Nokia Strategic Analysis. Evaluation of the decision to return to the mobile telephone market


Project Report, 2016
37 Pages, Grade: 16,00/20,00
Anonymous

Excerpt

Table of Contents

1. Introduction
1.1. Evolution of the market of mobile phones
1.2. Nokia’s role in the market of mobile phones
1.3. Nokia’s desire to return to the market

2. Nokia’s strategy in former times and as a market leader in mobile telecommunication
2.1. Early steps in mobile telecommunication (1987-1997)
2.2. Nokia’s categories (1998-2006)
2.3. The iPhone shock and Nokia’s decline:

3. External Analysis with focus on Nokia’s competitors
3.1. Strategic Business Units
3.2. Breakthrough Resources and Capabilities
3.3. Analysis of Nokia Phones, its markets, and its competitors
3.3.1. Nokia Phone
3.3.2. External market analysis
3.3.3. Industry Analysis
3.3.4. Industry Competitiveness
3.4. Competition within the industry
3.5. External competitor analysis
3.5.1. Comparing brands of the Nokia mobile phone brands and Samsung mobile phones
3.6. Conclusion

4. The Current Strategic Plan of Nokia
4.1. How Nokia is entering the market
4.1.2. About HMD Global
4.1.3. About Foxconn
4.1.4. Initial sources of funding
4.2. The interdependence of the three companies
4.3. Products to be launched
4.4. Risks and uncertainties Nokia will face
4.5. Final words

5. Predictions about Nokia’s future
5.1. Will Nokia participate in the MWC 2017 in Barcelona?
5.2. New smartphone ?

6. Final Conclusion and Recommendation

Sources

1. Introduction

Nokia is a company which was founded in 1865 as a paper manufacturer. It kept developing until it became a telecommunication company in 1967. It had been the most influential phone company in the past, until 2007 when his decline started. The Group had remained almost in the anonymities for several years -through which it made commercial contracts with Microsoft- and it is thinking of returning back to the market by the end of 2016.

The report will start analyzing the evolution of the market of mobile phones and Nokia’s role in it. Then we will move on to the company’s strategy in former times and its success factors. Next point will be the external analysis (SBU, breakthrough resources and capabilities, competitors and the industry). Afterwards we will analyze the current strategic plan of Nokia and a predictable forecast for Nokia’s evolution according to future events such as the launch of the new iPhone. Finally this report will contain an evaluation on Nokia’s decision: to what extent we believe, as a consulting professional group, it is positive or negative for Nokia to return to the market.

1.1. Evolution of the market of mobile phones

A mobile phone is a wireless device that allows people to make calls. Although this definition seems to be a bit too simple, original mobile phones only had a single function which was to call. Message texting, picture taking and Internet navigation are functions that have been recently incorporated to cell phones as a result of technological advances and innovation.

The mobile phone market has evolved tremendously quickly within 43 years. Since the first cell phone was created in 1973 by Martin Cooper in Motorola until today, the market has experimented numerous and significant changes. Still, this market is constantly developing. This is why today we define mobile phones, or smartphones, as a wireless handheld device that combines a cell phone with a handheld computer, typically offering Internet access, data storage, email capability, music and movie player, camera and camcorder, GPS navigation, voice dictation for messaging and voice search for asking questions about anything.

In fact, the market of cell phones has lived 5 eras: first Pre-Standardisation or “0G”, second Analog Cellular Networks or “1G”, third Digital Cellular Networks or “2G”, fourth Mobile Broadband or “3G”, and finally Native IP or “4G”. What is more, two essential events that occurred in the past must be mentioned and highlighted to understand the current environment of the mobile phone market. The first one is the launching of the first commercially automated cellular network (aka 1G). It was launched in in Japan in 1979 by NTT. The impact of the aka 1G was that within five years Japan was the first country to have a nation-wide 1G network that covered the entire population. Later in time, this invention had its echo in other spots of the world: Nordic Mobile Telephone was next to provide 1G service to Denmark, Finland, Norway and Sweden. The United States caught up in 1983.

Beyond the fact that 1G meant an incredible technological advance, 1G network brought the possibility of connecting more people, not just the ones who could afford expensive telecommunication services. Boundaries were now removed and mobile phones were now seen by the big companies as an appealing product to invest in that could provide considerable revenues and that counted on a high number of potential buyers. Such was the attraction that sparked this market that some people like Robert Edward Turner III, so-called Ted Turner, revealed the expectation and anxiety that would characterize this sector in the future: “To be happy in this world, first you need a cell phone and then you need an airplane. Then you’re truly wireless”. [1]

The second important event is the appearance of the Internet in 1969. As we all know, Internet has revolutionized our lifestyle from the very beginning till the very end, from the way we send letters to the way we book our flight tickets going through to the way we study, the way we read or even the way we control our bank account. Subsequently, the mobile phone marketplace has also witnessed this brutal change, firstly as a spectator and secondly as a player. Indeed, the first mobile cell could only call whereas nowadays phones can send emails, use skype, use Microsoft office, take pictures, play films, listen to music, etc. For instance, the first smartphone was the Nokia 9000 Communicator introduced in 1996. It is considered to be the first smartphone because it had Internet access and fax-sending service incorporated. Later on, Internet brought mobile applications (apps) to the table which were responsible for making mobile phones also minicomputer devices .

On top of that, these two milestones along with other technological advances, lead us to the current panorama characterized by the constant development, the high level of innovation and the increasing interest from customers. The most outstanding fact reflecting this idea is the average time of obsolescence of a smartphone which is settled in 9 months. In other words, if you buy a mobile phone today, its technology will be improved within an average period of time of 290 days which is approximately 9 months.

Obsolescence according to manufacturers[2]

Abbildung in dieser Leseprobe nicht enthalten

Figure 1: Average days to replace a model

Brands accelerate replacement mobiles from 2010 to 2013[3]

Abbildung in dieser Leseprobe nicht enthalten

Figure 2: Average days that elapse between the departure of a mobile and the next model

1.2. Nokia’s role in the market of mobile phones

Nokia has been the most influential company in the mobile phone industry of all time, along with Apple who invented the concept of smartphone as we know it nowadays. In fact, it was that concept of smartphone that made Nokia lose relevance and power in the market as it didn’t adapt to the new rules of the market.

From the first launch in 1987 with the version Mobile Cityman 900, until the launching of Nokia’s N series in the mid 2000 stood as the leader player in the market. However, in 2007 Apple introduced the new iPhone 4 and the scenario changed. Nokia gave a response with their 5800 Xpressmusic too late. From that moment onwards, Nokia suffered a great fall in sales and this was also reflected in the several changes that were carried out in the upper management levels at the company. Frank Nuovo, who was Nokia’s chief of design from 1995 to 2006 declares: “I look back and I think Nokia was just a very big company that started to maintain its position more than innovate for new opportunities. (…) All of the opportunities were in front of Nokia. They were working on them but the key word was a ‘sense of urgency’. There was a real sense of just saying <<We’ll get to that eventually>>[4]. For example, Nokia had a prototype 8-inch tablet computers years before the iPad even emerged”. In addition, in this context Google had already caught up by launching their first Android mobile. Regarding the fact that Nokia was stuck in a declining phase according to its Life Cycle in 2006 the group decided to give Microsoft the right to use its name to produce mobiles via a ten-year licence starting that same year. Unfortunately, sales did not turn as expected and in 2011 Microsoft announced their decision to change their products name from Nokia to Lumia, devices that were operating with Windows Phone Service.

1.3. Nokia’s desire to return to the market

By the end of 2016, Nokia will recuperate its right to produce mobiles with the name Nokia because the license they gave to Microsoft will expire. Thereby, Nokia has the opportunity to return to the market. As far as the Group has announced, Nokia is planning to actually return to the market of not only smartphones, but also traditional mobiles and tablets. HMD Global, which is part of the Nokia group, has been recently created for this purpose of entering the market and it had signed a consortium with a subsidiary company of the Taiwanese Foxconn called FIH Mobile.

2. Nokia’s strategy in former times and as a market leader in mobile telecommunication

To understand Nokia’s attempts to regain greater market power and whether it is a good or rather a bad idea to re-enter the smartphone market, it is necessary to understand Nokia’s former strategy and choices and how it acted during its time of market leadership.

As already mentioned above, Nokia was and is a very competitive and strong company, that not only deals with telecommunication but has a great variety of other products and a very long history. To find access easily to this topic, this chapter is separated chronologically and deals with Nokia’s development during the time of the late 1980s, where mobile communication became an interesting topic to the broad mass, until today. Starting as a paper mill in late 19th century, the Finnish company Nokia has evolved and changed a lot.

2.1. Early steps in mobile telecommunication (1987-1997)

In the late 80s and early 90s, mobile telecommunication became an interesting topic for the broad society, as the hardware became more affordable and network expansion throughout Europe and the U.S. was pushed forward. Nokia, from the beginning on, anticipated the path of this fledgling industry and started its gradual expansion in this market. With the launching of the first handset, called Nokia Cityman 1320, in 1987 this long history began. Nokia understood very well to implement a strategy in the early stages and understood the need for design for its phones. This development was mainly pushed by Frank Nuovo, design manager at Nokia, who began to clarify the connection between design and strategy by launching his so called “Ferrari phone”, the Nokia 232, in 1994. This phone was Nokia’s first broadly accepted consumer phone that came “with bags of style”[5] and the company met the needs of these days very well. As one can see, this focus on design marked a first strategic decision towards growth and success. Yet, all the mobile phones of this sector were only analogue phones and that is where Nokia’s early decision towards GSM phones (starting in 1992) pays credit, as they were ahead of many other producers. The GSM – Global System for Mobile Communication – turned out to be the future type of network that would replace analogue phones. As pioneer in this sector, thanks to Jorma Ollila, CEO of that time, Nokia launched the Nokia 1001 and started to distinguish between consumer and business phones. This distinction between different types of users was another key success factor and a very important strategic decision for its upcoming market leadership. Nokia has seen the potential of customized hardware and met another certain consumer need. They intensified this strategy in their category structure which they started to implement in 1989.

2.2. Nokia’s categories (1998-2006)

This category structure not only distinguished between business (for the B2B market) or consumer phone (for the B2C market), but defined certain customer groups with specific characteristics, wealth and needs and made it therefore possible to meet these specific needs much more precisely compared to the competitors of that time. Nokia differentiated four groups of devices with specific features and later, in the early 2000s, added another two categories to meet these groups of customers, that so far were not interested in mobile telecommunication. The premium category addressed top range business users that wanted to emphasize their status. These phones were the most expensive ones that Nokia sold which therefore contributed a lot to their revenue margin. The first model of this series was called N8810 (8 because of the number promising luck in Asian countries, where they wanted to expand to as well). The fashion category aimed at the top end private consumers and emphasized style and coolness. In this category Nokia launched their famous 7000s and 8000s series. These were Nokia phones with changeable hardcovers and partly tended to focus rather on female than male consumers. This category is followed by the next price segments, the classic category, that focuses on classic business users where the main features were usability and modest styling. The last of the “early” categories were the expression phones that targeted to the so called “balancers”, people that manage a good work-life-balance and need mobile telecommunication not only in work surrounding but also for family matters. These phones were characterized by simplicity and personalization, for example offering customized ringtones.

Yet, all these categories and models had one thing in common: They focused on consumers that are more or less early adopters or business users that have a need for mobile communication. With the increasing adoption and private use of mobile phones in the early 2000s, Nokia wanted to meet the needs of two new customer categories, to further increase their market share, again a decision that led to increasing success. They wanted to offer something for first time users, who did not want to spend a lot of money and also to active users, who would need a tough phone for sporting activities or construction work. That is why Nokia introduced the entry and active category. The category structure helped clearly to develop Nokia’s market leadership in these days, as they could precisely meet customer needs. This leadership even gave them the possibility to stay in front of all other competitors during the growing adoption of smartphones. In 2006, Nokia produced 50% of the world’s smartphones and their image was characterized by huge customer satisfaction, reliable phones and at the same time a good stand in the growing economies with very affordable devices.[6]

2.3. The iPhone shock and Nokia’s decline:

So far, we only spoke about the many good strategic decisions Nokia made in its growing mobile telecommunication sector towards its market leadership with a smartphone market share of 48% and a shipping of 38 million devices in 2006.[7]

Yet the peak in 2006, with a huge market share and extreme consumer liability, was followed by many very bad decisions, panicking and a devastating decline in market share and consumer loyalty. The trigger for this change in strategy and resulting loss in market share was clearly the launching of the first iPhone by Apple on 9th January 2007. This date marked a shock not only for Nokia but as well for the whole smartphone industry. The iPhone set new standards, especially in terms of design and set the trend clearly towards touchscreens, which hit Nokia quite badly, as they always focused on QWERTY keypads and underestimated the touch technology a lot. Still, the iPhone is not the only explanation for Nokia’s very bad development between 2007 and 2011. How could a company that invented the smartphone, the first app store (OVI), first internet phone, introduced touchscreens two years prior to Apple and made cameras an important feature to phones lose almost every market segment in mobile telecommunication?[8]

The answer is very simple. Nokia did not at all focus on their strength any more (being the most innovative player in 2006, reliable and durable phones, camera technique and business segment) but just started to follow the big trends in smartphone development without being able to keep up with the new competitors. Nokia put itself into a situation, where it is “…[not] like other struggling companies that are coming from behind, Nokia is playing catch-up from the front.”[9]

As Nokia never had to face real competition (except Motorola during the time of the Razr phone) because all old competitors, like Siemens, left the mobile phone market and the “real” competitors like LG or Sony Ericsson all based their phones on the Symbian Open System technology, where Nokia was the biggest co-owner, they were hit by the new competition with Apple and seemed to have stayed in a paralysed situation for quite some months.

Furthermore, the Symbian OS used to be the most used operating system on smartphones in the world and was adapted by many other producers. With the iPhone, a new system came to the market and was fast accepted, the iOS. Yet the next big shock for Nokia was the launching of the Android OS as a free version in 2008. A system that suited the need of modern smartphones far more than Symbian did. It was somehow just outdated and many producers turned their back towards Symbian and onto Android. The figure shows the effects by the new operating systems and shows how it enhanced Nokia’s precarious situation. Nokia started to panic and just wanted to keep up with its new competitors. The “strategy” they started to run and was already quoted above as the “catch-up from the front” led them to a “war” they just could lose. Tomy Ahonen even goes as far as comparing Nokia’s actions with Hitler’s three front war in World War II in his article “the fall of Nokia”.[10] Although this argument is quite provocative it is somehow true, as Nokia really fought on three fronts. A model that is used in project management called the “Iron Triangle” clarifies this dilemma. The model supposes that you only can meet two of the three given dimensions successfully, and that you will receive the classical “stuck in the middle” situation, if you focus on all three dimensions at the same time.

Yet, this exactly is what Nokia tried and failed to do, due to bad decisions. Their former strength as being a very innovative company was undertaken by Samsung, a company that basically appeared from nowhere and made innovation its core competence, outpacing Nokia. As Nokia missed the constant innovation track, Samsung and Apple followed with core brands they would innovate from period to period (Galaxy, iPhone), Nokia lost the loyalty of customers and were basically punished for abandoning their core competence. The fast innovation they could not provide the customer with and their ongoing lagging behind in the industry made them fail the first dimension “Fast”.

Their decision to follow the industry trend and move production to Eastern Asia resulted in the loss of valuable government contracts with countries where production used to be (Germany, Sweden etc.). Furthermore, it resulted in many delays for products and innovations which threatened and partly destroyed customer satisfaction a lot. Some bad choices, such as abandoning the concept of changeable battery and change of the micro SD standards led to further loss of customers. To sum up, Nokia also lost in the dimensions “good”, meaning customer satisfaction and reliable products and “cheap”, as they could not compete with the comparable cheap products by Samsung, HTC etc. Furthermore, they neither focused on high end market, nor on the cheap mass market and were as well “stuck in the middle” and lost on both ends. All these factors together led to negative profit margins and Nokia realized, that something had to be changed, as Nokia’s stock price changed horrifically as well. On 29th June 2007 (after the launch of the iPhone), Nokia’s stock price was $23.63 and four years later, on 28th June 2011 just $6.11. [11] Furthermore Nokia lost 11% of its market share in just six months in the second half of 2010.[12] Thus Nokia searched for a partnership to regain their competitive power and finally found a partner in Microsoft. Both companies announced their future cooperation on 11th February 2011 and started to produce the Lumia Windows phone series.[13] Eventually in April 2014, Microsoft finished the unsatisfactory partnership and purchased Nokia’s smartphone business for $7.2 billion, an investment that not only cost Microsoft a huge amount of money and destroyed 3000 jobs, but turned out to be a total flop.[14] This resulted in Microsoft venture of the business to HMB Global and Foxconn in May 2016, where now new Nokia smartphones are supposed to be released.

All in all, one can see that Nokia’s former decisions had a huge impact on their strategy and development and that this development is characterized by long period of good decisions, growth and market leadership and a second period that is characterized by a very fast decline and bad decisions. Before we focus now on Nokia’s current strategy and clarify what mistakes Nokia must avoid, in order evade failure again it is important to have first a look at the external Analysis and Nokia’s competitors.

[...]


[1] 42 Rules for applying Google Analytics (2012). Rob Sanders. Superstar press [page 66].

[2] El confidencial (2014). La ventana de obsolescencia de los ‘smartphones’ se ha estrechado un 30%. [press release]. Available from: http://www.elconfidencial.com/tecnologia/2014-10-02/la-ventana-de-obsolescencia-de-los-smartphones-se-ha-estrechado-un-30_218833/

[3] El confidencial (2014). La ventana de obsolescencia de los ‘smartphones’ se ha estrechado un 30%. [press release]. Available from: http://www.elconfidencial.com/tecnologia/2014-10-02/la-ventana-de-obsolescencia-de-los-smartphones-se-ha-estrechado-un-30_218833/

[4] FINANCIAL REVIEW (2013). The Nokia insider who knows why it failed warns Apple it could be next.. [press release]. Available from: http://www.afr.com/technology/the-nokia-insider-who-knows-why-it-failed-warns-apple-it-could-be-next-20130906-jh3iz (05.11.2016)

[5] http://www.mobilephonehistory.co.uk/nokia/nokia_phones_list.php (28.10.2016)

[6] http://vrworld.com/2011/01/31/analysis-the-fall-of-nokia/ (28.10.2016)

[7] ttp://www.bloomberg.com/news/articles/2007-02-27/nokia-tops-in-2006-smartphone-salesbusinessweek-business-news-stock-market-and-financial-advice (28.10.2016)

[8] http://vrworld.com/2011/01/31/analysis-the-fall-of-nokia/ (28.10.2016)

[9] Kendall Whitehouse in http://knowledge.wharton.upenn.edu/article/nokia-playing-catch-up-from-the-front/ (27.10.2016)

[10] http://vrworld.com/2011/01/31/analysis (28.10.2016)

[11] https://gigaom.com/2011/06/29/the-iphone-effect-how-apples-phone-changed-everything/ (27.10.2016)

[12] http://vrworld.com/2011/01/31/analysis-the-fall-of-nokia/ (28.10.2016)

[13] https://gigaom.com/2011/06/29/the-iphone-effect-how-apples-phone-changed-everything/ (27.10.2016)

[14] http://www.express.co.uk/life-style/science-technology/719614/new-nokia-smartphone-android-release-hmd-global-foxconn (28.10.2016)

Excerpt out of 37 pages

Details

Title
Nokia Strategic Analysis. Evaluation of the decision to return to the mobile telephone market
Course
Strategic Management
Grade
16,00/20,00
Year
2016
Pages
37
Catalog Number
V366907
ISBN (eBook)
9783668458369
ISBN (Book)
9783668458376
File size
1263 KB
Language
English
Series
Aus der Reihe: e-fellows.net stipendiaten-wissen
Tags
Nokia, Strategic Management, Strategic Analysis
Quote paper
Anonymous, 2016, Nokia Strategic Analysis. Evaluation of the decision to return to the mobile telephone market, Munich, GRIN Verlag, https://www.grin.com/document/366907

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