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Nokia’s search for a viable market positioning continues

Sep 20, 2010 Business Daily, Strategy

Nokia, the leading maker of mobile phones, replaced its chief executive, Olli-Pekka Kallasvuo, on Friday with the head of Microsoft’s business unit in a bid to turn around the company’s struggling smartphone lineup and stop a decline in American market share.
Nokia said it had appointed Stephen Elop, a 46-year-old native of Ancaster, Ontario, to succeed Mr. Kallasvuo, who has been at Nokia for 30 years and continues as chairman of Nokia Siemens Networks.
Analysts speculated that the appointment of Mr. Elop, who has run Microsoft’s business software unit, the company’s largest division, since January 2008, might signal closer cooperation between Nokia and Microsoft, which has also struggled in mobile software.
It was the first time Nokia had tapped a non-Finn to serve as its president and chief executive.”

New York Times (10 September 2010)

They say a wise man resists the words “I told you so.”

Well, I tried to resist but failed. A few months ago I wrote about Olli-Pekka Kallasvuo, then CEO of Nokia, who amazed me by stating: “We are going for the consumer market, we are going to the business market, we are going to the low end, we are going to the developing markets.”

This will end in tears, I wrote, because no company can be all things to all customers. Strategic success comes from distinctive capabilities applies in carefully chosen market segments – not from mediocre capabilities applied across the board.

Mr Kallasvuo is gone and leaves with nearly $6 million in severance pay, which is par for the course for failed CEOs these days. Amazing when you consider that Nokia’s share price has fallen by two-thirds during his tenure, and that his company lost over $60 billion in market value since Apple introduced its iPhone in 2007.

So what is wrong with Nokia? It still commands an astonishing 38 per cent of the world handset market, and its revenues have shown a rising trend (on average) for many years. The problem is profitability. Apple makes more profit from its single phone than Nokia does from its entire range – yet Nokia has ten times the market share. Chew on that one. The issue is simple: Nokia has spread itself across too many handsets in too many markets, and is achieving good margins in too few of them.

So is Mr Elop the answer? He comes from Microsoft, which has issues of its own. It is trying like crazy to diversify away from its software core, and making foray after foray into music, gaming, cloud computing, mobile software and others. The results are mixed at best. A Microsoft-Nokia combination, as suggested by industry watchers, might be interesting – but only if the two firms work out the basis of competitiveness: being better on crucial parameters – design, usability, price, image – than your key competitors.

Nokia still has formidable advantages, not least a global distribution system of vendors and carriers and a brand which still has a hold over many consumers, particularly in emerging markets. It is in danger, however, of ignoring those capabilities and chasing too many hares in the field. The advice of Michael Porter should never be forgotten: to compete across markets, you first have to be competitive in all of them.

Nokia had a winning business model for years, and sped to global dominance before our eyes. The wheels began coming off from 2007 when the top end of the market was creamed off by Apple’s iPhone, RIM’s BlackBerry and various Google Android models. If Nokia is to ever reclaim this market, it will need revolutionary new technology that recaptures lost “mindshare.” Meanwhile, it faces more battles in lower-price segments, from emerging Chinese handset-makers. Keep watching this space, strategy enthusiasts, there’s more to come.

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