Ericsson Telecommunications Company Business Strategy Analysis

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Table of Contents

Introduction
The situation of Åke Lundqvist/SRA and/or Ericsson/the corporate CEO in 1980
The history of the development of mobile phones
SRA and Ericsson input in the history of the development of mobile phones
The events according to design, experience, and ideas strategic lenses
Conclusion
References

Introduction

This report gives the history of the Swedish telecommunications company, Ericsson, entry into the mobile telephony market. It analyzes the attributes of strategic change that took place in the company during the 1980s and illustrates how the elements of strategic innovation may surface from the periphery of a company. This report illustrates how a small and insignificant unit in Ericsson transformed the company into its current state as the market leader in providing mobile telephone systems.

The situation of Åke Lundqvist/SRA and/or Ericsson/the corporate CEO in 1980

SWOT analysis is the internal review of an organization’s strengths, weaknesses, external threats, and opportunities, which ultimately influence its strategic decisions. One of the strengths of the SRA (Svenska Radioaktiebolaget) was that it was an autonomous and self-reliant company within Ericsson. Although its president, Ake Lundqvist, was under strong opposition from Ericson’s top management when he attempted to make any changes to the organization, he never gave up. Lundqvist had joined SRA in the mid-1960s and by 1970; he was in charge of the company’s land mobile radio division.

From then on, he had a positive assumption about business development and he was always on the lookout for opportunities for growth in the company. Ericsson’s weakness was that since the 1960s, it had consolidated its efforts mainly in the provision of communication and military radio equipment, without considering a venture into consumer products. However, SRA saw an opportunity in this. Its president saw that the growth of mobile telephony was possible. This was based on the vision he had to see the growth of radio technology to eliminate the wire from the regular telephony.

On the other hand, in contrast to Lundqvist, the Erickson corporate CEO had different assumptions about business development. Most managers at Ericson never cared about the advancement that SRA was making and they thwarted any efforts to have mobile telephony systems integrated. Their low expectations made them criticize SRA’s strategy as ‘completely absent’ with no clear direction to follow. This was a major threat to the existence of SRA.

In 1980, Ericson did not expect its mobile telephony business to thrive in the future. This threat made the company to consider the sector as insignificant in comparison to its other business ventures. Therefore, Erickson held the belief that its mobile telephony would continue to be of minor importance even in the future. The industry was perceived to be more exclusive and as a service reserved for the privileged in the society.

However, SRA regarded the mobile telephony market as a potential market that was liable for future exploitation. That is why the SRA president, Ake Lundqvist, made constant internal struggles to expand the market for mobile telephony systems. For example, in 1981, Ericsson, under the guidance of SRA, introduced the first mobile phones in the country of Saudi Arabia. This was after Ericsson had won a major contract to supply the Saudis with a fixed telecommunication infrastructure and Ake Lundqvist enthusiastically took the initiative on mobile phones.

In terms of strengths, SRA was insignificant compared to the abilities that Erickson had. However, SRA was more competent in business innovation. Despite the weakness it had of being limited in terms of both technology and products, SRA had spent the whole of its sixty-year history in a less protected and quite competitive business environment. This made it to develop competent skills than its counterpart, Ericsson.

In those times, SRA was seen as a minor, independent, and unglamorous business organization. Although SRA was small in size, had unrelated technology, and was not very much recognized in Ericsson, it eventually turned Ericsson into the world’s largest supplier of mobile telephone systems by capitalizing on the opportunity that was present in the development of mobile phones.

The history of the development of mobile phones

PESTLE is a strategic planning analysis tool, which involves political, economic, social, technological, legal, and environmental forces, which influence business operations and competitiveness.

*Figure 1: PESTLE and SWOT analysis (The World of Human Resource Management, 2008).*

Currently, the mobile phone industry has undergone major developments in contrast to how the situation was in the 1980s. Technologically, in the early days, Ericsson dealt exclusively with switching and transmission equipment. The telephone network consisted of a manual system where the operator was endowed with the responsibility of connecting individuals on a switchboard. At this time, major R&D was mainly focused on developing the company’s switching technology. When Ericsson introduced its digital technology, AXE, it became well known and well respected and by 1980, the company had delivered various consignments to various parts of the world. The AXE became the flagship product for the public telecommunications company.

During that time, the political environment of doing business was mainly determined by how much a company relates to the PTTs (Post, Telephone, and Telegraph). About a dozen telecommunications companies dominated the world market and they mainly competed for orders within the PTTs where markets were open. Some markets such as the U.S. and the British PTT were not easily accessible to other companies. For a company to win a contract within any PTT, it had to establish a lasting political relationship with the PTT. The relationship made the lucky companies have a monopoly within the particular PTTs as well as earn them continuous follow-up contracts.

Legal factors such as the enactment of laws, trading policies, and trading policies affected the development of mobile phones. One of these is the laws that existed within the Nordic mobile telephone (NMT) network, which was composed of the Swedish and other Nordic PTTS. These favorable laws played a significant role in the establishment and the development of mobile telephony in Sweden and other Nordic countries.

In 1997, the major telecommunication equipment manufactures placed their bids to supply the NMT network; however, Ericsson had little interest in mobile phone systems. Although the company lacked the enthusiasm to provide switches for mobile systems, it finally offered switches to preserve its long-term relationship with the Swedish PTT. Moreover, it is only after the insistence of the PTT did Ericsson agreed to offer it with its flagship product, the AXE.

Social factors, such as the attitude towards mobile phones fuelled Ericsson’s resistance to adopting mobile telephony. It was widely believed that the industry had an insignificant role as compared to other businesses, alleged lack of competency for mobile telephony since it mainly dealt with closed radio systems, and the industry was seen as something more exclusive, which was directed towards professional use.

The company saw the mobile telephony industry as something mainly reserved for the privileged in society. In addition, a major U.S. consultancy firm investigation authenticated their claims. The firm studied the potential of the mobile telephone market at that time and advised against any involvement in the industry since the results were insignificant. Even though the SRA had limited competencies for the mobile systems, it had a great entrepreneurial spirit and, maybe, insight to eliminate the wired telephony.

In the end, Ericsson won the contract to supply switches for the NMT network. Therefore, SRA became a sub-supplier of a base station unit for local Swedish radio technology and also supplied mobile telephones or stations for the system. Consequently, to increase its competency, SRA acquired a business rival, Sonab. Despite winning the NMT contract, however, Ericsson still lacked the enthusiasm in mobile telephony.

After all the spirited struggles by SRA, the first commercial telephony system in the world was delivered in 1981, not to the NMT in the Nordic countries, but to Saudi Arabia. Sometime during the late 1970s, Ericsson was awarded a major contract to supply the Saudis with a fixed telecommunication infrastructure and SRA passionately capitalized on the opportunity to sell mobile telephony system to the country. Even though SRA and Ericsson lacked a complete system at that time, Lundqvist managed to convince both the CEO and the Head of Ericsson’s Public Telecommunication Switching Division to provide the Saudis with mobile phones.

Environmentally, the changing climate affected the mode of operation of Ericsson, for example, its telephone keypads were easily being destroyed by the high temperatures that existed in Saudi Arabia. Therefore, it had to develop innovative ways of dealing with this problem. Moreover, the company had to deal with problems that accompanied the development of the first commercial cellular mobile system in the world. These included a lack of adequate production facilities, the threat of competitors, quality problems, and installation problems.

SRA and Ericsson input in the history of the development of mobile phones

Porter proposed five major influences on the firm’s ability to compete which include the threat of new entrants, bargaining power of suppliers, rivalry among the current competitors, the threat of substitute products, and bargaining power of consumers in an industry.

*Figure 1: Porter’s five forces (Vector Study, 2008).*

As much as Ericsson and SRA played a pivotal role in the development of mobile phones in the world, they could have done differently some things to stay competitive in the market. As more PTTs started to show increased interest in mobile phones in the late 1970s and the early 1980s, this constantly drew other companies into the business. However, SRA increased its market penetration to counteract this threat.

SRA attempted to provide the market with a more coordinated and integrated mobile telephony system of Ericsson’s switches and its radio equipment. However, Ericsson and SRA could have worked together in supplying the markets with mobile phones. Instead of submitting separate orders and holding different views on mobile system integration, the managers of the two companies could have worked together in developing a coherent arrangement system for mobile phone systems.

The winning of the contract to supply the Dutch PPT with mobile telephony enabled both the SRA and Ericsson to start venturing into a more integrated system and not just separate parts of mobile telephony. This success was spearheaded by the SRA, which fought dual battles to enable the introduction of a more complete system concept. SRA managed to convince the internal switching division and the corporate management division, in the market, of the benefits of the integrated system idea. Before they were awarded the contract, they offered two separate offers to the Dutch PPT: the Ericsson switching division offered switches while the SRA offered the radio technology.

Although the Dutch PPT was interested in Ericsson’s AXE because of its high capacity, it later supported the idea brought by Motorola, its main rival, of combining the AXE switches with its base stations. Ericsson initially supported the idea because it could make it fill more AXE orders jointly with Motorola. However, SRA strongly disagreed with this new development. SRA’s position was to have Ericsson supply integrated systems in mobile telephony by furnishing the whole package – switches and base stations – or nothing at all.

This position held by SRA caused considerable distress among managers in the switching division since they argued that the company risked losing the entire contract and eventually the opportunity of maximizing sales from its main product. Although SRA lacked the necessary competency to supply the integrated systems in mobile systems, it continued to push for the adoption of its position by talking to the parties involved.

When the Dutch PPT was prompted by Motorola to adopt the small-cell technology that was able to suit the topography and the people of The Netherlands, with SRA playing the leading role, Ericsson managed to win the contract of supplying a complete system of switches, base stations, and cell planning services. Therefore, this marked the onset of selling a more integrated mobile phone system by SRA and Ericsson.

However, despite this success in providing integrated mobile phone systems, SRA and Ericsson could have done some things differently. Instead of being pushed by the urge to preserve its long-term relationship with the Dutch PTT before making any major progress in technological advancement, they could have spent more resources in consumer research to investigate the behavior of the consumers in mobile phone usage.

This way they could be able to have a more competitive advantage in the market without relying on other forces to ignite their imagination (Coles, 1978). Moreover, since the mobile phone market was still untapped, Ericsson was a little bit sluggish in penetrating this market. The company relied so much on its principal product, the AXE, without making attempts of ‘experimenting’ on other consumer telephone products. Perhaps, the story would have been different; if the managers of the company would have decided to put everything, they had worked for on the line and fully supported the efforts of SRA in trying to sell integrated mobile telephony systems.

The events according to design, experience, and ideas strategic lenses

The entry of the Swedish telecommunications, Ericsson, into the mobile telephony market was made possible by the adoption of strategic principles related to design, experience, and appropriate ideas. SRA adopted aggressive and ambitious ways of doing business to increase its market share. To increase their experience in mobile telephony, SRA bought other firms or consultancy services. These consultancy firms brought better ideas that SRA could use to do business.

For example, the company recruited Chan Rypinski who was one of the best U.S. consultants in the Netherlands. Through interactions with this consultant, SRA hired another US-based consultant, Jan Jubon, who advised its management to venture into the potential U.S. market with its products. Although the U.S.A. PTT was still closed, the company welcomed the idea and decided to make a trial and error expedition into the new market. In this case, SRA used the “bottom up” approach (strategy as ideas) since the good working environment with the consultants enabled the free expression of innovative ideas.

Strategy as a design regards strategy development as a process of logical determination whereby the optimal strategy, as well as the most appropriate direction, is taken. This is accomplished through the careful assessment of an organization’s market, environment as well as all the readily available resources (Preedy, 2003). When an opportunity surfaced for ERA (originally SRA) to venture into the United Kingdom market, it had to follow an analysis-selection-implementation process to find the most appropriate direction to follow. Even though the U.S. venture required massive resources, the ERA management decided to venture into both the new markets. This design strategy was a bold move by ERA.

This is because it involved tremendous expansion from a small sales organization to a large manufacturing and R&D company within the United Kingdom. Moreover, the company adopted a better standard called the TACS (Total Access Communication System) to out-compete their competitors. As the company increased its market penetration around the world, it encountered increasingly complicated business environments. However, ERA countered these unpredictable situations by developing a business and action-oriented culture.

Some people may argue that the design lens of strategy is ineffective as the top managers of a company are most of the time not engaged with the daily activities of a company. Therefore, strategy as experience seeks to avoid this view by articulating that any strategic development must be as adaptive as possible. This ensures its division into intended, realized, as well as emergent strategies. According to this strategic lens, the aspect of strategic development involves constantly adapting previous strategies based on the experience of the organization. In this model, the strategy is greatly influenced by assumptions (culture). As much as the managers of Ericsson criticized ERA’s strategy as being ‘completely absent,’ the cellular phone industry was finally seen as a legitimate business entity.

In 1988, the independent ERA succeeded in its long-term internal battle to have the mobile phone to be fully integrated. This was partly due to the growth in the number of sales in the area as well as the steady rise in the market growth of the product. As much as Ericsson was too much ‘path dependant’ on past activity which to desist from mobile telephony business, the log-term persuasion of ERA had a tremendous impact on the mobile telephony market.

After ERA’s president, Ake Lundqvist, resigned from his position in 1988, he was replaced by Lars Ramqvist who continued with the tasks of his predecessor that were aimed at continuous adaptation of past strategies based on experience. When he assumed the presidency of the company, there was more freedom in the company and major reorganizations were undertaken. Two years later, Ramqvist was appointed the new Ericsson CEO and Kurt Hellstrom became the president of ERA.

After these major changes, there was immense and sustained growth of sales within the company. Consequently, in 1994, mobile telephone systems were recognized as an important aspect of the strategic development of Ericsson. Sales successes and expansion continued and by 1997, the total mobile phone sales had reached seventy percent of the corporate total. The number of employees had also grown by more than four times as compared to 1992. By 1998, the company had become the world leader in the supply of mobile phone systems. In the meantime, the public telecommunications business area underwent some restructuring and some of its sections were outsourced and sold to other companies.

Conclusion

Because of the efforts of ERA, Ericsson was completely dominated by the mobile telephony business by the turn of the century. The company became the largest supplier of mobile systems, digital mobile telephones, and public switches. This was possible because of the dynamics of strategic innovation that the company put in place from the early 1980s to the turn of the century.

References

Coles, J. V., 1978. The consumer-buyer and the market. New York: Arno Press.

Preedy, M., 2003. Strategic leadership and educational improvement. London: Open University in assoc. with P. Chapman Pub.

The World of Human Resource Management, 2008. SWOT analysis! A strategic planning tool. Web.

Vector Study, 2008. Porter’s five forces. Vector Study. Web.

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