Case Study Apple Inc.

2008 - Document Transcript

1. Case Analysis: Apple Inc., 2008 Sairam Iyer XLRI GMP 034
11/6/2008
2. 1) Competitive Advantages: -Design and innovation oriented
-Greater horizontal and vertical Integration -Designing from
scratch to finish bundled with applications and peripherals. -‘’Plug
and Play” solutions -R&D oriented -An everything ready device
Firm Infrastructure HRM Technology Development
PROCUREMENT Inbound Outbound Operations Marketing/Sales
Service Logistics Logistics Alliances with Design & Horizontal &
Plug and play I-tunes gives a major suppliers Innovation vertical
solutions major edge Integration Linkages with Technology
Complete bundle Operating system independent Driven of
applications more secure, and software vendors less prone to virus
attacks Collaborating I-pod—I-tunes Apple’s retail with other
combo gives experience, new leaders. brand awareness mac
consumers a push. bought more. Apple has been able to command
a premium in the market and gain above average returns owing to
its innovation and differentiation of technologically superior
products. This learning and innovation in its products has led apple
to leverage its expertise in the i-pod,i-phone, i-tunes, i-works suite
of products. Over due course of time Apple has been able to perfect
the chain of activities in Innovation and design leading to a fit
between the activities which is difficult to imitate and hence offers
them an edge over competitors. Diffusing products New products:
Ideation Designing/funding Product Creation across company
3. 2) Analysis of the PC Industry based on Porter’s 5 Forces. Low 5-
Forces Threat of new Entrants Current Bargaining Bargaining Low
Competition: Power of Power of High Very Intense Suppliers
Customers Threat of Substitute products Very High. -Current
Rivalry: Very intense and fierce and the PC industry also has very
low switching costs. This makes current rivalry very high. Apple
faces stiff competition from Dell, HP, IBM etc. -Threat of new
Entrants: Since there are considerable investments to be made for
setting up this industry, new entrants would be reluctant. Though
there is scope for White-box PC’s having a share of 36% world
-wide in 2006, but since the existing companies have created strong
branding awareness, this threat would be low. -Bargaining power
of Suppliers: Two types of suppliers- microprocessors and OS:
very few suppliers but memory chips, keyboards, disk drives: many
suppliers. Suppliers will adjust pricing and quality to make their
 products more attractive so competition is high leaving them in a
low supplier power position. -Bargaining power of buyers:
Switching costs are low. This situation places the buyer power in a
strong position that can only be countered by companies with
strong product differentiation that would increase the switching
costs
4. -Threat of substitute products: The more differentiation of product
the less likely the switch to a substitute will occur. If prices are
higher then the company with the higher price has to provide
justification for the increase. Apple's operating system
differentiation can command higher pricing when it is presented to
the creative designer community but not to the individual computer
buyer unless they are specifically looking for such enhanced
graphic capabilities. Overall the PC Industry is a very competition
intense sector and with technology undergoing paradigm shifts,
coping with these changes can make life difficult for the players in
the sector. These dynamics do not look favourable for Apple, but at
the same time Apple has been able to manage to retain its
technologically savvy and designer approach to come out of this
quagmire. Apple could convert some of these problematic features
into opportunities by looking at its SWOT analysis which is
discussed further. 3) Apple’s difficulty in the PC industry.
-Strengths -Brand awareness/ Halo effect from the i-pod to the PC
-Product differentiation- The system continues to be strength for
the company since its closed operating system is not subject to the
computer viruses and hacking that affects the Microsoft Windows
operating system. -Complete package of hardware and software-
enabling plug and play and aesthetics by designing unusual shapes
for its computer chassis. -Weaknesses -Heavy Investment in
Research- As compared to other players this forms a major cost for
Apple. -Not a lean operations management- Unlike Dell, where the
forecasting is accurate and inventory costs are minimal, Apple has
to bear the cost of components and parts that it purchases before-
hand. -Not completely independent- Apple is reliant on Motorola
and IBM for processor chips so if these companies run short or
increase the price on the chips Apple must either absorb the cost or
pass it along to consumers. Either of the two scenarios is can make
Apple vulnerable. -Opportunities -Taking Microsoft head-on with
its image- Apple has always come up with innovative ways to
ridicule and expose the shortcomings of the Microsoft OS-
Reference: http://in.youtube.com/watch?v=FxOIebkmrqs. Apple
should finally take the plunge and go all out with its brand image to
attack Microsoft. -Taking advantage of the MAC OS-Since the
 Mac OS is seen as a safe, reliable and secure system, apple should
leverage the differences over competing OS. The latest launch
5. of its Leopard-OS received rave reviews with sales totalling 4
million copies, and creating 20% of the Mac installed base. -The i-
pod-i-tunes combo- The halo effect of the i-pod needs to be
capitalised to the maximum extent. The difficulty Apple started off
as a straight out of the box machine which was easy and simple to
use. When IBM-PC entered the market in 1981, Apple was
confident of its position owing to its proprietary designs and
graphics. But this “closed” system was their undoing, as the IBM-
PC started to spawn clones, who started to collaborate. With
windows 3.0 the ease of the apple products was questioned, and
apple was also burdened with maintaining high costs required for
research for premium computers. In 1991 alliances were being
forged IBM, which did not materialise later. Shifting
manufacturing costs were also not enough to sustain profitability.
The frequent changes in strategies were responsible for some of the
problems that Apple found itself in. What Apple needed to realise
was that it was actually operating in a Niche market of premium
and high end PC’s and it was earning handsome profits per unit
sold, but its penetration was an issue. Closed system of the Apple
Mac, Frequent changes of strategies and application software not
easily leaders at the helm available. Reasons for facing difficulties
Niche market operator, less Premium segment, research penetration
oriented, hence costly
6. 4) Apples Mac business: In his second stint with Apple as CEO
Steve jobs had his task cut out. He had to turn around CEO, teve
the Apple mac business and he undertook multiple steps to achieve
it. -Agreement with Microsoft to invest $150 Million in Apple
Agreement -Macintosh licensing program was abolished, thus
restricting clones and cannibalizing Macintosh restricting
-Consolidated product range from 15 to 3 Consolidated -Launched
the iMac, plug and play with multiple colours Launched
-outsourcing and restructuring, while expanding to national chains
outsourcing -Direct selling through website and streamlining
operations Direct -Pared down inventory and increased spending
on R&D ed -Re-energized apples image as a hip brand energized
Notebook Products Launched: Macbook • 1099 1099-1499 USD
Macbook Pro • 1999 1999-2799 USD Macbook Air • 1799 1799-
2598 USD Technology and Innovation: -Integrated with the Intel
platform Integrated -Mac users able to operate both windows and
Mac based applications Mac -Leopard OS launched -Built
independent applications (iLife suite) Built -Web browser Safari
 -MS-Office suite for MAc Office Distribution and Sales: -Retail
stores opened
7. -Collaboration with Best buy -i-Pod halo effect benefitted sales
Owing to all these measures, the Mac sales grew thrice as fast as
the overall PC market, which increased by about 14% in 2007.
Apple had become the third-largest PC maker within the US
market with a market share of 8.5%. But to continue the robust
trend of the Mac growth saga, Apple will need to look outward.
Since the US market is not growing at a great pace, Apple will
have to look at the emerging asian markets and tap its potential. 5)
Sustainable competitive advantage: Exploitation Launch
Counterattack As Apple is operating in a Fast-cycle market in
which the firms capabilities that contribute to competitive
advantage aren’t shielded from imitation and where imitation is
often rapid and inexpensive, its strategic decisions need to be
undertaken quickly and in an effective manner. The i-pod-itunes
business has been a spectacular success for Apple. The
Razor/Blade strategy in Apple’s case is even more profitable unlike
in the case of a printer-toner relation, as in Apples case its a reverse
Razor/Blade, and the returns will be even higher for Apple, as it is
the devices like the i- pod, i-phone which would require
replacement. Apple has always differentiated itself on its
innovation and design, and the same is the case for the i- phone i-
tune combination. But this is not a competitive advantage which
will last for long, and hence Apple will have to adapt and offer new
services to keep itself one-up from the competition. Steve Jobs has
perfected the art of coming up with a innovative product to keep
this advantage from falling over. It is difficult for firms competing
in fast-cycle markets to maintain a competitive advantage.
However, Innovation plays a dominant role in the competitive
dynamics in fast cycle markets, and here is where Apple is able to
leverage its skills.
8. Threats and Competitors: DRM free copies- Amazon Creative,
Threats/Competition MS-Zune Samsung, Sony Objection from
music labels 6) I-Phone: Initial Strategy Phone: Rationale to launch
i-Phone: To integrate the i Pod with a mobile phone service and to
Phone: i-Pod reinvent the phone as a multifunction communication
device. Version1 • 8GB $399, 16GB $499 • AT&T plan $59.99 •
Service revenue sharing model • No third party distribution • Edge
network 2-2.5G • Battery life affected by 3G • 19.5% share during
first quarter • Gray markets in China russia- a concern - • Los of
service-share revenue
 9. Version 2 • 8GB $199 16GB $299 • AT&T plan $69.99 • Fixed
premium model • Best buy retail channel • 3G bandwidth • Google,
youtube partnership • i-tunes integration • New application
packages • Launched in 22 markets The initial launch of the i-
phone at a high price band and with exclusivity around it was a
good move by Apple. The aura of exclusivity built a tremendous
hype and expectation over the launch of the product. The early
adopters (Fad) were ready to shell out the price which was
definitely on the higher side. Apple capitalised on this and was thus
able to offer better prices in its second version. Reasons for
changing its strategy: -Availability of 3G bandwidth and battery
life upgradation -Revenue-sharing model was not generating profit
-Price band was on the higher side, and the early adopters were not
interested -Retail channels were a better option than single
distribution channel -Exclusivity to carriers was affecting the
growth -Design improvements -By launching i-phone officially in
22 markets and making it available in 70 markets including most of
the countries which had a gray market presence, Apple is trying to
safe-guard its interests.
10.7) Strategies for India: The demographics of India can be a major
factor for apple to succeed in India. The cost premium attached to
apple products could play a hindrance, and hence Apple would
have to devise a cost leadership strategy while maintaining the
product differentiation. Apple would need to devise a Supply chain
initiative to maintain its operation. The following segments could
be targeted by Apple. - There is a huge demand for better
processing powers in Business analytics and Market research firms
in India. Apple could target these companies, by demonstrating its
technical expertise over Microsoft. - By leveraging its expertise in
the education segment K-12, Apple could enter into tie-ups with
major educational institutes in India. This would lead to mass
awareness of its products, other than the i-pod. - Animation is
another segment which is picking up in India, Apple along with its
association with Pixar could become a huge hit in India, if it plans
to launch its own animation centre of excellence, and thus
promoting the brand Apple.

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