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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.....................2...................10...... 90 Human resource performance ....10.........................101 Summary of internal factors .....2..10...........................................................................108 Overview – The uniqueness of the Macintosh ...........1 4.........................................100 advantage? .............................................................................. 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................108 The PC market – an in-depth analysis ....................6 4....2............................106 4....9 Corporate resources: Operations & Logistics...........1 4...................................................................9............ 93 Trends ....................................... 4.........10...............................1 5...........2.................. 87 Human resource objectives and strategies........................................2 4.......3 4...................9......2... 98 Intranet and Extranet solutions? ..................................................................108 Defining the sector.. 88 Corporate resources: Information Systems ...........Apple Computer Inc............4 4...12 Corporate resources: Human Resource Management ...........................110 Strategic Group Analysis ............................................. 86 Strategic issues ................2 4....................................................................................2 External environment..................116 The Macro-Environment ...................3 External analysis of software and peripherals market ................108 Status quo ...............................115 Industry Life Cycle Analysis ...........................................................................................118 5....2.................................................... 85 Structure and performance.....................8 4......................................................................10............................... 92 Staff appraisals ...............................9......................2 5.......3 4.........10 4........ 91 Traini ng and Development ....................1 4.........................................................5 4............................ 96 Competitive advantage ...............................12........3 5...................10.............2 4.......109 Porter’s five forces Analysis ..............................12.................................................. 88 Human resource policies .3 4......... 91 Partnership program .........................11..................................................1 4.....................105 Internal Factor Analysis Summary (IFAS)........................4 5......1 5................................................ 87 Competitive advantage ................9...7 4...........................6 5.............10.................................................................................. 81 General information.........................4 4....................................................................11.............................119 DIT | Strategic Management | Iliev............................................2 5 5........................105 Core competencies and distinctive competencies... Poettler 3 ....... 81 Operations capabilities...........................9.11 4.... Lindinger......... industry and market segments .5 4.................11...............................................................10................... 96 What type of software and hardware is used at Apple? .5 5.........................

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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Essayist & Critic 1795-1881) might have had some visionary ideas when formulating this famous quote.1 Introduction “Man is a tool-using animal.Apple Computer Inc. more DIT | Strategic Management | Iliev. Lindinger. which in historical concordance shouldn’t represent more than an aiding tool. 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. 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.and software) that not only changed global business. 2. but represented a long-dating progression. Without tools he is nothing.2. undiscovered horizons. with tools he is all!” Without being able to guess human inventions and innovations in the forthcoming centuries or their challenging importance on society. Poettler 7 . Nevertheless. So. However. the great minds behind IT-companies such as IBM or Microsoft created devices (by combining hard. At this time. the sector’s younger origins can be traced back at the close of the 19th century.2 Period before 1975 The creation of computers was primarily urged by the immanent human desire to store data. and to solve complicated calculations. Apple Computer has pioneered the widespread use of many aspects of computer technology that today we all take for granted. the Scottish essayist Thomas Carlyle (Historian. He seems to have observed the history and deployment of humanity where tools always played an important role to guarantee the race’s survival. 2 History 2. to automate processes. but also opened new. people’s cohabitation and even the social behaviour. In particular. 2.1 PC Market Although it’s necessary to admit that the development towards computers wasn’t started at one specific date.

org/timeline/timeline.01. 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.01.ibm. 18. 18.com/ibm/history/history/decade_1880. the first dial recorder was accomplished by Dr. Claude Shannon’s dossier “The Mathematical Theory of Communication”. extremely accurate electronic slide rule" with a solid-state memory. Moore School of Electrical Engineering 2 grounding efforts. Lindinger. With a market share of 81. programmable computer built with transistor in 1956. Xerox bought Scientific Data Systems for $1 billion which logged huge sales with their series of minicomputers. the predecessor of Company IBM (C-T-R (International Business Machines).: business accounting. along with tabulators and punched cards. MIT’s first general-purpose. Alexander Graham Bell invented the telephone and in 1888 1 . exactly in 1876.04 http://www. 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. information. 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.computerhistory. War times as well as the Great Economic Depression caused the growing industry to expand their operations as the customers’ needs broadened (e. 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.Apple Computer Inc. In 1969.g. AT&T Bell Labs developed the UNIX operating system.html. Alexander Dey who belonged to the Computing-Tabulating-Recording Company).php?timeline_year=1946.04 DIT | Strategic Management | Iliev. and communication facilities for better war-planning). Poettler 8 .

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

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

Apple Computer was born when Steve Jobs and Steve Wozniak.1 PC Market Still in infant status. established a long partnership between IBM and Microsoft.350).and software). along with Ronald G. It was published first at the Homebrew Computer Club in Palo Alto.Apple Computer Inc. their first formal business plan set a goal for sales to grow to $500 million in ten years. named the Apple I. the basic software for the future IBM PCs. 2. Nevertheless. This first prototype has taken about six months to design and 40 hours to build. As it turned out. the “Byte Shop computer store” ordered 50 Apple I boards. Jobs and Wozniak “put all their eggs into one basket” and sold a VW van as well as a HP programmable calculator. or Microsoft Disk Operating System. 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. This alliance became Apple’s hardest opponent in the market. software developers had to make programs for two standards which was one of Apple’s biggest future difficulties. headquartered in a parents’ garage. Wayne founded the Apple Computer Company officially on the 1st of April. Atari. 2.3 Period 1975 – 1981 In 1976. The first step into this direction was the completion of a preassembled computer circuit Board. Furthermore. competition was increasing which caused frontrunner IBM who was producing the “industry benchmark” to face a number of rivals such as Commodore. The MS-DOS. To fund production ($1. dealers and consumers who had to decide which one to buy were confused.3. the y will pass that mark in half the time. Nevertheless. California. Jobs and Wozniak were splitting a monthly salary of $250. Due to the fact that Apple didn’t comply by determining and implementing their own standards (hard. HP or AT&T. Six months later. Poettler 11 . which Bill Gates and Paul Allen had founded only six years earlier. 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. Although not attracting much attention.

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

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

similar to and compatible with “Big-Blue’s” technology.4. Several competitors such as Compaq.and software was given out). 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 16.4 Period 1981 – 1985 2. 2.7 Million .1990 Dollars 43. A saturated market made it more difficult to sell computers.Apple Computer Inc. AST or Gateway2000 entered the PC-market by trying to launch advanced IBM clones. By 1984. Hence. Poettler 14 . With the power of IBM. Apple tried to differentiate itself by following a strict non-licensing.5 Million . IBM released its first PC using Microsoft products as software items. by producing DIT | Strategic Management | Iliev. things got a bit more difficult. and in February Apple was forced to lay off 40 employees. Dell.1990 11% 29% Home Education 57% 9% 5% Other Business 69% 16% 4% Home Education Other Business In 1981.0 Billion . Lindinger.1984 Dollars 17. Apple Computer set their individual standards which led to a constant competition against the IBM-Microsoft-Intel model (Wintel standard).1 PC Market Units 9. the PC quickly began to dominate the playing field. the IBM PC had 50%market share. patent-regulated policy (no information about Apple hard.

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

Apple was the hip. Sculley reorganised the management structure. Xerox PARC in 1979.Apple Computer Inc. during the third quarter of the Super Bowl. but by Christmas of 1984.” 3 3 Fortune (1988) DIT | Strategic Management | Iliev. 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. unfortunately. In 1984. 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. Considering Apple’s new competitive pressures. Apple organised and financially supported music festivals. held the “AppleFest” in San Francisco and gave their computers to academic institutions and prisons.” Although he was hired for his executive and marketing expertise. president of Pepsi-Cola USA domestic operations. John Sculley. Initially. another for the Lisa product and the development and production of the Macintosh. Apple aired its infamous 60 second commercial introducing the Macintosh. was recruited and became president and CEO of Apple. He and Jobs were at odds almost immediately. the Mac sold very well. Each division was responsible for its own functions and acted as “independent profitand-loss centres. The year was 1984. Sculley did not know much about the computer industry. On January 22nd 1984. By 1983. people were becoming fed up with its disadvantages. Markkula resigned from his posts as CEO and president. Poettler 16 . Lindinger. and an accessory products group. young heart of Silicon Valley – the place where America was showing the world how the combination of technology and entrepreneurship could make a revolution.645 employees. 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. Also. The Orwellian scene depicted the IBM world being shattered by a new machine. To fulfil their social responsibility. 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. His main change was to reduce the number of Apple’s product divisions to three: a division for Apple II products.

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

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

In 1989. Lindinger. he understood that he had to keep engineers and programmers on board if Apple was to stay ahead of the technology curve. It didn't. A decisive leadership might have helped Apple to fend off what has ultimately proved to be its nemesis: Windows. By 1987. It was becoming clear that Apple could not provide both the hardware and the software to drive an industry. Product and marketing strategy were also adjusted.0 would be a flop. Apple’s marketing strategy focused more aggressively on the corporate market to win space in the office at the expense of IBM. it seemed that Windows 3. Apple released its first generation of PowerBooks.000 to 1 and still be a tie. or avoided completely as various executives and factions tried to push their own agendas.'' DIT | Strategic Management | Iliev. By 1990 the market was saturated with PC clones of every conceivable configuration.2 Apple After having ousted Jobs and sacked lots of employees. They licensed the MacOS although opinions stated that “it was too late to license” (Michael Spindler. and Apple was the only company selling Macs. He also knew that the majority of the company would resent the big-company systems he was putting in place. These companies were hesitant. Programs designed for Apple would sell far fewer copies than those created for IBM compatible machines. making it too costly to develop Macintosh software. The solution was not to touch the culture. The day Windows 3.0 was launched. Apple’s COO and later CEO). 2. Product lines were filled out with equipment the consumer desired. and the Mac would be riding high for the next decade.Apple Computer Inc. Key decisions have been postponed. 6 Joke that circulated at Apple: “A vote can be 15. And most important. Sculley wasn’t popular at all among the Apple staff. however. Apple's executive staff dismissed the OS’s chances to challenge MacOS with complete arrogance. His consensus-style for getting things done and achieving decisions made the company more and more inflexible and slow-moving 6 . reversed. Efforts were made to provide third-party hardware and software companies with access to the Mac. to invest time and money to develop software for the Mac since the installed hardware base was such a small percentage of the market. Apple also transformed its hiring policy. Therefore Apple was in trouble and decided to give up their restrictive protection of corporate know-how. Poettler 19 . In pursuing the business segment. but Sculley paid the price. which were an instant success. The idea was that corporate managers would rather be more responsive to salespeople who were similar to them as to hackers. In late 1991.5. the Mac II was a solid hit.

This was done by adapting their overall network model to each country’s individual circumstances and local markets 8 . The European market for PCs was expanding faster than the US market.7 Two new computers for the business market were introduced: the Macintosh SE and the Macintosh II. 7 8 Problem of managerial inefficiency if a company becomes too big to achieve economies of scale Stay global. Business market expansion resulted in a 30% increase in Apple’s sales in 1987. faster than revenue growth for the entire company. These products attracted larger software houses that developed sophisticated applications for large business users. for instance by raising the proportion of European-made components used in Apple’s Irish production plant. Poettler 20 . act local DIT | Strategic Management | Iliev. The CEO doubled the size of Apple’s field force and the number of employees grew to 10. Nearly half of Apple’s sales and most of its profits came from selling PC’s and related products to big corporations. Once more. Apple gained 6% of the overall European market.Apple Computer Inc. Thus. By trying to reduce their dependence on the US consumer and consequently covering up declining US sales. International growth became a priority at Apple.837 making Apple more and more unmanageable. the organisational structure was altered. Each division was now headed by a president who reported directly to Sculley. the control of the European activities was switched to Europe. Lindinger. Apple made efforts to mainly penetrate the European corporate business market. Apple’s European revenues grew by 55%.

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. IBM. 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. Apple DIT | Strategic Management | Iliev.Apple Computer Inc. 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. Poettler 21 .6. 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. Misjudging the market. 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. Amelio’s efforts proved to be largely unsuccessful. In January 1996. Another fact was that the most talented executives left the company. Apple pushed low-cost PCs over mid-range PowerMacs and failed to make a profit at all.2 Apple In June 1993. Apple posted a $68 million loss for one quarter. Apple announced the PowerMac family.6. Apple took its worst plunge ever in the winter of 1995/96. In late 1996. 2. the former president of National Semiconductor. and Hewlett-Packard. Lindinger. Despite making a strong effort to bring Apple back to profitability. the first Macs to be based on the PowerPC chip and secretly began talks to sell the company with Sun Microsystems.6 Period 1993 – 1997 2. In 1994.1 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.

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

7. Linux. but various third-party "digital lifestyle" products. a small hard-drive -based digital music player.8 Period 2001 – now 2. Poettler 23 . 2. The iMac was one of the best-selling computers in the US and drove Apple sales well beyond most predictions. a DVD-authoring program. which allowed users to encode and listen to MP3 songs and then burn them to CDs.2 Apple Soaring profits pushed Apple’s stock. file sharing through Peer-to-Peer) characterise the market. the stylish iBook. Lindinger. 2. Steve Jobs announced that the free iTools service would be rolled into a new subscription-based "dotMac" service. iTunes. an open-source OS. In July 2002. 2. accompanied Apple in contesting Microsoft-Windows’ hegemony.8. and the iPod.8. The second half of 2000 was different from the trend of previous years. The “i” product group was added up by implementing iDVD.Apple Computer Inc.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.2 Apple The 21st century started for Apple with Jobs’ plan to open a number of retail stores across America. selling not only Apple hardware. iMovie that contained tremendous value to digital cameras. The "Apple Product Matrix" was complemented by a consumer portable. Jobs – now also formally named CEO – formulated Apple’s internet strategy as “a suite of Mac-only internet-based applications called iTools”. 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. 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. DIT | Strategic Management | Iliev.

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

3 Current situation 3. as it has defined 4 specific markets on which it currently focuses on. This success is closely tied up to the launch of iTunes.investor. The market shares in these sectors are to some extent more significant. Market segment Education Creative Consumer Business Market share (12.01. 29.18 A number of cutting edge software applications (e. iTunes accounts for 20% 17 of the pay per download music market. (2003a) 17 Baltimore Sun (2003) 18 Pay per download system vs.5%) (<5%) In the peripherals sector (besides the iSight digital video camera and displays). 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%.599 employees worldwide it generated a revenue of $63 million in the last quarter.1 Current performance Today Apple’s operations are as diversified as the y were never before.g. Apple’s operations are spread around the PC industry.05% 15. iLife. With its currently 13.1%. which is the current leader in the online downloadable music market. Lindinger. In the overall PC industry Apple’s market share has diminished to a skinny 2. without one being specifically important. (2004) Apple Computer Inc.4%) (>65%) (3. Apple’s music online store and jukebox. subscription services.04 16 Apple Computer Inc. allows the customer without monthly fees to download and pay for songs individually DIT | Strategic Management | Iliev. 13 14 Apple Computer Inc. Final Cut Pro) and its operating system Mac OS X also contribute to the firms overall success. computer peripherals and the software and service industry.reuters.5 billion14 and has a ROIC of 3. 16 Apple itself doesn’t look itself at the overall PC market. Poettler 25 .com.Apple Computer Inc.13 It holds cash reserves of over $4. (2003a) 15 http://yahoo.

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

20 21 22 Quittner J.1 General information 4. and as a consequence interconnecting with as well as adding value to the internet and other devices becomes a PC’s main purpose. Japan. and the iPod digital music player.marketwatch. and business customers. the Mac OS operating system. (2002) Ganesan S. 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 becomes clear that those are computer users who don’t see themselves as part of the mainstream: graphic designers. 22 The company currently has 10. and Winters R.2 Products25 Apple’s product range includes first and for most the Macintosh line of desktop and notebook computers. and anyone else who like to think that they are different. networking and connectivity products.com/tools/quotes/profile. (2003) 23 http://cbs.912 fixed employees and its foreign operations include the Americas. 19. and its own retail stores. Therefore. consumer.1. third-party wholesalers and resellers. 24 4. It sells its products through its online store.1. 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. and Asia Pacific23.asp?sid=609&symb=AAPL&siteid=mktw. creative. manufactures and markets personal computers. 4 Internal environment 4. 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. related software.02. peripherals. students. In short. Europe. direct sales force. In addition. (2003) Apple Computer Inc. it contains a portfolio of further software solutions and peripherals. Lindinger.04 24 The Economist (1998a) 25 Apple Computer Inc.Apple Computer Inc. and various third-party hardware products for education. In identifying Apple’s main customer groups. and personal computing and communicating solutions.1 General description Apple designs. (2003) DIT | Strategic Management | Iliev. Poettler 27 .

Lindinger. Poettler 28 .Apple Computer Inc. graphics. Wireless connectivity products. music. aimed at the education market. Unexpected and ongoing success. successful by consolidating and gaining exclusive rights for popular movie trailers in the internet. Digital music player. High-end notebook. Superior and operating system with modular architecture. unique product in combination with iTunes online music store. Widely used media player. probably the best-designed notebook available. etc. etc. Several unique web services. monitors. Programs for digital editing of video. 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. Personal computer targeting graphics and layout professionals. (2001) DIT | Strategic Management | Iliev. The following paragraphs provide a deeper insight into the different parts of Apple’s product portfolio: 26 Sudbury A.

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

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

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. Poettler 31 .1. (2001) DIT | Strategic Management | Iliev. innovation. 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.Apple Computer Inc.3 Competencies Apple is famous for possessing distinctive competencies in product design/innovation. Lindinger. Apple has traditionally been strong in the fields of education. between classrooms or the PowerSchool software for efficient and cost-effective school administration. 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 educational skills. 27 28 29 Daily News (2003) Sudbury A. networking. Moreover. 4. and digital art/entertainment where its strengths interact with the desired attributes of its customers. desktop publishing. (2001) Sudbury A. and several other areas. 28 Quite interestingly. 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. By fostering this development. The company acted as the computer industry’s leader in the development of graphical user interfaces. Apple’s main weakness also stems from the fact that it produces the entire line of computers and related products: in fact. interconnected multimedia solution. digital entertainment. As several other factors such as high hardware costs or uncertainty in (future) software compatibility aggravate this situation. Apple can use its strengths in the fields of creativity. mouse input.

Steve Jobs James A. 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. (2004). Poettler 32 . it can be criticised that the Board is dominated by the company CEO.02. Nevertheless. In addition.2 Corporate governance 4.Apple Computer Inc. Chairman. Levinson Jerome B. Lawrence Arthur D. which accounted for 2. In addition. 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. In fact. a year that competitor Dell managed to weather far better. the Board members certainly never criticised Jobs for Apple's lousy performance in 2002. W. CEO).4% of Apple’s net sales in 2003 33 ) can be regarded as dependent Directors. 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. and Jones G.1 Board of Directors General information and Directors30 The Board of Directors consists of seven members and has three committees (Audit & Finance. Apple’s Board is fairly unique as it has no chairman. Crew Former Vice President of the United States CEO and Co-founder Apple Computer. (2003) 34 Hill C. 386 35 BusinessWeek (2004e) DIT | Strategic Management | Iliev. Chairman and CEO Pixar Executive Vice President and CFO General Mills Inc. In fact.html. Drexler Albert Gore Jr. 30 31 32 35 As a Apple Computer Inc. Chairman and CEO Genentech Inc. President and CEO Micro Warehouse Inc.com/2100-1042-993332.apple. Campbell Millard S.com. York Position Director Director Director Director.04 33 Apple Computer Inc. CEO J. (2003) http://news. 31 Name William V. Nominating & Corporate Governance. 4.html. 19.02. Although Steve Jobs isn’t chairman of the Board. p.com/pr/library/2003/mar/20governance.2. 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. Lindinger.04 http://www. Compensation) which will be discussed in the governance mechanisms section in detail. R.

focused approach to their position.02.corporate-ir. and bring these skills to bear for the company.04 DIT | Strategic Management | Iliev. Poettler 33 . 37 Directors bring to Apple a wide range of experience. These varied skills mean that good governance depends on principled actions. knowledge. 36 37 38 Apple Computer Inc. 19.02. and appropriate monitoring of both compliance and performance. international experience. 19. Directors do not receive any additional consideration for serving on committees or as committee chairperson.000 annual retainer paid in quarterly increments.zhtml?c=107357&p=irol-govCommitteeComp.02. 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.html. The current practice of the Board is that a substantial portion of a Director's annual retainer is equitybased. 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. consequence of the criticism. effective decision-making.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.com/pr/bios/gore. and set standards to ensure that the company is committed to business success through maintenance of the highest standards of responsibility and ethics. knowledge and judgement. no options were granted to or exercised by the executive officers in 2003. (2003).apple. 19. The Directors should take a proactive.net/phoenix.net/phoenix. In short. For instance. Lindinger. Compensation The form and amount of Director compensation is determined by the Board after a review of recommendations made by the Nominating committee. and contacts to the company. 386 http://phx.38 Indeed. Apple’s Directors don’t only contribute an excellent professional background but also a wide range of skills.zhtml?c=107357&p=irol-govCommitteeComp.04 http://phx.04 39 http://www.corporate-ir. the outside Directors apparently don’t bring enough objectivity to the monitoring and evaluation process which should actually be their key objective.Apple Computer Inc. p.

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.Apple Computer Inc. Jobs moved back into Apple’s executive suite as CEO and Director41. Moreover.484.511. 21.698 43. enthusiasm. After he had left the company in 1985. Moreover. 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. Moreover. Lindinger. (2003) Yoffie D.302. 4. By taking a closer look at his compensation and linking it to the company’s performance.02. Steve Jobs can be described as a charismatic leader who possesses strong technical obsession.000 ----Securities Underlying Options (#) --7.500.795 40. His huge bonus and other compensation figures result from a special executive bonus in form of an aircraft. (2003) http://askmen. he also co-founded Pixar Animation Studios in 1986 and still serves as Chairman and CEO of the company. and Wang Y.2 CEO Professional background Steve Jobs co-founded Apple in 1976.com/men/apr00/21c_steve_jobs.534 74. he can be regarded as a visionary in the world of personal computers.2. he made good money during the last three years. In 1997.594 In fact. creative and innovative skills. commitment and entrepreneurship. although Steve Jobs only gets $1 as salary. Abilities and characteristics In fact. As he says that “innovation distinguishes between a leader and a follower” 42. it becomes clear that the development of his bonuses is totally contrary to the company’s results and especially the huge bonus in 2001 when the company had a net loss might mislead investors. Jobs co-founded NeXT Software and served as the Chairman and CEO of NeXT from 1985 until 1997 when NeXT was acquired by Apple 40.750.04 DIT | Strategic Management | Iliev. Poettler 34 . B.000 --All Other Compensation ($) --1. Steve Jobs cancelled all of his outstanding options in March 2003 and was awarded five million restricted shares.268.html.

Evaluation of skills Actually. successful products such as the iPod. Nevertheless.49 In addition. 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. Moreover. 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.44 In short. In addition. 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. he immediately recruited a new Board of Directors and had to reposition Apple in the evolving personal computer industry. Moreover. and creativity as well as his entrepreneurship could/can also be seen in his jobs at NeXT and Pixar. the top-grossing film of 2003 and the top animated hit of all time 47. B. 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. his absolute belief in Apple’s right 43 44 Yoffie D. Lindinger. and the other characteristics and abilities discussed above. 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. technological obsession. Poettler 35 . (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.Apple Computer Inc. 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. his favour for technology. When Steve Jobs came back to Apple in 1997. 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. In fact. and Wang Y. innovation. 43 In fact.

2. Therefore. 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. this strategy can be regarded as quite visionary and revolutionary as it is especially aimed at the future. Worldwide Sales Senior Vice President and General Counsel Senior Vice President. 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. Cook Nancy R. In fact. Anderson Timothy D. Worldwide Operations Executive Vice President. Retail Senior Vice President. Hardware Engineering 50 Apple Computer Inc. 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. 4.3 Top Management Executive management team50 Name Steve Jobs Fred D. 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. Finance Corporate Controller Senior Vice President. Lindinger. Poettler 36 . Heinen Ronald B. 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. (2003) DIT | Strategic Management | Iliev. Although this was sometimes a problem in the past. Nevertheless. 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. In addition. the success of the iPod for example shows that Steve Jobs and Apple are probably on the right way.Apple Computer Inc.

Johnson Peter Oppenheimer Jonathan Rubinstein Philip W. Professional background and experience52 Name Steve Jobs Fred D. Schiller Bertrand Serlet Sina Tamaddon Avadis Tevanian Vice President.piphany Corporate Vice President and CFO of Automatic Data Processing Vice President. Fred Anderson will retire as CFO on June 1. Poettler 37 . In addition. 14.com/pr/library/2004/feb/05anderson. Professional Services of NeXT 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. Schiller Bertrand Serlet Sina Tamaddon Avadis Tevanian 43 42 46 42 1997 1997 1997 1997 Senior Vice President. Moreover. 2004 and Peter Oppenheimer will succeed him as Chief Financial Officer 51. Product Marketing of Macromedia Director of Product Marketing of FirePower Systems Director of Web Engineering of NeXT Research engineer of Xerox PARC Vice President. most executive managers were externally hired (Jobs.Apple Computer Inc.02.html. Software Engineering Senior Vice President. and Tevenian as part of the acquisition of NeXT) and only a few held other positions within the company before. Corporate Materials of Compaq Chief Operating Officer of Intelligent Electronics Director of North American Fulfillment of IBM Nancy R. Anderson Timothy D. Engineering of NeXT Engineering and management positions of NeXT In fact. 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. Europe of NeXT Vice President.apple. Heinen Ronald B. 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. Chief Operating Officer of FirePower Systems Vice President. Worldwide Product Marketing Senior Vice President. Lindinger.04 Apple Computer Inc. Serlet. (2003) DIT | Strategic Management | Iliev. Cook Professional background Chairman and CEO of Pixar Animation Studios Chairman and CEO of NeXT Director of eBay and E. Tamaddon. Philip W.

212 460.000.000 All Other Compensation ($) 11.829 452.219 452. the company’s management contributes to its success by providing the required skills. The following table summarises their compensation: Name Year Salary ($) Bonus ($) Restricted Stock Award ($) Fred D.673 563. Johnson 2003 2002 2001 Avadis Tevanian 2003 2002 2001 656. followed by a net income of $65 million in 2002 and $69 million in 2003 whereas only Timothy D.000 --300. So. in terms of salary Timothy D. compensation information is only available for the last three years for the four most highly compensated executive officers (other than the CEO). Cook’s salary moved according to this pattern.025 7.000 ----1.000 300. there were no options granted to the named executive officers in 2003.873 ----------500. and knowledge as well as the necessary industry background. Moreover.631 656. Cook 2003 2002 2001 Ronald B.000 1.000. In addition. 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. experience.700 10.631 657. Lindinger.500000 --------500 ------------------------Securities Underlying Options (#) ----1. DIT | Strategic Management | Iliev. 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”.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. Moreover.000 7.312 9.039 617.404 452.429 456. Performance and compensation In fact.000 ----1. 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.962 10.Apple Computer Inc.450 11.731 492.929 8. past.875 ------11.000. Poettler 38 .404 452. Anderson 2003 2002 2001 Timothy D.

152.715. Poettler 39 .252 110. Johnson Arthur D. Jerome B.02% 0.502 804.19% 4.002 1.000 4.601. 2003:53 Name Steven P.204.00% 0.38% 0.672 90.334 90.373 of Common Percent of Common Stock Outstanding 1. 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. products.44% 0.03% 1. 677 14.060.06% 0. Moreover. Lindinger. as Apple doesn’t give any information concerning future strategies. In addition.370. Cook Millard S. So. York Others All Executives and Directors (16 people) Shares Stock 5.600 1.31% 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).22% 0. 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.33% 0.02% 0. and plans to the public. Ronald B. Campbell Timothy D.00% 53 Apple Computer Inc.Apple Computer Inc. 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.334 231.2. Levinson Avadis Tevanian Jr. Strategic issues and future challenges Although Apple’s core strategy is always associated with Steve Jobs and his visions for the company. Jobs Fred D. Anderson William V. 4.000 --1.4 Stockholdings of Board of Directors and Senior executives The following table indicates security ownership of Directors and executive officers as of October 31. (2003) DIT | Strategic Management | Iliev. Drexler Albert Gore Jr.

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. W. and Jones G. R. as a client of 54 55 56 Hill C.02. Tax and Legal services to clients. 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). as critics of these compensation systems suggest that companies should at least treat options as an expense that must be charged against profits.Apple Computer Inc. and Jones G. 388 Apple Computer Inc. 4. 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.04 DIT | Strategic Management | Iliev. Moreover. 54 In fact. 390 57 http://phx. (2003) Hill C. As the Board of Directors has already been described earlier in this chapter. such as stock options. Lindinger. 56 Apple’s independent auditor is KPMG 57 which generally offers a complementary range of multi-disciplinary skills including Assurance.2.5 Governance mechanisms Generally. Poettler 40 . p. 14. (2004). p. (2004). 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. 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.corporate-ir. R.net/phoenix. Apple includes the pro forma effects when accounting for stock compensation in its annual SEC-filings. FAS. W. Moreover. Stock-based compensation Stock-based compensation schemes.zhtml?c=107357&p=irol-faq#corpinfo1. 55 Financial statements and auditors Like every publicly traded company in the US.

In spite of these financial incentives. 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. 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. innovation. innovation. W. 19. (2003d) DIT | Strategic Management | Iliev. and responsiveness to customers).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. and Jones G. Poettler 41 . Apple has established several employee benefits such as employee stock option grants. Possible incentives are employee stock ownership plans. 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. Lindinger. to be creative and to turn their technological ideas into reality. In fact. Moreover. As a result.Apple Computer Inc. 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. and technological fascination that allows them to experiment. 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.02. quality.60 In order to take advantage of these positive effects. 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. In addition. (2003) Hill C. (2004). Corporate governance guidelines61 According to Apple’s corporate governance guidelines. stock option grants.kpmg. R. Apple also creates an incentive for employees to stay with the company by providing an atmosphere of creativity. employee stock purchase plans. and an employee savings plan. KPMG. p. 395 61 Apple Computer Inc. Employee incentives In fact. no conflict of interest that could stem from an auditor performing auditing and consulting businesses simultaneously exists at Apple.04 Apple Computer Inc.

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. 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. 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. Finally. as well as officers and employees. 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. to act ethically and to acknowledge their adherence to the corporation’s code of conduct. Additionally. effective leadership. Poettler 42 . 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. Lindinger. Moreover. the Board of Directors should effectively pursue its activities in the three committees which are described in more detail below. 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. (2003b) DIT | Strategic Management | Iliev. Finally. In addition. the Board expects its Directors. Whereas the committee performs an important internal and external control function. it is not the duty of the committee to 62 Apple Computer Inc. Concerning ethics and possible conflicts of interest. evaluating the company's accounting policies and its system of internal controls and reviewing significant financial transactions. Moreover. Besides. 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. the Directors are elected annually by shareholders to serve a one-year term and there are no term limits.Apple Computer Inc. the Board should consider shareholder proposals with respect to Director nominations and devote enough time and attention to its tasks. Moreover.

In addition. determines the composition of the Board and its committees. monitors the process to assess Board effectiveness and helps develop and implement the company's corporate governance guidelines.2. (2003g) Apple Computer Inc. and customers in conforming with legal/ethical boundaries and complying with applicable laws. 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. As a result. and for administering the company's stock option plans. In addition. prepare financial statements. it should establish and modify compensation and incentive plans and programs and therefore supports the governance mechanism which deals with stock-based compensation.Apple Computer Inc. communities. as the committee has to ensure the quality of its independent auditors. Poettler 43 . Nominating and corporate governance committee64 The Nominating committee assists the Board in identifying qualified individuals to become Directors. 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. the corporation’s employees should be aware of job and ethical responsibility. (2003e) DIT | Strategic Management | Iliev. Lindinger. it is a vital element in enhancing the governance mechanism of financial statements and auditors. Compensation committee63 The Compensation committee is primarily responsible for reviewing the compensation arrangements for the company's executive officers. including the CEO. 63 64 65 Apple Computer Inc.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. (2003c) Apple Computer Inc. 4. So.

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

66 67 Hill C. In fact. (2004). and strategic implications In fact. p. 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. Moreover. Nevertheless. 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.Apple Computer Inc. or referral to law enforcement authorities) if this occurs. 296 DIT | Strategic Management | Iliev. R. the organisation or society 66 . it hasn’t been successful in implementing all the three necessary steps for fostering an ethical organisational climate 67 . From a strategic viewpoint. customers. R. (2004). and Jones G. Compliance. In addition. and Jones G. W. Actually. Apple strongly aims at establishing a culture that emphasises the importance of ethics. especially through the use of voluntary disclosures and the report of inappropriate behaviour. Apple expects its employees to comply with its code of ethics and to be sensitive to possible violations. or legal action. Although Apple has developed a consistent and exemplary code of business ethics. Lindinger. consequences. As violations of these laws may result in civil and criminal penalties for Apple and its employees. 395 Hill C. the company is committed to integrity in all of its dealings with employees. and the general public. Poettler 45 . the corporation will take appropriate action (termination of employment or other business relationship. W. p. 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. 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.

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

72 4.3. Lindinger. a functional structure gives managers greater control of organisational activities and enables the company to avoid becoming too tall by creating several different hierarchies. Europe. R. decentralisation enhances the company’s planning. the company’s management employs a functional structure as the company is organised along functional lines. The Americas segment includes both North and South America. 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. W. this structure enables effective monitoring and efficient activities which consequently reduces costs and increases operational flexibility.3.2 Operating structure Apple primarily uses a geographic structure for managing its business.3 Corporate structure 4. The corporation’s reportable operating segments are the Americas. 228 DIT | Strategic Management | Iliev. Apple encourages its lower-level managers and employees to take the initiative and foster the company’s strengths (i. Moreover. Apple’s innovation. (2004). 422 BusinessWeek (2004c) Morden T. engineering excellence. As we can see in Apple’s case. 70 By decentralising authority and responsibility as well as through a relatively flat hierarchical structure. and marketing skills 71). and Retail. (1993). and Jones G.Apple Computer Inc. Moreover. Poettler 47 . except for the activities of the company’s Retail segment. where the executive management team’s structure corresponds to this structure. The Japan segment includes only Japan.e. The Retail segment 70 71 72 Hill C. except for the activities of the company’s Retail segment. 4. The Europe segment includes European countries as well as the Middle East and Africa.1 Organisational structure In fact. It enables the company’s functions to learn from another and to become more specialised and productive. decision making. Japan. and control processes due to better information availability. p. p.

in the fields of marketing or hardware/software/applications development) across all the regions. Other operating segments include Asia-Pacific. Net 73 74 Apple Computer Inc.g. 434 DIT | Strategic Management | Iliev. Japan. 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. (2004). So. Lindinger. W. 4. and Jones G. Apple can leverage its skills (e. (2003) Hill C.74 Nevertheless. which includes Australia and Asia except for Japan. p.3. opened its first international store in Tokyo. Each reportable operating segment provides similar hardware and software products and similar services. The Retail segment's performance is also evaluated based on operating income. and the company’s subsidiary FileMaker. R. 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.Apple Computer Inc. currently operates Apple-owned retail stores in the United States and in the first quarter of fiscal 2004. 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. Poettler 48 .3 Performance Apple evaluates the performance of its operating segments based on net sales. 73 This structure can be shown in the following organisational chart: CENTRAL OPERATIONS CEO. As most central functions are centralised.

In fact.249 68 137 3. 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.Apple Computer Inc. sales for geographic segments are based on the location of the customers. only the Retail segment has an operating loss in 2003 despite a high increase in net sales. Poettler 49 .251 122 165 1. Lindinger.181 323 494 3. 4.131 278 395 3. 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. This 75 Apple Computer Inc.4 Strategic implications Concerning the overall strategic implications of Apple’s corporate structure.309 130 252 1. resulting from the opening of new Apple retail stores.3. (2003) DIT | Strategic Management | Iliev. 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: ($.

Poettler 50 . and responsiveness to customers. Lindinger. (2004). direct contact constitutes an appropriate integration mechanism.Apple Computer Inc.5 Integration and control76 In order to avoid coordination problems between people. innovative. 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. and cool company) as well as the structure of the operating segments respectively (which are generally supporting the company’s international objectives and presence). functions. As Apple is famous for its quality and innovation. Apple has to use integration mechanisms and control systems. Apple uses personal control as the company expects their employees to perform their work efficiently. software. 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. quality. these areas can be seen as major strengths of the company due to appropriate strategic control. In terms of control systems. these are targeted at efficient monitoring/evaluation and enable the company to reach superior efficiency. direct contact among Apple’s managers enables them to work closely together in terms of problem-solving and other (strategic) issues. and share competencies/experience. In fact. avoid hiding any information. and divisions. integration mechanisms aim at increasing intra-functional coordination and communication.3. 4. 76 Hill C.g. In fact. and Jones G. innovation. p. Actually. W. As Apple’s culture can be described as relatively open and casual. is especially manifested in the huge importance of hardware. For instance. R. 410ff DIT | Strategic Management | Iliev. Apple’s network of huge retail stores across the United States) remains doubtful. 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.

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

Poettler 52 . p. 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. So. 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. 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. Therefore. Moreover. 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. 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”. 84 By constantly emphasising these positive effects of Apple’s innovative culture. In fact. 243 The Economist (1998b) Hill C. advantage 79. 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. 81 In addition.Apple Computer Inc. (1993). 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. R. 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. the initial bohemian. it is obvious that these values are constantly emphasised by Steve Jobs through statements such as “Innovate. Lindinger. and Jones G. individualistic. (2004). W. p. riotous. Concerning the latter aspect. In fact. that’s what we do” 82 or “Apple is the most creative technology company out there” 83 . As organisational culture is created by the strategic leadership provided by an organisation’s founders and top-managers. the firm has a strict policy that 79 80 81 Morden T. 418 82 Fastcompany (2004) 83 BusinessWeek (2004c) 84 BusinessWeek (2004c) DIT | Strategic Management | Iliev.

as it is the case at Dell). and follow-through (supporting product innovation with things such as a solid sales force. First of all. 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. So. 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. and language. 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. a strategy for collaborating with developers and makers of complementary products. In addition. the various myths about Apple and its charismatic CEO as well as the conviction. consistency. myths. Nevertheless. Poettler 53 . 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. Lindinger. 4. 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. 87 In terms of organisational socialisation (which specifies how people learn organisational culture and therefore become organisational members).2 Strategic implications Concerning the strategic implications of Apple’s corporate culture. 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. For instance. enthusiasm. commitment.g. 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. there are also certain drawbacks to this form of culture that is primarily based on innovation. one apparent criticism is that Apple has devoted itself single-mindedly.Apple Computer Inc.4. Moreover. and a strategy for customer service). religiously to innovation.

namely Marketing. and marketing of the product and support activities allow the primary activities to take place. and Jones G. software. p. creation. R. W. Research & Development. and customer service. 83-86 DIT | Strategic Management | Iliev. As Operations & Logistics contains materials management acti vities. capacity. Human Resource Management. delivery. 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 Information Systems. Poettler 54 . Moreover. 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. the most innovative company definitely acts as one of the firm’s core objectives. and applications engineering) represent separate functions in the overall organisation and therefore have enough power. 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.Apple Computer Inc.5 Corporate resources88 The following six subchapters take a closer look at six value creation functions. Finance. the production of the product. 4. Lindinger. Operations & Logistics. (2004).

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

Steve Jobs already assured that he won’t cut costs through decrease in marketing expenses but will focus on increasing profits and revenues. Currently 80% of revenues are generated in this area.6. The dedication to high-end marketing leaves the company with very little choice in regards to increasing operating margins. 4.6% (marketing accounted for $193 million).1 Marketing strategy As Steve Jobs took over Apple 1997 as CEO.94 Apple's gross margins are the envy of the industry. But below the line.7% margin on sales of $1. so that communication and effectiveness can be increased. recognising that the global music MP3 market will triple until 2006 as forecasts show. the invention of the iPod. In its third quarter of 2003. but it spent $419 million on operating expenses. His eager goal and objective for Apple was to transform the niche PC maker into a high-end consumer-electronics and services company. Apple earned $428 million in gross profit. marked the first product that wasn't tethered to the Mac. 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. general. Apple pours money into R&D and selling. 16. (2003) DIT | Strategic Management | Iliev. This paradigm shift in overall corporate strategy was naturally accompanied by huge marketing expenses.12. a lot of people doubted that he will succeed to turnaround the company and return it to profitability.93 So this radical change in corporate strategy meant that marketing strategies had also to change and adapt to this new strategy. and administrative expenses.macminute. He reorganised the department by centralising the responsibilities in company wide groups.com/2003/08/05/appleshift. leaving it with an operating margin of just 0. being less dependent on its sales of computers and laptops. In other words it's a Cadillac operation. On one side Apple focused its recent marketing operations on one major business area: The iPod and iTunes. Poettler 56 . They have expensive retail locations and high-end advertising. But once again he proved the others wrong. they give it all back.55 billion. Lindinger.Apple Computer Inc. So strategy adjusts in respect to changes in the 93 94 http://www. 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. which ended June 30.03 Apple Computer Inc. a 27. an MP3 player.

Apple Computer Inc. elegant software and services to the Windows world make sense. 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. which actually shows Apple’s marketing department’s responsiveness to outside changes. 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. etc. and Wang Y. brands can be viewed as having personalities. The personalities of brands can affect the relationship that is developed with the brand's users. because especially one of their core businesses. 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. which has been a huge success. both to consumers and to generate revenue. As software and services become more important. intellectual. 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. now accounting for 40% of total PC sales in the US market. the advertising and media business. Apple's moves to capitalise on its brand and bring simple. Lindinger. youthful. Poettler 57 .2 Brand positioning Like people. (2002) Evans D. (2001) DIT | Strategic Management | Iliev. and Gupta P. external environment. increasing company’s efficiency as well as its profits.6. which in turn leads to low customer deflection rates and a possible ride down of the experience curve. On the other side Apple slowed down the aggressive marketing in terms of PCs and notebooks as their niche market. who are looking for sophisticated and customized products.96 95 96 Yoffie D. B. 4.95 Through combination of online and retail channels Apple has the opportunity to reach both first time buyers and Power users. A brand can be viewed as being trustworthy. humorous. Remarkable in this area is that Apple adopted the direct selling model from one of its rivals “Dell” by opening their own online store. A brand's personality can also serve to reinforce a product feature. was in a steady decline during the last few years and therefore demand for products was anyway not skyrocketing.

Lindinger.6. influenced by the identically named bestseller of George Orwell. People associate the same qualities with the company AND its products. Poettler 58 .Apple Computer Inc. This pricing option is seen as the main obstacle for Apple to enter the mass market and gain sustainable market share. which altogether is a high end niche market. as previously mentioned. iPod (MP3-player). Promotion Promotion heavily utilises the TV as its advertising channel to promote the coolness factor of Apple’s products. demonstrates in a spectacular way. This capability results therefore in a very strong brand loyalty. but Apple puts itself as a supplier mainly to the education sector and the graphic professionals community. highly differentiated and high-priced in the premium segment of their respective market. Price Products are usually.3 Marketing mix Products Power Mac (PC) and iBook (laptop). 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. The experience curve Unit Costs Accumulated output over time 4. 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. iTunes (online music store) and multimedia software are the core products of Apple.

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

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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Apple has to recognise that a “name” is not everything. 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. Short-term high profit margins through charging elevated prices were the determining fact without attributing much attention to their deteriorating market share. But is Apple’s financial situation an altered one in 2004? 4.6. Net income also reflects 104 BusinessWeek (2003a) DIT | Strategic Management | Iliev. the highest profit on an annualised basis since 2001 and far beyond any estimation. Customer support is also viewed as an important criteria considering to buy hard. Marketing is still far from being perfect.g. Poettler 63 . through superior after sales service) or decrease its costs in order to stay competitive and enhance performance. the company beat analysts’ expectations by presenting a net income of $63 million.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 therefore it can charge a premium price. 4.Apple Computer Inc. Specifically the online anti-advertising campaign by disappointed buyers of the iPod could have been avoided through better customer support. Despite costs. Lindinger. we notice that Apple was never caring much about the long-run.7 Corporate resources: Finance By looking back in history.1 Apple’s financial status quo When Apple published the first quarter results of 2004.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. as it was previously stated that nearly all of the gross margin is eaten away by R&D and Marketing.7. 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. 4.

For the three months ended in December 2003.Apple Computer Inc. portables were relatively strong primarily due to the 69% or 247. including: The Retail segment’s net sales grew to $621 million during 2003 from $283 million in 2002. 105 106 Yahoo Finance. All of the company’s operating segments experienced substantial increases in iPod net sales and unit sales during 2003. Revenues reflect an increase in sales of iPod and computer accessories. an increase of 119%. or 141%.000 unit increase in PowerBook unit sales. Poettler 64 .01 billion. which follows a $287 million or 74% increase in 2002 as compared to 2001. Reuters Investor Services Strict corporate governance action plan that imposed strict corporate rules by trying to avoid a second Enron DIT | Strategic Management | Iliev. They showed Total Assets of $6. 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.815 billion. 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 2003.592 billion. The current year increase was primarily driven by the $202 million. Average Cash Flow figures in comparison to the previous years marked the liquid position of Apple Computer. revenues rose 36% to $2. 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. 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. This number improved especially in the first quarter of 2004. Several factors have contributed favourably to net sales during 2003. Net sales of peripherals and other hardware rose to $384 million or 57% during 2003 compared to 2002. Lindinger.000 unit decrease in iBook unit sales. slightly offset by a 4% or 30. but an Operating loss of $1 million. Although total Macintosh unit sales were down 3% in 2003. higher margins due to product mix. year-over-year increase in iPod net sales to $345 million. In addition to the iPod. a net income of $69 million. This states that Apple’s product and business mix is diversified enough to always serve the company with appropriate cash. Total Liabilities of $2.

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

DIT | Strategic Management | Iliev. Service and other sales rose $69 million or 30% during 2003. Annual Income Statement. Apple’s average net sales per Macintosh unit sold increased two percent to $1. PowerBook and Power Macintosh systems accounted for 42% of total unit sales in 2003 versus 36% in 2002. Additionally. higher sales figures may also infer from the recent acquisitions of PowerSchool and Emagic. 12-2003 This reflects an overall industry trend towards portable systems. Increased net sales associated with Internet services are due to net sales from the iTunes Music Store. and third-party software. 09-2003 Quarterly Cash Flows. server software. Lindinger. Poettler 66 . 12-2003 Annual Cash Flows.491 in 2003 due to an increase in direct sales primarily from the company’s retail and online stores.Apple Computer Inc. Net sales of software increased $55 million or 18% during 2003 and result from higher net sales of Apple-branded application. 09-2003 Quarterly Income Statement.

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

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

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

P. Working Capital.Apple Computer Inc. its price was $22.33. Currently. plant and equipment Apple’s stock and dividends Primarily. (2003) DIT | Strategic Management | Iliev.957. Inventory Property. On the 20th of February 2004.72. the corresponding 52-week low $12. Lindinger. The 52-week high is $25. the stock has an average three month volatility of 5.51. This is due to the general belief that Apple itself will prosper in several 108 J. Low: $22. a majority of analysts 108 is “neutral” (in real terms.40 (High: $22. but this normally implies a slight tendency to sell) on the Apple share which suggests neither buy nor sell the stock.200 shares. Morgan Securities 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).21) with a traded volume of 4. Poettler 70 .01. but represents member of the S&P 500 and the NASDAQ 100 Composite Index.

Lindinger. 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. The money was mainly used to fund business operations and R&D. especially from ultraefficient producing and selling Dell. 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. the company’s policy normally is not to pay out any.10 billion. that could persuade their shareholders to reinvest their earnings in the company by promising them a far higher yield through. above all Microsoft. Apple’s corporate credit rating is at BB109 and consequently near sub investment grade. For fiscal 2004 (EPS of $0.34 billion are estimated. business areas. Finally. Poettler 71 . This can be derived from the attitude of many IT companies.40 and revenues of $7. Apple is trading at the high end of its historical range. Although providing a Common Stock dividend during Apple’s latest stock split in 2000.51 on revenues of $7. but will still have to face tough competition.Apple Computer Inc. recommendations conclude that Apple’s current valuation already recognises in lofty expectations for a turnaround. for fiscal 2005 an EPS of $0. but with a stable outlook. Apple’s credit ratings and capitalisation structure At the moment.

this is a common scenario for corporation. The latter ones became important in August 1997 when Microsoft purchased 150. which pay interest semi-annually. Current financial objectives and policies Apple’s major financial goal is to outperform its competitors. As far as Equity Capital is concerned. This leads to a very low financial leverage / Gearing ratio110 (Total Debt to Equity equals 0.07) and therefore makes refinancing for Apple rather cheap regarding their capital structure. above all in terms of productivity ( measured by net sales. 25% a BB. 110 111 Shows the company’s relationship debt to equity Different classes of shares containing specific rights DIT | Strategic Management | Iliev. 2000. This states that debt financing by issuing corporate bonds would become costly for Apple due to their low rating. but in times of low market bond yields. were sold at 99. 23% a BBB and only 13% an A). The notes. Lindinger.Apple Computer Inc. operating income. From the prospective of accuracy there can’t be found any valuation discrepancies in asset values or market prices.000 shares of Apple Series A111 nonvoting convertible preferred stock for $150 million. there exist common and preferred stock. The company currently has debt outstanding in the form of $300 million of aggregate principal amount 6. 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. going along with a reciprocal “technological exchange”. above all in the IT sector (33% have a B-rating. Apple isn’t able to take full advantage of “cheap” corporate bonds’ issues. stock price performance. are not expected to affect Apple's rating or outlook.5% unsecured notes that were originally issued in 1994. Poettler 72 .51%.925% of par. 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. Such a policy may be beneficial as the company’s ownership isn’t diluted. These shares were convertible by Microsoft after August 5. Nevertheless. into shares of the Company’s common stock at a conversion price of $8. for an effective yield to maturity of 6.25 per shares. 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.

highly competitive industry pricing conditions continue to challenge profitability levels for most original equipment manufacturers (OEM). Liquidity) and to become the industry’s most profitable company. Lindinger. 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. Nevertheless. performance and budgets. a low-cost manufacturing model. but a full hardware spending recovery is dependent upon growth in corporate spending and is not expected to be material in 2003. Consumer spending on PCs and electronics has been the primary bright spot to date. and the market Amid continuing cautious commentary from industry participants. Dell Inc. Poettler 73 . and an efficient asset management Dell should be enabled to preserve double -digit revenue growth and consistent profitability levels. e -commerce.7. This policy is clearly stated (focus on equity) and implied from both.Apple Computer Inc. 4. Return on Invested Capital. and Web-based technologies remains clear. HP posted the highest revenue growth since its merger with Compaq Computer and achieved profitability in DIT | Strategic Management | Iliev. the signs of growth in the US computer hardware industry are modest but accumulating.2 Apple’s competitors. In addition. With a boost from its seasonally strong fourth fiscal quarter. their financial status quo. However. over the longer term. despite highly competitive industry conditions. In the near term. ratings are supported by ample liquidity (cash and investments total $11 billion) and a strong financial profile. Hewlett-Packard Co. the need for continued investment in wireless. With a rating of A-. an expanding product line.

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

futures. 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. limits the amount of credit exposure to any one issuer. Poettler 75 . a plan was authorised for the company to repurchase up to $500 million of its common stock. 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. risk management duties. to minimise risk exposure CAPM – Capital Asset Pricing Model DIT | Strategic Management | Iliev. Sun's rating of BBB was placed with negative implications. a vibrant risk management taking care of hedging foreign exchange exposure. This reflects the concerns about Sun's cost structure and ability to improve profitability. Weighted Average Costs of Capital approach113 to value Apple’s assets and derivative pricing BlackScholes model for options.Apple Computer Inc. by policy. Apple uses this repurchased shares finance employee remuneration through stock option plans. 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. During the fourth quarter of 2001. Sun Microsystems Inc. and swaps. The company has not entered into any transactions with unconsolidated entities whereby it has financial guarantees. subordinated retained interests. Furthermore. 4. In 1999. above all derivatives. 112 113 Creating and using new financial products. According to Apple’s auditor KPMG. managing general obligations (“paying the bills” by guaranteeing liquidity. Therefore. adjusting to local conditions and making use of “financial engineering” 112 to secure capital flows is indispensable. Measurement is accomplished by using common ratio analysis. derivative instruments or other contingent arrangements that expose Apple to continuing risks and contingent liabilities.7. 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. Lindinger. handling Apple’s international capital transactions) as well as special programs. Apple’s accounting relies on GAAP (Generally Accepted Accounting Principles). Apple entered into a number of forward purchase agreements to acquire the shares.3 Apple’s financial operations Apple’s finance and treasury division has to provide the company with a sound financial policy. All highly liquid investments with maturities of three months or less are classified as cash equivalents.

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

2 Structure and performance By taking a closer look at Apple’s actual R&D budget. As a consequence. In fact. At the moment. R&D headcount is now close to 2.Apple Computer Inc. 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. 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.116 114 115 116 Apple Computer Inc. Apple’s R&D budget is used mainly for hardware purposes (49%) whereas software and applications play a somewhat less important role. 4. the company’s research and development department constitutes a central element of Apple’s value chain in terms of creating value. and the internet. 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. Lindinger.500. 140 Apple Computer Inc. Moreover. networking and communications software and solutions. (2003) Morden T.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. Moreover. it becomes clear that investment in research and development is continuously rising and in 2003 with $471 million is up 50% from 1999.1 General information As the personal computer industry is characterised by rapid technological advances.8. applications software. p. the firm continues to develop new products and technologies and to enhance existing products in the areas of hardware and peripherals.8 Corporate resources: Research & Development 4. Poettler 77 . 4. (2003a) DIT | Strategic Management | Iliev. (1993).

As a result. 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. 117 Moreover. Lindinger. 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. its results of operations may be materially adversely affected by its operating cost structure. if the firm is unable to continue to develop and sell innovative new products (in order to differentiate) with attractive gross margins. Although the company has continually increased its R&D budget during the last years. So. up substantially from approximately 5% of total net sales in fiscal year 2000 and recent earlier periods. 2002 and 2001. Apple also engaged in Purchased In-Process Research and Development (IPR&D) when it acquired Emagic (2002) and PowerSchool (2001). Through these acquisitions. Poettler 78 .Apple Computer Inc. Many of these competitors seek to compete aggressively on price and maintain very low cost structures. $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. 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.

and quality of innovation and therefore enables the firm to achieve superior innovation. In addition. and thoughtful but entrepreneurial actions. 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. W. 4. p.000 independent and in-house developers writing programs and making products for its operating systems. 120 In fact. and Intel118. it creates value by enhancing the speed.8.4 Competitive advantage In fact. (2004). In fact. more than 7 million developers build applications for the Windows platform worldwide. Apple has just 300. Lindinger. and Jones G. 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. Poettler 79 .3 Strategic management In terms of strategic management issues. Mac OS X. the company’s R&D department is definitely one of the most important value creation functions within Apple.119 4. On the contrary. (2003a) DIT | Strategic Management | Iliev. Moreover. 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. this should lead to short product-to-market cycles and innovative products or processes. a flat and decentralised hierarchical structure is another positive aspect through which Apple promotes efficient and successful R&D activities. Indeed. R. quantity. innovation.8. 424 121 Apple Computer Inc. including the latest.Apple Computer Inc.

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

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

the company’s policy of DIT | Strategic Management | Iliev. As a consequence. supplier contracts. 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. Poettler 82 . Apple must order components for its products and build inventory in advance of product shipments. it has to be stated that although Apple tries to work closely with its key suppliers. and open orders based on projected demand information. coordinated product introductions. while currently available to the firm from multiple sources. Apple attempts to mitigate these potential risks by working closely with its key suppliers on product introduction pla ns. 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. Lindinger. 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. strategic inventories. in current PowerMac products and Motorola is the sole supplier of the G4 processors. this highlights a possible threat of Apple’s differentiation strategy as the company depends on the availability of certain custom components from special suppliers. Some other key components. As Apple’s markets are volatile and subject to rapid changes. 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. and internal and external manufacturing schedules and levels. Such purchase commitments typically cover the company's requirements for periods ranging from 30 to 130 days.Apple Computer Inc. 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. Consistent with industry practice. the company acquires components through a combination of formal purchase orders. there is a risk the company will forecast incorrectly and produce or order from third parties excess or insufficient inventories of particular products. Consequently. Apple’s ability to ship related products in desired quantities and in a timely manner could be adversely affected. are generally subject to industry wide availability constraints and pricing pressures. In addition.

China. Fullerton. In fact.Apple Computer Inc. whereas most products are assembled and manufactured by third-party vendors which are mainly situated in lower-cost countries. and the Czech Republic. Taiwan. Apple only assembles some of its products in the United States and Europe. Poettler 83 . Lindinger. the Netherlands. 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. In short. and other changes to the distribution system are illustrated in the following diagrams 124: 124 Sudbury A. 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. it is quite interesting to take a closer look at the changes that the company made beginning in the year 2000. Currently. Outbound logistics Concerning Apple’s distribution model. Korea. and China. 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. 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. an expansion of Apple’s presence in national chains. this initial situation as well as the effects of the introduction of special retail stores. (2001) DIT | Strategic Management | Iliev. Taiwan. In fact.

Lindinger. B. these efforts seemed to be paying off as Apple could reduce its inventory to less than two days worth of sales by early 2002.Apple Computer Inc. In spite of the huge initial interest in the stores. p. B. and Ryan J.9 billion in 2003). Apple’s new retail stores recently earned much criticism. and Wang Y. 13 128 BusinessWeek (2002a) DIT | Strategic Management | Iliev. 14 Gupta P. now. with slower traffic through the stores and flagging sales. 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).125 Generally. national and regional retailers and cataloguers. (2003). resellers. Apple distributes its products through wholesalers. 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. p. consumers. businesses. (2003). (2000) Yoffie D. Poettler 84 . Apple's outlets may be losing their impact and could increase the company’s fixed-cost base 128. The company also sells many of its products and resells certain third-party products in most of its major markets directly to education customers. and Wang Y. 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. 125 126 127 Yoffie D.

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

although there was an increase in costs of sales (which are the costs of manufacturing the products). 4. Nevertheless. business. this increase was only of minor size compared to the increase in net sales and therefore led to an overall increase in profitability.Apple Computer Inc.128 million in 2001 to $4. DIT | Strategic Management | Iliev. Lindinger. many of Apple’s products are manufactured in whole or in part by third-party manufacturers. political. if for any reason manufacturing or logistics in any of the manufacturers’ locations is disrupted by regional economic. or military conditions or events. In addition. the company has outsourced much of its transportation and logistics management. the company’s results of operations and financial condition could also be adversely affected. Apple may remain at least initially responsible to the ultimate consumer for warranty service in the event of product defects. Poettler 86 . Moreover. any unanticipated product defect or warranty liability could adversely affect the Company's future operating results and financial condition.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. Therefore. Consequently. Outsourcing As already stated before. environmenta l. In addition.207 million in 2003) to an improvement in Apple’s gross margin of almost $500 million. 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. While outsourcing arrangements may lower the fixed cost of operations. although arrangements with manufacturers may contain provisions for warranty expense reimbursement. Apple’s policy in terms of operations and logistics contributes to the good financial performance of the company.499 million in 2003) which lead together with a larger increase in net sales (from $5. it can be stated that Apple’s cost of sales continuously increased in the last three years (from $4. medical.9.363 million in 2001 to $6. This indicates that.

the production function can also perform its tasks in a way that is consistent with ensuring high product quality. (1993). and customer responsiveness. efficiency in production helps a company to lower its cost structure.Apple Computer Inc. 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. Poettler 87 . Role of IT Concerning the role of IT as a driving factor of operational performance. Although Apple could successfully reduce its inventories in the past. 4. IT can increase the availability and quality of information and therefore improve the efficiency of operations management. Similarly. 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. manufacturing can improve efficiency. which leads to differentiation and lower costs. thereby leading to cost savings. As a result. Nevertheless. p. In terms of the approaches that are aimed at manufacturing processes. 130 Morden T. 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.5 Competitive advantage Concerning the four building blocks of competitive advantage. Lindinger. quality.130 4. or flexible manufacturing.9. As a result.4 Strategic issues In fact.9. 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. total quality management (TQM). 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. there are several approaches to improve the quality and efficiency of a company’s operations such as just-in-time (JIT) inventory systems. 184 and 186 DIT | Strategic Management | Iliev.

The strategy represents a practical response to creativity. Moreover. 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. thereby leading to superior customer responsiveness.Apple Computer Inc. it will constantly be inventing and manufacturing the best products. and innovation. thereby creating more value. superior efficiency can also be achieved in the field of logistics (for example through lower inventories). efficiency. 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.”131 Apple wants to assure that by employing the best people. these areas are also unlikely to contribute to a competitive advantage as they apparently don’t lead to superior value creation. Lindinger. and the constraints that employees as individuals and teams bring with them into the work situation. By applying these possible sources of competitive advantage in the field of operations and logistics to Apple. The workforce is the source of all value enhancing activities in regards to quality.10. responsiveness. it becomes clear that the company apparently doesn’t have a competitive advantage in terms of superior efficiency through better manufacturing processes. Employees should at all times strive for the highest quality in all they do. Apple’s Human resource department has formulated its objectives in the following way: “Provide the company with the necessary personnel to assure superior performance. Ensure proactive internal career progression. competence. Poettler 88 .10 Corporate resources: Human Resource Management 4. 131 Apple Computer Inc (2003) DIT | Strategic Management | Iliev. resulting in significantly lower cost. Finally.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. 4.

com (2002) Techies. 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.g. through online store) also affects the human resource management.com (2002) DIT | Strategic Management | Iliev. 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. as it lays its focus stronger on hiring people for web and interactive content (27%) compared to industry average of (10%). Poettler 89 .Apple Computer Inc. 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. the growing importance of Apple’s direct distribution channels (e. 133 132 133 Techies.

Lindinger. is also key objective of the HRM department. The ability to continue to employ experienced personnel. particularly in the Silicon Valley. (2003) DIT | Strategic Management | Iliev.Apple Computer Inc. Much of the future success of the company is linked to the continued service and availability of skilled personnel. 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. 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. and culture of a company.10. where the majority of the high tech company’s are located.2 Human resource policies The policies should reflect the mission. Poettler 90 . 4.” 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. which especially in the information technology industry is in high demand and competition for its talents is intense. values.

J. E. 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. and Russell J. Lindinger. so that on the basis of this information the forum can formulate and initiate plans to improve and adapt to changes in the industry. and identity. Poettler 91 . 31f IBEC and ICTU (2000) DIT | Strategic Management | Iliev.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. E. Employees have actively a say in design matters and are taking part in the resolution of all challenges and opportunities facing Apple.3 Human resource performance In pursuing the above mentioned objectives of getting the best employees to work for Apple. 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. A. 137 4.Apple Computer Inc. The information collected through this interactive approach is then used to identify aspirations for various kinds of training. and Russell J. as people associate positive values with the company. 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. (1998). the company has installed several measures to increase productivity as well as effectiveness. After that there follows the application of an attitude analysis. who had the responsibility to communicate and promote cooperation between both parties (employees and manager) at Apple. 4. J. For example in Cork. 135 A positive image then can reinforce a competitive advantage increasing customer value. 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. p. (1998).10.10. A. p. 26f Bernardin H. The next stage is the installation of so called change champions.

The result of this process is a lifelong learning. 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. DIT | Strategic Management | Iliev. Poettler 92 . These partnerships are regarded as part of the internal fabric of Apple. The function of HRM is to create an environment which fosters such partnership agreements through: ! ! ! 4. 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. Business driven needs training The module teaches skills and knowledge that Apple believes require in order to progress business. also successfully dealing with industry relations issues. which are jointly solved at the shop floor level. Example of this type of training is the training in various Microsoft packages. An example here would be training in the e -commerce area.10. communication within the plant – underdeveloped.Apple Computer Inc.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 . Apple realises that their staff require skills and knowledge beyond those needed to do their job in order to function effectively. Lindinger.

General Awareness education This area is given top priority and therefore separated from the personal development module. Poettler 93 . 4. and if necessary identifying needs to develop new skills and capabilities. but also increase their internal mobility. As the name already suggests.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. which is actually missing in a lot of companies. 268 DIT | Strategic Management | Iliev. All in all. and results achieved. giving Apple the possibility of redeploying employees. At this. It can also include salary reviews and allocation of merit payments. The illustration below explains how the staff appraisal system works at Apple.10. 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 . p. The evaluation compares the objectives of the training with the learning process that actually occurred. having the ability to fully grasp the business dynamics of the current business situation. Apple believes that through such practices employees are able to see the big picture and make a greater contribution. The system is a key input to HRM and planning. For the HRM department the appraisal can be seen as an opportunity to identify individual and collective performance strengths and weaknesses. staff members are analysed in terms of objectives. tasks.139 138 139 IBEC and ICTU (2000) Morden T. (1993). Lindinger.Apple Computer Inc.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. Personal development category The above mentioned soft skills are part of this category such as assertiveness training.

com/pr/bios/cook.04 DIT | Strategic Management | Iliev. Apple for example lacking operational efficiency was in a terrible need to hire an expert on this particular topic. which are embedded in the staff appraisal system. Cook. 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. workflows. 269 http://www. 141 because of attractive work conditions. management development. through a functioning HRM department Apple therefore was able to win Timothy D. tasks. p. Materials) from Compaq. A combination of life long learning.html. (1993). one of its main competitors. Lindinger. Required results Performance standards Appraisal criteria Staff appraisal process Comparison Feedback Job description Objectives.02.apple. 02. a highly skilled operational Manager (and Vice president.Apple Computer Inc. Poettler 94 .140 To avoid such a skills gap and successfully bridge this gap HRM can undertake additional recruitment. and reward policy convinced him to become a part of Apple’s culture. 140 141 Morden T.

83ff Techies. Career Management at Apple offers promotion from within in preference to outside recruitment. they shifted their application process to a large extent on the corporate website.com (2002) DIT | Strategic Management | Iliev. 142 The recruitment policy is a primary example of how HRM activities adapt to changes in the external environment. Lindinger. which eventually leads to value creation. Statistic shows that the Web is the preferred medium for application among tech professionals. Apple utilises the resources saved on this side to create a balance between online and offline application formats.Apple Computer Inc. W. As Apple considered that it demands a higher number of skilled staff in the area of web development and interactive content. Poettler 95 . R. and Jones G. 142 143 Hill C. (2004). Other advantages of the staff appraisal system include but are not limited to the career management and recruitment and selection policy. 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. which are part of the HRM planning.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. p.

the staff appraisal system has to be developed on a continuing basis. were initially developed by people who Sony had headhunted from Apple R&D department.10. which is the key success factor for Apple. 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. requires substantial investments and resources in order to sustain such benefits as the partnership program. which becomes more and more difficult. Lindinger. Poettler 96 . 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. 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. The corporate strategy again defines already the way Apple sets up its recruiting events. which have some similarities in regards to design.8 Competitive advantage Analysis already showed the harmonic connection between corporate strategy and HRM strategy. who can generate a competitive advantage if the HRM activities support them through their work life at Apple.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. This indeed. 4. as competition increases in the industry. 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. compared to 7% industry average – and 144 IBEC and ICTU (2000) DIT | Strategic Management | Iliev. HRM is able to create incentives for key employees to maintain a fruitful and competitive relationship and boost creativity. only then Apple will be able to outperform its competitors with its HRM activities. 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.Apple Computer Inc. This way Apple assures a continued flow of creative minds in their company. 4.10. For example Sony’s notebooks. which in first place is the basis for a competitive advantage. because everything is built on this core competence.

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. Research indicates that technology oriented managers tend to place less value on and pay little attention to HRM activities.Apple Computer Inc. 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. 145 146 Techies. Lindinger. Poettler 97 . Employee productivity figures f r Apple o support this view as the company is able to outperform its rivals in the industry.com (2002) Apple Computer Inc. 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. He was able to create a vision of the importance of HRM practices. but that’s not the case with Apple. 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. 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. 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. (2003) DIT | Strategic Management | Iliev. Apple wants to stay the employer of choice.S.

11.aspx?ticker=AAPL&target=%2fstocks%2ffinancialinfo%2fratios%2fefficiency.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. huge storage. 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. Nevertheless. Revenue per Employee (TTM) is $617.02.25 GHz G4 processor Desktop computer Digital audio conferencing device Server with single or dual 2GHz G5 processors. 1. At Apple.000 GB DIT | Strategic Management | Iliev.com/MG. equipped with a 2GHz processor. What software. 551.760 for Apple. 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. what applications do the “experts” use to get their things done.1 What type of software and hardware is used at Apple? Due to the fact that Apple fabricates PC.Apple Computer Inc.25 GHz processor Desktop computer. 14. the company of course relies on their products.reuters. fast 64 bit technology Desktop computer.020 for the industry and 396.094 for the sector.5TB portable 148 storage capacity 147 148 http://yahoo. 4.investor. high bandwidth Server with up to 3. Servers and the necessary. 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. third-party applications gets included where there’s no appropriate Apple software available. 1. Poettler 98 .04 Terabyte: 1 TB = 1. the information system is more than just a business-assisting facility.

Industry Stand. 149 150 Custom-order-to-delivery time could be reduced from ten to five days http://www. 1. The PC maker is using several Rhythm advanced planning modules and plans to install more.5TB storage capacity portable Portable with 1.02. 1.33 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’’.25 GHz processor Desktop computer. SAP is the basis. 17’’ display AirPort Extreme Bluetooth FireWire USB by Apple Apple Apple Apple Apple Apple Apple Apple Apple Apple Apple Industry Stand. which was aimed to speed the filling of custom orders 149. SAP wasn’t a success although employing an accounting package.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.25 GHz G4 processor Desktop computer Digital audio conferencing device Server with single or dual 2GHz G5 processors. huge storage. 14. equipped with a 2GHz processor.Apple Computer Inc.industryweek. 20’’. Apple implemented i2 . Industry Stand. Poettler 99 . Industry Stand. Industry Stand.'s Rhythm 150 software packages. high bandwidth Server with up to 3. but i2 is a key piece of what Apple does. fast 64 bit technology Desktop computer. order management.asp?ArticleID=497. Portable with 1. and order fulfillment. Regarding supply-chain-planning Technologies Inc. 20’’. Several other computer manufacturers apply i2.com/CurrentArticles/asp/articles. Therefore. Description Desktop computer. Power Book G4 23’’.04 DIT | Strategic Management | Iliev. Lindinger. 17’’ display AirPort Extreme Bluetooth FireWire USB Apple Apple Apple Industry Stand. manufacturing. Due to high costs and the long establishment period.

A company electronic notice Board to highlight key Apple news increases the corporate identity. interconnected work on projects. As Apple knows. it increases efficiency and reduces costs of the operations as far less employees are necessary. Apple tries to make its business process as virtual as possible. Poettler 100 . if a company doesn't actively pursue involvement in a virtual community. non-compulsory education opportunities. different to Internet DIT | Strategic Management | Iliev. Dell. holiday planning-. Lindinger. it will not be able to create or even maintain its competitive advantage. an internal and external contact database. First.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. further. exchange of information. when Apple plans a 151 Networks connecting Apple with outside developers or suppliers. Hewlett-Packard. Therefore. Apple projects sales each week and adjusts production schedules daily with Rhythm. and Silicon Graphics. 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. Gateway. and reciprocal communication are the main obligations. Data storage. all in all at lower costs for Apple. Virtual communities will be the lifelines of future success. To put it into a nutshell. instead of constructing lots of computers and building up high inventory in advance to meet estimated demand. That isn’t only valid for its products. lunch ordering. it is beneficial for company and people.and work-time overview tools as well as an internal recruitment process. including Compaq. an overwhelming knowledge base.11. but also for its internal communication to demonstrate their superiority. IBM. Now. The Apple-Intranet provides the cornerstone to do so. The Intranet simplified and improved training as well as skills. For example. For instance. but the potential is much higher. Acer. 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.Apple Computer Inc. the Intranet provides Apple employees with all necessary information right at the desk. 4.

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

serving hundreds of thousands of Macintosh systems. there’s to say that Apple provides a wide range of internet based services for its customers and the public (Service & Support.com have become an important way of providing updates to the global Macintosh community. Poettler 102 . Corporate/Investor information. Apple has a number of web-servers. Apple has added numerous other FTP sites that carry a full complement of Apple’s freely distributable software and updates. and support for Apple products such as the Macintosh Application Environment. At present. above all in the way they provide online contents.apple.apple. DIT | Strategic Management | Iliev. 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. Of these. Apple continues to create new Internet resources.com.info. The ability to flexibly up.Apple Computer Inc. provide searchable access to the Apple Technical Information Library. such as mailing lists that distribute Apple press releases to interested parties. In detail. with an FTP site that provided Apple software updates and versions of the Macintosh system software (up to version 7. These servers help to distribute information about Apple. Lindinger.apple. More recently.support.com and http://www. The concept will also be applied to individual users of computing where they will be offered packages like satellite television services today. ramifications for the IT sector are enormous. Internet services Apple has been an active member of the Internet community for years. http://www. discussions about Internet client and server programs for the Macintosh. and offer detailed product information for current and future customers.or downscale to meet demand will have a revolutionary affect on companies and on their strategy formulation. In the future.1). 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. all collected under the main server at http://www.0.

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

especially via the Internet. (2000) DIT | Strategic Management | Iliev. But the site can be extremely expensive to set up. but doesn’t seem to be adequately prepared in bundling all these efforts to create an overall platform for that. and virtual communities) 153. In order to maintain or achieve a competitive edge within the IT market a company like Apple must actively pursue e-commerce. The company also must make efforts to drive traffic to the site. portals. but also by actively exploring new business areas. besides there are contextual selling. Overall we can observe that Apple has a competitive advantage compared to other industry participants.Apple Computer Inc. the company stresses a shopping site with its e-commerce strategy via Apple Store (fourth model of ecommerce strategies. and manage. products and processes) which can help Apple to stay ahead of competitors and therefore maintain a higher profitability than the market in the future. specialised malls. Nevertheless. Apple constantly increases its “exposure” to the entertainment sector (eg. 153 Gupta P. IS strengthens Apple’s strategies and is a decisive part by not only staying a “supporting activity”. maintain. 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. iTunes. Lindinger. 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. It allows the company to control the shopping experience and build a brand.000% and the doubling of PC ownership. 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. Poettler 104 . This site dedicates itself to one brand (Apple). and Ryan J. iPod). 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. As Apple has shown its commitment to the implications of virtual institutions . This competitive advantage comes from the company’s innovation leadership (new concepts and trends in both. It focuses on serving as a communication medium between the customer and the company.

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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Over the past several years. Notwithstanding these definitions business boundaries and limits have to be considered flexible and transforming due to changes in client preferences. industry and market segments By serving the same customer base. characterised by rapid technological advances in both hardware and software development which have substantially increased the capabilities and applications of these products. above all Microsoft’s Windows have aggressively cut prices and lowered their product margins to gain or maintain market share. Further. Apple finds itself in the sector of computing and in the industries of computer hardware which consist of the mainframe. Apple takes steps to oppose these competitive pressures by innovating in competing platforms. Additionally. their needs and demands (i. but also put industrywide downward pressures on gross margins. Apple’s iChat against ICQ. time and technologies. Market segments of Apple are therefore portable/notebook PC. DIT | Strategic Management | Iliev. Yahoo Messenger).Apple Computer Inc. simpler. Poettler 109 . Lindinger. This development (to the benefit of the consumer) is forecasted to continue in the future. IBM or Gateway.2 Defining the sector. an increasing number of smaller. computing devices for businesses and individuals) as its competitors such as Dell. this progress has resulted in the frequent introduction of new products and significant p rice features as well as performance competition. 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.e. price competition in the market for personal computers has been particularly intense. HP Compaq (merger between Hewlett Packard & Compaq in 2001). Apple’s competitors who sell personal computers based on other OS. but less expensive online devices may compete for market share with the Apple’s existing products (e. Desktop PC and Server. 5.2.g. This intending “predatory” pricing led to adverse affects on Apple’s performance ratios. as the PC industry and its customers acknowledge the importance of the internet. Hence. 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.2. Lindinger.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. 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 .

low patent protection. Therefore. Apple achieves this brand loyalty through profound R&D and an emphasis on product innovation. Existing market DIT | Strategic Management | Iliev. This argument isn’t valid for Apple where brand loyalty always played an important role. For possible competitors it’s hard to enter as cost to do so are high.Apple Computer Inc. The detailed reasons for that show up in the barriers to entry of an industry. Regarding cost advantages Apple’s situation behaves in line with the PC market’s. 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. Poettler 111 . Lindinger. gaining access to the market isn’t easy and thus unlikely. 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. diminishing brand advertising efforts and lower product quality. 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. 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. Although high levels of competition among the existing producers can be observed in the PC industry.

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

g. R. Emotional factors that prevent executives to leave a falling market appear for instance in Apple’ case (i. online direct selling (e. This shows up in the number of assembly plants and manufacturing utilities. above all if software and – to a 156 Hill C. Lindinger. the rivalry of the personal computer market is determined by the industry demand which is currently positioned at a very high level. In the PC market. 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. Regarding the industry competitive structure the PC sector is a consolidated industry being dominated by only a small number of large companies. this proves to be valid as an – especially for high-end manufacturers like Apple – dangerous downward spiral came into existence. Dell and Apple). (2004). 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. W. The PC industry’s exit barriers can be tremendous. 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’s major efforts). 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. p.g. in an industry of high switching costs for consumers. 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 . visualised by the industry life cycle. and Jones G. this often occurs by establishing an oligopoly. profound product design and innovation ambitions (e. pricing policies. holistic support and after-sale services. 45 DIT | Strategic Management | Iliev. intensive marketing. Moreover. CEO Steve Jobs sentiments as being one of the co-founders).e. it can’t be compared to an oligopoly due to the market’s soared competition. Poettler 113 . necessary for PC companies. An economic dependence on one specific industry which imposes huge risk if the entire sector goes bust exists in a considerable amount of companies. The fact was argued that computer manufacturing is capital intensive which builds up impediments for exit strategies. Nevertheless. Although Apple never intended to follow the dominant industry company in terms of price.Apple Computer Inc. Furthermore.

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

0.e. just containing MS Office XP. PhotoPaint 11. The latter force tries to measure the relative power of unions. instance Corel Graphics (Draw 11.4 Strategic Group Analysis High Prices Charged Premium Group (Innovation) Apple Commodity Group Dell. Poettler 115 . stakeholders) who exert their individual interests on Apple. implying high R&D expenses by at the same time charging a premium price for its products.0) and MS Project 03. This isn’t anything new or surprising as there was already defined that first. Gateway. Apple is difficult to properly integrate in one of the dominating three big computing industries.2. governments and special interest groups (i.Apple Computer Inc. Apple obtains innovation leadership and therefore is part of that top-right bubble and second. 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. 5. will definitely sell better than one. Lindinger. 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. 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.

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

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

DIT | Strategic Management | Iliev. new trends in technology and computing form the basis for the PC industry and above all for Apple to outperform competitors. interest groups. and shareholders can be located within the immediate environment of the company. Nevertheless. 5. Poettler 118 . seem to be merely the same. suppliers. governments. Technological Forces Innovation.Apple Computer Inc. competitors. In the PC industry. trade associations. Lindinger. labour unions. the factors influencing the market participants aren’t the same globally although the geographic markets. creditors. most of them are operating in.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. these determinants vary from country to country. Therefore. 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. The local key factors like customers. local communities.2.

To add to the complexity of Steve Jobs’ job. In spite of this.3 External analysis of software and peripherals market Apple has a much more difficult task to accomplish than the majority of its competitors. 5. Apple endeavours to diversify its operations by entering into the digital music market. 39 DIT | Strategic Management | Iliev. National Environment The PC market is already acting on a very global level. R. 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. wealthy future clients. 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. who operate mainly in one single industry or industry segment. as part of its digital hub strategy. Poettler 119 . a national competitive advantage can still be encountered. especially in the US. and Jones G. W. p. professionals and home users to also explore new customer groups such as retired persons as potential. Political and Legal Forces Governments provide the basic legal regulations and restrictions that influence the PC in producing and selling personal computers. 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.Apple Computer Inc. (2004). Demographic Forces and Social Forces The PC industry tends to shift its focus from business. 160 Hill C. 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. To understand what environmental forces actually drive this industry we first have to define what the industry itself is 160. Lindinger.

competition is not as intensive as in the digital music market. 161 Apple Computer Inc.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. namely the computer software industry. Also the other software applications don’t contribute as much to the revenues as the iTunes software does. 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. which makes it a liable choice. which includes iTunes. 5. as it recently has developed its own web browser “Safari”. Lindinger. Poettler 120 . with the Mac OS X it competes on the operating system market against Microsoft and Linux. Moreover.Apple Computer Inc. iPhoto .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. and iDVD.3. iMovie. 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. (2003) DIT | Strategic Management | Iliev. are that at all the others.

com/mld/siliconvalley/news/editorial/3856253. it is vital to assess the market’s growth potential. 162 163 164 http://www. brand loyalty is low and economies of scale virtually don’t exist.). Poettler 121 . 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.02.04 Morden T.Apple Computer Inc. “He's pretty much golden in terms of getting deals with the labels. which provide the essential song material for the online music stores. Risk of entry by potential competitors The barriers to entry are very low as on the one side capital requirements are limited. AOL Time Warner Inc. Nobody except Apple has succeeded to win all five major music labels for its operations (Bertelsmann AG's BMG. CEO of consultancy Creative Strategies. M..02.htm?template=contentModules/print story. 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.htm?template=contentModules/print story. and Sony Corp.04 166 BusinessWeek (2004b) DIT | Strategic Management | Iliev. 123ff Lopez J. (2003) 165 http://www. 11.com/mld/siliconvalley/news/editorial/3856253. (1993). 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. Also.siliconvalley. the rule suggests that the more competitors the more rivalry and so it is in this market.jsp. Nevertheless there are two significant aspect in terms of barriers to entry. p. 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.” said Tim Bajarin. Vivendi Universal. One is the networking effect. Competitive forces driving the digital music market First. 166 Rivalry among established companies In general. EMI Group Plc. 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. 11. but also attracts new competitors 162. Lindinger.jsp.siliconvalley. A double digit growth rate in the digital music market present substantial opportunities for existing players. because this potential determines the nature of the game to be played.

even if you are a big fish like Apple.com/news/article/0. 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. Napster II. 18f DIT | Strategic Management | Iliev. 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”. As previously stated as there are no significant investments and fixed costs can consequently be kept at a minimum. the legal digital music market can be glad to exist in first place.04 170 Morden T. so do the suppliers influence the production costs. p. Jupiter Media forecasts a market worth $5. 170 In this industry production costs basically equal the costs of 167 168 169 http://www.168 The last point to consider are the barriers to exit. 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. Actually Apple captures about 20% of the pay per download online music market. quitting the business in the digital music market is not exactly what one would define as difficult. 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. still with a few major players such as Apple .2 billion by 2007 167 – who wouldn’t be eager to get a slice of such a big pie? The industry is fragmented.02 Baltimore Sun (2003) http://www. (1993). and Rapsody dominating the market.Apple Computer Inc.dn070802X. 04.102516.aid.com. Bargaining power of Suppliers This is the flip side of the assessment of the bargaining power of buyers. Lindinger.kazaa. but as the product (song) is a commodity type of good and barriers to entry are not high. as companies start to realise that there is a high demand for legal online music downloads.02. As the buyers can influence prices and marketing costs.tk. competition will increase over the next years. 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. Poettler 122 . 01.00. which would intensify rivalry if existing.pcworld.asp. the branch leader in terms of users (on average over 4 million users online) 169.02.

Strategic group analysis The online downloadable music industry is a very homogenous industry.jsp. 172 Although the market for online music is predicted to rise in an exorbitant manner. Suppliers.com/ec-news/print. Disadva ntage for Apple in this field is the presence of only a handful big and important music labels on the world. there is still the traditional music industry with its retail channels selling CDs.02. and minidisks. (2004). Poettler 123 . as history has frequently shown. p.php/3286881. expected to undergo further harmonisation.04.siliconvalley. 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.htm?template=contentModules/print story.04 Hill C. music DVDs. as music labels will learn to fulfil consumer demands in the next few years. forecasting that by 2005 labels will endorse a standard 171 172 173 http://www. 171 Fortunately the illegal music download business is working against the supplier.7 million digital tracks were recorded as sold. which inevitably would lead to an increase of prices.Apple Computer Inc. try to exploit that by maximising profits and cut good deals for themselves. R. In numbers this means that for a 4month period from July to October 2003 7.com/mld/siliconvalley/news/editorial/3856253. therefore limiting their power to a certain extent.internetnews. W.02 DIT | Strategic Management | Iliev. 173 Consumer preferences can change especially in high tech markets. 11. Lindinger. The music labels can either choose to insist on high profit contracts with legal online music stores. “buying” the songs from the music labels through contracts. compared to only 4 million physical units of CD singles. and Jones G. Currently the threat of substitute products can be rather neglected as technological innovation is not likely to produce big changes in the near future. 04. then the pressure from substitute products is considered to be high. 48f http://www. Pressure from substitute products If products of different businesses or industries can basically satisfy the same customer needs. 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. aware of this situation. but Apple has to be aware that the external environment can change rapidly to the disfavour of Apple.

Lindinger. especially the younger ones.04 Cheng L.174 As a result there are no major differences between competitors. Poettler 124 .99/album Napster 2 (roxio) +500. the only thing which seems to distinguish them at the moment is the payment method. (2003) DIT | Strategic Management | Iliev.000 $9.175 iTunes Song library400. imposes more restrictions and offers less options than free services.99 per song $9. other portable All portable devices devices Online Community Limited portables.000 $0.com/mld/siliconvalley/news/editorial/3856253. 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.com +315. no iPod support None System Lim itations none Downloads in Windows IE5.siliconvalley.95/month unlimited access BuyMusic. Oggs iPod. Internet users.99/song subscription.000 size Pricing $0. Artists $0. Reports show that surfers prefer to pay per download rather than to have a monthly subscription and Apple’s experience corroborates that. $0.0 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. most times.99 per song $9. Song formats Complem.000+ from Indep. are as previously mentioned extremely disloyal.jsp. None Windows media 8 for DRM. They are not prepared to acquire a monthly commitment nor to pay in advance for a service that.htm?template=contentModules/print story.02.95/month $0.99 per song $9.99/album songs.79 for limited Rhapsody +300.95/album $9. MP3 MP3 MP3 MP3 MP3. AAC.000 $0. download contract on equal terms to all distributors such as Apple’s iTunes store. 11.Apple Computer Inc. Products AAC. and Devgan A.79/song to burn on CD Audio Lunchbox +40.

After a slow start.Apple Computer Inc.cfm?NewsID=6342.com/news/article/0.uk/news/main_news.178 This will mostly come from individual downloads. In 2001.co.pcworld. One and a half years later the situation looks completely different.02 DIT | Strategic Management | Iliev.177 The US market will be worth $2 billion by 2007.02.aid.102516. 09. 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”. not subscription-based services. Lindinger. Predictions say that the digital music download service in Europe will be worth an impressive !1. major music and technology companies including Apple are now taking the future of digital music seriously.3 billion by 2007.00.02.102516.macworld.tk.04 http://www. 176 177 178 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.tk.asp. 04. The sector will generate just !24 million this year.dn070802X. 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. Growth will be fuelled by the emergence of more legitimate services and higher broadband penetration.pcworld.01.com/news/article/0. Poettler 125 .dn070802X. 176 After sluggish sales in the past two years demand begins to take off.00.aid. Industry life cycle The economic downturn during 2001 has also afflicted the still-nascent digital music industry.asp. but will account for 13 per cent of all music sales by 2007. moving the industry from embryonic to growth stage.02 http://www. 04.

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

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. M.asp. 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.07 cent would force many companies out of business.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.tk.00. E. (1994). 112ff 186 http://www. (2003) 185 Dickel K. Poettler 127 . issue and key determinant of the success of the digital music industry are people’s conscience and ethic values. The rate being 0. in 2002 the CARP determined that webcasters (companies that produce audio or radio for the world wide web) should pay a per song.04 DIT | Strategic Management | Iliev.186 For example. 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. The environment Apple operates in can be shaped by political judgments and legal decisions. per stream royalty.102516.aid.com/news/article/0.182 At the moment Apple has created the picture that downloading music from the internet is cool and therefore was able to spur sales. which would lead to anticompetitive structures. Such fees imposed on downloadable music content could ruin the business as the narrow profit margins of Apple and consorts could totally disappear. p.pcworld. 04. (2003) BusinessWeek (2004g) Lopez J. et al.02.Apple Computer Inc. M. Lindinger.dn070802X.

31. as well as from veteran music-player makers (Rio.3973. 23.macobserver.02. thoughtfully designed than any of the upstarts.04 http://www. 189 The immediate rivals come from electronics makers (Samsung) and from fellow computer makers (Dell. The market grew by 70% to more than 3. more attractive. and it has gotten pretty tough for new arrivals to distinguish themselves.shtml. the key example being the Archos AV320.5 million units only in the US during 2003 and is expected to grow further at a rate of 50% in the next three years. growth has been tremendous and all major consumer electronics producers entered the market. With so many available products.04 http://www. The iPod is still smaller.01. 187 Since then.01. Others have added video. some have added capacity. The other notable feature of these competitors is a marketing message that's either “just like the iPod. 5.asp. Gateway).usually $100 less. there's little room for innovation.com/article2/0. Most have the familiar iPod ingredients.extremetech. 190 But “better” is another story. Jupiter predicts that by 2006 the install base of players will hit 26 million – that would be one out every ten Americans.00. 05.html.3.1230545. Some have gotten smaller (Apple’s iPod).com/2100-1040_3-252001.com/article/2003/12/30. only better. 188 The clearly trend is that music consumers behaviour shifts from a physical to a digital approach. such as Creative's Nomad Zen 60GB. Today the MP3 player market is swamped to the gunne ls with me-too products.Apple Computer Inc. The market for MP3 players started to develop in 1998 with such companies as Diamond Multimedia with its RIO MP3 player. which is constantly heating up. and more 187 188 189 http://news. only cheaper” or “just like the iPod. Lindinger.” Another fact to take into consideration is that most of these rivals are cheaper . Poettler 128 .1. iRiver). 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.com.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.04 190 New York Times (2004) DIT | Strategic Management | Iliev. a seamless connection between hardware and content. Creative Labs.

Apple 2. simply because their bigger storage capacity is more attractive to customers.com/article/2003/12/30. 31. is the smaller size of the players.01.shtml. 31.macobserver. 193 Political forces once again include the RIAA. are credible alternatives. RCA 5. technological and political/legal forces are worth mentioning. Poettler 129 .com/article/2003/12/30.04 DIT | Strategic Management | Iliev. Best selling MP3 player makers over US$150 (by units) 191 1.1. is currently dominated by the hard drive models.1. Lindinger. which are particular suitable for use during sports. 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. especially the Dell. 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.01. The advantage of Flash based models which are accounting for one third of the MP3 player market.Apple Computer Inc. Creative Technology 3. Rio 4. The MP3 player market can also be categorised as high tech market were technological advancements often occur and reshape industry patterns. The format war between the two existing memory formats.192 In terms of environmental forces.macobserver.shtml. 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. 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. the flash based models and the hard drive models (Apple’s iPod is hard drive based).04 Wall Street Journal (2003) http://www.

high price innovative products less attractive and the bargaining power of Apple’s key component suppliers. DIT | Strategic Management | Iliev. 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.Apple Computer Inc. Poettler 130 .4. In conclusion. highly influenced by technological changes.1 Overview Apple operating in the high tech industry. In this. marked by intense competition and a huge potential for companies to make profits. Lindinger. If Apple is able to maintain the coolness factor of both iPod and iTunes. For the future. Their view has changed.it will be able to generate above industry profits for the future. both the digital online music industry and the MP3 music player market are dynamic. Opportunities arise through its digital hub strategy which aims at producing not only Mac compatible software and hardware. as other industries where Apple is involved in will gain importance. is. them of supporting online piracy through their products. 5. issues in the music player market and digital music market will have a higher impact on the company. Among the most important threats are the high level of competition in the PC industry. which can lead to a higher cost structure and thinner profit margins. 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. which constantly drives down prices and makes high end. social forces seem to evolve as key determinant of how successful Apple will be in the future. as the name already reveals.4 Summary of external factors 5. but also targets the Wintel market with its new innovations. 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.

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. PCs Rising disloyalty among young generation ! Comments DIT | Strategic Management | Iliev. high customer switching costs due to unique hardware/software.4. Poettler 131 . high economies of scale. Lindinger.S.S. 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.Apple Computer Inc. cost advantages through patents and secret processes Strong and loyal developer community ! superior quality and added value. 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. 5. computing dominance attracts R&D and network of services and developers.

Lindinger.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.

R.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. 6 Functional strategy 6. W. Poettler 133 .2 Company resources and functional strategy Superior quality Superior efficiency Competitive advantage: Low cost Differentiation Superior customer responsiveness Superior innovation 194 Hill C. quality. Lindinger. thereby leading to lower costs and/or differentiation (competitive advantage) and ultimately resulting in superior profitability. innovation. chapter 4 DIT | Strategic Management | Iliev. and responsiveness to customers. and Jones G. (2004). 6.Apple Computer Inc.

experience curve effects Finance invest in better manufacturing machinery R&D product innovations. automated processes monitor defect rates superior quality focus on customer. JIT. 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. 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. pay for performance) TQM training programs. Finance. process innovations O&L economies of scale. building brand loyalty. As a consequence. policies. Functional strategies are targeted at improving the functions of a company’s value chain and therefore reaching a competitive advantage through superior efficiency. there are different strategies. quality. and Information Systems. supply chain management HRM increasing employee productivity (hiring. Lindinger. Human Resource Management. namely Marketing. developing products with R&D provide capital for R&D efforts developing new products and processes. and responsiveness to customers. Poettler 134 . innovation. 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. 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. optimise production. mass customisation. quality teams IS improved interaction between company and others. training. team. and methods for all value creation activities that were examined as company resources in the analysis of Apple’s internal environment. feedback on quality provide funds for implementation of TQM design products with superior quality and ease to manufacture analyse defects. Operations & Logistics (O&L). Research & Development (R&D).Apple Computer Inc. flexible manufacturing.

Lindinger. the HRM department enables Apple to reach superior quality as a high-skilled workforce ultimately leads to better products. thereby leading to differentiation and more pricing options. Moreover. 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. DIT | Strategic Management | Iliev. Finally.3 Sources of competitive advantage As Apple only possesses a competitive advantage in some specific areas. In addition. 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. and quality and provide Apple with a competitive advantage. thereby also leading to differentiation and more pricing options. efficiency. 6. thereby constituting another factor that leads to differentiation and results in more pricing options. In all. 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. Poettler 135 . 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.Apple Computer Inc. these four factors contribute to superior innovation.

as consumers require sophisticated as 195 196 Crossan M. 158ff DIT | Strategic Management | Iliev. N. (2004). There are three main factors influencing the shape of Apple’s business strategy. To explain how this strategy works out in detail is the purpose of this chapter. The business strategy proposes how a specific business model can gain a competitive advantage over its competitors in the industry. throughout all industries it participates in. R. 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. Apple pursues a differentiation strategy with unique products which until now are unmatched by its rivals. Fry J. They are customer needs. Lindinger. and Killing J.Apple Computer Inc. and services is getting more and more important. tries to implement its vision of being the digital hub in an area where networking between hardware. P. p.. (2002) Hill C.1 Customer needs Apple.196 7. 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. home Hardware. W. customer groups. peripherals High end R&D Manufacturing Distribution • Fully integrated The above illustration shows Apple’s overall strategy. and Jones G. software. M. Poettler 136 . software. 195 with the business strategy being in the top right corner. 50% foreign Education (50%MS).

(1993). 199 197 198 199 Morden T. Lindinger. well as integrated digital devices who can smoothly communicate with each other. p. et al. 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. This procedure helps companies to target individual customers in a better way with better and more appropriate products.Apple Computer Inc. second Apple could still serve all customers. Poettler 137 . 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. because each set of consumers needs to be properly differentiated. increasing customer responsiveness. 79ff Dickel K. E. (1994). 7. p. Know yo ur customers means to be able to carry out a proper market segmentation. 116f Apple Computer Inc. 197 Apple is known for its high cost structure. as development of product design and innovation is a costly matter.2 Customer groups For a company it is indispensable to know its customers. 198 There are three types of strategy available for market segmentation. Apple since ever tries to differentiate itself from competitors in order to justify the premium price it charges. (2003a) DIT | Strategic Management | Iliev. 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. The first option would be that Apple could try to serve the average customer without making any differences in serving their needs. Apple uses consumer characteristics to segment the market as the following diagram shows and employs a niche strategy.

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

Apple products appeal to customer’s psychological desires and as a result consumers are willing to pay more for its products. 202 Yoffie D. 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). 7. But this premium price should not mean that Apple can neglect its cost control. as an answer to Apple’s iMacs which was then sold in five shiny colours. differentiating their product portfolio to create products which can compete with Apple’s iMacs and Power Macs. Steve Jobs pointed that out by saying that Apple has the world’s greatest customers. Analysts rate the threat of imitation in the PC sector for Apple as relatively low despite the tangible nature of competitive adva ntage. In the past years technological factors have drawn players with different strategies closer together intensifying competition. Another advantage is that this loyalty creates a substantial barrier to entry and especially in the case of Apple. driving it into losses.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. B. Lindinger. which Apple has been doing in the past. 202 Apple has realised that in order differentiation to provide a competitive advantage it has to lead to superior profitability. In contrary. as Dell and Compaq a few years ago designed PCs which were fancy coloured. iLife and the iPod. 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. but only six months after their introduction they had to be discontinued as a result of slow sales. where switching costs are considerably high. and Wang Y. So former pursuer of cost leadership strategies such as Dell and HP/Compaq are trying to gain market share on the expense of Apple . software and digital devices such as the Power Mac. (2003) DIT | Strategic Management | Iliev. Poettler 139 .Apple Computer Inc. state of the art computers. which is also depends on the cost structure of Apple.

more specifically the MP3 player market with its iPod and developed iTunes. Apple faces another critical decision.7 Competitive strategy After choosing the appropriate generic business level strategy and investment strategy. In the consumer and the small business segments it captures only insignificant market shares. Apple therefore entered as part of the digital hub industry the consumer electronics market. As a strong competitor and a differentiation specialist Apple investments are oriented towards the development of a sophisticated customer service. (2003a) DIT | Strategic Management | Iliev. reliability and pricing. The choice is dependent on the strength of Apple’s position in the industry and the stage of the industry life cycle. and broader differentiation. 7. In the education sector Apple has a 28% market share in portable devices (iBook) and an overall market share of 12.6 Investment strategy203 The second determinant of where Apple is heading in the future on a business level is its investment strategy. (2004). To chose a competitive strategy which 203 204 Hill C. 173f Apple Computer Inc. p. Apple has a relatively strong competitive position within the industry. Apple’s position has again implications for the investment strategy. 204 To sum it up. Naturally the PC business remains Apple’s core business (70% of Apple revenues come from PC sales). but as profits start to dry up. the investment strategy defines and allocates resources needed to create distinctive competencies. meaning that demand is only increasing slowly with 2001 being the second year of a decline in worldwide PC sales after 1985. and Jones G.4%. W. To analyse Apple’s position in the industry you need to consider the market share in its key market segments. broader diversification is the only liable way for Apple to ensure profitability in the long run. as new products are marked by the same qualities and features Apple has established and is proud of in the PC industry. the PC industry is in its shake out stage reaching maturity. iPod and iTunes perfectly fit in the corporate image as they seamlessly join the existing products in terms of design.Apple Computer Inc. an online music platform and media content player. All in all the investment strategy tends to be coherent with the generic business level differentiation strategy. marketing . 7. R. Lindinger. in the creative professionals sector Apple’s market share exceeds 65%. As stated before. As the name already suggests. Poettler 140 .

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

who wouldn’t enjoy the same economies of scale in the beginning as existing players.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. pricing games which would have to be supported by the majority of the industry are very difficult to introduce. For the same reasons as before. reinforcing the maturity of the PC industry having no space left for new competitors. any kind of 208 Hill C. Also. Although financially feasible limit pricing. because new companies willing to enter the market. namely Dell. R. p. Also Apple with a traditionally high cost structure will see this opportunity for entry-deterring signals as the least attractive. as they made a wide range of their products affordable for consumers. 204ff DIT | Strategic Management | Iliev. that there is no space for them in the highly competitive PC market. Poettler 142 . Maintaining excess capacity would be in contrast to the manufacturing process at most PC companies. (2004). The current product range of Apple and competitors are a strong signal to potential entrants. three basic options to handle competition within the industry being further analysed: Price signalling. and capacity control. Apple has never used this option. Apple in this case has a variety of possibilities. won’t be able to find any unsaturated niches. A high degree of competition can quickly lead to intense price wars and decreasing profitability. would be product proliferation. Apple has constantly tried to fill more and more niches in the consumer PC market. which in turn would lead to higher barriers to entry. This circumstance makes it difficult for the other players to lower prices. as the fear of price wars within the industry poses a far greater threat than the benefit from increasing the barrier to entry. 7. It introduced PCs priced below the magic $1.000 limit and expanded to consumer electronic markets.Apple Computer Inc. 208 Product proliferation means that the current competitors try to cover all market niches. meaning the lowering of prices below the average cost curve of potential new entrants. as they have introduced lean manufacturing systems as well as Just-in-time production. Also the rapid decrease in value and price of old technology prevents maintaining excess capacity. as they might incur very high losses. price leadership. As competition is immense among existing players. and Jones G. W. nonprice competition. Lindinger. apart from Apple only one player is currently making profits.

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

Apple will continue to outperform rivals. generated through superior design and innovation proves to be an inimitable competency and therefore as long as such an advantage exists for Apple. The perceived value. However one has to remember that competitive advantages in the high tech industry are hard to sustain. Apple’s lead in innovation and design is more than suited to exploit opportunities to gain market share through product development. were beaten in an spectacular way . the demand skyrocketed and helped to propel sales to record highs. Lindinger. Product development signifies the innovation of new or better products in order to replace the old ones. but Apple has until now safeguarded its distinctive competencies and utilised the business strategies to exploit the advantage which arises through these competencies. As the iPod and iTunes were made available as a Windows version in 2002 and 2003 respectively209. 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. Poettler 144 .iTunes today accounting for 70% of the market for the digitalmusic downloads.Apple Computer Inc. 209 210 Baltimore Sun (2003) BusinessWeek (2004b) DIT | Strategic Management | Iliev. 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. 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.

Korea. Nevertheless. 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. resourcing raw materials and selling products globally. 8. Final assembly of products outside the US is conducted in Apple’s manufacturing facility in Cork (Ireland)211 and by external vendors in Taiwan. 8 Global strategy Apple’s unique history made the company known as the typical example for the “American Dream” stereotype. 211 Earlier. a large portion of the company's net sales is derived from its international operations. 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. Over the years it has become a pure multinational. the Retail segment and Others (comprising Asia-Pacific). Poettler 145 . Europe (including Middle East and Africa). including tariffs and antidumping penalties or by pressure on cost reduction and local responsiveness and therefore can impose huge risks to the company. the People’s Republic of China and the Czech Republic. Japan. a majority of the raw materials used in Apple’s products is obtained from foreign sources. In contrast. Taiwan and China. Lindinger. the Apple Store. Apple is more than a domestically operating enterprise.as well as responsiveness pressures. the Netherlands. Nowadays. its segments are the Americas. Currently.Apple Computer Inc. Also. 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.1 Apple’s foreign operations As Apple manages its business primarily on a geographic basis. by international trade regulations. it’s necessary to evaluate why Apple moved abroad. the company expanded its retail programm. Additionally. manufacture of many of the Apple PC’s components and final assembly of all portable products are performed by third-party vendors in Japan. to Japan by launching the first international shop in the Ginza in Tokyo. also one facility in Singapore DIT | Strategic Management | Iliev. to penetrate countries like Germany or the United Kingdom was difficult due to restrictions and cost.

even there Apple succeeded as their products became more and more “stylish”. but if accomplished a company can obtain a low cost structure as well as a considerable level of customer acceptance. but also improve and “leverage” Apple’s skills. This is due to the fact that Apple could get to an appropriately low cost situation. quality. A perfect example for this development at Apple is the PC company’s production plant in Cork (Ireland).Apple Computer Inc. Furthermore. going abroad created the chance to not only use.2 Apple’s Transnational Strategy From the four strategies possible Apple finds itself in the fourth quadrant facing both. It is indispensable for Apple to maintain and even strengthen their way towards internationalisation by taking advantage of the positive aspects of globalisation. For instance. 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’s by far the most difficult one to realise. Although having experienced difficulties in Germany and the UK years ago. the African market isn’t covered at all in practice despite being in the position to provide Apple with a small. In the end. Additionally. Apple achieved to lower costs as transportation efforts to Europe and consequently expenses decreased. innovation or customers responsiveness to foreign countries for exploiting a probable value creation potential. 8. Lindinger. but hasn’t reached the optimal point yet. value arised from being able to provide faster delivery of accurately fabricate products. but soaring number of wealthy clients. 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. Poettler 146 . These abilities enabled Apple to differentiate its product offerings (new products and services). As with any internationalisation Apple tried to increase profitability through lowering costs and to explore new customer groups through selling more. Apple applies this strategy. reach a higher customer satisfaction and in the end have increased sales/profits. high pressure for local responsiveness as well as for cost reduction. it still has to persuade PC users in 212 see: experience curve DIT | Strategic Management | Iliev. Apple transferred these distinctive competencies (but still domestic) which generally lead them to achieve superior efficiency. However. better service.

e. 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. Apple is heading towards Transnational Strategy from a point in between Global and Transnational Strategy. DIT | Strategic Management | Iliev. when to enter and on what size. followed by a number of other countries. Moreover. 8. risks (also politically) and costs concluded in first of all expanding to Europe which was and is only slightly different to the US. possible local consumers.e. 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.3 Apple’s methods of entering new markets When deciding to move abroad Apple executives were asking themselves the questions which markets to enter. recession) concerning the business cycle and not many other PC companies went overseas. 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. politically risky and highly competitive Japan was taken on. each country from the very entry of their technological and innovative superiority. competition). Later on. Poettler 147 . Would Apple have to adapt products to meet the local preferences? Apple’s assessment of benefits.Apple Computer Inc. Lindinger. their wealth and purchasing power and the situation in Apple’s market there (i. This meant finding out the size of the market.

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

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

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

For instance. 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. 9. Moreover. 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. Concerning the positive and negative aspects of Apple’s strategy. 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. In the case of Apple which can be regarded as a vertically integrated firm. 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. Apple’s online store can be seen as another aspect o f vertical integration in the distribution area.3 Vertical integration Through the use of vertical integration. expenses related to the acquisition. Poettler 151 . possible cost disadvantages and problems because of demand unpredictability may also arise. or product quality issues. legal obstacles. In fact. these new products also give the company new possibilities in offering new and differentiated product bundles and can foster crossselling. the integration of the acquired companies. and products of the acquired companies. Lindinger. (2003) DIT | Strategic Management | Iliev. knowledge. 217 Apple Computer Inc. On the contrary. the company is primarily engaged in the field of forward vertical integration in order to gain control over its distribution channels. 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.Apple Computer Inc. As Apple is generally engaged in the area of product bundling. In addition. Apple entered the retail industry through the introduction of its retail stores in 2001. 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).

As Apple’s focus lies in the design of its products and its strengths can be seen in the fields of innovation. and marketing. various elements of Apple’s diversification strategy become obvious. quality. and quality.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. 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. For insta nce. Poettler 152 . 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. 9.5 Diversification Diversification is the process of adding new businesses to a company that are distinct from its established operations. Moreover. high-performance device which consequently attracted many customers d ue to its design. capabilities. creativity. and increased focus on its distinctive competencies. opportunities to differentiate its products. 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. 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. Apple could transfer its distinctive competencies in the computer industry (technological innovation. Therefore.Apple Computer Inc. In addition. 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. By taking a closer look at Apple’s step into the music player market with its iPod digital music player. As Apple has recently engaged in the digital music player business which can be seen as distinct from its traditional personal computer business. this can be regarded as a diversification activity. Lindinger. and creativity) to the music player industry and create an innovative. Nevertheless. 9. Indeed. Apple can reap benefits in terms of a lower cost structure.

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

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

quality. and organisational learning and the company’s cohesive culture which emphasises central values (innovation. initiative) across all functions promote Apple’s functional-level strategy. Third. 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. there’s a need for the development of more sophisticated control systems. 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. and a culture based on professionalism or collegiality which can be observed in the ongoing development of Apple’s culture. In spite of this. As a result of integration problems.Apple Computer Inc. In fact. more complex kinds of organisational structure. in order to successfully implement its global-level strategy. constant improvement. structure. by taking a closer look at the implementation of corporate -level strategy. Second. First of all. effective strategy implementation depends upon the company’s skills in terms of integration and the appropriate use of strategic control. 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. Finally. Poettler 155 . 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. 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. it becomes obvious that in terms of Apple’s vertical integration and related diversification efforts. creativity. the functional structure as well as the strategic control systems which should foster monitoring. in terms of business-level strategy. manufacturers. it would be optimal for Apple to use a global matrix structure combining its product groups and geographic divisions. Lindinger. In the case of Apple. and distributors foster the company’s efforts with regard to its global strategy. and control in the past. So. DIT | Strategic Management | Iliev. the company’s functional structure is definitely the optimal solution to group its employees and tasks in order to build competencies.

Poettler 156 . 11. 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. Weaknesses Incompatibility As Apple’s hardware. this incompatibility deters possible customers and PC-producers. Therefore. thereby weakening especially Apple’s long-term performance. and other products aren’t compatible with the Wintel standard. 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. High operating costs High operating costs are caused by high Marketing and R&D costs and reduce overall profitability. As this source of competitive advantage is widely regarded as the most important one in terms of future profitability. innovation is especially vital for Apple’s future performance. 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. inventions. Apple’s puts special emphasis and its huge creativity skills into the design of its products. and development as well as its engineering excellence. lifestyle.1 Situational analysis The situational analysis combines the most important strategic factors from the IFAS and EFAS. This also immediately weakens Apple’s short-term performance. In Apple’s case. 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. or similar reasons. Apple’s customers get a higher value for Apple’s products due to aesthetics. this is an important cornerstone of Apple’s intermediate-term performance. Thereby. software. As this leads to higher sales and profits. Creativity & design By regarding the PC not just as a commodity but as a premium product. Lindinger.Apple Computer Inc. This leads to lower sales and profits.

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. and innovation leadership in the future. and other factors offer the opportunity to maintain market share as the potential new entrants are unlikely to enter the industry. thereby improving Apple’s long-term performance. 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. high economies of scale. gives them a weight (0-100 each. Apple can use the iPod and its superior design/quality to earn high profits in this growth market.2 Strategic Factor Analysis Summary The Strategic Factor Analysis Summary (SFAS) combines the 9 strategic factors. thereby improving its current performance. or long-term 3 years and above).Apple Computer Inc. 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. calculating the resulting weighted score and evaluating the factor’s duration (short-term = 1 year and below. This threat can lead to lower profits in the intermediate-term. 11. overall sum of 100) and a rating (from 5 = very significant to 1 = not really significant). This ensures Apple’s profits and constitutes an opportunity in terms of intermediate-term performance. intermediate = 1 to 3 years. these are often attracted through the lower price of the Wintel-standard products. This can lead to high returns. High barriers to entry in the PC industry High barriers to entry due to high brand loyalty. Lindinger. Poettler 157 .

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

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

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

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. The strategy is to apply increased innovation to fully exploit technological forces which in turn will help to push innovation once more. Both creativity and substitute products combined form a possible alternative strategy in terms of strengths and threats. substitute products as one of Apple’s core threats.e. the MP3 player market as one of Apple’s core opportunities. growth and stability without raising risk connected innovation efforts (i. 12.2 Use creativity in a way to avoid substitute products (S-T) Creativity has been identified as one of Apple’s core strengths. make them more stylish. a “first-mover” advantage and higher returns in embryonic/growth industries through superior Research & Development.1. as design and creativity forms one of its vivid pillars these actions improve Apple’s products.Apple Computer Inc. Therefore. Negatively.1. 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. Both business execution and the DIT | Strategic Management | Iliev. As a kind of “perpetuum mobile” this process circle improves Apple’s innovation further and accomplishes to take advantage of the technological forces. more unique and are determined to create higher sales and profits in the end. uncertainty if customer will respond to an invention). This will guarantee Apple’s demand for innovation leadership in the long run as well as differentiation. Substitute products of Apple’s competitors make it hard for the company to differentiate on the market for attracting new customer groups. This alternative strategy is intensively connected to models requesting a further rise in innovation. 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. Costs and funding are observed to be the biggest advantage of this strategic alternative. Poettler 161 .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. Aesthetics should originate lifestyle. Lindinger. 12. Technological forces helped Apple to reach innovation leadership. Strengthening Apple’s creativity efforts is the only way this can come about.

Therefore a saturated PC market will decrease industry demand and make the sector fiercer. Apple’s extremely high operating costs mainly result from huge Marketing expenses (e. Apple’s successful MP3 player iPod) ahead can be elaborated.g. 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. Its outstanding design as well as the quality of its “killer applications” such as an enormous storage capacity provides Apple with considerable profit potential. By implementing the iPod. 12. Lindinger. The aim of this strategic alternative is to lower Apple’s high-up operating costs to be able to succeed on a market. Both operating costs and the rivalry combined form a possible alternative strategy in terms of weaknesses and threats. Poettler 162 .1. 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. characterised by enormous competition. would force them to plunge sharply and if ongoing over a longer period would endanger Apple itself. 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. 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. Furthermore. Apple retail stores). DIT | Strategic Management | Iliev. For years. Only if done so. the grounding for bringing new product ideas (e. the MP3 player market moved into the centre of Apple’s digital online content/music strategy. 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. costs (the “C”) can be reduced by cutting utopian product ideas and non-effective Marketing spending and consequently profitability secured. MP3 player market combined form a possible alternative strategy in terms of weaknesses and opportunities.4 Act to minimise high operating costs and avoid rivalry (W-T) Operating costs have been identified as one of Apple’s core weaknesses.Apple Computer Inc. Apple experienced severe difficulties with their business execution. Too much money was improperly spent and therefore wasted which would – regarding the strategic alternative – result in the obligation to displace it. rivalry as one of Apple’s core threats.g.

therefore not adding significant value to the company’s value chain.1. much of the coolness factor has worn off and managers at Apple face increasingly tougher reality. we want to DIT | Strategic Management | Iliev. Apple’s high cost structure must be reduced for two obvious reasons. 12. the high operation cost structure and Apple’s threat of intense rivalry amongst competitors within the industry. the following chapter deals with the implications for the strategies on each level of business.9%. which in our case would be the existing rivalry. as the PC industry.500 and the conversion rate of Wintel customers has been a skinny 0. as it could actively play a role in price wars.Apple Computer Inc. To be in coherence with its functional level strategies the actions undertaken ha ve to aim at cost reduction effects. 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. Also after the initial hype about Apple’s brand new retail stores.2. approaches saturation levels signalling that the PC market has reached its maturity stage. Poettler 163 . aiming at improving the efficiency of Apple’s day to day operations. To solve this main problem Apple faces at the moment. 12. Apple’s core business. To fully grasp the benefits of this strategy one has to carefully analyse the changes this new strategy would bring to Apple. Lindinger. Especially the retail store initiative proved to be a very costly one. the fourth alternative strategy has been chosen as the recommended one. The visitor rate per week dropped from 5. By cutting marketing. 12.5 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. because the $193 million spent 2003 on building brand loyalty are far too much. Given this scenario.2 Recommended strategy The recommended Weakness-Threats (WT) strategy focuses as above mentioned on Apple’s weakness. identified by Apple’s strategic analysis. On the one hand Apple could be better prepared to face competition within the industry. The WT-strategy is basically defensive and primarily tries to avoid and minimise weaknesses.000 to 3.1 Functional level strategy The functional level strategy. We suggest that efficiency should be improved through a reduction in marketing expenses. will need to adapt to the WT-strategy.

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

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

Poettler 166 . 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. 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. 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. leadership. and commitment. Moreover. By taking Apple’s organisational structure into account. by allocating even more responsibility to single employees. these DIT | Strategic Management | Iliev. Steve Jobs is definitely able to manage this challenging task. the customer due to the now made possible price reduction as you can see in the following diagram. Concerning the corporate culture. 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. cost awareness (where appropriate and useful) has to become incorporated into Apple’s set of values and norms.Apple Computer Inc.3 Implementation In order to implement a strategy that focuses on lowering operating costs. In fact. Lindinger. 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.

these strategic control systems should contain incentives to motivate the workforce in order to improve efficiency. quality. 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. In fact. Nevertheless. 12. as already mentioned before. all these efforts should lead to higher profitability and a prosperous future for the company. and customer responsiveness.4 Evaluation and control Actually. 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. Finally. creativity. Moreover. 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. they should use IT for measuring/monitoring purposes. and the final evaluation which could lead to enhanced or corrective action. in order to be effective. In conclusion. Poettler 167 . Lindinger. will take advantage of their authority. innovation. In our case. Moreover.Apple Computer Inc. DIT | Strategic Management | Iliev. 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. 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. and flexibility and therefore search for new ways to contribute to the firm’s goals. comparison of actual/desired results.

we hope that we’ve been able to provide the reader with a comprehensive and consistent strategic picture of Apple Computer Inc. Lindinger. Poettler 168 . we would like to conclude this paper with some personal thoughts: In fact. and recommendations and will value your thoughts as a useful input to reach superior customer responsiveness. advice. it was certainly a challenging. 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). processes. 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. 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. In addition. Of course. Valentin Iliev. and methods. Finally. Andreas Lindinger. its amazing capabilities. we are thankful for any comments. Moreover. Guenther Poettler DIT | Strategic Management | Iliev. interesting. and that our creativity and design can contribute to superior innovation as well as the content does to superior quality.Apple Computer Inc. and the unique strategy it is pursuing in dealing with present and future challenges in a rapid-moving industry environment.

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

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

Lindinger. Poettler 180 . 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.