Strategic Management

Apple Inc. - Case Study

 
 

Course Instructor:
Mr Shameel Zuberi
  

Presented By:
Sana Lakhani
Shazma Khalid
Safeena
Rubab Pervaiz
Ayesha Khalid Hussain
Khan
 History of Apple
 1976
 Apple started in a garage in Santa Clara, CA by Steve Wozniak, Ronald
Wayne and Steve Jobs
 A easy to use PC for small computer users

 1980
 IPO

 1983
 Wozniak quits
 Jobs hires John Sculley From Pepsi Co. to become President of Apple

 1984
 Macintosh PC

2
History of Apple
 1985
 Jobs and Sculley have a “falling out”
 Jobs fired
 Sculley becomes CEO
 Bill Gates wants to buy Mac O/S, Sculley says No, Gates buys
DOS from IBM, Microsoft kicks Apple's butt (90% market share)
 1993
 Earnings Plunge, Apple restructures, Sculley Resigns
 Gilbert Amelio Apple CEO
 1997
 Earnings Plunge, Apple restructures, Amelio Resigns
 1998
 Steve Jobs returns as iCEO

3
History of Apple
 1998
 Jobs restructures Apple along two products lines
 Consumer “i”Mac
• “i” for internet
 Professional “Power”Mac
• “power” for power user
 Sales return, Brand emerges, Innovation rules
 USB, Firewire, Airport
 iPod and iTunes
 Stock price takes off like a rocket!

® 2007, Tony Gauvin, UMFK 4

 Steve Jobs
Apple’s Secret Weapon

+ =

5
Organizational Structure - 2004
Products
 Macintosh Desktop & Notebook Computers
 iPod Digital Music Player
 Xserve G5 Server
 Xserve Raid Storage Products
 Mac OS X Operating System
 iTunes Music Store
 Mac & iPod Peripherals
 Mac & iPod Compatible Third Party Products
Operating Segments

Americas

Europe

Japan

Retail

Asia Pacific
Distribution Channels

 Apple Online Store

 Apple Retail Stores
 Direct Sales Force
 Third-party Wholesalers, Resellers & Value
Added Resellers
 2004 Vision Statement

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 beast personal computing
experience to students, educators, creative
professional, and consumers around the world
through its innovative hardware, software, and
Internet offerings

® 2007, Tony Gauvin, UMFK 10

2004 Mission
Apple Computer is committed to protecting the
environment, health and safety of our employees,
customers and the global communities where we
operate. We recognize that by integrating sound
environmental, health and safety management
practices into all aspects of our business, we can offer
technologically innovative products and services while
conserving and enhancing resources for future
generations. Apple strives for continuous
improvement in our environmental, health and safety
management systems and in the environmental
quality of our products, processes and services.

® 2007, Tony Gauvin, UMFK 11

2004 Issues
 How can apple best capitalize on the needs of
the business world for a safer, virus-free, worm-
free system?
 Should Apple enter the consumer electronics
business like Dell and Gateway did?
 Should Apple remain a lone wolf in Operating
Systems or adopt a cross-platform format
compatible with Windows and Intel
 How much emphasis should Apple place on
developing the next generation of voice
recognition computers?

® 2007, Tony Gauvin, UMFK 12

 Current Position

 Consistently low share

 High success in niche market
 Brand differentiation
 Star Product - iPod
Apple’s Strategy

 Apple employs a Product Differentiation

 Drawbacks as a result of their strategy
include:
 Not appealing to Price Conscious Consumers
 Risk of Imitation by Competitors
 Risk of Change in Customer Taste
2004 objectives
 Double market Share from 5% to 10%
 Remain as the most profitable computer
company in the industry

® 2007, Tony Gauvin, UMFK 15

Apple’s Problems

Low Market
Share

Low
Customization

Prices Too
High
Vision Statement
Apple does not have a vision statement that
defines its future aims but its competitors do:

Dell Microsoft
“It’s the way we do business. It’s
the way we interact with the
community. It’s the way we
interpret the world around us — “A PC in every home, running
Microsoft software”
our customers’ needs, the future
of technology, and the global
business climate. Whatever
changes the future may bring, our
vision — Dell Vision — will be our
guiding force.”
Mission Statement

“Apple ignited the personal computer

revolution in the 1970s with the Apple II and
reinvented the personal computer in the 19805
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.”
Mission Statement Evaluation

Customers  Technology  Self Concept 

Products/ Survival/ Growth/ Concern for

Services  Profitability
×
Public Image
×

Concern for
Markets  Philosophy ×
Employees
×
Recommended Vision

“We will pioneer new directions and

approaches, finding innovative ways to
use technology to extend the bounds of
human potential in the 21st Century.”
External Analysis
Proposed Mission Statement

“Apple ignited the personal computer revolution with the

Apple II and reinvented the personal computer with the
Macintosh.
We are committed to bringing the best personal computing
and ICT experience to students, educators, creative
professionals,
and consumers around the world through our innovative
hardware, software, and Internet offerings.
Apple strives to protect the environment, health and safety
of our employees, customers and the global communities
where we operate. Our motto of "thinking differently" will
be driving factor of our success and Apple will shape the
way people see technology in the new millennium.”
 Porter’s Five Force Model
Entry of New Competitors – High Threat

Verizon Streaming audio and video with V CAST.

Amazon On demand online services to purchase music

(similar to iTunes).

Google They make everything.

The “Next New entrants with disruptive technology.

Google”
 Rivalry among existing firms

Microsoft Windows Operating System, Windows Media

Player for music & video.
Linux Competition to Mac OS X Operating System.

Napster, Rhapsody Online music sources – alternatives to iTunes

Music Store.
Dell, HP, Lenovo Alternate sources for computer hardware.

iRiver, Samsung, Creative Small, stylish MP3 Players.

DreamWorks Animated movies.

YouTube.com Online video.

 Potential development of substitute
products
XM, Sirius Satellite Radio for music.

XBox, PS2 Entertainment Media, Media and Music.

Various Internet Streaming Radio and Podcasts.

Music CDs, DVD-Audio CD Alternative means to acquire music.

Broadcast, Cable, Satellite Alternative sources for video.

 Bargaining Power of Suppliers
Motorola, IBM, Intel, Samsung
Microsoft
The Big Five - BMG, EMI, Sony, Universal, and
Warner
Disney, ABC, NBC, CBS, Fox, Pixar, Sony
Suppliers of Processors & computer memory.
Strategic Alliance / Supplier of Office for Mac.
Sources of music. Some in the record industry
resent Apple’s distribution model. May raise prices
& break the dollar per song model.
Suppliers of Television and Movies. May sign
exclusive contracts with other online services.
(Threat is reduced for Disney / Pixar.)
 Bargaining power of Customers
Illegal peer-to-peer file sharing
Distributors
Consumer Attitudes and Behaviors
Consumer Refresh Cycles
Consumers share music using peer-to-peer
networks without paying.
Apple retailers may pressure for lower prices or
better terms.
Consumers or businesses may reduce spending on
PCs or non-essential music players if they fear
economic downturns.
Previous-model iPods and Macs may continue to
be used rather than upgrade to current iPods,
iMacs, or OS
Competitive Position of Major Competitors
External Factor Evaluation-EFE
Opportunities Weight Rate Score
Development & expansion of wireless technology 0.06 3 0.18
Brand Conscious population 0.075 4 0.3
Technical Glitches / Worms in Windows – Consumer
4
Frustration with Microsoft 0.08 0.32
Consumer Electronics Market (Opportunity to develop
3
iTunes & music player technology into mobile phone) 0.075 0.225
Entrance into Low-end market 0.07 2 0.14
Online retail 0.02 4 0.08
Huge potential user shift to Mac with windows
3
compatibility– Low switching costs 0.08 0.24
Increased market of downloaded music &Mp3 players 0.08 4 0.32
Strategic option to license Apple Technology 0.02 1 0.02
Strategic Alliances (Pixar, Disney) 0.08 4 0.32
External Factor Evaluation-EFE
Threats Weight Rate Score
Strong Competitors (Dell, HP, IBM, Microsoft)
0.085 2 0.17
Economic instability 0.02 3 0.06
High product substitution (digital Music
Software and hardware by competitors) 0.06 2 0.12
Record labels’ dissatisfaction with iTunes pricing 0.05 2 0.1
Competitors can produce low cost technology 0.04 3 0.12
Risk of product Piracy, copyright infringements 0.01 4 0.04
Intel based Mac may confuse existing customers 0.02 2 0.04
Threat of legal action by competitors 0.03 3 0.09
Open Source software (Linux- threaten both
Apple and Microsoft) 0.01 2 0.02
Risk of product obsolescence 0.02 1 0.02
Total Score
Competitive Profile Matrix-CPM
 
  Apple Dell HP MICROSOFT IBM
Critical Success Factors Weight Rating Score Rating Score Rating Score Rating Score Rating Score

Innovation 0.13 4 0.52 3 0.39 1 0.13 3 0.39 2 0.26

Market Share 0.12 1 0.12 4 0.48 3 0.36 4 0.48 2 0.24
Brand Loyalty 0.09 4 0.34 3 0.26 3 0.26 4 0.34 3 0.26
Customer Service 0.05 3 0.15 3 0.15 3 0.15 4 0.20 3 0.15
Diversification 0.10 3 0.29 3 0.29 3 0.29 2 0.19 3 0.29
Business Structure
0.08 2 0.15 4 0.30 2 0.15 4 0.30 2 0.15
Efficiency
Pricing 0.08 2 0.15 3 0.23 3 0.23 3 0.23 3 0.23
Advertising 0.05 3 0.15 3 0.15 3 0.15 4 0.20 4 0.20
e-Store 0.05 4 0.20 3 0.15 4 0.20 3 0.15 2 0.10
Financial Position 0.09 3 0.27 3 0.27 3 0.27 3 0.27 3 0.27
Product Quality 0.13 3 0.39 4 0.52 3 0.39 3 0.39 3 0.39
Global Expansion 0.05 1 0.05 1 0.05 1 0.05 2 0.10 1 0.05
  1   2.78   3.23   2.62   3.24   2.58
Internal Analysis
NET SALES/ CASH from SALES
ASSET TURNOVER
Inventory Turnover
Gross Profit Margin
Operating Expense Ratio
Net Profit Margin
Internal Factor Evaluation-IFE
Strengths Weight Rate Score
Brand recognition and loyalty 0.075 4 0.3
Strong Management - Steve Jobs 0.08 4 0.32
Distinctive Product Line – Niche Market 0.065 4 0.26
iPod Brand – Online Music Industry Leadership 0.08 4 0.32
Strategic Alliances (Hynix, Intel, Micron
Technology, Samsung, Toshiba, Microsoft) 0.075 4 0.3
Innovation 0.08 4 0.32
Superior quality product 0.075 4 0.3
Financial Strength 0.08 4 0.32
Most profitable company in industry 0.065 3 0.195
Internal Factor Evaluation-IFE
Weaknesses Weight Rate Score
Company is smaller compared to competitors. 0.075 1 0.075
Low Returns and Cost Effectiveness 0.065 2 0.13
Dependency for Key Components (Intel) 0.05 2 0.1
Small Market Share 0.03 2 0.06
Weak corporate structure 0.02 1 0.02
Legal issues () 0.015 1 0.015
Consumer distrust of non-Windows software 0.05 1 0.05
Higher priced products 0.03 1 0.03
Reliance on Strategic Alliance and Licensing
(Microsoft) 0.065 1 0.065
Total Score 2.88
Matching Stage
SWOT ANALYSIS
SPACE MATRIX
FINANCIAL STRENGTH ENVIRONMENTAL STABILITY
Leverage 3 Inflation -2
Working Capital 3 Technological Changes -5
Liquidity 4 Price Elasticity of Demand -2
Return on Investment 5 Competitive Pressure -6
Cash Flow 5 Barriers to Entry -1
Total IF 20 Total ES -17
IDUSTRY STRENGTH COMPETITIVE ADVANTAGE
Growth Potential 4 Market Share -5
Profit Potential 4 Product Quality -1
Financial Stability 5 Customer Loyalty -1
Ease of Entry into Market 2 Technological Know-how -1
Labor Cost 3 Control Over Suppliers & Distributors -2
Total IS 18 Total CA -10
 SPACE MATRIX
FinancialFSStrength

Competitive
CA -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8
Industry
IS
Advantage -1
Strength
-2

-3

-4

-5

-6

ES
Environmental Stability
BCG Matrix

Relative Market Growth

Apple Dell
Share Rate
2004 2003 2002

America 4,019 3,181 3,131 49,205 0.081678691 33.5

Europe 1,799 1,309 1,251 49,205 0.036561325 17.1
Japan 677 698 710 49,205 0.013758764 7.5
Retail 1,185 621 283 49,205 0.024082918
Asia-Pacific 599 398 367 49,205 0.01217356 26
Total Net
8,279 6,207 5,742 49,205 0.168255259
Sales
 RELATIVE MARKET SHARE POSITION (Apple Vs Dell)

High Medium Low

1.0 0.5 0.0
INDUSTRY SALES GROWTH RATE

High Americas

?
+35 Japan

Star
Europe

Medium
0.0 Asia-Pacific

Cash
Dog
Low
-20
Cow
 INTERNAL-EXTERNAL(IE) MATRIX
IFE TOTAL WEIGHTED SCORES

Strong Average Weak

3.0 to 4.0 2.0 to 2.99 1.0 to 1.99
  High
EFE 3.0 to 4.0 I II III
TOTAL  
WEIGHTED Medium IV V VI
SCORES 2.0 to 2.99 Apple Inc

VII VIII IX
  Low
1.0 to 1.99
 
 Grand Strategy Matrix
RAPID MARKET GROWTH

WEAK STRONG
COMPETITIVE COMPETITIVE
POSITION POSITION

SLOW MARKET GROWTH

Decision Making
Matrix Analysis
Alternative Strategies BCG IE SPACE GRAND COUNT
Forward Integration X X 2
Backward Integration X X 2
Horizontal Integration X X X 3
Market Penetration X X X X 4
Market Development X X X X 4
Product Development X X X X 4
Concentric Diversification X 1
Conglomerate Diversification X 1
Horizontal Diversification X 1
Joint Venture X X X 3
Retrenchment -
Divestiture X X X 3
Liquidation X 1
 QSPM
  Alternative STRATEGIES
  Market     Product
Opportunities Penetration Development

Weight AS TAS AS TAS

 
Increase viruses and worms on 0.05 4 0.2 3 0.15
Microsoft based systems

Large population is Brand 0.05 3 0.2 3 0.15

Conscious
Ties with windows can make 0.06 3 0.2 2 0.12
huge user shift to Mac

Increasing market of 0.15 4 0.6 3 0.45

downloaded music and Mp3
Players
Expanding use of the Internet to 0.1 3 0.3 2 0.2
sell products and services

increase in popularity of internet 0.1 3 0.3 2 0.2

 QSPM
  Alternative STRATEGIES
  Market     Product
Threats Penetration Development

Weight AS TAS AS TAS

 
Weak foreign and US 0.04 1 0 3 0.12
economies
High Competition 0.1 3 0.3 4 0.4
between Firms
Risk of product Piracy, 0.03 1 0 3 0.09
copyright infringements
Risk of product 0.05 1 0.1 4 0.2
obsolescence
Substitute product 0.07 1 0.1 4 0.28
development
Competitors lower prices 0.1 1 0.1 3 0.3
 QSPM

Market Product
Penetration Development

Threats + Opportunities 2.4 2.87

 QSPM
  Alternative STRATEGIES
  Market     Product
Strengths Penetration Development

Weight AS TAS AS TAS

user-friendly GUI 0.1 3 0.3 3 0.3
3 0.2 3 0.21
Highly Innovative products 0.07
2 0.2 3 0.24
Brand Loyal Customers 0.08-
3 0.1 3 0.12
Steve Jobs Return to APPLE 0.04-
4 0.4 3 0.3
ITunes and music store is a
great source of revenue 0.1
3 0.2 4 0.2
Diversifications in Products 0.05
3 0.2 3 0.18
Financing option 0.06
 QSPM
  Alternative STRATEGIES
  Market     Product
Weaknesses Penetration Development

Weight AS TAS AS TAS

1. Weak Corporate structure 0.05 1 0.1 3 0.15
0.15 2 0.3 3 0.45
2. Low e-trade
3.   Weak Business-to  -
Business marketing strategy 0.08 3 0.2 1 0.08

0.15 3 0.3 2 0.3

4.    Market Share
5.    Product sales 0.07 1 0.1 4 0.28
performance
 QSPM

Market Product
Penetration Development

Strengths + Weaknesses 4.9 5.68

Possible alternative Strategies
 Market Penetration
 Go after Dell, HP and Microsoft (the Wintel alliance) markets
Shares
 Market Development
 Asia & Europe
 New Product development
 New consumer electronics products
 Related Diversification
 Peripherals
 Retrenchment
 Reengineer to lower cost of goods sold in reaction to
commoditization pricing of PC market
Recommendations
 Strategy 1
 Open twenty computer retail stores (not just peripherals and
accessories). Apple currently operates stores throughout the
United States with only peripherals and accessories for their
computers. Adding the hardware should generate more hands-on
awareness and use already established locations.
 This will increase product accessibility for those who wish to view
items other than just accessories and increase awareness of the
originality of Apple’s products.
 Two percent increase in sales representatives for the computer
hardware.
 Estimated cost of $ 5 million per store = $100 Million Total.
Recommendations
 Strategy 2
 Expand into the Asian market over a five-year period by building
a manufacturing facility and headquarters in Hong Kong and
expanding sales throughout Asia. Estimated cost $5 billion.
 Strategy 3
 Add more features to current products including new iPod,
Shuffle, and Macintosh enhancements and power.
 $50 million is the estimated cost for Research and Development.
 While it is usually prudent to embark on just one strategy
at a time, Apple cash reserves (~$8 billion) and
managerial talents (Steve Jobs) makes embarking on 3
strategies at one time is not only possible but
recommended.
Proposed Annual Objectives
 & Polices
Double sales revenue in 3 years
 1st year 50%, 2 year 25, 3 year 25%
 Write division polices stating exact gains and marketing approaches to achieve
gains
 Reduce unit cost of goods sold by 10% annually for next 3 years
 Leverage low cost labor overseas
 Introduce one new consumer product each year
 Provide adequate funding to R&D
 Provide funding for market research
 Insure strong communication ties between marketing and R&D
 Either provide functional enhancements to existing products each year or
obsolesce product
 Assign R&D project teams to each existing product
 Have market research produce product maturity curves for existing products
 Create Chief scientist position on Corporate Board to reflect the importance
of R&D to Apple Computer