Formerly known as Apple Computer, Apple Inc. has effectively became a successful company in a competitive consumer electronics industry. The firm managed to outsell others by being innovative and differentiating its products through superior service standards and high quality products. To ensure standards are met, Apple outsourced its manufacturing to a reliable third party electronics manufacturing company, Foxconn Technology. In recent years, the smartphone industry is moving towards commoditization. This resulted in intense competition where constant innovation is required to withstand its business marketability. Apple’s strategic capabilities such as having tailored hardware/software systems has enabled the corporation to position itself in term of value, rarity, inimitability and non-substitution. However, to continue gaining its market share as the best smartphone, the corporation might need to review its business suitability, so as to maintain its market leadership in the industry. This strategic analysis and evaluation report will hence review Apple’s performance and sustainability through using business level strategies before strategic recommendations are decided upon. In order for Apple to continually retain its market position, the corporation might need to consider its business suitability such as its strategic direction. Through market development, the company can increase its presence in new market segments. There is a need to look into its R&D (Research & Development), so that new products with unique features can progressively developed. Table of Contents
Introduction (300words) 372
Apple Inc. is a technological company that had achieved great success in designing, producing and selling its wide range of products categories including Mac, IPad, IPod and IPhone, which brings innovations in computers, media tablet, Portable music players and mobile phones respectively. In addition, Apple also offers a variety of related software, applications, services, networking solutions, peripherals and third-party digital content which represent a revolutionary era for innovation and differentiation of Apple. (reuters). Although touch screens in mobile devices are not new, Apple managed to be the first to achieve mass market adoption for that
technology by creating and launching the first IPhone series in January 2007. The IPhone was so much ahead of its time that it virtually created a new category in the market leaving everyone else playing catch up (Elliot, 2012). The Apple’s target market includes teenagers, college and university students, business people, young children and kids and adults. As of September 29, 2012, it had 412 retail stores in 14 countries around the world. (Financial Report 2012) At the same time, Apple had an extensive 72,800 regular employees and an additional 3,300 temporary employees or contractors worldwide (Apple 3 year PnL). Financial Performance
According to the financial report, the company recorded total net revenue of $156,508 million during the fiscal year 2012, which shows an increase of 63% over fiscal year 2011. In which net profit accounted for $41,733 million, a 61% increase over fiscal year 2011 (Apple 3 year PnL). As observed from the report, Apple’s gross profit margin had rise from 40.5% to 43.9% in the past 2 years. This is mainly the result of effective implementation of cost-leadership and differentiation strategy over the years. (Find source).
The firm’s pervious CEO, Steve Job (from 1997 – 2011) had created a culture in which vision are understood and is live by their employees. He believes that communicating the vision to the employee is almost as important as coming out with new products (Elliot. Jay, 2012). This culture was kept alive even when Tim Cook took over as CEO (from 2011 – current) which essentially kept all Apple’s employees on the same page and enact the vision with true passion (Elliot. Jay, 2012) which is key to strategic management (Find that book)
Macro Environment Analysis (700words) 803
PESTEL analysis will be used to understand Apple’s external environment and gain an insight of Apple’s future business potential, market situation and operations directions. There are six elements in the PESTEL analysis; Political, Economical, Social, Technological, Environmental and Legal (Find
source). Considering developments, trends, indicative incidents at the global levels, we identify that Social, Technological and Legal element of the PESTEL analysis pose a much significant impact on Apple’s mobile phone SBU as compared to the rest.
Apple’s social environment is one of key contributor for its success today and will continue to lead it into greater height in future (wei kang, 2013). It’s ‘think different’ slogan is the unique combination of simplicity, creativity and luxury image into the product that reflects the user’s individual identity and the desire to be different (Schneiders, 2011). Apple’s pervious CEO Steve Job always had a sense of what consumer really wanted and adjusted the company’s products line to meet their wants. In other words he tells them what they should love (VERGANTI, 2010). This is a phenomenon known as the cult marketing in which people do not know their wants until cult marketers present it to them (RAGAS & BUENO, 2005). In simple terms, Cult marketing is actually a tool used in strategy to strengthen customer loyalty (Schneiders, 2011). This element has significant positive impact as it allows Apple to have the strongest customer loyalty in the world and achieve the highest repurchase rate in the electronic field (MacNN, 2006). This effect can be seem worldwide whenever Apple launch their new product, Apple’s fans would camp for days in front of the store only to get one of its newest innovation. This shows that Apple’s users really love Apple unlike most others (NUSSBAUM, 2005). In addition, due to the technology development, Apple’s Products such as the IPhone are no longer being viewed as luxuries but real necessities goods (source). To succeed in the long run, Apple should follow and abide to its guiding principle; ‘don’t follow your customers; Lead them’ which implies that consumer need to be shown a superior alternative which Apple distinguishes itself and provide these alternatives (MacVarish, 2009).
The market for mobile phone and other electronic products that Apple offers puts them in a hyper competition environment driven by the fast pace of technological changes. Companies like Apple which manufacture such products
will have to continually invest substantial amount of money on research and development (R&D) to produce better performance, new feature and better design products to counter the short life cycle and frequent introduction of new products in the market (source). According to MacVarish, one of Apple’s guiding principle for their innovation strategy was ‘Be your own toughest Critic’. In which, Apple aims to offer new product lines that replaces older products making their them obsolete and thus preventing competitor from doing so. With this principle to beat itself, Apple managed to beat its competitors too (MacVarish, 2009). Ultimately this enable Apple to lead the market as it did in the launching of the different generation of IPhone especially IPhone 5 which become the world’s best-selling Smartphone worldwide during the 4th quarter of 2012 (Maisto, 2013). As a result, Apple’s R&D expense increases exponentially from $1.782 billion in 2010 to $3.381 billion in 2012 (Apple 3 year PnL). Due to their research intensive nature to keep innovation ahead of competitors, Apple becomes less cost-effective in saturated markets and is exposed to greater risk if it’s R&D does not come through (source).
The intellectual property war has long being used as tool in technology and management strategy by companies such as Apple to gain strategic advantage against their competitors. Apple alone has filled as many as 250,000 patents for the IPhone and other Smartphone covering the design and functionality of these products (Cusumano, 2008). Apple had lawsuits all around the world with its competitors such as Samsung, Motorola and Nokia both suing and being sued over violation of each other’s patents (source). One such case is the lawsuit in the U.S between the Apple and one of its top smart phone competitor; Samsung in which the jury awarded Apple $1.05 billion in damage and ordered some of Samsung’s Smartphone products off shelf in parts of the US (source). This verdict allows the IPhone to gain distinctive advantage in the US market and at the same time helped Apple in advertising and broadcast IPhone originality. In addition the amount of damage awarded to Apple could be counted as revenue which eventually increases the profit margin significantly for of Apple that quarter. In conclusion, while most lawsuits Apple filed comes with little success, any court decisions that verdict in
favor of Apple’s patents will likely allow IPhone to remain distinctive in the market (Cusumano, 2008).
Industry (Competitive) Analysis 815
Michael Porter’s 5-forces model
Apple’s competitive position and its attractiveness in the smart-phone market can be explained in analyzing the Porter’s 5-Forces framework (Porter, 1980). Using the competitive forces, it would identify the competitiveness and its ability to position itself with diversification. It will show its sustainability and profitability of its iPhone series. Threat of Potential Entry/Barriers to entry – LOW
The smart-phone industry is saturated and poses strong barriers to potential entrants who are keen to enter the market. Presently, there are a few well-established competitors that have a large market share and economies of scale which limits new entrants from entering. Its strong brand presence and consumer loyalty is a hindrance to potential entrants (Bostic, 2013). New entrants require a large amount of capital investment, so as to compete against the market leaders. Due to large economies of scale, it is nearly impossible for this new entrants to enter and gain substantial market share. Sometimes, there is a need for new entrant to innovate such as creating distinctive features or software to compete. But this usually brought about by lack of resources as investing in ample resources does not come cheap. Legal terms such as patents and trademarks serves as a barrier to new entrants. New entrants also face barriers such as legal terms. These are usually patents or trademarks that the dominants players have. This market leaders such as Apple Inc have patents on its designs of iPhones including software such as iTunes. This prevents any infringements from new entrants to copy similar ideas. After all, Apple is still a dominant player in the smart-phone market and competing against Apple really requires a new entrant high start-up costs. Reference:
Bostic, K, (2013), “Study finds 20% of Apple iPhone users switched away from Android in past year”, Apple Insider Porter, M, (1980), “Competitive Strategy: Techniques for analyzing industries and competitors”, Free Press,
Simon & Schuster Adult Publishing Group Rivalry between competitors – HIGH
The smart-phone market is very well-developed and there is a high degree of concentration. It is controlled by a few large competitors which are Apple’s strong rivalry. This are dominant smart-phone players such as Samsung, LG and HTC Mobile which has high capital investments. Smart-phones have become a commodities item that any person will require. As such, dominant players have been placing an emphasis on competitive pricing. This will enable them to gain an edge over competitors. These competitors are generally of comparable size with Apple in its operations. Due to stiff rivalry, Apple will differentiate itself in terms of design features and functionalities. Its competitors have also aggressively seek a leadership position in the smart-phone market by constantly innovating and seeking new changes. The result of technology advancement has also caused an increased competition to seek change in the industry. This in turn results in rivalry among smart-phone players to streamline its products and constantly refreshed its gadgets to meet the demand, so as to stay in competition. (Apple Inc Report, 2009). References:
Apple Inc. SEC 2009 Form 10-K Filing Page 16 ??
Threat of substitutes – MODERATE
It may seems that Apple has a variety of substitutes in the market, but the nature of Apple’s products sets itself apart from competitors. Although it may seem that Apple has an extensive array of substitutes in the market, but its proprietary nature of products sets itself apart from competitors. Presently, its threat of substitutes of its smart-phones (e.g: iPhone5) are still moderate. But competitors are already riding on its successes by constantly innovating and substitutes it with a similar product in the market. In general, Apple sources its parts from various suppliers, thus keeping itself unique in the smart-phone market. As such, Apple still have to constantly stay innovative and price conscious so as to effectively positioned itself against other competitors with a strong branding and following. As such, its differentiation strategy can effectively diversified itself from others.
Bargaining Power (buyers) – LOW
There are many smart-phone brands in the market that is a substitute to Apple’s iPhones, but the bargaining power by buyers remain low. The main fact is that Apple’s focuses on differentiating its products from its competitors. Its unique designs, features and cult marketing are testimony to its loyalty by buyers. Its niche market in the smart-phone industry also makes buyers less sensitive on product pricing. Customers or loyal fans of Apple are still willing to pay regardless of the price. Although major retailers or businesses have some relative power to bargaining due to its bulk volume, individual buyers still have no control especially on their product pricing. Apple’s lack of third party options also means that buyers have less options for other product. Bargaining Power (Suppliers) – LOW
Apple relies on a variety of suppliers in its manufacture for smartphones. Usually, it is not limited to just one single supplier for various components in the assembly of its smartphones. As such, this leaves Apple’s suppliers with less bargaining power over prices. This enables Apple to successfully create a competitive advantage over its competitors in the market (Apple Annual Report, 2012). Due to its bulk quantities of components, Apple Inc can have a leverage over suppliers through negotiating better terms and pricing. This allows Apple to have a lower cost structure and ensures a higher profit margin as compared to its competitors.
Apple’s Strategic Capabilities 684
Apple’s integrated system of hardware and software has enabled the firm to successfully market and develop to be their most valuable strategic resources (Dhaliwal, 2009). It was their former CEO, Steve Jobs that pulled Apple’s back to the growth stage. Apple’s talented team of software engineers, programmers and designers are the firm’s key resources in innovating. This enables Apple to utilize their knowledge to successfully create a tailored hardware and software system which serve as its key capabilities. Its integration in its key capabilities has allowed Apple to
create a competitive advantage and sustainability in the market (“Electronic Industry Citizenship Coalition,” 2009).
Resource/Capability| Value| Rare| Imitate| Non-substitution| Relationships with OEMs| √| | √| |
Retail locations| √| √| √| |
Tailored Hardware/Software Systems| √| √| √| √| Figure 1: VRIN Table
The VRIN model, a four key criteria resource-based view, examines if Apple Inc. uses its strategic resources to create a competitive advantage. Relationships with OEMs
Apple holds good relations with its OEM business partners in China. It includes companies such as Foxconn and Hon Hai Precision Industry. This close relationships that the firm maintains with its partners assures that the outputs produced are superior and of high quality. This allows Apple to be ahead of other smart-phone manufacturers who prefers not to outsource production.
Value: Its strong relationships maintained with its business partners allow Apple to take advantage of opportunities by Foxconn, such as cheap manufacturing costs. This ensures that the firm can provide a sustained value in its products and thus reducing any threats (Barney, 1991). Inimitability: Competitors can still imitate by following Apple’s strategy of finding an OEM partner. But what sets Apple apart from the rest, is its ability to maintain its development of software, which others has problems imitating despite having an OEM partner. The intention of Apple Inc. is to integrate multiple functions into developing an Apple product. This will ensure Apple’s users get the most value when they purchase the final product. Apple Inc. ability of combining all 5 aspects of key strategic resources/capabilities into one, allows the firm to be ahead of competitors due to its sustained value and its success in taking opportunities and reducing threats. (Barney, 1991). Retail Locations
The introduction of Apple’s retail stores provide the corporation with a physical presence and convenience to its customers. It allows Apple to
create a store image by providing an attractive store front and superior customer service. This key resource serves as an important value to Apple which is a relative rarity in the industry. Value: Its strategic locations of its retail stores worldwide provide consumers with the ability to reach its products easily. This gives Apple a competitive advantage against competitors. Rarity: Apple’s strategy in positioning its store and differentiating its products ensures that the firm is in a leadership position. Its unique factors of its strategic retail location are a rarity to the organization. Talented software development teams
Apple has a capable team of software developers. This are often carefully chosen by the corporation and serves as Apple’s most talented programmers. They assist Apple with introducing important products. But often developers of this caliber are not rare in the IT industry, neither are they tough to imitate. Hence other smart-phone manufacturers such as Samsung Mobile can also train or hire strong caliber of developers too. Industrial Design Capability
Industrial design capability is one of Apple Inc. strategic resource that serves as a function of its innovation ability. Its capability of its innovative design teams are valuable to the corporation. Its innovative design teams also have strong teamwork which forms one of Apple Inc. strategic resource too. This enables Apple to indeed be very valuable, rare among its competitors and also its difficulty in imitation.
Tailored Hardware/Software Systems
Apple Inc. competitive advantages among competitors are having a tailored hardware and software systems. It is one of Apple’s most important abilities as it is only specifically designed and built in its integrated products. Its ‘closed system’ styles also form its specialty as most competitors relied on third party software. One example would be Samsung Mobile adopting the Google’s Android market. Its capability of combining its own design, software development, hardware programmers ensures its competitive advantage. Value: The benefits of having its own hardware and software ensure that the firm provides value to its consumers. Rarity: The rarity of
having a dynamic team of talented staff allows the firm to develop specialized hardware and software which are unique to the company. This are important factors which identifies Apple’s power in the industry. Inimitability: Apple’s inimitability in most of its strategic capabilities allows the firm to be of a competitive advantage than its competitors. In particular, its tailored software, iOs app store was developed ahead of its competitor, Samsung mobile who adopted the Google Play store. Though Apple has a talented team of software developers, this is still inimitable as competitors can train and develop staff. In general, Apple’s strong strategic capabilities still prevent competitors from intimidating. Non-substitution: In general, Apple’s products are substitutable with alternative products. The reason that sets apart from its competitors is its brand identity and its tailored hardware and software. This development serves as a unique factor which no third-party can substitute. Sustainability as Competitive Advantage
To successfully sustain Apple’s continued performance and competitive advantage, its management may consider seeking exclusive partnerships or arrangements with its OEM partners to bring costs down and probably reaching out to more countries with expansion of Apple’s stores. These strategies will allow Apple to continually lead the market with its dominance and market share.
The intention of Apple Inc. is to integrate multiple functions into developing an Apple product. This will ensure Apple’s users get the most value when they purchase the final product. Apple Inc. ability of combining all 5 aspects of key strategic resources/capabilities into one, allows the firm to be ahead of competitors due to its sustained value and its success in taking opportunities and reducing threats. (Barney, 1991). Rare
In the smart-phone industry, there are many brands that compete directly with Apple iPhones. But what stands out against competitors is Apple’s ability to position and differentiate its products. Its innovativeness in industrial design, specialized hardware/software and its strategic retail location
allows Apple to gain its uniqueness in the market. This assures Apple Inc. as a successful organisation due to its brand identity and superior quality.Inimitate Apple’s inimitability in most of its strategic capabilities allows the firm to be of a competitive advantage than its competitors. In particular, its tailored software, iOs app store was developed ahead of its competitor, Samsung mobile who adopted the Google Play store. Though Apple has a talented team of software developers, this is still inimitable as competitors can train and develop staff. In general, Apple’s strong strategic capabilities still prevent competitors from inimitating. Non-substitution
Generally, Apple’s products are substitutable with alternative products. The only reason that sets apart from its competitors are its brand identity and ability to keep hold of Apple’s fans. Its talented teams of software developers and tailored hardware/software are an uniqueness to Apple and no third-party can be substituted.
Business Strategy 781
An analysis shows that there is a strategy shift in Apple for its smart Phone business as the company had a change in leadership since 2012. Apple’s current goal is to give its consumer the best product experience by offering superior high and low-middle end products that are user friendly, innovative in design and feature, integrate seamlessly and excellence sales and post-sale support experience for consumers (forbes). Generic Competitive Strategy
Apple’s is pursuing a hybrid combination of product differentiation and cost leadership strategy. With the combination of the 2 strategy, Apple managed to achieve high profit margin where it produces its smart phone cheaply and selling them at a premium price.
Competitive scope (broad target)
Under Tim cook’s (CEO of Apple from 2012- current) lead, Apple started to explore new territory by building on the success of its current smart phone
business unit and expanding it into emerging markets. This strategy is seen to be put into action with the announcement of the IPhone 5s and IPhone 5c (a watered-down version of the IPhone series) launch (Apple main website). With the dual launch of the IPhone 5s and IPhone 5c, Apple managed to position its product in both the premium and non-premium category respectively that offers 2 price points. The IPhone 5s will continue to address their current market while the IPhone 5c will catered to more price sensitive customer base especially from the emerging market.
Competitive Advantage (Lower cost and Differentiation)
Given that Apple will be having a dual IPhone launch with almost the same design, features and running on the same operating system (ISO 7), it will achieve economies of scope where cost factors such as advertising and research and development will be shared. In addition, the 2 IPhone caters to different market segment, allowing Apple to have a larger addressable market where economies of scales can be achieved by driving supplier’s cost down with the promise of increase order quantity. These factors will help Apple deliver cost leadership in the smart phone industry. However despite the increasing effort in research and development to bring about innovation and to differentiate their smart phone, Apple failed to produce sufficient uniqueness and dimension that is valued by their consumer. In fact, Apple is replicating its previous IPhone model with minimum introduction of ‘game-changing’ features. The company’s reduce pace of innovation can be inferred from its latest launched flagship IPhone, the IPhone 5s which retains the dimensions and design of its pervious flagship; Phone 5 with little addition to its feature and performance (yahoo news).
Apple.inc has been able to perfect the chain of activities in innovation. Apple starts from its new ideas of product design through R&D with its strategy capability and extensive funding. Then manufacturers it and finally markets it wholeheartedly. The process of transforming inputs into outputs compromises a number of primary and support activities” (Hill and Jones, 2001, p.133). Each value is considered to be a source of competitive
advantage. Value chain analysis is a powerful tool for managers to identify the key activities within the firm which form the value chain for that organisation, and have the potential of a sustainable competitive advantage for accompany. Therein, competitive advantage of an organisation lies in its ability to perform crucial activities along the value chain better than its competitors Technology Development
Buying and R&D
Most components are generally available from multiple sources; a number of components are currently obtained from single or limited sources. Hardware products are manufactured by outsourcing partner primary in Asia e.g. Foxconn.
Delegate raw materials acquisition
– Apple works with its OEM partners to delegate the raw materials acquisition process but provides some supervision for quality control purpose.
Automated receiving systems
– Apple has implemented sophisticated automated receiving systems to speed up the receiving process and reduce facility footprint and storage space requirement
That is a concern for suppliers. Apple’s smartphone margins are the highest in the industry. But as those margins come under pressure, Apple will push suppliers to cut costs. Flat-panel televisions followed a similar pattern, with margins for screens eventually falling to near break-even levels, says Alberto Moel, an analyst at Bernstein Research.( http://online.wsj.com/article/SB10001424127887323610704578625540722848194.html)
Apple used variety of direct and indirect distribution channel, such as retail stores,online stores and direct sales force, 3 Rd
party cellular network carriers, wholesalers, retailers and value added resellers.
Apple continue to expand and improve its distribution capacities by expanding the number of its own retail stores worldwide in order to ensure a high quality buying experience for its product.
Economical packing – Apple employed teams of design and engineering experts who develop product packaging that’s slim and light yet protective. Efficient packaging design not only reduces materials and waste, it also helps reduce the emissions produced during transportation.
Marketing & Sales
Dhaliwal, A. (2009). “Apple’s Q4 results beat analysts? Estimates; quarterly profit rises to $1.67 billion.” Top News, retrieved on September 14, 2010 from: http://topnews.us/content/27794-apple-s-q4-results-beat-analysts-estimates-quarterly-profit-rises-167-billion “Electronic Industry Citizenship Coalition.” (2009). Electronic Industry Code of Conduct. retrieved on September 14, 2010 from: http://www.eicc.info/PDF/EICC%20Code%20of%20Conduct%20English.pdf Barney J, (1991), “Firm resources and sustained competitive advantage”, Journal of Management, vol. 17, no1, p99-125 Identifying the strategy
Generic Competitive Strategy
Apple is pursuing a broad differentiation strategy. Apple differentiates by offering high-quality, exceptional design, and personalized service. The scope of their strategy is broad targeting customers ranging from
unsophisticated beginner users to specials needs power-users.
Apple Inc. is concerned with which strategic directions and methods suggested addressed the issues the corporation faced (Johnson & Scholes, 2008). It assists in determining the business suitability of strategic choices which relates to the strategic position. To test on Apple’s suitability on its proposed business strategies, the Porter’s value chain model is chosen to consider the internal factors of the organization. Strategic Directions
Presently, Apple’s infrastructure is very well established and developed. But the corporation should still continue in its infrastructure developments, so as to achieve back its high market share in the smartphone industry. Its market penetration business strategy relies heavily on its primary activities such as inbound logistics, outbound logistics; and sales and marketing. To continue moving towards the market penetration direction, its support activities do play apart. The technology development will then be in a position to assist the support to the proposed strategy.
Apple may need to consider a strategic drift to gain a competitive advantage in its business strategy. The product development strategy gets its assistance from support activities such as developing new products to meet customer demands. To increase its firm performance and market share, Apple is introducing new features such as finger sensor on its new iPhone5s and also colored version of its iPhone5c (Apple.com). This new features or product development somehow serves a determining factor whether Apple will achieve its business strategy or affects its corporate performance.
At present, the firm is adopting the market development strategy. It assists
Apple in venturing into new market segments. Thus, there is the importance to focus especially on the primary activities of inbound and outbound logistics, sales and marketing. Apple is still able to rely on its OEM partners for resources especially in manufacturing, which serves as Apple’s key competency. To move ahead, Apple might need to enter or develop new market, such as in developing markets which it has zero presence. With its strong alliance partner, such as Foxconn, Apple is able to utilize its logistics part and its strong sales and marketing to open up new market. Hence, these three suggested business strategies are suitable to evaluate the value chain, and Apple can carry any of these strategies ahead. Apple will need to consider which strategy will achieve its overall business objectives to sustain itself in the market.
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