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Project Draft Apple Inc Comprehensive Strategic Plan

Lisbeth M. Rios Abreu

MIS 516 STRATEGIC MANAGEMENT Dr. Robert A. Krell February 21, 2010

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Executive Summary Apples corporate vision and mission is a computer for every man, woman, and child on the planet. 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 (Apple website, 2004). Companies are increasingly turning their attention to opportunities for achieving competitive advantage through Information Technology and Apple is not the difference. Apple is one of the world's leading

3 computer and electronic devices companies. The company designs, builds, and markets computers, peripheral equipment, and software for homes, businesses, educational institutions, and the government. Apple also provides customers with multimedia and connectivity solutions and was a pioneer in the field of personal computers with its easy-to-use, object-based Apple Macintosh. This user-friendly computer interface has since spawned competitive imitations; apple was fighting to recapture users lost to dominant IBM-compatible computers running the Windows operating system. The technology is offering a greater array of capabilities at lower cost than ever before. Terms like innovation and agility are more than buzz words. They are necessities. Apple is challenged to create operational and technical capabilities flexible enough to adapt to continuously changing business models and strategies. After years of investment in an infrastructure that was built to last, executives are now faced with an environment that mandates a foundation that is built to change. Apple's vision statement says, "Man is the creator of change in this world, as such he should be above systems and structures, and not subordinate to them." You can see that vision reflected in the intuitive screens and systems of a Mac computer or IPod and other Apples products. An effective IT Strategy, closely aligned with Apples business strategies and objectives is fundamental. It can significantly improve the IT infrastructures, skills and systems as required. By combining technical

4 knowhow with a new concept for how to sell music online, Apple's iPod music player has become the most influential new tech product in years, following with the innovation on telephone equipments the Iphone integrates a phone, internet access and music player. At the same time, Apple has maintained its reputation for making the most elegant, easy-to-use desktop computers as well as the innovation of its products line.

Technology Strategy Think different Apple wow changes the way we think about consumer electronics. Apple has positioned
itself to manage threats by investing in R&D and making it a corporate mission to lead the development of products that enhance the consumers digital life. Maintaining a broad mission like this enables the company and each of its operating business to focus on bringing to market new products that will continue to differentiate themselves from their competitors and command a higher price at retail. This focus, even without the showmanship of Mr. Jobs, can sustain the market leadership of Apple once he is eventually replaced.

Technology drives all Apples business strategies, enabling the companys future growth. Apple focuses on gaining advanced technologies to create innovative and successful digital media products and services which support their future in leading the digital media in the electronic and software market industry. Apples commitment to R&D is demonstrated by the creation of the IPod portable digital music player and apple initiative to create the first cell phone with multitouch user interface and access to the internet. Apple is committed to develop the best products and services by doing the right thing. Apples use of technology is a key contributor to the companys overall business goals. Apples technology strategy gives access to the right

6 technologies at the right time, helps shape the future competitive landscape and encourages innovation to benefit consumers. Apple has a persuasive vision of the iPhone as a 'platform' - general purpose computing and communication device. They also set out a technology strategy which might, one day, give Apple the kind of dominance over the mobile market that Google currently enjoys in search and online advertising. The iPhone platform which provides access to web browsing, email, sophisticated multi-media applications (including gaming) and virtually anything else that can run on a computer. Our Goal: To Lead Global Electronics and Information Technology Worldwide In order to sustain leadership among global electronics and information technology companies, Apple is driving the development of "Great Products" and strengthening core technological capabilities in key areas such as Computers, digital entertainment devices, cell phones and home digital entertainment. Apple provides personal computing experiences to students, educators, creative professionals, businesses and consumers around the world, through its innovative hardware, software, peripherals and Internet. Apple is directing its efforts toward developing convergence products in response to the current trend of merging different technologies and products.

7 Apple aims for technology leadership in all device categories developing the most rewarding consumer experiences that allow people to connect to what matters to them. Success in technology also plays a significant role in enhancing brand reputation: the IPod, the companys most popular device, is an example of how technology leadership builds value. A major focus of Apples technology strategy is to give our customers choice and simplicity, keys to delivering the best user experiences. Apple design and manufactures the entire personal computer - from the hardware and operating system to sophisticated applications and provides innovative industrial design, intuitive ease-of-use, and built-in networking, graphics, and multimedia capabilities, offering digital hub products, solutions and interoperability with peripherals and devices from other companies. Digital Hub Apple, offer includes Mac and the iTunes Music Store. It believes that the attributes of the personal computer, including its ability to run complex applications, possess a high quality user interface, contain large and relatively inexpensive storage, and easily connect to the Internet in multiple ways and at varying speeds, can individually add value to these devices and interconnect them as well. Apples core business is computer technologies but today revolves around converged consumer devices. Their vigorous commitment to R&D is demonstrated by developing new, innovative products including

8 the IPod, online music service with ITunes, IPhone, powerful notebook computers, Apple TV, and the most recent, the IPad. Its optimization of the hardware-software system, the production of its unique click wheel interface, touchscreen and complementors of computers has made it more valuable. Apple often plays an integral role in getting certain core technologies that are standardized across the industry. Apple's continuous trust on innovation is resulting in its leadership in the electronic industry. The innovative products have attracted customers looking for easier-to-use devices and elegant products. Apple is very oriented to provide a high quality service to its customer which has become one of the most important development philosophies, a result of collecting customer feedback and applying improvement to its products based on that feedback. Physical and financial achievements are the result of its deep commitment to continuous innovation-led strategy. The highly competitive market for personal computers and related software, and peripheral products is characterized by rapid technological advances in both hardware and software. In order to sustain leadership among global electronics and information technology companies, Apple is better reflecting their steady but relentless move into a wider field of consumer electronics with a portfolio now spanning software, retail and the on-line

9 distribution of electronic media, home entertainment, digital audio players, cellphones and computers.1 Apples Innovation-Based Strategy Rapid technological advances have increased the capabilities and use of personal computers, thereby triggering frequent innovation of new products. Apple stays ahead of competition because of its emphasis on innovation-based strategy since its inception. Over the years, Apple has continuously invested in research and development (R&D) to design and develop new products and peripherals. Apple effectively integrates an entire solution, including the hardware (iPod), software (iTunes), and distribution of third-party digital content (iTunes Music Store). The company has succeeded in implementing innovation-driven growth strategy despite persistently difficult economic environments. Steve Jobs, CEO, Apple Inc, "This is the direct result of our focus on innovation and the immense talent and creativity at Apple. We could not be more excited about the new products we're working on.2 Apples Core Technological Competencies Apples core technological competencies are built around the software they develop for their devices that results in exceptionally elegant
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Apple drops computer from name by Thomas Ricker, engadget.com Apple Reports Fourth Quarter Results, www.apple.com, October 11, 2005.

10 ease-of-use devices. Apple improves ease-of-use in ways that were unimaginable before its market entry. Apple's iPod, iTunes, iPhone and App Store aren't merely the latest fad fostered by the company. Apple has built a new business paradigm, likely to impose lasting effects on the CE industry. Apple creating a Core Technologic Competency Apple's core competency is innovative design and technology. That's the spirit behind its famous "Think Different" ad campaign. For Apple an organizational skill becomes a core competency and therefore market advantage: Apple produces a highly valued consumer benefit. Apple's easyto-use products save time. Apples skill becomes far superior to that of current or potential competitors. Superiority results in unique benefits for which customers gladly pay price premiums. Apple it is broad enough to help you win business in new markets. Apple used its core competency to create novel music players and cell phones that helped grow its revenue from $5.4 billion in FY2001 to $24 billion in FY2007. Over the same period, R&D spending increased by only $352 million. Financial leverage of this magnitude gives testimony to the profitable growth opportunities from a Technological core competency.

11 By focusing its innovation in two areas hubs (Macs) and spokes (software and hardware for digital Apple focus had been on reenergizing the existing base with the iMac and other nicely designed products. Apples technological competency is in creating unique products that are differentiated in style and power from PCs. That competency continuously adds new innovations to existing products (i.e. iMac) and creates entirely new products (i.e. iPod and iPhone). Apple backs this up with the capability to produce the products with high quality and accompanied by a marketing trust that makes it clear why their offerings are unique and valuable. Behind these competencies and capabilities are the humanware, technology and organizational structure to source new products. Apple possesses unique values and norms that give everyone in the organization permission to think, act, and create differently. Such is the stranglehold that Apple has on the digital portable marketplace, with more than 10 million iPods and 300 million iTunes files sold. Apple gadgets such as the iPhone and iPod are increasingly important. Apple brings several things to the market: really sleek, cool hardware, great software and a cool image. The company is trying to integrate a personal entertainment system [the iPod] and a personal online music store [iTunes] with more family-centric home stereo and home video."3
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Eric Clemons, Wharton operations and information management professor

12 Apple has a bevy of core assets to fend off its foes, with design prowess as its primary edge. It also has a keen eye for making complicated technology--such as digital rights management software that restricts how content is played and shared, simple enough for consumers to use. Apple's design skills also go beyond new gadgets to encompass software design. One of Apple's real design feats was making it easy for consumers to buy music legally without excessive digital rights management software. Apple's iPod and iTunes store are quite tightly coordinated to make theft of content or illicit transfer of content cumbersome. Apples Core Technology Competencies are: Technology innovation Product design Software design

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Industry Dinamics: Technology Strategies for being a Platform Leader Apple's excellent products could have become industry platforms. Apple realized a major platform opportunity with its iPhone. For Apple to have platform potential, the product, technology or service must:: Perform at least one essential function in a product or combination of products that execute an increasing variety of tasks, the way PCs have

13 become an integral part of Web browsing, gaming, telephony and other activities -- or solve an essential technological problem for many players in an industry. Be easy to connect to or build upon, allowing the system to be expanded to new and even unintended uses. Then a business strategy is required that enables a company to make its technology or service fundamental to an emerging platform and helps the market tip toward that platform. The company must create economic incentives that encourage other firms to develop complementary applications for the platform, and at the same time protect its own ability to profit from its innovations. This balancing act is perhaps the greatest challenge to platform leadership. Many high-tech sectors have become battlegrounds for companies bent on establishing their product as the next industry platform. Whether it's a smart phone or a videogame console, products that become platforms dominate sales in their niches, give rise to numerous complementary products from third-party developers, and reap enormous profits. Too many companies, though, end up being losers in platform wars because they are too protective of their technology or intellectual property, or failed to recognize the platform potential of their products. Apple chose to optimize the hardwaresoftware system and monopolize revenues of the products. For Apple a platform strategy would have meant licensing the Macintosh operating system widely and working openly with other companies and

14 complement producers to evolve the platform and create applications for the mass market. Apple did not do this and remained (for the most part) the only producer of the Mac. But software applications producers, the major complementors of computer platform, chose to support the more broadly selling IBM-compatible machines, which gave Apple the opportunity to be better in the market. The iPod, with its click wheel and touchscreen, is the best-selling music player in history, currently with about a 70% market share. It also has attracted hardware such as connectors for car or home-stereo systems, or addons that turn the iPod into an FM radio, digital recorder, or camera. Initially, however, Apple introduced the iPod as a closed system that worked only with the Macintosh and iTunes music warehouse and did not support non-Apple music formats or software applications. Eventually, Apple opened up the iPod software (but not the hardware) to play some other music formats. Apple also uses proprietary digital rights management (DRM) technology on the iPod and the iTunes store, creating problems with potential ecosystem partners as well as customers. (To its credit, though, Apple did introduce an iPod in 2002 compatible with Windows and then a Windows version of iTunes in 2003.) Then we have the iPhone, probably the most exciting electronics product to hit the market since the Macintosh. This Smartphone , a cell phone with many of the capabilities of a digital media player as well as a Web-enabled handheld computer, also

15 boasts a remarkable user interface driven mainly by touch and virtual keyboard technology. But the original iPhone would not run applications not built by Apple, and it would not operate on cell phone networks not approved by Apple (initially only AT&T in the U.S., but later Deutche Telekom/T-Mobile in Germany, Telefonica/O2 in the U.K., and Orange in France). Fortunately for consumers, hackers around the world found ways to unlock the phone and add applications. A black market also developed for hacked devices. This market pressure persuaded Apple that its great new product was becoming a platform and needed to be more open to outside applications. In March 2008, Apple started to license Microsofts email technology to enable the iPhone to connect to corporate email servers. Apple still is just half the size of Microsoft in revenues and much less profitable. Apple won the battle for digital media players but that product, like PDAs, is likely to disappear in favor of smartphones. Apple may yet win the smartphone battle but still trails RIMs BlackBerry and Symbian/Nokia smartphones by a wide margin. It represents a threat fot Apple if companies such as Nokia, Samsung, and other firms introduce products that look and feel similar to the iPhone. Based on Sonys experience with VCRs, or Microsofts with MS-DOS and Windows, it is clear that platform companies must work with industry players and be willing to make technical and design compromises, as Nokia has done with the Symbian consortium. Apples managers have

16 been acutely aware of the product versus platform challenge and have preferred not to follow an open platform strategy. But customers have pressured Apple to open its products and it has done so without losing too much distinctiveness. This evolution suggests that Apple could have pursued product and platform leadership simultaneously. If Apple team had thought to make great platforms first and great products second, then it is possible that most PC, digital media, and Smartphone users today would be using Apple products. Technology Sourcing and Internal Innovation Develop a plan to increase the innovative capabilities of the organization both through collaboration strategies and internal innovation. Apple has an innovation record based on design research which taps into creative problem and opportunity finding, instead of just problem solving. This is a source of a competitive advantage. Other companies decision making process requires a tangible, quantitative, metricsdriven approach, disregarding the fact that good ideas can come from anywhere. Apples commitment to innovation is cultural, not process driven. Apple invests about 20% of its industrial design on concept research. Note that the company has one of the lowest ratios of R&D spending to revenues. Steve Jobs is very interested in launching products which define new categories. Henry Ford was once asked about customers feedback. His take was that most were looking for stronger, faster horses. Instead, he mass produced cars and created a business empire. Being customer focused does not necessarily imply limiting creative thinking to what might be commonly acceptable. Companies such as Apple happen to

17 be trend setters, launching products and creating markets beyond todays expectations. The leaders section of the The Economist calls it: not invented here, and very welcome. Apple has been able to adopt technologies developed by other companies, blending them with designs inspiring user friendliness and consumer appealAs an example, it was a consultant who first conceptualized the iPod, and the foundation of iTunes happens to be software brought in from outside. Apple also works closely with manufacturers, being very engaged in material selection and manufacturing processes, innovating with them where they see fit. Just yesterday, at Apples Worldwide Developers Conference, Steve Jobs announced that: To maintain the security of the iPhone, Apple decided not to let developers write actual applications for the iPhone, but rather create Web 2.0 applications that run within the version of Safari included on the iPhone. Apple focuses on mastering QoE, the Quality of Experience. Understanding usercentered design and consumer behavior is paramount. Apples designers surrender the technology to the users needs and expectations. This translates into simplicity, ease of use and elegance, effectively competing in a market populated with a great variety of gadgets. Apple manages to captivate audiences by means of well thought out designs. Cross functional teams include experts in marketing, engineering and user experience requirements. To prevent cluttered products and obscure user interfaces, Apple manages feature creep by keeping things out. This means omitting items which would lead to unwelcome complexity. Apple has consistently shown that they can learn from their mistakes. The iPone is seen as Apples fix for the Rockrs lack of success, a music phone developed in partnership with Motorola.
Apple has built an Innovation Factory one that harnesses unbridled creativity from its people, stimulating bold & enterprising new ideas, and launching successful, profitable new innovations... time and again! Apple leverages its diverse ecosystem of employees, customers, suppliers, partners & global networks, proven innovation process, and a winning culture that doesn't accept second place - to seize the new opportunities in the marketplace and grow its business... exponentially

How do you manage for innovation? A: We hire people who want to make the best things in the world. You'd be surprised how hard people work around here. They work nights and weekends, sometimes not seeing their families for a while. Sometimes people work through Christmas to make sure the tooling is just right at some factory in some corner of the

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world so our product comes out the best it can be. People care so much, and it shows.

I get asked a lot why Apple's customers are so loyal. It's not because they belong to the Church of Mac! That's ridiculous.

It's because when you buy our products, and three months later you get stuck on something, you quickly figure out [how to get past it]. And you think, "Wow, someone over there at Apple actually thought of this!" And then three months later you try to do something you hadn't tried before, and it works, and you think "Hey, they thought of that, too." And then six months later it happens again. There's almost no product in the world that you have that experience with, but you have it with a Mac. And you have it with an iPod.

19 References: Naughton, John /Apple sets out strategy to dominate mobile market/ guardian.co.uk/retrieved from: http://www.guardian.co.uk/technology/2008/mar/16/apple.mobile phones Junko Yoshida/How Apple is changing the CE industry/EE Times/retrieved from: http://www.eetasia.com/ART_8800590669_499495_NT_c0ab85d1 .HTM http://www.clermiston.com.au/Technology%20Strategy.htm http://www.apple.com/pr/

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