Nokia case study.

University Degree Business and Administrative studies

INTRODUCTION

While Nokia is presently a leading global technology company with customers in over 130 countries and less than 3% of revenues coming from their native land of Finland, this has not always been the case for the organization that started with modest beginnings in the wood pulp industry. The company began in 1865 as a paper mill along the Nokia River (from which it took its name from) in Finland. Wood pulp and other paper making products were at the core of Nokia’s business throughout the 1800’s. Nokia began to diversify their product offerings by partnering with Finnish Rubber Works (FRW) to produce rubber products that included tires, rubber bands, and raincoats. In 1922, Nokia joined with Finnish Cable Works (FCW) and began to produce power cables, telephone cables, and telephone equipment. These businesses were to remain at the core of Nokia throughout the 1900’s. In the 1960’s, Nokia first entered into the consumer and business electronic markets and began to focus their Research and Development interests into semiconductor technology. These investments were the foundations of Nokia’s entrance in the present cellular phone market.

From this beginning, they entered numerous international markets. In the 1980’s, they began to concentrate on the cellular phones. Today, Nokia is the largest provider of cellular phones in the world. They have achieved a 33% market share in the cellular phone market, with their next closest competitor trailing behind at 17%. This market share translates into over 133 million cellular phones sold in 2000 (Business Week, Jan. 22, 2001). Nokia presently has 27 production facilities in 10 countries and Research & Development centers in 12 countries as well. With over 54,000 people employed worldwide, Nokia is truly a global company (, The Nokia Way). This impressive market position was not an accident.

PURPOSE

Nokia has been able to make this transformation by employing specific strategies to achieve their well-defined goals. One of the strategies they employed was branding of their cell phones. Most companies today recognized the importance of branding and actively work to promote their brand. A successful branding strategy can lead to brand name recognition. This, in turn, can lead to consumer brand-name loyalty and customer retention. Customer retention can be a key to success. Citing a Harvard Business School study, Lisa Fagan Teifke, vice president of e-commerce for ALLTEL Information Services, says that a 5 percent improvement in customer retention could increase profitability by 25 percent or more. (Morse, 2001) The purpose of our study is to prove our hypothesis formulated regarding Nokia’s success.

HYPOTHESIS

To become the global market share in cellular phones, Nokia did not succumb to the pressures felt by its competitors because it was able to effectively implement their strategy of branding to its line of cellular phones. Hypothesis: By utilizing the branding strategy, Nokia became the global leader in the cellular phone market. However, we believe that other decisions were made and other factors were present within their organization that may have contributed to their success.

FINDINGS

Nokia Introduces Branding
In order to increase its market share within an evolving cell phone industry, Nokia introduced branding as a part of its strategic goals. This not only required an analysis and modification of the previous strategies in place, but also a directed effort to create a company that could be more easily recognized globally. Nokia’s prior strategies enabled it to evolve from a Finnish paper producing company to an electronics company by the early 1980’s to the current telecommunication company. Although even with its strategy of product diversification within the electronics market it failed to create an effective brand name (pg 45-50 Nokia book).

Strategy in Place
As a result of its failings to capture a significant share of the cellular phone market, Nokia was able to expand on the idea that it would need a brand name that would be ubiquitous worldwide. However few products bearing the Nokia brand name were actually reaching the dealers’ shelves prior to the introduction of its branding strategy. Its personal computers were used almost exclusively in larger systems or sold to better-known rivals. Many of its competitors like Canada’s Northern Telecom and Sweden’s Telefon AB and L.M. Ericsson sold equipment supplied by Nokia under their respective brand names. By allowing competitors to do this, Nokia was squandering their opportunity to fully maximize profits through the power of branding. Nokia was hindering the growth and appeal of its brands to consumers partly because its name appeared to be nonexistent. Because Nokia seemed invisible, its telecommunications activities were often underestimated. Although, as it tumbled through trial and error, it quietly began to understand the importance of creating a strong consumer brand and was able to carve itself a market niche by its willingness to listen to the customer—a great competitive asset that would become legendary a decade later. (pg 54 Nokia book)

An effective brand name capable of withstanding a constantly changing telecommunications industry was enough for Nokia to distance its products from those of its competitors. Unlike many of its competitors that were often unable to embrace modifications to the current strategies in place Finland's Nokia has chosen to innovate from within. The company that most of us identify with its funky mobile phones started off in the paper business and has since dabbled in rubber, cable, and electronics, finally divesting itself of its old-economy holdings in 1992 to focus on telecom. "Nokia has a long-standing history of embracing renewal and change," says CEO Jorma Ollila. "It's in our genes. And to do something new you have to stop doing something old." As simple as it sounds, an inability to embrace change has resulted in the death of many companies. In 1921, 12 Finnish companies (including Nokia) inaugurated the Helsinki stock exchange. Nokia is the only survivor.” (The World’s Most Admired Companies )

Implementation of Strategy

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Implementation of Strategy

Nokia’s strategies with respect to telecommunications not only allowed branding to be implemented effectively, but also created an environment that would enable branding to thrive. In the process of evolving its product from paper to electronics, and to now more specifically cellular phones, Nokia understood the importance of creating a product that could available to all customers. This idea would be vital in determining the manner in which Nokia’s product would be branded. Nokia’s C.E.O., Jorma Ollila, and a couple of colleagues came to the prescient realization--helped by the fact that Finland and the other Nordic countries were years ahead of the rest of the world in cellular use--that cellular phones would become mainstream consumer products. This understanding of the importance of a strong consumer product while satisfying the needs of its target market enabled the creation of a brand name that could be accepted by a broad customer base. Up to then Nokia's phones had been sold under a bunch of different names: Mobira, Radio Shack, cellular operators' private labels.

Without uniformity in the many labels its products were under, Nokia soon found it difficult for its brand name to prevail. In 1991, Ollila's team decided on Nokia as the only brand and hired a young 3M marketing executive, Anssi Vanjoki, to figure out how to make Nokia a household name. This strategy to make Nokia the sole brand name that would be marketed would be critical in the company’s success. Vanjoki did a lot of research into the history of companies that had developed successful brands: Nike, Daimler-Benz, and Philip Morris. The crucial element, he discovered, was a "holistic" approach: thinking about the brand in every aspect of design, production, and distribution--and getting around to advertising only when all the other elements were in place. This wasn't rocket science; it's how many consumer products are conceived. But nobody had applied such thinking to cellular phones. “(Nokia’s Secret Code pg )

Nokia’s Position

Nokia understood the importance of targeting an inclusive consumer market, and illustrated this by the manner in which its branding strategy was implemented. The branding strategy began focusing on the observed shift from business markets to consumer markets in terms of cellular phones. “If consumer marketing held the key to success in the rivalry, Nokia would have to master the art of branding.” (Nokia book pg 280) A corporate strategy based on the philosophies of the new paradigm, further positioned Nokia to adopt an effective branding. In order for a corporation to create an effective branding strategy, the current corporate strategy in place must be compatible. According to its CEO, Jorma Ollila, Nokia is an organization focused on being more “pragmatic, more focused, and more flexible than other companies.” Almost every assignment of any importance at Nokia is given to a team, and managing the company is no exception. (Nokia’s Secret Code) Openness and communication from within allows important ideas to be shared, and fosters an image of a company whose sole purpose is serving the customer. This philosophy is transformed into an effective brand, and is in fact the image that the corporation is trying to create and portray from an actual reflection of the corporation.

There is a growing recognition that the key to a successful brand involves
far more than an eye-catching logo and a clever advertising campaign. "The
most important part of a brand is everything else before you get to the
name," suggests Stephen Cohen, managing director at Zurich Scudder . "It says: this is the kind of experience that you as a customer can expect, and we will deliver it in a differentiated way." (The Beauty of Branding, Global London)

Nokia’s branding efforts focused not only on the technology of its cell phones, but the entire company. Nokia’s commitment to servicing the needs of its customers by listening, allowed the acceptance of strategies that would separate it from the likes of its competitors, in particular Motorola and Ericcson. “In anticipation of the new products and markets, Nokia did not proceed from upstream to downstream processes (technology over customers), but from downstream to upstream processes (customers over technology). The point was not “how” this or that technology worked, but whether or not it contributed to customer satisfaction. Cellular standards would change and shift, brand awareness would not (Nokia book pg 282).

Success Measures

The successes of the branding strategies at Nokia are most evident noticeable in the global appeal it has grown with its customers. “Nokia passed Motorola in 1998 to become the world’s leading maker of mobile phones. In 1999, Nokia’s market share continued to grow to 27% (with second place Motorola at 17% according to DataQuest). It possessed the world’s 11th most valuable brand, as judged by Interbrand.” (Nokia’s Secret Code). By the year 2000, Nokia’s had gained 33% of the market share in all new cell phone sales. It had move into 5th place on Interbrand’s most valuable brand list, behind only Coca-Cola, Microsoft Windows, IBM, and Intel. (Merriden 68-69) In short “Nokia with its superior skills in brand marketing and customer-friendly technology has single handedly dominated the cell phone industry” (Can Nokia Keep Outrunning the Pack, Business Week).

Competitive Branding Strategies

Nokia's two top competitors are Motorola and Ericsson. All three companies offer cellular phones that are technically similar. The phones used by most consumers today are roughly equivalent technologically: light and small, with long battery lives and rudimentary Internet access. (Harris, 2001) With such parity in the market, the phones themselves have become somewhat of a commodity. In such a market, an appealing design and an effective branding strategy is even more important to attract consumers. Both Ericsson and Motorola employed decidedly different strategies with respect to branding their products. Their sales performance substantially lagged behind Nokia's over the same time period.

Ericsson, the Swedish telecommunications giant, grew as a supplier of telecommunications equipment to government-owned phone companies. Their strength is in manufacturing the networking hardware for the cellular suppliers, not the cellular phones for the end users. They got into the mobile handset business almost accidentally. Ericsson decided to enter the market after one of their customers asked them to manufacture analog mobile handsets for it. (Harbert, 2000) Since Ericsson's strength lies in selling the hardware to the cellular service suppliers, Ericsson until recently failed to appreciate the importance of brand value with the end users.

In 1998, Ericsson launched their “Make Yourself Heard” campaign. Ericsson’s first global branding effort sought to develop the Ericsson name. Initial advertisements did not show mobile phones, nor did they even explain what Ericsson manufactures. (O’Sullivan, 1998) These efforts had some positive impact on Ericsson’s brand. However, consumers lost confidence in Ericsson when their products did not live up to the brand values. Delayed new product releases and product reliability problems damaged vendor relations and disappointed their customer base. Based on sales performance, the campaign was viewed as a failure. The campaign didn’t seem to reflect the company’s true character. (Harbert, 2000)

Ericsson has lost so much ground to Nokia that they recently adopted a drastic new branding strategy. On October 1, 2001, Sony and Ericsson launched the first new mobile phone brand and logo in years. (Harris, 2001) The joint venture is named Sony Ericsson Mobile Communications and intends to develop and manufacture cellular telephones. Both companies are transferring all of their cell phone operations into this joint venture. Ericsson brings expertise in wireless technology, while Sony will offer superior marketing skills. Some industry observers contend that consumers recognize the Sony name more than the Ericsson brand. Sony’s name is probably first [on the joint venture] because they have more brand recognition in Europe. (Serant, 2001) The success of this strategy will not be known for years. The first new products from the joint venture are not due to hit the market until mid-year 2002.

Motorola manufactures a wider array of products than Nokia and Ericsson. Their year 2000 Annual Report states that their products range from wireless telephones, two-way radios, and messaging products and systems to embedded semiconductor solutions, embedded electronic systems, broadband communications systems, and computer networking. In contrast to Ericsson, Motorola recognized the importance of a strong branding strategy, however, they chose to develop brand name recognition for their entire range of products, not just their wireless phones. In 1998, they launched an aggressive $100 million “Wings” campaign. The hip television ads were set to rock music and were intended to put an “inspirational” spin on the Motorola brand name. The ad touted that Motorola “gives you wings and wings will set you free.” (Beatty, 1998) The campaign helped put the company back on the map in the consumer’s mind. This had a positive impact on the Motorola brand, however the improved visibility did not correlate to better cell phone sales since the ads did not specifically promote their cell phones. The strategy was abandoned mid-year 2000 in favor of product specific advertisements. (Elkin, 2000) The product specific ads were part of Motorola’s push to better develop their global image of a wireless communications provider.

To compare the success of these varied branding strategies, we need only look at the sales revenues of all three companies for the last four years. In 1997, Ericsson’s Annual Report listed sales for their cell phone division at approximately $5.2 billion in US dollars. By 2000, Ericsson reported that they had grown their business to just under $6.0 billion US, a total increase of $760 million US, or 14.6%. Over the same time, Motorola reported in their 1997 and 2000 Annual Reports growing their cell phone sales revenues from $9.9 billion US in 1997 to $13.2 billion US in 2000, a growth of 33%. In contrast, Nokia reported a percentage growth in cell phone sales more than 11 times that of Motorola and more than 25 times that of Ericsson. According to Nokia’s 1997 Annual Report, their sales revenue from cell phones was $5.2 billion US. By the end of 2000, they had sales revenue for cell phones of $19.5 billion US.

Global Strategy

For more than a decade, Nokia has actively expanded its business globally. As a result, Nokia network systems, equipment, and wireless terminals are produced and sold throughout the world. Nokia’s strategy is to continue its focused pursuit of global business opportunities by cultivating a strong local presence in all growing markets and pursuing partnering and acquisition opportunities in order to obtain complementary technologies and market positions.

The process of manufacturing or designing a uniform cellular phone standardized to operate in different regions and markets is considered a risky business in the field of telecommunication. Yet, Nokia accepted the challenge with its concurrent risks, and proceeded in manufacturing and marketing of a cellular phone model that was to operate in various parts of the world. The gambling process, marketing a standard cellular phone model, turned to be a success and the profits were significant.

The cellular industry is typically divided into cellular infrastructure (based station and switches) and mobile terminals (handset). From the start, Nokia has operated in both of these segments. In 1975, Nokia and Salora OY, agreed to coordinate and cross-market their branding and promotion activities. Nokia would market Salora’s mobile phones, while Salora would market Nokia’s professional mobile radio (PMR) base stations and handsets. These initiatives eventually led to joint venture, Mobira OY, the precursor of Nokia Telecommunication.

In 1987, Nokia formed alliance with Alcatel and AEG to devise a system for Europe that it hoped would become an international standard for a digital cellular network of the 1990s (Steinbock, 2001).

A finished mobile operator launched the first GSM network in 1991, and all of Europe followed. By 1999, it had become the dominant cellular standards worldwide. Nokia was in the vanguard of this technological development, and the company’s success and profitability mirrored that of GSM. The first GSM call made from Finland, using a Nokia phone on a Nokia-equipped network. As a rest Nokia agreed to supply GSM networks to nine other European countries. In 1994, the company was the first manufacturer to launch a series of handheld units (the Nokia 2100 family) for all major digital standards.

In June, 2001 Nokia (NYSE: NOK) and F5 Networks, Inc. (NASDAQ: FFIV), the leading provider of Internet Traffic and Content Management (ITCM) products, have joined forces to strategically align their products, channels, technology offerings and developments activities. This alliance brings together two leaders in their respects markets to provide corporate and managed service. Providing customers with more efficient ways to manage and control the unique Internet security and network traffic management issues they face today while preparing for those of future mobile network environments.

According to Harris, (2001), Nokia recently has announced to license its proprietary software to other handset manufacturers in an effort to create a common technology platform for handset manufacturers and to kick-start the development of services for mobile phones with Internet access. If their platform is accepted, they again will be at the forefront of technology. Motorola, Sony, Ericsson, and others have already indicated that the back a single set of standards. Qualcomm and Microsoft are both developing their own software standard. If either of their proprietary software are accepted. Nokia owns the current market (making 1 in 3 phones) and neither Microsoft nor Qualcomm have had too much success, yet. Qualcomm has had some inroads into China, the largest market for growth in cell phones. Nokia became successful by striking deals on the global market and by pushing industry standard.

According to the most recent IDC report, Nokia led the parade with more than 430% growth in the firewall/VPN security appliance market, capturing over 22% of the total worldwide firewall/VPN appliance market share. Demonstrating consistently strong, competitive position, IDC expects that Nokia will remain one of the premier vendors in the security appliance market. This will contribute more on Nokia’s global growth, which again strengthen its economy and enabling it to be in the front side of the industry market.

One of the top priorities of Nokia is to continue to strengthen its leading market position in a profitable way. Nokia believe that further market share gains are key to expanding its customer base and growing its future business potential. Nokia leading position enhances all of the positive effects of economies of scale throughout it’s organization, which managers at the Nokia believe will strengthen Nokia position in the next generation of mobile communication (Business Strategy, 2001).

Nokia’s organizational structure

Nokia’s organizational structure is flexible and adaptable, 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.

Nokia Ventures Organization (NVO) established in 1998 is a good example of Nokia’s flexible organizational structure. NVO was established to test and develop nascent ideas that had the potential to generate large amounts of revenue. NVO explores many business opportunities and integrates the viable ones into Nokia’s operating business. Over the past 15 years, Nokia has exited from many businesses which did not fit into its overall plans.

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 has a strong dominant culture, and the marked preference for a decisional or power base which largely gravitates around the dominant Finn culture. Deployment of Nokia capability in diverse wireless domains is the hallmark of Nokia's current strategy. Current Management Preferences no doubt support the strategy.

Senior Management (Executive Committee, Internal Business Unit managers and International subsidiaries) composes a highly homogeneous group of individuals.

The group comprise few women, displays tight age demographics, similar engineering

backgrounds. In addition, they are for the vast part all of Finn origin. This makes for

efficient communication; some even suggests that this allowed for the development of an

informal, airtight communication network (or code).

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’s inordinately fast decision-making which facilitates very quick resolutions and rapid implementation. Major new real estate projects, for example, 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's centrally controlled R&D keeps manufacturing operations in sync. And its centers are small and cost-effective, but also on the cutting edge, due to non-capital-intensive R&D strategic partnerships. Centralizing management of currency exposures is vital, with less than 10 percent of sales in Nokia's home-market currency.

Unlike many firms, Nokia has largely gone global alone, with only one acquisition, choosing to boost speed, flexibility and focus. Numerous divestitures have also firmly focused operations in fast-growing telecom sectors.

Nokia intensely screens prospective employees, and then inculcates new hires in its culture. Many new key employees are assigned corporate "mentors." Nokia has even brought much of its once-mobile Americas sales force so "they can have a home and feel they are part of Nokia," says Americas Director of Facilities David Woodcock.

Employees are not only given freedom to add value -- they're expected to, and are rewarded accordingly. All employees are required to speak English. Even all e-mails are in English. Employees' average age is only in the mid-30s. While short on experience, they've grown up with the technology which is Nokia’s backbone.

Discussion

Nokia was able to grow its market share as a result of the implementation of an effective branding strategy, although a branding strategy alone does not equal market share growth. A branding strategy without a solid corporate strategy, organizational structure, and global strategy surrounding it cannot be successful over the long run as illustrated by the failures of Ericsson and Motorola, whom both implemented branding strategies in the process of attempting to grow market share. Companies must be structured for this type of flexibility, and compatible with change.

Motorola and Ericsson, similar to Nokia, employed branding strategies to improve their positions in the consumer market and thereby improve their respective market shares. However, neither of these companies could generate the level of success that Nokia had. Ericsson was selling to the cellular service suppliers, and they have been very successful in selling to this market. However, until very recently, they were slow to address the very lucrative consumer market. The company, reflecting the personalities of the Swedish people, may have had trouble promoting itself. Mats Ronne, Ericsson’s director of branding and marketing communications admits that this may be true. He concedes that Swedes are the masters of the understatement. “When a Swede says, ‘That’s not bad,’ he really means that it is excellent.” (Harbert, 2000) Ericsson may have experienced more success had they adopted a more bold approach to marketing their products.

Furthermore, once Ericsson did enter the market with a global branding strategy, they entered with products that were not ready for the market. Consumers frequently had quality problems with their phones or found that certain services for the phones were temporarily unavailable. We believe a company cannot build brand name loyalty after repeatedly disappointing its customers.

Unlike Ericsson, Motorola did recognize the need for a strong branding strategy. However, their “Wings” campaign was released at a time when they had no new products to promote. This campaign had good success to improve overall brand name recognition, but it did little to build consumer loyalty since ads did not promote specific products. Rich O’Leary, a senior vice president and group director at McCann-Erickson Advertising, the ad agency Motorola hired in 1997 to improve its image, said Motorola is a company that is “known, but not preferred.” Consumers ”don’t seek it out. They tend to say, ‘good quality’, ‘durable,’ but there’s no real affinity for who the company is, what the brand is. It lacks personality.” (Beatty, 1998) We believe it is important that consumers knows your name, but they must also know what your services you offer or what products your manufacture. Then, when they do decide to solicit services or products from your company, they must have a rewarding experience causing them to make the same decision in the future.

Consumers may not entirely understand the details surrounding how a company creates or manufacturers its products, or even the organizational structures a company has employed. Although these details can be critical in evaluating how successful the company will be over the long run. Nokia had the benefit of having an organizational structure in place that welcomed innovation. One of the main areas credited for the success of Nokia can be traced to their strong senior management leadership, led by CEO Jorma Ollila.

Nokia’s five most senior managers have been together for over twelve years and some have been with Nokia since the 1970’s. With this amount of time together, synergy within the company’s management can be formed. These managers know what is required to ensure success, and many barriers that lead to poor communication can be eliminated. Jorma has also implemented a rotational job program for his senior staff where individuals that are experts in a certain area are then required to move to a new area. This type of program forces the managers to continue to be challenged and allows growth to take place within the company.

Branding is instrumental in a company’s success, although in contrast to our hypothesis in which branding was emphasized as being the sole reason for Nokia’s growth in market shares, it now quite evident that branding is not the sole reason. Companies, such as Motorola and Ericcson allow a case to be built against the effectiveness of implementing a branding strategy. These companies both embraced branding as solutions, although failed to understand the importance of the elements surrounding branding, in particular a solid corporate strategy, organizational structure, and relevant global strategy.

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