[ORGANIZATION RESTRUCTURING AT NOKIA] DSBS 2019-20

SALES AND DISTRIBUTION

MANAGEMENT

TOPIC: ORGANIZATION
RESTRUCTURING AT NOKIA

A CASE STUDY REPORT

PRESENTED BY:
JAYA SHARMA
SHRADDHA SHARMA

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AKNOWLEDGEMENT

We would like to express our sincere and heartfelt gratitude

to our Director sir Dr. Vijaya Sarthy for providing his
valuable guidance, comments, suggestions and constantly
motivating to work harder throughout the course of the case
study, whose direction have contributed immensely to the
evolution of our ideas on the case presentation and without
his constant guidance and encouragement the case study
would not have come to existence.

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CONTENT

I. ABSTRACT
II. HISTORY OF NOKIA
III. INTRODUCTION
IV. THE FIRST WAVE OF RESTRUCTURING
V. THE SECOND WAVE
VI. COURSE OF ACTION (HOW DOES NOKIA DO IT)
VII. ISSUES AND PROBLEMS FACED
VIII. PURPOSE
IX. NOKIA FAILS
X. DATA COLLECTION
XI. DATA ANALYSIS
XII. RECOMMENDATION
XIII. QUESTIONS ANSWERED
XIV. CONCLUSION
XV. BIBLIOGRAPHY

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ABSTRACT
The caselet discusses the organizational changes made by Nokia in the
wake of competition in 2002 and the impact on its business. It also
discusses the organizational restructuring made in 2003 and gives a brief
description of new business units formed as a result of restructuring.
Finally, it gives an insight into the possible benefits for Nokia from the
new organizational structure.

INTRODUCTION
Nokia was established in 1865 as a pulp and paper mill in Finland.
During the 1960s, they expanded into the rubber and cable industries
through a series of mergers. In 1975, they expanded into many
industries such as computers, consumer electronics, and cell phones.
In 1979, Nokia and Mobria entered into a joint venture, which Nokia
took over later to design and manufacture mobile phones. Since 1998,
Nokia has been the market leader in the mobile phone industry
transcending the boundaries between countries and continents.
Nokia has diversified its business model time and again to maintain its
leadership status in the industry. To achieve growth and success,
Nokia had to go through a number of corporate restructurings to
revive the organization and adapt to its dynamically changing goals
and visions. Restructuring allowed Nokia to come to terms with the
increasing competition in the industry, creating an organizational
culture that promotes innovation and results in low attrition rates
compared to the industry. In the past six years, Nokia has had two
major waves of restructuring comprising three restructuring processes
in all. The first wave came early in the 21st century, with two
restructurings in 2002 and 2003 respectively. The second wave,
currently in progress, aims to place Nokia at the vantage point with
respect to the future technology.

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The First Wave

The late 1990's saw Nokia shifting its focus from 2G to software
development. The growth path in 2G was limited primarily because of
bandwidth constraint and lack of protocols for high speed downloads.
Nokia had already begun work on 3G which would eventually see the
convergence of telephony, computing and the Internet. Nokia's
widespread restructuring at this time was an attempt to support this
new corporate strategy. A monolithic organizational structure was no
longer appropriate for a market that required flexibility and faster
movement to tap opportunities. In 2002, Nokia split its mobile phone
division pillar into nine separate business centers based on geography,
charging them with working on specific markets independently,
especially Russia, China and India. Nokia had finally learnt from its
folly of neglecting these growth markets.
September 2003 saw Nokia marching ahead with its structural
changes by dividing the company into four divisions: mobile phones,
multimedia phones, enterprise solutions and networks. These
divisions along with the cross-divisional market operations and
technology platforms gave it a matrix structure attuned to the existing
environment that needed flexibility. The divisions were small in size
and enabled faster response in targeting markets that were vastly
different with respect to feature demand and usage.

Nokia's Organization Structure, 2003-2008

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This structure was significantly responsible for the growth that Nokia
saw in this period, especially in the emerging markets. Nokia
managed to overcome its mistake of allowing competitors like
Motorola to run away with product innovations like flip phones. But
Nokia's change-if-unfit methodology of dealing with its organization
structure ensured that the second wave of restructuring was not too far
away.
The First Wave Loses Steam
The second wave of restructuring was necessitated by the changes in
the rapidly growing marketplace. The existing structure was strained
by this growth which magnified its deficiencies. Trouble started
creeping in as technologies began to converge and the phones started
becoming similar. Every phone in the market seemed to be offering
similar features that drove the demand for a common platform. The
structure was incapable of meeting such needs. The major issues faced
by this structure were:

1. Repetition of work across divisions and non-standardization of

product
2. Poor coordination among divisional groups working on the same
technology
3. Inability to develop any major expertise
This led to cost ineffectiveness and called for a major revamp and re-
structuring in Nokia.
The Second Wave
Nokia restructured itself into three main functional groups: Markets,
Devices, and Software & Services.
Markets:
This division handles customer, front-end sales and the go-to-market
strategy of Nokia sales worldwide.

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Devices:
It deals with all the hardware and software requirements for the
development of a new mobile phone. Research and Development,
product development and software variants that were earlier separated
in three divisions have now been put together under a single umbrella
division. The R&D division was further broken down into functional
entities as per the requirements.
Software & Services:
It was created in the restructuring exercise with an eye on the future of
the industry. It reflects the path that Nokia wants to take in the coming
years and is in sync with its vision of bringing the best of Internet to
phones and offering Consumer Internet Services.
Nokia-Siemens Network:
Nokia established networks division in collaboration with Siemens as
a separate entity to grow fixed and mobile network infrastructure and
services. This helped Nokia to expand its scale of operations and
strengthen its market position.

Global Architecture (New Structure), 2008

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Nokia focused on four main aspects in its restructuring process:

1. Product focus: Nokia was manufacturing 70 models world wide

2. Functionality focus: Technical and functional expertise was
important for cutting edge technology
3. Geographic focus: Expanding global footprint
4. Focus on Internet services: Exploring future possibilities
While the clear effects of the second wave of restructuring are yet to
be seen, the new structure is expected to offer the following
advantages to Nokia

 Consolidated R&D department with functional expertise that

eliminates repetition of work
 Flexibility and adaptability in sharing human resources across
programs

How Does Nokia Do It?

Organizations of the size of Nokia tend to stick to the same structure
for long periods of time for the simple reason that it is an enormously
difficult task to restructure. Large organizations that undergo
restructuring face a lot of discontent from employees who have gotten
used to a specific style of functioning (organizational inertia). How
then is Nokia, a giant, able to restructure so often without batting an
eyelid? A large part of this answer stems from its organizational
culture and values.
The need for a "Culture of mobility" has led to an external strategic
focus and flexible environment. This flexibility has ensured that even
major changes result in minimum discontent among employees.
Transparency in the restructuring process and a clear definition of
new roles and duties allow things to fall in place quickly ensuring a
smooth transition from one structure to another.

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The structures adopted also have a role to play in the success of the
restructuring exercise. The newer structures have allowed for
significant growth through acquisitions and collaborations. The
divisions' multifunctional competencies have resulted in increased
cooperation with organizations in the wider ecosystem. Acquisitions
of smaller technology firms are an attempt to use its divisions'
expertise to grow. These acquisitions and other collaborations form a
part of Nokia's extended firm. Symbian, Nokia's leading collaborative
platform for mobile devices is one such component of its extended
firm.
"Willingness to change is a strength, even if it means plunging part of
the company into total confusion for a while"
Jack Welch

ISSUES

» Restructuring as a tool for growth

» Importance of flexibility in organization structure

Align structure to strategy

As successful leader Nokia add more value in its business model time to
time and take the crown as leader in mobile industry. To sustaining in
the competitive industry Nokia had go through organization
restructuring strategy. Nokia promotes innovation and add more value in
organization culture. In company history Nokia has had two major wave
of restructuring process first one came in early 21st century and second
in year 2002 to 2003.

We can divided it into two parts

First part Technology &organization restructuring which led reducing

complexity in working function of organization and Second
Organization reform into new structure in this focus on core activity.

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Reduce complexity

In era of 90s Nokia priority shifted from 2G technology to software

development because 2G technology has limited growth opportunities
due to bandwidth constraint and lack of high speed data. Nokia start its
work on 3G technologies which lead in telephony,computing and
internet. Nokia has monolithic organization structure which no longer
suitable for mobile market. Market required more flexibility and faster
movement to capture opportunities so Nokia change in organization
structure to support the new cooperate strategy.

In 2002 Nokia spared its mobile phone division into separate business
center based geography and specific market independently.

Taking the farther step of restructuring Nokia make structural changes

now company has four divisions -mobile phone, multimedia phone,
enterprise solution and networks. This division along with the cross-
divisional market operation and technology platforms which provides
it’s a matrix structure with flexibility.

In this Period Nokia succeed to growth in emerging market and also able
to compete its competitors like Motorola.

What is organizational restructuring?

Restructuring is the corporate management term for the act of

reorganizing the legal, ownership, operational, or other structures of a
company for the purpose of making it more profitable, or better
organized for its present needs.

PURPOSE OF STUDY

Nokia recognize as a global leader in digital technology and

communication but now the scenario has been changed and Nokia losing
its value over the last few years. This study focus on the variation of the

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market shares of the Nokia in the recent few years. Conclusion of this
study gives the market position of this company at different stages.

Importance of Case Areas

Mobile phone is necessary tool for daily use in present society culture.
Consumer demands every time new feature and upgraded technology in
mobile handsets. In this case, we focus on Nokia was global leader in
communication service and it can again change its position by adopting
new restructuring strategy.

NOKIA FAIL
These major factors play important role in the failure:

Lack of Innovation -With the time other mobile companies introducing

new technology to the customers. In case of Nokia fail to provides
attracting feature in mobile segment. Nokia stack with their old
technologies that reflect in decreasing sales.

Complacency-Nokia didn’t really plan for the future and providing old
model when the definition of Smartphone takes a level. Nokia is not
targeting Smartphone segment. As result Apple Samsung capture the
market of Smartphone.

From Symbian to windows-Nokia solely dependents on Symbian till it

entered into a partnership with Microsoft, but it was too late other
competitor like Apple, Samsung had established their domains.

METHODOLOGY

In this case we have studied the restructuring strategies of the Nokia,

how it has evolved as world leaders in mobile communication from a
small paper pulp mill in Finland. As stock price is the indicator of the
performance of any company if company performs well its stock price
generally increases and if it underperforms its stock price decreases. So

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we used stock price index of Nokia as a performance indicator of its

restructuring activities.

COLLECTION OF DATA AND ANALYSIS OF DATA

We have used stock price of Nokia to measure the effectiveness of its

restructuring activities, we have collected share price of Nokia from its
official website. We have taken sample from 1992 to 2012, as during the
1998 to 2007 Nokia was world leader in mobile communication but
since the entrance of Samsung and Apple in mobile market it loses its
share and suffers from stiffer competition. So Nokia again in need of
some is restructuring activities to get ahead of its competitor like
Samsung and Apple. We have used year wise data sample of stock
prices with taken only yearly close price of shares into consideration for
measuring the share price of the particular year. The data sample that we
have collected is given below:

Table : Nokia Share price and volume (Nokia, 2012)

DATE CLOSE PRICE IN VOLUME OF SHARES IN 1000

DOLLARS MILLIONS
1/2/2012 2.49 5.62
1/3/2011 3.77 7.10
1/1/2010 7.74 5.22
1/1/2009 8.92 5.68
1/1/2008 11.10 7.52
1/2/2007 26.52 9.05
1/2/2006 15.48 8.89
1/3/2005 15.45 9.16
1/2/2004 11.62 8.41
1/2/2003 13.71 6.35
1/2/2002 15.15 6.63
1/2/2001 28.96 5.17
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1/3/2000 47.50 2.92

1/4/1999 45.00 2.90
1/2/1998 13.03 3.13
1/2/1997 4.07 2.73
1/2/1996 2.80 2.65
1/2/1995 1.77 2.17
1/3/1994 1.84 1.66
26/8/1993 0.76 0.51

DATA ANALYSIS

From the data we saw that the share of Nokia was in good condition
from 1998 to 2007.

During these years Nokia was market leader in mobile communication

domain.

But restructuring strategies of Samsung and other companies gives

stiffer competition to Nokia and its share value and volume both tend to
decrease.

It has again come up with some revamping strategies to again capture its
reputation in market.

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QUESTIONS FOR DISCUSSION

1. Nokia divided its mobile phone business into nine units in 2002.
Again in 2003, the top management announced a restructuring of
the organization. Discuss the reasons that lead to restructuring
Nokia’s organizational structure in 2003.

During 2000, the company’s revenues increased by 54% however stiff

competition from other mobile phone manufacturers like Samsung and
Sony Ericsson affected Nokia’s sales during the 1st quarter of 2001 as a
result the sales growth was not expected to cross the 5% mark in 2002.

In a move to resurrect the company’s profit Nokia restructured its USD

21 billion worth mobile phone business into 9 units in the spring of
2002. Each unit equipped with its unique marketing as well as research
division, catered to the needs of a particular market segment. However,
in a bid to avoid complete decentralization there was a common
operation and logistics group for all these units. Further, separate
business units were established to focus on developing countries like
India and China to market Nokia’s low priced mobile phones and
expand the market base. In September 2002, all these efforts bore fruit
and the company registered a sale increase of 2 % over 2001 levels.

However, things did not go well after 2002, and in July 2003 Nokia
reported a 28% fall in net profit, its sales grew by only 1% during the 2nd
quarter of 2003. The company was facing severe competition from
Siemens in the low end segment while Sony Ericsson and Samsung were
giving it a run for its money in the high end market. Further, analysts
predicted a gloomy future for mobile phone manufacturer for the years
to come.

To meet the situation the top management of Nokia in the later half
September of 2003, announced restructuring of the organization and this
was implemented on January 1st, 2004. The restructuring was aimed at
increasing the country’s focus on convergence, market growth, and
mobility.
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2. “ with our flexibility and the new structure we are truly in the best
position to bring the benefits of mobility to everyone and to take
the opportunity of the next growth wave in this industry”. Mention
the benefits that Nokia expected to derive by restructuring its
organization.

A look at Nokia's recent history reveals how organizational restructuring

can be used to handle a dynamic external and internal environment. It is
an example of theory in action and how it helped Nokia adapt to a
changing environment and prepare for the future.
The benefits that Nokia expected to derive by restructuring its
organization are financial, such as reviving a declining business,
increasing it’s company’s value, and preparing it for sale or transfer to
the next generation. Other benefits involve gaining a competitive
advantage, such as helping it’s company position itself for growth,
allowing for the addition of new accounts or enabling expansion into
other geographical areas.

Some more benefits:

 To reduce costs
 To concentrate on key products or accounts
 To incorporate new technology
 To make better use of talent
 To improve competitive advantage
 To spin off a subsidiary company
 To merge with another company
 To decrease or consolidate debt

Two words, however, sum up the overall benefits of corporate

restructuring: survival and success.

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CONCLUSION
Nokia, over the years, has evolved both organically and inorganically.
It has always kept an eye on the future and worked towards
achievement of its future goals. To support this corporate strategy, it
has undergone three structuring changes in the past six years in order
to adapt its business model and culture. This has helped Nokia to be a
step ahead of its competitors.
There was a time when Nokia was the leader of the mobile handset
market. But now Nokia is struggling and its competitors are leading the
mobile handset market. Approximate 14 year Nokia’s mobile handset
used to rule the market but now apple and Samsung has successfully
replaced Nokia mobile handsets. In Quarter 1 of 2012 total sales of
Nokia was approximate 83 million handsets and Samsung shipped
around 92 million handsets. It clearly shows that demand of Nokia’s
product is decreasing as compared with their competitors. During 1998
when Samsung entered into the mobile handset market at that time
Nokia was the largest global phone maker. Main reason for the failure of
Nokia handset was the lack of innovation. Nokia’s competitor comes
with modified technology phone every year but Nokia lacked some
technology essentials to drive its sales higher. After having the analysis
of the share price of the Nokia, we found that share of Nokia started to
increase from 1993 and they reached at peak at 2007. After 2008 share
prices of Nokia started to decrease and they are still decreasing. Result
of analysis shows that Nokia didn’t plan for the future competition.
When Apple launched its first i-phone in 2007, Nokia was still
marketing with its E-series phone which was having lack of technologies
as compared with the smart phone of Apple.

Nokia's entry into the mobile internet application development is

important for its future growth. Nokia sees this as the next step to stay
ahead of the competition. This would require one more structural change
for Nokia to foray into a completely new field. Whether or not it
succeeds will depend on how it is able to change itself from what it is

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now to what it should be to meet the demands of a new era. While the
first two waves of restructuring had not greatly tested the ingrained
culture of flexibility, commitment and innovation, the next wave will
require a never seen before emphasis on these traits. Restructuring a
giant organization is not easy, and Nokia will have to do it all over again
to maintain its competitive edge.

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BIBLIOGRAPHY

WEB URL:
1. www.google.com
2. https://en.wikipedia.org/wiki/Nokia
3. https://www.ukessays.com/essays/marketing/restructuring-
strategy-of-nokia-marketing-essay.php

JOURNALS:
1. ORGANIZATIONAL CHANGE – AN EMPERICAL STUDY ON
NOKIA
2. RESTRUCTURING NOKIA
3. DOWNFALL OF NOKIA

BOOKS REFERED:
1. CASE STUDY ON ORGANIZATIONAL RESTRUCTURING

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