On 2 July we had an interesting case study discussion on Ericsson and the creation of the mobile telephone systems business written by Prof. Patrick   Regnér Stockholm School of Economics. A spirited group of students,

Christina, Rahil, Chintan, Deval, Manasa from our strategy class made an impressive presentation. The technical aspects were simplified and strategic issues analyzed in depth.

Ericsson

A global supplier of public telecommunications systems was founded in 1876 in Stockholm Sweden as a telegraph equipment repair shop by Lars Magnus Ericsson. It was incorporated on August 18, 1918 and entered automatic switching and continued to concentrate on telephone exchange and switch design. The R&D investments resulted in a digital switching system AXE which was well respected and contracts all over the world were signed. The relationship built with a PTT (Post, Tele and Telegraph) – monopoly Govt. organizations became a long-term contract relationship with little competition.

SRA

A small and lesser known autonomous subsidiary of Ericsson was SRA (Svenska Radio

Deval on SRA's leadership & vision

aktiebolaget). Who had to overcome deep rooted cultural barriers of its gigantic parent Ericsson to turn it into the world’s largest supplier of mobile telephone systems? SRA’s from the beginning had been in radio products for the military market as well as civilian use.

Ivar Ahlgren, who was president of SRA from 1961 to 1977, had established a decentralized organization free from bureaucracy that gave employees considerable freedom. He was succeeded as president by Åke Lundqvist, who was previously manager for the land mobile radio division. Lundqvist saw the potential of radio communications like few others. A pioneering spirit emerged, and SRA became a center for experimentations.

SRA’s culture and character was different due to its small size, microscopic role and unrelated market and technology. However its President Åke Lundqvist’s quest “We had a vision to eliminate the wire in telephony, everybody laughed at us” indicated his bold strategic intent.

The Nordic Mobile Telephone Network (NMT)

The Swedish and other Nordic PTTs were pivotal in developing and establishing mobile telephony in Sweden and the Nordic countries. Telecom equipment manufacturers – Ericsson

Manasa on Saudi biz

& SRA and their competitors NEC, Motorola, Fujitsu, were asked in 1997 to submit proposals to provide NMT network. However Ericsson offered its AXE at the insistence of the Swedish PTT more in order to preserve old relations with its long-term partner.

Ericsson was not enthusiastic about mobile systems as it believed mobile telecom was directed toward professional use exclusively. Even Bell & AT&T, which originally invented mobile telecom networks market research, concluded the potential to be insignificant. Yet SRA believed in their own vision and had greater enthusiasm for the NMT venture despite not having its own base stations (central part of mobile systems).

When mobile telephony began to gain momentum in the company, employees learned quickly. Equally important was Åke Lundqvist’s strategy in the late 1970s and 1980s, when he acquired a number of companies, such as Sonab, Nira, Magnetic and Radio system that were important for SRA’s development.

The First Cellular Mobile System in the World

The first mobile telecom system in the world was delivered in 1981 not to the Nordic countries but to Saudi Arabia.  NMT to the Nordic countries became operational a couple of months later.

A large order for AXE-switches from Saudi Arabia in 1978 eventually led to the first test of SRA’s strategy of expansion Åke Lundqvist got the idea to try and sell a mobile system to the Saudi PTT around 1978-79. Ericsson’s joint venture with Philips was working out fine and the cooperation with the Saudi PTT was very successful.

Åke Lundqvist took his idea to Björn Lundvall, at the time Chairman of the board of Ericsson. Lundvall liked what he heard and in turn presented the idea to the Saudi Minister when he arrived in Stockholm for a project meeting. SRA did not have any hardware ready, but did have a concept. In those days equipment was sold based on concepts.

Saudi Arabia wanted to buy a mobile telephone system. In the beginning Ericsson and Philips was supposed to share the order, but after long negotiations Ericsson delivered a system based entirely on the NMT-standard. The first mobile telecom system in the world was delivered in 1981 to Saudi Arabia. The mobile system in Nordic countries also became operational a few months later.

The first cellular systems were not without problems. The Saudi order of 8000 mobile stations put pressure on production sources – there were no terminals left to sell in the Nordic home market. Competitors exploited the situation. There were quality problems too and as SRA’s marketing manager said “It was a mess”. SRA sailed through the mess with confidence.

PTTs start showing interest in Mobile Telephony Systems in 1980s

SRA started to penetrate more markets. In 1982 SRA accounted for only 5% of Ericsson sales yet in 1983 Åke Lundqvist predicted audaciously that ‘by the turn of the century sales in Ericsson’s mobile telephone business would pass that in public telecom’.

When telecom monopolies began to be broken up during the 1980s, state-owned PTTs were not the only companies that were interested in mobile systems. Young and enthusiastic entrepreneurs who knew nothing about technology were also keen in this field. These new customers required a new kind of marketing strategy that was lacking in much of the rest of Ericsson but was found in SRA.

US entry – 1982

Åke on the advice of a US-based consultant decided to enter the US. Despite meager marketing resources and facing tough competition SRA remained undeterred and won contracts in several US cities. They took great risks and subscribed to stocks of subscribers/operator companies to gain contracts. Since operators are ever in a cash crunch owing to the long

Chintan on contracts

gestation period of the telecom business.  This was done against competition action of providing loans to operators. However in the end lot of money was almost lost. Refer to ‘Private Treaties’ run by media companies at http://www.timesprivatetreaties.com/

ERA

Ericsson’s competitor GE owned Marconi therefore the former bought Marconi’s interest in SRA in 1982. However they kept their focus on EIS and SRA became a wholly owned company – Ericsson Radio System (Inc) ERA one of seven business areas with a focus on Radio.

Ake Linddqvist moved himself and his team to Southern Sweden on a field in Kista into new buildings, which gave him the time and space to get the business going without interference from corporate executives. They had to struggle to gain acceptance of Ericsson during development and would have been killed by the bureaucratic parent if Ake had not been persistent.

UK entry and new International markets – Europe

ERA strapped for resources with the US venture boldly seized an opportunity in the UK that

SRA's strategic intent

came up at the same time and decided to take them both. This involved expansion from a small sales organization to a large manufacturing & R&D company in the UK. ERA won the contract in competition with AT&T and Motorola.

Lars Ramqvist becomes Ericsson President 1988

ERA succeeded in their long-term internal battle and the mobile telephony business gained 40% share of the global market. Åke Lundqvist considered ‘too wild and unstructured’ by corporate management resigned at the peak of ERA’s success.  Lars Ramqvist, who succeeded Åke Lundqvist as president of ERA became part of the mobile division’s culture. Two years later, Lars Ramqvist became the first Ericsson president to be recruited from the radio side. He took the entrepreneurial spirit and the new marketing philosophy with him from Kista to Telefonplan (HQ of Ericsson).

Case epilogue

The case mentions by 2001 after year after year of success, Ericsson experienced major difficulties. The group’s handset business was in crisis and the infrastructure arm is being battered by global economic slowdown. The critical comments point at Ericsson phones being well engineered indeed over-engineered – while failing on basics such as design, usability and battery-life.  Their engineers focused on engineering and disregarded the ‘looks’.

Some critiques hold Ramqvist (1990 to 1998) responsible for Ericsson’s inability to make tough decisions, such as failing to exit its doomed handset business, which cost the company $2.4 billion in one year. In 2001 the stock dropped 75% from the previous year’s high. In particular, its handset business has been outstripped by competitors such as Nokia, and Ericsson has not acted fast enough.

Estimates indicate Ericsson has accounted for 15% of Swedish economic growth in recent years. Sweden is almost hysterical about Ericsson – If Ericsson slows down Sweden slows down”.

Conclusion

The case depicts the relationship of Ericsson with SRA as tenuous and reveals how organizational culture plays a central role in companies that are adapting to a constantly changing environment.

The parent company was much larger and used to operating in a stable environment provided

Rahil sums-up

by the PTTs with little competition. It became unresponsive to fast changes in the global environment. SRA on the other hand was an entity that was entrepreneurial and unpredictable.

The strategic approach was different Ericsson – rational deductive and inside-out and SRA – maverick, experimental and outside-in. SRA was more in tune with changing  trends and opportunities in the environment. The larger organization is more structured and bureaucratic and tends to curb the entrepreneurial spirit of the smaller entity. Ericsson’s culture comes out as one that is averse to change.

Åke Lundqvist’s unconventional leadership style and bold strategic intent is a perfect example of how an entrepreneurs mind should work. The case however does not speak much on the strengths of Ericsson and its leadership. Despite the inertia typical in large organizations it did allow SRA/ERA to break out and pursue their own vision.


1.      After an uphill battle within Ericsson and the outside competition Åke Lundqvist made Ericsson a world leader in the Mobile Telephony market. Why did he resign at the peak of glory?

2.      Was it the difference of perspectives and visions of the parent Ericsson with the smaller autonomous SRA (ERA) that contributed to Ericsson’s success in the world market?

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About dilipnaidu

An open mind! Love to share my thoughts and a keenness to learn. An engineer and a MBA I had a wonderful innings in the Army and later moved to consultancy and teaching. My current interests are reading, music, growing culinary herbs, playing golf and yoga. I am serious on "Living life less seriously". A warm welcome to you be well and be cheerful always.

17 responses »

  1. Nishkam Choudhry says:

    Dear sir,

    According to my point of view, Ake would still remain the main man behind the success of SRA. No matter how his behavior was how many conflicts he was facing, he will always be known as the face behind SRA’s struggle which eventually paved way for Ericsson’s success in the future.

    Like

  2. Raheel Rizvi says:

    Hello Sirji,

    This post is has been a bit delayed, but never the less. I would first thank you for giving such an insight over the case. It gave an overview of how a small strategic change can lead to huge variations in the structure of the companies. This case clearly represents a ‘fire in belly’ attitude towards a particular task. SRA and Ake was the one being actionable in the whole case, but still I feel that apart from being a fabulous visionary Ake was also an powerful source for the success to mobile telephony. But still the reason for his departure remains un-revealed.

    Like

  3. Dilip says:

    My dear Subhash,

    A warm welcome to you ! Delighted to read your comments. Your personal experience on the AT&T interview is so thrilling.

    The info on AT&T shelving the great opportunity is very interesting. More so as NEC of Japan in contrast the same year declared their strategic-intent to capture the mobile communication markets predicted to dominate the future of communications. NEC was $3.8 billion in 1980 and in 1988 its growth had reached $21.98 billion.

    It’s very thoughtful of you to congratulate these wonderful young people. They do deserve it. Thank you once again.

    Like

  4. Subhash says:

    This is an excellent article presenting the Ericsson story at this level of detail and strategic insight. After I graduated from Nebraska in 1980, my first job interview was with AT&T in Chicago. And guess what — it was in their “mobile phone” division. Prior to that I had never heard of mobile phones, not even during my master’s program at Nebraska. The guy who was interviewing me had a mobile phone in his car. During our lunch outing, he actually called his wife over the mobile phone to show its operation. I was literally blown away by this most amazing technological wonder. After all the trials and tests, as happens with many other large projects, AT&T shelved the project as the marketing team did not find any market for the concept. Of course, 20+ years later, AT&T bought out Cox communications (for mobile systems) for close to $40 billion only to sell it off a few years later at 10% of the purchase price.

    Great story, Dilip – congratulations to your students for putting it all together.

    Like

    • Manasa Konda says:

      Hello Mr. Subash Ji,

      Sir, we are thankful for your warm greeting. I surprised a bit reading your comment regarding your experience at AT&T and the innovations of the company. Mobile device is a just like a playing electronic device in our present generation to us (sorry sir as your experience is almost equal to my age). I remember my grand parents sharing their experiences regarding the time they had radios etc. I still remember my dad first using his bsnl mobile phone and my first bsnl landline at my home. Somethings look so funny to us when expressed by our grandparents… sometimes unbelievable too even though they are true… But sir, after reading this case study and all the comments I remembered all those fruitful movement which I had early…

      Sir, I would be greatful if you could spare some of your valuable time share some of your greatest experiences/ sweet memories regarding personal/ such kind of innovations and further enchancements in the present technology and more more how innovation comes through… and once it come how to get it into realty.

      Hope to see your message soon sir ji

      With Regards,

      Manasa Konda

      Like

  5. Gary Clayton says:

    Dilip,

    Another excellent post containing some powerful leadership lessons to be learned.

    Professor Regner’s analysis is great and all can learn from his observations on how small entrepreneurial operations can make a huge contribution when allowed to prosper within a large corporation. However, his history of the development of the cell phone market excludes what was happening in other parts of the world. It also sounds like his analysis of Ericcson’s problems in 2001 downplayed the partcipitating crisis: failure to deliver handsets because of bureacratic inertia in the face of a supplier problem.

    I have followed this market for a long time since my early days in radio engineering, so I’m going to add a few comments:

    1. Ericcson’s NMT was the first cellphone network to include international roaming as a capability, but the first operational cellpohone network was in launched in Japan in 1979 and spread rapidly through the country. Mobile radiotelephony actually began much earlier, starting in the vacuum tube days and at lower raido frequencies that required sizeable antennas to be fix-mounted to the automobile. Only the rich could afford the per minute price. Advances in computer, transistor and ultra-high-frequency technologies enabled the Japanese and NMT sytems to introduce automatic swtiching at a price affordable to upper and middle classes.

    2. The demise of Ericcson’s dominance of the cellphone industry came due to the increasing calcification of its management infrastructure during its years of success (a valuable lesson highlighted by Professor Regner). The actual moment of crisis was caused by a brief fire in a key supplier plant. Nokia was more alert and flexible and seized the market by its quick reaction to the fire. This was a page A1 story in the Wall Street Journal (January 20, 2001). I’ve summarized the story in ” Your Leadership Approach Must Anticipate Crisis” at http://garybclayton.com/leadership/2009/02/crisis-chaos-leadership-approach-2/.

    What has happened to Ericsson (calcification) is a story common to most companies. Once the entrepreneurial drive and flexibility is lost, it is hard to regain it.

    I look forward to every one of your posts.
    Gary

    Like

    • Dilip says:

      Hi Gary,

      Brilliant inputs that add rich context to the case. Your point on “increasing calcification of its management infrastructure during its years of success” is indeed a valuable lesson. Sony, Xerox, Nissan, Marks and Spencer and several others are examples of this phenomena. It takes some great leadership to prevent calcification and avoid the success trap.

      My students and I would love explore and learn more on this from ‘Practical Leadership’ your website http://garybclayton.com/leadership/blog/

      As this blog is dedicated to students and young professionals all learning coming from experts and senior professionals like you mean a lot.

      It is very gracious of you to appreciate. Many thanks and best regards.

      Dilip

      Like

      • Manasa Konda says:

        Hello Gary,

        This is my first comment responding to a unknown person who is really giving us wonderful inputs. Great to see you with us sir. One foremost thing which I learnt is: motivation is not only required to the employees in the organization but also to the top management who are the crew to the organization. As in this case, the public telecommunication department of Ericsson was not interested and the company itself was not interested in diversification. But SRA , being small but having an active CEO Mr. Ake proved to be a successful entrepreneur… just like searching in the darkness but finally succeeds.

        Further, we being to be the future Managers of a company loves to keep all your gracious points and work smartly with enthusiasm of not only me but also motivating the subordinates and team members!!!

        With Regards,

        Manasa Konda

        Like

  6. Dheeman Bhattacharya says:

    Often, it is noted that very few men are motivated by the challenge in the task at hand, rather than the fruit of the task. I personally assume Mr. Ake to belong to this group of men, who thrive for the exellence, but shy away from the spotlight that awaits them.

    I would like to thank Brig. Naidu Sir for giving us, his students, the privilege of studying this case and for inviting us to scrutinize it. it was awe inspiring.

    Like

    • Dilip says:

      Welcome Dheeman,

      I am glad you and the class found this case interesting The credit goes to the team who prepared and presented the case so well.

      Thanks and come again.

      Like

  7. James Ninfaakang says:

    That Ake would resign in the face of glory still baffles me. Especially that he was the architect of the struggle that finally brought success. I agree totally with sir that some characters are made that way: mavericks prone to work without structures that impede their risk addiction. However it would have been better for the reason to be given for a better evaluation of the situation. Thanks for this chance to contribute.

    Like

    • James Ninfaakang says:

      Comment number 3 is by James Ninfaakang. A student from Ghana in Tasmac College 2nd Sem, MBA Specialization in finance.

      Like

      • Dilip says:

        Wow James it’s great to read your comments. I agree your deduction on why Åke Lundqvist may possibly have resigned. The case is silent on the exact reason – entrepreneurs and project leaders love new challenges and unpredictability.

        Thank you!

        Like

  8. tavip says:

    I’ve read your article and found your article very interesting, do you still have another article, maybe we can exchange articles.

    Like

  9. manasakonda says:

    Its really a great case study which was given to our team, where we came to see the real legend, the entrepreneur Mr. Ake… But apart from presentation I am really happy to work with the team being a team member… Dilip Sir, after the case study had very precisely brought the difference between a leader and an entrepreneur and the various strategies related to our studies were been co-related to the case. We would be more happy to have such case studies in the near future.

    Like

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