Apple Inc.’s Analysis and Recommendations for 2013

Mission and History

Apple is an American company that manufactures, sells and distributes computer hardware, software and electronics. It was founded by Steve Jobs and Steve Wozniak and Ronald Wayne in 1976 (Grady, 2009). They stated the company in 1977 and located the headquarters in Cupertino. It is very popular in the USA since it produces high-quality products, including iPhones, Smartphones, iPad tablets, and Mac computers’ (Grady, 2009).

The company’s mission is to produce high-quality technological products which are easy to use and cheap (Grady, 2009). Its philosophy argues that technology should not be complicated in a manner that intimidates illiterate and non-computer experts. In light of fulfilling this mission, the company embraces corporate social responsibility by handling employees fairly, providing a safe working environment, and using environmentally conscious manufacturing processes.

External Strategic Situations

Porter’s Five Analysis

New entrants have been a major aspect that characterises Apple’s external environment (Arons & Waalewijn, 1999). The growing field of technology has attracted people to produce and sell technological products. This has led to the emergence of new entrants, especially from Asian countries. Some of the new entrants, which have attracted a lot of attention, include Bing, Itel, and Dous, among other companies.

The company also faces a threat from substitute goods due to production of similar items by new entrants and competitors. Some competitors manufacture cheaper products than Apple, which attract a lot of customers. For example, Techno launched their first Android Smartphone on the 27th of April 2012. This phone has gained a lot of popularity in Africa and Asia posing a big challenge to Apple’s Smartphone in these continents. Additionally, some Chinese companies have diluted Apple’s brand enabling them to produce similar products. This phone acts as a substitute for the iPhone, posing a threat to the Apple Company.

Buyer’s power is another essential part of Apple’s external environment. In this case, the buyers have much bargaining power due to the existence of competitors and substitutes. Competitors provide substitutes that customers can purchase if Apple’s products are very expensive (Mercer, 1992). As a result, customers can easily bargain for low prices in the business. However, the company has implemented a secret loyalty to reduce bargaining power. The program is known as Apple Retail, where customers get training on how to use different applications and devices. Steve Jobs argues that the program focuses on building the life of customers rather than selling products. The customer can, therefore, purchase apple devices to get this service which is essentially educative.

Additionally, suppliers’ bargaining power affects the company’s external environment. Suppliers include the employees, raw materials providers, and network providers (Campbell & Craig, 2005). The company has controlled suppliers’ bargaining power since most of the suppliers aspire to be related to the company. Most suppliers who provide raw material to the company enjoy a competitive advantage over the rivals. Also, employees who work for the company have little bargaining since most experts compete to work for the company.

The last component that shapes the strategic situation of the company’s external environment is the intensity of competitive rivalry. Under the leadership of Steve Jobs and Cook, the company has made landmark innovations over the years (Dormehl, 2012). Apple has proved to be one of the most innovative companies in the market. The company also organises technological forums where people discuss technology. While people talk about technology in broad terms, the company is advertising its products through the forums. This advertisement has created fanaticism among Americans to such an extent that some citizens cannot use any other brand rather than Apple.

PESTLE Analysis

The main political factors that affect the company include tax policy, corporate social responsibility and environmental law. In the USA, the average corporate tax is about 12 per cent. Apple Company complies with this policy by paying 12 per cent of the total income while the shareholders are charged from dividends. The government, also, advocates for Corporate Social responsibility where Apple must treat its employees fairly by providing safe working conditions and offer satisfactory payments. The company is subjected to environmental law, which asserts that the corporation must use environmentally conscious manufacturing processes.

Regarding economic factors, the company is located in the most industrialised country where the current inflation rate is 1.2 per cent. This implies that the company’s business enjoys substantial business stability owing to low inflation rates. Additionally, the company incurs favourable exchange rates since the USA dollar is superior to most of the currencies across the world.

Regarding the social factors, customers who buy Apple products are essentially informed. They are sensitive to the safety of the devices and health of people. Consequently, the company must manufacture products that have few health risks.

The technological aspects surrounding the company favour its business across the world. Currently, the modern world is in a technological era where most people and organisations have digitised their activities. This implies that the market share of the company will be increasing rapidly.

Regarding legal factors, health and safety law states that the company must consider the health of employees. For example, it has stipulated the maximum level of noise that the employee should incur. While discrimination law states that all stakeholders of the company must be treated equally, the employment law stipulates coordinate employees, employers, government and trade unions.

External Opportunities and Threats

Generic Strategies

One of the most critical threats facing Apple is the existence of strong competitors, including Nokia, Samsung and Sony. In an attempt to curb the threat, the company applies cost leadership. It produces its product in bulks to enhance the economies of scale, which enable substantial cost reduction. Although Apple products are not necessarily cheaper than competitors’ products, massive production enables the company to produce high-quality goods at reasonable prices. The combination of high quality and reasonable prices gives a company the possibility to compete favourably with its rivals.

Additionally, the company applies a differentiation strategy to differentiate products. Apple has been identified as one of the companies that have used a differentiation strategy successfully. In this light, the company has created unique technological products for customers who are sensitive to the quality rather than price. The fanatics of Apple stick to its products due to the satisfactory services of the company.

Capabilities

Focused leadership has been the greatest force that drove the progress of this company. Tim Cook develops strategic innovations which keep the company beyond the competition. Additionally, his passion motivates employees which leans too much dedication and commitment. The leadership of Tim Cook cannot be ignored when analysing the capabilities of this company.

Secondly, the company has created a strong brand that enables it to earn popularity and prestige. This brand has, therefore, elevated its products above the rivals’ and built a sizeable market share. Customers who are sensitive to quality purchase Apple due to high quality and satisfaction. This implies that the company’s brand enhances favourable competitive advantage.

Additionally, the company has many qualified employees who have unique skills. In 2012, Forbes observed that the company employed more than 80000 employees involved in manufacturing, marketing and distributing its products. The CEO coordinates employees to ensure mutual coexistence and collective success. This enables the company to weaken new entrants with poor organisational structures (Boxall & Purcell, 2003).

Innovations

Apple uses innovation to eliminate major threats and capture new opportunities. When Steve Jobs noted that most competitors were producing Smartphone, he triggered the Apple Retail program’s development. The program offered training on how to use various applications and devices. This implies that the company focused on developing the skills of the customer besides selling the products. This program attracted many customers to buy Apple products since they could gain skills.

This strategy suppressed new entrants and competitors since it enabled all customers to use Apple devices. This was a landmark point where the company used innovation to fight competition. In addition, this program provided a solution to technological complications. Most of the competitors’ products were complicated and difficult to operate. Apple harnessed this opportunity and developed this program that could simplify the technology. As a result, many customers purchased Apple products owing to this program.

Research and Development Strategy (R & D)

R & D provides solutions to problems, including threats that might impact the progress of the organisation. Apple invests heavily in research and development. It is their core strategy for coming up with new products and improving the existing ones. In 2012, 39 per cent of its expenditure was used for research and development. The company used 3.4 billion dollars on research and development. From a comparative perspective, none of the new entrants could invest such amount of money in research. This implies that Apple can develop new products frequently leading to more competence than new entrants. As a result, research and development help in eliminating the threats posed by new entrants.

Value Chain

In light of harnessing opportunities and curbing threats, the company has adopted various value chain strategies. However, the most innovative strategy that the company has applied is affiliation. Apple has affiliated with other companies in developing countries in order to popularise their products. The company uses affiliation because the idea of opening branches in some countries is economically unviable.

Consequently, affiliation ensures that the company distributes products, although it does not have branches in those countries. Additionally, Apple has developed a program that enhances online affiliation with individuals. Individuals are required to create online blogs and attract traffic on those blogs. When they get enough traffic, Apple affiliates with them so that they can sell Apple products. A commission is paid to the affiliate for each product that has been sold. This has reduced the cost of marketing and selling the company’s products.

International Strategies for Comparative Advantage

While considering that Apple is a multinational company, it has local and foreign markets. Since the competitors are multinational, Apple has competitive strategies which maintain its competitive advantage. These strategies include Marketing, Human Resource, Financial and R&D strategies.

Marketing Strategies

The company noted that customers who come from developing countries are not ready to purchase Apple products. They purchase products from other companies which include Nokia and Samsung. The two companies dominated the market in developing companies hindering the prevalence of Apple products. In light of obtaining a comparative advantage, the company introduced cheap products, including iPods and iPhones. When consumers use cheap devices, they are introduced to Apple products. This triggers them to purchase other products regardless of the price since they have accessed the quality of the products. This is the core strategy that has enabled the company to attain a comparative advantage in developing countries.

Additionally, the company has used local and international media to popularise its products in the international markets. For instance, it broadcasts technological expos through CNN and BBC, among others. International media has, therefore, enabled the company to popularise and advertise its products to international companies. Another competitive marketing strategy is the use of social media as an advertisement platform (Jeannet & Hennessey, 1995). For example, it has created pages on Facebook and Twitter, which are used for marketing Apple products. Since social media is both effective and cheap, the company reduces the cost of marketing, leading to much comparative advantage over other companies.

Financial Strategy

The company has adopted a tactical financial strategy where it seeks to pay quarterly dividends to shareholders. Additionally, the company has currently decided to repurchase its shares. This strategy will help the company in attaining more comparative advantage that its competitors in the local and international arena. In this light, paying out dividends quarterly maintains a state of loyalty between the company and a shareholder since the shareholders have more dividends to obtain from the company. If the dividends were paid once a year, the company and shareholders would lose contact with each other. Additionally, it ensures that the company does not pay out without considering future risks.

In this light, the company must consider that the future returns are uncertain. Therefore, paying quarterly dividends distributes the risk evenly over the entire financial year. It is important to note that the company decided to pay these dividends after a period of ten years. This decision was aimed at creating a good image of the company in order to earn more customers. Additionally, the company wants to repurchase its shares so as to reduce debts and retain profits. This implies that it will rejuvenate its financial capability leading to comparative advantage.

R & D Strategy

Previously, this report stated that the company sends 38 per cent of its expenditure on research and development. When the company is conducting this research, it evaluates the strategies of other companies in order to identify their strategic strengths. Based on their findings, they conduct additional research concerning the development of similar products that could outdo the competitor’s products. This strategy was applied after Steve Jobs introduced the Apple Retail. The company noted that most of its competitors had started manufacturing Smartphones which posed a great challenge to the iPhone.

Consequently, they developed the Apple Retail program to build on the lives of the customers rather than selling the product only. This perspective elevated the comparative advantage of the company owing to detailed research.

Strategic Control

Premise control shows that the company has restricted its expansion in developing countries due to existing insensitivity to technology. However, technology has become global such that the majority of the world’s population is digitised. As a result, the premise that led to this restriction is invalid. This implies that the company should change its strategy regarding the expansion and franchising in developing countries.

Special alert control shows that Apple has an incompetent crisis management system. This was portrayed when a customer reported an iPhone that caught fire unexpectedly in the house. Additionally, the company was unable to handle the crisis, which emerged when customers identified bad iPhone antenna. This implies that the company must consider crisis management.

Implementation strategic analysis must review its manufacturing process since it has been criticised severally. For example, Greenpeace Company argues that Apple uses non-recyclable materials to manufacture their products. Additionally, it revealed that Apple products contain toxins that are harmful to the body. These criticisms must be addressed promptly.

In accordance with strategic surveillance, it is evident that the main competitors of Apple are very sensitive to the faults which the company makes. It appears that the companies could magnify the faults in order to convince customers that Apple does not produce quality goods. It is very important for the company to consider such threats.

Recommendations

The company should consider expanding its franchising program into the developing countries since people in the respective countries have adopted the technology. Recently, competitors, such as Nokia and Samsung, have established in developing countries. Apple should, therefore, act quickly to ensure that its competitors do not dominate these markets completely. In fact, it should establish branches in all countries where the main competitors have established.

The company has a very poor crisis management system. This problem should be eliminated by setting up an intact crisis management team. This team will be intervening in case of any critical crisis that emerges unexpectedly. This team will respond to a crisis before they spread to the general public through media as well as competitors. It will also be evaluating possible crises that can emerge from identifiable risk factors in order to take proactive measures.

It is evident that Apple has been criticised by other organisations concerning the environment and human health. In this light, it should use materials that are recyclable in order to avoid building up waste material. Additionally, this will stop further criticism which might impact the corporate image of the company.

Although the company has a secret loyalty program, the management should implement conspicuous loyalty programs. In these programs, customers should enjoy membership discounts and offers. The offers should be determined by the level of the customer in the loyalty program. For example, the program can have four levels which include bronze, silver and gold. These levels should be determined by the number of purchases and the period of loyalty. This strategy will attract more customers than the secret loyalty program, which is known to few people.

The company should maintain its level of research and development. The management should realise that the company’s prosperity relies on innovative ideas. They should, therefore, avoid relaxing or reducing the level of research. In fact, they should increase the funds invested in research and development. Further, Apple should concentrate on comparative research rather than plain research. They should evaluate the quality and prices offered by other companies in order to determine what they should develop.

Lastly, the company should respond to the surveillance analysis, which has been described in strategic control. In this case, it is clear that competitors are determined to destabilise Apple. This implies that competitors can generate rumours concerning the company or magnify simple flaws. In order to fight such threats, the company should respond promptly to all matters that emerge from customers. Otherwise, media and competitors will magnify the situations leading to reduced competitive advantage.

References

Arons, H, & Waalewijn, P, 1999, A knowledge base representing Porter’s five forces model, Rotterdam Institute for Business Economic Studies, Rotterdam.

Boxall, P, & Purcell, J, 2003, Strategy and human resource management, Palgrave Macmillan, Houndmills.

Campbell, D, & Craig, T, 2005, Organisations and the business environment, Elsevier Butterworth-Heinemann, Amsterdam.

Dormehl, L, 2012, Different thinking: Steve Jobs, the counterculture and how Apple Inc. took over the world, Virgin, London.

Grady, J, 2009, Apple Inc, Greenwood Press, Westport.

Jeannet, J, & Hennessey, H, 1995, Global marketing strategies, Houghton Mifflin, Boston.

Mercer, D, 1992, Managing the external environment: a strategic perspective, Sage Publications, London.