A Strategy for Competing against Apple Inc - Case Study Example

Strategic Management Copyright The ongoing global financial recession has forced an era of intense competition on all manufacturers, especially those associated with the manufacturing of computers and electronic gadgetry. For those who must deliver the optimal combination of hardware and software to capture the consumer’s imagination to make them pay out of their disposable income, competing with superior functionality, quality and price has meant that they must have access to superior capabilities in terms of design, including VLSI design. However, it is important to compete to survive and to remain in a position to deliver new products that will rule the market of tomorrow. This essay presents a discussion about a strategy for competing against Apple Inc, a well-established and successful firm with an established brand and a capability for in-house VLSI design. Declaration I certify that, except where cited in the text, this work is the result of research carried out by the author of this study. _____________________________________________ Name and Signature of Author May 2009 This write - up is for a strategic management analysis for competing with Apple Inc. Biographical Sketch Acknowledgments Contents Introduction 1 SWOT Analysis for Apple Inc 2 A Strategy for Competing with Apple Inc 7 Conclusion 9 Bibliography/ References 11 (This page intentionally left blank) Introduction Apple Inc, which first incorporated on January 3, 1997, is a company built on ability in electronic design and a capacity for taking an entrepreneurial risk at a time when the market suggested a future for personal computers and electronic gadgetry (Linzmayer, 2004, Pp. 1 – 10). Its founders Stephen Gary Wozniak and Steven Paul Jobs had an interest in electronic design and they were able to impress Armas Clifford, a retired software designer with connections and capital, who stepped in to help them with US$ 92,000 of his own funds and a secured credit line worth US$ 250,000 from Bank of America. The capital meant a lot to the backyard operation that Jobs and Wozniak had been operating to make electronic gadgets for some time. With continued success, Apple Computers went public in 1980 when Job’s initial 45 % stake translated into 7.5 million shares, worth US$ 82.35 million when Apple Stock was at an all time low in 1982 or US$ 2255.85 million in the year 2000 when the company stock record high. Within the relatively recent past, Apple Inc recorded net sales of US$ 32, 479 million in the year 2008, with a net income of US$ 4, 834 million (Apple Inc, 2009, “Annual Report for 2008”). This result is an improvement on the result for the year 2007, when Apple recorded net sales of US$ 24,006 million and earnings of US$ 3,496 million. However, despite the fact that Apple has enjoyed success, it is important for this computer company to remain vigilant in difficult economic times when competition amongst computer manufacturers is intense and efforts to exploit its weaknesses are possible. Thus, it makes sense to examine the present market environment for Apple and to reflect on a business strategy that is likely to be of the greatest benefit for competing with this company. This brief essay attempts to do the previously mentioned while considering the latest trends and developments. Strength, Weakness, Opportunity and Threat analysis, or SWOT analysis, for a business has long been regarded as being a systematic method for placing a firm within the context of its environment. Thus, it makes sense to perform a SWOT analysis for Apple Inc. This is described in the next section. SWOT Analysis for Apple Inc The strengths, weaknesses, opportunities and threats for Apple Inc, presented below, will assist in determining a future strategy for competing with this firm (Marketing Teacher, 2009, “SWOT Analysis for Apple”), (BusinessWeek, 2009, “Search Results for Apple Inc”) and (BNET, 2009, “Resources for Apple Inc”). Strengths: Apple has a great product that keeps minting money for it in its portfolio and this is the Apple iPod music player. The previously mentioned product is the result of efforts made to bundle electronic hardware with useful software and sales for the iPod have had a significant impact on the financial results for Apple Inc (Hein, 2007, Pp. 8). The iPod gave Apple computer an opportunity to leverage into new segments, as sales of its Macintosh computers remain encouraging due to design ingenuity and user friendliness. Encouraged by its success with the iPod, Apple has proceeded to design its own chip for the product and this should further lower manufacturing costs together with helping to bring certain standardization for these types of devices. Apple’s iPhone is the winner in Power Consumer Satisfaction Survey and Apple Inc is investing more in making the laptop computer the device it wants to be. An in – house design team for VLSI chips has further enhanced Apple’s prospects and capabilities for competing by designing. Despite the recession and competition in the notebook market, Apple Inc reports stronger sales for Macs and notebooks, although a slight fall in the sale of iPods is a worry (BusinessWeek, 2009, “Earning Preview, April 20, 2009”). Thus, Apple can continue to pose a challenge to its competitors despite the ongoing global financial recession. Apple Inc has been able to consolidate its brand with continued efforts and this means that this firm retains customers, together with recruiting new customers. An enhanced design capability at Apple Inc, together with a desire to improve further the products means that Apple has the capacity for offering innovations to the consumers. Weaknesses: Occasional hiccups have marred the design and manufacturing performance of Apple Inc. Examples of problems include, faulty screens that break on impact, faulty batteries shipped with Apple devices and the ‘Baby Shaker’ iPhone game that makes loud noises similar to crying babies offending the sentiments of some customers are examples of things going wrong at a manufacturing giant. However, Apple has made the effort to win by providing for customers. Apple replaced faulty screens together with batteries and Apple did offer extra free battery cases for any inconvenience. Apple has already apologized for the ‘Baby Shaker’ iPhone game and pulled the plug on this type of software development (BusinessWeek, 2009, “Apple Pulls Plug on Baby Shaker iPhone Game”). Amongst the reasons for the popularity of the iPod is the price for downloading music for this gadget. However, the music industry is likely to continue to pressure Apple to increase the download price for iPod files and this may not go well with the public during difficult times. Increasing prices for downloads increases income for the music industry, but the consumers may turn off. Nevertheless, Apple can withstand pressures for higher royalty payments for the iPod music files and it is likely that increasing downloads with an increased number of iPods due to continued sales will satisfy the music industry. Although Apple Inc has now established an in – house VLSI chip design capability, the successes of the in – house team are yet to make themselves felt as Apple Inc discontinues its chip design arrangements with IBM. Thus, a certain risk about the VLSI chip design capability for Apple Inc remains as the in – house design team for VLSI chips proves itself with actual demonstrations of its capabilities. It is important to understand that VLSI chip design is a leading edge innovation game that is now the very foundation for the success of any electronic company in an era of cutthroat price, quality and features competitions. Opportunities: Apple has a great opportunity to exploit further its iPod and iPhone business segments, especially when the industry giant Motorola is reporting less than satisfactory performance for its cell phone products (BNet, 2009, “Motorola Posts Loss, Investors Concerned about Cash”). In addition, if the chips under design by Apple Inc’s in – house design team are innovative enough and packed with features, Apple Inc can win in a big way. Clearly, innovation and the ability to deliver maximum innovation and features to the customers’ at the most reasonable price is the key to success in the market today. It is important to beat the competition and the previously mentioned example of Motorola demonstrates what happens when an electronic device firm cannot. Opportunities for superior innovation in products to make them sell better than comparable products exist for the notebooks, iPhones and iPods under design and improvement at Apple Inc. With the acceptance of the iPods and iPhones by the public, opportunities exist for Apple Inc to generate better profits by creating and delivering interesting podcasts, exciting new and innovative software for the iPhone and for better bundling the hardware and software packages that Apple Inc sells to its customers. By incorporating superior bundling strategies for hardware and software across its entire range of products, Apple Inc can vastly increase the market share for its products and affect its competitors. Thus, design and bundling decisions are critical in a market presenting a global financial recession when competition is intense and uncertainty together with reduced disposable incomes haunt makers of electronic gadgets. Lower prices together with better bundling can make a big difference for Apple in the global markets. A capacity exists for Apple Inc to capitalize further on its brand image and to exploit market differentiation by cooperating with carriers. Threats: Apple Inc and other manufacturers of gadgets and / or computers confront a very high level of competition in the market, which is facing a global financial recession. This is the biggest threat that Apple Inc faces today. Although Apple Inc can continue to benefit from superior levels of innovations in its products, these innovations must remain well protected and secret because competitors have the capacity for rapidly innovating with their own products after the release of Apple Inc products or by getting pre-release information and offering the market a lower price. However, it is very likely that the decision to establish an in – house VLSI chip design team will not only reduce the ability of competitors to easily copy innovations but also enable Apple Inc to release products that have a far superior capacity for continued innovation. A lot depends on the capabilities of the VLSI chip design team. Apple has had to suffer due to product design leaks before and it is important to understand that superior product strategy makes a great difference. Thus, in the past, the CD, DAT and Vinyl were competing on product concept, but tomorrow’s technologies may replace the iPod and the iPhone with radically different concepts that offer vastly superior functionality. However, the in-house VLSI chip design team offers rapid and radical new product design capabilities that offer empowerment for Apple Inc, despite a possibility for such competition from Motorola Inc, which also has this capability. A Strategy for Competing with Apple Inc Flawless quality control, superior innovation, better efforts to develop customer relationships, special arrangements with manufacturers with a capability for designing VLSI chips and better innovation for lower price are important considerations in a workable strategy for competing with Apple Inc. Clearly, if a competitor is able to offer products that have better features at a lower price, the market will favor these offerings. Thus, attempts should be made to firstly dream up those features that are likely to appeal more to the consumers, even radical product ideas and then to find ways for bringing these concepts to reality cheaper to deliver products that are less expensive. The most important ingredient in a competitive strategy is to dream up superior features and innovation in products. Collaborating with another firm that has the VLSI chip design capability, such as Motorola Inc, IBM or a firm with such a capability in the Far East, for implementation of these features into hardware and using manufacturing in locations that offer cheaper unit cost for manufacturing has a capacity for making the difference. Apple Inc products are generally expensive, especially for the less developed countries and these products are difficult for consumers to afford. Thus, cheaper products delivered to global markets with similar or superior functionality will capture these markets. Perhaps, if Apple Inc VLSI chips or those from a competitor purchased for design of products manufactured at locations with lower per unit manufacturing costs and superior bundling of hardware and software becomes reality, a stronger competitive position will be possible. Alliances are likely to work better when risks are higher and the competition is more intense. Conclusion It is clear from the previous discussion that the quest for delivering far more to the consumers at lower prices with greater functionality has meant that electronic designers and manufacturers must now think in terms of incorporating a lot into the VLSI chip. It is not possible for electronic designers to design sophisticated and highly complex electronic products out of discrete components. Leading edge custom VLSI Chips are likely to be superior to what is available off the shelf in the market. Thus, the day belongs to those with a capacity for incorporating highly innovative VLSI chip designs with access to lower cost manufacturing, established brand names and global market access. Alliances are far more likely to work for the better against established brand names like Apple. However, if the risks and the effort associated with designing new products that offer superior performance and functionality is not desirable, then better bundling of software and hardware at competitive prices can possibly still win the day. (This page intentionally blank) Bibliography/ References 1. Apple Inc. (2009). Apple Inc. Annual Reports and Financial history. Apple Inc. Retrieved: May 1, 2009, from: http://phx.corporate-ir.net/phoenix.zhtml?c=107357&p=irol-reports 2. BNet. (2009). Resources for Apple Inc. CBS Interactive Inc. Retrieved: May 1, 2009, from: http://resources.bnet.com/topic/Apple%20Inc..html?tag=rel.com2 3. BusinessWeek. (2009). Search Results for “Apple Computers Inc”. 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