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Accounting for the Apple Inc business model: Corporate value capture and
dysfunctional economic and social consequences

Article  in  Accounting Forum · December 2013

DOI: 10.1016/j.accfor.2013.08.001

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 Accounting Forum

ISSN: 0155-9982 (Print) 1467-6303 (Online) Journal homepage: https://www.tandfonline.com/loi/racc20

Accounting for the Apple Inc business model:

Corporate value capture and dysfunctional
economic and social consequences

Glen Lehman & Colin Haslam

To cite this article: Glen Lehman & Colin Haslam (2013) Accounting for the Apple Inc business
model: Corporate value capture and dysfunctional economic and social consequences, Accounting
Forum, 37:4, 245-248, DOI: 10.1016/j.accfor.2013.08.001

To link to this article: https://doi.org/10.1016/j.accfor.2013.08.001

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 Accounting Forum 37 (2013) 245–248

Contents lists available at ScienceDirect

Accounting Forum
journal homepage: www.elsevier.com/locate/accfor

Accounting for the Apple Inc business model: Corporate value

capture and dysfunctional economic and social consequences
Glen Lehman a , Colin Haslam b,∗
a
University of South Australia Business School, Australia
b
School of Business and Management, Queen Mary University of London, United Kingdom

a r t i c l e i n f o a b s t r a c t

Article history: In this special issue the authors account for the Apple Inc innovative business model in
Received 13 August 2013 terms of its capacity to create and capture value from its global supply chain. The authors
Accepted 13 August 2013
argue that there are a number of reasons why the Apple business model may not be sustain-
able and more broadly explore the dysfunctional social and economic aspects of corporate
Keywords:
behavior that seeks to fragment and elongate global value chains to capture value within
Apple business model
the firms financial reporting boundary whilst displacing cost and risk.
Innovative organization
Financialization © 2013 Elsevier Ltd. All rights reserved.
Value capture

Apple Inc is known for its CEO Steve Jobs, who achieved iconic status with the production and marketing of digital lifestyle
products, especially the iPhone and the iPad, and preceding them the iPod that have put highly sophisticated technology
in the hands of consumers. Innovative products coupled with adaptations to the Apple business model captured value and
generated spectacular returns for investors. In terms of generating shareholder value this was a brilliant success. In this
special issue the authors generate a variety of accounts about the nature and extent of transformation of the Apple business
model. These accounts draw attention to a general paradox in terms of how the Apple business model contemporaneously
captured value with the reporting entities financial boundary and displaced costs and risks. This process of economic and
social displacement is dysfunctional because at the same time as it promotes value capture it also threatens to undermine
Apple’s ongoing sustainability. The second set of papers in this special issue extend this idea about the dysfunctional economic
and social consequences of business models to inform policy making and generate relevant corporate social responsibility
disclosures.
The first four papers in this special issue are specifically about the Apple business model: how it is constituted and to what
extent it is sustainable. The authors of this group of papers share a common objective, which is to conceptualize the Apple
business model and provide a series of accounts about its evolution, development and financial sustainability. The Apple
business model has evolved over time where value creating activities arising from innovation are blended with value capture
from the exercise of power over suppliers and customers. Where, both value creation and value capture helped to transform
Apple’s operating financials, share price and market value (MV) for shareholders. The Apple business model is about how
and in what ways stakeholder relations can be manipulated to modify financial boundaries and transform internal financial
operating ratios. Apple’s financial transformation can be located within the prism of double entry book-keeping that ensures
that one firm’s financial transformation is mirrored by a displacement of cost and risks into a broader economic and social
space. The final set of papers in this special issue focus on UK food retailers and the London Borough of Enfield where the
authors explore how opportunist dealing and displacement of financial values and risk leads to dysfunctional economic and
contradictory social outcomes.

∗ Corresponding author. Tel.: +44 2078828984.

E-mail address: c.haslam@qmul.ac.uk (C. Haslam).

0155-9982/$ – see front matter © 2013 Elsevier Ltd. All rights reserved.
http://dx.doi.org/10.1016/j.accfor.2013.08.001
246 G. Lehman, C. Haslam / Accounting Forum 37 (2013) 245–248

Lazonick, Mazzucato and Tulum (Apple’s changing business model: What should the world’s richest company do with all those
profits?) consider the future of industrial R&D by reviewing the: ‘evolution of strategic control, organizational integration,
and financial commitment as conditions of innovative enterprise that ultimately determined Apple’s success’. On the nature
of strategic control the authors argue that: ‘Steve Jobs led Apple as a professional manager, not an owner, who was driven
by the desire to produce superior digital devices that would find demand, even at premium prices, in mass markets’. And
that ‘the development of Apple’s epoch-making digital devices entailed a high degree of organizational integration of large
numbers of people with a wide-range of functional specialties. This organizational integration was fundamental to the
development of the technologies that underpinned Apple’s growth’. This combination of elements helped to generate strong
profits, which were re-invested into the innovation process.
Lazonick, Mazzucato and Tulum’s argument is that the Apple business model can be critically understood in terms of a
framework of analysis that conceptualizes the innovative organization. Where an innovative organization can be evaluated in
terms of three constituent elements: the nature of strategic control, organizational integration and financial commitment to
innovation. The authors reveal how the emphasis given to these elements changes over time and summarily reflected in, for
example, Apples strategic commitment to R&D spend which falls from 10% to 2% of sales over the two decades 1992–2012, its
fragmented organization structure from outsourcing and off-shoring, and adaptation to shareholder activism by distributing
more of its cash as dividends and share buy-backs.
Haslam, Andersson, Tsitsianis and Yin’s ‘Apple’s financial success: The precariousness of power exercised in global value chains’
observe that Apples success is represented in the form of financial ‘point values’ by financial analysts and these multiples
are then employed to estimate a share price and market value. The authors argue that these aggregate financial ratios need
to be deconstructed to reveal the evolution and adaptation of the Apple business model around the strategic objective of
value capture. Using financial information from Apple’s annual reports the authors reveal how the firm’s financial boundary
is modified as it out-sources manufacturing, reduces spend on R&D and captures margin from retail sales.
Apple exercised power to externalize expenses such as product development and component manufacture whilst
capturing value extracted within the boundary of its own financial accounts in the form of inflated cash margins and
return on capital.
This process of contemporaneous value capture and financial displacement into the supply chain is located within a prism
of variable power relations, and this frames their argument about the precarious nature of Apple’s profit margins and returns
on capital. Significantly, the authors reveal that Apples financial transformation only brings it back to levels comparable to
its peers (Intel, Microsoft, IBM) and that this transformation depends upon the continued exercise of power over suppliers.
These power relations are complex, variable and contingent and, as the authors argue, do not straightforwardly guarantee
value capture going forward.
Bergvall-Kåreborn and Howcroft’s paper (The Apple Business Model: Crowdsourcing mobile applications) considers Apple’s
rapid dominance of the mobile market. This they argue led to the emergence of a business model that weaves together
internet-enabled mobile devices with digital content, brought together within a closed proprietary platform or ecosystem.
The authors employ a global production network (GPN) analysis based on fieldwork among Apple mobile application devel-
opers in Sweden, the UK, and US. Crowd-sourcing, the authors argue: ‘allows Apple to effectively source development to a
global base of software developers, capitalizing on the mass production of digital products, while at the same time managing
to sidestep the incurred costs and responsibilities associated with directly employing a high-tech workforce’.
The authors note that this modification to the business model is not without risk: ‘The Company relies on third-party
intellectual property and digital content, which may not be available to the Company on commercially reasonable terms at
all’. The “apps” that are developed and then used on an Apple device that are downloaded from its ITunes store and Apple,
in return, takes a 30% top slice of the total revenue received before paying apps developers.
I find it very unfair that 30% of my application bill goes to a company that had nothing to do with it. Apple gets the
money from the actual hardware [iPhone] and even the software [SDK] they created. When you develop apps this
makes the phone better, so Apple shouldn’t then be making money out of developers as well.
The Apps developer is also placed at some distance from the consumer in terms of capability to adjust quickly to feedback
and also dependent upon the apps approval process and timescale set by Apple. According to the authors: developers shoulder
the burden of costs while Apple circumvents the investment and resources required for in-house product development and
marketing. This is the essence of crowd-sourcing: harnessing creative labor at little or no cost, while minimizing risk. Yet
for the Apple business model there are risks associated with sustaining the relationship with apps developers who can
easily move to another software operating platform such as html-5, which could disconnect apps developers from hardware
manufacturers (see Haslam et al., 2013).
In the paper by Montgomerie (Owning the Consumer – getting to the core of the Apple business model) the authors draw on
the existing business model literature to argue that a central element of the Apple business model is its ability to ‘own the
consumer’. In short, the Apple business model is designed to drive consumers into its ecosystem and then hold them there.
Apple dominates the retail landscape by acting as both a primary supplier of hardware to retailers but also as a major
competitor through its own retail stores. Apple then ensures consumers are “locked-in” to the multi-channel platform
by imposing high switching costs as Apple content can only be played on Apple hardware.
 G. Lehman, C. Haslam / Accounting Forum 37 (2013) 245–248 247

The multi-channel platform includes: computers (MacBook, iBook), music players (iPods, iTouch), mobile phones (iPhones
1–5), and tablet computers (iPads) coupled to the supply of movies, music and apps that synchronize across the hardware
range. In terms of product distribution Apple runs its own stores and also distributes through large independent stores but
with strict display and price controls to limit price erosion.
Apple’s relationship with big box stores is unlike most suppliers as they retain strict control over display and prices.
For instance, large national retailers are required to have an ‘Apple Valley’ in their stores, an area exclusively dedicated
to Apple products.
The author concludes that: ‘acting as both a major supplier to the big box retailers and as a primary competitor through
its branded stores, Apple is able to dominate the retail landscape and effectively own the consumer’. But the threat to this
model is product competition and sustaining consumer loyalty when competitors are actively segmenting and fragmenting
the market selling similar products, updating more frequently, discounting and offering multi-product contracts such as a
smart-phone coupled to a tablet.
The papers on the Apple business model are a series of perspectives that reveal how it has evolved and adapted. Market
analysts are often concerned with the latest point value and use this to inform their buy or sell recommendations or adjust
valuation estimates of a firms share price. The authors in this first half of the special issue employ the term business model
to conceptualize the complex nature of stakeholder relations that materially constitute and make viable a specific business
model. These relations are not uniform or stable and in the case of the Apple business model the authors reveal a multiplicity
of risks to its viability going forward.
In the second half of this special issue the authors employ a business model framework to explore the way in which
power relations can be employed to capture value (fragmenting supply chains, displacing costs and risk) and how this leads
to dysfunctional social and economic consequences. The authors employ accounting numbers to generate critical insights,
which are employed to inform alternative policy framing and regulations.
Bowman, Froud, Johal, Leaver and Williams in their paper – ‘Opportunist dealing in the UK pig meat supply chain: trader
mentalities and alternatives’ – is about how food retailers extract and capture value from their supply chains. In similar
fashion to Apple’s relation to Foxconn (Apples component supplier) UK food retailers exert power over suppliers to capture
value at the expense of the food (meat) processor. The difference between Apple and Foxconn is that the power relationship
between Tesco and Asda over its food processors is stronger. This is because Tesco can switch much more frequently between
alternative meat processors arbitraging, to get the best possible discounts, which it passes on to the customer in the form
of ‘two for the price of one’ deals.
Bowman, Froud, Johal, Leaver and Williams argue that this evolution of the food retailing business model has dysfunctional
social and economic consequences in terms of: supply chain complexity and product quality verifiability in addition to
sustaining the supply chain at the level of the farm and meat processing stage. As the supply chain fragments and becomes
increasingly complex via intermediaries the risk of contamination in the meat supply chain increases. Whilst active trading
increases the uncertainty of revenue and margins to meat processors because price structure and volume are unstable.
The big three supermarket chains in the UK directly adopt and indirectly encourage trader mentalities and opportunist
dealing up and down vertically disintegrated meat supply chains, where everybody is trying to pass risk and cost onto
somebody else.
The authors reveal how, in the UK, Morrison’s supermarket do not pursue this opportunistic trading relation with their
suppliers and that this makes sense financially because meat processes can predict volumes, price structures and margins
whilst operate at higher level of utilization which delivers lower costs. The failure of the competitive food supply-chain
driven business model and voluntary regulatory arrangements suggests the need for more ‘coercive regulatory measures’.
This would involve imposing more formal and publicly visible model supply contracts on retailers, whose terms would cover
risk sharing, ensure processor margins are sufficient to encourage investment and specifically prohibit special offers which
suppliers pay for.
Sitkin (Working for the local community: substantively broader/geographically narrower CSR accounting) argues that
long-distance fragmented supply chains may generate employment overseas and generate profits for shareholders in a
financialized world. However, this can have a negative impact on regions such as Enfield (a London borough) where the
loss of manufacturing industry has a disproportionate negative impact on the local economy creating enormous ancillary
problems of social alienation. This paper suggests that the corporate social responsibility reporting of firms does not reveal
local area networks and the financial/economic linkages between the firm and its local region. In this respect corporate social
responsibility (CSR) is deficient.
The question then becomes how to measure CSR at the local level given the impossibility of a comprehensive mea-
surement in the absence of exact capital outflow figures (Sitkin, 2013).
Sitkin estimates the share of profits that are generated by utilities, banks and supermarkets within the Enfield region and
reveals a large discrepancy between: ‘the huge operating profits that the large corporations comprising our sample produce
in Enfield and their comparatively minimal local CSR actions’. In other words, the companies’ own work organization, and
the financial flows associated with this, will have had an immiserizing effect on Enfield. Thus taking a broader view, the
248 G. Lehman, C. Haslam / Accounting Forum 37 (2013) 245–248

problem is not that the companies covered were not doing CSR in the London Borough of Enfield, but that the scale of their
local contributions pales in comparison with what they are doing elsewhere. The author concludes that:
Accounting can help to reframe this argument by promoting a more accurate portrayal of the public outcomes of
private actions. The tendency in CSR reporting is to offer qualitative descriptions of what companies do without trying
to quantify the broader consequences. To some extent, this stems from the growing divorce between business and
society, caused in no small part by the narrative that the business of business is business, neglecting the very real
interactions between a company’s behavior and the well-being of the local population in the areas where it operates.
Sitkin offers a communitarian inspired argument that reflects the idea that successful interpretations make clear to
citizens ‘what is strange, mystifying, puzzling, contradictory’ – it reflects an interpretivist view (Lehman, 2010) that aims
to clear up what is unclear in offering new ways forward (Taylor, 1971, p. 5). Our aim has been to challenge the purpose
of disclosure and invite accounting to provide additional resources to reconsider how the noise in communications can be
minimized to inform stakeholder and other relevant publics. We challenge accounting to facilitate “critical” interventions
that may shape different directions and options from particular stakeholder groups.

References

Bergvall-Kåreborn, & Howcroft. (2013). The Apple business model: Crowdsourcing mobile applications. Accounting Forum, 37(4), 280–289.
Bowman, Froud, Johal, Leaver, & Williams, K. (2013). Opportunist dealing in the UK pig meat supply chatrader mentalities alternatives. Accounting Forum,
37(4), 300–314.
Haslam, Andersson, Tsitsianis, & Yin. (2013). Apple’s financial success: The precariousness of power exercised in global value chains. Accounting Forum,
37(4), 268–279.
Lehman, G. (2010). Interpretive accounting research. Accounting Forum, 34(3–4), 231–236.
Lazonick, Mazzucato, & Tulum. (2013). Apple’s changing business model: what should the world’s richest company do with all those profits? Accounting
Forum, 37(4), 249–267.
Montgomerie. (2013). Owning the consumer – getting to the core of the Apple business model. Accounting Forum, 37(4), 290–299.
Sitkin. (2013). Working for the local community: Substantively broader/geographically narrower CSR accounting. Accounting Forum, 37(4), 315–324.
Taylor, C. (1971). Interpretation and the sciences of man. The Review of Metaphysics, 25(4), 3–51.

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