Executive Summary on Apple computer
The paper deals with the Apple turnaround and the role of Steve Jobs in it. This issue is one of the most famous strategic turnarounds, in which a company on a brink to disaster was brought back by the forcibly ousted founder and CEO of the company. The case analyses the various strategic decision taken in the era before the destruction and Steve Jobs turnaround strategies which helped the company stand back on its feet. Much of the problems of the company can be divided into three segments: The extremely volatile state of computer industry during the last 15 years in which many of the computer industry lost their markets shares or simply shut down, The premium and specialized nature of the Apple’s products which made it difficult for the company to just jump on the bandwagon of producing similar looking cheapest costing PCs and, The erroneous decisions taken by interim management while Jobs had quit Apple. While many people still agree that Jobs had to be let go, and the interim CEOs did show some good strategies due to which Apple market shares and profits surged, these are just taken to be as regular blips in the course of Apple’s existence. The prime question here is whether Steve Jobs can maintain the success.
The case study analyzes the three issues and the present strategies used by Steve Jobs for the turn around to come up with an assessment of the situation.
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The structure of the personal computer industry over the last 15 years
PC industry has an almost unique structure, and when compared to the size of the industry, the industry is one of its kinds. The risk of any type is borne by the manufacturers of the PC i.e. the OEMs, while the downstream suppliers are the most of the profits. While the case is similar to other industries like the automobiles, the analogy is inaccurate because the personal computer industry is solely competing on price rather than any meaningful product differentiation. The differentiation between products is not possible, at least to any meaningful extent, and the prices have been continuously on a followed a downward path. This makes the competition even more critical since it becomes essentially a cash-intensive business (Gammage, Mark A. Margevicius, 2005, pp. 1-2).
Also read about Apple differentiation strategy
Even though the PC industry has always been a volatile and dynamic industry, it has seen far reaching changes since the mid 1990s. These changes were mostly a result of technological change, competitive pressures, and strategic responses from various quarters to those changes. To be in a position to respond to the changes, the PC vendors have adopted demand driven, and build-to-order production techniques. The vendors also used outsourcing to reduce cost overheads, and be ready for a quick response in the volatile PC market. The focus of the vendors was seen to be shifting towards core activities such as marketing, sales, and product management. Hence activities such as product development, manufacturing, distribution, and customer service were increasingly performed with external partners such as contract manufacturers original design manufacturers, logistics providers, distributors, and various service specialists (Kraemer 2005, pp. 2).
Basic Overview of PC computer Industry
The figure below shows the various activities described in the section above, that are present in the PC industry. It also gives the names of a couple of companies that are presently or were involved earlier in doing the function.
Fig 1 PC Industry Value Chain (Dedrick and Kraemer, n.d., pp. 4)
As can be seen from the figure above, the PC companies are just a very small part of the complete value chain. The arrows in the figure give the flow of the complete system. First there is the R&D stage where the various assembly components are designed. After this various contract manufacturers are hired to manufacture the different components of the system. The backend support of this system is taken up by the various electronic distributors. Following this, the various PC companies along with the software companies assemble the system, and with the help of logistics companies pass this on to the distributors. From here, the assembled PC reaches various consumers via retailers.
Development of Computer Industry Structure
Historically, the computer industry was vertically integrated. Computer companies did everything from designing their own power supplies to developing application software (PC Guide, 2001). Each of these vertical stacks was unique and proprietary. The computer industry structure prior to 1995 is as below.
Fig 2 PC Industry Value Chain prior to 1995 (Dedrick and Kraemer, 2005., pp. 126)
However, the advent of PC i.e. personal computer changed all that. The PC industry is basically horizontally integrated, as is shown in the section above. There are literally thousands of companies that deliver compatible products at every integration level and in many areas of operation. The result of this horizontal nature of the PC industry is fierce competition at all levels of in both quality and price. This competition benefits customers, who have access to the highest performance at the lowest prices. Various de facto standards, like the PCI standard, have emerged at the integration of the various standards. And periodically ad hoc groups are formed to cooperate in creating new standards (Dedrick and Kraemer, 2005., pp. 123).
The presence of these de facto standards is a distinguishing feature of the computer industry. This means that the suppliers can develop many similar components from various different suppliers. This makes the product completely modular. The more the modularity is, the more players exist in the market. The PC makers can select multiple suppliers of the same component and this increases the competition. Hence, the industry becomes a market-based or modular network, though there are many instances of close interrelation between the various makers and suppliers, to the extent that they are pretty rigid (Messerschmitt, 1999, pp. 304). For instance the recent computer market has seen all the computer makers to agree with Microsoft and sell the Vista edition with their products, even though the previous XP version is considered by many of the consumers to have much better performance.
An important event which led to the modularity and hence the present structure of the computer industry is the development and in later stages dominance of the Wintel product architecture. This Wintel was yet another de facto standard, which was set by IBM, and was later dominated by Windows and Intel. The standard led to the computer industry become what it is in the present day where almost all the components needed to assemble a PC are available from a multitude of suppliers, many of whom are independent (Bresnahan, Greenstein, 1997, pp. 17). The structure that is shown in Figure 1 in the section above, developed in the middle is 1990s and became a mature and fairly established industry structure which holds on to even the present day.
The late 1990s however saw yet another disruption in the computer industry structure by three core developments. The first was the rapid decline in the prices of the PC. The prices of a normal PC was $2000+ till then and was pretty stable, however Acer and Packard-Bell introduced PC for $1000 and other major companies like Compaq were soon seen to be embroiled in the price-cutting campaign, to the extent that the PCs came to be sold at les than $500. This automatically led to a decline in the profit margin of the PC makers from 25.6% in 1998 to < 20% post 2002. The second development was the a decrease in the development time which was primarily due to rapid innovation in the key sub-components and assemblies like microprocessors and hard disks etc. This led to an increased need to reduce the inventory times throughout the PC value chain network. The third and final factor was success of the build-to-order strategy of Dell which made it the largest companies in the computer industry. Here, the PC makers offer the customers choice of their configurations upwards from the basic models and ship the completed product directly to the computers. This meant a larger control over the cost since the profit margins of distributors could be reduced. Also two layers of inventory could be automatically reduced using this build-to-order strategy. Also the market shifted from being supply-driven to demand-driven in general case (Goolsbee, 2000, pp. 22).
The impact of all these three developments became even more pronounced post 2002. Post this period in addition to the obvious strain due o price wars, the PC industry faced an unexpected price drop. Most of the computer players fared very badly during this period except Dell. This was added to the very dominant position occupied by Intel in the microprocessor market, and the near monopoly position in the PC operating system occupied by Microsoft. This necessitated a further reduction in operating margin on the PC manufacturers, and the newer and more sophisticated tools were used for forecasting and planning the market demand. Also, the relationships between each of the PC manufacturer and the important suppliers stated becoming even closer and formal. For the PC manufacturers except Dell, the sales partners too became increasingly more important and a closer coordinated emerged between the various partners than ever before (Bresnahan, 2004, pp. 10).
Present Structure of the PC industry
Many of the previously present big names in the computer industry have completely disappeared, and many new have emerged. However, the very major players have still remained in the industry till date, and their functions have remained similar to what they had in the earlier times. However, the very natures of these functions have changed and also the scope of activities of the various firms in the industry has either expanded or has become more focused. The figure below shows the present structure of the computer industry.
Fig 3 PC Industry present structure (Dedrick and Kraemer, 2005., pp. 128)
It can be seen from the figure above that for most of the PC makers the scope of activities have been narrowed. This is because many of the PC makers have chosen to outsource their activities such as manufacturing, final assembly, and many times even the product design. This has led to an increased scope in the value chain for distributors, CMs and ODMs, who have started to be involved in the value chain activities such as final assembly. This section gives a brief explanation of each of the value chain activities to understand the functions of the key players in the industry in these areas
· Basic component Production – This is one of the areas which have not changed much from the start. The forecasts and the demands of the market is primarily controlled by the PC makers, and hence a very advanced inventory system is required by the companies but apart from this the R&D and manufacturing process basically remains the same (Bresnahan, 2004, pp. 14).
· Sub-assembly manufacturing – At the end of this stage of value chain all the identifiable parts of the PC can be identified such as the main circuit board, the mother board etc. Initially companies like Apple, IBM and Compaq used to manufacture these in-house, but the restructuring has altered this, so that most of the PC makers outsource this stage of manufacturing mainly to Chinese and Taiwanese vendors (Bresnahan, 2004, pp. 14).
· Final Assembly of PCs – The process of assembling a PC from its sub-assemblies is a fairly simple process and hence most of the PC manufacturers outsource these capabilities of the CMs and ODMs, who also operate in low-cost labor locations such as China. Some companies like Dell however prefer to keep this as a secret and do not outsource the final configuration (Bresnahan, 2004, pp. 10).
· Distributors and Retailers – The role of the distributors and retailers have increased because the end customer totally depends on them for making their final choice of PCs, since most of them have the same or similar configuration. In many cases, the PC manufactures have also looked into retailing as an optional sales mode for their products like Apple (Bresnahan, 2004, pp. 10).
Market Shares since mid 1990s
All of the upheavals in the computer industry have meant major changes in the market share for various PC vendors. The following figure gives an idea about the same.
Fig 4 PC Industry Market Share (Dedrick and Kraemer, 2005., pp. 128)
As can be seen here some of the PC manufacturers like Packard-Bell have simply ceased their operations, whereas the small share holders like Dell and Fujitsu have increased their market share. Also the market share earlier was divided between many PC manufacturers, whereas presently the market share is just between a few major vendors. Dell is still the market leader in the computer industry and though HP/Compaq have increased their market shares. IBM, who was responsible for the whole Wintel idea, while still remains one the top 5 manufacturers list, is no longer even close to its glory days prior to 1990s. Apple does doe not figure out as the top5 manufacturer, though the case study does place Apple to be one of the top 10 manufactures. This means that the position of Apple has deceased sharply from its position in 1995, and it has no been able to regain its position since.
Worldwide Computers Sales and Usage
The computer industry however is expanding at a rapid pace. Due to the continuous changes in the economies, the number of potential customers has also increased, in addition to the introduction to newer markets. The developing nations, because of the rapid increase in their economic standards, have people who can afford a PC. The population density being high in these countries points towards the fact that there is a large untapped market in these regions (Goolsbee, 2000, pp. 5). The following table shows the PC industry in US and worldwide, in the past 20 + years since 1985
Fig 5 Computer Industry in US and worldwide (eTForecasts, n.d)
The report given above gives an estimate of the PCs-in-use in 53 countries of the world to show an idea of the consumption rates. From the figure it can be seen that the U.S. share of total computers is on a decline. Also it can be seen that the worldwide computer market has lots of room to grow since these regions have lower replacement sales rates as compared to those of industrialized nations (eTForecasts, n.d). To make the picture more clear the figure below will give the computer consumption rates in various regions of the world.
Fig 6 Computes-in-Use in Various Countries (eTForecasts, n.d)
The figure above shows the growth of computers-in-use for the major regions of the world. It can be seen that while US and North America remained as one of the highest sales growth regions, the computers-in-use increased sharply for Asian countries (eTForecasts, n.d). These countries would continue to have a very high growth rate in near future too. The reason for this is that many of the industrialized nations are reaching saturated status as far as the growth of PCs is concerned. Hence, these areas would require higher innovation in order for growth rate to increase. Whereas for the newly developed countries the demand is on a rise and conventional methods along with brand names together with an aggressive growth strategy is enough to push for a higher market share. To underline this point, the figure below gives the top countries for the computers in use.
Fig 7 Top 15 countries by the Computers-in-use (eTForecasts, n.d)
The PC industry has also been affected by the change in application requirements. The late 1990s saw the advent of internet, which has not become an almost necessity for the PC users. The internet and the applications based on it are the major factors for the PC growth, to the extent that they have become a simple necessity. The next 10 years will see the mobile computing too challenge the PC industry because of their explosive growth (eTForecasts, n.d). With the development of devices such as PDA, the mobile systems have become more or less application specific PCs. Any player in the PC industry needs t be cognizant and sensitive to these requirements of the industry and build the company strategy around these factors so as to take the maximum advantage out of it.
Apple’s major competitive advantages
Apple while has still a very long way to go before it becomes close to becoming the top PC manufacturers in the world, has however consistently being one of the top 10 PC manufacturing companies in the world despite its turbulent history, and changing strategies. The reason behind this is the solid competitive advantages that have somehow remained with the company despite the multitude of management changes. This section highlights some of these competitive advantages that have made Apple the company, one of the most successful companies in the world.
· Superiority in Graphics – An average customer has always perceived Apple to be dominant in the field of graphics. The idea holds true among the customers even to the present day, which proves Apple’s dominance in the field of digital media. The fact is vouched by professional graphic designers, video editors and musicians about the superior and unmatched performance of Apple computers over other computers (Mcintyre, 2005).
· Superiority in Design – Most of the companies have always needed a second or third version for the success of a particular product. Apple does not follow the multiple iterations while designing its product. While any second version it releases is a decidedly better version, the release is not for any bug fixes, t is just a better version of the same product. The hardware designs of Apple though costly have always been reliable (Enderle, n.d.)
· Innovation in Design – Apple is not only good in mere superior use of design concepts, the company is also one of the most innovative ones in the computer manufacturing. When all the computer manufacturing companies have moved towards perfecting their supply chain systems and general production efficiency, Apple has concentrated on R&D. In the analysis of PC industry in the section above, it was seen that the trend of the PC manufacturers is more towards modularity and less towards innovation, Apple is an exception, and is hence highly respected in the industry because of this (Enderle, n.d.)
· Complete Software Packages – Again one of the advantages of buying an Apple computer despite the premium prices is the experience of computing which the customers get. Apple provides its customers with a complete software solutions package to cover their entire requirements. This makes sure that all the software packages have no compatibility issues, which is so common with IBM clones. The software is bundled at the very start into the system like media, graphics etc. so that the customer is free from worrying about the complicated software he has to buy (Battista, Golden, Green, Fumarola, Liu, Smith-Osbourne, n.d.)
· Plug and Play support for all the peripherals – Apple is both a horizontal and vertically integrated company. Most of the applications are not licensed to other outsourcing vendors. Hence, the company manages to ensure that all the hardware and software are compatible and can be used right out of the box which is a unique ability among the various other computer manufacturers (Battista, Golden, Green, Fumarola, Liu, Smith-Osbourne, n.d.).
· Easy Usage – The majority part of Apple’s sales is towards the education section. This is because of the ease of usage of the hardware and operating systems. The NeXT Step OS was the first Object Oriented Operating System and hence was the most optimum and easy to use among all the existing software packages. This makes it especially attractive to the educational sector (Enderle, n.d.).
· Money spent on R&D – Apple with its turbulent history has always had different budget allocation towards it R7D unit. The company went on from an innovative product company to a marketing and brand-based company and returned to innovation. This has led to the company having a high level of innovation combined with a sharp marketing sense at its very core, which is responsible for the brand identity of Apple (Battista, Golden, Green, Fumarola, Liu, Smith-Osbourne, n.d.).
· Apple’s Marketing Strategy – Apple is just as much known for its marketing strategy as for its products. The marketing style of the company has been especially witty wit a keen sense of understanding of the important part which people look for when they purchase a system. The advertisements of the company such as I’m Mac v/s I’m PC are almost as legendary as the products themselves. Apple has always followed a policy of eye-catching and many times in-your-face advertising where it has taken potshots on many of the products of its competitors like IBM and Dell. The company’s logo, to the mode of marketing, to the advertising campaign, to the ads themselves are well-thought and well-executed affairs, and have always brought in awards, appreciation of customers, and needless to say sales (Enderle, n.d.).
· Steve Jobs – No mention of Apple can be complete without the founder and present CEO Steve Jobs. The fact is vouched by both rivals and the internal employees alike. Jobs was a part of the Apple as its visionary, and still continues to be the same. He is considered to be one of the best speakers and a most able marketing visionary. Even during his exile period from Apple he was famous as the pioneer of NeXT technology, even though the technology and the company itself failed, and the incredibly successful animation company Pixar. When he was brought back to the Apple, he took the position with his characteristic self-confidence which he proved in the coming years was not misplaced (Enderle, n.d.).
· Not easy to imitate – Unlike the IBM clones, Apple makes specialized PCs, with novel innovations which could range from special cabinet shapes to the placement of Switch On button. This very nature of Apple makes it very difficult for the fellow rivals to imitate the products. Most of the products Apple makes are proprietary and have a very solid research put in behind them, which pays since most of the competitors and even imitating companies are interested in making a cheaper version of an BM clone machine (Grosse, n.d. pp. 2).
Yet another competitive advantage emerges from all the above points – the Apple Brand. For many years, despite the many changes Apple has seen in its company, there has been no change in the company product core values of superior quality and performance. Apple was the first company to launch a true personal computer system, and still is considered to be a step ahead when ease to use is considered. Apple was also the first computer system to have a Color graphics for a personal computer There have been many other systems which while have been invented by other people or companies but have been popularized by Apple, for instance the Mouse GUI, the GUI itself which was invented by Xerox, the popular use of object oriented systems, even Ethernet, though Steven Jobs chose GUI over Ethernet as his a part of his marketing program for Macintosh system (Grosse, n.d. pp. 4).
Apple’s strategies since 1990
Apple’s market share had always fallen short of IBM because of the open system structure of IBM. Apple always made its own components till then, and IBM being able to outsource its assembly to other vendors was able to focus on the key aspects of marketing and customer service. The customers valued the Apple’s systems much more than that of IBM’s but the costs of the system were too prohibitive for them. According to Peck, Christopher, Clark and Paine (1999), customer’s value can be best defined in terms of the impact that the supplier’s offer has on the customer’s own value chain. They further add that if this offer delivers enhanced performance, increased perceived benefits or lower customer costs, then there is a clear added-value from the customer’s perspective.
In case of Apple, the computers had quality and performed better than IBM. However, PC as the name suggests is for personal use by the customers. The high-ended usage defined and provided by Apple fell too short when compared with the prices. Most of the people in the PC industry required computers for a particular application, and many did not find any use for the high ended systems provided by Apple. The Apple continued to make profits during this period, but its sales kept falling down. As given in the case study during the period of 1983-1884 Apple sales fell by 17% (Yoffie, Slind, 2006, pp. 2). Thus the MAC systems even though they were very superior fell very much short of the sales figures projected by Steve Jobs; in fact they were just 10% of the predicted sales figures, thus ending the first Steve Jobs era in Apple (Hormby, 2006, para 1).
John Sculley was brought over by Stve Jobs, from his position in Pepsi as Chairman and CEO. The reason for this was a need for Apple to reorganize itself. Apple had passed the basic entrepreneurial stage and the company was facing different problems post its inception and sales surges. The company was planning to expand mainly and was going to compete on a larger scale and hence needed someone with corporate and extensive marketing experience. During this period, specific markets for the PC had been defined such as the education, publishing and communication. Also the focus of the consumers shifted from organizations and enterprises rather than individuals. The production base shifted from being innovative and evolutionary to evolutionary and strategically well-grounded.
The start of the 1990s era saw John Sculley as CEO of the company. Sculley made important strategic changes in Apple during his tenure. The idea behind Sculley’s changes was to use Apple’s existing features and create a niche market for itself. However, as Reichheld and Tiel (2001) point out the drivers of the relative customer value change as competitor’s capabilities and customer expectations shift. Also managers many a times engineer enormous friction into their business in order to maximize shareholder value. This was the exact principle behind the strategic decisions taken by Sculley during his tenure as CEO at Apple. Under John Sculley however, the company did not follow its core visions, however I concentrated in aggressive marketing schemes and brand recognition measures.
Sculley also brought Apple into the corporate world from the educational and general P market. There were several measures that he undertook for this purpose. This made Apple the only other alternative to IBM, and combined with a complete set of solutions such as peripheral support, PageMaker software, Microsoft Excel software etc. made Apple even more versatile and made it the most profitable computer company in the world. Instead of a single strategic vision Apple in 1992 set the following strategies:
· Reduce the time it takes to bring the products into the market
· Lower price in Macintosh products to attract more customers
· Broaden the Macintosh family
Enterprise Computing Strategy
· Establish Apple as a key player in Client-Server computing
· Work with partners to provide better ways to integrate Macintosh into larger enterprise networks
Emerging Technology Strategy
· Move Macintosh to RISC i.e. Reduced Instruction Set Computing Technology
· Take a leadership role in Emerging Technologies
(McGrath, 2001, pp. 32)
The problem with this type of strategy was again the same, there was no vision.
These were just the tactical or operational strategies, which require common vision to ensure proper completion. Yet another problem came when Sculley declared himself as the Chief Technology Officer. Sculley’s background was purely marketing and brand management and hence this period took away any significant initiatives as far as technological were concerned. This proved to be a setback to Apple, since the company relied on regular innovations to sustain brand recognition and differentiation. The market share hence dropped from 20% to 8% in 1993, after which Sculley was replaced by Michael Spindler.
The strategies followed during this period were primarily to cut costs so as to keep overheads low. Many jobs were terminated to reduce the headcount. The distributor and development partner margin were scrutinized carefully. While there were some tactical changes related to building up a new operating system and internationalizing the Apple’s market, there was nothing new on the strategy front. However, Spindler did make a decisive move to cut the R&D costs also to 6% of the expenditure. In addition to this, Spindler was also responsible for the restructuring of the company to a more modernistic since. Prior to this all of the product development was dumped under one division, which caused many problems in managing change. Spindler changed this to grouping the company by market. This type of structure reduced the power of the head of product development department, which was till then the most powerful division in Apple. Hence, the structure was flattened and takeover threats from the Product Development department were minimized. This further undermined Apple’s position in the market. Gilbert Amelio as the CEO of Apple followed Spindler in the late 1990s (Hormby, 2006).
The Apple strategy did not change much with Amelio either, but he was responsible for laying foundations for many changes which would bring rapid positive efforts to the company. One of the highest-impact decisions was bringing back Steve Jobs to Apple. This gave Apple the much needed morale boost, which had reached an all-time low at the time of Spindle. With Steve Jobs, Amelio worked for a period of time, laying down strategies, which form the blue print of the company to this date.
Has Steve Jobs finally solved Apple’s long-standing problems?
Prior to Steve Jobs re-gaining his position as CEO of Apple, following were the main highlights of Apple’s Strategy:
· Effort towards maximizing profit margins rather than increasing market share
· While R&D costs were tending to be reduced, the decision taken during the time were both unsuccessful and costly, about $ 1.5 billion
· The business moves from the PC segment to set-top boxes, handheld computers, personal computers and other segments
· The next upgraded version of Mac OS took 17 years to build
· The forecasting of the interim CEOs were poor and so were the existing inventory management skills, which cause losses amounting to more than $1 billion
· The interim CEOs were themselves not very hopeful of the chances of Apple to bounce back, and were either into severe cost cutting measures or selling the company to the highest bidder
· The differentiation strategy too failed due to the entry of Windows 95
(West, 2002, pp. 5)
Jobs returned to Apple first as an advisor at the request of Amelio, and as the interim CEO when Amelio was fired, and finally as CEO in 1997. His vision by this time became very streamlined. As is mentioned earlier, Apple lacked a formalized vision by this time, and the products and product lines, which had come up, were confused and had cost a lost of money. Steve Jobs brought with him the Apple design ethic, which began with the design of the multi-colored-all-in-one iMac (Boran, 2008).
Spindler’s tenure did see a sharp rise in the Apple revenues, before which the revenues plummeted. When Jobs was brought back, the company was in its second year of very low revenues with a very bad market and industry reputation and at the brink of being sold off. Amelio combined with Jobs to change the business strategy and turned their focus towards operational efficiency. Anderson Consulting had developed the basic blueprint for the new business model in mid-1990s (West, 2002, pp. 5). Follwing were the main issues tackled in restructuring:
· Technology Development – Jobs maintained that R&D was the core focus of Apple, and that the amount spent on R&D would not be reduced further, though the projects would be streamlined. The cost came from the comparatively high gross sales of the company as compared to rivals like Dell. Post 200 however, Apple the cost on the R&D hardware was reduced though they increased the proportion of R&D amount on the application software. The Apple operating system still operates entirely different to windows and competes directly against it. Prior to 1997, Apple worked on separate de facto standards for connecting peripheral hardware, however post 1997, Apple shifted to making the architecture to cross-platform and windows-specific standards, so that the competition level is even more direct and the user cane easily switch between the two. Apple followed the same policy for hardware design too and managed in reducing the inventory for its sub-vendors. Ina addition Apple also laid emphasis in bundled software applications like iMovie, iTunes and Sherlock to increase the distinguishing factor from Windows (Bloor, 2008).
· PC Market – Apple’s high-resolution graphics made it the only player in the high-end specialized segment, and the development of the desktop publishing agent made the product even more attractive making Apple the single best solution provider in the high end professional segment. Apple also made its regular PC for the educational and the consumer segment available to price sensitive consumer segments by introducing new products like iMac and Classic (West, 2002, pp. 5). These PCs had an easy-to-set-up internet capability which made it one of the highest selling unit though this dominance decrease as internet became a requirement for the IBM clone PCs based on the market surge.
· Simplifying the product line – One of the major problems with Apple’s strategic decisions had been a large array of products and varied product line, which made the management of these channels very difficult. TO counter this Jobs introduced the 2X2 product strategy, which had two different models: Desktop and Laptop for the professional and consumer segments. Further the company reduced the products from 15 separate lines to three product families. The design of the each of the product model was simplified so that the confusion between the products could be minimized. Apple also reduced its inventory from 31 days on 1997 to 6 days in 1998 to 2 days in 1999 (West, 2002, pp. 5)
· Outsourcing the Manufacturing – Apple was one of the very few PC vendors in the industry in 1997 which manufactured its own motherboards, and assembled its computers completely. However, pressures to reduce costs forced Apple to move its production to new sites with less-labor, material and rent costs. While Apple had opened its first oput-of-country production site in Ireland in 1980 and Singapore in 1981, these were its own plants in different locations. In 1996 Apple moved to contract manufacturing, with SCI Systems being its first contract manufacturer/. By 2000, Apple had shifted most of its assembly from different Asian and European locations to concentrate in Taiwan. This decision greatly affected the profit margins of Apple, and it was able to sell its products at a premium possible only in the early 1990s (West, 2002, pp. 5).
· Sales and Distribution Channels – Apple reduced the number of its distributors from 5 to 3 in 1997, and by 1998, retained only CompUSA as its nationwide retailer, from 6 in earlier years. This was because of the fact that the increasingly reducing prices of PCs had forced Apple to reduce its margins which were in the premium segment, and for doing this the number of distribution channels and key account discount needed to be reduced or cut altogether. In 2001 Apple went ahead to open its own retail store as a strategic move and by the end of 2005 the number of the retail stores had increased to 135. This division was responsible for almost 17% of the Apple sales and in 2005 led to the sales hitting the $1 Billion in the following year (Bloor, 2008)
What impact has the iPod had on Apple’s success?
Apple’s turn around is partly attributed to the success of its i-pod. Using this Apple has leveraged itself back into the PC business even though it has a long way to go. The success of i-pod has also made Apple think of using innovate and alternative methods of marketing and promotions such as retailing for its computers. Since, it has regular cash flows because of the ipod business; Apple can also spend more in PC R&D for developing innovative product. Hence, Apple’s ipod had a dramatic impact on that company’s fortunes. Presently there are six major PC making manufacturers: IBM, Dell, HP-Compaq, Sony, Sun and Apple, of which Apple represents 5.5% of market share and 12% of the net profits.
Apple competed in the market industry based on price, brand recognition, distribution channels, breadth of product line, user configurability, operating system support, warranty/service, performance and ease of use. The graph for the industry shows the subjective opinion about the level of investment or operating emphasis placed on each the above mentioning factor. Apple, emphasizes brand, new lines, design and importantly since iPod’s launch, complimentary offerings, namely the online music service iTunes. The graph is as shown in figure below:
Fig 8 Apple Computers versus the Personal Computer Industry (Lattanner, 2002, pp. 2, )
Even before the iPod was launched Steve Jobs had put Apple on the success track. However, iPod meant that the company has a presence of a legitimate online music distribution service, Apple created a new value proposition. Hence apple has been able to track a very large and new customer base in the highly completive industry; beyond the additional features, which it may have (Lattanner, 2002, pp. 2)
Steve Jobs, Apple and Future
There is do doubt from the above analysis that Steve Jobs did bring back Apple from its earlier derelict stage to a multi-billion dollar operation. There are a few concerns however, which trouble the analysts and stakeholders alike. Stave Jobs is a name which ahs run Apple through its most successful period. Many other CEOs have tried and failed doing the same. What is more worrying is that fact that none of the people in the higher echelons of Apple seems to last long or have a good relation with Job, who quite likes to play alone. Most of the operations of the company are secretive, and everyone within the company is affected by the charisma of Jobs. However, in view of his recent health problems, which brought the company close to a second brink of disaster without an equally responsible and concerned man at the helm. Apple or Jobs must see this fact and address it accordingly so that the stakeholders do not become too nervous by this.
Yet another fact is that even though Apple had made a great comeback more than 8 years back, its market share still remains a mere 4%, even after the number of tasteful and ground breaking innovations. According to a statistic for even computer Apple sells, Dell sells almost 9 (Keele, 2006), and Apple is no way near to decreasing this gap. Its sales figures are stable but not rising. This shows that there is till major restructuring needed in the organizational structure and business strategy. Also the iPod, which has revolutionized the music industry, is under scan from regulatory authority because of its proprietary designs. In any case, this is a fringe business for the company and not the main product though as can be seen in the section above, it has helped the company in consolidating its market share and revenues.
In conclusion, it can be said that Apple has done very well from the state it was in 1995. However, the company needs to seriously look into increasing its market share by innovative measures for instance deals with software and component suppliers, wider advertising, concentrating on the high growth markets and overall reduction in the operating costs. Steve Jobs should also be in the processor of building up the next generation of Apple’s management teams, who would be sharing the company’s vision, have the same quirkiness which characterizes the company and would be capable to lead the comny into future.
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