VRIO Analysis in the Context of Apples Key Strategic Dilemmas - Assignment Example

VRIO Analysis in the Context of Apples Key Strategic Dilemmas Introduction This paper presents the results of an analysis of Apple Inc. from the point of view of the identification of the company’s primary dilemmas. The framework of the discussion is strategic management and the foundations of that, looking at the aspects of a strategy view that hinges on resources; an external analysis that is based on a view of strategy based on markets and looks at both the general environment and the competition; localized versus globalized markets; and emergent versus planned modes of forming strategy. In particular, this paper uses the VRIO and SERVO analytical frameworks to answer the query regarding the nature of the primary dilemmas facing Apple Inc. (Fleisher and Bensoussan 2007; Pesic, Milic and Stankovic 2012). Apple is a tech behemoth that manufactures and markets a number of mobile devices, computing devices, software platforms, digital content platforms, related product peripherals, services, and networking platforms and solutions, together with content created by other parties and marketed and sold within the Apple ecosystem platforms. Its primary content distribution platforms are iTunes, the App store for Mac, the iBookstore, and the app store for its mobile iPhone and iPad devices. Among its iconic products are the iPhone and iPad as mentioned, together with the Mac, Apple TV, the iPod, and the software OS platforms iOS and OS X. Its cloud computing platform is the iCloud. Aside from these, Apple is also in the business of developing distribution channels around the world for its products and services via arrangements with network carriers globally, as well as with distributors from wholesalers to retailers and VARs. Apple also directly operates, or operates via partners, worldwide Apple stores, online storefronts for its various products and services, and sales organizations that push Apple’s products in all kinds of markets around the world (Google 2015; Reuters 2015). The latest addition to its product family is the much anticipated and controversial Apple Watch (Manjoo 2015; Kuang 2015). Overview of Analytical Frameworks: SERVO and VRIO SERVO as a framework refers to Strategy, Environment, Resources, Values and Organization, and those are the categories of interest in the analysis of Apple’s dilemmas. A proper consideration of the SERVO framework uses the different categories as the lenses out of which the conditions at Apple are evaluated. At its core the SERVO analysis is an analytical framework that constructs and tests the strategic decisions and actions of firms, and in this paper this framework is applied to Apple (Fleisher and Bensoussan 2007). As an analytical framework, the focus is on the relationships among the different elements in the framework, while at the same time being also able to look at the whole picture consisting of both the internal elements of the framework, the SRVO elements, and the E or environment element on the other hand (Fleisher and Bensoussan 2007b). On the other hand, looking inwardly, the analytical framework is VRIO, which in essence allows for an examination of the internal state of a firm, in this case Apple, with a focus on capabilities and resources inside the firm, and what among those can be sources of competitive advantage that is sustainable. VRIO stands for Valuable, Rare, Expensive to Imitate, and Organized with regard to the value capture. At its core the VRIO framework is a way of gauging the internal resources as well as capabilities of the firm, with each of the categories in the VRIO acting as a kind of criterion that is also a test for funneling the resource through the criteria (Pesic, Milic and Stankovic 2012). A resource that meets all of the criteria in the framework is a source of competitive advantage that is sustainable. On the other hand, a resource that fails one of the criteria is a source of competitive advantage but only temporarily (Jurevicius 2013; Powalla and Bresser 2010). VRIO Analysis in the Context of Apple’s Key Strategic Dilemmas One can look at the controversial launch of the Apple Watch and the debate among industry pundits and business analysts regarding the financial, marketing and technical aspects of the product to get an idea of the complex dynamics of coming up with new products and innovations at Apple that truly leverage great internal strengths to come up with a source of competitive advantage that is sustainable in the long run. On the surface one can immediately say of course that Apple’s brand strength in itself is a great internal resource that is also a great fount of competitive advantage, in ways that few other tech players can hope to match. The brand has been parlayed successfully over the years to command premium prices for all kinds of iconic products from the iPod to the iPhone, and has come to be the symbol of a successful premium strategy where Apple has come to post mammoth revenues and profits on the back of very high margins for all of its offerings to date. That the brand enjoys iconic cult following around the world also reflects the way the world has come to expect premium pricing and premium positioning for all Apple products, and conditions the markets to accept the premium positioning n a self--perpetuating manner. Looking at the debate over the unusually steep prices for the high-end versions of the new Apple Watch, one can get an idea of the kind of strategic dilemmas that Apple faced when it came to coming up with a strategy for a new product and how that new product, which turned out to be the Watch, could reflect and harness the best aspects of the iconic brand’s attributes to push large volumes of the Watch and get the market to accept the unusually high prices for the watches ( Powalla and Bresser 2010; Kuang 2015). Looking at the internal resources of Apple and choosing which ones pass the muster of the VRIO framework, one can see, taking a step back, that the dilemma strategically is not just about leveraging the brand, but rather leveraging a more inclusive set of capabilities that enable the brand to fulfill its promises relating to excellent design and excellent electronics and platform. One can say that Apple’s design capabilities, software and hardware capabilities, and global marketing and distribution strengths are the real attributes and internal resources that power the brand, without which the brand cannot deliver on its promise. The strategic dilemma therefore extends beyond being able to leverage the brand, but being able to leverage that whole set of internal resources and capabilities as enumerated above. Of course a discussion of internal resources and financial capabilities cannot be complete when it comes to Apple, until the great financial muscle of Apple is taken into account. The massive market capitalization of Apple, coupled with its massive cash reserves and almost limitless liquidity, are great sources of competitive advantage. From the point of view of a VRIO analysis, therefore, these internal resources and capabilities, from the brand to the design and marketing might, to the financial might, are all great and sustainable sources of advantage competitively, and the strategic dilemmas revolve around how to leverage all of those great internal resources and strengths to come up with a new watch product that will dominate the category and establish new precedent for what Apple can offer to the world, as a new hit product in the tradition of the iPod and the iPhone, as well as the iPad. The short answer is that yes, the brand, Apple’s marketing and design strengths, its global distribution and supply chain strengths, and its massive financial resources are resources and capabilities that pass the muster of the VRIO framework, and yes, Apple is organized excellently for value capture. Given all that, the dilemma is how to harness all that for a successful Apple Watch launch, and the answer lies in the different marketing elements and product elements that came to be incorporated into the new Apple Watch (Huppke 2015; Davidson 2015). SERVO Analysis in the Context of Apple’s Strategic Dilemmas The SERVO analysis in essence allows us to look at both the internal state of Apple as reflected in its strategy, resources, and organization on the one hand, and the external environment on which it operates on the other. Here the analysis of the strategic dilemma facing Apple relating to its new product launch in particular has to do with the external environmental factors that have prompted Apple to look at the Watch as a promising opportunity, and which likewise matches with its internal organizational and resources strengths. Taking a step back we see that the SERVO framework is really about getting a handle on how the internal resources and organizational capabilities of the firm are orchestrated to meet external environmental realities, through strategies that either do a good job of leveraging the former to exploit opportunities in the latter for the benefit of the firm. In this case, we see that in the Apple Watch opportunity the strategic dilemma revolves around first, determining whether the external environment will warm up to a smart watch from Apple, and two, whether the internal resources and organizational capabilities of Apple, with the appropriate strategy, are up to the task with regard to coming up with the right smart watch product that will be consistent with the premium strategy of Apple and the premium attributes of its brand. Framed another way, the strategic dilemma has to do with finding the right watch product that leverages internal organizational capabilities and resources to come up with a breakthrough watch product that will be premium and that will be taken up by the market/external environment. The strategic dilemma here extends beyond marketing and encompasses the various internal dimensions of the SERVO framework as discussed above. Still another way to frame the SERVO framework analysis within the context of the strategic dilemma at Apple is that the Apple Watch strategic problem is about finding out whether there is a fit between the needs of the external market and the capabilities and resources of Apple to come up with a watch product that will be profitable by Apple’s high margin premium strategic positioning. The short answer is that as evidenced from the past successes of Apple products, the external environment is receptive and capable of creating markets for new Apple products that embody Apple’s premium positioning and are priced for high margins as well. This is to say that the problem of the strategic dilemma at Apple is one of getting the best out of Apple’ formidable internal strengths to create a new watch product that meets Apple’s premium positioning and that will enable Apple to continue its run of success introducing new products into all kinds of markets (Kuang 2015; Fleisher and Bensoussan 2007b). Integration: The Big Picture The preceding SERVO and VRIO analyses give us a view of the strategic dilemmas facing Apple as they pertain to a specific launch and product in the Apple Watch. The insight emerging from the preceding analysis is that the strategic dilemmas revolve around Apple leveraging massive brand, design, marketing, supply chain, technological, and financial capabilities to come up with a watch product that is an excellent fit with the realities of the external environment and that meets Apple’s strategic premium positioning requirements. The VRIO analysis gives us an insight into the extent and depth of Apple’s sustainable sources of competitive advantage, and the SERVO analysis gives us an idea of the kind of fit that is to be seen among Apple’s premium strategy, internal organizational and resources strengths, and the realities of the external environment. The coverage of the Apple Watch so far indicates that there are raging debates over the soundness of Apple’s product and pricing decisions as they tie back to Apple’s overall strategy and internal strengths, which is an indication of the kind of strategic considerations that Apple navigated as they thought out the various aspects of the strategic dilemmas surrounding the launch of the new Apple Watch (Kuang 2015; Fleisher and Bensoussan 2007b; Pesic, Milic and Stankovic 2012). 1 References Davidson, J. (2015). The Apple Watch Edition Not Only Tells Time, It Also Tells Plenty About You. Time. [online]. Available at: http://time.com/money/3737857/the-apple-watch-edition-rich-jerk/ [accessed 3/10/2015]. Fleisher, C. and Bensoussan, B. (2007). Chapter 9: SERVO Analysis.. Business and Competitive Analysis PowerPoint Presentation. [online]. Available at: http://ptgmedia.pearsoncmg.com/imprint_downloads/ftpress/bookreg/9780131873667/Ch9.pdf [accessed 3/8/2015]. 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