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Nokia and Strategic Change - the Essential A2 Business Case

Thursday, June 14, 2012
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I can’t think of a better case study than Nokia for students to research as an essential part of their advanced business studies.  Nokia is a global brand, a market leader and a firm rich in heritage.  But it is now battling for survival in a strategic crisis caused by a range of external and internal factors that are core to A2 and similar business strategy specifications.  In this note, we’ve outlined some of the main strategic issues facing Nokia and linked to recent supporting resources which students should examine.  A well-prepared student getting ready to wow the examiner with relevant evidence-based research in an essay should be ready to include Nokia in an answer!

Background resources:
Does Nokia need an upgraded CEO (July 2010) - great for setting out the strategic issues prior to appointment of Stephen Elop
Nokia - a problem of culture? Tom White’s excellent blog piece on the cultural challenges / issues
Stephen Elop and the Burning Platform memo - business strategy gold dust - this should appear in every essay on strategic change!
Leadership & Strategy - “Welcome to Nokia” - Links to a Reuters special report on Nokia and its new CEO
Strategy - How Nokia was overtaken by Apple and Samsung
Two Lesson Videos on Nokia - Will their Strategy Work?
It’s all going wrong for Nokia - big losses in Q1 (2012)
Innovation in Business - Perspectives from Stephen Elop (CEO of Nokia)


Key features of the recent Nokia story:

- Finnish conglomerate turned itself into the world’s leading mobile phone company in the 1990s. So Nokia has already been through one (successful) change programme, turning itself from an unfocused conglomerate into a focused mobile phone producer.  Can it change again?
- Global market leader in mobile phones - but not smart phones
- Still profitable, but revenues under pressure
- September 2010: Appointed new CEO - Stephen Elop - to drive strategic change
- February 2011 - Elop issued the famous “burning platform” memo bluntly explaining the serious strategic challenges facing Nokia
- Elop outlined results of his strategic review on Feb 11 2011 - making it clear that Nokia had to undergo a substantial programme of change
- Elop announced a strategic partnership with Microsoft in March 2011 to jointly develop smartphones using the Windows mobile platform - ditching Nokia’s previous investment in its homegrown Symbian platform
- Elop has swept away many elements of Nokia’s previous organisational structure - a significant process of delayering
- Elop has refocused the business on leadership (managers taking decisions and responsibility) and markets (innovation driven by people competing in key mobile phone segments)
- Decision-making has been delegated to local/national teams rather than relying on decisions by an overly-centralised senior management team
- Goals and incentives for the senior leadership team are now more transparent
- The new strategy brings clarity and a sense of direction to Nokia - but will it be enough to achieve a successful turnaround?

During 2012, Nokia has continued to pursue a retrenchment strategy in the face of rapid declines in sales:
February 2012, Nokia anonunced it was laying off 4000 employees to move manufacturing from Europe and Mexico to Asia
March 2012, Nokia anonunced it was laying off 1000 employess from its Salo, Finland factory to focus on software
June 2012: 10,000 further job losses announced and the closure of facilities in Finland, Germany and Canada. Job cuts amount to a fifth of the total employees remaining at Nokia

By June 2012, Nokia had lost more than $88bn in market value since Apple introduced the iPhone in 2007

Why did Nokia need to change?

- Almost everyone who understands the challenges facing Nokia agrees that change is unavoidable
- Nokia had missed the major change in its market - the smartphone revolution
- Nokia had continued to focus on mobile phone devices (hardware) rather than mobile phone applications (software)
- The product life cycle of Nokia’s products had shortened dramatically as others (Apple, Google Android) developed smartphone platforms and an associated “ecosystem” of apps.  The consumer transition from traditional mobile phones to smartphones has been dramatic, and caught Nokia off-guard
- Nokia has faced intense competition from mobile phone producers in emerging markets who can make fast, cheap handsets at the lower end of the mobile phone market
- Many in Nokia regret that the business had become too product-led rather than customer-led; a missed opportunity
- Poor leadership and complacency (bred from success in non smart-phones)
- The wrong culture - over-consensual; lacking innovation and entrepreneurial spirit
- Complex, overly-bureaucratic organisational structrure with poor accountability
- Nokia had become “clogged with bureaucracy”
- Decisions being made within the firm were often cancelling each other out!
- “A series of committees, boards and cross-functional meetings held-up decisions

Stephen Elop’s response as the New CEO

On his first day at Nokia: Elop sent an email to all employees asking three questions:
- What do you think I need to change?
- What do you think I need not or should not change?
- What are you afraid I’m going to miss?

The email generated thousands of replies and the responsese suggested that Nokia’s corporate communication had failed; many complaints of management indecision and staff frustration.

The “burning platform memo”:

- Laid out the challenges facing Nokia in smartphone and also lower-end mobile phone markets
- Standing on a burning (oil) platform can force someone to make a major change in behaviour

Elop’s comments on Nokia in the memo:

“We fell behind, we missed big trends, and we lost time. At that time, we thought we were making the right decisions; but, with the benefit of hindsight, we now find ourselves years behind.
“There is intense heat coming from our competitors, more rapidly than we ever expected. Apple disrupted the market by redefining the smartphone and attracting developers to a closed, but very powerful ecosystem.”
“The Shenzhen region of China is able to produce phones at an unbelievable pace. By some accounts, this ecosystem now produces more than one third of the phones sold globally – taking share from us in emerging markets.”
“Our competitors aren’t taking our market share with devices; they are taking our market share with an entire ecosystem.”
“We poured gasoline on our own burning platform. I believe we have lacked accountability and leadership to align and direct the company through these disruptive times. We had a series of misses. We haven’t been delivering innovation fast enough. We’re not collaborating internally.”

Issues for Elop

- Is his strategic change too late? Will Apple and Google (Android) have gained too much market share before Nokia can make a success of its strategic partnership with Microsoft
- Elop’s background - he is the first non-Finn to run the company in its 145 years of existence (a source of cultural conflict, or an advantage?)
- Is the crisis at Nokia sufficiently serious/grave to ensure that all necessary changes (including to the firm’s culture) are made in time?

How Nokia links in with AQA BUSS4;

New leadership (internal causes of change): an outsider arrives to shake up the way Nokia does business!
Retrenchment (closing down Symbian) followed by strategic partnership with Microsfoft (another major internal cause of change)
Strategic decision-making / corporate planning: Nokia’s decision-making had become ineffective - too slow; inconsistent
Technology (smartphone ecosystems) as a source of change: consumers no longer buying a handset; they are buying apps that run on phones
Culture as a constraint on change management: will Nokia’s conservative, bureaucratic culture get in the way of rapid, fundamental change?
Changes in strategic direction: the change from a focus on products (phones) to software applications (phone “ecosystems)
Impact of competition from emerging markets: the effect of faster, cheaper competitors
Globalisation of markets: Nokia’s new objective of supply “the next 1 billion mobile phone handsets” resulting from rapid demand growth in emerging economies
Business and the competitive environment: emergence of stronger, more successful competitors (Apple, Samsung, RIM, Google, LG)



 

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