Apple Inc - External Environmental Analysis, Sources and Factors of Sustainable Competitive Advantage - Example

Strategic Management Assessment Name: Institution: Strategic Management Assessment Corporation identification Apple Inc is an American based multinational company that deals in the design and sales of personal computers, smartphones, music devices and services, computer software and a range of hand held gadgets (Agrawal, 2016). Apple Inc is popular is popular for its hardware products branded as Macintosh, the iPhone technology. The company was formed in 1976 by Steve Jobs and has developed to become one of the most successful fortune 500 hundred companies that specializes in the design and sales of consumer electronics (Apple, 2016). The company deals in a wide a range of product and service lines but treats each of these lines in a unique way. The company treats each product as a standalone business unit (Agrawal, 2016). The products and services that are best identified with Apple Inc include Hardware Mac computers such as iMac, Mac, MacBook, MacPro, MacBook Pro, MacBook Air iPod portable digital media players such as iPod Nano, iPod Touch and iPod Shuffle iPhone smartphones which have evolved through different generations from the first generation iPhone to iPhone 7. Ipad tablets have also evolved from first generation iPads such as iPad 2, to iPad Pro Other hardware products include Apple Watch Smartwatch, Apple TV and computer accessories Software Operating systems such as iOS and OSX; iTunes ; iCloud; Safari ; iWork and iLife Services App Store; iCloud; Apple SIM iTunes Music Store Figure 1.0 Apple Inc business units Sources of sustainable competitive advantage When a company has the ability of sustaining, profits that are above its average expected income, that a company can be perceived to be gaining a competitive advantage over its competitors. Through competitive advantage encompasses the ability of a firm to identify and develop techniques that differentiates it from its ways of operations. These are differences that competitors may find it relatively difficult to emulate (Agrawal, 2016). Apple’s main source of sustainable competitive advantage emanates from its horizontal and vertical integration strategies. The vertical integration strategy occurs across channels and devices while the company’s vertical integration strategy occurs in the chip design, to creation of software to retailing its products. This is considered a competitive advantage approach that is difficult for the company’s competitors to replicate (Johnston, 2013). Furthermore, the products and services by Apple compete and complement each other. For instance through the iPod, iPad or the iPhone, it is possible for the company’s customers to download content and access these content through iCloud. These services and software can be used in moving content to the hardware devices. This is considered as a form of control over the entire use process and experience from software development to hardware manipulation (Lin et al, 2015). The advantage of this approach is that it helps in strengthening customer loyalty to the brand and providing lock-in. this strategy ensures that the company retains its customers due to high quality and unique devices and products that have the ability of meeting the needs of the customers (Apple, 2016). Factors of sustainable competitive advantage Apple’s competitive advantage is asset driven considering that the success of the company emanates from its foundational assets, which include loyal customers, efficient operation systems, and trusted suppliers. The company’s loyal customers are relatively hard to obstruct and through its supply chain, the company has been able to developed allies. Furthermore, efficient operational systems have enabled Apple Inc to engage in a process of ensuring that their products and services are not only cost effective but also instrumental in the generation of revenue (Anderson & Dekker, 2009). The creativity and uniqueness of the vertical and horizontal product and service integration approaches have made the company’s competitive strategy difficult to emulate. A highly qualified team of employees and the company’s ability to provide advanced equipment and increased investment in promotional ad innovation strategies has facilitated this approach (Lin et al, 2015). The cumulative efforts of brand development through advertising and technological innovation have contributed to a sustainable competitive advantage at Apple Company. This has enabled the creation of a unique brand reputation enhanced by the creation of favorable associations with the brand. The company gets its customer to queue for its innovative smartphone technology and services (Lopez, 2014). Apple has been able to realize the development of an enduring sustainable competitive advantage. This has been through impacting patents and trademarks which is crucial for the development of company reputation ad increases the ability of the company to increase its value in the market place (Apple, 2016). Corporation revenue centers The iPhone, Apple’s operating system (IOS) and the services such as iTunes, and iCloud are the major sources of revenue for Apple Company. Since the introduction of the iPhone in 2007, the company has experienced a rapid increase of the smartphone device with more than 200 million units sold in 2015 and more than 70 million sold in the first quarter of 2016 on the global market (Apple, 2016). The company’s operating system is considered as a major source of revenue because it commands a global markets share of 18.3%, which makes it the second most popular operating system in the global market after Android Operating system. Since its release in 2010, the iPad has been a major source of revenue for Apple considering that in the first quarter of 2015 there are forecast to be 80 million iPad users, which is an increase from 72 million in 2013. The iPad commands a global market share of 58%, which makes it a dominant force in the market. This product remains a major or product for the company considering that in the first quarter of 2015 the unit sales were 13 million which generated revenue of approximately $5.5 billion (Apple, 2016). According to the 2015 annual financial report of the company, Apple services earned the company $5.99 billion in the first quarter of 2015. This constituted approximately 9% of the company’s total revenue. The revenue earned from services was higher than that of the iPod. The services category at Apple has been experiencing an exponential growth since 2015 (Apple, 2016). Apple Product Revenue generated (%) iPhone 66 Mac 11 iPad 10 Services 9 Other products 3 Table 1.0 Apple revenue breakdown by product Diversification The success of Apple Company has been facilitated by its ability to diversify from a computer and software technology company to marketing of digital music, development of smartphone technology and music players. The process of diversifying its products can be associated with the desire of the company to enter and establish a competitive position in new and diverse markets. Despite the defenses and the ability of the company to treat its business units as sole entities, the products and services from these units are related (Rungtusanatham & Forza, 2014). The business units that define operations in Apple are considered as visions on how different technological appliances should be used in the society. Before the introduction of the iPhone, there were already smartphones in the market, however, through the introduction of the iPhone and other related products and services such as iTunes, Apple store, and iCloud, the company has been able to ensure an integration of its hardware and software capacities. This is an indication that through diversification by product differentiation is to ensure it provides customers with substantially better products and services as they seek to not only enhance customer loyalty to the brand but also realize higher profits margins (Apple, 2016). Product diversification and service integration that characterizes operations at Apple ensure the existence of some level of relationship between the hardware and software components of the company. For instance all hardware products by Apple such as the computers, music players and smartphone technology use Apple’s operating system. All these hardware products are designed specifically for media consumption through touch input technology and creative work (Apple, 2016). Through vertical and horizontal integration, the company has ensured success in the development of the Apple Store, which provides all hardware owners with platforms of accessing all the services provided by Apple such as iTunes and iCloud among other services. These services enable customers to access media elements in the form of video, music or through web browsing and use platforms such as iCloud in storing the content and transferring to their devices (Rungtusanatham & Forza, 2014). The company also embraces the constrained diversification approach. This is because traditionally Apple was formed as hardware and software company dealing with the design, productions, and sale of personal computers. The business used its competencies in the development of hardware and software (Apple, 2016). The iPod, iPad, iPhone, Macintosh and Apple TV can be categorized as computers that allow the company to provide businesses with platforms of sharing resources. For instance the hardware devices have been essential in the creation of economies of scope essential in enhancing cost saving initiatives for the company considering its ability to share resources across multiple business units. Instead of having a related business, each business suit in Apple is considered a focused platform that does not have extraneous products or product types (Apple, 2016). The Macintosh is made of two kind of products, desktop and notebook. These are considered as separate product lines whose association is in their ability complement each other by sharing resources. The MacBook Pro and iMac are primarily constructed using glass and aluminum. These products not only share the same material, which is an essential cost reduction initiative, but they also resemble each other through the creation of unity between different product lines (Apple, 2016). External environmental analysis PESTEL analysis In the external environment, there are factors that affect normal business operations of a company such as Apple and which the corporation has limited control over. These include forces such as politics, economics, technology, legal aspects, and the environment. Political factors Political factors affecting business in Apple are inclusive of the political situations existing in a country that affect business operations within that country (Lei and Scloum 2010). Political influence has the ability of resulting in the creation of a conducive or oppressive business environment. These influences are subject to the pre-stated business policies and regulations by national governments. All the business units of Apple Company are operational in different countries that act as suppliers or retail outlets of the company (Sheth & Kellstadt, 2011). An increase in VAT on the products and services translates to an increase in the tax burden of the customers. This discourages customers from spending hence affecting the profitability of Apple. Tax imposition has the ability of slicing a large percentage of an individual’s income hence a reduction in such an individual’s purchasing power (Rungtusanatham & Forza, 2014) Economic factor For Apple Inc, the global financial crisis coupled with the credit crunch that has characterized the European market has provided an unpleasant situation for business in the United States and Europe. This is because of the high reduction of the purchasing power of its customers. All the business units of Apple Inc deal with products and services that are considered non-essential, which in most cases affect company sales (Berglof, 2013). The price of Apple’s products compared to the prices of similar products and services in the market is relatively higher. This means that with a reduction of customer purchasing power, the potential and actual customers will opt for cheaper alternatives. Despite this crisis, an optimist assumption hold that the global economy is recovering from the crisis and this is envisioned towards the normalization of business activities (Heracleous, 2013). Socio-cultural factors These entail social trends and behavior that people who comprise the customer base of an organization engage in (Heracleous, 2013). Businesses such as Apple have the obligation of ensuring that their business units live up to the expectations and standards of their markets. This means that for the company, the process of designing and selling its products and services will depend on the behavioral attributes of the target customers (Ward & Duray, 2010). Apple has been able to realize this goal through customized business services in different markets coupled with a tendency to promote the consumption of high products, which have features of the current state of the art technology. Such an environment is suitable for the prosperity of technologically driven products and services such as those of the business units in Apple (Berglof, 2013). Technology The desire by Apple through its business units to embrace state of the art technology is based on the understanding that majority of its target customers are into the consumption of new technology (Williamson et al, 2010). The internet has become an indispensable part of everyday operations considering that people are living and dependent on technological devices such as the iPhone, iPad, and services such as iTunes and iCloud in their operation (Chandy & Tellis, 2013). This explains why businesses across different platforms are currently engaged in e-oriented business initiatives. The importance of technology explains why the entire value chain of Apple Inc from procuring raw materials, warehousing, design, and distribution of product and services embrace technology (Chandy & Tellis, 2013). Apple Inc is currently engaged in online sales and marketing activities, which have, provide the company with immense financial gains. Social networks provide Apple’s business units with avenues of business-to-business (B2B) and even business to customer (B2C) which are not only meant to inform but also obtain customer feedback (Heracleous, 2013). Legal factors The objective of different governments in Apple markets is to promote and support international investments this explains the existence of relatively friendly legal measures. Laws and politics play crucial roles in the structuring of business practices. This explains why issues such as VAT on technological devices can affect businesses in terms of sales (Heracleous, 2013). Environmental factors On the global platform, there are major concerns on environmental conservation and degradation. Companies such as Apple while responding to these concerns are making efforts to embrace green technology. Apple Inc introduced disposable bags for the disposition of obsolete and used gadgets, which the company proceeds to recycle despite most of it being, disposed (Chandy & Tellis, 2013). SWOT analysis Strengths High advertising capabilities have contributed to improvements in the company’s brand awareness hence ensuring the creation of easterner demand of its products and services. Compared to its competitors, Apple Inc’s advertising budget of $1.8 billion is the largest compared to that of its competitors (Apple, 2016). The company also enjoys an extensive and strong distribution channel in the U.S. market. This is through its ability of establishing numerous and distinct business units that employ multiple channels in the delivery of products to its customers. The use of direct distribution channels such as online stores, direct sales and retail stores provides the company with a vast network. The company also uses indirect distribution network channels such as third part network carriers, value added sellers, retailers and wholesalers (Eisenmann et al, 2016). Vertical and horizontal integration of the company enables the management of its business units as one entity. The company integrates hardware, software, and service business in enhancing its retail objectives. Through this approach Apple, controls its entire supply chain of its business units (Apple, 2016). Apple enjoys an established brand reputation and awareness, which places it as the most valuable brand on the global platform. This position in the smartphone market is attributable to the excellent marketing and advertising capabilities of the company and widespread network of supply (Fama & French, 2014). Weaknesses Apple Inc is over dependent on iPhone sales, which makes the company vulnerable to the dynamics of the smartphone market. IPhones target wealthier consumers and the companies biggest sales come from developed regions with saturated smartphone markets. Overdependence of iPhone sales trends the company due to the dynamics of the smartphone market which are characterized by shifts in technology, design, prices and consumer preferences (Eisenmann et al, 2016) Apply is recognized as the most innovative company in the world because of its ability to introduce new products in the market that are defined by breakthrough technology (Valentin, 2011). However, in recent years the company has not introduced anything new that could disrupt the technological market. This can be attributed to low expenditure in research and development initiatives compared to its competitors (Bernroider, 2016). Apple’s Operating systems, iOS, and OS X are incompatible with Android and windows. This affects the company’s ability to attract users accustomed to Android or Windows OS (Apple, 2016). Opportunities Technologies such as the Internet of Things (IoT) are expected to experience an exponential growth. The company through its own software platform can embrace IoT in managing information from connected devices. Apple can also use IoT in integrating its hardware products into one ecosystem controlled through an internet connection (Eisenmann et al, 2016). The company has an opportunity of investing in health related wearable gadgets through an introduction of its worn wearable health gadgets that could help in monitoring calorie intake, hydration and sugar levels and potentially diagnose illnesses (Apple, 2016). Threats Intense competition puts pressure on Apple Inc.’s market share, revenue and profits because its highly priced devise are likely to lose in emerging markets to cheaper android devices. The rapidly growing Android OS threats Apple’s operating system considering growth in its usage with the help of the company’s competitors such as Samsung, Huawei, and Lenovo (Bernroider, 2016) Importance of Mergers for Apple Inc For Apple Company to continue experience growth in its profits and increase in market share, it would be important to engage in strategic alliances such as merger with another organization. A merger has the ability of improving the business process and in achieving the business needs of an organization (Jensen, 1988). This is because through a merger, Apple Inc will combine its business activities with another organization to achieve common goals. Furthermore, the decision by Apple to be involved in merger will help the company in gaining capabilities. This is because Apple will use the merger as a platform of sharing its technology, knowledge, and expertise with an allied organization with the objective of marketing its products an expanded market. This will ensure the creation of an opportunity of attaining its targets and maximizing on its shareholder value (Fama & French, 2014). The technological market is characterized by intense competition, which makes its relatively difficult and costly to attract anew market. Through a strategic alliance such as merger, Apple can streamline the channels of distribution, which will result in benefits from the regional, legal, and operational factors affecting the market. Through mergers, the company will establish a competitive edge considering that merger not only increases its competitive power but also enables reduction of risks associated with the business (Apple, 2016). References Agrawal, N. (2016), Apple Inc, University of Oregon Investment Group Anderson, S & Dekker, H. C (2009), Strategic Cost management in Supply Chains: Executive Cost Management, Accounting Horizons, 23 (3), pp. 289-306 Apple, Inc. (2016). Form 10-K for the Fiscal Year Ended September 26, 2015. 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