Apple Computer Inc.

Strategic Audit

Valentin Iliev Andreas Lindinger Guenther Poettler

D03103544 D03103551 D03103523

Dublin Institute of Technology FT351, Business & Management, Year 4 Strategic Management and Business Policy February, 23rd 2004

Apple Computer Inc.

Table of contents
1 2 Introduction ......................................................................................................................6 History...............................................................................................................................7 2.1 2.2 Introduction ...............................................................................................................7 Period before 1975 ..................................................................................................7 PC Market .........................................................................................................7 Apple ..................................................................................................................9 PC Market ...................................................................................................... 11 Apple ............................................................................................................... 12 PC Market ...................................................................................................... 14 Apple ............................................................................................................... 15 PC Market ...................................................................................................... 18 Apple ............................................................................................................... 19 PC Market ...................................................................................................... 21 Apple ............................................................................................................... 21 PC Market ...................................................................................................... 22 Apple ............................................................................................................... 23 PC Market ...................................................................................................... 23 Apple ............................................................................................................... 23

2.2.1 2.2.2 2.3 2.3.1 2.3.2 2.4 2.4.1 2.4.2 2.5 2.5.1 2.5.2 2.6 2.6.1 2.6.2 2.7 2.7.1 2.7.2 2.8 2.8.1 2.8.2 3 3.1 3.2 4 4.1

Period 1975 – 1981 .............................................................................................. 11

Period 1981 – 1985 .............................................................................................. 14

Period 1986 – 1992 .............................................................................................. 18

Period 1993 – 1997 .............................................................................................. 21

Period 1998 – 2000 .............................................................................................. 22

Period 2001 – now ................................................................................................ 23

Current situation ........................................................................................................... 25 Current performance ............................................................................................ 25 Mission and current strategy............................................................................... 26 General information.............................................................................................. 27 General description....................................................................................... 27 Products.......................................................................................................... 27 Competencies................................................................................................ 31

Internal environment.................................................................................................... 27 4.1.1 4.1.2 4.1.3 4.2

Corporate governance.......................................................................................... 32
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DIT | Strategic Management | Iliev, Lindinger, Poettler

Apple Computer Inc.
4.2.1 4.2.2 4.2.3 4.2.4 4.2.5 4.2.6 4.2.7 4.3 4.3.1 4.3.2 4.3.3 4.3.4 4.3.5 4.4 4.4.1 4.4.2 4.5 4.6 Board of Directors ......................................................................................... 32 CEO................................................................................................................. 34 Top Management .......................................................................................... 36 Stockholdings of Board of Directors and Senior executives .................. 39 Governance mechanisms ............................................................................ 40 Business ethics.............................................................................................. 43 Environmental issues ................................................................................... 46 Organisational structure ............................................................................... 47 Operating structure ....................................................................................... 47 Performance .................................................................................................. 48 Strategic implications .................................................................................... 49 Integration and control.................................................................................. 50 Culture and values ........................................................................................ 51 Strategic implications .................................................................................... 53

Corporate structure ............................................................................................... 47

Corporate culture .................................................................................................. 51

Corporate resources ............................................................................................. 54 Corporate resources: Marketing ......................................................................... 55 Marketing strategy ........................................................................................ 56 Brand positioning .......................................................................................... 57 Marketing mix ................................................................................................ 58 Advertising ...................................................................................................... 60 Product life cycles of Apple’s core products ............................................. 60 Trends from this analysis ............................................................................. 62 Competitive advantage ................................................................................ 63 Apple’s financial status quo ......................................................................... 63 Apple’s competitors, their financial status quo, and the market ............ 73 Apple’s financial operations ......................................................................... 75 General information...................................................................................... 77 Structure and performance.......................................................................... 77 Strategic management ................................................................................. 79 Competitive advantage ................................................................................ 79

4.6.1 4.6.2 4.6.3 4.6.4 4.6.5 4.6.6 4.6.7 4.7 4.7.1 4.7.2 4.7.3 4.8 4.8.1 4.8.2 4.8.3 4.8.4

Corporate resources: Finance ............................................................................ 63

Corporate resources: Research & Development ............................................. 77

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.......5 4...........108 Status quo ......9......... 4...............1 4...................2...................................115 Industry Life Cycle Analysis .......10...................................................101 Summary of internal factors .. 85 Structure and performance.....2...............109 Porter’s five forces Analysis ..................... 98 Intranet and Extranet solutions? ...2 External environment.............110 Strategic Group Analysis .............10.............................................. 96 Competitive advantage ................................105 Internal Factor Analysis Summary (IFAS)...............3 External analysis of software and peripherals market ...............12............................................10.....................................118 5........2 4.11 4............ Lindinger.................Apple Computer Inc.....................................1 5...............2.......................................... 96 What type of software and hardware is used at Apple? ..... 88 Corporate resources: Information Systems .9............2 4.......................................... 87 Human resource objectives and strategies..................................................11........................................ 81 General information...........................................10..........................3 4.....9................................12...3 4..............................................4 5...................100 advantage? ....................... Poettler 3 .....................................2 5....1 4......10.....10 4..................105 Core competencies and distinctive competencies............................11.............. 81 Operations capabilities...................................................................... 90 Human resource performance ...........4 4................................................9 Corporate resources: Operations & Logistics........................................................... 92 Staff appraisals ...............................3 5........4 4....................108 Defining the sector..............................5 5...............................1 5..............................119 DIT | Strategic Management | Iliev...........2...............................................................7 4......108 The PC market – an in-depth analysis ..................................2 4.................................106 4...........................................................................................................................................1 4...................2......8 4...................................... 87 Competitive advantage ...1 4.............10.............................................9......9.....10..................108 Overview – The uniqueness of the Macintosh . 98 To what extent is the model of a virtual company achieved by Apple’s How do Apple’s internet solutions assist in generating a competitive 4..............................................116 The Macro-Environment ..........2........10........... 86 Strategic issues ....................................................................................................... 91 Traini ng and Development ...........................12 Corporate resources: Human Resource Management ...6 5............... industry and market segments ......................6 4.............. 91 Partnership program ..................................................................3 4..................................................... 88 Human resource policies .......2 5 5.............................................11...............5 4............................... 93 Trends .................

Apple Computer Inc.
5.3.1 5.3.2 5.4 5.4.1 5.4.2 6 6.1 6.2 6.3 7 7.1 7.2 7.3 7.4 7.5 7.6 7.7 7.8 7.9 8 8.1 8.2 8.3 8.4 9 9.1 9.2 9.3 9.4 9.5 10 10.1 10.2 11 Software industry ........................................................................................120 Market and external environment analysis for the iPod........................128 Overview.......................................................................................................130 External Factor Analysis Summary (EFAS)............................................131

Summary of external factors .............................................................................130

Functional strategy.....................................................................................................133 General information............................................................................................133 Company resources and functional strategy..................................................133 Sources of competitive advantage ...................................................................135 Customer needs ..................................................................................................136 Customer groups.................................................................................................137 Distinctive competencies ...................................................................................138 Differentiation strategy .......................................................................................138 Advantages and disadvantages of the Differentiation strategy ...................139 Investment strategy ............................................................................................140 Competitive strategy...........................................................................................140 Strategies to deter entry.....................................................................................141 Strategy to manage rivalry.................................................................................142 Apple’s foreign operations .................................................................................145 Apple’s Transnational Strategy.........................................................................146 Apple’s methods of entering new markets ......................................................147 Pressures for cost reductions and local responsiveness..............................148 General information............................................................................................150 Horizontal integration..........................................................................................150 Vertical integration..............................................................................................151 Strategic outsourcing ..........................................................................................152 Diversification ......................................................................................................152 Corporate structure, control, and culture.........................................................154 Implementation ....................................................................................................154

Business-level strategy.............................................................................................136

Global strategy ...........................................................................................................145

Corporate strategy.....................................................................................................150

Strategy implementation...........................................................................................154

Analysis of strategic factors......................................................................................156

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Apple Computer Inc.
11.1 11.2 11.3 12 12.1 Situational analysis .............................................................................................156 Strategic Factor Analysis Summary.................................................................157 Review of mission and objectives ....................................................................158 Strategic alternatives ..........................................................................................160 Take advantage of technological forces by innovation (S-O) ..............160 Use creativity in a way to avoid substitute products (S-T)....................161 Take advantage of the MP3 player market by overcoming a Act to minimise high operating costs and avoid rivalry (W-T)..............162 Recommended strategy: Operation costs (weakness)/rivalry (threat) 163 Functional level strategy............................................................................163 Business level strategy ..............................................................................164 Corporate strategy......................................................................................165

Strategic advice ..........................................................................................................160 12.1.1 12.1.2 12.1.3 12.1.4 12.1.5

disimproving b usiness execution (W-O) ..................................................................161

12.2

Recommended strategy.....................................................................................163

12.2.1 12.2.2 12.2.3 12.3 12.4 13

Implementation ....................................................................................................166 Evaluation and control........................................................................................167

Conclusion...................................................................................................................168

Bibliography .........................................................................................................................169 Appendix...............................................................................................................................178

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Apple Computer Inc.

1 Introduction
! ! ! ! ! ! An inexpensive speedy disk drive with good storage capacity Enough memory to establish Multitasking The first graphic-based user interface available to the general consumer Development of a pointing device called "mouse" as an essential peripheral part of a PC The first use of 3.5 inch disks and CD-ROM Production of “cool-looking” but also powerful computers

All these inventions and utilities are inseparably linked with one name, Apple Computer Inc., which represents a fascinating compilation of engineering talent, innovation, perseverance, and success in spite of dysfunctional behaviour. Apple obtains the unique distinction of being the single surviving company from the early days of the industry that is still successfully acting in the computer vending business, as well as challenging Microsoft's dominance in operating systems. Apple also came perilously close to irrelevancy. After the lifeblood of the company, co-founder Steve Jobs was ousted in a boardroom coup in 1985, Apple had too many products, too little focus and was paralysed by two inept chief executives. Apple's already small market share was dwindling further. By 1996, it had racked up $1.5 billion in losses, and there were weekly speculations over who would buy the company. Then, in the summer of 1997 Apple stunned the world by announcing that Jobs would return as interim CEO. Even more shocking, Apple said it was partnering with its blood enemy Microsoft and scrapped dozens of its products to refocus the company. Jobs also challenged our perceptions of computers, introducing several new colourful computers. While Apple's market share has hovered at about 5%, the company has re-established itself as an innovator in design and ease of use and has managed to build up a loyal customer base. This strategic audit of Apple Computer Inc. analyses the company’s internal and external environment as well as its entire strategy. Based on this comprehensive strategic foundation and an analysis of a profound set of strategic factors, it provides Apple with specific strategic alternatives and concludes with a strategic advice.

DIT | Strategic Management | Iliev, Lindinger, Poettler

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1 Introduction “Man is a tool-using animal. which in historical concordance shouldn’t represent more than an aiding tool. Poettler 7 .2 Period before 1975 The creation of computers was primarily urged by the immanent human desire to store data. Apple Computer has pioneered the widespread use of many aspects of computer technology that today we all take for granted.1 PC Market Although it’s necessary to admit that the development towards computers wasn’t started at one specific date. 2. 2.Apple Computer Inc.and software) that not only changed global business. However. He seems to have observed the history and deployment of humanity where tools always played an important role to guarantee the race’s survival. In particular. Carlyle would have never been able to imagine the unique significance of one special gadget which is indispensable for “today’s world” – the Personal Computer. the great minds behind IT-companies such as IBM or Microsoft created devices (by combining hard. undiscovered horizons. the sector’s younger origins can be traced back at the close of the 19th century. more DIT | Strategic Management | Iliev. people’s cohabitation and even the social behaviour. for creating a thorough picture and increasing comprehension of the subsequent strategic analysis of Apple Computer in 2004 it’s first of all crucial to take a profo und chronologic look on the historic development of the entire PC sector with an already analysing focus on Apple. the Scottish essayist Thomas Carlyle (Historian. but represented a long-dating progression. but also opened new. Nevertheless. Lindinger. to automate processes.2. At this time. Without tools he is nothing. 2 History 2. Essayist & Critic 1795-1881) might have had some visionary ideas when formulating this famous quote. with tools he is all!” Without being able to guess human inventions and innovations in the forthcoming centuries or their challenging importance on society. So. and to solve complicated calculations.

IBM came up with the 8-inch floppy diskette and Hewlett-Packard strengthened its position in the market by announcing the HP-35 as "a fast. Alexander Dey who belonged to the Computing-Tabulating-Recording Company). War times as well as the Great Economic Depression caused the growing industry to expand their operations as the customers’ needs broadened (e. Moore School of Electrical Engineering 2 grounding efforts.04 DIT | Strategic Management | Iliev. exactly in 1876.: business accounting.Apple Computer Inc. Machinery manufactured and sold ranged from commercial scales and industrial time recorders to meat and cheese slicers.2% IBM dominated this market in the 1960’s which was characterised by the implementation of the ASCII code for the alphabet (American Standard Code for Information Interchange – binary sequence) and the creation of the computer programming language “BASIC” at the Dartmouth College. and communication facilities for better war-planning). With a market share of 81. MIT’s first general-purpose. the predecessor of Company IBM (C-T-R (International Business Machines).ibm. programmable computer built with transistor in 1956. Poettler 8 . 18.com/ibm/history/history/decade_1880. Especially the demands of World War II founded the basis for the latter work on computers like: ! ! ! ! John von Neumann’s outline on the architecture of a stored program computer and following IAS computer.php?timeline_year=1946. the first dial recorder was accomplished by Dr. extremely accurate electronic slide rule" with a solid-state memory.html. In 1969. Lindinger.01. AT&T Bell Labs developed the UNIX operating system.g.org/timeline/timeline. along with tabulators and punched cards.computerhistory. Xerox bought Scientific Data Systems for $1 billion which logged huge sales with their series of minicomputers. Claude Shannon’s dossier “The Mathematical Theory of Communication”.04 http://www.01. Alexander Graham Bell invented the telephone and in 1888 1 . 18. information. But still many computer systems represented mainframes that required a user to present a stack of punched cards to the person operating the machine and were far too large and expensive for anyone to actually 1 2 http://www-1.

so the next year he continued studies at the local De Anza Community College. California. California. 2. was launched. have in their homes as a "personal" computer. Wozniak had an early interest in electronics. Texas Instruments and chip-maker Motorola were other names.2 Apple There's no doubt Apple Computer is a pioneer. He also designed and built electronic projects for Homestead High School (e. also symbolised by obtaining his amateur radio license in the sixth grade. Poettler 9 . including part- DIT | Strategic Management | Iliev. By 1972. His mother had also worked at a number of jobs. Lindinger. He now had access to the university computer and wrote programs in FORTRAN and ALGOL which were two software/programming languages analogous to BASIC . and real estate salesman. a microprocessor that approached the ability to function as an adequate central processing unit (CPU) for a stand -alone computer. However the year was a failure academically.g. He was the first of two adopted children of Paul and Clara Jobs. known in the market. They called the machine the "Cream Soda Computer" on account of the amount of the drink they consumed during its construction. It invented computers "for the rest of us”. MITS (Micro Instrumentation Telemetry Systems).: "A Parallel Digital Computer"). Wozniak enrolled at the University of Colorado in Boulder in 1968. Steven Paul Jobs was born on the 24th of February 1955 in San Francisco. finance company representative. Stephen Gary Wozniak (“Woz”) was born on the 11th of August 1950 in San Jose.2. A further breakthrough occurred with the release of the Intel 8080. In 1969 Wozniak decided to build his own computer.Apple Computer Inc. The first computer that made use of the 8008 was the fully assembled French Micral that never had any impact in the USA. the Intel 8008. The father was an electrical engineer and the mother was active in local politics. He was the first of two sons of three children of Jerry and Margaret Wozniak. later designing the overwhelmingly successful "Altair 8800 personal computer”. The father had several occupations such as machinist. Through his presidency of the Electronics Society and one of his teachers. cooperating with his neighbour Bill Fernandez. he became a frequent visitor to the GTE Sylvania computer facility and the Stanford Linear Accelerator Center's (SLAC) computer facility that became a valued source for information on computer technology.

time in a payroll department. he started working for Atari Engineering in early 1974. However. Jobs obtained a summer job at HP by calling one of the founders. This was the beginning of the association and friendship between Jobs and Wozniak. In 1971. Consequently. He also obtained a part-time job at a surplus electronic parts retailer called Haltek. DIT | Strategic Management | Iliev. Jobs became interested in electronics during his elementary school years. but withdrew shortly afterwards due to Wozniak’s lack of interest. His familiarity with the parts enabled him to buy and sell parts to Haltek for a profit. a subsidiary of a friend’s (Alex Kamradt) Call Computer company to build video terminals. Jobs convinced Wozniak to sell these so called “blue boxes”. Berkeley campus and started to develop a digital design to generate the audio tones required to hack phone systems worldwide. Wozniak moved to the University of California. One year later Wozniak and Jobs became members of the Homebrew Computer Club which offered them the forum to exchange information on the latest microcomputer technology. Despite his electronic interests Jobs expertise would tend to the commercial rather than the technical aspects. Through all this. Wozniak joined HP as an associate engineer and was given the task to refine the HP-35. Steve Jobs studied at the Reed College in Portland with mixed academic success as his interests for mysticism adversely affected his academic studies. Bill Fernandez introduced Jobs to Wozniak in 1969.Apple Computer Inc. Lindinger. After the completion of high-school in 1972. he got the opportunity to visit HewlettPackard (HP) and dedicated himself thoroughly to its technology. Bill Hewlett. At the age of twelve. Poettler 10 . In 1973. Additionally. conviction of other phone hackers tempered their initial commercial activities. they formed “Computer Converser”.

3 Period 1975 – 1981 In 1976. headquartered in a parents’ garage. Although not attracting much attention. The first step into this direction was the completion of a preassembled computer circuit Board. It was published first at the Homebrew Computer Club in Palo Alto. California. or Microsoft Disk Operating System. Atari. Nevertheless. their first formal business plan set a goal for sales to grow to $500 million in ten years.and software). which Bill Gates and Paul Allen had founded only six years earlier. Six months later. HP or AT&T. the basic software for the future IBM PCs. the “Byte Shop computer store” ordered 50 Apple I boards. To fund production ($1. This first prototype has taken about six months to design and 40 hours to build. Nevertheless. As it turned out. Apple Computer was born when Steve Jobs and Steve Wozniak. This alliance became Apple’s hardest opponent in the market. Jobs and Wozniak “put all their eggs into one basket” and sold a VW van as well as a HP programmable calculator. established a long partnership between IBM and Microsoft. competition was increasing which caused frontrunner IBM who was producing the “industry benchmark” to face a number of rivals such as Commodore. Lindinger. the microcomputer industry was characterised by the manufacture and sale of small desktop computers with microprocessors as central processing units in the mid 1970’s. software developers had to make programs for two standards which was one of Apple’s biggest future difficulties. The MS-DOS. Due to the fact that Apple didn’t comply by determining and implementing their own standards (hard. dealers and consumers who had to decide which one to buy were confused. 2. 2. Soaring demand for higher storage capacity was met by Phillips’ first attempts to optical storage opportunities that later resulted in the invention of the Compact Disc DIT | Strategic Management | Iliev. the y will pass that mark in half the time. Furthermore.3.1 PC Market Still in infant status. along with Ronald G. Poettler 11 . named the Apple I.350).Apple Computer Inc. Jobs and Wozniak were splitting a monthly salary of $250. Wayne founded the Apple Computer Company officially on the 1st of April.

Poettler 12 . government. business (most profitable and predicted high-potential market). case assembly. Fabrication proceeded for sixteen years and seven months. There were five major market segments in the industry: home (games and educational programs for children. from April 1977 to November 1993. the company maintained the Apple II while it floundered with other product ideas (the Apple III. With this computer. and international sales. the Apple I. the most inexpensive. Consequently. Jobs (taking over responsibilities for marketing & engineering) and Wozniak (engineering) equally owned 45% of the company by leaving the latter 10% to soon quitting Wayne (documentation and mechanical engineering). keyboard. the early Macintosh). Jobs and Wozniak were in financial trouble and intensively searched for potential investors.3. switching power supply. Lindinger. California. they could raise venture capital provided by Mike Markkula and moved to a new corporate HQ in Cupertino. The success of the Apple II was due entirely to the millions of people who bought it. manual.Apple Computer Inc. when the Apple II came out at a local a computer trade show. and developed software and hardware for it. Apple managed its transformation to the mass consumer market. This success established the company as a major player in the early days of the personal computer revolution. DIT | Strategic Management | Iliev. Luckily. In addition. (CD). As the first PC to be sold in a plastic case and including colour graphics. hobbyists. Regarding their first product. This Apple flagship-device survived longer than any other computer platform from the early days. used it. education. in spite of the mistakes and restrictions of its parent company. game paddles. and brilliant colour graphics as well as for the Apple Disk II. the Apple II was an impressive machine. easy to use floppy drive ever (at that time) rocketed. hobbyists did not take it very seriously. 2. Orders for the Apple II equipped with a circuit motherboard. home-working professionals). Apple did not begin to t ke off until 1977. the Lisa.2 Apple After incorporation of the Apple Computers Company.

organisation was changed from a functional one to a product-oriented one. In their first years of existence Apple focused its sales on the home and education markets and was the leader in the education market. In August 1980 the Apple Computer Board of Directors decided to make a public offering of shares in the company. A number of more experienced mid-level managers and. Poettler 13 . however. new Directors made sure that Apple became a "real company. Steve Jobs’ focus was more and more on creating new and different products. In its first six years of business. It was a huge success and oversubscribed. a market share of 50% and was beginning to sell computers abroad.000. At the end of 1980 Jobs' ownership in Apple was worth about $256 million. On the first day the offered share price of $22 increased to $29. So these more conservative. Lindinger. DIT | Strategic Management | Iliev. Lisa. During 1980 the market for new stock issues had improved. He was the visionary responsible for Apple’s reputation for innovation who stressed Apple’s mission to change the world by bringing computers to the masses with the belief of “one person – one computer”. Apple’s earnings grew explosively from $793. accessories.000 to $76. and by 1980. Apple II and the Macintosh. As co-founder of Apple. Furthermore. Apple had two product lines. and service. Apple had several thousand employees. manufacturing. The rise in sales. led to an increase in company size. more importantly.714. several new investors opting for their seats in the Board of Directors caused difficulty in making design improvements that kept up with the advances in computer technology.Apple Computer Inc. The company created divisions for the Apple II and Apple III. sales." much to the dismay of many of its original employees.

similar to and compatible with “Big-Blue’s” technology. Several competitors such as Compaq.7 Million . Poettler 14 . by producing DIT | Strategic Management | Iliev.1 PC Market Units 9. A saturated market made it more difficult to sell computers. and in February Apple was forced to lay off 40 employees. With the power of IBM.1984 Dollars 17. AST or Gateway2000 entered the PC-market by trying to launch advanced IBM clones.Apple Computer Inc.4 Period 1981 – 1985 2. 2. patent-regulated policy (no information about Apple hard.and software was given out). Apple tried to differentiate itself by following a strict non-licensing. This was the outcome of IBM’s “open-architecture” which Apple struggled to prevent as the below excursus examines: As mentioned before.9 Billion -1984 20% 37% 55% 3% 5% Home Education Other Business 63% 14% Home Education Other Business 3% Units 16. things got a bit more difficult. IBM released its first PC using Microsoft products as software items. Apple Computer set their individual standards which led to a constant competition against the IBM-Microsoft-Intel model (Wintel standard).1990 Dollars 43. Dell.5 Million . the PC quickly began to dominate the playing field. Hence.1990 11% 29% Home Education 57% 9% 5% Other Business 69% 16% 4% Home Education Other Business In 1981. Lindinger.4.0 Billion . By 1984. the IBM PC had 50%market share.

Service and how new products fit into an existing family of products had become more important.4. Moreover. Poettler 15 . most of the software applications were written for PCs only. causing consumers and businesses (due to recession fears) to delay purchases until they could evaluate the new machines. Lindinger. This provided them with high short-term profit margins. ! A narrower customer base as the demanded hard.2 Apple Within this four year period Apple had to cope with a 70% decline in market share. but in the long run Apple had to encounter a vicious circle that even teetered Apple on the brink: ! Continuously increasing R&D costs as Apple had to develop all innovation on their own ! Subsequently. or twice the rate of the overall industry. took Apple to long to create ! Most computers were now IBMs or clones and as a result. the microcomputer industry suffered its worst slump in over a decade. less features available for Apple technology (mainly PC and Operating System (OS)) in comparison to IBM-Microsoft-Intel standard ! Problems for Apple in making design and service improvements that kept up with the advances in computer technology. therefore PCs were safer buys In addition. As Apple wanted to avoid being “cloned” such as IBM’s PCs and consequent diminishing returns. but by also charging an immense above industry average price for their goods which they considered as legitimate due to their product superiority. Apple III and the Lisa project were put forward to redefine personal computing following the historic visit to DIT | Strategic Management | Iliev.and software either wasn’t offered or if delivered. Consumer preferences also changed. Jobs became chairman of Apple Computer in March. the importance of computers for businesses reached new highs. In 1985. the home market was saturated and the market for new customers difficult to penetrate. they didn’t provide free-lancing program writers with necessary information to develop different features for the Apple technology.Apple Computer Inc. Many new computer products had been promised or rumoured but were not yet available. He took a leave of absence and returned only briefly. There was a growing demand for personal computers that could communicate and share information. It was estimated that this demand was growing at 30% a year. higher quality. 2. Wozniak was injured in a plane crash.

Xerox PARC in 1979. To fulfil their social responsibility. Initially.645 employees. was recruited and became president and CEO of Apple. choosing Sculley with his corporate experience as the company’s new president was considered by Jobs to be “one of the most important decisions in Apple’s history. unfortunately.” 3 3 Fortune (1988) DIT | Strategic Management | Iliev. and an accessory products group. but both failed to win acceptance. Apple Computer had annual net sales of almost $1 billion (as the first personal computer company ever) and 4. president of Pepsi-Cola USA domestic operations. Despite his efforts Jobs began to realise that Apple would have to become a "grown-up" company and accepted he was not the man for the job. Each division was responsible for its own functions and acted as “independent profitand-loss centres. The year was 1984. He and Jobs were at odds almost immediately. but by Christmas of 1984. Apple was the hip. another for the Lisa product and the development and production of the Macintosh. Sculley did not know much about the computer industry. Jobs took over another idea of Apple and began working with the Macintosh (Mac) which had started as a $500 personal computer competing with IBM’s releases. held the “AppleFest” in San Francisco and gave their computers to academic institutions and prisons. Considering Apple’s new competitive pressures. By 1983. Apple organised and financially supported music festivals. Apple aired its infamous 60 second commercial introducing the Macintosh.Apple Computer Inc. Sculley reorganised the management structure. young heart of Silicon Valley – the place where America was showing the world how the combination of technology and entrepreneurship could make a revolution. Poettler 16 . the Mac sold very well. people were becoming fed up with its disadvantages. In 1984. On January 22nd 1984. His main change was to reduce the number of Apple’s product divisions to three: a division for Apple II products. John Sculley. Lindinger.” Although he was hired for his executive and marketing expertise. during the third quarter of the Super Bowl. The Orwellian scene depicted the IBM world being shattered by a new machine. Markkula resigned from his posts as CEO and president. Also.

accounting for 80% of personal computer sales. The company failed to communicate a business image for the Macintosh to the market. led to a change in its competitive strategy. so he could “assess all the pieces.000 direct salespeople. Apple focused its efforts on developing the Macintosh as an alternative business computer. Poettler 17 . The company’s focus on gaining acceptance in the business market led it to finally acknowledge IBM’s pre-eminence.000 to 7. Lindinger. The company targeted SMEs (small and medium-sized enterprises ). Disappointing market performance was attributed to internal problems.” Sculley also installed tighter control policies and increased the market focus and level of discipline of Apple’s managers. which. Now there was a distinct hierarchy. Apple relied on 300 manufacturers representatives over whom they had no direct control. Apple introduced the “Macintosh Office” which consisted of the computer. both line and staff people. in turn.Apple Computer Inc. The Apple II line of products (as described in the previuous chapter) still was the company’s cash cow. Unlike IBM. with two powerful product divisions responsible for their own duties. In January 1985. A former Macintosh employee stated that the “Mac wasn’t perceived as an office machine or DIT | Strategic Management | Iliev. Sculley hoped that the new structure would eliminate most of the overlap without causing massive layoffs. Apple had no sales force with direct access to corporations. which had 6. a local area network called Appletalk. It now emphasised developing a comprehensive line of compatible computers that worked well with those made by other producers. a laser printer. There were also marketing problems. He wanted many people reporting to him. and a file server.

but further work force lay-offs. Before 1983. Apple was an early market leader in Europe. but managed its international operations from California. there was still a lack of useful software to make it a market for the mass. Especially in France.” 4 While Jobs believed that Apple should focus on technology. Poettler 18 . The company established a European headquarters in Paris with a staff of 45 people and built a production plant in Ireland.1 PC Market The PC market. 4 5 Fortune (1985) see Appendix: Corporate memo DIT | Strategic Management | Iliev. Lindinger. and Jobs’ resignation served to erode confidence in Sculley's abilities as CEO of Apple. defy the naysayers. Jobs decided to make a play for control of the company and planned to stage a boardroom coup. the Board took a vote and unanimously made Sculley to Apple’s new head. Sculley preferred to go along customer needs determining the product. the company expanded sales into Britain. Finally. the company’s first quarterly loss. The common credo established by Jobs and Wozniak stated to “create your own thing. as the technology leader that it is. and ignore the establishment – one person can change the world”. In the mid of 1985. the smouldering dispute between Jobs and Sculley escalated. Inevitably.5 Period 1986 – 1992 2. a legal battle against Microsoft’s Windows OS. Due to Jobs engagement in and support for the Macintosh division and their poor results compared to other departments motivation among the entire staff plummeted. Internationally.5. 5 2. but the other side of that is unharnessed and uncontrolled. The culture had incredibly powerful elements. Germany. In May 1985. initiated and encouraged by the production of IBM-PC clones. continued its global development and PCs themselves started towards being available for everyone. Apple achieved a high profile and a critical mass of buyers. Sculley declared another reorganisation which consolidated the three product divisions into one called “Product Operations”.Apple Computer Inc. At the beginning of 1985. that led to clashes among “creators” and the new management. Although Microsoft issued its first Windows OS and thereby marked a revolutionary point in PC history. and France.

He also knew that the majority of the company would resent the big-company systems he was putting in place. Product and marketing strategy were also adjusted.000 to 1 and still be a tie. It didn't. By 1990 the market was saturated with PC clones of every conceivable configuration. Lindinger.0 was launched. reversed. Apple’s marketing strategy focused more aggressively on the corporate market to win space in the office at the expense of IBM. These companies were hesitant. By 1987. The day Windows 3. In pursuing the business segment. 2. and the Mac would be riding high for the next decade. And most important. His consensus-style for getting things done and achieving decisions made the company more and more inflexible and slow-moving 6 . but Sculley paid the price. Therefore Apple was in trouble and decided to give up their restrictive protection of corporate know-how. he understood that he had to keep engineers and programmers on board if Apple was to stay ahead of the technology curve. 6 Joke that circulated at Apple: “A vote can be 15. Product lines were filled out with equipment the consumer desired. which were an instant success. Sculley wasn’t popular at all among the Apple staff. Apple also transformed its hiring policy. In late 1991. it seemed that Windows 3.5. Programs designed for Apple would sell far fewer copies than those created for IBM compatible machines. Poettler 19 . The idea was that corporate managers would rather be more responsive to salespeople who were similar to them as to hackers. Apple released its first generation of PowerBooks. It was becoming clear that Apple could not provide both the hardware and the software to drive an industry.Apple Computer Inc. however. A decisive leadership might have helped Apple to fend off what has ultimately proved to be its nemesis: Windows. Apple's executive staff dismissed the OS’s chances to challenge MacOS with complete arrogance. In 1989. Key decisions have been postponed. the Mac II was a solid hit. and Apple was the only company selling Macs. Efforts were made to provide third-party hardware and software companies with access to the Mac. They licensed the MacOS although opinions stated that “it was too late to license” (Michael Spindler.0 would be a flop. to invest time and money to develop software for the Mac since the installed hardware base was such a small percentage of the market.2 Apple After having ousted Jobs and sacked lots of employees.'' DIT | Strategic Management | Iliev. making it too costly to develop Macintosh software. or avoided completely as various executives and factions tried to push their own agendas. The solution was not to touch the culture. Apple’s COO and later CEO).

the organisational structure was altered. Business market expansion resulted in a 30% increase in Apple’s sales in 1987.7 Two new computers for the business market were introduced: the Macintosh SE and the Macintosh II. Apple’s European revenues grew by 55%. By trying to reduce their dependence on the US consumer and consequently covering up declining US sales. Nearly half of Apple’s sales and most of its profits came from selling PC’s and related products to big corporations. act local DIT | Strategic Management | Iliev. The European market for PCs was expanding faster than the US market. faster than revenue growth for the entire company. The CEO doubled the size of Apple’s field force and the number of employees grew to 10. This was done by adapting their overall network model to each country’s individual circumstances and local markets 8 . Poettler 20 . Once more. Apple made efforts to mainly penetrate the European corporate business market. International growth became a priority at Apple. for instance by raising the proportion of European-made components used in Apple’s Irish production plant. Lindinger.Apple Computer Inc. These products attracted larger software houses that developed sophisticated applications for large business users. Thus. Apple gained 6% of the overall European market.837 making Apple more and more unmanageable. 7 8 Problem of managerial inefficiency if a company becomes too big to achieve economies of scale Stay global. the control of the European activities was switched to Europe. Each division was now headed by a president who reported directly to Sculley.

In January 1996.1 PC Market Microsoft seemed to start dominating the entire market by introducing Windows 95 and by consequently creating network and log-on effects for its OS and Office packages. and Hewlett-Packard. Essentially Spindler was the wrong man for the job as he was a fairly impersonal man who oversaw several accomplishments during his two and a half years term as CEO. Misjudging the market. Lindinger. Despite making a strong effort to bring Apple back to profitability. Poettler 21 . the former president of National Semiconductor. 2. Sculley was relieved of his position as CEO and Michael Spindler put in the big chair. Spindler was asked to resign as CEO and was replaced by Gil Amelio. Apple pushed low-cost PCs over mid-range PowerMacs and failed to make a profit at all. Apple posted a $68 million loss for one quarter. 2.6 Period 1993 – 1997 2. Another fact was that the most talented executives left the company.6. In late 1996. Apple took its worst plunge ever in the winter of 1995/96. IBM. The project that could have restored Apple’s position and given an ambitious answer to Microsoft’s Windows 95 onslaught which seriously eroded the Mac's justified technology leadership – a new Mac operating system called Copland – has fallen two years behind schedule. the first Macs to be based on the PowerPC chip and secretly began talks to sell the company with Sun Microsystems. Apple announced the PowerMac family. In 1994. Amelio’s efforts proved to be largely unsuccessful.Apple Computer Inc. Apple DIT | Strategic Management | Iliev.6.2 Apple In June 1993. There have been massive management upheavals that caused Apple to fumble critical decisions and “zigzag” between strategies and that brought the company to a juncture. but Mike Markkula who was still in business never removed Spindler by always pledging him support. Apple's technology edge eroded dangerously mainly due to his mismanagement.

PowerMac G3 Computer) such as the iMac were published with a focus on innovative design. In addition. 2. but had to face several lawsuits against this “predatory” situation as critics argue. He took over the position of an "iCEO or interim CEO". above all in OS. more importantly. instead taking customers away from Apple in the high end market. and announced an alliance with Microsoft.Apple Computer Inc. Apple reached profitability for the first time within one year.7 Period 1998 – 2000 2.7. Lindinger. interesting and powerful ones. In exchange for $150 million in Apple stock. Poettler 22 . Microsoft preserved its “near-monopoly” position in software.1 PC Market Tight competition through low barriers to entry. Microsoft and Apple would have a 5-year patent cross-license 10 and. as clone production from companies such as Power Computing or UMAX had failed to effectively expand the MacOS market. began to make striking changes in the structure of Apple. made an industry-shocking announcement that it would be acquiring NeXT9 and that Steven Jobs would be returning. tough-sale as well as cost reduction strategies applied by companies such as Dell and the first internet hype resulting in thousands of dotcoms made the PC industry to one of the most efficient. the basis of Apple’s planned OS Rhapsody including a Mircosoft Office version for the Mac Apple OS and intellectual property that Mircosoft allegedly stole for its Windows software DIT | Strategic Management | Iliev. one of Apple’s greatest rivals. Other changes in the corporate strategy comprised direct-computer selling via the web and new products (Apple Online -Store. “One computer per person” didn’t appear to be utopian anymore. Finally. a final settlement in the ongoing MacGUI11 battle. 9 10 11 Merger brought about acquisition of NeXTstep. Jobs ended this licensing.

Steve Jobs announced that the free iTools service would be rolled into a new subscription-based "dotMac" service.2 Apple Soaring profits pushed Apple’s stock. The iMac was one of the best-selling computers in the US and drove Apple sales well beyond most predictions. a small hard-drive -based digital music player. 2. iMovie that contained tremendous value to digital cameras. DIT | Strategic Management | Iliev.8 Period 2001 – now 2.8.2 Apple The 21st century started for Apple with Jobs’ plan to open a number of retail stores across America. The second half of 2000 was different from the trend of previous years. which allowed users to encode and listen to MP3 songs and then burn them to CDs. 2. Jobs – now also formally named CEO – formulated Apple’s internet strategy as “a suite of Mac-only internet-based applications called iTools”. Slower sales in the industry combined with a misunderstanding of the consumer market (failure of G4 Cube – a Mac PC offered without a monitor) and the assembly of DVD drives instead of user preferred CD-RW ones for burning their own CDs unveiled in poor results. selling not only Apple hardware. but various third-party "digital lifestyle" products.8.7. and the iPod. Poettler 23 . an open-source OS. The "Apple Product Matrix" was complemented by a consumer portable. This innovative product line was a consistent part of Apple’s new “digital hub” strategy to secure and guarantee Apple steadily high profits as well as to gain share of the promising digital music and video market. Lindinger.Apple Computer Inc. iTunes. file sharing through Peer-to-Peer) characterise the market. Linux. 2. accompanied Apple in contesting Microsoft-Windows’ hegemony.1 PC Market Seeking more storage capacity as well as higher speed concerning CPUs and a tendency to look for arising business potential (online music and video market. a DVD-authoring program. The “i” product group was added up by implementing iDVD. In July 2002. the stylish iBook.

Poettler 24 . Lindinger.Apple Computer Inc. Although Apple’s history is one of ups and downs. 12 Apple’s financial year ends on the last Saturday of September DIT | Strategic Management | Iliev. currently a stable profit has been maintained with the latest $63 million profit in the first quarter of 2004 12.

4%) (>65%) (3. allows the customer without monthly fees to download and pay for songs individually DIT | Strategic Management | Iliev. (2004) Apple Computer Inc.g.04 16 Apple Computer Inc.01.reuters.5 billion14 and has a ROIC of 3. (2003a) 15 http://yahoo. Market segment Education Creative Consumer Business Market share (12.com. The market shares in these sectors are to some extent more significant.05% 15. 13 14 Apple Computer Inc.599 employees worldwide it generated a revenue of $63 million in the last quarter. In the overall PC industry Apple’s market share has diminished to a skinny 2.5%) (<5%) In the peripherals sector (besides the iSight digital video camera and displays). With its currently 13.1%. Apple’s operations are spread around the PC industry.1 Current performance Today Apple’s operations are as diversified as the y were never before. (2003a) 17 Baltimore Sun (2003) 18 Pay per download system vs. 29. Lindinger. 3 Current situation 3.investor. subscription services. which is the current leader in the online downloadable music market. iLife.18 A number of cutting edge software applications (e. Apple’s music online store and jukebox. 16 Apple itself doesn’t look itself at the overall PC market. as it has defined 4 specific markets on which it currently focuses on.13 It holds cash reserves of over $4.Apple Computer Inc. Apple has been particularly successful through its innovative iPod (digital MP3 music player) as the market share in terms of revenues was 54% and in terms of units was 29%. Final Cut Pro) and its operating system Mac OS X also contribute to the firms overall success. This success is closely tied up to the launch of iTunes. computer peripherals and the software and service industry. iTunes accounts for 20% 17 of the pay per download music market. without one being specifically important. Poettler 25 .

3. Apple keeps its design and innovation focused line by equally adapting performance and price positions to changes in the external environment. 14. educators.04 DIT | Strategic Management | Iliev. The following analysis of internal and external environment will allow the reader to gain a detailed picture of Apple itself. Lindinger. Apple is the only company providing a bundle of solutions which are perfectly adjusted and fine tuned to complement each other to. all three sectors Apple is currently operating in will get closer and closer together and showing a high interdependence. where seamless integration of all components is vital to win customers. By designing such high end products Apple is corresponding to external and internal environment.Apple Computer Inc. weaknesses. that is what Steve Jobs (CEO) identified as objective for Apple’s strategy in the future. Poettler 26 .02. its industry and the strengths. which in the high technology sector are changing more rapidly than anywhere else. Herewith. 19 http://phx. opportunities and threats associated with them.2 Mission and current strategy Apple’s mission statement emphasises that the company made major innovations in the personal computer industry in the past and links this strength to its present strategy: “Apple ignited the personal computer revolution in the 1970s with the Apple II and reinvented the personal computer in the 1980s with the Macintosh. software and Internet offerings.corporate-ir. Apple is committed to bringing the best personal computing experience to students.zhtml?c=107357&p=irol-faq#corpinfo2. unattainable degree. creative professionals and consumers around the world through its innovative hardware. Throughout its diversification efforts. for other companies.net/phoenix.” 19 The digital hub.

1. it contains a portfolio of further software solutions and peripherals. direct sales force. and Asia Pacific23. In short. Poettler 27 . manufactures and markets personal computers. creative. computers should now be designed to simplify the user’s (digital) life 20 by combining computing with consumer electronics 21 and by pursuing this strategy Apple is uniquely positioned in the PC industry. It sells its products through its online store.1 General information 4. and the iPod digital music player. In addition. the Mac OS operating system.marketwatch. students. 20 21 22 Quittner J. and personal computing and communicating solutions.asp?sid=609&symb=AAPL&siteid=mktw. and anyone else who like to think that they are different. third-party wholesalers and resellers. 4 Internal environment 4. 24 4.1. Europe. and its own retail stores. and various third-party hardware products for education. related software. it becomes clear that those are computer users who don’t see themselves as part of the mainstream: graphic designers.Apple Computer Inc. 22 The company currently has 10.04 24 The Economist (1998a) 25 Apple Computer Inc. and as a consequence interconnecting with as well as adding value to the internet and other devices becomes a PC’s main purpose. Apple is convinced that personal computing has entered a new era in which the personal computer functions as the digital hub for advanced new digital devices and other electronic devices. and business customers. consumer.2 Products25 Apple’s product range includes first and for most the Macintosh line of desktop and notebook computers. networking and connectivity products. Therefore. and Winters R.02. Lindinger. it is the only company in the personal computer industry that designs and manufactures the entire personal computer – from the hardware and operating system to sophisticated applications.912 fixed employees and its foreign operations include the Americas. In identifying Apple’s main customer groups. Japan. (2003) 23 http://cbs. peripherals.com/tools/quotes/profile. (2002) Ganesan S. 19.1 General description Apple designs. (2003) DIT | Strategic Management | Iliev. (2003) Apple Computer Inc.

aimed at the education market. High-end notebook. Unexpected and ongoing success. etc. music. Wireless connectivity products. Lindinger. This table should highlight the most important elements of Apple’s product portfolio:26 Product iBook notebook iMac PC PowerBook notebook PowerMac PC iPod music player hardware accessories Mac OS X Quicktime and other sub process software application software internet integration software Comment Robust and successful notebook. unique product in combination with iTunes online music store. (2001) DIT | Strategic Management | Iliev. Poettler 28 . Programs for digital editing of video. etc. Widely used media player.Apple Computer Inc. Superior and operating system with modular architecture. Personal computer targeting graphics and layout professionals. graphics. successful by consolidating and gaining exclusive rights for popular movie trailers in the internet. Several unique web services. Digital music player. probably the best-designed notebook available. monitors. The following paragraphs provide a deeper insight into the different parts of Apple’s product portfolio: 26 Sudbury A.

These include the iPod digital music player which is a portable music player whose functionality extends well beyond playing music and can be seen as a seamless end-to-end music solution in combination with the iTunes software and music store that enables customers to purchase songs over the internet. active matrix LCD flat panel displays. from acquired firm Emagic). printing. education. Concerning consumer. The PowerMac is a high-performance desktop PC which is targeted at businesses and professional users and their demanding speed. Poettler 29 . Apple offers products for video editing (Final Cut Pro). Max OS X which has been continuously upgraded during the last years offers advanced functionality built on an open-source UNIX -based foundation.Apple Computer Inc. The Max OS X server software and several related solutions deliver stable high-performance services for Interne t and web serving. computer based music production (Logic. The PowerBook is a portable computer that should satisfy the high-performance mobile computing needs of professionals and advanced consumer users. Software products and computer technologies The company’s software portfolio includes its operating system Mac OS X. professional application software. the iSight digital video camera (combined with the iChat software) enables high-quality audio. and business oriented application DIT | Strategic Management | Iliev. expansion and networking needs. In fact. the Xserve server solution is designed for simple setup and remote management of intensive input/output applications.and videoconferences and Apple several all-digital. filing. and DVD authoring (DVD Studio Pro). server software. In the field of professional application software. education. Peripheral products Apple’s product portfolio includes a range of associated Apple-branded computer hardware peripherals. compositing and visual effects (Shake). Lindinger. and networking services. Moreover. Hardware Apple offers a wide range of personal computing products including desktop and notebook PCs. Furthermore. The iMac and eMac desktop computers with their innovative industrial design are targeted to education and consumer markets whereas the iBook mobile computer should satisfy the mobile computing needs of these customers. and consumer. and business oriented application software.

online support or technical assistance. software. Wireless connectivity and networking This part of Apple’s product range includes its Wi-Fi wireless networking technology (AirPort Extreme. Apple also has special loan programs and leasing solutions for its customers. Keynote (presentations). Therefore. or AppleWorks (word processing. Apple offers several other applications such as iChat (audio/videoconferences). the iTunes music store for online music-purchases is fully integrated into the iTunes music management software and the company offers an own web browser (Safari). Product support and services AppleCare offers a range of support options for Apple customers such as general software assistance. digital video editing (iMovie).). Bluetooth).Apple Computer Inc. thousands of third-party software titles and solutions are available for the Macintosh platform. but also specialised education software such as the iBook Wireless Mobile Lab to share resources DIT | Strategic Management | Iliev. manuals. multimedia software (Quicktime). faculty. AppleTraining provides comprehensive system administration and development training whereas Apple Professional Services offers a range of personalized technical services. etc. DVD authoring (iDVD). its networking technology (Rendevous) and a standard high-speed serial I/O technology (FireWire) developed by Apple. integration. Lindinger. Internet software. and services Apple's Internet strategy is focused on delivering seamless integration with and access to the Internet throughout the product line. Apple has introduced an integrated suite of digital lifestyle applications called iLife which includes software for music management (iTunes). Finally. Poettler 30 . Specialised education products and services Apple not only offers a separate online -store with special prices and financing programs for higher education students.Mac). and digital photo organisation (iPhoto). In addition. and stuff. and internet services/tools suite (. Moreover. spreadsheets.

and educational skills.3 Competencies Apple is famous for possessing distinctive competencies in product design/innovation. desktop publishing. between classrooms or the PowerSchool software for efficient and cost-effective school administration. digital entertainment. 28 Quite interestingly. Lindinger. The company acted as the computer industry’s leader in the development of graphical user interfaces. the incompatibility of its products with the Wintel (Microsoft Windows operating system and Intel processor) standard makes it difficult for Apple to penetrate the computer industry as a whole and especially the traditional business sector 29. Poettler 31 . Apple has traditionally been strong in the fields of education. interconnected multimedia solution. and digital art/entertainment where its strengths interact with the desired attributes of its customers. mouse input. innovation. (2001) Sudbury A. and technological obsession/development to differentiate itself and gain a competitive advantage over other players in the industry which only offer single products with lower value due to lower connectivity possibilities. Apple is likely to remain a marginal player in terms of overall market share in the personal computer industry and will probably find it more difficult to maintain a critical size for being profitable and successful. and several other areas. By fostering this development. As several other factors such as high hardware costs or uncertainty in (future) software compatibility aggravate this situation. Moreover.1. and is now leading the industry into a new era where the PC and its related software/hardware should be regarded as the hub of a digital lifestyle 27 and an entire. Apple’s main weakness also stems from the fact that it produces the entire line of computers and related products: in fact. networking. 27 28 29 Daily News (2003) Sudbury A.Apple Computer Inc. 4. (2001) DIT | Strategic Management | Iliev. Apple can use its strengths in the fields of creativity.

02. 386 35 BusinessWeek (2004e) DIT | Strategic Management | Iliev.com. CEO Director Director Director 51 53 65 2004 2000 1997 Age 63 59 56 48 Director since 1997 1999 2003 1997 Professional background Chairman Intuit Inc. (2003) 34 Hill C. CEO). In addition.04 http://www. a year that competitor Dell managed to weather far better.02. Levinson Jerome B. Although Steve Jobs isn’t chairman of the Board.1 Board of Directors General information and Directors30 The Board of Directors consists of seven members and has three committees (Audit & Finance. Nevertheless. which accounted for 2. (2004). (2003) http://news. In addition.Apple Computer Inc. CEO J. Lawrence Arthur D. In fact. In fact. W.2. Lindinger. R.com/2100-1042-993332. Chairman and CEO Genentech Inc. the Board members certainly never criticised Jobs for Apple's lousy performance in 2002. Poettler 32 .04 33 Apple Computer Inc. five out of seven Apple Directors are independent under SEC and NASDAQ rules 32 as only Steve Jobs (CEO) and Jerome York (member of an investment group that purchased IT-reseller MicroWarehouse Inc.html. Chairman and CEO Pixar Executive Vice President and CFO General Mills Inc. 30 31 32 35 As a Apple Computer Inc. the Board’s propensity to give him huge stock-option awards regardless of his performance as well as the relatively low level of scrutiny and constructive criticism has rankled many investors. 31 Name William V. Compensation) which will be discussed in the governance mechanisms section in detail. Steve Jobs James A. Nominating & Corporate Governance. it can be criticised that the Board is dominated by the company CEO. 4. Crew Former Vice President of the United States CEO and Co-founder Apple Computer.2 Corporate governance 4. Drexler Albert Gore Jr. 19. President and CEO Micro Warehouse Inc. Apple’s Board is fairly unique as it has no chairman.com/pr/library/2003/mar/20governance.html.4% of Apple’s net sales in 2003 33 ) can be regarded as dependent Directors. Campbell Millard S. p. York Position Director Director Director Director. and Jones G. 14. the Board seems to lack an optimally balanced mix of inside and outside Directors 34 as there’s only one inside Director (Steve Jobs.apple. Chairman.

For instance. no options were granted to or exercised by the executive officers in 2003. and contacts to the company.com/pr/bios/gore.zhtml?c=107357&p=irol-govCommitteeComp.html.02.02. Compensation The form and amount of Director compensation is determined by the Board after a review of recommendations made by the Nominating committee. 19. knowledge. 19.zhtml?c=107357&p=irol-govCommitteeComp.38 Indeed. In short.04 http://phx. The Directors should take a proactive.02. 36 37 38 Apple Computer Inc.corporate-ir. Lindinger. Moreover there’s a Director Stock Option Plan which enables Apple’s nonemployee Directors to acquire shares in Apple and they also receive a $50. Directors do not receive any additional consideration for serving on committees or as committee chairperson. the outside Directors apparently don’t bring enough objectivity to the monitoring and evaluation process which should actually be their key objective. and bring these skills to bear for the company. effective decision-making. international experience. and set standards to ensure that the company is committed to business success through maintenance of the highest standards of responsibility and ethics.36 Tasks and skills/experience The tasks of the Board of Directors are to oversee the CEO and other senior executives in the competent and ethical operation of the company on a day-to-day basis and to assure that the long -term interests of the shareholders are being served. 386 http://phx. Apple’s Directors don’t only contribute an excellent professional background but also a wide range of skills.corporate-ir.net/phoenix. Poettler 33 . p. consequence of the criticism.04 39 http://www. and appropriate monitoring of both compliance and performance. 37 Directors bring to Apple a wide range of experience. knowledge and judgement. focused approach to their position. These varied skills mean that good governance depends on principled actions. 19. James Lawrence (Executive Vice President and CFO of General Mills) was awarded the title “Top CFO” by the CFO-Magazine in 2001 or former US Vice President Al Gore is widely regarded as a key person in the building of the internet39 and possesses excellent links to the world of business and politics.apple.net/phoenix. (2003).Apple Computer Inc. The current practice of the Board is that a substantial portion of a Director's annual retainer is equitybased.000 annual retainer paid in quarterly increments.04 DIT | Strategic Management | Iliev.

Moreover.500. 4.484. Poettler 34 . Jobs possesses a business sense for the marketability of his products and therefore could streamline Apple’s product portfolio and introduce new and highly 40 41 42 Apple Computer Inc. Jobs co-founded NeXT Software and served as the Chairman and CEO of NeXT from 1985 until 1997 when NeXT was acquired by Apple 40.594 In fact. 21.511. enthusiasm. Abilities and characteristics In fact. Jobs moved back into Apple’s executive suite as CEO and Director41. he can be regarded as a visionary in the world of personal computers.534 74. commitment and entrepreneurship. although Steve Jobs only gets $1 as salary. he also co-founded Pixar Animation Studios in 1986 and still serves as Chairman and CEO of the company. Steve Jobs can be described as a charismatic leader who possesses strong technical obsession. he made good money during the last three years. Moreover. (2003) http://askmen. In 1997. and Wang Y.04 DIT | Strategic Management | Iliev.html. Steve Jobs cancelled all of his outstanding options in March 2003 and was awarded five million restricted shares. As he says that “innovation distinguishes between a leader and a follower” 42.02.795 40.2 CEO Professional background Steve Jobs co-founded Apple in 1976. it becomes clear that the development of his bonuses is totally contrary to the company’s results and especially the huge bonus in 2001 when the company had a net loss might mislead investors. (2003) Yoffie D.750.Apple Computer Inc. By taking a closer look at his compensation and linking it to the company’s performance.com/men/apr00/21c_steve_jobs.698 43.2. After he had left the company in 1985. Moreover. His huge bonus and other compensation figures result from a special executive bonus in form of an aircraft.302. Lindinger. B.268. Performance and compensation The following table shows Steve Jobs’ compensation during the last three years: Name Year Salary ($) Bonus ($) Restricted Stock Award ($) Steve Jobs 2003 2002 2001 1 1 1 --2. creative and innovative skills.000 ----Securities Underlying Options (#) --7.000 --All Other Compensation ($) --1.

Jobs was the first to find a way to compel consumers to pay for online music and Pixar Animation Studios continued a remarkable run of hits with “Finding Nemo”46. Moreover. Steve Jobs not only successfully pursues his current vision for Apple but could also implement necessary restructuring efforts in the past which led to an increase in the company’s profits and therefore in shareholders’ wealth. Jobs also proved his capabilities of being able to make harsh decisions during the restructuring of Apple when he rescinded the licences of competitors who have been cloning Macintosh computers and killed the Newton hand-held device. the top-grossing film of 2003 and the top animated hit of all time 47. When Steve Jobs came back to Apple in 1997. 43 In fact. (2003) The Economist (1998a) 45 The Economist (1999b) 46 BusinessWeek (2004d) 47 BusinessWeek (2004c) 48 The Economist (2000) 49 The Economist (1997) DIT | Strategic Management | Iliev. that anyone who meets him invariably feels converted.49 In addition. technological obsession.Apple Computer Inc. Nevertheless. and the other characteristics and abilities discussed above. Businessweek titled him one of the best managers 2003 as Jobs moved beyond computers to establish himself in two businesses where newcomers rarely emerge unscathed: music and movies. Poettler 35 . no one really doubts that Steve Jobs is the right man for Apple because he’s not only admired by the Silicon Valley elite for the foundation of the company45 but also for his glamour. critics of Steve Jobs claim that he seems strangely uninterested in the “post-PC devices” 48 and that he creates a “reality-distortion field” as his enthusiasm for a favoured technology is so great and his selling of it so sure. his absolute belief in Apple’s right 43 44 Yoffie D. B. Evaluation of skills Actually. and Wang Y. his favour for technology. and creativity as well as his entrepreneurship could/can also be seen in his jobs at NeXT and Pixar.44 In short. successful products such as the iPod. In fact. Lindinger. he immediately recruited a new Board of Directors and had to reposition Apple in the evolving personal computer industry. innovation. In addition. his user-friendly business approach doesn’t only lead to increased value for customers through user-friendly products but also puts the customer in the centre of Apple’s business and constantly praises him as the best customer in the world. Moreover.

In addition. Although this was sometimes a problem in the past. Lindinger. strategy and future success which he emphasises is many interviews might sound a bit arrogant to other people but actually can also be seen as a sign of his strong commitment and enthusiasm. Anderson Timothy D. (2003) DIT | Strategic Management | Iliev. Therefore. In fact.Apple Computer Inc. Cook Nancy R. this strategy can be regarded as quite visionary and revolutionary as it is especially aimed at the future. Worldwide Operations Executive Vice President. Hardware Engineering 50 Apple Computer Inc. Heinen Ronald B. Finance Corporate Controller Senior Vice President.2. Johnson Peter Oppenheimer Jonathan Rubinstein Age 48 59 43 47 45 41 47 Since 1997 1996 1998 1997 2000 1996 1997 Position Chief Executive Officer Executive Vice President and Chief Financial Officer Executive Vice President. Retail Senior Vice President. it has to be stated that Apple’s future success and the future performance of Steve Jobs will not only depend on this ambitious strategy but also on various other factors especially concerning the business execution and commercialisation of his ideas. Worldwide Sales Senior Vice President and General Counsel Senior Vice President. Strategic issues and future challenges Steve Jobs can be seen as the fathe r of Apple’s current “digital hub” strategy which should transform the personal computer into a multimedia and entertainment hub that connects many devices. 4. the success of the iPod for example shows that Steve Jobs and Apple are probably on the right way.3 Top Management Executive management team50 Name Steve Jobs Fred D. it can be concluded that Steve Jobs apparently has developed a coherent strategy to deal with future challenges and is convinced that his approach will lead the personal computer once again into a new era and therefore guarantee Apple’s future success. Poettler 36 . Nevertheless. it will be important for the company to continuously focus on its strengths in the field of innovation and therefore Steve Jobs is definitely the right man to manage this challenge due to his unlimited commitment and enthusiasm for technological inventions.

(2003) DIT | Strategic Management | Iliev. Lindinger. most executive managers were externally hired (Jobs. In addition. Moreover.html.com/pr/library/2004/feb/05anderson. Philip W. Apple’s top management possesses a strong professional background as all executive managers held positions that were related to their current positions in the 51 52 http://www. 2004 and Peter Oppenheimer will succeed him as Chief Financial Officer 51.Apple Computer Inc. Cook Professional background Chairman and CEO of Pixar Animation Studios Chairman and CEO of NeXT Director of eBay and E. Schiller Bertrand Serlet Sina Tamaddon Avadis Tevanian Vice President. Software Engineering Senior Vice President. Serlet. Poettler 37 . Professional background and experience52 Name Steve Jobs Fred D. Schiller Bertrand Serlet Sina Tamaddon Avadis Tevanian 43 42 46 42 1997 1997 1997 1997 Senior Vice President. Chief Operating Officer of FirePower Systems Vice President. Professional Services of NeXT Vice President.piphany Corporate Vice President and CFO of Automatic Data Processing Vice President. Product Marketing of Macromedia Director of Product Marketing of FirePower Systems Director of Web Engineering of NeXT Research engineer of Xerox PARC Vice President. Johnson Peter Oppenheimer Jonathan Rubinstein Philip W. Fred Anderson will retire as CFO on June 1. Heinen Ronald B. Anderson Timothy D. Tamaddon. Applications Chief Software Technology Officer It should be stated that most executive managers joined Apple in 1997 – the year in which Steve Jobs came back to the company. 14.04 Apple Computer Inc. and Tevenian as part of the acquisition of NeXT) and only a few held other positions within the company before. Worldwide Product Marketing Senior Vice President. General Counsel and Secretary of the Board of NeXT Senior Merchandising Executive of Target Stores CFO of Automatic Data Processing Information Technology Consulting Practice of Coopers and Lybrand Director of Immersion Corporation Executive Vice President. Engineering of NeXT Engineering and management positions of NeXT In fact.02.apple. Europe of NeXT Vice President. Corporate Materials of Compaq Chief Operating Officer of Intelligent Electronics Director of North American Fulfillment of IBM Nancy R.

Cook’s salary moved according to this pattern.962 10. there were no options granted to the named executive officers in 2003.829 452.219 452. DIT | Strategic Management | Iliev.631 657.000.312 9.000 All Other Compensation ($) 11. Performance and compensation In fact. In addition.Apple Computer Inc.673 563.000.700 10.875 ------11.500000 --------500 ------------------------Securities Underlying Options (#) ----1. Poettler 38 . the company’s management contributes to its success by providing the required skills.731 492.404 452. experience. Johnson 2003 2002 2001 Avadis Tevanian 2003 2002 2001 656.929 8.404 452. So. Cook 2003 2002 2001 Ronald B.000 ----1. The following table summarises their compensation: Name Year Salary ($) Bonus ($) Restricted Stock Award ($) Fred D.873 ----------500.000 --300.000 ----1. and knowledge as well as the necessary industry background. Moreover.200 It can be seen that there are some salary differences of Apple’s best compensated chief executives and that CFO Fred Anderson earns the highest salary in the company. By linking Apple’s compensation scheme to the performance of the company there isn’t any observable direct link because Apple had a net loss of $25 million in 2001.039 617. past. in terms of salary Timothy D. followed by a net income of $65 million in 2002 and $69 million in 2003 whereas only Timothy D.000 7.212 460.000. Cook was the only one who was granted a significant increase of his salary during the last three years whereas there had been only modest changes in the other executives’ salaries.000 1.631 656. compensation information is only available for the last three years for the four most highly compensated executive officers (other than the CEO).450 11.429 456. Anderson 2003 2002 2001 Timothy D. the company didn’t give many bonuses but made some smaller contributions in accordance with the 401(k) plan that are listed as “other compensation”.000 300. Moreover.025 7. Lindinger.

as Apple doesn’t give any information concerning future strategies.00% 53 Apple Computer Inc. Strategic issues and future challenges Although Apple’s core strategy is always associated with Steve Jobs and his visions for the company.000 --1. (2003) DIT | Strategic Management | Iliev.252 110. York Others All Executives and Directors (16 people) Shares Stock 5.22% 0.373 of Common Percent of Common Stock Outstanding 1.204. it can be followed that the internal communication and discussion among the company’s top management is not only fruitful but also characterised by the loyalty to the company’s norms and rules. In addition.601.672 90.33% 0. 2003:53 Name Steven P. Jobs Fred D.600 1. Moreover. Poettler 39 .002 1.38% 0. Apple’s other senior executives show that they are sufficiently skilled to contribute to the future success of the company due to their strong professional background and the sharing of the company’s common values (as many of them came from other innovative and upright companies).44% 0.19% 4.4 Stockholdings of Board of Directors and Senior executives The following table indicates security ownership of Directors and executive officers as of October 31. Anderson William V. 677 14.00% 0. several statements and their overall public behaviour show that they have also adopted the company’s norms and conduct their jobs in the ethical manner which is demanded through the company’s code of business ethics.02% 0.2. Cook Millard S.06% 0.060. So.02% 0. Levinson Avadis Tevanian Jr.000 4. Jerome B. products. Campbell Timothy D. Lindinger.370. 4.502 804.03% 1.334 90. and plans to the public. it is obvious that Apple’s top management is highly involved in the internal strategic management process and contributes to the future choice of strategies and success of the company. Drexler Albert Gore Jr.334 231. Johnson Arthur D.715.31% 0.152.Apple Computer Inc. Ronald B.

388 Apple Computer Inc. as a client of 54 55 56 Hill C.Apple Computer Inc. (2004).net/phoenix.5 Governance mechanisms Generally. R. Moreover. Lindinger.2. 390 57 http://phx.corporate-ir. Apple has used stock options as a form of executive compensation in the past but due to some criticism no options were granted to or exercised by the executive officers in 2003 and the company has entered into an Option Cancellation and Restricted Stock Award Agreement with CEO Steve Jobs in 2003 (which cancelled stock option awards granted in 2000/2001 and gave Jobs a restricted stock award). (2003) Hill C. this section will now take a closer look at several other governance mechanisms as well as at Apple’s general governance guidelines and the three committees that should support those.zhtml?c=107357&p=irol-faq#corpinfo1. 54 In fact. 56 Apple’s independent auditor is KPMG 57 which generally offers a complementary range of multi-disciplinary skills including Assurance. 55 Financial statements and auditors Like every publicly traded company in the US.04 DIT | Strategic Management | Iliev. 4. R. are aimed at aligning management and stockholder interests by providing an incentive for executives to implement strategies that increase the future value of the company and its shares and therefore increase the value of their own shareholdings as well as the wealth of the company’s shareholders in general. as critics of these compensation systems suggest that companies should at least treat options as an expense that must be charged against profits. and Jones G. Poettler 40 . (2004). Moreover. W. Apple has to file quarterly and annual reports with the SEC that are prepared according to GAAP and that are audited by an independent and accredited accounting firm.02. p. W. p. and Jones G. As the Board of Directors has already been described earlier in this chapter. such as stock options. Tax and Legal services to clients. Apple includes the pro forma effects when accounting for stock compensation in its annual SEC-filings. 14. the governance mechanisms are aimed at aligning incentives between principals and agents and to monitor and control agents in order to reduce the possibility of agency problems. FAS. Stock-based compensation Stock-based compensation schemes.

Lindinger. the Board of Directors has to oversee the CEO and top management in their operation of the corporation and to ensure that these act in the long-term interests of the shareholders which should reduce the agency problem. p. there should be at least a majority of independent Directors on the Board (which is actually the case at the moment) and 58 59 60 http://www. employee stock purchase plans. Poettler 41 . 395 61 Apple Computer Inc.kpmg. quality. and an employee savings plan. R. and technological fascination that allows them to experiment. Moreover. In addition. innovation.com/about/. and bonuses or other financial rewards that are linked to the achievement of goals related to the four building blocks of competitive advantage (superior efficiency. KPMG. no conflict of interest that could stem from an auditor performing auditing and consulting businesses simultaneously exists at Apple.04 Apple Computer Inc. In spite of these financial incentives. stock option grants. the Board is able to objectively guarantee the quality and accuracy of the auditor’s work due to the Board’s independence and the dominance of outside members on the Board. Possible incentives are employee stock ownership plans. to be creative and to turn their technological ideas into reality. W. Apple has established several employee benefits such as employee stock option grants. a detailed look at the company’s annual 10-K filings with the SEC highlights that Apple obviously can guarantee the accuracy of the information contained in the audited financial statements. In fact. (2004). (2003) Hill C.02. innovation. 19. Apple can leverage KPMG's in-depth knowledge in various areas 58 but has also adopted an auditor independence policy that bans KPMG from performing nonfinancial consulting services59. Corporate governance guidelines61 According to Apple’s corporate governance guidelines.60 In order to take advantage of these positive effects. positive incentive systems are an effective way of motivating employees to work towards goals that are important for maximizing company performance and especially long-run ROIC. and Jones G. (2003d) DIT | Strategic Management | Iliev. Employee incentives In fact. and responsiveness to customers). Apple also creates an incentive for employees to stay with the company by providing an atmosphere of creativity. As a result.Apple Computer Inc.

Finally. it is not the duty of the committee to 62 Apple Computer Inc. the Directors are elected annually by shareholders to serve a one-year term and there are no term limits. the Board expects its Directors. Moreover. and constant management development. it is possible for the Board to elect Directors between annual shareholder meetings (as it was the case with James Lawrence at the beginning of 2004) and the Board should consist of five to nine members. Lindinger. Concerning ethics and possible conflicts of interest. the Board of Directors should effectively pursue its activities in the three committees which are described in more detail below. Apple’s corporate governance guidelines contain detailed information about further responsibilities/rights and the compensation of the Directors and emphasize the independence and rules of the Board committees. Poettler 42 . Moreover. as well as officers and employees. succession planning for senior management and the CEO is an important responsibility of the Board to contribute to Apple’s successful future performance and stability. Moreover. the Board has to monitor the mix of skills and experience of its Directors in order to assure that the Board has the necessary tools to perform its oversight function effectively. Additionally. Finally. Besides.Apple Computer Inc. evaluating the company's accounting policies and its system of internal controls and reviewing significant financial transactions. effective leadership. a selfevaluation (at least once a year) of the Board should ensure its quality and the Board should evaluate the performance of the corporation’s executive officers in order to guarantee adequate compensation. (2003b) DIT | Strategic Management | Iliev. to act ethically and to acknowledge their adherence to the corporation’s code of conduct. In addition. the Board should consider shareholder proposals with respect to Director nominations and devote enough time and attention to its tasks. Whereas the committee performs an important internal and external control function. Audit and finance committee62 The Audit and finance committee is primarily responsible for overseeing the services performed by the company's independent auditors and internal audit department. it is the responsibility of Apple’s management to provide new Directors with sufficient educational opportunities and information about the company and the responsibility of Directors to inform the Board about changes in their job responsibilities.

it is a vital element in enhancing the governance mechanism of financial statements and auditors. prepare financial statements. 4. and for administering the company's stock option plans. monitors the process to assess Board effectiveness and helps develop and implement the company's corporate governance guidelines. As a result. it should establish and modify compensation and incentive plans and programs and therefore supports the governance mechanism which deals with stock-based compensation. (2003c) Apple Computer Inc. and customers in conforming with legal/ethical boundaries and complying with applicable laws. this committee doesn’t only have an important function in determining Apple’s direction in terms of corporate governance but also in guaranteeing the quality and independence of the Board of Directors which serves as an important governance mechanism. determines the composition of the Board and its committees. Poettler 43 .Apple Computer Inc. (2003g) Apple Computer Inc. In addition. (2003e) DIT | Strategic Management | Iliev.6 Business ethics65 Fundamental principles Apple’s core fundamental principle is to “use good judgement” and the company is especially aware of its responsibility to shareholders. 63 64 65 Apple Computer Inc. the corporation’s employees should be aware of job and ethical responsibility. Compensation committee63 The Compensation committee is primarily responsible for reviewing the compensation arrangements for the company's executive officers.2. Nominating and corporate governance committee64 The Nominating committee assists the Board in identifying qualified individuals to become Directors. So. In addition. as the committee has to ensure the quality of its independent auditors. Lindinger. communities. to perform audits or to determine that the corporation's financial statements and disclosures are complete and accurate as these are the responsibilities of management and the independent auditors. including the CEO.

highest standards of corporate citizenship (rules and laws). respect of confidentiality of (internal) information. avoidance of conflicts of interest. In fact. proprietary. Apple’s business standards include highest standards of business conduct. and by specifying records or documents that must not be destroyed. the company aims at satisfying the costumer first by putting him first and it expects its employees to strive for the highest quality possible. business partners. honesty and ethical awareness. by forbidding false or misleading entries as well as undisclosed/unrecorded funds. altered or modified. Apple has specific policies for the communication to the press and financial analysts and only allows limited personal use of Apple-owned equipment. Additionally. a key ethical responsibility for the corporation is to ensure the quality of its records by acting in accordance with established procedures. In order to prevent conflicts of interest. and other parties to comply with these standards and policies. payments or receipts. In addition. and supports trade practises that foster competition. Apple complies with all license or purchase terms as well as with copyright agreements and expects the same from its employees and contractors. Finally. policies. Poettler 44 . culturally diverse. Moreover. laws. Apple has defined several responsibilities to the public in which it prohibits insider trading. as the company’s success depends on its technologically innovative products. DIT | Strategic Management | Iliev. and trade secret information. Concerning Apple’s responsibility to other stakeholders. and supportive work environment and therefore doesn’t tolerate any kind of discrimination. Moreover.Apple Computer Inc. and regulations. Lindinger. harassment or other threats. and the provision of benefits to communities through the company’s presence. Responsibilities Apple recognises its responsibility to the company itself to encourage a creative. the company has identified several possible sources of such conflicts and recommended avoidance strategies. rules. Apple has implemented strict information protection policies in order to preserve the confidentiality of its confidential. Apple expects its employees. avoids political contributions. aims at meeting export and government requirements.

Although Apple has developed a consistent and exemplary code of business ethics. W. or legal action. From a strategic viewpoint. or referral to law enforcement authorities) if this occurs. 66 67 Hill C. p. Apple’s code of business ethics aims at establishing ethical behaviour which should lead to ethical decisions by its management and employees – decisions that reasonable or typical stakeholders would find acceptable because it aids stakeholders. W. Compliance. As violations of these laws may result in civil and criminal penalties for Apple and its employees. R. and the general public. and strategic implications In fact. the organisation or society 66 .Apple Computer Inc. it has to be concluded that Apple definitely can be regarded as a role model in terms of emphasising the importance of business ethics and due to its coherent culture will probably be able to successfully implement an ethical climate in its whole organisation. 395 Hill C. 296 DIT | Strategic Management | Iliev. Apple strongly aims at establishing a culture that emphasises the importance of ethics. and Jones G. (2004). In addition. customers. p. Apple expects its employees to comply with its code of ethics and to be sensitive to possible violations. (2004). Nevertheless. In fact. the corporation will take appropriate action (termination of employment or other business relationship. these business ethics provide a huge variety of tools for dealing with moral complexity and therefore provide a general guideline combined with specific actions/recommendations for certain situations where the moral implications of strategic decisions or personal behaviour are of special importance. the company is committed to integrity in all of its dealings with employees. and Jones G. Actually. it hasn’t been successful in implementing all the three necessary steps for fostering an ethical organisational climate 67 . top managers should stress ethical values more (at least in their external comments) and ethical values should be incorporated into the mission statement as they should not only be written down in a separate document. Poettler 45 . especially through the use of voluntary disclosures and the report of inappropriate behaviour. Lindinger. Moreover. R. consequences.

safety maximisation. Lindinger.02. Apple offers technologically innovative products and services while conserving and enhancing resources for future generations . Moreover. and end of life which are targeted at the protection of the environment and maximising environmental quality. 68 69 http://www. 14. Corporate initiatives and actions69 Apple’s Corporate Environmental Health and Safety (EHS) Department provides several activities and services to ensure the implementation of Apple’s EHS policy by refining. local communities. use. health. and health protection to its various stakeholders. implementing.html. manufacturing. customers. and requirements as well as sound scientific principles and fiscally responsible public policy.02. developing. and safety management practices into all aspects of its business.com/about/environment/corporate/corp_ehs_programs/index. the corporation aims at communicating the benefits of such a policy of environmental consciousness. standards.7 Environmental issues In order to satisfy the claims of various stakeholders. Moreover.apple.04 DIT | Strategic Management | Iliev. 4. environmental due diligence. the company engages in effective recycling as well as in product design.2. These include on-line training programs.04 http://www. by integrating sound environmental. health. regulations. 14.html#EHS_policy. and OSHA statistics. Environmental mission statement and guiding principles68 According to its environmental mission statement. the company can better satisfy employees. and maintaining documented programs and processes.apple.com/about/environment/corporate/index. and the general public. corporate EHS audits. and safety management practises. Poettler 46 . This is based upon several guiding principles which are founded on laws. By recognising the responsibility to minimise the environmental impacts of its operations/products and integrating sound environmental. Apple included environmental and other related issues in its corporate governance efforts. energy efficiency.Apple Computer Inc.

decision making. It enables the company’s functions to learn from another and to become more specialised and productive. and Retail. Moreover. except for the activities of the company’s Retail segment. 228 DIT | Strategic Management | Iliev.1 Organisational structure In fact.3. Lindinger. This can be shown in the following chart: CEO Finance Operations/Sales Retail Marketing Hardware Software Applications This structure groups people on the basis of their common expertise/experience and resources. R. a functional structure gives managers greater control of organisational activities and enables the company to avoid becoming too tall by creating several different hierarchies. The Americas segment includes both North and South America. The Japan segment includes only Japan. Europe. Poettler 47 . (2004). Apple’s innovation. The Europe segment includes European countries as well as the Middle East and Africa. (1993). except for the activities of the company’s Retail segment. p. W. and Jones G.3.3 Corporate structure 4. the company’s management employs a functional structure as the company is organised along functional lines. 70 By decentralising authority and responsibility as well as through a relatively flat hierarchical structure. Moreover. 4.e. As we can see in Apple’s case. where the executive management team’s structure corresponds to this structure. decentralisation enhances the company’s planning. and control processes due to better information availability. The Retail segment 70 71 72 Hill C.Apple Computer Inc.2 Operating structure Apple primarily uses a geographic structure for managing its business. 422 BusinessWeek (2004c) Morden T. this structure enables effective monitoring and efficient activities which consequently reduces costs and increases operational flexibility. engineering excellence. The corporation’s reportable operating segments are the Americas. and marketing skills 71). p. Apple encourages its lower-level managers and employees to take the initiative and foster the company’s strengths (i. Japan. 72 4.

434 DIT | Strategic Management | Iliev.3 Performance Apple evaluates the performance of its operating segments based on net sales. As most central functions are centralised. and the company’s subsidiary FileMaker. 73 This structure can be shown in the following organisational chart: CENTRAL OPERATIONS CEO. it has to be stated that this doesn’t represent a pure geographical structure because the Retail operating segment doesn’t constitute a geographical area. p.Apple Computer Inc. 4. (2004). Lindinger. So.g. Each reportable operating segment provides similar hardware and software products and similar services. R. The Retail segment's performance is also evaluated based on operating income. Other operating segments include Asia-Pacific. (2003) Hill C. Poettler 48 . and Jones G. which includes Australia and Asia except for Japan.3. Management Americas Europe Japan Retail Other North America South America Europe Japan United States Australia Middle East Japan Asia Africa FileMaker This structure allows the company to be responsive to the needs of regional customers and reduces transportation costs.74 Nevertheless. currently operates Apple-owned retail stores in the United States and in the first quarter of fiscal 2004. Net 73 74 Apple Computer Inc. Apple can leverage its skills (e. Japan. opened its first international store in Tokyo. W. in the fields of marketing or hardware/software/applications development) across all the regions. there might arise coordination or communication problems between the two sub-segments United States and Japan in the Retail operating segment and the North America and Japan sub-segments in the Americas or Japan operating segment.

249 68 137 3.309 130 252 1.181 323 494 3.Apple Computer Inc. Poettler 49 .251 122 165 1.131 278 395 3. (2003) DIT | Strategic Management | Iliev. only the Retail segment has an operating loss in 2003 despite a high increase in net sales. it can be stated that Apple’s organisational structure is consistent with its objectives/strategy and its operating structure is consistent with its international strategy/operations.037 128 334 2003 2002 2001 The table indicates that net sales have increased in all segments except Japan and consequently the operating income position has improved in all segments from 2001 to 2003. 4.3. This 75 Apple Computer Inc.4 Strategic implications Concerning the overall strategic implications of Apple’s corporate structure. In fact. millions) Americas Net sales Operating income Segment assets Europe Net sales Operating income Segment assets Japan Net sales Operating income Segment assets Retail Net sales Operating loss Segment assets Other segments Net sales Operating income Segment assets 398 51 78 367 44 67 354 24 70 621 (5) 243 283 (22) 141 19 (21) 46 698 121 130 710 140 50 713 98 44 1. sales for geographic segments are based on the location of the customers. resulting from the opening of new Apple retail stores. The following table provides an overview of the performance of Apple’s operating segments (detailed information on the composition of the various positions can be found in the company’s SEC-10K filings)75: ($. Lindinger.

and divisions. R. quality. direct contact among Apple’s managers enables them to work closely together in terms of problem-solving and other (strategic) issues. these areas can be seen as major strengths of the company due to appropriate strategic control. p. In terms of control systems. Apple’s network of huge retail stores across the United States) remains doubtful. integration mechanisms aim at increasing intra-functional coordination and communication. In fact. avoid hiding any information. these are targeted at efficient monitoring/evaluation and enable the company to reach superior efficiency. direct contact constitutes an appropriate integration mechanism. functions. 410ff DIT | Strategic Management | Iliev. Actually. concerning efficiency it can be stated that on the one hand Apple apparently produces its goods and services efficiently (which explains its profitability) but on the other hand the efficiency in several areas (e. In fact. Poettler 50 . The firm therefore aims at shaping and influencing the behaviour of its workforce through the promotion of the company’s goals and values in everyday face-to-face interaction as well as through the huge enthusiasm and motivation skills of its management which should influence the all of the company’s employees. innovation. (2004). 76 Hill C. is especially manifested in the huge importance of hardware. Apple has to use integration mechanisms and control systems. software. As Apple’s culture can be described as relatively open and casual. Apple uses personal control as the company expects their employees to perform their work efficiently. For instance. innovative.5 Integration and control76 In order to avoid coordination problems between people.g. and Jones G. and responsiveness to customers. As Apple is famous for its quality and innovation.Apple Computer Inc. and cool company) as well as the structure of the operating segments respectively (which are generally supporting the company’s international objectives and presence). W. Lindinger. and share competencies/experience. 4. and applications engineering (which contribute to the company’s objective to be the most innovative company) and the importance of marketing and retail (which should highlight Apple’s status as a creative.3.

78 In fact. values can be regarded as beliefs and ideas about what kinds of goals should be pursued and the appropriate standards of behaviour for achieving these goals. Nevertheless it should be stated that this type of strategic control generally plays a minor role. (2004). Apple is also engaged in terms of behaviour control. R. as the firm aims at generally directing the actions and behaviour of its employees through certain rules like the code of business ethics. the company’s culture could be described as individualistic at the beginning which means that it emphasised individual empowerment and creativity and saw personal creativity and self-expression as the source of competitive 77 78 Hill C. against formal business routines type of culture that characterised Apple when it was founded in the 1970s. Poettler 51 . On the basis of these values. p. Actually.4. a company-wide intranet. norms are developed which constitute guidelines or expectations for appropriate behaviour in particular situations and the control of the right behaviour. it is the task of management to influence the values and norms of the organisation. facilitates output/financial control. (1999) DIT | Strategic Management | Iliev. As a result. Lindinger. and Apple’s general expertise in terms of IT. In fact. Moreover. IT improves information and knowledge distribution/availability. W. As one would expect for a firm that engages in the computer industry. because Apple generally prefers creativity and innovation instead of standardised procedures. and Pinter V.4 Corporate culture 4. enables better and problem-solving. 417f Dupai I.77 By taking a look at the role of top management in creating the culture of the enterprise. it becomes obvious that (in spite of a period of frequent changes of chief executives) no CEO could successfully alter the rebellious. and Jones G.1 Culture and values Corporate culture defines the specific set of values and norms shared by people and groups within a company. information technology definitely plays a major role in supporting Apple’s organisational structure and control systems. defiant.Apple Computer Inc. 4. and leads to several other positive aspects through a common software platform.

So. In fact. (1993). 81 In addition. innovation is manifested as the cornerstone in the company’s culture and therefore leaves no doubt that it represents the most important source of the firm’s competitive advantage.Apple Computer Inc. 418 82 Fastcompany (2004) 83 BusinessWeek (2004c) 84 BusinessWeek (2004c) DIT | Strategic Management | Iliev. the CEO always tries to link the company’s reputation for successful innovation to the company as a whole and therefore not only claims that this culture of innovation and creativity creates “the world’s best computers” and other great products but also says that these attract the “best 25 million customers any company ever had”. R. As organisational culture is created by the strategic leadership provided by an organisation’s founders and top-managers. 84 By constantly emphasising these positive effects of Apple’s innovative culture. advantage 79. the initial bohemian. and rebellious culture (which was definitely advantageous when the company was a mere start-up)80 continually changed as the company metamorphosed into a corporate giant and its values adapted to the new situation although the core values sta yed more or less the same. riotous. Poettler 52 . W. the firm has a strict policy that 79 80 81 Morden T. Concerning the latter aspect. that’s what we do” 82 or “Apple is the most creative technology company out there” 83 . and Jones G. the firm’s culture should be regarded as an emergent culture as it was never well-defined but emerged from the way its founders lead the company. it is obvious that these values are constantly emphasised by Steve Jobs through statements such as “Innovate. (2004). p. individualistic. it becomes clear that current CEO Steve Jobs as a co-founder of Apple definitely is the optimal person to design and develop the company’s culture with regard to the challenges of the 21st century. p. Apple’s culture today can be described as a culture which focuses on innovation and creativity and has definitely become an adaptive culture. In order to transform innovation into a sustained competitive advantage. Therefore. 243 The Economist (1998b) Hill C. it is important to take a closer look at the role of innova tion and creativity as they are the two most important values in the company’s culture. In fact. Lindinger. Moreover. Apple has developed a culture that encourages innovation and initiative and therefore can adapt to its current environment which is absolutely necessary because of the huge amount of rapid changes in the fast-moving computer industry.

and follow-through (supporting product innovation with things such as a solid sales force. In addition. and technological obsession which are obvious in all of Steve Jobs’ statements highlight the company’s corporate culture and directly influence all members of the organisation. a strategy for collaborating with developers and makers of complementary products. there are also certain drawbacks to this form of culture that is primarily based on innovation. First of all. Lindinger. religiously to innovation. 4. Steve Jobs’ apparent belief that Apple could innovate its way through a downturn86 seems to be inconsistent with economic reality as economically successful products don’t only need innovation but also appropriate execution. and a strategy for customer service). none of its employees are allowed to talk about of refusing to comment on future products or services85 and therefore preserves the value of its upcoming innovations. myths.2 Strategic implications Concerning the strategic implications of Apple’s corporate culture. and language. For instance.4. enthusiasm. one apparent criticism is that Apple has devoted itself single-mindedly. Poettler 53 . Moreover. 87 In terms of organisational socialisation (which specifies how people learn organisational culture and therefore become organisational members). consistency.g. So. the firm’s culture can be seen as consistent with corporate strategy and objectives as innovation is an integral part of Apple’s corporate strategy and staying 85 86 87 Baltimore Sun (2003) BusinessWeek (2002a) Fastcompany (2004) DIT | Strategic Management | Iliev. the source of innovation is another important criticism as Apple might focus too much on technical innovation and not enough on the innovation of business models which would rather increase profitability (e. the various myths about Apple and its charismatic CEO as well as the conviction.Apple Computer Inc. it can be stated that the company’s values and norms are definitely clearly communicated internally (as well as externally) through documents and the role/behaviour of management and therefore should be clearly understood by everyone in the organisation. commitment. as it is the case at Dell). the values and norms of Apple’s corporate culture are not only manifested in written documents like the code of business ethics but also transmitted through stories. Nevertheless.

we can illustrate the position of all single functions in the following value chain where every function adds value to the product (the overall company infrastructure isn’t explained explicitly in the following chapters as it mainly deals with aspects that have already been described before like the company’s management or organisational structure): Primary Activities Research & development Marketing and Sales Customer service Production Company infrastructure Information systems Materials manage ment Human resources Support Activities 88 Hill C. and attention to be innovative within this common cultural framework.5 Corporate resources88 The following six subchapters take a closer look at six value creation functions.Apple Computer Inc. and customer service. Finance. Poettler 54 . Human Resource Management. 4. 83-86 DIT | Strategic Management | Iliev. p. the production of the product. Moreover. Operations & Logistics. delivery. creation. (2004). W. and Information Systems. capacity. and Jones G. it is also consistent with the design of the organisation’s structure where the various functions that primarily serve as sources of (technical) innovation (hardware. and marketing of the product and support activities allow the primary activities to take place. Lindinger. namely Marketing. software. and applications engineering) represent separate functions in the overall organisation and therefore have enough power. R. the most innovative company definitely acts as one of the firm’s core objectives. As Operations & Logistics contains materials management acti vities. The importance of these functions can be illustrated through the value chain which regards a company as a chain of activities for transforming inputs into outputs where primary activities are concerned mainly with the actual design. Research & Development.

(2003e) DIT | Strategic Management | Iliev. 89 These attributes need to be addressed by the marketing department and communicated to potential customers. How can Marketing and Sales achieve a competitive advantage and add value in the value chain? For example.Apple Computer Inc. peripherals and personal computing and communicating solutions. and promotion. industrial design features of the Company’s hardware products. Apple strives to understand our customers’ needs. W.” 91 At Apple creativity. and customer responsiveness are seen as highest principles therefore clearly formulating them as biggest responsibilities in their marketing policies. (2004) Apple Computer Inc. R. and to be courteous and instructive.” 92 So as one can obviously understand the marketing goals of the company are coherent with the overall objectives of Apple. manufactures and markets personal computers and related software. Lindinger. software and Internet offerings. and Jones G.90 Apple’s marketing strategy is to put its customers first: “Apple creates. and ability of Macintosh computers to network and communicate with other computer systems and environments. advertising. educators. This view of conducting business goes hand in hand with their mission statement that “Apple is committed to bringing the best personal computing experience to students. 89 90 91 Apple Computer Inc. The key success factor is to create value by igniting people's imagination and create a favourable impression of the products by means of brand positioning. including the reduced amount of training resulting from the Macintosh computer's intuitive ease of use. manufactures. advanced graphics capabilities. to provide customers with the tools and skills to enhance their use of Apple products. innovation. customers are attracted to Apple’s Macintosh computers for a variety of reasons. (2003) Hill C.6 Corporate resources: Marketing Apple designs. creative professionals and consumers around the world through its innovative hardware. 4. Poettler 55 . and markets computing products so people can use them to make their lives better. (2003) 92 Apple Computer Inc.

Lindinger. This paradigm shift in overall corporate strategy was naturally accompanied by huge marketing expenses.03 Apple Computer Inc. He reorganised the department by centralising the responsibilities in company wide groups. a lot of people doubted that he will succeed to turnaround the company and return it to profitability.1 Marketing strategy As Steve Jobs took over Apple 1997 as CEO. Apple pours money into R&D and selling. the invention of the iPod. In its third quarter of 2003. which ended June 30.55 billion. The huge marketing budget can be justified through its unique position as hip brand – the cult of cool – it has spent billions building this image.macminute. Steve Jobs already assured that he won’t cut costs through decrease in marketing expenses but will focus on increasing profits and revenues. The dedication to high-end marketing leaves the company with very little choice in regards to increasing operating margins. general. a 27. and administrative expenses. But once again he proved the others wrong.com/2003/08/05/appleshift.Apple Computer Inc. So strategy adjusts in respect to changes in the 93 94 http://www.6% (marketing accounted for $193 million). being less dependent on its sales of computers and laptops. Poettler 56 .6. 4. an MP3 player. recognising that the global music MP3 market will triple until 2006 as forecasts show. marked the first product that wasn't tethered to the Mac.7% margin on sales of $1. but it spent $419 million on operating expenses. Along with its new focus on software and services as the introduction of iMovies in 1999 and the iTunes music online store in 2001 demonstrate impressively.93 So this radical change in corporate strategy meant that marketing strategies had also to change and adapt to this new strategy.94 Apple's gross margins are the envy of the industry. In other words it's a Cadillac operation. But below the line. They have expensive retail locations and high-end advertising. so that communication and effectiveness can be increased. Apple earned $428 million in gross profit. His eager goal and objective for Apple was to transform the niche PC maker into a high-end consumer-electronics and services company. they give it all back.12. Currently 80% of revenues are generated in this area. (2003) DIT | Strategic Management | Iliev. leaving it with an operating margin of just 0. 16. On one side Apple focused its recent marketing operations on one major business area: The iPod and iTunes.

who are looking for sophisticated and customized products. and Gupta P. Remarkable in this area is that Apple adopted the direct selling model from one of its rivals “Dell” by opening their own online store. As software and services become more important. Poettler 57 . youthful. Lindinger. The personalities of brands can affect the relationship that is developed with the brand's users. because especially one of their core businesses. humorous. brands can be viewed as having personalities. intellectual. increasing company’s efficiency as well as its profits. B. which in turn leads to low customer deflection rates and a possible ride down of the experience curve. A brand's personality can also serve to reinforce a product feature.95 Through combination of online and retail channels Apple has the opportunity to reach both first time buyers and Power users. external environment. etc. Microsoft's mantra is “Where do you want to go today?” But it’s Apple that has succeeded at figuring out where people really want to go. The creati ve and innovative "personality" of Apple computer products and the advertisements that promote them do much to reinforce the distinctive capabilities of Apple and create brand loyalty. now accounting for 40% of total PC sales in the US market. elegant software and services to the Windows world make sense.96 95 96 Yoffie D. This analysis shows that Apple is adapting to changes in the external as well as internal environments to align the marketing strategy with its corporate strategy and consequently Apple is ahead of the curve. the advertising and media business. both to consumers and to generate revenue. which has been a huge success.2 Brand positioning Like people. (2001) DIT | Strategic Management | Iliev. (2002) Evans D. Apple's moves to capitalise on its brand and bring simple. A brand can be viewed as being trustworthy. The result of being on a lower point of the experience curve is lower cost and therefore the margin between costs (C) and value (V) widens. 4.6. and Wang Y.Apple Computer Inc. On the other side Apple slowed down the aggressive marketing in terms of PCs and notebooks as their niche market. which actually shows Apple’s marketing department’s responsiveness to outside changes. was in a steady decline during the last few years and therefore demand for products was anyway not skyrocketing.

iPod (MP3-player). highly differentiated and high-priced in the premium segment of their respective market. What Apple accomplished throughout its existence was the promotion of the brand and its products simultaneously as the legendary spot “1984” (relaunched in 2004 for the 20 year jubilee) in the half time break of the Superbowl. This pricing option is seen as the main obstacle for Apple to enter the mass market and gain sustainable market share. iTunes (online music store) and multimedia software are the core products of Apple. The experience curve Unit Costs Accumulated output over time 4. Poettler 58 . but Apple puts itself as a supplier mainly to the education sector and the graphic professionals community.6. demonstrates in a spectacular way. Lindinger. as previously mentioned.Apple Computer Inc. Promotion Promotion heavily utilises the TV as its advertising channel to promote the coolness factor of Apple’s products. influenced by the identically named bestseller of George Orwell. For example Apple recently produced a commercial together with the famous soft drink producer Pepsi to market its iTunes music online DIT | Strategic Management | Iliev. This capability results therefore in a very strong brand loyalty. Price Products are usually.3 Marketing mix Products Power Mac (PC) and iBook (laptop). which altogether is a high end niche market. People associate the same qualities with the company AND its products.

Certainly. Lindinger. As one can analyse there's far more to Apple than curvy products and groovy ad campaigns nowadays.Apple Computer Inc. offer a wide selection of third-party products selected to complement the company's own products. To that end.04 Apple Computer Inc.apple. and peripheral products. corporate events. By operating its own stores. 21. and host training and marketing presentations.9% of non-Mac visitors into Mac customers. provide post-sale advice and support. (2003) DIT | Strategic Management | Iliev. Apple has opened 65 retail stores in the United States through 2003 and during the first quarter of 2004 opened 9 additional stores. The ad marks also the intro of the current version of the “Apple homepage”. Japan.com. It would take only 97 98 http://www. are fantastic (3. software. Apple’s stores have been designed and built to serve as high profile venues that function as vehicles for general corporate marketing. The stores employ experienced and knowledgeable personnel. Still Apple was only able to convert 0. In addition to its own hardware. Apple is able to better control the customer retail experience. Placement Since the inception of the retail initiative in 2001. Poettler 59 .500 visitors per week for Apple compared to 700 visitors per week for Gateway). which engages in a similar retail strategy. retail store configurations have expanded to various sizes in order to accommodate market demands. One of the main goals of the retail initiative is to bring new customers to Apple and expand its installed base through sales to both first time personal computer buyers and those switching to the Macintosh platform from competing operating system platforms. including its first international store in the Ginza in Tokyo. and brand awareness. 97 Another simultaneous campaign running in recent years is the “Switch” -campaign which tries to encourage Wintel user (user that use Intel microprocessors with Windows operating systems) to “switch” to Apple by emphasising the comparative advantage in terms of reliability and user friendliness. The results in comparison to the only rival Gate way. store. the company's stores carry a variety of third-party hardware and software products.01. 98 Stores are installed at high traffic locations in quality shopping malls and urban shopping districts. The stores are designed to simplify and enhance the presentation and marketing of personal computing products.

Apple Computer Inc.
a 2% conversion rate to boost Apple's market share in the home market by 50%. 99 This initiative is supported by a simultaneous launch of a campaign to improve the buying experience at consumer electronic chains through own personnel trying to make the actual buying an unforgettable experience. The numbers prove Apple right: Apple's business jumped from 15% to 35% of sales after Apple set up a special Mac section and a cyber-cafe outfitted with iMacs at chains such as CompUSA.100 The second initiative called “direct Selling” involves the expansion and improvement of Apple’s online store, not only increasing the product range but also reducing handling time of customer orders. By and large all these ideas can be seen as a commitment to quality. Apple’s focus on its custo mer is expressed by superior responsiveness through knowledgeable personnel, support and after-sale service, and quality products leaving Apple with an added value and greater choice of pricing options (higher value). 4.6.4 Advertising Apple Computer does an excellent job of creating congruency between its offline and online operations. The Apple site is very colourful, easy to navigate, and promotes movies, new media and QuickTime TV, reflecting Apple's strong emphasis on multimedia.101 The aspects that characterise the Apple web site are also aspects that characterise their brands. Therefore, Apple does a good job of utilising their web presence to reinforce their brand identity and brand positioning. Apple further adds to the congruency of its brand marketing by consistently using the same promotional imagery across various media sources. 4.6.5 Product life cycles of Apple’s core products iTunes Apple’s music online store is in the growth stage – this stage is characterised by high turnover and high promotional costs, offsetting each other. In other words, the net profits are moderate. For example, Apple’s new Prime Time TV Ad highlights burning custom music (from the iTunes online music store) CDs on Macs. The payoff here is to create increased brand awareness in order to exploit future market opportunities through networking effects.
99

100 101

BusinessWeek (2002a) Apple Computer Inc. (2003) Evans D. and Gupta P. (2001)

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Apple Computer Inc.
The more people join iTunes the more popular it would get – as it was shown in previous times by illegal download services such as Kazaa and Napster. According to marketing strategists a t Apple, the new iTunes version for Microsoft Windows user should additionally have the effect of convincing users to switch to the Mac OS X, Apple’s operating system, by providing the superior graphic user interface that earmarks all of Apple’s software products. The marketing division emphasises the innovation, price, and coolness factor of the product to attract new customers. iPod Apple’s iPod, the hard drive based MP3 music player currently positions itself in the growth stage. MP3 player market is expected to triple over the next 3 years. The product is also supported by expensive blockbuster ad campaigns to boost sales and establish the iPod as the dominant player in the market. The premium price (29% of units market share account for 54% of revenues in the market) lets Apple earn decent profits despite the high promotional costs. The introduction of a Windows compatible version additionally is expected to spur demand. Apple also tied up with apparel maker Burton Snowboards to create the Burton Amp Jacket that allows wearers to control iPod from the jacket sleeve. This feature had the potential to lead to many more innovative applications for the iPod. Marketing emphasises the capacity capabilities of the iPod being able to store more than the equivalent of 1,000 CDs on the 40GB model. 102 Therefore it targets customers who care about capacity as well as style, which from Apple products is anyway expected to be superior. iMac and iBook The PC and laptop products are seen as being in their mature stage with high profits and turnover. In this stage products are subjected to only slight changes and improvements, on the one side using economies of scale and on the other side learning effects to ride down the experience curve. Furthermore, marketing these products means to concentrate on reliability and easiness of use which together with superior design should appeal to Apple’s specified niche market. Marketing accomplishes to change customer’s view about computers from a commodity to a lifestyle product. The “switch” campaign and slogans like “Only Apple designed the
102

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Apple Computer Inc.
way to fit your work” are perfect examples of underpinning these product features. Moreover infomercials should justify the relative high price and help educate consumers about the Apple brand. Instead of increasing market share Apple chose to engage in a strategy of maximising profits by serving the high price high end niche market.

iMac and iBook sales constant

Demand

iPod market expected to triple 2006

Embryonic

Growth

Shakeout

iTunes 3-digit growth rates expected

Mature

Decline

Time

4.6.6 Trends from this analysis Apple’s strong brand name is definitely an advantage and unique capability, which Apple can capitalise on, as the recent example of the online music store demonstrated. Through its reputation Apple was the only player in the market who was able to convince all five major music labels to sign on to this legal download service.103 Also this capability seems to have a high barrier to imitation as nobody was able to create such brand loyalty in the industry until now. But marketing through its incredible high budget hindered also in a way corporate performance in the past,

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Short-term high profit margins through charging elevated prices were the determining fact without attributing much attention to their deteriorating market share. Net income also reflects 104 BusinessWeek (2003a) DIT | Strategic Management | Iliev. Specifically the online anti-advertising campaign by disappointed buyers of the iPod could have been avoided through better customer support. through superior after sales service) or decrease its costs in order to stay competitive and enhance performance. Lindinger. Marketing is still far from being perfect. But as competitive advantage is defined as being more profitable than its competitors – in other words the gap between the cost for the company and perceived value for the customer is greater than industry average – Apple doesn’t outperform its competitors substantially.g. Apple refused to exchange empty batteries with the simple excuse that the customers should just get a new iPod – not a very polite way of dealing with the ones you are dependent on?! 104 So for the future this means that either Apple will have to increase value (e. But is Apple’s financial situation an altered one in 2004? 4. the highest profit on an annualised basis since 2001 and far beyond any estimation.Apple Computer Inc.7 Corporate resources: Finance By looking back in history. and therefore it can charge a premium price. 4. Poettler 63 . as it was previously stated that nearly all of the gross margin is eaten away by R&D and Marketing. 4.6. Despite costs. the company beat analysts’ expectations by presenting a net income of $63 million. Customer support is also viewed as an important criteria considering to buy hard.7. Apple has to recognise that a “name” is not everything. we notice that Apple was never caring much about the long-run.7 Competitive advantage At the first look Apple seems to have a huge competitive advantage by being able to differentiate itself from its competitors and communicating this successfully to customers.and software because of the increasing complexity in pulling together the various pieces of digital lifestyle and the lack of responsiveness can mean the fall from grace.1 Apple’s financial status quo When Apple published the first quarter results of 2004.

Although total Macintosh unit sales were down 3% in 2003. the increase in net sales of peripherals and other hardware during 2003 also reflects an overall increase in net sales of other computer accessories including AirPort cards and base stations. portables were relatively strong primarily due to the 69% or 247. or 141%. All of the company’s operating segments experienced substantial increases in iPod net sales and unit sales during 2003.815 billion. Average Cash Flow figures in comparison to the previous years marked the liquid position of Apple Computer. slightly offset by a 4% or 30. Therefore we can infer that Apple’s customers may prefer to purchase products from their local Apple Retail store rather than through other pre-existing sales channels in the United States. This states that Apple’s product and business mix is diversified enough to always serve the company with appropriate cash. Financial results and ratios105 Apple’s financial results of 2002 and 2003 were already published under the rules of the Sarbanes-Oxley Act106 of 2002. revenues rose 36% to $2. but an Operating loss of $1 million. This number improved especially in the first quarter of 2004. They showed Total Assets of $6. The current year increase was primarily driven by the $202 million.Apple Computer Inc. 105 106 Yahoo Finance. a net income of $69 million. In addition to the iPod. including: The Retail segment’s net sales grew to $621 million during 2003 from $283 million in 2002. year-over-year increase in iPod net sales to $345 million. Net sales increased $465 million or eight percent during 2003 compared to 2002 while Macintosh unit sales declined three percent year-over-year to approximately three million units in 2003. Total Liabilities of $2. Reuters Investor Services Strict corporate governance action plan that imposed strict corporate rules by trying to avoid a second Enron DIT | Strategic Management | Iliev. Revenues reflect an increase in sales of iPod and computer accessories. which follows a $287 million or 74% increase in 2002 as compared to 2001. Several factors have contributed favourably to net sales during 2003.01 billion. Net sales of peripherals and other hardware rose to $384 million or 57% during 2003 compared to 2002.000 unit increase in PowerBook unit sales. Poettler 64 .592 billion. For the three months ended in December 2003. an increase of 119%.000 unit decrease in iBook unit sales. Lindinger. higher margins due to product mix.

Annual Balance Sheet. 12-2003 DIT | Strategic Management | Iliev.Apple Computer Inc. 09-2003 Quarterly Balance Sheet. Lindinger. Poettler 65 .

Service and other sales rose $69 million or 30% during 2003. 09-2003 Quarterly Income Statement. Increased net sales associated with Internet services are due to net sales from the iTunes Music Store. 12-2003 This reflects an overall industry trend towards portable systems. Lindinger.Apple Computer Inc. Annual Income Statement. Additionally. and third-party software. Poettler 66 . server software. PowerBook and Power Macintosh systems accounted for 42% of total unit sales in 2003 versus 36% in 2002. 12-2003 Annual Cash Flows. DIT | Strategic Management | Iliev. Apple’s average net sales per Macintosh unit sold increased two percent to $1.491 in 2003 due to an increase in direct sales primarily from the company’s retail and online stores. 09-2003 Quarterly Cash Flows. Net sales of software increased $55 million or 18% during 2003 and result from higher net sales of Apple-branded application. higher sales figures may also infer from the recent acquisitions of PowerSchool and Emagic.

With respect to the economic and industry downturn. some of Apple’s professional and creative customers seem to have delayed system upgrades in anticipation of new innovative products on the market. Apple has continued to experience ongoing weakness in its US education channel during 2003. Lindinger. has achieved a lower profit margin. political instability and Apple’s direct influence on the market sales of professional and consumer oriented Macintosh systems remain far below levels experienced in 2000. iMac systems unit sales declined 16%. accordingly. In contrast. DIT | Strategic Management | Iliev. Furthermore. Net sales and unit sales in this sector during 2003 were down four and six percent. Unit sales of Power Macintosh systems fell 13% during 2003 compared to 2002. Apple has also experienced significant competition in 1:1 learning solutions and. Poettler 67 .Apple Computer Inc. total unit sales of desktop systems fell 15% during 2003 compared to 2002.

Lindinger. ROIC = ROI. ttm – time to market . Amortisation.overview107 107 EPS – Earnings per share. Depreciation. Poettler 68 . P/E – Price Earnings DIT | Strategic Management | Iliev. Apple’s ratios .Apple Computer Inc. EBITDA – Earnings before Interest and Taxes.

Lindinger. Sales. general and administrative expenses DIT | Strategic Management | Iliev. Poettler 69 .Apple Computer Inc. Research & Development.

21) with a traded volume of 4. Lindinger. but this normally implies a slight tendency to sell) on the Apple share which suggests neither buy nor sell the stock. Currently. The 52-week high is $25. Working Capital.957.200 shares. a majority of analysts 108 is “neutral” (in real terms.72. (2003) DIT | Strategic Management | Iliev. Poettler 70 . the corresponding 52-week low $12. its price was $22. but represents member of the S&P 500 and the NASDAQ 100 Composite Index. the stock has an average three month volatility of 5. Low: $22.Apple Computer Inc. Apple is listed at the electronic Association Automated NASDAQ of Securities Quotations) (National Dealers stock exchange in New York (AAPL – short term for Apple Computer at the NASDAQ).40 (High: $22. Morgan Securities Inc.01.P. This is due to the general belief that Apple itself will prosper in several 108 J. plant and equipment Apple’s stock and dividends Primarily.33.51. Inventory Property. On the 20th of February 2004.

New product introductions and seasonal holiday demand should provide near-term revenue and earnings improvement but 109 see Appendix: Standard & Poor’s Rating Agency DIT | Strategic Management | Iliev.Apple Computer Inc.40 and revenues of $7. Finally. Apple is trading at the high end of its historical range. The money was mainly used to fund business operations and R&D. especially from ultraefficient producing and selling Dell. Although providing a Common Stock dividend during Apple’s latest stock split in 2000. foresees few near-term catalysts that could drive significant share price appreciation and therefore can’t see an outperformance of the group average in the near future. Poettler 71 .34 billion are estimated. the company’s policy normally is not to pay out any. but with a stable outlook. for fiscal 2005 an EPS of $0. For fiscal 2004 (EPS of $0. business areas. but will still have to face tough competition. recommendations conclude that Apple’s current valuation already recognises in lofty expectations for a turnaround. Lindinger. Apple’s corporate credit rating is at BB109 and consequently near sub investment grade.51 on revenues of $7.10 billion. above all Microsoft. Apple’s credit ratings and capitalisation structure At the moment. This can be derived from the attitude of many IT companies. that could persuade their shareholders to reinvest their earnings in the company by promising them a far higher yield through.

The notes. Trends can be discovered in how Apple finances their activities by keeping up a low dependence on outside debt capital and raising money through cheaper equity where dividends were successfully avoided to be paid out. The company currently has debt outstanding in the form of $300 million of aggregate principal amount 6. stock price performance. 110 111 Shows the company’s relationship debt to equity Different classes of shares containing specific rights DIT | Strategic Management | Iliev. are not expected to affect Apple's rating or outlook. This states that debt financing by issuing corporate bonds would become costly for Apple due to their low rating. 25% a BB. 23% a BBB and only 13% an A).25 per shares. These shares were convertible by Microsoft after August 5. From the prospective of accuracy there can’t be found any valuation discrepancies in asset values or market prices. Apple isn’t able to take full advantage of “cheap” corporate bonds’ issues. this is a common scenario for corporation. Current financial objectives and policies Apple’s major financial goal is to outperform its competitors.51%. operating income.000 shares of Apple Series A111 nonvoting convertible preferred stock for $150 million. into shares of the Company’s common stock at a conversion price of $8.07) and therefore makes refinancing for Apple rather cheap regarding their capital structure. going along with a reciprocal “technological exchange”. Nevertheless.925% of par. above all in terms of productivity ( measured by net sales. As far as Equity Capital is concerned. but in times of low market bond yields. Poettler 72 . were sold at 99.Apple Computer Inc. Such a policy may be beneficial as the company’s ownership isn’t diluted. 2000.5% unsecured notes that were originally issued in 1994. Ample liquidity (more than $4 billion in cash) and modest debt levels support the current rating despite Apple's limited global market share and earnings dependence upon a narrow product base. This leads to a very low financial leverage / Gearing ratio110 (Total Debt to Equity equals 0. above all in the IT sector (33% have a B-rating. for an effective yield to maturity of 6. The company currently anticipates utilising its existing cash balances to settle these notes when due which fur ther visualises Apple’s strong capital position and its liquidity. there exist common and preferred stock. which pay interest semi-annually. Lindinger. The latter ones became important in August 1997 when Microsoft purchased 150.

Apple Computer Inc. and Web-based technologies remains clear. Consumer spending on PCs and electronics has been the primary bright spot to date. Dell Inc. Liquidity) and to become the industry’s most profitable company. HP posted the highest revenue growth since its merger with Compaq Computer and achieved profitability in DIT | Strategic Management | Iliev. performance and budgets. the financial acting is neither totally consistent with the overall company strategy (as it doesn’t take into account possible lower returns due to the innovation superiority) nor has it supported past development significantly as Apple’s mixed results demonstrate. and the market Amid continuing cautious commentary from industry participants. an expanding product line. highly competitive industry pricing conditions continue to challenge profitability levels for most original equipment manufacturers (OEM). 4. e -commerce. This policy is clearly stated (focus on equity) and implied from both. but a full hardware spending recovery is dependent upon growth in corporate spending and is not expected to be material in 2003. a low-cost manufacturing model. ratings are supported by ample liquidity (cash and investments total $11 billion) and a strong financial profile. the need for continued investment in wireless. their financial status quo.2 Apple’s competitors.7. over the longer term. and an efficient asset management Dell should be enabled to preserve double -digit revenue growth and consistent profitability levels. Hewlett-Packard Co. In addition. However. Return on Invested Capital. despite highly competitive industry conditions. In the near term. With a boost from its seasonally strong fourth fiscal quarter. With a rating of A-. Lindinger. Poettler 73 . Nevertheless. the signs of growth in the US computer hardware industry are modest but accumulating.

Silicon Graphics Inc. Quanta Computer Inc. Due to highly competitive market conditions. The company is expected to report record high revenues and profit in 2003.could be further deteriorated if an exchange of convertible notes to common stock failures in the near future.proves that too. A very low credit rating of CCC. A credit rating of A. IBM's diverse product and customer base supported modest four percent revenue growth in the September quarter and consistent profitability. Strong cash flow generation is expected to support internal investments. an active acquisition profile.Apple Computer Inc. HP's goal of attaining sustainable profitability in its PC segment will continue to be a challenge. Poettler 74 . the potential for ratings improvement (B) is limited by Stratus' niche position in a highly competitive market. Stratus Technologies Inc. Stratus is expected to maintain EBITDA margins in the high tens as a percent of revenue. International Business Machines Corp. Quanta's operating performance and financial profile has been consistently satisfactory. However. while demonstrating sustained diversification of product lines. Despite a challenging global economy and highly competitive industry conditions. Despite ongoing declines in proprietary product sales. each of its major business segments. Lindinger. excellent liquidity and significant free cash flow generation provide ratings stability despite continued earnings reliance on its printing and imaging segment. Debt protection metrics are expected to remain within acceptable levels for the rating of A+. Still. DIT | Strategic Management | Iliev. privately owned Stratus has stabilised revenues and improved profitability through new product introduc tions and cost reduction actions. and modest free operating cash flow. The rating (BBB-) could be raised over the next one to two years if the company is able to continue reporting good operating performance and a solid financial profile. and share repurchases.

to minimise risk exposure CAPM – Capital Asset Pricing Model DIT | Strategic Management | Iliev. According to Apple’s auditor KPMG. limits the amount of credit exposure to any one issuer. and swaps. Apple uses this repurchased shares finance employee remuneration through stock option plans. Furthermore. subordinated retained interests. Sun's rating of BBB was placed with negative implications. adjusting to local conditions and making use of “financial engineering” 112 to secure capital flows is indispensable. Therefore. The firm’s general policy is to limit the risk of principal loss and ensure the safety of invested funds by limiting market and credit risk. 4. risk management duties. managing general obligations (“paying the bills” by guaranteeing liquidity. Measurement is accomplished by using common ratio analysis. Sun Microsystems Inc. All highly liquid investments with maturities of three months or less are classified as cash equivalents. This reflects the concerns about Sun's cost structure and ability to improve profitability. Apple is actively involved in off-balance sheet transaction such as ease commitments l (mainly retail space and related facilities) which amount to approximately $600 million. Poettler 75 . handling Apple’s international capital transactions) as well as special programs. above all derivatives. derivative instruments or other contingent arrangements that expose Apple to continuing risks and contingent liabilities. futures. The company has not entered into any transactions with unconsolidated entities whereby it has financial guarantees. as well as uncertainty about the level and timing of a recovery in IT spending and increased market acceptance of lower-cost Windows and Linux systems. a vibrant risk management taking care of hedging foreign exchange exposure. Apple’s accounting relies on GAAP (Generally Accepted Accounting Principles). During the fourth quarter of 2001. Weighted Average Costs of Capital approach113 to value Apple’s assets and derivative pricing BlackScholes model for options. 112 113 Creating and using new financial products. In 1999. by policy. Lindinger.3 Apple’s financial operations Apple’s finance and treasury division has to provide the company with a sound financial policy.7. A few of them are to mention: The company places its short-term investments in highly liquid securities issued by high credit quality issuers and. Apple entered into a number of forward purchase agreements to acquire the shares.Apple Computer Inc. a plan was authorised for the company to repurchase up to $500 million of its common stock.

Although the company is applying accepted finance concepts and techniques. (Akamai). Apple has investments in EarthLink Inc. Lindinger. Inc. Finally. Objectives in comparison to its competitors are set far too high up (see ROIC -ROI figures). Akamai Technologies. ARM Holdings plc (ARM). Apple changed accounting for asset retirement. and certain investments in private companies. hedging activities. It’s his obligation to raise the capital tremendously needed to finance Apple’s huge R&D expenses for maintaining their innovative position. Innovation is expensive and in Apple’s mind this argument counts more as the company had to “relaunch” itself only six years ago by taking on immense R&D. The role of the financial manager in the strategic management process is a crucial one in Apple’s case. there’s to argue that a competitive advantage isn’t obvious regarding financial policy.Apple Computer Inc. Poettler 76 . above all when Apple’s financial principles often prove inconsistent with the company’s entire strategy. (EarthLink). and financial instruments in 2003. DIT | Strategic Management | Iliev.

Moreover. the firm continues to develop new products and technologies and to enhance existing products in the areas of hardware and peripherals. Apple’s management believes that maintaining or increasing the pace of innovation and product development is the best way to respond to current economic and market conditions and will continue to position the enterprise for future growth as overall economic conditions improve. (1993).8 Corporate resources: Research & Development 4. Moreover. Poettler 77 . p.114 As innovation and new technology are key driving forces of mission and strategy115 and technology and especially technological progress/innovation is the main driver of Apple’s corporate performance.8. At the moment. the task of R&D is to enhance the development of new and existing products and therefore increase the speed of innovation which is consistent with the company’s overall strategy and goal to remain the most innovative personal computer company. system software. Apple’s ability to compete successfully is heavily dependent upon its ability to ensure a continuing and timely flow of competitive products and technology to the market. and the internet.500. applications software. 4. R&D headcount is now close to 2. In fact. (2003) Morden T. Lindinger.116 114 115 116 Apple Computer Inc. (2003a) DIT | Strategic Management | Iliev. networking and communications software and solutions. Apple’s R&D budget is used mainly for hardware purposes (49%) whereas software and applications play a somewhat less important role. 140 Apple Computer Inc.1 General information As the personal computer industry is characterised by rapid technological advances. As a consequence. the company’s research and development department constitutes a central element of Apple’s value chain in terms of creating value. it becomes clear that investment in research and development is continuously rising and in 2003 with $471 million is up 50% from 1999.Apple Computer Inc. 4.2 Structure and performance By taking a closer look at Apple’s actual R&D budget.8.

if the firm is unable to continue to develop and sell innovative new products (in order to differentiate) with attractive gross margins. So. As a result. 2002 and 2001. 117 Moreover. $500 $430 $400 $314 ($=Mil) $300 Hardware 49% $446 $471 $380 Applications 22% $200 $100 Software 29% $0 1999 2000 2001 2002 2003 R&D expense amounted to approximately 8% of total net sales during 2003. compared to some of its competitors Apple probably still has a relatively skinny research and development budget (in absolute terms) which has to work much harder than those of competitors who benefit from the huge spending of Microsoft 117 Apple Computer Inc. (2003) DIT | Strategic Management | Iliev. Apple got new R&D capabilities and capacities in the fields of professional software solutions for computer based music production and web-based student information systems but also had to value and expense the necessary R&D investments for the development of these products. Lindinger. its results of operations may be materially adversely affected by its operating cost structure. the company incurs higher research and development costs as a percentage of revenue than many of its competitors who sell personal computers based on other operating systems. Apple also engaged in Purchased In-Process Research and Development (IPR&D) when it acquired Emagic (2002) and PowerSchool (2001). up substantially from approximately 5% of total net sales in fiscal year 2000 and recent earlier periods. Through these acquisitions. Poettler 78 .Apple Computer Inc. Many of these competitors seek to compete aggressively on price and maintain very low cost structures. Although the company has continually increased its R&D budget during the last years.

In fact. a flat and decentralised hierarchical structure is another positive aspect through which Apple promotes efficient and successful R&D activities. In addition. innovation. p. 424 121 Apple Computer Inc. this should lead to short product-to-market cycles and innovative products or processes. (2004).8. Poettler 79 .4 Competitive advantage In fact. On the contrary.8. Lindinger. R. Apple has just 300. and quality of innovation and therefore enables the firm to achieve superior innovation. This aspect can be shown with the example of the rate of innovations in the development of Apple’s operating system Mac OS X compared to the rate of innovation of Microsoft Windows: 121 118 119 120 The Economist (2000) Fastcompany (2004) Hill C. and Jones G. 120 In fact. Indeed. Moreover. and thoughtful but entrepreneurial actions. quantity. the company’s R&D department is definitely one of the most important value creation functions within Apple. Mac OS X. and Intel118.Apple Computer Inc. W.119 4. it is the ultimate task of Apple’s R&D resources to develop a distinctive competency in innovation and technology that results in products that fit customers’ needs. (2003a) DIT | Strategic Management | Iliev. Apple promotes its R&D efforts by providing enough freedom and autonomy which is supported by the company’s corporate culture that emphasises the importance of personal creativity. 4.000 independent and in-house developers writing programs and making products for its operating systems.3 Strategic management In terms of strategic management issues. including the latest. more than 7 million developers build applications for the Windows platform worldwide. it creates value by enhancing the speed.

performance. its customers can more easily and continuously reap the benefits of Apple’s ongoing innovation and product development. innovation will also increase the firm’s pricing options. Apple’s R&D capabilities and activities help the company to achieve a competitive advantage through superior innovation. innovates. Poettler 80 . thereby also leading to superior quality. thereby also leading to improvements in (product) quality and (operating) efficiency (although there’s still potential in the field of achieving higher efficiency) . As a result. and other attributes such as design or ergonomics). So. Thus. ongoing innovation takes place in the design of the company’s products and production processes. as innovation is probably the most important building block of competitive advantage in the long run. Apple’s R&D efforts create huge value for the company and its customers. So.Apple Computer Inc. by making new or enhanced products more desirable for Apple’s customers through product innovation (as this also increases the quality of its products through improving reliability. DIT | Strategic Management | Iliev. Apple constantly improves. and develops its operating system and brings new and improved versions directly to the market. this can create value for the customer by increasing the functionality of the products. In short. In fact. Whereas Microsoft uses a policy of longer time frames between releases of new operating systems. Lindinger.

as input to the value generation process value generation by operational processes (manufacturing) value generation by transportation. Distribution deals with the physical delivery of the product to the customer whereas customer service provides after-sales service and support. 174 Morden T. logistics or materials management controls the transmission of physical materials through the value chain (input .throughput . Lindinger. components. services.1 General information Operations management and logistics Operations management can be regarded as the process in which material. human or financial inputs are transformed into outputs of goods. distribution. 193 DIT | Strategic Management | Iliev. (1993). or operations.9 Corporate resources: Operations & Logistics 4. 122 The actual creation of a good or service is in the centre of this process and is referred to as production. and supply logistics value generation by specification and offer of customer service.output). p. by customer-orientation.Apple Computer Inc. certain key components are currently obtained from single or limited sources. Overview According to Porter’s description of the process of value-generation.9. For instance. (1993). 4. services or utilities. IBM is the firm’s sole supplier of the G5 processor used 122 123 Morden T. the operations & logistics resource focuses at the following value chain elements:123 • • • • inbound logistics operations outbound logistics service supply of raw materials. manufacturing. p. etc. Poettler 81 . and by customer care Inbound logistics Operations Outbound logistics Marketing & Sales Service Inbound logistics Although most components essential to Apple’s business are generally available from multiple sources. In addition.

coordinated product introductions. Some other key components. while currently available to the firm from multiple sources. As Apple’s markets are volatile and subject to rapid changes. Such purchase commitments typically cover the company's requirements for periods ranging from 30 to 130 days. Apple must order components for its products and build inventory in advance of product shipments. are generally subject to industry wide availability constraints and pricing pressures. Apple’s ability to ship related products in desired quantities and in a timely manner could be adversely affected. supplier contracts. and internal and external manufacturing schedules and levels. In addition. the company uses some components that are not common to the rest of the personal computer industry and new products introduced by Apple often initially use custom components obtained from only one source until the company has evaluated whether there is a need for additional suppliers. it has to be stated that although Apple tries to work closely with its key suppliers. Apple attempts to mitigate these potential risks by working closely with its key suppliers on product introduction pla ns.Apple Computer Inc. the company’s policy of DIT | Strategic Management | Iliev. As a consequence. The firm’s business and financial performance could also be adversely affected depending on the time required to obtain sufficient quantities from the original source or to identify and obtain sufficient quantities from an alternative source. Continued availability of these components may be affected if producers were to decide to concentrate on the production of common components instead of components customized to meet the Apple’s requirements. and open orders based on projected demand information. Therefore a possible inability in the future to obtain microprocessors in sufficient quantities with competitive price/performance features could have an adverse impact on Apple’s results in terms of operations and financial condition. Lindinger. there is a risk the company will forecast incorrectly and produce or order from third parties excess or insufficient inventories of particular products. If the supply of a key or single-sourced component to the company is delayed or curtailed or if a key manufacturing vendor delays shipments of completed products to the company. in current PowerMac products and Motorola is the sole supplier of the G4 processors. strategic inventories. Consequently. the company acquires components through a combination of formal purchase orders. Consistent with industry practice. this highlights a possible threat of Apple’s differentiation strategy as the company depends on the availability of certain custom components from special suppliers. Poettler 82 .

Korea. Apple only assembles some of its products in the United States and Europe. an expansion of Apple’s presence in national chains. Lindinger. whereas most products are assembled and manufactured by third-party vendors which are mainly situated in lower-cost countries. Apple relied on a network of distributors and resellers in the past which led to higher prices for Apple products and greater distance to customers. Poettler 83 . Operations Final assembly of Apple’s products is conducted in the company’s manufacturing facilities in Sacramento and Cork as well as by external vendors in Fremont. Taiwan. Taiwan.Apple Computer Inc. and China. Currently. China. and the Czech Republic. the Netherlands. and other changes to the distribution system are illustrated in the following diagrams 124: 124 Sudbury A. Outbound logistics Concerning Apple’s distribution model. Fullerton. In fact. manufacture of many of the components used in the Apple’s products and final assembly of substantially all of the portable products are performed by third-party vendors in Japan. In short. (2001) DIT | Strategic Management | Iliev. In fact. it is quite interesting to take a closer look at the changes that the company made beginning in the year 2000. this initial situation as well as the effects of the introduction of special retail stores. forecasting future demand creates a possible threat of inflexibility in coping with sudden changes in customer demand and therefore could result in increased inventory costs or lost profit opportunities.

with slower traffic through the stores and flagging sales. and Wang Y. p. now. B. consumers. 125 126 127 Yoffie D. resellers. and Ryan J. (2003). national and regional retailers and cataloguers. 13 128 BusinessWeek (2002a) DIT | Strategic Management | Iliev. The company also sells many of its products and resells certain third-party products in most of its major markets directly to education customers.9 billion in 2003). and Wang Y. Poettler 84 . Apple's outlets may be losing their impact and could increase the company’s fixed-cost base 128.125 Generally. In spite of the huge initial interest in the stores. Whereas Apple’s online store (as a direct business to consumer store which can also serve as a communication medium between the company and its customers 126) can be regarded as a successful distribution channel as it accounts for a huge amount of Apple’s total sales (43% in 2001127). and certain resellers through its retail stores or through one of its online stores around the world (which had total direct and indirect online sales of approximately $2. B. businesses. (2003). 14 Gupta P.Apple Computer Inc. (2000) Yoffie D. Apple distributes its products through wholesalers. these efforts seemed to be paying off as Apple could reduce its inventory to less than two days worth of sales by early 2002. pre-shipment post-shipment consumers Apple manufacturing component suppliers contract manufacturers resellers distributors internal inventory channel inventory pre-shipment Apple manufacturing component suppliers Online-Store Retail Stores Direct BTO post-shipment consumers resellers contract manufacturers distributors internal inventory channel inventory In fact. p. Apple’s new retail stores recently earned much criticism. Lindinger.

China. its sales soared so high that Apple couldn't keep up – thanks in part to component shortages – and consequently demand quickly cooled off. Apple’s special AppleCare programme offers a range of support options for Apple customers like manuals. the Netherlands. hardware repairs. Poettler 85 .9. Apple engages in the fields of training programmes and professional technical (consulting/installation/integration) services. Moreover. and the Czech Republic. Nevertheless. there has also been criticism about the quality of the customer service. although Apple definitely offers a comprehensive support package. As Apple uses its manufacturing facilities only for the final assembly of several products and due to the fact that the company orders some of its components from a few key suppliers by the use of future demand predictions. and may have. 4.Apple Computer Inc. In terms of inventory holdings. Korea. and a special protection plan including phone support.2 Operations capabilities Manufacturing facilities and capabilities In fact. there is a potential threat that its operational capabilities can’t cope with excess demand. 129 129 BusinessWeek (2002a) DIT | Strategic Management | Iliev. web-based support resources. In addition. Taiwan. right after the introduction of the latest iMac. the company largely depends on the manufacturing capabilities of its external vendors in the United States. given the rapid and unpredictable pace of product obsolescence in the computer industry. For instance. online tutorials. Although the company believes its inventory and related provisions are adequate. Lindinger. no assurance can be given that it will not incur additional inventory and related charges. and user diagnostic tools. a material effect on the company's financial position and results of operations. Apple records a write-down for inventories of components and products that have become obsolete or are in excess of anticipated demand or net realisable value and accrues necessary reserves for cancellation fees of orders for inventories that have been cancelled. Service Concerning product support and customer service. such charges have had.

DIT | Strategic Management | Iliev. Outsourcing As already stated before. the company has outsourced much of its transportation and logistics management. or military conditions or events. In addition.363 million in 2001 to $6. any unanticipated product defect or warranty liability could adversely affect the Company's future operating results and financial condition.9.499 million in 2003) which lead together with a larger increase in net sales (from $5. although arrangements with manufacturers may contain provisions for warranty expense reimbursement. Nevertheless. Apple’s policy in terms of operations and logistics contributes to the good financial performance of the company. this increase was only of minor size compared to the increase in net sales and therefore led to an overall increase in profitability. Therefore. 4. While outsourcing arrangements may lower the fixed cost of operations. the company’s results of operations and financial condition could also be adversely affected. medical. political. This indicates that. business. Moreover.3 Structure and performance Budget and performance Apple’s consolidated statement of operations offers no detailed insight into the separate positions that are related to operations and logistics. many of Apple’s products are manufactured in whole or in part by third-party manufacturers. environmenta l. they also reduce the company's direct control over production and distribution and therefore such diminished control might have negative impacts on the quality or quantity of the products manufactured or the flexibility to respond to changing market conditions. Lindinger. Apple may remain at least initially responsible to the ultimate consumer for warranty service in the event of product defects. if for any reason manufacturing or logistics in any of the manufacturers’ locations is disrupted by regional economic.207 million in 2003) to an improvement in Apple’s gross margin of almost $500 million. Poettler 86 . In addition. it can be stated that Apple’s cost of sales continuously increased in the last three years (from $4.Apple Computer Inc. although there was an increase in costs of sales (which are the costs of manufacturing the products).128 million in 2001 to $4. Consequently.

130 4. the production function can also perform its tasks in a way that is consistent with ensuring high product quality. manufacturing can improve efficiency. Role of IT Concerning the role of IT as a driving factor of operational performance. quality. efficiency in production helps a company to lower its cost structure. Poettler 87 . and customer responsiveness. thereby leading to cost savings.Apple Computer Inc. which leads to differentiation and lower costs. there are several approaches to improve the quality and efficiency of a company’s operations such as just-in-time (JIT) inventory systems. total quality management (TQM). Apple could only use JIT inventory systems if it had the opportunity to select from a wider range of suppliers and if it used long-term cooperative relationships to deepen the links with its key suppliers.4 Strategic issues In fact. Although Apple could successfully reduce its inventories in the past. Similarly. (1993).5 Competitive advantage Concerning the four building blocks of competitive advantage. information technology is fundamental to the establishment of effective operations management systems as the application of IT to systems of operations management and to management information systems is a basic strategic requirement. it could probably even decrease its inventory stock by moving away from buying inputs based on forecasts of future demand and implementing JIT inventory systems instead. 130 Morden T. Nevertheless. As a result. Lindinger. p. this could also increase the apparent threat that the company is facing in times of huge customer demand and lead to further shortages of key component. 4. IT can increase the availability and quality of information and therefore improve the efficiency of operations management. Apple doesn’t really have many possibilities because the situation is quite different: on the one hand it is unclear whether Apple uses such approaches in its manufacturing facilities and on the other hand a huge amount of Apple’s manufacturing processes are outsourced to third-party companies. In terms of the approaches that are aimed at manufacturing processes. 184 and 186 DIT | Strategic Management | Iliev. or flexible manufacturing.9. As a result.9.

Poettler 88 .Apple Computer Inc.10 Corporate resources: Human Resource Management 4. Ensure proactive internal career progression. Employees should at all times strive for the highest quality in all they do. 4.”131 Apple wants to assure that by employing the best people. competence. superior efficiency can also be achieved in the field of logistics (for example through lower inventories). responsiveness.10. it becomes clear that the company apparently doesn’t have a competitive advantage in terms of superior efficiency through better manufacturing processes. Apple’s Human resource department has formulated its objectives in the following way: “Provide the company with the necessary personnel to assure superior performance. it will constantly be inventing and manufacturing the best products. thereby leading to superior customer responsiveness. Moreover. The strategy represents a practical response to creativity. The workforce is the source of all value enhancing activities in regards to quality. Finally. and the constraints that employees as individuals and teams bring with them into the work situation.1 Human resource objectives and strategies The strategy of human resource management should always recognise the critical importance of the organisational structure and the people building it. these areas are also unlikely to contribute to a competitive advantage as they apparently don’t lead to superior value creation. resulting in significantly lower cost. 131 Apple Computer Inc (2003) DIT | Strategic Management | Iliev. Lindinger. thereby creating more value. customer service can create a perception of superior value in the minds of customers by solving customer problems and supporting customers after they have purchased the product. A recent survey carried out among US technology professionals named their primary reason to work for Apple as being the admiration of its products/services (45% compared to industry average of 13%). Although the company has improved a lot in terms of inventory and offers its customers the necessary support and service. and innovation. efficiency. By applying these possible sources of competitive advantage in the field of operations and logistics to Apple.

The result of this survey can be interpreted as that the human resource department aligns its hiring policy with the overall corporate strategy and objectives. stressing the need of retaining the position as industry leader concerning superior design and innovation.Apple Computer Inc.g. 133 132 133 Techies.com (2002) Techies. as it lays its focus stronger on hiring people for web and interactive content (27%) compared to industry average of (10%). Poettler 89 . the growing importance of Apple’s direct distribution channels (e. In this case Apple adapted its HRM objectives in concordance with its business strategy because of a change in external environmental forces such as consumer preferences (possibility of customising the own PC). Lindinger. through online store) also affects the human resource management.com (2002) DIT | Strategic Management | Iliev. 132 Why do you want to work for Apple? Stability Interesting/challenging work Admire products/services Their cutting-edge technology Great benefits and perks Location near my home Great work environment Good chance for promotion Offer great training Strong employee morale Enjoyed previous employment there Low employee turnover Admire their leaders/employees Friends work there I'm not sure 6% 15% 45% 15% 2% 1% 6% 2% 2% 3% 2% 1% 3% 0% 1% 16% 15% 13% 10% 8% 6% 6% 5% 4% 4% 3% 3% 2% 2% 2% Stability Interesting/challenging work Admire products/services Their cutting-edge technology Great work environment Other 45% 15% 6% Apple All 13% 6% 15% Additionally as one can see in the next diagram.

They have a direct impact on the external perceptions about the company by the apparent treatment of and attitude towards its staff and therefore shape the corporate image 134 Apple Computer Inc.” 134 Apple catapults the human resource management function in terms of its importance from a support activity to the status of a primary activity which is indispensable for Apple’s success.Apple Computer Inc.10. which especially in the information technology industry is in high demand and competition for its talents is intense. (2003) DIT | Strategic Management | Iliev.2 Human resource policies The policies should reflect the mission. Poettler 90 . particularly in the Silicon Valley. is also key objective of the HRM department. Much of the future success of the company is linked to the continued service and availability of skilled personnel. 4. Lindinger. Employer Preference by job category Data entry Data management Education Engineer HR Management Marketing/Product management Networking/Telecommunications Sales Software development Student Systems administration Systems support/help desk Web and interactive content Apple 2% 1% 6% 1% 1% 12% 2% 4% 1% 26% 3% 6% 9% 27% All 1% 4% 2% 2% 0% 12% 1% 12% 2% 28% 4% 9% 12% 10% Web and interactive content Software development Management Systems support/help desk Systems administration Other 0% Apple All 5% 10% 15% 20% 25% 30% With Apple’s statement that “The company’s success depends largely on its ability to attract and retain key personnel. where the majority of the high tech company’s are located. values. and culture of a company. The ability to continue to employ experienced personnel.

Lindinger. A. After that there follows the application of an attitude analysis. E. who had the responsibility to communicate and promote cooperation between both parties (employees and manager) at Apple. E. 31f IBEC and ICTU (2000) DIT | Strategic Management | Iliev.3 Human resource performance In pursuing the above mentioned objectives of getting the best employees to work for Apple. 135 A positive image then can reinforce a competitive advantage increasing customer value. For example in Cork. A. 26f Bernardin H. as people associate positive values with the company. Poettler 91 . the company has installed several measures to increase productivity as well as effectiveness.10. and Russell J. J. This analysis should enable employees to express their opinions and concerns about all aspects in the company with the aim of encouraging them to find ways to maximise their contribution for the benefit of the company. so that on the basis of this information the forum can formulate and initiate plans to improve and adapt to changes in the industry. p. and Russell J.4 Partnership program The first stage of this program involves the forming of a forum which has access to all financial records of the organisation. (1998). Ireland this analysis found that employees have the desire to have business awareness training and additionally highlighted the lack of effective 135 136 137 Bernardin H. p. J. and identity. The next stage is the installation of so called change champions.Apple Computer Inc. Employees have actively a say in design matters and are taking part in the resolution of all challenges and opportunities facing Apple. 137 4.10. 4. The information collected through this interactive approach is then used to identify aspirations for various kinds of training. A cornerstone in the employment relationship are the regional partnership programs with different organisations like Skillnet in Ireland (a body comprising both employer and employee organisations) aiming at facilitating the mutual involvement of management and employees/unions in organisational development. 136 Apple meets this need of creating a favourable image of a company by implementing equality of employment and promotion opportunities through partnership arrangements around the world. (1998).

10. These partnerships are regarded as part of the internal fabric of Apple. The result of this process is a lifelong learning.Apple Computer Inc. DIT | Strategic Management | Iliev. An example here would be training in the e -commerce area. Apple realises that their staff require skills and knowledge beyond those needed to do their job in order to function effectively. Business driven needs training The module teaches skills and knowledge that Apple believes require in order to progress business. Lindinger. Poettler 92 . providing employees at Apple with continued improvements of their professional as well as personal soft skills and an added value for Apple through greater employee productivity and a reduction in all aspects of confrontational industrial relations issues. communication within the plant – underdeveloped.5 The establishment of trust and fairness Financially rewarding employees for their efforts in the partnership area Ensuring that employees are at all times equipped with business awareness Training and Development in other words soft skills were fairly Apple always attempted to be exemplars of best practice in the area of Human Resource Management and especially in the area of training and development this is most apparent as the model of partnership agreement impressively shows . also successfully dealing with industry relations issues. Example of this type of training is the training in various Microsoft packages. which are jointly solved at the shop floor level. In order to meet this self imposed requirement the training is divided across the organisational structure into four broad categories: Offer or efficiency programme This training aims directly at improving the efficiency of staff regardless of their department base. The function of HRM is to create an environment which fosters such partnership agreements through: ! ! ! 4.

(1993). The system is a key input to HRM and planning. and results achieved. the employees should increase their business awareness What Apple distinguishes from other companies in this area is the additional sophisticated evaluation process of the training . Poettler 93 . 268 DIT | Strategic Management | Iliev. p. giving Apple the possibility of redeploying employees. It can also include salary reviews and allocation of merit payments. and if necessary identifying needs to develop new skills and capabilities. At this. tasks. staff members are analysed in terms of objectives. The evaluation compares the objectives of the training with the learning process that actually occurred. All in all.6 Staff appraisals The objective of staff appraisals is to provide feedback to both appraiser and appraised and to serve as formal opportunity for personal counselling and motivation. The illustration below explains how the staff appraisal system works at Apple. Personal development category The above mentioned soft skills are part of this category such as assertiveness training. which is actually missing in a lot of companies. Apple believes that through such practices employees are able to see the big picture and make a greater contribution.Apple Computer Inc. having the ability to fully grasp the business dynamics of the current business situation.139 138 139 IBEC and ICTU (2000) Morden T. 4. As the name already suggests. but also increase their internal mobility. General Awareness education This area is given top priority and therefore separated from the personal development module.10.138 The bottom line of the training provision is a work force that not only feels that it can effectively adapt to and adapt within an environment that is in a constant change. Lindinger. For the HRM department the appraisal can be seen as an opportunity to identify individual and collective performance strengths and weaknesses.

tasks. 269 http://www. which are embedded in the staff appraisal system. Apple for example lacking operational efficiency was in a terrible need to hire an expert on this particular topic. Lindinger. workflows. results actually achieved Counselling and motivation Stretching Salary progression Training and development THE INDIVIDUAL Salary Career management Human resource planning Personnel specification The Organisation Market position Personnel policies The benefit of having a functioning staff appraisal system in place is that it can reliably indicate shortages of available skill and experience. management development. a highly skilled operational Manager (and Vice president. 02.04 DIT | Strategic Management | Iliev. one of its main competitors. (1993).apple. Cook. 141 because of attractive work conditions. through a functioning HRM department Apple therefore was able to win Timothy D. Poettler 94 .Apple Computer Inc. A combination of life long learning. Materials) from Compaq.html. and reward policy convinced him to become a part of Apple’s culture. p. Required results Performance standards Appraisal criteria Staff appraisal process Comparison Feedback Job description Objectives.com/pr/bios/cook.140 To avoid such a skills gap and successfully bridge this gap HRM can undertake additional recruitment.02. 140 141 Morden T.

Other advantages of the staff appraisal system include but are not limited to the career management and recruitment and selection policy. Statistic shows that the Web is the preferred medium for application among tech professionals. R. Career Management at Apple offers promotion from within in preference to outside recruitment.143 Which jobsearch toole would you use to secure an interview with Apple? 0% Trade/career mags Newspaper ads Headhunters Job fairs Network contacts Contact HR Online job board Corporate website 5% 10% 15% 20% 25% All Apple What is also recognisable is that Apple gives up or decreases traditional ways of job advertising such as news paper ads in order to cut costs. which on one side is highly acknowledged by employees and on the other side this policy acts as signal of the company’s evident care and concern for their staff and improves the corporate image.com (2002) DIT | Strategic Management | Iliev. 83ff Techies. 142 143 Hill C. 142 The recruitment policy is a primary example of how HRM activities adapt to changes in the external environment. Lindinger. p. Poettler 95 . (2004). which eventually leads to value creation. they shifted their application process to a large extent on the corporate website. and Jones G. which are part of the HRM planning. As Apple considered that it demands a higher number of skilled staff in the area of web development and interactive content.Apple Computer Inc. Apple utilises the resources saved on this side to create a balance between online and offline application formats. W.

HRM is able to create incentives for key employees to maintain a fruitful and competitive relationship and boost creativity.10. The initiatives Apple created for its employees must consequently be improved and it must remain a long term goal to increase every aspect of the work experience at Apple. For example Sony’s notebooks. compared to 7% industry average – and 144 IBEC and ICTU (2000) DIT | Strategic Management | Iliev. This way Apple assures a continued flow of creative minds in their company.10. On the one hand they offer comparable high remuneration as the following diagram shows – only 3% of possible employees have the opinion of not being paid enough. For the future it will be important to maintain and even increase the organisational competency through HRM beyond life long learning and partnership programs – in other words. 4. requires substantial investments and resources in order to sustain such benefits as the partnership program. as competition increases in the industry. were initially developed by people who Sony had headhunted from Apple R&D department. The corporate strategy again defines already the way Apple sets up its recruiting events. 144 The existence of a positive work environment already proved to be beneficial to Apple as they were able to stay the number one in creating visionary products and this is only possible with the right people. 4.7 Trends Apple heavily relies and is dependent upon the ability of hiring people committed to excellence and the challenging aspect for the future is to keep well trained and skilled personnel in the company. which have some similarities in regards to design. which is the key success factor for Apple. For example Apple organises yearly events such as the Apple design awards where the winner is automatically entitled to an internship/work position with the company. the staff appraisal system has to be developed on a continuing basis. Lindinger.8 Competitive advantage Analysis already showed the harmonic connection between corporate strategy and HRM strategy.Apple Computer Inc. which in first place is the basis for a competitive advantage. which becomes more and more difficult. because everything is built on this core competence. who can generate a competitive advantage if the HRM activities support them through their work life at Apple. only then Apple will be able to outperform its competitors with its HRM activities. This indeed. Poettler 96 .

Also through his active involvement in staffing decisions (he was the main initiator of Timothy D. on the other hand they have an effective job recruitment system combining recruitment events and online application services.S. Apple wants to stay the employer of choice. 145 146 Techies. 145 What would keep you from working for Apple? Too many candidates No contacts there I'm not qualified Too far from home Not enough money Not a U. Employee productivity figures f r Apple o support this view as the company is able to outperform its rivals in the industry. Poettler 97 . He was able to create a vision of the importance of HRM practices. citizen Don't know the business Corporate culture clash Non-compete agreement Would have to work long hours 30% 17% 17% 23% 3% 3% 5% 2% 0% 1% 39% 20% 13% 9% 7% 4% 4% 3% 1% 1% Other 0% 10% 20% 30% I'm not qualified Too far from home Not enough money Apple All No contacts there Apple All Too many candidates 40% What is also worth mentioning is that Steve Jobs as CEO has created the need of HRM changes.com (2002) Apple Computer Inc. (2003) DIT | Strategic Management | Iliev. Cook’s employment) he is able to create support for the HRM department. which by far exceed content wise the services offered by other players in the market. by emphasising that “to be the best is just good enough” and this can only be achieved through internal activities such as life long learning and development. but that’s not the case with Apple.Apple Computer Inc. Research indicates that technology oriented managers tend to place less value on and pay little attention to HRM activities.146 The HRM department on its own also contributes to an obvious competitive advantage through designing and delivering effective programs such as the local partnership agreements and adapting itself to the changing needs of a fast paced business. Lindinger.

11.25 GHz G4 processor Desktop computer Digital audio conferencing device Server with single or dual 2GHz G5 processors. Nevertheless. the company of course relies on their products.020 for the industry and 396.25 GHz processor Desktop computer.04 Terabyte: 1 TB = 1. Servers and the necessary. equipped with a 2GHz processor. At Apple.1 What type of software and hardware is used at Apple? Due to the fact that Apple fabricates PC. fast 64 bit technology Desktop computer.5TB portable 148 storage capacity 147 148 http://yahoo. third-party applications gets included where there’s no appropriate Apple software available.094 for the sector. What software. Poettler 98 . high bandwidth Server with up to 3.Apple Computer Inc.reuters.02. huge storage. the information system is more than just a business-assisting facility. 551. to automate internal processes (supply chain) and to provide customers with service and support by implicitly objecting to reduce costs? Therefore an analysis of Apple Computer’s IS has to answer three main questions: 4. Lindinger.com/MG. what applications do the “experts” use to get their things done. At the moment this means that in general the following internal computing components exist at Apple: Hardware Name Power Mac G5 Power Mac G4 iMac (new and old) eMac iSight Xserve G5 Xserve RAID iBook G4 by Apple Apple Apple Apple Apple Apple Apple Apple Description Desktop computer.aspx?ticker=AAPL&target=%2fstocks%2ffinancialinfo%2fratios%2fefficiency. 1. 147 In conclusion you can say that both the HRM department itself and the employees as a great source of human capital contribute to the upswing Apple is currently experiencing and therefore provide the company with a competitive advantage.000 GB DIT | Strategic Management | Iliev. 14. 4.investor.11 Corporate resources: Information Systems Information systems in an IT company such as Apple is definitely one of the most interesting and important things to look at. 1.760 for Apple. Revenue per Employee (TTM) is $617.

but i2 is a key piece of what Apple does. Several other computer manufacturers apply i2. Power Book G4 23’’. Industry Stand. 17’’ display AirPort Extreme Bluetooth FireWire USB by Apple Apple Apple Apple Apple Apple Apple Apple Apple Apple Apple Industry Stand. SAP is the basis. fast 64 bit technology Desktop computer. Regarding supply-chain-planning Technologies Inc.25 GHz G4 processor Desktop computer Digital audio conferencing device Server with single or dual 2GHz G5 processors. high bandwidth Server with up to 3. The PC maker is using several Rhythm advanced planning modules and plans to install more. 1. Apple implemented i2 . 20’’.industryweek.Apple Computer Inc. Description Desktop computer. Due to high costs and the long establishment period.04 DIT | Strategic Management | Iliev.25 GHz processor Desktop computer. Portable with 1. SAP wasn’t a success although employing an accounting package. huge storage. 20’’. order management. 1. and order fulfillment.asp?ArticleID=497. which was aimed to speed the filling of custom orders 149. 17’’ display AirPort Extreme Bluetooth FireWire USB Apple Apple Apple Industry Stand. Industry Stand. Therefore.33 GHz processor Separate displays 54 Mbps WLAN component To connect periphery with main system wireless To connect periphery with main system at higher bandwidth To connect periphery with main system Software Name Power Mac G5 Power Mac G4 iMac (new and old) eMac iSight Xserve G5 Xserve RAID iBook G4 Power Book G4 23’’.5TB storage capacity portable Portable with 1.'s Rhythm 150 software packages.33 GHz processor Separate displays 54 Mbps WLAN component To connect periphery with main system wireless To connect periphery with main system at higher bandwidth To connect periphery with main system Apple has begun using SAP's R/3 system as ERP system. 149 150 Custom-order-to-delivery time could be reduced from ten to five days http://www. Poettler 99 . Industry Stand. 14. manufacturing.com/CurrentArticles/asp/articles.02. equipped with a 2GHz processor. Lindinger. Industry Stand.

further. when Apple plans a 151 Networks connecting Apple with outside developers or suppliers. Data storage. it will not be able to create or even maintain its competitive advantage. Apple tries to make its business process as virtual as possible. As Apple knows. including Compaq. and Silicon Graphics. Gateway.11.2 To what extent is the model of a virtual company achieved by Apple’s Intranet and Extranet solutions? Intranet as well as Extranet151 play a crucial role for Apple and above all for its business environment: Apple Intranet and Network Apple’s main objective always was to be the innovation leader. Apple projects sales each week and adjusts production schedules daily with Rhythm. an internal and external contact database. exchange of information. Hewlett-Packard.Apple Computer Inc. different to Internet DIT | Strategic Management | Iliev. For instance. Acer. interconnected work on projects. Dell. and reciprocal communication are the main obligations. lunch ordering. This software also helps Apple to integrate suppliers by asking them to maintain a certain stake of "industry standard" parts to deliver assembled PCs quickly to the clients. non-compulsory education opportunities. the Intranet provides Apple employees with all necessary information right at the desk. First. The Intranet simplified and improved training as well as skills. The Apple-Intranet provides the cornerstone to do so. 4. Now. Lindinger. IBM.and work-time overview tools as well as an internal recruitment process. instead of constructing lots of computers and building up high inventory in advance to meet estimated demand. holiday planning-. Raising the velocity and efficiency of the working progress by automating it represents a big advantage of a functioning network policy and the Intranet as less failures occur and less money and time is wasted. it is beneficial for company and people. it increases efficiency and reduces costs of the operations as far less employees are necessary. but the potential is much higher. Virtual communities will be the lifelines of future success. For example. all in all at lower costs for Apple. an overwhelming knowledge base. To put it into a nutshell. but also for its internal communication to demonstrate their superiority. Therefore. A company electronic notice Board to highlight key Apple news increases the corporate identity. Poettler 100 . if a company doesn't actively pursue involvement in a virtual community. That isn’t only valid for its products.

this idea has been pursued by Apple and results in higher sales. supporting the existing open standards and working with Internet standards organisations. and much more accurate (concerning quality and time) outcomes in form of products. This means that these groups can work. Apple Extranet For suppliers. A major fact that Apple wanted to get use of is the chance to treat special groups on a personalised basis by preventing cost accruals. Lindinger. how can communication between two involved parties be better arranged than by transferring building-plans and component descriptions via a network." Computing becomes a utility similar to electricity or fuel.04 DIT | Strategic Management | Iliev. Nevertheless.com. The 152 http://www. special key account clients or developers of Mac-software Apple has introduced a term called the Extranet. This model refers to the fact that a “ubiquitous” IT infrastructure will deliver all our computing needs. We would own far less computing assets than we do now but are instead willing to pay for access to services used which will be offered by "utility computing. By intensively re-enforcing this development and by permanently eliminating or minimising disadvantages within the company. implied from performance. PC.11.Apple Computer Inc.g. the Extranet lies in between the two well-known components. Apple starts to follow a new clear concept called Utility Computing 152.utilitycomputing. e. 12. communicate . Poettler 101 . Individualised content of special websites that neither permits these mentioned stakeholders access to the Intranet nor are the same as basic Internet websites. and exchange information/data with Apple on a customised basis. sending tons of unnecessary emails to colleagues (and thereby making costs) becomes more likely.3 How do Apple’s internet solutions assist in generating a competitive advantage? Apple’s approach to the Internet is to work as and to be an active member of the Internet community. increased productivity. a too uncontrolled level of virtuality and interconnectiveness can result in severe problems and huge bureaucratic impediments as anonymity is increased. Apple already makes a big step towards competitive advantage. Notwithstanding . In this context we can see Apple’s new online product strategy comprising iTunes which will be mentioned below.02. Furthermore. 4.

and support for Apple products such as the Macintosh Application Environment. Apple has added numerous other FTP sites that carry a full complement of Apple’s freely distributable software and updates. provide searchable access to the Apple Technical Information Library.support. Internet services Apple has been an active member of the Internet community for years. Apple plans to create even more avenues of communication between the company and customers to provide better on-line support and to take advantage of the direct customer feedback that results from such open lines of communication. These servers help to distribute information about Apple.1).apple. discussions about Internet client and server programs for the Macintosh. and offer detailed product information for current and future customers. At present. The ability to flexibly up. such as mailing lists that distribute Apple press releases to interested parties.com and http://www. all collected under the main server at http://www. with an FTP site that provided Apple software updates and versions of the Macintosh system software (up to version 7. above all in the way they provide online contents. Poettler 102 .com.or downscale to meet demand will have a revolutionary affect on companies and on their strategy formulation. http://www. Of these. there’s to say that Apple provides a wide range of internet based services for its customers and the public (Service & Support. In the future. Lindinger.com have become an important way of providing updates to the global Macintosh community. Apple has a number of web-servers.Apple Computer Inc. Corporate/Investor information. serving hundreds of thousands of Macintosh systems. More recently. ramifications for the IT sector are enormous.info. the infrastructure required to deliver that reality is beginning to be put into place by leading Apple and IBM as the high number of contract manufacturing and outsourcing not only in the IT world portrays. In detail.apple. Apple continues to create new Internet resources.apple. The concept will also be applied to individual users of computing where they will be offered packages like satellite television services today.0. DIT | Strategic Management | Iliev.

Apple Computer Inc.applestore. As expected.com. Contacts. Apple has cultivated these developers even though their programs are often available only as freeware or shareware. Apple presents itself online with a clear structure. PR. Lindinger. and continuing to provide development assistance. Careers.e. Additionally.apple.com we can find Apple’s homepage containing these inputs linking the visitor to the company’s other internet portals (http://www. combined with iPod Digital Production Quicktime product series: Multimedia applications Services & Support Apple learning & training interchange: Online learning platform DIT | Strategic Management | Iliev. Pillars of the website are the following: ! ! ! ! ! ! ! ! ! ! ! ! General Apple information: Investor. periphery Apple Store: Direct selling platform Developers’ site Switch: Incentives to and problem solving for switching from a PC to a Mac Online contents: Music portal iTunes. both giving the possibility to make suggestions or write programs. country websites). These developers. easy handling. Homepage analysis At http://www. Learning/Training centres). offers its online contents (i. thorough information and strong colours which all goes along their self-required innovation leadership. By seeding higher education with inexpensive licenses for MacTCP. Poettler 103 . iTunes) there and uses the corporate internet platform for marketing and human resource management efforts. Products. especially via Apple Store (which make them a serious rival of record-breaking Dell in this area). Much of Apple’s strength in the internet today results from these third-party developers who have combined forces to create one of the most extensive internet toolsets available today. hailing from such educational institutions as Dartmouth College or Cornell University place simple graphical interfaces on top of the standard protocols. FAQs Group of links News & Events Products: Hard.and software. has entirely increased its direct PC selling activities via the web. Apple attracts independent Macintosh developers outside the company to bring the Mac technology forward.

It allows the company to control the shopping experience and build a brand. but also by actively exploring new business areas. Nevertheless. diminish restrictions in the data/information flow (also to outside developers) and intensively use of the “New Media” such as the web to make profit. This competitive advantage comes from the company’s innovation leadership (new concepts and trends in both. The company also must make efforts to drive traffic to the site. iPod). Poettler 104 . specialised malls. Apple’s e-commerce in B2B and B2C relationships The onset of the e-commerce revolution can be dated back to the late 1970's. iTunes. maintain. But the site can be extremely expensive to set up. the company stresses a shopping site with its e-commerce strategy via Apple Store (fourth model of ecommerce strategies. besides there are contextual selling.000% and the doubling of PC ownership.Apple Computer Inc. It focuses on serving as a communication medium between the customer and the company. This site dedicates itself to one brand (Apple). This is due to IS managers that implement the necessary technology well. Apple legitimately argues that simply holding an internet website is far too less. Apple constantly increases its “exposure” to the entertainment sector (eg. Lindinger. and virtual communities) 153. but doesn’t seem to be adequately prepared in bundling all these efforts to create an overall platform for that. and manage. 153 Gupta P. Overall we can observe that Apple has a competitive advantage compared to other industry participants. portals. IS strengthens Apple’s strategies and is a decisive part by not only staying a “supporting activity”. (2000) DIT | Strategic Management | Iliev. As Apple has shown its commitment to the implications of virtual institutions . products and processes) which can help Apple to stay ahead of competitors and therefore maintain a higher profitability than the market in the future. and Ryan J. In order to maintain or achieve a competitive edge within the IT market a company like Apple must actively pursue e-commerce. especially via the Internet. but the real growth in this market can be mapped directly to the last five years due to the increase in internet usage by 3.

Apple Computer Inc. 4.12 Summary of internal factors
4.12.1 Core competencies and distinctive competencies Build

Resources

Shape Distinctive Competencies

Strategies

Competitive Advantage

Superior Profitability

Capabilites

Build

A company’s core competencies describe something that a company does best internally. In the case of Apple, this includes the following competencies: ! ! ! innovation and engineering excellence: technological development and inventions creativity and design: high-end marketing, product design HRM policy: HRM department and employees contribute effectively to company’s success When core competencies constitute aspects that a company also does well compared to its competitors, they become distinctive competencies – firm specific strengths that allow a company to differentiate and/or lower costs. As we can see in the above illustration, these stem from the company’s resources and capabilities and shape its strategies, ultimately leading to a competitive advantage and resulting in superior profitability. So, the following resources and capabilities can be regarded as Apple’s distinctive competencies: ! ! human resources: highly skilled workforce (soft skills, experience, knowledge, initiative, etc.) technological resources: superior information technology (intranet, extranet)

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! ! engineering and technical development capabilities: short product-to-market cycles and innovation/functionality of products creativity capabilities: design of hardware, software, etc. In fact, Apple’s engineering and technical development capabilities as well as its creativity capabilities are most the important factors at the present time as the whole personal computer industry is in a period of change where innovative and creative products that possess entertainment characteristics are attracting more and more customers. Moreover, Apple’s engineering and technical development capabilities will definitely be the most important distinctive competencies in the future as superior innovation is the most important source of competitive advantage in the long run. 4.12.2 Internal Factor Analysis Summary (IFAS)

The Internal Factor Analysis Summary (IFAS) combines Apple’s main strengths and weaknesses, gives them a short comment (rational use), a weight (0-100 each, overall sum of 100) and a rating (from 5 = very significant to 1 = not really significant) and calculating the resulting weighted score.
Internal factors Weight Rating Weighted score Strenghts Coherent strategy 3 4 12 Strategy clearly stated and understood, coherent strategy, consistency with corporate structure and culture Creativity & design Innovation Entertainment capabilities User-friendly business approach and products Wide range of skills and capabilities Marketing skills 5 3 15 1 2 2 6 3 18 13 16 2 15 5 4 65 80 8 Regarding PC not just as commodity but as premium product (aesthetics, lifestyle) Famous for technical revolutions, inventions and development, engineering excellence Pioneer through digital hub strategy, unique products (iPod, iLife, iTunes, etc.) Aware of having “best customers”, intuitive ease of use, advanced graphics capabilities and special design features Producing whole range of products (hardware, software, peripherals, etc.) High-end marketing, combining online and retail channels, strong brand name/loyalty Comments

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Adaptive culture 3 3 9 Encouraging innovation, initiative, autonomy, discussion, and entrepreneurship by decentralising authority/responsibility Workforce Information technology Weaknesses Business execution, commercialisation Lack of critical size Incompatibility High hardware and software costs Lack of realism High operating costs Low number of developers Dependence on key suppliers and manufacturers No high degree of specialisation Total 100 1 2 2 2 3 6 2 2 4 3 8 1 4 3 32 4 11 2 3 4 3 12 44 6 5 4 20 Difficulties in turning inventions into real money, not enough focus on innovation of business models Difficulties in maintaining profitability due to low overall PC market share Incompatibility with Wintel-standard deters customers and PC-producers Higher prices for Apple products than for comparable products Creation of “reality-distortion-field”, inconsistency with economic reality High costs for marketing (retail stores), R&D, and production (unique components) 300,000 independent or in-house developers compared to 7 million Windows developers Key components from single or limited sources, problems in coping with high customer demand (contract manufacturers) High competition at many fronts, threatening and competing with own developers/partners 9 4 4 4 36 16 Strong HRM -department, high employee skills and productivity Leader in terms of internal communication, internet-based services for consumers etc.

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5 External environment
“Foolproof, invisible and everywhere” 154 – this is how the chief executives of the PC market’s big players are describing the promising future of computing. “Clearly, something monumental must be going on in the world of computing for the technology titans to discover something that is so profound and yet so hard to name” argues The Economist. The future of the PC industry is predicted to be glamorous, but what about its present situation and what are the implications for Apple as vibrant part of this sector.

5.1 Overview – The uniqueness of the Macintosh
If analysing Apple in its external environment we are confronted with one significant difficulty – the definition of the market or the markets Apple is engaged in. It can be observed that Apple is in an exclusive position. No other company in the computing sector than Apple has survived producing both, hardware and software. Thus, Apple can’t and shouldn’t be analysed only as a PC manufacturing enterprise, but also as software programmer, server producer, peripherals fabricator, and online content provider. Nevertheless, there is to admit that PC market still remains Apple’s “cash cow“ and consequently the company’s prime sector by contributing up to 70% of consolidated revenues through the Macintosh product line. Additionally, several other Apple products (software like the operating systems, servers, divers applications) are ultimately linked to the Mac which makes more or less useless without the Apple PC. Therefore, the company’s public entitlement as PC manufacturer is adequate and lets us focus on the PC market. Moreover, an analysis of Apple’s second business market, represented by its pillar of online content / digital music industry, will also be carried out.

5.2 The PC market – an in-depth analysis 155
5.2.1 Status quo Apple is confronted by aggressive competition in the market for the design, manufacture, and sale of personal computers. This market continues to be

154 155

The Economist (2004) see: Bibliography – Annual Reports of Dell Inc., International Business Machines, Hewlett Packard Compaq, Gateway

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Desktop PC and Server. Notwithstanding these definitions business boundaries and limits have to be considered flexible and transforming due to changes in client preferences.g. Apple finds itself in the sector of computing and in the industries of computer hardware which consist of the mainframe.Apple Computer Inc. this progress has resulted in the frequent introduction of new products and significant p rice features as well as performance competition. Over the past several years. Hence. above all Microsoft’s Windows have aggressively cut prices and lowered their product margins to gain or maintain market share. simpler. 5. This intending “predatory” pricing led to adverse affects on Apple’s performance ratios. Apple’s competitors who sell personal computers based on other OS. an increasing number of smaller.2. Poettler 109 . DIT | Strategic Management | Iliev. Yahoo Messenger). Its forthcoming results are substantially relying on its ability to continue to develop improvements to the Macintosh itself in order to protect perceived advantages in function and design. their needs and demands (i. Apple’s iChat against ICQ. Apple takes steps to oppose these competitive pressures by innovating in competing platforms. but less expensive online devices may compete for market share with the Apple’s existing products (e. HP Compaq (merger between Hewlett Packard & Compaq in 2001). Additionally. Market segments of Apple are therefore portable/notebook PC. Further. IBM or Gateway. price competition in the market for personal computers has been particularly intense. time and technologies. Lindinger.2 Defining the sector. characterised by rapid technological advances in both hardware and software development which have substantially increased the capabilities and applications of these products. industry and market segments By serving the same customer base. but also put industrywide downward pressures on gross margins.e. as the PC industry and its customers acknowledge the importance of the internet. This development (to the benefit of the consumer) is forecasted to continue in the future. computing devices for businesses and individuals) as its competitors such as Dell. the handheld and the personal computer sub-industry and which is supported by its neighbouring industries of computer software and computer components.

Apple Computer Inc.3 Porter’s five forces Analysis The primary competitive factors in the market for personal computers include the subsequent: ! ! ! ! ! ! ! ! ! Relative price to performance Product quality and reliability Design-innovation Availability of software and other applications Product features such as high speed microprocessor Marketing and distribution capability Service and support Availability of hardware peripherals Corporate reputation DIT | Strategic Management | Iliev. Lindinger. Computer Sector Computer Component Industry Supply Inputs Computer Hardware industry Provides complements Computer software industry Disk drive industry Semiconductor Industry Modem Industry Mainframe Industry Personal Computer Industry Handheld computer Industry Notebook PC market segment Industry Desktop PC market segment Industry Server market segment Industry 5. Poettler 110 .2.

This seems to make the PC market an outstanding one as low market entry risk is – though contradicting theory – associated with vivid competition and tough price wars. Apple achieves this brand loyalty through profound R&D and an emphasis on product innovation.Apple Computer Inc. Regarding cost advantages Apple’s situation behaves in line with the PC market’s. The PC market doesn’t have a high level of brand loyalty which implies that certain products aren’t more preferred by consumers due to high standardisation. diminishing brand advertising efforts and lower product quality. This argument isn’t valid for Apple where brand loyalty always played an important role. potential competitors are willing to enter a market if short term prices don’t equal marginal costs by taking away market share from the established companies. For possible competitors it’s hard to enter as cost to do so are high. Michael Porter’s five forces model has to be applied to identify and emphasise possible opportunities and impending threats: Threat of new entrants POTENTIAL ENTRANTS Bargaining power of suppliers INDUSTRY COMPETITORS Bargaining power of SUPPLIERS Rivalry Among Existing Firms BUYERS SUBSTITUTES Threat of substitute products or services Risk of entry by potential competitors From a macroeconomic viewpoint. gaining access to the market isn’t easy and thus unlikely. Existing market DIT | Strategic Management | Iliev. low patent protection. Lindinger. The detailed reasons for that show up in the barriers to entry of an industry. Poettler 111 . Although high levels of competition among the existing producers can be observed in the PC industry. Therefore.

preservation of business for the existing enterprises occurs when their hardware has special features. These elevated cost advantages make it very hard and even unprofitable to enter. even if customers are ordering different PC variations) and resource cheaply through increased parts’ purchasing. Poettler 112 . the PC industry is a highly competitive one. If this doesn’t hold and – as Apple’s position demonstrates – it’s prevented that PC hardware manufacturing entrants use the same software items. spreading overheads. Lindinger. although qualified graduates are available on a constant basis the outstanding engineers and product designer are already employed by the existing companies) and are in a financially sound position (e. the situation in terms of barriers to entry proves to be a mixed one. computer components merely are identical. Rivalry among established companies As there was already stated. Dell and Co. In addition to this.g.g. Switching costs are kept up and arising “lock-in and network effects” make consumers less probable to purchase another PC offering different software. Economies of scale provide the small number of dominating PC companies with another barrier to entry against the outside rivals. PC hardware producers can’t sustain their superior position if new competitors also use – for instance – the Wintel standard. Dell’s supply chain management.g. In a more political context.e. This means that rivalry is established at an increased level which is expressed by aggressive DIT | Strategic Management | Iliev. Entrants can therefore either explore the market on a small size by facing these economies of scale or bear the financial risks if moving in largely. participants already manage their production operations and processes superior (e. Furthermore. capital intensive PC production market). As they are mainly associated with software. are able to drive down costs by mass production of standardised goods (i. control particular necessary inputs (e.Apple Computer Inc. In Apple’s and its industry’s example where the majority of companies operates on a global basis governments’ interference plays an important role but didn’t ha ve much influence in the last years. existing market participants maintain their competitive advantage. marketing and advertising expenses as well as fixed costs over large fabrication volumes enhances the advantageous constellation for existing PC manufacturers. As far as the issue of customer switching costs is concerned. cheap fund raising). government’s regulations and restrictions can hinder or force the existence of barriers to entry.

Poettler 113 . The bargaining power of buyers A moderate industry demand and lots of small buyers result in a rather low bargaining power of purchaser in the current PC market. 45 DIT | Strategic Management | Iliev. in an industry of high switching costs for consumers.g. The fact was argued that computer manufacturing is capital intensive which builds up impediments for exit strategies. profound product design and innovation ambitions (e. This means that buyers aren’t in the position to force companies to charge lower prices on the goods sold and therefore don’t make the impression of being a threat to them. All this shows that profitability isn’t an easy goal to reach in the PC market as all its participants are applying ambitious cost as well as price structures. this often occurs by establishing an oligopoly. Furthermore. it can’t be compared to an oligopoly due to the market’s soared competition. the rivalry of the personal computer market is determined by the industry demand which is currently positioned at a very high level. pricing policies. Apple’s major efforts). and Jones G.g. above all if software and – to a 156 Hill C. online direct selling (e. p. necessary for PC companies. Moreover. visualised by the industry life cycle. Interdependent companies whose strategies and actions have direct effects on market share and profitability of the other industry participants often end up in finding themselves in so called “competitive spirals” 156 . Favourably for all the market participants it implies that from this point of view there’s less rivalry due to a large number of spending buyers.Apple Computer Inc. In the PC market. Emotional factors that prevent executives to leave a falling market appear for instance in Apple’ case (i.e. W. The PC industry’s exit barriers can be tremendous. This shows up in the number of assembly plants and manufacturing utilities. this proves to be valid as an – especially for high-end manufacturers like Apple – dangerous downward spiral came into existence. Nevertheless. R. CEO Steve Jobs sentiments as being one of the co-founders). holistic support and after-sale services. Lindinger. Dell and Apple). Although Apple never intended to follow the dominant industry company in terms of price. Regarding the industry competitive structure the PC sector is a consolidated industry being dominated by only a small number of large companies. intensive marketing. (2004). An economic dependence on one specific industry which imposes huge risk if the entire sector goes bust exists in a considerable amount of companies.

Nevertheless. As theory taught us. Interestingly. consumer fluctuation is low. risk to Apple and the entire market. Poettler 114 . These enterprises fulfil all necessary criteria for obtaining the bargain power by selling products without real substitutes. Motorola or IBM (when only looking at microprocessor producers) possess the ability to “squeeze out every drop” from the PC industry at the industry’s current stage.Apple Computer Inc. In spite of this. HP Compaq or IBM. A personal computer being equipped with. there’s to admit that this powerful position is only accessible for key component producers. The bargaining power of suppliers In the PC industry. Client play offs of industry participants become obsolete and barriers to entry prevent them from producing their desired good themselves. narrower extent – if hardware is concerned 157. suppliers always move in the opposite direction which would leave them with huge bargaining power. by having a diversified operations portfolio that assures their non-reliance on a specific sector and by exercising real dominance on the PC industry. Although it doesn’t seem that they are providing low quality items. for 157 see above: barriers to entry – customer switching costs DIT | Strategic Management | Iliev. In the PC industry these complementors can be found in form of software companies.g. Apple persists to differentiate itself with their Mac computer series from the common PC market and therefore the company isn’t as directly affected as Dell. companies such as Intel. as is discussed next. Lindinger. Porter’s fourth force states that the bargaining power of suppliers is a stringent one which imposes a threat (e. The first one defines complementors as value-adding institutions for specific products. not for all of them. if Apple quits its contract with Motorola and integrates new Intel microprocessors in its devices this will adversely affect Apple’s position as a whole production process including customers’ preferences for the Mac will change. Porter’s model is often amended with an additional sixth one and even seventh force. This fact implies that buyers can’t obtain bargaining power in the PC market once more. Apple and its rivals would often face high switching costs themselves when changing to another supplier. For instance. Substitute products A considerable amount of substitute products threatens Apple’s market situation as consumers easily can switch from one device to another.

Lindinger. Gateway. instance Corel Graphics (Draw 11. The latter force tries to measure the relative power of unions. PhotoPaint 11. 5.Apple Computer Inc. will definitely sell better than one. implying high R&D expenses by at the same time charging a premium price for its products.e. This isn’t anything new or surprising as there was already defined that first.0) and MS Project 03.4 Strategic Group Analysis High Prices Charged Premium Group (Innovation) Apple Commodity Group Dell.0. HP/Compaq Low Low R & D Spending High As the above diagram shows Apple Compute r is situated in its own strategic group within the PC industry. Apple obtains innovation leadership and therefore is part of that top-right bubble and second. just containing MS Office XP. The company’s individual status within the PC market therefore is derived from Apple’s intention to focus on the “exclusive” DIT | Strategic Management | Iliev. stakeholders) who exert their individual interests on Apple. For Apple these complementors are also represented by third-party software developers who are mostly independent freelancers or students and amount much less than “Wintel standard” program writers.2. Apple is difficult to properly integrate in one of the dominating three big computing industries. governments and special interest groups (i. Poettler 115 .

Apple Computer Inc. Apple is confronted with overall the same. Moreover. but by still monitoring accurately its profitability. Apple doesn’t want to adjust their strategic position in the matrix as it doesn’t desire to move into another strategic group. DIT | Strategic Management | Iliev. they may be able to 158 As stated above “Wintel standard” substitutes are a danger for Apple. within its industry. As there is no other company pursuing a similar positioning strategy or can be located in Apple’s strategic group. As a result.5 Industry Life Cycle Analysis PC Industry Demand Embryonic Growth Shakeout Mature Decline Time As any other industry. change the impact of competitive forces and incite task managers as well as executives to properly define and evaluate the industry they are in. high-end premium PC market by “flooding” customers with their own products. Lindinger. The company’s only objective is to maintain R&D and thereby keep up innovation and the same prices charged. Poettler 116 . personal computing also is dependent on evolutions and dynamics in its industry over time. These may alter strategic groups. although there can’t be identified real substitutes for Apple which entirely fit the Mac’s profile or satisfy identical customer needs/groups. 5. but in detail totally different opportunities and threats. “real” 158 direct substitutes become obsolete. Furthermore.2.

As high growth rates can’t be sustained. estimate implications for their company and products by applying tools as the industry life cycle. IBM. Poettler 117 . observations consider the market as saturated with moderate. the industry’s development shouldn’t determine the company’s profiles too much and innovation – as a major key success factor (KSF) – will become more and more crucial in reaching profitability and optimising business operations as the case of Apple Computer exemplifies thoroughly.Apple Computer Inc. the PC industry shows high barriers to entry at this stage with a low number of potential competitors being able to enter. but already stagnating demand (mainly replacement). but is currently working on its high cost structure to become a vibrant candidate for survival in declining times. price wars will stay ahead resulting in company’s cost reductions and the build -up of brand loyalty. Nevertheless. All these developments also are appropriate for Apple Computer within this mature industry. 159 see: Strategic Advice – Chapter 12 DIT | Strategic Management | Iliev. Consequently.159 Despite normal developments where a mature stage infers oligopolies. mergers such as the one between HP and Compaq as well as business restructuring efforts among all market participants evolved. Therefore. respectively penetrate it. The above chart illustrates that the PC industry can still be attributed to the mature stage market at the moment. competition among Apple’s main rivals such as Dell. Gateway and HP Compaq has become aggressive. Due to extreme price reductions by Dell Inc. Lindinger. the PC industry is different. In addition. The company could already build up its strong brand loyalty.

new trends in technology and computing form the basis for the PC industry and above all for Apple to outperform competitors. Lindinger. Poettler 118 . Therefore. most of them are operating in. Technological Forces Innovation. these determinants vary from country to country. The local key factors like customers. labour unions. DIT | Strategic Management | Iliev. seem to be merely the same.Apple Computer Inc. and shareholders can be located within the immediate environment of the company.6 The Macro-Environment Political and Legal Environment Technological Environment Potential competitors Social Environment Supplier power Rivalry Buyer Power Demogrphic Environment Substitutes Macroeconomic Environment In addition to the industry also the macroenvironment of a sector influences the companies and their ways of doing business. suppliers. the factors influencing the market participants aren’t the same globally although the geographic markets. governments. 5. interest groups. In the PC industry. Nevertheless. creditors. local communities.2. competitors. the subsequent main macroeconomic forces exist: Economic Forces These forces affect the PC industry in determining the general overall global economic circumstances such as global sales and demand that play an important role in the daily PC industry. trade associations.

who operate mainly in one single industry or industry segment. Apple endeavours to diversify its operations by entering into the digital music market. National Environment The PC market is already acting on a very global level. The launch of its music store and the equally named music jukebox iTunes marked an ambitious strategy to become the primary digital music provider in the industry. p. Demographic Forces and Social Forces The PC industry tends to shift its focus from business. Poettler 119 .Apple Computer Inc. 39 DIT | Strategic Management | Iliev. a national competitive advantage can still be encountered. Lindinger. 160 Hill C. (2004). In spite of this. especially in the US. 5. To understand what environmental forces actually drive this industry we first have to define what the industry itself is 160. and Jones G.3 External analysis of software and peripherals market Apple has a much more difficult task to accomplish than the majority of its competitors. Political and Legal Forces Governments provide the basic legal regulations and restrictions that influence the PC in producing and selling personal computers. W. wealthy future clients. as part of its digital hub strategy. R. The external analysis of the computer industry and the PC market in particular showed already the immense difficulty to survive in such a fast paced and changing environment. professionals and home users to also explore new customer groups such as retired persons as potential. Global Environment As globalisation is optimising the possibility to expand abroad to attract new customer groups this environment gets used by an increasing number of market participants. To add to the complexity of Steve Jobs’ job. as the national context of IT leadership helps the industry and Apple in achieving a competitive advantage in the global marketplace by for instance attracting highly skilled professionals.

with the Mac OS X it competes on the operating system market against Microsoft and Linux.3. are that at all the others. competition is not as intensive as in the digital music market. which includes iTunes. (2003) DIT | Strategic Management | Iliev. Last but not least there are several applications designed for consumers such as the iTunes music store and the iLife package. Apple operates with its online music store within a market segment of a different industry. Also the other software applications don’t contribute as much to the revenues as the iTunes software does. Lindinger. 161 Apple Computer Inc.Apple Computer Inc. which makes it a liable choice.161 The reasons for the analysis of the external environment of the digital music market and therefore illumina te only one particular aspect of the software products. as it recently has developed its own web browser “Safari”. iMovie. 5. Apple produces a variety of software applications which are mainly targeted at the creative professionals community and is also active in internet software and services. Moreover. Poettler 120 .1 Software industry COMPUTER SECTOR Computer Component Industry Supply Inputs Computer Hardware industry Provides complements Computer software industry Disk drive industry Semiconductor Industry Modem Industry Operating System Industry application software Industry web services/software Industry desktop publishing software Industry digital art/entertainment software business office software From the illustration we can conclude that although related to its core business area the PC industry. namely the computer software industry. iPhoto . and iDVD.

04 166 BusinessWeek (2004b) DIT | Strategic Management | Iliev.siliconvalley. but also attracts new competitors 162. M. it is vital to assess the market’s growth potential. Competitive forces driving the digital music market First. 123ff Lopez J. A double digit growth rate in the digital music market present substantial opportunities for existing players. p. (1993). 165 Once again Mr Jobs was smart enough to do something that was beneficial to the music industry in creating a paid environment that protects their interests. which means that the more people use one platform the more popular it gets and increased demand will drive up the amount of available songs. “He's pretty much golden in terms of getting deals with the labels. (2003) 165 http://www. brand loyalty is low and economies of scale virtually don’t exist. 162 163 164 http://www.04 Morden T.htm?template=contentModules/print story.Apple Computer Inc. There has been a constant increase of small competitors on national levels all trying to take market share away in this multibillion music online market.com/mld/siliconvalley/news/editorial/3856253. Poettler 121 .siliconvalley. AOL Time Warner Inc.). the rule suggests that the more competitors the more rivalry and so it is in this market.com/mld/siliconvalley/news/editorial/3856253. Risk of entry by potential competitors The barriers to entry are very low as on the one side capital requirements are limited.jsp.02. 166 Rivalry among established companies In general. One is the networking effect. Vivendi Universal. 11. because this potential determines the nature of the game to be played.. which provide the essential song material for the online music stores.jsp.” said Tim Bajarin. and Sony Corp. CEO of consultancy Creative Strategies. 11. Nevertheless there are two significant aspect in terms of barriers to entry.htm?template=contentModules/print story. EMI Group Plc. Also. Lindinger. as the CEO of Apple points out that music artists themselves prefer to work with Apple and why then not provide their songs and albums on an Apple platform? The second barrier is the cooperation with music labels. 163 Especially the disloyalty of young customers has to be managed effectively in order to create what Apple has been able to do in the PC market164: Having the best (loyal) customers a company can dream of. Nobody except Apple has succeeded to win all five major music labels for its operations (Bertelsmann AG's BMG.02.

the branch leader in terms of users (on average over 4 million users online) 169. which would intensify rivalry if existing.com/news/article/0. This situation is less advantageous for Apple and other suppliers of online music content as they are forced to keep prices low resulting in low profit margins. even if you are a big fish like Apple.aid. As the buyers can influence prices and marketing costs. 01. As previously stated as there are no significant investments and fixed costs can consequently be kept at a minimum.pcworld.2 billion by 2007 167 – who wouldn’t be eager to get a slice of such a big pie? The industry is fragmented. the legal digital music market can be glad to exist in first place.kazaa.asp.04 170 Morden T.102516.02 Baltimore Sun (2003) http://www. Actually Apple captures about 20% of the pay per download online music market.com. This competiti ve picture of the industry leads to the conclusion of various analysts that in this industry there is no money to make at all. competition will increase over the next years.02. Jupiter Media forecasts a market worth $5. still with a few major players such as Apple .168 The last point to consider are the barriers to exit. Bargaining power of Suppliers This is the flip side of the assessment of the bargaining power of buyers. The fact that demand is still growing rapidly tends to moderate the competition as gaining market share doesn’t automatically mean that this gain is at the expense of another player. Bargaining power of Buyers The existence of huge illegal music download communities with file sharing networks such as Shareman networks with their file sharing tool “Kazaa”. so do the suppliers influence the production costs. but as the product (song) is a commodity type of good and barriers to entry are not high.02.dn070802X. Napster II. Lindinger.Apple Computer Inc. Poettler 122 . (1993).00. 18f DIT | Strategic Management | Iliev. 170 In this industry production costs basically equal the costs of 167 168 169 http://www. p. quitting the business in the digital music market is not exactly what one would define as difficult. 04. This immediate threat can be seen as bargaining power of the buyers and constraints competitors in their pricing options as the switching costs to either other players or the illegal music download scene are practically non existing. as companies start to realise that there is a high demand for legal online music downloads.tk. and Rapsody dominating the market.

jsp. Lindinger. which inevitably would lead to an increase of prices. as music labels will learn to fulfil consumer demands in the next few years.Apple Computer Inc. expected to undergo further harmonisation. R. In numbers this means that for a 4month period from July to October 2003 7. The music labels can either choose to insist on high profit contracts with legal online music stores. compared to only 4 million physical units of CD singles. 11. because Apple and other competitors would be forced to pass on these increased costs and subsequently risk that customers would turn to illegal services or music labels could charge lower prices (lower profit contracts) and this way ensure that they at least will counteract the trend to illegal music sharing and capture still decent profits. try to exploit that by maximising profits and cut good deals for themselves. aware of this situation. and Jones G. Disadva ntage for Apple in this field is the presence of only a handful big and important music labels on the world. “buying” the songs from the music labels through contracts. but Apple has to be aware that the external environment can change rapidly to the disfavour of Apple. 172 Although the market for online music is predicted to rise in an exorbitant manner. 04. Suppliers.02. Strategic group analysis The online downloadable music industry is a very homogenous industry. The music cassette has been replaced by the CD and so can new products hit the online music industry from its blind side and substituting them.04 Hill C.02 DIT | Strategic Management | Iliev. 173 Consumer preferences can change especially in high tech markets. Poettler 123 . there is still the traditional music industry with its retail channels selling CDs.04. forecasting that by 2005 labels will endorse a standard 171 172 173 http://www. as history has frequently shown.com/mld/siliconvalley/news/editorial/3856253.7 million digital tracks were recorded as sold. therefore limiting their power to a certain extent.php/3286881. 48f http://www. and minidisks. (2004).internetnews. Currently the threat of substitute products can be rather neglected as technological innovation is not likely to produce big changes in the near future. Pressure from substitute products If products of different businesses or industries can basically satisfy the same customer needs.com/ec-news/print. p. music DVDs. then the pressure from substitute products is considered to be high.htm?template=contentModules/print story. W. 171 Fortunately the illegal music download business is working against the supplier.siliconvalley.

and Devgan A.com +315.000 $0. Song formats Complem.175 iTunes Song library400. MP3 MP3 MP3 MP3 MP3. imposes more restrictions and offers less options than free services. no iPod support None System Lim itations none Downloads in Windows IE5.siliconvalley. are as previously mentioned extremely disloyal.jsp. Apple as opposed to other key competitors such as Rhapsody doesn’t rely on subscription services but rather provides the customer with a pay as you download principle.Apple Computer Inc. They are not prepared to acquire a monthly commitment nor to pay in advance for a service that. especially the younger ones.99 per song $9.95/month unlimited access BuyMusic. Lindinger.000 $0.000+ from Indep. Poettler 124 .04 Cheng L. most times.95/month $0.99 per song $9. AAC.0 on Windows Windows only Media File format will not work with iPods Downloaded tunes tied to one computer only portables directly Mainstream record available Cannot transfer to label offerings not Other services *Allowance accounts *Email songs *Gift Certificates *CD burning *Smart playlists *Sync iPods *Exclusive tracks *Videos*Audiobooks *Share playlists *Online magazine *billboard charts *music videos *share playlists *Unused credits do *Free of DRM not carry over *Pricing scheme may vary by distributor *complex pricing *Plans for lyric download 174 175 http://www.99/album Napster 2 (roxio) +500.79/song to burn on CD Audio Lunchbox +40. other portable All portable devices devices Online Community Limited portables. $0. None Windows media 8 for DRM.99/song subscription. Artists $0. Oggs iPod.000 $9. Internet users.com/mld/siliconvalley/news/editorial/3856253. Reports show that surfers prefer to pay per download rather than to have a monthly subscription and Apple’s experience corroborates that.99 per song $9.99/album songs.000 size Pricing $0. Products AAC. the only thing which seems to distinguish them at the moment is the payment method. (2003) DIT | Strategic Management | Iliev.174 As a result there are no major differences between competitors. 11.79 for limited Rhapsody +300.95/album $9.htm?template=contentModules/print story.02. download contract on equal terms to all distributors such as Apple’s iTunes store.

uk/news/main_news.macworld. Predictions say that the digital music download service in Europe will be worth an impressive !1. One and a half years later the situation looks completely different. not subscription-based services.178 This will mostly come from individual downloads.cfm?NewsID=6342. moving the industry from embryonic to growth stage.02. Poettler 125 .02 DIT | Strategic Management | Iliev.02 http://www.asp. Napster is bankrupt (mainly because it was not paying royalties to the troubled record industry) and Musicnet and Pressplay are struggling to draw customers to their limited services. major music and technology companies including Apple are now taking the future of digital music seriously.pcworld.aid. Lindinger.3 billion by 2007. In 2001.Apple Computer Inc. Growth will be fuelled by the emergence of more legitimate services and higher broadband penetration.aid.02.com/news/article/0. The sector will generate just !24 million this year.00.co.tk.102516. 176 After sluggish sales in the past two years demand begins to take off.tk.01. 09.dn070802X.pcworld. 04. 04.com/news/article/0.04 http://www. Growth projections had been revised and successful entrance or even penetration of the digital music industry has been proved to be more difficult as imagined.102516. After a slow start.177 The US market will be worth $2 billion by 2007. Industry life cycle The economic downturn during 2001 has also afflicted the still-nascent digital music industry. but will account for 13 per cent of all music sales by 2007. 176 177 178 http://www.dn070802X.asp. industry backed subscription services Musicnet and Pressplay discussed prelaunch plans and Napster with a new CEO hailed Napster as a brand that “cannot be killed”.00.

E. which is only compatible with its own MP3 player compared to the industry standard format of MP3. the AAC. Changes in technology can affect the height of barriers to entry and therefore have a huge impact on industry structure. (2004).Apple Computer Inc. The Macroenvironment Technological Forces In recent times technological advancement has rapidly increased its speed and has unshackle a process that has been called “perennial gale of creative destruction” 179. Lindinger. and Jones G. Logical consequence would then be a price war among existing competitors driving profit margins from an already low to an even lower level. as this group is believed to be the main users of online content including downloadable music. p. W. (1950). Social Forces People’s attitudes as well as consumer behaviour together shape what is called social forces. This can further eliminate barriers to entry. The impact of limiting the downloaded content to its own software (iTunes juke box to play music on the PC) can have a detrimental impact on users acceptance of Apple’s product. (1994). Poettler 126 .181 What can also play an important role are the different formats of the music files. because opportunities in regards to content would be equal. Demographic forces Demographic forces underlie all market and economic trends. p. R. The external environment within which the enterprise operates depends partially also on how population is made up. Trends and changes in attitudes towards work and leisure or changes in expectations can all affect the day to day operations of an organisation. et al. the lack of technological awareness of the older generation can inhibit sales in the iTunes music store. Apple has created an own format. 177 Hill C. p. A major 179 180 181 Schumpeter J.180 In the case of the digital music industry music labels are working on a common format to make their content available on equal terms. so that Apple then will maybe lose the advantage of being the only player having access to the five big music labels. 68 Dickel K. 41ff DIT | Strategic Management | Iliev. The disproportionate decrease in the population aged between 18 and 35 can adversely affect the online music industry. Although Apple’s efforts to make the easiest software to use.

02. issue and key determinant of the success of the digital music industry are people’s conscience and ethic values.102516. et al. 04.184 Demand for Music Subscriptions and Downloads Type of Consumer (number sampled) Music aficionados (357) Free-music fans (514) CD purists (280) Passive populace (746) 21% 13% 10% 7% 25% 19% 16% 10% Subscriptions Downloads Will Not Pay for Music 46% 60% 71% 79% Political and legal Forces These forces are outcomes of changes in law and regulation. per stream royalty.07 cent would force many companies out of business. Such fees imposed on downloadable music content could ruin the business as the narrow profit margins of Apple and consorts could totally disappear. Poettler 127 . (2003) 185 Dickel K. The environment Apple operates in can be shaped by political judgments and legal decisions.00.pcworld.aid. Also government was very 182 183 184 Lopez J. The RIAA justifies this high rate by claiming that these rates don’t reflect music’s fair market value and that broadcasters who couldn’t afford to pay the fees should in first place be not in the market.186 For example. which would lead to anticompetitive structures.Apple Computer Inc. M. 185 Bodies such as the Copyright Arbitration Royalty Panel (CARP) or the Recording Industry Association of America (RIAA) can have a crucial impact through imposing new laws limiting the digital music industry in its efforts to grow and expand.182 At the moment Apple has created the picture that downloading music from the internet is cool and therefore was able to spur sales. 183 But the line between music piracy and legal industry is thin and only the smallest change in perception from customer’s point of view can change their consumer pattern and the anyway increasingly disloyal consumer could turn to piracy again. in 2002 the CARP determined that webcasters (companies that produce audio or radio for the world wide web) should pay a per song. 112ff 186 http://www.asp.tk. p. M. E. Lindinger. The rate being 0. (1994).dn070802X.com/news/article/0.04 DIT | Strategic Management | Iliev. (2003) BusinessWeek (2004g) Lopez J.

Some have gotten smaller (Apple’s iPod).” Another fact to take into consideration is that most of these rivals are cheaper . which is constantly heating up. Creative Labs.1.01. Today the MP3 player market is swamped to the gunne ls with me-too products. The iPod is still smaller.asp. Gateway).macobserver. growth has been tremendous and all major consumer electronics producers entered the market.2 Market and external environment analysis for the iPod Apple utilises the iTunes music store in order to make a natural connection between its iPods (MP3 player) and the service.3973. more attractive.usually $100 less. Poettler 128 .04 http://www.com/2100-1040_3-252001.Apple Computer Inc.3. and it has gotten pretty tough for new arrivals to distinguish themselves.01.5 million units only in the US during 2003 and is expected to grow further at a rate of 50% in the next three years. The market for MP3 players started to develop in 1998 with such companies as Diamond Multimedia with its RIO MP3 player. 5. active on regulating the industry through means of the Music online Competition act in order to tweak various aspects of the US Copyright Act with updates. 190 But “better” is another story.00.02. 188 The clearly trend is that music consumers behaviour shifts from a physical to a digital approach.04 190 New York Times (2004) DIT | Strategic Management | Iliev. and more 187 188 189 http://news.com/article2/0.04 http://www.extremetech. some have added capacity.1230545. only cheaper” or “just like the iPod. The other notable feature of these competitors is a marketing message that's either “just like the iPod. such as Creative's Nomad Zen 60GB. as well as from veteran music-player makers (Rio.com.shtml. there's little room for innovation. 187 Since then. Jupiter predicts that by 2006 the install base of players will hit 26 million – that would be one out every ten Americans. iRiver). Lindinger. thoughtfully designed than any of the upstarts. Others have added video.html. 31. 05. only better. the key example being the Archos AV320. a seamless connection between hardware and content. Most have the familiar iPod ingredients. 189 The immediate rivals come from electronics makers (Samsung) and from fellow computer makers (Dell. The market grew by 70% to more than 3. 23. With so many available products.com/article/2003/12/30.

Lindinger.macobserver. Poettler 129 . simply because their bigger storage capacity is more attractive to customers.192 In terms of environmental forces. are credible alternatives. The MP3 player market can also be categorised as high tech market were technological advancements often occur and reshape industry patterns. 193 Political forces once again include the RIAA. which at the very beginning of the industry in the late 1990’s filed lawsuits against first movers in the industry accusing 191 192 193 http://www.Apple Computer Inc. The iPod integrates much better with Apple's download service than Dell and Samsung do with their companion services and that’s the key advantage of Apple’s iPod.com/article/2003/12/30. technological and political/legal forces are worth mentioning.04 Wall Street Journal (2003) http://www. Creative Technology 3. Rio 4. Best selling MP3 player makers over US$150 (by units) 191 1. the flash based models and the hard drive models (Apple’s iPod is hard drive based).1.01. The advantage of Flash based models which are accounting for one third of the MP3 player market.macobserver. which are particular suitable for use during sports. 31. RCA 5.04 DIT | Strategic Management | Iliev.1. This indispensable connection between iTunes and iPods was also the reason for the extensive analysis of the downloadable online music market in the previous chapter. is currently dominated by the hard drive models. Apple 2. especially the Dell. is the smaller size of the players. Arcos Best selling MP3 players for November 2003 10GB Apple iPod 128MB Digitalway 20GB Apple iPod 128MB iRiver 40GB Apple iPod But the margin is very slim and the other players.shtml.shtml. 31. The format war between the two existing memory formats.com/article/2003/12/30.01.

Their view has changed. If Apple is able to maintain the coolness factor of both iPod and iTunes. which constantly drives down prices and makes high end. both the digital online music industry and the MP3 music player market are dynamic. but also targets the Wintel market with its new innovations.4. as the name already reveals. DIT | Strategic Management | Iliev. which can lead to a higher cost structure and thinner profit margins.1 Overview Apple operating in the high tech industry. For the future. marked by intense competition and a huge potential for companies to make profits. as the RIAA has realised that the MP3 player market can be the device which opens up the door to a legal online download music industry as Apple’s combination between iTunes and iPods already shows. Poettler 130 . In conclusion. Opportunities arise through its digital hub strategy which aims at producing not only Mac compatible software and hardware.Apple Computer Inc.4 Summary of external factors 5. In this. them of supporting online piracy through their products. Besides that the significant barriers to entry represent a safe haven for Apple as it can serve its niche markets through innovative and highly capable products and equally charge a premium price. Among the most important threats are the high level of competition in the PC industry. 5. social forces seem to evolve as key determinant of how successful Apple will be in the future. issues in the music player market and digital music market will have a higher impact on the company. highly influenced by technological changes. high price innovative products less attractive and the bargaining power of Apple’s key component suppliers. Apple has already made the brutal experience of losing a format war against Microsoft and therefore is eager not to make the same mistake again. is. as other industries where Apple is involved in will gain importance.it will be able to generate above industry profits for the future. Lindinger.

facilitates digital hub strategy MP3 player market in growth stage 9 4 36 iPod ! Superior design and quality of killer application (storage capacity) can earn high profits Threats Rivalry among established companies in PC industry 16 4 64 Consolidate industry with price wars ! (downward price spiral) saturation of PC market ! decrease in demand ! fiercer competition ! profits? Exit barriers: emotional attachments/pride Apple’s high dependence on PC market Bargaining power of suppliers in the PC industry Substitute products in the PC industry Social forces 4 2 8 14 5 70 9 3 27 Key components exclusively manufactured by few suppliers ! high reliance on them ! higher costs Commodity type good ! intense competition through Wintel standard.4.2 External Factor Analysis Summary (EFAS) External factors Weight Rating Weighted score Opportunities High barriers to entry in the PC industry Complements and complementors 6 2 12 11 4 44 High brand loyalty. Technological awareness in the U. superior products gain new market share ! increase profits ! Apple no fear of declining industry Technological forces 12 5 60 Superior R&D and innovation leadership! possible first mover advantage ! high returns in embryonic/growth industries (mp3 player market and digital music segment) National environment 1 4 4 U. Cutting edge software ! more acceptance in education/creative professionals segment Mature stage of PC industry 7 3 21 Strong brand loyalty ! protect market share. high economies of scale. high customer switching costs due to unique hardware/software. cost advantages through patents and secret processes Strong and loyal developer community ! superior quality and added value. PCs Rising disloyalty among young generation ! Comments DIT | Strategic Management | Iliev. Lindinger.S.S. Poettler 131 . 5. computing dominance attracts R&D and network of services and developers.Apple Computer Inc.

Poettler 132 . price key determinant of buying decision ! may lead to decreasing demand for high end products Political and legal forces Bargaining power of buyers in online music market Bargaining power of Suppliers in the online music market Technological forces in the online music market Total 100 4 4 16 Format war between MP3 and AAC ! user’s acceptance defines future success 3 1 3 2 2 4 2 3 6 New regulations/restrictions governing digital online content may inhibit industry in its growth (RIAA and CARP) Switching costs extremely low ! price key determinant of success ! threat also through music piracy only five key music labels who produce majority of songs !labels dictate price ! dependence on their cooperation DIT | Strategic Management | Iliev.Apple Computer Inc. Lindinger.

Apple Computer Inc. and Jones G.1 General information194 Build Resources Shape Distinctive Competencies Strategies Competitive Advantage Superior Profitability Capabilites Build Functional strategies are shaped by a company’s distinctive competencies and enable a company to achieve superior efficiency. R. chapter 4 DIT | Strategic Management | Iliev. Lindinger. (2004). and responsiveness to customers. 6.2 Company resources and functional strategy Superior quality Superior efficiency Competitive advantage: Low cost Differentiation Superior customer responsiveness Superior innovation 194 Hill C. innovation. W. quality. thereby leading to lower costs and/or differentiation (competitive advantage) and ultimately resulting in superior profitability. Poettler 133 . 6 Functional strategy 6.

Lindinger. policies. Poettler 134 . supply chain management HRM increasing employee productivity (hiring. pay for performance) TQM training programs. flexible manufacturing. Operations & Logistics (O&L). process innovations O&L economies of scale. quality. building brand loyalty. and methods for all value creation activities that were examined as company resources in the analysis of Apple’s internal environment. Human Resource Management. optimise production. experience curve effects Finance invest in better manufacturing machinery R&D product innovations. implement TQM at suppliers cooperation with R&D to develop product and process innovations customisation and rapid response through flexible manufacturing and JIT superior innovation providing market information to R&D. quality teams IS improved interaction between company and others. there are different strategies. Research & Development (R&D). mass customisation. team. Functional strategies are targeted at improving the functions of a company’s value chain and therefore reaching a competitive advantage through superior efficiency. namely Marketing. developing products with R&D provide capital for R&D efforts developing new products and processes. JIT. training. feedback on quality provide funds for implementation of TQM design products with superior quality and ease to manufacture analyse defects. include customers in product development training programs for sales force and other employees to think like customers web-based information systems for customers DIT | Strategic Management | Iliev. coordination with other functions hiring of scientists and engineers coordination of product development work superior customer responsiveness customer knowledge and feedback investment in market research etc. The following matrix gives an overview containing several exemplary strategies and methods a company can use to succeed in improving the four building blocks of competitive advantage: Marketing superior efficiency reducing customer defection rates. and responsiveness to customers.Apple Computer Inc. As a consequence. automated processes monitor defect rates superior quality focus on customer. innovation. and Information Systems. Finance.

In addition. HRM Superior efficiency ! IS Competitive advantage: Low cost Differentiation Superior innovation ! R&D Apple reaches superior quality through improved product design which creates value through better product quality and functionality. these four factors contribute to superior innovation. Moreover.Apple Computer Inc. the Information Systems function optimises internal communication (intranet) and external coordination (extranet) which facilitates and optimises business processes and therefore lowers costs due to superior efficiency.3 Sources of competitive advantage As Apple only possesses a competitive advantage in some specific areas. Finally. Poettler 135 . thereby also leading to differentiation and more pricing options. thereby leading to differentiation and more pricing options. DIT | Strategic Management | Iliev. the HRM department enables Apple to reach superior quality as a high-skilled workforce ultimately leads to better products. thereby constituting another factor that leads to differentiation and results in more pricing options. efficiency. the R&D function is the most important source of superior innovation as short product-to-market cycles and innovative products create value for the customer. Lindinger. In all. and quality and provide Apple with a competitive advantage. 6. the following illustration should summarise Apple’s sources of competitive advantage which result from its distinctive competencies that were examined in the analysis of the internal environment: Superior quality ! R&D.

throughout all industries it participates in. home Hardware. tries to implement its vision of being the digital hub in an area where networking between hardware. software. Lindinger. 7 Business-level strategy • Differentiation on product and service through a user-friendly graphic interface and integrated products • “Change the world through technology” Goals Value Proposition Product Market Focus Core Activities • • • • • Complete desktop solution 50% US. R. They are customer needs. software. 158ff DIT | Strategic Management | Iliev. The business strategy proposes how a specific business model can gain a competitive advantage over its competitors in the industry. 195 with the business strategy being in the top right corner. (2002) Hill C. and Jones G. Fry J. To explain how this strategy works out in detail is the purpose of this chapter. 50% foreign Education (50%MS). (2004). N. peripherals High end R&D Manufacturing Distribution • Fully integrated The above illustration shows Apple’s overall strategy.196 7. as consumers require sophisticated as 195 196 Crossan M. Apple pursues a differentiation strategy with unique products which until now are unmatched by its rivals.Apple Computer Inc. and services is getting more and more important.1 Customer needs Apple. P. customer groups.. W. There are three main factors influencing the shape of Apple’s business strategy. M. and Killing J. Poettler 136 . and distinctive competencies – in other words Apple has to find answers to what and how customer needs are satisfied and who is going to be satisfied. p.

Know yo ur customers means to be able to carry out a proper market segmentation. et al. p. It is important to find the right balance between customer satisfaction and pricing option as this mix is crucial to maximise value for the customer and drive up profitability. (1993). second Apple could still serve all customers. (2003a) DIT | Strategic Management | Iliev. The first option would be that Apple could try to serve the average customer without making any differences in serving their needs. 197 Apple is known for its high cost structure. Nevertheless product differentiation is a strong competitive weapon because Apple can increase the perceived value of its products and be as profitable as other competitors despite the higher cost structure. Poettler 137 .2 Customer groups For a company it is indispensable to know its customers. but recognise the different tastes and therefore create separate products for each customer segment or third Apple could simply position itself into a niche and serve just specific customer groups. (1994). p.Apple Computer Inc. increasing customer responsiveness. Lindinger. 7. Apple uses consumer characteristics to segment the market as the following diagram shows and employs a niche strategy. Apple since ever tries to differentiate itself from competitors in order to justify the premium price it charges. 199 197 198 199 Morden T. 116f Apple Computer Inc. because each set of consumers needs to be properly differentiated. 198 There are three types of strategy available for market segmentation. as development of product design and innovation is a costly matter. This procedure helps companies to target individual customers in a better way with better and more appropriate products. 79ff Dickel K. well as integrated digital devices who can smoothly communicate with each other. E.

and Jones G. Additionally. By doing this. as it was able to build 200 201 Hill C. 7. 201 In the education segment Apple’s superior quality is demonstrated by its ease of use. Competitors based on Wintel standards underperform Apple by far in this particular category. W. Apple’s PCs are the most beautiful among all. which is a key success factor in the education market.Apple Computer Inc. it chose the so called Differentiation strategy.3 Distinctive competencies Apple’s business model must acknowledge its distinctive competencies and set a business model which allows it to organise and enforce its competitive advantages. the strong performance in graphic and other media applications has persuaded one of the target segments. to mainly operate on Apple computers.4 Differentiation strategy200 Among the different choices Apple has on the business level. therefore successfully getting rid of the image of being only a commodity type good. R. (2004). 7. namely the creative people employed in the media and advertising industry. p. With Apple as industry leader in design and product innovation the task of the manager is to choose a strategy which is in compliance with the high cost structure and the differentiation approach. 160f Apple Computer Inc. In the consumer sector Apple is the innovation leader. (2003a) DIT | Strategic Management | Iliev. Apple focuses on superior quality and innovation. Key element of this approach is that it lets Apple compete in different niche market segments by means of differentiation. Poettler 138 . Lindinger.

Apple products appeal to customer’s psychological desires and as a result consumers are willing to pay more for its products. B. Apple tries now to copy cost savings innovations from competitors such as Dell by substantially reducing inventory cost by partially outsourcing manufacturing (inventory is down to less than two days worth of sales) and boosting direct sales channels (43% of sales are already through its online store). state of the art computers. Poettler 139 . The main threat for Apple in pursuing such a strategy is the entrance of competitors being able to imitate the products and at the same time have a lower cost structure. In contrary. and Wang Y. Steve Jobs pointed that out by saying that Apple has the world’s greatest customers. but only six months after their introduction they had to be discontinued as a result of slow sales. 202 Apple has realised that in order differentiation to provide a competitive advantage it has to lead to superior profitability. which Apple has been doing in the past. as an answer to Apple’s iMacs which was then sold in five shiny colours. But this premium price should not mean that Apple can neglect its cost control. Another advantage is that this loyalty creates a substantial barrier to entry and especially in the case of Apple. 7. Analysts rate the threat of imitation in the PC sector for Apple as relatively low despite the tangible nature of competitive adva ntage. as Dell and Compaq a few years ago designed PCs which were fancy coloured. In the past years technological factors have drawn players with different strategies closer together intensifying competition. 202 Yoffie D. driving it into losses. Lindinger. iLife and the iPod. So former pursuer of cost leadership strategies such as Dell and HP/Compaq are trying to gain market share on the expense of Apple .Apple Computer Inc. where switching costs are considerably high.5 Advantages and disadvantages of the Differentiation strategy The strategy was able to safeguard Apple against competitors as it was able to create a strong brand loyalty. differentiating their product portfolio to create products which can compete with Apple’s iMacs and Power Macs. software and digital devices such as the Power Mac. which is also depends on the cost structure of Apple. (2003) DIT | Strategic Management | Iliev.

As stated before. Apple has a relatively strong competitive position within the industry.6 Investment strategy203 The second determinant of where Apple is heading in the future on a business level is its investment strategy. 204 To sum it up. To chose a competitive strategy which 203 204 Hill C. iPod and iTunes perfectly fit in the corporate image as they seamlessly join the existing products in terms of design. W. To analyse Apple’s position in the industry you need to consider the market share in its key market segments. the PC industry is in its shake out stage reaching maturity.7 Competitive strategy After choosing the appropriate generic business level strategy and investment strategy. more specifically the MP3 player market with its iPod and developed iTunes. 173f Apple Computer Inc. reliability and pricing. R. 7. an online music platform and media content player. and Jones G. Naturally the PC business remains Apple’s core business (70% of Apple revenues come from PC sales). The choice is dependent on the strength of Apple’s position in the industry and the stage of the industry life cycle. as new products are marked by the same qualities and features Apple has established and is proud of in the PC industry. marketing . In the education sector Apple has a 28% market share in portable devices (iBook) and an overall market share of 12. (2003a) DIT | Strategic Management | Iliev. 7. Apple therefore entered as part of the digital hub industry the consumer electronics market. (2004). As a strong competitor and a differentiation specialist Apple investments are oriented towards the development of a sophisticated customer service. Apple faces another critical decision. p. As the name already suggests. All in all the investment strategy tends to be coherent with the generic business level differentiation strategy. the investment strategy defines and allocates resources needed to create distinctive competencies. Poettler 140 .4%. meaning that demand is only increasing slowly with 2001 being the second year of a decline in worldwide PC sales after 1985. and broader differentiation. in the creative professionals sector Apple’s market share exceeds 65%. but as profits start to dry up. broader diversification is the only liable way for Apple to ensure profitability in the long run. Lindinger. In the consumer and the small business segments it captures only insignificant market shares. Apple’s position has again implications for the investment strategy.Apple Computer Inc.

before launching any initiatives. Lindinger. There are two major starting points how Apple can achieve sustainable profitability. R. as Apple can use this already existing invisible hand to protect company’s and industry’s profitability. p. (1994). This obvious high interdependence in the PC industry requires Apple and its managers to look forward and reason back. HP/Compaq. (2003) Hill C. Dell. Either deter entry into the industry or reduce rivalry among existing competitors. trying to predict their next step in order to be ahead of the rivals. As Apple 2000/2001 tried to enter the low priced market to better serve its education segment. and Jones G. As this stage is characterized by a small amount of dominant players such as Dell. these companies have the power to influence the five competitive forces. W. E. the only beneficial choice 205 206 207 Ganesan S. announced deep price cuts for its Dell Dimension 4100 Desktop to as low as $799 per unit. best fits generic business level strategy. 206 This interdependence doesn’t only pose a threat to Apple. it launched its eMac and priced it competitively at $999. (2004). 7. 125ff DIT | Strategic Management | Iliev. Apple therefore is constantly watching the other players. p. 205 Just weeks after this launch. 194ff Dickel K. Gateway and Apple.8 Strategies to deter entry207 Strategies for deterring entry of rivals Product proliferation Pricing games Maintaining excess capacity From the three options to deter entry (product proliferation. given the maturity stage of the PC industry in the industry life cycle. Poettler 141 . pricing games and maintaining excess capacity) Apple could choose from. its main competitor in the education market.Apple Computer Inc. This so called competitive game can be analysed using game theory. et al.

204ff DIT | Strategic Management | Iliev. won’t be able to find any unsaturated niches. would be product proliferation. Maintaining excess capacity would be in contrast to the manufacturing process at most PC companies. as they might incur very high losses. namely Dell. who wouldn’t enjoy the same economies of scale in the beginning as existing players. 7. as they made a wide range of their products affordable for consumers. As competition is immense among existing players. which in turn would lead to higher barriers to entry. Although financially feasible limit pricing. For the same reasons as before. nonprice competition. 208 Product proliferation means that the current competitors try to cover all market niches. three basic options to handle competition within the industry being further analysed: Price signalling. Lindinger. and capacity control. W. apart from Apple only one player is currently making profits. as the fear of price wars within the industry poses a far greater threat than the benefit from increasing the barrier to entry.Apple Computer Inc. meaning the lowering of prices below the average cost curve of potential new entrants.000 limit and expanded to consumer electronic markets. any kind of 208 Hill C. because new companies willing to enter the market. A high degree of competition can quickly lead to intense price wars and decreasing profitability. This circumstance makes it difficult for the other players to lower prices. reinforcing the maturity of the PC industry having no space left for new competitors. as they have introduced lean manufacturing systems as well as Just-in-time production.9 Strategy to manage rivalry Apple of course has to consider the more direct threats from within the industry and also put measures into force to actively manage this rivalry. Also the rapid decrease in value and price of old technology prevents maintaining excess capacity. and Jones G. It introduced PCs priced below the magic $1. Apple has never used this option. that there is no space for them in the highly competitive PC market. Also Apple with a traditionally high cost structure will see this opportunity for entry-deterring signals as the least attractive. R. Apple has constantly tried to fill more and more niches in the consumer PC market. p. price leadership. The current product range of Apple and competitors are a strong signal to potential entrants. pricing games which would have to be supported by the majority of the industry are very difficult to introduce. (2004). Also. Poettler 142 . Apple in this case has a variety of possibilities.

Apple’s only chance to impact the intensity of existing rivalry in the industry is through non-price competition. Poettler 143 . the iPod. To break non-price competition down into its four main components the following chart is used to exemplify Apple’s strategic alternatives. thereto. Price leadership would mean that the weakest player in the PC market would set a price. so that any kind of price settings from its competitors could not really act as an indicator for Apple’s pricing options. The reason why Apple can’t rely upon such a system. competition is stabilised and hence decreases rivalry. as the famous tit-for-tat strategy wouldn’t work. Four Types of non-price competitive strategies PRODUCTS EXISTING NEW MARKETING SEGMENTS EXISTING Market penetration Product development NEW Market development Product proliferation All four tactics are achieved by means of product differentiation. price signalling is useless to pursue. The competitive nature of the PC industry and the clash of the various corporate cultures do the rest to make price leadership strategies impossible. If new niches develop. Product proliferation tactic is identical to the one used to create barriers to entry. Apple’s approach here is a mixture between product development and product proliferation. DIT | Strategic Management | Iliev.Apple Computer Inc. the leader gets a first mover advantage as it was the case with Apple in the digital music market where it was the first company to offer online music via iTunes and the suitable device. which would then serve as orientation to price its own products. Lindinger. is that its products are far to differentiated. When other companies start to move into to the niche.

Poettler 144 . However one has to remember that competitive advantages in the high tech industry are hard to sustain. As the iPod and iTunes were made available as a Windows version in 2002 and 2003 respectively209.Apple Computer Inc. The perceived value. but Apple has until now safeguarded its distinctive competencies and utilised the business strategies to exploit the advantage which arises through these competencies. More than half of all iPods sold are to Windows users and the expected estimates of being able to capture 20 percent of the pay-per-download market. Apple will continue to outperform rivals.iTunes today accounting for 70% of the market for the digitalmusic downloads. Lindinger. were beaten in an spectacular way . 210 Apple is adapting to its environment effectively through generic and competitive business level strategy and according it with the investment strategy adds to the overall picture that Apple is doing quite well pursuing its strategies on the business level. Apple’s lead in innovation and design is more than suited to exploit opportunities to gain market share through product development. 209 210 Baltimore Sun (2003) BusinessWeek (2004b) DIT | Strategic Management | Iliev. the demand skyrocketed and helped to propel sales to record highs. generated through superior design and innovation proves to be an inimitable competency and therefore as long as such an advantage exists for Apple. Product development signifies the innovation of new or better products in order to replace the old ones. But competitors don’t sleep – the major PC makers have already started to differentiate themselves to offer products which compete with Apple’s ones for the same customer groups.

In contrast. the Apple Store. its segments are the Americas. Nevertheless. Final assembly of products outside the US is conducted in Apple’s manufacturing facility in Cork (Ireland)211 and by external vendors in Taiwan. manufacture of many of the Apple PC’s components and final assembly of all portable products are performed by third-party vendors in Japan. 211 Earlier. Taiwan and China. Sale and marketing subsidiaries were founded in several countries all around the world to serve a global customer base whereby Japan and France became the most prosperous markets for Apple. Europe (including Middle East and Africa).Apple Computer Inc. Lindinger. to penetrate countries like Germany or the United Kingdom was difficult due to restrictions and cost. Japan. the Netherlands. a large portion of the company's net sales is derived from its international operations. by international trade regulations. a majority of the raw materials used in Apple’s products is obtained from foreign sources.1 Apple’s foreign operations As Apple manages its business primarily on a geographic basis. resourcing raw materials and selling products globally. 8. including tariffs and antidumping penalties or by pressure on cost reduction and local responsiveness and therefore can impose huge risks to the company. Apple is more than a domestically operating enterprise. the Retail segment and Others (comprising Asia-Pacific). to Japan by launching the first international shop in the Ginza in Tokyo. the company expanded its retail programm. As margins on sales of Apple products in foreign countries and on sales of devices that include parts obtained from foreign suppliers can be adversely affected by foreign currency exchange rate fluctuations. Over the years it has become a pure multinational. the People’s Republic of China and the Czech Republic. Poettler 145 . Also. Nowadays. also one facility in Singapore DIT | Strategic Management | Iliev. This organisation already indicates Apple’s widespread global operations and activities although the United States still represent Apple's largest geographic marketplace with 58% of net sales. Additionally. Currently. 8 Global strategy Apple’s unique history made the company known as the typical example for the “American Dream” stereotype.as well as responsiveness pressures. it’s necessary to evaluate why Apple moved abroad. Korea.

Apple achieved to lower costs as transportation efforts to Europe and consequently expenses decreased. As with any internationalisation Apple tried to increase profitability through lowering costs and to explore new customer groups through selling more. 8. Although having experienced difficulties in Germany and the UK years ago. In the end. even there Apple succeeded as their products became more and more “stylish”. This is due to the fact that Apple could get to an appropriately low cost situation. Furthermore. Apple transferred these distinctive competencies (but still domestic) which generally lead them to achieve superior efficiency. reach a higher customer satisfaction and in the end have increased sales/profits. better service. It’s by far the most difficult one to realise. but if accomplished a company can obtain a low cost structure as well as a considerable level of customer acceptance. going abroad created the chance to not only use. However. the African market isn’t covered at all in practice despite being in the position to provide Apple with a small. high pressure for local responsiveness as well as for cost reduction. For instance. When Apple started this expansion in the late 1980s and intensified it in the early 1990s the company already benefited from lower costs over the life-cycle of their products as learning effects and economies of scale occurred 212.2 Apple’s Transnational Strategy From the four strategies possible Apple finds itself in the fourth quadrant facing both. These abilities enabled Apple to differentiate its product offerings (new products and services). innovation or customers responsiveness to foreign countries for exploiting a probable value creation potential. quality. Apple applies this strategy.Apple Computer Inc. but also improve and “leverage” Apple’s skills. It is indispensable for Apple to maintain and even strengthen their way towards internationalisation by taking advantage of the positive aspects of globalisation. but soaring number of wealthy clients. but hasn’t reached the optimal point yet. A perfect example for this development at Apple is the PC company’s production plant in Cork (Ireland). Poettler 146 . Additionally. Lindinger. The Americans shipped over their know-how and knowledge to the “Celtic Tiger” which is characterised by low taxes and by a well-educated work force. it still has to persuade PC users in 212 see: experience curve DIT | Strategic Management | Iliev. value arised from being able to provide faster delivery of accurately fabricate products.

DIT | Strategic Management | Iliev. possible local consumers. Timing the entry wasn’t hard to work out as the US market at the beginning of the 1990s was in a bad shape (i. Despite of living in a world more and more knitted together a huge amount of computer owners doesn’t know much about Apple’s technology. recession) concerning the business cycle and not many other PC companies went overseas. 8. Apple is heading towards Transnational Strategy from a point in between Global and Transnational Strategy.e. Moreover. politically risky and highly competitive Japan was taken on.3 Apple’s methods of entering new markets When deciding to move abroad Apple executives were asking themselves the questions which markets to enter. each country from the very entry of their technological and innovative superiority. So Apple – despite taking on some risk as nobody knew what it would be like – was in a position to build up demand and pre-empt future rivals as first-mover advantages. Poettler 147 . risks (also politically) and costs concluded in first of all expanding to Europe which was and is only slightly different to the US.Apple Computer Inc. when to enter and on what size. followed by a number of other countries. competition). Would Apple have to adapt products to meet the local preferences? Apple’s assessment of benefits. their wealth and purchasing power and the situation in Apple’s market there (i. Later on. Lindinger.e. This meant finding out the size of the market.

8. Apple tried to start their foreign ambitions with “babysteps” which means not being exposed to too much risk if the decision failed. but brought the company already on the edge in the 1990s. price policy which means drawing the line between the quality and the price of a product was and is an essential one for Apple as the management often was reluctant to lower short term profit margins. As soon as the company encountered that business performed. The method Apple used was to simply export at the very start which also could infer huge costs (e. cheaper producing competitors located in the objected market) by using economies of scale at their US plants. So at the moment. 213 Failure of the “Cube” PC DIT | Strategic Management | Iliev. With putting aside domestic US mergers and acquisitions and the Microsoft deal. Even today. Lindinger. Apple imposed a strategic commitment to enhance their activities overseas by all means and forces. Furthermore. Increased domestic and abroad competition makes use of prices as the main source of competitive advantage. Additionally.4 Pressures for cost reductions and local responsiveness Although the PC market is one of high technology and high quality goods. Therefore.Apple Computer Inc. This wasn’t the case at the start of Apple’s business. but even there pressures for cost reduction were sustained. exchange rate fluctuations. Cork plant in Ireland). Franchising or joint venture never played an important role for Apple as the PC producer never wanted to provide partners with access to their know-how.g. but altered the strategy and implemented fully owned subsidiaries in some specific countries (e.g. This was one of the reasons for Apple to look for business opportunities overseas. Apple operates with a good strategy by combining strategically allocated subsidiaries worldwide with exporting activities from the company’s assembly plants. but that emerged only within the US. Poettler 148 . shipping costs. Apple as well as the whole PC industry has to have an immense focus on the cost side. Apple started licensing their PC production. not charging too high or low represents a crucial criteria when selling fashionable PC ware 213. Apple never proceeded any forms of major strategic alliances with foreign companies.

Not for the “Wintel-standard” base industry. but doesn’t destroy local differences. but especially for Apple “log-on” and “network” effects are extremely dangerous as they influence people not to abandon the OS or PC-standard they were trained on or are constantly using at home as in office.Apple Computer Inc. consumer awareness and acceptance of Apple’s products is important. In addition. Europe) as there’s a much higher percentage of people that choose “Wintel” than in the US. demands of local politics arise (e. Lindinger. the company has early developed strategies to respond to pressures in local acceptance by adapting. the fear can emerge that Apple reinforces their global ambitions too little although having been one of the front-runners for an international strategy in the PC sector. being able to deal with the different infrastructure and altered traditional practices becomes much more decisive abroad to acquire customers. Building up an intercultural communications skill when doing business helped them to prevent. Globalisation moves on. minimise or get rid off problems arising from internationalisation.g. Poettler 149 . Therefore internationally. adapting to local tastes and preferences.g. Nevertheless. local uniqueness. DIT | Strategic Management | Iliev. Concerning the global strategy. Although Apple doesn’t vary its product and marketing message from country to country. Japan’s wired political and economical situation) and require Apple to act to avoid running the risks of protectionism. This makes it much harder for Apple to gain market share abroad (e. local legal barriers or economic restrictions.

(2003) DIT | Strategic Management | Iliev. This development results from the differences between the traditional cost structure and the coordination cost structure of the networked economy. W. Campbell A. and diversification. L. Poettler 150 . R. chapters 9 & 10 Alexander M.1 General information Corporate-level strategy deals with identifying the businesses in which a company should invest its resources 215 and possible opportunities for expanding or contracting.2 Horizontal integration Horizontal integration is the process of acquiring or merging with industry competitors in order to maximise long-run profitability. Although there are two possible ways of pursuing horizontal integration. Whereas the traditional structure included a trade-off between production costs and coordination costs when using “markets” (buy external ! outsourcing) or “hierarchies” (make internal ! vertical integration. services. for instance concerning 214 215 216 Hill C. This can be shown in the following illustration:216 traditional structure production costs markets hierarchies LOW HIGH coordination costs HIGH LOW markets hierarchies network structure production costs LOW MEDIUM coordination costs LOW LOW 9. and Jones G. In fact. 5 Kraemer K. Lindinger. the network structure led to overall cost reductions and favours markets over hierarchies. Apple is aware that these acquisitions may involve significant risks and uncertainties. As Apple is engaged in horizontal integration. vertical integration. it is a special characteristic of the network era that firms create value networks of cooperative specialists through vertical integration/partnerships and strategic outsourcing.Apple Computer Inc. (2004). and technologies that complement the company’s strategic direction and product portfolio. and Goold M. In general. long term relationships) as organising mechanisms. (1994). Apple only engages in acquisitions and obviously doesn’t consider a merger at the moment. 9 Corporate strategy214 9. In fact. strategic outsourcing. this chapter will take a closer look at the company’s specific activities and goals in these areas. Apple has acquired and may continue to acquire companies that have products. p.. personnel.

these acquisitions of relatively small companies didn’t give Apple a huge possibility to enhance the competitive advantages that stem from economies of scale or scope but added significant value to the firm’s product portfolio. 217 Apple Computer Inc. Lindinger. a company expands its operations either backward into an industry that produces inputs for the company’s products or forward into an industry that uses or distributes the company’s products. In addition. 9. legal obstacles. and products of the acquired companies. On the contrary. knowledge. possible cost disadvantages and problems because of demand unpredictability may also arise.Apple Computer Inc. Moreover. 217 Recent acquisitions suc h as the acquisitions of Emagic and PowerSchool highlight that Apple’s acquisition policy is aimed at improving the company’s value by adding valuable skills. or product quality issues. Concerning the positive and negative aspects of Apple’s strategy. For instance. the integration of the acquired companies. Apple’s online store can be seen as another aspect o f vertical integration in the distribution area. Poettler 151 . it can be said that vertical integration enables the company to gain flexibility in terms of pricing options due to improved scheduling and more control over the distribution of its products. As Apple is generally engaged in the area of product bundling. these new products also give the company new possibilities in offering new and differentiated product bundles and can foster crossselling. expenses related to the acquisition. the company is primarily engaged in the field of forward vertical integration in order to gain control over its distribution channels. Apple generally pays cash for its acquisitions as current shareholders’ percentage ownership and earnings per share may become diluted if the company issued its common stock or other equity related purchase rights as in an acquisition. In fact. Apple’s vertical integration efforts can be seen as an example for taper integration as there are in-house as well as independent distributors and therefore should bear less risk for high bureaucratic costs (than in the case of full integration). (2003) DIT | Strategic Management | Iliev. Apple entered the retail industry through the introduction of its retail stores in 2001.3 Vertical integration Through the use of vertical integration. In the case of Apple which can be regarded as a vertically integrated firm.

Apple can reap benefits in terms of a lower cost structure. For insta nce. As Apple’s focus lies in the design of its products and its strengths can be seen in the fields of innovation. By taking a closer look at Apple’s step into the music player market with its iPod digital music player. opportunities to differentiate its products. and creativity) to the music player industry and create an innovative. and marketing. quality. this can be regarded as a diversification activity. high-performance device which consequently attracted many customers d ue to its design. Apple could transfer its distinctive competencies in the computer industry (technological innovation. Indeed. Therefore. Moreover. the launch of the iPod shows that Apple uses internal new venturing as its preferred entry strategy because it possesses a valuable set of distinctive competencies that can be leveraged to the new business and because internal new venturing is generally seen as the typical entry strategy for DIT | Strategic Management | Iliev. various elements of Apple’s diversification strategy become obvious. 9. this is definitely an example for related diversification as there are obvious links to Apple’s core business which are highlighted by the iTunes music software that connects the iPod with the iMac and therefore creates the ultimate link between these two industries. In addition.Apple Computer Inc.5 Diversification Diversification is the process of adding new businesses to a company that are distinct from its established operations. Nevertheless. 9. and quality. Poettler 152 . Apple has outsourced various functions in terms of operations and logistics as its contract manufacturers and outsourcing companies can perform several valuecreation functions at a lower cost due to low-cost location and other competitive advantages. creativity. Lindinger. capabilities. it makes sense that the company focuses on these value creation functions and outsources its manufacturing activity to contract manufacturers that specialise in this function. and increased focus on its distinctive competencies. it has to be stated that the company bears risks with regard to holdup due to the dependence on its outsourcing partners as well as loss of control and information. As Apple has recently engaged in the digital music player business which can be seen as distinct from its traditional personal computer business.4 Strategic outsourcing Strategic outsourcing involves separating out some of a company’s value creation activities within a business and letting them be performed by an independent entity.

Apple Computer Inc. DIT | Strategic Management | Iliev. commercialisation. Lindinger. Apple’s new product didn’t fail because there were no problems in terms of scale of entry. and implementation and the company’s R&D activities provided a strong basis for a successful internal new venture. related diversification activities. Poettler 153 . Furthermore.

R. and culture have been examined in detail in previous chapters. Lindinger. quality. and Jones G. these main elements of strategy implementation are an important factor contributing to achieving superior efficiency. control. Moreover. Generally. Poettler 154 . control. In fact.1 Corporate structure.level. 10. organisational structure.2 Implementation219 It is now important to examine the specific policies that Apple uses in order to implement its strategy. In terms of control systems. corporatelevel. their values and attitudes. it can be concluded that through the consistent interaction of Apple’s structure. Finally. W. business-level. In fact. and culture As Apple’s corporate structure. and determine how they will implement an organisation’s business model and strategies218. initiati ve. W. and culture as well as through the resulting coordination and motivation of its employees the company is enabled to effectively implement its policies at the various levels of strategy. and culture shape the way people behave. and customer responsiveness and need to be designed so that they are consistent with the company’s functional. (2004). R. motivation. So. 405 Hill C. chapter 12 and 13 DIT | Strategic Management | Iliev. Apple organises its operating business through an (impure) geographic structure which increases responsiveness to regional customers and reduces costs as well and therefore goes hand in hand with Apple’s international strategy. 218 219 Hill C. 10 Strategy implementation 10. control. the use of personal and behaviour control systems enables efficient strategy implementation. innovation. (2004). and creativity throughout the company which can be regarded as central elements of Apple’s strategy. the following paragraphs should sum up the key points with regards to strategy implementation. and decentralisation of authority and responsibility which should allow the various functions to set appropriate actions in order to implement the company’s strategy. the values and norms incorporated in Apple’s corporate culture support the firm’s organisational structure as well as its strategy by promoting innovation. p. Apple’s organisational structure is a functional structure which promotes specialisation. and Jones G. control. and global-level strategy.Apple Computer Inc. control.

at the functional level a company’s competitive advantage depends on its ability to use and develop distinctive competencies and therefore it is important to build organisational structures and capabilities that will allow a company to outperform its competitors. Finally.Apple Computer Inc. especially behaviour control in both cases as well as financial control in the case of vertical integration and organisational culture in the case of related diversification. the functional structure as well as the strategic control systems which should foster monitoring. and organisational learning and the company’s cohesive culture which emphasises central values (innovation. and control in the past. structure. First of all. strategic management has to link and combine the competencies in a company’s value chain functions in a way that enhances the ability to differentiate products and economise on bureaucratic costs. in terms of business-level strategy. In spite of this. and a culture based on professionalism or collegiality which can be observed in the ongoing development of Apple’s culture. at Apple effective strategy implementation at the business level links the company’s sources of competitive advantage (like superior innovation) in order to improve the firm’s ability to add value and to differentiate its products. Second. As a result of integration problems. it becomes obvious that in terms of Apple’s vertical integration and related diversification efforts. In fact. Third. quality. by taking a closer look at the implementation of corporate -level strategy. more complex kinds of organisational structure. in order to successfully implement its global-level strategy. Lindinger. creativity. Poettler 155 . there’s a need for the development of more sophisticated control systems. manufacturers. it would be optimal for Apple to use a global matrix structure combining its product groups and geographic divisions. the creation of an information network that lets Apple capitalise globally on the skills and capabilities of its employees as well as the use of strategic outsourcing and a network structure which promote deep relationships with its global suppliers. and distributors foster the company’s efforts with regard to its global strategy. the company’s functional structure is definitely the optimal solution to group its employees and tasks in order to build competencies. constant improvement. DIT | Strategic Management | Iliev. In the case of Apple. So. effective strategy implementation depends upon the company’s skills in terms of integration and the appropriate use of strategic control. initiative) across all functions promote Apple’s functional-level strategy.

inventions. thereby weakening especially Apple’s long-term performance. Creativity & design By regarding the PC not just as a commodity but as a premium product. As this leads to higher sales and profits. lifestyle. This also immediately weakens Apple’s short-term performance. 11 Analysis of strategic factors The analysis of strategic factors will look at the strategic fit between internal and external analysis through the combination of the Internal Factor Analysis Summary (IFAS) and the External Factor Analysis Summary (EFAS) that have been examined and analysed in detail before. the 9 most important factors for the company’s current and future performance are: Strategic factors Strenghts Innovation Superior innovation constitutes the most important competitive advantage for Apple because the company is famous for its technical revolutions. Apple’s puts special emphasis and its huge creativity skills into the design of its products. this incompatibility deters possible customers and PC-producers.Apple Computer Inc. This leads to lower sales and profits. Opportunities Technological forces Apple can take advantage of the importance of technological forces which enable possible first mover advantages through superior R&D Comment DIT | Strategic Management | Iliev. software. this is an important cornerstone of Apple’s intermediate-term performance. Apple’s customers get a higher value for Apple’s products due to aesthetics. In Apple’s case. Poettler 156 .1 Situational analysis The situational analysis combines the most important strategic factors from the IFAS and EFAS. High operating costs High operating costs are caused by high Marketing and R&D costs and reduce overall profitability. 11. and other products aren’t compatible with the Wintel standard. As this source of competitive advantage is widely regarded as the most important one in terms of future profitability. Lindinger. it will evaluate the importance of the key strategic factors and finally end with a review of the company’s mission and (strategic) objectives with regard to these factors. and development as well as its engineering excellence. Therefore. Weaknesses Incompatibility As Apple’s hardware. innovation is especially vital for Apple’s future performance. or similar reasons. Thereby.

Lindinger. overall sum of 100) and a rating (from 5 = very significant to 1 = not really significant).Apple Computer Inc. Intense rivalry in the consolidated PC industry can cause price wars which are an important threat to Apple’s profitability as they would reduce profits immediately and therefore leading to inferior performance in the short-term. calculating the resulting weighted score and evaluating the factor’s duration (short-term = 1 year and below. these are often attracted through the lower price of the Wintel-standard products.2 Strategic Factor Analysis Summary The Strategic Factor Analysis Summary (SFAS) combines the 9 strategic factors. thereby improving its current performance. This ensures Apple’s profits and constitutes an opportunity in terms of intermediate-term performance. Poettler 157 . and other factors offer the opportunity to maintain market share as the potential new entrants are unlikely to enter the industry. 11. or long-term 3 years and above). thereby improving Apple’s long-term performance. High barriers to entry in the PC industry High barriers to entry due to high brand loyalty. and innovation leadership in the future. This can lead to high returns. high economies of scale. Strategic factors Weight Rating Weighted score Strenghts Innovation Creativity & design Weaknesses Incompatibility High operating costs Opportunities Technological forces High barriers to entry in the PC industry MP3 player market in 8 4 32 x 13 6 5 4 65 24 x x 12 9 4 4 48 36 x x 18 9 5 5 90 45 x x Shortterm Intermediate Longterm DIT | Strategic Management | Iliev. This threat can lead to lower profits in the intermediate-term. Apple can use the iPod and its superior design/quality to earn high profits in this growth market. MP3 player market in growth stage Threats Substitute products in the PC industry Rivalry among established companies in PC industry As many customers regard the PC as a commodity. gives them a weight (0-100 each. intermediate = 1 to 3 years.

technological forces (opportunity). the mission statement has to be recalled: “Apple ignited the personal computer revolution in the 1970s with the Apple II and reinvented the personal computer in the 1980s with the Macintosh.04 DIT | Strategic Management | Iliev. in the first sentence of the mission statement. as their effective management is crucial for the success of the company. software and Internet offerings.”220 Although short. creative professionals and consumers around the world through its innovative hardware. To build on that and further 220 http://phx. Superior quality and innovation through the extensive use of R&D is the main driving force behind Apple’s recent success. Furthermore Apple also addresses key technological issues as its commitment to excellence in all major business areas it operates in. Apple’s key strategic factors are innovation (strength). Poettler 158 . educators.3 Review of mission and objectives The importance in analysing these factors lies in the interdependence with the company’s mission and objectives. the first sentence already creates the link between Apple’s obvious and most powerful strength in innovation and the results from the SFAS-table. One would expect that these strategic issues need to be addressed in the mission statement. and substitute products in the PC industry (threat). growth stage Threats Substitute products in the PC industry Rivalry among established companies in PC industry Total 100 10 4 40 x 15 5 75 x In short. initiated by Apple during the late 1970’s. incompatibility (weakness). In other words. Lindinger.02. Apple is committed to bringing the best personal computing experience to students.Apple Computer Inc. 11. To start with the analysis.corporate-ir. Apple gives its strongest distinctive competence a top priority by pointing out the computer revolution.net/phoenix.zhtml?c=107357&p=irol-faq#c orpinfo2. 14.

Any change in the mission statement and objectives would have huge and direct impacts on any strategy. Lindinger. the organisation as a whole has to change. is clearly one of the main objectives of the company. Poettler 159 . It doubtlessly highlights its strengths and opportunities in every situation. Apple.Apple Computer Inc. DIT | Strategic Management | Iliev. increase its customer base. beginning with functional over business to corporate strategy. Nevertheless neither mission statement nor objectives are dealing with Apple’s threats – and here lies another major problem within Apple. because it is only people who can change the organisation. meaning that they have a difficulty to accept economic reality and live in their own innovative digital world. Therefore attempts should be made to adapt its objectives and the mission statement not only to one half of the SFAS. Apple and especially its current CEO lack realism. still condemned to be a niche player because of incompatibility and high pricing options. For this purpose you need to first unfreeze the organisation in order to be able to move it. such as Dell in the education market or Sony in its notebook segment. doesn’t comment at any time on any possible threats such as competitors eaten in Apple’s market share. In order to change all of them. The change has to be lived within the people. but to incorporate every strategic factor.

Apple Computer Inc. evaluation. we will take a closer look at four of these specific strategic alternatives and choose the recommended strategy. Both innovation a nd technological forces combined form a possible alternative strategy in terms of strengths and opportunities. for outstanding inventions and development as well as engineering excellence.1. DIT | Strategic Management | Iliev. Poettler 160 . 12. technological forces as one of Apple’s core opportunities.1 Strategic alternatives We have included eight exemplary strategies in the four quadrants of the above diagram indicating possible combinations of strengths and weaknesses with opportunities and threats. and control. implementation. Based on these alternatives. 12 Strategic advice As Apple’s current strategy isn’t appropriate for the revised mission and objectives. we will ultimately choose a recommended strategy and examine its implications. 12. this chapter will evaluate possible strategic alternatives for Apple based on the previous analyses. Now. Apple’s innovation made the company famous for technical revolutions. Lindinger.1 Take advantage of technological forces by innovation (S-O) Innovation has been identified as one of Apple’s core strengths.

12. a “first-mover” advantage and higher returns in embryonic/growth industries through superior Research & Development. Therefore. Technological forces helped Apple to reach innovation leadership. there is to say that this strategic alterna tive has to be well funded at the very beginning and also in the short run to be sustainable.Apple Computer Inc. as design and creativity forms one of its vivid pillars these actions improve Apple’s products. As a kind of “perpetuum mobile” this process circle improves Apple’s innovation further and accomplishes to take advantage of the technological forces. Substitute products of Apple’s competitors make it hard for the company to differentiate on the market for attracting new customer groups. The strategy is to apply increased innovation to fully exploit technological forces which in turn will help to push innovation once more.1. Poettler 161 . make them more stylish. Both business execution and the DIT | Strategic Management | Iliev. 12.e. Aesthetics should originate lifestyle. the MP3 player market as one of Apple’s core opportunities.3 Take advantage of the MP3 player market by overcoming a disimproving business execution (W-O) Business execution has been identified as one of Apple’s core weaknesses. uncertainty if customer will respond to an invention). growth and stability without raising risk connected innovation efforts (i. Apple’s creativity tried to attract customers by establishing an attitude of regarding personal computers not just as a commodity but as a premium product. substitute products as one of Apple’s core threats. Lindinger. Substitute products in the PC industry demonstrate the “Wintel standard based” commodity type goods which are competing with Apple’s products on the market place.2 Use creativity in a way to avoid substitute products (S-T) Creativity has been identified as one of Apple’s core strengths. Both creativity and substitute products combined form a possible alternative strategy in terms of strengths and threats. This alternative strategy is intensively connected to models requesting a further rise in innovation. This will guarantee Apple’s demand for innovation leadership in the long run as well as differentiation. Costs and funding are observed to be the biggest advantage of this strategic alternative. Negatively. Strengthening Apple’s creativity efforts is the only way this can come about. more unique and are determined to create higher sales and profits in the end.1.

Apple Computer Inc.4 Act to minimise high operating costs and avoid rivalry (W-T) Operating costs have been identified as one of Apple’s core weaknesses. 12. By implementing the iPod. Rivalry or market competition represents possible future “price wars” due to the elevated level of competition and may result in a forthcoming downward price spiral. rivalry as one of Apple’s core threats. Lindinger. Apple experienced severe difficulties with their business execution.g. Too much money was improperly spent and therefore wasted which would – regarding the strategic alternative – result in the obligation to displace it. Apple’s extremely high operating costs mainly result from huge Marketing expenses (e. essential R&D as well as production liabilities. Business execution became a problem area through severe difficulties in turning Apple’s inventions into real money and by not focussing enough on innovative business models/processes. DIT | Strategic Management | Iliev. Due to Apple’s reliance on the PC market and the existence of market exit impediments for Apple such a development would adversely affect the company’s profits. Furthermore. This will immunise Apple against tough pricing policies implemented by its rivals and will suit the company to maintain the value (the ”V”) of its products by still providing R&D with indispensable funds. MP3 player market combined form a possible alternative strategy in terms of weaknesses and opportunities. characterised by enormous competition. Apple’s successful MP3 player iPod) ahead can be elaborated. Therefore a saturated PC market will decrease industry demand and make the sector fiercer. Both operating costs and the rivalry combined form a possible alternative strategy in terms of weaknesses and threats. This change has to be initiated by executives who wouldn’t be very likely to either concede their own malpractice and mismanagement or even to alter them. Poettler 162 . costs (the “C”) can be reduced by cutting utopian product ideas and non-effective Marketing spending and consequently profitability secured. the grounding for bringing new product ideas (e.g. Only if done so. the MP3 player market moved into the centre of Apple’s digital online content/music strategy. Apple retail stores).1. The aim of this strategic alternative is to lower Apple’s high-up operating costs to be able to succeed on a market. would force them to plunge sharply and if ongoing over a longer period would endanger Apple itself. Its outstanding design as well as the quality of its “killer applications” such as an enormous storage capacity provides Apple with considerable profit potential. For years.

because the $193 million spent 2003 on building brand loyalty are far too much. To fully grasp the benefits of this strategy one has to carefully analyse the changes this new strategy would bring to Apple. We suggest that efficiency should be improved through a reduction in marketing expenses. Also after the initial hype about Apple’s brand new retail stores. identified by Apple’s strategic analysis. as it could actively play a role in price wars.000 to 3. Apple’s core business. the following chapter deals with the implications for the strategies on each level of business. will need to adapt to the WT-strategy. therefore not adding significant value to the company’s value chain. The WT-strategy is basically defensive and primarily tries to avoid and minimise weaknesses. approaches saturation levels signalling that the PC market has reached its maturity stage. the high operation cost structure and Apple’s threat of intense rivalry amongst competitors within the industry.5 Recommended strategy: Operation costs (weakness)/rivalry (threat) A peculiar significance for Apple’s corporate development and even survival is mainly imposed by the current situation where Apple’s high operation costs meet the intense market rivalry.Apple Computer Inc. 12. which in our case would be the existing rivalry. 12. aiming at improving the efficiency of Apple’s day to day operations. Especially the retail store initiative proved to be a very costly one.2. 12. Apple’s high cost structure must be reduced for two obvious reasons. as the PC industry.1 Functional level strategy The functional level strategy. By cutting marketing.1. To solve this main problem Apple faces at the moment. Lindinger. much of the coolness factor has worn off and managers at Apple face increasingly tougher reality. Poettler 163 . To be in coherence with its functional level strategies the actions undertaken ha ve to aim at cost reduction effects. the fourth alternative strategy has been chosen as the recommended one.500 and the conversion rate of Wintel customers has been a skinny 0.9%. Given this scenario. On the one hand Apple could be better prepared to face competition within the industry. we want to DIT | Strategic Management | Iliev. because of the lower cost structure and on the other hand high revenues could serve as a war-chest against potential entrants into the market. The visitor rate per week dropped from 5.2 Recommended strategy The recommended Weakness-Threats (WT) strategy focuses as above mentioned on Apple’s weakness.

facing the threat of immense rivalry. ways to reduce it have to be found which would then result in the desired value creation effect. Apple in the past tried not for DIT | Strategic Management | Iliev. Lindinger. Apple could utilise this trend for its own benefit.2. The key success factor here is to achieve significant economies of scale and to decrease production costs further by shifting more of the production process to low labour costs countries. As we defined to focus on Apple’s cost structure. To ride down the experience curve and enjoy economies of scale. emphasise that market research however will remain at the same levels in order to assure that the R&D department makes the right decisions in terms of product innovations. Apple has continuously experienced bottlenecks in its supply chain management. Apple has to continue to outsource production processes and find a broader group of key suppliers in order to be in a better bargaining position. Another area where costs are high above industry average is operations and logistics. Also expensive prime time advertising campaigns should be only utilised if necessary. which would lower the cost of inputs therefore lowering overall production costs. As the competitive nature of the high tech industry is anyway removing barriers between both strategies. Right now Apple as analysed is pursuing a broad differentiation strategy with particular strong emphasis on the software and peripherals markets as its current performance in the digital music market shows.2 Business level strategy At the business level.Apple Computer Inc. win market share from its rivals 12. Poettler 164 . The stylish forms. To obtain cost advantages. We believe that the brand name “Apple” is already strong enough developed to remain alive as hip brand even with decreased marketing expenses. because we believe that Apple’s products are themselves means and channels of marketing. widening the spread between costs and value for the customer. paired with superior engineering quality are a delight for the eye and therefore successfully create a positive corporate image of the company. strategy should aim at further improving the weakness and therefore getting rid of the potential threat. which consequently led to increased costs due to time lags in the production process. As a result Apple could price its products also more competitively on the market and subsequently. Apple’s task is to effectively coordinate the unique components needed for its technology to adhere to the existing high standards. Apple has to shift its strategy from being a pure differentiator to combine the advantages of cost leadership and differentiation strategies simultaneously.

which would further decrease the threat of rivalry. especially if it would target the same customer needs and groups. which are less expensive. The outsourcing efforts should include more value chain activities and as suppliers with their superior efficiency in producing components at lower costs can pass on these savings to the company. If Apple manages to implement the necessary measure to shift from a pure differentiator to a cost leadership oriented differentiator it can combine low cost structure by meanwhile still offering unique and superior products. can survive lasting price battles and effectively signalling the environment that it won’t let any firm take market share away. resulting in a lower C (cost) and a higher V (value) for DIT | Strategic Management | Iliev. To experience cost reduction effects.3 Corporate strategy Apple. with a lower cost structure. Mr Jobs has to realise that beautiful doesn’t always mean profitable.Apple Computer Inc. Apple can benefit greatly through outsourcing and likewise concentrate on its core competencies design and innovation. To sum it up the key to a better performance for Apple is to reduce its cost structure through a reduction in marketing expenses.2. The savings occurred from the implementation of functional strategies. Lindinger. In addition to the previously available non-price tools to create barriers to entry and to reduce rivalry inside the industry. but within an industry where critical mass has to be reached in order to be profitable. 12. but reality shows us that often these actions fail to realise these anticipated gains. nothing to control the whole supply chain management on its own. today is a company which is vertically forward integrated by operating its own distribution channels such as the criticised expensive retail stores. expected to yield cost savings through M&A. The last choice would be the horizontal integration. Apple now can use limit pricing to deter potential entry as it now. as previously examined. Competitive strategy has equally to match the generic business level strategy as we target a lower cost structure. a multifaceted supply chain. Poettler 165 . Apple has to continue its policy of outsourcing major parts of the products and getting more suppliers to provide them with key components in order to be independent of a particular supplier. hopefully leaves us with more powerful tools to survive in the competitive structure of the industry. and a combination of differentiation and cost leadership strategies bringing together the important elements from both. If Apple wants to stay vertically integrated it has to start controlling costs and for instance enter into lease agreements for its stores.

Apple’s CEO and the company’s other senior executives have to continuously stress this goal and motivate as well as coordinate the workforce through incentives. they have to shape/adapt the company’s culture and structure so that it fits to the new objectives but still provides a basis for maintaining the firm’s distinctive competencies and leading to a competitive advantage. Lindinger. Steve Jobs is definitely able to manage this challenging task. Concerning the corporate culture.3 Implementation In order to implement a strategy that focuses on lowering operating costs. the customer due to the now made possible price reduction as you can see in the following diagram. these DIT | Strategic Management | Iliev. it becomes obvious that an important step towards the realisation of the ambitious goal will be to coordinate and integrate the efforts of all employees so that they are consistent with the company’s strategic objective. Moreover. In fact. Poettler 166 . by allocating even more responsibility to single employees. Although this might be one of the most difficult parts of a successful strategy implementation as several CEOs in the past failed in their attempts to change Apple’s culture. leadership. By taking Apple’s organisational structure into account. Lower prices to generate demand Initial Status V-P V-P P1 P2 V* V-P C2 V-P V V-P C1 V-P 12. and commitment. cost awareness (where appropriate and useful) has to become incorporated into Apple’s set of values and norms.Apple Computer Inc.

innovation. all these efforts should lead to higher profitability and a prosperous future for the company. comparison of actual/desired results. as already mentioned before.Apple Computer Inc. and customer responsiveness. Nevertheless. Lindinger.4 Evaluation and control Actually. Apple’s current information system is highly capable and advanced and therefore should be able to provide sufficient feedback about the company’s performance and the status of its cost reduction objectives in an accurate and timely manner. these strategic control systems should contain incentives to motivate the workforce in order to improve efficiency. Finally. 12. These performance goals should support the cost reduction strategy and therefore lead to a successful implementation as an accompanying reward system would provide a motivating incentive for the employees. Moreover. they should use IT for measuring/monitoring purposes. will take advantage of their authority. DIT | Strategic Management | Iliev. creativity. evaluation procedures play an important role in a successful strategy implementation and therefore should act as a monitoring activity that controls the company’s deve lopment due to the new strategic objectives and provides top management useful support in making the right and necessary decisions. Poettler 167 . management should be aware that possible corrective measures need to be taken into account if the company’s new strategic direction doesn’t enhance its performance and therefore the responsible managers should be willing to take even harsh corrective moves if necessary. through the use of the firm’s intranet the whole workforce as well as the management team should be informed about the current status quo and IT can also facilitate to implement appropriate strategic control measures which should provide instantaneous and continuous feedback on the performance and effectiveness of the firm’s strategy-specific activities. quality. Apple – as it currently concentrates on personal and behaviour control – should also implement output control in terms of performance goals for separate divisions or even specific employees. and the final evaluation which could lead to enhanced or corrective action. In conclusion. In our case. in order to be effective. and flexibility and therefore search for new ways to contribute to the firm’s goals. Moreover. In fact.

Lindinger. advice. and beneficial task for us to pursue this strategic audit that was not only a personal milestone in our academic history but above all improved our overall knowledge concerning the company and the strategic management tools. Moreover. Valentin Iliev. 13 Conclusion As our strategic analysis and the resulting strategic alternatives as well as our strategic recommendation actually summarise the main facts of this strategic audit and provide a ventured but definitely interesting (and on a broad strategic foundation based) suggestion for the company. this paper can be regarded as a beneficial work as it gave us the unique opportunity to visit the company’s office in Vienna (Austria) or engage in written communication with its branch in Cork (Ireland). and the unique strategy it is pursuing in dealing with present and future challenges in a rapid-moving industry environment. In addition. this all meant a great chance for us to put our theoretical knowledge in terms of strategic management and other areas into practise and to get a deeper insight into a company which fascinates us due to its exceptional history. we would like to conclude this paper with some personal thoughts: In fact. we are thankful for any comments. interesting. it was certainly a challenging.Apple Computer Inc. and methods. Guenther Poettler DIT | Strategic Management | Iliev. we hope that we’ve been able to provide the reader with a comprehensive and consistent strategic picture of Apple Computer Inc. and that our creativity and design can contribute to superior innovation as well as the content does to superior quality. and recommendations and will value your thoughts as a useful input to reach superior customer responsiveness. processes. Andreas Lindinger. its amazing capabilities. Finally. Poettler 168 . Of course.

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Poettler 178 .Apple Computer Inc. Appendix Corporate memo DIT | Strategic Management | Iliev. Lindinger.

Poettler 179 .Apple Computer Inc. Lindinger. DIT | Strategic Management | Iliev.

Lindinger. Standard and Poor’s Rating Agency Standrad & Poor`s Standard & Poor’s short-term rating long-term rating Moody`s Moody’s shortterm rating longterm rating shortterm rating Fitch Fitch longterm rating A-1+ AAA AA+ AA AAA+ A ABBB+ P-1 A-1 A-2 Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 F1+ AAA AA+ AA AAA+ A ABBB+ F1 F2 P-2 A-3 BBB BBB- P-3 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B3 Caa1 F3 BBB BBBBB+ BB BBB+ B B- B BB+ BB BBB+ Not Prime B DIT | Strategic Management | Iliev.Apple Computer Inc. Poettler 180 .

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