Key topic of strategy in relation to Nokia
|✅ Paper Type: Free Essay||✅ Subject: Marketing|
|✅ Wordcount: 5427 words||✅ Published: 18th Apr 2017|
Purpose – The purpose of this paper is to provide the reader with a better understanding of strategy using Nokia as an example. It also examines how strategy at Nokia has evolved over the last decade. In essence, it examines the factors that caused this evolution process to take place.
Design/methodology/approach – Various definitions of strategy are discussed and applied to Nokia. Additionally, a strategic analysis in the form of SWOT and Porter’s five forces are used to explain the internal capabilities and resourcefulness present within Nokia and the issues present in the external micro-environment are examined.
Findings – It is shown that Nokia has been losing market share lately as a result of new competitors such as Apple introducing revolutionary products such as the iPhone to the mobile phone market. The introduction of the iPhone saw the emergence of touch screen devices used by the mainstream public as opposed to the tradition button sized devices that Nokia used to dominate.
Keywords Strategy, Strategic Analysis, SWOT Analysis, Porters five forces, Nokia, Apple
Paper type Journal
This paper addresses the key topic of strategy in relation to Nokia – the largest mobile phone maker in the world and the evolution of its strategy over the past decade.
The following issues will be considered:
What is strategy is and why is it important? Nokia as an organisation is large in size; it employs 123,000+ employees generating 52 billion Euros in revenue, as of 2009 (Nokia.co.uk). Understandably, the company is nothing less than a national institution in Finland because of its contribution to the national economy. So would it be possible for a company of this size and relevance to operate without a strategy?
In a rapidly growing communications industry which is not short of big names, Nokia has quietly managed to build a market share and sustain its position as a market leader for many years. How was this possible? Was it intentional or did Nokia get to its current position by chance?
Porter (1996, p.62) states that a company can outperform rivals only if it can establish a difference that it can preserve. It must deliver greater value to customers or create comparable value at a lower cost, or do both. Nokia was foremost amongst its contemporaries in the past in this regard. For example, the company built a global reputation for its products battery life, customer-friendly features and quality; but, what about the present? The external environment is constantly changing.
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Unfortunately, post 2004, competitors have been able to provide better value to customers seizing the competitive advantage Nokia once held. Despite its marketplace prominence, Nokia is seeing itself competing with both old competitors (such as Motorola) and new competitors (such as Apple and Google), all of whom have launched new phones and phone services in the past few years. Additionally, Nokia today, lacks the excitement that some of its newer rivals have brought to the market. While customers are only too eager to lap up iPhones and Blackberrys, Nokia’s conventional designs and features have fallen short of customer expectations.
This shows the impact that the external environment is capable of inflicting on an organization regardless of reputation or size. Surely Nokia had failed to foresee the threats present in its external environment, else it wouldn’t have lost market share to competitors. When challenged with such a situation, how a company responds is crucial. Successful comebacks though depend on the strategic blueprint of the company. Does a company stick to its current strategy or does it adapt to counter the threats posed by its external environment?
To develop the discussion further, the following section begins by addressing the definition of strategy.
What is strategy?
Porter (1996, p.64) defines the essence of strategy as “choosing to perform activities differently than rivals do.”
Alternatively, a more detailed definition of strategy is provided by Johnson and Scholes (2002, p.10), as follows:
“Strategy is the direction and scope of an organization over the longer-term: which achieves advantage for the organization through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfill stakeholder expectations.”
The above definition can be broken down into its various components and be applied to Nokia in the following context:
Where is Nokia trying to get to in the long-term (direction)?
Which markets should Nokia compete in and what kind of activities are involved in such markets? (markets; scope)
How can Nokia perform better than the competition in those markets? (advantage)?
What resources (skills, assets, finance) are required in order to be able to compete? (resources)?
What external, environmental factors affect Nokia’s ability to compete? (environment)?
What are the values and expectations of those who have power in and around Nokia? (stakeholders)
Nokia evolved from a conglomerate encompassing several industries to a company today that is regarded as the largest mobile phone manufacturer in the world. Its success cannot be attributed exclusively or primarily to neither luck nor can its success be attributed to overwhelmingly superior resources. Instead, the company’s ability to recognize opportunities when they appeared and to have the clarity of direction and flexibility necessary to exploit opportunities has seen it accomplish what it has today.
How can it not be so? With the collapse of the USSR in 1990, Nokia suffered immense pressure to survive in so many different areas that it once operated within the conglomerate. Based on new market opportunities that the company predicted in the mobile phone industry combined with its internal strengths – advanced technology on mobile phone sector (Nokia had the world’s first international cellular mobile telephone network and was the first producer of hand portable phones), Nokia finally decided to focus on the mobile phone industry. Soon Nokia achieved success and it became the largest mobile phone company in the world (Nokia.co.uk). Without the external threats, the new market opportunities and its internal strengths on the mobile phone sector, Nokia may have not entered the mobile phone industry at all. Therefore, both internal and external factors influenced Nokia’s strategic choice simultaneously. As Porter (1985) pointed out, the firm can clearly improve or erode its position within industry through its choice of strategy. The big success Nokia quickly achieved in the mobile phone industry justified that the company’s choice was right. This is demonstrated in a theoretical diagram below:
Objective appraisal of resources
Profound understanding of the competitive environment
Long-term, simple and agreed objectives
Figure 1 – Common elements in successful strategies Source: Grant (2005)
Starting point for Strategy
On their own, neither the goal of profit (or shareholder value) maximization nor the values which guide a company’s behavior, play much of a role in defining its strategy. The starting point for strategy is some underlying idea of why the business exists. Jim Collins and Jerry Porras argue that core values must be complimented by core purpose – the organizations most fundamental reason for being (Grant, 2005, p.60).
Nokia – Vision
Nokia envisions a world where connecting people to what matters, empowers them to make the most of every moment. Their aim is to therefore empower everyone to share and make the most of their life by offering irresistible personal experiences (Nokia.co.uk).
Nokia’s vision of connecting people and empowering them to make the most of every moment is what drives the company’s strategy and its decisions.
Otherwise known as ‘external environmental analysis , strategic analysis is about looking at what is happening outside the organisation now and in the future. The focus is external because factors outside the organisation have a powerful influence on it (NCVO, 2010).
Why is strategic analysis important?
Nokia is operating in a very fast paced environment where advancements in technology result in innovation of new products and the demise of others. In such an environment, it is important to anticipate what might happen, how likely it is to happen and prepare for something happening in any eventuality.
This will lead to clearer and more relevant goals, better quality decisions, and a more secure future as the company is better prepared for what will happen, as seen below:
The Industry Environment
Goals and values
Resources & capabilities
Structure & systems
Figure 2 – Strategy as a link between the firm and its environment Source: Grant (2005)
When Apple introduced its first touch screen iPhone in 2007, the mobile phone industry was bereft of such a product. Nokia’s environmental analysis or for that matter the rest of the competitors apart from Apple hadn’t anticipated the demand that such a product would create in the market. As a result, Apple was able to steal market share from established manufacturers such as Nokia.
But the fact that Nokia was actively following events in the external environment meant that it was able to respond to Apple’s threat of the iPhone by introducing its very own touch screen device. Nokia, has since gradually shifted from a button based interface to a touch screen one for the majority of its products. By doing so, it has managed to sustain its market share and repel the advancements of its fellow competitors who are all fighting to claw back lost market share to new competitors such as Apple and HTC.
An initial requirement of the process of any strategic analysis is the appraisal and analysis of the condition in which an organisation currently finds itself (Morden, 2007). This is explored in the form of a SWOT analysis discussed over the next page.
Importance of SWOT
A SWOT analysis is important, as it enables Nokia to access the internal strengths upon which it can base it choice of strategies; and thereby better service its customers; or alternatively gain competitive advantage in the mobile phone market. It addresses important issues such as – Does it have internal weaknesses which may place it at a disadvantage, and which it may have to remedy before it can make decisions on its choice of strategy?
SWOT Analysis (see Appendix 1 for summary diagram)
Back in 1999 Nokia was the undisputed market leader in the rapidly growing business of connecting people on the move. It had the highest market value of any European company and a reputation for being the coolest telecoms company in the world.
Nokia had succeeded in becoming the market leader by following a strategy of incremental innovation. It is constantly thinking about the future and is well known for its high level of investments in R&D (Mobcon, 2010).
Also when it comes to world’s best design practice, Nokia ticked all the right boxes. Collaboration was at the core of its approach to product design. For example, Nokia sends design teams out to work with the locals to discover new ideas for mobile devices that would change the way people interact in the emerging markets (Mobcon, 2010).
Nokia have also consistently been winners in the race to bring innovative new features like web browser, MMS and video calling to the market. The result of all this energy and investment are ground breaking concepts, undisputed market leadership and an extensive product range that has earned Nokia the label of – the General Motors of the Mobile Phone World (Mobcon, 2010).
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For more than a decade executives at Nokia have focused on including employees in shaping the company’s destiny in two key ways. First, Nokia’s strategy creation has evolved into a process in which, every six months, over 400 people across the company pool their knowledge and experience in building what is termed a ‘strategic road map’ for the company. Second, Nokia frequently restructures its operations through the use of modules (groups and communities of employees). These modules are reconfigured as needed to meet the changing needs of the business. Both of these operational approaches have resulted in what Nokia executives have termed ‘deep involvement’ in its strategic development (Gratton and Casse, 2010).
Strategy at Nokia is not a top-down approach; instead, the emphasis is on a widely distributed involvement. In 2004, Nokia implemented a fundamental organisational change which was made fully effective within one week and involved about 100 people assuming new jobs. The discipline, philosophy and mindset of reconfiguration through standardisation and shared platforms meant that Nokia was able to skilfully and rapidly reconfigure its human resources to meet challenging customer needs. This approach made the lines of communication at Nokia unusually direct, which meant that individuals could drive things forward (Gratton and Casse, 2010).
Market leaders historically have been notorious for their complacency. Examples abound in the global market. Sony, the leader in mobile music with its Walkman lost the market to Apple’s iPod. General Motors and Ford – two of the biggest car companies in the world, slowly and steadily lost their position to Toyota. Dell, once the leader in personal computers, lost the market to a resurgent HP and the emerging Lenovo (Roll, 2010).
All these market leaders rested on their past achievements while not investing in innovation, new technologies and new avenues to create brand experiences. The business models and the brand ideals behind their erstwhile success gradually became so entrenched that they eventually turned around to become strategic liabilities rather than strategic assets (Roll, 2010).
So it is with Nokia. Despite its reputable battery life, customer-friendly features and quality, it lacked the excitement that some of its newer competitors brought to the market. Nokia followed a strategy of incremental innovation. Although such a strategy may have offered short-term efficiencies and cost savings, the long-term consequences have been disastrous.
It will be hard for anyone to immediately name a Nokia innovation that has shaken the global mobile phone market. In contrast, Motorola introduced the highly successful RAZR phone line; Apple introduced the hugely popular iPhone and RIM the Blackberry phenomena (Roll, 2010).
Another weakness of Nokia is being prepared to collaborate more with mobile operators who now have a growing desire to have handsets that reflect their own image, something which these operators feel Nokia hadn’t been showing much enthusiasm for.
Budden and Brown (2005, p.4) say: “When Vodafone launched Vodafone Live!, its data services platform in 2002, it surprised the industry by choosing Sharp, then a virtually unknown mobile brand in Europe, as the flagship handset. People at Vodafone say Sharp were more willing to cede to Vodafone’s demands to produce a phone meeting its specific requirements. The strategy worked, with the Sharp phone becoming a top-selling handset in Europe in 2004.” A lesson that Nokia is certainly not too arrogant to learn and a greater willingness for co-operation in this tailoring of requirements have already been signaled.
Such a conservative strategy has undoubtedly hit Nokia very hard.Nokia has had to cut phone prices, a strategy that has the obvious knock-on effect on profit margins. Some of this will be further discussed in the Porters Fiver Forces analysis.
The worldwide market for converged mobile devices (also commonly referred to as smartphones) is expected to grow 55.4% this year compared to 2009 amid greater-than-expected demand for the do-it-all devices. This is 10% higher than the previous forecast from the International Data Corporation (IDC). The outlook for 2011 is also very strong. Despite uncertainty about the economy, the smartphone market is expected to increase 24.5% in 2011. However, smartphone growth will decline progressively over the course of IDC’s five-year forecast period. In 2014, for example, the market is expected to rise by just 13.6%. Furthermore, the overall phone market is growing faster than anticipated too – in 2010, the market should grow by 14.1%, 1.5% higher than initial estimates (Businesswire.com).
All of this suggests the voluminous opportunities on offer for mobile phone companies such as Nokia.
Nokia has managed to expand its global position, especially in the high-growth large emerging markets – including China, India, Brazil and Indonesia. In a global rivalry, it would be a fatal mistake to think of these markets as second-tier. Until the 1980s, the lead customers in the most advanced industries were still in the United States, Western Europe and Japan. The G-7 nations dominated talks on international economics. And what was good for California was good for the world. Today, the lead customers are increasingly in the emerging world. The G-7 has been replaced by the G-20. Winning globally, requires leadership in advanced and emergent nations (Steinbock, 2010).
A decade after doing business the Nokia way, the company’s market value has fallen dramatically. Nokia’s decade long investment in R&D and ongoing commitment to ‘incremental innovation’ has delivered an 80% loss in shareholder value. The answer of course is the iPhone. In three short years Apple has disrupted Nokia’s market and redefined its future.
Ironically, back in 1997 when Nokia’s star was on its meteoric rise; Apple was arguably on its knees. It took a $150 Million investment from Microsoft and the return of Steve Jobs to nurture the seeds that have subsequently disrupted Nokia’s market dominance (Mobcon, 2010). The rest as they say is history. The iPhone has singlehandedly revolutionized the telecommunications industry. Apple’s revolutionary iPod, iPad and iPhone platforms are nothing more than blank electronic canvases that allow the customer to design their own mobile digital life style. The iPhone, just like the original Apple Macintosh, is an empty shell waiting to be populated by its owner.
Here then is the subtle difference between the market that Nokia dominated and the market Nokia now finds itself operating in. In Nokia’s world there is a wide range of Mobile Phones of different shapes, colors and features for you to choose from. Each one allowed you to express your personality. It is like choosing between an SUV, Sedan, Convertible or Sports car – That’s why the original Nokia strategy was to become the GM of the mobile phone industry (Mobcon, 2010).
In an iPhone world there is only one (very plain) device and it’s what you install on it that makes it cool.
Other manufacturers (such as HTC and Samsung) and technological giants (such as Google and Microsoft) have also developed new products and platforms that have collectively stolen the limelight off Nokia.
Now we will look at the Porters Five Forces in relation to Nokia. The results of the SWOT can then be applied to the following model to determine a strategic choice for Nokia.
Why is Porters Five Forces important to Nokia? (See Appendix 2 for summary diagram)
Hill and Jones, (2008) state that industry boundaries may change over time as customer needs or new technologies emerge that enable companies in hitherto unrelated industries to satisfy established customer needs in new ways. This has what has happened to the mobile telecommunications industry:
Consider for instance the convergence that is currently taking place between the computer industry and the telecommunications industry – this is a fine example of how technological changes can alter industry boundaries; Historically, the telecommunications equipment industry has been considered a distinct entity from the computer hardware industry. However, as telecommunications equipment has moved from traditional analog to digital technology, so have telecommunications equipment, which has increasingly come to resemble computers. The result is that the boundaries between these industries are blurring. A digital wireless phone, for example, is nothing more than a small handheld computer with a wireless connection, and small handheld computers often now come with wireless capabilities, transforming them into phones. Thus, Nokia and Motorola who manufacture wireless phones are now finding themselves competing directly with computer companies such as Apple and Microsoft.
Porter (1996) suggests that industry selection and analysis is a vital component of strategic planning. He also referred to these forces as the microenvironment so as to contrast it with the more general term, macro-environment. They consist of those forces close to an organisation that affect its ability to serve its customers and make a profit. A change in any of the forces normally requires a company to re-assess the marketplace, as will be seen in the case of Nokia, below.
Threat of entry
The mobile telecommunications industry is highly capital intensive and thus the biggest barrier to entry is access to finance. To cover high costs (such as R&D), serious contenders typically require a lot of cash. When capital markets are generous, the threat of competitive entrants escalates. When financing opportunities are less readily available, the pace of entry slows. It is also important to remember that solid operating skills and management experience (example: Steve Jobs – Apple Inc.) is fairly scarce, making entry even more difficult.
The past few years have seen Apple, Google and HTC enter the mobile telecommunications market. Their entry into the growing mobile market was a natural progression and was made possible due to their sheer size and market presence. In essence, the mobile market was an extension of the services they already offered.
As the mobile market is now saturated with a lot of established technological brands, it is highly unlikely any new players would be attracted into this industry. The sheer presence of the big brands and the intense competition would be sufficient to drive away any new potential entrants.
Rivalry amongst existing competitors
Rivalry amongst existing competitors is fierce. The competitors in this industry include heavyweight players such as Samsung, Sony Ericsson, RIM (BlackBerry), LG, HTC and many more. The following diagram over the next page looks at these companies and their size in terms of units sold and the market share they command. This would give the reader an inclination as to the fierce competition that is prevalent in this industry.
Worldwide Mobile Terminal Sales to End Users in 1Q10 (Thousands of Units)
From this diagram it can be gleaned that Nokia’s mobile phone sales to end users reached 110.1 million units in its first quarter, in 2010 – a 1.2 per cent decline in market share year-on-year. Conversely Gartner (2010) reported other manufacturers who did pretty well:
Samsung was one of the five vendors in the top10 vendors ranking to grow its market share, which increased by 1.5 percentage points year-on-year.
RIM’s mobile phone sales reached 10.6 million units in the first quarter of 2010, a 45.9 per cent increase year-on-year. RIM is making its debut into the top five worldwide mobile handset manufacturers ranking.
The first quarter of 2010 was Apple’s strongest quarter yet, which placed the company in the No. 7 position with a 112.2 per cent increase in mobile devices sales.
This highlights the intense competition that is rampant in the mobile phone industry and it also underscores the fact that a percentage gain by one company in market share is a loss for its rival.
Threat of substitute products
Mobile phones are getting increasingly popular by the day that it is hard to conceive substitutes such as the likes of landlines or fixed telecommunication phones, tablets and other fancy gadgets such as wristwatch phones would pose any significant threat.
Bargaining power of buyers
In the handset market, end users are not known to directly purchase handsets from the manufacturer, i.e. Nokia, instead they purchase them from the service providers such as Vodafone although customers do have the option to pre-order and purchase handsets from Nokia directly via channels such as the Nokia retail store in the high street or online. The bargaining power of buyers in this case would be low as the majority of them would be making insignificant purchases such as buying only one or two handsets.
On the other hand, Nokia’s primary buyers would be the network operators who purchase Nokia’s mobile phones on a larger scale. Depending on the size of the operator, for instance – Vodafone, the world’s biggest network operator – could have more of a bargaining power in comparison to the first example above as they would tend to make purchases in a larger scale. It can be argued however that the networks buying power could be medium. This is because if a network operator decides not to purchase a popular handset from Nokia, loyal Nokia customers could move networks to a different operator to secure that handset.
Bargaining power of Suppliers
As Nokia is the biggest mobile phone manufacturer in the world, they most probably purchase their raw materials in bulk. Thus they are able to command large economies of scale. But due to the intense competition in this industry and the presence of several competitors, large suppliers can afford to command medium bargaining power. This is because if one mobile manufacturer refuses them, it is unlikely for the supplier to go out of business due to the many big sized established manufacturers already present. Also the suppliers in this industry tend to be specialist in nature.
SWOT and Five Forces summary
Based on the above analysis, it is clear that Nokia has the potential to remain a major presence in the global mobile phone industry in the coming years. The external mobile phone market environment is dynamic; Nokia has lost its market share due to the misinterpretation of the market trends and customer needs. In particular it was slow to react to Apple’s iPhone. But the rapidly growing mobile market also brings many big potential opportunities for Nokia, such as the market in developing countries, customized business user mobile phones and so on. Moreover, the most important of Nokia’s internal strengths, such as the advanced technology, innovative products, economies of scale, could collectively let it surpass the competitors and solidify its market leader position. Furthermore, Nokia can benefit further from its strong brand name and company image. The fall in market share, between 2004 to 2010 should remind Nokia of the need to overcome its complacency and arrogance and to be more sensitive to customer needs.
Planned and emergent approaches
Some argue that strategy is deliberate and should be deliberately planned and executed. Managers are required to predict the future and to orchestrate plans to pursue an intended strategic result (De Wit and Meyer, 2004 & Harrison, 2005). In essence, this approach tends to emphasise long-term planning designed to achieve a ‘fit’ between an organisation’s strategy and its environment (Ansoff, 1965; Andrews, 1987). However, heavily structured planning is clearly inappropriate in times of rapid and turbulent change. In addition, it is evident that, in practice, many strategies simply emerge from a stream of decisions, which is better suited to dynamic and hypercompetitive environments (De Wit and Meyer, 2004 & Harrison, 2005). Thus, some argued that organisations that limit themselves to acting on the basis of what is already known or understood will not be sufficiently innovative to create a sustainable competitive advantage (Mintzberg, 1990).
However, in practice, planning and emergent approaches are both useful – they should not be seen as independent or mutually exclusive (Johnson el al, 2005). A firm can, but not fully, commit to detailed and coordinated long-term plans, while, simultaneously adapt itself flexibly and opportunistically to unfolding circumstances (De Wit and Meyer, 2004). That is, both planned and emergent approaches are necessary, and if an organisation is to succeed, managers need to try to strike the best possible balance between the two.
Nokia had planned to develop the high-end mobile phone and invested heavily on its advanced products; meanwhile, the company also, as planned, underwent an internal re-organisation aiming for the future sustainable growth. However, during 2003-2004, Nokia suffered a fall in the mobile phone market. Since the company realised that the market was not yet ready for this technology and operating system; the company emergently adjusted its strategy again, and designed new models of phones to meet the customers’ needs; meanwhile, the company followed the market trends and cut the price of phones. Soon the company recaptured the loss in its market share only to lose it again a few years later in 2007, with the emergence of the iPhone. In addition, the company gradually changed its stand and started to cooperate with the mobile network operators. These emergent strategy changes showed that Nokia no longer stuck to its previous planned strategies, while simultaneously adapting to some emergent strategies in order to meet the customer needs and dynamic business environment. In point of fact, faced with the prospect of industry saturation and increased international competition in the mobile industry, Nokia will have more strategic choices to make. In essence, Nokia will need to formulate more emergent and planned strategies in order to respond to the dynamic global market based on different business environments and situation.
Bibliography and References
Books and Journals
Andrews, K. (1987), The Concept of Corporate Strategy, Irwin, Homewood, IL.
Ansoff, H.I. (1965) Corporate Strategy: an Analytic Approach to Business Policy for Growth and Expansion. New York: McGraw-Hill
Barney, J.B. (1991) ‘Firm Resources and Sustained Competitive Advantage’, Journal of Management, Vol. 17, No.1, pp. 99-120
De Wit B and Meyer R (2004) Strategy: Process, Content, Context: an international perspective. 3rd ed. Thomson Learning.
Grant, Robert M., 2005. Contemporary Strategy Analysis. 5th ed. Cornwall: Blackwell Publishing.
G Johnson, K Scholes and R Whittington (2005) Exploring Corporate Strategy-Text and Cases. 7th ed. FT/Prentice Hall
Harrison S. J (2005) Strategic Management of Resources and Relationships-Concepts and Cases Page 8 John Wiley&Sons,Inc.
Johnson, G. and Scholes, K. (2002) Exploring Corporate Strategy Sixth Edition. London, Prentice Hall.
Mintzberg, H.(1990) ‘The design school: reconsidering the basic prmises of strategic management’, Strategic Management Journal, Vol. 11 No. 3, pp. 171-195
Mintzberg, H., Quinn, J.B. and Ghosha., S. (1995), The Strategy Process: Concepts, Contexts and Cases, European Edition, Prentice-H
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