STRATEGIC ANALYSIS OF APPLE INC.
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Table of Contents 1. Introduction.............................................................................................2 2. Strategic position....................................................................................2 SWOT analysis..........................................................................................2 3. Business strategy....................................................................................3 4. Strategic options available to Apple........................................................4 5. Strategic evaluation................................................................................4 5.1 Suitability...........................................................................................5 5.2 Feasibility...........................................................................................6
Resource Deployment......................................................................6
5.3 Acceptability......................................................................................7
Analysing Risks................................................................................7
6. Conclusion...............................................................................................8 References...................................................................................................9 Appendices................................................................................................10 Appendix A.............................................................................................10
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1. Introduction Apple Inc is a US based public limited company which is popular for making innovative
electronic
products
for
music, computer, communication, and entertainment
purposes.
Apple
was
founded by Steve Jobs in 1976 and presently it has more than 357 retail stores and over 50,000 employees all around the world (Apple Inc., 2014). This particular report evaluates the strategic
position,
strategy,
and
current
business
strategic
options
available
to
Apple
using
strategic
management
relevant
tools
and
Figure 1: Strategy evaluation framework Source: Johnson et
techniques. This is done in order to
al. (2010)
evaluate how the strategic direction relates
to
international
growth,
innovation
expansion.
The
or
entire
report is written on the basis of Johnson and
Scholes
framework
which
is
depicted in figure 1.
2. Strategic position SWOT analysis The SWOT analysis is conducted in assignment 1 (group report) where each element (i.e. strengths, weaknesses, opportunities, and threats) of it was explained thoroughly. As mentioned in figure 1 that strategic evaluation of strategic choices available to Apple are based on SWOT analysis. Therefore, it is inherent to present here the summary of SWOT analysis which is derived from the assignment 1.
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Table 1: SWOT analysis of Apple Inc
Strengths 1. Customer loyalty combined
Weaknesses 1. High price
with expanding closed
2. Incompatibility with different
ecosystem
OS
2. Apple is a leading innovator in
3. Long-term gross margin
mobile device technology
decline
3. Brand reputation 4. Research and Development (R&D) 5. Digital hub for focused differentiation Opportunities 1. Emergence of the new
Threats 1. Price pressure from Samsung
provider of application
over key components
processors (product
2. Strong dollar
development)
3. Android OS growth
2. Growth of tablet and smartphone markets (market
4. Competitors moves in online music market
penetration) 3. Obtaining patents through acquisitions (market development)
3. Business strategy In 1996, Bowman reconsidered Porter’s generic strategy framework consisting
of
cost
leadership,
product
differentiation,
and
market
segmentation to develop its model namely Bowman’s Strategy Clock (Thomson and Baden-Fuller, 2010). This model is the extension of Porter’s
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model and considers eight instead of three elements as shown in figure A1 in Appendix A. It is mentioned by Apple Inc in annual accounts and report of 2011 that “the company’s business strategy leverages its unique ability to design and develop its own operating systems, hardware, application software, and services to provide its customers new products and solutions with superior ease-of-use, seamless integration, and innovative industrial design” (p. 27). This means that the company is creating products by following digital hub strategy which refers MAC operating system (Caulfield, 2011). The company’s all popular products iPod, iPhone, iPad, and iTunes are based on MAC. None of the product runs without MAC operating system and this shows Apple’s ‘focused differentiation’ strategy. By looking at the strengths of Apple, it is identified that Apple has developed brand reputation and leading as an innovator in mobile device technology. The company is charging premium price for its products and developed its own niche and segment.
4. Strategic options available to Apple After getting familiar with strategic position and business strategy of Apple, the Ansoff matrix is used in this section to develop and evaluate strategic options and their appropriateness to achieve them (Proctor, 2014). The development and evaluation are based on threats and opportunity factors in table 1. Apple has vast capabilities and high brand value in delivery its innovative products to customers. So the biggest opportunity that the company can adopt
is
to
explore
unexplored
markets
by
considering
‘market
development’ strategy. By adopting this strategy, the Apple can gain access to new customer base by establishing joint ventures or strategic alliances (Henry, 2011). By considering the present economic condition of Europe and USA, which are the major markets for Apple, the company requires to utilise its core competency in R&D and concentrate on ‘product development’ strategy for future growth in these regions. In this regard, by focusing on opportunities factor, the company can offer smart phones with relatively low prices which can enable Apple to retain present customer base and achieve customer loyalty. By bearing in mind the strengths, core 5
competencies, and the large size of two regions, the product development strategy best suits to Apple Inc.
5. Strategic evaluation Two strategic options for Apple can be Market development for international expansion; and Product development for growth purpose The internal or organic development can be the best method when considering product development strategy. This method is recommended on the basis of company’s strengths. In fact, in developing innovative products, the company spends a large amount of its budget each year on R&D activities for achieving competitive position. In order to launch cheaper smart phones with relatively low prices, Apple neither requires arranging massive capital nor depending on third party investment. In addition, the company is also capable to use its core competencies in technical areas. Furthermore, the suitable method for adopting market development strategy is joint ventures and alliances (Henry, 2011). Apple can establish strategic alliances or acquire mobile companies currently operating in new unexplored markets in Asia and Africa. In this regard, Apple can revise/modify existing business strategy (see section 3) according to the conditions of new markets. This will indirectly assist the company in terms of attracting customers and achieving their satisfaction. This strategy is also appropriate for Apple as the company will not involve high investment. In the subsequent sections, the market development and product development strategies are analysed critically on the basis of suitability, feasibility, and acceptability framework proposed by Johnson et al. (2008).
5.1 Suitability Suitability usually refers to appropriateness of strategic option in assessing whether it addresses the key weaknesses and threats of the company associated with its strategic position (Johnson et al. 2008). The strategy of product development needs extensive support of the existing management. The management needs to carry out support 6
activities same as required for launching new innovative products, employing adequate resources, acquiring the infrastructure machinery and equipment, and managing the new service by focusing on the development and delivery of new products. In this way they can satisfy rapidly increasing needs and demands of the customers. Apple’s key strengths are its R&D activities and rich resources of developing innovative products and these competencies are sufficient for product development activities. On the other hand, the strategy of market development needs to establish joint venture or strategic alliances of new or existing organisations in the potential market. The principal activities in market development involve marketing, sales, and inbound and outbound logistics (Wilkinson, 2010). In exercising the option of strategic alliance or joint venture, Apple will not have a great deal pressure on its resources and thus will greatly rely on partner company’s resources. However, the organisation must ensure that the marketing and sales operations are well integrated which address the key aim of market development needs. Currently, Apple has insignificant existence in developing economies (Majeed and Ahmad, 2009), so the HR department is required to employ adequate human resources which are capable of performing required activities for market development at large scale. In addition, key sales and marketing operations can be performed by Apple’s staff and logistic responsibilities can be handled by its partner company. Based on the value chain analyses conducted in the group assignment 1, these two strategies look adequately suitable as the company is not required to employ massive resources to implement these strategies. By selecting a suitable strategy and method, Apple can support its key business strategy in order to achieve short-term goals and long-term objectives.
5.2 Feasibility Evaluating strategic options in terms of feasibility means to verify whether a company is able to deliver the strategy. This ability is assessed on the basis
of
company’s
core
competencies
and
resources.
The
core
competencies of Apple are derived from assignment 1 illustrated in figure 2.
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P e rs o n a liz e d S e r v ic e
G B A D E e
e t u y
To W it h
i ff e r e n t x p e r ie n c
T h in k O n A D i ff e r e n t L e v e l
H ig h Q u a lit y
Figure 2: Core competencies of Apple
A number of approaches can be used to measure feasibility in which resource deployment is one which is recommended by Johnson et al. (2008). • Resource Deployment Product development: Apple has invested massive amount of money and resources already in building the image, brand value, innovative technology, and competitive position in the world market. As mentioned earlier that R&D is the core strength of Apple, however, developing low price products will need the company to develop new strengths and capabilities. Most importantly, Apple will need to improve its abilities of reducing manufacturing costs and look for new vendors who can provide cheaper parts with desired quality. Moreover, some additional amount will be required for spending on R&D activities. Market development: The market development strategy will need Apple to employ additional resources for new market. It is necessary to organise and look after business in that market. In fact, the current competencies and technical expertise of Apple are adequate for existing markets and for present products. In order to diversify to new market preferably developing countries where low price products are welcomed, Apple will require to recruit resources as per demand of the new market. The adoption of market development strategy will enable company to significantly increase its market share and consequently profitability will 8
be enhanced as well. Therefore, to achieve these outcomes, recruiting new staff will not be a major issue for Apple. After having a look into the latest financial statements of Apple, the market development and product development strategies look feasible for the company in terms of arrangement of financial resources. The organisation
will
not
suffer
from
additional
burden
with
market
development strategy. Although, the strategy of product development will need some additional capital but the financial position of the company will enable it to consider this option.
5.3 Acceptability Acceptability mainly deals with the anticipated performance results of the strategy. The acceptability of any strategy can be analysed on the basis of risks and return (Johnson et al. 2008). • Analysing Risks Risks are evident in any business. No business can run its operations without the element of risk. So, it is extremely imperative to take into account risk factors during the planning and implementation of strategic options. For this, the most important step is to estimate the likelihoods and impacts of success or failure of a strategy (Barnwell and Best, 2008). In considering product development and market development options, several internal and external risk factors can be taken into account. In the present business scenario, new market development is one of the best strategies to be implemented for Apple. Based on situational analyses (i.e. SWOT and PESTEL) conducted in the group assignment, it is apparent that the finest strategy for Apple is to expand internationally. Apple can adopt the market development strategy aggressively by establishing strategic alliances in order to move forward. The strategic alliances method carries minimum risks for the company in terms of financial loss. So, Apple can enter into the unexplored markets without the fear of huge losses. On the other hand, the company needs to be careful in terms of product development strategy. There is no doubt that Apple is fully capable of developing new products due to advanced R&D activities and also has competencies
of
technical
advancements;
but,
reducing
costs
of
operations and choosing new vendors for new product can be challenging. 9
These may require extensive research and massive time investment in order to maintain the image and quality of Apple products.
6. Conclusion The two strategic options available to Apple are market development and product development. The product development strategy embraces longterm growth of the company and it also provides foundation for new innovative technology. Based on assignment 1, there are some evidences for Apple entering into the emerging markets like China and India. This shows company’s proactiveness and continuous involvement in market research and market development. However, company’s position is weak in some markets like Russia, Egypt, and Brazil. This position can become better with product development strategy. Conclusively, it can said that the integration of both strategies (i.e. product development plus market development) can generate remarkable results in terms of expanding market share, increasing customer base, competitive advantage, and higher projects.
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References Annual Report and Accounts (2011). Apple Inc. [online]. Available from: http://www.annualreportowl.com/Apple/2011/Annual%20Report? p=27 [Accessed: 09 April 2014] Apple Inc. (2014). A store like no other. [online]. Available from: http://store.apple.com [Accessed: 09 April 2014] Barnwell, H. and Best, N. (2008). CIMA Official Learning System Test of Professional Competence in Management Accounting. 5th edition, Butterworth-Heinemann Caulfield, B. (2011). A Decade After Steve Jobs Positioned Mac As A 'Digital Hub,' iCloud Could Bury PC. Forbes, 06 March 2011 Henry, A. (2011). Understanding Strategic Management. Oxford University Press Johnson, G., Scholes, K. and Whittington, R. (2008). Exploring Corporate Strategy: Text & Cases. Pearson Education Johnson, G., Scholes, K. and Whittington, R. (2010). Exploring Corporate Strategy with MyStrategyLab. Pearson Education Majeed, M.T. and Ahmad, E. (2009). An Analysis of Host Country Characteristics that Determine FDI in Developing Countries: Recent Panel Data Evidence. The Lahore Journal of Economics, 14(2), pp. 71-96 Proctor, T. (2014). Strategic Marketing: An Introduction. Routledge Thomson, N. and Baden-Fuller, C. (2010). Basic Strategy in Context: European text and cases. John Wiley & Sons Wilkinson, I. (2010). Business Relating Business: Managing Organisational Relations and Networks. Edward Elgar Publishing
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Appendices Appendix A
Figure 2: Bowman’s Strategy Clock (Thomson and Baden-Fuller, 2010)
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