Strategic Business Plan of Nokia. This strategic report examines thoroughly Nokias current position by analysing its internal and external environment. Considering different scenarios it draws a picture for the future and suggest strategic option

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2.   Industry Development

Understanding the dynamics of an industry the company operates in is essential for determining how the competitive forces affect the company’s current strategy and its direction for the future.  Industry Life Cycle is a popular tool for representing the development of the industry. The telecommunication devices industry can be traced back to 1980s, when it entered its development stage with the introduction of the first device in the USA. After 1990s when 2G devices were introduced to the market the industry started its growth stage, characterized with many product innovations and heavy R&D investments. For the past five years the global handsets industry has grown both in value and volume (8.5% and 10.7% respectively) and is expected to continue growing slowly in the future. (Datamonitor 2010). However, currently most of developed markets have reaches almost 100% average per capita penetration (Marchi, G. & Giachetti C., 2010). Lowering costs and optimizing manufacturing processes have become important for features phones manufacturers. This would suggest that the industry is entering its maturing stage. The same trend can be observed in the telecommunication infrastructure industry, where price and economies of scale have become the major focus.

 However, the model does not take into consideration the complexity of the industry and its trends. In 2010 the smartphone market alone has score an impressive growth of 72% and it is predicted to dominate the industry with 60% in 2015 (PrNewswire 2011). The Life Cycle model is does not capture the dynamic changes in the telecommunication industry, such as shift in core activities, relationships with suppliers and modes of competition. McGahan (2004) classifies this change trajectory as intermediating and suggests an alternative life cycle model that considers these factors .It includes the Smartphone market as an emerging segment, quickly converging within the global handset industry and currently coexisting with the rest of the mobile devices and its forecasted dominance within the industry in the future. (Figure). The figure also represents the development of the digital mapping industry, which is currently in its growth stage, with increasing R&D investments from major players and strong focus on innovation, quality and precision of the mapping content.

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3. Competitive Environment

Understanding the composition of the competition is a key factor in analyzing an industry environment. The industries Nokia’s SBUs belong to are composed of players serving different market segment and following different strategies. The following diagram defines the strategic groups within the industries according to the players’ geographical reach and their offerings. The current dominance of the company is obvious, however the close competition with other big global players and the threat from of competitors from emerging markets that have started internationalizing or buyers with vertical integration should be considered when designing a future direction for the company.

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3. Internal Analysis

How a company would respond to its external environment depends also on its strengths and weaknesses. Conducting internal analysis is therefore vital for determining what makes the company better than its rivals and what needs improvement across the different strategic business units. Part one shows the units comprising Nokia Corporation separated by the nature / technology of their operations and their geographical scope.  Value chain analysis will help identify Nokia’s primary and supportive activities that create value and build up the performance of the company. (Pitts & Lei, 2006)   The final part of the internal analysis presents an overview of Nokia’s internal resources and using the Hierarchy of Resources tool examines those resources and capabilities that construct its competitive advantage.

1. Strategic Business Units Identification

2. Value Chain Analysis

The value chain analysis indicates that Nokia has built a strong value network around one of its product line – mobile devices. This is the real key to its success. It has learned to bring the best customized mobile phones to market, as quickly as possible and at the lowest possible price. The value chain presented below clearly shows that Nokia has focuses on technology development mainly. Symbian operating system is used in most Nokia’s Smartphones. It used to be the most popular system that took 27% market share. Even considering the current trends Nokia’ Smartphones still take a big share, but since the sharp growth of competition, Nokia needs more focus on technology development to catch pace.  

3. Internal Resources Analysis

Breakthrough resources –

Breakthrough resources: These are the resources that should be selected when analysing future scenarios as it is what Nokia should try to be pushing.

The diagram below highlights the positive aspects that Nokia’s partnership with Microsoft will provide to all areas of Nokia’s business.

4. Summary of the analysis  

After exploring the external forces affecting Nokia and analysing its internal activities, resources and capabilities, the following table summarizes the strengths and weaknesses of the company and the opportunities and weaknesses if faces from its environment.

3. FUTURE SITUATION ANALYSIS

1. Scenario Planning

Scenario Planning is useful for perceiving assumptions about how and why the environment and the industry may evolve in the future. It creates learning orientation and adaptive organisational mind-set.

The following part examines a variety of uncertainty factors that might cause changes in the external environment and affect Nokia’s current and future strategy. The most relevant factors were selected and combined in three different possible scenarios for the future.

The changing future can affect the forces characterising the industry the company competes in. Understanding how its  key resources and competitive advantages might be affected by changes in the future is also essential  in order to improve the company’s ability to anticipate change and tailor its strategic direction accordingly. Therefore, the following part examines how Porter’s Five Forces shift in the three identified future scenes and how Nokia’s resources change using the VRIN- framework

1. Uncertainty Factors:

Future Scenarios

• Decline in European economy, characterised by aging population, euro-crises, decrease in income, increase of unemployment
• Fast pace technological innovation caused by demand for high-tech devices, increased income, society that wants latest product, mobile and connected future
• Dominance of emerging markets as producers and consumers caused by deregulation in developing countries, increase of FDI and trade, wealthier society, demand for goods increases, local competitors that continue to grow and globalise

2. Change of competitive environment in the predicted scenarios

3. Changes in Resources

Key:

V = Valuable        R = Rarity        I = Non-Imitable        N = Non-Substitutable         

☺ = Positive Impact                 • = Neutral Effect         ☹ = Negative E

4. Future SWOT

4. CURRENT ORGANISATIONAL DIRECTION

Identifying Nokia’s organizational direction requires thorough understanding of its mission, organizational core and future vision.

1. Mission

From its entrance in the telecommunication industry in 1980s till present date Nokia is devoted to the mission of “Connecting People” (Nokia, 2011)

2. Vision

Understanding why a company exists and what it believes it, along with where it wants to be in the future forms the overall long-term vision of the organisation. (Collins & Porras, 1996). Nokia’s purpose, core values and future goals outline the company’s current direction.

1. Purpose

Nokia’s purpose, or its reason for existence, is devoted to making a change and helping people around the world enjoy what life offers using the potential of the mobile technology. (Nokia, 2011)

2. Organisational Culture and Values

Throughout its 150 years of operations, Nokia has valued:

3. Future Goals

According to Nokia’s corporate website (2011) the company is devoted to the following visionary goals:

3. Current Strategic Direction

Recently Nokia underwent several major transformations at corporate level – change of leadership and managerial focus concentrated on smart devices mainly and the partnership with Microsoft. The radical change also included reduction and transfer of workforce along all of Nokia’s strategic units, organisational restructuring and shift of resource allocation to accommodate the new changes.

5. IDENTIFYING STRATEGIC OPTIONS

1. TOWS Matrix

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2. Selecting & Ranking strategic options - FSA matrix

Using the TOWS matrices three short-term and four long-term options were selected. These were chosen as most appropriate for the company and most compatible with Nokia’s current direction and mission.  The portfolio of options includes corporate and business unit level strategies possessing different level of risk.  The short-term and long – term strategies were also chosen in a way that they do not contradict but rather complete each other.  

1. Short-term Options

Option 1: Capture the US market with new products 

Feasibility: Penetrating the US market is very feasible option since Nokia has already the needed resources to develop new products, such as smart devices and capture a significant share of the biggest market in value. However, the success of such strategy will depend on the relations it builds with distributors and retailers and the customer perception of the brand

Suitability: Developing smart devices will match the industry growth stage. However, Nokia’s current strategy is primarily focused on capturing their home – European Smartphone market and increasing mobile connectivity in developing countries. The US market is often seen as saturated with high customer loyalty to competitors’ brands.

Acceptability: Capturing a share in the biggest in value market will certainly add value to Nokia’s stakeholders. As a market penetration strategy, it is a low-risk option. However, the intense competition and the possibility of market stagnation make this strategy less acceptable.

 Option 2: Collaboration in emerging markets

Feasibility: Due to Nokia’s presence and expanding resources, new production sites, such as the facility in India and its past success in building partnership and alliances, this option is considered highly feasible.

Suitability: This strategy fits Nokia’s current direction and objective to ‘connect the next million’ (Nokia 2011). Furthermore, the option will capture the growing trend for mobile connectivity in the emerging markets. Collaborating with local partners, suppliers or distributors will also increase Nokia’s local market competencies and improve its ability to adapt and respond to the local tastes and preferences.

Acceptability: Market volatility, future uncertainties unstable economic environment, regulations and policies in most developing countries add a certain level of risk when pursuing this option.  However, the risk is balanced with the possibility to generate new sources of revenue.

Option 3: Own branded store with diversified portfolio of products

Feasibility: In order to develop a diversified products portfolio to match and over-perform its major competitors, Nokia is highly dependent on the partnership with Microsoft. Offering new products, such as tablets, requires utilizing new technological capabilities and over-relying on its software provider.  

Suitability:  This option will certainly improve significantly Nokia’s brand image and enhance end-users loyalty. It will also make the company less reliant on its distributor and it will gain a higher level of control.

Acceptability: This option is associated with incurring new costs and acquitting resources and capabilities previously held by Nokia’s distributors. It also involves a certain level of risk perceived by investors, however it will certainly add value to other stakeholders, such as customers by providing them easier access and better post-purchase service.

2. Long-term options

Option 1: Invest in new technologies/research new products 

Feasibility - The technological capability of Nokia is sufficient to heavily invest in new technologies and research new into developing products – Nokia already have suitable resources that would allow this to be feasible within the organisation

Suitability – This option will prevail if a decline in European market as will need to capture the competitive market share. Fast pace technological innovation means Nokia have to stay competitive and if not better, then match competitors within the industry. The potential dominance of emerging markets in the future will mean they have to meet and satisfy whatever the markets may demand in the future.

Acceptability - This is a highly acceptable strategy as this a requirement within the Mobile Phone industry. Mobile phones/Smartphones have relatively short product life cycles therefore Nokia have to remain competitive and seek to continually develop and produce new products. Changing market needs and the emergence of new markets means it is essential if Nokia are to not only gain but maintain market share.

 Option 2: Acquisition of local suppliers/competitors to improve position in emerging markets

Feasibility - Due to decline in European market, Nokia need to extend its market to emerging market by acquisition of local suppliers and competitors improve in emerging markets. And also, emerging market acting as producers and consumers allow Nokia to make costs lower from transportation and lower labour cost in developing countries such as India.  Additionally, new information and products can be delivered directly and quickly, which helps Nokia to follow the fast pace of technological innovation.

Suitability - Strategy two perfectly suits the trend of decline demand of Nokia in European market and dominance of emerging markets as producer and consumers, because acquisition of local supplier and competitor in emerging markets brings Nokia more efficient information from competitors that help Nokia to better understand the emerging market. Additionally, close supplier brings Nokia cheaper raw materials and local labour with better ability to get used to working environment costs lower.

Acceptability - This strategy is highly accepted as this a decline trend within the mobile industry in Europe. Taking the mover advantage, Nokia enters emerging markets with low risk. Based on lower costs, there is a high profit margin.

Option 3: Develop new generation of products and introduce them to new emerging markets providing a differentiation strategy

Feasibility - Nokia have the necessary resources and competencies to develop what consumers will desire from a Smartphone in the future. As the European market declines and emerging markets begin to dominate demand for Smartphones, it is entirely feasible for Nokia to get ahead of their competitors by specializing in emerging markets.

Suitability - This option has become the strongest for Nokia, as it fits their strategic plan.  If the European market is declining it provides  a focus on the vastly expanding developing markets.  By exploiting Nokia’s brand name and production capabilities, then this option will allow for the mass sales of Nokia products.  If Nokia break the emerging market, then this will be an almost certain way to wedge their foot firmly in the door and remain the largest and most dominant presence in the mobile phone industry in developing markets.

Acceptability - The option is acceptable and the gains heavily outweigh the risks involved. Nokia’s shareholders would agree that with the encroaching popularity of smart phones within developing countries, it is more than worthwhile to provide a specific product range.  In terms of value creation, through diversifying their products, Nokia would gain a competitive advantage over their competitors who simply wish to relay their out-dated/declining models.

Option 4: New product development to existing markets – 2nd mover advantage

Feasibility - Within existing markets the points of sale and distribution networks are already in place; therefore it is feasible for Nokia to develop and sell new products to existing markets.  However if there is a decline in existing markets and a dominance of the emerging markets Nokia may not be able to split valuable internal resources into a declining European market.

Suitability – Highly suitable; in terms of changing market needs within existing markets. If Nokia aim to keep the market share within these markets new product development will be crucial. More so by the fact that existing markets such as Europe are highly saturated in terms of smart phone use and demand the latest technologies available. However if the emerging markets continue to dominate Nokia may be better suited to allocating their resources to these growing markets, as potential gains are far higher.

Acceptability - It is of great importance for Nokia to maintain their market presence within Europe – (their home market) therefore it is acceptable for them to develop new products to existing markets – This may also show focus within US markets as likely to be established within next 5 years. However, if European markets are declining significantly and the emerging markets are dominating global sales and growth then Nokia’s focus should switch to the new markets.

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6. REFLECTION & CONCLUSION

Analysing strategy can be a very dynamic process. When it involves a global technology company in transformation process this becomes even more challenging. Strategy does not exist in isolation. From this report it is clear how it is affected by internal, industry and external forces, and especially in the telecommunication industries the environment changes tremendously fast. Executing the research, conducting the analysis and predicting the future for Nokia Corporation revealed how complex, unstable and risky guiding a company’s direction can be.

Nokia is currently in a very delicate state. The recent radical strategic transformations could be an important stepping stone in the future success of the company. Although the many negative consequences, such as job cuts and shift of focus, the partnership with Nokia seems as a logical solution to capture the fast-changing market trends. However, future is uncertain and there are many internal and external factors that would influence the success of this union and Nokia’s role in it. Recent history has shown that the percentage of partnership failure is huge due to risk factors, incompatibility, organisational differences and external environment changes. Furthermore, following the extensive internal analysis of this report it is clear that in a market where the ‘mind’ of the devices is the core of the product Nokia may become highly dependent on Microsoft competences. And company are protective of their resources and know-how. Could this dependency lead to inability of Nokia to operate alone? Could Microsoft be overprotective and as other competitors in the industry buy out this partnership? Could Microsoft see the acquisition of the other Nokia’s SBUs as attractive strategic opportunity for knowledge and resources extension and cost reductions?

The high possibility of these outcomes raises the questions about the feasibility of Nokia’s current strategy especially in the long term. As concluded from the analysis Nokia has the resources - competent workforce, global production and distribution networks, technological know-how and in-house applications information, such as navigation- to build on its competitive advantage alone. As already late to the Smartphone race enhancing its Symbian platform could have be a less risky and successful strategy.

In all scenarios the future success is highly dependent on shifts in the environment and therefore organisations need to follow their mission with the right strategic direction but consider different paths in the future that could help them adjust and react to changes in a competitive manner.  

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