Case Study: Apple, Inc. Strategy Analysis - Part 2

 

...continued from Part 1

4  Strategy Analysis (2007 – present)

Apple has utilized its unique resources and  core competences to obtain tremendous success over the last five years .Today it has annual revenue in excess of $125 billion compared to $20 billion in end of 2006  and in the span of  5 years between 2007 to 2012 Apple's stock value increased more than 500% from $85 to $542 per share  (wikiinvest-APPL, 2012).

 4.1  Strategic choice

Apple products follow a Focussed differentiation strategy. According to Johnson et al (2008), a focussed differentiating strategy seeks to provide high perceived product value to customers, justifying a price premium and aimed at a niche segment of the market.  Apple has been very successful in creating innovative products targeted at higher income customers who are willing to pay premium price for superior user experience.

  On the surface, it could appear that Apple's competitive advantage is solely due to product differentiation. But on a closer look, Apple's success is not entirely because of its ability to consistently create innovative products. Creating innovative products gives Apple only a temporary advantage as its competitors have imitated and launched their own versions of product in a matter of months.  Apple's success lies in its ability to create a platform around their products that drives and sustains growth.  A platform strategy is one in which third party developers and media companies can sell their contents that runs on Apple's products. 

Apple is unique in that it enters a red ocean, i.e., a highly competitive market and succeeds by changing the market paradigm. Apple combines its 'Product strategy' with a 'Platform strategy' that is free of threats and sustain long term growth. Apple's “Product+Platform” strategy can be summarized as a two phase strategy;

1. Product differentiation focussing on innovation and consumer experience to enter a new market; i.e., Product Strategy.
2. Platform development to build, adopt and then consolidate the platform that is centric to its products to achieve long term growth; i.e. , Platform Strategy.

In the last 5 years the most important products from Apple was the launch of iPhone in 2007 and launch of iPad in 2010. Both of these products were diversification to new industries and today constitutes about 70% of Apple's revenue (Apple, Inc. FY12 10-Q Form Apple).  To understand  Apple's iPhone success and subsequent iPad success, its important to understand what Apple did with iPod+iTunes business.

When iPod was launched it was a very innovative product that made technology easy to use. It was hugely successful among the early adopters  but its long term success was primarily due to iTunes music store. The iTunes music store created a platform for online music downloads and iPod was the perfect companion for this platform. This digital music platform is the reason why the iPod dominats the portable digital player market even today, in spite of its competitors coming up with digital music players that were technologically superior to iPods. For example, Microsoft's 'Zune' music player had color screen and video capabilities even before Apple introduced them in their iterations of iPods. However Microsoft's Zune was not successful because it did not have that convenient music platform like iTunes. By 2007, iTunes had evolved considerably enough that customers were locked-in to this platform due to its convenience and ease of use. As more people buy iPods, more media houses want to sell their content in iTunes and as more entertainment are available on iTunes, consumers are more likely to buy iPods.  This self-reinforcing cycle can sustain and reinforce growth by raising barriers to competitors (Lohr, 2011).  Apple repeated this same  “Product+Platform” strategy with their iPhone and iPad products.

 4.2  iPhone in 2007

In 2007, Apple entered the highly competitive mobile phone market with iPhone. iPhone was a product extension of iPod. The iPhone primarily differentiated itself from other mobile phones by its user interface which was the industry-first multi-touch screen.  From Ansoff’s Product/Market Matrix (A12), iPhone targeted both existing Apple customers and also new customers by diversification to mobile phone market.  

Apple's first movers advantage was short-lived as their competitors like Nokia and Samsung introduced their own version of iPhone-look-feel phones within few months. In 2008, Apple launched “App Store”. The word “apps”, short for applications that run on iPhones was introduced by Apple during the launch of App Store. The App Store allowed third party developers to create application to run on iOS which consumers can download onto their iPhones.  This was the beginning of Apple's mobile platform. While competitors were busy making feature-level comparisons to their products, Apple consolidated its iPhone platform and laid the foundations of a new growth engine that revolutionized mobile phone industry. 

Apple makes 30% commission on all apps revenue. On March 4th 2012, Apple announced that 25 billion Apps were downloaded from its App store (Brian, 2012).  As more 'apps' are available for people to download, Apple's mobile platform gets dominant which in turn sells more iPhones. From Ansoff’s Product/Market Matrix (A8), success of App stores along with iTunes consolidated the existing iPhone market and also developed new market as iPhone customers were introduced to other Apple products like iPods and Mac computers.

 4.3  iPad in 2010

After iPhone, the next major product launch from Apple was the iPad, a tablet computer. Apple introduced iPad in 2010, positioning it between the laptops and smart phones as a companion product in Apple's product lineup.  Apple leveraged the iPhone and iPod designs, and integrated iTunes store and the App store in iPad. iPad was a diversification towards the e-reader market as iPad presented opportunities to the publication and content industry. During the iPad launch Apple also announced “ibook store” which is an extension of its Apps store targeting media publishers. The ibook store launch was accompanied by Apple's partnership announcement with five large book publishers: Penguin Group, Harper Collins, Hachette Book Group, Simon & Schuster and McGraw-Hill. This laid the foundation of a e-reader platform with iPad.

  In January, 2012 Apple consolidated the iPad+iBook platform further by releasing the iBook2, and iBooks author which lets anyone author and create digital books on iPad. The ipad+ibook platform has potential to revolutionize educational sector  by giving teachers and any other authors the ability to create their own interactive books.

 4.4  Product Iterations & Market Expansion (2007-present)

Apple operates a very short product life cycle. Throughout the last five years Apple has continuously  updates product line with innovative features that has kept it one step ahead of its competitors and at the same time consolidating its platform adoption. Popularity of iPod, iPhone and now with iPad has strengthened Apple's brand which in turn is drawing more customers to Apple's Mac computer products. Apple reports that half of all computer sales through its retail channel are to people new to Mac computers, Mac products saw an increase of 21% in 2011 (Apple, Inc., FY12 10-Q Form).

The popularity of iPhone and iPad has penetrated the corporate business market segment which Apple had no presence before the introduction of iPhone. Adoption of iPhone among the corporate users has increased Mac computer sales among the corporate users. Apple introduced Macbook Air in 2008 targeting the corporate uses. Even though Macbook Air sales is relatively small compared to overall Apple products sales, it has seen year over year increase (Apple, Inc., FY12 10-Q Form). 

 5  Conclusion

Apple has built a culture of transforming industries by introducing innovative products. iPad is likely to become another big platform for Apple. With iPad, Apple has created a completely new market, just like they did first with the iPod and then with iPhone. Success of the iPhone, and iPad does not appear to be slowing and should continue into 2012 and beyond. Besides these products, Apple’s biggest competitive advantage is its digital content service business based on iTunes and Apps Store, which no other competitor can replicate in the short-term.  Apple remains promising because of is strong brand combined with the halo effect of iPod, iPhone and iPad products have on its other businesses.

 6  References

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Case Study: Apple, Inc. Strategy Analysis - Part 1

 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.

   ... continued in Part 2

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Leadership of Steve Jobs: Connecting theory into practice - Part 1

Introduction :

Leadership has been researched and studied from a variety of perspectives. Early research on leadership focussed on individual traits that differentiated leaders based on their appearance and personality characteristics. Finding that inherent traits did not fully explained leaders' abilities, researchers began focussing on behavioral aspects which examined the influence of leaders' behaviors rather than their personality traits. Subsequent leadership research revolved on contingency theories that studied the connection between situational variables and leader behaviors. Later on modern leadership theories like transactional leadership, based on command and control model and the transformational leadership which emphasized visionary and charismatic leadership style has been at the forefront of leadership research. Despite the depth and breadth of the debate concerning the effectiveness of leadership, leadership still remains a debated topic. Although no single perspective is taken as entirely accurate, nor can they be taken as entirely irrelevant either. As a result, the answer to most effective leadership still remains unclear.

To better understand the effectiveness of various leadership theories, this paper will first review the various leadership theories and then illustrate leadership in practice by analyzing leadership patterns in organizational leadership and behaviors of their successful leader (Issacson, 2008), Allen (2011), Kahney (2008) and many others consider Steve Jobs as a phenomenal leader. Jack Welsch called him “Most successful CEO today” (Elkind, 2008). This paper will thus focus on analyzing Apple's leadership under its CEO Steve Jobs, with emphasis on the leadership style and qualities exhibited by him during his tenure as CEO.

Leadership Theories :

Leadership is one of those qualities that is difficult to define, but easily recognizable when see it. Buchanan & Huczynski (2010) defined leadership as the process of influencing the followers towards setting goal and goal achievement. Since the 1930s, there have been predominantly four main ‘generations’ of leadership theory:

• Trait based theories (1930s -1940s).
• Behavioral theories (1940s-1950s).
• Contingency theories (1960s).
• Transactional and Transformational theories (1970s).

Trait based Theory :

Trait based theories focussed on analyzing physical and personality characteristic of individuals in order to gain understanding of the combination of traits that are common among leaders. In essence leaders were born and leadership is art. These theories were influenced by 'Great Man Theory' which argued that effective leadership is dominated by individual personality characteristics (Buchanan & Huczynski, 2010 , p.599). For example, qualities such as intelligence, self-confidence, drive, sense of responsibility, risk taking and other values makes an individual a good leader.

The main critic of trait based theories is that it ignores the impact of the situation. The theory it assumes that there is a definite set of traits that makes a leader effective in all situations, i.e. , same set of traits would work in military setting as well as in a factory setting. This led to later research which emphasized that effective leadership arises from behavior and it involves interaction with other people.

Behavioral Theory :

Compared to Trait theory, Behavioral theory looks at leadership from the perspective of a leader's behavior rather than selecting leaders based on their personality characteristics. This theory suggested that leadership can be learnt and everyone is capable of becoming a leader. Different patterns of leadership behavior or styles were identified. However, they all can be broadly grouped under the two leadership styles:

• Authoritative Style;

In this style, leaders impose decision and motivate followers by rewards or threat. They do not completely trust followers and focus is on tight control of task completion.

• Participative Style;
  In this style, leaders share decision-making with others. Focus is on delegation and leaders have complete trust and confidence in the followers for getting the task completed.

The main critic of behavioral theory is that it ignores the context in which these different leadership style are used. The styles that leaders adopt can be affected by the environment they are working within, and those they are working with. However, despite this limitation, behavioral theory can still provide useful insight on how we understand leadership.

Contingency Theory :

Compared to behavioral theory which narrowly focuses on the leadership style, the contingency theory includes effects of contingent factors such as leader's behaviors, follower's behaviors and other situational variables. This theory argues that there is no one right way of leading and that a leader must adjust their style depending on the context. According to Fiedler's contingency theory, a leader’s effectiveness is determined by three things (Buchanan & Huczynski, 2010 , p.610) :

• Relationship between leaders and followers: The extent to which leader has support and loyalty of followers.

• Task Structure : The extent to which the task is clearly specified to goals, methods and performance standards.
• Leader's Power: The extent to which the leader has power for the purpose of influencing and getting the task completed.

The contingency leadership theory makes us to think about what leaders do in a variety of situations and the extent of their capability to direct their followers.

Transactional & Transformational Leadership Theories :

Contingency leadership theory does not address the needs of the followers nor the followers individual feelings. The modern leadership theories of Transactional & Transformational leadership adds an emotional argument that engages the follower.

Transactional Leadership

Transactional leadership emphasizes the concept of exchange between leaders and followers. The leader motivates followers by the promise of rewards or the threat of punishment in exchange for effective task completion (Buchanan & Huczynski, 2010 , p.618). The transactional style of leadership is most often used by managers.

The main limitation in Transactional leadership theory is the assumption that, employees are motivated by only reward and punishment, and hence they obey leader's oreders. Despite this limitation, Transactional Leadership is still a popular approach with many managers. In practice, there is sufficient truth in the transactional based approach due to the effects of the individual's physiological and safety needs per Maslow's hierarchy of needs.

Transformational Leadership

The transformational leadership theory revisits trait theory by underlining the impact of personality characteristics of effective leaders and their role to appeal and transform their followers. The transformational leadership theory differentiated between leaders and managers by introducing “vision” and “charisma” as an important leadership characteristic . Transformation leaders use these key characteristics to inspire and evoke strong emotions among their followers and enable them to share their vision (Buchanan & Huczynski, 2010, p.618). Besides being visionaries, transformational leaders are said to value the human resources of their organizations, thus adding the emotional intelligence attribute.

According to Nahavandi (2006), transformational leadership is based on four attributes:

• Idealized influence is the ability of the leader to engage follower's emotions to emulate leaders vision.
• Inspirational motivation is the ability to provide a sense of meaning to the followers in sharing of the vision.
• Intellectual stimulation is the ability to challenge followers assumptions and encourage exploration of leader's vision.
• Individualized consideration is the leader's ability to pay special attention to followers needs, i.e., facilitate support, direction and encouragement.

In the past 80 years, leadership has digressed considerably from the early trait based theory to the modern transformational leadership theory. Transformational leadership is a popular leadership concept today especially when change is considered as critical for business growth and survival. The current environment characterized by uncertainty and instability requires transformational leadership to lead and transform the organization when circumstances demand. However, it is important to note that the trait based theory which was originally discarded is shown to be important by the transformational leadership theory as there are set of traits that are always found in transformational leaders. The transformational theories were evolved out of behavioral and contingency leadership theories. Nevertheless, these four generations of theory, all attempt to describe the behaviors of successful leaders. Apple, Inc is an excellent example to demonstrate the organizational leadership in practice and how its CEO, Steve Jobs, lead the company from the brink of bankruptcy to become the most valuable company (Investor Relations 2012).

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Leadership of Steve Jobs: Connecting theory into practice - Part 2

..continued from Part 1

Leadership in practice :

Steve Jobs co-founded Apple Inc, formerly Apple Computers in 1976 (Investor Relations, 2012). Much of Apple's success has been due to the leadership of Steve Jobs. Creativity, visionary leadership, charismatic leadership and ability to adapt to change marks Apple's success under Steve Jobs. Steve Jobs thus has all the necessary attributes and characteristics to be considered as an exceptional leader.

Steve Jobs and Trait Theory :

Steve Jobs easily fits with the “great man” theory of trait leadership. He possessed distinguishable personality characteristics that made him an effective leader. Some of the personality traits that make him unique are;

• Self-confidence: Steve Jobs always believed that he was making a difference. He had commented that “People don't know what they want”, and relied on his intuition rather than focus groups or market research (Isaacson 2012). He is known for standing by his decision in the face of opposition.

• Intelligence : Steve Jobs was regarded as a genius (Isaacson 2012). Apple's innovative products are examples of his intelligence coupled with visionary and self-confidence characteristics.

• Drive : Jobs was a very driven man. When Jobs got fired from Apple in 1985, he could have easily retired as he was a multi-millionaire back then, but instead went on to create two new, very successful companies in “Pixar” & “NeXT”. It is his drive and sense of responsibility that pushed him to live up to what he promised. At the same time Steve Job's drive can be described as entrepreneurial. An entrepreneur is characterized as someone with high degree of enthusiasm, visionary and a risk taker (Nahavandi, 2006).

• Enthusiasm: Steve Jobs was very energetic and passionate on what he did, as he said “I was lucky – I found what I loved to do early in life” (Jobs, 2005). His speeches always indicated a large degree of enthusiasm. One of the last speeches he gave in March 2011 for the “ipad2” launch, just a few months before his death was full of enthusiasm for that new product.

Steve Jobs as Transformational leader:

Steve Jobs is the only CEO of this generation who has successfully transformed four different industries: computing (the Mac), music (the iPod and itunes), mobile phone (the iPhone), and movies (Pixar). In this sense he is an example of transformational leader. Jobs was perceived as charismatic with a clear vision, ability to inspire others and passion for Apple, Inc. These qualities are prerequisites of transformational leaders (Buchanan & Huczynski, 2010, p.618).

• Visionary leader;
  Apple Inc, led by Steve Jobs has proven itself at giving customers what they want before they know they want it. (Kahney, 2008). He had an uncanny ability to communicate his visions which led to incredible first-of-a-kind products like itunes, ipod, iphone, ipad. Job's vision of Apple products as more than productivity tools turned into a world phenomenon opening the eyes of industry and general population alike.

• Charismatic leader;
  Steve Jobs is extremely charismatic. He is known for his ability to captivate the audience’ attention during his speeches. He is seen as an idol and role model in the eyes of many people (Elkind, 2008). His charisma enabled him to motivate his employees to achieve more by transcending their own self-interest for the sake of Apple. His vision, and his ability to communicate it are the main attributes that makes Jobs to be perceived as charismatic.

However, he does lack the “Individualized consideration” attribute of a transformational leader. Steve Jobs is well-known to be arrogant and difficult to work with (Elkind, 2008 ; Kahney, 2008;Taylor ,2009). Especially in team meetings, Jobs leadership style tended towards screaming and humiliating employees who disagreed with his ideas. He made them work 90 hours weeks, and brutalized when they do not accomplish a huge task on a small deadline (Allen, 2011). He probably believed in being a belligerent leader as he acknowledges ”These are all smart people I work with, and any of them could get a top job at another place if they were truly feeling brutalized. But they don’t.”(Issacson, 2012)

Steve Jobs as Transactional leader :

Even-though, Steve Jobs had plenty of transformational leadership attributes, he was also known for his task oriented style.

His behavior in meetings can be perceived as authoritative. He was a micromanager and according to Elkind (2008), he maintained close control of the day-to-day affairs of his business. Jobs admits that he had up to 100 individuals reporting directly to him which is rare for any CEO (Isaacson,2012). He did not seem to trust all of his employees. Apple is well known to be very secretive when dealing with the outside world, but it is equally secretive within. Apple employee's electronic security badges are programmed to restrict access to different areas of the campus (Kahney, 2008). The employees often have no insight on what their own company's various departments were up to.

It is these traits in Jobs, the micromanagement, control, and lack of trust in his employees that characterize him as a transactional leader.

Jobs’ leadership is difficult to categorize because his patterns and behaviors fit many of the leadership theory. He definitely possessed a unique combination of special traits and inherent leadership characteristics. The power of his personality makes him an ideal candidate for the trait theory model implying that leaders are born and leadership is art, not science. However, Steve Jobs was also a composite leader in a way, that he has shown that his leadership is situational as his leadership behavior  varied depending on circumstances. Steve Jobs faced a lot of different market situations during his career as the CEO and he has succeeded in all by adapting his organization based on contingent factors. He was both a transactional and a transformational leader. He might lack the trait of being sensitive toward the employee's emotional needs but Jobs’s rudeness and tyranny behavior were accompanied by an ability to be inspirational (Allen, 2011; Kahney, 2008).

Conclusion :

In summary, we have seen how early research on leadership searched for special traits and inherent characteristics to identify naturally born leaders. Subsequent research looked at leadership from the complex situational and contingency factors and how leaders emerged in these contexts. Leadership theories progressed from static to dynamic considerations and from viewing leadership as art to leadership as science .

Looking at Steve Jobs leadership legacy, we can recognize that none of the four ‘generations’ of leadership theory can be considered as mutually exclusive alternatives. Leadership may be something of an art; but it definitely requires the application of specific techniques to be effective. Steve Jobs has pursued all four theories in a balanced manner and I believe his leadership style was a key factor in Apple’s success.

References :

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CASE STUDY: RyanAir, Strategy Analysis - 2012

1 INTRODUCTION

Ryanair was founded in 1985 with only two aircrafts and a single Dublin-London route . By

2010 Ryanair had transformed itself into Europe's leading low cost airlines with 232 aircrafts flying to

153 destination. Ryan Air's strategic objective has been to offer the lowest possible air fare to its

passengers and strive towards becoming europe No.1 Low Cost airlines. In this paper we will explore

and analyze Ryanair's competitive position, strategic capabilities and sustainability of its strategies.

2 COMPETETIVE POSITION

2.1 PORTER'S FIVE FORCES FRAMEWORK;

Threat of New Entrants: LOW

• High entry barrier due to large capital requirement, longer procurement and marketing period.
• Restricted airport slots availability.

Threat of Substitutes: MEDIUM

• Threat of alternative mode of transportation like high-speed train and ferries within Europe.
• Customers can easily switch to driving.

Buyer's Bargaining Power: MEDIUM

• Customers are price sensitive.
• No customer loyalty as customers can easily switch to another airline offering lower price

Supplier's Bargaining Power : HIGH

• Entire fleet is made up of Boeing aircrafts.
• Fuel prices are fluctuating.
• Regional Airports can increase the fees.

Internal Rivalry : HIGH

• Highly competitive Low Cost market with Easyjet, Aer Lingus,etc.
• Easy to imitate the Low Cost model by a Full Service airline.

2.2 PESTEL ANALYSIS;

Political: HIGH

• Political stability within europe but risk of tighter regulations.
• Airport Security restriction and enhanced passenger screening measures.
• Risk of labour law changes.
• Airport subsidies dependent on regional/local government.

Economical:HIGH

• Eurozone financial crisis, economic downturn.
• Rising and uncertainty in fuel cost.
• Falling US Dollar.

Social Cultural: LOW

• Change in consumer travel lifestyle and demographics.
• Customer environmental awareness.
• Increase in discretionary income, making air travel popular.
• Business travelers forced to fly in Low-cost airlines due to slowdown.

Technological:LOW

• Increase in aircraft R&D resulting in newer fuel efficient and quieter aircrafts.
• Internet technology helps to lower operational costs and create new business opportunities within the airline industry .
• Technological growth in the cheaper high-speed trains, ferries services.

Environmental:LOW

• Laws to curb Carbon footprint and global warming concerns.
• Airport curfew regulations for controlling noise pollution.

Legal:MEDIUM

• Potential lawsuits against the legality of subsidies received from regional airport governments.
• Allegation on misleading advertisements.
• Potential lawsuits on passenger discriminations (fat tax, wheelchair fees).

2.3 SWOT ANALYSIS;

Strength:

• Strong Brand Recognition as a low cost leader.
• Cost conscious corporate culture with innovative cost reductions.
• Flight punctuality due to operational efficiency.
• First mover advantage and high experience curve.
• Modern and uniform fleet of aircraft.
• Happy Employees

Weakness:

• Negative publicity
• Poor customer service, so customers are coming to Ryanair only for the value for money.
• Does not fly to major airports.
• Regional airports limits passenger market.

Threats:

• Full Service airline can easily start a low cost spin-off.
• Substitute mode of transportation like Cars, Trains & Ferries.
• Pressure to unionize.
• Fuel Price fluctuations.

Opportunities:

• Expanding tourism industry.
• Eastern european expansion.
• Gain further market share by introducing medium haul destinations in eastern europe.

From the PESTEL and Porter's Five Forces analysis, it is evident that Ryan Air is operating in a

highly competitive and unfavorable business environment. The biggest macro environment threat

facing Ryanair is the political environment and fluctuations in fuel prices, both of which are not in

Ryanair's control.

From the SWOT analysis, Ryanair strength is being the leader in low cost airline industry.

However this cost leadership has come at the expense of customer service. Ryanair should improve its

customer service to build customer loyalty. Ryanair faces threats from competitors and substitutes

mode of transportation, but should seize opportunities in the eastern European expansion.

3 STRATEGIC CAPABILITIES

Strategic Capabilities and Competitive Analysis;

Resources Competencies

Threshold Capabilities

• Aircrafts
• Employees
• Financial resources
• Point-to-point short haul flights
• Flying to secondary airports
• Online booking system with www.ryanair.com

Competitive Advantage Unique Resources

• Management and leadership of Micheal O'Leary.
• “Ryanair” Brand name

Unique(Core) competencies

• Innovative cost cutting
• Alternative revenue generation

Ryanair’s Strategic Capabilities and Competitive advantage can be attributed to its Unique

Resources and its Unique(Core) Competencies;

Management and Leadership:

Michael O'Leary, the CEO of Ryanair is instrumental in the Low Cost Strategy of

Ryanair. Some of the most creative cost cutting methods implemented in Ryanair came directly

from him. He has been effective in exploiting and managing the core competencies of Ryanair.

By developing the human and Social capital overtime, the cost cutting culture is embedded

throughout the organization.

Ryanair brand :

Ryanair has built a strong brand based on cost. The Ryanair brand sends a simple, consistent

and compelling message, i.e low cost.

Innovative cost cutting method:

The heart of Ryanair's strategy involves reduce cost at wherever possible and pass the

savings to the customer with low ticket prices. All the activities in its operations are designed to

increase efficiency and reduce costs. To achieve this Ryanair had to continuously come up with

very Innovative Cost reduction methods across each and every stages of its supply chain. For

example by offering a very few services at the airport, like limited airport check-in facilities or

removal of baggage transfer, Ryan Air doesn't have to have personnel in these areas.

Lower customer service cost and elimination of ticket agent fees by high utilization of

internet to sell tickets.

Ryan Air uses only single type of aircraft, Boeing 737. By having a uniform fleet, it has

helped to lower its maintenance costs and time. This reduces cost in maintaining only fewer

inventory of aircraft maintenance parts and training of maintenance engineers. Also engineers

have become experts in this aircraft and contribute towards innovation on aircraft efficiency.

Having fleet commonality helps with quick and flexible cabin crew and pilot assignments.

Ryanair flies offers only point-to-point route and flies to less expensive secondary

airports which charges lower airport fees. Since these airports are not very congested, Ryanair

can attain fewer delays and higher turnaround times.

Ryanair employs a non unionized workforce. Ryanair employees are tied to performance

related salary model which forces high productivity among employees.

Alternative revenue generation/Ancillary Revenue:

Ryanair's ultimate goal is to offer free flights by generating revenue through other

means. It has constantly been creative in finding new sources of revenue onboard their flights.

Some examples of this are inflight advertisements, on-board shopping and gambling, pay-perview

television. All the flight attendants get commission on the items they sell onboard.

Customer amenities like food and beverages, airport checkin, baggage checkin and any other

additional passenger service is charged higher than normal. RyanAir currently generates non-air

revenue from third party service provides like car rental, hotel reservation, travel

insurance,ground and rail transportation which it sells on its website.

4 SUSTAINABILITY OF STRATEGY

A corporate strategy is sustainable as long its competitive advantage is maintained. Ryanair will

undoubtedly face challenges in the future, however its strategy is sustainable because of its unique

resources of 'Ryanair Brand', 'Cost Conscious Management ' and its core competency of ‘Innovative

cost cutting strategy’.

RyanAir's goal is to offer the lowest ticket price and establish itself as a leader in the European

low cost airline market by focussing on cost cutting and achieving operational efficiency. Ryanair's

corporate policies are all based on cost cutting. Irrespective of whether Michael O'Leary stays or not,

the low cost culture is deeply embedded throughout Ryanair’s organization and this culture is

sustainable. Ryanair's management and employees have continuously come up with creative and

innovative ideas to cut cost throughout its value chain. Also, throughout the years Ryanair has built up

a huge low cost operations experience curve which will help it sustain in the future.

Ryanair brand is synonymous with low cost airline. The Ryan Air brand along with its market

dominance gives it a huge bargaining power that will help it to sustain it’s low cost operations. Ryanair

has been the most profitable airline and is financially stable to counteract any uncertainty. Now that

Ryanair is a leader in low cost airlines industry, it can benefit from economies of scale, corporate

infrastructure to achieve lower costs and higher profits.

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CASE STUDY: SABMMiller Acquisition Strategy

Up until1990s, SAB was a regional player in South Africa. With the ending of apartheid a range

of new growth opportunities opened up for SAB. The 1990's saw SAB's strategic focus shift from

pursuing purely regional growth to towards globalization. It began expanding and growing

internationally by acquisition. SABMiller's acquisition strategy was based on three key trends ;

• Growth in emerging markets
• Increasing popularity of premium brands
• Industry consolidation

SABMiller 's strategic logic behind acquisitions can be viewed from its acquisition management in

emerging market and the acquisition management in developed markets.

• Acquisitions in Emerging markets;

SAB's first wave of acquisition started with acquisitions of small local breweries in the easter

european countries and continued within the other developing countries in Asia & Latin

America. Its growth during 1990-2000 has come through entering developing markets,

acquiring businesses and brands, and growing them. Its acquisition philosophy can be summed

up as;

• Acquire a local established brand, value-add by leveraging SABMiller's capabilities to improve local brewer's financial and operating performance.
• Use SABMiller's marketing efficiencies to increase the value of the local brand, then penetrate the local market further with efficient branding & distribution strategy.
• Once business in the local market is well positioned, then continue to make other local acquisitions, which adds further value by operational synergies.

During the 1990s, SAB expanded into Africa, Hungary, Romania, Poland, Slovakia, Russia.

When acquisitions was not possible it had pursued Joint Venture or partnerships in India,

Vietnam & China. Some of the joint ventures was later acquired completely by SAB.

SABMiller's has traditionally pursued growth with expanding into emerging markets,

however starting early 2000 onwards, it moved towards a balanced diversified portfolio by

entering developed markets. Emerging markets offer high growth but are very risky, where as

in a less risky developed markets, SABMiller can maintain margin and volume.

• Acquisitions in Developed market;

The next wave of acquisitions which began around 2001 onwards, was more about mergers of

larger & established brewing companies in developed countries in US & Western Europe. The

acquisitions from 2001 – today was motivated towards building a balanced brand portfolio

supported by a global operational consolidation, but at the same time taking advantages of

economic growth in emerging markets.

In 2001,SAB acquired Miller Brewing Company. Acquisition of Miller which was a

large company gave a significant market share in US, immediate visibility in developed market

and an opportunity to apply SABMiller's capabilities to improve Miller's operating performance

and increase economics of scale. It also gave new sales opportunities to position other

international brand from its brand portfolio to the US market.

In developed mature markets, beer consumption is declining and consumers are moving

towards “premiumisation”, the process where the consumers move from mainstream brands to

premium brands (Elliot, 2009). The premium beer segment made the industry attractive as it is

fast growing. SABMiller had to build a portfolio of international brands to be strategically

competitive. During 2003 onwards premiumisation had formed an important element of

SABMiller’s growth strategy (Annual report 2003).

SABMiller started acquiring brands in developed countries like Grolsch, Perroni, to get

immediate access to established market and also to enhance its market share in premium beer

markets. This strategic logic for the acquisitions in the developed countries acquisition can be

summed up as;

• Acquire a well established brand to get immediate market access,
• Renovate and relaunch the core brand and strengthen it. For Ex; Miller Draft & Miller Lite in US, relaunch of Perroni in UK.
• Broaden the brand portfolio to include international brands and leverage global capabilities to optimize both local and global brands.
• Introduce premium brand when the market gap for premium beer exists.
• From SABMiller's Ansoff Matrix analysis (Appendix E), SABMiller had exploited the brand extensions opportunities in both emerging and developed markets by product development and market development.

• Acquisition of Fosters in 2011;

Acquisition of Fosters' can be looked along the same lines as SAB's acquisition of Miller

to enter US. This acquisition will allow SABMiller an industry visibility in Australia. Foster is

an established company with a significant brand portfolio in Australia with 40% export market

(SABMiller Fosters Presentation, 2012). The acquisition of Foster also gives SABMiller the

turnaround opportunity to apply its capabilities to improve operating performance,improve

quality and gain further market share and Brand extensions.

Mergers and acquisitions has been the most important strategic choice for SABMiller to achieve

globalization. Emerging markets are important for SABMiller as developing countries have the high

growth potential, whilst the beer consumption in developed economies are declining. SABMiller

should continue building an international premium beer portfolio which is a growth segment in the

developed economies, but at the same time focus on emerging market expansion especially China and

India.

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