Strategy of Apple Computer Inc - Essay Example

Apple Strategy (1984-2004) Having started the journey in 1976 the company has seen many milestones. Today it appears that Apple Computer Inc. is the sole successful escapee from the IBM and Microsoft hegemony in the personal computer field. Headquartered in Cupertino, California, Apple Computer designs, manufactures and markets personal computers and related software, services, peripherals, and networking solutions. The company also designs, develops, and markets portable digital music players along with related accessories and services, including the online distribution of third-party music, audio books, music videos, short films, and television shows. The company primarily operates in the Americas, Europe and Japan. It employs about 14,800 people. Apple experienced good success during the late 1980s but testing times during the 90s. John Sculley, previously the CEO joined Apple in 1983. Sculley had the valuable experience of the 'Cola-War' between Coke and Pepsi. He was full of marketing ideas and wanted to implement them in Apple as well. Steven Jobs, more of technology oriented initially found this approach little weird, but later gave Sculley a free hand. Realizing the importance of strategic alliance, Apple had a tie up with IBM in 1991 to target the areas where Apple lacked the developmental skills but owing to cultural and other differences the alliance did not last long. Sculley did an introspection and identified some key areas where more professionalism was required in the approach of Apple. For example discipline, work schedule and cost management were the areas put on notice. As part of marketing strategy, Apple also reduced the prices of existing products. But somehow this resulted in losses for Apple. In the meantime Sculley also propagated the 'Newton' series of notebooks, but somehow this series did not have many takers in the market, which resulted in further financial losses. Sculley was then replace with Michael Spindler in 1993 who lasted only three years making way for Gil Amelio, who came out with the Macintosh product range for designers and artists. From here onward Apple brought out radical changes in the marketing strategies as well. Amelio also realized that the 'free for all' culture where anybody was free to defy anybody in the company, is causing losses to the company. He believed in more conventional strategy where project managers are supposed to sincerely implement the strategies devised by the strategists, whatever the outcome. Apple thrived on its core competency of 'making the technology easy to use'. Amelio decided to make fullest use of this core competency in areas other than the PC segment. Apple started working on 'Copeland' the new operating system. IT experts started predicting that with the Copeland -1996 will prove to be an advance version of Windows-95. But declining sales and falling profits did not allow the launch of Copeland on time. However Apple acquired another software company NeXT with Steven Jobs back in saddle. NeXT too did not find wide acceptability in the market. This resulted in another round of introspection in Apple hierarchy. Executives from NeXT took over majority of the management portfolios. Workforce was drastically reduced, which paved the way for exit of Amelio. This, coupled with declining sales, gave rise to intense speculation in the industry about the future course of action that Apple will be taking. In August 1997 Steve Jobs announced a strategic tie-up with its long time rival Microsoft. Microsoft invested $150 million in Apple and the agreement stated that, 'Microsoft would develop and distribute office applications fro the Apple Macintosh while Apple would bundle Microsoft's Internet Explorer in future Mac products.' This provided a new lease of life for Apple, while for Microsoft it was a strategic move to lower the level of competition in the industry. As a result of this tie up Apple became profitable again in 1998. Now the challenging task for Jobs was to widen the market for Mac, because so far Mac was popular amongst the committed Mac's loyal customers. Even the new G3 version of Mac, which was even faster than the equivalent Windows based PCs did not find many takers. In May 1998 Apple came out with iMac, which proved to be an instant hit, particularly amongst the youth. Similarly in 1999 Apple came out with the successful launch of notebook computers. The 21st century is proving to be particularly success oriented for Apple with its range of iPods and iTunes being very much popular amongst the young music lover fans. By the end of year 2000 Apple was able to sell some 2 million iPods leading to a 30% share of digital music players. Though the profit margin is miniscule as Apple has adopted the penetrative pricing strategy for its iPods, yet Apple is determined not to loose the initiative this time to its competitors like Sony, Phillips, Samsung etc. Year 2004 also saw the launch of a new 20 GB digital walkman from Sony, but so far iPods has been proving to be music to the ears of Apple. Porter's five forces analysis In case of Apple Inc the Five Competitive Forces can be typically described as follows: i. Bargaining Power of Suppliers: 'Suppliers' comprises all sources for inputs that are needed in order to provide goods or services. a. Apple is dependent on IBM for its supply of the PowerPC G5 processor which is used in its current Power Mac, Xserve, and iMac G5 products. The company is therefore susceptible to a supply risk for key components from its supplier who also happens to be a competitor. In the past IBM has experienced manufacturing problems with the PowerPC G5 processor, which resulted in delaying the shipment of various products and constrained certain product shipments during the second half of 2004 and the first quarter of 2005. b. Freescale is the sole supplier of the G4 processor, which is used in the company's eMac, Mac mini, and portable products. In a market where speed to market is extremely vital for beating the competition, Apple's dependency for such key components on its long time rival companies could result in its being at a competitive disadvantage. In fact IBM has made at least two unsuccessful attempts in the past to take over Apple Inc. ii. Bargaining Power of Customers: Customers of course have plenty of options in the market place. And the customer will weigh all his options before going in for the purchase. Therefore Apple needs to be innovative and rely more on product differentiation. Sony, Phillips, and Samsung threaten to take away its monopoly over the iPod with their own version of walkman and minidisks. iii. Threat of New Entrants: Though it is not easy for new entrant to enter the PC and Software industry as it is a capital intensive business as the economies of scale (minimum size requirements for profitable operations) leaves little room for a new start up company challenging the existing market share, yet the threat emanates from the existing competitors. If Microsoft decides to jump into the music store software, then it could be create an uncomfortable position for Apple, as Microsoft is known for aggressive an penetrative marketing. iv. Threat of Substitutes: Threat from substitutes exists if there are alternative products with lower prices and with better performance parameters for the same purpose. Apple faces aggressive competition in all areas of its business. The market design, manufacture, and sale of PCs and related software and peripheral products has become highly competitive. Moreover this market continues to be characterized by rapid technological advances in both hardware and software development, which results increasing the capabilities of existing products and software. This is resulting is the frequent introduction of new products with much reduced prices and better feature, and performance. Apple needs to keep its R&D activities in motion all the time. v. Competitive Rivalry between Existing Players: Though to certain extent Apple has been able to lower the competitive rivalry between itself and Microsoft by way of a strategic tie-up, but growth in business is one of the objectives of both the companies. Therefore Apple has a big task in hand. IBM also happens to be a supplier for Apple, but it must be remembered that IBM is a rival as well. The Cultural Context Since beginning Steven Jobs had developed a work culture which allowed everyone to air his/ her own discontent with any decision. But this type of culture proved to be the unbecoming of Apple as there were differences in perception of the strategists and the production team, resulting in abandoning or delaying of projects and products. Efforts were made by Gil Amelio to bring in more professionalism in the organisation and change this culture. He did succeed to some extent, but it appears lot more needs to be done at Apple. Apple promotes a youthful, hipster image - with dancing silhouettes bopping to U2 on their music players and is still remembered for a 1984 ad depicting IBM as Orwellian. But this image is not reflected in its dealing with the outside world. Ansoff's Matrix Risk Ansoff Matrix a 2 x 2 matrix developed in 1957 proves to be a valuable too in preparing and executing a comprehensive marketing plan for any company. Providing strategic options is the key role for a marketing plan. With growing demand for wireless connectivity and networking products, Apple can focus toward this segment. Apple is ideally positioned to capitalize on this growth, as it already provides a number of offerings in this area. For example, AirPort is the Apple's wireless networking technology that allows users to create a computer network and connect to the internet without cables, additional phone lines, or networking hardware. Based on the IEEE 802.11b wireless standard and Wi-Fi certified, AirPort allows high-speed wireless communications within a radius of approximately 150 feet from an AirPort base station. Increasing adoption of wireless hi-speed internet would boost the company's top line growth. Apple is also focusing on transforming its Mac platform into a digital hub that combines iTunes video content to customers' television screens and portable devices (Datamonitor, 2004). This new platform would enhance Apple's rapidly growing digital content business. In addition, it would also integrate the digital content business with Apple's Mac business. This is expected to provide stability to the company's long-term growth. The growth of Apple's iPod and iTunes products have been a great success story in recent times. In October 2004 iTunes downloads topped 150 million songs. The iTunes Music Store offers Windows and Mac users the industry's largest online music catalog of over 500,000 songs, industry-leading personal use rights and uniform 99 cents-per-song pricing. As the music industry gets tougher on piracy and file sharing users further opportunities will be available to Apple. Apple could look to grow the proportion of sales it generates in international markets. In doing this, Apple would be able to reduce its reliance on the US market for the generation of revenues (which currently accounts for over 50% of total sales), while boosting overall company revenues at the same time. Methods of Strategy Development "Winners don't do different things, They do things differently"1 This in a nutshell could be termed as the essence of being successful. Organizations prepare strategies for long term survival. Strategic management function becomes all the more important in case of large organizations. Other functional management areas like Human Resources, Finance etc. deal with only a part of the organization or its activity. At times two or more such areas may need to take assistance from each other. But strategic management relates to the management of the organization as a whole. Different set of persons may contribute in different proportions towards making strategic moves. Strategic decisions are concerned with the issue of setting a direction for the organization to move or the course the organization will follow Though very crucial, yet preparing 'strategic moves' for future often is not based on hard fact, but on presumptions. It involves past experience, forecasting and 'surround-effect'. Strategic management can be described as what Bernard called 'maintaining the organization in operation'2. For any organization to function effectively; three main aspects are critical; Eliciting the contribution from all concerned Organising the workforce by assigning them the responsibilities, and Developing an information system for monitoring and coordination activities. Contribution from the concerned helps in widening the thoughts, assigning responsibilities helps in implementing and constantly monitoring the results and feedback helps in devising a still better strategy. It is said that organizations are not passive components. They are live, full of activity and environment-responsive like living beings. Organizations do acquire character and develop a typical personality with time and we tend to make an image of the employee depending on the organization he/ she works for. This very personality of the organization considerably influences the functions of the organization in the long run. For example we tend to remember some companies as employee friendly, as well paying, as investor friendly, as market friendly, as customer friendly etc. depending upon their past performances and behavior. To meet and exceed customer satisfaction, the business team needs to follow an overall organizational strategy. Traditionally 'maximizing' profits has been considered to be the objective of any organization. Not any more.This criteria has been discarded. Now organizations are supposed to have multiple objectives, monetary as well as non-monetary. There are short-term objectives as well as long-term ones. Strategists are supposed to prioritize all such objectives, so that there is clarity and ease of decision making in situations where there is an apparent clash of objectives. Situations like these at times present testing times for organization. Failure doesn't come with a one off decision, in fact it is the result of continuous interactions in a system. It has structure and sequence. John Martin, CEO, Taco Bell says, "When you are on the right road and the wind is behind you, you can make all kinds of mistakes."3 And the real test comes in overpowering these mistakes and taking corrective and preventive steps. Strategic intent cannot be planned all in advance. It has to be a continuous evolutionary process depending upon the experiences. Henry Ford say, "Failure is the opportunity to begin again more intelligently"4 Basic Building Blocks of Strategy: 1. Environment Analysis 2. Doing a SWOT Analysis 3. Preparing a Business Policy. Steven jobs is presently busy in transforming the music and movie industries. He has successfully persuaded wary record companies to sell music on his iTunes Music Store, and a great many of the 100 million songs sold so far are playing on iPods. Success Criteria (Suitability, Acceptability and Feasibility) The main success criteria which can be used to evaluate strategies are suitability, acceptability, and feasibility. Suitability: The dual strategy builds on Apple's unique status as a pioneer in iPods and iMacs. At the same time, it strengthens the company's core of PC and software development and addresses the expectations of its key stakeholders. Acceptability: Mac and other products from Apple are being accepted by the market. One thing which does not allow the company to widen its market base is lack of aggressive marketing and problems at home. Apple must come out of the shell and grab on the opportunity to make itself more acceptable the market. Feasibility: The strategic capabilities are favorable as Apple has strategic tie-ups with Microsoft, IBM and of late Intel as well. References: 1. White Paper (May 2006), The New Apple of Malware's Eye: Is Mac OS X the Next Windows Available online at http://i.i.com.com/cnwk.1d/html/itp/mcafee_Appleofmalwareseye.pdf 2. Bernard, C.I. (1962), Functions of Executives, Cambridge, Mass, Harvard University Press 3. Leonard, Devi (Sept 2004), 'Steve Jobs, Fortune, 8/9/2004, Vol. 150, Issue 3 4. Whelan, David, (Feb 2005), 'Think Again', Forbes, 2/28/2005, Vol. 175, Issue 4 5. Company Profile: Apple Inc (Nov 2004), Datamonitor, New York 6. Apple Inc, available online at http://www.apple.com/ 7. Ansoff's Matrix - Planning for Growth, available online at, http://www.marketingteacher.com/Lessons/lesson_ansoff.htm Read More

 

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