Apple Case Study 8

Apple Computer Inc was founded by Steve Jobs and Steve Wozniak in 1976. Apple’s current strategic position as of 2008 is that its market share had declined and has a successful business from its products ranging from PCs to non PCs. Apple’s recent industry entry is to the mobile phone industry with its recent product of the iPhone. Apple has already has its personal computer industry and personal media player industry which consist the MP3 player industry. Apple’s strategic purpose is to leverage its ability through the design and development of its own products and provide its customers products which are ease-of-use.

In 2008, the gross margins were not increasing despite the falling component prices. The market is not doing well and the huge concern is whether Apple could continue its impressive performance, leadership in its innovation and reclaim its original market leader position into the future. The following are the analysis and strategies which can help Apple to continue its business successfully into the future. 2. 0External Analysis The PESTEL framework in figure 1 analyses the many different external factors surrounding Apple’s macro environment and they are interlinked (Turner, 2006).

Political: Apple’s products are given to the US government for certification and regulation and the process is very long and time consuming. Economical: Due to global economic crisis, figure 4 shows that the sales of apple product get affected and the gross margin of 2008 (Apple Case, 2008, pp. C149) did not do well as expected and there is change in the US exchange rate. Social: Consumers now prefer single device which consist of various functions due to lifestyle changes.

Apple has to keep innovating to keep up with its consumer needs such as the iPhone which consist a phone, iPod, and internet (Apple Case, 2008). Technological: Due to the rapid change of factors like product quality, reliability, service, innovation and support, Apple has the pressure to continue to innovate further in order to adapt with the standards of the technology and market changes. Environmental: There is intense competition as competitors are improving themselves in the mobile industry, PC and non PC industry.

Legal: Apple relies heavily on third-party suppliers and if found to break the law, the Apple’s products will be affected. Critical Success Factors are the key determinants of Apple’s success and also have a predominant impact on the achievement or failure to achieve Apple’s objectives (Lynch, 2006). Apple critical success factors are its resources, skills and attributes. Resources: Apple’s very own operating system, customised suppliers who are being outsourced out of US in which Apple has long term contract and customised PC and non PC products.

Skills: Apple has highly skilled and senior management team and they have the ability to think alike and innovate like no one could. Attributes: The Apple brand, the reputation of being the top leader in its PC and non PC industry, user friendly products, simplicity in design, high performance and innovative products are the key factors for Apple. Apple products are costly and difficult to imitate too. Figure 3 shows the Porter’s 5 forces analysis which is a tool being used by Apple to systematically analyse the attractiveness, competitive pressure and

determine whether the profits in Apple will be high or low and to also investigate how Apple needs to form its strategy in order to develop opportunities in its environment and protect itself against its competitors and other threats (Grundy, 2002). Bargaining power of suppliers: Apple has built along term relationship with its suppliers and apple has customised most of its products such as its operating system, mp3 players so the power of suppliers is relatively low.

Threat of substitute products: There are many types of substitute products out in the market by Apple’s competitors (Apple Annual report, 2008). There are all closely similar to Apple’s product but not the exact as Apple products are difficult and costly to imitate. But the substitute products are less costly compared to Apple’s and this threat is very high. Threat of new entrants: It is relatively low and it requires large amount of capital, strong Research & Development and market strategy. Since Apple have created a strong reputation on its branding awareness this has made difficult for new entrants.

Bargaining power of customers: It is relatively high as customers are being exposed to many brands and the price also plays a major role in Apple industry as its competitors are reducing their prices due to high market attraction. Threat of rivalry: It is very intense due to the price war, and marketing when comparing apple to its competitors. Even though Apple tops them when it comes to product differentiation and branding, it has to improve further on its price and marketing. Figure 2 analyses the external threats and opportunities based upon environmental appraisal (Thompson & Strickland, 2008).

Opportunities: Apple has fast growing industries such as PC and non-PC, enables technological innovations and be able to extend its new products to its loyal customers. Apple has a high potential in its music phone market which is the iPhone (Apple Case, 2008, pp. C160) and since Apple is being operated in a niche market which produces broad product line and was earning profits. Threats: Apple has high and extensive competition as there are substitute products and they are lower prices as compared to Apple’s products, rapidly changing technical advancements and the economic down

fall. Frequent strategy changes became a major problem within Apple. Shift in manufacturing costs unable Apple to sustain its profitability. Apple faced difficulty in the niche market due to its less premium segment, highly oriented in its research penetration resulting in high costs. 3. 0Internal Analysis Figure 5 analyses resources and capabilities which seek to understand how Firm B can develop and deploy capabilities that increase or reinforce its competitive power in the market (Viljoen, 2003).

Physical: Apple has customised suppliers, broad product line, online web sales and app stores which make Apple a top leader in its industry. Reputation: Apple has strong brand, high performance and user friendly products which keeps its reputation high and this enable the company to have loyal customers and so suppliers are willing to have long term relationship with too. Organisational: Apple’s organisational structure is relatively flat, informed and non hierarchical, concentrates on the market growth very carefully and plans according to the organisation’s strategy.

Financial: Apple has high profit margin which is being earned by the sale of its products and the profit margin has always been high when compared to the other competitors. Intellectual: Apple has senior and skilled management team as they are well experienced and highly performing management team and contribute to marketing capabilities. Technological: Apple products have the unique design, simplicity, innovative and unique operating system (OS). It is difficult for the competitors to obtain knowledge about Apple.

Design, innovation and R&D oriented. VRIO in Figure 6 analyses a sequential decision-making approach which starts by questioning each resource and asking if it is valuable and then the Firm B will proceed on to examine the rarity, imitation and organisational capability (Morden, 2003). Value: The recent iPhone has combined various features of the Apple’s products and made easy for its customers to just carry a single device which has incorporated many features within it. Apple has a good brand name and it

is the top leader in both the PC and non-PC industry. Apple has its resources and capabilities which enable it to respond to the environmental threats and opportunities. Rarity: Apple has unique resources as it has customised suppliers to provide them the resources (Apple Annual report, 2008). Apple has long term relationship, trust and develops good will with its suppliers. Apple products are customised and innovated to provide product differentiation. Imitability: Apple’s products are very difficult and costly to imitate.

Even though the competitors have provided products similar to Apple’s, there are no products which can replace Apple’s product due to heavy customisation and innovation. Organisation: Apple’s brand name is the biggest competitive advantage and includes simple user interfaces which are long lasting (Apple Annual report, 2008). Apple proves that in this rapidly changing environment it is able to meet its customers demand and adapt to the change. For example, due to the increasing market in mobile industry, Apple made its move to the mobile industry by inventing the iPhone.

The BCG matrix in Figure 8 evaluates the performance of Apple through the market share and industry market growth (David, 2005). When evaluating the performance of Apple using the BCG matrix in the Appendix B, Apple falls in the category of STARS which has a high growth and market share. Apple is the market leader in its business, resulting in generating revenue and also expanding its range of products. Apple has substantial profits and requires high investment and has to strengthen its position in the growth industry.

Expanding smart phone market despite the challenging economic conditions, the smart phones gain significant market share in worldwide rising from 26% to 33% (Apple Case, 2008, pp. C154 – C155). The sale growth analysis has shown that Apple’s iPhone sales have gone up in 2008 has it has attracted 28% of the US Smartphone market in 2008 (Apple Case, 2008, pp. C154 – C155). Value Chain in figure 7 describes activities within and around Apple which together create a product and service and examines the activities being performed (Helfert, 2001).

Inbound logistics: Apple has long term contracts with its suppliers and has the ability to be consistent in its quality. Operation: IPhone and other apple products are assembled and distributed out of US especially in China as it reduces the operating costs. Outbound logistic: Apple is tied-up with its logistics due to its online stores. Marketing & sales: Brand, customer loyalty and internet advertising helped in the sales of the iPhone and other products directly to end-users and resellers through online Apple and retail stores.

Service: Apple has the warranty claim for all its products, identity preservation as well as customised service. Procurement: Apple has long term contracts with its suppliers as they are the common suppliers and they are highly customised. Technological Development: R&D department creates design and immense value by introducing variants to the products and also expanding its product range. Human Resources: Apple has highly skilled management team as well as senior management. Firm infrastructure: Incredible business model and ecosystem has always played an important part in Apple’s Success.

Strengths and Weaknesses in figure 9 analyses internal strengths and weaknesses based upon environmental appraisal (Thompson, 2005). Strengths: Apple has strong brand awareness, product differentiation, innovation, user friendly products, superior quality, high performance, customer loyalty, online web sales, app store and long term contract with its suppliers. Weaknesses: Apple invests heavily in its research and it is operating on a niche market (Apple Annual report, 2008). Apple has limited product selection and it is a new entrant stage in the mobile industry and has a very high pricing when compared to its competitors.

4. 0Current ‘Problem’ Diagnosis Through thorough analysis of both internal and external the problems that Apple has been facing are firstly its supply and manufacture, as most of its important components are being done by its third-party suppliers, who are mainly outside of US causes inconvenience when the suppliers in the countries may face issues such as war, terrorism, public health issues and natural disasters could create delays and inefficiencies in the apple’s supply chain and also affect its consumer buying behaviour. Around 43 % of total Apple’s sales are coming from outside of US (Apple Case, 2008, pp.

C149). Secondly, Apple’s gross margin profit as in figure 4 has been declining recently despite falling component prices. In order to resolve the problems, Apple should create strategies which concentrate on the problems and the weaknesses and also to make good use of the opportunities which are available to Apple in order to compete in the intense competitive environment. The other problem that apple is currently facing is its declining PC industry (Apple Case, 2008) as its competitors have outstood Apple and it has fallen back in its position.

Due to the niche market, Apple has to struggle to bring up its PC industry (Apple Annual report, 2008). Apple should also concentrate on various ways to increase its gross profit margin and sustain its reputation as the top leader in the niche market. 5. 0Generation of Strategic Options The Ansoff’s matrix in figure 10 provides the direction of strategic development for Apple and it is a tool focus on apple’s products and markets in order to decide the available product growth strategies and to achieve those (Lesserre & Philippe, 2007).

Ansoff’s matrix Strategic Option 1: In this strategy it mainly concentrates on market penetration where Apple will increase its existing market share using its existing products in order to attract more number of users and also increase the frequency and volume of products being sold. Apple will be concentrating more on distribution of its products to its market ensuring that there are enough products to distribute and whether the products are distributed to the right type of market segment.

Ansoff’s matrix Strategic Option 2: This strategy is based on the aimed at creating new products for the existing consumers by product reformulation, quality improvement, product line extensions, product feature enhancements and new product development. Since Apple is very well known for its customisation and uniqueness of its product line, it can innovate more products to attract more of its market and gain its retain its status as the top leader in its product line and also regain its PC industry (Apple Annual report, 2008).

TOWS matrix in figure 11 shows the cross referencing of the elements of the SWOT analysis to identify the strategic alternatives and choices for Apple. The internal factors (Strengths and Weaknesses) are cross referenced against the external factors (Opportunities and Threats) in combinatory groups (Gary et al, 2008). TOWS matrix Strategic Option 3: There will be two main concerns in this strategy which is the strength and threat in which Apple will take advantage of its strengths to avoid the threats.

Apple will be concentrating on how to improvise its product in order to gain the top leader position for all its product range and also increase its product ranges as well as consider decreasing its pricing in order to outstand its competitors. TOWS matrix Strategic Option 4: This strategy concentrates on the weaknesses and opportunities and how to use Apple’s opportunities to overcome the weaknesses. Apple will be considering entering into more new industries and providing its customers with more range of products in order to survive in the niche market.

Apple has to make full use of its opportunities and eliminate its weaknesses such as producing more products to the market rather than having limited products. 6. 0Evaluation of Strategic Options Johnson et al. ’s criteria evaluates on suitability whereby evaluates whether the strategies are able to adapt to the changing trends, acceptability where it measures performance outcome of strategy and feasibility focuses on whether the strategy is workable (Hill et al, 2001).

Rumelt’s criteria evaluates on the four factors of consistency whether the strategy is consistent with its internal aspects of Apple, consonance analyses whether the strategy match and adapt the Apple business to its environment, feasibility as in whether the strategy has the capability and advantage analyses on the strategies competitive advantage (Campbell et al, 2002). Ansoff’s matrix Strategic Option 1: In figure 12 it shows that in the Johnson et al.

’s evaluation, this strategy could only fulfil the feasibility and acceptability criteria as this strategy only concentrates on the market penetration which only allows Apple to be innovative in its existing market using its existing product line. In figure 13 it shows that in Rumelt’s evaluation, this strategy could only fulfil the consonance, feasibility and advantage criteria. Ansoff’s matrix Strategic Option 2: In figure 12’s Johnson et al. ’s evaluation and in figure 13’s Rumelt’s evaluation that this strategy could fulfil all the criteria.

Since this strategy focuses on product development, as it enables Apple to perform better by innovating more products and this strategy is the most workable when evaluated. TOWS matrix Strategic Option 3: In figure 12 it shows that in the Johnson et al. ’s evaluation, this strategy could only fulfil the feasibility and acceptability. This strategy concentrates on Apple’s strengths to overcome its threats and the measures to take in order to retain its status.

In figure 13 it shows that in Rumelt’s evaluation, this strategy could only fulfil the consonance, feasibility and consistency criteria. TOWS matrix Strategic Option 4: In figure 12 it shows that in the Johnson et al. ’s evaluation, this strategy could only fulfil the feasibility and suitability. In figure 13 it shows that in Rumelt’s evaluation, this strategy could only fulfil the consistency, feasibility and advantage criteria. This strategy works on the weaknesses and opportunities of Apple.

The most suitable strategy for implementation for Apple will be the Ansoff’s matrix Strategic Option 2 where both the evaluation shows that only this strategy will be workable, resolves the current problem facing by Apple and have the ability to develop advantages over both the organisation and the competitors. 7. 0Description of Selected Strategy The selected Ansoff’s matrix Strategic Option 2 focuses entirely on the product development on Apple. This strategy is aimed at creating new products for its existing customers.

The main purpose of this strategy is to meet its customer’s wants and needs and be able to cater to them by providing the right type of product. Since apple is well known for its customisation innovation it is a very achievable task to implement. This strategy will be focusing on its product reformulation, quality improvement, product line extensions, feature enhancements, customisation and new product development in order to top its competitors and achieve customer satisfaction.

Apple has a very good reputation in its brand name and focusing on its customer needs and developing products which are favourable to its customers can make it the top leader in the market as well as attract more customers. In this manner, apple can solve its problems of heavy reliance on overseas sales, suppliers, increase its gross profit margin and prosper its PC industry since its PC industry is not prospering (Apple Case, 2008, pp. C152). Apple could also new product line of gaming products to attract more customers due to its reputation, high performance level and innovative products. 8. 0Action Plan for Implementation

The following is the action plan for the selected Ansoff’s matrix Strategic Option 2 which focuses entirely on the product development on Apple based on the actions, time and progress. The following also addresses thee integration of resources and competences across resource areas to underpin the success of the strategy. HRM will have to ensure Apple’s efficiency and effectiveness ensuring creativity, competency and productivity. Recruit more manpower; provide incentives for the high performing staffs to motivate them to work harder and build leadership by providing training and development for staffs to gain skills and knowledge.

These activities will roughly take about a year to complete as the HRM in Apple has to train its staffs to adapt to the organisation change and be able to innovate and develop better products. Marketing will concentrate on its existing market segment and improves the sales by promoting the new products to the appropriate customers and will have its products sold on a much more reasonable price. The marketing will also look into the types of products to market out to the customers in order to increase the net sales and gross profit.

The marketing of Apple will also have to look into the financial expectations of its stakeholders by looking carefully into their requirements. This will take about 1 year to implement. Since Apple will be stepping into a new line of product which is the gaming industry, it requires capital in order to run the line of product. R&D will have to conduct research on a minimal cost and develop innovative products which meet the consumer requirements and have the ability to attract more customers. This activity requires more time like 1.

5 years as it have to conduct research and develop products and also customise them based on the customer requirements due to the rapid change of technology. It will be costly as new products, which concentrates on the gaming will be launched out to the existing market as Apple acquires new technology and shorter development times for new features. 9. 0Conclusion After analysing and evaluating the various types of strategies, the Ansoff’s matrix Strategic Option 2 outstood all the other strategies in term of its consistency, feasibility, advantage, consonance, suitability and profitability.

The selected strategy indeed is able to resolve the current problems that Apple is facing. Since this strategy focuses more on Apple’s product development it also takes the current market situation into consideration and develops products which could achieve the highest level of customer satisfactory. This strategy has to be implemented as soon as possible in order for Apple to gain back its gross profit and prosper in its sales for the upcoming years and be able to be consistently being the top leader for its PC and non PC industries.

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