Nokia: A Case Study Overview

Nokia is a company of humble beginnings and like many mega corporations of today, Nokia started out as a small business. At the start in late 1800s, it was involved in timber and rubber and by the 1960s,it had grown into a major player before venturing into other businesses like tire production, footwear and rubber making as well as the electronics business.

In the late 1970s, Nokia began its ascent into a dominant player in the emerging telecom sector. Nokia acquitted itself with this market segment by producing wireless phones for government agencies in 1971.It then took a step forward by selling analog car radio-telephones which then progressed into computer manufacture. By the mid-1970s, Nokia was taking 80% of all computer sales in Finland. It supplied network infrastructure components like base stations as wells as providing network support.

In 1979, with Kari Kairamo at the helm, Nokia implemented his vision towards market domination. He believed the telecommunications sector held the key to the company’s survival and thus implement measures that ensured this. Strategic acquisitions made it the largest consumer electronics manufacture in Scandinavia. He restructured the company giving it an emphasis on Research and Development. He stressed the need for speed and immediateness over traditional processes to provide the firm with a competitive edge. In 1987, Nokia leveraged it expertise in the electronics and communications sectors and released its first phone. By 1990, it had the largest market value in Finland buoyed by a strong growing economy with consumers with increased disposable income.

In 1988, Vuorilehto was appointed as Kairamo’s replacement. He implemented a divestiture drive to increase the company’s profitability as its many subsidiaries became a burden. He restructured the firm into the core divisions, telecommunications and hand held cell phones, selling off the less profitable segments as adverse economic conditions took hold. This followed through the 1990s as the company continued to introduce new phone models which operated on GSM (Global System for Mobile Communications) and CDMA (Code-Division Multiple Access) networks. These core sectors characterized the company’s activities as they provided the bulk of the company’s profits. By 1998 Nokia was the leading handset manufacturer in the world. It sold its products in over 80 countries across the globe.

In the 2000s, Nokia shifted its focus to the emerging markets which represented greater growth. Unfortunately, increased competition from other players affected the company performance. Chinese manufacturers like Huawei and ZTE emerged challenging Nokia’s grip on the Chinese market and Asia as a whole. Illegal producers of counterfeit Nokia phones appeared selling them at highly discounted prices. This had an effect on the firm’s market share as it dropped significantly.

At this point the company divested from its network business implementing a merger with Siemens to form the Nokia Siemens networks. It also stopped the manufacture of CDMA phones except in select markets. By 2007, Nokia sales in North America were on a decline as Apple smartphones gained a leading market share as American consumers bought phones on a contract basis from a network shop unlike other countries where people bought phones then selected their network providers. This limited Nokia’s reach and necessitated a joint project with AT&T to produce a new model.

Industry shifted to smartphones as software became as important as hardware. Nokia responded by developing an operating system called Symbian OS to compete with Android and iOS .It later developed Ovi store. A platform to host applications and challenge Apple store and Google playstore. These were commendable steps but both systems were cumbersome and poorly designed. They became unpopular because of this causing Nokia to fall further behind in the battle for the smartphone market. These trends continued to a point were Nokia was pulling out of markets like Japan in 2011.

As Nokia continued to struggle, it laid off a chunk of its workforce in 2012 as it sunk further in the red. The company announced a first quarter loss of 1.7 billion euros. In 2013, Nokia sold its mobile and services division and access to its patents to Microsoft for $7.2 billion. This was meant to improve Microsoft’s hardware manufacturing capabilities and in turn boost Nokia’s financial position.

Problems at Nokia

A relentless acquisition policy

Nokia’s downfall can be traced back to the late 1970s when it started acquiring firms. It was a sound strategy that was poorly executed. Some benefits were accrued at the cost of bloating the company structure and reducing the company’s efficiency. Nokia become a large conglomerate with many corporate layers. It fell from being innovators to business managers forcing the company to always being on the back foot focusing on restructuring and reorganizations while its competitors innovate into the future.

It focused on its profitability and return on investment while technological disruptions happened around the company which started them. It failed to sort its affairs and put its best foot forward. Its efforts to restructure only made things worse as it split its core businesses into regional enclaves which failed to offer fast responses to changing trends as intended.

Narrow business focus

Nokia primarily bought companies that add to its ecosystem of phone design and manufacture to ensure it was able to control the products they produce. They were the only phone manufacturer that did everything in house they had the capacity to carry out design, research, develop as well as manufacture all their subcomponents.

But this strategy came with its risks. By betting fully on their telecommunications division they sacrificed their diversity. This exposes their profitability to shocks from the external conditions of the mobile phone market as they didn’t produce enough alternative products to cushion themselves.

Failure to adjust to external trends.

At its peak Nokia failed to adjust to the changing market and manufacturing trends. It failed to take advantage of its position of strength to look into the foreseeable future. Instead they focused on the lower handset market segment, making low cost products with had limited technological advances. This caused some competitors to catching up with Nokia and even surpassing them. For example as the industry grew and demand increased the industry shifted into outsourced manufacturing. This ensured the companies focused on the important aspects of the business like research and development.

Nokia failed to do this and when the iPhone was introduced by Apple its manufacturing prowess and product line-up almost became obsolete.

Solutions for Nokia

Improved acquisition strategy

Nokia acquisition strategy produced mixed fortunes for the firm’s different sectors. For the network and communication business it provided market consolidation. It acquired small players early in its history to ensure its home market was under its control providing a stable market for it to focus on research and development. For the phone segment, acquisition of intellectual property which shielded the firm from competition as well as provide a source of new concepts and ideas. Through it, the firm ensured competitor used its subcomponents in their devices shoring up Nokia’s bottom-line.

Such a strategy can still be maintained, if used properly. Nokia is a vas company with adequate reserves to meet merger and acquisition costs. It should be wise enough to scout the market for potential takeover targets that meet its early history criteria. These targets must be on the cutting edge of future technologies which has the potential to make a major impact as cellular devices had.

For example Soft bank undertook an aggressive acquisition strategy in the 2010s buying up varying stakes in Sprint,Uber, Didi Chuxing, Boston Dynamics and Alibaba. This ensured the firm had a stake in most leading technology firms ranging from artificial intelligence to market forecasting to advanced robotics providing a unique and in-depth look at where the industry is heading as a whole. Soft bank in short secured its future by betting on everyone.

The same can done at Nokia, new technology firms appear frequently with new software and features. For example; artificial intelligence, facial recognition and virtual reality present new avenues for growth.

Developing and launching new products and services

Nokia has the expertise to offer new products for both enterprises and individual customers. These products can be complementary to the new smartphone devices and operation systems. For example cloud based applications for large enterprises are on demand. They provide a new market for the firm to exploit and gain new customers.

They can also focus on developing subcomponents for other device makers to reduce their overall risk and development costs.

Continuous market research and monitoring

Nokia failed to keep up with the rapid advancements in technology witnessed in the early 2000s.It didn’t see the market trends or respond appropriately. This is an aspect that can be improved upon with the adopting of a continuous market monitoring framework through the use of industry research reports and data analytics systems. Once they have been identified the company must respond by developing new products or improve on existing ones. For a technology company like Nokia a good approach is to developing an institute of advanced technology within its organization which leverages market trends to keep up with new technology. This strategy is already in action in a number of companies like Samsung.

Recommendations

Nokia is a technology firm at crossroads. It has a strong global brand with a lot of brand recognition. Unfortunately, the company’s product line is lacking. It failed react to both the market ad its competitors. Even so, the firm can implement a number of strategies to improve its prospects I the global market through targeted acquisitions and continuous market research the company can improve its level of technology to acceptable or even leading status. This will provide an impetus to launch new products that better serve the market leading to better sales and profit margins.