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Nokia Case Study Conclusion And Recommendation

Nokia Case Study | Nokia Assignment Help | Strategic Analysis of Nokia

Research Problem: The analysis of the case of Nokia leads to the identification of the main research problem which has been the declining market share of Nokia despite having huge R&D investment made by the company. The case analysis revealed that Nokia spends excessively on R&D as compared to entire industry expenditure on R&D, but despite making such huge expenditure, the company is not able to introduce smart phones that can compete against iPhone as produced by Apple Inc. This has adversely affected the market shares of the company and it has become a significant managerial issue for the company to revive its brand name.

Rationale for Investigating the Problem: The main rationale behind investigating this managerial issue is that despite making significant efforts in terms of R&D expenditure, Nokia is not able to present a smart phone that can compete strongly against iPhone. Thus, the investigation of this issue will lead to the identification of the factors that caused company to face such severe threat of declining market share and the actual reasons for the problems could be better identified.

Argument in Carrying out this Investigation: On the basis of analysis of Nokia’s case, it has been argued that R&D activities alone would not enable a company to achieve higher market success; rather, it should be used in combination with the managerial leadership abilities to effectively utilise the findings and investment made in R&D.

An Analysis of the Case of Nokia

            The performance of a critical analysis of the Nokia’s case indicates that the major issue with the company is its declining share price because of its inability to bring newer products into the market. The case of Nokia revealed that it spent $40 billion on research and development which is almost equivalent to four times what Apple has spent in the same financial year. Despite making such huge R&D expenditure, Nokia was unable to launch a smart phone that can effectively compete against the iPhone. The managerial issue as evident in the case of Nokia suggests that the management has not been able to introduce the right smart phones in the market that can compete with Apple and Samsung. The managerial problems as faced by Nokia is also clearly evident from the fact that Nokia has actually developed few products and designs, but the managers within the company failed to introduce them into the market on time. This is the major strategic blunder on the part of management of the company. Further, its inability to compete with the iPhone has resulted into the shift in its focus from smart phones to its basic phones. This is the major contributing managerial problem which led to the problem of declining market share of Nokia (Smith, Collins and Clark, 2005).

            According to a study conducted by Rosier, Morgan and Cadogan (2010), the principle challenge to firms is with respect to the ways in which strategies developed are implemented successfully by them. The managers within the organisations have a critical role to play in performing the successful implementation of strategies in order to achieve success. But this aspect has been lacking in respect to Nokia in the case, as the management of the company has failed to cope up with the market situation. As per the case, Nokia led the wireless revolution in 1990 and it was the first company to enter into the world of smart phones. However, with the introduction of the smart phone era, the company is racing to roll out the competitive products, as its share prices have collapsed significantly. Instead of bringing new smart phones to the market, the company seems to withdraw as it is unable to launch a competitive smart phone as against Apple iPhone. This aspect clearly indicates that the lack of sufficient ability of the management at Nokia to revolutionise the market through its smart phones (Rosier, Morgan and Cadogan, 2010).

            Another major area of problem as identified from the case analysis of Nokia is that the company has recently introduced a series of Nokia Lumia phones which is basically a type of windows phone. But such introduction of Nokia Lumia phones has not been successful in allowing the company to achieve the lost market shares. Despite making huge expenditure over the R&D function, Nokia is still struggling to turn its new ideas into its product and the resulting impact is its further decline in the sales and market position across industry. On the basis of analysis, it has been argued that the innovation is essential to be performed in order to achieve success in the market, as the introduction of windows phone by Nokia has resulted into similar kinds of phones being brought by Samsung into the market. This has affected the performance of Nokia’s Lumia phones significantly and it is clearly evident over the market shares of the company (Bowman and Gatignon, 1995).

The fact that innovation is crucial to a firm’s success is also supported by Panne, Beers and Kleinknecht (2003) by indicating that innovation allows the firms with opportunities to offer something new and distinctive apart from their competitors. However, in order to achieve success in innovation, there are various factors that act as determining factors and these include firm’s culture, the experience with innovation, the multidisciplinary character of R&D team and the support from the top management. The analysis of the case of Nokia suggests that all these aspects are mostly lacking in respect to the company, as the managers were not able to introduce the new concepts into their products, the R&D team failed to utilise the key findings in introducing new products into the market and finally, the management’s approach also seems to be highly laggard, as despite introducing new and innovative smart phones, the management has undertaken decisions to take back their approach from introducing new and highly advanced smart phones to other small range of phones (Panne, Beers and Kleinknecht, 2003).

The analysis of the case leads to the identification of another major significant issue as faced by Nokia is the timely introduction of new products into the market. It has been argued that the higher level of benefits can be achieved from a product provided it has been introduced in the market on timely basis. This requires a proactive approach on the part of management of an organisation, as the important findings from the R&D activities should be reflected in their products on timely basis so as to achieve maximum level of benefits from it (Baker and Sinkula, 2005). However, in respect to Nokia, this aspect has been significantly lacking, as the analysis of the case revealed that Nokia has devised the concept of a colour touch screen phone which is set above a single button and this concept is mainly planned by the Nokia team seven years before Apple Inc. The device was shown locating a restaurant, playing a racing game and ordering lipstick. But the main issue was that it remained a plan for the company, and it never launched its innovative ideas into the market through its product offering. If the company have introduced all such innovations in its product offerings to its customer for the first time, it would have better position throughout the entire mobile industry.

Thus, the analysis of the Nokia case indicates that there are various managerial issues as faced by the company which has resulted into significant decline in the level of market share. Despite making efforts in the form of huge spender in R&D activities, Nokia failed to introduce new smart phones that could compete against iPhone and the inability to introduce its innovative ideas into the market through its product have all caused the mobile phone company to bear significant amount of loss in its market share.

Conclusion and Recommendations

            In this report, a critical investigation of the management issues as faced by Nokia from the analysis of a case study has been performed, and the investigation revealed significant number of issues that are faced by the organisation behind its core problem of declining market shares. The analysis of the case leads to identification that Nokia made huge R&D spending and despite such effort, it has not been able to launch a smart phone that can compete in the industry. The major managerial issues as identified from the case analysis suggest that Nokia has failed to successfully integrate the strategies as developed by it into its products. Secondly, it has performed innovation in launching new smart phones, but they were not that innovative to compete against iPhones and other smart phones by Samsung, and thirdly, even after devising important innovative concepts, it failed to introduce them into the markets. This is mainly because of ineffectiveness on the part of management at Nokia, as they failed to create an impact in the market with their windows smart phones.

1. Table of Contents

2. Executive Summary

3. Introduction

4. Audit of Nokia
4.1 Environmental Analysis
4.2 SWOT Analysis
4.3 Trend Analysis

5. Consumer Buying Behaviour

6. Brand Profile
6.1 Facts
6.2 The role of Nokia’s brand
6.3 Brand Equity
6.4 Brand Identity

7. Segmentation, Targeting and Positioning
7.1 Market Segmentation
7.1.1 Geographic segmentation
7.1.2 Demographic, psychographic, behavioural Segmentation
7.2 Market Targeting
7.3 Market Positioning

8. Competitive Nature of Product Category
8.1 Number of Competitors
8.1.1 Key Competitor (Market Challengers)
8.1.2 Other Challengers
8.1.3 Market Followers
8.1.4 Competitive forces
8.2 Market position of key competitors
8.3 Competitor Analysis

9. Conclusions

10. Bibliography

11. Appendices

2. Executive Summary

Mobile phone market in Europe is going through major changes. Key players are losing market share while new and young companies, mostly from Asian countries, are coming to the market. At the same time the market is slowly expanding when people are buying more phones than ever. The whole process of buying mobile phones has changed in the last few years. People no longer carry the same phone year in year out, but they change their phone every year, some even twice a year. One reason for this change is the fast technological development of the phones. But also consumer’s attitudes towards mobile phones have changed. Mobile phones are no longer seen as expensive, hi-tech products, but they have become accessories like jewellery or a piece of clothing. “Nokia is still the largest mobile phone company in the world, but its long-term dominance is now challenged more than ever. Observers have begun asking whether the cutting edge that has turned Nokia into the No 1 vendor still exists, as Nokia’s market share and revenues have been on the decline. Falling average sales prices (ASPs) and market share have had an impact and forced Nokia to further re-think its strategy towards developed and emerging markets.”[1]

This report gives an overview on what is happening on the mobile phone market today and analyses Nokia’s market position in the mature European market. This report includes a brief introduction to Nokia followed by an environmental analysis, SWOT analysis and trend analysis of the company. Half way through the report you can find information about consumer behaviour, brand profile and segmentation. At the end, this report introduces the main competitors and analyzes the competitive market. Finally we try to make a conclusion of the topics discussed and attempt to give some possible answers to the question at hand.

3. Introduction

The company we have chosen to analyse in our project is the Finnish mobile phone giant Nokia. This chapter tells you briefly what Nokia actually is, its company structure and overall view on the size and sales of the company.

Since January 2004, Nokia Group has consisted of four different business groups: Mobile Phones, Multimedia, Enterprise Solutions and Networks. “In addition, there are two horizontal groups that support the mobile device business groups: Customer and Market Operations and Technology Platforms.”[2] In the year 2004 Nokia’s net sales for mobile phones were 18 507 million euro, which went down 12% from 2003. Nokia’s market areas were Europe/Africa/Middle East (55% of net sales), Asian Pacific and China (25%) and Americas (20%). Nokia’s market share in Europe was 45,8% in 2003, in 2004 it was 34,8% and in the third quarter of 2005 it was 36%.[3] The average number of personnel for 2004 was 53 511. At the end of 2004, Nokia employed 55 505 people worldwide. In 2004, Nokia's personnel increased by a total of 4 146 employees. Nokia’s turnover for the third quarter of 2005 was 8403 million euro from which mobile phones brought in 62%, multimedia 17%, Enterprice solutions 2% and Networks 9%. “The year 2004 was demanding for Nokia. In response, the company set five top priorities in the areas of customer relations, product offering, R&D efficiency, demand-supply management and the company's ability to offer end-to-end solutions. Nokia is making good progress in these areas, and is now better positioned to meet future challenges.”[4] “The Nokia Strategy continues to focus on three activities to expand mobile communications in terms of volume and value: expand mobile voice, drive consumer multimedia and bring extended mobility to enterprises.”[5]

4. Audit of Nokia

4.1 Environmental analysis

The market environment of Nokia consists of six forces. These are demographic, economical, natural, social-cultural, technological and political-legal environment.

The Demographical forces

Demographics show the size of the European market by telling the population of each country. Demographics also show if the people in specific country are illiterate or well educated, how old they are, which parts of the country they live in and how do they live. Population of Europe in 2000 was 729.3 million.[6] People live mostly in urban areas. Population is ageing due to falling birth rates. People in Western Europe are generally well educated and literate. There are no huge cultural differences between nations and since almost all countries are members of the EU, it brings the people even closer to one another.

The economical forces

People in Europe are reasonably wealthy and income distribution between people is relatively even. Growing economy in Europe leads to increasing income of the people. People will buy more luxury goods (such as mobile phones). If the economy in Europe is in a decline, the average income will not increase and is even more likely to decrease. In this case the people will have less money for luxurious goods and will spent less on mobile phones, which would be very negative for Nokia.

The natural forces

Environmental issues are something that has become more important in the last few years. People are becoming more aware of pollution and want companies to do something about that. Nokia knows this growing sense of awareness for the environment and has changed the ways of producing. It has decreased its use of energy and water, it is recycling products and it has changed the materials for producing its products into more environmental friendly materials.[7]

The Social-Cultural

The population of Europe is very diverse. People can be divided into different subcultures that have several ways to spend their money. Subcultures could be different age groups, interest groups and immigrants. They have also different attitudes towards mobile communication.

The technological forces

- technological development of mobile phones
- technological development of substitutes

Technological development of mobile phones is an important technological force, because the technology in the mobile phone business is constantly innovating and developing which can lead to big changes for Nokia. There is a constant research going on within the mobile phone businesses (so also in Nokia) to try to develop new gadgets and new systems for the mobile phones. Nokia has to be aware of these developments, because when the competitors develop a new gadget that Nokia does not have, it means that the competitors will have a comparative advantage over Nokia.

The technological development of substitutes is important, because when there will be a new developed substitute, it can mean that people will buy this product instead of a Nokia mobile phone and so the sales for Nokia will drop along with the profit.

The political- legal forces

- Finnish law
- European law
- Domestic laws in each of Nokia’s foreign markets
- International laws
- Health regulations

Because Nokia is a Finnish company and has its headquarters in Finland, the board of directors has to be run in accordance with The Finnish law. Since Nokia is also an international company, it has to comply with international laws such as the European law. International laws are actually a collection of treaties, conventions and agreements between nations, for example tax treaties, patent protection systems and trademark conventions.[8] In addition to these, Nokia must also comply with every foreign country’s domestic laws, which it is doing business with. Laws affect every aspect of Nokia’s business: product safety, consumer protection, dealing with competition, packaging and labelling and advertising, just to mention a few.

Legislation is useless if it is not enforced. Nokia has to know the legal environment because it constitutes as “the rules of the game”. At the same time, it “must know the political environment because it determines how the laws are enforced and indicates the direction of new legislation.”[9] Health regulations are also important, because of the danger of mobile phone radiation and the way Nokia has to handle with this threat. “In order to protect the population living around base stations and users of mobile handsets, governments and regulatory bodies adopt safety standards, which translate to limits on exposure levels below a certain value. There are many proposed national and international standards, but that of the International Committee for Non-Ionizing Radiation Protection (ICNIRP) is the most respected one, and has been adopted so far by more than 80 countries.”[10]

4.2 SWOT- analysis

We will use the SWOT- analysis to see what the strengths and weaknesses of Nokia are and what its opportunities and threats are.

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Strengths

One of the strengths of Nokia is their strong brand name and good image. They were one of the first players on the mobile phone market, as it became a new market in the 90’s. Since the beginning, they took a strong grip at the market, through producing user friendly, durable and modern looking mobile phones. The fact that they are also constantly innovating, so they can come with new functions on the mobile phones, is also an important part of their strength. Because they have already been producing mobile phones for over 15 years, they are very experienced in the process of producing and innovating new mobile phones.

Weaknesses

Despite the fact that Nokia is still a giant in the phone world, it has a few weaknesses. The originality of the mobile phones is not always as good as of the competitors. For example in 2003 Nokia was too late with clamshell phones, while other companies already had these models. Just after prosperity of these phones, Nokia had to start making these models as well because otherwise they would have lost their market share significantly. Nokia has good new phone models but sometimes there is slightly information about. Consumers are missing information that they could get through advertisement, packaging etc.

[...]



[1] ”Nokia: On the road to recovery?”, 07/2005, <http://www.gii.co.jp/english/kt32528-nokia.html> (18.11.05).

[2] “Nokia: Financials”, 10.2005, <http://www.nokia.com/A402776> (20.11.05).

[3] “IDC - Press Release”, 11.03.2005, <http://www.idc.com/getdoc.jsp?containerId=pr2005_03_07_134916>,

<http://www.idc.com/getdoc.jsp?containerId=pr2005_11_21_103107> (19.11.05).

[4] See above footnote No. 2.

[5] See above footnote No. 2.

[6] “Europe: Demography”, 2005, <http://www.unhabitat.org/habrdd/trends/europe.html> (01.12.05).

[7] “Environment”, 2004, <http://www.nokia.com/P11779> (29.11.05).

[8] V. Terpstra, R. Sarathy, International Marketing, 8. edition (Ohio: Thomson South-Western,2000) 130-135.

[9] Terpstra 126.

[10] “Environmental Report of Nokia Corporation”, 2004,

<http://www.nokia.com/NOKIA_COM_1/About_Nokia/Environment/nokia_ymparistoraportti_2004.pdf >

(29.11.05).