Project 4 Apple Strategic Audit

Apple Computer Inc.
Strategi Audit
c
D03103544
Valentin Iliev
Andreas Lindinger
Guenther Poettler
D03103551
D03103523
Dublin Institute of Technology

FT351, Business & Management, Year 4
Strategic Management and Business Policy
rd
February, 23 2004
Apple Computer Inc.
Table of contents
1
Introduction ......................................................................................................................
62
History...............................................................................................................................
7 2.1
Introduction ...............................................................................................................7 2.2
Period before 1975 ..................................................................................................7
2.2.1
PC
Market .........................................................................................................7 2.2.2

Apple ..................................................................................................................9
2.3
Period 1975
1981 .............................................................................................. 11 2.3.1
PC
Market ...................................................................................................... 11 2.3.2

Apple ............................................................................................................... 12 2.4
Period 1981 1985 .............................................................................................. 14
2.4.1
PC
Market ...................................................................................................... 14 2.4.2

Apple ............................................................................................................... 15 2.5
Period 1986 1992 .............................................................................................. 18
2.5.1
PC
Market ...................................................................................................... 18 2.5.2

Apple ............................................................................................................... 19 2.6
Period 1993 1997 .............................................................................................. 21
2.6.1
PC
Market ...................................................................................................... 21 2.6.2

Apple ............................................................................................................... 21 2.7
Period 1998 2000 .............................................................................................. 22
2.7.1
PC
Market ...................................................................................................... 22 2.7.2

Apple ............................................................................................................... 23 2.8
Period 2001 now ................................................................................................ 23
2.8.1
PC
Market ...................................................................................................... 23 2.8.2

Apple ............................................................................................................... 23
3
Current
situation ........................................................................................................... 25
Current
............................................................................................ 25 3.2
3.1
performance
Mission
and
current strategy............................................................................... 26
4
Internal
environment.................................................................................................... 27 4.1
General information.............................................................................................. 27
4.1.1
General description....................................................................................... 27
4.1.2
Products.......................................................................................................... 27 4.1.3
Competencies................................................................................................ 31
4.2
Corporate governance.......................................................................................... 32
DIT | Strategic Management | Iliev, Lindinger, Poettler
Apple Computer Inc.

4.2.1
Board of Directors ......................................................................................... 32

4.2.2
CEO................................................................................................................. 34 4.2.3
Top Management .......................................................................................... 36 4.2.4
Stockholdings of Board of Directors and Senior executives .................. 39 4.2.5
Governance mechanisms ............................................................................ 40 4.2.6
Business ethics.............................................................................................. 43 4.2.7
Environmental issues ................................................................................... 46 4.3
Corporate structure ............................................................................................... 47
4.3.1
Organisational
structure ............................................................................... 47 4.3.2
Operating
structure ....................................................................................... 47 4.3.3

Performance .................................................................................................. 48 4.3.4
Strategic implications .................................................................................... 49 4.3.5
Integration and control.................................................................................. 50 4.4
Corporate culture .................................................................................................. 51
4.4.1
Culture and
values ........................................................................................ 51 4.4.2
Strategic
implications .................................................................................... 53 4.5

Corporate resources ............................................................................................. 54
4.6
Corporate resources: Marketing
......................................................................... 55 4.6.1
strategy ........................................................................................ 56 4.6.2
Marketing
Brand
positioning .......................................................................................... 57 4.6.3

Marketing mix ................................................................................................ 58 4.6.4
Advertising ...................................................................................................... 60 4.6.5
Product life cycles of Apples core products ............................................. 60 4.6.6
Trends from this analysis ............................................................................. 62 4.6.7
Competitive advantage ................................................................................ 63 4.7
Corporate resources: Finance ............................................................................ 63
4.7.1
Apples financial status
quo ......................................................................... 63 4.7.2

their financial status quo, and the market ............ 73 4.7.3
Apples competitors,
Apples financial
operations ......................................................................... 75 4.8
Corporate
resources: Research & Development ............................................. 77 4.8.1

General information...................................................................................... 77 4.8.2
Structure and performance.......................................................................... 77 4.8.3
Strategic management ................................................................................. 79 4.8.4
Competitive advantage ................................................................................ 79
Apple Computer Inc.

4.9
Corporate resources: Operations & Logistics................................................... 81

4.9.1
General
information...................................................................................... 81 4.9.2
Operations capabilities................................................................................. 85 4.9.3
Structure and performance.......................................................................... 86 4.9.4
Strategic issues ............................................................................................. 87 4.9.5
Competitive advantage ................................................................................ 87 4.10
Corporate resources: Human Resource Management ................................... 88
4.10.1
Human resource objectives and
strategies............................................... 88 4.10.2
Human resource
policies ............................................................................. 90 4.10.3
Human
resource performance .................................................................... 91 4.10.4

Partnership program ..................................................................................... 91 4.10.5
Training and Development .......................................................................... 92 4.10.6
Staff appraisals .............................................................................................. 93
4.10.7
Trends ............................................................................................................. 96
4.10.8
Competitive advantage
................................................................................ 96 4.11
Corporate resources:
Information Systems ...................................................... 98 4.11.1
What type of
software and hardware is used at Apple? ......................... 98 4.11.2
To what
extent is the model of a virtual company achieved by Apples Intranet and

Extranet solutions? ...............................................................................100 4.11.3
How do Apples internet solutions assist in generating a competitive
advantage? ..................................................................................................................
101 4.12
Summary of internal factors
..............................................................................105 4.12.1
Core competencies
and distinctive competencies.................................105 4.12.2
Internal Factor
Analysis Summary (IFAS)...............................................106

5
External
environment.................................................................................................108 5.1
Overview The uniqueness of the Macintosh ...............................................108 5.2
The PC market an in-depth analysis ............................................................108 5.2.1
Status quo ....................................................................................................108 5.2.2
Defining the sector, industry and market segments ..............................109 5.2.3

Porters five forces Analysis ......................................................................110 5.2.4
Strategic Group Analysis ...........................................................................115 5.2.5
Industry Life Cycle Analysis ......................................................................116 5.2.6
The Macro-Environment ............................................................................118
5.3
External analysis of software and peripherals market ..................................119
Apple Computer Inc.

5.3.1
Software industry ........................................................................................120
5.3.2
Market and external environment analysis for the iPod........................128

5.4
Summary of external factors
.............................................................................130 5.4.1
Overview.......................................................................................................130 5.4.2
External Factor Analysis Summary (EFAS)............................................131
6
Functional
strategy.....................................................................................................133
6.1
General
information............................................................................................133
6.2
Company resources and functional strategy..................................................133

6.3
Sources
of
competitive
advantage ...................................................................135
7
Business-level
strategy.............................................................................................136
7.1
Customer
needs ..................................................................................................136
7.2
Customer
groups.................................................................................................137
7.3
Distinctive
competencies ...................................................................................138
7.4
Differentiation
strategy .......................................................................................138
7.5
Advantages and disadvantages of the Differentiation strategy ...................139

7.6
Investment
strategy ............................................................................................140
7.7
Competitive
strategy...........................................................................................140
Strategies
7.8
to
deter
entry.....................................................................................141 7.9 Strategy
to
manage rivalry.................................................................................142
8
Global
strategy ...........................................................................................................145 8.1
Apples
foreign
operations
.................................................................................145 8.2 Apples

Strategy.........................................................................146 8.3
Transnational
Apples methods
of entering new markets ......................................................147 8.4 Pressures
for
cost reductions and local responsiveness..............................148

9
Corporate
strategy.....................................................................................................150 9.1
General information............................................................................................150 9.2
Horizontal integration..........................................................................................150 9.3
Vertical integration..............................................................................................151 9.4
Strategic outsourcing ..........................................................................................152 9.5
Diversification ......................................................................................................152 10
Strategy implementation...........................................................................................154
10.1
Corporate structure, control, and
culture.........................................................154 10.2
Implementation ....................................................................................................154 11
Analysis of strategic factors......................................................................................156
Apple Computer Inc.

11.1
Situational analysis .............................................................................................156

11.2
Strategic Factor Analysis
Summary.................................................................157 11.3
Review of mission and
objectives ....................................................................158 12
Strategic
advice ..........................................................................................................160 12.1

Strategic alternatives ..........................................................................................160
12.1.1
Take advantage of technological forces by innovation (S-O) ..............160
12.1.2
Use creativity in a way to avoid substitute products (S-T)....................161
12.1.3
Take advantage of the MP3 player market by overcoming a
disimproving b usiness execution (W-O)..................................................................161

12.1.4
Act to minimise high operating costs and avoid rivalry (W-T)..............162
12.1.5
Recommended strategy: Operation costs (weakness)/rivalry (threat) 163

12.2
Recommended
strategy.....................................................................................163 12.2.1
level strategy............................................................................163 12.2.2
Functional
Business
level strategy ..............................................................................164 12.2.3

Corporate strategy......................................................................................165 12.3
Implementation ....................................................................................................166
12.4
Evaluation and
control........................................................................................167 13
Conclusion...................................................................................................................16
8
Bibliography ......................................................................................................................
...169
Appendix............................................................................................................................
...178
Apple Computer Inc.
1 Introduction
! An inexpensive speedy disk drive with good storage capacity
! Enough memory to establish Multitasking
! The first graphic-based user interface available to the general consumer
! Development of a pointing device called "mouse" as an essential peripheral
part of a PC
! The first use of 3.5 inch disks and CD-ROM
! Production of cool-looking but also powerful computers
All these inventions and utilities are inseparably linked with one name, Apple
Computer Inc., which represents a fascinating compilation of engineering talent,
innovation, perseverance, and success in spite of dysfunctional behaviour. Apple
obtains the unique distinction of being the single surviving company from the early
days of the industry that is still successfully acting in the computer vending business,
as well as challenging Microsoft's dominance in operating systems. Apple also came
perilously close to irrelevancy. After the lifeblood of the company, co-founder Steve
Jobs was ousted in a boardroom coup in 1985, Apple had too many products, too
little focus and was paralysed by two inept chief executives. Apple's already small
market share was dwindling further. By 1996, it had racked up $1.5 billion in losses,
and there were weekly speculations over who would buy the company.
Then, in the summer of 1997 Apple stunned the world by announcing that Jobs
would return as interim CEO. Even more shocking, Apple said it was partnering with
its blood enemy Microsoft and scrapped dozens of its products to refocus the
company. Jobs also challenged our perceptions of computers, introducing several
new colourful computers. While Apple's market share has hovered at about 5%, the
company has re-established itself as an innovator in design and ease of use and has
managed to build up a loyal customer base.
This strategic audit of Apple Computer Inc. analyses the companys internal and
external environment as well as its entire strategy. Based on this comprehensive
strategic foundation and an analysis of a profound set of strategic factors, it
provides Apple with specific strategic alternatives and concludes with a strategic
advice.
Apple Computer Inc.
2 History
2.1 Introduction
Man is a tool-using animal. Without tools he is nothing, with tools he is all!
Without being able to guess human inventions and innovations in the forthcoming
centuries or their challenging importance on society, the Scottish essayist Thomas
Carlyle (Historian, Essayist & Critic 1795-1881) might have had some visionary
ideas when formulating this famous quote. He seems to have observed the
history and deployment of humanity where tools always played an important role
to guarantee the races survival.
Nevertheless, Carlyle would have never been able to imagine the unique significance
of one special gadget which is indispensable for todays world the Personal
Computer, which in historical concordance shouldnt represent more than an aiding
tool. However, the great minds behind IT-companies such as IBM or Microsoft
created devices (by combining hard- and software) that not only changed global
business, peoples cohabitation and even the social behaviour, but also opened new,
undiscovered horizons. In particular, Apple Computer has pioneered the widespread
use of many aspects of computer technology that today we all take for granted.
So, for creating a thorough picture and increasing comprehension of the subsequent
strategic analysis of Apple Computer in 2004 its first of all crucial to take a profo und
chronologic look on the historic development of the entire PC sector with an already
analysing focus on Apple.
2.2 Period before 1975

The creation of computers was primarily urged by the immanent human desire to
store data, to automate processes, and to solve complicated calculations.
2.2.1 PC Market
Although its necessary to admit that the development towards computers wasnt
started at one specific date, but represented a long-dating progression, the sectors
younger origins can be traced back at the close of the 19
more
th
century. At this time,
Apple Computer Inc.

exactly in 1876, Alexander Graham Bell invented the
1
telephone and in 1888 , the first dial recorder was

accomplished by Dr. Alexander Dey who belonged to the
Computing-Tabulating-Recording
Company),
the
predecessor
Company
of
(C-T-R
IBM (International
Business Machines). Machinery manufactured and sold

ranged from commercial scales and industrial time recorders to meat and cheese
slicers, along with tabulators and punched cards. War times as well as the Great
Economic Depression caused the growing industry to expand their operations as
the customers
needs
broadened
(e.g.:
business
accounting,
information,
and communication facilities for better war-planning). Especially the demands of

World War II founded the basis for the latter work on computers like:
! John von Neumanns outline on the architecture of a stored program
computer and following IAS computer,
2
! Moore School of Electrical Engineering grounding efforts,

! Claude Shannons dossier The Mathematical Theory of Communication,
! MITs first general-purpose, programmable computer built with transistor in
1956.
With a market share of 81.2% IBM dominated this market in the

1960s which was characterised by the implementation of the
ASCII code for the alphabet (American Standard Code for
Information Interchange binary sequence) and the creation of
the computer programming language BASIC at the Dartmouth
College. In 1969, Xerox bought Scientific Data Systems for $1
billion
which
logged
huge
sales
with
their
series
of
minicomputers. AT&T Bell Labs developed the UNIX operating

system, IBM came up with the 8-inch floppy diskette and
Hewlett-Packard strengthened its position in the market by
announcing the HP-35 as "a fast, extremely accurate electronic
slide rule" with a solid-state memory. But still many computer systems represented
mainframes that required a user to present a stack of punched cards to the person
operating the machine and were far too large and expensive for anyone to actually
1
2
http://www-1.ibm.com/ibm/history/history/decade_1880.html, 18.01.04
http://www.computerhistory.org/timeline/timeline.php?timeline_year=1946, 18.01.04
Apple Computer Inc.

have in their homes as a "personal" computer. By 1972, the Intel 8008, a
microprocessor that approached the ability to function as an adequate central
processing unit (CPU) for a stand -alone computer, was launched. The first
computer that made use of the 8008 was the fully assembled French Micral that
never had any impact in the USA. A further breakthrough occurred with the release of
the Intel 8080. MITS (Micro Instrumentation Telemetry Systems), later designing the
overwhelmingly successful "Altair 8800 personal computer, Texas Instruments
and chip-maker Motorola were other names, known in the market.
2.2.2 Apple
There's no doubt Apple Computer is a pioneer. It invented computers "for the rest of
us.
th
Stephen Gary Wozniak (Woz) was born on the 11 of August 1950 in San Jose,
California. He was the first of two sons of three children of Jerry and Margaret
Wozniak. The father was an electrical engineer and the mother was active in local
politics. Wozniak had an early interest in electronics, also symbolised by obtaining
his amateur radio license in the sixth grade. He also designed and built electronic
projects for Homestead High School (e.g.: "A Parallel Digital Computer"). Through his
presidency of the Electronics Society and one of his teachers, he became a frequent
visitor to the GTE Sylvania computer facility and the Stanford Linear Accelerator
Center's (SLAC) computer facility that became a valued source for information on
computer technology.
Wozniak enrolled at the University of Colorado in Boulder in 1968. He now had
access to the university computer and wrote programs in FORTRAN and ALGOL
which were two software/programming languages analogous to BASIC . However
the year was a failure academically, so the next year he continued studies at the local
De Anza Community College. In 1969 Wozniak decided to build his own
computer, cooperating with his neighbour Bill Fernandez. They called the machine
the "Cream Soda Computer" on account of the amount of the drink they
consumed during its construction.
th
Steven Paul Jobs was born on the 24 of February 1955 in San Francisco, California.
He was the first of two adopted children of Paul and Clara Jobs. The father had
several occupations such as machinist, finance company representative, and real
estate salesman. His mother had also worked at a number of jobs, including part-
Apple Computer Inc.

time in a payroll department. Jobs became interested in electronics during his
elementary school years. At the age of twelve, he got the opportunity to visit HewlettPackard (HP) and dedicated himself thoroughly to its technology. Through all
this, Jobs obtained a summer job at HP by calling one of the founders, Bill
Hewlett. He also obtained a part-time job at a surplus electronic parts retailer
called Haltek. His familiarity with the parts enabled him to buy and sell parts to
Haltek for a profit. Despite his electronic interests Jobs expertise would tend to
the commercial rather than the technical aspects. Bill Fernandez introduced Jobs to
Wozniak in 1969. This was the beginning of the association and friendship between
Jobs and Wozniak.
In 1971, Wozniak moved to the University of California, Berkeley campus and started
to develop a digital design to generate the audio tones required to hack phone
systems worldwide. Jobs convinced Wozniak to sell these so called blue boxes.
However, conviction of other phone hackers tempered their initial commercial
activities. In 1973, Wozniak joined HP as an associate engineer and was given the
task to refine the HP-35.
After the completion of high-school in 1972, Steve Jobs studied at the Reed College
in Portland with mixed academic success as his interests for mysticism adversely
affected his academic studies. Consequently, he started working for Atari
Engineering in early 1974. One year later Wozniak and Jobs became members of the
Homebrew Computer Club which offered them the forum to exchange information on
the latest microcomputer technology. Additionally, they formed Computer Converser,
a subsidiary of a friends (Alex Kamradt) Call Computer company to build video
terminals, but withdrew shortly afterwards due to Wozniaks lack of interest.
10
Apple Computer Inc.

2.3 Period 1975 1981
In 1976, Apple Computer was born when

Steve Jobs and Steve Wozniak, along
with Ronald G. Wayne founded the Apple
st
Computer Company officially on the 1 of

April, headquartered in a parents garage.
Six months later, Jobs and Wozniak were
splitting
monthly
salary
of $250.
Nevertheless, their first formal business

plan set a goal for sales to grow to $500 million in ten years. As it turned out, the y will
pass that mark in half the time. The first step into this direction was the completion of
a preassembled computer circuit Board, named the Apple I. This first prototype has
taken about six months to design and 40 hours to build. It was published first at the
Homebrew Computer Club in Palo Alto, California. Although not attracting much
attention, the Byte Shop computer store ordered 50 Apple I boards. To fund
production ($1,350), Jobs and Wozniak put all their eggs into one basket and sold a
VW van as well as a HP programmable calculator.
2.3.1 PC Market
Still in infant status, the microcomputer industry was characterised by the
manufacture and sale of small desktop computers with microprocessors as central

processing units in the mid 1970s. Nevertheless, competition was increasing which
caused frontrunner IBM who was producing the industry benchmark to face a
number of rivals such as Commodore, Atari, HP or AT&T. Due to the fact that Apple
didnt comply by determining and implementing their own standards (hard- and
software), dealers and consumers who had to decide which one to buy were
confused. Furthermore, software developers had to make programs for two
standards which was one of Apples biggest future difficulties. The MS-DOS, or
Microsoft Disk Operating System, the basic software for the future IBM PCs,
established a long partnership between IBM and Microsoft, which Bill Gates and Paul
Allen had founded only six years earlier. This alliance became Apples hardest
opponent in the market.
Soaring demand for higher storage capacity was met by Phillips first attempts to
optical storage opportunities that later resulted in the invention of the Compact Disc
11
Apple Computer Inc.

(CD). There were five major market segments in the industry: home (games and
educational
programs
for
children,
hobbyists,
home-working professionals),
business (most profitable and predicted high-potential market), government,

education, and international sales.
2.3.2 Apple
After incorporation of the Apple Computers
Company, Jobs (taking over responsibilities
for marketing & engineering) and Wozniak
(engineering) equally owned 45% of the
company by leaving the latter 10% to soon
quitting
Wayne
(documentation
and mechanical engineering). Regarding

their first product, the Apple I, hobbyists did
not
take it very seriously. Consequently, Jobs and Wozniak were in financial trouble and
intensively searched for potential investors. Luckily, they could raise venture capital
provided by Mike Markkula and moved to a new corporate HQ in Cupertino,
California.
Apple did not begin to take off until 1977, when the Apple II came out at a local
computer trade show. As the first PC to be sold in a plastic case and including colour
graphics, the Apple II was an impressive machine. Orders for the Apple II equipped
with a circuit motherboard, switching power supply, keyboard, case assembly,
manual, game paddles, and brilliant colour graphics as well as for the Apple Disk II,
the most inexpensive, easy to use floppy drive ever (at that time) rocketed. This
success established the company as a major player in the early days of the personal
computer revolution. In addition, the company maintained the Apple II while it
floundered with other product ideas (the Apple III, the Lisa, the early Macintosh). This
Apple flagship-device survived longer than any other computer platform from the
early days. Fabrication proceeded for sixteen years and seven months, from April
1977 to November 1993. The success of the Apple II was due entirely to the millions
of people who bought it, used it, and developed software and hardware for it, in spite
of the mistakes and restrictions of its parent company. With this computer, Apple
managed its transformation to the mass consumer market.
12
Apple Computer Inc.
The rise in sales, however, led to an

increase in company size, and by 1980,
Apple had several thousand employees,
a market share of 50%
and was
beginning to sell computers abroad. A

number of more experienced mid-level
managers and, more importantly, several
new investors opting for their seats in the
Board of Directors caused difficulty in making design improvements that kept up with
the advances in computer technology. So these more conservative, new Directors
made sure that Apple became a "real company," much to the dismay of many of its
original employees.
As co-founder of Apple, Steve Jobs focus was more and more on creating new and
different products. He was the visionary responsible for Apples reputation for
innovation who stressed Apples mission to change the world by bringing computers
to the masses with the belief of one person one computer. In their first years of
existence Apple focused its sales on the home and education markets and was the
leader in the education market. Apple had two product lines, Apple II and the
Macintosh. In its first six years of business, Apples earnings grew explosively from
$793,000 to $76,714,000.
During 1980 the market for new stock issues had
improved. In August 1980 the Apple Computer Board of Directors decided to make a
public offering of shares in the company. It was a huge success and oversubscribed.
On the first day the offered share price of $22 increased to $29. At the end of 1980
Jobs' ownership in Apple was worth about $256 million. Furthermore, organisation
was changed from a functional one to a product-oriented one. The company created
divisions for the Apple II and Apple III, Lisa, accessories, manufacturing, sales, and
service.
13
Apple Computer Inc.

2.4 Period 1981 1985
2.4.1 PC Market
Units 9.5 Million - 1984
Dollars 17.9 Billion -1984
20%
Home
37%
3%
Education
55%
Other
Business
14%
63%
Home
Education
Other
Business
3%
5%
Dollars 43.0 Billion - 1990
Units 16.7 Million - 1990
11%
4%
29%
Home
Home
16%
Education
Other
57%
9%
Education
Other
Business
69%
Business
5%
In 1981, things got a bit more difficult. A saturated market made it more difficult to sell
computers, and in February Apple was forced to lay off 40 employees. IBM released
its first PC using Microsoft products as software items. With the power of IBM, the
PC quickly began to dominate the playing field. By 1984, the IBM PC had
50%market share. Several competitors such as Compaq, Dell, AST or Gateway2000
entered the PC-market by trying to launch advanced IBM clones, similar to and
compatible with Big-Blues technology. This was the outcome of IBMs openarchitecture which Apple struggled to prevent as the below excursus examines:
As mentioned before, Apple Computer set their individual standards which led to a
constant competition against the IBM-Microsoft-Intel model (Wintel standard).
Hence, Apple tried to differentiate itself by following a strict non-licensing, patentregulated policy (no information about Apple hard- and software was given out), by
producing
14
Apple Computer Inc.

higher quality, but by also charging an immense above industry average price for
their goods which they considered as legitimate due to their product superiority.
As Apple
wanted
to
avoid
being
cloned
such
as
IBMs
PCs
and
consequent diminishing returns, they didnt provide free-lancing program writers

with necessary information to develop different features for the Apple technology.
This provided them with high short-term profit margins, but in the long run Apple
had to encounter a vicious circle that even teetered Apple on the brink:
! Continuously increasing R&D costs as Apple had to develop all innovation on
their own
! Subsequently, less features available for Apple technology (mainly PC and
Operating System (OS)) in comparison to IBM-Microsoft-Intel standard
! Problems for Apple in making design and service improvements that kept up
with the advances in computer technology.
! A narrower customer base as the demanded hard- and software either wasnt
offered or if delivered, took Apple to long to create
! Most computers were now IBMs or clones and as a result, most of the
software applications were written for PCs only, therefore PCs were safer buys
In addition, the importance of computers for businesses reached new highs. In 1985,
the microcomputer industry suffered its worst slump in over a decade. Many new
computer products had been promised or rumoured but were not yet available,
causing consumers and businesses (due to recession fears) to delay purchases until
they could evaluate the new machines. Moreover, the home market was saturated
and the market for new customers difficult to penetrate. Consumer preferences also
changed. Service and how new products fit into an existing family of products had
become more important. There was a growing demand for personal computers that
could communicate and share information. It was estimated that this demand was
growing at 30% a year, or twice the rate of the overall industry.
2.4.2 Apple
Within this four year period Apple had to cope with a 70% decline in market share.
Wozniak was injured in a plane crash. He took a leave of absence and returned only
briefly. Jobs became chairman of Apple Computer in March. Apple III and the Lisa
project were put forward to redefine personal computing following the historic visit to
15
Apple Computer Inc.

Xerox PARC in 1979, but both failed to win acceptance. Jobs took over another idea
of Apple and began working with the Macintosh (Mac) which had started as a $500
personal computer competing with IBMs releases. Despite his efforts Jobs began to
realise that Apple would have to become a "grown-up" company and accepted he
was not the man for the job. Also, Markkula resigned from his posts as CEO and
president.
John Sculley, president of Pepsi-Cola USA domestic operations, was recruited and
became president and CEO of Apple. Considering Apples new competitive
pressures, choosing Sculley with his corporate experience as the companys new
president was considered by Jobs to be one of the most important decisions in
Apples history. Although he was hired for his executive and marketing expertise,
Sculley did not know much about the computer industry, unfortunately. He and Jobs
were at odds almost immediately. By 1983, Apple Computer had annual net sales of
almost $1 billion (as the first personal computer company ever) and 4,645
employees.
The year was 1984. Apple was the hip, young heart of Silicon Valley the place
where America was showing the world how the combination of technology and
nd
entrepreneurship could make a revolution. On January 22
1984, during the third
quarter of the Super Bowl, Apple aired its infamous 60 second commercial
introducing the Macintosh. The Orwellian scene depicted the IBM world
being shattered by a new machine. Initially, the Mac sold very well, but by
Christmas of 1984, people were becoming fed up with its disadvantages.
To fulfil their social responsibility, Apple organised and financially supported music
festivals, held the AppleFest in San Francisco and gave their computers to
academic institutions and prisons. In 1984, Sculley reorganised the management
structure. His main change was to reduce the number of Apples product divisions
to three: a division for Apple II products, another for the Lisa product and
the development and production of the Macintosh, and an accessory products
group.
Each division was responsible for its own functions and acted as independent profitand-loss centres.
Fortune (1988)
16
Apple Computer Inc.
Sculley hoped that the new structure would eliminate most of the overlap without
causing massive layoffs. He wanted many people reporting to him, both line and staff
people, so he could assess all the pieces. Sculley also installed tighter control
policies and increased the market focus and level of discipline of Apples managers.
Now there was a distinct hierarchy, with two powerful product divisions responsible
for their own duties.
Apple focused its efforts on developing the Macintosh as an alternative business
computer. In January 1985, Apple introduced the Macintosh Office which consisted
of the computer, a laser printer, a local area network called Appletalk, and a file
server. The companys focus on gaining acceptance in the business market led it to
finally acknowledge IBMs pre-eminence, which, in turn, led to a change in its
competitive strategy. It now emphasised developing a comprehensive line of
compatible computers that worked well with those made by other producers. The
company targeted SMEs (small and medium-sized enterprises ), accounting for 80%
of personal computer sales. The Apple II line of products (as described in the
previuous chapter) still was the companys cash cow.
Disappointing market performance was attributed to internal problems. Apple had no
sales force with direct access to corporations. Unlike IBM, which had 6,000 to 7,000
direct salespeople, Apple relied on 300 manufacturers representatives over whom
they had no direct control. There were also marketing problems. The company failed
to communicate a business image for the Macintosh to the market. A former
Macintosh employee stated that the Mac wasnt perceived as an office machine or
17
Apple Computer Inc.

4
as the technology leader that it is. While Jobs believed that Apple should focus on
technology, Sculley preferred to go along customer needs determining the product.
Due to Jobs engagement in and support for the Macintosh division and their poor
results compared to other departments motivation among the entire staff plummeted.
Internationally, Apple was an early market leader in Europe. Before 1983, the
company expanded sales into Britain, Germany, and France. Especially in France,
Apple achieved a high profile and a critical mass of buyers. The company established
a European headquarters in Paris with a staff of 45 people and built a production
plant in Ireland, but managed its international operations from California.
At the beginning of 1985, the smouldering dispute between Jobs and Sculley
escalated. The common credo established by Jobs and Wozniak stated to create
your own thing, defy the naysayers, and ignore the establishment one person can
change the world. The culture had incredibly powerful elements, but the other side
of that is unharnessed and uncontrolled. Inevitably, that led to clashes among
creators and the new management. In May 1985, Jobs decided to make a play for
control of the company and planned to stage a boardroom coup. Finally, the Board
took a vote and unanimously made Sculley to Apples new head, but further work
force lay-offs, the companys first quarterly loss, a legal battle against Microsofts
Windows OS, and Jobs resignation served to erode confidence in Sculley's abilities
as CEO of Apple. In the mid of 1985, Sculley declared another reorganisation
which consolidated the three product divisions into one called Product Operations.
2.5 Period 1986 1992

2.5.1 PC Market
The PC market, initiated and encouraged by the production of IBM-PC clones,
continued its global development and PCs themselves started towards being
available for everyone. Although Microsoft issued its first Windows OS and thereby
marked a revolutionary point in PC history, there was still a lack of useful software to
make it a market for the mass.
Fortune (1985)
see Appendix: Corporate memo
18
Apple Computer Inc.

2.5.2 Apple
After having ousted Jobs and sacked lots of employees, Sculley wasnt popular at all
among the Apple staff. He also knew that the majority of the company would resent
the big-company systems he was putting in place. And most important, he
understood that he had to keep engineers and programmers on board if Apple was to
stay ahead of the technology curve. The solution was not to touch the culture.
By 1987, the Mac II was a solid hit, but Sculley paid the price. His consensus-style
for getting things done and achieving decisions made the company more and more
6
inflexible and slow-moving . Key decisions have been postponed, reversed, or

avoided completely as various executives and factions tried to push their own
agendas. A decisive leadership might have helped Apple to fend off what has
ultimately proved to be its nemesis: Windows. The day Windows 3.0 was launched,
Apple's executive staff dismissed the OSs chances to challenge MacOS with
complete arrogance. In 1989, it seemed that Windows 3.0 would be a flop, and the
Mac would be riding high for the next decade. It didn't. By 1990 the market was
saturated with PC clones of every conceivable configuration, and Apple was the only
company selling Macs. Therefore Apple was in trouble and decided to give up their
restrictive protection of corporate know-how. They licensed the MacOS although
opinions stated that it was too late to license (Michael Spindler, Apples COO and
later CEO). It was becoming clear that Apple could not provide both the hardware
and the software to drive an industry. In late 1991, Apple released its first generation
of PowerBooks, which were an instant success.
Product and marketing strategy were also adjusted. Product lines were filled out with
equipment the consumer desired. Efforts were made to provide third-party hardware
and software companies with access to the Mac. These companies were hesitant,
however, to invest time and money to develop software for the Mac since the
installed hardware base was such a small percentage of the market. Programs
designed for Apple would sell far fewer copies than those created for IBM compatible
machines, making it too costly to develop Macintosh software. Apples marketing
strategy focused more aggressively on the corporate market to win space in the
office at the expense of IBM. In pursuing the business segment, Apple also
transformed its hiring policy. The idea was that corporate managers would rather be
more responsive to salespeople who were similar to them as to hackers.
Joke that circulated at Apple: A vote can be 15,000 to 1 and still be a tie.''
19
Apple Computer Inc.

Business market expansion resulted in a 30% increase in Apples sales in 1987. The
CEO doubled the size of Apples field force and the number of employees grew to
10,837 making Apple more and more unmanageable.
Two new computers for the business market were introduced: the Macintosh SE and
the Macintosh II. These products attracted larger software houses that developed
sophisticated applications for large business users. Nearly half of Apples sales and
most of its profits came from selling PCs and related products to big corporations.
International growth became a priority

at Apple. The European market for
PCs was expanding faster than the
US market. By trying to reduce their
dependence on the US consumer and
consequently covering up declining
US sales, Apple made efforts to
mainly
penetrate
the
European
corporate business market. This was

done by adapting their overall network
model to each countrys individual
circumstances and local markets
Apple gained 6% of the overall

European market. Apples European
revenues grew by 55%, faster than
revenue growth for the entire company. Thus, the control of the European activities
was switched to Europe, for instance by raising the proportion of Europeanmade components used in Apples Irish production plant. Once more, the
organisational structure was altered. Each division was now headed by a
president who reported directly to Sculley.
7
Problem
of managerial inefficiency if a company becomes too big to achieve economies of
8
scale Stay global, act local
20
Apple Computer Inc.

2.6 Period 1993 1997
2.6.1 PC Market
Microsoft seemed to start dominating the entire market by introducing Windows 95
and by consequently creating network and log-on effects for its OS and
Office packages.
2.6.2 Apple
In June 1993, Sculley was relieved of his position as CEO and Michael Spindler put
in the big chair. Essentially Spindler was the wrong man for the job as he was a fairly
impersonal man who oversaw several accomplishments during his two and a half
years term as CEO. Apple's technology edge eroded dangerously mainly due to his
mismanagement. The project that could have restored Apples position and given an
ambitious answer to Microsofts Windows 95 onslaught which seriously eroded the
Mac's justified technology leadership a new Mac operating system called Copland
has fallen two years behind schedule. Another fact was that the most talented
executives left the company. There have been massive management upheavals
that caused Apple to fumble critical decisions and zigzag between strategies and
that brought the company to a juncture, but Mike Markkula who was still in
business never removed Spindler by always pledging him support. In 1994, Apple
announced the PowerMac family, the first Macs to be based on the PowerPC chip
and secretly began talks to sell the company with Sun Microsystems, IBM, and
Hewlett-Packard.
Apple took its worst plunge ever in the winter

of 1995/96. Misjudging the market, Apple
pushed
low-cost
PCs
over
mid-range
PowerMacs and failed to make a profit at all.

Apple posted a $68 million loss for one
quarter. In January 1996, Spindler was asked
to resign as CEO and was replaced by Gil
Amelio, the former
president
Semiconductor. Despite
of
making
National
a
strong
effort to bring Apple back to profitability,

Amelios
efforts
proved
to
be
largely
unsuccessful. In late 1996, Apple
21
Apple Computer Inc.

9
made an industry-shocking announcement that it would be acquiring NeXT and that

Steven Jobs would be returning.
He took over the position of an "iCEO or

interim CEO", began to make striking
changes in the structure of Apple, and
announced an alliance with Microsoft,
one of Apples greatest rivals.
In exchange for $150 million in Apple
stock, Microsoft and Apple would have a
5-year patent cross-license
10
and, more
importantly, a final settlement in the

ongoing MacGUI
11
battle. In addition, as
clone production from companies such as Power Computing or UMAX had failed to
effectively expand the MacOS market, instead taking customers away from Apple in
the high end market, Jobs ended this licensing. Other changes in the corporate
strategy comprised direct-computer selling via the web and new products (Apple
Online-Store, PowerMac G3 Computer) such as the iMac were published with a
focus on innovative design. Finally, Apple reached profitability for the first time within
one year.
2.7 Period 1998 2000

2.7.1 PC Market
Tight competition through low barriers to entry, tough-sale as well as cost reduction
strategies applied by companies such as Dell and the first internet hype resulting in
thousands of dotcoms made the PC industry to one of the most efficient, interesting
and powerful ones. Microsoft preserved its near-monopoly position in software,
above all in OS, but had to face several lawsuits against this predatory situation as
critics argue. One computer per person didnt appear to be utopian anymore.
Merger brought
about acquisition of NeXTstep, the basis of Apples planned OS
10
Rhapsody including a Mircosoft Office version for the Mac
11
Apple OS and intellectual property that Mircosoft allegedly stole for its Windows software
22
Apple Computer Inc.

2.7.2 Apple
Soaring profits pushed Apples stock. The iMac

was one of the best-selling computers in the US
and drove Apple sales well beyond most
predictions. The "Apple Product Matrix" was
complemented by a consumer portable, the
stylish iBook. Jobs now also formally named
CEO formulated Apples internet strategy as a
suite of Mac-only internet-based applications called iTools.
The second half of 2000 was different from the trend of previous years. Slower
sales in the industry combined with a misunderstanding of the consumer market
(failure of G4 Cube a Mac PC offered without a monitor) and the assembly of
DVD drives instead of user preferred CD-RW ones for burning their own CDs
unveiled in poor results.
2.8 Period 2001 now

2.8.1 PC Market
Seeking more storage capacity as well as higher speed concerning CPUs and a
tendency to look for arising business potential (online music and video market, file
sharing through Peer-to-Peer) characterise the market. Linux, an open-source OS,
accompanied Apple in contesting Microsoft-Windows hegemony.
2.8.2 Apple
st
The 21 century started for Apple with Jobs plan to open a number of retail stores
across America, selling not only Apple hardware, but various third-party "digital
lifestyle" products. The i product group was added up by implementing iDVD, a
DVD-authoring program, iMovie that contained tremendous value to digital cameras,
iTunes, which allowed users to encode and listen to MP3 songs and then burn them
to CDs, and the iPod, a small hard-drive -based digital music player. This innovative
product line was a consistent part of Apples new digital hub strategy to secure and
guarantee Apple steadily high profits as well as to gain share of the promising digital
music and video market. In July 2002, Steve Jobs announced that the free iTools
service would be rolled into a new subscription-based "dotMac" service.
23
Apple Computer Inc.

Although Apples history is one of ups and downs, currently a stable profit has been
12
maintained with the latest $63 million profit in the first quarter of 2004 .
12
Apples financial year ends on the last Saturday of September
24
Apple Computer Inc.
3 Current situation
3.1 Current performance
Today Apples operations are as diversified as the y were never before. With its
currently 13,599 employees worldwide it generated a revenue of $63 million in the
13
last quarter.
14
It holds cash reserves of over $4.5 billion
15
and has a ROIC of 3.05% .
Apples operations are spread around the PC industry, computer peripherals and the
software and service industry. In the overall PC industry Apples market share has
diminished to a skinny 2.1%.
16
Apple itself doesnt look itself at the overall PC market,
as it has defined 4 specific markets on which it currently focuses on. The market
shares in these sectors are to some extent more significant.
Market segment
Market share
Education
(12.4%)
Creative
(>65%)
Consumer
(3.5%)
Business
(<5%)
In the peripherals sector (besides the iSight digital video camera and displays), Apple
has been particularly successful through its innovative iPod (digital MP3 music player)
as the market share in terms of revenues was 54% and in terms of units was 29%.
This success is closely tied up to the launch of iTunes, Apples music online store
and jukebox, which is the current leader in the online downloadable music market.
iTunes accounts for 20%
17
18
of the pay per download music market.
A number of cutting edge software applications (e.g. iLife, Final Cut Pro) and its
operating system Mac OS X also contribute to the firms overall success, without one
being specifically important.
13
Apple Computer Inc. (2004)

Apple Computer Inc. (2003a)
http://yahoo.investor.reuters.com,
16
29.01.04 Apple Computer Inc. (2003a)
17
Baltimore Sun (2003)
14
15
18
Pay per download system vs. subscription services, allows the customer without monthly fees to download and pay for
songs individually
25
Apple Computer Inc.

3.2 Mission and current strategy
Apples mission statement emphasises that the company made major innovations in
the personal computer industry in the past and links this strength to its present
strategy:
Apple ignited the personal computer revolution in the 1970s with the Apple II and
reinvented the personal computer in the 1980s with the Macintosh. Apple is
committed to bringing the best personal computing experience to students, educators,
creative professionals and consumers around the world through its innovative
hardware, software and Internet offerings.
19
The digital hub, that is what Steve Jobs (CEO) identified as objective for Apples
strategy in the future. Herewith, all three sectors Apple is currently operating in will
get closer and closer together and showing a high interdependence, where seamless
integration of all components is vital to win customers. Apple is the only company
providing a bundle of solutions which are perfectly adjusted and fine tuned to
complement each other to, for other companies, unattainable degree. By designing
such high end products Apple is corresponding to external and internal environment,
which in the high technology sector are changing more rapidly than anywhere else.
Throughout its diversification efforts, Apple keeps its design and innovation focused
line by equally adapting performance and price positions to changes in the external
environment. The following analysis of internal and external environment will allow
the reader to gain a detailed picture of Apple itself, its industry and the strengths,
weaknesses, opportunities and threats associated with them.
19
http://phx.corporate-ir.net/phoenix.zhtml?c=107357&p=irol-faq#corpinfo2, 14.02.04
26
Apple Computer Inc.
4 Internal environment
4.1 General information
4.1.1 General description
Apple designs, manufactures and markets personal computers, related software,
peripherals, and personal computing and communicating solutions. Therefore, it is
the only company in the personal computer industry that designs and manufactures
the entire personal computer from the hardware and operating system to
sophisticated applications. It sells its products through its online store, direct sales
force, third-party wholesalers and resellers, and its own retail stores.
Apple is convinced that personal computing has entered a new era in which the
personal computer functions as the digital hub for advanced new digital devices and
other electronic devices, and as a consequence interconnecting with as well as
adding value to the internet and other devices becomes a PCs main purpose. In
short, computers should now be designed to simplify the users (digital) life
by combining computing with consumer electronics
strategy Apple is uniquely positioned in the PC industry.
21
20
and by pursuing this
22
The company currently has 10,912 fixed employees and its foreign operations
23
include the Americas, Europe, Japan, and Asia Pacific . In identifying Apples main
customer groups, it becomes clear that those are computer users who dont see
themselves as part of the mainstream: graphic designers, students, and anyone else
who like to think that they are different.
24
25
4.1.2 Products
Apples product range includes first and for most the Macintosh line of desktop and
notebook computers, the Mac OS operating system, and the iPod digital music player.
In addition, it contains a portfolio of further software solutions and peripherals,
networking and connectivity products, and various third-party hardware products for
education, creative, consumer, and business customers.
20
Quittner J. and Winters R. (2002)

Ganesan S. (2003)
23
http://cbs.marketwatch.com/tools/quotes/profile.asp?sid=609&symb=AAPL&siteid=mktw,
21
22
24
19.02.04 The Economist (1998a)

25
27
Apple Computer Inc.

26
This table should highlight the most important elements of Apples product portfolio:
Product
Comment
iBook notebook
Robust and successful notebook, aimed at the education market.
iMac PC
Unexpected and ongoing success.
PowerBook notebook
High-end notebook, probably the best-designed notebook available.
PowerMac PC
Personal computer targeting graphics and layout professionals.
iPod music player
Digital music player, unique product in combination with iTunes online

music store.
hardware accessories
Wireless connectivity products, monitors, etc.
Mac OS X
Superior and operating system with modular architecture.
Quicktime and other sub
Widely used media player, successful by consolidating and gaining
process software
exclusive rights for popular movie trailers in the internet.
application software
Programs for digital editing of video, graphics, music, etc.
internet integration software
Several unique web services.
The following paragraphs provide a deeper insight into the different parts of Apples
product portfolio:
26
Sudbury A. (2001)
28
Apple Computer Inc.

Hardware
Apple offers a wide range of personal computing products including desktop and
notebook PCs. The PowerMac is a high-performance desktop PC which is targeted
at businesses and professional users and their demanding speed, expansion and
networking needs. The PowerBook is a portable computer that should satisfy the
high-performance mobile computing needs of professionals and advanced consumer
users. The iMac and eMac desktop computers with their innovative industrial design
are targeted to education and consumer markets whereas the iBook mobile
computer should satisfy the mobile computing needs of these customers.
Furthermore, the Xserve server solution is designed for simple setup and remote
management of intensive input/output applications.
Peripheral products
Apples product portfolio includes a range of associated Apple-branded computer
hardware peripherals. These include the iPod digital music player which is a portable
music player whose functionality extends well beyond playing music and can be seen
as a seamless end-to-end music solution in combination with the iTunes software
and music store that enables customers to purchase songs over the internet.
Moreover, the iSight digital video camera (combined with the iChat software) enables
high-quality audio- and videoconferences and Apple several all-digital, active matrix
LCD flat panel displays.
Software products and computer technologies
The companys software portfolio includes its operating system Mac OS X, server
software, professional application software, and consumer, education, and business
oriented application software. In fact, Max OS X which has been continuously
upgraded during the last years offers advanced functionality built on an open-source
UNIX -based foundation. The Max OS X server software and several related solutions
deliver stable high-performance services for Interne t and web serving, filing, printing,
and networking services.
In the field of professional application software, Apple offers products for video
editing (Final Cut Pro), compositing and visual effects (Shake), computer based
music production (Logic; from acquired firm Emagic), and DVD authoring (DVD
Studio Pro). Concerning consumer, education, and business oriented application
29
Apple Computer Inc.

software, Apple has introduced an integrated suite of digital lifestyle applications
called iLife which includes software for music management (iTunes), digital video
editing (iMovie), DVD authoring (iDVD), and digital photo organisation (iPhoto). In
addition,
Apple
offers
several
(audio-/videoconferences),
Keynote
other
applications
(presentations),
or
such
as
iChat
AppleWorks
(word
processing, spreadsheets, etc.).

Finally, thousands of third-party software titles and solutions are available for the
Macintosh platform.
Internet software, integration, and services
Apple's Internet strategy is focused on delivering seamless integration with and
access to the Internet throughout the product line. Therefore, the iTunes music store
for online music-purchases is fully integrated into the iTunes music management
software and the company offers an own web browser (Safari), multimedia software
(Quicktime), and internet services/tools suite (.Mac).
Wireless connectivity and networking
This part of Apples product range includes its Wi-Fi wireless networking technology
(AirPort Extreme, Bluetooth), its networking technology (Rendevous) and a standard
high-speed serial I/O technology (FireWire) developed by Apple.
Product support and services
AppleCare offers a range of support options for Apple customers such as general
software assistance, manuals, online support or technical assistance. AppleTraining
provides comprehensive system administration and development training whereas
Apple Professional Services offers a range of personalized technical services.
Moreover, Apple also has special loan programs and leasing solutions for its
customers.
Specialised education products and services
Apple not only offers a separate online -store with special prices and financing
programs for higher education students, faculty, and stuff, but also specialised
education software such as the iBook Wireless Mobile Lab to share resources
30
Apple Computer Inc.

between classrooms or the PowerSchool software for efficient and cost-effective
school administration.
4.1.3 Competencies
Apple is famous for possessing distinctive competencies in product design/innovation,
digital entertainment, and educational skills. The company acted as the computer
industrys leader in the development of graphical user interfaces, mouse input,
networking, and several other areas, and is now leading the industry into a new era
where the PC and its related software/hardware should be regarded as the hub of a
digital lifestyle
27
and an entire, interconnected multimedia solution. By fostering this
development, Apple can use its strengths in the fields of creativity, innovation, and
technological obsession/development to differentiate itself and gain a competitive
advantage over other players in the industry which only offer single products with
lower value due to lower connectivity possibilities. Moreover, Apple has traditionally
been
strong
in
the
fields
of
education,
desktop publishing,
and
digital
art/entertainment where its strengths interact with the desired attributes of its
customers.
28
Quite interestingly, Apples main weakness also stems from the fact that it produces
the entire line of computers and related products: in fact, the incompatibility of its
products with the Wintel (Microsoft Windows operating system and Intel processor)
standard makes it difficult for Apple to penetrate the computer industry as a whole
29
and especially the traditional business sector . As several other factors such as high
hardware costs or uncertainty in (future) software compatibility aggravate this
situation, Apple is likely to remain a marginal player in terms of overall market share
in the personal computer industry and will probably find it more difficult to maintain a
critical size for being profitable and successful.
27
Daily News (2003)
28
Sudbury
A.
29
(2001)
Sudbury
A. (2001)
31
Apple Computer Inc.

4.2 Corporate governance
4.2.1 Board of Directors
30
General information and Directors
The Board of Directors consists of seven members and has three committees (Audit
& Finance, Nominating & Corporate Governance, Compensation) which will be
discussed in the governance mechanisms section in detail. In addition, Apples Board
is fairly unique as it has no chairman.
31
Name
Position
Age
Director since
Professional background
William V. Campbell
Director
63
1997
Chairman Intuit Inc.
Millard S. Drexler
Director
59
1999
CEO J. Crew
Albert Gore Jr.
Director
56
2003
Former Vice President of the United
Steve Jobs
Director,
48
1997
CEO and Co-founder Apple Computer,
Director
51
2004
Executive
Director
53
2000
Chairman and CEO Genentech Inc.
Director
65
1997
Chairman, President and CEO Micro
CEO
James A. Lawrence
Arthur D. Levinson
Jerome B. York
Vice
President
and
In fact, five out of seven Apple Directors are independent under SEC and NASDAQ
rules
32
as only Steve Jobs (CEO) and Jerome York (member of an investment group
that purchased IT-reseller MicroWarehouse Inc. which accounted for 2.4% of Apples
33
net sales in 2003 ) can be regarded as dependent Directors. Nevertheless, the

Board seems to lack an optimally balanced mix of inside and outside Directors
34
as
theres only one inside Director (Steve Jobs, CEO).

Although Steve Jobs isnt chairman of the Board, it can be criticised that the Board is
dominated by the company CEO. In fact, the Board members certainly
never criticised Jobs for Apple's lousy performance in 2002, a year that
competitor Dell managed to weather far better. In addition, the Boards propensity
to give him huge stock-option awards regardless of his performance as well as the
relatively low level of scrutiny and constructive criticism has rankled many
investors.
30
35
As a
CFO
31
http://news.com.com/2100-1042-993332.html, 19.02.04
http://www.apple.com/pr/library/2003/mar/20governance.html,
33
14.02.04 Apple Computer Inc. (2003)
34
Hill35C. W. and Jones G. R. (2004), p.
386 BusinessWeek (2004e)
32
32
Apple Computer Inc.

consequence of the criticism, no options were granted to or exercised by the
executive officers in 2003. In short, the outside Directors apparently dont bring
enough objectivity to the monitoring and evaluation process which should actually be
their key objective.
36
Tasks and skills/experience

The tasks of the Board of Directors are to oversee the CEO and other senior
executives in the competent and ethical operation of the company on a day-to-day
basis and to assure that the long -term interests of the shareholders are being served.
The Directors should take a proactive, focused approach to their position, and set
standards to ensure that the company is committed to business success through
maintenance of the highest standards of responsibility and ethics.
37
Directors bring to Apple a wide range of experience, knowledge and judgement, and
bring these skills to bear for the company. These varied skills mean that good
governance depends on principled actions, effective decision-making, and
appropriate monitoring of both compliance and performance.
38
Indeed, Apples Directors dont only contribute an excellent professional background

but also a wide range of skills, knowledge, international experience, and contacts to
the company. For instance, James Lawrence (Executive Vice President and CFO of
General Mills) was awarded the title Top CFO by the CFO-Magazine in 2001 or
former US Vice President Al Gore is widely regarded as a key person in the building
of the internet
39
and possesses excellent links to the world of business and politics.
Compensation
The form and amount of Director compensation is determined by the Board after a
review of recommendations made by the Nominating committee. The current
practice of the Board is that a substantial portion of a Director's annual retainer
is equity-based. Moreover theres a Director Stock Option Plan which enables
Apples non-employee Directors to acquire shares in Apple and they also
receive a $50,000 annual retainer paid in quarterly increments. Directors do not
receive any additional consideration for serving on committees or as committee
chairperson.
36
Apple Computer Inc. (2003), p. 386

http://phx.corporate-ir.net/phoenix.zhtml?c=107357&p=irol-govCommitteeComp,
38
19.02.04
http://phx.corporate-ir.net/phoenix.zhtml?c=107357&p=irol39
govCommitteeComp, 19.02.04 http://www.apple.com/pr/bios/gore.html, 19.02.04
37
33
Apple Computer Inc.

4.2.2 CEO
Steve Jobs co-founded Apple in 1976. After he had left the company in 1985, Jobs
co-founded NeXT Software and served as the Chairman and CEO of NeXT from
40
1985 until 1997 when NeXT was acquired by Apple . Moreover, he also co-founded
Pixar Animation Studios in 1986 and still serves as Chairman and CEO of the
company. In 1997, Jobs moved back into Apples executive suite as CEO and
41
Director .
Performance and compensation
The following table shows Steve Jobs compensation during the last three years:
Name
Steve Jobs
Year
Salary ($)
Bonus ($)
Restricted
Securities
All Other
2003
---
74,750,000
---
---
2002
2,268,698
---
7,500,000
1,302,795
2001
43,511,534
---
---
40,484,594
In fact, although Steve Jobs only gets $1 as salary, he made good money during the
last three years. Moreover, Steve Jobs cancelled all of his outstanding options in
March 2003 and was awarded five million restricted shares. His huge bonus and
other compensation figures result from a special executive bonus in form of an
aircraft. By taking a closer look at his compensation and linking it to the companys
performance, it becomes clear that the development of his bonuses is totally contrary
to the companys results and especially the huge bonus in 2001 when the company
had a net loss might mislead investors.
Abilities and characteristics
In fact, Steve Jobs can be described as a charismatic leader who possesses strong
technical obsession, creative and innovative skills, enthusiasm, commitment and
entrepreneurship. As he says that innovation distinguishes between a leader and a
42
follower , he can be regarded as a visionary in the world of personal computers.

Moreover, Jobs possesses a business sense for the marketability of his products and
therefore could streamline Apples product portfolio and introduce new and highly
40
41
42
Yoffie D. B. and Wang Y. (2003)

http://askmen.com/men/apr00/21c_steve_jobs.html, 21.02.04
34
Apple Computer Inc.

successful products such as the iPod. In addition, his user-friendly business
approach doesnt only lead to increased value for customers through user-friendly
products but also puts the customer in the centre of Apples business and constantly
praises him as the best customer in the world. Moreover, his favour for technology,
innovation, and creativity as well as his entrepreneurship could/can also be seen
in his jobs at NeXT and Pixar.
When Steve Jobs came back to Apple in 1997, he immediately recruited a new
Board of Directors and had to reposition Apple in the evolving personal computer
industry.
43
In fact, Jobs also proved his capabilities of being able to make harsh
decisions during the restructuring of Apple when he rescinded the licences of

competitors who have been cloning Macintosh computers and killed the Newton
hand-held device.
44
In short, Steve Jobs not only successfully pursues his current
vision for Apple but could also implement necessary restructuring efforts in the past
which led to an increase in the companys profits and therefore in shareholders
wealth.
Evaluation of skills
Actually, no one really doubts that Steve Jobs is the right man for Apple because
45
hes not only admired by the Silicon Valley elite for the foundation of the company
but also for his glamour, technological obsession, and the other characteristics and
abilities discussed above. Moreover, Businessweek titled him one of the best
managers 2003 as Jobs moved beyond computers to establish himself in two
businesses where newcomers rarely emerge unscathed: music and movies. In fact,
Jobs was the first to find a way to compel consumers to pay for online music and
Pixar Animation Studios continued a remarkable run of hits with Finding
46
47
Nemo , the top-grossing film of 2003 and the top animated hit of all time .
Nevertheless, critics of Steve Jobs claim that he seems strangely uninterested in the
post-PC devices
48
and that he creates a reality-distortion field as his enthusiasm
for a favoured technology is so great and his selling of it so sure, that anyone who
meets him invariably feels converted.
43
Yoffie44D. B. and Wang Y.

(2003) The Economist (1998a)
45
The Economist (1999b)
46
BusinessWeek (2004d)
47
BusinessWeek (2004c)
49
In addition, his absolute belief in Apples right
48
49
The Economist (2000)

35
Apple Computer Inc.

strategy and future success which he emphasises is many interviews might sound a
bit arrogant to other people but actually can also be seen as a sign of his strong
commitment and enthusiasm.
Strategic issues and future challenges
Steve Jobs can be seen as the fathe r of Apples current digital hub strategy which
should transform the personal computer into a multimedia and entertainment hub
that connects many devices. In fact, this strategy can be regarded as quite visionary
and revolutionary as it is especially aimed at the future. Therefore, it can be
concluded that Steve Jobs apparently has developed a coherent strategy to deal
with future challenges and is convinced that his approach will lead the personal
computer once again into a new era and therefore guarantee Apples future success.
Nevertheless, it has to be stated that Apples future success and the future
performance of Steve Jobs will not only depend on this ambitious strategy but also
on various other factors especially concerning the business execution and
commercialisation of his ideas. Although this was sometimes a problem in the past,
the success of the iPod for example shows that Steve Jobs and Apple are probably
on the right way. In addition, it will be important for the company to continuously
focus on its strengths in the field of innovation and therefore Steve Jobs is definitely
the right man to manage this challenge due to his unlimited commitment and
enthusiasm for technological inventions.
4.2.3 Top Management
Executive management team
Name
50
Age
Since
Position
Steve Jobs
48
1997
Chief Executive Officer
Fred D. Anderson
59
1996
Executive Vice President and Chief Financial Officer
43
1998
Executive Vice President, Worldwide Operations
Timothy D. Cook
Executive Vice President, Worldwide Sales

Nancy R. Heinen
47
1997
Senior Vice President and General Counsel
Ronald B. Johnson
45
2000
Senior Vice President, Retail
41
1996
Senior Vice President, Finance
Peter Oppenheimer
Corporate Controller
Jonathan Rubinstein
47
1997
Senior Vice President, Hardware Engineering
50
36
Apple Computer Inc.

Philip W. Schiller
43
1997
Senior Vice President, Worldwide Product Marketing
Bertrand Serlet
42
1997
Senior Vice President, Software Engineering
Sina Tamaddon
46
1997
Senior Vice President, Applications
Avadis Tevanian
42
1997
Chief Software Technology Officer
It should be stated that most executive managers joined Apple in 1997 the year in
which Steve Jobs came back to the company. Moreover, most executive managers
were externally hired (Jobs, Serlet, Tamaddon, and Tevenian as part of the
acquisition of NeXT) and only a few held other positions within the company before.
In addition, Fred Anderson will retire as CFO on June 1, 2004 and Peter
51
Oppenheimer will succeed him as Chief Financial Officer .

52
Professional background and experience

Name
Steve Jobs
Chairman and CEO of Pixar Animation Studios

Chairman and CEO of NeXT
Fred D. Anderson
Director of eBay and E.piphany

Corporate Vice President and CFO of Automatic Data Processing
Timothy D. Cook
Vice President, Corporate Materials of Compaq

Chief Operating Officer of Intelligent Electronics
Director of North American Fulfillment of IBM
Nancy R. Heinen
Vice President, General Counsel and Secretary of the Board of NeXT
Ronald B. Johnson
Senior Merchandising Executive of Target Stores
Peter Oppenheimer
CFO of Automatic Data Processing

Information Technology Consulting Practice of Coopers and Lybrand
Jonathan Rubinstein
Director of Immersion Corporation

Executive Vice President, Chief Operating Officer of FirePower Systems
Philip W. Schiller
Vice President, Product Marketing of Macromedia

Director of Product Marketing of FirePower Systems
Bertrand Serlet
Director of Web Engineering of NeXT

Research engineer of Xerox PARC
Sina Tamaddon
Vice President, Europe of NeXT

Vice President, Professional Services of NeXT
Avadis Tevanian
Vice President, Engineering of NeXT

Engineering and management positions of NeXT
In fact, Apples top management possesses a strong professional background as all

executive managers held positions that were related to their current positions in the
51
http://www.apple.com/pr/library/2004/feb/05anderson.html,
52
37
Apple Computer Inc.

past. So, the companys management contributes to its success by providing the
required skills, experience, and knowledge as well as the necessary industry
background.
Performance and compensation
In fact, compensation information is only available for the last three years for the four
most highly compensated executive officers (other than the CEO). The following
table summarises their compensation:
Name
Fred D. Anderson
Timothy D. Cook
Ronald B. Johnson
Avadis Tevanian
Year
Salary ($)
Bonus ($)
Restricted
Securities
All Other
2003
656,631
---
---
---
11,450
2002
656,631
---
---
---
11,000
2001
657,039
---
---
1,000,000
7,312
2003
617,673
---
---
---
9,929
2002
563,829
---
---
---
8,025
2001
452,219
500,000
---
1,000,000
7,875
2003
452,404
1,500000
---
---
---
2002
452,404
---
---
300,000
---
2001
452,429
---
---
300,000
---
2003
456,731
---
---
---
11,962
2002
492,212
---
---
---
10,700
2001
460,873
500
---
1,000,000
10,200
It can be seen that there are some salary differences of Apples best compensated
chief executives and that CFO Fred Anderson earns the highest salary in the
company. Moreover, the company didnt give many bonuses but made some smaller
contributions in accordance with the 401(k) plan that are listed as other
compensation. In addition, there were no options granted to the named executive
officers in 2003.
By linking Apples compensation scheme to the performance of the company there
isnt any observable direct link because Apple had a net loss of $25 million in 2001,
followed by a net income of $65 million in 2002 and $69 million in 2003 whereas
only Timothy D. Cooks salary moved according to this pattern. Moreover, in
terms of salary Timothy D. Cook was the only one who was granted a significant
increase of his salary during the last three years whereas there had been only
modest changes in the other executives salaries.
38
Apple Computer Inc.

Strategic issues and future challenges
Although Apples core strategy is always associated with Steve Jobs and his visions
for the company, Apples other senior executives show that they are sufficiently
skilled to contribute to the future success of the company due to their strong
professional background and the sharing of the companys common values (as many
of them came from other innovative and upright companies). Moreover, several
statements and their overall public behaviour show that they have also adopted the
companys norms and conduct their jobs in the ethical manner which is demanded
through the companys code of business ethics.
In addition, as Apple doesnt give any information concerning future strategies,
products, and plans to the public, it can be followed that the internal communication
and discussion among the companys top management is not only fruitful but also
characterised by the loyalty to the companys norms and rules. So, it is obvious that
Apples top management is highly involved in the internal strategic management
process and contributes to the future choice of strategies and success of the
company.
4.2.4 Stockholdings of Board of Directors and Senior executives
The following table indicates security ownership of Directors and executive officers
as of October 31, 2003:
53
Name
Shares
of
Common Percent of Common
Stock
Stock Outstanding
Steven P. Jobs
5,060,002
1,38%
Fred D. Anderson
1,152,672
0,31%
90,502
0,02%
Timothy D. Cook
804,334
0,22%
Millard S. Drexler
90,000
0,02%
---
0,00%
Ronald B. Johnson
1,204,334
0,33%
Arthur D. Levinson
231,600
0,06%
Avadis Tevanian Jr.
1,601,252
0,44%
110,000
0,03%
4,370, 677
1,19%
14,715,373
4,00%
William V. Campbell
Albert Gore Jr.
Jerome B. York
Others
All Executives and Directors (16 people)
53
39
Apple Computer Inc.

4.2.5 Governance mechanisms
Generally, the governance mechanisms are aimed at aligning incentives between
principals and agents and to monitor and control agents in order to reduce the
possibility of agency problems. As the Board of Directors has already been described
earlier in this chapter, this section will now take a closer look at several other
governance mechanisms as well as at Apples general governance guidelines and
the three committees that should support those.
Stock-based compensation
Stock-based compensation schemes, such as stock options, are aimed at aligning
management and stockholder interests by providing an incentive for executives to
implement strategies that increase the future value of the company and its shares
and therefore increase the value of their own shareholdings as well as the wealth of
the companys shareholders in general.
54
In fact, Apple has used stock options as a form of executive compensation in the past
but due to some criticism no options were granted to or exercised by the executive
officers in 2003 and the company has entered into an Option Cancellation and
Restricted Stock Award Agreement with CEO Steve Jobs in 2003 (which cancelled
stock option awards granted in 2000/2001 and gave Jobs a restricted stock award).
Moreover, as critics of these compensation systems suggest that companies should
at least treat options as an expense that must be charged against profits, Apple
includes the pro forma effects when accounting for stock compensation in its annual
SEC-filings.
55
Financial statements and auditors

Like every publicly traded company in the US, Apple has to file quarterly and annual
reports with the SEC that are prepared according to GAAP and that are audited by
an independent and accredited accounting firm.
KPMG
57
56
Apples independent auditor is
which generally offers a complementary range of multi-disciplinary skills
including Assurance, FAS, Tax and Legal services to clients. Moreover, as a client of
54

388 Apple Computer Inc. (2003)
56
57
Hill C. W. and Jones G. R. (2004), p. 390

http://phx.corporate-ir.net/phoenix.zhtml?c=107357&p=irol-faq#corpinfo1, 14.02.04
40
Apple Computer Inc.

KPMG, Apple can leverage KPMG's in-depth knowledge in various areas
58
but has
also adopted an auditor independence policy that bans KPMG from performing non59
financial consulting services . As a result, no conflict of interest that could stem from
an auditor performing auditing and consulting businesses simultaneously exists at
Apple.
In fact, a detailed look at the companys annual 10-K filings with the SEC highlights
that Apple obviously can guarantee the accuracy of the information contained in the
audited financial statements. Moreover, the Board is able to objectively guarantee
the quality and accuracy of the auditors work due to the Boards independence and
the dominance of outside members on the Board.
Employee incentives
In fact, positive incentive systems are an effective way of motivating employees to
work towards goals that are important for maximizing company performance and
especially long-run ROIC. Possible incentives are employee stock ownership plans,
stock option grants, and bonuses or other financial rewards that are linked to the
achievement of goals related to the four building blocks of competitive advantage
(superior efficiency, quality, innovation, and responsiveness to customers).
60
In order to take advantage of these positive effects, Apple has established several
employee benefits such as employee stock option grants, employee stock purchase
plans, and an employee savings plan. In spite of these financial incentives, Apple
also creates an incentive for employees to stay with the company by providing an
atmosphere of creativity, innovation, and technological fascination that allows them
to experiment, to be creative and to turn their technological ideas into reality.
61
Corporate governance guidelines
According to Apples corporate governance guidelines, the Board of Directors has to

oversee the CEO and top management in their operation of the corporation and to
ensure that these act in the long-term interests of the shareholders which should
reduce the agency problem. In addition, there should be at least a majority of
independent Directors on the Board (which is actually the case at the moment) and
58
59
http://www.kpmg.com/about/, 19.02.04
60

395 Apple Computer Inc. (2003d)
41
Apple Computer Inc.

the Board of Directors should effectively pursue its activities in the three committees
which are described in more detail below. Moreover, the Board has to monitor the
mix of skills and experience of its Directors in order to assure that the Board has the
necessary tools to perform its oversight function effectively. Finally, the Board
should consider shareholder proposals with respect to Director nominations and
devote enough time and attention to its tasks.
Concerning ethics and possible conflicts of interest, the Board expects its
Directors, as
well
as
officers
and
employees,
to
act
ethically
and
to
acknowledge their adherence to the corporations code of conduct.

In addition, the Directors are elected annually by shareholders to serve a one-year
term and there are no term limits. Moreover, it is possible for the Board to elect
Directors between annual shareholder meetings (as it was the case with James
Lawrence at the beginning of 2004) and the Board should consist of five to nine
members. Besides, it is the responsibility of Apples management to provide new
Directors with sufficient educational opportunities and information about the company
and the responsibility of Directors to inform the Board about changes in their job
responsibilities.
Additionally, Apples corporate governance guidelines contain detailed information
about further responsibilities/rights and the compensation of the Directors and
emphasize the independence and rules of the Board committees. Moreover, a selfevaluation (at least once a year) of the Board should ensure its quality and the Board
should evaluate the performance of the corporations executive officers in order to
guarantee adequate compensation, effective leadership, and constant management
development. Finally, succession planning for senior management and the CEO is an
important responsibility of the Board to contribute to Apples successful future
performance and stability.
62
Audit and finance committee
The Audit and finance committee is primarily responsible for overseeing the services
performed by the company's independent auditors and internal audit department,
evaluating the company's accounting policies and its system of internal controls and
reviewing significant financial transactions. Whereas the committee performs an
important internal and external control function, it is not the duty of the committee to
62
Apple Computer Inc. (2003b)
42
Apple Computer Inc.

prepare financial statements, to perform audits or to determine that the corporation's
financial statements and disclosures are complete and accurate as these are the
responsibilities of management and the independent auditors.
So, as the committee has to ensure the quality of its independent auditors, it is a vital
element in enhancing the governance mechanism of financial statements and
auditors.
63
Compensation committee
The
Compensation
committee
is
primarily
responsible
for
reviewing
the
compensation arrangements for the company's executive officers, including the

CEO, and for administering the company's stock option plans. In addition, it
should establish and modify compensation and incentive plans and programs and
therefore supports the governance mechanism which deals with stock-based
compensation.
Nominating and corporate governance committee
64
The Nominating committee assists the Board in identifying qualified individuals to

become Directors, determines the composition of the Board and its committees,
monitors the process to assess Board effectiveness and helps develop and
implement the company's corporate governance guidelines.
As a result, this committee doesnt only have an important function in determining
Apples direction in terms of corporate governance but also in guaranteeing the
quality and independence of the Board of Directors which serves as an important
governance mechanism.
65
4.2.6 Business ethics

Fundamental principles
Apples core fundamental principle is to use good judgement and the company is
especially aware of its responsibility to shareholders, communities, and customers in
conforming with legal/ethical boundaries and complying with applicable laws. In
addition, the corporations employees should be aware of job and ethical
responsibility.
63
Apple Computer Inc. (2003c)

Apple65 Computer Inc.
(2003g)
Apple Computer
Inc. (2003e)
64
43
Apple Computer Inc.

In fact, Apples business standards include highest standards of business conduct,
honesty and ethical awareness, avoidance of conflicts of interest, respect of
confidentiality of (internal) information, highest standards of corporate citizenship
(rules and laws), and the provision of benefits to communities through the companys
presence. Apple expects its employees, business partners, and other parties to
comply with these standards and policies.
Responsibilities
Apple recognises its responsibility to the company itself to encourage a creative,
culturally diverse, and supportive work environment and therefore doesnt tolerate
any kind of discrimination, harassment or other threats. Moreover, as the companys
success depends on its technologically innovative products, Apple has implemented
strict information protection policies in order to preserve the confidentiality of its
confidential, proprietary, and trade secret information. In addition, Apple has specific
policies for the communication to the press and financial analysts and only allows
limited personal use of Apple-owned equipment. In order to prevent conflicts of
interest, the company has identified several possible sources of such conflicts and
recommended avoidance strategies. Finally, a key ethical responsibility for the
corporation is to ensure the quality of its records by acting in accordance with
established procedures, policies, laws, rules, and regulations, by forbidding false or
misleading entries as well as undisclosed/unrecorded funds, payments or receipts,
and by specifying records or documents that must not be destroyed, altered or
modified.
Concerning Apples responsibility to other stakeholders, the company aims at
satisfying the costumer first by putting him first and it expects its employees to strive
for the highest quality possible. Moreover, Apple complies with all license or
purchase terms as well as with copyright agreements and expects the same from its
employees and contractors. Additionally, Apple has defined several responsibilities to
the public in which it prohibits insider trading, aims at meeting export and
government requirements, avoids political contributions, and supports trade
practises that foster competition.
44
Apple Computer Inc.

Compliance, consequences, and strategic implications
In fact, Apple expects its employees to comply with its code of ethics and to be
sensitive to possible violations. Moreover, the company is committed to integrity in all
of its dealings with employees, customers, and the general public, especially
through the use of voluntary disclosures and the report of inappropriate
behaviour. As violations of these laws may result in civil and criminal penalties
for Apple and its employees, the corporation will take appropriate action
(termination of employment or other business relationship, or legal action, or referral
to law enforcement authorities) if this occurs.
From a strategic viewpoint, Apples code of business ethics aims at establishing
ethical behaviour which should lead to ethical decisions by its management and
employees decisions that reasonable or typical stakeholders would find acceptable
because it aids stakeholders, the organisation or society
66
. In addition, these
business ethics provide a huge variety of tools for dealing with moral complexity and
therefore
provide
general
guideline
combined
with
specific
actions/recommendations for certain situations where the moral implications of

strategic decisions or personal behaviour are of special importance.
Actually, Apple strongly aims at establishing a culture that emphasises the
importance of ethics. Although Apple has developed a consistent and exemplary
code of business ethics, it hasnt been successful in implementing all the three
necessary steps for fostering an ethical organisational climate
67
. In fact, top
managers should stress ethical values more (at least in their external comments) and
ethical values should be incorporated into the mission statement as they should not
only be written down in a separate document.
Nevertheless, it has to be concluded that Apple definitely can be regarded as a role
model in terms of emphasising the importance of business ethics and due to its
coherent culture will probably be able to successfully implement an ethical climate in
its whole organisation.
66
395
Hill
C. W. and Jones G. R. (2004), p.
67
Hill C. W. and Jones G. R. (2004),
p. 296
45
Apple Computer Inc.

4.2.7 Environmental issues
In order to satisfy the claims of various stakeholders, Apple included environmental
and other related issues in its corporate governance efforts. By recognising the
responsibility to minimise the environmental impacts of its operations/products and
integrating sound environmental, health, and safety management practises, the
company can better satisfy employees, customers, local communities, and the
general public.
68
Environmental mission statement and guiding principles

According
to
its
environmental
mission
statement,
by
integrating
sound
environmental, health, and safety management practices into all aspects of its
business, Apple offers technologically innovative products and services while
conserving and enhancing resources for future generations . This is based upon
several guiding principles which are founded on laws, regulations, standards, and
requirements as well as sound scientific principles and fiscally responsible public
policy. Moreover, the corporation aims at communicating the benefits of such a policy
of environmental consciousness, energy efficiency, safety maximisation, and health
protection to its various stakeholders.
69
Corporate initiatives and actions
Apples Corporate Environmental Health and Safety (EHS) Department provides

several activities and services to ensure the implementation of Apples EHS policy by
refining, developing, implementing, and maintaining documented programs and
processes. These include on-line training programs, corporate EHS audits,
environmental due diligence, and OSHA statistics. Moreover, the company engages
in effective recycling as well as in product design, manufacturing, use, and end of life
which are targeted at the protection of the environment and maximising
environmental quality.
68
http://www.apple.com/about/environment/corporate/index.html#EHS_policy, 14.02.04
69
http://www.apple.com/about/environment/corporate/corp_ehs_programs/index.html, 14.02.04
46
Apple Computer Inc.

4.3 Corporate structure
4.3.1 Organisational structure
In fact, the companys management employs a functional structure as the company is
organised along functional lines. This can be shown in the following chart:
CEO
Finance
Operat-
Retail
Marketing
Hardware
Software
ions/Sales
Applications
This structure groups people on the basis of their common expertise/experience and
resources. It enables the companys functions to learn from another and to become
more specialised and productive. Moreover, this structure enables effective
monitoring and efficient activities which consequently reduces costs and increases
operational flexibility. As we can see in Apples case, where the executive
management teams structure corresponds to this structure, a functional structure
gives managers greater control of organisational activities and enables the company
to avoid becoming too tall by creating several different hierarchies.
70
By decentralising authority and responsibility as well as through a relatively flat

hierarchical structure, Apple encourages its lower-level managers and employees to
take the initiative and foster the companys strengths (i.e. Apples innovation,
71
engineering excellence, and marketing skills ). Moreover, decentralisation enhances

the companys planning, decision making, and control processes due to better
information availability.
72
4.3.2 Operating structure

Apple primarily uses a geographic structure for managing its business. The
corporations reportable operating segments are the Americas, Europe, Japan, and
Retail. The Americas segment includes both North and South America, except for the
activities of the companys Retail segment. The Europe segment includes European
countries as well as the Middle East and Africa. The Japan segment includes only
Japan, except for the activities of the companys Retail segment. The Retail
segment
70

422 BusinessWeek (2004c)
72
Morden T. (1993), p. 228
47
Apple Computer Inc.

currently operates Apple-owned retail stores in the United States and in the first
quarter of fiscal 2004, opened its first international store in Tokyo, Japan. Other
operating segments include Asia-Pacific, which includes Australia and Asia except
for Japan, and the companys subsidiary FileMaker. Each reportable operating
segment provides similar hardware and software products and similar services.
73
This structure can be shown in the following organisational chart:

CENTRAL OPERATIONS
CEO, Management
Americas
Europe
North
Japan
Europe
America
South
Retail
Japan
Other
United
Australia
States
Middle East
Japan
Asia
America
Africa
FileMaker
This structure allows the company to be responsive to the needs of regional

customers and reduces transportation costs. As most central functions are
centralised, Apple can leverage its skills (e.g. in the fields of marketing or
hardware/software/applications development) across all the regions.
74
Nevertheless,
it has to be stated that this doesnt represent a pure geographical structure because
the Retail operating segment doesnt constitute a geographical area. So, there might
arise coordination or communication problems between the two sub-segments
United States and Japan in the Retail operating segment and the North America
and Japan sub-segments in the Americas or Japan operating segment.
4.3.3 Performance
Apple evaluates the performance of its operating segments based on net sales. The
Retail segment's performance is also evaluated based on operating income. Net
73
74

48
Apple Computer Inc.

sales for geographic segments are based on the location of the customers. The
following table provides an overview of the performance of Apples operating
segments (detailed information on the composition of the various positions can be
75
found in the companys SEC-10K filings) :

($, millions)
2003
2002
2001
Americas
Net sales
3,181
3,131
3,037
Operating income
323
278
128
Segment assets
494
395
334
1,309
1,251
1,249
Operating income
130
122
68
Segment assets
252
165
137
Net sales
698
710
713
Operating income
121
140
98
Segment assets
130
50
44
621
283
19
(5)
(22)
(21)
243
141
46
398
367
354
Operating income
51
44
24
Segment assets
78
67
70
Europe
Net sales
Japan
Retail
Net sales
Operating loss
Segment assets
Other segments
Net sales
The table indicates that net sales have increased in all segments except Japan and
consequently the operating income position has improved in all segments from 2001
to 2003. In fact, only the Retail segment has an operating loss in 2003 despite a high
increase in net sales, resulting from the opening of new Apple retail stores.
4.3.4 Strategic implications
Concerning the overall strategic implications of Apples corporate structure, it can be
stated that Apples organisational structure is consistent with its objectives/strategy
and its operating structure is consistent with its international strategy/operations. This
75
49
Apple Computer Inc.

is especially manifested in the huge importance of hardware, software, and
applications engineering (which contribute to the companys objective to be the most
innovative company) and the importance of marketing and retail (which should
highlight Apples status as a creative, innovative, and cool company) as well as the
structure of the operating segments respectively (which are generally supporting the
companys international objectives and presence).
4.3.5 Integration and control
76
In order to avoid coordination problems between people, functions, and divisions,

Apple has to use integration mechanisms and control systems. Actually, integration
mechanisms aim at increasing intra-functional coordination and communication. As
Apples culture can be described as relatively open and casual, direct contact
constitutes an appropriate integration mechanism. In fact, direct contact among
Apples managers enables them to work closely together in terms of problemsolving and other (strategic) issues.
In terms of control systems, these are targeted at efficient monitoring/evaluation and
enable the company to reach superior efficiency, quality, innovation, and
responsiveness to customers. For instance, concerning efficiency it can be stated
that on the one hand Apple apparently produces its goods and services efficiently
(which explains its profitability) but on the other hand the efficiency in several areas
(e.g. Apples network of huge retail stores across the United States) remains doubtful.
As Apple is famous for its quality and innovation, these areas can be seen as major
strengths of the company due to appropriate strategic control.
In fact, Apple uses personal control as the company expects their employees to
perform
their
work
efficiently,
avoid
hiding
any
information,
and
share
competencies/experience. The firm therefore aims at shaping and influencing the

behaviour of its workforce through the promotion of the companys goals and values
in everyday face-to-face interaction as well as through the huge enthusiasm and
motivation skills of its management which should influence the all of the companys
employees.
76
Hill C. W. and Jones G. R. (2004), p. 410ff
50
Apple Computer Inc.

Moreover, Apple is also engaged in terms of behaviour control, as the firm aims at
generally directing the actions and behaviour of its employees through certain rules
like the code of business ethics. Nevertheless it should be stated that this type of
strategic control generally plays a minor role, because Apple generally prefers
creativity and innovation instead of standardised procedures.
As one would expect for a firm that engages in the computer industry, information
technology definitely plays a major role in supporting Apples organisational structure
and
control
systems.
In
fact,
IT
improves
information
and
knowledge
distribution/availability, facilitates output/financial control, enables better and

problem-solving, and leads to several other positive aspects through a common
software platform, a company-wide intranet, and Apples general expertise in terms
of IT.
4.4 Corporate culture

4.4.1 Culture and values
Corporate culture defines the specific set of values and norms shared by people and
groups within a company. Actually, values can be regarded as beliefs and ideas
about what kinds of goals should be pursued and the appropriate standards of
behaviour for achieving these goals. On the basis of these values, norms are
developed which constitute guidelines or expectations for appropriate behaviour in
particular situations and the control of the right behaviour. As a result, it is the task of
management to influence the values and norms of the organisation.
77
By taking a look at the role of top management in creating the culture of the
enterprise, it becomes obvious that (in spite of a period of frequent changes of chief
executives) no CEO could successfully alter the rebellious, defiant, against formal
business routines type of culture that characterised Apple when it was founded in the
1970s.
78
In fact, the companys culture could be described as individualistic at the
beginning which means that it emphasised individual empowerment and creativity

and saw personal creativity and self-expression as the source of competitive
77

417f Dupai I. and Pinter V. (1999)
51
Apple Computer Inc.

79
advantage . As organisational culture is created by the strategic leadership provided

by an organisations founders and top-managers, it becomes clear that current CEO
Steve Jobs as a co-founder of Apple definitely is the optimal person to design and
st
develop the companys culture with regard to the challenges of the 21 century.
In fact, the firms culture should be regarded as an emergent culture as it was never
well-defined but emerged from the way its founders lead the company. Therefore, the
initial bohemian, individualistic, riotous, and rebellious culture (which was definitely
advantageous when the company was a mere start-up)
80
continually changed as the
company metamorphosed into a corporate giant and its values adapted to the new
situation although the core values sta yed more or less the same. So, Apples culture
today can be described as a culture which focuses on innovation and creativity and
has definitely become an adaptive culture. Concerning the latter aspect, Apple has
developed a culture that encourages innovation and initiative and therefore can adapt
to its current environment which is absolutely necessary because of the huge amount
of rapid changes in the fast-moving computer industry.
81
In addition, it is important to take a closer look at the role of innova tion and creativity
as they are the two most important values in the companys culture. In fact, it is
obvious that these values are constantly emphasised by Steve Jobs through
statements such as Innovate, thats what we do
technology company out there
83
82
or Apple is the most creative
. Moreover, the CEO always tries to link the
companys reputation for successful innovation to the company as a whole and

therefore not only claims that this culture of innovation and creativity creates the
worlds best computers and other great products but also says that these attract the
best 25 million customers any company ever had.
84
By constantly emphasising
these positive effects of Apples innovative culture, innovation is manifested as the

cornerstone in the companys culture and therefore leaves no doubt that it represents
the most important source of the firms competitive advantage. In order to transform
innovation into a sustained competitive advantage, the firm has a strict policy that
79
80
81
Morden T. (1993), p. 243

The Economist (1998b)
Hill C. W. and Jones G. R. (2004), p.
82
418 Fastcompany (2004)

84
83
52
Apple Computer Inc.

none of its employees are allowed to talk about of refusing to comment on future
products or services
85
and therefore preserves the value of its upcoming innovations.
Nevertheless, there are also certain drawbacks to this form of culture that is primarily
based on innovation. First of all, Steve Jobs apparent belief that Apple could
86
innovate its way through a downturn
seems to be inconsistent with economic reality
as economically successful products dont only need innovation but also appropriate
execution, consistency, and follow-through (supporting product innovation with things
such as a solid sales force, a strategy for collaborating with developers and makers
of complementary products, and a strategy for customer service). So, one apparent
criticism is that Apple has devoted itself single-mindedly, religiously to innovation.
Moreover, the source of innovation is another important criticism as Apple might
focus too much on technical innovation and not enough on the innovation of business
models which would rather increase profitability (e.g. as it is the case at Dell).
87
In terms of organisational socialisation (which specifies how people learn

organisational culture and therefore become organisational members), the values
and norms of Apples corporate culture are not only manifested in written documents
like the code of business ethics but also transmitted through stories, myths, and
language. For instance, the various myths about Apple and its charismatic CEO as
well as the conviction, enthusiasm, commitment, and technological obsession which
are obvious in all of Steve Jobs statements highlight the companys corporate culture
and directly influence all members of the organisation.
4.4.2 Strategic implications
Concerning the strategic implications of Apples corporate culture, it can be stated
that the companys values and norms are definitely clearly communicated internally
(as well as externally) through documents and the role/behaviour of management
and therefore should be clearly understood by everyone in the organisation.
In addition, the firms culture can be seen as consistent with corporate strategy and
objectives as innovation is an integral part of Apples corporate strategy and staying
85
86
87
BusinessWeek (2002a)
Fastcompany (2004)
53
Apple Computer Inc.

the most innovative company definitely acts as one of the firms core objectives.
Moreover, it is also consistent with the design of the organisations structure where
the various functions that primarily serve as sources of (technical) innovation
(hardware, software, and applications engineering) represent separate functions in
the overall organisation and therefore have enough power, capacity, and attention to
be innovative within this common cultural framework.
4.5 Corporate resources
88
The following six subchapters take a closer look at six value creation functions,
namely Marketing, Finance, Research & Development, Operations & Logistics,
Human Resource Management, and Information Systems. The importance of these
functions can be illustrated through the value chain which regards a company as a
chain of activities for transforming inputs into outputs where primary activities are
concerned mainly with the actual design, creation, delivery, and marketing of the
product and support activities allow the primary activities to take place.
As Operations & Logistics contains materials management acti vities, the production
of the product, and customer service, we can illustrate the position of all single
functions in the following value chain where every function adds value to the product
(the overall company infrastructure isnt explained explicitly in the following chapters
as it mainly deals with aspects that have already been described before like the
companys management or organisational structure):
Primary Activities
Research &
Production
development
Company
infrastructure
Information
systems
Marketing
Customer
and Sales
service
Materials
manage ment
Human
resources
Support Activities
88
Hill C. W. and Jones G. R. (2004), p. 83-86
54
Apple Computer Inc.

4.6 Corporate resources: Marketing
Apple designs, manufactures and markets personal computers and related
software, peripherals and personal computing and communicating solutions.
How can Marketing and Sales achieve a competitive advantage and add value in
the value chain?
For example, customers are attracted to Apples Macintosh computers for a variety of
reasons, including the reduced amount of training resulting from the Macintosh
computer's intuitive ease of use, advanced graphics capabilities, industrial design
features of the Companys hardware products, and ability of Macintosh computers to
network and communicate with other computer systems and environments.
89
These
attributes need to be addressed by the marketing department and communicated to

potential customers. The key success factor is to create value by igniting people's
imagination and create a favourable impression of the products by means of brand
positioning, advertising, and promotion.
90
Apples marketing strategy is to put its customers first: Apple creates,

manufactures, and markets computing products so people can use them to make
their lives better. Apple strives to understand our customers needs, to provide
customers with the tools and skills to enhance their use of Apple products, and
to be courteous and instructive.
91
At Apple creativity, innovation, and customer responsiveness are seen as highest

principles therefore clearly formulating them as biggest responsibilities in their
marketing policies. This view of conducting business goes hand in hand with their
mission statement that Apple is committed to bringing the best personal
computing
experience to students, educators, creative professionals and consumers around the
world through its innovative hardware, software and Internet offerings.
92
So as one
can obviously understand the marketing goals of the company are coherent with the
overall objectives of Apple.
89

Hill C.
W. and Jones G. R.
91
(2004) Apple Computer Inc.
(2003)
92
Apple Computer Inc. (2003e)
90
55
Apple Computer Inc.

4.6.1 Marketing strategy
As Steve Jobs took over Apple 1997 as CEO, a lot of people doubted that he will
succeed to turnaround the company and return it to profitability. But once again he
proved the others wrong. His eager goal and objective for Apple was to transform the
niche PC maker into a high-end consumer-electronics and services company, being
less dependent on its sales of computers and laptops. Currently 80% of revenues are
generated in this area.
93
So this radical change in corporate strategy meant that marketing strategies had also
to change and adapt to this new strategy. He reorganised the department by
centralising the responsibilities in company wide groups, so that communication and
effectiveness can be increased.
Along with its new focus on software and services as the introduction of iMovies in
1999 and the iTunes music online store in 2001 demonstrate impressively, the
invention of the iPod, an MP3 player, marked the first product that wasn't tethered to
the Mac. This paradigm shift in overall corporate strategy was naturally accompanied
by huge marketing expenses. In its third quarter of 2003, which ended June 30,
Apple earned $428 million in gross profit, a 27.7% margin on sales of $1.55 billion,
but it spent $419 million on operating expenses, leaving it with an operating margin
of just 0.6% (marketing accounted for $193 million).
94
Apple's gross margins are
the envy of the industry. But below the line, they give it all back. Apple pours money
into R&D and selling, general, and administrative expenses. They have expensive
retail locations and high-end advertising. In other words it's a Cadillac operation.
The dedication to high-end marketing leaves the company with very little
choice in regards to increasing operating margins. Steve Jobs already assured
that he wont cut costs through decrease in marketing expenses but will focus on
increasing profits and revenues. The huge marketing budget can be justified through
its unique position as hip brand the cult of cool it has spent billions building this
image.
On one side Apple focused its recent marketing operations on one major business
area: The iPod and iTunes, recognising that the global music MP3 market will triple
until 2006 as forecasts show. So strategy adjusts in respect to changes in the
93
http://www.macminute.com/2003/08/05/appleshift,
94
56
Apple Computer Inc.

external environment, which actually shows Apples marketing departments
responsiveness to outside changes.
On the other side Apple slowed down the aggressive marketing in terms of PCs and
notebooks as their niche market, because especially one of their core businesses,
the advertising and media business, was in a steady decline during the last few years
and therefore demand for products was anyway not skyrocketing. Remarkable in this
area is that Apple adopted the direct selling model from one of its rivals Dell by
opening their own online store, which has been a huge success, now accounting for
40% of total PC sales in the US market.
95
Through combination of online and retail
channels Apple has the opportunity to reach both first time buyers and Power users,
who are looking for sophisticated and customized products. This analysis shows that
Apple is adapting to changes in the external as well as internal environments to align
the marketing strategy with its corporate strategy and consequently Apple is ahead of
the curve. As software and services become more important, both to consumers and
to generate revenue, Apple's moves to capitalise on its brand and bring simple,
elegant software and services to the Windows world make sense.
Microsoft's mantra is Where do you want to go today? But its Apple that has
succeeded at figuring out where people really want to go.
4.6.2 Brand positioning
Like people, brands can be viewed as having personalities. A brand can be viewed
as being trustworthy, humorous, youthful, intellectual, etc. The personalities of
brands can affect the relationship that is developed with the brand's users. A
brand's personality can also serve to reinforce a product feature. The creati ve and
innovative "personality" of Apple computer products and the advertisements that
promote them do much to reinforce the distinctive capabilities of Apple and create
brand loyalty, which in turn leads to low customer deflection rates and a possible
ride down of the experience curve. The result of being on a lower point of the
experience curve is
lower cost and therefore the margin between costs (C) and value (V) widens,
increasing companys efficiency as well as its profits.
96
95
Yoffie96D. B. and Wang Y.

(2002) Evans D. and Gupta P.
(2001)
57
Apple Computer Inc.

What Apple accomplished throughout its existence was the promotion of the brand
and its products simultaneously as the legendary spot 1984 (relaunched in 2004 for
the 20 year jubilee) in the half time break of the Superbowl, influenced by the
identically named bestseller of George Orwell, demonstrates in a spectacular way.
People associate the same qualities with the company AND its products. This
capability results therefore in a very strong brand loyalty.
The experience curve
Accumulated output over time
4.6.3 Marketing mix

Products
Power Mac (PC) and iBook (laptop), iPod (MP3-player), iTunes (online music store)
and multimedia software are the core products of Apple.
Price
Products are usually, as previously mentioned, highly differentiated and high-priced
in the premium segment of their respective market. This pricing option is seen as the
main obstacle for Apple to enter the mass market and gain sustainable market
share, but Apple puts itself as a supplier mainly to the education sector and the
graphic professionals community, which altogether is a high end niche market.
Promotion
Promotion heavily utilises the TV as its advertising channel to promote the coolness
factor of Apples products. For example Apple recently produced a commercial
together with the famous soft drink producer Pepsi to market its iTunes music online
58
Apple Computer Inc.

store. The ad marks also the intro of the current version of the Apple homepage.
97
Another simultaneous campaign running in recent years is the Switch -campaign

which tries to encourage Wintel user (user that use Intel microprocessors with
Windows operating systems) to switch to Apple by emphasising the comparative
advantage in terms of reliability and user friendliness.
Placement
Since the inception of the retail initiative in 2001, Apple has opened 65 retail stores in
the United States through 2003 and during the first quarter of 2004 opened 9
additional stores, including its first international store in the Ginza in Tokyo, Japan.
98
Stores are installed at high traffic locations in quality shopping malls and urban
shopping districts. In addition to its own hardware, software, and peripheral products,
the company's stores carry a variety of third-party hardware and software products.
One of the main goals of the retail initiative is to bring new customers to Apple and
expand its installed base through sales to both first time personal computer buyers
and those switching to the Macintosh platform from competing operating system
platforms. By operating its own stores, Apple is able to better control the customer
retail experience. The stores are designed to simplify and enhance the presentation
and marketing of personal computing products. To that end, retail store
configurations have expanded to various sizes in order to accommodate market
demands. The stores employ experienced and knowledgeable personnel, provide
post-sale advice and support, offer a wide selection of third-party products selected
to complement the company's own products, and host training and marketing
presentations.
Certainly, Apples stores have been designed and built to serve as high profile
venues that function as vehicles for general corporate marketing, corporate events,
and brand awareness. As one can analyse there's far more to Apple than curvy
products and groovy ad campaigns nowadays. The results in comparison to the only
rival Gateway, which engages in a similar retail strategy, are fantastic (3,500 visitors
per week for Apple compared to 700 visitors per week for Gateway). Still Apple was
only able to convert 0.9% of non-Mac visitors into Mac customers. It would take only
97
http://www.apple.com,
21.01.04
(2003)
98
Apple Computer Inc.
59
Apple Computer Inc.

a 2% conversion rate to boost Apple's market share in the home market by 50%.
99
This initiative is supported by a simultaneous launch of a campaign to improve the

buying experience at consumer electronic chains through own personnel trying to
make the actual buying an unforgettable experience. The numbers prove Apple right:
Apple's business jumped from 15% to 35% of sales after Apple set up a special Mac
section and a cyber-cafe outfitted with iMacs at chains such as CompUSA.
100
The second initiative called direct Selling involves the expansion and improvement
of Apples online store, not only increasing the product range but also reducing
handling time of customer orders.
By and large all these ideas can be seen as a commitment to quality. Apples focus
on its custo mer is expressed by superior responsiveness through knowledgeable
personnel, support and after-sale service, and quality products leaving Apple with an
added value and greater choice of pricing options (higher value).
4.6.4 Advertising
Apple Computer does an excellent job of creating congruency between its offline and
online operations. The Apple site is very colourful, easy to navigate, and promotes
movies, new media and QuickTime TV, reflecting Apple's strong emphasis on
multimedia.
101
The aspects that characterise the Apple web site are also aspects that
characterise their brands. Therefore, Apple does a good job of utilising their web
presence to reinforce their brand identity and brand positioning. Apple further adds to
the congruency of its brand marketing by consistently using the same promotional
imagery across various media sources.
4.6.5 Product life cycles of Apples core products
iTunes
Apples music online store is in the growth stage this stage is characterised by high
turnover and high promotional costs, offsetting each other. In other words, the net
profits are moderate. For example, Apples new Prime Time TV Ad highlights burning
custom music (from the iTunes online music store) CDs on Macs. The payoff here is
to create increased brand awareness in order to exploit future market opportunities
through networking effects.
99
100
101

Evans D. and Gupta P. (2001)
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Apple Computer Inc.

The more people join iTunes the more popular it would get as it was shown in
previous times by illegal download services such as Kazaa and Napster. According
to marketing strategists a t Apple, the new iTunes version for Microsoft Windows
user should additionally have the effect of convincing users to switch to the Mac
OS X, Apples operating system, by providing the superior graphic user
interface that earmarks all of Apples software products. The marketing division
emphasises the innovation, price, and coolness factor of the product to attract new
customers.
iPod
Apples iPod, the hard drive based MP3 music player currently positions itself in the
growth stage. MP3 player market is expected to triple over the next 3 years. The
product is also supported by expensive blockbuster ad campaigns to boost sales and
establish the iPod as the dominant player in the market. The premium price (29% of
units market share account for 54% of revenues in the market) lets Apple earn
decent profits despite the high promotional costs. The introduction of a Windows
compatible version additionally is expected to spur demand.
Apple also tied up with apparel maker Burton Snowboards to create the Burton Amp
Jacket that allows wearers to control iPod from the jacket sleeve. This feature had
the potential to lead to many more innovative applications for the iPod. Marketing
emphasises the capacity capabilities of the iPod being able to store more than the
equivalent of 1,000 CDs on the 40GB model.
102
Therefore it targets customers
who care about capacity as well as style, which from Apple products is anyway
expected to be superior.
iMac and iBook
The PC and laptop products are seen as being in their mature stage with high profits
and turnover. In this stage products are subjected to only slight changes and
improvements, on the one side using economies of scale and on the other side
learning effects to ride down the experience curve. Furthermore, marketing these
products means to concentrate on reliability and easiness of use which together with
superior design should appeal to Apples specified niche market. Marketing
accomplishes to change customers view about computers from a commodity to a
lifestyle product. The switch campaign and slogans like Only Apple designed the
102
http://www.emergic.org/archives/2004/01/14/index.html#apples_intelligent_pricing, 16.01.04
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Apple Computer Inc.

way to fit your work are perfect examples of underpinning these product features.
Moreover infomercials should justify the relative high price and help educate
consumers about the Apple brand. Instead of increasing market share Apple
chose to engage in a strategy of maximising profits by serving the high price high
iTunes 3-digitgrowth
rates
expectedEmbryoni
iPod market
expected to
triple
2006Growth
Shakeout
end niche market.
iMac and
iBook sales
constantMat
Decline
ure
Time
4.6.6 Trends from this analysis

Apples strong brand name is definitely an advantage and unique capability, which
Apple can capitalise on, as the recent example of the online music store
demonstrated. Through its reputation Apple was the only player in the market who
was able to convince all five major music labels to sign on to this legal download
103
service.
Also this capability seems to have a high barrier to imitation as nobody
was able to create such brand loyalty in the industry until now. But marketing through
its incredible high budget hindered also in a way corporate performance in the past,
103
http://www.silliconvalley.com, 20.01.04
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Apple Computer Inc.

as it was previously stated that nearly all of the gross margin is eaten away by R&D
and Marketing. Despite costs, Marketing is still far from being perfect. Apple has to
recognise that a name is not everything. Customer support is also viewed as an
important criteria considering to buy hard- and software because of the increasing
complexity in pulling together the various pieces of digital lifestyle and the lack of
responsiveness can mean the fall from grace. Specifically the online anti-advertising
campaign by disappointed buyers of the iPod could have been avoided through
better customer support. Apple refused to exchange empty batteries with the simple
excuse that the customers should just get a new iPod not a very polite way of
dealing with the ones you are dependent on?!
104
So for the future this means that
either Apple will have to increase value (e.g. through superior after sales service) or
decrease its costs in order to stay competitive and enhance performance.
4.6.7 Competitive advantage
At the first look Apple seems to have a huge competitive advantage by being able to
differentiate itself from its competitors and communicating this successfully to
customers, and therefore it can charge a premium price. But as competitive
advantage is defined as being more profitable than its competitors in other words
the gap between the cost for the company and perceived value for the customer is
greater than industry average Apple doesnt outperform its competitors
substantially.
4.7 Corporate resources: Finance

By looking back in history, we notice that Apple was never caring much about the
long-run. Short-term high profit margins through charging elevated prices were the
determining fact without attributing much attention to their deteriorating market share.
But is Apples financial situation an altered one in 2004?
4.7.1 Apples financial status quo
When Apple published the first quarter results of 2004, the company beat analysts
expectations by presenting a net income of $63 million, the highest profit on an
annualised basis since 2001 and far beyond any estimation. Net income also reflects
104
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Apple Computer Inc.

higher margins due to product mix. For the three months ended in December 2003,
revenues rose 36% to $2.01 billion. Revenues reflect an increase in sales of iPod
and computer accessories.
105
Financial results and ratios
Apples financial results of 2002 and 2003 were already published under the rules of
the Sarbanes-Oxley Act
106
of 2002. They showed Total Assets of $6.815 billion, Total
Liabilities of $2.592 billion, a net income of $69 million, but an Operating loss of $1
million. This number improved especially in the first quarter of 2004. Average Cash
Flow figures in comparison to the previous years marked the liquid position of Apple
Computer. This states that Apples product and business mix is diversified enough to
always serve the company with appropriate cash.
Net sales increased $465 million or eight percent during 2003 compared to 2002
while Macintosh unit sales declined three percent year-over-year to approximately
three million units in 2003. Several factors have contributed favourably to net
sales during 2003, including:
The Retail segments net sales grew to $621 million during 2003 from $283 million in
2002, an increase of 119%. Therefore we can infer that Apples customers may
prefer to purchase products from their local Apple Retail store rather than through
other pre-existing sales channels in the United States.
Net sales of peripherals and other hardware rose to $384 million or 57% during 2003
compared to 2002, which follows a $287 million or 74% increase in 2002 as
compared to 2001. The current year increase was primarily driven by the $202 million,
or 141%, year-over-year increase in iPod net sales to $345 million. All of the
companys operating segments experienced substantial increases in iPod net sales
and unit sales during 2003. In addition to the iPod, the increase in net sales of
peripherals and other hardware during 2003 also reflects an overall increase in net
sales of other computer accessories including AirPort cards and base stations.
Although total Macintosh unit sales were down 3% in 2003, portables were relatively
strong primarily due to the 69% or 247,000 unit increase in PowerBook unit sales,
slightly offset by a 4% or 30,000 unit decrease in iBook unit sales.
105
Yahoo Finance, Reuters Investor Services
106
Strict corporate governance action plan that imposed strict corporate rules by trying to avoid a second Enron
64
Apple Computer Inc.
Quarterly
Annual Balance
BalanceSheet,
Sheet,09-2003
12-2003
65
Apple Computer Inc.
Annual Income Statement, 09-2003

Annual Cash Flows, 09-2003
Quarterly Income Statement, 12-2003

Quarterly Cash Flows, 12-2003
This reflects an overall industry trend towards portable systems. Apples average net
sales per Macintosh unit sold increased two percent to $1,491 in 2003 due to an
increase in direct sales primarily from the companys retail and online stores.
PowerBook and Power Macintosh systems accounted for 42% of total unit sales in
2003 versus 36% in 2002.
Net sales of software increased $55 million or 18% during 2003 and result from
higher net sales of Apple-branded application, server software, and third-party
software. Additionally, higher sales figures may also infer from the recent acquisitions
of PowerSchool and Emagic. Service and other sales rose $69 million or 30% during
2003. Increased net sales associated with Internet services are due to net sales from
the iTunes Music Store.
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Apple Computer Inc.

In contrast, total unit sales of desktop systems fell 15% during 2003 compared to
2002. iMac systems unit sales declined 16%. Unit sales of Power Macintosh systems
fell 13% during 2003 compared to 2002. Furthermore, some of Apples professional
and creative customers seem to have delayed system upgrades in anticipation of
new innovative products on the market. Apple has continued to experience ongoing
weakness in its US education channel during 2003. Net sales and unit sales in this
sector during 2003 were down four and six percent. Apple has also experienced
significant competition in 1:1 learning solutions and, accordingly, has achieved a
lower profit margin.
With respect to the economic and industry downturn, political instability and Apples
direct influence on the market sales of professional and consumer oriented
Macintosh systems remain far below levels experienced in 2000.
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Apple Computer Inc.

Apples ratios - overview
07
107
EPS Earnings per share; ttm time to market ; ROIC = ROI; EBITDA Earnings before Interest and Taxes,
Depreciation, Amortisation; P/E Price Earnings
68
Apple Computer Inc.
Research & Development, Sales, general and administrative expenses
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Apple Computer Inc.

Working Capital, Inventory
Property, plant and equipment
Apples stock and dividends

Primarily, Apple is listed at the
electronic
Association
NASDAQ
of
(National
Securities
Automated
Dealers
Quotations)
stock exchange in New York (AAPL

short term
for
Apple
Computer
at the
NASDAQ), but represents member of
th
the S&P 500 and the NASDAQ 100 Composite Index. On the 20 of February 2004,
its price was $22.40 (High: $22.51, Low: $22.21) with a traded volume of 4,957,200
shares. The 52-week high is $25.01, the corresponding 52-week low $12.72, the
stock has an average three month volatility of 5.33.
Currently, a majority of analysts
108
is neutral (in real terms, but this normally
implies a slight tendency to sell) on the Apple share which suggests neither buy nor
sell the stock. This is due to the general belief that Apple itself will prosper in
several
108
J.P. Morgan Securities Inc. (2003)
70
Apple Computer Inc.

business areas, but will still have to face tough competition, especially from ultraefficient producing and selling Dell. For fiscal 2004 (EPS of $0.40 and revenues of
$7.10 billion, for fiscal 2005 an EPS of $0.51 on revenues of $7.34 billion are
estimated. Apple is trading at the high end of its historical range. Finally,
recommendations conclude that Apples current valuation already recognises in lofty
expectations for a turnaround, foresees few near-term catalysts that could drive
significant share price appreciation and therefore cant see an outperformance of the
group average in the near future.
Although providing a Common Stock dividend during Apples latest stock split in 2000,
the companys policy normally is not to pay out any. This can be derived from the
attitude of many IT companies, above all Microsoft, that could persuade their
shareholders to reinvest their earnings in the company by promising them a far
higher yield through. The money was mainly used to fund business operations and
R&D.
Apples credit ratings and capitalisation structure

109
At the moment, Apples corporate credit rating is at BB
and consequently near sub
investment grade, but with a stable outlook. New product introductions and seasonal
holiday demand should provide near-term revenue and earnings improvement but
109
see Appendix: Standard & Poors Rating Agency
71
Apple Computer Inc.

are not expected to affect Apple's rating or outlook. Ample liquidity (more than $4
billion in cash) and modest debt levels support the current rating despite Apple's
limited global market share and earnings dependence upon a narrow product base.
This states that debt financing by issuing corporate bonds would become costly for
Apple due to their low rating. Nevertheless, this is a common scenario for
corporation, above all in the IT sector (33% have a B-rating, 25% a BB, 23% a
BBB and only 13% an A).
The company currently has debt outstanding in the form of $300 million of aggregate
principal amount 6.5% unsecured notes that were originally issued in 1994. The
notes, which pay interest semi-annually, were sold at 99.925% of par, for an effective
yield to maturity of 6.51%. The company currently anticipates utilising its existing
cash balances to settle these notes when due which fur ther visualises Apples strong
capital position and its liquidity. This leads to a very low financial leverage / Gearing
110
ratio
(Total Debt to Equity equals 0.07) and therefore makes refinancing for Apple
rather cheap regarding their capital structure.

As far as Equity Capital is concerned, there exist common and preferred stock. The
latter ones became important in August 1997 when Microsoft purchased 150,000
shares of Apple Series A
11
nonvoting convertible preferred stock for $150 million,
going along with a reciprocal technological exchange. These shares were

convertible by Microsoft after August 5, 2000, into shares of the Companys common
stock at a conversion price of $8.25 per shares.
From the prospective of accuracy there cant be found any valuation discrepancies in
asset values or market prices. Trends can be discovered in how Apple finances their
activities by keeping up a low dependence on outside debt capital and raising money
through cheaper equity where dividends were successfully avoided to be paid out.
Such a policy may be beneficial as the companys ownership isnt diluted, but in
times of low market bond yields, Apple isnt able to take full advantage of cheap
corporate bonds issues.
Current financial objectives and policies
Apples major financial goal is to outperform its competitors, above all in terms of
productivity (measured by net sales, operating income, stock price performance,
110
111
Shows the companys relationship debt to equity

Different classes of shares containing specific rights
72
Apple Computer Inc.

Return on Invested Capital, Liquidity) and to become the industrys most profitable
company. This policy is clearly stated (focus on equity) and implied from both,
performance and budgets.
Nevertheless, the financial acting is neither totally consistent with the overall
company strategy (as it doesnt take into account possible lower returns due to the
innovation superiority) nor has it supported past development significantly as Apples
mixed results demonstrate.
4.7.2 Apples competitors, their financial status quo, and the market
Amid continuing cautious commentary from

industry participants, the signs of growth in
the US computer hardware industry are
modest
but
accumulating.
Consumer spending on PCs and electronics

has been the primary bright spot to date,
but a full hardware spending recovery is
dependent upon growth in corporate
spending and is not expected to be
material in 2003. In the near term, highly
competitive industry pricing conditions
continue to challenge profitability levels
for
most
original
equipment
manufacturers (OEM). However, over the longer term, the need for continued
investment in wireless, e -commerce, and Web-based technologies remains clear.
Dell Inc.
With a rating of A-, an expanding product line, a low-cost manufacturing model, and
an efficient asset management Dell should be enabled to preserve double -digit
revenue growth and consistent profitability levels, despite highly competitive industry
conditions. In addition, ratings are supported by ample liquidity (cash and
investments total $11 billion) and a strong financial profile.
Hewlett-Packard Co.
With a boost from its seasonally strong fourth fiscal quarter, HP posted the highest
revenue growth since its merger with Compaq Computer and achieved profitability in
73
Apple Computer Inc.

each of its major business segments. Due to highly competitive market conditions,
HP's goal of attaining sustainable profitability in its PC segment will continue to be a
challenge. However, excellent liquidity and significant free cash flow generation
provide ratings stability despite continued earnings reliance on its printing and
imaging segment. A credit rating of A- proves that too.
International Business Machines Corp.
Despite a challenging global economy and highly competitive industry conditions,
IBM's diverse product and customer base supported modest four percent revenue
growth in the September quarter and consistent profitability. Strong cash flow
generation is expected to support internal investments, an active acquisition profile,
and share repurchases. Debt protection metrics are expected to remain within
acceptable levels for the rating of A+.
Quanta Computer Inc.
Quanta's operating performance and financial profile has been consistently
satisfactory. The company is expected to report record high revenues and profit in
2003. The rating (BBB-) could be raised over the next one to two years if the
company is able to continue reporting good operating performance and a solid
financial profile, while demonstrating sustained diversification of product lines.
Silicon Graphics Inc.
A very low credit rating of CCC- could be further deteriorated if an exchange of
convertible notes to common stock failures in the near future.
Stratus Technologies Inc.
Despite ongoing declines in proprietary product sales, privately owned Stratus has
stabilised revenues and improved profitability through new product introduc tions and
cost reduction actions. Stratus is expected to maintain EBITDA margins in the high
tens as a percent of revenue, and modest free operating cash flow. Still, the potential
for ratings improvement (B) is limited by Stratus' niche position in a highly
competitive market.
74
Apple Computer Inc.

Sun Microsystems Inc.
Sun's rating of BBB was placed with negative implications. This reflects the concerns
about Sun's cost structure and ability to improve profitability, as well as uncertainty
about the level and timing of a recovery in IT spending and increased market
acceptance of lower-cost Windows and Linux systems.
4.7.3 Apples financial operations
Apples finance and treasury division has to provide the company with a sound
financial policy, managing general obligations (paying the bills by guaranteeing
liquidity, risk management duties, handling Apples international capital transactions)
as well as special programs. A few of them are to mention:
The company places its short-term investments in highly liquid securities issued by
high credit quality issuers and, by policy, limits the amount of credit exposure to any
one issuer. The firms general policy is to limit the risk of principal loss and ensure the
safety of invested funds by limiting market and credit risk. All highly liquid
investments with maturities of three months or less are classified as cash equivalents.
In 1999, a plan was authorised for the company to repurchase up to $500 million of
its common stock. During the fourth quarter of 2001, Apple entered into a number of
forward purchase agreements to acquire the shares. Apple uses this repurchased
shares finance employee remuneration through stock option plans.
The company has not entered into any transactions with unconsolidated entities
whereby it has financial guarantees, subordinated retained interests, derivative
instruments or other contingent arrangements that expose Apple to continuing risks
and contingent liabilities. Therefore, a vibrant risk management taking care of
hedging foreign exchange exposure, adjusting to local conditions and making use of
financial engineering
112
to secure capital flows is indispensable. Furthermore, Apple
is actively involved in off-balance sheet transaction such as el ase commitments

(mainly retail space and related facilities) which amount to approximately $600 million.
Measurement is accomplished by using common ratio analysis, Weighted Average
113
Costs of Capital approach
to value Apples assets and derivative pricing Black-
Scholes model for options, futures, and swaps. Apples accounting relies on GAAP
(Generally Accepted Accounting Principles). According to Apples auditor KPMG,
112
Creating and using new financial products, above all derivatives, to minimise risk
exposure
113
CAPM Capital Asset Pricing Model
75
Apple Computer Inc.

Apple changed accounting for asset retirement, hedging activities, and financial
instruments in 2003.
Finally, Apple has investments in EarthLink Inc. (EarthLink), Akamai Technologies,
Inc.
(Akamai),
ARM
Holdings
plc
(ARM),
and
certain
investments
in
private companies.
The role of the financial manager in the strategic management process is a crucial
one in Apples case. Its his obligation to raise the capital tremendously needed to
finance Apples huge R&D expenses for maintaining their innovative position.
Although the company is applying accepted finance concepts and techniques,
theres to argue that a competitive advantage isnt obvious regarding financial
policy. Objectives in comparison to its competitors are set far too high up (see
ROIC -ROI figures), above all when Apples financial principles often prove
inconsistent with the companys entire strategy. Innovation is expensive and in
Apples mind this argument counts more as the company had to relaunch itself
only six years ago by taking on immense R&D.
76
Apple Computer Inc.

4.8 Corporate resources: Research & Development
4.8.1 General information
As the personal computer industry is characterised by rapid technological advances,
Apples ability to compete successfully is heavily dependent upon its ability to ensure
a continuing and timely flow of competitive products and technology to the market. As
a consequence, the firm continues to develop new products and technologies and to
enhance existing products in the areas of hardware and peripherals, system software,
applications software, networking and communications software and solutions, and
the internet. Moreover, Apples management believes that maintaining or increasing
the pace of innovation and product development is the best way to respond to current
economic and market conditions and will continue to position the enterprise for future
growth as overall economic conditions improve.
114
115
As innovation and new technology are key driving forces of mission and strategy
and technology and especially technological progress/innovation is the main driver of

Apples corporate performance, the companys research and development
department constitutes a central element of Apples value chain in terms of creating
value. In fact, the task of R&D is to enhance the development of new and existing
products and therefore increase the speed of innovation which is consistent with the
companys overall strategy and goal to remain the most innovative personal
computer company.
4.8.2 Structure and performance
By taking a closer look at Apples actual R&D budget, it becomes clear that
investment in research and development is continuously rising and in 2003 with $471
million is up 50% from 1999. At the moment, Apples R&D budget is used mainly for
hardware purposes (49%) whereas software and applications play a somewhat less
116
important role. Moreover, R&D headcount is now close to 2,500.
114
115
116
Morden T. (1993), p. 140

77
Apple Computer Inc.

$500
$471
$430
$446
Applications
22%
$380
$400
$314
$300
Hardware
49%
$200
$100
Software
29%
$0
1999
2000
2001
2002
2003
R&D expense amounted to approximately 8% of total net sales during 2003, 2002
and 2001, up substantially from approximately 5% of total net sales in fiscal year
2000 and recent earlier periods. As a result, the company incurs higher research and
development costs as a percentage of revenue than many of its competitors who sell
personal computers based on other operating systems. Many of these competitors
seek to compete aggressively on price and maintain very low cost structures. So, if
the firm is unable to continue to develop and sell innovative new products (in order
to
differentiate) with attractive gross margins, its results of operations may be materially
adversely affected by its operating cost structure.
117
Moreover, Apple also engaged in Purchased In-Process Research and Development

(IPR&D) when it acquired Emagic (2002) and PowerSchool (2001). Through these
acquisitions, Apple got new R&D capabilities and capacities in the fields of
professional software solutions for computer based music production and webbased student information systems but also had to value and expense the
necessary R&D investments for the development of these products.
Although the company has continually increased its R&D budget during the last years,
compared to some of its competitors Apple probably still has a relatively skinny
research and development budget (in absolute terms) which has to work much
harder than those of competitors who benefit from the huge spending of Microsoft
117
78
Apple Computer Inc.

118
and Intel
. In fact, Apple has just 300,000 independent and in-house developers
writing programs and making products for its operating systems, including the latest,
Mac OS X. On the contrary, more than 7 million developers build applications for
the Windows platform worldwide.
119
4.8.3 Strategic management

In terms of strategic management issues, it is the ultimate task of Apples R&D
resources to develop a distinctive competency in innovation and technology that
results in products that fit customers needs. In addition, this should lead to short
product-to-market cycles and innovative products or processes.
120
In fact, Apple promotes its R&D efforts by providing enough freedom and autonomy
which is supported by the companys corporate culture that emphasises the
importance of personal creativity, innovation, and thoughtful but entrepreneurial
actions. Moreover, a flat and decentralised hierarchical structure is another positive
aspect through which Apple promotes efficient and successful R&D activities.
In fact, the companys R&D department is definitely one of the most important value
creation functions within Apple. Indeed, it creates value by enhancing the speed,
quantity, and quality of innovation and therefore enables the firm to achieve superior
innovation. This aspect can be shown with the example of the rate of innovations in
the development of Apples operating system Mac OS X compared to the rate of
innovation of Microsoft Windows:
118
119

Fastcompany (2004)
121
120
Hill
121
424
79
Apple Computer Inc.
Whereas Microsoft uses a policy of longer time frames between releases of new
operating systems, Apple constantly improves, innovates, and develops its operating
system and brings new and improved versions directly to the market. So,
its customers can more easily and continuously reap the benefits of Apples
ongoing innovation and product development.
In fact, ongoing innovation takes place in the design of the companys products and
production processes, thereby also leading to improvements in (product) quality and
(operating) efficiency (although theres still potential in the field of achieving higher
efficiency) . As a result, this can create value for the customer by increasing the
functionality of the products. Thus, by making new or enhanced products more
desirable for Apples customers through product innovation (as this also increases
the quality of its products through improving reliability, performance, and other
attributes such as design or ergonomics), innovation will also increase the firms
pricing options. So, as innovation is probably the most important building block of
competitive advantage in the long run, Apples R&D efforts create huge value for the
company and its customers.
In short, Apples R&D capabilities and activities help the company to achieve a
competitive advantage through superior innovation, thereby also leading to superior
quality.
80
Apple Computer Inc.

4.9 Corporate resources: Operations & Logistics
4.9.1 General information
Operations management and logistics
Operations management can be regarded as the process in which material, human
or financial inputs are transformed into outputs of goods, services or utilities.
122
The
actual creation of a good or service is in the centre of this process and is referred to
as production, manufacturing, or operations. In addition, logistics or materials
management controls the transmission of physical materials through the value chain
(input - throughput - output). Distribution deals with the physical delivery of the
product to the customer whereas customer service provides after-sales service and
support.
Overview
According to Porters description of the process of value-generation, the operations &
logistics resource focuses at the following value chain elements:
inbound logistics
123
supply of raw materials, components, services, etc. as

input to the value generation process
operations
value
generation
by
operational
processes
(manufacturing)
outbound logistics
value generation by transportation, distribution, and

supply logistics
service
value generation by specification and offer of customer

service, by customer-orientation, and by customer care
Inbound
logistics
Operations
Outbound
Marketing
logistics
& Sales
Service
Inbound logistics
Although most components essential to Apples business are generally available
from multiple sources, certain key components are currently obtained from single or
limited sources. For instance, IBM is the firms sole supplier of the G5 processor
used
122
123
Morden T. (1993), p. 174

Morden T. (1993), p. 193
81
Apple Computer Inc.

in current PowerMac products and Motorola is the sole supplier of the G4 processors.
Therefore a possible inability in the future to obtain microprocessors in sufficient
quantities with competitive price/performance features could have an adverse impact
on Apples results in terms of operations and financial condition.
Some other key components, while currently available to the firm from multiple
sources, are generally subject to industry wide availability constraints and pricing
pressures. In addition, the company uses some components that are not common
to the rest of the personal computer industry and new products introduced by
Apple often initially use custom components obtained from only one source
until the company has evaluated whether there is a need for additional suppliers.
If the supply of a key or single-sourced component to the company is delayed or
curtailed or if a key manufacturing vendor delays shipments of completed products to
the company, Apples ability to ship related products in desired quantities and in a
timely manner could be adversely affected. The firms business and financial
performance could also be adversely affected depending on the time required to
obtain sufficient quantities from the original source or to identify and obtain sufficient
quantities from an alternative source. Continued availability of these components
may be affected if producers were to decide to concentrate on the production of
common components instead of components customized to meet the Apples
requirements. As a consequence, this highlights a possible threat of Apples
differentiation strategy as the company depends on the availability of certain custom
components from special suppliers.
Apple attempts to mitigate these potential risks by working closely with its key
suppliers on product introduction pla ns, strategic inventories, coordinated product
introductions, and internal and external manufacturing schedules and levels.
Consistent with industry practice, the company acquires components through a
combination of formal purchase orders, supplier contracts, and open orders based on
projected demand information. Such purchase commitments typically cover the
company's requirements for periods ranging from 30 to 130 days. Apple must order
components for its products and build inventory in advance of product shipments.
As Apples markets are volatile and subject to rapid changes, there is a risk the
company will forecast incorrectly and produce or order from third parties excess or
insufficient inventories of particular products. Consequently, it has to be stated that
although Apple tries to work closely with its key suppliers, the companys policy of
82
Apple Computer Inc.

forecasting future demand creates a possible threat of inflexibility in coping with
sudden changes in customer demand and therefore could result in increased
inventory costs or lost profit opportunities.
Operations
Final assembly of Apples products is conducted in the companys manufacturing
facilities in Sacramento and Cork as well as by external vendors in Fremont, Fullerton,
Taiwan, Korea, the Netherlands, China, and the Czech Republic. Currently,
manufacture of many of the components used in the Apples products and final
assembly of substantially all of the portable products are performed by third-party
vendors in Japan, Taiwan, and China.
In short, Apple only assembles some of its products in the United States and Europe,
whereas most products are assembled and manufactured by third-party vendors
which are mainly situated in lower-cost countries.
Outbound logistics
Concerning Apples distribution model, it is quite interesting to take a closer look at
the changes that the company made beginning in the year 2000. In fact, Apple relied
on a network of distributors and resellers in the past which led to higher prices for
Apple products and greater distance to customers. In fact, this initial situation as
well as the effects of the introduction of special retail stores, an expansion of
Apples
presence in national chains, and other changes to the distribution system are
illustrated in the following diagrams
124
124
Sudbury A. (2001)
83
Apple Computer Inc.
pre-shipment
post-shipment
consumers
Apple manufacturing
resellers
component suppliers
contract manufacturers
internal inventory
channel inventory
pre-shipment
post-shipment
Apple
manufacturing
component suppliers
distributors
Online-Store
Retail Stores
Direct BTO
consumers
resellers
contract manufacturers
distributors
internal inventory
channel inventory
In fact, these efforts seemed to be paying off as Apple could reduce its inventory to
125
less than two days worth of sales by early 2002.
Generally, Apple distributes its products through wholesalers, resellers, national and
regional retailers and cataloguers. The company also sells many of its products and
resells certain third-party products in most of its major markets directly to education
customers, consumers, businesses, and certain resellers through its retail stores or
through one of its online stores around the world (which had total direct and indirect
online sales of approximately $2.9 billion in 2003).
Whereas Apples online store (as a direct business to consumer store which can also
serve as a communication medium between the company and its customers
126
) can
be regarded as a successful distribution channel as it accounts for a huge amount of

127
Apples total sales (43% in 2001
), Apples new retail stores recently earned much
criticism. In spite of the huge initial interest in the stores, now, with slower traffic
through the stores and flagging sales, Apple's outlets may be losing their impact and
could increase the companys fixed-cost base
125
14
Yoffie
D. B. and Wang Y. (2003), p.
126
Gupta P. and Ryan J. (2000)
128
127
13
Yoffie
D. B. and Wang Y. (2003), p.
128
84
Apple Computer Inc.

In terms of inventory holdings, Apple records a write-down for inventories of
components and products that have become obsolete or are in excess of anticipated
demand or net realisable value and accrues necessary reserves for cancellation fees
of orders for inventories that have been cancelled. Although the company believes its
inventory and related provisions are adequate, given the rapid and unpredictable
pace of product obsolescence in the computer industry, no assurance can be given
that it will not incur additional inventory and related charges. In addition, such
charges have had, and may have, a material effect on the company's financial
position and results of operations.
Service
Concerning product support and customer service, Apples special AppleCare
programme offers a range of support options for Apple customers like manuals,
online tutorials, and a special protection plan including phone support, hardware
repairs, web-based support resources, and user diagnostic tools. Moreover, Apple
engages in the fields of training programmes and professional technical
(consulting/installation/integration) services. Nevertheless, although Apple definitely
offers a comprehensive support package, there has also been criticism about the
quality of the customer service.
4.9.2 Operations capabilities
Manufacturing facilities and capabilities
In fact, the company largely depends on the manufacturing capabilities of its external
vendors in the United States, Taiwan, Korea, the Netherlands, China, and the Czech
Republic. As Apple uses its manufacturing facilities only for the final assembly of
several products and due to the fact that the company orders some of its
components from a few key suppliers by the use of future demand predictions, there
is a potential threat that its operational capabilities cant cope with excess demand.
For instance, right after the introduction of the latest iMac, its sales soared so high
that Apple couldn't keep up thanks in part to component shortages and
consequently demand quickly cooled off.
129
129
85
Apple Computer Inc.

Outsourcing
As already stated before, many of Apples products are manufactured in whole or in
part by third-party manufacturers. In addition, the company has outsourced much of
its transportation and logistics management. While outsourcing arrangements may
lower the fixed cost of operations, they also reduce the company's direct control
over production and distribution and therefore such diminished control might
have negative impacts on the quality or quantity of the products manufactured
or the flexibility to respond to changing market conditions.
Moreover, although arrangements with manufacturers may contain provisions for
warranty expense reimbursement, Apple may remain at least initially responsible to
the ultimate consumer for warranty service in the event of product defects. Therefore,
any unanticipated product defect or warranty liability could adversely affect the
Company's future operating results and financial condition. In addition, if for any
reason manufacturing or logistics in any of the manufacturers locations is disrupted
by regional economic, business, environmenta l, medical, political, or military
conditions or events, the companys results of operations and financial condition
could also be adversely affected.
4.9.3 Structure and performance
Budget and performance
Apples consolidated statement of operations offers no detailed insight into the
separate positions that are related to operations and logistics. Nevertheless, it can be
stated that Apples cost of sales continuously increased in the last three years (from
$4,128 million in 2001 to $4,499 million in 2003) which lead together with a larger
increase in net sales (from $5,363 million in 2001 to $6,207 million in 2003) to an
improvement in Apples gross margin of almost $500 million. This indicates that,
although there was an increase in costs of sales (which are the costs of
manufacturing the products), this increase was only of minor size compared to the
increase in net sales and therefore led to an overall increase in profitability.
Consequently, Apples policy in terms of operations and logistics contributes to the
good financial performance of the company.
86
Apple Computer Inc.

Role of IT
Concerning the role of IT as a driving factor of operational performance, information
technology is fundamental to the establishment of effective operations management
systems as the application of IT to systems of operations management and to
management information systems is a basic strategic requirement. IT can increase
the availability and quality of information and therefore improve the efficiency of
operations management, thereby leading to cost savings.
130
4.9.4 Strategic issues

In fact, there are several approaches to improve the quality and efficiency of a
companys operations such as just-in-time (JIT) inventory systems, total quality
management (TQM), or flexible manufacturing. Although Apple could successfully
reduce its inventories in the past, it could probably even decrease its inventory stock
by moving away from buying inputs based on forecasts of future demand and
implementing JIT inventory systems instead. Nevertheless, this could also increase
the apparent threat that the company is facing in times of huge customer demand
and lead to further shortages of key component. As a result, Apple could only use JIT
inventory systems if it had the opportunity to select from a wider range of
suppliers and if it used long-term cooperative relationships to deepen the links
with its key suppliers.
In terms of the approaches that are aimed at manufacturing processes, Apple doesnt
really have many possibilities because the situation is quite different: on the one
hand it is unclear whether Apple uses such approaches in its manufacturing facilities
and on the other hand a huge amount of Apples manufacturing processes are
outsourced to third-party companies.
Concerning the four building blocks of competitive advantage, manufacturing can
improve efficiency, quality, and customer responsiveness. As a result, efficiency in
production helps a company to lower its cost structure. Similarly, the production
function can also perform its tasks in a way that is consistent with ensuring high
product quality, which leads to differentiation and lower costs.
130
Morden T. (1993), p. 184 and 186
87
Apple Computer Inc.

Moreover, superior efficiency can also be achieved in the field of logistics (for
example through lower inventories), resulting in significantly lower cost, thereby
creating more value. Finally, customer service can create a perception of superior
value in the minds of customers by solving customer problems and supporting
customers after they have purchased the product, thereby leading to superior
customer responsiveness.
By applying these possible sources of competitive advantage in the field of
operations and logistics to Apple, it becomes clear that the company apparently
doesnt have a competitive advantage in terms of superior efficiency through better
manufacturing processes. Although the company has improved a lot in terms of
inventory and offers its customers the necessary support and service, these areas
are also unlikely to contribute to a competitive advantage as they apparently dont
lead to superior value creation.
4.10 Corporate resources: Human Resource

Management 4.10.1 Human resource objectives and strategies
The strategy of human resource management should always recognise the critical
importance of the organisational structure and the people building it. The strategy
represents a practical response to creativity, competence, and the constraints that
employees as individuals and teams bring with them into the work situation. The
workforce is the source of all value enhancing activities in regards to quality,
efficiency, responsiveness, and innovation. Apples Human resource department has
formulated its objectives in the following way:
Provide the company with the necessary personnel to assure superior performance.
Employees should at all times strive for the highest quality in all they
131
do. Ensure proactive internal career progression.
Apple wants to assure that by employing the best people, it will constantly be
inventing and manufacturing the best products. A recent survey carried out among
US technology professionals named their primary reason to work for Apple as being
the admiration of its products/services (45% compared to industry average of 13%).
131
Apple Computer Inc (2003)
88
Apple Computer Inc.

The result of this survey can be interpreted as that the human resource department
aligns its hiring policy with the overall corporate strategy and objectives, stressing the
need of retaining the position as industry leader concerning superior design and
innovation.
132
Why do you want to work for
Apple
Al
13%
6%
Apple?
Stability
15%
6%
6%
16
Interesting/challenging work
15%
15
Admire products/services
45%
13
Their cutting-edge technology
15%
10
Great benefits and perks
2%
Location near my home
1%
Great work environment
6%
Good chance for promotion
2%
Offer great training
2%
Stability
Strong employee morale
3%
Interesting/challenging work
Enjoyed previous employment there
2%
Admire products/services
Low employee turnover
1%
Admire their leaders/employees
3%
Friends work there
0%
I'm not sure
1%
15%
45%
Their cutting-edge technology

Great work environment
Other
Additionally as one can see in the next diagram, the growing importance of Apples
direct distribution channels (e.g. through online store) also affects the human
resource management, as it lays its focus stronger on hiring people for web and
interactive content (27%) compared to industry average of (10%). In this case Apple
adapted its HRM objectives in concordance with its business strategy because of a
change in external environmental forces such as consumer preferences (possibility
of customising the own PC).
133
132
133
Techies.com (2002)
Techies.com (2002)
89
Apple Computer Inc.
Employer Preference by
Web and
interactive
content
Apple
job category
Data entry
2%
Data management
1%
Education
6%
Engineer
1%
HR
1%
Management
12%
Marketing/Product management
2%
Networking/Telecommunications
4%
Sales
1%
Software development
26%
Student
3%
Systems administration
6%
Systems support/help desk

Web and interactive content
Software
development
Management
Systems
1 support/help
desk
Systems
administration
2
Other
9%
27%
0%
Apple
5%
10% 15% 20% 25% 30%
All
With Apples statement that The companys success depends largely on its ability to
attract and retain key personnel.
134
Apple catapults the human resource
management function in terms of its importance from a support activity to the status
of a primary activity which is indispensable for Apples success. Much of the future
success of the company is linked to the continued service and availability of skilled
personnel. The ability to continue to employ experienced personnel, which especially
in the information technology industry is in high demand and competition for its
talents is intense, particularly in the Silicon Valley, where the majority of the high tech
companys are located, is also key objective of the HRM department.
4.10.2 Human resource policies
The policies should reflect the mission, values, and culture of a company. They have
a direct impact on the external perceptions about the company by the apparent
treatment of and attitude towards its staff and therefore shape the corporate image
134
90
Apple Computer Inc.

and identity.
135
A positive image then can reinforce a competitive advantage
increasing customer value, as people associate positive values with the company.
136
Apple meets this need of creating a favourable image of a company by implementing

equality
of
employment
and
promotion
opportunities
through
partnership
arrangements around the world.

4.10.3 Human resource performance
In pursuing the above mentioned objectives of getting the best employees to work for
Apple, the company has installed several measures to increase productivity as well
as effectiveness. A cornerstone in the employment relationship are the regional
partnership programs with different organisations like Skillnet in Ireland (a body
comprising both employer and employee organisations) aiming at facilitating the
mutual involvement of management and employees/unions in organisational
development.
137
4.10.4 Partnership program

The first stage of this program involves the forming of a forum which has access to
all financial records of the organisation, so that on the basis of this information the
forum can formulate and initiate plans to improve and adapt to changes in the
industry. Employees have actively a say in design matters and are taking part in the
resolution of all challenges and opportunities facing Apple.
The next stage is the installation of so called change champions, who had the
responsibility to communicate and promote cooperation between both parties
(employees and manager) at Apple.
After that there follows the application of an attitude analysis. This analysis should
enable employees to express their opinions and concerns about all aspects in the
company with the aim of encouraging them to find ways to maximise their
contribution for the benefit of the company. The information collected through this
interactive approach is then used to identify aspirations for various kinds of training.
For example in Cork, Ireland this analysis found that employees have the desire to
have business awareness training and additionally highlighted the lack of effective
135
Bernardin H. J. and Russell J. E. A. (1998), p.
136
26f 137
Bernardin H. J. and Russell J. E. A. (1998),
p. 31f
IBEC and ICTU (2000)
91
Apple Computer Inc.

communication within the plant
in other words soft skills were fairly
underdeveloped.
The result of this process is a lifelong learning, providing employees at Apple with
continued improvements of their professional as well as personal soft skills and an
added value for Apple through greater employee productivity and a reduction in all
aspects of confrontational industrial relations issues.
These partnerships are regarded as part of the internal fabric of Apple, also
successfully dealing with industry relations issues, which are jointly solved at the
shop floor level.
The function of HRM is to create an environment which fosters such partnership
agreements through:
! The establishment of trust and fairness
! Financially rewarding employees for their efforts in the partnership area
! Ensuring that employees are at all times equipped with business awareness
4.10.5 Training and Development
Apple always attempted to be exemplars of best practice in the area of Human
Resource Management and especially in the area of training and development this is
most apparent as the model of partnership agreement impressively shows . Apple
realises that their staff require skills and knowledge beyond those needed to do their
job in order to function effectively. In order to meet this self imposed requirement the
training is divided across the organisational structure into four broad categories:
Offer or efficiency programme
This training aims directly at improving the efficiency of staff regardless of their
department base. Example of this type of training is the training in various Microsoft
packages.
Business driven needs training
The module teaches skills and knowledge that Apple believes require in order to
progress business. An example here would be training in the e -commerce area.
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Apple Computer Inc.

Personal development category
The above mentioned soft skills are part of this category such as assertiveness
training.
General Awareness education
This area is given top priority and therefore separated from the personal
development module. As the name already suggests, the employees should increase
their business awareness
What Apple distinguishes from other companies in this area is the additional
sophisticated evaluation process of the training , which is actually missing in a lot of
companies. The evaluation compares the objectives of the training with the learning
process that actually occurred.
138
The bottom line of the training provision is a work
force that not only feels that it can effectively adapt to and adapt within an
environment that is in a constant change, but also increase their internal mobility,
giving Apple the possibility of redeploying employees.
All in all, Apple believes that through such practices employees are able to see
the big picture and make a greater contribution, having the ability to fully grasp
the business dynamics of the current business situation.
4.10.6 Staff appraisals
The objective of staff appraisals is to provide feedback to both appraiser and
appraised and to serve as formal opportunity for personal counselling and motivation.
It can also include salary reviews and allocation of merit payments. At this, staff
members are analysed in terms of objectives, tasks, and results achieved.
For the HRM department the appraisal can be seen as an opportunity to identify
individual and collective performance strengths and weaknesses, and if necessary
identifying needs to develop new skills and capabilities.
The illustration below explains how the staff appraisal system works at Apple. The
system is a key input to HRM and planning.
139
138
139

Morden T. (1993), p. 268
93
Apple Computer Inc.

Required results
Appraisal criteria
Performance standards
THE INDIVIDUAL
Comparison
Salar
Staff appraisal process

Feedback
Job description
Objectives, tasks,
workflows, results
actually achieved
Counselling
and
motivation
Stretching
Salary progression
Training and development

Career management
Human resource planning
Personnel specification
The Organisation
Market position
Personnel policies
The benefit of having a functioning staff appraisal system in place is that it can
reliably indicate shortages of available skill and experience.
40
To avoid such a skills
gap and successfully bridge this gap HRM can undertake additional recruitment.
Apple for example lacking operational efficiency was in a terrible need to hire an
expert on this particular topic, through a functioning HRM department Apple therefore
was able to win Timothy D. Cook, a highly skilled operational Manager (and Vice
president, Materials) from Compaq, one of its main competitors,
141
because of
attractive work conditions, which are embedded in the staff appraisal system. A
combination of life long learning, management development, and reward policy
convinced him to become a part of Apples culture.
140
141
Morden T. (1993), p. 269

http://www.apple.com/pr/bios/cook.html, 02.02.04
94
Apple Computer Inc.

Other advantages of the staff appraisal system include but are not limited to the
career management and recruitment and selection policy, which are part of the HRM
planning. Career Management at Apple offers promotion from within in preference
to outside recruitment, which on one side is highly acknowledged by employees and
on the other side this policy acts as signal of the companys evident care and
concern for their staff and improves the corporate image, which eventually leads
to value creation.
142
The recruitment policy is a primary example of how HRM activities adapt to changes
in the external environment. As Apple considered that it demands a higher number of
skilled staff in the area of web development and interactive content, they shifted
their application process to a large extent on the corporate website. Statistic
shows that the Web is the preferred medium for application among tech
professionals.
143
Which jobsearch toole would you use to secure an interview

with Apple?
0%
Trade/career mags
Newspaper ads
Headhunters
Job fairs
Network contacts
Contact HR
Online job board
Corporate website
5%
10%
15%
20%
25%
All
Apple
What is also recognisable is that Apple gives up or decreases traditional ways of job
advertising such as news paper ads in order to cut costs. Apple utilises the resources
saved on this side to create a balance between online and offline application formats.
142
Hill
143
83ff
Techies.com (2002)
95
Apple Computer Inc.

The corporate strategy again defines already the way Apple sets up its recruiting
events. For example Apple organises yearly events such as the Apple design awards
where the winner is automatically entitled to an internship/work position with the
company. This way Apple assures a continued flow of creative minds in their
company, who can generate a competitive advantage if the HRM activities support
them through their work life at Apple.
4.10.7 Trends
Apple heavily relies and is dependent upon the ability of hiring people committed to
excellence and the challenging aspect for the future is to keep well trained and skilled
personnel in the company, which becomes more and more difficult, as competition
increases in the industry. For example Sonys notebooks, which have some
similarities in regards to design, were initially developed by people who Sony had
headhunted from Apple R&D department. The initiatives Apple created for its
employees must consequently be improved and it must remain a long term goal to
increase every aspect of the work experience at Apple. This indeed, requires
substantial investments and resources in order to sustain such benefits as the
partnership program.
144
The existence of a positive work environment already proved
to be beneficial to Apple as they were able to stay the number one in creating
visionary products and this is only possible with the right people. For the future it will
be important to maintain and even increase the organisational competency through
HRM beyond life long learning and partnership programs in other words, the staff
appraisal system has to be developed on a continuing basis, only then Apple will be
able to outperform its competitors with its HRM activities.
Analysis already showed the harmonic connection between corporate strategy and
HRM strategy, which in first place is the basis for a competitive advantage. HRM is
able to create incentives for key employees to maintain a fruitful and competitive
relationship and boost creativity, which is the key success factor for Apple, because
everything is built on this core competence. On the one hand they offer comparable
high remuneration as the following diagram shows only 3% of possible employees
have the opinion of not being paid enough, compared to 7% industry average and
144
96
Apple Computer Inc.

on the other hand they have an effective job recruitment system combining
recruitment events and online application services, which by far exceed content wise
the services offered by other players in the market.
What would keep you
Apple
Too many
candidates
from working for

Apple?
Too many candidates
30%
No contacts there
17%
I'm not qualified
17%
Too far from home
23%
Not enough money
3%
Not a U.S. citizen
3%
Don't know the business
5%
Corporate culture clash
2%
Non-compete agreement
0%
Would have to work long
145
No contacts
there
I'm not
qualified
Too far from
home
Not enough
money
Apple
All
Other
1%
0%
hours
10%
20%
30%
40%
What is also worth mentioning is that Steve Jobs as CEO has created the need of
HRM changes. Research indicates that technology oriented managers tend to place
less value on and pay little attention to HRM activities, but thats not the case with
Apple. He was able to create a vision of the importance of HRM practices, by
emphasising that to be the best is just good enough and this can only be achieved
through internal activities such as life long learning and development. Apple wants
to stay the employer of choice. Also through his active involvement in staffing
decisions (he was the main initiator of Timothy D. Cooks employment) he is able
to create support for the HRM department.
contributes to
an
obvious
146
competitive
The HRM department on its own also
advantage
through
designing
and
delivering effective programs such as the local partnership agreements and

adapting itself to the changing needs of a fast paced business. Employee
productivity figures for Apple support this view as the company is able to
outperform its rivals in the industry.
145
146
Techies.com (2002)
97
Apple Computer Inc.

Revenue per Employee (TTM) is $617,760 for Apple, 551,020 for the industry and
396,094 for the sector.
147
In conclusion you can say that both the HRM department itself and the employees
as a great source of human capital contribute to the upswing Apple is
currently experiencing and therefore provide the company with a competitive
advantage.
4.11 Corporate resources: Information Systems

Information systems in an IT company such as Apple is definitely one of the most
interesting and important things to look at. At Apple, the information system is more
than just a business-assisting facility. What software, what applications do the
experts use to get their things done, to automate internal processes (supply chain)
and to provide customers with service and support by implicitly objecting to reduce
costs? Therefore an analysis of Apple Computers IS has to answer three main
questions:
4.11.1 What type of software and hardware is used at Apple?
Due to the fact that Apple fabricates PC, Servers and the necessary, the company of
course relies on their products. Nevertheless, third-party applications gets included
where theres no appropriate Apple software available. At the moment this
means that in general the following internal computing components exist at Apple:
Hardware
Name
Power Mac G5
by
Description
Apple
Desktop
computer,
equipped
with
2GHz
processor, fast 64 bit technology

Power Mac G4
Apple
Desktop computer, 1.25 GHz processor
iMac (new and old)
Apple
Desktop computer, 1,25 GHz G4 processor
eMac
Apple
Desktop computer
iSight
Xserve G5
Apple
Digital audio conferencing device
Apple
Server with single or dual 2GHz G5 processors,

huge storage, high bandwidth
Xserve RAID
Apple
Server with up to 3.5TB
iBook G4
Apple
portable
148
storage capacity
147
http://yahoo.investor.reuters.com/MG.aspx?ticker=AAPL&target=%2fstocks%2ffinancialinfo%2fratios%2fefficiency,
148
14.02.04
Terabyte: 1 TB = 1,000 GB
98
Apple Computer Inc.

Power Book G4
Apple
Portable with 1.33 GHz processor
23, 20, 17 display
Apple
Separate displays
AirPort Extreme
Apple
54 Mbps WLAN component
Bluetooth
Industry Stand.
To connect periphery with main system wireless
Industry Stand.
To connect periphery with main system at higher
FireWire
bandwidth
USB
Industry Stand.
To connect periphery with main system
by
Description
Apple
Desktop
Software
Name
Power Mac G5
computer,
equipped
with
2GHz
processor, fast 64 bit technology

Power Mac G4
Apple
Desktop computer, 1.25 GHz processor
iMac (new and old)
Apple
Desktop computer, 1,25 GHz G4 processor
eMac
Apple
Desktop computer
iSight
Apple
Digital audio conferencing device
Apple
Server with single or dual 2GHz G5 processors,
Xserve G5
huge storage, high bandwidth

Xserve RAID
Apple
Server with up to 3.5TB storage capacity
iBook G4
Apple
portable
Power Book G4
Apple
Portable with 1.33 GHz processor
23, 20, 17 display
Apple
Separate displays
AirPort Extreme
Apple
54 Mbps WLAN component
Bluetooth
Industry Stand.
To connect periphery with main system wireless
Industry Stand.
To connect periphery with main system at higher
FireWire
bandwidth
USB
Industry Stand.
To connect periphery with main system
Apple has begun using SAP's R/3 system as ERP system, which was aimed to
speed the filling of custom orders
149
. Due to high costs and the long establishment
period, SAP wasnt a success although employing an accounting package,

manufacturing, order management, and order fulfillment.
Regarding
supply-chain-planning
i2 Technologies Inc.'s Rhythm
150
software
packages,
Apple
implemented
. The PC maker is using several Rhythm
advanced planning modules and plans to install more. Therefore, SAP is the basis,
but i2 is a key
piece
manufacturers apply i2,
of
what
Apple
does.
Several
other
computer
149
150
Custom-order-to-delivery time could be reduced from ten to five days

http://www.industryweek.com/CurrentArticles/asp/articles.asp?ArticleID=497, 14.02.04
99
Apple Computer Inc.

including Compaq, Dell, Gateway, Acer, Hewlett-Packard, IBM, and Silicon
Graphics. Now, instead of constructing lots of computers and building up high
inventory in advance to meet estimated demand, Apple projects sales each week
and adjusts production schedules daily with Rhythm. This software also helps Apple
to integrate suppliers by asking them to maintain a certain stake of "industry
standard" parts to deliver assembled PCs quickly to the clients.
4.11.2 To what extent is the model of a virtual company achieved by Apples
Intranet and Extranet solutions?
Intranet as well as Extranet
151
play a crucial role for Apple and above all for its
business environment:
Apple Intranet and Network
Apples main objective always was to be the innovation leader. That isnt only valid
for its products, but also for its internal communication to demonstrate their
superiority. Therefore, Apple tries to make its business process as virtual as possible.
Virtual communities will be the lifelines of future success. As Apple knows, if a
company doesn't actively pursue involvement in a virtual community, it will not be
able to create or even maintain its competitive advantage.
The Apple-Intranet provides the cornerstone to do so. First, it increases efficiency
and reduces costs of the operations as far less employees are necessary. Data
storage, interconnected work on projects, exchange of information, and reciprocal
communication are the main obligations, but the potential is much higher. For
instance, the Intranet provides Apple employees with all necessary information right
at the desk, further, non-compulsory education opportunities, an internal and external
contact database, an overwhelming knowledge base, holiday planning-, lunch
ordering- and work-time overview tools as well as an internal recruitment process. A
company electronic notice Board to highlight key Apple news increases the corporate
identity. To put it into a nutshell, it is beneficial for company and people. The Intranet
simplified and improved training as well as skills, all in all at lower costs for Apple.
Raising the velocity and efficiency of the working progress by automating it
represents a big advantage of a functioning network policy and the Intranet as less
failures occur and less money and time is wasted. For example, when Apple plans a
151
Networks connecting Apple with outside developers or suppliers; different to Internet
100
Apple Computer Inc.

PC, how can communication between two involved parties be better arranged than
by transferring building-plans and component descriptions via a network.
Nevertheless, a too uncontrolled level of virtuality and interconnectiveness can
result in severe problems and huge bureaucratic impediments as anonymity is
increased, e.g. sending tons of unnecessary emails to colleagues (and thereby
making costs) becomes more likely.
By intensively re-enforcing this development and by permanently eliminating or
minimising disadvantages within the company, Apple already makes a big
step towards competitive advantage.
Apple Extranet
For suppliers, special key account clients or developers of Mac-software Apple has
introduced a term called the Extranet. This means that these groups can work,
communicate, and exchange information/data with Apple on a customised basis.
Individualised content of special websites that neither permits these mentioned
stakeholders access to the Intranet nor are the same as basic Internet websites, the
Extranet lies in between the two well-known components. A major fact that Apple
wanted to get use of is the chance to treat special groups on a personalised basis by
preventing cost accruals. Notwithstanding , this idea has been pursued by Apple and
results in higher sales, increased productivity, and much more accurate (concerning
quality and time) outcomes in form of products.
4.11.3 How do Apples internet solutions assist in generating a competitive
advantage?
Apples approach to the Internet is to work as and to be an active member of the
Internet community, supporting the existing open standards and working with Internet
standards organisations. Furthermore, Apple starts to follow a new clear concept
called Utility Computing
152
, implied from performance. This model refers to the fact
that a ubiquitous IT infrastructure will deliver all our computing needs. We would
own far less computing assets than we do now but are instead willing to pay for
access to services used which will be offered by "utility computing." Computing
becomes a utility similar to electricity or fuel. In this context we can see Apples new
online product strategy comprising iTunes which will be mentioned below. The
152
http://www.utilitycomputing.com, 12.02.04
101
Apple Computer Inc.

ramifications for the IT sector are enormous. The ability to flexibly up- or downscale
to meet demand will have a revolutionary affect on companies and on their strategy
formulation, above all in the way they provide online contents. The concept will also
be applied to individual users of computing where they will be offered packages like
satellite television services today. At present, the infrastructure required to deliver
that reality is beginning to be put into place by leading Apple and IBM as the high
number of contract manufacturing and outsourcing not only in the IT world portrays.
Internet services
Apple has been an active member of

the Internet community for years, with
an FTP site that provided Apple
software updates and versions of the
Macintosh system software (up to
version 7.0.1). More recently, Apple
has added numerous other FTP sites
that carry a full complement of Apples
freely
distributable
software
and
updates. Of these, http://www.support.apple.com and http://www.info.apple.com have

become an important way of providing updates to the global Macintosh community,
serving hundreds of thousands of Macintosh systems.
Apple has a number of web-servers, all collected under the main server
at http://www.apple.com. These servers help to distribute information about
Apple, provide searchable access to the Apple Technical Information Library,
and offer detailed product information for current and future customers. Apple
continues to create new Internet resources, such as mailing lists that distribute
Apple press releases to interested parties, discussions about Internet client and
server programs for the Macintosh, and support for Apple products such as the
Macintosh Application Environment.
In
the
future,
Apple
plans
to
create
even more avenues of communication between the company and customers

to provide better on-line support and to take advantage of the direct customer
feedback that results from such open lines of communication.
In detail, theres to say that Apple provides a wide range of internet based services
for its customers and the public (Service & Support, Corporate/Investor information,
102
Apple Computer Inc.

Products, Learning/Training centres), has entirely increased its direct PC selling
activities via the web, especially via Apple Store (which make them a serious rival of
record-breaking Dell in this area), offers its online contents (i.e. iTunes) there and
uses the corporate internet platform for marketing and human resource management
efforts. Additionally, Apple attracts independent Macintosh developers outside the
company to bring the Mac technology forward, both giving the possibility to make
suggestions or write programs. These developers, hailing from such educational
institutions as Dartmouth College or Cornell University place simple graphical
interfaces on top of the standard protocols. Much of Apples strength in the
internet today results from these third-party developers who have combined forces
to create one of the most extensive internet toolsets available today. By
seeding higher education with inexpensive licenses for MacTCP, and
continuing to provide development assistance, Apple has cultivated these
developers even though their programs are often available only as freeware or
shareware.
Homepage analysis
At http://www.apple.com
we can find Apples homepage containing
inputs linking
visitorto
the
internet
the
companys
these
other
portals (http://www.applestore.com; country websites).
As expected, Apple presents itself online with a clear structure, easy handling,
thorough information and strong colours which all goes along their self-required
innovation leadership. Pillars of the website are the following:
! General Apple information: Investor, Careers, PR, Contacts, FAQs !
Group of links
! News & Events
! Products: Hard- and software, periphery !
Apple Store: Direct selling platform
! Developers site
! Switch: Incentives to and problem solving for switching from a PC to a Mac !
Online contents: Music portal iTunes, combined with iPod
! Digital Production
! Quicktime product series: Multimedia applications !
Services & Support

! Apple learning & training interchange: Online learning platform
103
Apple Computer Inc.

Apples e-commerce in B2B and B2C relationships
The onset of the e-commerce revolution can be dated back to the late 1970's, but the
real growth in this market can be mapped directly to the last five years due to the
increase in internet usage by 3,000% and the doubling of PC ownership. In order to
maintain or achieve a competitive edge within the IT market a company like Apple
must actively pursue e-commerce, especially via the Internet. Apple legitimately
argues that simply holding an internet website is far too less. As Apple has shown its
commitment to the implications of virtual institutions , the company stresses a
shopping site with its e-commerce strategy via Apple Store (fourth model of ecommerce strategies; besides there are contextual selling, specialised malls, portals,
and virtual communities)
153
. This site dedicates itself to one brand (Apple). It focuses
on serving as a communication medium between the customer and the company. It

allows the company to control the shopping experience and build a brand. But the
site can be extremely expensive to set up, maintain, and manage. The company also
must make efforts to drive traffic to the site.
Overall we can observe that Apple has a competitive advantage compared to other
industry participants. This competitive advantage comes from the companys
innovation leadership (new concepts and trends in both, products and processes)
which can help Apple to stay ahead of competitors and therefore maintain a higher
profitability than the market in the future. IS strengthens Apples strategies and is a
decisive part by not only staying a supporting activity, but also by actively exploring
new business areas. This is due to IS managers that implement the necessary
technology well, diminish restrictions in the data/information flow (also to outside
developers) and intensively use of the New Media such as the web to make profit.
Nevertheless, Apple constantly increases its exposure to the entertainment sector
(eg. iTunes, iPod), but doesnt seem to be adequately prepared in bundling all these
efforts to create an overall platform for that.
153
Gupta P. and Ryan J. (2000)
104
Apple Computer Inc.

4.12 Summary of internal factors
4.12.1 Core competencies and distinctive competencies
Resources
Build
Shape
Distinctive
Competencies
Capabilites
Strategies
Competitive
Advantage
Superior
Profitability
Build
A companys core competencies describe something that a company does best

internally. In the case of Apple, this includes the following competencies:
! innovation and engineering excellence:
technological development and inventions
! creativity and design:
high-end marketing, product design
! HRM policy:
HRM department and employees contribute effectively to companys success
When core competencies constitute aspects that a company also does well
compared to its competitors, they become distinctive competencies firm specific
strengths that allow a company to differentiate and/or lower costs. As we can see in
the above illustration, these stem from the companys resources and capabilities
and shape its strategies, ultimately leading to a competitive advantage and
resulting in superior profitability. So, the following resources and capabilities can be
regarded as Apples distinctive competencies:
! human resources:
highly skilled workforce (soft skills, experience, knowledge, initiative, etc.)
! technological resources:
superior information technology (intranet, extranet)
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Apple Computer Inc.

! engineering and technical development capabilities:
short product-to-market cycles and innovation/functionality of
products ! creativity capabilities:
design of hardware, software, etc.
In fact, Apples engineering and technical development capabilities as well as its
creativity capabilities are most the important factors at the present time as the whole
personal computer industry is in a period of change where innovative and creative
products that possess entertainment characteristics are attracting more and more
customers. Moreover, Apples engineering and technical development capabilities
will definitely be the most important distinctive competencies in the future as
superior innovation is the most important source of competitive advantage in the long
run.
4.12.2 Internal Factor Analysis Summary (IFAS)
The Internal Factor Analysis Summary (IFAS) combines Apples main strengths and
weaknesses, gives them a short comment (rational use), a weight (0-100 each,
overall sum of 100) and a rating (from 5 = very significant to 1 = not really significant)
and calculating the resulting weighted score.
Internal factors
Weight
Rating
Weighted
Comments
Coherent strategy
12
Strategy clearly stated and understood,
Creativity & design
13
15
65
Regarding PC not just as commodity but as
Innovation
16
80
Famous for technical revolutions, inventions
Pioneer through digital hub strategy, unique
18
Aware of having best customers, intuitive
Producing whole range of products
Strenghts
Entertainment
capabilities
User-friendly
business approach
and products
Wide range of skills
and capabilities
Marketing skills
15
High-end marketing, combining online and
106
Apple Computer Inc.

Adaptive culture
Encouraging innovation, initiative, autonomy,
Workforce
36
Strong HRM -department, high employee
16
Leader in terms of internal communication,
20
Difficulties in turning inventions into real
Lack of critical size
12
Difficulties in maintaining profitability due to
Incompatibility
11
44
Incompatibility with Wintel-standard deters
Higher prices for Apple products than for
Creation of reality-distortion-field,
32
High costs for marketing (retail stores), R&D,
300,000 independent or in-house developers
Key components from single or limited
High competition at many fronts, threatening
Information
technology
Weaknesses
Business
execution,
commercialisation
High hardware and

software costs
Lack of realism
High operating
costs
Low number of
developers
Dependence on
key suppliers and
manufacturers
No high degree of
specialisation
Total
100
107
Apple Computer Inc.
5 External environment
Foolproof, invisible and everywhere
154
this is how the chief executives of the PC
markets big players are describing the promising future of computing. Clearly,
something monumental must be going on in the world of computing for the
technology titans to discover something that is so profound and yet so hard to name
argues The Economist. The future of the PC industry is predicted to be glamorous,
but what about its present situation and what are the implications for Apple as vibrant
part of this sector.
5.1 Overview The uniqueness of the Macintosh

If analysing Apple in its external environment we are confronted with one significant
difficulty the definition of the market or the markets Apple is engaged in. It can be
observed that Apple is in an exclusive position. No other company in the computing
sector than Apple has survived producing both, hardware and software. Thus, Apple
cant and shouldnt be analysed only as a PC manufacturing enterprise, but also as
software programmer, server producer, peripherals fabricator, and online content
provider.
Nevertheless, there is to admit that PC market still remains Apples cash cow and
consequently the companys prime sector by contributing up to 70% of consolidated
revenues through the Macintosh product line. Additionally, several other Apple
products (software like the operating systems, servers, divers applications) are
ultimately linked to the Mac which makes more or less useless without the Apple PC.
Therefore, the companys public entitlement as PC manufacturer is adequate and
lets us focus on the PC market. Moreover, an analysis of Apples second business
market, represented by its pillar of online content / digital music industry, will also be
carried out.
5.2 The PC market an in-depth

analysis
155
5.2.1 Status quo
Apple is confronted by aggressive competition in the market for the design,

manufacture, and sale of personal computers. This market continues to be
154
155

see: Bibliography Annual Reports of Dell Inc., International Business Machines, Hewlett Packard Compaq, Gateway
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Apple Computer Inc.

characterised by rapid technological advances in both hardware and software
development which have substantially increased the capabilities and applications of
these products. Additionally, this progress has resulted in the frequent introduction of
new products and significant p rice features as well as performance competition.
Over the past several years, price competition in the market for personal
computers has been particularly intense. Apples competitors who sell personal
computers based on other OS, above all Microsofts Windows have aggressively
cut prices and lowered their product margins to gain or maintain market share.
This intending predatory pricing led to adverse affects on Apples performance
ratios, but also put industry-wide downward pressures on gross margins. This
development (to the benefit of the consumer) is forecasted to continue in the future.
Further, as the PC industry and its customers acknowledge the importance of the
internet, an increasing number of smaller, simpler, but less expensive online devices
may compete for market share with the Apples existing products (e.g. Apples
iChat against ICQ, Yahoo Messenger). Hence, Apple takes steps to oppose
these competitive pressures by innovating in competing platforms. Its forthcoming
results are substantially relying on its ability to continue to develop improvements
to the Macintosh itself in order to protect perceived advantages in function and
design.
5.2.2 Defining the sector, industry and market segments
By serving the same customer base, their needs and demands (i.e. computing
devices for businesses and individuals) as its competitors such as Dell, HP Compaq
(merger between Hewlett Packard & Compaq in 2001), IBM or Gateway, Apple finds
itself in the sector of computing and in the industries of computer hardware which
consist of the mainframe, the handheld and the personal computer sub-industry and
which is supported by its neighbouring industries of computer software and computer
components. Market segments of Apple are therefore portable/notebook PC,
Desktop PC and Server. Notwithstanding these definitions business boundaries and
limits have to be considered flexible and transforming due to changes in client
preferences, time and technologies.
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Apple Computer Inc.
Computer Sector
Computer Component
Industry
Computer Hardware
industry
Supply
Inputs
Provides
complements
Disk drive
industry
Mainframe
Industry
Semiconductor
Industry
Personal
Computer
Industry
Modem
Industry
Computer software
industry
Handheld
computer
Industry
Notebook PC
market segment
Desktop PC
market segment
Server
market segment
5.2.3 Porters five forces Analysis

The primary competitive factors in the market for personal computers include the
subsequent:
! Relative price to performance !
Product quality and reliability !
Design-innovation
! Availability of software and other applications
! Product features such as high speed microprocessor !
Marketing and distribution capability
! Service and support
! Availability of hardware peripherals !
Corporate reputation
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Therefore, Michael Porters five forces model has to be applied to identify and
emphasise possible opportunities and impending threats:
Threat of new entrants
POTENTIAL
ENTRANTS
Bargaining power of
suppliers
INDUSTRY
COMPETITORS
SUPPLIERS
Bargaining power of
BUYERS
Rivalry Among
Existing Firms
SUBSTITUTES
Threat of substitute
products or services
Risk of entry by potential competitors

From a macroeconomic viewpoint, potential competitors are willing to enter a market
if short term prices dont equal marginal costs by taking away market share from the
established companies. Although high levels of competition among the existing
producers can be observed in the PC industry, gaining access to the market isnt
easy and thus unlikely. This seems to make the PC market an outstanding one as
low market entry risk is though contradicting theory associated with vivid
competition and tough price wars. The detailed reasons for that show up in the
barriers to entry of an industry. The PC market doesnt have a high level of brand
loyalty which implies that certain products arent more preferred by consumers due to
high standardisation, low patent protection, diminishing brand advertising efforts and
lower product quality. This argument isnt valid for Apple where brand loyalty always
played an important role. Apple achieves this brand loyalty through profound R&D
and an emphasis on product innovation.
Regarding cost advantages Apples situation behaves in line with the PC markets.
For possible competitors its hard to enter as cost to do so are high. Existing market
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Apple Computer Inc.

participants already manage their production operations and processes superior (e.g.
Dells supply chain management, capital intensive PC production market), control
particular necessary inputs (e.g. although qualified graduates are available on a
constant basis the outstanding engineers and product designer are already employed
by the existing companies) and are in a financially sound position (e.g. cheap fund
raising). These elevated cost advantages make it very hard and even unprofitable to
enter.
Economies of scale provide the small number of dominating PC companies with
another barrier to entry against the outside rivals. Dell and Co. are able to drive down
costs by mass production of standardised goods (i.e. computer components merely
are identical, even if customers are ordering different PC variations) and resource
cheaply through increased parts purchasing. Furthermore, spreading overheads,
marketing and advertising expenses as well as fixed costs over large fabrication
volumes enhances the advantageous constellation for existing PC manufacturers.
Entrants can therefore either explore the market on a small size by facing these
economies of scale or bear the financial risks if moving in largely.
As far as the issue of customer switching costs is concerned, the situation in terms of
barriers to entry proves to be a mixed one. As they are mainly associated with
software, PC hardware producers cant sustain their superior position if new
competitors also use for instance the Wintel standard. If this doesnt hold and
as Apples position demonstrates its prevented that PC hardware manufacturing
entrants use the same software items, existing market participants maintain their
competitive advantage. Switching costs are kept up and arising lock-in and network
effects make consumers less probable to purchase another PC offering different
software. In addition to this, preservation of business for the existing enterprises
occurs when their hardware has special features.
In a more political context, governments regulations and restrictions can hinder or
force the existence of barriers to entry. In Apples and its industrys example where
the majority of companies operates on a global basis governments interference
plays an important role but didnt ha ve much influence in the last years.
Rivalry among established companies
As there was already stated, the PC industry is a highly competitive one. This means
that rivalry is established at an increased level which is expressed by aggressive
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Apple Computer Inc.

pricing policies, profound product design and innovation ambitions (e.g. Apples
major efforts), intensive marketing, online direct selling (e.g. Dell and Apple), holistic
support and after-sale services. All this shows that profitability isnt an easy goal to
reach in the PC market as all its participants are applying ambitious cost as well as
price structures.
Regarding the industry competitive structure the PC sector is a consolidated industry
being dominated by only a small number of large companies. Nevertheless, it cant
be compared to an oligopoly due to the markets soared competition. Interdependent
companies whose strategies and actions have direct effects on market share and
profitability of the other industry participants often end up in finding themselves in so
called competitive spirals
156
. In the PC market, this proves to be valid as an
especially for high-end manufacturers like Apple dangerous downward spiral

came into existence. Although Apple never intended to follow the dominant
industry company in terms of price, this often occurs by establishing an oligopoly.
Moreover, the rivalry of the personal computer market is determined by the industry
demand which is currently positioned at a very high level. Favourably for all the
market participants it implies that from this point of view theres less rivalry due to a
large number of spending buyers, visualised by the industry life cycle.
The PC industrys exit barriers can be tremendous. An economic dependence on one
specific industry which imposes huge risk if the entire sector goes bust exists in a
considerable amount of companies. Emotional factors that prevent executives to
leave a falling market appear for instance in Apple case (i.e. CEO Steve Jobs
sentiments as being one of the co-founders). The fact was argued that computer
manufacturing is capital intensive which builds up impediments for exit strategies.
This shows up in the number of assembly plants and manufacturing utilities,
necessary for PC companies.
The bargaining power of buyers
A moderate industry demand and lots of small buyers result in a rather low
bargaining power of purchaser in the current PC market. This means that buyers
arent in the position to force companies to charge lower prices on the goods sold
and therefore dont make the impression of being a threat to them. Furthermore, in
an industry of high switching costs for consumers, above all if software and to a
156
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Apple Computer Inc.

narrower extent if hardware is concerned
157
, consumer fluctuation is low. Client
play offs of industry participants become obsolete and barriers to entry prevent them
from producing their desired good themselves. This fact implies that buyers cant
obtain bargaining power in the PC market once more. Interestingly, suppliers always
move in the opposite direction which would leave them with huge bargaining power,
as is discussed next.
The bargaining power of suppliers
In the PC industry, Porters fourth force states that the bargaining power of suppliers
is a stringent one which imposes a threat (e.g. risk to Apple and the entire market.
Although it doesnt seem that they are providing low quality items, companies such
as Intel, Motorola or IBM (when only looking at microprocessor producers) possess
the ability to squeeze out every drop from the PC industry at the industrys current
stage. These enterprises fulfil all necessary criteria for obtaining the bargain power
by selling products without real substitutes, by having a diversified operations
portfolio that assures their non-reliance on a specific sector and by exercising real
dominance on the PC industry. Apple and its rivals would often face high switching
costs themselves when changing to another supplier. For instance, if Apple quits its
contract with Motorola and integrates new Intel microprocessors in its devices this
will adversely affect Apples position as a whole production process including
customers preferences for the Mac will change. Nevertheless, theres to admit that
this powerful position is only accessible for key component producers, not for all of
them.
Substitute products
A considerable amount of substitute products threatens Apples market situation as
consumers easily can switch from one device to another. In spite of this, Apple
persists to differentiate itself with their Mac computer series from the common PC
market and therefore the company isnt as directly affected as Dell, HP Compaq or
IBM.
As theory taught us, Porters model is often amended with an additional sixth one
and even seventh force. The first one defines complementors as value-adding
institutions for specific products. In the PC industry these complementors can be
found in form of software companies. A personal computer being equipped with, for
157
see above: barriers to entry customer switching costs
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Apple Computer Inc.

instance Corel
Graphics (Draw 11.0, PhotoPaint 11.0) and MS Project 03, will
definitely sell better than one, just containing MS Office XP. For Apple these
complementors are also represented by third-party software developers who are
mostly independent freelancers or students and amount much less than Wintel
standard program writers.
The latter force tries to measure the relative power of unions, governments and
special interest groups (i.e. stakeholders) who exert their individual interests
on Apple.
5.2.4 Strategic Group Analysis
High
Premium
Group (Innovation)
Apple
Commodity Group
Dell, Gateway,
HP/Compaq
Low
High
Low
R & D Spending
As the above diagram shows Apple Compute r is situated in its own strategic group
within the PC industry, implying high R&D expenses by at the same time charging a
premium price for its products. This isnt anything new or surprising as there was
already defined that first, Apple obtains innovation leadership and therefore is part of
that top-right bubble and second, Apple is difficult to properly integrate in one of the
dominating three big computing industries. The companys individual status within the
PC market therefore is derived from Apples intention to focus on the exclusive
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Apple Computer Inc.

high-end premium PC market by flooding customers with their own products, but by
still monitoring accurately its profitability. As there is no other company pursuing a
similar positioning strategy or can be located in Apples strategic group, real
158
direct substitutes become obsolete. Furthermore, within its industry, Apple is

confronted with overall the same, but in detail totally different opportunities and
threats.
As a result, Apple doesnt want to adjust their strategic position in the matrix as it
doesnt desire to move into another strategic group. The companys only objective is
to maintain R&D and thereby keep up innovation and the same prices charged.
Embryonic
Growth
Shakeout
5.2.5 Industry Life Cycle Analysis
PC
IndustryMat
Decline
ure
Time
As any other industry, personal computing also is dependent on evolutions and

dynamics in its industry over time. These may alter strategic groups, change the
impact of competitive forces and incite task managers as well as executives to

properly define and evaluate the industry they are in. Moreover, they may be able to
158
As stated above Wintel standard substitutes are a danger for Apple, although there cant be identified real substitutes
for Apple which entirely fit the Macs profile or satisfy identical customer needs/groups;
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Apple Computer Inc.

estimate implications for their company and products by applying tools as the
industry life cycle. The above chart illustrates that the PC industry can still be
attributed to the mature stage market at the moment. Therefore, observations
consider the market as saturated with moderate, but already stagnating demand
(mainly replacement). In addition, the PC industry shows high barriers to entry at this
stage with a low number of potential competitors being able to enter, respectively
penetrate it.
As high growth rates cant be sustained, competition among Apples main rivals such
as Dell, IBM, Gateway and HP Compaq has become aggressive. Consequently,
price wars will stay ahead resulting in companys cost reductions and the build -up of
brand loyalty. All these developments also are appropriate for Apple Computer within
this mature industry. The company could already build up its strong brand loyalty, but
is currently working on its high cost structure to become a vibrant candidate for
survival in declining times.
159
Despite normal developments where a mature stage
infers oligopolies, the PC industry is different. Due to extreme price reductions by Dell
Inc. mergers such as the one between HP and Compaq as well as business
restructuring efforts among all market participants evolved.
Nevertheless, the industrys development shouldnt determine the companys profiles
too much and innovation as a major key success factor (KSF) will become more
and more crucial in reaching profitability and optimising business operations as the
case of Apple Computer exemplifies thoroughly.
159
see: Strategic Advice Chapter 12
117
Apple Computer Inc.

5.2.6 The Macro-Environment
Political and Legal
Environment
Technological
Environment
Potential
competitors
Supplier
power
Rivalry
Social
Environment
Buyer
Powe
r
Demogrphic
Environment
Substitutes
Macroeconomic
Environment
In addition to the industry also the macroenvironment of a sector influences the

companies and their ways of doing business. The local key factors like customers,
competitors, suppliers, creditors, labour unions, governments, trade associations,
interest groups, local communities, and shareholders can be located within the
immediate environment of the company. In the PC industry, the factors influencing
the market participants arent the same globally although the geographic markets,
most of them are operating in, seem to be merely the same. Nevertheless, these
determinants vary from country to country. Therefore, the subsequent main
macroeconomic forces exist:
Economic Forces
These forces affect the PC industry in determining the general overall global
economic circumstances such as global sales and demand that play an important
role in the daily PC industry.
Technological Forces
Innovation, new trends in technology and computing form the basis for the PC
industry and above all for Apple to outperform competitors.
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Apple Computer Inc.

Demographic Forces and Social Forces
The PC industry tends to shift its focus from business, professionals and home
users to also explore new customer groups such as retired persons as potential,
wealthy future clients.
Political and Legal Forces
Governments provide the basic legal regulations and restrictions that influence the
PC in producing and selling personal computers.
Global Environment
As globalisation is optimising the possibility to expand abroad to attract new
customer groups this environment gets used by an increasing number of market
participants.
National Environment
The PC market is already acting on a very global level. In spite of this, a national
competitive advantage can still be encountered, especially in the US, as the national
context of IT leadership helps the industry and Apple in achieving a competitive
advantage in the global marketplace by for instance attracting highly skilled
professionals.
5.3 External analysis of software and peripherals market

Apple has a much more difficult task to accomplish than the majority of its
competitors, who operate mainly in one single industry or industry segment. The
external analysis of the computer industry and the PC market in particular showed
already the immense difficulty to survive in such a fast paced and changing
environment. To add to the complexity of Steve Jobs job, Apple endeavours to
diversify its operations by entering into the digital music market, as part of its digital
hub strategy. The launch of its music store and the equally named music jukebox
iTunes marked an ambitious strategy to become the primary digital music provider in
the industry. To understand what environmental forces actually drive this industry we
first have to define what the industry itself is
160
160
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Apple Computer Inc.

5.3.1 Software industry
COMPUTER SECTOR
Computer Component
Industry
Computer Hardware
industry
Supply
Inputs
Provides
complements
Disk drive
industry
Semiconductor
Industry
Modem
Industry
desktop publishing
software
digital art/entertainment
software
business office software
Computer software
industry
Operating
System
Industry
application
software
Industry
web
services/software
Industry
From the illustration we can conclude that although related to its core business area
the PC industry, Apple operates with its online music store within a market segment
of a different industry, namely the computer software industry. Apple produces a
variety of software applications which are mainly targeted at the creative
professionals community and is also active in internet software and services, as it
recently has developed its own web browser Safari. Moreover, with the Mac OS X it
competes on the operating system market against Microsoft and Linux. Last but not
least there are several applications designed for consumers such as the iTunes
music store and the iLife package, which includes iTunes, iPhoto, iMovie, and
161
iDVD.
The reasons for the analysis of the external environment of the digital music
market and therefore illumina te only one particular aspect of the software products,
are that at all the others, competition is not as intensive as in the digital music market.
Also the other software applications dont contribute as much to the revenues as the
iTunes software does, which makes it a liable choice.
161
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Apple Computer Inc.

Competitive forces driving the digital music market
First, it is vital to assess the markets growth potential, because this potential
determines the nature of the game to be played. A double digit growth rate in the
digital music market present substantial opportunities for existing players, but also
attracts new competitors
162
Risk of entry by potential competitors

The barriers to entry are very low as on the one side capital requirements are limited,
brand loyalty is low and economies of scale virtually dont exist.
163
Especially the
disloyalty of young customers has to be managed effectively in order to create what

Apple has been able to do in the PC market
164
: Having the best (loyal) customers a
company can dream of. Nevertheless there are two significant aspect in terms of
barriers to entry.
One is the networking effect, which means that the more people use one platform the
more popular it gets and increased demand will drive up the amount of available
songs. Also, as the CEO of Apple points out that music artists themselves prefer to
work with Apple and why then not provide their songs and albums on an Apple
platform?
The second barrier is the cooperation with music labels, which provide the essential
song material for the online music stores. Nobody except Apple has succeeded to
win all five major music labels for its operations (Bertelsmann AG's BMG, EMI Group
Plc, AOL Time Warner Inc., Vivendi Universal, and Sony Corp.).
165
Once again Mr
Jobs was smart enough to do something that was beneficial to the music industry in
creating a paid environment that protects their interests. He's pretty much golden in
terms of getting deals with the labels, said Tim Bajarin, CEO of consultancy Creative
Strategies.
166
Rivalry among established companies

In general, the rule suggests that the more competitors the more rivalry and so it is in
this market. There has been a constant increase of small competitors on national
levels all trying to take market share away in this multibillion music online market.
162
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164
Lopez J. M. (2003)
165
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BusinessWeek (2004b)
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Apple Computer Inc.

Jupiter Media forecasts a market worth $5.2 billion by 2007
167
who wouldnt be
eager to get a slice of such a big pie? The industry is fragmented, still with a few
major players such as Apple , Napster II, and Rapsody dominating the market, but as
the product (song) is a commodity type of good and barriers to entry are not high,
competition will increase over the next years, as companies start to realise that there
is a high demand for legal online music downloads. The fact that demand is still
growing rapidly tends to moderate the competition as gaining market share doesnt
automatically mean that this gain is at the expense of another player. Actually Apple
captures about 20% of the pay per download online music market.
168
The last point
to consider are the barriers to exit, which would intensify rivalry if existing. As
previously stated as there are no significant investments and fixed costs can
consequently be kept at a minimum, quitting the business in the digital music market
is not exactly what one would define as difficult.
Bargaining power of Buyers
The existence of huge illegal music download communities with file sharing networks
such as Shareman networks with their file sharing tool Kazaa, the branch leader in
terms of users (on average over 4 million users online)
169
, the legal digital music
market can be glad to exist in first place. This immediate threat can be seen as
bargaining power of the buyers and constraints competitors in their pricing options as
the switching costs to either other players or the illegal music download scene are
practically non existing. This situation is less advantageous for Apple and other
suppliers of online music content as they are forced to keep prices low resulting in
low profit margins. This competiti ve picture of the industry leads to the conclusion of
various analysts that in this industry there is no money to make at all, even if you are
a big fish like Apple.
Bargaining power of Suppliers
This is the flip side of the assessment of the bargaining power of buyers. As the
buyers can influence prices and marketing costs, so do the suppliers influence the
production costs.
167
170
In this industry production costs basically equal the costs of
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169
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Morden T. (1993), p. 18f
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Apple Computer Inc.

buying the songs from the music labels through contracts. Disadva ntage for Apple
in this field is the presence of only a handful big and important music labels on the
world. Suppliers, aware of this situation, try to exploit that by maximising profits and
cut good deals for themselves.
171
Fortunately the illegal music download business is
working against the supplier, therefore limiting their power to a certain extent. The
music labels can either choose to insist on high profit contracts with legal online
music stores, which inevitably would lead to an increase of prices, because Apple
and other competitors would be forced to pass on these increased costs and
subsequently risk that customers would turn to illegal services or music labels could
charge lower prices (lower profit contracts) and this way ensure that they at least will
counteract the trend to illegal music sharing and capture still decent profits.
Pressure from substitute products
If products of different businesses or industries can basically satisfy the same
customer needs, then the pressure from substitute products is considered to be
high.
172
Although the market for online music is predicted to rise in an exorbitant
manner, there is still the traditional music industry with its retail channels selling CDs,
music DVDs, and minidisks. In numbers this means that for a 4month period from
July to October 2003 7.7 million digital tracks were recorded as sold, compared to
only 4 million physical units of CD singles.
173
Consumer preferences can change
especially in high tech markets, as history has frequently shown. The music cassette
has been replaced by the CD and so can new products hit the online music industry
from its blind side and substituting them. Currently the threat of substitute products
can be rather neglected as technological innovation is not likely to produce big
changes in the near future, but Apple has to be aware that the external environment
can change rapidly to the disfavour of Apple.
Strategic group analysis
The online downloadable music industry is a very homogenous industry, expected to
undergo further harmonisation, as music labels will learn to fulfil consumer
demands in the next few years, forecasting that by 2005 labels will endorse a
standard
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story.jsp,
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Apple Computer Inc.

download contract on equal terms to all distributors such as Apples iTunes store.
174
As a result there are no major differences between competitors, the only thing which
seems to distinguish them at the moment is the payment method. Apple as opposed
to other key competitors such as Rhapsody doesnt rely on subscription services but
rather provides the customer with a pay as you download principle. Internet users,
especially the younger ones, are as previously mentioned extremely disloyal. They
are not prepared to acquire a monthly commitment nor to pay in advance for a
service that, most times, imposes more restrictions and offers less options than free
services. Reports show that surfers prefer to pay per download rather than to have a
monthly subscription and Apples experience corroborates that.
Song library
175
iTunes
Napster 2 (roxio)
BuyMusic.com
Rhapsody
Audio Lunchbox
400,000
+500,000
+315,000
+300,000
+40,000+ from
$0.99 per song
$0.99 per song
$0.79 for limited
$9.95/month
$0.99 per song
$9.99/album
$9.95/album
songs, $0.99/song subscription,
size
P
ricing
$9.95/month unlimited
access
Song
AAC, MP3
MP3
$ 9.99/album
$0.79/song to burn
on CD
MP3
MP3
MP3, AAC, Oggs
formats
C
omplem.
roducts
i od, other portable All portable devices

P
evices
Online Community
d
ystem
none
im itations
Limited portables, None
None
Windows media 8
Downloads in Windows I 5.0 on Windows Windows only

Mainstream record
E
Cannot transfer to label offerings not
Media File format will
nly
o
portables directly available
not work with iPods
Downloaded tunes tied
to one computer
ther
*Allowance accounts *Email songs
*Unused credits do *Free of DRM
ervices
*Gift Certificates
*Online magazine
not carry over
*Plans for lyric
*CD burning
*billboard charts *music
*Pricing scheme
download
*Smart playlists
videos
may vary by
*Sync iPods
*share playlists
distributor
*Exclusive tracks
*Videos*Audiobooks
*Share playlists
174
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Cheng L. and Devgan A. (2003)
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Apple Computer Inc.

Industry life cycle
The economic downturn during 2001 has also afflicted the still-nascent digital music
industry. Growth projections had been revised and successful entrance or even
penetration of the digital music industry has been proved to be more difficult as
imagined. In 2001, industry backed subscription services Musicnet and Pressplay
discussed prelaunch plans and Napster with a new CEO hailed Napster as a brand
that cannot be killed. One and a half years later the situation looks completely
different. Napster is bankrupt (mainly because it was not paying royalties to the
troubled record industry) and Musicnet and Pressplay are struggling to draw
customers to their limited services.
176
After sluggish sales in the past two years demand begins to take off, moving the
industry from embryonic to growth stage. Predictions say that the digital music
download service in Europe will be worth an impressive !1.3 billion by 2007. The
sector will generate just !24 million this year, but will account for 13 per cent of all
music sales by 2007.
177
The US market will be worth $2 billion by 2007.
178
This will mostly come from individual downloads, not subscription-based services.
Growth will be fuelled by the emergence of more legitimate services and higher
broadband penetration. After a slow start, major music and technology companies
including Apple are now taking the future of digital music seriously.
176
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09.01.04
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The Macroenvironment
Technological Forces
In recent times technological advancement has rapidly increased its speed and has
unshackle a process that has been called perennial gale of creative destruction
179
Changes in technology can affect the height of barriers to entry and therefore have a
huge impact on industry structure.
80
In the case of the digital music industry music
labels are working on a common format to make their content available on equal
terms, so that Apple then will maybe lose the advantage of being the only player
having access to the five big music labels. This can further eliminate barriers to entry,
because opportunities in regards to content would be equal. Logical consequence
would then be a price war among existing competitors driving profit margins from an
already low to an even lower level.
181
What can also play an important role are the different formats of the music files.
Apple has created an own format, the AAC, which is only compatible with its own
MP3 player compared to the industry standard format of MP3. The impact of limiting
the downloaded content to its own software (iTunes juke box to play music on the PC)
can have a detrimental impact on users acceptance of Apples product.
Demographic forces
Demographic forces underlie all market and economic trends. The external
environment within which the enterprise operates depends partially also on how
population is made up. The disproportionate decrease in the population aged
between 18 and 35 can adversely affect the online music industry, as this group is
believed to be the main users of online content including downloadable music.
Although Apples efforts to make the easiest software to use, the lack of
technological awareness of the older generation can inhibit sales in the iTunes music
store.
Social Forces
Peoples attitudes as well as consumer behaviour together shape what is called
social forces. Trends and changes in attitudes towards work and leisure or changes
in expectations can all affect the day to day operations of an organisation. A major
179
Schumpeter J. (1950), p. 68
180
181
Dickel K. E. et al. (1994), p. 177

126
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issue and key determinant of the success of the digital music industry are peoples
conscience and ethic values.
182
At the moment Apple has created the picture that
downloading music from the internet is cool and therefore was able to spur sales.
183
But the line between music piracy and legal industry is thin and only the smallest
change in perception from customers point of view can change their consumer
pattern and the anyway increasingly disloyal consumer could turn to piracy again.
184
Demand for Music Subscriptions and Downloads

Type of Consumer
Subscriptions Downloads
Will Not Pay
(number sampled)
for Music
Music aficionados (357)
21%
25%
46%
Free-music fans (514)
13%
19%
60%
CD purists (280)
10%
16%
71%
Passive populace (746)
7%
10%
79%
Political and legal Forces

These forces are outcomes of changes in law and regulation. The environment Apple
operates in can be shaped by political judgments and legal decisions.
185
Bodies such
as the Copyright Arbitration Royalty Panel (CARP) or the Recording Industry

Association of America (RIAA) can have a crucial impact through imposing new laws
limiting the digital music industry in its efforts to grow and expand.
186
For example, in 2002 the CARP determined that webcasters (companies

that produce audio or radio for the world wide web) should pay a per song, per
stream royalty. The rate being 0.07 cent would force many companies out of
business, which would lead to anticompetitive structures. The RIAA justifies this high
rate by claiming that these rates dont reflect musics fair market value and that
broadcasters who couldnt afford to pay the fees should in first place be not in the
market. Such fees imposed on downloadable music content could ruin the business
as the narrow profit margins of Apple and consorts could totally disappear. Also
government was very
182
Lopez J. M. (2003)
BusinessWeek (2004g)
Lopez J. M. (2003)
185
Dickel K. E. et al. (1994), p. 112ff
186
http://www.pcworld.com/news/article/0,aid,102516,tk,dn070802X,00.asp, 04.02.04
183
184
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active on regulating the industry through means of the Music online Competition act
in order to tweak various aspects of the US Copyright Act with updates.
5.3.2 Market and external environment analysis for the iPod
Apple utilises the iTunes music store in order to make a natural connection between
its iPods (MP3 player) and the service, a seamless connection between hardware
and content. The market for MP3 players started to develop in 1998 with such
companies as Diamond Multimedia with its RIO MP3 player.
187
Since then, growth
has been tremendous and all major consumer electronics producers entered the
market, which is constantly heating up. The market grew by 70% to more than 3.5
million units only in the US during 2003 and is expected to grow further at a rate of
50% in the next three years. Jupiter predicts that by 2006 the install base of players
will hit 26 million that would be one out every ten Americans.
188
The clearly trend is
that music consumers behaviour shifts from a physical to a digital approach.

Today the MP3 player market is swamped to the gunne ls with me-too products, and
it has gotten pretty tough for new arrivals to distinguish themselves. Some have
gotten smaller (Apples iPod), some have added capacity, such as Creative's Nomad
Zen 60GB. Others have added video, the key example being the Archos AV320. With
so many available products, there's little room for innovation.
189
The immediate rivals come from electronics makers (Samsung) and from fellow
computer makers (Dell, Gateway), as well as from veteran music-player makers (Rio,
Creative Labs, iRiver). Most have the familiar iPod ingredients. The other notable
feature of these competitors is a marketing message that's either just like the iPod,
only cheaper or just like the iPod, only better. Another fact to take into
consideration is that most of these rivals are cheaper - usually $100 less.
190
But
better is another story. The iPod is still smaller, more attractive, and more
thoughtfully designed than any of the upstarts.
187
188
http://news.com.com/2100-1040_3-252001.html, 05.02.04
http://www.macobserver.com/article/2003/12/30.1.shtml, 31.01.04
189
http://www.extremetech.com/article2/0,3973,1230545,00.asp,
190
23.01.04
New York Times (2004)
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Apple Computer Inc.
Best selling MP3 player makers over US$150 (by units)
191
1. Apple
2. Creative Technology
3. Rio
4. RCA
5. Arcos
Best selling MP3 players for November 2003
10GB Apple iPod
128MB Digitalway
20GB Apple iPod
128MB iRiver
40GB Apple iPod
But the margin is very slim and the other players, especially the Dell, are credible
alternatives. The iPod integrates much better with Apple's download service than Dell
and Samsung do with their companion services and thats the key advantage of
Apples iPod. This indispensable connection between iTunes and iPods was also the
reason for the extensive analysis of the downloadable online music market in the
previous chapter.
192
In terms of environmental forces, technological and political/legal forces are worth

mentioning. The MP3 player market can also be categorised as high tech market
were technological advancements often occur and reshape industry patterns. The
format war between the two existing memory formats, the flash based models and
the hard drive models (Apples iPod is hard drive based), is currently dominated by
the hard drive models, simply because their bigger storage capacity is more attractive
to customers. The advantage of Flash based models which are accounting for one
third of the MP3 player market, is the smaller size of the players, which are particular
suitable for use during sports.
193
Political forces once again include the RIAA, which at the very beginning of the
industry in the late 1990s filed lawsuits against first movers in the industry accusing
191
http://www.macobserver.com/article/2003/12/30.1.shtml,
192
31.01.04
Wall Street Journal (2003)
193
http://www.macobserver.com/article/2003/12/30.1.shtml, 31.01.04
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Apple Computer Inc.

them of supporting online piracy through their products. Their view has changed, as
the RIAA has realised that the MP3 player market can be the device which opens
up the door to a legal online download music industry as Apples combination
between iTunes and iPods already shows.
In conclusion, both the digital online music industry and the MP3 music player market
are dynamic, marked by intense competition and a huge potential for companies to
make profits.
5.4 Summary of external factors

5.4.1 Overview
Apple operating in the high tech industry, is, as the name already reveals, highly
influenced by technological changes. Apple has already made the brutal experience
of losing a format war against Microsoft and therefore is eager not to make the same
mistake again.
Opportunities arise through its digital hub strategy which aims at producing not only
Mac compatible software and hardware, but also targets the Wintel market with its
new innovations. Besides that the significant barriers to entry represent a safe
haven for Apple as it can serve its niche markets through innovative and highly
capable products and equally charge a premium price.
Among the most important threats are the high level of competition in the PC industry,
which constantly drives down prices and makes high end, high price innovative
products less attractive and the bargaining power of Apples key component
suppliers, which can lead to a higher cost structure and thinner profit margins.
For the future, as other industries where Apple is involved in will gain importance,
issues in the music player market and digital music market will have a higher impact
on the company. In this, social forces seem to evolve as key determinant of how
successful Apple will be in the future. If Apple is able to maintain the coolness factor
of both iPod and iTunes,it will be able to generate above industry profits for the future.
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5.4.2 External Factor Analysis Summary (EFAS)
External factors
Weight
Rating
Weighted
Comments
11
44
High brand loyalty, high economies of scale,
12
Strong and loyal developer community !
21
Strong brand loyalty ! protect market share,
12
60
Superior R&D and innovation leadership!
U.S. computing dominance attracts R&D and
36
iPod ! Superior design and quality of killer
16
64
Consolidate industry with price wars !
27
Key components exclusively manufactured
14
70
Commodity type good ! intense competition
Opportunities
High barriers to
entry in the PC
industry
Complements and
complementors
Mature stage of PC
industry
Technological
forces
National
environment
MP3 player market

in growth stage
Threats
Rivalry among
established
companies in PC
industry
Bargaining power
of suppliers in the
PC industry
Substitute products
in the PC industry
Social forces
Rising disloyalty among young generation !
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Apple Computer Inc.

price key determinant of buying decision !
may lead to decreasing demand for high end
products
Political and legal
New regulations/restrictions governing digital
Switching costs extremely low ! price key
only five key music labels who produce
16
Format war between MP3 and AAC ! users
forces
Bargaining power
of buyers in online
music market
Bargaining power
of Suppliers in the
online music
market
Technological
forces in the online
music market
Total
100
132
Apple Computer Inc.
6 Functional strategy
Resources
Build
Shape
Distinctive
Competencies
Capabilites
194
Strategies
Competitive
Advantage
Superior
Profitability
Build
Functional strategies are shaped by a companys distinctive competencies and

enable a company to achieve superior efficiency, quality, innovation, and
responsiveness to customers, thereby leading to lower costs and/or differentiation
(competitive advantage) and ultimately resulting in superior profitability.
6.2 Company resources and functional strategy
Superior
quality
Superior
efficiency
Competitive
advantage:
Low cost
Differentiation
Superior
innovation
Superior
customer
responsiveness
194
Hill C. W. and Jones G. R. (2004), chapter 4
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Apple Computer Inc.

Functional strategies are targeted at improving the functions of a companys value
chain and therefore reaching a competitive advantage through superior efficiency,
quality, innovation, and responsiveness to customers.
As a consequence, there are different strategies, policies, and methods for all value
creation activities that were examined as company resources in the analysis of
Apples internal environment, namely Marketing, Finance, Research & Development
(R&D), Operations & Logistics (O&L), Human Resource Management, and
Information Systems.
The following matrix gives an overview containing several exemplary strategies and
methods a company can use to succeed in improving the four building blocks of
competitive advantage:
Marketing
Finance
R&D
O&L
HRM
IS
superior
reducing
invest in better
product
economies of
increasing
improved
efficiency
customer
manufacturing
innovations,
scale, flexible
employee
interaction
defection
machinery
process
manufacturing,
productivity
between
innovations
rates, building
superior quality
JIT, mass
(hiring,
company and
brand loyalty,
customisation,
training,
others,
experience
supply chain
team, pay for
automated
curve effects
management
performance)
processes
focus on
provide funds
design
analyse
TQM training
monitor
customer,
for
products with
defects,
programs,
defect rates
feedback on
implementation
superior
optimise
quality teams
quality
of TQM
quality and
production,
ease to
implement
manufacture
TQM at
suppliers
superior
providing
provide capital
developing
cooperation
hiring of
coordination
innovation
market
for R&D efforts
new products
with R&D to
scientists and
of product
information to
and
develop
engineers
development
R&D,
processes,
product and
developing
coordination
process
products with
with other
innovations
R&D
functions
work
superior
customer
investment in
include
customisation
training
customer
knowledge
market
customers in
and rapid
programs for
information
and feedback
research etc.
product
response
sales force
systems for
development
through
and other
customers
flexible
employees to
manufacturing
think like
and JIT
customers
responsiveness
web-based
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Apple Computer Inc.

6.3 Sources of competitive advantage
As Apple only possesses a competitive advantage in some specific areas, the
following illustration should summarise Apples sources of competitive advantage
which result from its distinctive competencies that were examined in the analysis of
the internal environment:
Superior
quality
! R&D, HRM
Competitive
advantage:
Superior
efficiency
! IS
Low cost
Differentiation
Superior
innovation
! R&D
Apple reaches superior quality through improved product design which creates
value through better product quality and functionality, thereby leading to
differentiation and more
pricing
options.
Moreover,
the
HRM
department
enables Apple to reach superior quality as a high-skilled workforce ultimately

leads to better products, thereby also leading to differentiation and more pricing
options.
In addition, the R&D function is the most important source of superior innovation as
short product-to-market cycles and innovative products create value for the customer,
thereby constituting another factor that leads to differentiation and results in more
pricing options. Finally, the Information Systems function optimises internal
communication (intranet) and external coordination (extranet) which facilitates and
optimises business processes and therefore lowers costs due to superior efficiency.
In all, these four factors contribute to superior innovation, efficiency, and quality and
provide Apple with a competitive advantage.
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Apple Computer Inc.
7 Business-level strategy
Differentiation on
Change the
product and service

through a user-friendly
graphic interface and
integrated products
Goals
world
through
technology
Value
Proposition
Product Market
Core
Focus
Activities
Complete desktop solution

50% US; 50% foreign
Education (50%MS); home
Hardware, software,
peripherals High end
R&D
Manufacturing
Distribution
Fully integrated
The above illustration shows Apples overall strategy,
195
with the business strategy
being in the top right corner. Apple pursues a differentiation strategy with unique
products which until now are unmatched by its rivals. To explain how this strategy
works out in detail is the purpose of this chapter.
The business strategy proposes how a specific business model can gain a
competitive advantage over its competitors in the industry. There are three main
factors influencing the shape of Apples business strategy. They are customer needs,
customer groups, and distinctive competencies in other words Apple has to find
answers to what and how customer needs are satisfied and who is going to be
satisfied.
96
7.1 Customer needs

Apple, throughout all industries it participates in, tries to implement its vision of being
the digital hub in an area where networking between hardware, software, and
services is getting more and more important, as consumers require sophisticated as
195
Crossan
M. M., Fry J. N. and Killing J. P.
196
(2002)
158ff
136
Apple Computer Inc.

well as integrated digital devices who can smoothly communicate with each other.
Apple since ever tries to differentiate itself from competitors in order to justify the
premium price it charges. It is important to find the right balance between customer
satisfaction and pricing option as this mix is crucial to maximise value for the
customer and drive up profitability.
197
Apple is known for its high cost structure, as
development of product design and innovation is a costly matter.

Nevertheless product differentiation is a strong competitive weapon because Apple
can increase the perceived value of its products and be as profitable as other
competitors despite the higher cost structure.
7.2 Customer groups

For a company it is indispensable to know its customers. Know yo ur customers
means to be able to carry out a proper market segmentation, because each set of
consumers needs to be properly differentiated. This procedure helps companies to
target individual customers in a better way with better and more appropriate products,
increasing customer responsiveness.
198
There are three types of strategy available
for market segmentation. The first option would be that Apple could try to serve the
average customer without making any differences in serving their needs, second
Apple could still serve all customers, but recognise the different tastes and therefore
create separate products for each customer segment or third Apple could simply
position itself into a niche and serve just specific customer groups. Apple uses
consumer characteristics to segment the market as the following diagram shows and
employs a niche strategy.
197
Morden T. (1993), p. 79ff
199
198
199
Dickel K. E. et al. (1994), p. 116f

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Apple Computer Inc.
7.3 Distinctive competencies

Apples business model must acknowledge its distinctive competencies and set a
business model which allows it to organise and enforce its competitive advantages.
With Apple as industry leader in design and product innovation the task of the
manager is to choose a strategy which is in compliance with the high cost structure
and the differentiation approach.
7.4 Differentiation strategy
200
Among the different choices Apple has on the business level, it chose the so called
Differentiation strategy. Key element of this approach is that it lets Apple compete in
different niche market segments by means of differentiation. By doing this, Apple
focuses on superior quality and innovation. Apples PCs are the most beautiful
among all, therefore successfully getting rid of the image of being only a commodity
type good. Additionally, the strong performance in graphic and other media
applications has persuaded one of the target segments, namely the creative people
employed in the media and advertising industry, to mainly operate on Apple
computers. Competitors based on Wintel standards underperform Apple by far in this
particular category.
201
In the education segment Apples superior quality is
demonstrated by its ease of use, which is a key success factor in the education
market. In the consumer sector Apple is the innovation leader, as it was able to build
200
Hill
201
160f
138
Apple Computer Inc.

state of the art computers, software and digital devices such as the Power Mac, iLife
and the iPod. Apple products appeal to customers psychological desires and as a
result consumers are willing to pay more for its products. But this premium price
should not mean that Apple can neglect its cost control, which Apple has been
doing in the past, driving it into losses. In contrary, Apple tries now to copy cost
savings innovations from competitors such as Dell by substantially reducing
inventory cost by partially outsourcing manufacturing (inventory is down to less than
two days worth of sales) and boosting direct sales channels (43% of sales are
already through its online
differentiation
to
provide
store).
202
Apple
has
realised
that
in
order
a competitive advantage it has to lead to superior
profitability, which is also depends on the cost structure of Apple.
7.5 Advantages and disadvantages of the Differentiation strategy

The strategy was able to safeguard Apple against competitors as it was able to
create a strong brand loyalty. Steve Jobs pointed that out by saying that Apple has
the worlds greatest customers. Another advantage is that this loyalty creates a
substantial barrier to entry and especially in the case of Apple, where switching costs
are considerably high.
The main threat for Apple in pursuing such a strategy is the entrance of competitors
being able to imitate the products and at the same time have a lower cost structure.
Analysts rate the threat of imitation in the PC sector for Apple as relatively low
despite the tangible nature of competitive adva ntage, as Dell and Compaq a few
years ago designed PCs which were fancy coloured, as an answer to Apples iMacs
which was then sold in five shiny colours, but only six months after their introduction
they had to be discontinued as a result of slow sales.
In the past years technological factors have drawn players with different strategies
closer together intensifying competition. So former pursuer of cost leadership
strategies such as Dell and HP/Compaq are trying to gain market share on the
expense of Apple , differentiating their product portfolio to create products which can
compete with Apples iMacs and Power Macs.
202
Yoffie D. B. and Wang Y. (2003)
139
Apple Computer Inc.

203
7.6 Investment strategy
The second determinant of where Apple is heading in the future on a business level
is its investment strategy. As the name already suggests, the investment strategy
defines and allocates resources needed to create distinctive competencies. The
choice is dependent on the strength of Apples position in the industry and the stage
of the industry life cycle. To analyse Apples position in the industry you need to
consider the market share in its key market segments. In the education sector Apple
has a 28% market share in portable devices (iBook) and an overall market share of
12.4%, in the creative professionals sector Apples market share exceeds 65%. In
the consumer and the small business segments it captures only insignificant market
shares.
204
To sum it up, Apple has a relatively strong competitive position within the
industry.
Apples position has again implications for the investment strategy. As stated before,
the PC industry is in its shake out stage reaching maturity, meaning that demand is
only increasing slowly with 2001 being the second year of a decline in worldwide PC
sales after 1985. As a strong competitor and a differentiation specialist Apple
investments are oriented towards the development of a sophisticated customer
service, marketing , and broader differentiation. Apple therefore entered as part of the
digital hub industry the consumer electronics market, more specifically the MP3
player market with its iPod and developed iTunes, an online music platform and
media content player. Naturally the PC business remains Apples core business
(70% of Apple revenues come from PC sales), but as profits start to dry up, broader
diversification is the only liable way for Apple to ensure profitability in the long run.
All in all the investment strategy tends to be coherent with the generic business
level differentiation strategy, as new products are marked by the same qualities
and features Apple has established and is proud of in the PC industry. iPod and
iTunes perfectly fit in the corporate image as they seamlessly join the existing
products in terms of design, reliability and pricing.
7.7 Competitive strategy

After choosing the appropriate generic business level strategy and investment
strategy, Apple faces another critical decision. To chose a competitive strategy which
203
173f
204
140
Apple Computer Inc.

best fits generic business level strategy, given the maturity stage of the PC industry
in the industry life cycle. As this stage is characterized by a small amount of
dominant players such as Dell, HP/Compaq, Gateway and Apple, these
companies have the power to influence the five competitive forces. Apple therefore
is constantly watching the other players, trying to predict their next step in order to
be ahead of the rivals. This so called competitive game can be analysed using
game theory. As Apple
2000/2001 tried to enter the low priced market to better serve its education segment,
it launched its eMac and priced it competitively at $999.
205
Just weeks after this
launch, Dell, its main competitor in the education market, announced deep price cuts
for its Dell Dimension 4100 Desktop to as low as $799 per unit. This obvious high
interdependence in the PC industry requires Apple and its managers to look forward
and reason back, before launching any initiatives.
206
This interdependence doesnt
only pose a threat to Apple, as Apple can use this already existing invisible hand to
protect companys and industrys profitability. There are two major starting points how
Apple can achieve sustainable profitability. Either deter entry into the industry or
reduce rivalry among existing competitors.
207
7.8 Strategies to deter entry
Strategies
for deterring
entry of rivals
Product
proliferation
Pricing
Maintaining
games
excess
capacity
From the three options to deter entry (product proliferation, pricing games and
maintaining excess capacity) Apple could choose from, the only beneficial choice
205
Ganesan S. (2003)
Hill207
194ff
Dickel K. E. et al. (1994), p. 125ff
206
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Apple Computer Inc.

would be product proliferation. As competition is immense among existing players,
pricing games which would have to be supported by the majority of the industry are
very difficult to introduce. Also, apart from Apple only one player is currently making
profits, namely Dell. This circumstance makes it difficult for the other players to lower
prices, as they might incur very high losses. Also Apple with a traditionally high cost
structure will see this opportunity for entry-deterring signals as the least attractive.
Although financially feasible limit pricing, meaning the lowering of prices below the
average cost curve of potential new entrants, who wouldnt enjoy the same
economies of scale in the beginning as existing players, Apple has never used this
option, as the fear of price wars within the industry poses a far greater threat than the
benefit from increasing the barrier to entry. Maintaining excess capacity would be in
contrast to the manufacturing process at most PC companies, as they
have introduced lean manufacturing systems as well as Just-in-time production.
Also the
rapid decrease in value and price of old technology prevents maintaining excess
capacity.
208
Product proliferation means that the current competitors try to cover all market niches,
which in turn would lead to higher barriers to entry, because new companies willing
to enter the market, wont be able to find any unsaturated niches. The current product
range of Apple and competitors are a strong signal to potential entrants, that there is
no space for them in the highly competitive PC market. Apple has constantly tried to
fill more and more niches in the consumer PC market, as they made a wide range of
their products affordable for consumers. It introduced PCs priced below the magic
$1,000 limit and expanded to consumer electronic markets, reinforcing the maturity of
the PC industry having no space left for new competitors.
7.9 Strategy to manage rivalry

Apple of course has to consider the more direct threats from within the industry and
also put measures into force to actively manage this rivalry. A high degree of
competition can quickly lead to intense price wars and decreasing profitability. Apple
in this case has a variety of possibilities, three basic options to handle competition
within the industry being further analysed: Price signalling, price leadership, nonprice competition, and capacity control. For the same reasons as before, any kind of
208
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Apple Computer Inc.

price signalling is useless to pursue, as the famous tit-for-tat strategy wouldnt work.
Price leadership would mean that the weakest player in the PC market would set a
price, which would then serve as orientation to price its own products. The reason
why Apple cant rely upon such a system, is that its products are far to differentiated,
so that any kind of price settings from its competitors could not really act as an
indicator for Apples pricing options. The competitive nature of the PC industry and
the clash of the various corporate cultures do the rest to make price leadership
strategies impossible. Apples only chance to impact the intensity of existing rivalry in
the industry is through non-price competition. To break non-price competition down
into its four main components the following chart is used to exemplify Apples
strategic alternatives.
Four Types of non-price competitive strategies

PRODUCTS
EXISTING
EXISTING
Market
penetration
NEW
NEW
Product development
Product proliferation
Market
development
All four tactics are achieved by means of product differentiation. Apples approach
here is a mixture between product development and product proliferation.
Product proliferation tactic is identical to the one used to create barriers to entry. If
new niches develop, the leader gets a first mover advantage as it was the case with
Apple in the digital music market where it was the first company to offer online music
via iTunes and the suitable device, the iPod, thereto. When other companies start to
move into to the niche, competition is stabilised and hence decreases rivalry.
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Product development signifies the innovation of new or better products in order to
replace the old ones. Apples lead in innovation and design is more than suited to
exploit opportunities to gain market share through product development. As the iPod
and iTunes were made available as a Windows version in 2002 and 2003
respectively
209
, the demand skyrocketed and helped to propel sales to record highs.
More than half of all iPods sold are to Windows users and the expected estimates of
being able to capture 20 percent of the pay-per-download market, were beaten in
an spectacular way -
iTunes today accounting for 70% of the market for the
digital-music downloads.
210
Apple is adapting to its environment effectively through generic and competitive

business level strategy and according it with the investment strategy adds to the
overall picture that Apple is doing quite well pursuing its strategies on the business
level. However one has to remember that competitive advantages in the high tech
industry are hard to sustain, but Apple has until now safeguarded its
distinctive competencies and utilised the business strategies to exploit the
advantage which arises through these competencies. But competitors dont sleep
the major PC makers have already started to differentiate themselves to
offer products which compete with Apples ones for the same customer groups.
The perceived value, generated through superior design and innovation proves
to be an inimitable competency and therefore as long as such an advantage
exists for Apple, Apple will continue to outperform rivals.
209
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BusinessWeek (2004b)
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8 Global strategy
Apples unique history made the company known as the typical example for the
American Dream stereotype. Nowadays, Apple is more than a domestically
operating enterprise. Over the years it has become a pure multinational,
resourcing raw materials and selling products globally.
8.1 Apples foreign operations

As Apple manages its business primarily on a geographic basis, its segments are
the Americas, Europe (including Middle East and Africa), Japan, the Retail segment
and Others
(comprising
Asia-Pacific).
This
organisation
already
indicates
Apples widespread global operations and activities although the United States still
represent Apple's largest geographic marketplace with 58% of net sales.
Nevertheless, a large portion of the company's net sales is derived from its
international operations. Also, a majority of the raw materials used in Apples
products is obtained from foreign sources.
Final assembly of products outside the US is conducted in Apples manufacturing
facility in Cork (Ireland)
211
and by external vendors in Taiwan, Korea, the Netherlands,
the Peoples Republic of China and the Czech Republic. Currently, manufacture of
many of the Apple PCs components and final assembly of all portable products are
performed by third-party vendors in Japan, Taiwan and China. Sale and marketing
subsidiaries were founded in several countries all around the world to serve a global
customer base whereby Japan and France became the most prosperous markets for
Apple. In contrast, to penetrate countries like Germany or the United Kingdom was
difficult due to restrictions and cost- as well as responsiveness pressures.
Additionally, the company expanded its retail programm, the Apple Store, to Japan
by launching the first international shop in the Ginza in Tokyo.
As margins on sales of Apple products in foreign countries and on sales of devices
that include parts obtained from foreign suppliers can be adversely affected by
foreign currency exchange rate fluctuations, by international trade regulations,
including tariffs and antidumping penalties or by pressure on cost reduction and local
responsiveness and therefore can impose huge risks to the company, its necessary
to evaluate why Apple moved abroad.
211
Earlier, also one facility in Singapore
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Apple Computer Inc.

As with any internationalisation Apple tried to increase profitability through lowering
costs and to explore new customer groups through selling more. When Apple started
this expansion in the late 1980s and intensified it in the early 1990s the company
already benefited from lower costs over the life-cycle of their products as learning
effects and economies of scale occurred
212
These abilities enabled Apple to differentiate its product offerings (new products and
services). Furthermore, Apple transferred these distinctive competencies (but still
domestic) which generally lead them to achieve superior efficiency, quality,
innovation or customers responsiveness to foreign countries for exploiting a probable
value creation potential. However, going abroad created the chance to not only use,
but also improve and leverage Apples skills.
A perfect example for this development at Apple is the PC companys production
plant in Cork (Ireland). The Americans shipped over their know-how and knowledge
to the Celtic Tiger which is characterised by low taxes and by a well-educated work
force. In the end, Apple achieved to lower costs as transportation efforts to Europe
and consequently expenses decreased. Additionally, value arised from being able to
provide faster delivery of accurately fabricate products, better service, reach a higher
customer satisfaction and in the end have increased sales/profits.
It is indispensable for Apple to maintain and even strengthen their way towards
internationalisation by taking advantage of the positive aspects of globalisation. For
instance, the African market isnt covered at all in practice despite being in the
position to provide Apple with a small, but soaring number of wealthy clients.
Although having experienced difficulties in Germany and the UK years ago, even
there Apple succeeded as their products became more and more stylish.
8.2 Apples Transnational Strategy

From the four strategies possible Apple finds itself in the fourth quadrant facing both,
high pressure for local responsiveness as well as for cost reduction. Its by far the
most difficult one to realise, but if accomplished a company can obtain a low cost
structure as well as a considerable level of customer acceptance. Apple applies this
strategy, but hasnt reached the optimal point yet. This is due to the fact that Apple
could get to an appropriately low cost situation, it still has to persuade PC users in
212
see: experience curve
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Apple Computer Inc.

each country from the very entry of their technological and innovative superiority.
Despite of living in a world more and more knitted together a huge amount of
computer owners doesnt know much about Apples technology. Moreover, Apple is
heading towards Transnational Strategy from a point in between Global and
Transnational Strategy.
8.3 Apples methods of entering new markets

When deciding to move abroad Apple executives were asking themselves the
questions which markets to enter, when to enter and on what size. This meant finding
out the size of the market, possible local consumers, their wealth and purchasing
power and the situation in Apples market there (i.e. competition). Would Apple have
to adapt products to meet the local preferences? Apples assessment of benefits,

risks (also politically) and costs concluded in first of all expanding to Europe which
was and is only slightly different to the US. Later on, politically risky and highly
competitive Japan was taken on, followed by a number of other countries. Timing the
entry wasnt hard to work out as the US market at the beginning of the 1990s was in
a bad shape (i.e. recession) concerning the business cycle and not many other PC
companies went overseas.
So Apple despite taking on some risk as nobody knew what it would be like was
in a position to build up demand and pre-empt future rivals as first-mover advantages.
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Furthermore, Apple tried to start their foreign ambitions with babysteps which
means not being exposed to too much risk if the decision failed. As soon as the
company encountered that business performed, Apple imposed a strategic
commitment to enhance their activities overseas by all means and forces.
The method Apple used was to simply export at the very start which also could infer
huge costs (e.g. exchange rate fluctuations, shipping costs, cheaper producing
competitors located in the objected market) by using economies of scale at their US
plants, but altered the strategy and implemented fully owned subsidiaries in some
specific countries (e.g. Cork plant in Ireland). Additionally, Apple started licensing
their PC production, but that emerged only within the US. Franchising or joint venture
never played an important role for Apple as the PC producer never wanted to provide
partners with access to their know-how. So at the moment, Apple operates with a
good strategy by combining strategically allocated subsidiaries worldwide with
exporting activities from the companys assembly plants.
With putting aside domestic US mergers and acquisitions and the Microsoft deal,
Apple never proceeded any forms of major strategic alliances with foreign companies.
8.4 Pressures for cost reductions and local responsiveness

Although the PC market is one of high technology and high quality goods, Apple as
well as the whole PC industry has to have an immense focus on the cost side.
Increased domestic and abroad competition makes use of prices as the main source
of competitive advantage. This wasnt the case at the start of Apples business, but
brought the company already on the edge in the 1990s. This was one of the reasons
for Apple to look for business opportunities overseas, but even there pressures for
cost reduction were sustained. Therefore, price policy which means drawing the line
between the quality and the price of a product was and is an essential one for Apple
as the management often was reluctant to lower short term profit margins. Even
today, not charging too high or low represents a crucial criteria when selling
fashionable PC ware
213
213
Failure of the Cube PC
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Apple Computer Inc.
Concerning the global strategy, consumer awareness and acceptance of Apples

products is important. Not for the Wintel-standard base industry, but especially for
Apple log-on and network effects are extremely dangerous as they influence
people not to abandon the OS or PC-standard they were trained on or are constantly
using at home as in office. This makes it much harder for Apple to gain market share
abroad (e.g. Europe) as theres a much higher percentage of people that choose
Wintel than in the US.
Therefore internationally, adapting to local tastes and preferences, being able to deal
with the different infrastructure and altered traditional practices becomes much more
decisive abroad to acquire customers. In addition, demands of local politics arise (e.g.
Japans wired political and economical situation) and require Apple to act to avoid
running the risks of protectionism, local legal barriers or economic restrictions.

Although Apple doesnt vary its product and marketing message from country to
country, the company has early developed strategies to respond to pressures in local
acceptance by adapting. Building up an intercultural communications skill when doing
business helped them to prevent, minimise or get rid off problems arising from
internationalisation. Globalisation moves on, but doesnt destroy local differences,
local uniqueness. Nevertheless, the fear can emerge that Apple reinforces their
global ambitions too little although having been one of the front-runners for an
international strategy in the PC sector.
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9 Corporate strategy
214

Corporate-level strategy deals with identifying the businesses in which a company
should invest its resources
215
and possible opportunities for expanding or contracting.
As Apple is engaged in horizontal integration, vertical integration, strategic

outsourcing, and diversification, this chapter will take a closer look at the companys
specific activities and goals in these areas.
In general, it is a special characteristic of the network era that firms create value
networks of cooperative specialists through vertical integration/partnerships and
strategic outsourcing. This development results from the differences between the
traditional cost structure and the coordination cost structure of the networked
economy. Whereas the traditional structure included a trade-off between production
costs and coordination costs when using markets (buy external ! outsourcing) or
hierarchies (make internal ! vertical integration, long term relationships) as
organising mechanisms, the network structure led to overall cost reductions and
favours markets over hierarchies. This can be shown in the following illustration:
traditional structure
production
network structure
coordin
costs
cost
markets
LOW
HIG
hierarchies
HIGH
LOW
216
production
coordination
costs
costs
markets
LOW
LOW
hierarchies
MEDIUM
LOW
9.2 Horizontal integration

Horizontal integration is the process of acquiring or merging with industry competitors
in order to maximise long-run profitability. Although there are two possible ways of
pursuing horizontal integration, Apple only engages in acquisitions and obviously
doesnt consider a merger at the moment.
In fact, Apple has acquired and may continue to acquire companies that have
products, services, personnel, and technologies that complement the companys
strategic direction and product portfolio. In fact, Apple is aware that these
acquisitions may involve significant risks and uncertainties, for instance concerning
214
Hill C. W. and Jones G. R. (2004), chapters 9 & 10

Alexander M., Campbell A. and Goold M. (1994), p.
5
Kraemer K. L. (2003)
215
216
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Apple Computer Inc.

the integration of the acquired companies, expenses related to the acquisition, legal
obstacles, or product quality issues. Apple generally pays cash for its acquisitions as
current shareholders percentage ownership and earnings per share may become
diluted if the company issued its common stock or other equity related purchase
rights as in an acquisition.
217
Recent acquisitions such as the acquisitions of Emagic and PowerSchool highlight

that Apples acquisition policy is aimed at improving the companys value by adding
valuable skills, knowledge, and products of the acquired companies. In fact, these
acquisitions of relatively small companies didnt give Apple a huge possibility to
enhance the competitive advantages that stem from economies of scale or scope but
added significant value to the firms product portfolio. As Apple is generally engaged
in the area of product bundling, these new products also give the company new
possibilities in offering new and differentiated product bundles and can foster crossselling.
9.3 Vertical integration

Through the use of vertical integration, a company expands its operations either
backward into an industry that produces inputs for the companys products or forward
into an industry that uses or distributes the companys products.
In the case of Apple which can be regarded as a vertically integrated firm, the
company is primarily engaged in the field of forward vertical integration in order to
gain control over its distribution channels. For instance, Apple entered the retail
industry through the introduction of its retail stores in 2001. Moreover, Apples online
store can be seen as another aspect o f vertical integration in the distribution area.
Concerning the positive and negative aspects of Apples strategy, it can be said that
vertical integration enables the company to gain flexibility in terms of pricing options
due to improved scheduling and more control over the distribution of its products. On
the contrary, possible cost disadvantages and problems because of demand
unpredictability may also arise. In addition, Apples vertical integration efforts can be
seen as an example for taper integration as there are in-house as well as
independent distributors and therefore should bear less risk for high bureaucratic
costs (than in the case of full integration).
217
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Apple Computer Inc.

9.4 Strategic outsourcing
Strategic outsourcing involves separating out some of a companys value creation
activities within a business and letting them be performed by an independent entity.
Indeed, Apple has outsourced various functions in terms of operations and logistics
as its contract manufacturers and outsourcing companies can perform several
value-creation functions at a lower cost due to low-cost location and other
competitive advantages.
As Apples focus lies in the design of its products and its strengths can be seen in the
fields of innovation, creativity, and marketing, it makes sense that the company
focuses on these value creation functions and outsources its manufacturing activity
to contract manufacturers that specialise in this function. Therefore, Apple can reap
benefits in terms of a lower cost structure, opportunities to differentiate its products,
and increased focus on its distinctive competencies. Nevertheless, it has to be stated
that the company bears risks with regard to holdup due to the dependence on its
outsourcing partners as well as loss of control and information.
9.5 Diversification
Diversification is the process of adding new businesses to a company that are
distinct from its established operations. As Apple has recently engaged in the digital
music player business which can be seen as distinct from its traditional personal
computer business, this can be regarded as a diversification activity.
By taking a closer look at Apples step into the music player market with its iPod
digital music player, various elements of Apples diversification strategy become
obvious. For insta nce, Apple could transfer its distinctive competencies in the
computer industry (technological innovation, quality, and creativity) to the music
player industry and create an innovative, high-performance device which
consequently attracted many customers d ue to its design, capabilities, and quality.
Moreover, this is definitely an example for related diversification as there are obvious
links to Apples core business which are highlighted by the iTunes music software
that connects the iPod with the iMac and therefore creates the ultimate link between
these two industries. In addition, the launch of the iPod shows that Apple uses
internal new venturing as its preferred entry strategy because it possesses a valuable
set of distinctive competencies that can be leveraged to the new business and
because internal new venturing is generally seen as the typical entry strategy for
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related diversification activities. Furthermore, Apples new product didnt fail because
there were no problems in terms of scale of entry,
commercialisation,
and implementation and the companys R&D activities provided a strong basis
for a successful internal new venture.
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10 Strategy implementation
10.1 Corporate structure, control, and culture
As Apples corporate structure, control, and culture have been examined in detail in
previous chapters, the following paragraphs should sum up the key points
with regards to strategy implementation. In fact, these main elements of
strategy implementation are an important factor contributing to achieving superior
efficiency, quality, innovation, and customer responsiveness and need to be
designed so that they are consistent with the companys functional-level,
business-level, corporate-level, and global-level strategy.
In fact, Apples organisational structure is a functional structure which promotes
specialisation, control, and decentralisation of authority and responsibility which
should allow the various functions to set appropriate actions in order to implement
the companys strategy. Moreover, Apple organises its operating business through
an (impure) geographic structure which increases responsiveness to regional
customers and reduces costs as well and therefore goes hand in hand with Apples
international strategy. In terms of control systems, the use of personal and behaviour
control systems enables efficient strategy implementation. Finally, the values and
norms incorporated in Apples corporate culture support the firms organisational
structure as well as its strategy by promoting innovation, initiati ve, motivation, and
creativity throughout the company which can be regarded as central elements of
Apples strategy.
Generally, organisational structure, control, and culture shape the way people
behave, their values and attitudes, and determine how they will implement an
organisations business model and strategies
218
. So, it can be concluded that through
the consistent interaction of Apples structure, control, and culture as well as through
the resulting coordination and motivation of its employees the company is enabled to
effectively implement its policies at the various levels of strategy.
10.2 Implementation
219
It is now important to examine the specific policies that Apple uses in order to
implement its strategy.
218
219
Hill C. W. and Jones G. R. (2004), chapter 12 and 13
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Apple Computer Inc.

First of all, at the functional level a companys competitive advantage depends on its
ability to use and develop distinctive competencies and therefore it is important to
build organisational structures and capabilities that will allow a company to
outperform its competitors. In the case of Apple, the companys functional structure is
definitely the optimal solution to group its employees and tasks in order to build
competencies. In fact, the functional structure as well as the strategic control systems
which should foster monitoring, constant improvement, and organisational learning
and the companys cohesive culture which emphasises central values (innovation,
quality, creativity, initiative) across all functions promote Apples functional-level
strategy.
Second, in terms of business-level strategy, strategic management has to link and
combine the competencies in a companys value chain functions in a way that
enhances the ability to differentiate products and economise on bureaucratic costs.
So, at Apple effective strategy implementation at the business level links the
companys sources of competitive advantage (like superior innovation) in order to
improve the firms ability to add value and to differentiate its products. As a result of
integration problems, theres a need for the development of more sophisticated
control systems, more complex kinds of organisational structure, and a culture based
on professionalism or collegiality which can be observed in the ongoing development
of Apples culture, structure, and control in the past.
Third, by taking a closer look at the implementation of corporate -level strategy, it
becomes obvious that in terms of Apples vertical integration and related
diversification efforts, effective strategy implementation depends upon the companys
skills in terms of integration and the appropriate use of strategic control, especially
behaviour control in both cases as well as financial control in the case of vertical
integration and organisational culture in the case of related diversification.
Finally, in order to successfully implement its global-level strategy, it would be
optimal for Apple to use a global matrix structure combining its product
groups and geographic divisions. In spite of this, the creation of an information
network that lets Apple capitalise globally on the skills and capabilities of its
employees as well as the use of strategic outsourcing and a network
structure which promote deep relationships with its global suppliers,
manufacturers, and distributors foster the companys efforts with regard to its
global strategy.
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11 Analysis of strategic factors

The analysis of strategic factors will look at the strategic fit between internal and
external analysis through the combination of the Internal Factor Analysis Summary
(IFAS) and the External Factor Analysis Summary (EFAS) that have been examined
and analysed in detail before. Thereby, it will evaluate the importance of the key
strategic factors and finally end with a review of the companys mission and (strategic)
objectives with regard to these factors.
11.1 Situational analysis

The situational analysis combines the most important strategic factors from the IFAS
and EFAS. In Apples case, the 9 most important factors for the companys current
and future performance are:
Strategic factors
Comment
Strenghts
Innovation
Superior innovation
competitive
constitutes
the
most
important
advantage for Apple because the company is famous for its technical
revolutions, inventions, and development as well as its engineering
excellence. As this source of competitive advantage is widely regarded
as the most important one in terms of future profitability, innovation is
Creativity & design
especially vital for Apples future performance.

By regarding the PC not just as a commodity but as a premium product,
Apples puts special emphasis and its huge creativity skills into the
design of its products. Therefore, Apples customers get a higher value
for Apples products due to aesthetics, lifestyle, or similar reasons. As
this leads to higher sales and profits, this is an important cornerstone of
Apples intermediate-term performance.
Weaknesses
Incompatibility
As Apples hardware, software, and other products arent compatible

with the Wintel standard, this incompatibility deters possible customers
and PC-producers. This leads to lower sales and profits, thereby
weakening especially Apples long-term performance.
High operating costs
High operating costs are caused by high Marketing and R&D costs and
reduce overall profitability. This also immediately weakens Apples
short-term performance.
Opportunities
Technological forces
Apple can take advantage of the importance of technological forces

which enable possible first mover advantages through superior R&D
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Apple Computer Inc.

and innovation leadership in the future. This can lead to high returns,
thereby improving Apples long-term performance.
High barriers to entry in
High barriers to entry due to high brand loyalty, high economies of
the PC industry
scale, and other factors offer the opportunity to maintain market share
as the potential new entrants are unlikely to enter the industry. This
ensures Apples profits and constitutes an opportunity in terms of
intermediate-term performance.
MP3 player market in
Apple can use the iPod and its superior design/quality to earn high
growth stage
profits in this growth market, thereby improving its current performance.
Threats
Substitute products in the
As many customers regard the PC as a commodity, these are often
PC industry
attracted through the lower price of the Wintel-standard products. This

threat can lead to lower profits in the intermediate-term.
Rivalry among established
Intense rivalry in the consolidated PC industry can cause price wars
companies in PC industry
which are an important threat to Apples profitability as they would

reduce profits immediately and therefore leading to inferior performance
in the short-term.
11.2 Strategic Factor Analysis Summary

The Strategic Factor Analysis Summary (SFAS) combines the 9 strategic factors,
gives them a weight (0-100 each, overall sum of 100) and a rating (from 5 = very
significant to 1 = not really significant), calculating the resulting weighted score and
evaluating the factors duration (short-term = 1 year and below, intermediate = 1 to 3
years, or long-term 3 years and above).
Strategic factors
Weight
Rating
Weighted
Innovation
18
90
Creativity & design
45
Incompatibility
12
48
High operating costs
36
Technological forces
13
65
High barriers to entry in
24
32
Short-
Inter-
Long-
Strenghts
x
x
Weaknesses
x
x
Opportunities
x
x
the PC industry
MP3 player market in
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growth stage
Threats
Substitute products in the
15
75
10
40
PC industry
Rivalry among
establishedcompanies in PC
industry
Total
100
In short, Apples key strategic factors are innovation (strength), incompatibility

(weakness), technological forces (opportunity), and substitute products in the PC
industry (threat).
11.3 Review of mission and objectives

The importance in analysing these factors lies in the interdependence with the
companys mission and objectives. One would expect that these strategic issues
need to be addressed in the mission statement, as their effective management is
crucial for the success of the company. To start with the analysis, the mission
statement has to be recalled:
Apple ignited the personal computer revolution in the 1970s with the Apple II and
reinvented the personal computer in the 1980s with the Macintosh. Apple is
committed to bringing the best personal computing experience to students,
educators,
creative professionals and consumers around the world through its innovative
220
hardware, software and Internet offerings.
Although short, the first sentence already creates the link between Apples obvious
and most powerful strength in innovation and the results from the SFAS-table. In
other words, Apple gives its strongest distinctive competence a top priority by
pointing out the computer revolution, initiated by Apple during the late 1970s, in the
first sentence of the mission statement. Furthermore Apple also addresses key
technological issues as its commitment to excellence in all major business areas it
operates in. Superior quality and innovation through the extensive use of R&D is the
main driving force behind Apples recent success. To build on that and further
220
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increase its customer base, is clearly one of the main objectives of the company. It
doubtlessly highlights its strengths and opportunities in every situation.
Nevertheless neither mission statement nor objectives are dealing with Apples
threats and here lies another major problem within Apple. Apple and especially its
current CEO lack realism, meaning that they have a difficulty to accept economic
reality and live in their own innovative digital world. Apple, still condemned to be a
niche player because of incompatibility and high pricing options, doesnt comment at
any time on any possible threats such as competitors eaten in Apples market share,
such as Dell in the education market or Sony in its notebook segment.
Therefore attempts should be made to adapt its objectives and the mission statement
not only to one half of the SFAS, but to incorporate every strategic factor. Any
change in the mission statement and objectives would have huge and direct impacts
on any strategy, beginning with functional over business to corporate strategy. In
order to change all of them, the organisation as a whole has to change. For this
purpose you need to first unfreeze the organisation in order to be able to move
it. The change has to be lived within the people, because it is only people who
can change the organisation.
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12 Strategic advice
As Apples current strategy isnt appropriate for the revised mission and objectives,
this chapter will evaluate possible strategic alternatives for Apple based on the
previous analyses. Based on these alternatives, we will ultimately choose a
recommended strategy and examine its implications, implementation, evaluation, and
control.
12.1 Strategic alternatives
We have included eight exemplary strategies in the four quadrants of the above
diagram indicating possible combinations of strengths and weaknesses with
opportunities and threats. Now, we will take a closer look at four of these specific
strategic alternatives and choose the recommended strategy.
12.1.1 Take advantage of technological forces by innovation (S-O)
Innovation has been identified as one of Apples core strengths, technological forces
as one of Apples core opportunities. Both innovation and technological forces
combined form a possible alternative strategy in terms of strengths and opportunities.
Apples innovation made the company famous for technical revolutions, for
outstanding inventions and development as well as engineering excellence.
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Technological forces helped Apple to reach innovation leadership, a first-mover
advantage and higher returns in embryonic/growth industries through superior
Research & Development.
The strategy is to apply increased innovation to fully exploit technological forces
which in turn will help to push innovation once more. As a kind of perpetuum mobile
this process circle improves Apples innovation further and accomplishes to take
advantage of the technological forces. This will guarantee Apples demand for
innovation leadership in the long run as well as differentiation, growth and stability
without raising risk connected innovation efforts (i.e. uncertainty if customer will
respond to an invention). Negatively, there is to say that this strategic alterna tive has
to be well funded at the very beginning and also in the short run to be sustainable.
12.1.2 Use creativity in a way to avoid substitute products (S-T)
Creativity has been identified as one of Apples core strengths, substitute products as
one of Apples core threats. Both creativity and substitute products combined form a
possible alternative strategy in terms of strengths and threats. Apples creativity tried
to attract customers by establishing an attitude of regarding personal computers not
just as a commodity but as a premium product. Aesthetics should originate lifestyle.
Substitute products in the PC industry demonstrate the Wintel standard based
commodity type goods which are competing with Apples products on the market
place.
Substitute products of Apples competitors make it hard for the company to
differentiate on the market for attracting new customer groups. Strengthening Apples
creativity efforts is the only way this can come about. This alternative strategy is
intensively connected to models requesting a further rise in innovation. Therefore, as
design and creativity forms one of its vivid pillars these actions improve Apples
products, make them more stylish, more unique and are determined to create higher
sales and profits in the end. Costs and funding are observed to be the biggest
advantage of this strategic alternative.
12.1.3 Take advantage of the MP3 player market by overcoming a
disimproving business execution (W-O)
Business execution has been identified as one of Apples core weaknesses, the MP3
player market as one of Apples core opportunities. Both business execution and the
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MP3 player market combined form a possible alternative strategy in terms of
weaknesses and opportunities. Business execution became a problem area through
severe difficulties in turning Apples inventions into real money and by not focussing
enough on innovative business models/processes. By implementing the iPod, the
MP3 player market moved into the centre of Apples digital online content/music
strategy. Its outstanding design as well as the quality of its killer applications such
as an enormous storage capacity provides Apple with considerable profit potential.
For years, Apple experienced severe difficulties with their business execution. Too
much money was improperly spent and therefore wasted which would regarding
the strategic alternative result in the obligation to displace it. Only if done so, the
grounding for bringing new product ideas (e.g. Apples successful MP3 player iPod)
ahead can be elaborated. This change has to be initiated by executives who wouldnt
be very likely to either concede their own malpractice and mismanagement or even
to alter them.
12.1.4 Act to minimise high operating costs and avoid rivalry (W-T)
Operating costs have been identified as one of Apples core weaknesses, rivalry as
one of Apples core threats. Both operating costs and the rivalry combined form a
possible alternative strategy in terms of weaknesses and threats. Apples extremely
high operating costs mainly result from huge Marketing expenses (e.g. Apple retail
stores), essential R&D as well as production liabilities. Rivalry or market competition
represents possible future price wars due to the elevated level of competition and
may result in a forthcoming downward price spiral. Therefore a saturated PC market
will decrease industry demand and make the sector fiercer. Due to Apples reliance
on the PC market and the existence of market exit impediments for Apple such a
development would adversely affect the companys profits, would force them to
plunge sharply and if ongoing over a longer period would endanger Apple itself.
The aim of this strategic alternative is to lower Apples high-up operating costs to be
able to succeed on a market, characterised by enormous competition. This will
immunise Apple against tough pricing policies implemented by its rivals and will suit
the company to maintain the value (the V) of its products by still providing R&D with
indispensable funds. Furthermore, costs (the C) can be reduced by cutting utopian
product ideas and non-effective Marketing spending and consequently profitability
secured.
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12.1.5 Recommended strategy: Operation costs (weakness)/rivalry (threat)
A peculiar significance for Apples corporate development and even survival is
mainly imposed by the current situation where Apples high operation costs meet the
intense market rivalry, identified by Apples strategic analysis. To solve this main
problem Apple faces at the moment, the fourth alternative strategy has been
chosen as the recommended one.
12.2 Recommended strategy

The recommended Weakness-Threats (WT) strategy focuses as above mentioned on
Apples weakness, the high operation cost structure and Apples threat of intense
rivalry amongst competitors within the industry, as the PC industry, Apples core
business, approaches saturation levels signalling that the PC market has reached its
maturity stage. The WT-strategy is basically defensive and primarily tries to avoid
and minimise weaknesses, which in our case would be the existing rivalry. Given this
scenario, the following chapter deals with the implications for the strategies on each
level of business. To fully grasp the benefits of this strategy one has to carefully
analyse the changes this new strategy would bring to Apple.
12.2.1 Functional level strategy
The functional level strategy, aiming at improving the efficiency of Apples day to day
operations, will need to adapt to the WT-strategy. To be in coherence with its
functional
level
strategies
the
actions
undertaken
ha ve
to
aim
at
cost
reduction effects. We suggest that efficiency should be improved through a

reduction in marketing expenses, because the $193 million spent 2003 on building
brand loyalty are far too much. Apples high cost structure must be reduced for
two obvious reasons. On the one hand Apple could be better prepared to face
competition within the industry, as it could actively play a role in price wars,
because of the lower cost structure and on the other hand high revenues could
serve as a war-chest against potential entrants into the market. Especially the retail
store initiative proved to be a very costly one. Also after the initial hype about
Apples brand new retail stores, much of the coolness factor has worn off and
managers at Apple face increasingly tougher reality. The visitor rate per week
dropped from 5,000 to 3,500 and the conversion rate of Wintel customers has
been a skinny 0.9%, therefore not adding significant value to the companys value
chain. By cutting marketing, we want to
163
Apple Computer Inc.

emphasise that market research however will remain at the same levels in order to
assure that the R&D department makes the right decisions in terms of product
innovations. We believe that the brand name Apple is already strong enough
developed to remain alive as hip brand even with decreased marketing expenses.
Also expensive prime time advertising campaigns should be only utilised if necessary,
because we believe that Apples products are themselves means and channels of
marketing. The stylish forms, paired with superior engineering quality are a delight for
the eye and therefore successfully create a positive corporate image of the company.
Another area where costs are high above industry average is operations and logistics.
Apple has continuously experienced bottlenecks in its supply chain management,
which consequently led to increased costs due to time lags in the production process.
To ride down the experience curve and enjoy economies of scale, Apple has to
continue to outsource production processes and find a broader group of key
suppliers in order to be in a better bargaining position, which would lower the cost of
inputs therefore lowering overall production costs, widening the spread between
costs and value for the customer. As a result Apple could price its products also more
competitively on the market and subsequently, facing the threat of immense rivalry,
win market share from its rivals
12.2.2 Business level strategy
At the business level, strategy should aim at further improving the weakness and
therefore getting rid of the potential threat. As we defined to focus on Apples cost
structure, ways to reduce it have to be found which would then result in the desired
value creation effect. Right now Apple as analysed is pursuing a broad differentiation
strategy with particular strong emphasis on the software and peripherals markets as
its current performance in the digital music market shows. To obtain cost advantages,
Apple has to shift its strategy from being a pure differentiator to combine the
advantages of cost leadership and differentiation strategies simultaneously. As the
competitive nature of the high tech industry is anyway removing barriers between
both strategies, Apple could utilise this trend for its own benefit. The key success
factor here is to achieve significant economies of scale and to decrease production
costs further by shifting more of the production process to low labour costs countries.
Apples task is to effectively coordinate the unique components needed for its
technology to adhere to the existing high standards. Apple in the past tried not for
164
Apple Computer Inc.

nothing to control the whole supply chain management on its own, but within an
industry where critical mass has to be reached in order to be profitable, Mr Jobs has
to realise that beautiful doesnt always mean profitable.
Competitive strategy has equally to match the generic business level strategy as we
target a lower cost structure. The savings occurred from the implementation of
functional strategies, hopefully leaves us with more powerful tools to survive in the
competitive structure of the industry. In addition to the previously available non-price
tools to create barriers to entry and to reduce rivalry inside the industry, Apple now
can use limit pricing to deter potential entry as it now, with a lower cost structure, can
survive lasting price battles and effectively signalling the environment that it wont let
any firm take market share away, especially if it would target the same customer
needs and groups. If Apple manages to implement the necessary measure to shift
from a pure differentiator to a cost leadership oriented differentiator it can combine
low cost structure by meanwhile still offering unique and superior products, which
would further decrease the threat of rivalry.
12.2.3 Corporate strategy
Apple, as previously examined, today is a company which is vertically forward
integrated by operating its own distribution channels such as the criticised expensive
retail stores. If Apple wants to stay vertically integrated it has to start controlling costs
and for instance enter into lease agreements for its stores, which are less expensive.
To experience cost reduction effects, Apple has to continue its policy of outsourcing
major parts of the products and getting more suppliers to provide them with key
components in order to be independent of a particular supplier. The outsourcing
efforts should include more value chain activities and as suppliers with their superior
efficiency in producing components at lower costs can pass on these savings to the
company, Apple can benefit greatly through outsourcing and likewise concentrate on
its core competencies design and innovation. The last choice would be the horizontal
integration, expected to yield cost savings through M&A, but reality shows us that
often these actions fail to realise these anticipated gains.
To sum it up the key to a better performance for Apple is to reduce its cost structure
through a reduction in marketing expenses, a multifaceted supply chain, and a
combination of differentiation and cost leadership strategies bringing together the
important elements from both, resulting in a lower C (cost) and a higher V (value) for
165
Apple Computer Inc.

the customer due to the now made possible price reduction as you can see in the
following diagram.
Lower prices
to generate
demand
Initial Status
V-P
V-P
P1
P2
V-P
V*
V-P
C
V-P
V-P
12.3 Implementation
In order to implement a strategy that focuses on lowering operating costs, Apples
CEO and the companys other senior executives have to continuously stress this goal
and motivate as well as coordinate the workforce through incentives, leadership, and
commitment. Moreover, they have to shape/adapt the companys culture and
structure so that it fits to the new objectives but still provides a basis for maintaining
the firms distinctive competencies and leading to a competitive advantage.
Concerning the corporate culture, cost awareness (where appropriate and useful)
has to become incorporated into Apples set of values and norms. Although this
might be one of the most difficult parts of a successful strategy implementation as
several CEOs in the past failed in their attempts to change Apples culture, Steve
Jobs is definitely able to manage this challenging task. By taking Apples
organisational structure into account, it becomes obvious that an important step
towards the realisation of the ambitious goal will be to coordinate and integrate the
efforts of all employees so that they are consistent with the companys strategic
objective. In fact, by allocating even more responsibility to single employees, these
166
Apple Computer Inc.

will take advantage of their authority, creativity, and flexibility and therefore search for
new ways to contribute to the firms goals.
12.4 Evaluation and control

Actually, Apples current information system is highly capable and advanced and
therefore should be able to provide sufficient feedback about the companys
performance and the status of its cost reduction objectives in an accurate and timely
manner. Moreover, through the use of the firms intranet the whole workforce as well
as the management team should be informed about the current status quo and IT
can also facilitate to implement appropriate strategic control measures which should
provide instantaneous and continuous
feedback on the performance and
effectiveness of the firms strategy-specific activities.

In fact, these strategic control systems should contain incentives to motivate the
workforce in order to improve efficiency, quality, innovation, and customer
responsiveness. Moreover, in order to be effective, they should use IT for
measuring/monitoring purposes, comparison of actual/desired results, and the final
evaluation which could lead to enhanced or corrective action. In our case, Apple as
it currently concentrates on personal and behaviour control should also implement
output control in terms of performance goals for separate divisions or even specific
employees. These performance goals should support the cost reduction strategy and
therefore lead to a successful implementation as an accompanying reward system
would provide a motivating incentive for the employees. Nevertheless, management
should be aware that possible corrective measures need to be taken into account if
the companys new strategic direction doesnt enhance its performance and therefore
the responsible managers should be willing to take even harsh corrective moves if
necessary.
Finally, as already mentioned before, evaluation procedures play an important role in
a successful strategy implementation and therefore should act as a monitoring
activity that controls the companys deve lopment due to the new strategic objectives
and provides top management useful support in making the right and necessary
decisions. In conclusion, all these efforts should lead to higher profitability and a
prosperous future for the company.
167
Apple Computer Inc.
13 Conclusion
As our strategic analysis and the resulting strategic alternatives as well as
our strategic recommendation actually summarise the main facts of this strategic
audit and provide a ventured but definitely interesting (and on a broad strategic
foundation based) suggestion for the company, we would like to conclude this paper
with some personal thoughts:
In fact, it was certainly a challenging, interesting, and beneficial task for us to pursue
this strategic audit that was not only a personal milestone in our academic history but
above all improved our overall knowledge concerning the company and the strategic
management tools, processes, and methods. Moreover, this paper can be regarded
as a beneficial work as it gave us the unique opportunity to visit the companys
office in Vienna (Austria) or engage in written communication with its branch
in Cork (Ireland).
In addition, this all meant a great chance for us to put our theoretical knowledge in
terms of strategic management and other areas into practise and to get a deeper
insight into a company which fascinates us due to its exceptional history, its amazing
capabilities, and the unique strategy it is pursuing in dealing with present and future
challenges in a rapid-moving industry environment.
Finally,
we hope that
weve been able to provide the reader with a
comprehensive and consistent strategic picture of Apple Computer Inc. and that
our creativity and design can contribute to superior innovation as well as the
content does to superior quality. Of course, we are thankful for any comments,
advice, and recommendations and will value your thoughts as a useful input
to reach superior customer responsiveness.
Valentin Iliev, Andreas Lindinger, Guenther Poettler
168
Apple Computer Inc.
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Appendix
Corporate memo
178
Apple Computer Inc.
179
Apple Computer Inc.

Standard and Poors Rating Agency
Standard & Poors
short-term
long-rating
A-1+
AAA
Aa1
Aa2
Aa3
A
A-2
A-
long-term
rating
term rating
Moodys
Fitch
shortterm
rating
longterm
rating
P-1
F1+
AA+ AA
AA AAAA-A1A-1
F1
P-2
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Baa1
shortterm
rating
Aaa
AAA AA+
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A+ A
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Apple Computer Inc.

Dublin Institute of Technology

Apple Computer Inc.

Market .........................................................................................................7 2.2.2

1981 .............................................................................................. 11 2.3.1

Market ...................................................................................................... 11 2.3.2

Market ...................................................................................................... 14 2.4.2

Market ...................................................................................................... 18 2.5.2

Market ...................................................................................................... 21 2.6.2

Market ...................................................................................................... 22 2.7.2

Market ...................................................................................................... 23 2.8.2

DIT | Strategic Management | Iliev, Lindinger, Poettler

Apple Computer Inc.

Board of Directors ......................................................................................... 32

structure ............................................................................... 47 4.3.2

structure ....................................................................................... 47 4.3.3

values ........................................................................................ 51 4.4.2

implications .................................................................................... 53 4.5

Corporate resources: Marketing

positioning .......................................................................................... 57 4.6.3

Apples financial status

quo ......................................................................... 63 4.7.2

operations ......................................................................... 75 4.8

resources: Research & Development ............................................. 77 4.8.1

DIT | Strategic Management | Iliev, Lindinger, Poettler

Apple Computer Inc.

Corporate resources: Operations & Logistics................................................... 81

Human resource objectives and

policies ............................................................................. 90 4.10.3

resource performance .................................................................... 91 4.10.4

Information Systems ...................................................... 98 4.11.1

software and hardware is used at Apple? ......................... 98 4.11.2

extent is the model of a virtual company achieved by Apples Intranet and

Summary of internal factors

and distinctive competencies.................................105 4.12.2

Analysis Summary (IFAS)...............................................106

Defining the sector, industry and market segments ..............................109 5.2.3

External analysis of software and peripherals market ..................................119

DIT | Strategic Management | Iliev, Lindinger, Poettler

Apple Computer Inc.

Software industry ........................................................................................120

Market and external environment analysis for the iPod........................128

Summary of external factors

Company resources and functional strategy..................................................133

Advantages and disadvantages of the Differentiation strategy ...................139

entry.....................................................................................141 7.9 Strategy

.................................................................................145 8.2 Apples

of entering new markets ......................................................147 8.4 Pressures

cost reductions and local responsiveness..............................148

Corporate structure, control, and

DIT | Strategic Management | Iliev, Lindinger, Poettler

Apple Computer Inc.

Situational analysis .............................................................................................156

Strategic Factor Analysis

Review of mission and

advice ..........................................................................................................160 12.1

Take advantage of technological forces by innovation (S-O) ..............160

Use creativity in a way to avoid substitute products (S-T)....................161

Take advantage of the MP3 player market by overcoming a

disimproving b usiness execution (W-O)..................................................................161

Act to minimise high operating costs and avoid rivalry (W-T)..............162

Recommended strategy: Operation costs (weakness)/rivalry (threat) 163

level strategy ..............................................................................164 12.2.3

DIT | Strategic Management | Iliev, Lindinger, Poettler