Strategic Analysis Assessment of Microsoft Nokia - Essay Example

STRATEGIC ANALYSIS ASSESSMENT OF MICROSOFT NOKIA Introduction Strategic analysis and other associated factors that a telecommunications enterprise undertakes can determine the evolution of one telecommunications enterprise and the demise of another. The selection of the relevant analytical process as well as understanding their contribution is critical to such enterprises. To establish this fact, this paper focuses on the processes of strategic Microsoft Nokia as one of the telecommunications enterprise. Based on the issues in or related to telecommunications industry, the paper evaluates the processes within the company, illustrating the advantages and disadvantages, and the ways to address or mitigate the deficiencies so as to understand strategic management in-depth. The evaluated processes include Yips drivers of internationalization, Porter’s generic strategies and Bowman’s strategy clock. Microsoft Nokia is a multinational company that specializes in the telecommunication sector. Its main products include smart-phones, mobile phones and tablet computers as well as associated accessories that are meant for global market. Microsoft Nokia is a name that evolved after Nokia was acquired by Microsoft Company, a deal which was sealed in 2014. Microsoft has the right to use the name Nokia as long as the agreement holds water. This study is meant to strategically analyze the company’s operations based on three strategies or processes. Porters Generic Strategies Michael Porter (Cited in Tamwar, 2013) described a scheme that is used in categorization, which consisted of three types of strategies used commonly by firms to achieve as well as maintain their competitive advantage in contemporary markets characterized by cutthroat competition. The three primary generic strategies that were defined along two major dimensions of strategic strength and scope include: cost leadership strategy, differentiation strategy, and focus strategy. In terms of scope then the demand context of the firm’s product is considered whereas on the strategic strength context, the supply dimension as well as the key competency of the firm are considered (Tamwar, 2013). These three strategies are aimed at outperforming other firms in the same industry. Cost Leadership Strategy Most authors refer to this as the Wal-mart strategy. It dictates that companies produce high volumes of standardized products that will take care of the scale economies. Tamwar (2013) suggest that products features should be low cost, no-frills, and has ease in manufacturing. The volumes will shadow the low margins in the long run. The cost leadership strategy aims at the broad mass market and is action oriented. Such actions include cost minimization in research and development, service, sales force and advertising among others. By doing this the company is able to sell its products for a smaller price contrary to its rivals or competitors, while still maintaining its profit margins (Magretta and Synnestvedt, 2011). In doing so the company will create market entry barrier for new entrants in the market because matching the low cost with the existing producer would be hard. The strategy is guarded by a low cost relative to competitors theme; however, quality, service and other factors should be upheld equally. This will give the company an above average return in the industry despite the competitive environment. Secondly, the low cost position maintains the competitiveness of the firm by defending it against powerful suppliers through providing more flexibility to coping up with input cost increments. Additionally, the firm is also placed in a good position relative to its competitors in the industry. As a result, the firm is protected against all the five competitive forces being that the less efficient competitors are eliminated first in the case of competitive pressures. Magretta and Synnestvedt (2011) assert that the cost leadership strategy can revolutionize an industry in which the historical bases of competition have been otherwise and the rivals are ill prepared to take steps to cost minimization. Basically, the strategy is emphasizing on efficiency. Through production of numerous standardized products, the firm is assured of utilizing economies of scale as well as experiencing curve effects. To maintain this firm must continuously research on cost reduction methods in all aspects of the industry or sector (Magretta and Synnestvedt, 2011). Secondly, the firm has to process engineering skills. Thirdly, the firm must have a low cost distribution system in place. The products that are designed by the firm should be for ease and comfort f the consumers. Last but not least the company must have an intensive supervision on its labor. The company should ensure that all the costs are kept as minimum as possible. Differentiation strategy The chief aim of this strategy is the broad market too, but instead it creates a product that is perceived to be unique by its customers. This could be facilitated through such things as design, image, technology, customer service, and dealer network among others. This strategy is aimed at garnering customer loyalty and making the customer insensitive to the high price but instead making their focus on the brand and product (Magretta and Synnestvedt, 2011). This bars any entrants into the market giving a company already existing competitive advantage. Any firm that practices differentiation strategy has the advantage of creating products that have perception of peculiarity, this then gives them competitive advantage. Through this the company is able to build its brand causing customers to make a choice of the company compared to others in the sector (Tamwar, 2013). The customer buying power is eliminated by the strategy, thus low price sensitivity and high profit margins. Uniqueness must be a continual process of innovation to outdo any company that might imitate and thus eliminate the leader’s competitive advantage. Differentiation if well put in place, is a very viable strategy to maintain as well as earn an above average returns in any industry, as such it creates a platform to cope with the competitive forces, albeit in a more different manner compared to cost leadership strategy. It makes the buyers to lack comparative alternatives and less price-sensitive. The perception of exclusivity is essential in the process, which is very incompatible with the high market share. The major strength of this strategy is that the cost is usually pushed to the buyers (Magretta and Synnestvedt, 2011). Research by Tamwar (2013) suggest that this strategy has an upper hand of generating higher profit margins compared to low cost strategy since it creates a better entry barrier and thus market proof. Microsoft Nokia has been able to produce a range of phones and smart phones are peculiar targeting various market segments ("Microsoft + Nokia Devices," n.d.). This includes the Nokia lumia series that target those in the upper social class. The phones and tablets are unique and run on windows operating system makes the product unique (Marcelo, 2011). Other unique product lines include Asha platforms with window phones and the series 30 and 40. Focus Strategy This strategy entails the firm concentrating only on selected few market segmentations. It is also referred to as niche strategy by some texts. This strategy aids the firm in choosing the first two or even one of them. The firm is then able to serve the customers who were not served by the broad market, in the best way possible. For this strategy to work, the buyers must have an unusual need calling for a unique demand that must be met (Magretta and Synnestvedt, 2011). The core concentration of the firm is effectiveness rather than effectiveness that is of essence in the differentiation strategy. The driving force behind this is that by tailoring the marketing mix to a specialized market, the needs of the target market can adequately be met. The core application of the strategy is where there is weak competition so as to earn an above-average return on investments. There are two variants of the strategy. First, the firm seeks to have a cost advantage in the target market. Secondly, the firm aspires to differentiate in the market segment. The former takes advantage of cost behavior in the segments while the latter, special customer needs in certain segments within the market (Tamwar, 2011 & Magretta and Synnestvedt, 2011). The smartpones produced by Nokia such as Nokia Lumia target those who go for brand and applications in phones ("Microsoft + Nokia Devices," n.d.). As such, the company is able to have a high competitive advantage over the others being that the product is extended to feature the needs of everyone but in particular still it has the needs of a specific group put into consideration. Pitfalls of Generic Strategies The firm is forced to be at low cost position, this impacts the firm in that it is very much overburdened. As such, the firm is likely to experience technological changes that renders past investments negative or obsolete. The late entrants might also imitate the company, the firms which might have the advantage of low cost learning (Tamwar, 2011 & Magretta and Synnestvedt, 2011). The firm may also lack focus to the attention of the preferences and needs of the customers due to the need for minimization of costs. Finally, in the event of inflation in costs, the firm’s ability to enhance product differentiation is reduced. The differentiation strategy has the risk of making the firm being overtaken by low cost firm. Secondly, the customers are likely to switch brands due to increased cost differential between differentiating firm and low cost producer. The buyers might save the cost in place of additional features. The focus strategy on the other hand increases the chance of a firm being outperformed by other firms whose core focus is the submarket that a firm is focusing on. The actual and perceived differences in products and services, is very likely to disappear (Tamwar, 2011 & Magretta and Synnestvedt, 2011). The customers might shift their attention to firms that focus on broad range of products. In a nutshell the generic strategies have the strength of aiding companies cope well with its competitors by taking into consideration the five competitive forces. Microsoft Nokia is performing well in the tech world and business. Even though they have an awful market share in the US, it prides itself of relatively strong market share in Asia and Europe and especially in emerging markets such as Brazil and India (Marcelo, 2011). As such the company has an incredible market share. All their phones make them nearly double the competitors ("Strategy & Financial Briefings | Nokia," n.d.). With the strength of market share, Microsoft Nokia has slashed its price being the cost-leader, thus selling cheap phones (Lawler et al., 2011). Their economies of scale are also amazing compared to other players in the market. Additionally, Nokia is also continuously unleashing new phones such as N90 and other Smartphone series that are unique. Bowman’s Strategy Clock (Williams, 2009) As can be seen in the figure above, Bowman’s strategy clock consists of eight strategies. Williams (2009), groups the strategies into three major groups: differentiation, risk, and low price strategies. The hybrid strategy aims at reducing the cost of production. This ensures that the product is of lower prices. The accrued profit is then reinvested in differentiation. The differentiation strategy on the other hand ensures that consumers are offered added value that is divided into increased functionality and product design among other factors. A firm that practices focused differentiation focuses on one specific market segment. The added value comes in luxury form calling for a higher price (Lawler et al., 2011). Additional value can also be derived from the brand and its name in general. Some consumers are able to pay the higher price so long as the product reflects their social status. Microsoft Nokia boasts of the windows phone. The hardware design specialisms for example imaging, and capabilities are also another advantage the company has (Marcelo, 2011). For example the Lumia 2520 that runs ultimately on windows. Increased price/ low value strategy is often practiced in monopoly market. This is viable when there is only one market player that can charge the prices at its discretion even if the added value is perceived or is actually low. The only risk with this is that a company that is not exploring the market might take advantage of this, entering the market and finally outdoing the original player. To counter this therefore, the original firm in the market should apply a cost leadership strategy as well as differentiation, as early discussed (Williams, 2009). This will provide a good base for the firm and create barriers for the entrant in the market. The increased price/standard product position on Bowman’s Clock the competitors do not follow what other companies are doing in the market. This is a risky situation since a company may lose market share in one way or another. The company implementing this strategy should go off its ways and research as well as develop better methods than are used by their competitors so as to remain viable. The low price strategy comes in where the companies have to offer lower price due to low cost of productions. The companies that have this strategy have to be prepared to maintain low price so as to remain competitive. However, it is risky because the profit margins are low. Additionally, there might be little resources for renovation of products and the rivals might also consider the strategy. Last but not least, the low price and low value strategy (No-frills strategy) is applicable where the demand for the product benefits is low. In this strategy the basic needs of the customers are of essence and therefore low prices for products and services offered by a given firm. The firm should ensure that it has an upper class and prestigious products. Secondly the firm should also have reasonable price and affordability. Additionally, the company should ensure that the brand is well positions as well as ensuring that it offers a good warranty compared to others. Yip’s Driver of Internationalization Also referred to as Yip’s drivers of globalisation, consists of four drivers: competitive, government, cost, and market drivers. Market drivers Market drivers are critical factor in internationalization. It makes it possible to standardize market. The first one is the presence of similar customer needs and taste. The other is the presence of international or global consumers. Third is transferable marketing that reflects global marketing and global brands (Lessard, 2013). Global distribution of the products forms the last driver. The consumer requirements and taste for Microsoft Nokia products is the same across the world. Secondly, Microsoft Nokia takes advantage of e-marketing strategy that ensures that the consumers have knowledge of their products. The products are also well distributed through retailers all over the world (Marcelo, 2013). The brand of Microsoft Nokia is well known through online marketing campaigns. Competitive drivers These drivers have two elements. First off, there is some level of interdependence that exists between the operations in a country that creates pressure and thus requirement of international coordination. Secondly, global competitors increase the need to develop a global strategy since some competitors may use a country’s profit to subsidize their operations in markets in another country (Lessard, 2013). As such the firm that lacks coordinated global strategy may fail to compete well (Williams, 2013). The tenets here in a nutshell include: global competitors, country interdependence, and high imports and exports. Cost drivers If a company goes global, the costs can be reduced. The main factors include: increasing the volume beyond what the national market allows enhancing economies of scale, logistical advantages, sourcing advantages and high development costs (Lessard, 2013). This can also as well be promoted by taking advantage of difference in countries. Microsoft Nokia makes large production for the global market annually; this helps it maintain high economies of scale. This supplies the customer demand across the globe being that the company is internationalized (Marcelo, 2011). Through this the company is able to reduce the cost of production that is covered by the large buyer base. Government drivers This driver is responsible for incubation and facilitation of globalization process. They include policies and restrictions ranging from content requirement to control over technology (Williams, 2009). In general they include reduced trade barriers and uniform technical standards. Yip’s drivers of internationalization have taken root in Microsoft Nokia’s operation. The consumers of Nokia’s products from normal phones to complicated smart-phones and tablets are spread all over the world ("Strategy & Financial Briefings | Nokia," n.d.)Secondly, the marketing strategy that takes advantage of e-marketing as well as other marketing campaigns have expanded its consumer base being that the marketing identifies the brand as unique over the other brands globally. Microsoft Nokia also has a strong distribution network for its products making it easy for the consumers who are after the brand to have ease in accessing the products (Tomas and Hult, 2012). Additionally, the products of the company are also the same all over the world so consumers in different parts are assured of getting the same touch of quality and design ("Strategy & Financial Briefings | Nokia," n.d.). Microsoft Nokia covers the cost drivers mentioned by George Yip through the production of more units. The logistical operations of the company are also well aligned to supply the market and thus satisfaction of the customers in the global market. Conclusion As evident from the case of Microsoft Nokia there are advantages and disadvantages of strategies that can be used or employed in any business. Any firm that is aspiring to have an edge in the market and therefore remain competitive should choose the best strategy to align with. The strategies are different; however, generic strategies can be applied to all businesses regardless of the form of business in question. The telecommunication world is very dynamic and lack of an efficient strategy might hamper the operations of one company and give a leeway for an entrant into the same market. The company that has a good base therefore should ensure that it has a wide base that presents the entrant with a barrier thus securing the market. The three strategies discussed here are just but a few, others too exist such as Porter’s diamond model and Johnsons Culture Web, which are as well applicable to any given company. Analyzed well the processes provide an analysis of the firm in question and thus the appreciation of each in the strategic planning and management arenas in any company. The advantages and disadvantages of each strategy that has been analyzed are given where applicable. The strengths are what makes the firm perform better when utilizing such a strategy. For the weaknesses, a solution has been offered that can make the company optimize on the weaknesses for their own advantage. Bibliography Lawler, E. E., Worley, C. G., & Creelman, D.2011. Management reset: Organizing for sustainable effectiveness. San Francisco: Jossey-Bass. Lessard, R. D. 2013. Frameworks for Global Strategic Analysis. Journal of strategic management Education, 2(1), 2-7. Magretta, J., & Synnestvedt, E. 2011. Understanding Michael Porter: The essential guide to competition and strategy. New York: Gildan Audio. Marcelo, S. 2011. The State of Business Strategy in the Mobile Phone Market | Behind Companies. Retrieved from http://behindcompanies.com/2011/01/the-state-of-business-strategy-in-the-mobile-phone-market/ Tamwar, R. 2013. Porter’s Generic Competitive Strategies. IOSR-Journal of Business and Management. 15(1), 11-17. Tomas, G., & Hult, M. 2012. A Focus on International Competitiveness. Academy of Marketing Science. 40(1), 195-207. Microsoft + Nokia Devices. n.d.. Retrieved from http://www.microsoft.com/en-us/nokia.aspx Strategy & Financial Briefings | Nokia. (n.d.). Retrieved from http://company.nokia.com/en/investors/investors-relation-events/strategy-financial-briefings. Williams, K. 2009. Strategic management. New York, NY: DK Pub. Read More