Industry Background The mobile phone industry is rapidly evolving due to the need for a faster infrastructure and

more computer-like devices. Efficient access to data is essentially the driving force within the industry, but how do firms compete to differentiate their products as network stability becomes more uniform? In 1987, the Global System for Mobile communications (GSM) was adopted as the European standard for digital mobile technology (Nokia - First GSM Call). Nokia, which had invested heavily into developing GSM, capitalized on its expertise of the new standard and bridged knowledge to be the cornerstone of its international success. By 1992, when Jorma Ollila became President and CEO of Nokia, the company decided to focus on telecommunications and move out of its other business sectors consisting of rubber, cable, and consumer electronics (Nokia - Jorma Ollila). Nokias business decisions became predominantly focused around manufacturing mobile phones and manufacturing telecommunications systems (Nokia Jorma Ollila). Due to this strategic change, Nokia saw a shift from more than a quarter of its turnover coming from Finland, to a huge increase in sales from North America, South America, and Asia. In just 6 short years, Nokia sales increased from EUR 6.5 billion to EUR 31 billion between 1996 and 2001 (Nokia - Leading the World). By 2007, Nokia was recognized as the 5th most valued brand in the world, but what has happened since then (Nokia Leading the World)? Why does Apples iPhone, which barely holds 4% of the market share, control over half of the profits and what can mobile phone manufactures do to increase their own profits (Blazing Platforms 1)?

Business Decision Faced Nokia was faced with the decision concerning how to turn itself from primarily an expert in hardware manufacturing to a provider of software and services capable of competing with I-Phone and Google Android operating systems. Nokia must decide whether it should continue developing its own operating system for smartphones, or partner with Microsoft or Google Android (Blazing Platforms 1). Knowing that American ingenuity would be hard to beat; Nokia eventually chose to partner with Microsoft.

Decision Antecedents Nokia was the premier cell phone producing company leading up to the rapid change in the industry in 2007. In order to figure out why a company has been successful, it is important to analyze where the competitive advantage lies. For Nokia, two advantages helped distinguish it from the competition before 2007. The first competitive advantage involves the European dominated cell phone

industry in terms of sales. Nokia, being a European company, gave them a logistical advantage over international competition. The second and most important competitive advantage pre-2007 was Nokias dominant ability to produce phones faster and cheaper than the competition. Before Nokias rise to being an industry leader, cell phones were complicated and expensive pieces of equipment that only wealthy individuals could afford. During the 1990s, firms were successful if they could rapidly produce equipment and get them into the hands of the customer for a decent price. Since phones only placed and received calls, hardware drove the industry. Unfortunately for Nokia, software began fueling the cell phone industry post-2007. Nokia still dominates the hardware aspect of mobile phones; its software just does not cut it for most consumers. According to Stephen Elop, Nokias new CEO and former Microsoft executive, We are standing on a burning platform If Nokia did not want to be consumed by the flames, it had no choice but to plunge into the icy waters below (Blazing Platforms 1). Nokia realized the cellphone industry was changing and was working on a touch-screen phone much like the iPhone in early 2004 (Blazing Platforms 1). It even launched Ovi, an online storefront for mobile applications in 2007, a year before Apple opened its App Store (Blazing Platforms 1). Companies such as Apple and Google have developed overarching technological platforms that have not only driven the mobile phone software industry, but the computer and tablet industries as well. By the summer of this year, 2011, Google plans on releasing its Chrome operating system as a third choice for consumers, who recently have really had only two choices for computers, Macs or PCs (Troy Wolverton 1). Although the initial launch of Chrome OS does not show many signs of overtaking Apples or Microsofts operating system, Google is trying to make the process easier for downloading programs by creating an app store on its website similar to the one for its Android phones, in which users can choose from about 1,000 mostly free games, news programs and utilities (Troy Wolverton 1). The idea is that as computers and mobile devices become more integrated, so must the software, which poses an interesting dilemma if Nokia decides to stay on course with its current smartphone platform. These threats from software producers resulted in the need for Nokia devices to seamlessly sync with computers and other tablet devices. Leading up to the decision to join with Microsoft, Nokia poured money into R&D to try and become competitive with Apple and Android. Evidence from the last few years have shown that Nokia is failing miserably at this goal. Symbian-related research costs for Nokia reached about $1.4 billion last year, with more than a third of its 17,200 R&D workforce assigned to the operating system, according to Sanford C. Bernstein & Co (Ice Castle). Apple spent $772 million on the iPhone in 2010, when it introduced the iPhone 4, according to the broker (Ice Castle). These numbers show that Nokia is

spending almost twice as much for software than the competition, while performing well below the industry standard. This business model is not sustainable.

Alternatives Nokia was really only faced with two options to remain viable if they decided not to pair with Microsoft. The first decision would be to institute Googles operating system known as Android. The Android operating system is open source software. Open source software refers to applications developed in which the user can access and alter the source code itself (about.com). By using Android, Nokia could simply alter the previously existing software to run specific to their devices. The advantage of using the Android OS is the huge R&D savings. In addition to the money saved on R&D, Nokia would instantly have a platform that has brand recognition with the public to market with their future handsets. Unfortunately, Nokia ended up avoiding the Android system. Google allows use of the operating system for free as long as the handset comes equipped with Googles own mobile services and advertising (Blazing Platforms 2). By allowing Google to implement these features, Nokia would instantly undermine the software services it has spent billions of dollars developing over past few years. The second option consists of Nokia continuing to develop their software in-house. As mentioned in the antecedents, Nokia has historically proven that this is not a viable option. Nokia has lost the competitive advantage logistically due to the fact that intellectual capital has become far more important in the cell phone industry. Due to the excellent talent located in Silicon Valley, Nokia has even contemplated keeping R&D internal, firing senior managers, and moving the headquarters to Silicon Valley (Blazing Platforms 1). The disadvantage to making such a drastic decision would be the decreased morale for Nokia employees, as well as the cost of trying to attract talent that most likely already possesses established relationships with the competition. Partnering with Android was clearly the only other viable option for the success of Nokia.

Opinions/Recommendations Given the available alternatives, Nokia has chosen the best possible path towards any future profitability. Nokia clearly fell way behind in the cell phone industry. The case shows that in the technology industry being the leader one year can be quickly followed by bankruptcy if business leaders do not adapt to change. The danger for Nokia will be if they let Microsoft take complete control, said Mario Bellusci, a Milan-based technology fund manager for Eurizon Capital, which holds Nokia shares. If

Nokia goes down the Hewlett-Packard route and starts to drastically cut R&D for short-term profitability, in the long term they will suffer a lot. (Ice Castle) The previous comments really seem to make no sense from a business strategy standpoint. It is constantly mentioned that Nokia is a premier manufacturer and strongly lacks a strong and efficient R&D department. Keeping R&D in house will lead to no profitability in our opinion. By letting Microsoft take the bulk of the operating system development, Nokia can narrow their R&D focus and use Microsofts expertise to gain the expertise previously lacked. The savings from R&D can be shifted towards marketing in order to gain a better understanding of its customers preferences in addition to reviving a somewhat damaged brand image. For example, take Indias Micromax Informatics Ltd, which is challenging Nokias leadership in the worlds second-largest mobile-phone market. Employing 12 people in R&D and using off-the-shelf technology from Taiwan and China, it makes cheap phones with features sought by Indians including slots to insert multiple SIM cards to carry multiple phone number. One such customer, 28- year old software engineer Pradip Bakshi, checked out Nokia phones in New Delhi last week, called them boring before taking off with a $130 Micromax device. (Ice Castle) This is a perfect example of how Nokia has lost touch with its customers. The Microsoft partnership lets both companies focus on their competitive strengths. Nokia needs to really focus on addressing its customers needs so it can use its logistical and production expertise. If Nokia can ascertain higher customer satisfaction, it can begin to squeeze higher margins out of its operations. Considering Nokia produces around a third of handsets worldwide, even a small increase could translate into massive profit potential.

I appreciate your group taking a stand contrary to the wisdom of the experts. Basing your decision on what you view as Nokias strengths and weaknesses is the point of the entire class. Take a stand; justify your stance. Be successful in your position and conviction. 100%.

Works Cited "Nokia - First GSM Call - The Move to Mobile - Story of Nokia - Company - About Nokia." Nokia Nokia on the Web. Web. 27 Apr. 2011. <http://www.nokia.com/about-nokia/company/story-ofnokia/the-move-to-mobile/first-gsm-call>. "Nokia - Jorma Ollila - Mobile Revolution - Story of Nokia - Company - About Nokia." Nokia Nokia on the Web. Web. 27 Apr. 2011. <http://www.nokia.com/about-nokia/company/story-ofnokia/mobile-revolution/jorma-ollila>. "Nokia - Leading the World - Mobile Revolution - Story of Nokia - Company - About Nokia." Nokia - Nokia on the Web. Web. 27 Apr. 2011. <http://www.nokia.com/about-nokia/company/story-ofnokia/mobile-revolution/leading-the-world>. Troy Wolverton. "No threat from Google OS; Radically different Chrome operating system offers neat features -- and limitations. " The Ottawa Citizen 21 Dec. 2010, ProQuest Newsstand, ProQuest. Web. 27 Apr. 2011. Wolfe, Lahle. "Open Source - Definition of Open Source Software Applications." Women in Business - Women Owned Businesses. Web. 28 Apr. 2011. <http://womeninbusiness .about.com/od/seoandinternetterms/g/g-opensource.htm>.