Apple Strategic Decisions - Case Study Example

Strategic Decision Questions Company in Focus: Apple Table of Contents Strategic Decision Questions 1 Table of Contents 1 Introduction 2 Executive summary 2 Business level strategy 2 Corporate strategy 4 Strategy and structure 5 SWOT analysis 7 Desired new strategy 10 Strategic recommendations 11 Conclusion 11 References 11 Introduction Not long ago, Apple was a minor player in the personal computer segment. In just a little over a decade it grew to be one of the most talked about companies in smartphone and electronics segment. Most of the products that it developed revolutionised the electronics industry in return for which it created a niche market for its product line and a brand equity that just proverbially got impregnable. This report is about this great company. Executive summary A line of followers, a legion in their own right; that s what Apple commands. The company is about design, features, user-compatibility, high price and stylish use of hardware and software. Apple has been a rage and still maintains control over the market. It is about this, the company's strategies, its strengths and weaknesses, opportunities and threats that this report is all about. Business level strategy Apple has been utilising very different business models and strategies within the marketplace. As part of its core strategy it banks on high-end products that are highly anticipated. The creation of anticipation itself is one of its niche business level strategies. Initially, Apple was very careful about its tablet and mobile market releases by traditionally allowing for development cycles that were long, were full of anticipation and had something new to showcase in terms of technology and innovation with each new product or an improvisation of the one that was popular in the past. This strategy was particularly true of Steve Jobs' times. This strategy has been termed as “based on Schumpeterian entrepreneurship and churned out families of radically new products that marry art and technology; and turning market niches into mass markets" by a Professor and Chair of the Department of Economics at LIU Post, Dr Panos Mourdoukoutas (Mourdoukoutas, 2012). Jobs would walk an extra mile and do real hard work in selling innovative, brand new products and make their entry the most anticipated one in the most difficult but extremely niche markets. These products were a blend or technology and art so succinctly put together that they offered exemplary, streamlined and simple user experience. This strategy paid Apple huge dividends and skyrocketed the company to being reckoned with and to the forefront of smartphones. The Apple wave, it can be deduced, thus began in 2007 with iPhone (Travlos, 2012). The company gained an edge over the rest by innovating further on the product that had become the choice of millions and made itself quite a rage in the tablet market thereafter. This led to a steady and a very loyal customer base for which Apple would become a statement rather than only a company which provided them a peep into what smartphone technology was capable of doing. During Jobs' period the company would use one large cycle of innovation and then come up with a product, whose parallel would be difficult to find in the market, and ride its wave for yet another cycle. This was done by coupling with another strategy of selling in yearly periods when the company would make the earlier versions of the same product cheaper to buy. It would further work on customer retention by bundling its products, particularly the iPhone, with other offerings like iTunes; something that helped customers double iPhone as even iPods for all purposes and intents. Apple's business level strategy has been having tremendous impact on the way the company has progressed in the last few years. While the company has been using innovation to its best advantage, what has actually helped it is the focused differentiation strategy, by making exclusive products and one that are pretty expensive. Even today, not everyone can afford to buy an Apple product. The company has been successful in aligning their business strategy with their product development and marketing strategy. They are masters in doing this and have been able to stay a cut above the rest in this. This has been of huge advantage to the company. The company’s strategy is clear: focus on better use experience through high-end use of technology and innovation, and target people who are highly enthusiastic about such products and can afford to pay more to possess the same. In other words, they have understood the pulse of this segment. So it can be said that Apple sticks to two alternatives in the business level strategy. One is the differentiation as explained above and another cost leadership. The advantage of the latter is that the company can create on its products economy of scale, and advantages on the former are that the company despite being able to sell less can make higher net profits. The result in each case is that the name gets synonymous with prestige in the market. Corporate strategy Apple's corporate strategy can be explained in the light of Corporate Strategy, Collis and Montgomery (1997) corporate strategy model, which explains the same through two different kinds. One is linked and another constrained. Companies that use linked diversification enter new ventures that do not have any connection with any of their other businesses necessarily. However, they might be linked to the same. In the constrained type, the new businesses that they enter are based on their core competencies and resources. Linked diversification does not offer that much of coherence with their overall corporate strategy, while constrained model tends to be focused. Constrained diversification tends companies to be more focused and it is this focus that maximises their resources' effect. Apple follows this particular model. Essentially, Apple has been a personal computer business i.e., their core strength is in the development of matchless hardware and software. That is their competency and it is this resource that they share between all of their products: iPad, Macintosh, iPhone, iPod, and more recently the AppleTV. This can be further explained by OS X, the operating system on which all - iPhone,iPad, Macintosh and AppleTv run. Collis and Montgemery term this as creating "economy of scope" and since the same resource is used across all products, there are huge cost savings. This strategy has awarded Apple with huge successes. The company has ridden a wave of spectacular success since the launch of iPhone in 2007. Its sales totalled a whopping $36 billion in 2009; in 2001, however, it was just $5.3 billion. By 2010, the company's market capitalisation was nearing Microsoft's. There was an increase of 33 percent in Macinstosh sales in the second quarter of 2010, the reason for which was believed to be customers' shifting to Macs from Windows (Bulik, 2010). It is no wonder that the company's strategy is capable of competing with the best companies of the world on several levels. Apple products use similar designs, and that means the same design can be used on several products across the board without altering the format. Add to this the retail stores the company has throughout the world, which make the task of choosing Apple products all the more easier for customers (Stony Brook University, nd). Strategy and structure It has long been held that structure is a different entity from strategy and the former when revised lead to greater teamwork, improvement in efficiency, creation of synergy and reduction in cost. Structure is said to accomplish this much and more. However, it wasn't until recently when both structure and strategy were considered as a two faces of the same coin. There is a strong connection between the two and both are, in a sense, married to each other. That means if one is changed, another is bound to suffer equivalent changes. Structure is not just an organisation chart. It is a combination of positions, people, procedures, culture, processes and technology. It determines how different bits and pieces in an organisation work together, and work in synergy. Working in an organisation cannot be exclusive of strategy, one reason why it is now said that organisations need strategy to support structure. The former is to follow the latter, which means any change in strategy should de facto be supported by a suitable change in structure. When strategy is changed, it means everyone linked in the structure has to change in some or the other way (Firsconcepts.com, nd). In order to discuss structure and strategy in relation with Apple, it is important to establish proper relationship between the two. Apple's market strategy has been unique in many ways. Of the four strategy types, Apple has harped on at least two. These strategy types include prospectors, analysers, low cost defenders and differentiated defenders. Prospector, as it applies to Apple has been able to identify and exploit new market opportunities and products to fulfil that market demand. Since the primary capability to accomplish that is through innovation, Apple has been able to exploit that to the hilt. Analysers, on the other hand, are fast followers. Analysers closely monitor competitor activities and reactions, and failures and successes. Analysers have the job of improving upon products that have been previously successful (example: iPhone) or offering at a better cost what prospectors have identified. Apple has been successful in employing both analyser and prospector strategies. One of its greatest achievements could be that of convincing five major record labels in offering their music to be copied to portable devices and CDs. This was followed by its April 2003 launch of Apple's iTunes Music Store. The success of these strategies could be gauged by the fact that in the first week of its launch it sold 1 million downloads (Olsona, Slater and Hultc, 2005). iPod was something that took market by the storm. This was because the factor form or the design element of iPod combined with the sheer coolness of its sound made it an irresistible entity in the world of music players. It is held that Apple's analyser strategy helped it improve customer value element of the product; probably one factor why it commands around 50 percent of the market share today among the MP3 players available in the market. However, that is not to say that Apple does not have either strategic or structural issues. Earlier, in times of less competition particularly in the smartphone segment they must have been a blue-eyed boy, but since market is now flooded with other and equally competing entrants, Apple's problems have begun to show. Problems are more on the strategic front. So far Apple has been reaping benefit on its differentiation strategy but now that is becoming a little difficult to cling to as other players in the market have come up with smartphones enabled with different technologies and performing equally, if not better than Apple. So the urgent problem in hand is to retain its market share, if not be able to expand it further. To do this, it would have to rethink on its pricing strategy. That means to forego some of its profit margins. If it fails to do that and sticks to its stubbornness on high prices, high margins, high cachet and high profits, it will sure have to slice a major portion of its potential future market share (Worstall, 2013). SWOT analysis SWOT analysis is an attempt at analysing key internal and external factors that have either a potential to impact a business or guide it further in achieving its objectives. The analysis is generally grouped into two categories; one is internal and another is external. The internal category determines strength and weaknesses of an organisation that are internal in nature to it. The external factors include opportunities and threats, which are external to the organisation and brought about by the environment or factors imposed on the organisation from outside. Each objective may have a corresponding strength or a weakness and the factors that lead to SWOT analysis could be macroeconomic, legislative, technological, sociocultural or competitive in nature. It is not to say that SWOT analysis is the ultimate method that could help an organisation recognise threats or opportunities or weaknesses or strengths as SWOT itself does pose some limitations at times. SWOT analysis can be applied to anything; a product, an industry, a place, or even a person. To define individually, each attribute of a SWOT can be explained as this: Strength is that unique characteristic of a business or a product that gives it an edge over the rest in its category. Weakness is that negative characteristic that makes it susceptible to a disadvantage ion the market. Opportunity is an external element that the business or the product can exploit to its benefit Threat is again an external element that could spell trouble for the business or product on account of an external factor. It is a common practice among companies to use SWOT, along with PEST or PESTLE analysis to measure pros and cons of the decisions they are or will be taking. These tools of assessing competitiveness have become mainstay of corporate planning nowadays and after careful analysis of environmental and business factors help set objectives, make an environmental scan for assessment, analyse existing strategies, develop strategic issues, revise strategies, establish critical success factors, prepare operational resources and monitor results (Armstrong, 2006; Menon, 1999; Chermack and Kasshanna, 2007). Apple has experienced unprecedented growth since 2001 and as on date it is considered as the most successful company in its segment in the world. It SWOT can be summarised as below: Strengths A leading innovator in smartphone technology Has tremendous customer loyalty Has an expanding ecosystem Has no debt but has strong financial performance Its gross profit margin is 43.9 percent Extreme brand reputation Retail stores across the world Strong advertising and marketing teams Weaknesses Extremely high price of its products Not compatible with different operating systems Plummeting market share Infringements on patents Management changes New product defects Decline in long-term gross margin Opportunities High demand in iPhone and iPad AppleTV launch New provider of application processors Smartphone and tablet market growth Patent acquisitions Mobile advertising market growth Foray into cloud based services Threats Changes in technology Tax evasions in 2013 Rising pay Foxconn workers pay levels Rising pressure from competitors like Samsung (The Financial Times, 2012) Dollar strength Growth of Android OS Online music market competitions Strengths explained It is interesting to note that Apple's closed ecosystem was a weakness initially, but now it has turned into strength because all Apple products are linked to each other and as AppleTV makes a debut, it further expands the ecosystem. Consecutively for the third year Apple was hailed as the leading innovator in the electronics segment. No wonder its projects excellent financial performance year after year. It has $10,000,000,000 cash, no debt and gross profit margin of 43.9 percent. Weaknesses explained Apple sells its products at higher price than its competitions and analysts even say that such a price is not justified. Couple that with incompatibility of Apple products with other operating systems, and that punches a dent into its market. There have also been accusations of patient infringement against it. If that was not enough, recently the company has come under an attack of selling defective new products. Opportunities explained The demand for iPhone and iPad stays as usual and continue to strengthen its competitive advantage despite threats. Further, Apple is fast emerging as a new application processor provider and is seeing an impetus in the smartphone and tablet markets. It has begun to obtain patents through acquisitions to steer clear of the patent infringement problems. Threats explained Technology is changing rapidly and since Apple relies on long business cycles, that must actually prove of a handicap to it. 2013 US tax increases are bound to impact the company negatively, and also would 3 times increases (from 2010 onwards) in Foxconn workers’ pay levels (CNN Money, 2012). Foxconn continues to be Apple's main manufacturer. Desired new strategy Apple has met stiff competitions from companies like Samsung in the recent years, particularly in its smartphone segment. In the wake of this competition its earlier style of launching one premium product every year does not seem to be holding enough water now. Instead it should change its strategy to the most fundamental principle of creating different levels on the same product and scale down its product line from a high-end one to a low-end one. This will ensure that not only do affluent flaunt an Apple product but also those who are middle class. For example, if this is to be applied to Apple iPhone 5S, for the high-end segment it can be offered in platinum, silver and gold finishes and for other segment that can afford none of these, it can offer them iPhone 5C in simple plastic colours. This way Apple would be able to target two different segments with a single product. Earlier it has been targeting only one segment per product (Basulto, 2013). Strategic recommendations Undoubtedly Apple has revolutionised consumer electronics world, but since they are still entrenched in old the same strategy since they began, the first and foremost recommendation to them would be to change their business practices. Reluctance to change might prove counterproductive in the long run. Another recommendation would be to change their adamant approach on operating system compatibility. Should they not do it, they would be committing the same mistakes again and again. If they relinquish control now, it will be a wise strategic decision (David, 2011). If they don't, tomorrow they might have to do so out of compulsion. This also means being open for collaboration with highly technical companies which have far superior technological edge over them. Conclusion This paper has attempted to see Apple through the prism of its business level and corporate level strategy. It has further delved deep into how structure and strategy are, will be and have been relevant to Apple's way of work. The paper establishes that both are interdependent and if one change another is either bound to change or a change has to be brought into the same. The SWOT analysis of Apple is indicative of much strength the company has had and continues to hold sway in its segment. But the threats that have begun to emerge might not be something to think lightly of. References 1. Armstrong. M. (2006). 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