Strategic Management: An Analysis of Apple - Essay Example

Strategic management: An analysis of Apple BY YOU YOUR SCHOOL INFO HERE HERE An analysis of Apple Introduction It has been estimated that the global smartphone market will be valued at $4.3 billion USD by the year 2017, with a projected current growth rate of 23 percent year on year (TechSci 2012). In the year 2012, Apple maintained 27 percent market share for the iPhone in the UK alone, outperforming major competition such as Samsung, Blackberry, Nokia, and Sony. Achievement of domestic UK market share and increasing adoption of the iPhone throughout the world is underpinned by understanding all aspects of the value chain that contribute to a successful business model. Marketing, customer service and customer relationship management, human resource management, and operations are the largest competencies of the firm associated with the value chain that allows Apple to make such a positive impression with desired customer target segments across the world. This report conducts a critical evaluation of Apple using three distinct models: Porter’s Generic Strategies, the McKinsey 7-S Framework and Johnson’s Culture Web as a means of understanding what drives considerable market success from the perspective of strategic management competency and the achievement of competitive advantage. 2. Apple – An analysis utilising Porter’s Generic Strategies Model The Generic Strategies model is illustrative of how a firm is able to attain competitive advantages in its established markets. As shown by the model, there are three strategies available to firms, including cost leadership, differentiation, or a focus strategy. When a company is pursuing the most viable method to achieve competitive advantage, the firm selects which strategy is achievable and feasible based on tangible resources, internal human capital, market conditions, procurement capabilities and operational capacity (Allen, Helms, Takeda and White 2007; Miller 1992). A business can significantly improve its performance by selecting one of these generic strategies which will underpin the corporate level strategy development and its business-level strategies that will better serve the business for competitive advantage. If a firm is unable to decide on one of these three generic strategies, it poses a risk of being stuck in the middle, which succeeds in confusing important customer segments and creates an uncertain market-based identity for the company (Bordean, Borza, Nistor and Mitra 2010). Apple, in its pursuit of achieving competitive advantage, has adopted a differentiation strategy that emphasises product uniqueness when targeting a broader mass market internationally. Apple has worked diligently in positioning its business amongst competitive as an innovator and pioneer in the development of revolutionary technologies associated with its smartphone division. Through an emphasis on research and development and utilisation of effective marketing, the firm differentiates from competitive forces by consistently using integrated communications that describe how the product’s features and benefits can outperform other competing smartphones. Appendix A illustrates this integrated approach, from a marketing perspective, that assists in this differentiation strategy. As shown by Apple’s marketing examples in Appendix A, the firm consistently illustrates, in promotional imagery and messages, that its smartphone products are ground-breaking and essentially a technological marvel. Quite often, the senior executives of Apple hold press conferences and engage media and consumers in seminars which describe upcoming product innovations in an effort to herald the launch of a new version of the iPhone that is consistently revamped and improved upon through dedication to research and development. It is through this focus, using creative advertising and legitimate product innovations, with give consumers the perception of superior value, that customers are willing to pay higher prices which improves the revenue position of Apple considerably. Whilst some critics might argue that Apple could have adopted other generic strategies to achieve competitive advantages, the reason for this decision appears largely clear. First and foremost, the external market conditions do not provide adequate advantages in terms of adopting a cost leadership strategy. The procurement market, in a very saturated, global competitive environment, makes access to various technologies and raw materials needed to produce smartphone products not advantageous to any particular manufacturer. With a plethora of international suppliers, no particular competitor in this industry maintains bargaining power or the ability to control prices across the supply chain spectrum. Economies of scale, additionally, cannot be properly exploited, which are cost-related advantages achieved through scope, size and scale of production and operations (Truett and Truett 2007; Gelles and Mitchell 1996). In a competitive market where Apple, Samsung, and Microsoft (as only three examples) have efficiencies in operational speed, company size, ability to procure modern and revolutionary production technologies, and even order fulfilment, Apple has limited cost related advantages. With comparable fixed costs to Apple, in comparison to other large competitors, there are virtually no ways to achieve lower costs in production, procurement, distribution and other value chain-related support activities. Apple could not select a focused strategy, either, in order to achieve competitive advantage. Apple wants to distribute as many smartphones as possible to maximise revenue growth. A niche strategy, or seeking consumer subsections to target (Parrish, Cassill and Oxenham 2005; Oxenham 2006), would not be advantageous to Apple attempting to create brand recognition throughout the world for its iPhone products. Narrow market segments, whether focusing on low cost or differentiation, requires substantial marketing-related expenditures to gain consumer interest in a product (Gamble, Thompson and Strickland 2010). To use a focused strategy in terms of low cost would defeat Apple’s intention to create a market-positioned reputation for quality and innovation. Low cost pricing structures tend cheapen a brand when trying to send the message of innovation and quality (Boone and Kurtz 2007). To use a focused strategy in terms of differentiation when targeting narrow market segments would also defeat Apple’s revenue growth expectations. Using such a strategy would require Apple to use disparate marketing-related strategies and communications to reach different niche markets with unique needs and motivations. Hence, a differentiation strategy, focused on a broader mass market, is much more advantageous to Apple in terms of revenues, reputation and gaining interest and preference toward its smartphone products by differentiating through innovation and creativity of its products. With Apple not having the tangible ability to control costs throughout the value chain, a low cost strategy would undermine its profit objectives for a multi-national company capable of producing rapid products and ensuring rapid distribution of these smartphones throughout the entire world. Whilst a focused strategy might satisfy unique markets with disparate needs and characteristics, it would cause significant problems with outperforming competition that also distributes products internationally to capture broader market attention. Such strategies could confuse the mass markets and erode the brand reputation of Apple currently held throughout the world. It is critical that Apple promote why its products as superior, unique and advantageous to consumers to meet with strategic objectives for a market position that can maximise revenue growth. 3. Apple – an analysis using McKinsey’s 7-S framework The McKinsey 7-S Model describes how a firm can achieve competitive advantage through organisational analysis that evaluates changes occurring internally and how to properly align a business’ internal structure. This framework can improve internal performance, evaluate future changes, and properly align job roles and departments to best develop and implement a desired corporate strategy (Peters and Waterman 1982). The following illustrates the seven dynamics of this model: Structure – The types of reporting structures, allocation of tasks, and coordination at the supervisory level. Strategy – Top level goals and objectives to pursue and achieve advantages. Systems – Supporting systems, such as value chain activities, that service the business model, such as accounting, marketing and procurement. Shared values – Core corporate values that build organisational culture and establish norms of behaviours and attitudes internally. Style – The type of leadership utilised within the firm. Staff - The types of employees and volume of support workers and management in the company. Skills – The specific talents and competencies of internal employees and managers. At Apple, the company has adopted a culture of inclusion where providing revolutionary customer-centric products drives ambitions and job role performance. Apple executives have determined that employees will be better motivated and work harder toward achieving strategic objectives if they are not micro-managed with high levels of supervisory visibility (McShane and Travaglione 2005). Self-motivation and autonomy provide more incentives to perform job roles effectively as an expected outcome of this type of leadership. Langfred and Moye (2004) support this, suggesting that task autonomy improves employee performance. The structure of Apple, with limited reporting systems, supports this motivational advantage that achieves fast responsiveness and a more dedicated Apple employee population. Abandonment of the centralised, top-down structure achieves important productivity and motivational outcomes that give the firm better advantages in relation to service delivery for customers as well. Hence, in comparison to other competitors with more centralised decision-making structures, Apple obtains competitive advantages through its human capital. Giving employees opportunities to share decision-making and offer solutions to problems and potential innovative products counters the phenomenon of job insecurity that can impede performance (Probst 2005). The culture of innovation, coupled with a limited supervisory structure, shapes the norms and behaviours related to beliefs about the importance of top performance that is found throughout the organisational hierarchy. Senior managers interact with lower-level support employees and consistently reinforce this vision as part of transformational leadership ideology. Furthermore, the company seeks to recruit those with tacit knowledge and expertise in areas of product development, service competency, management, and even information technology in an effort to gain the most talented employees in the global labour pool. A culture established without autocratic red tape and more participation drives employees at Apple to follow the ideology and vision of the business. Literature reinforces that a cohesive and dedicated organisational culture provides for more productive performance outcomes at a business (Yilmaz and Ergun 2008). One can compare Apple’s bottom-up, decentralised business model to Samsung to illustrate how the firm achieves competitive advantages related to all aspects of the McKinsey 7-S framework. Samsung, a Japanese company, is a slow to change culture that is founded on centuries of Japanese, hierarchical and high power distance beliefs. Employees are not regularly consulted to provide innovations and feedback, or share in decision-making, which can potentially de-motivate workers. Many reporting structures, a culture where behavioural norms dictate limited socialisation with senior management, and an autocratic style of management can impede dedication and effective job role performance. In fact, the Hofstede Centre (2014) asserts that Japanese managers want employees to provide many feasibility reports and examine quantitative data before making relevant business decisions. This slows the ability to be responsive to changing market conditions and further drives distance between employees and senior management. Apple transcends these deficiencies by properly aligning the internal structure to autonomy, creating a culture of dedication through effective leadership, and using a participative model throughout the organisation. When combined with a recruitment model to seek top talent (and reward their performance effectively), Apple appears to be well-positioned for competitive advantages related to human capital over that of many other competitors with limited focus on the importance of human capital development. Companies that utilise autocratic leadership are most effective in hierarchy-driven organisations where control is necessary (such as Boeing or a national military organisation). Such leadership ideology makes employees feel less important in a business model and can create resistance to change when it is imposed on the organisation. Apple seems to understand that it can better develop important human capital advantages by limiting reporting structures, reducing management visibility, and deconstructing managerial control systems (using formal reprimands and high volume of regulations and control policies) to gain genuine employee dedication. 4. Apple – Johnson’s Cultural Web Similar to the McKinsey 7-S framework is Johnson’s Cultural Web. Apple utilises many fundamental elements of this model to achieve competitive advantages. First, stories are important in creating the foundational values and beliefs of the business. In this company, Apple executives, such as Mike Cook and former CEO Steve Jobs, would regularly create webinars that talked about the past and what Apple values as a business. The company maintains a rich history from inception to its current market position and chooses to immortalise innovators that have contributed to Apple’s tremendous market success. This builds the foundation of organisational behaviour and injects pride into employees about the role in an important and historically-significant organisation. Rituals and routines are also emphasised at Apple, with senior, interactive managers role modelling desired behaviours, especially those related to coming up with innovative and revolutionary ideas in a participative environment. Literature recognises that role modelling behaviours is a form of social learning that builds trust in managers and promotes a desire to follow (Fairholm 2009). When coupled with a well-respected logo known throughout the world, pride is created with symbols (such as ethical managerial leadership), which further creates internal dedication at the employee level. Limited control systems and a structure conducive to autonomy and self-efficacy, it builds a culture at Apple of dignity, self-respect, and job role importance. This is much different than Samsung maintaining a centralised hierarchy with considerable management controls to induce high performance. Power structures promote much more socialisation between high level managers and lower-level employees where interaction and collaboration are strongly promoted. Apple maintains many different business units with tacit knowledge holders and experts that are given opportunities to make decisions independently of the corporate headquarters so long as they can justify their performance achievements. Microsoft has recently consolidated its once-independent business units to attempt to centralise decision-making and give senior managers more control over different corporate divisions (Ludwig 2013). Centralisation of a business can serve as a de-motivational tool when employees have less autonomous function throughout the business model. Apple, however, being a more liberal and leadership-focused business attempts to deconstruct power structures in order to maintain this divisional sense of independence and sovereignty which ultimately creates a more committed and dedication internal culture. Johnson’s Cultural Web intends to solve the paradigm of a de-motivated staff and how to achieve top performance outcomes. Apple’s use of stories, symbols and rituals that are supportive of building a sense of belonging with employees creates an internal environment where employees can be pleased with their social and professional standings in a firm with prosperous histories. Breaking down the barriers of authority to give employees an opportunity to be innovators and be heralded for their problem-solving contributions is unique as compared to other multi-national smartphone manufacturers. Apple appears to understand the fundamental socio-psychological needs of its employees and works diligently to satisfy these needs through management activity, leadership, providing a positive environment for socialisation, and reasserting the company’s superior reputation compared to competition to make them satisfied to be a part of a successful and flourishing business model. It should be recognised, however, that the Cultural Web model has been criticised for its relevancy in analysing a firm’s competitive advantages due to the ever-changing nature of culture (Johnson, Scholes and Whittington 2005). This means that corporate culture mapping occurring in one period might be irrelevant in another. However, Apple seems to understand that change, forward thinking, creativity and innovation are what drive the majority of its market-based successes. Hence, Apple may be equipped to achieve future internally-related competitive advantages through this cultural norm of change that will allow the firm to properly analyse changes to its internal culture and attitudes and adjust accordingly. It might, for example, be necessary for Apple to alter its stories and symbols in the event of cultural change in order to better engage with employees and gain their long-term dedication and commitment. A firm operating in highly competitive marketplaces must be flexible for change and it would appear that Apple is fully competent in responding to such changes to ensure that employees do not lose their determination to make Apple the most successful business in the world as it pertains to the sale of smartphone devices. 5. Conclusion Apple clearly does not take its employees for granted, but considers them valuable contributors and reinforces this ideology through consistent integrated social and professional communications. The company, with its generic strategy of differentiation to achieve broader market interest and satisfaction, must rely on internal employees and managers to achieve its strategic goals to make this business stand out against major competition such as Samsung, Microsoft and Sony. Without top performance and gaining employee commitment to achieve strategic goals, Apple will be hard-pressed to maintain its differentiated image as an innovator and pioneer in the smartphone industry. Research did not indicate any notable deficiencies at Apple that could complicate achievement of competitive advantage as the firm seems to understand the dynamics of social belonging, psychological needs fulfilment, and sharing a common ideology that shapes organisational behaviour and job role-related norms throughout the entire business model. In a competitive environment where adopting a cost leadership strategy or focused strategy would not be feasible or relevant to achieve its brand-related and revenue-related objectives, coming up with unique ideas and creative solutions that give the firm a differentiated and uniquely-positioned corporate identity is critical. This cannot be done without the commitment, participation, and satisfaction of employees that provide invaluable support for improving the current and future market position of the business. This assertion illustrates how Apple’s differentiation strategy is inter-linked with providing an internal environment capable of achieving revolutionary product developments and effectively outperforming competitive forces without such a liberal and people-centric business model. References Allen, R., Helms, M., Takeda, M. and White, C. (2007). Porter’s Generic Strategies: an exploratory study of their use in Japan, Journal of Business Strategies, 24(1), pp.69-90. 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UK iPhone 5S sales three times that of iPhone 5C – but both fall well short of android, Computing Magazine [online] Available at: http://www.computing.co.uk/ctg/news/2316443/uk-iphone-5s-sales-three-times-that-of-iphone-5c-but-both-fall-well-short-of-android (accessed 20 November 2014). Parris, E., Cassill, N. and Oxenham, W. (2005). Niche market strategy for a mature marketplace, Marketing Intelligence and Planning, 24(7). Peters, T. and Waterman, R. (1982). In search of excellence. London: Harper & Row. Probst, T.M. (2005). Countering the negative effects of job insecurity through participative decision-making: lessons from the demand-control model, Journal of Occupational Health Psychology, 10, pp.320-329. TechSci. (2012). UK smartphone market will continue to soar ahead. [online] Available at: http://www.techsciresearch.com/1811 (accessed 21 November 2014). Truett, J. and Truett, D.B. (2007). A cost-based analysis of scale economies in the French auto industry, International Review of Economics and Finance, 16(3), pp.369-382. Yilmaz, C. and Ergun, E. (2008). Organisational culture and firm effectiveness: an examination of relative effects of culture traits and the balanced culture hypothesis in an emerging economy, Journal of World Business, 43, pp.290-306. Appendix A: Apple iPhone differentiation in promotion Source: Palmer, D. (2013). UK iPhone 5S sales three times that of iPhone 5C – but both fall well short of android, Computing Magazine [online] Available at: http://www.computing.co.uk/ctg/news/2316443/uk-iphone-5s-sales-three-times-that-of-iphone-5c-but-both-fall-well-short-of-android (accessed 20 November 2014). Source: Prasad, G. (2013). What does S stand for in iPhone 3GS, 4S and 5S? [online] Available at: http://guruprasad.net/posts/what-does-s-stand-for-in-iphone-3gs-4s-5s/ (accessed 20 November 2014). Appendix B: The models of competitive advantage analysis Source: Value Based Management. (2014). Summary of the 7S framework of McKinsey. [online] Available at: http://www.valuebasedmanagement.net/methods_7S.html (accessed 20 November 2014). Source: Modified from Johnson, G., Whittington, R. and Scholes, K. (2011). Fundamentals of strategy, 2nd edn. Financial Times Press. Source: Pic2fly. (2014). Viewing Porter’s Generic Strategies. [online] Available at: http://www.pic2fly.com/viewimage/Porter%27s%20Four%20Generic%20Strategies/aHR0cDovL2Jsb2dzLnViYy5jYS9yb2JlcnRtZXJraS9maWxlcy8yMDExLzEwL1BvcnRlcnMtR2VuZXJpYy1TdHJhdGVnaWVzLmpwZw (accessed 18 November 2014). Read More