Industries and Innovation of Apple: Mac Laptop - Essay Example

 Idustries and Innovation of Apple In the late 1970s, the world witnessed a change, brought by innovation in the field of technology and electronics- a change that would have an impact on generations that followed. Two friends, Steven Wozniak and Steven Jobs, nurturing a passion for electronics since high school, working for companies at Silicon Valley after graduation, were the true pioneers of this change. In 1976, Wozniak developed his first computer, that would become the Apple 1; motivated by his friend and partner –Jobs, in consideration of the future of the product, advised Wozniak to sell his invention, and it was on 1st April 1976, that Apple Computer came into existence, extending into Apple 2 and later Apple 3, the company began experiencing a rapid hike in sales volume, and with thousands of employees at its disposal, it launched into the international market (Apple History). When a very enthusiastic employee, Jef Raskin, came up with an easy to use design for a personal computer, that could cater to the needs of an average consumer and be low-cost, he named it Macintosh which was with regards to his favorite type of apples (Jef Raskin). This Macintosh is a product line of Apple computers; with the first Apple-Mac formally launched in 1984, it experienced massive success owing to its user friendly graphical interface and a mouse (Ken Polson). The company built great success and attained a reasonable market share in the late 1980s, but this gradually dissipated and was shifted to IBM PC Compatible, however Mac made a gratifying resurgence in 1998 by the iMac all-in-one consumer level desktop (Ben Edwards). Apple Mac is an example of innovation in technology that has both the business sector and individuals as its consumers, since it is situated in the high risk and high innovation requiring industries, thus its products face constant evolution into new models that are adequate and up-to-date with the technology requirements of a particular time. Before proceeding further in developing a relationship between this company and the significant role that innovation has played in the history of its success, we must analyze in detail what exactly innovation is and what impacts it can have on the economy wide productivity from an economists point of view, and then furthermore add by economic doctrine known as ‘innovative economics’ that economists consider is apt to the contemporary times. The sources of technological progress and the scope of its improvement is also extremely important pertaining to the importance of innovation for Apple Mac. Innovation in literal terminology stands for the introduction of something new and different; it can be related to a product, process, methodology or anything that is not previously present i.e. something completely new (dictionary.com). From the perspective of a firm, it is the application of new methods or the introduction of new ideas that act as an added value for the product, and raise its worth, in terms of its value for the firm, the consumers, and other firms as well. Innovation is categorized into two broad terms by economists: Product innovation is with regards to the introduction of a completely new product or an amendment in an existing product that results in a qualitative change or improve its range; Process innovation pertains to the development and implementation of new and effective processes of delivering goods to the customers and in the provision of services of a firm, an example of this could be the replacement of an old software by a newer, more efficient software that speeds up the process of an Apple Mac. A few authors also reflect on a third category of innovation, which they refer to as Organizational Innovation which as the name itself suggests is about organizational changes that increase the effectiveness of a business and adds overall value to it. However, if considered in a wider horizon, it can be classified under product innovation itself, since it is basically a procedural change taking effect within an organization. Furthermore, product innovation can comprise of both tangible goods and intangible services; these can have a great impact on the day to day lives of the people. Product innovations that have had a significant impact on the daily lives of the world population of people include personal computers, cellular phones, microwave ovens etc. all of which have reduced the time required to carry out a task and brought efficiency, cost effectiveness and less time consumption benefits for the consumers. Intangible product innovation related to these examples mentioned above can be the introduction of new software that speeds up the process of a personal computer’s operations, it can be use of more advanced system of communication services, and pertaining to microwave ovens, it can comprise of use of better technology to heat the food more efficiently and flawlessly. Similarly, if we extend these examples to illustrate process innovation, which is the introduction of ways of adding effectiveness to the way things are made and done, it can comprise of the use of computer aided robots for the manufacturing of the above mentioned products, this can replace the amount of manual labor required, increase the productive efficiency, the standardization of the product that would improve its quality and also reduce the average costs of the firm since it would earn economies of scale due to being more productively efficient. Innovation can often be easily confused with imitation, it is thus increasingly important to signify this difference because there is an element of novelty involved in innovation. The dilemmatic question therefore is that what should be the extent of the novelty of a change that qualifies it to be treated as an innovation rather than mere imitation. A particular product, or a particular process, can be a new one for a single firm, but this novelty is not sufficient enough to regard it as innovation, thus global novelty is required to label a product or process as innovative, i.e. the product or process is new in the entire world market. However, an innovation within an economy can be established in cases wherein a particular product is not traded globally, due to restrictions on trade and exchange in international market, or transport costs are astronomical that hamper the launch of the product in the global arena, in such a case, the introduction of a new product or process in the domestic or local market of a nation can be classified as innovation within that particular economy. If it is new to the firm only, then this is not an adequate criterion of labeling a product as innovative, as that firm could just be adapting that product or process due to the reason that its competitors have introduced it, and thus the competition increases, this according to Princeton’s Nature and Importance of innovation is called the diffusion of innovation. With regards to this book, innovation is defined as being new to the firm and the particular market of its operations, the scope of the market being international or domestic is with respect to the particular product and process under focus, and the extent of its competitive trading in the market. An additional criterion of this definition of innovation is that the product or process must propose a benefit for the consumers and other firms operating in the market of its operations, this is the distinguishing factor between an invention or discovery and an innovation. Invention or discovery is the mere development of a new idea that can be utilized to develop something that would be advantageous for the consumers, but cannot yet be traded in the market place unless it is in the form of a full fledge novel product or process, subsequently, innovation can be defined as the introduction of new products and processes which have taken birth from the application of existing as well as new knowledge. Thus innovation can rightly be regarded as a step that occurs at the core of an intricate process, which must be preceded by inventions and discoveries that brought the knowledge into focus, and must also be followed by the readiness and acceptance of the consumers in the market to buy the product and benefit from its use, at either consumer or firm level or both. This final step in the development of an innovative product or process is known as diffusion and it is thus obvious that the merits of innovation can not be clear until the people in the market adapt it. (Princeton, 2005, Page 3-6) Innovation has been a subject of growing interest; it has been studied in various contexts, including technology, commerce, economic growth, policy development and its implications and also with regards to the social systems and the daily operational lives of the citizens of different nations of the world. Therefore, there is a variety of study works and ample of scholarly literature with regards to innovation, and since there are a large number of minds pondering over this aspect of growing knowledge, it is accompanied by different approaches of different scholars Fagerberg et al. (2004). Joseph Schumpeter is duly regarded as the major contributor to the study of innovation. According to Schumpeter, innovation is: 1. The introduction of an unfamiliar good, which is new for the consumers who are unaware of its use and benefits prior to the introduction of the product itself, this can also be in regards to the new and extended quality of an existing product. 2. It can be the start-up of a newer method or procedure of production, which might not necessarily be based on any scientific discovery, such as the development of computer aided designing and manufacturing (CAD and CAM) in order to aid mass and flow production methods, it can also be with respect to a different and new way of the commercial handling of a product. 3. The opening of another new market, which has not been previously explored by a particular part of a particular manufacturing industry which is operating in an economy, regardless of the possibility that this market might have existed elsewhere. 4. The utilization of a new supply source to aid the production of a business, this can be a raw material source or partially manufactured goods etc, again regardless of the fact that it had been previously explored or not, or whether it is the first ever source of this kind 5. The alteration in the structure of an industry and the organizational presence in the same for instance the creation or abolishment of a monopoly, which has an impact on the quality of its products and processes, this too was regarded as economic innovation by Schumpeter; These points about the economic innovation and its classifications by Schumpeter are further reflected upon by Christopher Freeman in his book Economics of Industrial Innovation Published by Francis Pinter of London in 1982, and also by Giovanni Dosi in his book Technological paradigms and Technological Trajectories published by the Research Policy in 1982 as well. With gradual progress and technological changes over time, the study and doctrines of economics have also evolved, and in the contemporary era, that is within the last decade, various economists have supported the idea of a new economic doctrine, the roots of which are based in innovation, and this is also known by means of various terminologies such as new growth economics, neo-Schumpeterian economics, economics of institutions, economics of evolution and economics of innovation, according to The Economic doctrine for the 21st Century by Innovation Economics. This new methodology focuses on the reformulation of the conventional economic growth model in order to incorporate the implications of technology, knowledge, entrepreneurship and innovation that play a vital role in the economic growth of a nation at the macroeconomic level, and thus these factors are placed at the kernel of the model, as compared to the traditional analysis of these factors independently. This theory thus recognizes the practical scenario, that an economy which revolves around global factors and is excessively knowledge based, requires a new and different approach towards the national economic policies, and thus this approach is structured on the support for the private sector and importance of innovation rather than the traditional reliance on factors such as capital accumulation, budget surpluses, or the expenditure of government and the private sector collectively. Innovation economists also state that economic growth is determined by the productivity and growth and not the previously focused upon factors such as the reflection of costs by the prices which results in allocative efficiency. In modern times, innovation is most closely linked to the technological sector and also to the knowledge sector to some aspect, especially with regards to the area of focus of this paper- Apple Mac, which operates in the technological sector and is closely linked to knowledge about the latest requirements of the 21st century, its consumers and the industry. Hence a reference to knowledge and technology, its usefulness and the scope of its improvement in future is fundamental to this study. Economic knowledge comprises of all the areas of scientific knowledge and human capital, in the form of skills of the workforce and the expertise available, which can be enhanced by the acquisition of proper training that leads to the development of new skills or attaining proper education that results in an increase in the store of knowledge of a person, this can prove to be beneficial in the production and timely supply of the commodities, and also relates to the development and invention of new products and processes. Knowledge can be both in a written form that is visible to the eye, such as it can be codified in a chemical or mathematical formula or a computing algorithm, or it can also be in the form of tacit knowledge that is not written down yet it is known to the person who has to make use of it, such as the right mix of juices to make the perfect cocktail is a sort of tacit knowledge to a juice maker. Technology is the current mix or set of production techniques that are used to design, produce, and package and deliver the products of a company to its consumers. So technology can be regarded as the implementation of specific components from the knowledge pool to the production activity. Within the sphere of an individual firm’s operations, the extent of technological advancement determines its productive capacity and capability when it is combined with other inputs. Process innovation can be classified as an element which adds to the existing stock of knowledge, thus it is the improvement in quality of a knowledge that already exists, whereas product innovation is classified as a factor that adds to this stock of knowledge, a new range of products, and thus increases the final variety of choice that is available to a customer, as in accordance with Princeton’s Nature and Importance of Innovation which was published in 2005. As according to Olivier Blanchard in Macroeconomics: Fourth Edition in 2007, Technological innovation can have economy wide impact on the productivity. The right model to consider when considering the short term responses of output to a change in the productivity due to technological progress is the aggregate demand and supply model. The basis of this model rests on certain factors: a) The point where the aggregate demand and supply curves intersect, that is the output level in the economy. b) The aggregate supply curve has an upward sloping curve, and it gives the price level for a given level of output. Thus an increase in the output level causes a simultaneous rise in the pricing levels. The underlying mechanism of this research is that the rise in output leads to a decrease in unemployment, which is due to the fact that as firms tend to produce more, they need more labor to produce the output, and this results in the generation of employment opportunities which are taken up by individuals who were seeking jobs but are not employed. This decrease in unemployment results in a shortage of workers needing employment, and thus raises the nominal wage rate, this adds to the costs of the business and leads to a rise in prices- which is an increase in price level due to an increase in productivity. c) The aggregate demand level gives the relationship between the specific output levels at particular price levels. It is characterized by a downward sloping demand curve. Since demand is inversely proportional to price, thus a rise in the pricing level leads to a decline in the aggregate demand in the economy. The underlying mechanism behind this scenario is that a rise in pricing levels leads to reduced income left for the people, there is a decrease in real money stock, which results in an increase in the interest rate which can have two impacts: increase in savings and thus reduced consumption, and a decrease in borrowing and thus lesser money for the people to spend. Hence resulting in a reduction in the aggregate demand in an economy, which further reduces the output, since now fewer amounts of goods is required to cater the aggregate demand prevalent in the market. In the figure1 above, the aggregate supply curve is referred to as AS, and the aggregate demand curve is referred to as AD. The point of interaction B is the level of output in the economy which can be read from the x-axis as Y, this is in consistence with the equilibrium in the labor market, goods market and the financial market, simultaneously. The employment level in the economy is determined by dividing the total output level ‘Y’ from the level of productivity which we assume is ‘A’. Thus, the higher the level of productivity, the lesser the amount of workers needed to produce Y. Now assume that the productivity level of the economy increases, owing to an innovation in the technological sphere, which has resulted in an efficient way of producing the same amount of goods in less time, this increase in productivity from A to A` for example, would reduce the costs of the firms to produce a good and would also bring down the price level, thus resulting in a downward shift in the aggregate supply curve from AS to AS`. Now considering the aggregate demand, the affect on the AD depends on the factor that led to the increase in productivity. A growing productivity level gives a positive message to the consumer, and they optimistically increase their consumption in the hope that there would be higher growth in the future, thus AD increases at the current income level. The prospect of higher future profits would also tempt the firms to increase their investment in the business, thus initiating a boom in investment. In this case, as the demand for goods increases in the economy, it results in an upward shift of the aggregate demand curve from AD to AD`. This would result in an interaction level of AS` and AD` which is to the right of the previous output level Y, and thus results in an increase in output as the new output level becomes Y`. Thus increase in technology will lead to a lower cost, and a high demand, and thus a boom in the economy. A boom in the economy can have an impact on the further investment as well, as any profitable industry would attract investment, it would result in more firms coming into the market, further increasing the supply. However, the change in aggregate might not always be this optimistic. If the increase in productivity has resulted to a more efficient use of the already existing technologies, there is no presumption that the aggregate demand would increase, since reorganization of the production methods and processes might have resulted in the downsizing of the business by making workers redundant, as they are no longer needed to produce a certain output level, then this increases unemployment, and workers now don’t have sufficient income or they start saving more due to pessimistic approach towards their future, resulting in a downward shift in the aggregate demand curve. It must not be ignored that an increase in efficiency, and the less amount of labor required would make it easier to start a new business, this would result in the development of new smaller firms with regards to the workforce it employs, and since many new firms would enter the market, they would cater to smaller proportions of the demand, and as this would not propose a scope for increase in output, so they would remain small in size. As new firms compete for market share, they try to increase their profitability level by increasing efficiency in order to reduce costs, thus triggering further innovation, depicting that there is always a scope for technological improvement as firms seek efficiency to lower costs and increase profit margins. These firms would also try to diversify into new markets in order to increase their product line. With regards to Mac Apple, which operates in an increasingly evolving industry, the products of which are subject to technological change and might become obsolete if it delays the process of introducing newer and better features that would maintain its customer loyalty, for if a competitor such as IBM PCs incorporates features that serve the purpose of the consumer, then there is a high likelihood of Mac Apple losing its market share. They constantly need to upgrade their systems and softwares to ensure adequacy and sustainability, and also diversify into other markets to reduce the risk attached to a loss in demand in case it is unable to meet customer expectations and thus loses the market to its competitors, since it is a highly competing market, with IBM backed by the software support from Microsoft. Mac apple has duly taken this into consideration, and thus developed craving for the goods that no one realized they actually needed, including products such as iPOD, iTUNES, iPHONE, Macintosh and OS X. Their innovative ideas in product designing, creativity, diversion into new market sectors and creating a desire for their products has earned them success and as in accordance with the survey done by Bruce Nussbawm which was published in Businessweek: “High level managers have faith that Apple is the most creative and innovative firm globally...they have the capability to develop the need for products no one ever knew that they wanted.” And again: “Apple has a consistent habit of launching and coming up with products that are equally, both, technologically advance, and innovative and consumer friendly.” Below is the statistical analysis of Apple Incorporation (based on date from 2004 to 2008) with regards to Research and Development, due to which innovation takes place: Year R&D Sales 2008 $ 1.1 billion $ 32.479 billion 2007 $ 782 million $ 24.006 billion 2006 $ 712 million $ 19.315 billion 2005 $ 534 million $13.931 billion 2004 $ 491 million $ 8.279 billion Source: United States Securities and Exchange Commission (2009) Computations: Regression Equation: Y= -7520.96 + 34.47x Y-Intercept: 7520.95545 Slope: 37.473 Correlation Coefficient: 0.97763 R2= 0.95576 1-R2= 0.0442 Under this analysis: Y denotes the amount of net current sales which is the dependant variable but values of Y are independent amongst themselves, and X denotes the expenditure on Research and Development which is the independent variable. A positive slope of 37.43 shows a positive trend and thus there is a positive relationship between R&D and Net Sales of Apple Inc. R2 is the coefficient of determination, in accordance with this it is assumed that this regression equation can explain 95.6% of the dependant variable, and there is 4.42% error in forecasted values; 95.6% denotes a high correlation between R&D and Net Sales of Apple Inc. This is only a simple linear regression analysis; however, it nevertheless depicts a positive relationship, showing that Apple Inc's success depends greatly on R&D and its innovative measures. Therefore, considering the substantial use that Apple Mac has made of innovation that earned it an esteemed place in the market of technology and electronics, it can be concluded that their success is directly promotional to their effective use of innovative techniques, and in the times to follow, it can maintain its market share or enhance it by continuing its use of innovation to meet customer needs. References: Apple-History (2010) Company History: 1976-1981. Retrieved April 8th, 2010 from http://apple-history.com/ Ben Edwards (2008) Eight Ways the iMac changed computing. Retrieved April 7, 2010 from http://www.macworld.com/article/135017/2008/08/imacanniversary.html Bruce Nussbaum (2007) Why Apple Is No. 1 In Innovation--The BW/BCG Survey. Retrieved April 8, 2010 from http://www.businessweek.com/innovate/NussbaumOnDesign/archives/2007/05/why_apple_is_in.html Dictionary (2010) Innovation. Retrieved April 8th 2010 from http://dictionary.reference.com/browse/innovation Fagerberg, Jan (2004). "Innovation: A Guide to the Literature". in Fagerberg, Jan, David C. Mowery and Richard R. Nelson. The Oxford Handbook of Innovations. Oxford University Press. pp. 1–26. Innovation Economics (2009) The Economic Doctrine for the 21st Century. Retrieved April 8, 2010 from http://www.innovationeconomics.org/ Jef Raskin (1996) Articles from Jef Raskin about the history of Macintosh. Retrieved April 7, 2010 from http://mxmora.best.vwh.net/JefRaskin.html Ken Polson (2010) Chronology of Apple Computer Personal Computers. Retrieved April 7, 2010 from http://www.islandnet.com/~kpolsson/applehis/appl1984.htm Olivier Blanchard (2007) Macroeconomics: 4th Edition. Pearson Education Inc. Princeton (2005) The Nature and Importance of Innovation. Retrieved April From http://press.princeton.edu/chapters/s9221.pdf Schumpeter, Joseph (1934). The Theory of Economic Development. Harvard University Press, Boston. United States Securities and Exchange Commission (2009). Retrieved April 12, 2010 from http://media.corporate-ir.net/media_files/IROL/10/107357/AAPL_10K_FY08.pdf http://static.seekingalpha.com/uploads/2008/3/19/aaplrd.jpg Read More