Strategic Management (SM) Case Study Apple Computer Inc.

2005
Submitted to:
Mr. Motiur Rahman

Submitted by:
Muhammad Shahnawaz Muhammad Shiraz Anjum Mohammad Ammad Qureshi Mohammad Raheel Zeeshan Haider Asim Asghar 6102 6318 0000 0000 0000 0000

January 2, 2011

Company Introduction:
Apple deals in the sales of PC, Servers, data storage devices, data-routing and switchers etc.. They sell the products which are best as compared to other market players. Apple manages its business on geographic locations having offices in Americas, Europe, Japan and Asia Pacific. Apples sale is continuously growing. In the era of 2000, Apple opens 86 retail stores in USA and two international stores in Tokyo and Osaka which increases its sales. Apple also took cost saving measures like streamlining the product line, production of printers. Steve Jobs brought Apples focus on two concepts of consumer series with the prefix I for internet like iMac, iBook laptop and professional with prefix power such as PowerMac desktop and PowerBook laptop series. Under Jobs, Apple again becomes the innovator of computer market. His leadership leads the company to USB and Fire wire ports, introduction of iPod and iTunes website put Apple in the digital computing age.

Few issues found in Apple are:

John Sculley rejected the offer of Microsofts CEO, Bill Gates to license the Macintosh operating system to Microsoft. After the refusal, Gates developed DOS operating system and in late 1980s, the competition between DOS and Macintosh decreased Apples sale.

Facing very tough competition from its three major competitors Dell, Hewlett-Packard and IBM, however Apple also competes with Microsoft in software industry. Apple combined with IBM enjoyed profit jointly but now Lenovo took over IBM and become a competitor of Apple. Dynamic change in the industry.

Apple Case Study

Questions & Answers

Q. 1) Economic Characteristics of computer industry. Ans)

Computer Industry Analysis:

Companies in PC industry sell the products in Corporations and to consumers. Few economic characteristics or dominant traits of the industry are as follows: Market Size and growth rate Scope of competitive rivalry Pace of technology change Economies of scale Degree of vertical integration

General Environment Analysis:

Many companies are selling products through internet. The PC industry in growing rapidly and there are continues changes are coming in the technology. In Legal factors all of the companys plants had been certified as meeting ISO 9002 quality standards.

Important Economic Factors:

GDP rate is 7.2%, Inflation rate is 2.3% and unemployment rate is 6%. Present impact: According to this information, purchasing power of customers is increasing. Future Impact: It is expected that purchasing power will increase in future.

Q. 2) Driving forces of change in computer industry. Ans)

Driving Forces of Change in Industry

Internet and E-Commerce: Many companies are selling products through internet, It reduces the cost of consumers and consumer feels comfortable by shopping through Internet. Trend of shopping through internet is increasing day by day. Product Innovation: The PC industry is growing rapidly. There are continues changes are coming in the products. Different companies are trying to introduce new model with different innovative features. Competition is increasing and consumer has more choices to buy. Globalization: Major companies are expanded their market and gone to different geographic locations all over the world. The PC industry is growing in different places of the world and companies have great opportunities. Marketing: Marketing is one of the important drivers of change. Companies are doing huge marketing and advertising in this field. More and more people got awareness because of advertising and marketing.

Q3) Porters Five forces model and analysis of industry: Answer

Porters five forces and analysis

Threat of New Entrants: MODERATE Low capital investment for independent stores Low product differentiation Brand name may be a barrier to entry Low economies of scale No legal or governmental barriers Decreasing profitability shows that there is a threat of new entrants

Rivalry: HIGH High concentration Price War: Low Margin Decreasing profitability Low differentiation However, in the midst of sever competition, Apple can still gain market share from other competitors. That proves Apples business strategies have been successful. Threat of Substitutes: LOW Strong presence of PCs throughout society One computer for every three people in the U.S. Only substitute for PC: Apple Computer. However, high price, and lack of software support prevent people from switching to Apple system. Bargaining Power of Buyer: High

 Highly price sensitive Reliability and customer service become important factors. Apples products are very reliable and customer service is outstanding. These two factors help Apple to create certain brand royalty. But thats given the fact that the Company set the prices very low. If the prices are raised too high, customers will not hesitate to switch. Bargaining Power of Suppliers: High Large number of suppliers for components like hardware, keyboards, etc. But two major inputs are monopolized Microsoft standard for all PCs Intel standard for most PCs High switching costs

The competitive forces for the music industry is as following: 1. Bargaining power of buyers: very high. Consumers can now decide to download music for free, instead of having to buy quite a large amount for a CD in a traditional store. This means record companies have to offer their material for a lower prices and through different channels. Luckily, they have begun to do this (think about iTunes from Apple for example). Record companies suddenly need to listen to the wishes of consumers. They cannot prescribe a format. They can no longer prescribe a channel. 2. Bargaining power of suppliers: lower. We need to make a distinction between artists and consumers. Because of the internet, artists were less depended upon the traditional networks of the record companies. Artists can directly promote their material through their own website. In some cases, they have even started to sell their own music, completely by-passing the record company all together. This means they have acquired more control over their own product and that the record company has less control over the artist. The same is basically true regarding consumers: as I mentioned earlier, if a consumer doesnt like the price of the product, there are alternative ways to get it. 3. Barriers to entry: lower. Because of the internet, it has become easier to sell music. Its easier to set up your own record company (as more and more artists are doing, like Simply Red for example), because you are less dependent on the traditional sell-channels.

4. Threat of substitute: extremely high. If a record companies? product isnt priced right, or not delivered in the right format, consumers will download it of the internet. 5. Rivalry among existing competitors: higher. As more players enter the market (because more artists are creating their own record companies for example), the competition naturally becomes more fierce. The Big Five cannot take their market share for granted anymore. After applying the porters five forces on the computer industry we came to the result that the industry is enjoying the economies of scale and coming up with the low cost product. Their needs a huge investment in this industry because of assembling and manufacturing plants. As this industry is at the growing stage there are few players that are dominating over the industry. The expected retaliation among the companies is not high but it is high among few companies such as Dell, HP and IBM. In terms of specialized assets such as manufacturing plants the exit barriers are very high because company has invested a huge amount in these assets. There are no Govt. barriers to force the firm to stay in the industry. The competitive rivalry among the firms is at the global level which is different

Q4) Strategic groups present in the industry? Answer The strategic groups present in the industry are discussed below: 1) Dell Inc.: Dell Inc is an American multinational information technology corporation based in Round Rock, Texas, and United States that develops, sells and supports computers and related products and services. Bearing the name of its founder, Michael Dell, the company is one of the largest technological corporations in the world, employing more than 96,000 people worldwide. Dell had 46,000 employees as of Jan. 30. About 22,200 of those, or 48.3 percent, were in the United States, while 23,800 people, or 51.7 percent, worked in other countries, according to a filing with the Securities and Exchange Commission. Dell is listed at #38 on the Fortune 500 (2010). Fortune also lists Dell as the #5 most admired company in its industry.

2) Hewlett-Packard: Hewlett-Packard Company, commonly referred to as HP, is an American multinational information technology corporation headquartered in Palo Alto, California, USA. The company was founded in a one-car garage in Palo Alto by Bill Hewlett and Dave Packard, and is now one of the world's largest information technology companies, operating in

nearly every country. HP specializes in developing and manufacturing computing, data storage, and networking hardware, designing software and delivering services. Major product lines include personal computing devices, enterprise servers, related storage devices, as well as a diverse range of printers and other imaging products. HP markets its products to households, small- to medium-sized businesses and enterprises directly as well as via online distribution, consumer-electronics and office-supply retailers, software partners and major technology vendors.

3) International business machines (IBM): International Business Machines (IBM) is a United States multinational technology and consulting firm headquartered in Armonk, New York. Founded in 1911, IBM manufactures and sells computer hardware and software, and it offers infrastructure, hosting and consulting services in areas ranging from mainframe computers to nanotechnology.

In 2010, IBM was ranked the 20th largest firm in the U.S. by Fortune and the 33rd largest globally by Forbes. Other rankings that year include #1 green company (Newsweek), #1 company for leaders (Fortune), #2 best global brand (Interbrand), #15 most admired company (Fortune), and #18 most innovative company (Fast Company). IBM employs almost 400,000 employees (called "IBMers" by IBM) in over 200 countries, with occupations including scientists, engineers, consultants, and sales professionals. Its distinctive culture and product branding has given it the nickname Big Blue.

4) Microsoft: Microsoft Corporation is an American public multinational corporation headquartered in Redmond, Washington, USA that develops, manufactures, licenses, and supports a wide range of products and services predominantly related to computing through its various product divisions. Established on April 4, 1975 to develop and sell BASIC interpreters for the Altair 8800, Microsoft rose to dominate the home computer operating system (OS) market with MS-DOS in the mid-1980s, followed by the Microsoft Windows line of OSs. Microsoft would also come to dominate the office suite market with Microsoft Office. The company has diversified in recent years into the video game industry with the Xbox and its successor, the Xbox 360 as well as into the consumer electronics market with Zune and the Windows Phone OS. The ensuing rise of stock in the company's 1986 initial public offering (IPO) made an estimated four billionaires and 12,000 millionaires from Microsoft employees.

Q5) Key success factors and competitive profile matrix of computer industry? Answer Key Success Factors are self explanatory under the following bullets: Brand Image Product Line Supply Chain Advertising Innovation

Competitive Profile Matrix (CPM) is a strategic management tool which is used to identify the major strengths and weaknesses of a firm in relation to the rivals firm strategic position. On the basis of this comparison, the firm can design wise offensive or defensive strategies. Competitive Profile Matrix (CPM) Apple Critical Success Factors Market Share Price Financial Position Product Quality Weight Rating Weighted Score 0.10 0.20 0.45 0.45 0.60 0.08 0.24 0.12 Computer Market Rating Weighted Score 0.30 0.30 0.30 0.30 0.30 0.12 0.18 0.12 Rating Dell Weighted Score

0.10 0.10 0.15 0.15

1 2 3 3 4 2 4 2

3 3 2 2 2 3 3 2

4 4 3 4 3 3 3 3

0.40 0.40 0.45 0.60 0.45 0.12 0.18 0.18

Consumer Loyalty 0.15 Advertising Management Global Expansion 0.04 0.06 0.06

Innovation

0.14

4 3

0.56 0.15

2 2

0.28 0.10

2 3

0.28 0.15

Web Development 0.05

Total

1.00

2.95

2.30

3.21

The overall competitiveness of a firm can be evaluated on the basis of its overall strength rating. If the difference between a firms overall rating and the scores of lower-rated rivals is higher han the firm has greater net competitive advantage. On the other hand, if the difference between a firms overall rating and the scores of higher-rated rivals is bigger than the firm has greater net competitive disadvantage. In the above example, competitive profile matrix shows that the total weighted score of Dell is higher than computer market and Apple which means that Dell enjoys the strongest competitive position. On the other hand, Apple has net competitive disadvantage because of its lower total weighted score than Dell and computer market.

Q. 6) Opportunities & Threats of computer industry. Ans)

Opportunities:

Should expand on the basis of sales. Should open retail stores in different countries. Should target government and educational institutions. Should make compatible soft wares. Should capitalize on the basis of virus free systems. Should introduce the speech recognition program.

They should focus on customized products for customers. Should start making their own microprocessor chips.

Threats:
Merger & acquisitions of competitors High cost can be a limitation in future High market share of Microsoft Windows Competition increases in music downloading sites

Q7) Chief elements of Apples Strategy. How well the pieces fit together? Is the strategy evolving? Answer The strategies are discusses below

A Store Just for Apple: Apple has historically been troubled by big-box sales staffers who are ill-informed about its products, a problem that made it difficult for Apple to set its very different products apart from the rest of the computing crowd. By creating a store strictly devoted to Apple products, the company has not only eliminated this problem but has made an excellent customer-loyalty move. Apple stores are a friendly place where Mac and PC users alike are encouraged to play with and explore the technology that the company offers. This is a space where Macheads can not only get service but also hang out with others who enjoy Apple products just as much as they do. By creating this space, Apple encourages current and new customers to get excited about what it has to offer. Complete Solutions: Apple's products complement and complete each other. Buy an iPod, and you can download music via iTunes. For the average user, most Mac programs are produced by Apple. This sort of control over the entire user process, from hardware to software, strengthens customer loyalty. Apple users generally don't have to stray to find products and solutions they want. Varied Products: Many consumers may not be ready to buy an Apple computer, but they're willing to give gadgets like the iPod or iPhone a try. By selling products with lower entry costs, it creates an opportunity for new users to be introduced to Apple. If these users enjoy their gadgets, they're more likely to consider buying an Apple computer in the future.

Media Fodder: Media outlets, especially bloggers, love to write about Apple. Why? Because Apple makes it so easy. With leaked rumors about new developments, its very own expo and mysterious shutdowns of its online store, Apple gift wraps news stories that are just begging for speculation and hype. By perpetuating this cycle of media frenzy, Apple keeps its customers excited about buying new Apple products now and in the future. Education Sales: By selling its products to schools and universities, Apple turns classrooms into showrooms. If students go through school using Apple products, they become comfortable with the interface and familiar with the superior performance the brand offers. By creating this early exposure, Apple captures customers before they even know that they are customers. Products That Deliver: Apple carefully considers what consumers are looking for, so its products are a result of both extensive research and strong design. This meticulous planning is a large contributor to Apple's high customer-satisfaction rates. It's plain and simple: Robust and easy-to-use products not only make your customers happy, but also make them want to buy more products from you in the future. Outsourcing Unpleasantness: With Apple products, the average consumer's interaction with the company is likely to be low. Unless something goes wrong, you don't have any reason to speak with an Apple customer-service representative. Of course, the iPhone presented an opportunity that could have made Apple much more involved, similar to administering iTunes for the iPod. With a phone, interaction becomes multifaceted. You have to consider billing errors, quality of wireless service, contracts and a number of other factors that often lead to customer frustration. With the iPhone, Apple was wise to stick with building a good product and letting AT&T handle the service. Consistency: All of Apple's products have the same basic architecture. Because of this consistency, customers who already own Apple products have a good idea of what they'll be getting before they make a purchase. They know that it will be easy to adapt to new hardware, and this makes them more open to making a repeat purchase. New Innovations: Although the architecture of Apple products is consistent, its portfolio is not. The company offers consumers a number of different ways to enjoy its products. By giving customers an opportunity to employ Apple in their living rooms, pockets and offices, Apple makes it easy to stay loyal to a brand they already like. Attractiveness: From packaging to aesthetic design to user-interface experience, Apple makes its products accessible and attractive. Bright colors, a smiling icon and slick-looking hardware remind customers every time they use Apple products that what Apple offers is appealing.

Q. 8) What are the Strengths & Weaknesses of Apple? Ans)

Strengths:

Produce innovative products by using innovative technology. Produce aesthetic / stylish products. They make diversified products. Customers of Apple computers are brand loyal. Have technology of interacting with computer using human senses. They have virus free system. First company which adapt calligraphic font style. Introduce USB and fire wire ports for digital connection. Make music website.

Weaknesses
Apple has high manufacturing and inventory cost. Management is not stable. Has low market share in software industry.

Majority of retail stores located in U.S.A. No compatibility options in their soft wares. Decline in sales of iMac. Less emphasis on marketing issues to create awareness for their innovative products.

References

http://en.wikipedia.org/wiki/Hewlett-Packard http://en.wikipedia.org/wiki/Dell_Inc http://en.wikipedia.org/wiki/IBM http://en.wikipedia.org/wiki/Microsoft http://www.insidecrm.com/features/strategies-apple-loyal-customers