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Unit 5: Organisational Appraisal: Internal Assessment 1

The early markets for the new 3G technology were in Japan and Korea, where the GSM Notes
standard was not used. In addition, some of the Asian electronics manufacturers like
Samsung and Sony realised that the new technology gave them another chance to enter
the global mobile markets, particularly if they had missed out on the benefits of the GSM
standard. Sony combined with Ericsson to launch a new joint venture and Samsung invested
heavily in new 3G technology. The result was that Samsung had built a global market
share of 14% by 2005 and Sony Ericsson had a share of 6%. However, Motorola still kept its
second position with 17% of the market. Competition was therefore increasing for Nokia.
New Challenges and New Management

At this point, Nokia lost its way slightly. It failed to read customer demand correctly
around the year 2003/2004. The new ‘clam shell’ folding designs and mid-price photo
imaging screens from its competitors proved popular in the market place. Nokia did not
move to match these but stuck with its existing ‘stick’ designs. There was some suggestion
that this may partly have been because Nokia’s economies of scale were more associated
with its existing designs. Certainly, Nokia had easily the highest profit margins in the
industry and was reluctant to reduce these. Eventually, Nokia decided that its dominant
world market share was highly valuable and it would be preferable to reduce its prices,
take a loss of profit margin and also introduce new ‘clam shell’ designs. At the end of 2004,
the company’s share had begun to rise again and was back around 35%.
More generally around 2004, Nokia realised that it needed to review its position. It had
taken a hit from its competitors and it had failed to read the market changes fully.
Importantly, it also faced new challenges that would come as 3G digital technology became
the accepted medium of telephony. Essentially, this would open up opportunities that
were unclear but potentially important – live transmission of television to mobile phones,
new games to mobile phones, instant web access, etc. All these were technically feasible
but still remained to be exploited fully. New mobile phones needed to be multimedia and
also needed to consider the extent to which they would converge in terms of performance
with other consumer electronics like the highly successful Apple iPod.

There was also another new trend that Nokia needed to master. The world market for
mobile telephone providers was becoming more concentrated. Companies like Vodafone,
Orange, Telekom and others were Nokia’s major customers. The mobile telephone service
customers were buying around 65-70% of all the world’s mobiles, which they were then
selling or offering free to customers. The Japanese electronics company Sharp had been
able to move into mobile telephones from nothing in the early 2000s by doing a deal to
supply Vodafone with some of its models. This was a serious matter for Nokia since such
large customers required more than the standard models: customers like Vodafone wanted
customised phones that would deliver competitive advantages over their rivals and large
orders meant real bargaining power. Nokia has been hit hard by the strategies of Samsung,
Motorola and Sony Ericsson. Nokia has responded with a new product range but has lost
some market share. Nokia needed to introduce a whole new area of customer management
for such large customers. “It’s a very different era in terms of management requirements,
in terms of skills, know-how, how you build your customer relationship,” explained
Nokia’s Chief Executive, Ollila.
The outcome of all the above was the introduction of new management at Nokia in
December 2004. ‘From a management point of view, it began in spring or summer 2003
when we in the management team started discussing the need to look at the organisation
afresh,’ said Ollila. In a period of change in the industry, Nokia needed to adapt and
restructure its management team. The result was that both Sari Baldauf and Matti Alahuhta
left Nokia. Mr Alahuhta went to a leading position at another Finnish company and
Contd...

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