Published: 07-Mar-2018 Last Edited: 01-Sep-2018
SRA was a self reliant and autonomous subsidiary of Ericsson operated in Saudi Arabia. Mainly, it was focused on selling radio products for military purposes, as well as for civilian use including gramophones, radio receivers, TVs, radar installations, radio system for aviation and shipping, etc.
The prime business area of SRA was in the military market, but its communication and radio military equipment area was facing a languishing stage. During 1961 to 1977, the business decentralised and free from bureaucracy, though employees got considerable freedom in their working areas (Regner 2001).
Ericsson was traditionally operated in switching and transmission equipments. Switches, telephone exchange, control and operating telephonic network was considered as its key competence area. In the early days, all these competencies were consisted in a manual system where an operator used pairs of plugs to connect people. Its digital switching technology (AXE) became a widely known telecommunication company all over the world. In short, Ericsson was the main competitor of telecommunication equipment manufacturer (Regner 2001).
As per the analysis of the case, it can be said that there are differences existing in terms of underlying assumptions of strategic development of both groups such as SRA and Ericsson corporate group. In terms of the main focal point, Ericsson/Corporate CEO and SRA/ Ake Lundquist were focusing on different industry such as Ericsson’s strategy focused on its existing telecommunication equipment or wire based industry, but SRA had a vision to enter into a wireless mobile communication. SRA operated in radio telecommunication and its base stations, but it had adopted an expanding strategy (Regner 2001).
Both companies are different in terms of its customers, market, resources, and competitors. Ericsson comes under the government influenced telecommunication operator and had a specific geographic market for its business operations. The competitors of Ericsson were other large wire based telecommunication equipment suppliers. On the other hand, SRA was planning to focus a large market share through its wireless mobile communication technology. The competitors of SRA could be any supplier of mobile and Tele-radio communication equipments (Regner 2001).
As per the strategy process of Ericsson, the main process character was the exploitation of existing industry structure, resources technologies and capabilities, but SRA wanted to explore the new industry structures on the basis of experiments, informal noticing, and trial and error methods etc. Practices of Ericsson include planning, analysis, and business intelligence. The area of complexity for both the firm was its target market, regulations and technologies such as cellular, base stations and switches. Another assumption in relation to their strategy is that they were confused about the adoption of mobile telephone handsets or mobile telephony systems or both as their core product or service (Regner 2001).
The vision of Ake Lundquist was to eliminate wire from regular telephony services that have a potential to tap a large mobile telephony market. According to their predictions, it can be indicated that mobile telephony business would over pass the public telecom, but mostly the management consultant’s forecasts had underestimated this growth. Further more, it was obvious that the mobile market had a large and promising future market, but there was no clear indication that the mobile market would grow into a mass market. The main reason behind the failure of SRA’s strategy was its inadequate mobile system integration and the increased tension between the two units (Regner 2001).
From the starting, Ericsson did not have any vision about the SRA. Its main focus was on its core business, radio products for military and civilian use. Ericsson never showed interest in mobile telephony, which even reflected in Nordic mobile telephone (NMT) network bid when his public telecommunications unit showed no interest in providing switches for mobile system. Later on, they provided their flagship switching product (AXE) not because to explore new market, but just to maintain old relationship (Regner 2001).
The idea of Mobile telephony was confined for only professional use. Personnel use of mobile telephony was never considered an option, and because of this constricted view, the huge potential of mobile telephony was overlooked. Ericsson was not the only company who underestimated the vast potential of mobile telephony. The study lead by the US management consultancy firm, which hired by bell labs and AT&T to study the mobile telephony and its future potential and growth, showed that potential was insignificant and advised to stay away from mobile telephony (Regner 2001).
Another reason that Ericsson did not have any interest in mobile telephony was they thought that SRA did not have the right competency. SRA was treated as incompetent unit running by incompetent people. In between 1970 and 1980, PTT started to show interest in mobile telephony. This was a positive sign for SRA, and SRA started to tap every opportunity that was coming in the way. The initial orders were small in size, and only contributed 4 % in total sales was not enough that could change the view of Ericsson management for mobile telephony (Regner 2001).
There were no study, no forecast, and no market investigation that showed any positive sign that mobile telephony would grow into a mass market. Everybody, either it was mobile phone network operators, government bodies, mobile phone infrastructure providers or mobile manufactures underestimating the mobile telephony and all this concluded that mobile telephony had no promising future. The legal framework and products or technologies are emerged with uncertainty regarding the future market potential for mobile telephony. The estimated market was highly unclear, and market predictions were extremely difficult even after the formation of expansion strategy (Regner 2001).
The mobile market segment was first considered as a product for professional use only that indicated its limited up-scale segment of the mobile market. Further, various regulatory bodies considerably increased the ambiguity in regulating bandwidths, standards, and base station location. Finally, the base stations and cellular planning techniques were not developed, and its undefined strategy was treated like a strategic puzzle that the company should enter into the mobile telephony market or not. Furthermore, it was also uncertain whether they should go for mobile telephone handset market or telephony system or both (Regner 2001).
At some point of discussion, it was evident that Ericsson and SRA had no supportive view regarding its external market context. It also raised an issue that weather SRA and Ericsson have the resource capability to build a mobile telephony business as a future market potential. Thus, it is evident that there was no solid evidence in terms of sales forecast, market investigations, and technologies that can state that mobile telephony market will grow in the future (Regner 2001).
The main focal point of Ericsson is to focus on existing business products that are telecommunication equipments and other wire based switches whereas, the SRA wants to shift its focus from the existing radio equipments to wireless mobile telecommunication technology and equipments. The main competency of Ericsson was its switching and transmission equipments such as telephone exchange, controls, and its telephonic network. SRA was an autonomous and self-reliant subsidiary of Ericsson that mainly operated in radio communication supplier. One of the competences of Ericsson is its relationship with NMT that was compulsory to establish a manual mobile telephone system (Regner 2001).
The core competencies of Ericsson were its radio communication and switching technology whereas, SRA had a strong future vision regarding external market capabilities. At SRA, its enthusiasm towards the mobile telephony business can be considered as its competence because it provides a vision to enter into a new market segment. For this, they acquired “Sonab” to be a leader in mobile stations. Sonab was a company that was a leader in radio technology and mobile stations. This acquisition helped the company in building the first commercial mobile telephony system (Regner 2001).
A full analysis of strategic capabilities and competencies of mobile telephony systems of SRA and Ericsson, it can be stated that they did not have adequate capabilities for the development of mobile telephony market, as well as their position to enter into mobile telephony industry was also ambiguous. SRA had only limited competence in the base station technology for radio communication, but they lacked in the area of small-cell technology that was essentially required for the establishment of mobile telephony. In short, the major competency of Ericsson and SRA was its multi country operator business and its expanding and growing vision (Regner 2001).
The two core area was mainly required as a core for mobile telephony infrastructure such as switching technology (AXE), and its radio communication base stations. The existing switching technology of AXE had far too high capacity that can be suitable for mobile technology, and it can be extremely advantageous to establish large urban networks. However, neither Ericsson nor SRA has competencies to build an integrated system for mobile telephony industry. In addition, they did not have any competence for producing a mobile telephony handset production (Regner 2001).
As per the market predictions, it can be said that the corporate management of SRA and Ericsson, both have required existing resources for mobile telephony business, but their capabilities and competencies were pointed against the development of mobile telephony segment. They lacked many of the potential core technologies that were essentially required to tap the telecommunication market. Due to its ineffective competence management, they faced various challenges such as poor network quality, negative market perception, low customer satisfaction and inadequate service quality (Regner 2001).
In regards to the development of mobile telephony market, the story can be divided in two fundamentally different versions such as SRA and Ericsson’s business strategy. Initially, SRA was an independent subsidiary of Ericsson, which insisted on selling a mobile telephone system in only Saudi Arabia. The company’s focus had been on radio and communication products for military and civilian use. The President of SRA first identified the potential for mobile telephony market and he was the first to participate in the development of mobile telephone systems, MTB that can handle six telephone calls simultaneously. He was the first to come up with the early vision about the importance of mobile or wireless technology (Regner 2001).
The Ericsson way of doing business and its conservative approach reflected its prevalent stable and less competitive environment. As per the expertise, AXE was the flagship of Ericsson and public telecommunication was its caption. Initially, Ericsson believes that mobile telephony business had minor importance and it can be directed towards only professional use. Though, it did not support Ake lundqvist to expand its market in mobile telephony industry (Regner 2001).
SRA needs various internal and external resources from Ericsson in fulfilling its vision, but Ericsson was not interested in mobile technology field. SRA has adopted an aggressive approach in collecting resources for mobile telephony business and for this, they had hired various consulting firm to collect orders also from other countries. Ineffective planning and its inadequate resources led to the failure of mobile technology, and due to this company suffered with a huge loss (Regner 2001).
After this failure, Lars Ramqvist was became one of the President of Ericsson corporate in order to investigate the future market potential for the mobile telephony market. His investigation states the future potential of this market, and then company leads to work in that direction along with many competitors. By adopting an integrated approach, Ericsson recognised a huge success in mobile telephony segment. Ramqvist was responsible for improving the strategy. Thus, the case indicates that mobile telephony business was a well known market segment for Ericsson, but its strategy and ignorance became the main factor behind the former strategy failure (Regner 2001).
In 1986, Lars Ramqvist became one the three Vice President of the Ericsson Corporate Executive Committee, assigned to examine the former Ericsson business strategy. He identified various core businesses such as mobile telephony, and AXE switching system. He examined it as an important part for mobile telephony business and states that its development requires an integrated approach of the company. It was also noted that the building of mobile telephony market requires an innovation strategy planning (Regner 2001).
There are various factors that play a vital role in building new business strategy, but it require a careful factor analysis of the workplace, industry and associated markets. Furthermore, it also creates challenges for those who are involved in the analysis of required resources and competence. This innovative strategy played a vital role in managing the strategic conditions for the business development especially for the uncertain and complex conditions. The main purpose of this innovative strategy is to build something new and different, based on the continuous experimentation and learning (Regner 2001).
In order to get information about the development in Tele communication industry, Ericsson’s new CEO, Lars Ramqvist, made use of former reports and forecast to analyse its different factors. Reports and forecasts sheets were limited in number, as well as they were highly disgraceful and dependable in nature. At that time, this might be treated as the main issue associated with the use of these resources. While, these resources are based on experience and learning, but the main problem encountered by experts is that they contain historic and traditional data or information. Thus, it could not prove to be beneficial for the development of mobile telephony industry (Regner 2001).
From the analysis, it is clear that the learning organisational approach would have been advantageous for the development of new business strategy. By applying this, the company could have been more optimistic towards the use of its pluralistic approach in the context of strategy development. It is also beneficial for conducting more experiments in relation of identifying more adequate working processes. The experimentation approach implemented by the company also includes the role of external social networks and informality (Regner 2001).
The strategy adopted by the SRA and Ake Lundquist was based on the high level of experimentation and use of trail and error approach in building its networks. Other than this, Ericsson has a strong negotiation position with various national analogue telephone networks. The company’s business strategy was succeeded due to its aggressive and ambitious way of doing business. Later, it may be put forward by Ramqvist that if the company makes use of its formal practices in its functioning then, it could have gained the higher level of benefits (Regner 2001).
After the analysis, it was quite clear that there could be a significant market for the development of mobile telephone industry, and its proactive strategy can help the company in conducting a detailed analysis of the macro economic conditions. In 1988, Ericsson succeeded in its long term battle of underestimation of mobile telephony business. In this year, the mobile telephony business became fully integrated that also led to increased sales, as well as in the potential market. ERA was assigned responsibility for the entire mobile telephone system and switching technology (Regner 2001).
Other technological and developmental responsibilities were also shifted to Ericsson’s ERA division. In the same year, the Swedish base station was acquired by the company in order to increase the company’s market share in base stations. Through this, Ericsson gained almost 40 percent of the mobile telephony market. At this stage, one of the main challenges faced by the company was that its terminals could not be used across borders. In relation to solve this problem, the standardisation organisation of western Europe’s PTT had appointed a Groupe Speciale mobile technology that is also known as GSM (Regner 2001).
From the above improvements in the field of mobile technology, the discussion states the clear position of the company. Ericsson and SRA both have made various strategic decisions and practices gain its high level of competence and capability in the market area. Through this, it is extremely certain that an adequate and propionate mix of complex design, ideas and experience could have been used for the effective business development strategy in order to gain better market potential for the product (Regner 2001).
The design view of strategy did not play any significant role in the mobile telephony strategy development process. Rather, rationale, analytics, structured and directive processes of the strategy were considered as a base of its business development. Initially, the strategic issue faced by the company was extremely complex, but later it was met for more or less total confusion. Simply, there was no room for the strategy as design rather; one can measure competitiveness and capability of the company (Regner 2001).
However, there were some efforts had that been taken by Ericsson and its CEO to turn strategy development process, especially in design direction. Initially, various efforts were failed, but later some design characteristics were distinguished such as the identification of mobile telephony as a core business and its decision to enter into the new digital and standard market area. It could be argued that the initial objective of the company was to eliminate wire from its regular telephonic devices. Apart from this, designing strategy of the company played a decisive role in forming new corporate information system strategy, which was considered as its principal failure (Regner 2001).
According to this, case can be interpreted through three lenses such as design, ideas and experience. In addition, it is also pertinent to note that differences of SRA/Ake Lundqvist and Ericsson corporate in terms of individual leadership were different. As per the case, the main logic behind the Ericsson’s business strategy was adaptive, and SRA’s was creative because it wanted to enter into an entire new market. The main driver of their business strategy was exploitation of old industry and resources by cultivating and observing the new strategy developments whereas, SRA focused towards the exploration of new industry and resources by investigating and developing the new strategy for mobile telephony market (Regner 2001).
The knowledge assimilation practices for both the sub groups were their formal and informal reports and notices that led to its business intelligence, analysis and industry experience. Ericsson strategy was based upon the mobile telephony forecasts reports and other market estimates. Rather, SRA’s strategy was based upon the informal notices, contacts and technology and market experiments. SRA adopted a wishful and optimistic approach in believing facts. They were ready to take inappropriate risk in entering UK and US market at the same time. Ericsson was based on the selective approach in making their strategic decisions (Regner 2001).
Regner, P. 2001. Ericsson and the creation of the mobile telephony systems business. Stockholm school of economics.