The same principle of attaining widespread involvement and commitment was also applied to the issue of a future strategy.
In early 2004, head of Strategy Joakim Westh was given the task of traveling round the world to discuss Ericsson’s strategy with the 250 top managers. One phase of this strategic process involved Pär-Anders Pehrson leading discussions on the values and how best they could be formulated.
The documents were finally submitted to the 2004 GMC for review.
Work on Ericsson’s strategy had traditionally involved a very small group of people and the strategy was a closely guarded secret, literally locked securely away. When Svanberg started at Ericsson, the company strategy was actually taken out of the safe where it was stored and handed to him in a brown envelope.
Now the opposite approach was adopted: the entire organization was to be involved with strategies and all employees were to understand the challenges and possibilities they comprised. The philosophy that applied now was: “It is better for a thousand people to know ten figures than for ten people to know a thousand.”
CULTURE BEATS STRATEGY
For the top managers, a strategy model was adopted that had been created by Professor Willie Pietersen at Columbia University. His philosophy can be encapsulated in the phrase ”When culture conflicts with strategy, culture wins and strategy loses.” This was condensed within Ericsson down to: “Culture beats strategy every time”.
The latter must of necessity be in step with the former.
The overall idea in the Columbia strategy cycle is that the strategy has to be communicated throughout the organization and that its different elements have to be in dialog.
For the first time a special edition of Ericsson’s staff magazine Contact was devoted to strategic issues. The presentation material on strategy emphasized commercial concerns and business intelligence. For the sake of consistency, everyone in the organization was given an e-mail address with the same domain name, ericsson.com.
FIVE PERCENT IS NOT ENOUGH
How good should the results of a company like Ericsson be?
During 2001–2003, Ericsson’s results were the worst in its history. Invoicing declined by 57 percent and the total loss for the three years amounted to more than SEK 50 billion. It is remarkable that despite these circumstances Ericsson continued to invest in research and development in both absolute and percentage terms.
It is also striking that Ericsson’s operating margin reached its maximum of 11.4 percent before the crisis: 2000 was a year of extremes and Ericsson’s turnover was a total of SEK 273 billion.
As mentioned, Svanberg made his approach clear when he took over as CEO: “It is clear to me that your level of profitability determines how much freedom you have to act. Five percent is not enough for a company where technology is important and you always have to invest large sums in research and development.”
Yet it should be pointed out that most of Ericsson’s competitors – Nortel, Lucent, Marconi, Alcatel and Motorola – were making even larger losses at the time. It would be difficult to exceed Nortel’s loss in the second quarter of 2001– USD 19.5 billion (about SEK 200 billion) – most of which comprised write-offs for grossly overvalued acquisitions.
Only one competitor did not follow the pattern: Nokia with a net profit for 2001–2003 of about SEK 90 billion. All of this came from the mobile phone operations; Nokia too was making losses where systems were concerned.
Author: Svenolof Karlsson & Anders Lugn
