MANAGEMENT THEORY INTO MANAGEMENT PRACTICE, APPLE INC. CASE,MODULE: MOD001127, SID: 1230580

Management Theory intoManagement Practice

AssignmentModule: MOD001127

Year 2013

SID Number: 1230580

Module Leader: Roger Jeynes

Apple Inc. Case

Word Count:

2,9851

Table of content:

1.Introduction..............................................................................................................................4

2. External Environment………………………………………………………………………….…..4

2.1. Basic Characteristics of the Environment - market definition, size, growth and share…………4

2.2. PEST Analysis…………………………………………………………………..………………………………………..……………5

2.2.1. Political Factors………………………………………………………………………………………………………………6

2.2.2. Economic Factors…………………………………………………………………………………………………..………6

2.2.3. Social Factors…………………………………………………………………...……...6

2.2.4.TechnologicalFactors………………………………….........................………………6

2.3. Competitor Analysis…………………………………………………………………………..6

2.4. Analysis of industry competition……………………………………………………………..8

2.4.1. Intensity of rivalry within theindustry…………………………………………….…..8

2.4.2. Bargaining power ofsuppliers………………………………………………………....8

2.4.3. The bargaining power ofbuyer………………………………………………………...8

2.4.4. Threat of new entrance…………………………………………………………………….9

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2.4.5. Threat of substitute product…………………………………………………………...…...9

3. Internal Analysis……………………………………………………………………………………..9

3.1. Financial Analysis……………………………………………………………………………….9

3.2. SWOT Analysis………………………………………………………………………………….12

3.2.1. Strengths…………………………………………………………………………………..12

3.2.2. Weaknesses………………………………………………………………………………13

3.2.3. Opportunities………………………………………………………………………………13

3.2.4. Threats……………………………………………………………………………………13

4. Strategies used by Apple……………………………………………………………………………..14

4.1. Differentiation……………………………………………………………………………….…14

4.2. Value Creation by Focus and CostLeadership……………………………………………….14

5. Conclusion and Recommendation………………………………………………………………….14

6. Bibliography……………………………………………………………………………………………16

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1. Introduction

Apple Inc. is an international American company that produces computersoftware, cell phones, personal computers and consumer electronicproducts. The well-known products of Apple include: the iPod, theiPhone, the Macintosh line of computers and the iPad. 301 retailstores in 10 countries are operated by Apple in August 2010. Thesoftware of Apple consist on the Mac OS X operating system, iWorksuite of productivity software, Final Cut Studio, Logic Studio a musicproduction tool’s suite, iOS; a mobile operating system, the iTunesmedia browser, the iLife suite of multimedia and creativity s oftware,Aperture; a professional photography package, AirPlay, Airprint, etc(Business Insider, 2013).

Apple Company was developed on 1st April, 1976 by the co-founders namedSteve Jobs and Steve Wozniak in Cupertino, California. The first 30years of the company was named Apple Computer Inc. but later onJanuary 9, 2007, the word “Computer” has removed (Business Insider,2013). They introduced Apple I computer in 1976 which was a failure

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but in 1980, they launched Apple II which was successful. The IPOoffered by the company in 1980 (Datamonitor, 2006).

The purpose of this assignment is to critically analyze the contextwithin which the company operates by analyzing the external andinternal environment. In order to achieve this different analyticaltools and models will be applied. Then the objectives and strategy ofApple will be identified and evaluated. There will be examples of theimplementation of the strategy at the end.

2. External Environment

The external factors can be evaluated using PEST because PEST analysisis valuable strategic tool for identifying the business positions,size, growth, feasible route for operations and to classifying themarket development and decline (Kotler, n.d.).

2.1. Basic Characteristics of the Environment - marketdefinition, size, growth and share

Apple is defined as the leading digital asset management company andglobal smart phone provider. It is the only one who generates and runsboth soft-wares and hard-wares. It allows consumers to buy and sharecontents (applications, music and movies) via Apple devices (iPad,iPhone, Mac and iPod) by a exclusive selling media platform callediTunes (Digital Marketing, 2011).

In 2012, Apple’s CEO (Tim Cook) said that we are very excited withthe sales of iPhone over 35 million and approximately 12 million saleof iPads in March quarter. He also said that the innovative iPad isoff to an immense beginning with new innovation that can deliver onlyby Apple (Burns, 2012).

Moreover, the sales of iPad, Mac and iPhones have increased by 188%and 7%, correspondingly. On the other hand, iPod sale was down by 15%.The numbers in Q2, 2012 are down as compared to Q1, 2012 when Applesmashed all its previous records as you can see in Figure 1. In thatperiod Apple sold 5.2 million Macs, 15.43 million iPads and 37.04million iPhones, even iPod sold well with 15.4 million units (Burns,2012).

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Figure 1: Market Growth by units sold in millions in2012

According to IDC’s report (Q1 2012) that in a two horse race withSamsung, Apple was on the second place in global with the notablegrowth of 8.8% of total cell phone market ( 4.6% up from a year ago)and 24.2% of worldwide Smartphone market (18.3% up), as you can see intable 1 (Kahn, 2012).

Table 1: Top 5 Smartphone Vendors, Market Share,Shipments in 2012

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Source:

2.2. PEST Analysis

To gain an understanding of Apple’s business potential, direction ofoperation and to know situation of future market, we will use PESTanalysis.

2.2.1. Political Factors

There are many problems which cannot be controllable by the companysuch as; geopolitical uncertainties, war against terrorism, authorityto work and health issues which can affect the sale of Apple’s productworldwide. As to reduce operating cost Apple has outsourced indifferent countries like Ireland, China, Korea, Czech Republic andCork. If these countries face any political instability or any problemwhich causes to delay in manufacturing operations, will led to spoilthe Apple likeness in the eye of consumers and its dealers (CNetnews2012).

2.2.2. Economic Factors

Purchasing power depends on the World’s economic conditions. Accordingto past few years, unemployment rate is very high in many countrieswhich cause to decrease the sale of Apple products. Another reason wasincrease in oil prices which causes inflation in world’s economy. As aresult of these economic factors, purchasing power of people reducedwhich negatively affected the sale of Apple products due to its higherprice. But now world’s economic conditions are getting better and

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Source: IDC

company has purchased itself foreign currencies, so Apple revenue hasincreased in the global market (Apple Inc 2012).

2.2.3. Social Factors

Two factors always have been on forefront of Apple product throughoutthe history, the design and the quality. The purchasing of luxuryproducts have gone up because the purchasing power of consumers hasrisen in different market across the world and people prefer to buyiPod, iPhones and latest technology iPad. As music industry growth hasincreased which is the biggest social influence on Apple because themain essential music store is iTunes. Therefore, Apple has gained somuch from social factors because it’s defining a individual’s modernlifestyle.

2.2.4. Technological Factors

Apple always takes advantage because of its innovative and hightechnologies products. The large amount has invested in research anddevelopment field by Apple, that’s the reason Apple comes in top ofthe new innovative products.

2.3. Competitor Analysis

As everyone knows that Apple is a big industry and it is running somany products. Here are some key competitors of Apple, according tocell phone industry and other products are following: Google, HPQ(Hewlett-Packard Company), RIM, Samsung, HTC and Nokia. As you can seesmartphone competitors in figure 2, and Apple’s revenue, gross profitmargin, earning per share, price earning and net income with itsdirect competitor’s in table 2.

Table 2: Direct Competitors Comparison in Billion.

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Figure 2: Apple’s cell phone competitors:

2.4. Analysis of industry competition

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Source: Yahoo Finance

Source: Kantar Media/ The Wall Street Journal

Competition in a given industry is defined by the Micheal Porter’sfive competitive forces shown in figure 3. This model can help toevaluate the impact on Apple and its ability to compete in market.

Figure 3: Micheal Porter’s five competitive forces

2.4.1. Intensity of rivalry within the industry

The first force of five forces of Michael Porter’s model is intensityon rivalry with in the industry. The Apple Company has done a greatjob by providing technical support, creating customer loyalty andproducing products. So Apple has not worry about that factor becauseApple products never go on sale. It maintains its productivity withoutever marking down a product by generating superior products fromAndroid phones, rival tablets and eReaders gaining market share withlower prices (Loma, 2012).

2.4.2. Bargaining power of suppliers

Bargaining power of suppliers can make the profits down of Apple byindicating high prices for supplies (Sethi, 2012). Thus, the companylooking for new suppliers because there is no doubt that Apple Companyis still growing. The company allows new suppliers to reduce thebargaining power of suppliers by registering online on the Apple’swebsite. As a result of this Apple can decrease their bargaining power

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through more competitive among large number of suppliers (Apple,2010).

2.4.3. The bargaining power of buyer

The Apple Company should meet the expectations of their customers inorder to achieve the majority shares of market by different segmentswhich come from educational level, age and income (Gilligan & Wilson,2003). One another thing is that buyers are more prices sensitive andthey can switch to another retailer if the products are notdifferentiated (Smith, 2006). Google provides the competition in overallSmartphone and tablet market because Blackberry manufacturer (RIM), whowas considered as a market leader of Smartphone, now, has only 1 percentof the American market (Travlos, 2012). Apple holds around 75% ofprofit in industry so the chances of Apple’s customer to switchanother brand are very less because of its strong brand loyalty.Whereas, competition is very high now a days and competing companiestrying to attract new customers because this has been done by pickingoff RIM again, climb of nokia and Android’s rise (Travlos, 2012).

2.4.4. Threat of new entrance

Entering more companies in the market means decreasing the marketshare of Apple (Hill and Jones, 2009). Company can maintain the marketshare and generate profit through differentiation of brand and productas well as making strong marketing strategy like competitive advantage(Kurtz et al, 2007). As a new company it is very difficult to competea company like Apple which has a strong brand image, innovation,perceived value and good customer services (Term Paper Warehouse).

2.4.5. Threat of substitute product

If the need of consumers is same then the product can be substitutedotherwise not (Campbell et al, 2002). Therefore, threat of substitutemight have two factors (price and performance) which allows customerto switch the product as well as willingness of buyers to switch.Threat of substitute can be reduced as much as buyers become loyal tothe products (Campbell, 2002). No company can present an “ecosystem”which has created by Apple. People buy iPhone for standard, apps andother Apple’s product for upgradeability and stability which gives

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customer the ability to transfer knowledge and apps among devices(Segan, 2012).

3. Internal Analysis

3.1. Financial Analysis

According to result of Apple’s 2012 Q1 continues to impress. Thereason is increased in revenue from $24,7 billion to $39,2 billion orby 59% as contrasted with 2011 Q1. Quarterly Net income beforedepreciation increases from $6,4 billion to $12,4 billion which isalso caused by high revenue, as you can see in figure 4.

Figure 4: Revenue of Apple in billion, 2012

By geographically companies sales are improved, which is 1/3rd of salesare from Asia and 1/3rd is from US. These regions have highest expectedgrowth as compared to Europe who just accounted for 22%. The markethas grown in Asia because the sales from Asia have doubled from 2011and most of the revenue came from Apple iPhone which was 58%; it meansiPhone sales ha increased by +85%. Moreover, the iPad growth hasincreased by 17% which means the revenue has increased by +132%. Onthe other hand, Mac and iPod were less in growth as shown in figure 5(Financial Analysis, 2012).

Figure 5: Revenue by Geography and Segment, 2012

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Source: Financial Analysis

Shares of Apple in mobile market and tablet market have increased from48% to 60 %, which is far better than its competitors (GoogleAndroid). Google’s share has enlarged just from 15 to 19%. The resultwas positive in general as shown in figure 6 (Financial Analysis,2012)

Figure 6: Growth in Shares of Apple and Competitors, 2012

Equity level did not affect the high return which was 45% and withouteffecting it has increased by 68%. Company’s equity should not beincrease in future, since the company has announced the dividend andshare repurchases. Apple’s liquidity ratios is 1,6 which is good f or

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Source: Financial Analysis

Source: Financial Analysis

company and the cash surplus was $110 billion which has improvedfrom$97 billion from Q4 (Financial Analysis, 2012).

Figure 7: Return on Equity and Equity Level, 2012

Inventory and A/C receivable are nominal as liabilities, so no otherchanges happened at balance sheet. In general, the structure ofbalance is strong.

Figure 3: Share Value

The basic share value of Apple Company was ~109$ and the market pricewas ~610$ in 2012. Earning should be roughly $52 billion/year or$55,6 per share, if calculating Net income earlier than reductionaccording to last quarter, which makes it ~9 year, however indicatorwas quit high (Financial Analysis, 2012).

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Source: Financial

Source: Financial

3.2. SWOT Analysis

Apple Company intends, produces cell phones, personal computers, musicplayers and related services, networking solutions, peripherals andsoftware. The company’s market position can be measured by its strongoperating performance, which has also increased the confidence ofinvestors. On the other hand, company’s margins can be affected byextreme competition (Data monitor, 2006).

Table 4: SWOT Analysis of Apple

3.2.1. Strengths

The major strength of Apple has its strong market position andconsumer trustworthiness which raises due to “Apple’s ecosystem”,

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Source: Strategic Management Insight

which in turn to increases Company’s competitive advantage.Second, Apple has a full variety of software, products and appswhich are interlinked and maintain each other. Third, iTV andother new products will be released soon.

In 2012, 3rd time Apple chosen as the most pioneering company inthe world.

At the end of 2012, Apple holds approximately $10,000,000,000 incash. Company has no debts and the gross profit margin is alsohigher than its competitors.

Apple was the second valuable brand in 2012 and its brand valuewas at $76.5 billion.

High quality customer experience is a key of Apple’s retail storeby providing a direct speak to well-informed staff whichincreases brand awareness.

3.2.2. Weaknesses

High price is the major weakness of Apple because there is astrong completion in market now, and the consumer of Appleproducts can easily obtain the similar function products by itscompetitors in a lower price.

Decreasing market share can be caused to less influence itscustomers to using closed ecosystem of Apple.

Apple Company is often blamed by other companies to disobeyingtheir patents and also it has lost some trials as well. Such typeof things can damage Apple’s reputation in market.

In 2012, Tim Cook became a new CEO because of the death of SteveJobs, which was the biggest loss for Apple Company. After sometime John Browett and Scott Forstall left the firm, this willhave a negative impact on management.

In tech industry, Apple’s gross profit margin is highest butaccording to fear of forecasters that Apple’s current margin willnot be continued due to increasing in prices and toughcompetition.

3.2.3. Opportunities

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Apple’s market share will be increase due to high demand of iPadand iPad mini in tablet market and this will help company to useas competitive advantage.

Apple TV sales will be increased by the launch of iTV which willrelease soon.

Smartphone and tablet markets are growing which is a goodopportunity for Apple to expand their market share in thesemarkets.

Collecting damages from competitors because companies sometimesviolated Apple’s patent. So such types of factors can be used byApple as to damage the competitor’s image on market andcollecting damages from them will led to increase cash reservesas well.

The growth of mobile advertising is an opportunity and Appleallows advertising on iPod touch, iPhone and iPad by developingthe platform named iAd advertising.

The requirement of cloud based services is increasing, so Applecan enlarge its services relate to iCloud and software as well(Strategic Management Insight, 2013).

3.2.4. Threats

Rapid technological change is the biggest threat which Apple andits competitors are experiencing now days. As customers arebecome more technology lover and they want more and more newproducts in very short time due to this, companies are facingpressure. So competition is very high and the one who cannotremain themselves with rivalry shortly be unsuccessful.

Increment in Tax in USA will affect the Apple’s growth. Samsung is the only one who provides application processors to

Apple and it has asked to pay higher price for it. It should beasked Apple to pay more because there are no feasible substituteswho could provide Apple to application processors (jung, 2012).

The main competitor of iOS is Android OS in mobile market. Thepower of Apple iOS can be dominated by Android OS.

Availability of wide range of music stores like Wal-Mart, Amazonand online music companies like sound cloud and spotify willthreat for Apple music store.

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4. Strategies used by Apple

Figure 8: Porter’s model of generic strategies

4.1. Differentiation

Apple is using a differentiation strategy by presenting an outstandingdesign of its products, personalized services and high qualityproducts. The easiness of product makes target market varying frombeginner to proficient users.

4.2. Value Creation by Focus and Cost Leadership

Apple has outsourced his production as to reduce its operating cost tothird party through vast economies of scale. Original EquipmentManufacturers (OEMs) is the company that Apple has outsourced with.Apple focuses on user interface and industrial design to making aproduct that not only the highly innovative but also the user-friendlyand stylish in nature. Apple has a command on higher price thanaverage price due to highly personalized and people friendly devices.

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Source: Papers 4you/Porter (1985)

5. Conclusion and Recommendation

In brief Apple Company is very innovative and early adapters and it istypically the foremost company who takes new innovative products ascompared to other companies. These types of things usually consideredas more risky but it appears to be functioning as Apple’s advantage.Strong market position and consumer loyalty which increases due toclosed ecosystem and user friendly products makes different to AppleCompany from its competitors.

Another most important factor is that the Apple Company is the “Firstmost admired company” in the world. Whereas, it is also credited tofirst sustainable music downloading business model in history by itsipod and iTunes online media store.

Apple is a profitable company and its future is bright. But Appleshould be careful in legal and political areas because as to reduceoperating cost it has outsourced in different countries and it has tofind different alternate to reduce the risk as Apple buys applicationprocessor from Samsung which can create a problem for it.

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6. Bibliography

Anon, n.d. Apple Reports Second Quarter Results. [online] Available at: http://www.apple.com/pr/library/2012/04/24Apple-Reports-Second-Quarter-Results.html [Accessed 03 May 2013]

Anon, n.d. Internal and external business environment of Apple. [online] Available at: http://www.ukessays.com/essays/marketing/internal-and-external-business-environment-of-apple-marketing-essay.php [Accessed 30 April 2013]

Anon, n.d. Apple the most admired company. [online] Available at: http://www.powerfulwords.co.uk/sample-assignments/marketing/apple-the-most-admired-company.php [Accessed 07 May 2013]

Apple Insider, 2013. Apple's iPhone grew to 25.1% global market share in 2012. [online] Available at: http://appleinsider.com/articles/13/01/25/apples-iphone-grew-to-251-global-market-share-in-2012 [Accessed 02 May 2013]

Business Insider, n.d. Apple. [online] Available at: http://www.businessinsider.com/blackboard/apple [Accessed 29 April 2013]

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Burns, M.., 2012. Apple Q2 2012: 35.1M iPhones, 11.8M iPads, 4M Macs, and 7.7M  iPods. [online] Available at: http://techcrunch.com/2012/04/24/apple-q2-2012-35-1m-iphones-11-8m-ipads-4m-macs-and-7-7m-ipods/ [Accessed 2 May 2013]

Datamonitor, 2006. Apple Computer, Inc. [online] Available at: http://www.alacra.com/acm/2009_sample.pdf [Accessed 30 April 2013]

DeWitt, P.E., 2012. What’s eating Apple? The analysts weigh in. [online] Available at: http://tech.fortune.cnn.com/2012/11/14/apple-shares-fallen-wall-street-analysts/ [Accessed 06 May 2013]

Financial Analysis, 2012. Apple 2012 1Q financial analysis. [online] Available at: http://www.finanalys.com/apple-2012-1q-financial-analysis/ [Accessed 2 May 2013]

Jung, S., 2012. A little less Samsung in Apple sourcing. [online] Available at: http://blogs.ft.com/beyond-brics/2012/09/10/a-little-less-samsung-in-apple-sourcing/#axzz2THpqrqbe [Accessed 06 May 2013]

Kahn, J., 2012. IDC: Samsung takes top smartphone marketshare in Q1, as Apple hits 8.8-percent high of total mobile phone market. [online] Available at: http://9to5mac.com/2012/05/01/idc-samsung-takes-top-smartphone-marketshare-in-q1-as-apple-hits-8-8-high-of-total-mobile-phone-market/[Accessed 04 May 2013]

Masi, B., 2009. Strategic Analysis of Apple Inc. [online] Available at: http://www.scribd.com/doc/24134877/Strategic-Analysis-of-Apple-Inc-Brian-Masi [Accessed 4 May 2013]

McGrath, D., 2012. Apple coming to dominate electronics supply chain.[online] available at: http://www.eetimes.com/electronics-news/4391176/Apple-coming-to-dominate-electronics-supply-chain--says-IHS [Accessed 4 May 2013]

Reisinger, D., 2012. Samsung pulling away from Apple in smartphone market. [online] Available at: http://news.cnet.com/8301-1035_3-57424779-94/samsung-pulling-away-from-apple-in-smartphone-market/ [Accessed 4 May 2013]

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Strategic Mangement Insight, 2013. SWOT analysis of Apple. [online] Available at: http://www.strategicmanagementinsight.com/swot-analyses/apple-swot-analysis.html [Accessed 4 May 2013]

Term Paper ware house, n.d. Apple and Porter's Five Factors. [online] Available at: http://www.termpaperwarehouse.com/print/Apple-And-Porter-s-Five-Factors/134413 [Accessed 4 May 2013]

The Times of India, 2012. Apple once again crowned world’s most innovative company. [online] Available at: http://timesofindia.indiatimes.com/topic/tech-enterprise-it-strategy-Apple-onceagain-crowned-worlds-most-innovative-company-articleshow-17217321 [Accessed 4 May 2013]

The Telegraph, 2012. Apple iPad manufacturer Foxconn 'plans US factories'. [online]Availableat: http://www.telegraph.co.uk/finance/newsbysector/mediatechnologyandtelecoms/electronics/9665934/Apple-iPad-manufacturer-Foxconn-plans-US-factories.html [Accessed 4 May 2013]

UK ESSAYS, n.d. PESTEL five forces and SWOT analysis of Apple. [online] Available at: http://www.ukessays.com/essays/marketing/pestel-five-forces-and-swot-analysis-of-apple-marketing-essay.php [Accessed 4 May 2013]

UK ESSAYS, n.d. The Bargaining Power of Supplier And Generic Strategy Business Essay. [online] Available at: http://www.ukessays.com/essays/marketing/the-bargaining-power-of-supplier-and-generic-strategy-marketing-essay..php[Accessed 4 May 2013]

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