Apple Inc., originally Apple Computer, Inc., is an American multinational corporation headquartered in Cupertino, California that designs, develops, and sells consumer electronics, computer software, and personal computers. The company was founded on April 1, 1976, and incorporated on January 3, 1977. The word “Computer” was removed from its name on January 9, 2007, to reflect its shifted focus towards consumer electronics. Its best-known hardware products are the Mac line of computers, the iPod, the iPhone and the iPad. Its software includes the OS X and iOS operating systems, the iTunes media browser, and the iLife and iWork creativity and production suites. Apple is the world’s third-largest mobile phone maker after Samsung and Nokia. Fortune magazine named Apple the most admired company in the United States in 2008, and in the world from 2008 to 2012. However, the company has received widespread criticism for its contractors’ labor practices, and for Apple’s own environmental and business practices. As of August 2012, Apple has 393 retail stores in fourteen countries as well as the online Apple Store and iTunes Store. It is the largest publicly-traded corporation in the world by market capitalization, with an estimated value of US$626 billion as of September 2012. The Apple market cap is larger than that of Google and Microsoft combined. As of September 24, 2011, the company had 60,400 permanent full-time employees and 2,900 temporary full-time employees worldwide; its worldwide annual revenue in 2010 totaled $65 billion, growing to $108 billion in 2011.
Steve Jobs and Steve Wozniak founded Apple on April 1, 1976. The two Steves, Jobs and Woz (as he is commonly referred to – see woz.org), have personalities that persist throughout Apple’s products, even today. Jobs was the consummate salesperson and visionary while Woz was the inquisitive technical genius. Woz developed his own homemade computer and Jobs saw its commercial potential. After selling 50 Apple I computer kits to Paul Terrell’s Byte Shop in Mountain View, CA, Jobs and Woz sought financing to sell their improved version, the Apple II. They found their financier in Mike Markkula, who in turn hired Michael Scott to be CEO. The company introduced the Apple II on April 17, 1977, at the same time Commodore released their PET computer. Once the Apple II came with Visicalc, the progenitor of the modern spreadsheet program, sales increased dramatically. In 1979, Apple initiated three projects in order to stay ahead of the competition: 1) the Apple III – their business oriented machine, 2) the Lisa – the planned successor to the Apple III, and 3) Macintosh
In 1980, the company released the Apple III to the public and was a commercial flop. It was too expensive and had several design flaws that made for less-than-stellar quality. One design flaw was a lack of cooling fans, which allowed chips to overheat. In late 1980, Apple went public, making the two Steves and Markkula wealthy – to the tune of nine figures. By 1981, the Apple III was not selling well and Scott infamously fired 40 people on Feb 25 (“Black Wednesday”). Scott’s direct management style conflicted with the culture Jobs and Markkula preferred, and Scott resigned in July. Markkula stepped into his position as CEO. In August 1981, IBM released their PC. Unimpressed and unafraid, Apple welcomed IBM to the PC market with a slightly smug full-page ad in the Wall Street Journal. It would not be long before IBM’s PC dominated the market. The Xerox Alto was the inspiration for Apple’s Lisa. Apple employees were able to examine the Alto in exchange for allowing Xerox to invest in Apple before Apple’s initial public offering (IPO). Apple released the Lisa in January 1983 and was notable for being the first computer sold to the public that utilized a Graphic User Interface (GUI). Unfortunately, the Lisa was not compatible with existing computers, and therefore came bundled “with everything and a list price to match.” At $9,995 (over $21,000 in 2005 dollars), the Lisa missed its target market by a wide margin. Jobs attempted to control the Lisa project. Scott, unimpressed with the performance of Jobs on the Apple III project, had Jobs head up the dog-and-pony show for the pending IPO. Jobs, looking for a project to lead, inserted himself into the Macintosh development team. Using his considerable influence, Jobs was able to procure the resources to produce a computer that was faster than Lisa, used a GUI, had a mouse, and sold for ¼th of Lisa’s price. Apple introduced the Macintosh with great fanfare during the 1984 Super Bowl. The Orwellian-themed commercial (directed by Ridley Scott, of „Alien’ fame) portrayed IBM as Big Brother and embodied Macintosh and Apple as freedom-seeking individuals breaking away from this oppressive regime. The commercial was largely successful and sales for the Mac started strong. However, Mac sales later faded. John Sculley left PepsiCo to join Apple in April 1983. He was famous for engineering the “Pepsi Challenge”, in which blinded testers tasted both Coke and Pepsi to unveil the „truth’ of the taste of Pepsi. In response to lagging Mac sales, Sculley contrived the „Test Drive a Macintosh’ campaign. In this promotion, prospective users could take home a Macintosh with only a refundable deposit on their credit card. While lauded by the public and the advertising industry, this campaign was a burden on dealers and significantly impeded the availability of Macs to serious buyers. In 1985, Apple tried to have lightening strike twice with their „Lemmings’ commercial during the Super Bowl. In what was becoming Apple’s typical patronizing fashion, this commercial insulted current PC users by portraying them as witless lemmings, unthinkingly doing harm to themselves. Although Jobs attempted to overthrow Sculley, the board backed Sculley. Jobs left Apple to form NeXT computer. 4
After Jobs left in 1985, sales of the Mac “exploded when Apple’s LaserWriter met Aldus PageMaker.” Apple dominated the desktop publishing market for years to come. Under Sculley, Apple grew from $600 million in annual sales to $8 billion in annual sales by 1993. Apple introduced Mac Portables in 1989 and the first PowerBooks in 1991. By 1992, PC competition ate into Apple’s margins and earnings were falling. Sculley was under pressure to have Apple produce another breakout product. He focused his energy on the Newton – Apple’s introduction of the Personal Digital Assistant (PDA). Despite Sculley generating substantial demand for Newton, it did not live up to the hype due to it being severely underdeveloped. Sculley resigned in 1993 and Michael Spindler replaced him. Spindler spent most of his time and energies on regaining profitability, with the end goal of finding a buyer for Apple. Over the next several years, Spindler shopped Apple to Sun Microsystems, Eastman Kodak, AT&T, and IBM. Meanwhile, Apple was unable to meet the growing demand for its products due to supplier problems and faulty demand predictions. To add insult to injury, Microsoft released Windows 95 with great fanfare in 1995. After significant quarterly losses in 1996, the board replaced Spindler with Dr. Gil Amelio, CEO of National Semiconductor. Dr. Amelio tried to bring Apple back to basics, simplifying the product lines and restructuring the company. One of Apple’s most pressing issues at the time was releasing their next generation operating system (code named “Copland”) to compete with Windows 95. Amelio and his technology officers found that Copland was so behind schedule that they looked outside the company to purchase a new OS. Ultimately, and somewhat ironically, they decided to purchase NeXT computer from Jobs. Naturally, Apple welcomed Jobs back into the fold. The board became increasingly impatient with Amelio due to sales not rebounding quickly enough. Apple bought out Amelio’s contract after just 1 ½ years on the job. Jobs eventually claimed the CEO position. Then, he cleaned house by revamping the board of directors and even replacing Mike Markkula (who had been with the company since the beginning). Jobs simultaneously put an end to the fledgling clone licensing agreements (which created a few Mac clones) and entered into cross-licensing agreements with Microsoft. On May 6, 1998, Apple introduced the new iMac, a product so secret that most Apple employees had never heard of it. The new iMac was a runaway success with its translucent case, all-in-one architecture, and ease of use. It brought Apple to a new market of users – those who had never owned a computer before. Jobs further simplified the product lines into four quadrants along two axes: Desktop and Portable on one, Professional and Consumer on the other. Apple completed the matrix with the introduction of the consumer-based iBook in 1999. The year 2001 was an important year for consumers of Apple products. Apple opened their first 25 retail stores (totaling 163 stores in 4 countries as of May 2006). In September 2001, Apple introduced the new iMac featuring a screen on a swivel.
The new iPods (portable music players) were a tremendous success. Apple sold so many that Apple’s dependence on Mac sales was significantly less. This was no small feat considering that the 2001 iMac became Apple’s best-selling product “by a long shot”. Apple offered iTunes (a free application) to help their consumers organize music on iPods and Macs. In 2003, Apple expanded iTunes by 1) opening the iTunes music store to allow Mac users to purchase music online and 2) expanding iTunes to Windows users. Sales of iPods skyrocketed and currently provide the bulk of product sales to Apple. (Apple) In 2005, Apple announced that it would start using Intel-based chips to run Macintosh computers. In April 2006, Apple announced Boot Camp, which allows users of Intel-based Macs to boot either Mac or Windows OS. This functionality allows users who may need both OSs to own just one machine to run both, albeit not simultaneously.
We can glean Insight into the history and composition of the PC Industry from its eponymous title. In the late 1970s, as Wozniak and Jobs were starting Apple computer, personal computers were an emerging product. The following chart (Reimer) gives an overall view of the major market players since the mid-1970s. By 1983, the market share of the Apple II fell to 8% while the PC had 26%. Market share of Macintosh peaked at slightly more than 10% in the early 1990s and has since tapered to between 2-3%. The IBM PC and its clones became the standard due to the success of the open nature of the PC. This allows product developers to offer vastly more products for the platform. Some argue that not licensing the Mac OS was a mistake. Bill Gates and Microsoft were encouraging Apple to license their OS in the early 1980s, because they were developing software for Apple and had much riding on the success of the company. When Apple did not license, Microsoft began developing their operating system, Windows.
Online Music Industry
While Apple clearly dominates the online music industry, the battle for domination is not over. Although digital music sales are growing rapidly, the Recording Industry Association of America (RIAA) states that digital sales account for only 4% of all music sales. (Borland) Analysts at Forrester (Bartiromo) and Gartner (Bruno) validate this. Apple’s sales are between 66% and 75% of downloads and 80% of music players. (Bruno) Apple is part to a suit alleging monopolistic practices concerning their market share dominance of players and downloads. (Grundner)
The other players in the download market are (the revised) Napster, Yahoo Music, Rhapsody, and illegitimate file-sharing services. Portable music players competing with the iPod include those made by Creative, Samsung, iRiver, and Sony. A major point of contention between these services and player manufacturers is the control of a variety of incompatible Digital Rights Management (DRM) schemes.
Apple in the Living Room
Apple’s iPod and iTunes are a powerful combination that fosters a network style of increasing returns. (Barney, 124) By selling iPods, Apple increases the consumer demand for music from iTunes. By placing more musical choices on iTunes (including less popular songs that appeal to niche audiences), there is more demand for iPods. Apple had 70% of the legal music download market in early 2005. (Yoffie) Apple is shooting for the digital living room of the future. For example, Apple just released a “boom box” portable version of the iPod. This iPod (the iPod Hi-Fi) comes with a remote control. Instead of forming a strategic alliance, Apple engineered the iPod Hi-Fi and designed it with high-fidelity features. (Burrows) Apple is clearly trying to develop a stronger core competency in the entertainment area. Apple may also release an Apple-branded cell phone and iPod combination device by the end of 2006. (Burrows) This product would again position Apple as a “second mover” responding to Palm’s Treo and Verizon’s VCAST technology.
Future of Apple
Personal Computers – A Shift in Strategy Apple has historically taken a far different path than the traditional Windows and Intel combination. Microsoft provides the Windows operating system to separate downstream hardware producers such as Dell. Apple vertically integrated both the operating system software and hardware completely under Apple. A consumer running Microsoft Windows can choose from a myriad of systems based on the Intel processor, while a consumer running Apple’s OS X must purchase Apple hardware. Apple is adjusting this strategy by migrating their microprocessors from IBM and Motorola PowerPC to Intel. Analysts believe that the Intel-based Macintosh may be able to run Microsoft Windows applications by the end of 2006. (Burrows) In addition to switching processors, Apple positioned their computers as an immediate option for the traditional Microsoft Windows user. With Apple Boot Camp, users may now use Mac OS X or Windows on an Apple computer. (Sutherland) 7
By allowing users to run Windows on an Intel Mac, Apple reduced the switching costs for traditional PC users. Apple may steal away customers that are willing to pay a premium for a system that runs both Windows and Mac OS X. Apple continues to retain a strategic option to license its technology to clone makers such as Dell. Past attempts at licensing Apple technology (to IBM, Gateway, and others) failed on accord of Apple’s rigid demands. Many technology leaders (such as a 1985 letter by Bill Gates to Apple CEO John Sculley) criticized Apple for keeping a closed architecture. Apple cofounder Steve Wozniak criticizes this strategy, “We had the most beautiful operating system, but to get it you had to buy our hardware at twice the price. That was a mistake.” Whether Apple would be willing to pursue this reversal of vertical integration is unclear. Although such a move would cannibalize a portion of Apple’s own hardware sales, it would also provide royalty-based revenue that could approach $1 billion annually. (Burrows) Jobs traditionally sided against licensing Apple technology. He referred to Mac clone producers as “leeches” and he personally killed Power Computing (a Mac clone producer) by terminating their license in 1997.
Strategic Analysis of Apple
Porter’s Five Forces –Smartphone
Bargaining power of suppliers – • • • • • • Bargaining power is supplier is high Reliance on underlying, proprietary standards Few chip designers, one dominant player High switching costs from suppliers Suppliers reliant on industry for distribution and consumption Popularity of Apple?s products gives it an enviable bargaining position vis-à-vis suppliers
Competitive rivalry – • • • • Rivalry is medium Small number of companies develop operating systems (Nokia, RIM, Google, Apple) but more companies develop hardware Smartphones, are highly perishable products that depreciates quickly in the market. Producers need to sell quickly, which intensifies rivalry. The industry is still growing
Bargaining power of customers – • • • • Medium as Consumers have a wide array of choices. In all four markets in which Apple competes Buyers are not concentrated and can not influence the price. Buyers can purchase from a rival, but a rival will not necessarily present the buyer with better incentives or prices. Some producers? influences extend to their distribution channels. An example is Apple?s stores.
Threat of New entrants – • • • Low as Smartphone production involves many patents and proprietary knowledge. Even established companies are embroiled in legal battles over patent issues. New entrants lack popoular brands, which are important to sales Mobile software still in inascent stage, still many opportunities for phone companies to differentiate from their competitors
Threat of substitutes – • • • High as alternatives like tablets, laptops and ultra book are available While brands differentiate between different Smartphones to an extent, Smartphones in the same price range have mostly the same functions Popularity of Google?s Android software has made it more difficult for Apple to claim it has an edge in apps and also makes competitors? products more viable
Strengths – • • • • • Tim Cook, ranked as the number one CEO in the US by „Glassdoor?, with a 97% staff approval rating and Jony Ive artistic genius behind Apple product designs Excellent Research & Development division that is able to deliver (premium) products that customers will stand in line to buy. Global reach, Apple?s brand is strong around the globe Own Operating System (iOS), which is used across entire product line allowing them to sell a complete product without paying any royalties Apple is an innovator and technology leader
Weaknesses – • • Weak integration with Microsoft Office makes their product line less attractive to business enterprises Google?s Android Operating system is slowing Apple?s growth rate in the mobile phone market
High price. Apple?s products are typically higher in price than its competitors. Price sensitive consumers tend to not consider Apple in buying decisions Apple tends to lead innovation and then watch other companies control the market once it has reached the tipping point and wider consumer adoption
Opportunities – • • • • Consumers are willing to update their phone hardware every two years Eg.- Excellent iPhone 5 sales A new release of Apple?s iPod touch, featuring video chat, will likely be a huge revenue generator. Apple?s direct online sales channel will continue to grow, helping improve their already impressive gross margins. Apple new iAd advertising platform for Applications designed for the iPhone, iPad and iPod touch could be a significant revenue generator
Threats – • • • Microsoft coming out with their highly anticipated Windows 8 and surface tablet Google is also ever present and could easily expand its android operating system onto the desktop Android currently represents Apples biggest threat to its ecosystem if they can tap into the youth market and bring an end to the cult following that has been apple?s forte for the past 15 years Serious computer virus which would hurt apple from a public relations perspective
The PEST analysis helps determine the current situation of Apple Inc., identifying potential influences of the political, economic, social and technological sectors; and have a glimpse into the future of Apple inc. Political Influences: It is reported that in 2007 52% of sales of Apple were from outside America. Bad international relations, wars and terrorism might influence Apple in a huge manner; moreover these are all factors Apple has no ability to control. Apple Inc. produces many of its parts and products outside the U.S., like Ireland, Czech Republic, Korea, China, and Cork. Political Conflicts between the U.S. and any of these states may have awful outcomes for Apple Inc. 11
Economic Influences: The global economic depression might have immense impact on Apple Inc. The inflation rate is high, while consumer?s incomes didn?t have significant changes, moreover the unemployment rate has increased, leading consumers to spend less, especially on „luxury products?, as Apple products might be viewed. Even though the U.S. dollar has lost value, Apple Inc. is not as endangered economically. The corporation has purchased itself foreign currency, to minimize the economic effects of inflation on Apple Inc. It needs to be said that the U.S. dollar?s depreciation has in fact increased Apple?s revenue in the international market. Social Influences: Globalization includes the interaction of people worldwide, for which technology plays the main role. Today?s World cannot be imagined without technological devices as Computers, mobile phones etc. Apple is the globally seen as the King of technology, not because of most usage, but quality and design. Another big social influence is the music industry, which over the last decade has become virtual and set its market to the cyberspace. Apple having developed the biggest virtual media store, iTunes, is well ahead any other competition of this direction. Web piracy might be a threat, but most governments punish those behaviours. All in all, Apple?s image also portrays the modern individual?s lifestyle, combining functionality with design, leading to brand identification and loyalty. Therefore social influences have positive effects on Apple Inc. Technological Influences: The technology market for computers and mobile phones has become huge, adding more competition in the market. Also technology innovations and changes are almost as fast as light, therefore the products lifecycle is very short. Investing largely in Research and Product Development, Apple is on top of the market, regarding innovative products. This includes making the work for the competition to follow, but it?s still better because innovation is a big part of the brand and has shown to pay out.
Mckinsey 7S Model
Super ordinate goals(soft) – To make a contribution to the world by making tools for the mind that advance humankind Strategy (hard) – The main focus of the Apple strategy is in constant innovation. Apple is engaged in horizontal integration, vertical integration, strategies outsourcing and diversification.
Structure (hard) – The company’s management employs a functional structure as the company is organised along functional lines. Groups people on the basis of their common expertise-experience and resources. Gives managers greater control of organisational activities and enables the company to avoid becoming too tall by creating several different hierarchies. Decentralised authority and responsibility through a relatively flat hierarchical structure Systems(hard) – Apple uses integration mechanisms and control systems to avoid coordination problems between people, functions and divisions. Combination of online and retail channels Apple has the opportunity to reach both first time buyers and Power users, who are looking for sophisticated and customized products. Style(soft) – The company’s management implied decentralised approach as it enhances the company’s planning, decision making and control processes due to better information availability Staff(soft) – Apple employs best practises in the area of Human Resource Management and especially in the area of training and development. Training is divided across the organisational structure into four brad categories: offer or efficiency programme, business driven needs training, personal development category, general awareness education. Staff appraisals are implied and their objective is to provide feedback to both appraiser and appraised and to serve as formal opportunity for personal counselling and motivation Skills(soft) – Experienced Board of Directors bring to the company effective decision-making , appropriate monitoring of both compliance and performance as well as apply all their knowledge, international experience, contacts to the company
Cash Cow – Ipod Star –Iphone, Ipad Dog – MAC PC Question Mark – Apple iTV 13
Competitive Landscape and Strategic Groups
The portable personal computer industry has many viable and successful competitors who, for the most part, offer similar products. While considering cost alone there are several groups that generally define the industry competition. Firm?s compete in groups at the low-end, middle range, upper-middle range, and high-end. Within these competitive groups price typically equates to number of features or capability. At the highest-end firm?s offer specialized products with certain consumer groups in mind. These firms compete on the basis of what the computer is designed to be used for, while firms at the lower end of the price spectrum compete essentially on price-value. See Appendix A2 for accompanying template.
Extrinsic Dynamics – Price, Design, Quality, and Support
Comparison of firms operating in the industry on the dimensions of price and design (ranging from functional to elegant) reveals a linear relationship. Those firms commanding the highest prices for their products opt for elegant (Apple) or intricate (Alienware) designs, while firms competing on low price offer basic functional designs (eMachines) to keep costs down. This paradigm remains true when considering build-quality and support as metrics as well. Apple offers portable computers constructed of solid aluminum blocks and strong polycarbonate plastics.8 Voodoo PC use sturdy well-designed computer cases with intelligent and efficient internal cable routing layouts to promote airflow and keep the computer running well. Other firms offering mid-range and low-end computers opt for more inexpensive plastics and materials while paying less attention to internal layout details. The comparisons of Price to Design and Design to Build Quality show similar relationships. Support is the final top-level extrinsic measures by which firms in the industry compete. The two extremes of high-price and low-price reveal similar support policies. Firms commanding the highest prices offer comprehensive support packages. Apple offers in-store one-on-one support to all customers and further warranty support. The premium price of their portables allows for the extra expense in providing this service.
Intrinsic Dynamics – Customizability, Gaming Capability, Out-of-the-Box Features, System/Peripheral Integration
Those firms that emphasize customizability on the part of the customer tend to offer computers built for high-performance applications, such as gaming. Gaming is an important driver of computer technology and the degree of customizability in features and specification as well as appearance is a driving force for manufacturers focusing their brands on gaming, like Alienware and Voodoo PC. The relationship between customizability and gaming capability remains linear . Firms have chosen their positions on these competitive dynamics and those not taken do not represent attractive segments to target. System/Peripheral Integration is a polarizing metric. Apple stands alone with its Mac portables.
They ecosystem they?ve developed provides seamless integration between their computers, software, iPods, iPhone, and other devices. Windows based PC manufacturers also make compatible peripherals, but they do not have the same level of integration as Apple. When considering out-of-the-box features some other, relatively large groups emerge. Brands like Dell, Lenovo, Vaio, Gateway, eMachines, and HP offer standardized functions built into Windows while Alienware and Voodoo PC offer a variety of pack-in games and features. Apple also ships copies of their iLife suite of programs including iPhoto and iMovie among other useful programs with every Mac. The ability for a user to do more than go online after setting up a Mac or Alienware PC is in significant contrast to other competitors.
Key Resources and Capabilities
Apple?s most important resources and capabilities are Steve Jobs, the CEO, and the integrated system of hardware and software that the firm has developed and successfully marketed to derive value. Steve Jobs brought Apple back to tremendous success following a decline in relevance and heads the continued creation of billions of dollars of value. While Apple?s designers, programmers, and engineers each represent key resources the ability of the firm to exploit their abilities to create their entire software/hardware ecosystem is the firm?s key capability. Taken each individually, the resources only represent competitive parities and temporary advantages. The combination is their key capability that has established a sustainable and ongoing competitive advantage and above average performance within the industry. See Appendix A3 for accompanying template.
Steve Jobs Legacy
Apple founder Steve Jobs legacy is an incredibly valuable resource to the firm. His unique vision and approach to business established Apple as an industry leader in the beginning and he saved the firm from a downward spiral when he returned in the mid-1990s.9 Under his guidance the firm has rebounded and excelled in many markets, often defining categories of products. To Apple Steve Jobs is a valuable, rare, inimitable, and non-substitutable resource.
Apple Stores – Retail Locations
The introduction of Apple stores has provided the company with an important physical presence to act as both a sales location and an advertisement. The stores allow Apple to tightly control the image of the brand and provide excellent customer service. Apple tops many retailers in in-store sales, generating $4,032 per retail square foot per year, beating other retailers like Tiffany & Co. at $2,666 and Best Buy at only $930.10 This resource is of incredible value to Apple and a success that is a relative rarity in the industry. Matching success and impact like the Apple store model is difficult for other firms to achieve. Past experiments like Gateway stores have failed, while Sony Style stores founder in mediocrity.
Relationship with OEMs
Apple has outsourced all of its manufacturing processes to OEM partners in China, like Foxconn and Hon Hai Precision Industry while focusing on design internally. The relationships between Apple and their OEM partners are very close to provide Apple with excellent service and high quality
products. Mutually beneficial business relationships are time-consuming and difficult to develop and maintain is of considerable value to Apple and puts them ahead of other manufacturers who may decide to outsource some production.
Industrial Design Capability
Apple?s incredible industrial design capability is a function of their innovative design teams, led by Jonathan Ive, senior vice president of industrial design, and the firm?s prioritization of design and outsourced production. Ive and the Apple design team hold many awards, with products being shown in permanent collections at various museums.11 This combination is valuable to Apple, rare among competitors, and difficult to imitate.
Talented Software Development Teams
Apple?s software developers are carefully selected and talented programmers. They?ve produced industry award winning software and the highly regarded iterations of Macintosh OS X operating system. They?ve provided Apple with important products, but developers of their caliber are not rare within the industry, nor are they difficult to imitate. Other firms can develop staff as talented or hire them away from Apple.
Tailored Hardware/Software Systems
One of Apple?s most important capabilities is their ability to develop and build highly integrative systems with software designed specifically for the hardware it runs on. The „closed system? style of Apple is unique in the industry which typically relies on third-party software (i.e. Microsoft Windows running on a Dell computer). This capability comes from a combination of the design teams, software development teams, and hardware engineers employed by Apple. No other firm in the industry has a system like Apple?s and it would cost millions or billions of dollars to imitate, not regarding success. While other systems work for PC manufacturers they cannot achieve the same results as Apple?s integrated system.
Value Chain Analysis
Based on analysis of Apple?s practices, policies, and procedures the firm?s strategy for its portable personal computer business is one of broad differentiation targeting a range of customers from sophisticated power users to inexperienced new users and from individual buyers to bulk purchasers like schools and businesses. The firm differentiates on exceptional design, consistent quality, and outstanding customer service. The real evidence of Apple?s strategy reveals that their commitments are directly in line with their stated goals and strategy. Apple?s goal is to provide customers with the “best personal computing…experience” by offering products with “superior ease -of-use, seamless integration, and innovative industrial design” and a “high-quality sales and post-sales support experience.”
Risks to Apple’s System
While Apple has been successful in implementing its strategy in the marketplace, some of the firm?s practices could be seen as risks and potential liabilities threatening future success. Most o f Apple?s risk center around the firm?s near absolute dependence on OEMs and foreign factories for manufacturing and assembling their products. Although Apple gives their OEM partners guidelines for sourcing materials to be used in production they do not have direct control over procurement. The OEMs that derive profit from high volume with low margins will continually seek to reduce the costs of inputs to reduce pressure on their margins. Gradual slips in quality will adversely affect Apple if the low quality inputs begin to show in the final products. Customers who begin to notice reduced quality will not be able to justify the premium prices that Apple commands for its products. Similarly, quality control slips during the manufacturing processes carried out by OEMs can negatively affect Apple. More defective products making it through to end-users will hurt Apple?s image as a supplier of premium lifestyle products.
Despite the inherent risks of establishing a value chain completely reliant on foreign, non-subsidiary firms, Apple has had tremendous success in implementing a lean manufacturing structure. Because Apple is committed to the equitable treatment of workers in their partners? factories and developing mutually beneficial relationships with their suppliers OEMs are more likely to work cooperatively with Apple regarding pricing and sourcing, rather than acting only self-interestedly. As long as quality control issues remain relatively few and far between, Apple can easily patch up any holes in perceptions their overall quality. Because Apple is fortunate to have large, highly padded margins on their products, they can afford to do full replacements of defective devices. Apple?s reputation for having sterling customer service a nd their ability to take quick and decisive action to fix issues may leave customers with even higher regard for the firm, despite some issues.
A greener Apple – Apple redesigned packaging for many of its popular products to be more lightweight and take up less space in shipment. This means reduced emissions during transportation and results in a savings for the firm. Apple has also made moves to reduce the number of harmful chemicals used in the production of its products. Strong cash position – Apple maintains a large cash reserves and carries a comparatively small amount of long-term debt.13 This enables Apple to finance expansion, capital purchases, and development internally with little reliance on third-party creditors.
Human Resources Management
Selective hiring process – Apple follows selective hiring practices to recruit and hire talented individuals. Generous employee benefits program – Apple offers a variety of attractive employee benefits to complement direct wages.14 The benefits system is used to entice, and retain industry-leading talent to benefit Apple. Technological Development Research and development – Apple increased research and development funding by nearly 66% from 2007 to 2009, in 2009 Apple spent $1.33 Billion on research and development.15 This is a commitment to continue to push innovation forward to keep ahead of competition. Patent filing – Apple believes in the importance of protecting its intellectual capital by filing patents in the United States and worldwide for its inventions and innovations. Apple currently holds a portfolio of several thousand patents.16
Positive relationships with suppliers – Apple works closely with its key suppliers to benefit all parties involved. Apple is a member of the Electronic Industry Citizenship Coalition (EICC) and works to ensure fair treatment of workers in OEM factories. 17 Apple has also developed its own Supplier Code of Conduct to govern the actions of its suppliers. 18 These beneficial steps foster positive relationships with suppliers.
Automated receiving systems – Apple has implemented sophisticated automated receiving systems to speed up the receiving process and reduce facility footprint and storage space requirements. 19 Delegate raw materials acquisition – Apple works with its OEM partners to delegate the raw materials acquisition process but provides some supervision for quality control purposes.
Utilize OEM’s economies of scale – Apple outsources production to third-party OEM partners to utilize their economies of scale while removing the burden of production management from the firm. Internal design – The design and conceptualization of current and future products is done internally at Apple, utilizing industry-leading industrial design teams and engineering knowhow.
Economical/stylist packaging – In order to save money on shipment and entice customers Apple uses eye-catching packaging that takes up less physical space and weighs less. This reduces shipping costs and environmental effect while attracting customers to the firm?s products. Apple Stores/Authorized retailers – To control the firm?s brand image Apple sells through first party retail establishments and through authorized retailers. Apple Stores act as advertisements for the brand and provide a human point of contact between the firm and its customers. Authorized retailers are held to certain standards to protect Apple?s brand image. Direct shipment – Apple.com online orders are shipped directly to consumers from storage facilities in China. This minimizes inventory buildup in more costly warehouse locations in the United States.
Marketing and Sales
“Get a Mac” Ads – Apple uses a series of television advertisements comparing the firm?s products to competitors using a variety of direct and indirect methods to build a lifestyle brand image. The ads
are humorous and do not emphasize cost or feature-by-feature comparisons, opting instead to develop the firm?s image. Retail locations/Flagship stores – Apple stores across the United States serve as living advertisements for the company promoting the brand and lifestyle image. Flagship stores, like the 5 th Avenue New York store are an attraction drawing visitors on novelty hoping to convert the visits into sales. Secretive and selective unveilings – By keeping secrets about product releases and holding invitation-only press events for product unveilings, Apple creates hype and suspension around product launches.
Apple Genius – Apple stores house the „Apple Genius Bar? where customers can talk with an Apple specialist known as a „genius? about problems with their device. This human interaction with a first party service provider builds a rapport with customers and offers a stark contrast to endless phone service calls.21 Included and extended warranty – Apple offers an included 90 day warranty against defects and issues with its products. Customers can also purchase extended warranties through „Apple Care? to protect their product. Free consultation – Customers can bring in their device for a free consultation regarding issues problems with no commitment, whether it is in or out of warranty. The customer then has the option to pursue different avenues of resolving the issue without an upfront charge. Etc.
General Environment Analysis
Despite Apple?s considerable resources and capabilities, various trends within the General Environment pose considerable threats to the ongoing success of the firm. Proper planning and action will allow the firm to marginalize these threats while leveraging core competencies to take full advantage of emerging opportunities to create value for customers and shareholders.
Recovering economy22 – While the economy in the United States has shown some improvement and there are signs of full recovery looming the outlook is not certain currently. The uncertainty leaves consumers weary of big-ticket purchases like computers. Apple?s premium pricing po sition leaves the firm at a disadvantage to less expensive competing products. However, when consumers directly feel the improving economy and spending increases Apple will well positioned. Consumers seeking to „treat? themselves following the economic upturn may be attracted to Apple?s premium portables, viewing them as luxury goods. Apple, known for its quality, dependable machines, and excellent customer service may also be seen as presenting a better value than the competitors with fewer frills at lesser prices.
Flattening of wages — leveling affluence – Over the past several years the American middle class has experienced increasing costs across many indicators including, healthcare costs and the CPI, but wages have remained relatively stagnant. Apple?s high prices may send potential customers into the hands of competitors when they are unable to justify Apple?s high price tags. Counter -intuitively Apple?s perceived value has directly benefited them during the economic downturn; they?ve continued to experience growth while other competitors suffered.23
Potential FCC Internet Regulation – The debate over „Net Neutrality? has entered the political arena, with bills being drafted in Congress and the FCC waiting in the wings to impose regulation if need be. Changing the way the Internet operates may de-incentivize new innovation which could reduce future value to be derived by Apple.24 New and innovative technologies are routinely iterated on by hardware companies who strive to offer the best methods of integration in their new products. Reducing this innovation may stifle new value creation for Apple. Healthcare reform – The push for modernization of the American healthcare system in proposed reform legislation would provide government money for infrastructure development and implementation by care providers. Adaptability of Apple?s key port ables in innovative health-centric ways could provide new sources of revenue. Technological Environment Device convergence – The possibility that ordinary personal computers (and portable personal computers) will become less relevant through increased de vice convergence is very real. Apple?s products laptops will be less important in users? daily use as their multi -function devices meet most of their needs. Apple stands currently as a leader in innovation and portable technology. They are conveniently positioned to become a market leader in convergence devices by iterating on their current portable devices and mobile devices like the iPod Touch and iPhone. Shortening product lifecycle – An ever increasing pressure to innovate because of shortening product lifecycles could result in missed opportunities due to market entry times and losses on obsolete inventory. Apple?s lean manufacturing value chain is adapted to rapid turnover and can be leveraged to combat the threat of inventory obsolescence. Apple currently invests billions of dollars
in research and development which can be leveraged to position Apple at the head of industry innovation, staying ahead of competitors in lifecycles shifts.
Increasing desire for on-the-go devices – The importance of the Internet and connectivity is driving a demand for access anywhere, using high-speed wireless technologies. Smartphones, and other ultra-portable „connected? devices, that allow users to carry access to the Internet wherever they g o are fast-growing compared to traditional personal computers. Apple and other manufacturers face a loss of relevance in the new technological landscape, driven by consumer preference. Again, Apple?s substantial investment in research and development in highly popular devices like the iPhone place Apple at the forefront of this transition. Greater concern for the environment – The production and shipment of Apple?s devices are considerable sources of carbon emissions and pollution, which may come under scrutiny as consumer concern for the environment continue to grow. Apple has already made commitments to „greener? manufacturing practices as well as implementing the use of eco-friendly components, and packaging. This proactive step can be used as a marketing tool to garner greater respect from concerned customers.
Developing Chinese economy – The Chinese economy continues to grow despite worldwide economic contraction. As the economy becomes more developed, increased wages nationwide will increase the costs of production for Apple and its OEM partners. The increase in quality of life and disposable income to Chinese citizens will provide a larger customer base for Apple to tap into. Potential world-wide climate regulation – It is possible that the Copenhagen talks will result in real commitments from the international community regarding emissions caps and taxes. Strict Carbon emissions regulations will impose a considerable financial burden on the production of Apple?s products, driving up costs and shrinking margins. Again, Apple?s initiative in implementing „green? practices sets them apart from many competitors who will also feel the burden of regulation.
Recommendations of Future Strategic Actions for Apple
Leverage on Innovation and Consumer Feedback
Given the nature of the industry where technological advancement is rapid with high risk of product obsolescence, we recommend that Apple continues to invest in R&D in order to keep up in the fast-paced industry. By constantly innovating and coming up with cutting-edge products, Apple would be able to maintain its position as one of the industry leaders. As Apple is adopting a differentiation strategy, it is imperative for Apple to leverage on its strength in R&D to generate products that will meet the expectations of its customers. Understanding the tastes and preferences of its consumers is the crux. It is important for Apple to be receptive to both positive and negative feedback from its consumers and to appropriately incorporate them into winning solutions. An example would be recent criticisms on how Apple?s iPhone and iPad are incompatible with the popular flash technology. Analysts have predicted that Apple?s decision not to support Flash would have a “limiting effect on the iPad?s sales potential”. Such product limitations, may lead to a loss of certain customer segments. Though it is not feasible for Apple to act on every criticism, Apple should strive to improve and re-invent with each new product launch to minimise product limitations without compromising on its core values and product uniqueness. This will help to ensure that Apple is able to remain as one of the leading firms in the industry.
Target Emerging Markets
The market potential of emerging economies represents huge opportunities that Apple can tap on. We have two recommendations at which the firm can implement to increase its presence in these markets. Launching a New Product Line Many emerging economies may not have the infrastructure to support some of Apple?s products. Mobile and Wi-Fi networks may not be in place. Other issues in such markets include the premium pricing of Apple products which may exceed what consumers and businesses are able to afford. One of the ways Apple can increase market presence is to develop simple but adequate products specifically for these markets. Apple can leverage on its expertise in research and innovation, as well as its strong balance sheet to obtain bulk discounts from suppliers to drive costs down. Given the limitations in certain emerging markets, product features which are not supported by the infrastructure such as the 3G network will be dropped for the new product line. This reduction of features will enable the products to be relatively more affordable to consumers of these countries. Brand dilution can be avoided by keeping the product line separate from the mainstream. The products will not be marketed as a cheaper alternative as product quality standards will still be maintained. The marketing and the launching of these products will also be done exclusively within these targeted markets. Expand on Its Current CSR Initiatives Throughout its history, Apple has focused on the use of technology in education and has been committed to delivering tools for the education sector. Some of the firm?s initiatives in the 22
education sector include having an online education store, which allows students and educators to purchase most of its available products at a discount, as well as support mobile learning through the iTunes U (for University) programme where students and teachers can share and distribute educational media through iTunes. However, such initiatives are not implemented in many education sectors in less developed cities across emerging economies such as Brazil, Russia, India and China. Given the rapid and unpredictable pace of product obsolesces, there is a likelihood that Apple will be faced with excess inventory, either due to inaccurate forecasting or the unpredictable consumer behaviour. Apple could donate, or sell at a discount, these excess stocks to schools and aid in upgrading the school?s infrastructure, as well as enhancing the learning experience of youths. This initiative can be an expansion of Apple?s CSR programme and will increase Apple?s visibility and brand awareness in these emerging economies. In the long run, when these markets mature, Apple will be well poised ahead of its competitors to roll out its full product range.
References:1. David, Fred R. (2011). Strategic management: concepts and cases (13th ed). Upper Saddle River, NJ: Pearson Prentice-Hall. Driver, M. & Valdes, R. (2010, September 16). 2. Harris, A. (2009, September 26). Design at the very core. Engineering & Technology, 4(16), 60-62. Retrieved from EBSCOhost Business Source Complete. 3. Hoovers, (n.d.). Apple Inc. Hoover?s Company Records. Retrieved from http://premium.hoovers.com/subscribe/co/overview.xhtml?ID=ffffrtjccfjfkfckx 4. McGuire, M. & Baker, V. L. (2010, September 24). Apple’s iPod and iTunes updates keep pressure on competitors. Gartner Industry Research Group. Retrieved from http://my.gartner.com/portal/server.pt?open=512&objID=260&mode=2&PageID=34607 02&resId=1440061&ref=QuickSearch&sthkw=apple 5. Smart phones. (2010, September), Consumer Reports, 75(9), 24-27. Retrieved from EBSCOhost MasterFile Premier 6. Apple loosens restrictions for iOS developers. Gartner Industry Research Group. Retrieved from http://my.gartner.com/portal/server.pt?open=512&objID=260&mode=2&PageID=34607 02&resId=1436740&ref=QuickSearch&sthkw=apple
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