Internal and External Business Environments of Nokia - Case Study Example

ALARM RINGING: NOKIA IN By Alarm Ringing: Nokia In Introduction Operating in today’s highly globalized and turbulent business environment require the management of an organization to develop an ideal plan and vision in order to ensure that the organization becomes the market leader, a factor that would lead to the long-term success and survival for the organization. The case study “Alarm ringing: Nokia in 2010” is a typical example of what happens when an organization fails to develop an ideal plan to satisfy the demand of the customers. Nokia is a well-recognized company that manufactures mobile telephone products as well as portable Information Technology (IT) gadgets. Nokia was for a long time the market leader in the mobile and telephone industry, however, over the past few years, the organization has been struggling to compete in the highly competitive mobile phone industry. In this regard, this paper takes a critical look at the internal and external business environments of Nokia, using the fundamental business models that determined its competitiveness, financial position, and market share (Hill & Jones 2012). Nokias mission and vision Nokia’s vision statement “Connecting people,” is one of the most popular organizational statement. This vision statement presents the aim of Nokia to connect and unite various individuals from different areas and ethnicities all over the world through providing them with the opportunity to use mobile phones and other electronic devices that would connect them. Equally, through the use of communication products provided by Nokia, customers across various geographical locations are able to connect with other people all over the world thus facilitating communication. Comparatively, the mission statement of Nokia, which is inspired by the company’s vision of connecting people, presents that the company aims at “building great mobile products to enable billions of people everywhere to get connected” (Hill & Jones, 2012). However, according to Hill and Jones, “connecting people,” is quite a basic statement and thus the customers would perceive the company as such (2012). Therefore, there is need for Nokia to come up with more sophisticated vision and mission statements would satisfy customers and create a sense of competitiveness. Macro-environment The macro-environment entails factors which are out of the company’s control but affect the performance of the firm. Some of these factors could include governmental policies, changes in the economy as well social and political factors. Nokia is affected by various macro environmental factors, for instance, the Finish governmental taxation policies that affects its financial performance. Using the PESTEL analysis we can determine the various factors that affect Nokia as an organization. The political factors affecting Nokia include the enlargement of the European Union (EU), taxation policies and the international trade. The economic factors may include the exchange rates, inflation, unemployment, overall national income and the stock market among others. Likewise, Nokia is affected by various social factors such as work attitudes, the aging populations and income distribution. Other technological factors such as new product development, innovation, and rate of technological obsolescence and environmental factors like global warming also affects Nokia. Finally, legal issues such as health and safety, employment, and competition has also widely affected the company. Internal analysis Overview of Nokia As a company, Nokia was founded in Finland in the year 1865, after which it was given the name “Nokia” in the year 1871. Over the past years, the company had enjoyed high share prices and low competitions in the mobile phone industry, in fact, the company “had been a market leader in the mobile phone market since 1998” (Hill & Jones 2012). However, this situation changed due to the excessive competition caused by other companies offering similar services such as Samsung, Apple, and Motorola. In September 2010, Stephen Elop, formerly the head of Microsoft’s Business Division (MBD) joined Nokia Corporations as the President and CEO (Hill & Jones 2012). The appointment of Elop aimed at providing leadership to the entire Nokia team through the period of intense change and disruption. The 4p’s of the Marketing Mix Product Nokia is one of the companies that has very high amounts of products that are highly varied, that is, from smartphones such as the Nokia Lumia and Nokia Asha to other premium phones. Equally, its product design also varies from touch screen products to classical button gadgets therefore enabling users to acquire a product that suits them best. However, it is still noted that Nokia faced tight competition from firms such as Apple, thus leading to a subsequent drop in its market share (Hill & Jones 2012). Price Through the appointment of a new C.E.O, Elop, Nokia was able to create a strong brand image that focused on the distribution and marketing network which enabled people from all social classes to afford the gadgets. However, Nokia still faced stiff competition from other competitors such as Motorola and Samsung who had also similar prices (Hill & Jones 2012). Promotion Elop has used promotional strategies effectively, thereby increasing Nokia’s market share significantly. Over time, Nokia has invested in successful advertisements that are made in an appealing manner to the consumers of their products. Place For a product to sell successfully, it should be easily accessible by all customers who have the potential of purchasing it. Notably important, Nokia has been able to increase the accessibility of its products, for instance, their mobile phones are easily accessible in major supermarkets and other specialized outlets, a factor that has led to its growth in market share. Competition Analysis Overview of Nokia’s competitors Apple Inc. Apple Inc. entered the mobile phone and smartphone market through the production of its mobile phones which are known as the iPhones. Since its inception, iPhone has been greatly successful, acquiring a high market share in Europe, therefore becoming one of the major threats to Nokia. Moreover, Apple has been able to acquire a highly diversified customer base which is composed of children, adults, students, businessmen and women among others, thanks to its simple and classic products that are highly differentiated. Arguably, this simple design is one of the factor that has contributed to its growth in market share since it provides the customer with the opportunity of customizing the iPhone according to their style of choice. Samsung Currently, Samsung is the market leader in the smartphone market thus becoming one of the greatest threat to Nokia. Samsung smartphone products are designed to run on Google’s Android OS thus enabling its users to achieve a wide range of applications that they can use to suit their needs. In addition, Samsung also offers a great variety of products such as music, innovative technology, and quality graphics that suits almost every user’s need in the overall market. Equally, Samsung offers a variety of products that have different prices that could be affordable by people across various social status and thus this offers a big challenge to Nokia. Financial Analysis Using financial analysis tools such as the Profitability ratios, we can compare Nokia’s sales and income to determine the financial performance of the firm. It is also worth noting that profit margin ratios can be used in the evaluation of various aspects of the firm thus showing its ability to generate earnings whilst still covering its costs and other expenses. Although Nokia’s Gross profit margin shows very slight fluctuation (30.2% to 34.2%) for the period of about 4 years in the case study, its net profit margin and operating profit shows very high fluctuations, that is 0.6% to 13.2% and 2.3% to 16.1% respectively, for the same period of time (Hill & Jones 2012). This therefore implies that the firm’s operating expenses resulting from aspects such as administration expenses, R&D, marketing and sales among others. Moreover, the difference between the Gross profit and net profit in the first periods is less thus showing that this periods had more operating expenses, though the situation improves during the subsequent years. Functional Level Strategies As a company, Nokia has a business-level strategy which is highly complemented with its functional strategies. Nokia uses numerous functional strategies, for instance, it offers services at a low-cost prices, produces quality phones and highly innovative products which enabled it to be the market leader (Hill & Jones 2012). Competitive Business Level Strategies Nokia also uses various competitive level strategies to attain a competitive advantage over its rivals. For instance, the company differentiates itself from other competitors through its intensive use of green technology that is environmental friendly (Hill & Jones 2012). It is also worth noting that Nokia produces many phones at a time thus enabling the company to obtain an economies of scale. This economies of scale enables them to employ a cost leadership functional strategies thereby increasing its overall competitive advantage. Value Chain Analysis The industry value chain analysis will enable us to get a clear view of Nokia’s position in the mobile phone industry. The customers do not usually purchase the head sets directly from Nokia but instead they usually use the cellular calling plans from the service providers. Therefore, Nokia sells its products to the various distributors and service providers after which the customers acquire from them. Furthermore, Nokia has reduced global sourcing of materials whilst enhancing the global brand building thus reinforcing its core consumer-focus competence. This has enabled Nokia to formulate a prosperous business model which is focused on the consumer thus making it one of the most popular brands universally. Resources Nokia has used its recourses effectively and efficiently towards meeting the current and future needs of the organization. Nokia has a Resource plan which is conducted at the organizational level local levels and globally by the various human resource managers. Therefore, in its wide pool of talented and experienced employees, Nokia can attain a competitive advantage over its rivals. Porter’s Five Forces Analysis Nokia, a company known for its production of mobile phone and smartphones, was the market leader in the mobile phone industry over the past years. However, even though there has been increased competition in this industry over these years, Nokia still holds a strong market share, thanks to Elop, the president and C.E.O of the company. The company’s internal factors affected by the shareholders, customers, staff, and competitors constitutes the micro environment. For this reason therefore, Porter’s 5 forces model will be use to evaluate Nokia’s micro environment so as to determine how other factors affects the company. Threat of entry The threat of new entrants in the mobile phone or smartphone industry is quite low since this industry requires high amounts of investments in terms of startup capital investments as well as high sunk costs. These factors would discourage the new entrants therefore making the threat of entry in the smartphone industry to be relatively low. In addition, there is high competition among the other existing companies such as iPhone, Blackberry, Samsung and Motorola that have well established and respected brands (Hill & Jones 2012). Usually, established brands have a high percentage of customer loyalty and thus it would be difficult for a new entrant to convince customers to buy their products. The power of suppliers and buyers The bargain power of suppliers in the mobile phone industry is quite low since there is relatively high competition between the number of suppliers and the amount of substitute products that are available. Similarly, the power of buyers in the mobile phone industry is also low because the number of buyers is quite high. Therefore, in this industry, both the power of suppliers and buyers is low. Threat of substitute In the mobile phone industry, there exists very low threat of substitutes since the smartphone is basically a collection of many devices produced by few companies such as Nokia, Samsung, Apple, Motorola and Blackberry among others. The smartphones have basically, similar features and therefore the possibility of substituting one product with another. Furthermore, even if it were possible to substitute the smartphones, the cost of acquiring the substitutes would be relatively too high. Rivalry among existing competitors Due to the fact that mobile phones and smartphones are highly “perishable” products, or in other words, their market demand changes faster, then the rivalry among the existing competitors is quite high. Products that are highly “perishable” or those that undergo a great degree of change in in customer preference such as mobile phones, smartphones as well as the fashion industry need to be sold fast. In fact, this reason can be largely attributed to the fact that many companies are usually seen to be cutting their prices in various “perishable” products thus increasing competition in these industries. SWOT analysis Strengths To begin with, one of the chief strengths that Nokia has is in its brand that has quite a high level of customer loyalty (Hill & Jones 2012). Over the past decades, Nokia has been recognized as one of the most respected and renowned companies in the smartphone industry until recently when the mobile phone market was sidelined owing to changes in the market trends. Equally, Nokia products are viewed to be of high quality, sturdiness, with distinct designs, and the company is highly accountable as provided in its warranty policy. Similarly, Nokia has headed the sales in the smartphone industry since 1998 thus making it a leader in the mobile phone market, until recently (Hill & Jones 2012). Therefore, Nokia has a well-developed brand awareness in its products that it can use to increase its competitiveness in the industry. Even though Nokia has had difficult moments catching up with other competitors such as Samsung and Apple in the smartphone market, the company can use its brand loyalty to regain its market share. Furthermore, since it has been there for a long time in the mobile phone industry, Nokia can use the experience it has gained in the market to regain its former glory. Weaknesses Nokia is having a hard time catching up with the highly changing customer trends in the smartphone market, for instance, analysts identify that Nokia’s problems began when the company was not able to meet its customers’ increase in the “global demand for smartphones, in comparison to its rivals such as Apple and Research in Motion (RIM). Equally, this can be seen when Nokia is relatively unable to meet the market trends after Apple releases its iPhone products and the consequent failure of the Symbian OS that had high software and hardware problems (Hill & Jones 2012). In addition, Nokia has excessively engaged itself in the manufacturing of phones, thus ignoring the fields of internet production, and other related services. It is however worth noting that this weakness is eliminated by the partnership between Nokia and Microsoft. Opportunities One of the key opportunities for Nokia is in its partnership with Microsoft Corporation that has enabled it to manufacture the Windows phone which equally enables the customers to access a wide number of applications that can meet their needs. Nokia can therefore use this opportunity to acquire a competitive advantage over its rivals such as Apple and Samsung. Although both HTC and Samsung have few models of phones which use Windows OS, Nokia is more experienced in this market and thus it can use this opportunity to increase its competitiveness. Nokia should therefore use the opportunity it has as a result of partnering with Microsoft to expand its Lumia phone series, so as to offer products that have the ability to meet the demands of multiple customers. Threats Nokia has quite a number of threats that faces it more so in terms of the ever growing competition in the mobile phone market. For instance, the company is facing a stiff competition from other Smartphone producers such as Samsung, Apple, RIM’s Blackberry and Motorola (Hills & Jones 2012). For a relatively long period of time, Nokia lost its glory as the market leader thereby playing the role of a market follower in the mobile phone industry. It is therefore of great importance that Nokia develops and repairs its strategy in order to meet the ever changing demands of the customers. Similarly, the change of Nokia’s OS from Symbian Windows, greatly confused the customers due to little customer awareness and thus it is important for the company to invest in customer brand awareness to eliminate this weakness. Recommendations To regain its position as the market leader, I would recommend that Nokia identifies the main needs of the customers so as to manufacture gadgets that would meet those needs. Furthermore, the company should review its mission to cover an extensive business performance rather than just focusing on “connecting people”. Lastly, using its highly experienced employees, Nokia should identify the available opportunities and seize them so as to attain a competitive advantage. Reference Hill, C. W. L., & Jones, G. R. (2012). Strategic Management: An Integrated Approach. Cengage Learning. Read More