As each division is self managing, it can be sold off or outsourced with minimal effect to the entire organization if it is not meeting targets. Having self-managed divisions also frees the top management at Nokia from being involved with the day-to-day operations, and allows them to concentrate on long-term planning and strategic decision-making, which is imperative in their dynamic environment (Robbins & Barnwell 2002).
The five wholly-owned Nokia subsidiaries share a support centre, which reduces the duplication of resources. The support centre provides IT, human resources and financial services to the five companies owned by Nokia, namely Nokia-Siemen network, Symbian, NAVTEQ, Vertu, and Qt Development Frameworks (Nokia Annual Report 2009).
There are weaknesses of Nokia’s divisional structure, that is throughout the other autonomous divisions, there is extensive duplication of activities, which leads to higher operating costs and inefficiency. Divisional forms also tend to discourage communication between the divisions and conflict can occur. In an attempt to minimise this conflict, all divisions share Nokia’s strategic interests and are headed towards similar goals (Meriden, Trevor 2001). Another disadvantage of the Nokia structure is that the specialisation that exists within departments makes it difficult for top management to transfer staff to different divisions, and in the case where divisions are competing for similar markets.
Nokia’s organizational structure is very flexible and adaptable, as the corporate continuously promoting innovation and corporate development. Its organizational designs change as quickly as the mobile phone industry changes. In the mobile phone industry, a flexible organizational structure is crucial because the designs appropriate for business development change as quickly as the business itself.
For Nokia, organizational capabilities means having the ability to have people collectively capable of working together in a rapidly changing environment by developing a new product and getting it to market. It also entails, having the people in the organization able to work together in an effort to innovate, to respond to customer needs, to understand the value proposition and to properly implement the organization's strategy.
Nokia’s inordinately fast decision-making which facilitates very quick resolutions and rapid implementation. Major new real estate projects, are approved in mere weeks, not months; and after top management's sign-off, corporate real estate is empowered to implement the plan free of time-consuming top-level micro-management. Nokia has minimized market risks by reducing its Euro-dependency, with less than half of total revenues coming from the continent. (Nokia Capital Markets Day, 2008)
Figure 1.1: Charts showing the Nokia Organisational Structure 2010.
1.4 Nokia’s Strategy and its Influence on Structure
Strategy is one of the fundamental influences on the way organizations are managed. Nokia’s strategy affects the way the business is structured, and the recent reorganization of Nokia’s structure was made to allow for new initiatives to prosper and succeed. According to Alfred Chandler (1962), strategy is the determination of long-term goals and objectives, and the adoption of behaviors and allocation of resources, which are necessary for the organization to achieve these goals and objectives. Chandler believes that as companies grow, their structure needs to grow with them, moving from a simple, to a functional, to a divisional structure, if they were to remain efficient, and that if an organization assumes a new strategy, they require a new or updated structure if the larger company is to operate effectively (Robbins & Barnwell 2002).
Raymond Miles and Charles Snow (1978) had identified four strategic organizational types based on the speed of the market and product changes. According to their theory, Nokia has adopted a defender strategy. According to Miles and Snow, the defenders seek stability by offering a limited range of products or services directed at a narrow target market. To prevent competitors from stealing their market, defenders strive aggressively to produce a high quality differentiated product, or to offer competitive pricing. Defenders focus on the reduction of operating costs and the improvement of efficiency, rather than scanning the environment for new areas of opportunity. Structural characteristics of defending firms are high formalization and high centralization, and extensive division of labour (Robbins & Barnwell 2002).
In Nokia’s case, the defender strategy is usually adopted by companies who perceived their environment as stable, and the mobile telecommunication industry has an extremely challenging and dynamic environment. Although Nokia does focus on improved efficiency and lowering operating costs, in comparison with the Miles and Snow model, Nokia is continually looking for new opportunities to grow and diversify their business. Lastly, Nokia uses a decentralized structure rather than the centralized model outlined by this model. Nokia’s long-term strategy is to improve its profitability to create substantial shareholder value, to maintain its position as world leading telecommunication, and to continue to grow and diversify the business into new markets nationally and internationally (Nokia Annual Report).
A few key elements that compose Nokia's intensely focused strategy are Nokia’s Global cross-platform manufacturing. Plants are configured so any Nokia phone can be manufactured in any plant, with most production lines turnarounds within 24 hours.
Nokia introduced their own Smartphone, a multipurpose-touch screen mobile phone in respond to the growing demand of consumer. Their purpose is to ensure their now competitors Apple Inc doesn’t secure too much market share. Nokia very own Smartphone introduction will also help to avert potential competitors from entering the business market.
A proposed beneficial relationship is Nokia’s alliance with Siemens to form the Nokia-Siemens Network as the leading global enabler of telecommunications services. The joint corporate provides wireless and fixed network infrastructure, communications and networks service platforms, as well as professional services to operators and service providers. Their focus is to help communications service providers build more valuable customer relationships and make the most of market opportunities in order to accelerate their business to higher profitability.
Other key elements involved with achieving Nokia’s goal are to further upgrading and expanding the business group to improve efficiency, maintaining a flexible and diversified network, maintaining current alliances and seeking mutually beneficial relationships with other quality corporate. (Nokia’strategy, 2009).
Nokia developed the Nokia Maps, utilizing NAVTEQ’s digital maps database gives consumers access to mapping and, for those with GPS enabled Nokia mobile devices, navigation. Nokia also introduced the Nokia Money, a new mobile financial service. The service is to be rolled out gradually to selected markets and will be operated in cooperation with Obopay, a leading developer of mobile payment solutions in which Nokia invested. (Nokia’strategy, 2009)
Michael Porter argues that for an organization to successfully perform, it must select a strategy that will give its organization a competitive advantage. Porter states that three business strategies exist – cost leadership, differentiation and focus – and organizations should choose the strategy that best facilitates their strengths (Robbins & Barnwell 2002). When a company sets out to be the low-cost producer in its industry, it assumes a cost leadership strategy. Success with this strategy usually requires the efficiency of operations, economies of scale, technological innovation, low-cost labour and preferential supplier agreements. Nokia had adapted this strategy in order to satisfy price concious consumers. It is also assumed that most competitors had implemented this strategy to break into world market.
Differentiation strategy means the providing of different products or services from any competitors to obtain competitive advantages focused on massive market. Nokia has adopted a differentiation strategy. Nokia recently aims the majority of its services to corporate consumers and differs from Apple or Android by offering value-added application service in its Smartphone. Building on the functionalities of Nokia’s Smartphone’s and enhancing their value for consumers, Nokia continued to develop their own Internet services brand, OVI under which it has integrated many of its individual services to simplify the user experience.
Nokia continued to partner with third party companies, operators, developers and content providers in areas that it believes could positively differentiate its Smartphones, as well as other Nokia mobile devices, from those offered by competitors. For example, by partnering with operators, Nokia continued to grow Nokia Messaging, its push email and instant messaging service. Nokia also continued to work together with the music industry to expand Nokia Music Store. Additionally, Nokia has formed a global alliance with Microsoft to design and market a suite of productivity applications for Nokia’s Smartphones, and commenced a partnership with Intel Corporation to develop a new class of Intel R Architecture-based mobile computing device and chipset architectures that will combine the performance of powerful computers with high-bandwidth mobile broadband communications and ubiquitous Internet connectivity. Nokia also launched Ovi lifecasting, an application developed together with Facebook that enables people to publish their location and status updates directly to their Facebook account from the home screen of a mobile device (Nokia Annual Report 2009).
For an organization with a differentiation strategy to succeed, Nokia requires many skills and resources, including strong marketing and research capabilities, creativity, product engineering, a corporate reputation for quality, long tradition in the industry and strong cooperation skills. Structurally, Porter believes that a differentiating firm should have strong coordination among functions in research and development, product development and marketing, and that subjective, intuitive measure should be used rather than quantitative measures. For an organization with a differentiation strategy to succeed, there needs to be employee benefits which attract highly skilled professionals and creative people to become employees of the company. Porter states that a differentiation strategic-type organization needs structure that has a high degree of flexibility, which can be achieved through low complexity, low formalization and decentralized decision-making (Robbins & Barnwell 2002).
Although Nokia holds a differentiation strategy, its high complexity, high formalization structure does not adhere to Porter’s guidelines. However, Porter’s theory is not entirely applicable at Nokia, as it does not make allowances for the strict regulations that govern the mobile telecommunication industry. Low formalization is not possible in such an industry. Also, in a large company such as Nokia, high complexity, especially in terms of horizontal differentiation, is inevitable.
However, Porter’s theory could be applied to the departments which are most active in facilitating differentiation. For instance, the research and design, marketing, and product development departments could be structured simply, with minimal rules and guidelines, in order to encourage the creation of unique ideas and products.
1.5 The Organizational Effectiveness of Nokia
At Nokia, organizational effectiveness can be measured in several ways. Overall company growth is measured by the accumulation of new assets and provision of new services. For shareholders, organizational performance is calculated through several economic measures, which are then compared to results from previous years to determine improvement or deterioration. These economic measures are the number of customer served, the number of paying customers multiplied by the number of products sold, percentage of total application service in mobile phone utilized by paying customers and the number of mobile phone in service. Other financial measures used to assess Nokia’s effectiveness are the return on total revenue, return on total assets and return on equity (Nokia Annual Reports 2009). Organizational productivity is measured by the number of full-time employee, revenue customers service per employee and the available workplace per employee.
For the Nokia subsidiaries, effectiveness is based on the financial profit or loss of each company. Operating efficiency is measured using on-time performance data. For instance the Apple Company prides itself very highly on its proportion of their very own Smartphone products that arrive on schedule. But in this recent year, Nokia seems to be catching up and perform better. This may be the best tool for Nokia to weaken their rivals reputation and confidence.
These aspects of organizational effectiveness can be measured using a balanced scorecard approach, which identifies and weighs up the demands on the organization against its capabilities.
The demands and capabilities of Nokia from a financial, customer, internal business and innovation perspective are shown in figure 1.2.
Figure 1.2 Balanced Scorecard of Nokia Corporation
The balanced scorecard model above is fairly strong. The organizational goals have a trend towards promoting profitability, and there seem to be no contradicting objectives. The measures are clearly defined, allowing simple conclusions to be drawn about whether the goals have been achieved.
In a large company such as Nokia, the balanced scorecard approach to organizational effectiveness may not easily allow for all goals to be accounted for. Within the separate divisions, smaller, more manageable goals also need to be set, keeping the overall company objectives in mind.
1.6 Critical Analysis of Nokia’s Current Issues & Possible Solutions
Nokia’s divisional structure may be well-matched to their dynamic environment, however better integration is needed to increase efficiency. Nokia should further establish several shared resources units, to minimize the duplication of tasks within the different departments. This would help to reduce Nokia’s operating costs and make them more competitive with their rivals.
Miles and Snow believe that as an organisation with a defender strategy, Nokia should have high centralization. However, decentralisation facilitates speedy action because information doesn’t need to be passed through the vertical hierarchy. As Nokia needs to respond to rapidly changing conditions, decentralisation of authority is more appropriate.
Porter’s theory states that as a differentiating firm, Nokia should have low complexity and low formalisation. To respond to this idea, Nokia should restructure the departments that are mainly responsible for creating unique ideas and developing new products and services, and reduce their formalisation. This will facilitate ingenious idea development, not standardising employee behaviour increases variability and thus, creativity (Robbins & Barnwell 2002).
1.7 Recommendations
Firstly, Nokia’s should further integrate their structure, to increase efficiency. Nokia should establish a shared resources unit which services the entire company, to minimize the duplication of tasks within the different departments. This would help to reduce Nokia’s operating costs and make them more competitive. The shared resource unit should provide research and design, product development, marketing and administration services. Having a shared marketing team may also help to identify different areas of the market to place each Nokia subsidiary, which would help to minimize the competition between the companies for the same market, or at least identify where problems lie.
Secondly, to allow for creativity and innovation, the research and design, product development and marketing staff in the shared resource centre should have a structure and path of communication between them which has low formalization and low complexity.
Lastly, Nokia should place emphasis on the achievement of impressive on-time performance as a way to compete with its rivals. Nokia have the ability to perform better than most competitors these recent years, so they should focus on this and work it into their marketing ideas.
1.8 Conclusion
As a large organization, Nokia has a divisional structure. The structure helps the company to respond to its rapidly-changing environment. As a large company with over 50,000 employees, it has a complex structure with several horizontal and vertical differentiation. Safety requirements and the risks involved with the mobile telecommunication industry force Nokia to have a high level of formalisation throughout the company. Decision-making is decentralized to allow the company to respond quickly to changes and challenges. However, the divisional structure of Nokia sometimes leads to duplication of activities. It is recommended that Nokia establish shared resource departments to minimize this inefficiency.
Nokia has a defender strategy and fights against its competitors to gain market share. Nokia uses differentiation to place its services as more superior than its competitors. Nokia’s long-term strategy is to improve its profitability to create substantial shareholder value, to maintain its position as the world leading mobile telecommunication, and to continue to grow and diversify the business into new markets nationally and internationally. A current focus is on reducing operating costs, recognized as an attribute of the defender strategy.
Nokia used a balanced scorecard approach in order to assess its organizational effectiveness, which weighs up the demands on the organization against their capabilities. Nokia’s balanced scorecard is fairly strong and takes all areas of the business into account, with a focus on profitability.
To improve their effectiveness, Nokia should arrange the structure of their shared research and design, product development and marketing department to enable for creativity and innovative ideas, and should analyze the market to identify places of positioning for each Nokia subsidiary, to eliminate competing for the same market where possible. Lastly, Nokia should also focus on improving and maintaining their on-time performance as a way to threaten their competitors.
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