Nokia - Strategic Issues
Category : Business Strategies, Leadership, Mobile Industry, Strategic Process
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Strategic Management and Leadership
Nokia - Strategic Issues
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Although remaining a leading firm in the global mobile phone industry, Nokia faces a number of strategic issues requiring its timely consideration if it wants to secure and even enhance its current position in the long-term.
First is the global economic recession causing the company difficulties in shortening the period of phone replacement by consumers and preventing declining sales. Although Nokia has been able to secure large markets in Asia and Europe, with high market saturation such as capturing significant segments of the markets in China and India (Euromonitor, 2007), Nokia faces difficulties in getting customers to engage in a shorter period of continuous mobile phone replacement. This is necessary to continue generating sales in its existing markets coinciding with the maturity phase in the product life cycle [See Appendix 1 below]. The practice employed by Nokia to address this problem is to introduce new mobile phones with design and/functional features that should capture developments expected by its existing consumers. Cultural immersion and diversity, which forms part of Nokia’s core values (Smedley, 2008), largely contribute to its ability to understand and anticipate changes in consumer expectations. In the case of India, Nokia has been able to capture a sizable market by offering dust-proof phones and flashlights aligned with market demand. New features should follow emerging context-based demands (Nokia, 2008). However, many factors play a role in the replacement cycle including price, income and economic priorities. Despite introducing new phones, Nokia has yet to achieve the expected response from its existing market. The recession sweeping the global economy (McGregor, 2008) has a strong impact on the replacement cycle posing a challenge to Nokia to determine ways of ensuring the continuity of the replacement cycle regardless of these factors.
Second is market saturation constricting growth. The mobile phone industry is fiercely competitive and the primary mobile phone markets of Asia, North America and Europe are highly saturated [See Appendix 2 below]. This means that apart from securing its existing market, Nokia needs to explore new markets to ensure sustainable growth. Nokia is looking at new markets such as those with remaining growth potential such as Latin and South America, Africa and the Middle East and intensifying its firm footing in developed and highly saturated markets such as North America. To do so, Nokia has to overcome the challenge of determining promising new markets and developing timely response to opportunities posed by new markets.
Third is loss of innovation. Continuous technological innovation is the foundation of competitive advantage in the mobile phone industry (Euromonitor, 2007; McGregor, 2008) because the ability to develop and bundle technology to address market demand determines growth. Since Nokia is operating in various markets with different demands, it has to invest simultaneously in different paths of technological innovation, which involves risks. Nokia needs to accurately read and anticipate emerging market demand, keep track of technological innovations to secure significant returns on investment, and maintain creativity and innovativeness to support its competitive advantage and sustainable growth.
Based on the strategic issues faced by Nokia, it also has a number of strategic options entailing different benefits and downsides.
One option is for Nokia to focus on securing business units specialising in key technological innovations through mergers and acquisitions. Although Nokia has innovation teams in different regions (Nokia, 2008) particularly in Western Europe and Asia, the fast-paced development in mobile phone technology and the ease in copying new technology puts pressure on mobile phone companies to gain a hold over these new technologies to enjoy the benefit of first-release advantage, albeit this may last only in the short term. This strategy is suitable for Nokia because it cuts across the strategic issues. Enhanced technological innovation would ensure Nokia with something new to offer to its customers as incentive for mobile phone replacement. This would also facilitate its entry into new markets. Expanding its technological capability also secures Nokia’s diversified technological innovation for different markets. This also enhances Nokia’s competencies that could either provide the company with an advantage in securing effective business alliances or ease Nokia’s need for further alliances that involve risks. Implementing this strategic option is feasible and acceptable because it already fits Nokia’s business partnership practices. Nevertheless, this may not be sufficient to secure sustainable growth for Nokia since the appropriate and timely marketing of technology is equally important to the acquisition, exclusive control, and development of mobile phone technology. Nokia needs to augment the expansion of business units with appropriate marketing activities.
Another option is for Nokia is to centre on multi-dimensional product line diversification as part of the strategic choices provided by Ansoff’s matrix [See Appendix 3 below] that considers different strategic options for new products and existing products as well as new markets and existing markets. The choice depends on the focus or priority of the company, which in the case of Nokia could be the focus on new products for new markets. This choice involves selling existing products and developing new products for new markets to enable Nokia to address the strategic issue of market expansion. Many business firms from outside of the industry are diversifying into the mobile phone industry such as Microsoft and Apple (Smedley, 2008). Nokia could do the same by diversifying into other industries, using its technological competencies to develop new products, and using its brand equity to market these new products to its existing market. This strategic option suits Nokia because it already has built competencies in technological innovation and has strong brand equity. However, this may no be highly feasible and acceptable because of risks from uncertainties in operating in different product markets. This is like spreading its resources thinly across different industries considering Nokia’s already complex strategic direction and operation.
Still another strategic option is focusing on adding value to its existing mobile phone product line to continue experiencing benefits from specialisation in this area as another of the strategic choices provided by Ansoff’s matrix [See Appendix 3 below]. This involves two activities. One is the introduction of bundled or multiple features of its mobile phone to boost sales but phasing the addition of new features to ensure replacement. Replacement is as important as adding features to existing phones because of greater sales from the purchase of new phones. Another is the introduction of new features in new phone models that also encourage replacement such as the introduction of 3G technology that require purchase of new phones. (Euromonitor, 2007) This suits Nokia because this option enables it to focus on the issue of market saturation and prioritise new products for existing markets. This addresses the replacement cycle, maintaining existing market share, and achieving benefits from technological diversification. However, this also requires careful consideration. The nature of the additional or new feature should be such as to encourage the expected consumer behaviour. If Nokia wants consumers to replace their phones within a reasonable period such as yearly then the company has to introduce a compelling feature that motivates this behaviour. This means continuous building of creative, innovative and unique ideas, which is a challenging activity for the company. This consideration could create feasibility and acceptability issues for this strategic option.
The consideration of the advantages and disadvantages of the three strategic options in terms of suitability, feasibility and acceptability, the focus on the acquisition of business units specialising on different technological innovations comprise the recommended strategy. A number of justifications support this recommendation. One, the impact is broad or encompassing and long-term. Strengthening Nokia’s innovative strategy secures its ability to pursue different goals including ensuring the continuity of the replacement cycle for existing markets, entering new markets, and developing diversified technological competencies to meet the different context-based demand in its various markets. This means that by focusing on expansion via mergers and acquisitions, joint ventures, and other means of acquiring key business units, Nokia can simultaneously achieve different goals. Another, this option supports the strategic flexibility of Nokia in the long-term. By investing on its technological competence, Nokia can shift to product line diversification as a strategy in the long-term while at the same time enhancing product features and new mobile phone products in the short to medium term. This means that returns could continue accumulating even in the long-term by focusing on this strategic option. Lastly, expanding its business units focusing on technological innovation ensures Nokia’s competitive advantage in the industry with the ability to introduce new mobile phone features and services. With its technological advantage, Nokia can both create a market for innovative product features and mobile phone units through effective marketing efforts while at the same time addressing the changing demands of the market. Similar to the computer industry, competition in the mobile phone industry has come to revolve around technological leadership. Nokia should continue its good global performance by developing this competence.
However, there are implementation issues requiring focus to ensure the successful accrual of the benefits and the prevention of the possible drawbacks.
One implementation issue is maintaining organisational cohesiveness with a growing organisational structure. Currently, Nokia takes advantage of existing ICT to maintain communication lines between headquarters in Helsinki and the different business units located in different regions (Smedley, 2008). While ICT can still support communication lines even with more business units, it has to build cohesiveness by developing unifying norms and values to guide its business units operating autonomously to address different local contexts. Nokia also utilises groups meetings for sharing knowledge. This builds cohesiveness with representatives of new business units oriented to Nokia’s culture (Smedley, 2008). Nokia needs to address this issue in order to integrate it competence in technological innovations. Different business units pursuing various innovative directions could benefit from horizontal links with other business units for the pooling of resources and existing innovative outcomes.
Another implementation issue is addressing resistance and adjustment on the part of the acquired business units. Although this is a smaller issue, this could affect the outcomes of strategic implementation. This means that Nokia has to ensure smooth transition during the post-acquisition stage to integrate effectively the new business units as part of the company.
Lastly, resource management is also another implementation issue. Nokia has to select thoroughly the key business units that specialise in technological innovation that benefits the company in the short and long-term. This means that the acquired business units should have developed important competencies that augment Nokia’s existing capabilities together with a promising potential for future innovations useful to the company. This is necessary for Nokia to realise continuous accumulation of returns.
From interactions with my group members, I have come to perceive leadership as the continuous process of accommodating perspectives and balancing interests directed towards the achievement of common goals. While it is true that leadership involves the provision of direction and guidance, collation and integration of various output contributions from members, and facilitation of decision-making, the leader essentially takes the role of a fulcrum upon which the tipping of the weight of the group depends. This requires effective and strong leadership qualities such as objectivity, openness, insightfulness, rationality, and influence. An effective leader should also be flexible or resilient in implementing different leadership forms or approaches depending on the context by shifting to individual, shared or distributed leadership depending on what the situation calls for.
As a leader, I am at the stage of mastering becoming a contributing member of the team while at the same time learning to become a competent manager [See Appendix 4 below]. Practicing my role as a contributing team member means that I positively contribute to the group output and at the same time exercise my influence I perceive as aligned with the achievement of the goals of the company. To become a competent manager, I have to focus on self-awareness and self-assessment (Pedler, Burgoyne & Boydell, 2007) to enhance my strengths, address my weaknesses, and target areas for improvement in my knowledge, skills and qualities as a leader.
Collins, J., 2001. Good to great: why some companies make the leap ... and others don't. New York: Harper Collins Publishers Inc.
Euromonitor. 2007. Portable consumer electronics – world. [Online] Available at: http://www.euromonitor.com/Nokia_Group_(Consumer_Electronics) (Accessed 7 January 2009)
McGregor, J., 2008. 25 most innovative companies: smart ideas for tough times. Business Week, 4081, p. 61.
Nokia. 2008. Corporate business development. [Online] Available at: http://www.nokia.com/A4961001 (Accessed 7 January 2009)
Pedler, M. Burgoyne, J. & Boydell, T., 2007. A manager's guide to leadership. New York: McGraw Hill.
Smedley, T., 2008. 'What you achieve you achieve together’ People Management Magazine 17 April http://www.peoplemanagement.co.uk/pm/articles/2008/03/What-you-achieve-you-achieve-together.htm
The music industry: qualms with music, 2008. The Economist, 2 October. [Online] Available at: http://www.economist.com/business/displaystory.cfm?story_id=12341747 (Accessed 7 January 2009)
Appendix 1: Product Life Cycle
Appendix 2: Global/Regional Presence of Nokia
Appendix 3: Ansoff’s Matrix Model
Appendix 4: Five Stages of Leadership Development
Highly Capable Individual
Contributing Team Member
Source: (Collins, 2001)
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