Understanding Business Failure of Nokia - Case Study Example

Business failure of Nokia

• 1.0 Introduction
  • 1.1 Background of the study

Globalisation has offered immense opportunity for the entities to operate and expand internationally with good business idea and strategies (Pretorius, 2009; Ucbasaran, 2010). Entrepreneurship is considered a dynamic process under which a person based on new idea and concept initiates risks to have victorious market (Iverson, Jorgensen and Malchow-Mollen, 2008; Free Patent Online, 2016). However, many firms are not adequately adapting to ever-changing external environment that is resulting in business failure (Pretorius, 2009). Electronic gadgets sector is among the fastest changing industry that underwent huge change since few years with advent of new technological innovation and varying consumer demand (Surowiecki, 2013). This industry consists of multiple global players like Apple, Samsung, Blackberry, Nokia, LG, Motorola and Lenovo (Surowiecki, 2013). Apple and Samsung are currently the leading players of this sector where these companies have introduced products with innovative features that create loyalty among consumer base (Surowiecki, 2013). On the other hand, players like Nokia and Blackberry have lost their most important market share from different regions of China, UK and India (Surowiecki, 2013). The purpose of doing this paper is to analyse the reasons behind failure of Nokia in the global market by implementing various micro, macro and micro factors. Based on the information obtained through internet sources, academic journals and company related facts, a multi-level casual analysis is going to be undertaken.

• • 1.2 Nokia background introduction

Nokia Corporation, a public listed company, specialised in Informational Technology field was launched in 1865 by Fredrick Idestam (Nokia, 2015). As per research, the company is currently operating in more than 150 countries with revenue of € 22.22 million (Nokia, 2015). Although the company is earning profit yet it suffers low consumer loyalty and market competitiveness in the market. The profit for the entity and its operations has reduced after introduction of innovative strategies adopted by its competitors. Figure 1 illustrates the net profit and sales of Nokia in year 2011 and 2012 where net sales and profit sector experienced a loss of 492 million (19%) and 1592 billion as compared to 2011.

Figure 1: Sales and Profit figure of Nokia 2011-2012

(Source: The Statistical Portal, 2016b)

Figure 2 illustrates the declining performance of Nokia’s electronic gadgets and devices from 2009 to 2012 where sale of phones and devices experienced decline from € 3000 and € 3500 million to € 2000 and € 2700 million.

Figure 2: Sales figures for Nokia Smartphone’s and Devices

(Source: The Statistics Portal, 2016b)

Moreover, the current financial reports for the company also show declined profits in the entire sectors in which the entity is having its presence. The three sections in which Nokia is operating its trades are Networks, Technology and HERE whose sales figures are illustrated in figure 3 with decreasing earning per share (EPS). The net sales for the entire Nokia operations decreased from 3802 million to 3196 million from 2014 to 2015.

Figure 3: Nokia's Performance in various sectors

(Source: Nokia, 2015)

Figure 4: Sales as per Region

(Source: Nokia, 2015)

Figure 4 illustrates the main regions where the company is having its presence; wherein, the major (33%) income was contributed from Asia-Pacific, followed by Europe (23%), North America and Greater China with 14%.

Figure 5: Nokia Group Change in net cash and other Liquid assets

(Source: Nokia, 2015)

Figure 5 shows change in net cash and liquid assets with operating, investing and financial activities that has reduced from 5.02% to 4.67% within 2014-2015.

Figure 6: Global market share held by players from fourth quarter of 2009 to first quarter of 2016

(Source: The Statistics Portal, 2016a)

The above figure (6) shows the market share held by the various players from 2009 to 2016 where the performance of Samsung has improved from 3.3% to 24.5%. Nokia market share has decreased since few years where in 2009, it was the market leader with 38.6% that reduced to 6.6% in quarter two of 2012. After 2012, the mobile market is being dominated majorly by Apple, Samsung and other players like Motorola globally. Based on available data it is being observed that the market presence of Nokia has completely vanished in last few years. The next section of this paper is going to identify the multi-level root causes that drive Nokia out of the gadgets market.

Multi-level root cause analysis

There are numerous factors outside the control of Nokia that govern and modify its policies and strategies. In order to understand the external market of Nokia PEST analysis is going to be discussed.

PEST

Political

It generally comprises of rules framed by governmental bodies in which the company is operating. Before entering a new economy or while doing its business in countries, the day-to-day activities of the company is affected by wage policies (minimum wage), highest working hours allowed for employees to work and health and wellness regulations (HubPages, 2016).

Economic

Changes in exchange, tax (corporate, VAT) rates have vital influence on the operations of the company (HubPages, 2016). Threat of recession affects the interest rates offered by financial institutions like banks that increase the cost of loans. In 2010, Nokia was an essential part of Finland’s economy where it occupied third place in Helsinki stock exchange (HubPages, 2016). The company in 2010 decided to withdraw people from the work that was going to affect the employment of the economy adversely (Nokia Corporation, 2014). Finnish government would have reacted negatively to this job cuts therefore Nokia before sacking the employees stated that it will help the workers to find new jobs (Nokia Corporation, 2014).

Social

Informational Technology sector is highly affected by changes taking place in the gadgets, for instance, earlier people preferred keypad with small screen but with the introduction of large display the consumer taste underwent change. The trend of smartphones shifted from earlier years and user wants gadgets with more innovative features (HubPages, 2016). However, the taste of people differs as per people’s perception and choices that affect the businesses of Nokia (HubPages, 2016).

Technology

Level of competition for the IT sector increased when other players like Apple and Samsung introduced new models based on iOS and Android systems (Siemens, 2016). Nokia was the leading supplier of gadgets till 2010, but was unable to compete strongly against other competitors (Instead Knowledge, 2016).Though it invested large amount in research field for creation of new gadgets, but it lost it hold in the market.

Casual Factors

(Source: Author’s Creation)

MESO (sector and industry failure)

Entrance of numerous players

The IT sector was undergoing a huge transformation with new technological know-how and competence from two major players like Apple and Samsung. Though, in the initial years the performance of these players were not good as compared to Nokia (Figure 6), yet the company was planning to launch gadgets with advanced features (Instead Knowledge, 2016). Additionally, during the initial years of 1990s, the company limited its entire focus on driving short-term profits. For instance, in 2007, model N95 was launched with features like music player, GPS (direction-finding) and large display (not a touchscreen) (Instead Knowledge, 2016). It was huge success; however serious quality issues started to arise in the model (battery explosion) that impacted the overall performance (Instead Knowledge, 2016). By this time, Apple has launched i-Phone in the industry with smart and innovative features that made consumers shift from Nokia to Apple’s gadgets (Instead Knowledge, 2016).

In order to manage the growing competition, Nokia came up with its first touchscreen mobile, N 5800 at a lower price compared to Apple i-Phone, but failed due to some software issues (Instead Knowledge, 2016). Similarly, N97 and other models were launched but none of it managed to overthrow the growing demand for the Apple that used iOS and Android for its gadgets (Instead Knowledge, 2016). On the other hand, Samsung in 1990s included digitalisation as main strategy to attract and retain potential customer base. For instance, I-deasTM is a software design that helped to promote digitalisation in its operations (Siemens, 2016). Additionally, it also created a product data management processes termed as PDM (currently known as SPDM) in 1997 to have global business branches, research and development and design units (Siemens, 2016). With the help of advanced research and technical know-how, Samsung came up with innovative gadgets; like in 2008, it came up with SGH-T 919 with touchscreen and computer-generated Qwerty Keypad (Siemens, 2016). After the success of few models, the company launched Galaxy series like S 4G, S AT&T and S2 Sky rocket that was giving strong competition to Apple i-Phone (Siemens, 2016). The mobile market share slowly and steadily shifted to the emerging players and other manufactures like LG with new innovative feature that was not found in Nokia (Laamanen, Lamberg and Vaara, 2016).

Figure 8: Phones released by Nokia by year

(Source: Bouwman et al., 2015)

Figure 7 illustrates the number of models launched by Nokia from 1995 to 2013 under which the highest models came out in 2008 in order to create its position against Samsung and Apple. Though the company came up with a wide display and GPS connectivity, it failed to have superior quality that led to its negative goodwill and performance (Bouwman et al., 2015).

Market Segmentation

Nokia adopted a lifestyle segmenting strategy segregated into different categories like “trendsetters” in which male have preference towards technologically advanced gadgets. Second segmentation was “high-filers” where men who are career-oriented prefer mobiles with heavy text and data packs (Bouwman et al., 2015). Moreover, there was a segment “social contact seekers” consisting of potential consumers majorly female that loves to be in contact with loved ones and “posers” for males who captures multiple pictures to attract others (Bouwman et al., 2015). As per research, the company added further segmentation criteria to the business model like “Mindstyles” including a group that have cost-sensitivity and loyalty factor (Bouwman et al., 2015). This new segmentation strategy was mainly for the areas belonging to the U.S, China and Germany with further dimensions like low, rational or aspirational involvement that buys gadgets after thorough investigation (Bouwman et al., 2015).

otential Nokia users (REFER).

(Source: Bouwman et al., 2015)

It can be observed that the multinational business model of the company for attracting and targeting people for Nokia brand became highly scattered (figure 8). Absence of focussed approach and strategy could be another market (sector) failure where it failed to concentrate on one or two segments as compared to Apple that focuses mainly on high-income group people (Bouwman et al., 2015).

MICRO (firm failures)

Nokia Leadership

The company before entering the telecom market was operating its businesses in rubber, paper and cable (Peter Sandeen, 2015). From 1977-1988, it was transforming its activities from paper to telecom throughout different regions under the leadership of Kari Kairamo (CEO) that required proper management of diversity (Peter Sandeen, 2015). Kari died suddenly in 1988 where the position was replaced by Simo Vuoriletho who failed to manage the activities efficiently (Peter Sandeen, 2015). As per study, after 1988 there was major conflict among internal personnel and with two essential shareholder; Union Bank and Kansallis Osake Pankki (Peter Sandeen, 2015). The work culture under Simo was innovative which was based on trust and integrity; this was the period when the performance of the company was good with increased profit and expanding operations. (Peter Sandeen, 2015). However, when Olli-Pekka Kallasvo became the CEO from 2006-2010, logistic crisis resulted in shift of culture from trust to control in which Finnish investors started dominating the operations (Peter Sandeen, 2015). Finnish investors like banks and pension funds started to focus on short-term earnings and aggressive policies to expand its presence (Bouwman et al., 2015). The impact of this could be seen when it failed to adapt to recent changes taking place in sector by operators like Samsung and Apple. The superior (top) management of the corporation had a frightening reputation where people feared of not meeting the stated targets that would have resulted in demotions or dismissals (Bouwman et al., 2015).

In order to improve the performance of Nokia, Stephen Elop, an outsider was appointed who with his capabilities could have improved the situation. Harvard Business Review (2016) claims that many people criticised the company for such a change as very few management have ever managed to take out an entity from adverse postions.

Research and Development Policies

As per research, the major focus for the entity was undertaking investments in creating new products rather than basic survey of altering demand (Bouwman et al., 2015). For instance, in 1990s, it launched a research centre along with 44 branches in nearly 12 countries to initiate international survey (Bouwman et al., 2015).

Figure 10: Investment in Research and Development Sector by Nokia from 1990-2012

(Source: Bouwman et al., 2015)

Figure 7 shows the amount invested by the company since 1990 to 2012 to come up with good technological solutions. The chart illustrates an increase in expenditure from €194 million to € 4430 million. Though it came up with good innovative products and was the market leader in 1990s, it failed to adapt changes in its items at higher frequency than Samsung and Apple (Bouwman et al., 2015).

Multi-level casual Analysis of Nokia

Figure 11 illustrates the multi-level analysis of Nokia’s failure where incapability of company to respond the external, macro and micro issues lead deprived performance.

Multi-level casual Analysis

(Source: Author’s Creation)

Strategy development- Turnaround

Reasons behind Nokia losing its market share and having poor performance compared to other players is mainly because of technological issues and poor leadership. Therefore, based on above analysis, various strategies that can help the company to get back in competition should be:

Manufacturing gadgets with advanced features: As per the above analysis, it has been observed that Nokia spent large amount in research and development (figure 7) and have failed due to lack of clear vision. In order to create its market again and to attract the attention of consumers, it must produce advanced features at affordable price. For instance, Samsung and Apple has recently introduced waterproof mobile at an affordable range (CBS NEWS, 2016). Waterproof models produced by Apple and Samsung were tested in lab where it was found that Samsung cell phone was better (CBS NEWS, 2016). In order to sustain against these strong competitive players Nokia, must come up with better technology with much more affordable prices than them. Moreover, as discussed in earlier section, Nokia in order to beat competition launched their model without proper tests where models after sometime were reported to have technical issues. Thus, it should conduct various technological tests of models and must ensure that every inbuilt feature is functioning properly.

Promoting innovative work culture: Employees working in the company must be connected with the superior management. Motivating employees to participate in decision-making and considering their suggestion for Nokia’s better performance can create success in long-run.

Superior services to consumers: Certain schemes like free up gradation of software and larger warranty period could be offered to potential and existing consumers to serve their requirement better. Offering superior services can help the entity to have lost trust from the consumers and it can expand its operations efficiently.

Focused segmentation: As discussed in figure 9, the segmentation strategy of Nokia got very scattered for which the company must select major field that it wish to expand in future. Better strategic decisions and focused approach will improve the efficiency of products and create satisfaction among consumers. For instance, the major focus of company can be youth and professional who are dependent on technical products for fun and work purposes. Moreover, for attracting the target segment, it can come up with integrated marketing campaigns through online and television advertisement. The entity can come up with advertisement with themes like “golden years when the company was the market leader and will still try to be the one”. This could help the company to gain trust of consumers again and people will be attracted towards new models offered.

Online Sale with Additional Discount: Enterprises currently are driving major part of their total sale through online platform where people like to discuss and get information regarding products directly through websites (Forbes, 2016). Nokia by creating different communities and webpages can endorse its products with additional features and superior services to the target segment. Additionally, strategic alliances with the online selling websites like Amazon can help the entity to generate sales with additional discount offers.

• Conclusion

Nokia’s performance has suffered over years due to lack of innovative features and foresightedness. Leadership strategy and segmentation of the entity were among the several reasons why the company failed, as employees feared the top management while discussing their issues. Specially, external, macro and micro factors lead to failure that has been discussed in the essay with the help of multi-level casual analysis. Based on the findings, various strategies have been recommended in the later section. It has been found that the company till 2012 came up with new models to survive the competition but failed due to technological drawbacks. Moreover, research and development department has always been the crucial segment of Nokia which can be utilised efficiently by the company to get the market share and success. Currently, the technology market is being dominated by two of essential players, Apple and Samsung that come up with innovate designs that attracts the target segment towards the brand. Thus, for better performance, Nokia must try to regain the trust of consumers which can be done through online platform.

Reference List

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