Consider an organization that has undergone strategic changes.

What is the type of change made and the contextual features that brought success for the implementation of the change program?

Nokia’s Strategic Changes
Submitted To : Dr. P. Sathyapriya Submitted By : Siddharth Bhate

Siddharth Bhate

Table of Contents
EXECUTIVE SUMMARY .................................................................................................................................. 2 INTRODUCTION -Nokia, from then to now ................................................................................................... 3 INDUSTRY CHARACTERISTICS AND PAST STATISTICS .................................................................................... 5 PORTERS FIVE FORCE MODEL ....................................................................................................................... 7 Threat of entry ...................................................................................................................................... 7 Threat of the substitutes....................................................................................................................... 7 Bargaining power of suppliers .............................................................................................................. 7 Rivalry among existing competitors ...................................................................................................... 7 NOKIA’S STRATERGIES................................................................................................................................... 8 NOKIA’S CORPORATE LEVEL STRATEGY .................................................................................................... 8 NOKIA-MICROSOFT ALLIANCE (2011) ....................................................................................................... 8 Key elements of Nokia’s strategy.......................................................................................................... 8 Regaining leadership in the smartphone space .................................................................................... 8 Connecting the next billion ................................................................................................................... 9 A REPORT CARD: THE NOKIA/MICROSOFT PARTNERSHIP ........................................................................ 9 THE ROAD AHEAD ................................................................................................................................... 11 NOKIA’S BUSINESS LEVEL STRATEGY ...................................................................................................... 13 REFERENCE .................................................................................................................................................. 14

EXECUTIVE SUMMARY
Nokia is a global brand, a market leader and a firm rich in heritage. But it is now battling for survival in a strategic crisis caused by a range of external and internal factors that are core and business strategy specifications. Here I have outlined some of the main strategic issues facing Nokia and linked to recent supporting resources which students should examine. The following features/strategic changes have been discussed in the report  Global market leader in mobile phones - but not smart phones  Still profitable, but revenues under pressure  Elop(CEO) outlined results of his strategic review on Feb 11 2011 - making it clear that Nokia had to undergo a substantial programme of change  Elop announced a strategic partnership with Microsoft in March 2011 to jointly develop smartphones using the Windows mobile platform - ditching Nokia’s previous investment in its homegrown Symbian platform  Elop has swept away many elements of Nokia’s previous organizational structure - a significant process of delayering  Elop has refocused the business on leadership (managers taking decisions and responsibility) and markets (innovation driven by people competing in key mobile phone segments)  Decision-making has been delegated to local/national teams rather than relying on decisions by an overly-centralized senior management team  Goals and incentives for the senior leadership team are now more transparent  The new strategy brings clarity and a sense of direction to Nokia - but will it be enough to achieve a successful turnaround? Almost everyone who understands the challenges facing Nokia agrees that change is unavoidable Nokia had missed the major change in its market - the smartphone revolution. Nokia had continued to focus on mobile phone devices (hardware) rather than mobile phone applications (software). The product life cycle of Nokia’s products had shortened dramatically as others (Apple, Google Android) developed smartphone platforms and an associated ―ecosystem‖ of apps. The consumer transition from traditional mobile phones to smartphones has been dramatic and caught Nokia off-guard. Nokia has faced intense competition from mobile phone producers in emerging markets who can make fast, cheap handsets at the lower end of the mobile phone market. Poor leadership and complacency (bred from success in non-smartphones) The wrong culture - over-consensual; lacking innovation and entrepreneurial spirit. Complex, overlybureaucratic organizational structure with poor accountability. Nokia had become ―clogged with bureaucracy‖. Decisions being made within the firm were often cancelling each other out!. ―A series of committees, boards and cross-functional meetings held-up decisions

INTRODUCTION -Nokia, from then to now
FOUNDING Nokia was originally founded as a paper manufacturer by Fredrik Idestam in 1865. After having established a groundwood pulp mill in South-western Finland, Idestam in 1868 constructed a second mill in the nearby town of Nokia: having better resources for the generation of hydropower production. In 1971 Ideastam along with close friend Leo Mechelin transformed the firm into a share company, thereby founding the Nokia Company. ELECTRONICS In the late 19th century Nokia added electricity generation to its business activities. After setting up the Finnish Cable Works in 1912, Nokia began to branch out into electronics in the 60s. Having developed its first electronic device in 1962 (a pulse analyser for use in nuclear power plants) Nokia began development on radio telephones in 1963 for the army and emergency services and by 1987 Nokia became the third largest TV manufacturer in Europe. MOBILE TELEPHONE In 1979 the company established the radio telephone company Mobira Oy as a joint venture with the Finnish TV maker Salora. Having established a firm business footing Nokia released the Nordic Mobile Telephone (NMT) service, the world’s first international cellular network. As the mobile phone industry expanded throughout the 1970s and early 1980s Nokia introduced their first car phone in 1982, the Mobira Senator. GORBACHEV In 1987 Nokia introduced the Mobira Cityman, the first handheld mobile phone for NMT networks. Although the phone was both heavy at 800g and expensive at €4560 it was well received – and is now considered a classic – in large part thanks to Mikhail Gorbachev after he was photographed using one. After having established themselves as major players in the mobile phone industry GSM was adopted as the European standard for digital mobile technology. THE RINGTONE Nokia launched the 2100 series in 1994, the first to feature the Nokia Tune ringtone. After having established itself as one of the most frequently played and widely recognized pieces of music in the world the Nokia 2100 went on to sell 20 million phones worldwide (Nokia’s target had been 400,000). In addition to the ringtone Nokia in 1997 introduced the game of Snake: a game that is now replicated on over half a million phones. WORLD LEADER By 1998 Nokia established itself as the world leader in mobile phones sales. Between 1996 and 2001 Nokia’s turnover increased by almost 500 percent from €6.5bn to €31bn. The exploding

world-wide demand for mobile phones through the 90s caused a major logistics crisis for many mobile phone operators; however Nokia was, and still is today, renowned as being the best operator for handling such logistics. THE INTERNET Nokia in 1999 released the Nokia 7110, capable of rudimentary web-based functions, including email. Further developments in mobile technology meant that in 2001 Nokia launched its first phone with a built-in camera (Nokia 7650) and in 2002 their first video capture phone (Nokia 3650). Though it was in 2002 with Nokia’s first 3G phone (Nokia 6650) that mobile technology was to experience a radical technological shift. Here on phones were able to browse the web, download music, watch TV and provide listless other services. DEVELOPMENT Nokia was to sell its billionth phone in 2005 as mobile phone subscriptions surpassed 2bn in this same period. In 2007 Nokia was internationally recognized as the fifth most valued brand in the world. In both 2009 and 2010 the Dow Jones Indexes ranked Nokia as the worlds most sustainable technology company as they set about developing their business methods and strategies in accordance with new environmental standards. LOSSES In October 2009 Nokia posted its first quarterly loss in more than a decade, largely thought to be a repercussion of HTC releasing the first phone to use Google’s Android operating system: the HTC Dream (as of today 60 percent of mobile phones are powered by Android). After a year of struggling to keep pace with iPhone and Android devices Nokia hired former Microsoft executive Stephen Elop as chief executive in September 2009. CUTS AND PLANS In October of 2010 Elop outlined plans to make 1800 job cuts and to streamline Nokia’s Smartphone operations. After admitting its inferiority to Microsoft’s operating system Nokia moved away from Symbian and established a partnership with Microsoft. Having spent 2010 onwards making thousands of job cuts and enduring the failed successes of its Lumia 800 Nokia were superseded by Samsung as the largest producer of mobile phones. Nokia has more recently announced the new Lumia 920 as the flagship for Microsoft’s new operating system and have signed a deal to sell and lease back what were its headquarters for the past 16 years.

INDUSTRY CHARACTERISTICS AND PAST STATISTICS
―Economics define an industry as a group of firms that supplies a market, hence why a close correspondence exists between markets and industry (Grant, Contempory Strategy Analysis, 2010).‖ The global mobile phone industry consists of all analog and digital handsets used for mobile telephony (Marketline, 2009). One of the major boundaries of the industry deals with geographical location. Though mobile phones are readily available across the globe, many regions and countries are without cell service rendering the device useless in that part of the world and leaving out potential buyers (Vick, 2010). Combined with technology this boundary goes further as certain parts of the world only use one standard for mobile telephony. The leading technological standard is GSM (Global System for Mobile Communications) followed by CDMA (Code Division Multiple Access) (Lovekar). Also, as mobile phones progress, so do the standards. With smart phones becoming more and more popular, the demand for data continues across networks. New standards are emerging to meet this demand such as 3G on AT&T and Verizon’s imminent LTE standard which is on track to launch by the end of 2010 (Shein, 2010). The mobile phone industry as a whole is a one of the fastest growing industries in the world and expanding globally rapidly as developing countries emerge. Cell phones have gone through major changes since their introduction in 1994 undertaking three major upgrading phases. The first major upgrade occurred in 2002 with the addition of the first colored screen, followed by the introduction of multimedia mobile phones during 2004-2006, and finally the birth of the smart phone in 2007 by Nokia (PRlog). The mobile phone will continue to evolve and be reinvented as customer expectations and wants are changing with today’s ever-emerging technology and constant innovation that is occurring within the industry. One of the major contributions to the mobile phone industry growing is largely because it has become a necessity in our everyday life. Whether it is parents getting mobile phones for their teens because they want to communicate in case of an emergency, or sharing photos while on vacations, cell phones have become a staple item in all our activities. The wireless carriers have even made it easy to add users to their existing plans causing entire families to be connected and children younger and younger are starting to own these devices and overall increasing buyers and market size worldwide (Chen, 2006). In January 2009 the total number of mobile phone subscriptions in the world reached over 4 billion. Out of total population on the planet, that equates to 59% owning a subscription. With taking into account owning multiple subscriptions, the world contains 3.1 billion unique owners and at the end of 2009, topped over 50% of total population. The size of the user base increased by over 19% in 2008 even with the several months of economic decline in the world causing it once again to be one of most rapid expanding industries (Ahonen, 2009).

Nokia, once the No. 1 phone maker in the world, has seen its fortunes wane post iPhone. Its global smartphone market share has been halved, from 15 percent to 7 percent, over the past year alone in the wake of halting development of the Symbian OS. To the rescue is Microsoft, which is providing the OS for the Lumia portfolio. Amid dismal earnings numbers otherwise, Nokia’s Lumia smartphone sales in the second quarter beat estimates, with the Finnish incumbent moving 4 million of them during the period — including 600,000 in the all-important North American market. Nokia launched both the Lumia 920 and the Lumia 820 based on the Windows Phone 8 OS. Both have bells and whistles like near field communication (NFC) integration and wireless charging, but the company is wisely focusing on integrated apps to gain a first differentiation. The Nokia City Lens app for instance adds an augmented-reality layer to the Nokia Maps function. The phones have Skype integration, a new home screen layout, and turn-by-turn navigation. The company has made a big gamble on Microsoft’s Windows Phone OS, which it chose to replace Symbian last year. The Windows Phone 8 launch is now looming, and Nokia calls it ―an important catalyst.‖ But Windows has never been able to gain significant traction in the mobile space, so in many ways these two companies are resting on weak pillars across the board. It will be interesting to see how Nokia positions new Windows Phones against the strength of Android and Apple iOS.

PORTERS FIVE FORCE MODEL

Threat of entry Microsoft Corp announced its decision to enter the mobile phones market, it could bring the big threat to Nokia. However, it is only an announcement. New network operators can supply the customized, operator-specific handsets. New emerging competitors from Asia So, Nokia will meet more intensive competition than before. Threat of the substitutes There is no direct substitute in mobile phone industry, especially for Nokia’s advanced products Bargaining power of suppliers Since Nokia is the market leader in the mobile phone sector, Nokia is in the strong position. Bargaining power of buyers In handsets market, end users are not directly purchasing handset from Nokia, instead they purchased from the service providers. Since the market becomes more sensitive to the price, Nokia could meet the strong bargaining power from the buyers. Rivalry among existing competitors There is intensive competition in mobile phone industry. The competitors include Samsung, LG, Sony Ericcson and other new emerging manufactures.

NOKIA’S STRATERGIES
NOKIA’S CORPORATE LEVEL STRATEGY NOKIA-MICROSOFT ALLIANCE (2011) Under the proposed Partnership:  Nokia would adopt Windows Phone as its principal smartphone strategy, innovating on top of the platform in areas such as imaging, where Nokia is a market leader.  Nokia would help drive the future of Windows Phone. Nokia would contribute its expertise on hardware design, language support, and help bring Windows Phone to a larger range of price points, market segments and geographies.  Nokia and Microsoft would closely collaborate on joint marketing initiatives and a shared development roadmap to align on the future evolution of mobile products.  Bing would power Nokia’s search services across Nokia devices and services, giving customers access to Bing’s next generation search capabilities. Microsoft adCenter would provide search advertising services on Nokia’s line of devices and services.  Nokia Maps would be a core part of Microsoft’s mapping services. For example, Maps would be integrated with Microsoft’s Bing search engine and adCenter advertising platform to form a unique local search and advertising experience  Nokia’s extensive operator billing agreements would make it easier for consumers to purchase Nokia Windows Phone services in countries where credit-card use is low.  Microsoft development tools would be used to create applications to run on Nokia Windows Phones, allowing developers to easily leverage the ecosystem’s global reach.  Nokia’s content and application store would be integrated with Microsoft Marketplace for a more compelling consumer experience. 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 focus on speed, results and accountability Regaining leadership in the smartphone space To help achieve their mission, Nokia has formed a strategic partnership with Microsoft that will, see them regain lost ground in the smartphone market. Together, they intend to build a global ecosystem that surpasses anything currently in existence. The Nokia-Microsoft ecosystem will deliver differentiated and innovative products with unrivalled scale in terms of product breadth, geographical reach and brand identity.

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Connecting the next billion In feature phones, Nokia’s strategy is to leverage its innovation and strength in growth markets to connect even more people to their first internet and application experience. By providing compelling, affordable and localized mobile experiences, particularly to emerging markets, their ambition is to bring the next billion online. We will continue the renewal of our Series 40 platform in QWERTY, touch & type, dual SIM, Nokia services, including Maps, Browser, Life Tools, Web apps and Money. They are also investing in the future; developing assets (platform, software, apps), which will bring a modern mobile experience to consumers and enable business opportunities for developers.

A REPORT CARD: THE NOKIA/MICROSOFT PARTNERSHIP
Evoking images of the Allies landing at the Normandy beaches in 1944 Nokia Chief Executive Stephen Elop said in late January that the Finnish mobile phone maker had managed to ―establish a beachhead‖ in the smartphone market. Instead of British, Canadian and American soldiers, though, it is Nokia’s Lumia series of smartphones – the 710, 800 and 900 – outfitted with Microsoft’s Windows Phone software that have done the landing. ―Our specific intent has been to establish a beachhead in this war of ecosystems, and country by country that is what we are now accomplishing,‖ Elop said. ―From this beachhead of more than one million Lumia devices, you will see us push forward with the sales, marketing and successive product introductions necessary to be successful.‖ Maybe. The three phones have received generally good reviews and seem to be gaining some traction in the hyper-competitive smartphone market. But it is still far from certain whether Nokia and partner Microsoft will make it off the beachhead and onto more stable ground. This market is all about the ecosystem — the collection of companies and services that sprout up around an operating system. It is hard to imagine the iPhone having such meteoric success without all the third-party applications available in the Apple App Store. About 20 billion apps have been downloaded and that number is growing at a clip of about one billion a month. The situation is much the same with Android, where a flourishing app market offers seemingly infinite possibilities for everything from losing weight to tracking prices at the supermarket. Such ecosystems are the key to sustained revenue growth. Apple and Google have created a new market rather than using the legacy handset-driven value chain. That's why a year ago Nokia, struggling to compete with Apple’s iPhone and devices running Google’s Android operating system, turned to computer software giant Microsoft, a one-time rival and a player that is still considered an underdog after more than a decade of trying to penetrate the mobile sector. ―Nokia and Microsoft will combine our strengths to deliver an ecosystem, with unrivalled global reach and scale,‖ Elop, a former Microsoft executive, promised at a February 11, 2011 press conference. ―It is now a three-horse race.‖

That, at least, is the hope. One-time smartphone market leader Blackberry’s future is looking increasingly like that of a niche player. Once an almost obligatory choice for corporations, RIM has been losing that core client base. One recent defector is Halliburton, one of the largest providers of products and services to the energy industry, which earlier this month said it would switch 4,500 employees to the iPhone. The success or failure of the Nokia-Microsoft alliance will therefore be a critical test case to see if the smartphone market will remain a duopoly or if there is indeed room for a third major player. ―Microsoft and Nokia face an uphill battle both from the Windows side and with Nokia trying to establish itself in the smartphone arena,‖ says Craig Cartier, a technology analyst at consultancy Frost & Sullivan. ―But they have a lot of resources so we can’t count them out. If they do this right they will win over some customers and get people talking about Nokia again.‖ Nokia had a head start – it was talking about transforming itself into a software company in 2000, some eight years before the first iPhone hit the street. But Nokia and Microsoft have both been largely absent from smartphone discussions of the past several years. The former has been unable to produce handsets that can compete with the iPhone or with Samsung and HTC, the two largest makers of Android phones, while the latter never managed to convince cellular phone users that the Windows operating system, so ubiquitous on computers, was a compelling choice for a mobile device. Nokia had a 12.4% share of the smartphone market in the fourth quarter, a drop of 15% from the last quarter of 2010, according to estimates by technology consultancy IDC. Apple and Samsung led with 23.5% and 22.8% respectively, both large increases over the same period last year. Rather than a reflection on the new Lumia phones, which hit a limited number of markets in November, Nokia’s decline is an indication of the precipitous drop in the popularity of handsets running the company’s Symbian software. As Nokia struggles to regain its footing in the smartphone market and shifts away from Symbian and towards Windows Phone, the company announced this month that it would cut 3,300 factory jobs in Europe and 700 in Mexico, moving more of its smartphone production to Asia. The company is also coming off a 1.1 billion euro loss in the fourth quarter as sales tumbled 21%. Nokia has never had much success in the U.S., even in its heyday when two out of every five mobile phones sold in the world was a Nokia handset. It made major mistakes in that market, missing clamshells, qwerty keyboards and touch screens. Downplaying the U.S. was not an issue when that country was a mobile backwater. But the American market is now at the center of the mobile Internet. It is there that the Finnish manufacturer and its new American partner from Washington state will either fail or succeed in the smartphone market, say analysts.

―In the smartphone market if you want to be successful you have to be successful in the U.S.,‖ says Bengt Nordstrom, CEO of Northstream, a consulting firm that advises telecommunications companies. ―The industry is very North American-centric. A lot of the innovation and developments are happening in the North American market and a lot of the profits come from there.‖ Nokia, for its part, is now very focused on improving its showing in the U.S. market, the only place so far where the Lumia 900, the manufacturer’s most high-end smartphone, has been released. ―The US market is extremely important not only because it is very big from a smartphone point of view, but also because of the influence it has,‖ says Waldemar Sakalus, a Seattle-based Nokia vice president for the Nokia-Microsoft alliance. ―Many important developers, investors, bloggers and journalists are in the U.S. The importance of the market goes beyond the size itself.‖ From mid-November until the end of January Nokia sold one million Lumia handsets, impressive just coming out of the starting gate, especially considering that the 900 did not reach stores until after the new year. However, in only a slightly longer period (from the beginning of September to the end of December) Apple sold 37 million iPhones. Worldwide, in the fourth quarter Nokia sold 20 million smartphones while in all of 2011 it sold 417 million phones, of which 77 million were smartphones. The 710 and 800 models have been introduced in Britain, France, Germany, Italy and several other countries. And the Lumia series will begin selling in China and Latin America in the first half of this year. Nokia and Microsoft have tied their futures to their smartphone partnership, but ironically, if they are successful Nokia will find itself with new competitors using the Windows Phone software, which like Android is open for all manufacturers to install on their handsets. Touchbased Windows Phone is a long way from previous incarnations of Microsoft mobile phone software and has shed any visible connection to the Windows operating system that runs the majority of the world’s computers. NOTE - Because of the alliance there was a 78% growth in the sales of their lumia phones

THE ROAD AHEAD
Microsoft Corp. is buying Nokia Corp.'s line-up of smartphones and a portfolio of patents and services in an attempt to strengthen its fight with Apple Inc. and Google Inc. to capture a slice of the lucrative mobile computing market. The 5.44 billion euros ($7.2 billion) deal announced late Monday marks a major step in the company's push to transform itself from a software maker focused on making operating systems

and applications for desktop and laptop computers into a more versatile and nimble company that delivers services on any kind of Internet-connected gadget. "It's a bold step into the future - a win-win for employees, shareholders and consumers of both companies," Microsoft CEO Steven Ballmer told reporters at Nokia's headquarters in Finland Tuesday. "It's a signature event." Microsoft hopes to complete the deal early next year. If that timetable pans out, about 32,000 Nokia employees will transfer to Microsoft, which currently has about 99,000 workers. The proposed price consists of 3.79 billion euros ($5 billion) for the Nokia unit that makes mobile phones, including its line of Lumia smartphones that run Windows Phone software. Another 1.65 billion euros ($2.2 billion) will be paid for a 10-year license to use Nokia's patents, with the option to extend it indefinitely. Investors in Nokia welcomed the deal, sending shares in the company up some 40 percent to 4.12 euros in Helsinki. Microsoft, based in Redmond, Wash., has been racing to catch up with customers who are increasingly pursuing their digital lives on smartphones and tablet computers rather than the traditional PCs. The shift is weakening Microsoft, which has dominated the PC software market for the past 30 years, and empowering Apple, the maker of the trend-setting iPhone and iPad, and Google, which gives away the world's most popular mobile operating system, Android.

NOKIA’S BUSINESS LEVEL STRATEGY Nokia's business-level strategy is supported by its functional strategy through the ways that its functional strategy complements its business strategy. For instance, Nokia uses several functional strategies such to produce quality phones and services at a low-cost price and to be a market leader through its innovations. Nokia also differentiates itself, a business strategy, by its emphasis on green technology and its environmentally friendly practices. Nokia's functional strategies such as producing quality phones and services at a low-cost price while leading the market with its innovations help the company's business-level strategy. Nokia is able to produce many phones at a time which allows them to obtain economies of scale which also allows them to use a cost-leadership strategy. However, their focus to be innovative and their emphasis on going green and protecting the environment also allows them to differentiate themselves from their competitors. Nokia’s cost leadership strategy allows it to garner a strong market share in global markets, especially those where high-end smart phones are unaffordable. Such markets include India, China, and the Middle East. Nokia’s global market share in the first quarter of 2009 was 41.2% . Research in Motion, known for the BlackBerry, had a 19.9% market share and Apple, with the iPhone, had a 10.8% market share during the same period. Targeting emerging markets allows Nokia to be a first mover, establishing its brand among those new markets. A disadvantage to Nokia’s strategy is demand in established markets. While Nokia had a 40% market share in the American market in 2002, its market share slid to 7% by 2009. A study by the NPD Group found the average price per handset to be on the rise, with features such as QWERTY keyboards experiencing a boost in demand. In contrast, Research in Motion held 43% of the U.S. smart phone market in January 2010. Apple held 25.1% of the market in the same period. Losing share in developed markets such as the U.S. might explain its 3.9% decrease in global market share from 2008 to 2009.

REFERENCE

 http://www.zdnet.com/microsofts-hit-or-miss-strategic-partnership-history-7000017764/  http://www.gurufocus.com/news/178373/expect-something-big-from-nokia-after-themicrosoftnokia-alliance  http://www.informilo.com/20120226/report-card-nokiamicrosoft-partnership-532  http://gadgets.ndtv.com/mobiles/news/nokia-shares-jump-40-percent-after-microsoft-deal413750  http://en.wikipedia.org/wiki/Nokia#Alliance_with_Microsoft  http://peterskov.wordpress.com/2011/06/30/the-partnership-between-nokia-and-microsoftand-its-effect-for-nokia-on-the-us-market-for-mobile-phones/  http://www.statista.com/statistics/263438/market-share-held-by-nokia-smartphones-since2007/

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