THE RISE AND FALL OF NOKIA Case Study Solution
Question: 1
NOKIA was initiated as a timber company in 1865. In late 1960s it merged with several concerns and formed Nokia Corporation. The merger was led by CEO Bjorn Westerlund successfully.In 1970 the company started producing Mikro Mikko office computer and captured 80% market share in Finland. Soon, the company started producing wireless phones for the government services and in 1971, it started producing analog car-radio phones. The company did a joint venture with state owned company to develop a network infrastructure for wireless phones.
The CEO Kari Kiaramo led the era of Nokia’s growth from 1977 till 1988, the CEO made Nokia an international company in 1983.Nkia acquired Luxor Company in Sweden, and increased its exports of wireless networking terminals throughout Europe, U.K., America and Asia. In 1987, the company enjoyed a growth of 54% in its revenue. The company successfully introduced the first mobile phone and established the 2G and GSM networks, and at the end of 1988, it became one of the major players through capturing the 13.4% market share of the world. The company invested in research and development and the strategy of mergers and acquisition remained constant for the company, which added value to its patents and increasedits revenues. This merger and acquisition strategy created a liquidity crisis in the company and led the company to have 23% decrease in revenue in 1988. Not only this, the electronics business of the company was also struggling.
The company started facing challenges at the end of 1988. Mr. Simo Vuorilehto had become CEO of Nokia and restructured the company with six business divisions: Telecom, Nokia Data, Mobile phones, basic industries and consumer electronics, Cables and Machinery. But the company continued to havedecreased in revenue and growth. The company had a decline of 31% decline in sales during 1991, due to some external factors. In addition to this, the banks were reluctant to grant loan to the company due to its poor economic condition. But the telecom networking division was performing well, because GSM was taking the lead in the world.
In 1992, Jorma Ollila took the charge of CEO and took some steps that worked better for the company. In order to foster the values, he implemented “The Nokia Way” and focused on four key businesses; consumer electronics, mobile phones, networks and cables. Ollila’s focus on producing mobile phones and developing telecom networks made Nokia the largest mobile producer of Europe and the 2nd largest in the world by 1992. With its innovative products and rapid response to the market differences, the company expanded globally and under the leadership of Ollila, it captureda very beneficial opportunity in Asia, and by 1998 with 23% market share, it became leading manufacturer of mobile phones in the world. Although, the company did continue to grab the market share in emerging markets, but the aggressive change in the dynamics of the world market slowed down its success and revenues. A sharp increase in demand and competition resulted in the short lifecycles of products as well as a rapid decline in retail prices. In the mid of 2000s Nokia maintained the economies of scale through vertical strategy that lowered the cost and magnified the profit margins in the lower end of the market, but failed to cope with the higher end products and lost the first mover advantage in the market. Samsung introduced its camera phone two years after Nokia, and Samsung became the early 3G network provider, while LG produced 3G sets before Nokia.
In the mid of 2006, Kallasvuo became the CEO and executed the merger of Nokia and Siemens for combining the network infrastructure in order to meet low price demand in Asia and called offa joint venture with Sanyo for manufacturing the CDMA phones that decreased its market share by 10% in the US market. Kallasvuo set new strategy for US market and partnered with AT&T in addition to which, it also introduced Verizon in 2008, which captured the large market share of approximately 26.3%. In addition to this, Nokia started outsourcing its production of Verizon and chips. With the introduction of Apple’s iPhone, the focus of market shifted from hardware to software. The main players of the industry made an alliance for using Google’s Android OS system for their smartphones, while Nokia was striving to develop its own software system with Symbian OS phones. It started an online store, Ovi and developed MeeGo, and also invested in mobile maps system etc. besides all this Nokia maintained a large market share of 23% in 2009.(J West, D Wood, 2014)
In 2010, Stephen Elop was assigned as the CEO, the company was striving to transform itself from hardware to Software Company, but it was too late to compete with the market pressures. The high-end smartphone market was dominated by Apple, and the low end was dominated by other manufacturers who used Android, while Nokia was selling low end mobiles in Asia. The ecosystem Symbian required high R&D costs and time,but it was already too late for the competition, therefore, Elop replaced Symbian with the Microsoft windows phone 7 software, whose announcement decreased the value of its share price and decreased the sales volume in 2011. Nokia tried to create its presence in the US through subsidizing its price, replacing all Symbian phones to windows phone and shifting its operations from White Plains to Sunnyvale. But all of the company’s effortswent in vain,as the value of the company was declining and sales and share price were stooping. In 2012, it announced several layoffs. In September 2013, Nokia sold its business to Microsoft. (J Alcacer, T Khanna, C Snively, 2014)
Question: 2
Nokia’s strategies were changing with the change in market conditions, as a result of these strategies, it was able to witness the golden era of its success during 1990s, but slowly its decline started in 2000s, due to lack of competitive strategies. The glimpse of it is as follows..................
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