Current Strategy of Apple & its Competitive Advantage - Case Study Example

Case study report on Apple Table of Contents Introduction 2 Current strategy of Apple & its competitive advantage 2 Findings of the research 4 Key strategic issues 4 Options available to Apple 5 Recommendation 7 Reference 9 Appendix 10 1.Research 10 1.1 Research methodology: 10 1.2 External research 10 1.3 Inter analysis of Apple: 14 Introduction The players operating in the information technology sector are engaged in an incessant competition with each other. This requires them to modify and redefine their corporate strategy so as to gain competitive position in the global market. With time, the computer manufacturing companies not only enhanced the product portfolio but also introduced a variety of products and services to cater to the changing needs of the customers. In early 1960s, the computer manufacturing companies were keen on developing collaborations or partnership with each other, so that the software and the hardware are compatible with each other. Later on, from 1980s many of the companies decided to diversify their business so that they both can be provided as a complete package. Among these companies, IBM was the first to emerge as the market leader in manufacturing personal computer, different software and other computer related accessories (Bergin, 2001, p.25). In this report, the prevailing competitive strategy of Apple Plc will be evaluated in the light of internal as well as external strategies and policies followed by the company as well as its competitors. After analyzing the findings of the research, the key strategic issues related to the Apple will be discussed and then a few alternative opinions will be suggested that will assist the company to retain sustainable competitive position in the computer and electronic industry. Current strategy of Apple & its competitive advantage The history of Apple has not been very encouraging. Profitability had eluded the company for long and its market shares were hardly commendable. In mid 90s, the company faced stiff competition from its rival operating in the same industry. The CEO of the company took all possible actions to expand its market share by minimizing the operating cost through outsourcing and other such allied activities. Despite these efforts, Apple was fast losing its appeal among the customers as a product that promises innovation and creativity. As soon as Steve Jobs took up the position of CEO, the market position of Apple saw an immediate reversal of fortunes. The CEO, with its maverick leadership style, made Apple one of the names to be reckoned in the international market. The core strategy of Apple can be summed up as constant innovation leading to the eventual betterment of its product offering. Steve Jobs firmly believes that innovation is not just a science but it is also an art. Such philosophy has lent Apple technological superiority along with aesthetic appeal. The CEO of the company maintains a ‘closed miniature technology-economy’ that assists the company to develop its unique environment. Such environment encourages mechanical engineers, electrical engineers, scientists, designers and other such people to work hand in hand under a single roof and come up with products that are high in the terms of quality. However, increased competition in software and hardware industry has made Apple shift its focus to other allied sectors. In developed nations, the market of PC computers is becoming mature and hence the growth prospect is declining. Apple had anticipated such phenomena and has thereby successfully merged software and electronics together to produce goods that are effective in fulfilling the changing needs of the customers. Therefore, it can be said that the uniquely closed environment and the strong desire for improvement have added to the competitive advantage of Apple. Findings of the research As per the research (Appendix 1), it appears that the external environment in which Apple is operating is dynamic in nature. External factors like technological environment and economic conditions are changing, thereby enhancing the external risk associated with the PC manufacturing industry. Porter’s Five Forces analysis reflects high degree of competition because of the threat associated with new entrants and substitute products. The strong bargaining power of the customers is also high which further increases the risk and uncertainty associated with this industry. The analysis also reflects low customer loyalty. The internal research reflects that Apple endorses closed environment kind of operations where all the activities are done within a single roof under the leadership of Steve Jobs. The innovative and creative nature of the company is indebted to its CEO. He is the one who has influenced organizational culture, work environment, creativeness as well as motivational level of the human resource. The company is very much dependent on the guidance and leadership of its CEO. Therefore Apple is often called as ‘one man army’. Key strategic issues The research analysis indicates that Apple is one of those companies that hardly follow the conventional management practices. Such deviation has its own set of advantages as well as disadvantage. The fact that it is one of the most innovative as well as profit making organization speaks volume about its innovative style. However, excessive dependency of the company on the vision and direction of Steve Jobs is indeed a matter of concern. The question is ‘what if the present CEO of the company has to move out from his post because of poor health and will the new CEO be able to retain the prevailing organizational culture?’ The human resource management in Apple is also a key concern because many employees are not satisfied with the manner in which the CEO of the company treats them. In the past few years, some of the employees have moved away from Apple and have joined the rival companies. Therefore, the turnover rate of the employees is also a key issue that Apple needs to take into account. Apart from the three major key issues mentioned above, the deteriorating competitive nature of its products is also a major threat for the company. The rivals of the company are in the process of launching products and services that can compete with the innovative and unique products of Apple (iphone, ipod, ipad, itune etc). Options available to Apple To retain the innovative and creative tag associated with the company, it has become imperative for the company to execute some major actions. It is a high time for the company to take some action otherwise it may lose out its market share as well as the profitability state. Considering the key issues faced by the company, few alternative solutions have been derived. These are discussed below: 1. The human resource is one of the most valuable resources of Apple. Hence the HR policies should be such that it motivates the employees to put their best effort. This will not only improve the productivity but will also help to retrain the efficient workforce. 2. The company should introduce some amount of transparency in its unique closed environment to do away with its conservative nature. This will reduce the time and cost associated with developing new products. Recommendation After considering the prevailing strategy and competitive position of Apple, its external as well as internal environmental conditions were analyzed. Research revealed that the industry is slowly losing its luster and many firms are undergoing mergers and acquisitions to reduce competition and to gain synergy. The companies are also making collaboration with different firms either to make forward or backward collaboration. Such initiatives not only minimize the risk but also provide an opportunity to introduce innovative and new technology in the production system. Apple should also try and introduce the above prescribed major changes to improve its competitive position in the industry. For a company like Apple that demands innovation in every step of their operations, it is important that it motivates its employees to ‘walk the extra mile’ for developing products that offers unique features to the customers. Employees have often complained of too much pressure without any added remuneration. So, when rival companies offer good packages and other fringe benefits, the employees are easily tempted to move away. Therefore, Apple needs to modify its HR policies to motivate and to retain its high quality human force. Past-product history of Apple reflects that its success is indebted to the innovative and unique product range. Till date, products like iphone, itune, ipad and ipod had contributed a major portion in the total revenue of the company. However, in the last few years, the company has failed to introduce any new unique product; instead it kept on revising the quality of its products to make them more efficient. Such halfhearted effort will hamper the company in the long run. It is high time for Apple to introduce new products that are innovative and unique in nature. For this the company needs to be more time efficient in developing new products. This will only be possible if Apple makes its culture more open. An open environment will assist it to make collaboration with other companies operating in different industries. Sharing of knowledge, idea and technology will help in the development of new and more creative product range which in turn will ensure sustainable competitiveness in the industry. Reference Bergin, T. May 03, 2001. History of Operating Systems. Ayman Moumina. [Pdf]. Available at: http://computinghistorymuseum.american.edu/teaching/papers/research/history_of_operating_system_Moumina.pdf [Accessed on August 30, 2010]. Campbell, D., Stonehouse, G. & Houston, B. 2002. Business strategy: an introduction. Butterworth-Heinemann. CNET NEWS. January 15, 2009. Apple shares slump on Jobs health news. [Online]. Available at: http://news.cnet.com/8301-13579_3-10143342-37.html [Accessed on August 31, 2010]. He, J., Jia, T., Lee, J. Y. & Yen, A. 2009. Apple Case Study. [Pdf]. Available at: http://www.its.caltech.edu/~jia/EME%20103/Apple%20Case.pdf [Accessed on August 30, 2010]. Appendix 1. Research 1.1 Research methodology: To analyze the external as well as internal conditions of Apple Plc, a research was conducted. The entire exploratory research was decided to be conducted in two parts. Study of external environment will include the analysis of market condition as well as its competitive position in the PC market. For conducting the research in a more organized manner, certain strategic management tools will be used. This will assist in the dispersal of information in a more organized manner. While collecting information on the internal condition of Apple; its organizational culture, policy for managing HR issues, the leadership style of the CEO and its strategy for managing customers are certain factors that will be evaluated. 1.2 External research For understanding the external environmental condition in which Apple is operating, at first the market condition is revealed and later on the competitive position of the rival is discussed in details. a. Market condition: With time, one of the oldest players in micro computer manufacturing business, IBM moved out from the business of PC manufacturing by selling this business to a Japanese company, Lenovo. This gave an opportunity to other companies to enhance their market share. Until 2000, this industry was growing at the rate of 15% but at the end of the decade it declined to 3%. This fall in the annual growth rate in PC market drastically affected the profit margin of the companies operating in this sector. At present the major players in international PC market are Dell, Acer, Hewlett-Packard and Lenovo. The buyers in this industry can be segregated into two major sections: the home buyers and the small or medium businesses. The home buyers constitute 42% of the global PC market share whereas the small and medium sized businesses all together covers 32% of the market share. The remaining section of the market share comprises large corporations, governmental and educational institutes (He, et al., 2009, p.2). Different customer base has their unique requirements, as for example, the small or medium business holding customers purchase PC on the basis of ‘service per price’ whereas the home buyers focus on ‘cost effectiveness of the machine’ and ‘mobility’ (wireless capabilities). In the last few years, the companies in PC market are collaborating with each other either by forward or backward integration that add synergy to both the companies. If this continues, then the dynamic condition of the industry will change in future. Although the developed markets have become saturated, the developing nations still offer unexplored potential markets which are highly price sensitive. The players in PC market are diversifying their business to enter different businesses segments like cell phone and music systems. Some of the companies pay more emphasis to services sectors while others have entered the retail business to interact directly with the customers. With the profitability margin decreasing in the traditional PC industry, the companies are looking for ways to cater to the increasing needs of the customers by coming up with innovative and creative products. b. Degree of competition in the market: Undoubtedly, the micro computer industry in one of the most competitive sectors, but this hasn’t discouraged the new entrants from entering it. There are many factors that make PC market attractive for the new entrants. For better understanding of the market dynamics and competitive position of Apple, Porter's 5 forces analysis is conducted. This tool assists in conducting industry analysis in a more comprehensive manner. Figure 1: Porter’s Five Forces Framework (Source: Campbell, et al, 2002, p.134) Bargaining Power of Suppliers: As majority of the companies either takes the responsibility of manufacturing the sub components themselves or they develop collaboration with other manufacturers to minimize the risk. Hence the bargaining power of the suppliers is quite low. Bargaining Power of Buyers: There are several players who offer more or less similar products, so the customers always have the opportunity to shift from one product to another. This reflects higher bargaining power of the buyers. Threats of Substitute Products: Technology is changing at a rapid rate, hence the division between computer technology and other electronic goods is minimizing. For example, the features offered by a PC like internet connectivity is also available in a smart phone and even the PC can be used for telephonic conversation. This enhances the threat from substitute products. Threat from new entrants: Due to low entrance barrier, it is easy for new entrants to enter this industry. Often the new entrants enter the market with new and innovative product which is more efficient in fulfilling the requirements of the target customer base. Thus, the threat of new entrant is much higher in this industry. Intensity of Rivalry in the Industry: The PC market is highly competitive in nature as majority of the market share is shared among the major players. This increases the competition further as everybody wants to become the market leader. The competitors closely monitor the strategy followed by the rivals and modify their strategy accordingly to make the company more competitive. 1.3 Inter analysis of Apple: Organization Culture: Apple has an innovative organizational culture as the employees believe in constant innovation and improvement. Human resource management: The CEO of the company takes special care in the recruitment and selection process so that only the talented employees are selected. However, the employees get no extra benefit. The employees have to slog for long hours and have to take extra stress. Hence many employees get frustrated with the HR management policy of the company. Leader style of the CEO: The CEO of Apple is considered as a maverick leader who often behaves like a tyrant (CNET NEWS, 2010). Yet, he succeeded in transforming Apple to an innovative and profit making organization with his unconventional leadership style and vision. Read More