Strategic Management in Action - Assignment Example

?Table of Contents Introduction 2 SWOT Analysis 3 PESTLE Analysis 5 Political 6 Economic 6 Social 6 Technological 7 Legal 7 Environmental 8 StrategicAnalysis 8 Bowman’s clock Analysis 8 Ansoff Matrix Analysis 9 Conclusion 12 References 13 Introduction Technology sector in the US includes more than 140,000 companies with combined annual revenue of about $900 billion. AT&T, IBM, Intel, Adobe, Apple, and Microsoft are the major companies (US Technolgy Sector Analysis, 2010). “Industry concentration is high in many segments with the largest 50 participants generating more than 60% of the segment revenue” (US Technolgy Sector Analysis, 2010). Scientific discoveries and new product developments form the basis of profitability in this industry. Both large and small companies can compete successfully – the mammoths have access to capital and marketing and the miniatures have domain-specific expertise. In the period Aug-10 to Jan-11, the Application Software industry has been on a bullish trend before being thrust into a bearish mode in the wake of the European sovereign debt crisis. The history of Apple begins in 1976 when Stephen Gary Wozniak and Steven Paul Jobs began working on the Apple I. When the design was finished Wozniak and Job’s tried to sell it to Hewlett Packard but there was no interest in the Apple I. By April 1976 Ron Wayne had joined Jobs and Wozniak and designed the first Apple logo. Wayne sees the financial risk being too high and resigns. In 1977 Apple becomes incorporated and in 1979 the Apple II is introduced. At this time development began on Apple’s first business computer, the Lisa. In 1980 Apple went public and by 1983 Apple had become the fastest growing company in history. Flash forward to 1998 when the iMac is announced and releases, it becomes the fastest selling PC in history. May 19th, 2001 Apple opens its first retail store in Los Angeles and Washington DC, followed by the introduction of the iPod in October (TAM, 2010). Among Apple’s long list of products include the iPad, iPhone, iPod, iTunes, Mac, PowerBook, and Power Mac. As of May 2010 Apple had a gain of 1.8% at $222.12 billion (Nosowitz, 2010). While Apple has produced some products that have experienced the same success as the iPod, for example Apple TV, the authors believed that the new projector laptop will be among Apple’s more popular products. SWOT Analysis The primary strength of APPLE is its strong presence in the market. It could be realized from the fact that it is the world’s number one brand in Asia, US and Europe. It has outperformed technology giants like Intel, IBS and Microsoft in many segments. Its strong presence in the market has helped it to aggressively acquire market share compared to many other companies that only have strong presence in their local markets. The company has the largest market share in MB and motherboard segments selling approximately 22 million pieces in FY09. APPLE is one of the rear technology companies that had made operating profits even though global economy was undergoing a recession (Apple Annual Report, 2010). Another Strength of APPLE is its advanced and excellent Research & Development capability, efficient and effective supply chain, and mass production at a competitive production cost. These competitive strategies of APPLE have helped it to become a market leader in many products. In 2009, the company came up with first of its kind notebook and motherboard that was compatible with USB 3.0 securing a leading position in the segment (Apple Announcements, 2011). This was a shear display of Research initiatives of the company. With the use of technologies like e-commerce, the company had created an efficient supply chain which helps it with seamless flow of information and products among resources. Mass production done by APPLE helps it achieve economies of scale thereby increasing operating profits of the company. The primary weakness of the company is that it is investing a lot of amount in restructure activities involving spin-off of certain subsidiaries and disposal of assets. It could be realized from the fact that it spin-off OEM and 2008 and has disposed of several assets since then (Apple Annual Report, 2010). In the same year company also recognized impairment charges from such transactions. These activities may be beneficial for the long wrong if executed correctly but they reduce profit making capability of the company. The company should concentrate more on the activities involving expansion and research for innovative technologies. Another Weakness of APPLE is its low market share in emerging economies. To be a cash cow for the future every technology company should be in search for opportunities in the emerging markets as they give the advantage of escalated growth compared to developed markets where growth stagnates after a point of time. It should be noted that APPLE has a low presence in emerging economies e.g. India whilst many other companies like Microsoft and IBM are aggressively gaining market share in these countries. To retain market capitalization APPLE needs to expand its operations aggressively to emerging countries. Primary opportunity for APPLE is expanding into markets with the help of joint ventures, tie-up and agreement with other companies. This would give APPLE the advantage of achieving economies of scale and also act as a risk hedging activity while entering new markets. It could be realized from the fact that in 2009, APPLE entered into patent cross license agreement with IBM (Apple Announcements, 2011). APPLE has also partnered with INTEL wherein APPLE is the direct customer of the company. Another opportunity for APPLE is expansion of its products in cloud compound related products and service related to mobile computing and other services. The company being a leading brand in cloud computing should expand its range of products in the segment (Apple Annual Report, 2010). This will help the company to serve its customers better thereby gaining more market share. The developed markets of US and Europe and even the emerging markets of India and China pose an opportunity in these segments. Sudden changes in technology pose a major threat to a technology company like APPLE. The industry is driven with innovations, wherein marketers provide value for innovations and a technology becomes outdated in a very short period of time. The companies like Intel, Microsoft, Apple and Google have always resorted to find innovative technologies to sustain the market share. APPLE though has an effective R&D wing continuously striving for innovation, but a new technology from another company can significantly impact the market share of the company. As discussed above, APPLE should look forward towards collaborating to use resources. Another external threat to the company is increased global warming. As the global warming is increasing at an alarming range the governments of many countries are announcing strict regulations related to electronic products and the products that use specific components like lead cadmium. Though APPLE has always tried to global citizen restraining from the usage of harmful components, but certain impositions can have significant impact in the revenues of the company. PESTLE Analysis An organizations’ business environment encompasses both the external environment and the internal environment. An organization has to analyze the external environment in order to operate effectively in the market. The PESTLE analysis performs the political, economic, social, technological, legal and economic analysis of Apple. This is done as follows: Political Political forces influence the legislations and government rules and regulations under which a company operates. Every company faces particular constraints in the form of antitrust laws, fair trade decisions, tax provision minimum usage legislation, and pollution and pricing policies etc. Apple being a US company faces barriers related to rules and regulations imposed by the DOJ, EPA and the SEC. The governmental agency like SEC inspects the fair practice and compliance and the governmental agencies like DOJ and EPA inspects the antitrust laws and environmental compliance. Political risks are high in Technology Company like Apple. The factors like informational display, privacy issues and information sharing are impacted by political, legal and governmental forces of that country. Economic This includes forces at national and regional level that affects the company. Apple is incorporated in US through Macro-Economic forces in the country have a little impact of the company. Every market is unique and consumption pattern changes as the way consumers changes in various segments of the market. Apple is technology companies build on a global platform where factors like inflation rates, interest rate and current exchange rates in bear some impact, but such impact can’t be considered influential. As the interest rates are slashed as a result of recession in the economy, the company could borrow money at a cheaper interest rate. Same is the case with changes in current exchange rates. Social Being a technology company, socio-cultural forces impact the company’s operations as Apple network spans across various countries and continents. Information display, privacy issues and information sharing across people in different countries depends upon the socio-cultural forces operating in that country. It can be argued that if Apple spans in network to the country like India (For e.g.) it has to keep in mind the culture of people there and whether the current configuration of the company is best suited for operating in that country. Technological Being a information Technology company, technological forces impacts the company in a big way. Technology sector in the US includes more than 140,000 companies with combined annual revenue of about $900 billion. AT&T, IBM, Intel, Adobe, Apple, and Microsoft are the major companies(2010). “Industry concentration is high in many segments with the largest 50 participants generating more than 60% of the segment revenue” (2010). Scientific discoveries and new product developments form the basis of profitability in this industry. Both large and small companies can compete successfully – the mammoths have access to capital and marketing and the miniatures have domain-specific expertise. In the period Aug-10 to Jan-11, the Application Software industry has been on a bullish trend before being thrust into a bearish mode in the wake of the European sovereign debt crisis. The YoY revenue growth rate for the industry is hovering around 15.08%(2010). This growth rate is significantly higher than the Technology sector growth rate of 12.32% indicating that the industry is growing at a faster pace than the other domains of the sector and contributes to a significant portion of the sector growth rate(2010). This has resulted in high growth rate of Apple and has posed threat to many of its competitors. Legal Legality has a role to play in operations of any company that intends to span globally. Apple has expanded its business across continents and political and legal policies of the countries can well decide on the fate on how the company can operate within a country. As discussed earlier factors like informational display, privacy issues and information sharing are impacted by political, legal and governmental forces of that country. Information rights are stringent in case of countries like US, India and UK. Results from political and legal developments have a significant effect on the operations of Apple. Environmental The environmental forces do not have a significant role to play in the operations of the company. When the company was incorporated, its primary target was young generation which wanted to connect to each other in spite of differences in physical boundaries. With the growing aging populating, the company has also shifted its focus to people of senior age groups. As discussed in the article that the company raised $1.5 billion in January 2011, the company would indulge in expanding the network the various demographics. It would offer commercial micro blogging services, big businesses consider Apple as a platform to offer information about the new products, run publicity campaigns, offer discount/coupons, make sales announcement etc. Strategic Analysis Bowman’s clock Analysis Apple used differentiation strategies to outperform competition. Differential strategies help the company to come up with innovative products. It is noted that in some segments, the company uses cost plus pricing strategies. Cost plus pricing strategies help the company in making more profits through innovative products. APPLE though has an effective R&D wing continuously striving for innovation, but a new technology from another company can significantly impact the market share of the company. As discussed above, APPLE should look forward towards collaborating to use resources. The competitor analysis of Apple is as follows: Direct Competitor Comparison   AAPL GOOG HPQ RIMM Industry Market Cap: 317.44B 190.28B 88.68B 29.12B N/A Employees: 46,600 24,400 324,600 13,873 N/A Qtrly Rev Growth (yoy): 70.50% 26.50% 3.60% 40.00% 0.00% Revenue (ttm): 76.28B 29.32B 127.16B 18.43B N/A Gross Margin (ttm): 38.77% 64.47% 24.14% 44.68% 0.00% EBITDA (ttm): 22.61B 11.78B 18.25B 5.41B N/A Operating Margin (ttm): 28.17% 35.41% 10.49% 25.05% 0.00% Net Income (ttm): 16.64B 8.50B 9.12B 3.19B N/A EPS (ttm): 17.92 26.31 3.92 5.82 N/A P/E (ttm): 19.22 22.49 10.46 9.64 N/A PEG (5 yr expected): 0.79 0.94 0.83 0.55 N/A P/S (ttm): 4.21 6.43 0.70 1.59 N/A Ansoff Matrix Analysis As discussed earlier, Apple takes risks by developing new products even though some of them do not fit the distinctive competence of the company. Apple has penetrated into several new markets in the recent part. Apart from serving his home and neighbor markets of US and UK, the company has largely penetrated into the markets of Asia, specifically in the countries of India, China and Japan (Apple Annual Report 2010). Though these penetrations have been done with the help of collaborations and partnerships to a large extent, but these has been successful in emerging economies. The company has currently penetrated into the markets of America, Europe, Japan, and Asia-Pacific (Apple Annual Report, 2010). This will have a two-way effect on the company’s strategies, both in the positive way. Firstly, Apple would employ the increase in purchasing power of emerging economies thereby increasing its market capitalization and secondly, production unit in these countries would give the advantage of cheap resources of production. Apple being a company of innovations has always tried to outperform competition by coming up with innovative technologies. The company spends a large amount in research and development, which helps it in new product development. Apple was first in its segment of launching the smart phones in US. It’s counterparts Nokia, Motorola and others entered the segment quite late compared to Apple. The products like i-phone and i-pad have defined the success story of the company. The new product development strategies if Apple have always paid well to the company in past and is expected to do in future as company launches new range of products. As discussed earlier, new products by Apple has always been a breakthrough in the market giving advantage to the company in capturing markets. Market development has always been a difficult challenge for marketers. As discussed above, Apple has always tried to penetrate in new markets with existing products (Apple Insider 2011). This has been largely successful by marketing strategies of the company. Marketing has served as the cornerstone of Apple’s success. A large portion of Apple’s marketing is targeted toward the Apple brand. The Apple brand is about lifestyle, imagination, innovation, simplicity, and the removal of complexity from customers’ lives (Marketing Minds, 2010). Apple’s brand reputation as a technology leader is a strong contributor to the success of Apple. One of Apple’s strongest selling points is related to innovative technology. Apple produces products with brand new technology (Apple Insider, 2011). Different from most companies, Apple does not do market research or host focus groups and instead hire exceptionally smart people (Pragmatic Marketing, 2010). The thought process is that consumers do not know what the latest technology will be and Apple’s product designers are paid to think ahead. This gives the advantage to Apple in launching breakthrough technologies, giving their customers beyond expectations. Apple has always been relying on diversification of its product portfolios for market penetration, market and product development. Ever since the launch of Apple i-pod, the company has diversified its portfolio from launching different series of i-pods, after which the company shifted to i-phones and i-pads. This well describes the diversification strategy of the company. Diversification with caution will always be advantageous to the company. If Apple overestimates the potential of the markets it is entering, that would have a material impact on the revenues of the company. The company would continue to be alliance with other companies to gain a competitive advantage. Conclusion Based on our analysis it could be concluded that the company is performing strongly in IT and hardware industry. The company believes in meeting the requirements of its customers, thereby keeping a place in their heart. Apple has always believed in the strength of customer loyalty as a necessary pillar of success for the company. The products of Apple have always tried to fulfill the needs and demand of its customers, be it in style of in performance. Advertising is a core pillar of Apple’s strategy and it brings new people to Apple products (Macworld, 2010). The combination of brand recognition and Apple’s success in advertising greatly support the new projector laptop product release (Macworld, 2010). Consumers will already be drawn to a new product release designed by Apple because of the brand recognition. In addition, the advertising campaign will ensure the market is aware of the new release. Apple’s previous product releases have been extremely successful and by using the same marketing plan the projector laptop product release will also be successful. The company needs to continue using its strategies by coming up with innovative products and expanding into new emerging markets. 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