Strategic Analysis Of Apple Case Study

Company Background

NameApple Inc.
FoundedApril 1, 1976
Logo
Industries servedComputer hardware (Mac, iMac, Mac Pro, MacBook, MacBook Air)
Computer software (iOS, OS X, Safari, iLife, iWork, iMovie, iPhoto)
Consumer electronics (iPod, iPhone, iPad, Apple TV and Mac products)
Digital distribution (iTunes store, iCloud, App Store, Mac App Store)
Geographic areas servedWorldwide (retail stores in 18 countries and online stores in 120 countries)
HeadquartersCupertino, California, United States
Current CEOTim Cook
RevenueUS$233.715 billion (2015) 27.85% increase over US$182.795 billion (2014)
ProfitUS$53.394 billion (2015) 35.14% increase over US$39.510 billion (2014)
Employees110,000 (2015)
Main CompetitorsSamsung Electronics Co., Ltd., Amazon.com, Inc., International Business Machines Corporation, Cisco Systems, Inc., Google Inc., Microsoft Corporation, Dell Inc., LG Electronics, Lenovo Group Limited, Hewlett-Packard Company, Sony Corporation and many other computer hardware, computer software, consumer electronics and Internet companies.

Apple Inc. is an American multinational corporation, which designs, manufactures and sells personal computers, consumer electronics and software, and provides related services. Apple's most successful products and service include include iPhone, iPad, Mac and iTunes. iPhone alone generates more than 50% of all copmany's sales.

The company has experienced a tremendous growth since it introduced an iPhone smartphone in 2007. Apple Inc. brand is the most valuable in the world worth over $170 billion. Apple is considered to be the most successful electronics company in the world.

You can find more information about the business in Apple's official website or Wikipedia’s article.

Strengths

1. Advertising capabilities, which increase brand awareness and create stronger demand for the company’s products

Apple’s annual advertising budget reached US$1.8 billion[1] in 2015, almost doubling from US$933 million in 2011. The company’s advertising budget is certainly not the largest when compared to its competitors’ budgets, but Apple uses it the most effectively.

Apple’s advertising expenses started to climb in 2010 when its new iPhone and iPad products were launched. However, overall spending on advertising never climbed higher than 1% of total company sales. In 2015, Apple spent only 0.77% of its total sales on advertising, compared to Samsung Electronics’ (Samsung) 1.86%.[2]

Company2012201320142015
Apple11.11.21.8
Samsung Electronics4.33.83.63.4

Source: The respective companies’ financial reports[1][2]

Even though Apple spends less on advertising, it still achieves greater brand recognition and more revenue for the money spent than Samsung.

2. Strong and extensive U.S. distribution channels

Apple’s strength in the U.S. is its extensive distribution channels. Apple is well-known for employing multiple channels to deliver its products to customers. The company uses direct distribution channels such as its online stores, direct sales force, and most notably, retail stores. Few of its rivals have their own physical retail stores and none have such a vast network of them.

Apple also has an extensive indirect distribution network, which includes third-party cellular network carriers (AT&T, Verizon, Sprint, T-Mobile), wholesalers, retailers (Best Buy, Amazon Marketplace, Walmart, Target, Staples), and value-added resellers. In the smartphone and tablet markets, only Samsung can match Apple’s indirect distribution network size.

3. Vertical integration

Apple is a vertically integrated company that manages four separate businesses as one. The company has a hardware business, a software business and it is also a service-provider and a retailer as well – all integrated into one entity. Apple controls almost the entire supply chain for its devices. No other competitor manages, or is capable of managing, all four areas of the supply chain.

4. Brand awareness and reputation

Forbes[3] and Interbrand[4] have both listed Apple’s brand as the most valuable in the world in 2015. They valued the brand at US$145.3 billion and US$170.3 billion respectively, and recognized it as a significantly growing brand in terms of value.

This means that the company’s brand is the most reputable and recognizable in the world. Apple’s leading position in the smartphone marketplace, its excellent advertising and marketing capabilities, and the wide ecosystem of its products has led to a brand awareness that cannot be matched by any other technology company in the world.

5. Sound financial performance with one of the strongest cash flows

Apple’s revenue grew on average by 16.44% from 2012 to 2015.[1] During the same period, the company’s profit grew by 27.94%. This is a very successful growth, considering the company’s huge size and its total revenues, which reached US$233 billion in 2015. The company was also able to maintain a high profit margin of 22.84% in 2015, which is unusual for a company experiencing such a fast growth period. Both its revenue growth and high profit margin indicate Apple’s ability to efficiently manage its operations.

Apple’s robust cash flow and huge cash reserves are additional financial strengths. The company had US$205.6 billion in cash reserves and only US$56 billion in long-term debt in 2015.

Source: Apple financial report[1][2]

The company’s growth, net income, cash reserves and low debt provide it with enough resources to invest in acquisitions, R&D, marketing and other cash-draining activities without significantly threatening its financial situation.

Weaknesses

1. Overdependence on iPhone sales

In 2015, iPhone sales grew by 52% over the previous year and generated US$155.041 billion in revenue. It is the most important revenue source for Apple, accounting for 66% of the company’s total sales.

This makes Apple very vulnerable to changes in the smartphone market. Apple’s smartphones are targeting wealthier consumers and its biggest sales come from developed regions where the smartphones’ markets are already saturated.

For the next few years, Apple will be able to grow its sales due to the fast growth of the smartphone markets in emerging economies around the world and by the introduction of new products. However, in the long run, the company will face serious challenges in growing its revenues.

Figure 3. Apple revenue breakdown by product in 2015

Source: Apple financial report[1]

Overdependence on iPhone sales weakens the company as shifts in technology, component prices or consumer tastes may severely decrease Apple’s revenue.

2. Weak direct distribution channels in India

During 2015, 26% and 74% of Apple’s total sales came from direct and indirect distribution channels respectively. Direct distribution channels include Apple’s retail and online stores. Indirect distribution channels that Apple uses are third-party cellular network carriers, wholesalers and retailers. The company’s weakness lies in its direct distribution channels. India, which is the 3rd largest smartphone market at the moment, has no official Apple stores.

3. Low expenditure on research and development compared to other companies leads to fewer innovations and products introduced to the market

In the past, Apple has been recognized as one of the most innovative companies in the world due to the introduction of new product types into the market and the breakthrough technology used in those products. Yet, for the last few years, Apple hasn’t introduced anything completely new that would disrupt the market and allow the company to grow significantly.

Apple’s R&D spending accounted for 3.4% of the company’s total revenue, one of the lowest rates among its competitors.

R&D spending strongly correlates with a company’s revenue growth and expansion into new product markets. Therefore, Apple should invest much more into its R&D activities than its competitors do in order to gain a competitive advantage.

4. Incompatibility with other OS

Apple’s proprietary operating systems iOS and OS X are quite different from the OS of both their Android and Windows rivals. In addition, Apple uses its own design hardware that is often incompatible with the other manufacturers’ hardware. Sometimes, this difference in software and hardware adversely affects Apple. Users who are accustomed to using the Microsoft OS may find it hard to get used to the completely different OS X. Android users face the same problem when an app that is only available on Google ‘Play’ is not available in the iTunes store.

Opportunities

1. The Internet of Things (IoT) market is expected to grow significantly over the next decade

Currently, more than 20 billion devices are connected to the Internet and this number is expected to grow by 50% to 30 billion by 2020.[5] International Data Corporation (IDC) forecasts that the worldwide market for the IoT will grow from US$655.8 billion in 2014 to US$1.7 trillion by 2020.[6]

Apple has a unique position to take advantage of the growing IoT market. The company has its own software platform that is the key to managing information from connected devices. Apple also offers smartphones, wearable gadgets, tablets, computers and many other hardware products that can be integrated into one ecosystem and controlled via an Internet connection. Apple could introduce a new OS system, like Google’s Brillo, designed specifically for the IoT.

2. Health-related wearable gadgets could be introduced to the market

In April 2015, Apple introduced its first smartwatch called Apple Watch. This is the first company’s step into the wearable gadgets market, which is expected to grow by 35% rate on average each year until 2019.[7] Business Intelligence (BI) analysts also forecast that the Apple Watch should be the dominant gadget taking a 47% share of the smartwatch market. With the US$349 price tag, the Apple Watch would bring the company at least US$14 billion in additional revenue by 2019.

Smartwatches are not the only opportunity for Apple in the wearable gadgets market. There is a trend toward health-related wearable gadgets. The company could introduce its own range of wearable health gadgets, which for example could monitor calorie intake, sugar and hydration levels, heart rate and blood pressure, as well as potentially diagnosing many illnesses or even infusing drugs through the skin.

3. Expanding mobile payments market

In 2015, mobile payments facilitated transactions worth US$8.7 billion in the U.S.[8] eMarketer predicts that the mobile payments market will grow by 210% in U.S. alone in 2016 and will reach a value of US$27 billion. These figures show that the mobile payments market will experience huge growth in the future, making it a very attractive market in which to compete.

In 2015 Apple introduced Apple Pay, which allows iPhone and Apple Watch users to pay for their purchases through contactless terminals using near field communication (NFC) technology. Unfortunately, less than 10% of 12 million terminals in the U.S. are capable of using NFC. Apple should encourage more businesses to upgrade their terminals, which in turn would encourage more Apple Pay users.

The mobile payments market provides an opportunity that would greatly benefit Apple in terms of additional revenue, strengthened ecosystem and better user experience.

4. The mobile enterprise app market will gain traction as more businesses shift toward buying subscription-based software

The mobile enterprise market is the next big transformation businesses face after cloud computing. Enterprises are becoming more cost-conscious when it comes to software purchases and are increasingly choosing subscription-based software in the cloud over buying licenses that have to be installed on proprietary hardware.

While this trend isn’t new, many analysts predict that it will expand significantly. Apple is also betting on this and has already announced a few mobile enterprise applications. The company has partnered with IBM to develop highly usable, transactional and contextual mobile applications for businesses.[9]

Threats

1. Intensifying competition puts pressure on Apple’s market share, revenue and profits

Apple has always faced strong competition from Microsoft, IBM, HP and Dell in the personal computing sector and since the launch of the iPhone and iPad, that competition has increased significantly. Now Apple’s main rivals are Google and Samsung, both well-funded and experienced competitors which work together to provide the best possible offerings to compete with Apple’s devices.

Apple with its high-end but overpriced devices is likely to lose the battle for emerging markets to cheaper Android devices.

The constantly growing Android market share also puts pressure on iOS, iTunes, Apple Music and the iBook Store. Android OS usage, with help from Samsung, Huawei, Lenovo and LG devices sales, is growing rapidly and is the main smartphone OS in emerging markets. As a result, app downloads and the associated revenue generated has increased significantly in Google Play. Google Play will soon become the most important app market to compete in and developers will favor it more than the iTunes market.

2. Strong U.S. dollar

Currency exchange rates affect every multinational company, including Apple. The company earns over 65% of its revenue outside of the U.S.

Current forecasts indicate that the U.S. dollar exchange rate is going to rise further against other currencies over the next few years. This therefore means that Apple’s revenue and profits generated outside of the U.S. are likely to decrease when converted to U.S. dollars.

3. Lawsuits over patent infringements resulting in damaged brand reputation

Lawsuits over patent infringements happen often in the market, especially in the technology sector where devices are made of multiple parts and use software with thousands of lines of code that may have already been patented by another company.

Apple is not immune to infringement itself as well. Although not willingly, the company has infringed other companies’ patents numerous times over the years and will likely continue to do so due to the complexity of its products and the fact that there are so many existing patents in hardware and software design. According to Unified Patents, Apple is the most targeted company for patent infringements.[10]

4. Risk of data breaches

Apple’s business requires it to collect, store and use customer, employee and its business partners’ personally identifiable information (“PII”). PII information includes names, addresses, emails, phones, ID numbers, credit/debit card and other personal information that is safely stored and protected from outside parties. Nonetheless, data breaches occur and stakeholder data does get stolen and exposed from time to time.

Some of the biggest information thefts have affected Amazon.com, eBay and even Google. All of these companies have lost customers and sales because of it. With the growing number of data breaches, there is always a potential risk of Apple being breached in 2016.

Strategic Analysis (SWOT and BCG Matrix) of Apple Inc

rodrigo | December 14, 2012

WritePass - Essay Writing - Dissertation Topics [TOC]

Introduction

In this project I am going to describe the Strategic and Marketing Plan of Apple Inc, Which is the biggest consumer electronics provider in the world. It provides wide range of consumer electronics in the market like MAC computers, IPOD, I Phone, LAPTOP, IPAD.  It has about 49,400 employs and over 240 Retails Store all around the world wide out of it 218 are in US and 24 in UK rest in other countries.

I personally think that before studying the strategy of any organization we need to understand the basic of Strategic Management like What Strategic Management is?

What is Strategic Management?

Strategic Management is nothing else but plans defined by the management of an organization to achieve a long term goals which are predefined and monitored towards reaching the organization’s goal. The steps that are taken till now are being monitored to make sure that they have been carried out in the most efficient manner possible to achieve organizational predefined goal as described in the mission statement which directs the strategic management process.

Definition: 

“The on-going process of formulating, implementing and controlling broad plans guide the organizational in achieving the strategic goods given to its internal and external environment”

This is an ongoing process which keeps changing according to the circumstances and requirements of the internal and external environments but it keeps moving towards to achieve its predefined organizational goal.

Strategic Management is comprised of its three main processes which manager of an organization has been familiar with. These Processes are as given below.

  1. Strategy Formulation
  2. Strategy Implementation
  3. Strategy Evaluation

Strategy Formulation:

Strategy formulation means a strategy formulate to execute the business activities. Strategy formulation Includes developing:-

  • Vision and Mission (The target of the business)
  • Strength and weakness (Strong points of business and also weaknesses)
  • Opportunities and threats (These are related with external environment or  the business)

Strategy formulation is also concerned about setting long term goals and objectives, generating alternative strategies to achieve that long term goals and choosing particular strategy to pursue.

The considerations for the best strategy formulation should be as follows:

  • Allocation of resources
  • Business to enter or retain
  • Business to divest or liquidate
  • Joint ventures or mergers
  • Whether to expand or not
  • Moving into foreign markets
  • Trying to avoid take over

Strategy Implementation:

Strategy implementation requires a firm to establish annual objectives, devise policies, motivating employees and allocate resources so that formulated strategies can be executed. Strategy implementation includes developing strategy supportive culture, creating an effective organizational structure, redirecting marketing efforts, preparing budgets, developing and utilizing information system and linking employee compensation to organizational performance.

Strategy implementation is often called the action stage of strategic management. Implementing means mobilizing employees and managers in order to put formulated strategies into action. It is often considered to be most difficult stage of strategic management. It requires personal discipline, commitment and sacrifice. Strategy formulated but not implemented serve no useful purpose.

Strategy evaluation:

Strategy evaluation is the final stage in the strategic management process. Management desperately needs to know when particular strategies are not working well; strategy evaluation is the primary means for obtaining this information. All strategies are subject to future modification because external and internal forces are constantly changing.

History Apple Inc:

Apple Inc formerly known as Apple Computer Inc which provides corporate Server, MAC OS Systems and  Operating System.  Apples core product lines are the iPhone, iPod and Macintosh System. Steve Jobs and Steve Wozaniak, The founder of Apple has created the Apple Computer on 1st April 1976 and integrated in the company on 3rd January 1977, in Cupertino California. It has driven the Computer manufacturing market for more than two decades. Mr. Steve Jobs who was expelled in 1985 was return as CEO of the APPLE Inc in 1996 with new Ideas and corporate philosophy. With introduction of successful IPod Player in to 2001 Apple has again proved itself as a Market leader in consumer electronics.  Latest era of extraordinary success of the company is in iOS based Apple products like I Phone, IPod slim, I Pad and now I Pad 2. Now a day’s Apple is a biggest technology corporation in the planet with the profits of more than $65 billion. It has about 49,400 employs all over the world. Fortune Magazine most Admired company in United State in 2008 and in the world in 2008, 2009 and 2010.

Apple has over 240 Store all over the world and the bifurcation of these store in different countries are as below.

Vision Statement of Apple:

“Man is the creator of change in this world. As such he should be above systems and structures, and not subordinate to them.”

Explanation of Vision Statement:

Apple lives this vision through the technologies it develops for consumers and corporations. It strives to make its customers masters of the products they have bought. Apple doesn’t simply make a statement. It lives it by ensuring that its employees understand the vision and strive to reach it. It has put systems in place to enable smooth customer interaction. It has put objectives in place to continuously move forward; implemented strategies to fulfil these objectives; and ensured that the right marketing, financial and operational structures are in place to apply the strategies.

Mission Statement of Apple:

“Apple ignited the personal computer revolution in the 1970s with the Apple II and reinvented the personal computer in the 1980s with the Macintosh. Apple is committed to bringing the best personal computing experience to students, educators, creative professionals and consumers around the world through its innovative hardware, software and Internet offerings.”

http://www.corporate-ir.net/ireye/ir_site.zhtml?ticker=aapl&script=1800&layout=7#corpinfo2

SWOT Analysis of Apple Inc:

Although participation in such activities may add value, they may not be a source of competitive advantage. Ultimately, the value, rarity, inimitability, and/or organization (VRIO) of an activity or resource determine its sustainability as a source of competitive advantage. Within this context, we can identify a firm’s strengths, weaknesses, opportunities, and threats (SWOT).

In SWOT analysis Strength and Weaknesses are depends on Internal factors and Opportunities and Threats Depends on External Factors of and Organization. SWOT analysis is useful in decision making about the organization going for any new or existing project.

Apple SWOT Analysis

Strength:

  • iTunes Music Store is a excellent source of revenue, especially with the iPod and the accessibility on Windows platform.
  • Apple Computer are expert in Developing own software and hardware.
  • Apple’s niche audience provides the company with some lagging from the direct price competition.
  • Giving a face-lift to desktop and notebook lines.
  •  technology can be used to improve product awareness and sales.
  • Low debt—more maneuverable.
  • Apple Computers have good brand loyalty.
  • Partnership with Intel Computers in 2006 – Present.
  • Strong Research & Development Department.

Weaknesses:

  • Weak relationship with Intel and Microsoft.
  • Weak presence in business arena.
  • The product life cycle of Apple products are very small for that reasons revenues are more depend on launch of new products and  services.
  • Weak presence in markets other than education and publishing.
  • Slow turn around on high demand products.
  • Apples market share is far behind from major competitor Microsoft.
  • In past the relationship between Steve jobs and employee were not good which result in reputation loss.

Opportunities:

  • Increase in worms and viruses on PCs so the antivirus solution can be developed by Apple
  • Large population (Gen X&Y) which are extremely individualistic and name brand conscious.
  •  The ties of apple other companies are weak, Apple can develop good relationship for joint ventures
  • Downloadable music and MP3 players are highly marketable.
  • The online sales of computer are increasing with rapid speed.
  • The laptop market growth is high; Apple Computers should focus to develop new models to cater the need of customers.

Threats:

  • Companies not seeing Apple as compatible with their software.
  • Apple  facing strong competition from Dell, HP, Sony and Toshiba in laptop segment.
  • Downloading free music from other online source without paying cost is common it may impact the iTunes sales.
  • Apple software, Cell phone and hardware are expensive as compared to other competitors such as Dell.
  • The long lasting recession may impact the sales of the company due to higher prices of the products and services
  • Microsoft launched Microsoft Vista, Windows 7 which is gaining market share.
  • The switching in technology is very fast

BCG Model:

Boston Cusnsulting Group (BCG) model is a technique developed by BRUCE HENDERSON of the Boston Cunsulting Group in early 1970’s. According to this technique businesses or products are classified as low or high performers depending upon their market growth rate and relative market share. It is very useful tool to identify the product line of an organization.

BCG model classified in four main.

1.)    Star           2.)  Cash Cow     3.)  Question Mark    4.) Dog

RECOMMENDATIONS:

FOR COMPANY:

Lowering the cost of products and maintaining the same quality standards

Can form joint – ventures
Knowledge Management

More number of retail stores for easy access
Continuous innovation to expand

FOR OTHERS:

Does not compromise on price for quality

Choose the products based on individual needs

Be unique and different

CONCLUSION

I feel that Apple must focus on several key aspects to continue to grow and succeed. They must continue a stable commitment to licensing, push for economies of scope between media and computers, and become a learning organization.

Apple apparently made a commitment to licensing. Although it should continue, Apple may want to consider other forms of strategic alliances. An equity strategic alliance may offer Apple the opportunity to obtain additional competencies. An effective way for a company like Apple to accomplish this would be in the form of a joint venture.

Apple should continue pushing the new line of media-centric products. Meanwhile, Apple should not lose focus on its computers. Macintosh computers were 39% of Apple’s sales in 2005. (Burrows)This very innovative company exploits its second-mover position. In the future, they will need to continue innovating to expand the boundaries of both media and computers

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Category: Free Essays, Strategic Management

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