Group Assignment MBA 4641

Group Members: Amit Sagar- M00333568 Anuradha Vyas M00340061 Neha Mehta M00334269 Princilla Gonsalves M00339403 Shinu Pillai M00334083 Vaibhav Garg M00333582

Report by : Anuradha, Princilla, Neha, Amit, Shinu & Vaibhav

Industry overview
The mobile handset industry is a one of the fastest growing industries in the world expanding rapidly as developing countries emerge. Mobile phones have gone through major changes since introduction in 1994 and are constantly evolving to meet customer expectations.
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5.9 Billion mobile phone subscribers which is 87% of world population Growth lead by India and China, representing 30% of worlds total Mobile devices sales rose in 2011 Smartphone showing strongest growth Nokia - remains No. 1 handset manufacturer Samsung - leading smartphone hardware manufacturer Android - top smartphone operating system
Key Success Factors - Innovation and speed of responding to consumer needs
Source: International Telecommunication Union 2011

PESTEL Analysis
Privatization of government monopoly Regulation on issuing licenses Market controls Global economic crisis Purchase power Emerging markets, Foreign direct investment Increasing need for social recognition Need for social connectivity Health concerns

P E
S

PESTEL Analysis
Increasing bandwidth VOIP, Near Field Technology Reducing size of devices due to advance in technology
Environmental issues Radiation level controls and related issues Increased reliance on renewable energy - Solar power Obtaining international operators license Lobbying Adherence to rules

T
E L

Global mobile devices forecast

1600 1400
Mobile devices shipping (in millions)

1200

1000
800 600 400 200 0 2008 2009 2010 2011
Source: IDC
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2012

2013

2014

Industry lifecycle stage

Porters 5 Forces Analysis

Threat of New Entrants - MEDIUM
High investment capital Non-existent customer loyalty Generic retail format Highly competitive market Plenty key component suppliers

Supplier power - LOW

Large number of suppliers producing same components offer low influencing power

Degree of Rivalry - HIGH

On price and functionality Low degree of differentiation Lack of switching cost High exit barriers Short life cycle of the devise

Buyer Power - HIGH

Buyers choose brand Customer trends & demands Low opportunity for suppliers Low customer loyalty

Threat of Substitutes - MEDIUM

No real substitutes available Tablets and portable computers
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Strategic Groups

Analysis highlights that there are clear distinctions within the competitive rivalry of the handset market.
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Nokia Overview
Over the past 150 years, Nokia has evolved from a riverside paper mill in south-western Finland to a global telecommunications leader connecting over 1.3 billion people. During that time, they made rubber boots and car tyres. They generated electricity and even manufactured TVs. Changing with the times, disrupting the status quo its what they have always done.

Mission
Connecting People

Vision
Build great mobile products that enable billions of people worldwide to enjoy more of what life has to offer.

Goal
Regaining leadership in the smart phone space Connecting the next billion Driving change

Key elements of Nokias strategy Build a new winning mobile ecosystem in partnership with Microsoft Bring the next billion online in developing growth markets Invest in next-generation disruptive technologies Increase our focus on speed, results and accountability

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Nokia Businesses Units

Location & Commerce

Devices & Services

Nokia Siemens Networks

Smart Devices - Focuses on Smartphones Mobile Phones - Focuses on mass market feature phones Devices & Services Other - Includes net sales of Nokias luxury phone business Vertu, spare parts and related cost of sales and operating expenses, as well as intellectual property related royalty income and common research and development expenses.
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Financial Highlights

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Nokia - Devices & Services Mobile device volumes by Geographic Area

13

Benchmarking- Financial Analysis

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Benchmarking- Top five mobile phone manufacturers, by 2011 global sales

Vendor Shipments 2011 (Mil) Market share 2011 Shipments 2010 (Mil) Market share 2010 Annual growth

Nokia
Samsung Apple LG

417.1
329.4 93.2 88.1

27.00%
21.30% 6.00% 5.70%

453
280.2 47.5 116.7

32.60%
20.10% 3.40% 8.40%

-7.90%
17.60% 96.20% -24.50%

ZTE
Others Total
Source: IDC (Feb 2012)

66.1
552.1 1,546

4.30%
35.70% 100%

50.5
443.6 1,391.50

3.60%
31.90% 100%

30.90%
24.50% 11.10%
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Market Positioning
Differentiation High Focused Differentiation

Perceived Added value/benefit

Hybrid

Strategies destined for ultimate failure Counterfeit & low cost phones Low Price

Low Low

No Frills Perceived Price High

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Resources and Capabilities analysis for Nokia

Strategic Capabilities Threshold (Required to survive or compete in market)
Resources Financial stability and good capital structure Production capability: Nokia is has its own production facilities divided between nine countries. Economy of Scale and Cost leadership on low cost mobiles Qualified staff Competencies Manufacturing globally acceptable quality handsets Engineering competence Consistent innovation in terms of product features Providing good quality service to customers

Resources and Capabilities analysis for Nokia

Strategic Capabilities Distinctive (Required for competitive edge)
Resources Huge global telecoms networks customer base. An extensive patents portfolio in this area. factories producing very complex and expensive telecoms networking gear. engineers who are extremely highly-trained, Brand value: Nokia was the number one brand in the sector of consumer electronics (ranking 8th in the world) in 2010. Worldwide distribution network: In 2011, Nokia has 650,000 retail points worldwide; far more than any of its competitors. Patents portfolio: Nokia is one of the most innovative companies in the world by filing between 1,300 and 1,500 patents applications a year. A rumour has suggested that Apple pays 11.50 $US per iPhone to Nokia. Nokia dominates the biggest markets: leading brand in market share Competencies Expertise in network and broadband technologies Vertical integration a very deep engineering and technological competence, ability to develop world-leading carrier relationships: Over the last decade, Nokia has developed important relationships with all the world-leading carriers. Nokia is one of the few brands that is known in every country on the planet and thus can access all sales channels due to these long relationships with the worldwide carriers. Innovation Culture: Nokia Ventures Organization (NVO), the companys formal approach to fostering, encouraging and nourishing innovation. The NVO was created to develop new business opportunities that fell outside of the current focus of Nokias core businesses. The NVO sought to develop both internally generated projects as well as external projects. Once ideas were developed, either they were moved into one of Nokias business units or they were sold. Competence of using its experience from one country in another for various business functions

VRIN Analysis of the strategic capabilities

Resource Valuable (Adds value as perceived by customers) Yes No (No direct value for customers but it has an important impact on Nokias cost performances) Yes Yes Yes No (No direct value for customers) No (No direct value for customers because Nokia is licensing its technology to competitors) No (No direct value for customers) Yes No Yes Rare Hard to imitate Yes Yes Non substituta ble Yes Yes Implications Expertise in network and broadband technologies Production capability Yes Yes Sustained competitive Advantage Temporary Competitive advantage

Economy of Scale and Cost leadership on low cost mobile Brand value Worldwide distribution network World-leading carrier relationships R&D

Yes Yes Yes Yes Yes

Yes Yes Yes Yes Yes

Yes Yes Yes Yes Yes

Sustained competitive Advantage Sustained competitive Advantage Sustained competitive Advantage Temporary Competitive advantage Temporary Competitive advantage Temporary Competitive advantage Temporary Competitive advantage Temporary Competitive advantage Temporary Competitive advantage

Nokia dominates the biggest markets a very deep engineering competence, Ability to manage the capital in a profitable manners Manufacturing globally acceptable quality handsets

Yes Yes No No

Yes No No No

Yes Yes Yes Yes

VRIN Analysis of the strategic capabilities

Resource Valuable (Adds value as perceived by customers) No Rare Hard to imitate No Non substitutable Yes Implications

Ability to exploit economies of scale to generating consistent profits Innovation culture: Nokia Ventures Organization (NVO),

No

Temporary Competitive advantage Sustained competitive Advantage Sustained competitive Advantage Temporary Competitive advantage Temporary Competitive advantage Temporary Competitive advantage Temporary Competitive advantage

Yes

Yes

Yes

Yes

Vertical integration

No

Yes

Yes

Yes

Financial stability and good capital structure Qualified staff Providing good quality service to customers Patents portfolio

No Yes Yes No

No No No Yes

Yes No No Yes

Yes Yes Yes Yes

Extensive presence in Global telecoms networks

Competence of using its experience from one country in another for various business functions

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Sustained competitive Advantage Sustained competitive Advantage

Value Chain Analysis

Support Activities Firm Infrastructure Human Resource Management Technology Development Procurement

Inbound Operations Logistics

Outbound Marketing Logistics & Sales

Services

Primary Activities

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Firm Infrastructure - Production Facilities of Nokia

Value Chain Analysis

1. Brazil Manaus - 1998 2. China Beijing -1995 3. China Dongguan -1995

4. Finland Salo -1979 5. Hungary Komrom -1999 6. India Chennai - 2006

7. Mexico Reynosa -1996 8. South Korea Masan - 1984 9. Vietnam Hanoi - 2012
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Currently Nokia is looking at site and facility closure and reconfiguration of facilities

Value Chain Analysis

Firm Infrastructure - Nokia Research Center

Nokia Research Center (NRC) is chartered with exploring new frontiers for mobility and solving scientific challenges in order for Nokia to deliver irresistible mobile experiences in the future. Founded in 1986, NRC is Nokia's corporate research arm and part of the CTO organization. This year NRC celebrates 25 years of innovations that have transformed the lives of billions of people around the world.
Now with 13 locations worldwide, Nokia Research Center is a truly global organization. This worldwide presence enables NRC to engage with the foremost minds and partners in the mobile field to conduct leading-edge research. By bridging this wide variety of cultures, environments and skill-sets across these diverse geographies, NRC empowers Nokia to develop products and services that meet the needs of our customers. 23

Value Chain Analysis

Human Resource Management Transferring of Jobs to Accenture through outsourcing of Symbian OS. 9,306 Jobs were cut out of their Device & Service business unit in 2011. End of year 2011 Nokia had total work force of 130,050 employees. Technology Development During the last two decades, Nokia have invested more than EUR 45 billion in research and development and built one of the wireless industrys strongest and broadest IPR portfolios, with over 10,000 patent families. Nokia is a world leader in the development of mobile device and mobile communications technologies, which is also demonstrated by Nokias strong patent position. Partnership with Microsoft to give Nokia resources and benefits of cloud computing that are essential for devices of future. They developed OS Windows Phone Release Mango currently used for Lumina product range. In year 2011 Nokia employed 34,876 people in R&D, representing approximately 27% of Nokias total workforce, and had a strong R&D presence in 16 countries. Procurement Nokia source components, materials and services from suppliers all over the world and expecting them to meet Nokias high standards of environmental and social responsibility Nokia is focusing on Feature phone production in locations closest to suppliers. Nokia has built strong relations with their suppliers by working with them for a long time. Supplier assessments are conducting to assess and understand a suppliers performance level and compliance to Nokia requirements. Capacity building - Helping suppliers do better by engaged with suppliers and providing support .
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Value Chain Analysis

Inbound Logistics As a major global company, our supply chain is long and complex Inbound supply chain is diverse with Danzas being its main Logistics Supplier, offering logistics services and responsibility for Nokias specified drop off points, logistics centre and hubs. Operations Changes in leadership & operational structure to accelerate the company's speed of execution in a dynamic competitive environment. Alignment of Global workforce & site consolidation Outbound Logistics Global Supply Chain having Massive Robust distribution channels with 417.1 Millions Units sold in 2011. Marketing: Nokia is trying to revive their brand with their partnership with Microsoft while trying to maintain their identity and removing OVI from their brand to be Nokia Services. Sales: Net Sales for 2011 was Euro 23,943 million dropped by 18% than 2010 Nokia is currently restructuring the sales organization by reducing a layer of sales management to ensure greater customer focus and providing senior leaders greater visibility into market dynamics.
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SWOT Analysis
Strength
Nokia has advanced technology over the competitors in the mobile phone industry The market leadership in the mobile phone industry. Strong brand value and image in the global market Number one manufacture of mobile handsets Strong Supply chain network. Strong Product portfolio Strong R&D and Product innovation and creation

Weakness
Complications in technology Few customized, operator-specific handset with less features Few alliances, company sticks to its standing in the market, do not want to cooperate with the operators. Lack of capability to align innovation with changing consumer preferences

Opportunity
The emerging market of smart phones in developing countries, such as China, India The emerging global market for high-end mobile phone such as business user phone. The growth stage market for smart phones with integration of music and other media applications. High growth US market for smartphones

Threat
Facing more new competitors, especially from Asia Stronger buyer power from the network operators.

Lost market share

Strong competition in mobile industry The market becomes saturated

ANSOFF MATRIX
Market Penetration Geographically: USA and Emerging markets
Product Development More innovative smart phones Global Smart phone market expected to expand to 40% of the total device market by 2013
Existing Products New

Existing

Market Penetration

Product Development

Markets

New

Market Development

Diversification

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Strategic Options
Option 1 Cost Leadership Market Penetration Organic Development Building and developing on Nokias existing capabilities. Adopting cost-effective measures Consolidating production facilities to manufacture in cost effective location close to supplier & market. Using R&D to find innovative ways of costeffective production Retrenchment of resources Target Operational excellence Reducing layers of management for faster adaptation to changes. Concentrating on core functionalities Option 2 Differentiation

Product Development Alliances

Differentiation in terms of market segment focusing on Smart Phones Provide benefits for customer Lock in strategy. Capitalize on alliance with Windows for operating system and application development capabilities. Alliances with regional mobile operators for customized phones. Utilizing R&D to develop innovative functionalities and design. Start with moderate pricing strategy differentiation without price premium Once market share is achieved slowly move towards focused differentiation
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Evaluation of Strategic Options

Suitability
Option 1 Cost Leadership
The industry is in growth phase and Nokia being in strong position as number 1 manufacturer of mobile handset should grow with the industry . Cost leadership will help in regain market share, reduce competition and increase entry barriers.

Option 2 Differentiation
The industry is in growth phase and Nokia being in strong position as number 1 manufacturer of mobile handset should grow with the industry by differentiation. Nokia can capitalize on alliance with Microsoft and their strong R&D for differentiation Differentiation will lead to having competitive edge thus reduce completion. Being differentiated products it will not be able to target mass market of customers, thus it will take more time for Nokia to achieve its Next Billion customers. Differentiation will help Nokia regain leadership in the smart phone.

Increase in production will increase purchasing power with respect to suppliers.

Cost leadership will help in achieving Nokia s target next Billion customers. Nokia already has distinctive resource & capabilities like experience, Brand value, global manufacturing units, supply chain & marketing and sales network. Nokia R&D capability can support in product development of cost effective products without compromising on quality

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Evaluation of Strategic Options

Acceptability & Feasibility
Option 1 Cost Leadership
Increase profitability by reducing cost. Increasing Return on Capital employed by economies of scale. Increase in Efficiency to increase performance of the company. No major capital investment required as Nokia has the resources and capabilities.

Option 2 Differentiation
Increase profitability by premium pricing. Investment required for Alliances, Acquisition and R&D for developing differentiated products impacting cash flow. Decrease or consolidation of production units will increase cash flow Strategy implementation will take more time as product development could be time consuming. Risk is higher for differentiation Past experience for Alliance & Outsourcing has not been satisfactory so Nokia cannot rely on others.
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Strategy implementation will take less time as basic requirements are available.
Lower risk Increase Focus on Nokias Capability for sustainable growth.

Evaluation of Strategic Options

Cost leadership Suitability
Addressing Key opportunities Avoiding key thrests Acceptability of returns Acceptability to stakeholders Acceptability of Risk Finance People skills Resources Workable in practice + + + + + + + +

Differentiation
+ + + +

Acceptability

Feasibility Total Positives

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Proposed Strategic Option

Option 2 Differentiation Option 1 Cost Leadership

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Financial projections for the next three years

Increasing the gross profit :
By Increasing the revenue by 15% each year By Controlling increase in cost of goods to 5% each year To reduce the operational expenses by 10% in first year and by 5% in next two years each

2014 (EURm) Revenue 36414.31 Cost of goods -21796.8 Gross Profit 14617.51 Operating expenses -6980.59 EBIT 7636.924

2013 (EURm) 31664.62 -20182.2 11482.4 -6648.18 4834.218

2012 2011 (EURm) (EURm) 27534.45 23943 -18687.2 -17303 8847.21 6640 -6331.6 -5756 2515.61 884

2010 (EURm) 29134 -20412 8722 -5182 3540

TEAM

To Control Cost of Goods we recommend to: Start one more manufacturing facility in India and one more in China To close their production facility in Europe Reduce the cost of labor and material per unit by mass production and achieve economies of scale To increase revenue we recommend to: Exploit its extensive distribution network in emerging markets to increase sales Establish alliances with telecom service providers and wireless carriers to promote bundle sales in USA To increase sales, focus on product design and align it with consumer demand through extensive market research Aggressive marketing drives To reduce operational expenses we recommend to: Reduce the R&D in first year and focus more on marketing research and marketing Controlling the operating and administrative expenses by hiring qualified staff from emerging countries or outsourcing some of the operations

Recommendations Summary
Nokias financial standing is still strong with a ratio of, its netcash

and other liquid assets, to the value of its bonds and terms loans, standing at 1.4
Nokias ratio of Debt to earnings before taxes, depreciation and

amortization stand at 3.4 in 2012 indicating still a position above danger line.
In addition Nokia may opt for offering long term Bonds to raise

capital to invest in marketing research and product development.

Recommendations Summary
Increase the market share of smart phones (cost leadership

strategy by investing in marketing research and marketing and leveraging the association with Microsoft Smart phone market expected to expand to 40% of te total device market by 2013 Focus on the US market as Nokia is not able to capture this huge potential market as compared to its competitors like Apple
US Market Share in Smart phones

Nokia
Apple

1%
44.9%

Strategic implementation plan to execute our strategy

Diagnosis

Leading & managing Change

Key elements in managing strategic change

Lever for Change

Managing Change Programmes

37

Diagnosis
Strategic Change

Adaptation

Evolution

Reconstruction

Revolution

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Diagnosis
Importance of Context

Time Immediate change is required to cope and adapt with the changes. Scope Operational excellence

Preservation The strategy is targeting organic growth within the organizational

utilizing the existing resources & capabilities

Diversity Nokia is highly diversified with global operations. Capability Nokia currently has under utilized managerial and personal as it is

proposing for job cuts to reduce cost.

Capacity Resources are available to increase capacity for being cost leader. Readiness Due to current financial loss & market share reduction, the readiness to change is felt by the company globally.

Power Power lies with the CEO, Board of Directors & Shareholder.
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Diagnosis
Force Field Analysis
Pushing
Regain Market Share - Attracting customers who have more power while purchasing on basis of cost. Achieve its Goal of Next 1 Billion Reducing competition - Competitors will hesitate to compete on the basis of price. Continuous focus on efficiency and reducing costs, creates barriers to entry. Increase in profitability by increasing efficiency and economies of scale reducing per unit fixed cost.

Resisting
Technological innovations by competitors could eliminate the low-cost leader's cost advantage. Overly focusing on process efficiency may cause the low-cost leader to overlook significant changes in customer preferences. Competitors may successfully imitate the lowcost leader's value chain configuration. Organizations Traditions and multilayer structure makes its difficult to adapt to fast environmental changes. Consolidation or relocation of production to cost effective locations could be resisted.

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Diagnosis
Force Field Analysis
Pushing
As low-cost leader Nokia will dominant market share may be in a position to force suppliers to lower prices or to hold down the level of price increases.

Resisting
Cost leader ship may target price competition Change in organization related to cost reduction could result in resistance.

the low-cost leader can more easily reduce prices to maintain the price-value relationship and retain customers
Availability & effective utilization of current resources and capability.

Reduction of management layers.

Increase in market share will impact in lesser job cuts .

Capitalize their strong experience

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Leading & Managing Change

Strategic Leadership roles Top management - Influencing the organization in its efforts to achieve its goals by Envisioning future strategy, Aligning the organization & Embodying change Middle Management Implementation of Strategy by sense making of strategy, Reinterpretation and Adjustment of strategic response as event unfolds & Advisor to senior management for implementation blockages & requirements. Style of Strategic Leadership Change will be based on Theory E and O for development of organization capability. Approach used will be of Collaboration.
High

Participation
Capability

Collaboration Education / Coaching

High 42

Direction
Low

Low

Readiness

Lever for Change

Investors expectations and beating competition Challenging the self contained attitude of Nokia Changes in operational processes Organizational rituals and change Power systems

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Managing Change Programmes

Turnaround strategy should be used as Market Share of Nokia is constantly

dropping resulting in losses and there is pressure to get results.

Turnaround strategy emphasis is on speed of change and rapid cost

reduction / revenue generation.

Effective use of resources is required for cost cutting. Decrease in Management layer is required to reduce cost and enhance the

decision making process.

Gaining Stakeholder Support Clarify the target markets and core products.

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