Strategic Management

Team Project
Case Analysis
Apple Inc.

Presented by: Esraa Elseidy & Mariham Helal

Apple Inc. Case Study Page 1

Table of contents:
Executive Summary.3

Situation Analysis.4

Industry Structure....4
Strategic group Mapping....6
Driving Forces..7
Key Success Factors10
Industry Strategic Issues..12
Industry attractiveness..16

Competitive Situation Analysis

Five Forces Model of Competition..17

Competitor's Strategies Analysis.25

Firm's Self Analysis

SWOT Analysis...27
Competitive Strength Assessment..33
Firm's Strategic Issues and Problem..34

Financial Position Analysis

Profitability Ratios..35
Liquidity Ratios36
Leverage ratios36
Activity Ratios..37

Past and Present Mission and Strategies37

Identification of Strategic Options

Industry Analysis.40

Recommendations

Long Menu..42
Short Menu..42
Expected Outcomes of selected strategies47

Strategy Implementation47
Company Culture...49
Control and Evaluation..50
My Opinion..53
References..54

Apple Inc. Case Study Page 2

Executive Summary

Apple Computers started the movement into the personal computing arena in 1977 but
through changes in management and differences of opinion together with missed
opportunities it lost its competitive advantage to companies like Microsoft, Dell, and
Gateway. Apple operates in various lines of the computer and music industry today and
its operations include not only the designing but also the manufacturing of its computers
and software. Apple continues to pursue the personal computer market but not as
intently as in the years before. It has opted to change directions a little by venturing into
the music world through the marketing of iPod, a digital music player, and iTunes. The
opening of 65 new retail outlets, including one in Japan, has precipitated its move into
this new world.

Apple continues to work on providing innovative products for its customers but marketing
to such as small market has caused some problems. Its market share has been reduced
to below 5% and its operating system differs considerably from the Wintel operating
system used my dominant Microsoft. Costs of maintaining this difference have increased
in comparison to those utilizing the competitive operating system. Software designers
are not as enthused about writing programs to support Apple's operating system
because of limited potential sales. The advantages that seem to come into Apple's laps
are quickly removed because competitors are able to copy, steal, and share them.

The one advantage that Apple possesses is its operating system but it has failed to
convince the world of its superiority. The operating system in possession has not
encountered the problems that Microsoft and its fellow operating systems have
encountered. Microsoft upgrades have been plagued with virus and other program ming
problems, including the ability of hackers breaking into the system and accessing ones
computer from another remote spot.

Apple has not capitalized on these problems. It has gained a few customers but nothing
in the numbers required to turn the company upwards in reclaiming considerable market
share. Apple customers are a devoted group that understand the superiority that they
possess but convincing the other 95% of the world because a rather large task.

This case study is to begin with a situational analysis that will encompass the
industry structure, competitive situational analysis and the firm's self-analysis.
Through which the external and internal analysis of the Apple incorporation will
be mentioned.
It will cover Porter's five forces and provide insight of the opportunities and
threats that Apple faces. The industry structure will be dismantled so that market
size, distribution channels, strongest and weakest competitors, and anticipated
strategic moves of rivals is captured.
Economies of scale and key success factors will be listed along with financials so
that a direction can be logically surmised. An internal analysis will also be
included so that Apple's mission, vision, and financial objectives are understood.
Products and services will be dissected, as will its corporate culture, values, and
morals. The core competencies will be noted together with value chain analysis so
that Apple can better define it true advantages for continued successful operation
in the future.
Recommendations will be provided, listing the pros and cons of each, so that
Apple management can consider implementation for strengthening their position
within the computer and digital music industries.
Finally it will include the past and present strategic options used by the company
as well as our recommended strategies with their anticipated positive and
negative outcomes.

The recommended strategies implementation process will be encountered in the

analysis with the control and evaluation ways for best strategies outcomes.

Situational Analysis

Industry Structure

Apple Inc. (Apple) has managed to create substantial value in the highly competitive
personal computer industry, by innovating and forging a path considerably different from
those of the largest competitors in the industry, successfully differentiating its products
from those of the competition by choosing to focus on quality, design elegance, and
superior customer service, while outsourcing actual manufacturing to trusted original
equipment manufacturers.
Yet, despite the advantages Apple has created for itself, the stiff competition within the
industry and other external factors present formidable challenges to the firm.
The personal computer/notebook market is becoming increasingly
commoditized, leading to intense rivalry among competitors within the industry, driving
prices down and creating potentially destructive price wars. Utilizing key resources and
capabilities including industry-leading design teams, talented software and hardware
engineers, backed by a sizeable research and development budget, which is
responsible for a portfolio of thousands of patents, and under the strategically brilliant
stewardship of CEO Steve Jobs, Apple has successfully innovated its way to a
comfortable market position commanding premium prices. Unfortunately, Apple cannot
rest on its laurels.

The position is not permanent and Apple must continually find new ways to
maintain profits and create value for customers and shareholders. The maturing
personal computer market is becoming saturated, leaving fewer new buyers and more
replacement buyers. To continue to grow, Apple must also look to new and expanding
markets as sources of revenue.
 After considering Apple's strategic war chest; the firm's core competencies, key
resources, and capabilities and given its current situation within the industry and the
compounding factors in the form of trends from the general environment, it is clear Apple
stands to create considerable value through continued related diversification iPhone
provide sufficient evidence that it is well-equipped to continue its path of innovation, by
creating a digital lifestyle convergence device that bridges users on-the-go digital lives and
their at-home digitals lives. The proposed device will be powerful and feature packed,
while leveraging the Apple system of seamless integration to create a compelling user
experience, presented in an elegant package showcasing the firm's industry-leading
industrial design capabilities, to create the next must- have consumer electronics
product.

Industries' dominant economic features

The versatility of the computer industry allows a few dominant economic features to
stand out. The market size mentioned above is one of these dominant features. It has
increased to a range between $890 million to $2 billion. The competitive rivalry is
another dominant feature. The national and global levels are in the early maturity stage,
which is nice considering that, the local and regional markets a completely saturated. A
third dominant economic feature is the technological innovations that continually surface
from the many competitors.
Innovations such as software advancements, 32 bit and 64 bit chips, networking
expansions, and improved design technologies. Each has a direct link to the economic
structures of the company and its competitors.

Distribution channels

The distribution channels for PCs have been changing considerably in the past couple of
years. The changes are being driven by price declines and the 'mature product' phase of
the computer life cycle.
Many of the expansions involve channels that already carry PCs or other sources not
previously used. A few examples of those not previously used are cable TV firms,
telephone companies, and bookstores.
 Strategic Group Map of Apple Inc.

As learned in Chapter 4 (p.144); for better understanding of the market, it is

useful to categorize the firms of the same industry in strategic groups for
better understanding of the competitive environment. Here we compared
quality versus price to differentiate between several smartphone market
players.

Smartphones SGM
12

10
APPLE
8
HTC
Price

4 SAMSUNG

0
0 0.5 1 1.5 Quality 2 2.5 3 3.5

High
Apple
Inc.

Price Microsoft

Google's
Android
Low

Low Quality High

Relation between Apple's Strategic Group & its organizational focus:
High quality products
Premium prices
Focus is mainly upon valuing customers by providing exceptional quality
products, repairs and expert advice.
Well known for its passionate and dedicated customer base thus it enables Apple
to charge premium prices.

Driving forces
Driving forces are part of the external analysis and provide the company with insight on
opportunity and threats that it must contend with. Some of the driving forces for Apple
Inc. are:

1) Industry growth rate (short or long-term)

The computer industry has been slow for the past number of years. It is affected by a
weak economy and less disposable income within the households due to layoffs and
outsourcing of jobs outside of the United States. Upgrades have not been
technologically advanced enough to warrant constant change so many consumers
wait until a few upgrades are offered before purchasing one.
The industry has usually been supported by big business and since the slow-down big
business has not been expanding so need for additional computer and software is not
required. Apple has to face another hurdle when viewing this because big business is
more Wintel operating system driven and with the cost of cloned PCs, they are just more
affordable.

2) Changes in who buys the product and how it is used

3) Changes in society - different concerns, attitudes, and lifestyles

The people purchasing computer have been become accustom to using Windows
operating systems. The population growth has increased and all of those individuals that
come into computer using modes are being subjected to the Windows environment.
Many are not knowledgeable of the Apple operating system and have only heard of
Macintosh computers.

The younger generations are coming to know of Apple with the onset of iTunes, iSync,
and iPods. This is bringing a younger generation into Apple's marketing world but Apple
has yet to convince them that the computer systems provide the quality and ease of use
just as the music materials that Apple is able to supply for them.

4) Product innovation and technological change

Microprocessors, semiconductors, memory storage, and speeds of computers is
ever changing and as the technology improves so must Apple. Many products
strength innovations are being driven in the areas of miniaturization. Companies are
spending millions of dollars to provide themselves a position in being the one to
make the next innovative improvement. Customers have a desire to possess the
latest and greatest so the combination of the companies trying to create the new and
the customers desire to be first 'on the block' with the new certainly creates a major
driving force.

5) Firms - entering, exiting or mergers

Much of the computer hardware industry has defined players and market share
percentages allotted with a few shuffles taking place among them. Niche companies are
being merged or bought out by the larger companies so the larger ones make some
small gains from time to time. The music industry is different since it does not require the
capital outlay that would be incurred if entering a hardware market. The same applies to
the software developers. New software developers can infiltrate the industry and music
related equipment providers can easily provider newer systems or a different avenue for
accessing the music clips.
The need to remain competitive on both fronts keeps everyone moving forward. The
differentiation in the Apple operating system can hinder the amount of software being
created but this works against the company because few products are available to use
on their computers.
Competitors that can affect the direction of the company can easily copy the iPod and
iTunes sectors.

6) Increased globalization of industry

Companies are surfacing in the global markets. Many companies in other
countries are driven by their desire to capture a large market share on their side
of the world or by governments pushing them to enter into the global systems

7) Changes in cost and efficiency

The product life cycles have become shorter as technology advances and consumer
whimsical purchasing changes. The mode forces increases in need for being innovative.
Innovation and competitiveness cost the companies a considerable amount of money
that has a direct effect on the profits. Matters worsen as competitors cut costs when
providing their products to market. Apple moved into the retail world by opening 65
stores so costs increased considerably but it will take time to learn if the efficiency of
their sales increased proportionately.

Apple's different operating system also incurs addition costs in the selling and
administrative costing realms. Apple must provide consumers with superior or value
added equivalents to justify the higher prices for their products.

8) Regulatory influence and policy changes

Government regulations will continue to change domestically and abroad. Environmental
issues have been part of Apple's proactive approach to being environmental stewards.
This cost must be absorbed into the products being manufactured. Money spent on
cleaning up or providing cleaner operations does not add to the value of the product
production so it is a negative affecting cost that must be incurred.
The choice of not being a good environmental steward could backfire and be far more
costly than the amount being spent to do it up front.

9) Changes in degree of risk and uncertainty

Apple components and products are ordered before manufacturing begins so forecasted
sales dictate how much should be ordered. If the sales do not occur then the orders may
have been more plentiful than required and excess inventory could adversely affect the
company. New innovative product may be presented to the consumer and make the
present inventory obsolete so the company again stands to incur all the risk and face
uncertainty of the future.

Apple's control of those that do produce components for them is limited and subject to
much risk and uncertainty.
Key success factors

As learned in Chapter (4) (p.147); Key success factors are the variables that
significantly affect the overall competitive positions of companies within a
particular industry through the economic and technological characteristics
of the industry as well as the company's competencies.

Apple Stores Retail Locations

The introduction of Apple stores has provided the company with an important
physicalpresence to act as both a sales location and an advertisement. The
stores allow Apple to tightly control the image of the brand and provide
excellent customer service. This resource is of incredible value to Apple and
a success that is a relative rarity in the industry. Matching success and
impact like the Apple store model is difficult for other firms to achieve.

Relationship with OEMs

Apple has outsourced all of its manufacturing processes to OEM partners
in China, like Foxconn and Hon Hai Precision Industry while focusing on design
internally. The relationships between Apple and their OEM partners are very
close to provide Apple with excellent service and high quality products. Mutually
beneficial business relationships are time-consuming and difficult to develop and
maintain is of considerable value to Apple and puts them ahead of other
manufacturers who may decide to outsource some production.

1. Technology related
The first Macintosh computers were equipped with a physical chip on the logic board
because RAM and HD space were costly and ROM contained routines required for
computer startup and other higher-level Mac OS code. The iMac release divided ROM
into boot ROM and Mac OS ROM. The startup and higher-level code routines were
separated. The Mac OS ROM no longer needed to be in a chip form but instead is now
an image file inside of the MacOS system folder. This change updates with the use of
firmware feasible for both ROMs. Each Mac also had a unique machine identification
number
Apple also offers a better-integrated computer operating system than its competitors. It
is also not easily copied so Apple could offer a superior computing solution free of any
troubled operating system.

Apple has put audio, print spooler, bridging, and Ethernet into one small package call
AirPort Express. The system works with any Wi-Fi device and supports streaming music
through analog and digital audio jacks and USB printer spooling through USB ports on
Mac OS X and Windows XP and 2000. The introduction of AirPort Express raises the
bar on these combined features.
 2. Manufacturing related
Apple subcontracts it's manufacturing to third parties so it can focus on its core
competencies of testing and developing software. It can also concentrate on ensuring
that what is manufactured meets required specifications so quality remains a top focus.

3. Distribution related
Apple operates some of its facilities round the clock and after manufacturing they are
automatically feed to a system though a case taper where it is prioritized and sorted prior
to being palletized. This system can divert the product for shipment or audit before it is
released from the warehouse. Apple's use of this system minimizes the intervention and
monitoring time cycles. It even has the capability of paging a maintenance mechanic
when problems occur within the system
Apple not only contends with the physical distribution of its computers but it must also
address distribution of its music and iTunes software products. The AirPort Express
system is one of Apple's new methods of staying on top of the distribution of its
innovations.

4. Marketing related
Apple had survived rather well through the use of its aesthetics and user-friendly
systems but the computer's position changing to a commodity eliminates much of the
differentiation. Its opening of the retail stores has also assisted with marketing of product
since more people can readily see the name on company storefronts. Branding and logo
help keep the name fresh in people's minds and Apple has designed some very creative
commercials that help this.

The differentiation is not easily copied by competitors and can provide Apple user with a
superior computing solution. It can offer a trouble free operation, rapid response to
technological change, and a direct link to customer concerns. Apple differentiation offers
a clean, simple product line with a single controlling company dedicated to the
production of quality products.

5. Skills related
Apple has spent much of its hiring practices dealing with upper level managers,
computer technologists and specialists, programmers, engineers, and R&D scientists.
They have gain a reasonable understanding of the skills required to sustain a
competitive advantage in their areas of expertise. Apple has chosen to follow other
companies in employing engineers as business managers and they have seen the
fallout from having done so just as other companies have also seen.
Apple's expansion into the retail store business has been a change to what they are
accustomed to hiring. The storefronts use three key employee levels for selling product
and providing expert support for customers. The three levels include the store manager,
'genius' position, and 'keyholder'.
Industry Analysis

Industry Wide Strategic issues

External Analysis

General environment analysis

Companies engaged in manufacturing electronic computers are listed under SIC code
3571 and/or NAICS code 334111. Electronic computers are machines that

1) Store processing programs and data necessary for program execution,

2) Can be freely programmed to user requirements

3) Perform arithmetic computations and

4) Execute processing programs that requires modification of execution by logical
decision without human intervention. Personal computers fall into this category.
The electronic computer industry has been struggling since early 2000 when the
economy weakened. The US Census Bureau reported a decrease in computer
shipments from 1999 $64.7 billion to 62.9 billion in 2000 and continued downward to
$49.3 billion in 2001. Unit shipments also declined from 27.2 million (2000) to 22.7
million in 2001.
Rising unemployment and anticipated war with Iraq assisted in reducing the number of
computer purchases. The terrorist attack on the Pentagon and the Twin Towers in New
York City also added to the decrease. Much equipment was available at reduced costs
due to the bankruptcy of many Internet companies in the early 2000s. IDC also reported
in 2001 that Dell, Compaq, Hewlett-Packard, and IBM controlled over 40 percent of the
world PC shipments. Hewlett-Packard purchased Compaq and became a formidable
power competitor for Dell. The control of this large a portion of market share is
something Apple would have to contend with each step of the way.

Demographic segment
This is an increase of 13 million people in just a little over four years since 2004.
Increases in population combined with the advances in technology will continue to drive
increased sales in future computer markets.

The same Census bureau report broke down the ages into the groups listed in the
Table01 below. Americans begin using computers in the early years. Survey of the
numbers easily points out that a majority of the American population is of age to readily
use a computer in some form or fashion. Even some of the older generations are
experimenting with computer use. USA Today back in September 1997 published an
article that claimed that 10% of seniors own a PC and that 25% of those have Internet
access.
The domestic populace included 84 percent of people 25 years and over who had at
least graduated from high school and 27 percent had a bachelor's degree or higher. The
group also included approximately 8 percent dropout rate of the 16 to 19 year old group.
Enrollment for 2003 was 75.1 million students. The median income was $43,564 of
which 80 percent of the households received earnings and 17 percent received retire
income other than Social Security. Thirteen percent of the population was considered to
be living in poverty.

The group's occupational status was broken down into the following categories by
percentage.

34 % Management, professional, and related occupations

36% Sales and office occupations
16% Service occupations
13% Production, transportation, and material moving occupations
10% Construction, extraction, and maintenance occupations
The world population estimation for 2005 is 6,449,000,000 people
and for 2010 it is 6,812,000,000.
The computer industry will be required to support the increases. The computer industry
is growing rapidly in the Asian market and number indicates that a majority of the
population growth will be concentrated into that area.

Economic segment
Computer requirements are increasing across the globe. Data collected has all but 4
countries increasing the number of computers being used per 1000 individuals within
each respective country. The data was not restricted to PC type computers but listed
computer use in general so Apple computers were included within the data gathered
even though it is undergoing a market share loss of computer sales.
Exports felled from $9.6 billion in 2000 to $8.8 billion in 2001 with Canada being the
largest regional market for US computer sales (23% of U.S. exports). Asia and Europe
accounted for two-thirds of the total exports. Imports of computers dropped from $13.6
billion in 2000 to $12.2 billion, a 15 percent drop. Most of the imports are from Asian
sources with Latin America and Europe serving as secondary sources

Political/legal segment
Apple faces political/legal segment issues both domestically and abroad. Domestically
the Federal and State government continues to tighten up on the environmental issues
that constrain manufacturing and disposal of the units.
Environmental concerns are issues that directly affect each computer manufacturer. The
Environmental Protection Agency updated EPA/310-R-95-002 "Profile of the Electronics
and Computer Industry Code in the September 1995. This document provides directives
that must be adhered to by companies manufacturing computer components (EPA site,
2004). Apple has willfully promoted the buyback and proper disposal of computer parts
in effort to promote product stewardship from the environmental perspective)
Apple Environmental Programs :
All Apple manufacturing sites ISO 14001 certified worldwide, signifying that Apple has a
structured environmental management system (EMS) in place to manage the
environmental impact of our operations

2001
Apple's complete product portfolio meets applicable ENERGY STAR requirements
(also in 2002/2003)
Started voluntary phase-out of tetrabisphenol A (TBBA) in all plastic enclosure parts> 25
grams

2002

Product take-back solutions implemented in U.S. and Japan

Roll-out of Apple's global Regulated Substances Specification

Signatory of European Union Code of Conduct on Power Supplies, created to encourage
manufacturers to design power supplies that minimize energy consumption in off mode
Founding member of U.S. Federal Energy Management Program (FEMP), which
introduced energy efficiency requirements for the off mode of computer products

2003

The global market differs in its segmentation depending upon which country is involved.
Different countries impose varied restrictions on the equipment components and its use
once it is operational. China can be used to simplify explanation of some issues. China
began allowing computers into its borders in the early 1990s but still places restrictions
on its use. It also controls whom, how, and what negotiations take place between foreign
companies and local Chinese companies. It limits citizen Internet activity once machines
are operational. High tariffs combined with government regulations to prohibit foreign
companies from trading directly with the Chinese companies (Kraemer, 2004).
Foreign companies often favor the local companies over the foreigners trying to
manufacture within their borders. In many cases additional tariffs are imposed on foreign
competitors. International trade regulations also differ between countries with some
being lucrative initially but changing in favor of the local company as time progresses.
Apple faces the battle of overcoming the market dominance of the PC based computers
but does have tremendous opportunity present in the iPod and music associated
industry.

Apple and fellow computer companies have recognized that pirating and copying is more
easily done in some countries than in others. The laws are in effect in both places but
one is more apt to prosecute than the other. This illegal activity directly affects the
bottom line for every company involved.
Socio-cultural segment

Cultures are restrictive and the restrictions have effects on company profitability. China
Internet traffic increased by 71% from 1997 to 1998 and continues to do so as we
approach 2005. Some technological changes are more readily accepted than others.
Chinese people still have trouble accepting credit card transactions since the initial cost
of computerization is high. Internet sales in many overseas countries are not as
successful as in the United States and Europe because many of the customers prefer to
view the products they are purchasing. The same applies to other parts of the world so
the computer companies have to adjust according to the cultural differences being
encountered within the different countries in which they chose to market and sell.

Adapting to the differences in culture is not very easy and some manufacturers are trying
to build value into their company name. This is being done in hopes that branding will
eventually equate with honesty, integrity, quality, and good service so that storefronts
will not be as necessary as they presenting are. Apple computer began opening
storefronts in the United States in effort to compete against the PC based companies.
Their thought is that by having it available for the customers some will eventually make
the switch away from the PC-based systems.

The largest socio-cultural hurdle for companies such as Apple is the lower educational
standards of many countries. While many are making great progress, they are limited in
number. Those that are progressing can take advantage of the outsourcing that is being
done by American companies.

Technological segment
The governmental has always favored the computer industry's research and
development and it has shown favor by the amount of funding that is made available.
This trend has held true since the Cold War. It was just recently that any significant
cutbacks occurred and the industry has been unable to make up the difference. Most
computer companies began to cut back the amounts of R&D funding in the early to mid-
1990s and also began to focus on the short term. Product life cycles have been
shortened and the computer has become an everyday commodity.

Many of today's technology driven innovations that are being developed affect the
microprocessors, semiconductor, memory storage, and speed capabilities of the
computer units. Miniaturization is definitely on top of the required changes for the future.
Everything seems to be getting smaller and with the decrease in size comes integration
of multiple technologies. Phone, PDA, and Internet modules are being combined into
one piece of equipment. Telephones, video players, answering machines, and
televisions sets are being intermeshed. The future of technology seems endless.
Industry Attractiveness

Overall Attractiveness of the Industry

The overall attractiveness of the PC manufacturing business is affected by
several factors. These include general macroeconomic conditions as well as
industry specific factors such as the unique economic features of the industry,
competitive forces, forces of change, the market position and expected
behavior of the various competitors already in the industry, and the industrys
key success factors.

Attractiveness of External Environment

The external environment of the technology sector has become highly

competitive and barriers to entry have naturally developed over the years of
growth some companies and the industry in general have attained. The
attractiveness of this sector of business is still quite favorable but has been
tough for new companies to try to enter and compete. Some of the other
forces involved signaling industry attractiveness includes:

Consumers still demanding new high tech products

Natural move to a higher tech more service based economy
Economic conditions have started to improve

Dominant Economic Features

The market for PCs in the home as reached its maximum and growth has
largely stagnated.

Analysis shows that the market is highly concentrated with most of

the revenue (90%) coming from half of the approximately 1,500
companies. Further analysis identifies only five major players (Dell,
Hewlett-Packard, Acer, Apple and Lenovo) accounting for the lions
share of the market. The fact that there are so few large competitors
with the remaining market share divided by over 1,000 other
companies indicates that anyone can enter, but few can grow. This
has negative implications for the attractiveness of this market.

The number of buyers in this market is relatively stable and growing

only with population. The market is fully penetrated with every one of
the estimated 111 million households already fully served. This is also
reflected above in the analysis of market growth rate. Also as noted
earlier, the replacement market is driven by technological change.
This has very negative implications for this attractiveness of this
market.

This industry is strongly affected by both experience curve effects and

large economies of scale. Companies entering this industry would
require significant experience in large-scale electronics manufacturing
 in order to have a chance at competing. This has negative
implications for the attractiveness of this market to most
companies.

From a financial perspective, standard measures of company

performance, such as profitability and liquidity ratios, as well as
economic efficiency measures such as ROA, are low for the major
players in this market. It seems that in order to achieve a large market
share a company must compete primarily on the basis of price and
efficiency. This has extremely negative implications for the
attractiveness of this market.

The Five Forces Model of Competition

As learned in chapter 4 (p.138); using porter's approach for

industry analysis:-

Every market including the financial industry can be evaluated through the use of
Porter's five-force theory. Porter's uses the five forces, supplier power, and barriers to
entry, threat of substitutes, buyer power, and the degree of rivalry, as tools that help
analyze a company's position against its competitors.
1. Threat of New Entrants/Barriers to Entry
2. Bargaining Power of Suppliers
3. Bargaining Power of Buyers
4. Threat of Substitute Products
5. Intensity of Rivalry: Among Competitors

1-Threat of New Entrants

1. Economies of Scale
2. Product Differentiation
3. Capital Requirements
4. Switching Costs
5. Access to Distribution Channels
6. Cost Disadvantage Independent of Scale
7. Government Policy
8. Expected Retaliation

1. Economies of Scale
Apples economies of scale give it a clear advantage over its competitors in the
same industry
These advantages can be broken down into external or internal economies of
scale

Internal and External Economies of Scale

Apples internal economies of scale were established through its learning curve
and volume of production
Apple has been in the industry for a while to have a leg up on competitors like
Samsung by figuring out how to lower their production costs and analyzing their
market better
Apples external economies of scale give them an advantage because of where
they are located
California is the mecca for the computer industry in the U.S. as such, suppliers
naturally flock their and computer workers can easily share their ideas and build off of
another
Therefore, Apple gains a significant advantage of lower supply costs and a more
intelligent labor pool

High barriers of entry

Apples economies of scale give it a clear competitive advantage of their
competitors
They know their market, have access to reduced input prices, and figured out
production processes to lower costs in producing their goods
As such it will be extremely hard for competitors to enter the computer industry
market given the advantages Apple has created for itself

2. Product Differentiation - High barriers to entry

The technology sector is a tough market to enter regarding product differentiation
because of the innovative powerhouses currently there, such as:
Apple
Google
Microsoft
When you have companies currently present that have already matured and gone
through the learning curve it is hard to match their prices, and all their expenses are
much lower compared to yours.
These high barriers give the companies like Apple a advantage and form of
protection against new up and coming companies who try to compete.
Trying to beat the innovative nature of companies releasing the iPhone, iTV,
Android, and other highly differentiated products is a tough task.

3. Capital Requirements - High barriers to entry

Most capital requirements needed to start a new business or compete in a
particular sector are normally fairly high, but it is especially high in the technology
sector.
There is need for a lot of capital because:
Technological products are not cheap
Human capital is additionally needed
This human capital needs to be highly skilled
High R&D costs to innovate

4. Switching Costs - Low barriers to entry

Compared to other factors regarding potential new entrants this factor is much
lower.
But it does change, how this occurs is based on what industry the new competitor
is emerging from. If it is coming from a similar background to technology the
switching costs are not big.
It may be more challenging if the switch is from a completely different industry.
If different, the former low cost industry company may find challenges in adapting
to the high cost tech industry.

The reasons behind classifying this factor as lower barriers are as follows:
Company already works in a high cost industry
Switching costs may be worth the future returns
Lower regulations present in the tech industry
Benefits outweigh switching costs

5. Access to Distribution Channels - High barriers to entry

Another high barrier to entry due to bigger companies already locking down the
major suppliers in the region, this occurs due to:
More mature companies present
Companies like Apple and Microsoft forming contracts with big suppliers
Not being able to match what other companies currently pay
Higher costs associated with premium suppliers

6. Cost disadvantages independent of Scale - High barriers to entry

As mentioned before these costs deal with the learning curve.
Other reasons companies already present in the industry have an advantage over
potential entrants are as follows:
Learning curve
Lower costs per product
Favorable government support or subsidies
Connections with suppliers providing favorable prices
Locations better suited for business than what the entrant may be able to obtain
 Historical advantage- matured companies

7. Government Policy - High/Low barriers to entry

This factor is varied by specific industry.
The reason for a high/low rank is due to constant changes governments can
implement and make.
Government policies can make entry completely impossible or favorable.
Limits to raw material suppliers could also be put into place to protect the industry.

8. Expected Retaliation - High barriers to entry

Due to companies that are large and experienced high barriers to new entrants
are expected to come, they take the form of:
Large companies with excess cash flow can hinder new companies.
Distribution channel leverage of present companies.
Excess capacity to produce more goods
Higher market share
If truly threatened, buyouts early on could emerge.

2- Bargaining Power of Suppliers

1. No Satisfactory Substitutes
2. Industry Firms not Significant Customer to Supplier Group
3. Suppliers Goods are Critical to Buyers Success
4. High Switching Costs Due to Effectiveness of Suppliers Products
5. Threat of Forward Integration

1. No Satisfactory Substitutes
If you take a look at the big time companies such as Apple, Google, and Microsoft
you will find that they have a lot of exposure to the worldwide supply market.
This fact gives suppliers to these big tech industry leaders very low if any
bargaining power. The reasons why includes:
Many other potential suppliers
Conduct business with big global market leaders
Not well leveraged
These are the reasons why they have no power in this respect, the big
conglomerates have many substitutes.

2. Industry Firms not Significant Customer to Supplier Group

For smaller firms the supplier may have more leverage and power here, but when
doing business with big multinational companies it is most likely not.
The reason is quite simple; market leaders in the tech sector are just about as big
as they come.
They have some of the largest market caps/market shares/consumer appeal.
This is why suppliers cannot bargain with these companies, for most of them they
make up most of their business.

3. Supplier Goods Critical to Success

It all comes back to control the buyers possess over the suppliers.
In a sense the answer is yes that the suppliers goods are critical to their success,
except there are a few other factors that work against them, some are:
Buyer market share
 Multiple potential business partners
Everyone wants to be a supplier to a company like Apple

4. High Switching Costs Due to Supplier Effectiveness

Switching costs are not such a big expense to firms such as Apple.
The reason these expenses do not break the bank is due to their large amounts of
cash and market presence.
Another reason suppliers do not have much say is because there are a lot of
suppliers who are effective and can minimize these costs for their buyers.

5. Threat of Forward Integration

Apple has many different suppliers.
They have multiple semiconductors who specialize in different forms of tech,
holding companies, and electrical companies.
Some of Apples suppliers include:
Analog Devices Inc.
Amperex Technology Ltd.
Arvato Digital
Asahi Glass

These are just four of a long list of suppliers that work for Apple.
The reason for labeling some of these companies is to show their size and power
vs. the powerhouse buyers.
A lot of these companies is very small, and because of this the threat of forward
integration is low. While it is possible to use this method it is not practical and smart.
The lost profits suppliers would lose from using this method would be huge, and
Apple knows this.
That is why there is no bargaining power here.

3- Bargaining Power of Buyers

1. Purchase large portion of industrys output
2. Product sales accounts for significant seller annual revenue
3. Low switching costs
4. Industry products are undifferentiated or standardized
5. Threat of backward integration

1. Purchase large portion of industrys output

Apple is a MNE and has substantial ties worldwide.

Due to the fact that they are present in multiple markets and have a wide variety of
customers it is safe to say that the companys product output is fairly distributed
across many buyers.
This lower amount of bargaining power among buyers is common in these
attractive industries.

2. Product sales accounts for significant seller annual revenue

With the amount of product sales; comes the sellers annual revenue they make off
these products. Apple is a large company and very profitable due to highly
differentiated products.
When a company has this advantage and many buyers it results in lower
bargaining power for the buyers.
3. Low switching costs
The reason for this yes/no explanation is due to the fact that a part of this issue is
dependent on different consumer behavior.
Some buyers do not mind switching from an iPhone to a
Google Android because they do not see the switching costs as substantial.
But other customers may see these costs as big enough to decide not to switch.
Switching costs would include the new phone/plan, new charger, apps that will not
transfer, and possible cancellation fees.

4. Industry products are undifferentiated or standardized

Due to the type of industry and company that Apple is there is no contention when
determining their products as not being standardized.
The ways this gives buyers no power is:
Differentiated products
Since differentiated you cant get close substitutes

5. Threat of backward integration

Due to the big MNE Apple is there is not much of a chance this can happen.
Apple enjoys the below advantages in relation to this idea:
Economies of scale
Great reputation
Access to major distributors
These are the reasons that if buyers try and backward integrate the strategy will
most likely fail.

4-Threat of Substitute Products

1. Switching costs - high/low
2. Price comparison
3. Equal quality/performance

Substitute Product Examples

iPhone alternatives:
Walkie Talkie
Letters
IPod alternatives:
Basic CDs
Music Library
Macintosh alternatives:
Typewriter
Telegraph

1. Switching costs - high/low

The costs associated with switching from Apple products to one of its competitors
is very high
1) Apple products, like the iPhone, run on their own operating system called iOS
This means iCloud, iPhoto, and all the other apps will not be compatible with other
competitor's operating system
This increases the customers perceived costs of switching products because of
the hassle of not being able to use their favorite apps
 Also, the more Apple devices a consumer has the likelihood these switching costs
will increase

2. Price comparison (Intensity: High)

Apple is a market leader, thus many competitors will emulate them by offering
similar products at reduced prices or with unique features
This competition can get so heated that Apple will sue its competitors for copyright
infringement to protect its products and market share
In Apple v. Samsung, Samsung had to pay Apple $1 billion dollars for copyright
infringement on its iPhone

3. Equal quality/performance (Intensity: N/A)

In the technology world assessing the performance of two similar products can be
difficult to achieve
Each product has their own unique designs yet they all accomplish the same tasks
Benchmark tests could be used as a measure but they are unreliable because
companies can inflate the results to make their products seem more applying
Therefore, the true performance of a product depends on the needs of the user
and how much they are willing to pay for a few extra RAMs or memory space

5- Intensity of Rivalry among Competitors

1. Numerous or equally balanced competitors
2. Slow industry growth
3. High fixed or storage costs
4. Low differentiation
5. Low switching costs
6. High strategic stakes
7. High exit barriers

1. Numerous or Equally Balanced Competitors

A. Intensity: High
Apple produces a variety of products to penetrate many markets, which creates
many different competitors
Apples top competitors are Microsoft, Google, and Samsung
These three companies contain the technology, supply chain and funds to be
equally balanced with Apple
One reason why Apple is ahead is because they were the first
to revolutionize the consumer markets with their products
This helped them establish a large share of the markets early on and create loyal
consumers

2. Slow industry growth

B. Intensity: Moderate
In developed economies the industry growth for smartphones has slowed down
considerable
However, emerging economies are compensating for this slow growth by
exhibiting high volume of sales
This is important because Apples iPhone sales were 52% of their total revenue
from their last fourth quarter
Therefore, if Apple wants to continue its growth they must focus on penetrating
other countries markets besides the U.S.
3. High fixed or Storage Costs
C. Intensity: High
Apples fixed costs for producing its products are relatively high because of the
numerous individual parts it has to create to make one whole product
In addition, Apple is currently building a campus in California
This project costs about $5 billion dollars, which will significantly raise its fixed
costs

4. Low differentiation
D. Intensity: High
Apple is a highly innovative company that produces unique products that
revolutionize their target markets
As a result, competitors copy Apple's products and designs to reduce the
differentiation status they hold over them
This forces Apple to come up with more innovative ideas to remain ahead of their
competitors and retain their market share
As such, Apple holds a high product differentiation in their markets until
technology diffusion makes their products available to their competitors to copy

5. Low switching costs

E. Intensity: Low
The overall intensity for switching costs is relatively high because each competitor
has introduced numerous of products that offer unique features compared to their
competitors and previous models
These features entice consumers to buy the new more expensive models, which
raise the level of switching costs in the industry
In addition, accessories change to only be compatible to with newer models to
further the switch
For example, phone chargers, cases, and services

6. High strategic stakes

F. Intensity: High
Competitive rivalry in Apples chosen markets have become so fierce that Apple
has to look elsewhere to continue growing
This is brought on by Apples competitors gaining ground and selling more units in
the domestic market
Therefore, Apple has the potential for great gains within the global market by
focusing on emerging economies such as China

7. High exit barriers

G. Intensity: High
Apple has recently been investing huge amounts of money into their supply chain
management
Over the next year they plan to invest $10.5 billion in supply chain robots and
machinery
Last year they spent about $7billion on related expenditures and custom built
machines
These high investment costs contribute to high exit barriers because it places such
a high costs on abandoning its products that use this supply chain system
Competitors' Analysis

Apple is taking 93% of the profits in the smartphone industry now

Apple is basically the only company making money from smartphones anymore.

Every quarter, the analyst Michael Walkley takes a look at the state of the profits of
smartphone companies. This quarter, it is found Apple had a record breaking 93% of the
industry's profits.

Apple is always the leader, but for a short while, it looked like Samsung was going to
catch Apple. Those days are long gone. Apple has blasted away from the pack.

Samsung's share of the industry's profits is down to 9%, its lowest point since 2008 as
its profits crater. Samsung is under attack from Apple at the high end with the iPhone 6
and 6 Plus, which both have big screens.

Apple sold 74.5 million iPhones last quarter, generating roughly $12.6-$13.5 billion in
profits.
Competitors: strongest - weakest
The focus on the strongest competitor extends beyond Microsoft but that will become
clearer in a few sentences. Microsoft's control of the PC market speaks for itself so they
can easily been seen as the strongest competitor. Apple will eventually have to tackle
trying to take away market share but a head-on battle may not be the best approach
(Machanick, 1998).

Another side of competition is the music side that Apple is presently doing well in.
Samsung and Napster 2.0 have teamed up to release a new service/hardware
combination that is intended to compete directly with iTunes Music Store and iPod. The
scheduled release is to offer unlimited downloads and services that the iTunes Music
Stores offer.

Rivals anticipated strategic moves

Apple's strategy has not gone unnoticed. Its rivalry has created an air of 'bad blood'
between itself and digital rival RealNetworks.

Apple management was quoted as stating: "We are stunned that RealNetworks has
adopted the tactics and ethics of a hacker to break into the iPod, and we are
investigating the implications of their actions under the DMCA and other laws."
The move has prompted Apple to consider restricting iPod software updates so that
Real's Harmony technology would no longer be supported

Speculation has surfaced that video conferencing functionality may be added to iChat
(Geek.com, 2002). The move has been seen as being gutsy.
Economies of scale
Expense of software creation was be extremely expensive and but once it has been
refined the cost of producing copies for sale is minimized. The difference in expense
between Apple and Microsoft is the systems put into place. Apple chose to go with a
closed system that not have any others assist with programming, testing, and bugging
as did Microsoft. Microsoft gobbled other companies that had made sustainable
improvements to their operating system up. This reduced some of Microsoft up front
costs and multiplied the progress.

SWOT Analysis

Strengths

1- Product differentiation

When Apple first hit the market in the early 1980s it had a product that differentiated it
from all other computer products on the market but it failed to capitalize on what it had.
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. The small market share controlled by Apple can be increased every
time Microsoft encounters problems.

Apple's system for graphic and architectural production and design is far superior to any
Windows application and this strength should receive considerable advertising to
capture more of that niche market. Apple cannot continue to make the mistakes it has
made in the past when it could have countered the Windows upgrades as they occurred.
The Macintosh's high-resolution graphics and ease of advantage over MS-DOS had
made it a natural for software developers who created the "desktop publishing" segment,
which was widely credited as saving Apple and the Macintosh.

The iPod and iTunes markets are strengths but they can be easily copied by competitors
and are subject to the control of third parties.
At present it does control the market but without pursuit of a core competency that
cannot be easily imitated by others it will fall off of the strength category.

2- Brand name and image

Branding of products helps in keeping consumers abreast of the company products.
Whenever a company established a popular brand name or image it can reap some
benefits. Some of the benefits associated with the name recognition is the ability to
reduce advertising from the recognition perspective. Apple computers got its name from
Steve Job's favorite fruit. He has run three months late in filing for a name for his
company and threatened his colleagues that he would call the company Apple
Computers if they were unable to come up with something better by 5:00 pm that day.
His friends didn't so the name stuck. The brand has some to be known for its superior
quality and aesthetics. It is valued in the graphic world for having an operating system
superior to any Windel platform. The innovations in the music industry have been linked
with Apple's brand name and its quality products and services.
3- Manufacturing both hardware and software

Steve Jobs is pursuing the combination of hardware and software manufacturing and
does not intend to lay off any of his employees since they are what make Apple
successful. Apple will continue to run lean while management pursues the business of
making machines and applications that even their most stringent critics regard as some
of the best in the business.

Apple does manufacture both hardware and software for its computers so it has the
ability of controlling design so that it appeals to the functional uses and aesthetics
required by consumers. Some of Apple's clients are web designers and its computers
provide the specific hardware and software needs to accommodate them. Output is
found to be impressive both for customers and their clients. Apple is providing the most
affordable 64-bit technology and a new operating system OS X in effort to position itself
in the scientific and academic high performance computing tasks.
4- Diversified markets
Apple has built an alliance with Sony and Ericsson with aims at capitalizing on the
broadband wireless market in the future. Apple's launch of iSync software in 2003 allows
synchronizing of personal information management applications and devices such as
mobile phones and hand-held computers (PDAs) (Barker, 2003).

Weaknesses

1- Economic and political uncertainty

Apple's operating performance is affected by the economic and political uncertainty that
shadows the United States. Education entities have postponed purchases due to budget
cutbacks and shortfalls. Businesses are not expanding and employment reductions in
force have provided less disposable income reducing sales. Failure to improve could
continue to affect the company and its suppliers negatively. The entire tech market has
been weakened by the economic and political uncertainty as well as other constraints.

2- Research and development costs higher than competitors

The market requires that participants continually provide innovations and competitive
products and technologies. Apple has been working extremely hard to accomplish this
and in doing so is spending more money for research and development that its
competitors. This increased spending negatively affects its profit margin and with
competitors cutting prices on their products it makes it difficult to compete on the same
playing field.
 3- Selling, general, and administrative costs are higher than competitors
Expansion into the retail 'bricks and click' world has increased Apple's costs. Marketing
fees for advertising its unique operating system and new equipment again affects the
bottom line, even though they are necessary expenditures. Competitors are able to
enjoy the luxury of utilizing operating systems, in Windows users case, that controls a
considerable amount of market share so they do not have to spend anywhere near as
much to promote their operating system. Apple has to focus on creating more
awareness not only of its products but also of its operating system. It must continue to
develop innovative products that offset the expenditures of these group costs.

4- Component order placement places company at risk

Components and products are ordered before the computers are manufactured so if
something occurs that represses sales the company is vulnerable because of the high
priced inventory that it retains.
This occurs because pricing competition is ever going so to purchases of components
and products at present day cost would usually be lower than prices paid for what is
presently in inventory. The worst-case scenario is having inventory become obsolete
and then having to be written off of the financials. Cancellations of orders usually result
in cancellation fees that still affect the companies' financial position.

The process of production requires that a company forecast possible sales so that they
can order the products and components necessary for being able to manufacture a
desired output. The risk is in making incorrect forecasts. Apple components may not be
as plentiful from vendors since their market share is smaller and the operating systems
are different. This puts the companies with the Windows operating systems at an
advantage since Apple could run into a problem procuring a sufficient supply of
components.

5- Apple relies on third parties

Apple relies on third parties for music and for manufacturing. This can affect the costs
being relayed to the consumer. The music sales have been profitable for Apple but they
have to contend with the fact that the material is in the control of third party
representatives.
The fees for having access to these materials can be extremely expensive. Another
concern is being outbid or restricted from being able to provide the contents previously
provided. Most of the licensing agreements are short-term and do not come with a
guarantee that the materials will be licensed in the future. Some music industry parties
have announced that consolidation of their distribution might occur in the future. A move
such as this would restrict availability of material for Apple's iTunes Music Store and
drive costs upward so that they might not be as attractive as they are now. iPod sales
could decrease rapidly if material restrictions occurred and Apple would remain at the
mercy of these third-party controllers.
The music coming from third parties is not the only thing that Apple should be concerned
with. It also has third parties manufacture it products. The company also out sources
much of its transportation and logistics management. Outsourcing does lower the fixed
operating costs but this is at risk of not having any or at most restricted control.
Quantity output and quality of manufacturing are in the control of the third party
supplier/manufacturer. The company is ultimately held responsible in the end, especially
when defects or other liabilities surface. This is another risk that Apple must contend
with.

Apple is also 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 highly likely especially when the tech
market is recessed.

Apple is faced with multiple weaknesses that it cannot control. Each of them or a group
of them could affect its operations in a negative direction and Apple will be faced with
more hardships than what it encountered in the past. Management must look at how
these weaknesses can either be bridged in effort to minimize risk or turned into
strengths.

Opportunities

1- Apple's different operating system

Apple can take advantage of its operating system differences by turning it into an
opportunity to develop improvements to the Macintosh platform in order to achieve
greater perceived functional and design advantages over competing platforms.
Various computer worms and other hacker anomalies that provide a grand opportunity
for Apple to take advantage and garnish some small sectors of this frustrated market.
With such a widespread system the vulnerability increases and fixes are not easy to
make in short time periods. Micro-soft bashers love to point out that Linux or Apple's OS
X are not vulnerable to whatever the exploit du jour is on the Microsoft platform (Bradley,
2004).The Apple Mac OS X is seen as a stable, reliable, and secure system that is also
very easy to use.
2- Apple's pursuit of music industry

Apple's pursuit of the music industry through its iTunes also provides a good opportunity
to increase Apple's bottom line and also increase brand awareness. The launching of the
iTunes Music Store resulted in over 2 million downloads in only 16 days. Knowing that
all of the downloads were done on Macintosh computers. Apple's opening of its music
store worldwide will be a great opportunity.
 3- Microsoft upgrade costs versus benefit
Microsoft users are finding it less feasible to continually upgrade software packages
unless they can truly see a benefit for the money being spent. The last few Microsoft
upgrades have been plagued with glitches that provide another grand opportunity that
Apple can use to its advantage so long as it doesn't make the same mistake with its
issues of upgrades. The customer will continue to look for value when money is spent.

Threats

1- Very competitive industry

The market for design, manufacturing, and sales are all extremely competitively
aggressive in Apple's business. The rapid technological advances made by competitors
in the hardware and software segments has increased the number products offered in
shorter time spans. Price competition, including sellers with computers with other
operating systems, has been very intense as the battles for increased market share rise.
All of these affect gross margin, especially when combined with increased reliance on
the Internet and the miniaturization of components that decrease prices since they are
smaller and simpler.

2- Competitor's copying programs

Companies such as Future Power USA copied Apples Imac and have been selling it.
These copies pose a major threat to Apple sales. The copies look identical to the iMac
even to the point of making the colors the same but under different names. These
copycat computers can even be considered as substitutes for an iMac. Website
www.lowendmac.com states that many other companies are copying the iMac either
because they are too lazy to come up with a different design or because the iMac is
such a great idea everyone wants to copy it.
Competitors are quickly mimicking the unique presentations of digital music products.
Entry into these markets is costly but unfortunately for Apple the competitors have an
abundant supply of funding to address marketing, manufacturing, and technical resource
requirements that may arise. Consolidation of major players has made for larger and
potentially stronger competitors. Competitors are even promoting free peer-to-peer
services.

3- Microsoft dominance
Microsoft Windows continues to dominate the market. More than 90% of the world's
computers use the Microsoft operating system. Apple needs to work on convincing the
world that its system is better than Microsoft. This dominance and need to overcome the
world's mental state of thought about Windows operating systems is a major threat to
Apple.
Windows based PCs have cut prices and lowered product margins to maintain market
share since demand has been declining during the past few years. This pattern does not
seem any brighter in the near future so these practices are very likely to continue. PC
technological advances in software and hardware, and miniaturization of parts, together
with a more reliant Internet movement make the competition for market share even
hotter.
Apple's operating system has lost some of its market share during the past few years but
is working to regain its losses. The introduction of the G5 has helped with sales, as have
the Powerbook portables.
Apple's operating system has provided graphics and creative designers with a useful tool
that is not comparable to Windows operating system applications. This difference must
be managed with continued improvements that allow the public to perceive design and
functional advantages over the competitors' operating system platforms. Failure to
compete effectively could cause a negative affect on Apple's financial and operating
results.

4- Software Piracy
Software piracy has been a problem for software and operating systems producing
companies. As the technology advances the more susceptible the companies become to
additional piracy. The piracy issue has grown to global proportions and stopping unlawful
copying and distribution of copyrighted software does not seem to have a remedy for
prevention in the future.
5- Global competition increases
Competition continues to increase worldwide. Other countries are getting into the
manufacturing as the expansions of existing companies occur. Cheap labor and parts
manufacturing in less privileged countries provide opportunities for larger companies
with extra capital to spare for expansion. Pursuit of savings drives them into the other
countries and with labor and parts costing less they utilize that as a means for cutting
costs making them more competitive.

The amount of product introductions hitting the market requires that each company
continue pursuing more innovative products in a shorter period of time. Lack of newly
enhanced product will reduce customer demand even more than what is being affected
by the weakened economy.
Companies must hope that the product introductions will be well received by the
consumers. If the product is well received then the company must be in a position to
ramp up production in short order but not enough to be overwhelmed by large
inventories when the sales regress. This need for judging demand is critical and must be
determined as accurately as possible because over supply will lead to dead inventory
and not enough supply will lead to unhappy customers.
Finding the balance is very difficult. Innovations within the operating systems must
continue to support the existing systems at the risk of losing customers should this not
occur.
6- Aggressive pricing practices
Competition in this highly competitive market faces overcoming aggressive pricing
practices, frequent new product introductions, shortened product life cycles, new
industry standards, continuous product improvements, rapid technological changes,
consumer price sensitivity and abundance of competitors. Each section is intense and
staying on top of each is difficult for any company to manage. Those with considerable
market share continue to battle to prevent relinquishing any while those with little push
with the items above to take any amount of market share they can get.
Competitive Strength Assessment
The chief elements of Apples overall competitive strategy are based on
product differentiation, sustainable competitive strategy, product innovation &
vertical integration. Product differentiation based on manufacturing its own
personal computers and software. Apple has done a great job through
effective innovation with its three core products, computers, personal media,
and mobile phones. The company designs, manufactures and markets a
range of personal computers (PCs), mobile communication and media
devices, and portable digital music players. Apple also sells a variety of
related software, services, peripherals, networking solutions, and third-party
digital content and applications. In addition, the company sells a variety of
third-party Mac, iPhone, iPad and iPod compatible products, including
application software, printers, storage devices, speakers, headphones and
various other accessories and peripherals. Apple sells its products worldwide
through its retail stores, online stores, direct sales force, third-party cellular
network carriers, wholesalers, retailers, and value-added resellers

Apples sustainable competitive strategy focus on building strong customer

loyalty by meeting their customer needs more effectively with their products
innovations, and unique designs. This competitive strategy has advantaged
Apple apart from rivals and has kept them in front of the competition in new
products introduction and on the updates of existing ones. Apple has followed
a vertical integration strategy to build a formidable competitive advantage.
Apples business strategy controls its unique ability to design and develop its
own operating systems, hardware, application software, and services. . Apple
on the other hand practiced horizontal and vertical integration which gave it
the dual advantage of significant reduction in costs as well as its creating its
own proprietary designs. The vertical integration provides control over the
entire user and provides lock in. Apples sustainability market share
successfully connect its devices from each other or process from hardware to
software which facilitates higher customer loyalty. Apple builds sustainable
competitive advantages that are hard to replicate.

A key piece of their strategy involves converting physical products and turning
them virtually to exploit the network knowledge in a way no one has done it.
As technology evolves, Apple main focus is on the computer industry on
taking digital media plus constants evolutions, digitized knowledge, and
combined it to feed the global consumers. This along with Apples entry into
the mobile industry with its iPhone and tablet computer industry with its IPad
are evidence of continue innovation.
Apples Strategic Issues and Problems
1. Cloud Services. We never hear much about this issue now that theyve launched
iCloud and its worked reasonably well so far. There was the initial launch of it which
marred with issues but they seemed to work their way around them. Today, most
people think that, just because they built some big server farm in North Carolina.
The question is does Apple have enough cloud talent inside the company to
continue to grow and develop iCloud? Its debatable. There was a reason that they
tried to buy Dropbox. That deal would have made enormous sense for Apple not
just for tagging on to Dropboxs momentum but for bringing in that domain-specific
knowledge into Apple. Such a deal would still make a lot of sense. Very few people
know that, when iCloud launched, it relied heavily on Amazon (AMZN) Web Services
and Microsoft (MSFT) to deliver their first cloud functionality. As Facebook (FB) and
Google (GOOG) continue to develop these services, they have a lot of in house
knowledge on scaling these up. Apple at present does not.

2. Internet Services. This has received some attention quite a bit over the last few
months on blogs and in the press and it deserves to. As the battle between mobile
IOSs continues to heat up over the coming years, rolling out amazing Internet
Services will become more important, not less. Apple is again taking a go slow and
grinds it out approach to these. Well learn from that. Apple Maps didnt work. Well
learn from that. The thinking seems to be internally: we dont need to be first to
market with great services; we just need to get to market. Sadly though, consumers
seem to be getting more and more impatient in waiting around for Apple. Google
was never perfect out of the blocks with their Internet Services but they do seem to
be on a roll lately. Apple does need more external talent with these skills injected
into the organization. Yahoo could be a great fit and Marissa Mayer would be an
ideal head of Apple mobile Internet Services. Mail, Flickr, and their core properties
would fit very well into prominent positioning in iOS. As Mayer has been saying of
late, the Yahoo properties map on very well to the top 10 list of activities of what
people do most on mobile.

3. Social. Apple has to be social but that doesnt mean it has to own a social
network. From an internal skill set perspective, its not obvious that Apple can
understand social and take advantage of its evolution from here, without having a lot
of internal talent who live and breathe social. Twitter has been often talked about as
a great way of Apple to inject social into its lifeblood if they were to acquire it. Im in
favor of this approach as well. The two companies have been working closely since
first deeply integrating Twitter into iOS 5. However, the biggest concern among
Valley insiders I discussed this idea with last week was: the big differences in culture
between the two companies. How do you keep whats special at Twitter if its
swallowed up by Apple? And that leads to the next point.

4. Apple outside acquisitions As studied in chapter 7 (p. 226&227) That global

expansion isn't always a successful path to expansion. Apple hasnt done any
big multi-billion dollar acquisitions of outside companies. The Quattro Wireless deal
was unsuccessful. The founders are gone. Apple didn't really get everything they
could have out of it. Siri is also an interesting case study. Apple has made it a major
focus and selling point for the new iPhones starting last year. But the Siri founders
are also out of the company now. Even if Apple were to buy Twitter (or Foursquare),
a study should be made for the progress of these properties be a year from now.
Apple needs real technology transfer of core cloud, internet services, and social skills
into the company. And this leads to the last problem.
 Financial Position Analysis

Profitability Ratios
Ratio 2010 2009 2008 Comment
Profitability Ratios
Gross Profit Margin 39.30% 40.10% 35.20% Gross profit margin increased in
2009 compared to 2008,slightly
decreased in 2010. It indicates the
margin available to cover
operation expenses and generate
profits
Operating Profit Margin 28.20% 27.30% 22.20% OPM improved throughout the
years indicating profitability from
operatins regardless og interest
Net Profit Margin 21.50% 19.20% 16.30% NPM improved throughout the
years indicating good profitability
and pricing strategies
Return on Total Assets ( 18.60% 17.33% 15.40% ROA improved through the year
ROA) reflecting good return on
investment or the ability of assets
to generate return
Return on Equity (ROE) 29.30% 26% 29% ROE slightly declined in 2009
compared to 2008, but again it
increased in 2010 reflecting the
improved return on stockholders
investments in the co.
Earnings per share 15.15% 9.08% 6.78% EPS improved in 2009 compared
to 2010 and improved dramatically
in 2010 thus owners are well paid
off
 Liquidity Ratios
Liquidity Ratios
Current Ratio 2.01 2.74 2.46
Decreased liquidity ratio but
still good in 2010, it indicates
that every 1$ of current
liabilities is covered by 2.01$
of current assets
Quick Ratio 1.96 2.7 2.42 Decreased quick ratio but still
good in 2010, it indicates that
every 1$ of current liabilities
is covered by 1.96 $ of current
assets, without the need to
sell inventory
Inventory to net working capital 5.01% 2.27% 2.47% Inventory increased
drastically in 2010 compared
to 2009 & 2008, yet still
represents 5.01% from the
working capital

Leverage Ratios
Leverage Ratios
Debt-to-Asset ratio 36.40% 33.40% 46.80% Improved debt ratio in
2009 compared to 2008 ,
and slight increase in
2010. yet the ratio
indicates that the co.
tends to lower financing
its assets through debt
Debt-to-Equity ratio 57.30% 50% 88.20% Improved debt to equity
ratio in 2009 compared to
2008 , and slight increase
in 2010. yet the ratio
indicates that the co.
tends to increase self or
equity finance and
decrease external debts
Long term debt to Equity ratio 13.90% 13.70% 21% Improved long term debt
ratio in 2009 compared to
2008 , and slight increase
in 2010. yet the ratio
indicates that the co.
tends to lower depts
financing its long term
capital structure
 Activity Ratios
Activity Ratios
Inventory turn Over 62 94
73.6 Inventory turn over increased in 2009
compared tp 2008 then decreased in
2010 to 62 times, this might indicate
accumulation of finished goods
inventory , or mmay be the company
metigates the risk of supply through
increasing stock of raw materials
Fixed Assts Turn Over ( FATO) 2.08 3.08 12.7 FATO is decreasing through the
years of comparison, indicating mis
management of fixed assets to
generate sales, or that the company
maintains too much fixed assets that
are not much productive
Total Assets Turn Over ( TATO) 0.87 0.9 0.94 TATO decreased slightly throughout
the years of comparison, the
decrease might indicate inefficiency
of total assets o generate sales , but
it should be compared to industry
average to determine clear analysis

Past and Present Mission, Strategic Objectives, Strategies

and Competitive Advantages Resulting from these strategies
As learned in chapter6 p.202 that an organization's mission statement and
objectives must be made before alternative strategies can be generated and
evaluated. The optimum result is to have choices that are clearly matching our
objectives and mission statement and to avoid the gaps that occur between
planned and achieved objectives.

Past and present company mission

Apple Past Mission:

To bring the best personal computer experience to consumers around the

world through its innovative hardware and software

At that time, Apple Inc. was involved in the computer business only which explains
their mission statement that is mainly oriented to computer business.

Current Mission

"Apple is committed to bringing the best personal computing experience to

students, educators, creative professionals and consumers around the world
through its innovative hardware, software and Internet offerings"
Mission Statement Analysis for APPLE Inc.:

Apple is mainly focusing at the following components of mission statement:

1. Apple may not be important to elaborate on its concern for its employees or to
thoroughly outline its customers and targeted market. Apple is a trendy technology
company which prides its self in providing easy to use electronics and efficiently run
software systems. Because of this it is most important for Apples mission statement
to focus on components like company philosophy, self-concepts, and current
technologies. These aspects of Apple are what make it popular and successful today.

2. Apple ignited the personal computer revolution in the 1970s with the Apple II and
reinvented the personal computer in the 1980s with the Macintosh. Today, Apple
continues to lead the industry in innovation with its award-winning desktop and
notebook computers, OS X operating system, and iLife and professional applications.
Apple is also spearheading the digital music revolution with its iPod portable music
players and iTunes online music store.

Apples mission statement only includes descriptions of products &

services and past & present technologies.

Apple Strategic Objectives

Apple Past Strategies

High- growth at personal computer industry

The leader of the industry 1976-1982.

Introducing New business lines:

1- Mobile phones.

2- Consumer electronics.

Past strategies adopted by the company:

Corporate Level and Business level:

- The company follows consistent

- Full integration : company designs , develop its own operating systems,
hardware, applications and services
- Company depends on a limited number of suppliers for its components
- Company adopts Differentiation strategy
- Company invents heavily in R& D
- Expanded distribution network and third parties Apple Prime Resellers
- Successful alliances such as that with Disney
- No clear succession planning
- Expanding range of products with a focus on I-phone and I-pad
 - I- Tune successful third party programs was a good source of profits

Strategies adopted by Apple Inc. at corporate level and business level

Corporate Strategy
Growth is the main corporate strategy with the following integration
models

Horizontal Integration: Via New Products and new areas of creativity. Also via
hitting new regions and countries.
Vertical Integration: Via direct contacting with the end customer either online
through the online Apple Store (iTunes) or through the 300+ Retail Apple
store which introduce a very luxuries customer care & support.

Apple Retail stores world wide

Business Strategy

Apple Is Competitive to the Edge.

Apple Competes with Microsoft in Operating systems and software.

Apple Competes with IBM, DELL and HP in Personal Computers and
Laptops
Apple Competes with Adobe in Multimedia Software Applications.

Apple Competes with HTC, Nokia, Samsung, Sony and Google in Smart Phones
and Small Personal Computers (I PAD).

Apple Competes with Retails Stores as well as Online Multimedia contents

resellers.
Apple is Maintaining the Specialty in the highest level of it while its products is
in a high cost average.

Main difference between past and present strategic objectives is that

Apple is more focusing on the smartphones development (Iphone)
Based on, the company name was changed from Apple computers Inc.
to Apple Inc.

Identification of Strategic Options

Apple is an undiversified company focusing on the electronics industry only.

Apple has always produced some of the most fascinating gadgets. Between the
revolutionary iPhone, beautiful laptops and industry-changing MP3 Players, Apple
truly produces a treasure trove of creative and reliable products.
Industry Analysis
Consumer Electronic Industry Life Cycle
1. International- Growth Stage
For the international markets Apples market is in its growth stage cycle.
Firms are focusing on emerging markets such as China to continue their growth and
expand operations.
This involves high capital costs and low competition because the emerging markets
have been uncharted territory before this point

2-Domestic- Mature Stage

Apples domestic market of the U.S. is currently in itsmature stage of the industry life
cycle

Growth within this industry has substantially slowed down due to saturation and
intense competition
Within the U.S. the biggest firms of this industry have been founded or based within
its borders

Companies like Microsoft, Samsung, Sony, HP, Gateway and many others have
saturated the market with good sand dominate the industry Domestic- Mature Stage

Apples domestic market of the U.S. is currently in its mature stage of the industry life
cycle

Growth within this industry has substantially slowed down due to saturation and
intense competition

Within the U.S. the biggest firms of this industry have been founded or based within
its borders
Companies like Microsoft, Samsung, Sony, HP, Gateway and many others have
saturated the market with goods and dominate the industry
Which Cycle Apples In

A. Fast-Cycle Environment- International and Domestic

The technology sector is characterized as a fast cycle industry.
With all the high flying competitors and the innovative products it is virtually
impossible to hold a competitive advantage.
There are also a wide range of substitutes that threaten Apple.
This is why Apple and the tech industry reside in this industry environment.

Apple's Inc. position in the Electronics Industry- Market Leader

The main business of Apple Inc. is designing, production and the marketing of the
mobile communication and other media devices, computers and digital and portable
music players, the company also sells a variety of software that are related to their
products, solutions of networking and digital content.

Basically the products and services of the company includes iPhone, iPad, Mac,
iPod, Apple TV, a portfolio of consumer and professional software applications, the
iOS and OS X operating systems, iCloud, and a variety of accessory, service and
support offerings iPhone is the Companys line of smart phones that combines a
phone, music player, and internet device in one product, and is based on Apples iOS
Multi-Touch operating system. IPad and iPad mini are the Companys line of
multi-purpose tablets based on Apples iOS Multi-Touch operating system. iPad has
an integrated photo and video camera and photo library app, and on qualifying
devices, also includes Siri.

iPad works with the iTunes Store, the iBooks Store, and the App Store for purchasing
and playing music, movies, TV shows, podcasts, books, and apps. This segment
contributes 53.5% in total sales. Mac is the Companys line of desktop and portable
personal computers. Macs feature Intel microprocessors, the OS X operating system
and include Mail, Safari web browser, Messages, Calendars, Reminders, Contacts
and the iLifesuite of software apps. This segment contributes 18.7%.

The Companys iPod line of portable digital music and media players includes iPod
touch, iPod nano, iPod shuffle and iPod classic. This segment contributes 12.5%.
ITunes is integrated with the iTunes Store, the App Store and the iBooks Store. The
iTunes Store facilitates the users to buy and download music and TV shows and to
buy or rent movies. The iTunes Store also includes hundreds of thousands of free
Podcasts on a multitude of subjects. This segment contributes 2.58%. Accessories
including Final Cut Pro, Logic Studio, Logic Pro, and its FileMaker Pro database
software. Apple also produces Apple LED Cinema Display and Thunderbolt Display.

Intense Competition

Computer industry seems to be more intense for Apple as it can gain only
8.5% of the total market shares. While Dell Inc gets 23.4& and HP gets
16.8&.

Apple is used to be just in the computers and software industry then it has
expanded its business to the digital music players (iPod) industry
occupying 71% of the total market shares. While SanDisk has 11% ,
Microsoft has 4% and Creative has 2% which shows significant revenue
upon Apple Inc. contribution.

B) Revised Company Mission and Objectives.

Mission statement of Apple lacks the definition of customer market and costumer
needs. As the specifications of a good mission statement, it should be able to answer
the following questions as learned throughout the strategic management course:
1. What do they do?
2. How do they do it?
3. Whom do they do it for?

Apple is committed to bringing the 1)best personal computing experience to

3)students, educators, creative professionals and consumers around the world
through its 2)innovative hardware, software and Internet offerings

But, what we can see in the mission statement of Apple is more like covering
all the characteristics of a reliable mission statement.
Apple strategic objectives are perfectly fitting the future goals that will drive
apple to a sustainable market leading position.

Recommendations
Long Menu

Options for competing in a mature industry

Develop close relationships with suppliers: Because there are few suppliers
of key components required in PC manufacturing developing close relationships
with suppliers is of utmost importance. Rather than searching for the supplier of
lowest cost, maintaining a collaborative and exclusive business relationship will
help mitigate the power of suppliers and help to lock in attractive component
prices.
Franchising of stores
Seek exclusivity arrangements with OEM partners ( Third parties): Continue to
build relationships with OEM partners and enter into exclusivity arrangements to
lock out competitors and gain favorable business deals.
 Options for a leading company

Focus on differentiated lifestyle branding: Apple has successfully

developed a differentiated lifestyle brand and must continue to build on
this foundation while resisting pressure to move to the middle to directly
compete with Dell and HP.

Options for competing in international markets

Continue the expansion of Apple stores: The stores represent an

important source of revenue for Apple and serve as an interactive
advertisement for the Apple brand. Their success has been
unmatched by any other industry player.
Emphasize the integrated system in advertisements: Apple's
integrated system holds a significant advantage over other
industry systems relying on Microsoft Windows, yet some
customers have not experienced the seamless interoperability of
all Apple products. This marketing angle will result in cross selling
of more products to new and existing customers.
Apple should continue to support the educational and creative
professional markets

Generic strategies

Design innovation: Put additional emphasis on design

development with internal resource allocation to continue to
lead the industry in design.
Research user interface possibilities: As a mode of setting Mac
computers apart from other PCs Apple must continue to innovate in user
interface focusing on easy-of-use and intuitive menu functions
Consumer electronics diversification: While the PC market has grown
increasingly crowded with competitors and customers saturated other
areas of consum er electronics continue to grow. Developing
complementary products in other categories provides broader sources of
revenue by accessing more customers in markets with less intense
competition.

Apple should consider all work related to its operations in the iPod,
iTunes, iSync, and iChat sectors.

Defensive strategies

Apple should consider infiltration of the business sector with an Enterprise Resource
Planning (ERP) system merger.
Short Menu
Option One: Franchising of stores

Option Two: Growth Strategy through new products and new market
opportunities

Option Three: Vertical Integration

Alternative Functional Strategic Options

Marketing:

Recommendation 1

Franchising of stores

Pros:

It will help costs to Apple to be reduced. They could still control sales and system
operation without the excessive cost outlay. A franchisee will work harder at promoting
the product since their livelihood is tied to the success more closely than an employee.
Apple already has data accumulated that shows employees obtain so much training and
then 'abandon ship' for better paying positions elsewhere. Franchisees would not just
leave since they have a vested interest in the success of the store.

Cons:

Being so wrapped up in opening stores that management does not want to admit failure
if profits start dropping off. Each store opening should be viewed economically so that
the law of diminishing returns is applied overall. When the numbers show that the
company is approaching the even mark or goes negative then it must consider whether
to continue support of the existing stores or cutback of the less profitable.

Management evaluation is needed in this area for sure.

Apple should aggressively promote hardware, software, and peripheral products through
its retail outlets. Market awareness might help increase market share.

Growth Strategy

Market Development Strategy: to increase a large market share through market

penetration Apple Explores New Territory

Product Development Strategy: to upgrade its current products and produce new
versions and at the same time produce new products
 - New products :
They should also focus on producing new products to be ahead of their competitors and
not to fall back.

For example :

Ifridge , ioven, iwasher and to link all those home equipment in to one system that can
be controlled and monitored by your iphone or ipad.

- New markets (target different demographics ) :

The company should promote the products in new markets as they are missing
opportunities in many regions

- New customer segments :

Apple price is known to be above average in the industry. The company is using a
differentiation strategy and focuses more on innovation, and quality. This strategy is
justifying their premium prices.

Lately their new technology and their high cash flow allowed them to lower their price
and to offer more discount to certain markets .

We recommend to focus more on penetrating new customer segments by trying to

produce products with high value and lower prices
Research and Development

Apple should consider infiltration of the business sector with an Enterprise Resource
Planning (ERP) system merger.

Pros:

Loss of data, either through a system crash or invasion by hacker's programs, is

detrimental to any business operation. Apple has the ability of producing and controlling
its hardware and software. A merger of operations with PeopleSoft, Oracle, or SAP
could provide a positive financial influx that will provide continued life to Apple's
operating system platform.

Apple provides an easy to use operating system and user friendly operations that can be
taught to even the smallest children so older computer-illiterate employees can easily
learn to operate quickly. This lessens the computer intimidation and allows for focusing
on learning the ERP program that will be modified to fit the same easy to use formatting.
This would be a big plus for the employer and employee.

Cons:

Apple's might lose control of some of its operation when merging with an ERP company.
Management might not be willing to share operating platform information with this ERP
Company making it difficult to perfect such a blending of operational systems.

Recommendation 2

Human Resources Management:

Continue training and development programs for employees (iCare)

Pros:

Guarantee quality of service provided for clients all over the world

Succession planning

Cons:

High Cost
Selected Strategies:

Corporate Strategy : Growth Strategy

Business Strategy : Vertical Integration

Function Strategy : Increase Franchise outlets

Expected Outcomes of selected strategies :

Strategy Positives Negatives

Growth Strategy
Vertical Integration
Increase Franchise outlets
-New Markets and business- Lack of Focus
opportunities - Implementation & Control might
- Increased profits be affected
-Avoid risk of suppliers -Increased investment cost
- Lower cost As this industry is rapidly
changing, vertical integration
might be risky
- Expansion of Distribution
- Need more control
channels - Quality of service might be
- Low Cost affected

Strategy Implementation:

Organization Structure:
Current organizational structure is categorized by business lines a, functions and
regions.

This structure fits with the recommended strategies, as growth with new products or
business lines could be easily added , same for markets.

Resources should be allocated to fit the strategies through more budgets for
Research and Development to develop new products.

Staff should be trained to be more efficient

The recommended strategies are implemented as follows:

Build long term organizational strength by implementing a clearly thought out

leadership development and selection programmer that will be able to
develop the special leadership required for Apple.
 Future leaders should be technically brilliant, innovative pioneers with strong
team working skills and high levels of ethics.

Build specific products of high quality, but lesser prices, for the huge
populations of India and China that are passionate about computers, mobile
phones and music.

Continue and intensify the search for innovative, stylish and useful products
in its existing area of operations.

Make productive use of strong cash reserves

Recommended strategy supportive policies:

Human Resources structured training programs

Rewarding plan for innovative ideas

Reward scheme for staff to increase their loyalty

Effective performance Management

Career planning and development

Company Culture:

Apple is a pretty divided mix of typical corporate red tape and politics mixed
in with startup level urgency when the direction comes from Steve. If you
have a project that Steve is not involved in, it will take months of meetings to
move things forward. If Steve wants it done, it's done faster than anyone
thinks is humanly possible. The best way to get any cross departmental work
done was to say its for Steve and you'd probably have it the same day.

This reflects a culture where charismatic leader plays a great role.

The culture in Apple is still friendly and achieving objectives is the core value
at all levels in the organization.

The culture as well values innovation and novelty, which fits perfectly with
the recommended strategies.
 Control and Evaluation:

The final stage in strategic management is strategy evaluation and control.

All strategies are subject to future modification because internal and external
factors are constantly changing. In the strategy evaluation and control
process managers determine whether the chosen strategy is achieving the
organization's objectives. The fundamental strategy evaluation and control
activities are: reviewing internal and external factors that are the bases for
current strategies, measuring performance, and taking corrective actions.

To measure performance there should be determined KPIs ( Key

performance indicators) among which could be :

- Sales volume for each product

- Action plan matching with strategic objectives

Action plans:

Producing an action plan can be beneficial not only for individual basis but also for
businesses. For example, it allows project managers or any member of a group to
monitor their progress and take each task step-by-step, therefore allowing them to
handle the project efficiently. The advantage of doing this is, it allows you to execute
a structured plan for the end goal you intend to achieve. Furthermore, it provides the
team with appropriate foundations, therefore prioritizing the amount of time you
spend on each task. This will then prevent any sidetracking that may occur. Lastly it
creates a bond within a team, as each member is aware of their individual role, as
well as providing necessary information to ensure success of the project
In order to measure performance the company can apply the following:

Output controls- specify what is to be accomplished by focusing on the end

result

Behavior controls specify how something is done through policies, rules,

standard operating procedures and orders from supervisors

Input controls emphasize resources

Activity based costing- allocates indirect and direct costs to individual product
lines based on value-added activities going into that product

Allows accountants to charge costs more accurately since it allocates

overhead more precisely

Primary Measures of Corporate Performance

Return on Investment (ROI)

Earnings per share (EPS)

Return on equity (ROE)

Operating cash flow and Free cash flow

Shareholder Value- the present value of the anticipated future streams of

cash flows from the business plus the value of the company if liquidated

Economic Value Added (EVA)- measures the difference between the pre-
strategy and post-strategy values for the business

EVA=After tax income-total annual cost of capital

Market Value Added (MVA)

Balanced score card combines financial measures that tell results of

actions already taken with operational measures on customer satisfaction,
internal processes and the corporations innovation and improvement
activities

Financial

Customer

Internal business perspective

Innovation and learning

Benchmarking- the continual process of measuring products, services and

practices against the toughest competitors or those companies recognized as
industry leaders
My opinion

Regarding marketing key success factors

Apple's product differentiation in the iPod and iTunes sector will be short-lived since it
has a dependency on third parties and also because competitors can easily enter the
market. Apple must position itself as the only competitor in the market with stem-to-stern
computing solutions.

Skills related
As Apple transitioned into team building in the late 1990s they soon found that they
management staff was lacking in managerial skills required to lead cross -functional
teams. As before many of them were engineers with little to no business management
experience or academic background.
Organizational capabilities

Evaluating Apple's organizational capabilities requires reviewing environmental/strategy,

work system, management process, principles and values, human resources system,
and the leadership team. Apple also lacked a work system of cross-functional product
development teams and needed business-oriented managers with leadership skills to
lead teams that could agree on new businesses. This put Apple in a position of not being
able to fulfill its requirements for:

1) Defining its environment and understanding its strategy,

2) Lacking a work system,

3) Needed a management process for specifying workable goals and objectives, and

4) Lacked leadership teams to provide direction.

Employees were not sure of the company's strategic directions and were receiving
different priorities from R&D and marketing. This again came from lack of functional
leadership team cohesiveness in setting one direction for the company. Managers did
not want to lose control of their power and moving into cross-functional business teams
meant just that plus not having an effective leadership retarded any efforts in that
direction.

The work system and management process require that communications lines be
effective and Apple's was not. Trust and communication were extremely low in the Apple
world. Lack of lower management involvement made it more difficult to solve problems. .
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