Strategic Position of Apple Inc - Essay Example

?Apple Incorporated Table of Contents Introduction 3 2. Financial Analysis 4 3. Marketing Analysis 6 4. HRM Analysis 8 5. Operations Analysis 8 6. Strengths and Weaknesses 9 7. PESTLE Analysis 10 8. Porter’s Five Forces Model 12 9. Critical Success Factors 14 10. Opportunities and Threats 16 11. Strategic Position of Organisation 16 Current Strategies 16 Issues To Be Faced By The Company 17 Conclusion 18 12. Strategic Direction 18 13. Screening of Options (Suitability, Acceptability And Feasibility) 19 Selection Of Winning Strategy 19 14. Description of the Recommended Strategy 20 15. Key Issues in Implementing the Strategy 20 Risk Assessment And Management 20 References 22 1. Introduction Apple Inc was previously known as Apple Computers. It is a multinational corporation with its headquarters in United States of America. The main business of the company has been to market and create consumer electronics, personal computers and to market consumer electronics1. The company has four main divisions in which the company operates. It had been reorganised in the year 1988 as Apple USA, Apple Europe along with Apple Pacific and Apple Products. The various strategic business units of the company are portable digital music players, media devices, peripherals, third-party digital contents as well as applications. Its numerous products and services consist of Macintosh Computers, iPads, iPhones, iPod, Apple, Xserve and Apple TV, service as well as support systems. Apple makes money by selling its products all over the world via its retail stores, online stores, and direct sales force. It also makes money by selling its products to third-party cellular network carriers, retailers, wholesalers, as well as value added resellers. The company also earns huge amount of money by selling multiplicity of third-party Mac, iPod, iPad, iPhone along with the speakers, headphones, printers, application software, and other items as well as peripherals by means of its online and retail stores. The report will take into consideration one particular SBU of Apple, i.e., personal computers. 2. Financial Analysis The financial analysis of the company aims at demonstrating the financial ratios in terms of three ratios such as liquidity, leverage and profitability. The fiscal year 2009 and 2010 will be used for the purpose of analysis. Liquidity Ratio Initially, the liquidity ratio for Apple needs to be evaluated. This ratio determines the company’s capacity to pay short-term debts2 The formula for calculating the liquidity ratio is current assets divided by current liabilities. 2010 (in USD) (numbers in thousands) 2009 (in USD) (numbers in thousands) Current Assets 43,927,000 31,555,000 Current Liabilities 23,795,000 11,506,000 Liquidity Ratio 1.84 2.74 Working Capital 20,132,000 20,049,000 In the above table, working capital has also been calculated which has been obtained by subtracting current assets by current liabilities. The table depicts that Apple Inc has positive working capital and this shows that Apple has the capability to pay their debts3 Debt-to-Equity Ratio 2010 (in USD) (numbers in thousands) 2009 (in USD) (numbers in thousands) Total Liabilities 32,076,000 15,861,000 Shareholders’ Equity 54,666,000 31,640,000 Debt to Equity Ratio 0.58 0.50 When there is high debt to equity ratio, it generally indicates high amount of debt utilised by the company in order to finance its operation. It is evident from the above result that Apple has low debt to equity ratio and thereby its assets are financed by means of shareholders equity instead of long term debts4 Net Profit Margin Ratio 2010 (September) (in USD) (numbers in thousands) 2009 (September) (in USD) (numbers in thousands) Net Income 14,013,000 8,235,000 Net Sales 65,225,000 42,905,000 Net profit Margin Ratio 21% 19% A strong net profit margin is one factor that can effectively control the cost of the organisation and show the operational efficiency. It has been found that there has been significant improvement in the net profit margin ratio of Apple in comparison to previous year. Therefore, it can be analysed that the company is capable of covering its variable as well as fixed cost along with the sales and is also capable of offering its investors significant return on investment5 3. Marketing Analysis It can be stated that Apple Inc has been capable of achieving great success since last few years because of the methods and the procedures used for marketing its products. In addition to these, the company’s strategy also consist of expansion of its distribution channels so that it can reach more and more number of customers effectively and therefore provide the customers with goods which are of high quality and also offer after-sales services to them. Apple Inc. received great success from numerous products such as iPhones, iPods as well as iTunes. The communication strategy followed by the company is quite simple, clear, clever and sober. It makes use of TV advertisements, prints advertisements as well as online advertisements in order to lure the customers6 4. HRM Analysis In the information technology industry in which Apple operates there is requirement of trained and skilled personnel. As of September 2010, the company’s total employees were 46647 and the number of temporary employees as on September 2010 was 2768. It has been observed that the company offers its employees with greater benefits such as meditation facilities so that the employees can meditate and pray for half hour in order to enhance the productivity and creativity among the employees. 5. Operations Analysis It is to be stated that to a large extent most of the company’s parts and products are produced as a whole or in parts by third party manufacturers. The manufacturers are outside the USA and are at various geographical locations. It also outsources its transportation and logistics management. The final assembly of the products of the company is done in the production facility in Ireland7. 6. Strengths and Weaknesses The chief strength of the company is that it is one of the most well known and established IT brands in the world. Apple is quite well aware of its customers and therefore has an impression of brand loyalty. The company has a manufacturing base and also runs retail outlets8 It has been observed that the company’s financial position has been quite robust and stable although the market has been stagnant in both hardware and software market. The leadership of Steve Jobs had proved fruitful for the company. It is noted that Apple has been one of the strongest companies in the geographical and education markets of United States. However, in the recent times since the educational market is facing the problems of budget and the US market is facing saturation point in the personal computer segment, Apple might have to surrender to cost pressures from the market for its product without any emphasis upon the strategic advancement, divesture and integration9. 7. PESTLE Analysis The PESTLE analysis is useful tool assisting in determining the current position of the company by identifying the impact of political, economic, social and technological, environmental and legal factors. Political Influences It has been identified that approximately 52% of the sales in the year 2007 of Apple was generated outside America. International relations related hurdles along with war and terrorism has the potential to adversely impact Apple. Since most of its products are manufactured outside America, political conflicts among the nations may impact Apple. Economic Influences It was noticed that the Japan Earthquake also had an impact upon the US economy. It was also noted that in Unites States, there is likely to be upward pressure on the cost of goods such as consumer electronics because of lack of component parts from Japan. It also impacted the supply of components for devices of Apple iPhone as well as iPad10 The demand for the product can also be impacted because of the rise in the fuel and energy cost, labour and healthcare cost, macroeconomic factors impacting consumer spending behaviour11 Social Influences The image of Apple depicts the contemporary individual’s lifestyle merging functionality with design which incorporates brand identification and increased brand loyalty. All these social influences have a favourable impact upon Apple, Inc. Technological Influences It has been noted that innovations in technology is taking place at a rapid pace. The market for mobile phones and computer is huge. It has been observed that Apple invests huge amount of money in research and development so that it can focus upon innovation12 Environmental Influences The company is quite concerned regarding the impact of its operation in the environment. It states that in order to reduce its impact on the environment it is significant to improve its products environmental performance. The company ships its products with small packaging. The products are energy efficient and thereby recyclable 13 Legal Influences It has been identified from the case study that Apple had to pay huge amount of money to Nokia in compensation for the use of the intellectual property which it used in its iPhone. Such legal disputes hamper the effective operation of the company14 8. Porter’s Five Forces Model Rivalry among the Competitors With the discovery of personal computers, the industry which once had very less large companies and with expensive products, now have many manufacturers with millions of customers in the country of United States. It has been observed that the characteristics of development in the technology also embrace increased competition in this particular industry. The main competitors of Apple Inc have been Dell, HP, and Lenovo. Threat of New Entrants There are many possibilities through which the new entrants may enter into the market. However, there are hindrances as well that may prevent the new entrants from entering into the market. Currently, in the market there are numerous players who have brand recognition as well as loyalty such as Dell, Microsoft, and Verizon among others. These players keep their cost quite low and dominate the market with attaining economies of scale which is not possible for the new entrants to achieve if they do no not have adequate capital investment. It has been noticed that despite several obstacles, there are certain possibilities for entry of the new entrants. The new entrants may enter into the market from newly developed lean organisation thereby relying upon the third party original equipment manufacturers for the purpose of production15 Threat of Substitutes There has been tremendous growth in the consumer technology sector since the past decades because of the discovery of numerous alternatives of personal computers such as Personal Digital Assistants (PDAs) and smart phones which consist of many features. With the developments in the technology, the consumers opt for spending in these technologies in order to keep themselves updated and are reducing their spending on the personal computers16. Bargaining Power of the Customers It is generally observed that the bargaining power of the customer is moderate. Retailers have the power to pressurise the company for lowering the prices of the products or for better terms. During the times of economic downturn the consumers do not prefer spending much on computers. Those buyers possessing variety of needs has an impact upon the personal computer makers who need to react to the buyers by offering them customised products. Bargaining Power of Suppliers It has been observed that the suppliers have substantial leverage over the manufacturers of personal computers. The relative deliberation of suppliers for few inputs exerts pressures on the competitors. The suppliers of the processors and computer memory are Motorola, IBM as well as Intel. In the personal computer industry, processors are primarily purchased from Intel Corporation and Advanced Micro Devices, Inc. it is found that because of the inappropriateness in design, if the PC manufacturers want to alter the supplier of the processors, they also need to switch to a new type of motherboard which leads to high switching cost. 9. Critical Success Factors Critical Success factors are quite important for the future success of the firms. The company, Apple Inc has various internal strengths which assist them in making successful as well as competitive. The company has a strong presence in the personal computer market since it offers its customer with stylish designs and its ease of use makes it more appealing to the consumers. Management Style and Leadership The management style and the leadership strategies that were followed by Steve Jobs could be identified as one of the critical success factors for Apple, Inc. Market Share The company’s market share in the United States has increased to 12.9 % in the third quarter of 2011 in the personal computer segment. Therefore, rising market share of personal computers of Apple can also be considered as critical success factors17 Innovation Innovation can also be considered as one of the critical success factors for Apple Inc. It can be stated that the company has been capable of driving high sales and profits in the personal computer industry because of innovation. It fosters its employees to focus solely upon innovation in order to deliver high quality products tailored according to the needs of the customers. Product Quality The products delivered by Apple are prepared from advanced technology and therefore are of high quality. Thus, it can be considered as one of the critical success factors for the company. Financial Position It has been analysed above that Apple has strong financial position. There has been rise in the revenues and profits of the company in the year 2010 in comparison to the year 2009. Therefore, this is a critical success factor for Apple. 10. Opportunities and Threats It has been identified that with greater success of the iPod and iTunes, the company has made its entry into the consumer electronics market. By intensifying the concept of iTunes to downloadable mobile phone characteristics as well as digital movies the company is capable of developing strategic alliances with component manufacturers. After the cross-licensing of the operating systems, the company has been capable of entering into the high volume business which was previously dominated by Windows-based PCs. The main threats to the company are legal risks that it faces. The market which is highly volatile and dynamic may result in the company facing the issues related to the copyright infringement and patent risks. Competition is another major threat to the company. It receives threat of limitability from its competitors. 11. Strategic Position of Organisation Current Strategies It has been found that as on September 2010, Apple had opened nearly 317 retail stores. It included 233 stores within the USA while 84 stores are in international market. The stores are located at areas where there is high traffic in big shopping malls and in urban shopping districts. By doing so the company is capable of monitoring the customer experience after buying and luring new customers. One of the significant strategies followed by the company is that it employs personnel who are highly knowledgeable and experienced and thus can offer their valuable advice on product, service as well as training. The company sells its products at low cost in the initial period through which the customers can avail the products of Apple. The company takes into consideration the taste and the preferences of the customers and therefore carefully delivers products taking account of extensive research and strong design18. Issues To Be Faced By The Company The demise of Steve Jobs can bring many hurdles to the company. It has been his management style and leadership skills that have led to the success of the company. However, the effectiveness of the new CEO appointed for Apple is under deliberation19 In addition to this since the company has its manufacturing plant outside the USA, any conflicts among the nation in the near future can be an issue for the company. In the near future the competition for the product may increase and therefore the competitor’s strategy may fail the products of Apple miserably. Managing rising complexity in the information technology in the near future can also be one of the issues for the company20 Conclusion It can be stated that although the company has adequate resources and capabilities to deal with the issues it might lack in few context. For instance, in order to deal with the issues related to complexity, the company has talented team members who can manage the complexities in the near future. The strategies of the company stated that their commitments are aligned with their stated objectives and strategies. The company has been successful at implementing lean manufacturing structure. Therefore, it can be concluded that the company’s strategies and business model is moderately placed to deal with the issues. 12. Strategic Direction The company must continuously focus on innovation in the near future in order to beat the competition It needs to execute first-party quality checks in OEM factories in order to ensure that they quality of the goods provided by them are as per the standard Needs to provide training the team members to deal with the changes effectively 13. Screening of Options (Suitability, Acceptability And Feasibility) Focusing on innovation can provide the company with increased customer loyalty in the near future. This can be considered as one of the suitable factors. However, too much focus on innovation will hamper its core products. By implementing the first-party quality checks in OEM factories, the company will be capable of gauging the quality of the product offered by these factories. However, this may lead to increased cost for Apple. Training of the members in order to deal with the changes in the near future is quite significant to gain competitive advantage. This can be considered as feasible and acceptable criteria. However, implementing adequate training resources may be one of the issues hindering the process of training. Furthermore, trained staffs may switch to the competitors for better career prospects. Selection Of Winning Strategy Among the three strategic directions, the company is likely to achieve greater success if it focuses upon innovation. The reason behind the selection of this strategy is that innovation can assist the company at maintaining competitive advantage. It is because of the underlying advantage of the strategy suggested, it can be considered as a winning strategy. 14. Description of the Recommended Strategy The strategy that has been recommended is innovation. It has been noticed that innovation is the process of introducing anything new to the market in order to improve the quality and range of products. The development of new products leads to change in the costs and the rewards. Innovation can help in enhancing the quality of the product and therefore creating new demand for the product. Thus, Apple will have greater advantage if it is capable of focusing its attention on innovation. 15. Key Issues in Implementing the Strategy The key issues in implanting the strategy can be associated with high cost since the company needs to keep investing in research and development. Furthermore, the risk increases when the company is not capable of availing return on investment. The managers may be reluctant to innovate which also poses risk. Risk Assessment And Management The risk associated with innovation can be mitigated. The company needs to foster a transparent and efficient ideas pipeline management process so that the risk can be identified and managed effectively. It is also significant to develop a culture of innovation in the organisation. It must begin at the top level of the hierarchy such as CEO. The new CEO of the company needs to embrace innovation so that his employees follow his footsteps. It is also significant to follow a disciplined approach to innovation21 References Apple, Selected Financial Data, Annual report, 2010, [accessed November 19, 2011]. Apple, Apple and the Environment, Environment, 2011, [accessed November 19, 2011]. Andrew Ward, Nokia Wins Apple Phone Patent Case, The Financial Times, 2011, [accessed November 19, 2011]. Alan Norton, 10 Challenges IT Faces, TechRepublic, 2011, [accessed November 19, 2011]. Brian Masi, Strategic Analysis of Apple, Inc, Bargaining Power of Buyers, 2009, [accessed November 19, 2011]. Douglas Mcintyre, How Will The Japan Earthquake Affect The US Economy, Economy, 2011, [accessed November 19, 2011]. Docstoc, Strengths and Weaknesses of Apple Inc, Docs, 2010, [accessed November 19, 2011]. Eric Slivka, Apple's Share of U.S. PC Market Leaps to 12.9% in 3Q 2011, Apple US Market Share, 2011, [accessed November 19, 2011]. Investopedia, Debt-To-Equity Ratio, Ratio, 2011, [accessed November 19, 2011]. Investopedia, Profit Margin, Ratios, 2011, [accessed November 19, 2011]. Investopedia, Liquidity Ratio, Terms, 2011, [accessed November 19, 2011]. Inside CRM, 11 Effective Strategies Apple Uses to Create Loyal Customers, Marketing, 2011, [accessed November 19, 2011]. Jeremy Stone and Nicole Keating, Innovation-a Business Risk That Can Be Managed and Mitigated, Success Stories, 2010, [accessed November 19, 2011]. Pandora Group, Strategic Report for Apple Computer inc, Company Background, 2006, [accessed November 19, 2011]. Philip Elmer-Dewitt, Apple’s 10 Biggest Problems Update, Big Tech, 2010, [accessed November 19, 2011]. Slideshare, Porters Five Forces Model, Threat of Substitues, 2011, [accessed November 19, 2011]. Scribd, History, Corporate Management, 2010, [accessed November 19, 2011]. Scribd, A Strategic Analysis of Apple Incorporation, The Future Of Apple, 2009, [accessed November 19, 2011]. Scribd, PEST Analysis, Market Analysis, 2011, [accessed November 19, 2011]. Vertygo Team, Analysis, Apple Marketing Strategy, 2011, [accessed November 19, 2011]. Read More