Business Environment and Strategic Management - Assignment Example

Business Environment and Strategic Management Strategic Analysis of Nokia Group Table of Contents Introduction 3 2. Analysis of current business environment affecting the industry 5 2.1 Analysis of industry’s macro-environment – Pestel analysis 5 2.2 Analysis of industry’s micro-environment – Porter’s Five Forces 6 2.3 Analysis of industry’s strengths and weaknesses – SWOT analysis 7 3. Analysis of the company’s strategic capabilities as at January 2011 9 3.1 Products 9 3.2 Value-adding activities 9 4. Key strategic issues facing Nokia in January 2011 10 5. Evaluation of the partnership with Microsoft announced in February 2011 10 5.1 Strategic logic behind the partnership 10 5.2 Will the partnership address the firm’s key strategic issues? 10 5.3 Problems that could prevent the partnership succeeding 11 5.4 Alternative strategy of development 11 6. Change management in Nokia 12 6.1 Type of change that Elop introduces into Nokia 12 6.2 Links between strategic analysis and leadership 12 7. Conclusion 12 8. Appendices 13 References 17 1. Introduction Nokia is the leading firm in the mobile phone industry within the international market. The firm is based in Finland and has ‘a strong presence in 16 countries’ (Nokia, Company, Nokia in Brief). The products of the firm are sold in about 160 countries worldwide while its employees have been estimated to 132427 in the company’s units worldwide (Nokia, Company, Nokia in Brief). The position of the firm in the global market can be identified through the graph 8.1 (Appendix); through this graph it is made clear that Nokia controls more than a quarter of the market share of the mobile phone industry worldwide; at the same time, the firm’s sales share is also significant, being approximately 25% while its profits share is about 20% - having being decreased by approximately 40% compared to 2007 (see graph 8.1, Appendix). At this point, emphasis should be given on the fact that the firm’s market share has not been particularly affected by the decrease in profits and sales (in images 2 & 3 of graph 8.1); this fact reflects the ability of the firm to keep its competitiveness towards the other firms of the industry – 7 other competitors. It should be also noted that the above graph shows the firm’s performance in a period of 3 years, ended in December of 2010; in other words, through this graph the economic status of the firm in January of 2011 is made clear. On the other hand, the sales of the firm have been kept at a significant level – being stabilized in 2009 and 2010, despite the crisis (see graph 8.2); however, the profits of the firm have significantly increased in 2009 and 2010 – with a trend of improvement in 2010 – reflecting the strong effects of the recession on the organizational performance. The fact that sales have been kept high but profits have significantly decreased reveals a problem in the management of costs across the organization. In the first quarter of 2011 the firm’s reported sales reached the 10,4 billion, which is an important level – taking into consideration the global market conditions. The success of the firm in the global market has been considered as related to its structure. The current structure of the firm is presented in graph 8.3, Appendix. It is made clear that the firm’s CEO has a direct involvement in the monitoring of the firm’s activities. The firm’s various departments are also directly linked to the production line, creating a strong network. In this way, cooperation and communication within the organization are kept at high levels, a fact that helps the firm to keep its competitiveness. The strategic environment of the firm will be analyzed and evaluated by referring to the firm’s key strategic practices and capabilities. The concept of the strategic business unit, as developed in the literature, will be used in order to explain the firm’s strategic decisions. Strategic business units are ‘little businesses within an organization set up as units to ensure that a certain product or product line is promoted and handled as though it were an independent business’ (Koontz et al. 2006 p.168). The value of the SBU is that they can help firms’ leaders to expand organizational activities without losing the control on each production line (Kurtz et al.2009). Moreover, Gomez (1999) noted that through the SBUs organizations can check more effectively the return of their investment; it is explained that through the SBUs the costs related to its production line can be easier estimated and compared to the unit’s profits; in this way, a more effective monitoring on the balance between costs and profits is achieved. The concept of SBU can be particularly valuable for Nokia. As revealed in graph 8.3, the firm has 3 particular units – mobile phones, smart devices and markets; these units while they are established as separated departments they have common staff – developers, designers; this fact may leads to the increase of the costs of the departments – since their productivity, having to share resources, is expected to face delays; instead, if these units were totally autonomous – in the context of the definition of SBU given by Koontz et al. (2006) above, they would have higher performance. 2. Analysis of current business environment affecting the industry 2.1 Analysis of industry’s macro-environment – Pestel analysis The external environment of the organization is particular important since it can influence all parts of organizational activities. Moreover, the external environment is out of the control of the organization, meaning that the organization cannot develop practices for changing the conditions in its external environment. A particular strategic tool is used for identifying the conditions in an organization’s external environment: the PESTEL analysis, which focuses on the political, economic, social, technological, environmental and legal environment of each organization (Bensoussan et al 2008, p.169). In accordance with Osborne et al. (2005) the PESTEL analysis considers the environment of the organization as ‘a mixture of man-made and physical environment’ (Osborne et al. 2005, p.12). The PESTEL analysis of Nokia is presented in graph 8.4 (Appendix). The results of the firm’s PESTEL analysis should be discussed and evaluated: a) Political: Businesses worldwide cannot take the risk of investing in new markets, since there can be no guarantee that the severe political conflicts which are currently in progress in many countries will not be further expanded. As Williams et al. (1997) noted, the effects from political conflicts can severely affect organizational activities and for this reason, such conflicts should not be ignored (Williams et al. 1997, p.162); therefore, managers in Nokia could not ignore the political turbulences in the global market when setting the firm’s new strategies, b) Economic: the increase of competition in trade has led countries to a strong conflict for dominating the global marketplace; however, competition in the global market is highly affected by the continuous changes in currency prices; firms operating internationally, like Nokia, are highly affected by this high volatility of currency prices; c) Social: Under the global market pressures and the expansion of the crisis, existing employee legislation in countries worldwide is changed; each organization that operates globally, including Nokia, needs to be ready to face these challenges, in order to ensure that it will be able to face effectively its competitors; d) Technological: regarding this sector, Nokia would face no pressure; the company focuses on innovation and updates continuously the technology involved in its products. However, the continuous changes in technology lead to the following problem: employees of the firm internationally need to be trained – every time the firm updates the technology on which their products are based; the relevant cost can be high and the ability of the firm to respond to this challenge can be questioned; e) Environmental: Nokia has introduced a series of strategies aiming to reduce the effects of its activities on the environment; for example: all of the firm’s ‘production plants have environmental certification, and all phones have a product-specific Eco Declaration’ (Nokia, Environment, 10 years of eco innovation); f) Legal: the firm’s managers do not have to worry on the potential violation by the firm’s products of existing laws, taking into consideration the fact that legislation favours freedom in telecommunications – in most countries worldwide. 2.2 Analysis of industry’s micro-environment – Porter’s Five Forces As a member of a particular market (national or international) each firm has to align its strategies with its environment. The Five Forces model of Porter helps to identify the industry factors which are likely to influence the strategies of each firm; these factors need to be taken into consideration by the strategic planners of each organization, especially before developing strategies, which are critical for the organization. In the case of Nokia, the five forces, which are expected to influence the firm’s strategies, are the following ones (see also graph 8.5, appendix): a) competitors; the distant between the firm and its competitors is significant – see graph 8.1, Appendix; therefore, the firm is not particularly threatened by its competitors; b) potential entrants; the key competitors in the global mobile industry are about 8 – see graph 8.1, Appendix; it is quite difficult for a new firm to enter this market since all competitors are years in the specific industry and have well known brand names; it would be also difficult for a new entrant to threaten Nokia, a firm which has secured its position towards its competitors (graph 8.1, appendix), c) Suppliers; the suppliers of the firm could cause pressures on the organizational strategies, since it is not quite easy for the firm to identify the parts of its products – taking into consideration the advanced technology on which the products of the firm are based, d) Substitutes: for the above reason, it would difficult for substitute products to threaten the firm’s products, since the latter are based on advanced technology – which is continuously updated and for this reason it is quite difficult to be copied, e) Buyers: buyers could possibly cause pressures to the firm’s strategies under the following terms: in case that the level of the firm’s sales is further decreased, then its profits would be further declined, a perspective that would be quite negative for the organization taking into consideration the continuous decrease of its profits (graphs 8.1 & 8.2, appendix). 2.3 Analysis of industry’s strengths and weaknesses – SWOT analysis SWOT analysis is used in only to identify the potential risks for the firm within its industry (Chapman 2006, p.116). In accordance with Griffin (2007) a firm’s SWOT analysis need to be based on the organization’s mission; it is in the context of the mission of each organization that its strengths, weaknesses, opportunities and threats would be evaluated. Moreover, Verardo (1997) notes that the SWOT analysis should be based on the firm’s actual performance and challenges and not reflect a different organizational environment – compared to the firm’s actual economic status. The SWOT analysis of Nokia is presented in the Graph 8.6 (Appendix). The findings of the firm’s SWOT analysis should be discussed and evaluated: Strengths: Nokia is a firm well established in the international market; its brand name is quite popular and customers are likely to prefer its products being more familiar to the technology used by the particular organization; moreover, the firm’s market share is extremely high; also, its sales are kept at high level – despite the pressures in the global market under the influence of the recent crisis; Weaknesses: The profits of Nokia are not standardized; as in other firms internationally, Nokia has to increase the control on its costs because the limitation of its profits, if combined by an increase in costs lead to severe organizational turbulences; moreover, the fact that the firm has been targeted by potential buyers is negative for its share price – reflecting the potential limitation of the trust of the shareholders who may not support organizational decisions if radical changes in the firm’s structure are attempted – referring particularly to the case of the firm’s acquisition by another company; Finally, the firm’s production line does not include Android-based devices and iPhone which are quite popular; Opportunities: the performance of the mobile phone industry is significant; the sector has not been severely affected by the financial crisis; the development of new markets globally – for instance the BRIC countries could create important opportunities for firms with a strong brand name – like Nokia; The Threats: Competition in the mobile industry worldwide is extremely strong (Wireless Ability 2011); firms that wish to keep their position in the market need to emphasize on innovation; the technology used by competitors, like the Android-based devices and the iPhone can threaten the firm’s leading position in the market. 3. Analysis of the company’s strategic capabilities as at January 2011 The firm’s current position in the market is significant; in fact, the firm is characterized by a series of strategic capabilities, which are described analytically below. Reference is made to the strategic capabilities of the firm as of January 2011. 3.1 Products The range of the firm’s products is high; the firm continuously (for example, the list of the firm’s products in Nokia UK, 2011); despite the fact that competitors are heavily based on the smart-phones devices, Nokia still has the first position in terms of sales of mobile phones globally (see graph 8.7, appendix). From this point of view, the competitiveness of the firm’s products cannot be doubted; the firm’s production line should be still regarded as one of its key strategic advantages. 3.2 Value-adding activities Nokia has developed a series of schemes aiming to increase its value. Reference can be made for example to the following activities: a) the offer of the opportunity to developers to distribute their ideas through Nokia (Nokia, Developers), b) to offer the chance for online learning through the firm’s devices, for instance the online Maths available to children in South Africa, c) the Nokia Data Gathering tool, which help organizations ‘to gather data which are critical for their activities’ (Nokia, Nokia Data Gathering), d) the Ovi life tools scheme, which offer the chance for the retrieval of a wide range of information using the mobile device, e) a series of activities supporting community, like the cooperation with the International Youth foundation and the Entra21 initiative which supports youth in Latin America (Nokia, Community). 4. Key strategic issues facing Nokia in January 2011 In accordance with the issues discussed above, Nokia faces a series of strategic issues: a) its profits need to be increased, in order to help to the stabilization of its performance; b) the lack of Android-based devices and iPhones in the firm’s production line; c) the consent of its employees and its shareholders to the partnership needs to be achieved, or else, verified – even after the announcement of the relevant initiative, d) the operations of the firm in the global market needs to be reviewed – taking into consideration the severe political conflicts worldwide, e) the potential increase of the firm’s presence in markets which have many prospects – referring especially to the BRIC countries should be reviewed. 5. Evaluation of the partnership with Microsoft announced in February 2011 5.1 Strategic logic behind the partnership The partnership has been based on the following strategic logic: Nokia would not be able to compete its rivals, especially Apple, who is based on smart-phones technology. Through the partnership with Microsoft, Nokia would expand its product line including ‘iPhone and Android-based devices’ (BBC News, February 2011). 5.2 Will the partnership address the firm’s key strategic issues? The partnership with Microsoft could help the firm to resolve its most critical strategic issue: the increase of its profits; by expanding in iPhone and Android-based devices, another strategic issue of the firm, the firm’s profits would be increased – beating the main competitor, in terms of profits, Apple. The other strategic issues of the firm, as presented above would be also gradually addressed, since the above issue, this of profits would be resolved. 5.3 Problems that could prevent the partnership succeeding The success of the particular partnership would be prevented by the following problems: a) the development of resistance from the employees’ side; in case of strong resistance of its staff, the organization would have problem to complete the procedure, at least not within a short period of time; the perception of the firm’s employees on the suggested changes should be taken into consideration by the firm’s CEO when making the negotiations for the firm’s partnership with Elop, b) the response of the shareholders to the suggested partnership has not been made clear; if the firm’s shareholders decide to set barriers in the completion of the procedure, then it will be quite difficult for the relevant agreement to be completed. 5.4 Alternative strategy of development Nokia could use an alternative strategy for developing its activities. Instead of being relied on the financial support of Elop, the firm should try to update its strategies; a restructuring of the firm’s units could help to the limitation of the firm’s costs, in the context described above, and the stabilization of the firm’s performance. Moreover, following this practice, the firm could manage to develop its performance, even in the long term. In any case, as proved through the figures presented above – and through the relevant graphs – the problem of the firm is not its sales but its profits; in other words, there is no need for increasing sales – even if such perspective would be positive for the growth of the firm – but to increase the profits; in this context, there is an issue of update of the firm’s management strategies and not of improving the firm’s brand name or achieve other benefits that refer to the firm’s image in its market. 6. Change management in Nokia 6.1 Type of change that Elop introduces into Nokia The change that Elop introduces in Nokia has the following forms: a) the software on which the firm’s devices are based – a change at the level of production, b) the structure of the organization; in its new structure, the organization will be consisted from two units, instead of three (see graph 8.3): ‘smartphones and mass-market mobiles’ (The Economist, 2011). Furthermore, managers and leaders in organization’s departments will be changed; the new managers will ‘come from outside Finland’ (The Economist, 2011). In other words, the partnership will result to radical changes in the firm’s structure and rules. 6.2 Links between strategic analysis and leadership In accordance with the issues discussed above, Nokia had specific strategic needs; a strong leadership style was required for promoting the changes necessary in order for the firm’s strategic issues to be addressed. From this point of view, the leadership style of Elop is considered as appropriate, taking into account the challenges that the firm has to face. 7. Conclusion At this point of time, investing in Nokia would be strongly suggested. The firm is in a period of restructuring. For a while, its performance may be under pressure; however, in the long term, the improvement in the firm’s profitability can be considered as secured. Indeed, the initiatives developed by the firm’s new leader are expected to lead the firm to a significant growth, if taking into consideration its market share and its prospects having access to Android-based devices and iPhone. 8. Appendices 8. 1. Market Share, Sales Share and Profit Share of 8 major mobile phone vendors (Source: Dediu, 2011) 8.2. Nokia- key data – February 2011 (Source: Nokia, Financials, key data) Graph 8.3 The structure of Nokia (Source: Nokia, Company, Nokia in Brief) Graph 8.4 PESTEL analysis of Nokia Political Politics worldwide are not stable; in fact, severe political crises have been develop within many countries, leading to concerns for the stability in the global community; as a result of these turbulences, the threats for the development of terrorism have been increased. Economic The worldwide market is still under the influence of the recent financial crisis; despite the fact that this crisis is considered as terminated in 2008, still, its effects on industries worldwide can be identified. Apart from that crisis, the world market is threatened by the severe turbulences in currency prices; Social Under the influence of the recession, the intervention of unions in business decisions has been made more intensive; moreover, the conflicts between employees and employers for compensation issues have been increased. Technological The technology used in the mobile industry is continuously developed. Firms in the particular industry need to continuously update the technology used in their products – aiming to remain competitive. Environmental Environmental concerns have been increased in all countries worldwide; in this context, firms in all industries need to take into consideration the effects of their activities on the environment – before developing their strategies. Legal Legislation related to the mobile phone industry is not strict; because of the freedom of telecommunications – as a principle protected through national legislations in most countries worldwide. Graph 8.5 Porter’s Five Forces model on industry competition (Source: http://www.emeraldinsight.com/content_images/fig/2720070605001.png) Graph 8.6 – SWOT analysis of Nokia Strengths Significant market share Well – known brand name High level of sales Weaknesses Profits show a trend for continuous decrease Not availability of popular technology like Android-based and iPhone Publications of the firm’s financial pressures Opportunities The international mobile industry is continuously expanded New markets have appeared – BRIC countries Threats Strong competition due to the crisis Competitors, especially Apple, threaten the firm’s position through Android-based devices and iPhone Graph 8.7 - Global mobile phone industry (Source: The Economist, 2011) References BBC News, February 11th 2011 Nokia and Microsoft form partnership Bensoussan, B., Fleisher, C. 2008. Analysis without paralysis: 10 tools to make better strategic decisions. New Jersey: FT Press Bohm, A. 2009. The SWOT Analysis. 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