Nokia-Microsoft Strategic Analysis - Essay Example

Adam Individual Assessment Case Study: Nokia-Microsoft Strategic The purpose of this report was to assess the global smartphone industry in the context of strategic alliance (SA) between Nokia and Microsoft, which was been utilized by the former company as a part of the global strategy. By making appropriate use of secondary information, it was possible to conduct an in-depth analysis of the global strategy adopted by Nokia to counter the intensified competition and restrict further decline in the market share. The report outlined the various factors associated with a decline in the market share of Nokia, with an increase in the market popularity and demand of Google’s Android OS and Apple’s iOS. In addition, the report highlighted the execution of SA by Nokia in collaboration with Microsoft for enhancing the ability of the company to ensure development of the company in future. Moreover, the findings from the report signified that Nokia was facing situations of market share decline, with a total market share of 36% in the year 2011 in terms of overall global strategy. The report also revealed a decline in the OS platform of Nokia, i.e. Symbian and the inability of the company to hold up its stock prices. Findings from the report also revealed that although Nokia was able to develop a market share in Windows OS platform in collaboration with Microsoft, however it was unable to retain the existing market because of which Microsoft acquired Nokia in 2014. Table of Contents Abstract 2 Table of Contents 3 Introduction 4 Question One: Smartphone industry competitiveness 5 1(a) Critically Evaluate the Nature of the Industry Competition Facing Nokia from New Mobile Operating Systems Entering the Market e.g. iOS and Android 5 1(B) Using The Information In Exhibits 3, 4, 5, 6, And 7, Discuss The Impact Of The Global Smartphone Industry Competition On Nokia’s Smartphone Market Share And Income From 2006 To 2010. 6 Question Two: Strategic alliances and global competitiveness 12 2(a) Using Relevant Literature, Carry out a Critical Assessment of the Terms Strategic Alliances (SAs) And Mergers And Acquisitions (M&As) In The Context Of Nokia’s Ambition To Sustain Its Competitive Advantage In The Global Smartphone Market 12 2(b) Using Information From The Case Study, Discuss How Nokia’s Alliance With Microsoft In February 2011 Helped In Stopping The Decline In Nokia’s Share Of The Global Smartphone Market. In Your Opinion, Was The Shake Up At Nokia Beneficial To The Company’s Employees? And Why? 14 Question Three: Organizational culture, leadership and competitiveness 15 Question Four: Personal Reflections on Learning 18 Conclusion 19 References 20 Introduction Global Smartphone Industry is characterized by the presence of few smartphone manufacturing companies associated with manufacturing mobile devices from the low-end calling devices to the high-end smartphones serving various purposes. Globalization has its own advantages and disadvantages, however its advantages outweighs the costs associated with the disadvantages in case the company is able to make appropriate utilization of the global strategy (Hitt & et. al., 2014). Hence, there exists a need to develop a global strategy that leads to successful market growth on a global scale, thereby focusing upon the development of a positive market value and higher market share. Furthermore, a global strategy would facilitate the development of a competitive advantage that would benefit the organization in the long run. The global strategy is supported by the presence of a strong corporate culture and leadership qualities amongst the employees working in the organization. The strategic collaboration between Nokia and Microsoft can be considered as one of the prominent examples of a global strategy in the modern scenario (Tjemkes & et. al., 2013). Hence, the aim of the report is to illuminate upon the key strategic issues in relation to the Global smartphone industry with respect to the strategic alliance (SA) between Nokia and Microsoft. The report will be highlighting the factors associated with competitiveness of the smartphone industry, strategic alliances and global competitiveness and organizational culture, leadership and competitiveness. Question One: Smartphone industry competitiveness 1(a) Critically Evaluate the Nature of the Industry Competition Facing Nokia from New Mobile Operating Systems Entering the Market e.g. iOS and Android The competition in the smartphone industry is extensively high, with the nature of competition being ‘imperfect competition’. There is an increase in competition with an increasing number of contemporary organizations coming up with new smartphones that offer competitive features at lower costs. Nokia is one such organization, which has nearly been washed away by the intensified competition in the modern market and with a decreasing market share every passing year. Nokia adopted a number of strategies with the prime aim of safeguarding and retaining its market position (Burns, 2012). However, the company was unable to perform as per the strategies that finally led to the establishment of a strategic alliance amongst Nokia and Microsoft. A number of challenges hindered the performance of Nokia that lead to a fall in the overall market share. One of the prominent reasons behind the fall in the market share of Nokia was the increase in the popularity of android operating system developed by Google. In the early 2000s, Nokia was the market leader in the mobile manufacturing sector, however, an increase in the development of newer mobile operating systems, such as Google’s Android and Apple’s iOS, increasingly gained market popularity and overshadowed the progress of Nokia (Prasad & Sahoo, 2011). Nokia first faced the challenge of discounted price from the competitors, which was one of the prominent reasons behind the collapse of Nokia. A majority of the mobile phone market is held by nations such as China and India, comprising mostly of the middle-income generating population. Hence, the competitors selling android and iOS based smartphones were able to lure away a dominant market share and hence, posed a major threat and competition to Nokia. An increase in the number of competitors was another major challenge faced by the company with many smartphones manufacturing companies launching smartphones based on the android operating system and Apple launching the low cost versions of the iOS (Baines & Fill, 2014). Furthermore, high-marketing costs associated with the company’s strategy to retain its market share were considered another important reason behind the fall of Nokia, which led to the company’s inability to compete with Android and iOS. In addition, the changing perception of the customers and increased popularity of the android and iOS, further added to the problems of Nokia. Customers started to perceive that Android and iOS offered better specifications at the same budget when compared to the features offered by Nokia’s phones. Furthermore, with a decline in the market shares, Nokia was unable to live up to the demands of the customers, which created a negative influence upon the perception of the customers and led to the inability of the company to offer proper after-sales services to the customers (Serrano, 2014). 1(B) Using The Information In Exhibits 3, 4, 5, 6, And 7, Discuss The Impact Of The Global Smartphone Industry Competition On Nokia’s Smartphone Market Share And Income From 2006 To 2010. The global smartphone industry competition had a significant impact upon Nokia and its market share across the globe. The exhibit 3 shown below provides a diagrammatic overview of the Nokia’s market share in the year 2010. (Source: Rao, 2012) It can be interpreted from the above figure that as of the year 2010, Nokia’s total mobile phone sales was 352.6 million units, which was 32 per cent of total share in mobile phone sales. These figures disclosed that Nokia was facing continuous decline in the overall sales, with a diminishing share of total sales in the global mobile phone market. In addition, Nokia registered smartphone sales of 100.3 million units, which accounted for 36 per cent of the total smartphone market. A total share of 36 per cent in the global smartphone market revealed that Nokia was unable to compete with its competitors, such as Android and iOS, resulting to a decline in the overall share in the smartphone industry (Rao, 2012; Häikiö, 2002). Nokia’s indigenously produced Operating System (OS) i.e. Symbian also faced the challenge of upholding its market share, with rival OS engrossing larger market share. Exhibit 4 diagrammatized the market share of mobile OS platforms for the third quarter (Q3) of 2011. (Source: Rao, 2012) It can be understood from the above figure that Nokia’s Symbian OS held 17% of the global market share in the global mobile phone industry, with Nokia’s smartphone platform based on windows, which held only 3% of the market in the global smartphone industry. Google’s android engrossed the highest market share of 53%, followed by 17% of market share held by Nokia’s Symbian OS and 15% by Apple’s iOS (Khalil, 2013; Rao, 2012). An increase in the competition on a global scale led to the creation of additional problems for Nokia, further reducing its global share of smartphone shipments. As of 2011, Nokia witnessed the highest ever fall in the global share of smartphone shipments, a diagram of which has been shown below in Exhibit 5. (Source: Rao, 2012) The aforementioned diagram provides a clear explanation to the fall in the global share of smartphone shipments of Nokia, which reduced 14.4% in the third quarter of 2011 because of intensified competition. Samsung accounted for 23.8% of the total share in global smartphone shipments, followed by Apple’s 14.6% as of 2011 (Sauter, 2013; Rao, 2012). With an increase in the competition and collapsing market share, Nokia profit margin also trembled between the years 2006-2010, the lowest being in the fiscal year 2009. Exhibit 6 presented below provides a description of the falling profit margins of the company between the years 2006 to 2010. (Source: Rao, 2012) It can be interpreted from the above diagram that in 2006, Nokia accounted for a total profit of €4366 million, which reduced to €260 million in the year 2009. This shows that an increase in the overall competition led to a decline in the overall profit margin of Nokia. Furthermore, the decline in the market share was a result of the high level of competition faced by Nokia from Google and Apple (Rao, 2012; Ireland & et. al., 2008). A continuous rise in the level of competition and a weakening market share also led to a downfall in the share prices of Nokia between the years 2007 to 2011. The fall in Nokia’s stock prices has been illustrated in Exhibit 7 shown below. (Source: Rao, 2012) As of the year 2007, Nokia’s share prices were valued at €27.70, which reduced to €4.52 in 2011, resulting to a downfall of the market share. The basic reason behind the collapse of Nokia’s stock price was the existence of high-level of competition in the global smartphone industry (Paasi & et. al., 2012; Rao, 2012). Question Two: Strategic alliances and global competitiveness 2(a) Using Relevant Literature, Carry out a Critical Assessment of the Terms Strategic Alliances (SAs) And Mergers And Acquisitions (M&As) In The Context Of Nokia’s Ambition To Sustain Its Competitive Advantage In The Global Smartphone Market To sustain its competitive advantage in the ever-increasing competition of global smartphone industry, Nokia entered into a Strategic Alliance (SA) with Microsoft in the year 2011. As per the agreement, Nokia agreed to sideline and drawback its Symbian OS platform and replace with a Windows-based OS platform. The reason behind entering into a SA with Microsoft was to restrict a further decline of market shares of Nokia in the global smartphone industry. Through the SA, both the companies aimed at attaining a positive market share with high level of market reach and sales of windows phones (Roberts, 2015). Apart from eliminating the declining market share, the SA aimed at increasing the market share of Nokia’s windows based smartphones, which would feature the software provided by Microsoft and would be accompanied by Nokia’s own hardware specifications. According to the SA, Nokia tried to ensure that it was able to develop a new OS platform that would compete with the emerging rivals such as Android and iOS. Furthermore, the SA required Microsoft in making payment of $1 billion to Nokia with the aim of promoting and manufacturing smartphones based on Windows OS. In return, Nokia was required to disburse royalties to Microsoft with the aim of utilizing its windows-based smartphones (MacIntosh & Maclean, 2014). Nokia further tried to challenge the rivalry with the help of reducing its costs associated with Research and Development (R&D), and gain marketing assistance from Microsoft. However, nothing went well for Nokia, with technology observers defining that the deal was one-sided with Microsoft being on an advantageous position. Microsoft was struggling to enter the mobile and smartphone market, but the SA was able to gain instant access to Nokia’s existing market share. The result was the acquisition of Nokia by Microsoft in the year 2014, resulted to the transfer of all smartphones based on windows OS platform sold by Nokia to the hands of Microsoft. With the acquisition, Microsoft took hold of 32,000 employees working in over 50 nations across the globe, who were earlier employed by Nokia. With this acquisition, Microsoft acquired Nokia’s mobile phone OS comprising ‘Nokia Asha’ And ‘Android-based Nokia X’ apart from its smartphone OS ‘Nokia Lumia’ thus, eliminating Nokia from the Global smartphone industry (Breshanan & Greenstein, 1999). (Source: Foley, 2014) 2(b) Using Information From The Case Study, Discuss How Nokia’s Alliance With Microsoft In February 2011 Helped In Stopping The Decline In Nokia’s Share Of The Global Smartphone Market. In Your Opinion, Was The Shake Up At Nokia Beneficial To The Company’s Employees? And Why? Nokia entered into a SA with Microsoft in the year 2011, with the aim of prohibiting the decline in Nokia’s overall market share. With the establishment of SA, Nokia was able to ensure that the company is able to stop the decline in Nokia’s share in the smartphone market. SA enabled Nokia to secure its market position to a certain extent and ensure that the company is able to defend its market share from competitors. Furthermore, SA assisted Nokia to restrict the collapse in the market share, as it enabled the company to integrate the software specifications offered by Microsoft with its hardware specifications. Considering the aforementioned factor, Nokia released its first original windows OS device named Nokia Lumia 800. Lumia 800 has been a windows-based smartphone launched by Nokia that provided specialized services to its customers that were offered by Microsoft. Furthermore, SA ensured that Nokia was able to make use of a pre-determined strategy of developing the windows-based smartphone market with the assistance of Nokia and gain back its lost market position (McKechnie, 2014). In 2011, Stephen Elop became the new CEO of Nokia, who immediately took in-charge of bringing drastic changes to Nokia’s existing scenario and enhance the market share of the company in the future. Stephen Elop tried to introduce a shakeup in the company’s internal environment, further warning the employees to get prepared for future changes. With respect to introducing change in the organization, Mr. Elop took the decision of laying-off some of the unnecessary employees working in the company. Mr. Elop further took the decision of closing down the company’s mobile and smartphone manufacturing units in some locations, where he noticed a fall in the market share. In addition, Mr. Elop issued a memo to the remaining employees working in Nokia, which stated that the company must target at developing a sustainable OS that would enable the company to regain its market share. Moreover, the memo shared the view that retaining the market share would require drastic changes to be implemented throughout the organization, for which the employees must always be prepared. This reveals that the shakeup at Nokia was unsuccessful and non-beneficial for the employees, since it leads to huge job losses and closure of the manufacturing units (Burnham, 2002). Question Three: Organizational culture, leadership and competitiveness While delivering the memo to the employees, Stephen Elop stated, “We poured gasoline on our own burning platform. I believe we have lacked accountability and leadership to align and direct the company through these disruptive times. We have not been delivering innovation fast enough. We are not collaborating internally. Nokia our platform is burning” (Rao, 2012, pp. 719). The statement made by Mr. Elop focused towards providing the employees with knowledge regarding the weaknesses and threats surroundings Nokia’s internal and external business environment. Furthermore, Mr. Elop used a story to describe his opinions about the company’s existing situation and the challenges that the company was facing on a large scale (Bhanver, 2014). With ‘burning platform’, Mr. Elop implied that the company is facing the challenges of a weak organizational culture and structure, and emphasized upon the need of the company to change its existing behaviour. Moreover, the company needs to develop leadership skills amongst its employees, which would facilitate the development of the company. Mr. Elop further added that the burning platform was a result of the increased explosions surrounding Nokia, with which he meant to say that the competitors are acting as a platform of blazing heat and that they have eliminated the scope of further growth and progress of Nokia (Maitland & et. al., 2002). One of the prominent reasons behind the fall in market share of Nokia was the inappropriate management system existing in Nokia, with an increasing number of redundant employees working in the organization. Furthermore, Mr. Elop compared the competitors with source of blazing heat, since the competitors were focused towards the development of their products with innovative techniques. Mr. Elop emphasized Apple’s ability to attract the high-end market with the help of increased dependency on smartphone designing and providing users with a great smartphone experience. Furthermore, Mr. Elop also shared the example of Android and said that the OS was eating up the whole smartphone ecosystem, comprising devices that suit the needs of high-end smartphone users to the lower end mobile phone users. He added that Google, with its android OS, was acting as a gravitational force in the global smartphone industry, since it was able to develop innovative features in its OS platform attracting the attention of the customers, consequently declining global market share of Nokia. In addition, Mr. Elop further noted that the company created problems for itself, since it was unable to make appropriate utilization of the leadership and managerial qualities possessed by its employees, resulting to an increased competitive scenario (Johnson, 2012). Stephen Elop stated that the company acquired some of the most brilliant minds in the field of innovation however, it was unable to implement owing to delayed action being taken by the company towards implementing such innovative ideas. Furthermore, Nokia was solely responsible for the increase in losses, since the Symbian OS used by Nokia in the lower-end smartphones was unable to meet the needs and requirements of the changing customer base. Furthermore, the CEO added that Nokia was lagging behind in terms of collaboration and the inability of the company to challenge its customers. Mr. Elop tried to emphasis the fact that since the burning platform led to the establishment of behavioural change and implementation; it would lead to the development of SA between Nokia and Microsoft. He further laid stress on the fact that the burning platform would help the company to exploit the resources and work in collaboration with Microsoft to ensure success in the future (Robbins & et. al., 2014). Although Mr. Elop prioritized several criteria to be fulfilled in the future however, the CEO and senior level employees were unable to develop sustainable relationship with the clients, since they were unsuccessful in making the future SA work correctly. Furthermore, their decision regarding entering into a SA with the company was unsuccessful, as the company was unable to develop staring relationships with the customers. In addition, the acquisition of Nokia by Microsoft in 2014 provided a clear overview of the fact that the CEO and senior management team were unable to take appropriate decisions. Although, in 2011, the company was able to increase the net profits to a certain extent, but it was unable to retain its earlier market position, thereby selling its product ranges to Microsoft. In addition, the decline in the market share also created a negative impact upon the company, further adding to the weaknesses of the company (Woyke, 2014). Moreover, the company was unable to take appropriate steps pertaining to selection of the investment zones. The CEO and senior management team decided to collaborate and work with Microsoft and develop smartphones based on Windows, whereas the company could have prioritized development of a smartphone running on android platform. This led to the establishment of the fact that Microsoft was the winner in the deal, with most of the advantages of SA engrossed by Microsoft itself. The statement of “Nokia our platform is burning” gave an idea that the CEO lacked appropriate leadership skills and his memo was mostly focused on criticizing the weaknesses of the company rather than focusing on company’s strengths. In addition, steps taken by the CEO and senior management team were a failure for the company, as they to the establishment of disruptive innovation, hindering the further development of Nokia’s newly designed Meego OS (Easton, 2010). Question Four: Personal Reflections on Learning Although Nokia failed to make appropriate utilization of SA, but in the year 2011, the company was able to enhance its overall profitability, owing to the development and increase in sales of ‘“Nokia Lumia’. Nokia Lumia emerged as a dominant player in the global smartphone industry, which was a result of the SA between Nokia and Microsoft. Furthermore, through the SA, Nokia was able to introduce quality innovation by making use of its existing hardware development strengths and combining them with the innovation software specifications being offered by Microsoft. In addition, Nokia entered into a SA with Microsoft under the influence of the new CEO Mr. Elop, which revealed that the CEO was able to make appropriate utilization of leadership qualities by emphasizing the existing market of Nokia and illuminating upon the development of Nokia through integrating efforts with Microsoft. Contextually, the leadership abilities were highlighted as entering into a SA with Microsoft enabled Nokia to differentiate itself from existing windows OS smartphone makers and to make appropriate use of Nokia’s own applications in windows OS platform offered by Microsoft. Therefore, Nokia was able to make appropriate utilization of SA and corporate leadership to a certain extent, which led to the implementation of innovation, thereby enhancing the ability of the company to mitigate competition and declining market share (Miles, 2014). Conclusion The aforementioned report provided a clear description of the Global Smartphone industry and focused upon the development of a global strategy that would play a key role in ensuring successful market share. Findings from the report revealed that the company made use of the global strategy of SA, after it entered into a SA with Microsoft. Furthermore, various factors have been recognised that were resulting to a decline in the overall market share of Nokia, one of the prominent factors being the rise of modern competitors such as iOS and Android. In addition, it has identified that there has been a decline in the overall market share of Nokia, apart from the decline in the market share of Nokia’s Symbian OS. The fall in the global share of smartphone shipments in 2011 has been witnessed due to several factors that include innovation and competitions among others. In this respect, there has been a fall in the net profits of Nokia from 2006 to 2009, which further led to a decline in the stock prices of Nokia. Although Nokia took several steps to ensure success and eliminate the chances of further decline in the market share, however it was unable to retain back its market share through SA, which finally led to the acquisition of Nokia by Microsoft. References Baines, P. & Fill, C., 2014. Marketing 3e P. Oxford University Press. Bhanver, J. S., 2014. Nadella: The Changing Face of Microsoft. Hachette UK. Breshanan, T. & Greenstein, S., 1999. Technological Competition and the Structure of the Computer Industry. The Journal of Industrial Economics, Vol. 47, Iss. 1, pp. 1-40. Burnham, J. P., 2002. The Essential Guide to the Business of US Mobile Wireless Communications. Prentice-Hall. 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