Importance and Role of Strategic Management - Nokia - Assignment Example

Business Strategy Report Table of Contents Table of Contents 2 Importance and role of strategic management 3 Company background 4 Nokia’s strategic management 5 Market led and resource based approaches 5 Industry analysis 6 Internal and external environment 7 Planned approach 8 Reference list 10 Importance and role of strategic management Strategic management is a process that involves continuous planning, monitoring, assessment and analysis of different aspects concerning a firm in order to be able to meet its objectives and goals. The strategic management is the complex process that involves analyzing internal strengths and weaknesses of the company; formulating action plans; execution of plans and determining the extent to which action plans have been successful; and making changes wherever necessary. Strategic management gives utmost importance to the aspect of strategic planning, which concerns ability of the firm to set goals, according to which proper action plans are set in order to meet those goals and produce desired results. Some of the features of strategic management can be described as follows (DeWit and Meyer, 2004). Strategic thinking- The aspect of strategic thinking involves generation of unique ideas and insights that help to increase competitive advantages of business as well as to achieve desired goals more efficiently. The strategic thinking process requires managers to consider past performance of the business and realize ways in which change or implementation of a new strategy might affect the organization and its various interest groups. Strategic thinking is mostly done when a firm considers applying a change in operations or while incorporating new business ventures into a formal organizational structure. It is mainly a mental process and requires examining the firm from the view point of its capabilities. Managers and authorities brainstorm to come up with new and innovative methods for fulfilling organizational goals and developing new horizons of business opportunity. Strategic planning- The next step after strategic thinking is the process of strategic planning. In strategic thinking, the firm decides upon actions that are needed to be taken. In the strategic planning process, the firm formulates effective solutions so that proposed ideas and objectives can be achieved. Strategic planning involves analyzing the firm considering the following aspects (Johnson, Scholes and Whittington, 2005): Primarily strategic planning involves evaluating the firm from the view point of external environment. This involves conducting PESTEL (Political, Environmental, Social, Technological, Economical and Legal) analysis. The external environmental factors that can affect functioning of an organization are taken into perspective and ways in which external factors are likely to respond when a firm incorporates changes or new business moves are determined accordingly. Industry analysis also forms an important aspect in the strategic planning process of a company. Porter’s five force model is the most widely used model for analyzing competitive advantages of a firm. It helps in determining effectiveness of a company in respect of its competitors existing in the market. This includes studying features existing in the market. Another fundamental aspect of strategic planning is to understand the relationship existing between internal and external environment. This can be done with the help of SWOT (Strength, Weakness, Opportunity and Threat) analysis. Analyzing strength and weaknesses forms internal analysis of the firm. On the other hand, determining opportunities and threats of the firm involves analysis of external factors that may lower competitive advantages of the firm. In order to understand the concept of strategic management, company and industry specific analysis becomes necessary. This gives the study a more realistic approach. Accordingly, the company, Nokia has been selected for conducting this analysis. Nokia is one of the leading giants of the telecommunications industry. The study emphasizes upon reviewing strategic management policies of Nokia and ways in which the company has emerged as one of the leaders of this industry. Company background In the last 150 years, Nokia has evolved itself from being a riverside paper mill situated in southwest Finland to a global leader in the telecommunication industry. Nokia has gone ahead to become one of the largest manufacturers of mobile phones with almost 30% of global market share. The company employs over 1.3 billion people worldwide and has been successfully generating annual revenue of 40 billion Euros, on an average. The company has its operations spread over 120 nations of the world. It sells products in over 150 countries. Nokia is a public limited liability company and is listed on Helsinki and New York Stock Exchanges. This multinational information technology corporation has its headquarters located at Espoo in Finland. The Nokia Solutions and Networks Company provide necessary equipments and services for establishing telecommunication network. Internet, applications and other multimedia services are offered by Nokia’s wholly owned subsidy, ‘Here’. In 2013, Nokia was sold to Microsoft for an overall deal of €5.44 billion. The Nokia research centre employs over 500 researchers, engineers and scientists who consistently develop new types of innovative products and solutions for boosting growth of the firm. The company has its main manufacturing sites located in Brazil, China, India, Kenya, Hungary, Mexico and the South Korea. Nokia’s industrial design department is located at Soho in London. The company has its satellite offices located at Helsinki, Finland and the US. Nokia plays a significant role in the economy of Finland. The firm has been successful in providing job opportunities to a large number of people in Finland, where it also works with a number of local partners and subcontractors. In 2007, Nokia was combined with Siemens to form Nokia Siemens Networks, which was jointly owned by both companies. In 2013, however, Nokia brought 50% of the shares and took full control of the group. One of the largest subsidiaries of Nokia in terms of revenue is Navteq, located in Chicago. Navteq was also acquired by Nokia in 2007. Navteq provides services for automotive navigation systems, mobile navigation devices and internet mapping application; this firm also delivers information technology solutions for various government owned and private business concerns. Nokia emphasizes upon fast and flexible means of decision making. The official business language of the company is English. The company gives high value to employee suggestions and believes in engaging them in decision making and planning processes. Passion for innovation and concerns towards employees and the society are core values of the organization (Nokia, 2014). Nokia’s strategic management One of the major aspects considered by Nokia is to continue achieving organizational goals and sustain competitive advantage. Alignment of business environment with the workplace environment is a big challenge for a firm as both these aspects are dynamic and constantly changing. Market-led approach and resource based approach are most commonly used methods for achieving strategic advantage in the market. In order to secure competitive advantage, Nokia is seen to maintain a strategic balance between these two approaches (Harrison, 2005). Nokia’s success also lies in the fact that in the past decade, demand for mobile phones had risen considerably. This has ensured adequate market opportunities for several firms operating in the telecom industry. The strong internal resource position has helped Nokia to neutralize many threats existing in the market. Market led and resource based approaches Nokia has been greatly focusing upon developing its internal resource strength by adapting to the market requirements from time to time. A successful firm recognizes potential growth and advancement opportunities in the market and utilizes the same for its advantage. Nokia had realized before other firms that design is a crucial element for mobile phones. The company also recognized the fact that mobile phones would not only be a device for communicating, but will also emerge as a device performing numerous functions and prove to be a fashion statement. Recognizing this aspect, Nokia was the first company to launch sleek and fashionable mobile handsets. This led other companies to develop better mobile phones, which points out that Nokia was successful at developing a market trend. Being the trendsetter for different types of mobile phones, Nokia has emerged as a strong brand name in the market. Ability to forecast consumer needs has been one of the strongest capabilities of Nokia. The firm designs its mobile phones by understanding this aspect, thereby being successful at meeting customer expectations. The innovative and advanced technological capabilities of the company have helped explore new horizons in the field of telecommunications (Freeman, 2010). Nokia also realizes the aspect that resource based approach and market led approach of strategic management is inter-related. A firm that has adequate resources for operating successfully is sure to meet market demands. Hence, a strong resource structure is an essential aspect for success. Similarly, it is also important for a firm to adequately analyze importance of adapting itself with the changing market scenario. The telecommunication industry is induced with high competition as firms are constantly trying to devise newer and more innovative technology. This makes firms operating in this sector emphasize greatly upon innovation. Therefore, having strong internal resources becomes important for the firm to be able to capture greater market position. It is necessary for Nokia to adhere to an organization structure, which consistently responds to the changing market needs (Priem and Butler, 2001). In early 2000s, Nokia solely concentrated on developing high-end mobile phones. The phones were highly priced because of their innovative technological aspects (BBC News, 2007). In reality, the market at that time was not ready to accept this kind of mobile phones. The potential market for advanced mobiles was yet to develop. Realizing its mistake, Nokia soon changed its strategy by developing cheaper handsets that were potentially able to fulfill consumer needs. Nokia was able to develop quality handsets at a very lower price as compared with its competitors. The prime factor that helped Nokia to achieve its objectives was its internal resource strength, comprising superior technology and highly efficient workforce. Industry analysis It has been discussed earlier that one of the prime aspects of strategic planning is that the management should be able to recognize competitive advantages and disadvantages through industry analysis. An industrial segment comprises many firms, which are consistently competing among themselves in order to secure greater market position. The telecommunications industry is characterized by the same virtue. Technological advancement gives a firm more competitive advantage in this sector. With the help of Porters Five force model, competitive position of Nokia has been analyzed as follows (Hill and Jones, 2008): Threat of new entry- The telecommunications industry is marked by frequent new entrants. Many small firms from Asia have captured considerable market position by delivering high technology at cheaper prices such as, Karbonn and Micromax. Although durability and quality of such products were significantly lower than Nokia, most of the latter’s market position was lot to such new entrants. In the future, this scenario is expected to grow more competitive as more and more firms enter the telecommunications industry. Threat of substitutes- In general, the mobile phone industry has no direct potential substitute. However, from the software point of view, most of Nokia’s products are based on Windows operating software. Consumers are increasingly using mobile phones that are based on android technology. Although Nokia has recently launched mobile phones based on android technology, these lack efficiency because it is built on open source system. Bargaining power of suppliers- Nokia’s strong market position ensures a superior power over the suppliers. Bargaining power of buyers- Nokia does not sell its products directly to consumers. Consumers purchase the company’s products through different service outlets. As a result, the market becomes highly sensitive towards price. If demand for a particular product by the company is low, it might push Nokia to lower its prices. Hence, strong bargaining power of buyers can influence pricing strategy of the company. Rivalry amongst existing competitors- One of the prime features of the telecom industry is that it houses quite high competition. In case of high-end mobile handsets, prime competitors of Nokia are; HTC, Apple and Samsung. Amongst cheaper products, main competitors for the company are; Sony Ericcson, LG, Karbonn and Micromax (Hoovers Inc, 2014). Internal and external environment One of the simplest ways of analyzing internal and external environment of a firm is by conducting SWOT analysis. In strategic management, a firm needs to adequately study different aspects of the external and internal environment. SWOT analysis for Nokia can be done as follows (Stacey, 2007): Strengths- Nokia’s advanced technology resource is one of its main privilege aspects. Nokia’s technology is considered to be superior than most of its competitors. This is because the company has been able to produce high quality products at cheaper prices. The company believes in innovation and developing new products with potential to capture new markets. Additionally, strong brand image and well-integrated supply chain network has enabled Nokia to emerge successful. Weaknesses- One of the major weaknesses of Nokia is that it is considered to be slow at incorporating software changes. Also, it is seen that the company has a high number of products, but very little product diversification. Opportunities- The emerging market for high-end mobile phones will help the company to capture greater market share. Besides that, emerging markets in Asia will further boost the market for Nokia (BBC News, 2007). Threats- Emerging competitors from Asia and existing strong competitors in the sector have posed as threats for the company. This has also resulted in loss of market share. Also, due to presence of multiple firms in the telecom industry, it has become considerably saturated. On basis of the above analysis, one can state that Nokia has the capability to remain as one of the leaders in the mobile phone industry. It has been observed that Nokia lost majority of its market share because of misinterpreting market trends. However, internal strengths of the company such as, strong innovative capabilities, advanced technology and economies of scale, have allowed the firm to surpass most of its shortcomings. Furthermore, Nokia gets highly benefitted from its strong market position and brand image (Wheelen and Hunger, 2011). Planned approach In strategic management, managers are expected to forecast future market scenario and accordingly develop plans so as to achieve desired results. This is an aspect that Nokia follows sincerely. The company has witnessed failure when it was unable to correctly forecast market trends. Hence, learning from its mistakes, Nokia tries to strategically predict the future market needs and accordingly develop plans of action. In long-term planning, Nokia tries to achieve a suitable balance between organizational strategy and the external environment. In highly competitive industries such as, the telecommunication, planning should not be done solely on the basis of past scenarios and results. Strategic planning also involves forward thinking (Kloot and Martin, 2000). Since strategies planned by the company are likely to be enacted upon in the coming future, studying the future environment conditions is required. In coming years, Nokia has planned to invest heavily upon high-end mobiles as it is a segment with great prospects. Along with the planned approach, Nokia also adheres to emergent approach, whereby it consistently adapts its resources with changing market scenario. Reference list BBC News, 2007. Emerging markets help Nokia sales. [online] Available at: [Accessed 22 April 2014]. DeWit, B. and Meyer, R., 2004. Strategy: Process, Content, Context: an international perspective. Connecticut: Thomson Learning. Freeman, R. E., 2010. Strategic management: A stakeholder approach. Cambridge: Cambridge University Press. Harrison, S. J., 2005. Strategic Management of Resources and Relationships-Concepts and Cases. New Jersey: John Wiley & Sons, Inc. Hill, C. W. and Jones, G. R., 2008. Strategic Management: An Integrated Approach: An Integrated Approach. Connecticut: Cengage Learning. Hoovers Inc, 2014. Nokia Oyj Competition. [online] Available at: [Accessed 22 April 2014]. Johnson, G., Scholes, K. and Whittington, R., 2005. Exploring Corporate Strategy-Text and Cases. New Jersey: Prentice Hall. Kloot, L. and Martin, J., 2000. Strategic performance management: A balanced approach to performance management issues in local government. Management Accounting Research, 11(2), pp. 231-251. Nokia, 2014. The Nokia story. [online] Available at: [Accessed 22 April 2014]. Priem, R. L. and Butler, J. E., 2001. Is the resource-based “view” a useful perspective for strategic management research? Academy of management review, 26(1), pp. 22-40. Stacey, R. D., 2007. Strategic management and organisational dynamics: The challenge of complexity to ways of thinking about organisations. New Jersey: Pearson Education. Wheelen, T. L. and Hunger, J. D., 2011. Concepts in strategic management and business policy. New Jersey: Pearson Education. Read More