Ericsson Strategic Analysis Paper
The purpose of this paper is to analyze the global telecommunications giant Ericsson and make recommendation as to how Ericsson can establish a stronger position by utilizing its strength to pursue market opportunities and how to address weaknesses and threats that we have identified. In the process, we will look at the company background, perform a vision and mission analysis, address its current and future products, look at the market and economy, evaluate its marketing strategies, analyze its financial situation, and review the company’s internal and external relationships.In the end we will conclude with a summary of our findings and make recommendations how to improve Ericsson’s current position in the market. As source of information, our team used the Internet for topics related to news, finances, industry makeup of Ericsson. We were also able to use internal, non-confidential information regarding the company and the industry. To research sensitive information used in the Marketing Analalysis section, we conducted interviews with senior executives at Ericsson.
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We would especially like to acknowledge and thank Mr.Roger Walland, Senior Vice President of Network Sales in the West Region of the United States and Mr Steven Smith, Senior Director of Network Sales in Los Angeles/San Diego/Las Vegas for their precious time and insights. Mr. Walland has spent 15 years with British Telecom and the past 6 years with Ericsson. Mr. Smith has spent over 10 years with Ericsson working mostly in China and the U. K.
We hope to address and analyize critical issues surrounding Ericsson and the turbulent telecommunications industry.With the information we have researched, our goal is to offer recommendations that may help Ericsson stay the world leader in mobile systems 1. Company Overview 1. 1 Company Background ; History Ericsson is a world-leading supplier in the telecommunications and data communications industry, offering advanced communications solutions for mobile and fixed networks as well as consumer products. Ericsson is a total solutions supplier for all customer segments: network operators and service providers, enterprises, and consumers.Ericsson has more than 71,000 employees, representation in 140 countries, and clearly the world’s largest consumer base in the telecommunications field (Ericsson 2002). Ericsson is the largest supplier of mobile systems in the world.
The world’s ten largest mobile operators are among Ericsson’s customers and approximately 40% of all mobile calls are made through Ericsson systems. Ericsson provides total solutions covering everything from systems and applications to services and core technology for mobile handsets (Ericsson 2002).The market Ericsson addresses is changing rapidly and is characterized by specific key trends: Convergence of industries, technologies, and services. The telecom and datacom industries are coming together as are the computer and media industries. Wireless is spreading into all aspects of communications in the future and represents a fundamental change that is transforming the way we live, work, and play. On April 1, 1876, mechanic Lars Magnus Ericsson opened a workshop to repair telegraph instruments in Stockholm, Sweden.A colleague named Carl Johan Andersson entered into a partnership with Ericsson a few weeks later.
This was the same year that Alexander Graham Bell filed his patent application for a telephone in the United States. As the workshop grew in 1877, Ericsson prepared to enter into the telephone market, and his business was introduced in 1878 under the name LME. Over the next four years, Ericsson strengthened his company and eventually relocated to a new factory. During the 1890’s, LME sold its phones to over two-thirds of the countries in Europe, making the LME a dominant name in that market.By the time Ericsson retired as Chairman in 1901, his company was taking over telephone networks and had merged with Stockholm Allmanna Telefonaktiebolag (SAT). He remained on the Board of Directors until 1903. At that time, LME had business operations in most of Europe, including the United Kingdom, as well as in the United States.
Over the next decade, LME entered the marketplace in Mexico, Russia, and Siam. During the first World War, LME was thrust into producing electric meters, switches, and railway signaling equipment.Not until the 1930’s did LME introduce a new radical design for a phone, one with a plastic casing. During this decade LME started to expand its product line. The second World War did not have a major effect on LME. During this time, LME had to take over numerous telephone operations networks in Europe due to the necessity of keeping communication open. From the war into the late 1950’s, LME started to venture into combining electronics and telephony switching.
This was a crucial point for LME as it aggressively started to invest its money into research and development.From the 1960’s into the early 1970’s, LME grew into the major telephony provider in South America and Asia. During the late 1970’s, mobile telecommunication was the main focus of LME. The wide-scale need for mobile telephony wasn’t realized until the early 1980’s, when LME was the worldwide market leader. Today, Ericsson is nearly twice the size of the closest competitor in the mobile systems division. Four out of every ten mobile calls are handled by Ericsson equipment. (Coolwallstreet 2002) 1.
2 Business LocationEricsson is represented in over 140 countries around the world. Its corporate headquarters is located in Stockholm, Sweden. The United States headquarters is located in Dallas, Texas. Many other country headquarters are located throughout the world but Stockholm and Dallas are the largest based on square footage and the number of employees. 1. 3 Officers ; Key Employees Kurt Hellstrom: President ; Chief Executive Officer Per-Arne Sandstrom: Chief Operating Officer Sten Fornell: Executive Vice President and Chief Financial OfficerCarl Olof Blomqvist: Senior Vice President, Legal Affairs Britt Reigo: Senior Vice President, People and Culture Jan Uddenfeldt: Senior Vice President, Technology Torbjorn Nilsson: Senior Vice President, Marketing and Strategic Business Development Henry Stenson: Senior Vice President, Corporate Communications Michael Treschow: Chairman An altered Ericsson organization has been introduced to better meet the dynamics of the market and the rapidly changing environment in a way which will achieve continual strong growth and favorable earnings.Ericsson’s key to success in the highly competitive market is a strategy built on customer focus with a customer-oriented and flexible organization, managed by a strong corporate structure responsible for strategic decisions.
Ericsson’s operations are divided into three business segments that serve different types of customers. An Executive Vice-President, a member of the Corporate Executive Team, heads each business segment with consolidated profit and loss responsibility. The three segments are Network Operators ; Service Providers, Enterprise Solutions, and Consumer Products.They ensure a strong focus on customers and markets and establish customer responsibility at both the local and global levels (Ericsson 2002). 1. 4 Management Review After years of steady growth in the 1990’s, the new millineum has not been kind to top management at Ericsson. Kurt Hellstrom, the conservative Chief Executive Officer has been under tremendous pressure to return the struggling company to its days of prominence (BusinessWeek 2000).
With the stock prices plummeting, critics have been both supportive and critical of Hellstrom’s leadership.Since a stock split in 2000, Ericsson shares have decreased from about $16 per share to approximately $0. 50 per share. The current financial conditions have forced top management to scale back on production, to discontinue and outsource products, and layoff employees because Ericsson has been in business for over a century, top management is performing well under continued pressure from the industry and its stakeholders (PressTelegram, 2002). Because Ericsson is a large and diverse company, its organizational structure is tall. From the production line employees to the ranks of upper management, tremendous numbers of layers separate them.Reorganizations have been made in the past year to flatten the organization.
(CFO, 2001) With the changes in the telecommunications industry, Ericsson has attempted to adapt to best reflect the industry. However, Ericsson is still known to be a multinational, decentralized organization (Hellstrom, et al. , 2002). To strengthen Ericsson’s balance sheet , Hellstrom is making a controversial move. On April 22, he revealed that Ericsson aims to raise $3 billion by the end of the third quarter through a stock-rights issue selling additional shares at a discount to existing owners.The money isn’t needed to fund day-to-day operations, which would be a sign of desperation. Instead, Ericsson says it will bolster its $5.
5 billion cash hoard and reduce debt. The stock-rights issue is a dent in Hellstrom’s reputation. During this right’s issue, his leadership was questioned by shareholders because this was a sign of distress in the once dominant company. An 18-year Ericsson veteran, Hellstrom was viewed as a corporate hero in Sweden for helping to propel the company’s rise over the past two decades.He admits he needed a bit of persuasion from the board to trade in an assignment in Hong Kong for the job of Ericsson’s president in 1999. Hellstrom was promoted to CEO 17 months later. Even now, say acquaintances, his typical Swedish reserve leaves him uncomfortable in the limelight.
“He’s not the sort of person who stands on the barricades and shouts `follow me’,” says Ulf Avrin, a former Ericsson manager who now runs Stockholm e-mail startup Mobeon (Reinhardt et al. 2002). Hellstrom has a new partner to help straighten out the financial trouble.In March, former Electrolux CEO and one of Sweden’s most respected executives, Michael Treschow, 59, became the company’s new chairman. Treschow replaced Lars Ramqvist, who resigned last October. Treschow’s cost-cutting zeal earned him the moniker “Mike the Knife” at Electrolux. The telecom industry neophyte is expected to deploy a similar strategy at Ericsson (BusinessWeek, 2002).
He doesn’t flinch at cost cutting, but some critics say, “Cutbacks are not sufficient enough for ill Ericsson now. The company still falls way short on marketing and is operated under the old-line culture. (BusinessWeek, 2002). 2. Vision/Mission Analysis 2. 1 Future Vision/Mission Analysis Vision We believe in an “all communicating” world. Voice, data, images and video are conveniently communicated anywhere and anytime in the world, increasing both quality-of-life, productivity and enabling a more resource-efficient world.
We are one of the major progressive forces, active around the globe, driving for this advanced communication to happen. We are seen as the prime model of a networked organization with top innovators and entrepreneurs working in global teams (Ericsson 2002). MissionOur mission is to understand our customer’s opportunities ; needs and provide communication solutions faster and better than any competitor. In doing so, we shall generate a competitive economic return for our shareholders (Ericsson 2002). 2. 2 Foreseeable Future We believe that Ericsson will be able to survive the current rough financial climate in the telecommunications industry. Ericsson has the history, knowledge, and competence to aid network operators in expanding its products and services going towards Third Generation (3G) networks.
With 3G, networks will be better able to handle voice, data, and imaging at a greater rate.Because of the greater network capabilities, more opportunities to use this technology will be explored. Since 9/11, government agencies and private companies have started to rely on network operators to build private voice and data networks. Currently, the U. S. Army is the first of many industries that will rely on network operators to build special-use networks (WirelessWeek 2002). This is a possible trend in privatized networks and a segment of the market Ericsson could benefit from.
Ericsson is going towards building one universal network.Because of the multiple networks currently in operations, Time Division Multiple Access (TDMA), Code Division Multiple Access (CDMA), Wideband Code Division Multiple Access (WCDMA), Integrated Dispatch Enhanced Network (iDEN), and Global System for Mobile communication (GSM), Ericsson sees a future in which all the mobile telecommunications standards will evolve into one or at least have the abiltity to communicate with each other. Currently, trying to use a GSM phone on a CDMA network is not possible, and is comparable to trying with use PC software on an Apple computer. It is not the same standard.Ericsson is striving towards developing software and components so that in the future, networks will be unified (Ericsson 2002). Five to ten years from now, we foresee Ericsson working in conjunction with wireless operators and service providers to provide high speed wireless access voice and data services. Because Ericsson is currently the leader in network infrastructure, we estimate that through innovation and solutions, it will continue to be at the forefront of network solutions.
2. 3 Driving Forces 1. Product/Service – Ericsson will continue to upgrade current wireless and wireline networks globally.With operators currently spending less on capital, Ericsson will provide software solutions and professional services to operators to better enable their networks to work at their potential. 2. Market Need – Service providers are looking at providing a premium product or service at the lowest possible cost, so they can pass their savings onto their customers. Market needs will be met by the service provider’s end-users, the customers, and networks that have less congestion yet optimal sound quality.
3. Manufacturing – As Ericsson moves into the future, the dominant driving force is to reduce cost through manufacturing.Currently, many hardware components are outsourced to reduce cost overhead and inventory. 4. Profit ; Income – The main goal for Ericsson is increase cash flow. (Eweek, 2002) According to Ericsson’s site, the three main ways are to cut costs, maintain a strong balance sheet, and to keep a good customer base. 5.
Technology – The domaniant driving force in technology is 3G. With the introduction of 3G, end-users will better be able to send voice and packet data using less “space,” thereby eliminating congested call areas. Bluetooth is a technology that uses radio signals in place of hardline connections.For example, if one were travelling with a laptop and wanted to print, all the individual would have to do is to point their Bluetooth-enabled laptop to the Bluetooth-enabled printer and print the document. No wires or drivers are necessary in the Bluetooth world. 6. Client/Customer base – Because of the instablity in the current telecommuncations industry, consolidation is key for network operators.
Instead of spending more money on capital equipment, operators are spending less and partnering more with others to share spectrum space.The most prevalent rumour is the Cingular Wireless/Voicestream (T-Mobile) merger. Since Cingular Wireless has more spectrum space in the west and Voicestream is dominant in the northeast, they have agreed to use each other’s network instead of building a new network. Because of the network sharing, it is strongly suggested within the industry that these two companies will merge to become the #2 wireless provider in the United States, with 30. 2 million subscribers (100,000 less than current leader Verizon Wireless) (Cellular-News, 2002).Since both Cingular and Voicestream (T-Mobile) use Ericsson as a major vendor, this will be a great opportunity for Ericsson to sell more equipment to alleviate congestion problems and services to help Cingular/Voicestream more effortlessly run its merged network. 3.
Product/Service Analysis The following seven catagories reflect the products and services that Ericsson offers. Over the past two years, Ericsson has relied on their BYB201 hardware and R8 software features that are products of their Mobile Systems division.During the current network upgrades on the path towards 3G, AXE810 hardware and R9 software is aggressively being sold to network operators. (Ericsson 2002) 3. 1 Current Product/Service 3. 1. 1 Mobile Systems Ericsson is the leading supplier in the whole range of 2G and 3G Mobile Systems, providing industry-leading end to end system elements: infrastructure, terminals, applications and expertise (Ericsson Network Operators, 2002).
Ericsson’s Mobile Systems division is its cash cow. Having about 40% (Forbes, 2002) of the global market share, this is where Ericsson is the industry leader.Components including cellular base stations, wireless switches, emerging technologies and services, and networks are all part of the Mobile Systems division. Ericsson has long term contracts worth billions of dollars with large service providers in the world such as Vodafone, Orange, and British Telecom in the U. K. , Deutsche Telekom in Germany, and Cingular and AT;T Wireless in the United States. Looking ahead in the short term, the concentration is to sell network upgrades and network migration to service providers.
Wireless networks need to be constantly updated to handle congestion and quality issues.Outdated technology such as TDMA in the United States is being phased out and replaced with GSM technology which provides better voice handling, data capabilities, and improved cost savings. Until last year Ericsson had a consumer product handset division. However, with the rapid decline in sales, outdated phone styles and enormous cost overheads, Ericsson partnered with Sony Electronics in Japan to form Sony Ericsson (Sony Ericsson). Sony Ericsson is a separate and independent entity not affiliated with Ericsson for the purpose of this report. It is a third party company with stakes belonging to Sony and Ericsson.Subsequently, information presented includes Mobile Systems in one category and the six divisions in another (Ericsson Mobile Systems, 2002).
Major types of Ericsson Networks • Global System for Mobile Communication (GSM) – GSM, is the most widely adopted mobile standard in the world. With over 578 million subscribers on 400 networks in 171 countries, more than one in ten people on the planet use GSM technology. Half of all GSM calls made anywhere in the world are connected by an Ericsson system because Ericsson is the number one supplier of GSM networks in the world.Third generation telecommunication networks will unite mobile radio with Internet technology to provide consumers with a new world of rich multimedia services via their mobile phones. 3G will enable mobiles to carry videos, graphics, and data as well as only voice. (Ericsson GSM, 2002) • Time Division Multiple Access (TDMA) – TDMA is a technology for digital transmission of radio signals. The technology is also known as Digital Advanced Mobile Phone Service (D-AMPS).
In TDMA, the frequency band is split into several channels which are stacked into short time units.This means that several calls can share a single channel without interfering with one another. TDMA is one of the world’s most widely deployed digital wireless systems. TDMA network operators provide mobile services to more than 80 million subscribers in over 100 countries. Somewhere in the world a new subscriber is hooked up to a TDMA network every five seconds. The technology is represented across all regions of the world and its escalating growth rate will continue for years to come. TDMA operators have the choice of following the GSM or CDMA technology evolution path to 3G, with Ericsson providing solutions for both options.
Ericsson TDMA, 2002) Because of reduction in capital expenditure spending for network operators and service providers Ericsson has not been financing an aggressive R;D campaign. In fact, R;D spending has been reduced at Ericsson in the past year. (Ericsson Press Release, 2002) • Code Division Multiple Access (CDMA) is a”spread spectrum” technology. By spreading information contained in a particular signal over a much greater bandwidth than the original signal, CDMA offers operators using other technologies a significant increase in coverage.CDMA enhances TDMA to a predominantly 2G digital system. With CDMA, operators can enlarge their capacity by up to eight to ten times and offer users better call quality (Ericsson CDMA, 2002). 3.
1. 2 Multi-service Networks Ericsson’s vision for future networks is of a new type of robust, broadband multi-service network infrastructure based on packet-switching and routing technologies and is designed for real-time services (Ericsson Multi-service Networks, 2002). Ericsson’s multi-service networks enable high-speed date roviders such as Broadcast Communications Limited in New Zealand and Telenor in Norway (Ericsson, 2002) enable users to access information more effectively (Ericsson Multi-service Networks). 3. 1. 3 Enterprise The products and services of Ericsson Enterprise are to aid small business or a multi-national corporations to create new opportunities and enhance market value through voice and data tools. PBX systems, dispatch networks, and small office mobile systems are a core of the products and services offered.
Education, documentation, and help desk support for the Enterprise products are all under this division (Ericsson Enterprise, 2002). 3. 1. 4. Transmission and Transport Technologies Ericsson provides end-to-end solutions with combined microwave and optical systems, giving capacity anywhere at any time. Wireless Broadband Access (WBA) is a multi-service access solution for high-speed IP applications and voice services. Products that include optical networks, microwave systems, and wireless broadband products are components of this division (Ericsson Transmission and Transport, 2002).
3. 1. 5 MicroelectronicsEricsson provides microelectronic components for wireless applications, broadband communications, fixed access, and communication via fiberoptics for its products and for other companies, providers, and industries. Currently, this division produces power modules and optoelectronics (Ericsson Microelectronics, 2002). 3. 1. 6 Network Technologies This division of Ericsson concentrates on network infrastructure that combines telecom, datacom, and power technologies that supply parts and provide services and documentation.
This is the “parts” division of Ericsson.