Apple Inc. remains one of the most amazing companies of the 21st century. After recovering from the blink of collapse 15 years ago, the company has become a major phenomena in the business world. It continues to demonstrate an ability to innovate, concur new markets, and supply its products in a cost-effective way. However, recent occurrences, particularly on its margins and stocks, have made many people question giant’s ability to sustain its growth. In January, this publicly owned company experienced a major drop in its share prices. This drop was an overall 35% since September 2012. This loss constitutes over 200 billion USD in five months. These happenings received divergent interpretations with some analysts opining that the shed is a mere indication of digital sector’s extreme volatilities. On the other hand, it remains undeniable that Apple has enjoyed an ‘enchanting ability’ over its customers. The questions arising from the recent events question whether the giant is losing its enchanting influence and whether the market seeks concrete demonstration of abilities from the company other than emotional appeal (Shaw 2012).
Apple’s recent performance may offer contradictory signals such as the fall in its share price and reduction in market capitalization while it continues to record even higher profits than expected, which amount to 13 billion USD. The company also showed impressive performance in major indices. For instance, it rose from a 1% score to 4% in NASDAQ and later to 5% in S&P 500 (Shaw 2012). These financial signals, despite their contradiction and ability to be explained with regards to market behaviour, create a major need for re-evaluation of current state of the giant. Since the happenings influence other historical challenges, projections, unique paths, and trends of the company, it is imperative to extend market signals to other core areas of the company. The extension will aid in analyzing strategic issues on the hands of Apple’s leadership and the options attached to them (Dowling 2013).
Apple’s Corporate Social Responsibility (CSR) Issues
In addition to financial woes pursuing the company, Apple is yet to solve major corporate social responsibility issues. Critical amongst these issues is employment of underage workers in its Chinese supply factories. It has had over 70 cases in history with as high as 106 underage workers in 2012. These issues have been elevated by its lack of commitment to improve working conditions of workers throughout its value chain. The most fatal consequence was the suicide of workers at Foxconn factory. This Taiwanese firm that assembles its major product had serious violations of working conditions requirement (Garside 2013).
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It is thus clear that although Apple has the best managed value chain and supply chain, integration of the chain to reap the most benefits contravenes important requirements. This may hurt company’s future in a major way. Thus, as a strategic option to the company, the current CEO must not adopt Steve Jobs' approach to CSR related claims. He must be vigilant in mending the broken relationship. Company's management must ensure that its approach to value chain management does not contravene employee needs. It is indeed time for Apple to reverse its cultural response to worker conditions in its supply chain and significantly improve their working conditions (Garside 2013).
Apple’s Journey and Current Challenges
It is, therefore, of prime importance to understand that current happenings are not an aberration. It is an indicator of Apple’s need to respond strategically. However, Apple’s response may not be informed by recent events alone, rather, by events marking a tumultuous history of determination, defiance to prevailing conditions, and consistency (Sundararajan 2013). This study notes that Apple gained a head start in the digital landscape a decade ago. This advantage was gained from the realization that the market is headed towards consumerization. Unlike a decade ago, when organizations drove information technology agenda, in the modern day, consumers are major drivers of radical innovation. It is a realization through the forward-looking nature of Steve Jobs that Apple was able to link the success of the company in the future with consumer driven products (Sundararajan 2013).
The market in 1990s, when Jobs was embarking on consumerism approach was dominated by giants such as Dell and Microsoft (Young & Simon 2005). Jobs departed from vertical specialization approach of that time and chose to invest in attractiveness, usability, and appeal of designs. He had to restructure the company, which by then had no specific product of identity (Sundararajan 2013). This focus almost killed the company. This implies that Apple’s current strategy choice may have a cost as well. However, it was not long when his investment gained prominence amongst a wide market of consumers. At the time when former giants, such as Sony, were resisting change, and Microsoft was reorienting its designs towards end-user friendliness, Apple’s time came and it achieved massive success. It had necessary consumer knowledge and its leadership was unmatched in marketing prowess (Liznmayer 1999).
This historical edge that gave the company a lead, created a stream of technological barriers, and rising revenues seemed to be a short-run affair. Barriers to entry are fading, the lead continues to dwindle, and recent events attest to the need of carefully designed strategic options. It is clear that Job’s historical focus and solutions differed from what the current situation calls for. In addition, the focus on current events distracts the giant from focusing on the future storms and challenges. For instance, it is notable that Apple built its competitive edge on market differentiation between its high-end products and dominance in design. However, with the entry of Android in the smartphones industry and the apparent compatibility of its iMac components to Windows, Apple is losing the dominance (Huddleston 2012). It cannot continue to count on such aspects for competitive edge. Despite this, there seems to be little focus on developing a new area of superiority (O'grady 2009).
Market and Competition Issues
Current issues, such as speculation that the company may soon turn from a growth company to a value stock company may not hold, however, the realities of Apple’s changing position in market leadership unless something quick turns the events is clear. It is important to note that it is the first time that the iPhone will not be the device eliciting most anticipation, rather, it will be Samsung Galaxy S4. Recent events, such as Samsung’s victory in patent battle, have serious implications for Apple's current position. They indicate a need for strategic choices (Legal Studies and Service 2013). The patent victory marked a transition era in which Apple’s future reliance on intellectual rights will become more volatile, uncertain, and substantially limited in assuring protection against competition. The fact that superiority of its designs is not as important factor as before leaves the company in a vulnerable position (Wegierski 2012).
Apple’s current hardware revenues amount to over 10 billion USD. However, these revenues are highly threatened by the entrance of streaming services by Pandora, Amazon, Netflix, and Spotify. This is likely to happen due to the lock-in effect of iDevices users. Transferability of iTunes specific video and music is impossible and inconvenient. To avoid lack of choice due to transfer limits, availability of live streams will make customers opt for non-restricted content (Arthur 2012).
On the other hand, massive increase in subscriptions to fast networks media libraries dissipates Apple’s leverage and market power of its interface control. Apple is able to control the interface of media feeds to its ecosystem and upgrade to its hardware. This loss of market power is likely to be imminent despite its attempts to develop a streaming service. This aspect has been witnessed by the halving of Microsoft’s market capitalization after the assessment of the value of computers to a user shifted from pre-installed software to a web platform source (Bank 2001). Since Apple was the primary beneficiary from Microsoft’s loss, it should be in a position to understand that such shifts leading to the loss of market power are imminent and move strategically. This strategic move should be fast given that Apple lacks enjoyment of entry barrier that maintained Microsoft’s monopoly. This lack of monopoly advantage is clear from the availability of Android versions of all popular iPhone applications. It is clear that Microsoft had a much less fierce competitor compared to Apple’s strong competitor Google (Lewis 1999).
Apple’s Strategic Options
According to Johnson, Scholes & Whittington (2005), strategy refers to the direction and scope that an organization adopts in the long-term to ensure competitive advantage in a changing setting/environment. A strategy is designed through configuration of competencies and resources in a manner that fulfils shareholders' expectations. In relation to Johnson, Scholes & Whittington (2011) guidance on strategic choices, Apple has a choice between sustaining its competitive advantage through maintaining its revue models and Jobs’ approach or adopting a strategy of competition in hypercompetitive conditions. This strategy will involve restructuring its revenue model and it is likely to address its long-term needs and challenges of decreasing market power. According to Johnson, Scholes & Whittington (2011), a company in such a condition is in a market where imitation is rapid and market power is not sustainable. The effect of the strategy chosen depends on firm’s ability to change, its flexibility, innovativeness, and speed in restructuring. Apple operates in such a market.
Suitability of the Strategic Options
It is more likely that Apple’s revenues will stabilize. Investment analysts are actually advising individuals to buy at this opportune time. They predict that Apple’s 12-figure annual revenues are sustainable in the short-run. This indicates that the company has time to make strategic choices that will place it at a new level, which is different from the current one. Factors, such as the apparent future in cloud-based technology, are a final sign of departure from its historical head start, market power through lock-in effects, and digital space dominance.
This study notes that the major option that Apple has is to radically re-strategize in the area of its revenues. Apple’s approach of Steve Jobs has always been creation of new product lines accompanied by property rights that ensured company's revenues (Deutschman 2000). Thus, its strategy on revenue has always been protection of revenues from such innovative products. Apple has an option to upgrade the appeal of products that support the revenue protection model. However, this will not solve the problem of lack of dominance or power. Its other strategic option is to destroy its revenue protection models and approach its products from a consumer-convenience point, which is different from their current focus on design and usability. This will allow it to compete with lower-priced entrants such as Android-powered smartphones. However, revenue protection will be lost since company's products will not bet on lock-ins. This approach is not likely to be popular but it will at least assure Apple of a choice from its shrinking market power (Sundararajan 2013).
Evaluation of other strategic options that Apple has can be well articulated by applying evaluation frameworks such as PESTEL. A PESTEL framework helps understand market growth, decline, business position, and operations' directions among other aspects. It is based on macro-environment analysis that allows firms to assess strategies on entry into new markets or introduce a new line of operations. In both PESTEL and Porter’s analysis, Apple must consider major macro-economic aspects (Campbell & Craig 2005). Political aspect in PESTEL is critical to Apple since it produces most of its products in Asia. Thus, Apple must always keep track of the bilateral relationship between the US and Asian countries. Legal threats are a major aspect of Apple’s macro environment. It faced a stream of litigations on trademarks (with Beatles in 2006) and patents (with Samsung in 2012) among others such as the antitrust suits on its iTunes (Keller 2010).
Perhaps the most significant areas of Apple’s PESTEL and Porter’s analysis are in its economic threats area. Apple has huge reserves of cash that earns interest (Grossman 1986). Being a multinational corporation that is affected by global economic cycles of interest rates, inflation, income levels among others, the company is at threat of losing cash through lower interest. Since its products are for prestige or premium products, recessions dip its sales due to cuts in purchases. External threat of competitors and new entrants is also likely to shape Apple’s strategic choices. As noted above, most of Apple’s competitors, such as Google in smartphones, Amazon in digital music, and Microsoft’s Zune music player, are well established and resourceful companies. These new entrants, including current onslaught from Samsung’s Galaxy phones mus,t define Apple’s future moves (Arthur 2012).
Johnson et al., (2001) define competitive advantage as firm’s possession of core competencies through combination of unique capabilities and resources. From SWOT analysis and Porters forces analysis, it is clear that Apple enjoys such advantage in a number of areas. In leadership and employee abilities, the company has a highly experienced team of employees at management and lower levels (Datamonitor 2000). From Tim Cook, the CEO, to Jonathan Ive, the chief designer, the company is endowed. Perhaps the most outstanding advantage to the firm is its self-sustaining and self-enforcing culture of innovation. Being world’s best brand, the company enjoys huge value addition and high sales due to its culture (Cruikshank 2006).
Cash is also a key resource and a competitive advantage to Apple. It has a lot of cash reserves that support its activities. Apple had cash reserves of 92 billion USD in 2011 and they have been increasing since. Sutherland (2012) notes that this enables Apple to pay suppliers upfront and thus, locks out future suppliers in some areas in advance. Cash reserves are also critical in supporting litigation suits against the company that have been on the rise. They are also an asset in helping Apple pursue companies that infringe its property rights. Lastly, Apple’s vertical integration of the supply chain offers it a competitive advantage in meeting consumer requirements while reaping all the benefits in the entire chain (Satariano & Burrows 2013).
The issues enumerated above regarding the macro threats facing Apple must shape the choice and implementation of a strategic option that suits such political, economic, legal, and competitive threats. The strategic choice must also incorporate competitive advantage that the firm enjoys in cash, brand, innovative culture, integrated value chain, and skilled workforce. Sustainability of Apple’s competitive advantage, which simply requires its core competencies to be inimitable, is clear. Thus, Apple has a choice to choose a strategy that makes the best out of its competitive advantage. In addition, by using Ansoff’s Marketing Growth Matrix that helps marketers understand ways to grow an existing business, a suitable strategic choice in marketing can be made (Satariano & Burrows 2013).
The Ansoff matrix considers four major areas of product/market combinations. These combinations are new producers, either existing or new product, or existing or new markets. Apple has already penetrated most of its markets through its core products and it later developed the App store and iTunes to compliment iMacs. However, Ansoff should help a company choose the best strategy given the current situation. Current situation in Apple pertains to how it is going to maintain its growth as it has and deals with the increased competition and loss of market share (Makhijan 2012). This paper recommends the best strategic option in marketing to drive company's existing products deeper into the market. To do this, and thus increase its market share, Apple has to target the lower-end of the market that Google’s Android powered smartphones and other competitors are targeting. This will involve production of its existing products but to new markets (low-end). On the other hand, its marketing strategy must seek new and existing markets but with new products. This can be done through launching new innovative products such as iCars among others.
While assessing Apple’s situation and strategic options in current situation, it is imperative to consider some major issues indicating its acceptability. In its supply chain, Apple operates efficiently through vertical integration. Its efficiency is so high such that it appears as a monopsony. In its supply chain, Apple has been able to control and gain all returns along the chain since it owns App stores that sells its products, it manufactures it own hardware and software, owns Apple retail stores, and controls the content of its product (Makhijan 2012). This lack of third-party interference allows the company to control the entire value chain in a highly integrated manner. Indication is that Apple’s supply chain demonstrates an unprecedented excellence in operations.
In addition to avoiding intermediary costs, Apple’s integration of value chains gains it discounts in many areas and thus leads to large-scale production (Garside 2013). However, Apple has a strategic option of eliminating some players in its distribution networks. These players, such as Verizon and AT&T, are operators who will make sure that Apple cannot avoid the commodity market. This market is characterized by price-competitive dynamics and demand high costs for building wireless infrastructures. Apple must chose an option that will cut dependence on these players to avoid cuts in its margins and loss of value chain control.
As noted earlier, it is important to ascertain Apple’s position with regards to major aspects of its operations and thus determine the options open for its strategy. In this assessment, feasible combination of resources and their availability is critical. With regards to personnel and their skilfulness, it is clear that Apple is endowed with highly gifted and skilled individuals. The company hires the best talent, such as design engineers and marketing managers among others. Indeed, current management was gloomed and prepared by Steve Jobs to take over. Therefore, human capital is sufficient in supply.
In addition to assessing the skilfulness of employees, it is important to evaluate the company CEO’s performance and competency in handling the company and thus consolidate gains through its competitive advantage. It is clear that since Steve Jobs death, Cooks has had a lot on his plate, however, he is a highly capable and skilful CEO. He may not have the mystical powers and prowess of Jobs but he has led the company through turbulent times. However, a major challenge to his leadership is the tough situation that the company is in and the inapplicability of Jobs' approaches to current issues. Jobs' goal was to create new products and penetrate new markets without worrying about the loss of the already existing market. However, the markets that new products can be launched to continue to disappear, while products meriting investment are really few.
Another major challenge in Tim Cook’s leadership is the ‘think different’ ideology taught by Jobs. Jobs insisted that Cook must not act by asking what Jobs would do. However, the paradox is that the current situation may require drastic reactions, out-of-norm, and unprecedented, similar to Steve Jobs style. Pertaining to product innovation, the new CEO has done relatively well given high sales of iPod mini. However, the postponement of release of anticipated products and the apparent inferiority of the iPhone to Samsung Galaxy 4 (in public excitement) indicates a major challenge. Under Tim Cook, Apple has not launched many new products but continues to pursue most products that were contemplated in Job’s era (Gallo 2012).
Thus, Apple must consider its strategic options in light of the need for more managerial insight on the part of the CEO and top management. It is also imperative to pursue product innovation with more vigour than currently displayed. In this regard, Apple has a policy option of entering new markets through new products such as iSuites for an iCar and iAdvertising (Morris 2011). Advertising is probably the most lucrative business with a future and Apple only needs to define an entry between millions of end users and advertisers. This move that is similar to what Google has done with its ads is appealing since consumers are not only demanding music and apps but information/news as well (Morris 2011).
Management under Tim Cooks may rather choose a strategy that continues to build platforms for content created by third parties instead of venturing into the risky market of content. However, it also has a strategic option of investing more in its distribution channels and apps stores (Cringely 2013). Apple faces tough competition from Google’s application market in Android powered smartphones. To fight this and compete effectively, it must increase its depth of distribution. To improve is apps store and make it appealing, it may consider coming up with a subscription model for apps content. This will complement the transaction approach currently in place (Lashinsky 2012).
It is imperative to note that given Apple’s financial results and its cash reserves, the company is in a position to integrate resources and pursue the proposed products (Dowling 2013). Products, such as iSuite for cars, expanded app facilities. Elimination of distribution channel players among others will involve huge investment. However, this may also be a solution to its huge liquid cash holding. It may use its resources to secure its future (Morris 2011).
Apple has been highly successful due to massive investment it put into developing new products and creating an efficient marketing approach. In addition, the company has tremendous success due to the skilled and visionary leadership that has complimented its highly appealing products. However, the margins of gains that it has been getting are thinning and it is obvious that the charm of its products is not as before. This is attributed to the reality that increased competition makes it hard for a product to become obviously superior. It has to harness its areas of competitive advantage and use them to cement its lead in major areas. In addition, it is imperative for it to seek new markets with new products due to the apparent non-uniqueness of the smart phone which, has now been imitated and produced massively (Sutherland 2012).
The above proposals are appropriate strategy options that Apple might consider. For instance, changing its revenue models will allow it to depart from policies that aimed at protecting what cannot be protected anymore. It will make the departure from design to consumer focus. This will help it target the lower segments as indicated in another strategic option. The move will also change Apple’s holding of huge reserve balances and assist the company in exploiting this competitive advantage against supplier power. Managerial approaches by Tim Cook that focus on strategies aimed at maintaining Apple’s growth and expansion through existing and new products will highly compliment policy changes and increase revenues and investors' confidence (Deutschman 2000).
Focus on iSuite for the iCar is a lucrative area that needs to be pursued as a strategic option. This will help the company venture into a new market. It is notable that the number of motor vehicles is relatively large and if the company formulates this strategy with innovative attractions well, it might be its most lucrative area in the future. Combination of new products through its marketing strategy with aggregate company policies that strength its CSR perception will contribute largely to the company. Elimination of some players in the supply chain, such as AT&T among others, will cut costs for the company and allow it to enjoy huge margins (Gallo 2012).
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