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Nokia Case Study Analysis

  1. Using the information in of the case study, and relevant data/information from company annual reports critically evaluate the nature of the competitive landscape of Nokia faced from its most relevant competitors. Discuss the extent to which you believe that industry dynamics had a significant impact on Nokia’s profitability. Explain using relevant analytical tools like, PESTLE, and Porter’s five forces and any other relevant analytical tools

Nokia, a renowned name in the mobile phone industry had the largest market share. However, it started facing a downfall. In October 2011, Nokia launched its first smartphone. It was named as Lumia 800. Nokia had launched the new smartphone after it joined its hands with Microsoft (Nokia-Microsoft alliance: Joining forces in the smartphone wars, 2011). This was a response to Apple’s IOS and Google’s Android software, which had started gaining market share after 2007. Nokia was one of the leading brands. According to Exhibit 3 of the case study, the total mobile phone sales in 2010 was 352.6 million units all over the world. The share of total mobile phone sales was 32%. On the contrary, the total smartphone sales in 2010 were 100.3 million units out of 352.6 million units and the market share that smartphones had was 36% (Nokia-Microsoft alliance: Joining forces in the smartphone wars, 2011). There was a huge decline in the sales of Nokia’s mobile phones. Lack of innovation and the will to adapt and welcome change caused problems for Nokia. If we look at the profit margins of Nokia in 2006, they were €4,366 million; however, in 2010 they were reduced to €1,343 million (Nokia-Microsoft alliance: Joining forces in the smartphone wars, 2011). The income statement of Nokia shows the decline in the gross profit margins. Moving ahead to exhibit 4. Exhibit 4 shows the market share of mobile operating systems (OS) for the third quarter. From the exhibit, it can be seen that Android had capitalized the entire market as it had a share of above 50% i.e. 53%. This was book android was sponsored by Google and it had looked forward to innovating itself. Google saw Apple as its competitor and started making efforts to target the market share. It relied on its innovation and its faith in the products. Moving ahead, we can observe that the Symbian operating system had the second-highest market share i.e. 17%. Apple had a market share of 15%. It was relatively low in 2011. However, Apple knew that they can attract the market and kept bringing innovation into their products. Blackberry’s operating system had a market share of 11%. Windows Phone had a market share of 3%. In the third quarter of 2011, Windows’s market share was 3% only. It was not known widely to the market. Bada had a 2% market share and 1% was shared by other operating systems (Nokia-Microsoft alliance: Joining forces in the smartphone wars, 2011). Moving ahead to exhibit 4, we can see the global share of smartphone shipments for the third quarter of 2011. Other companies that included Blackberry, Motorola, Sony Ericson, and many others had a combined shipment ratio of 47.3%. Samsung alone had a shipment ratio of 23.8%. This is huge domination by Samsung in 2011, as it had recently introduced its android and was competing with already dominating Nokia and Apple. Apple had a shipment ratio of 14.6% and Nokia had a shipment ratio of 14.4% (Nokia-Microsoft alliance: Joining forces in the smartphone wars, 2011). Exhibit 6 shows the consolidated income statement of Nokia from 2006 to 2010. The figures in exhibit 6 are in € million. We can observe that net sales had neither decreased nor increased by a large amount for the 5 years. However, we can see that the gross profit and the operating profit had decreased in large amounts. The expenses were the same. Only if, Nokia had increased the cost of the Research and Development department and had relied on innovation rather than looking to sell the same product, Nokia’s profits and sales would have increased hugely. In 2009, Nokia had the least profit in the 5 years i.e. €260 million (Nokia-Microsoft alliance: Joining forces in the smartphone wars, 2011). Following is the PESTEL Analysis for Nokia:

  1. Political: There were no specific government policies that would influence the profitability of Nokia.
  2. Economic: In 2008, there was a financial crisis all over the world. This had caused trouble for every company in the world and hence, the market shares and the growth of the companies had slowed. Moreover, due to the crisis, there was an increase in the rate of inflation, unemployment, and interests. This caused a decrease in the sales of Nokia’s products.
  3. Social: Due to changing technology and people changing their lifestyles, Nokia’s sales decreased. It was inevitable for Nokia to decline as it had ignored the shifts in the needs of the customers and focused only on capitalizing on the market in the present.
  4. Technological: Technological and Social factors are linked with one another. Other companies had foreseen that the future is not of traditional phones. People are changing their lifestyles and hence, would try to keep mobile phones that would portray their personality. Since 2007, companies started to bring everyday changes in technology, which Nokia failed to do so. Nokia relied on its existing products and faced the consequences.
  5. Environmental: There were no environmental issues that can be regarded as a factor that influenced the profitability of Nokia.
  6. Legislation: Just like environmental issues, there were no specific legislative issues that can be placed as a significant factor to affect the profitability of Nokia.

Following is the Porter Five Forces Analysis for Nokia:

  1. Threats of Substitutes: There was a constant threat of substitutes for Nokia. Nokia was facing threat from Samsung, Apple, Blackberry, HTC, and many other companies. There is no doubt that the threat of Substitutes played its role in the decreasing profits for Nokia.
  2. Threats of New Entrants: With the evolution in technology, being brought into the market every day, there was a high threat from the new entrants. New companies were looking forward to coming into the market with better smartphones and consumers were looking forward to better products at lower prices.
  3. Industry Rivalry: There was a rivalry between Samsung and Apple for Nokia. This had troubled the company and reduced the profitability of Nokia.
  4. Bargaining Power of Suppliers: Suppliers were looking forward to shifting to new companies as they could foresee that Nokia is not adopting innovation. Therefore, even if they do not do business with Nokia, it was not a problem for them.
  5. Bargaining Power of Buyers: Buyers wanted to shift to smartphones, they had more faith in Apple, and Samsung rather than Nokia, so they expected the prices of Nokia phones to be very low

 

  1. Carry out an internal-analysis for Nokia. Base on your analysis explain the competitive advantage and core competencies of Nokia. As a business consultant how you would measure operational efficiency, long-term growth and performance development of Nokia.

Nokia was considered to be one of the largest mobile phones company in the world. Currently, Nokia provides telecommunication services and equipment. It was famous for its durability and reliability. Following is the SWOT analysis for Nokia:

  1. Strengths: The biggest strength of Nokia is its brand name. Consumers have a perception of Nokia as a reliable and durable phone that aligns with its tagline i.e. “Connecting People”; therefore, consumers look forward to buying Nokia phones. In addition to this, Nokia has a higher resale value as compared to other brands that are in the market. Moreover, Nokia has joined hands with Microsoft. This has provided Nokia with the opportunity to team up with qualified people. This is part of their acquisition deal (PESTLEanalysis Contributor, 2014). Nokia looks forward to providing its customers with a wide range of products that differ in price as well. Nokia products are not priced as high as the competitive products are; however, Nokia has looked forward to catering to people on price. In addition to this, Nokia provides complete accessories with its handsets to the customers and Nokia phones are very easy to use.
  2. Weaknesses: The biggest weakness of Nokia is that it has failed to adapt to changes in technology and it had refused to bring innovation. Nokia did not look forward at the right time and when it did, other companies had already seized the opportunity(Nokia-Microsoft alliance: Joining forces in the smartphone wars, 2011). Moreover, the after-sale services provided by Nokia are criticized by the customers. Nokia used to be a brand that was opted by everyone; however, now it has priced its products at higher prices as well. Due to the higher price, consumers from the middle or lower class are not capable enough to buy Nokia products. The sales of the company have reduced drastically, as there is a decrease in sales of the company. Market Shares are capitalized by other companies, which has made it very difficult for Nokia to compete. Nokia’s Lumia range has faced very high competition from Apple’s iOS and Google’s Android, which made it difficult to increase the sales (Nokia-Microsoft alliance: Joining forces in the smartphone wars, 2011).
  3. Opportunities: Nokia has less market share and fewer sales; however, it is not wiped off from the market. Nokia has a do or dies situation. As it has joined hands with Microsoft, it should look forward to utilizing its resources in the best way possible. By utilizing the right resources at the right time, Nokia can regain the dominance it had once in the market. Nokia must look forward to expanding its range of products. Moreover, it should also introduce various price ranges for customers from all the income classes, which will attract customers. In addition to this, Nokia should look forward to investing in its Research and Development department, which will help in bringing better applications and features for the new phones(Nokia-Microsoft alliance: Joining forces in the smartphone wars, 2011).
  4. Threats: There is no doubt that Nokia is in trouble; however, if they do not evolve themselves, then companies like Samsung and Apple would not let them stay in the market(PESTLEanalysis Contributor, 2014). In addition to this, the introduction of new mobile phones from Chinese companies like Oppo, Xiaomi, and many others will make it very difficult for Nokia to stand out. It is important for Nokia to evolve and expand based on innovation.

As a business consultant, I would look forward to measuring the efficiency of Nokia by looking at the sales that it has converted in the past years. Moreover, I would be comparing the sales of the previous years and the current years. If the ratio has increased than the previous years, then I would be concluding that Nokia is on the right track; otherwise, it might need to make efforts. Moreover, the efficiency will be measured with the resources that Nokia has input and the output it is getting from the input. If the output is not equal to the desired output, then there is no advantage of utilizing the resources. In order to make sure that Nokia is growing in the longer run, it is important to an analysis of the goals and strategies that Nokia has designed for itself in the future. If Nokia has not developed the right strategies, then Nokia will not be growing. Nokia will be stuck in the current situation and there will be no advantage in investing. The performance development of Nokia will be measured by looking at the sales and the turnover rate. The rate of turning the inventories into sales will help me analyze how many people are looking forward to buying Nokia’s products and what is the thought process and review of people for Nokia. The number of sales will determine that whether people want to buy Nokia products or they do not wish to buy the products.

Nokia has been working hard to make a name of itself as if it used to have. There is no doubt that Nokia is lagging behind other competing companies, but if Nokia utilizes the resources and works efficiently and effectively with Microsoft, then there is no doubt that Nokia can again be the favorite brand of people. People want innovation and they want shifting technologies every day. It is important that Nokia looks at these trends and makes efforts to ensure that people’s demands are met. If Nokia continues to work this way, it will be a huge company again.

 

  1. Using specific examples explain how changes in corporate governance and in expectations about corporate social responsibility are requiring organizations to develop new competences and also creating dilemmas in the pursuit of shareholder value and managing people in organisations.

Corporate governance is the term that is used to refer to the rules, policies, and procedures that are set by the governing body of the company to make sure that a company runs in an appropriate manner (Chen, 2020). In addition to this, Corporate Social Responsibility is an ethical and legal responsibility imposed on an organization to make the lives of people better, by investing in social activities. CSR activities governed by efficient corporate governance makes sure that there is a difference brought in the lives of the people. Recently, numerous companies have looked forward to adapting to Corporate Social Responsibility, which urges an organization to not only produce a durable and reliable product, earn larger profits, paying wages fairly to the employees, but it also encourages the organizations to keep good care of the environment and act for social issues, which will help make a difference. Google is one of the largest companies in the world. Google is focused on not only making the environment friendly for the people but the CEO of Google Sundar Pichai also stood up for the social issue that involved comments of President Donald Trump against Muslims. In addition to this, Google had earned the highest CSR score of RI for using 50% lesser energy than other companies in the world (Digital Marketing Institute, 2019). Moreover, Google has invested over $1 billion in renewable projects to save energy, which has enabled other businesses to come up with ways to sustain the environment. In this way, Google has constructively looked forward to developing new competencies and manage people in the organization in a way that Google is effectively working to reduce the impact of environmental damages.

In addition to this, Ford is working hard to reduce greenhouse gas emissions. Ford has been working hard in its research and development department to make sure that an EcoBoost engine is developed, which will help in increasing the efficiency of fuel (Digital Marketing Institute, 2019). Moreover, Ford has also initiated to manufacture and market approximately 40 vehicles that will be electric and hybrid, by the end of 2022. Ford has invested over $11 billion for this sustainable project. The entire organization has been provided with a shift in thinking and its working, as they have planned to work on sustaining the environment and work on developing vehicles that will help conserve the environment. Ford is looking forward to converting their mainstream vehicles to electrical vehicles. Ford focuses on electrifying those vehicles, which are already popular n the market. Moreover, the dealerships of Ford are dependent on Solar PV systems and wind sails to power their vehicles, so that there is a reduction in the use of electricity (Digital Marketing Institute, 2019). By bringing such innovation into the market, Ford is shifting its entire corporate governance and making sure that the mission and vision of the company are focused to develop sustainable products in the future, which will help in sustaining the environment.

 

  1. In 350-400 words reflect on the impact of this assignment on your understanding of the industry competition, highlighting the key role of strategic leadership in sustaining organic growth through value creation.

This assignment has helped me a lot in understanding the role of competition and the pressure it puts on any organization, which in return impacts the growth of the company. When working in the industry, every company looks forward to developing such strategic policies and goals that will help the company compete with its competitors in the longer run. From the case study of Nokia, it can be seen that Nokia had focused on its present only, which was not a wise move. Nokia was a leading brand and it kept on capitalizing the market at its peak. However, only if it had decided to look at the future and see the shifts of the consumers, things would have been very different. Nokia ignored the fact that they are at the top because of the customers. As soon as the customers wanted different products, Nokia was out of the competition. What other companies did was strategically develop their leadership in a way that helped them gain the maximum market share (Nokia-Microsoft alliance: Joining forces in the smartphone wars, 2011). Companies like Samsung and Apple took advantage of shifts that were occurring in the preferences of consumers and looked to work on them, which enabled them to become the favorites of the consumers. Strategical leadership is something that can provide you with a competitive edge. It is not a skill, rather a necessity that must be present within an organization. A company that has poor or no strategic leadership is considered to have no vision for the future. Nokia lagged 5 years on this, until 2011 when they joined hands with Microsoft to come up with a smartphone i.e. Lumia. It would have been beneficial for Nokia if they had worked on their vision and invested more in the research and development department. The results would have been totally different than they are now.

It is never too late to work on loopholes. Filling the loopholes can help Nokia develop itself as a key brand in the market. The entire assignment provided a learning outcome i.e. we should never ignore the future and the shifts in the demands of the customers, whether we are capitalizing on the market or not. Taking the right steps at right time can help an organization change its fortune and develop its competencies to become the leader of the market. This is what Samsung and Apple did, which Nokia failed to do.

References

  • Chen, J., 2020. Corporate Governance Definition. [Online] Available at: https://www.investopedia.com/terms/c/corporategovernance.asp [Accessed 24 December 2020].
  • Digital Marketing Institute, 2019. 16 Brands Doing Corporate Social Responsibility Successfully. [Online] Available at: https://digitalmarketinginstitute.com/blog/corporate-16-brands-doing-corporate-social-responsibility-successfully [Accessed 24 December 2020].
  • Nokia-Microsoft alliance: Joining forces in the smartphone wars (2011) Adapa Srinivasa Rao.
  • PESTLEanalysis Contributor, 2014. SWOT Analysis of Nokia. [Online] Available at: https://pestleanalysis.com/swot-analysis-nokia/ [Accessed 23 December 2020].

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