Management strategy of Apple - Case Study Example

Apple Case Study Porter’s five forces analysis is an industry analysis method and strategy development tool introduced by Michael E. Porter in 1979. This methodology is constructed on the industrial organization economics, considering the five forces that speculate the viable strength of the economic market. Among them, three forces are regarding the external competition, while the other two are about the internal threats. They are described as a macro approach which takes into account forces that are closely associated with the profitability of the company within the industry. Five-Forces Analysis on whether personal computer industry is an attractive industry to operate in shows the results as explained below. 1. Threat of New Entrants Even though there are great opportunities for emerging companies to compete in the personal computer industry, it is controlled by the five super powers; Apple, Sony, HP, Dell, and Gateway. Hence, Apple plays in an oligopolistic market environment. Probably, the significant challenge to the industry would be large number of mergers and buyouts prevailing among these industrial movers. They are able to bring together their cost on research and development in order to gain advantage over others. This process leads to greater competition between the smaller organizations which try to create superior products and bigger companies which generally take up the smaller ones to develop their competitive edge. 2. The threat of substitute products and services Implementation of anti-trust agreements within the computer industry does not allow imposters to introduce products of similar types into the market, and so the threat of substitute products and services is not significant within the industry. On the other hand, the issue that creates a greater threat is the global production of computers. Today, the United States of America is the leader in producing computers in the industry with Japan and Europe as the other key players in the industry. 3. The threat of the bargaining power of suppliers Unlike the other industries where suppliers hold a power over the manufacturers, the computer industry allows the manufacturers to hold a significant amount of power over suppliers. Here the suppliers are competitive in order to maintain exclusive association with the manufactures for supplying their products. And so, they are always forced to adjust their prices or associate with larger firms for surviving the competition. 4. The threat of the bargaining power of buyers The bargaining power of buyers determines the effect that a company’s customers can have on the profitability of the business. Even though the computer industry is getting harder day by day, customers do not possess a greater bargaining power, and hence that does not drastically impact the industry. 5. Industry Rivalry When observing the computer industry with regard to the industry rivalry, it is found that the above said five leading manufacturers are in competition to bring out the most efficient and least expensive machines. Strategic Group Mapping Firms belonging to same strategic group will be having two or more competitive characteristics in common, like selling in same price/quality range, covering same geographic areas, being vertically integrated to same degree, having comparable product line breadth, etc. Obviously, as Huff, Floyd, Sherman and Terjesen (cited in executivemanagementskills.com) point out, firms operating under the same strategic group may possess some common competitive features such as pricing policies, product diversification, and level of vertical integration. Following is the strategic group map for the computer industry (see figure 1). Strategic Group Map (Figure 1. Source: Bamford and West, 123). 2. Apple’s Strategy Apple uses a corporate-level of strategy of competing on many different levels. As Boddie states, Apple follows a comprehensive corporate level strategy through which it competes on different levels. Apple promotes a moderate to high-level of diversification in regard to constrains with products varying from home computers and personal computers to phones, music devices, software and applications. Use of similar design techniques enables them to use the same application for multiple devices, and they are one among the few computer manufacturers who own retail stores, providing both online and store service. Apple’s business-level strategy can be seen as concentrating on making the best products through innovation. The company adopts a differentiation strategy through which it introduces products that are exclusive and pretty expensive. Unlike many of its competitors, Apple is able to effectively align their business strategy with the marketing strategy and product development. TOWS matrix will give a clear picture of the overall strategies of the Apple and its implications (see table 1). 3. TOWS Matrix for Apple (Table 1) S-O Strategies W-O Strategies Spread the awareness about the immunity of Mac to viruses through the Web. (S5, O1) Publicity must be focused for on things that link Generation X and Y to the products like iTunes. (S1, O2, O4, O5, O6) Give attention to movies and music connected with Gen X and Y in order to promote computes and laps. (S3, S5, O2, O5, O6) Develop more association with Microsoft and Intel and their products. (W1, W2, W4 O2, O3) Enhance business with the safety of having a worm and virus free computer by using Mac. (W2, W4, O1, O5, O6) Promote business safety by developing a virus free computer using Mac. (W2, W4, O1, O5, O6) S-T Strategies W-T Strategies Develop and support the compatibility to Window operating system. (S5,T1) Provide information about the originality of Apple computers describing its different styles, stable systems, stability and speed. (S2, S5) Give information regarding the company’s distinct features such as styles, stability and speed. (S2, S5) Get into association with Microsoft and Intel as a result companies will see them as compatible. (W1, W2 T1) It is better to form business relationships with Microsoft and Intel so that the company can take advantages of various synergies. (W1, W2 T1) Concentrate on the productivity and move on to high demand products to compete with Dell and HP. (W5, T2) Give emphasis on high demand products to vie with its primary competitors like Dell and HP by keeping productivity levels. (W5, T2) (Table 1) Source: Yogesh, Ravi et al. Apple Computer. Scribd. Web 12 Jan 2012. Financial Position of Apple in 2005 The year had been business-friendly to the company and the company witnessed gradual progression in its turnover throughout the years ending in a much greater point than its opening in the beginning of the year. The unit sales of iPods witnessed an all time record of 22.5 million during the year which would amount to 400% increase from its 4.4 million units sold in 2004. The net sales of iPods increased by $3.2 billion during 2005 compared to the previous year. It is clear that net sales of iPods have been increased by $3.2 billion in 2005 than that of the previous year. In the same way, the net sales for other music related products and services were boosted up by $621 million (223%) during the year compared to 2004. As Abdelsamad et al (2006) report, the total Macintosh net sales increased by $1.4 billion, which amounts to 27 percent during 2005, its unit sales being increased by 38% (1.2 million units). As Abdelsamad et al points out, the company’s current assets amounted to $10,300 million and the total assets were $11,551 million; and on the other hand, its total current liabilities were only $3,484 million and the total liabilities amounted to 4,085 million. According to the report, its total shareholder’s equity for the year 2005 amounted to $7,466 compared to $5,076. It is important to compare the firm’s financial position of 2005 with its previous years’ performance. The three years’ comparison shows a steep increase in the market position of the company (see illustration 1). Illustration 1 Source: Apple Inc (AAPL). Yahoo finance. Web 12 Jan 2012. 4. Recommendations The Apple needs to open computer retail stores besides its peripheral and accessories stores, because adding hardware units should generate more awareness and use of the established locations in the United States. It will help to boost up product accessibility and can expect about 2-5% increase in the sales. The company should also concentrate on getting a suitable spokesperson to attract the upcoming generation, influencing the youths at the schools and colleges. Moreover, adding more features to the current products like iTune, windows based computers, and iTune-ready-PCs would enhance the overall demand for the products. This strategy is expected to bring a 25-30% increase in the net sales across the United States during the coming two years. One of the great challenges faced by the firm is in the Research and Development field, and so it should concentrate more on research and development of its modern products and should allocate more funds to research and development. Works Cited Apple Inc (AAPL). Yahoo finance. Web. 12 Jan. 2012. Abdelsamad, Moustafa, Adhia, Hitesh, Croll, David B., Hoffman, Alan N., Michaels, Charles E. & Wheelen, Thomas L. ‘Apple computer and Steve P. Jobs (2006): Pixar animation and Walt Disney company’, General Issues in Strategic Management Industry One- Information Technology, Section D,10:22. Bamford, Charles and West G. Page. Strategic Management. Cengage Learning, 2010. Print. Boddie, John. “Behind Apple's Strategy: Be Second to Market.” Working knowledge, Harvard Business School, (2005). Web. 12 Jan. 2012 Strategic Management: Logic and Action. (Slide Show). Web. 12 Jan. 2012. http://www.executivemanagementskills.com/pdf/session5.pdf Yogesh, Ravi et al. Apple Computer. Scribd. Web. 12 Jan. 2012 Read More