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Value Innovation in Apple Inc.

PART I

Explain what you understand by the “value innovation strategy”. How might this type of strategy be implemented at a firm level? What is the role of marketing activities in successful implementation of this type of strategy for innovation and growth?

Defining Value Innovation Strategy

As argued by Kim & Mauborgne (1999), the value innovation strategy can be defined as the strategy to offer fundamentally new and superior value in an existing market, or to deliver a quantum leap in buyer value to create a new market. Under such strategy, value innovation is possible if only a breakthrough can be achieved. This is not similar to those traditional incremental improvement strategies, whereby firms are argued by Porter (1985) to either deliver value via the low cost strategy or differentiation strategy. The value innovation strategy is a strategy designed to perform something totally different, in order to stimulate the demand side of the economy, in contrast to (those traditional strategic thinking theories or thinking that to) perform slightly better than the competitors. Through the strategy, it is designed to make the competitors irrelevant. Such a strategy is a truly customer centric strategy, whereby the value offerings are designed and targeted to focus on the performance criteria that truly mater to customers. In fact, the value innovation strategy is similar to the forces responsible to creative destruction in the capitalism society. It is a strategy to create a new and superior products or services, or to create a new and superior ways of doing things, making the existing things irrelevant or outdated, to achieve remarkable growth and performance for a firm.

Implementation of Value Innovation Strategy

In order to implement the value innovation strategy, there are several issues to be understood and implemented by the policy makers or management. By referring to the points argued by Kim & Mauborgne (1999), several ideas on how such strategy can be implemented in a firm are illustrated in the following paragraphs. These are outline as follow.

Adopt a different mindset. There are several inaccurate mindset must be eliminated for a firm that wish to pursue a value innovation strategy. Firstly, in term of strategic thinking, the firm must pursue a customer centric philosophy, instead of the competition centered approach to deal with competition. This means the firm must focus their attention on the customers’ wants and needs, and with the accurate marketing insight, the deliver superior and quantum leap in value proposition to the consumers. The decision maker must however abandon the thinking that the stay competitive in the marketplace, they should do better than what their competitors are doing (i.e., such as to lower the costs when the competitors try to compete on costs). Apart from that, the decision makers must also discard the either or belief, and instead to think in the mindset of ‘both’. The traditional or conventional strategic thinking of either becoming a low cost leader or differentiator must be abandon. The decision maker must understand that in the knowledge economy, knowledge make possible the pursue of differentiated value at a low cost.

Creativity and innovation. Creativity is certainty important, as without that capability, it is impossible for the firm to think out of the box, and deliver new and innovative value to the society.

Strategic human resources management. Human talents are the crucial element in delivering the value innovation strategy. Human resources management thus must become a strategic function. The knowledge workers must be engaged, involved, motivated, empowered and works together passionately and with commitment toward fulfilling of company missions and visions.

Marketing savvy and ability to create strong brand name. Marketing play several critical roles to enable successful implementation of value innovation strategy. These will be discussed in the following section.

Roles of Marketing Management in Value Innovation Strategy

As value innovation strategy is essentially a customer-centric strategy, the marketing function of a firm is highly critical and important to a success of a firm that intend to apply the concepts of value innovation in formulation of strategic direction for that firm. The several roles of marketing department that will affect the ultimate success or failure of a firm that had adopted the value innovation strategy are outlined in the following section. These ideas are derived and adopted from a discussions presented by Kim & Mauborgne (1999).

Accurate insights. Without accurate insights, it is impossible for the innovations delivered by a firm to be truly valued by the customers. Thus, marketing experts in the firm must gain accurate insights on both explicit and hidden customers’ needs and wants. Those not so important customers’ needs should be neglected, while strong focus should be placed on fulfilling the truly important and desired needs of the customers. These 20% (i.e., the ‘truly important’) of the value to be delivered that will be responsible for generating the 80% of the revenue must be strengthened and improved (i.e., adoption of the 80/20 principle).

Market research. As value innovation is essentially a customer centric strategy, marketing department shall support the implementation of value innovation strategy through detail and comprehensive market research. The macro-environment, the consumers’ preferences and needs, the market size, the people lifestyle, the consumers mindsets as well as their buying decision making process must be understood very well. All these information will definitely be required as the critical input to how the value innovation strategy can be carried out in the corporate level.

Marketing communications. As by definition, value innovator is supposed to deliver breakthrough value to the marketplace, the firm must be able to communicate well to the marketplace, to persuade the customers as well as the society to try on a new technology, lifestyle or products. The company must be able to shape the perceptions of the customers. If these are not done well, the innovation, no matter how great they may be, will not be able to bring any significant profits to the firm. People need to be sold, to be persuaded and educated to change their habits. Thus, a truly effective marketing communication program must be implemented by the marketing department to bring the innovation to the heart of the customers.

PART II

What are the key indicators used in practice to monitor the innovation performance of a company? With reference to these indicators choose an innovative company and examine its strategy, operations, marketing activities and management style for innovation and growth. Explain how your chosen company has been able to innovate to achieve growth.

Judging the Innovation Performance of a Firm

According to Dr. H. R. Seddighi, there are several metrics can be used to judge the innovation performance of an economy. Among these metrics include: (a) amount of the science and engineering base-publications and citations; (b) R&D expenditure as a percentage of the Gross Domestic Products (“GDP”); (c) amount of patents registered in a year; (d) the degree of network collaboration/ cooperation by firms; and (e) the share of sales attributed to new products in the economy. All these metrics can be used as the indicators to measure the innovation performance of a firm. To explain, what is relevant to measure the entire innovation performance of the economy can also be used to be applied in the context of individual firm. Thus, the indicators that can be used to monitor the innovation performance of a firm are as follow: (a) R&D expenditure as a percentage of the total operation costs of the firm, (b) amount of patents awarded to the firm, and (c) the percentage of revenues derived from sales of new products.

In this section, Apple as a highly innovative company will be used as the case study. Any students of business management will definitely know that Apple is a highly innovative company. In fact, this should be a widely known fact recently, as people from all around the world are crazy to purchase Apple products such as iPad or iPhones from Apple stores located all around the world. Apparently, people are impressed by the innovative designs, functions as well as the new standards delivered by Apple to the consumers. In the following part, some data will be presented for readers to judge the innovation performance the Apple. As shown in Figure 1, it is found that the percentage of revenue derived from new products swiftly approach the traditional products offered by the company. For example, since the year 2004, it is found that the newly innovative products, namely iPod, increasingly contributing to the Apple revenue in a fast speed, while the revenue derived from the other conventional products, such as desktop registered a much slower growth rate. Similarly, the new products offered in year 2008, namely iPhone, suddenly jumped in revenue and started to contribute significantly to the total revenue for Apple. Overall, it is obvious that the percentage of revenue contributed by the new products fast to take over those contributed by the conventional products. These are critical evidences supporting that the innovation performance of Apple is superior.

Similarly, in Figure 2, it is shown that R&D spending of Apple had rise continuously, keeping in pace with the trend of increasing revenue of Apple.

Figure 1: Revenue Breakdown of Apple

 fig1

Source: Marino et. al. (2009)

Figure 2: R&D Spending in Apple

 figure2

Source: Marino et. al. (2009)

 

Apple – a highly Innovative Firm

Apple, the company that produces and market trendy and innovative products, such as iPod, iPad, iPhone and other electronics appliances is a famous company in the recent years. The company, under the leadership of Steve Jobs had and indeed is growing at a very high speed is a company famously known and respected by competitors, suppliers, customers and investors. In this section, the strategy, operations, marketing activities and management style (i.e., human resources management) of Apple will be discussed.

Strategy. The very obvious strategy of Apple is to innovate for growth. Apple does not follow the conventional strategy of fighting for market share by a low cost or differentiation strategy. This can be seen from the higher selling price products, and yet the products delivered are not only differentiated but also highly outstanding. Indeed, it can be reasonably concluded that value innovation is the key strategy for Apple success. The products delivered to the market place are valued highly by customers. The products features, some of them not even known by the customers, are delivered. For example, Apple able to deliver an integrated smart phone, which has the following features (before any of the competitors are doing it): power, internet connectivity, access to Apple stores, trendy, touch screen, larger screen, nice design, and fun (Cocheo, 2010). Such a quantum leap of valued being delivered is not similar to the strategy used by the competitors, such as to add one of two simple functions to lure the consumers. Secondly, Apple is successful because the company is committed and engages in continuously breakthrough activities, by introducing different segment of products to the marketplace even before the previous products reach the maturity stage (remark: considering from a product life cycle perspectives). Discussing from the perspectives of Kim & Mauborgne (1999), Apple is continuously creating Blue Ocean in the marketplace, by redefining the industry boundary through innovative products that make the competitors irrelevant.

Operations. In the context of operations, Apple is successful because it focuses on doing what it is doing best, that is, innovating and marketing state-of-the-art consumer electronics products to the marketplace. All the other dirty jobs, such as manufacturing, the distribution of the products as well as retailing of Apple products to the end users are outsourced. In fact, judging from the value chain perspectives, both the return from the innovating and marketing is the highest. That means Apple focus on the most important activities in the value chain, whereby the profit margin for the innovating and marketing activities are of the highest, if compared to low profit margin activities such as retailing or manufacturing. This makes Apple a highly successful and profitable company, as can be seen from its above average profit margin achieved by the company in the recent years. Apart from that, as Apple outsourced the other non-core and less critical jobs to the third party, the company can then focus on doing what is really important to the organizational success. In other words, that means Apple ale to focus on its core competencies, and the continuously strengthening the core competencies, towards the achievement of competitive advantage in the marketplace. This is proven by how Apple able to continuously introduce new and breakthrough consumer products from years to years, starting from iPod, to iPhone and iPad recently. All these are simply not possible if the management in Apple does not outsource the other less critical task and had to spend time managing these less profitable activities.

Marketing activities. Marketing savvy is what Apple always excels with. It cannot be denied that Apple has accurate and in-depth insight on the consumers’ needs and wants. For example, long before any competitors realizing it, Apple understand smart phone users desires a bigger screen, a more modern look, a better touch screen quality, smaller key pad, easy to use phones, more function, connection with internet, phone that is fun (i.e., can play lots of games, listen to music and feasible for video watching), and most importantly, integrated with all the features mentioned above. Realizing all these, Apple focus on delivering the powerful phones to the marketplace, taking away market shares from the other competitors that is stuck in competing on the pricing dimensions only. Besides, Apple is also highly skillful in managing the consumers’ perceptions. With excellently designed marketing communication strategy, Apple positions itself as well as the users of Apple as the new and modern lifestyle. The products are marketed as something trendy, and different, and all these appeal to the younger people who desires to have a more unique and trendy identity. Apart from that, Apple is also smart in getting free publicity from the mass media. Before a product is launched, the news are spread around, creating curiosity and hope among the public (Cocheo, 2010), and that certainly contribute to building up the Apple brand name even before the products are sold in the marketplace.

Management style (human resources management). Apple is a company that place great importance on its human resources. In fact, one of the key factors leading to Apple success is due to the hiring policies. Apple is famous for hiring and retaining only the very best talents (Cusumano, 2010). This is important as in the new information era, knowledge workers is the key resources required for organizational success. It is through a well designed management system and practices that able to engage; involve and empower the workforce that their knowledge, talents and commitment can be unleashed. By allowing the workforce to think creatively, and delegate the task to these workforce, Apple can become a more responsive, innovative, and outstanding company, that able to deliver better designed products to the market.

 

Apple – Achieving Growth through Innovation

As discussed above, Apple is a famous and innovative company. In this part, how Apple able to innovate to achieve growth will be discussed. In other words, how Apple has been able to innovate to achieve growth will be explained. This is important because not every company that innovates can achieve growth, as if the innovations are not valued by customers, it is impossible for the firm to capitalize the innovative efforts (Rothaermel et. al., 2010). In this sections, several findings or discussions on how Apple able to achieve growth through innovations are illustrated.

Proactively introduce new innovative products. For sustainable growth, it is not sufficient to only introduce a single innovative product to the marketplace and get satisfy with the single innovation. That is because competitors may be fast to imitate and copy the innovation. The fact that Apple bale to growth fast and apparently, on a sustainable manner, is due to the fact that the company able to deliver a series of innovative and breakthrough products to the marketplace, to replace the old products as well as to empower the product portfolio of the company. Thus, continual innovation is responsible to drive the performance of Apple in the marketplace, and such a strategy is hard to copy as it might be easy to copy a single new and innovative product, but it will be definitely hard to imitate the continuous innovation culture adopted by Apple. Overall, it is safe to conclude that Apple able to achieve competitive advantage because the core competencies delivered by the firm is valuable, rare, non-easily imitable and not easily substitutable (i.e., the four important criteria mentioned by Barney, 1991 for attainment for sustained competitive advantage).

First mover advantage. To achieve growth via innovation, it is crucial for consumers to perceive that the innovations delivered by the firm are always valuable. That makes the firm to be branded by the marketplace as an innovative firm. Today, Apple able to achieve such a respectable and reputable status because the firm had a track record as the first mover in delivering new and creative products to the marketplace. As consumers slowly learn and associate that Apple able to deliver new innovations to the marketplace, the brand name of Apple slowly grows and expanded to the global market. Thus, many of the innovations delivered by Apple can be easily accepted by the consumers because people tend to trust that the innovations delivered by Apple will be valuable to them and above all, trendy and fun. For such reason alone, it is reasonable to expect that the consumers around the globe are willing to pay a premium price for Apple products.

Innovations must meet customer demands and needs – it must be valued by customers. To deliver innovative products for the sake of innovation will not be a viable strategy. The innovation delivered by Apple, however, is not purely technological innovation, whereby is more accurately characterized as buyer value innovation. Most of the innovative features delivered to consumers are highly sought after, where in some instances, consumers do not even know in advance that they would like these features. For example, the innovative powerfully iPhone integrated with many features are what consumer required. In today modern lifestyle, consumers want to stay connected to the internet, even when they are dining, working, on a train, travelling and etc (Finkle et. al., 2010). People want to do something when they have nothing to do, for example, with iPhone, they can play so many advances and better designed games on a train or bus, while travelling to work. People can also choose to listen to music, and with the large hard disk space available in iPhone, people no longer have to carry big CD players or have to download different songs constantly to the portable media players when they already fed up with the old song they listen frequently. In fact, all these are not hard to understand, as common sense will surely able to identify why the features provided by Apple is highly valued. When all these features are combined into a single package, iPhone simply sound appealing to many people from different market segments.

Each innovation is a breakthrough, not merely some incremental improvement to stay relevant in the market. In order to truly growth via innovation, the innovation shall be outstanding, instead of just minor improvement to lure the consumers. Each and every products introduced by Apple can be considered a breakthrough, which had actually redefined the market boundary in the consumer electronics segment. For example, the newly introduced smart phone can compete both in traditional media player and hand phone industry, and to a certain extent, can even replace a laptop (Minhyung et. al., 2010). Besides, the newly launched iPad, can compete with a laptop, as well as other products such as a e-Book reader, video games and even with those specially designed sales/ marketing management tools. All these products simply make the competitors irrelevant.

Effective marketing and branding strategies to promote the innovative products. In Apple, the very successful innovative products are supported and marketed through skillful and brilliantly designed marketing campaigns. The marketing communication messages essentially put Apple in a trendy, prestige, creative and advance position among the consumers’ minds. Referring to the company website, it is found that a simple observation on the corporate website reveals that the company is highly skillful in using internet to market its products. The benefits to the consumers are demonstrated, and how the products will enable advance lifestyle and bring superior convenience and fun to the consumers is elaborated. Besides, Apple also has a strong customer relationship management system (Uncles et. al., 2010). By encouraging the users to keep in touch with Apple, through the registration process of Apple products or in the Apple websites (such as iTunes), Apple has access to the consumers information, and thus able to derive insightful information concerning the consumers. Overall, the marketing mixes of Apple are internally consistent and mutually supportive. All these enable Apple to build a strong brand name in the competitive industry. Besides, as the products do deliver real benefits to the consumers, Apple also able to benefit from the word-of-mouth impacts, when happy customers share the innovative products with their friends (Arruda-Filho et. al., 2010).

Continuously focus on its core competencies – innovation and marketing. As argued by Prahalad & Hamel (1990), a successful company shall focus on its core competencies (i.e., what it is doing best) for superior growth and performance. Apple is pursuing such a strategy, and by continuously focusing on its core competencies, Apple able to achieve long term sustainable growth. If a continuous focus is not present, it is hardly Apple can attain long term growth as competitors will be fast in copying and adjusting their products offering accordingly.

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