Nokia case study Essay
Nokia case study
1- What did Nokia do right?
Concerning R&D, Nokia took advantage of the efficiency of global manufacturing and produced worldwide volume to reduce high costs. In the 1970s, The company maintained research and development (R&D) investments of close to 4% of net sales through most of the decade, it even reached 7% of its net sales from the electronic sector (€210 million) in the 1980’s. Nokia also had very smart R&D investments : channelled into a number of key areas where Nokia knew it could create a competitive edge. For example in 1992, Nokia launched the first mass-produced digital phone, Nokia 1011, for GSM. Nokia was a visionary company. They were the first to understand that design was essential in this business and to segment their product line. In the 1990s, Nokia’s competitors began to outsource manufacturing, while Nokia continued to produce its handsets internally. Nokia protected its technological developments and handset features by continuing to aggressively file patents. Focusing on customer requirements is also one of the key points that allowed Nokia to maintain its competitive edge ( Nokia 9000 Communicator in 1996 : a GSM phone with fax, e-mail, short message service, address-book, calendar and Internet connections. It created an entirely new category of digital all-in-one communications device) HR :
In 1997, Nokia employed more than 36,000 people from all nationalities, ethnic groups, ages, sexes and backgrounds. Nokia continues to cherish this diversity and views it as a core strength in helping to generate a variety of local and global solutions. Nokia managed to create a shared vision of how the organisation can become the global leader in telecommunications. By empowering its employees, Nokia has created a workforce that fights to win rather than sitting back and letting others do the work. Nokia sees itself as a learning organisation, it does not rest on its existing strengths but seeks to add to them and encourages employees to take on more responsibilities and acquire new knowledge and skills. The company has created a set of values which enables the organisation to adapt to the rapidly changing environment of telecommunications : customer satisfaction, respect of the individual, achievement, continious learning. Network and telephones :
For decades Nokia led the telecommunications industry in handsets and networking. They provided the first wireless phones in Scandinavia for government services. It supplied networking and infrastructures. In 1987, they launched the first mobile phone. Nokia was influential in establishing the second generation network (or “2G”) and the European digital network Global System for Mobile (GSM), which came to replace the dozens of incompatible analog network systems and allowed phones to work throughout Europe. Nokia identified the opportunity for digital developments before anyone else, introducing its first digital transmissions systems in 1969. Nokia was able to deliver the first GSM network in 1991
Nokia also had a head start on competitors because the Finnish telecom infrastructure sector had been deregulated sooner than those in most European countries. Nokia’s networking unit negotiated deals to install GSM infrastructure for 17 operators : they were the only company in the world selling phones that work in every major cellular standard.
Emerging and new markets :
Nokia soon learned what it would need to succeed in a global telecommunications industry : whereas in some industries organisations focus upon domestic markets within limited geographical boundaries, Nokia made a key decision in 1991 to increase its global marketing. This was a critical decision, which set a pathway for the whole organisation, so that Nokia was prepared when the cellular boom hit world markets. The development of global strategies offered Nokia the ability to respond and meet customer needs quickly as they developed, with the added benefits of cost reduction, improved quality and competitive leverage.
Nokia exported wireless telecom networking terminals from four Nordic countries in 1982 to over 20 countries throughout Europe, the U.K., North America, and Asia in 1987. By late 1992, Nokia exported handsets (most of which were still analog) to 70 countries, 56 expanding its reach to Latin America, Russia, Australia, and Eastern Europe. In 2003, Nokia introduced two handsets, the Nokia 1100 and 2300, tailored to emerging markets with voice and SMS capabilities and longer battery life, useful in regions with unreliable power. That shows how Nokia tries to fit local requirements : it is a glocal strategy Acquisitions :
Nokia ventured beyond Finland to make its first international acquisition, Swedish consumer electronics company Luxor Ab. Nokia’s mergers and acquisitions activities consistently boosted revenues while also adding valuable patents in printed circuits and connectors, fiber optics, and digital computers, among others, to its growing portfolio.
In the 1990s, Nokia implemented vertical integration for mobile phone, it was preoccupied by reactivity and costs. Because of the crisis and deregulation which implied many changes, Nokia divested its data, forestry, and chemicals businesses, and centered the company on four key business areas : mobile telephones, consumer electronics, networks, and cables –> telecommunications (networking equipment) and mobile phones the focal points of Nokia’s strategy. It made a joint venture with Siemens and Symbian in 2006. –> Nokia invested in each vertical of the handset ecosystem— manufacturing, distribution, and design R&D.” Value and brand image :
Nokia was on of the first to build a brand identity. Ollila implemented “The Nokia Way,” highlighting Nokia’s core values of customer satisfaction, respect for the individual, achievement, and continuous learning. It reinforced the image of the brand. Today, in spite of the Microsoft merger, Nokia benefit from a strong brand universe.
2- What did Nokia do wrong, the choices that caused the downfall of the firm ? Technology
During its era of growth (under Kairamo) Nokia invested a lot in R&D and diversified its activities a lot. Then facing a slowdown at the instigation of Vuorilehto, it divested many of its non-core units in order to focus its ressources on the mobile phones, networks and cables markets. Subsequently they gained a huge head start on its rivals (also thanks to the early deregulation of the market in Finnland) and so, as it’s said in the document: “Nokia was influential in establishing the second generation network (or “2G”), the European digital network Global System for Mobile (GSM),a which came to replace the dozens of incompatible analog network systems and allowed phones to work throughout Europe.”
This digital network gave them a great cost advantage and allowed them to spread their influence across the world (except in the US.) But Nokia couldn’t reiterate that success when the turn of the smartphone occurred, their software development was to weak and they lost huge market share in developed countries.
Vertical / Horizontal integration and diversification
At its beginnings, Nokia had a high diversification as it was present in several areas and had five core businesses : rubber, cable, forestry, electronics and power generation. But then along the different restructuration as it decided to do everything in-house and master the whole production scheme, we can say it had a high vertical integration. As it is said page 6: “Nokia invested in each vertical of the handset ecosystem – manufacturing, distribution and design R&D”. During its acquisition phase of the 80’s it acquired a lot of similar companies in order to grow bigger and reduce competition: it was a horizontal integration phase. But as the market got more complex and the technology evolved, Nokia had to outsource some of its operation in order to focus on its competitive advantage: manufacturing innovative and quality phones. Hence less vertical integration. Geographic scope
At its beginnings, Nokia was uniquely selling into the Finnish market. But in 1983 it made its first international acquisition with the Swedish company Luxor Ab, as Nokia’s CEO Kairamo believed it had to “expand in the world market to survive”. Even if its successor Vuorilehto didn’t share his point of view, Nokia expanded in Europe and remained healthy thanks to that, even when the Finnish economy was struggling. Then it succeeded in identifying regions with the most potential growth and spread worldwide: Australia, New Zealand and above all Asia. Nokia’s strategy was to focus on emerging / less competitive markets with more basic phones such as Africa or Middle East Asia (exhibits 8 and 10).But it was harder for Nokia to keep or acquire market shares in more developed countries where the smartphone had become the standard. Indeed it never reached the USA market and had to leave the Japanese one in 2011. Nokia had a flexibility approach in its expansion: it adapted its conduct and its products to the local market differences. Nokia spent a lot of money to adapt its marketing campaigns and its offer to local markets, and it worked. On the production side, in order to get closer to its customers and manage growth, it opened manufacturing facilities in USA, Germany, Hong Kong, China, and South Korea.