Developing Competitive Advantage: The reason behind Apple success - Essay Example

? Developing Competitive Advantage Contents Developing Competitive Advantage Contents 2 Introduction 3 Analyzing Competitive Advantage 3 Choice of Organization and its Competitive Advantage 5 Porters Five Force Model 5 Porters Generic Strategy 6 Value Chain 7 PESTEL 9 Plan for Management 11 Conclusion 12 Reference 14 Introduction A sustainable competitive advantage means way of providing value to customers which is different and unmatched from its competitors. Strategy is linked with the definition of competitive advantage and its development of resources, capabilities and activities that usually enables a firm to sustain its competitive advantage which helps it to sustain in the changing world. Therefore competitive strategy aims to define the way a firm competes in a given industry. The competitive strategy of a firm is to create a valuable position in its related industry. This process involves the vision of the type of customers the firm tends to serve and the method by which it tends to deliver value for its customers. But as mentioned earlier, competitive strategy is not just vision it’s more than a vision of the firm, it involves the processes and activities in order to enable a firm to create value which are unique for its customers (Bruner, 2003, p.210). Therefore this project report aims to develop a competitive advantage of a firm and the company chosen for this project is Apple, the father of innovation. An analysis is performed over the competitive advantage of firms, which form of strategy to adopt, when to adopt and why to follow a certain competitive strategy. Apple competitive advantage is analysed, the area of competitive advantage that Apple enjoys and based on its competitive advantage, a plan for the management is defined stating the strength and also competitive advantage of the organisation, the Apple. Analyzing Competitive Advantage Competitive strategy can be defined as the search for a firm’s competitive position in an industry. Competitive strategy aims to achieve a sustainable position as against the forces which determine competition among the industries. There are two set of question that determines the choice of a firm’s competitive strategy. First question is the attractiveness of industries in terms of profitability and the factors which determine the profitability and secondly the determinants of the competitive position within the industry. But both these factors are interrelated with each other. A firm may be positioned in a very attractive industry but it could not earn attractive profits because of the poor competitive strategy adopted by the firm. Similarly a firm with good competitive position but in a poor industry would result in similar situation as in the first case. Therefore industry attractiveness and competitive position are both shaped by a firm and this factor makes the choice of competitive strategy a much more challenging process for the firm. Competitive advantage is achieved out of value which a firm is able to create for its respective buyers. The main aim of competitive strategy is to change the rules of the firm in its favour. In all the industries, whether domestic or international the rules of competition are held within the five force of competition which includes the bargaining power of buyer and suppliers, threat of new entrant, threat of substitute and rivalry among the existing firms. Thus these five forces determine the firm’s ability to earn profitability. The strength of the five forces varies from industry to industry. A firm’s completive position depends on the competitive strategy adopted by a firm. The fundamental basis of performance which is above average is due to sustainable completive advantage of a firm. There are mainly two basis types of competitive advantage that a firm can hold is low cost or cost leadership and differentiation. These two competitive advantages when coped with the activities which a firm desires to achieve had lead to three generic strategies of an industry which includes cost leadership, differentiation and focus. The cost leadership strategy aims the firm to become the low cost producer in an industry. This strategy is mainly used by the large firms because they have greater access to resources as compared to a small firm. According to porter only a firm can become the cost leader and the rivalry is much more intense in these firms. In differentiation strategy the firm adopts a differentiation strategy in terms of differentiating its product from the rest of its competitors. This strategy implies costly activities such as new product and its design, extensive research, and effective marketing strategies. The third generic strategy is focus strategy, where the firm attract the niche market segment of the industry. The firm mainly focus on one feature which makes it different from the rest of its competitors. The niche segment can be the limited geographic market, a narrow range of product or even to a certain specific kind of customers (Porter, 1998, p.22). Choice of Organization and its Competitive Advantage The organisation chosen for the particular project report is Apple. Apple Inc California based company and incorporated in 1977, with its wholly owned subsidiary designs, marketers a range of personal computers, mobile phones, media devices and also digital music players. Apple also sells a variety of software, networking solutions, peripherals and application. The company’s product line includes, iPhone, iPod, iPad, Macintosh computers, Apple TV. The Company sells its product through its retail chain stores, online stores and also through third party network carriers. The company sells its products to consumers, education, small and mid size businesses, government, and enterprise and to the creative markets. The company is known for its innovation and has made innovation in hardware, software, services and also internet offering. The company business strategy helps the company to design and develop its own operating system. Software, hardware, services so that it is able to provide its customers new products with innovative style. In order to main its competitive advantage, the company spend on research and development. Thus the company is uniquely positioned to offer a well integrated and superior lifestyle and productivity solution (Apple Inc, 2010, p.1). A detailed analysis of Apple competitive advantage is done with the help of the following tools. Porters Five Force Model Michael E Porter has developed the framework known as the five force model which is essential for mangers as it help in analysing a particular industry. Porter’s model focuses on the five force which shapes competition in the industry. The five forces include bargaining power of buyers and suppliers, threat of new entrants, rivalry among the firms and threat of substitutes. In case of Apple the bargaining power of buyers is low to moderate. Apple competitive advantage lies on its differentiating strategy of its products. The Macintosh and the iPod have its own signature style and innovative which sets Apple apart from its competitors. This feature makes a buyer less price sensitive when it comes to buying Macintosh and iPod (Schoenig, et.al, 2005, p. 12). Apple mainly uses a large number of suppliers for manufacturing its computer and music players. Thus Apple is not limited only to a single supplier and thus the bargaining power of Apples supplier is less. Apple uses ATI and NVIDIA video cards in its computer thus Apple has the option to choose from the two cards. Apple has the power to switch suppliers if the need arises (Schoenig, et.al, 2005, p. 13). The threat of new entrant is low due to large economies of scale in the personal computer market. The large economies of scale required make it impossible for new firms to enter the industry. There are basically two types of operating system offered in a personal computer, windows and Mac OS X. Thus when a new company enters the market it has to create software which are competitive (Schoenig, et.al, 2005, p. 12). The threat of substitute is low to moderate as Apple has a huge number of substitutes in the market but the nature of its product sets the company apart from its competitors. Since HP, Dell uses the Microsoft Windows; Apple uses its own OS. Thus Apple needs to stay innovative and price conscious (Schoenig, et.al, 2005, p. 12). Rivalry among the firms is high as Apple faces a stiff competition from Dell, HP, gateway and Compaq. The technology industry is highly dominated by these firms and one step taken by one of the firm is followed by the rest. Apple follows a strategy of differentiation and thus the other firms also tries to utilise this strategy so to stay ahead of its competitors. Porters Generic Strategy Porter’s generic strategy consists of cost leadership, differentiation and focus strategy. Each of the company has adopted one of the strategies in order to survive the stiff competition prevailing in the market. In a competitive industry where superior quality of product and the brand image plays a major role in the success of Computer Company, it is necessary for the companies to adopt a generic strategy and become cost leaders or differentiate their products from its competitors. Apple is known as a computer company that has adopted the differentiating strategy. The company is known for its innovative and stylish music players and computers. Apple’s investment in research and development, providing the customers with a wide range of products and maintaining a unique brand image, the company has been able to create a competitive advantage by means of differentiating the personal computers and its digital music players. Apple capitalized on its product differentiation and is charging about three times the market price of conventional mp3 players for its iPod, a price that the consumers are willing to pay. Apple has spent about $489 million on its R&D and it has been able to develop innovative products which enable the company to maintain a loyal customer base. Apple known for its user friendly and innovative products has come up with MAC mini which includes the features and design of eMAC and iPod and which appeals to the stylish customers. The company has also introduced PC’s in different colours and distinctive monitors have helped Apple to develop a unique image. There are many iPod in the market introduced by different brands but Apple’s iPod beats out its competition because of its stylish design and efficiency. In addition to its stylish design and efficiency the multi coloured logo has also became an icon. The logo of Apple gives it a comparable advantage as it gets associated with uniqueness and quality (Schoenig, et.al, 2005, p. 17). Value Chain Value chain is described as a chain of activities which aims to transform the given inputs into outputs that customer’s value. Value chain analysis is conducted to understand the need of value and how it can be created in business by way of examining the contribution made in different activities. The value chain analysis takes into consideration two forms of activities, primary activities and support activities. Primary activities are those activities which are involve in the physical creation of the product, marketing and after sale support. Support activities provide inputs which allow the primary activities to take place on an ongoing basis (Pearce, 2007, p.178). Figure 1: Value Chain Analysis (Source: Pearce, 2007, p.178) Support Activities General Administration: Apple had redesigned its packaging for many of its product so that it could reduce emission during transportation and result in saving for the company. The company has also reduced the use of harmful chemicals which were used in the production of its product. Apart from its packaging the company maintains a strong cash reserve enabling the company to enhance financial expansion. Human Resource Management: The Company follows a selective recruitment process in order to hire the best talents. The company also offers attractive employee benefits which are mainly used to retain and entice the talent of an individual. Technology: Apple is regarded as the master of technology and innovation. Apple has invested about 489million dollars on R&D. This shows the urge of Apple to keep innovating new products and new features. Procurement: Apple has established a close relationship with its suppliers so that it can benefit all the parties involved. Apple has its own code of conduct for its suppliers. The company is a member of Electronic Industry Citizenship Coalition and works to ensure a fair treatment for its workers. Primary Activities Inbound Logistic: Apple has implemented automated receiving system in order to speed up the receiving process and reduce the space required for storage. The company works with OEM partner in order to delegate the acquisition of raw materials but at the same time provides supervision to control the quality. Operations: Apple outsources its production to third party so to utilise their economies of scale and removing the production burden from the firm. Another operation performed by Apple is it designs and conceptualise the future products which is done internally at Apple. Outbound logistics: Apple has adopted a style of packaging which helps it to save money. The packaging of Apple aims to reduce shipping cost and environmental effect. Apple sells its product through retail establishment which helps the company to control the brand image. The retail stores of Apple act as an advertisement for its brand and form an intermediary between the customers and the company. Marketing and Sales: Apple uses advertisements in which the firms products are compared to its competitors using direct and indirect methods in order to build a lifestyle brand image. Apple stores across the country acts as an advertisement in promoting the brand. The company by keeping secrets about the product release and unveils it only through press report creates a hype about its product and suspension about the launch of its product. Services: Apple stores have introduced a section as Apple Genius Bar to facilitate the customers so that they can talk with an Apple specialist about their problems (Apple Inc-a, 2012). Apart from this service, it offers 90 days warranty against any defects and issues relating to the product. It also gives an option to purchase extended warranty through Apple care to protect their products. PESTEL PESTEL includes political, economical, social, technological, environmental and legal factors concerned with a particular industry. The PESTEL tends to cover the macro environmental factors of an industry. In this case the PESTEL is conducted for Apple Inc. Political Factors: Apple success depends on sound and consistent policies for the public which in return encourages a healthy business environment. The company is subject to the regulations and legislation that affects the working of the company and creates value for its shareholders. Thus the Company participates in the political process as a part of their strategy so to protect the interest of the Company. Economical Factors Apple has shown a favourable economic growth rate both in terms of liquidity analysis. The Company has the ability to meet both the short term obligation. The company has been able to earn good profits in the past few years. In 2011 Apple posted quarterly revenue of $28.57 billion and a quarterly net profit of $7.31billion. The Company sold about 20.34 million iPhones, 9.25 million iPads (Apple Inc-c, 2012). Social Factors Apple has been improving its product so to reduce the carbon emission and pollution. Apple has been practising a greener manufacturing process and implementing the use of eco friendly packaging and components. Apple practise of eco friendly products can be used by the company as a marketing tool to earn respect from its customers. Technological Factors Apple is the market leader in innovation and technology. The company is positioned to become market leader in devices such as the iPhone and iPod touch. Due to rapid innovation the product lifecycle tends to get shortened. In order to tackle the problem, Apple’s value chain can be leveraged to fight against the threat of obsolescence. Apple is known for its innovation and it invests a million of dollars for its R&D section. Environmental Factors Apple uses a comprehensive life cycle which analysis the impact of green house gas emission. Nearly about 98% of Apple’s carbon is directly related with its products and the next 2% is related to Apple’s facilities. Apple has improved its product so to have a less impact on the environment; the products are designed in a way so that it can use fewer materials, ship with smaller packages and try to be energy efficient and recyclable. Thus Apple is committed in creating products which have a least impact on the environment (Apple Inc-b, 2012). Legal Factors Apple offers certification program for people who are interested to learn. It is particular useful for those people who uses Apple’s product in education, corporation and in authorised service providers. The company aims to provide legal information regarding Software license agreements, Warranty over hardware, iPhone, store terms relating to iTunes and so on (Apple Inc-d, 2012). Plan for Management The only plan suggested to Apple is to continue investing in the Research and Development and keep on introducing to the world new and innovative products. The core competency of Apple lies in its product differentiation. The company is known for its innovation and is often regarded as father of Innovation. According to Steve Jobs innovation is not only concerned about technology, but also about creating new idea which would help to solve the problems (Gallo, 2010, p.2). The management must concentrate on its new product development as innovation being the company’s competitive advantage and it has helped it to remain ahead of its competitors such as Microsoft, Dell, Compaq to name a few. Since there is a stiff competition in the computer and mobile industry, Apple being the market leader in both the technology has helped it to remain steady and has emerged as a market leader. Competitive advantage along with the difference that the company creates in firms performance are often related to the resources that the firm hold and the way they are managed by the company. With a better resource the company can generate strategy and these resources helps to generate competitive advantage which in turn leads to wealth creation for the company. Thus Apple should allow resources to be managed simultaneously to allow efficiency of production and form a competitive advantage such as development of innovative products. The management must invest in executive talent development, retention and assessment because these factors are as critical as performance of the business. Apple being the market leader should attract and develop the best executive talent available to the company. Company should beef up the ability to attract great leaders; it can attract superior talent by way of demonstrating support for the candidate’s interest (McCool, 2010). Apart from the above feature the management must concentrate on expansion of its retail stores as introduction of retail stores have been a success and can be further introduced into new locations. The management must practice caution so to avoid over saturation like the Starbucks effect. In addition to expansion the management should try and shift its competencies to innovative new devices that can take the advantage of Apple’s easy to use system. The biggest challenge that Apple would face is it have to operate its business without the great Steve Jobs. It has been in question whether the company would be able to keep up its brand name without Steve Jobs. The stock price of Apple showed a slow growth rate. Thus after Steve Job resigned the company suffered a little set back but Tim Cook is surely to regain its position where Steve Job has left the company. Thus the company should follow the tricks and strategy implemented by Steve Jobs and concentrate on innovations and new technology which has been a core part of Apple and its strategy. Thus the company should try to overcome the outmost challenge of performing without the direction of Steve Job and achieve successful result as it did under the leadership of Steve Jobs. Conclusion Apple continues to upgrade its current products such as laptops, MacBook and MacBook Pro. It is believed that the innovations made by Apple would keep the company alive and successful. It has been predicate that the Smartphone’s sales will surge in the next few years. With a growth in Web applications such as Twitter and Facebook the demand for these Smartphone continue to increase. The demands for such Smartphone’s are very positive and by 2013 analyst believes that about 23% of mobile sales would be only Smartphone’s. Apple continues to make innovation in its product such as iPod. Apple has introduced a new version of iPod, iPod Touch. Example of Apples continuous innovation is the 4giga byte iPod shuffle which was introduced in 2009. The third generation shuffle can store approximately 1000 songs, and can even handle 14 different languages. Apple with its innovation is termed as an aggressive marketer and has been spending in marketing and advertising programs. Apple ranks second in terms of advertisement, behind Microsoft. Apple has been ranked third in terms of computers; the reason behind the success is once a customer buys an Apple product such as iPod and iPhone the next item become natural for a customer to purchase an Apple product. The reason behind Apple success lies in its competitive advantage which is differentiation. Thus with its innovative and different product the company has been able to taste the success and remains ahead of its competitors. Reference Apple Inc. (2010). FORM 10-K (Annual Report). [Pdf]. Available at: http://files.shareholder.com/downloads/AAPL/1615537130x0xS1193125-10-238044/320193/filing.pdf. [Accessed on January 9, 2012]. Apple Inc-a. (2012). Apple Retail store. [Online]. Available at: http://www.apple.com/retail/geniusbar/. [Accessed on January 9, 2011]. Apple Inc-b. (2012). Apple and the Environment. [Online]. Available at: http://www.apple.com/environment/. [Accessed on January 10, 2012]. Apple Inc-c. (2012). Apple Reports Third Quarter Results. [Online]. Available at: http://www.apple.com/pr/library/2011/07/19Apple-Reports-Third-Quarter-Results.html. [Accessed on January 10, 2012]. Apple Inc-d. (2012). Apple Service Certification Policies. [Online]. Available at: http://www.apple.com/legal/certification/certification_policies_applecare.html. [Accessed on January 10, 2012]. Buner, R. F. (2003). The portable MBA. John Wiley and Sons. Gallo, C. (2010). The Innovation Secrets of Steve Jobs: Insanely Different Principles for Breakthrough Success. McGraw-Hill Professional. McCool, J. D. (2010). How Companies Rebuild Competitive Advantage. [Online]. Available at: http://www.businessweek.com/managing/content/jan2010/ca20100122_122728.htm. [Accessed on January 10, 2012]. Pearce, J. A. (2007). Strategic Management 10E. Tata McGraw-Hill Education. Porter, M. E. (1998). Competitive advantage: creating and sustaining superior performance: with a new introduction. Simon and Schuster Schoenig, C. (2005). Apple Computers, Inc. (AAPL). [Pdf]. Available at: http://mmoore.ba.ttu.edu/ValuationReports/Apple.pdf. [Accessed on January 9, 2012]. Read More