Case Study apple-store-5th-ave_36906
Formulation of Strategic Options for Apple Inc.

Introduction

In the last few years, Apple Inc (hereby abbreviated as ‘Apple’ in the following essay) had emerged as the outstanding players in three of the following industry: (a) personal computer, (b) portable media player, and (c) smart phones. The company offers various state-of-the-art electronics products to consumers worldwide, which include: “Macintosh (“Mac”) computers, iPhone, iPad, iPod, Apple TV, Xserve, the Mac OS X and iOS operating systems, third-party digital content and applications through the iTunes Store, and a variety of accessory, service and support offerings” (Annual Report 2010). The mission of the company is to deliver the best customers’ experiences through innovative hardware and software (Annual Report 2010). In this essay, a strategic analysis of Apple will be conducted, based on the case study ‘Apple Inc in 2009’ written by Marino et. al. (2009). This essay will firstly analyze the external and internal factors affecting the company, and then to summarize the current problem faced by the firm. Then, possible strategic options that can be implemented by Apple will be discussed. These strategic options will be evaluated, and the best possible strategic option to be taken by Apple will be suggested.

Part 1: External Analysis

An analysis of the macroenvironment for Apple is critical before any strategic options can be formulated. This is because it is important to find out the external factors possibly affecting Apple, and then to tailor the generation of strategic options to suit the challenges presents in the external environment. For this purpose, PESTLE analysis will be used to understand the 6 critical external factors facing the firm, while Porter Five Forces framework will be utilized to evaluate the various competitive forces affecting or facing the firm in the industry.

PESTLE Analysis

Under the PESTLE framework, it is assumed that a total of six key factors from the external environment may affect the operations and development of an organization. These six factors include political, economic, social, technology, environmental and legal factors. A discussion of how the PESTLE factors may affect Apple will be presented in the following paragraphs.

Political. Different countries have different political climates. Fortunately, political factors are not the key issues facing Apple, as the company is not operating in industry sensitive to political changes. Besides, in the year 2009, the politics around the world is relatively stable. There are no major political conflicts that may adversely affect the profitability of Apple.

Economic. The economic climate in US as well as Europe, as well as around the world is struggling towards recovery, and unemployment rate remain sluggish. The major economic growth comes from emerging countries, such as China and India. Nonetheless, from a long term perspective, it is reasonable to expect economy will be growing again, as signs of recovery can be observed. As the standard of living for people around the world improve, Apple can be benefited, when people demand better quality and innovative products to cater for their modern needs and desires.

Social. It is not hard to observe that consumers have been upgrading their taste around the world. As the standard of living increases, people demand more from business and better products. In the new era, people embrace technological innovations, and are fast to adapt to new technology. For this, it is pointed out by Marino et. al. (2009) that people are willing to pay higher price for better products (e.g., those that produce by Apple). Another social trend that favors Apple is there exist a halo effects for Apple product around the world recently.

Technological. Technology is fast changing in the new economy in 2009. Many big corporations, such as Microsoft, Samsung, HP, Dell, Research in Motion and many others are driving technological change. Apparently, products innovations are the way to go in the future. From the case study, it is found that technological change in the future is likely to move towards convergence of technology (for consumer electronics industry), that will combine internet capability, mobility, style, speed, power, graphics, and entertainment solutions in a single package.

Legal. As Apple is operating around the globe, the various legal issues in the respective countries must be taken care of in conducting its business in these countries.

Environmental. People are getting more environmental friendly, due to the global warming effects. Today, people expect the corporations to act responsibly, sustainably and to spearhead the ‘green’ movement to save the world. This is a new trend that may be capitalized by Apple in marketing its products to people around the world.

Porter Five Forces

In this section, Porter Five Forces will be presented.

Rivalry among competitors. Rivalry among existing competitors is intense. In the personal computer market, Apple have to faced with competitions from Hewlett-Packard, Acer, Asus, Dell, Toshiba and etc. In the media player market, powerful competitors include Creative, iRiver, and SanDisk. In the smart phones market, Nokia, Research in Motion, Samsung, LG are big players that cannot be neglected. Market structures in these segments are oligopoly in nature, but competition is fierce.

Bargaining power of suppliers. Fortunately, there are many suppliers in the electronics industry. This gives Apple the chance to press the price from suppliers down, as Apple have higher bargaining power than the suppliers.

Bargaining power of buyers. Due to the intense competition between existing corporations, consumers now have a lot of choices. Furthermore, there is no or low switching costs to purchase a products from the competitors. This is unfavorable for Apple.

Threats of substitute products. There are virtually no effective substitute products for the electronics products produced by Apple. However, it is worth to note that the products produced by Apple may substitute (i.e., cannibalize) each others, as new products developed often have more functions that the old ones.

Threats of new entrants. Giving the already highly intense industry structure, it is unlikely that new players will be attracted to participate in the market. However, it is also reasonable to expect entrepreneurs from emerging countries such as China and India may set up new firms to compete with Apple, when they found new products or innovations that can better cater for their people in the respective countries.

Part 2: Internal Analysis

In order to perform a comprehensive internal analysis for Apple, this essay will investigate the resources and capabilities of the firm, as well as evaluating the respective strengths and weaknesses for the firm.

Resources and Capabilities

With a few episodes of success stories, Apple is gaining momentum and financial power to further expand in the market. Important resources available for Apple include (a) superior, insightful and experienced leader such as Steve Jobs, (b) marketing savvy and ability to spot and create a trend in the market, (c) respectable brand names and reputations in the marketplace, (d) strong financial resources, (e) a network of quality suppliers and retailers working for Apple, and (f) highly competent and talented employees.

The core capabilities of competencies of Apple include: (a) design and deliver innovative, cutting edge and trend-setting electronics products to the mass consumers, (b) marketing intelligence to understand what the customer truly needs (i.e., ability to spot white spaces in the market and tap into these markets), (c) to persuade consumers to adopt new innovations from Apple (i.e., setting a new trend), and (d) ability to build a strong brand name in the competitive marketplace.

Strengths and Weaknesses

As indicated from the discussions under the ‘resources and capabilities’ section above, it is noted that Apple is a powerful company. All of the resources available to Apple as well as the core competencies described above made up as the strengths of the company. Apart from that, other identifiable strengths of the company include: (a) ability to deliver best and new consumers’ experiences to customers, (b) ability to deliver quality, differentiated and distinctive products and services to market, (c) ability to integrate various valuable solutions required by consumers in a single innovations (e.g., internet capability, mobility, speed, graphics, power and convenience in iPhone), (d) enjoying the first mover advantage in various market, (e) is currently the market leader in smart phone industry, (f) having a reputation of treating the customers fairly (i.e., rebate the customers fairly in case newer products are launched, or if the products sold have technical deficiencies, such as battery issues), and (g) having built-up powerful and widely popular platform solely owned by Apple that is non-imitable by competitors (e.g., iTunes).

However, despite being a highly successful company, there are many weaknesses in Apple. Among the weaknesses detected include: (a) over dependent on key leader such as Steve Jobs, (b) lack of viable succession planning in the firm, (c) health issues suffered by Steve Jobs, (d) the strategies of the company is largely dependent on products innovation (but, products innovation is easily imitable and copied by the competitors, which then cause the company to need to innovate continuously and to spent money in terms of capital expenditure for development and research of new products), (e) products delivered may suffer from cyclicality in the economy, and (f) development of new products often cannibalize the existing products portfolio owned by the company.

Part 3: Current Problem Diagnosis

From the external and internal analysis presented above, it is found that the key issue that may cause Apple to suffer badly in the future is the fact that the company is relying on insights, experiences, leadership, spirits and knowledge of Steve Jobs to compete in the competitive business environment. Succession planning will be a huge challenge to be handled urgently. In fact, the success model of Apple, which is dependent greatly on Steve Jobs, is hardly sustainable. Such crises are worsening when Steve Jobs suffered from health problems, making people to wonder if he can still perform as good as before. Besides, another critical issues challenging the sustainable growth and profitability of the company is that the success models (apart from having great leaders), that is relying on products innovations are easily copied by the powerful competitors. When the competitors observe that the innovative products are accepted by the market, they are fast to roll out a series of similar products to compete with the products offered by Apple. Besides, success at Apple comes with a high costs, as the firm need to take huge risks in acting as the first mover in introducing new products, while spending continuously on educating and marketing to the consumers. Then, the third factor comes from the economy. Consumer spending and general economy outlook in US and Europe remain sluggish. To a certain degree, this will decrease Apple earnings in the near future.

Fortunately, Apple is a reputable and financially stable company. The brand name of the company as well as the series of products (be it software of hardware) introduced by the firm had enable the firm to expand easier and to growth faster. There are many resources and opportunities Apple can leverage on. For example, Apple can leverage on the existing human talents in the firm, the marketing savvy team, the trends or halo effects of using Apple products, the capabilities to deliver comprehensive and integrated valuable offerings to customers, as well as the first mover advantages to further enhance its position in the industry. Although there are challenges to be solved, Apple has sufficient resources and indeed well positioned to undertake strategic actions to mitigate its weakness while to capitalize on its strengths to tap into the opportunities available for the firm to expand profitably in the future.

Part 4: Generation of Strategic Options

In order to suggest possible strategic options for Apple, the framework of generic strategies are used. The possible strategy to be followed by Apple is highlighted in ‘Table 1: Generic Strategic Framework’ below.

Table 1: Generic Strategic Framework

table-1

Source: Adapted from Porter (1980), as cited in Thompson (2002)

 

Applying the framework above, it is found that Apple shall not follow any options of the low cost strategy, as the key competitive advantage of Apple is about delivering best users’ experiences, quality, cutting-edge, innovative products that are selling at a premium price. Thus, it is crucial for Apple to capitalize on its existing competencies/ strengths for growth of the firm. As the electronics industry are divided into several sub-market segments, it is then important for Apple to target each of these segments separately. To perform this, a focus differentiation strategy will be best suited for the firm, whereby Apple should continuously drive products innovations and trends in the following markets, (a) personal computer, (b) personal media player, and (c) smart phones.

Apart from that, by referring to the discussions mentioned from external and internal analysis above, other possible strategic options that can be taken include: (a) focus on succession planning, (b) expand to White Space in the industry (e.g., delivering innovative with integrated functions and capabilities), (c) focus expansion in emerging countries, (d) expand products portfolio to cater for niche market currently not being served by Apple.

Part 5: Evaluation of Strategic Options

In this section, Rumelt’s Criteria (cited in David, 2009) will be used to study the viability of the strategic options proposed above. The Rumelt’s Criteria are summarized in ‘Table 2: Rumelt’s Criteria for Evaluation of Strategic Options’ bellow.

 

Table 2: Rumelt’s Criteria for Evaluation of Strategic Options

table2

Source: Adapted from David (2009).

 

Applying the framework stated above, the various strategic options are analyzed in ‘Table 3: Evaluation of Strategic Options’ below (Remark: based on personal opinions).

 

Table 3: Evaluation of Strategic Options

table3

Remark: Rating scale is range from 5 (high) to 1 (low).

Part 6: Description of Selected Strategy

Based on the evaluation of several strategic options above, it is found that it is viable for Apple to pursue the following strategies, in sequence. The strategic options that can score the highest marks should be implemented first, followed by those options that score lower in the evaluation. It is noted that all of the options suggested are relevant to Apple, judging from strategic evaluation framework according to Rumelt’s Criteria.

Thus, Apple should firstly focus on succession planning. New capable management team must be formed, so that they are able to take over the responsibilities from Steve Jobs. Then, Apple should focus to expand their market shares in emerging countries, with their existing product portfolio. It is highly likely that Apple will achieve success and growth in these markets is the company is already having proven success track records in the developed countries. Besides, as these markets are growing fast, people from these countries are enjoying greater purchasing power. Then, Apple can enlarge products portfolio, by innovating new products to tap into those market segment not being served by competitors (i.e., the White Space that offer great opportunities for Apple). Apple shall be able to act as first mover in these markets, as the firm is marketing savvy and competent in driving new trends in the marketplace.

Conclusion

In short, through the applications of several theoretical strategic frameworks discussed above, it is found that Apple is well positioned to grow strategically in the future. By continuously focusing in strengthening its core competencies, that can further sharpen the competitive edge of Apple in the marketplace; it is highly likely that Apple can grow in a sustainable fashion in the foreseeable future.

References & Bibliography

David, F. R. (2009). Strategic management: concepts and cases (12th ed.). Pearson: Prentice Hall.

De Wit, B. and Meyer, R. (2004). Strategy Process, Content, and Context International Perspective, 3rd Edition, Thomson Learning.

Mintzberg, H. (1987). Crafting Strategy, Harvard Business Review, November-December, pp.21-25.

Mintzberg, H. (1990). The Design School: Reconsidering the Basic Premises of Strategic Management. Strategic Management Journal, Vol. 11 pp.171-195.

Pearce, J., and Robinson, R. (2005). Strategic Management, 9th Edition, New York: McGraw-Hill.

Thompson, J. (2002). Strategic Management, 4th Edition, London: Thomson.

 

 

 

 

 

 

 

 

 

 

 

 

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