Nokia Financial Problems and Its Possible Solutions - Essay Example

Table Of Contents Page 2. Table of Contents 3. Company History 4. Current Status 5. Division Strategy (CFO) 6. Division Structure and Growth Potential 7. Current Division SWOT Analysis 8. Division Recommendations for Weaknesses and Threats 9. Final considerations 10. Bibliography 3) Company History Nokia began as a paper mill in 1865 in Nokia, Finland and has since taken many steps towards becoming the corporate giant that it is today. In 1960, the company began making electronics for the first time when it started selling and operating computers. In the late 1970s and into the 1980s, Nokia began developing and using new technologies, including the GSM phone call that was ever made. These groundbreaking events made the mobile revolution possible in the future, as they helped other new technologies to be explored. In 1992, when Jorma Ollila took over as President and CEO of the company, it began focusing on telecommunications as its main endeavor. In 1994, Nokia Tune was launched, which gave new technology to the cell phone industry. In 1994, the company introduced the world’s first satellite phone technology and made the first call using this technology. In 1997, the game Snake was put onto a cell phone for the first time. This was one of the first phones to feature a video game, which was a significant development at the time. In 1998, Nokia took over as the worldwide leader in cell phone sales. This is a significant feat because it was originally such a small company from such a small country. Furthering the technology that it had produced, Nokia brought out N-Gage, which is a multiplayer mobile gaming unit. In 2005, the billionth Nokia phone was sold, while global mobile phone subscriptions passed the two billion mark. Currently, the President and CEO of the company is Olli-Pekka Kallasvuo, while Jorma Ollila remains the Chairman of the Board. 4) Current Status Currently, Nokia has taken a bit of a hit on its public relations side. Troubles with the networks equipment division of the company made it necessary for it to streamline that division. This led to layoffs and organizational restructuring, which hurt the company’s image in Finland, leading to a number of court cases against the company and even a documentary television show that portrays the company in a negative manner. Despite this, however, the company has grown a phenomenal amount since its beginning and also since its move into the cell phone business. On June 19, 2006, Nokia announced that it and Siements AG would merge their mobile and LAN line phone networks in order to create one of the world’s largest networks. Under this agreement, each company would have a 50% share of the new company, which would have its head office in Helsinki, Finland and would be called Nokia Siemens Networks. This new company expect annual sales to reach €16 billion and cost savings to reach €1.5 billion per year by 2010. In addition, about 20,000 Nokia employees will be transferred over to this new company, which should help it to save some face in Finland. 5) Division Strategy (CFO) Nokia’s division strategy is to simply focus on its mobile communications division, which it has now broken up into four parts, and not focusing on things like paper, aluminum, and computer like it had in the past. By doing so, Nokia has created the most powerful handset division in the world, which has made shareholders happy because they are always likely to see a significant return on their investments. The divisions were made in order for the company to evolve as the cell phone has. With all the new multimedia features that are now available on cell phones, it was necessary to create a division to focus on this. In short, the divisions were implemented so that the company can look into the future, rather than focusing on what it has already accomplished. 6) Division Structure and Growth Potential Nokia is now made up of four business groups which are Mobile Phone, Multimedia, Enterprise Solutions, and Networks. The Mobile Phones division is the most important one in the future of Nokia because it is what the company has been known for in the past and will continue to be known for in the future. Furthermore, the other divisions have been set up in an attempt to aid this division, as it hopes to remain at the top of the cell phone industry. This division hopes to create a high volume of sales to individual consumers, which makes the needs of these consumers very important to the division’s future. Currently, Nokia has established a cliental because its phones are easily accessible and have a variety of features that the public finds attractive. These features include camera phones and MP3 players, which are pretty well necessary to include with high end phones currently. In the first quarter of 2006, Nokia was not only the worldwide leader in sales of mobile phones and camera phones, but it also sold over 15 million MP3 player phones, making it the leader in that category as well. This division wishes to sell more MP3 phones than Apple sells iPods in the near future. This means that this division has a great amount of growth potential, as MP3 phones will only become more popular in the future and Nokia is already the worldwide leader in this sector. The Multimedia division is working towards creating new technologies that will bring new and exciting experiences to the customers. While these technologies are mainly things that are being developed for cell phones, this group also works with companies that are found outside the telecommunications industry in order to works on other types of media. With technologies like Bluetooth and GSM gaining in popularity with cell phone users, this division has a great amount of growth potential because it can develop new things that satisfy cell phone users’ thirst for more technology to be implemented. The growth potential of this division is largely dependent on the people working in it, as it is solely up to them to develop new technologies that people will want to use on a regular basis. The Enterprise Solutions Division focuses on businesses, corporations, and institutions by offering them mobile devices, security infrastructure, software, and services. This includes things like network security, mobile corporate e-mail, and allowing corporate telephone systems to work with Nokia’s cell phones. This division also has a great amount of growth potential, as the demand for staying connected to the office at all times is growing considerably. By giving these corporations solutions to their numerous communication issues, Nokia will be able to make a name for itself in this field, which will cause significant growth as their technologies expand as well. The final division of Nokia is called Nokia Networks. This division provides mobile network infrastructure, network platforms, and services to operators and service providers. By the end of 2005, the Networks Division has over 150 customers in more than 60 countries. This led to the network reaching over 400 million people worldwide. This network has since merged with Siemens, which created one of the world’s largest network firms. The growth potential for this division is limited, although the merger will free up some additional resources so that expansion can be explored in the future. 7) Current Division SWOT Analysis Strengths: Nokia is currently very popular in the smartphone market, as it is the majority owner of Symbian, and this technology is expected to get more popular in the future. This means that the Mobile Phones Division can expect to continue to grow as more people upgrade their current handsets. Also, the company is still by far the largest vendor of cell phone in the world. It has double the market share of its nearest competitor. Since Nokia is so large, it is also able to gain cost advantages. Finally, Nokia is probably one of the 20 most recognizable company names in the world, which automatically makes it an option for anyone who is seeking to purchase a cell phone. All of these factors point to the Mobile Phones Division continuing to grow in the future. Weaknesses: The first weakness is that the N-Gage was considered a major flop and cost the company a lot of money. While the idea was good, it was simply not accessible enough for its target audience. Nokia also get a bad image because of its size. This is very similar to how many people dislike Microsoft because of its dominance over the computer industry. Its increased role in Symbian is also responsible for this negative attention that is coming Nokia’s way. Nokia has also been guilty of being slow to see what consumers truly want. Flip phones have been the most popular cell phone models for a number of years, but Nokia has been very slow to implement them into its sales strategy. This cannot be done in this highly competitive cell phone market because customers are getting new phones at such high rate. Finally, Nokia’s popularity is decreasing in North America and parts of Europe and these are its most important marketplaces. Something must be done very quickly to ensure that this trend does not continue. Opportunities: Currently, Nokia has the opportunity to increase its presence in the CDMA market, which is something that the company is just now entering. Also, there is plenty of growth room in countries where cell phones are just now becoming mainstream. A country like India has an enormous population and a relatively small number of cell phones, so it is a market that should be explored. If Nokia was able to leverage its infrastructure, it would be able establish a stronger position with carriers. Carriers are responsible for a large number of cell phone sales, so this is very important. Threats: Nokia was very slow to get involved in 3G, which means that they have run the risk of being displaced in that sector by other companies. Also, smaller Asian companies are entering the cell phone market at a rapid rate. If they enter the North American market, it could cause major problems for Nokia. Finally, many carriers are attempting to lessen their dependence on handset providers by developing their own handsets. Since Nokia relies so heavily on carriers to distribute their handsets, this could turn into a major problem. 8) Division Recommendations for Weaknesses and Threats Weaknesses: I order to recover from these weaknesses, it is important to begin a campaign where Nokia reaches out to the people in an attempt to regain their trust. Since the company is now recognized as being a global giant, there is automatically a negative connotation that goes along with that. Nokia must re-establish itself as a company that care about its customers through effective marketing. This must especially be done in North America and Europe, where consumers have so many choices of cell phone because it is such an important market. Threats: In order to lessen the effect of carriers developing their own cell phones, Nokia must make their phones so popular that the public demands that they be made available. This means that the Mobile Phones Division and the Multimedia Division must work extra hard to stay ahead of the technologies that are being utilized by other companies. In doing so, Nokia will once again be recognized as the first choice for cell phones globally. 9) Final Conclusions Nokia is not currently in dire straits financially, but it must remain on top of its problems in order to avoid major losses in the future. The cell phone industry is growing everyday and as the leader, Nokia must prove to the customer that it is their best choice for a cell phone. In doing so, the company must be able to relate to the public once again, while still identifying itself with corporations and the multimedia sector. By splitting up into divisions, Nokia hopes to lighten the load of the people at the top of the company, since they are handing out responsibilities elsewhere. Nokia should be able to hold onto its spot at the top and avoid any major economic problems by simply identifying itself as the company that knows what the consumer wants. It will be difficult, but these new divisions should help them to accomplish this feat. Bibliography Nokia. (2007). “Story of Nokia”. viewed 31 January 2007. http://www.nokia.com/nokia/0,8764,1125,00.html Read More