Nokia: Strategic Planning and Management - Case Study Example

Running Head: NOKIA: STRATEGIC PLANNING AND MANAGEMENT Nokia: Strategic Planning and Management Introduction This work is based on strategic planning and management for Nokia. It is divided into four sections as follows. The first section presents a comprehensive analysis of the external environment in which the company operates. Since the analysis is based on the mobile phone industry, it is done with reference to the macro-environmental factors that affect all the players in the industry in general and Nokia in particular. In the second section, information about the competitiveness of Nokia in the industry is presented. The evaluation is based on a number of different factors like the amount of resources that are at its disposal. Also, the company’s unique capabilities and how this can be used as a competitive advantage is analysed. The third section contains information about the right strategy that Nokia needs to adopt for its future. From the five generic strategies that have been developed, a choice for the right strategy that Nokia should adopt is made. Lastly, a new vision statement for the organisation is identified. This is based on the most important strategic and financial objectives that the organisation has for the next five years. Analysis of the External Environment The external environment of Nokia can be analysed in terms of what factors in its macro-environment are of strategic significance to the company. According to Thompson, Strickland and Gamble (2013, p. 46) factors that are strategically relevant to an organisation are those which affect the way the company makes decisions about its own future and business model. The general macro-environment of an industry is made up of the political, environmental, socio-cultural, technological, economic and legal (PESTEL) factors (Bensoussan & Fleisher, 2012, p. 190). For Nokia, these factors are analysed as follows. PESTEL Analysis One relevant factor is the rapid pace of technological changes in mobile phones. With increasing changes in the hardware, software and overall design of phones in general and smartphones in particular, there is need for players in the industry, Nokia included, to focus on research and development. The other factor is social and cultural changes. Since such changes affect the tastes and preferences of consumers of mobile phones, there is need for the company to take it into them consideration when designing its strategic objectives for the future. Also, since Nokia is operating globally, its operations are affected by the political and legal environment in the different countries and regions in which it operates. What this means is that the operations of the company are affected by government policies and the general regulatory environment in the specific countries in which it operates. With regard to economic factors, different aspects of the global economy have a direct impact on the strategic decisions that the company makes. This is because such changes have a direct impact on the consumption patterns of consumers, thus affecting the demand for the products of the company. Furthermore, economic changes in different regions of the world in which the company operates influence the strategic decisions made. Lastly, environmental factors affect the strategic decisions taken by Nokia. This is because the company has a direct impact on the environment through its operations. The Competitive Forces Using Porter’s five forces of competition model that identifies substitutes, rivals, suppliers, new entrants and customers as potential forces of competition (Hill & Jones, 2009, p. 43), it can be seen that Nokia is facing varied forms of competition in the industry (figure 1). Figure 1: The concept of Porter’s five forces model and how this affects Nokia Factors Driving Change in the Industry In general, the different factors in the macro-environment undergo constant changes which present either opportunities or threats to an organisation depending on how it responds to them (Hill & Jones, 2009, p. 397). One of the changes faced by Nokia is the rise in globalisation and the resulting changes in terms of emergence of new markets for smartphones in particular. Another important trend that has an impact on the strategic decisions of Nokia is the rapid change in technological innovations. Since the company introduced its first smartphone back in 1996 (Greanay, 2011, p. 2), there have been various changes in innovation, key among them being new Internet capabilities and diffusion of technology among firms in the form of collaboration. Such changes will be important because they will determine how well the company and others in the industry succeed by taking advantage of them. Also, changes in lifestyles and demand among different age groups in different markets are important in helping the company develop the right marketing innovation to take advantage of such changes. Strategic Mapping The strategic mapping for mobile phone manufacturers is complex (Giachetti, 2012, p. 16). Figure 2 below that highlights the idea with reference to the market positions of different competitors. Figure 2: Strategic groups in the mobile phone industry. Adapted from Giachetti (2012, p. 16). Therefore, depending on the level of mobility barriers that exist among the different groups of competitors, many firms in the industry are likely to make strategic objectives that help them consolidate their positions and take advantage of new trends (Miller, Eisenstat & Foote 2002, p. 38). Such kind of changes will be seen in terms of an increasing correspondence among the firms in the industry, thus changing the future prospects of overall profitability and attractiveness of the industry (Giachetti 2012, p. 21). Further, by analysing the current strategies that direct competitors are pursuing, their different capabilities and assumptions, Nokia will be able to predict the strategic moves that they are most likely to pursue. For instance, based on the capabilities of Samsung and its current strategic direction, it can be seen that the company is likely to continue pursuing its diversification strategy. Key Success Factors and Overall Industry Outlook In general, it can be seen that there has been a shift in competition from hardware to software. With rapid changes in technology, many companies are investing in developing innovative products and marketing strategies. Therefore, the strategic objectives of Nokia will have to be modelled on key success factors in the industry which include issues like user experience, consumption habits and overall innovativeness of the products and the company itself (Wan, Zhu & Liang, 2013, p. 109). The overall outlook of the market remains positive. It has been indicated that the market for mobile devices is expected to grow in the near future, with that for mobile phones, which form the most important segment, expected to reach 1.9 billion devices by shipment this year (Rivera & Goasduff 2014, n.pag). Evaluation of the Competitiveness of Nokia The competitiveness of the firm can be understood in terms of what types of resources and capabilities are important for the firm and whether it is able to take advantage of opportunities that may arise in the market or handle similar threats. SWOT Analysis One of the strengths of Nokia is its longstanding reputation as a leading mobile phone manufacturer. With such a reputation comes a high level of innovation, a strong brand name and a highly advanced level of technology when compared to other players in the industry. This innovativeness has been witnessed in the way the company has sought to involve consumers in its quest to develop highly innovative products (Boone & Kurtz, 2011, p. 24). On the other hand, the company has a number of weaknesses which, in addition to the threats arising from intense competition from other players, are significant to the type of strategic decisions made. For instance, the company failed to take advantage of its leadership position in the market and allowed other players such as Samsung and Apple to take advantage of the fast-growing market segment for smartphones. The company is also facing a number of opportunities, key among them being the emerging market for smartphones in different regions of the world as well as the growing trend in the industry in which there is increasing collaboration between hardware and software makers. Resources and Capabilities First, the company has a number of tangible resources which include financial, physical and organisational ones. From the interim results of the company, it can be argued that its greatest financial strength lies in careful management of its financial resources during the process of transition (Nokia Corporation, 2012, p. 35). Second is that the company has managed to make important partnerships with organisations such as Amazon, thus making profit in its location and commerce business. It is therefore evident that the company has key resources in the manner in which it is handling its finances. Further, the company has considerable physical resources in terms of its manufacturing plants, distribution networks and other physical facilities which it has managed to acquire as a result of being in operation for a considerable period. This is supplemented by other resources in the form of patents, innovations, technologies and licences. The Value Chain The value chain of a company, which is composed of primary and secondary activities with their associated costs, is important because it helps the company determine whether or not it is creating value for its customers (Thompson, et al. 2013, p. 99). According to Ali-Yrkko, Rouvinen, Seppala and Yla-Anttila (2011, p. 5), the value chain for Nokia N98, one of the most iconic brands by the company, can be seen as representing what is used for different other brands and products with slight variations in the number of layers of activities and associated costs. According to the model, the value chain of the company can be seen in terms of five key layers, every one of them containing different activities. First, there is the layer that takes into account the different activities of miners, traders of raw material and refiners. This covers all the activities carried out by players who are responsible for supplying to the company the raw materials required for the manufacture of different types of mobile phones. The second layer of activities involves vendors of different components that are used in the phones and assemblers. At the third stage are the activities of licensors of technology and software that is used in the phones. At the fourth stage is the work that is done by the company in the form of engineers who complete the assembling work done partly at the second stage of the process. Lastly, the complete products are distributed through retailers to reach the consumers. Competitive Strength and Key Strategic Issues The overall competitive strength of Nokia in the market depends on how it ranks in relation to other competitor on key factors in the industry and whether, in general, it has a competitive advantage over the competition. This is done using a weighted competitive strength analysis framework (Thompson et al., 2013, p. 110). See table 1. Table 1: Competitive strength assessment Competitive strength assessment Rating Scale: 1 – very weak; 10 – very strong Nokia Samsung Motorola Key success factor – strength/measure Weight Strength score Strength score Strength score Product performance 0.1 8 0.8 5 0.5 1 0.1 Image 0.1 8 0.8 7 0.7 1 0.1 Manufacturing capability 0.1 2 0.2 10 1 5 0.5 Technological skills 0.05 10 0.5 1 0.05 3 0.15 Distribution 0.05 9 0.45 4 0.2 5 0.25 Innovation capability 0.05 9 0.45 4 0.2 5 0.25 Financial resources 0.1 5 0.5 10 1 3 0.3 Relative cost position 0.3 5 1.5 10 3 1 0.3 Customer service 0.15 5 0.75 7 1.05 1 0.15 Sum of weights 1 Overall weighted competitive strength rating 5.95 7.7 2.1 From the analysis, it can be seen that the competitive strength of Nokia exceeds that of Motorola but is less than that of Samsung. There are several strategic issues that require the attention of the management of the company. First is how to counter competitors like Samsung in the smartphone segment of the market. The second one is how to use its technological capacity to leverage collaboration with important partners in the market. The third issue entails how to maintain the current rate of growth and take advantage of the positive outlook of the market in its three key business areas. Generic Strategies The choice of a generic strategy is informed not only by the prevailing conditions in the external environment of the industry but also the internal capabilities, resources and competitive advantage of an organisation (Thompson et al., 2013, p. 121). The strategies are illustrated in the figure 3. Figure 3: The five generic competitive strategies developed by Porter (1980, cited by Thompson et al., 2013, p. 122). Based on the analysis done for the external and internal factors, Nokia should pursue the best-cost provider strategy. Such a strategy would enable the company to take advantage of its competitiveness while at the same time minimising the impact of changes in the external industry environment. Since the company handles three key segments of the market, a best-cost provider strategy would enable it to offer its customers more value for their money. Besides, since the strategy is a combination of differentiation and low-cost strategies, it is an ideal one in helping the company regain and maintain its position in the various segments of the market that it serves. Vision Statement From the analysis, it is recommended that Nokia’s strategic vision should reflect where exactly the company needs to go with respect to its capabilities and the trends in the industry. Therefore, the strategic vision statement of the company should read as follows: “Nokia seeks to connect everyone in the world using the latest technology. We will ensure that people are connected in three different ways: mobile phone technology, location intelligence and mobility.” Since the company seeks to re-establish itself in the market by offering these three key businesses, it can be argued that the strategic vision is focused on helping the company to achieve these objectives within the five years by focusing on what customers want. Such an approach is important because it helps an organisation to easily gain and maintain a competitive advantage (Chatterjee, 2005, p. 34). Conclusion From the analysis, several conclusions can be drawn. First, it has been seen that Nokia is facing a highly competitive external environment in the mobile phone industry. The nature of the industry, which is determined by several factors, makes it necessary for the company to be acutely aware of changes and respond to them in time. Second, there are several factors in the external environment that are relevant to the strategic decisions of the company. It is upon these changes that the company needs to build its strategies. Third, it has been seen that the company has a relative competitive advantage in terms of the resources and capabilities that have been accumulated over time. The fourth issue is that the company should adopt a best-cost provider generic strategy for its operations in the next five years. Such a strategy will help the company to give its customers value for money in terms of balancing the need for differentiation and that for reduced costs. This has been captured in the new vision statement for the company. References Ali-Yrkko, J., Rouvinen, P., Seppala, T., & Yla-Anttila, P. (2011). Who captures value in global supply chains? Case Nokia N95 smartphone. Keskusteluaiheita Discussion Papers, 28 February. Bensoussan, B. E. & Fleisher, C. S. (2012). 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