Nokia vs. Apple - the ongoing war in the mobile industry

Nokia vs Apple: the ongoingNokia vs Apple: the ongoing
war in the mobile industrywar in the mobile industry
GROUP E
Garcia 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 worldwide2008: 3.3 billion of active mobiles worldwide
(vs. 800 million of cars, 850 million PCs, 1.3(vs. 800 million of cars, 850 million PCs, 1.3
billion fixed lines, 1.4 billion credit cards, 1.5billion fixed lines, 1.4 billion credit cards, 1.5
billion TV sets)billion TV sets)
 2008 annual growth of the global mobile2008 annual growth of the global mobile
industry: 21% (vs 2008 global GDP growth ofindustry: 21% (vs 2008 global GDP growth of
4.2%)4.2%)
 900 billion of dollars of revenues (2008) for the900 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)

The Developed WorldThe Developed World
 Purchasing criteria: from mere functionality to user experience and searchPurchasing criteria: from mere functionality to user experience and search
for funfor fun
 Clear trend of the whole industry moving towards higher end smart andClear trend of the whole industry moving towards higher end smart and
multimedia phonesmultimedia phones
 This has enabled the consumption of data intensive services such as webThis 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 valueApple 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 andPurchasing criteria: cost and
availabilityavailability
 The low-cost mobile phones willThe low-cost mobile phones will
radically change how poor peopleradically change how poor people
in developing countries accessin developing countries access
information first time ever (theinformation first time ever (the
digital divide)digital divide)
 The mobile phone will be the firstThe mobile phone will be the first
device poor people use for emaildevice poor people use for email
and internet access and it will alsoand internet access and it will also
offer the first bank account foroffer the first bank account for
millions of people previouslymillions of people previously
unbankedunbanked
 Nokia has led and continues toNokia has led and continues to
lead on this market segment duelead on this market segment due
to its economies of scale, reachto its economies of scale, reach
and unmatched brandand unmatched brand
Two parallel universes: the developed and the developing world

Phone 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 Strategy
PRODUCTS / 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: perfectperfect
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
2008
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 searchesof Web searches
conducted on a mobileconducted on a mobile
device in the month ofdevice in the month of
February were madeFebruary 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
DISTRIBUTION

Nokia vs AppleNokia vs Apple
Why 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 asFunctionality: the phones must be good as
technical devicestechnical devices
 Availability of mobile phones: if it can't beAvailability 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 customerAvailability of data content: the customer
is looking for data content before evenis 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 keyCost: 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 theUser experience: customers are choosing the
device that offers the best user experiencedevice that offers the best user experience
 Extendability/flexibility: customers areExtendability/flexibility: customers are
continuously looking for new applications andcontinuously looking for new applications and
services to expand the possibilities of their mobileservices to expand the possibilities of their mobile
phonesphones

Operation StrategyOperation Strategy
Nokia 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 theNokia is well-known for its ability, power and willingness to steer the
ecosystem, which is built around Nokia … in tough times, Nokia is the lastecosystem, which is built around Nokia … in tough times, Nokia is the last
player whose actual profit margins will drop even the actual street pricesplayer 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.

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

 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 theirNokia has traditionally outsourced very small percentage (less than 20%) of their
production to so called electronics manufacturing service companies such as Foxconnproduction 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 gameInnovation 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 withchanging product or idea of a revolutionary product does not match well at all with
its existing supply chain?its existing 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 onNokia 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 strategyThis, 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
•WheWhe

iPhone Supply ChainiPhone Supply Chain
 A simple supply chain designedA simple supply chain designed
to serve the iPhone customersto serve the iPhone customers
 It is estimated that material partsIt 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 theninventoried, and then
to retailers and toto retailers and to customerscustomers via purchases from the Apple Store.via purchases from the Apple Store.

StrengthsStrengths
 Through its Mobile Application Store (MAS) Apple has redesigned the value chainThrough its Mobile Application Store (MAS) Apple has redesigned the value chain
how mobile software is delivered from the developers to usershow mobile software is delivered from the developers to users
 Fully outsourced manufacturing means low fixed investment (typically vendors mustFully 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 complexIn 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 theScaling 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 adistribution to get even close to Nokia’s reach and reliability takes years and is a
multi-billlion euro investmentmulti-billlion euro investment
 Cannot be very efficient: a disruption in one country can block the process flow andCannot be very efficient: a disruption in one country can block the process flow and
final delivery to customersfinal delivery to customers

 Apple is delivering the innovative iPhoneApple is delivering the innovative iPhone
device in combination with the virtualdevice in combination with the virtual
distribution of content data (from MAS)distribution of content data (from MAS)
 ALIGNED with HIGH END ORDERALIGNED with HIGH END ORDER
WINNERSWINNERS

 Apple iPhone– Moving from market-leading MP3 players to MobilesApple iPhone– Moving from market-leading MP3 players to Mobiles
• Inventing the future – innovations; Apple knows best how toInventing 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-artFocus on state-of-the-art user experienceuser experience
• Large amount of patentsLarge amount of patents
• 2 ½ years development (industry average dev. time across2 ½ years development (industry average dev. time across
phone categories is more than one and less than year andphone categories is more than one and less than year and
half)half)
 Nokia – Moving from Phones to Software and ServicesNokia – Moving from Phones to Software and Services
• User experience and transition to software service businessUser 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 lowerModularity 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

 Apple – smaller volume, few products, highest qualityApple – smaller volume, few products, highest quality
• Controlled design in California - control of Supply from mfg goods toControlled 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,Phones are built around so called phone engines (key functionality,
radio processing module, applications processor), which are leveragedradio processing module, applications processor), which are leveraged
across distinct phone modelsacross distinct 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, FinlandOwns nine manufacturing and assembly plants (e.g. in Salo, Finland
with its focus on new product introductions)with its 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

 Apple and Nokia base their mobile software creation on SWApple 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 hardwarelow-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 specificProduct 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 software
platform

 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 developmentProduct extending applications software development
outsource to the developer community orchestrated byoutsource 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 moverSold and distributed through Apple Store – first mover
advantageadvantage
• 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 itSymbian 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

 AppleApple
• Centralized and controlledCentralized and controlled
• Many large co-founders and owners working in the company, inc.Many large co-founders and owners working in the company, inc.
Steve Jobs, the CEOSteve Jobs, 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 itFact-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

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