STRATEGY MANAGEMENT ASSIGNMENT

Advice to Tim Cook

By Jaydeep Sarnaik
Roll No : 14P105

Apple Inc. has been at the forefront of technological innovation ever since the
company was founded by Steve Jobs and Steve Wozniak on April 1, 1976 [1]. Seldom
has any company relied so much on its flamboyant CEO for its success. Apple has
been a brainchild as well as a legacy of Steve Jobs. It has been able to carve a niche
for itself in the minds of Apple fanatics who own Apple products, but also those for
whom owning an Apple product is an aspiration. As the company grows bigger, it
becomes imperative for the current CEO Tim Cook to re analyze and re calibrate the
strategies at the company to come out bigger and better in the coming years. The
void that the maverick co-founder Steve Jobs left is hard to be filled as it was he
who brought Apple from the brink of bankruptcy to become one of the most
profitable technology companies of the 21st century. It seems that Tim Cook has got
his work cut out for him.

Current scenario
As it stands today, Apple is the most valuable company in the world with a market
cap tad under 700 billion USD [2]. It is now tied with Samsung as the largest smart
phone maker company in the world [3]. It has a total cash and cash equivalent
assets of worth 178 billion USD enough to buy IBM [4] . The first quarter figures of
FY15 for Apple took the entire world by surprise. It not only beat analyst estimates
by a wide margin, it also posted what is considered to be the biggest single quarter
profit recorded by a corporation of $ 18 billion [5]. The surge in sales was led by
humongous demand for Iphones all over the world especially in China. Iphone has
turned out to be a highly profitable product for Apple leading the sales figures with
74.5 million units followed by 21.4 million units of iPads and 5.5 million units of
Mac [6]. Seems like everything is going right for the current CEO with a bullish view
on the second quarter of 2015 as well. However, not all good things last forever. The
first quarter figures should not let complacency get the better of the company. It
has to still invest a lot in research and development of cutting edge technology as
the likes of Samsung and Xiaomi are still breathing down its neck.

What lies ahead

Although the current scenario seems to be extremely favorable for Apple, it will do
well to realize that it was the leadership position that Apple finds itself in today is
largely because of the focused and unwavered approach of Steve Jobs. Jobs had an
incredibly creative bent of mind. He could bring out products based on his vision of
what would appeal to the consumers in the future rather than meeting the current
gaps in the consumer demand. It was the fact that Apple always invested in new
product lines which kept it two steps ahead of its rivals all the time. It was the
entrepreneurial approach by Jobs which served the company and its shareholders
well in the cut throat technology market where the Asian giants like Samsung and
American icon like Microsoft are on the lookout of every opportunity to topple Apple
from its leadership position in the market.

Tim Cook is a completely different personality when compared to Steve Jobs. Where
Steve Jobs was known for his mercurial personality, Tim Cook is considered to be an
introvert who is highly secretive. It will be a tough ask for Tim Cook to sustain the
position of Apple in the future. With new smart phone companies coming up in the
fray, Apple has to find a way so that their die hard loyalists or future smart phone
users dont get veered towards buying the ever so cheap smart phones that are
high on specifications, some even matching those offered by the latest Iphone. Cook
has to make sure that the novelty factor that is always associated with the Apple
products does not get eroded with time.

What Cook must do

Arrest decline in Ipad sales : Although the current scenario looks bright for
Apple, it is only because of the brilliant showing of its Iphone category of products
which had a year on year increase of 46 percent at 74.5 million units. If we see the
sales figures of Ipad, their total unit sales have fallen by 14 percent to 22 million
probably because of the cannibalization caused by the large screen phones Iphone
6 and 6 plus [7]. Also many of the competitors are coming up with their version of
tablets, further hampering its growth prospects. The Mac line of products seem to
be doing well, with the number of units increasing by 14 percent in Q1 [7]. One thing
to note here is that the average selling price of Mac has declined because the
company reduced the prices of its entry level products. Thus it can be inferred that
Apple products have highly elastic demand. Hence, with newer features and lower
prices, Apple can regain its losing market share in the tablet segment as people are
ready to buy Apple products at a reasonable price premium compared to its
competitors. Thus Apple can still earn huge profits by increase in sales volumes to
offset the reduction in sales price. This reduction in price strategy can be
implemented in untested geographies and the existing geographies as it will help
the company gain more customers for its line of products.
Using extra cash for share buyback : The extra pile of cash and cash
equivalents that the company is now hoarding can be used to distribute dividends
or carrying out buyback of its shares in the open market [8]. The buyback can lead to
increase in value of its shares and ultimately the wealth maximization of its
shareholders.
iCloud services : As many technology companies are coming up with their cloud
services, Apple has to build on its iCloud services. Cloud service has a huge growth
potential in the future as more and more businesses and startups find it economical
to use cloud services which leads to savings on server hardware spending. It has to
face intense competition from the likes of Amazon, Microsoft and Google which
already have an in house talent pool to scale their services. Apple can do well to
acquire growing cloud service company since cloud is clearly not its core
competency.

Social Media : Social Media is another segment where Apple has been a laggard.
Being a technology company, it cannot afford to lag behind its competitors in
emerging technologies and future business potentials. Facebook, Google and Twitter
clearly dominate the social media business and it is virtually impossible for Apple to
acquire any of these businesses. It can do well to partner with any of these
companies and make available any of its online services like Facetime, iCloud or
iTunes to the users at these social networking sites.
Diversification : Up till now, Apple has been a company sporting a very narrow line
of products. The focused approach of Steve Jobs has paid off massively with the
company churning out top quality products commanding premium prices which has
led to the company making huge amount of revenues. However, the likes of
Samsung, Xiaomi and Microsoft are close on its heels when it comes to gaining
market share in the smart phone market. It must be noted here that 51 percent of
Apples revenue rely on Iphone sales [6]. Also the newer versions of Iphones are not
bringing in vastly new to the table when it comes to the specifications whereas the
rivals are coming up with comparable models at very low rates. It is just a matter of
time before people in developing nations switch over to cheaper and equally good
models of other companies. As happened with the Ipad, whose sales figures are
under stress due to high competition in the table market, the same fate cannot be
ruled out for Iphone unless Apple comes out with certain disruptive innovations
within the Iphone line of products. Hence the need to diversify. The company will be
coming out with Apple watch in April 2015 [9], but it is widely believed that the
product would not appeal to the masses [10]. Apple Pay is gaining traction but
Applications like Apple Healthkit and Homekit would require some additional
marketing effort on part of the company for people to adopt the services.
Threat from Open Source systems : Lastly, there is a rising threat from Open
source developers of Operating systems and applications. Google is going to come
out with its own version of operating system in the future. This poses a serious
threat to Mac OS which is a closed to users for developing. This is why Android is so
popular for it being an open source code. Although it is unlikely that Apple would
share its code, its only chance in maintaining its position in the market is to keep
bringing continuous innovations which dazzle its users.
Above mentioned are some of the key concerns which Tim Cook needs to look into.
Although the future looks promising, it is no time for him to become complacent
riding on the fantastic Q1, 2015 performance and he should waste no time in
preempting the emerging threats for the company.

Total Words : 1570

References :
1. http://www.downloads.reactivemicro.com/Public/Apple%20II
%20Items/Documentation/Apple%20Info/Apple%20PartnerShip
%20Agreement.pdf
2. http://www.bloomberg.com/news/articles/2014-11-25/apple-reaches-700billion-valuation
3. http://www.macrumors.com/2015/01/28/apple-samsung-strategy-analyticsq4-14/
4. http://www.reuters.com/article/2015/01/27/us-apple-resultsidUSKBN0L02QG20150127
5. http://www.apple.com/pr/library/2015/01/27Apple-Reports-Record-FirstQuarter-Results.html
6. http://techcrunch.com/2015/01/27/apple-q1-2015/
7. http://www.businessinsider.in/LIVE-Apple-Earnings/articleshow/46036164.cms
8. http://www.reuters.com/article/2015/01/28/us-apple-results-researchidUSKBN0L11JZ20150128
9. http://www.pcpro.co.uk/wearables/25148/apple-watch-confirmed-releasedate-and-price-plus-pre-order-availability-apps-and
10.http://www.bbc.com/news/business-31012410