Nokia - Turnaround Strategy

Group Assignment – MBA 4641

Group Members:Amit Sagar- M00333568Anuradha Vyas – M00340061Neha Mehta– M00334269 Princilla Gonsalves– M00339403Shinu Pillai – M00334083Vaibhav Garg – M00333582

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Report by : Anuradha, Princilla, Neha, Amit, Shinu & Vaibhav 2

The mobile handset industry is a one of the fastest growing industries in the world expanding rapidly as developing countries emerge. Mobile phones have gone through major changes since introduction in 1994 and are constantly evolving to meet customer expectations.

o 5.9 Billion mobile phone subscribers which is 87% of world populationo Growth lead by India and China, representing 30% of world’s totalo Mobile devices sales rose in 2011o Smartphone showing strongest growtho Nokia - remains No. 1 handset manufacturero Samsung - leading smartphone hardware manufacturero Android - top smartphone operating system

Industry overview

Source: International Telecommunication Union 2011

Key Success Factors - Innovation and speed of responding to consumer needs

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Privatization of government monopolyRegulation on issuing licensesMarket controls

PESTEL Analysis

Global economic crisisPurchase powerEmerging markets, Foreign direct investment

Increasing need for social recognitionNeed for social connectivityHealth concerns

P

E

S

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Increasing bandwidthVOIP, Near Field TechnologyReducing size of devices due to advance in technology

Environmental issuesRadiation level controls and related issuesIncreased reliance on renewable energy - Solar power

Obtaining international operator’s licenseLobbyingAdherence to rules

T

E

L

PESTEL Analysis

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Global mobile devices forecast

Source: IDC

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Industry lifecycle stage

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Supplier power - LOW•Large number of suppliers

producing same components offer low

influencing power

Buyer Power - HIGH•Buyers choose brand

Customer trends & demands•Low opportunity for

suppliers•Low customer loyalty

Degree of Rivalry - HIGH•On price and functionality

•Low degree of differentiation •Lack of switching cost

•High exit barriers •Short life cycle of the devise

Threat of Substitutes - MEDIUM•No real substitutes available

•Tablets and portable computers

Threat of New Entrants - MEDIUM•High investment capital

•Non-existent customer loyalty •Generic retail format

•Highly competitive market •Plenty key component suppliers

Porter’s 5 Forces Analysis

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Analysis highlights that there are clear distinctions within the competitive rivalry of the handset market.

Strategic Groups

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Key elements of Nokia’s strategy•Build a new winning mobile ecosystem in partnership with Microsoft•Bring the next billion online in developing growth markets•Invest in next-generation disruptive technologies•Increase our focus on speed, results and accountability

Over the past 150 years, Nokia has evolved from a riverside paper mill in south-western Finland to a global telecommunications leader connecting over 1.3 billion people. During that time, they made rubber boots and car tyres. They generated electricity and even manufactured TVs. Changing with the times, disrupting the status quo – it’s what they have always done.

Nokia Overview

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Financial Highlights

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Nokia - Devices & Services – Mobile device volumes by Geographic Area

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Benchmarking- Financial Analysis

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VendorShipments 2011 (Mil)

Market share 2011

Shipments 2010 (Mil)

Market share 2010

Annual growth

Nokia 417.1 27.00% 453 32.60% -7.90%

Samsung 329.4 21.30% 280.2 20.10% 17.60%

Apple 93.2 6.00% 47.5 3.40% 96.20%

LG 88.1 5.70% 116.7 8.40% -24.50%

ZTE 66.1 4.30% 50.5 3.60% 30.90%

Others 552.1 35.70% 443.6 31.90% 24.50%

Total 1,546 100% 1,391.50 100% 11.10%

Source: IDC (Feb 2012)

Benchmarking- Top five mobile phone manufacturers, by 2011 global sales

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Market Positioning

High

Low

Low High

Low Price

Hybrid

Differentiation

Focused Differentiation

Perceived Price

Per

ceiv

ed A

dde

d va

lue/

bene

fit

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Counterfeit & low cost phones

Strategies destined

for ultimate failure

No Frills

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Resources and Capabilities analysis for Nokia

Strategic Capabilities – Threshold (Required to survive or compete in market)

Resources Competencies

Financial stability and good capital structure

Production capability: Nokia is has its own production facilities divided between nine countries. Economy of Scale and Cost

leadership on low cost mobiles Qualified staff

Manufacturing globally acceptable quality handsets

Engineering competence Consistent innovation in terms of product

features Providing good quality service to customers

Resources and Capabilities analysis for NokiaStrategic Capabilities – Distinctive

(Required for competitive edge)

Resources Competencies

Huge global telecoms networks customer base. An extensive patents portfolio in this area. factories producing very complex and expensive telecoms networking gear.

engineers who are extremely highly-trained, Brand value: Nokia was the number one brand

in the sector of consumer electronics (ranking 8th in the world) in 2010.

Worldwide distribution network: In 2011, Nokia has 650,000 retail points worldwide; far more than any of its competitors.

Patents portfolio: Nokia is one of the most innovative companies in the world by filing between 1,300 and 1,500 patents applications a year. A rumour has suggested that Apple pays 11.50 $US per iPhone to Nokia.

Nokia dominates the biggest markets: leading brand in market share

Expertise in network and broadband technologies Vertical integration a very deep engineering and technological competence, ability to develop world-leading carrier relationships: Over the last decade, Nokia has developed important

relationships with all the world-leading carriers. Nokia is one of the few brands that is known in every country on the planet and thus can access all sales channels due to these long relationships with the worldwide carriers.

Innovation Culture: Nokia Ventures Organization (NVO), the company’s formal approach to fostering, encouraging and nourishing innovation. The NVO was created to develop new business opportunities that fell outside of the current focus of Nokia’s core businesses. The NVO sought to develop both internally generated projects as well as external projects. Once ideas were developed, either they were moved into one of Nokia’s business units or they were sold.

Competence of using its experience from one country in another for various business functions

VRIN Analysis of the strategic capabilitiesResource Valuable (Adds value as perceived by

customers)Rare Hard to imitate Non

substitutable

Implications

Expertise in network and broadband technologies

Yes Yes Yes Yes Sustained competitive Advantage

Production capability No(No direct value for customers but it has an

important impact on Nokia’s cost performances)

Yes Yes Yes Temporary Competitive advantage

Economy of Scale and Cost leadership on low cost mobile


Brand value Yes Yes Yes Yes Sustained competitive Advantage

Worldwide distribution network Yes Yes Yes Yes Sustained competitive Advantage

World-leading carrier relationships No (No direct value for customers)


R&D No(No direct value for customers because Nokia

is licensing its technology to competitors)


Nokia dominates the biggest markets

No(No direct value for customers)


a very deep engineering competence,

Yes Yes No Yes Temporary Competitive advantage

Ability to manage the capital in a profitable manners

No No No Yes Temporary Competitive advantage

Manufacturing globally acceptable quality handsets

Yes No No Yes Temporary Competitive advantage

VRIN Analysis of the strategic capabilities

Resource Valuable (Adds value as perceived by

customers)

Rare Hard to imitate

Non substitutable

Implications

Ability to exploit economies of scale to generating consistent

profits

No No No Yes Temporary Competitive advantage

Innovation culture: Nokia Ventures Organization (NVO),


Vertical integration No Yes Yes Yes Sustained competitive Advantage

Financial stability and good capital structure

No No Yes Yes Temporary Competitive advantage

Qualified staff Yes No No Yes Temporary Competitive advantage

Providing good quality service to customers

Yes No No Yes Temporary Competitive advantage

Patents portfolio No Yes Yes Yes Temporary Competitive advantage

Extensive presence in Global telecoms networks


Competence of using its experience from one country in

another for various business functions


Value Chain Analysis

Firm Infrastructure

Human Resource Management

Technology Development

Procurement

Inbound Logistics

Operations Outbound Logistics

Marketing & Sales

Services

Primary Activities

Su

pp

ort

Act

ivit

ies

Competitive Advantage

Compet

itive

Adva

ntage

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1. Brazil – Manaus - 19982. China – Beijing -19953. China – Dongguan -1995

7. Mexico – Reynosa -19968. South Korea – Masan - 19849. Vietnam – Hanoi - 2012

4. Finland – Salo -19795. Hungary – Komárom -19996. India – Chennai - 2006

Firm Infrastructure - Production Facilities of NokiaValue Chain Analysis

• Currently Nokia is looking at site and facility closure and reconfiguration of facilities 22

Nokia Research Center (NRC) is chartered with exploring new frontiers for mobility and solving scientific challenges in order for Nokia to deliver irresistible mobile experiences in the future. Founded in 1986, NRC is Nokia's corporate research arm and part of the CTO organization. This year NRC celebrates 25 years of innovations that have transformed the lives of billions of people around the world.

Now with 13 locations worldwide, Nokia Research Center is a truly global organization. This worldwide presence enables NRC to engage with the foremost minds and partners in the mobile field to conduct leading-edge research. By bridging this wide variety of cultures, environments and skill-sets across these diverse geographies, NRC empowers Nokia to develop products and services that meet the needs of our customers.

Firm Infrastructure - Nokia Research Center


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Human Resource Management -•Transferring of Jobs to Accenture through outsourcing of Symbian OS. • 9,306 Jobs were cut out of their Device & Service business unit in 2011.•End of year 2011 Nokia had total work force of 130,050 employees.

Technology Development – •During the last two decades, Nokia have invested more than EUR 45 billion in research and development and built one of the wireless industry’s strongest and broadest IPR portfolios, with over 10,000 patent families. Nokia is a world leader in the development of mobile device and mobile communications technologies, which is also demonstrated by Nokia’s strong patent position. •Partnership with Microsoft to give Nokia resources and benefits of cloud computing that are essential for devices of future. They developed OS Windows Phone Release – Mango currently used for Lumina product range.•In year 2011 Nokia employed 34,876 people in R&D, representing approximately 27% of Nokia’s total workforce, and had a strong R&D presence in 16 countries.

Procurement•Nokia source components, materials and services from suppliers all over the world and expecting them to meet Nokia’s high standards of environmental and social responsibility•Nokia is focusing on Feature phone production in locations closest to suppliers.•Nokia has built strong relations with their suppliers by working with them for a long time.•Supplier assessments – are conducting to assess and understand a supplier’s performance level and compliance to Nokia requirements.•Capacity building - Helping suppliers do better by engaged with suppliers and providing support .


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Inbound Logistics •As a major global company, our supply chain is long and complex•Inbound supply chain is diverse with Danzas being its main Logistics Supplier, offering logistics services and responsibility for Nokia’s specified drop off points, logistics centre and hubs.

Operations •Changes in leadership & operational structure to accelerate the company's speed of execution in a dynamic competitive environment. •Alignment of Global workforce & site consolidation

Outbound Logistics Global Supply Chain having Massive Robust distribution channels with 417.1 Millions Units sold in 2011.

Marketing: •Nokia is trying to revive their brand with their partnership with Microsoft while trying to maintain their identity and removing OVI from their brand to be Nokia Services.

Sales:• Net Sales for 2011 was Euro 23,943 million dropped by 18% than 2010•Nokia is currently restructuring the sales organization by reducing a layer of sales management to ensure greater customer focus and providing senior leaders greater visibility into market dynamics.


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SWOT AnalysisStrength

•Nokia has advanced technology over the competitors in the mobile phone industry

•The market leadership in the mobile phone industry.

•Strong brand value and image in the global market

•Number one manufacture of mobile handsets

•Strong Supply chain network.

•Strong Product portfolio•

•Strong R&D and Product innovation and creation

Weakness

•Complications in technology

•Few customized, operator-specific handset with less features

•Few alliances, company sticks to its standing in the market, do not want to cooperate with the operators.

•Lack of capability to align innovation with changing consumer preferences

Opportunity

•The emerging market of smart phones in developing countries, such as China, India

•The emerging global market for high-end mobile phone such as business user phone.

•The growth stage market for smart phones with integration of music and other media applications.

•High growth US market for smartphones

Threat

•Facing more new competitors, especially from Asia

•Stronger buyer power from the network operators.

•Lost market share

•Strong competition in mobile industry

• The market becomes saturated

ANSOFF MATRIX

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Market Penetration Geographically: USA and Emerging markets

Product Development More innovative smart phones

Global Smart phone market expected to expand to 40% of the total device market by 2013

Strategic Options

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Evaluation of Strategic Options

Suitability

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Evaluation of Strategic Options Acceptability & Feasibility

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Evaluation of Strategic Options

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Cost leadership Differentiation

Suitability Addressing Key opportunities

+ +

Avoiding key thrests - -

Acceptability

Acceptability of returns

+ +

Acceptability to stakeholders

+ +

Acceptability of Risk + -

Feasibility

Finance + - People skills + - Resources + -

Workable in practice + + Total

Positives 8 4

Proposed Strategic Option

Option 1Cost Leadership

Option 2Differentiation

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Financial projections for the next three years

Increasing the gross profit :• By Increasing the revenue by 15% each year •By Controlling increase in cost of goods to 5% each year

To reduce the operational expenses by 10% in first year and by 5% in next two years each

TEAM

2014 (EURm)

2013 (EURm)

2012 (EURm)

2011 (EURm)

2010 (EURm)

Revenue 36414.31 31664.62 27534.45 23943 29134Cost of goods -21796.8 -20182.2 -18687.2 -17303 -20412Gross Profit 14617.51 11482.4 8847.21 6640 8722Operating expenses -6980.59 -6648.18 -6331.6 -5756 -5182EBIT 7636.924 4834.218 2515.61 884 3540

To Control Cost of Goods we recommend to: Start one more manufacturing facility in India and one more in China To close their production facility in EuropeReduce the cost of labor and material per unit by mass production and achieve economies of scale

To increase revenue we recommend to:

Exploit its extensive distribution network in emerging markets to increase salesEstablish alliances with telecom service providers and wireless carriers to promote bundle sales in USA•To increase sales, focus on product design and align it with consumer demand through extensive market research • Aggressive marketing drives

To reduce operational expenses we recommend to:•Reduce the R&D in first year and focus more on marketing research and marketing•Controlling the operating and administrative expenses by hiring qualified staff from emerging countries or outsourcing some of the operations

• Nokia’s financial standing is still strong with a ratio of, its netcash and other liquid assets, to the value of its bonds and terms loans, standing at 1.4

• Nokia’s ratio of Debt to earnings before taxes, depreciation and amortization stand at 3.4 in 2012 indicating still a position above danger line.

• In addition Nokia may opt for offering long term Bonds to raise capital to invest in marketing research and product development.

Recommendations Summary

Recommendations Summary Increase the market share of smart phones (cost leadership

strategy by investing in marketing research and marketing and leveraging the association with Microsoft

Smart phone market expected to expand to 40% of te total device market by 2013

Focus on the US market as Nokia is not able to capture this huge potential market as compared to its competitors like Apple

US Market Share in Smart phones

Nokia 1%

Apple 44.9%

Strategic implementation plan to execute our strategy

Key elements in managing strategic change

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Diagnosis

Strategic Change

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Diagnosis

Importance of Context

• Time – Immediate change is required to cope and adapt with the changes.

• Scope – Operational excellence

• Preservation – The strategy is targeting organic growth within the organizational

utilizing the existing resources & capabilities

• Diversity – Nokia is highly diversified with global operations.

• Capability – Nokia currently has under utilized managerial and personal as it is

proposing for job cuts to reduce cost.

• Capacity – Resources are available to increase capacity for being cost leader.

• Readiness – Due to current financial loss & market share reduction, the readiness to

change is felt by the company globally.

• Power – Power lies with the CEO, Board of Directors & Shareholder.

Pushing Resisting

Regain Market Share - Attracting customers who have more power while purchasing on basis of cost.

Achieve its Goal of Next 1 Billion

Reducing competition - Competitors will hesitate to compete on the basis of price.

Continuous focus on efficiency and reducing costs, creates barriers to entry.

Increase in profitability by increasing efficiency and economies of scale reducing per unit fixed cost.

Technological innovations by competitors could eliminate the low-cost leader's cost advantage.

Overly focusing on process efficiency may cause the low-cost leader to overlook significant changes in customer preferences.

Competitors may successfully imitate the low-cost leader's value chain configuration.

Organization’s Traditions and multilayer structure makes its difficult to adapt to fast environmental changes.

Consolidation or relocation of production to cost effective locations could be resisted.

Force Field Analysis

Diagnosis

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Pushing Resisting

As low-cost leader Nokia will dominant market share may be in a position to force suppliers to lower prices or to hold down the level of price increases.

the low-cost leader can more easily reduce prices to maintain the price-value relationship and retain customers

Availability & effective utilization of current resources and capability.

Increase in market share will impact in lesser job cuts .

Capitalize their strong experience

Cost leader ship may target price competition

Change in organization related to cost reduction could result in resistance.

Reduction of management layers.

Force Field Analysis

Diagnosis

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Leading & Managing Change

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Strategic Leadership rolesTop management - Influencing the organization in its efforts to achieve its goals by Envisioning future strategy, Aligning the organization & Embodying change

Middle Management – Implementation of Strategy by “sense making” of strategy, Reinterpretation and Adjustment of strategic response as event unfolds & Advisor to senior management for implementation blockages & requirements.

Style of Strategic LeadershipChange will be based on Theory “E” and “O” for development of organization capability. Approach used will be of Collaboration.

Collaboration

High

Low

HighLowReadiness

Cap

abili

ty

Lever for Change

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• Investor’s expectations and beating competition

• Challenging the self contained attitude of Nokia

• Changes in operational processes

• Organizational rituals and change

• Power systems

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Managing Change Programmes

Turnaround strategy should be used as Market Share of Nokia is constantly

dropping resulting in losses and there is pressure to get results.

Turnaround strategy emphasis is on speed of change and rapid cost

reduction / revenue generation.

Effective use of resources is required for cost cutting.

Decrease in Management layer is required to reduce cost and enhance the

decision making process.

Gaining Stakeholder Support

Clarify the target markets and core products.

Documents

Nokia - Turnaround Strategy