Terms of Reference
This report is Based on Apple Inc., and identifies the changes of strategy and strategic direction over the last 10 years. These changes relate to any changes in strategic leadership, structure, culture, market forces, environment and strategic direction.
Apple was founded in 1976 by Steve Jobs & Co whose original Idea was to start a company dealing in Computers, this was later names Apple Inc. famous for its amazing product designs, state of the art technology and its Visionary Pioneer in Steve Jobs.
Apple began purely as an IT company, but quickly progressed to focus on consumer products due to the intense competition in the Tech Sector
Through its diversification strategy, Apple has successfully gained high customer loyalty as well as Global Brand recognition through its products, such as Mobile telephones, music players, televisions, tablets and laptops to name but a few.
Apple base their products designs on the needs and wants of their customers, which has allowed Apple as a brand, to be amply accepted.
The aim of this report, is to analyze Apple's environmental analysis using SWOT analysis to anylise both Internal and External Factors, Pestle Analysis, and Porters competitive five forces model
I will also incorporate which strategic approaches Apple Inc. has been following, and how successful the organization has been in its strategic development and implementation.
I will discuss what performance measures Apple should adopt in the future
Question 1 – What significant changes have influenced the organization over the last 10 years and how has the organization responded to the external changes?
There have been a number of external changes which have influenced Apple Inc. over the last 10 years. To analyze the external environment, I have chosen to apply PESTLE Analysis to Apple Inc. PESTLE Analysis highlights that the key drivers of change are the most likely factors that will affect business operations of an organization, however organizations have restricted control over this. (Hambrick and Fredrickson, 2004). These restricted forces are of politics, economics, socio-culture, technology, legalities and environment (Porter, 2006) (See Appendix 1)
In 2005, 52% of Apples sales were from outside of America. Due to America's war on Terrorism, they at this stage had no control over relations with any other countries. Apple produced a large number of their products outside America, including countries such as Ireland, China, Czech Republic and Korea therefore political conflicts with any of these countries will have a knock on effect with sales at Apple INC.
Apple's product range have been viewed by some as a ‘luxury' spend, and as the Economic depression is currently having serious impacts on consumer spending trends, this may impact on Apple Inc. sales, and stall improvements in the company. At present the inflation rate is extremely high, income and unemployment rates are low, which may also impact sales within Apple. Apple's revenue on the market has increased at this stage due to their purchase of foreign currency at a time where the US Dollar has lost value. Apple as a corporate would not risk economic breakdown
Today's world is very much technology driven, with Apple at the for front in the sense It is the leader in computers, software, and mobile phone technology. This is largely down to the quality and designs of Apple products. Another factor to play a role is the music industry, which has advanced at an alarming rate and has now broken into the cyber world. The Apple product which is iTunes has no real competitor.
The technological environment for Apple's market has grown at a substantial rate. Mobile Phones have become the must have product for all age ranges with Apple remaining top of the market for innovating products The life cycles of these products are very short, which results in an increase in competitors trying to improve their technology, which in turn then keeps Apple improving to remain ahead of the competition.
Apple have been the subject of more than a few legal battles. In October 2009 they were sued by Nokia Corporation for Apple's infringement of patent in relation to Wireless Technology. Similar cases have been raised by Samsung and HTC. Apple Inc. have overcame this by following the Legal environment, which states that Apple must operate its business within special regulations such as consumer, health, safety, Intellectual property law and patents on company's products, and employment and competition laws.
Apple have been well known to take a comprehensive approach to environmental responsibility, and therefore follow all legislations and restrictions. Apple are committed to ensuring correct disposal of all electrical equipment when it reaches the end of its useful life. Computers and displays are recycled in the correct way.
By Applying a SWOT analysis to Apple Inc. over the last 10 years, it can be used to discover its strengths, its weaknesses, its opportunities and its threats, and how Apple has responded to them can be seen (See appendix 2)
Apples brand is based on producing innovative, simple to use products quality products which has made Apple an extremely powerful company in its own right. This is obvious after initially only making changes to its computers, in 2001 Apple produced the iPod. Between 2001 and 2010 We have seen amazing new innovative products introduced to the market, such as Apple TV, the iPhone, and the iPad. Each year Apple are responding to external changes by spending around £1.5 billion in developing new products to satisfy customer, and recruit new ones.
Apples real strength is its brand loyalty, which Is extremely powerful in making them one of the wealthiest companies in the world
As Apple's hardware and software products and services are extremely complex as they are of the highest technology they can contain defects such as 'bugs'. When iPhone 4G was introduced, complaints were raised about the signal when making calls. Apple responded to this by introducing an update to fix the issue, however there cannot be guarantee that Apple will be able to detect and fix every defect in its products and services.
This failure could result in damaging Apples reputation and the loss of unsatisfied customers
Due to technology being one of the highest competitive market, Apple must introduce new products and services whilst enhancing existing products/ services so as to simulate new and existing customers to purchase the new and improved technologies and services
With the success of iPod and iTunes, Apple entered in to the Consumer Electronics market. By introducing iPhone, Apple has branched into the Mobile Communications market which will allow Apple the opportunity to branch into further markets, such as TV or even a gaming systems.
Apple and Intel have formed a contract that allows Apple to to install their processors to Apple computers which will prompt businesses to replace their Pc's with iMacs. They did this in order for their business applications to become stable and reliable. Apple have to create a strategy that will expand its product line to other products that is going to be less expensive.
The largest threat that IT companies will face is the huge level of competition within the technology markets. Price competition is the main threat. Competitors will almost always reduce their selling prices and sometimes replicate and include Apple featured into their products to allow them to attract more customers. Apple has not long branched into the telecommunications industry therefore had to quickly gain experience over rival competitors, to respond to this threat Apple began introducing their products to the market at a lower price with little or even no profit at all for the company. Apple realized they had to investing a lot of money to research and development, to gain a competitive position in the market.
Question 2 - What Strategy Approaches has the organization been following?
Despite Apple one of the largest brands in the world, it remains a rather simple company, one that's aim is to move with purpose. They produce a surfeit of marginally differentiated computers, they introduce devices at a broad range of prices, sizes, and capabilities that all point toward something bigger, which is Apple as a brand. They quickly recognize and process in three steps to allow the to:
• Envision the future
• Create the future
• Get rid of what isn't the future
Apples first visionary leader was Steve Jobs, who believed that in order to innovate ““You need a very product-oriented culture. Lots of companies have tons of great engineers and smart people. But ultimately, there needs to be some gravitational force that pulls it all together.” This gravitational force within Apple was Steve Jobs. Apple has a tight management structure in which leadership is based around, with managers leading their teams using a hands-on approach.
With Steve Jobs being the chief innovator, he was very much involved in the sourcing of the initial idea. Apples strategy used to solve specific customer needs, is to simply study new ideas and how they could promote customer interaction. This shows apple taking this human-centered approach, and differently than that of their competitors to improves the customers experience at Apple.
The Ansoff Matrix is a well-used marketing tool used by many companies nowadays in order to help them decide for the development of their product and the market share (see appendix 3). This frame work helps identify methods and directions by Apple Inc.
Market penetration happens when a company enters a new product into the market. This allows them to gain competitors customers and raise their own market share. Apple follow this strategy when it introduces its new products and services into the market place to increase its market share and attract new customers. Apple have also introduced complimentary services which work with their products, such as iCloud and iTunes.
An established product in a market can be tweaked to target new customers, and is often use as strategy to raise profits for the company. To allow Apple to increase its revenue for market development, they found they huge potential in emerging markets, like India and China. Apple used a differentiation strategy to develop their products into these markets with intense competition.
A firm already with established products on the market, may use this strategy to develop new products that also cater to the same market. Apple used this strategy when it introduced its product ‘Leopard' which by 2010 was running on more than half of all Mac computers. This strategy has not always been successful for Apple, in products such as Apple TV and Mac Mini. Mac Mini failed in the market due to its limited memory, and little room for improvement.
Diversification is the process of launching new products into the market. Apply initially stared by making the well know Mac computers, and have diversified into the launch of a huge range of digital products such as the launch of the iPod in 2001, iPad in 2007 and the iPhone in 2010. Apple have a huge competitive advantage of other competitors as their products and services allows them to differentiate themselves from other competitors on the market. (see appendix 6)
Question 3 – How successful has the organization been in its strategy development and implementation?
Apple's generic strategy, based on Porter's model, aligns with the company's intensive growth strategies. In particular, the intensive growth strategy of product development is key to fulfilling this generic strategy and supporting Apple's success.
Apple's generic strategy is broad differentiation. This strategy allows them to focus on the key features that differentiate the company and its products from competitors. Even though this generic strategy allows Apple stand out, the company can still widely have reached various other segments of the market. Apples products are designed for everyone, supporting a broad market reach.
Apple Inc. have successfully implemented a number of other strategies to follow, such as premium pricing, low cost, integrating products, low shareholder returns policy and global cheaper market. Although they are one of the most successful brands of world and marked performance of implemented strategies, although it has faced criticism on its use of strategies. Apples pricing strategy has been widely criticized as Apples product market is higher, making it difficult for the average customer to purchase. Because of this, competitors are consistently working on their own pricing strategy to develop new products at a reduced cost. For example, Google have made plans to introduce to the market a £100 smartphone in India, with free android software, with availability to Samsung who is a strong competitor of Apples. Apples Integrative strategy of complete hardware (mobile phone) ad software (iOS) has been proven to not be cost effective. Inn 2013, out of every smart phone sold, only 1 is an iPhone (Meyer 2013). Apple is believed to be a market trend setter in low cost of marketing via patent wars. Normal Businesses would require to spend millions of pounds on marketing their products, but thanks to Apples strategy their brand can be seen everywhere at all times for almost no cost.
Question 4 – What performance measures would you adopt measure the organizations performance?
There are a number of performance measures in which Apple could adopt to measure their organizations performance (see appendix 4)
BALANCE SCORE CARD
The balanced scorecard allows for an effective measurement system that helps achieve a company's strategic objectives. The management system can help drive changes in following key areas:
• Market development
The balanced scorecard provides managers with four different perspectives (financial, customers, internal processes, and innovation and improvement activities). The measures of the balanced scorecard would allow Apple to focus on their company's strategic vision, encourage them to focus on current as well as future success, and help to provide them with a balance between internal and external measures.
PORTERS 5 FORCES
Using Porters 5 Forces as a performance measure would allow Apple to enable more effective decision making. (see Appendix 5)
Rivalry among competitors (High)
Apple Inc. have a large portfolio of technical products, including hardware and software, securing itself as a tough competitor to compete with globally. Analysing sales of competitors, product sales and growth sales would allow Apple to closely inspect their competitive environment, and increase investments in areas such as mobile, software and computers where required.
Potential entry of new competitors (Low)
Apples threat of new competitors is minimal due to their world dominant IT having focus on the niche market. Apple are the world's most profitable and capitalized corporation due to their use of contract manufacturing strategy, which saves unnecessary costs and expenses, as they do not require to spend money directly on social responsibilities. Their threats to the company would include the threat of copyright, patents, and suppliers refusing to renew their contracts.
Competitive pressure from Substitute products (High-Moderate)
For every Apple product produced, there is a substitute present, therefore competitive pressure is high-moderate. The IPad is replicated by Samsung with the Samsung tablet. Samsung have also replicated the IPod with the Samsung mp3 player, however Apple OS is a strong area where at present no near substitutes are available. Another product highlighted as being positive for Apple using this analysis is the Apple app store, iCloud, and iTunes.
Bargaining Power of suppliers (Low-Moderate)
Bargaining power from suppliers is low-moderate due to their unique capabilities to produce and manufacture Apple products. Apple buy in large bulk orders, providing themselves with higher buying power in the process.
Bargaining Power of customer (low)
Because Apple can enjoy its bold image of being an innovator and an investor in R&D, it can successfully retain its customers. Apple have been successful in competing with competitors over new customers, and winning the majority.
I would propose both performance measure would be Used by Apple to measure the organisations performance.
Question 4 - What strategies should the organisation adopt in the future?
I believe that for Apple to continue in their success, they must continue to revise their strategies if they wish to remain at the forefront of their market. After looking over various strategies, I feel that the best way for Apple to analyse this is to adapt to the Ansoff Matrix. The Ansoff Matrix looks at four factors which when Applied to Apple Inc. would look like:
Apple would upsell to existing customer new products or features for their apple device. New improved features, a lower price, and an increase in service would allow Apple to attract customers from competitors. Apple currently upgrade their Apple iPhone every 5 month to upgrade the built in camera with a sharper screen, an upgraded processer which is faster, and an improved internet service.
Apple would add additional products for customers who are already impressed and loyal to Apple as a brand. Additional product development costs are involved at this stage, however the marketing to attract new customers is reduced. An example of this is when Apple introduced to their iPod customers the iPod shuffle as an alternative for a device that will ‘go anywhere'
Apple would introduce a new product or service into a completely new market. This could include a new Region or country, or a new demographic group. Apple launched a replica of the Apple iPhone called the iPod touch. The difference being that it could not make calls or send texts but was however perfect for the international market that do not have cell phone carriers that would control an iPhone.
Apple would have to enter a new market with a completely new offering. There are potential cost increases and risks involved with this, however it can also be extremely rewarding. Apple have already made this move when it entered into the music industry with its iTunes service. This was a huge risk to Apple, however it has been extremely profitable.
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Political Factors represent what way and to which extent a government can influence the economy and businesses. Political factors are represented by specific areas, such as labour law, tax policy, tariffs, trade restrictions and even environmental law.
Economic Factors will refer to areas that are unique to the economy and will be influenced directly by the economy, for example inflation rate, interest rate, economic growth or exchange rates. Each areas will have a huge influence a business. Economic Factors are an extremely important part of the PESTLE analysis.
Social Factors are factors which refer to demographic factors, whichcan comprise factors like population growth rate, cultural aspects, age distribution and health consciousness.
Technological Factors are the factors which refer to automation, incentives, technological change rate and R&D activity. These factors have a great influence on areas like the minimum efficient production level, quality, costs and even outsourcing decisions.
Legal Factors are extremely important, as the legal part refers to all the laws which could affect a business or company and its area of activity, including consumer law, antitrust law, anti-discrimination law and health and safety law. The controversy surrounding the EU is related to this, as the consumer and health and safety laws have been introduced where businesses don't feel they are required. Environmental Factors are all the factors related, influenced or determined by the surrounding environment. This includes, weatheical position, climate change and even insurance. Environmental factors are crucial to industries such as farming or tourism and can greatly influence a company's way to operate or even the products it offers.
PESTLE analysis is a strategic was for an organization to identify and analyze each of these factors. This analysis will allow companies to plan for the future and deal with any risk factors which are identified
A SWOT analysis (alternatively SWOT matrix) is a structured planning method used to evaluate the strengths, weaknesses, opportunities and threats involved in a project or in a business venture. A SWOT analysis can be carried out for a product, place, industry or person. It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieve that objective. Some authors credit SWOT to Albert Humphrey, who led a convention at the Stanford Research Institute (now SRI International) in the 1960s and 1970s using data from Fortune 500 companies. However, Humphrey himself does not claim the creation of SWOT, and the origins remain obscure. The degree to which the internal environment of the firm matches with the external environment is expressed by the concept of strategic fit.
• Strengths: characteristics of the business or project that give it an advantage over others.
• Weaknesses: characteristics that place the business or project at a disadvantage relative to others.
• Opportunities: elements that the project could exploit to its advantage.
• Threats: elements in the environment that could cause trouble for the business or project.
Identification of SWOTs is important because they can inform later steps in planning to achieve the objective.
First, the decision makers should consider whether the objective is attainable, given the SWOTs. If the objective is not attainable a different objective must be selected and the process repeated.
Users of SWOT analysis need to ask and answer questions that generate meaningful information for each category (strengths, weaknesses, opportunities, and threats) to make the analysis useful and find their competitive advantage.
The Ansoff Matrix was developed by H. Igor Ansoff and first published in the Harvard Business Review in 1957, in an article titled "Strategies for Diversification." It has given generations of marketers and business leaders a quick and simple way to think about the risks of growth.
Sometimes called the Product/Market Expansion Grid, the Matrix (see Figure 1, below) shows four strategies you can use to grow. It also helps you analyze the risks associated with each one. The idea is that, each time you move into a new quadrant (horizontally or vertically), risk increases.
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