Apple Inc as 21st Century Business Structure - Research Paper Example

21st Century Business Structure – Apple Inc The Form 10K filed by Apple Inc with SEC in October 2008 s1, “The Company is committed to bringing the best personal computing, mobile communication and portable digital music and video experience to consumers, students, educators, businesses, and government agencies through its innovative hardware, software, peripherals, services, and Internet offerings.” This is indeed quite an attractive and confident statement from a company known to come out with innovative products and services. Having started the journey in 1976 the Apple Inc. has seen many milestones. A company with a distinctive identity, today it appears that Apple Computer Inc. is one of the best challengers to the competitors. Products like iPhone and the iMac have successfully taken on the hegemony of IBM and Microsoft in the IT world. Headquartered in Cupertino, California, Apple Computer is known for designing, manufacturing and marketing personal computers and related software, services, peripherals, and networking solutions. iPhone is the latest one which has recreated a history of another kind. The company also designs, develops, and markets portable digital music players along with related accessories and services, including the online distribution of third-party music, audio books, music videos, short films, and television shows. The company primarily operates in the Americas, Europe and Japan. It employs about 32,000 people (Datamonitor, 2009). Apple experienced good success during the late 1980s but testing times during the 90s. The recently released list of BW 50 includes Apple Inc at 15th place, well over the competitors like Google but Autodesk. But there are many other competitors like Microsoft, MEMC, Cognizant Technology Solutions etc. which are far ahead of Apple and continue to make good progress even during the times of recession. If we trace the history of Apple for the last decade, it is clear that the company has been able to thrive on its core competency of ‘making the technology easy to use’. The renowned authors of ‘The New Age of Innovation’ C.K. Prahalad and M.S. Krishnan (2008) provide some tips about the importance of value proposition in management. It is said that in order to have fundamental transformation, two basic pillars are required, viz. R=1 i.e. value depends upon a unique personalised experience of consumers, and R=G, i.e. underlines the need to have a better access to resources and that merely owning the resources doesn’t carry any meaning. In fact R=G states that, “no company is big enough in scope and size to satisfy the experiences of one consumer at a time, which places the emphasis on access to, not ownership of, resources” (Prahalad and Krishnan, 2008). Prahalad’s R=1 theory has been very suitably applied by Apple, if we trace the success story of iPod and iTunes, followed by the iPhone in recent past. The 21st century is proving to be particularly success oriented for Apple with its range of iPods and iTunes becoming very much popular amongst the young music lover fans. By the end of year 2000 Apple was able to sell some 2 million iPods leading to a 30% share of digital music players. That’s quite a feat for a company which was basically into computers and IT. Though the profit margin is miniscule as Apple has adopted the penetrative pricing strategy for its iPods, yet Apple is determined not to loose the initiative to its competitors like Sony, Phillips, Samsung etc. Year 2004 also saw the launch of a new 20 GB digital walkman from Sony, but so far iPods has been proving to be music to the ears of Apple. Porter’s five forces analysis In case of Apple Inc the Five Competitive Forces can be typically described as follows: i. Bargaining Power of Suppliers: Suppliers comprises all sources for inputs that are needed in order to provide goods or services. a. Apple is dependent on IBM for its supply of the PowerPC G5 processor which is used in its current Power Mac, Xserve, and iMac G5 products. The company is therefore susceptible to a supply risk for key components from its supplier who also happens to be a competitor. In the past IBM has experienced manufacturing problems with the PowerPC G5 processor, which resulted in delaying the shipment of various products and constrained certain product shipments during the second half of 2004 and the first quarter of 2005. b. Freescale is the sole supplier of the G4 processor, which is used in the company’s eMac, Mac mini, and portable products. c. Company also entered into strategic tie-up with Intel in 2005, for the supply of microprocessors in Mac. In a market where speed to market is extremely vital for beating the competition, Apple’s dependency for such key components on its long time rival companies could result in its being at a competitive disadvantage. In fact IBM has made at least two unsuccessful attempts in the past to take over Apple Inc. ii. Bargaining Power of Customers: In today’s market driven economy, customers’ have a wider choice in the market place. Customer can easily weigh all his options before going in for the purchase. Therefore Apple needs to be innovative and rely more on product differentiation. Sony, Phillips, and Samsung threaten to take away its monopoly over the iPod with their own versions of walkman and minidisks. iii. Threat of New Entrants: It is certainly not easy for new entrant to enter the PC and Software industry because it is a capital intensive business as the economies of scale (minimum size requirements for profitable operations) leaves little room for a new start up company challenging the existing market share. But the threat emanates from the existing competitors. Google has already made its mark with Android, the mobile operating systems. And with the recent launch of its own Nexus One mobile phone, Google appears all set to offer a tough battle ahead to Apple. Microsoft is also known for its aggressive penetrative marketing. If Microsoft decides to enter into the music store software in a big way, then it could be an uncomfortable situation for Apple. Industry analysts have started revisiting the historical pages of the competitive era when during the 1980s Apple started losing the PC war to Microsoft. They wonder if Apple do not spruce up all its acts and start bracing itself in right earnest, then the iPhone might as well be destined to lose the war to Nexus One (Manjoo, 2010). iv. Threat of Substitutes: Threat from substitutes exists if there are alternative products with lower prices and with better performance parameters for the same purpose. Apple faces aggressive competition in all areas of its business. The market design, manufacture, and sale of PCs and related software and peripheral products have become highly competitive. Moreover this market continues to be characterized by rapid technological advances in both hardware and software development, which results in increasing the capabilities of existing products and software. This is resulting in the frequent introduction of new products with much reduced prices and better feature, and performance. Apple needs to keep its R&D activities in motion all the time. v. Competitive Rivalry between Existing Players: Though to certain extent Apple has been able to lower the competitive rivalry between itself and Microsoft by way of a strategic tie-up, but growth in business is one of the objectives of both the companies. Therefore Apple has a big task in hand. IBM also happens to be a supplier for Apple, but it must be remembered that IBM is a rival as well. The latest formidable rival is Google, which is known for taking things in right earnest. If the success of Google search engine is an indication, then Apple certainly has a tough task ahead. Sources of the competitive advantage certainly arise out of the business model being practiced by the company over the years. Michel Porter, suggested that a company could gain sustainable competitive advantage provide it follows any of the three generic strategies, namely; Cost Leadership: If the company is able to become the lowest cost producer of the product or service in the industry and is able to effectively pass it on to the customers, then it can very well acquire the cost leadership. Apple is not known to be a perfect example while considering about such a strategy, because the company has always believed in having a distinct identity. But times are changing and the company has also realised the need to be price sensitive and to have an ability to offer the products at rates lower than the competitors. Taking fullest advantage of Lead Users Apple has been able to pass on innovative products to the market with well planned moves. ‘Lead Users Theory’ works best in case of electronic and scientific instruments actually. IT is another sector of 21st century which has revolutionised the communication, telecom and entertainment sector. Two key characteristic of lead uses are (Von Hippel, 2005); Their needs are general in the market, but confront them months or years before others in the market They get substantial advantage when they come out with solutions to those needs. Apple has certainly taken substantial advantage of this theory as well, when the overwhelming response to its iPhone led others like Google to enter this market. Some of the features of Apple business model providing it cost leadership are; a. Company’s commitment to offer quality at affordable prices b. Provide bundled software and strategic tie-up with some other companies c. Launch of iTunes music store online for cost effective download of music tracks and albums. d. A number of Apple stores are located at strategic locations in different cities. This helps the company in saving the maintenance and publicity costs at such locations. Product or Service Differentiation: In this strategy, companies try out efforts to offer some pleasant surprises to the customer. Some innovative features are added to the product or service so that the customer could perceive some uniqueness in the product or service. Apple is certainly a reputed company in this aspect as it has come out with innovative products and services to its customers. Apple’s online App Stores, with the availability of over 100,000 applications, is proving to be hugely popular amongst the users. Underlining the strength of its hold on the market, Steve Jobs, Apple’s CEO said in a recent press statement, “The revolutionary App Store offers iPhone and iPod touch users an experience unlike anything else available on other mobile devices, and we see no signs of the competition catching up anytime soon” (Apple, 2010). Focus: Under this generic strategy the company focuses on one particular segment in the market and plans its strategy to make fullest use of the focus. The company gains a competitive advantage for this particular market segment and in due course can plan long term strategies to retain the edge. Unlike the early 1990s and 1980s, Apple now has the product profile catering to a wider section of the society; therefore, the company is no more focused on one particular segment or section of the society instead it is offering the same products across a broader range of market segments. Porter’s Generic model for Apple can thus be depicted as below; Apple is also focusing on transforming its Mac platform into a digital hub that combines iTunes video content to customers’ television screens and portable devices (Datamonitor, 2004). This new platform has enhanced Apple’s rapidly growing digital content business. In addition, it would also integrate the digital content business with Apple’s Mac business. This is expected to provide stability to the company’s long-term growth. Buzz Around iPhone Today we are living in a globalized world, with the producers and manufacturers chasing the customer and making all out efforts to convince him or her. If we take a look at the world around us, we can easily figure out the distinctive emphasis on marketing communication, public relations or advertising techniques in reaching out to the customer. The marketing campaign is in fact considered successful, if the company is able to create a genuine buzz around its product/s and able to raise the curiosity levels of the prospective customers. Creating a buzz becomes all the more crucial if the company is coming out with a product for the first time, which is outside its core business. A renowned company known for its computer brands would certainly make sure that it doesn’t end up with a deep dent in its reputation and huge financial losses after entering into a product category, where cut-throat competition keeps the reputed brands always on their toes. It is under these circumstances that Apple Inc. decided to create the buzz around the iPhone. It certainly goes to the credit of the company that it not only created a decent buzz around iPhone, but it also retained the faith of its millions of customers. It is worthwhile here to mention that the marketing communication strategy adopted by Apple Inc was unique in many ways; While on the surface it appeared to be a low key, the blogger community, the media, the corporate circles, the office going community, the college going students etc. kept debating and discussing ‘what the iPhone could be like?’ While on the one hand Apple Inc. did not spend too much on its advertising campaigns, the company was also able to put on display a mature appearance. With brand names like Nokia, Ericson, Motorola etc. tracking the moves of new entrants, Apple Inc. was bound to think about a campaign which goes well beyond the launch of just another phone from existing mobile phone makers. Apple wanted to make sure that while the campaign doesn’t look like too glittery and gaudy, yet the message reaches out to the common man. In addition, company also realized that people may not be ready to go for ‘just another phone’, because with the advent of powerful technologies like Wimax31 and HSOPA32 (High Speed OFDM Packet Access), the mobile phone is no more being used as a phone; instead it has become an important tool for entertainment and mobile computing in this convergence era. Therefore, Apple Inc. was bound to pack the iPhone with a host of features, including some of the features of its own stronghold gadget iPod. Prior to the official launch of the iPhone, Apple came out with a teaser ad campaign that did not even mention the brand name. This ad campaign called ‘Hello’ was started during the Academy Awards. And the long queues before the iPhone stores, use of terms like ‘Jesus Phone’ for the iPhone etc. are a testimony of the successful buzz around the launch. With a team of management headed by Steve Jobs, Apple Inc seems to be working out its strategies in the manner most suitable for the market and technology adaption. For effective management, while on the one hand the company needs to control its internal resources in order to make way for optimum efficiency, the company is also expected to prepare plans for controlling external factors like market control. It involves aspects like devising suitable pricing mechanism in line with the prevailing competition in the market. Three key aspects of control strategy are; Bureaucratic Control: It involves how the management takes control of its HR, guides its supply and distribution chains, manages its finances and stakeholders its. Market Control: Having a feel of the market certainly helps the company in coming out with appropriate response. This calls for a farsightedness together with an urge to learn from history. Clan Control: The value proposition, mission statement and social responsibility aspects hold key significance in today’s context. If we go down the history lane, it is found out that Apple has made a mistake by ignoring the presence of competitors. While the Mac OS ran only on Mac computers, the Windows applications from Microsoft ran on a wide range of hardware from different companies. This resulted in limiting the market penetration of Apple while Microsoft continued its journey upward (Manjoo, 2008). Therefore it is quite apparent that Apple was not able to take control of the market. In controlling the bureaucratic and clan matters, Apple has certainly been a leader on the board. This has helped in enhancing the brand identity of the company as well. The main success criteria which can be used to evaluate strategies are suitability, acceptability, and feasibility. Suitability: The dual strategy builds on Apple’s unique status as a pioneer in iPods, iMacs and iPhones. At the same time, it strengthens the company’s core of PC and software development and addresses the expectations of its key stakeholders. Acceptability: Macs, iPhones, iPods and other products from Apple are being accepted well by the market. One thing which does not allow the company to widen its market base is the lack of aggressive marketing, and problems at home. Apple must come out of the shell and grab on the opportunity to make itself more acceptable the market. Feasibility: The strategic capabilities are favourable as Apple has strategic tie-ups with Microsoft, IBM, Intel and couple of others as well. References: 1. Apple (2010). ‘Apple’s App Store Downloads Top Three Billion’. Available online at http://www.apple.com/pr/library/2010/01/05appstore.html (Jan 6, 2010) 2. Apple Inc. (2010a). Available online at http://www.apple.com/ (Jan 7, 2009) 3. BW (2009). ‘Annual list of the 50 best corporate performers’. Available online at http://bwnt.businessweek.com/interactive_reports/bw50_2009/ (Jan 7, 2010) 4. Datamonitor (2004). Company Profile- Apple Inc. Datamonitor Europe. London. 5. Datamonitor (2009). Apple Inc. Company Profile. Datamonitor Europe. London. 6. Manjoo, Farhad (2008). ‘The Cell Phone Wars: Apples iPhone is closed. Googles G1 is open. Which is better? Available online at http://www.slate.com/id/2200914/pagenum/all/ (Jan 7, 2010) 7. Manjoo, Farhad (2010). ‘Apple Vs. Google Whos going to win the great mobile-phone war? Available online at http://www.slate.com/id/2240842/ (Jan 7, 2010) 8. Prahalad, C.K. and Krishnan, M.S. (2008). ‘The New Age of Innovation: Driving Co-Created Value through Global Networks. McGraw-Hill. 9. Von Hippel, E. (2005) ‘Democratizing Innovation’, MIT Press, Cambridge, Mass., Chapter 2, pp. 19–32. Read More