A Strategic Capability Analysis For Apple Inc Marketing Essay

This report attempts to analyze Apple’s strategic capability and core competency in maintaining its business success. To begin with, the report describes the company’s performance, business model, mission and vision statement and management style. The report examines the external and internal business environment in the company and review Apple’s key resources, competences and capabilities to find out its competitive advantage and critical success factors (CSFs).

Apple Inc is the first American multinational successful personal computer corporation. It was established in 1976 by Steven Wozniak and Steven Jobs. Apple manufactures, design and market personal computers, computer software, computer hardware and different mobile devices like Iphone and Ipode. Moreover, apple sell different accessories and peripherals like storage devices, printers, speaker, headphones, etc which is compatible with Apple products. The Headquarter are located in Cupertino, California.

The company operates in five reportable segments, which are Americas, Europe, Japan and Retail operations. Asia pacific is the other operating segments of Apple and that include Australia and Asia except for Japan. As of September 25, 2010, Apple had 317 retail stores, including 233 stores in the United States and 84 stores internationally and has 34,300 full time employee and 2,500 temporary time employees worldwide.

As of America fourth quarter fiscal year 2010, Apple announced revenue of $20.34 billion and a net quarter profit of $4.31 billion or 4.64 per diluted share. These results compare to revenue of $9.87 billion and net quarterly profit of $2.53 billion, or $2.77 per diluted share, in the year-ago quarter.

This analysis found that Apples’ capabilities for competitive advantage are “Unique design capability”, “innovation capability” and “Powerful Brand image. Moreover, the report identifies the company’s critical success factors, which are differentiation, innovation, consistency and ease of use. Finally yet importantly, this report concludes that Apples’ core competence for creating opportunities in new arenas is its differentiation strategy which focuses on product differentiation and value creation.

The report used secondary data only and all sources were from published books, journals and on-line databases.

Contents

1.Introduction 4

Research methodology 5

Organisation Review and Analysis 5

Review of Key Literatures and Application 8

Findings and Conclusion 21

Recommendations 22

Bibliography 23

List of Figures

Figure 1: Apple Annual Revenue 7

Figure 2: SWOT Analysis for Apple Inc 9

Figure 3: Apple as 17th in the 100 Top Brands for 2010 10

Figure 4: Apple Brand value in the 100 Top brands for 2010, 2009 and 2008 10

Figure 5: Apple Annual Revenue for 2008, 2009 and 2010 11

Figure 6: Apple America’s Most Admired Company 12

Figure 7: Apple Product Sales of fourth Quarter 13

Figure 8: Resource and Competence for Apple Inc 16

Figure 9: CSF of Apple 19

Figure 10: Fifteen years of ACSI ratings for the PC industry 19

Introduction

Objective of the course Work

The area of this course work is based on strategic management topic of chapter 8 from the text book of international management course. The course work is done for the accomplishment of the programme Masters in International management information systems. The aim of this course work is to research and analyse the strategic capability of Apple Company to create opportunities to enter new arenas.

The first step of the course work will be reviewing and analysis of the organization. The second step will be review of key literature and application. And in this step, different theories concerning the strategic management are included. Finally findings, conclusion and recommendation will be presented.

The output of this course work is a report documentation of approximately 5000 words and presentation. In order to accomplish the course work, proper information gathering from secondary sources like journals, publications, and online database will be considered.

Research questions

As described above, the aim of this course work is to examine the strategic capability of Apple to create opportunities in new arenas. Within this course work, I am aiming to answer the following research questions:

What is the strategic capability of Apple to use its core competences to create opportunities in new arenas?

What is a strategic capability?

What is the relationship between strategic capability and Competitive advantage?

What is a competitive advantage?

2. How does Apple use its core competence to create opportunities in new arenas?

What is core competence?

What is the CSF of Apple to achieve competitive advantage?

What is CSF?

Research objectives

To identify the strategic capability of Apple and how it contribute to the competitive advantage of the organization.

To understand the relationship between Apple’s strategic capability and its competitive advantage.

To evaluate how Apple uses its core competence to create opportunities in new arenas.

To identify the key CSF of Apple to achieve competitive advantage.

Reason for choosing Apple

Apple Inc. is chosen to be used for this course work. The company Apple is one of the largest American multinational corporation which manufactures, design and market personal computers and other electronic products. The company has been the leading company in the technology industry and wins its competitors by being innovator in the technology market. Within the past 10 years, the company experienced a dramatic increase in demands of its products and services. The main factor that helps Apple to gain a competitive advantage is that, the company continuously strive a new way to offer innovative products to its customer and try to increase their market share.

Because of many success factors, Apple is becoming an outstanding company, especially within the technology sector and I believe choosing Apple for the selected topic is very rational.

Research methodology

Types of research methods

Qualitative analysis methods are used to accomplish the research. Using quantitative research analysis method is impossible because of the limited time give to complete the course work.

Data collection methods

The data collection method used to analyse and review different aspects in the report are only based on secondary data source like Books, journals, articles and different online data sources.

Organisation Review and Analysis

Company Profile

Apple is the first American multinational successful personal computer corporation. It was established in 1976 by Steven Wozniak and Steven Jobs. Apple manufactures, design and market personal computers, computer software, computer hardware and different mobile devices like Iphone and Ipode. Moreover, apple sell different accessories and peripherals like storage devices, printers, speaker, headphones, etc which is compatible with Apple products (Datamonitor 2006).

Apple was incorporated in 1977 and the Headquarter are located in Cupertino, California. In 1976, Steven Wozniak and Steven Jobs created the first Apple computer. Afterwards, Apple II was introduced in 1980 with better achievement. By 1983 Apple tried to emerge into a high competitive computer market with a new version of apple III but failed to get acceptance and could not succeed to compete with IBM PC (Datamonitor 2006).

In 1984, Apple introduced a revolutionary new product called Macintosh. It was the first mouse driven computer with advanced graphics feature. Due to the ease of use feature of Macintosh, people think that it is not powerful and the net income of the company decline. During this time, Steve Job was forced out from his CEO position and replaced by John Sculley. But the organizational change did not improve the financial loses and the low stock record. By 1997, Steve Jobs returned back to his CEO position and terminated the licensing agreement allowing licensed Macintosh replicas. He started focusing on designing new and innovative products (New York University 1998).

In 1998, Apple introduced an innovative computer called IMac and sold 800,000 units within the first five months. In May 2001, the company opened its first official retail store and introduced a portable digital music player called iphone. And within a year 100,000 units were sold (New York University 1998).

Apple operates through five operating segments: the Americas, Europe, Japan and retail. Using the online stores and retail stores, the company sells its products worldwide to different consumers, enterprises, government and different customers. The company distributes its products through wholesalers, resellers, national and regional retailers and cataloguers. It also sells many of its products and some third-party products directly to its customer using its own sales force in its online and retail stores (Morningstar 2009).

As of September 25, 2010, Apple had 317 retail stores, including 233 stores in the United States and 84 stores internationally.  The company had 34,300 full time employees and 2,500 temporary employees worldwide (Apple 2010 Annual report).

The most known Apple hardware products are Macintosh line of personal computers, the iPod line of portable media players, iPad tablet computers and the iPhone. Apple’s software products include the Mac OS X operating system, the iLife suite of multimedia and creativity software, and Final Cut Studio, a suite of professional audio- and film-industry software products (Morningstar 2009).

Rationale for Expansion

One of Apple’s business strategies for international expansion is Joint venture. Recently, Apple filed for a trademark “Joint venture” in China. Joint Venture is an agreement between two or more parties to undertake a particular business. Agreement is made between the parties to share the profit and loss of the enterprise. Through the joint venture trademark, Apple provides technical support, consulting services, maintenance support, and training services (MacDailyNews 2010).

Another important growth strategy of Apple is Acquisition, which helped Apple to develop a competitive advantage. By acquiring different companies, the company increases the sales growth of its products by diversifying its customer’s need. For example, during April 2010 Apple acquire Siri which is a software company that developed a voice- command technology. Apple uses the voice- command technology to its iphone to make a conversational interface (DailyFinance 2010). Appling the new technology to its Iphone helped Apple to grasp the attention of Iphone customers and helped Apple to compete with Google apps.

Corporate Performance

As of America fourth quarter fiscal year 2010, Apple announced revenue of $20.34 billion and a net quarter profit of $4.31 billion or 4.64 per diluted share. These results compare to revenue of $12.21 billion and net quarterly profit of $2.53 billion, or $2.77 per diluted share, in the year-ago quarter (Apple 2010 Annual Report).

The following figure shows the dramatic revenue growth of Apple within ten years.

Figure 1: Apple Annual Revenue

Apple has five reportable operating segments, which are Americas, Europe, Japan and Retail operations. Asia pacific is the other operating segments of Apple and that include Australia and Asia except for Japan (Morningstar 2009).

Mission Statement and vision

Mission Statement

A mission statement is a broad statement of an organization’s scope and purpose, aiming to distinguish it from similar organization (Boddy 2008).

The mission statement of Apple states as: “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.”

Vision

“Man is the creator of change in this world. As such he should be above systems and structures, and not subordinate to them.”

Steve Jobs, Founder and CEO of Apple

”We believe that we’re on the face of the Earth to make great products, and that’s not changing. We’re constantly focusing on innovating. We believe in the simple, not the complex. We believe that we need to own and control the primary technologies behind the products we make, and participate only in markets where we can make a significant contribution.

We believe in saying no to thousands of projects so that we can really focus on the few that are truly important and meaningful to us. We believe in deep collaboration and cross-pollination of our groups, which allow us to innovate in a way that others cannot.

And frankly, we don’t settle for anything less than excellence in every group in the company, and we have the self-honesty to admit when we’re wrong and the courage to change. And I think, regardless of who is in what job, those values are so embedded in this company that Apple will do extremely well.”

Tim Cook, chief operating officer of apple 2009

Corporate Structure and Management Style

The current CEO of Apple, Steve Jobs works with the top 100 key employees of the company. Time is allocated for employees so that they share and explore different aspects of ideas. The company’s main issue about its employees is to make them fall in love with Apple, so that they will do everything which is best for Apple, not for anybody else (Fortune 2008).

The company’s board of directors are responsible to make sure that the CEO and other senior managements are in the competent. It also supervises the ethical operation of Apple on a daily basis and assures that the shareholder’s long term interests are achieved. In order to perform effective decision making and proper monitoring of performance, Apple adopts governance guideline frame work in conjunction with Apple’s article of incorporation and bylaws (Apple 2010).

Review of Key Literatures and Application

SWOT Analysis

SWOT analysis summarises the key issues from the business environment and the strategic capability of an organization that are most likely to impact on strategy development (Johnson, Scholes and Whittington 2005).

STRENGTH

Strong Brand image

Strong Financial performance

Innovative Sprit

Product Diversity

WEAKNESSES

Dependency on the launch of new Product

Dependency on Steve Jobs

OPPOORTUNITIES

Market Growth

Increase Exposure in Market

THREATS

Strong Competition

High Substitute of Products

Positive Negative

Figure 2: SWOT Analysis for Apple Inc

Strengths

Strong Brand Image

Apple gains a reputation of its high brand image by producing innovative products with an outstanding design and high quality. According to Interbarnd’s annual ranking report of 2010, Apple’s brand value is the fastest growing worldwide. Apple is at the 17th slot out of the top 100 best worldwide brands. It was in the 20th slot in 2009. The brand value increased by 37 percent and worth $ 21,143 million. Apple’s unique products Iphone and Ipod helped a lot for the growth of the brand value (Interbarnd 2010).

Figure 3: Apple as 17th in the 100 Top Brands for 2010

(Source: Interbrand, “100 Top Brands for 2010”, 2010)

Figure 4: Apple Brand value in the 100 Top brands for 2010, 2009 and 2008

(Source: Interbrand, “100 Top Brands for 2010”, 2010)

Strong Financial performance

As of Fiscal year 2010 fourth quarter, Apple earned revenue of $ 20.34 billion, 67 percent increase as of last year 2009 and net quarter profit of $ 4.31 billion which is a 70 percent increase and earned $ 4.64 per Diluted share. During fiscal year 2009, 2008 and 2007 of the fourth quarter the revenue earned was $ 9.87 billion, $7.9 billion and $ 6.22 billion respectively (Apple 2010 Annual Report).

Figure 5: Apple Annual Revenue for 2008, 2009 and 2010

Innovation Sprit

Apple focuses on creating an innovative product with unique design and high quality. Some of the innovative Apple products are Imac, Ipod, Iphone and recently the Ipad. Being innovative helps the company to gain a powerful brand name and to emerge into the electronic market. Apple’s innovation sprite contributed a lot for the creation of Apple chain of world class retail, online stores and its revolutionary iTunes Store. As of the fortune magazine in 2006, Apple is the #1 innovative company in the world (Fortune 2006). Apple approved its capability of providing high quality products with an outstanding design.

Figure 6: Apple America’s Most Admired Company

(Source: Fortune 2006)

Product Diversity

The diversification strategy of a company is a corporate strategy intended to increase profits by increasing sales volume. This increase in sales volume is brought about by launching new products and identifying new market segments (Buzzle 2010).

Apple diversified its products from computing to digital music market by introducing a revolutionary portable music player like IPod and ITunes and also iphone. The company easily drew a strong attention of the consumer in electronic industry. Selling a wide range of products helped Apple to understand the need of its consumers in this modern time. By providing diversified products, Apple maintains its customer’s loyalty.

As of the fourth quarter 2010, a high sale of iPod and iPhone and even mac computer revenue and profit are recorded. The company sold 14.1 million iPhones in the quarter, an increase of 91 percent from a year earlier. Consumers bought 4.2 million iPads, and Mac sales totalled 3.9 million which is a 27 percent unit increase over the year ago quarter (TheNewYorkTimes 2010).

Figure 7: Apple Product Sales of fourth Quarter

Weaknesses

Dependency on the launch of new Product

In Today’s high global competitive market, Apple is dependent on the launch of new products in order to stay on the top over its competitors. The company maintains its profitability by providing innovative products like iPod, iphone, ITunes and imac. There are a lot of high competitors in the electronic market which can provide a substitute of Apple products. For example, Google’s Android mobile begin to replace the iphone in some markets and Sony also is one of the competitors which launched a new music and video download service like Apple ITune (BBC News 2010). To sustain in the high competitive market, Apple is always innovating new products with high quality and beautiful design.

Dependency on Steve Jobs

Steve Jobs is an effective and smart CEO of Apple. The smart role that he performs is what makes Apple successful. Jobs has revived Apple’s fortune over the past decade and many investors see him as critical to Apples future. The company have reached new heights with its computers as well as electronic devices, namely the iPod and iPhone.

In the absence of Steve, the company experienced a 10 % stock fall during 2004 (Digital Journal 2009). As of Roger Kay of Endpoint Technologies told Routers “Apple is more dependent on its CEO than most other companies.” The shareholders of Apple hesitate that there is a person with Job’s personality who can replace him to keep the customer loyalty. Without Job’s imagination leading, there is a doubt that Apple’s talented employees can keep on innovating to sustain in the high competitive market (Reuters 2009).

Opportunities

Market Growth

Currently Google is the known search engine on Smartphone. Building a mobile search engine which offers a better search feature than Google is one of the great opportunities for Apple to attract its customers. According to Apple’s analyst Gene Munster of Piper Jaffray, “within the next five years there is a 70 % chance that the company Apple will create a mobile search engine for its iphone” (Business Insider 2010). By developing its own search engine, Apple can enhance the security of data generated on Iphone and can sustain its superiority over its competitors and have the opportunity to develop the market growth of its products.

Increase Exposure in Market

Introducing Apple products to developing market like south America, Africa and Asia can be seen as a good opportunity for Apple to expand in the new emerging market. In developing countries, the demand of technology like Notebooks, Mobile phones and other accessories are growing. But due to several reasons like content issue, intellectual property issue and large proportion of low income customers, it may be considered that introducing Apple products has no impact on the new emerging market. But By considering the factors that exists in developing countries, the company can make a new arrangement about the quality and price of its products in order to fit the emerging market in developing countries.

Threats

Strong Competition

Every business in today’s ever changing technology has a threat from competitors. IPods is one of Apple’s innovative technologies which give its reputation in the music industry. And it is one of Apple’s products which contributed a lot for the success of the company’s brand image. Apple has lots of competitors which are trying to enter into the music player market by offering a similar feature like IPods. Competitors can also offer new features as well. Some of Apple’s competitors are Microsoft, Samsung, Sony, IRiver, and SanDisk. For example the launch of Zune from Microsoft was a major threat for Apple, because Zune had a similar and new feature of iPods (Spreed 2010).

High Substitute Products

Another biggest threat of Apple is the availability of many similar products or substitute products. For example Samsung offer Samsung Galaxy S which can be a substitute product of Apple Iphone. It has some better features than the Apple iphone like having a 4- inch touch screen which offer a great image view and video watching. It has a large capacity and can be a good substitute of Iphone.

Resources and Competences

A strategic capability is the adequacy of the resources and competences of an organization for it to service and prosper (Johnson, Scholes and Whittington 2005).

In an organization, resources and competence are very important to gain competitive advantage. Having adequate resources is not enough by itself but the competency which is the way how organizations deploy its resources in a proper and effective way is a very crucial factor to help organizations to accomplish a competitive advantage.

In Today’s global competitive market, companies should strive to compete in the emerging market and meet customer’s requirement in order to survive. Organizations need to know the threshold resources needed to achieve their strategies. Threshold capabilities are essential resources and competence for the organization to be able to compete in the given market (Johnson, Scholes and Whittington 2005).

The following table show the resource and competence of Apple.

Resources

Threshold capabilities

Threshold Resources

Tangible Resources

CEO (Steve Job)

Employee (programmers, Designers, Engineers, etc )

Software

Hardware

Retail Stores

Suppliers

Intangible Resources

Knowledge/Skills of employee

Brand name

Cash

Customer’s Database

Capabilities for Competitive advantage

Unique design capability

Innovation Capability

Powerful Brand image

Figure 8: Resource and Competence for Apple Inc

(Source: Johnson, Scholes and Whittington, “Strategic capabilities

and competitive advantage”, 2005)

Apple’s Threshold capabilities

Threshold capabilities are categorized as Tangible and intangible asset. Without the threshold capabilities, it is almost impossible for companies to survive in the market. In addition, knowing the required threshold competency is very useful for the company to deploy resources to meet customer’s minimum requirement (Johnson, Scholes and Whittington, 2005). Apple’s tangible resources are the smartest chief executive officer Steve Jobs, designers, programmers, engineers, hardware, software, retail stores and suppliers.

The founder and the current CEO of Apple, Steve Jobs is a key and valuable asset to the company. His unique approach and vision to business leads Apple to be on top in the electronic industry. “It would be a disaster,” said Gene Munster, an analyst with piper Jaffray and Cos, “he would be impossible to replace” (BBC News 2009).

Apple has highly talented professional programmers, designers and engineers which can produce industry award winning software like OS X Operating system and revolutionary product like Iphone and ipod. The company design its own system software for the hardware it runs on. For example Apple’s Macs, the best personal computers in the world is designed along with OS X, iLife, iWork, and professional software. It has gained popularity in the entire computer industry and able to compute with its high competitor like Microsoft on the same level. In addition there are over 300,000 applications available in the App store all designed specifically for iphone providing almost unlimited functionality (Apple 2010). There are also thousands of different applications for business, entertainment, games, etc. In Addition, the hardware platform of apple is another key resource that provides advanced technology and ease of use.

As of September 25, 2010, Apple had 317 retail stores, including 233 stores in the United States and 84 stores internationally (Apple 2010 Annual Report).  Apple stores acts as a sales location and an advertisement. By offering an outstanding customer service, it helps the company to gain a good brand image and customer loyalty. Apple’s retail stores are very important resources which contribute a lot for the success of the company.

Apple’s capabilities for competitive advantage

An organization should have unique capabilities to have a long run existence and to gain a competitive advantage, having only threshold capabilities do not create a competitive advantage. Unique resources are resources that critically underpin competitive advantage and that others cannot easily imitate or obtain.

Core competences are the activities and processes through which resources are deployed in such a way as to achieve competitive advantage in ways that others cannot imitate or obtain (Johnson, Scholes and Whittington 2005).

Unique design capability

The designs of electronic products have been almost similar for long time. But Apple came with a unique user interface design by considering the screen, touch pad, battery and other better functionality in its products. The unique design of the company’s products like Ipod , Imac and Iphone has a major impact for the success of the company and for the products to be on top over the competitors. Apple always focuses on quality and differentiation for a better looks. The competitors of Apple like Google, Microsoft, HP, etc should have to be aware of the unique design of Apple to be able to compete in the electronic market. 

Innovation capability

During the competitive pressure of today’s rapid advanced technology, Apple focuses its competing strategy on innovation. By combining technological knowledge with a new idea of selling music online, Apple came up with a revolutionary Ipod music player and Itunes which becomes most popular in the whole music industry. Apple continues designing its innovative products like ease to use desktop computers, iphones and Ipad to maintaine its reputation from its consumers.

The company invests little in research and development when compared to other competitors. It spends only 3.7 percent of its revenue on R&D. The founder and CEO of Apple Steve Jobs doesn’t believe that innovation has something to do on investing a lot of money on R&D rather innovation is about the knowledge of the people that the company has and the way how to deploy them and how much to get from it (Plantes 2008). Rather than focusing on existing products and services, Apple’s core competitive strategy is innovation of new product design with exceptional elegant easy- of-use around customer experience.

Powerful Brand Image

Apple has a powerful brand name which is highly recognized in the entire personal computer industry as well as in the consumer electronic industry. The company’s product strategy is to create innovative products and to satisfy its customers through its high quality of services.

The Apple brand personality focuses on simplicity and the removal of complexity from people’s lives; people-driven product design; and about being a really humanistic company with a heartfelt connection with its customers.

The popular innovative creations of Apple products are Imac, Ipod, Iphone and OS X operating system. It also revolutionized the music industry through its ITunes. The launch of this products helped Apple to gain a reputation of its high brand image and customer loyalty.

As mentioned earlier in the company’s strength, Apple’s brand value $ 21,143 billion during 2010 and become the fastest growing worldwide. The Brand also considered as a symbol of technological modernity and the company uses it to compete with its high competitive market. Having a powerful brand image is a unique competence which helped the company to gain a competitive advantage by gaining customer loyalty.

Critical Success Factors Analysis

Critical success factors (CSFs) are product features that are particularly valued by a group of customers and, therefore, where the organization must excel to outperform competition (Johnson, Scholes and Whittington 2005).

Critical Success Factor

Consistency

Ease of Use

Differentiation

Innovation

Figure 9: CSF of Apple

Differentiation

As of University of Michigan’s American Customer Satisfaction Index (ACSI) in the year 2010, Apple scores the highest ranking which is 86 out of 100 and become on top of its competitors in the PC industry. As shown in the figure below, Apple has the highest score for seven consecutive years. During 2010, the entire PC manufacturer improved their score, but still could not reach on Apple (Fortune 2009).

Figure 10: Fifteen years of ACSI ratings for the PC industry

(Source: Fortune 2009)

The company is committed in innovation and unique design and can differentiate itself from other competitors through its unique product like: imac, iphone, ipod and ipad. For example few years before, mobile phone market was dominated by few companies like Nokia, Motorola and Samsung. But Apple came with its new innovative iphone with unique features that differentiate it with other products and able to be recognized as top in the mobile market. By using product differentiation as an advantage, Apple attracts its custom