Apple: Strategic Management Case Study

Hank, Kakie, Sandy, Abdi & El Haddi

Strategic Management, UST Executive MBA Fall 2012

2011 University of St. Thomas, Opus College of Business

Mission
1. Mac, the best PCs in the world
2. Digital music revolution leader 3. Reinvented mobile 4. Defining mobile media & computing devices future
3

Core Values Revealed

No External Agencies Internal Teams

1.
4.
Innovation

2.
= No Disclosure = What Life?

3.

Misdirection

5.

Research

Recent News: Jobs by Jobs

Created 600,000 Jobs in the US New announcement by Tim Cook Assembled in the USA

By itself, Apples iTunes and App stores make more money than The New York Times; Simon & Schuster, which publishes the best-selling Steve Jobs biography; Warner Bros. film studios, which owns the popular Batman film franchise; and Time Inc., the largest magazine publisher in the U.S. Combined. -Edmond Lee - Bloomberg
6

Apple, Inc. Inc. Apple,

Now
Founded 1977 HQ Cupertino, Ca. The Mother ship Largest U.S. company ever 72,000 Employees 34 Patent Applications in October 80% of revenue is from new products sold from Mid Sept to M/E Oct

Competencies
1. 2. 3. 4. 5. Simple, Well Designed, User friendly Innovative Culture of Design Loyal Customers Technology iOS Energy Efficient
7

Apple, Inc. Internal Assessment

1. 2. 3. 4. 5. Operational Focus - Willing to release incomplete products Wall Street - Engaging to increase dividends Shifting Values - MBA vs. Liberal Arts Relaxed Atmosphere - Leadership quiet yet demanding Highly Ethical ?- Some might question

Procurement Vendors

Leadership

Governance

$50k per year Serve one-year terms 3 Committees

10

Committees
Apple's board of directors has three committees:
The Audit and Finance committee members are Ronald D. Sugar, Ph.D. (Chairperson), Robert A. Iger, and Arthur D. Levinson, Ph.D.

The Compensation committee members are Andrea Jung (Chairperson), William V. Campbell, Millard S. Drexler, and Albert Gore, Jr.

The Nominating and Corporate Governance committee members are William V. Campbell (Chairperson), Millard S. Drexler, and Albert Gore, Jr.
11

Ethics
Foxconn Product Quality Privacy Sustainability Intellectual Property Theft Patents
12

13

Financial Analysis
Management Effectiveness

Revenue per Employee $2,023,349 Net Income per Employee $539,528 RIA % (Net) 28.08 ROE % (Net) 42.15 ROI% (Operating) 55.79 Profitability Ratios Gross Margin 44% Operating Margin 35% EBITA Margin % 38% Calculated Tax Rate % 25% Profit Margin (TTM) 27% Valuation Ratios Price/Earnings (TTM) 15.19 Price/Book (TTM) 53.3 Price/Cash Flow (TTM) 12.46 Asset Management Total Asset Turnover 1.05 Receivables Turnover 10.13 Inventory Turnover 112.12 Prop Plant & Equip Turnover 13.26 Cash & Equivalents Turn 14.98

14

Industry Ratio Comparisons

80% 2012 revenue from new products sold Mid Sept to Oct 31 - CNBC
15

16

Change is Inevitable?
Reinvention

17

Release history

18

LEADING INDICATORS & DEMAND DRIVERS

19

Demand as a F(x) of leading indicators

Demand And Adoption Rate

D = f(li1, li2, li3, , lin)

Market Share: Stable Search trends as an early indicator: Who has it? Networking effect
Sharing Social Nets Social Networking capabilities
20

Economic Leading Indicators

Demographics

World Progress Indicators

21

Leading Indicators: Product Drivers

Product Drivers:

22

Mobile browser counter as a leading indicator ?

ANDROID iPhone

23

EXTERNALITIES

24

Smart Phones: Competitors

25

iPhone, Droid or Windows Phone ?

26

Mobile computing: Laptops & Notebooks

27

Value Chain & Business Model

Banking: $$$$$$$$ Educational Financing R&D, IP Innovation Design Manufacturing Marketing Quality iPhone iPad iCool Patents Kiosks Digital Cloud Direct Apple Stores Retail VARS Education
28

App developers Effective Designers Infrastructure Talent (Well trained workforce) Apple University $$$$$$$$$$$$$$$ Manufacturing, Suppliers, Partners (100+)

Distribution

Key Success Factors

FreeBSD

Open Systems

Design Miniaturization Security Ease of Use Reliability Marketing

V A L U E
++ + $$ $

Improve + Innovate

Closed Systems

Cool! Secure Reliable Reduced Cost of production

Improved Sales & Margins

29

Target Market
Enterprise + Government
G

$$$$$$ Affluent

Premium Pricing

Education

$$$$$ Class

SMB

BOP $
B2B Market B2C Market
30

Value Chain & Business Model

INDUSTRY GROWTH & MARKET SHARE Smart Phones: 71% CAGR for the next 4 yrs. Cloud computing: 20% CAGR Mobile dev. in general: 25%
Carrying Capacity ??? *provisioning *nomic

Convergence

02

31

Smart Phone: Market share growth

70
60 50 40 30 2011 2012

20
10 0 iPhone Android Other
32

The mobile worldwide market in 2010

X
Apple as a Mobile browser leader In 2010
33

iPhone Mobile market share 2012

X X

X
34

What about the iPad ?

Apple has 68% of the tablet market Cannibalization of iPad by the mini iPad? Google & Others Tablets
Open source to the rescue? App store: Closed platform ?

35

External Scanning Analysis

OPPORTUNITIES Growing demand: Education Enterprise and Government Consumers Mobility & Nomadic computing Media devices TV, Tailored Shows, MOD Growing incomes in ASIA and other emerging nations. THREATS

Rapid Technological Changes Highly Competitive Market Continual Timeliness of R&D Patent/Copyright Violation Multiple Distribution Network Weak Outsourcing manufacturing New Management (Midas touch?)

36

Societal Constraints
Sociocultural Forces Industry Environment Economies

Political-Legal Risk

Workers at an Apple supplier facility in Shanghai assemble parts for the MacBook Pro

Technological Factors

37

Porters Five Forces

New Entrants Global Demand Existing Patents(i.e. Googles 17000!) Supply Costs Buyers

Industry Competitors

High Customer Loyalty High Demand Uniqueness

Niche Market INNOVATION High Advertising Budget Substitutes Patent Violations China/others Strong Brand FAKE iPhone anyone?
38

Suppliers

Supply Shortages Price Increases

Outsourcing Process

Apples Sustainable Product Differentiation

Cost of Apple Product Apple Pursues Niche Market Differentiation Strategy Defensive Pass Cost on to Customers

Oligopoly Market (Niche)

39

Competitive Analysis - Porter

Future Goals
Promote new Value for Core Networks
Industry Partners Employees

Current Strategy
Segmentation Targeting Positioning

Expand Global Penetration (SW Asia) Promote Top Line Products

VISION 2020

Inspire the World, Create the Future Assumptions

Company that goes after its goals Change = Action Same Threats as all Competition Raw Material Pricing Intense competition Increasing regulations

Capabilities (S)
New Technology Innovative Products Creative Solutions Strong Market Position Diversified Portfolio Robust Top Line Growth

(W) Fluctuating operating & net profits

TOWS Matrix: Strengths/Opportunities TOWS Matrix: Strengths/Opportunities

Opportunities External Scanning

Internal Assessment

1. 2. 3. 4. 5. 6. 7. 8.

Demand in Education Demand in Enterprise & Government General Use Demand Demand for Mobile Communications Demand for Media Devices APPLE Television Strong growth opportunities in emerging nations Rising wages in China

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12.

Strengths Global Company Strong Brand Image Diverse Distribution Avenues Design, Manufacturing & Marketing expertise Wide Market Circle Reputation for Innovation Master with 3rd party digital content Compatible with Windows platform Horizontal and Vertical Integration Financially Sound Entrepreneurial culture Customer loyalty

S/O Strategies: GROWTH

Continue aggressive international growth strategies S1-O7 Strengthen partnerships with Education S12-O1 Increase APPLE television content S4/S6-O6 Capitalize on the smart-phone revolution S4,S7O4,O7 Continue to aggressively develop mobile app market S6-O4,O5,O7
41

TOWS Matrix: Strengths/Threats

External Scanning

Internal Assessment

1. 2. 3. 4. 5. 6.

Threats Industry constantly evolving Highly Competitive Market Outsourcing Difficulties Inability to meet R&D requirements Imitation of Apple products Violation of patents and copyrights

Strengths

S-T Strategies: External Fix-it

Aggressively pursue new product development i.e.; wearable & pen computing S6-T4
Strengthen partnerships with band width vendors i.e.; international market S1-T1-T2 Evaluate niche market concentration S12T1,T2 42 Eval Backward/FWD Integration (S9:T3)

1. Global Company 2. Strong Brand Image 3. Diverse Distribution Avenues 4. Design, Manufacturing & Marketing expertise 5. Wide Market Circle 6. Reputation for Innovation 7. Master with 3rd party digital content 8. Compatible with Windows platform 9. Horizontal and Vertical Integration 10. Financially Sound 11. Entrepreneurial culture 12. Customer loyalty

TOWS Matrix: Weaknesses/Opportunities

External Scanning 1. 2. 3. 4. 5. 6. 7. 8. Opportunities Demand in Education Demand in Enterprise & Government General Use Demand Demand for Mobile Communications Demand for Media Devices APPLE Television Strong growth opportunities in emerging nations Rising wages in China

Internal Assessment

Weaknesses W-O Strategies: Internal Fix-it 1. Subject to supply shortages & price increases Improve domestic supply chain (W1-O3) 2. Difficulty controlling outsourcing processes 3. Accusations of infringement upon patents of Aggressively continue to pursue R&D other organizations product development (W4-O1-07) 4. Dependence on iPhone and iPad limited variants Continue to develop superior product(s) 5. Lack of different price points with products at lower cost point (W7-O7) 6. Dependence cellular network providers 43 7. Cost of product

TOWSTOWS Matrix: Weaknesses/Opportunities Matrix: Weaknesses/Threats

Threats 1. Internal Scanning External Assessment

2. 3. 4. 5. 6.

Industry constantly evolving Highly Competitive Market Outsourcing Difficulties Inability to meet R&D requirements Imitation of Apple products Violation of patents and copyrights

Weaknesses

1. Subject to supply shortages & price increases 2. Difficulty controlling outsourcing processes Strive to avoid patent infringement within 3. Accusations of infringement upon patents tech community (W3-T4,T6) of other organizations 4. Dependence on iPhone and iPad limited variants 5. Lack of different price points with products 6. Dependence cellular network providers 7. Cost of product
44

W-T Strategies: Eliminate/Survival

Relative sales growth rate:

g = 100(Sn - S(n-1) ) /Sn-1

45

Flush with Cash: Lets do Backward and Forward Integration

Backward Integration: Purchase of carriers

i.e. Nortel Networks (Done!) WiMAX? Cable or others with a market cap of 100B?
Forward Integration: Kiosks Service Providers
46

Conclusion

47

Competitive Advantage
LOW COST Broad Target Low cost DIFFERENTIATION Differentiation

Narrow Target

Cost focus Focused differentiation

48

Economic Indicators
Factory Orders Report Gross Domestic Product (GDP) Housing Starts Industrial Production Jobless Claims Report Money Supply Mutual Fund Flows Non-Manufacturing Report Personal Income and Outlays Producer Price Index (PPI) Productivity Report Purchasing Managers Index (PMI) Retail Sales Report Trade Balance Report Wholesale Trade Report

49

Economic leading indicators: work in tandem!

Business Outlook Survey Consumer Confidence Index (CCI) Consumer Credit Report Consumer Price Index (CPI) Durable Goods Report Employee Cost Index (ECI) Employee Situation Report Existing Home Sales
50