Order Now

Nokia Development Strategies

Forecasting of the situation and quick response to its slightest change are the fundamental conditions for success in the market. In business, however, often the most likely forecasts do not come true, and the slightest delay in responding to changes in market conditions become fatal. In case of such situation the main objectives of the company become minimizing the losses and recovery of the lost positions. Such situations often become a strength test, like in the case of the Finnish giant Nokia Group.

Presently, the Finnish company Nokia Group is the largest mobile phones manufacturer in the world. There were sold 88.5 million pieces of them during the reporting period (Nokia Corporation, 2011). But this can hardly be called a progress: last quarter, which is usually considered the most difficult period of the year, they sold 20 million units more (Nokia Corporation, 2011). Nokia is falling down so fast that none of the analysts could expect. Even the company’s CEO, Stephen Elop, admitted that the problems the company had to face in the course of strategic transformations, were worse than expected. Transformations which did not bring the expected results included: a union with Microsoft, the refusal from of the Symbian operating system, timid attempts to form an ecosystem similar to that used by Apple (Steinbock, 2010).

However, Nokia’s business is looking down not only against the background of successful competitors, but as a whole as well. In the second quarter of 2011 the net loss of the corporation amounted 368 million Euros (Nokia Corporation, 2011). Even in 2010, when they had many problems, they still managed to get a profit of 227 million Euros. Revenues for this year fell by 7% to 9.3 billion Euros (Nokia Corporation, 2011). The management can do nothing better than just start cutting staff and costs. This year, Nokia is going to fire four thousand employees worldwide. Symbian has also been given to a third-party company Accenture. The last gadget on this platform – Nokia 500 is a small average looking touch phone without a keyboard with a 1 GHz processor inside, 5-megapixel camera and Wi-Fi module. The reason why the company should release such a distinctly dull smart phone in the midst of the crisis is absolutely incomprehensible.

The strategy of complete refusal from smart phones in favor of the production of ordinary mobile phones, where Nokia is still the absolute leader, looks utopian: the truth is that the world moves on to smart phones. In the next at least two years, Nokia will not show anything revolutionary, because it is not developing its own new operating system relying completely on WP7, which has been heavily criticized by the analysts. Android wins the largest share of the market of smart phones at average and low price, where Nokia used to be strong due to the high cost of iPhone. In general, the forecast for the short term may look absolutely hopeless. Undoubtedly, within the next 5 years Nokia will be an attractive target for the merger and acquisition by the competitors such as Microsoft and Apple

However, once Nokia was not just the leader in the industry, but also the company that created this market (Steinbock, 2001). Finns’ leadership was undisputable until the emergence of iPhone in 2007 (Steinbock, 2010). However, ignoring the trend for the development of touch screen technology, Nokia has lost the market which in the next 5 years will develop in this direction (White, 2010). Thus, in our opinion, Nokia needs to support the further initiative of the company’s management and change the strategy for further development.

Nokia really faced a difficult choice: developing their own Symbian platform turned out to be too difficult; MeeGo was also an option but the company realized that this OS did not provide the necessary full range of devices, especially when it comes to cheap phones. Nokia’s choice hesitated between Android and Windows Phone 7 (Steinbock, 2010). Nokia considered both options very carefully. Android had some significant advantages, including support of operators, but the Finnish company considered that it was very difficult to compete in Android ecosystem because of the abundance of well-known players, besides, simply to “surrender” to Android was the easiest way. On the other hand, Microsoft and Nokia had a lot of mutual interests due to which the choice was made in favor of the Windows Phone platform. Nokia has joined in the battle of ecosystems, leaving behind the opposition of devices.

In our opinion, the cooperation with Microsoft does not seem to be the worse option. Microsoft has also actually lost the smart phone market at some point, but is trying to get it back in all possible ways. In particular, for this purpose the company from Redmond has bought Skype and plans to tightly integrate it with Windows Phone 7. In addition, Nokia is still highly respected for assembly quality and reliability, while iPhone definitely has a problem with it.

Within a new strategy line, Nokia management should also gradually move from the direct production of hardware for mobile devices to a large penetration into the market of mobile services (Bruck et al., 2010). In particular, the first activity of the company in this direction is already visible – Nokia started offering its customers online services, including digital music service, email service and online maps.

The main reason for the adjustment of the strategy is that Nokia must complete the construction of its own ecosystem for smart phones as soon as possible to compete more successfully with such players as Apple, which have this ecosystem already created.

Nokia SWOT analysis

STRENGTHS

WEAKNESSES

  • Largest distributor of mobile phones in the industry
  • Is represented in about 50 countries, which makes the market share of the company equal to 31% in the global market
  • Respected for high quality and reliability and is well-known for its highly technological R&D sector
  • Highly qualified personnel
  • Owns a subsidiary (Navteq) used for digital mapping and navigation
  • Ovi platform offering a wide range of media content
  • Technologies are user-friendly with many accessories
  • Great price range is making Nokia available for any social class
  • High resale value compared to other brands
  • No promotion undertaken to target the lower class of the society
  • Delay in introducing innovations, technological standstill and consequent loss of advantages in this area
  • Higher prices as compared to other companies
  • Poor service support and insufficient number of service centers in the countries of sale, especially on developing markets
  • Introduction of several products, which are not user friendly

OPPORTUNITIES

THREATS

  • Technological opportunities to develop innovations
  • Expansion to the emerging markets
  • Increase of the market share along with the sales
  • Introducing low prices segment
  • Promotion of good brand image of Nokia through advertisement for further increase of sales
  • Developing mobile windows technologies
  • Opportunities to expand with a wide range of products, features, price ranges for suit different layers
  • Tough competition this Android-based cell phones and iPhone
  • High losses could lead to the necessity to be merged
  • Stable prices of Nokia come out of the row of prices on other brand, which try to lower them by introducing new product, and this threats with possible loss of consumers
  • Mobile operators are striving for the emerging demand of Wireless Local Loop (WLL), while Nokia sales can likely be dropped, as CDMA phones production is less.

A favorable sign for the development in this direction is the recent success of the new smart phone Nokia Lumia 800 on the UK market, despite some problems with the battery, and not too promising forecasts of analysts. In the UK, the demand for the device was a rush, and the smart phone was sold out throughout the UK. Based on the sales data, we can confidently say that this smart phone has the best selling start of all Nokia devices in the UK in the history of Nokia sales in this market.

This is a particularly good sign, because the company has been rapidly losing its position in the mobile phone market in recent years, which made its leaders to take decisive actions to change the marketing strategy towards the use of Windows Phone as a primary OS for its smart phones. It is worth saying that the success of Lumia 800 gives the confidence that the company will still be able to get out of the protracted crisis.

In addition, collaboration with Microsoft brings hope in the form of the introduction of Windows Phone 8, the next important version of the Microsoft mobile operating system, which is expected to be used on the devices able to offer much more functionality than the current version of the platform. Although there are no definite data about the opportunities that are integrated into Windows Phone 8, it is possible to assume that it goes about such things as 2-core processors, high-resolution screens and so on. Thus, it will allow Nokia to release the new devices based on Windows Phone using the latest industry developments like LTE, 2 – or 4-core processors, NFC support, Bluetooth 4.0 and so on (Amblee, 2011).

In addition, further Nokia business strategy should be taking into account that Nokia is doing well in some local markets in the segment of the middle class. However, the major problem of any manufacturer of electric appliances, including mobile phones is the price imbalance. It can also arise from price differences of products in different markets when “unofficial” deliveries take place, and the same is sold cheaper by 10-40%. The struggle with the gray market within one country is extremely limited in the means; it may be the rejection of the warranty, the popularization of the “white”, official appliances, some real advantages, such as additional accessories or software (Dess et al., 2009).

The strategy for dealing with dumping, in our opinion, can include getting rid of the second echelon of distributors, primarily in regions, which will give benefits to retail partners and dramatically increase their effectiveness. In this case, the sales rates can be reduced unless direct distributors operating in the wholesale channel sign up for large volumes of purchases. To make them agree to sign these conditions, it might be necessary to give them some partners, and make them factually the intermediary between the company and the market. The step is very unusual and again rests on the determination of the company to control their partners.

In addition, Nokia should start paying more attention toward advertising its quality for the lower class of the UK, at the same time making products available for them. While the demand for new models may be huge, the standard models can be sold out more efficiently through the reduction of prices (Giachetti & Lampel, 2010).

Analyzing the current positions and future perspectives of Nokia Group, we have applied SWOT analysis model. In our opinion, applying it is reasonable in the given case, as SWOT analysis is particularly effective in assessing factors and phenomena that affect the project or enterprise. This method includes both defining goals and identifying the internal and external factors that contribute to achieving them or complicating their achievement (Jenster & Hussey, 2001). Thus, SWOT-analysis methodology, first, assumes the identification of internal strengths and weaknesses of the company, as well as external opportunities and threats, and, second, the establishment of links between them, with is particular important in building corporate strategies in difficult market conditions.

In our case, SWOT-analysis helped to answer the following questions:

  • Does the company use its internal strengths or distinctive advantages in its strategy? And if the company does not have distinctive advantages now, which of its potential strengths can become these advantages?
  • Are the weakness of the company seen as its vulnerabilities in the competition, and/or do they stop it from using certain favorable circumstances? Which of the weaknesses require correction, based on strategic considerations?
  • What favorable opportunities give the company a real chance of success by using its qualification and access to resources?
  • What threats manager should be mostly concerned about and what strategic actions they should take for an effective defense in the market?
    At the same time, the analysis of Nokia Group perspective could also have been performed through BCG Matrix methodology. However, though BCG Matrix is simple and accessible for understanding and allows combining the analysis of portfolio with the model of products life cycle, its disadvantages for the current analysis included (Williamson et al., 2003; Jenster & Hussey, 2001):
  • Significant simplification of the situation;
  • Consideration of only two factors, though the high relative market share is not the only success factor, just as the rapid growth is not the only indicator of the attractiveness of the market;
  • Absence of accounting the financial aspect, as the removal of dogs can lead to the increase of prime cost of cows and stars, as well as negatively affect the loyalty of customers using this product;
  • Assumption that the market share corresponds to the profit; however, this rule may be violated at introducing a new product with high investment costs to the market;
  • Assumption that the market decline can be due to the end of product life cycle; however, there are other situations in the market, for example, the end of excessive demand or economic crisis.

On the other hand, the results of SWOT-analysis contributed to producing a matrix of strategic activities for Nokia, including: SO activities which are to be carried out in order to use the strengths of the company to increase its opportunities (production of innovations using Nokia R&D centers and gaining back the market of smart phones); WO activities which are to be undertaken to overcome weaknesses by using presented opportunities (lowering prices for models of products having standard technologies and increasing sales); ST activities which are to use Nokia’s strengths to avoid threats (intensification of collaboration with Microsoft in order to get advantage in the tough completion and avoid possible merger); and WT measures that are to minimize weaknesses to avoid threats (diversify price range into to avoid the loss of consumers and their loyalty).

 

Bibliography:

Amblee, R.S., (2011), The Art of Looking into the Future: The Five Principles of Technological Evolution, Gloture Books.
Bruck, P.A., Buchholz, A., Karssen, Z., & Zerfass, A., (2010), E-Content: Technologies and Perspectives for the European Market, Springer.
Dess, G., Lumpkin, G.T., & Eisner, A. (2009), Strategic Management: Creating Competitive Advantages, McGraw-Hill/Irwin.
Giachetti, C., & Lampel, J., ‘Keeping both eyes on the competition: Strategic adjustment to multiple targets in the UK mobile phone industry’, Strategic Organization 8:4 (2010): 347-376.
Jenster, P.V., & Hussey, D., (2001), Company Analysis: Determining Strategic Capability, Wiley.
Nokia Corporation, (2011), Interim Report from April 21, 2011, http://ncomprod.nokia.com/results/Nokia_results2011Q1e.pdf, accessed 20.12.2011.
Nokia Corporation, (2011), Interim Report from January 27, 2011, http://www.nokia.com/results/Nokia_results2010Q4e.pdf, accessed 20.12.2011.
Nokia Corporation, (2011), Interim Report from October 20, 2011, http://ncomprod.nokia.com/results/Nokia_results2011Q3e.pdf, accessed 20.12.2011.
Steinbock, D., (2001), The Nokia Revolution: The Story of an Extraordinary Company That Transformed an Industry, AMACOM.
Steinbock, D., (2010), Winning Across Global Markets: How Nokia Creates Strategic Advantage in a Fast-Changing World, Jossey-Bass.
White, M., ‘Information anywhere, any when: The role of the smartphone’, Business Information Review 27:4 (2010): 242-247.
Williamson, D., Cooke, P., Jenkins, W., & Moreton, K.M., (2003), Strategic Management and Business Analysis, Butterworth-Heinemann.