How Apple Does It by Lev Grossman - Article Example

The article "How Apple Does it" written by Lev Grossman, in October of 2005, was devoted to new products developed by Apple ipod as well as methods implemented by the company in producing new products and services. In order to assess this product and evaluate the impact it has made on the development of music and online digital industry, the author of the article attempted to highlight several important points related to the business strategy of Apple. The author claims that Apple does everything wrong because it tries to produce several products or provide customers with several services (as it produces its own hardware as well as its own operating system designed for this particular hardware) and it also produces programs developed for these operational systems. 1 According to the conventional wisdom, described in the article, the Apple is operating like closed mini economy, and thus the company might be doomed as it attempts to do everything at once. Apple produced hardware, operating system for it and programs; traditional approach would allow Apple to license some of its products to other companies that specialize in the development of the products and then access the products produced by the companies mentioned. However in my opinion, the company would really increase the efficiency and competitiveness of its products if it followed more traditional approach as in this case, new innovations and consequently new products might appear much quicker, then the current policy adopted by the company. Huge diversification in one company might erode specialization, which is the cornerstone of innovations; it certainly does mean that differentiation and strategy adopted by Apple might not be successful in some circumstances, as the example of ipod clearly indicates, yet in my opinion it was rather the exception from the rule rather than the result of it. In order to access the effectiveness of the strategy implemented by the company, one should understand the principles of the competitive advantages. The competitive advantages occur when the company provides its customers either with the products at lower costs or with the high quality products or services that might justify high prices set by the company. 2 In the case of Apple the strategy of the company is aimed to provide the customers with unique product. In spite of the fact that this product is just several years old, none of the competitors of Apple so far has been able to provide its customers with identical products of digital music industry. So the price of the Ipod certainly reflects some unique added features related to this product. Another element of competitive advantage strategy is the differentiation focus, when the company attempts to differentiate within the segment of the targeted audience. In this case the company should provide the customers with the product that matches the needs of the customers in the situation when current products of the competitors may not meet the needs of the targeted customers. All this features are present in this case as ipod has many unique features not available in the products of the competitors. Let us evaluate the this product within five forces model designed by Michael Porter that comprises the threat of new competitors, the threat of entry in the market, the threat of substitutes, the threat of bargaining power of suppliers and buyers.3 The threat of competitors. Not strong. Sony has started providing the customers with its new product- mini version of Walkman at the end of 2004. According to the research conducted by Moseberg, journalist from the Wall Street Journal, new mini player of Sony was thinner and wider, thus design was more convenient in use, as well as the battery life of the product was much longer. 4 However, when the Sony products appeared in the market the ipod was still unbeatable in the speed with which MP3 songs could be transferred to the player; whereas it took 2 hours and 13 minutes to transfer the 416 to the player of Sony, it took less than five minutes to transfer more songs to ipod. Ipod has some other advantages such as the possibility of the recharging possibilities and external design. Yet in new highly sophisticated technological era, the possibility of the entering of the competitors in the market might be strong. It will depend however, on how far innovative Apple will be in producing new improvements in current ipod. 2) The threat of potential substitutes. There are many types of digital players in the market; however none of them so far has managed to compete in two factors: external design and "cool" perception option of ipod as this product is aimed mostly at the young people. Most of the competitors do not have enough space (in gigabytes) to compete against ipod, neither do they have such large shipment volumes, as Apple has.5 3) The bargaining powers of suppliers. Quite low, as there is no large competitor in the market. 4) Bargaining power of buyers or threat of potential buyers. Quite low, as there are many potential buyers of ipod products around the world. (The threat might occur when the company has limited pool of buyers, which might entail the situation when the buyers could influence the prices set by the company). 5) The threat of entry. New competitors could hardly compete in the market unless new more innovative strategy is designed or more innovative product is made, which in my opinion is highly unlikely as it requires huge financial investments as well as possibilities for highly scientific research. In order to access the company on the Framework for analysis section, one should access several elements of the strategy. According to this framework resources as well as current capacities of the company must be: valuable, rare, and inimitable and should be efficiently exploited by the company. 6 Ipod is undoubtedly a valuable product, as the customers are willing to pay for this unique product; few alternative products with corresponding features are available neither there is a strong supply of corresponding products in the market. The demand on this product continues to be strong, especially among young people. In my opinion, even despite of the unfavorable demographic structure of population in developed countries, the company might find new niche in the developing countries especially if more aggressive marketing strategy is conducted. Apple should keep itself abreast of latest technological developments, as the changes in technology might entail the changes in the value of the product. Ipod with its current features is a rare product. Despite the fact that there are many digital players in the market, moreover, in spite of the fact that that is a relatively new product, just several years old, the rarity of this product persists over the long period of time if the current technological rate of innovation is taken into account. Inimitability of the product. Some features of the products can be imitated and have been imitated by the competitors though none of the products produced by the competitors has been able to include as many features as ipod has. Organization at Apple, despite the fact that it might be original yet is quite effective and efficient to produce such products as ipod. According to the information provided by article, there is a "deep collaboration" between various branches of the company. The products do not pass from one team to another; instead the product is being developed simultaneously by all departments of the company. All products pertaining to ipod are being developed by all departments at the same time. The Company undoubtedly has competitive advantage as well as costs leadership in the market. Unless there is some technological breakthrough or new innovative product can be produced by the competitor, what is highly unlikely, ipod will maintain its competitive advantage over the competitors. Product differentiation. The company provides its customers with many products and services. Apart from ipod it also produces hardware imac as well as operating system (such as itunes as imovie) as well as various devises for the ipod family. Vertical integration. Vertical integration occurs when all departments of the company are united and have common owner. 7Each department of vertically integrated company should produce a different product; all products should be produced in order to reach common goal. If one takes into account that the departments of the company are united and produce simultaneously various products in order to reach common goal, then Apple fits the definition of the vertical integrated company. Corporate diversification. Apple is not a highly diversified company though it specializes in various products and services; yet one can say it operates in related segments of the market and all products are suited for almost identical group of targeted consumers. Apple strategy is aimed to sustain its leadership position in the market; so far it has competitive advantage as far as the product of ipod is concerned. This product has several unique technical features and competitors have been unable to produce products with similar features. In order to sustain its leadership position, the company should keep itself abreast of the latest changes in the technology and the trends in the market. What is Apple's strategy in your opinion Do you think that Apple has a sustainable or temporary competitive advantage Why( or why not) What would Apple have to do to achieve (or maintain) temporary or sustainable advantage in the future Works cited: 1) Lev Grossman, How Apple Does It, Time, N.Y, Oct 24, 2005, p.4. 2) Strategy-competitive advantages, < http://www.tutor2u.net/business/strategy/competitive_advantage.htm > 3) Basic Models 4) Sony's iPod Killer, < http://ptech.wsj.com/archive/solution-20040728.html> 5) iPod competitors can't compete with Apple, 6) THE RESOURCE-BASED VIEW OF THE FIRM, Read More