You are on page 1of 35

Strategic Analysis of Apple Inc.

Brian Masi

Capstone Strategy Course (MGT440), Professor Linda Cohen


Barney School of Business, University of Hartford

December 15, 2009


MGT 440, December 2009 Masi

Table of Contents

Overview
Executive Summary............................................................................................................. 1
Apple Inc. Strategy Facts: Scope, Generic Competitive Strategy, and Value Creation ...... 2

Strategic Analysis
1. Industry Forces and Attractiveness................................................................................ 3
2. Competitive Landscape and Strategic Groups ............................................................... 6
3. Key Resources and Capabilities ...................................................................................... 8
4. Apple Inc. Value Chain and Strategy Implementation ................................................. 10
5. Trends and Opportunities
5.1. General Environment Analysis ............................................................................ 14
5.2. Diversification ..................................................................................................... 17
5.3. New Value Creation Opportunities ..................................................................... 19
6. Recommendations and Conclusion ............................................................................. 21

Appendices
A1: Porter’s 5 Forces Analysis .......................................................................................... A-1
A2: Strategic Group Maps ............................................................................................. A-2.1
A3: Key Resources & Capabilities..................................................................................... A-3
A4: Value Chain Analysis ............................................................................................... A-4.1
A5: General Environment Analysis .................................................................................. A-5

Resources
Works Cited ..................................................................................................................... R-1

Strategic Analysis – Apple Inc. i


MGT 440, December 2009 Masi

OVERVIEW
Executive Summary
Apple Inc. (Apple) has managed to create substantial value in the highly competitive
personal computer industry, by innovating and forging a path considerably different from those
of the largest competitors in the industry, successfully differentiating its products from those of
the competition by choosing to focus on quality, design elegance, and superior customer
service, while outsourcing actual manufacturing to trusted original equipment manufacturers.
Yet, despite the advantages Apple has created for itself, the stiff competition within the
industry and other external factors present formidable challenges to the firm.
The personal computer/notebook market is becoming increasingly commoditized,
leading to intense rivalry among competitors within the industry, driving prices down and
creating potentially destructive price wars. Utilizing key resources and capabilities including
industry-leading design teams, talented software and hardware engineers, backed by a sizeable
research and development budget, which is responsible for a portfolio of thousands of patents,
and under the strategically brilliant stewardship of CEO Steve Jobs, Apple has successfully
innovated its way to a comfortable market position commanding premium prices.
Unfortunately, Apple cannot rest on its laurels. The position is not permanent and Apple must
continually find new ways to maintain profits and create value for customers and shareholders.
The maturing personal computer market is becoming saturated, leaving fewer new buyers and
more replacement buyers. To continue to grow, Apple must also look to new and expanding
markets as sources of revenue.
After considering Apple’s strategic war chest; the firm’s core competencies, key
resources, and capabilities and given its current situation within the industry and the
compounding factors in the form of trends from the general environment, it is clear Apple
stands to create considerable value through continued related diversification. The firm’s history
of category-defining products like the iPod and iPhone provide sufficient evidence that it is
well-equipped to continue its path of innovation, by creating a digital lifestyle convergence
device that bridges users’ on-the-go digital lives and their at-home digitals lives. The proposed
device will be powerful and feature packed, while leveraging the Apple system of seamless
integration to create a compelling user experience, presented in an elegant package
showcasing the firm’s industry-leading industrial design capabilities, to create the next must-
have consumer electronics product.

Strategic Analysis – Apple Inc. Page 1 of 21


MGT 440, December 2009 Masi

OVERVIEW
Apple Inc. Strategy Facts
Scope
The focus of this project is the Mac portable personal computer line of Apple in the United
States, a part of its Americas division. Apple is a publicly owned Fortune 100 company based in
Cupertino, California. The firm operates primarily in the personal computer industry of the
wider technology sector. Apple designs, produces, and sells a line of personal computers as well
as mobile phones, portable digital media devices, software, and related peripherals and
accessories. The firm sells internationally though a mix of direct sales, online and retail stores,
wholesalers, and resellers.

Generic Competitive Strategy


Apple is pursuing a broad differentiation strategy. Apple differentiates by offering high-quality,
exceptional design, and personalized service. The scope of their strategy is broad targeting
customers ranging from unsophisticated beginner users to specials needs power-users.

Value Creation
Apple outsources the basics of production to third-party original equipment manufacturers
(OEMs) that can achieve cost savings through vast economies of scale while in-housing
elements of design to attract and retain users. Apple excels in the areas of industrial design and
user interface and focuses on these areas to deliver a product that is both highly stylish and at
once ergonomically natural and useable. Apple’s people-friendly devices and highly
personalized one-on-one customer service create a one-of-a-kind value proposition that
commands a higher-than-average price.

Strategic Analysis – Apple Inc. Page 2 of 21


MGT 440, December 2009 Masi

STRATEGIC ANALYSIS
1. Apple Inc. Industry Forces and Attractiveness
Analysis and Conclusion
For the purpose of illustration, the industry analysis of Apple Inc. will focus specifically
on the portable personal computer manufacturing and sales and on the United States market,
although many of the firms involved in the industry produce, market and sell internationally.
Considering the threats faced by firms operating in this industry the industry is moderately
attractive overall. Many firms within the industry have thrived, but competition is very high,
while suppliers and buyers have moderate influence over the competitors. There are several
avenues by which new competitors may enter the market, but they face substantial hurdles in
successfully establishing a viable brand. Finally the threat of substitutes is credible in some use-
cases, but will not completely usurp personal computers in the foreseeable future. See
Appendix A1 for accompanying template.

Rivalry Between Competitors


While once an industry defined by few large companies and extremely expensive
products, pursuing a niche audience, the advent of the personal computer (PC) has caused an
industry explosion which now includes dozens of manufacturers pursuing many millions of
customers in the United States.
As a result of the penetration of computers into everyday life and business the PC is
becoming more and more a commodity product. For most users, and business economy is more
important that performance specification and other ‘bells and whistles.’ The result has led
many manufacturers to pursue low-cost and best-cost provider strategies. Those at the lowest
end compete on rock-bottom prices foregoing all but the most basic features. Those in the
middle range including Dell, HP, and Lenovo compete for customers offering a range of options
for varying prices. The similarity of their products due to industry standard setting also leads to
price competition that drives down prices and squeeze margins. The desire of companies to buy
large numbers of PCs for the lowest bid available also exercises considerable downward
pressure on prices offered by these firms.
The nature of technological development also imposes increased competition on the
members of the industry. The technology behind many key components of PCs continues to
become more efficient with increased processing power and less energy consumption.
‘Moore’s Law’ predicts that the number of transistors on a processing chip roughly doubles
every eighteen to twenty-four months.1 While is more an estimate than a ‘law’ industry leaders
like Intel, Inc. have kept this pace for decades. This perpetual innovation and development puts
pressure on computer manufacturers to streamline production and refresh products at a pace
largely unseen in business for centuries.2

Supplier Power
Suppliers have considerable leverage over the manufacturers of portable personal
computers. While many industry standards like universal serial bus (USB) and wireless
1
Intel Corp. Moore’s Law. Retrieved 2009-12-09
2
Apple Inc. SEC 2009 Form 10-K Filing. Page 16

Strategic Analysis – Apple Inc. Page 3 of 21


MGT 440, December 2009 Masi

technology are open and issued by independent or collaborative standards bodies like the USB
Implementers Forum (USB-IF, universal serial bus) and Institute for Electrical and Electronics
Engineers (IEEE, wireless standard 802.11n) manufacturers also rely on privately owned
standards. Often the technology must be licensed or requires entrance to a paid-membership
industry group for use. For instance, for the specifications and use of the PCI-Express/Express
Card standard, which is present in nearly all personal computers, membership to the industry
group PCI-SIG is required.3
In addition, the relative concentration of suppliers for some inputs puts pressure on
competitors. Within the personal computer industry, central processing units (CPUs) are
sourced from a duopoly, Intel Corp. and Advanced Micro Devices, Inc. (AMD). Despite having
two options, the semi-conductor market is dominated by Intel, with AMD licensing technology
from Intel for use in production of their CPUs.4 Despite having compatible chip technologies;
these two companies use proprietary chip designs that require different motherboard socket
designs. Because of this incompatibility in design, for a PC manufacturer to switch suppliers of
CPUs they must also switch to a new type of motherboard, which drives up switching costs.
Despite this power the chip manufacturers hold, they are not present in the PC manufacturing
business and therefore are reliant on PC manufacturers for a bulk of their business. This leads
to discounts for bulk purchasing and exclusivity agreements, which alleviates some pressure
from the dominant suppliers.

Buyer Power
As in all industries buyers have the final say and exercise considerable influence over
manufacturers. The variety of buyers with many, widely varying needs directly impacts PC
makers who must adapt and react by offering broad product lines. The marked distinction
between power users seeking the ‘latest and greatest’ and average users who need a product
that is ‘just good enough’ poses an obstacle to manufacturers who want to tap as many
customers as possible.
Manufacturers are benefited by the wide acceptance and use of PCs which causes high
demand for products. Proprietary systems and brand loyalty are also used to keep customers
coming back. Highly compatible closed-systems are routinely used to keep customers within a
circle of products provided by single companies.

Threat of Potential Entrants


There are many avenues by which a new entrant may enter the portable personal
computer market; however there are several hindrances that may prevent successful entrance.
Currently in the market there are several large, well entrenched players that have substantial
brand recognition and loyalty, including Dell, HP, Lenovo, and Apple among others. Developing
a successful brand among many others is difficult. These players also dominate and keep costs
down with economies of scale, which cannot easily be achieved by a new entrant without
substantial capital investment.

3
Sherwin, Lisa M. “PCI-SIG Delivers PCI Express Specification Extensions.” 2003-02-19
4
Farrell, Nick. “AMD Takes Intel Market Share.” 2009-06-10

Strategic Analysis – Apple Inc. Page 4 of 21


MGT 440, December 2009 Masi

Despite obstacles there are still possibilities for entrance. New entrants may come from
newly established ‘lean’ organizations which rely primarily on third-party original equipment
manufacturers (OEMs) for production. Established OEMs often operating in Asia have already
achieved economy of scale and can pass these savings onto new firms that practice ‘re-
branding’ as a market entrance plan. The increasing convergence of mobile devices resulting
from the push of ‘smart-phones’ and ‘netbooks’ is bringing phone makers into the portable
personal computer market. Nokia, a well established phone maker, has fired its first ‘test shot’
by planning to release a netbook of its own.5 Another mode of entrance is a result of forward
vertical integration by OEMs. This trend has increased in popularity over the past decade,
bringing companies like Acer, Inc. into direct competition with well-known industry giants.
Formerly an unknown, by 2005 Acer had revenues of over $1 Billion in the United States, $8.17
Billion worldwide.6 Today Acer has over $16.5 Billion in revenues worldwide and oversees
brands such as eMachines and Gateway.7

Threat of Substitutes
The consumer technology sector has grown substantial over the past decade with the
advent of alternatives to personal computers growing from PDAs and now feature-rich ‘smart
phones’ The increase in technology in the average American living room. These developments
result in the spread of consumer ‘technology dollars’ away from PCs. However, despite the
spread it is unlikely that smart phones, like the iPhone or Blackberry, will significantly diminish
the importance of PCs in the near future. This diversification of consumers’ ‘digital lifestyles’
presents an opportunity for diversification of PC manufacturers, a step many are already taking.

Recommendations
Based on the industry analysis, I recommend:
Create a differentiation strategy: The commodity PC market presents a perpetual
downward pressure on prices, which erodes firm profitability. Developing and brand
image that separates the firm from the competitive rat race will reduce the effect of
destructive competition and pad margins.
Develop close relationships with suppliers: Because there are few suppliers of key
components required in PC manufacturing developing close relationships with suppliers
is of utmost importance. Rather than searching for the supplier of lowest cost,
maintaining a collaborative and exclusive business relationship will help mitigate the
power of suppliers and help to lock in attractive component prices.
Consumer electronics diversification: While the PC market has grown increasingly
crowded with competitors and customers saturated other areas of consumer electronics
continue to grow. Developing complementary products in other categories provides
broader sources of revenue by accessing more customers in markets with less intense
competition.

5
Paul, Ryan. “Nokia’s little netbook gets AT&T subsidy, to cost $299.” 2009-10-14
6
Acer, Inc. “Acer America Corporate Overview.” 2007-03-20
7
Yahoo! Finance. “Acer Inc. Company Profile.” Retrieved 2009-12-05

Strategic Analysis – Apple Inc. Page 5 of 21


MGT 440, December 2009 Masi

STRATEGIC ANALYSIS

2. Competitive Landscape and Strategic Groups


Analysis and Conclusion
The portable personal computer industry has many viable and successful competitors
who, for the most part, offer similar products. While considering cost alone there are several
groups that generally define the industry competition. Firm’s compete in groups at the low-end,
middle range, upper-middle range, and high-end. Within these competitive groups price
typically equates to number of features or capability. At the highest-end firm’s offer specialized
products with certain consumer groups in mind. These firms compete on the basis of what the
computer is designed to be used for, while firms at the lower end of the price spectrum
compete essentially on price-value. See Appendix A2 for accompanying template.

Extrinsic Dynamics – Price, Design, Quality, and Support


Comparison of firms operating in the industry on the dimensions of price and design
(ranging from functional to elegant) reveals a linear relationship [See Figure A2-1]. Those firms
commanding the highest prices for their products opt for elegant (Apple) or intricate
(Alienware) designs, while firms competing on low price offer basic functional designs
(eMachines) to keep costs down. This paradigm remains true when considering build-quality
and support as metrics as well [See Figure A2-2]. Apple offers portable computers constructed
of solid aluminum blocks and strong polycarbonate plastics.8 Voodoo PC use sturdy well-
designed computer cases with intelligent and efficient internal cable routing layouts to promote
airflow and keep the computer running well. Other firms offering mid-range and low-end
computers opt for more inexpensive plastics and materials while paying less attention to
internal layout details. The comparisons of Price to Design and Design to Build Quality show
similar relationships. Support is the final top-level extrinsic measures by which firms in the
industry compete. The two extremes of high-price and low-price reveal similar support policies
[See Figure A2-3]. Firms commanding the highest prices offer comprehensive support packages.
Apple offers in-store one-on-one support to all customers and further warranty support. The
premium price of their portables allows for the extra expense in providing this service.

Intrinsic Dynamics – Customizability, Gaming Capability, Out-of-the-Box Features,


System/Peripheral Integration
Those firms that emphasize customizability on the part of the customer tend to offer
computers built for high-performance applications, such as gaming. Gaming is an important
driver of computer technology and the degree of customizability in features and specification as
well as appearance is a driving force for manufacturers focusing their brands on gaming, like
Alienware and Voodoo PC. The relationship between customizability and gaming capability
remains linear [See Figure A2-4]. Firms have chosen their positions on these competitive
dynamics and those not taken do not represent attractive segments to target.
System/Peripheral Integration is a polarizing metric. Apple stands alone with its Mac portables.

8
Apple Inc. “Redesigned. Reengineered. Re-everythinged.” Retrieved 2009-11-30

Strategic Analysis – Apple Inc. Page 6 of 21


MGT 440, December 2009 Masi

They ecosystem they’ve developed provides seamless integration between their computers,
software, iPods, iPhone, and other devices. Windows based PC manufacturers also make
compatible peripherals, but they do not have the same level of integration as Apple. When
considering out-of-the-box features some other, relatively large groups emerge. Brands like
Dell, Lenovo, Vaio, Gateway, eMachines, and HP offer standardized functions built into
Windows while Alienware and Voodoo PC offer a variety of pack-in games and features. Apple
also ships copies of their iLife suite of programs including iPhoto and iMovie among other useful
programs with every Mac. The ability for a user to do more than go online after setting up a
Mac or Alienware PC is in significant contrast to other competitors [See Figure A2-5].

Recommendations
Based on the strategic group map analyses, I recommend:
Focus on differentiated lifestyle branding: Apple has successfully developed a
differentiated lifestyle brand and must continue to build on this foundation while
resisting pressure to move to the middle to directly compete with Dell and HP.
Design innovation: Put additional emphasis on design development with internal
resource allocation to continue to lead the industry in design.
Research user interface possibilities: As a mode of setting Mac computers apart from
other PCs Apple must continue to innovate in user interface focusing on easy-of-use and
intuitive menu functions.
Expand Apple store locations: Providing more points of direct contact with buyers will
enable Apple to provide better service to customers and bring the Apple experience to
more people.

Strategic Analysis – Apple Inc. Page 7 of 21


MGT 440, December 2009 Masi

STRATEGIC ANALYSIS

3. Key Resources and Capabilities


Analysis and Key Insights
Apple’s most important resources and capabilities are Steve Jobs, the CEO, and the
integrated system of hardware and software that the firm has developed and successfully
marketed to derive value. Steve Jobs brought Apple back to tremendous success following a
decline in relevance and heads the continued creation of billions of dollars of value. While
Apple’s designers, programmers, and engineers each represent key resources the ability of the
firm to exploit their abilities to create their entire software/hardware ecosystem is the firm’s
key capability. Taken each individually, the resources only represent competitive parities and
temporary advantages. The combination is their key capability that has established a
sustainable and ongoing competitive advantage and above average performance within the
industry. See Appendix A3 for accompanying template.

Steve Jobs
Apple founder and current CEO Steve Jobs is an incredibly valuable resource to the firm.
His unique vision and approach to business established Apple as an industry leader in the
beginning and he saved the firm from a downward spiral when he returned in the mid-1990s.9
Under his guidance the firm has rebounded and excelled in many markets, often defining
categories of products. To Apple Steve Jobs is a valuable, rare, inimitable, and non-substitutable
resource.

Apple Stores – Retail Locations


The introduction of Apple stores has provided the company with an important physical
presence to act as both a sales location and an advertisement. The stores allow Apple to tightly
control the image of the brand and provide excellent customer service. Apple tops many
retailers in in-store sales, generating $4,032 per retail square foot per year, beating other
retailers like Tiffany & Co. at $2,666 and Best Buy at only $930.10 This resource is of incredible
value to Apple and a success that is a relative rarity in the industry. Matching success and
impact like the Apple store model is difficult for other firms to achieve. Past experiments like
Gateway stores have failed, while Sony Style stores founder in mediocrity.

Relationship with OEMs


Apple has outsourced all of its manufacturing processes to OEM partners in China, like
Foxconn and Hon Hai Precision Industry while focusing on design internally. The relationships
between Apple and their OEM partners are very close to provide Apple with excellent service
and high quality products. Mutually beneficial business relationships are time-consuming and
difficult to develop and maintain is of considerable value to Apple and puts them ahead of
other manufacturers who may decide to outsource some production.

9
Deutschman, Alan. “The once and future Steve Jobs.” 2000-10-11.
10
Useem, Jerry. “Apple: America’s best retailer.” 2007-03-08.

Strategic Analysis – Apple Inc. Page 8 of 21


MGT 440, December 2009 Masi

Industrial Design Capability


Apple’s incredible industrial design capability is a function of their innovative design
teams, led by Jonathan Ive, senior vice president of industrial design, and the firm’s
prioritization of design and outsourced production. Ive and the Apple design team hold many
awards, with products being shown in permanent collections at various museums.11 This
combination is valuable to Apple, rare among competitors, and difficult to imitate.

Talented Software Development Teams


Apple’s software developers are carefully selected and talented programmers. They’ve
produced industry award winning software and the highly regarded iterations of Macintosh OS
X operating system. They’ve provided Apple with important products, but developers of their
caliber are not rare within the industry, nor are they difficult to imitate. Other firms can
develop staff as talented or hire them away from Apple.

Tailored Hardware/Software Systems


One of Apple’s most important capabilities is their ability to develop and build highly
integrative systems with software designed specifically for the hardware it runs on. The ‘closed
system’ style of Apple is unique in the industry which typically relies on third-party software
(i.e. Microsoft Windows running on a Dell computer). This capability comes from a combination
of the design teams, software development teams, and hardware engineers employed by
Apple. No other firm in the industry has a system like Apple’s and it would cost millions or
billions of dollars to imitate, not regarding success. While other systems work for PC
manufacturers they cannot achieve the same results as Apple’s integrated system.

Recommendations
Based on the analysis of firm resources and capabilities, I recommend:
Continue the expansion of Apple stores: The stores represent an important source of
revenue for Apple and serve as an interactive advertisement for the Apple brand. Their
success has been unmatched by any other industry player.
Emphasize the integrated system in advertisements: Apple’s integrated system holds a
significant advantage over other industry systems relying on Microsoft Windows, yet
some customers have not experienced the seamless interoperability of all Apple
products. This marketing angle will result in cross selling of more products to new and
existing customers.
Seek exclusivity arrangements with OEM partners: Continue to build relationships with
the closed Asian OEM partners and enter into exclusivity arrangements to lock out
competitors and gain favorable business deals.

11
Apple Inc. “Executive Profiles, Jonathan Ive” Retrieved 2009-12-06

Strategic Analysis – Apple Inc. Page 9 of 21


MGT 440, December 2009 Masi

STRATEGIC ANALYSIS

4. Apple Inc. Value Chain and Strategic Implementation


Strategic Implementation
Based on analysis of Apple’s practices, policies, and procedures the firm’s strategy for its
portable personal computer business is one of broad differentiation targeting a range of
customers from sophisticated power users to inexperienced new users and from individual
buyers to bulk purchasers like schools and businesses. The firm differentiates on exceptional
design, consistent quality, and outstanding customer service.
The real evidence of Apple’s strategy reveals that their commitments are directly in line
with their stated goals and strategy. Apple’s goal is to provide customers with the “best
personal computing…experience” by offering products with “superior ease-of-use, seamless
integration, and innovative industrial design” and a “high-quality sales and post-sales support
experience.”12 See Appendix A4 for accompanying template.

Risks to Apple’s System


While Apple has been successful in implementing its strategy in the marketplace, some
of the firm’s practices could be seen as risks and potential liabilities threatening future success.
Most of Apple’s risk center around the firm’s near absolute dependence on OEMs and foreign
factories for manufacturing and assembling their products. Although Apple gives their OEM
partners guidelines for sourcing materials to be used in production they do not have direct
control over procurement. The OEMs that derive profit from high volume with low margins will
continually seek to reduce the costs of inputs to reduce pressure on their margins. Gradual slips
in quality will adversely affect Apple if the low quality inputs begin to show in the final
products. Customers who begin to notice reduced quality will not be able to justify the
premium prices that Apple commands for its products. Similarly, quality control slips during the
manufacturing processes carried out by OEMs can negatively affect Apple. More defective
products making it through to end-users will hurt Apple’s image as a supplier of premium
lifestyle products.

Risk-Mitigating Factors
Despite the inherent risks of establishing a value chain completely reliant on foreign,
non-subsidiary firms, Apple has had tremendous success in implementing a lean manufacturing
structure. Because Apple is committed to the equitable treatment of workers in their partners’
factories and developing mutually beneficial relationships with their suppliers OEMs are more
likely to work cooperatively with Apple regarding pricing and sourcing, rather than acting only
self-interestedly.
As long as quality control issues remain relatively few and far between, Apple can easily
patch up any holes in perceptions their overall quality. Because Apple is fortunate to have large,
highly padded margins on their products, they can afford to do full replacements of defective
devices. Apple’s reputation for having sterling customer service and their ability to take quick

12
Apple Inc. SEC 2009 Form 10-K Filing. Page 1

Strategic Analysis – Apple Inc. Page 10 of 21


MGT 440, December 2009 Masi

and decisive action to fix issues may leave customers with even higher regard for the firm,
despite some issues.

General Administration
A greener Apple – Apple redesigned packaging for many of its popular products to be
more lightweight and take up less space in shipment. This means reduced emissions during
transportation and results in a savings for the firm. Apple has also made moves to reduce the
number of harmful chemicals used in the production of its products.
Strong cash position – Apple maintains a large cash reserves and carries a comparatively
small amount of long-term debt.13 This enables Apple to finance expansion, capital purchases,
and development internally with little reliance on third-party creditors.

Human Resources Management


Selective hiring process – Apple follows selective hiring practices to recruit and hire
talented individuals.
Generous employee benefits program – Apple offers a variety of attractive employee
benefits to complement direct wages.14 The benefits system is used to entice, and retain
industry-leading talent to benefit Apple.

Technological Development
Research and development – Apple increased research and development funding by
nearly 66% from 2007 to 2009, in 2009 Apple spent $1.33 Billion on research and
development.15 This is a commitment to continue to push innovation forward to keep ahead of
competition.
Patent filing – Apple believes in the importance of protecting its intellectual capital by
filing patents in the United States and worldwide for its inventions and innovations. Apple
currently holds a portfolio of several thousand patents.16

Procurement
Positive relationships with suppliers – Apple works closely with its key suppliers to
benefit all parties involved. Apple is a member of the Electronic Industry Citizenship Coalition
(EICC) and works to ensure fair treatment of workers in OEM factories.17 Apple has also
developed its own Supplier Code of Conduct to govern the actions of its suppliers.18 These
beneficial steps foster positive relationships with suppliers.

13
Apple Inc. SEC 2009 Form 10-K Filing. Page 55
14
Apple Inc. “Jobs at Apple: Benefits.” Retrieved 2009-12-09.
15
Apple Inc. SEC 2009 Form 10-K Filing. Page 16.
16
Apple Inc. SEC 2009 Form 10-K Filing. Page 11.
17
EICC. “Electronic Industry Code of Conduct.” Version 3.0.
18
Apple Inc. “Apple Supplier Code of Conduct.” Version 3.1.

Strategic Analysis – Apple Inc. Page 11 of 21


MGT 440, December 2009 Masi

Inbound Logistics
Automated receiving systems – Apple has implemented sophisticated automated
receiving systems to speed up the receiving process and reduce facility footprint and storage
space requirements.19
Delegate raw materials acquisition – Apple works with its OEM partners to delegate the
raw materials acquisition process but provides some supervision for quality control purposes.

Operations
Utilize OEM’s economies of scale – Apple outsources production to third-party OEM
partners to utilize their economies of scale while removing the burden of production
management from the firm.
Internal design – The design and conceptualization of current and future products is
done internally at Apple, utilizing industry-leading industrial design teams and engineering
knowhow.

Outbound Logistics
Economical/stylist packaging – In order to save money on shipment and entice
customers Apple uses eye-catching packaging that takes up less physical space and weighs less.
This reduces shipping costs and environmental effect while attracting customers to the firm’s
products.20
Apple Stores/Authorized retailers – To control the firm’s brand image Apple sells
through first-party retail establishments and through authorized retailers. Apple Stores act as
advertisements for the brand and provide a human point of contact between the firm and its
customers. Authorized retailers are held to certain standards to protect Apple’s brand image.
Direct shipment – Apple.com online orders are shipped directly to consumers from
storage facilities in China. This minimizes inventory buildup in more costly warehouse locations
in the United States.

Marketing and Sales


“Get a Mac” Ads – Apple uses a series of television advertisements comparing the firm’s
products to competitors using a variety of direct and indirect methods to build a lifestyle brand
image. The ads are humorous and do not emphasize cost or feature-by-feature comparisons,
opting instead to develop the firm’s image.
Retail locations/Flagship stores – Apple stores across the United States serve as living
advertisements for the company promoting the brand and lifestyle image. Flagship stores, like
the 5th Avenue New York store are an attraction drawing visitors on novelty hoping to convert
the visits into sales.
Secretive and selective unveilings – By keeping secrets about product releases and
holding invitation-only press events for product unveilings, Apple creates hype and suspension
around product launches.

19
Harps, Leslie H. “Materials Handling Technology: Toy or Tool?” 2002-05.
20
Apple Inc. “Apple and the Environment.” Retrieved 2009-11-28.

Strategic Analysis – Apple Inc. Page 12 of 21


MGT 440, December 2009 Masi

Service
Apple Genius – Apple stores house the ‘Apple Genius Bar’ where customers can talk
with an Apple specialist known as a ‘genius’ about problems with their device. This human
interaction with a first party service provider builds a rapport with customers and offers a stark
contrast to endless phone service calls.21
Included and extended warranty – Apple offers an included 90 day warranty against
defects and issues with its products. Customers can also purchase extended warranties through
‘Apple Care’ to protect their product.
Free consultation – Customers can bring in their device for a free consultation regarding
issues problems with no commitment, whether it is in or out of warranty. The customer then
has the option to pursue different avenues of resolving the issue without an upfront charge.
Etc.

Recommendations
Based on the value chain analysis, I recommend:
Implement first-party quality checks in OEM factories: Despite working closely with
OEM partners, Apple must always protect its image of quality. Implementing random
quality check sampling and ‘quality audits’ in OEM facilities will ensure issues are caught
early and that Apple’s OEM partners stay honest with their own quality control
processes.
Make productive use of unused cash: While having a large cash buffer is important to a
firm, idle cash is not being used effectively. During the yearly capital budgeting process
Apple should set aside a sizeable portion of unused cash for investment. Unused cash
does not create value for Apple, investing it in the near-term will provide benefits in the
future to finance expansion and large capital purchases.
Continue a wise expansion of Apple Stores: Apple’s retail stores have been massively
successful, that success can be furthered in new locations within the United States and
abroad. During the expansion process Apple must practice extreme caution to avoid
over-saturation, the Starbucks effect, to retain the halo surrounding the stores and
maintain their status as a destination.

21
Apple Inc. “Apple Retail Store: Genius Bar.” Retrieved 2009-12-09.

Strategic Analysis – Apple Inc. Page 13 of 21


MGT 440, December 2009 Masi

STRATEGIC ANALYSIS

5. Trends and Opportunities


Although firms worldwide are facing the possibility of restrictive carbon emissions
regulation, Apple is uniquely positioned to lead the electronics industry in promoting ‘green’
production, while taking full advantage of opportunities arising from new technological trends
surrounding convergence devices and sociocultural preferences concerning the fully-integrated,
mobile digital lifestyle.

5.1. General Environment Analysis


Despite Apple’s considerable resources and capabilities, various trends within the
General Environment pose considerable threats to the ongoing success of the firm. Proper
planning and action will allow the firm to marginalize these threats while leveraging core
competencies to take full advantage of emerging opportunities to create value for customers
and shareholders. See Appendix A5 for accompanying template.

Economic Environment
Recovering economy22 – While the economy in the United States has shown some
improvement and there are signs of full recovery looming the outlook is not certain currently.
The uncertainty leaves consumers weary of big-ticket purchases like computers. Apple’s
premium pricing position leaves the firm at a disadvantage to less expensive competing
products. However, when consumers directly feel the improving economy and spending
increases Apple will well positioned. Consumers seeking to ‘treat’ themselves following the
economic upturn may be attracted to Apple’s premium portables, viewing them as luxury
goods. Apple, known for its quality, dependable machines, and excellent customer service may
also be seen as presenting a better value than the competitors with fewer frills at lesser prices.

Demographic Environment
Flattening of wages -- leveling affluence – Over the past several years the American
middle class has experienced increasing costs across many indicators including, healthcare costs
and the CPI, but wages have remained relatively stagnant. Apple’s high prices may send
potential customers into the hands of competitors when they are unable to justify Apple’s high
price tags. Counter-intuitively Apple’s perceived value has directly benefited them during the
economic downturn; they’ve continued to experience growth while other competitors
suffered.23

Political/Legal Environment
Potential FCC Internet Regulation – The debate over ‘Net Neutrality’ has entered the
political arena, with bills being drafted in Congress and the FCC waiting in the wings to impose

22
Reuters. “Stocks Rise as Recovery Hopes Lift.” 2009-12-11.
23
Dhaliwal, Amandeep. “Apple’s Q4 results beat analysts’ estimates; quarterly profit rises to $1.67 billion.” 2009-
10-20.

Strategic Analysis – Apple Inc. Page 14 of 21


MGT 440, December 2009 Masi

regulation if need be. Changing the way the Internet operates may de-incentivize new
innovation which could reduce future value to be derived by Apple.24 New and innovative
technologies are routinely iterated on by hardware companies who strive to offer the best
methods of integration in their new products. Reducing this innovation may stifle new value
creation for Apple.
Healthcare reform – The push for modernization of the American healthcare system in
proposed reform legislation would provide government money for infrastructure development
and implementation by care providers. Adaptability of Apple’s key portables in innovative
health-centric ways could provide new sources of revenue.

Technological Environment
Device convergence – The possibility that ordinary personal computers (and portable
personal computers) will become less relevant through increased device convergence is very
real. Apple’s products laptops will be less important in users’ daily use as their multi-function
devices meet most of their needs. Apple stands currently as a leader in innovation and portable
technology. They are conveniently positioned to become a market leader in convergence
devices by iterating on their current portable devices and mobile devices like the iPod Touch
and iPhone.
Shortening product lifecycle – An ever increasing pressure to innovate because of
shortening product lifecycles could result in missed opportunities due to market entry times
and losses on obsolete inventory. Apple’s lean manufacturing value chain is adapted to rapid
turnover and can be leveraged to combat the threat of inventory obsolescence. Apple currently
invests billions of dollars in research and development which can be leveraged to position
Apple at the head of industry innovation, staying ahead of competitors in lifecycles shifts.

Sociocultural Environment
Increasing desire for on-the-go devices – The importance of the Internet and
connectivity is driving a demand for access anywhere, using high-speed wireless technologies.
Smartphones, and other ultra-portable ‘connected’ devices, that allow users to carry access to
the Internet wherever they go are fast-growing compared to traditional personal computers.
Apple and other manufacturers face a loss of relevance in the new technological landscape,
driven by consumer preference. Again, Apple’s substantial investment in research and
development in highly popular devices like the iPhone place Apple at the forefront of this
transition.
Greater concern for the environment – The production and shipment of Apple’s devices
are considerable sources of carbon emissions and pollution, which may come under scrutiny as
consumer concern for the environment continue to grow. Apple has already made
commitments to ‘greener’ manufacturing practices as well as implementing the use of eco-
friendly components, and packaging. This proactive step can be used as a marketing tool to
garner greater respect from concerned customers.

Global Environment

24
Swanson, Bret. “Net Neutrality’s Impact on Internet Innovation.” 2009-11-20.

Strategic Analysis – Apple Inc. Page 15 of 21


MGT 440, December 2009 Masi

Developing Chinese economy – The Chinese economy continues to grow despite


worldwide economic contraction. As the economy becomes more developed, increased wages
nationwide will increase the costs of production for Apple and its OEM partners. The increase in
quality of life and disposable income to Chinese citizens will provide a larger customer base for
Apple to tap into.
Potential world-wide climate regulation – It is possible that the Copenhagen talks will
result in real commitments from the international community regarding emissions caps and
taxes. Strict Carbon emissions regulations will impose a considerable financial burden on the
production of Apple’s products, driving up costs and shrinking margins. Again, Apple’s initiative
in implementing ‘green’ practices sets them apart from many competitors who will also feel the
burden of regulation.

Recommendations
Based on key trends in the general environment discussed above, I recommend:
Emphasize value for consumer dollar: Apple is known to provide considerable value
regarding quality, satisfaction, and service for its products. These traits should be
expressed explicitly to convey the value of their products when compared to
competitors.
Campaign for real network neutrality: The debate over net neutrality is being muddied
by moneyed interests to obscure the issues. To protect innovation and future value for
Apple, the firm should advocate for open networks without packet or content
discrimination.
Convergence devices within the Apple system: Apple is already a leader in the
smartphone market and should shift competencies to new, innovative, convergence
devices that take advantage of Apples system of simple, easy to use, integrated devices
and applications

Strategic Analysis – Apple Inc. Page 16 of 21


MGT 440, December 2009 Masi

5.2. Diversification

Apple already has a well-positioned diversified strategy, but can continue to broaden its
scope while creating value in related and unrelated markets including eBooks and medical
equipment.

Current Diversification
Apple has already implemented a successful strategy of diversification, both related and
unrelated. Beginning as a company which produced full-sized desktop computers Apple now
offers a line of desktops, notebook computers, mobile digital media players, and a mobile
phone, among many other devices. Apple has also entered the content distribution business,
selling music and applications for its devices as well as renting digital video, playable across
many of its most popular devices. Despite this broad range of diversification, there are still
opportunities for Apple to further diversify.

Related Diversification
As discussed in the General Environment Analysis above, the world of consumer
electronics technologies is converging on a point of highly portable, rich media, Internet
connected devices. Apple has already entered this market with the highly popular iPhone,
which performs many of the most desired functions. The growing consensus is that a tablet
format device may be the next step, bridging the divide between laptops and smartphones.
Apple’s patents dealing with touch screen technology and experience developing the iPhone
and iPod Touch will translate perfectly to a larger form, highly functional tablet device.
A growing category in digital technology is the ‘eReader’ device, which allows
consumers to transport and read books in a digital format. While the Amazon Kindle is currently
the leading product in this market, the category is still young and could be redefined. If Apple
could incorporate an e-book reader into a convergence device, or develop a successful
standalone device it would be wise of them to diversify the iTunes store to include e-book
downloads in addition to music, movies, TV shows, and podcasts among other types of content
already available. This is one of the next logical progressions of the iTunes store which has
come very far from its initial offering of music only.

Unrelated Diversification
In the United States medical equipment and devices are a growth area of the economy.
As new healthcare legislation is enacted the importance of modernizing our system will come to
the forefront. Apple’s high quality portable devices would provide excellent platforms for care
providers to utilize in streamlining care. In order to gain the most value from this growth area
without considerable risk or heavy capital investment Apple should work with medical
equipment manufacturers and care providers to establish Apple’s devices, particularly a future
tablet, as a standard for medical technology platforms.
Using a combination of new digital medical technologies developed by medical
equipment manufacturers and current technology for connectivity Apple could open its
portable and mobile platforms open for development of unique and efficient medical tools.
Examples of potential products would include digital thermometers and blood pressure

Strategic Analysis – Apple Inc. Page 17 of 21


MGT 440, December 2009 Masi

monitors that connect via USB or the Apple proprietary Dock Connector to an Apple device to
automatically log measurements and do real-time analysis based on historical values to identify
trends that may pose health risks.

Recommendations
Based on the above, I recommend:
Capture convergence device markets: Utilizing research and development
commitments and market head starts including the iPhone, Apple should work to define
the approaching market for convergence devices that bridge the gap between portable
computers and mobile phone.
iTunes Store eBook distribution: Apple should add affordable eBook options to the
variety of digital media available through the iTunes Store, compatible with all Apple
devices.
Medical equipment platform: Work closely with established medical device
manufacturers to create a digital medical device platform designed to become an
industry standard in modernization through state-of-the-art care administration
systems.

Strategic Analysis – Apple Inc. Page 18 of 21


MGT 440, December 2009 Masi

5.3. New Value Creation

International New Value Creation


Currently the Apple iPhone uses a single cell network radio compatible only with GSM
networks (i.e. AT&T and T-Mobile in the United States). While GSM networks are implemented
worldwide, CDMA networks (i.e. Verizon and Sprint in the United States) a competing standard
are also widespread and used by millions of people. Introducing a new model of the popular
iPhone device utilizing an innovative Qualcomm cell phone radio chip that combines GSM and
CDMA capabilities for a fully capable smartphone that can be used worldwide on any network
would expand the number of potential customers Apple could target worldwide.
Despite the immense popularity of the iPhone in the United States and worldwide,
many customers, unwilling to switch cell providers, cannot use the device, despite desiring a
phone of its caliber. Currently there are over 500 million users on CDMA networks worldwide.25
Making one small change in the iPhone would allow the phone’s use on all CDMA networks and
open it up to millions of potential users. In the United States it can be assumed that many
current iPhone users would re-buy the phone in order to switch to the Verizon network, which
receives top marks in customer satisfaction, while AT&T comes in last, despite the popularity of
the iPhone.26 If the United States is a model that can be used to interpret CDMA user desire for
the iPhone worldwide, there is a potential for substantial value creation by implementing the
dual-band iPhone model.

Socially Responsible and ‘Green’ New Value Creation


Apple has already implemented the ‘Apple Recycling Program,’ which allows customers
to recycle old computer systems and peripherals with the purchase of a new Mac27 and offers
incentive to recycle old mp3 player and mobile phones through the program. 28 The program
helps to reduce the amount of electronic waste put into landfills. Electronics recycling is
important because there are many toxic and environmentally harmful chemicals in electronics
that can leech into the ground if improperly disposed of.
Samsung, a preferred supplier of Apple, recently announced an initiative to promote
electronics recycling while raising funds to benefit San Francisco Bay Area public schools’ lunch
programs. Proceeds from the recycling program will be matched by Samsung to help feed
hungry children through the free and reduced-price lunch programs and expand meal options.29
Apple should join its partner in encouraging education about environmental issues while
promoting electronics recycling and benefiting local schools. In addition to the money for
improved lunch programs provided by Samsung, Apple can match contributions with computers
for Bay Area schools to help children learn and become better equipped for the technological
future. As the program grows more successful similar initiatives could be rolled out in other
cities in California, the home of Apple, and across the country, where children most need help.

25
CDG. “3Q 2009 Subscriber Statistics.” Retrieved 2009-12-12.
26
Paczkowski, John. “AT&T Ranked Last in Consumer Reports’ Best Cellphone Service Survey.” 2009-12-12.
27
Apple Inc. “Apple Recycling Program: Computer and Display Recycling.” Retrieved 2009-12-14.
28
Apple Inc. “Apple Recycling Program: iPod and Mobile Phone Recycling.” Retrieved 2009-12-14.
29
Business Wire. “Samsung Green Recycling Program Raises Funds for San Francisco Public Schools.” 2009-12-14.

Strategic Analysis – Apple Inc. Page 19 of 21


MGT 440, December 2009 Masi

This program will not only benefit the environment by reducing electronic waste and
promoting sustainable practices by educating the public about the importance of conservation,
but it will make a direct impact in the lives of young children, and benefit Apple in the future.
The publicity associated with the charitable program will foster goodwill and promote Apple’s
image of a socially responsible company. Further, introducing children to the firm’s products is
likely to have a positive effect on product sales in the future.

Recommendations
In summary, I recommend:
Dual-band GSM/CDMA iPhone worldwide: Offering a new model of the iPhone using an
innovative dual-band chip will make it compatible with all cell networks worldwide and
dramatically increase the potential user base.
Collaborative recycling benefit with Samsung: Join and enhances Samsung’s charitable
efforts to promote electronics recycling while benefiting children in public schools.

Strategic Analysis – Apple Inc. Page 20 of 21


MGT 440, December 2009 Masi

STRATEGIC ANALYSIS

6. Recommendations and Conclusion


The Ultimate Convergence Device
Given the external environment and sociocultural and technological trends and Apple’s
unique strengths including the firm’s resources and capabilities, including unmatched industrial
design teams, talented device engineers, patents and innovation dealing with user interface
and usability a logical next step for Apple is to develop a market defining convergence device,
likely a tablet.
The firm should leverage its close OEM partnerships and internal knack for design and
usability to develop an innovative device that fits into Apple’s unique system of seamlessly
integrated devices and applications to bridge the gap between consumers’ personal computers
and their mobile phones.
Apple’s internal engineers will use what the firm has learned from its iPhone, iPod, and
Mac lines to develop an intuitively usable device packed with useful functions leveraging
Apple’s iTunes Store content including the ecosystem of third-party applications developers to
unleash the full potential of the platform. The award winning design team can leverage its
talent to create the next must-have product regarded for its design simplicity and elegance
making it not only a functional device, but a fashion statement. Finally, Apple’s close work with
its preferred OEM partners will make the tablet a reality, focusing on build quality and
dependability.

Modern Medical Device Platform


Once developed the Apple convergence device will provide a wide range of functions
and powerful processing capability that can be applied to the field of medical care to enhance
efficiency and modernize the industry. Apple should work with medical device companies and
care providers to develop a set of criteria for necessary capabilities for consideration in
developing the platform.
The device will function as an integral part of an overhauled recordkeeping, care giving,
and medical administrative system modernized for the twenty-first century. The device and
software it runs will make use of compatible equipment to measure, document, and file
measurements, symptoms, and diagnosis in an easily accessible and fully-portable medical files
system. The system will help to streamline care giving, administration, and claims filing, by
eliminating mountains of paperwork and cumbersome filing systems.

Partner with Samsung to Benefit Children and Environmental Education


As a smaller, yet important initiative Apple should partner with Samsung to further the
San Francisco Bay Area electronics recycling and environmental education program while
working to directly benefit children of local public schools by improving the school lunch
program and providing better technology to enhance learning.

Strategic Analysis – Apple Inc. Page 21 of 21


MGT 440, December 2009 Masi

APPENDICES

[See Page A-1 for the beginning of the Appendix Section]

Strategic Analysis – Apple Inc. A-i


MGT 440, December 2009 Masi

Potential Entrants
A1: Porter’s 5 Forces Analysis
+ Economies of scale
Business segment or industry being considered:
- Outsource to OEMs for production
Portable Personal Computer Manufacturing and Sales
+ Several large, entrenched players
Supplier Power Threat of with well established brand loyalty
Potential - Convergence of mobile devices,
- Reliance on underlying, proprietary standards Entrants mobile phone makers entering
- Few chip designers, one dominant player market
- High switching costs from suppliers - OEM forward integration
+ Suppliers reliant on industry for distribution and
consumption Threat: 3.5
Attractiveness: 2.5
Threat: 4 Buyer Power
Attractiveness: 2 + Consumer
Rivalry
Supplier Buyer dependence on
Between
Power Power computers, high
Competitors
demand
Competitor Rivalry - Varying needs, ‘latest
Substitutes and greatest’ v. ‘just
- Commoditized product, intense price good enough’
competition - Feature-rich ‘smart’ phones + Difficulty of switching
- Intense competition for large corporate - Alternate forms of to/from proprietary
contracts entertainment platforms
Threat + Central hub for leisure,
- Breakneck product/technology lifecycle pace
of entertainment, information,
- Products based on standardized components, Threat: 3
Substitutes and work
difficulty in differentiation Attractiveness: 3

Threat: 2.5
Threat: 5 Attractiveness: 3.5
Attractiveness: 1
The industry is moderately attractive overall. The established players have a history of success and
Overall Industry attractiveness: innovation, but competitors who fall behind the fast moving technological curve, or cannot
compete efficiently on price or differentiate effectively are eliminated. The power asserted by
Threat Level: 3.6/5 buyers and the dominance of suppliers puts strain on the industry’s profits. While new entrants
are possible, the cost in dollars and time of successful branding are a hindrance. While some users
Attractiveness: 2.4/5 may move most of their computing activities to truly mobile devices like smart phones personal
computers are likely to remain a tech staple for the foreseeable future.

Strategic Analysis – Apple Inc. Page A-1


MGT 440, December 2009 Masi

A2. Strategic Group Maps

Figure A2-1 Figure A2-2

Elegant
Alienware Alienware Mac
High

Voodoo PC Voodoo PC
Mac
Vaio
Vaio
Dell

Design
Dell
Price

HP HP
Lenovo

eMachines
Lenovo

Functional
eMachines Gateway
Gateway
Low

Functional Design Elegant Low Quality of High


Build

Figure A2-3 Figure A2-4


High
High

Alienware Mac Alienware


Voodoo PC Voodoo PC

Dell
Vaio
Customizability

HP
Vaio
Dell
Price

Lenovo Mac
HP Lenovo
eMachines
Gateway
Minimal

Minimal

eMachines
Gateway

Basic Support Extensive Minimal Gaming Robust


Capability

Strategic Analysis – Apple Inc. Page A-2.1


MGT 440, December 2009 Masi

Figure A2-5 Table A2-1 Competitive Dynamics

System/Peripheral Integration
Many

Mac

Out-of-the-box Features
Gaming Capability
Alienware
Out-of-the Box

Quality of Build
Customizability
Voodoo PC
Features

Support
Design
Dell, Lenovo,

Price
Vaio, Gateway,
eMachines, HP Firm/Brand
Alienware 5 4 5 3 3 5 5 3
Apple Mac 4 5 3 5 5 5 3 5
Dell 3 3 4 2 3 3 4 2
Few

eMachines 1 2 2 1 3 1 2 2
Gateway 1 2 2 1 3 2 2 2
HP 3 3 4 2 3 3 4 2
Basic System/Peripheral Robust
Lenovo 3 2 3 3 3 3 3 2
Integration Sony Vaio 4 4 4 3 3 4 4 2
Voodoo PC 5 4 5 3 3 5 5 3

Strategic Analysis – Apple Inc. Page A-2.2


MGT 440, December 2009 Masi

A3. Key Resources & Capabilities

Resource/ Capability Competitive Performance

substitutable?
Is it valuable?

Rare? (yes/no)
Consequence? Implications?

Inimitable?
Please fill in as many key
resources/capabilities as possible, but
Mark: (1) Competitive disadvantage, Mark: (1) Below average,
make sure to include at least one of each

(yes/no)
(yes/no)

(yes/no)
(2) competitive parity, (3) temporary (2) Average, (3)
type (e.g., tangible resource, intangible

Non-
competitive advantage, or (4) Average/Above average, or
resource, and capability).
sustainable competitive advantage? (4) Above average profits

Steve Jobs Y Y Y Y 4 4

Apple Stores - Retail locations Y Y Y N 3 3

Relationship with OEMs Y N Y N 2 2

Industrial Design Capability Y Y Y N 3 3

Innovative Product Design Y Y Y N 3 3

Talented software development


teams
Y N N Y 2 2

Tailored hardware/software
combinations
Y Y Y Y 4 4

Strategic Analysis – Apple Inc. Page A-3


MGT 440, December 2009 Masi

A4. Value Chain Analysis

1. General Administration
2. Human Resources Management
3. Technological Development
4. Procurement
5. 6. 7. 8. 9.
Inbound Operations Outbound Sales and Service
Logistics Logistics Marketing

Value Chain Activity Corresponding Firm Practice, Policy, or Procedure

1. General Administration A greener Apple – reduction in energy use in production and


transportation to match trend in green business.
Strong cash position – allows the firm to internally finance
expansion and development without cost of capital.
2. Human Resources Selective hiring process – find and attract talent
Management Generous employee benefits program – retain industry-leading
talent.
3. Technological Development Research & Development – expenditure increased about 66%
from 2007 to 2009
Patent filing – protection of important inventions and innovations
in the US and worldwide
4. Procurement Positive relationships with suppliers – EICC member, working to
improve working conditions, created and enforces a “Supplier
Code of Conduct.”
5. Inbound Logistics Automated receiving systems – reduce facility footprint and space
requirements.
Delegate raw materials acquisition – offer supervision to OEM
partners who carry out acquisition.
6. Operations Utilizes OEM’s economies of scale – offshore production to save
money on costs of build.
Internal design – design and conceptualize products internally
7. Outbound Logistics Economical/Stylish Packaging – eye-catching packaging takes up
less space and weight, reducing shipping costs and costs of
disposal.
Apple Stores/Authorized Retailers – working to maintain
standards over presentation of products for sale.
Direct shipment – ship products from China to consumer to
minimize inventory buildups in costly locations.
8. Marketing and Sales “Get a Mac” Ads – Various direct/indirect favorable comparisons

Strategic Analysis – Apple Inc. Page A-4.1


MGT 440, December 2009 Masi

against competing products, selling on quality and image.


Retail Locations/Flagship Stores – living ads with strong branding
and image promotion.
Secretive & Selective Unveilings – creation of hype and
suspension around product launches.
9. Service Apple Genius – Helpful 1-on-1 interaction and service on products
with 1st party provider.
Included and Extended Warranty – protect against defects and
issues, build positive image.
Free Consultation – In- or out-of-warranty consultation to
determine issues before billing.

Strategic Analysis – Apple Inc. Page A-4.2


MGT 440, December 2009 Masi

A5. General Environment Analysis

Environment Threat (& why?) Opportunity (& why?)


Economic 1. Signs of economic turnaround are present, 1. Economic recovery will cause
1. Recovering economy but many consumers are unconvinced and consumer spending. Apple’s high
Economic spending less. Apple’s premium portable quality may attract customers.
computers may be out of consumer price
ranges.
Demographic 1. Rising prices and stagnant wages leave 1. Apple, known for high quality,
Demographic 1. Flattening of wages – leveling affluence workers and families with less money to dependability, and long-lasting
spend on perceived luxury goods. products will attract customers
seeking value for their money.
Political/Legal 1. FCC Internet Regulation may stifle 2. Apple’s useful portable devices could
1. Potential FCC Internet Regulation innovation on the Internet, reducing new be leveraged in ‘modern’ healthcare
Political/Legal 2. Healthcare Reform methods for Apple to capitalize on the settings, funded in-part by
power of the internet. government money, increasing
demand.
Technological 1. Apples broad line of devices may become 1. As a leader in portable devices Apple
1. Device Convergence obsolete with the advent of multi-use can innovate and lead the way in
Technological 2. Shortening Product Lifecycle portable devices. platform convergence.
2. Increased pressure to innovate may result 2. High R&D commitments may propel
in missed opportunities and inventory Apple to lead the industry by out-
losses. innovating competitors
Sociocultural 1. Apple’s portable computers may lose 1. Apple can lead innovation in on-the-
1. Increasing desire for on-the-go devices relevance among new on-the-go devices. go devices utilizing R&D portable
Sociocultural 2. Greater concern for the environment 2. Device manufacturing will be equated with knowhow.
pollution and climate change. 2. Apple’s lead in environmentally-
sound practices will be a marketing
advantage.
Global 1. The developing Chinese economy will 1. Massive population with increased
1. Developing Chinese economy require higher wages for factory workers. buying power for Apple’s products.
Global 2. Potential world-wide climate regulation 2. Emissions regulation will impose huge 2. Apple has already made steps to
burdens on Apple’s production costs. improve environmental-friendliness,
can be used to the firm’s advantage.

Strategic Analysis – Apple Inc. Page A-5


MGT 440, December 2009 Masi

RESOURCES
Works Cited
Acer Corp., comp. Acer America Corporate Overview. Management Report. Acer Corp., 20 Mar.

2007. Web. 5 Dec. 2009. <http://us.acer.com/acer/wr-

resource/3023850467/upload/E0Entity13/1/Mar%202007%20Acer%20Corporate%20Ov

erview.pdf>.

Apple Inc. Apple and the Environment. Apple Inc., 2009. Web. 28 Nov. 2009.

<http://www.apple.com/environment/news/>.

Apple Inc. "Apple Recycling Program: Computer and Display Recycling." Apple Inc., 2009. Web.

14 Dec. 2009. <http://www.apple.com/recycling/computer/>.

Apple Inc. "Apple Recycling Program: iPod and Mobile Phone Recycling." Apple Inc., 2009. Web.

14 Dec. 2009. <http://www.apple.com/recycling/ipod-cell-phone/>.

Apple Inc. "Apple Retail Store: Genius Bar." Apple Inc. Web. 15 Dec. 2009.

<http://www.apple.com/retail/geniusbar/>.

Apple Inc. Apple Supplier Code of Conduct. 2009. Web. 1 Dec. 2009.

<http://images.apple.com/supplierresponsibility/pdf/Supplier_Code_of_Conduct_V3_1.

pdf>.

Apple Inc. "Executive Profiles, Jonathan Ive." Apple Inc., Apr. 2006. Web. 6 Dec. 2009.

<http://www.apple.com/pr/bios/ive.html>.

Apple Inc. "Jobs at Apple: Benefits." Apple Inc. Web. 9 Dec. 2009.

<http://www.apple.com/jobs/us/benefits.html>.

Apple Inc. "Redesigned. Reengineered. Re-everythinged." Apple Inc. Web. 30 Nov. 2009.

<http://www.apple.com/macbookpro/design.html>.

Strategic Analysis – Apple Inc. Page R-1


MGT 440, December 2009 Masi

Business Wire. "Samsung Green Recycling Program Raises Funds for San Francisco Public

Schools." SYS-CON India, 14 Dec. 2009. Web. 14 Dec. 2009. <http://in.sys-

con.com/node/1219706>.

CDG. 3Q 2009 Subscriber Statistics. Rep. CDMA Development Group, 2009. Web. 12 Dec. 2009.

<http://www.cdg.org/worldwide/cdma_world_subscriber.asp>.

Deutschman, Alan. "The once and future Steve Jobs." Salon.com, 11 Oct. 2000. Web. 8 Dec.

2009. <http://archive.salon.com/tech/books/2000/10/11/jobs_excerpt/index2.html>.

Dhaliwal, Amandeep. "Apple's Q4 results beat analysts? estimates; quarterly profit rises to

$1.67 billion." Top News, 20 Oct. 2009. Web. 13 Dec. 2009.

<http://topnews.us/content/27794-apple-s-q4-results-beat-analysts-estimates-

quarterly-profit-rises-167-billion>.

Electronic Industry Citizenship Coalition. Electronic Industry Code of Conduct. 2009. Web. 1 Dec.

2009. <http://www.eicc.info/PDF/EICC%20Code%20of%20Conduct%20English.pdf>.

Farrell, Nick. "Amd takes intel market share." The Inquirer, 10 June 2009. Web. 30 Nov. 2009.

<http://www.theinquirer.net/inquirer/news/1212664/amd-takes-intel-market-share>.

Harps, Leslie H. "Materials Handling Technology: Toy or Tool?" Inbound Logistics, May 2002.

Web. 15 Dec. 2009.

<http://www.inboundlogistics.com/articles/features/0502_feature02.shtml>.

Huzefa, A. N. Deepti, Dinesh Gaurav, Vinay, and Harmanjeet Singh. A Strategic Analysis of Apple

Corporation. Scribd.com, 9 Feb. 2009. Web. 13 Dec. 2009.

<http://www.scribd.com/doc/11983566/A-Strategic-Analysis-of-Apple-Corporation>.

Strategic Analysis – Apple Inc. Page R-2


MGT 440, December 2009 Masi

"Moore's Law: Made real by Intel innovation." Moore's Law. Ed. Intel Corporation. Web. 9 Dec.

2009. <http://www.intel.com/technology/mooreslaw/>.

Paczkowski, John. "AT&T Ranked Last in Consumer Reports’ Best Cellphone Service

Survey."AllThingsD.com. Consumer Reports, 1 Dec. 2009. Web. 12 Dec. 2009.

<http://digitaldaily.allthingsd.com/20091201/att-ranked-last-in-consumer-reports-best-

cell-phone-service-survey/>.

Paul, Ryan. "Nokia's little netbook gets AT&T subsidy, to cost $299." Ars Technica, 14 Oct. 2009.

Web. 30 Nov. 2009. <http://arstechnica.com/gadgets/news/2009/10/nokias-little-

netbook-gets-att-subsidy-to-cost-299.ars>.

PCI-SIG. PCI-SIG Delivers PCI Express Specification Extensions. PCI-SIG, 19 Feb. 2003. Web. 05

Dec. 2009.

<http://www.pcisig.com/news_room/news/press_releases_archive/2003_02_19/2003_

02_19.pdf>.

Reuters. "Stocks Rise as Recovery Hopes Lift." The New York Times, 11 Dec. 2009. Web. 13 Dec.

2009. <http://www.nytimes.com/reuters/2009/12/11/business/business-uk-markets-

global.html?_r=1>.

Swanson, Bret. Net Neutrality's Impact on Internet Innovation. Scribd.com, 20 Nov. 2009. Web.

8 Dec. 2009. <http://www.scribd.com/doc/22809857/Net-Neutrality-s-Impact-on-

Internet-Innovation-by-Bret-Swanson-11-20-09>.

Useem, Jerry. "Apple: America's best retailer." CNN: Money, 19 Mar. 2007. Web. 15 Dec. 2009.

<http://money.cnn.com/magazines/fortune/fortune_archive/2007/03/19/8402321/ind

ex.htm>.

Strategic Analysis – Apple Inc. Page R-3


MGT 440, December 2009 Masi

Yahoo! Finance. "Acer Inc. Company Profile." Yahoo! Finance. Web. 5 Dec. 2009.

<http://biz.yahoo.com/ic/42/42451.html>.

Strategic Analysis – Apple Inc. Page R-4