Strategic Management

Team Project

Case Analysis

Apple Inc.

Presented by: Esraa Elseidy & Mariham

Helal

�Apple Inc. Case Study Page 1

Table of contents:Executive Summary…………………………………………………………………….3

Situation Analysis…………………………………………………………………….…4

Industry Structure………………………………………………………..……..4

Strategic group Mapping……………………………………………..………..6

Driving Forces…………………………………………………………………..7

Key Success Factors…………………………………………………………10

Industry Strategic Issues……………………………………………………..12

Industry attractiveness……………………………………………….……….16

Competitive Situation Analysis

Five Forces Model of Competition……………………………….………….17

Competitor's Strategies Analysis…………………………………………….25

Firm's Self Analysis

SWOT Analysis………………………………………………………..……….27

Competitive Strength Assessment………………………………………..…33

Firm's Strategic Issues and Problem……………………………………..…34

Financial Position Analysis

Profitability Ratios……………………………………………………………..35

Liquidity Ratios…………………………………………………………………36

Leverage ratios…………………………………………………………………36

Activity Ratios…………………………………………………………………..37

Past and Present Mission and Strategies……………………………………………37

Identification of Strategic Options

Industry Analysis……………………………………………………………….40

Recommendations

Long Menu……………………………………………………………………..42

Short Menu……………………………………………………………………..42

Expected Outcomes of selected

�Apple Inc. Case Study Page 2

strategies…………………………………47

Strategy Implementation………………………………………………………47

Company Culture…………………………………………………………..….49

Control and Evaluation…………………………………………………..……50

My Opinion……………………………………………………………………..53

References……………………………………………………………………..54

�Apple Inc. Case Study Page 3

Executive Summary

Apple Computers started the movement into the personal computing arena in 1977 but through changes in management and differences of opinion together with missed opportunities it lost its competitive advantage to companies like Microsoft, Dell, and Gateway. Apple operates in various lines of the computer and music industry today and its operations include not only the designing but also the manufacturing of its computers and software. Apple continues to pursue the personal computer market but not as intently as in the years before. It has opted to change directions a little by venturing into the music world through the marketing of iPod, a digital music player, and iTunes. The opening of 65 new retail outlets, including one in Japan, has precipitated its move into this new world.

Apple continues to work on providing innovative products for its customers but marketing to such as small market has caused some problems. Its market share has been reduced to below 5% and its operating system differs considerably from the Wintel operating system used my dominant Microsoft. Costs of maintaining this difference have increased in comparison to those utilizing the competitive operating system. Software designers are not as enthused about writing programs to support Apple's operating system because of limited potential sales. The advantages that seem to come into Apple's laps are quickly removed because competitors are able to copy, steal, and share them.

The one advantage that Apple possesses is its operating system but it has failed to convince the world of its superiority. The operating system in possession has not encountered the problems that Microsoft and its fellow operating systems have encountered. Microsoft upgrades have been plagued with virus and other programming problems, including the ability of hackers breaking into the system and accessing ones computer from another remote spot.

Apple has not capitalized on these problems. It has gained a few customers but nothing in the numbers required to turn the company upwards in reclaiming considerable market share. Apple customers are a devoted group that understand the superiority that they possess but convincing the other 95% of the world because a rather large task.

This case study is to begin with a situational analysis that will encompass the industry structure, competitive situational analysis and the firm's self-analysis. Through which the external and internal analysis of the Apple incorporation will be mentioned.

It will cover Porter's five forces and provide insight of the opportunities and threats that Apple faces. The industry structure will be dismantled so that market size, distribution channels, strongest and weakest competitors, and anticipated strategic moves of rivals is captured.

Economies of scale and key success factors will be listed along with financials so that a direction can be logically surmised. An internal analysis will also be included so that Apple's mission, vision, and financial objectives are understood.

Products and services will be dissected, as will its corporate culture, values, and morals. The core competencies will be noted together with value chain analysis so that Apple can better define it true advantages for continued successful operation in the future.

Recommendations will be provided, listing the pros and cons of each, so that Apple management can consider implementation for strengthening their position within the computer and digital music industries.

Finally it will include the past and present strategic options used by the company as well as our recommended strategies with their anticipated positive and negative outcomes.

The recommended strategies implementation process will be encountered in the analysis with the control and evaluation ways for best strategies outcomes.

Situational Analysis

Industry Structure

Apple Inc. (Apple) has managed to create substantial value in the highly competitive personal computer industry, by innovating and forging a path considerably different from those of the largest competitors in the industry, successfully differentiating its products from those of the competition by choosing to focus on quality, design elegance, and superior customer service, while outsourcing actual manufacturing to trusted original equipment manufacturers.

Yet, despite the advantages Apple has created for itself, the stiff competition within the industry and other external factors present formidable challenges to the firm.

The personal computer/notebook market is becoming increasingly commoditized, leading to intense rivalry among competitors within the industry, driving prices down and creating potentially destructive price wars. Utilizing key resources and capabilities including industry-leading design teams, talented software and hardware engineers, backed by a sizeable research and development budget, which is responsible for a portfolio of thousands of patents, and under the strategically brilliant stewardship of CEO Steve Jobs, Apple has successfully innovated its way to a comfortable market position commanding premium prices. Unfortunately, Apple cannot rest on its laurels.

The position is not permanent and Apple must continually find new ways to maintain profits and create value for customers and shareholders. The maturing personal computer market is becoming saturated, leaving fewer new buyers and more replacement buyers. To continue to grow, Apple must also look to new and expanding markets as sources of revenue.

After considering Apple's strategic war chest; the firm's core competencies, key resources, and capabilities and given its current situation within the industry and the compounding factors in the form of trends from the general environment, it is clear Apple stands to create considerable value through continued related diversification iPhone provide sufficient evidence that it is well-equipped to continue its path of innovation, by creating a digital lifestyle convergence device that bridges users on-the-go digital lives and their at-home digitals lives. The proposed device will be powerful and feature packed, while leveraging the Apple system of seamless integration to create a compelling user experience, presented in an elegant package showcasing the firm's industry-leading industrial design capabilities, to create the next must- have consumer electronics product.

Industries' dominant economic features

The versatility of the computer industry allows a few dominant economic features to stand out. The market size mentioned above is one of these dominant features. It has increased to a range between $890 million to $2 billion. The competitive rivalry is another dominant feature. The national and global levels are in the early maturity stage, which is nice considering that, the local and regional markets a completely saturated. A third dominant economic feature is the technological innovations that continually surface from the many competitors.

Innovations such as software advancements, 32 bit and 64 bit chips, networking expansions, and improved design technologies. Each has a direct link to the economic structures of the company and its competitors.

Distribution channels

The distribution channels for PCs have been changing considerably in the past couple of years. The changes are being driven by price declines and the 'mature product' phase of the computer life cycle.

Many of the expansions involve channels that already carry PCs or other sources not previously used. A few examples of those not previously used are cable TV firms, telephone companies, and bookstores.

Strategic Group Map of Apple Inc.

As learned in Chapter 4 (p.144); for better understanding of the market, it is useful to categorize the firms of the same industry in strategic groups for better understanding of the competitive environment. Here we compared quality versus price to differentiate between several smartphone market players.

0.5 1 1.5 2 2.5 3 3.50

1

2

3

4

5

6

7

8

9

10

SAMSUNG

Smartphones SGM

Quality

Price

Apple Inc.

Microsoft

Google's Android

HighQuality

High

Price

Low

Low

Relation between Apple's Strategic Group & its organizational focus:

High quality products Premium prices Focus is mainly upon valuing customers by providing exceptional quality

products, repairs and expert advice. Well known for its passionate and dedicated customer base thus it enables Apple

to charge premium prices.

Driving forces

Driving forces are part of the external analysis and provide the company with insight on opportunity and threats that it must contend with. Some of the driving forces for Apple Inc. are:

1) Industry growth rate (short or long-term) The computer industry has been slow for the past number of years. It is affected by a weak economy and less disposable income within the households due to layoffs and outsourcing of jobs outside of the United States. Upgrades have not been technologically advanced enough to warrant constant change so many consumers wait until a few upgrades are offered before purchasing one.

The industry has usually been supported by big business and since the slow-down big business has not been expanding so need for additional computer and software is not required. Apple has to face another hurdle when viewing this because big business is more Wintel operating system driven and with the cost of cloned PCs, they are just more affordable.

2) Changes in who buys the product and how it is used

3) Changes in society - different concerns, attitudes, and lifestyles The people purchasing computer have been become accustom to using Windows operating systems. The population growth has increased and all of those individuals that come into computer using modes are being subjected to the Windows environment. Many are not knowledgeable of the Apple operating system and have only heard of Macintosh computers.

The younger generations are coming to know of Apple with the onset of iTunes, iSync, and iPods. This is bringing a younger generation into Apple's marketing world but Apple has yet to convince them that the computer systems provide the quality and ease of use just as the music materials that Apple is able to supply for them.

4) Product innovation and technological change Microprocessors, semiconductors, memory storage, and speeds of computers is ever changing and as the technology improves so must Apple. Many products strength innovations are being driven in the areas of miniaturization. Companies are spending millions of dollars to provide themselves a position in being the one to make the next innovative improvement. Customers have a desire to possess the latest and greatest so the combination of the companies trying to create the new and the customers desire to be first 'on the block' with the new certainly creates a major driving force.

5) Firms - entering, exiting or mergers Much of the computer hardware industry has defined players and market share percentages allotted with a few shuffles taking place among them. Niche companies are being merged or bought out by the larger companies so the larger ones make some small gains from time to time. The music industry is different since it does not require the capital outlay that would be incurred if entering a hardware market. The same applies to the software developers. New software developers can infiltrate the industry and music related equipment providers can easily provider newer systems or a different avenue for accessing the music clips.

The need to remain competitive on both fronts keeps everyone moving forward. The differentiation in the Apple operating system can hinder the amount of software being created but this works against the company because few products are available to use on their computers.

Competitors that can affect the direction of the company can easily copy the iPod and iTunes sectors.

6) Increased globalization of industry Companies are surfacing in the global markets. Many companies in other countries are driven by their desire to capture a large market share on their side of the world or by governments pushing them to enter into the global systems

7) Changes in cost and efficiency The product life cycles have become shorter as technology advances and consumer whimsical purchasing changes. The mode forces increases in need for being innovative. Innovation and competitiveness cost the companies a considerable amount of money that has a direct effect on the profits. Matters worsen as competitors cut costs when providing their products to market. Apple moved into the retail world by opening 65 stores so costs increased considerably but it will take time to learn if the efficiency of their sales increased proportionately.

Apple's different operating system also incurs addition costs in the selling and administrative costing realms. Apple must provide consumers with superior or value added equivalents to justify the higher prices for their products.

8) Regulatory influence and policy changes Government regulations will continue to change domestically and abroad. Environmental issues have been part of Apple's proactive approach to being environmental stewards. This cost must be absorbed into the products being manufactured. Money spent on cleaning up or providing cleaner operations does not add to the value of the product production so it is a negative affecting cost that must be incurred.

The choice of not being a good environmental steward could backfire and be far more costly than the amount being spent to do it up front.

9) Changes in degree of risk and uncertainty Apple components and products are ordered before manufacturing begins so forecasted sales dictate how much should be ordered. If the sales do not occur then the orders may have been more plentiful than required and excess inventory could adversely affect the company. New innovative product may be presented to the consumer and make the present inventory obsolete so the company again stands to incur all the risk and face uncertainty of the future.

Apple's control of those that do produce components for them is limited and subject to much risk and uncertainty.

Key success factors

As learned in Chapter (4) (p.147); Key success factors are the variables that significantly affect the overall competitive positions of companies within a particular industry through the economic and technological characteristics of the industry as well as the company's competencies.

Apple Stores – Retail LocationsThe introduction of Apple stores has provided the company with an important physicalpresence to act as both a sales location and an advertisement. The stores allow Apple to tightly control the image of the

brand and provide excellent customer service. This resource is of incredible

value to Apple and a success that is a relative rarity in the industry. Matching success and impact like the Apple store model is difficult for other firms to achieve.

Relationship with OEMsApple has outsourced all of its manufacturing processes to OEM partners

in China, like Foxconn and Hon Hai Precision Industry while focusing on design internally. The relationships between Apple and their OEM partners are very close to provide Apple with excellent service and high quality products. Mutually beneficial business relationships are time-consuming and difficult to develop and maintain is of considerable value to Apple and puts them ahead of other manufacturers who may decide to outsource some production.

1. Technology related The first Macintosh computers were equipped with a physical chip on the logic board because RAM and HD space were costly and ROM contained routines required for computer startup and other higher-level Mac OS code. The iMac release divided ROM into boot ROM and Mac OS ROM. The startup and higher-level code routines were separated. The Mac OS ROM no longer needed to be in a chip form but instead is now an image file inside of the MacOS system folder. This change updates with the use of firmware feasible for both ROMs. Each Mac also had a unique machine identification number

Apple also offers a better-integrated computer operating system than its competitors. It is also not easily copied so Apple could offer a superior computing solution free of any troubled operating system.

Apple has put audio, print spooler, bridging, and Ethernet into one small package call AirPort Express. The system works with any Wi-Fi device and supports streaming music through analog and digital audio jacks and USB printer spooling through USB ports on Mac OS X and Windows XP and 2000. The introduction of AirPort Express raises the bar on these combined features.

2. Manufacturing related Apple subcontracts it's manufacturing to third parties so it can focus on its core competencies of testing and developing software. It can also concentrate on ensuring that what is manufactured meets required specifications so quality remains a top focus.

3. Distribution related Apple operates some of its facilities round the clock and after manufacturing they are automatically feed to a system though a case taper where it is prioritized and sorted prior to being palletized. This system can divert the product for shipment or audit before it is released from the warehouse. Apple's use of this system minimizes the intervention and monitoring time cycles. It even has the capability of paging a maintenance mechanic when problems occur within the system

Apple not only contends with the physical distribution of its computers but it must also address distribution of its music and iTunes software products. The AirPort Express system is one of Apple's new methods of staying on top of the distribution of its innovations.

4. Marketing related Apple had survived rather well through the use of its aesthetics and user-friendly systems but the computer's position changing to a commodity eliminates much of the differentiation. Its opening of the retail stores has also assisted with marketing of product since more people can readily see the name on company storefronts. Branding and logo help keep the name fresh in people's minds and Apple has designed some very creative commercials that help this.

The differentiation is not easily copied by competitors and can provide Apple user with a superior computing solution. It can offer a trouble free operation, rapid response to technological change, and a direct link to customer concerns. Apple differentiation offers a clean, simple product line with a single controlling company dedicated to the production of quality products.

5. Skills related Apple has spent much of its hiring practices dealing with upper level managers, computer technologists and specialists, programmers, engineers, and R&D scientists. They have gain a reasonable understanding of the skills required to sustain a competitive advantage in their areas of expertise. Apple has chosen to follow other companies in employing engineers as business managers and they have seen the fallout from having done so just as other companies have also seen.

Apple's expansion into the retail store business has been a change to what they are accustomed to hiring. The storefronts use three key employee levels for selling product and providing expert support for customers. The three levels include the store manager, 'genius' position, and 'keyholder'.

Industry Analysis

Industry Wide Strategic issues

External Analysis

General environment analysis

Companies engaged in manufacturing electronic computers are listed under SIC code 3571 and/or NAICS code 334111. Electronic computers are machines that

1) Store processing programs and data necessary for program execution,

2) Can be freely programmed to user requirements

3) Perform arithmetic computations and

4) Execute processing programs that requires modification of execution by logical decision without human intervention. Personal computers fall into this category.

The electronic computer industry has been struggling since early 2000 when the economy weakened. The US Census Bureau reported a decrease in computer shipments from 1999 $64.7 billion to 62.9 billion in 2000 and continued downward to $49.3 billion in 2001. Unit shipments also declined from 27.2 million (2000) to 22.7 million in 2001.

Rising unemployment and anticipated war with Iraq assisted in reducing the number of computer purchases. The terrorist attack on the Pentagon and the Twin Towers in New York City also added to the decrease. Much equipment was available at reduced costs due to the bankruptcy of many Internet companies in the early 2000s. IDC also reported in 2001 that Dell, Compaq, Hewlett-Packard, and IBM controlled over 40 percent of the world PC shipments. Hewlett-Packard purchased Compaq and became a formidable power competitor for Dell. The control of this large a portion of market share is something Apple would have to contend with each step of the way.

Demographic segment

This is an increase of 13 million people in just a little over four years since 2004. Increases in population combined with the advances in technology will continue to drive increased sales in future computer markets.

The same Census bureau report broke down the ages into the groups listed in the Table01 below. Americans begin using computers in the early years. Survey of the numbers easily points out that a majority of the American population is of age to readily use a computer in some form or fashion. Even some of the older generations are experimenting with computer use. USA Today back in September 1997 published an article that claimed that 10% of seniors own a PC and that 25% of those have Internet access.

The domestic populace included 84 percent of people 25 years and over who had at least graduated from high school and 27 percent had a bachelor's degree or higher. The group also included approximately 8 percent dropout rate of the 16 to 19 year old group. Enrollment for 2003 was 75.1 million students. The median income was $43,564 of which 80 percent of the households received earnings and 17 percent received retire income other than Social Security. Thirteen percent of the population was considered to be living in poverty.

The group's occupational status was broken down into the following categories by percentage.

34 % Management, professional, and related occupations 36% Sales and office occupations 16% Service occupations 13% Production, transportation, and material moving occupations 10% Construction, extraction, and maintenance occupations The world population estimation for 2005 is 6,449,000,000 people

and for 2010 it is 6,812,000,000.The computer industry will be required to support the increases. The computer industry is growing rapidly in the Asian market and number indicates that a majority of the population growth will be concentrated into that area.

Economic segment

Computer requirements are increasing across the globe. Data collected has all but 4 countries increasing the number of computers being used per 1000 individuals within each respective country. The data was not restricted to PC type computers but listed computer use in general so Apple computers were included within the data gathered even though it is undergoing a market share loss of computer sales.

Exports felled from $9.6 billion in 2000 to $8.8 billion in 2001 with Canada being the largest regional market for US computer sales (23% of U.S. exports). Asia and Europe accounted for two-thirds of the total exports. Imports of computers dropped from $13.6 billion in 2000 to $12.2 billion, a 15 percent drop. Most of the imports are from Asian sources with Latin America and Europe serving as secondary sources

Political/legal segment

Apple faces political/legal segment issues both domestically and abroad. Domestically the Federal and State government continues to tighten up on the environmental issues that constrain manufacturing and disposal of the units.

Environmental concerns are issues that directly affect each computer manufacturer. The Environmental Protection Agency updated EPA/310-R-95-002 "Profile of the Electronics and Computer Industry Code in the September 1995. This document provides directives that must be adhered to by companies manufacturing computer components (EPA site, 2004). Apple has willfully promoted the buyback and proper disposal of computer parts in effort to promote product stewardship from the environmental perspective)

Apple Environmental Programs :

All Apple manufacturing sites ISO 14001 certified worldwide, signifying that Apple has a structured environmental management system (EMS) in place to manage the environmental impact of our operations

2001

Apple's complete product portfolio meets applicable ENERGY STAR® requirements (also in 2002/2003)

Started voluntary phase-out of tetrabisphenol A (TBBA) in all plastic enclosure parts> 25 grams

2002

Product take-back solutions implemented in U.S. and Japan

Roll-out of Apple's global Regulated Substances Specification

Signatory of European Union Code of Conduct on Power Supplies, created to encourage manufacturers to design power supplies that minimize energy consumption in off mode

Founding member of U.S. Federal Energy Management Program (FEMP), which introduced energy efficiency requirements for the off mode of computer products

2003

The global market differs in its segmentation depending upon which country is involved. Different countries impose varied restrictions on the equipment components and its use once it is operational. China can be used to simplify explanation of some issues. China began allowing computers into its borders in the early 1990s but still places restrictions on its use. It also controls whom, how, and what negotiations take place between foreign companies and local Chinese companies. It limits citizen Internet activity once machines are operational. High tariffs combined with government regulations to prohibit foreign companies from trading directly with the Chinese companies (Kraemer, 2004).

Foreign companies often favor the local companies over the foreigners trying to manufacture within their borders. In many cases additional tariffs are imposed on foreign competitors. International trade regulations also differ between countries with some being lucrative initially but changing in favor of the local company as time progresses. Apple faces the battle of overcoming the market dominance of the PC based computers but does have tremendous opportunity present in the iPod and music associated industry.

Apple and fellow computer companies have recognized that pirating and copying is more easily done in some countries than in others. The laws are in effect in both places but one is more apt to prosecute than the other. This illegal activity directly affects the bottom line for every company involved.

Socio-cultural segment

Cultures are restrictive and the restrictions have effects on company profitability. China Internet traffic increased by 71% from 1997 to 1998 and continues to do so as we approach 2005. Some technological changes are more readily accepted than others. Chinese people still have trouble accepting credit card transactions since the initial cost of computerization is high. Internet sales in many overseas countries are not as successful as in the United States and Europe because many of the customers prefer to view the products they are purchasing. The same applies to other parts of the world so the computer companies have to adjust according to the cultural differences being encountered within the different countries in which they chose to market and sell.

Adapting to the differences in culture is not very easy and some manufacturers are trying to build value into their company name. This is being done in hopes that branding will eventually equate with honesty, integrity, quality, and good service so that storefronts will not be as necessary as they presenting are. Apple computer began opening storefronts in the United States in effort to compete against the PC based companies. Their thought is that by having it available for the customers some will eventually make the switch away from the PC-based systems.

The largest socio-cultural hurdle for companies such as Apple is the lower educational standards of many countries. While many are making great progress, they are limited in number. Those that are progressing can take advantage of the outsourcing that is being done by American companies.

Technological segment

The governmental has always favored the computer industry's research and development and it has shown favor by the amount of funding that is made available. This trend has held true since the Cold War. It was just recently that any significant cutbacks occurred and the industry has been unable to make up the difference. Most computer companies began to cut back the amounts of R&D funding in the early to mid-1990s and also began to focus on the short term. Product life cycles have been shortened and the computer has become an everyday commodity.

Many of today's technology driven innovations that are being developed affect the microprocessors, semiconductor, memory storage, and speed capabilities of the computer units. Miniaturization is definitely on top of the required changes for the future. Everything seems to be getting smaller and with the decrease in size comes integration of multiple technologies. Phone, PDA, and Internet modules are being combined into one piece of equipment. Telephones, video players, answering machines, and televisions sets are being intermeshed. The future of technology seems endless.

Industry Attractiveness

Overall Attractiveness of the Industry

The overall attractiveness of the PC manufacturing business is affected by several factors. These include general macroeconomic conditions as well as industry specific factors such as the unique economic features of the industry, competitive forces, forces of change, the market position and expected behavior of the various competitors already in the industry, and the industry’s key success factors.

Attractiveness of External Environment

The external environment of the technology sector has become highly competitive and barriers to entry have naturally developed over the years of growth some companies and the industry in general have attained. The attractiveness of this sector of business is still quite favorable but has been tough for new companies to try to enter and compete. Some of the other forces involved signaling industry attractiveness includes:

❏ Consumers still demanding new high tech products❏ Natural move to a higher tech more service based economy❏ Economic conditions have started to improve

Dominant Economic Features

The market for PCs in the home as reached its maximum and growth has largely stagnated.

Analysis shows that the market is highly concentrated with most of the revenue (90%) coming from half of the approximately 1,500 companies. Further analysis identifies only five major players (Dell, Hewlett-Packard, Acer, Apple and Lenovo) accounting for the lion’s share of the market. The fact that there are so few large competitors with the remaining market share divided by over 1,000 other companies indicates that anyone can enter, but few can grow. This has negative implications for the attractiveness of this market.

The number of buyers in this market is relatively stable and growing only with population. The market is fully penetrated with every one of the estimated 111 million households already fully served. This is also reflected above in the analysis of market growth rate. Also as noted earlier, the replacement market is driven by technological change. This has very negative implications for this attractiveness of this market.

This industry is strongly affected by both experience curve effects and large economies of scale. Companies entering this industry would require significant experience in large-scale electronics manufacturing

in order to have a chance at competing. This has negative implications for the attractiveness of this market to most companies.

From a financial perspective, standard measures of company performance, such as profitability and liquidity ratios, as well as economic efficiency measures such as ROA, are low for the major players in this market. It seems that in order to achieve a large market share a company must compete primarily on the basis of price and efficiency. This has extremely negative implications for the attractiveness of this market.

The Five Forces Model of Competition

As learned in chapter 4 (p.138); using porter's approach for industry analysis:-

Every market including the financial industry can be evaluated through the use of Porter's five-force theory. Porter's uses the five forces, supplier power, and barriers to entry, threat of substitutes, buyer power, and the degree of rivalry, as tools that help analyze a company's position against its competitors.

1. Threat of New Entrants/Barriers to Entry2. Bargaining Power of Suppliers3. Bargaining Power of Buyers4. Threat of Substitute Products5. Intensity of Rivalry: Among Competitors

1-Threat of New Entrants

1. Economies of Scale2. Product Differentiation3. Capital Requirements4. Switching Costs5. Access to Distribution Channels6. Cost Disadvantage Independent of Scale7. Government Policy8. Expected Retaliation

1. Economies of Scale❏ Apples economies of scale give it a clear advantage over its competitors in the same industry❏These advantages can be broken down into external or internal economies of scale

Internal and External Economies of Scale❏ Apples internal economies of scale were established through its learning curve and volume of production❏ Apple has been in the industry for a while to have a leg up on competitors like Samsung by figuring out how to lower their production costs and analyzing their market better❏ Apples external economies of scale give them an advantage because of where they are located❏ California is the mecca for the computer industry in the U.S. as such, suppliers naturally flock their and computer workers can easily share their ideas and build off of another❏ Therefore, Apple gains a significant advantage of lower supply costs and a more intelligent labor pool

High barriers of entry❏ Apples economies of scale give it a clear competitive advantage of their competitors❖They know their market, have access to reduced input prices, and figured out production processes to lower costs in producing their goods❏As such it will be extremely hard for competitors to enter the computer industry market given the advantages Apple has created for itself

2. Product Differentiation - High barriers to entry ❏The technology sector is a tough market to enter regarding product differentiation because of the innovative powerhouses currently there, such as:❖ Apple❖ Google❖ Microsoft❏When you have companies currently present that have already matured and gone through the learning curve it is hard to match their prices, and all their expenses are much lower compared to yours.

❏These high barriers give the companies like Apple a advantage and form of protection against new up and coming companies who try to compete.❏Trying to beat the innovative nature of companies releasing the iPhone, iTV, Android, and other highly differentiated products is a tough task.

3. Capital Requirements - High barriers to entry❏Most capital requirements needed to start a new business or compete in a particular sector are normally fairly high, but it is especially high in the technology sector.❏There is need for a lot of capital because:❖ Technological products are not cheap❖ Human capital is additionally needed❖This human capital needs to be highly skilled❖ High R&D costs to innovate

4. Switching Costs - Low barriers to entry❏ Compared to other factors regarding potential new entrants this factor is much lower.❏ But it does change, how this occurs is based on what industry the new competitor is emerging from. If it is coming from a similar background to technology the switching costs are not big.❏It may be more challenging if the switch is from a completely different industry.❏If different, the former low cost industry company may find challenges in adapting to the high cost tech industry.

❏The reasons behind classifying this factor as lower barriers are as follows:❖ Company already works in a high cost industry❖ Switching costs may be worth the future returns❖ Lower regulations present in the tech industry❖ Benefits outweigh switching costs

5. Access to Distribution Channels - High barriers to entry❏Another high barrier to entry due to bigger companies already locking down the major suppliers in the region, this occurs due to:❖More mature companies present❖ Companies like Apple and Microsoft forming contracts with big suppliers❖Not being able to match what other companies currently pay❖Higher costs associated with premium suppliers

6. Cost disadvantages independent of Scale - High barriers to entry❏As mentioned before these costs deal with the learning curve.Other reasons companies already present in the industry have an advantage over potential entrants are as follows:❖ Learning curve❖ Lower costs per product❖ Favorable government support or subsidies❖ Connections with suppliers providing favorable prices❖ Locations better suited for business than what the entrant may be able to obtain❖ Historical advantage- matured companies

7. Government Policy - High/Low barriers to entry❏This factor is varied by specific industry.❏The reason for a high/low rank is due to constant changes governments can implement and make.

❏ Government policies can make entry completely impossible or favorable.❏ Limits to raw material suppliers could also be put into place to protect the industry.

8. Expected Retaliation - High barriers to entry❏ Due to companies that are large and experienced high barriers to new entrants are expected to come, they take the form of:❖Large companies with excess cash flow can hinder new companies.❖ Distribution channel leverage of present companies.❖Excess capacity to produce more goods❖Higher market share❖If truly threatened, buyouts early on could emerge.

2- Bargaining Power of Suppliers

1. No Satisfactory Substitutes2. Industry Firms not Significant Customer to Supplier Group3. Suppliers’ Goods are Critical to Buyer’s Success4. High Switching Costs Due to Effectiveness of Supplier’s Products5. Threat of Forward Integration

1. No Satisfactory Substitutes❏If you take a look at the big time companies such as Apple, Google, and Microsoft you will find that they have a lot of exposure to the worldwide supply market.❏This fact gives suppliers to these big tech industry leaders very low if any bargaining power. The reasons why includes:❖ Many other potential suppliers❖ Conduct business with big global market leaders❖Not well leveraged❏These are the reasons why they have no power in this respect, the big conglomerates have many substitutes.

2. Industry Firms not Significant Customer to Supplier Group❏For smaller firms the supplier may have more leverage and power here, but when doing business with big multinational companies it is most likely not.❏The reason is quite simple; market leaders in the tech sector are just about as big as they come.❏They have some of the largest market caps/market shares/consumer appeal.❏This is why suppliers cannot bargain with these companies, for most of them they make up most of their business.

3. Supplier Goods Critical to Success❏It all comes back to control the buyers possess over the suppliers.❏In a sense the answer is yes that the suppliers goods are critical to their success, except there are a few other factors that work against them, some are:❖ Buyer market share❖ Multiple potential business partners❖Everyone wants to be a supplier to a company like Apple

4. High Switching Costs Due to Supplier Effectiveness❏ Switching costs are not such a big expense to firms such as Apple.❏The reason these expenses do not break the bank is due to their large amounts of cash and market presence.❏Another reason suppliers do not have much say is because there are a lot of suppliers who are effective and can minimize these costs for their buyers.

5. Threat of Forward Integration❏ Apple has many different suppliers.❏They have multiple semiconductors who specialize in different forms of tech, holding companies, and electrical companies.❏ Some of Apple’s suppliers include:❖Analog Devices Inc.❖Amperex Technology Ltd.❖ Arvato Digital❖ Asahi Glass

❏These are just four of a long list of suppliers that work for Apple.❏The reason for labeling some of these companies is to show their size and power vs. the powerhouse buyers.❏A lot of these companies is very small, and because of this the threat of forward integration is low. While it is possible to use this method it is not practical and smart.❏The lost profits suppliers would lose from using this method would be huge, and Apple knows this.❏That is why there is no bargaining power here.

3- Bargaining Power of Buyers

1. Purchase large portion of industry’s output2. Product sales accounts for significant seller annual revenue3. Low switching costs4. Industry products are undifferentiated or standardized5. Threat of backward integration

1. Purchase large portion of industry’s output

❏ Apple is a MNE and has substantial ties worldwide.❏ Due to the fact that they are present in multiple markets and have a wide variety of customers it is safe to say that the company’s product output is fairly distributed across many buyers.❏This lower amount of bargaining power among buyers is common in these attractive industries.

2. Product sales accounts for significant seller annual revenue❏With the amount of product sales; comes the seller’s annual revenue they make off these products. Apple is a large company and very profitable due to highly differentiated products.❏When a company has this advantage and many buyers it results in lower bargaining power for the buyers.

3. Low switching costs❏The reason for this yes/no explanation is due to the fact that a part of this issue is dependent on different consumer behavior.❏Some buyers do not mind switching from an iPhone to aGoogle Android because they do not see the switching costs as substantial.❏ But other customers may see these costs as big enough to decide not to switch. Switching costs would include the new phone/plan, new charger, apps that will not transfer, and possible cancellation fees.

4. Industry products are undifferentiated or standardized

❏ Due to the type of industry and company that Apple is there is no contention when determining their products as not being standardized.❏The ways this gives buyers no power is:❖ Differentiated products❖Since differentiated you can’t get close substitutes

5. Threat of backward integration❏ Due to the big MNE Apple is there is not much of a chance this can happen.❏ Apple enjoys the below advantages in relation to this idea:❖ Economies of scale❖ Great reputation❖ Access to major distributors❏These are the reasons that if buyers try and backward integrate the strategy will most likely fail.

4-Threat of Substitute Products

1. Switching costs - high/low2. Price comparison3. Equal quality/performance

Substitute Product Examples❏iPhone alternatives:❖Walkie Talkie❖ Letters❏ IPod alternatives:❖ Basic CD’s❖ Music Library❏ Macintosh alternatives:❖ Typewriter❖ Telegraph

1. Switching costs - high/low❏The costs associated with switching from Apple products to one of its competitors is very high1) Apple products, like the iPhone, run on their own operating system called iOS❖This means iCloud, iPhoto, and all the other apps will not be compatible with other competitor's operating system❖This increases the customer’s perceived costs of switching products because of the hassle of not being able to use their favorite apps❖ Also, the more Apple devices a consumer has the likelihood these switching costs will increase

2. Price comparison (Intensity: High)❏ Apple is a market leader, thus many competitors will emulate them by offering similar products at reduced prices or with unique featuresThis competition can get so heated that Apple will sue its competitors for copyright infringement to protect its products and market share❏ In Apple v. Samsung, Samsung had to pay Apple $1 billion dollars for copyright infringement on its iPhone

3. Equal quality/performance (Intensity: N/A)❏In the technology world assessing the performance of two similar products can be difficult to achieve

❏Each product has their own unique designs yet they all accomplish the same tasks❏ Benchmark tests could be used as a measure but they are unreliable because companies can inflate the results to make their products seem more applying❏ Therefore, the true performance of a product depends on the needs of the user and how much they are willing to pay for a few extra RAMs or memory space

5- Intensity of Rivalry among Competitors

1. Numerous or equally balanced competitors2. Slow industry growth3. High fixed or storage costs4. Low differentiation5. Low switching costs6. High strategic stakes7. High exit barriers

1. Numerous or Equally Balanced CompetitorsA. Intensity: High❏ Apple produces a variety of products to penetrate many markets, which creates many different competitors❏ Apple’s top competitors are Microsoft, Google, and Samsung❏These three companies contain the technology, supply chain and funds to be equally balanced with Apple❏One reason why Apple is ahead is because they were the firstto revolutionize the consumer markets with their products❏This helped them establish a large share of the markets early on and create loyal consumers

2. Slow industry growthB. Intensity: Moderate❏In developed economies the industry growth for smartphones has slowed down considerable❏ However, emerging economies are compensating for this slow growth by exhibiting high volume of sales❏This is important because Apple’s iPhone sales were 52% of their total revenue from their last fourth quarter❏ Therefore, if Apple wants to continue its growth they must focus on penetrating other countries markets besides the U.S.

3. High fixed or Storage CostsC. Intensity: High❏ Apple’s fixed costs for producing its products are relatively high because of the numerous individual parts it has to create to make one whole product❏ In addition, Apple is currently building a campus in California❏This project costs about $5 billion dollars, which will significantly raise its fixed costs

4. Low differentiationD. Intensity: High❏ Apple is a highly innovative company that produces unique products that revolutionize their target markets❏ As a result, competitors copy Apple's products and designs to reduce the differentiation status they hold over them

❏This forces Apple to come up with more innovative ideas to remain ahead of their competitors and retain their market share❏ As such, Apple holds a high product differentiation in their markets until technology diffusion makes their products available to their competitors to copy

5. Low switching costsE. Intensity: Low❏The overall intensity for switching costs is relatively high because each competitor has introduced numerous of products that offer unique features compared to their competitors and previous models❏These features entice consumers to buy the new more expensive models, which raise the level of switching costs in the industry❏ In addition, accessories change to only be compatible to with newer models to further the switch❏ For example, phone chargers, cases, and services

6. High strategic stakesF. Intensity: High❏ Competitive rivalry in Apple’s chosen markets have become so fierce that Apple has to look elsewhere to continue growing❏This is brought on by Apple’s competitors gaining ground and selling more units in the domestic market❏ Therefore, Apple has the potential for great gains within the global market by focusing on emerging economies such as China

7. High exit barriersG. Intensity: High❏ Apple has recently been investing huge amounts of money into their supply chain management❏Over the next year they plan to invest “$10.5 billion in supply chain robots and machinery”❏ Last year they spent about $7billion on related expenditures and custom built machines❏These high investment costs contribute to high exit barriers because it places such a high costs on abandoning its products that use this supply chain system

Competitors' Analysis

Apple is taking 93% of the profits in the smartphone industry now

Apple is basically the only company making money from smartphones anymore. 

Every quarter, the analyst Michael Walkley takes a look at the state of the profits of smartphone companies. This quarter, it is found Apple had a record breaking 93% of the industry's profits.

Apple is always the leader, but for a short while, it looked like Samsung was going to catch Apple. Those days are long gone. Apple has blasted away from the pack.

Samsung's share of the industry's profits is down to 9%, its lowest point since 2008 as its profits crater. Samsung is under attack from Apple at the high end with the iPhone 6 and 6 Plus, which both have big screens.

Apple sold 74.5 million iPhones last quarter, generating roughly $12.6-$13.5 billion in profits.

Competitors: strongest - weakest

The focus on the strongest competitor extends beyond Microsoft but that will become clearer in a few sentences. Microsoft's control of the PC market speaks for itself so they can easily been seen as the strongest competitor. Apple will eventually have to tackle trying to take away market share but a head-on battle may not be the best approach (Machanick, 1998).

Another side of competition is the music side that Apple is presently doing well in. Samsung and Napster 2.0 have teamed up to release a new service/hardware combination that is intended to compete directly with iTunes Music Store and iPod. The scheduled release is to offer unlimited downloads and services that the iTunes Music Stores offer.

Rivals anticipated strategic moves

Apple's strategy has not gone unnoticed. Its rivalry has created an air of 'bad blood' between itself and digital rival RealNetworks.

Apple management was quoted as stating: "We are stunned that RealNetworks has adopted the tactics and ethics of a hacker to break into the iPod, and we are investigating the implications of their actions under the DMCA and other laws."

The move has prompted Apple to consider restricting iPod software updates so that Real's Harmony technology would no longer be supported

Speculation has surfaced that video conferencing functionality may be added to iChat (Geek.com, 2002). The move has been seen as being gutsy.

Economies of scale

Expense of software creation was be extremely expensive and but once it has been refined the cost of producing copies for sale is minimized. The difference in expense between Apple and Microsoft is the systems put into place. Apple chose to go with a closed system that not have any others assist with programming, testing, and bugging as did Microsoft. Microsoft gobbled other companies that had made sustainable improvements to their operating system up. This reduced some of Microsoft up front costs and multiplied the progress.

SWOT Analysis

Strengths

1- Product differentiation

When Apple first hit the market in the early 1980s it had a product that differentiated it from all other computer products on the market but it failed to capitalize on what it had. The system continues to be strength for the company since its closed operating system is not subject to the computer viruses and hacking that affects the Microsoft Windows operating system. The small market share controlled by Apple can be increased every time Microsoft encounters problems.

Apple's system for graphic and architectural production and design is far superior to any Windows application and this strength should receive considerable advertising to capture more of that niche market. Apple cannot continue to make the mistakes it has made in the past when it could have countered the Windows upgrades as they occurred.

The Macintosh's high-resolution graphics and ease of advantage over MS-DOS had made it a natural for software developers who created the "desktop publishing" segment, which was widely credited as saving Apple and the Macintosh.

The iPod and iTunes markets are strengths but they can be easily copied by competitors and are subject to the control of third parties.

At present it does control the market but without pursuit of a core competency that cannot be easily imitated by others it will fall off of the strength category.

2- Brand name and image Branding of products helps in keeping consumers abreast of the company products. Whenever a company established a popular brand name or image it can reap some benefits. Some of the benefits associated with the name recognition is the ability to reduce advertising from the recognition perspective. Apple computers got its name from Steve Job's favorite fruit. He has run three months late in filing for a name for his company and threatened his colleagues that he would call the company Apple Computers if they were unable to come up with something better by 5:00 pm that day. His friends didn't so the name stuck. The brand has some to be known for its superior quality and aesthetics. It is valued in the graphic world for having an operating system superior to any Windel platform. The innovations in the music industry have been linked with Apple's brand name and its quality products and services.

3- Manufacturing both hardware and software

Steve Jobs is pursuing the combination of hardware and software manufacturing and does not intend to lay off any of his employees since they are what make Apple successful. Apple will continue to run lean while management pursues the business of making machines and applications that even their most stringent critics regard as some of the best in the business.

Apple does manufacture both hardware and software for its computers so it has the ability of controlling design so that it appeals to the functional uses and aesthetics required by consumers. Some of Apple's clients are web designers and its computers provide the specific hardware and software needs to accommodate them. Output is found to be impressive both for customers and their clients. Apple is providing the most

affordable 64-bit technology and a new operating system OS X in effort to position itself in the scientific and academic high performance computing tasks.

4- Diversified markets Apple has built an alliance with Sony and Ericsson with aims at capitalizing on the broadband wireless market in the future. Apple's launch of iSync software in 2003 allows synchronizing of personal information management applications and devices such as mobile phones and hand-held computers (PDAs) (Barker, 2003).

Weaknesses

1- Economic and political uncertainty Apple's operating performance is affected by the economic and political uncertainty that shadows the United States. Education entities have postponed purchases due to budget cutbacks and shortfalls. Businesses are not expanding and employment reductions in force have provided less disposable income reducing sales. Failure to improve could continue to affect the company and its suppliers negatively. The entire tech market has been weakened by the economic and political uncertainty as well as other constraints.

2- Research and development costs higher than competitors The market requires that participants continually provide innovations and competitive products and technologies. Apple has been working extremely hard to accomplish this and in doing so is spending more money for research and development that its competitors. This increased spending negatively affects its profit margin and with competitors cutting prices on their products it makes it difficult to compete on the same playing field.

3- Selling, general, and administrative costs are higher than competitors Expansion into the retail 'bricks and click' world has increased Apple's costs. Marketing fees for advertising its unique operating system and new equipment again affects the bottom line, even though they are necessary expenditures. Competitors are able to enjoy the luxury of utilizing operating systems, in Windows users case, that controls a considerable amount of market share so they do not have to spend anywhere near as much to promote their operating system. Apple has to focus on creating more awareness not only of its products but also of its operating system. It must continue to develop innovative products that offset the expenditures of these group costs.

4- Component order placement places company at risk Components and products are ordered before the computers are manufactured so if something occurs that represses sales the company is vulnerable because of the high priced inventory that it retains.

This occurs because pricing competition is ever going so to purchases of components and products at present day cost would usually be lower than prices paid for what is presently in inventory. The worst-case scenario is having inventory become obsolete and then having to be written off of the financials. Cancellations of orders usually result in cancellation fees that still affect the companies' financial position.

The process of production requires that a company forecast possible sales so that they can order the products and components necessary for being able to manufacture a desired output. The risk is in making incorrect forecasts. Apple components may not be as plentiful from vendors since their market share is smaller and the operating systems are different. This puts the companies with the Windows operating systems at an advantage since Apple could run into a problem procuring a sufficient supply of components.

5- Apple relies on third parties

Apple relies on third parties for music and for manufacturing. This can affect the costs being relayed to the consumer. The music sales have been profitable for Apple but they have to contend with the fact that the material is in the control of third party representatives.

The fees for having access to these materials can be extremely expensive. Another concern is being outbid or restricted from being able to provide the contents previously provided. Most of the licensing agreements are short-term and do not come with a guarantee that the materials will be licensed in the future. Some music industry parties have announced that consolidation of their distribution might occur in the future. A move such as this would restrict availability of material for Apple's iTunes Music Store and drive costs upward so that they might not be as attractive as they are now. iPod sales could decrease rapidly if material restrictions occurred and Apple would remain at the mercy of these third-party controllers.

The music coming from third parties is not the only thing that Apple should be concerned with. It also has third parties manufacture it products. The company also out sources much of its transportation and logistics management. Outsourcing does lower the fixed operating costs but this is at risk of not having any or at most restricted control.

Quantity output and quality of manufacturing are in the control of the third party supplier/manufacturer. The company is ultimately held responsible in the end, especially when defects or other liabilities surface. This is another risk that Apple must contend with.

Apple is also reliant on Motorola and IBM for processor chips so if these companies run short or increase the price on the chips Apple must either absorb the cost or pass it along to consumers. Either of the two scenarios is highly likely especially when the tech market is recessed.

Apple is faced with multiple weaknesses that it cannot control. Each of them or a group of them could affect its operations in a negative direction and Apple will be faced with more hardships than what it encountered in the past. Management must look at how these weaknesses can either be bridged in effort to minimize risk or turned into strengths.

Opportunities

1- Apple's different operating system

Apple can take advantage of its operating system differences by turning it into an opportunity to develop improvements to the Macintosh platform in order to achieve greater perceived functional and design advantages over competing platforms.

Various computer worms and other hacker anomalies that provide a grand opportunity for Apple to take advantage and garnish some small sectors of this frustrated market. With such a widespread system the vulnerability increases and fixes are not easy to make in short time periods. Micro-soft bashers love to point out that Linux or Apple's OS X are not vulnerable to whatever the exploit du jour is on the Microsoft platform (Bradley, 2004).The Apple Mac OS X is seen as a stable, reliable, and secure system that is also very easy to use.

2- Apple's pursuit of music industry

Apple's pursuit of the music industry through its iTunes also provides a good opportunity to increase Apple's bottom line and also increase brand awareness. The launching of the iTunes Music Store resulted in over 2 million downloads in only 16 days. Knowing that all of the downloads were done on Macintosh computers. Apple's opening of its music store worldwide will be a great opportunity.

3- Microsoft upgrade costs versus benefit Microsoft users are finding it less feasible to continually upgrade software packages unless they can truly see a benefit for the money being spent. The last few Microsoft upgrades have been plagued with glitches that provide another grand opportunity that Apple can use to its advantage so long as it doesn't make the same mistake with its issues of upgrades. The customer will continue to look for value when money is spent.

Threats

1- Very competitive industry The market for design, manufacturing, and sales are all extremely competitively aggressive in Apple's business. The rapid technological advances made by competitors in the hardware and software segments has increased the number products offered in shorter time spans. Price competition, including sellers with computers with other operating systems, has been very intense as the battles for increased market share rise. All of these affect gross margin, especially when combined with increased reliance on the Internet and the miniaturization of components that decrease prices since they are smaller and simpler.

2- Competitor's copying programs Companies such as Future Power USA copied Apples Imac and have been selling it. These copies pose a major threat to Apple sales. The copies look identical to the iMac even to the point of making the colors the same but under different names. These copycat computers can even be considered as substitutes for an iMac. Website www.lowendmac.com states that many other companies are copying the iMac either because they are too lazy to come up with a different design or because the iMac is such a great idea everyone wants to copy it.

Competitors are quickly mimicking the unique presentations of digital music products. Entry into these markets is costly but unfortunately for Apple the competitors have an abundant supply of funding to address marketing, manufacturing, and technical resource requirements that may arise. Consolidation of major players has made for larger and potentially stronger competitors. Competitors are even promoting free peer-to-peer services.

3- Microsoft dominance Microsoft Windows continues to dominate the market. More than 90% of the world's computers use the Microsoft operating system. Apple needs to work on convincing the world that its system is better than Microsoft. This dominance and need to overcome the world's mental state of thought about Windows operating systems is a major threat to Apple.

Windows based PCs have cut prices and lowered product margins to maintain market share since demand has been declining during the past few years. This pattern does not seem any brighter in the near future so these practices are very likely to continue. PC technological advances in software and hardware, and miniaturization of parts, together with a more reliant Internet movement make the competition for market share even hotter.

Apple's operating system has lost some of its market share during the past few years but is working to regain its losses. The introduction of the G5 has helped with sales, as have the Powerbook portables.

Apple's operating system has provided graphics and creative designers with a useful tool that is not comparable to Windows operating system applications. This difference must be managed with continued improvements that allow the public to perceive design and functional advantages over the competitors' operating system platforms. Failure to compete effectively could cause a negative affect on Apple's financial and operating results.

4- Software Piracy Software piracy has been a problem for software and operating systems producing companies. As the technology advances the more susceptible the companies become to additional piracy. The piracy issue has grown to global proportions and stopping unlawful copying and distribution of copyrighted software does not seem to have a remedy for prevention in the future.

5- Global competition increases

Competition continues to increase worldwide. Other countries are getting into the manufacturing as the expansions of existing companies occur. Cheap labor and parts manufacturing in less privileged countries provide opportunities for larger companies with extra capital to spare for expansion. Pursuit of savings drives them into the other countries and with labor and parts costing less they utilize that as a means for cutting costs making them more competitive.

The amount of product introductions hitting the market requires that each company continue pursuing more innovative products in a shorter period of time. Lack of newly enhanced product will reduce customer demand even more than what is being affected by the weakened economy.

Companies must hope that the product introductions will be well received by the consumers. If the product is well received then the company must be in a position to ramp up production in short order but not enough to be overwhelmed by large inventories when the sales regress. This need for judging demand is critical and must be determined as accurately as possible because over supply will lead to dead inventory and not enough supply will lead to unhappy customers.

Finding the balance is very difficult. Innovations within the operating systems must continue to support the existing systems at the risk of losing customers should this not occur.

6- Aggressive pricing practices Competition in this highly competitive market faces overcoming aggressive pricing practices, frequent new product introductions, shortened product life cycles, new industry standards, continuous product improvements, rapid technological changes, consumer price sensitivity and abundance of competitors. Each section is intense and staying on top of each is difficult for any company to manage. Those with considerable market share continue to battle to prevent relinquishing any while those with little push with the items above to take any amount of market share they can get.

Competitive Strength Assessment

The chief elements of Apple’s overall competitive strategy are based on product differentiation, sustainable competitive strategy, product innovation & vertical integration. Product differentiation based on manufacturing its own personal computers and software. Apple has done a great job through effective innovation with its three core products, computers, personal media, and mobile phones. The company designs, manufactures and markets a range of personal computers (PCs), mobile communication and media devices, and portable digital music players. Apple also sells a variety of related software, services, peripherals, networking solutions, and third-party digital content and applications. In addition, the company sells a variety of third-party Mac, iPhone, iPad and iPod compatible products, including application software, printers, storage devices, speakers, headphones and various other accessories and peripherals. Apple sells its products worldwide through its retail stores, online stores, direct sales force, third-party cellular network carriers, wholesalers, retailers, and value-added resellers

Apple’s sustainable competitive strategy focus on building strong customer loyalty by meeting their customer needs more effectively with their products innovations, and unique designs. This competitive strategy has advantaged Apple apart from rivals and has kept them in front of the competition in new products introduction and on the updates of existing ones. Apple has followed a vertical integration strategy to build a formidable competitive advantage. Apple’s business strategy controls its unique ability to design and develop its own operating systems, hardware, application software, and services. . Apple on the other hand practiced horizontal and vertical integration which gave it the dual advantage of significant reduction in costs as well as its creating its own proprietary designs. The vertical integration provides control over the entire user and provides lock in. Apple’s sustainability market share successfully connect its devices from each other or process from hardware to software which facilitates higher customer loyalty. Apple builds sustainable competitive advantages that are hard to replicate.

A key piece of their strategy involves converting physical products and turning them virtually to exploit the network knowledge in a way no one has done it. As technology evolves, Apple main focus is on the computer industry on taking digital media plus constants evolutions, digitized knowledge, and combined it to feed the global consumers. This along with Apple’s entry into the mobile industry with its iPhone and tablet computer industry with its IPad are evidence of continue innovation.

Apple’s Strategic Issues and Problems

1. Cloud Services. We never hear much about this issue now that they’ve launched iCloud and it’s worked reasonably well so far.  There was the initial launch of it which marred with issues but they seemed to work their way around them.  Today, most people think that, just because they built some big server farm in North Carolina. The question is — does Apple have enough cloud talent inside the company to continue to grow and develop iCloud? It’s debatable.  There was a reason that they tried to buy Dropbox.  That deal would have made enormous sense for Apple – not just for tagging on to Dropbox’s momentum but for bringing in that domain-specific knowledge into Apple.  Such a deal would still make a lot of sense.  Very few people know that, when iCloud launched, it relied heavily on Amazon (AMZN) Web Services and Microsoft (MSFT) to deliver their first cloud functionality.  As Facebook (FB) and Google (GOOG) continue to develop these services, they have a lot of in house knowledge on scaling these up.  Apple – at present – does not.

2. Internet Services.  This has received some attention quite a bit over the last few months on blogs and in the press and it deserves to. As the battle between mobile IOS’s continues to heat up over the coming years, rolling out amazing Internet Services will become more important, not less.  Apple is again taking a go slow and grinds it out approach to these. We’ll learn from that. Apple Maps didn’t work. We’ll learn from that.  The thinking seems to be internally: we don’t need to be first to market with great services; we just need to get to market.  Sadly though, consumers seem to be getting more and more impatient in waiting around for Apple.  Google was never perfect out of the blocks with their Internet Services but they do seem to be on a roll lately.  Apple does need more external talent with these skills injected into the organization.  Yahoo could be a great fit and Marissa Mayer would be an ideal head of Apple mobile Internet Services.  Mail, Flickr, and their core properties would fit very well into prominent positioning in iOS.  As Mayer has been saying of late, the Yahoo properties map on very well to the top 10 list of activities of what people do most on mobile.

3. Social.   Apple has to be social but that doesn’t mean it has to own a social network.  From an internal skill set perspective, it’s not obvious that Apple can understand social and take advantage of its evolution from here, without having a lot of internal talent who live and breathe social.  Twitter has been often talked about as a great way of Apple to inject social into its lifeblood if they were to acquire it.  I’m in favor of this approach as well.  The two companies have been working closely since first deeply integrating Twitter into iOS 5.  However, the biggest concern among Valley insiders I discussed this idea with last week was: the big differences in culture between the two companies.  How do you keep what’s special at Twitter if it’s swallowed up by Apple?  And that leads to the next point.

4. Apple outside acquisitions   As studied in chapter 7 (p. 226&227) That global expansion isn't always a successful path to expansion. Apple hasn’t done any big multi-billion dollar acquisitions of outside companies. The Quattro Wireless deal – was unsuccessful.  The founders are gone. Apple didn't really get everything they could have out of it. Siri is also an interesting case study. Apple has made it a major focus and selling point for the new iPhones starting last year. But the Siri founders are also out of the company now. Even if Apple were to buy Twitter (or Foursquare), a study should be made for the progress of these properties be a year from now. Apple needs real technology transfer of core cloud, internet services, and social skills into the company. And this leads to the last problem.

Financial Position Analysis

Profitability Ratios

Ratio201020092008CommentProfitability Ratios

Gross Profit Margin39.30%40.10%

35.20%Gross profit margin increased in 2009 compared to 2008,slightly decreased in 2010. It indicates the margin available to cover operation expenses and generate profits

Operating Profit Margin28.20%27.30%

22.20%OPM improved throughout the years indicating profitability from operatins regardless og interest

Net Profit Margin21.50%19.20%

16.30%NPM improved throughout the years indicating good profitability and pricing strategies

Return on Total Assets ( ROA)

18.60%17.33%

15.40%ROA improved through the year reflecting good return on investment or the ability of assets to generate return

Return on Equity (ROE)29.30%26%29%ROE slightly declined in 2009 compared to 2008, but again it increased in 2010 reflecting the improved return on stockholders investments in the co.

Earnings per share15.15%9.08%6.78%EPS improved in 2009 compared to 2010 and improved dramatically in 2010 thus owners are well paid off

Liquidity Ratios

Liquidity RatiosCurrent Ratio2.012.742.46Decreased liquidity ratio but

still good in 2010, it indicates that every 1$ of current liabilities is covered by 2.01$ of current assets

Quick Ratio1.962.72.42Decreased quick ratio but still good in 2010, it indicates that every 1$ of current liabilities is covered by 1.96 $ of current assets, without the need to sell inventory

Inventory to net working capital

5.01%2.27%2.47%Inventory increased drastically in 2010 compared to 2009 & 2008, yet still represents 5.01% from the working capital

Leverage Ratios

Leverage RatiosDebt-to-Asset ratio36.40

%33.40%46.80

%Improved debt ratio in 2009 compared to 2008 , and slight increase in 2010. yet the ratio indicates that the co. tends to lower financing its assets through debt

Debt-to-Equity ratio57.30%

50%88.20%

Improved debt to equity ratio in 2009 compared to 2008 , and slight increase in 2010. yet the ratio indicates that the co. tends to increase self or equity finance and decrease external debts

Long term debt to Equity ratio13.90%

13.70%21%Improved long term debt ratio in 2009 compared to 2008 , and slight increase in 2010. yet the ratio indicates that the co. tends to lower depts financing its long term capital structure

Activity Ratios

Activity RatiosInventory turn Over629473.6Inventory turn over increased in 2009

compared tp 2008 then decreased in 2010 to 62 times, this might indicate accumulation of finished goods inventory , or mmay be the company metigates the risk of supply through increasing stock of raw materials

Fixed Assts Turn Over ( FATO)2.083.08

12.7FATO is decreasing through the years of comparison, indicating mis management of fixed assets to generate sales, or that the company maintains too much fixed assets that are not much productive

Total Assets Turn Over ( TATO)0.870.90.94TATO decreased slightly throughout the years of comparison, the decrease might indicate inefficiency of total assets o generate sales , but it should be compared to industry average to determine clear analysis

Past and Present Mission, Strategic Objectives, Strategies and Competitive Advantages Resulting from these strategies

As learned in chapter6 p.202 that an organization's mission statement and objectives must be made before alternative strategies can be generated and evaluated. The optimum result is to have choices that are clearly matching our objectives and mission statement and to avoid the gaps that occur between planned and achieved objectives.

Past and present company mission

Apple – Past Mission:

“To bring the best personal computer experience to consumers around the world through its innovative hardware and software

At that time, Apple Inc. was involved in the computer business only which explains their mission statement that is mainly oriented to computer business.

Current Mission

"Apple is committed to bringing the best personal computing experience to students, educators, creative professionals and consumers around the world through its innovative hardware, software and Internet offerings"

Mission Statement Analysis for APPLE Inc.:

Apple is mainly focusing at the following components of mission statement:

1. Apple may not be important to elaborate on its concern for its employees or to thoroughly outline its customers and targeted market. Apple is a trendy technology company which prides its self in providing easy to use electronics and efficiently run software systems. Because of this it is most important for Apple’s mission statement to focus on components like company philosophy, self-concepts, and current technologies. These aspects of Apple are what make it popular and successful today.

2. Apple ignited the personal computer revolution in the 1970s with the Apple II and reinvented the personal computer in the 1980s with the Macintosh. Today, Apple continues to lead the industry in innovation with its award-winning desktop and notebook computers, OS X operating system, and iLife and professional applications. Apple is also spearheading the digital music revolution with its iPod portable music players and iTunes online music store.

Apple’s mission statement only includes descriptions of products & services and past & present technologies.

Apple Strategic Objectives

Apple Past Strategies

• High- growth at personal computer industry

• The leader of the industry 1976-1982.

• Introducing New business lines:

1- Mobile phones.

2- Consumer electronics.

Past strategies adopted by the company:

Corporate Level and Business level:

- The company follows consistent

- Full integration : company designs , develop its own operating systems, hardware, applications and services

- Company depends on a limited number of suppliers for its components

- Company adopts Differentiation strategy

- Company invents heavily in R& D

- Expanded distribution network and third parties “ Apple Prime Resellers”

- Successful alliances such as that with Disney

- No clear succession planning

- Expanding range of products with a focus on I-phone and I-pad

- I- Tune successful third party programs was a good source of profits

Strategies adopted by Apple Inc. at corporate level and business level

Corporate Strategy Growth is the main corporate strategy with the following integration models

Horizontal Integration: Via New Products and new areas of creativity. Also via hitting new regions and countries.

Vertical Integration: Via direct contacting with the end customer either online through the online Apple Store (iTunes) or through the 300+ Retail Apple store which introduce a very luxuries customer care & support.

Apple Retail stores – world wide

Business Strategy

Apple Is Competitive to the Edge.

Apple Competes with Microsoft in Operating systems and software. Apple Competes with IBM, DELL and HP in Personal Computers and

Laptops Apple Competes with Adobe in Multimedia Software Applications.

Apple Competes with HTC, Nokia, Samsung, Sony and Google in Smart Phones and Small Personal Computers (I PAD).

Apple Competes with Retails Stores as well as Online Multimedia contents resellers.

Apple is Maintaining the Specialty in the highest level of it while its products is in a high cost average.

Main difference between past and present strategic objectives is that Apple is more focusing on the smartphones development (Iphone)Based on, the company name was changed from Apple computers Inc. to Apple Inc.

Identification of Strategic Options

Apple is an undiversified company focusing on the electronics industry only.

Apple has always produced some of the most fascinating gadgets. Between the revolutionary iPhone, beautiful laptops and industry-changing MP3 Players, Apple truly produces a treasure trove of creative and reliable products.

Industry Analysis

Consumer Electronic Industry Life Cycle

1. International- Growth StageFor the international markets Apple’s market is in its growth stage cycle.Firms are focusing on emerging markets such as China to continue their growth and expand operations.This involves high capital costs and low competition because the emerging markets have been uncharted territory before this point

2-Domestic- Mature StageApple’s domestic market of the U.S. is currently in itsmature stage of the industry life cycle

Growth within this industry has substantially slowed down due to saturation and intense competitionWithin the U.S. the biggest firms of this industry have been founded or based within its borders

Companies like Microsoft, Samsung, Sony, HP, Gateway and many others have saturated the market with good sand dominate the industry Domestic- Mature Stage

Apple’s domestic market of the U.S. is currently in its mature stage of the industry life cycle

Growth within this industry has substantially slowed down due to saturation and intense competition

Within the U.S. the biggest firms of this industry have been founded or based within its bordersCompanies like Microsoft, Samsung, Sony, HP, Gateway and many others have saturated the market with goods and dominate the industry

Which Cycle Apple’s In

A. Fast-Cycle Environment- International and DomesticThe technology sector is characterized as a fast cycle industry.With all the high flying competitors and the innovative products it is virtually impossible to hold a competitive advantage.There are also a wide range of substitutes that threaten Apple.This is why Apple and the tech industry reside in this industry environment.

Apple's Inc. position in the Electronics Industry- Market Leader

The main business of Apple Inc. is designing, production and the marketing of the mobile communication and other media devices, computers and digital and portable music players, the company also sells a variety of software that are related to their products, solutions of networking and digital content.

Basically the products and services of the company includes iPhone, iPad, Mac, iPod, Apple TV, a portfolio of consumer and professional software applications, the iOS and OS X operating systems, iCloud, and a variety of accessory, service and support offerings iPhone is the Company’s line of smart phones that combines a phone, music player, and internet device in one product, and is based on Apple’s iOS Multi-Touch™ operating system. IPad and iPad mini™ are the Company’s line of multi-purpose tablets based on Apple’s iOS Multi-Touch operating system. iPad has an integrated photo and video camera and photo library app, and on qualifying devices, also includes Siri.

iPad works with the iTunes Store, the iBooks Store, and the App Store for purchasing and playing music, movies, TV shows, podcasts, books, and apps. This segment contributes 53.5% in total sales. Mac is the Company’s line of desktop and portable personal computers. Macs feature Intel microprocessors, the OS X operating system and include Mail, Safari web browser, Messages, Calendars, Reminders, Contacts and the iLifesuite of software apps. This segment contributes 18.7%.

The Company’s iPod line of portable digital music and media players includes iPod touch, iPod nano, iPod shuffle and iPod classic. This segment contributes 12.5%. ITunes is integrated with the iTunes Store, the App Store and the iBooks Store. The iTunes Store facilitates the users to buy and download music and TV shows and to buy or rent movies. The iTunes Store also includes hundreds of thousands of free Podcasts on a multitude of subjects. This segment contributes 2.58%. Accessories including Final Cut Pro, Logic Studio, Logic Pro, and its FileMaker Pro database software. Apple also produces Apple LED Cinema Display and Thunderbolt Display.

Intense Competition

Computer industry seems to be more intense for Apple as it can gain only 8.5% of the total market shares. While Dell Inc gets 23.4& and HP gets 16.8&.

Apple is used to be just in the computers and software industry then it has expanded its business to the digital music players (iPod) industry occupying 71% of the total market shares. While SanDisk has 11%,

Microsoft has 4% and Creative has 2% which shows significant revenue upon Apple Inc. contribution.

B) Revised Company Mission and Objectives.

Mission statement of Apple lacks the definition of customer market and costumer needs. As the specifications of a good mission statement, it should be able to answer the following questions as learned throughout the strategic management course:

1. What do they do?2. How do they do it?3. Whom do they do it for?

Apple is committed to bringing the 1)best personal computing experience to 3)students, educators, creative professionals and consumers around the world through its 2)innovative hardware, software and Internet offerings

But, what we can see in the mission statement of Apple is more like covering all the characteristics of a reliable mission statement.Apple strategic objectives are perfectly fitting the future goals that will drive apple to a sustainable market leading position.

Recommendations

Long Menu

Options for competing in a mature industry

• Develop close relationships with suppliers: Because there are few suppliers of key components required in PC manufacturing developing close relationships with suppliers is of utmost importance. Rather than searching for the supplier of lowest cost, maintaining a collaborative and exclusive business relationship will help mitigate the power of suppliers and help to lock in attractive component prices.

• Franchising of stores

• Seek exclusivity arrangements with OEM partners ( Third parties): Continue to build relationships with OEM partners and enter into exclusivity arrangements to lock out competitors and gain favorable business deals.

Options for a leading company

Focus on differentiated lifestyle branding: Apple has successfully developed a differentiated lifestyle brand and must continue to build on this foundation while resisting pressure to move to the middle to directly compete with Dell and HP.

Options for competing in international markets

• Continue the expansion of Apple stores: The stores represent an important source of revenue for Apple and serve as an interactive advertisement for the Apple brand. Their success has been unmatched by any other industry player.

• Emphasize the integrated system in advertisements: Apple's integrated system holds a significant advantage over other industry systems relying on Microsoft Windows, yet some customers have not experienced the seamless interoperability of all Apple products. This marketing angle will result in cross selling of more products to new and existing customers.

• Apple should continue to support the educational and creative professional markets

Generic strategies

• Design innovation: Put additional emphasis on design development with internal resource allocation to continue to lead the industry in design.

• Research user interface possibilities: As a mode of setting Mac computers apart from other PCs Apple must continue to innovate in user interface focusing on easy-of-use and intuitive menu functions

• Consumer electronics diversification: While the PC market has grown increasingly crowded with competitors and customers saturated other areas of consumer electronics continue to grow. Developing complementary products in other categories provides broader sources of revenue by accessing more customers in markets with less intense competition.

• Apple should consider all work related to its operations in the iPod, iTunes, iSync, and iChat sectors.

Defensive strategies

Apple should consider infiltration of the business sector with an Enterprise Resource Planning (ERP) system merger.

Short Menu

Option One: Franchising of stores

Option Two: Growth Strategy through new products and new market opportunities

Option Three: Vertical Integration

Alternative Functional Strategic Options

Marketing:

Recommendation 1

Franchising of stores

Pros:

It will help costs to Apple to be reduced. They could still control sales and system operation without the excessive cost outlay. A franchisee will work harder at promoting the product since their livelihood is tied to the success more closely than an employee. Apple already has data accumulated that shows employees obtain so much training and then 'abandon ship' for better paying positions elsewhere. Franchisees would not just leave since they have a vested interest in the success of the store.

Cons:

Being so wrapped up in opening stores that management does not want to admit failure if profits start dropping off. Each store opening should be viewed economically so that the law of diminishing returns is applied overall. When the numbers show that the company is approaching the even mark or goes negative then it must consider whether to continue support of the existing stores or cutback of the less profitable.

Management evaluation is needed in this area for sure.

Apple should aggressively promote hardware, software, and peripheral products through its retail outlets. Market awareness might help increase market share.

Growth Strategy

Market Development Strategy: to increase a large market share through market penetration Apple Explores New Territory

Product Development Strategy: to upgrade its current products and produce new versions and at the same time produce new products

- New products :They should also focus on producing new products to be ahead of their competitors and not to fall back.

For example :

Ifridge , ioven, iwasher and to link all those home equipment in to one system that can be controlled and monitored by your iphone or ipad.

- New markets (target different demographics ) :The company should promote the products in new markets as they are missing opportunities in many regions

- New customer segments :Apple price is known to be above average in the industry. The company is using a differentiation strategy and focuses more on innovation, and quality. This strategy is justifying their premium prices.

Lately their new technology and their high cash flow allowed them to lower their price and to offer more discount to certain markets .

We recommend to focus more on penetrating new customer segments by trying to produce products with high value and lower prices

Research and Development

Apple should consider infiltration of the business sector with an Enterprise Resource Planning (ERP) system merger.

Pros:

Loss of data, either through a system crash or invasion by hacker's programs, is detrimental to any business operation. Apple has the ability of producing and controlling its hardware and software. A merger of operations with PeopleSoft, Oracle, or SAP could provide a positive financial influx that will provide continued life to Apple's operating system platform.

Apple provides an easy to use operating system and user friendly operations that can be taught to even the smallest children so older computer-illiterate employees can easily learn to operate quickly. This lessens the computer intimidation and allows for focusing on learning the ERP program that will be modified to fit the same easy to use formatting. This would be a big plus for the employer and employee.

Cons:

Apple's might lose control of some of its operation when merging with an ERP company. Management might not be willing to share operating platform information with this ERP Company making it difficult to perfect such a blending of operational systems.

Recommendation 2

Human Resources Management:

Continue training and development programs for employees (iCare)

Pros:

Guarantee quality of service provided for clients all over the world

Succession planning

Cons:

High Cost

Selected Strategies:

Corporate Strategy : Growth Strategy

Business Strategy : Vertical Integration

Function Strategy : Increase Franchise outlets

Expected Outcomes of selected strategies :

Strategy Positives NegativesGrowth Strategy -New Markets and business

opportunities- Increased profits

- Lack of Focus- Implementation & Control might be affected

Vertical Integration -Avoid risk of suppliers- Lower cost

-Increased investment costAs this industry is rapidly changing, vertical integration might be risky

Increase Franchise outlets - Expansion of Distribution channels- Low Cost

- Need more control- Quality of service might be affected

Strategy Implementation:

Organization Structure:

Current organizational structure is categorized by business lines a, functions and regions.

This structure fits with the recommended strategies, as growth with new products or business lines could be easily added , same for markets.

Resources should be allocated to fit the strategies through more budgets for Research and Development to develop new products.

Staff should be trained to be more efficient

The recommended strategies are implemented as follows:

Build long term organizational strength by implementing a clearly thought out leadership development and selection programmer that will be able to develop the special leadership required for Apple.

Future leaders should be technically brilliant, innovative pioneers with strong team working skills and high levels of ethics.

Build specific products of high quality, but lesser prices, for the huge populations of India and China that are passionate about computers, mobile phones and music.

Continue and intensify the search for innovative, stylish and useful products in its existing area of operations.

Make productive use of strong cash reserves

Recommended strategy supportive policies:

Human Resources structured training programs

Rewarding plan for innovative ideas

Reward scheme for staff to increase their loyalty

Effective performance Management

Career planning and development

Company Culture:

Apple is a pretty divided mix of typical corporate red tape and politics mixed in with startup level urgency when the direction comes from Steve. If you have a project that Steve is not involved in, it will take months of meetings to move things forward. If Steve wants it done, it's done faster than anyone thinks is humanly possible. The best way to get any cross departmental work done was to say its for Steve and you'd probably have it the same day.

This reflects a culture where charismatic leader plays a great role.

The culture in Apple is still friendly and achieving objectives is the core value at all levels in the organization.

The culture as well values innovation and novelty, which fits perfectly with the recommended strategies.

Control and Evaluation:

The final stage in strategic management is strategy evaluation and control. All strategies are subject to future modification because internal and external factors are constantly changing. In the strategy evaluation and control process managers determine whether the chosen strategy is achieving the organization's objectives. The fundamental strategy evaluation and control activities are: reviewing internal and external factors that are the bases for current strategies, measuring performance, and taking corrective actions.

To measure performance there should be determined KPIs ( Key performance indicators) among which could be :

- Sales volume for each product- Action plan matching with strategic objectives

Action plans:

Producing an action plan can be beneficial not only for individual basis but also for businesses. For example, it allows project managers or any member of a group to monitor their progress and take each task step-by-step, therefore allowing them to handle the project efficiently. The advantage of doing this is, it allows you to execute a structured plan for the end goal you intend to achieve. Furthermore, it provides the team with appropriate foundations, therefore prioritizing the amount of time you spend on each task. This will then prevent any sidetracking that may occur. Lastly it creates a bond within a team, as each member is aware of their individual role, as well as providing necessary information to ensure success of the project

In order to measure performance the company can apply the following:

• Output controls- specify what is to be accomplished by focusing on the end result

• Behavior controls specify how something is done through policies, rules, standard operating procedures and orders from supervisors

• Input controls emphasize resources

• Activity based costing- allocates indirect and direct costs to individual product lines based on value-added activities going into that product

• Allows accountants to charge costs more accurately since it allocates overhead more precisely

Primary Measures of Corporate Performance

• Return on Investment (ROI)

• Earnings per share (EPS)

• Return on equity (ROE)

• Operating cash flow and Free cash flow

• Shareholder Value- the present value of the anticipated future streams of cash flows from the business plus the value of the company if liquidated

• Economic Value Added (EVA)- measures the difference between the pre-strategy and post-strategy values for the business

• EVA=After tax income-total annual cost of capital

• Market Value Added (MVA)

• Balanced score card– combines financial measures that tell results of actions already taken with operational measures on customer satisfaction, internal processes and the corporation’s innovation and improvement activities

• Financial

• Customer

• Internal business perspective

• Innovation and learning

• Benchmarking- the continual process of measuring products, services and practices against the toughest competitors or those companies recognized as industry leaders

My opinion

Regarding marketing key success factors

Apple's product differentiation in the iPod and iTunes sector will be short-lived since it has a dependency on third parties and also because competitors can easily enter the market. Apple must position itself as the only competitor in the market with stem-to-stern computing solutions.

Skills related

As Apple transitioned into team building in the late 1990s they soon found that they management staff was lacking in managerial skills required to lead cross-functional teams. As before many of them were engineers with little to no business management experience or academic background.

Organizational capabilities

Evaluating Apple's organizational capabilities requires reviewing environmental/strategy, work system, management process, principles and values, human resources system, and the leadership team. Apple also lacked a work system of cross-functional product development teams and needed business-oriented managers with leadership skills to lead teams that could agree on new businesses. This put Apple in a position of not being able to fulfill its requirements for:

1) Defining its environment and understanding its strategy,

2) Lacking a work system,

3) Needed a management process for specifying workable goals and objectives, and

4) Lacked leadership teams to provide direction.

Employees were not sure of the company's strategic directions and were receiving different priorities from R&D and marketing. This again came from lack of functional leadership team cohesiveness in setting one direction for the company. Managers did not want to lose control of their power and moving into cross-functional business teams meant just that plus not having an effective leadership retarded any efforts in that direction.

The work system and management process require that communications lines be effective and Apple's was not. Trust and communication were extremely low in the Apple world. Lack of lower management involvement made it more difficult to solve problems. .

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