TABLE OF CONTENTS In March of 2000, lightning struck a semiconductor manufacturing facility owned by Philips Electronics (see, e.g., Latour, 2001). It caused a fire that lasted about 10 minutes and shut down the plant for only a few weeks. But the plant was the sole source of critical semiconductor devices used by Nokia and Ericsson to produce mobile phone handsets. The resulting supply disruption threatened to halt cell phone production for both firms.
At Nokia, the event received immediate executive-level attention. Nokia launched a textbook crisis management program. Within two weeks, Nokia officials were in Asia, Europe, and the United States securing alternative sources of supply. Despite the fire, Nokia experienced only minimal production disruptions.
Ericsson was far slower to react. It had no contingency plans in place to manage the disruption. Information about the event percolated slowly up to executive management. By the time the company began to mount a serious response, it was already too late. Nokia had locked in all alternative sources of supply.
The business impact on Ericsson was devastating. The firm reported over $400 million in lost revenue as a result of the supply shortages, and its stock price declined by over 14%. Nokia gained three points of market share, largely at Ericsson's expense. Some time later, Ericsson stopped manufacturing cell phone handsets and outsourced production to a contract manufacturer.
The Ericsson case is not an isolated incident. Firms face a wide variety of business risks, many related to their extended...
