Strategic planning and development of a company require searching, analyzing, and solving strategic issues. These issues can relate to various areas of business implementation, for example, personnel and supply chain management, product development, advertising, and marketing in general (Johnson et al., 2019). The process of revealing and managing strategic issues is necessary because they are fundamental to the company’s functioning and significantly affect the direction and course of the company’s development (Chandler, 2016). Hence, this paper will analyze the strategic business issues of Apple Inc. and provide recommendations on their solution to demonstrate the relevance of the concept on the example of one of the global companies.
Company Overview
Apple is one of the most famous companies globally, with millions of loyal customers in multiple countries. The company was founded in 1977 by Steve Jobs, Steve Wozniak, and Ronald Wayne and today has the status of one of the most prestigious brands (“Apple,” 2021). Apple operates in the technology industry and is a manufacturer of electronic devices such as smartphones, computers, tablets, smartwatches, and music players, as well as the operating system and applications for their functioning. The company’s revenue in 2020 was $274,515, and it occupies the third position on the Fortune 500 list (“Apple,” 2021). Apple’s main features remain the company’s brand, which is associated with prestige and success, high-quality products, advanced technology, and impeccable customer service. However, the high demand for technologies and their availability creates high competition in the market, which forces the American tech giant to look for new effective strategic solutions to surpass rivals.
Strategic Issues
Strategic management is a necessary element for the efficient operation of a company and its development. Choosing an appropriate strategy for future activities, taking into account current weaknesses and challenges, helps companies gain a competitive advantage (Johnson et al., 2019). Apple is no exception as the company’s strategic decisions have brought it to a leading position in the market of popular modern technologies. However, since its activities depend on its internal decisions and should adapt to external factors, Apple has several strategic issues. A strategic issue is defined as a critical challenge or fundamental unresolved question that needs to be addressed and affects the company’s future work (Abedin et al., 2015). Most of Apple’s problems relate to the development and marketing of Apple’s products. Porter’s Five Forces analysis demonstrates such issues as the need for innovation, change of strategic direction to service market, and reorganization of the supply chain.
Firstly, competitive rivalry, which is one of Porter’s forces, is significant in the market, since despite Apple’s advantages, the company’s competitors are superior in other parameters. For example, Apple’s main strengths have traditionally been brand prestige, product quality, and innovation (Hartmans, 2020). However, the latter two are also common to other companies as the availability and advancement of technology prevent Apple from creating and retaining any unique technology. In other words, if at the time of the release of the first models of smartphones or computers, Apple’s devices were innovative, and each new model had utterly new functions, the latest models differ in the size of the RAM or the quality of the camera.
Other companies offer similar features of the devices by increasing the number of cameras or adding NFC technologies to their smartphones. The quality or lifetime of devices is also approximately the same for products of various companies; thus, this feature is not unique for Apple. Moreover, the company recently admitted that it was limiting the performance of older iPhones’ batteries to incentivize customers to buy new ones, which affected their trust (Hartmans, 2020). Consequently, the brand remains the company’s main strength, which motivates customers to buy new models of devices. At the same time, Apple’s competitors, such as Samsung, can offer more affordable prices for consumers, compatibility with accessories from many brands, and the availability of many free apps. Thus, Apple’s strategic issue is the need to focus on unique innovations not available to other companies to regain one of its traditional competitive advantages.
Secondly, despite the high competition, there is a threat of new entrances, especially considering the American market. For example, the emerging market in China is already showing tendencies for a relatively fast and aggressive entry into a global market. A company like Xiaomi, which was founded in 2010, is proof of this fact since today it is one of the leaders in selling various electronic devices, including smartphones and laptops (Xiaomi team, 2021). Hence, other Chinese companies with sufficient financial and labor resources and technology can also enter the market, taking advantage of the lower cost of devices and more popular operating systems such as Android and Windows. Consequently, market competition will increase, while Apple’s brand and service quality remain its only competitive advantages. Thus, these two Porter’s forces highlight the strategic issue of Apple’s strategic direction and development of its technologies.
Nevertheless, it seems that Apple has found the answer to this strategic issue, but it raises other questions. Back in 2015, Apple began its reorientation to the service industry, which currently generates about 50% of all revenue for the company (Kubota & Mickle, 2019). Apple has created various software, applications, and services such as iTunes, Apple Music, AppleCare, Apple Pay, Apple TV +, and some other paid apps for the company’s devices (Leswing, 2020). However, as these applications operate across a variety of service industries, the company faces many competitors as well as the threat of substitution. For example, users can turn to Netflix, Spotify, and Google Pay applications on iOS and Android, or smartphone features such as payment via NFC can be replaced with a credit card. In addition, most of Apple’s services are only available on its devices, which can have two different consequences.
On the one hand, users’ preference for Apple services can push them to purchase new models of devices. Most phone owners use Android software that has similar services. Consequently, customers can buy competing companies’ devices at a lower price and receive similar services, which will reduce the sales of Apple products. Hence, Apple’s strategic issue is choosing a marketing strategy that will enable the company to develop its services sales.
Another strategic issue relates to the influence of suppliers on Apple products. The supply chain problems that delayed the release of the new iPhone model and the delivery of the IPads and MacBooks to buyers showed a significant dependence of the company on suppliers (Culpan, 2020). Even though different components of devices are produced by several countries such as Israel, Malaysia, and some European countries, a significant part of Apple’s production is located in China. In 2020, such an organization led to substantial delays in production and supply as China reduced production due to the coronavirus pandemic (Culpan, 2020). In addition, Trump’s increased tariffs on Chinese products raised Apple’s manufacturing costs (Kubota & Mickle, 2019). The cost of production in China can also grow due to the rapid development of the state’s economy and industry. Therefore, the strategic issue is to reorganize Apple’s supply chain to reduce production costs and dependency on suppliers.
Impact of Strategic Decisions on the Company
All these questions are strategic as their solution or ignoring will affect the profit and reputation of the company. First, as Johnson et al. (2019) point out, strategic entrepreneurship includes advantage-seeking of strategic activities and opportunity-seeking entrepreneurial activities to create value. Consequently, retaining Apple’s competitive advantage of innovation is a strategic issue affecting future performance and profits. Maintaining its status as one of the leaders in cutting-edge technology is critical to the company’s brand, as innovation, quality, and design are features that attract customers (Johnson et al., 2019). In fact, these details shape Apple’s brand and prestige, which is the company’s core strength.
Moreover, innovation is one of the strategic decisions that opens up opportunities in the market. In other words, Apple needs to use innovation to create products and services as this move will attract more customers. However, the company can choose from such options as the development of devices, software, or service features, or a combination of both approaches in appropriate and effective proportions. The choice of one of these approaches will determine the company’s strategic direction, which is most likely to be focused on the development of services.
During the last couple of years, Apple has failed to preserve its innovator status within the smartphone and service industry. According to Greg Petro (2019), the American giant is slowly declining due to the void of significant innovations and constantly growing prices. In line with the resource-based view (RBV), the main unique resource of Apple was technology itself and its ability for innovation (Johnson et al., 2019). The latter helped the company mitigate external market forces (Porter’s Five Forces), reduce the price sensitivity of consumers, and even set premium prices in the reality of aggressive price competition. The differentiation strategy was successful, and the position of Apple was vital due to the first-mover advantage.
Currently, the most critical challenge is that Apple does not provide anything entirely new to the market as it did with Steve Jobs as a chief. Some solutions and new features may be new to the company’s loyal customers but already present on the global market. For instance, the most crucial innovation iPhone 13 brings to the table (compared to the iPhone 12 rage) is an on-screen fingerprint sensor (Clover, 2021). The latter is a well-known solution and has been applied earlier by Chinese manufacturers.
Nowadays, the firm suffers a lack of innovation in every category, including smart devices, smartphones, and software. Apple still just plans to offer a folding phone, which was first introduced by Samsung and Huawei more than three years ago (Clover, 2021). Although the company reoriented its marketing strategy towards selling services, Siri still lags behind voice assistance developed by Amazon and Google (Petro, 2019). The decision to align business strategy with a service-based structure was essential for Apple back in 2015. Management, being under pressure, forgot about the classic iTunes store and introduced its three separate streaming apps (Petro, 2019). Nevertheless, it is another example of Tim Cook’s company being late to the game. There were already established streaming solutions such as Spotify, Amazon Music, and Netflix. Another time Apple had to imitate and use its customers’ loyalty and brand strength to win a market share.
The first year of the COVID-19 pandemic became an opportunity for the company due to increased demand for Macs and IPad’s since people had to study and work remotely. The rollout of new Mac mini and MacBook Pro/Air computers with custom chips last year was a great and timely decision (Bary, 2021). As a result, Apple had a record fiscal year and seems to continue to benefit from higher demand for technological solutions (Bary, 2021). More focus on services since 2015 resulted in investors’ valuation of Apple more like a software company and less like other hardware manufacturers (Leswing, 2020). Moreover, the company quickly hit the ambitious growth target expressed by its CEO back in 2017 to double its service revenue in three years. Now more than 54% of total sales belong to service revenue (Kubota & Mickle, 2019). The firm offers different apps and subscription services, including Apple Music, App Store, Apple Pay, Apple Care, Apple News+, and Apple TV +.
Nevertheless, such achievements are mainly associated with the pandemic and high interest from investors who seek safe heavens. Last year generally was favorable for tech companies and streaming services; thus, the main challenge of the lack of innovation still remains. It is not enough for Apple to do everything well and remain at the top in the long run (Petro, 2019). Without cutting-edge solutions, the tech giant would continue to lose its vast customer base that currently buys their products and enjoy services.
The supply chain is another area that requires additional attention from Apple’s management. This year company suffered a production shortage due to a limited supply of semiconductor computer chips (Dally, 2021). It is a global issue that halted most manufacturers worldwide that rely on them, including auto factories. Apple could not deliver its products immediately after the purchase, making some customers wait a couple of months. The projected decline in sales growth was $3-4 billion for the next few months (Bond, 2021). Although Apple is famous for its excellent supply chain management, it was not good enough to mitigate the issue. Such key suppliers as Taiwan Semiconductor Manufacturing Co. have a 30-40% probability of disruption due to external risk events and regulations changes (Bond, 2021). According to Culpan (2017), Apple made some decisions several years ago that resulted in a less reliable supply chain. One of them was to use OLED screens for the new iPhone model. This choice made the company dependable on Samsung that had to handle a huge demand for the screens it also used. As a result, supply was not assured, and there were some delays.
For that reason, Apple opted to launch iPhone 8 with an LCD screen simultaneously with iPhone X with OLED. It was another mistake that was not able to alleviate pressure caused by weak manufacturing discipline. The company decided to focus on Face ID due to failing to incorporate OLED screens into the existing fingerprint system. It created another bottleneck, as the two-part sensor module needed for Face ID also had limited supply. Hence, Apple tends to make supply chain misjudgments and miscalculations that lead to delays and limit revenue growth.
Under the core competency strategy, the company can succeed in the marketplace if it knows and exploits its core competencies. Firms should turn to areas where they are better to enjoy a strategic advantage over other businesses (Chandler, 2016). Apple is famous and appreciated for its innovations, style (design solutions), and build quality. These competencies are still addressed but lack managerial decisions that would maintain a competitive advantage in the long run. This inside-out approach suggests that competency should be unique, meaning that it is difficult to imitate (Chandler, 2016). Currently, the technology company does not provide significant innovations, and product design is not unique enough. For instance, the design of the new iPhone looks similar to the previous series.
What is more, it suffers the same supply issue the whole industry does. Thus, the current competitive advantage of Apple is more based on an already built brand image as a manufacturer of elite, trendy, and innovative devices. Without proper strategic decisions in the near future, the technology giant risks declining and losing the competition. The idea to expand business by adding streaming services may be successful, but it seems that a well-known first mover becomes a follower and loses its competitive advantage.
Recommendation and Conclusion
In order to maintain the leader position in the tech industry and reputation as a first-mover, Apple will need to introduce an entirely new product category to the world. They also could offer a new smartphone technology as Samsung did with Galaxy Fold. Minor upgrades of existing technologies, products, and software are not enough in the long run to maintain a competitive advantage (Culpan, 2017). Apple indeed has many fans and supporters who will continue to pay premium prices even if no innovation is in place. Nevertheless, it seems that the decision to differentiate business leads to gradual loss of innovator’s competitive advantage. Apple does not exploit its main competencies and is more focused on financial returns instead of innovation capabilities. Currently, the brand name helps yield high returns at the expense of the organizational culture necessary for being a market leader. In other words, Apple started to extract value instead of its creation shortly after the change in leadership (Bary, 2021). For that reason, the company’s executives and management should invest in R&D and create value their customers and stakeholders expect.
Apple product managers should pay more attention to their key component suppliers’ capabilities, capacities, and problems in terms of supply chain issues. Previous cases of misjudgment could be easily avoided on the managerial level. The current situation with semiconductor chips can be mitigated with additional investment in suppliers’ factories to improve throughput (Dally, 2021). Another option is to support IBM in its initiative to strengthen the domestic microelectronics supply chain and improve its resilience. Since Apple benefitted from the pandemic, it should engage in CSR activities to strengthen its brand image and customer loyalty. Mitra (2021) revealed that CSR both positively and significantly affects the performance of companies. It transformed into a strategic management component essential for a firm’s success. CSR would be especially helpful for Apple along with the absence of fundamental innovations in gadgets presented this year.
To conclude, the main strategic challenges Apple currently faces include intense competition, threat of new entrances, lack of innovation, and supply chain mismanagement. It seems that shift towards the service market gradually contributes to eliminating the firm’s main advantage. The current leadership prefers to maximize financial returns instead of value creation that negatively affects the organizational culture of innovation. Management should embrace the latter as the primary competence to preserve the first-mover role within the industry.
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