Nokia is a company based in Finland (Suojapelto, 2001) that manufactures and markets telecommunication equipment such as mobile phones and accessories (Nokia, 2012). In the recent past, the telecommunication industry has seen stiff competition between the producers of these products mainly due to new entrants such as Google (Kingsley-Hughes, 2011), and the swift change of technology. Nokia has had to change its business model to survive this volatile industry. This paper focuses on Nokia’s current business model and how it is helping in the achievement of company objectives.
A Description of Nokia’s Business Model
A business model is an organization’s business concept, inclusive of its products, marketing, operational strategy, and competitive advantage (Suojapelto, 2001). Nokia’s business model can be viewed best from the perspective of its mission, objectives, strategies, and policies.
Nokia’s uses their slogan “connecting people” as their mission, their goal as building “great mobile products that enable billions of people worldwide to enjoy more of what life has to offer” and their challenge as “to achieve this in an increasingly dynamic and competitive environment” (Nokia, 2012). Their mission and vision are therefore not clearly stated or even separable but are implied from their performance. Nokia places more emphasis on strategy, as can be seen from the inclination towards competitive advantage.
Nokia previously focused on producing good hardware for mobile phones (Kingsley-Hughes, 2011) while keeping their basic operating system, Symbian. With the coming of the “smartphone age”, Nokia was outdone by competitors who used the more dynamic Android platform (Kingsley-Hughes, 2011). This, though not conclusive, can be said to be the cause of the reduction in net sales for 2011.
2011 Financial Performance
The financial year 2011 saw Nokia post the worst results in six years (Nokia, 2012). Nokia’s net sales went down 9%. The operating income was a net loss of 1073 million Euros, directly attributable to the reduction in net sales. Market share reduced to a 14-year low to remain at 25% (Crook, 2011). Return on investment was negative with similar poor financial ratios for shares.
Nokia states one of its objectives as “regaining leadership in the smartphone space” (Nokia, 2012). This can be viewed as an admission that they have lost market share to competitors. The recent success of the Android platform in the smartphone industry has threatened Nokia’s place in the industry (Kingsley-Hughes, 2011). Nokia, therefore, partnered with Microsoft to allow them to replace their Symbian operating system with Windows Phone (Microsoft, 2011).
The partnership will assist Nokia to remain competitive in the smartphone market. Through the adoption of the Windows Phone platform, Nokia has differentiated itself from competitors, most of whom are using the Android platform (Kingsley-Hughes, 2011). This renewed competitiveness should see Nokia succeed in the long run, thus achieving its objectives. Stephen Elop, Nokia’s CEO, is confident that the partnership will boost operational and production efficiency (Nokia, 2012).
Nokia’s partnership with Microsoft has substantially altered Nokia’s Business Model, making it basically an Original Equipment Manufacturer (OEM) of Microsoft. It was, however, probably the best strategy for them at the time based on the looming financial problems and Nokia’s objectives. The strategy is still yet to prove effective as it will require time to be fully adopted. The financial statements of 2012 should be the ultimate test for the strategy’s effectiveness.
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Suojapelto, K. (2001). The Business Models of Technological Equipment Manufacturers: Case Nokia. Web.