© 2011 University of St. Thomas, Opus College of Business

Apple: Strategic Management Case StudyS. Bensen, A. El Haddi, K. Fitzsimmons, A. Hussein, H. Marotske

Strategic Management, UST Executive MBADecember 2012

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1. Mac, the best PC’s in the world

2. Digital music revolution leader

3. Reinvented mobile

Mission

4. Defining mobile media & computing devices future

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3. Intentional Misdirection

Core Values Revealed

1. No External Agencies

= No Disclosure= What Life?

2. Internal Teams

4. Innovation5. Research Driven Strategy

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• Created 600,000 Jobs in the US• New announcement by Tim Cook

“Assembled in the USA” (Source: NBC News)

• “By itself, Apple’s iTunes and App stores make more money than The New York Times; Simon & Schuster, which publishes the best-selling “Steve Jobs” biography; Warner Bros. film studios, which owns the popular Batman film franchise; and Time Inc., the largest magazine publisher in the U.S. Combined.”

-Edmond Lee Source: Bloomberg

Recent News: Jobs by Jobs

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Apple, Inc.

Now• Founded 1977• HQ Cupertino, Ca. “The Mother ship”• Largest U.S. company ever• 72,000 Employees• 80% of revenue is from new products sold from Mid Sept to M/E Oct• 34 Patent Applications in October

Competencies1. Simple, Well Designed, User friendly2. Innovative Culture of Design3. Loyal Customers4. Technology iOS5. Energy Efficient

Apple, Inc.

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Apple, Inc.

1. Operational Focus - Willing to release incomplete products

2. Wall Street - Engaging to increase dividends

3. Shifting Values - MBA vs. Liberal Arts

4. Relaxed Atmosphere - Leadership quiet yet demanding

5. Highly Ethical ?- Some might question• Procurement• Vendors

Internal Assessment

Leadership

Source: Mergent Online

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Governance

$50k per year Serve one-year terms

3 Committees

Source: Mergent Online

Apple's board of directors has three committees:

The Audit and Finance committee members are Ronald D. Sugar, Ph.D. (Chairperson), Robert A. Iger, and Arthur D. Levinson, Ph.D.

The Compensation committee members are Andrea Jung (Chairperson), William V. Campbell, Millard S. Drexler, and Albert Gore, Jr.

The Nominating and Corporate Governance committee members are William V. Campbell (Chairperson), Millard S. Drexler, and Albert Gore, Jr.

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Committees

Source: Mergent Online

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• Foxconn

• Product Quality

• Privacy

• Sustainability

• Intellectual Property Theft

• Patents Source: The Telegraph

Ethics

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Management EffectivenessRevenue per Employee $2,023,349 Net Income per Employee $539,528 RIA % (Net) 28.08ROE % (Net) 42.15ROI% (Operating) 55.79

Profitability RatiosGross Margin 44%Operating Margin 35%EBITA Margin % 38%Calculated Tax Rate % 25%Profit Margin (TTM) 27%

Valuation RatiosPrice/Earnings (TTM) 15.19Price/Book (TTM) 53.3Price/Cash Flow (TTM) 12.46

Asset ManagementTotal Asset Turnover 1.05Receivables Turnover 10.13Inventory Turnover 112.12Prop Plant & Equip Turnover 13.26Cash & Equivalents Turn 14.98

Financial Analysis

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80% 2012 revenue from new products sold Mid Sept to Oct 31 - CNBC

Industry Ratio Comparisons

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Reinvention

Change is Inevitable?

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Release history

LEADING INDICATORS&

DEMAND DRIVERS

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D = f(li1, li2, li3, …, lin)

Market Share: Stable Search trends as an early indicator: Who has it? Networking effect

Sharing Social Nets Social Networking capabilities

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DemandAnd AdoptionRate

Demand as a F(x) of leading indicators

Demographics

World Progress Indicators

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Economic Leading Indicators

Product Drivers:

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Leading Indicators: Product Drivers

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ANDROID

iPhone

Mobile browser counter as a leading indicator ?

EXTERNALITIES

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Smart Phones: Competitors

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iPhone, Droid or Windows Phone ?

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Mobile computing: Laptops & Notebooks

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Banking: $$$$$$$$Educational Financing

Distribution

• Kiosks• Digital• Cloud• Direct• Apple Stores• Retail• VARS• Education

• App developers• Effective Designers• Infrastructure• Talent (Well trained

workforce)• Apple University• $$$$$$$$$$$$$$$• Manufacturing,

Suppliers, Partners (100+)

iPhoneiPadiCool

PatentsDesign

Manufacturing

R&D,IP Innovation Marketing

Quality

Value Chain & Business Model

• Design• Miniaturization• Security• Ease of Use• Reliability• Marketing

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Open Systems

Improve + Innovate

“Closed” Systems

Cool! SecureReliable

Reduced Cost of production

Improved Sales & Margins

VALUE

+++

$$$

FreeBSD

Key Success Factors

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B2B Market B2C Market

BOP $

Enterprise + Government

SMB$$$$$ Class

$$$$$$ Affluent

Premium PricingEducation

Target Market

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INDUSTRY GROWTH & MARKET SHARESmart Phones: 71% CAGR for the next 4 yrs.Cloud computing: 20% CAGR Mobile dev. in general: 25%

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*nomic

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*provisioning

Carrying Capacity ???

Convergence

Value Chain & Business Model

iPhone Android Other0

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20112012

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Smart Phone: Market share growth

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Apple as a Mobile browser leader In 2010

The mobile worldwide market in 2010

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X X

X

X

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iPhone Mobile market share 2012

• Apple has 68% of the tablet market• Cannibalization of iPad by the mini iPad?

• Google & Others TabletsOpen source to the rescue? App store: Closed platform ?

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Availability of applications

What about the iPad ?

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OPPORTUNITIES THREATS

Rapid Technological ChangesHighly Competitive MarketContinual Timeliness of R&DPatent/Copyright ViolationMultiple Distribution Network WeakOutsourcing manufacturing New Management (Midas touch?)

Growing demand:EducationEnterprise and GovernmentConsumersMobility & Nomadic computingMedia devicesTV, Tailored Shows, MODGrowing incomes in ASIA and other emerging nations.

External Scanning Analysis

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Industry EnvironmentSociocultural Forces

Political-Legal Risk

Economies

Technological FactorsWorkers at an Apple supplier facility in Shanghai

assemble parts for the MacBook Pro

Societal Constraints

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Niche MarketINNOVATION

High Advertising Budget

Patent ViolationsChina/othersStrong BrandFAKE iPhone anyone?

Global DemandExisting Patents(i.e. Google’s 17000!)Supply Costs

Supply ShortagesPrice IncreasesOutsourcing Process

High Customer LoyaltyHigh Demand Uniqueness

Buyers

SubstitutesSuppliers

New Entrants

Industry Competitors

Porter’s Five Forces

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Apple’s Sustainable Product Differentiation

BARRIER TO ENTRY -

THREAT OF RIVALRY –

THREAT OF SUBSTITUTES –

THREAT OF SUPPLIERS –

THREAT OF BUYERS -

Cost of Apple Product

Apple Pursues Niche Market

Differentiation Strategy – Defensive

Pass Cost on to Customers

Oligopoly Market (Niche)

Capabilities

VISION 2020

Future Goals Current Strategy

Assumptions

Android - Samsung

New Technology Innovative Products Creative SolutionsStrong Market PositionDiversified Portfolio

Inspire the World, Create the Future

Robust Top Line Growth

Fluctuating operating & net profits

(S)

(W)

SegmentationTargetingPositioning

Promote new Value for Core Networks• Industry• Partners• EmployeesExpand Global Penetration (SW Asia)Promote Top Line Products

Company that goes after its goalsChange = ActionSame Threats as all Competition• Raw Material Pricing• Intense competition• Increasing regulations

Competitive Analysis - Porter

TOWS Matrix: Strengths/Opportunities

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TOWS Matrix: Strengths/Opportunities

ExternalScanning

Internal Assessment

Opportunities1. Demand in Education2. Demand in Enterprise & Government3. General Use Demand4. Demand for Mobile Communications5. Demand for Media Devices6. APPLE Television7. Strong growth opportunities in emerging nations8. Rising wages in China

Strengths1. Global Company2. Strong Brand Image3. Diverse Distribution Avenues4. Design, Manufacturing & Marketing

expertise5. Wide Market Circle6. Reputation for Innovation7. Master with 3rd party digital content8. Compatible with Windows platform9. Horizontal and Vertical Integration10. Financially Sound11. Entrepreneurial culture12. Customer loyalty

S/O Strategies: GROWTHContinue aggressive international growth strategies S1-O7

Strengthen partnerships with Education S12-O1Increase APPLE television content S4/S6-O6Capitalize on the smart-phone revolution S4,S7-O4,O7

Continue to aggressively develop mobile app market S6-O4,O5,O7

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TOWS Matrix: Strengths/Threats

ExternalScanning

InternalAssessment

Threats1. Industry constantly evolving2. Highly Competitive Market3. Outsourcing Difficulties4. Inability to meet R&D requirements 5. Imitation of Apple products6. Violation of patents and copyrights

Strengths

1. Global Company2. Strong Brand Image3. Diverse Distribution Avenues4. Design, Manufacturing & Marketing

expertise5. Wide Market Circle6. Reputation for Innovation7. Master with 3rd party digital content8. Compatible with Windows platform9. Horizontal and Vertical Integration10. Financially Sound11. Entrepreneurial culture12. Customer loyalty

S-T Strategies: External Fix-itAggressively pursue new product development i.e.; wearable & pen computing S6-T4

Strengthen partnerships with band width vendors i.e.; international market S1-T1-T2

Evaluate niche market concentration S12-T1,T2Eval Backward/FWD Integration (S9:T3)

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TOWS Matrix: Weaknesses/Opportunities

ExternalScanning

Internal Assessment

Opportunities1. Demand in Education2. Demand in Enterprise & Government3. General Use Demand4. Demand for Mobile Communications5. Demand for Media Devices6. APPLE Television7. Strong growth opportunities in emerging nations8. Rising wages in China

Weaknesses1. Subject to supply shortages & price increases2. Difficulty controlling outsourcing processes3. Accusations of infringement upon patents of other organizations4. Dependence on iPhone and iPad –limited variants5. Lack of different price points with products6. Dependence cellular network providers7. Cost of product

W-O Strategies: Internal Fix-it

Improve domestic supply chain (W1-O3)

Aggressively continue to pursue R&D product development (W4-O1-07)

Continue to develop superior product(s) at lower cost point (W7-O7)

TOWS Matrix: Weaknesses/Opportunities

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Internal ExternalScanning Assessment

Threats1. Industry constantly evolving2. Highly Competitive Market3. Outsourcing Difficulties4. Inability to meet R&D requirements 5. Imitation of Apple products6. Violation of patents and copyrights

Weaknesses1. Subject to supply shortages & price increases2. Difficulty controlling outsourcing processes3. Accusations of infringement upon patents of other organizations4. Dependence on iPhone and iPad –limited variants5. Lack of different price points with products6. Dependence cellular network providers7. Cost of product

W-T Strategies: Eliminate/Survival

Strive to avoid patent infringement within tech community (W3-T4,T6)

TOWS Matrix: Weaknesses/Threats

Relative sales growth rate: g = 100(Sn - S(n-1) ) /Sn-1

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Flush with Cash: Lets do Backward and Forward Integration

Backward Integration: Purchase of carriers

• i.e. Nortel Networks (Done!)• WiMAX?• Cable or others with a market cap of

100B?

Forward Integration:• Kiosks• Service Providers

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Conclusion

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LOW COST DIFFERENTIATION

Broad Target

Low cost Differentiation

Narrow Target

Cost focus

Focused differentiation

Competitive Advantage

• Factory Orders Report• Gross Domestic Product (GDP)• Housing Starts• Industrial Production• Jobless Claims Report• Money Supply• Mutual Fund Flows• Non-Manufacturing Report• Personal Income and Outlays

• Producer Price Index (PPI)• Productivity Report• Purchasing Managers Index (PMI)• Retail Sales Report• Trade Balance Report• Wholesale Trade Report

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Economic Indicators

• Business Outlook Survey • Consumer Confidence Index (CCI)• Consumer Credit Report• Consumer Price Index (CPI)• Durable Goods Report• Employee Cost Index (ECI)• Employee Situation Report• Existing Home Sales

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Economic leading indicators: work in tandem!