Growing Customer Value of Apple, Inc - Essay Example

Growing Customer Value of Apple, Inc. Apple, Inc was initially a computer manufacturing company that was founded by Steve Jobs and Ronald Wayne. Today, the company designs, manufactures and markets its own personal computers, portable digital music players, and mobile communication devices. It also sells a variety of related software, peripherals and networking solutions. The company’s product lines include brands such as Mac for personal computer, iPods for portable music players, iPhones for mobile phones and other technological gadgets in the market. To date, Apple has become very successful in launching its new products aside from its Macintosh personal computers. The company is located in the Silicon Valley in the United States that is currently experiencing economic turmoil. The recession has caused some technology companies to close shop and file for bankruptcy. Unemployment in the region has increased due to the economic downturn. On the other hand, the high standards of living among Americans have prompted for an increase in labour wages. The problems of the American economy created threats to the sustainability of some companies. However, Apple saw the recession as an opportunity to pool potential talents for their new business ventures. Laws and regulations related to mobile communications devices in the many jurisdictions in which the Company operates are extensive and subject to change. Such changes, which could include restrictions on production, manufacture, distribution, and use of the device, locking the device to a carrier’s network, or mandating the use of the device on more than one carrier’s network, could have a material adverseeffect on the Company’s financial condition and operating results. Mobile communication devices, such as iPhone, are subject to certification and regulation by governmental and standardization bodies, as well as by cellular network carriers for use on their networks. These certification processes are extensive and time consuming, and could result in additional testing requirements, product modifications or delays in product shipment. (Apple, Inc, 2008) Information technology system failures, network disruptions and breaches of data security could disrupt the company’s operations by causing delays or cancellation of customer, including channel partner. This situation can negatively affect the company’s online offerings and services, impeding the manufacture or shipment of products, processing transactions and reporting financial results, resulting in the unintentional disclosure of customer or company information, or damage to the Company’s reputation. (Apple, Inc, 2008) War, terrorism, geopolitical uncertainties, public health issues, and other business interruptions have caused and could cause damage or disruption to international commerce and the global economy, and thus could have a strong negative effect on the Company, its suppliers, logistics providers, manufacturing vendors and customers, including channel partners. The Company’s business operations are subject to interruption by natural disasters, fire, power shortages, terrorist attacks, and other hostile acts, labor disputes, public health issues, and other events beyond its control. Such events could decrease demand for the Company’s products, make it difficult or impossible for the Company to make and deliver products to its customers, including channel partners, or to receive components from its suppliers, and create delays and inefficiencies in the Company’s supply chain. Should major public health issues, including pandemics, arise, the Company could be negatively affected by more stringent employee travel restrictions, additional limitations in freight services, governmental actions limiting the movement of products between regions, delays in production ramps of new products, and disruptions in the operations of the Company’s manufacturing vendors and component suppliers. (Apple, Inc, 2008) The technology industry is a very attractive industry with a growing market demand internationally. Using Porter’s five forces of competition, an industry analysis can be done. Porter’s five forces are threats to new entrants, threats of substitutes, bargaining power of suppliers, bargaining power of buyers and intensity of industry rivalry. (Porter, 1985) The threat of new entrants in the technological industry is high. New companies with an innovative product that addresses present technological issues can easily start-up their own business. A start-up technology company can approach venture capitalists and investors in order to acquire capital requirements and economies of scale. The threat of substitutes is relatively high for technologies. Every year, new products have been developed to replace existing products through better performance, functionality and capacity. Substitutes can easily out sell a product especially when such existing products are becoming obsolete. The bargaining power of suppliers in the technology industry is also high. Advancement in technology as well as intensive research and development creates leverage for suppliers to both increase prices and make old products obsolete. Obsolescence is very costly in computer chips and memory chips where the product lifecycle is relatively short. Suppliers also have intellectual proprietary rights in their products where they impose fines and sanctions for companies that try to imitate or copy their products. The bargaining power of buyer is quite high. More and more people are hooked up in the Internet where they can easily search a product of their choice that addresses their needs. Such choices create pricing competition among rivals in the market in order to attract customers. In any industry, as more similar products become available in the market, buyers can choose the best quality product offered at the most reasonable price. Intense competition from the technology industry resulted to benchmarking, reverse engineering and imitation. In order to defend its competitive edge against industry rivals, the Apple is building a significant capability to design its own computer chips. Current industry practices involve outsourcing such design and manufacture of computer chips. As for Apple, they are implementing a backward integration strategy where the business is diversifying and expanding through the creation of its own computer chip design and manufacturing department. Backward integration is a business strategy where an organisation ventures into the business of their suppliers in order to create value and competitive advantage. (Sadler, 2003) The backward integration strategy is Apple’s response to the increasing supplier’s power. With their own computer chip design and manufacturing facility, Apple can control the capabilities, capacities and costs of their critical input which are computer chips. Furthermore, the attractiveness of the retail industry of their products prompted Apple to implement a forward integration strategy. Apple has established retail stores and online stores to sell its products. The company markets the products to third-party wholesalers, resellers, and value added resellers through the company’s sales force. Forward integration strategy is a business strategy where a company sells its own line of products aside from supplying critical components through business-to-business channels. (Sadler, 2003) The core competency of Apple is in the effective value chain management of the company. The company has a reputation of creating trendy designs and functionality of their products. The manufacturing competency of Apple is providing the company cutting edge technology and high end products that are reliable, consistent and adaptable. The marketing practices of the company have led the company to achieve its current market position and increase its customer loyalty. Company is widely recognized as a leading innovator in the personal computer and consumer electronics markets as well as a leader in the emerging market for distribution of digital content, these markets are highly competitive and subject to aggressive pricing. An internal audit of Apple will show that the company has the resources and capabilities to implement their strategies. The tangible resources of the company include physical assets, capital equipments, technological resources, products and services. Intangible resources of the company includes the Apple brand and company image that is known worldwide, market leadership position in portable computers and music players, strategic human resources and leadership. (Hindle, 2003) The tangible resources of Apple create strategic capabilities for the company to compete in the industry and grow in the market. The intangible resources of the company enhance the market position and business performance of the company. In reference to the case, the human resource strategy of Apple is quite aggressive amidst the recession that the US is experiencing. The hiring and selection requirements for workforce demand in the company have increased. Apple is conducting job fairs, job postings and interviews for potential employees in the future. The company is hiring top notch IT executives from the computer chipset and semiconductor industries in order to spearhead the business process of computer chip designs and silicon manufacturing. They are hiring people from different segments as well as engineers in order to create multifunction chips that will be used in mobile phones to run software and other applications. Apple is focused on providing innovative products and solutions to consumers, businesses and creative customers that greatly enhance their evolving digital lifestyles. The company is the only participant in the personal computer and consumer electronics industries that controls the design and development of the entire personal computer, including the hardware, operating system, and sophisticated software applications, as well as the design and development of portable digital music players, mobile communication devices, and a variety of products and solutions for obtaining and enjoying digital content. (Apple, Inc, 2008) Apple aims at defending their market position by promoting new products and features that would leave competition to beat the dust. New products and new features would mean additional growth in revenues and increase in market share. Since the product life cycles of technological gadgets are relatively short, it is essential for the company to roll out new products in the market to remain competitive and profitable. The company utilizes a variety of direct and indirect distribution channels. Apple executives believe that sales of its innovative and differentiated products are enhanced by knowledgeable salespersons who can convey the value of the hardware, software, and peripheral integration, demonstrate the unique digital lifestyle solutions that are available only on Mac computers, and demonstrate the compatibility of the Mac with the Windows platform and networks. (Apple, Inc, 2008) The organisation creates value across the business through their culture of innovation. Apple has an intensive research and development program that has become a competitive advantage for the company in developing new products and features. The design team of Apple is also a value driver of the business because of its trendy designs that has become fashionably acceptable to most customers. The software development teams of the company keeps on finding ways of creating new applications as cutting edge features of Apple products. To remain competitive, the company believes that increased investment in research and development and marketing and advertising is necessary to maintain or expand its position in the markets where it competes. The company’s R&D spending is focused on further developing its existing Mac line of personal computers, its operating system, application software, iPhone and iPods; developing new digital lifestyle consumer and professional software applications; and investing in new product areas and technologies. The company also believes increased investment in marketing and advertising programs is critical to increasing product and brand awareness. (Apple, Inc, 2008) The internal strength of the company relies on the competitive advantages that the company creates. Apple’s brand and company image is strong. The positioning of its products is also strong. The design and manufacturing strategies of the company are part of their competitive advantages. The company is recently acquiring company shares from semiconductor firms and even acquisition one such company in order to improve the strategic capabilities of Apple. The weakness of the company lies on the low capabilities of Apple to contain its innovative creations. Leaks about the product features such as software and hardware occurs in the company. The company is concerned that some information that they shared with outsourced vendors are eventually acquired by Apple competitors. By developing chips internally, the company can shield itself from outside imitations and contain the knowledge about their chip technology inside the walls of Apple. Opportunities in the international market especially in emerging and growing markets such as China, India and Russia can be potential revenue generators for the company. The extensive distribution channels and international partners that the company has created and maintained will make them exploit such opportunities. The current state of business atmosphere in the US especially in the Silicon Valley can be seen as an opportunity for the company to recruit new talents whose companies are facing bankruptcy. The Company’s operations and performance depend significantly on worldwide economic conditions. Uncertainty about current global economic conditions poses a risk as consumers and businesses may postpone spending in response to tighter credit, negative financial news and declines in income or asset values, which could have a material negative effect on the demand for the Company’s products and services (Apple, Inc, 2008). Demand could also differ materially from the Company’s expectations. Economic conditions are perceived as threats that affect the performance of the company. Strategic options for Apple should be centred on remaining competitive on the global scale through a focus-differentiation strategy. An alternative strategy for the company is to be cost effective in order to lower the prices of its products and competes with the rest of the products. However, in a highly competitive market, a less differentiated product could be disastrous to the company. The operations of the firm are perceived as high fixed cost operation. Lowering the cost would directly lower the opportunities for new product development and new designs. (Best, 1997) Even if the low price would create additional sales in volume, the profit margin would be affected negatively and the company would be experiencing decrease in business performance. The Apple’s ability to compete successfully depends heavily on its ability to ensure a continuing and timely introduction of new innovative products and technologies to the marketplace. The company believes it is unique in that it designs and develops nearly the entire solution for its personal computers, consumer electronics, and mobile communication devices, including the hardware, operating system, several software applications, and related services. (Apple, Inc, 2008) Due to the highly volatile and competitive nature of the personal computer, consumer electronics and mobile communication industries, the company must continually introduce new products and technologies, enhance existing products, and effectively stimulate customer demand for new and upgraded products. The success of new product introductions depends on a number of factors, including timely and successful product development, market acceptance, the company’s ability to manage the risks associated with new products and production ramp issues. Significant investments in research and development must be made. Apple currently holds a significant number of patents and copyrights and has registered and/or has applied to register numerous patents, trademarks and service marks. (Apple, Inc, 2008) They must continue to develop and sell innovative new products with attractive margins. If other companies infringe on the Apple’s intellectual property, the company’s ability to maintain a competitive advantage could be negatively affected and have a materially adverse affect on its financial condition and operating results. The focus-differentiation strategic option of Apple is feasible and acceptable in the current global market condition. The focus on protecting the intellectual property of the company will increase the competitive edge of the company while decreasing the leaks on essential information on their products. The aggressive human resource recruitment is suitable to the strategic options because the hiring of new talents is necessary for the new business expansion. The downside of the focus-differentiation strategy is increase in operational costs and a decrease in volume sales. A differentiation strategy would impact the price of the end-product. Price sensitive consumers would eventually switch to the competing brand especially in the current economic conditions. REFERENCES Apple, Inc. (2008). 2008 Annual Report. California: Apple, Inc. Best, R. J. (1997). Market-based Management: Strategies for Growing Customer Value and Profitability. New Jersey: Prentice Hall, Inc. Hindle, T. (2003). Guide to Management Ideas. London: Profile Books Ltd. Porter, M. (1985). Competitive Advantage. New York: The Free Press. Sadler, P. (2003). Strategic Management. Sterling VA: Kogan Page Limited. Read More