Apple Case Study - Coursework Example

? XXXX XXXX Apple Case Study 24/10/11 Apple Case Study This report will give a strategic analysis of the company Apple in relation to the case study provided. Unless otherwise stated the information about Apple has been taken from the relevant case study. The report is split into two sections, the first addresses Apple’s current situation and strategic position to date, while the second section goes on to give a set of specific recommendations for Apple’s strategy moving forward. 1.0 SBU Analysis At present, it would appear that Apple segments its business into business units on a geographic, rather than product bases, in addition to the four geographic business units, the company treats the retail business as a separate business unit1. Apple’s SBUs: Americas Europe (Including Middle East and Africa) Japan Asia Pacific Retail Each business unit reports sales and profitability from all product and operational categories within the region, with the exclusion of retail operations which fall under a separate SBU. In analysing Apple’s strategy, subsequent sections of the report will refer to the European SBU where appropriate. 1.1 Financial Analysis The financial performance of Apple’s European SBU would seem to be quite impressive in light of the economic events taking place during the period. Europe represents Apple’s second largest market by sales volume as the Americas division. Sale have risen from $9,233m in 2008 to $18,692 in 2010, a rate of growth of over 102%. Profit during the period has similarly increased from $3,022m in 2008 to $7,524m in 2010, an increase of 149% suggesting that profitability is increasing at a greater rate in proportion to sales. As such, this suggests that Apple’s European SBU has effectively kept expenses under control and is beginning to benefit from various economies of scale as sales increase2. An interesting aspect of Apple’s capital structure is that the company reported to have no long term debt financing in the period 2006 to 2010. As such the company is wholly financed through equity. While equity funding is seen as more expensive than debt funding, due to the long term nature of the obligation, this may represent a significant reduction in risk for the company due to the ability to reduce dividend payments during times of economic difficulty3. Key Ratios Ratio Apple Sony Samsung GP Margin 33.17% -2.95% 26.00% NP Margin 14.22% -1.28% 7.40% EPS 4.04 -98.95 29.98 Current Ratio 2.01 0.95 1.52 Acid Test 1.96 0.74 1.23 Debt to Equity 0.57 1.68 0.09 ROCE 14.09% -1.21% 12.28% 1.2 Marketing Analysis The following analysis of Apple’s marketing has been conducted using the standard 4p’s approach to the analysis of the marketing mix4: Price – Traditionally Apple has followed a premium pricing strategy often attempting to appeal to the early adopters in the field of interest. This has been especially true in the computer product segment. Product – While Apple has consistently brought new and innovative products to the market, the main features and benefits sold to computer is that Apple products are simple and easy to use, a marketing strategy which has helped Apple to a appeal to a wide audience. Place – Apple products are distributed through a wide range of retailers in the European SBU including high street electronics retailers, major supermarkets and online sources such as Amazon. A key strategy however has also been the setting up of Apple’s own retail SBU which operates a number of stores within the European market dedicated to Apple products. Promotion – Apple makes use of a standard array of mass media advertising techniques including television advertising, targeted print media advertising as well as viral and other online advertising techniques. Overall, the marketing activities of Apple in the European SBU may be seen as aimed to create a product mix which is aimed at the mass luxury market. The product is appealing to those with higher levels of disposable income yet not so high as to be considered a truly exclusive product. 1.3 HRM Analysis Apple recognises that much of the continued success of the business relies upon the contribution of regular employees, especially with regard to the innovation of new products. Reflecting this acknowledgment, the company has seen continual growth in the number of permanent employees over the past three years rising from 32,010 in 2008 to 46,647 in 2010. In addition, Apple attempts to maintain employee loyalty with a range of share options which allow employees to invest in the company’s stock at between 85%-50% of the market rate. Despite such positive steps, the company has faced a number key HR issues in recent years, most notably at the senior level with two of the company’s senior presidents leaving in quick succession. As such, this questions Apple’s ability to attract and retain the best staff at the most senior levels within the organisation. 1.4 Operations Analysis Apple’s operations strategy would seem to be one largely based upon outsourcing production to a number of key strategic suppliers. As such, Apple benefits from the cost savings associated with a global supply chain, most notably reduced costs in labour and raw material input. In addition, the specialisation of the strategic business partners used also adds to cost savings and increased consistency of quality. Despite this, making use of such a model may be seen as exposing Apple to a number of key risks. In the first instance the company is exposed to a greater number of global events, as was demonstrated when some of Apple’s key suppliers were affected by the recent climatic events in Japan. In the second instance, the company may also be seen as having a lower level of control over its operations, this may in certain circumstances lead to the possibility of lower levels of quality or potential price increases coming from strategic business partners. In offsetting risk, Apple has attempted to ensure that suppliers have between 30 and 150 days worth of stock which should allow the company to find alternative sources of input goods should an event occur within any singular operation area. In summary, Apple’s operations may be stated to be following an internationally outsourced strategy. Competence/Resource Summary Competence Apple Sony Samsung Level of Outsourcing High Low/Med Low/Med Global Manufacturing Operations? Yes Yes Yes Production Outsourced with Buffer Stock Lean Lean Core Production Areas Phones, Music/Systems, Computing Music/Systems, Computing/Games Phones, Televisions/LCD, Semi-conductors 1.5 Strengths and Weaknesses Apple may be seen as having two major strengths which will help the formulation of business level strategies moving forwards. In the first instance the company has a high level of competence for developing new and innovative products which have an instant demand amongst consumers, this has been seen time and again with relation to the i-series of products. Secondly the Apple brand itself is a major asset for the business, the Apple brand is synonymous with fashionable and user friendly technology, this helps the company to create an instant demand amongst consumers when new products are brought to the market. Management competence may be seen as one of the major weaknesses of the company, examples of this can be seen time and again when the company has either chosen to pitch a new product at the wrong price level or underestimated demand significantly. This may be seen as an ongoing weakness for Apple which is hampered by HR concerns with the regular leaving of senior members of the company. Competence Summary Competence Apple Sony Samsung Strong Brand Yes Yes Yes Strong Finances Yes No Yes Strong Management No Yes Yes Strong Product Portfolio Yes Yes Yes 1.6 PESTLE Analysis The following section will give an analysis of some of the macro level considerations which may affect the activities of the European SBU5: Political The European SBU may be seen as facing significant challenges with a wide range of political systems in operation in the EU, Middle East and Africa, all of which fall under the European SBU Recent political changes in the Middle East and North Africa may see increased opportunities for companies such as apple as foreign trading relations improve between these areas Western countries Economic Levels of economic growth in future years are forecast to be relatively low6 Economic performance in the European areas us currently suffering to a large degree than other SBU areas with concerns over national debt in Greece, Spain and Portugal Social Social changes are encouraging consumers to spend more time using online social networks and digital forms of communication, this should help Apple to sell a greater number of its products An increasing acceptance of online shopping and an aging population in the European SBU area may lead to a significant opportunity for Apple to increase its web sales of both physical products and extras such as online music downloads Technological Constant new developments in the entertainments sector will mean that Apple has to consistently bring new and innovative products to the market, this is also likely to result in ever shorter product life cycles Developments in internet based technologies may present Apple with ever increasing opportunities to increase the company’s share of sales associated with a web based selling model Legal Currently anti-trust and completion legislation is extremely strong within the European SBU, this may make future expansion or the taking part in M&A activities difficult for Apple in the European area The European SBU benefits from operating in an area which has a robust legal system protecting intellectual property rights, this is a significant benefit for Apple Environmental The European SBU is currently operating in an environment with increasing levels of environmental protection regulations, the impact however may be seen a lessened for Apple’s European SBU due to operations model which sees outsourcing of manufacture Increasing consumer demands for environmental products may see Apple has the opportunity to develop a niche market within the European SBU for products with high environmental credentials7 The macro level environment would seem to present both challenges and opportunities for Apple. On the one hand, political and economic factors may be seen as presenting Apple with a relatively difficult environment. However, this may be offset by social changes and technological developments which encourage Apple to develop both new and existing markets. 1.7 Five Forces Analysis Overall Level of Rivalry Relatively high There a medium volume of large producers in the market Producers are often specialists within the product area Competitors are large and have access to significant resources to compete with Apple Power of Buyers Relatively high Low cost of switching brands High number of substitute products Information readily available (Price and Specification) Power of Suppliers Relatively low Input good are mainly generic products There are many suppliers in the market Apple is able to wield significant levels of power through volume based buying Threat of Entry Relatively low High barriers to entry in both capital costs and knowledge Power of players in the market can be off putting Threat of substitution Relatively high There are many substitutes such as desktop computers and smart phones The products are often discretionary spends, as such the consumer is able to make the ultimate substitution and forego the purchase Overall, the five forces analysis would seem to indicate that Apple is competing in a market with both high levels of completion and a buyer who is easily able to switch between producers or make a product substitution. These factors are offset somewhat by the low level of power held by suppliers and the low level of threat from new entrants to the market. 1.8 Critical Success Factors The critical success factors of an industry represent the factors which consumers within a given market value and hence a company such as Apple must possess in order to success within an industry8. The following are considered to be critical success factors within the European SBU: Ease of use – Many consumers are looking for products which are “user friendly” even if this comes at a cost of technical excellence Fashionability – Many consumers value not only the technical performance of products in the market but also the social recognition that comes from ownership Quality of production – Consumers value products which are consistently reliable throughout their usable life Compatibility – Many consumers resent products which are not compatible with existing purchases, such as the inability to transfer purchased music from a previous system such as MP3 1.9 Opportunities and Threats The following opportunities and threats may be seen as relevant to the European SBU due to considerations in the external business environments9: Opportunities The Middle Eastern and African areas within the European SBU may be seen as currently under developed, this may be a prime opportunity to further develop sales volumes in coming years While economic performance is generally poor in the European area, this may provide Apple with significant opportunities to make acquisitions at bargain prices10. Possible avenues of exploration include suppliers, retailers and other producers Threats The biggest treat to Apple may be seen as coming from ongoing poor economic performance in the European area. Despite Apple’s strength of branding, it remains the case that Apple’s products represent discretionary spending on the behalf of consumers A second threat may be seen as relating to the protection of intellectual property rights in less developed countries in the European SBU such as those of North Africa, potential infringements could see Apple struggling to maintain its exclusive branding if such intellectual property cannot be protected sufficiently in these markets Overall, the external environment may be seen as a challenging one for Apple in the coming years, mainly due to concerns over economic performance. However, there may also be seen as some key opportunities for Apple to develop market share and sales in underdeveloped areas within the European SBU. 1.10 Strategic Positioning Overall Apple may be seen as positioning itself as a “generalist” in the market for consumer electronics as opposed to some of the company’s competitors which specialise in a specific area such as computing or music. On the while, from a price perspective Apple may be seen as positioning itself at the higher end of the market, choosing to promote the added value of its products such as fashionability and user friendly credentials, rather than low price. 2.0 Future Recommendations Having considered an analysis of Apple’s internal and external environments it may be considered that while Apple has on the whole managed to create a successful strategy based around a differentiated generic strategy and premium pricing11. The business may be missing out on significant opportunities in relation to its customers and potential new markets. 2.1 Possible Strategic Directions At present, it may be seen that Apple’s geographic based business structure prevents Apple from getting close to its specific customer markets, which are product based in nature. While such an approach has allowed Apple to develop an effective cross product brand, such an approach has also stopped Apple from truly appreciating the needs of its customers within specific product segments. As such one possible strategic direction for apple to take is to further break up the European SBU into product based SBU’s thus allowing the company to better identify the needs and critical success factors of each product based customer group. A further option for the European SBU is for Apple to further subdivide the SBU into three distinctive areas, European Area, Middle East and Africa. Despite the fact that these areas have been amalgamated into a single SBU, the fact remains that the needs, opportunities and threats within these markets are quick dissimilar and Apple may be able to capitalise on additional sales revenue in each of these markets through the development of a marketing mix and strategy tailored to each of these specific areas. Despite the changes recommended in relation to Apple’s strategy there are a number of strategic options which Apple currently has in place that should be maintained. At present the company may be seen as having a differentiated generic strategy based around selling the benefits of the fashion value of the product and ease of use of products on the behalf of the consumer. This would appear to have been a considerable success for Apple in relation every product category, as such it is recommended that this should still form the overall strategic message of Apple within the European SBU. Secondly, Apple has managed to maintain a singular brand image across all of its product ranges, a strategy which has been reinforced through the new wave of Apple branded stores. While the report recommends that the European SBU should be broken up into product based segments so as to better identify the needs of specific customer groups. The report also recommends that the promotional element of the marketing mix should be maintained within the central function of the European SBU as to maintain a singular and consistent brand message across all areas of the product portfolio. 2.2 Recommendations Based upon the analysis of this report the following recommendations are to be made: The European SBU should be broken up into product based sub-divisions including communications, computing, music and retail. To be implemented within 12 months. The European SBU should be sub-divided further geographically into three regions including, European Area, Africa and Middle East. To be implemented within 6 months. In developing further sales, the European SBU should investigate ways of maximising sales within markets such as North Africa and the Middle East that are generally less saturated than those of the EU area. To be implemented over the next 5 years. Apple should continue to maintain a brand which focuses upon the fashion value and user friendly nature of its products, rather than becoming a specialist producer. To be implemented with immediate effect. 2.3 Implementation In implementing the highlighted recommendations Apple dose face a number of risks. In the first instance, focusing upon the North African and Middle Eastern markets may see the company’s intellectual property right put at a greater level of risk than in comparison to the company’s EU operation where a robust legal system is enforced. In breaking up the SBU into a product based business, the company also risks creating a fragmented marketing mix in which different product based sub-businesses come to promote a different message. While overall organising the SBU on a product basis should allow Apple to get closer to its customers and develop better products, it is important that a strong singular brand message is still maintained if the SBU is to be successful. Bibliography Arnold, G. 2007. Essentials of corporate financial management. Harlow: FT Prentice Hall. Bodie, Z, Kane, A, Marcus, A, J. 2009. Investments. 8th ed. Boston: McGraw Hill. Brassington, F, Pettitt, S. 2006. Principals of marketing. 2nd ed. Harlow: FT Prentice Hall. Brigham, E, F, Ehrhardt, M, C. 2005. Financial management theory and practise. 11th ed. Australia: South-Western Publishing. Drury, C. 2005. Management and cost accounting. 6th ed. Australia: Thomson. Jobber, D. Principles and practice of marketing. 5th ed. 2007 London: McGraw Hill. 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