Swot Analysis Of Apple Inc Management Essay

Apple Inc. was cofounded by Steve Jobs and Steve Wozniak in 1976. (Apple, 2010) Apple Inc. designs, manufactures, and sells array of products including desktop and notebook computers(Apple mac’s), software (OS X operating system, iLife, itunes), portable digital music players (ipods) ,cell phones ( iphone) and peripherals and accessories that go with these products (Apple speakers). (Business Week Online, 2010)

Apple has a very strong competitive advantage in the Pc and Entertainment / Media industry due to its innovative technology and strong brand name. One of Apple’s innovative products with the latest technology is the Apple iphone. It has a Multi-Touch interface, video and audio playback, internet browsing, the latest applications, games, maps and Gps.

According to Henry (2007) an organisation is made up of resources and capabilities which can be configured to create a competitive advantage. An organization’s capabilities may allow it to create new markets and add value for the consumer. A internal analysis of an organisation helps to identify the strategic capabilities it holds. Johnson et al. (2008) defines Strategic capability as “the resources and competences of an organisation needed for it to survive and prosper”. Resources and competences together create a stragetic capability. A competitive advantage can be reached if a company has capabilities that its competitors do not have and are difficult to obtain it also depends on the price/ benefits characteristics of the product or service (Johnson et al 2008.). Hamel and Prahalad (1990) argue this too but they argue that in the long term, competitiveness will depend on maintaining low costs, innovation and the development of new products. This all depends on building and maintaining core competencies.

The swot analysis for Apple helps portray Apple’s resources and capabilities to the competitive environment it operates in.

S

-Key player in the personal computers, portable digital music players, and mobile devices market.

-Powerful established brand name

-Strong reputation.

-Patent protection (Apple,2009)

-Easy to use products

– Have to purchase a Apple computer to have OS X operating system.

-Good looking compact products

-All Apple’s products integrate/work with each other

-Strong financial position(total revenue in $32,479 million FY2008) (Datamonitor, 2009)

– Apple’s Itunes store very successful

-Apple’s retail store ethos (Mintel,2009)

– tablet PC market is set to take off in 2010 (Mintel 2010)

-Apple’s Commitment to the Environment( Apple,2009) eg. Newly designed packaging.

-Robust financial performance

– Research and development

W

Product recalls

Patent infringement (Datamonitor,2009)

O

-Success of Apple iPhone – help enable Apple to draw new consumers who have never owned an Apple computer.

-Offer better warranty support and customer care.

-“Three quarters of adults now use a computer in the home” (Mintel,2008)

-New retail stores.

-Smartphone is growing market. Apple is

able in increasing its iphone market.

T

-New Windows 7 will be a threat to Apple’s OS X operating system as it has tried to get rid of all flaws of the previous Window Vista.

-Economic situation is going to stop consumers purchasing high priced products.

-Free illegal downloading music software

offering music for free instead of paying for songs from itunes.

-Apples laptop competition(Mintel,2009) for example, Acer, Sony

-Technology is changing

-Almost four-in-ten consumers admit to being confused by technology and internet sites (Mintel, 2009)

-Dependence on suppliers

There is an underlying link among resources, capabilities, and competitive advantage this is shown in the diagram below. Source: Grant 2002

All organisations are different and therefore have different capabilities. These capabilities are difficult to imitate and acquire. For example Apple’s competitor Sony cannot suddenly obtain the iPod interface due to patents and copyrights. Having superior capabilities can be why a company’s performance is better than another therefore enabling it to produce at a lower cost or produce a better-quality/advanced product or service (Porter 1985) for example, economies of scale. All this has become known as the ‘resource-based view of strategy.’

It is important to distinguish between the resources and the capabilities of a firm: Resources are the productive assets owned by the firm; capabilities are what the firm can do to utilize its resources effectively. Capabilities can emerge over time through complex interaction between tangible and intangible resources. Prahalad and Hamil, (1996) identifies capabilities as what a company can do with resources. They make a clear distinction between capabilities and competences. As capabilities are obtained and competences are grown. An example of a capability would be the ability to bring a product to the market faster than its competitors. Capabilities become important when they are combined together with resources as these create competencies. These have strategic value and can lead to competitive advantage over its competitors.

A company has resources to compete in a market, it has threshold and unique. Threshold resources are those that are needed to meet a consumer’s minimal requirement. For instance, Apple Ipod enable music to be played from the device and hold music on it. Apples unique resources are those that are hard to imitate and create a competitive advantage.(Johnson et al, 2008) For instance Apple’s Ipod is innovative and good looking. These threshold and unique resources have to be developed to create a competitive advantage in the market. However having resources alone will not create a competitive advantage but pulling together resources will create a capability for a company. (Kay, 1993) Eisenhardt & Martin, (2000) also talk about VRIN Resources. These are the resources that create cost advantage or differentiation for a company. VRIN is an abbreviation for Value -Rarity- Inimitable–Non-Substitutable.

Resources can be categorised as: tangible, intangible, and human resources. It is much simpler to identify tangible resources than intangible resources and human resources as these are normally shown on financial statements.

For a strategic capability Apple must possess VRIN resources.

Value: Apple must provide value to its customers and therefore sasify their needs. It would be wasteful for Apple to have strategic capabilities and not be able to provide products for its customers.

Rarity: Competitive advantage can be accomplished if Apple hold a rare capability ( unique resources) However theses rare capabilities need to hold competitive advantage so they might need to be developed or new ones might need to be created. Sustainability is therefore a huge problem with rare capabilities as they can be easily imitated by competitors. However these rare capabilities must not be harmful to Apple as they might hard to change. This is known as Core Rigidities (Johnson et al,2008)

Inimitable: Strategic capabilities must be hard to imitate otherwise they will not achieve competitive advantage. The strategic capability must therefore be robust. Robust: is found in competences that are involved in linking activities, causal ambiguity, culture and history. High levels of causal ambiguity imply capabilities are a good resource of sustainable competitive advantage. (Collis, 1994) Culture and history of core competences may mean they have been involved and developed in the company over the years that the company’s managers may not understand them this could mean they are very hard to imitate but there is the danger of core rigidities again. This is shown in the diagram below:

Robustness of strategic capability

Complexity:

-Internal Linkages

-External Linkages

Causal ambiguity:

-Characteristic ambiguity

-Linkage ambiguity

Culture and History:

-Taken for granted activities

-Path dependency

(Johnson et al, 2008)

Non-Substitutable: The product must not be at danger of substitution either by a product or competence for example: Apple mechanization.

Once all these capabilities do exist in a product or service a company must think how to develop this product and service to enable further competitive advantage. (Porter 1985)

The strategic capability must therefore be dynamic and respond to all changes in the market and industry. These are known as dynamic capabilities.

Apple Inc. Resources are shown below:

Apple Inc. Resources

Tangible

Intangible

Human

1.

Apple’s Retail stores

Strong brand name

Apple Staff Expertise,

Particularly Steve Jobs.

2.

Apples Equipment

Apple’s Software.

Innovative skills

3.

Robust financial performance

Reliable

Apples Motivation

4.

Apple’s facilities

Good reputation

Technical competence

5.

Large Customer base

Marketing abilities

6.

Patents and copyrights

“Tangible resources include assets that are financial in nature, or have physical properties” (Hill et al, 2007). Apple has a robust financial performance. Apple’s total revenue in 2008 was $32,479 million, an increase of $26,272 million since 2003. (Datamonitor , 2008) Property, Plant and equipment are also part of Apple’s tangible resources, and are worth approximately $2,954 million (Apple, 2009).

Apple human resource retail stores allow apple to provide excellent customer service and act as advertisement. It has a high in store sales. So this resource is of great value to Apple and is of rarity in the industry.

“Intangible resources include those non-physical assets that the company uses to produce goods or provide services, or expects to generate future productive benefits” (Hill et al, 2007). One of Apple’s most valuable Intangible resources is their strong brand name. According to ‘Interbrand’, Apple has a brand value of $15,433 and is ranked 20th best global brand. (Interbrand, 2009) Apple holds many rights to patents and copyrights towards its computer systems for example, ipod and iphone devices, software and services. (Apple 2009) Apples software is a important capability of Apple it is designed and developed to great expertise and runs only on Apples hardware. This software would be far too costly to imitate and virtually impossible as it has been created by apple highly skilled design teams. Apples integrated system is very rare of which Windows is threatened by.

Apple’s human resources are the know-how, skill and effort offered by its employees. (Grant 2002) Apple relies primarily on the innovative skills, technical competence and marketing abilities of its personnel. Steve Jobs Apple’s founder is a huge asset to the firm, his unique vision has guided Apple through success. This is an example of a VRIN resource. Apple skilled workforce are a great capability as apple make remarkable designed products this makes apples products hard to imitate and rare to competitors.

Resource/capability

Is it of value?

Is it rare?

Is it imitable?

Is it non-substitutable?

Competitive advantage and performance?

1 =low

4= high

Retail stores

Y

Y

Y

N

3

Steve Jobs

Y

Y

Y

Y

4

Design of products

Y

Y

Y

N

3

Apple design team

Y

Y

Y

Y

4

Integrated Software

Y

Y

Y

Y

4

From this table we can see Apple have high competitive advantage and performance implications furthermore it demonstrates Steve Jobs and Apple’s integrated software is a VRIN resource creating high competitive advantage. The most valuable resources to Apple are therefore intangible and human resources

Competencies allow differentiation and cost advantage (Porter 1985.) For Apple to achive differention and cost advantage they must have core competencies such as innovation, efficiency,superiority,class, and customer responsiveness. It is not the competencies that create competive advantage but the core competences. Core competencies are also known as distinctive competencies these are the competencies that create long term success. Competences exist in a company’s activities. (Johnson el al,2008) “Core competencies are competitive advantages and capabilities that emerge over time as being central to a firm’s overall strategy, and they are competitive advantages upon which the firm’s strategy is based over time.” (Woodcook et al 2003 and Henry 2007) Example of Apple’s core competences is apple ability to develop and market user-friendly software and personal computers and miniaturizing components such as the Apple Ipod Nano and the brand new Apple tablet .

To identify Apple’s capabilities Porter’s value chain analysis (1985) is very useful, as its separates the activities of Apple and puts them into a framework.

“…by delivering value to customers, managers need to understand which activities they undertake are especially important in creating value and which are not” (Johnson et al, 1998) It also identifies core competencies and distinguishes those activities that drive competitive advantage. The disadvantage of the value chain is that it doesn’t identify value. (Svensson, 2003) as it predicts the value to the final consumer before the consumer receives the product so it’s in theoretical context. An analysis of the value chain aids an organisation to identify its strengths and weaknesses and its possible sources of competitive advantage. Porters Value Chain Analysis is shown below:

Source: Porter 1985

Michael Porter’s (1985) value chain shows the primary activities and support activities. Primary activities are those linked directly to the creating and deliverance of the product whilst support activities are those that are not directly linked to the production but might speed them up or create effectiveness for instance, Human Resource Management.

The support activities are:

1. Firm Infrastructure:

This function is concerned with planning and control systems, such as finance and corporate strategy etc. (Lynch, 2003)

2. Human Resource Management:

This function is concerned with training, recruitment and skills of employees of. Apple hires the best design team.

3. Technology Development:

This function is accountable for the technology side of the Apple and development of innovation, knowledge of the technology. Apple have thousands of patents and Apple believe this is very important to enable protection of their technology. This activity is of very much of high value to Apple.

4. Procurement:

This function is accountable for buying the resources that are required for the Apple’s operations at low cost.

Apples primary activities include:

1.Inbound logistics: Apple’s receiving of raw materials.

2.Operations: All designing of products are done internally at Apple using their highly skilled design teams.

3.Outbound logistics: Apple only sell through first- party retailers and authorized retailers to maintain standards and brand image.

4. Marketing and sales: Apple advertisements are highly successful and create a lot of value to customers and develop its strong brand image.

5. Customer service: Apples genius bars in their retail stores create interaction with customers on a one to one basis in the form of booked appointments. Apple products have warranties although somewhat limited. There is also the option of purchasing an extended warranty.

Apples value chain activities combined effectively help gain the organisation a better competitive advantage. Apples activities must be effective and be cost effectiveness to create value to its customers. Apple value chain connects to the value chains of upstream suppliers and downstream buyers. This consequence is a greater stream of activities called the value system. Apples competitive advantage does not depend on the value chain activities alone but on the value system too. Apples value chain analysis activities all help to produce threshold and core competences.

I have shown sustainable competitive advantage results from Apple having access to unique resources and core competences. These factors are important because they allow the Apple to lower costs and increase profits further than its competitors. When a organizations unit costs descend as the scale of output increases, it is described as economies of scale. Apple use this and buyer power to lower their costs creating a cost advantage. The experience curve (Porter 1985) shows that the cost of making any product declines with experience. Apple has had many years of experience. The cost is typically greater by the economies of scale available to Apple. This adds cost efficiency and value for Apple which their competitors will not have. It is vital for Apple to understand this source of competitive advantage.

Analysing Apples resources and capabilities I think Apple should continue to expand their retail stores in affluent cities as they act as a good source for advertisement and brand value they are also significant source of revenue. Apple should make their software itunes have exclusive agreements with individual music studios to limit the access of competitors to their resources and capabilities. I think Apple should continue to develop the innovative iphone product and develop a range for it to sustain a clear competitive advantage. Apple’s competitive advantage must rely on strategic capabilities being of value to customer, Rare, Inimitable and Non Substitutable: In dynamic situations is it vital that Apple’s strategic capabilities are easily changed. To keep the strategic capabilities they must therefore develop more resources into VRIN resources in order to remain a sustainable competitive advantage.