An analysis of the global corporate strategies adopted by Nokia (PGBM16)


An analysis of the global corporate strategies adopted by Nokia (PGBM16)

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Executive summary

The global Smartphone industry has seen tremendous growth in the recent past with sales volumes taking an upward trajectory. Such a growing industry is bound to attract investors and this is how the industry has become saturated with different players. However an interesting phenomenon occurred under which, Nokia, a mobile giant used to be the leader in both production and sale of Smartphones, was edged out of the industry by emergent firms with platforms such as Android and iOS. This exemplifies the nature of the Smartphone competition and the possibility of disruptive technology flipping it anyway. This report seeks to analyse the case of Nokia, among other Smartphone providers, and the global strategies that the firm has undertaken. The report firstly analyses the nature of the global Smartphone competition and narrows down to the position of Nokia in the global aspect. In addition, the report used the financials and market share data from Nokia and Microsoft to determine the impact of global competition on Nokia’s financial and market share performance. The report then establishes the need strategic alliance with Microsoft and how it impacted on Nokia as a whole. The findings indicate that the fierce nature of competition drove Nokia’s market share and profit down and that the strategic alliance was a move aimed at saving Nokia from collapse. However, besides the advantages of the alliance, it left negative impacts especially on the employees. The report further indicates that in the wake of global competition, a strategic alliance is an apt move in creating sustainability.

1. Introduction

Kluyver (2010) notes there are certain imperatives behind globalisation of organisations. Such include the need for growth, efficiency, knowledge, to better meet customer’s needs and to eliminate or counter competition. The need to go global consequently necessitates the application of global strategies by a firm. Global strategy has been defined by Peng (2013) as a combination of actions that can help a firm in sustaining its presence in the global business. The global economy is currently characterised by numerous global linkages and this has opened up opportunities for global trade. In addition, the levels of competition and cooperation have also increased (Mallya and Prabhu, 2014). The Smartphone industry has, for example, seen a sharp growth attributing to technological innovations. Competition has also risen in the recent past. As Mourdoukoutas (2013) put it, the Smartphone industry is faced by saturation and stiff competitiveness. Consequently, it is fundamental that every player in the industry adopts a sound global strategy. This report seeks to analyse the global competitiveness of the Smartphone industry by looking at the case of Nokia and its strategic alliance with Microsoft. Firstly, the report will analyse the position of Nokia on the global Smartphone industry and the impact of competition on its market share and financial performance. Lastly, the report will assess the impact of organisation culture, leadership and competitiveness on Nokia’s performance.

2. Nature of competitiveness in the Smartphone industry

The nature of competition in the Smartphone industry is that it is both saturated and stiff (Mourdoukoutas, 2013). In addition, Rao (2012) says that new entrants, such as Android, bring on enough competition to get the long-time industry players, such as Nokia’s symbian worried.

2.1. Nature of industry competition facing Nokia

According to Rao (2012), the major competing OS platforms in the Smartphone market include iOS, Android and Blackberry. The figure below captures the competing Operating Systems to Symbian and the companies behind them.

Competing mobile platforms to Symbian

Figure 1: Competing mobile platforms to Symbian (Rao, 2012)

Majorly, the entry of Apple’s revolutionary iOS mobile platform led to the decline of Nokia in both market share and popularity. The Symbian platform, according to Rao (2012) was not suitable for touch screen Smartphones, a direction which the market was taking. In 2011, Nokia and Microsoft entered into a strategic partnership that saw the adoption of Windows Phone as the OS for Nokia phones. Nokia applied it on their first phones in October, 2011.

In the current day, Android and iOS still remain the major competition for Nokia’s Windows Phone. Android, an OS launched in 2008, has been adopted by numerous mobile phone manufacturers over the years and has thus gained popularity and captured the market tremendously. Currently, Android commands over 80% of the total operating system market share which is far more than the 3.5% that the Windows Phone mobile platform commands (Edwards, 2014). This means that Nokia needs to push its OS much harder if at all it is going to reclaim the leadership position that it had established using Symbian. However, this may not be so hard because projections into the future of the Smartphone’s market shows possible increase in market share for Windows Phone and a drop in the same for Android.

The other fierce competitor for Nokia’s Windows Phone, iOS by Apple Inc, is project to have a drop in the market share in future. A while back, Apple was noted of serving only 15% of the Smartphone market and aiming at the rich population. Currently, the firm has a 14.8% market share that is projected to fall to 13% by the year 2018 (Edwards, 2014).  Edwards (2014), notes that the market share that Apple’s iOS loses goes to Windows Phone. In this case then, Windows Phone is gaining strength in the market as opposed to the other competitors that are losing market share.

Market share by OS platform and the corresponding predictions

Figure 2: Market share by OS platform and the corresponding predictions (Edwards, 2014)

Lastly, a critical analysis in terms of prices, Windows Phone has the ability to compete effectively against Android. Though currently there is a slight difference between the prices of the two – $254 and $265 respectively, this gap is projected to close in by 2018. Nokia has an added advantage because it can thus compete in the growing Smartphone market in the east. Edwards (2014) points out that iOS which is the most expensive platform, is only competitive in the west and its failure to consider market prices will see its share fall. However, Windows Phone still will face competition from other entry level platforms that spot lower prices and therefore effective in price-sensitive markets.

2.2. Impact of global industry competition on Nokia’s market share and income

The level of competition on the global Smartphone market has seen an upward trajectory over the years. Rao (2012) notes that the 21st century brought along with it an increased consumer demand for converged-function phones and this led to many manufacturers entering the industry. Initially, Nokia was the market leader (prior to 1997) but this changed later and by 2011, Rao (2012) notes that major leaders and competitors in terms of operating system platforms were iOS and Android. This implies that Nokia’s Symbian platform lost market share along the way. A company report by Nokia shows that in the year 2006, the firm had a market share of 36% in the devices market (Nokia, 2006). In 2010, the market share had dropped to 32% and currently this share has dropped to around 3.5 % (statistica, 2015; Edwards, 2014).

The following figure 3 illustrates the downward trajectory that Nokia has taken in terms of market share. It is imperative to note that in quarter four of 2007 the firm had crossed the 50% mark in terms of market share.

Global market share held by Nokia from 2007 to 2013

Figure 3: Global market share held by Nokia from 2007 to 2013 (Statistica, 2015)

The continued loss of market share by Nokia is directly attributed to the entry on new competitors in the market that offer better phones and operating systems, that is iOS and Android. Currently, the firms that Nokia is competing with are Samsung, Blackberry and Apple which have both released impressive gadgets in the recent past (Cellan-jones, 2013).

In terms of financial performance, competition has adversely affected the performance of Nokia both in terms of operating profits and share prices. In figure 4 below, it is evident that the decline in sales tagged along a decline in profits. For example, in 2007, the profit was above six million Euros but in 2010, it was slightly above one million Euros (Rao, 2012). Similarly, Nokia is yet to achieve profits that can match up to what the competitors are netting. For example, Apple in the year 2014 declared profits of over eight billion Euros, with average retail prices of 406 Euros per phone, Nokia on the other hand had ten times less sales than Apple with average retail prices of 158 Euros per phone (Cellan-jones, 2013).

Nokia’s profit performance between 2006 and 2010

Figure 4: Nokia’s profit performance between 2006 and 2010 (Rao, 2012)

Rao (2012) notes Nokia was criticized for lacking response to the dynamics of the phone market. In the battle for market share, the firm had gained enough strength in the developing markets such as Asia. However, small player such as Micromax entered the markets and started offering features that Nokia took long to offer. This crippled Nokia in terms of market share and profits. However, Nokia’s finances were further deteriorated by the falling price of its stocks. Rao (2012) points out that in the year 2007, a single share traded at 27.70 Euros but four years later, in October 2011, a single share traded at 4.52 Euros.

3. The position of strategic alliances in global competitiveness

3.1. Critical assessment of strategic alliances and Mergers and acquisitions

According to Heidtmann and Rietz (2012), it is difficult to give an exhaustive definition of the term ‘strategic alliance’ because it is a concept that is synonymously used to describe different organisational situations. However, Smeritschnig (2013) explains the definition of a strategic alliance as a partnership involving two or more firms that come together to pursue a common objective that will offer mutual benefit to them. Smeritschnig (2013) also notes that in a strict sense, strategic partnerships are distinguishable from licensing, franchising, equity investments, mergers and acquisitions, cartels and joint ventures.

Mergers and acquisitions on the other hand involve, according to Sherman (2011), two companies that ad separate identities coming to operate under one roof in order to obtain strategic and financial objectives. In a merger, two companies come together and lose their original identities while in an acquisition one company buy a division or the entire operations of another company. The bought company ceases to exist. Sherman (2011) also stresses that on the surface, the distinctions matter less because the outcome is the same.

Nokia and Microsoft have recently exploited this realm through the Nokia-Microsoft partnership under which they exchange core competencies. Microsoft offers Nokia the Windows Phone 8 operating system while Nokia provides the hardware to run it. Essentially, according to Molen (2015), Microsoft acquired Nokia’s Devices and Services division for seven billion dollar in order to facilitate this alliance. In return, Microsoft gets to control Nokia’s smart devices and mobile devices. Microsoft will also control the design teams and other employees, developers, accessories, manufacturing and testing plants. Nokia retained it Solutions and Networks division as well as patents (Molen, 2015).

3.2. Nokia’s alliance with Microsoft and how this benefited Nokia’s performance

Despite the claimed alliance stability issues that make them unable to realise their full potential, research shows that strategic alliances and mergers remain as the profound inter-firm collaborative tools that can help achieve value through sharing of possible resources (Ferreira, Storopoli and Serra, 2014; Kumar, 2014). According to Sherman (2011), mergers and acquisitions and strategic alliance are not random event but rather are triggered by mostly markets trends. Such markets trends include rapid changes in technology, fierce competition, change in consumer preferences, increasing need to control costs and reductions in demand. In addition, they spread risk and cost when venturing into a new strategic directions as well as applying new technologies (Sherman, 2011).

Rao (2012) notes the remarks of Elop, the chief executive officer (CEO) of Nokia saying that Nokia and Microsoft found competencies in each other that would be of mutual help and this resulted in the alliance. Firstly, the major benefit to Nokia is that it has emerged on the competitive platform again. As Elop put it, the global Smartphone industry was not competing on devices but rather operating systems and ecosystems (Apple’s Market store and Google’s Marketplace) (Arthur, 2011). Therefore, Symbian would not be effective enough the face up against iOS and Android. When Nokia and Microsoft collaborated, the competing OS would be Windows Phone.

A report by Microsoft on the alliance shows that Nokia will benefit by gaining a footing in the battle it was already losing in the Smartphone industry. Expressly stated in the report is the achievement of the alliance up until 2013. Nokia’s phone shipments have gone up and there has been a new development where the firm hold more than 10% market share in more than nine markets as well as outselling competitor Blackberry in over thirty four markets. In addition to this the year-over –year growth was at 78% in 2013.

Nokia’s Windows Phone shipments on a quarterly basis from 2012 to 2013

Figure 5: Nokia’s Windows Phone shipments on a quarterly basis from 2012 to 2013 (Microsoft, 2013)

Commenting on how the partnership will achieve increased market share, the CEO of Microsoft, Ballmer, notes that the two firms will achieve innovation based on hardware, software and services (Rao, 2012). The idea behind the partnership was also creating an ‘ecosystem’ that will be effectively rival iOS and Android. Android has proven to be an impossible competitor but Apple’s IOS has been continually losing to Windows Phone; research by Independent Market Analyst shows that in over twenty four countries where iPhone sales were higher than Nokia’s, the Nokia has taken over (Egan, 2014, Kelly, 2014). In these places windows Phone sales are second to Android sales. This winning combination, according to Ballmer, is de to latest features of Windows Phone and the expertise Nokia has in manufacturing good hardware.

3.2.1. The shake up at Nokia and the consequence to the employees

The shake up at Nokia saw the appointment of Elop as the new CEO. Elop came in with an aim of turning round the company. On top of his to-do list was to implement drastic changes in the employee force of the organisation. He wanted to bring in a new executive team with new skills and strengths. This process saw the laying-off of over a sixth of the total employees – ten thousand and five hundred people and the closure of a manufacturing plant (Rao, 2012). On the firm’s end, this move may prove profitable because it enhances efficiency and cuts down on the operating expenses. However, the move may not have the same impact on the current and already laid-off employees.

The lay-offs have not been well received by the employees with most of them terming the take-over by Microsoft as hostile and the lay-offs as violent (Reuters, 2014). Microsoft’s intention of laying off over 14% of its workforce also had a negative impact on the employees at Nokia. This is because of the 18,000 employee to be laid off, 12,500 would come from Nokia. Wingfield (2014) notes that most of the critics, who are former employees of Microsoft and Nokia, believe that the alliance between the firms brought in bureaucracy and sluggishness. In addition, even though the CEO, Ballmer, promised big changes in the firm, which motivated most of the staff that were left behind after massive lay-offs, the firm and the employees are yet to realise this (Wingfield, 2014). In general, the shake up at Nokia and the alliance that ensued is detrimental to the employees at Nokia. As Nelson and Quick (2012) put it, lay-offs are associated with de-motivation and dissatisfaction and that employees who remain behind grieve the ones that have been laid-off and also fear for their job security.

4. Organisational culture, leadership and competitiveness

A good organization structure is essential for any effective management. Organisation structure, according to Datt (2005), involves every activity in an organisation and the management of these activities. Such activities include the work done by different departments and coordination of the same and also proper placement of staff in the right posts and hierarchy. According to Elop, Nokia lacked a good organisation structure. When he took over, his first initiative was to restructure the firm. In fact, he points out at the lack of collaboration in the firm that slowed down innovation. This was an informed move because as Datt (2005) says, one of the needs of an effective organisation structure is the optimum utilization of employee skills and efforts.

Organisation structure does not only serve as a tool of defining and organizing activities but it is applicable in controlling the organisation. Janicijevic (2013) notes that it is useful in controlling activities in an organisation towards achievement of certain set objectives. To this end, Elop, as the CEO of Nokia, needed a grip on the structure of the organisation for the sake of differentiation and integration of activities and also for control towards attainment of set objectives. In his stay for example, he has used the element of division of labour and specialization (a concept of organizational structure) to create two segments at Nokia; one dealing with high-end Smartphones and the other dealing with ordinary Smartphones (Rao, 2012).

Similarly, standing on a “burning platform” not only meant the crippling of Nokia’s organisation structure but of the culture as well. Alvesson (2012) points out that culture is an imperative tool in the creating of competitiveness. Culture serves as a control mechanism to serve alongside structure. In fact, culture offers the other subsystems of a firm such as strategy, structures, business concept and technology with a basis of operation. Alvesson (2012) also notes that culture, being shared beliefs and perspectives by members of an organisation, defines direction and commands the employees’ behavior in relation to overall goals. A good culture removes opportunistic and short-term employee behaviour and roots the firm on a strategic and common direction. Therefore, Elop’s comment that Nokia lacked in leadership that could align and direct the firm through competition was justified. Figure 6 below depicts the centrality of culture to the other organisational subsystems.

Culture as a central point of organisational subsystems

Figure 6: Culture as a central point of organisational subsystems (Alvesson, 2012)

The solution that Elop insinuates is a leadership team that is able to foster accountability, offer direction and align the firm towards the strategic goals. According to Janicijevic (2013), this is the main function of organisational culture. The integration between leadership and culture, as explained by Janicijevic (2013), comes in due to the fact that share beliefs and perspectives give all the employees a reference point of actions and a map of future actions. In this sense, through the managers’ and employees/ mental maps, organisational culture influences the dominant leadership style and strategic direction. Therefore, in addition, culture influences organisational structure. Figure 7 below shows culture and structure are interdependent.

Organisation culture and structure and their interdependence

Figure 7: Organisation culture and structure and their interdependence (Alvesson, 2012)

As much as organisational culture and structure are essential in creating a strategic direction and shaping leadership that Elop notes lacks in Nokia, it is crucial that more needs to be done in dealing with the disruptive Smartphone industry. Elop’s reference to the industry as disruptive has a basis given the emergence of new technologies, Android and iOS. However, it is fundamental to note that disruption barely lies in the kind of technology as it does on the strategy that is applied in using the technology (Christensen, 2015).

The intent of Nokia, that Elop adopted, was to disrupt the market by bringing a ‘third ecosystem’ which would compete and outdo Apple’s iOS and Google’s Android. This idea fits the definition of disruptive technology given that it would be similar to a start-up that takes over the market by force. However, the certainty of disruptive innovation, as noted earlier, lies on the strategy in the application of technology as opposed to the technology itself (Christensen, 2015). Gobble (2015) likens the development of disruptive technology as the creating of a viral video on the internet. The creators may have all the checks at creation but there is no certainty of the video going viral. Market dynamincs determine how viral the video will be (Gobble, 2015). In a similar manner, the dynamic nature of the Smartphone industry determines whether Nokia’s ‘third ecosystem’ will take over the market or not.

Serrat (2010) points out that among the major elements necessary for an alliance to work include the need to embrace differences and creating collaborations. What happened between Nokia and Microsoft is a complex alliance because on end, employees at Nokia complain of bureaucracy with the management (Wingfield, 2014). On the other end management boasts of changes that will bring effectiveness (Rao, 2012). Either way, a well formed structure and culture coupled with good leadership will foster success, this is the only way the current and future mergers will work for Nokia and Microsoft.

5. A personal understanding of the Global Smartphone industry competition

An undeniable fact about the global Smartphone industry is the tremendous growth that is being experienced. Over the last few years, personal computers (PCs) and internet advertising were the most grown and lucrative industry in terms of technology. However, as Woyke (2014) notes, currently the sale of Smartphones in units is thrice the number of PCs sold and has by far outgrown the internet advertising industry. With the Smartphone becoming a mainstream device, the industry attracts many players and thus competition increases. However, this competition has taken a new turn and instead of a winner-takes-it-all dimension, it is now the-winners-take-it-all (Mourdoukoutas, 2013). This means that no single firm is able to monopolise the market at this point.

Currently, Android has dominated the OS competition with over 80% market share and followed by iOS which dominates the high-end markets. These two firms have defined themselves as the two major ‘ecosystems’ and thus there remains room for only one more. Nokia partnered with Microsoft in a bid to be the ‘third ecosystem’. However, this may have been a far-fetched move in accordance to the explanation by Spence (2014). Firstly, the ecosystem concept would work if Android had a 70% market share and then iOS and Windows Phone would share the remaining 30% equally. The current situation is that Android had over 80%, IOS had more than 15% and the rest share the less than 5% remaining. According to Spence (2014), the third ecosystem cannot have less than 10% of the market share. Despite these, as Gobble (2015) says, the success of the product lies in the market dynamics more than on theories. Therefore, Nokia may have a tangible future in the industry through innovation found in the strategic alliance with Microsoft.

6. Conclusion

The global Smartphone industry has seen growth over the last decade and currently Smartphones have become mainstream gadgets. This has seen an upsurge in interest in the industry and over the years, the players have also increased in number and innovations have risen. Nokia, a firm that was dominating the market, is now struggling to get back in the competition for market as new players – Google and Apple – came along and disrupted the market with new technology. This has necessitated the re-invention of strategy at Nokia and the result is the strategic partnership with Microsoft. This is an apt move given that strategic alliances and mergers and acquisitions have emerged as the contemporary solutions to market forces such as fierce competitions, fall in demand among others. The strategic alliance by Nokia intended to disrupt the market and to facilitate this various changes were made by the newly appointed CEO. However, the uncertainty in the industry has proven difficult to operate in and as Gobble (2015) points out, the only way to determine success would be complete all the checks of the an alliance and wait for market forces to take action.

7. References

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