Keith Pardy: The Human Approach
November 12, 2007
Nokia is the world's largest manufacturer of mobile devices and plays a leading role in the worldwide markets for equipment, services, and solutions for network operators. Nokia employs more than 60,000 people and had a total of €41 billion [US$55 billion] net sales in 2006.
Keith Pardy joined Nokia in the fall of 2004 with a background in marketing consumer packaged goods. In his current position, he is responsible for the management of the Nokia brand across all business units and for a variety of cross-Nokia operational activities, including the company's online presence.
Nokia's goal: To make the world's largest manufacturer of mobile devices the most loved and admired brand in the world. To that end, two years ago Nokia reviewed its brand strategy that now relies heavily on making emotional connections with the consumer. And, Pardy points out, the new positioning "feeds everything Nokia does."
Going hand in hand with that strategic repositioning is a transformation of the whole marketing model. To fulfill its commitment to its customers, Nokia constantly looks for new ways to interact with them - the Internet being the primary vehicle of connection. To understand the needs of its best prospects, the company has precisely segmented its markets all over the world to discover new avenues of service. Although growth in the mobile telephony market has slowed its pace in some developed countries, Nokia finds growth in new value domains, such as context-relevant services, mobile solutions for enterprises, and multiple-ownership plans, as well as in emerging markets.
As Nokia has looked in new directions, its management has kept a sharp eye on marketing accountability. With an annual sales and marketing budget of €3.3 billion (US$4.5 billion) Pardy insists on metrics to measure the return both holistically and on a detailed basis.
In a company that operates in one of the few industries that are both R&D and marketing intensive, Pardy believes that relationships with management peers are of critical importance. Pardy reports to Olli-Pekka Kallasvuo, Nokia's CEO, and places a premium value on the support of the company's group executive board responsible for laying out the values, the vision, and the mission of the company. "It all has to be aligned with the brand," Pardy says. "Setting the company's values means setting the brand values. Nokia's way of doing this is [showing] respect for individuals, [having] an unrelenting focus on consumers and customers, and constantly challenging the status quo to find new and better ways to connect people."
Before joining Nokia, Pardy spent the majority of his career in marketing with the Coca-Cola Company. He has lived and worked in Canada, the United States, Russia, Sweden, Spain, and the United Kingdom.
Strategy+Business (S+B): You came to Nokia after years at Coca-Cola. How would you counsel someone with a background in consumer packaged-goods marketing who wanted to make a transition to a company deeply steeped in technology?
Pardy: In the last year and a half, we've hired 50 or more people from companies whose core competency was consumer marketing, companies like Nike, Coke, Pepsi, P&G, and Reebok. The reason we are bringing in people with different skill sets is that Nokia has a deep and leading capability in technology and product marketing. Since the cell phone business is behaving much more like a consumer goods business these days it seemed to make sense to acquire these skill sets.
The best career path for fast moving consumer goods (FMCG) marketers who want to enter a technology company is to roll up their sleeves and really learn the fundamentals of the business. While there are a lot of similarities between the industries, the biggest difference is the rate of intrinsic change in the product offering. Generally speaking, FMCG have relatively little intrinsic change to their products over the medium term. For technology companies, billions are invested in R&D to push the envelope and drive rapid and significant intrinsic change. It's the marketer's job to help guide technologists, product managers, and designers to make sure that consumers are willing to pay a premium for the inventions that are made.
We have also hired a lot of business-to-business marketing professionals to help us accelerate our entry into the enterprise business.
S+B: Does that validate the value of traditional marketing training?
Pardy: Yes and no. What traditional packaged-goods marketers fail to understand is the real complexity of moving 100 billion components in a 12-month period; where the value of that component was X at the beginning of the year, it's X divided by two at the end of the year. The skill and competency required to ramp up and ramp down 40-plus products a year in all geographies is awesome. And if you don't manage that right - if you don't understand the complexity of software and chips, integration, and all the trade-offs you have to make - you're going to discover you have a blind spot. Getting your head around the complexity in our business or the number of moving parts is key to being successful.
S+B: Marketing Growth Champions learn to connect marketing to a wide range of internal disciplines, including design and technology. How far does the marketing function reach at Nokia?
Pardy: In the early part of last year, we worked on connecting the company's mission and vision to the brand. At one point there were separate projects that were not tightly aligned. And now they're all connected. Our vision is that in a world where everybody can be connected to everything, we take a very human approach to technology. We do that because we want to help people feel close to what matters in their lives. That's what we want to bring to the party. This idea must be connected to everything we do and don't do.
S+B: How do you manage to bring a human approach to a product that is so fundamentally driven by technology?
Pardy: The human approach is our brand proposition. When we invest in R&D, when we design products, when we talk to operators, when we design marketing programs, we do so with the perspective of an identified consumer need and understanding of how our products can improve people's lives. That is the human approach. We incorporate it in our brand. We believe in our heart and soul that technology exists for the benefit of people. If our products or services do not make people's lives easier or more enjoyable, then we have missed the mark. It's people first, technology second.
S+B: It won't be long before 3 billion people will be carrying a mobile device. In the first quarter of 2007, Nokia had a global market share of 36 percent. Just as with Coca-Cola, there seems to be a challenge of making the brand special even though it is ubiquitous.
Pardy: By the turn of the decade, there will probably be 4 billion people using a mobile device. The difference between Nokia and Coke is that the world of technology is changing much more rapidly than the beverage market. You basically have convergence going on. Coke's primary competitor was Pepsi and a few other vertical players in non-carbonated beverages. With digital, media, and social convergence, our competition isn't just Motorola and Samsung. Mobility is fundamentally changing the way people live and work, and everybody is vying for a position in Web 2.0.
We are heading toward a world where everybody is connected to everything, both at work and in their personal lives. About 15 percent of the world's knowledge is digitized - a figure that probably will increase to 50 percent by the end of the decade. And more people will connect to the Internet through mobile devices than any other device. For the first time in the history of humankind, over 3 billion people will be able to connect to each other and to the majority of the world's knowledge through the push of a button. Most people will have their first Internet experience on a Nokia device. But to change all this behavior we have to make it easy, intuitive, and meaningful.... This is where our very human approach to technology plays a lead role.
S+B: Nokia's brand has always been strong. What do you do to maintain that leadership position?
Pardy: The brand values and core proposition feed everything that we do. Anybody can get into the phone business today, just like anybody could have gotten into the soft-drink business 10 years ago. So in this very competitive marketplace, the role of the brand and all that it promises has increased in importance. In fact, over the past several years, our brand has become a core strategic asset for Nokia, and it has been elevated to the corporate level. We have a very tight governance structure for the brand and the strategy; brand metrics are reviewed quarterly by the brand board and group executive board.
Because our business is so complex and competitive, it is difficult to maintain success. The answer to our continued success lies in becoming laser-focused on the consumer. Over the next two or three years - maybe it will take a bit longer - we will transition from mainly a technology company to a consumer- and customer-oriented company that excels in developing and integrating very tailored new technology into handheld devices. I think this will be one of the next big transformations for Nokia in moving from an inside-out company to an outside-in company.
S+B: How does the strength of the brand help Nokia manage the complexity of a technology-driven enterprise?
Pardy: Everyone inside Nokia has tremendous pride in the brand. This pride stems from the leadership Nokia has demonstrated in the last 15 years in cutting the wires and connecting people in a way that the world has never been connected before. As we move forward and the complexity increases, the "how" of connecting people will become much more important. In very human terms, it means that first we observe, and then we design. It's as simple as that.
The "observe and design" philosophy is part of the Finnish design ethic. You see it in the furniture, the glassware, and the architecture. It's a balance between function and form. It is the thread that connects everything we do. We keep reminding ourselves, "We make very human technology." And in the battle between man and machine, we believe man wins. This philosophy is part of Nokia, and out of the 60,000 people we employ, probably the top 10,000 in leadership positions fully understand our brand proposition. We are on a mission to ensure that everyone feels connected to this idea.
S+B: You continue to renew, strengthen, and extend your brand. How has the consumer orientation changed your mix of brand-building efforts?
Pardy: In 2005 we completed 41,000 in-depth 90-minute one-onone interviews about values, lifestyles, and attitudes in the context of mobile devices. We refreshed that data in 2006. We have collected over 10 billion data points. And we identified 12 segments that range in size from a hundred to a half-billion. We use that segmentation to understand the mobile needs, lives, and media habits of people.
If we want to talk to technology leaders, we now know there are about 100 million of them in the world. They spend a disproportionate amount of their income on the latest technology. They're not worried about complexity. They actually love it. Their currency in life is to talk to other people about technology. And the way you communicate with those 100 million people is not on TV. These people have adopted and led the evolution of Web 2.0.
Let's go to another segment: mature seniors. There is a big group of them in North America and a fairly big group in Europe. They want devices that are simple to use and allow them to keep in touch with their family and friends. The products you design for them and the way you talk to them are very different from the products you design and market for technology leaders.
We've totally incorporated this segmentation model into our businesses and created four categories, or four "rooms." Those rooms are called Live, Connect, Explore, and Achieve. Products and experiences in the Live room help people express themselves to the outside world. They feature design stories with perfect detailing and a heavy emphasis on aesthetics. Connect is all about connecting simply and making simple, easy, elegant, and progressive products. For these people, the ultimate sophistication is simplicity. Achieve is for people who need tools to get things done when their business depends on it. People and businesses want products and solutions that help them stay in touch with their teams and customers. Design is very important for Achieve consumers, but reliability, security, and ease of use rank right up there, as well. And Explore is for those people who want to push the limits of what's happening in mobility. These people are leading the tech revolution and Web 2.0. They are looking for handheld multimedia computers where a phone is just an application. They browse, snap, blog, mash, text, post, share, explore, and have strong opinions on just about everything.
S+B: How do these segments affect your potential for generating revenue for branded products?
Pardy: It's easiest to explain by example. When Nike advertises its basketball shoes, it advertises Air Jordans - its premier, iconic model. Relatively speaking, not a lot of US$150 Air Jordans are sold. The reality is that promoting Air Jordans sells a lot of $50 Nike shoes. The volume is in the low end, but the dream is with Air Jordan.
This is the same model we are moving toward. For each category, there is a lead segment driver that creates the aspirational appeal. All the rest halo in behind those. We know that the "technology leader" phone is designed for the 100 million people. And we'll talk directly to them. But we'll also create off-strategy sales - to all those people who buy it because they just like technology. They'll never use half the features on it. These people just like being on the edge of technology because it makes them feel good.
S+B: What is the role of marketing in relation to the technical focus and strength of the company?
Pardy: Right now it's 50/50. In the past, it was 80/20 in favor of technology. Decisions were made about what technology to add in a device based on what was invented. As Nokia evolves toward a consumer- and customer-led business and our segmentation model really kicks in, we see the concept of "consumer engineering" - products and services that are inspired by our consumers - becoming the focal point of what we make.
S+B: How do you bring the insight from customer needs to technology and make it have an impact?
Pardy: We do that through a number of different channels. The two primary channels are via our product creation process, which includes a multidisciplinary team made up of researchers, designers, engineers, and technologists. These product creation teams live and breathe the insights that are generated from our consumer segmentation study. The second channel is through the strategic alignment of the consumer insights function with Nokia design and strategic marketing. The three groups are all moving into the same creative excellence spaces in Espoo [Finland] and London.
S+B: As customers have become savvier about technology, how have the stakes changed in the challenge of engaging them?
Pardy: Nokia moved away from the posture of, "We've got the brand. We've got the power. Here's what you should sell." There was some arrogance in that, and I think we learned a few lessons in that everyone needs to realize the value in what we make or else the tension mounts. We're now listening much more intently to customers, consumers, ecosystem partners, and all the players that help make the complex simple. But although we listen to everyone, we may not incorporate everyone's viewpoint into what we offer. There are certain things that we will not compromise on, such as our branding elements or certain technologies that are important for us to deliver a consistent Nokia experience to consumers. If we were to compromise on everything, sooner or later, no matter how powerful our brand, we wouldn't have a business or a brand anyone cared about.
S+B: Nokia has an entire business unit focused on mobility solutions for businesses. How does a company that is known for its consumer brand gain acceptance in the business market, where the brand is practically unknown?
Pardy: We are making a big push into the enterprise business. We have a very healthy security offering, and our products are used in many of the Fortune 100 companies. We have also recently introduced a sub-brand called Nokia Eseries that is targeted at early adopters in the business space and at chief information officers. The Nokia Eseries promises enterprise-grade security and solutions with all the elegance and ease of use that consumers expect from Nokia.
S+B: How have new technologies changed the way Nokia listens to customers?
Pardy: One difference at Nokia I noticed immediately when I arrived from Coke was the important role that the Internet and Nokia intranet played in how we operate. We invest huge amounts of money in building processes and technology to connect management to customers, suppliers, consumers, and employees. Everything is online. In a relative sense, there is no paper inside Nokia. Very few people have a landline. Everything is wireless and connected. We're always tuned in. It doesn't matter where you live. It's truly a mobile life that we all live...and quite frankly it's very liberating.
S+B: The traditional advertiser didn't have to ask permission to speak to consumers. But the rules have changed. Technology empowers consumers. They can compare products online. They can filter out unwanted communications. They can determine which ads they see. Given those new rules of engagement, what's the most effective way to engage with consumers?
Pardy: We are moving from technology push to consumer pull, from push marketing to co-creation, from idea manufacturers to consumer experiences. The consumers are in charge as never before - not in all parts of the world, but in large swaths of geography - because they now have the ability to tune in and tune out. Brands will be made and destroyed on MySpace and YouTube.
If you have to push advertising to consumers, you are out of business. Advertising has to be context-relevant. And whatever you do, add value to popular culture and do not patronize the audience. We are investing in new models of communication, including Nokia.com for the mobile phone, and designing new services, such as www.widsets.com, which allows you to mobilize the Web and feed customized content including blogs, photos, and news feeds instantaneously to your mobile. With Widsets, if you want BBC news content, you simply click a widget and you are taken right to the latest minute of action. You can get sports results, financials, and weather reports, Webcam updates on road traffic, Flickr pictures, eBay auctions, or whatever else you may want. Ideas like these will turn basic services into a revenue business.
S+B: In light of this newly empowered consumer, how has the traditional role of the advertising agency changed?
Pardy: Advertising agencies really need to change. And some of them are changing. There are a lot of different media channels to consider. It's next to impossible for one agency to have expertise in all those different channels. And the great creatives are moving from the large agencies to other media or smaller shops where they can experience creative freedom. Generally, they've been giving away their ideas for free. They make their money from strategic services and a markup for expensive but not necessarily award-winning execution. Web 2.0 and the convergence of communities and social media changes everything. New channels and partners for execution are emerging and will transform the way agencies monetize their services.
I think advertising agencies are great for strategic planning, helping to create big ideas and helping to orchestrate execution. Certain agencies are great in coming up with big ideas that can help direct our marketing communications for three or four years, or until the zeitgeist changes. We do a lot of work with them on upfront analysis and strategic planning. We end up with a creative idea that's brought to life through all these different channels. But the days of paying big-ticket prices for local adaptations or subpar execution are nearing an end. Like us, agencies will be rewarded for their core services, and then the ones that learn to collaborate with all the ecosystem partners will survive.
S+B: You're in a rather distinctive position. Your brand and your consumer contact allow you to do symbiotic marketing. Have you had much success generating revenue from such new media promotional models as branded entertainment, event sponsorships, and product placements?
Pardy: We're totally transforming our promotional model. One of the areas we are looking at is going back to the studios and discussing with them the idea of leveraging our assets. We might say, "Rather than talk about money, let's talk about building awareness of your upcoming blockbuster via leveraging Nokia.com, where we get 30 million hits a month, or Nokia mobile, where we get 90 million hits a month."
S+B: How does geographic variance affect Nokia's efforts at marketing the same brand around the world?
Pardy: Our brand strength varies by major geography. While we are the sixth most valuable brand in the world, we are the most admired brand in Asia, and we have an extremely strong presence in Europe, the Middle East, and Africa. We face big challenges in the North American market, where there is confusion about the role of the operators and of the device manufacturers. To most people in North America, the leading handset brands are the ones branded by carriers like Verizon and Cingular, while actually they are made by companies like Nokia and other manufacturers. Given these dynamics and the different development of lead segments, our marketing mix approach needs to reflect these changes. The glue, however, that ties all of our marketing together is the Nokia core brand proposition of helping people feel close through human technology.
In emerging markets, where incomes are very low, our portfolio generally tends to gravitate to devices that are €74 (US$100) and less. A lot of myths exist about emerging markets - it's as if someone forgot to tell the Chinese, Indians, and Russians that they were emerging. In many instances, these markets leapfrog the development of developed markets. In Russia, for instance, where there's a lot of conspicuous consumption, consumers are really high on our premium-end phones and our fashion phones. In the Middle East and certain parts of China and India, it's the same way. I am always amazed that our super-high-end Vertu devices, which range in price from €4,000 to 280,000 [US$5,400 to $379,000], experience a disproportionate part of their sales in so-called emerging markets.
S+B: Are operators in developed markets suffering from perceived market maturity?
Pardy: In 2006, Nokia net sales grew at about 20-plus percent. When I hear the word "mature," I reference the model we used at Coke, called the PITA model. PITA stands for Population, Incidence, Times, and Amount. When you multiply these four together you get a revenue number. When you look at our business, we are really focused on moving into new populations and driving incidence, or penetration. I think the "Times" variable, or number of devices per consumer, is still a big opportunity for us and for the industry. When I listen to the financial analysts and ask them, "Do you guys ever factor multiple device ownership into your valuation models?" they ask why. And I reply, "Because I can guarantee you you've got three pairs of sneakers in your closet at 100 bucks a shot." People are going to have two or three mobile devices in their houses - one for going out, one for going to work, one for going for a ride or a run. It's going to happen. The question is when and how.
Try running the category growth projections: What happens if 30 percent of today's 2.5 billion-plus mobile device users move to multiple device ownership? The market estimates explode when this factor is taken into account. The other thing about multiple device ownership is that our data shows that people who have more than one device tend to have higher usage and billing, so this is also a win for the operators.
Another big growth opportunity is in providing digital or Internet services. When you look at the advancement of location-based or context-relevant services that are enabled by GPS technology, the opportunities seem endless. Imagine you land in New York and by viewing your contact list, you can see which of your friends are in the city. An SMS later you can be hooking up for a beer or downloading their favorites list of the best bars or nightclubs to visit. I think context-relevant services will be the next big value boost for this industry, and you can be sure Nokia will be leading the way.
S+B: With Nokia planning an expanded role for marketing, how does it plan to measure marketing success? How will the marketing group hold itself accountable?
Pardy: We're spending €3.3 billion (US$4.5 billion) a year on marketing and sales. That's an investment that we'd better be able to get a return on.
But how do you measure return on that specific expenditure? On a broad level, the role of marketing is to shift the demand curve out. And on the balance sheet, it's to build intangible goodwill. On a practical level, there is a simple calculation you can do on your income statement to compute return on marketing investment. It may be naive and very basic. But we do it. And everybody should.
Take your gross profit and subtract your marketing investment. That leaves you with what we call marketing contribution. Divide that figure by your marketing investment. You come up with a number that tells you how much gross profit you spin off for every dollar investment of marketing. This is a first indicator, but just as financial analysts don't just look at the price/earnings multiplier when they evaluate a company, we also look at a broad set of metrics to determine how we are performing with our marketing investment.
We really focus on the marketing dashboard of 30-plus metrics that we look at on a quarterly basis. We set precise targets for these measures and look at them holistically. And we ask ourselves, "What's happening with our brand preference scores? What's happened to our user base? Have we brought in new people? What's happening to our retention? How much money are we investing in fixed marketing versus working media?"
S+B: How do you coach your team to balance creativity, risk taking, and innovation with the real need to evaluate major decisions such as product launches, changes, and market investments? Is there any tension between maximizing creativity and innovation and establishing appropriate control over financial expenditures?
Pardy: Absolutely. We have it every day. Our designers can design phones that would astonish you. Our manufacturing strategy looks for platforms that allow for mass volume and customization. And that strategy is also one of the pillars of Nokia's success. But just because you have high-volume platforms does not mean you cannot introduce innovative new designs or new technologies. This is where real innovation, and to me, genius, takes place. I am at times amazed by the breakthrough solutions that our engineers and designers come up with within the existing constraints. To me, these are the types of solutions that distinguish the good from the great.
S+B: Nokia historically has valued marketing. But many CMOs work in enterprises that have no fundamental enthusiasm for marketing. How can a CMO in such a position gain support from the CEO and the rest of the company's leadership?
Pardy: People inside Nokia love this brand. I don't think they really understood they created the Nokia brand by being true to the company's Finnish heritage. It is no coincidence that Finnish values feed the values of the company and feed the values of the brand.
For instance, "treating one another with trust and respect" is a cornerstone of the Nokia values. Our culture allows us to depend on each other and communicate openly and honestly. And you'll see this tracking right through to our photography guidelines: "Never are you allowed to fake a hand shot on a Nokia." You can't make the device look small by putting it in a big person's hand. A lot of companies play that trick because they think it's good marketing. Not in Nokia's case. That would be dishonest and disrespectful to the consumer.
The company takes care to authenticate its values everywhere - in all its products, and in its communication. The human approach comes from the Finnish belief that humans and nature are one. If there is one thing Finland takes pride in, it is its harmony with nature. Nobody at Nokia uses titles. We might have them on our business cards, but we never use them in communication. It's an egalitarian culture in which you are valued for your contribution, not your rank.
Brand respect starts at the top with the group executive board responsible for setting the values, the vision, and the mission of the company. They understand that when they set the company values, they are setting the brand values. And when they are setting the mission of the company, they are setting the brand mission.
The culture of the company is the brand culture. When we live this culture and espouse these values, it breathes throughout the entire organization.
"Keith Pardy: The Human Approach." Gregor Harter and Richard Rawlinson. In "CMO Thought Leaders: The Rise of the Strategic Marketer. A Strategy + Business Reader." Edited by Geoffrey Precourt. Booz Allen Hamilton, 2007.