Strategic Management Case Study: APPLE Discussion Questions:

1. What are key forces in the general and industry environments that affect Apples choice of strategy? 2. What internal resources and assets does Apple have that may give it a competitive advantage? 3. What are Apples core competencies? How should Apple compete? 4. What is Steve Jobs role in Apples strategic management 1. General and Industry Environments Pick up from the case only specific examples to include under general environment and Porter Five Forces Regarding the general external environment, Apple must consider the political/legal, economic and global, sociocultural and demographic, and technological forces that might affect the ability of the firm to get its product to market and sustain sales. Demographic: Certainly the demographics had changed. Baby-boomers were getting older, while the youngest generation was much more wired. Sociocultural: Customers were growing increasingly sophisticated. They knew what they wanted and didnt want to pay a lot for it, but could be seduced by a sexy design. Increasing globalization meant borders didnt matter so much any more American products did not have any particular edge. As long as products were high performance and high service, the customer didnt know or care where they came from. Technological: Technology, especially the growth of the Internet, had created new opportunities for delivery of content and for promotion. Companies like Intel and Samsung were making many advances in memory and display technology. The pace and direction of change required considerable monitoring and possibly risk-taking. Political-Legal: Political-legal issues, especially the issues around copyrights, monitoring of content distribution (digital rights management), environmental waste, and the possibility of global trade monopolies. U.S. regulators from Federal Trade Commission, Securities and Exchange Commission continued scrutiny of trade and stockholder issues.

Porter Five Forces:

Suggested: many rivals compete for market share. Ongoing consolidation as quest for lower prices pushes down margins. High technology obsolescence puts a premium on innovation.

Substitutes Threat
Med

Suggested: substitutes for the Mac computer include the smart phones, PDAs, Windows based computers. Substitutes for media players include mobile phones. Substitutes for iPhone include traditional phones.

Suppliers Power
Med-Low
Suggested: depending on the commodity, lots of competition among suppliers keeps supply up and prices down - except for memory Suggested: most components are readily available. Assembly and distribution is easy. Price sensitive customers always looking for a deal and local service means entrepreneur could easily carve out a niche in a specific product class.

Rivalry
High

Buyers Power
Med-High
Suggested: corporate computing customers demand customization and price breaks. Switching costs are minimal, loyalty to a given brand cannot be assumed. End consumer has little economic power.

Threat of New Entrants

High-Med

General Observation: Based on the external environmental factor analysis, the consumer electronics business has many competitors trying to carve out a piece of the profit pie. However, Apple is the only one with a well-diversified product line - able to compete in many product categories

2. Internal Resources Use the Value Chain Model to illustrate your answer: A sample value chain analysis is below: Value chain activity How does Apple create value for the customer? What challenges does Apple have in its value chain?

Primary: Inbound logistics (distribution facilities, material control systems, warehouse layouts) Operations (efficient work flow design, quality control systems) Outbound logistics (consolidation of goods, efficient scheduling, finished goods processing) Marketing and Sales (motivated sales people, innovative advertising & promotion, effective pricing, proper ID of customer segments & distribution channels) Service (ability to solicit customer feedback & respond) Hard to access. Information not readily available.

No evidence that this has ever been a weakness. Taken for granted, even assumed to be a strength. Distribution efficiency hard to assess, but appears effective, except for certain product availability.

Multichannel distribution through Apple retail, third-party resellers, Internet, direct mail, word-of-mouth. Sales supported through creative advertising. Attention to design elements means its easy to recognize an Apple product. This is a major strength. Consistent quality guaranteed by long-time relationship with Mac users. Many blogs and Apple-related websites provide lots of commentary and feedback. Retail experts Genius Bar provide custom support. Relying on multiple international partners for sourcing of some components allows for hedging against potential shortages. Negotiation and partnership with others such as Samsung creates barrier for competitors. Absolutely one of Apples great strengths.

Secondary (or support): Procurement (win-win relationships with suppliers, reduced dependence on single supplier) Technology development (state of the art hardware & software, innovative culture & qualified personnel) Human resource management (effective recruitment, incentive & retention mechanisms) General Administration (effective planning systems to establish goals & strategies, access to capital, effective top management communication, relationships with diverse stakeholders)

After major shake-ups in the 1990s, and Jobs recent illness, current employees and management appear focused and effective. Jobs, and especially COO Tim Cook, seem to excel at this. Witness September 2008, in the midst of economic crisis, Apple had record year-end profits, $25 billion of cash, zero debt; and then over $10 billion quarterly revenue in January 2009.

Also assess the resources based on VRIN framework (see below)

Also use the Resource Based View approach? Explain the three key types of resources: tangible resources, intangible resources, and organizational capabilities. Also, determine whether the internal resources are valuable, rare, difficult to imitate, or difficult to substitute (VRIN) can help a firm sustain a competitive advantage. Tangible Resources: Financial: Financially sound. Possibility of cash reserves to fund more R&D. Physical: Hard to assess, but certainly historically adequate. Technological: Biggest asset here is Apples human resource capable, motivated and highly technologically creative employees insure Apple will keep up with technology innovation. Organizational: Jobs strategy of focusing on the digital lifestyle opens up what may have been functional silos in other companies. Intangible Resources: Human: Jobs focus on innovation appears to continually revitalize the workforce.

Innovation and creativity: One of Apples major strengths. Reputation: This is one of Apples most significant strengths. The Apple brand is known world-wide. An important issue to focus on here is the importance of intangible resources like innovation and reputation. Especially in mature brands, sustaining reputation is essential. Look at resources that are controlled by Apple that might enable it to develop and implement value-creating strategies.

Organizational Capabilities Specific Competencies or Skills: Jobs initial focus on the design professional, and education consumer seems to have gotten Apple its loyal customer base. Apples additional skills include speed to market, brilliant design, creative marketing, and the ability to watch margins. This last highlights the importance of good operational skills, evident in COO Tim Cook. Capacity to combine resources: How to combine the above competencies to continue to revitalize and grow the brand depends on Apples ability to focus on performance and innovation, and leverage its intangible assets

3. How should Apple compete? What are its core competencies?

Core Competencies:
Core competencies reflect the collective learning in organizationshow to coordinate diverse production skills, integrate multiple streams of technologies, and market diverse products and services to create value. Core competencies must create superior customer value; the different businesses must all have similar elements in the value chain that require similar skills; and these activities or skills must be difficult for competitors to imitate. Apple diversified through creating horizontal relationships in related businesses: all business units computers, music, communication - related to Jobs vision of a digital lifestyle, one facilitated via integrated software and peripherals. See Spotlight 6.2 in Chapter 6 that highlights Apples core competency in software development. As Jobs said: we could write all these different kinds of

software and tweed it all together and make it work seamlessly. And you ask yourself: What other companies can do that? Its a pretty short list. Sharing activities means that value chain elements are shared across business units, so that two or more activities are done by one of the businesses. This allows for cost savings, but businesses need to make sure to keep control over quality and customer perception. Apples major sharing activity was its marketing and sales, which, as already discussed, was one of its strengths. The Apple case is a good example of vertical integration, and the role of entrepreneurship in maintaining the pace of innovation in the face of a volatile product life cycle industry. Apples strategy included significant focus on internal development (see R&D expenditures), but also well-planned strategic alliances (with Hynix, Intel, Micron Technology, Samsung, Toshiba) to acquire key components.

4. What is Steve Jobs role in Apples strategic management

Refer to Chapter 11: Strategic Leadership: Excellence, Ethics & Change See the concept of leadership, the process of transforming organizations from what they are to what the leader would have them become. This involves: Setting a direction Designing the organization Nurturing a culture dedicated to excellence and ethical behavior Through Steve Jobs vision and the example he set for his firm, it seems likely he was able to nurture this culture. Witness the ten-year longevity of Apples executive team. He also went further to create a learning organization, one able to continue his ideas and ideals by encouraging all employees to use their intelligence and apply their imagination. See Exhibit 11.5. Jobs said: we hire people who want to make the best things in the world. Cook said Apple had 35,000 employees, all of whom are wicked smart. Giving credit to the people who do the work is the mark of executives who encourage employees to use that intelligence in support of the firms goals. Refer to Chapter 12: Managing Innovation & Fostering Corporate Entrepreneurship See the concept of innovation, the ability to use new knowledge to transform organizational processes or create commercially viable products and services using the latest technology, experimentation, creative insights, and information from competitors. For instance: There are five disciplines for creating what customers want: Identify important customer needs Create solutions that fill those needs Build innovation teams Empower "innovation champions" who keep the effort on track Align the entire enterprise around creating value for customers Apple appeared to be able to do all of the above, especially the last one. Referring back to Steve Jobs statement about innovation, one of the most important things he wanted Apple to do was to be always thinking about new markets, but with a discipline that made sure Apple didnt get on the wrong track or try to do too much. Jobs was very clear about the need for discipline, and continuous learning. Its likely that these questions were uppermost in his mind, especially about what might be learned it something didnt work. The new move to create a tablet device (see the Case Updates) is rumored to be a result of Jobs memory of the Newton tablet, which didnt work out in 1998, but what could be learned from that failure?

The challenges of innovation involve: Choosing when and how to continue to innovate The pace of future innovation Whether or not to collaborate with innovation partners Requires resources such as financial, human and social capital Requires the leadership team to have adequate vision, dedication and drive Steve Jobs seemed to have been an innovator all his life. As the firm continues to grow, he, or his designates, need to make sure the above issues are considered before committing the organizations resources.