You are on page 1of 19

NANYANG BUSINESS SCHOOL

AB311 STRATEGIC MANAGEMENT GROUP STRATEGIC REPORT ON APPLE INC. SEMINAR GROUP 2 TEAM GENIE Instructor: A/P LAI SI TSUI-AUCH Word Count: 5,999

Done by:
CHAN ZHE YING GOH CHUWEN LEE KOK CHONG TEO KOK MIN JOHN

Table of Contents
I. EXECUTIVE SUMMARY ............................................................................................................... 3 II. MAIN REPORT ............................................................................................................................... 5 1. Introduction of Apple Inc. ........................................................................................................... 5 1.1 History ................................................................................................................................. 5 1.2 Current Business Strategy ................................................................................................... 5 2. SWOT Analysis ........................................................................................................................ 10 2.1 Promising Opportunities ....................................................................................................... 10 2.1.1 The Shift from the PC to Mobile Era ............................................................................ 10 2.1.2 Emerging Markets ......................................................................................................... 11 2.1.3 Consumer Digital Lifestyle ........................................................................................... 12 2.2 Significant Threats ................................................................................................................ 13 2.2.1 Intense Competition ...................................................................................................... 13 2.2.2 Risk of International Operations ................................................................................... 15 2.2.3 Risk of Imitations, Unauthorised Modifications and Piracy ......................................... 15 2.3 Strengths ............................................................................................................................... 17 2.3.1 Strong Marketing Efforts .............................................................................................. 17 2.3.2 Horizontal and Vertical Integration .............................................................................. 19 2.3.3 Research and Development ........................................................................................... 21 2.4 Major Weaknesses ................................................................................................................ 21 2.4.1 Business Strategy .......................................................................................................... 21 2.4.2 Reliance on Steve Jobs .................................................................................................. 22 2.4.3 Apples Product and Expectations ................................................................................ 22 2.4.4 Corporate Social Responsibility .................................................................................... 24 3. Recommendations of Future Strategic Actions for Apple ........................................................ 25 3.1 Leverage on Innovation and Consumer Feedback ............................................................ 25 3.2 Leadership ......................................................................................................................... 26 3.3 Target Emerging Markets ................................................................................................. 27 III. ATTACHMENTS ......................................................................................................................... 29 IV. BIBLIOGRAPHY ......................................................................................................................... 33

$20,893 $22,325 $28,633 $16,598 $20,580

$36,592 $$10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000 2008 2009 2010 International U.S.

I. EXECUTIVE SUMMARY Incorporated by Steve Jobs and Steve Wozniak in 1977, Apple Computer, Inc. was incorporated with a net worth of US$250,000. It has since grown leaps and bounds to the Apple Inc. of today, employing close to 50,000 employees worldwide, with a net worth of US$209,379 million in 2010, placing it 56th among the Fortune 500 companies. From the iPod revolution in 2000, to the iPhone in 2007 and most recently, the iPad in 2010, Apple has introduced, amidst much fanfare, ground-breaking products that revolutionized the markets since the start of the 21st century. This report serves to provide some insight of a firm that has been named Fortune magazines most admired company in the world for three consecutive years from 2008 to 2010. A strategic analysis of the firm will examine the opportunities and threats in the general environment and the firms strengths and weaknesses. Apple operates in many aspects of consumer electronics, such as personal computers (PCs), mobile communication devices, digital music and video devices. The industry presents the firm with ample growth opportunities such as the emerging economies, the shift towards the mobile era and increasing consumer digital lifestyle. However, global markets for consumer electronics are highly competitive as Apples competitors are quick to respond to its major product launches. As Apple operates across many geographical locations, the firm is also exposed to international operation risks and risk of

product imitation. Apples strengths put the firm in a prime position to take advantage of the opportunities and minimize the impact of inherent risks. With its commitment to research and development, Apples Digital Hub strategy, coupled with strong brand marketing and retail efforts, has resulted in the success of many Apple products. An integral ecosystem is also one of Apples competitive advantages. However, many industry observers believe that Apple may be too reliant on Jobs and wonder if the firm is able to continue with its momentum after Jobs eventual departure. The mass appeal of Apples products has created great hype and expectations that are becoming increasingly hard to meet. The firm has also received widespread criticism for its contractors labour and business practices. The report will conclude by providing Apple with three recommendations. Firstly, Apple should strive to improve with each new product launch by continuing to leverage on its strong innovation and being receptive to feedback. Secondly, Apple should have its succeeding leader to front the firm in the way Jobs has. This increased visibility of its leader would increase stakeholders confidence in Apples business continuity without Jobs. Finally, the emerging markets represent a huge opportunity which Apple can tap on by launching a new product line exclusively for these markets to pursue growth and expanding on its Corporate Social Responsibility program to further enhance its image.

II. MAIN REPORT 1. Introduction of Apple Inc. 1.1 History The firm started off as Apple Computer, best known for its Macintosh line of computers in the 1980s and 1990s. Despite a strong brand, rapid growth and high profits in the late 1980s, Apple nearly went bankrupt in 1996. Steve Jobs took over as CEO again in 1997 after being forced out of the firm in 1985. Apple Computer was renamed Apple Inc. to reflect the firms expansion into consumer electronics market with innovative non-PC products starting in the early 2000s.1 Various revolutionary products such as the iPod, iPhone and iPad were introduced into the market, gaining a cult-like following behind the brand, with exponential growth and share price rising more than 15-fold since 2003.2 Today, Apple stands as a global technology powerhouse, surpassing its major competitors, including Microsoft, to become one of the worlds most valuable companies.3
1 Markoff, John, 2007. 2 Refer to Exhibit 1. 3 Helft, Miguel and Vance, Ashlee, 2010. 4 Bloomberg, 2011.

1.2 Current Business Strategy Apple adopts a differentiation strategy with its distinctive marketing campaigns that position itself as a hip alternative to other brands in the industry. Despite being a premium brand that is capable of commanding high price margins, Apple is still able to undercut its competitors pricing with the latest

iPad 2 release by leveraging its balance sheet and its position as one of the largest buyers to secure components at low prices.4 This further gives Apple a competitive advantage. 1.2.1 Broad Target and Uniqueness Apples strategy serves a broad target market by positioning itself as a full-fledged digital convergence firm that seeks to enhance consumers digital life. Apple never fails to build on its uniqueness to stand out from its competitors. Apart from building on its strong brand and culture, it has delivered one innovative product design after another, from the iPod scroll wheel to the multi-touch screen of the iPhone. 1.2.2 Porters Five Forces Using the Porters five forces, this section analyzes how Apple effectively positions itself with its differentiation strategy. Rivalry with Existing Competitors Apple faces strong rivalry from its existing competitors due to the huge number of competitors in the various industries in which it operates. In the Personal Computer (PC) industry, its main competitors include large industry players such as Hewlett-Packard (HP) and Dell, and in the Smartphone industry, Research In Motion (RIM) and Nokia. However, Apples products are highly differentiated in terms of design and functionalities as compared to its competitors products. As a result, Apple is insulated from intense rivalry due to strong brand loyalty arising from its positive reputation for high-quality and unique products. Apple would be able to sustain this competitive advantage as long as it continues to innovate and meet the expectations of its customers. Bargaining Power of Suppliers Hardware Components The bargaining power of suppliers for hardware products is low as the industry is highly saturated, causing suppliers to be competitive in their pricing. Apple adopts a differentiation strategy which requires the firm to ensure that suppliers provide high-quality components, driving up its supplier costs. However, Apple is partially insulated from the impact of higher supplier costs due to the premium that the firm charges for its products. Furthermore, Apple purchases a large amount of raw materials, increasing its bargaining power as a significant customer. Hence, Apple is able to secure components at a lower price. Microprocessors Intel has been dominating the PC Computer Processing Unit market with 80% of the market share.5 To provide higher performance desktops and laptops, the entire Macintosh line is now running on Intel chips, increasing Apples dependence on Intel. Therefore, Intel has a high bargaining power as a supplier for its PCs.6
5 Yoffie, B. David and Kim, Renee, 2010, pp 5. 6 Includes 7

desktops and laptops. Includes iPod, iPhone and iPad.

However, for non-PC devices7 that make up 60% of its revenue, Apple develops its own A4 and A5 chips which mitigates its over-dependence on Intel. Operating Systems (OS) Apple develops its own Mac OS X for its PCs and iOS for its non-PC devices. Due to incompatibility of the Mac OS with many software programs, Mac users may prefer to run the Windows OS. This creates a dependency on Microsoft to provide the Mac-compatible Windows OS. However, since Apple is the third largest PC seller in the U.S. market,8 Microsoft would also be dependent on Apple to make the sales for the Windows OS. Hence, this interdependency would result in a low bargaining power of Microsoft.
8 Ogg, Erica, 2010

Bargaining Power of Buyers Apple operates in markets for PCs, mobile telecommunication devices, consumer electronics and related software which are highly competitively and saturated. With a large number of firms operating in the industry, there are many competitor product substitutes. This increases the bargaining power of consumers. However, the uniqueness of Apples products and a loyal customer base reduce the price sensitivity of customers. A strong research and innovation base allows Apple to produce ground-breaking products such as the iPad. Coupled with strong brand marketing and successful implementation of its pricing strategy throughout its product range, customers are willing to pay for the firms products. As long as Apple continues stay ahead of the curve by introducing innovative products and builds on its brand marketing, it is likely that its customers will continue to be less price-sensitive. Hence, the bargaining power of customers for Apple is medium. Potential Entrants The industry poses substantial barriers to potential entrants with Apples established brand presence in the market, providing it with a strong differentiating factor. Potential entrants will not only find difficulty in winning the market share over, but also require a significant investment of resources to compete with Apples constant innovation of products. Products Substitutes With competitors eager to ride on Apples waves of success, substitutes for its products in the electronics industry are aplenty, posing a potential threat to its business. However, Apple has positioned itself effectively against its competitors substitute products with a strong brand that has gained it a loyal base of Apple Fanatics. Therefore, the threat of product substitute is medium. Based on our analysis of the Porters Five Forces, Apples differentiation strategy has enabled to firm to compete effectively in the competitive landscape while maintaining reasonable bargaining power with its suppliers and buyers.9
9 Refer to Exhibit 2.

2. SWOT Analysis This section of the report will examine the opportunities and threats of the external environment and the firms strengths and weaknesses. 2.1 Promising Opportunities 2.1.1 The Shift from the PC to Mobile Era Since the mid-1990s, demand for phones with increased functionalities and enhanced aesthetics has increased tremendously, with smartphones rising to prominence in the following decade.10 These high-end phones bring multiple functions together, serving as a mobile phone, Internet browser, PDA device and media player.
10 Yoffie, B. David and Kim, Renee, 2010, pp 10. 11 12

Lai, Eric, 2011. Finley, Klint, 2010.

Currently, there are more than 1.3 million mobile applications compared to 50,000-75,000 PC applications in the market. 500 million smartphones and tablets, as compared to 380 million PCs, are expected to be sold in 2011.11 In an IBM survey conducted with 2,000 enterprise IT professionals, majority of the respondents thought that "within the next five years, more developers will be working on mobile applications and cloud-based architecture than traditional computing platforms for enterprise".12 These results further suggest the good future prospects of the mobile industry. With the successful launch of the iPhone and iPad, Apple is set in the right direction to continue to leverage on its existing core competencies to tap on this growing opportunity. 2.1.2 Emerging Markets Despite the shift towards the mobile era, the PC industry is still considerably viable especially in

emerging markets, as it is propelled by growing internet demand.13 As of 2010, more than one billion PCs were used worldwide and it is forecasted that this trend will continue for the next 3 years, with exponential increases in the Asia Pacific and Middle East/Africa regions.14
13 Yoffie, B. David 14 Refer to Exhibit 3. 15 Hartley, Charles, 2010. 16 Refer to Exhibit 4. 17 Appfrica, 2010. 18 Elmer-DeWitt,

and Kim, Renee, 2010, pp 4.

Philip, 2011.

Research has shown that consumers in these emerging countries are buying and using more consumer electronic products. In 2010, these consumers are more than 2.5 times as likely to buy a smartphone in the following year and twice as likely to have bought a computer in the past year as compared to consumers in mature markets.15 This is evident in India where the appetite for consumer technology is one of the strongest in the emerging markets as consumer spending on mobile phones and computers remain especially strong.16 Consumers in Africa are also becoming more connected and eager to consume digital content as the price of bandwidth falls.17 Another study has shown that Chinese consumers are as keen on Apple's sleek gadgets as international consumers and that Apple has a lot to gain from the Chinese market. For instance, Lenovo currently holds approximately 30% of the Chinese market and Lenovo's Chairman has observed that "if Apple were to spend the same effort on the Chinese consumer, we (Lenovo) would be in trouble".18 China has also outperformed mature markets in the netbook and e-book market. A survey of consumers across eight countries ranked Chinese consumers first in the use of leading age consumer technologies. For example, 17% of Chinese respondents own an e-book, ahead of U.S.s 5% and Germanys 2%.19 This presents an opportunity for Apple to build on the worldwide success of the iPad as an e-book reader.
19 Hartley, Charles, 2010. 20 Griffiths, Sarah, 2010. 21 Refer to Exhibit 5. 22 Hogan, Kurt M., 2011.

Apple currently has not spent the same amount of effort in China as compared its competitors such as Lenovo. Despite it being increasingly difficult to obtain any official Apple products within China, the firm's products are in high demand.20 The market potential of emerging economies should not be overlooked as it represents huge opportunities that Apple can tap on. By penetrating and establishing a presence in these markets, Apple would be able to increase its global market share, allowing it to build on its momentum as one of the fastest growth firms in the world. 2.1.3 Consumer Digital Lifestyle Consumers of the 21st century are increasingly more engaged in a wide variety of technology-based activities.21 They are more entrenched in the digital lifestyle with the usage of computing devices such as PCs and smartphones becoming part of their daily lives.22 Such trends in the consumer lifestyle correlate to the growing consumer electronics market demand. Apples Digital Hub strategy to position itself as the center of its consumers digital lifestyle has an advantage to capture this target market segment. Apple focuses on connectivity among its various products that would fit the needs of its tech-savvy consumers. This strategy will enable Apple to continue to pursue the opportunities of the growing consumer electronics market as a means of profitable and sustainable growth. 2.2 Significant Threats 2.2.1 Intense Competition Global markets for consumer electronics are considered fast-cycle markets23 that are highly competitive and subjected to rapid technological changes. Apple huge success in major product lines attracts strong competitive responses, emphasising the need to innovate and differentiate to out

manoeuvre its competitors.


23 Ireland, R. Duane, Hoskisson, Robert E. and Hitt, Michael A., 2011. pp 133. 24 Ausick, Paul, 2011. 25 Hanlon, Mike, n.d. 26 Gikas, Mike, 2008. 27 Kellogg, Don, 2011. 28 CBC News, 2011.

Consolidation in the PC market, such as the possible Lenovo and NEC merger24, has resulted in larger and potentially stronger competitors. Price competition has been particularly intense as competitors, such as Dell,25 which sell Windows-based PCs, are aggressively cutting prices and lowering product margins. If Apple is unable to compete effectively, it faces the risk of losing its PC market share. The success of the iPhone caused the competition in the mobile telecommunications industry to intensify significantly as competitors such as Samsung, LG and Sony Ericsson attempt to imitate some of the iPhones functionality and designs within their own smartphones.26 Companies also collaborate to offer solutions that are more competitive than those they currently offer. For instance, phones that run on Google-backed Android OS have grown in popularity over the last 12 months due to its lower pricing and similarity to the iOS. Android-powered phones currently match Apples strong position in the U.S. with an OS market share of 27%-28%.27 In February 2011, Nokia and Microsoft partnered to take on Apple and Google in the growing smartphone industry.28 Give these circumstances, Apple will risk losing its market share if it does not continue to innovate and develop future iOS releases and iPhones that outperform those by its competitors. The iPhone and iPod Touch allowed Apple to enter the portable gaming devices market. Firms such as Nintendo and Sony that were not thought to be Apples direct competitors are now drawn into the fray with games being a big hit on the mobile devices. This enlarged scope of competitors encompasses firms that have long dominated their markets in which Apple may not have the experience or resources to compete. Furthermore, competitors such as Sony have since added the music player functionality on its PlayStation Portable devices, potentially decreasing the demand of the iPod Touch. The launch of the iPad in April 2010 also produced an immediate competitive response, with at least a dozen companies from Android, Samsung to HP scrambling to announce plans to ship tablets in 2010.29 Though Apple currently commands over 82% of the tablet market share30, the nature of the industry suggests that it is only a matter of time before the competitors narrow Apples lead. Apple needs to be proactive and reactive by continuing to keep itself ahead of the curve, as it has done with the launch of iPad 2 in March 2011.
29 Dybwad, Bard, 2010. 30 Yarow,

Jay, 2011.

The instantaneous success of the App Store has also sent competitors rushing to offer their own application stores. Though there are over 350,000 applications available on the App store, Googles Android Market is fast catching up with 250,000 applications to date, an increase of 150% within the last 6 months. As the success of the App Store is heavily dependent on third-party developers, the availability and quality of applications for Apples devices may suffer if developers focus their efforts in writing applications for competitor platforms. This would ultimately decrease the demand for Apples mobile devices. 2.2.2 Risk of International Operations A large and growing portion of Apples revenue is derived from international operations. Over the last three years, international sales have been increasing and accounted for 56%, 47% and 44% for FYs 2010, 2009 and 2008 respectively.31 Therefore Apple risks violating the complex foreign laws and regulations, including foreign exchange controls, labour laws and anti-competition regulations the latest being that Apple is accused of creating a music-download monopoly.32 Compliance with such regulations increases the costs of doing business in foreign jurisdictions. Significant foreign operations also expose Apple to movements in foreign currency exchange rates against the greenback.

The weakening of U.S. dollar since the recent global financial crisis has led to Apple to raise international pricing to offset the foreign currency exposure, potentially reducing demand for its products.33
31 Refer to Exhibit 6. 32 Thomasch, Paul and Levine, Dan, 2011. 33 Apple Inc. Form 34 Chang, Chris, 2010. 35 Takahashi, D. 2011.

10-K 2010, pp 19.

2.2.3 Risk of Imitations, Unauthorised Modifications and Piracy Given the high success of Apples product launches, Apples products are highly prone and susceptible to imitation. In the past, when Macintosh licensed their ROM and softwares, almost 99% of customers who bought such clones were existing Mac users, cannibalizing Apples profits. Although the Macintosh licensing program has been halted, iPhone imitations in countries such as China have been rampant34 while more established players of the industry also copy the look and ergonomic design of Apples iPhone as discussed in the earlier section about intense competition. With firms like iFixit dismantling Apples products quickly after its releases to study its parts35 and even getting around Apples tamper resistant screws with its liberation kit36, it is likely that clones will continue to exist and possibly take a cut out of Apples market share.
36 iFixit Site News, 2011.

37 W. McIntyre, Garrett and MacDonald, Phil 2010.


38 Keller, Mike, 2009.

Furthermore, studies estimated that Apple has lost around US$450 million due to users running unauthorised applications on its mobile devices.37 The root cause is the emergence of Jail-Breakers users who illegally modify the iOS to install applications not approved by Apple, and this includes pirate software applications.38 This may ultimately lead to decreased sales from the App Store, negatively affecting Apples financial bottom line. 2.3 Strengths 2.3.1 Strong Marketing Efforts One of the greatest strength of Apple is its impactful marketing efforts which produced a potent concoction of a strong global brand and celebrated products. Brand Marketing Apple is one of the most established and reputable IT brands globally. Its popular multi-million dollar marketing campaigns included successful Think Different ads and catchy slogans such as It just works, which positioned the firm as a chic alternative to its competitors .39
39 Yoffie, B. David and Kim, Renee, 2010. pp 4. 40 Apple Environment Website, n.d. 41 Macnn news, 2007. 42 Climate Counts Org, 2011. 43

Yoffie, B. David and Kim, Renee, 2010. pp 8.

Apple also promoted its computers as the worlds greenest lineup of notebooks that are recyclable and energy-efficient.40 In 2007, the U.S. Environmental Protection Agency ranked Apples notebooks as the most environmentally-friendly portable computers.41 In 2011, Climate Counts placed Apple in its top category of corporate climate responsibility.42 As a result of its massive marketing efforts, Apple has built a very loyal customer base that advocates the brand, enabling it to not only recruit customers, but also retain them. This provides a platform for Apple to introduce new products, such as the iPod and iPhone. Besides, Apple branding is so successful that it is able to license its Made for iPod logo, which serves as a form of advertisement and a revenue source as it earns an estimated 5% of the retail price of such products.43 Ecosystem of Products Apple ingeniously created an ecosystem of products contributing to the firms revenue and enhancing

its product marketing. An example would be the iPod accessory market. It was estimated that for every $3 spent on an iPod, consumers spent another $1 on iPod add-on products. These exclusive iPod add-ons of over 2,000 different items signal that Apples player is superior to many other MP3 players, which had fewer accessories.44
44 Darlin, Damon, 2006.

Zook, Chris, 2007. Telegraph, 2011. 47 Apple iOS Development Program Website, n.d.
45 46 The

The emergence of iTunes also revolutionized the sales of iPod. The iTunes desktop software and music store differentiate the iPod from its competitors products and reinforce consumers decision to purchase the iPod. With the launch of the iTunes store in 2003, iPod sales flourished with Apples market share of MP3 players increasing from 12% in 2003 to 70% by 2005.45 The App Store, an extension of the iPhones ecosystem, was introduced as part of iTunes which consumers were already very familiar with. Since its introduction, the App Store has broken the 10 billion download mark in less than 3 years.46 With Apple taking a cut of 30% of the developers App sales, this contributes to its revenue stream.47 Furthermore, the popularity of the Apps also helps to boost sales of the iPhone and other non-PC devices. Retail Strategy Apple launched its retail strategy in 2001 to increase customer exposure to its products. Its stores carry its full range of products exclusively with well-trained sales personnel promoting product advantages to potential buyers alongside in-store presentations. Apple specialists are also present to provide technical support. The enhanced consumer experiences helped to further differentiate Apple from its competitors. With annual sales of about $4,500 per square foot as compared to Tiffany & Cos $2,750 and Best Buys $930 in 2007, Apple retail stores were a tremendous success.48 This retail division, with an average of 288 stores, grew to account for 15% of Apples total net sales in 2010.49
48 Marsal, Katie, 2008. 49 Apple

Inc. Form 10-K 2010, pp 38. Tom, 2008. 51 Krazit, Tom, 2007.
50 Krazit,

Besides, Apple explored other retail revenues such as entering into a partnership with Best Buy, the worlds largest electronics retailer. By having its own retail space within Best Buys stores, Apple was able to expand on its physical presence. 50 This worked well, with Mac shipments increasing 34% during the last quarter of 2007.51 2.3.2 Horizontal and Vertical Integration Another unique strength that Apple has over its competitors is that it is one of the few firms in the PC industry that adopts both horizontal and vertical integration. Horizontal Integration Apple adopted a digital hub strategy, expanding its production line to include non-PC devices such as iPod, iPhone and iPad products that deliver a cutting-edge tightly integrated user experience. This horizontal integration by expanding the product range created synergies as Apple was able to develop various products based on the knowledge of application software and content from its Mac products. It also had the opportunity to launch these new product lines to its existing base of loyal Mac users. Horizontal integration expanded and strengthened Apples business, with the iPhone and the iPod currently representing about 51% of Apples net sales.52
52 Apple Inc. Form 53 Lyons, Daniel, 2010. 54 Martellaro, John, 2008. 55 Flynn,

10-K 2010, pp 34.

David, 2010.

Vertical Integration

Apple demonstrates vertical integration with its PC and music market, where it is able to integrate the content, hardware, software, online service and retail stores under its firm. However, unlike vertical integration of the past, Apple engages in contract manufacturing, where hardware is manufactured by third-parties such as Foxconn and Asus. These companies manufacture Apples products according to its precise design specifications. Hence, Apple still retains full control of the manufacturing process. Besides, Apple has taken a step further by manufacturing its own A4 and A5 processors to power iPhones and iPads, and producing its proprietary iOS for the non-PC devices.53 It also took over P.A. Semi, a chip company.54 With this platform control, Apple is able to optimize the use of different components and create products with a performance advantage over its competitors. Vertical integration allows Apple to have control over design, innovation and production throughout the vertical chain. Hence, it is able to enhance the quality of its customers experiences and possess unparallel pricing strength to outperform its competitors.55 2.3.3 Research and Development Apples R&D encompasses the product development process where it relies on its proprietary designs and keeps key design decisions in-housed. Jobs is also a vital part of this design process with his hands-on involvement.56 As a result, Apple is able to produce best-sellers, from the iPod scroll wheel design to the ultra-thin MacBook Air, which sets Apple apart from its competitors.
56 Burrows, Peter, 2005. 57 Yoffie, B. David and Kim, Renee, 2010, pp 7. 58 Macworld, 2009.

Apple is also recognized for designing products using its unique components. An example would be its own A4 chip, specifically designed for mobile devices that required efficiency and speed. It came up with proprietary developed applications to support its Macintosh line as well.57 This commitment to R&D allows Apple to produce sophisticated but easy-to-use products and deliver well-integrated user experiences. 2.4 Major Weaknesses 2.4.1 Business Strategy Apples premium price differentiation strategy has its pitfalls given the intense rivalry of the industry. Without constant innovation to set itself apart from its competitors, Apples products may appear overpriced in comparison to its rivals. An example was the Mac Mini which failed to outdo the Windows desktop in terms of functionality. Consumers could get a desktop with more functions and faster performance at a lower price,58 resulting in less than ideal sales for the Mac Mini. Given the broad range of products launched from its Digital Hub Strategy, Apple has to divide its organizational resources and capability to manage the various product arms. This has incurred opportunity costs for Apple as it could have focused on the more profitable target segments and utilise its resources more efficiently in generating higher returns. Certain less receptive ventures such as the Mac Mini and Apple TV prove the case in point and could also highlight the weaknesses of over diversifying its business. 2.4.2 Reliance on Steve Jobs The success of Apple, since Jobs return to the firm in 1997, has been immensely attributed to his leadership. Apples fortune has been linked to the iconic CEO and the stock market has been reacting adversely to news of Jobs series of medical leave following treatment for pancreatic cancer in 2004 and a liver transplant in 2009.59 It is without a doubt that many see Jobs as the sole reason for Apples success especially when uncertainty of Jobs health is able to cause a stir among shareholders. The question remains as to whether the management team and new products in Apples pipelines are able to see Apple through continued success in the absence of Jobs.
59 Channel Newsasia Business News, 2011.

2.4.3 Apples Product and Expectations

With the successful mass appeal of Apples products, it has become increasingly difficult to fully incorporate the various desires and expectations of consumers into the various devices. One of such product limitation is the lack of a physical QWERTY keyboard for the iPhone which is especially useful for business consumers to type long emails. It is also useful in regions of colder climates where consumers wearing gloves can choose not to use the touch screen which only detects the naked finger. Other notable limitations pertain to Apples restrictive closed system that prevents certain applications and platforms, such as the popular Adobe Flash, from running on products like the latest iPad which spots the iOS. The criticisms are high with consumers considering open systems, like Android, that position themselves to give users more choices.60 These limitations could lead to performance below expectations and a loss of certain customer segments.
60 Macstories, 2010. 61 V3.co.uk, 2010. 62 Bloomberg, 2010. 63 Osada, J., 2011. 64

AppleInsider, 2009.

With products being increasingly multi-functional, Apple also runs the risk of cannibalising its own products. For example, the Apples iPad have been said to be cannibalising notebook and iPod sales to the extent that the iPod Touch product line was expected to be discontinued.61 This has the implication that Apple may have to maintain higher price margins for the latest releases so that there will still be a net positive business impact even after considering the cannibalisation effect. With short product life cycles of the consumer electronics industry, Apple may find it increasingly difficult to keep up with the overly-hyped expectations with some product launches being merely a rehash of the last. In an interview with an analyst Gene Munster, it was commented that investor reaction prior to the unveiling of the iPad 2 was underwhelming. The iPad 2 was also said to be evolutionary, not revolutionary62 which had hardly any impressive new features with consumers already turning their high hopes to iPad 3.63 The competition may now not be with the real competitors but with the consumer expectation it sets. The difficulties in meeting or exceeding expectations are in addition to the problem of market saturation,64 a problem that any high growth firm will inevitably face. Apple has to constantly come up with new products to attract new customers and ensure its company growth or risk losing its current firm valuation which is again, based on expectations. 2.4.4 Corporate Social Responsibility As a large firm under the media spotlight and public scrutiny, it is imperative that Apple extends its responsibilities to its stakeholders and demonstrates commitment to its triple bottom line: people, planet, profit. However, Apple has been known to receive widespread criticism for its labour and business practices.65 Although Apple has been reactive to such allegations and standards have been said to be raised, the resulting negative perceptions may prove to be difficult to reverse. Furthermore, allegations have continued to surface despite Apples measures.66 Having such negative media reports may adversely impact and tarnish Apples image. The growing negative sentiments of workers in China, an emerging economy where Apples production predominantly takes place, may possibly cause Apple to lose a huge consumer market that could provide future growth opportunities.67
65 The Washington Post, 2006. 66 Wired, 2010. 67

The WSJs Digital Network, 2011.

3. Recommendations of Future Strategic Actions for Apple In light of our SWOT analysis, we have identified a three-pronged approach which Apple may adopt. 3.1 Leverage on Innovation and Consumer Feedback Given the nature of the industry where technological advancement is rapid with high risk of product obsolescence, we recommend that Apple continues to invest in R&D in order to keep up in the fast-paced industry. By constantly innovating and coming up with cutting-edge products, Apple

would be able to maintain its position as one of the industry leaders. As Apple is adopting a differentiation strategy, it is imperative for Apple to leverage on its strength in R&D to generate products that will meet the expectations of its customers. Understanding the tastes and preferences of its consumers is the crux. It is important for Apple to be receptive to both positive and negative feedback from its consumers and to appropriately incorporate them into winning solutions. An example would be recent criticisms on how Apples iPhone and iPad are incompatible with the popular flash technology. Analysts have predicted that Apples decision not to support Flash would have a limiting effect on the iPads sales potential.68 Such product limitations, as identified under our weakness analysis, may lead to a loss of certain customer segments.
68 Maisto,

Michelle, 2010.

Though it is not feasible for Apple to act on every criticism, Apple should strive to improve and re-invent with each new product launch to minimise product limitations without compromising on its core values and product uniqueness. This will help to ensure that Apple is able to remain as one of the leading firms in the industry. 3.2 Leadership Jobs has become an icon that strongly represents the firm and its prospects. He has, after all, played no small role in designing and developing Apples core products and has grown to define Apples renegade culture. His skill at salesmanship has been dubbed the reality distortion field and is evident during his keynote speeches (colloquially known as Stevenotes) which have been known to move the stock price.69
69 AppleInsider, 2007. 70

Ireland, R. Duane, Hoskisson, Robert E. and Hitt, Michael A., 2011, pp 314.

In discussing Apples weaknesses, however, there is a concern of how Jobs health problems and leave of absence would leave investors and shareholders alike unsettled. It has become apparent that Jobs is indeed the soul of the firm and his absence will prove to be an uncertain transition for the firm. Therefore, it is our recommendation for Apple to prepare for eventualities and transition of leadership. Despite Apples efforts of having the next line of management team in the pipelines with plans for future products, it is equally, if not more critical, for Apple to put a new face on the leadership of the firm. The increased visibility of its leader would reassure stakeholders of Apples future prospects. Apple should gear itself for the future and groom its successor to be of Jobs calibre. The internal managerial labour market should be used to select an insider as the new CEO. Due to the internal successors experience and understanding of the firms culture, he/she will be better positioned to carry on Apples culture and differentiating strategy.70 From within the firm, Jobs successor should be able to effect Apples brand differentiation and transcend orthodoxy by adopting a transformational leadership style. This will serve to continue Apples strong ability to innovate and to stay ahead of its competitors. At product launches, Jobs successor should be able to front the firm and its values and connect with the audience by exuding passion, energy and enthusiasm. Fans will be rallied and the hype created will continue to keep consumers excited and looking forward to the next revolutionary Apple product. In essence, Apple will be fronted by a new face representing everything Apple is thus far. With a clear leader to succeed Jobs in taking charge of the firm while connecting with the followers, stakeholders and shareholders can be reassured that the firm is in good hands and will not be losing its vigour in the technology and entertainment industry. 3.3 Target Emerging Markets As discussed in our opportunities analysis, the market potential of emerging economies represents huge opportunities that Apple can tap on. We have two recommendations at which the firm can implement to increase its presence in these markets.

3.3.1 Launching a New Product Line Many emerging economies may not have the infrastructure to support some of Apples products. Mobile and Wi-Fi networks may not be in place. Other issues in such markets include the premium pricing of Apple products which may exceed what consumers and businesses are able to afford. One of the ways Apple can increase market presence is to develop simple but adequate products specifically for these markets. Apple can leverage on its expertise in research and innovation, as well as its strong balance sheet to obtain bulk discounts from suppliers to drive costs down. Given the limitations in certain emerging markets, product features which are not supported by the infrastructure such as the 3G network will be dropped for the new product line. This reduction of features will enable the products to be relatively more affordable to consumers of these countries. Brand dilution can be avoided by keeping the product line separate from the mainstream. The products will not be marketed as a cheaper alternative as product quality standards will still be maintained. The marketing and the launching of these products will also be done exclusively within these targeted markets. 3.3.2 Expand on Its Current CSR Initiatives Throughout its history, Apple has focused on the use of technology in education and has been committed to delivering tools for the education sector. Some of the firms initiatives in the education sector include having an online education store, which allows students and educators to purchase most of its available products at a discount, as well as support mobile learning through the iTunes U (for University) programme where students and teachers can share and distribute educational media through iTunes.71
71 Apple Education Website, 2011. 72 Apple

Inc. Form 10-K 2010, pp 12.

However, such initiatives are not implemented in many education sectors in less developed cities across emerging economies such as Brazil, Russia, India and China. Given the rapid and unpredictable pace of product obsolesces, there is a likelihood that Apple will be faced with excess inventory,72 due either to inaccurate forecasting or the unpredictable consumer behaviour. Apple could donate, or sell at a discount, these excess stocks to schools and aid in upgrading the schools infrastructure, as well as enhancing the learning experience of youths. This initiative can be an expansion of Apples CSR programme and will increase Apples visibility and brand awareness in these emerging economies. In the long run, when these markets mature, Apple will be well poised ahead of its competitors to roll out its full product range. III. ATTACHMENTS Exhibit 1: Apple Inc. Stock Performance Source: Yahoo Finance Exhibit 2: Porters Five Forces Summary
MEDIUM HIGH LOW MEDIUM Hardware: LOW Microprocessors (Intel): MEDIUM OS: LOW

Exhibit 3: Worldwide PCs in use Source: Computer Industry Almanac, Inc. Worldwide PC Market Research Report 2010

Worldwide PC In-use
Exhibit 4: Indias Consumer Electronics Survey Source: Accenture, 2010. India: The 2010 Accenture Consumer Electronics Products and Services Usage Report. Exhibit 5: Consumers Digital Lifestyle Survey Which of the following activities do you do in a typical week? How much time do you spend? Source: Hogan, Kurt M., 2011. From digital lifestyle to digital lifeblood: The increasing value of technology that works. Exhibit 6: Apples Net Sales from 2008-2010
Source: Adapted from Apple Inc. Form 10-K, 25 September 2010. [Filed 27 October 2010]

IV. BIBLIOGRAPHY
Accenture, 2010. India: The 2010 Accenture Consumer Electronics Products and Services Usage Report. [Online] Available at: <http://www.accenture.com/SiteCollectionDocuments/PDF/Accenture_India_Online_PDF_20310_FINAL.pd f> [Accessed 20 March 2011] Appfrica Website, 2010. The Apple Tablets Role In Emerging Markets. [Online] Available at: <http://appfrica.com/2010/01/28/the-apple-tablets-role-in-emerging-markets/> [Accessed 14 March 2011] Apple Education Website, n.d. iTunes U. [Online] Available at: <http://www.apple.com/education/itunes-u/> [Accessed 14 March 2011] Apple Environment Website, n.d. MacBook: The worlds greenest lineup of notebooks. [Online] Available at: <http://www.apple.com/macbook/white/environment.html> [Accessed 14 March 2011] Apple iOS Development Program Website, n.d. iOS Developer Program. [Online] Available at: < http://developer.apple.com/programs/ios/> [Accessed 26 March 2011] Apple Inc. September 25, 2010 Form 10-K (filed October 27, 2010). [Online] Available at: <http://phx.corporate-ir.net/phoenix.zhtml?c=107357&p=IROL-secToc&TOC=aHR0cDovL2lyLmludC53Z XN0bGF3YnVzaW5lc3MuY29tL2RvY3VtZW50L3YxLzAwMDExOTMxMjUtMTAtMjM4MDQ0L3RvYy 9wYWdl&ListAll=1&sXBRL=1> [Accessed 20 February 2011] AppleInsider, 2009. Apple near saturation point for iPod, iTunes use by teens. [Online] Available at: <http://www.appleinsider.com/articles/09/04/08/apple_near_saturation_point_for_ipod_itunes_use_by_teens. html> [Accessed 21 March 2011]. AppleInsider, 2007. Apple seen unloading new MacBook Pros and (possibly) iMacs at WWDC. [Online] Available at: <http://www.appleinsider.com/articles/07/05/23/apple_seen_unloading_new_macbook_pros_and_possibly_i macs_at_wwdc.html> [Accessed 21 March 2011]. Ausick, P., 2011. Lenovo and NEC Talks: More PC Consolidation. [Online] Available at: <http://247wallst.com/2011/01/21/lenovo-and-nec-talks-more-pc-consolidation-dell-hpq-aceif-lnvgy-nipnf-ib m/> [Assessed 14 March 2011] Bloomberg, 2011. Pipers Munster Interview on Apples iPad 2. [Video online] Available at: <http://www.bloomberg.com/video/67277168/> [Accessed 21 March 2011].

Burrows, Peter, 2005. Commentary: Apples Blueprint for Genius. [Online] Available at: <http://www.businessweek.com/magazine/content/05_12/b3925608.htm> [Accessed 30 March 2011] CBC News, 2011. Nokia, Microsoft in pact to rival Apple, Google [Online] Available at: <http://www.cbc.ca/news/technology/story/2011/02/11/nokia-microsoft-smart-phone-apple-google.html> [Accessed 14 March 2011] Chang, C., 2010. Chinese knockoff company sells fake iPhone 4 online. [Online] Available at: <http://micgadget.com/6984/chinese-knockoff-company-sells-the-fake-iphone-4-online/> [Accessed 14 March 2011] ChangeWave, 2009. Apple Leads 2009 Customer Satisfaction Survey. [Online] Available at: <http://www.roughlydrafted.com/2009/02/18/apple-leads-2009-customer-satisfaction-survey/> [Accessed 19 March 2011] Channel Newsasia Business News, 2011. Apple Share Price Drop on Steve Jobs Health Fears. [Online] Available at: <http://www.channelnewsasia.com/stories/afp_world_business/view/1105568/1/.html> [Accessed 21 March 2011]. Climate Counts Org, 2011. Company Scorecard. [Online] Available at: <http://www.climatecounts.org/scorecard_score.php?co=7> [Accessed 15 March 2011] Computer Industry Almanac Inc., 2010. Worldwide PC Market. [online] Available at: <http://www.c-i-a.com/worldwideuseexec.htm#list> [Accessed 24 March 2011] Darlin, Damon, 2006. The iPod Ecosystem. [Online] Available at: <http://www.nytimes.com/2006/02/03/technology/03ipod.html?_r=2 > [Accessed 14 March 2011] David B. Yoffie & Renee Kim, 2010. Harvard Business Review: Apple Inc. in 2010. 9-710-467 Dybwad, B., 2010. 9 Upcoming Tablet Alternatives to the Apple iPad. [Online] Available at: <http://mashable.com/2010/01/27/9-upcoming-tablet-alternatives-to-the-apple-ipad/> [Accessed 14 March 2011] Elmer-DeWitt, Philip, 2011. Survey: Apple poised for gains in China. [Online] Available at: < http://tech.fortune.cnn.com/2011/03/29/survey-apple-poised-for-gains-in-china/> [Accessed 24 March 2011] Finley, Klint , 2010. Accounting in the Post-PC Era: ADP Releases Mobile Payroll App. [Online] Available at: <http://www.readwriteweb.com/enterprise/2010/10/adp-mobile-payroll.php> [Accessed 23 March 2011]. Flynn, David, 2010. Making vertical integration work. [Online] Available at: <http://views.washingtonpost.com/leadership/panelists/2010/01/making-vertical-integration-work.html> [Accessed 18 March 2011] Gikas, M., 2008. Send in the iClones. [Online] Available at: <http://news.consumerreports.org/electronics/2008/04/send-in-the-icl.html> [Accessed 14 March 2011] Griffiths, Sarah, 2010. Android takes fight to Apple in emerging markets. [Online] Available at: < http://channel.hexus.net/content/item.php?item=25363> [Accessed 24 March 2011] Hanlon, M., n.d. Learning from Dell the faithful implementer of Just in Time. [Online] Available at: <http://www.gizmag.com/go/7494/> [Accessed 14 March 2011] Hartley, Charles, 2010. Five Great Growth Opportunities in Consumer Electronics Accenture. [Online] Available at: <http://advice.cio.com/charles_hartley/11826/five_great_growth_opportunities_in_consumer_electronics_acc enture?page=0%2C0> [Accessed 27 March 2011] Helft, Miguel and Vance, Ashlee, 2010. Apple Passes Microsoft as No. 1 in Tech. [Online] Available at: <http://www.nytimes.com/2010/05/27/technology/27apple.html> [Assessed 20 March 2010] Hogan, Kurt M., 2011. From digital lifestyle to digital lifeblood: The increasing value of technology that works. [Online] Available at: <http://www.accenture.com/SiteCollectionDocuments/PDF/Accenture_Communications_Research_PTS_Dig ital_Lifestyle_to_Digital_Lifeblood.pdf> [Accessed 24 March 2011] iFixit Site News, 2011. Apples Diabolical Plan to Screw Your iPhone. [Online] Available at: <http://www.ifixit.com/blog/blog/2011/01/20/apples-diabolical-plan-to-screw-your-iphone/> [Accessed 14 March 2011] Ireland, R. Duane, Hoskisson, Robert E. and Hitt, Michael A., 2011. The Management of Strategy Concepts.

[Book], 2011, 2009 South-Western, Cengage Learning Publications. Keller, M., 2009. Securing Your iPhone Jailbreak. [Online] Available at: <http://www.pcworld.com/article/183649/securing_your_iphone_jailbreak.html> [Accessed 14 March 2011] Kellogg, D., 2011. Among Mobile Phone Users, Hispanics, Asians are most likely Smartphone Owners in the U.S., [Online] Available at: <http://blog.nielsen.com/nielsenwire/?p=25901> [Accessed 14 March 2011] Krazit, Tom, 2008. Best Buy wants Macs in more of its stores. [Online] Available at: <http://news.cnet.com/8301-13579_3-9847140-37.html> [Accessed 19 March 2011] Krazit, Tom, 2007. More to Mac sales than a halo. [Online] Available at: <http://news.cnet.com/8301-13579_3-9802156-37.html> [Accessed 19 March 2011] Lai, Eric, 2011. IDC: 8 Stats why the Post-PC, Mobile Era is upon us. [Online] Available at: <http://www.zdnet.com/blog/sybase/idc-8-stats-why-the-post-pc-mobile-era-is-upon-us/972> [Accessed 23 March 2011]. Lyons, Daniel, 2010. Going Vertical. [Online] Available at: <http://www.newsweek.com/2010/01/29/going-vertical.html > [Accessed 17 March 2011] Macnn News, 2007. EPA: Apple notebooks are most eco-friendly. [Online] Available at: <http://www.macnn.com/articles/07/01/08/epa.ranks.apple.products/> [Accessed 14 March 2011] Macstories, 2010. Eric Schmidt Weighs In On Apples Closed System. [Video online] Available at: <http://www.macstories.net/news/eric-schmidt-weighs-in-on-apples-closed-system/> [Accessed 21 March 2011]. Macworld, 2009. Mac mini (Late 2009). [Online] Available at: <http://www.macworld.com/article/143611/2009/11/macminilate2009.html> [Accessed 21 March 2011]. Maisto, Michelle, 2010. Apple iPad Sales to Soar, Limited by Lack of Flash, Analysts Say. [Online] Available at: <http://www.eweek.com/c/a/Mobile-and-Wireless/Apple-iPad-Sales-to-Soar-Limited-Only-by-Lack-of-Flash -Analysts-134043/ > [Accessed 29 March 2011] Markoff, John, 2007. New Mobile Phone Signals Apples Ambition. [Online] Available at: <http://www.nytimes.com/2007/01/09/technology/09cnd-iphone.html?_r=3> [Accessed 18 March 2011] Marsal, Katie, 2008. Report: Apple stores Mac sales beat PC stores by 10-to-1. [Online] Available at: <http://www.appleinsider.com/articles/08/01/07/report_apple_stores_mac_sales_beat_pc_stores_by_10_to_1. html> [Accessed 19 March 2011] Martellaro, John, 2008. Forbes: Vertical Integration Key to Apple Future. [Online] Available at: <http://www.ipodobserver.com/ipo/article/Forbes_Vertical_Integration_Key_to_Apple_Future/ > [Accessed 18 March 2011] McIntyre, G.W. and MacDonald, P., 2010. Apple App Store Has Lost $450 Million To Piracy. [Online] Available at: <http://247wallst.com/2010/01/13/apple-app-store-has-lost-450-million-to-piracy/> [Accessed 14 March 2011] Ogg, Erica, 2010. Apple now third-largest PC seller in the U.S. [Online] Available at: < http://news.cnet.com/8301-31021_3-20019514-260.html> [Accessed 22 March 2011] Osada, J., 2011. What DL fans say about the iPad2, High Hopes for the iPad 3. The Straits Times, Digital Life, 23 Mar. p16a,b. StatOwl, 2011. Operating System Market Share Analysis. [Online] Available at: <http://www.statowl.com/operating_system_market_share.php> [Accessed 19 March 2011] Takahashi, D. 2011. iPad 2 teardown shows the winners and losers among Apples suppliers. [Online] Available at: <http://venturebeat.com/2011/03/11/248311/> [Accessed 25 March 2010] TechRepublic, 2008. Five reasons why Windows Vista failed. [Online] Available at: < http://masoodmemon.wordpress.com/page/120/?archives-list&archives-type=cats> [Accessed 25 March 2010] The Telegraph, 2011. Apple App Store: Its rapid success. [Online] Available at: <http://www.telegraph.co.uk/technology/apple/8278554/Apple-App-Store-Its-rapid-success.html > [Accessed 30 March 2011] The Washington Post, 2006. Sweatshop Conditions at iPod Factory Reported. [Online] Available at: < http://www.washingtonpost.com/wp-dyn/content/article/2006/06/15/AR2006061501898.html> [Accessed 21 March 2011].

The WSJs Digital Network, 2011. Chinese Fans Twice as Likely to Purchase Future Apple Products. [Online] Available at: < http://digitaldaily.allthingsd.com/20100322/chinese-apple-fans-2x-more-likely-to-purchase-future-apple-prod ucts/> [Accessed 21 March 2011]. Thomasch, P. and Levine, D., 2011. Apples Jobs ordered to answer iTunes questions. [Online] Available at: <http://sg.news.yahoo.com/apples-jobs-ordered-answer-itunes-questions-20110322-172338-421.html> [Accessed 14 March 2011] Thomson ONE Banker, 2006-2010. Apple Inc. Thomson Financial Full Company Info. [Accessed 21 February 2011] V3.co.uk, 2010. iPad cannibalises notebook and iPod Touch sales. [Online] Available at: <http://www.v3.co.uk/v3-uk/news/1979598/ipad-cannibalises-notebook-ipod-touch-sales> [Accessed 21 March 2011]. Whollys, 2009. Gen Ys Top 15 Most Trusted Brands. [Online] Available at: <http://whollysblog.com/wordpress/gen-ys-top-15-most-trusted-brands/> [Accessed 20 March 2011] Wired, 2010. Workers Plan to Sue iPhone Contractor Over Poisoning. [Online] Available at: <http://www.wired.com/gadgetlab/2010/05/wintek-employees-sue/> [Accessed 21 March 2011]. Yarow, J., 2011. All Those iPad Competitors Are Toast. [Online] Avaliable at: <http://www.businessinsider.com/charts-of-the-week-ipad-competition-is-toast-2011-3> [Accessed 14 March 2011] Yoffie, B. David and Kim, Renee, 2010. Apple Inc. in 2010. [Harvard Business Case] Boston: Harvard Business School Publishing Your Android Blog, 2011. Apple Hitting the Panic Button? Rumors of Cheaper, Smaller iPhone to battle [Online] Available at: <http://www.yourandroid.com/android-news/apple-hitting-the-panic-button-rumors-of-cheaper-smaller-iphon e-to-battle/> [Accessed 14 March 2011] Zook, Chris, 2007. Unstoppable: Finding hidden assets to renew the core and fuel profitable growth. [Book] Bain & Company, Inc., United States of America

You might also like