New Enhances Staples Apple Inc - Case Study Example

Staples Strategic Issue of the of the Number: Staples Strategic Issue Introduction Apple Inc. is an American multinational company headquartered in Cupertino in California, USA. The organization was founded by Steve Jobs, Steve Wozniak and Ronald Wayne in 1976 and the current CEO of the company is Tim Cook. It has faced many challenges in their business history (Linzmayer 5). In 2007, Steve Jobs renamed the Apple Computer Inc. to Apple Inc. when the company diversified and entered into the consumer electronics industry introducing iPhone, iPod, iTunes and other innovative products. Apple Inc. holds the top position in the list of Fortune Magazine’s World’s Most Admired Companies in 2015 for the eighth time consecutively. In Feb 2015, the company was the first to reach a market value of $700 million. While the launch of the Apple watch is eagerly awaited by the tech devotees, record sale of iPhone was announced in the January, 2015 (“The World’s Most Admired Companies”). Extraordinary leadership skills of Steve Jobs, unique corporate structure filled with enthusiasm and innovation and the high-tech products of the company are the main factors for which it has been identified as the leading producer particularly in the computer sector and in general in the manufacturing sector (“Apple Inc.’s Ethical Success and Challenges”). In the recent times, the environment in which an organization operates keeps on changing very frequently. The procedure for analyzing the implications of the changing environment and accordingly modifying the way in which the organization reacts to those changes is known as business strategy (Dransfield 23). For designing a strategic decision-making process, the enterprise must analyze its external environment, evaluate the internal capabilities, design a business strategy and implement it in the organizational structure. Porter’s Five Forces Analysis is the most widely used tool for understanding the external environment of an organization (Porter, “How competitive forces shape strategy” 25). The Five Forces Analysis is used to study the external environment in which Apple Inc. operates. Porter’s Five Forces Analysis Michael E. Porter of Harvard Business School identified five forces operating in the external environment that affects the business strategy of an organization. The Harvard Business Review published an article “How Competitive Forces Shape Strategy” by economist Michael E. Porter that revolutionized the field of strategy in 1979, (Porter, “How competitive forces shape strategy”). The model helps in analyzing the industry environment and awareness of these five forces assist an enterprise to understand the structure of the industry and move to a position which is less vulnerable to be attacked and more profitable for the company. The five forces that shape the industry competition are threat of new entrants, bargaining power of suppliers, bargaining power of buyers, threat of substitute products or services and rivalry among existing competitors (Porter, “The five competitive forces that shape strategy” 30). Threat of New Entrants New entrants enhances the capacity of an industry and tries to gain market share and in the process influences the price and cost structures and the rate of investment essential to compete in the market. When new entrants diversify and enter a market, it utilizes the excess financial and human resources from its core business and thus intensifies competition in the sector (Hill and Jones 47). For example, Apple Inc. entered the music distribution industry diversifying from the computer manufacturing sector (“Apple Inc.’s Ethical Success and Challenges”). The threat of new entrants depends on the entry barriers to an industry. The supply and demand side economies of scale act as major barriers to entry. The supply side economies of scale are experienced when the enterprises operate in a large scale and thus can spread the fixed cost over a large number of units, employ advanced technology through research and development. The demand side economies of scale occur when customers’ willingness to pay for the product increases as the number of customers of the product increases. These benefits are also called network benefits. Apple Inc. experiences both supply and demand side benefits as it operates internationally and has high brand value (“The World’s Most Admired Companies”). The huge financial resources required to enter the industry of computer hardware and software and also the consumer electronics sector deters new entrants. In order to compete in these sectors, a new entrant needs to invest largely on research and development and in creating brand value. Apple Inc. is known for its implementation of creativity and innovation in the organizational structure and thus it is difficult for any entrant to compete with it on the innovation aspect (OGrady 45). Other barriers to entry are the unequal access to distribution channels and regulations imposed by governments on the production of electronic goods. Apple Inc. expanded its business over five segments: Japan, Europe, America, Asia Pacific and retail. The retail segment of the enterprise operates retail stores over 13 countries (“Global Mobile Phones”). The capital required to establish a distribution channel compared to Apple Inc. is massive and thus weakens the threat of new entrants. Moreover, environment and safety regulations imposed by the government due to the difficulty in recycling of e-wastes and also licensing requirements deter new entrants from entering. Though the presence of incumbents in the consumer electronics sector in which Apple Inc. operates weakens the threat of new entrants, the strong growth prospective of the industry due to an increase in the demand for consumer electronics has attracted new enterprises to explore the opportunities present in the sector. Also, on demand, online services similar to iTunes and invention of eco-friendly and sustainable technologies are entering the market rapidly. Overall, the threat of new entrants is assessed to be moderate (“Global Mobile Phones”). Bargaining Power of Suppliers Supplier can exert pressure on the market players by increasing the price of their products or by reducing the quality that hampers the brand image of the manufacturers. In the electronics sector, the components supplied are specific to products of the company and thus the cost of switching from one supplier to the other is high and involves a great deal of risks. Apple products are manufactured in countries where the labour cost is low. Thus to maintain the quality of its product, the company makes each of its supplier sign the ‘Supplier Code of Conduct’ and perform country audits to ensure its compliance (“Apple Inc.’s Ethical Success and Challenges”). Though software has become an integral part of the smartphone industry, Apple Inc. has developed its own mobile operating system and is not affected by supplier power in this segment. Companies like Motorola, IBM and Intel are some of the suppliers of processors and computer memory. Bargaining Power of Buyers When buyers are sensitive to price, they are successful in playing producer against each other. They can exert pressure either by bargaining down prices or by demanding high quality of the products. Buyers face no cost switching from one product to the other and they possess full information about the market. Buyers are not price sensitive when they buy products which demand a large part of the consumer’s budget. Products similar to those of Apple are available in the market for a lower price but the profit of the company has been rising over the last few years (“Global Mobile Phones”). The company directly interacts with the consumers through its retail segment and caters to the need of the customers. The computer manufacturing sector is facing intense competition and price sensitive consumers who have no switching costs may migrate to low priced products. Threat of Substitutes The products with similar functions limit the prices that firms can charge. The possible substitutes for tablet computers are laptops and desktops which are weak substitutes for the Apple products, various sources of online music are available and thus the threat of this segment is high. The Apple watches, which are launched this year has no close substitutes. Smartphones are more preferable to laptops because of the size and they also allow the user to make calls along with the other facilities available in a laptop. Thus, the overall threat of substitutes is evaluated to be moderate (“Global Mobile Phones”). Rivalry among Existing Competitors When competitors engage in price competition, profitability is eroded as it converts the producer surplus into consumer surplus directly. Rivalry also takes the shape of aggressive advertisement campaigns and introduction of new products in the industry. Low levels of product differentiation, huge fixed costs, high barriers to exit, slow growth of the industry and large number of firms are some of the factors which enhance the intensity of rivalry among competitors. The larger the number of competitors, the more intense is the rivalry as each of them strives to capture the market share of the other. The entry of Apple Inc. in the smartphone industry largely reduced the market share of Nokia (“Global Mobile Phones”). Apple Inc. faces intense competition in almost all the markets in which it operates but the company retains its market share by introducing innovative products and by adopting the diversification strategy (Ireland, Hoskisson and Hitt 70). Conclusion The assessment of the external environment in which a company operates is extremely important for strategic decision-making of the organization. The industry environment of Apple Inc. is analyzed and it has been found that though the threat of substitutes is weak, the company faces moderate threat of new entrants. The enterprise faces intense competition but does not engage in price rivalry. Instead, it tackles competition through introduction of innovative products. The power of buyer and supplier is also assessed to be moderate. The company offers high quality products and thus its customers are not price sensitive and emphasize more on the quality aspect. Works Cited “Apple Inc.’s Ethical Success and Challenges.” University of Mexico.2011. Web. 20 May 2015. Dransfield, Robert. Corporate Strategy. London: Heinemann. 2001. Print. “Global Mobile Phones.” Marketline.2015. Web 20 May 2015. Hill, Charles and Gareth Jones. Strategic Management Theory: An Integrated Approach. Boston: Cengage Learning, 2009. Print. Ireland, Duane R., Robert Hoskisson and Michael Hitt. Understanding Business Strategy: Concepts and Cases. Boston: Cengage Learning, 2008. Print. Linzmayer, Owen W. Apple Confidential 2.0: The Definitive History of the Worlds Most Colorful Company. San Francisco: No Starch Press, 2004. Print. OGrady, Jason D. Apple Inc. Santa Barbara: ABC-CLIO, 2009. Print. Porter, Michael E. “How competitive forces shape strategy.” Harvard Business Review (1979): 21-38. Porter, Michael E. “The five competitive forces that shape strategy.” Harvard Business Review (2008): 25-40. “The World’s Most Admired Companies.” Fortune. Time Inc., 2015. Web. 20 May 2015. Read More