Market Sector Ambitions of Nokia Corporation - Research Paper Example

Computer Sciences and Information Technology Computer Sciences and Information Technology Introduction Nokia Corporation (Nokia or “the company”) has been leading provider of mobile devices, telecommunication equipment, and mobile content services. The range of products and services include basic mobile phones to high end smartphones, telecom network equipment and related services, and software. Nokia primarily operates in Asia and Europe, with its stake very high in the emerging markets like India and China. It is headquartered in Finland and employs about 129,355 people. The company posted revenues of E42,446 million ($56,363.6 million) during the financial year ended December 2010 (FY2010), an increase of 3.6% over 2009.The operating profit of the company was E2,070 million ($2,748.7 million) in FY2010, an increase of 72.9% over 2009. The net profit was E1,850 million ($2,456.6 million) in FY2010, compared to E891 million ($1,183.4 million) in 2009. Nokia has enjoyed market leadership in the mobile phone industry for a long time. The long period of leadership in the industry is laudable given that the mobile market is very volatile. Technology is changing at a frantic pace with new mobile sets being launched by companies every day. Adding to the established players in the market is the competition from the low cost manufacturers like Micromax, Karbonn, Lava and Spice. It is finally the emergence of the smartphone that can be viewed as the turning point in the decline of Nokia’s domination of mobile market. The company was initially a market leader in this segment too, but by the end of 2009, the writing on the wall was clear. The unquestioned leadership position was no more. Problem Statement The absence of continued innovation, enhancement in the operational system and the inability to launch products across the segments has resulted in loss of market share, thereby affecting profitability of Nokia. The complete loss of market in the smartphone segment which is a major profit centre has expedited the fall. The emerging market conditions leads to the following problem statement: Can Nokia capture market share across various segments and smartphone segment in particular to regain the market leadership in mobile phone sets? For detailed study of the problem and to find the way ahead, the following questions have been identified for research and analysis. What are the major reasons for the loss of market share by Nokia in the mobile handset space? What were the key reasons for failure of Nokia to maintain lead position in smartphone segment? What did the leaders like Samsung and Apple do that Nokia failed to emulate? Was Nokia’s focus on cost over innovation a reason for the downfall? Was the Symbian operating system a key reason for Nokia’s failure? Scope and Assumptions The paper limits its focus on the top three smartphone and mobile handset manufacturers in world, Apple, Samsung and Nokia for all analysis. The comparison for software and services is limited to the primary Operating Systems of these companies, viz, iOS, Android and Symbian. The study would also assume independent growth of Nokia and not in partnership with any other firm in the near future. The primary objective of the paper is to identify the market drivers in the mobile handset market and the pitfalls Nokia failed to avoid causing the fall in the marketshare and thereby revenue of the company as of today. The paper would also analyze the actions by market leaders Samsung and Apple that propelled them to the top despite the prevailing economic scenario. The paper will not analyze the effect of two primary connectivity technologies used in mobile phone handset GSM and CDMA for the purpose of research. The paper will research only mobile phone market and not explore the other industries that Nokia is involved like, networking and telecommunication equipment. The study will provide a roadmap for Nokia to regain its erstwhile position in the mobile industry, while also giving a clear understanding that unquestioned leadership in mobile market worldwide is definitely a thing of the past. The era of unrivalled market positions was hastened by the economic downturn witness in the second half of the first decade of this millennium. Problems Analysis Problem 1 – Failure in Adapting to Change ‘Firms need to adapt themselves to market developments and they need to build on the strengths of their resource bases and activity systems’ (de Wit B and Meyer R., 2004, p249). This profound statement brings out on thing very clearly, the vitality of adaptability or change. However, it projects two starting points for this change. One is the environment or in business terms the market conditions and the other is organizational strength. In a capitalist era, it is natural for most managers to identify the market conditions and develop the strengths of the company to optimally exploit the market conditions. However, a large number of companies have developed niche products and have unparalleled strengths in developing these products. These firms would encourage their managers to take the organization’s resource base as the starting point, selecting an environment to fit with its internal strengths (de Wit B and Meyer R., 2004). However for sustained progress, it is vital that whichever is the starting point, the two factors involved, market based and resource based, will have to be finally aligned. Suggestions have emerged that these two approaches should be viewed as complementary, since firms need to develop both internal and external focus to develop knowledge-based core competences and market driven strategies sensitive to customer needs (Prahald and Hamel, 1990). Therefore, both approaches are needed to be considered and balanced simultaneously in making the strategic choice. The management in Nokia failed to align the strengths of the company with the changing market conditions, being the unrivalled market leader in mobile phone handsets on any parameter. The years 2005 to 2010 and beyond has seen the rapid change in technology in mobile industry. While a black and white handset was the norm even in the late 2004 or 2005, today the most basic phone has all the rain bow colors in it. The mobile phone was still largely used for voice communication and the only data communication prevalent in the early 2000s was SMS. However, today data communication leads the way with text, image and video being transferred through a wide range of connecting technologies like WLAN, Bluetooth, GPRS, 3G, 4G and so on. The basic numeric keypad was sufficient for most applications and games while today multi-point touch screens are the norm. The failure of Nokia in indentifying these changes and adapting its strengths to develop strong products was key to the fall of the firm. Ever since 2005, the company has been playing catch up with the newly launched products firstly by Apple, and subsequently by Samsung (Antoine, P., 2004). Problem 2 –Poor and Late Product Development in the Smartphone Segment Nokia has been traditionally committed to enhancing personnel communication by offering inexpensive, accessible, practical and creative mobile phone devices and applications. But with the advent smartphones, new competitors from the Internet service and personal computing industries entered the market. These new competitors brought their core competencies and strategies and introduced them in the smartphones, which are different from the traditional mobile phone. However, initially, Nokia managed to maintain the leadership in smartphone segment as well until late 2011 (Clarke, Peter, 2012) when both Apple and Samsung passed ahead. The brand was late to bring a convincing product in the smartphone category until the Nokia Lumia was launched and it was too late by then. Nokia was not ready for the follow-on explosion of apps and the OS they run on, making it difficult for the brand to build an effective ecosystem for its products. The inability or reluctance to find alternate OS for Symbian was a lead factor is this downfall. With these challenges and the weakening of the role of hardware over carriers, Nokia is presently facing clear challenges ahead that may be tough to overcome in the near-term. Problem 3 –What did Apple and Samsung do Right that Nokia did not? Analyzing the route map of Apple and Samsung to the top of the market share is vital in understanding where Nokia failed. Studying Apple’s and Samsung’s path to success brings about the obvious, that the two competitors have taken totally different paths. Apple, a greenhorn compared to Nokia or Samsung, did not take to manufacturing. In fact, it sourced most of its hardware from its rival, Samsung. Apple built its core competence around the design, software and ease of use of the products. It had enough expertise in doing so through the development of iMac and iPod. On the other hand, Samsung, a traditional player in the mobile phone industry focused on manufacturing and lowering the product cost. Samsung found inspiration from Apple’s design and also benefitted hugely from the open source OS, Android. Therefore, while Apple had a strong and loyal customer which was increasing in size due to its inherent strengths, Samsung was able to build up its customer base by developing products almost comparable to those of Apple, and then marketing them at a lower cost due to its manufacturing base. Nokia, meanwhile, had to spend huge amount of money of research and development to keep pace with both Apple’s design and Samsung’s manufacturing capabilities and as we can see failed to do so. Problem 4 –Focus on Cost over Innovation Unfortunately for Nokia, its focus was on cost. In doing so, the company particularly failed to develop niche, unique products in the smartphone market (Giesecke and Immonen, 2010). This was a result of high focus on cost and low on innovation. While Nokia focused on volume and thereby economies of scale, it failed to bring in new technology to its product stable. The first worthwhile product from Nokia in the Smartphone market was Nokia Lumia and by the time it arrived, the market had taken to the imagination of Apple’s iPhone and Samsung’s Galaxy. By bringing about variants to these products, Apple and Samsung were able to capture the market across the segment leading to erosion of Nokia’s marketshare even in non-smartphone category. Even today, Nokia lacks these complementary products as well. To add to this problem, low cost mobile manufacturers like Lava, Micromax, Karbonn and Spice were competing for market share at the lower end of the spectrum. All in all, while Nokia lost the top segment to Apple and Samsung, it lost the lower half to low cost mobile manufacturers. Problem 5 –No Suitable Replacement for Symbian OS The Symbian OS was one of the best mobile OS when launched and continued to remain one of the best available for quite some time. Symbian was the only OS with Nokia for over a decade when even better and cheaper OS solutions existed within the industry. However, with the advent of better versions of Android and Apple’s iOS, the challenges begun multiplying for Nokia. Nokia’s reluctance to find a replacement for Symbian OS may be considered to be one of the foremost reasons for the downfall of the company. The OS is the most important part within smartphones and even in the normal phones today. The Symbian OS is not ideal for these new generation phones and left a large scope for improvement. There is an urgent need for Nokia to get its OS strategy right. The proprietary aspect of Symbian has also resulted in lack of applications to run on the OS unlike in the case of Apple iOS or Android. Problems, Opportunities, Objectives, and Constraints Matrix Cause and Effect Analysis System Improvement Objectives Problem or Opportunity Causes and Effects System Objective System Constraints 1. Failure in adapting to change. 1. Nokia continued to develop cost-effective phones and did not change with the emerging trends. As a result the customers moved over to other brands albeit at higher costs. Moreover, low cost mobiles provided the advanced features at lower costs. 1. To provide Nokia phones suiting to the needs of customers in all segments. 2. To be able to launch unique, niche products ahead of competitors. 3. To lower costs of products while providing the best features in each segment. 1. The mindset of the management has been to continue with the approach that enabled Nokia to be market leader for several years. However, recent market environment has altered. 2. The company is presently on a backfoot view competition from both the technologically better firms like Apple and Samsung and from the price competitive firms like Micromax and Karbonn. 2. Poor and late product development in smartphone segment 1. Nokia developed smartphones have been lagging behind the competitors products in terms of technology and functionality. Poor battery and 1. Introduce first of its kind technology to the market. 2. Introduce high end smartphones and lower versions to reach out all segments in the market with comparable technologies. 1. Risk of not finding the mix of features and thereby the product failing to capture the market (Antoine, P., 2004). 3. Inability to Maintain Core Competence 1. As a traditional mobile phone manufacturer, Nokia was into all aspects of design, product development, manufacturing, OS development and software services. As a result, when there was an explosion in the market in terms of technology change, better OSs, more applications developed for the open source OSs and better designs, Nokia was unable to cope with the changes and lost out on almost all factors. 1. To regain brand value. 2. To develop areas of core competence in new generation mobile phones across all segments including smartphones. 1. The management has to have a fresh look and think differently from the past. The requirement to align the firm’s resources with the market conditions is more at present that even before in Nokia. 2. Decide to shelve off a few core competencies and focus on the remaining to ensure a dedicated approach like Apple and Samsung. 4. Focus on cost over innovation 1. Nokia management was focused on volume and market share to such an extent that they lost the same due to lack of innovation. 1. Encourage employees to bring radically new ideas. 2. Promote expenditure on innovative products. 1. Possibility of failure to develop products despite spending on research and development for innovative products. 2. Possibility of failure to read market conditions thereby developing wrong products. 5. Absence of suitable replacement for Symbian OS 1. Outdated operating system resulted in inability to develop better applications for the smartphones. The mobile market had moved over from being hardware intensive to application intensive view increased data transfer applications and features. 2. Proprietary OS resulted in limited software applications. 1. Develop suitable OS for smartphone either independently or take the Samsung route of multiple OSs. 1. No Constraints. Cost of transition is much lesser than continuing with Symbian. Statement of Work In conclusion, it has been observed that inability to change, poor product development, inability to maintain core competence, lack of innovation and an outdated operating system are the fundamental problems faced by Nokia today. Both the management and the workers are major stake holders since any further loss in market share or brand value will result in downsizing and reduce Nokia to just another mobile manufacturer. The key deliverables include a good operating system and high end smartphones with innovative features. The foremost priority of the management is to identify a suitable operating system for Nokia phones. Venturing with reliable partners or having multiple OSs are both good options. Encouraging innovation and out of the box ideas will drive product development and enable Nokia to position itself as a game changer rather than playing catch up with leaders like Samsung and Apple. The company should also develop capability to launch mid segment phones based on its successful models amongst smart phones. While budget does not appear to be a constraint for Nokia, technology slowly appears to be a key constraint view lack of innovation and poor focus on research and development. A market leading product in the smartphone segment and achieving market leadership in mobile industry alone can help Nokia regain its lost status as premier mobile company in the world. The satisfaction levels will be the highest amongst both management and the workers when the company regains the status as the unparalleled leader in the industry which is a uphill task in the near term, nevertheless not an impossible one in the long run. References Antoine, P. (2004). Understanding the Mobile Phone Market Drivers. Alcatel Telecommunications Review. 1-6. Clarke, Peter. (2012). Samsung leads Nokia in cellphone revenue ranking. Retrieved from web http://www.eetimes.com/electronics-news/4371923/Samsung-Nokia-cellphone-ranking De Wit, B. and Meyer, R. (2004). Strategy: Process, Content, Context: An International Perspective. 3rd ed. Thomson Learning Giesecke, Raphael and Immonen, Stina. (2010). Media Sector Business Drivers In 2020. Aalto University School of Science and Technology, Finland Prahalad, C.K., and Hamel, G. (1990). The core Competence of the Corporation. Harvard Business Review, Vol. 68, No.3 May-June, pp 79-91 Read More