This essay shall be concerned with the analysis of the case study of Apple. To start with, the major competitive advantages of Apple shall be examined, from a historical perspective. Secondly, the personal computer industry shall be analyzed, for the last 15 to 20 years. The changes in the dynamics of the PC industry will also be explored, as well as the strategies that Apple has used, since 1990. The research paper shall also explore whether Steve Jobs has succeeded in solving the long-standing problems at Apple. Finally, the impact that the iPod has had on the success of Apple shall be assessed.
A historical perspective of Apple’s major competitive advantages
The founders of Apple were the major competitive advantages of the company, from a historical perspective. Whereas Steve Jobs was the visionary leader in the company, and who had the desire to transform the world using technology. As a visionary leader, Jobs mission was to ensure that Apple provided their diverse customers with a computer that was easy to use. Steve Wozniak on the other hand, was the company’s technical genius (Yofflee & Slend 2007 p.2). The two partners also established a partnership with A. C. Markhula, who brought in the much needed venture capital for the young company. He had just recently retired from Dell, at the age of 33. Aside from having capital, he was also the most experienced memoir of the team. When the team launched a simple computer by the name Apple II, this in effect helped to bring a revolution to the entire computer industry.
The structure of the personal computer (PC) Industry for the last 15 to 20 years
IBM relied on its large share of the computer market and strong brand name to become the leader in the personal computers industry. At the end of the 1980s however, the dominance of IBM in the personal computer industry had eroded, manly as a result of a shift in the mindset of the customers, who now preferred to view computers as more of commodities. From the mid-1980s moving on the 2000s, the rate of growth of the PC industry was on average, 15 percent (Yofflee & Slend 2007 p. 1). During the early 1990s, “IBM-compatible” computers were no longer the standard in the industry; they had instead been replaced by “Wintel” (short for Windows Intel). However, the dominance was taken over by Dell and Compaq, for the better part of the 1990s. The 1990s and the early 2000s resulted in a complete revolution of the PC industry. For example, in 2005, the PC industry made a 33 percent increase in the number of personal computer units that were being shipped, mainly to the EMEA region (Europe, Middle East and Africa). Between the mid-1980s up to the year 2000, the PC industry was realizing a 15 percent rate of growth in the number of pc units that were being manufactured, annually. However, in 2001, the industry recorded the worst reduction in terms of sale of PCs, in its history, when the sale of PCs fell by 4 percent (Bush 2008 p. 5).
However, in 2003, the industry was once again realizing strong rate of growth. Most of this growth was taking place in markets outside the United States, and more so in the emerging economies, in Asia. It is important to realize that even as the volume growth of the PC industry was being realized, nonetheless, the growth in revenue failed to keep pace with this growth (Yofflee & Slend 2007 p. 1). Amongst markets that were already at the maturity stage (for example, in the United States, where half of the households were the proud owners of a PC), the slowdown in the rate of growth of the industry resulted in a competitive intensification of prices.
How the dynamics of the PC industry have changed
Following the standardization of the PC components, the manufacturers of PCs reduced the amount of money that they set aside for research and development. For example, during the early 1980s, leading pc manufacturers spend approximately 5 percent of the sales revenues that they obtained on R & D. By 2005, Dell computers were the leaders in the PC industry, and at this point, they were only devoting less than 1 percent of their sales revenues to R & D. In addition, the executives at Dell were not keen on embracing innovation, or even associating themselves with other PC makers who placed more emphasize on innovative products (Yofflee & Slend 2007 p. 9). Other than spend more money on R & D, Dell instead opted to institute innovation in such areas as the manufacturing sector, PC distribution, and marketing. This was with a view to ensuring that the company gained a competitive advantage, relative to the competition. A lot more firms have also followed suit, in the footsteps of dell. Accordingly, a majority of them prefer to contract manufacturers, who are charged with the responsibility of producing several components of the PC, while others have entirely been contracted to manufactures the whole PC.
At the start of 2000, there had emerged large contract manufacturers in Taiwan and China who were made PCs and their associated components at labour rates that were below those in the United States by a factor of between 3 to 30 percent. PC makers were now keener on reducing cost, and this marked a departure from the model of build-to-stock, to one of ‘build-to-order’. Distribution and buyers have also helped to bring changed to the industry. For instance, during the 1980s, a majority of the buyers in the industry happened to be business managers, who were by then comparatively unsophisticated in as far as information technology was concerned. Furthermore, these business managers were also more likely to also be first-time customers (Yofflee & Slend 2007 p. 9). In this case, they bought just a few computers, and had a preference for brands that were already well-established. Furthermore, they preferred to make their purchases via full-service dealers. By early 1990s, most customers were by now more knowledgeable about PCs, leading to the emergence of diverse alternative channels. Accordingly, companies were by now buying PCs in large numbers from either distributors or vendors.
An evaluation of Apple’s strategies since 1990
Using PEST analysis, one is in a position to better understand the future market situation, business potential, as well as the direction of operation of a company like Apple (Pearce & Robinson 2004 p. 78).
The business operations of Apple have a global reach. In 2007, more than half (52 percent) of the net sales that Apple realized was attributed from markets in Europe and Asia (Li 2008 13). Terrorism, war, public health issue and geopolitical uncertainties all have the potential to impact on Apple’s business operations, to a great deal. These are events that are beyond the ability of the organisation to control. Apple has also outsourced some of its operations, such as transportation, product manufacturing, and logistics management. A majority of these outsourcing firms are outside USA, in such countries as Ireland, China and Korea. Political events may therefore disrupt these operations, in effect eroding the credit image of Apple not just to the consumers, but to retailers as well.
High food and oil prices results in inflation. In addition, the income of consumers does not increase in tandem with the rise in the rate of inflation. Unemployment is also high, meaning that they are bound to spend less on such luxury goods as personal computers, iPhones and MP3s. Consequently, this would greatly impact on the retail business for Apple.
Issues of environmental protection and health safety are increasingly assuming popularity in the various countries that Apple has operations. Diverse laws and regulations could unfavourably impact on operating results and financial condition of Apple, through the requirement that the company adopts recycling of safe disposal of its products (Li 2008 13). There have been assertions that when improperly used, the iPod could result in users losing their hearing ability.
The market for mobile phones, PCs as well as portable music player, are faced with fast changes in technology and huge competition. This means that a majority of Apple’s products could be faced with a short life cycle, novel products, and a need for Apple to continuously invest in research and development if at all the company intends to retain its leadership role in the PC industry (Li 2008 14). The control that Apple has over the design as well as production of its PCs, in addition to constant innovation of both the iPhone and the iPod, has given the company a competitive edge, relative to its competitors. In Contrast, it has been very costly for Apple to continue investing in R & D, and this has seen the company spend more, in relation to its competitors. For instance, Dell utilizes the operating system from Microsoft in all of the company’s products. On the other hand, Apple ensures that it install its own operating system to its Macintosh PC.
- Innovation: innovation has led to the release of such new products as the iPhone, the iPod and iTunes,
- Healthy Balance Sheet: with zero debt, Apple is in a position to use its own earning to not only finance novel products, but also to grow organically.
- Retail Strategy: retail stores located conveniently in areas with high traffic, hence increasing the company’s customer base for different product lines.
- iPhone Cannibalization is likely to result in a flat rate of growth in the iPod market.
- Apple is also currently under pressure form the music sector to increase the amount of money they charge for music download files.
- Research and development: in order to increase its market expansion, Apple is committed to increasing its rate of investment in R & D on an annual basis.
- Emerging markets: the net sales for Apple during the 2008 financial year were at 40 and 29 percent in Europe and Japan, respectively. At the start of 2009, Apple had anticipated that its iPhone would be accessible to customers from 70 different countries.
- Organic growth: Thanks to huge retained earnings, Apple is in a position to foresee the financing of the company’s internal growth, without the need for sourcing for external funds form, credit markets.
- Strong price competition: Competitors to Apple are characterized by substantial financial capital basses, and have the potential to provide customers with “copycat” services and products, at either no or very little profit. This has also acted as a stumbling block to attempts by Apple to seize a portion of their market share.
- Highly Competitive Industry: The industry in which Apple operates is fast changing, thanks to advances in technology, leading to numerous introductions of competitive and novel products. Customers are always attracted to firms that are successful in what they do. Accordingly, Apple commits a lot of its resources to marketing and research and development, as a way of retaining the competitive position it occupies in the PC industry.
- Weak economy: Although Apple’s Mac and the iPod have gained demand from customers in recent years; nonetheless, the slowdown in the economic conditions due to the global financial crisis has resulted in a falling demand for these products.
- High product substitution: although the PC industry is fast moving and innovative, the industry is also characterized by a substitution effect of products, at a very high rate.
Porter’s Five Forces
Threat of buyers
- There are a huge and growing number of buyers due to rapid introduction of novel technologies
- Unique design and own operating system by Apple a differentiation advantage to the company. However, such other companies as HP and Dell use lower price as a differential advantage
There are a lot of products that could act like a substitute to PCs, such as DVD player, PDA, and the calculator. However, they can only replace a limited number of functions of a PC.
The number of firms competing in the personal computer industry is few, relative to other industries. However, Microsoft still commands the largest market share. Such PC manufacturers as Dell have been utilizing their low price strategy to enhance their rate of growth in the market.
- Product differentiation: The personal computer that Apple manufactures comes with a unique design, in addition to own operating system
- Economics of scale: Apple spends about 9 percent of its revenues on research and development
- Cost advantage: Apple’s PC is in high demand, and more so in proprietary technology
Labour and raw materials are the main suppliers in the PC industry. Given that the industry is also highly proprietary, from a technological point of view, this means that these suppliers shall also impact on the price of PCs.
Has Steve Jobs finally solved Apple’s long-standing problems?
In September 1997, Steve Jobs once again became the CEO of Apple. At the time, Apple was faced with a multitude of long-standing issues with regard to the Mac business. The market share for Apple in the PC industry had drastically been reduced, to 3 percent. Even as the previous CEOs had attempted to reverse the company back to profitability for over 10 years, this had proved to be a tall order for them. The long-standing problem was mainly as a result of the fact that the operating system that Apple used lacked compatibility with a majority of the software that had been designed to operate on Wintel machines. Also, Apple believed in designing its own software (Yofflee & Slend 2007 p. 5).
Once Jobs was back at the helm, he only took a few years to introduce drastic changes into the organisation, as a way of addressing the aforementioned issues. One of the most drastic changes is the change in operating system from Mac to Intel, as well as the desire by Jobs to have the company start using Intel processors, in place of those from IBM. Due to these changes, Apple was in a position to reduce the speed gap that had widened, between its Mac brand, and Wintel competitors. Jobs also helped Apple to eradicate some of the technological barriers which had stood in the way for Macs, such as the inability to run a majority of the more resource intensive and newer processes, like digital video editing. Once Mac had made the switch to Intel architecture, the PCs could now also be operated using a majority of the Windows programs, and this helped to provide answers to compatibility problems that had led Apple to loss making.
Furthermore, Jobs was able to enter into a deal with Microsoft, and this enabled Apple to design a version of Mac using Microsoft office software that was by now more popular (Yofflee & Slend 2007 p. 5). Since Apple lacked Third party software, Jobs helped the company increase software development initiative, leading to the emergence of such packages as iLife. Jobs managed to assist the company enhance its compatibility to peripherals through an embracing of USB standard. Due to these changes that were introduced into Apple by Jobs, Macintosh became quite competitive once again, as a leading PC maker, in effect also leading to fixing of the long-standing issues that the brand had been faced with, previously.
Impact of the iPod on Apple’s success
Ever since it was launched in November 2001, the iPod has turned to be a dominant brand, in effect translating into Apple’s success. The iPod is today a significant product at Apple. Furthermore, it forms 75 percent of all the portable music players, in the United States. It target market is mainly the young people, who have led to it becoming popular globally. The functionality and hardware features for the iPod are better, in comparison to the other related products offered by competitors (Yofflee & Slend 2007 p. 13). By 2006, the iPod was providing customers with increased storage capacity and additional accessories, such as video and pictures. In addition, the iPod had an appealing functionality and sleek design, and these are features that helped to market the product. By this time, the gross margin for the iPod was 25 percent. One year earlier, Apple had managed to sell over 42 million iPods.
Apple computer has managed to gain a competitive advantage over its competitors as a result of its constant innovation for its products, such as the Macintosh PC, the iPhone, and the iPod. Steve Jobs has played a crucial role in molding the success of Apple, as its chief executive officer (CEO). Since its inception in 1976, Apple has had to overcome financial hurdles, prompting the management to retrench some of the employees as a cost cutting measure. However, when Steve Jobs returned as a CEO of the company in September 1997, he helped turnaround Apple, through his innovativeness. Consequently, more division of the company were consolidated, and more of the company’s revenue dedicated to R & D. this investment has paid of, as some of the products of Apple such as the iPod and iPhone have totally brought a revolutions into the portable music and phone markets respectively. A strong Apple brand, strong leadership, entire solution integration, healthy balance sheet and a retail strategy, have given Apple a competitive advantage over its competitors.
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Pearce, J. A. & Robinson, R. B., 2004, Formulation, implementation, and control of competitive strategy. New York: McGraw Hill Professional p. 78.
Yofflee, D. B. & Slend, M. (2006). Apple Computer, 2006. Harvard Business Review.