Apple's Strategy in the PC and MP3 Player Industries - Essay Example

Apple Case Study Q1: What are the chief elements of Apples strategy? How well do the pieces fit together? Is the strategy evolving? Apple is a computer company that “crossed over” into the consumer electronics industry with the best-selling iPod MP3 player. Traditionally, computers and consumer electronics products have different product life cycles and require different distribution channels. Apple succeeded in managing the transition by crafting a coherent strategy by marketing the iPod as a computer peripheral. The MP3 songs that could be played on the iPod were downloaded through a Mac. Later on, by transforming the iPod into a peripheral for Windows-based PCs, Apple created the potential to access a much broader market than its core customer base of loyal Mac users. Apple made the difficult transition by having the chief elements of a successful strategy in place that allowed the company to formulate and execute the right moves: (1) high quality people such as managers, engineers, designers, marketing support, etc.; (2) a solid set of core competencies and competitive capabilities, and (3) the right company structure. These three key elements define Apple as a business organization and accounts for its success in launching innovative products that were profitable and that grabbed a major share of the market (Thompson & Strickland, 2006). First, Apple’s workers are among the most creative and smartest in the industry. It has managed to attract an overwhelming number of applicants for each job vacancy on the basis of its corporate image and the privilege of working for a corporate icon of the computer industry, a company package that includes CEO Steve Jobs who started the personal computer revolution. The company’s compelling vision of making technology more accessible to the masses by promising to have a beautifully designed quality technology product for almost anybody attracted these workers. Second, Apple has a core set of competencies and competitive capabilities. It has a substantial amount of brand equity, which means that the Apple brand is easily recognizable and associated with a set of attractive features that create an emotional impact on customers. Its blockbuster successes in designing products have given it an edge in product differentiation, allowing the company to command a premium price because it enjoys a first mover advantage that continuously attracts a relatively stable market to buy its products. By coming up first with products that incorporate new technological developments in an elegant and easy-to-use form, such as the graphics user interface, the mouse, the special look and feel that enchants first-time computer users and makes them loyal customers, and now the iPod and its derivative products, Apple shows how it integrates its Research & Development (R&D) function to bring innovations to market in a profitable manner. These profits, in turn, allow Apple to continue the cycle of innovation that churns out more products, even though some of these like the Lisa or the Newton, the precursor of the Personal Digital Assistant, did not succeed as planned. These capabilities influence the company’s ability to fuel the imagination of potential and current workers as a place where one’s ideas could help change the world. This is an attractive proposition for creative people to make a mark and for customers to continue buying their products. The core of Apple’s success is its base of loyal customers who are willing to pay a premium price for the unique user experience that Apple products can offer. Apple is good at seeing business opportunities in the market and moving the company to capitalize on these opportunities. Apple’s most important core competence is industrial design, the elegance and feel of its products, and the ability of its products to physically and emotionally arouse millions of customers regardless of age or culture. Although it makes use of design studios like Ideo and Frog Design, Apple and Jobs are the ones who develop the design concept and push for its execution. Third, the company is structured in such a way that it can create products, improve them each year, and manufacture them at a low cost and sell them at the highest price the market can bear. This leads to satisfied workers, higher profits, and a company that continues to grow successfully. Apple’s unique ability for vertical integration allows it to manage the design and development process that allows it to capitalize and expand on its own operating system, hardware, and software applications and technologies to deliver products that work better than what its competitors sell, look more beautiful and elegant, are easier to use, seamlessly integrated along the whole value chain, and that demonstrates the convergence of digital consumer electronics products and advanced computer technology. Each element of the company’s strategy closely fits together to create a unique customer experience. An example is the iTunes Music store that allows easy downloads of content into the iPod in a way that is different from other peer-to-peer (P2P) sharing software that has caused trouble with the music industry for years. By making downloading easy and cheap, users are encouraged to download more and music studios are likewise encouraged to license more of their products. Apple’s strategy has continued to evolve through the years. A recent example is its decision to incorporate the use of Intel-based microprocessors for the Mac laptop. The company has likewise moved towards making their operating system compatible with Windows-based applications. There are plans to move to open-source software to capture the software applications developers using the Linux operating system. These strategic decisions may help Apple move towards increasing its share of the PC industry in the future by providing a better alternative to the market when it comes to software and hardware, which is why they continue to focus their strategic capabilities in aesthetics, ease of use, and innovativeness. The company continues to look for ways to satisfy a growing base of customers, evolving its strategy as it goes along depending on how markets react. Q2: How do Apple’s activities in the PC and MP3 player industries match up? How important is each industry to Apples success? From a computer peripheral that was designed to help sell more computers, the iPod has become a hit consumer electronics product that has learned to stand on its own. The MP3 player industry depends on the digital MP3 format. Although Apple has sold over millions of iPods since its launch in 2001, there are two opportunistic threats to the company’s MP3 line. Initially, customers could download iTunes by using an Apple computer. Jobs thought that this would build the core group of customers from which Apple charged a premium price. When this turned out to be a success, Apple realized it could expand the market by making iPods compatible with Windows-based PC with a few software adjustments. This strategy, which may seem a threat to selling more Macs, turned out to be a good way to introduce non-Mac users to Apple’s technology by using the iPod as a low-price product that gave customers a first-hand experience at using Apple’s technology. By making iPods seamlessly integrated into the Mac and marketing its ease of use, iPod users may be tempted in the future to try out a Mac that they would reasonably assume to be a better alternative to Windows-based PCs. Second, although there is a remote possibility that the MP3 standard format may change in the future thus rendering iPods obsolete, there remains a huge untapped market that would attract competitors on the basis of price and product attributes. Several large consumer goods companies like Sony and Samsung, and a number of small ones too, are entering the market to develop and sell products that do not look like the iPod. There will always be people who do not want an iPod and who would prefer to go against the current. This is the majority of the MP3 player market that Apple may never ever satisfy, no matter how good Apple’s products are. The other companies could take care of serving the needs of this market. Apple need not be the only supplier (Lewis, 2006). Recently, the company opened a futuristic store in Manhattan that sells both computers and iPods, thus breaking down the traditional barrier between computer and consumer electronics product retail distribution channels. The shop also became a showcase not only of the company’s creativity in selling products, but of the company’s non-glamorous sides: its supply chain (the store is fully stocked with its best-selling products), its after-sales service (customers can conveniently drop their Apple products on their way to work and pick it up on their way home), and the industrial design machinery that has transformed its products into technology icons, winning design awards and inspiring customers to pay good money and stay loyal (Turner, 2007). So far, Apple is succeeding, but it needs to come up with hit products every year to justify these sales outlets by widening its core market. As long as the hits come, Apple succeeds. Otherwise, it will go back to its old ways and lose money. Using the iPod as a core low-priced product, Apple could develop a whole range of products (high definition television, gaming consoles, etc.) for a market that is already familiar with the iPod. Statistics showed that Apple through iTunes is now America’s fifth largest retailer of music (Lewis, 2006). Q3: Is Apples strategy in PCs enough to compete successfully against Dell and HP in the PC industry? Justify your answer. Apple’s strategy in PCs is not enough to compete successfully against Dell and HP in the PC industry in the long run for two reasons. First, unlike premium cars that could sell with margins of 2 to 4 times the cost, the strategy that Jobs envisions for Apple’s products, iPods and Macs though enjoying product differentiation have a hard time selling at a huge premium relative to the core PC market. Dell and HP are closing the gap with Apple and are available at a much lower price, and the wider base of customers are not savvy enough to appreciate the differences between a Mac and a run-of-the-mill PC, much less appreciate the features. This would exert more pressure on Apple to limit the prices it could charge for its products, which makes it harder for them to sustain a large premium over the coming years. If Apple sticks to its proprietary hardware and software designs, it would also continue finding difficulty generating the profits that would help it develop new products through increased R&D spending. The other problem is the underlying economics of one of the core components in the Mac: its operating system. Operating systems cost a lot to develop, and having a small base of customers would only mean that it would have to sell much more to cover its investments. Its competitors in hardware and software that are Windows-based can bring down their prices because they have a much larger base of customers. Although Apple thinks it can survive, it would find difficulty unless they make their products compatible with Windows and PCs, which the company eventually started doing recently by switching to the use of Intel® Core Duo processors (Apple, 2007). It is clear that Apple’s underlying economics would never allow the company to support future generations of operating systems unless the company radically grows its market. Apple’s PC strategy would allow it to continue being profitable, but it would not be able to match giants like Dell and HP which are basically commodity PC assemblers and marketers. If by competition is meant leading the market in terms of innovations and features, Apple will continue to be successful in coming up with products no one has ever thought about. Its market share will remain smaller compared to the huge potential that exists, but it could stay profitable by developing hit products that could subsidize lower margin items in its product portfolio. However, transforming the Mac into a digital entertainment center capable of downloading iTunes, movies, and television shows can turn the Mac into a computer industry leader that may end up having to license their manufacturing and designs of future products to the same equipment manufacturers (mostly based in low-cost countries) used by Dell and HP. Apple is known not only for its beautiful computers. It also has the better software, its operating system a far cry from Windows which hangs so many times in a day and is more susceptible to pesky viruses. Q4: Is Apples strategy enough to allow it to remain on top of the MP3 player industry over the next 5 years? Justify your answer. The iPod is already five years old, and given its ability to squeeze revenues from its innovations by creating value for its customers, Apple can continue remaining on top of the MP3 industry provided it can continue making MP3 the standard format for downloads. Nevertheless, having an expected increasing number of competitors entering the MP3 industry would certainly exert pressure on Apple to develop new products and incorporate new features in its iPods and to sell more to take exploit economies of scale. Right now, Apple has a dominant share of the MP3 player market, but this market share could be eroded for the simple reason that not everyone wants an iPod. This already happened in the personal computer industry where it enjoyed a near monopoly market share for some years before the company’s leadership position began to erode when bigger players like IBM entered the market. If it would not want to go through the same experience, Apple has to capitalize on its large base of loyal iPod users to introduce them to the capabilities of its Macs. Otherwise, Apple will remain an innovative but smaller player in the industry, although it would continue to be profitable by selling to a small group of loyal users. This is Apple’s corporate genetic code: innovate, be the first in the market, generate huge profits that would fuel R&D for the next big thing, and then as the profits dwindle, create a new product that takes the industry by storm. Allowing HP to sell the iPod was a good move, marking Apple’s strategic transition from a vertical turnkey hardware integrated software provider and into a horizontal hardware and software provider targeting the mass market that is constantly expanding to include the entertainment and gaming industries. Q5: How well has Steve Jobs done as Apples CEO? Has he done a good job of performing the five tasks of strategic management discussed in Chapter 2? The performance of a CEO is seen in the company’s ability to create and grow shareholder value, which comes from profits. The company is profitable, and its recent record of profits comparable to the best companies in the industry. This means that at least in the past years since he took over as CEO, Jobs has done a good job of planning and executing long-term strategic plans that benefit its shareholders by benefiting customers who buy their products at a profit. Jobs has proven successful in developing and formulating the company’s strategic vision and mission in a fascinating way, enabling the company to get good people, develop good products, and enter into a productive agreement with other companies. Jobs is also good at setting objectives, even though he prefers to give rough guidelines and let his qualified and motivated people do the rest. Apple’s ability to continue churning out products that customers passionately love testifies to Jobs’s ability to motivate and craft objectives needed to execute strategies and link other industries or companies to generate value for its products. Lastly, Apple is able to monitor strategy execution through constant meetings at all levels and for each activity, from design work to after sales service, which comprise important components of its value chain. Steve Jobs has been good at turning Apple around since he came back in the mid-1990s. He has gotten the company highly focused, streamlining their product lines and betting on a very small number of products: the iMac, iPod, and recent Mac models. This allowed Apple to generate cash that it used to leverage the sizzle in its brand. Bringing back the brand value that was lost in Jobs’s absence was a strategic accomplishment. In the iPod, he has come up with a product that shows tremendous promise, creating a new product category where the company is earning respectable returns. Thanks to Jobs, Apple has shown it is not a one-hit wonder (Silverthorne, 2004). Bibliography Apple Computers, Inc. (2007) Annual report 2006: SEC Form 10-K. Cupertino, CA: Apple Computers, Inc. Lewis, P. (2006, September 26) “Apple unveils its latest arsenal.” CNNMoney.com. [online] Retrieved 23 October 2007, from: http://money.cnn.com/2006/09/26/technology/movie_downloads.fortune/index.htm [ Silverthorne, S. (2004) Where does Apple go from here? Interview with HBS Prof. David B. Yoffie. Harvard Business School Working Knowledge, February 2. [online] Retrieved 24 October 2007, from: http://hbswk.hbs.edu/item/3877.html Thompson, A.A. & Strickland, J.E (2006) Crafting and executing strategy: Text and readings (15th edition). Boston: McGraw-Hill/Irwin. Turner, D. (2007). Different: Inside (sort of) Apple’s industrial-design machine. Technology Review, 110 (3), p. 54-59. Read More