Leung Man Hong
- Organizational and Business Overview
Headquartered in Finland, Nokia is best known as a manufacturer of mobile handsets, having led the industry for decades before facing a massive decline in the late 2000s. Nokia was the top brand in the consumer electronics segment, however, between 2012 and 2013, its brand value fell by a massive 65% bringing it down to the 57th rank . Nokia’s three main business lines are: a) Mobile handsets, b) Nokia Networks, and c) Nokia Ventures . Over 1.2 billion people across the globe use Nokia products. Figure 1 illustrates the organizational structure at Nokia :
Figure 1: Organizational Structure – Nokia, 2013
Nokia’s mission statement – Connecting People – is possibly one of the best known in the world. Its vision is to connect billions of people across the globe through mobile technology and empower them to lead a better life . After the company’s recent acquisition by Microsoft, CEO Stephen Elop has officially announced the following 4 strategic objectives for the company:
- Stakeholder Analysis: Power/Interest Matrix
Figure 2: Stakeholder Power/Interest Matrix – Nokia
With its market share having drastically been impacted by the rise of competitors such as Apple and Samsung, the recent takeover by Microsoft may have left both, consumers as well as investors uncertain about the company’s capabilities and future . However, as these are the stakeholders who drive the main funding of the business, they are the key players that Nokia needs to focus on. Although consumers do not have a direct monetary interest in the company, Nokia needs to specifically focus on retaining them. Without the sale of products, the company will not be able to maintain adequate amounts of profitability, which will in turn impact shareholders and investors.
On the other hand, suppliers and banking institutions have dealt with Nokia for decades and have strong relationships of trust. The takeover by Microsoft will only bolster the company’s immediate financial stability and hence these stakeholders do not have much cause for concern. As such, Nokia mere has to keep them satisfied. Employees and the media do not wield immediate power over the company although they do have high interest in it. On the flip side, Nokia needs to ensure the media presents its developments in a positive light. Hence, these stakeholder need to be kept informed. Finally, as long as the company complies with regulations and clears its taxation requirements, the government and regulatory authorities have limited interest and power over the firm. As such, the company has to invest minimal efforts towards these stakeholders.
- Identification of existing Strategies
Nokia’s business objectives follow the Hunger and Wheelen’s Hierarchy of Strategy, where short-term functional objectives are drafted from predefined long-term objectives to derive strategies .
Make the customers the top priority: This strategy puts the customers in the middle of Nokia’s business activities ranging from long-term concerns to day-by-day issues that customers deal with. Nokia wants its business to evolve purely on satisfying the customer’s needs and desires.
Expand to new markets and new business opportunities: To be the leader, Nokia must continue pushing for growth in new territories in terms of geography and technology.
Develop, maintain and sustain product leadership: Nokia’s strategy is to defend its market position by coming up with new and exciting products and services. Nokia was awarded as one of the most innovative companies of the world in 2006 (Businessweek, 2006) having been the first company to offer low-end phones for an emerging low-end consumer market for mobile phone devices.
- Internal Audit
While Nokia had been facing a financial crisis after announcing a 20% fall in sales and an operating loss of $693 million in the second quarter of 2011 , its acquisition by Microsoft will infuse fresh funds while cutting operating costs. This will be a much needed resource for the company in the immediate future. In terms of human capital, the partnership with Microsoft has resulted in massive job cuts and streamlining of the work force, as a result of which, the company may have lost highly trained engineers to competitors such as Google who actively hired at the time . At the same time, it will now be able to merge its cellular know-how with the technological expertise of the R&D department at Microsoft. As such, while the company was strapped for resources in mid-2011, under Microsoft’s umbrella, Nokia has found renewed resources.
Nokia has several unique capabilities, owning mainly to its prolonged dominance in the mobile handset market. Nokia Siemens Networks remains the third largest telecommunication infrastructure company and retains a massive customer base of telecom companies . It has a vast portfolio of patented technologies, with factories manufacturing extremely expensive and sophisticated telecom networking equipment. In terms of low cost phones, Nokia has the cost leadership and economies of scale that has allowed it to retain the number one rank in this segment in terms of quantities produced. The company has the largest network of distributors and retail selling points. Nokia still dominates large emerging markets including China, India and Africa.
4.c. Managerial Competencies
Stephen Elop had joined Nokia in 2010, migrating from his Business Development position at Microsoft. As part of the acquisition deal, Elop stepped down as CEO of Nokia and is set to transition, once again, to Microsoft, this time in the capacity of Executive Vice President. Despite yet another change in the top management of the company (Nokia, Board of Directors, 2013), Nokia’s strategies remain focused on the three core objectives outline by Elof in 2011, namely: a) a focus on developing the smartphone product range, b) acquiring the next billion users in emerging markets, and c) disruption technologies . However, this present a division of focus by itself. While smartphones cater to the high end market, tapping into the markets of developing countries in China, India and Africa requires focus on low end, low cost phones.
4.d. Corporate Culture
The corporate culture of Nokia had traditionally been very rigid and hierarchical. The company, through its CEO Jorma Ollila, proactively adopted a teamwork based, non-hierarchical culture in the 1990s . However, in order to adapt to the swiftly developing smartphone market, Nokia will need to don an even more flexible culture that promotes organizational entrepreneurship.
4.e. Value Chain
Nokia’s value chain is much like that of its competitors in terms of production, sales and distribution. Phones parts are sourced from supplier across the globe and assembled in factories focused on specific product lines.
4.f. Competitive Advantage
Based on the analyses of its core competencies, Table 1 illustrates that Nokia cannot be deemed to be the leader in the mobile market, although it has several opportunities to regain its position, particularly after its acquisition by Microsoft.
- Despite losing market share, Nokia is still one of the world’s largest producers and manufacturer of mobile cellular phones. It also is one holds one of the largest networks in the world for product distribution, doing business in about 150 countries worldwide.
- Nokia is still very strong on the research and development team that is known to be very innovative and creative.
- Nokia’s feature phone has been overtaken by smart phones. This has resulted in financial decline which the company has been experiencing in the last five years.
- Nokia has an in-house R&D whereas other manufacturers buy existing technologies from third-party vendors. This increases the cost of production of Nokia phones.
- External Audit
5.a. PESTLE Analysis
The PESTLE tool is used to analyze social factors, political factors, technological factors, economic factors and legal factors (MindTools, 2013). The definition of each factor is explained below.
- Political factors – With operations in over 150 countries, Nokia needs to be specifically aware and cautious of the political environments in these nations. Not only does the company have its consumer base here but a majority of its production also takes place in volatile political countries such as China and India. Changes in trade laws or labor regulations can have far reaching consequences for Nokia.
- Economic factors –The economic requirements for inflation in one country affect the prices of goods and services in another, making one more competitive than the other. These economic factors must be followed and analysed sufficiently to enable Nokia to adapt to the changing economic landscape. Post the 2009 global economic crisis, economies around the world have been fairly unstable with erratic purchase power of consumers. With several players such a Motorola exiting the mobile market , and others considering to do so , competition is fierce among those companies that remain.
- Social factors – Social structures determine the buying patterns of each locality and are important in managing the offerings made available by the company to the market. Nokia’s strategy is to focus on the emerging markets in Asia, Africa and the Middle East. However, these markets have a combination of high end users as well as a vast market of consumers who cannot yet afford even the most basic of mobile phones. While Nokia’s strength lies in its ability to produce cheap low end phones, it should be noted that the purchase power of these geographies is expected to grow exponentially. This leads to uncertainty about what product line would be most suitable to supply in these markets.
- Technological factors - Technologies in emerging marketing are advancing at a rapid pace. While Nokia, through its Nokia Siemens Networks, is prepared to offer 4G compatible phones, this will again interfere with the costing of products. In markets where consumers increasingly compare technological features and the pricing of a phone, investing in the right technologies is of pivotal importance.
- Legal factors – As the recent legal tussle between Apple and Samsung over the patent and copyright infringement in smartphone design illustrated, the legal aspects of operating in a given country and the applicability of international patents is crucial for survival in the mobile market. Nokia, with its massive dossier of patents, while has relevant security pertaining to existing product design and features, caution is necessary when implementing new technologies and designs, particularly in the smartphone segment.
5.b. Porter’s Five Forces
- Threat of New Entrants (High)
In the last 10 years, the number of entrants in the market has increased significantly, however there are several critical barriers to entry that plague new entrants. Nokia is one of several large, well-entrenched and known brands that are in this market and its popularity is a key factor that has enabled the company to keep a leadership position. Developing a successful brand is one the most critical barriers to entry for new entrants into the consumer electronics market. Another threat comes from Nokia’s own suppliers, those that have established the same competitive economies of scale as Nokia, and are diversifying their businesses towards the consumer end of the electronics market.
- Substitutes (High)
- Supplier Power (Medium)
The threat from suppliers is minimal, because of Nokia’s ability to utilise its supplier base effectively. However, this reliance may become a threat if Nokia does not manage quality standards and costs. So far, Nokia’s suppliers have earned a reputation of loyalty to the brand as well. Also, spartphone application developers prefer working with the Android and iPhone OS when compared to Nokia’s Symbian or Windows OS. This makes it difficult to supply as massive a choice of applications as Android users get .
- Buyer Power (High)
With consumers having multiple choices in products that have minimal differentiation, the bargaining power of buyers is high. Modern day buyers are informed and thoroughly evaluate available options before making a purchase. Consumers have become all the more cautious and demanding post the global economic downturn of 2009. Mobile operators make up for 60% of handset sales . As a result, end users as well as mobile operators now bargain for the lowest price and highest quality when making purchases .
- Rivalry (High)
The largest threat comes from increasing competitive rivalry. This industry is characterised by growth and break-neck innovative pace that demands high capital investments and robust research and development from both entrenched companies as well as from new entrants. However, Nokia is protected from competitor rivalry because of its commanding position in the market.
5.c. Strategic Group Mapping
The SGM of the mobile industry is extremely close knit with minimal product differentiation as well as comparable pricing. The group can mainly be segregated into three categories: a) smartphones, b) feature phones, and c) low end phones. With the monumental growth of the smartphone market, key players such as Apple and Samsung have rapidly closed the gap between product differentiation. In terms of pricing, new entrants such as Micromaxx and Karbonn that provide similar features at much lower prices have carved their own niche in emerging markets, particularly India. The feature phone market has rapidly declined with consumers purchasing smartphones instead. However, in the low end phones market, Nokia still retains its lead as rivals have majorly focused on the smartphone market. While the strategies of the competitors in the smartphone market is extremely similar, Nokia’s focus on clinching one billion new users in emerging markets could prove to be a differentiator.
5.d. Industry Life Cycle
As with other industries, the mobile industry too follows the product life cycle of introduction, development, maturity and decline. While the feature phone segment is in the decline stage, the smartphone segment is still in its developmental stage. With Tablets still being in the introduction phase, a shift in high end consumer focus from smartphone towards tablets is foreseeable.
5.e. Boston Consulting Group or BCG Matrix
The Boston Consulting Group or BCG Matrix for Nokia products shows the status of its products, their market share and profitability:
- Question Marks: These are those products that cater to a market experiences high growth but holds low market share in this segment. Nokia’s Premium series of phones fall into this segment. The Nokia Oro, for example, is targeted at the upper crests of society, where consumers want to their phones to different from what the masses are buying. As even high-end smart phones such as the iPhone and Samsung’s Galaxy series become accessible to masses, the 18 carat gold plated Oro offers all the features of these phones with exceptional style and chic that is found lacking among the said competitors (Delaney, 2011). While the market for such premium phones is mostly untapped, Nokia’s product range has failed to capitalize on it as yet.
- Stars: These are products that enjoy a high market share in a high growth market. The Nokia Lumia series of smart phones falls into this category. Being the company’s main competing product to the iPhone and Samsung Galaxy S Series of high end smart phones, the Lumia has a loyal consumer base and attempts to increase market share by converging stylish looks, functionality and pricing. Its main competitor in this segment is Sony’s Xperia range of phones.
- Cash Cows: These are products that have a high market share but very limited scope for growth. Nokia’s lower range phones that cater to consumers with limited purchasing power fall into this category. While the company does have a substantial market share, competition from low cost manufacturers from China, Korea and South Africa have made growth in the market share difficult, specifically in Asian markets.
- Dogs: These are products that control a small market share and has minimal market growth. Nokia’s N-Gage range of gaming phones falls into this bracket. With hardcore gamers preferring mainstream portable video gaming options from Sony, Microsoft and Nintendo, gaming on mobile phone never truly became a market. As a result, despite much publicity and extensive marketing, the N-gage series failed to pick up any pace.
5.f. Summary: Opportunities and Threats
- The mobile phone market is continuously growing. In 2011, this market grew by double digits worldwide.
- The Asia-Pacific region, which historically is a strong region for Nokia, is one of the fastest growing mobile market regions.
- The most active segment of the mobile phone market is the youth market, which is another historically strong segment of Nokia
- The mobile phone market has shifted to smart phones. Consumers are now barraged with several good mobile phone lines and inexpensive counterparts from China.
- Because of the variety, it is very difficult to retain products and promote customer loyalty.
- The convergence of other technologies (tablets) with mobile phones is eroding the market share for stand-alone mobile phones.
- Appraisal of Opportunities and Threat
Nokia must create devices that are desired by the market, they must utilize internet services, they must create and deliver new enterprise solutions, and they must build their networks to a large scale and provide services to support these offerings. Nokia needs to add high-quality customer care in its strategy to defend its market position. There is great opportunity for growth in emerging markets in countries such as China and India as well as Bangladesh, Pakistan and the Philippines where the feature phones still have a sizeable market.
- Identification of Strategic Options
- Nokia can venture into the Tablets market utilizing the R&D behind Microsoft’s Windows tablets and converging them with its design and brand advantage.
- It can proactively eliminate its declining feature phone segment and channel the investment towards the development of more cost effective smartphones that would cater to what remains of the feature phone market as well as draw a larger consumer base in emerging markets
- It can add focus to its struggling premium range of phones by investing in marketing in emerging markets expecting high growth in purchasing power. This can prove to be Nokia’s differentiator in an otherwise similar product market.
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