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The Microsoft-Nokia Acquisition Negotiations

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Ays Yqs

on 9 December 2013

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Transcript of The Microsoft-Nokia Acquisition Negotiations

Microsoft's Acquisition of Nokia: An Analysis of The Negotiations
Jan. 2013
2014
Sept. 2013
Feb. 2011
January 2013: Talks Re-initiated by Microsoft
September 2013: An Agreement is Reached
Early 2014: Expected Finalization of Acquisition Agreement
Closing conditions of the agreement:
Nokia requires board approval (done ahead of schedule: November 2013)
Regulatory approvals from the E.U. (expected December 2013)
Additional closing conditions between the two companies
32,000 Nokia employees to transfer to Microsoft
February 2011: The Relationship Begins
Shared interests
: Adapting the Windows 7 Platform into Nokia phones
Nokia interested in
divestiture
strategy for handset business (foreshadowing: previous sales, employee layoffs)
Microsoft interested in
diversification
(entry into a new market with a new product)
Microsoft initiates acquisition talks
, only 5 months after Nokia hires Stephen Elop from Microsoft as CEO
Talks stalled,
impasse reached
on pricing of handset business
Relationship limited to cooperation on development of new products (Nokia: hardware, Microsoft: software)> "
Strategic Partnership
"
A Timeline of the Key Events in the Negotiation Process
The One-System Negotiating Model
Congruencies or Organizational Component "Fits": What Went Well
Incongruencies: Problems and Issues
Key Points
Price and ownership of Nokia's HERE mapping service
were the central causes of the impasses
Environment changes:
smartphone competition intensified
After two years, Nokia-Windows smartphones still not as successful as competitors
Strategic Partnership not going as successfully as hoped
for both companies
"Do or die" situation for Microsoft
to infiltrate the smartphone industry
Nokia's global share decreased from 40% to 15%
ever since this relationship started (2011)
Date
: February 2011- September 2013 (subject to 2014 closure)
Players
: Nokia Corp. (Finland) and Microsoft Corp. (USA)
Channels of Communication
: Phone, Internet (email & video conference), Face-to-Face
Locations (Face-to-Face)
: USA, Finland, UK, Spain
Issues:
Price of handset business and patents, Ownership of HERE
Outcome
: Acquisition of Nokia's handset business by Microsoft for US $ 7.2 billion
Congruencies
: Divestiture (Nokia) and Diversification (Microsoft), Long-term strategic partnership, Similar organizational cultures
Incongruencies
: Strategy vs. Interests, Future Plans for HERE, (Nokia) Shareholder Interests vs. Stakeholder Interests
Problem-solving
:
Focus on similarities, Focus on environmental factors, Use of BATNAs & power sources
What Nokia received
:
€ 3.79 billion for the Devices & Services business
€ 1.65 billion for the 10 year non-exclusive patent license agreement
TOTAL: € 5.44 billion or US $7.2 billion

What Microsoft received
:
Acquisition of Nokia's handset business and nearly 40,000 patent licenses
Microsoft to become strategic licensee of HERE platform
Nokia CEO Stephen Elop to rejoin Microsoft after collecting US $25 million bonus
Inputs
Throughputs
Outputs
Constituencies & Audiences
Shareholders
Stakeholders

International & Cross Cultural
Nokia: Finland
Microsoft: USA
Multiple Locations

Strategy
Microsoft: Integrative
Nokia: Distributive
Organizing
Communication
Power
Influence
Relationships

Issues
Impasses
Mismatches

Players
Agents
Ethics
Effectiveness

Best Practices

Outputs: Effectiveness
Inputs: Constituencies & Audiences
Inputs: Strategy (Dual Concerns Model)
Throughputs: Power, Influence, and Relationships
Throughputs: Players & Agents
Problem Solving: Recommendations & Reasoning
Questions? Comments?
Thank you for listening!
Uproar in Finland over the acquisition
150 years of history: Nokia part of Finland's national heritage
4000+ Finnish jobs to be cut due to closure of 3 factories in Finland as a result of the acquisition
Acquisition deal made during the tenure of Nokia's first non-Finnish CEO
2011: Nokia's Distributive Approach vs. Microsoft's Integrative Approach
2013: Nokia Changes its Approach in Response to Environmental Factors
Microsoft's Power Sources
Informational
: Software expertise
Contextual
: Strong BATNA (HTC, Samsung, & Huawei)
Position-based
: Greater resources, financial stability
Nokia's Power Sources
Informational
: Hardware expertise
Contextual
: Weaker BATNA, convert to Android post-2014 (end of partnership with Microsoft)
Relationship
(Joint Power Source)
:
Strong Goal Interdependence
Nokia CEO Stephen Elop
:

Controversies
Former ties to Microsoft
Entered Nokia into acquisition talks only 5 months after his appointment
Nokia's decline since his appointment
High bonus for a troubled company to pay ($25 million)
Returns to Microsoft as head of newly acquired handset business
Currently being considered for CEO position
1) Strategies: Divestiture (Nokia) and Diversification (Microsoft)
Nokia wanted to sell its handset business and Microsoft wanted to enter into the handset business
2) Relationship: Long-term Strategic Partnership (minimum 3 years)
One had expertise in hardware, the other in software
Joint production of Nokia Windows smartphones and tablets
3) Organizational Cultures
Both technology giants facing similar issues and competition
Fast-paced technological environment, Short shelf-life of products, Expertise built over time
Management & Employee mindset: adaptability, innovation, flexibility
1) Strategy not congruent with goals:
Nokia approached the negotiations distributively when there were more shared interests at stake
2) Future plans not congruent on one issue:
Microsoft's plans for the HERE mapping service did not fall in line with Nokia's vision for it
3) Shareholder interests not congruent with stakeholder interests:
Finland's general public opposed to deal that would benefit Nokia's shareholders

Result: Negotiations delayed, over two years of impasses
Low effectiveness
due to numerous impasses and prolongation of process
Pareto Efficient Frontier not reached
since delays caused the pie to get smaller and smaller as time went by
Nokia's handset business
value had dropped significantly
since talks initiated
Microsoft
failed to use BATNA or power sources
to influence proceedings
Both sides
ignored changing environment
as competitors strengthened market positions
2011
2013
Losing value instead of creating value from 2011 to 2013
1) Focus on similarities and shared interests:
Integrative collaboration from the start (2011) - Nokia should not have approached an integrative negotiation with a distributive approach for so long. It focused on the selling price and maintaining HERE instead of realizing the value it would get in return for an agreement.

2) Use your BATNA's & power sources to avoid impasses:
Microsoft did not use its BATNA and maintained its approach pursuing Nokia when other options/partners were available. Microsoft was in a stronger position financially (even in 2011) and Nokia's BATNA was weak - converting to Android would have serious switching costs. However, Microsoft continued with its initial approach, waiting until Nokia gave in - two years later.
3) Respond to the changing environment:
Do not wait until competitors have become so strong that your value is diminished and you lose power in negotiations. The fast-paced technological environment does not allow for such delays in strategy implementation. It might already be too late for Microsoft to establish itself in the handset industry and Nokia was worth much more in 2011 than 2013 (a higher price could have been reached if an agreement was made earlier).
Problem Solving cont'd : Recommendations & Reasoning
Question
(to be answered after the presentation)
What would you have done to solve impasses which prolonged the negotiation process to over 2 years?
Microsoft
Perspective
Nokia
Perspective
Do you think the intangibles listed on the right had any effect on the negotiation?
YES or NO
If you answered
YES:
How?
If you answered
NO:
What other factor(s) could have influenced the negotiation process?
Negotiating Context
Feedback:

Recommendations for Action
Full transcript