Strategies of Nokia and Nestle and their competitive advantage in the industry - Essay Example

?Report Reference The short report is prepared to analyze the strategies of Nokia and Nestle and to make recommendations for maintaining their competitive advantage in the industry. 2. Introduction In the fast changing dynamics of socio economic and technology driven environment, businesses need to evolve creative strategies to meet the demands of the time. Bateman and Zeithaml (1990) assert that environmental changes necessitate organizations to evolve and adapt the changes within their business strategies. It is vital part of organizational success as it not only helps them to survive but also facilitates in maintaining competitive edge against their rivals in the industry. Business strategies are actions plans developed to achieve the vision, mission and objectives of the organizations over a long period of time. Porter (1996) says that competitive strategy is doing business differently to give value to the customers and maintain leverage. The strategic plans therefore, are vital ingredients that allow firms to be flexible and innovative so that they can absorb environmental changes and evolve to maintain one’s market position. The report is primarily an effort to analyze the business strategies of Nokia and Nestle which have made tremendous changes within their strategies to create niche market position in the domestic and global market. 3. Discussion 3.1 Outline of strategic issues of Nokia Nokia is a Finnish conglomerate that has incredible growth story. It has emerged as a flagship company mainly because it was able to anticipate and preempt environmental changes to evolve new strategies. The foresightedness of its managerial leadership was able to steer it to its present success. There were three major strategic issues with Nokia which needed to be creatively designed and developed to facilitate leadership position in the global market. The first one was to redefine its strategies towards its low performing business activities which did not offer long term sustainability of good profits or prospects. The second was to identify the business which had wide scope prospects vis-a-vis business opportunities across the globe. Third and the last one was to ensure that the products should be able to meet the changing demands of the global customers and should have futuristic scope to attract them. These were critical issues which needed to be addressed urgently by the company so that its vision of becoming a successful global entity could be expedited and realized. 3.1.1 Situation analysis of Nokia Finland was a rich but small nation that was bogged down with geographical hardships that made it difficult to adopt traditional technology to improve its communication and other related development processes. It initially had diverse interests comprising of tire manufacturing, paper production, consumer electronics and telecommunication equipment. The disinvestment of many of its business activities helped it to focus on telecommunication. It was one of the companies that had pioneered wireless technology to overcome geographical constraints of near arctic conditions which made cable based telecommunication a difficult and expensive venture. Indeed, strategic planning is at the heart of business strategy. Bateman and Snell (2009:132) emphasize that planning is ‘the conscious, systematic process of making decisions about goals and activities that an individual, group, work unit or organization will pursue in future’. Nokia had demonstrated its leadership initiative by disinvesting its low prospect business activities and correctly identifying potential in the telecommunication where wireless technology had offered huge scope for business expansion. It was focused on organization’s long term goals and objectives for its success and growth. It explicitly emphasized the unique activities and approaches of Nokia leadership for delivering its strategic goals and objectives. Kotler & Keller (2007) have stressed the need to be innovative and service oriented. Nokia was able to align its strategic action plans with its business goals to succeed in the highly competitive market. One of the most important aspects of Nokia was its ability to overcome domestic competition by its continuous effort to improve its products and provide its customers with value at low cost. Domestic competition was the driving force that prompted the company to be innovative in its approach and develop new products and services at competitive cost. This not only gave edge to the company’s market but also helped it to be different within the same industry. Kay (1995:101) strongly affirms that industries are able to keep pace with the changing demands of the people only when they continuously strive to be innovative through effective R&D. Through it effective R&D, company’s strategy of competing by being different became its major element of success and also motivated it to expand its business across the globe. It is now a leading company in the digital wireless technology and enjoys global positioning. 3.2 Outline of strategic issues of Nestle Nestle is one of the largest company that has leadership position in the food products in the global market. There were three main strategic issues with Nestle: the first one was to streamline its activities across the globe so as to improve its supervision and control over all its subsidiary units and branches; the second was to ensure that it can respond timely and efficiently to the changing demands of the time and update its product line accordingly; thirdly, the supply chain management. In the highly competitive environment of fast transforming business dynamics, people become the most important factors whose changing preferences need to be incorporated within the business objectives. The rapid expansion of Nestle across geographical boundaries had made it difficult for the corporate managers to leverage their differentiation against their rival. Though the subsidiaries and branches had worked on the basis of localized strategy that could make independent decisions vis-a-vis product development, marketing and manufacturing, rest of the operations were centralized. As a result, despite having huge product differentiation, the lack of integration adversely impacted the performance as they were unable to get the benefit of differentiation spread across the various units. 3.2.1 Situation analysis of Nestle Nestle had rapidly expanded its business through acquisition and had significantly increased its products which were managed independently by the product group divisions. The divisions of wide range of products were spread widely which had made it difficult for the corporate managers to understand the individual problems which often led to delayed responses to the organizational conflicts and operational inefficiencies. Another important factor was that despite having core competencies and capabilities to meet the challenges of local demands, subsidiaries were not equipped to take benefits from the differentiation offered within the operational divisions of Nestle’s different product groups. Porter (1980) has asserted that cost advantage and differentiation considerably contribute to the strength of a firm. The company therefore needed to exploit its differentiation across its group divisions to maintain its edge. The new CEO’s strategy was based on decentralization of power which empowered the divisional managers to make decisions based on informed choices. He divided the products into seven product line which had independent division managers. The integration of all operating divisions within the group helped to transfer and share the benefits of differentiation. This significantly impacted the performance outcome of the divisions and increased revenue. The creation of strategic business groups or SBU was also a brilliant strategic move as it brought under its umbrella all the divisions of all the groups of the region or nation. The SBU managers were able to form vital linkages amongst themselves and redefined supply chain to make it more effective, efficient and timely. The distribution of inventory within the divisions helped to meet the needs of the local demands. At the same time, SBU promoted sharing of resources, joint purchase, sales and marketing decisions considerably reduced the overheads. The company was able to reduce the number of sales offices from 115 to just 22 and suppliers from 43 to 3. The CEO’s decision to use matrix structure in its activities across the product groups was hugely successful as it helped to share and transfer the implicit knowledge and competencies of the groups and divisions across its groups rather than within the group or division. It was a creative translational strategy that widened the area of knowledge and capabilities of the firm. Porter (1985) has acknowledged that logistics is key element of value chain. It helps inbound and outbound logistics for effective supply chain for both the raw material and network of distributors for finished goods. It therefore improves firm’s performance through increased efficiency in the delivery of goods and services. By coordinating important functional areas of purchasing, market and sales, the company was able to reduce cost and continued to maintain its competitive advantage in the global market. The installation of company-wide ERP system was another important step that used technology to integrate activities and operations of all divisions and groups on a real time basis. ERP system is highly useful for making effective and timely decisions based on correct information vis-a-vis inventory, supply and demand of products, financial details etc. It therefore helped the corporate managers and people at headquarters to control and supervise the operations of widely distributed network of its divisions and products. ERP equipped them with strong tool to identify the problems of the remote divisions and make effective decisions centrally to improve the individual performance of all its divisions and independent stores. Nestle leadership used technology to not only improve the various processes within the system but also the overall performance through improved enterprise resource planning or technology driven ERP system. It efficiently integrated internal and external business information across the firm and its divisions and influenced its decision making. The improvement of its operational efficiency and managerial processes positively impacted its productivity. It played a critical part in its success because its application in the various areas like accounts, sales and marketing, supply chain, purchase etc. helped to generate important information timely. Thus, it facilitated in identifying the strengths and weaknesses of the strategies followed and provided it with opportunities to rectify its planning and decisions to improve and enhance its overall performance. 4. Similarities and differences between the two strategies The main similarity between Nokia and Nestle was that they both catered to the market that was highly flexible in its demands. The high competition within the segment was a critical factor that necessitated creative inputs that could give them competitive advantage. Nokia constantly tried to develop its core competencies in the area of area of wireless telecommunication and manufacture state of the art digital goods like mobile phones and accessories at competitive prices. Nestle, on the hand, used its strategy of differentiation to gain leverage in the industry. The major difference between the two was fundamentally based on their business strategy of expanding their business across the globe. Nokia used focused approach to develop its wireless business and closed down its other activities like tire manufacturing, production of paper and consumer electronics. Wireless technology had great scope which Nokia had realized early. By focusing on the digital wireless telecommunication, Nokia was able to exploit its early knowledge to penetrate new market and create niche market position in the global market in the relatively short time surpassing developed nation like America. Nestle on the other hand, expanded its business interests through acquisitions of food companies across the world to create a formidable network of distributed divisions of seven product groups. The integration of network of operating divisions spread across nations helped the firm to exploit its differentiation strategy and gain competitive advantage. The rapidly transforming societal paradigms and technological advancements are important elements that require innovative approach to business strategy. 5. Conclusion One can conclude that Nokia and Nestle were both able to gain significant market share because they were able to gauge the changing dynamics of business. While Nokia was quick to realize the huge potential of wireless technology, Nestle used its widely distributed network of operating divisions to differentiate products and create leadership position in the industry. 5. Recommendations 5.1 Recommendations for Nokia Alliances and acquisition are vital ingredients of competitive advantage. They not only allow the firms to maintain competitive edge but they are also able to widen their market at relatively low cost. Nokia should also use its core competency in wireless technology to forge business relationship with other groups across the globe for expanding its business in the contemporary environment of recession. Nokia has now proved its leadership in the wireless technology and therefore should now venture into other areas of interests, especially where this technology can contribute. Hence, if the company can also become service providers of broadband and telecommunication, it could significantly improve its prospects. The company must now start new unit of refurbishment that can repair old handsets and sell them to the customers of under developed countries at very low cost. The company can introduce exchange system whereby the customer can get discount on new sets in exchange of old sets. This way, the company would not only help the environment but would also enable to create good communication in the poverty driven states. Nokia’s success in wireless telecommunication should now be used to project simulated Hollywood and regional movies at low cost to create new market for movie addicts. Instead of loading movies in the extra memory card, they can be directly relayed through specialized software, uploaded in the handset. The handset with projector features can play movies on the walls of the homes. It should use different market strategy for different group of people. By exploiting the personal preferences of the persons, it can influence his/her behavior as a consumer of wireless goods and services that it wishes to sell. The company must shift its manufacturing and R&D facilities to the under-developed and developing economies to reduce cost of production and research cost. These are helpful measures to meet recessive trend of the current economy. The company needs to improve its logistics to make its supply chain management more cost effective. It can do so by shifting its manufacturing units to the places which are nearer to the raw material. In the highly competitive market, Nokia must now introduce customization of its products to suit its customers. Introduction of small new features like engraving the names of customers on the sets would hugely attract customers and increase its revenue. 5.2 Recommendations for Nestle Nestle needs to stop its acquisition spree and concentrate on increasing its efficiency of its wide network of product groups. While the new system is efficient in its information, the globalization has considerably impacted consumer preferences and changed the dynamics of market. Hence, Nestle must try to introduce value added services which can meet the changing demands of the people. The company must incorporate the local flavors in its transnational strategy so that food products which are popular locally can be introduced within the group. It must develop local team as proactive participation of local population within workforce would help it to gain credibility and confidence of local people at large. It should develop market strategy that are totally focused on the needs and requirements of the people and make continuous efforts to update its products line with that of the changing public demands. It should also promote effective customer relationship management to improve and improvise the customer base. Building good customer relationship significantly impacts the business outcome, even during recession and difficult time. It must focus on coaching and provide the workforce with continuous learning environment so that they are empowered to make decisions based on informed choices. The company must create an effective feedback system within its operating divisions so that the corporate managers are able to identify the issues and factors that hinder growth. The corporate office must also introduce communication system that can be promote timely dissemination of information for improved productivity and confidence building amongst the employees. Reference Case Study . Strategy in Action: Finland’s Nokia. Case Study . Strategy in Action: Nestle’s global Matrix Structure. Bateman, Thomas S., and Carl P. Zeithaml. Management: Function and Strategy. Homewood, IL: Irwin, 1990. Bateman and Snell. Management: Leading and Collaborating in a Competitive World. 8th ed. McGraw hill, 2009. Kay John. Foundation of corporate Success. Oxford University Press, 1995. Kotler, Phillips and Keller, Kevin Lane. Marketing Management. Pearson Education Inc., 2007 Porter, M. What is Strategy. HBS. November-December, 61-78, 1996 Porter, M. Competitive Advantage. New York: The Free Press, 1985. Porter, M. Competitive strategy: Techniques for analyzing industries and competitors. New York: The Free Press, 1980. Read More