Apple was formed in 1976 by Steve Wozniak and Steve Jobs. After some disastrous losses in the 1980’s and 1990’s to their main competitor, IBM, Apple was able to re-invent the entire company. When Jobs returned to Apple in 1996, he took an expanded role and not only continually pushed for innovative ideas and products but also compelled several structural changes. Jobs also got rid of profitless divisions and departments. Apple has been able to gain market share quicker than the competition mainly due to the “halo effect” from the iPod.
The halo effect is the idea that continued sales of iPods to Windows users will eventually translate into increased Mac sales. Other factors that have contributed to Apple’s growth include: entry into fast-growing low-cost PC market with the introduction of the Mac mini, wide product range with growing mobile market, ability to offer market nearly virus free operating system platform, and continued concentration of the pressure for a digital lifestyle. Apple has continued to add new and innovative products to the market including Apple TV, the iPod and iPhone.
They have been able to capture different segments of the market through their broad differentiation strategy. Apple has developed products along with marketing campaigns to appeal to the masses. In order to continue with rapid growth both on American soil and beyond, they will have to focus on distinguishing themselves with top of the line products and services. Apple has seen success and growth in the past two year in the architecture, engineering, and construction industries. The Mac has the capabilities, applications, and software preferred by professionals in these sectors.
This is something for the company to grasp on to and plan for marketing to these industries. Finally, there seems to be a trend toward the notebook computer and away from desktops PC’s. Apple should continue to develop and focus on their own version of the laptop in order to keep up with this trend. Notebook sales have been very strong and represent a large contribution to income. COMPANY MISSION STATEMENT Apple ignited the personal computer revolution in the 1970s with the Apple II and reinvented the personal computer in the 1980s with the Macintosh.
Today, Apple continues to lead the industry in innovation with its award-winning computers, OS X operating system and iLife and professional applications. Apple is also spearheading the digital media revolution with its iPod portable music and video players and iTunes online store, and will enter the mobile phone market this year with its revolutionary iPhone. CORE COMPETENCIES AND DISTINCTIVE COMPETENCE A core competence is defined as, “a proficiently performed internal activity that is central to a company’s strategy and competitiveness.
” Apple’s core competence would be its innovation and risk taking in its products. They are known for their underlying philosophy of the improvement of existing products as well as the product design itself. A distinctive competence is defined as, “a competitively valuable activity that a company performs better than its rivals. A distinctive competence represents a competitively untouchable resource strength. Apple’s distinctive competence would have to be its strong brand name. The Apple success began in the 1970’s with the Apple II and continues today with the iPod.
While there is an increase in the number of MP3 players available today, the iPod will not easily be dethroned. The Apple iPod has gained success not just due to iTunes, it is the ease of use and the entire iPod experience. Just as Q-Tip has become synonymous with cotton swab, so has iPod become the new name for the MP3 player. MANAGEMENT TEAM The CEO of Apple is Steve Jobs. Jobs co-founded the company in 1976. He also co-founded Pixar Animation Studios, which creates animated films. Pixar films have won 20 Academy Awards and have recently merged with The Walt Disney Company. The Chief Operating Office, Timothy D.
Cook, is responsible for all of the company’s worldwide sales and operations, including management of the supply chain, sales activities, and service and support in all markets and countries. Cook also plays a key role in reseller and supplier relationships. Prior to his career with Apple, Cook has also worked for Compaq and IBM. Peter Oppenheimer is Apple’s Senior Vice President and Chief Financial Officer. Oppenheimer overseas the controller, treasury, investor relations, tax, information systems, internal audit and facilities functions. He joined Apple in 1996, coming from ADP, where he was CFO of the four strategic business units.
Prior to his career with ADP, Oppenheimer spent six years in the Information Technology Consulting Practice with Coopers and Lybrand where he managed financial and systems engagements for clients in the insurance, telecommunications, transportation and banking industries. SWOT ANALYSIS Apple’s strengths include their knowledge of the customer base, high quality products, brand name, innovation, product diversification, and the products’ ease of use. The iPod has given the company access to a whole new series of segments that may purchase other Apple brands.
Brand has proven to be very important for Apple. They have a loyal group of consumers that advocate the brand and also help to procure new customers. One of Apple’s noted weaknesses is that its operating system for its Macintosh line of computers, while better than DOS and Windows in many ways, is restricted to the Macintosh personal computers; therefore, it does not run many of the common business applications that are readily available to DOS and Windows. Another issue for Apple has been battery life in the iPod and the Nano possibly having a faulty screen, and a high price.
Opportunities for Apple include iTunes incorporated into the mobile phone, as well as other strategic alliances that involve the iPod and the automotive industry. Finally, the threats to Apple are the high level of competition. Apple will have to continue to work hard on marketing and research and development to retain its current position and continue to grow. Also, product substitutions are always a threat. While it is difficult at this point to envision a substitute for the iPod, there is definitely something in the works. PORTER’S COMPETITIVE FORCES
Michael Porter provided a framework that models an industry as being affected by five forces. The strategic business manager seeking to develop an edge over competing firms can use this model to better understand the industry context in which the firm operates. The five forces are made up of: rivalry, threat of substitutes, barriers to entry, buying power, and supplier power. In Apple’s case, there is a high degree of rival among competitors, and threat of substitutes in relatively low, especially in the MP3 market. MP3 players have basically phased out the Walkman, and there are few if any substitutes for a personal computer.
Buyer power is also relatively low. There can be high switching costs associated with going from a Mac system to IBM or Windows. Also, if you own an iPod, purchasing songs through iTunes is one of your only options. Barriers to entry are moderate. Brand names already in the market are quite strong and there is a certain degree of difficulty in brand switching. In the current competitive situation, Apple definitely has potential for high earnings. As previously mentioned, Apple has a string brand name and image that will be difficult to compete with.
Apple’s constant innovation and product improvement make it difficult for other firm’s to stand out in the eyes of the consumer. KEY SUCCESS FACTORS Key success factors are the product attributes, competencies, competitive capabilities, and market achievements with the greatest impact on future competitive success in the marketplace. The key success factors for Apple would be the extent of their product offerings. Competitors such as Dell are now also offering peripherals, and MP3 players, but Apple has the strong brand name and innovation that is difficult for the competitors to overcome.
Apple is the oldest hardware manufacturer, and has a long history of improving on their current products while constantly developing new ones. Apple is increasing the number of retail stores by adding its 158th store in the United States, to be located in Florida. They also have 21 outlets in Canada, the United Kingdom, Italy and Japan. These stores have proven prosperous, as the average revenue per store was $24 million last year. The Apple brand is particularly popular among tech circles who express a devotion to Apple and appreciate the secrecy and mystery surrounding new products and stores.
DRIVING FORCES The driving forces in an industry are the major underlying causes of changing industry and competitive conditions-they have the biggest influence on how the industry landscape will be altered. The biggest driving force for Apple would be product innovation. Apple is known for their product innovation and competitors are always striving to beat them to the punch. With the introduction of new products such as the iPhone and Apple TV, continued innovation and product improvement will continue to be a major driving force for Apple. COMPANY’S COMPETITIVE STRATEGIC APPROACH
Apple has adapted a broad differentiation strategy. The essence of this type of strategy is to be unique in ways that are valuable to a wide range of customers. Apple has the attributes necessary to be successful using such a strategy. These characteristics are: highly skilled and creative product development team, the sales ability to effectively communicate the perceived strengths of the product, and a corporate reputation for quality and innovation. FINANCIAL RATIOS OF COMPANY In 2006, Apple had net income (in millions) of $1,989 and $1,335 in 2005.
Apple’s financials, especially P/E are higher in every sense than the industry average. SIC RATIO COMPARISON Financial ratios can be found in the appendix. TECHNICAL/POLITICAL/LEGAL/GOVERNMENTAL TRENDS The biggest technological trend affecting Apple is the consumer’s desire and need for simplicity. Apple has embraced this quality in the iPod. The ease of use of some of the newer products, such as the iPhone remains to be seen. The legal factors currently concerning Apple would be piracy issues particularly in regards to the iPod.
Apple has been able to develop technology to make sure consumers cannot purchase music through iTunes and share it with everyone. Although I am not personally familiar with them, I know there are still ways to put illegal music onto your iPod. INTERNATIONAL OR GLOBAL PRESENCE In 2005, Apple only accounted for 2 percent of international volume. Today, Apple still remains out of the top five internationally. ALLIANCES In 2006, Apple formed alliances with 3 automakers, Ford, General Motors, and Mazda. Apple is teaming up with the auto manufacturers to integrate the iPod into car audio systems.
The alliances mean that iPod will be compatible with more than 70 percent of the new 2007 model vehicles sold in the United States. As of last fall, Apple already had agreements with about a dozen other car makers including Audi, Acura, BMW, Ferrari, Honda, Nissan, and Volkswagen. This alliance strengthens Apple’s brand image and availability of use for iPod users. When iPod users purchase an automobile equipped with this technology, they do not have to purchase separate equipment to listen to their iPod music library in their car. Apple inked another deal just this month.
They will now have access to some movies due to their agreement with Metro-Goldwyn-Mayer (MGM) Studios. Prior to coming to this agreement, Apple has struggled to strike major studio deals to gain access to movie content to expand what is available through Apple’s iTunes library. With this expansion, the movies available through the iTunes library will exceed 500 titles. Apple already has alliances with Lionsgate, Disney and Pixar. Movies through iTunes start at $9. 99. The alliances Apple has established with motion picture studios are very important.
The increased availability of media through iTunes is a great benefit to iPod users. STATEMENT ON ETHICS From Apple. com, “Underlying the way we do business at Apple is one fundamental principle: use good judgment. To give a context for using good judgment, set forth below are some of the basic legal and ethical parameters under which Apple operates. Apple is a publicly held company, and as such, has a responsibility to its shareholders to pay constant attention to all legal and ethical boundaries and to comply with all applicable laws.
Apple has the same obligation to the communities in which it does business and to the customers with whom it does business. ” COMMUNITY INVOLVEMENT Apple Distinguished Educators is a program that uses new technologies to transform classrooms. As counselors, they influence other educators and administrators by presenting their successes at key conferences and events, leading hands-on workshops, and getting actively involved at the local, national and international levels.
According to Apple’s website, the ADE program objectives are to: recognize educators who integrate technology into the curricula and their learning environments in meaningful ways, enhance the professional development of these exemplary educators, create a community of educators to exchange experiences, projects and ideas, empower education advocates with knowledge of Apple technologies and solutions, and foster community based involvement with Apple via a direct relationship with our field employees and retail locations.
Some of the Apple retail locations also feature a youth program, which includes a night dedicated to local schools. RECENT NEWS Apple announced on April 9, 2007 that they had reached a milestone. The 100 millionth iPod has been sold, making the iPod the fastest selling music player in history. Apple has introduced 10 new iPod models since its introduction in November 2001. Apple also reiterated that it has sold more than 2. 5 billion songs, 50 million TV shows and 1. 3 million movies through its iTunes Music Store. On March 25, 2007, LiveScience.
com reported that, “Doctors can greatly improve their stethoscope skills and therefore their ability to diagnose heart problems by listening repeatedly to heartbeats on their iPods. ” SUGGESTIONS FOR SHORT-TERM AND LONG-TERM STRATEGY One suggestion relates directly to the iPod and iTunes. Currently, Apple is leaving money on the table, so to speak. By not offering a monthly subscription price to iTunes, many consumers are going elsewhere. Napster, for one, offers a monthly subscription for $15. With this monthly subscription, you can download as many songs as you would like, as opposed to the $. 99 per song or typically $9.
99 per album through iTunes. Apple has also been under pressure from the music industry to increase prices on iTunes. They may have to completely reconsider their pricing strategy in order to try to satisfy consumers as well as the music industry. With this adaptation, Apple could aim to bring in more new consumers and hopefully in the long-term, turn them into consumers of other Apple products. Apple should develop a strategy for international growth. With very low market share internationally, there is plenty of room for growth. Perhaps focusing on the iPod and then seeing if there will be a “halo effect.
” Apple seems to have nailed it when it comes to the MP3 player market and can possibly create a strong brand name from that in the international market. Apple must continue to develop new products as well as improve on their current products in order to remain competitive and achieve growth. They must also be able to retain customer loyalty which has contributed to their success. RISKS AND OBSTACLES OF SHORT AND LONG TERM STRATEGIES The risk in Apple using the broad differentiation strategy is that competitors can imitate what they are doing, and also that consumer’s tastes can change.
A risk associated with focusing on the international market is again, unpredictability. Just as political changes and consumer taste can change here in the United States, so can it around the world. In the international market, it may be more difficult to predict and then recover from. Finally, a major obstacle for Apple is the launch of the iPhone and the delay of the new operating system due to the iPhone launch. The iPhone has been a big priority for the company, it combines a cell phone and iPod.
However, it is not yet clear how many consumers will be willing to pay $500 for it. Apple has delayed the introduction of the operating system OS X “Leopard” until October. The company had to borrow software engineering and quality assurance resources from the Mac OS X team in order to get the iPhone ready to be released in June. We will have to wait and see if the gamble will pay off. Also, will the next generation iPod be affected by the introduction of the iPhone? There will be a required margin of differentiation in order create separate needs and target markets.