The quest to transform an organization is very daunting. The difficulty in transforming organizations comes from various sources. First, each organization has a unique culture. This refers to how the members of that organization relate. Secondly, the organization has stakeholders and partners who have certain expectations on how the organization should conduct its business.
These factors, among others, complicate the efforts needed to change the trajectory of an organization. Stephen Elop joined Nokia in 2010 as its president and CEO. Elop was the first non-Finnish CEO of the company. The Nokia Board felt that the company needed someone from outside to lead it.
Their rationale was that someone with fresh eyes would have a better chance of bringing strategic change to the organization compared to someone brought up within Nokia. This paper examines the challenges that Stephen Elop faced when he joined Nokia. In addition, it examines how he developed and implemented a transformational strategy at Nokia.
Issues with Nokia’s Strategic Management in 2010
Each company deals with several strategic challenges at any time. The difference between companies that survive and those that collapse depends on how they respond to strategic threats.
A review of literature regarding the strategic challenges that Nokia was facing in the period surrounding Elop’s appointment as the head of the company revealed seven main challenges. The seven challenges were weaknesses in strategic planning, competitive pressure, weak innovation management, poor operational efficiency, and an unsuitable corporate culture
Weaknesses in Business Strategy
Nokia had a fundamental problem with strategic planning. The company had a very strong performance in the early years of the twenty-first century. It was a market leader in many market segments. This success led to a lapse in the strategy of the company. The company failed to notice or to take action when the consumer needs started changing. This led to a loss of momentum and market leadership in all market segments.
If the company kept a close eye on its strategic planning processes, it would have managed to fight off competition from Apple and Samsung. The failure to note that consumers were now looking for Smartphone devices led to a loss of initiative. Strategic planners in the company should have foreseen these changes in the market place.
Competitive Pressure
The Smartphone market was open for competition before the Android operating system became popular. Apple made a gambit with its iPhone series and became a market leader. Samsung followed suit and built devices that run on the Android operating system. Nokia was caught off guard, and by the time it was responding to these changes, the competitors were already eating into its market share.
Its original choice of the Symbian Operating System for its Smartphone applications was ineffective. Nokia succumbed to competitive pressure and was unable to respond effectively to the efforts made by Apple and Samsung to win the Smartphone Market. Nokia failed to realize at the time that success in the Smartphone business lay in the ability to leverage resources in its business ecosystem.
The other two competitors supported Android application development for their Smartphone devices. Nokia did not manage to build a strong community around Symbian, thereby limiting the number of applications available to customers through their phones.
Weak Innovation Management
The company also failed in the area of innovation management. All indications at the time were that the company was a global leader in the mobile phone technology. This made the company complacent in regards to the development of new technologies to match consumer needs.
As Elop observed, the company had pockets of outstanding innovations but lacked an overall strategy for harnessing this capacity. This made them lose to companies such as Apple and Samsung, which are known for their innovative prowess.
The Kano Model can help to explain how Nokia lost Market Share. In brief, the Kano Model groups the features of a product in five categories. First, products must have attractive qualities. This refers to the ability to meet unspoken and unexpected customer needs, usually leading to customer delight.
Their absence does no lead to any customer dissatisfaction. Secondly, all products have one-dimensional qualities whose presence leads to satisfaction, and absence leads to dissatisfaction. Mobile phone battery life is a good example of a one-dimensional quality. Long battery life increases customer satisfaction while short life decreases satisfaction. Thirdly, products have “must be” features.
In the mobile phone industry, such features include the ability to handle voice calls and text messages. Customers simply expect all phones to have these capabilities. Any effort by a manufacturer to improve them does not translate into higher customer satisfaction. The fourth and fifth qualities are the indifferent and reverse qualities.
Indifferent qualities don’t add or subtract from customer satisfaction while reverse qualities lead to increasing dissatisfaction. Based on this model, Apple and Samsung outsmarted Nokia by increasing the attractive qualities of their products. While Nokia made acceptable phones, Apple and Samsung made outstanding ones.
Operational Failure
The operational inefficiency of the company also led to a loss of market share in the period under review. Elop said that Chinese manufacturers were producing phones faster than the time it took Nokia to polish a PowerPoint presentation.
At the heart of this statement is the view that Nokia was sluggish in product development. It is important to note that Nokia is one of the best run companies in the world. The inefficiency in question is on a comparative basis. Nokia was unable to speed up its product development cycles to match what the competition was doing.
Corporate Culture
The corporate culture of the company was also contributing to the problems that led to the loss of market share. When Elop wrote the Burning Platform Memo, it revealed that there was a degree of sluggishness in the operations of the company. His impatience with the pace of innovation at Nokia as well as the lacklustre response to competitive pressure is understandable given his experience in the fast-paced software industry.
The two main companies that were beating Nokia were Samsung and Apple. These two companies are well known for their aggressive innovation and their fast paced approach to business. Clearly, Nokia needed new thinking to handle the challenges posed by these two companies.
It is also instructive to note that Elop was the first non-Finnish head of the company. This shows that the company failed to harness talent internationally, preferring instead to employ Finnish inbred executives to run the organization.
In summary, Elop joined a company that was running smoothly, but in the wrong direction and at a slow pace in a fast changing industry. The only viable approach he had at his disposal was to institute radical change in order to speed up the product development cycle of the organization. This is the only way Nokia would win back some market share.
Solutions to Nokia’s Challenges: Elop’s Strategy
The Burning Platform Memo written by Elop after studying the situation at Nokia showed that he had taken time to conduct a SWOT analysis as well as a PESTLE analysis to understand the business as well as its competitive climate. In the Memo, Elop likened Nokia’s position to someone standing on a burning platform.
The burning platform was a fitting metaphor that communicated the danger of doing nothing about Nokia’s competitive position, as well as the impending need to act with urgency. The five main strategic actions that Elop took to institute change at Nokia were as follows. First, he redefined how Nokia looked at its competitors in the light of changes in the business environment.
Secondly, he made sure that company employees had clarity regarding who its competitors were. Thirdly, he instituted a sense of urgency in the activities of the company. Elop also listened to the stakeholders of the company regarding their expectations. Finally, he developed a clear strategy to respond to competition.
Redefining Competition
Elop took time to understand how the competitive climate around Nokia was changing. He realised that all their competitors were using secondary software platforms on their Smartphone devices. In addition, the applications found in the phones were not developed by the manufacturers of the handsets. They were made by independent developers who were developing applications commercially.
When Elop looked at the value chains used in the development of mobile phones by competitors, he concluded that Nokia was not competing against any single device manufacturer. Rather, Nokia was in competition with entire ecosystems enabled by competitors. Elop went ahead to redefine competition by looking at the Nokia business ecosystem.
He concluded that the options the company had to compete successfully were as follows. First, the company could plug join an existing ecosystem such as the one built around the Android operating system. The second option was to build a new ecosystem around a platform supported by Nokia.
He then decided that it was better to plug into Windows as the new platform for Nokia. His goal was to give customers an alternative ecosystem, rather than an alternative device. The main lesson in how Elop handled this situation is that is important to understand the full business models of competitors in order to compete effectively.
Analysis of Competitor Companies
When Elop joined Nokia, it was clear that the two main competitors fighting for Market share were Samsung and Apple. Elop went on to segment the competition, which helped him to see that Chinese manufacturers were also a significant source of competition for Nokia.
He saw that there were three market segments. Apple was in charge of the high-end segment with stiff competition from Samsung. Samsung was making inroads in the mid-segment, while Chinese manufacturers were in control of the low-end segment and the emerging markets. This picture clarified to Elop the nature of competition that he was facing.
It is very important for business leaders to develop an accurate picture of the nature of competition in the market. The rise of the Chinese manufacturers was very surprising to Elop. Their products were reaching the market much faster than Nokia’s, and they were pushing Nokia out of the market. This understanding informed the decisions the company made in regards to their business in the emerging markets.
Instituting a Sense of Urgency
Elop realised that there was a need to speed things up at Nokia. The decision to use the burning platform metaphor in his memo communicated this urgency. In short, the memo told all Nokia workers that if the company did not make the decision to jump, then it was in danger of dying from an explosion. This metaphor communicated three things.
First, Nokia needed to speed up its decision making processes to enable it to take advantage of opportunities to get ahead. Secondly, it communicated that failure to decide on time would result in the death of the company instigated by the rapidly changing business environment.
And thirdly, the metaphor showed that Nokia still had the opportunity to change, but the opportunity was closing rapidly. The result of this thought pattern was that the company was able to develop the Lumia 920 in record time. It clearly shows that Elop was successfully in demonstrating rapid product development at Nokia.
Listening to Stakeholders
The fourth element of Elop’s strategy was listening to stakeholders. Elop had the reputation of being a good listener. Elop managed to bring the views of all Nokia stakeholders together to fully understand the situation in the company. In interviews, Elop continually spoke of the need to listen to customers in order to know what they want.
In addition, he was good at listening to his employees, which explains why he had insights into Nokia’s capabilities. The decision to sell Nokia to Microsoft further shows that he had the capacity to listen to the Nokia Board, which enabled him to spearhead the deal.
The ability of a CEO to interact with all stakeholders in order to hear their views is very unique. It is a very effective strategy in the development of new business relationships. Customers also show more loyalty to companies that listen to their views.
Clear Differentiation Strategy
Nokia developed a very clear differentiation strategy. Nokia had been using the Symbian platform for over a decade. This platform became difficult to deploy in the Smartphone era. Nokia chose to use Windows 7 as its operating system. This is the result of cooperation between the two companies. Nokia could have chosen to develop Android devices.
However, Elop felt that this would only make Nokia another device manufacturer. This option had no strategic advantage since the initiative was already lost to Samsung and Apple, among other device manufacturers such as Alcatel, who develop Android devices.
A Windows based platform would allow Nokia to be trailblazers in the development of Windows phones. This would offer customers a real option, not just in devices, but also in the operating platform.
The advantages of being the first company to develop Windows phones include developing the related technical experience ahead of the competition. Secondly, Windows already has a mature ecosystem with many developers. Thirdly, it would be a logical progression of the Nokia-Microsoft cooperation.
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