Strategic Analysis of Samsung and Apple - Case Study Example

STRATEGIC ANALYSIS OF SAMSUNG AND APPLE By Strategic Analysis of Samsung and Apple Introduction Samsung and Apple are two of the largest telecommunication firms in the world. These two companies have managed to excel in a highly competitive industry characterized with a lot of challenges. As such, the paper will undertake a strategic analysis of the two multinational firms. Subsequently, three strategic analysis models will be incorporated into the study; Porter’s Diamond model, Porter’s Generic Strategies model and McKinsey’s 7-S Framework. Review of the models Porter’s diamond model Basically, porter’s diamond model tries to analyze, explain and evaluate the competitive advantage possessed by some groups or firms due to certain specific factors which are available exclusively to them. Therefore, the porter diamond model helps improve a nation’s or company’s participation in a competitive global field. Porter who is widely acknowledged by many as an expert on company competition and strategy developed the model (Aaker, D. 2008, 127). The porter diamond model is primarily a proactive version of more economic theories that tend to quantify competitive advantages or comparative advantages of regions. Porter’s diamond model is also popularly known as simply the diamond model. Unlike the traditional or basic economic theories which mainly cite location, land, labor, population and natural resources as the major determinants for a company to have competitive advantage, porter’s diamond model employs a proactive approach in its analysis of competitive advantage determinants. Porter’s diamond model illustrates the fact that nations can be competitive whether or not they have natural elements such as natural resources and land (Ireland, R. 1999, 75). The role of the central government according to the diamond model is to encourage firms or organizations and subsequently propel them to a better competitive level thus, boosting their performance leading to a mutual benefit. The diamond model considers factors such as: the firm strategy, structure and rivalry, demand conditions, related and supporting industries, factor conditions, chance and the government. Porter published the diamond model in the competitive advantage of nation’s book where he attempted to explain why some specific industries get more competitive in particular regions. With time, other scholars have expanded porter’s diamond model. Porter analysis Porter’s analysis focuses on clusters (a group of small firms/ industries) where the comparative of a single firm is directly related to other firm’s performance in addition to other factors which are included in customer client relations, value added chain, or in a regional or local environment. Porter based his analysis on two levels/steps. To begin with, groups of excelling firms/organizations have been mapped into 10 significant trading nations (Dunning, H. 1993, 153). Secondly, competition history in regard to specific firms is evaluated and analyzed to figure out how comparative advantage was created. Porter’s second step basically deals with processes which lead to the creation of competitive advantage. Historical analysis is the primary method in porter’s study. The elements or concepts which the diamond analyses as previously highlighted in the text are grouped into six major factors: Factor conditions Factor conditions are the physical resources, human resources, capital resources, and infrastructure and knowledge resources. Specific resources in an industry lead to competition among the firms in the industry. Also, firms can create specific resources to compensate for the industry’s factor disadvantages. Demand conditions Companies can be able to create competitive advantage when home market demand conditions are favorable. Thus, the home market consumers pressure the firm or organization to invent and create better and advanced products than the ones being produced or marketed by competitors. Also, home market conditions can encourage companies to innovate quickly. Related and supporting industries Supporting industries manufacture input goods and products that are vital for internationalization and innovation the supporting firms in addition to providing cost effective products, they also take part in the company upgrading process. Therefore, they tend to stimulate firms in the chain to also innovate. Firm strategy, structure and rivalry This is the fourth element in porter’s diamond model. This determinant states that the way firms are managed, created or set goals is critical for their success. However, stiff competition in the local region or market is essential since it pressures the firms to become more innovative hence increasing competitiveness. Government The government is the sixth determinant according to the diamond model. The government influences nearly all of the previous competitive determinants. As such, the government can influence and dictate/control production factors, competition between organizations and demand conditions which are prevalent in the local market. Generally, the government can intervene both locally, regionally or on a supranational level. Chance These are the external events which the firm has no control over. Chance events are crucial since they tend to create discontinuities which lead to some firms losing while others gain competitive advantage. In light of this, the diamond model implies that these determinant factors continuously interact and hence lead to favorable conditions where innovation and better competition occurs. Porter also in his analysis raises the fundamental question of why do some firms/nations excel in international competition while others fail? Samsung and Apple target markets and resources not only in the domestic environment but also they target markets and resources in the international market. Global targeting is hence very significant to companies from big economic systems like USA (Apple) and Korea (Samsung). Porter’s Generic Strategies The generic strategies model analyses how a firm achieves competitive advantage in its scope of operation. Porter’s generic strategies are grouped into three elements. These are; differentiated products focus or lower cost. A firm in order to achieve competitive advantage chooses to follow only one of the two forms of competitive advantage; either through differentiation of its products so as to attract a higher price or lower its costs more than its competitors (Murray, A. 1988, 77). Additionally, the firm picks or follows one of the 2 forms of scope (focus or industry wide). Focus means that the firm is marketing its services and products only to a specific selected market segment. Conversely, an industry wide scope means that the firm is marketing or availing its goods in a lot of market segments. Michael porter described the generic strategy concept in 1980. It reflects a company’s choices in regard to its scope and competitive advantage type. Therefore, focus, cost leadership and differentiation form porter’s three generic strategies. Porter in his analysis argued that a firm has to only choose one of the three generic strategies or it will end up wasting precious time and resources if it picks more than two strategies. As such, porter’s generic strategies illustrate the interaction that exists between product/good differentiation, market focus and cost minimization strategies. According to porter, an industry has many different segments that a firm can decide to target. The width of the firm’s target illustrates its competitive scope (Hill, C & Jones, G. 2007, 642). Hence, in order to achieve competitive advantage, a firm has to adapt better to the five forces than its competitors. Porter said that a firm has to make a choice in order for it to gain competitive advantage. The choice made by the firm should define its scope and the type of competitive advantage it is pursuing. Lower cost and product differentiation when combined with the firm’s scope of activities lead to the 3 basic generic strategies which will enable the firm to achieve above average performance in the market/industry. Generally, a firm follows a cost leadership strategy if it targets consumers in many market segments by lowly pricing its products. However, a firm is said to pursue a differentiation strategy if it targets consumers in many market segments by adopting different attributes apart from price. For example, it can do this via the provision of high quality products or services which in turn attract a higher price. Lastly, a firm follows a focus strategy by concentrating on a few market segments. It might decide to lower cost (cost focus) or differentiate its products (differentiation scope). The Mckinsey 7S Framework This management framework was developed by tom peters and Robert waterman. The model was a group strategic vision to encompass business units, teams and businesses. The 7S are composed of skills, strategy, structure, systems, staff, style and shared values. The Mckinsey 7S model is mostly used to monitor and assess or analyse an organisation’s internal situation (Tools, M. 2007, 39). The founders of the theory believed that for any firm or company to excel, the seven factors must be aligned in addition to being mutually reinforcing. Therefore, the framework can be used in organisational analysis to aid figure out what factors or elements have to be re structured so as to improve the company’s performance. Regardless of the form of change (new processes, restricting, new systems, organizational merger or leadership change), the framework is used to comprehend how the elements are related, hence ensuring that the impacts of change in one area are considered. The model when applied is intended to improve the firm’s performance, examine probable change effects within the firm and figure out the best way to implement a proposed strategy. The seven elements are grouped into hard elements (strategy, structure, systems) and soft elements (Shared values, skills, staff and style).hard elements are easy to identify and define. Thus management is able to influence them directly. Soft elements on the other hand are more complex to describe and define. They are influenced more by culture. In order for the company to be successful, it has also to consider the soft elements. Strategy is defined as the plan which is formulated by the firm to build and maintain competitive advantage against competition. Secondly, structure is how the firm is structured. Also, structure entails who reports to whom. Thirdly, systems refer to the daily procedures and activities that employees follow while doing the job. Fourth, shared values refer to the company’s core values that are visible in the company’s work ethic and general culture. Fifth, style is the leadership style which is adopted in the firm. Sixth, employees and their skills make up the staff. Lastly, skills refer to the actual competencies and skills of the people/employees working in the firm. The model places shared values in the middle since these values (shared values) are critical to the other factor’s development. Apple strategic analysis Apple has over the years tried to create value by differentiating it products in the telecommunication industry. It has achieved a competitive advantage by basically innovating and taking a different path from that which is mainly followed by its competitors. Additionally, Apple has successfully differentiated its telecommunication products by mainly focusing on their design elegance, quality and exemplary customer service. Also, Apple Inc. has outsourced its actual manufacturing to prominent and trustworthy manufacturers (Dacin et al. 1997, 46). Yet, despite the obviously visible competitive advantage the firm has managed to create for itself, it still faces stiff competition from the industry. Additionally, the firm faces a lot of external challenges also. Apple mainly concentrates on the manufacture of smartphones and the personal computer. This market is increasingly becoming commoditized resulting in intense competition among other firms operating in the same industry for example, Samsung. The stiff competition has mostly led to a reduction in prices across the industry. Nevertheless, Apple through the utilization of significant capabilities and resources including skilled hardware and software engineers, leading product designers, supported by a sizeable development and research budget which enabled the firm to patent thousands of its portfolios has been able to navigate through the storm industry waters (Hotelling, s. 2010, 67). Moreover, the leadership of Steve Jobs enabled the company to possess a competitive advantage over its competitors in the industry. Through the interrelation of these factors, Apple Inc. has innovated its products and serves to a stable market position where its products command premium prices. Nevertheless, Apple can’t relax on its laurels. Apple must continually innovate and redesign its products so as to maintain profits in addition to creating value for its shareholders and customers. The telecommunication industry is currently becoming more and more saturated. This leaves few new buyers but more replacement customers. After using the three strategic analysis models highlighted earlier in the text to evaluate its key resources, core competencies, capabilities, the general compounding elements and trends in the market, it is succinctly clear that the firm is continuously creating value through innovation and diversification. The firm’s defining goods and products such as the iPhone and iPod imply that the company is bent to continue and follow its innovation trend by creating products that command market prices. Generic Competitive Strategy The firm is adopting/ or has chosen a wide differentiation strategy. It differentiates its products from the competitor’s products by producing personalised and high quality products. Also, they target a broad range of market segments from the sophisticated users to the unsophisticated first time users. Value Creation The firm tends to outsource some of its production to reputable third party manufactures who produce original products. By doing this, the company reduces its costs. However, Apple designs its products in the house so as to retain or attract new users. It excels in user interface and industrial product design areas. As such, the firm produces ergonomically useable and stylish products. Moreover, Apple creates people or user friendly devices that are highly personalised. This creates value for its products which attracts a higher than average price form consumers. Key Capabilities and Resources Apple’s former CEO Steve Jobs was the firm’s key resource. Also, the integrated software and hardware developed by the firm is a key resource. Steve jobs engineered the firm and hence inspired a turn around that saw the company become a significant player in the telecommunication industry. The combination of Apple’s resources and key capabilities (the firm’s programmers, designers, engineers and leadership) is the main reason the firm has been successful. Outsourcing Apple has mostly outsourced a lot of its manufacturing activities to firms in china. For instance, it outsources its manufacturing process to Hon Hai and Foxconn industry. Internally, Apple focuses on design. Apple has cordial relations with the firms which it outsources its operations to. Diversification Apple is currently following it diversification strategy to include other products such as medical equipment and e books (Chaudhri, I. 2010, 34). The company has implemented its diversification strategy successfully since it now offers a wide range of notebook computers, desktops, mobile devices and digital media players. Samsung Samsung is a multinational firm involved in the electronics and telecommunications world. The company is focussed on taking advantage of the technological developments. With its aim of becoming the leading manufacturer of its broad range of electronics, the firm has to take complete advantage of its technological developments to gain competitive advantage over its competitors. The three models will be used to evaluate Samsung’s strategic analysis Strategy Samsung’s strategy is very clear from the beginning. It aims at providing customers with high quality products at a lower cost. As such, the firm intends to foster customer relations and loyalty by providing its customers with affordable products. The core factor in Samsung’s strategy is to be cost effective while manufacturing technologically advanced products. Relations with Suppliers Samsung due to its low cost strategy outsources some of its processes to low cost manufacturers. Supplier power is basically defined as the supplier’s ability to increase input prices. However, Samsung has a wide range of suppliers competing to get its contracts. Thus, it usually contracts the lowest cost supplier. Suppliers dealing with Samsung cannot raise their prices since there are other smaller firms who are ready to contract with the firm. Diversification Samsung just like Apple has successfully implemented its diversification strategy. The firm has a wide range of products. Nevertheless, the Samsung smartphone is Samsung’s image driver. Generally, Samsung deals with tablets, mobile phones (normal phones and smart phones), televisions, camcorders and cameras, refrigerators, air conditioners, microwaves, washing machines, laptops and other telecommunication accessories. Locations Samsung penetrates the telecommunication industry via various channels. The firm segments its distribution channels into three sections: Distributors, modern retail and sales dealers. The sales dealers are mainly concerned with corporate sales. The sales dealers also might open Samsung show rooms. Next, the modern retailers are made up of large retailer like Vivek, Vijay Sales and Croma. These retailers keep Samsung products as an alternative. The distribution network adopted by Samsung enables it to reach a wider market segment. In most cities across the world, Samsung has a single distributor. The distributors and Samsung invest heavily in each other. Samsung Strengths Samsung produces hardware which is compatible with a lot of operating systems and softwares. As such, Samsung devices can use different types of operating systems and softwares unlike Apple. Therefore, this development gives Samsung an edge over Apple which is its biggest competitor. Additionally, the popularity of android is increasing while others like OSX and Apple’s iOS are declining. Design and Innovation Samsung products are characterised by up to date technology and user friendly innovative features. To acknowledge this, Samsung was second in the United States in 2011’s top patent assignees. More patents tend to boost and strengthen the position of Samsung in relation to its competitors (Andre et al. 2009, 98). Thus, the firm uses innovation and design to gain a competitive advantage over its rivals in the electronics industry. Excellence in Production of Hardware Parts Samsung is the largest manufacturer and seller of mobile phones and televisions in the world. The company achieved this great feat by increasing efficiency in production and engineering. Environmental Focus The firm produces user friendly telecommunication products. Additionally, Samsung products are environmental friendly since they are free from BFRs and PVC. Moreover, the firm has invested heavily on its recycling programs. Samsung Opportunities Currently, the Indian smartphone market is growing at an alarming rate. India is among the least penetrated regions in the world. However, Samsung has heavily invested and thus has a robust presence in the Indian market. By correctly utilizing this opportunity, Samsung will expand its sales exponentially. The Government The political environment is mostly stable in each and every country that Samsung has invested in. a stable environment leads to more competition within the industry. As previously implied, competition encourages innovation. Also, the governments in areas where Samsung operates create a hospitable environment hence encouraging technological development which gives Samsung a competitive advantage over its competitors. References Aaker, D. A. (2008). Strategic market management. John Wiley & Sons. Andre, B. K., Coster, D. J., De Iuliis, D., Howarth, R. P., Ive, J. P., Jobs, S., ... & Zorkendorfer, R. (2009). U.S. Patent No. D602,014. Washington, DC: U.S. Patent and Trademark Office. Chaudhri, I. (2010). U.S. Patent No. D609,715. Washington, DC: U.S. Patent and Trademark Office. Dacin, M. T., Hitt, M. A., & Levitas, E. (1997). Selecting partners for successful international alliances: Examination of US and Korean firms. Journal of world business, 32(1), 3-16. Dunning, J. H. (1993). Internationalizing Porters diamond. MIR: Management International Review, 7-15. Hill, C., & Jones, G. (2007). Strategic management: An integrated approach. Cengage Learning. Hotelling, S., Strickon, J. A., & Huppi, B. Q. (2010). U.S. Patent No. 7,663,607. Washington, DC: U.S. Patent and Trademark Office. Ireland, R. D., & Hitt, M. A. (1999). Achieving and maintaining strategic competitiveness in the 21st century: The role of strategic leadership. The Academy of Management Executive, 13(1), 43-57. Murray, A. I. (1988). A contingency view of Porters “generic strategies”. Academy of management review, 13(3), 390-400. Tools, M. (2007). The McKinsey 7S Framework: Ensuring that all parts of your organization work in harmony. Read More