MANAGEMENT OF GLOBAL MANUFACTURING STRATEGY

NOKIA: RECONNECTING PEOPLE – CASE STUDY

SCHOOL OF MECHANICAL AND AEROSPACE ENGINEERING

Vohra Moiz Sabbir (G1500850E)

Kapur Pulkit (G1500923D)
Naseem Fahad (G1500924A)
Mahajan Pratik Balu (G1500837K)
 TABLE OF CONTENTS

Abstract 3
1. Introduction 3
1.1. Company Background 4
1.2. Problem Definition and Objective 5
1.3. Methodology 6
2. Literature Review 6
3. Period of Growth: 2003 – 2007 7
4. Period of Downfall: 2008 – 2013 8
5. Nokia Technology Failure 10
5.1. Software 10
5.2. Hardware 11
6. Porter’s Five Forces 12
6.1. Threat of Entry 12
6.2. Threat of Substitute Products 12
6.3. Bargaining Power of Suppliers 12
6.4. Bargaining Power of Buyers 13
6.5. Rivalry Among Existing Competitors 13
7. SWOT Analysis 13
8. Nokia Strategic Decision 14
9. Conclusion and Discussion 15
References 16

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ABSTRACT

When companies are dealing with negative earnings or economic downturns, operational
restructuring is often instigated as a rescue tool. Some firms succeed in recovering, while others
fail to survive and subsequently lose market share.

Nokia Corporation a leading global manufacturer of telecommunication products started to fall

back in late 2007 to 2012 after leading the market for more than a decade. The gap between
Nokia and its opponents had increased considerably when it started to struggle in effort to
regain its role as a leading manufacturer. Nokia was finally taken over by Microsoft and since
then it has been going through a number of corporate restructurings, new corporate strategies,
business level positioning strategy, market positioning of its strategic business units to revive
the organization and adapt to its dynamically changing goals and visions to reconnect people
once again.

In this case study, we will try to understand what happened, what the present scenario is, and
what could Nokia have done to return to retain the leadership and profitability in the global
marketplace. Strategies for delivery, quality, performance, flexibility and innovativeness will be
discussed in this project. In conclusion our analysis will be based on what manufacturing
strategies Nokia could have adopted to regain its lost legacy.

1. INTRODUCTION

Nokia Corporation, leading global manufacturers of telecommunication devices started to fall

during late 2007 to 2012. The gap between Nokia and its competitors had increased
considerably when it started to struggle in effort to regain its role as a leading manufacturer.
Nokia had diversified its business model, time to time in order to maintain its leadership status
in the industry.

In 2007, Apple Inc. inaugurated the iPhone, which was a game-changer in the smart phone
industry. More and more users started shifting to compact, mini-computers with multi-touch
screen instead of feature phones with small screen and low responsiveness offered by Nokia.
Samsung was quick in moving into the smartphone industry while Nokia failed to counter the
iPhone and the shifting demands of the customers. It was very tough for Nokia to react to
abrupt changes when it was already a prominent leader. Samsung was quick in starting
development on multiple platforms including Windows, Android and its own Bada OS.

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In order to revive the brand legacy, Nokia began executing a new strategy for its Devices &
Services business and joined hands with Microsoft in making novel world-wide cellphone
network with Windows Operating System. These changes were made to accelerate the
execution in the competitive mobile products market. It was already very late by this time;
Apple and Samsung had already captured a huge share in the smartphone market. Nokia was
also facing difficulties in the low-end segment, being out gunned by local manufacturers in
emerging markets such as India and China.

To achieve growth and success, Microsoft-Nokia has been going through a number of corporate
restructurings, business positioning strategy, market positioning of its strategic business units
to revive the organization and adapt to its dynamically changing goals and visions. Once largest
share market holder of phone manufacturer is now facing identity crisis.

1.1. COMPANY BACKGROUND

Company’s history dates back to 160 years to wood and rubber business, however the present
Nokia, began in the year 1977 when Nokia Corp was made by unifying of three Finish
companies namely Finnish Rubber Works Ltd (producing rubber shoes, tires etc.), Finnish Cable
Works Ltd (producer of power cables and telephone) and Nokia AB.

After all the company merged, Nokia gave all its attention to telecommunication business and
developing of electronic products. In early 1980 Nokia presented to the world as first of its kind
car telephone for Nordic Mobile Telephone Company which manifested the inception of a new
mobile communication age. Later in that year, for the first time complete functional exchange
of digital telephone was made by engineers working for Nokia in Europe. Similar key
development in mobile communications business came in the year 1990 when GSM (2G)
network became as the European digital benchmark. Subsequently, for the first time a call
through GSM was dialed using new Nokia phone, and later that year Nokia also announced that
it would provide GSM network to other European nations.

Nokia was quick in seeing the market potential with this huge breakthrough in mobile
communications industry, therefore decided to concentrate and invest in telecommunications
business and became a market front runner in all major division. Growth of cellular
communications quickly advanced across from 1990s-2000s and Nokia cemented its position as
international market front runner till the year 2007 (see Figure 1).

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 Figure 1: Nokia Global Sales from 1999 to 2015

1.2. PROBLEM DEFINITION AND OBJECTIVES

The primary purpose of this analysis is exploring the manufacturing approach of Nokia, and
more particularly the introduction strategic choices of Nokia to recapture its lost markets to its
competitors. It is to understand whether there is an evidence to determine that Nokia’s
performance in smartphone market has been adversely affected by the manufacturing strategy
choices of the company. This paper will concentrate on finding problems with the
manufacturing strategy choice and implementation.

1. What is the problem with the manufacturing strategy of Nokia which slowed down the
recovery process of the company?
2. Which manufacturing strategy the company chooses to translate its vision into reality?
3. What are the strategies adopted by Nokia’s competitor?
4. What new strategies should be implemented in order to revive the downfall of the
company?
5. What are reasons behind acquisitions of Nokia and understand Corporate Restructuring
after acquisition as a tool of competitive advantage.

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 1.3. METHODOLOGY

Porter’s Five Forces will be used for uncovering all phases of the competition in an industry. For
Nokia it is important to be sentient of the threats of several competitors, to protect its assets
manufacturing strategy plays a pivotal role. To map atmosphere of Nokia, SWOT analysis is
used. SWOT analysis will help in understanding whether Nokia’s strategy is based on focusing
its strengths and shielding itself from the threats in market, and whether it has worked to
equipoise its weaknesses.

2. LITERATURE REVIEW

In the past; myriad number of extensive researches has been carried out on this topic. Lubinaite
[1]
highlighted that for an exceptional technology strategy, good technological expertise in the
top management layer is imminent. In today’s challenging market environment; just relying on
a family of devices is not sufficient and developing a product-service ecosystem is of prime
importance [2][5]. Cruz [3] conducted detailed analysis of Nokia’s business level positioning
strategy focusing on the influences of dynamics of the industry as well as their corporate
strategy focusing on generation of additional value. Adopting a new strategy always challenges
the innovation capability of any organization. However Marian explained [6] Nokia’s
segmentation strategy adopted in the mid range Lumia series could not differentiate between
the target customers and thus backfired. The strategic alliance between Microsoft and Nokia
showcases the effect of sharing technological competencies between two distinctly positioned
companies and how it can add fuel to the collaborative growth of both the firms in sporadic
market environments [8]. Constantly thriving for increasing market returns is a continuous
process and is the core of any organization’s vision for expansion. In [10]; an integrated and
multi-disciplinary approach is adopted by the authors to develop a critical framework to analyze
the global competition in a holistic way so as to focus on increasing the company’s returns over
a period of time. In this paper; it is has been tried to further expand the horizon to discuss in
detail the scenario at different points in time and the strategic decisions taken at corporate
business level which have positioned Nokia in its current situation.

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 3. PERIOD OF GROWTH: 2003 – 2007

For Nokia Corporation the period from 2003-2007 embarks abundant success and speedy
growth. It is due to key advancement in telecommunications business, Nokia grabbed this
opportunity to become a global leader in major markets. Numerous restructurings such as
horizontal groups and marketplace division were implemented by the organization.

Reorganization of company into four business units were supported by three cross-divisional
horizontal groups that supported the business groups: Technology Platforms; Customer and
Market Operations and Research, Offering and Business Infrastructure (see Figure 2).

Each business division had a clear approach and aimed various market segments, whereas
horizontals groups were intended to increase Nokia’s operational efficiency. Such fresh
organizational restructuring proved to be effective to meet the demands of numerous customer
segments – the strategy of broad market segmentation that Nokia had adopted.

Figure 2: Nokia Organizational Structure before 2008

The company’s foremost strategic focus during these years was to grow in cellular market and
consumer multimedia industry, for e.g. games and imaging. Nokia had recognized corporate
services and markets to enterprises as another important division. Broad segmentation had
led to progressive market penetration in almost all consumer segments. During the year 2004
Nokia launched 37 different mobile models and 48 new models in the year 2006 ranging from
low-price range to high-end cost with extensive variety of added features. In the late 2005
Nokia had recognized 11 different product categories for various market divisions. Nokia
invested huge amount in Research and Development with its 38% of total staff working in R&D
department. Dozens of mobile devices were launched consecutively every year, rapidly
changing consumer likings for additional features and settings demanded thorough input and
innovation.
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Nokia was quick in identifying that smartphone device and software development applications
such as email, web browsing, song players, audio-visual recorders and other multimedia
features is the game changer for mobile communications industry. As a result, in late 2004
Nokia launched first of its kind Symbian OS powered touch-screen smartphone Nokia 7710 that
could be called first prototype of present day smartphones, but due to quite a lot of
technological errors it was not made commercially available. Company continued to expand
and the year 2006 marks the change in the company’s strategic planning. New tactic included
taking Internet services to the costumer as well as growth in professional and enterprise
services in addition to the existing mobile device market strategies.

Design and technology were also one of the vital factors for Nokia’s achievements – most of the
technology was built and developed in-house with only 21% of the total manufacture was
subcontracted. Last of all, widespread distribution networks and robust supply chain allowed
Nokia to introduce so many new products every next year and distribute them to almost 153
countries. During the period on 2003-2007 Nokia has made almost 16 acquisitions of numerous
software companies around the world in order to expand its in-house knowledge base and to
commit solid development of its cellular devices and software.

4. PERIOD OF DOWNFALL: 2008 – 2013

Beginning of 2008 marked several changes in the telecommunication industry. Market started
to stir up after Apple introduced its first iPhone. In the same year, Google initiated to form
alliance for open platform for handset and launch of Android operating system marked the
beginning of smartphones.

Nokia released its one of the last successful smartphone N95 which managed to outpace first
generation iPhone. The device was powered by Symbian OS. Although the device did not offer
thrilling User Interface (UI) and specification as iPhone, its success laid in technological
superiority from Nokia. With the release of Apple iPhone 3G and first ever Android phone from
HTC, possessed serious claims on the market share of Symbian OS. In 2008 Nokia decides to
acquire Symbian Ltd and made it completely open source OS since the beginning of 2010.

Nokia dedicated its complete resources for segmentation of software for its smartphones. In
the meanwhile it started selling off its other business such as such as security appliance
business, enterprise ERP software development business, Professional Services from Symbian,
etc. Also, in order to reduce the market time and introducing new devices to its customer,
Nokia decided to significantly reduce smartphone variants and models. This curbed the
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innovation and variety in the market for the Nokia users. Device oriented market now shifted to
software based and it became nearly impossible for Nokia to compete against Android and iOS
systems with Symbian. In less than 2 years, profits shrunk to more than 40% and by 2011,
company was already in debt. Nokia approached Intel for building revolutionary software
MeeGo against Android and iOS that could support multiple hardware architectures. In the
same year Stephen Elop, the former head of Microsoft Business Division is appointed as a new
CEO to lead the company. This period saw various changes in the management team and the
structure of the company. Devices & Services business unit was split into separate Smart
Devices and Mobile Phones business units with clearly pointing out new strategies for its
growth (see Figure 3). Another game changing step was the collaboration with Microsoft and to
adopt Windows phone operating system for their future smartphones for next 3 years.

Figure 3: Nokia Organizational Structure after 2008

With the collaboration with Microsoft for its software expertise, Nokia released its first
Windows Phone powered smartphones Lumia with open and multiple device compatibility.
After 2 years of successful joint venture, Microsoft announced that it will purchase Devices &
Services business, license Nokia’s patents, and Nokia’s mapping services. In the last years of its
business Nokia failed to identify and focus on market changes and varying demands from its
customer. A summary of interdependent technological, organizational and industrial processes
of Nokia during 2003-2013 is shown in Figure 4.

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 Figure 4: Summary of Nokia from 2003 - 2013

5. NOKIA TECHNOLOGY FAILURE

5.1. SOFTWARE

The Symbian operating system was the reason for Nokia’s unprecedented success, which was
then popular and foremost software platform in 2000’s. Because of the Operating system and
hardware enabled Nokia to produce best in class handsets. However, recent trends show that
this OS failed to use the first mover advantage. Symbian was low power-consuming and
proficient mobile software platform that made it the most advanced operating system for
embedded devices. Even though it was very efficient, dependable and operated perfectly well
with all devices, the presence of some elemental factors restrained the development of
Symbian. Limitations such as crafting and development of applications and the lack of app-store
proved the major blockages to the development. Multiple device support or simultaneously
operating features where never the fundamentals for designing the Symbian OS.
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This was the causes of many major issues for the OS development team of Nokia. The design
being not modular, Symbian remained specific for a particular product and very difficult to
upgrade. Major difference between Symbian and todays OS such as iOS and Android, was that
the improvement of the phone or device acted as the driving force for the platform
development. Symbian OS was not an open-source system and it required tons of legal
procedures for external developers to launch their applications. These proved to be main
obstacle for generating more user content Data.

Some of the open-source software platform such as MeeGo a Linux-based was designed for
high-performance numerous embedded devices, conjoining Internet, rich graphics computing
and multitasking multimedia & communication. The leading successful Nokia N9 was powered
by MeeGo OS. Development of this prime phone N9 took time span of 2 years and till this time
Apple had already introduced iOS version 5, iPhone 4s and iCloud services. The development of
Symbian and MeeGo ran simultaneously, it was consuming resources at high rate for Nokia.
Even though MeeGo looked very capable, Choice of terminating its improvement after N9
caused major turn in events for Nokia and proved to be a disappointment for the employees.

5.2. HARDWARE

Nokia maintained the best hardware, logistics and the best optimised product for many years.
Nokia’s proficiency in hardware, infrastructure, process optimisation, innovation has been its
strength and acted as an example for many companies. With its expertise in the hardware
design Nokia had an option if becoming exclusively a Hardware manufacturer. But being a
leading smartphone producer for a long time its top management tried to avoid this. Nokia also
tried outsourcing the software development and building up their experiences in software, but
eventually this cost them a lot.

Nokia was one of the firms which came up with the latest technology; it started with the touch
screen, multi touch and good sharpness. But their decisions of holding on to the resistive
touchscreen were not so good with capacitive touch-screen technology, caused them to fall
back in the competition.

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 6. PORTERS FIVE FORCES

Porter’s Five Forces principle is used to analyse threats and competition in the smartphone
business in order to understand the competitive forces and constraints faced by Nokia. This will
help to understand what strategy Nokia should follow to revive its lost markets.

Figure 5: Porter’s five forces

6.1. Threat of Entry

Telecommunication business requires high capital investments and strong distribution channel.
This discourages new entrants in the market hence the threat of entry in the smartphone
industry remains low. Apple, Samsung and local companies in markets of India and China
possess threat to Nokia on its existence by supplying customized, operator specific and budget
mobile phones for low end customers.

6.2. Threat of Substitute Products

Due to Nokia’s advanced products and scale of organization, there is no direct threat of
substitute in the smartphone industry and hence it remains low.

6.3. Bargaining Power of Suppliers

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The key element of any business is Supply chain management (SCM) and its suppliers.
Manufacturers have an upper hand in terms of bargaining power from suppliers due to fierce
competition in the market and hence it remains low.
6.4. Bargaining Power of Buyers

Since the smartphone market is customer centric, the manufacturer meets strong bargaining
power from the buyers. The end user purchases handsets from the retailers or service
providers, hence it becomes more sensitive to price, technology and innovative products.

6.5. Rivalry Among Existing Competitors

The smartphone industry is identified as one of the most competitive and technologically
challenging industry. The competitors such as Apple, Samsung, LG, Motorola, Sony and other
new emerging manufactures possess great threat to Nokia. The industry is highly perishable
which creates high competition among the competitors.

7. SWOT analysis

SWOT analysis is a method to evaluate strengths, weakness, threats and future opportunities
for any organization. A company should consider its strengths to build its strategy and utilize it
to create competitive edge in the market. Weaknesses and threats are the factors which a
company should minimize and take steps to improve. This analysis will help to understand the
key strengths and drawbacks of Nokia. With analysis on opportunity we can analyse on what
strategy should Nokia implement to grow and expand in the market.

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Figure 6: SWOT Analysis of Nokia
From the above analysis it is evident that Nokia’s main strength lies in its brand name and its
customers whereas it is threatened by huge competition from its rivals and failure to identify
the changing market trend. The company should focus on its weakness and use its opportunity
to regain its lost reputation in the market.

8. NOKIA’S STRATEGIC DECISIONS

The year 2011 was undoubtedly the most intense and puzzling in the history of Nokia
Corporation. Nokia was hit with the lowest sales or new product releases. Company was in a
frantic need for fresh strategic plan and needed to act fast, it was clear that new top
management had to be changed. With Windows Phone as its chief smartphone platform, Nokia
steer the future of the platform by controlling its proficiency on software customization,
language support, and scale and hardware optimization. Microsoft and Nokia would also
integrate services to steer innovation. As per the agreement, Microsoft will provide developer
tools, making it easily accessible for software developers to power Nokia’s global scale.

New CEO, Elop created ripples in the company by changing its policy, ranging from scrutinizing
continuing projects to administrative reforms and so on, which resulted in more focused
strategy. It was vital to recuperate the company values as well – It was necessary for Nokia to
recover the winning attitude it once possessed, thus the renovation was crucial on all levels.
Expectation was high with the changes made in the management and there was hope that
Nokia would regain its lost shares, dire changes meant closure of many initiatives and projects.
Nokia’s experiences lied wholly in hardware expertise; but on the other hand the software
patent packages did not balance the hardware, as contrasting to Nokia’s opponents. In the
month of February 2011 Devices & Services business were isolated to Smart Devices and Mobile
Phones business units to have more focus on high end smart phones with Microsoft in order to
build a new captivating smartphone.

Microsoft was a well-known brand name which brought business clientele base with strong
software proficiency. While Nokia, on the other hand, focused on strengthening the association
with excellent supply chain and logistics and hardware potential, widely known brand and
quality standards. The notion behind interchanging to the Windows Phone for the next 3 years
was to get distinguish in the prevailing market, to offer new network as an alternate to Android
and iOS.
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Having no knowledge in developing of smartphone products and Microsoft needed robust
smartphone manufacturers to back their mobile-oriented activities by providing masses of
Windows Phone devices to the market and to unfold the Windows operating network for their
long term profits. Nokia was desperate to recover its lost market share by quickly offering
efficient smartphone solutions, but they found out that developing their own solutions was
unpractical and too slow. Due to the formation of the strategic partnership, Nokia Management
Team was formed when Nokia reorganised the Board of Group Executives, aiming to accelerate
the process of decision making and mend time to-market of innovations and products. Product
business units were reorganised by Nokia to its new dedicated product categories. In
September 2013 the well-known collaboration between the two companies climaxed when
Microsoft declared that it will take over Nokia’s business units of Devices & Services.

Before their collaboration with Microsoft, Google approached Nokia to adopt their Android
application platform for their new smartphones. But, Elop Nokia’s CEO predicted that by
embracing the Windows platform instead of the Android operating system, Nokia will be able to
efficiently segregate their products in the market. By Integrating cost leadership strategy Nokia
was able to offer their customers low priced smartphones in evolving markets and distinguished
products in advanced markets. Also, Nokia has developed manufacturing units around the
globe, which aids Nokia to have a known presence necessary for joining forces with local
operators to lessen airtime charges for consumers. Addition to that, Nokia was successful in
establishing a challenging supply network to ably reach its suppliers globally and conjoin to
curtail cell phone ownership and usage costs.

9. CONCLUSIONS AND DISCUSSION

The research shows the focused view on the core technology and its transfer in timely and
deliberate manner is of prime importance. Nokia followed the product and engineering pattern
hence concentrating on the restructured hardware design and the telecom standards. This
made the software development to be the second in the list of priority. Other challenges were
the slow decision making, delay in time to market, insufficient resources and most importantly;
resistance to change. This all were the attributes of the organisation needing the radical
transformation. Prototypes of modern mobile devices, tablets, and smartphones were already
designed by Nokia much before it was commercially available by its competitors; this suggests
that Nokia never faced problems for lack of innovation.

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The partnership with Microsoft and launching the windows segment of the phone were seen as
the consequences of a good strategy to strike back in the market. Bringing the Microsoft
experts from the software division acted to a solution for the software and ecosystem problems
that Nokia phones faced on a great extent. The company should build products for the
customer it tries to focus and offer variable product to different market segments. The merger
should forecast and recognize the emerging technological changes and demands to identify and
deliver innovative products consistently. Structuring of the organisation does help an
organisation to have clear focus on its short term and long term goals. Technological changes,
customization and flexibility in hardware and software could help Microsoft-Nokia to reconnect
lives once again.

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