Strategic plan and core competencies analysis of Apple Computer

Strategic Plan for a Technology Driven Organization:

Apple Computer

Strategic Plan for a Technologically-Driven Organization:

Apple Computer

The intent of this analysis is to provide a strategic plan framework for Apple Computer, focusing first on strategy, followed by core competencies, an assessment of key external and internal forces, and technology sourcing and internal innovation. Also analyzed are product development strategies, and strategies to simulate strategic renewal, which have been very evident in the company's successes with their iPod product family.

Strategy Recommendation

Apple's impressive strengths and ability to execute from vertical integration strategies and the product design, retail stores, and increasing momentum of brand partnerships all require the Voice of the Customer (VoC) programs to both fuel product development for existing innovative products, while seeking to alleviate the "insider/outsider" mentality that pervades the Apple customer base, most present with the company's computing products. Being trendy without being exclusionary is the biggest branding and segmentation challenge the company has today. Figure 1 shows a profile of the Apple customer base.

Figure 1: Characteristics of the Apple Customer Base

Sources: Cuneo (2003) and Marketing Week (2004).

The recommendations in terms of strategy center on both listening to the customer base much more efficiently than today and building products that can cross over the "insider/outsider" mentality without comprising the nonconformist brand values. In addition Apple needs to continually re-evaluate its vertical integration for costing and pricing competitive advantages. There also needs to be a thorough analysis of integration between software and hardware products to ensure consistency across all platforms. Industry analysts describe Apple hardware and software as intuitive and easy-to-use; skills learned while utilizing one Apple interface prove easily transferable to similar Apple software platforms according to MacWorld (2004) writers.

Analysis of Apple's Core Technical Competencies

Apple continues to prove its dedication to innovation and short product upgrade cycles. The iPod line has been refreshed at a pace that cannot be rivaled by competitors (the average iPod model's lifespan is 11 months) and the Intel transition completed much sooner than promised (it took Apple only 210 days from the release of the first Intel Mac to the last Intel machine). Because of Apple's track record of innovative products with fresh appeal, it's reasonable to expect an aggressive product pipeline throughout the remainder of the decade. Figure 2 provides an illustration of the aggressiveness of their product strategies as it relates to the iPod product family.

Figure 2: Analyzing Apple's iPod Product Roadmap

What this roadmap illustrates as well is the key lessons learned by Apple throughout its history of working to integrate with 3rd party software and operating systems as well. In fact, Apple has turned integration from a weakness to a strength, specifically on their quick development and release of Intel-based Macintosh systems illustrates this point.

The core competencies of translating designer-like requirements in electronics products and platform integration are two of the most powerful core competencies the company has today, which is translated into a consistently easy-to-use and learn interface that is consistent across all products in the company's suite of applications.

Apple often contrasts its platform integration success with manufacturers producing software for Window -based machines. Because the Windows code remains proprietary, third-party manufacturers often cannot construct programs to operate seamlessly with the Windows interface. Apple's internal development assures that each software program seamlessly integrates with the Macintosh operating system, creating a single program for relevant computer media rather than a sometimes confusing array of Windows products.

Recommendations for the future direction of building out the company's core technical competencies is to continue capitalizing on the unique integration strengths of the company in conjunction with the build-out of innovative new products that align with the unique designer positioning the company has. The focus on core competencies needs to also focus on bringing a higher level of urgency to the development of imaging applications that can reside on both the Apple and Microsoft-based operating systems. This would further their competitive advantage relative to the majority of the PC market that relies on applications not nearly as well designed ergonomically that match how people work and play. Apple's uniqueness is the design aspects, speed of execution, and ability to define and execute on an entirely new media platform that synthesizes digital music and video that is compatible with cell phones and many other platforms just emerging for example.

Assessing key external and internal forces impacting Apple Computer

Apple Computer's unique branding, positioning, development and sales strategies have led to significant strengths in the global market, which help the company attain a global presence, a consistent brand image globally, a highly synergistic portfolio, and strong media content. These four attributes are the company's global strengths. Apple's main weaknesses include lower-than-average returns on invested capital and assets, and as the shortage on DRAM shortage on both disk drives and DRAM showed on the iPod, dependency on key components is also a major weakness. Fortunately the strong balance sheet of Apple was able to overcome this secondary issue of product shortages industry-wide.

In the context of these strengths and weaknesses, the key external factors that show the greatest opportunity for Apple include the continual build-out of their wireless product strategy, including bringing iPod-like innovation to the world of WiFi wireless globally. In addition Apple is ideally positioned given its position relative to external and internal factors to excel with the development of an entirely new digital platform that has the potential to synchronize both digital sound and video content into a cohesive and portable experience for millions of people globally. The commanding success of Apple iTunes has become a signal of future strategies to come, fueled by the growth of the Internet as a delivery mechanism. Table 1 provides insights into the key market statistics regarding Apple iPod market penetration. Notice thanks to the Internet there is a 98.6% penetration of the iPod in the Broadband Market of the U.S.

Table 1: iPod Market Dynamics

Source: Apple Computer Investor Relations Documents; 10Q documents filed with the Security and Exchange Commissions. Accessed from www.freeedgar.gov

Lastly, Apple's internal and external factors that combine to create threats include more focused and aggressive competition on all platforms, products and software the company sells, increasing pressure on pricing, slowing European sales, and too many lawsuits and litigation issues today.

When all the internal and external factors are taken into account for Apple Computer, it's clear that the company needs to strength it's core messaging around the brand globally and build out a much more pervasive strategy to capitalize on the internal and external factors defined in this section. Clearly Apple needs to capitalize more on the mobile or m-commerce trends as the table above shows only 3.9% of cell phone users globally is today also using an Apple iPod. The convergence of these two technologies in conjunction with the growth of the Internet and capitalizing on global branding awareness is what Apple needs to focus on first and foremost. As is shown in the low penetration globally an enhanced media platform is also critical for the company to take advantage of these trends.

Apple Technology Sourcing and Internal Innovation

The company is susceptible to a supply risk for key components. IBM is currently the company's sole supplier of the PowerPC G5 processor, which is used in its current Power Mac, Xserve, and iMac G5 products. Freescale is the sole supplier of the G4 processor, which is used in the company's eMac, Mac mini, and portable products. IBM experienced manufacturing problems with the PowerPC G5 processor, which resulted in delaying the shipment of various products and constrained certain product shipments during 2004, 2005 and in the first quarter of 2006. In a market where speed to market is critical, Apple's dependency for key components could put it at a competitive disadvantage.

Apple outsources the majority of its manufacturing for both its iPod and Mac product lines to Taiwanese companies such as Hon Hai, Asustek, Quanta, and Inventec. The company's largest component suppliers include Intel for PC microprocessors, Toshiba for 1.8" iPod hard disk drives, and Samsung for NAND flash.

With the rapid growth of its iPod line, management of the supply chain has become a focal point for Apple, enabling the company to