During the same week in August 1998 two Finns appeared on the covers of Fortune and BusinessWeek. Linus Torvalds was acclaimed by Fortune as the master of network-based software development and the new role model for cyber-programmers. The father of Linux, age 28, has become a world-renowned guru on operating system platforms. BusinessWeek profiled Nokia CEO Jorma Ollila, who brought Nokia from the brink of collapse to a leading international company in mobile communications and services.
These men and their accomplishments exemplify Finland’s rapid rise as one of the most networked nations in the world [1, 4]. A larger fraction of Finns have mobile phones (50%) than in any other country, and Finland was the first country where the income from wireless communications exceeded that from land lines. Telephone costs are among the world’s lowest, and phone services are fully digitized. The number of Internet hosts per capita is the world’s highest, as is the per capita volume of Internet use. Internet-based commerce is such that 10% of Finns use the Internet every week to pay bills or to buy services. Only a handful of other countries have 10 percent of their population using the Internet in any minimal way, much less for regular e-commerce (and a large fraction of these countries are in the Nordic region).
Finland has also been able to turn its high levels of technology adoption into a competitive asset. Ireland and Finland are the only two European countries with positive trade balances for IT products and services [9]. Finland has strong export positions in mobile phones, base stations and switches, is Europe’s largest manufacturer of PCs (through ICL Personal Computers) and has recently created some successful software products. Moreover, exports of Finnish IT products and services are expected to double by 2002.
Finland has evolved from a peripheral European country producing paper and timber into a nation with per capita IT production and use ranking among the highest in the world. In Finland, we have a rare example of a small country that is able to spawn a successful, entirely indigenous, multibillion dollar IT company [3]. To understand how this came about, it is necessary to review some Finnish history and policies that have taken the country from some very hard times to its present position. We also have to examine aspects of the institutional environment of Scandinavian societies since the late 1960s, dramatic changes in technology in the 1980s, and specific features of the Finnish management culture that all contributed to the radical transformation.
Finland’s five million people live in a large, sparsely populated stretch of land between Sweden, Russia, and the Arctic Circle. Historically Finland has been part of both Sweden and Russia, becoming independent in 1917 after Czarist Russia’s collapse. A nation without many natural resources, largely unsuited for advanced agriculture, it has also suffered from several wars during this century. Due to all these factors, it has historically had a relatively low economic standard of living. In 1948, Finland’s GNP per capita was half of Sweden’s. Traditionally, Finland’s economy had wooden legs, dependent on its forests. Since World War II, Finland has developed a machine industry, which produces luxury cruisers, paper machines, and lifts. Forests and machines still account for 50% of Finland’s exports, while another 25% now comes from electronics and IT. By 1997 GNP per capita equaled Sweden’s.
Educational Policies and Funding in Computing and Networks
By international standards, Finnish society achieved full literacy relatively early (in the late 19th century) and has since paid much attention to public education. Among the Organization of Economic Cooperation and Development (OECD) countries, Finland uses the largest portion of its GNP for primary education and is among the top five in secondary education [5]. Therefore, learning skills, literacy, and attitudes toward learning—all arguably factors in achieving success in adopting IT—are well developed. In a recent Institute for Management Development (IMD) survey on the competitiveness of nations [5], the quality of Finland’s educational system and the quality of its workforce were ranked second after Singapore. About 60% of the population is expected to complete tertiary education institutions, including universities and polytechnics.
The Finnish educational system has actively promoted IT skills. By 1999 all Finnish schools will have Internet connections. Primary and secondary schools have offered computing since the mid-1980s. Finland’s extensive public library system is now completely linked to the Internet, providing virtually every Finn with free access and some help with Internet use. In the early 1990s Finland introduced the "IT Driver’s License." This is a publicly developed and maintained national test to evaluate IT skills among the workforce. The model is currently being adopted within the entire European Union (see www.tieke.fi/ tieke/ajokortti/).
University education in computing started when the first chair in computing was established in 1965. Although teaching resources were insufficient for a long time, the early start provided an adequate basis for educating a competent Finnish IT workforce. Similar developments have taken place in related fields: electrical engineering, telecommunications, and applied mathematics. Growth of teaching personnel has been twice boosted by national programs in the mid-1980s and in the early 1990s, and a third will take place between 1998 and 2000. By the end of 1996 IT topics were taught in 15 universities that annually graduate about 600, five-year M.S. degrees and 40 Ph.D.’s. Finland also has an extensive network of polytechnics that produce over 2,000 degrees each year in computing and engineering.
Research activity in IT has been steadily growing over the last decade. The productivity index of IT-related publications per one million inhabitants was highest in Finland, followed by the U.S. in 1995 and 1996 [10]. Finnish research has achieved world-class results in neural computing, computational theories, cryptography, digital signal processing, programming languages and compilers, telecommunication protocols, databases, operating systems, information systems, and software engineering.
The Ministry of Education was the major funding agency in the 1980s when the Finnish University Network (FUNET) was developed and it soon connected all universities and research institutions. This led to a rapid increase of use of the Internet in institutions close to universities, including high schools, hospitals, municipalities, ministries, and libraries. Consequently, the commercial Internet service market became highly competitive. Now basic access to the Internet can be obtained for U.S. $8 per month. The post office plans to provide every citizen with an individual email address. Some widespread Internet services have been of Finnish origin, including the Internet Relay Chat (IRQ).
Technology Policy and Strategies
Before the mid-1980s, the Academy of Finland, an institution similar to the U.S. NSF, funded small pockets of basic IT-related research. Some industry-oriented R&D was conducted in the state-owned Technical Research Center, which also is funded through the state budget. Since the mid-1980s it has operated a research laboratory in IT.
In the mid-1980s, the state adopted a long-range planning and monitoring system. This adoption changed the role of the National Science and Technology Council, which had been established in 1963. The Council was transformed into a top-level policy-making body chaired by the prime minister. The Council has representatives from major ministries and institutions who play important roles in the national innovation system. In addition, the council has members from industry and labor organizations. During the last decade, the council has been crucial in shaping long-range plans and sustaining a steady growth in investments in R&D, even during the deep recession in the early 1990s. The council has developed an effective division of labor and coordination between different policy-making bodies.
The growth in research spending has been among the highest in OECD countries. The national goal has been to increase the share of R&D within the GNP to 2.9% by 1999, up from 2.6% in 1997. Moreover, unlike other members of the European Union (EU), Finland has not cut its own research funding after joining.
The reason why Finland was able to be so successful requires an understanding of the changes in the institutional and technical environment.
The R&D system changed when the Technology Development Center of Finland (TEKES) was established in 1983. TEKES has played a vital role in fostering industry-oriented R&D. Its annual funding currently is about U.S. $400 million, of which almost U.S. $160 million is allocated to IT. TEKES offers funding for selected areas for companies alone, or for joint research projects between universities or other research institutions and industry. TEKES has focused its research programs in selected domains to create synergies in learning and to achieve world-class competence. During the 1980s and early 1990s, it funded several programs in software engineering, telecommunication systems, electronics, and intelligent systems. The projects in these programs were funded on the basis of research quality and industry interest. The programs allowed small- and medium-sized companies to participate, offered larger companies opportunities to carry out research in high-risk technologies, and fostered education. In contrast to many EU research programs, these initiatives were not heavily burdened by bureaucracy.
The importance of these programs in fostering industry-based R&D cannot be overestimated. They created a tradition and mode of close industry-university interaction more advanced than in most European countries. Therefore Finland was ranked the best in industry-university cooperation among all countries in the IMD survey [5]. Finland helped to develop a critical technology base for the growing IT industry in many areas, including radio frequency and antenna technologies, digital signal processing, application-specific integrated ciruits, operating systems, groupware products, telecommunication software, and software engineering [6]. In both IT and telematics of the IV Framework program of the EU, the Finnish share of received funding has been much larger than the Finnish share of the EU research budget.
Electronics and IT Industries
The start of the Finnish IT industry dates to the early 1960s when Nokia began to manufacture pulse code generators. At this time, the company was making paper, cable, and rubber boots. Nokia started its electronics department in 1967, and this became Nokia Data. Nokia Data had some manufacturing operations, but most of its initial income came from software development and services. The manufacturing operations grew steadily when Nokia Data started to manufacture PCs, and later its own switching platforms (in a different division called TeleNokia), though for a long time without great success. Much of Nokia Data’s early trade was carried out with the USSR through bilateral agreements. These agreements assured modest but steady growth that enabled Nokia to advance its technical capabilities. Much of the advancement was due to the CEO, Kari Kairamo. He sustained the belief in the importance of high-technology business despite the company’s small size and continuous losses in these operations for over 10 years [8].
Finland’s big opportunity came in the mid-1980s after cellular technologies and microprocessors were introduced. These were not Finnish inventions, and the opportunities they offered could have been seized by many other countries. The reason why Finland was able to be so successful requires an understanding of the changes in the institutional and technical environment of the Scandinavian societies and of features of the Finnish culture and management style.
Cellular phone technologies were invented in the early 1960s in the U.S. by Bell Labs, and the first commercial cellular services appeared a few years later. The golden opportunity for Ericsson of Sweden—and later Nokia—came when the Nordic monopoly telecommunication carriers jointly developed a service specification for a Nordic wireless service. As one Nokia manager observed: "These standards were offered to us on a silver plate." The first wireless service operated at 450MHz and the standard has since been known as Nordic Mobile Telephone 450 (NMT-450). The development of NMT-450 was started in 1969; its specification was ready in 1978. The service started in Sweden in 1981 and in the other Scandinavian countries by 1982. The Nordic countries have offered wireless services 34 years longer than any other major economic region, at the lowest prices in the world.
The NMT standard was open in all major interfaces and included the idea of digital switching for radio phone services, though the air interface still operated in the analog mode. The NMT-450 standard and the subsequent NMT-900 standard introduced several novel concepts now found in most wireless communications including light portable phones and roaming. These standards were so successful that NMT platforms were adopted in several other countries, offering a continuing sales stream in base stations and switching systems first to Ericsson and, after 1986, to Nokia. Nokia initially decided that it would manufacture phones conforming to major phone standards including advanced mobile phone service and total access communication systems.
The second major change was the acceptance of the Global System for Mobile Communication (GSM) standard in 1989 [7]. The development of GSM started in 1981 under the European Telecommunication Operators’ organ CEPT (The European Conference of Postal and Telecommunications Administrations), but was transferred in the late 1980s to the European Telecommunication Standard Institute. The development of GSM followed the same pattern as NMT. GSM was developed to become an open standard that would allow interoperability of mobile phones in all European countries. A new feature of GSM introduced a fully digital air interface, thus necessitating more processing power in the phone to code speech into a digital form. All Nordic countries played a visible role in the development of GSM. The first GSM call was made in Helsinki in 1991 over a Nokia-manufactured GSM network. Since then, Nokia and Ericsson have shared about 60% of this fast-growing market. GSM has become the standard on all other continents except the Americas. It forms the dominant technical platform for second- generation mobile phones. In Scandinavia, the change to GSM has affected about 50% population penetration levels, and these are expected to grow to 70% over the next five years. The development of a pan-European GSM standard was critical for the continued growth of Nokia and other telecom firms in Finland.
This was all made possible by the availability of cheap microprocessors in the early 1980s. These were necessary for light portable handsets, and their importance in developing Nokia’s switching platforms was decisive. Before 1980 there was no true Finnish production of switches (save some small switches developed for military purposes). When two small Finnish manufacturers of telecommunications equipment merged under Nokia, it obtained a prototype and patents for a digital switch based on Intel microprocessors [8]. The development of this switching architecture started in the mid-1970s, but the results had been unimpressive until the Intel 8086 processor became available. Due to its modular architecture and the growth in microprocessor performance, the switch was scalable, flexible and was soon adapted to different purposes, including wireless telephone switches. The switch, known as the Nokia DX-200, became the backbone of all Nokia network systems.
The Unknown Soldier
Nokia was at the brink of collapse in the early 1990s for several reasons, including the suicide of its CEO. It was forced to sell its computer division to Britain’s ICL and its consumer electronics to some Japanese firms. Without the boom in wireless communications the company and the Finnish high-technology industry could have collapsed. Finland has also been unsuccessful in several other endeavors, including planar displays, the state-regulated programming language FAS, and Nokia’s attempt to develop the ADA-based operating system MPS-10. But these setbacks have not caused Finnish policymakers to lose the strategic vision they chose in the 1980s.
Part of this persistence can be explained by the Finnish culture and national characteristics that underlie social interactions and organizational behavior. The most widely read Finnish novel after World War II is Vdinv Linna’s Unknown Soldier. The novel tells the story of a platoon that fought in World War II on the Finnish eastern border against the Soviet Union. Despite the absence of a clear plot, the novel is a masterpiece in the Finnish language and a key to understanding Finnish management culture.
The prominent features of the Finnish World War II military organization were organic forms, improvisation, individual reliability and responsibility, and fast reaction. Many of these features are still visible in Finnish high-tech firms. Nokia, for example, is famous for its grassroots orientation and flat hierarchy, dependence on talented individuals who are allowed to improvise and also to fail, and the resulting capability for fast reaction. Accordingly, Finnish organizations value doing and not just talk or social rituals. As one colleague pointed out to us: "In Finland people are doing the work when people in other countries are still exchanging their business cards and trying to figure out whether the person they are talking to is at the same hierarchical level and thus appropriate to talk with."
Another feature of the Unknown Soldier evident in Finnish society is the ever-present understanding of a shared fate. The nation has been so often on the brink of destruction that the culture cherishes the consensus that helped the country through so many hardships. This is still known by the term "Winter War Spirit," after the Russo-Finnish War of 19391940 during which little Finland almost held off Stalin’s Soviet Union. This spirit still shapes many arenas of Finnish policy-making and management. For example, the current cabinet has representatives from various parties—conservatives, communists, and greens. The same consensus-seeking spirit was obvious in decisions to implement joint EDI systems by Finnish trading companies [2]. The feeling of a joint mission has enabled fast reactions in many difficult situations, starting with the payment of huge World War II reparations (Finland was the first country to do so). The same determination is also visible in many of the nation’s IT-related accomplishments.
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