Case study: Nokia - Organizational Agility in the adaptive cycle
Organizational Agility in the adaptive cycle: a case study on Nokia
This student lecture was provided by Mouade Boussaid, Martin Jorna, Alexandre Pinheiro, Constantine Babahodgajev and Arvind Bihari.
The Power point for this student lecture can be found here
In recent decades few of the leading technological corporations went through significant changes in order to adapt to the changing environment, where rules were set by market leaders such as Apple, Google, Samsung etc. which introduced several innovations that have changed the market forever. One of those companies that struggled to compete in the market they have been leaders for many years is Nokia. We have decided that it would be interesting to take Nokia as a subject and study how it has changed and adapted to changes through the scope of adaptive cycle and how did it use virtual organizations, mostly on later stages, with a goal to regain their previously leading positions.
Nokia is one of the oldest corporations that still exists and has worked in multiple different markets including forest products, rubber, cables and the latest mobile device market. The company itself and it’s products are well known and used widely across the world. Considering diversified product range Nokia has gone through, the scale of its operations and we have decided that it would interesting to study how did Nokia perform within adaptive cycle, especially on the later stages, which is more interesting for us as we are current potential consumers of Nokia products and services.
Nokia’s history begins in early 1860s and continues until today, but were more interested in relatively recent history so we have based our research on an article by Yves Doz and Mikko Kosonen – “The Dynamics of Strategic Agility: Nokia’s Rollercoaster Experience”. In the article mentioned above, authors divided Nokia’s history into 5 phases:
"Strategic Agility at Work (1988 - 1992), which we have referred to as a Crisis Era, as that is a period when Nokia have heavily expanded their business to USSR, but at some point USSR have collapsed what pushed Nokia to restructure their business."
"From Strategic Agility to Systematic Planning (1993 - 1997), which we have referred to as Logistics Crisis, as Nokia was not prepared to the demand they have faced."
"Maintaining Strategic Sensitivity and Enhancing Resource Fluidity (1998 - 2004), in year 2001 Nokia has faced disruption, and its market share has dropped from 35% to 30% in 3 years. This lead to a new organizational structure."
"Building Leadership Unity (2004 - 2008), the period where Nokia has lost few of leading executives and announced it’s network division would merger with Siemens."
"The last period is today. Nokia did not manage to recognize threat, a disruptive change coming from Apple. Apple introduced iTunes and then later on iPhone, but Nokia managed to respond only to the smartphone challenge, but not to the service that Apple has offered, Nokia’s app store could not compete with iTunes, what is the reason for reduction of Nokia’s market share in recent years."
Phase I (1988 - 1992)
In late 1980’s Nokia has decided to enter telecom business. In order to succeed in that market Nokia has made some costly acquisitions, such as mobile handset maker Mobira. Nokia executives underestimated the competitiveness of the telecom business and to some point it might be understood, as it’s telecom business in such a huge market as USSR was a success. But with a fall of a Soviet bloc in 1989 and Soviet Union right after it, companies strategic foundations shattered. The situation got even worse with a suicide of CEO, and Nokia struggled to build a functional management team.
Those issues lead to a restructurization of a company, what lead to a separate Handsets department, which eventually turned into Nokia Mobile Phones. Reorganization provided the resource fluidity and structure to the company and allowed to move into growth direction in an emerging GSM telephony market. New CEO, management team and shareholders managed to end instability period and find a new direction for Nokia to develop.
Phase II (1993 - 1997)
“Growing pain” During the beginning of the 1990’s, Nokia’s market share was increasing, as a result of this they entered, a logistics crisis, which they saw as “a growing pain”. Nokia Mobile Phones had not been able to develop it’s organizational structures, management systems and competencies to cope with the growth they were going through. As a result of the crisis, the profitability dropped along with the share prices of the Nokia group. In order to cope with the crisis, Nokia went from a opportunistic agility to a more formal management of growth. Trading this opportunistic agility for a more formal management of growth introduced the threat of strategic rigidity.
Nokia and the adaptive cycle: During this period of logistic crisis, it was obvious that Nokia tried to get through the crisis stage toward the entrepreneurship stage through using new combinations. These new combinations can be thought of as Nokia stepping away from the opportunistic agility towards the introduction of a more formal management of growth.
Phase III (1998 - 2004)
While climbing out of the logistics crisis and entering an equilibrium phase in which the logistics could handle the demand, Nokia decided that constant innovation was necessary, to avoid missing new growth opportunities. This led to the establishment of an intellectual leadership, which eventually grew out to be the Nokia Venture Organization (NVO) in 1998. The NVO would become their main research center, structured as a separate department within the Nokia group. The second growth opportunity that Nokia concluded was the need for a third core business. They realized that their core businesses consisted out of handhelds and networks, which were codependent and would both be hit if anything went wrong. The search for a new core business was eventually considered to be too daunting of a process of change, with high cost and long development time. This led them back to their core businesses. The decision was made to focus on the strategic renewal and evolution of their core businesses. In their Equilibrium phase they encountered a last disruption in 2001. This involved the slowing down of the market growth and more severe competition. The direct response of Nokia was the restructuring of the organization, allowing for segmented domains. Each domain specialized itself in a certain part of the business, which put Nokia back on top.
Nokia and the Adaptive Cycle In this phase a clear representation of the Adaptive Cycle is seen, by entering the equilibrium phase after a lengthy process for the search of new combinations, such as the digitalization of the networks and the split between handhelds and networks. The supply chain process was also redesigned, solving the logistics problem, allowing them to meet the demands for their products. Despite the equilibrium phase however, Nokia kept on reinventing themselves by adding the Nokia Venture Organization department to their organizational structure. So one could argue that within their equilibrium phase, the Adaptive Cycle kept reiterating itself, via the search for a new core business and the establishment of a research center (NVO). During the 2001 disruption the Adaptive Cycle also reiterated itself again within the equilibrium phase, by changing the organizational structure to nine value domains (new combination), allowing for more specialized focus and adding momentum to grow business development.
Phase IV (2004 - 2008)
The fourth phase, can be considered a transition phase between equilibrium and crisis. In this phase clear signs are shown, which indicate a slow transition to the crisis phase. During this period, the organizational structure, which included nine value domains showed its negative downsides. Seasoned leader executives decided to resign due to the new interdependent matrix structure with the nine value domains. These leaders were used to leading autonomous business departments during times of fast growth. Now they faced a stable environment with minimal growth and the introduction of a matrix structure, which took away part of their autonomy. Lack of motivation to work in the new structure, was the main reason that these leaders resigned. The matrix structure also had its effects on the separate value domains. Because each value domain was so focused on its own work, cooperation with other domains became less and less, leading the organization into a slow breakdown. This eventually led to a new management team in 2006 and the subsequent merger of Siemens networks with Nokia. The organizational structure was also changed to a more integrated one, which closely resembled the pre-matrix structure.
Nokia and the Adaptive Cycle
Despite their equilibrium in the market, internally the leadership ‘crisis’ and the problems with the matrix structure slowed Nokia down, allowing their competitors to gain in on them. Eventually they got this solved by entering a stage of new combinations in which a new management team and organizational structure was proposed as remedies for their internal problems, allowing them to enter the entrepreneurial phase (internally).
Phase V (Present)
The present phase of Nokia can be characterized by very intense competition. On the smartphone market, two new threats surfaced: the iPhone from Apple and the Android OS from Google. These competitors made disruptive innovations. Examples of these disruptive innovations are the large touch screens and touch screen navigation. Also, an easy-to-use application market made it possible to add new functions to smartphones in a very convenient way. Nokia could not compete with these disruptive innovations as they were stuck with Symbian OS, a more traditional approach to the smartphone. Symbian was not optimized for touchscreens, which can be seen with Symbian S60v5.
Another threat surfaced in the network equipment market. Nokia has always been a major player in the market for network equipment used by providers. The arrival of the Chinese competitors ZTE and Huawei has surprised Nokia as they could not compete with the aggressive pricing strategy of the Chinese competitors.
A virtual organization is defined by Afsarmanesh (2012) as “a temporary alliance of enterprises that come together to share skills, competencies, and resources in order to jointly respond to business opportunities, and their collaboration is supported by computer networks.”
In the present phase, Nokia has failed to gain momentum in the smartphone market, especially with their Symbian operating system. Another former major player in the smartphone market used to be Microsoft, which also failed to respond to the changing smartphone market. In order to get on top again, Nokia and Microsoft announced a collaboration. This collaboration can be seen as a virtual organization, as Nokia focusses on developing the hardware (smartphones) and Microsoft focusses on developing the software (Windows Phone 7/7.5/7.8/8).
The virtual network of Microsoft and Nokia should also increase organizational agility, as each of these companies can focus on their core business. Combining their strengths (Microsoft is mainly a software company, and Nokia a telecom hardware company) they should be able to take some market share with their jointly developed Windows Phones, which is the Nokia Lumia series. However, as for now it is not clear how successful the Nokia Lumia series really is, or even the Windows Phone OS for smartphones. Market researches indicate a market share of 3%.
Influence of Organizational structures
Throughout the phases described above, Nokia adapted different organizational structures, which they thought were most suited to cope with the situation of that phase. Although Nokia and companies in general never consist of one organizational structure as described by Mintzberg, there is generally one main organizational structure. For Nokia we have identified the following organizational structures:
Phase I:Entrepreneurial organization
Phase II:Machine bureaucracy
Phase III: Diversified organization
Phase IV:Machine bureaucracy
Phase V: Diversified organization
In their configurations, Nokia always had a separate research department that focused on innovation.