IV_a Bomb in Your Pocket_crisis Leadership at Nokia India

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A BOMB IN YOUR POCKET? CRISIS LEADERSHIP AT NOKIA INDIA (A) Hima Bindu and Monidipa Mukherjee wrote this case under the supervision of Professor Charles Dhanaraj solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other i dentifying information to protect confidentiality. Richard Ivey School of Business Foundation prohibits any form of reproduction, storage or transmission without its written permission. Reproduction Reproduction of this material is not covered under authorization authorization by any reproduction reproduction rights organization. organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Richard Ivey School of Business Foundation, The University of Western Ontario, London, Ontario, Canada, N6A 3K7; phone (519) 661-3208; fax (519) 661-3882; e-mail [email protected]. Copyright © 2011, Richard Ivey School of Business Foundation

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Singapore Airlines flight SQ 408 from Singapore had just landed at the Indira Gandhi International Airport at Delhi. It was past 10:00 p.m. on August 14, 2007, the eve of India’s Independence Day. D. Shivakumar, managing director of Nokia India, was cutting short his plans to visit Nokia’s headquarters in Finland and was returning to Delhi. Throughout the day, Poonam Kaul, director of communications at Nokia India, had been sending text messages to Shivakumar, Shivakumar, keeping him abreast of the developments. developments. Her last message was short but disturbing: “The media is hostile. We have asked the crisis management team to meet tonight.” Indian media had been focusing on a product advisory (see Exhibit 1) that Nokia had issued from its global headquarters in Finland earlier that day. The advisory warned Nokia phone owners that a particular batch of BL-5C batteries, manufactured by Matsushita, a Nokia supplier, was found to be overheating while the phone was being charged. Nokia offered free replacement batteries batteries in the advisory. advisory. The Indian media was turning the advisory into a sensational news story, covering incidents of mobile phone explosions in farflung Indian states. Headlines such as, “Are you walking around with a bomb in your pocket?” were flashed on television screens and caused panic among millions of Nokia mobile phone users in India. Much of the media frenzy caught the Nokia management in both India and Finland by surprise. The brand image and market leadership, which Nokia had carefully cultivated in India, was suddenly under severe threat. Shivakumar was anxious to meet with his team, knowing it was going to be a long night — perhaps one of the most crucial nights of his career.

NOKIA CORPORATION

Nokia Corporation Corporation acquired its name from the Nokianvirta Nokianvirta River in Finland. It started as a paper pulp business business in 1865, and over the years morphed into a global telecommunicatio telecommunications ns leader. Operating in more than 150 countries around the world, Nokia manufactured mobile devices and telecom equipment, and delivered mobile content services. Globally, it reported net sales of $66.7 billion 1 for 2007, with an 1

All currencies are in US$ unless otherwise stated.

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operating profit of about €10.46 billion. Nokia’s two largest markets, China and India, accounted for 23 per cent and 15 per cent of total revenues, revenues, respectively, respectively, while Great Great Britain and Germany Germany accounted for 10 2 per cent each. each. The 1990s were a high-growth period for the cellular industry. Nokia nurtured its brand name through print advertising and pan-European television advertising. Deviating from the industry norms of emphasizing the technical features of the product, Nokia appealed to the emotional benefits of buying a brand-name phone. With an estimated brand value of $33.69 billion, billion, the global branding consultancy, consultancy, Interbrand, Interbrand, 3 ranked Nokia among the top five “Best Global Brands” in 2007. In spite of a highly competitive market, Nokia had 40 per cent of the global market share in 2007, with three of its rivals, Samsung, Motorola and Sony-Ericsson, taking 13.4, 11.9 and nine per cent, respectively. Others, including Korea’s LG and Canada’s Research In Motion (Blackberry), held single-digit shares of the market. 4

Mobile Phone Industry in India

Until the mid-1990s, the Indian telecom industry was served by two public-sector agencies — Bharat Sanchar Nigam Ltd. (BSNL) for domestic services and Videsh Sanchar Nigam Ltd. (VSNL) for international long-distance services. In 1997, the Indian government established the Telecom Regulatory Authority of India (TRAI) and announced a new telecom policy that allowed privately owned operators in the telecom industry. Since 2000, the mobile subscriber base in India had been doubling annually, reaching about 261 million in 2007, overtaking the U.S. market and becoming the second-largest wireless network, next only to China. 5 Ten million new subscribers were being added every month. Mobile tariffs in India were among the lowest in the world. Average (monthly) revenue per use (ARPU), a metric that was used to assess service operators, was estimated at under $3, compared to over $50 in the United States. India used two mobile platforms: GSM (Global System for Mobile communications) with a subscriber base of 192 million, growing at nearly 60 per cent annually, and CDMA (Code Division Multiple Access) with a subscriber base of 68.37 million, growing annually at 53 per cent. 6

Nokia India Operations

Nokia entered the Indian market in 1995, and within a decade established established itself as a leader. By 2004, Nokia’s market share in India was estimated at 70 per cent by a Wall Street Journal report, report, and at 76 per 7 cent by 2006 as reported by several market surveys . Nokia’s marketing organization also included more than 500 customer care centres (CCCs) and more than 600 Nokia priority dealers (NPDs) across India (see Exhibit 2). The company had three research and development (R&D) centres in Hyderabad, Bangalore and Mumbai. Nokia opened a manufacturing facility at Chennai, India, in 2006, and in the first 18 months, rolled out 60 million handsets. This facility was expected to emerge as one of Nokia’s top three global manufacturing centres. Overall, the company was growing rapidly, with employment increasing from 450 in 2004 to over 10,000 in 2007.

2

www.nokia.com/about-nokia/financ www.nokia.com/about-nokia/financials/key-data/ ials/key-data/markets, markets, accessed July 2010. Interbrand survey, www.interbrand.com/best_global_brands.aspx www.interbrand.com/best_global_brands.aspx?year=2007 ?year=2007 &langid=1000, accessed January 2010. 4 TelecomWorldwire, TelecomWorldwire, May May 28, 2008, www.highbeam.com/doc/1G1-179466 2008, www.highbeam.com/doc/1G1-179466910.html, 910.html, accessed January 2010. 5 Telecom Regulatory Authority of India Annual Report 2007-2008, pp. 17-19, www.trai.gov.in/annualreport/TRAIAR200708E.pdf, accessed January 2010. 6 TRAI Annual Report, 2007-2008, www.trai.gov.in/annualreport/TRAI www.trai.gov.in/annualreport/TRAIAR2007-08E.pdf, AR2007-08E.pdf, accessed January 2010. 7 India Resource Centre, www.ibef.org/download/inthetopspot.pdf, www.ibef.org/download/inthetopspot.pdf, accessed January 2010. 3



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CHRONOLOGY OF A CONTROVERSY

The BL-5C was one of 14 battery models used in Nokia products, and featured lithium-ion technology; several suppliers collectively produced more than 300 million units. Matsushita Battery Industrial Co. Ltd. of Japan was one of the battery suppliers. Nokia’s batteries were tested against internationally recognized quality standards and Nokia’s own stringent quality requirements. In the summer of 2007, Nokia received a few consumer complaints about BL-5C batteries; the batteries were overheating while charging. Within a month, over 100 complaints were registered globally. In-house analysis of the data suggested that the defects were attributable to a particular batch of batteries manufactured by Matsushita from between December 2005 to November 2006. Following standard operating procedures, Nokia’s global product management directed its communications team to issue a global product advisory. The global communications and legal team was to liaise with the specific host team of countries where the issue was expected to arise

August 11, 2007

Kaul received a call at 10:00 a.m. Indian Standard Time (IST) (7:30 a.m. in Finland) from the global headquarters office in Finland regarding the product advisory. Kaul was informed that the advisory was routine and was expected to plainly state the solution to the faulty battery issue. Owners of Nokia phones would input battery numbers at Nokia’s website, which would advise the owner if his or her battery was faulty, and if faulty, would also inform the owner about the free battery replacement process. The news about the advisory was to be kept confidential until the formal announcement. Shivakumar was on his way to the headquarters on the same day and had stopped over at Singapore, Nokia’s regional headquarters. headquarters. At about 1:00 p.m., Kaul called Shivakumar Shivakumar and expressed expressed her concerns about the advisory: I was apprehensive that people in India may not differentiate between a product advisory and a product recall. In addition, I was not sure if our customers would be able to go online in order to check if their phone was affected, given that Internet usage is very low in our country. Moreover, India is an open distribution market, as compared to most developed countries, where the business is mainly through the service operator’s chain (e.g. Verizon wireless). While a product recall is a request to return to the maker a batch or an entire production run of a product, usually due to the discovery of safety issues, an advisory is considered to be routine material information.

August 12, 2007

Throughout the day, Kaul and her team kept close contact with headquarters and Shivakumar. They ensured that all data and facts concerning the incident were in place. Although it was more engaging than a normal day, there was no sense of urgency over the product advisory. August 13, 2007

The global advisory was to be released at 9:00 a.m. Finnish time the next day. The priority at the India office that day was to finalize the draft of the press release. The India office communications team also



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developed an action plan to deal with the press that highlighted the difference between a product advisory and a recall in the release to the Indian press.

August 14, 2007

Early that morning, Nokia India issued the product advisory as a press release (see Exhibit 3) to approximately 200 publications and media outlets. Kaul recalled: It was a routine press release. But I continued to have the nagging feeling that this might not work in India. I kept Shiv updated periodically. We also decided that he could proceed to Finland as scheduled and that this product advisory did not warrant his presence in Delhi. As the media was notified, Sudhir Kohli, head, Nokia Care, India, went on conference call with his regional care managers and regional general managers and explained to his team that the defective batteries would not be replaced at the care centres and that customers would be asked to check the Nokia website to learn whether their batteries were defective. Customers had to provide information via the website and would then receive a new battery within 15 days. The Nokia call centres would operate normally with no extended working hours. Kohli described the situation as follows: My main goal was to let the care centre managers know that the advisory was a routine one and did not warrant concern. I just wanted to make sure that they all knew that it was simple and routine. But, as I finished the conference call, I was anticipating operational problems.

August 14, 2007 — 4:00 P.M.

Aaj Tak, a regional media player, was the first to broadcast the news about the battery problem and the advisory, stating the facts in a straight forward, neutral manner. Kaul recalled that until that time, everything had seemed under control: I remember sitting in the office cafeteria watching Aaj Tak and one or two other channels. Suddenly at around 5:00 p.m., Star News started flashing reports about how Nokia phones could potentially explode, headlines screaming in Hindi — “Aap ke jeb mein bomb ho sakta hain” (meaning: There could be a bomb in your pocket). This was coupled with archived television footage of the July 2007 Mumbai train blasts, a railway platform with slippers strewn, kids crying, cycles overturned and all such gory pictured being flashed. That’s when it all started. Within the hour, mobile broadcast vans from Delhi media started gathering outside the Nokia office at Gurgaon. The media wanted a response and were linking the advisory to historical reports of stray blasts of counterfeit phones/batteries in the past few months. The Nokia battery “blast” was the headline story across all television channels, each news channel adding its own flavour to the story, sensationalizing it further and accelerating panic. It became a fight for television rating points (TRPs) among the channels (see Exhibit 4) . Kaul recalled:



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Editors were in no mood to listen to the facts, as everybody wanted to be the first one to report. Fuelling the main stream media frenzy, even regional media outlets picked up the news from prominent Hindi and English channels, and added their own insights and interpretations — neatly playing upon emotions. Devinder Kishore, head of marketing at Nokia India, was assigned as the media spokesperson. He had a one-on-one rapport with the channels, and he could speak fluent Hindi to the vernacular press. The communications team called the heads of every channel and got air time on nearly all of them. Kishore took questions from the media and the public and tried to provide clarifications. Kaul recalled: While they [television channels] were carrying our story, they were still showing pictures of the blast. They were not doing anything to help to resolve panic among the customers. In fact, while DK [Kishore] was live on television, he was unaware that the other half of the screen had gory pictures of blasts. Only around 10:30 p.m. the tone of the news was getting neutral, after it became clear to the channels that the company was not shying away but was there, talking and addressing concerns. Meanwhile, because of the media stories, consumers started thronging the care centres. Sudhir Kohli, head of Nokia Care knew that a local solution was needed. We had customers walking into the care centres asking staff to check their phones and for battery replacements. replacements. We neither had the replacement replacement batteries batteries in stock, nor were we advised to exchange across the counter. I felt that we needed a local solution because Indian customers are different; they will not log on to the website to check up and wait.

MANAGEMENT RESPONSE

In Singapore, Shivakumar closely watched the day’s events in India and was getting worried. He wanted to interact with the press but was advised to keep away, as the crisis team felt it would present a negative and defensive stance from the company if the managing director himself came into the picture. Things were getting out of hand, with customers panicking and hounding every Nokia outlet as the media continued to sensationalize the story. On consultation with the leadership team in India, Shivakumar decided to cancel his Finland trip and return to India. A crisis team was set up (see Exhibit 5). The team knew the next few days would be trying times. By the time Shivakumar landed at Delhi, Kaul and her team had begun to conceptualize advertisements for the next day’s newspapers. They also kept a tab on every channel and every report broadcasted. Telephone lines were active and ready, and the team was ready to take calls in order to dispel myths and provide information. At the same time, the technical team started working on an alternative battery checking and replacement solution. One of the engineers at the Nokia Delhi office suggested a local solution using the short message services (SMS) or texting, which was popular among Indian customers. Instead of using the Internet, customers could send the battery number to a particular number via SMS. The system would be designed in such a way that customers would instantaneously receive a response advising them whether or not the battery was defective. If defective, defective, the system asked for contact information, information, which was registered in a global database and activated shipment of a replacement battery. At around midnight on August 14, Shivakumar finally arrived at Nokia’s office and joined the crisis planning planning meeting that was in progress. progress. He was informed of the developments developments on the SMS process, and the



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tentative logistics planning. It was clear that they needed many more hands and an immediate supply of new batteries. Local execution was key and that was the message from global teams as well. With all the media frenzy, Nokia’s brand image, and its future in India, was at stake. Kaul recalled: As happy as I was that Shiv [Shivakumar] was there, I knew that the issue had suddenly become too large large for India, and not not so much in the the other parts of of the world. It was was as if my fears had come true. I kept thinking that the next day was August 15, a holiday, and this should give us [a] breather and some ground to get our act right. As Shivakumar listened to his team, several concerns surfaced: How should Nokia prevent false rumours of battery explosion from being linked to the product? How should the company handle irate consumers? How could it quickly control the damage and consolidate the brand image as market leader? What was the implication to Nokia’s market share? Could Nokia hold on to the customers and stop losing them to competitors? How should Nokia manage the logistics, particularly dealing with second-tier cities in India? Finally, what would the cost implications be?



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Exhibit 1 EXCERPTS FROM NOKIA’S GLOBAL PRODUCT ADVISORY

Dear Nokia Customer, This is a product advisory for the Nokia-branded BL-5C battery manufactured by Matsushita Battery Industrial Co. Ltd. of Japan between December 2005 and November 2006. This product advisory does not apply to any other Nokia battery. Nokia has identified that in very rare cases the affected batteries could potentially experience over heating initiated by a short circuit while charging, causing the battery to dislodge. Nokia is working closely with relevant local authorities to investigate this situation. Nokia has several suppliers for BL-5C batteries that have collectively produced more than 300 million BL-5C batteries. This advisory applies only to the 46 million batteries manufactured by Matsushita between December 2005 and November 2006. There have been approximately 100 incidents of over heating reported globally. No serious injuries or property damage have been reported. Consumers with a BL-5C battery subject to this advisory should note that all of the approximately 100 incidents have occurred while charging the battery. According to Nokia's knowledge this issue does not affect any other use of the mobile device. Concerned consumers may want to monitor a mobile device while charging that contains a BL-5C battery subject to this product advisory. While the occurrence in the BL-5C batteries produced by Matsushita in the time-period specified is very rare, for consumers wishing to do so, Nokia and Matsushita offer to replace for free any BL-5C battery subject to this product advisory. “Nokia” and “BL-5C” are printed on the front of the battery. On the back of the battery, the Nokia mark appears at the top, and the battery identification number (consisting of 26 characters) is found at the bottom. If the battery identification number does not contain 26 characters, it is not subject to this product advisory. If you are interested to know if your battery is part of this product advisory, please follow the two steps below: 1) Switch off your mobile device and check the battery model. If your battery is not a BL-5C model, you are not included in this product advisory and your product will not be replaced. 2) If your battery is a BL-5C model, remove the battery and check the 26-character identification number from the back of the battery. Enter the identification number in the field below and you will be advised if your battery may be replaced. Top of Form

ENTER HERE THE 26-CHARACTER PRODUCT IDENTIFICATION NUMBER AND PRESS 'SUBMIT' 'SUBMIT' - Battery Battery identification number:

Submit

Source: Nokia website, http://batteryreplacement.nokia.com/batteryreplacem http://batteryreplacement.nokia.com/batteryreplacement/en/advisory-20 ent/en/advisory-2007.html, 07.html, accessed January 2010.



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Exhibit 2 NOKIA INDIA DISTRIBUTION CENTRES

Source: Compiled by authors.



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Exhibit 3 EXCERPTS FROM PRESS RELEASE, AUGUST 14, 2007

Nokia announces product advisory for BL-5C battery August 14, 2007 Espoo, Finland - Nokia today issued a product advisory for the Nokia-branded BL-5C battery manufactured by Matsushita Battery Industrial Co., Ltd. of Japan between December 2005 and November 2006. This product advisory does not apply to any other Nokia-branded battery. Nokia has identified that in very rare cases the Nokia-branded BL-5C batteries subject to the product advisory could potentially experience overheating initiated by a short circuit while charging, causing the battery to dislodge. Nokia is working closely with Matsushita and will be cooperating with relevant authorities to investigate this situation. Nokia has several suppliers for BL-5C batteries who have collectively produced more than 300 million BL5C batteries. This advisory applies only to the 46 million batteries manufactured by Matsushita between December 2005 and November 2006, from which there have been approximately 100 incidents of overheating reported globally. No serious injuries or property damage have been reported. Consumers with a BL-5C battery subject to this advisory should note that all of the approximately 100 incidents have occurred while charging the battery. According to Nokia's knowledge this issue does not affect any other use of the mobile device. While the occurrences in the BL-5C batteries produced by Matsushita in the time-period specified are very rare, concerned consumers can request a replacement for any BL-5C battery subject to this product advisory. It is important to note that the BL-5C battery is not used in all Nokia products and that only a portion of the Nokia BL-5C batteries in use are subject to this advisory. Consumers should visit the website www.nokia.com/batteryreplacement or contact their local Nokia call center. A list of Nokia products that include the BL-5C battery is available at www.nokia.com/batteryreplacement. www.nokia.com/batteryreplacement. Media Enquiries: Nokia Communications Tel. +358 7180 34900 E-mail: [email protected] [email protected] www.nokia.com

Source: Nokia website, http://press.nokia.com/PR/200708/1146281_5. http://press.nokia.com/PR/200708/1146281_5.html, html, accessed January 2010.



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Exhibit 4 A BRIEF OVERVIEW OF INDIAN MEDIA The media and entertainment (M&E) industry was a vibrant part of the Indian economy. Industry revenues were estimated at Rs513 billion in 2007, with an annual growth rate of about 20 per cent. Print media revenues were estimated at 40 per cent of the total industry, with the rest coming from the television industry. Print Media: Indian print media had a history dating back to the 18th century. The vernacular press had the distinction of bringing out the first major newspaper, The Bengal Gazette, in 1780, when India was still under the British rule. It was started by James Augustus Hickey, who is now recognized as the father of the Indian press. The first newspaper in an Indian language (Bengali) was Samachar Darpan, which started in 1818. The first Gujarati newspaper, Bombay Samachar started started in 1822, while the first Hindi newspaper, Samachar Sudha 1854. The 2001 National Census put the literacy rate at 65.38 per cent, and it was Varshan, started in 1854. estimated that there was one copy of the newspaper available for every 20 Indians. Indians. Newspapers and magazines reached out to 222 million readers, with an almost equal readership base in rural and urban areas — making it the world’s second-largest market for newspapers. newspapers. As of 2007, English-language newspapers registered the highest daily circulation with 99 million copies, with Hindi-language papers following closely at 70 million copies. Five regional languages registered a circulation of over 10 million, namely Tamil (30 million), Marathi (22 million), Malayalam (19 million), Telegu (18 million) and Gujarati (13 milion). Broadcast Media: Media: India received its first television broadcast in 1959 in Hindi,, and until the market liberalization, Doordarshan, the state-run network, remained the only broadcast channel. International satellite television was introduced in India by CNN through its coverage of the Gulf War in 1991. Within months, Hong Kong-based Star TV started broadcasting five channels into India using the ASIASAT-1 satellite. Subsequent to market liberalization in 1992, the broadcast industry saw the arrival of several international channels via satellite and the rapid emergence of several private Indian broadcasters. As of 2007, there were over 300 channels available via cable, including 30 news channels broadcasting in almost all of India's 22 official languages (see Table 1 for top five channels in English and Hindi). Hindi) . The rapid growth of this industry also exacerbated the rivalry among the channels, often leading to accuracy and objectivity being replaced with sensational strategies to increase TRPs, a measure that influenced the channels’ advertisement rates. Oversensationalism of news was a common feature, especially in the regional divisions where ad-hoc stringers were the sources of news . Table 1: Top Five Television News Media Channels in English and Hindi English news channels market share of viewership Rank 1 2 3 4 5

Channel name NDTV 24 x 7 CNN-IBN Times Now Headlines News X

Market share (%) 33.0 24.0 23.5 9.0 8.0

Hindi news channels market share of viewership Channel name Aaj Tak Star TV India TV NDTV IBN7

Market share (%) 20.5 20.0 14.0 12.5 10.0

Sources: AdEx India 2007, www.indiantelevision.com/tama www.indiantelevision.com/tamadex/y2k7/adexind dex/y2k7/adexindex.htm; ex.htm; Industry Edelweiss Research, The India Entertainment and Media Industry, Sustaining Growth, Report 2008, A FICCIPricewaterhousecoopers Pricewaterhousecooper s report; World Association of Newspapers, www.wan-ifra.org; www.wan-ifra.org; Census 2001, National Readership Survey, 2007, accessed July 2010.


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IV_a Bomb in Your Pocket_crisis Leadership at Nokia India

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