Organizational Strategy of Apple - Essay Example

Organizational Strategy: Apple Introduction Apple Inc headquartered in California has attracted scholarly interest due to the organizational strategy that has transformed the company into one of the most successful businesses globally. Modern business environment calls for companies to develop strategies that enable the organization achieve competitive advantage over other firms in the industry. This paper focuses on the strategic positioning of Apple, which is a company that has grown its market share to become a leader in the computer and mobile phone industry. Organizational background Apple represents one of the most successful technology companies of the world today since its launch in 1976 as a personal computer manufacturer. The organization which in 1997 was on the brink of bankruptcy has been able transform and record profits in the following years due to the production of leading computer software and personal computers that are based on high standards of innovation, prestige and quality. The cusses of Apple depends on production of highly innovative hardware and software which have over the years established the company as the leader in an industry where every organization strives to gain a share of the market that readily embraces new technology. Due to the customer loyalty that Apple has been able to establish over the years therefore driving sales, the company has featured in several occasions as the first among Fortune magazine’s World’s Most Admired Companies with latest financial results for second quarter ended March 29, 2014 indicating $45.6 billion in revenues and $10.2 billion quarterly net profits (Apple, 2014). The following sections presents an analytical business report focused on different levels of organizational behavior and human resource. The multinational focuses on designing, developing, manufacturing and selling computer-based communication electronics, personal computers and computer software (Hertzfeld 2004, p.18). The market leader in Apple hardware was the Mac personal computers, but the company soon diversified into the world’s first media player device, iPod, a pioneer smart phone, iPhone and leafing tablet computers, the iPad. In addition, Apple introduced software such as operating systems like iOS and OS X, iTunes, the Safari browser in addition to productivity and creativity suites such as iWork and iLife (Fisher, 2008). The history of Apple marks a dynamic transformation from a personal computer manufacturer to a leading manufacturer of consumer electronics, operating software and consumer software (Young and Simon 2005, p. 49). Industry Analysis The industry in which Apple operates has a number of competitors that includes Google, Microsoft, IBMand Hewlett Packard (HP).These companies have in the past years developed various devices and apps in both computer and cellular technologies that are in direct competition to those developed by Apple. However, modern businesses must realize changing realities that are defining the market anew, from a political, social, economic and regional matrix now intergraded into a singular global market (Cavusgil, Knight and Riesenberger 2008, p. 37). Recent outcomes of Blackberry’s market share are testament that no company can remain stagnant and retain customer loyalty. The success of Apple has been marked by innovative, adaptive and ever developing approach to manufacturing electronic devices and software. In agreement with Morrison (2009), the modern world presents a challenge to adapt, change and develop simultaneously with a globalizing market as the only way to captivate a profitable market segment in modern business (p. 53). What was previously relevant and competitive may not captivate a continually changing market (Wunker, 2011), and contemporary business strategy needs to integrate a changing perspective from a regional to a global perspective (Cavusgil, Knight and Riesenberger 2008). The foregoing argument best explains why Apple has been able to outperform Microsoft, and why IBM is losing its global edge as a computer hardware brand against Apple. Microsoft needs to adopt what Morrison (2009) defines as a comprehensive approach into the communication technology market, where personal computer software no longer defines the market leader. According to Hill (2013), “the world is moving toward a more global economic system”, and only the companies that strategize adequately for these changes can trust the future for sustainable profitability (p72). Regardless of variant regional legal systems, political ideologies, social constraints and economic platforms across various nations, Microsoft became a global leader in personal computer software globally because its product was globally standardized for the target market. After market domination however, the future market is gradually shifting from personal computer to smart phones (Wunker, 2011). According to Aspara, Lamberg, Laukiaand Tikkanen (2011) market mechanisms allow promising strategic alternatives to emerge and select out inferior option. Agreeably, as Blackberry loses market value, Apple is becoming even more dominant in the market. Microsoft’s newest business strategy is validly informed and based on foresight. Indeed, Microsoft has initiated diversification of its personal computer venture into merging with one of the world’s leading smartphone manufacturer. According to Parkhurst (2013), in a bold move Monday, Microsoft announced it is acquiring Nokia's devices and services division for nearly $7.2 billion, and that Nokia CEO Stephen Elop will return to Microsoft as the president of the division. Additionally, the acquisition of Nokia by Microsoft increases competition in the computer and mobile phone software and hardware industry especially given the recognition of Nokia's patent portfolio as most valuable in the industry. What Microsoft has done in buying Nokia is create a platform to control both the hardware and software segments of the industry while the companies devices are diversified to respond to the needs of in personal computer portfolio and the lucrative smart phone and tablet market (Manjoo, 2013). The problem however, is that Apple has provided competitive products within and without the US (nearly globally) already, and Microsoft will be a late entrant into a market already under the dominance of Apple. Even in small Indian villages, consumers have purchased iPhones and ipads. Microsoft’s move is there strategically viable, competitive and likely to create sustainability of the Microsoft brand, but is already too late. Nonetheless, by the merger, Microsoft will tap into a novel increase on the global market, since market leaders into new and emerging markets are no longer preferentially western corporations (Wunker, 2011). Such emerging companies in Asia are aggressively competing against western corporations, with Samsung being the world’s most dominant electronic device manufacturer. The Finish Nokia will give Microsoft an edge in marketing across the Asian and Middle East territories where Apple is still not a dominant market leader (Aspara, Lamberg, Laukiaand Tikkanen2011, p. 622). It is also important to note the recent trend in the industry where the prices of devices and applications have continued to reduce. Price reduction stands as an important trend in driving market growth for smartphones. Given the shift from PCs to smartphones, companies that have invested in production and sale of devices at significantly lower prices than that of competitors will attract a higher volume of sales than the competitors will. The introduction of Android technology into the manufacture of smartphone made it possible for new manufacturers to enter the market with a focus on production of low-cost devices as a platform of building brand awareness in a market where consumers readily adopt new technologies (Nair, 2014). Current Strategic Direction Apple has over the years depended on product differentiation to increase market demand for its devices and applications, therefore making the company dependent on creation of unique and attractive products. The company has consequently been able to remain ahead of the rest through creation of demand for its products, which gives power to decide over prices to the company. Apple creates and maintains demand for devices and software by focusing on consumers who are prepared to spend premium outlay for high quality products. To facilitate this strategy, Apple has invested in a distribution channel that makes it possible for the company to sell products in most of its major markets directly to consumers with outlets. This is such as retail online stores and direct sales group with the company also making use of some indirect distribution channels that involves third-party cellular network carriers, wholesalers and retailers (Nair, 2014). To control the prices of Apple products effectively, the company and its retailers and dealers operate under the minimum advertised price (or MAP) strategy (Elahi, 2000).Through the MAP strategy, Apple ensure resellers or dealers of it products do not advertise the products a predetermined minimum price. There are several measures undertaken by the organization to ensure all the dealers and retailers conform to the agreed prices with marketing subsidies being an important motivation for resellers. However, Apple offers marginal discounts to retailers such as Wal-Mart to ensure the popularity of the company’s high-priced products is maintained while still ensuring retailers gain a small percentage in savings, which limits them from offering big discounts on Apple products. The consequence of this strategy is that retailers will always set prices close to what the Apple has envisioned therefore meeting the manufacturer suggested retail price (MSRP) requirement (Morschett Schramm-Klein and Zentes, 2007). Retailers could further reduce their profit margins by offering products at a discounted price to attract more customers but this is minimized through monetary incentives which encourage the retailers to adhere to the MAPs determined by fixed by the company. Setting such prices ensures Apple controls direct competition between the manufacturer and its retailers while also making sure no retailer gains an advantage over the rest (Nair, 2014). The strategy employed in pricing Apple products reflects what Jobs, had envisioned for the company, which is to produce leading products that attract premium price. The company’s cheapest products attract mid-range price tags while their features guarantee high-quality experience for consumers. Both the hardware component and user interface are developed to provide customers with an experience that corresponds with the price therefore creating high profit margins for the company. In recent years, Apple has faced stiff competition from other companies in the industry, which threatens its ability to continue offering it products at premium prices even as its competitive advantage is being challenged. Entrance of Google’s Android system and low-cost smartphones in markets both in developed and emerging countries company means Apple risks becoming a high-end niche name (Nair, 2014). Growth Strategy Due to the requirements of a highly competitive environment, Apple has to develop a growth strategy that will enable the company remain a head of competition. According to Shaughnessy (2013), Apple growth strategy is moving towards what competitors such as Samsung had embraced over the years. This involves releasing multiple new projects, which increases platforms for company operations while creating room for more people to build business around Apple. The need to introduce more products into the market is motivated by a number of factors among them dwindling market share, a static stock price, declining figures in iTunes downloads and market saturation for iPhones products. This reality implies the need for the company to have a shift in its more traditional strategy that has contributed to success over the years. Part of the diversification efforts undertaken by management at Apple includes developing multi-pronged strategy where apps can be developed for users from other companies. Such a strategic shift includes development of an iTunes app for Google’s Android. This will represent a significant change especially since Google has traditionally had apps for iOS while Apple has in the past-created apps for users of its own devices. This strategy was effective in the past due to Apple’s status that had placed the company far ahead of competitors. Apple was therefore able to easy attract consumers to use its devices that were marketed based on their superiority and that of the apps. However, this strategy has continued to limit success in the current market situation as seen from the performance of iOS compared to Android. For instance, in 2013 alone there were sales of about 781 million smartphones based on the Android technology compared to significant lower figures of approximately 153 million smartphones with Apple’s iOS (Arora, 2014).Adoption measures to increase customer base means the organization will have to undergo significant transformations in it strategies. Apple therefore has to divide its business by creating software and devices differently in order to expand its ecosystem. This allows the company to have Apple services that run independently of the company’s devices (Meyer, 2012). The growth strategy employed by Apple over the years was based on the innovative capabilities of the company, which made it possible to optimize customer experiences by making improvements to products. Consequently, Apple’s growth path involved introduction of a highly innovative device followed by subsequent editions of the devices, which are smaller and lighter while also improving the user interface to suit the needs of mobility. New products were also developed to connect to existing Apple products in the market to ensure customers will continue enjoying available services on all the available platforms. This growth strategy has been instrumental in driving sales and revenues for the organization that began with Desktop Macs and PCs, which developed into luggable portables followed, by laptops then the latest devices such as MacBook Air, which are ultra-light (Meyer, 2012). Therefore, Apple’s growth strategy is based on Organic growth which is about growth that is stimulated from internal positioning and not through undertaking mergers or acquisitions. To support this growth strategy, Apple has minimized the number of acquisitions with statistics indicating average of one acquisition annually during the past twenty-five years. This is significantly less when compared with Microsoft’s acquisition of 45 companies, Google’s 40 and Cisco’s 30 in only four years. Consequently, the growth experienced in the company has been mainly due to creation of an R&D department that is able to anticipate the customer needs and produce devices and applications that responds to the needs. Apple has successfully produced market leading devices due to the guaranteed superior customer experience that is as a result of innovative ideas developed while maintaining costs at a minimum as seen from the 4.6 billion dollars spent on R&D over four years compared to Microsoft’s expenditure which was 700 percent more for the same period (Cheney, 2010). Logic for Global Strategy Global positioning for Apple involves establishing reliable outlets and marketing its products outside the US to focus on emerging markets throughout the world. This strategy will see the company establish its presence in emerging markets such as Japan and China therefore increasing revenue. For instance, the company opened 41 stores in 2012, which was the second highest in the history of the organization since the 47 stores that were opened in 2008. It is important to point out that of the total number of stores opened in 2012, approximately, 15 percent were in the US. This indicates the high priority placed on expansion in regions outside the US as Apple seeks to establish its presence in other markets. This strategy is important in addressing past imbalances where most of Apple’s sales were based on markets in developed countries. Going forward, most of the openings seem to address the imbalance, which had curtailed prospects of growth in new markets outside developed countries (Dediu, 2013). However, expanding into the global markets does not only result in increased revenues but also increased risks, which the company must assess before entering new markets. Organizations operating on a global scale have to deal increased complexities in its operations, as it has to set structures in the new areas. Assessment of risks involved in organizational operations becomes paramount when the company outsource some of its functionality from other countries. The risks from having an organization with global presence must be weighed in order to determine whether potential benefits due to lower costs of production operations in low-cost countries is sustainable in the long run (Kelly and McGowen, 2011). Therefore, Apple has taken advantage of the benefits presented by a globalized market to undertake a strategy that combines outsourcing, importing and exporting in order to increase revenues while also keeping costs of production and operations at a manageable level. For instance, the organization relied on outsourcing parts of the components from companies located in Taiwan and China to develop the iPod and launch with the costs being a fraction of what was needed for domestic production of all the components (Lo, 2008). Apple has taken advantage of companies such as Inventee Appliances and Foxconn, in China and Taiwan that have the capability to produce iPod components at a low cost. Sales for Apple products have also taken a global approach with the company releasing devices in multiple countries. For instance, the company included China for the first time it is release of new iPhone 5s and iPhone 5c for the global entrance of the devices in 2013. Based on this approach, Apple has been able to increase sales in the Chinese market where it is reported the company has edged ZTE Corp to be the fifth in smartphone market, a significant gain considering China is the world's largest market for smartphone (Bora, 2013). Challenges and Necessary Adjustments Technology is among the major macro-environmental trends facing Apple as the organization strives to remain the leading force in the computer software and personal computers sector. The organization has to align its operations to fit in a sector that is characterized by rapid and sustained technical progress. The challenge in keeping up with technology is because integrated circuits and other electronic components have continued to be transformed on yearly basis to respond to consumer needs of faster and cheaper components. Since Apple prides itself on being an organization that thieves in a culture of innovation, the technological rends within the sector provides Apple with an opportunity to improve existing computers and software while also designing a new kinds (Katie, 2012). On the technological front, Apple has had to invest in incorporating new ideas and creativity in its products in order to overcome competition from organizations such as Intel, which produces highly innovative products, and Microsoft Corporation that produces software. Apple has had to respond to the changing technological trends in a number of ways where for instance from 1976 the organization followed a proprietary system of production. This means Apple had to create personal computers by assembling the necessary components, develop operating systems such as MacOS and still develop the applications for the computers. This means Apple had to control the development of both software and hardware for its products, which it managed to do based on the fact that the organization had the capacity to create personal computer that delivered great personal experience compared to competitors (Gadman and Cooper, 2009). Following a shift from the proprietary system to open structure by Apple’s competitor, IBM, there were new players such as Compaq and HP who wanted to produce components that were compatible with IBM personal computers. Other organizations that were attracted to the market were Intel for processors and Microsoft for production of operating systems. The following years saw Intel release improved processors forcing Apple to invest in production of faster processors to counter the competition created by new companies (Gadman and Cooper, 2009). There is also the economic environment, which affects Apple functioning with the company having to adjust to the low entry barrier, which makes entry of new firms into the market very easy. The organization has to introduce products that suit specific customer preferences in order to beat competition from competitors such as Dell, IBM, Asus, HP, Lenovo, Compaq, Ben Q, Acer and Gate Way. There is also a challenge when dealing suppliers of processors since this area has small number of organizations such as Intel, Cyrix and AMD. This circumstance means there is a strong bargaining position for Apple, which has to go with the high asking prices of these firms. Therefore, the organization is forced to content with the low operating margins while also presenting challenge in sales as Apple is faced with a choice involving charging low prices to enhance market share or append premium prices for products to cover costs even with a reduced market share (Katie, 2012). Even as Apple has recorded success in its markets in most developed countries, there is a challenge in the entering new markets in the developing countries. The deferent between operating in markets in developed countries and those in developing countries is that those in developed countries have a higher bargaining power and can easily pay the asking price of the products. The developing countries are characterized by low bargaining power, which means the organization has to content with low level of sales (Katie, 2012). Conclusion From the foregoing, Apple has undertaken significant strategic positioning to ensure the company is well placed to face challenges in the computer and cellular device and application industry. As an organization that relies on releasing innovative products to the market, Apple has managed to remain ahead of its competitors by analysing its markets. This is important in releasing products that optimizes customer experience while also bringing in more revenue due to optimum pricing of devices. However, the organization has continued to face increased pressure from competitors who have taken advantage of improved technology to release rival brands that have significantly low prices. The success of the organization in future will depend on the innovative capability to satisfy customers who are willing to accept optimum prices to gain the experiences afforded by Apple devices and applications. References Apple, 2014. Apple Reports Second Quarter Results. 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