Cables and Machinery (25%), Nokia Mobiles Phones (20%), Nokia Telecommunications (17%) and Other Operations (7%).
Nokia’s turnover was 3043 million €, and net losses 121 million €. (€ = EURO, 1€ ~ 1USD) “Nokia’s strategy is to invest in telecommunications and closely associated business operations. It focuses on industry segments and geographic regions that have good opportunities for growth and profitability” Jorma Ollila, the new chief executive officer, 1992. In 1999 Nokia had 100 per cent of its operations in the telecommunications and mobile phones, turnover was 19772 million € and net profit 2557 million €. In this assignment I focus on strategic analysis at Hefley Finland business unit level. Strategic Management
All firms are faced with the need to create strategies and engage in strategic management. According to Porter unclear strategy is a guarantee for failure. Strategic management is the management of the process of strategic decision making. It can be dived in three parts:
1. Strategic analysis 2. Strategic choice 3. Strategy implementation In an organisation every person may (and should) has a strategy. But it is more common to classified organisational strategies in three levels: 1. Corporate level strategic decisions, which deal with – Overall purpose and scope – Portfolio issues. Adding value to shareholder’s investments – Corporate financial strategy – Structure and control of strategic business units – Resource allocation between strategic business units 2. Strategic Business Unit strategy, where the main issues are – Developing market opportunities – Developing new products and services – Resource allocation within the SBU – Structure and control of the SBU – Competitive strategy 3. Operational strategies, which are concern with – to implement strategy and – integration of resources, processes, skills and people The Competitive Environment According to Sidney Schoeffler “the laws of the marketplace” determine most of the observed variance in operating results across different businesses. He claims that 80% of the reasons for success or failure are determined by the characteristics of the served market, of competitors and of the business itself. The skill or the luck of the management determines only 20%.
First step in scanning the environment is to take a look how uncertain is the nature of the business’s environment. In what extent it is stable or dynamic, and in other extent how simple or complex it is to comprehend.
Source Exploring Corporate Strategy: Prentice Hall Pic 1. Approaches to making sense of the environment Pic.1 shows different approaches to making sense of the environment according its extents. Mass production companies like Junipoly Hefley and raw material suppliers are good examples of organisations which live in simple or relatively low complexity / static environment. Production processes are fairly simple and markets are fixed over time. In such conditions, when trying to analyse the environment and forecast the future, historical analysis seems to fit best. Most likely future’s changes are rooted at the present.
A multinational firm like Junipoly Hefley as a whole may be in complex condition because its diversity. It is difficult to handle complexity by analysis. In such position best is to give each SBU authority and responsibility for their own part of the environment i.e. decentralisation of organisation.
PEST Analysis and Scenario Building Second step in environment analysis is the auditing of environmental influences. Organisation tries to identify which of the many macro environmental influences are likely to affect the organisation’s future.
This can be done by PEST analysis, by Porter’s diamond (especially in the context of global competition) or by scenario planning. The PEST analysis is concerned with two questions 1. What political, economic, sociocultural and technological factors are affecting the organisation? 2. Which of those are important at the present or in the future? Political questions include policy, export/import regulations, government stability, environmental laws, employment law etc.
Economic factors deal with business cycles, money supply, inflation, interest rates, disposable income, energy etc. Sociocultural factors: demographics, income distribution, lifestyle trends, levels of education, consumerism etc. Technological factors like speed of technology transfer, new inventions/discoveries, industry and government focus of technological effort etc. But it makes no sense of making just a list of influences. The key influences and drivers of change must be recognised and developed further. It is also important to understand what may be the differential impacts of key environmental influences.
These impacts can be examined by using scenario building method. In scenario method several plausible futures are built based on key environmental influences. Good examples are:
– What should we do if environmental protection laws became extreme tight? No pollution would be accepted? What would be the effects? (I strongly believe this is going to happen in near future. How Finnish paper and pulp industry is going to react?) – What should we do if USA is going to place 200% extra import taxes for Finnish products due to EU restrictions to gene manipulated meet, wheat, soybean and -oil produced in USA? What would be the effects? (This is “a hot potato” at the moment. How Finnish companies exporting to USA are going to react?)
– What should we do if interest rates are going to raise due the governments attempts to “cool down” economic situation in western worlds? What would be the effects? – What should we do if trade barriers are going to exit between different economic areas and economic unions (EU, NAFTA, and AFTA)? What would be the effects? It is not useful to build up scenarios based on every influence, but to build up the most pessimistic, the most optimistic, “middle of the road” and the most likely scenarios of the future. Strategies can be built based on these opportunities and threats.
These methods, PEST analysis, Porter’s diamond and scenario building are tools for senior level managers. These give to organisation an overall impression of the environment. Five Forces Analysis At SBU level PEST analysis and scenario building can be used for analysing environment at broad aspect. But to examine the competitive environment at SBU level, Porter’s Five Forces analysis is more suited for the purpose. It provides an understanding of what competitive force influence SBU. Based on these forces SBU can build competitive advantage over competitors Source: Exploring Corporate Strategy. Prentice Hall
Pic2. Five Forces Analysis Pic2. At the level of the SBU Porter’s five forces analysis is a useful tool to understand competitive environment. Threat of Entry Threat of new competitors’ entries to markets depends on the levels to which there are barriers to entry. Typical barriers are:
– Economies of scale. Where MES (minimum efficient scale) is high. A new entrant with small sales finds itself at a substantial cost disadvantages relative to established rivals – Economics of scope. Where multi-product firm produce several different products with lower unit costs than if they had been produced in independent firms. It could be from shared headoffice functions, common distribution and marketing function.
A large firm can raise capital Jorma Jaakko Ollila (born in Seinäjoki, Finland, on August 15, 1950) was the Chairman (1999–2012) and former CEO of the Nokia Corporation (1992–2006) and a Member of the Board of Directors of Ford Motor Company (2000– ), UPM-Kymmene (1997– ), and Otava Books and Magazines Group Ltd. (1996–). As of June 1, 2006 he became the Non-Executive Chairman of Royal Dutch Shell and while continuing as the Non-Executive Chairman of Nokia, the company he was credited with turning into the world's largest handset maker. Nokia SWOT analysis (Barney, 1991).
Internal analysis (Resource-based model) Strengths – Having the advanced technology over the competitors in the mobile phone industry – Decentralized company structure, innovative and creative employees and Charismatic strong leader, such as: Jorma Ollila. – The market leadership in the mobile industry. – Strong brand name and company image in the global market – Has its own manufacture and network. – Product innovation. – Economy of scale
Weaknesses – Complacency and arrogance. – Few customized, operator-specific handsets. – Few alliances, company sticks to its standing in the market, do not want to cooperate with the operators. External analysis (Environmental models of competitive advantage) Opportunities – The emerging market in developing countries, such as China, India – The emerging market for high-end mobile phone such as business user phone.
Threats – Facing more new competitors, especially from Asia. – Stronger buyer power from the network operators. – Lost market share – Strong competition in mobile industry