Business Strategy Analysis for Nokia Smartphone
This is an analytical paper on the business strategy for the Nokia smartphone brands produced by Nokia Corporation. It provides an overview of the Nokia smartphone business, current business level strategies and strategic problems. A brief description of the telephone industry, customers, products and services and the level of competition are provided. Further to this, situational analysis, details strengths and weaknesses as well as threats and opportunities in Nokia smartphones brands are presented. Strategy options are suggested to mitigate weaknesses in business strategies and threats, and maximize the strengths and opportunities (Daft, 2010). This analytical paper aims at creating awareness and assessing business strategies used by Nokia smartphone brand and provide necessary recommendations for improving competitiveness of Nokia smartphone brands in the market.
Analysis of Company and Industry
Nokia is a Finnish communication and information technology company that focuses on mobile telephones and portable IT devices production. Nokia is the second largest mobile phone maker after Samsung with a global market share of 22.5%. It has over 97,000 employees spread across 120 countries and an annual revenue of about €30 billion. Nokia’s vision is “Connecting People”. The goal of Nokia Corporation is: “Make great mobile products to enable people to enjoy what life has to offer” (Nokia, 2013).
Nokia smartphone business unit was making losses. The company recently changed from Symbian platform to Microsoft Windows in order to remain competitive. Innovative design from gorgeous screen is encouraging, but device camera and quality of video needs to be addressed as well. Partnering with Microsoft is a positive strategy; it will enable Nokia smartphones to run on one competitive platform, Windows. Microsoft kicked in the money to enable Nokia to develop windows phone operating system. This new strategy limits the control of quality and ability to differentiate its products. Apple controls its own phones (iPhone) and operating system (iPhone OS). Aggressive advertising is used to market the new smart phones to regain lost market share.
Poor performances in Nokia smartphones are attributed to inability to respond to changes in market. Customer transition from mobile phones to smartphones was dramatic and caught the company unaware (Nokia, 2013). The emergence of iPhone in 2007 build on superior OS stripped Nokia off its market share. The mobile phone industry is very competitive with main players being Apple and Samsung. Despite overall decline in mobile phone sales by 3% in 2012, the sales of smartphones increased by over 47% the same year. Samsung topped the list of smart phone sales followed by Apple in 2012. The two commands 52% of market share, brand name and actual products being drivers of their success. Nokia recorded the biggest decline at 53% decline (Nokia, 2013). Android smart phones comprise 69% of the global market, 21% for OS, blackberry’s 3.5% and 3% for Windows.
Situation and Problem Analysis
The mobile industry is a well-developed market. The treat of new entrants is rated aslow because of the advanced nature of technology needed. Entry barriers in the mobile phone industry are rated so high given high capital investment is needed to enter and operate in this industry. There is need for huge investments in technology, R&D and marketing to compete effectively with already established firms (Singer, 2008). It is unlikely to have new entrants in the mobile phone industry due to high start up cost needed to enter the mobile market. The same applies to smartphones unless the new entrant comes up with a truly innovative technology unseen before.
Power of suppliers is rated as moderate in the mobile telephone industry. There are a number of hardware suppliers in the market to switch for the supply of mobile phone equipments. Microsoft Corporation is the sole supplier of smartphone software and has highbargaining power. Nokia is the leading firm in the industry and is in strong position to bargain with suppliers. The current suppliers would worry to lose an illustrious organization as Nokia. The deal between Nokia and Microsoft is of more benefit to Microsoft than Nokia. This gives Microsoft a lot of bargaining power. There is hence moderate threat from the suppliers given the mixed powers for hardware and software supplies.
The power of buyers is rising with increasing number of choices in the mobile industry. Customers are seeking the best value for the money hence the shift to iPhones and Samsung Galaxy. The buyers have highpower given a variety of handsets in the industry. Threat of substitute product is rated as lowbecause mobile phones perform several functions. Smartphones offer several functions to consumers in addition to making calls making it difficult to find such a substitute. Smartphones can function as camera or notebook among others and this requires a number of substitutes to replace it.
Industry rivalry is rated highparticularly in smart phone devices, and is characterized by intense competition from firms like Apple, HTC, blackberry, LG and Samsung. This is not helped either by little level of differentiation between competitors, hence little tempt for customers to switch. Mobile industry is an attractive industry and what attracts firms is high level of competition. It puts managers on toes and ensures that customers’ value for their money. Another attracting feature is the high power of buyers that enables innovative firms to gain competitiveness in the market (Porter, 2008).
SWOT is an acronym for strengths, weakness, opportunities and threats. Strengths and weaknesses are inherent in the firm’s micro environment and include factors like customers, staff, technology, employees and competitors. Threats and opportunities are presented by the external environment, including economic, political, legal, culture and so forth.
Strategic problems in Nokia’s smartphone business are declining market share, decreasing sales revenues particularly in smartphones. They reduce profitability, reduce brand name and lack product innovation. Market share for Nokia Company declined for the past five years occasioned by entry of iPhone that runs on the iPhone operating system. Nokia failed to respond to challenge of increasingly competition and dynamic business environment. The company failed to invest in advanced products making it easier for competitors like Apple, Samsung and HTC to take over Nokia’s initial market share. Nokia delayed to respond to competition making it possible for competitors to dominate the smartphone market. The company suffered declining markets share and consecutive loss over the past 5 years due to growing use of smart phones from other vendors. Nokia’s smart phone business unit has been making losses in recent years, affecting profitability of Nokia Corporation.
Main ideas in the tows are threats, opportunities, weakness and strengths in Nokia Corporation. Threats include global recession that forced consumers to source for cheaper mobile phones particularly from Chinese firms. Increasing level of competition from rivals is a major threat that led to the loss market share. Opportunities include the growing demand for mobile telephones in emerging markets of Asia, Latin America and Africa. Recent partnership with Microsoft Corporation presents another great opportunity for Nokia to develop quality phones for the market using windows technology. The new management and restructuring program is a great step in improving quality and reducing huge wage and unnecessary wage bills. Weakness in the company is vivid in weak innovative capability, declining financial status and poor strategic management that failed to respond to challenges in global market. Strong brand name, technology in mobile software and hardware, and talented staff provide great strengths that can be used to turn around the current situation in Nokia’s smart phone business unit.
Strategies to mitigate the threat of recession will entail the use of low cost strategy to make competitive and affordable smartphones for affected consumers. Recession has reduced purchasing ability of most consumers. This is possible only if the company can have cost advantage through economies of scale, reducing the cost of labor through structuring program being implemented and proper management of inventory to reduce related costs. Increased competition from Apple and Samsung can now be addressed by developing competitive smart phones run by Windows 8 versions. New Lumia smartphones are favorably comparable to those of Apple and Samsung, the firms that edged Nokia from its lofty perch.
Opportunities in emerging markets can be exploited using market expansion strategies. The company can expand to new unexploited markets using dumb phones to spread the risks. This can be complemented by heavy promotions aided such as advertising, public relations and direct sales. It can also recapture lost markets using advertising that is aided by Microsoft with brand name that is highly recognized across the globe. This way Nokia will manage to increase global market share for smart phones. Outsourcing from reputable companies like Microsoft provides the company with required skills in the company. The current CEO Mr. Elop came from Microsoft Corporation.
Financial revival is on course due to cost cutting measures being taken in the company. Wage bill has been reduced drastically and the company is smaller but people are working better as a team. Employs travelling expenses needs to be reduced with use of economy class rather than business class and sharing of rides to various airports. Costly telephone communication needs to be replaced with less expensive internet calling services. Microsoft Corporation has kicked in some money to enable Nokia develop Windows phone operating system. Innovative problems need to be addressed to enable it develop killer phones like iPhone 5 and Samsung’s Galaxy SIII. Entry of Microsoft Windows operating system if well managed, and now structured management and talented employees, Nokia can be able to produce quality phones for customers. Investment in technology, R&D and marketing could lead to desired innovation. The company should use strong brand of Nokia and now Microsoft, and talented staff to develop quality phones and increase sales.
Recommended Business Level Strategy
Business level strategies are used to develop and sustain the competitiveness of business units in the market or industry using available resources. The three business level strategies are cost leadership, differentiation and focus (Porter, 1985). A change of business strategy in Nokia is inevitable after failing to realize all the three pillar strategy of symbian, feature phones and now Windows phone. The company should now use low cost strategy to gain back lost market share. Differentiation strategies, from mobile phone, to symbian phone and now to Windows phone have failed to realize Nokia’s business objectives. With reduced labor costs and Windows technology, the company can now produce smart phones at a cost lower that competitors. This will help recapture lost markets back given the current economic recession that reduced purchasing ability of most consumers. This will go a long way in boosting sales and profit margin, a problem created by high cost of production under the former strategy. The new strategy will reduce the cost of doing business that can be invested in technology and R&D to improve the quality of products and hence competitive advantage (Kroll, Wright and Heiens, 1999). R&D will complement Windows and revolutionize the smartphone technology that has failed to reach expected competitive level with the use of differentiation strategies.