Apple Computer - Case Study Example

?Apple Computer Table of Contents Introduction 2 2) External Analysis 2 Macro Environment 3 Apple computer 3 Personal digital entertainment devices – iPod 3 Mobile communication devices – iPhone 4 Digital entertainment solutions – Apple TV 4 Software 4 Operating systems 4 iTunes and App Store 5 Demographic Environment 5 Economical Environment 5 Social Environment 5 Political and Legal Environment 6 Technological Environment 6 5 Forces Analysis 6 Threat of new entrants 6 Rivalry Among Established Companies 7 Bargaining Power of Buyers 7 Bargaining Power of Suppliers 7 Substitute Products 8 Opportunities and Threats 8 Opportunities 8 Threats 8 3) Internal Analysis 9 Value Chain Analysis and Value Creation 9 Product design and launch 9 R&D 9 Service and distribution 9 Suppliers and manufacturing 10 Marketing and advertising 10 Strengths and Weaknesses 10 Strengths 10 Weaknesses 11 4) SWOT Analysis 11 Strengths 11 Weaknesses 12 Threats 12 Opportunities 13 5) Recommendations 13 References: 15 1) Introduction Apple Inc. (Apple Computer) was founded in 1976 by Steven Wozniak and Steven Jobs. The first product of the company was a mass-produced personal computer Apple I. Today the mission statement of the firm points out that “Apple designs Macs, the best personal computers in the world, along with OS X, iLife, iWork, and professional software” (Apple Inc., 2011). In addition, Apple’s goal is to lead the digital music revolution with the help of iPods and iTunes, as well as reinvent the mobile phone with iPhone and iPad. The company’s vision and strategy are in providing the world with innovative products. Apple Inc. sees innovation and products with superior ease of use as its major competitive advantages. Therefore, the aim of the given analysis is to discover what internal and external forces were driving the organization to its success, as well as what particular strategies were the key to Apple’s becoming so competitive in a number of industries. Apple’s case is an example of outstandingly implemented diversification and innovation in products and services. To me personally the most interesting thing about this case was to discover how Apple created and used its competitive advantages to compete in multiple niches. In addition, it is interesting to analyze how the company’s management team, its stability and consistency, contributed to the growth and development of Apple Inc. 2) External Analysis Macro Environment Since Apple operates internationally, the number of external forces influencing the company’s operations is quite large. In addition, Apple Inc. has managed to successfully enter and compete in a number of general market segments. Therefore, the company has to monitor and deal with different trends of each of the segments it operates in. furthermore, it can even be said that in many sectors Apple is the company that creates new trends. Apple computer The second quarter of 2008 has shown Apple’s growth rate to be 31.8% since the previous year. At that time Apple became the third largest PC manufacturer in the US, coming after Dell Inc. and Hewlett-Packard – the greatest competitors of Apple Inc. Though the competition is quite fierce, Apple refuses to compete on price, relying on reliability, design elegance, ease of use and integrated features of their computers instead. This distinguishes the company in the personal computer market niche. The company, again, showed to stick to its innovation strategy having introduced the newest and thinnest in the world notebook – MacBook Air, thus filled the niche of portable Wi-Fi compatible devices. Personal digital entertainment devices – iPod iPod and iPod Touch have, actually, created a new niche of technologies. These devices enabled users to enjoy the abilities of a portable media player and Wi-Fi Internet device in one. In addition, this pocket PC can download games and other applications, thus contributing to the growth of digital entertainment and game market shares of Apple. Mobile communication devices – iPhone Apple’s iPhone, just like most of Apple’s products, was an innovation in the market when it was first released. Though today the rivals do offer a number of similar devices, the great advantage of Apple is that its phones can download from iTunes. Furthermore, the company’s management got an exclusive arrangement with AT&T Cingular Wireless Network to provide cellular service. In such a way Apple managed to create a unique, by its features and opportunities, product. Digital entertainment solutions – Apple TV Having updated the software of Apple TV the company enabled its clients to download movies from Apple’s iTunes, thus enlarging the number of advantages a customers gets buying a TV. Software Though Apple’s Safari internet browser is not as innovative as Google’s Chrome, it is still popular among the customers due to its long-term orientation – Apple is continuously upgrading the software in an attempt to compete with Google who, in this niche, seems to be a leader. The competition of the two companies, thus, leads to innovations in this market niche. Operating systems Though Apple modified its hardware to work with both Apple’s and Microsoft’s software, Apple’s operating system works on Apple’s hardware only. So when Microsoft releases its Windows 7 it will, again, become the leader in this market segment. iTunes and App Store Steve Jobs negotiated a deal with the big five record companies to sell songs on iTunes - it became the largest music store library on Earth. Along with App Store iTunes is a great success of Apple and the competitors are only trying to copy this approach. Demographic Environment Both older and younger generations use computers and other digital devices more and more frequently. It is especially true regarding the newest generations who are more than others familiar with the technological advancements and are even becoming one of the major target audiences of computer manufacturers. In general, the demographic factor is quite influential in Apple’s industry. Economical Environment Apple’s industry is very vulnerable to the influence of economical factors. An economical downturn, for instance, leads to a reduction of people’s and governments’ spending on computers and other electronic devices. Nevertheless, Apple’s sales showed to be even growing in the recent years, even though some manufacturers did feel the negative effect of the economic downturn. At the same time, since Apple operates and sells internationally, the company has to continuously monitor situation in the foreign market and consider foreign currency exchange rates when presenting each new product abroad. Social Environment Social environment has a direct and rather heavy influence on Apple’s business since it influences demand for the company’s products. Since more and more people are becoming computer literate globally and technologies are spreading, it can be assumed that the social environment is rather favorable for Apple. Citizens of both developed and developing countries are using computers more, so Apple’s market is far from being oversaturated. Political and Legal Environment Political forces of different countries, as well as legal regulations the company has to comply with, have a great influence on the overall business and profit in particular. A need to comply with environmental regulation, to pay taxes, to study the legislation of each of the countries Apple works with, have a great impact on the company’s operations and demand relatively high spending. Technological Environment Apple’s industry is totally technology-oriented, so the company has to monitor the appearance of new advancements and respond to the new trends in a timely manner. Furthermore, appearance of new technologies may influence the whole production process of Apple, especially considering the fact that consumers are eager to purchase new and advanced devices. So the technological environment of the industry lays on Apple the responsibility to be at the front edge of the new developments. 5 Forces Analysis Threat of new entrants This force is relatively weak because the computer and software industry requires great entry capital. At the same time, the threat of new entrants is stronger in relation to Apple’s iTunes and App Store – on demand online services are becoming more popular and it is not too expensive for companies to enter the online services market. So this threat is high or low depending on the particular market niche Apple operates in. Since among the Apple’s competitive advantages are mass-produced innovation and high-quality electronics, their industry is not likely to be taken over by a competitor. It is especially true considering the fact that Apple keeps its technologies totally secret. In addition, it is rather expensive to enter and compete in the particular market for new companies. Rivalry Among Established Companies Apple’s industry is characterized by high rivalry among established companies, so it is a strong force: Apple has to compete with Microsoft’s operating system and that of Linux; Dell, HP and Lenovo are alternative sources of similar to Apple’s devices; Samsung and Sony manufacture MP3 players that compete with Apple’s devices. Amazon, just like Apple, allows downloading content from the Internet. Though Apple has competitors in its markets, the innovations of Apple Inc. lower the intensity of competitive rivalry. However, the rivals are starting to offer a number of substitute products and services. Bargaining Power of Buyers The buyers in computer industry are not too powerful – in most cases they do not buy in large volumes and the switching costs are relatively high. In addition, customers may reduce spending on electronic devices in periods of economic downturn. However, in relation to iTunes this force is stronger since customers may share information via peer-to-peer networks. Bargaining Power of Suppliers This force is relatively strong because Apple uses a limited number of suppliers. In addition, though there exist substitute products, their number is not great and some suppliers can, actually, enter Apple’s industry. So the threat of suppliers’ bargaining power is high and may significantly influence Apple’s profits is supplier of screens or music, for instance, decide to compete with Apple. Substitute Products It is a strong threat because as Apple releases a device competitors are trying to release a substitute. In relation to Apple, there already exists a large number of alternative devices and sources of music or video, thus lowering the potential profit of the company. Opportunities and Threats Opportunities Since Apple invests much into research and development and considering the fact that their products are, in most cases, unique, the company has vast opportunities for further growth and development. The industries Apple operates in are very attractive and many companies wish to compete in them. However, Apple has an advantage of possessing unique technologies and, thus, has great opportunities for growing its market shares in all the industries it works in. Threats While Apple is still having the advantage of being innovative, its competitors are also working on developing and launching similar or even more innovative products. The revenue of the company cannot be said to be lowering. Nevertheless, the gross-margin for the third quarter of 2008, as well as stock price, decreased (Wikinvest, 2010). Still, Apple continues to invest great sums into research and development in order to be able to continuously offer its customers new and innovative products and services. So at this point the greatest threats for Apple are a large number of substitute products and services, as well as high rivalry among established companies. 3) Internal Analysis Value Chain Analysis and Value Creation Product design and launch One of the greatest achievements of Apple is a good chain of innovation activities. Since the company is well-established and has many resources, it enjoys an opportunity to control the whole process of product creation. Starting with an idea and ending with the product launch all the stages of idea implementation – research, design and development, manufacturing and marketing – are carried out by the company itself. R&D 5-9% of Apple’s profit is invested into R&D, thus ensuring the company is at the front edge of technologies (Scribd.com, 2010). It is also a competitive advantage of Apple – most competitors do not invest so much into research and development. This helped Apple to design a more reliable than Windows operating system, as well as present to the world such unique products as iPod and iLife, for instance. Service and distribution Apple is working on enlarging the number of their stores in order to be closer to the end user. For the same purpose the company places its employees at retailers’ locations – quality of their products is, thus, supported by the high quality of service. Suppliers and manufacturing Most parts for their products Apple manufactures on its own and it is a great advantage of the company because production of nearly all of the components is controlled internally. Furthermore, this lowers the risk of lacking some parts when they are needed, so the production schedules are more likely to be fulfilled. Marketing and advertising Apple has been quite successful selling its products with the help of aggressive marketing and advertising campaigns. TV commercials, wrap ads, posters and print advertisements are distinguishing Apple’s products from their substitutes and form consumer loyalty through established brand name that is associated with quality and innovation. Strengths and Weaknesses Strengths The major strengths of the company include large investments into R&D, as well as a total control over the manufacturing process. This ensures the high quality of the products. Multiyear agreements with suppliers of key components ensure stability. Good inventory management and simpler product lines lead to cheaper manufacturing costs. In addition, the company’s desire to be closer to the end user has resulted in superior service that supports and promotes the sales. The clear vision and effective strategies of Apple’s management ensure that the company is, as its mission statement suggests, innovative and open to customers’ demands. Furthermore, this strategy leads the company to opening its own physical and online stores to ensure the clients are happy with the service they get when buying Apple products. Weaknesses Though Apple seems to be a strong company, it does have its weaknesses. First of all, Steve Jobs, who has been a key person in the company since it was established, is likely to leave Apple at some moment. When it happens the company might feel some lack of leadership and fresh ideas that have been helping Apple to be competitive for so many years. Secondly, though the initial cost of manufacturing is not too high, Apple chooses to compete in the premium price segment, thus making its task of making sales more difficult. Another problem of the company is low attention to marketing and advertising – Apple is more focused on engineering and passes the task of advertising to an external company. In addition, the weakness of the company is that it does not grow managers – Apple, in most cases, hires professionals from other organizations instead of brining up and promoting own people. 4) SWOT Analysis Strengths A strong brand name of Apple helps the company to obtain consumer loyalty. Besides, Apple is an old company and, therefore, is trusted by people. Control over the production process helps the company to provide products of high quality and, in such a way, appeal to the end users. Apple’s products are, in most cases, portable, so they are easy-to use and convenient to the end users. Since Apple has been in the market for a long time, it enjoys the advantage of having a huge base of happy and loyal consumers. Diversification and innovations help the company to be competitive in many industry sectors, thus ensuring the overall position of the company will remain successful. Weaknesses Apple’s focus on engineering makes the company somewhat weaker in marketing. Consequently, if equal attention was paid to marketing, Apple could increase sales. The company’s decision to sell in the premium price segment results in poorer users’ being missed by the company. HR strategies of the company may potentially lead to lack of leadership. Lack of compatibility of Apple’s products narrows the range of potential users. Threats Extensive and strong competition is partially mitigated by the innovations and diversification strategies of Apple. A great number of substitute products available in the market is the problem which Apple is trying to solve with the help of superior customer service. At the same time, lower prices of competitors are more difficult to override. However, Apple copes with this problem by having a base of loyal clients. An economy downfall may lower Apple’s sales. Nevertheless, the company has an advantage of being technologically innovative and selling a unique product. Unfortunately potential management weakness of upper management may make Apple more vulnerable to the industry threats. Opportunities The customer electronics industry is relatively fast growing, so Apple will have new opportunities in this sector. Technological innovation of the company open new markets for Apple. Strategic alliances with suppliers of hardware parts, as well as with media transmitting companies are another competitive advantage and opportunity for growth and development of Apple. 5) Recommendations Differentiation is a good strategy of Apple that proved to be effective. However, the premium price segment in which the company sells limits the number of its products users. Therefore, it is recommended that Apple lowers prices for its premium segment products, thus reaching a greater number of potential buyers. The company’s focus on technology should get somewhat shifted to marketing. It might be a good idea to market and advertise the products independently from third party companies. This will lower advertising cost. In order to avoid the risk of lack of leadership Apple should modify its HR practices for them to support and bring up leaders and managers internally. A promoted internally employee will become an effective manager faster than a new comer with the help of knowledge management systems of the company. It might be good to produce more compatible products. This will widen the range of potential users. So, continuous innovation, differentiation and lowered prices will make Apple more competitive and will increase the number of customers and, consequently, sales and profits. Differentiation will, in its turn, ensure that even if substitutes to some Apple’s products appear, some products will still remain unique. Finally, though the company does have certain weakness and experiences technical problems form time to time, the strategy of innovation Apple follows has proved to be effective and successful. References: Apple Inc. (2011). "Q: What is Apple's mission statement?” Investor Relations. FAQ. Retrieved from http://www.corporate-ir.net/ireye/ir_site.zhtml?ticker=aapl&script=1800&layout=7#corpinfo2 Scribd.com (2010). Apple Inc. 2010 Case. Retrieved from http://www.scribd.com/doc/44574801/apple-inc-2010-case Wikinvest.com (2010). Apple (AAPL). Retrieved from http://www.wikinvest.com/stock/Apple_%28AAPL%29/Gross_Margin Read More