1 Introduction
Apple, Inc. is a US multinational corporation that needs no introduction. Apple Inc. with its “Think Differently" motto has been Fortune magazine's “World's most admired company in the World” for the last 4 consecutive years (Fortune, 2012). On February 28th, 2012, Apple, Inc.'s market value toped $500 billion (Blodget, H, 2012).
'Apple Computers' as it was called prior to 2007 had primarily focused on its core computer business. In 2001, it shifted its strategy by entering the portable digital music player business with the introduction of iPod, and in 2003 entered the music business with the introduction of iTunes music store. According to Apple's FY'07 10-Q, by end of 2006, the iPod & iTunes business contributed to more than half of its revenue. In 2007, “Apple Computer” changed its name to “Apple, Inc.” This paper focuses on Apple, Inc.'s business strategy in the last five years starting from 2007 to present and throughout this paper 'Apple, Inc.' will be simply referred as 'Apple'.
2 External Analysis
Apple competes in the following four industries ;
- Computer Hardware and Software – with 'Mac' line of computers, Mac OS X & iOS
- Portable media devices – iPod, iPad & appleTV
- Smart Phone – iPhone
- Music, Media and Content Service – iTunes, iBook, App Store and Mac Store
A firm's business strategies are influenced by the forces in its external environment. PESTEL and Porter's five forces framework can be used to analyze the factors influencing the firm's macro-environmental and industry sectors respectively (Johnson et al, 2008, p.55). From Apple's PESTEL Analysis (A1) and Porter's Five Forces Analysis (A2), the key external drivers of change affecting Apple are ;
Political Threat
Apple manufactures and assembles all of its products in Asia (Apple, Inc. FY12 10-Q Form , p36). Hence it is dependent on political stability in these countries. Any political conflict between these countries and the US can have a negative effect on Apple's operations.
Legal Threat
Apple is a successful company and with success comes persistent threat of litigation from any number of sources, e.g., Apple had legal disputes with Beatles on Apple trademark which was settled in late 2006. Currently Apple is fighting Antitrust lawsuit filed against its iTunes download business (Apple, Inc. FY12 10-Q, p33)
Economic Threat
Apple is subject to global economic cycles, like inflation, GDP, interest rates and levels of disposable income. Apple products are considered premium products and puts Apple in disadvantage during economic downturns as consumers are weary of big-ticket purchases like computers, iPhones or iPads.
Apple is a multinational company maintaining huge cash reserves which is not fully repatriated. Global interest rate fluctuation will have impact on Apple's income as the company earns interest on its cash reserves. Fluctuation in US dollar exchange rate will have significant effect on its profits as more than half of its revenue coming from outside US (Apple, Inc. FY12 10-Q Form, p18).
Threats from Competitors
Apple's competitors are established companies with substantial resources. Any advantage that Apple gains by product differentiation is short lived as competitors have copied them immediately, e.g., mobile phone companies like Samsung, Nokia, Motorola released their version of touch screen smart phones and tablet computers within months after the introduction of iPhone & iPad.
Threat of New Entrants
Even though cost can be a significant barrier to entry, some of potential competitors with substantial resources have diversified into Apple's music and smartphone businesses. New entrants to music industry like Amazon, started their own online music business. Microsoft launched the 'Zune' music player to compete against iPod. Google entered smartphone business with Android based phones to compete against iPhone & iOS.
3 Internal Analysis
In spite of all four of these industries being highly competitive, we can see from Apple's SWOT analysis (A3), that they are all fast growing industries with huge potential. Apple has been able to successfully exploit these opportunities by entering and then creating a sustainable market for its products.
3.1 Competitive Advantage
A firm achieves competitive advantage when it has one or more core competencies which is a combination of unique resources and capabilities (Johnson et al, 2011, p.97). From Porter’s value chain analysis (A4) and SWOT analysis (A3) Apple's success factors can be attributed to its unique Resources and capabilities of ;
Leadership and Talented Employees
Even after Steve Job's death, who was the iconic leader of the company, Apple’s executive management team, that was hand picked and groomed by Steve Jobs are embedded with “Think Different” philosophy (Lee, 2011). Tim Cook, the current CEO, took over day-to-day CEO duties from Steve Jobs since his first medical leave of absence back in 2006. Apple under the leadership of Tim Cook, has done extremely well. Apple recruits the best talents available and Apple has one of the best design team headed by Chief designer Jonathan Ive.
Cash
As of December 31, 2011 Apple has about $92 billion in cash (Apple, Inc. FY12 10-Q Form). This gives the company strategic advantage as Apple can pay in cash upfront to its suppliers and lock out crucial supply parts from the suppliers years in advance (Wingfield, 2011). Having huge cash resources protects Apple in fighting legal battles against it and also aggressively pursue legal actions on any firm that steals Apple's intellectual property.
Brand
Apple is the world's valuable brand valued at $153 billion (Culpam, 2011). Apple brand stands for innovation and design and has a cult like following.
Culture of Innovation
From Apple's culture web analysis (A7), an innovation culture has permeated throughout Apple's history by Steve Job's “Think Different” philosophy. This has become a self enforcing and self sustaining culture. Apple's culture of innovation is not just limited to products development, but also to its business model, innovative marketing and captivating communications. It not only boosts sales, but enhances the brand value too. This culture of innovation gives Apple a strategic advantage.
Technology with Integrated Value Chain
Apple puts consumer experience more than the technical prowess of the product. Apple is the only vertically integrated company and thus can manage all aspects of the consumer experience. Vertical integration refers to owning all parts of the product value chain. Apple designs and develops its own Hardware and Software platforms for its products, content service via iTunes and App stores, uses its own sales and service via Apple Retail store and online store. By controlling the whole value chain, Apple is in position to extract all the value from it, and also provide an outstanding value in all aspects of consumer experience. This gives Apple a strategic advantage.
3.2 Sustainable Competitive Advantage
An organization can attain sustainable competitive advantage if its unique resources and core competencies are rare, inimitable, valued by customers and embedded within its organization (Johnson et al, 2008, p107). Analyzing Apple's Unique Resources and Core Competencies (A5) using VRIO framework (A6) we can conclude that the above mentioned Unique resources and core competencies give Apple a sustained competitive advantage.