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Apple Computer and Steve P.

Jobs
Problem
The industry analysts were very impressed with Apples recent history, but were concerned about some questions such as: Can Apple be successful without Jobs leadership? Where should Apple go from here? And what does it need to do to keep its competitive advantage in iPods? These questions leads to the core problem which is: How can Apple stay competitive in the future?

Analysis
EXTERNAL ENVIRONMENT SCANNING
a. PEST Analysis

PEST ANALYSIS Political-Legal Apple threatened with delisting from the NASDAQ Exchange
Law in certain region (e.g. Europe) that require Apple to make its products compatible with rival offerings Environmental laws in several countries and jurisdiction which require company provide the consumers with the ability to return product to company at the end of its useful life Investigation related to the iTunes Music Store in the European Union (EU)

Economic Approximately 60 percent of the companys net sales in 2005 came from
sales inside the U.S

Sociocultural Increasing buyer who seek state-of-art technological device


Increasing music buyer High quality buying experience with knowledgeable salesperson attract buyer to Apple retail store Increased net sales in the first and fourth quarters due to seasonal demand related to the holiday season and the beginning of the school year

Technological Integrated media store and device


Short product life cycle

b. Six Forces of Porter

THREAT OF NEW ENTRANCE - Easy entry barrier

STAKEHOLDER

- Possibility of cybercrime - Patent issue


RIVARY OF EXISTING FIRMS - There ishyper competition in the industry - Low price product from competitor

BARGAINING POWER OF SUPPLIERS - Key components currently obtained from limited sources

BARGAINING POWER OF BUYERS - Margin sales affected by exchange rate and international regulations - Consumer were characterized by rapid technological advances

THREAT OF SUBSTITUTE PRODUCT - Relatively no threat from substitute products

External Factor Analysis Summary (EFAS) Apple Computer External Factors Opportunity Approximately 60 percent of the companys net sales in 2005 came from sales inside the U.S Increasing buyer who seek state-of-art technological device (technology driven) Relatively no threat from substitute product Threat Short product life cycle Investigation related to the iTunes Music Store in the European Union (EU) Environmental laws Possibility of cybercrime Hypercompetitive industry Total Scores 0.10 0.05 0.10 0.15 0.20 1 3 3 3 2 1 0.30 0.15 0.30 0.30 0.20 2.95 Rapid technology development Uneven price at some region Weight Rating Weighted Score Comment

0.10 0.25 0.05

3 5 3

0.30 1.25 0.15

Apple main market Strong in technology development Walkman not popular anymore

INTERNAL ENVIRONMENT SCANNING


Resources To evaluate key resources, we use VRIO framework. Value: Does it provide competitive advantage? Apple has competitive advantage on unique ability through design and development. It also has continual investment on R & D. Rareness: Do other competitors possess it? Apple strength is Steve Jobs leadership that other competitors dont possess it. Other than that, in a rapid technological advances market, other competitors may possess the skills, competencies and process. Imitability: Is it costly for others to imitate? Apple has unique ability in design and development. Nevertheless, its easy to imitate by other competitor. Organization: Is the firm organized to exploit the resource?

Its business strategy implemented thorough its business function and companys business strategy leveraged its ability through design and development. Structure Apple has functional organization structure. The company also managed its business primarily on a geographic basis. Each reportable geographic operating segment provided similar hardware and software products and similar services. It makes easier to comprehend and manage products geographically. Culture Steve Jobs leadership has a big impact in company development. He was persuasive and charismatic leader. Jobs entrepreneurship succeed bring Apple through period of new product introduction, rapidly changing technology and intense competition. Jobs had demanding and aggressive personality that can motivate employees to innovate. Internal Factor Analysis Summary (IFAS) Apple Computer Internal Factors Strengths Steve Jobs leadership. R & D. Good quality. Growth in total assets. High quality sales and after-sales support. Good reputational and image. Weaknesses Dependency on Steve Jobs Stock option investigation Uncommon raw materials Total Score 0.20 0.05 0.05 1.00 1 2 2 0.20 0.10 0.10 3.05 May cause instability if Jobs left. May cause reputational damage. Apple used some components that are not commons. 0.20 0.15 0.10 0.05 0.10 0.10 4 4 4 3 3 4 0.80 0.60 0.40 0.15 0.30 0.40 Strong and inspirational leadership. Innovative and improved products. Product awareness. Good for company liquidity. To attract and retain customers. Brand awareness. Weight Rating Weighted Score Comment

FINANCIAL ANALYSIS
Innovation and Job's leadership bring Apple increased its sales 68% from 2004 to 2005. With increasing in sales around 68%, Apple can keep effciency in operating activity especially in R&D with increasing in operating expenses only 24%. As result from we can see in company's income statement, they booked increasing 384% in net income. Apple's total assets also growth 43%. Short-terms investment increased 91%, this was better for company to keep its liquidity. Company also did not forget to invest in fixed assets to expand its business. Fixed Assets' figure increase 16%. Current ratio was more than 1 indicated that company was able to pay its short term liabilities. Company also good in keeping its inventory level. As we know, technological products were change rapidly. Inventory turnover showed stable performance (2005: 44.95; 2004: 44.70) which indicates the probability of inventory obsolescence was quite low. Accounts receivable turnover showed good performance with increasing to 11.67 in 2005 (2004: 8.02). From capital structure, debt to total assets ratio was increased only by 1 % and number of outstanding shared increased 9%. Proportion equity to total assets in 2005 was 65%. This showed that company prefer to use fund raised from equity compare with debt financing. As we know, there are several advantages for company by using debt financing as part of its capital structure. They are debt financing allows company to have control of its own destiny regarding its business, the interest is tax-deductible and company does not need to share company profit to lender. From geographic financial data, we can see that the highest sales was created by America area but, the operating margin in America was lower compare with Europe and Japan (America: 12%; Europe and Japan: 15%). Then, we compared operating income with segment assets. The result showed that Japans ratio was only 70%, and America was 113%. The highest was Europe with ratio 157%. This indicates that Europe segment had capability to create profit with existing assets.

ROOT CAUSE
a. Apples dependency on Jobs leadership In 1985, Jobs resigned from the company he founded. Throughout Jobs exile, Apple had changed its CEO 3 times. In this period Apple lost its competitive edge and suffered fom loss of market share, deteriorating earnings, and stock that had lost half of its value. In 1997, Jobs return to Apple as iCEO.

He strategically manage the company through a period of new product introduction, rapidly changing technology, and intense competition. b. Short Product Life Cycle and Hypercompetitive market Apples products range from personal computers, related software, services, peripherals, networking solutions, portable digital music players along with related accessories and services. These products have short product life cycle, are easy to imitate, and characterized by rapid technological advances, resulted in frequent introduction of new products with competitive price, features, and performance characteristics. The principal competitive factors in the market for PC included price, retail price performance, product quality and reliability, design innovation, availibility of software, product features, marketing and distribution capability, service and support, availability of hardware peripherals, and corporate reputation. PC also faced a competition against increasing number of internet devices that are simpler and less expensive than traditional PC. c. Apple was not aware and responsive enough in the Hypercompetitive market In 1990 Apple had the most market share in the PC market and gained remarkable earnings, but the company failed to notice that the industry was rapidly changing and therefore could not take necessary actions in response of the changing market. Soon after, the competitors were able to take over the PC market as Apple had lost its competitive advantage.

ALTERNATIVE SOLUTIONS
a. Product innovation Apple should keep innovating its products by designing unique products with added value, therefore it needs to invest much in R&D. (+) creating added value and can gain competitive advantage (+) product innovation is necessary to keep up with rapid technological advances (-) high R&D cost (-) product development result may not match the market taste or trend b. Launch low priced products Apple can choose to launch low priced products to compete with other low-priced manufacturers. (+) gain bigger market share (-) could damage Apples brand image as premium brand

(-) may resulting in the lack of quality c. Launch premium product that creates prestige Apple can launch their product that designed with added prestige value to create premium products. An example of this is to launch macbook, ipod, and iphone in gold edition or diamond edition. Apple also can cooperate with famous designer such as Louis Vuitton or Gucci to design their products skin or casing. Obviously this would attract many famous and rich people who want prestige. (+) Apple can charge premium price (+) increasing the prestige and brand image of Apple (+) niche market with no competitor (-) small demand

SOLUTION
We use QSPM in order to see clearer SWOT. Quantitative Strategic Planning Matrix for Apple Computer (QSPM) Alternative 1: Product Innovation Key Factor Strength Unique Product Quality of Product Increasing brand image Weaknesses Lack of quality Brand erosion Opportunities A new emerging and developing market Wider potential market Technology driven customer Threats Poor demands Competition Price war Substitute product Total Weight 0.15 0.14 0.05 0.10 0.05 0.06 0.09 0.10 0.05 0.08 0.09 0.04 1.00 Alternative 1 - Product Innovation Attractiveness Score Total Attractiveness Score 4 4 3 3 3 3 3 4 4 2 3 3 39 0.60 0.56 0.15 0.30 0.15 0.18 0.27 0.40 0.20 0.16 0.27 0.12 3.36

Alternative 2: Low Price Product Key Factor Strength Unique Product Quality of Product Increasing brand image Weaknesses Lack of quality Brand erosion Opportunities A new emerging and developing market Wider potential market Technology driven customer Threats Poor demands Competition Price war Substitute product Total Alternative 3: Launching Premium Product Key Factor Strength Unique Product Quality of Product Increasing brand image Weaknesses Lack of quality Brand erosion Opportunities A new emerging and developing market Wider potential market Technology driven customer Threats Poor demands Competition Price war Substitute product Weight 0.20 0.10 0.10 0.10 0.02 0.10 0.05 0.10 0.05 0.10 0.05 0.03 Alternative 3 - Launching premium product Attractiveness Score Total Attractiveness Score 4 4 4 4 4 3 1 2 2 3 4 3 0.80 0.40 0.40 0.40 0.08 0.30 0.05 0.20 0.10 0.30 0.20 0.09 Weight 0.05 0.05 0.02 0.05 0.08 0.05 0.10 0.05 0.10 0.15 0.20 0.10 1.00 Alternative 2 - Low-price Product Attractiveness Score Total Attractiveness Score 1 2 1 2 1 2 4 2 4 2 1 2 24 0.05 0.10 0.02 0.10 0.08 0.10 0.40 0.10 0.40 0.30 0.20 0.20 2.05

Total

1.00

38

3.32

Based on the QSPM calculation, product innovation strategy scored 3.36, while low priced product strategy had score of 2.05, and launch premium product scored 3.32. Based on the result, the solution is to do the product innovation strategy. And as the score of launch premium product strategy is also good, it is suggested that Apple should consider this strategy in the future. Ansoff Model Apple should keep targetting the existing market with a developed product because in hypercompetitive market it is better to do product differentiation and keep recycling their products, therefore according to the Ansoff model the strategy is to do a product development.

Porters Generic Strategies This strategy targeted on a wide market andcreated its competitive advantages by doing differentiation. By making continuous product innovation and added value, Apple would be able to attract customers in the wide market.

Steve Jobs comeback debut in 1998 had brough new spirit to Apple to revive from the ground. In order to keep the success, Apple needed to stand on its value and culture which Jobs had built.

Apple are famous for its unique and inovative product. To make this lasts, Apple invests much on research and development. The main objective is to keep up with market condition and Apple can keep producing unique product with value added for customers. From our analysis of companys financial performance (see exhibit 1), company must review the operating activity in America because its operating margin was lower than Europe and Japan (12% compared with 15% in Europe and Japan). Company can focus in Europe Segment since its operating profit to segment assets ratio was the highest compare with other segments. Company can use debt financing to leverage its capital structure. As a public company, it would be good for Apple to have internal audit division to ensure company compliance with rules and regulations from government, SEC and from internal company itself.

To answer the industry analysts question about Apples future such as: Can Apple be successful without Jobs leadership? Where should Apple go from here? And what does it need to do to keep its competitive advantage in iPods? Some suggestions were made to answer the questions, while also may elaborate the solution explained above. The suggestions are: Strengthen Jobss value and culture in the company. Keep designing unique product with added value, therefore need to invest more in R&D. Add the storage in iPod and create partnership with more music label. Expand to more countries. Aware of environmental, market, and industry change and be cautious of the competitors. Keep the entrepreneurial spirit and other core value of Apple.

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