Nokia and Microsoft - Differences in the National and Organizational Culture of Employees - Statistics Project Example

CONTENTS Introduction 2 Short background of industry 3 literature review 12 Hofstede cultural theory 12 Six layers of culture 13 findings 14 Hofstedeanalysis 14 Power Distance 16 Individualism 16 Masculinity 16 Uncertainty avoidance 17 Long term orientation 18 Six layers of culture 18 Conclusion and recommendations 19 Conclusion 19 Recommendation 20 Identifying roles and how to make the most of each employee 20 Communicating the reasons for the change and acquisition 21 Training 21 Innovative culture 22 References 23 Introduction Culture is defined as the shared values and beliefs of the people that are living together in a society. Culture has a crucial role in the behavior and actions of the people. Cultural values differ from one country to another. Similarly, organizations have a specific culture and organizational culture shape up the values, norms and behavior of the individuals working in the organization. Organizational culture depends highly on the norms and strategies which have been set by the management. All the strategies which are formed by the organizations are based on the cultural dimensions and preferences of the people based on the areas in which they reside. Organizations take measures to study the differences and understand the factors which motivate the workforce. Based on these elements the organizations develop strategies for integrating the cross cultural environment. The culture of the organization must be aligned with the culture of the workforce and all their actions and reactions must be understood. Organizational culture differs from one organization to another very much the way culture of a country differs from one to another. Therefore when organizations merge or acquire another organization, there are high chances of merger being unsuccessful. The main reason for this failure of high number of mergers and acquisitions is generally because of differences in the organizational cultures of the two organizations. Consequently it is critical for the management of both the organizations to analyze and evaluate the organizational cultures of the two organizations before undergoing any merger or acquisition. Moreover, specific strategies should be formulated in order to manage such challenges. This report presents an analysis of one of the recent acquisition between Nokia and Microsoft. Both the companies have shown a decline in their profitability. Nokia has been struggling in the mobile phone industry as competitors like Apple and Samsung have come up with smartphones. These smartphones have been able to capture a significant portion of the market share. So, with the changing mobile phone industry, Nokia has lagged behind as it came up with a smartphone late in the market. This resulted in decline of the market share and profitability of the company. In order to recapture the market share, Nokia and Microsoft have joined hands to come up with a new operating system, Windows and the phones are called as Windows Phone. This report presents an analysis of the industry and reasons and challenges that resulted in the acquisition between the two companies. This report also analyzes the literature and critically discusses different theories related to culture and organizational culture. The report then discusses about the findings and uses the theories to identify the cultural issues with this acquisition. The report at the end presents the concluding remarks as well as recommendations on how to minimize the challenges faced by the management after the acquisition. Short background of industry The mobile phone industry has reformed after the launch of the smart phones. With the development, the existing market shares of the organizations have been affected. The market leader in the smart phone industry is Apple which has secured a leading position in the industry with iPhone and it is considered as a prominent leader with a market share of 32% in the whole industry. Other companies operating in the industry have a combined share of about 68%. Based on these figures the position of the organizations can be assessed as shown in the figure below. (Punchkick Interactive, 2009) Nokia in particular has lost it prominence as it had earlier and the industry share has reduced to a mere 11.3%. The market share of Nokia has been declining as it is a late mover in introducing smartphones. Apple and Samsung are considered as the most important players in coming up with smartphones. Therefore, currently Nokia is having problems as its shares are declining and it has to cope up with the changing industry trends (Punchkick Interactive, 2011). There are different strategies adapted by Nokia and one of the most important strategies is its acquisition with Microsoft. The acquisition of Nokia by Microsoft has reformed the holding of the company and the progressive development in the brand position is being acquired. The management is aiming to make the brand as popular as it was before. This requires strengthening the position of the organization and strategically aligning the workforce with the goals which the organization seeks to acquire. The figures relating to the penetration of smartphones in the global markets have been discussed in the chart below. In 2011, the popularity of the smartphones was 27% of the entire mobile phone industry. The market share different firms have been shown below and have been categorized as Smartphones and features based phone industry. 5% share of the industry was held by Apple. Nokia also had a share of 5% in the smartphone category and 20% shares was held in the feature phone industry (Apple Insider, n.d). These factors show the popularity of the smart phones within the industry and based on this the holdings of the company can be assessed and discussed. (Apple Insider, n.d.) The share of the companies and the profits which they earned can be seen in the chart below. This shows the suppression of the profits of Nokia after the development in the smart phone industry. The development and change in the industry norms was a clear example of innovation which made the feature based phones obsolete (Pielke, 2011). (Pielke, 2011) If the worldwide acquisition of the market share is analyzed then a conclusion can be developed about the processes. Several companies such as Apple, Microsoft, and Google provide the basic softwares required for operating the smartphones. Over the years the usage of the Symbian phones have reduced and a prominent increase has been noticed in operating system of Apple and Android. The holding of Microsoft had decreased with time and Android has taken a prominent market share within the industry (Sen, 2011). (Sen, 2011) On the basis of the analysis Microsoft decided to acquire Nokia so that the losing popularity of both the organizations can be stabilized and a prominent position can be acquired. The decision is expected to improve the popularity of Microsoft based on which the business will develop. For this purpose, the cultural differences between the two originations need to be managed so that retention of the strategic managers can be ensured and the employees are motivated to work for the organization after the acquisition The development in the mobile phone industry and the country wide classification show the adaptability and the changing needs of the businesses. Based on this the industry will reform by 2015 completely effecting the annual growth rate of the organizations. The analysis of the customer’s handset purchasing habits will be analyzed through which the impact of the e-commerce sales can be estimated (Jingting, 2012). All these will determine the strengths of the organization based on which the entire business operations will be assessed. The acquisition of Nokia by Microsoft will also be analyzed so that the conclusion regarding development can also be developed. (Jingting, 2012) Both the companies believe that there are sufficient opportunities available in the smartphone industry and by joining hands and working together, Nokia and Microsoft can capitalize on these opportunities. The following image reflects the value of opportunity identified by both the companies and it can be analyzed that these companies have evaluated an opportunity of achieving an annual revenues of $45 billion with an assumed market share of 15%. Moreover, the management expects to achieve a Net present value from this investment of at least $30 billion at a rate of 10% (Blandford, 2013). (Blandford, 2013) Although the financials of this acquisition looks profitable and strong, however it is important for the firms to manage the change and manage the cultural differences appropriately in order to be successful and capitalize on these opportunities. The organizations need to develop the strategies based on the culture of the workforce which they have employed. This assists the organization in excelling towards the goals and accomplishes all the hurdles which the organization seeks to acquire. Nokia and Microsoft at the time of acquisition were facing difficulties in coping up with innovations and coming up with new way to sustain the existing competition. With the acquisition Microsoft enhanced its chain and imposed a new operating system for Nokia mobiles. This was a strategy by Microsoft to acquire the lost market share and sustain the competition within the industry (Blandford, 2013). (Blandford, 2013) The details of Nokia and its financial position from 2010 to 2013 can be seen in the figure above. This reduced the operational efficiency of the organization based on which the model of the organization was developed. (Daily FT, 2013) The details of the operating income, net sales segment and devices and service units operating income can be seen in the figure above and these figure show that the acquisition by Microsoft of Nokia is very significant and crucial for both the companies. Both companies have high stakes associated with the acquisition (Daily FT, 2013). According to Ando, and Rigby, (2013) Microsoft acquired Nokia’s phone business for $7.2 billion. This includes the right to the licenses and patents of the organization. Nokia being a Finnish manufacturer lost its market reputation with the launch of the smartphones. The business collapsed and at the end it has been acquired by the US based organization Microsoft. The share value of Microsoft fell by 6% as the investors showed protest against the decision of the company of acquiring a failing company. The CEO of Microsoft Steve Ballmer aims to remake Microsoft and excel in the gadget and service related business. CEO of Nokia Elop who was previously a part of Microsoft before he started working for Nokia in 2010 aims to jump back in the US ship and become a successor of Ballmer. The organization hopes that the acquisition will benefit the development and advancement of both the organization within the industry. Based on this the strategies and policies will be developed so that the future goals of the organization can be easily accomplished. Development of the mobile phone business and the strategies imposed will determine the scope for both the business. With the application the business development will take place and the windows based operating systems will be integrated in the operations of the organization. literature review Hofstede cultural theory There are different theories related to culture and cultural values. One of the most renowned and famous theories in this regard is the Hofstede cultural theory. Hofstede Cultural Dimension (1980) is one of the most elaborate and critically assessed national cultural practices (Hofstede, Hofstede, & Minkov, 1997). Hofstede theory of cultural dimensions has been critically reviewed and acknowledge by a number of researchers including McSweeney (2002), Kolman, Noorderhaven, Hofstede, & Dienes, (2003), McGrath, MacMillan, & Scheinberg, (1992), Shane, Venkataraman, & MacMillan, (1995), Hanges, Javidan, Dorfman, & Gupta, (2004) and many others. Hofstede has developed this model through a study conducted in IBM through which four major dimensions were classified. These determined the aspects of the national culture on the basis of four main elements which includes power distance, uncertainty avoidance, individualism/ collectivism, masculinity/ femininity and short term versus the long term orientation. However later on, fifth dimension of Long-Term Orientation (LTO) was added in 1991. Through the spheres of the culture the relevant dimensions within the nation and groups of the nation is assessed. Through this the corporate cultures and the organizational sub cultures can be analyzed and assessed. The model is useful in assessing the national, professional, regional, functional, industry and the company. All the elements and the differences which arise due to the culture can be assessed and analyzed. Through the Hofstede’s Cultural Dimension model a comparison of different culture can be analyzed and examined. Based on this, the application of the entire model in diversified cultures or different regions of the world can be assessed. The five dimensions of Hofstede’s Cultural Dimension are presented below: Power Distance Individualism Masculinity Uncertainty avoidance Long term orientation Six layers of culture Layers of culture are another important way to analyze the behavior and norms of the people. It is said that even in a similar culture there are different layers that influence the behavior of the individuals. These layers of culture are: National culture: These are connected with the nation as one group. Regional level: These are related with the religious, linguistic and ethnic differences that people have within a society or a nation. Gender level: There are some differences because of the gender. Generation level: Differences because of generation differences are basically included in the generation level. Social class level: This includes the changes or differences among people within the same society because of educational and occupational differences. Corporate level: As people work in different organizations and different organizational cultures, so there are differences among people within the same nation or society because of their difference in corporate level. findings Hofstede analysis Hofstede analysis is used to analyze the differences between the culture of United States and Finland. A comparison of structure of both the countries has been shown in the figure below and this provides an overview of the cultural differences of both the organizations. (The Hofstede Centre a, n.d.) Global operations of both the business need to be managed accordingly. Both the organizations have global operations the management of which requires dealing with people belonging to the diverse cultures. This model can be used in assessing the similarities and differences in the culture of the existing and acquired organization. Based on this, the operations of the organization can be thoroughly managed and the preferences of the workforce along with the reactions can be carefully assessed. The explanation of the culture of both the organizations can be done on the basis of their origin. Microsoft is a US based organization and Nokia is a Finland based organization. The starting culture of both the organizations determines the workforce which is employed by the organization. The values of both the organizations are different and this requires forming appropriate strategies for managing the workforce. Power Distance As power distance in both United States and Finland is low and thus it means that people consider each other as equal. Moreover, at the organizational level the subordinates and the supervisor consider each other as equal. Therefore in the acquisition of Nokia and Microsoft, the aspect of Power distance would not influence the company’s operation significantly as both the countries have low value of power distance. Individualism Individualism in United States has a value of 100 whereas in Finland it is 67. Therefore it shows that people in USA are more concerned about themselves and their direct family and do not concern about others. However in Finland people would be concerned about them and their family however they would somewhat think about others as well as the value of individualism is not as high as USA. With the differences in individualism, people of Finland would be more concerned and more loyal to an organization (The Hofstede Centre b, n.d.) however this is not the case with Microsoft as the value of individualism of United States is very high (The Hofstede Centre a, n.d.). Therefore the management needs to come up with strategies to retain employees of both Finland as well as United States for the success of the company and acquisition. Considering the high values of individualism in both the societies, the promotion, rewards and other benefits at the workplace would be given on merit basis. Masculinity The value of masculinity in United States is high whereas in Finland it is low. Therefore this would create an important difference in the style and management of the two companies; Nokia and Microsoft. In Microsoft, employees would encourage competition and it is believed that conflicts would arise as this would help in better decision making (The Hofstede Centre a, n.d.). On the other hand, at Nokia employees would focus on co-operation among employees and members at the workplace. However in Finland people would believe that conflicts can be resolved with negotiation and compromises (The Hofstede Centre b, n.d.). In USA, people live to work whereas in Finland, people work to live. The management style has another important difference. Management in USA is expected to be assertive and decisive. However in Finland, management is expected to use their intuition and take the decision on the basis of consensus. Uncertainty avoidance Another major difference found between the culture of Finland and United States is in terms of uncertainty avoidance. Finland has an above average score and this means that people in Finland are not open for uncertainty. Thus, this would resist them to be innovative and come up with new products. This may be one of the reasons why Nokia entered late in the market of Smartphone and the management continued to come up with more phones with Symbian operating system. People of Finland have rigid beliefs and behaviors and security is considered as a significant aspect in the motivation (The Hofstede Centre b, n.d.). Thus, the acquisition of the two companies would have influenced the motivation of employees working at Nokia. On the other hand, United States has a below average score of uncertainty avoidance. This reflects that people are open for new ideas and innovation and people encourage freedom of speech. Moreover, Americans are not likely to follow and do not require different rules and regulations to dictate them and are low emotionally expressive (The Hofstede Centre a, n.d.). The difference in uncertainty avoidance can influence the ability of the firm to be innovative in style and to come up with the new products. Therefore, the management needs to formulate strategies to cope up with this difference. Long term orientation The value of Long term orientation of United States is low whereas Finland has a high value. Thus, it can create another difference in the management style of the two companies. Low Long term orientation means that people are looking for short-term rewards and profits, and self-determination among employees is an important aspect for the job. Moreover, such culture believes that employees should be rewarded on the basis of their abilities and skills. However in Finland people would prefer building lifelong relationships with others unlike USA. Moreover, people would focus on long term goals. Thus, such differences can also create conflicts and issues with the acquisition of Nokia and Microsoft (Clearly Cultural, 2014). Six layers of culture Layers of culture would also play a crucial role in managing the differences in culture of the people at the workplace. By identifying the differences in the culture of employees of Nokia and Microsoft, strategies can be formulated in order to reduce the cultural differences. As discussed earlier, there are six layers and these layers need to be applied and managed appropriately in order to minimize cultural issues after the acquisition. National culture: The cultural differences because of nationality in Nokia and Microsoft can influence the acquisition and its success and thus such differences need to be identified and managed. Regional level: Differences in languages and ethnic background can also result in differences in the acquisition. Gender level: Differences in genders from Finland and USA can also influence the acquisition. Generation level: People belonging from different generations can also influence in the acquisition. Thus, it is important to train and make people aware about such issues and differences. Social class level: With this acquisition, there would be employees belonging from different social classes, educational background, occupations and these differences can also influence the acquisition. Corporate level: Organizational cultural differences between employees of Nokia and employees of Finland can also influence challenges to the management in making this acquisition a success. Conclusion and recommendations Conclusion Acquisition and mergers can fail because of the differences in the organizational culture and differences in the national culture of employees belonging from different countries. Numerous studies have been conducted in analyzing the differences and similarities in cultural values of different nations. It is critical to understand the differences in culture as culture defines how people behave, think and act on different occasions. Understanding the culture is therefore important when organizations are merging or acquiring another organization in order to know how people from the other organization would react, act, think and behave. The acquisition between Nokia and Microsoft is very significant in the mobile phone industry. There are significant opportunities that have been identified by these companies and therefore these firms have formulated strategies to work together in order to capitalize the most of these opportunities. However, capitalizing on such opportunities is not as easy as it looks on paper. There are different challenges and hurdles that the management needs to face and cope up with. One such major challenge and hurdle is the differences in the culture of the two organizations. Nokia has its roots from Finland whereas Microsoft is an American based organization. Therefore the cultural values of both these organizations differ and this can influence the success of the acquisition. For this reason, this report has presented an analysis of this acquisition and the differences between the culture of Nokia and Microsoft. Recommendations have also been presented in order to minimize such challenges and issues so that the success of acquisition can be achieved. Recommendation Identifying roles and how to make the most of each employee Hofstede’s cultural dimensions have provided an important indication of the skills and abilities of employees of both the countries. Therefore it is critical for the management to identify the roles for each employee so that success is achieved. For instance, the management can formulate a team that would have more employees from United States. As people from USA are more innovative and open for new ideas, therefore this team would be responsible for coming up with new ideas and new products. Similarly, people from both countries should be combined in forming an organizational culture that encourages competition as well as cooperation among employees. Therefore such strategies can help in making the most of the resources that the company has. Communicating the reasons for the change and acquisition People from Finland are likely to resist changes. However people from United States would encourage change. Acquisition between Microsoft and Nokia could demoralize the employees of Nokia as they are likely to discourage such changes. Therefore it is important for the management to communicate clearly about the long term objectives and goals of the company. As people from Finland are more long-term orientated, therefore it would help in better understanding the reasons and this would help in further motivating the employees instead of demoralizing the employees. Training It is also important to train the employees from USA as well as from Finland about the cultural differences. By training the employees, employees would be able to understand the differences in culture and thus they would be better able to work together in collaboration for the success of the firm. Understanding and appreciating the cultures The application of the Hofstede’s cultural dimension model for assessing the differences in the culture of both the organizations can prove useful for the management. Based on this model the cultures of both the organization need to be assessed and analyzed so that the employees and their behavior can be managed. Through the analysis of the model the strategies can be developed which may suit both the organizations and can benefit the organization both in the long run as well as in the short run. Organization should understand and train others regarding the cultural differences so that everyone in the organization can understand the differences in values, rituals, beliefs, norms, religion, language and behaviors and then ensure that these cultural differences do not hurt others. Innovative culture It is important for Nokia and Microsoft to come up with innovative organizational culture. The company needs to form teams and create a culture that would reward for coming up with new ideas and innovation. Nokia has a bureaucratic culture however Microsoft encourages innovation and new ideas (Parkhurst, 2013). Therefore it is important for the management to come up with a specific team that would solely focus on innovation and coming up with new ideas because innovation would be critical aspect in the success of the company in the long run. Otherwise, competitors like Apple and Samsung would continue their innovation and development and will further increase their market share. References Ando, R., and Rigby, B. (2013). Microsoft swallows Nokias phone business for $7.2 billion. Reuters, Available from http://www.reuters.com/article/2013/09/03/us-microsoft-nokia-idUSBRE98202V20130903 [Accessed 27th February, 2014] Apple Insider. (n.d.). After blowing past $500B market cap, Apple seen headed for $1 trillion. Available from http://forums.appleinsider.com/t/152048/after-blowing-past-500b-market-cap-apple-seen-headed-for-1-trillion [Accessed 27th February, 2014] Blandford, R. (2013). Why did Microsoft acquire Nokias Devices & Services business?. 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Cultural differences in innovation championing strategies. Journal of Management, vol. 21, no. 5, pp. 931-952. The Hofstede Centre a. (n.d.). United States. Available from http://geert-hofstede.com/united-states.html [Accessed 27th February, 2014] The Hofstede Centre b. (n.d.). Finland. Available from http://geert-hofstede.com/finland.html [Accessed 27th February, 2014] Read More