Strategic Direction of Apple in the Enterprise

Strategic Direction of Apple in the Enterprise

Apple (NASDAQ: AAPL) has emerged as one of the most profitable and prolific companies in the world, generating a market capitalization rate of $623B as of this writing in late August, 2012, delivering $148B in Revenues in their latest fiscal year and $40B in Net Income (Apple Investor Relations, 2012). One of Apple's greatest strengths is its ability to quickly translate innovative product concepts and designs into state-of-the-art products that deliver exceptional customer experiences. Apple has honed this through decades of disciplined execution and a continual focus on creating a highly synchronized supply chain, highly collaborative product design and development workflows, and the ability to take concepts to completed products in a fraction of the time of their competitors (Murray, Goode, Muro, 2010). Apple is credited with creating the smartphone market, tablet PC, cloud-based music buying and delivery service (iTunes), centralized document and image storage (iCloud) and more innovations in operating systems in the last five years than Microsoft (Apple Investor Relations, 2012). All of these accomplishments taken together have led to Apple creating a catalyst of growth in the tablet PC market, fueling a 100%+ increase in iPad sales (13% year over year) and iPhone sales that have increased 152% over the last eighteen months as well (Apple Investor Relations, 2012). Apple continues to accelerate the sales of their iPad, iPhone, iTouch devices in addition to its mainstream laptops and systems. Apple is able to accomplish these significant results by concentrating on the execution of its value chain, a decades-only concept that Dr. Michael Porter originally created to illustrate how the functional departments of a company all must be synchronized to deliver profitability (Porter, 2008). Apple's value chain is exceptionally effective in managing the coordinating of supply chain, sourcing, quality management, production, product design, marketing services, logistics and retailing operations. As long as two decades ago Apple had been concentrating on how to create this level of synchronization across their entire enterprise (Larson, 1994).

As the business model of Apple has continually become more complex, the ability of the organization to stay agile and quick to respond has increasingly become more difficult. This is a common problem companies have as they grow in size and complexity of their business models. For Apple, the environmental factors in the areas of economic, social, technological and political change have challenged their ability to grow, and also forced them to create a more market-driven organizational structure, abandoning the highly successful product divisions of the 1990s and early 2000 timeframe (Apple Investor Relations, 2012). The intent of this analysis is to evaluate how Apple is managing to continually grow despite economic, social, technological and political environmental forces impacting their business. In addition, an analysis of their market environment, response to the turbulent economic environment they operate in, the nature of their product strategies, an assessment of their strategic direction and strategic options are all included in this analysis. A separate section is included for each of these areas throughout the analysis. The Porter Fives Forces Model is used for analyzing these market dynamics (Porter, 2008).

Analysis of the Market Environment

Apple's ability to manage the many turbulent factors in the each of the areas of economic, social, technological and political change globally illustrates what can be accomplished when an organization creates an organization focused on agility of each customer-facing and production process. Apple has long been known for its ability to create products and services that excel on the dimension of user experiences (Larson, 1994). Many companies have been able to create a single product or even a product line that excels on this dimension of user experience. Yet it took decades of integration, process improvement and system and strategy development to translate this ability to take highly innovative, customer-driven products and quickly be able to translate them from concept to reality in record time (Fleischer, 2006). Apple has relied on the accuracy and speed of their new product development process to fuel top-line revenue growth while successfully entering entirely new geographic and product-based market segments (Apple Investor Relations, 2012). This accuracy and speed of innovation is a shock absorber the company relied on regularly to overcome the bumps that chaotic change in economic, social, technological and political areas bring to the company. Apple has succeeded at integrating the customer into every critical selling and service process that their role in absorbing economic shock is indistinguishable from the company itself (Chang, Weng, 2012). Apple absorbs economic shock better than any high tech company today due to how closely they are aligned with their customers' needs, wants and are highly effective in surpassing their expectations as well. This gives Apple an uplift in terms of its brand value as well, allowing the company to quickly move into entirely new markets not considered before (Hsiao, Tsai, Shen, Yeh, 2011).

The second and third environmental factors, social and technological are two areas that Apple has been able to harness and use the chaotic nature of for its advantage. Beginning with the social aspects of change, Apple has continually had a brand specifically designed for the nonconformist, the person out to change the world, much like tis founder Steve Jobs was (Hsiao, Tsai, Shen, Yeh, 2011). Apple was prescient in this area of their branding strategy, as social media specifically and the Internet in general has re-ordering the politics of enterprise spending on information technologies and their use (Apple Investor Relations, 2012). The pace of technological change is increasing as well, and Apple has been one of the primary catalysts of the revolution occurring in this area. When the first iPhones were under consideration for development, Apple executives started design sessions by saying how much they hated their existing cell phones and deliberately set out to revolutionize the industry based on how much they hated how difficult the devices were to use (Murray, Goode, Muro, 2010). The result was the iPhone product lien and the development of the smartphone industry (Apple Investor Relations, 2012). Why Apple succeeded in being a disruptive force in the smartphone and alter, tablet PC market can be traced back to hwo the company views technological change in the environment. Their executive management and most senior engineering teams see technological change as an opportunity to disrupt long-standing markets with highly innovative, state-of-the-art products (Chang, Weng, 2012). Apple also realized that with the rapid adoption of social media and the pervasive nature of the Internet, the best strategy to compete would be to focus on the operating system first (Apple Investor Relations, 2012). Using their Apple iOS operating system as the foundation for it assault against the chaotic change in the social and technological areas of its market, Apple emerged with one of the leading mobile device operating systems globally. Figure 1, Comparing Global Mobile Operating System Market Shares, 2011 shows the distribution of sales by device as of last year, as shown in one of the filings by Apple with the Securities and Exchange Commission (Apple Investor Relations, 2012).

Figure 1: Comparing Global Mobile Operating System Market Shares, 2011

Source:

(Apple Investor Relations, 2012)

Apple chose to address the challenges brought about by the chaotic nature of social and technological change by concentrating on what it does best, building software, systems and products that exceed customer expectations with exceptional experiences. In doing this, the senior management teams at Apple has to navigate between the expectations and needs of their long-standing, decades-old customer base on the one hand and the emerging class of customers who are purchasing the iPad, iPhone and iTouch in literally millions of units a month (Apple Investor Relations, 2012). The greater the social and technological change and its chaotic nature, the greater the tension between serving both of these groups of customers. Figure 2, Persona of Apple Customers, shows the attributes of the Apple customer base. There are the customers who have been purchasing products from the company for decades, and they are a strong component of the customer base, influencing product design (Fleischer, 2006). To be successful Apple has had to balance these two potentially divergent groups while also launching new products.

Figure 2: Persona of Apple Customers

Sources: (Apple Investor Relations, 2012) (Chang, Weng, 2012) (Hsiao, Tsai, Shen, Yeh, 2011) (Murray, Goode, Muro, 2010)

Political change has not been as severe for Apple as it has been for its suppliers, many of which are located in countries going through tumultuous changes in their governments. China is the location of many of Apple's most strategic suppliers, an the continual change there in terms of government control of production relative to emerging free market segments of their economy is costing Apple millions of dollars a year in advising and government relations efforts (Apple Investor Relations, 2012). Apple is also especially vigorous in protecting its patents and brands globally, which also has been extremely costly for the company as well (Apple Investor Relations, 2012).

Apple's Response to a Turbulent Global Environment

The Five Forces Model as defined by Dr. Michael Porter provides the foundation for analyzing how Apple is successfully reacting to the many turbulent areas of their business model. As can be seen from the analysis, Apple is primarily focused on making the price competition in adjacent markets work to their advantage by concentrating on time-to-market and quality management advantages from suppliers (Apple Investor Relations, 2012). Apple also realizes that the average smartphone early adopter customer will swap out their smartphone every 18 months or less, which opens up a significant revenue opportunity in upsells of new models (Apple Investor Relations, 2012). Apple is concentrating on their software development to drive high-margin, highly profitable products, averting price wars with low-end competitors. This strategy is central to their attaining a $623B market cap as of this month.

Figure 3: Apple Five Forces Analysis

Sources: (Apple Investor Relations, 2012) (Chang, Weng, 2012) (Hamlin, 1994) (Hubbard, 1992) (Murray, Goode, Muro, 2010) (Porter, 2008)

Nature of Apple's Product Strategies

At the center of Apple product design and product lifecycle management strategies are a series of priorities that define current and future products. Apple seeks to capitalize on the highest-performance suppliers they have, as this drastically reduces the costs of verifying the quality level of new ones and also speed up time-to-delivery of custom components for prototypes (Apple Investor Relations, 2012). Supplier management and supply chain coordination is critical to the overall profitability of the company, as it has long focused on how to be demand-driven based on customer forecasts (Hubbard, 1992). Apple also concentrates on product strategies that are easily integrated into their existing ecosystems including iTunes. From the initial iPod, iPhone and iTouch, the iTunes ecosystem was specifically designed in to each of these products. As the iPad has grown in prominence, Apple has also created entire sections on the iTunes store just for applications for this device. As Apple generates 30% of all profits from the iTunes ecosystem, the product designs must take this system into account and create a user experience that promotes sales of digital content (Apple Investor Relations, 2012).