Porters Generic Strategies and Cost Leadership - Apple - Assignment Example

STRATEGIC MANAGEMENT Contents Contents 2 Introduction 3 Discussion  3 References 16 Introduction The word strategy defines the action planed and designed for achieving overall aim and long term goal. These are established to define an organisation, focus its effort, setting a direction of the business and providing guidance and consistency. In management system effective strategies are the most important thing. Strategic management means formulation and implementation of plans and initiative taken by the company for achieving its major goals. This is done on the behalf of the proprietor after considering the resource of the company. For implementing any strategy assessment of external and internal environment of the organisation is completely done. It involves in developing policies and fulfils organisational objectives. The organisations develop many framework and models based on the competitive and complex environment to develop strategic management system. It is not static in nature. It keeps on changing with the market scenario. The models in the strategic manage sometimes included a loop for giving feedback for monitoring the plan and developing the next level of plan. It helps to develop a systematic co ordination, mission, and vision of the business. It transforms plans into system which provide performance and feedback helping in the growth of the business. In this case study a large telecommunication company is used namely Apple. The company has developed many new products and has used its strategies very efficiently that the businesses generate maximum revenue from that. Although Apple is successful and globally renowned brand, but the strategy they have used for their business in line of vision is quite different with respect to other telecommunication companies. The strategies of Apple have been analysed of the basis of models like McKinsey’s 7-S Framework, Porters Generic Strategies, and Porter’s Diamond Strategies to understand their way of thinking. Discussion  Porters Generic Strategies Where is there are lot of firms in existence in today’s market place only few can call themselves to be profitable and the rarest of rare can enjoy a global position, recognition and aura around them as Apple. Although there are many factors that determine the success of one company and failure of another selecting an effective strategy may be termed as the first step (Tallman, 2010). Porter’s generic Strategies go on to describe how a company applies a particular strategy to establish its competitive advantage over its rival. According to Porter there are three types of generic strategies: Lower cost, Differentiation and focus. (Porter, 2003) Cost Leadership The company may try to establish its competitive advantage over its rivals by providing its products at lower cost than its competitors. The company tries to achieve this through reduction in operational margins and operation costs. By applying this strategy the company actually aims to target the mass market. A look at the different types of mobile phone designed by apple goes on to explain their strategy: Advantages- For a telecommunication sector this is probably a very good strategy to maintain especially for a company like Apple because they will have fierce competition from players of china (Hitt, Ireland, and Hoskisson, 2008). Another hindrance towards applying of cost leadership in case of Apple is that the technology and telecommunication market is evolving very rapidly and newer cheaper and better technologies are coming up each day. So it is very difficult to maintain the cost leadership structure for companies like Apple in this market place. Thirdly Apple’s vision especially as its founder Steve Jobs had envisioned about the company does not augment well with this model (Gillam, 2012). Jobs had wanted that the products that his company delivers or produces should be blend of art and technology. So in other words he wanted to create a niche customer base and not cater to general mass market. However major rival of apple, Samsung can be said to follow a strategy that is lot different from Apple (Morschett, Klein, and Zentes, 2011). Disadvantages: - Cost leadership as a strategy only works if a company wants to and are successful in creating a niche market segment for itself. It requires a leader who is visionary and a company which is not afraid of initial failures. A brief of the types of mobiles designed by Apple between 2007 and 2013 (Colege of IST, 2012) Differentiation: Firms following this model will use strategies to differentiate its products from the product of other companies. In another way it wants to create a niche market for itself. The differentiation can be achieved in areas such as design, technology, customer service, value added services, product features etc. Apple has always followed and succeeded using this differentiation strategy (Hill and Jones, 2011). It was guided by leader like Steve Jobs who himself was a visionary and some sort of a dreamer. To achieve differentiation Steve created products which mingled art with technology to create products that were of special breed and create a breed of loyal customers. He built the suspense level and position of the company as different from others using secrecy as the tool. The fact that it has worked can be easily documented from the fact that there are huge no. of apple enthusiasts who line up in front of Apple stores before every new product lunch. As a telecommunication company it is second most valuable after Samsung. Advantages: - The differentiation strategy helps a company to succeed in the fiercely competitive technology and telecommunication market he needed to create products that broke the curve or in other words create a blue ocean market for its products (Kim.& Mauborgne, 2013). Disadvantages: - Since by differentiation strategies the companies tends to or likes to create a different image about itself compared to its competitors. So in order to achieve this, leadership of the company should be visionary. They should have a vision to create a product that is different from others or provide something with the product that is different from the set pattern. They should be something sort of a dreamer like Steve jobs and have the ability to pursue that dream religiously backed by strong marketing research. So, Differentiation strategy only works for certain company does not work for the majority of them. Focus: A company can choose between two types of scopes. Either they can focus on a select group of customers, or select line of business or select geographical area or they can have a wide angle view and encompass different product lines geographies and mass market. Advantages: - This strategy helps a company to focus in a particular sector and achieve excellence. Disadvantages: - By focussing just in one sector the company is actually inviting future troubles. It is always better to be in a portfolio of different industries to mitigate risk. McKinsey’s 7-S Framework McKinsey’s 7s model is a management tool developed in the 1980s. It states that the firm’s internal organization is based on 7 elements. How a firm will perform is based on the balance and proper alignment between these 7 elements. So to improve a firm’s performance this balance between the 7 elements should be checked. Then, it should be identified which of the 7 elements needs to be tweaked to achieve higher performance. The 7 elements (s) of the McKinsey’s 7s are strategy, structure, system, staff, style, skills and shared values (Michalski, 2011). (Hill, 2012) McKinsey model actually talks of types of S; the hard s and the soft s. The hard s is the strategy, structure and skills. Although the hard S are easier to identify and change it is the soft S that is elements such as Shared values, Style, Staff and system that are the foundation of an organization. The soft S elements help create and sustain competitive advantage. The figure of the model also shows the inter connectivity and interrelation of the different elements. The7 elements are: Strategy: Strategy is a plan or a road map that a company develops to establish its way of thinking and to establish its competitive advantage in the market (Sekhar, 2009). What is an effective strategy or what an ideal strategy should be? An effective strategy should be such that it is long term, is aligned with the vision and mission of the company. But McKinsey’s model does not allow us to analyze any element of the model in isolation. An element is good or bad only if it’s aligned with other elements or not. Structure: Structure refers to the way in which different units of the organization are interrelated with each other. The different units may be linked together by either top down, decentralized, matrix etc. It actually describes who in the organization reports to whom. Apple for example uses a matrix form of organization structure. Advantage: - It goes well with its vision and strategies because it is mainly an innovation based company. A collaborative environment facilitates innovation in the fact that employees can think freely and anybody can bring in new idea. Disadvantages: - In today’s business environment, a company has to cater to mass market to be profitable in the long term. So, it has to follow bureaucratic organization structure. It has to do business in volumes and if it has to cater to mass market and increase its presence. System: The procedure and processes that a particular company follows while doing its daily work. It defines the way in which a company conducts its business. Apple follows a free environment with open culture and collaborative atmosphere that facilitates thinking and innovation. Advantages: - It encourages employees to come up with new ideas and has built the atmosphere, leadership, strategy and everything else with that goal. Staff: Staff refers to how the staffs of the company are recruited, how many of employees are needed and how should they be motivated accurately to expect the best results from them. Apple for example motivates its employees by giving them performance and non-performance related benefits. However the major motivating factor at Apple is its creative culture which helps in fostering innovation. Advantages: - The open, collaborative and creative culture at apple is the main factor that acts as a gravitational pull for the employees at Apple is this creative culture. Disadvantages: - For catering to mass market, it should like Samsung, start giving to its employee performance related benefits mainly in monetary terms. But depending on how his group or company performs he may receive up to four and half month’s salary as extra (Rowley& Benson, 2004). Style: Style represents the way in which the company’s top management manages the operation of the company. In other words it describes the leader style of the top management. In apple the leadership style has changed over the years from Steve jobs to current CEO Tim cook. Advantages: - Advantages of Steve leadership was that it gave more freedom to the employees for innovation. The style augmented with other elements of the 7s for Apple. Disadvantages: - This style is very risky as all the innovations that a company makes may not work and in innovating the company is actually taking a huge gamble. Skills: Skills are the abilities and competencies of the employees of a particular organization. Depending on the type of organization the skills that the employees possess varies or the company chooses those employees who have skills that augment well with the company. Shared values: Shared value as is evident from the picture is at the heart of McKinsey model. These are the norms and standards that guide employee behaviour and their actions and is thus the cornerstone of any organization. In case of apple the value that is at the core of the organization is innovation. Advantages: - Innovation helps to create for the company a niche market segment and avoid the fierce competition. Disadvantages: - Innovation may not always work and is actually quite risky as a strategy. Porter’s Diamond The model was put forward by Michael Porter in his book where he stressed upon the factor why certain industries become successful in certain nations. Diamond model (Porter, 2011) What porter mainly suggests is that a company cannot be treated in isolation or considered in isolation if we want to find out will it succeed or not? Or rather why it has succeeded in a particular region and failed in another (Reinert, Rajan & Davis, 2009). There are several factors that either contribute to its success or are determinants of its failure. These factors are as follows: Factor conditions: Factors can be of two types; either common for the industry or specific to the particular company. Common factors that are common to the industry or are common for the industry are: human capital, capital resources, physical resources, knowledge resources, infrastructure resources. Broadly speaking it describes human, labour, capital, and knowledge. Specific resources are important for a company to establish its competitiveness over other companies. They can be created when certain factors are not available to particular regions. Apple enjoys good factors availability at its region of operations. However to increase the availability of cheap labour and to improve its competitive advantage it has also set up a manufacturing unit in China. Demand Conditions: Demand condition as the name suggests refers to the demand of the particular product that the company manufactures in the home market. If the home market consists of sophisticated customers who pressurise the company indirectly for higher, better and innovative products, them the company also gets motivated and focuses on developing innovative products. In the telecommunications market especially the customers loyalty is very hard to maintain as there is innovation happening daily. So the customers will always look for the latest products to be available with them. If the customer is not satisfied with the product offered by a particular company then it does not take much time for them to shift their loyalty to a different company. It can be said that Apple is a company which is driven by innovation. It offers products to its customers that are a class of its own. The customers having been offered such good products over a long time have increased their expectation from the company about its products. This in turn motivates apple to go a notch higher and create better and better products by the day. Related and supporting industries: Supporting industries also performs a major role in determining a company’s success or failure. If the products designed by the supporting industries are included in the company as an input in the value chain then supporting industries becomes all the more relevant. If the company wants to improve its output products quality then the input that the company receives should also be higher quality. If supporting industries are competitive on a global scale themselves then this motivates the company to perform better. Apple as a company was founded and has its main operation in the Silicon Valley of America. The Silicon Valley is famous worldwide as the birth place and cultivation ground for technological companies. It’s neighbours over there are other huge giants like face book and Google which are also renowned globally. So in such an environment the competitive spirit of the company increases. Firm strategy, structure and rivalry: Firm strategy, structure and rivalry are also a major determining factor in determining the success of a company. Firm strategy refers to the strategy set by the company or in other words long term goals that are set by the company (Hussey, 2007). Strategy is made in accordance with the vision of the founders of the company (Jeffs, 2008). Pressure of rivals or rivalry is also a major driver in the pursuit of excellence. If the company enjoys strong rivalry in its home market then the company by effect of completion with its rivals will be forced to innovate and bring out better products to surpass the rivals. Apple in this scenario enjoys a favourable position because it is surrounded by companies such as Google, Face book and Microsoft and so the company actually faces stiff rivalry in case of who can perform better which acts as an extra motivating factor. Government: Government can play a major role in determining competitiveness of a firm in the respect that Government can influence all the other factors that are involved and influence a firm’s competitiveness. Big companies or any company for that instance always require support of Government so that the policies or other decisions that the government takes can be used by them in their favour. Chance: Chance is also an important factor which determines a firm’s competitive advantage position but is not in the hand of the firm. Chance factors are important because although unseen and unexpected they can have a major effect on a firm’s competitive advantage. The success of a firm is also determined by how well the firm is prepared for sudden and unexpected events. Such chance factors may be the Global financial crisis which took the world by storm in 2008. Conclusion The above report is indicating that Apple have given significant importance towards implementing strategic management into their organization. According to the suitability of the topic, there are three analytical process have been chosen. During the course of this study each analytical process has critically evaluated strategic management of the company. Over the years the company has invested significant money and energy for their strategic implementations. The usages of all three critical analytical processes have been significantly helpful for conducting this report. McKinseys 7-S Framework has categorically indicated that strategic management of Apple are significantly visionary in nature. That means all the strategic decisions of the company are taken from a long term perspective. Porters Generic Strategies are indicating that the organization believes in product differentiation strategy. Prices of the Apple products are high in compare to other products that means the company does not follow cost leadership strategy intentionally. The report has indicated that with the help of continuous innovation the US based organization has always tried to maintain product differentiation strategy. In most of the strategic management decisions of Apple, product differentiation is highly evident. Generic strategy of differentiation has created unique brand image for the company. It has helped the organization to gain competitive advantages in the industry. It is being observed that Apple’s strategic management is significantly successful because all the 6 factors present in the porter’s diamond model are significantly in favour of the company. This favourable alignment has given lots of successes to organization. References College of Information science and Technology. 2012.Apples Use of Litigation as Business Strategy and the Ripple Effects on the Mobile Marketplace [Online]. Available at: http://faculty.ist.psu.edu/bagby/432F12/T11/samsung-business-strategy.html. [Accessed on 07 November 2014]. Gillam. S., 2012 Steve Jobs: Apple Icon. Minnesota: ABDO. Hill, A. V., 2012. The Encyclopaedia of Operations Management: A Field Manual and Glossary of Operations Management Terms and Concepts. New Jersey: Pearson. Hill, C. and Jones, G. 2011. Essentials of Strategic Management. London: Cengage Learning. Hitt, M., Ireland, D. R. and Hoskisson, R. 2008. Strategic Management: Competitiveness and Globalization, Concepts, Volume 1. 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