Nokia and NSN: Tactical or Strategic?


Nokia and NSN:  Tactical or Strategic?



In the world of the 24-hour news cycle, Nokia reeling NSN into the fold is old news, 10 days old.  The opinions of the analyst community are generally favorable, though the rating agencies are a bit anxious at Nokia taking on debt.   I too think it is a good move on Nokia’s part, and I think they had to act when the opportunity presented itself.  The apparent opportunity is Siemens desperation for a deal at almost any cost and could see no way out of the venture.  Perhaps Siemens might have waited and reaped some of the cash that NSN is generating and negotiated for better terms.  Or perhaps the smartest guys in the room realized this deal is as good as it will get.     


Is some ways, this arrangement it is similar to Verizon ,Vodafone and Verizon Wireless.  The major difference is that Verizon Wireless has been returning cash to both parents for a long time.  Because of this, Vodafone does not have to yield to an unfavorable price as cash is rolling in.  Since both parents need the generated cash, Verizon cannot put forward a credible threat to shut down the cash flow and demand more favorable terms.

Several of the comments that I read can be paraphrased like “It is a strategic deal, but …”  I claim either it is strategic or it’s not strategic, and even that is subject to how the argument is framed.   Examination can proceed in many ways, and I choose an approach from my recent reading, Richard Rumelt’s Good Strategy, Bad Strategy.


I won’t dive deeply into the various nuances and outcomes here in this blog, as I do that in my previous ABI Research Insight,  Nokia Can Shift, Too, into Reverse with NSN.  But briefly, we can touch on the three pillars of GSBS and how his deal fits in.


·      Diagnosis – Correctly identify the challenges at hand for Nokia.   


·      Guiding Policy – High level guidance to address the challenges raised in the diagnosis. 


·      Coherent Coordination – The coordination of efforts at the corporate level so that the sum is greater than the parts. 


This all must begin with the Diagnosis.  Are Nokia’s problems because of not having an infrastructure business?  I think the acquisition is to fix a problem, and that seems to be the cash flow.  NSN generated cash is just what Nokia needs.


This is a good move by Nokia to take advantage of this opportunity, but I cannot make it fit into the “Good” part of Good Strategy, Bad Strategy.   If the challenge is they can’t become a conglomerate and need to acquire cash producing firms, then maybe the strategy is good, but then I would question the Diagnosis.   Because of these points, I say it is a good tactical move.