Microsofts Strategic Alliance with Nokia - Assignment Example

Microsoft’s Strategic Alliance with Nokia Contents Introduction and Company Background 5 Question External Analysis 6 PESTEL analysis 6 Political Factors 6 Economical 6 Social 7 Technological factors 7 Environmental factors 7 Legal Factors 8 Porter’s Five Forces 8 Threat of entry 8 Bargaining power of buyers 8 Bargaining power of suppliers 8 Threat of substitutes 9 Threat from existing competitors 9 INDUSTRY LIFE-CYCLE 9 Opportunities and Threats 10 Opportunities 10 Threats 10 Question 2: Internal Analysis 11 Competency framework of Microsoft 11 Competency framework of Nokia 11 VRIN framework for Microsoft 11 VRIN framework for NOKIA 12 Question 3: Issues & Challenges Facing the Company 12 Question 4 14 Logic behind the strategic alliance 14 Steps ought the CEOs 14 15 Question 5: Generation of strategic growth options 16 Alternate options to Microsoft instead of strategic alliance 16 Market penetration 16 Diversification 17 Alternate options to Nokia instead of strategic alliance 18 Product development 18 Market development 19 Question 6: Evaluation of strategic growth options 20 SFA Framework 20 Evaluation and ranking table 21 Question 7: Description of selected strategy 25 Microsoft: Diversification strategy 25 Nokia: Product development strategy 26 Conclusion 27 References 29 Introduction and Company Background Microsoft Corporation is an American based multinational company with its headquarters in Redmond, Washington. The company is into developing, manufacturing, licensing, supporting and selling software’s that can be used in various devices. In 1975, Bill gates developed Micro-soft in a hotel room in New Mexico. Initially Bill gates along with his friend Paul Allen launched the version BASIC and sold this version to other software companies. In 1995 Microsoft entered the platform of internet by launching internet Explorer. Steve Ballmer was appointed as the president by Bill gates. The company over the years since the time it was started kept growing at a fast rate and from 2005 it started making many acquisitions across the world like in 2006 it acquired a sum for about $6 billion to increase presence through online marketing and advertisements. In 2007-08 Microsoft joined hands with Hewlett-Packard computer hardware and software based company and also with Motorola a US based mobile company to expand its business in the global world. It also entered the search business by launching bing.com which was a replacement for the Live Search platforms. In 2000 Microsoft also entered the field of mobile operating software by launching the software Windows CE 3.0 for mobiles and went open from them to grow in a huge way. In 2010, Microsoft launched its windows Phone 7 in Singapore, Europe and Australia. On the 11th of February 2011, Microsoft acquired Nokia, to acquire the Smartphone market and also give a revamp for Nokia with an aggressive strategy to challenge the strong competition from Apple and Google in the Smartphone market. Using this report the various factors towards the strategic alliance of Nokia along with Microsoft is been studied using various theories and concepts. The study can effectively give a good understanding of the factors that are to be considered before making the alliance. Question 1: External Analysis The strategic alliance of Nokia with Microsoft did change the market environment in the global world in the Smartphone industry. With this alliance Nokia will use the mobile operating system made by Microsoft for launching its Smartphone’s in the global market across all the counties. PESTEL analysis PESTEL analysis is done to see the external factors that do affects in the strategic alliance of Microsoft with Nokia. These external factors are generally the political, economic, social, technological, environmental and legal. Political Factors Microsoft going in alliance with Nokia, it needs to take care of the various rules and regulations that are to be done before the alliance based on the government of Finland and also that of it home country. It also has to take care of the changes that come up in the rules with the changing time. Economical Both the companies need to see the economical conditions of the people in various countries and look to then come up with such products which will be affordable for all the class of people in every country. Because of the high competitive market in the global world in Smart phone industry the economic factor which is highly related to the price of the phones is very crucial factor. Social Microsoft along with Nokia needs to understand the social factor mainly the cultural differences in the country, which is basically to get the latest technically build Smartphone’s with latest designs and all the key features inbuilt. Design, features and also the style does makes a lot of importance and in today’s generation the Smartphone’s have become an important factor in creating good status for the people. Technological factors Customers tend to search the latest technically equipped and user friendly Smartphone’s which gives all the important features that are needed for their livelihood. Nokia upgrading its Smartphone’s after aliening with Microsoft and it will use the operating system for phones developed by Microsoft in its Smartphone’s should definitely look to give the best technology and also the features. Environmental factors Smartphone’s do cause a lot of problems to both the humans and also to the environment. Nokia in alliance with Microsoft needs to take care of the fact that the old mobile phones that the customers do replace for taking their new models should be dispersed in a proper way and if possible then can be reused so that It doesn’t causes much affect to the environment. Legal Factors Both the companies need to come into alliance only after following all the legal rules and regulations so that they don’t have to pay any further penalties because of the faults in the legal regulations (Kotler, 2001, pp. 98-102). Porter’s Five Forces Threat of entry The threat of entry is very high. New companies are coming up with the best features enabled mobile phones in the global market at low price and with increasing price sensitivity of customers can affect the company’s strategies in a huge way. As a result there is low product differentiation. Bargaining power of buyers This threat is very high as customers across the global world have high power for bargaining for buying the Smartphone’s because 0of the high presence of options that the customers have for buying with many companies launching latest design and technically equipped Smartphone’s. Thus buyers across the globe have many options in front of them with lots of varieties in Smartphone’s and they can buy any Smartphone of any company of their choice (Pride and Ferrell, 2011, pp. 67-75). Bargaining power of suppliers The power of suppliers bargaining power is moderate as they can bargain a bit because of the high level of presence of other companies in the Smartphone industry. But because of the good brand image of Nokia and also Microsoft’s huge market share gives them a good position because of which suppliers look to maintain their relation with Nokia and Microsoft to create their own brand image. Threat of substitutes Substitutes are the similar products which can serve the same purpose as the original products do. In case of Smartphone’s the threat from substitutes is low as there are very few devices which can do have all the features that a Smartphone has. Apart from this the switching cost to the substitutes is also very high as a result of which customers don’t prefer to shift to the substitutes from the Smartphone’s. Apart from this with the launch of Smartphone’s in the market the normal mobile phone’s which can be a substitute for the Smartphone’s have become extinct and customers prefer to go for a Smartphone more than normal mobile phones (Wright, 2006, pp. 95-98). Threat from existing competitors This threat is very high in case of Smartphone’s as there are many companies who have their own Smartphone’s and also have created a good brand image in the global market with their best features and also price. Companies like Google, Apple have their own Smartphone’s in the market and have intense advertising and promotion. INDUSTRY LIFE-CYCLE The industry life cycle has four stages in showing the complete position of the industry based on its performance in the global market. These four stages are Introduction, Growth, Maturity and Decline. The Smartphone industry in the present situation across the global market is in the growth stage with many companies coming up with the latest design and technical facilities. The industry has shown a 95% growth in 2010 form 2009 with sales of around 81 million in the whole world. Top Smartphone companies in the global market are Apple, Motorola, Samsung, HTC, Sony Ericsson, etc. Smartphone’s come up now with many features and also high resolution cameras, games, high performance based processors and many other good features. The innovation and also the updating the Smartphone’s at a fast rate and a particular model becomes very quickly extinct because of the high models that are been launched in the market. The Smartphone industry is in the verge of huge growth and will grow at a good pace in the next few decades also. Opportunities and Threats Opportunities Huge Smartphone’s growing global market. Smartphone’s will always have the high and growing demand. New technological developments. New features and styles. Threats Existing competitors. High bargaining power of the customers. Short life cycle of the technology been used. The company must look to cash on its opportunities and work towards them and also take care of the increasing problems from the threats present in the global market. Question 2: Internal Analysis Both the companies have a huge competitive advantage and have lots of strengths which have helped them to create a good brand image and also capture a huge market share in the global market. The strengths and the weakness that the companies have is been analysed and seen using the Competency framework and also the VRIN framework for both the individual company. Competency framework of Microsoft Microsoft Corporation as a software company has grown over the years and has become the leader in the software market in the whole world. It has gained its position because of the high quality of products that it has come up with along with the high innovations and technical up gradation that are been done over the years to achieve the position. Competency framework of Nokia From there starting point Nokia has always gained the market position due to its high quality in its mobile phones. The high battery backup that Nokia mobiles had gave it a huge benefit and also the Nokia phone’s performance does attract a lot of customers across the globe. VRIN framework for Microsoft Valuable- Microsoft products do creates a lot of value for its customers and the OS build by Microsoft is very user friendly and also provides high performance. Rare- The other OS build by other competitors are not that user friendly as the one build by Microsoft. Inimitable- It is highly difficult to imitate the OS as the secrecy about technology and the process is maintained at high level. Non substitutable- There are many other substitutes but those are not that highly user-friendly as that of Microsoft still it faces a huge completion from Google’s Android which has high demand in the market and also is very user friendly enhanced with all the features. VRIN framework for NOKIA Valuable – The mobile phones of Nokia did create a lot of vale to its customers but in the Smartphone industry with the huge competition from Samsung, Apple etc. The demand for Nokia Mobile has gone down in a huge way. Rare- The condition of being rare is very less as there are many other companies who have their own Smartphone’s and also have high visibility and liking in the global market compared to Nokia Inimitable - It is pretty easy to imitate the product. Non substitutable – The rate of substituting the Smartphone is not easy (Hague and Jackson, 1994, Pp. 112-115). Question 3: Issues & Challenges Facing the Company Before the alliance Microsoft as usual had a good market share in the market share of OS which are used in computers but the company lacked in a huge way in Smartphone market. Nokia used to be a leader in the market of mobile phones till few years back but with the increasing completion from other competitors and also entrance of the new companies like Google by acquiring Motorola has lead to a huge slump in Nokia’s sales. With companies like Samsung, HTC and Apple who have looked to launch new phones with latest technology and also with latest style has affected a lot in Nokia’s degrade. Nokia mainly faced the problem because of its OS- Symbian which was not that highly updated neither had so many features that Google Android had. Other companies used their Operating system as Android which helped them to capture the huge market share and also grow at a fast rate in the global market. Nokia came in alliance with Microsoft will both the companies to overcome the challenges and the issues that each of them faced in their respective ways. Microsoft will be able to enter the global market of Smartphone’s using Nokia’s brand image which has still a strong position in the market because of the high quality products that the company used to have. Nokia on the other hand will be able to overcome its problem of operating system by using the operating system for phones developed by Microsoft which will give the Smartphone’s of Nokia a new look with new technology and also make it more user friendly. Another big issue for the companies is the high price sensitive customers and their high bargaining power because of the presence of high number of customers. The companies need to see the price range at which the competitors are selling the particular product of that range and launch their new product after the alliance at a competitive price range from its competitors to attract more customers and conduct a huge series of promotion activities so that customers come to know the exact message and the value that the product can provide them. Question 4 Logic behind the strategic alliance The main logic behind the strategic alliance of Microsoft and Nokia is to capture and make a good position in the global market of Smartphone’s. Microsoft didn’t have its presence in the Smartphone’s so with the help of Nokia it can enter the global market of Smartphone’s and also get the advantage of the brand image and the market that Nokia has already created in the global market. In the same way Nokia faced the slump because of the problems with its Symbian operating system which it can replace with the Microsoft’s operating system for mobiles. This will help the company to get a better operating system and also make its products more users friendly enabled with new features, games and also facilities. These upgrading will help the company to attract its lost customers again and again have the position of market leader in the Smartphone market globally with a continuous growth in its market share. Steps ought the CEOs CEO’s of both the companies had to look toward important factors before agreeing to the alliance. Nokia’s CEO Stephen Elop and Microsoft’s CEO Steve Balmer, both agreed that the completion is very high and they needed to work fast towards the growth and they even stated that they have enough resource to become there leader and also regain the leader position. They made sure that the new Smartphone which was been launched after the alliance had all the best features and was also enabled with high technology. Both the CEO’s had to see that their company was been benefited from the alliance in a huger way because the alliance was done by a huge transaction of a lot of amount. Microsoft’s CEO could see the highly equipped R&D, promotion and marketing and technology of Nokia which was very highly equipped and also had huge number of skilled labours. While Nokia’s CEO looked after the new and reliable operating system for mobiles that Microsoft had which can help Nokia to revamp and grow again in the competitive market getting the most important market share in the Smartphone industry globally. Question 5: Generation of strategic growth options The strategic growth options for Microsoft and Nokia could be proposed as alternate options that could have been undertaken instead of the strategic alliance agreed by the two companies. The alternate options for Microsoft and Nokia could be generated using the model of Ansoff Matrix as given below. Alternate options to Microsoft instead of strategic alliance Market penetration The flagship products of Microsoft includes the Windows operating systems that are widely used by the customers all owner the world. All categories of customers including, individuals and corporate houses have Microsoft operating systems installed in their computers. The changes in the market demands have witnessed the rise in investments by the companies in the operating systems (OaShaughnessy, 1995, p.37). Due to the increase in the use of mobile phones by the customers in the worldwide markets, the competitors like Samsung, Apple, Sony and other have launched smart-phones that carried inbuilt operating systems. The operating systems have been developed Google, Apple that has led to the rise in their market shares. The actual market shares of the operating systems and the expected market shares have been given in the following two tables. In order to attain sustainability in their business, Microsoft could have adopted the strategic option of market penetration. In order to do this Microsoft could develop the compatibility of their operating systems so that they could be used in the smart-phones used by any manufacturer. This would help Microsoft to penetrate its existing markets and sustain the rate of growth of its market share. Diversification According to Ansoff Matrix, the diversification of its products could be a strategic option for growth and sustenance of market share of Microsoft. In order to tap the potential demand of the markets, Microsoft could look to diversify its business in the smart-phone segment by leveraging its technologies, software and hardware. Microsoft could look to manufacture smart-phones that would be supported by its own operating systems. This would provide an added advantage to Microsoft in providing comprehensive solution to the customers in new markets. Although the initial cost to be incurred by Microsoft would be high, the company would be able to achieve economies of the scale due to the increasing use by the customers that would result in increasing turnover of the products. Thus the strategy of diversification of the products of Microsoft would help them to achieve sustainability in the industry. Alternate options to Nokia instead of strategic alliance The analysis of the financials of Nokia reveals that Nokia which has been a market leader since 2007 has undergone fall of market share due to the initiatives of the competitors in launching new model that are cheaper in price and innovative in design as compared to Nokia. The net sales reduced and operating profits have moved to a position of loss. Product development As suggested in the model of Ansoff matrix, Nokia could look to develop new products in the existing markets in order to revive their market share and attain sustainability in the growth of the business. Nokia could have looked to carry out more research and development in redesigning its mobile products. Nokia could also look at controlling the cost of operations and incorporating multiple features like web browsing, etc in all its products. The product development and lowering of cost for the advanced models would lead to increase in revenue earnings, profitability and market share of the company in the long run. Market development The Ansoff matrix suggests that Nokia could also undertake the alternate option of developing new markets for growth. The emerging economies that have shown the rising use of mobile and smart-phones could be targeted by Nokia. Nokia could have raced with its competitor rather than being reluctant on changing its traditional products. The company could have used advertising and marketing of newly redesigned products supported by the operating systems which could have been offered at competitive prices to acquire market shares in the long run (McLoughlin and Aaker, 2010, p.48). Question 6: Evaluation of strategic growth options The strategic growth options as described for Microsoft and Nokia could be evaluated with the help of SFA framework as given below. SFA Framework The SFA framework suggests three important parameters, namely suitability, feasibility and acceptability of the strategic growth options proposed for Microsoft and Nokia. The extent to which the alternate options for strategic growth of Microsoft and Nokia are suitable, feasible and acceptable have been represented in a scale of 1-5 with 1 being the least and 5 being the highest in the following nomenclature: “5”-extreme, “4”-high, “3”-moderate, “2”-low, “1”-least. The analysis of the strategic options that could be adopted by Microsoft reveals that the market penetration strategy of Microsoft is highly suitable, moderately feasible but highly acceptable. The diversification strategy of Microsoft is extremely suitable and also has high feasibility while the strategy may be moderately acceptable to the management. The product development strategy of Nokia is extremely suitable with a high level of feasibility and acceptability of the strategic option. The market development strategy of Nokia is highly suitable with a moderate feasibility and low acceptability of the strategic option. Evaluation and ranking table The valuation and ranking table have been given below for each company taking each alternate option into consideration which contains the justification of undertaking strategic options for growth. Microsoft: Strategic Options SFA Ranking Evaluation with justification Market Penetration Suitability 4 The market penetration strategy of Microsoft in the existing markets is suitable as it would enable the organization to meet the challenges of declining market share on the face of new operating systems launched by Google, Apple and other players. Feasibility 3 The strategy of market penetration in order to revive its market share and set up sustainable business in the long run is moderately feasible as there is sufficient scope for Microsoft to be able to leverage on its brand value so that it could integrate its operating systems with various electronic and communication devices in the market. Acceptability 4 As the operating systems of Microsoft would be made compatible with all the communication device specifications in the market, it would be highly acceptable among the target customer segments in the market. Diversification Suitability 5 The strategic option of diversification of business of Microsoft with the manufacture of new smart-phones and offer at competitive prices would be extremely suitable for ensuring sustainable business growth of the company (Mazzucato and The Open University, 2002, p.84). Feasibility 4 The diversification strategy of Microsoft is highly feasible as Microsoft would be able to integrate its operating systems with the new smart-phones that would be manufactured and offered at competitive prices in the market. Acceptability 3 The strategy of diversification of Microsoft is moderately acceptable as the company would need to incur high cost in the initial stages subject to attainment of economies of scale in the long run. Nokia: Strategic Options SFA Ranking Evaluation with justification Product development Suitability 5 The product development strategy of Nokia is extremely suitable as inclusion of innovative features in the handsets at competitive prices would have helped the company to increase its revenue generation and market share in the long run. Feasibility 4 The product development strategy of Nokia would have been highly feasible as being in the position of a market leader until 2007; Nokia had the technological know-how only to be guided under an inspired leadership. Acceptability 4 The strategic option for product development is highly acceptable as the company would be able to the development of the products would enable them to meet the market demands and revive their market share in the long run. Market Development Suitability 4 The market development strategy of Nokia is highly suitable as finding new and emerging markets where there is potential demand for the Nokia products would help them to compensate losses incurred in the existing markets. Feasibility 3 The market development strategy of Nokia is moderately feasible as the competitors of Nokia have already taken the step forward in looking to develop new markets and creating demand for their products. Nokia would need to leverage their brand value and promptly undertake measures for creating demand in the new markets for sustaining the growth rate of their business. Acceptability 2 The acceptability is low for the market development strategy of Nokia due to its financial position. Nokia being at a position of net loss would find it difficult to incur the expenses of market development. Nokia would need to depend on various sources of finance which would be difficult to obtain under the position of net loss in the recent past. The evaluation of the strategic growth options suggest that diversification strategy of Microsoft is the most suitable alternative while the market development strategy for Nokia is the most appropriate for achieving sustainable business in the long run. Question 7: Description of selected strategy The selected strategies for Microsoft and Nokia have been explained in terms of the effectiveness of these strategic growth options influenced by the resources available with the company and the areas of competency of the organization. Microsoft: Diversification strategy The diversification strategy has been considered to be the most suitable for option for strategic growth by taking into account the aspects of suitability, feasibility and acceptability in relation to the external factors of the industry. Microsoft’s flagship products are the operating systems that are used by large segment of customers in the market. Microsoft’s business in the segment of operating systems witnessed development of new operating systems by competitors that were mostly used in the mobile and communication devices, smart-phones. The smart-phones developed as substitutes to the desktops and laptops in which Microsoft had a prominent market share. But the smart-phone segment gained popularity with Google android as operating systems. In order to meet the competitive challenges, Microsoft could look to diversify their business by developing new products like smart-phones, handsets, etc. This may put initial burden on the finances. But the financial resources available with Microsoft and its scope of availing finance from the market would enable them to meet the required of funds for manufacturing of new smart-phones. The talented human resource and the technological know-how available with Microsoft would enable them to integrate their operating systems with the smart-phones manufactured by them. Due to the user friendly operating systems of Microsoft being present in the newly branded smart-phones, there would be sufficient interest among the users to purchase the products. On successful implementation, this strategy would be able to generate sustainable business growth for Microsoft. Nokia: Product development strategy The product development strategy of Nokia has been considered to be the most feasible for delivering sustainability to the business. The products of Nokia turned into traditional old designs with time as their competitors started to develop new handsets with looks and innovative features. Also the comparatively high prices for Nokia handsets led to the decrease in market share and their leadership position eroded in no time. The product development strategic would be supported by their strength in developing new technologies that would incorporate unique features of operation and at the same time would control the cost of production. The innovative efforts of their research and development personnel would be crucial for developing handy smart-phone that are innovative in terms of looks and functions. Nokia could leverage on their brand value to acquire funds from the market in order to finance their operations. Due to these initiatives, Nokia would be able to satisfy the changing needs of the market and attain competitive advantage over other players. The availability of Nokia products at competitive prices would help them to increase the sales volume and achieve sustainable growth rate in their business (Hill and Jones, 2009, p.68). Conclusion Microsoft has entered into strategic alliance with Nokia and the results show mixed performance of the alliance between the two companies. The strategic alliance took place as both the companies found it advantageous to share their resources and competitive advantages to revive their individual positions to transform into a bigger force in the industry of mobile handsets and smart-phones. Due to the mixed results of the strategic alliance between Microsoft and Nokia, the alternate strategic options for growth have been explored individually for each of the companies. In order to suggest alternate option for growth and sustainability for the companies instead of the alliance that has occurred, the model of Ansoff matrix has been referred. The initial analysis with respect to the theoretical framework proposed by Ansoff matrix revealed that Microsoft could have undertaken the strategy of market penetration and diversification in a situation where its competitors have launched new operating systems that were compatible with the smart-phones launched in the market. By applying the SFA framework, it was further revealed that the diversification is more appropriate for the company. The innovative solutions proposed by their human resources, technological knowhow and sound funding arrangements would work in favour of Microsoft for launching new smart-phones that would enable them to attain sustainable growth in their business. In the same method, the strategic options of product development and market development were found to be suitable for Nokia under the application of theoretical framework proposed by Ansoff Matrix. However, the application of the SFA framework revealed that the product development strategy is the most appropriate one for Nokia where they could develop their handsets in terms of looks and innovative features incorporate in them. Although Nokia would face the challenges of acquiring the funds from the market based sources, the company could leverage the technological know-how and the innovative feedbacks of their human resource to develop newly designed products that would satisfy the needs of the customers. These strategies are recommended as they have the potential to enable the companies to attain sustainability in their business. References Hague, P. and Jackson, P. 1994. The Power of Industrial Brands: An Effective Route to Competitive Advantage. London: McGraw-Hill. Hill, C. and Jones, G. R. 2009. Strategic Management Theory: An Integrated Approach. Stamford: Cengage Learning. Kotler, P. 2001. Marketing Management. London: Prentice Hall. Mazzucato, M. and The Open University. 2002. Strategy for Business: A Reader. London: SAGE. McLoughlin, D. and Aaker, D. A. 2010. Strategic Market Management: Global Perspectives. New Jersey: John Wiley & Sons. OaShaughnessy, J. 1995. 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