Nokia vs Apple: the ongoing Nokia vs Apple: the ongoing war in the mobile industrywar in the mobile industry

GROUP EGarcia Sobrin, Javier – Le Guennec, Xavier – Marjalaakso, Mika – Quassim Tayeb Khory, Nabil – Roveda, Massimiliano – Zakhvataev, Dmitry

OutlineOutline Industry context and desciption of corporate objectives Description of company’s marketing strategy Identification and ranking of order winners and qualifiers Operations strategy a: Identification and description of key

business processes as well as main process business policies

Operations strategy b: Identification and description of strategic infrastructure support• a) What human resources strategy is used?• b) Salaries and incentives?• c) What type of organizational structure is used?• d) What type of quality system is applied?• e) What types of planning and control systems are used?

Summary and Conclusions

What mobile phones are made of?What mobile phones are made of?

Key revenue elements:- hardware- software applications- services

Global developer community

Mobile Application

Store

Revenues are shifting from devices to applications and servicesRevenues are shifting from devices to applications and services

Industry overviewIndustry overview 2008: 3.3 billion of active mobiles worldwide (vs. 2008: 3.3 billion of active mobiles worldwide (vs.

800 million of cars, 850 million PCs, 1.3 billion 800 million of cars, 850 million PCs, 1.3 billion fixed lines, 1.4 billion credit cards, 1.5 billion TV fixed lines, 1.4 billion credit cards, 1.5 billion TV sets)sets)

2008 annual growth of the global mobile 2008 annual growth of the global mobile industry: 21% (vs 2008 global GDP growth of industry: 21% (vs 2008 global GDP growth of 4.2%) 4.2%)

900 billion of dollars of revenues (2008) for the 900 billion of dollars of revenues (2008) for the global mobile industry split as follows:global mobile industry split as follows:

a.a. 35% data content (vs 15% in 2006)35% data content (vs 15% in 2006)b.b. 65% voice (vs 85% in 2006)65% voice (vs 85% in 2006)

Industry overviewIndustry overviewThe Developed WorldThe Developed World

Purchasing criteria: from mere functionality to user experience and search Purchasing criteria: from mere functionality to user experience and search for funfor fun

Clear trend of the whole industry moving towards higher end smart and Clear trend of the whole industry moving towards higher end smart and multimedia phones multimedia phones

This has enabled the consumption of data intensive services such as web This has enabled the consumption of data intensive services such as web navigation, web access, credit card services, mobile tv broadcast etc.navigation, web access, credit card services, mobile tv broadcast etc.

Apple has lead the way in user experience and redefined the mobile value Apple has lead the way in user experience and redefined the mobile value chain for applications delivery and discovery (Apple’s app store)chain for applications delivery and discovery (Apple’s app store)

The Developing WorldThe Developing World

Purchasing criteria: cost and Purchasing criteria: cost and availabilityavailability

The low-cost mobile phones will The low-cost mobile phones will radically change how poor people radically change how poor people in developing countries access in developing countries access information first time ever (the information first time ever (the digital divide)digital divide)

The mobile phone will be the first The mobile phone will be the first device poor people use for email device poor people use for email and internet access and it will and internet access and it will also offer the first bank account also offer the first bank account for millions of people previously for millions of people previously unbankedunbanked

Nokia has led and continues to Nokia has led and continues to lead on this market segment due lead on this market segment due to its economies of scale, reach to its economies of scale, reach and unmatched brandand unmatched brand

Two parallel universes: the developed and the developing world

Industry overviewIndustry overviewPhone manufacturersPhone manufacturers

• Nokia is the world’s largest manufacturer of phone devices (39% share in Q3/ 2008).

• The followers are: Samsung (17.3%), Sony Ericsson (9%), Motorola (8%) and LG Electronics (8%).

• All the above manufacturers account for over 80% of all mobile sold.

• Apple has captures a market share of 1% only tightly

focused on the high-end

segment (multimedia phones)

Corporate objectivesCorporate objectives

NOKIA’s corporate objectives:

a. Create winning devices

b. Embrace internet

c. Deliver enterprise solutions

d. Build networks

e. Expand professional services

APPLE’s corporate objectives

a. keep coming up with proprietary products

b. Innovation

c. R&D around both hardware and software

d. Provide unique differentiations

What is the difference?

On paper the differences are few ...

Both Nokia and Apple are targeting continuos innovation and new product development

Both companies want to win the war for the leadership in the high-end segment and associated software and service revenues (same goals)

In practise ... Apple has redefined the industry with its iPhone and Nokia has not been able to follow on this high margin segment, which is the key to service revenues

Marketing StrategyMarketing StrategyPRODUCTS / PRICES

• Nokia is targeting the low-end, mid-range and high-end segments

• Nokia has a wide portfolio of phone devices (N-series) for its high-end segment with a range of different prices

• Apple is manufacturing only one device, the iPhone: perfect perfect balance between coolness and mass appealbalance between coolness and mass appeal

• There is one price for the iPhone worldwide

• Nokia was 5th in 2008 in brand ranking: spirit of constant innovation with an innate ability to segment its customers

• iPhone boosts Apple brand: increasing recognition and value

• IT community and lead users love Apple brand

Marketing StrategyMarketing Strategy2008 Rank

2007 Rank

Brand

2008 Brand Value ($m)

1 1

66,667

2 3

59,031

3 2

59,007

5 5

35,942

7 7

31,261

9 9

29,251

10 20

25,590

24 33

25,577

BRAND

2/32/3 of  Web searches of  Web searches conducted on a mobile conducted on a mobile device in the month of device in the month of February were made February were made from an iPhonefrom an iPhone

• Nokia can leverage its scale (a million phones/day)

• Nokia has the best-in-class global supply chain

• Nokia has a huge presence on the major markets (except US and Japan where it continues to struggle)

• Apple has limited number of stores worldwide (205 in USA and 42 abroad)• Apple is opening a new retail channel for iPhone• Apple has partnered with selected mobile operators to increase the reach and coverage of its distribution network for iPhone

•Apple is leveraging its Mobile Application Store (MAS) to sell mobile content: network externality effect

Marketing StrategyMarketing StrategyDISTRIBUTION

Nokia vs AppleNokia vs AppleWhy is Apple I-Phone a big threat to Nokia?

I-Phone market share in Q3/2008 grew 327.5% (vs Q3/2007).

Nokia smartphone market share in Q3/2008 fell 3.1% (from 48.7% down to 42.4%)

Nokia is loosing market share to

the competitors, mainly Apple

Winner will eventually take

the biggest share of the pie

and the leadership of the market

Nokia vs AppleNokia vs Apple

99$

199$

729€

Why is Apple I-Phone a big threat to Nokia?

Scale advantage no more• To cover high-end and mid-range Nokia

needs some 20 different products

• Apple can cover the same space with only two products based on the same product platform and differentiated through a few key features and pricing

• This mean Nokia can’t compete on scale only because Apple’s per unit volumes are at or above those of Nokia’s highest selling models

User experience and innovation lacking behind

• Nokia’s management knows exactly what it should do

• The execution, unfortunately for Nokia, has not met the talk and promises

Order qualifiersOrder qualifiers

Low-end segment:Low-end segment: Functionality: the phones must be good as Functionality: the phones must be good as

technical devicestechnical devices Availability of mobile phones: if it can't be Availability of mobile phones: if it can't be

easily purchased, there is no saleeasily purchased, there is no sale

High-end segment:High-end segment: Availability of data content: the customer Availability of data content: the customer

is looking for data content before even is looking for data content before even considering devicesconsidering devices

Image: prestige and trendinessImage: prestige and trendiness

Order winnersOrder winners

Low-end segment:Low-end segment: Cost: customers are very cost-conscious (a key Cost: customers are very cost-conscious (a key

issue in the developing world)issue in the developing world) Durability: contributes to TCODurability: contributes to TCO Reliability of the brand: lowers transaction costsReliability of the brand: lowers transaction costs

High-end segment:High-end segment: User experience: customers are choosing the User experience: customers are choosing the

device that offers the best user experiencedevice that offers the best user experience Extendability/flexibility: customers are Extendability/flexibility: customers are

continuously looking for new applications and continuously looking for new applications and services to expand the possibilities of their mobile services to expand the possibilities of their mobile phonesphones

Operation StrategyOperation StrategyNokia Supply ChainNokia Supply Chain

The industry’s leading supply chain…The industry’s leading supply chain…

…….with excellent coverage and also high levels of flexibility..with excellent coverage and also high levels of flexibility. … … Nokia is well-known for its ability, power and willingness to steer the Nokia is well-known for its ability, power and willingness to steer the

ecosystem, which is built around Nokia … in tough times, Nokia is the last ecosystem, which is built around Nokia … in tough times, Nokia is the last player whose actual profit margins will drop even the actual street prices player whose actual profit margins will drop even the actual street prices would drop like hell; the other players role is to absorb shockswould drop like hell; the other players role is to absorb shocks

While Nokia has aligned its structure once every four to five years its three core processes have largerly remained intact.

Operation StrategyOperation Strategy

Nokia has proactively invested

significant amounts to in-house manufacturing operations

had before the crisis outsourced less than 20% of their production to EMS/ODM

• primary reason: external EMS/ODM not able to match Nokia’s internal manufacturing cost

• secondary reason: flexibilityu’ a short while after the current

financial crisis exploded, showed the power and flexibility of its manufacturing strategy by insourcing practically all of the previously outsourced production

• thus enabling work and volume advantages for its internal manufacturing operations

Apple has fully (100%) outsourced its

manufacturing operations to Taiwanese based Foxconn

Foxconn is the partner of choice also for Nokia; and even with Nokia’s industry low outsourcing rate, Nokia was the single largest customer for Foxconn

Foxconn has its greatest advantages, among its peers,

• focus on the mobile phone related product development, especially the mechanical design; thus enabling outsourcing of contract R&D instead of mere production

• their high vertical integration; Foxconn manufactures a wealth of key components required for the assembly of a modern mobile phone (e.g. batteries, LCDs)

Manufacturing StrategyManufacturing Strategy

Operation StrategyOperation StrategyNokia Supply ChainNokia Supply Chain

StrengthsStrengths

Very efficient (i.e. stocks turnover)Very efficient (i.e. stocks turnover) Highly responsive to fluctuations in demandHighly responsive to fluctuations in demand Cost effectiveCost effective Time effectiveTime effective Can reach customers everywhere in the world according to the planned scheduleCan reach customers everywhere in the world according to the planned schedule Nokia has traditionally outsourced very small percentage (less than 20%) of their Nokia has traditionally outsourced very small percentage (less than 20%) of their

production to so called electronics manufacturing service companies such as Foxconn production to so called electronics manufacturing service companies such as Foxconn that both Apple and Nokia are using; this gives Nokia excellent ability to adaptthat both Apple and Nokia are using; this gives Nokia excellent ability to adapt

WeaknessesWeaknesses

Innovation blocking capability; Nokia is a logistics wonder; what if a new game Innovation blocking capability; Nokia is a logistics wonder; what if a new game changing product or idea of a revolutionary product does not match well at all with changing product or idea of a revolutionary product does not match well at all with its existing supply chain? its existing supply chain?

Operation StrategyOperation StrategyNokia Supply ChainNokia Supply Chain

Nokia can deliver reliable low cost mobile everywhereNokia can deliver reliable low cost mobile everywhere

Aligned with LOW END ORDER WINNERSAligned with LOW END ORDER WINNERS

Nokia has not lately been able to deliver innovative devices focused on Nokia has not lately been able to deliver innovative devices focused on user experience on a timely manner to match or beat the competitionuser experience on a timely manner to match or beat the competition

This, however, we believe has less to do with Nokia’s operations strategy This, however, we believe has less to do with Nokia’s operations strategy and the supply chain part of it, and more with Nokia’s corporate cultureand the supply chain part of it, and more with Nokia’s corporate culture

NOT ALIGNED with HIGH END ORDER WINNERSNOT ALIGNED with HIGH END ORDER WINNERS

• WWhhee

Operation StrategyOperation Strategy

iPhone Supply ChainiPhone Supply Chain

A simple supply chain designed A simple supply chain designed to serve the iPhone customersto serve the iPhone customers

It is estimated that material parts It is estimated that material parts come from several countries, come from several countries, travelling to China to be assembled, travelling to China to be assembled, inventoried, and then inventoried, and then

to retailers and to to retailers and to customerscustomers via purchases from the Apple Store. via purchases from the Apple Store.

Operation StrategyOperation StrategyiPhone Supply ChainiPhone Supply Chain

StrengthsStrengths

Through its Mobile Application Store (MAS) Apple has redesigned the value chain how Through its Mobile Application Store (MAS) Apple has redesigned the value chain how mobile software is delivered from the developers to usersmobile software is delivered from the developers to users

Fully outsourced manufacturing means low fixed investment (typically vendors must Fully outsourced manufacturing means low fixed investment (typically vendors must finance part of product lines taylored for their proprietary products)finance part of product lines taylored for their proprietary products)

WeaknessesWeaknesses

Cannot reach all customers everywhere cost-efficientlyCannot reach all customers everywhere cost-efficiently In theory new product introductions should be more time-consuming and complex In theory new product introductions should be more time-consuming and complex

with fully outsourced manufacturing; Apple has proved this wrongwith fully outsourced manufacturing; Apple has proved this wrong Scaling up manufacturing is not an issue with Foxconn but ramping up the Scaling up manufacturing is not an issue with Foxconn but ramping up the

distribution to get even close to Nokia’s reach and reliability takes years and is a distribution to get even close to Nokia’s reach and reliability takes years and is a multi-billlion euro investment multi-billlion euro investment

Cannot be very efficient: a disruption in one country can block the process flow and Cannot be very efficient: a disruption in one country can block the process flow and final delivery to customersfinal delivery to customers

Operation StrategyOperation Strategy

iPhone Supply ChainiPhone Supply Chain

Apple is delivering the innovative iPhone Apple is delivering the innovative iPhone device in combination with the virtual device in combination with the virtual distribution of content data (from MAS)distribution of content data (from MAS)

ALIGNED with HIGH END ORDER WINNERSALIGNED with HIGH END ORDER WINNERS

Operation StrategyOperation Strategy

Apple iPhone– Moving from market-leading MP3 players to Mobiles Apple iPhone– Moving from market-leading MP3 players to Mobiles • Inventing the future – innovations; Apple knows best how to Inventing the future – innovations; Apple knows best how to

create global hype and turn that into exploding revenuescreate global hype and turn that into exploding revenues• Focus on state-of-the-art Focus on state-of-the-art user experienceuser experience• Large amount of patentsLarge amount of patents• 2 ½ years development (industry average dev. time across 2 ½ years development (industry average dev. time across

phone categories is more than one and less than year and half)phone categories is more than one and less than year and half) Nokia – Moving from Phones to Software and ServicesNokia – Moving from Phones to Software and Services

• User experience and transition to software service business User experience and transition to software service business will be a key challenge for Nokiawill be a key challenge for Nokia

• Worldwide network of R&DWorldwide network of R&D• Modularity and reusability cascading from high end to lower Modularity and reusability cascading from high end to lower

endend• Network management strategy at company level (acquisition, Network management strategy at company level (acquisition,

cooperation, alliances)cooperation, alliances)

CrossoversCrossovers

Operation StrategyOperation Strategy Apple – smaller volume, few products, highest qualityApple – smaller volume, few products, highest quality

• Controlled design in California - control of Supply from mfg goods to Controlled design in California - control of Supply from mfg goods to customerscustomers

• Key bidding processesKey bidding processes• Outsource to Foxconn (Taiwan & China) – Capacity 800k per week. Re-Outsource to Foxconn (Taiwan & China) – Capacity 800k per week. Re-

outsource to Quantum for peak demandoutsource to Quantum for peak demand• Initial expected cost around $250, sold around $400 (before subsidies)Initial expected cost around $250, sold around $400 (before subsidies)

Nokia – big volume, many products, highest qualityNokia – big volume, many products, highest quality• Phones are built around so called phone engines (key functionality, radio Phones are built around so called phone engines (key functionality, radio

processing module, applications processor), which are leveraged across processing module, applications processor), which are leveraged across distinct phone modelsdistinct phone models

• Controls the whole process, orchestrates complex supply chainControls the whole process, orchestrates complex supply chain• Owns nine manufacturing and assembly plants (e.g. in Salo, Finland with its Owns nine manufacturing and assembly plants (e.g. in Salo, Finland with its

focus on new product introductions)focus on new product introductions)• Strong logistics: Material flow optimized for local marketsStrong logistics: Material flow optimized for local markets• IPM planning platform; MES – Mfg Execution System. SAPIPM planning platform; MES – Mfg Execution System. SAP• Go-to-market process well-aligned with demand/supply processesGo-to-market process well-aligned with demand/supply processes

Production: HardwareProduction: Hardware

Operation StrategyOperation Strategy

Apple and Nokia base their mobile software creation on SW Apple and Nokia base their mobile software creation on SW product platforms, which include key functionality such asproduct platforms, which include key functionality such as• low-level drivers, which match software on altering hardware low-level drivers, which match software on altering hardware

platformsplatforms• core telephony applications (e.g. call, calendar, SMS, etc)core telephony applications (e.g. call, calendar, SMS, etc)• user interface frameworkuser interface framework

Product core functionality is expanded through specific Product core functionality is expanded through specific applications created by the global developer communityapplications created by the global developer community

Production: SoftwareProduction: Software

iPhone 3.0 softwareplatform

Operation StrategyOperation Strategy

Apple – large number of apps – extending the product!Apple – large number of apps – extending the product!• Core software (drivers, firmware and operating system) Core software (drivers, firmware and operating system)

designed in-house by Apple in Californiadesigned in-house by Apple in California• Product extending applications software development Product extending applications software development

outsource to the developer community orchestrated by outsource to the developer community orchestrated by Apple (70/30 profit sharing)Apple (70/30 profit sharing)

• Central quality controlCentral quality control• Sold and distributed through Apple Store – first mover Sold and distributed through Apple Store – first mover

advantage advantage • Direct feedback from end customersDirect feedback from end customers

Nokia – trying to fill in the gaps through acquisitionsNokia – trying to fill in the gaps through acquisitions• Symbian acquisition and then open sourcing it Symbian acquisition and then open sourcing it • Over $5b Navteq acquisition to get the mapping dataOver $5b Navteq acquisition to get the mapping data• Several smaller acquisitionsSeveral smaller acquisitions

Production: SoftwareProduction: Software

Operation StrategyOperation Strategy

Apple Apple • Centralized and controlledCentralized and controlled• Many large co-founders and owners working in the company, inc. Steve Many large co-founders and owners working in the company, inc. Steve

Jobs, the CEOJobs, the CEO• ““Life style”, start up & California flairLife style”, start up & California flair• Focus on customer experienceFocus on customer experience• Visionary, respected and autocratic leadershipVisionary, respected and autocratic leadership• Attracting talent – internal and externalAttracting talent – internal and external

NokiaNokia• Decentralized and dynamic – many centers across the worldDecentralized and dynamic – many centers across the world• Reputation for technical excellence (16 centers, 40,000 people)Reputation for technical excellence (16 centers, 40,000 people)• Scandinavian flair and fairnessScandinavian flair and fairness• Production orientationProduction orientation• Fact-based management; not as entrepreneurial culture anymore as it Fact-based management; not as entrepreneurial culture anymore as it

used to be; once highly successful management who fear mistakes? used to be; once highly successful management who fear mistakes?

Internal organizationInternal organization

SummarySummary Apple through iPhone and their app store have

redefined the mobile phone industry Very little detailed and factual information is

available on the processes and operations of each company

iPhone, though a unique global success story, has so far failed in India and Russia

Nokia knows on paper what it should do (have done), but in practise the execution has failed when compared to the assets and resources at disposal

In terms of key operations strategy and processes, we don’t expect Nokia and Apple to differ greatly from each other

ConclusionsConclusions Apple has been able to perfect user experience

and mobile application distribution Nokia has not been able to leverage its strengths

and catch up Apple’s lead What are the true sources for Apple’s ability to

innovate• we believe it has less to do with efficiency, operation

strategy and processes ... things Nokia has excellet at• and much more to do with a unique corporate culture

admiring and supporting game changers, • coupled with few autocratic leaders such as Steve Jobs

who have both talent, passion and obsession for user experience