STRATEGIC MANAGEMENT CASE STUDY OF APPLE INC.

2008

By:

Anand Malkan Arshad Sheikh Madhuri Roy Pawrush Elavia Sonam Darayanini Manikuntam Singh

08 15 41 59 124 130

APPLE S HISTORY
 Founded by Steve Jobs and Steve Wozniak in 1976.  Built a computer circuit board Apple I.  They signed up A.C. Markkula Jr. who was instrumental in attracting

venture capital.  Steve Job s mission : To Bring an Easy-to-Use Computer to Market .  In 1980 APPLE launched an IPO.  In 1981 IBM entered the PC market thereby changing APPLE s competitive position.  Products:

1976
Apple I

1978
Apple II

1984
Macintosh

APPLE S HISTORY
 Between 1983-1984 APPLE s net income fell by 17%.  In April 1985 Steve Jobs was removed from an operational role.  Steve Jobs left APPLE and founded a new company NeXT .  New CEO Mr. John Sculley.

APPLE AND CEO S THEREAFTER

 John Sculley (1985 to 1993)
 Sought to make APPLE a leader in     

desktop publishing and education . He also stimulated in bringing Apple to the corporate world . Sales exploded turning APPLE into a global brand. APPLE also developed its own proprietary OS called MAC OS. Analysts conspired APPLE s products to be more versatile. MAC was highly priced and gross profit hovered around 50%.

 Challenges:
 IBM compatible prices dropped and MAC was over priced.

9% of sales devoted to R&D.  Main motto now was to become a low cost producer of computers.  New products were launched: a) PowerBook Laptop, b) Newton (PDA).

 Cost structure was high

 Under Mr. Sculley

 APPLE worked to cut down costs.  Gross margin dropped to 34%.

APPLE AND CEO S THEREAFTER

 Mr. Michael Spindler and Mr. Gilbert Amelio (1993 to 1997)
 Mr. Spindler tried to revive its core market : Education and Desktop        

Publishing. Gave companies license to make Mac clones. International growth became a key objective. He also slashed costs by cutting 16% workforce and reduced R&D. Spindler s effort were of no use and Apple reported $69 million loss. Mr. Gilbert Amelio replaced Spindler. He announced the return to premium price differentiation strategy. Acquired NeXT Apple lost $1.6 billion on his watch.

QUESTIONS FOR ANALYSIS

1.What are the chief elements of Steve Jobs, strategiespreviously and currently?
 Jobs Previous Strategies - 1970s
 Steve jobs mission : to bring an easy to use computer to market.  To launch a simple machine.

 1997-2007  Jobs took over in 1997 as a CEO  Cost Reduced product lines from 15 to 3  Pricing differentiation and penetration  Outsourced manufacturing of Mac products-inventory cost falls  End to Macintosh licensing program  Eliminated most cash bonuses from executive compensation and started handing out lots more stock options instead  Reprised underwater stock options for all Apple employees (twice in six months).

1.What are the chief elements of Steve Jobs, strategiespreviously and currently?
 1997-2007

 Spring loading-Apple shares soaring to 33%  Launch of Apple website-Customer satisfaction  Less closed system-compatibility of Apple with non Mac PC  Marketing strategy  Technology innovation-Macintosh line on Intel chips/Built programs  Distribution strategy-Opening of retail store-for intensive distribution

1.What are the chief elements of Steve Jobs, strategiespreviously and currently?
 Jobs Current Strategies 2008 onwards
 Launch of new array of product-diversification e.g. i-phone,3G cell

phones

 251 retail outlets-expansion of its presence in National chains  Less expenditure on market research comparatively  Apple today is US$108bn industry but has only 28 major products for

effective utilization of available resources.

 360 degree strategic commitment to Apple  Jobs listed as co inventor on 103 separate Apple patents everything for

user interface to iPod to the support system for the glass staircase used in apples dazzling retail stores.

2. From exhibit 1 a, evaluate Steve Jobs financial performance over the years and subsequent to 2007.
 Apple Computers to Apple Inc. signaled a shift from the Mac PC line.  Mac sales accounted for less than half of its total revenue.  Investors sent Apple s stock to new heights.  Financial Results:

PC BUSINESS (2008) NET PROFIT of $1.07 billion on $7.46 billion revenue Increased by 38% from PY

ANNUAL RESULTS (2007) Sales was $24billion Increased by 24% from PY

NON PC BUSINESS (2008) Launch of iPhone 3G included a revamped pricing model, retail channel A platform for third party application

2. From exhibit 1 a, evaluate Steve Jobs financial performance over the years and subsequent to 2007.
1981 1986 1991 1996 1998 2000 2002 2004 2005 2006 2007

Net Sales

334

1902

6309

9833

6941

7983

5742

8279

13931

19315

24006

st f sales 170

891

3314

8865

4462

5733

4021

5871

9738

13525

15568

R&D Operating inc me (l ss) Net Inc me (l ss)

21 66

128 274

583 447

604 (1383)

310 261

380 620

447 46

489 349

534 1650

712 2453

782 4409

39

154

310

(816)

309

786

65

276

1335

1989

3498

2. From exhibit 1 a, evaluate Steve Jobs financial performance over the years and subsequent to 2007.

1981 Inventories 104

1986 109

1991 672

1996 662

1998 78

2000 33

2002 45

2004 101

2005 165

2006 270

2007 346

1981

1986

1991

1996

1998

2000

2002

2004

2005

2006

2007

Employees

2456

5600

14432

13398

9663

11728

12241

13426

16821

20186

23700

2. From exhibit 1 a, evaluate Steve Jobs financial performance over the years and subsequent to 2007.

1981

1986 26%

1991 45%

1996 52%

1998 45%

2000 46%

2002 43%

2004 41%

2005 41%

2006 41%

2007 41%

Interna tional sales / sales Gross Margin R&D / Sales

27%

49%

53%

47%

10%

25%

28%

30%

29%

30%

35%

35%

6%

7%

9%

6%

5%

5%

8%

6%

4%

4%

3%

2. From exhibit 1 a, evaluate Steve Jobs financial performance over the years and subsequent to 2007.
Apple Store Market Share 2009-2010
Apple Other
29.5

Apple Sales and Revenue

Sales in Billions Revenue in Billions

1%
21.6

99%
4.2 2.5 4.5

6.8

2009

2010 Estimated 2013 Estimated

Source: Gartner

3. What are Jobs Strategic objectives previously? Currently?

 Strategic Objectives - Previously

STRATEGIC Mission- Ease to use computers Creation of Simple machine Lunch of Macintosh

FINANCIAL ACHIEVEMENTS Due to the objective apple achived annual sale of $1 billion within 3 yrs Launch of successful IPO

3. What are Jobs Strategic objectives previously? Currently?

 Strategic Objectives- Currently

On the Organization Front

STRATEGIC Reenergize the Apple Brand STRATEGIC Outsourced manufacturing of Mac product to Taiwan. FINANCIAL DEALS Microsoft agreed to invest $150 million in Apple

Reduce the product line from 15 to 3

Launch of e site to sell Apple roducts in 1 . Colla oration with Intel to provide its processors for Apple roducts and phased out of ower C chip line

Colla orating with Intel and Microsoft led to an increase in revenue to 61% in 200 .

End of licensing program

NEW iPHONE WEB PAGE

3. What are Jobs Strategic objectives previously? Currently?

On the Operating System Front
 Apple Introduces Mac OS X in 2001 to provide a stable platform.

18 Months not solely with an intension of earning additional revenue but to retain the loyalty of the users.  Apple Launched Leopard in 2007 and as per Steve Jobs it was the most successful launch as in less than 2 months 4 million copies were sold which makes 20% of the total Macintosh base.

 Apple provided the upgrade for the same every 12

On the Sales and Distribution Front

 Apple opened its first retail store in McLean, Virginia in May 2001

and by end of 2008 Apple had launched 215 stores.  Apart from U.S the outlets were announced in Australia, Canada, China, Italy, Japan and United Kingdom.  Apple also marked its presence through the retail chains like best buy outlets.

3. What are Jobs Strategic objectives previously? Currently?

Launch of other products like I pod, I phone, I Tunes, Apple TV
Launch of I pod in 2001 and of I pod with Windows compatibility in August 2002 I Pod shuffles and I phones runs on Flash memory thus Apple signed deals with all the leading Flash memory producers like Hynix, Samsung and Toshiba.

NEW LAUNCH AND DEALS

MUSIC STORES

I Tunes music stores were launched in April 2003 and I Tunes compatible with Windows was launched in Oct 2003. As a result, sales hiked and it shot up from 113,000 units to 733,000 units.

OTHER LAUNCHES

Apple also introduced Digital TV model by the name of Apple TV I Phone was launched in June 2003 I Phone 3G was launched in July 2004

3. What are Jobs Strategic objectives previously? Currently?

4. Draw a comparative picture of Jobs performance vis-vis competitors.

4. Draw a comparative picture of Jobs performance vis-vis competitors.

Under Steve Jobs:  The Macintosh Business
 It remained the crucial business for Apple (in 2008).  Created machines offering a cutting edge and tightly integrated user

experience.  In marketing their Mac products, Apple highlighted features that differentiated them from competitors.

 Technology and Innovation  Use of Intel microprocessor instead of power chips.  Apple introduced a fully overhauled OS in 2001.(MAC OS X)  Developed applications to support the Macintosh line.

4. Draw a comparative picture of Jobs performance vis-vis competitors.

 Distribution and Sales  Opened its first retail store in May 2001.  Popularity of iPod.  Unit Sales by Product Category :
2005 Desktops Portables Macs Sold (units) Net sales iPods Net sales iPhones 2520 2014 4534 $1384 22497 $202 NA Y/Y change 3% 42% 17% 1% 75% (3%) NA 2006 2434 2869 5303 $1391 39409 $195 NA Y/Y change 12% 51% 33% 5% 31% (17%) NA 2007 2714 4337 7051 $1463 51630 $161 1389 3Q 08 2776 4328 7104 $1500 43776 $171 4735

4. Draw a comparative picture of Jobs performance vis-vis competitors.

 How they build the brand?  Re-invent again and again with the iMac transformation.  Online store  Spread word of mouth  Build partnerships:

Nike Starbucks coffee Education Intel Adobe MySQL Microsoft Epson Canon HP invent and many more

4. Draw a comparative picture of Jobs performance vis-vis competitors.

 Core Competencies  Differentiation Strategy

Unique Features and characteristics Commands Premium Price High Customer Service Superior Quality Prestige Rapid Innovation

 Value Chain

INBOUND LOGISTICS

OPERATIONS

DISTRIBUTION

SALES AND MARKETING

SERVICE

4. Draw a comparative picture of Jobs performance vis-vis competitors.

 Risks
 Extensive Competition  Substitute Products  Low prices of Competitors  Technical Advancements  Economy downfall in US

4. Draw a comparative picture of Jobs performance vis-vis competitors.

Apple Competitors: Selected Financial Information (in million dollars)

350000 300000 250000 200000 150000 100000 50000 0 Market value 2007 Acer Dell HP Lenovo Intel Microsoft

4. Draw a comparative picture of Jobs performance vis-vis competitors.

iPod Competitors: Comparison of Models and Prices for MP3 Players
1GB-2GB Apple iPod shuffle (1GB) $49 (2GB) $69 Walkman (1GB) $45 (2GB) $60 NA 4GB-16GB iPod nano (4GB) $149 (8GB) $199 Walkman (4GB) $100 (16GB) $300 Zune (4GB) $130 (8GB) $ 180 30GB-160GB iPod classic (80 GB) $249 (160 GB) $349 NA

Sony

Microsoft

Zune (30GB) $200 (80GB) $250

Source: Company Website

5. What went wrong with Jobs strategic intent in the past? How has it been rectified?
 Strategic Intent Something that the organization relentlessly pursues an ambitious strategic objective and concentrates its competitive advantage.

 When Steve Jobs came in with Macintosh it was considered to be the best

   

available product at that time. It was a breakthrough innovation (ease of use, industrial design and technical elegance). Yet the slow processor speed and a lack of compatible software limited its sales. Due to which Apple s net income fell by 17%. His main strategy was to position the Mac as the best PC ever. (dream product) But as the net income fell Mr. Jobs couldn t bring out any new innovation to compete with the then giant IBM.

5. What went wrong with Jobs strategic intent in the past? How has it been rectified?
 During his second stint as a CEO:
 Contracted with Microsoft and develop core products  Macintosh licensing program was abolished.  Consolidated the product range.  First real coup was the launch of the iMac.  Outsourced the manufacturing of Mac products.  Revamped the distribution system.

Microsoft Office.

6.Do you think Steve Jobs is an effective chief strategists? What rating would you give him and why?
 Yes, He is an Effective Chief Strategists.  Qualities:
    

Visionary seeking to change the world through technology Innovator Covered up the deficiency of resources Introduced products as per needs & wants of customers
(Going Beyond the MACINTOSH iPod, iTunes, Apple TV, iPhone)

Profitability of the company improved  Apple share price increased drastically.  Market share in portable and desktop computers market increased from 3% to 7% in 2000

THANK YOU