Identification of Organizations Strategic Position - Apple - Assignment Example

1. Business Strategy Report - Apple iPhone 6/6+ Case study Table of Contents Introduction 4 Q Identification of Organizations Strategic Position 4 1.1. Porter’s Generic Strategies 5 1.2. Bowman’s Strategic Clock 7 1.3 Strategic Group Mapping 8 Q.2. Identification of External Drivers of Change 10 2.1. PESTLE Framework 10 2.1.1. Political Factors 10 2.1.2. Economic Factors 10 2.1.3. Social Factors 11 2.1.4. Technological Factors 11 2.1.5. Environmental Factors 11 2.1.6. Legal Factors 11 2.2. Key Drivers of Change 12 2.3. Comparison of iPhone 6 With Other Flagship Devices 12 Q.3. Apple’s Value Addition to Its Strategic Position 14 3.1. Porter’s Five Forces Model 14 3.1.1. Threat of New Entrants 14 3.1.2. Degree of Rivalry 14 3.1.3. Threat of Substitutes 15 3.1.4. Bargaining Power of Suppliers 15 3.1.5. Bargaining Power of Buyers 15 4. Sustainability of Apple’s Position (Conclusion) 15 References 17 1. Introduction Apple Inc., commonly known as Apple, is a US based multinational company that has its operations scattered across the globe. Apple is widely recognized for its range of electronic products and services mostly comprising personal computers to smartphones. Apple was established in the year 1977, and since then the company has continuously strived towards achieving higher benchmarks owing to which it has gained the recognitions of being the most admired company around the globe. Moreover, Apple is recognized for its premium quality products that specialize in offering quality and innovation, thereby providing maximum benefits to the customers (Stakh, 2013). Moreover, Apple has been extensively engaged in deliverance of higher number of products and extending its international markets for enhancing its net worth and profitability margins. In terms of market capitalization and providing the highest amount of returns to its shareholders, Apple is recognized as the world’s largest company that has surpassed Microsoft in terms of being the most valuable company (Liu, 2013). In this respect, the study aimed towards gaining a comprehensive understanding of the company’s strategic position with the use of Porter’s Generic Strategy and Bowman’s Strategy Clock. A discussion on the key external drivers of change with the application of PESTLE has been performed to ascertain their effect on the organization. Moreover, the study would focus on providing solutions to the question about the procedure based on which the organization adds value to its strategic position with the use of Porter’s Five Forces model. Q.1. Identification of Organizations Strategic Position The strategic position of Apple can be understood with the help of the strategies that include Porter Generic Strategies and Bowman’s Strategic Clock. 1.1. Porter’s Generic Strategies Michael Porter devised three generic strategies that are used by organizations with the aim of strengthening its strategic position in the market and enhance the overall level of profitability. Moreover, the strengths of an organization depend upon a number of generic strategies that outline the success or failure of an organization in attainment of its core objectives. These generic strategies can be subdivided into three different categories including cost leadership, focus and differentiation strategies. Cost leadership strategy refers to the establishment of competitive edge through reduction of costs associated with the price of the products or services. Several organizations try to attain a strong market position by providing customers with low priced products and services as compared to competitors. Although, a cost leadership strategy leads to decline in profitability levels, it enables an organization to attain success for a longer duration (Mohta, 2010). Differentiation strategy enables an organization to gain successive market share by offering products and services with different attributes and specifications when compared with the products and services offered by competitors. Moreover, differentiation strategy requires a company to deliver value to its customers through deliverance of final products and services, which allows the company to enhance market share and profitability level (Banerjee, 2014). Focus strategy is another important generic strategy that organizations try to achieve by focusing either on attainment of a cost leadership or else provide differentiated products and services to create positive value perception among customers. Focus strategy emphasizes targeting a smaller market portion and provides lower scope of bargaining to organizations. Focus differentiation strategy allows an organization to ensure that it is able to deliver maximized services to its customers and provide them the benefits of low cost and valuable services (Kelly, 2015). In the context of Apple, the company has adopted a differentiation strategy aimed at providing differentiated products and services to its customers in comparison to competitors, which assisted in building a positive value in the minds of the customers. Apple from its very inception has offered a plethora of products and services including iPod, iMac, iPad and iPhone, which have created a revolution in the field of computing and technology. Moreover, Apple has ensured that the company is able to deliver maximum satisfaction and foster value creation among its customers. In addition, Apple has concentrated on innovation as one of the core business objectives, which has further enhanced the ability of the company to launch new products and services ahead of its competitors (Miser, 2014). Apple further focuses on delivering quality products to its customers at a premium price rather than providing with low-cost products. Furthermore, Apple has been able to place itself as a leader in the differentiation strategy owing to its ability to induce and deliver products as well as services based on varied specifications in comparison to major competitors. One such example is iMac, which runs on Mac computing platform, whereas the competitors are utilizing Windows platform to run their computers. Moreover, Apple has been able to gain success and enhance its market identity by way of delivering enhanced services to its customers that consists of most modernized technological features. In terms of hardware specifically, the company has been able to provide customers with highly innovated products and services such as Mac book Air and iPad and the recently launched iPhone 6 & 6Plus (Ferrell & Hartline, 2012). Owing to the differentiated products and services offered by the company through its wide range of products and services, the company has observed an increase in its profitability and market share. Recently in January 2015, the sales figure of iPhone 6/6+ rose sharply, highlighting the ability of Apple to ensure value retention. In terms of designing of products and services, Apple has set a benchmark by focusing chiefly on simplicity and reliability. This has further enabled Apple to distinguish itself from competitors and charge premium prices for its products and services (Hasan, 2013). 1.2. Bowman’s Strategic Clock Bowman’s Strategic Clock It can be interpreted from the above diagram that Apple has been extensively engaged in prioritizing differentiation strategy to ensure its successful market position and attainment of business objectives. Apple has paid due consideration to differentiation strategy to ensure that it creates a positive mindset regarding its products and services among the customers. Some of the products and services offered by Apple are also targeted towards attaining market share through emphasizing focused differentiation strategy. Focused differentiation strategy allows the company to emphasize differentiating its products and services by focusing on a particular market pricing i.e. premium pricing in case of Apple. Apple has differentiated its products and services by charging premium prices for the offered products and services. Hence, it can be interpreted from Bowman’s Strategic Clock that Apple has been able to create a positive perception among the customers by providing differentiated products and services at high prices (Hill & et. al., 2014). 1.3 Strategic Group Mapping Source: (NDTV Convergence Limited, 2015; TECH2.COM, 2015) Source: (Sun, 2015) The above graphical representations have provided adequate understanding about the level of competition among the brands. It has been identified that Apple with the supply of iPhone 6 or 6+ has been able to hold an effective position in the market. In addition, the company is also identified to have a better scope of business growth in terms of profitability and sustainability. The closest competitor of Apple in the smartphone sector is Samsung. Q.2. Identification of External Drivers of Change 2.1. PESTLE Framework The external factors influencing Apple can be ascertained with the help of a PESTLE analysis, outlining the political, economic, social, technological, legal and environmental factors associated with the nations wherein the company operates its business. A PESTLE analysis further helps in gaining a comprehensive understanding of the macro environment surrounding Apple (Faas, 2009). 2.1.1. Political Factors Apple mostly operates in those nations wherein there exists a stable political environment. More than half of Apple’s revenues are generated from nations outside America, which denotes that the company has successfully been able to place itself in the international markets. A majority of the Apple market outside the US is dominated by the UK market, which enjoys a stable political environment and allows in conducting free trade. However, an increase in Value Added Taxes (VAT) has definitely affected income generation of the people, which in turn can have a significant impact on the sales figures (Faas, 2009). 2.1.2. Economic Factors UK is currently facing a recession, which has led to a downfall in the purchasing power of the nation. Furthermore, there has been a steady increase in the number of problems associated with global financial systems. Although UK is presently facing recession, it is one of the prime economic powers with a majority of the people associated with high-income category. This fact reveals that Apple possesses high chances of success through its business operations in the UK. Moreover, the economic factor of the UK is stable in nature, which enables the company to enhance its opportunities of increased market share and positioning. Although the value of pound is facing high level of fluctuations, Apple has been successful in adapting itself to the foreign business environment. Moreover, the UK people make shopping decisions based on their individualistic decision-making criteria. Hence, it is of utmost importance for organizations to prioritize development of personalized services. Additionally in the UK, people tend to make purchases that offer high value and distinguished attributes, which would benefit Apple to enhance growth opportunities (OGrady, 2009). 2.1.3. Social Factors UK has a strong social environment with a majority of the people enjoying high standard of living. The quality of life is fostered by excellent healthcare facilities and education system prevailing in the UK. This allows high scope of development and growth for Apple, which further allows it to distinguish itself from its competitors. However, in terms of demographics, Apple may face threats owing to an increase in UK’s population moving towards high age (Ireland & et. al., 2008). 2.1.4. Technological Factors UK is identified for its increased innovation and use of modern mechanized technology. Furthermore, people in the UK have a strong attraction towards the use of sophisticated tools and techniques and tend to make purchases that are supported by modern technology. Hence, Apple has created a huge space for itself and its products in the UK market by providing innovative and modernized products to the customers. However, since innovations have been a core objective of several other competitors of Apple, the company has been associated with numerous patents, which has indirectly affected its market share (Marcia Amidon Lusted, 2012). 2.1.5. Environmental Factors People in the UK are progressively becoming more environment conscious and tend to associate themselves with eco-friendly products and services. Hence, people in the UK are identified to purchase such products and services that are able to provide enhanced services through value creation, apart from the eco-friendly aspect. With due consideration to the aforementioned factors, Apple has enhanced its market share by way of delivering an increased level of satisfaction to its customers, such as providing disposable bags to the customers with the aim of providing them the ability to disposing their gadgets (Hoyer & MacInnis, 2008). 2.1.6. Legal Factors Legal factors also played a key role in determining market profitability and success of an organization. In the UK, legal factors such as governmental legislative policies and exchange rates have a significant impact on the economy. Moreover, the UK has an efficient and organized legal mechanism that encourages high level of participation by foreign companies such as Apple. Hence, in order to deliver maximized services to customers, Apple has made appropriate utilization of free trade policies to ensure success and competitiveness (Gilman, n.d.). 2.2. Key Drivers of Change For Apple, the key drivers of change can be categorized into three sections as discussed below. 1. Increased Innovation: An increase in innovation, apart from Research and Development (R&D) facilities have played a key role in ensuring success for Apple and can be considered as a key driver of change. Apple has continuously engaged itself in providing new and modernized services to its customers, which has enabled the company to attract customers and gain market popularity (Sadeghi, 2012). 2. Increased Sales: An increase in the number of sales can also be considered another important driver facilitating change for Apple. Owing to its use of innovative and modernized software within the products and services, the company has been able to derive increased sales resulting to higher levels of revenues and profitability. Additionally, the market share has increased owing to an increase in the number of people willing to purchase premium products and services (Wit & Meyer, 2010). 3. Use of Share Buyback Program: Apple based on innovative ideas has developed a mechanism that supports the purchase of shares by shareholders on a repetitive basis. Moreover, shareholders associated with the company are able to engross high returns, which have resulted to an increase in Earnings per Share (EPS) for the company (Schneiders, 2011). 4. Growth in Pricing Power: There have been increasing returns associated with gross profit margins for Apple in its areas of operations, which can be considered as another key driver of change for the company (Wit & Meyer, 2010). 2.3. Comparison of iPhone 6 With Other Flagship Devices Apple iPhone 6 Sony Xperia Z3 Samsung Galaxy Note 4 HTC One M8 Operating System Apple iOS 8 Android 4.4 (Kitkat) Android 4.4(Kitkat) Android 4.4(Kitkat) Display 4.7 inch Retina 5.2 inch IPS 5.7 inch AMOLED 5 inch super LCD RAM 1 GB 3 GB 3 GB 2 GB Storage 16/62/128 GB 16/32GB internal storage, expandable to 128 GB 16/32GB internal storage, expandable to 128 GB 16/32GB internal storage, expandable to 128 GB Camera (Rear) 8 MP 20.7 MP 16 MP 4MP duo Camera Q.3. Apple’s Value Addition to Its Strategic Position Apple’s level of value addition to its strategic position can be analysed with the help of the ‘Five Forces Model’ as suggested by Michael Porter. Porter claimed that the market forces underlying a company depends on a number of variables such as threat of new entrants, bargaining power of suppliers, degree of competitive rivalry, threat of substitutes and bargaining power of buyers (Viardot, 2004). 3.1. Porter’s Five Forces Model 3.1.1. Threat of New Entrants The threat of new entrants in mobile and computing industry is higher in nature. Owing to high level of technological advancement in the field of computer and electronic smartphones, there has been an increased level of market entry by the modern organizations. Furthermore, since the barriers to entry are few in the smartphone market, there has been an increase in the number of players entering the market resulting to challenges for Apple. The threat of new entrants from companies such as Verizon providing live audio and video streaming services to customers has influenced competiveness of Apple to a certain extent. Additionally, on-demand services provided by online websites have created hindrance in the path of ensuring success for Apple (Viardot, 2004). 3.1.2. Degree of Rivalry The degree of rivalry existing in the mobile and computing industry is high in nature. In the smartphone market, Apple faces stiff competition from other smartphone manufacturing companies such as Samsung, Sony and HTC among several others. Moreover, an increased popularity of Android and Windows has led to the creation of high degree of rivalry between Apple and its competitors. Windows further support the presence of high degree of rivalry in computer platform, as similar hardware specifications are provided by competitors such as Dell and HP, apart from online music stores such as Napster competing iTunes service provided by Apple (McDonald & Keegan, 2002). 3.1.3. Threat of Substitutes In the smartphone industry, the threat of substitutes is usually higher, as there are an increased number of smartphone manufacturers entering the market. Moreover, Apple is continuously trying to retain its market share by offering differentiated products and services, which play a key role in ensuring that the company is able to mitigate the risks of substitution. However, since the competitors are offering similar products and services at lower prices, it has resulted to increased challenges for Apple to foster its growth and ensure success in future (Gong, 2013). 3.1.4. Bargaining Power of Suppliers In the mobile and computer electronics segment, the bargaining power of suppliers is relatively high, owing to the presence of intense competition and high level of manufacturers acting as purchasers. Additionally, this has led to the ability of suppliers to ensure that they are able to bargain for products and services, thereby having a control over the prices. Moreover, bargaining power of suppliers is supported by Microsoft, acting as strategic alliance for the company, apart from several music companies that include BMG, Sony and Warner Bros, who have created a huge challenge for Apple and its business operations outside the US (Mohr, 2011). 3.1.5. Bargaining Power of Buyers Similar to the bargaining power of suppliers, the bargaining power of buyers is high in the smartphone and computer electronics segment. There exists high bargaining power of buyers, owing to an increased level of substitutes that buyers can choose prior making a purchase decision. Moreover, existence of intense competition and differences in prices determined by smartphone manufacturers has resulted to an increase in the ability of the buyers to make purchase decision on the basis of products and services required. In such a scenario, Apple needs to focus on its core competency of delivering differentiated products and services, which would enable the company to attract customers and restrict the influence of competitors (Mohr, 2011). 4. Sustainability of Apple’s Position (Conclusion) From the above analysis and interpretation, it can be comprehended that at present, Apple enjoys a strong hold over its customers and has high potential to succeed in future. Moreover, from the analysis of Apple’s external environment and gathering a pertinent knowledge regarding its key drivers of growth, it can be mentioned that Apple’s market position will have increased sustainability in future, owing to its ability to deliver innovative products and services to its customers. In this regard, Apple must make sure that it is able to address the needs and preferences of all its customers rather than just focusing on providing premium products and services to its customers. Moreover, to ensure that the company is able to attract new customers, apart from retaining the existing ones, Apple must be able to introduce itself in the lower segment category and must use focused differentiation strategy to ensure future growth and continuity in business operations. For developing competitiveness and enlarge market opportunities, Apple must ensure that it is able to deliver products and services as per the requirements of its customers. 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