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Apple Strategic Management Case Analysis
 

Apple Strategic Management Case Analysis

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  • You will hear this word a lot during our presentation. We aren’t repeating it. If it wasn’t for Steve Jobs and Steve Wozniak we might not have these fonts and colors.
  • “By itself, Apple’s iTunes and App stores make more money than The New York Times; Simon & Schuster, which publishes the best-selling “Steve Jobs” biography; Warner Bros. film studios, which owns the popular Batman film franchise; and Time Inc., the largest magazine publisher in the U.S. Combined.” -Edmond Lee - BloombergRead more at http://www.cultofmac.com/203988/by-itself-itunes-would-be-one-of-the-biggest-media-companies-in-the-world/#8I4DOfx1fUXOTg9c.99 
  • Hypes, innuendos and captivating stories proceed every release of a new productCult-like following "The scenes I witnessed at the opening of the new Apple store in London's Covent Garden were more like an evangelical prayer meeting than a chance to buy a phone or a laptop. "– Alex Riley, writing for the BBC[168]CNBC CommentaryThey have supply constraints36% gross margin down from 40%in 3rd quarter80% 2012 revenue from new products sold Mid Sept to M/E OctLowest margin number they have come out with in a long timeCriticism that stock price is low and projection
  • Leadership - HankMindset: MANAGERIALHow to Implement New StrategiesWhat "Level" of LeadershipChief Executive Tim Cook compensation worth nearly $378 million last year, drawing a sharp contrast to the $1 salary traditionally earned by former CEO Steve Jobs 900k to 1.4M salary in 2012-Known for operations-Quiet and demanding-Cook has been known to show up in the cafeteria and sit down with employees, and has built a reputation as a workaholic who prefers biking over mingling with Silicon Valley types. An Auburn University graduate with an industrial engineering degree, Cook is a huge Auburn football fan and has a vast collection of Tigers memorabiliaHe believes more information and communication with customers is important; he’s willing to work with Wall Street (which has historically shown it understands very little about Apple); and he doesn’t seem to believe Apple’s privacy should be pursued at the expense of larger, more important goalsCook is willing to release less-than-perfect productReleasing buggy iPhone software wouldn't have flown under Jobs' leadership, say former insiders. 2. Wall Street loves himApple's stock has been skyrocketing ever since Cook took over as permanent CEO in August 2011. Cook has already issued a dividend and has demonstrated a clear willingness to communicate with Wall Street. By contrast, Steve Jobs "always loathed investors and the stock market," says Jeffrey Van Camp at Digital Trends. "It's a subtle but significant change," says Lashinsky. "Investors now have the CEO's ear for the first time in years." 3. Values are shiftingCook is a "master of operational efficiency," having streamlined Apple's badly broken supply chain when he joined the company in 1998."He's brought in a lotof MBA-toting new employees to Apple," Some are starting to wonder if operational efficiency is becoming "more of a priority compared to engineering creativity." As a result, Apple has a more corporate feel to it overall. "It looks like it has become a more conservative execution engine rather than a pushing-the-envelope engineering engine." 4. The atmosphere is more relaxedUnder Cook, the company's culture is more easy going — a reflection of the new chief's even temperament
  • Corporate Governance - HankAssess BODAssess Strengths /Weaknesses50k per yearApple's directors serve one-year terms Board industry blend:Intuit = QuickBooksJcrew=RetailAl Gore=Government & GreenDisney=InnovationAvon=Beauty, Cosmetics, WomenNorthrup Grumman=Design/Mfg. Military military aircraft, defense electronics, precision weapons, commercial and military aero structuresAl Gore accused of abusing his power to reinvest in green initiatives50k per year
  • Ethics - HankAny ethical issuesHow to Address; 4 avenuesrash of suicides and workers' rights violations in the Chinese plants of major supplier Foxconn-So far this year, 11 people have committed suicide, and at least 10 more have attempted suicide at FoxconnIn an email reportedly sent to Apple's 60,000 or so employees, Tim Cook, the company's chief executive said that Apple "cares about every worker in its supply chain". Foxconn11 people have committed suicideLow wagesChild laborLong hoursProduct QualityPerception to minimize issuesPrivacyData collection featuresMobile Privacy LegislationSustainability97% emissions from products, 3% from manufacturingPlanned obsolescenceIntellectual Property TheftPatents
  • Education Innovative and user friendly.Enterprise and Government High powered computing performance Expansion capabilitiesNetworking functionalitySeamless integration with Complementary products General Use DemandPowerExpandabilityCompatibilityMobile communication Media devicesAPPLE TVEmerging nations - strong growth opportunitiesRising wages in China
  • Use this photo as a spring board for the many Societal Environment issues and how they all begin to interrelate.

Apple Strategic Management Case Analysis Apple Strategic Management Case Analysis Presentation Transcript

  • Apple: Strategic Management Case Study Hank, Kakie, Sandy, Abdi & El Haddi Strategic Management, UST Executive MBA Fall 2012 © 2011 University of St. Thomas, Opus College of Business
  • 2
  • Mission1. Mac, the best PC’s in the world2. Digital music revolution leader3. Reinvented mobile4. Defining mobile media & computing devices future 3
  • Core Values RevealedNo External Agencies Internal Teams 3. Misdirection1. 2. = No Disclosure = What Life? 4. Innovation 5. Research 4
  • 5
  • Recent News: Jobs by Jobs • Created 600,000 Jobs in the US • New announcement by Tim Cook “Assembled in the USA”• “By itself, Apple’s iTunes and App stores make more money than The New York Times; Simon & Schuster, which publishes the best-selling “Steve Jobs” biography; Warner Bros. film studios, which owns the popular Batman film franchise; and Time Inc., the largest magazine publisher in the U.S. Combined.” -Edmond Lee - Bloomberg 6
  • Apple, Inc. Apple, Inc.Now• Founded 1977• HQ Cupertino, Ca. “The Mother ship”• Largest U.S. company ever• 72,000 Employees• 34 Patent Applications in October• 80% of revenue is from new products sold from Mid Sept to M/E Oct Competencies 1. Simple, Well Designed, User friendly 2. Innovative Culture of Design 3. Loyal Customers 4. Technology iOS 5. Energy Efficient 7
  • Internal Inc. Apple, Assessment1. Operational Focus - Willing to release incomplete products2. Wall Street - Engaging to increase dividends3. Shifting Values - MBA vs. Liberal Arts4. Relaxed Atmosphere - Leadership quiet yet demanding5. Highly Ethical ?- Some might question • Procurement • Vendors 8
  • Leadership
  • Governance $50k per year Serve one-year terms 3 Committees 10
  • Committees Apples board of directors has three committees:  The Audit and Finance committee members are Ronald D. Sugar, Ph.D. (Chairperson), Robert A. Iger, and Arthur D. Levinson, Ph.D.  The Compensation committee members are Andrea Jung (Chairperson), William V. Campbell, Millard S. Drexler, and Albert Gore, Jr.  The Nominating and Corporate Governance committee members are William V. Campbell (Chairperson), Millard S. Drexler, and Albert Gore, Jr. 11
  • Ethics• Foxconn• Product Quality• Privacy• Sustainability• Intellectual Property Theft• Patents 12
  • 13
  • Financial Analysis Management EffectivenessRevenue per Employee $2,023,349Net Income per Employee $539,528RIA % (Net) 28.08ROE % (Net) 42.15ROI% (Operating) 55.79 Profitability RatiosGross Margin 44%Operating Margin 35%EBITA Margin % 38%Calculated Tax Rate % 25%Profit Margin (TTM) 27% Valuation RatiosPrice/Earnings (TTM) 15.19Price/Book (TTM) 53.3Price/Cash Flow (TTM) 12.46 Asset ManagementTotal Asset Turnover 1.05Receivables Turnover 10.13Inventory Turnover 112.12Prop Plant & Equip Turnover 13.26Cash & Equivalents Turn 14.98 14
  • Industry Ratio Comparisons80% 2012 revenue from new products sold Mid Sept to Oct 31 - CNBC 15
  • 16
  • Change is Inevitable? Reinvention 17
  • Release history 18
  • LEADING INDICATORS & DEMAND DRIVERS 19
  • Demand as a F(x) of leading indicators Demand And Adoption RateD = f(li1, li2, li3, …, lin) Market Share: Stable Search trends as an early indicator: Who has it? Networking effect  Sharing  Social Nets  Social Networking capabilities 20
  • Economic Leading Indicators Demographics World Progress Indicators 21
  • Leading Indicators: Product Drivers  Product Drivers: 22
  • Mobile browser counter as a leading indicator ? ANDROID iPhone 23
  • EXTERNALITIES 24
  • Smart Phones: Competitors 25
  • iPhone, Droid or Windows Phone ? 26
  • Mobile computing: Laptops & Notebooks 27
  • Value Chain & Business Model Banking: $$$$$$$$• App developers Educational Financing• Effective Designers• Infrastructure R&D, Innovation Marketing iPhone• Talent (Well trained IP iPad workforce) Design iCool• Apple University Quality Patents• $$$$$$$$$$$$$$$ Manufacturing• Manufacturing, Sup • Kiosks pliers, Partners • Digital (100+) • Cloud Distribution • Direct • Apple Stores • Retail • VARS • Education 28
  • Key Success Factors FreeBSD Open Systems V A L Improve + Innovate • Design U • Miniaturization E • Security “Closed” Systems • Ease of Use ++ Cool! Secure + Reliable • Reliability Reduced Cost of production • Marketing $$ $ Improved Sales & Margins 29
  • Target Market Enterprise + Government $$$$$$ Affluent G Premium PricingEducation $$$$$ ClassSMB BOP $ B2B Market B2C Market 30
  • Value Chain & Business ModelINDUSTRY GROWTH & MARKET SHARE Smart Phones: 71% CAGR for the next 4 yrs. Cloud computing: 20% CAGR Mobile dev. in general: 25% Carrying Capacity ???*provisioning Convergence *nomic 02 31
  • Smart Phone: Market share growth70605040 201130 20122010 0 iPhone Android Other 32
  • The mobile worldwide market in 2010 X Apple as a Mobile browser leader In 2010 33
  • iPhone Mobile market share 2012 X X X X X 34
  • What about the iPad ? • Apple has 68% of the tablet market • Cannibalization of iPad by the mini iPad? • Google & Others Tablets Open source to the rescue?  App store: Closed platform ? 35
  • External Scanning Analysis OPPORTUNITIES THREATSGrowing demand: Education Rapid Technological Changes Enterprise and Government Highly Competitive Market Consumers Continual Timeliness of R&DMobility & Nomadic computing Patent/Copyright ViolationMedia devices Multiple Distribution Network WeakTV, Tailored Shows, MOD Outsourcing manufacturingGrowing incomes in ASIA and other New Management (Midas touch?)emerging nations. 36
  • Societal Constraints Industry Environment Sociocultural Forces Economies Workers at an Apple supplier facility in ShanghaiPolitical-Legal Risk assemble parts for the MacBook Pro Technological Factors 37
  • Porter’s Five Forces New Entrants BuyersGlobal Demand Industry Competitors High Customer LoyaltyExisting Patents(i.e. High DemandGoogle’s 17000!) UniquenessSupply Costs Niche Market INNOVATION High Advertising Budget Suppliers Substitutes Patent ViolationsSupply Shortages China/othersPrice Increases Strong BrandOutsourcing Process FAKE iPhone anyone? 38
  • Apple’s Sustainable Product Differentiation Cost of Apple Product Apple Pursues Niche Market Differentiation Strategy – Defensive Pass Cost on to Customers Oligopoly Market (Niche) 39
  • Competitive Analysis - Porter Future Goals Current StrategyPromote new Value for Core Networks Segmentation• Industry• Partners Targeting• Employees PositioningExpand Global Penetration (SW Asia) VISION 2020Promote Top Line Products Inspire the World, Create the Future Capabilities Assumptions (S) New Technology Company that goes after its goals Innovative Products Change = Action Creative Solutions Same Threats as all Competition Strong Market Position • Raw Material Pricing • Intense competition Diversified Portfolio • Increasing regulations Robust Top Line Growth (W) Fluctuating operating & net profits
  • TOWS Matrix: Strengths/Opportunities TOWS Matrix: Strengths/Opportunities Opportunities 1. Demand in Education External 2. Demand in Enterprise & Government Scanning 3. General Use Demand 4. Demand for Mobile Communications Internal 5. Demand for Media Devices Assessment 6. APPLE Television 7. Strong growth opportunities in emerging nations 8. Rising wages in China Strengths S/O Strategies: GROWTH1. Global Company Continue aggressive international growth2. Strong Brand Image strategies S1-O73. Diverse Distribution Avenues4. Design, Manufacturing & Marketing Strengthen partnerships with Education S12-O1 expertise Increase APPLE television content S4/S6-O65. Wide Market Circle Capitalize on the smart-phone revolution S4,S7-6. Reputation for Innovation O4,O77. Master with 3rd party digital content8. Compatible with Windows platform Continue to aggressively develop mobile app9. Horizontal and Vertical Integration market S6-O4,O5,O710. Financially Sound11. Entrepreneurial culture 4112. Customer loyalty
  • TOWS Matrix: Strengths/Threats Threats External Scanning 1. Industry constantly evolving 2. Highly Competitive Market 3. Outsourcing Difficulties Internal 4. Inability to meet R&D requirements Assessment 5. Imitation of Apple products 6. Violation of patents and copyrights Strengths S-T Strategies: External Fix-it1. Global Company2. Strong Brand Image Aggressively pursue new product3. Diverse Distribution Avenues development i.e.; wearable & pen4. Design, Manufacturing & Marketing computing S6-T4 expertise5. Wide Market Circle Strengthen partnerships with band width6. Reputation for Innovation7. Master with 3rd party digital content vendors i.e.; international market S1-T1-T28. Compatible with Windows platform9. Horizontal and Vertical Integration Evaluate niche market concentration S12-10. Financially Sound T1,T211. Entrepreneurial culture Eval Backward/FWD Integration (S9:T3) 4212. Customer loyalty
  • TOWS Matrix: Weaknesses/Opportunities Opportunities 1. Demand in Education External 2. Demand in Enterprise & Government Scanning 3. General Use Demand 4. Demand for Mobile Communications 5. Demand for Media Devices 6. APPLE Television Internal 7. Strong growth opportunities in emerging nations Assessment 8. Rising wages in China Weaknesses W-O Strategies: Internal Fix-it1. Subject to supply shortages & priceincreases Improve domestic supply chain (W1-O3)2. Difficulty controlling outsourcing processes3. Accusations of infringement upon patents of Aggressively continue to pursue R&Dother organizations product development (W4-O1-07)4. Dependence on iPhone and iPad –limitedvariants5. Lack of different price points with products Continue to develop superior product(s)6. Dependence cellular network providers at lower cost point (W7-O7)7. Cost of product 43
  • TOWSTOWS Matrix: Weaknesses/Threats Matrix: Weaknesses/Opportunities Threats 1. Industry constantly evolving 2. Highly Competitive Market 3. Outsourcing Difficulties Internal External 4. Inability to meet R&D requirements Scanning Assessment 5. Imitation of Apple products 6. Violation of patents and copyrights Weaknesses W-T Strategies: Eliminate/Survival1. Subject to supply shortages & priceincreases2. Difficulty controlling outsourcing processes Strive to avoid patent infringement within3. Accusations of infringement upon patentsof other organizations tech community (W3-T4,T6)4. Dependence on iPhone and iPad –limited variants5. Lack of different price points with products6. Dependence cellular network providers7. Cost of product 44
  • Relative sales growth rate: g = 100(Sn - S(n-1) ) /Sn-1 45
  • Flush with Cash: Lets do Backward and Forward Integration Backward Integration: Purchase of carriers • i.e. Nortel Networks (Done!) • WiMAX? • Cable or others with a market cap of 100B? Forward Integration: • Kiosks • Service Providers 46
  • Conclusion 47
  • Competitive Advantage LOW COST DIFFERENTIATIONBroad Low cost DifferentiationTargetNarrow Cost focusTarget Focused differentiation 48
  • Economic Indicators• Factory Orders Report• Gross Domestic Product (GDP) • Producer Price Index (PPI)• Housing Starts • Productivity Report• Industrial Production • Purchasing Managers Index (PMI)• Jobless Claims Report • Retail Sales Report• Money Supply • Trade Balance Report• Mutual Fund Flows • Wholesale Trade Report• Non-Manufacturing Report• Personal Income and Outlays 49
  • Economic leading indicators: work in tandem! • Business Outlook Survey • Consumer Confidence Index (CCI) • Consumer Credit Report • Consumer Price Index (CPI) • Durable Goods Report • Employee Cost Index (ECI) • Employee Situation Report • Existing Home Sales 50