Vol. 5, No. 9, September 2024
E-ISSN: 2723 - 6692
P-ISSN:2723- 6595
http://jiss.publikasiindonesia.id/
Journal of Indonesian Social Sciences, Vol. 5, No. 9, September 2024 2312
Business Strategy and Enterprise Modeling: Nokia Case Study
Dian Alanudin, Laura Nanda Salikha
Institut Teknologi dan Bisnis Jakarta, Indonesia
Email: dian.alanudin@jbs.ac.id, laurasalikha@gmail.com
Correspondence: dian.alanudin@jbs.ac.id
*
KEYWORDS
ABSTRACT
Nokia; Business Strategy;
Enterprise Modeling;
Dominant Enterprise
This study aims to analyze the main causes of Nokia's market share
decline and formulate recovery strategies using the PESTEL
framework, Porter’s Five Forces analysis, and SWOT. The research
adopts a case study method, collecting data from Nokia’s financial
reports, industry reports, and relevant academic literature. Key
findings reveal that Nokia’s delayed adoption of smartphone
technology and internal management conflicts significantly
contributed to the company’s downfall. Additionally, the PESTEL
analysis highlights external challenges such as shifting consumer
preferences and intense technological competition. Based on the
analysis, strategic recommendations include adopting a Blue Ocean
strategy, internal restructuring, and enhancing technological
innovation to regain Nokia's competitive advantage. This research
provides valuable insights into how technology companies can avoid
decline in rapidly changing industries.
Attribution-ShareAlike 4.0 International (CC BY-SA 4.0)
Introduction
This study presents an in-depth analysis of Nokia's historical context, leading to a better
understanding of its current strategic position. Nokia, once a pioneer in mobile technology, enjoyed
great success and unprecedented market leadership in the late 20th and early 21st centuries. Its early
innovations and extensive global reach made it the dominant player in the mobile phone industry
(Alänge & Miconnet, 2001; Bhatt, 2002). However, that dominance is now threatened by the rapid
emergence of new competitors and rapid technological advances, which have significantly changed
the competitive landscape. The key question of this study is: Can Nokia successfully rejuvenate itself
amidst these tough challenges? It is important to remember that even historically successful
companies are not immune to disruption. As the market ecosystem changes, companies that once had
a sustainable competitive advantage need to constantly reassess their strategies and business models
to stay relevant (Kak & Sushil, 2002; Lartey, 2008). Nokia's past market power, while strong, is no
longer sufficient without a proactive and adaptive approach to the changes taking place. Core
competencies, while important, are not enough if companies are unable to adapt to external changes.
To overcome these challenges, Nokia needs to have a deep understanding of its internal
capabilities and external business environment (Bhutto, 2005). This includes external analysis using
frameworks such as Industry Structure, Competitive Forces, and Strategic Groups. This analysis helps
identify external threats and opportunities by examining factors such as market trends, competitive
dynamics, and strategic positioning relative to competitors in the industry (Tovstiga, 2023). In the
case of Nokia, the company faced significant sociocultural and technological disruptions, as revealed
in the PESTEL analysis. These factors played a key role in the erosion of Nokia's market dominance in
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early 2011, as the company struggled to adjust to rapid changes in consumer preferences and
technological advances. In response to declining sales and increasing competitive pressure, Nokia
took the strategic step of forming an alliance with Microsoft and adopting Windows Phone 7 as its
operating system. This move aimed to rejuvenate Nokia's presence in the market and counter
competitive threats. However, this strategic change faced its own challenges and was often perceived
as an ineffective move in retrospect. The need for continuous strategic adjustments and alignment
with market dynamics as well as technological advancements is increasingly evident (Datta &
Kutzewski, 2024).
To renew, Nokia had to correct past strategic mistakes while positioning itself to capitalize on
new opportunities and address existing threats. This involves an in-depth analysis of the current
market landscape, competitive positioning, and internal capabilities. The following sections of this
paper will discuss specific strategies that Nokia can adopt to meet these challenges. These include
integrating technological advancements, improving operational efficiency, and realigning its business
model to better suit current market demands. By comprehensively addressing both internal and
external factors, Nokia aims to not only recover its market position but also achieve long-term
resilience and success in a highly competitive industry.
Materials and Methods
This research uses a case study approach with qualitative analysis methods to evaluate Nokia's
strategy for restoring competitive advantage. Secondary data was obtained through industry reports,
company publications, and academic literature related to business strategy. Analysis was conducted
using the PESTEL framework to understand the external factors affecting the company, and Porter's
Five Forces to assess competitiveness in the mobile phone industry (Li et al., 2023). In addition, a
SWOT analysis approach was applied to identify Nokia's current strengths, weaknesses,
opportunities and threats. The study also involves a historical analysis of Nokia's strategic mistakes
and an evaluation of the company's innovation capabilities and research and development
investments. The output of this analysis will provide relevant strategic recommendations for Nokia.
Results and Discussions
External Environment Analysis
Figure 1. External Environment Analysis
PESTEL Analysis
Industry Analysis:
Porter's 5 Forces
Analysis
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1. PESTEL (Macro Environmental Analysis) of Nokia
Figure 2. Nokia PESTEL Analysis
Political
•Nokia have recently moved one of its manufacturing facilities to India, Nokia should follow the rules
and regulations that are set in India, so that they can operate as efficiently as possible, such as
minimum wage, the maximum hours a week employees can work and especially the Health and
Safety regulations.
•Nokia should also have a good relationship with their government in Finland, as any political
instability such as a change in government or coalition may result in new laws being implemented.
•The company is based in the European nation of Finland, but the Finnish government has refused to
give it a bailout or special favors.
Economic
•Nokia is so important to the economy of Finland that the government had to step in when
Nokia planned job cuts in Finland.
•Nokia will also have to be aware of changes in exchange rates, as they operate on a global
scale.
•The threat of recession on western economy has also had an effect on the interest rates in
banks, which means the cost of borrowing money for business activities has increased and
Nokia will need to be aware of the changes in interest rate.
Sociocultural
•Nokia mainly operating in the Western market it is important to fully understand the social factors in
these markets and the main factor they need is the culture of the society, which is to have the latest
and most up to date phone, is considered a key fashion icon.
•The increasing trend in Smartphones means when consumers purchase new mobile phones less and
less consumers are choosing the standard mobiles phones over Smartphones because of the social
trend in today’s society
Ecological/
Environment
•It is very important for Nokia to be seen as environmentally friendly and ethical with its
manufacturing, because of the global effect it has on global warming
•With mobile phone recycling organisations becoming more and more popular, this demonstrates how
important people are regarding it. The main issue with mobile recycling is the disposal of the batteries
in the phones as these can become dangerous if not disposed of appropriately.
Technological
•As the level of competition rises Nokia must ensure that their Smartphones are at the highest level
of innovation. With functions such as camera, internet, social networking and email all necessities on
Smartphones Nokia will have to think of other functions to help differentiate and stand out from its
rivals.
•As well as function more and more consumers are looking at the software running all the functions as
a key indicator of the success and quality of the Smartphone.
Legal
•Nokia operate in an industry where it is very difficult to have a product that is different to its
competitors, when they do release a product with an innovative capability it is vital to protect the
rights to it through patents, copyright, trademarks or design to ensure they are not “stolen” by their
competitors. Not only are competitors a threat of intellectual, but Nokia must ensure they do not fall
victim to counterfeiters who claim to be a Nokia products but are cheap knock-offs.
•As Nokia have manufacturing plants in a various countries it is extremely important that they abide by
the laws and regulations set by the different countries as the laws will differ depending on the
country, these can be employments laws, Health and Safety or even trade restrictions.
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In addition to the PESTEL analysis, some important points why Nokia lost the market were
because Nokia did not have: (1) Vision and mission (2) Clear goals (3) Management (4) Internal
conflicts (5) Product and service launches (timing issues) (6) Nokia was slow to respond to the
emergence of smartphones. With Apple iPhone and Android Phone starting in 2007, Nokia entered
with various platforms such as Symbian, MeeGo, Windows Mobile which did not receive maximum
response from the market. It made Nokia's market share fall. It was a strategic mistake when Apple
had its own OS and hardcore users. And Android is supported by the Open Handset Alliance (OHA) -
a group of 84 technology and mobile companies that have come together to accelerate innovation in
mobile and offer consumers richer, cheaper and better mobile experiences. (7) Culture of arrogance,
no strong corporate values (8) Skipping the importance of smartphone operating system software.
Complacency is the reason. When Nokia was at the top of the cell phone market segment. They felt
that they could do no wrong and they were too big to fail. (9) Nokia's CEO sold it to Microsoft (10) No
ethics and integrity (11) Lack of entrepreneurial mindset and culture (12) Leadership issues.
2. Nokia Porter's Five Forces
To find out the answer to the question about Nokia's prospects, we must first identify and
analyze the external environment in the industry using Porter's five forces.
Figure 3 Porter's Five Forces Model of Industry Competition
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Product substitution and high competitive intensity. Thus, Nokia must have a blue ocean
strategy such as value innovation that simultaneously executes differentiation (V ↑) and low cost (C ↓)
(Pufall et al., 2007). This will also provide more value and benefits to Nokia's buyers. The bargaining
power of Nokia buyers is very high. Using this approach and strategy will make Nokia's smartphone
products, brands and services still have opportunities and prospects in the industry (Lan, 2023).
If Nokia decides to rejuvenate its strategy in addition to the alliance with Microsoft, Nokia must
strengthen its Internal Analysis: Resources, Capabilities, Core Competencies, and build Sustainable
Competitive Advantage (SCA) to have Superior Performance or Above Average Return (AAR) (C. Liu,
2022; Z. Liu, 2024). Nokia's Core Competencies used to be cell phone manufacturing and cell phone
design, but these core competencies have been abandoned by its competitors. Nokia understood that
its strengths alone were not enough to win. Therefore, Nokia had to re-strategize to stay relevant in
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a dynamic global market (Steinbock, 2010). Now, Nokia must build Sustainable Competitive
Advantage. Here are the steps that Nokia can implement (Kamardi et al., 2022).
Figure 4. Sustainable Competitive Advantage (SCA)
3. Company Resources and Capabilities
Figure 5. Tangible and Intangible Resources of the Company
Tangible Resources include assets that can be measured and observed, such as Financial
Resources, Organizational Resources, Physical Resources, and Technological Resources. In contrast,
Intangible Resources include more abstract assets, often closely connected to the history and
External
1. Financial Resources
- Capital
2. Organizational
Resources
- Labor /
Employee
- Management
3. Physical Resources
- Land
- Building
- Equipments
- Plant
4. Technological
Resources
Support
Brand Loyalty
Brand Image
Trust
Reputation
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development of the company, such as Human Resources, Innovative Resources, and Reputational
Resources. To rejuvenate its strategy, Nokia had to address and resolve internal issues, and establish
a clear vision, mission and goals. In addition, it needs to develop effective business strategies, business
models, and business plans, as well as establish corporate values and strategic leadership. Nokia
should evaluate the strengths and weaknesses of its existing resources, address its problems, and
utilize its strengths, such as physical, financial, technological, brand loyalty, brand image, and
intellectual property resources, to renew its strategy (Garg, 2023).
Figure 6. Vision to Business Plan Steps
By using and maximizing existing resources, Nokia has two main options for business strategies
that can be used to cushion the impact of future black swans, i.e. rares:
1. Joins the Open Handset Alliance (OHA) and uses the Android OS.
2. Developed its own platform, but only chose one, accelerating the development of Symbian or
MeeGo.
The capacity of a company to use resources that have been intentionally integrated to achieve
a desired end state. Emerges over time through complex interactions among resources. The
foundation of many capabilities lies in: (1) The unique skills and knowledge of the company's
employees (2) The functional expertise of those employees. Nokia is currently the largest mobile
phone manufacturer in the world. Building high-quality smartphones (hardware) is Nokia's
capability, but to protect itself from the impact of black swans in the future, Nokia must utilize and
improve its capabilities. Nokia must have the ability to create smartphones that have the latest and
most current phones that are considered fashion, lifestyle or trend-setting icons.
4. Core Competencies
Core Competencies are resources and capabilities that serve as a source of competitive
advantage for a company over its competitors. Core Competencies emerge over time through an
organization's process of accumulating and learning how to use different resources and capabilities.
Nokia has many competencies but due to emerging success, Nokia has to focus on the right core
competencies to gain competitive advantage. Two significant core competencies are:
Table 1. Nokia's Core Competencies
No.
Functional Areas
Capabilities
1.
Research & Development
Innovative Technology
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Software business at scale by expanding and
strengthening its software portfolio
End-to-end of complex Network Function
Virtualization (NFV) and Software Defined
Networking (SDN) deployments
2.
Organizational Culture
Good leadership and entrepreneurship culture
Have a shared vision to ensure full commitment from
employees
Motivating, empowering, and retaining employees
Continuously bringing in young and talented people
Innovative organizations
Organizational culture is a core competency and a source of sustainable competitive advantage.
Nokia must be innovative and entrepreneurial by adopting the right culture. Within the organization,
entrepreneurship is encouraged by managers who are open to employee suggestions for new
products and services, this enables continuous learning, there is also a feedback process for
employees involved in new ideas. Nokia should continuously bring in young and talented people,
without pushing them into one particular career path. For this to happen, they must share a common
vision to ensure full commitment from employees. Investment in Research and Development. Another
core competency is Nokia's research and development. Nokia employs 51,750 people, more than a
third of which are people working in research and development. The company hires around 1,000
new people in research and development each year, aimed at those with new skills. Nokia's extensive
research and development enables it to create intimacy with consumers, the best mobile devices
anywhere and services that expand with experience (Liwafa et al., 2023; Wang et al., 2023).
5. Sustainable Competitive Advantage (SCA)
Nokia must have significant core competencies to achieve competitive advantages. Nokia's core
competencies are based on the latest smartphone products, brands, and services. Four SCA Criteria.
(1) Valuable Capabilities: Nokia has smartphones that have the most advanced and latest capabilities
as its capabilities (2) Rare Capabilities: Nokia has few, if any, current or potential competitors for its
most cutting-edge smartphone products in terms of software and technology that are also considered
fashion or lifestyle icons (3) Costly: Yes, copying capabilities is expensive. For other companies to
develop it is very expensive, it cannot be easily developed or imitated by other companies (4)
Nonsubstituable Capabilities: Has no strategic equivalent (Liwafa et al., 2023).
a) Above Average Return (AAR)
Figure 7. Nokia's Sustainable Competitive Advantage (SCA)
Outcomes from combinations of the 4 Criteria of SCA
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b) In addition to SCA, Nokia also needs to strengthen and maintain its value chain:
Figure 8. Porter's Value Chain Model
Linking all value chain models to the business strategy. Key activities as well as supporting
activities. Nokia must strengthen its value chain to gain cost leadership among its competitors and to
protect itself from the future impact of black swans in the technology and communications industry.
This strategy is necessary if Nokia decides to rejuvenate its strategy in addition to pursuing an alliance
strategy with Microsoft as vertical integration. The following are examples of key activities and
supporting activities to strengthen Nokia's Value Chain.
Figure 9. Porter's Value Chain Competitive Advantage Model
c) Nokia's Blue Ocean Strategy: Combining Differentiation and Cost Leadership
Blue Ocean Strategy is a powerful approach to business strategy that successfully integrates
differentiation and cost leadership activities into a cohesive framework. By utilizing the concept of
value innovation, this strategy aims to reconcile the traditional trade-off that companies face between
offering unique value and maintaining cost efficiency.
In the context of Blue Ocean Strategy, the term "blue ocean" refers to three main concepts:
1) Untapped Market Space: This signifies the exploration of new and unchallenged market spaces
free from intense competition, where companies can operate without the constraints of existing
industry boundaries.
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2) Incremental demand creation: This emphasizes the potential to create and capture new
demand by meeting unmet needs and providing a unique value proposition that attracts new
customers.
3) Opportunities for highly profitable growth: This highlights the prospects for achieving
significant profit margins and sustainable growth by leveraging innovative solutions and
creating value in ways that differentiate the company from competitors.
d) Implementing Blue Ocean Strategy
Changing the Competitive Landscape: The Blue Ocean strategy fundamentally overhauls the
competitive dynamics by abandoning the crowded and fragmented "red ocean". Instead, it
encourages companies to redefine industry boundaries and create new market spaces that are
minimal or even free of competition. Exploring New Areas of Competition: By entering these
innovative spaces, Blue Ocean strategies open up areas of competition that offer unique growth and
differentiation opportunities. This approach shifts the focus from competition within the boundaries
of the existing market structure towards exploring new business potential. Customizing Business
Exchanges: Implementation of Blue Ocean Strategy requires the ability to strike a balance between
value creation and cost management (Hu, 2023). Companies should strive to increase the perceived
value of their products or services, while simultaneously reducing production costs. Increasing Value:
Companies need to improve the value proposition of their products or services to meet or even exceed
customer expectations, creating compelling reasons for customers to choose their offerings over
competitors (Bhalodiya & Sagotia, 2018). Lowering Production Costs: At the same time, companies
should strive to lower production costs without compromising on the quality or unique features of
their offerings. This balance allows companies to gain a competitive advantage by providing high-
quality products or services at a lower cost.
Integrating Business Strategy: The essence of the Blue Ocean Strategy lies in applying
differentiation and cost leadership simultaneously. By effectively combining these two strategies,
companies can gain competitive advantage in new and untapped markets, driving innovation and
efficiency. In conclusion, Nokia's implementation of the Blue Ocean Strategy involves applying the
principles of value innovation to break away from conventional competitive constraints, create new
market opportunities, and deliver high value while maintaining cost efficiency. This strategic
approach aims to position Nokia excellently in the market by meeting unmet needs and tapping into
unexplored potential for profitable growth. This is achieved by pursuing differentiation (V ↑) and low
cost (C ↓) simultaneously. Nokia must also create Value Innovation to protect itself from future black
swans.
Figure 10. Value Innovation
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Based on Elop's quote, "We have a lot of work ahead. We know that we are bringing a beautiful
product to the market. The Lumia 920 has gotten fantastic reviews, but now we have to translate that
into sales results." we have to commercialize this beautiful Lumia 920.
Figure 11. Nokia's Decline in Smartphone Segment
Based on the case data above, it can be seen that Nokia experienced a significant decline in
smartphone market share from 2009 to 2012, shrinking from 39% to 6.6%. Although Nokia's
products received very positive reviews, their sales results did not reflect this. Nokia seemed to be
failing to keep up with the times and evolving trends. Within the company, there were several internal
conflicts that affected performance. Nokia also lacked consistent values, a clear vision, and effective
leadership. There were two competing teams with different directions, which added to the internal
complexity. As a result, although the Lumia 920 received excellent reviews, this did not translate into
sufficient sales, as Elop explained in his statement.
Figure 12. Nokia Decreasing Market Share
3,2
7,6
19,1
29,1
32,6
31,3
14,5
15,7
19,0
24,2
16,9
15,0
19,9
16,1
10,4
6,7
0,0
4,3
4,7
7,1
8,9
4,8
5,7
4,0
18,7
20,4
26,9
27,0
38,2
45,4
39,0
33,1
15,7
8,2
6,6
0,0
39,0 33,1 15,7 8,2 6,6 n.s.
2009 2010 2011 2012/Q1 2012/Q2 2012/Q3
Nokia's Specific Decline in the
Smartphone Segment
Samsung Apple Research in Motion HTC Others Nokia
39,7
36,9
32,6
27,0
20,8
20,6
18,7
16,7
19,4
20,1
21,3
23,5
24,1
23,7
0,0 0,0
3,4
6,0
8,8
6,4
6,1
0,0
2,3
3,6
4,3
4,8
4,4
3,1
8,5
10,1
8,4
5,7
3,4
3,2
3,1
35,1
31,3
31,9
35,7
38,7
41,3
45,3
2008 2009 2010 2011 2012/Q1 2012/Q2 2012/Q3
Nokia's Decreasing Market Share
Nokia Samsung Apple ZTE LG Electronics Others
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Nokia is also experiencing a decline in market share, as we can see from the data above. So, we
have to commercialize this beautiful Lumia 920. In our opinion, the Lumia 920 is a promising device,
capable of becoming Nokia's flagship. But it is not without its own merits. A beautiful product cannot
translate into good sales results if its biggest weaknesses are still present. A significant weakness of
the Lumia 920 is its OS, Windows Phone 8 which we think is a competitive disadvantage. This is due
to the lack of apps on Microsoft's mobile platform and its underperformance compared to its rivals
especially iOS and Android OS. Over the past year, developers have not flocked to Microsoft's platform
to improve its app situation. Instead, more and more well-known apps have disappeared. However,
although some big names are still committed to the platform, the quality is still not there when
compared to iOS and Android. One simple thing like apps or lack of apps is the main driver of people
not buying the Windows Phone ecosystem.
Figure 13. Nokia's Strategy Group Map
To effectively navigate the competitive landscape of the mobile phone industry, it is important
to conduct a thorough analysis of the strategic clusters within the sector. This process involves
grouping companies based on their strategic approach, which helps in identifying direct competitors
and understanding market positioning. By grouping companies with similar strategies, we can
determine who our direct competitors are, what differentiates our offerings, and how we position
ourselves in the market. The first step in this analysis is to recognize that in any industry, there are
two fundamental assumptions: no two companies are truly identical, and no two companies are truly
different. This means that while companies may have overarching similarities in their strategic
Samsung
Price
High
Low
Narro
w
Wide
Product-line Breadth
Appl
e
Nokia
HT
C
ZT
E
L
G
STRATEGY GROUP
MAP
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approach, there are always nuances that set them apart from each other. Strategic clusters are
essentially groups of companies that adopt similar strategies, which makes it possible to compare and
contrast their relative positions in terms of product breadth, geographic coverage, pricing strategies,
and degree of vertical integration.
Once we have established these groups, we can create a competition map to visualize the
strategic landscape. This involves evaluating various dimensions of competition, such as the range of
products offered, geographic markets served, and the degree of vertical integration. For example,
some companies may focus on high-end premium products with a wide geographic reach, while
others may target cost-sensitive segments with a narrower range of products. Utilizing a framework
such as the Diamond Model can refine this analysis. The Diamond Model examines factors such as
factor conditions (e.g., resources and capabilities), demand conditions (e.g., market needs and
preferences), related and supporting industries, and company strategy, structure, and competition.
By applying this model, Nokia was able to develop a more nuanced understanding of its position
within these strategic clusters and identify opportunities for differentiation and competitive
advantage. In short, a comprehensive understanding of the strategic groups and competitive
dynamics is critical to developing an effective business strategy (Tao, 2022). This involves analyzing
the similarities and differences among companies, mapping the competitive landscape, and utilizing
models such as the Diamond Model to refine the strategic approach. By doing so, Nokia can better
position itself within the industry, identify key competitors, and devise strategies that capitalize on
its strengths while addressing market challenges.
Based on the strategic group map, Nokia should expand into the low-end market in the mobile
phone business. Because Nokia has a wide product line with low prices. In this segment Nokia is one
step ahead compared to other competitors. There are no head to head competitors for this segment.
Nokia products, such as the Lumia 920 can be sold using this strategy and approach. Although, these
products can have multiple options and prices based on the product specifications in memory, camera
quality, and other features. Nokia should sell its products and services in the economy or mass market
with a broad product line or multiple specifications and low prices because in this segment Nokia has
many advantages and no head to head competitors so far. With this strategy, the products can be sold
and lead to financial results.
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Figure 14. Nokia's Position in the Market (Quality Vs Price)
The partnership between Nokia and Microsoft for their latest smartphone seems to be a solid
strategic decision, given Microsoft's reputation for technological capabilities and the added value it
can bring to technology products. In the highly competitive and ever-evolving smartphone industry,
technological innovation is crucial to the success of any new device. Nokia needs to ensure that its
smartphones are at the forefront of innovation. Amidst consumer demand for features such as
camera, internet, social networking and email, Nokia must add unique features that differentiate its
products from competitors. In addition, the software that performs these functions is increasingly
considered a key indicator of the quality and success of a smartphone.
With the acquisition of Nokia, Microsoft aims to strengthen its position in the smartphone
market through the Nokia platform. The acquisition is driven by strategic reasons and integration
capabilities that are considered superior. This vertical coordination aims to leverage Microsoft's
technological expertise and add value to Nokia's products. Microsoft also brings expertise in human
resource management including employee motivation, empowerment and retention, which will also
benefit the Nokia team. The integration of Nokia products, such as the Lumia line, has the potential to
provide cost efficiencies, risk sharing and increased market power. Nokia is expected to benefit from
a broader product line at a lower cost thanks to this integration. However, the partnership gives Nokia
greater benefits than Microsoft, giving Microsoft greater bargaining power in price and share
negotiations. This accelerated Nokia's decline in enterprise value, and eventually, Microsoft acquired
Nokia's mobile phone business in 2013. In six years, Nokia's market value fell by about 90%, down to
about $100 billion.
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Figure 15. Strategy Diamond Model Lumia 920
.
Discussions
In 2010 came the iPhone with a touchscreen, but it underperformed in terms of usability and
failed to match the competition of iOS and Android. The new CEO, Stephen Elop who was hired that
year decided that Nokia would be better off buying software from elsewhere and formed an alliance
with Microsoft in 2011. Despite its enormous R&D power, technical prowess and foresight, Nokia's
patents still yielded around US$600 million per year which was paid by its fast-growing competitors
like Apple and Samsung. Nokia's main downfall can be attributed to internal politics. Nokia's
employees made the company more vulnerable to competitive forces. When fear pervades all levels,
internal organizational conflicts turn inward to protect resources, themselves and their units, not
much can be done, for fear of jeopardizing their personal careers. The top managers failed to motivate
the middle managers with a tough approach and they did not know what was really going on. Nokia's
internal conflicts, lack of leadership, absence of a clear vision and mission, and absence of corporate
values led Nokia to tie up with Microsoft. Cin-house < C market, then the company must integrate
vertically. Below is a three-dimensional graph of the company's strategy. In terms of Nokia's device
prospects, vertical integration is the best thing to do due to internal and external conditions.
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Figure 16. Three Dimensions of Corporate Strategy
The benefits of Nokia Vertical Integration include:
(1) Lower costs in terms of materials or software (OS) from suppliers. Microsoft's control over
software is very high because few other organizations have the expertise and skills to rival Microsoft.
(2) Improving quality (3) Facilitating scheduling and planning (4) Securing critical supply and
distribution channels (5) Facilitating investment in specialized assets (6) Specialized assets (7) Assets
that have much greater value at their intended use than the next best use (8) Location specificity (9)
Co-located such as power plants and electric utilities (10) Physical asset specificity (11) Human asset
specificity (12) Mastering specific organizational procedures.
The consolidation between Microsoft and Nokia, two complementary companies, offers great
potential to succeed in new and trendy segments and to achieve network effects that would not be
possible if they operated separately. The alliance is expected to put Nokia products in a more
competitive position against the two main competitors, Google and Apple. Evolving technologies and
intense competition in the global mobile industry, along with the emergence of new devices such as
tablets and smartphones-which are now almost considered necessities for customers-have
challenged the leadership and business models of major players in the market. By combining Nokia's
hardware expertise and global distribution network with Microsoft's software excellence and
profitability, a new ecosystem will emerge in the market. The main focus of the consolidation will be
on the tablet segment, where each of Nokia's devices and services, which already have a strong
footprint and background in the segment, will be combined with Microsoft's Entertainment and
Devices Division that offers modern and exciting products and services.
The combined efforts and expertise of Microsoft and Nokia are expected to create significant
new opportunities. These synergies have the potential to generate higher growth and cost savings,
while creating efficiencies in costs and revenues.
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Figure 17. Source of Value Creation vs Cost
The acquisition of Nokia was considered a faster and more economical alternative for Microsoft
compared to building a business from scratch. For Nokia, it offered a safe solution to continue selling
their brand in the market as Microsoft had considerable funds to invest in device research and
development. However, in fact, Microsoft has already spent around $8 billion on Nokia's unsuccessful
experiments. This indicates that the Nokia acquisition attempt to strengthen Microsoft's position in
the market entailed significant costs. In addition, Microsoft is likely to experience higher production
costs than Apple. Instead of relying on third parties such as Foxconn or other original equipment
manufacturers, Microsoft owns and manages its own production facilities located in countries with
higher cost structures (e.g. Brazil and Mexico) compared to China. In contrast to Microsoft, Apple can
renew their inventory more than five times faster. This difference may be due to the unsatisfactory
demand for Lumia phones and Surface tablets as well as the lack of exciting new product launches.
The smartphone industry is currently dominated by iOS and Android, and smartphone users focus
more attention on everyday personal features such as the number of apps, camera quality, touch
screen, and system reliability. Building an operating system with the same performance as iOS and
Android requires a huge investment, which may have prompted Microsoft to continue investing
relentlessly. To optimize the use of funds and leverage Nokia's legacy, Microsoft should consider
several steps: (1) Integrate the Android OS into Nokia devices to tap into a broader market, rather
than creating an exclusive market that may not appeal to many people. (2) Define a clear positioning
and segmentation for Nokia devices. With its reputation for high quality, Microsoft may consider
focusing Nokia devices on office use integrated with the updated Microsoft Office (Word, Excel,
PowerPoint, and Outlook).
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Conclusion
In conclusion, this study explores the strategic rejuvenation efforts of Nokia, a former leader in
the mobile phone industry, which is facing major challenges due to changing ecosystem and market
dynamics. Nokia, once a dominant force in mobile technology, experienced a decline in market
position due to its inability to adapt to technological advancements and changing consumer
preferences. This research deeply assesses Nokia's potential to recover competitive advantage
despite past strategic mistakes and complacency. Through a comprehensive external and internal
analysis using the PESTEL (Political, Economic, Socio-Cultural, Technological, Environmental and
Legal) framework and Porter's Five Forces, this study evaluates the key factors affecting Nokia's
strategic position. Nokia's historical strategic mistakes, such as delays in responding to the
smartphone revolution and poor internal conflict management, are analyzed in detail. The study also
assesses Nokia's current capabilities and core competencies, focusing on technological innovation,
investment in research and development, and organizational culture. The analysis identifies key areas
where Nokia can build and maintain a competitive advantage and provides strategic
recommendations to rejuvenate Nokia's presence in the market. These recommendations include
implementing a Blue Ocean strategy to combine differentiation with cost leadership, exploring
alliances such as joining the Open Handset Alliance to expand market reach, and improving internal
capabilities and organizational culture to address strategic weaknesses. The study also reviews the
challenges in commercializing the Lumia 920, emphasizing the importance of aligning the product
with market demand and technology trends. Finally, the study presents a strategic roadmap for Nokia,
outlining steps to navigate the complexities of the mobile phone industry and restore its competitive
position. The findings highlight the need for Nokia to innovate, adapt and strategically reposition.
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