Case Study: Apple, Inc.

Strategy Analysis - Part 1

Posted on Tuesday, August 14, 2012 by Vaishak V. Suvarna

1 Introduction
Apple, Inc. is a US multinational corporation that needs no introduction. Apple Inc. with its Think
Differently" motto has been Fortune magazine's World's most admired company in the World for
the last 4 consecutive years (Fortune, 2012). On February 28th, 2012, Apple, Inc.'s market value
toped $500 billion (Blodget, H, 2012).
'Apple Computers' as it was called prior to 2007 had primarily focused on its core computer
business. In 2001, it shifted its strategy by entering the portable digital music player business with
the introduction of iPod, and in 2003 entered the music business with the introduction of iTunes
music store. According to Apple's FY'07 10-Q, by end of 2006, the iPod & iTunes business
contributed to more than half of its revenue. In 2007, Apple Computer changed its name to Apple,
Inc. This paper focuses on Apple, Inc.'s business strategy in the last five years starting from 2007 to
present and throughout this paper 'Apple, Inc.' will be simply referred as 'Apple'.

2 External Analysis
Apple competes in the following four industries ;

Computer Hardware and Software with 'Mac' line of computers, Mac OS X & iOS

Portable media devices iPod, iPad & appleTV

Smart Phone iPhone

Music, Media and Content Service iTunes, iBook, App Store and Mac Store

A firm's business strategies are influenced by the forces in its external environment. PESTEL and
Porter's five forces framework can be used to analyze the factors influencing the firm's macroenvironmental and industry sectors respectively (Johnson et al, 2008, p.55). From Apple's PESTEL
Analysis (A1) and Porter's Five Forces Analysis (A2), the key external drivers of change affecting
Apple are ;
Political Threat
Apple manufactures and assembles all of its products in Asia (Apple, Inc. FY12 10-Q Form , p36).
Hence it is dependent on political stability in these countries. Any political conflict between these
countries and the US can have a negative effect on Apple's operations.
Legal Threat
Apple is a successful company and with success comes persistent threat of litigation from any
number of sources, e.g., Apple had legal disputes with Beatles on Apple trademark which was
settled in late 2006. Currently Apple is fighting Antitrust lawsuit filed against its iTunes download
business (Apple, Inc. FY12 10-Q, p33)
Economic Threat
Apple is subject to global economic cycles, like inflation, GDP, interest rates and levels of disposable
income. Apple products are considered premium products and puts Apple in disadvantage during
economic downturns as consumers are weary of big-ticket purchases like computers, iPhones or
iPads.
Apple is a multinational company maintaining huge cash reserves which is not fully repatriated.
Global interest rate fluctuation will have impact on Apple's income as the company earns interest on
its cash reserves. Fluctuation in US dollar exchange rate will have significant effect on its profits as
more than half of its revenue coming from outside US (Apple, Inc. FY12 10-Q Form, p18).
Threats from Competitors
Apple's competitors are established companies with substantial resources. Any advantage that
Apple gains by product differentiation is short lived as competitors have copied them immediately,
e.g., mobile phone companies like Samsung, Nokia, Motorola released their version of touch screen
smart phones and tablet computers within months after the introduction of iPhone & iPad.

Threat of New Entrants

Even though cost can be a significant barrier to entry, some of potential competitors with substantial
resources have diversified into Apple's music and smartphone businesses. New entrants to music
industry like Amazon, started their own online music business. Microsoft launched the 'Zune' music
player to compete against iPod. Google entered smartphone business with Android based phones to
compete against iPhone & iOS.

Internal Analysis

In spite of all four of these industries being highly competitive, we can see from
Apple's SWOT analysis (A3), that they are all fast growing industries with huge
potential. Apple has been able to successfully exploit these opportunities by
entering and then creating a sustainable market for its products.

3.1 Competitive Advantage

A firm achieves competitive advantage when it has one or more core competencies
which is a combination of unique resources and capabilities (Johnson et al, 2011,
p.97). From Porters value chain analysis (A4) and SWOT analysis (A3) Apple's
success factors can be attributed to its unique Resources and capabilities of ;

Leadership and Talented Employees

Even after Steve Job's death, who was the iconic leader of the company, Apples
executive management team, that was hand picked and groomed by Steve Jobs are
embedded with Think Different philosophy (Lee, 2011). Tim Cook, the current
CEO, took over day-to-day CEO duties from Steve Jobs since his first medical leave
of absence back in 2006. Apple under the leadership of Tim Cook, has done
extremely well. Apple recruits the best talents available and Apple has one of the
best design team headed by Chief designer Jonathan Ive.

Cash
As of December 31, 2011 Apple has about $92 billion in cash (Apple, Inc. FY12 10-Q
Form). This gives the company strategic advantage as Apple can pay in cash
upfront to its suppliers and lock out crucial supply parts from the suppliers years in
advance (Wingfield, 2011). Having huge cash resources protects Apple in fighting
legal battles against it and also aggressively pursue legal actions on any firm that
steals Apple's intellectual property.

Brand

Apple is the world's valuable brand valued at $153 billion (Culpam, 2011). Apple
brand stands for innovation and design and has a cult like following.

Culture of Innovation
From Apple's culture web analysis (A7), an innovation culture has permeated
throughout Apple's history by Steve Job's Think Different philosophy. This has
become a self enforcing and self sustaining culture. Apple's culture of innovation is
not just limited to products development, but also to its business model, innovative
marketing and captivating communications. It not only boosts sales, but enhances
the brand value too. This culture of innovation gives Apple a strategic advantage.

Technology with Integrated Value Chain

Apple puts consumer experience more than the technical prowess of the product.
Apple is the only vertically integrated company and thus can manage all aspects of
the consumer experience. Vertical integration refers to owning all parts of the
product value chain. Apple designs and develops its own Hardware and Software
platforms for its products, content service via iTunes and App stores, uses its own
sales and service via Apple Retail store and online store. By controlling the whole
value chain, Apple is in position to extract all the value from it, and also provide an
outstanding value in all aspects of consumer experience. This gives Apple a
strategic advantage.

3.2 Sustainable Competitive Advantage

An organization can attain sustainable competitive advantage if its unique
resources and core competencies are rare, inimitable, valued by customers and
embedded within its organization (Johnson et al, 2008, p107). Analyzing Apple's
Unique Resources and Core Competencies (A5) using VRIO framework (A6) we can
conclude that the above mentioned Unique resources and core competencies give
Apple a sustained competitive advantage.