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The corporate environment is normally understood as the business environment, which involves some internal and external business and environmental factors. As Worthington (2004:3) argues that the business organization are distinguished in numerous ways, but, the transformation of input into output is the common feature. The term ‘business environment’ has two sub terms involved. One of the dictionary meanings of environment is the aggregate of surrounding things, conditions or influences. The environment of a central computer server, for example, encompasses all the factors which would affect the operation of all the computers in an organization. The business organization environment differs from this kind of environment as it is difficult to identify all the constituents of the business organization. In theory, the corporate environment consists of elements that encircle the organization. Categorically, these can be divided into Political, Economic, Social, Technological and Legal environment (P-E-S-T-L-E). This actually forms the centre of business environment. The following study tries to identify the key strategic issues involved in Apple’s decision to build their own team to design chips, tries to analyse the internal and external environments, makes an attempt to suggest some tools, and analyses and evaluates the strategic options.
The organization which is and will be into discussion throughout this study is Apple Inc. The success and the strengths of this firm are not hidden from the world. It could be described as one of the most versatile companies ever. It is a renowned computer hardware and software company, which is also famous for its indigenous design, development and marketing of personal computers and related software, peripherals, network solutions and portable digital music players. Some of its offerings include Mac book laptops, Mac OS X, iPod, iPhone, servers and wireless routers – Anon (2009:5). Being into a consumer electronics and software industry, this organization is exposed to all the technological trends. As Ernst and O’Connor (1989:21) state – “In relation to competition, Technological Change acts as a double-edged sword.” The author is trying to emphasize the fact that the companies into the technological industry have to implement change with the time to meet the ultra modern consumer requirements. Apple has been quite successful as far as its performance history is concerned. When Apple I was launched in 1976, it was a failure. Apple II, though, was successful which was launched in 1980. The company was co founded by Steve Woznaik and Steve Jobs. After some competition from Microsoft and IBM, Apple introduced its own mouse computer called Macintosh in 1990s. As there were some losses faced by the organization in 1997, Steve Jobs, the co-founder returned as the interim chief executive officer and helped the company since then to proceed with success in all its endeavours.
According to the J.D. Power surveys, Apple is considered to possess the highest brand name and loyalty comparing from other computer manufacturers. The strategies that are followed by Apple are mostly into niche market. But considering the quality of the products like Mac book and iPod, consumers don’t mind the price. In marketing terms, the strategy used by Apple Inc. is termed as Niche. This approach to competitive strategy encourages firms to develop their niche and make it as their core competency. As Wienclaw (2008:3) defines niche market strategy as a plan in which a particular organization believes that it can better serve a segment of the market rather than the entire market. That is the reason; Apple Inc. has marketed its computers more towards the education and the student industry. The recent pricing strategy which is used mostly for their newest offering the iPhone is also efficient. As Sliwinska et. al. (2007:5) introduce Apple’s strategy to offer the new product as higher price and with its new version with added features, increase the price for the new version and make the old version cheaper. The best strategy which is followed by Apple is their focus on developing every part of the product themselves so that they don’t have to depend on any other company. For example, they have build Mac OS X for their computers, which makes their product hardware and software pretty robust. These are some of the strategies that are adapted by Apple Inc. over a period of time.
The primary issue
The primary issue that is identified in the case is a strategic shift by the company. Currently Apple Inc. works in collaboration with Intel for its computer chips. The strategic shift planned will put the organization in a better position, as it wouldn’t have to depend too much on its competitors and other firms. The devices like iPod and iPhone have captured the market essentially for this organization. With this strategic shift the firm is looking at recruiting some bright brains of microprocessor and chip technology. This will definitely benefit them in cost control, quality and the performance of the chips that would be designed for their laptops, iPods, and iPhone.
To understand and analyse the external environment of this organization, the industry analysis and possible impact of change drivers is used. Porter (2008:80) has laid out five proficient steps for analysis of an industry. Threat of entry could be easily accessed by evaluating the amount of capital it takes to enter an industry. This could involve economies of scale, switching costs and brand value. Apple Inc. being into the industry for a long time and with some successful products already in the market will be wise to invest in the chips development. This will help them reduce costs and enter into a new industry with their existing brand value. Bargaining power of suppliers. This could be one of the areas where Apple may not be able to price the new chips at low cost as there are only few companies into chip development and manufacturing viz. Intel and AMD. Bargaining power of buyers. In this area, Apple has an advantage because of its brand value. Consumers are already aware that the price of its products might be in premium category but they do get the reliability and the quality for the same. This is normally affected by brand power, switching costs, elasticity of demand, relative volume of purchases and standardization of product. Threat of substitute products. As there are other established brands of electronic chips, initially, consumers might be reluctant to invest in new entrant. Considering their brand value, it could still be easily tackled. Rivalry among existing competitors. The most suitable example firm will be Microsoft as it has always been a rival competitor with Apple. Microsoft can force them to reduce prices by tying up with some of the chip manufacturers.
Change drivers describe the capability of systems to adjust into the ever-changing requirements for the development of new products and product variants with shorter product life cycles – Anon [Internet]. The possible impact of change drivers could result into some negative things like increased rival competition, reduced sales of established products like Mac book and some positives like reduction of cost as the chips would be internally developed by the organization.
Porter (1980:35) has defined the generic competitive strategies as overall cost leadership, differentiation and focus. Apple, currently, charges premium prices for its products. By developing its own electronic chips, it would help them reduce the maximum retail price of their products. Achieving a low overall cost position often requires a high relative market share or other advantages, such as favourable access to raw materials. The second generic strategy, differentiation, in a way helps an organization achieve a niche in the market and be unique industry wide. The organization into discussion here always has been unique with its robust operating system built with its best suited body parts. As Porter (1980:37) states “Differentiation, if achieved, is a viable strategy for earning above-average returns in an industry because it creates a defensible position for coping with the five competitive forces.” Lastly, Focus is a kind of generic strategy which tries to concentrate on a particular buyer group, market segment or geographic aspect of market. The focus strategy always implies some disadvantages on the market share desirable. For Apple, the most suitable generic strategy according to the analysis should be focus as they always strive to create a new market for themselves with innovative merchandise.
Capasso et. al
Capasso et. al. (1999: pp 11-28) have described the Delta model which is based on porters generic strategies. They define this most influential contemporary strategic framework, as the two elite ways to compete i.e. low cost or differentiation. Both the strategies are quite different but collaboratively serve as one strategy that works towards delivering the best product. Customers normally purchase the product with either the low price or the product with a differentiating characteristic that go beyond the price. By entering into the whole new market of electronic chip development, Apple wouldn’t have to think about the cost of processors and chips that are used in their products like laptops and phones. The triangle with the three distinct strategic options was the result of the Delta project. The best product, customer solutions and system lock-in. The best product is already explained above which emphasizes to concentrate on cost and differentiation. The customer solutions strategic option offers more to the customers to satisfy their needs. Apple, by hiring the team of dedicated and talented people for electronic chip development would satisfy higher performance requirements from some of their customers. The system lock-in option focuses upon nurturing, attracting and retaining the complementors. These are the people who supply some of the required products. But after Apple completely enters into chip development, it wouldn’t have to worry about many complementors. So the delta model analysis of the Apple’s strategic shift also highlights the best product strategic option to be quite efficient.
The competitive environment can be evaluated with the help of some strategic management techniques like SWOT or PESTLE. One of the most basic techniques for analysing the competitive environment is SWOT. As Dess et. al. (2004:47) argue that SWOT stands for strengths, weaknesses, opportunities and threats and that it provides a framework for analyzing these four elements of companies internal and external environment. Some of the strengths of the organization are that it has a very strong brand outlook and excellent quality products. Some weaknesses of the same include some patent infringement. The opportunities for Apple with the competitive position lie in the telecommunications industry as they have gained third position after they launched the revolutionary iPhone. Being into the kind of business they are into, they face a lot of competition from highly evolving technology industry. Normally, as the technology evolves, there are some companies which keep developing better devices at very competitive prices. Some of the Competitors include Microsoft, Dell, Sony, Acer, etc. This is the biggest threat to Apple Inc.
It is imperative to also concentrate on the internal environment and analyse the same for an organization. This is done with the help of resource audit, strategic capabilities, competitive advantage and distinctive core competence. According to Capon (2008:77) resource audit examines how resources could be used to improve efficiency and effectiveness which has a direct impact on the revenue. Organizations normally discover and assess resource strength and weaknesses to depict a clear picture of product and market capabilities. The resource audit enables the firms to evaluate the resources that are available to them. How efficient are the resources available? Do the available resources contribute to the organization’s strategic fit? There are various uses of resource audit. Apple Inc is hiring rigorous work force in this time of recession to be available with all required resources and eliminate the trend of outsourcing to different companies for electronic chips and microprocessors.
Capasso et. al.
Capasso et. al. (2005:3) has identified strategic capabilities as the ability of firms to integrate resources, to learn and to reconfigure their businesses. The knowledge based view of firms virtually makes every effort both to deconstruct the black box of the firm’s production function into its more basic components and interactions and to reconstruct the resource based theory. (Barney, 1991 and peteraf, 1993). As described in the case and can be noted from the external environment as well that Apple Inc. has a sharp strategic capabilities record. As far as their pricing strategy is concerned, it is one of the best. Although, they launch their products at a higher price band but they do reduce the price with the release of new version as discussed before. The kind of ARM chips they have thought to develop will also help in enhancing the future battery life of iPhones and Laptops. This is also possible because they want their OS X to run only on their specific processor to control the product leaks.
Applying all the techniques as discussed above, the competitive advantage of the organization could be studied and evaluated. Coca-Cola once was claimed by an author in one of the articles that it has only one competitor and that is ‘water.’ - Thompson and Martin (2005:277). It sounds quite witty, but, it has been a known fact for some years that Coca-Cola was the only preferred soft-drink brand in the early 1990s. Though, the circumstances were different after Pepsi-Cola started taking over the market. Apparently, competition is the driving force for mainstream businesses around the world. To define competition, an example of a grocery retailer could be taken into consideration. For this retailer, the most significant challenge would be to keep everything available under one roof and the prices to be as competitive as possible. So, Competitive Advantage is a key factor in formulating a successful Corporate Strategy. There are many definitions of competitive advantage, one of them is –
“Superiority gained by a firm when it can provide the same value as competitors but at a lower price or can charge higher prices by providing greater value through differentiation.” – (Bliss n.d.). The competitive advantage for Apple could be evaluated with the help of the PESTLE framework. Some political factors include globalization, whereas, the new entry into manufacturing of chips will save them some outsourcing. Some economic factors keeping in mind the strategic shift could be the rise of inflation, volatility in exchange rates and Unemployment could affect the change. Environmental factors include packaging, social responsibility, delivery and supply. Technological change would not affect the organizations competitive advantage to a huge extent because of its tech savvy products. Socio Cultural factors could also impact the possibility of health and safety issues for example iPod causes hearing loss if not used appropriately.
Lastly, the distinctive core competence is Apple’s products it selves. In the music players, iPod has been one and only of its kind and till date, Apple have protected and possessed its exclusivity. According to Thompson et. al. (2004:91), competence can be anything which a firm is good at operating and achieving, but, a core competence is an efficiently performed activity that is central to a company’s strategy and competitiveness. After the strategic shift is implemented, Apple’s core competence will be its most robust operating system running on its own processor, which again will put the company into a most competitive and unique market place. Even with their operating system only their computers are thought are most reliable devices. With their own chips being manufactured, they will be looking to expand their market altogether. Harreld et. al. (2007:21) has also explained that Dynamic Capabilities build on the notion of core competencies but is more inclined towards role of management in constructing and settling in these competencies to address rapidly changing environments.
As discussed above the very basic strategic tool SWOT to evaluate any business strategies. The same is used here to evaluate the internal environment. The strengths associated with the internal environment as per the analysis presented above are the competitive advantage and the distinctive core competence. SWOT as argued by Johnson et.al (2006:151) overemphasizes a single dimension of a strategy. It has also been traditionally argued that while doing SWOT analysis, the focus very easily shifts to Opportunities and Threats and it does not leave enough time to understand the heart of analysis in Strengths and Weaknesses. The strength is the established competitive advantage which would help in the new industry as well. Another crucial and positive strength of Apple’s internal environment is its core competence which is quite distinctive with the existing offering and can become the most distinctive with its entrance into chip manufacturing.
The opportunities and threats exist into the external environment as per the analysis above. The main and primary opportunities are into the areas of best product strategy using the delta model approach and the generic strategy analysis also brings out cost leadership and differentiation to be one of the future concentrations of the organization. The threats are the possible impact of change drivers which might result into low initial sales and competition from established chip vendors and manufacturers.
To conclude the study, there is a need to evaluate the Delta Model which was discussed above and choose one of the possible future strategies. As porter (1980) defined the generic strategies, Delta model did focus on cost leadership and differentiation strategies in the Delta approach. As Hax and Wilde II have developed an efficient triangle for successful strategic shift the organization could either choose best product, customer solutions or System Lock-in. The strategy that is advised from the author’s point of view is the best product, considering the importance of cost leadership and differentiation. The customers are majorly interested in investing in a product which is cheap or which has some characteristics which are beyond price in the competitive market. As Hax and Wilde (2001:261) explain that if the best product strategy is implemented, it will make Product the centre of all business dimensions. Alternatively, if customer solutions strategy is implemented it will put the customer into most important business dimension. It will need the strategies that focus on customer bonding. Similarly, the System Lock-in strategy will highlight complementors as the centre of corporate environment. Looking at the current strategies of Apple Inc. Best Product strategy is best suited as it would help in building a highly differentiated product and that is what has made this organization successful till today. The other options could be considered but it doesn’t seem to be working if the customer is made the centre of business environment or if the complementors are given the same role. Moreover, the product only will take the firm to its new heights, so, it’s best to choose this strategic option. There are certain limitations of best product strategy as well. This particular strategy only focuses on product to make it as differentiated as possible, which could impact the other strategic areas of business viz. Cost. It might take a lot of overhead to concentrate only on the differentiation and make the product unique in the market. So, in a nutshell, there are several ways of analysing the corporate environment but, only some of the best are documented in this study.
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