision of putting all the eggs on those 5%, and the rest were history, making ”Nokia” a synonym for a mobile phone at many parts of the world.

And, Valmet Paper Machinery was born from the state owned field gun foundry after the WW2. I can imagine they having the discussion between the the managers of the Jyväskylä gun foun-dry: ”Okay, the war is over, we don’t need to make guns anymore… Hmmm…. Are there any other round and long objects we could make from cast iron…? Did someone say paper machine rolls? Okay!” (Valmet, of course, also made pretty much everything made from metal until 1980, from farm tractors to wall clocks). Valmet’s Paper machine business ended up as a huge industrial success. It basically started from shameless copying of the industry leader, Beloit Corporation’s (USA) paper machine designs in the 1950’s for the war compensation paper machines to Russia, ending up to be the clear technology leader on its own right through the 1980’s and 1990’s dominating it’s field (ironically, Metso bought the ’remains’ of the bankrupted Beloit in late 1990’s).

Here, someone could argue that the overwhelming successes of these two companies were possible through wise decisions of focusing their businesses on their core expertises. Nokia to mobile phones, and paper machines in the case of Valmet/Metso. From the 1980’s up until these days, focusing and cutting off non focused branches has been the mantra in many industries, making possible of milking the cash cow to the maximum. And, even when the difficult times are were seen the horizon (or even over our heads), the focusing strategy has continued to be used in ”adapting the resources in the changing business environment” (= lay-offs)

But wait! Did we forget about something here? How these businesses got started in the first place? As marginal small businesses on the outskirts of these companies. Then, someone focused on them and made the huge businesses out of them.

If you ask me, on the pinnacle of their success, these companies did not grow carefully enough the potential future radically new businesses under their shelter (even aiming at replacing the existing cash cow businesses). Yes, many companies do hold their venture research programs; but in practice, they usually are skimmed off every few years. This makes it difficult for long-term building up a portfolio of several potential businesses that could step in when the current cash cows inevitably die out. Even the Google’s famous ”20% of the time” program (where the employees were allowed to develop their own ideas and projects on 20% of their paid company time, contiributing to several sugely successful products) was effectively ended this year by Larry Page – justified omniously by the need to ”focus”…

So, you probably have heard a lot ”We focus our efforts to our core strategies and expertise”. Okay. Now, tell me who actually has produced game-changing breakthrough new products or services following a tight ”focused” strategy? Someone could say Apple, but even their biggest innovations (iTunes, iPod, iPhone and iPad) started completely from sidetracks of their ”focused core” businesses, which was personal computers.

The learning?

  • Make sure you hold some ”unfocused” brances in your development portfolio. Even something far off from your ”core” businesses.
  • Keep your antennas high – one way or another – ready to probe directions that your ”focus” wouldn’t othervise allow for.
  • You’ll never know if your blockbuster cash cow business is out in 5-10 years. You’ll probably need something completely different as your current cash cow starts to dry out.

What are your own thoughts on this?

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