This report examines the core competencies that contribute most significantly to Nokia’s competitive advantage. These consist of organisational culture and research and development. Nokia’s competitive advantage will be analysed based on corporate brand and products and services base, then personal analysis reported.
2.0 Theoretical idea of core competencies
Firms possess competencies through efficient use of resources and are required for firms to compete. ‘Core competencies are attributes that an organisation possesses which in turn allows it to achieve competitive advantage’ (Prahalad & Hamel, 1990 cited Henry. A, 2008).
There is differential performance between companies in the same industry, due to individual core competencies since the environment is constant. In 2008, Dell had the largest market share in UK PC market (Datamonitor, 2009), with core competencies in its value chain giving competitive advantage (Henry. A, 2008). Core competencies should be appropriable so those who provide the attributes for the competitive advantage should reap benefits (Kay. J, 1993 cited Open University, 2009).
The key is not to focus on all competencies just ones that add most value and competitive advantage. Collis and Montgomery (1997) identified some attributes within the organisation are more useful for gaining sustainable competitive advantage (Henry, 2008). The features of useful attributes are that they help provide value to customers, are unique and difficult to imitate (Collis & Montgomery, 1997, cited Hooley. G et al, 2008) as seen in figure 1.
Other theorists support this identification, Prahalad and Hamel (1990) identified three tests for core competencies:
1. A core competence should provide access to a wide variety of markets.
2. A core competence should make a significant contribution to perceived customer benefits of end products.
3. A core competence should be difficult for competitors to imitate.
(Prahalad cited The Free Library, 2002).
Hamel and Prahalad (The Free Library, 2002) identified core competencies should not remain static whilst the environment changes. Core competencies enable production of new products and services and increase customer relationship management, they should be envied by competitors but difficult to replicate (Hooley. G et al, 2008).
Shangri La Hotels have a stronger customer relationship than their competitors (Datamonitor, 2009) their mission ‘Delighting customers each and every time’ (Shangri-La Hotels and Resorts, 2009).
2.1 Nokia’s core competencies
Nokia has many competencies but due to recent success appears to focus on the right core competencies to gain competitive advantage. The two significant ones are organisational culture (Blau. J, 2003) and investment in research and development (Nokia, 2009). Organisational culture is a core competence and source of sustainable competitive advantage (Barney, 1986b, cited Hamel. G & Heene. A,1994).
2.1.1 Nokia’s organisational culture
Nokia, unlike competitors, is innovative and entrepreneurial by adopting the correct culture (Blau. J, 2003). Within the organisation entrepreneurship is encouraged by managers open to employee suggestions for new products and services, this allows continuous learning, there is also a feedback process for employees engaging in new ideas (Blau. J, 2003).
VP Niitamo, Chair of European Living Labs Portfolio, “Some of Nokia’s success, is from continuously bringing in young, talented people, without pushing them down one particular career path” (Blau. J, 2003). For this to take place they must have shared vision to ensure full commitment from employees (Kanter, 1983 cited Henry. A, 2008).
2.1.2 Nokia’s research and development
Another core competency is Nokia’s research and development. Nokia employs 51,750 people, over one third is made up of people in research and development. The company employs approximately 1,000 new people in research and development each year, aiming for those who have new skills (Blau. J, 2003). Nokia’s extensive research and development enables it to create ‘trusted consumer relationships’, the ‘best mobile devices everywhere’ and ‘context enriched services’ (Nokia, 2009).
3.0 Theoretical idea of competitive advantage
Competitive advantage “results from matching core competencies to opportunities” (Business Dictionary, 2009). Many 2000 dot.com failures were companies identifying the opportunity but not having competencies to achieve competitive advantage (Hooley. G et al, 2008).
Companies can achieve competitive advantage by charging higher prices for increased value products and services or offering the same products and services as competitors at lower prices (Porter. M. E, 1985).
Differences between rival products and services have become narrow, so companies need to find new ways of distinguishing themselves in customers’ minds. Companies can use brands to be distinctive compared with competitors, and create a relationship with customers for competitive advantage (Chailan. C, 2008).
In 2008, the airline industry saw JetBlue’s new experience based differentiation after they created T5 terminal at JFK. T5 added brand value by augmenting the service with additional and complementary features (DDB, 2009).
Companies should look for sustainability; competitive advantage that competitors are unable to imitate (Barney, 1991 cited Henry. A, 2008). Tesco uses vendor managed inventory and builds relationships with suppliers such as Nestle and Coca Cola to improve availability, providing competitive advantage for those involved, however unsustainable (William Reed Business Media Ltd, 2009).
Figure 2 identifies the relationship between core competencies and competitive advantage. Although core competencies lead to competitive advantages this may be indirect by developing core products or services.
3.1 Nokia’s competitive advantage
Nokia is currently worldwide largest mobile phone maker, therefore they must have significant core competencies to gain competitive advantage (Yahoo Finance, 2009).
Nokia’s competitive advantage “is based on scale, brand and services” (Nokia, 2008).
3.1.1 Nokia’s brand value
After wavering in 2004, Nokia came back to build an outstanding reputation through a 12% increase in brand value and became fifth top brand (Kiley. D, 2007). Nokia currently has number one brand in many markets worldwide (Temporal. P & Davies. R, 2009).
Nokia’s organisational culture contributed to its corporate brand since employees and processes are reflected in the brand (Temporal. P, 2009).
Nokia’s research and development assisted in creating brand value by keeping up to date with evolving consumer demands and is recognised as a company that provides consumers with the desired products and services. NRC, Nokia’s innovations hub invests at least 5% of the annual research and development budget. Innovations are created for commercial purposes after three to five years development (Samuels. M, 2006).
3.1.2 Nokia’s products and services
Ideas need to align with organisational culture, therefore this must be correct to generate desired products and services (Henry. A, 2008). Organisational culture is reflected in products and services through processes and procedures, this led to sustainable competitive advantage. The knowledge possessed by employees cannot be easily transferred, groups of employees would be required for a fraction of the knowledge (Argote. L & Ingram. P, 2000).
Nokia’s research and development continuously improves and generates new products, this is essential as Nokia’s markets became highly competitive over the last decade with entrants such as Apple iPhone (Ward. A, 2009). In 2002 Nokia received the Frost and Sullivan market engineering award for its secure access system innovation which was ‘an exceptionally evolved product’ (BNET,2003 & Calif. S. J, 2002).
4.0 Critical analysis
I conclude that Nokia has effectively developed competencies into core competencies to develop sustainable competitive advantage.
I consider Nokia to have core competencies in particular organisational culture and research and development, contributing most to Nokia’s competitive advantage. The organisational culture is quite unique among competitors, yet as industry leader so they must be doing the right things internally in relation to the external industry. Other companies should steer away from the negative image that innovative organisations are only effective in small organisations and implement some of Nokia’s techniques to reduce differential performance between them. However, I realise this will only be effective if there are shared values and commitment from the entire organisation as with Nokia. Organisational culture cannot be easily learned so this must create sustainable competitive advantage until competitors have developed their culture more effectively.
Nokia invests heavily in research and development which is reflected in its product and service offering which is outstanding, therefore I see it as a worthwhile investment. I have identified that Nokia doesn’t just employ people for research and development, it supports them and develops their knowledge base to benefit the company.
I identified Nokia’s main competitive advantage being brand value and product and service offering. I recognise that Nokia successfully achieved competitive advantage of its brand organisational culture and the beliefs and practices adopted by the company. Nokia must continue to do the right things such as ethical behaviour in the work place or the brand will be tarnished and will be difficult to rebuild unless its loyal customer base sticks by regardless which I find doubtful.
Nokia’s other competitive advantage consists developing latest product designs and outperforming rivals through services. I do not consider this sustainable, despite Nokia’s investments in research and development. Product innovation in the mobile phone industry is the main contributor to growth, through replacement sales (Cassell. J, 2004). This is likely to remain the case as the market is already saturated, therefore I feel Nokia won’t maintain this level of competition as rival companies would invest more into research and development to compete.
Overall, I find Nokia making best use of its core competencies to gain competitive advantage but don’t believe it will continue to be industry leader without enhancing its core competencies to meet evolving demands.
In conclusion it has been analysed that Nokia has several core competencies, the most significant being organisational culture and investment in research and development. These core competencies led to competitive advantage in the form of strong brand image and exceptional product and service offerings. Although this is currently the case for Nokia within the mobile phone industry, they may not be sustainable as will be identified over time.