In modern globalized world business environment is a flexible and quickly changing medium, and in order to stay competitive, large companies have to stay tuned all the time, should be able to react quickly to the environment and analyze new market needs. Failure to do so might result in dramatic changes for the organization. The purpose of this paper is to consider a case study of a company experiencing a significant changes of its environment, to analyze critical business functions in this situation, the needs of employees, to discuss systems and processes that require adjustment, and to dwell on the ethical issues associated with these changes.
Choice of the company
The company chosen for the case study is Nokia. Four years ago this company was an indisputable leader in the sphere of mobile telecommunications; however, since 2007 Nokia’s sales of mobile and smartphone devices have declined by 2.6% every quarter (Wagner, 2011). Overall, Nokia lost about 75% of its market value during these four years, giving up to more flexible competitors such as Apple, Blackberry, Samsung, HTC, etc (Curwen & Whalley, 2011). The largest losses were witnessed in the rapidly growing smartphone sector: although the sales of smartphones have increased by 85% and are expected to grow at comparable rates until 2016 (Wagner, 2011), Nokia’s smartphone sales decline by 3-4% every quarter (Market Intelligence & Consulting Institute, 2011). The major reasons for this are the lack of adequate response to market changes, mismanagement and slow reactions of Nokia’s top management to changes. Among other important causes of this problem there are traditional Finnish pride and concentration on own hardware and software, inability to adjust Symbian to new market needs combined with strong focus on this system, launch of new-born MeeGo which can hardly be compared to market leaders, and ineffective pricing (Curwen & Whalley, 2011). Various aspects of environmental changes which Nokia is experiencing now are considered in the next four sections of the paper.
Critical business functions
Currently Nokia is experiencing a rapid contraction of sales and there is an evident need to reconsider the whole business strategy of the company. Several steps have already been made in this direction: the new CEO of Nokia, Stephen Elop, is a former Microsoft employee, and Nokia is now planning a partnership with Microsoft with regard to its mobile operating systems (Windows Mobile, Mango) and other smartphone-targeted products (Kolakowsky, 2011). Nokia’s competitive advantage was built on the successful combination of hardware and software. However, Nokia emerged as engineer-driven company, and its major advantage have always been related to powerful hardware (Market Intelligence & Consulting Institute, 2011). The popularity of Symbian on mobile devices was to a large extent conditioned by its efficiency in the conditions of low computing power (Hamad, 2011). Currently the hardware for mobile devices and especially for smartphones is comparable to low-level PCs, and the competitive advantage of Symbian is no longer actual. Thus, Nokia should focus on their engineering power and innovative capability which are critical business functions (Curwen & Whalley, 2011), and for now it would be better to partner with a well-known OS manufacturer in order to create an effective combination of software and hardware.
Among Nokia’s employees, the appointment of Mr. Elop as CEO caused significant resistance. First of all, he is a non-Finnish leader, and he has already introduced many significant changes to Nokia’s strategy. Secondly, the decision to switch from Symbian to Windows Mobile caused negative reaction of the employees, because they took pride in this product, and were not willing to abandon the result of their long-term work. Moreover, the previous CEO of Nokia, Olli-Pekka Callasvuo, has created a highly bureaucratic structure within the company (Market Intelligence & Consulting Institute, 2011). Slow decision-making, lack of control over R&D portfolio and low effectiveness of investments have deeply integrated into Nokia’s management processes, and now it will be difficult to implement amore flexible and effective business approach in this environment.
Nokia is currently experiencing financial losses, and it is most likely that the jobs of software developers working for Nokia will be at risk. During 2011, about 4,000 people were fired, and more than 3,000 Nokia’s employees were transferred to Accenture (Hamad, 2011). Nokia passed on outsourcing activities related to Symbian to this company, and will collaborate with Accenture on mobility software service in future. In 2012, Nokia is planning to fire 3,500 employees and close their factories in Romania, divisions in Bonn (Germany) and Malvern (USA), and several factories in Finland, Hungary and Mexico are to be closed as well (Zelkowitz, 2011).
At the same time, Nokia is planning to open a new factory in Vietnam (Hamad, 2011). It is likely that the company is planning to reduce the expenses by increasing Asian business share and by contracting European part (Zelkowitz, 2011). This decision will create certain challenges for the corporate culture and a more flexible attitude to business has to be established. In order to address the needs of the software employees who are likely to experience contraction, Nokia can launch job trainings and contact partner companies which could be interested in hiring experienced developers. In addition to this, new partnership with Microsoft might also provide a possibility to find jobs for Nokia’s developers (Kolakowsky, 2011). The needs of new employees will most likely be satisfied by Nokia’s new business approach. At the same time, existing and new employees should be aware of the company’s strategy and goals in order to be effective and confident, so it is recommended to launch seminars, meetings and trainings on the new strategy of Nokia for communicating it to all Nokia’s personnel.
In the modern smartphone market, software and hardware have become two different specializations. Certainly, Apple Inc. is an exception from this rule, but they have developed their OS for a long time, and have created unique user experience (which was the core advantage of Apple from the very beginning). The business strategy of Nokia should be thus reconsidered: for now it is optimal to focus on creating new portable and smartphone devices (Waldman, 2011), and to outsource the OS issues. The partnership with Microsoft was most likely established as a result of such reconsideration. The adjustment should be centered around Nokia’s business culture and organizational practices. Instead of slow decision-making and rigidity, it is necessary to implement a cost-effective approach, flexibility and innovative thinking. The communications processes have to be changed as well: instead of vertical management hierarchy, it is optimal to use matrix or network structure, where teams and departments report to appropriate managers and can easily exchange information (Zelkowitz, 2011).
With regard to finance, Nokia also has to change its approach. The company used to invest into R&D, but there was low control on the effectiveness on the investments (Market Intelligence & Consulting Institute, 2011). Moreover, many new ideas were declined by the top management. In the new environment, R&D financing will have to be significantly reduced, and thus development of R&D projects and R&D portfolio management should be performed with a team of experts in this area. One more weak point of Nokia in the past was the inability to create resources for developers, while Apple and Google managed to nurture a large community of developers for their platforms (Waldman, 2011). In the sphere, significant change is required as well. Whether Nokia will continue using MeeGo or will switch to Windows Mobile, the company has to create extensive resources for the developers and should establish a convenient process for launching and selling new applications online.
The major ethical issues related to Nokia’s environmental changes are related to corporate culture and “product ownership” existing within the company. Many core employees and managers are of Finnish origin, and they might resist the actions of Mr. Elop because his business practices and ideas are alien to Finnish staff. Many ethical issues will also arise due to contractions and factory closures taking place at Nokia, which might make Mr. Elop even more unpopular within the company. At this point, it is highly important to communicate the new business strategy and goals to the employees, and to analyze the causes of current market failure. It might be useful to invite American expatriates to challenge the existing organization rigidity at Nokia (Market Intelligence & Consulting Institute, 2011). In addition to this, cross-cultural training and closer collaboration of teams from different countries will also contribute to the development of more globalized and flexible organization. Nokia’s management should also pay attention to social responsibilities of the company with regard to former employees and divisions which are to be closed. These people have significantly contributed to the rise of Nokia, and the company should provide financial assistance, job trainings and recommendations for them.
Nokia is experiencing strong market pressures due to changes of the environment and as a result of the rigid organizational culture of the company. Reconsideration of the whole business strategy is needed to help Nokia survive in this crisis. Optimal strategy will be focused on the major competitive advantage of Nokia – hardware and engineering, and software issues are likely to be outsourced to one of the major market players at the mobile OS market. The partnership with Microsoft is the evidence of changes going in the company, as well as the restructuring of Nokia’s business locations. There are many issues faced by Nokia in this change process. The needs of many employees are affected by the contraction of the company, and there are many ethical issues emerging from the inevitable change of corporate culture. Financial processes, communications, strategy and goals of Nokia are all subject to reconsideration. Nokia can create a new market niche in the changing mobile and smartphone market, but to accomplish this, it needs to face competition effectively and should make its organizational culture more flexible and efficient.
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