The strategic options that are appropriate to Apple - Coursework Example

?Table of contents 1 Introduction 2 1 An analysis of the competitive forces and strategic issues facing apple 2 2.0 Internal strategic audit of Apple 6 3.0 PR crisis that impacted Apple since 2008 10 4.0 Strategic options for Apple 14 4.1 Recommendations for Apple 15 5.0 Bibliography 18 Appendix 1 Porter’s five forces model 20 1.1 Introduction Despite posting net profit that was in excess of $34 billion before interest and taxes in 2011, Apple Inc has come under close scrutiny as a result of various factors. Against this background, this report seeks to critically analyse the nature of the Smartphone & Tablet industry and how it impacts on the operations of Apple. The report is divided into four different sections and the first part specifically focuses on an in-depth analysis of the competitive forces and strategic issues shaping the Smartphone and Tablet industry from 2011 onwards. Porter’s five forces strategic model and industry theory will be used in this section. The second part of the report focuses on an internal strategic audit of the issues that Apple faces using appropriate organisational & strategic models while the third part is concerned with various PR crises that have impacted Apple since 2008. External stakeholder issues facing the company will be critically analysed as well as their impact on the corporate reputation and brand equity of Apple Inc. The last part of the report summarises the strategic options that are appropriate to Apple and recommendations about measures that can be implemented by Apple in order to sustain its future position in the Smartphone & Tablet Industry will be given. 1.2 An in-depth analysis of the competitive forces and strategic issues shaping the Smartphone & Tablet industry from 2011 onwards According to Strydom (2003), every organisation operates in an environment that is characterised by various external forces which shape its operations. Economic factors mainly shape the Smartphone and Tablet industry as going to be illustrated below. According to apple’s case study by Marino & Gamble (2010), there are various forces characterising the company’s operations. Though Apple boasted of an increase in the sales of the iPad tablet computer, the situation obtaining in the market has been a cause for concern from 2011 since this was likely to have an effect on the smartphone market. It can be seen that though Apple’s larger percentage of revenue came from other non computer products such as iPod and iPhone, there have been some changes in the Smartphone and Tablet industry given that it has been characterised by stiff competition as going to be explained below. However, Google’s development of the Android operating system resulted in the development of smartphones that matched a lot of iPhone’s best features. Google remained the greatest threat to Apple given that different smartphone makers were developing products similar to iPod and would run on the Android operating system. For instance, Acer entered the market for smartphone with the launch of its liquid line of stylish and high end smartphones which used Google’s Android operating system in 2009 and was later developed through the years until 2012. According to The New York Times (21 January, 2012), the aspect of competition in the Smartphone and Tablet industry cannot be ignored. For instance, Foxconn technology assembles nearly 40 % of all consumer electronics and counts and counts among its clients which include: Nintendo, Nokia, Samsung, Dell, Hewlett-Packard with its palm, Motorola and Sony. Though China presented a lucrative market for the Smartphones in 2010 to 2011, the main problem encountered was related to the emergence of counterfeit products. However, as noted above, with the market for Smartphones growing rapidly, competition was also becoming apparent particularly Google’s entry into the market with its android operating system. However, RIM grabbed the market share with its Blackberry service in 2011 which was specially designed to meet the needs of the business people as well as the individual customers. Beginning 2010, Apple entered the market for tablet computers with the launch of its iPad which was developed though 2011. However, tablet computers were technically similar to Smartphones. Though iPad benefits from a well established distribution channels in the tablet industry, most competitors offer products which support adobe’s flash instead of HTML offered by Apple. This is a competitive advantage given that most of the online videos use flash (AAPL, 2012). According to Strydom (2003), a market that has reached its maturity is characterised by stiff competition given that there would be many players in the same industry. Accordingly, it can be noted that the smartphone and tablet industry life cycle has reached maturity stage whereby competition is rife. In this particular case, there are various competitors in the market and some of them include the following: Nintendo, Nokia, Samsung, Dell, Hewlett-Packard with its palm, Motorola and Sony. Given the nature of the market in which Apple is operating in, it can be seen that a holistic approach has to be taken in order to sustain its operations. Indeed, a competitive environment is healthy for any business but there is need for Apple to constantly scan the environment in order to gain a competitive environment against other rival competitors. From the analysis of the smartphone and tablet industry discussed above, it is imperative to evaluate the attractiveness of the industry using Porter’s five forces model. Basically, McCarthy & Perreault (1996), describe Porter’s forces model as an ideal business strategy that is used to analyse the attractiveness of the industry. In as far as the aspect of survival in a competitive environment is concerned, it is important to evaluate the factors likely to impact on the operations of the industry. The five competitive factors discussed below attempt to illustrate how Apple is affected by these competitive forces. Entry of competitors-The market in which Apple is operating has reached a maturity stage and is open to entry by the other competitors. As noted above, beginning 2011, there has been a rush into the smartphone and tablet industry by other competitors after realising its lucrativeness. This entails that the more competitors in the market, the stiffer competition becomes. Threat of substitutes- the iPhone for instance can be substituted by products offered by Nokia, Blackberry, Samsung, Motorola and Sony. These also boast of an edge over Apple of a corporate space. Apple’s iPad can be substituted by Research Motion’s playbook, Dell’s streak, HP’s slate, Samsung’s Galaxy Tab and other tablets by LG, Sony, Toshiba as well as Acer (AAPL, 2012). Bargaining powers of buyers- Though Apple boasts of established distribution channels as well as loyal customers, consumer spending has been partially affected by adverse economic conditions prevailing in the market. These forced consumers to shift to other products with lower prices. Bargaining powers of suppliers- in this particular case, the suppliers have the power to determine the price of the products depending on the situation obtaining on the ground. Rivalry among existing players in the industry- The smartphone and tablet industry has been characterised by stiff competition among the players existing in the market. As discussed above, competition has somehow affected the usual operations of Apple. A summary of the five forces model discussed above is shown in appendix 1. 2.1 An internal strategic audit of the issues that Apple faces using appropriate organisational & strategic models 3. Perhaps the most noteworthy figure in Apple's financials is its cash balance, with cash and cash equivalents standing at more than $51 billion as of January 2011[5]. CEO Steve Jobs has said that this cash would not be used to buy back stock or pay a dividend, but for potential future acquisitions without the need for outside financing. These vaults of cash have allowed the company to embark on an acquisition spree, which includes online music service company Lala Media in December 2009, followed a month later by the purchase of mobile advertising player Quattro Wireless [6]. 4. Perhaps the most noteworthy figure in Apple's financials is its cash balance, with cash and cash equivalents standing at more than $51 billion as of January 2011[5]. CEO Steve Jobs has said that this cash would not be used to buy back stock or pay a dividend, but for potential future acquisitions without the need for outside financing. These vaults of cash have allowed the company to embark on an acquisition spree, which includes online music service company Lala Media in December 2009, followed a month later by the purchase of mobile advertising player Quattro Wireless [6]. Since 2010, Apple has continued to record high revenues from the sales of the iPads and iPhones despite the negative effects of the prevailing economic conditions. The iPhones continued to generate more revenue for the organisation which was critical for its financial performance. For instance, the sales of the iPhone contributed revenue that was worth $5,33 billion of the company’s third quarter 2010 revenues of $15,7 billion. The renewal of the consumers’ interests in Apple can be traced to the success of the iPod which significantly contributed to the total revenue generated by the firm. For instance, the company’s market share in the US increased from 4 % in 2004 to 8% in 2009 mainly due to the success of the iPod and the iPhone. The computer business remained a core aspect of the organisation’s operations though it gained a significant amount of revenue from other non computer products. The introduction of the Mac for instance significantly contributed to the improved performance of the organisation. The steady financial performance of the organisation can be attributed to its positive stance with regards to creativity and innovation in terms of the products offered to the customers. These appealed to the tastes of many stakeholders and they significantly contributed to the total revenue generated from the sales. A close analysis of the financial performance of the company shows that it experienced a steady growth in its net sales as well as net income. For instance, the net sales increased from $11 486 million in 2006 to $19 870 million in 2010 and net income from $1 989m in 2006 to $5 704 in 2010 respectively. The improved financial performance of the organisation can also be attributed to the value chain linkages of the products offered by the organisation. For instance, the iPod, 3Gs as well as the new iPhone 4 were characterised by premium prices which denotes high value and these products had a halo effect given that consumers were compelled to purchase the iPad after buying either an iPod or an iPhone. The unique features of iPod as well as a decrease in price in 2010 significantly contributed to the high levels of customer satisfaction and loyalty which rivals found difficult to imitate. This greatly contributed to the overall performance of Apple which could not be matched by other competitors. In business, loyalty among the customers is very important in as much as the establishment of a long term relationship between an organisation and its stakeholders is concerned. It is easier to satisfy as well as to retain already existing customers rather than attracting new ones. This is the basic tenet behind Apple’s strategy of attempting to forge long lasting relationships with the customers since this is a source of competitive advantage. Basically, the halo effect is mainly concerned with drawing a general impression about a particular subject based on a single characteristic (Robbins, 1993). In this case, the consumers were mostly attracted by the unique features of either the iPod or the iPhone which compelled them to purchase the iPad as a result of the satisfaction obtained from these products. Where there is customer loyalty, there are likely chances that they will continue buying the products offered by the company which is a strong source of competitive advantage. In as much as improvement of financial performance of an organisation is concerned, there is need for the responsible authorities to appeal to the needs and interests of the customers and attempt to build a relationship with them. The success of Apple can be directly attributed to this model of building customer loyalty in a bid to achieve long term sustenance of its operations. Another important aspect that positively contributed to the improvement of the organisation’s performance is related to the aspect of leadership. The leadership qualities of the chief operating officer Tim Cook as well as Jobs were unmatched given that they are the ones who were not constantly shuffled from their positions as with the case of others. Inspirational leadership is required for every organisation to improve its operations as well as its performance as a whole. Research has shown that leaders who are able to influence the activities of the other people within the organisation towards the attainment of the set goals winners compared to those who are not able to motivate their employees (Robbins, 1993). A critical analysis of the patterns of leadership of Apple shows that its positive performance can be attributed to the aspect of leadership which was mainly concerned with meeting the demand of the products through ensuring that they met the standard expectations. For instance, Tim Cook commented in the Wall Street Journal that Apple was committed to balance the supply and demand of the products offered. The performance of the company is likely to improve if the leadership is concerned about its growth and development. The aspect of power and politics also has a bearing on the internal performance of the organisation as a whole. Whilst the CEO has the overall power and authority to implement certain decisions in the operations of the organisation, it can be observed that the board has the overall authority to approve the limits of the power that is exercised by the executive officers. For instance, Sculley was unanimously voted by the board to retain his position after an attempt by Steve Jobs, the founder to topple him from his position some time in 1985. Such a move bears testimony that power and authority are not only preserved for the executive leaders in the firm as they are also hired by the board whereby their operations are expected to comply with the rules and regulations expected. The success of the company can be attributed to the power structure within the organisation. The board has the power and authority to hire and fire the executive members of the organisation. These executive members are also vested with power to oversee the operations of the organisation but their power cannot override the board which has the responsibility of ensuring that all operations of the organisation are within the confines of the standard expectations. The CEO in particular is vested with the authority to make decisions that can be implemented in the operations of the company. However, major decisions are approved by the board in a bid to ensure that the organisation remains focused in its operations. Decisions that are deemed to be costly to the organisation are reviewed by the board in order to ensure that they comply with the standard expectations of the organisation. The board has the power to strip individual executive members of the authority to make decisions that may affect the operations of the organisation. All these measures are strategically designed to ensure that the organisation is better positioned to achieve its goals and vision. Decisions made in an organisation often affect its overall performance and that is the reason why the process is constantly monitored by the board at Apple. This is to ensure that the operations of the organisation remains focused to the set objectives. A holistic approach has to be taken in as far as decision making is concerned given that some of the decisions made can positively affect the operations of the organisation or in some cases, they may negatively impact on its performance. Thus, the positive performance of Apple can be attributed to the decision making structure used by the organisation which is goal oriented. 3.0 PR crises that impacted Apple since 2008 and their impact on the corporate reputation and brand equity Since 2008, Apple encountered various PR crises and to a certain extent, these have impacted on the corporate reputation and brand equity of Apple Inc. Despite ranking high in terms of its technological innovations, Greenpeace harshly criticised apple for its environmental practices and was ranked far behind its fierce competitors such as Nokia, Dell and HP (Schultz & Helleloid, 2008). For instance, apple scored badly in terms of eliminating toxic chemicals in its production lines unlike its close competitors such as Nokia and Dell. Apple rated high in terms of innovativeness but it lacked environmental commitment and strategies in its operations which drew wide criticism from independent organisations like Greenpeace which were concerned with highlighting environmental awareness for the sake of the future. For instance, the campaign dubbed ‘Green My Apple’ had a negative impact on Apple’s reputation as well as its PR position with its stakeholders. According to information obtained from chariweb.com (30 January, 2012), Apple experienced some blasts inside Building A5 in China in 2011 which killed two people. These blasts were attributed to hazardous working conditions and they occurred in an area where employees polished iPad cases on a daily basis. The New York Times (26 January, 2012) also reported that labour abuses in some factories have been ongoing for four years and the former Apple executive said the reason behind was that the system was working in their favour. Employees excessively worked overtime and in some cases they would work seven days a week, lived in crowded dorms and they stood for long periods such that they ended up failing to walk. It has also been reported that under-age workers have also helped to build Apple’s products and the suppliers have improperly disposed hazardous waste as well as falsifying information and important records. However, human rights violations are a cause for concern where human costs are built into an iPad. In as far as the concept of corporate social responsibility (CSR) is concerned, an executive at apple said that they sold iPhones in over a hundred countries and the company was not obliged to solve America’s problems with regards to the aspect of job creation in that country. The executive stated that their obligation was to make the best product possible. Cost of labour is high in the US and this is the reason why much of the manufacturing work of iPhones is done in China. The human welfare issue is often compromised since corporations are obligated to maximise profits as well as to appease their shareholders. But the question that begs an answer is: What are the implications of this practice on corporate reputation and brand equity of Apple Inc? Thus, this section of the report focuses issues surrounding the concept of CSR in as far as Apple’s operations are concerned. The concept of CSR suggests that there is a complex relationship between business, the state and the civil society. Burchell & Cook (2006) suggest that there is greater public concern over activities of multinational companies (MNCs) and the importance of protecting the brand image, the need to demonstrate a corporation’s socially responsible attitude in its interactions with consumers and suppliers in order to maintain its social capital. Businesses should not only be concerned with their profit needs since they must plough back to the societies in which they are operating. Failure to maintain this fine balance between the needs of the society and business may impact negatively on the image of the corporation. Apple has received negative publicity as explained above and this is likely to impact negatively on its reputation. If members of the society loose trust about the operations of the organisation, its brand image is likely to be negatively impacted which can tarnish its operations. CSR strategies are important to business mainly because of the following factors: first, CSR represents an economic tool to gain competitive advantage and social capital, second, this strategy is a method for companies to develop strong links with communities in which they operate. Third, CSR is a method of minimising chances of risk and damaging publicity and lastly, stakeholder management is promoted (Burchell & Cook, 2006). Failure by business organisations to realise that they do not exist in isolation from the local communities they are operating many negatively impact on their viability. In this particular case, the main stakeholders involved include the members of the community, customers, employees as well as the shareholders. The power lies in the corporation’s ability to establish and control the relationships that exist between the stakeholders identified above. However, various theoretical frameworks can be attributed to the concept of CSR. Mele & Guillen (2006), posit to the effect that the stakeholder view of the firm has permitted the introduction of ethical theories into strategic management. For instance, the stakeholder management theory can be applied to this particular scenario. This theory suggests that the success of the firm can be attributed to proper management of the needs and interests of the stakeholders as these have a bearing on the portrayal of the organisation. Though the concept of ethics in business is a contested phenomenon, it can be noted that it shapes the operations of many businesses during the contemporary period. Ethically, the concept of social responsibility has its reference as “the viewpoint of various leaders and segments of the society and their standards of right and wrong” (Andrews, 1971, p. 65 as cited in Mele & Guillen, 2006). Thus, the virtue theory of ethics is applicable to this case given that it is primarily concerned with delineating the difference between doing something that is good from bad. In other words, it is concerned about what a good person can do. There are some ethical principles that ought to govern the relationship between the corporation and the society. Thus, a stakeholder approach grounded in ethical theories is ideal given that it seeks to fulfil the needs of the stakeholders as well as the organisation. Businesses ought to act in the best interests of the stakeholders in order to ensure their long term sustainability. 4.0 Strategic options that are appropriate to Apple and recommendations for the company to sustain its future position in the Smartphone & Tablet Industry Summary and conclusion A critical evaluation of the operations of Apple as well as the environment it is operating in shows that there are a variety of external as well as internal factors that shape its operations. Internally, while emphasis is on maintaining value chain as well as the competitive edge in the industry, it can be noted that power is vested in the hand of the executive leaders. However, the corporation has come under criticism with regards to some decisions that have negatively affected its public image. The PR crises have negatively impacted on its reputation and brand equity hence there is need for the corporation to take a holistic approach in dealing with this crisis in order to appeal to the interests of the stakeholders. It has also been observed that Apple is operating in a Smartphone and Tablet industry that is characterised by stiff competition. There are many players in this industry and substitutes to tablet computers as well as Smartphones are readily available and this makes the viability of the organisation in the long run a bit challenging. Though Apple boasts of an established distribution system as well as a wide base of loyal customers, the aspect of competition cannot be ignored as this has a bearing on its performance in the market. It has also been observed that innovation is taking center stage in the production of the smartphones and tablet computers which further complicates the already tight industry. Against the background of these market forces characterising the industry, apple needs to take into consideration certain measures in order to sustain its future position in the Smartphone and Tablet Industry. As such, the following section deals with recommendations which can be incorporated by Apple in order to maintain its market position in this competitive industry. 4.1 Recommendations for Apple Inc Differentiation- There are various business organizations operating in different markets that are strategically viable such that other rival competitors can hardly imitate their performance. However, this is not an easy feat given that there are certain strategies that ought to be implemented in order to ensure long term survival and stability by the organisation. Through his generic studies, Porter (1980) suggested a framework for competitive advantage. Thus, in order for an organisation to survive in the long term, Porter (1985) suggests that a firm needs to have sustainable competitive advantages. Basically, there are mainly two sources of competitive advantage namely cost advantage as well as differentiation. It is therefore recommended that Apple should adopt a ‘differentiation’ strategy in order to sustain its future position in the Smartphone and Tablet industry. According to Porter (1985), differentiation strategy is when a firm seeks to be unique in the industry and this can be achieved through offering unique products that are highly valued by the customers. It becomes difficult for the other rival competitors to match the level of competition which will be a competitive advantage for the firm. Thus, for Apple to ensure its long-term profitability, it needs to be clear in its strategic position and should differentiate its products in order to appeal to a large number of customers. Value chain It is recommended that Apple must strive to maintain its product position in the market with regards to value chain. According to McCarthy & Perreault, (1996), the strategy of maintaining value chain of the product is a source of competitive advantage given that the price of a particular product has a bearing on how it is perceived by potential customers in the market. It is recommended that premium prices must be maintained on state-of-the-art products such as the iPad and the iPhone since these are quite difficult to be easily imitated by other rival competitors. Premium prices will serve the purpose of delineating the difference between high value and other products with low value. The attitudes of the customers towards particular products are shaped by various forces and value is one of them. If a product has a high price, it is treated with high esteem while those with low prices are treated as low quality. Customers are usually concerned with gaining value of money from the products they purchase hence it is a noble idea for Apple to maintain high value of their products through charging premium prices. Stakeholder approach It is recommended that apple should uphold the principles of the stakeholder approach which compels businesses to be accountable for their actions to various stakeholders who are affected by their operations. The changing nature of business has seen an increase in the need to delicately nurture the social infrastructure in some sectors of the business environment (McIntosh & Smith, 1999). Research has indicated that businesses which are not in constant touch with their stakeholders including the customers, suppliers as well as employees are bound to fall in their operations. In this context, “the stakeholder approach is viewed as an analytical way of observing and explaining how different constituencies or stakeholders are affected or affect business” (Bowie & Duska 1991, as cited in Weiss, 1994). The main idea behind the stakeholder approach is the ethical consideration that every business is obligated to act in the interest of the stakeholders in order to gain their trust which is based on mutual understanding. Loyalty is likely to be created if there is mutual understanding between business and its stakeholders which can ensure long term survival of the organisation. The stakeholder approach also attempts to measure the social and moral responsibilities of the managers towards the needs of the stakeholders. In order to appeal to the interests of the stakeholders, it is imperative for Apple to value their beliefs in a bid to create mutual understanding among them which can also lead to long lasting relationship with them. It also becomes easier for the management to effectively manage stakeholders from different backgrounds if their interests are taken into consideration by the organisation. There is need for the stakeholders to trust the products offered by the firm so that mutual understanding based on long lasting relationship can be created. Bibliography APPLE (APPL) viewed 16 March, 2012, Boycott Apple until ‘Humanity’ is restored 30 January, 2012, viewed 16 March, 2012, Burchell, J & Cook, J 2006, ‘Confronting the “corporate citizen” Shaping the discourse Of corporate social responsibility,’ International Journal of Sociology and Social Policy, Vol. 26 No. 3/4, pp. 121-137. Kotler, P 1999, Marketing Management: Analysis, Planning, Implementation and control. Prentice Hall, New Jersey. Kris, W 31 January, 2012, How the Apple brand may not survive, viewed 16 March, 2012, http://faculty.washington.edu/categ/bussolutions2012/wordpress/?p=244> Marino, L & Gamble, JE 2010, Apple Inc in 2010, Crafting and executing strategy: The Quest for competitive advantage, concepts and cases, 18th Global Edition. McCarthy, JE & Perreault, WD 1996, Basic Marketing: A Global Managerial Approach, 12th Edition, Irwin McGraw-Hill, NY. McIntosch, M & Smith, P 1999, Visions of ethical business. Financial times, Prentice Hall in association with Price Water House Coopers. Mele, D & Guillen, M 2006, The intellectual evolution of strategic management and its relationship with ethics and social responsibility, IESE Business School, University of Navara. New York Times 26 January, 2012, viewed 16 March 2012, Porter’s Five Forces Model 2012, viewed 16 March, 2012, Porter, ME 1985, Competitive Advantage; Creating and Sustaining Superior Performance. The Free Press, New York. Robbins, SP 1993, Organisational behaviour: Concepts, controversies and applications. 6th Edition, Prentice Hall, NJ. Schultz, P.L & Helleloid, D 2008, ‘Apple Inc and Greenpeace in 2008,’ Journal of Critical incidents, volume 3, pp.846-853. Strydom, J 2003, Marketing, 3rd Edition, Juta & Co Ltd, CT. Weiss, JW 1994, Business ethics: A managerial, stakeholder approach. International Thompson Publishing, California. Appendices Appendix 1. Porter’s Five Forces Model Entry of competitors There is no monopoly in the market and the entrance of other competitors such as Nokia, Samsung, Dell, Hewlett-Packard among others is a cause for concern for Apple. Threat of substitute The products offered by Apple can be substituted by other products by rival competitors. Bargaining Powers Of Buyers Apple products have a premium price and this has been compounded by the economic hardships which made customers to shift their preference to other similar products by other players. Bargaining powers of suppliers There are limited suppliers and these are responsible for setting prices for the products supplied. Rivalry among the existing players - a strong competition in the smartphone and tablet industry exists and this cannot be ignored. Read More