How Company Lost Competitiveness and Market Share - Report Example

Case Study: Analyzing Causes of Change 21 September Nokia’s Lost Competitiveness and Market Share: Temporal and PEST Environments Nokia’s case study shows that it failed to recognize and to swiftly respond to vast market share changes because of poor market understanding. The case already provides a multiple-cause diagram that visually explains how internal and external forces influenced Nokia’s decline from being the top mobile telecoms corporation in the world. Different elements of the temporal and PEST environments interact to affect Nokia’s situation because the case shows that external forces affect Nokia’s competitiveness, while Nokia’s temporal factors shape its ability to respond to external factors. First, external factors changed, wherein markets evolved through developing new needs and preferences, which Nokia’s competitors understood and properly reacted to. Using PEST analysis, political factors are generally favorable because new entrants to the telecommunications industry do not have significant hindrances (Applegate and Johnsen, 2007, p.29). As a result, new companies emerged which initially did not even produce mobile phones, like Apple and Lenovo (companies in the computer business), or do not have strong mobile phone branding in the past, like Samsung. These companies saw external opportunities and without political hindrances, they were able to expand their product portfolio. Economically, developed and developing countries were doing well enough to have a boom in mobile phone users (Applegate and Johnsen, 2007, p.29). Labor costs are also lower in developed countries, so many mobile phone makers shifted to them, such as China and Taiwan. These factors enabled Nokia’s competitors to streamline their production and reduce costs, thereby improving their ability to offer low-cost, quality phones. Socially, the market of mobile phone users has become more fragmented and the rise of the middle class is evident (Applegate and Johnsen, 2007, p.29). Different users have diverse tastes and preferences in phone models, and many have found Nokia wanting in design and functions. Again, competitors saw the opportunity to grab market share by responding to social changes. As for technological factors, mobile phone technology continues to evolve for competitors, but not so much for Nokia (Applegate and Johnsen, 2007, p.29). Competitors were the first ones to provide sleek and “cool” smartphones, leaving Nokia scampering in offering a differentiated brand in a sea of various smartphone brands that have a wide pricing range. PEST analysis reveals that Nokia has failed to identify and to respond to these environmental changes. Second, temporal factors must not be overlooked because Nokia’s management fell short in acting strategically on PEST factors. Aspara et al. (2011) explore how Nokia formed a business model that led to its success, but this paper asserts that the business model never adapted to external changes, so it did not deliver lasting organizational success. Nokia has not maximized the “strategic importance of managerial and organizational cognitions in business model evolution” (Aspara et al., 20110, p.623) for the past decade. Steffens, Martinsuo and Artto (2007) learn from their study that decision criteria, change management practices and management’s experiences interact to shape changes, or the lack thereof, in organizations (p.710). In the case of Nokia, the decision criteria of the management may have lacked a change management perspective that could either anticipate or open itself to changes to its traditional product development processes, as well its decision-making processes. Hence, the temporal environment has not been effective in identifying and maximizing market opportunities, leading to lost competitiveness and market share. Multiple Cause Diagram for McDonald’s The second part of the case study deals with the use of multiple-cause diagram for McDonald’s in portraying different and interacting causes that pressure change for the company. At present, the PEST analysis for McDonald’s is as follows. The multiple-cause diagram is below, Figure 1. The diagram helps visualize the causes of changes and their interactions for McDonald’s. First, civil society groups are increasingly against direct marketing to children and are lobbying for healthier food choices and nutritional labeling of fast food products (ODougherty et al., 2006). Some of the causes of these concerns are rising obesity and overweight problems and chronic illnesses, not only among adults, but among children and adolescents as well (ODougherty et al., 2006, p.247). Governments, nevertheless, have not yet passed laws in favor of these lobbyists, although some restaurants already responded through offering nutritional labels in websites and store levels. Second, economic factors affect McDonald’s too, wherein the effects of the U.S. recession continue to shape consumer spending. With high unemployment rate and slow economic growth rate, fast food demand is on the rise because fast food is cheaply-priced and convenient. In addition, food and raw material prices continue to increase, which affect the bottom line of fast food firms (Marketline, 2012, p.8). Despite, or perhaps because, of these threats, the fast food industry maintains its growth, where existing and new competitors are developing to adapt to social and economic changes. Social factors are the third component of PEST analysis. Some of these changes are the evolution of health-conscious consumers, which affect lawsuits against fast food companies. Several individuals, for instance, already sued McDonald’s for making them fat (Santora, 2002). Moreover, some consumers now demand healthier food choices, while some desire fast, but fresh food choices, instead of processed ones (Marketline, 2012, p.6). These customers present a threat to McDonald’s image and market share, although McDonald’s has changed its product offering to respond to these demands and nutritional labels can be found on its website. Competitors are responding to social changes by offering healthier food alternatives, sometimes fully avoiding processed foods entirely. Finally, technological factors provide opportunity for growth. An example is how McDonald’s uses technology to streamline its operations (i.e. machines that have timers and measure everything) and make it more efficient. Overall, the external factors present significant causes for changing McDonald’s marketing mix and strategic decisions, as can be seen in Figure 1, where social factors affect competitors’ response and McDonald’s altogether. Hence, the multiple-cause diagram help understand the relationship among different factors that affect McDonald’s changes Figure 1: Multiple Factors that Cause Pressure on McDonald’s References Applegate, E. and Johnsen, A., 2007. Cases in advertising and marketing management: real situations for tomorrow’s managers. United Kingdom: Rowman & Littlefield Publishers. Aspara, J., Lamberg, J., Laukia, A. and Tikkanen, H., 2011. ‘Strategic management of business model transformation: lessons from Nokia.’ Management Decision, 49(4), pp.622-647. Marketline., 2012.’ McDonalds Corporation SWOT analysis.’ Marketline, pp.1-8. ODougherty, M., Harnack, L.J., French, S.A., Story, M., Oakes, J.M. and Jeffery, R.W., 2006. ‘Nutrition labeling and value size pricing at fastfood restaurants: a consumer perspective.’ American Journal of Health Promotion, 20(4), pp.247-250. Santora, M., (2002). ‘Teenagers Suit Says McDonalds Made Them Obese.” The New York Times, [online] 21 November. Available at: http://www.nytimes.com/2002/11/21/nyregion/teenagers-suit-says-mcdonald-s-made-them-obese.html [Accessed 16 September 2013]. Steffens, W., Martinsuo, M. and Artto, K., 2007. ‘Change decisions in product development projects.’ International Journal of Project Management, 25(7), pp.702-713. Read More