Business Strategy Report: Apple Inc

Executive Summary

This report was prepared with respect to Apple Inc. and details a detailed strategic direction to be taken going forward. Apple is the leading IT Company by revenues globally and comes second after Samsung in the global smart phones’ market share. The following mission, vision and values were proposed for the company:

Vision: To become the global leader in the production of innovative, simple and adaptive products for the digital revolution and break new grounds in technological advancement.

Mission: To develop computers, iPods, smart phones and other high quality innovative hardware and software to meet changing customer needs.

Values: Innovation, determination, courtesy, creativity, simplicity, excellence and collaboration.

Following PEST and SWOT analysis, it was proposed that the company diversifies their products, develops cheaper products for the low end and the mid end segments and further engages in integrated marketing communications to gain entry into new markets in emerging economies. In addition, a horizontal diversification strategy was proposed.

In the execution stage, it was proposed at Apple harnesses human resources for new product development including engineers and managers. Additionally, there was need for changing the organizational structure to accommodate proposed strategy, allocate material and non-material resources to anchor and sustain strategy, create suitable corporate culture, set up new policies and procedures and adopt best practices for the purposes of continuous improvement. The organization also needed to build capacity through trainings and workshops, offer rewards and incentives upon meeting targets and develop internal leadership for guidance and support. These measures would not only actualize the new strategy but also condition the firm for similar processes in future.

The financial evaluation of the strategy shall be done using return on investments (ROI) and Cost Benefit Analysis (CBA). ROI examines the returns of a strategic choice with respect to its costs while CBA examines the strengths and weaknesses of a choice in monetary terms.

In conclusion, the strategy would be achieved and sustained in the long term if the stipulated process was followed.

Mission, Vision and Values Statement

            Apple is one of the world’s leading manufacturers of consumer electronics. It is a US multinational headquartered in California and deals in among others, iPhones, iMacs, iPods and a number of online services. They are the leading IT Company by revenues globally and are only second to Samsung in the global smart phone market share. Started by Steve Jobs, Wozniak and Wayne in 1976, the company has quickly entrenched its authority in European and overseas markets in different consumer electronics segments. Their global distribution network is quite extensive with around 298 stores in 22 countries served by over 100,000 fulltime employees (David, 2011). Apple’ strategy has been to develop high end smart phones, computers and other electronics and charge premium prices for the same. Their iOS runs exclusively in their devices and has no limited compatibility with other operating systems and non-Apple devices. This is a lock-in strategy that has forced Apple users to embrace purely apple products from watches, Smart phones, computers, headsets and so forth (Masi, 2009). Additionally, they are extremely innovative and elegant in design, which has developed enthusiasm for every new product they launch. The ideal vision, mission and value statements for the organization are:

Vision: To become the global leader in the production of innovative, simple and adaptive products for the digital revolution and break new grounds in technological advancement.

Mission: To develop computers, iPods, smart phones and other high quality innovative hardware and software to meet changing customer needs.

Values: Innovation, determination, courtesy, creativity, simplicity, excellence and collaboration.

The main concepts in the above statements of vision, mission and values are innovation, simplicity, technological leadership and meeting customer needs. These essentially underline Apple’s current strategy, which entails providing highly innovative products and offering leadership in the technology arena. Customers pay a premium price for Apple products because of the exclusive state-of-the-art technology that they get access too. For instance, iPhones are fitted with the A8 chip and have a strong encryption that cannot be breached by even their own developers (David, 2011). Such technological breakthroughs should thus inform their strategy and indeed feature in their value statements. The above choices for mission, vision and values are the best for the organization in that they capture what the company does, its core strategy and even highlights what customers should expect from them. The statements therefore not only explain what the company is about but also markets it. They also show how the company is different from any other more so due to the focus on innovation and simplicity. The statements are thus unique and explanatory in unmatched dimensions.

Analytical Tools

            SWOT and PESTEL were the suggested tools for analysis. SWOT highlights the strengths, weaknesses, opportunities and threats facing an organization while PESTEL overviews the political, economic, social, technological, environmental and legal environment. SWOT is an important tool for covering both the internal and external environment of a business (Gordon, 2017). PESTEL on the other hand is an essential tool that comprehensively covers the macro environment.

PESTEL Analysis

PEST Factor	Analysis
Political	The government may seek to increase taxation due to the company’s high profitsIncreased Anti-American sentiment in China may erode profits
Economic	Rising labor costs in China may increase production costsCheaper substitutes like Oppo may reduce market shareExchange rates fluctuations may affect business in some markets
Social	Ethical issues with some of the Apple factories in Asia may create consumer backlashLess preference of expensive goods in the market may work against Apple
Technological	Duplication of Apple’s technology by Chinese multinationals Apple products lose fashion too quickly with new generations hence de-motivating consumers
Environmental	There are constant issues on discarding e-wasteSome of the company’s suppliers have environmentally unsustainable practices
Legal	Patent suits are common in the tech marketApple’s labor practices attract litigation from human rights groups

SWOT Analysis (Source: Task 1)

Strengths Highly valuable brand that generates significant brand equity.Economies of scale from their large-scale operations.Research and development that has enabled them to produce highly secure, sophisticated and unique devices.Strong and reliable distribution channels both in the US and worldwide, including online shops, brick and mortar stores and a well-trained direct sales force.Impressive financial performance and strength that has allowed them to expand and invest in research.Market leadership in a number of products and geographical niches.High profit margins- the cost of producing an iPhone is remarkably low despite their high sales prices.

Weaknesses Overreliance on iPhone sales making them vulnerable to competitionHigh prices of products making the company unattractive to the low and mid end market.Incompatibility of iOS with other handsets.Low market penetration in emerging economies.Narrow range of products

Opportunities Internet of things (IoT) market offers fresh opportunities for expansionThere are plenty of unexploited markets in Africa and Asia.Apple can produce products for the low end and the mid end market.There are numerous products that Apple can come up with to expand their product range.Their OS can be modified to gain compatibility with other devices.

Threats Growing competition in China, their second largest market.Loss of innovation following the death of Steve JobsIncreasing manufacturing costs due to price inflation of labor and other resources Human rights violations in factories can bring customer loyalty erosionEmergence of cheaper substitutes like the Android smart phones.

Impact of SWOT Analysis (Source: Task 1)

1. Effects of SWOT on Strategic Plan (Source: Task 1)

Apple’s SWOT analysis has two important effects. First, it outlines the challenges that the organization faces and therefore provokes a process of further investigation and suggestion of solutions. It is a diagnosis of the company’s problems both at the immediate moment and in the future (Grant, 2016). Secondly, it also offers a roadmap for growth and expansion by identifying the strengths and opportunities that can be leveraged on. Therefore, strategies on growth and expansion are derived from the SWOT results.

• Changes to be made (Source: Task 1)

It was apparent from the SWOT results that Apple still has a narrow product range, lacks products in the mid end and low-end segments and is yet to penetrate markets in emerging economies. Considering these facts, the following changes can be made:

• Product diversification
• Development of cheaper products
• Integrated marketing communications targeting markets in emerging economies.

• Implementation Plan (Source: Task 1)

To diversify products and widen their range, Apple will have to engage in research and development to unearth opportunities in Internet of things, medical applications and household applications. They will then come up with a shortlist and develop new products for piloting.

When it comes to the development of cheaper products, the strategy should focus on the smart phone market. The organization should retain their sophisticated design and security but source for slightly cheaper components that will help to come up with low cost iPhones.

To penetrate new markets in Asia and Africa, there should be a combination of both traditional and digital media to propagate targeted messages to these regions. Combined with low cost products that suit such markets, the brand should allocate a significant advertising budget for establishing their grip in these regions.

Justification of Plan

            By engaging in product diversification, Apple will be able to reduce the reliance on Smart Phones and thereby cushion itself from competitive forces. The different segments will be able to compensate for stiff competition in one or two other segments. Producing cheaper products will help the company on the other hand to capture the low and mid-end segments. These segments are not only offering substitute goods but also meeting the needs of customers who detest expensive products (Rothaermel, 2015). Cheap products will therefore shield their premium products from changing consumer tastes and offer new avenues for profit making. Elsewhere, integrated marketing communications targeting markets in emerging economies will help to spread risks geographically as well as secure the future. As markets in Europe become concentrated, Africa and other new markers shall be the new profit making frontier and therefore this move shall help to establish competitive advantage in these new areas and sustain it. The above points prove that the suggested plan is the best course for the company to take.

Sustaining Competitive Advantage

            Sustaining competitive advantage will be achieved through cost leadership and innovation. Apple has the advantage of producing iPhones and other products at very low prices and selling them at enviable prices thus realizing huge margins (Masi, 2009). This is necessary to maintain their competitive advantage in the market. They should thus streamline their value chains and seek cost-cutting avenues that will guarantee productivity at low costs in the long term. Competitors will find it difficult to match up as they shall incur higher costs and therefore charger uncompetitive prices for the same products. Apple must also keep innovating at every level. Process innovation will help to lower prices while new product development will attract more customers who are curious to get hold of the latest technologies (Rothaermel, 2015). Therefore, cost leadership and innovation are key to Apple’s sustenance of their competitive advantage.

            Elsewhere, the company must develop human and material resources that sustain competitive advantage. Such resources must meet the VRIN criteria: valuable, rare, imitable and non-substitutable (Gordon, 2017). For resources to be valuable, they should bring value to the organization. They should also be available for sourcing by the company. Rarity on the other hand implies that the resources should not be easy to locate for all the competitors. Imitable concerns how easy they are to copy while the final criteria, non-substitutable indicate that such resources should not have ready substitutes.  Apple must develop financial, human, material and non-material resources that satisfy the above criteria fully in order to be competitive.

Implications of Competing in International Markets

            There are several pros and cons of competing in international markets. Some of the advantages include accessing new customers and diversifying business risks (Gordon, 2017). International markets provide an additional pool of customers who may have even greater purchasing power depending on the economy in question. Asian and European economies currently offer suitable overseas options for many businesses. In addition, the business risk is spread over a number of countries to the extent that competition and other challenges in one market are offset by another. Other advantages include lowering of production costs. Offshore production facilities in countries like China offer access to cheap labor and thus help in reducing costs (Masi, 2009). The cons of competing at the international level include cultural risks where some cultures may not have affinity for an organization’s products. Additionally, there are political risks such as heavy taxation of multinationals and lack of goodwill from regulatory bodies. This may lower profits and set the company on a loss trajectory.

            Apple should go international given its already-present experience in a variety of global markets. They have an establishment in around 22 countries abroad and have therefore amassed valuable lessons on how to venture into overseas markets and create value (Masi, 2009). Market entry strategies and other valuable lessons taken over the years can be harnessed to explore further opportunities in their case. In another respect, the organization has a strong financial resource endowment that allows for such expansion (Rothaermel, 2015). As the leading IT Company by revenues globally, they have enough capital endowment to venture abroad. Five strategic options in venturing abroad include:

1. Direct Exporting – In this case the company opens up sales channels to sell their products into the new market. Sales agents and distributors are contracted to carry out sales in the chosen niche. Apple would thus not need to open a new production line or physical offices in this strategy.
2. Licensing- In this strategy, Apple shall give certain rights to another company to market and sell their products in a given market. What the licensee engages in depends on the licensing agreement.
3. Franchising- This entails the offering of franchise rights to another business to operate in the new market. They shall utilize the Apple brand and business model in a semi-autonomous mode while paying some fees to Apple.
4. Joint Ventures- in this case, the company shall come together with another to share ownership and control over property rights and operations in a new market. This will help to reduce the risk born by the individual companies and also creates a strong force in the new niche through combined material and non-material resources.
5. Purchasing a Company – In this strategy, the company buys an existing player in the new market and takes advantage of their brand, resources and distribution channels to market their new products. This method will be suitable for Apple because it shall reduce mobilization costs in the new market.

Diversification Strategy

Diversification is a corporate strategy in which a company either develops a new product or expands into a new market. There are many types of diversification strategies whose application depends on the business in question and its particular needs. These strategies have numerous effects on the value chain. For instance, they may make it longer through additional raw materials to process, or even shorten it by eliminating the need of some inputs. However, the most common effect is altering the operations in the value chain as new processes are required for coming up with new goods and services (Grant, 2016). Sales and marketing may also require fresh strategies to promote the diversified goods and services.

The most suitable diversification strategy for Apple is horizontal. This strategy entails the offering of new services and products for the organization’s existing customer segments (David, 2011). This is because of the plenty of opportunities that still exist within established segments. For instance, Internet of Things (IoT) is one area that Apple can enhance within current segments. Apple TV is another area to look at among others. Thus, instead of taking a bigger risk of introducing new products for new markets, they should try out new products for their existing clientele which is quite big.

Ethical Considerations

It is important to remains socially responsible even as an organization explores new strategies in order to avoid consumer backlash and regulatory strife. Unethical practices can lead to boycotts and consumer disdain towards a company’s products as well as fines and withdrawal of licenses from the regulator. These, apart from created financial losses injure the reputation of the organization. Apple should consider developing their new products in line with the new strategy with respect to prevailing labor regulations. Offshoring has recently become controversial and attracted plenty of human rights litigation (Masi, 2009). The organization should be careful therefore to abide by all labor regulations on payment and working conditions for workers in their production facilities.

Strategy Execution

            This process should be completed in line with the fundamental tasks of strategy execution and building an organization that is capable of executing strategy. The first step is to integrate human resources that are capable of strategy execution. Apple should hire engineers for new product development and managers who can coordinate the new horizontal strategy on the long term. Secondly, they should develop capabilities for implementing the strategy in the long term through trainings, mobilizing resources and setting up structures for creation of new products. Elsewhere, Apple should also alter their structure to allow it to support the new strategy. This implies more flexibility to accommodate new roles and duties (David, 2011). Going forward, there is also need for allocating adequate resources for the new strategy. This entails both finances and other material and non-material resources that can drive strategy successfully. There shall also be need for new policies and procedures to govern service provision at the given level cognizant to the fact that the new products may not rhyme with the existing protocols. In addition, the organization should adopt best practices and processes that guarantee continuous improvement. Total Quality Management (TQM) and lean processes shall be required for Apple to develop new product line successfully on the long term (Masi, 2009). Also important to note is the installation of information and operating systems that are suitable for the employees to run the new strategic duties. The new products to be developed shall utilize new systems that shall need to be put in place for continuity purposes. This is besides using rewards and incentives to motivate staff upon the attainment of financial and strategic targets. Apple should celebrate every little success from the new strategy and motivate staff through financial rewards and promotions. They should also cultivate a corporate culture that encourages strategy execution by fostering collaboration and healthy relationships among staff (David, 2011). Strategy execution also requires change readiness which Apple should seek to institutionalize. Finally, there is need to offer internal leadership that propels strategy. The top management should offer guidance and the necessary support all the time, more so in navigating uncertain times.

Return on Investment and Cost Benefit Analysis

            There shall be appropriate use of return of investment (ROI) in the decision making on what projects to undertake. ROI is a performance metric that examines the returns of an investment with reference to the costs (Masi, 2009). The metric is quite simple to use and gives an accurate picture of whether an investment is worth the risk or not. In the diversification strategy, the ROI for the various proposed new products shall be calculated and those that promise the highest returns selected for development. In the same way, cost benefit analyses (CBA) shall be used to determine the best investments to pursue. CBA evaluates the strengths and weaknesses of a given project and assigns monetary values to the same with the aim of coming up with the best option to take. This shall be applied to all the possibilities of new products that shall be explored in line with the suggested strategy.

Conclusion

This report highlights Apple’s strategy, beginning with mission, vision and value statements. The main concepts featured in the above statements included simplicity, innovation, leadership in technology and elegance. The mission, vision and values crafted were the most appropriate as they covered the organizations, purpose, activities as well as acted as marketing messages for the organization. Two analytic tools were used to scan the macro and micro environment of the business, namely PEST and SWOT. From the analysis, it emerged that the company needed to diversify their products, release cheaper products for the mid-end and low-end segments as well as engage in integrated marketing communications in order to market themselves in new markets in emerging economies. This strategy was to be accompanied by a horizontal diversification strategy, with ethical considerations of the labor market. A detailed discussion on strategy execution was also given, from mobilization of human resources, changes in organizational structure, capacity building, allocation of material and non-material resources, integration of the best practices, new policies and procedures and coming up with the right corporate culture. The use of incentives and rewards was also discussed besides the offering of management support throughout the way. In selecting products worthy of investment, the return on investment and cost-benefit analysis performance metrics were proposed. There is no doubt that the strategy was appropriate and would be successful if implemented in the given steps.

References

David, F. R. (2011). Strategic Management: Concepts and Cases (Custom Edition – Textbook Binding ed.). Florence, SC: Prentice Hall Inc.

Gordon, G. (2017). Leadership through Trust. [PDF]. https://doi.org/10.1007/978-3-319-56955-0

Grant, R. M. (2016). Contemporary Strategy Analysis (9th ed.). Padstow, Cornwall, U.K.: John Wiley & Sons, Ltd.

Masi, B. (2009). Strategic Analysis of Apple Inc. Capstone Strategy Course (MGT440), Professor Linda Cohen, Barney School of Business, University of Hartford.

Rothaermel, F. T. (2015). Strategic management. McGraw-Hill Education.