2012 Case Study Apple Inc

17
April
STRATEGIC MANAGEMENT AND BUSINESS POLICY CASE ANALYSIS

By Steven Goncalves, Joshua Kim, Matthew McDonagh, Michael Natale, Richard Ragusa, & Harpreet Singh
Case Study:
Apple Inc.
STRATEGIC MANAGEMENT AND BUSINESS POLICY ANALYSIS
Business Profile: APPLE INC.
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Table of Contents
Section 1 – Current Evaluation of Apple, Inc.
Financial Indicators…………………………………………………………...1
Business-Level Strategies…………………………………………………...3
Corporate-Level Strategies…………………………………………………..4
Corporate Governance and Culture………………………………………...6
Section 2 – Environmental Analysis

Political Analysis………………………………………………………………8
Economic Analysis……………………………………………………………9
Societal Analysis……………………………………………………………...9
Technological Analysis……………………………………………………….9
Task Analysis………………………………………………………………..10
Potential Opportunities……………………………………………………...12
Potential Threats…………………………………………………………….13
Section 3 – Organizational Analysis

Value Chain………………………………………………………………….15
Distinct Value Chain Competencies……………………………………….17
Potential Strengths………………………………………………………….18
Potential Weaknesses………………………………………………………19
Section 4 – SWOT Analysis

Fitness of Current Strategies………………………………………………21
Strengths to Capitalize Opportunity……………………………………….22
Strengths to Avoid Threat…………………………………………………..22
Opportunities to Overcome Weakness……………………………………22
Minimize Weaknesses to Avoid Threat…………………………………...23
Recommended Alternatives………………………………………………..23
Implementing New Strategies……………………………………………...24
Concluding Thoughts……………………………………………………….27
1
Section
S E C T I O N 1 – C U R R E N T E V A L U A T I O N
Current Evaluation of
Apple Inc.
A detailed overview of the company’s current performance, strategies, and system of
governance
S
ince its inception back in the 1970s, Apple Inc., like any company, has had its
distinguishable ups and downs. Today, it breeds success in nearly everything it
does and the company is often admiredi as one of the strongestii, most valuableiii
firms in existence. Through a brief study of the corporation, it quickly becomes
evident that Apple Inc. has and still continues to work hard at maintaining healthy
positioning within its industry. Through a further in-depth analysis of internal and
external factors affecting Apple Inc., this report aims to uncover whether the
company’s high confidence level is indeed warranted, why that is the case, and
what further actions should be taken by the company moving into the
immediate future.
Financial Performance iv
When people hear Apple Inc., they think of phenomenal electronic devices, such as the
iPod, iPhone, MacBook, and iPad. These phenomenal products have translated to
extraordinary financial performance. In its most recent fiscal year, Apple’s Sales,
EBITDA, and Net Income have all increased, growing by 65.96%, 83.41%, and
84.99%, respectively. Apple’s EBITDA, operating profit, and profit margins came in
at 32.89%, 31.22%, and 23.95%, respectively. A few more ratios that highlight Apple’s
profitability are Return on Invested Capital, Return on Assets, and Return on Equity.
In FY 2011, Apple was able to deliver a ROIC, ROA, and ROE of 38.56%, 27.07%,
and 41.67%, respectively.
However, looking at these profitability metrics in isolation does not tell much of a story
and, in order to add some context, cross-sectional analysis should be used to compare
Apple to its industry peers. Looking at the chart below, Apple’s dominant financial
performance becomes increasingly apparent, with all of its metrics being above the
industry average. As shown below, Apple’s financial performance is not simply above
average; the company is clearly leading its peer group.
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Apple’s astonishing financial performance can also be seen through time-series analysis.
The charts below show the main components of Apple’s statement of operations and
key margins over a five-year period.
As is evidenced quite clearly from the diagrams, Apple Inc. has been able to translate
its products directly into high sales and growth, mainly due to the firm’s strategic
marketing. It is also important to point out that Apple has been able to effectively sell
its products at premium pricing to match its high-tech, high quality image, while still
reducing production and operation costs. These margins create a greatly increasing
profitability, especially as has been the case over the past five years, wherein Apple has
managed to increase its bottom line profit margin by nearly ten percent.
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In viewing excerpts from Apple’s statement of financial position, one may notice that
the company has more than enough total cash in reserves to pay off its total current
liabilities, something of grave rarity among all kinds of businesses. Further, Apple Inc.
even has greater current assets than total liabilities. Overall, it can be comfortably
stated that Apple’s financials are quite healthy, matching the status of the firm’s brand
image, both of which the company has worked hard at strategically building and
continues to do.
Business-Level Strategies
As with any given company, Apple’s reason for existence and motivation for future
practices lies in its mission statement. Where Apple’s mission differs from those of
many other firms is in the manner with which it is stated. For this reason, it may be
considered unconventional, and below is the statement as it appears on the Apple Inc.
official website:
Apple designs Macs, the best personal computers in the world, along with
OS X, iLife, iWork and professional software. Apple leads the digital music
revolution with its iPods and iTunes online store. Apple has reinvented the
mobile phone with its revolutionary iPhone and App Store, and is defining
the future of mobile media and computing devices with iPad.v
One may interpret this mission statement as arrogant compared to its industry
competitors. Regardless, the fact of the matter is that the statement is constructed with
a declarative, matter-of-fact nature, pointing to the company’s ongoing
accomplishments at the forefront of the industry.
What makes Apple extremely competitive and successful these days is its strategy of
leveraging its exclusive proprietary ability to design and develop operating systems,
hardware, software, and services for its customers, with innovative and fully integrated
ease of use. Because of the nature of its high-tech, innovative products and services,
Apple Inc. implements and strongly adheres to its strategy of dumping heavy and
continual investment into its research and development endeavors, as well as its
advertisement campaigns.vi
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Rather than going the route of lower cost strategy, because of its heavy technological
breakthroughs and strong marketing of its new devices and developments, Apple Inc.
makes splendid use of differentiation strategy to secure competitive positioning within
its industry. The conceptual actions of its offerings is highly imitable by nature, but
what is highly inimitable is the exact ways in which Apple’s products are designed –
Apple products are often imitated, but never quite duplicated by competitors, making it
extremely difficult to dethrone Apple Inc. as an industry leader.
The company works hard on many fronts to design, manufacture, and market mobile
communication and media devices, personal computers, and portable digital music
players, and to sell a variety of related software, services, peripherals, networking
solutions, and third-party digital content and applications. Selling to consumers, small
and mid-sized businesses, and education systems, enterprises, and government
agencies, Apple Inc. offers iPhones, iPads, iPods, Macs, Apple TV, consumer and
professional software applications, iOS and Mac OS X operating systems, iCloud, as
well as a broad range of accessories, services, and support.vii Moreover, Apple quite
effectively broadens its competitive scope with each new product and with each new
development within those product lines, taking full advantage of any target market it is
able and willing to tap into.
That being said, it is necessary to bring attention to the pricing strategy Apple Inc. is
just recently trending towards. Although it does not follow a pricing model that offers
its products for cheap, the company has been coming out with new versions of its
product offerings that have only slight variations to their predecessors, which then
allows Apple to continue sales on older versions at slashed prices. Apple has done this
with its iPhone and iPad lines, most notably, and by doing so, has been able to
effectively compete with lower-cost rival competitors.viii
Corporate-Level Strategies
From Apple’s humble beginnings as a garage-headquartered startup, it has been in the
genetic makeup of the company to be user-friendly. Correspondingly, a large portion
of Apple Inc’s corporate strategy revolves around the use of its resources to produce
and integrate both hardware and software placed into its product offerings. In the
consumer electronics industry, this is a major difference between Apple and its
competitors, since many competing firms build products using other firms’ hardware
or software in its devices, driving profit margins downward. Because Apple can focus
on pairing all self-produced hardware and software components in its offerings, it is
able to eliminate the higher costs and poorer quality of third-party companies’
programming.
Quality is, of course, a huge focus for Apple in its corporate-level strategy, allocating
many resources to the upkeep of its distinguishingly high-quality goods and services.
Apple has continued to produce technologically advanced goods that are also designed
to be extremely sleek and ahead of their times. The innovative design planning,
whether the products are proven successful or not by sales, give way to further
progress and trendsetting, eventually translating directly to higher profit margins.
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Apple’s strategy is to target those consumers willing to spend enough for its products,
all of which fall into the upper echelon of the industry in terms of quality, price, and,
occasionally, the midrange price level. It is by these methods that Apple effectively
captures customers and profit margins, and keeps a long-run grasp on both.ix
There are three general directional strategies a company can take: growth, stability, and
retrenchment. Apple Inc. is clearly moving in the direction of a growth strategy as it
looks to continually expand its product lines, thereby dominating the consumer
electronics market, especially in terms of mobile electronics. Once the company selects
this grand directional strategy, it must decide which specific sub-strategy it needs to
implement in order to indeed move in the direction of continued growth. Within its
growth strategy, Apple has chosen concentration methods, through both vertical and
horizontal growth, as a means to achieving that end.
Apple Inc. has been increasing its direct involvement in the operation of its value chain
by both backward integration and continuing forward integration. In the 1980s,
Apple’s involvement in the front-end of its value chain came to an end with the closing
of all its retail stores, as mass merchandisers, such as Sears and Circuit City, emerged
and prospered. However, by May 2001, Jobs revitalized, restructured, and re-
implemented forward integration within Apple Inc. once again. Jobs’ return saw the
reopening Apple Retail Stores in places of heavy traffic by individuals of the company’s
target market, and the company continues to do so today, as can be seen by the
increase in average stores from 288 in 2010 to 326 in 2011. This strategy has worked
extremely well for Apple.
There are two common ways in which a firm achieves horizontal growth. One is to
expand operations geographically in order to penetrate new markets, and the other is to
expand product and service offerings to markets already penetrated. What is great
about Apple Inc. is that it has and currently continues to do both. In fiscal 2011, the
company distributed its iPhone to 105 countries worldwide through 228 mobile
carriers, as opposed to only 89 countries through a mere 166 carriers in fiscal 2010. In
just a year’s time, Apple has made notable progress in its geographic expansion,
entering many new markets around the world. Apple Inc. has also increased its
product range and services by introducing altogether new products, like 2010’s third
quarter introduction of the iPad, as well as 2011’s fourth quarter introduction of
Apple’s iCloud.x
Apple has even made some reasonable progress in the way of environmental
sustainability and turning the company more “green”. Although not directly affecting
consumers, the company has undergone a strong series of changes to its corporate-
level strategy with the implementation of new environmentally conscious
manufacturing and shipping practices. Apple Inc. designs its products to now use less
material, and it packages and ships them in less material as well. The company strives
to build its products to be as energy efficient and recyclable as possible, even insofar as
entirely ridding its product lines of harmful substances its industry is scrutinized for
such as arsenic, brominated flame retardants (BFRs), mercury, phthalates, and
polyvinyl chloride (PVC). Apple has recognized problems within its industry, relating
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to harm done to the environment, and has effectively made changes in an attempt to
minimize the affect its continual growth has on the ecosystem.xi
Corporate Governance and Culture

Looking at Apple’s business-level strategies more closely related to corporate
governance and culture, one can see another integral reason for the success of Apple
Inc. Apple currently sits towards the top of the list of corporations with low corporate
governance risk, a great statistic considering how much distaste there exists for Boards
of Directors. A major criticism of a Board of Directors is that many top executives
from within the company, whom the Board is meant to keep in check and govern, may
themselves also hold a director position on the Board. This leads directly to risk in the
area of governance, since there may be too much leniency for C-level executives or
reluctance on the part of the Board to handle true issues, due to the imbalance of
power that such a situation brings about.xii
Apple, Inc. has worked to effectively eliminate such governance risks by assembling a
Board of Directors, which contains only one internal member, the reigning CEO of
Apple, Tim Cook, who quite notably does not fill the role of Chairman, as many CEOs
in corporate America do. Of the remaining external directors, each comes from a long
history in industries other than technology. This may play a large part in the success of
Apple Inc.’s corporate governance as well, since its Board members are multi-
dimensional in their lines of thought and execution due to their varying backgrounds
and experience.xiii It is also important to mention that Apple has recently changed its
policy dealing with the election of directors to the Board. Apple is no longer using the
old process of selection by simply plurality. Now, Apple has implemented selection by
majority, a direct response to the explicit sentiment of its shareholders, who wanted
more power over such decisions.xiv Due to this move, Apple’s governance was
commended greatly and received an especially “ringing endorsement” from its
shareowners, who where quite happy to be granted a voice in the election process.xv
Apple also has eliminated such risk by implementing other policies to which executives
and directors must firmly adhere. For instance, the Board of Directors is expected to
hold meetings at least four times each year wherein there are to be no internal
management Board members present (CEO Tim Cook, in this case).xvi The company
also subjects its Board members and C-level executives to certain periods of
“blackout,” wherein those individuals are by no means allowed to trade stock, even
further helping to lower governance risk within Apple, Inc.xvii In fact, according to the
Institutional Shareholder Services (ISS), Apple Inc. currently has a Governance Risk
Indicator (GRI) of “low concern” in its audit, board, and shareholder rights categories,
with only a “moderate concern” status in its compensation category.xviii These ratings
serve as an indicator that Apple’s current corporate governance is well situated and
reasonably effective.
In terms of overall corporate governance and culture, however, one might argue that
above all, it is the company’s Business Conduct Policy that effectively sums up the
character Apple Inc. strives to embody. This policy is meant to regulate the everyday
6
actions of all Apple Inc. employees worldwide, unconditionally, which may be the most
recognizably effective tool within the company’s repertoire of governing tactics.
Among the many operative instructions and cultural guidelines, the document
mandates that all Apple employees place emphasis on ethics, honesty, and full
compliance with laws and regulations whenever business decisions are to be made,
across all areas of the company worldwide. Specifically, the four principles that the
company uses to define the manner in which it does business worldwide are honesty,
respect, confidentiality, and compliance. As the Business Conduct Policy states,
Apple’s success is not only “based on creating innovative, high-quality products and
services,” but also “on demonstrating integrity in every business interaction,” from the
top down.xix
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S E C T I O N 2 – E N V I R O N M E N T A L A N A L Y S I S
2
Section
Environmental Analysis of
External Factors
A detailed overview of the factors outside of Apple Inc., and how the environment in
which the company operates may pose threats or weaknesses
A
pple Inc., like all other companies out there, falls victim to the environment in
which it operates. At some point, to some degree, the outside environment
becomes a governing agent that, in the very least, dictates the boundaries to
which companies are confined. Although Apple has done notoriously well
with respect to ever-expanding its reach within its industry despite all kinds of
adversity, it must not ever fail to recognize that there are nevertheless potential threats
and weaknesses that arise as a result of environmental factors outside of the
organization.
Political Analysis
Sole-sourced outsourcing partners located in the United States, Asia and Europe
manufacture and provide the supply of Apple products. The outsourcing partners
in Asia are primarily responsible for the final assembly of Apple’s products. As a
result, the disruption of manufacturing or logistics that is caused by political issues
in these locations can detrimentally tarnish the Apple Inc. brand image and
adversely affect its financial condition and operating results.xx For example, on
March 29, 2012, Apple’s auditors found “significant issues with working
conditions at three factories in China operated by Apple’s major supplier
Foxconn,” a direct violation of Chinese labor rules to which the contracting
company was required to adhere to.xxi In consequence, Apple is proactively
overturning these issues and plans to institute closer monitoring of factories in
order to ensure safe and positive working conditions are indeed upheld.xxii
Additionally, Apple is currently subject to many legal proceedings and claims, and
necessarily engages in litigation in its normal course of business due to patent
infringements and other violations of intellectual property rights called into
question. For instance, Apple litigation involvement includes the iPod, iTunes
antitrust litigation and the more recent Federal eBook price-fixing claims.xxiii
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Economic Analysis
According to the Wall Street Journal, the moderate recovery of the global
economy is becoming more “self-sustaining” despite continuing blowbacks from
the European sovereign debt crisis and the loosening of Asian political monetary
policies. As a result, on a global scale, inflation remains relatively high, while
consumer incomes remain relatively stagnant.xxiv High unemployment rates across
all corners of the world continue to inhibit consumer spending on “luxury goods.”
However, historically, demand for Apple Inc. products and services amongst
consumers has shown rise in the emerging markets’ technology sector, as well as
resilience against the frail global economy, through unique product developments
and foreign currency hedges against the weak U.S. dollar.
On that note, Apple makes good utilization of derivative instruments, such as

foreign currency forward and option contracts, to efficiently hedge against certain
exposures to fluctuations in foreign currency exchange rates against the US dollar.
Apple is able to then minimize the economic effects of inflation on its products,
and benefits from US dollar depreciation in the international marketplace.xxv
Societal Analysis
Apple’s socio-cultural forces revolve around the life style changes, population
growth rate, and age distribution of consumers, especially those whom may be
considered potential customers. The brand image of Apple Inc. portrays the
modern individual’s everyday lifestyle, combining functionality with design, and
leading to elevated brand identification and loyalty among its clientele.
Furthermore, age distribution can play a significant role in encouraging or
discouraging people to want the higher quality products Apple offers that are
more tailored to meet their needs. For example, the simplistic nature of the iPad
allows older generations to interact with younger generations through the audio
and video connection of the FaceTime application.
Technological Analysis
The technology industry for consumer electronics is continuously evolving
everyday due to the increase in competition within the market. Thus, product
lifecycles have been shortened from several years to merely months due to the
perpetual increase in capital injections into the “Research and Product
Development” area of the business. Historically, Apple Inc. has been able to
dominate the technology industry because of its lavish spending in research and
development. Additionally, due to economies of scale, Apple has been able to
produce its products while incurring low costs and while selling at a high premium
to consumers. As a result, the company’s leading innovative development of new
and perceptibly irresistible products has paved a path for competitors to follow.
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Additionally, with the revolutionary introduction of cloud computing, Apple Inc.

has dedicated many of its resources to working towards the creation and
advancement of seamless integration among all of its product lines. xxvi
Task Analysis
Michael Porter, who is considered an authority on business strategy development,
maintains there are five key forces that drive industry competition: (1) threat of
new entrants; (2) rivalry among existing firms; (3) threat of substitute products or
services; (4) bargaining power of buyers; and (5) bargaining power of suppliers.xxvii
These forces compose the intensity of competition in a given industry, which
Porter believes is a corporation’s biggest concern.xxviii Porter’s five forces play a
vital role in every industry, particularly the technology industry in which Apple
Inc. operates.
The threat of new entrants is a low force in the technology industry due to the
industry’s high barriers to entry. The technology industry is dominated by several
large firms – Apple, Microsoft, IBM, and HP, to name a few – all of which benefit
from economies of scale (large scale production and selling to the masses). In
addition, these large, established firms have access to distribution channels that
smaller technology companies would have difficulty obtaining because they cannot
afford the cost that large retailers charge for shelf space as well as advertising costs
associated with generating high customer demand.xxix Apple has one of the biggest
distribution channels when compared to its competitors because not only are
Apple products sold in retailers such as Best Buy, Apple also created its own
distribution channel by opening up its own stores where consumers can receive a
firsthand experience of every Apple product. Furthermore, hardware technology
companies such as Apple, HP, and Sony stand to benefit from product
differentiation. By offering many well designed, high quality products, Apple has
created a strong brand image and achieved strong customer loyalty, which would
make it very hard for a new company to take away some of Apple’s market share.
Moreover, technology companies require huge financial investments in resources
as well as research and development, which serve as another barrier to entry due
to high capital requirements. In addition, technology companies protect their
developments by filing for patents, which makes it effectively impossible for new
companies to emulate certain product offerings. Cloud computing technologies
are newer developments that have allowed companies like Apple Inc. to benefit
even further from barriers to entry. Data and applications are stored on one’s
Apple account and can be accessed on all Apple products. This creates a bigger
incentive for consumers to choose Apple over another brand.
Despite the high barriers to entry in the technology industry that make it very
difficult for new competitors to enter the market, there is intense rivalry among
the several large firms that do already dominate the industry. Most of the firms
are comparable in terms of size and capability, which contributes all the more to
intensified rivalry among firms.xxx Furthermore, most technology retail companies
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have a diversified product line, with each product having multiple competing
products. For example, Apple endures fierce competition from Google,
Microsoft, and Research In Motion (RIM) with respect to its smartphone
software.xxxi In regards to its smartphone hardware, Apple faces intense
competition from RIM, Samsung, HTC, and Motorola.xxxii For the iPad, Apple
receives competition from Amazon, Barnes and Noble, Microsoft, Samsung, and
HP. The company competes with different competitors for each line of business.
Nonetheless, Apple Inc. must be aware of the strides each company is taking in an
attempt to strip market share from it, so that Apple can come up with the
appropriate response to prevent that from happening.
Technology companies not only enter existing markets; they create new markets.
For example, before Apple introduced its iPad, the tablet industry was virtually
nonexistent. Therefore, due to the innovative culture in the technology industry,
technology companies always have to be cognizant of the threat of substitute or
imitation products and services. However, smartphones are rapidly becoming a
staple of American life and most people consider owning one to be a necessity.
For this reason, the threat of substitute products for smartphones is relatively low.
This is important for Apple because iPhone sales account for Apple’s largest
source of revenue.xxxiii On the other hand, the tablet industry is still in its early
stages and it is unclear whether consumers will continue to consider tablets a
necessary device to own, so the threat of substitute products for tablets is of
medium strength. Nonetheless, the substitute products for tablets are
smartphones and laptops, both of which Apple produces to be seamlessly
integrated with one another. It is conceivable that if iPad sales decrease, Apple
could make up for that lost revenue with an increase in iPhone and Macbook
sales.
Companies within the technology sector benefit from Porter’s force of bargaining
power among buyers, making it a low force in the industry. As a result of the
industry landscape, buyers receive bargaining power over their suppliers because a
single buyer’s purchases will likely make up a relatively large portion of a supplier’s
sales.xxxiv Moreover, technology companies have a lot of money and power and
could take advantage of backward integration if necessary. In addition, technology
retail companies have large global supply chains in which suppliers are not
concentrated. However, companies in the industry have unique and
technologically advanced products, which would make a transition from one
supplier to another a seemingly daunting task. Consumers also expect
technological products to be of very high quality, and a buyer may be concerned
that switching suppliers may sacrifice that quality.xxxv When a company uses a
supplier for a long time, it starts to develop a dependence on that supplier. For
these reasons, the bargaining power of suppliers in the technology industry is a
medium force, and it is important for buyers to develop good relationships with
suppliers, so buyers can be assured that their high quality products will be
produced and delivered on time at a good price.
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Potential Opportunities
Based on the analysis of the societal and task environments, Apple faces the
following major opportunities: strong growth in iPad revenue; growth in revenue
from emerging markets; a largely untapped SMB and Enterprise market; and a
further adoption of cloud computing, specifically in relation to the Apple TV.
Through the first quarter of fiscal 2012, iPad shipments exceeded analyst
expectations and will continue to be a large catalyst of growth for the firm in both
the short term and long term. By the end of fiscal 2012, Apple Inc. is expected to
sell 56 million iPads, which would generate over $33 billion in revenue.xxxvi This
increase in demand for iPads is due to the new release of the iPad 3 and
subsequent price cuts for the already coveted iPad 2. The tablet market is still in
its early stages and there are strong indications that it will continue to grow.
Contributing directly to that notion, tablet sales increased 155% in the fourth
quarter of fiscal 2011 compared to that of fiscal 2010, with Apple Inc.
commanding a strong 65% of the market.xxxvii By deploying more resources and
focusing more heavily on the iPad, Apple has the opportunity to increase its
already market-leading position in a fast growing, high margin industry. As
discussed in the analysis of Porter’s five forces, new competitors entering the
market do not threaten Apple’s growth in iPad revenues, and the company has a
major advantage over its current competitors due to the consumer perception that
the iPad is the best tablet.
Robust growth in emerging markets, specifically China, will be the most significant
growth factor for Apple moving forward. Its iPhone revenue in developed
countries is very strong, but growth in these markets has noticeably tapered.
China, on the other hand, is experiencing rapid growth and is expected to account
for 20.7% of the global smartphone market by the end of 2012.xxxviii China has
recently overtaken the US as the largest smartphone market by volume, despite
having a population that is more than four times bigger.xxxix However, unlike the
US, the China market is dominated by Google’s Android, which accounts for 70%
of China’s market.xl China represents an enormous growth opportunity for Apple
Inc. In 2011, Apple generated $13 billion in revenue from China, and CEO Tim
Cook says the company has only “scratched the surface.” xli Furthermore, back in
2007, Apple recorded revenues of $1.7 billion from emerging markets in Asia,
Latin America, India, and the Middle East. In 2011, revenues from those same
areas grew to $22 billion.xlii
Other than graphic designers and the occasional doctor who, for aesthetic reasons,
puts a Mac in front of his/her receptionist, the small to midsize business owner,
and especially enterprises, have been a slowly growing yet unexploited market for
Apple Inc. This may be due to Jobs’ focus on the consumer, but if Tim Cook
develops a good strategy, he may be able to establish a position within this SMB
and Enterprise market. Cook, having been an operations-minded executive for
some time now, is indeed capable of pulling off such a movement. In addition,
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there is no better time than now for Cook to attack this market, as HP and RIM
have both stumbled in the PC and smartphone industry, respectively.
As described in the Technology section of the PEST analysis, a recent trend in the
technology industry is the emergence of cloud computing. Cloud computing is the
ability to share resources, data, and information with multiple devices over a network.
It benefits Apple Inc. because it allows consumers to access their photos, applications,
emails, contacts, music, and more on each of the Apple products they own, without
going through the hassle of transferring everything to each device manually. More
importantly, cloud computing has enabled Apple to further develop Apple TV, a digital
media receiver that allows one to play anything from his/her Apple account directly on
a television. Apple TV also streams Netflix, YouTube, Flickr, MobileMe, MLB.tv,
NBA League Pass, and NHL GameCenter. There are rumors that Apple will expand
upon this device and develop a 42-inch HDTV with the Siri software built in,
eliminating the need for a remote. Apple has an innate ability to revolutionize markets,
so this could be a major opportunity for Apple.
Potential Threats
Due to the seemingly undaunted nature of Apple Inc.’s ability to perform, it does
not seem too farfetched to believe the company may actually be immune to
potential threats altogether. With that being said, Apple’s most serious potential
for threat is through heavy competition in the mobile platform and tablet market.
In the mobile platform market, Apple’s largest competitors are Google Android
and Microsoft. As of February 2012, Android captures 50-percent of the smart
phone market by heavily subsidizing its platform to major smart phone players
such as Samsung, Motorola, and HTC.xliii As a result, Samsung, Motorola, and
HTC are capturing consumers through a comparatively inexpensive pricing model.
This same situation is also being replicated in the tablet market. Currently, the
iPad dominates the tablet market over the Android Xoom and newly released
Amazon Kindle Fire.
Imitation products are another threat for Apple, especially now that many of the
features that Apple was distinguishably known for have been replicated, at least in
some form, by competitors. For instance, late 2011 saw Google’s introduction of
a new version of its Andriod, which sough to replicate a similar user experience as
Apple across its tablet devices and mobile phones with similar syncing features. xliv
Another example is the Evi application, which was released this past year, and
which was a direct competitor to Siri, the proprietary virtual assistant built into
Apple’s iPhone 4S. As a result, Evi, the $0.99 “speech-based search-and-lookup”
imitation product was removed by Apple from its App Store shortly after it had
been purchased by 200,000 users, a move aimed to prevent people from simply
downloading Evi on their older iPhone 4’s and to instead push them to buy a new
iPhone 4S.
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Due to this competition and imitation of products, consumers may view the
differentiation of Apples products as less attractive. Furthermore, consumer tastes
could change drastically, for whatever reason, and differentiation can become
irrelevant altogether in the consumer electronics industry, thus losing Apple Inc.
its premium place among technological firms in consumer electronics.
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S E C T I O N 3 – O R G A N I Z A T I O N A L A N A L Y S I S
3
Section
Organizational Analysis of
Internal Factors
A detailed overview of the factors within Apple Inc., and how the company’s internal
environment translates into strengths and opportunities
T
echnically, Apple Inc. is a consumer electronics firm. However, the truth
may be that it is more of a marketing firm than a technology company.
This evolution into a marketing machine was brought by the experiences
of the company throughout the years by learning from its mistakesxlv and
by trying to expand to create excitement in addition to meeting and exceeding
consumer expectations. It is precisely the organizational environment within
Apple Inc. that gives the company its backbone. This value chain analysis
highlights Apple’s activities that led to a transformative and wickedly profitable
company that consistently outwits its competitors at every turn. The major factors
within Apple directly converge to form a recipe of strengths and weaknesses the
company must handle in its everyday operations.
Value Chain
The primary activities that forms Apple Inc.’s value chain includes its inbound logistics,
marketing and sales, operations, procurement, human resources, and of course,
technology. Each operational aspect carries with it an importance with respect to the
value-added at Apple.
One major player in the value chain of Apple Inc. is the company’s general
management and administration. Apple is in a tremendous position thanks to its
leadership. The firm maintains over $100 Billion in cash and cash equivalents.xlvi This
affords Apple the ability to pursue innumerable opportunities for growth and
expansion with little to no cost of capital. In a world where margins are becoming
increasingly more important to stakeholders, the ability to self-finance mergers and
acquisitions activity is a massive advantage.
Human capital is also crucial in Apple’s value chain. The “Genius Bar” is the most
obvious example of Apple’s emphasis on creating the most knowledgeable and helpful
corporate culture. Apple seeks out and finds tremendously talented engineers,
15
designers, sales people and executives. Throughout Walter Isaacson’s biography of

Steve Jobs, Steve repeatedly references only bringing in “A-players” to work at Apple.
He clearly believed that a firm is the sum of its parts and that is why he insisted on
hiring the best (and firing the worst). Talent acquisition is only half the battle, however.
Apple is also an industry leader in employee benefits and compensation, which helps
retain the human capital it works so hard to build.
Technological superiority is probably the link in the value chain that most people
would say is synonymous with the Apple brand name. Apple Inc. simply builds better
products. This superiority comes as a direct result of the firm’s heavy (and ever-
growing) commitment to research and development projects. The period that saw the
birth of the iPhone and the conception of the iPad (2007-2009) coincided with a 66%
increase in R&D spending.xlvii Developing new technologies is clearly crucial to Apple’s
success, but protecting these newly developed technologies through the use of patents
is also critical. Apple holds over 16,000 patents globally, with 313 being connected to
recently deceased Apple Co-Founder Steve Jobs alone.xlviii
Procurement has had difficulty lately, as Apple has come under fire as of late for the
working conditions in some of its east-Asian facilities, as discussed in the previous
section. The reality of the situation is that Apple maintains a rigorous “Supplier Code
of Conduct”xlix and is a member in good standing of the Electronic Industry Citizen
Coalition (or EICC as it is commonly referred). Due to Apple’s sheer size and limited
product portfolio, it receives preferential treatment from most (if not all) of its
suppliers.
Apple’s new CEO Tim Cook is widely considered to be a master of supply chains.
This is clearly evident in Apple’s logistical input process. Apple utilizes a number of
systems that serve to dramatically reduce facility footprints and save space. Once such
system is an automated receiving system that can streamline immensely, as evidenced
by this quote: “If you receive less-than-pallet quantities, installing a sortation system to
automate receiving can help minimize travel time and reduce staging space. The
sortation system can facilitate crossdocking, or enable you to receive and route cartons
to where they’ll be put away.” l
Similarly, the manner in which the output of Apple’s manufacturing process is

packaged and distributed is simply amazing as well. The creation of the Apple stores
around the world allows the firm to maintain control of its brand image. It also insures
that there is a personal point of contact between Apple and the consumer. One of the
most amazing things is actually the packaging, due to its minimalistic nature by design.
The packaging utilized is extremely minimalistic for two reasons. The smaller/lighter
packing reduces shipping costs dramatically. Apple is conservatively projected to sell
between 80-100 million iPhones this year alone.li If Apple shaves just 1 oz. from each
package, it saves itself from having to ship approximately 6 million pounds per year
(and this is only one product line, so one might imagine the added impact of iPad and
Mac boxes, too). The second reason for such packaging is the minimalist packaging
does not distract from what the recipient should really be focused on – the product.
16
Whereas some companies can become bogged down by the gravity of their own size,
Apple Inc. efficiently and effectively uses its sheer size to its advantage, especially in the
way of its general operational activities. By utilizing economies of scale Apple is able to
produce its products at much lower price points. Apple also has become very adept at
focusing on doing what it does best, while outsourcing other work around which
Apple does not have a comparative advantage. It uses third party original equipment
manufacturers (OEM) to mass-produce certain pieces. Moreover, as a final operations
point, Apple is best of breed when it comes to having mechanical and electrical
engineers work together for the benefit of the product. Walter Isaacson’s biography
on Jobs has an entire segment dedicated to this phenomenon. In most other firms, the
internals (cpu, power source, graphics components, etc) are designed and then another
team of designers fabricates a casing based upon the size and design of the internals.
This is not the case at Apple Inc. There, both sides work collaboratively from the
onset to design near-flawless pieces of ingenuity.
The last piece of Apple’s value chain rests at the company’s sales and marketing forces.
Apple’s retail stores were touched on briefly already, with respect to outbound logistics,
but they deserve another mention here in terms of sales and marketing segment, since
the stores serve as an effective launching point for selling product offerings. In
addition to this, the stores themselves serve to increase brand awareness in the high-
trafficked areas of the general public domain, with the clean white space, organic wood
and stone, and members of the Genius team walking around fielding questions from
potential buyers. Another effective marketing technique is the manner in which Apple
unveils its product to the world. Steve Jobs mastered the product presentation. His
signature “oh, and one more thing…” line just before a major release became
synonymous with creativity and excitement. Something that Apple subsequently
became known for, and for which the company was expected to deliver its consumers.
Distinct Value Chain Competencies

Apple’s distinctive competence is a combination of procurement, input & output
logistics. Essentially, the distinctive competence is its overall supply chain
management. While it is true that technological innovation under Steve Jobs was
extremely impressive, it was not until the supply chain guru Tim Cook took the helm at
Apple Inc. that the company became the largest (in terms of market capitalization) and
most successful company in the world.
Apple thrives on its ability to deliver the highest quality product in as efficient and
effective a manner as possible. This competency originates with the incredibly
concentrated product lineup (Iphone, Ipad, Ipod, Mac & Apple TV). Apple’s small
product line allows it to really develop close-knit relationships with its suppliers.
Here is a quote from a Jeffries research report that highlights how Tim Cook’s control
of the supply chain has made Apple a nearly unstoppable force in the corporate world:
Even with the unfortunate events in Japan around the time of the iPad 2
release, Tim Cook was able to double or sometimes triple source
17
component suppliers. To date, no competitor has been able to gain

meaningful share in the tablet market; and, in our view, Cook’s leadership
during the introduction was critical to this.lii
Clearly Apple’s dominance will continue as long as it can maintain its highly efficient
and extremely admirable supply chain.
Potential Strengths
Through time, users of Apple’s products have witnessed that the company has
revolutionized the way it does business. The innovative mindset of Apple’s
management has led to the introduction of products that are viewed as cool, intuitive,
and simple to use, and most importantly, as ones that provide an amazing user
experience. Steve Jobs’ “Think Different” mindset has created a company that focuses
on bringing people great products that will change their lives, rather than profits. The
simplicity behind this culture provides the master plan for all the products the
company develops. The creative minds at Apple changed the playing field by creating
new business models that involved taking risks and boldly entering new markets.liii
Apple’s solid profit margins and return on equity are a result of a variety of factors.
For starters, the company’s innovative product designs result in tremendous amount of
demand from consumers all over the world. This strong demand coupled with
significant premiums over competitors’ products results in strong margins. In terms of
making its products, Apple’s choice in outsourcing the production of its products has
resulted in a more efficient and effective use of its resources. Its strong brand loyalty is
also a tremendous factor when it comes to selling its products.
The Apple brand carries a charm that arouses excitement, devotion, enthusiasm, and
even an obsession to some extent in its loyal fan base.liv The company’s unique and
non-traditional approach to marketing seems to win over many customers in the
technology sector. By creating user-friendly and cutting edge innovative devices, Apple
always seems to know ahead of time the desires, wants, and needs of the end users.
According to a recent brand loyalty survey, Apple emerged as the victor over other
well-known brand names such as Coca-Cola Co., Google Inc., and Amazon.com Inc.
Survey respondents listed quality as the main driver of loyalty, followed by customer
service. Overall, Apple retains its customers by knowing who they are, what they want,
and how they feel about its products. This focus of the company has been critical in
the success of the company since more than half of consumers using its products do
not even consider buying another brand.lv An important factor behind Apple’s brand
loyalty success has been the fact that Apple’s products complement and complete each
other.lvi For example, one’s iTunes content can be accessed across all the user’s Apple
devices such as an iPod, iPhone, iPad, or a Mac through the capabilities of iCloud.
This sort of integration between a user’s technology gadgets strengthens customer
loyalty leading to a high retention rate of customers.
18
Apple’s well-diversified product mix aids the company in terms of increasing its
revenues and profit margins. Recent dominance in the tablet and mobile phone
industries has made Apple the world’s biggest company in terms of market
capitalization.lvii In the most recently released quarterly earnings, Apple sold a record
27.04 million iPhones along with a record 15.43 million iPads. The phenomenal
growth in these two segments, coupled with strong sales in the Mac and iPod lines,
resulted in net income of $13.6 billion on revenue of $46.33 billion.lviii In addition to
these amazing sales in its current product mix, Tim Cook, Apple’s chief executive,
promised new products in the pipeline would continue to drive the company’s success.
Potential Weaknesses
One aspect of Apple Inc. that has a potential to be a weakness of the firm is its limited
internal backward vertical integration. Apple’s dependence on foreign suppliers as well
as manufacturers poses an internal weakness to the company. Due to recent flooding
in several regions of Thailand, a number of Apple’s suppliers may face downtime due
to the damage to infrastructure, housing and factories. According to the company’s
current assessment on the situation, the event is believed to have no material impact on
Apple’s operations in the first quarter of fiscal 2012. However, because the situation is
still evolving, uncertainty still remains regarding the ultimate impact of the event on the
company.lix
Apple’s iPhone success has been grounded on the company’s ability to lure mobile
carriers into subsidizing the cost of the device. Most consumers cannot afford the
iPhone without a contract and Apple is already using most of the major wireless
carriers in the world. Thus, this poses as an internal weakness of the company at the
moment and the company will need to either attract more carriers or reduce the price
of its mobile device as sold without a contract.
Steve Jobs’ death has put a considerable dent in the management of Apple. Jobs, the
visionary leader of Apple from the roots of the company, had a profound impact on
the gadget market. His knack for simple, yet futuristic designs won over the hearts of
many. Since he was involved in bringing Apple to new heights through the
introduction of wildly successful products, many people believe the company will not
be the same without his brilliance as a product visionary and a super-salesman.lx At the
helm of Apple now is Tim Cook, appointed by Jobs himself. Cook, the former
operations chief, has been handling the company pretty well. In fact, Apple has
reached to even bigger heights than ever before. However, only time will tell if this
continues, as investors and consumers will demand more innovative products from the
company in the future. It is anybody’s guess if Apple will continue to change the world
like it did under Jobs in the past few decades.
Apple is currently under pressure from shareholders and others in the under utilization
of the massive $100 billion cash the company has amassed over time on its balance
sheet. Recently, the company announced to pay its first dividend in 17 years and
buyback $10 billion in stock.lxi The planned move will cost Apple approximately $45
billion over the next three years. According to Cook, some of the cash has been used
19
to make great investments in the business through increased research and

development, acquisitions, new retail store openings, strategic prepayments and capital
expenditures in the supply chain, and building out infrastructural needs.lxii He also
claimed that the company is able to maintain a good amount of cash for these strategic
opportunities as well as have enough cash to run the business.
20
S E C T I O N 4 – S W O T A N A L Y S I S
4
Section
SWOT Analysis of Internal

and External Factors
A detailed overview of all the factors inside and outside of Apple Inc., how the
company is currently handling those factors, and what Apple should do moving forward
T
hough it may be difficult for one to conceptualize exactly how Apple Inc.
might be able to improve its functioning, an analysis of recent findings
suggests otherwise. The remaining portion will aim to bring closure to the
topic at hand, stating once and for all whether Apple is truly in as good a
position as publicly viewed to be, and what changes the company should implement
moving forward.
Fitness of Current Strategies

Through the examination of Apple Inc.’s current strategies, it is evident that the
company is indeed on to something, given the monumental success it has seen in
recent years. Apple Inc. has been increasing its direct involvement in the operation of
its value chain by both backward integration and continuing forward integration. In
terms of backward integration, Apple has an unrivaled supply chain, which has
contributed significantly to Apple’s coveted margins, but much of it is outsourced.
Thus far it has been successful. Due to recent events in Asia, Apple has looked to
begin in-housing certain integral aspects of its supply chain. For example, Apple has
been, for a few years now, acquiring companies with flash storage solutions, such as
Anobit Technologies Ltd, which is a key component in their devices.lxiii This has also
been successful in creating stronger offerings for consumers.
Strengths to Capitalize Opportunity

One of the biggest, if not the biggest, opportunity for Apple to grow its revenue is to
focus on emerging market countries. As discussed above, China presents an enormous
growth opportunity for Apple with a large smartphone market that is experiencing
rapid growth, but is still underdeveloped and currently dominated by Android. By
relying on its strengths of strong brand loyalty and a well-diversified product line,
Apple could eventually grow its business in China to its biggest revenue generator by
country.
21
Apple’s strengths of strong brand loyalty, innovative corporate culture, and well-
diversified product line could also enable Apple to pursue the opportunity of the SMB
and Enterprise market. Apple could adjust its product offerings to better satisfy the
needs of the small to medium sized business market.
Strengths to Avoid Threat

Apple strong brand loyalty can be used to avoid the threat of its competitors from
producing Apple’s highly imitable product line. Through Apple’s unique marketing
campaign and stylish technology, Apple is able to retain a larger majority of its
customers from product generation to product generation. For example, Apple’s
proprietary technology entices the consumer into a unique user experience with
seamless integration from Apple product to Apple product through the use of cloud
computing. As a result, the unique integration and product exclusivity disables
complimentary competitor products to be deemed obsolete by the Apple consumer.
Opportunities to Overcome Weakness

As discussed in the internal environment analysis, Steve Jobs’ death is a significant
weakness in the company. Although it is nearly impossible to replace such
leadership, the current management can prove itself by launching a product that
will revolutionize the industry it aims to change like Jobs had changed the music,
mobile, and tablet industries.
Through the use of Apple’s new iCloud service, the company can penetrate the
television industry through the introduction of a television set with a built-in
Apple TV, as discussed in the analysis of the task and societal environments. The
built-in features of this device will most likely appeal to the masses due to their
uniqueness. Considering the huge success of the iPhone and iPad, Apple will
probably once again change the way people do things, this time with television. In
fact, pursuing this idea would be in Apple’s best interest since the market for
advanced televisions such as this one is underdeveloped and if Apple can
introduce this product soon, it can once again capture a dominant share in the
market just like it did with the smartphone and tablet markets.
Minimize Weakness to Avoid Threat

Apple should work hard to minimize its weakness of limited vertical integration. As
referred to in the threats section, product imitation is a threat to Apple, as companies
try to replicate market-leading products (namely iPhones and iPads) and sell them at a
lower cost. Moreover, there is some crossover with Apple and other companies in
terms of suppliers used by each company. By Apple taking advantage of vertical
integration, the company will be able to develop a more unique product that is more
difficult to imitate due to little to no synergies in regards to suppliers.
22
Recommended Alternatives
After carefully considering the strategic alternatives in the section above, Apple
should pursue the following opportunities: increasing its presence in China,
particularly in the smartphone market; increasing its presence in the SMB and
Enterprise market; and the development of a widescreen television.
As discussed in the strengths section, Apple has one of the most popular brands in
the world and has strong brand loyalty due to its high quality products and
superior customer service. Apple’s strong brand loyalty will enable its iPhone to
prevail against the Android in China because the company is now subsidizing
phones in the country and can compete with lower cost phones that use the
Android operating system. Each individual that buys an iPhone becomes a
potential lifelong customer to Apple because of its high customer retention rate
and the integration properties. In addition, Apple is able to easily attract
consumers due to its strong brand appeal. As these two trends persist, Apple will
continue to steal market share from Android and eventually become the market
leader in China as well. Furthermore, Apple’s increase in iPhone sales in China
due to its strong brand loyalty will complement its strength of having a well-
diversified product line that is seamlessly and easily integrated with other Apple
products. This will likely increase demand for Apple’s other products as well.
Although Apple does not have an issue in this regard, consumers tend to be more
fickle and therefore swing towards the trendiest products available. However,
businesses make purchases and investments that will generate future economic
benefits and are a much more reliable customer base. In addition, business
spending in technology services, particularly for software applications used in
mobile computing and communication devices, continues to rise even in a sluggish
economy, while other business service activity remains flat.lxiv For these reasons,
the SMB and Enterprise markets present a more consistent, major revenue-
generating opportunity for Apple Inc.
Apple currently enjoys healthy revenues from three of its primary products – its
iPhone, its iPad, and its Macbook series. With a high market share in developed
countries and strong growth in emerging markets, the company has a strong
foundation for long-term financial success. There is then, presumably, no severe
pressure for the company to release any new products. However, now that Apple has
revolutionized three different markets with innovative products, and is considered one
of the premier innovation companies in the world, producing game-changing products
is now an expectation of the firm. Fittingly, Apple should enter the smart television
market and produce its own Apple TV. It already has the groundwork for such a
smart TV, and the company can include the technology used in its Apple TV digital
receiver together with its latest operating system already used in its iPhones and iPads.
This would therefore include its acclaimed Siri voice command technology, to make a
smart TV that does not require a remote. If Apple so chooses, it can use the design of
23
the iPad as well, in essence creating a 42-inch iPad that serves as a television and much
more.
Apple has such a strong brand and very loyal customers that many consumers are
willing to buy anything that has the Apple logo, and understanding this, the company
has a very large marketing division that it will surely be able to generate intense
demand. In addition, Apple has a special ability to innovate and has experienced
enormous success in every industry it has entered. Apple Inc. has the production and
technological capabilities to undertake such a project, and many of its existing products
will likely help Apple with the Smart TV’s production in terms of built-in technologies
(OS X, Siri) and raw materials. Furthermore, the “smart TV” market is still
underdeveloped and if Apple enters it sooner than its competitors it can capture a huge
portion of the market and maintain that market share in the long run.
Additionally, following the death of Steve Jobs, there are doubts about whether
Apple’s management team can sustain the innovation capabilities the company has
demonstrated in the past. Some investors have accordingly expressed concern about
the future prospects of the company. A successful launch of an Apple Smart TV
would erase all doubts and concerns and send a strong message to the marketplace that
Apple will continue its industry dominance in the future. It is therefore strongly
recommended that Apple Inc. move forward with this conceptual product, bringing it
to life, and more importantly, to consumers everywhere.
Implementing New Strategies

Apple can increase its presence in China in several ways. The first is to partner
with China Mobile, China’s largest mobile phone carrier. China Mobile has over
650 million subscribers, more than double the amount of China Telecom and
China Unicom combined, the two Chinese mobile phone carriers that carry
iPhones.lxv Apple would essentially double its market in China by reaching an
agreement with China Mobile. A deal would be contingent on Apple making
specially crafted phones for China Mobile because its current phones are not
compatible with China’s 3G network, and also on Apple giving China Mobile a
share in App Store revenue upon the company’s request.lxvi Apple refuses to do
both of these, which is why it is missing out on the largest mobile phone service
provider in the world, with six times the amount of users as Verizon and AT&T. lxvii
However, Qualcomm recently announced that it developed a chip that is
compatible with 4G TD-LTE and China Mobile’s 3G network, which would solve
the first issue.lxviii With one issue of revenue sharing standing in the way of Apple
Inc. partnering with the world’s largest mobile phone service provider, Apple must
aggressively seek a compromise, even if it involves allowing China Mobile to share
in some of its App Store revenue. One way the company can do this is by
offering China Mobile a percentage of revenue up to a certain amount. As
discussed in previous sections, there is tremendous upside in the Chinese
smartphone market, which will continue to undergo significant growth, making it
virtually impossible to put a ceiling on the full potential of this market.
24
Apple is losing out to Android due to the cost of the iPhone and limited carriers.
By partnering with China Mobile, Apple can offer subsidized phones at a lower
cost and achieve the same customer reach as Android. After that, Apple’s strong
brand image and high quality phones will enable the company to further grow its
market share in a rapidly growing country on a continued basis. Apple has a very
successful business model for smartphones and benefits from operational
efficiency, so it should do its best to replicate this model in China in terms of
structure and control. However, due to the various socio-cultural differences
between China and the US, Apple may want to modify its distribution methods a
bit. For example, in the US, Apple products are only sold at Apple stores and a
few other retailers. It may be more beneficial in China to have many retailers sell
Apple products. Furthermore, Apple should implement a new policy for its
products insofar as all new products should have the same release date worldwide.
Apple currently releases products earlier in the US than it does in China, and these
products somehow make it to China early, spoiling the release date in China and
lessening the products’ anticipation there. By releasing products on the same date
throughout all markets, anticipation for the product would increase uniformly, and
Apple Inc. would send a message to other markets that the company focuses on
them just as much as it does that of the US, which would foster strengthening the
company’s already strong brand image.
Another way Apple can further increase its presence in China is to infiltrate the
Chinese education system. Schools are generally slower to adapt to technological
improvements due to budget restrictions, difficult implementation, and
administrative resistance, just to name a few factors. However, education is so
very important to continued growth and technological advancement in China, and
products such as the iPad emphasize their unique abilities as learning devices.
Perhaps the Chinese government would be more eager to partner with Apple if its
primary and secondary educational institutions would be supplied with Apple
products. For example, instead of issuing each student multiple textbooks at the
beginning of each semester, issue each student an iPad with all of the textbooks
pre-installed on the device. This idea is not limited to the Chinese market, as it
can be applied to multiple developed countries. While this would be a fantastic
opportunity for Apple, it would require the company to make several
organizational changes. First, the company should create a separate team or
division to manage the new educational retail business. This division would be
responsible for working with each partner country’s education system as well as
for soliciting new education systems to participate. In addition, Apple should
modify its products that would be used by students, insofar as increasing their
durability, battery lives, and relevance over more extended period of time. This
can be at the expense of some of the aesthetic features that are less important for
educational purposes, focusing solely on functionality.
In order for Apple to make any advancement into the SMB and Enterprise
markets, it needs not do anything beyond what it does best – ask the right
questions and then execute on its findings. Apple has this uncanny aptitude of
25
taking consumer feedback and using it to create a new product that exceeds
imaginable expectations. The firm needs to take its ability to please the consumer
and apply it to the small business owner and corporate executive. In addition to
this general recommendation, Apple can make two specific changes to better
address the SMB and Enterprise markets. First, the company needs to make its
retail stores more business friendly. Perhaps it would benefit Apple to try and
open business-specific Apple retail stores within metropolitan branches of major
corporate chains with which they may be able to partner. Second, it needs to
create a more business-oriented software, which businesses would find not only
comparable but also better than competitors’ products. In terms of Apple’s retail
stores, the company has generally created a store environment geared towards
giving the consumer an experience, but this has left the store over-crowded with
groups of folks, like teenagers, who simply visit the locations to play with hip
Apple products. Business owners simply do not have time for this. Apple has
confronted this issue by introducing dedicated business sales teams with some
success, but in order to further their efforts, it could hold information seminars in
the evening or hold lunch-and-learns around mid-day.
As for creating a business-oriented software, Apple has done it before and it can
do it again. For example, there are usually high switching costs associated with a
change in technology, but PC users have switched, in large numbers, to the Mac,
most notably when iPhoto, iMovie, iDVD, Garageband, and other more advanced
media software applications were introduced on Apple’s systems. If Apple creates
a stellar business software lineup, the company can undoubtedly create a similar
"business envy" among corporate consumers.lxix
Changing focus, the implementation of the Apple Smart TV should require a few
steps. Like Apple does with its other products, the company will need to create a
separate division that is devoted solely to the development of the TV. This
product has a strong potential to make a large impact on the television market and
also the cable and satellite provider market. Apple can work with cable providers
and eliminate the need for cable hardware; instead, the cable providers’ services
can be accessed through an App on the television because the TV will contain an
operating system similar to that of Apple’s other iPhone and iPad products. This
would require Apple to work closely with cable providers to develop the
technology capable of streaming high definition television over the Internet with
no lagging. Therefore, the division would have to be well structured and
organized into production, sales, research & development, etc.
Apple could also go a different route and work directly with the networks and
allow consumers to purchase individual networks to be viewed on their Smart TV.
For an individual who only watches a few channels, this would be very enticing.
This would also be a major threat to cable and satellite providers. Furthermore,
the Smart TV would eliminate the need for DVDs and DVD players, as
consumers can buy and rent movies on any Apple product and also access them
on any Apple product through iCloud services. The product would certainly need
26
to meet Apple’s high standards and level of innovativeness, but by taking a look at
its well-diversified product line, it becomes clear that Apple has the necessary
production capabilities to develop such a device.
As discussed in the previous section, Apple is well known for its strategic
introduction of new products, and the Apple Smart TV would certainly need to be
implemented in a unique way. The company has had enormous success
generating a high level of anticipation prior to its products’ releases. The company
does this by leaking rumors to the public to create a buzz, and then introducing
the product at an official conference. Apple should then adopt similar policies for
the TV as it does with its other products, in terms of periodically releasing new
versions of the product.
In addition to these three suggestions, Apple Inc. should implement a new informal,
corporate-wide program designated to driving further innovation. The program would
reward innovative thoughts and suggestions at every level of the organization.
Whereas Steve Jobs, in the past, was personally responsible for much of the innovative
thought leadership, a much more organizational approach, in terms of engagement and
involvement, will be warranted and practically necessary to replace his innovative
genius. Therefore, a comprehensive and holistic innovative think tank that permeates
through the entire company needs to be created. A way of accomplishing that is by
creating an internal social network dedicated to innovation, where associates can offer
suggestions, comment on other suggestions, create teams to pursue specific ideas, and
receive monetary and human resource capital to bring the best ideas to life.
Concluding Thoughts
After an evaluation of Apple’s current performance, an Environmental and Internal
Analysis, and a full SWOT analysis, the conclusion has been reached that Apple should
pursue several opportunities. Firstly, it should implement a strategy to increase its
presence in China due to China’s large population and strong growth in the
smartphone market. Apple can increase its presence by reaching an agreement with
China Mobile to include iPhones in its mobile phone service and partnering with the
Chinese government to include Apple products in schools. Secondly, Apple can use
feedback from small and midsized businesses to develop products more consistent to
their needs and take advantage of the opportunity that market presents. Thirdly, Apple
has the innovative skills and production capacity to enter the underdeveloped market
of Smart TVs and add a fourth primary product to its portfolio and revolutionize yet
another industry. Fourthly, in an effort to sustain the level of innovation Apple is used
to achieving, the company should introduce a corporation-wide social network that
facilitates the free flow of innovative ideas, building on an already strong corporate
conduct policy requisite in place.
After all, one of the reasons Apple is such a successful company is because of its ability
to take on multiple projects at the same time and generate success in all of its
endeavors. These suggestions are not mutually exclusive, and they can all be worked
27
on simultaneously. If all of these suggestions are adopted, there is no doubt that

Apple’s stock price will soon be over $1,000 per share with a market capitalization of
over $1 Trillion.
28
NOTES
i Shelley DuBois, “World’s Most Admired Companies 2011: Apple,” CNN Money, 2011
<http://money.cnn.com/magazines/fortune/mostadmired/2011/snapshots/670.html> (accessed April
11, 2012).
ii Chloe Albanesius, “Apple Tops Google as Most Powerful Global Brand,” PCMag.com: News & Opinion, May
9, 2011 <http://www.pcmag.com/article2/0,2817,2385069,00.asp> (accessed April 11, 2012).
iii Scott DeCarlo, “The World’s Most Valuable Companies: Apple Is Now On Top,” Forbes.com, August 11,
2011 <http://www.forbes.com/sites/scottdecarlo/2011/08/11/the-worlds-25-most-valuable-companies-
apple-is-now-on-top/> (accessed April 11, 2012).
iv Charts displayed from Bloomberg Terminal
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<http://investor.apple.com/faq.cfm?FaqSetID=6> (accessed April 11, 2012).
vi Apple Inc. (2011). Form 10-K for the fiscal year ended September 24, 2011. Retrieved from
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vii Apple Inc. (2011). Form 10-K., 1,6.
viii Garett Sloane, "Tablet tactics New iPad pricing strategy targets cheaper rivals," The New York Post, March 8,
2012, LexisNexis Academic, accessed April 14, 2012.
ix Ellis Davidson, “Apple Differentiation Strategy,” eHow Money
<http://www.ehow.co.uk/way_5815745_apple-differentiation-strategy.html> (accessed April 14, 2012).
x Apple Inc. (2011). Form 10-K., 31.
xi Apple Inc., “Apple and the Environment,” Apple Inc., 2012 <http://www.apple.com/environment/>
(accessed April 13, 2012).
xii Andrew Dominguez and Eben Esterhuizen, “Board Risk: List of Companies With Low Corporate
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xv External Affairs Branch, “CalPERS Applauds Apple Inc. Board for Adopting Majority Vote Standard,”
CalPERS, February 23, 2012 <http://www.calpers.ca.gov/index.jsp?bc=/about/press/pr-2012/feb/apple-
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xix Apple Inc. (2012). EX-14 for the Form 10-K, 1.
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xxi Freeman, Kate. "Apple’s Auditor Finds ‘Significant Issues’ at Foxconn Factories." Mashable, Inc., 29
Mar. 2012. Web. 15 Apr. 2012. <http://mashable.com/2012/03/29/fair-labor-auditor-apples-factories-
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Mar. 2012. Web. 15 Apr. 2012. <http://mashable.com/2012/03/29/fair-labor-auditor-apples-factories-
in-china-breaking/>.
29
xxiii Forden, Sara, and Jeff Bliss. "U.S. Sues Apple For EBook Pricing as Three Firms Settle." Bloomberg
Businessweek. BLOOMBERG L.P., 12 Apr. 2012. Web. 15 Apr. 2012.
<http://www.businessweek.com/news/2012-04-11/apple-publishers-sued-over-e-book-pricing>.
xxiv "Global Inflation Rates." Wall Street Journal. Ed. Wall Street Journal. 31 Oct. 2011. Web. 15 Apr.
2012. <http://graphicsweb.wsj.com/documents/INFLATION1101/INFLATION1101.html>.
xxv Apple Inc. (2011). Form 10-K, 18.
xxvi Apple Inc. (2011). Form 10-K, 7.
xxvii Strategic Management and Business Policy: 110
xxviii 110
xxix 111
xxx 112
xxxi Daniel Ionescu, “iPhone 4S vs. The Competition: Spec Showdown Chart,” PCWorld.com, October 5, 2011
<http://www.pcworld.com/article/241158/iphone_4s_vs_the_competition_spec_showdown_chart.html
> (accessed April 12, 2012).
xxxii Daniel Ionescu, “iPhone 4S vs. The Competition: Spec Showdown Chart,” PCWorld.com, October 5, 2011
<http://www.pcworld.com/article/241158/iphone_4s_vs_the_competition_spec_showdown_chart.html
> (accessed April 12, 2012).
xxxiii Apple Inc. (2011). Form 10-K, 31.
xxxiv Strategic Management and Business Policy: 113
xxxv 113
xxxvi Gartner Research Report
xxxvii “Tablet Market Finishes Strong 2011 with 155 Percent Growth, IDC says,” Lenovo, March 14, 2012
<http://www.lenovo.com/articles/us/en/news/tablet-market-finishes-strong-2011-with-155-percent-
growth-idc-says.html> (accessed April 12, 2012).
xxxviii Suzanne Choney, “China overtakes US as largest smartphone market,” MSNBC.com
< http://www.technolog.msnbc.msn.com/technology/technolog/china-overtakes-us-largest-
smartphone-market-118874> (accessed April 12, 2012).
xxxix Suzanne Choney, “China overtakes US as largest smartphone market,” MSNBC.com
< http://www.technolog.msnbc.msn.com/technology/technolog/china-overtakes-us-largest-
smartphone-market-118874> (accessed April 12, 2012).
xl Eric McBride, “Android Claims Nearly 70% Of China’s Smartphone Market,” AndroidPit.com, April 10, 2012
<http://www.androidpit.com/en/android/blog/404227/android-market-share> (accessed
April 13, 2012).
xli Rip Empson, “Tim Cook: Sales In China Were $13B Last Year,” TechCrunch.com, February 14,
2012
<http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=4&ved=0CEUQFjA
D&url=http%3A%2F%2Ftechcrunch.com%2F2012%2F02%2F14%2Ftim-cook-sales-in-china-
were-13b-last-
year%2F&ei=nO2MT8usNcfl0QGjyOnaDw&usg=AFQjCNH_AUecPQVlRIjR5TMj0gKhEtA
hYg> (accessed April 13, 2012).
xlii Rip Empson, “Tim Cook: Sales In China Were $13B Last Year,” TechCrunch.com, February 14,
2012
<http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=4&ved=0CEUQFjA
D&url=http%3A%2F%2Ftechcrunch.com%2F2012%2F02%2F14%2Ftim-cook-sales-in-china-
were-13b-last-
year%2F&ei=nO2MT8usNcfl0QGjyOnaDw&usg=AFQjCNH_AUecPQVlRIjR5TMj0gKhEtA
hYg> (accessed April 13, 2012).
xliii Efrati, Amir. "Android, Apple Move to the Office." Wall Street Journal. 29 Feb. 2012. Web. 15
Apr. 2012. <http://blogs.wsj.com/digits/2012/02/29/android-apple-move-to-the-office/>.
30
xliv Matt Warman, "Google Aims To Take A Byte Out Of Rivals; Technology New products will raise the
pressure on Apple,” The Daily Telegraph (London), October 8, 2011, LexisNexis Academic, accessed
April 15, 2012.
xlv Learning From Failure: Apple's Most Notorious Flops; Accessed April 2012
http://www.wired.com/gadgets/mac/multimedia/2008/01/gallery_apple_flops
Apple Cash Reserves Conference Call; Engadget Accessed April 2012
xlvi
http://www.engadget.com/2012/03/18/apple-cash-reserves-conference-call/
Apple 10-Q; Accessed April 2012

xlvii
http://files.shareholder.com/downloads/AAPL/1796321560x0x536523/381559d7-04a1-40d5-8e2a-
236e3f867158/AAPL%20Q1FY12%2010Q%2001.25.12.pdf
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xlviii
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fast
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xlix
<http://images.apple.com/supplierresponsibility/pdf/Supplier_Code_of_Conduct_V3_1.pdf>
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Apple Projected to Reach 116 Million in Iphone Sales; Accessed April 2012
li
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ipad_sales_in_2012.html
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+%22Anticipated%22,+Says+Could+Prompt+Buyback+or+Dividend/6742178.html
liii http://events.kustar.ac.ae/EBTIC/Techical%20Notes/slides/Session%202%20Apple.pdf
liv http://blogs.terrapinn.com/customers/2012/02/24/apples-brand-loyalty-delicious/
lv http://www.marketwatch.com/story/apple-tops-brand-loyalty-survey-aapl-ko-goog-amzn-sbux-
tgt-msft-2012-04-11
lvi http://www.innovationexcellence.com/blog/2011/08/24/apple-a-rare-case-of-sustainable-
competitive-advantage/
lvii http://www.cbsnews.com/8301-505123_162-57368264/apple-is-the-worlds-biggest-company-
again/
lviii http://www.pcmag.com/article2/0,2817,2399299,00.asp
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lx http://www.huffingtonpost.com/2011/10/05/steve-jobs-death-apple_n_997440.html
lxi Adam Satariano, “Apple to Pay Dividend, Buy Back Stock to Return Some of Cash,”
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lxiii Information obtained through Bloomberg Terminal.
lxiv Apple Inc. (2011). Form 10-K, 2.
31
lxv Henry Blodget, “Apple’s Launching The iPhone On China’s Third-Largest Mobile Carrier – It’s
Much Bigger Than Verizon,” Business Insider, March 9, 2012
<http://articles.businessinsider.com/2012-03-09/tech/31138445_1_iphones-china-unicom-
china-mobile
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lxix Robert Dutt, “7 Ways Tim Cook’s Apple Can Serve Small Business Better,” PCWorld Business
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e_small_business_better.html> (accessed April 14, 2012).
32

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17

STRATEGIC MANAGEMENT AND BUSINESS POLICY CASE ANALYSIS

Business Profile: APPLE INC.

Apple Inc. Logo Credit:

Section 2 – Environmental Analysis

Section 3 – Organizational Analysis

Section 4 – SWOT Analysis

Corporate Governance and Culture

On that note, Apple makes good utilization of derivative instruments, such as

Additionally, with the revolutionary introduction of cloud computing, Apple Inc.

designers, sales people and executives. Throughout Walter Isaacson’s biography of

Similarly, the manner in which the output of Apple’s manufacturing process is

Distinct Value Chain Competencies

component suppliers. To date, no competitor has been able to gain

to make great investments in the business through increased research and

SWOT Analysis of Internal

Fitness of Current Strategies

Strengths to Capitalize Opportunity

Strengths to Avoid Threat

Opportunities to Overcome Weakness

Minimize Weakness to Avoid Threat

Implementing New Strategies

on simultaneously. If all of these suggestions are adopted, there is no doubt that

Apple 10-Q; Accessed April 2012

Apple’s Prolific Patent Portfolio; Accessed April 2012

Apple Inc., (2012), “Apple Supplier Code of Conduct,” Apple Inc.,

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