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Nokia Mobile Phones Corporation - Assignment Example

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They are to produce goods and services efficiently, expedite innovation and use modern manufacturing and information technologies. As such change in organizational structure is viewed as…
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Nokia Mobile Phones Corporation
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RUNNING HEAD: Nokia Mobile Phones Corporation Nokia Mobile Phones Corporation of Introduction Organizations are made to bring together resources to achieve desired goals and outcomes. They are to produce goods and services efficiently, expedite innovation and use modern manufacturing and information technologies. As such change in organizational structure is viewed as means to attain the goals and objectives of organization. Since organizations are part of a bigger changing environment, they have to adapt to the same while trying to influence the same to their favor. The continuous creation of value for owners, customers and employees will have to be sustained if these organizations are stay relevant. These concepts will either be demonstrated in the experience of Nokia Mobile Phones Corporation (or “Nokia”) as this paper seeks to answer questions related organizational structure and effectiveness of the company. This will discuss first the current situation of the company and to explain how it has what is experiencing at present with brief comparison with past. The paper will subsequently describe what problems/situations that company had faced in the past in relation to the environmental factors that have affected its situations and problems. A look into what has led it to experience structural and organizational changes will then be discussed and the how structure change accordingly. The changed in its organizational structure will also be discussed on whether it has improved performance by looking at it current performance/productivity and effectiveness in relation to the past few years before in terms profitability, efficiency, liquidity and solvency. From the analysis, a recommendation to management will be made accordingly. 2.1 The current situation of the company The current situation of Nokia may be described as still responding actively to the ever-changing environment. Its evolution to the present is a result of having to respond changes in the past. It has evolved from wood-pulp and rubber-boots company to telecommunication equipment company and then to mobile devices company. At present Nokia is the largest producer of mobile phones (Nokia, 2011e). The company is also into converging Internet and communication industries with global reach of its products in more than 150 countries, and 120 of which it had employed about more than 130,000 people. Nokia Siemens Network, Nokias subsidiary manufactures telecommunication network equipment and also offers solutions and services related thereto. The company also provides digital map information and navigations services through NAVTEQ as fully-owned subsidiary. The country invests in research and development as well as in manufacture and sales around the world with almost one fourth of its people are in research and development (Nokia, 2011a). In 2010, Nokia Siemens Networks, made known its agreement to acquire the majority of the wireless network infrastructure assets of Motorola. Such an act to acquire that of your competitor could imply its having reached economies of scale to be able to efficiently operate the previous of its competitors. It could be assumed that Motorola may not be benefiting from the network or cannot do it more efficiently. For Nokia, the planned acquisition would enhance its network’s capabilities in key wireless technologies such as those of CDMA and WIMAX. This is believed to strengthen also its market position in areas or markets which are strategically and geographic advantageous to the company as those in the United States and Japan where Motorola have these networks (Nokia, 2011a). The picture of a company acquiring its competitors business is just like an act of surrender on the part of Motorola under a line of business or a realization that each company must have a focus in order to maximize value. Has Nokia left Motorola in the dust? (Ewing, 2007). Is this not the result of a focus in resources that was done by Nokia in the past? There could be question as to anti-trust violations as this would have the effect of transposing a virtually competitive or oligopolistic market into a oligopolistic in t case of the former and monopolistic for the latter. In addition, its Nokia Siemens Networks still targets a relationship with not less than 40 operators that could further boost s relationship with certain of the largest communication service providers around the globe emanating basically from the acquisition. The Motorola acquisition would still have to meet certain conditions including final anti-trust approval by the Chinese regulatory authorities (Nokia, 2011a). The company just recently had a change in its organization structure and this would influence the company on how it will present its financial information following new organizational structure under its three businesses starting April of 2011 (Nokia, 2011a). The company needed to sustain its fast adopting strategies by primarily investing in research and development, sales, and marketing, and building the Nokia brand. It however has increased investment in services and software development tools for the past few years. IN other words, while it can choose to growth organically, it needs to support its strategies by making certain strategic acquisitions. This can be seen in acquired a number of companies with specific technology assets and expertise. An approximately EUR 800 million as capital expenditure during 2011 would indeed manifest a growing global company after spending about EUR 679 million in 2010. Raising such big amount is not impossible with its stock listed in three major stock exchanges (Nokia, 2011a). 2.2 What problems / situations has it faced? This part will describe what the company had before the change the organizational structure that has actually occurred as part of its strategy to create value. This would refer to decisions made by company before it has reached its present level of evolution as far as organizational structure is concerned. If evolution happens to humans as claimed by Darwin the same thing can be said for organizations (Marks, 2002). Corporate organizations have their life from birth. Thus the past one and half century Nokia’s history, The company has evolved from originally engaged in in the paper industry to become a leader in the global market of mobile communications. With more than a billion people having accessed, possessed or owned its mobile products and services, every segment of the population may be inferred to have become a witness to its evolution. Today, Nokia brings mobile products and services to more than one billion people from virtually every demographic segment of the population (Nokia, 2011a). Companies expand organically or inorganically as part of normal growth. It was in 1967 under Republic of Finland laws that Nokia became at its present form. Three companies named Nokia AB, Finnish Rubber Works Ltd and Finnish and Cable Works Ltd. (Nokia, 2011a) The first was 1865-founded wood-pulp mill named Nokia AB; the second is an 1898-founded manufacturer of rubber boots, tires and other rubber products, while the third is a 1912-founded manufacturer of telephone and power cables. Telecommunications equipment came into the picture in 1960 when Finnish Cable Works had its electronics department in concentrating to produce radio transmission (Nokia, 2011a). Being then in telecommunications equipment, it was nearer for Nokia to see its opportunities when technology and regulatory changes will have to happen as would be discussed next. 2.3 What environmental factors may have impacted the company? The company claims that regulatory and technological reforms played a role in its success. When the Europe deregulated the telecommunications industries in the late 1980s which stimulated competition and increased customer demand, Nokia was there already after it has entered telecommunication equipment in 1960. By being there in the right place, 1982 came when the company was given a chance to introduce the first fully digital telephone exchange in Europe. Simultaneously, its introduction of the world’s first car phone under the Nordic Mobile Telephone analog standard (Nokia, 2011a). Although deregulation is an act of government as it opened the market for competition when situations allow, being at the forefront of the technological changes favored Nokia to have brought the company to where it is now. Technological breakthroughs happen and one which was that GSM. This event made more efficient use of frequencies and created greater capacity and higher quality sound. Europe in 1987 did then adopt GSM in a resolution as the European digital standard by July 1, 1991 (Nokia, 2011a). For Nokia was an opportunity to take advantage. Being based in Finland, Europe had many of the great economies, making Nokia’s move to be strategic in time and place. A leader in an industry does much in production of large quantities that would contribute to economies of scale which had given the economic the economic edge of long-term operational and financial growth. The first application of GSM was with a Nokia phone using Nokia built network of a Finnish operator in 1991, and at that same year, the company had closed contracts to supply GSM networks in other European countries. It was therefore in the early 1990s which can be described as the turning point for the company’s eventual and unprecedented success. This was when it made a strategic decision have its core business, -- telecommunications (Nokia, 2011a). Aiming to establish leadership in every major market in global scale was targeted and it was time to jettison the extra baggage. It was time to divest non-telecommunications operations such as rubber, footwear, chemicals, paper, personal computer, power plant, television business, cable and aluminum between 1988 and1997. With the focus came the power. Concentrating its resources where its saw the strong current to be flowing through, the rapid evolution of mobile communications from 1990s and early 2000s happened with Nokia as one of the leading players. The evolution created new opportunities for more devices in entertainment and enterprise arena (Nokia, 2011a). 2.4 What has led it to experience structural and organizational changes? What has led the company to experience structural and organizational changes were the events that happened before and the need for the company to attain its goals and objectives were limited by its old structures. The company cannot stay with is organization structure when strategy has to change. Changing the structure is actually part of the strategy. Changing the strategy without changing the structure would mean not implementing the needed strategy. The announcement that came in February 2011 about a new strategy and leadership team came with the change in operational structure. Why? It needed to change is organizational design to accelerate the speed of execution of is strategies since the company belongs in the extremely competitive mobile products market. It has find ways to survive and grow; otherwise companies are bound to fail if they could no longer create value of owners, customers and employees. Part of the new strategy for a broadband strategic partnership with Microsoft since the company wanted to build a new global mobile ecosystem. Global companies in technology sector cannot avoid dealing with Microsoft. Another element of the strategy is a renewed approach to capture volume and value growth to connect to the Internet while growth markets for development exist. These elements of plan cannot happen successfully without effecting the change to allow people to decide with speed, accountability and results and this was precisely the third element added by the company (Nokia, 2011a). Nokia’s new organizational structure can be best appreciated with its operation under three operating and reportable segments for financial reporting purposes: Devices & Services, NAVTEQ and Nokia Siemens Networks (Nokia, 2011a). Since the first is in charge for developing and managing our portfolio of mobile products, while the second is into digital mapping and navigations services and the third one is building telecommunication networks and providing the related services and solutions, operating under the old organization structure would be almost irrelevant as there segments are completely different from what it had in the past. It must be noted that in 2003, the company has actually implemented changes in organizational structure by having to lay-off a thousand of its employees with the aim of reducing cost, improving profitability and strengthening leadership (Nokia, 2011d). With focus as objective, a new operational structure to feature distinct business units is planned for April l 1, 2011 The focus will be on its key business areas: smartphones and mass market mobile phones by requiring the responsible unit a profit and loss, accountability for the full consumer experience, as well as development of product, its management and marketing. The nature of changing structure is therefore clearly a strategy to effect the desired change in the course of creating value and promoting efficiency in the use of resources (Whittington, 2011). 2.5 How has the structure changed? The change was into a leaner one. The company needed to accelerate our speed of execution in the intensely competitive mobile products market. It is the give focus to business units where there could be held responsible to the customer and this responsibility will be seen in period profit and loss. Giving the business unit responsibility for customer value in term of product development, product management and marking is essentially a devolving function compared to big other big companies where there are several layers of the organization to make the needed decisions. The bureaucratic red tape in some organizations may end up in the customer not being addressed first and would be anti- thesis to creating value of them. Failing to address this core issue destroys the other part as value for owners and employees are very much dependent on values created to customers. Neglect the first value and the values for the second would necessarily fail. 2.6 How is its current performance/productivity and effectiveness? To measure the company’s current performance/productivity and effective, this part will discuss profitability, efficiency, liquidity and solvency. Nokia profitability performance in the last five years appears to be evident. Its average return on equity (ROE) for the last five years stood at 30%. Comparing the same ratio with the other players’ average ratios in the industry, a clear lead regarding its past performance is demonstrable since the industry average had reflected of 8.64% in comparison. See Appendix A for more details. Supposing a 30% return on equity may sound quite high when the economy is booming but it may considerably comparatively extraordinary when the economy is still down. Some may even call it almost a miracle. In real-world sense, an investor is just like putting 100 dollar investment and expects 30 dollars in return. See Appendix A for more details. Nokia’s return on equity of the company gets computed by dividing net profit to the total stockholders’ equity or shareholders’ funds. How much profits or earning investor may acquire from the investments put into the company should be evident from the ratio (Johnson, et al, 2003). Comparing to what could be earned from a risk-free investment in the form of a government or Treasury bond or bill, Nokia investment is a better choice. Thus, 30% ROE means more than twenty times ROE as against 1.25% using EURO base rate (Housepricecrash, 2011). Such would be considered a big net gain already given the present condition of the world economy since Nokia is a global company. Since such profitability is also a function of how people manage at Nokia, such good return could indicate a very high quality of management and the stockholders must be placing their investment in the right hands. Viewed in another way, Nokia can be evaluated in terms of management’s efficiency or how the management makes uses of assets. Nokia’s return on assets (ROA) exhibited a five-year average of 13% which as against almost three times the industry average of 4.02%. See Appendix A Industry players normally compete for market share and this would also mean competing also for profitability. Nokia had its share of competitors like Motorola of the United States. With its entry into the internet business, it is essentially also competing with Google and Yahoo. More players come with more intensive the rivalry which would a considered a threat to existing player that eventually would mean less profitability as afforded by industry. Nokia high profitability as discussed testified to its success fully employed its competitive strategies and created competitive advantage (Steinbock, 2010) as it wanted profitability and more wealth for its shareholders. The company’s profitability in the industry for the past five years confirms the validity of strategies employed by the company. By further investigation, the company’s average net operating margin and net profit margin are indicating the same evidence of profitability and efficiency which showed higher rates than the industry. Aside from profitability, liquidity, which determines whether a company can survive at least in the short-run it also needed. Having the same means having the working capital to run the business without getting out of the business due to bankruptcy (Johnson, et al, 2003). A company lacking in liquidity may just stop operation for failing to meet its currently maturing obligations to suppliers and the salaries of its employees. Suppliers if unpaid no longer sell and deliver their product to the company as collection would become more difficult if not impossible. See Appendix A. The company’s average current ratio registered at 1.53 as compared against industry average of 1.72 . Although comparison in terms of profitability earlier was in favor of the company, better liquidity need not follow since the company can make use of it cash flow from operations to other purposes. See Appendix A. Related to liquidity to measure Nokia’s performance is the solvency of the company or capacity to be stable. Nokia’ average debt to equity ratio of 1.49 for five years far exceeded industry average at 0.27 which explains higher risk faced by the company. See Appendix A. 2.7 What would you recommend that management do? Change? When things are going wrong changes needed to be recommended. On the other hand, when things are going right, to recommend change may not be the appropriate thing. Given the responsiveness that the management of Nokia has done in response to the changing environment, the company has indeed taken advantage of the industry opportunities. It has made used of is strengths and tried to correct is weaknesses by divesting its non-telecommunication part of its business. Its experience once again confirms the truism that there is strength in focus. However, a look into the how the company’s stock price has behaved for the last five years, the stock behavior appears not to reflect the evident the higher profitability and liquidity of the company. See Appendix B. The same graph must be viewed in terms of price earnings ratio where the industry has higher price earnings ratio of 56.99 as against the company’s 37.49 despite its more profitable operation (Reuters, 2011b). Higher risk appears to explain because of its higher beta and higher debt to equity ratio which puts investors in a cautious mode. Balancing returns and risks appears to a financial concern that must be addressed. 3.0 Conclusion and Final Recommendation The current situation of the company was the result of resolutions of problems it has faced in the past and parts of which may have continued in the present. What has led the company to experience structural and organizational changes can be classified as external and internal factors. The structural changes were to make the organization leaner and more responsive to changes happening to the company’s external environment particularly the changes in regulation and technology. The internal environment can be considered to have come from shareholders and management needing to find a place in a fast changing world. The current performance/ productivity and effectiveness of the company in terms of profitability, efficiency, liquidity, solvency and price-earnings ratio happened as the result of the changes it its organizational structure. Changing the organizational structure was therefore a kind of strategy that was needed. Nokias wealth maximization objective appears not optimal in terms of behavior of its stock price and price earnings ratio in relation to the industry and this should mean Nokia to pause and reconsider the risks inherent in the industry of fast changing environment. Sources: Nokia (2011a, 2011b , 2011c, Reuters,2011a) Appendix B – Stock Price Graph of Nokia, Source (Reuters, 2011b) References Ewing, J. (2007). Why Nokia Is Leaving Moto in the Dust (Extended). Retrieved 28 May 2011 from http://www.businessweek.com/magazine/content/07_31/b4044050.htm Housepricecrash, 2011. EURO base rate. Retrieved 28 May 2011 from < http://www.housepricecrash.co.uk/base-rates.php > Johnson, et al (2003). Financial Accounting. Tata McGraw-Hill Marks, E. (2002) Business Darwinism: evolve or dissolve, adaptive strategies . John Wiley and Sons Nokia (2011a). Annual Report 2010. Retrieved 28 May 2011 from < http://www.nokia.com/NOKIA_COM_1/About_Nokia/Financials/form20-f_10.pdf> Nokia (2011b). Annual Report 2008. Retrieved 28 May 2011 from < http://www.nokia.com/NOKIA_COM_1/About_Nokia/Financials/form20-f_08.pdf> Nokia (2011c). Annual Report 2006. Retrieved 28 May 2011 from < http://www.nokia.com/NOKIA_COM_1/About_Nokia/Financials/form20-f_06.pdf> Nokia (2011d). Press Release: Nokia Networks takes strong measures to reduce costs, improve profitability and strengthen leadership position. Retrieved 28 May 2011 from < http://press.nokia.com/2003/04/10/nokia-networks-takes-strong-measures-to-reduce-costs-improve-profitability-and-strengthen-leadership-position/> Nokia (2011e). 2010 Annual Results. . Retrieved 28 May 2011 from < http://www.nokia.com/results/Nokia_results2010Q4e.pdf> Reuters (2011a). Industry Ratios. . Retrieved 28 May 2011 from http://www.reuters.com/finance/stocks/financialHighlights?symbol=NOK.N Reuters (2011b). Stock Price Graph of Nokia Retrieved 28 May 2011 from < http://www.reuters.com/finance/stocks/chart?symbol=NOK.N > Steinbock, D. (2010). Winning Across Global Markets: How Nokia Creates Strategic Advantage in a Fast-Changing World. John Wiley and Sons Whittington, R. (2001).What is strategy, and does it matter?. Cengage Learning EMEA Read More
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