Open University of Cyprus

Faculty of Economics and Management

Postgraduate (Master’s) Programme in Business

Administration

Postgraduate (Master’s) Dissertation

Strategic Drift, the Case of Nokia Corporation

Marinos Neokleous

Supervisor
Konstantinos Chatzimichael

May 2020
 Open University of Cyprus
Faculty of Economics and Management

Postgraduate (Master’s) Programme in Business

Administration

Postgraduate (Master’s) Dissertation

Strategic Drift, the Case of Nokia Corporation

Marinos Neokleous

Supervisor
Konstantinos Chatzimichael

The present Postgraduate (Master’s) Dissertation was submitted in partial

fulfilment of the requirements for the postgraduate degree in
Master in Business Administration
Faculty of Economics and Management
of the Open University of Cyprus.

May 2020

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Summary
Organizations that do not align with the external environment and not respond rapidly
to changes face the risk to undergo strategic drift. Strategic drift can be described as the
phenomenon where the strategy of an organization gradually fails to keep in line with
the environment in which the organization operates. As a result of the above, the
organization fails to keep its strategic position, which leads to an organization crisis and
frequently is followed by a transformation or a bankruptcy.

The aim of this dissertation is to study the case of Nokia Corporation and support the
hypothesis that Nokia had undergone a strategic drift. Nokia, after a successful course in
the mobile phone market from the late 90’s to late 00’s, ended to the sale of its mobile
phone division to Microsoft in 2014. To examine whether the hypothesis is true or not,
financial data and market share figures were collected and analysed from various
sources. Additionally, SWOT and Porter’s five forces analysis were conducted.

As per the results of the study, Nokia Corporation, from 2009 onwards had indeed
passed through all the 4 stages of strategic drift, as a consequence of wrong strategic
decisions and internal weaknesses. Inability to detect the changes that occurred in the
external environment and adapt accordingly was the main reason, where factors such
as the inability to foresee the future of the market, the bad management, lack of
expertise and underestimation of the competition gave the final hit.

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Περίληψη
Οι οργανισμοί που δεν συντονίζονται με το εξωτερικό περιβάλλον και δεν
ανταποκρίνονται άμεσα στις αλλαγές του, αντιμετωπίζουν τον κίνδυνο να υποπέσουν
σε μία κατάσταση γνωστή ως Strategic drift. Το Strategic drift μπορεί να χαρακτηριστεί
ως το φαινόμενο όπου η στρατηγική ενός οργανισμού αποτυγχάνει κλιμακωτά να
ευθυγραμμιστεί με το εξωτερικό περιβάλλον στο οποίο ο οργανισμός
δραστηριοποιείται. Ως αποτέλεσμα ο οργανισμός αποτυγχάνει να διατηρήσει την
στρατηγική του θέση και οδηγείται σε κρίση η οποία συνήθως καταλήγει σε
ανασχηματισμό ή χρεωκοπία.

Σκοπός αυτής της διατριβής είναι η εξέταση της περίπτωση της Nokia Corporation, η
οποία μετά από μια πού επιτυχημένη πορεία στην αγορά των κινητών τηλεφώνων από
τα τέλη της δεκαετίας του 1990 μέχρι τα τέλη της δεκαετίας το 2000, κατέληξε στην
πώληση του τμήματος των κινητών τηλεφώνων της στη Microsoft το 2014, και η
επιβεβαίωση της υπόθεσης ότι η Nokia είχε υποπέσει στη κατάσταση του Strategic
Drift, καθώς και οι κύριες αιτίες που οδήγησαν σε αυτό. Για τον σκοπό αυτό,
συλλέχθηκαν και αναλύθηκαν οικονομικά δεδομένα καθώς και δεδομένα για τα μερίδια
αγοράς των τελευταίων ετών. Επιπρόσθετα διενεργήθηκαν αναλύσεις SWAT και
Porter’s Five Forces analysis.

Από τα αποτελέσματα της εξέτασης φαίνεται ότι όντως από το 2009 και μετά, η
Nokiaείχε διέλθει και από τις τέσσερις φάσεις του Strategic drift ως αποτέλεσμα κακών
στρατηγικών αποφάσεων και εσωτερικών αδυναμιών. Κύρια αιτία ήταν η αδυναμία
αναγνώρισης των αλλαγών που συνέβαιναν στο περιβάλλον και η ανικανότητα
προσαρμογής, υποβοηθούμενη από την αδυναμία πρόβλεψης του μέλλοντος της
αγοράς, την κακή διοίκηση, την έλλειψη εξειδίκευσης και την υποτίμηση του
ανταγωνισμού.

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Table of Contents

Chapter 1: Introduction ................................................................................................... 1

Chapter 2: Literature Review ......................................................................................... 4
Chapter 3: Research Methodology ............................................................................... 9
3.1 Research Design ...................................................................................................................... 9
3.2 Data collection .......................................................................................................................... 9
3.3 Data analysis ............................................................................................................................. 9
3.4 Porter’s 5 forces analysis...................................................................................................10
3.5 SWOT analysis ........................................................................................................................11
3.5.1 Internal environment .................................................................................................12
3.5.2 External environment ................................................................................................12
3.6 Limitations ...............................................................................................................................12
Chapter 4: The Case of Nokia Corporation .............................................................. 13
4.1 History of NOKIA ...................................................................................................................13
4.2 The rise of smartphones ....................................................................................................14
4.3 The fall of Nokia .....................................................................................................................14
4.3.1 Transition to smart phones failure ......................................................................16
4.3.2 Internal issues ...............................................................................................................17
4.3.3 Symbian OS .....................................................................................................................18
4.3.4 Transition to Windows Mobile ..............................................................................19
4.3.5 Lack of Ecosystem .......................................................................................................19
Chapter 5: Discussion of the Results ........................................................................ 20
5.1 Porter 5 forces analysis ......................................................................................................20
5.1.1 Threat of competitors ................................................................................................20
5.1.2 Threat of new entrants ..............................................................................................21
5.1.3 Threat of Suppliers ......................................................................................................21
5.1.4 Threat of buyers ...........................................................................................................21
5.1.5 Threat of substitutes .................................................................................................. 21
5.2 SWOT Analysis .......................................................................................................................21
5.2.1 Strengths..........................................................................................................................22
5.2.2 Weaknesses ....................................................................................................................22

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 5.2.3 Opportunities.................................................................................................................23
5.2.4 Threats..............................................................................................................................23
5.3 Nokia versus Apple ..............................................................................................................24
Chapter 6: Conclusions ................................................................................................... 29
Appendixes ......................................................................................................................... 31
Appendix A ......................................................................................................................................31
References .......................................................................................................................... 36

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 Chapter 1
Introduction

Organizations are in a constant need to adapt to the changing environment in order to

remain competitive. To achieve that, managers are constantly fine tuning their ways of
operation and adjusting business strategies, when needed, in order to keep in line with
the changing environment (Quinn,1980a) in a process that can be characterized as
“incrementalism” (Quinn, 1980b). Incremental change can be seen as an adaptive
process that manages to seize opportunities arising from a continually changing
environment involving realignment of business strategy to the business environment
instead of a radical change in direction. However, these small changes sometimes might
not be enough. Managers may need to adapt to bigger changes and make more drastic
changes to their strategies. If they fail to act accordingly, the company may be led to a
strategic drift (Dwyer and Edwards, 2009).

Strategic drift can be described as the phenomenon where the strategy of an

organization gradually fails to keep in line with the environment in which the
organization operates (Johnson, 1992). In other words, strategic drift occurs when a
company or an organization fails to recognize that the environment is changing and
thus its strategy must also adapt to that change. Handy (1989) explains strategic drift as
a gradual diversion of an organization from its original vision which happens so slowly
which is not noticed, and when it does, it’s usually too late. As a result of the above, the
organization fails to keep its strategic position, which leads to an organization crisis and
frequently is followed by a transformation or a bankruptcy (Hensmans et al. 2012).
Strategic drift is common in organizations that fail to respond fast to a dramatic change
in the market and are unable to recognize that incremental adjustments must be
replaced with fundamental changes (Mintzberg, 2001).

The purpose of this dissertation is to identify the factors and wrong decisions that may
lead a company to undergo Strategic drift and suggest actions that must be taken in
order to prevent it. One of the most notable examples of companies that fell into the
Strategic Drift phase is the Nokia Corporation, which has been chosen for the case study
part of this dissertation. Nokia Corporation established in 1967 from the merge of 3
Finnish companies, Nokia, Finnish Rubber Works and Finnish Cable Works, produced a

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variety of products including technology equipment. During the 90’s, Nokia Corporation
focused solely on the mobile communications market. In 1992, the company launched
the first GSM mobile phone and by 1998 it became the top mobile phone manufacturer.
It held that position for almost a decade by launching a number of highly successful
models that shaped the mobile communication industry and set the standards for
mobile phones in the 00’s. In 2007, Apple announced the release of the first iPhone and
Google the launch of Android, an open source operational system for mobile devices,
signaling the beginning of the smartphone era, with touchscreen devices, application
stores and unified ecosystems which enabled communication across different devices.
The rise of smartphones led to Nokia’s failure. The company failed to realize that the
market was gradually shifting in favor of smartphones and believed that people
preferred QWERTY keyboards over touchscreens. Furthermore, they underestimated
the impact of Operating systems and instead of trying to develop hardware and
software that would fulfill the new customers’ needs insisted on keeping the same old
strategy thinking that customers would follow as happened in the past. When they
realized their mistake and tried to come up with a different strategy, was already late.
The Company could not gain its lost market share back and was forced to sell its mobile
phone division to Microsoft in 2014.

What can be taught from Nokia is that any organization, no matter its size or success
and market position must always adapt to change in order to remain competitive.
Organizations must be able to identify changes and warning signals and respond rapidly
to them. The ability to foresee the future is essential as well as the capability of
identifying opportunities and threats which emerge, improve weaknesses as well as
laying out strengths.

The case study deals with the following issues:

 Identifying the wrong decisions that Nokia’s executives took leading to the
company’s failure.
 Examining the external factors which were present at the time of the Strategic
drift.
 The reason why the management failed to realize that the market was changing
and their lack of adaptation to those variations.
 The striking actions of Nokia’s main competitor, Apple, which led to the collapse of
the former and triumph of the latter.

The dissertation is divided into 5 main chapters, starting from the current chapter,
Introduction. The rest is structured as follows: Chapter 2 reviews the existing
international literature regarding the main causes of a strategic drift. The second part of
this chapter describes what can be done and what actions must be taken in order the
strategic drift to be avoided. In Chapter 3, the research methodology is presented which
outlines the sources from where data was taken and the analysis performed in order to

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back up the hypothesis that indeed a strategic drift has been occurred. Additionally, two
types of analysis are being introduced; Porter five forces and SWOT analysis. Chapter 4
is the main part of the dissertation. There the time series of the Nokia’s course through
the years is presented along with the major incidences that caused strategic drift. Data
that supports the strategic drift hypothesis is also stated. Chapter 5 contains the
discussion of the results. Porter’s five forces and SWOT analysis give an insight of the
internal as well as external environments of the company at that particular time are
presented along with a comparison of Nokia versus Apple. Chapter 6 refers to
conclusions. The main findings of the study coming into view, confirm that Nokia is
indeed an example of strategic drift with four discrete phases, with the last one being
the end of Nokia’s mobile phone division.

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 Chapter 2
Literature Review

Organizations must constantly remain aligned to their environment in order to remain

competitive. Thus they must keep revisioning their tactics and strategies constantly, a
procedure known as “Incrementalism” (Quinn, 1980b). If the organization fails to keep
in line with the environment, then it will be diverted from its original vision, lose its
strategic position and undergo an organizational crisis, a state called a “Strategic drift”
(Johnson, 1992).

Figure 1. Incremental Change

Johnson et al. (2008) in the book “Exploring corporate strategy”, divides the strategic
drift phenomenon into 4 discrete phases. In the first phase, the company’s strategy is
aligned with the external environment. The environment is changing gradually, and the
organization is keeping in line with those changes by making small incremental changes
to its strategy. The second phase is where strategic drift actually occurs. This can
happen when the environmental changes are accelerating, but not necessarily in a
sudden way, and the organization does not realize it. As a result, the strategy is starting
to drift away and does not align with the external environment, leading to a number of

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consequences for the company, like the deterioration in financial performance, a loss of
market share or the decline in the share price. In the third phase, flux occurs. During
that period strategies may change but in an ambiguous manner. The organization falls
into a chaotic state where internal arguments take place, management hovers between
different strategies in a short period of time as an attempt to align with the environment
and keep its status, but with little or no success. Finally, the fourth phase determines
whether transformational change or death will end strategic drift. As things become
worse there are only two options for the organization. Death (or taken over by another
organization) and transformational change. Unfortunately, even if the second option is
selected is already too late. Organization has already lost its previous position in the
market, shareholder value has probably already been destroyed, and many jobs have
been lost too.

Figure 2. The four phases of Strategic Drift

Strategic drifts are attributed to several factors that arise from the organization’s
management behaviour and culture and prevent from adapting and aligning to the
current environmental changes before the drift becomes irreversible. When
environmental change is sudden and not gradual enough so the incremental change to
be kept in pace with it, the organization is getting out of line, while trying to adapt by
making incremental changes, which instead of fixing the problem, make it worse
(Dwyer and Edwards, 2009). If the company fails to adapt early enough to the external

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changes, by changing its course, even the most successful strategies will wear-out and
lead to failure, a phenomenon known as strategic wear-out. Past strategic choices do not
guarantee future success (Gilligan and Wilson, 2009).

Johnson (1988) suggests that strategic drift occurs when external alerts are not taken
into account by the managers because they are not meaningful to them. This occurs when
managers unjustifiably believe that one is able to adapt to the changing environment when
in fact one cannot. In addition, accustomed to a conservative strategic thinking they fail to
shift perception thus they are unable to detect the changing environment. Even when they
do, the corrective actions do not deviate from the current ones. Additionally, managers
are resistant to changes because they are attached to the company’s consolidated
culture and beliefs. The status quo of the organization is preserved in such a way that
leads to a tendency not to implement innovations in organizational structure and
human resources, technology adaptation, product innovation, procurement and supply
chain management, internal operations, marketing and sales and customer relationship
management (Johnson, 1988; Bonicci, 2015). Apart from the consolidated culture and
belief of managers, their homogenous mindset can also impede the ability to recognize
and adapt to external changes in technology, the economy, society or the regulatory
environment (Bonicci, 2015).

Evidently there are times in successful firms when key factors such as organization
culture, routines and procedures, which at first let to their success, if remained
unchanged are in fact the causes that can lead to failure. The initial success is hindering
the executives from dealing with other important factors such as budgeting, customer
focus and costing, which finally drives the company to failure, bringing forth a situation
known as the “Icarus paradox “(Miller, 1992).

Strategic drift emanates due to a strategic gap too. Strategic gap is the difference
between the expected outcome of a company’s strategy and the actual results (Evans,
2004). On average companies deliver only 63% of the financial performance their
strategies promise. A number of components such as lack of performance tracking, failure
to realize the full potential of a strategy and/or poor planning and/or execution, could
eventually precipitate a strategic gap (Mankins and Steele, 2005).

Strategic opportunity can be described as the detection and exploitation of

opportunities when they emerge with the goal to achieve immediate profits. However,
strategic opportunism can be turned into a strategic drift if one or more of the following
phenomena take place. First, a temporary transitory force that is mistaken for one that
is strong enough to make a worthwhile strategic move, can lead to a marketing strategy
that is not suitable for the company or the environment. Second, opportunities to create
immediate profits might be considered as strategies when in fact they are not, and third,

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synergies between new and existing business areas may fail to materialize due to
implementation problems (Danciu, 2010).

Given the complexity of changes that occur constantly in the outer environment, there
cannot be a universal formula that can be applied in order organizations to avoid
strategic drift. Organizations will face various degrees of drift depending on the degree
of the external changes. However, even if there is no such formula to help avoid drift,
this can be eluded if an organization is capable of handling complexity. Organizations
which are able to combine several modes of strategy into one complex strategic making
appear to be progressing and outperforming other organizations which are less capable
of coping with complicated strategic plans (Hartand Banbury, 1994). At the same time
management can really make a difference the moment when the organization begins to
deteriorate. At that exact moment, managers must be open minded leaving behind their
old tactics and practices and see what others cannot in order to stay in touch with the
external environment (Dwyer and Edwards, 2009), applying the zero-trauma principle,
i.e. looking upon the future and not defend the past (Hamel and Välikangas, 2003).

The definition of customer needs can salvage an organization. Companies that manage
to improve their customer service experience by offering customized expert service,
loom to have a notably improvement and an increase in sales. Successful companies
detect their customer specific needs and recommend products and services that are
sometimes customized in order to fit their customer’s needs. As a result of successful
customer service, companies are able to use their reputation for quality and
performance to achieve a preferred market position (de Brentani, 1995). Thinking out
of the box is also beneficial. Managers when blind- following outdated strategic plans
and take them too literally, face the danger of leading their organization into a strategic
drift, given the fact that strategic plans are exposed to unpredicted external factors that
might distort the initial plan. Up to date strategies must evolve and be treated as broad
guidelines rather than rules that are not subject to any change or cannot be disputed.
Instead of strictly following the proposed strategies, managers must become more
creative to manipulate and harness the interests of diverse professionals, bringing
change in an incremental way (Harris et al. 2009).

The improvement of communication within an organization is crucial in order for

strategic drift to be avoided or overcome. Often, managers limit their sharing of
information to what they think is essential for avoiding the strategic drift. But
employees need a bit more in order to feel the confidence of their bosses and thus to
have the will to make the extra effort that would reform everything. Thus in order to
avoid the drift, it is important to receive feedback of quality from the field. Employees
could provide helpful feedback if they feel that what they say is taken into account and
considered by the top management (Fitchetand and Giraud, 2007).

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Dialogue should be initiated in order to bring to the surface assumptions and beliefs
taken for granted and begin a debate within the organization that will challenge the
mental models that have come to prevail within the organization. This eventually will
stimulate managers to become aware of some seemingly minor changes, that when
noticed, are able to enhance the adaptive capabilities of the organization in order to
prevent strategic drift (Hodgkinson and Wright, 2002). Appropriate communication is
essential for closing the strategic gap. Strategic gap can be closed if the following rules
apply: Being clear about what the strategy is, speak a common language between
business units, discuss resource deployments early, identify priorities, continuously
monitor performance and finally reward and develop execution capabilities (Mankins
and Steele, 2005).

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 Chapter 3
Research Methodology

3.1 Research Design

This Master’s dissertation is descriptive and explanatory in nature. It is a case study of
Nokia Corporation, and how from being the leader in the mobile phone market
eventually entered the strategic drift phase that led to the mobile phone department of
the company to be sold to Microsoft in 2014. Dissertation emphasizes on the causes -
internal and external- which provoked strategic drift and the reasons which hindered
the company from overcoming the drift and keeping up with its former successful
course of action. At the same time, this dissertation attempts to compare Nokia’s course
with its biggest rival, Apple, who managed to expand its market share in the mobile
phone market and became one of the greatest smartphone manufacturers worldwide. It
should be noted that at this chapter SWOT and Porter’s analysis are employed.

3.2 Data collection

Archival analysis was used to collect financial information for the two companies
analysed. In particular, financial data were retrieved directly from the financial
statements of the companies from MacroTrends website (macrotrends.net) and cover
the period from 2005 to 2017 (See Appendix, Table 4 and Table 5).Moreover, secondary
data on mobile phone manufacturers’ market share (See Appendix, Table 2) and
numbers of units sold (See Appendix, Table 1) for the years 2005 to 2014 were
retrieved from Gartner reports (www.gartner.com).It has been decided to include data
from the year 2005 and onwards in order to have a broader frame on the Nokia’s route,
from the incremental stage to its peak, which followed by an irreversible fall. Operating
System market share from 2010 to 2016 was retrieved from Statcounter
(gs.statcounter.com) (See Appendix, Tables 3a and 3b). Unfortunately, no data from
previous years was available. The above sets of data have been chosen since they
provide information for the profitability and general financial status of each company
and indicate how those fluctuated over the years. Market share data provides an
overview of the general market trend.

3.3 Data analysis

In order to support the hypothesis of Nokia’s strategic drift, graphs and simple
statistical measures were initially used to track inter-temporal changes in the financial

9
performance of Nokia Company over the period analysed. In addition, comparative
tables and graphs were constructed to identify potential differences in key financial
variables between the two companies.

3.4 Porter’s 5 forces analysis

Porter’s five forces analysis has been selected as a method because it focuses on all the
aspects which shape a company’s external micro-environment, and how this affects the
company’s ability to serve its customers and make a profit. Since strategic drift occurs
from changes which take place on the external environment of an organization, it can be
an ideal tool for analysing the examined companies and defining the reasons that led
them to strategic drift.

Porter’s 5 forces analysis is a tool for evaluating an organization’s competition. The

nature of competition is determined by many factors such as the treat of new entrants,
the bargaining power of buyers, the bargaining power of suppliers, the threat of
substitute products or services and the rivalry among existing competition. The
configuration of these forces differs by industry. As expected, the strongest competitive
force or forces determine the profitability of an organization and become the most
important for strategy formulation. A more detailed presentation of the examined forces
follows.

Threat of new entrants: New entrants seek to gain a part in an industry’s market share
that puts pressure on prices, cost and rate of investments necessary to complete. The
threat of a new entry puts a cap on the profit potential of the industry. When the threat
is high, existing players must keep their prices low and increase investment to detain
their competitors. The threat of entrants depends on a number of factors such as the
existence of barriers to entry (i.e. patents, government regulations), capital
requirements, brand equity, customer loyalty, access to distribution channels and
product differentiation.

Bargain power of suppliers: Powerful suppliers can leverage the cost of an industry and
drop-down on the quality of products. Suppliers gain power when the following
circumstances occur: i) A supplier is more concentrated than the industry that sells to,
ii) it does not depend heavily on the particular industry for its income, iii) the industry
might have a switching cost when change supplier, iv) the supplier offers a
differentiated product and v) there is no substitute for the supplier’s product. Powerful
suppliers can be a threat to an organization and must be taken into consideration when
strategic decisions have to be made.

Bargaining power of buyers: On the other hand, powerful suppliers are the powerful
buyers. Powerful buyers can reduce supplier’s products prices, demand better quality
and control the market in favour of their benefit. As with powerful suppliers, buyers

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gain power if there are few buyers who purchase products in large quantities, if the
products being purchased are standardized and undifferentiated, if they can easily
switch between suppliers with minimum cost or if they are threaten that they will start
producing those by themselves.

Threat of substitutes: A substitute is a different product or service that has a similar

function or use with the competing product or service, by different means. Substitutes
are always present but are not always an obvious threat to the industry due to the fact
that they may look completely unrelated to it. When the threat of substitutes increases,
it introduces negative results on a company’s profitability by placing a cap on its prices.
The threat of substitutes is high when substitutes offer better value for money options
and the customers’ cost of switching to a substitute product is relatively low. In order to
avoid substitute threat, a company must differentiate its products, provide better
quality, or use other means such as marketing and communication to distance itself
from substitutes and keep its original profitability.

Threat of rivalry among existing competition: Forms of rivalry between competitors

include the introduction of new products, discounts and special offers, advertisement
and quality improvement of current products or services among others. High rivalry can
stress an industry and limits its profitability. Rivalry is intense when there are many
competitors, especially with the same size and power, when the industry growth is
slow, when the exit barriers for companies are high and when the competitors are
highly committed to the business. Intense rivalry leads to price competition which
forces competitors to lower their prices and reduce their profit potential (Porter, 2008).

3.5 SWOT analysis

SWOT analysis was chosen as the second method because it is a useful technique which
helps in identifying strengths and weakness which arise from the external environment,
which has already being stated that plays a major role on the occurrence of strategic
drift phenomenon, but additionally focuses also on the strengths and weaknesses that
can be found on the inside of a company. The correlation of the two environments,
internal and external, can be a useful asset on the attempt to define the reasons which
force an organization to end up in a strategic drift phase.

Swot analysis idea was developed by the Harvard business school in an effort to analyse
case studies and through the years ended up being considered as a major advance in
strategic thinking (Panagiotou, 2003). A number of studies show that it is one of the
most widely used strategy tools among managers (Madsen, 2016). SWOT analysis
focuses on the analysis of the strengths and weaknesses which occur in the external
environment and the opportunities and threats that arise from the organization’s
external environment (Worthington and Britton, 2014). An overview of the four factors
that determine SWOT analysis can be found below:

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3.5.1 Internal environment
Strengths are characteristics that help organizations to accomplish their mission. They
might include qualities of the employees’, human resources competencies, financial
resources, excellent products and services, brand loyalty, innovation and vision among
others.
On the contrary weaknesses do not allow an organisation of achieving its goals.
Weaknesses can take various forms such as poor decision making, bad management,
outdated products and services, debts, high turnover among the employees, low
productivity etc.

3.5.2 External environment

Opportunities arise in the external environment of an organization and if detected early
enough, would yield significant benefits such as increase of profit, market share
expansion and cost reduction, among others. An opportunity may arise from various
fields such as market, competition, industry/government and technology.

Threats can jeopardize the profitability and success of an organization leading to losses
on profitability and threatening its sustainability and success. Threats include increased
competition, changes on customer’s habits, rapid technology changes, partner’s issues
etc (Osita et al, 2014).

It should be stated that just listing opportunities and strengths should be avoided since
the true value of the SWOT analysis lies on the influences’ contribution to the
establishment of an organization’s strategies. Hence, opportunities and threats must be
paired to the organization’s internal strengths and weaknesses in order to shape a
matrix that will eventually aid managers to take the right decisions (Worthington and
Britton, 2014).

3.6 Limitations
The present dissertation faces a number of limitations. Most importantly this is a case-
study analysis and therefore one should be careful with generalizations. Information
from within the company is limited to what the company has announced. Additionally,
assumptions and associations between facts that occurred and the results that followed
are subject to the writer’s subjective judgment and may not be fully accurate. Regarding
the data collection, data for the Operating Systems’ market share before 2010 could not
be acquired.

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 Chapter 4
The Case of Nokia Corporation

Nokia Corporation is a notable example on how a highly successful organization can fall
into the strategic drift phase if their strategy is not aligned with the external
environment and if their reflexes are not quick enough to adapt to change.

4.1 History of NOKIA

Nokia was founded in 1865 as a single mill operation by Fredrik Idestam, a mining
engineer. In 1871 Idestam along with his friend, Leo Mechelin, transformed the business
into a public limited company called Nokia Ab. After World War I, the Nokia Company
was nearing bankruptcy and was acquired by the Finnish Rubber Works - a
manufacturer of galoshes and other rubber products. Finnish rubber works also
acquired in 1932 the Finnish cable works company, that produced telephone, telegraph,
and electrical cables. In 1967 the three companies merged together to form NOKIA
Corporation. The newly established company produced a wide range of products such
as paper items, car and bicycle tires, rubber boots, communications cables, televisions
and other consumer electronics, personal computers, generators, robotics, capacitors,
Military technology and equipment, plastics, aluminium and chemicals. In 1979 Nokia
and Salora created a Mobira Oy, a joint venture that produced radio telephone
equipment. Mobira Oy launched the world’s first car-phone, Mobira Senator which
weighted approximately 10 kgs.

In 1984 Nokia acquired Salora and launched MobiraTalkman, the first portable phone,
which could be used in and out of car, although weighted around 5 Kgs. Three years
later the company launched the first hand-held mobile phone, which was a lot lighter
than Talkman with a weight of 800 grams. During the 1990’s, company’s leadership
decided to focus solely on the mobile telecommunications market, selling the rest
production units in the first few years of the decade. In 1991 the first GSM call was
made using Nokia equipment. In 1992 the first handheld GSM phone by Nokia was
launched, called Nokia 1011. In 1998 Nokia, Nokia became the world’s top mobile
phone maker leaving Motorola behind. In the following years Nokia launched a number
of successfully models that helped company to keep its market share and establish its
name among consumers. The successful course of Nokia won’t last for long. In 2008 the
launch of the first iPhone by Apple and the introduction of the first Android version,
decreased Nokia’s profits and market share.

13
On 2011 Nokia announced a strategic partnership with Microsoft and on 2014 Nokia
sold its devices and services division to Microsoft. In 2016 Nokia re-entered the mobile
handset business with a licensing agreement with HMD Global allowing them to offer
phones under the Nokia brand.

4.2 The rise of smartphones

The first smartphone was designed in 1993. It included a touchscreen interface for
accessing its calendar, address book, calculator, and other functions (Hosch, 2013). The
Ericsson R380 that was launched in 2000 was the first phone to be introduced as a
smartphone and the Nokia 9010 Communicator launched in 2001 was the first Symbian
phone platform allowing the installation of additional applications. While smartphones
were originally targeting a very small range of business consumers due to their higher
price and complexity of use compared to feature phones (3% of total handset market in
2004), between 2007 and 2011, the smartphone sales started increasing at a faster pace
than feature phones (40% compound annual growth rate, compared to 7% for feature
phones rate) (Dziri, 2011). In early 2013 global smartphones sales surpassed sales of
feature phones, with a 55% share of the mobile phone market in 2013, up from 42% in
2012 (IDC, 2014).

4.3 The fall of Nokia

A decade after becoming the biggest phone maker in 1998, Nokia started falling behind
its competitors in the most profitable and fastest growing segment of mobile phones,
the smartphones. On 2005, Nokia possessed 32.5% of mobile phones market share
worldwide, followed by Motorola with 17.7% (Table 2).By the end of 2013 the picture
was completely different with Samsung being the leader of the market with 24.6%
followed by Nokia (13.9%) and Apple in the third place with 8.3% (Table 2).
Additionally, Symbian OS, the primary operation system of Nokia devices started losing
its market share percentage gradually, from 34.5% in 2010 to less than 1% in 2015
(Table 3a & Table 3b).

After 2008 and onwards Nokia could not align with the new market trends and
undergone into a strategic drift phase that was unable to overcome, resulting in 2013 to
the sale of its mobile phones department to Microsoft. Indeed, its revenue shrunk from
$74.6 billion in 2008 to $13.8 billion in 2015. On the same pattern Gross profit fell from
$23.7 billion on 2007 to $6 billion in 2015.

14
Graph 1. Nokia's Revenue 2005‐2017

Nokia's 2005 ‐2017 Revenue

80000

70000

60000
$ in Millions

50000

40000
Revenue
30000

20000

10000

Graph 2. Nokia's 2005‐2017Gross Profit

Nokia's 2005 ‐2017

Gross Profit
30000

25000

20000
$ in Millions

15000
Gross Profit
10000

5000

A series of bad decisions along with poor strategic thinking ended Nokia’s domination
as the top mobile phone manufacturer. Graphs below show how the trendline slope of
Nokia’s annual income shifted the years 2005 to 2008 compared to 2009 to 2017. In
2009 gross profit decreased by almost $9 billion, a huge fall that continued the
following years.

15
Graph 3. Nokia's 2005‐2008 revenue trendline

2005‐2008 Trendline
90000
80000
70000 y = 11443x ‐ 2E+07
R² = 0.954
60000
$ in Millions

50000 Revenue
40000
Linear (Revenue)
30000
20000
10000
0
2005 2006 2007 2008

Graph 4. Nokia's 2009‐2017 revenue trendline

2009‐2017 Trendline
70000

60000

50000
y = ‐5274.8x + 1E+07
$ in Millions

R² = 0.6506
40000
Revenue
30000 Linear (Revenue)

20000

10000

0
2009 2010 2011 2012 2013 2014 2015 2016 2017

4.3.1 Transition to smart phones failure

At a time where more and more companies were beginning to develop and produce
smart phones, Nokia underestimated the importance of transition to smart phones.
While other competitors were trying to produce reliable and accurate touch screens for
their models, Nokia was in the mindset that the touch screen concept will get failed and
people will come back to the QWERTY keypad (Williams, 2019). On the other hand, that
given time, smart phones were a high-end, low-volume business, on which spending

16
resources seemed incredibly risky. And even when the company realised that they were
left behind, they thought that the strong brand name will help them catch up quickly,
something that never happened (Surowiecki, 2013). Indeed, Nokia started losing its
leadership in the market with the release of iPhone in June and the announcement of
Android by Google the August of 2007 (Dziri, 2011).

4.3.2 Internal issues

In 2004 organization reorganized into a Matrix structure. This led to the departure of
vital members of the executive team, which led to the deterioration of strategic thinking.
Tensions within matrix organisations are common as different groups with different
priorities and performance criteria are required to work collaboratively. At Nokia, this
had been accustomed to decentralised initiatives, this new way of working proved an
anathema. Mid-level executives had neither the experience nor training in the subtle
integrative negotiations fundamental in a successful matrix. Beyond 2004, top
management was no longer sufficiently technologically savvy or strategically integrative
to set priorities and resolve conflicts arising in the new matrix. Increased cost reduction
pressures rendered Nokia’s strategy of product differentiation through market
segmentation ineffective and resulted in a proliferation of poorer quality products (Doz,
2017). The organization was suffering from a bureaucratic structure. Strategic decisions
made by senior managers in one part of the firm were often cancelled out by decisions
made by other managers, which led to a slow response to the new business challenges.
Additionally, Nokia was suffered from a culture that lacked innovative and
entrepreneurial spirit that left it unable to keep up with the pace of digital innovation,
with a conservative boardroom (Knowledge@Wharton, 2010).

Graphs 5 and 6 below represent Research and development expenses and Selling,
General and Administrative expenses respectively. It can be seen that the revenue
decrease occurred in 2009 and onwards it is followed by reductions in Research and
development and general administration expenses as an attempt to minimize cost and
prevent any further losses.

17
Graph 5. Nokia’s Research and Development Expenses

R&D Expenses
10000
9000
8000
7000
$ in Millions

6000
5000
4000 R&D Expenses
3000
2000
1000
0

Graph 6. Nokia’s Selling, General and Administrative Expenses

SG&A Expenses
9000
8000
7000
6000
$ in Millions

5000
4000
SG&A Expenses
3000
2000
1000
0

4.3.3 Symbian OS
While competitors realized that the newly introduced smart-phones needed a user-
friendly touch interface, with apple being the first to implement that with the iOS and
others who failed to create their own started to adopt Google’s Android for their
devices, Nokia insisted on using her own operative system, Symbian (Dziri, 2011).
Symbian has been the dominant mobile phone operating system with a 63.1% share of
the global market OS in 2007 (Schofield, 2008), but a number of limitations made it non-
suitable for smartphones. One of Symbian’s drawbacks was the lack of mobile
applications and user interface, though efforts were made in order to improve the
Symbian OS, still didn’t manage to reach the competitor’s success. It’s an irony that
when Google bought open software company called Android and announced the “Open

18
handset alliance”, a grouping of companies that would join their forces to build open
source software for smartphones, Nokia was invited to join, but refused (Neelu, 2014).
A second drawback of Symbian was the fact that it was difficult to be developed in order
to meet the expanding user requirements, leading to slow product development
(Edwards, 2013).By 2010 Symbian held 34.5% of global market share and by 2013
percentage dropped dramatically below 10%.

Graph 7. Symbian OS Market Share 2010‐2016

SymbianOS Market Share

35
30
Market Share (%)

25
20
15
10
5
0

4.3.4 Transition to Windows Mobile

Another strategic failure of Nokia was that the transition from Symbian to MeeGo, the
platform that succeeded Symbian for a short period of time, and from MeeGo to
Windows wasn’t quick enough. This led to developers to slow down application
development for Nokia phones, which explains why Nokia’s App Store was lagging in
the number of available downloads (Cuthbertson and Furseth, 2015)

4.3.5 Lack of Ecosystem

What Nokia failed to realize was that smartphone business was less about specific
devices and more about ecosystems, a combination of hardware, operating system and
of course applications. Apple and Google with Android had attracted the most
developers, investors and users (The Economist, 2012). As Stephen Elop, the CEO of
Nokia at that time acknowledged in his famous “Burning platform” memo, “The battle of
devices has now become a war of ecosystems, where ecosystems include not only the
hardware and software of the device, but developers, applications, ecommerce,
advertising, search, social applications, location-based services, unified communications
and many other things” (Edwards, 2013).

19
 Chapter 5
Discussion of the Results

In this chapter the findings from data analysis are presented along with the SWOT
analysis and Porter’s five forces analysis of the organization the time. Additionally, a
comparison with Apple is presented to highlight the different strategies both
organizations followed and led to two different results.

5.1 Porter 5 forces analysis

It is important to portray the 5 forces as described by Porter, that can give an insight
about the existing threats that were present at the time were Nokia started losing its
place on the top of mobile phone vendors and eventually lead to the discontinuation of
mobile phones production under its brand name.

5.1.1 Threat of competitors

Undisputedly the major competitor of Nokia was Apple’s iPhone which held 33.15% of
market share in April 2010, in contrast to 37.58% of Nokia. Other more “traditional”
competitors had quite smaller shares; RIM’s Blackberry 15.86%, Sony 8.3% and
Samsung only 2.37% at 2010. Unsurprisingly, the free availability of Android by Google
had pushed a lot more competitors (i.e. HTC, LG, Motorola) in the race of smartphones
leading to an increased fragmentation and eventually put more pressure to the
shoulders of Nokia. As companies were realising that smartphones were the future of
mobile phones a race begun in order to establish their brand name as soon as possible.
Marketing and advertisement played a huge role in that race with Apple being the
leader. Huge release events for every new model, cascades of rumours and “leaked
photos” helped them remain at the epicentre of world’s interest and helped them
multiply their sales and profits. Manufacturers were competing each other in terms of
hardware with faster processors, better cameras, more detailed screens and advanced
wireless capabilities. Apart from the practical use of phones design also was a major
aspect. People started looking at smartphones not only as telephone devices but rather
as accessories that could define everyone’s status. Hence companies should not only
build state of the art devices but also advertise them as such in order to keep their
market share or increase it. Competition was not only about hardware but also on the
platform side as well. Players were trying to add more content like music, books and
films and attract developers in order to build applications for their platforms.

20
5.1.2 Threat of new entrants
The high demand for smartphones and the free availability of Android by Google
opened the way for a number of new players like ZTE, Huawei and Xiaomi to enter the
smartphone market. Even computer manufacturers like Acer and Lenovo jumped on the
opportunity to exploit their existing Brand reputation with an extension in
smartphones. Not only hardware manufacturers, but traditional software companies
like Google itself started producing handheld devices. This massive flux of new entrants
caused a decrease in market concentration, affecting sales and profits levels.

5.1.3 Threat of Suppliers

From a hardware point of view, Nokia relies on its suppliers to supply equipment for
their advanced mobile phones and a large number of equipment makers are involved, so
which Nokia could switch to. But when Nokia switched the software of its devices from
its own operating system, Symbian, to Windows, Microsoft gain a lot of bargain power,
since it was impossible for Nokia to switch to a different supplier at that time (Jeremiah
et al, 2018).

5.1.4 Threat of buyers

Given that too many players entered the smartphone market, consumers hat a lot
options available according to their budget and needs. But while there were many
devices available for anyone to choose, the major operation systems were limited in
number. However, switching between different operating systems wasn’t an easy option
for three main reasons. First, the absence of compatibility between platforms was very
likely to lock users who wanted to transfer their applications, contacts and personal
data from one platform to another. Second, systems had a completely different interface
and user interaction, which implies switching to different platforms, would require
adaption time. Third, network providers in Europe and United stated starter offering
devices with no additional, or reduced cost in exchange of a 12-24 month contracts.
Before the expiration of this contract consumers are less likely to replace their devices.

5.1.5 Threat of substitutes

Smartphones have few potential substitutes. Tablets and netbooks are not small enough
to be carried with, feature phones can only be used for phone calls and SMS, eBook
readers have limited connectivity and portable music players cannot be used for phone
calls.

5.2 SWOT Analysis

Apart from Porter’s Five Forces analysis, SWOT analysis can provide an insight of the
external and internal factors that were present at the time of Nokia’s fall and played
their role on the final outcome. As already mentioned, Strengths and Weaknesses refer

21
to the internal environment, while opportunities and treads are factors that arise from
the external environment of an origination.

5.2.1 Strengths
Brand name: The Nokia brand at the time was one of the most recognizable names
among handheld devices manufacturers worldwide, known for its quality and durable
products.
High market share: With a market share ranging from 32.8% to 38.6% the years 2005-
2008 (Table 2), Nokia was the leader of the mobile phones market, meaning that Nokia
had an advantage over the rest of the competitors, but failed to exploit. These
advantages included among others:

 Dedicated customers: Nokia had a league of followers who were supporting the
company and choosing their products over the products of the competition.
 High quality devices: Nokia devices are widely known for their durability,
extended battery life, fine camera optics and built quality in general.
 Distribution channels: Nokia had already established a large and strong
distribution channel, to deliver its products all over the world with customer
care points and retail shops globally.
 Experience: Founded in 19th century, it has a leading experience in the field of
communications and technology, with a strong experience and knowledge about
the markets around the globe.

5.2.2 Weaknesses
Internal issues that the organization didn’t manage to overcome and didn’t realize that
were pulling them back from the competition had a major impact on the company’s
failure. Bad management decisions, lack of expertise and slow reflexes were the
Achilles' heel of Nokia.

 Conservative management: Manager’s weren’t technologically savvy enough in

order to foresee new technology trend and adapt the organization strategy in
order to align with. These led to confusion and eventually lower quality products,
and poorly designed smartphones compared to the competition.
 Poorly implementation of matrix structure: Company’s reorganization in 2004
into a matrix structure and reallocation of important leadership roles led to the
deterioration of strategic thinking. Tensions within matrix organizations are
common since different groups with different priorities are required to work
collaboratively. Mid-level executives had neither the experience nor training in
the subtle integrative negotiations fundamental in a successful matrix.
 Inadequate software development expertise: Nokia’s operating System Symbian
was a device-centric system that its code had to be modified and tested for every
new device, something that caused delays in new phone launches and increasing

22
 the production cost. By 2009, Nokia was using 57 different and incompatible
versions of its operating system.
 Slow reaction to the competition: In the growing smartphones marketplace, Nokia
was very slow to take an initiative and be more competitive in the market. They
also did not take into consideration the competition by the small at that time
companies like Huawei and Xiaomi that were entering the market
 Unable to forecast the future: Nokia’s management was incapable of foreseeing
what the future of mobile devices was. Consumers were attracted more on
devices with larger screens with user-friendly touch interface and connectivity
options that offer a plethora of applications and content rather than devices with
high battery stamina and high durability.

5.2.3 Opportunities
Several opportunities arose at that time from market’s transition to smartphones and
the economic development of poorer countries that would benefit Nokia if were able to
foresee how to exploit them in order to maximize their profits, but they didn’t.

 Smartphones demand: The rapid expansion of the smartphones market could be

a great opportunity for Nokia expand its services and product range and increase
its sales even more.
 Adaption of Android: When Google bought Android, it started the “Open
handheld alliance”, a grouping of companies that would join their forces to build
an open source software for smartphones, Nokia was invited to join, but refused.
If Nokia had chosen to adapt Android instead of Windows Phone OS, the outcome
would probably be a lot better for the company.
 Development of underdeveloped countries: The demand for mobile phone
devices from developed countries started to increase opening a whole new
market potential for mobile phones manufacturers that saw their sales
increasing drastically.
 Applications and platforms ecosystem: The rise of smartphones demand was
followed by the need for applications and content available for each platform.
Consumers were looking for applications that would make them use all the
advanced capabilities of their devices and make their everyday lives simpler, as
well as content to enjoy on their devices such as music, videos, films and e-books.

5.2.4 Threats
Along with opportunities, great threats arose as well. New players from other industries
appeared in the market that caused an expansion of the current competition that along
with the new customers’ habits transformed radically the mobile phone industry.

 Apple’s iPhone popularity: When Apple announced the first iPhone, it started a
worldwide frenzy with fans waiting in lines outside of Apple’s stores in order to
by first the new phone. Apple’s marketing, iPhones innovative design, easy-to-

23
 use interface, iTunes compatibility and company’s reputation made iPhone the
player that changed the future of mobile phones forever.
 Android OS: While the rest manufacturers couldn’t build an operative system
that could beat iOS by Apple, they were turned to Android instead. Android was
free to use, easy to use, offered a lot of applications, had low hardware
requirements and was backed by Google, a giant software provider.
 High competition: Apart from Apple, more and more competitors started to enter
the market and growing rapidly. Companies like Samsung, HTC, LG, Huawei and
Xiaomi soon became strong competitors that pushed Nokia back and shrunk its
market share and reputation.
 Change on customer habits: New customer needs and preferences affected Nokia
that was following a completely different strategy the years before; a strategy
that made it the greatest player in the market. Soon it became obvious that Nokia
couldn’t adjust fast enough to the new requirements set by the customers,
perhaps because they were over confident enough that consumers will
eventually turn back to their old habits.

5.3 Nokia versus Apple

At the rise of the smartphone era, Apple did all the right choices in order to become a
leader in the market. Producing zero mobile phones before 2008, it already possessed
16% of global smartphone market share by the fourth quarter of 2009 and 23% by the
end of 2011, in contrast to Nokia who increased its global smartphone market share by
30 percentage units in just two years (Graph. 8). The comparison of Nokia versus Apple
gives an insight on what could Nokia done in order to maintain itself as a successful
vendor. Apple listened to the customers and their needs and shaped its product to meet
their requirements. The company realized that the future of mobile phone was the
smartphone and that consumers didn’t pay much attention to the device per se but the
services that accompanied them. In other words what Apple did was to adapt to the
changing environment while Nokia expected the environment to adapt on them. But it
never did.

24
Graph 8. Global smartphone market share held by Nokia and Apple from 4th quarter 2009 to 2nd
quarter 2012 from statista.com (2020, Adapted)

Global Smartphone Market Share

45
40
35
Market Share (%)

30
25
20 Nokia
15 Apple
10
5
0
'09 '10 '10 '10 '10 '11 '11 '11 '11 '12 '12
Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

Apple is an American, multinational technology company, founded in 1976 that designs,

develops and sells consumer electronics, computer software and online services. From a
garage start up, the newly founded company by 1980 netted over $100 million and had
more than 1,000 employees. In 1984 Apple released Macintosh, a device with
innovative features at the time graphic user interface, on screen windows and icons and
a pointing device known as mouse, the predecessor of today’s Mac personal computer.
In 2001 Apple introduced two new products. iTunes, a computer program for playing
music and converting audio files to MP3 digital format commonly used in computers
and other digital devices, and iPod, a portable MP3 player, which quickly became the
market leader.

Later models added larger storage capacities or smaller sizes, color screens, and video
playback features. In 2003 Apple began selling downloadable copies of major record
company songs in MP3 format over the Internet. By 2006 more than one billion songs
and videos had been sold through Apple’s Web site (Levy, 2019). The huge success of
iPod, led to the announcement of Apple’s first smartphone, the iPhone in 2007, because
the company feared that some mobile phone manufacturer would add music download
and listening functionalities to its mobile phones and suppress the need for an iPod.
iPhone became an instant hit as well, and by 2013 had captured almost 40 percent of
the US smartphone market and over 50 percent of the operating profit in the global
handset industry. Apple sold five times more smartphones than Nokia (150 million
iPhones compared to 30 million Lumnia windows Phones) (Cuthbertson et al.
2015:111-112).

25
Graph 9. Market Share percentage of iOS and Symbian OS from March 2010 to December 2016

Os Market Share (iOS & Symbian)

40
35
% Market Share

30
25
20
iOS
15
10 SymbianOS
5
0

The iOS, the operating system installed on Apple’s mobile devices was highly successful,
gaining a significant share of the mobile phones’ market from the early years of its
distribution, ranging from 30% to 19% the period March 2010 toDecember2016. On the
other hand, Nokia’s OS, Symbian fell to the bottom loosing 26% of the market share in
just 3 years (Graph 9). Graph 9 reflects Market share % not only for smartphones but
for feature phones also; Symbian was installed to Nokia’s feature phones as well, which
explains why market share of Symbian was higher than iOS till May 2012, while in fact
Apple was selling more smartphones devices than Nokia. Apple never produced any
feature phone. The small decline of iOS over the years can be explained by the
increasing popularity of Android and the increasing number of competitors that were
entering the market.

26
Graph 10. Revenue of Apple and Nokia 2005‐2018

Revenue
300000
yApple = 21391x ‐ 4E+07
RApple² = 0.946
250000
yNokia = ‐3964.x + 8E+06
RNokia² = 0.563
200000

Nokia
$ in Millions

150000
Apple
Linear (Nokia)
100000
Linear (Apple)

50000

‐50000

A revenue analysis of both companies reveals their course through the years. While
Nokia’s revenue was increasing until 2008, after 2009 the fall had begun. At the same
time Apple’s revenue was increasing steadily and in 2010 it was the first time that Nokia
had lower revenue than Apple, a state which continues to the years after. Trendlines for
both companies reveal how their revenues will continue to increase or decrease in the
future. Apple’s revenue increase will continue with a fast rate, while Nokia’s will keep
falling but with a slower rate (Graph 10). Same conclusions can be conducted by the Net
income to loss ratio figure (Graph 11). Apple’s ratio is increasing without any negative
values while being a lot higher compared to Nokia’s. The net income/loss ratio of Nokia
dropped below zero on 2011, 2012 and 2013. It emerged above zero again in 2014 after
Nokia sold its mobile phone division to Microsoft to drop again in 2016.

27
Graph 8. Net Income to Loss Ratio

Net Income/Loss
60000

50000

40000

30000
Nokia
20000 Apple

10000

‐10000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Apple’s successful course is in total contrast with Nokia’s failure over the “smartphone
era” because Apple realized from the beginning that it wasn’t just about the mobile
device itself, but also the platform and ecosystem the device was a part of. On the other
hand, Nokia insisted on a device-first paradigm, who failed to adapt quickly to a mobile
ecosystem approach, which lead to the company’s decline.

28
 Chapter 6
Conclusions

The alignment of an organization with the external environment is crucial for its
success. Failure to align can be resulted from a number of factors such as strategic
wear-out, inability to detect the warning signals or ignore them, conservatism and
strategic gap. Sudden and dramatic changes that are not detected soon enough can get
the organization out of line. Failure can also be a result of the “Icarus paradox”, the idea
of a leading organization that it doesn’t to adapt to the environment because the
environment has to adapt to them.

A combination of the above reasons led to Nokia’s failure. The drift started mainly
because company was incapable of realizing that a new era, the smartphone era was
emerging. There thought was that consumers will stay loyal to the QWERTY, feature
phones devices instead of the touchscreen smart ones, as they did the previous years.
The company’s unsuccessful reorganization became highly bureaucratic, with minimal
communication between management and staff that pressured for cost reduction, who
thought that it was a risk to spend money for smartphone development. The time where
other competitors were launching more simple and user friendly operating systems,
Nokia insisted on its own OS, Symbian, which was perfect for feature phones but
insufficient for smart devices, with no app store or other pay on demand services like
music, books and films. Symbian in other words couldn’t provide a complete ecosystem.
When company executives realized it they made an agreement with Microsoft in order
to apply Windows mobile on their devices, but the transition was not fast enough for
them to remain competitive and gain the lost ground.

The Nokia’s strategic drift can be broken down into four discrete phases as Johnson
(2008) suggests:
Phase 1: Until 2008 Nokia was aligned with the external operating environment and the
company was thriving, profits were increasing and market share was expanding.
Phase 2: 2009 and onwards, organization fell to the actual strategic drift phase.
Financial performance indicators such as revenue and gross profit started to fall
(Graph.1 and Graph. 2), indicating that company’s strategy started to drift apart and
divert from its initial goal.
Phase 3: The flux. Nokia had realized that they have to change their strategy in order to
prevent further loss and overcome destruction. In a desperate move they switched from
Symbian OS to MeeGo for a short period of time and then to Windows mobile, slowing

29
down the development of mobile apps which could salvage the brand.
Phase 4: Nokia failed to recover, which ended to the mobile division sale to Microsoft on
2014.

Nokia could have been saved if executives were more open-minded and out of the box
thinkers so they could understand that consumers were changing habits. Their inability
to forecast the future of the mobile market and exploit the new opportunities that arose
that time, like the smartphone increasing demand, the Android availability, the rising
demand from developing countries and the emerging market of applications and
content, became the anathema for the organization and ended its successful course of
the past.

The case of Nokia must become an example of avoidance to all organizations. Their
executives must be aware that no matter how successful an organization is, if it doesn’t
respond to external stimuli on time and doesn’t adapt, is facing the risk of failure.

Additional case studies must be conducted for organizations that also had undergone
strategic drift in an effort to gather all the possible reasons and special instances that
can lead to that result, as a way to help companies to be aware and identify warning
signals before it is too late.

30
 Appendixes
Appendix A

Table 1. Worldwide Mobile Phone Sales to End Users by Vendor (Thousands of Units)

Company Nokia Apple Motorola Samsung LG Sony Others

& Lenovo Ericsson

2005 265,614.80 N/A 144,920.40 103,753.60 54,924.60 51,773.80 195,575.70

2006 344,915.90 N/A 209,250.90 116,480.10 61,986.00 73,641.60 184,588.00
2007 435,453.10 N/A 164,307.00 154,540.70 78,576.30 101,358.40 218,604.30
2008 472,314.90 N/A 106,522.40 199,324.30 102,789.10 93,106.10 248,196.10
2009 440,881.60 N/A 58,475.20 235,772.00 122,055.30 54,873.40 299,179.20
2010 461,318.20 46,598.30 38,553.70 281,065.80 114,154.60 41,819.20 613292.7
2011 422,478.30 89,263.20 40,269.00 313,904.20 86,370.90 32,597.50 789680.9
2012 333,938.00 130,133.20 33,916.30 384,631.20 58,015.90 N/A 738,196.60
2013 250,793.10 150,785.90 45,284.70 444,444.20 69,024.50 37,595.70 854,321
2014 185,660.00 191,426.00 84,029.00 392,546.00 76,096.00 37,791.00 911,418.00

Source: Gartner Reports

Table 2. % of Market Share of Worldwide Mobile Phone Sales to End Users by Vendor

Company Nokia Apple Motorola & Samsung LG Sony Others

Lenovo Ericsson

2005 32.50 N/A 17.70 12.70 6.70 6.30 24.10

2006 34.80 N/A 21.10 11.80 6.30 7.40 18.60
2007 37.80 N/A 14.30 13.40 6.80 8.80 18.90
2008 38.60 N/A 8.70 16.30 8.40 7.60 20.30
2009 36.40 N/A 4.80 16.30 8.40 4.50 24.70
2010 28.90 2.90 2.40 17.60 7.10 2.60 38.5
2011 23.80 5.00 2.30 17.70 4.90 1.80 44.5
2012 19.10 7.50 1.90 22.00 3.30 N/A 46.20
2013 13.90 8.30 2.50 24.60 3.80 2.10 45
2014 9.90 10.20 4.50 20.90 4.00 2.00 48.50

Source: Gartner Reports

31
Table 3a. % of mobile phones Operating Systems market share worldwide

Date Android iOS SymbianOS BlackBerry Others

OS
2010‐03 5.9 30.13 34.51 12.73 16.71
2010‐04 5.58 29.38 33.54 14.06 17.45
2010‐05 3.94 29.01 32.92 14.15 19.98
2010‐06 3.95 26.66 33.39 14.98 21.03
2010‐07 7.91 26.05 32.04 16.45 17.55
2010‐08 9.22 25.71 31.54 16.95 16.57
2010‐09 9.79 22.85 32.69 17.9 16.78
2010‐10 10.67 22.45 32.83 18.19 15.87
2010‐11 11.61 21.94 31.93 19.25 15.27
2010‐12 13.6 23.57 29.66 18.04 15.12
2011‐01 14.61 25.02 30.25 15.03 15.11
2011‐02 15.16 24.56 30.66 14.52 15.1
2011‐03 15.8 24.38 30.61 14.1 15.11
2011‐04 16.05 23.34 31.56 13.54 15.49
2011‐05 17.63 22.09 31.36 12.94 15.98
2011‐06 17.92 20.04 33.58 12.15 16.31
2011‐07 18.93 20.03 32.45 12.48 16.12
2011‐08 20.6 19.41 32.12 11.84 16.02
2011‐09 20.9 21.21 31.83 10.72 15.34
2011‐10 22.11 23.48 29.84 9.49 15.1
2011‐11 21.9 24.21 30.95 8.44 14.5
2011‐12 21.83 22.71 33.46 7.78 14.23
2012‐01 23.21 24.04 31.89 6.94 13.93
2012‐02 24.76 25.49 30.19 6.76 12.81
2012‐03 23.61 23.99 31.48 6.43 14.49
2012‐04 23.79 23.85 28.45 6.1 17.81
2012‐05 23.81 22.95 20.25 5.66 27.33
2012‐06 25.07 24.56 17.29 5.26 27.81
2012‐07 26.53 25.41 13.47 4.96 29.63
2012‐08 28.21 24.48 12.58 4.65 30.07
2012‐09 29.25 23.63 12.22 4.54 30.36
2012‐10 30.19 23.72 11.7 4.29 30.1
2012‐11 31.67 23.73 10.93 3.93 29.73
2012‐12 33.19 23.26 10.72 3.53 29.29
2013‐01 36.87 25.85 8.86 3.39 25.02
2013‐02 36.9 27.21 8.18 3.32 24.39
2013‐03 37.23 27.14 7.98 3.27 24.38
2013‐04 38.34 26.46 7.75 3.27 24.19
2013‐05 38.27 25.86 7.68 3.47 24.72
2013‐06 37.93 25.09 7.69 3.46 25.82
2013‐07 38.34 24.79 6.39 3.66 26.82

32
Table 3b. % of mobile phones Operating Systems market share worldwide (Continued)

2013‐08 39.52 23.44 6.33 3.75 26.94

2013‐09 39.82 22.73 6.3 3.75 27.41
2013‐10 39.39 20.54 6.49 3.81 29.76
2013‐11 41.31 21.94 5.45 3.84 27.45
2013‐12 42.99 21.82 4.95 3.63 26.61
2014‐01 44.62 23.55 4.39 3.02 24.43
2014‐02 47.45 22.97 3.99 2.62 22.96
2014‐03 48.26 23.6 3.69 2.5 21.96
2014‐04 49.95 23.25 3.43 2.16 21.22
2014‐05 52.23 23.24 3.02 1.88 19.63
2014‐06 52.98 24.29 2.76 1.87 18.1
2014‐07 53.51 24.9 2.52 1.66 17.42
2014‐08 54.87 23.57 2.49 1.59 17.47
2014‐09 55.7 24.73 2.18 1.57 15.84
2014‐10 57.43 25.96 1.8 1.29 13.51
2014‐11 59.9 23.02 1.82 1.3 13.97
2014‐12 59.15 23.51 1.79 1.33 14.24
2015‐01 59.78 22.75 1.73 1.3 14.44
2015‐02 60.79 23.17 1.52 1.2 13.31
2015‐03 61.94 22.64 1.36 1.2 12.85
2015‐04 63.43 20.78 1.33 1.22 13.23
2015‐05 64 20.22 1.33 1.14 13.31
2015‐06 63.75 20.22 1.28 1.26 13.49
2015‐07 64.08 20.41 1.16 1.19 13.15
2015‐08 65.56 19.03 1.06 1.35 13.03
2015‐09 66.77 18.14 0.97 1.26 12.88
2015‐10 67.15 17.7 0.92 1.09 13.15
2015‐11 65.73 19.3 0.88 1 13.09
2015‐12 65.9 19.21 0.82 1.08 12.99
2016‐01 66.28 19.58 0.75 0.98 12.41
2016‐02 66.38 19.47 0.74 0.98 12.44
2016‐03 68.04 18.82 0.68 0.91 11.55
2016‐04 68.28 18.8 0.63 0.95 11.33
2016‐05 68.84 18.63 0.6 0.93 11
2016‐06 68.39 20.33 0.48 0.83 9.97
2016‐07 68.79 19.89 0.48 0.76 10.1
2016‐08 68.54 20.07 0.47 0.64 10.31
2016‐09 69.68 19.38 0.43 0.6 9.92
2016‐10 70.84 19.12 0.36 0.56 9.11
2016‐11 72.01 18.85 0.31 0.52 8.31
2016‐12 71.97 18.89 0.29 0.44 8.42

Source: Statcounter Global Stats

33
 Table 4. Nokia’s Income Statements (Millions of US $ except per share data)
Year 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Revenue $ 42,567.79 $ 51,647.97 $ 70,000.51 $ 74,594.41 $ 57,156.28 $ 56,364.04 $ 53,844.25 $ 38,809.35 $ 16,881.37 $ 16,924.65 $ 13,878.89 $26,131.25 $26,163.05

Cost Of Goods Sold $ 27,650.20 $ 34,843.95 $ 46,276.73 $ 49,038.72 $ 38,658.31 $ 39,344.34 $ 38,079.15 $ 28,018.97 $ 9,781.60 $ 9,430.06 $ 7,823.88 $16,773.84 $15,833.24

Gross Profit $ 14,917.59 $ 16,804.02 $ 23,723.78 $ 25,555.69 $ 18,497.97 $ 17,019.70 $ 15,765.10 $ 10,790.38 $ 7,099.76 $ 7,494.59 $ 6,055.01 $ 9,357.41 $10,329.81

Research And Development Expenses $ 4,762.12 $ 4,894.63 $ 7,742.03 $ 8,778.92 $ 8,240.69 $ 7,785.47 $ 7,816.39 $ 6,150.13 $ 3,478.82 $ 3,313.95 $ 2,360.71 $ 5,426.77 $ 5,556.56

SGandA Expenses $ 4,444.65 $ 4,998.88 $ 7,622.76 $ 8,331.74 $ 7,081.77 $ 6,628.87 $ 6,841.43 $ 7,602.13 $ 2,219.59 $ 2,172.08 $ 1,834.38 $ 4,226.11 $ 4,086.03

Other Operating Income Or Expenses $ ‐711.97 $ ‐175.47 $ 14.44 $ ‐921.80 $ ‐669.14

Operating Expenses $ 36,856.97 $ 44,737.46 $ 61,641.52 $ 66,149.38 $ 53,980.77 $ 53,758.68 $ 52,736.97 $ 41,771.23 $ 16,191.98 $ 15,091.54 $ 12,004.53 $27,348.51 $26,144.97

Operating Income $ 5,710.82 $ 6,910.21 $ 8,358.98 $ 8,445.02 $ 3,175.51 $ 2,605.36 $ 1,107.28 $ ‐2,961.88 $ 689.39 $ 1,833.10 $ 1,874.36 $‐1,217.26 $ 18.09

Total Non‐Operating Income/Expense $ 478.08 $ 277.57 $ 2,976.44 $ ‐1,134.14 $ ‐1,833.89 $ ‐233.71 $ ‐2,775.85 $ ‐438.56 $ ‐366.61 $ ‐2,148.15 $ ‐164.34 $ ‐297.68 $ ‐594.54

Pre‐Tax Income $ 6,188.89 $ 7,188.08 $ 11,335.42 $ 7,310.87 $ 1,341.60 $ 2,371.62 $ ‐1,668.57 $ ‐3,400.44 $ 322.78 $ ‐315.04 $ 1,710.02 $‐1,514.94 $ ‐576.45

Income Taxes $ 1,594.84 $ 1,704.39 $ 2,086.66 $ 1,590.15 $ 979.00 $ 588.25 $ 403.91 $ 1,472.58 $ 268.32 $ ‐1,871.65 $ 384.20 $ ‐505.72 $ 1,047.79

Income After Taxes $ 4,594.05 $ 5,483.69 $ 9,248.76 $ 5,720.72 $ 362.60 $ 1,783.37 $ ‐2,072.48 $ ‐4,873.02 $ 54.46 $ 1,556.61 $ 1,325.82 $‐1,009.22 $‐1,624.24

Income From Continuous Operations $ 4,280.43 $ 5,255.27 $ 7,688.86 $ 7,106.83 $ 3,451.66 $ 3,095.48 $ 1,395.15 $ ‐862.90 $ 54.46 $ 1,556.61 $ 1,325.82 $‐1,009.22 $‐1,624.24

Income From Discontinued Operations $ ‐1,036.07 $ 3,064.04 $ 1,414.65 $ ‐16.60 $ ‐23.74

Net Income $ 4,501.92 $ 5,408.33 $ 9,878.05 $ 5,866.34 $ 362.59 $ 1,783.36 $ ‐2,072.48 $ ‐4,873.03 $ ‐816.91 $ 4,602.04 $ 2,738.25 $ ‐847.66 $‐1,688.67

EBITDA $ 5,710.82 $ 6,910.51 $ 8,358.98 $ 8,445.02 $ 3,175.51 $ 2,605.36 $ 1,107.28 $ ‐2,961.88 $ 1,656.39 $ 2,227.91 $ 2,229.68 $ 546.66 $ 1,816.39

EBIT $ 5,710.82 $ 6,910.51 $ 8,358.98 $ 8,445.02 $ 3,175.51 $ 2,605.36 $ 1,107.28 $ ‐2,961.88 $ 689.39 $ 1,833.10 $ 1,874.36 $‐1,217.26 $ 18.09

Source: Macrotrends.net

34
 Table 5. Apple’s Income Statements (Millions of US $ except per share data)
Year 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Revenue $ 13,931.00 $ 19,315.00 $ 24,578.00 $ 37,491.00 $ 42,905.00 $ 65,225.00 $ 108,249.00 $ 156,508.00 $ 170,910.00 $ 182,795.00 $ 233,715.00 $ 215,639.00 $ 229,234.00

Cost Of Goods Sold $ 9,889.00 $ 13,717.00 $ 16,426.00 $ 24,294.00 $ 25,683.00 $ 39,541.00 $ 64,431.00 $ 87,846.00 $ 106,606.00 $ 112,258.00 $ 140,089.00 $ 131,376.00 $ 141,048.00

Gross Profit $ 4,042.00 $ 5,598.00 $ 8,152.00 $ 13,197.00 $ 17,222.00 $ 25,684.00 $ 43,818.00 $ 68,662.00 $ 64,304.00 $ 70,537.00 $ 93,626.00 $ 84,263.00 $ 88,186.00

Research And Development Expenses $ 535.00 $ 712.00 $ 782.00 $ 1,109.00 $ 1,333.00 $ 1,782.00 $ 2,429.00 $ 3,381.00 $ 4,475.00 $ 6,041.00 $ 8,067.00 $ 10,045.00 $ 1 1,581.00

SGandA Expenses $ 1,864.00 $ 2,433.00 $ 2,963.00 $ 3,761.00 $ 4,149.00 $ 5,517.00 $ 7,599.00 $ 10,040.00 $ 10,830.00 $ 11,993.00 $ 14,329.00 $ 14,194.00 $ 15,261.00

Other Operating Income Or Expenses

Operating Expenses $ 12,288.00 $ 16,862.00 $ 20,171.00 $ 29,164.00 $ 31,165.00 $ 46,840.00 $ 74,459.00 $ 101,267.00 121,91 1 $ 130,292.00 $ 162,485.00 $ 155,615.00 $ 167,890.00

Operating Income $ 1,643.00 $ 2,453.00 $ 4,407.00 $ 8,327.00 1 1,740 $ 18,385.00 $ 33,790.00 $ 55,241.00 $ 48,999.00 $ 52,503.00 $ 71,230.00 $ 60,024.00 $ 61,344.00

Total Non‐Operating Income/Expense $ 165.00 $ 365.00 $ 599.00 $ 620.00 $ 326.00 $ 155.00 $ 415.00 $ 522.00 $ 1,156.00 $ 980.00 $ 1,285.00 $ 1,348.00 $ 2,745.00

Pre‐Tax Income $ 1,808.00 $ 2,818.00 $ 5,006.00 $ 8,947.00 $ 12,066.00 $ 18,540.00 $ 34,205.00 $ 55,763.00 $ 50,155.00 $ 53,483.00 $ 72,515.00 $ 61,372.00 $ 64,089.00

Income Taxes $ 480.00 $ 829.00 $ 1,511.00 $ 2,828.00 $ 3,831.00 $ 4,527.00 $ 8,283.00 $ 14,030.00 13,1 18 $ 13,973.00 $ 19,121.00 $ 15,685.00 $ 15,738.00

Income After Taxes $ 1,328.00 $ 1,989.00 $ 3,495.00 $ 6,119.00 $ 8,235.00 $ 14,013.00 $ 25,922.00 $ 41,733.00 $ 37,037.00 $ 39,510.00 $ 53,394.00 $ 45,687.00 $ 48,351.00

Income From Continuous Operations $ 1,328.00 $ 1,989.00 $ 3,495.00 $ 6,119.00 $ 8,235.00 $ 14,013.00 $ 25,922.00 $ 41,733.00 $ 37,037.00 $ 39,510.00 $ 53,394.00 $ 45,687.00 $ 48,351.00

Income From Discontinued Operations

Net Income $ 1,328.00 $ 1,989.00 $ 3,495.00 $ 6,119.00 $ 8,235.00 $ 14,013.00 $ 25,922.00 $ 41,733.00 $ 37,037.00 $ 39,510.00 $ 53,394.00 $ 45,687.00 $ 48,351.00

EBITDA $ 1,822.00 $ 2,678.00 $ 4,734.00 $ 8,823.00 $ 12,474.00 $ 19,412.00 $ 35,604.00 $ 58,518.00 $ 55,756.00 $ 60,449.00 $ 82,487.00 $ 70,529.00 $ 71,501.00

EBIT $ 1,643.00 $ 2,453.00 $ 4,407.00 $ 8,327.00 1 1,740 $ 18,385.00 $ 33,790.00 $ 55,241.00 $ 48,999.00 $ 52,503.00 $ 71,230.00 $ 60,024.00 $ 61,344.00

Source: Macrotrends.net

35
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