Generic Strategy Application and Evaluation - Assignment Example

Strategic Management Table of Contents Introduction 3 Overview of the Company 4 Application and Evaluation of VRIN, Five Forces and Generic Strategies for Developing a Case Study of Nokia 6 VRIN Application and Evaluation 6 Five Forces Application and Evaluation 9 Generic Strategy Application and Evaluation 13 Conclusion 15 References 17 Introduction The contemporary business environment is associated with numerous opportunities as well as it is surrounded with many challenges and complexities. As a result, it has become quintessential for modern business organizations, including both small and large establishments, to make effective strategic decisions in order to survive profitably and competitively in the current business environment. Strategic decision-making is one of the major functions of the management in the modern business environment. Although it is easy to understand the importance of the strategic decision-making but at the same time it is quite difficult to be achieved. This is due to the reason that making effectual strategic decisions require reforms and modifications concerning the senior leader decision-making ways and organizational structure1. It is worth mentioning that every decision is associated with delivering certain results that reduces the current issues and challenges faced by an organization. Furtheromre, effective decision requires considerable understanding about the realities and the various environmental factors2. To be precise, in the simplest way, strategic decision-making is affiliated to decision-making process based on the strategic issues. In this regard, strategic issues generally encompass growth, events and trends that have potential impacts on organization’s strategies3. Correspondingly, there are various factors posing significant impacts on the strategic decision making process practiced within an organization. Among these, the four major influential factors include management teams characteristics, external environmental characteristics, internal organizational characteristics and decision-specific characteristics4. Strategic decisions can also be regarded as infrequent decisions taken by the senior leaders of an organization that tends to influence the performance and survival of any organization5. In other words, the inability of the senior leaders of the organization to make effective strategic decisions is also often associated with the demise of the business entity at certain instances. Correspondingly, this study intends to develop a case study of Nokia Corporation by applying and evaluating three analytical tools including the VRIN framework, the Porter’s 5 Forces model and Porter’s Generic Strategies in order to understand their contribution that can be critical to enable success of any enterprise. Overview of the Company Nokia is a Multinational Corporation engaged in designing, developing and manufacturing a wide range of mobile and telecommunication devices as well as providing services for wireless communication. Nokia had been a market leader for many years and has achieved several milestones but currently its position is observed to be instable in the global market periphery6. To be noted, the company operates in various regions of the world and provides its customers with unique experiences. The company was founded in Finland in the year 1865. Initially, the company was involved in the production of toilet papers and rubber boots. It was during the year 1980 the company entered into the mobile devices manufacturing business. Nokia’s entrance to mobile phone manufacturing industry is widely considered as revolutionary since the association of Nokia in mobile devices designing and manufacturing has laid to radical changes within the industry. From its commencement, the company has undertaken several strategies in order to sustain its business profitably and strengthen its presence in the global marketplace. The competitive edge of the company has been associated with its capability to produce and offer low cost mobile devices to its customers spread across the different parts of the world. Hence, it can be argued that the success of Nokia would have not been possible without globalization. Globalization paved a way for the company to expand its business beyond the national border and conquer the market opportunities lying in the other regions of the world. However, in the recent times, the emergence of competitors like Apple Incorporation, Sony and Samsung Electronics have raised competitive challenges for Nokia, which has dramatically influenced the ability of the company to sustain with its leading market position in the global marketplace. Currently, the company is suffering from financial instability, decreasing customer base and lack of innovation. All these factors have apparently contributed towards decreasing profitability of Nokia, further raising concerns about the sustainability of the company7. Application and Evaluation of VRIN, Five Forces and Generic Strategies for Developing a Case Study of Nokia VRIN Application and Evaluation VRIN framework is generally associated with the identification of resources that need to be acquired by an organization in order to realize the desired level of competitive advantages. Corresponding, to the VRIN framework valuable, rare, imperfectly imitable, and non-substitutable resources possess the potential for creating sustainable competitive advantages as desired by the companies8. The application of VRIN framework, in relation to Nokia’s core competency and competitive advantages, is accordingly being presented below. Resource Valuable Rare Inimitable Not -substitutable Competitive Advantage Expertise in network and broadband technologies Yes Yes Yes Yes Sustainable competitive advantage Economy of scale and cost leadership on low cost mobile Yes Yes Yes Yes Sustainable competitive advantage Brand value Yes Yes Yes Yes Sustainable competitive advantage Worldwide distribution network Yes Yes Yes Yes Sustainable competitive advantage Nokia dominates the biggest markets No Yes Yes Yes Temporary competitive advantage It can be concluded from the above presented VRIN analysis that although Nokia is no longer a market leader, yet the company has competitive advantages over certain areas. The components of VRIN analysis are being briefly explained below. Expertise in Network and Broadband Technologies Nokia Siemens Network is the second largest wireless infrastructure and service providers in the world. Nokia Siemens Network is widely focused on innovation and sustainability and provides complete portfolio of mobile. It operates in 150 countries of the world9. Economy of Scale and Cost Leadership on Low Cost Mobiles Nokia has adopted low cost strategy for its products in order to sustain its business competitively. This strategy of Nokia has been relatively successful in emerging markets, particularly in China and India Additionally, the company has been able to establish its strong brand image as one of the low cost mobile producers of the world10. Brand Value Nokia has played a pioneering role in the growth and development of the communication technology. Besides, the company, with increased quality of its products, has been able to acquire trust of a large customer base facilitating its long-run sustainability. Correspondingly, it is considered as one of the most respected and reputed brand across the worldwide market11. Worldwide Distribution Network Nokia has world’s most extensive reach through the widest distribution network in the mobile device manufacturing industry. Accordingly, the company has 70,000 outlets in Middle East and Africa, 90,000 outlets in China and 160,000 retailers in India12. Nokia Dominates the Biggest Markets As stated earlier, Nokia has been able to establish a robust brand image and capture considerable share of the market in China, India and Africa through its untiring endeavors. Correspondingly, it has been able to maintain its strong presence in these markets, which has eventually provided it with greater competitive advantage over its rivals. Correspondingly, it can be ascertained from the above analysis that the VRIN framework is an effective tool for interpreting capabilities and resources in an organization, which further aids in formulating broad strategies that would enable an organization to create sustainable competitive advantages13. It further facilitates in ascertaining the reasons behind success and failure of an organization. As can be observed, using VRIN framework, the core competencies and the competitive advantages of Nokia were evidently understood in a comprehensive way. On the other hand, one of the major limitations associated with this tool can be attributed with its tautological nature. Moreover, it has been argued that concepts such as rareness of resources used in this tool are also vague. At the same time, VRIN framework provides a reliable understanding regarding the resources that can aid the company to attain competitive advantages but it does not take into consideration the influences of resource characteristics. Another major drawback of VRIN framework is that the framework does not take into consideration the rapid changes that would influence the decision-making capability of an organization. In order to eliminate this gap or to overcome the limitation, it is necessary to continuously evaluate the organization’s environment and make corresponding adjustments to strategies14. Five Forces Application and Evaluation Michel Porter’s five forces framework provides one of the most effective models for assessing and evaluating the competitive strengths and positioning of a business organization. Five force model, as suggested by name, consists five basic elements including ‘bargaining power of suppliers’, ‘bargaining power of buyers’, ‘threat of new entrants’, ‘threat of substitute products’ and ‘intensity of rivalry’15. Based on these factors, the competitive strengths and positioning of Nokia is evaluated hereunder: Bargaining Power of Suppliers Nokia greatly relies on its suppliers for the supply of equipments required for producing advanced handsets. However, there are large numbers of suppliers in the market to which Nokia can switch on for meeting its requirements. Thus, the bargaining power suppliers are relatively low for Nokia due to the presence of large number of suppliers. On the contrary, Nokia relies on Microsoft for meeting its software requirements for its smartphone. Correspondingly, the bargaining power of Microsoft can be stated as relatively high in this context16. Bargaining Power of Buyers The bargaining power of buyers is rising in the telecommunication industry owing to the increasing number of competitors. Nonetheless, buyers are not directly engaged in purchasing mobile phones from Nokia. At the same time, present customers have become more price-sensitive and constantly seeking for the best value on the money invested by them, which altogether rewards them with a greater bargaining power17. Threat of New Entrants The global mobile device industry is already a well-established market and with a relatively low threat of new entrants. Moreover, the barrier to entry in the industry is high as any new organizations planning to enter into the mobile phone industry is required to make considerable investments in innovation and marketing activities in order to sustain their business competitively with other well established organizations such as Apple corporation, Samsung Electronics and Nokia among others. Thus, it can be affirmed that the threat of new entrants is relatively low within the concern industry18. Threat of Substitute Products Mobile phones have become as essential need for people in the current social environment in order to establish contact with their friends, relatives and business partners residing in the geographically diverse locations. However, there are other services, such as social networking sites, including Twitter, Facebook, and LinkedIn and e-mail, which are also being used by people to communicate and may be perceived as a threat to the mobile phone industry. In this regard, the development of smartphone with its numerous facilities have enabled people to access all these features with the use of smartphones. Thus, the threat of substitute products is also very low for the mobile phone industry19. Intensity of Rivalry The current mobile phone industry is highly competitive. Nokia has been facing with fierce competition from its rivals such as Apple Incorporation, LG, Sony and Samsung Electronics. Thus, it has become essential for the organizations like Nokia to make considerable investments in its R&D activities as well as marketing initiatives in order to face the rising competition in the industry. At the same time, product differentiation is diminishing within the industry. In this regard, organizations operating in the industry are constantly striving to incorporate new features and application in order to create greater competitive advantages over the existing rival firms. Thus, it can be affirmed that intensity of rivalry in the industry is extremely high. Consequently, it becomes quite tough for Nokia to regain its position as a market leader20. One major advantage of the five forces model is related with its ability to aid managers to make decisions based on the organizations external as well as internal analyses. The model significantly assists in developing long-term strategies for an organization in building competitive advantages over its rivals. Moreover, this model is simple and easy to use for determining the industry structure. However, the model also owes certain limitations. In this regard, this model assumes static market structures and fails to consider market dynamics. Additionally, this model is primarily industry oriented while it fails to distinguish industry from an organization. Hence, the successful use of five forces model requires critically identifying the sources of competition as well as possible competition that might evolve from existing competition21. Generic Strategy Application and Evaluation Porter’s generic strategies are widely applied in order to ascertain the strengths of a modern organization. Accordingly, the generic strategies are considered effective for creating defendable positioning in the long run and outperforming competitors. The generic strategies are also categorized into three broad elements, which include cost leadership, differentiation and focus strategy22. The generic strategies, in context of Nokia, are applied below: Cost Leadership Strategy Nokia has successfully undertaken integrated cost leadership in order to provide its customers with low priced products. Nokia has also been able to attain competitive advantages by developing high-end smartphones and making them available for the customers relatively at relatively lower costs. More specifically, the low cost strategy of Nokia has been widely successful in emerging markets such as in China, India and Africa. Moreover, Nokia has been able to satisfy the needs of wide range of customer group including both low and high-income customer groups23. Differentiation Strategy Nokia is also using differentiation strategy integrated with its marketing mix strategy with relation to its products and prices. Nonetheless, the differentiation strategy of the company is widely traceable concerning with its smartphones. The company has also been involved in differentiating its smartphone with its competitors through physical and non-physical characteristics. The physical characteristics used for the differentiation of its smartphone products like Lumia 920 and 820 can be generally seen in their design and availability of smartphones in different colors to its customers. The differentiation through non-physical characteristics can further be observed through its partnership with Microsoft. In this regard, it can be asserted that Nokia is the first company to produce smartphones that run on Windows software. In addition, the company has also offered unique features imbibed in its smartphone such as wireless charging, which is relatively new and innovative24. Segmentation/Focus Strategy Nokia has divided its market segments into four areas including hi-fliers, trendsetters, social contract and assured. The market segment consisting hi-fliers generally involves customers aged from 25 years to 45 years, who are greatly influenced by data transmission and other business related features. Accordingly, the social contact segment of the company involves individuals, who are socially conscious. Youth and homemakers are also the major players of this segment. Assured segment constitute the high profile customers including celebrities and industrialists. The trendsetter segment for the company further involves the early adopters of the technology. Generic strategies are considered an important strategic management tool. The tool advocates that the primary strength of an organization rests on two major elements including cost advantages and differentiation. The use of this tool hence facilitates mangers to reduce costs associated with the business process. At the same time, the organization, making use of generic strategies, enjoys greater customer loyalty. The potential drawback of generic strategies can be associated with its underlying elements related with differentiation strategy. In this regard, differentiation strategy can be used to sell more products rather than charging premium price for differentiated products. Moreover, the competence-based strategy model surpasses the generic strategies. It is thus essential that generic strategies are used along with other analytical tools in order to attain better generalize outcomes25. Conclusion It has been observed from the foregoing discussion that strategic decision is an important component for sustaining business successfully in the persisting intensely competitive business environment. Several internal and external factors have significant influence on the strategic decision making capability of senior leaders of an organization. At the same time, making strategic decision requires considering strategic issues faced by an organization. In line with the strategic decision, this study aimed at developing a case study of Nokia Corporation by applying and evaluating three analytical tools including VRIN framework, Porter’s five forces and Porter’s Generic strategies models. The analysis of Nokia Corporation through application of aforementioned analytical tools revealed significant understanding regarding the various aspects of the company and particularly, the competencies of the company in the global mobile device manufacturing industry. It has been further observed that Nokia, which has been a market leader in the mobile device manufacturing industry, has incorporated several strategies that have altogether assisted the company to maintain its strong positioning in the global mobile phone manufacturing industry. However, the inability of the company in the recent times, to perceive the global trend and continuous pressure from its major competitors like Apple and Samsung, has imposed significant threats to its market presence. It has been further ascertained that the use of the analytical tools have significant advantages related with making strategic decisions that would facilitate an organization to survive in the dynamic and complex business environment. At the same time, certain limitations associated with these analytical tools have also been observed. Thus, in order to attain best outcomes from the application of these analytical tools, managers are required to pay additional attention in this sphere. References Aarhus School of Business and Social Sciences, ‘Is Nokia’s Performance in the Smartphone Market Affected Negatively by Marketing Strategy Decisions’, Competition Analysis, 2013 (accessed 06February 2014). Ambrosini, V. Johnson, G. & Scholes, K. 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