IBS Hyderabad

Academic Year – 2020-22

Business Strategies
Semester III
Course Faculty: Prof Sriram Soundararajan

Group Project: Strategic Drift

Seat Number Student Name (Registration Number)

1 Aastha Kansal– 20BSPHH01C0016
2 Aayush Lalwani-20BSPHH01C0020
3 Abhinay Goundla – 20BSPHH01C0035
4 Abhiruchi-20BSPHH01C0038
5 Abhisek Panda– 20BSPHH01C0040
6 Aditi Sharma– 20BSPHH01C0053

Declaration:
We declare that this assignment is our work and we have not copied it from any other student’s work or
from any other source except where due acknowledgement is made.

For Course Instructor’s use only:

Marks Obtained: Max. Marks: …………………………

Comments (For Instructor’s use only)

General Observations Suggestions for Improvement
 PREFACE

As a part of the MBA curriculum and to gain practical knowledge in the field of management we
are required to make a report on “Strategy Drift”. The basic objective behind doing this project
report is to get knowledge about different tools of Business Strategy. In this project report, we
have included concepts, effects, and implications regarding the Business Strategy concepts
implemented by Nokia over a period of time. This project report helped us to answer knowledge
regarding the practical implication of Business Strategy concepts into real-life scenarios. It made
us undergo many experiences related to the topic concepts. This report helped us to know about
the importance of teamwork and the role of devotion towards the work.

ACKNOWLEDGEMENT

We are using this opportunity to express our gratitude to everyone who supported us throughout
this MBA project. We are thankful for their aspiring guidance, invaluably constructive criticism,
and friendly advice during the project work. We are sincerely grateful to them for sharing their
truthful and illuminating views on several issues related to the project.

We express our warm thanks to Prof Sriram Soundararajan, for his constant support and
guidance. We would also like to thank all the people who provided us with the facilities required
and conducive conditions for our MBA project.
Table of Contents
Background.................................................................................................................................................4
Golden Era..................................................................................................................................................5
The rise of the FALL...................................................................................................................................7
Factors for the FALL...................................................................................................................................8
The Present..................................................................................................................................................9
Conclusion and Road Ahead.....................................................................................................................12
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Background
5|Page

Golden Era

Nokia isn't the primary one to came out with the wireless mobile technology, as Motorola and a
few other phones were already within the market but those phones were heavy and you would
like to remove the battery to charge it. Imagine you need to bring a big bag just for your mobile
phone. And those days only businessmen will be using those phones, and we depend heavily on
mail and e-mail.

Nokia 3310 is the best-selling phone those days with long-lasting battery power. Nokia became
one of the fast-growing mobile phone companies with a lot of creative products. Day by day
their sales went very high and have become the foremost trusted mobile brand. In India, it
became the most popular phone.

Its 2100 series of phones, that were additionally the primary to feature the enduring Nokia Tune
ringtone. whereas Nokia projected to sell 400,000 units, the series clad to be a blockbuster with
around twenty million handsets sold worldwide. The spectacular success of Nokia’s 6100 series -
sold nearly 41 million telephones in 1998 - helped the corporate surpass Motorola and become
the world’s high cellular phone maker in this year. Nokia 6110 was the primary phone that came
with the classic Snake game pre-installed.

Nokia’s net sales increased over 50% year-on-year, operating profits shot up nearly 75%, and
stock price sky-rocketed a whopping 220%, resulting in an increase of market capitalization
from nearly $21 billion to around $70 billion. Nokia 3210 was a solid handset that came in six
colour variants and had a talk time of the impressive for the time 4- 5 hours. In addition to
offering extra ringtones and games, the device also allowed users to send pre-installed picture
messages (like Happy Birthday) via SMS.

Around 160 million units of the handsets were sold, creating it one in every of the foremost
common and productive phones in history. the Nokia 7650, was the primary phone to feature an
inherent camera. it absolutely was conjointly the primary to sport a full colour show.

In the era of Nokia, there have been alternative phones further. Sony Ericson and Motorola
became its rival. Later Samsung joined the competition. Nokia remains ideal due to its cheaper
value and funky options. Nokia became the primary company to introduce a camera on a mobile.
6|Page

All quite flip phones, slip phones slowly began to emerge and customers begin to use those
phones. Later coloured screen phones begin to emerge and Nokia quickly adopted the
technology.

Nokia later came out with powerful twenty-six qwerty data input device and it's well received by
the shoppers. Later the movable trade began to shift to the touch screen technology.

Nokia and Sony square measure the foremost movable manufacturers with several ranges of
smartphone from the most affordable to high finish. All reasonably technology like Bluetooth,
wireless, infrared then on was created into a movable. this is often the time wherever wireless
technology began to develop. however, SMS and MMS were still be used because the main
means of act with individuals.
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The rise of the FALL

After leading the mobile industry for more than a decade, Nokia’s sales decreased. It was the
outcome of both internal decisions and the external environment.

Change in The Top Management: In 2006, Olli-Pekka Kallasvuo took over the position of
CEO replacing Jorma Ollila. The new management merged Nokia smartphones and basic phone
operations, focusing more on traditional phones rather than experimenting with new technology.

The Arrival of New Companies: In 2007, Apple stepped into the smartphone industry and
launched the iconic iPhone. Nokia went into denial and refused to take Apple as a threat to their
high sales numbers. It also deemed Apple phones inferior as they run on 2G technology while
Nokia’s mobiles ran on 3G technology.

In 2008, Google launched the Android Operating System (OS). By this time, Apple’s iOS was
growing in popularity, and its sales were steadily increasing. To combat the threat, Nokia should
have shifted to Android, but it didn’t and continued to make phones with obsolete Symbian OS.

Delay in The Release of New Phones: In 2010, Nokia announced N97, which would be the first
to run Symbian^3. But the release was postponed and therefore, it was unsuccessful to compete
with Apple and rising Google.

In 2010, Olli-Pekka Kallasvuo was discharged from the position of CEO, and Stephen Elop,
from Microsoft, took his place.

Partnership with Microsoft: In 2011, to cope with the dwindling market share Nokia partnered
with Microsoft to make Windows phone, abandoning old OSs like Symbian and MeeGo.

In 2012, the Windows phone was unsuccessful to make an impact on an already established
smartphone market. The primary reason for this was a few numbers of applications on the
windows store as compared to Google’s Playstore and Apple’s store.
The same Nokia Company that was enjoying almost 40% share in the market dropped to less
than 5% share of the total market. That was the time when the management, shareholders, and
the customers of the company were afraid of Nokia’s bankruptcy.
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Acquisition By Microsoft: In 2014, Nokia was near to being bankrupt. But Microsoft stepped in
and brought Nokia for $ 7.2 billion.
9|Page

Factors for the FALL

The Resistance to Smartphone Evolution: Nokia was unable to capitalise on the Android
craze. Nokia remained obstinate even as other smartphone manufacturers improved and worked
on their products. Its demise began with this misunderstanding.

The Deal with Microsoft: Nokia's demise was also exacerbated by an ill-advised partnership
with Microsoft. The company was sold to Microsoft at a time when the software titan was in the
midst of a loss-making period. Microsoft's purchase of Nokia is widely regarded as one of its
biggest errors, with little benefit to either party.

Failed Marketing Strategies: The Company tried and failed to brand itself as an umbrella
branding company. Nokia made the decision to develop several exciting hardware and software
breakthroughs. These, on the other hand, have already been published by Nokia's competitors
and lacked the originality.

Moving too slow with the Industry: Nokia was never able to keep up with the advancements in
technology and trends. Nokia has always been known for its hardware and has paid little
attention to its software offerings. Nokia moved when practically every major brand had already
started creating fantastic phones, rather than being among the early adopters.

Overestimation of Strength: Nokia overestimated the importance of its brand. People would
still flock to retailers to buy Nokia-manufactured phones, the business predicted, despite the late
debut of its devices.

Lack of Innovation in Products: Nokia's problems were exacerbated by its products' lack of
innovation. While Samsung and Apple released improved phones every year, Nokia released the
Windows phone with only the most basic functionality. The Nokia Lumia series served as a jump
start measure, but it too failed due to a lack of innovation later on.
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The Present
Analyzing the journey of Nokia, there are numerous things that a business individual can and
should learn. Here are few of the takeaways

1. Macro-Environmental Conditions:

Firstly, the dynamicity of the macro-environment must be understood. If the business

environment is continuously changing, you can’t expect to continue your businesses in the same
manner. Change becomes inevitable. Streamlining yourself with the dynamic business
environment is the only way to stay in the market or your customers will abandon you, and that
is what happened with Nokia. Resistance to change is what made Nokia fail.

2. Competition:

Secondly, in any market competition will always be there, and keeping a close track of your
competition is a must. In the case of Nokia, we can see that few small competitors did exist even
when there was the initial stage, but the key focus of the company was not at all to manage its
competitive advantage. This gave a chance to all these competitors to invest in research and
innovation therefore gaining a better position in the market.

3. Organizational Structure:

Thirdly, organizational structure, and the culture within the organization are one of the most
important things to take care of. One might not think it to be integral in the success of the
company, but taking Nokia as a prime example, we have observed that if not direct, it most
definitely had an indirect role in the decline of the giant. The management of the company and
even the employees lost interest in the company as they thought the company has already
achieved success and they don’t require anything else to be done. With such a thought process,
Nokia was not able to attain long-term success neither was it able to maintain its market and as a
result it fell.

4. Vision:

Lastly, the vision of the leaders and the company can help in getting the exact mix of strategies
that would help in future growth. In case, a company is established without the vision and the
future goals, then it is most likely to dependent on the outside factors and these factors would
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either make a company a great success (less likely) or they would ruin it altogether causing a
negative impact. Therefore it is essential that before you start a business, you must know what it
is and where it has to reach in a particular time frame. However, don’t lose the element of
flexibility while determining this particular aspect of your business.

Nokia Present Day

Nokia as we all know, was once one of the world's largest phone makers, but it sold its mobile
handset unit to Microsoft in the year 2014. The Finnish company afterwards focused on
stretching its Nokia Networks business, which sold telecom equipment to carriers. Nokia
acquired its competitor Alcatel-Lucent in 2016 to grow their business, so as to become the
world's second-largest telecom gadget company. It controlled a sum total of 16% of the market
revenue by last year, according to Dell'Oro Group, when compared to Huawei's 28% share and
Ericsson's 14% share.

Those deals all eventually and significantly transformed Nokia, but its stock collapsed about
35% over the past five years because of the strong competition, troubles in China, and a slower-
than-expected launch of 5G upgrades. The latest resignation of its longtime CEO, layoffs across
Finland, and the postponement of its dividend further rattled the investors.

Earlier this year, China Mobile let Nokia fall from its second round of 5G upgrades and
distributed the remaining orders among the other three companies. That loss stung bad, and
indicated that Nokia's other businesses in China -- including a joint venture and a contract with
China Unicom -- could be in trouble. Nokia hasn't offered a turnaround plan for its Chinese
business as of now. Instead, it eliminated China from its global 4G/5G mobile radio market share
projections for 2020, which are anticipated to hold steady year-over-year at 27%. That exclusion
determines that Nokia is quietly giving up on China, which might become the world's largest 5G
market by 2025, according to the research firm BuddeComm.

The tech war plainly hurts Nokia's business in China, but the company did still win orders from
Huawei in overseas markets who wanted to restrain their dependence on Chinese technologies.

Previously, France's top most telecom company Orange, announced that all its 5G contracts will
only be awarded to Nokia and Ericsson, and not Huawei. Huawei was also chopped out of the
loop in Singapore, where the country's main 5G contracts were awarded to both Nokia and
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Ericsson. Huawei also faces potential bans in India amongst escalating military tensions with
China.

The United States is concluding a ban on the government doing business with any company that
consumes products from Huawei and four other Chinese tech companies. That massive ban,
which is being carried through due to national security concerns, could eventually force a lot of
companies to buy new equipment from Nokia and Ericsson.

In short, Huawei's pain could generate long-term benefits for Nokia and counterbalance its losses
in China. However, Nokia will still need to out manoeuvre Ericsson, which still managed to
become China Mobile's 5G supplier as Nokia was overlooked. Ericsson's affiliate, Ericsson
Nikola Tesla, also lately secured an absolute exclusive 5G contract in Croatia -- which proved to
be as a springboard to Eastern Europe.

In the coming future Nokia will still remain one of the world's top telecom gadget companies,
but its stock could still keep underperforming in the market until and unless it gets acquired. It's
giving up on one of the world's largest 5G markets, and it's ambiguous if it can beat Ericsson to
claim Huawei's lost orders in other countries.

Nokia is also coming forward with a new CEO, who currently runs the energy company Fortum,
and cutting costs, when it actually needs an experienced leader and some aggressive expansion
strategies. Unless Nokia plans on addressing these issues, the next five years could be as tough
and rough as the previous five.
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Conclusion and Road Ahead

The external environment is rapidly changing and has both positive and negative consequences
for the business. Environmental changes will cause companies to lose their competitive
advantage over time if they ignore them.

Strategic drift is a result of management's failure to respond to the reality of changing economic,
technological, and customer demand situations. It can happen when a company fails to adapt to a
changing external environment, such as social or technical shifts. Strategic drift leads to a loss of
competitive advantage and, as a result, performance. It can happen as a result of management
continuing to apply approaches that previously worked in terms of competitiveness but are no
longer successful, rather than adopting new strategies to keep up with changes in the
environment.

Astute managers always try to look for indicators of strategic drift to modify their strategies
before the carpet is swept away. Nokia went through the same when competitors brought
smartphone in the mobile phone industry. As a result of neglecting environmental initiatives,
Nokia has seen a severe drop in its competitive edge. This is because firms do not modify their
strategy necessary to respond to environmental changes.

In spite of being a dominating worldwide mobile market leader, Nokia has failed to react to
smartphone technology. Nokia should focus on its clients and therefore identify the changing
requirements of its clients. It failed to do so and Apple and Android took over the market.

In the late 2000s, although Nokia produced some of its best financial results, the management
team struggled to find an answer to the changing environment: software became a major
competitive characteristic in the market, above hardware. The relevance of application
ecosystems was also evident, but Nokia was not skilled and eager to engage with this new
method of functioning.

By 2010, Symbian's limitation had come out quite clearly, and the movement towards
applications pioneered by Apple was evident to Nokia. Not only did Nokia appear to have
limited strategic alternatives, but none were really appealing. Nokia became a sitting duck for
rising competition pressures and forces as well as fast market developments on the mobile phone
industry. The game was lost and what was left for a new CEO Stephen Elop and chairman Risto
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Siilasmaahad to take lessons and successfully remove Nokia from mobile phones to turn the firm
into its other main sector, network infrastructure equipment.

Companies should monitor disruptive technologies. By ensuring that the organisation is flexible

and easily able to respond to changes in the external environment, they may avoid strategic drift
by aligning its strategic location with the external environment. During this time of disruptive
technologies, companies must adapt their company design to constant changing market
conditions.

Another way to prevent strategic distortion is to enable a firm to examine certain management
decisions on a variety of ideas and skills at the management level. This will stop groupthink
which kills diversity of ideas and challenging the status quo Management
should foster innovation through the rewarding of unique ideas. Top management should have a
changeable mindset.

Management needs to continue to monitor technological, consumer and competitive

developments in the external environment to prevent strategy drift. By carrying out regular
external research and analyses it may react fast to emergent events in the external environment.
Lastly, the management should assess the success of the business in terms of market share and
other financial measures.

What can we learn from Nokia

A simple, one solution is not possible to explain Nokia's fall in mobile telephones: Decisions on
management and organisational dysfunction, increasing bureaucracy, and entrenched rivalries
inside Nokia have all contributed to the failure to recognise the change from productive rivalry to
platform-driven competition.

The mobile phone journey of Nokia illustrates a feature common to mature, successful

companies: Success leads to conservatism and hybris that, over time, contribute to a deterioration
in strategic procedures and bad decision-making. When innovative ideas and experiments are
adopted by firms to stimulate development, they would become risky and less original with
success.