MICROSOFT’S ACQUISITION OF NOKIA

  • Category:
    Business
  • Document type:
    Case Study
  • Level:
    Masters
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    6
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    3782

16MICROSOFT’S ACQUISITION OF NOKIA

MICROSOFT’S ACQUISITION OF NOKIA

MICROSOFT’S ACQUISITION OF NOKIA

Table of Contents

Case Abstract 3

Core Risk Principle 4

Risk Theme Discussion 5

Recommendations 14

References 16

Case Abstract

This research is significant because it discusses and analyzes various risk issues concerning the case of Microsoft acquiring Nokia. The acquisition of Nokia devices and services cost Microsoft Corporation $7.2 billion, and this was considered as the greatest move towards strengthening the market of Microsoft phone markets across the globe. This step as well was in response to the domination of the global markets by the devices and applications running on Android operating system and iOS.

The purpose of the research is to cover three main sections namely; core risk principle, risk theme discussion, and recommendations. The core risk principle introduces the whole issue of risk associated with the case of Microsoft acquiring the Nokia devices and services. As well, this section summarizes the relevance of the risk theme. Then it ends up with the identification of the underlying problems in the case study. The second section is the primary part of the work. Firstly, the section covers the theme by discussing issues such as when the incidence occurred, how and why it happened. Then it also includes various solutions that are identified. The last section is the recommendation and conclusion of the case study. It summarizes the issues identified as well as the identified solutions.

One of the most imperative methods used in the research is the analysis of the available information authored by various scholars and researchers. The primary sources of information utilized include journals, academic books, case studies, and lecture notes. The findings or the results of the research indicated that it is crucial to understand that every organization in business strive for growth and development. As a result, like Microsoft acquired Nokia devices and services, various companies have adopted different mechanisms to achieve the desired success. Most of the successful organizations have adopted change and restructuring of various processes to exploit the existing advantages and strengths. In conclusion, the research portrayed that one of the most significant and applied strategy for success is Mergers and Acquisitions (M & A), which has substantially structured various industries and the marketplace. The acquisition of Nokia services and Devices by Microsoft is one of the most popular and recent form of merger and acquisition deal.

Core Risk Principle

One of the main concepts, in this case, is the risks associated with the restructuring of Microsoft. Corporate restructuring is one of the business strategies that are aimed at primarily increasing the company’s long-term profitability. Several key issues must be expounded between the two companies. Firstly, it is crucial to comprehend that Nokia Corporation operates a business in four main categories namely; enterprise solutions, mobile phones, multimedia, and networks. There are several reasons Microsoft opted for this acquisition. One of the most significant objectives was to remain competitive in the global market. The growth and development in the technological advancements and innovation are ever expanding, and companies such as Apple Inc. have substantially incorporated it.

The main risk that Microsoft faced in this acquisition is the associated uncertainty associated with the whole strategy. Financial analysts indicated that they were very uncertain on the expected income generated by Microsoft after acquiring Nokia Corporation. As well, the other risk involved the satisfaction of the needs of the shareholders. Other financial analysts saw this as a potential to opportunity for Microsoft Company. According to Shri Dharmasthala Manjunatheshwara Research Centre for Management Studies (SDMRCMS); “Empirical evidence suggests that of all the mergers and acquisitions (M&A), ¾ ends up being failures” (SDMRCMS, 2015). Therefore, this raises the big concern whether Microsoft was aware of this statistic which makes the whole endeavor very risky.

Risk Theme Discussion

The plan for the strategic alliance between Microsoft, one of the largest handset seller, and Nokia was announced on February 11th, 2011. In this Merger and Acquisition (M&A), Nokia was expected to adopt Microsoft’s Window Phone OS as the primary platform whereas Microsoft Corporation provides the technical, financial, and marketing support required by Nokia. As such, there is a substantial need to understand the reasons for the acquisition. One of the main issues of concern is the lack of uptake momentum of the new Windows phone system. In early 2000, Microsoft was one of the primary sellers of PDA and smartphones. Conversely, some key features made Microsoft competitive in this market. The main characteristic is the richness in features whereby the Microsoft products have unique and desirable features as compared to other manufacturers (Ali-Yrkkö at al., 2013).

The other feature is that they had a very strong customer base due to the “Windows” brand which is preferred by the majority of the customers across the globe. Finally, there are various varieties of smartphone manufacturers supporting the system. Some of the most common manufacturers include HTC, Samsung, and HP. It is imperative to note that there various innovative changes that have occurred in the mobile industry. One of the changes happened in 2007 when Apple Inc. introduced the first generation of Apple iPhone, which substantially changed the mobile landscape. As well, the button-based models have been replaced by the simple touch interaction which makes user experience high (Armstrong, Mueller, & Syrett, 2014).

Research indicates that windows phone devices are mainly considered as less favorable by the clients all over the world. However, to respond to this, Microsoft launched Windows Phone 7 in 2010. This is substantially increased the number of customers of the Microsoft products since the new model had some advantages as compared to Android versions and IOS models. One of the main benefits is that Microsoft products such as smartphones are known for high social integration. It has excellent functionalities and capabilities supporting efficient running of social media platforms such as Facebook, Twitter, and LinkedIn. In addition to the above, these products have an excellent integration of Office which makes it usable in various sectors such as education and research and development.

Thus, the biggest risk is that Microsoft came into the market that was heavily dominated by Android and IOS products. As such, this called upon the management to initiate effective strategies that can enable them to survive the competitive global markets. One challenge with the Microsoft was the high royalty fees which substantially discouraged most of the smartphone investors from investing in the new platform. Thus, this had an adverse impact since it led to the small uptake of these products in the global markets.

Besides, it is imperative to discuss the SWOT analysis of both Microsoft and Nokia to expound on its acquisition and various risks themes that can be

The Strengths

One of the most significant advantages of Microsoft is the dominance of the desktop OS and office productivity markets across the globe. Most of the desktops used in industries, institutions of learning, healthcare facilities, and other organizations use Microsoft products. The second strength is that Microsoft has high brand awareness across the globe. Most of the people aware of technology and related products substantially know and must have used Microsoft products. The third strength involves the fact that the Corporation has a strong financial base. The main reason the acquisition of Nokia was possible is that the Microsoft Corporation had all the necessary resources and finances to make more profits from the venture. As well, the corporation has strong research and development facilities and teams. The team of professionals who assesses, analyze, and report on various issues on the global and local markets. Finally, it is profound to note that Microsoft has a very strong relationship with the hardware manufacturers. For instance, they frequently communicate with PC hardware manufacturer to ensure that the relationship is strengthened (DePamphilis, 2009).

The Weaknesses

These are among the challenges that led Microsoft to acquire Nokia devices and services. Firstly, Windows Mobile is no longer competitive in the global markets. This is primary because the competitors such as Android and IOS have substantially advanced their strategies. The second issue concerns company bureaucracy, whereby the management fails to recognize the skills and potentials of the employees and other stakeholders. The other challenge faced by Microsoft is the frequent movement of employees from one department to another. One of the implications of this technique is that the employee lacks long-term commitment to the specific roles assigned. As well, it reduces employee’s dedication to the field of expertise and the associated task.

The other weakness of the corporation is the majority of the software solutions are based on the client-side software installations. The current problems are very complicated, and there is a substantial need for the company to adopt cloud-based and service-based solutions to enhance the achievement of success. Finally, the corporation takes a long time to market its products, and challenges concerning the usability and quality of the products are still a prevalent issue. Additionally, the company still has business ethics difficulties and lack of software openness which all amounts to weaknesses.

The Opportunities

One of the essential opportunities that need to be explored by Microsoft Company is cloud based solutions. Most of the problems in the contemporary society are complicated and thus requires better solutions to reach amicable solutions. The second opportunity is that the Corporation should leverage traditional strengths on office products and mobile solutions. The acquisition of Nokia devices and services was one of the possibilities that the corporation explored and utilized effectively. Finally, the greatest opportunity is that they should seek to service-based business model. As such, there is a substantial need for them to minimize or eliminate the use of licensed-based model though the associated risks must be managed effectively (Ali-Yrkkö at al., 2013).

The Threats

Competition in the global markets is one of the threats that forced Microsoft Company to acquire Nokia Corporation. It is crucial to note that there is fierce competition as various companies use innovative strategies to overcome the competitor. One of the competitive sectors is the software industry whereby companies using Android and IOS platforms are the primary competitors of Microsoft. The second most significant threat is the frequent change in customer behavior. This makes it very difficult to analyze the market and making effective decisions on products is a difficult problem to the research and development team. As well, this is closely intertwined with the changes in the market needs. For instance, most of the industries require cloud-based solutions due to the advancement in technology and related products. On the other hand, other industries are interested in service-based solutions depending on the complexities of their challenges (Samridhi, 2015).

The other threat is a loss of competitiveness in the global markets which adverse implications. One of the risks associated with this risk is that the Corporation may end up losing its bargaining power or at worst this may end up in customer boycotts.

The SWOT analysis of Nokia

The Strengths

The most necessary strength of Nokia is the dominance of the entry level feature, and Symbian phones in both developed and emerging markets. This is a clear suggestion that Nokia Company had a very strong customer base. Nokia Corporation as well is a company that has very high brand awareness worldwide. As a result, by acquiring it, the Microsoft Corporation substantially takes the risk of improving their brand awareness. In addition to the above, the company has a high status of industrial hardware design and quality. Nokia customers, on the other hand, demonstrated very strong brand loyalty. Another stronghold of the Nokia Corporation that must have enticed Microsoft is the fact that the company has a well-established connection with the worldwide network carriers. It also has adamant research and development teams that play a vital role in the discovery of innovative solutions to be implemented by the company. Hence, this is the team that is regarded to embrace a significant aspect of openness in the development of software. Finally, it is crucial to note that Nokia Corporation has well-established regional marketing and sales network.

Nokia Weakness

The main weakness of the Nokia Corporation that must have led to its sale is its short-sighted and inward-looking vision. A company such as Microsoft has a long-sighted and compelling vision that makes it very effective and profitable in the market. The other weakness is organizational bureaucracy, whereby there are various approval processes such that decision making is tedious and ineffective. In addition to the above, there are various communication challenges between teams. This has negative implications such as making effective decisions that affect the organization processes. The other challenge with this company is that there are long product development cycles which translate to a long time to market. On the other hand, the company failed in commercializing most of its Research and development findings (Lin & Ye, 2009).

The opportunities

If the Nokia Corporation had revolutionized user experience, they should have been in a position to retain the high loyalty customers. As such, Microsoft took the risky initiative to revolutionize the mobile user experience after acquiring Nokia to make more profits. The company also had the opportunity to join or build a better mobile ecosystem to enhance their performance. This is the initiative that Microsoft had in mind when the acquire Nokia rather that beginning on other products fresh. Other competitive advantage features that could have been explored by the company include the superb camera and the high-tech applications and imaging technologies. Finally, the last opportunity that existed was that Nokia could have explored the markets that were not dominated by the primary competitors. These include Android and IPhone since they have smaller market shares in other regions of the world. As a result, Microsoft must have taken the risky initiative of acquiring Nokia so as to maximize on the regions that are not dominated by the competitors.

The Threats

It is worth noting that Nokia Corporation faced various threats before being acquired by Microsoft. One of the most significant threats is competition from companies such as Apple, Samsung, and other smartphone manufacturers. Also, there was increased expectation from the clients after the competitor introduced disruptive features in the market. As well, the introduction of smartphones with new capabilities and functionalities led to the substantial fall in the demand for lower level entry phones. As earlier stated, Nokia depended much on the entry level phones for its high customer base.

The objectives of the acquisition

The primary objective of this risky deal was to ensure that the overall Windows phone manufacturing capacity is substantially increased. The second objective was to drive a higher customer demand for the Windows Phone devices. Thus, the deal was to ensure that the number of clients across the globe is substantially increased. On the other hand, the deal was to ensure that the products of both companies are further integrated to achieve the best results in the competitive markets. As such, this was expected to increase the revenue generated from the sale of these products to various markets both locally and globally.

In addition to the above, it is essential to note some of the key details of the acquisition. The first aspect is that Microsoft’s platform support payments to Nokia. The support payment was to be made on quarterly basis despite the fact that Microsoft did not adequately permit Nokia to use Windows Phone OS. They were only allowed to customize the operating system and make it unique from the competitor products (Samridhi, 2015).

Another imperative aspect of the acquisition is the integration of Nokia and Microsoft services. It is profound to note that both companies have different business operations. However, some business operations have substantially similar functionalities, target audience, and overlapping nature. As such, various products and services had to be integrated with the objective of effectively utilizing complementary assets. An example of the integration is whereby Nokia could use the Microsoft’s Bing search. On the other hand, Microsoft could utilize the Nokia Maps database.

In summary, the above information demonstrates three main risk issues associated with Microsoft- Nokia collaboration. One of the main risk issues concerns operational performance whereby research reveals that there has been an increased sale of Windows phone since it was launched. In countries such as Europe, Asia, and Africa more Windows Phone devices were shipped as compared to other products such as Apple. Amanda asserts that “Among the Windows Phone devices collected from over 2000 applications on the platform in November 2013, it was estimated that up to 90% were from Nokia. Having said so, 35% of the figures were collected from the low-end Nokia Lumia 520, which has a lower profit margin” (Amanda, 2014 pp.13). The increase in sales of the Windows Phone products was primarily stimulated by the innovative features and other competitive advantage and unique characteristics in the market.

The other critical risk issue is the practical challenges. It is profound to note that Nokia’s and Microsoft’s share in the smartphone had not reached the best levels expected or ever achieved in history. As such, despite the strategic collaboration in various development processes, there were substantial practical challenges experienced. The two companies had a different sense of urgency, priorities, and expectations during the acquisition. As a result, this led to the variation in the allocation of resources in the development of the Windows Phone Platform. Besides, it is sentimental to comprehend that Microsoft depends mainly on the sale of the office productivity suites, enterprise solutions, and desktop Windows OS and server software.

Hence, this is a clear suggestion that indication that Microsoft does not depend heavily on mobile technology solutions in the generation of income. The acquisition of Nokia as well was not an exclusive deal, meaning that any company with a wish of manufacturing Windows Phone was welcomed. Conversely, Nokia took this deal as a rescue operation supposed to save them from the rapid decline in the mobile business. This as well compelled Nokia to take very risky strategies with an objective of rescuing their business from the rapid declining. Some of the most significant strategies implemented include laying off several employees, abandonment of the Symbian platform, and the Selling out of Symbian.

The last aspect of risk that needed substantial risk management techniques involves the financial performance, especially at Microsoft Corporation. It is imperative to note that the New York stock exchange indicated a gradual increase in the financial performance of Microsoft since the announcement of the acquisition. According to Amanda, “In the fiscal year 2013 (ending on June 30, 2013), revenue generated by Windows Phone increased USD 1.2 billion compared to last year, mainly due to increase in patent licensing revenue and sales of Windows Phone licenses” (Amanda, 2014 pp.17). On the contrary, the expenses in the form of payments made to Nokia Corporation as well substantially increased.

Recommendations

There are various challenges that that led Microsoft to acquire Nokia devices and services. Firstly, Windows Mobile is no longer competitive in the global markets. This is primarily because the competitors such as Android and IOS have substantially advanced their strategies. The second issue concerns company bureaucracy, whereby the management fails to recognize the skills and potentials of the employees and other stakeholders. The other challenge faced by Microsoft is the frequent movement of employees from one department to another. One of the implications of this technique is that the employee lacks long-term commitment to the specific roles assigned. As well, it reduces employee’s dedication to the field of expertise and the associated task.

On the other hand, the most necessary strength of Nokia is the dominance of the entry level feature, and Symbian phones in both developed and emerging markets. This is a clear suggestion that Nokia Company had an adamant customer base. Nokia Corporation as well is a company that has very high brand awareness worldwide. As a result, by acquiring it, the Microsoft Corporation substantially takes the risk of improving their brand awareness. In addition to the above, the company has a high status of industrial hardware design and quality. Nokia customers, on the other hand, demonstrated very strong brand loyalty.

Another stronghold of the Nokia Corporation that must have enticed Microsoft is the fact that the company has a well-established connection with the worldwide network carriers. It also has adamant research and development teams that play a vital role in the discovery of innovative solutions to be implemented by the company. Hence, this is the team that is regarded to embrace a significant aspect of openness in the development of software. Lastly, it is crucial to note that Nokia Corporation has well-established regional marketing and sales network.

However, in addition to the exploitation of the Nokia strengths, Microsoft Corporation should have also incorporated the use of innovative and unique designs to attract an increased number of customers leading to increased profitability.

In summary, I recommend that Microsoft enhance their innovativeness. There are various aspects that need to be innovated to ensure that the company remains competitive in the global markets. Some of the key areas include customer service, procurement, processing, marketing, and use of latest technology. If innovative strategies are implemented as recommended, the Corporation will be in a better position to avoid various risks such as loss of customers, in competiveness, and loss of profits. Besides, the Microsoft management needs to benchmark what other successful competitor companies are doing to enhance their performance. As a result, they will be in a better position incorporate and improve their strategies. Finally, there is a substantial need to motivate and encourage the company employees by use of rewards, incentives, and other techniques. All these strategies will be instrumental in management of any kind of risks that may affect the operations and performance of the company.

References

Amanda, H. C. (2014). The Microsoft-Nokia Strategic Alliance. University of Warwick, U.K.

Armstrong, A. K., Mueller, J. J., & Syrett, T. (2014). The smartphone royalty stack: Surveying royalty demands for the components within modern smartphones. Available at SSRN 2443848.

Ali-Yrkkö, J., Kalm, M., Pajarinen, M., Rouvinen, P., Seppälä, T., & Tahvanainen, A. J. (2013). Microsoft Acquires Nokia: Implications for the Two Companies and Finland. ETLA Brief, 16(3).

DePamphilis, D. (2009). Mergers, acquisitions, and other restructuring activities: An integrated approach to process, tools, cases, and solutions. Academic Press.

Lin, F., & Ye, W. (2009). Operating system battle in the ecosystem of smartphone industry. In Information Engineering and Electronic Commerce, 2009. IEEC’09. International Symposium on (pp. 617-621). IEEE.

Samridhi, S. (2015). Corporate Restructuring: A Case Study Of Microsoft Acquires Nokia. International Journal of Science, Technology & Management.

Shri Dharmasthala Manjunatheshwara Research Centre for Management Studies (2015). Microsoft’s Acquisition of Nokia’s Mobile Business Unit. Cases in Management Volume 4 (2015)’ with ISBN 978-93-83302-14-7