Apple strategic audit

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Strategic Audit: (Apple Inc.)
I. Introduction to the Organization
The story of Apple, Inc. begins April 1, 1976, when Steve Jobs, Stephen Wosniak, and
Ronald Wayne founded it. A mutual friend first introduced Jobs and Wosniak in 1971. The
relationship grew closer as they both became members of the Homebrew Computer Club. As an
interest, Wosniak manufactured microcomputers that were less expensive than other existing
microcomputers. Steve Jobs recognized Wosniak’s abilities, and Jobs was able to convince
Wosniak that as a team, they could manufacture personal computers for sale. “Wosniak was
the brains with his designs and natural ability while Jobs had the ability to strategically push the
computers to market” (Gadchick, 2012, p. 11). In January 1977, Jobs, Wosniak, and Mike
Markula incorporated the company as Apple Computers Inc. Mr. Markula funded approximately

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$250,000 for growth. Wayne sold his ownership stake back to Wosniak and Jobs for
approximately $800 dollars.
The company first created the Apple I computer in Jobs’ garage. The Apple I differed
from other computers at the time by utilizing a MOStek 6502 processor in lieu of the industry
standard Intel 8080 processor. Wosniak was able to utilize the MOStek processor and create
the computer with fewer parts than industry norm, yielding a price that was less than
competition. The original market demographic for the Apple I was to individuals who were
interested in computers and electronics. In 1977, the company grossed approximately $774,000
in sales for the Apple I.
In late 1977, Jobs and Wosniak introduced the Apple II at the West Coast Computer Fair
in San Francisco, CA. The Apple II was developed as a general-purpose computer. The specs for
the Apple II maintained the same MOStek 6502 processor and also included color graphics as
well as an audiocassette drive with storage capacity of 4kb of Read Access Memory (RAM). The
first three years of the launch of the Apple II yielded sales of approximately US$139 million
deeming the computer a success.
The company introduced its third computer in 1980 as the Apple III. The computer ran
eight applications, but the continuous technical problems caused the removal of the Apple III
from the market. The Apple III re-launched in 1981 with 128kb RAM, updated software system,
and a lower price of $3,495 USD, but it did not yield a successful campaign.
Apple acknowledged that major issues with the first three computer models were each
operated under different operating systems, limiting market share. Jobs recognized the issue

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and immediately revamped the concept by creating a new computer and new operating system
through the utilization of the talents of hardware and software designers. This led to the
development of the Macintosh (Mac) personal computer. The Mac was released in 1984, along
with its operating system, Mac OS, which was able to run on all Apple computers. The 1984
Mac had 128kb of memory and a 32-bit microprocessor. The original Mac was smaller, less
costly, more accessible, easygoing, and flexible. The computer was able to be utilized for
graphics, not just for calculations as most computers performed at the time. “Despite its
advantages, the Mac suffered from several problems, in particular, its lack of compatibility with
IBM personal computers, making it difficult to sell Mac computers to large corporations that
were already using IBMs,” (Murray, Goode, & DiMuro, 2009, p. 8).
In 1984, the company experienced less than stellar performance from the sales of the
Mac. The sales projections for 1984 were moving 80,000 units while only approximately 20,000
were sold. In 1985, Mac sales averaged 2,500 units per month. The Apple board was not
pleased with sales, and Steve Jobs left Apple in 1985. Jobs left Apple and decided to start his
own venture he called NeXT, a company dedicated to the creation of personal computers for
students. NeXT experienced eight unsuccessful years until finally realizing growth in 1993.
“During this time period, Apple was experiencing a decline as competition increased, lack of
innovative products, and hardware and software pricing decreases,” (Murray et al., 2009, p. 18-
19).
In 1996, the existing CEO Gil Amelio hired Steve Jobs as an informal advisor to Apple
Computers with no contractual commitment. During this same period, Apple also purchased
NeXT from Jobs for the amount of $400 million USD. Starting from the last quarter of 1997,

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Apple Computers posted profits in three consecutive quarters and named Steve Jobs as the
interim CEO in 1998. Jobs launched the iMac in 1998. The iMac was marketed directly towards
first time computer buyers and individuals shifting to Macs from other computer platforms.
Steve Jobs was officially named CEO of Apple Computers, Inc. in 2000. He remained focused on
the iMac computers and gained market share by releasing new models of the Macs.
In 2001, Apple Computers, Inc. introduced the first version of iTunes. iTunes, at the
time, was equivalent to Microsoft’s Media Player that had the ability to burn CD’s for playback.
A few years later, Apple launched the iTunes Music Store which allowed customers to purchase
music and would later modify its capabilities to allow Windows users access.
Fast forward to 2007, the company removed ‘Computers’ from the name to become
Apple Inc. The change of name was to recognize their strategic focus was no longer on personal
computers. Apple focuses on multiple facilities of electronic media; iPhone, iPad, iPod, iTunes,
iMacs, Mac Mini’s, Apple TV, and all platforms revolving around the iOS operating systems.
In January 2011, Steve Jobs announced that he was taking an indefinite leave of absence
due to health issues. Tim Cook, the Chief Operating Officer at the time, took over as interim
CEO. After a long bout with pancreatic cancer, Steve Jobs passed away in October 2011. Tim
Cook was named as the full time CEO. Under Tim Cook, the company has released iCloud, a
software platform that allows media sharing between multiple devices, iBooks, iPhone 5, and
the recently released iPad mini. Apple has remained a publicly traded company with most
investment houses classifying the company at 4 out of 5 stars and a strong buy.
II. Identification of the Industry and the Competitors

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In order to properly identify what industries Apple belongs and who its competitors are, we
have to look at the main products offered by the company. There are six main products:
1. Mac – which is a line of personal computers (PCs) designed, developed, and
marketed by Apple Inc.
2. iPhone – line of smartphones designed and marketed by Apple Inc.
3. iPad – line of tablet computers designed and marketed by Apple Inc.
4. iPod – line of portable media players designed and marketed by Apple Inc.
5. Apple TV – digital media receiver developed and sold by Apple Inc.
6. Software – different software developed for all of Apple Inc.’s products.
Analyzing this range of products we can identify that Apple mainly belongs to four industries:
computer hardware, computer software, digital distribution, and consumer electronics.
Companies who engage in assembling and manufacturing computers, computer
hardware, and computer peripherals compose the computer hardware industry. From the
perspective of computer hardware industry, the following competitors can be identified: Dell
Inc., Hewlett-Packard Company, Research In Motion Limited, Samsung Electronics, etc.
The computer software industry can be described as the designing and developing of
computer programs and related data that provide the instructions for telling computers what to
do and how to do it. This industry is considered to be one of the most innovative and fastest
growing sectors of the global economy. The main competitors of Apple in this industry are
Microsoft Corp. and Google Inc.

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The digital distribution industry implies the delivery of media content such as audio,
video, software, etc. using online delivery mediums, such as the Internet. The main competitors
in this area are Google Inc. with YouTube, Windows Corp. with its Windows Azure content
delivery service, NetFlix, Amazon with Amazon CloudFront, etc.
The consumer electronics industry involves the manufacture, distribution, and sale of
communications and entertainment devices such as cell phones, digital and video cameras,
MP3 players, VCRs, DVDs, televisions, etc. From the viewpoint of this industry, the main
competitors are Samsung Electronics, Google Inc. with its Motorola devices, Amazon with its
Kindle tablets, Dell Inc., Hewlett-Packard Company.
III. Analysis of the Industry
Strategic Groups and Competitors
When we look at Apple’s business operations, we realize that there are many strategic
groups in which it has a stake in. The most obvious is the Personal Computer (PC) industry
where it first opened its doors for business. Its competitors come from many groups/subgroups
in this highly competitive industry.
The first group involves home/business computers which includes Hewlett Packard, Dell,
Gateway, Alien-Ware, Acer, Lenovo, etc. The next group includes software design. Competitors
in this group include Microsoft (Windows), Linux (Open Source), Google (Android), and RIM
(Blackberry). There are several software subgroups that include music, video, security, e-books,

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etc. A few well-known competitors are Napster (music), Amazon (video, music, and e-books),
Microsoft (Internet Explorer), and Google (maps).
The next subgroup involves server markets and competitors of this subgroup include HP,
Sun, SGI, and IBM that provide high performance computing, web-serving centralized storage,
etc. Apple’s Mac products hold less than 5 % of the total U.S. PC market and less than 3 % of the
international market. This includes notebooks/netbooks as well. One could also view
networking as part of this group. Networking competitors include Cisco, Net-gear, etc. Much of
Apple ideologies can be attributed to Steve Jobs whose computer ideas morphed across various
industries (Pui-Wing Tam, 2001).
The next industry that needs to be mentioned involves the music player arena. Apple
transformed this industry overnight with the iPod/iPod-Touch. Few competitors have come
close to stealing market share from Apple. The few who have tried include Microsoft (Zune),
Scandisk, Samsung, and Creative Labs. Apple has used its software (iTunes) to gain a
competitive advantage over its rivals. iTunes has significantly boosted the iPod’s popularity.
The third industry in which Apple operates includes the smart phone market. Apple’s
iPhone innovation transformed the mobile phone industry. The iPhone has been updated six
times and dominates more than 60% of the mobile phone industry’s total market share. Apple’s
smart phone market competitors include Samsung, Nokia, Microsoft, Sony RIM, Motorola, etc.
who have attempted to imitate the touch screen, app store, and other technological advances
that Apple has made almost essential for smart phones. There are also sub-industries that
Apple has entered. Apple practically developed the tablet PC market with the iPad innovation.
Some notable tablet PC competitors are Amazon (Kindle Fire), Windows (Windows tablet PCs),

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and Samsung (Samsung Galaxy Note). This industry is the most active subgroup in the PC
industry at the moment and has decreased demand for home PCs as a result. Apple is also
trying to compete in the internet TV/media player industry with its Apple TV/Icloud offerings
which is competing with D-Link’s (Boxee), Roku’s (Roku 2), and Western Digital’s (WD Media
Player) respectively. Apple TV has been refined several times and has given Apple another
revenue source (McMahon, 2012). These represent Apple’s main strategic groups and
competitors that it is competing with for market share.
Intensity of Rivalry Among Existing Competitors
The PC industry is highly competitive and consolidated due to the aggressive pricing
policies, after sale services, holistic support, online direct selling, intensive marketing,
innovative ambitions, and profound product design ideologies. As a result, Apple has sunk a lot
of its cash flow reserves into R&D in order to justify higher profit margins from within the
industry. One could point out that since the market is dominated by a small number of large
companies, an oligopoly market structure comparison is not unrealistic. Companies have
become interdependent on one another as many hardware components are intertwined
causing sales, market share gains, and ROI margins to put companies in competitive spirals.
Therefore, rivalry intensities are at all-time highs because PCs have become perishable products
that become outdated within a few years. As a result, new equipment is necessary to keep up
with industry standards concerning performance. Perishable products create a temptation for
management to slash PC prices and sell them while they still hold some value before ultimately
becoming outdated. For consumers, switching costs are low because hardware components are

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standardized, making innovative design realities much harder to use as a competitive
advantage. One advantage that Apple has used to differentiate itself from its direct competitors
involves product integration. This involves linking the iPod, iPhone, iPad, and Apple TV with
iTunes by using it as a loading-station for its various media product offerings. Most of Apple’s
direct competitors have been unable to duplicate this competitive advantage since Apple has
spent a lot of its cash flows on R&D. Taking this a step further, Apple has also opened its own
retail store locations that specifically service its products to improve its technical support and
product services overall. Another unique strategy that Apple has developed involves one of its
closest competitors Sony. Apple has partnered with Sony to make certain iPod mechanical
components. This displays a win-win outcome concerning this competitive rivalry. Apple has
consistently met its large customer base expectations of developing innovative products
holding Apple’s profits high and losses at a minimum (Apples Mac, Oct 2012). Some notable
competitive rivalry realities include HP who outsourced most of its production to Asia to lower
costs, Dell, who won significant market share with its direct selling and build-to-order
strategies, Lenovo, who has focused its bread and butter strategies in China, and Acer, who
secured its spot in Europe by acquiring Packard Bell. That being said, Apple has developed a cult
following amongst its users and sales have increased as a result of its pop-culture
differentiation advertising schematics, such as, white ear buds for “I”-products. Surprisingly,
Apple has been able to buy from and sue its direct competitors at the same time (Samsung Coo,
Oct 2011).
Threat of New Competitors Entering the Industry

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When you think about the threat of new entrants into the PC industry, you would think
entry would be easier considering the number of competitors is small, but this is far from
reality. There is several entry barriers that exist that make it difficult for smaller PC companies
to make a successful impact in comparison to larger companies. The most obvious cost involves
the elevated direct cost of manufacturing. Most companies in the PC industry produce their
own parts in some capacity, for example, Dell, HP, Apple, etc., and high factory fixed costs to
establish/maintain said factories are capital-intensive. This reality allows established companies
to take advantage of economies of scale. Smaller firms that are willing to compete will have
higher average costs that make it harder to achieve higher margins/lower costs in order to
survive and compete successfully. The PC market also lacks high levels of brand loyalty.
Implying that certain items lack a level of preferred preference by customers as a result of
lower product quality, low patent protection, diminishing brand advertising efforts and high
product standardization realities. However, Apple is the exception to the rule since the
company has relied heavily on brand loyalty and word of mouth marketing. Another entry
barrier involves input costs from parts not produced by a hardware firm. Companies like
Microsoft and Intel who produce input technology have significant supplier power because they
produce standard industrial products. With monopolistic influences, these companies can drive
up costs and smaller companies with decreased buying power will have a tougher time
negotiating lower prices. Larger PC firms also have the luxury of spreading overhead costs,
marketing/advertising expenses, and fixed costs over large volume orders. This is advantageous
because it gives larger firms more flexibility to make balance sheet adjustments that smaller
firms will not have the luxury to exploit. Product/service support and maintenance costs are

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other barriers that can create profit burdens for smaller companies. It is fair to say that most
businesses and individuals lack the necessary know-how to repair computer hardware and
software unless they are the parent manufacturing company. Therefore, smaller computer
companies must have the necessary technical information, staffing, and know-how to correct
any end user problems that its customers experience; otherwise, they will become irritated and
less likely to buy its products or services in the future. This is where a larger company like Apple
has an advantage. It has already experienced certain industrial growing pains. In the past, Wall
Street has underestimated Apple’s growth potential on multiple occasions (Peers, July 2011).
Another large entry barrier involves a heavy investment into R&D. R&D investments require a
lot of reserve cash flows in order to stay ahead of the technology curve and remain relevant. It
is harder for start-up firms to develop their own parts because they lack the necessary
resources that larger firms are afforded because of established brand awareness realities. Apple
is working on a new multimedia messaging service known as MMS that will transform the way
people text message (Apple Inc., Sept 2012).
Threat of Substitute Products or Services
Substitute and compliment products are a major threat for the PC industry for
companies similar to Dell, Gateway, IBM, HP, etc., but this is not a problem for Apple in general.
A lot of consumers know that these companies all use similar software offerings, Microsoft
Windows, indicating that Apple’s largest competitors manufacture products that are “close
substitutes” for one another. Apple has the ability to gain and maintain a firm grasp on specific
demand markets. Apple has developed its own operating system which has allowed the

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company to differentiate itself and charge higher prices for its offerings respectively. Apple is
not a substitute for Microsoft Window loyalists and vice versa with Apple loyalists. Historically,
Apple and Microsoft have put safeguards to eliminate cross compatibilities with their products
which have hurt the PC industry overall by limiting both companies to acquire new potential
customers on both sides. That is not saying that Apple is not addressing these concerns with
Apple Boot Camp. Apple Boot Camp allows Apple computers to interface with Microsoft
computers, but I would argue that certain Microsoft users would be wary to replace their PC
with a Mac due to consumer high demand inelasticity. As a result, Apple has stuck with
developing its own software. Apple and Microsoft have a love-hate relationship that goes back
as far the 70’s and 80’s (Vascellaro, Jan 2012). Apple realizes that competing with other
companies can be tough so it has addressed this concern by developing products like the iPod,
iPhone, and iPad etc. that are direct complements with its Mac computers. It all has to do with
cross selling to your established consumer following base to open up new untapped cash flow
opportunities for Apple to exploit. This strategy has allowed Apple to attract Microsoft loyalists
by selling popular products like the iPod, iPhone, and iPad to consumers packaged with its Mac
computers that are compatible with one another and create a competitive advantage that
Microsoft has been unable to match. When we examine each product individually, the iPod
does not have many close substitutes, the iPhone does have close substitutes and the iPad is
seeing close substitutes as the tablet PC market continues to expand. The iPhone can be
replaced with basic phones or any VoIP service (Vonage) and the iPad can be replaced with e-
readers or other smart phones depending on user preferences. I would also like to mention two
more forces in Porters amended model that influences PC compliments. The first one involves

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complementors as value adding institutions involving specific products. This can be seen with
third party software sold with computer bundles. In other words, a PC or Mac is more valuable
if it comes with added software to enhance its uses. The second force involves the relative
power of special interest groups, unions, and governments who can exert their own agendas on
firms like Apple that can influence how complimentary products are marketed and sold. In
other words, if Apple develops a lasting monopolistic power over its offerings that lock out
existing competitors like Microsoft did, then the iPod, iPhone, and iPad could lose market
exclusivity as an industrial leader. Thus, Apple has made its products compatible with Windows
to avoid Microsoft’s past mistakes with its product offerings. The users of the iPod, iPhone, and
iPad tend to be educated users who do not want their “i”-products associated with negative
outside forces like unfair labor practices that Nike had in the 90’s (Anonymous, March 2012).
Bargaining Power of Buyers
When we discuss the bargaining power of buyers in the PC industry, we see the
competitive buying position of consumers is high overall. This is mainly due to the low switching
costs associated with buying PCs respectively. The PC industry is very competitive when we look
at the various options and features available and generally speaking, computers perform the
same functions but with hardware differentiators. Technology changes every three to five years
in the PC industry. This represents the main price differentiator among most home PCs, laptops,
netbooks etc. PC’s are built with several categories in mind that includes: high end gamers,
casual users, business users, media users etc. As a result, each PC that is built contains different
hardware specifications to meet each user’s individual needs. High end gamers want more RAM

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for faster real time gaming, casual users want basic hardware to surf the internet/check e-mail,
and business users want a balanced machine so multitasking can be completed efficiently and
in a timely manner. Anyone of these user categories could customize a PC according to specific
hardware user preferences giving end users the power to ultimately control architectural
designs. As a result, customers can be the engineers of their PCs which make it more difficult
for PC firms to gain significant market share since there are many options available to choose
from. That being said, the opposite is true for Apple. Apple has manufactured many of its
component parts in house including its own hardware and software. Apple’s Mac is set well
above PC industry default pricing models because Apple’s brand is unique and one of a kind.
Some would say that this is a problem for Apple since most Windows based PCs are much
cheaper than Mac based alternatives. However, Apple realizes this, but it is going after a
specific target market that wants an alternative to Window user interfaces. Apple continues to
develop all of its technological upgrades in house making it harder for buyers to dictate price
and policy that has a huge impact on Apple’s core business strategy. Apple’s core followers see
the Mac as a luxurious product like a Mercedes, BMW, etc. are viewed in the auto industry. If
the stock market indicates the true value of a company then Apple is worth a lot right now
(Kessler, 2012). If we look at other items that Apple sells in iTunes like videos and music, then
consumer buying power remains low as well. Consumers cannot dictate media prices because
the parent company ultimately determines their prices and only uses Apple as a selling medium
for their offerings. The bottom line indicates that Apple limits a lot of buyer power because it
manufactures a lot of its own parts in house which gives it more control. Another too Apple has
added to its arsenal is the new iPhone mapping software (Sherr and Efrati, 2012).

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Bargaining Power of Suppliers
When we look at supplier power in the PC industry, we see that it is a force to be
reckoned with. Some might say that this does not affect Apple because it produces its own
operating system, Mac software, etc., but it is important to remember that most of its Mac
computers are powered by internal chips made by Intel, AMD, IBM etc. So why does this
phenomenon occur within the PC industry? The answer is simple. These firms sell products
without any real substitutes. They possess a diversified operations portfolio that empowers
their business transactions to be non-reliant on one specific sector or sectors, and they exercise
dominating business strategies in the PC industry overall. Intel seems to have the largest
supplier power advantage because of its long term contract with Dell and a new alliance with
Apple who had previously used IBM chips. Although, one could point out that IBM has made up
for this shortfall by supplying its chips to Microsoft’s X-Box. So how much power does a
company like Intel really possess? Most industrial analysts would conclude that its power level
includes monopolistic qualities which allow Intel to raise its prices on hardware companies. As a
result, companies like Apple would follow by raising their prices accordingly and pass the added
expense on to the customer. Although, Apple may not be directly affected by price fluctuations
that is passes on, it will be indirectly affected by its existing customer reactionary mannerisms
that persuade them to switch to rival PC computers that use Windows and are much cheaper
when price comparisons are made. To make up for this industrial inequity, larger companies
like Apple can buy in bulk allowing for lower unit prices while smaller lesser known companies
who cannot buy in bulk will be charged a premium. Larger PC companies have also formed
alliances with Intel and AMD concerning R&D that create cost synergies that ultimately leads to

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lower negotiated individual unit prices. Overall, Apple is vertically integrated and possesses
certain competitive advantages when discussing supplier power. When Apple developed the
iPod, iPhone, and iPad, it integrated all three with iTunes. The company is able control its own
supplier power by not outsourcing its media delivery software to an outside firm. In the last 3-5
years Apple has taken a strategic strategy risk by opting for Intel chips which allows its Mac to
branch out and expand its own market share. This reality might increase Intel’s power over
Apple but Apple could make up for it with increased sales to Window loyalists that could offset
or produce additional profits over the incurred risk of increasing chip costs to Apple
respectively. In recent years Apple has decided to work with competitors and suppliers in order
to reduce operating expenses and increase ROI margins (Carani, Sept 2012). Critics have said
that Apple needs to avoid large cross compatibility ideologies otherwise user preferences for
Mac competitors will change. Apple has to keep a balance between expanding its market share
and keeping its industrial identity (Vascellaro, July 2012).
Potential Profitability of the Industry
Since Apple operates within many business industries, it is hard to focus on one alone so
I will mention several companies from several different industries. I will classify each company
into the following categories in relation to Apples influence over them which are destroyed,
damaged, challenged, and benefitted. Let us begin with the companies that have been
destroyed by Apple in some capacity. Hewlett Packard does a lot of business by selling printers
because the iPad has taken a considerable share of its PC market share. In 2011, the company
almost decided to sell its $40 billion revenue PC division and leave the industry altogether. HP’s

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entry tablet the Touchpad also bombed in every aspect of its product life cycle in 2011 and Best
Buy was stuck with over 200,000 unsold units to pawn off on any person who would buy it for
80% off its retail price at $99.00. Dell is the next company that has been hurt very badly by
Apple. Apples market capital surpassed Dells in 2006 and Steve jobs wrote an e-mail to Apple
shareholders that stated Apple’s profits of 29 billion are actually larger than Dells entire market
place. The third company is RIMM (Blackberry) who has dominated the mobile phone industry
with its Blackberry devices because of e-mail, text messaging, etc., but the iPhone came in and
toppled its dominance as the industry leader for smartphones. In 2008, RIMM’s stock was
trading at $144.00 per share, and by the end of 2011, it was trading for $20.00 a share. To add
insult to injury, when RIMM brought out its Blackberry Bold 9900 critics said “it was too little
too late.” The final company that was devastated by Apple is Nokia. Nokia once claimed more
than 50% of total market share in the mobile phone industry. Today, Nokia holds about 15% of
the market and abandoned its own mobile phone software in favor of Microsoft’s Windows 8
OS with the Lumina.
Next, we will look at some companies that have been damaged by Apple. It is not
irresponsible to say that Apples triple threat (iPod, iPhone, and iPad) has made Microsoft more
vulnerable over the last decade. Under Stevel Balmer’s command, Microsoft has failed to
compete with Apple’s triple threat product combination. It has failed to produce a single
product to take away significant market share from Apple. Balmer famously said that he would
never let his kids use an iPod or Google signifying Microsoft missed an entire business
computing operational shift. In 2010, Balmer displayed his that has blinded his leadership
visions while running Microsoft by suggesting that Linux was a larger competitor for Microsoft

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than Apple. The next company is Sony whose Walkman was replaced by the iPod when it hit the
market with a bang. Their Vaio laptops are being slowly replaced by iPads as well. That being
said, their chipsets are powering Macs, but their PC business has dropped off.
The next category involves challenging by Apple. The main company that starts off this
category is Google. Google bought Android and made it a legitimate iPhone competitor by
recruiting a major smart phone competitors’. Google has battled Apple’s many patents and
expanded their patent portfolio by acquiring Motorola for $12.5 billion. The final company in
this category is AT&T who was so eager to covet the iPhone that it let Apple dictate its own
terms. AT&T’s actions may have changed the mobile industry overnight.
The final sections cover companies that have benefitted from Apple. ARM Holdings
which designs the processor cores for the iPad and iPhone have profited from Apple ROI
margins. Apple has invested a billion dollars in Sharp who makes Apple laptops and LCDs. This
has since produced ample returns for Sharp. Corning GLW makes the Gorilla glass for the iPod
Touch, iPhone, and iPad respectively. This has helped increase its bottom line. Sprint is another
company that has benefitted because it got the iPhone in 2011 when Apple was loosening the
reins on their iPhone distribution plans. Sprint shareholders experienced a boost for dividends
paid from the agreement. Foxconn is another relevant company because it manufactures many
Apple products, and STMicroelectronics follows close behind because it produces the
Accelerometer Gyroscope for new generation iPads. Finally, Qualcomm makes the wireless
baseband chips for the iPhone 4 and 5. Apple’s R&D efforts to help improve the iPhone have
helped it generate more than $40 billion in profits in 2012 (Badenhausen, Oct 2012). Apple has
redesigned its core products and is looking for new venues to branch out into. It is only a

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matter of time before Apple starts buying companies like Twitter in order to dominate social
media like it has the electronic industry (Ingram, 2012).
What are the Critical Success Factors for the Industry?
In all of the industries that Apple has operated within, it seems to have a good grasp
concerning its product offering basket within each industry that it operates and contributes to
its successes each year. The first critical success factor that Apple has adopted includes
advertising and differentiation. Apple has been a major player when it comes to advertising its
brand to the masses. In 1984, Apple launched the Super Bowl commercial initiating the “think
different campaign” in the 90’s and it did the “iPod people” campaign in the 2000’s
respectively. Apple even got an artist to do a special painting of its iPod that is now hanging in
New York’s Museum of Modern Art. Apple also developed its trademark white ear buds to
differentiate “i”-product owners from non-“i” product owners.
The second factor that Apple has mastered involves a well-recognized and cherished
brand name. In 2011, Apple was named the most recognizable brand name in the U.S. and
every 2-3 business quarters Steve Jobs or an Apple spokesman would hold a pop-culture
unveiling event to showcase its new innovative product offering. Some people also said Steve
Jobs was crazy to fire Sears as Apples main product distributor and open Apple retail shops.
However, this move has paid off big for Apple as a result. He also expanded Apples distribution
network through iTunes. iTunes has become Apple’s signature online marketplace for Apple
related products (e-books, videos, music, TV shows etc.)

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A third factor includes breath of product lines since Apples triple threat has influenced
many different industries ranging from the music industry to the mobile phone industry. In
addition, Apple started the tablet PC business overnight. Apple’s impact on the stock market is
also relevant because it increased the EPS of the S&P 500 by 3% in the fourth quarter in 2011
(Ray, April 2012). Other smaller factors include: a solid strategic plan, large cash reserves on its
balance sheet, excellent supply chain management, relevant information systems, and excellent
retail locations/operations. Apple is looking to add VOIP capabilities on the iPhone 6, and it
must continue to use its competitive advantages to stay ahead of its competitors (Fitchard,
April 2012).
IV. Analysis of the Macro-Environment
Political and Legal forces Affecting the Industry
Since the iPhone hit the scene 5-6 years ago, one of the main political roadblocks for the
iPhone has been so called “grey markets”. This occurs when store owners import products from
a foreign country at a discounted price and resell them in their own store fronts at a lower price
compared to authorized retailers. Grey markets exist in countries where a product like the
iPhone is not currently or readily available for purchase. Grey markets fill this void. The iPhone
is readily available in most western countries but not in countries like Brazil, India etc. where
grey markets are perfectly legal. Thus, the iPhone market in these countries is opened up

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prematurely without Apple’s consent. Apple will lose potential new sales before it can enter the
untapped market places. As a result, bootleggers will get a head start on questionable iPhone
distribution business dealings that would be illegal in the U.S. Another political force involves
China joining the World Trade Organization. China’s joining means lower investment/market
barriers for Apple to exploit lower labor costs and gaining new iPhone market share from new
cash flow sources. A legal issue facing Apple continues to be Digital Rights Management (DRM)
protections/DRM hacking concerns. This battle involves copyright infringement barriers that
Apple must carefully abide by. Apple has avoided potential lawsuits by striking deals with Media
company owner licensing and royalty distribution agreements that have kept Apple on the right
side of the law. Apple wants to avoid fates similar to those suffered by Napster and other
companies that have employees illegally downloading files. Apple has accomplished this by
integrating iTunes into its strategic strategy. Another political barrier for the firm has been
pressure from EU companies for the iPod/iTunes combo to be compatible with rival music
products. This is the same fate Microsoft suffered with Windows source code because rival
software/third party software was not compatible either in many cases. Microsoft was forced
to open up its source code to the industry. Apple was one of the first companies to introduce its
own format for music sold through iTunes in their own AAC music format. Apple tried to
protect its market share by making it harder for its songs sold through iTunes to be
incompatible with other mp3 players in the beginning. Since then, Apple has relaxed some of
these barriers by accepting the mp3 format on its iPod but continues to use iTunes as its main
product loading default hub for the iPod. Another legal issue hit Apple in 2006 when the SEC
investigated the firm’s issuance of stock options to its top managers because of fears of insider

22
trading and back door deals. Another legal factor that presented itself involved the theft of its
iPhone 4 prototype that mysteriously disappeared. This criminal act proves how valuable
Apple’s R&D efforts were and how greatly the firm influenced the mobile phone industry.
Finally, Apples legal battle with Nokia and HTC over patent infringements has also been a
problem for Apple over iPhone imitation technologies that can help rival firms steal market
share away from Apple.
Economic Forces That Affect the Industry
The most obvious economic force impacting Apples product offerings revolves around
branding its product lines as premium products which makes them much more expensive than
other competitors rival offerings. During the current recession consumer spending power will
decrease due to premium products being viewed as luxurious items. A lot of consumers will
choose cheaper alternatives. Thus, pricing becomes a major obstacle for poorer customers.
Apple is specifically targeting countries that have strong middle and upper classes that most
developed countries possess like the U.S., Europe, Australia, etc. Developed countries are also
excluded because they are much poorer and have limited infrastructures that cannot support
the iPhone’s vast capabilities. iPhone sales could be hindered globally. Economic inflation has
been an economic opportunity for Apple because it has purchased foreign currency to offset
the dollar’s decline in value and the firms international revenues have increased as a result.
Apple is very efficient when it comes to managing its balance sheet and this has actually led to
the capital it has invested in its operation to turn negative. A negative turn means Apple gets
paid faster for its products than it can make them (Winkler, July 2012). The firm has learned a

23
lot from its past economic struggles in the late 90’s and early 00’s when it ultimately launched
the iPod. The launch increased Apple’s sales and volume orders to levels never experienced by
the company. Apple has also become the second largest dividend payer behind AT&T at 10.43
billion yearly according index analysts (Shirley, 2012). Apples own sales reputation has been a
burden because everyone expects every new Apple product to become a cash cow. This stigma
backfired on Apple in May 2012 when Apple was sued over Siri commercials. As a result, Apple
decided to give refunds to disappointed iPhone 4S owners over these TV commercials that
certain users thought were misleading (Cline, May 2012). Recently, a large economic force hit
Apple when Scott Forestall, head of Apple’s new map App, was forced out when he refused to
sign an apology letter over the negative publicity associated with the new mapping software he
designed for the iPhone 5. John Bronett, Apples head of retail operations, was also let go
because he had discontent with Apple store employees over low pay. Both were at odds with
other Apple executives over the firm’s long term goals and both left on less-than friendly terms.
Apples entry into the smaller tablet market was only a matter of time even though certain
Apple executives resisted the iPad mini’s development (Lessin, Oct 2012). Demand for Apple
products worldwide appear to be healthy, and there has not been a serious contender that has
been able to take significant market share from Apples line of products overall.
Social Issues Affecting the Industry
One of the main strengths that Apple has always strived for involves its ability to make
products with trendy and sleek designs. Most of its products offerings are white in order to
make it easy for people to recognize them. For “i”-product owners, the only appropriate time to
upgrade their gadgets is when a newer version of an Apple product comes out. Any other

24
option would be socially unacceptable. Apple was also one of the first companies to advertise
the 12 and 17 inch laptops. It did so by including Yao Ming and Verlle Troyer advertising the 12
inch PowerBook for Yao and the 17 inch PowerBook for Verlle to signify that Apple’s laptops
could be used by anyone no matter what their social status or height measurements were.
Social demand trends are also changing with declining PC sales and increasing tablet PC sales.
Portability attitude shifts from bulky to mobile. Apple has also created social consumer
expectations concerning “i”-product compatibility standards. In other words, consumer
products need to be compatible with Apple products and have docking stations in order for
consumers to use them with everyday products that include stereos, digital picture frames, car
radios, etc. Apple has done a great job by making other firms adapt their product lines to
Apples designs because it involves product designs that people can use in everyday social
settings. Apple has also made smaller versions and more color options available for its other
products like the iPod Nano, iPod Shuffle, and the most recent iPad Mini in order to attract new
market customers who want Apple products available in more sizes and colors that fit their
lifestyle preferences. The firm has also developed Apps for its Apple store to complement
educational realities that include digital learning opportunities through its iPad. This includes
endeavors like e-books, watching video teaching lessons, and audiobooks for enhanced learning
capabilities for everyday students. Apple has also created public social launch parties that have
turned into media events for its new product launches. In the past, it was all about what Steve
Jobs was going to unveil that would change our lives over the next few years for the better.
Recently, Apple has developed new services like iCloud, a service that allows users to store their
media products online and allows people to access it through wireless devices. iCloud can

25
improve lifestyle convenience for Apple customers. In Nov. 2012, the firm was awarded a
patent for artificially turning e-book pages on its iPod. The patent may seem weird, but Apple
wants people to think of flipping e-book pages as an innovation that is only unique to Apple
R&D product efforts. This is just another example of Apple social ingenuity.
Technological Forces Affecting the Industry
The foremost technological issue concerning Apple deals with technology itself because
technology gets outdated every 3-5 years. As a result, new product innovations outpace expired
outdated technology. Apple needs to continue to invest in R&D in order to maintain its
competitive advantage in the market place. Apple has done a great job with products like the
iPod that is categorized as a product with more subtle types of changes as Porter put it. In other
words, these types of products are known as sustaining innovations. They are updated
technologically speaking with game changing technological advances that no rival firm has been
able to match. Apple has done this by taking advantage of technological relationships with third
party companies who offer unique innovative capabilities. Apple relies on Sony for its batteries,
Wolfsons for the codec DAC, Toshiba for its disk drives, etc. allowing Apple to maintain its core
strategic strategies within the market places it operates within. Apple is also a firm that exploits
new innovative technological advances before its competitors do. It was the first company to
take advantage of touch screen technology by incorporating it in the first iPhone, making a Wi-
Fi enabled internet mobile phone, etc. The firm made it easy to use for the masses and made it
harder to copy for Apple’s direct competitors. It also opened up the iPhone for third party apps
to operate on to make it more appealing to non-Apple enthusiasts. Another technological
problem for Apple has been its own protective nature for its own core product offerings. Apple

26
has tried to protect its products from contamination with safeguards such as codec limiting file
format types like the AAC format for its musical downloads, MOV video file format for its video
downloads, making the iTunes software for loading its media products exclusively, making
software compatibility barriers for its Macintosh computers, etc., and has created headaches
for new and existing Apple/PC users alike. Another problem for the firm is that it sometimes
tries to be too innovative with its products. A recent example involved the firm making a
technological change to the iPhone 5 aka mapping software and the backlash it received from
its core fan base users. Another example occurred in Nov. 2012 when it abandoned its message
beta for its OS X Lion software. Apple realizes that the best way to remain ahead of its
competitors is to hire the best and brightest talent pool and create a popular company to work
for. Apple is currently trying to design set top boxes like its Apple TV for enhanced internet TV
viewing experiences. This is one area that Apple has not been able to dominate and it is trying
learn from product market failures in order to design a new set top box with features that
consumers expect. Apple’s new iPad Mini is expected to rival Amazon Kindle Fire which is a
whole new niche market where Apple is trying to conqueror significant market share
comparable to how the original iPod did a few years earlier.
Threats and Opportunities Facing the Organization
When we look at the potential opportunities for Apple, wireless connectivity, and
networking products represent massive new growth opportunities that Apple can expand into.
Apple has started the process by developing Airport, a wireless networking technology that
allows users to create a computer network and connect to the internet without networking
hardware, cables, or additional phone lines. This technology also allows Apple users to expand

27
any Wi-Fi networks range, print wirelessly, play music wirelessly on speakers etc. Another
opportunity for Apple to consider is the Super Wi-Fi technology that is the next big thing to hit
the computer industry. It is now being used on a limited basis through 3G carrier networks
leaving customers at the mercy of a carrier’s mobile service. Traditional Wi-Fi networks run off
microwave signals, but Super Wi-Fi networks run off old TV frequencies that can go for miles
and miles while penetrating through walls. Super Wi-Fi security systems can also protect entire
corporate/college campuses, track household pets, help medical patients with emergency
situations, etc. Apple needs to get into the bidding for tower rights and property assurances in
order to build a specific Super Wi-Fi network that Apple users can access thus creating new ROI
streams for the firm in the future. Another opportunity for Apple includes developing Apple
components that are more efficient and environmentally friendly. This can range from batteries
that last longer to Apple recycling programs for safe disposal to alliances with Green companies
for more efficient parts. Another opportunity for the firm involves the development of new
supply chains in developing countries where untapped market potential can bring about new
realities for improved strategic direction. Apple should develop relationships with middlemen in
order to better understand foreign markets and use this knowledge combined with its current
market experiences to grab new customers and build brand loyalty. This is true for the Chinese
market place where natural resources are used for Apple products and positive organizational
alliances/commitments will ensure the rapid growth of Apples three main products (iPod,
iPhone and iPad). By doing this, Apple can use its trend setting strategy to achieve a cult
following internationally to expand its end user base in developing countries. Apple’s stock is
expected to increase exponentially if and when it expands into third world markets that have

28
yet to be developed and transformed for developed technologies (Lessin, Oct 2012). One of the
most obvious threats to Apple has been created as a result of its own successes in the market
place that can be referred to as cocky comfortableness. Basically it means that Apple gets too
confident by thinking its products will remain industry leaders without innovative strategic
planning. Such an attitude will allow a competitor to develop a product under the radar and
steal significant market share from Apple’s big three “i”-products. In other words, Apple should
not let their foot off the gas when it comes to strategic innovation. Another threat has to do
with the tablet PC industry that Apple defined early on with the introduction of the iPad. It
includes an increase in market competitors that can develop into direct competitors if Apple
does not continue its innovative strategy. Amazon is a great example because it is a company
that no one thought would revolutionize the tablet PC market further with its development of
the 7 inch Kindle Fire. Apple missed this potential market completely and Amazon became a
direct competitor that Apple had to respond to with the iPad Mini creation. Another potential
threat has to do with the ongoing recession that could impact Apples pricing models for all of
its products. Hidden inflation can appear out of know where and can force companies like
Apple to raise the prices of their products. The increased cost is passed onto consumers, or
could force the firm to discontinue products with limited ROI future potential. Apple has to
watch products that have dominated the market place a long time and are in the latter stages
of the product life cycle. One such product involves the iPod because there have been many
different versions. Its earning ceiling has dropped over the years because of the vast array of
mp3 and video players in the market today. Music playing features are being incorporated into
other everyday products like cell phones and have reduced the need for iPods even further. The

29
iPod is integrated into the iPhone/iPad respectively. Apple has to realize that some of its newer
products could be indirect competition for its older products as technology improves within
various industries (Badenhausen, Oct 2012). Microsoft Windows 8 is also a new threat to Apple
because of the innovative idea to incorporate tablet software functions into desktop operating
system software. If Windows 8 takes off and becomes the new norm, Apple will have to
incorporate some of its iPad technologies into its Macintosh brand which could include apps,
touch screen monitors etc. Another threat includes VUDU, Netflix, Amazon, and other
companies that stream live video, movies, TV shows etc. to TV’s for entertainment revenue.
Being good at everything is a large threat because being the best requires product upgrades
and maintenance that can be hard even for a company like Apple to sustain and maintain.
V. What is the organization’s measurement and control system?
Apple has maintained financial strength through the turbulences of the market over the
last few years. Apple’s strategy is based on a differentiation strategy. They rely on innovative
and unique products and services to gain a competitive advantage while competitors appear to
be competing mainly with a low-cost strategy (Apple, Inc., 2012). Apple’s differentiation focus
can be seen in their research and development expenses. From 2010 to 2012, research and
development expenses have almost doubled along with their current liabilities. However, their
operating income has tripled from 2010 to 2012. In addition, Apple’s financial reports indicate
that they do not have any current long-term or long-term debt (2012 Yahoo!, Apple Inc.
(AAPL)).
Apple experienced an increase in sales in all of its products and services during 2011 and
2012 except for the iPod and Desktop product categories. These products have seen a decrease

30
in sales since 2010 (Apple, Inc., 2012).
Profitability and Performance
Along with sales of products and services, Apple’s financial statements are growing as
well. Net income margin has increased from 2010 to 2012 by 6% to 27%. Apple has also
experienced an increase in gross profit margin, return on assets, return on equity, and return
on sales. All of these measurements indicate that Apple is increasing their profitability. Apple
suggests that their success in this area is due to their constant focus on innovation and
differentiation (Apple, Inc., 2012).
Despite Apple’s increased profitability and positive performance, competitors have not
experienced the same increases. Google and Hewlett-Packard Company have managed to
maintain their profitability margins over the past three year. Research in Motion Limited and
Microsoft have not been as lucky. They have experienced a decrease.
Even though Apple has experienced an increase and its competitors have not, Apple’s
net income margin is still less than that of Google and Microsoft. Apple’s gross profit margin is
44% compared to Google’s 65% and Microsoft’s 76% (2012 Yahoo!, Apple Inc. (AAPL); 2012
Yahoo!, Google Inc. (GOOG); 2012 Yahoo!, Hewlett-Packard Company (HPQ); 2012 Yahoo!,
Microsoft Corporation (MSFT); 2012 Yahoo!, Research In Motion Limited (RIMM).
Leverage
Leverage is another field of measurement that Apple’s financial reports indicate they are
performing well. Leverage indicates how a company is using borrowed funds in its operations.

31
Ratios such as debt-to-asset, debt-to-equity, and long-term debt-to-equity can be used to
measure leverage. The higher these ratios are for a company, the higher the risk involved with
the investment can be for investors. Over the past three years, Apple has managed to slightly
decrease its debt-to-asset and debt-to-equity. Long-term debt-to-equity has held constant at
zero due to Apple’s zero balance in long-term debt during 2010, 2011, and 2012. One approach
Apple can use to improve their debt-to-asset and debt-to-equity is by lowering the accounts
payable balance.
Research in Motion Limited and Microsoft managed to decrease their debt-to-asset,
debt-to-equity, and long-term debt-to-equity in their latest reported fiscal years, Google held
these three fields relatively constant, and Hewlett-Packard Co. increased all three measures.
An important leverage measurement tool for current or potential shareholders is debt-
to-equity as it indicates the level of funds being used from creditors associated to that of
shareholders. Compared to competitors, Apple ranks in the middle. Apple has lowered this rate,
but they are still higher than Research in Motion Limited and Google. As aforementioned, one
method Apple can use to lower this rate is to lower the accounts payable balance.
Liquidity
Liquidity measures a company’s ability to cover its short-term debts. The most common
measures include, the current ratio, quick ratio, and working capital. Apple has experienced a
decrease in the current and quick ratio. This indicates that Apple has decreased its ability to pay
short-term debt obligations. Apple’s current assets and current liabilities have both increased
from 2010 to 2012; however, the current liabilities have increase at a greater rate. It appears

32
the accounts payable are the main factor for the increased current liabilities. Apple’s current
and quick ratio has dropped from approximately 2.0 to 1.5 over the three-year period. Working
capital at Apple dropped from in 2011 from 2010’s reported $21 billion but picked back up in
2012 to $19 billion (2012 Yahoo!, Apple Inc. (AAPL)).
Apple’s competitors except for Hewlett-Packard Co. enjoy a current ratio greater than
2.0. Microsoft and Google have quick ratios of, respectively, 2.57 and 5.92. Google’s high quick
ratio is due to their reporting of zero inventories. Working capital of Apple’s competitors ranges
from $579 million to $52 billion.
Apple’s current ratio and quick ratio performance is only better than Hewlett-Packard
Co. who has not had the greatest success story during recent years. Apple’s figures are not
alarming; nonetheless, it is something that should not be overlooked. Their working capital
ranged in the middle of its immediate competition. Apple could lower current liabilities or
increase current assets at a greater rate than current liabilities to combat the recent decrease
of the current and quick ratios (2012 Yahoo!, Apple Inc. (AAPL); 2012 Yahoo!, Google Inc.
(GOOG); 2012 Yahoo!, Hewlett-Packard Company (HPQ); 2012 Yahoo!, Microsoft Corporation
(MSFT); 2012 Yahoo!, Research In Motion Limited (RIMM)).
Financial Analysis Measurements
APPLE, INC.
29-Sep-12 24-Sep-11 25-Sep-10
Stock Price $664.07 $400.74 $289.75
Current Ratio 1.50 1.61 2.01

33
Quick Ratio 1.48 1.58 1.96
Asset Turnover 0.89 0.93 0.87
Sales to Working Capital 8.19 6.36 3.11
Debt-to-Asset 0.24 0.22 0.19
Debt-to-equity 0.49 0.52 0.57
Long-Term Debt-to-Equity 0.00 0.00 0.00
Gross Profit Margin 0.44 0.40 0.39
Return on Assets 0.32 0.29 0.25
Return on Equity 0.35 0.34 0.29
Return on Sales 0.36 0.32 0.28
(2012 Yahoo!, Apple Inc. (AAPL))
Google
30-Dec-11 30-Dec-10 30-Dec-09
Stock Price $645.90 $598.86 $622.73
Quick Ratio 5.92 4.16 10.62
Debt-to-Asset 0.20 0.20 0.11

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(2012 Yahoo!, Google Inc. (GOOG))
Hewlett-Packard Company
30-Oct-11 30-Oct-10 30-Oct-09
Stock Price $27.31 $40.58 $45.50
Quick Ratio 0.86 0.97 1.08
Debt-to-Asset 0.70 0.68 0.65

35
(2012 Yahoo!, Hewlett-Packard Company (HPQ))
Microsoft
29-Jun-12 29-Jun-11 29-Jun-10
Stock Price $30.14 $24.57 $21.83
Quick Ratio 2.57 2.56 2.10
Debt-to-Asset 0.45 0.47 0.46
(2012 Yahoo!, Microsoft Corporation (MSFT))
RESEARCH IN MOTIONN LIMITED
2-Mar-12 25-Feb-11 26-Feb-10
Stock Price $13.79 $65.99 $70.88

36
Quick Ratio 1.78 1.89 2.12
Debt-to-Asset 0.26 0.31 0.25
(2012 Yahoo!, Research In Motion Limited (RIMM))
Key Performance Indicators
There are many items that Apple uses to measure their success in the industry. The
competition of the industry pushes Apple to focus on constantly providing consumers with new
and innovative products throughout the year. The demand for Apple to consistently deliver new
and innovative products on a regular basis has a great influence on Management’s review of
the company. Inventory, research and development, patents, intellectual rights, timely delivery
of products, and retaining key personnel are all part of Management’s measurement.
Management considers revenue recognition, marketable securities, inventory control, warranty

37
costs, income taxes, and legal matters to be top indicators of their financial performance.
As it is for most companies, successfully recognizing revenue values is a focus of Apple’s
management team. The goal is to recognize revenue values when they are certain they
revenues will be experienced. Management must account for potential incentive rebates and
other partial revenue recognition measures in hopes to avoid recognizing revenue that is in fact
not revenue. Apple’s goal is to not over account for revenue due to the adverse impact the
revenue reductions will have on reporting and ill-advised managerial decisions. Successfully
recognizing gains and losses of marketable securities is also a goal of Apple’s management
team. Just as for revenue, Management does not want to over report values of marketable
securities. Success for revenue recognition and reporting marketable securities is measured by
Apple’s ability to not report over estimations (Apple, Inc., 2012).
Apple sets inventory requirements based on demand forecasts, industry and product
trends, and product life cycles. Apple’s intent is to not be caught with large amounts of
inventory on hand in the event of a sudden decline in demand. A sudden decline in demand
could be due to technological advancements, competitor announcements, and/or other
changing market conditions. Apple attempts to keep inventory commitments in periods of up to
150 days, depending on the product and/or demand. A low inventory level at the end of the
estimated period indicates that Apple was successful (Apple, Inc., 2012).
Warranty costs are difficult to prepare for. Apple estimates warranty costs on a
quarterly basis. Their goal is to stay below the quarterly estimate. In the event that warranty
costs are higher than the estimate, operations could be negatively impacted. This is an indicator

38
of product and Management’s performance during the measured periods (Apple, Inc., 2012).
Legal and other contingencies are important indicators of Apple’s performance. As seen
in many recent court battles, the technology-based industry has many risks associated with
rights and infringements. Apple realizes the possibility of losses being incurred due to legal
proceedings and claims. These amounts are also estimated for reporting periods. Staying below
the estimated value is a success for Apple. One or more legal proceedings and/or claims being
settled against Apple in excess of the estimated value for the reporting period can have
negative impacts (Apple, Inc., 2012).
Apple uses historical estimates as a strategy to measure the performance of the
previously stated areas. The goal is to stay within the estimate to avoid adverse impacts on
their reporting periods. Apple considers it a success when actuals are below the estimated
values for each of the performance indicators.
VI. Analysis of the Organization
Apple is a prestigious company who has been around for over thirty years, and in those
years, they have become in terms of earning, one of the top if not the top company in the
world. Their foundation begins the overall mission or the statement they live by and that is
where apple is unique. However, their official mission statement is, “Apple designs Macs, the
best personal computers in the world, along with OS X, Life iWork and professional software
Apple leads the digital music revolution with its iPods and iTunes online store. Apple has

39
reinvented the mobile phone with its revolutionary iPhone and App Store, and has recently
introduced iPad which is defining the future of mobile media and computing devices.” This does
not sound much like a mission statement more of a list of accomplishments. Although there is a
statement used often that sound much more like a mission statement is, “Apple is committed to
bringing the best personal computing to students, educators, creative professionals, and
consumers around the world though its innovative hardware, software and internet offerings.”
This statement is all about inspiration and setting goals to stand out in the world by creating
products that are superior to the competition. In their statement, safety is also a concern as
well, but it is also expressed how apple is always looking towards the future. A successful
company is always looking towards the future and getting ahead of the curve such as Apple,
whose fourth quarter earnings were almost two billion dollars which comfortably puts them in
the top five of fortune 500 companies.
Throughout the years, Apple has had a vision in terms of selling their product and
reaching their quota of customer satisfaction. For them, they do not want to be limited to one
group of individuals; their vision consists of making computers and electronic products for
everyone including professors, corporate America, and students. Their diversity does not end
with computers, their iPods, iPads, and other accessories have shown how this company has
increased their popularity over the years with the public. Starting from the creation, apple has
always maintained their vision of diversity and consists of making products and advancing those
products to better adapt to other companies and the growing trend of new products.

40
The foundation of this company lies within their core values and how they believe
business should be ran. On manuelcorpas.com, apple’s guidelines are displayed and it is written
as a promise. For example, a few of their promises are “We believe that we’re on the face of the
Earth to make great products, We believe in the simple, not the complex, We believe that we
need to own and control the primary technologies behind the products we make”. For Apple, it
is all about gaining a personal relationship with the consumers and to show them that first and
foremost, their main goal is to make sure their product are the best. Overseeing the day to day
operations and the overall company can be a difficult job to say the least. From their website
apple.com, “The governance structure of the Corporation is designed to be a working structure
for principled actions, effective decision-making and appropriate monitoring of both compliance
and performance”. To Apple, the structure itself is based on having the company run smoothly
and effectively and to make sure no position has too much power because with a company of
this size, a system of checks and balances is a necessity. Further examination of the document
shows that each position of major power has been displayed and a description of what they do
on a day to day basis is shown.
To Apple, their core competency consists of two things: innovative design and
technology and this goes directly with their “Think Different” campaign. Apple wants to “wow”
their consumers and provide a product that will amaze and satisfy the world. They also want to
buy different because they want to set the standard and provide a different experience
involving such amenities as workshops and rewarding their customers for loyalty. Another part
of their core that is not talked about is how they focus on lower-priced products. Fool.com talks
about apple and their ideologies: “The real innovation of Apple's business model exposed itself

41
when the company focused its core competencies on lower-priced products. Introductory Apple
products like the iPod series have had great mass-market appeal, which directly addressed the
perception that Apple only catered to high-end markets. Instead of cannibalizing its high-end
products with lower-cost product offerings, Apple is capitalizing on an inverse effect”. This is
another part of Apple’s diversity, that they recognize that they cannot always go after high end
markets because that is not always the best situation and a lot of times smaller markets are
what make a company strong. The uniqueness with this plan is that Apple seems to be a
company that adapts on the fly and understands what needs to be done in order to adequately
be prepared for the future and in some cases, set the trend.
In order for Apple to maintain their success and continue to dominate the market, they
must have goals for their short and long term future. For Apple, they want to continue to
improve their product every year and keep consumers coming back for more. This is part of the
reason why they annually make iPhones and other products, this seems to be a statement that
we are here to make you happy and to keep you excited for the future. This also includes
making all products compatible with each other, with today’s society it is all about simplicity,
presentation, and features. A couple of their short term goals include: Apple Inc. plans to keep
creating and releasing computers and consumer electronics that are more user-friendly.
Secondly, Apple Inc. will focus more opening more stores even on international locations to help
increase sales.
VII. Analysis of the Organization

42
Apple follows a vast differentiation strategy; they differentiate making and providing
high-quality, exclusively designed and personalized products and services. Using this strategy
they target wide range of customers, from ordinary beginner users to specials needs power-
users.
May be there is nothing more proud for Apple than their innovations. It is obvious from
Apple history that innovations took the company where they stand today. For example, Apple
was one of the first, who developed PDA market, when in 1993 they introduced their Newton.
In 1998, they introduced easy-to-use iMac, and have updated it since after. In 1999, they
developed and presented highly stable operating system, and continuously update it. In 2001,
made a big step in digital lifestyle, when launched their iTunes and later on introduced the iPod.
In 2003, Apple released the world’s fastest PC (Mac G5), with dual 2.0GHz PowerPC G5
processors. In June 2007, another revolutionary product was released and upturned the whole
industry, the iPhone. Steve Jobs described it as a revolutionary mobile phone and a
breakthrough Internet communications device. The iPhone was also the first Apple-branded
consumer device to run on OS X. One of the latest innovative products is iPad, unveiled in 2010.
Apple positioned the iPad as the first device in an entirely new market segment, making the
claim that it would be better at many tasks than either smartphones or traditional laptops.
Although Apple deals in a wide range of products, the company treats every product line
in a unique way. Each product of Apple is treated as a standalone business unit. Thus, five main
business units should be distinguished: Mac business unit, iPod business unit, iPhone business
unit, iPad business unit, and iTunes business unit.

43
Even though Apple treats each product as a separate business unit, all the business units
follow corporate strategy adjusted to its industry. The fact of Apple updating its entire product
at least once a year proves their emphasis on differentiation. Apple’s activities on developing
new products and regular upgrades for existing ones let them to comply with its goals and
mission. Apple has the following mission statement, “Apple designs Macs, the best personal
computers in the world, along with OS X, iLife, iWork and professional software. Apple leads the
digital music revolution with its iPods and iTunes online store. Apple has reinvented the mobile
phone with its revolutionary iPhone and App Store, and is defining the future of mobile media
and computing devices with iPad. And following goal: Apple Inc. is committed to bringing the
best personal computing, mobile communication and portable digital music and video
experience to consumers, students, educators, businesses, and government agencies through
its innovative hardware, software, peripherals, services, and Internet offerings.”
Comparing Apple’s strategy with its competitors, it should be noted that Samsung
Electronics, in the first place, pursuing the cost leadership strategy, meaning it increases profits
by reducing costs, while charging industry average prices. Contrary to Porter, who stated that
two strategies should not be implemented in same time, Samsung Electronics successfully
combines cost leadership with differentiation strategy, where they use their innovations wisely.
Talking about Hewlett-Packard Inc. we should note that they currently implement a
turnaround strategy, which means the strategy dedicated to corporate renewal. Thus, HP’s
president and chief executive officer Meg Whitman outlined progress made over the past year
to stabilize the business and lay the foundation for a multiyear turnaround. She noted that

44
operating and organizational models have been integrated, centralized and streamlined, and a
talented executive team is in place to execute the strategy. It is obvious that this strategy is
implemented in order to be able to achieve their objectives, which are following:
 to achieve sufficient profit to finance our company growth, create value for our
shareholders and provide the resources we need to achieve our other corporate
objectives;
 to grow by continually providing useful and significant products, services and solutions
to markets we already serve-and to expand into new areas that build on our
technologies, competencies and customer interests;
 to provide products, services and solutions of the highest quality and deliver more value
to our customers that earns their respect and loyalty;
 To help HP employees share in the company's success that they make possible.
Taking Microsoft Corp. we should note that they implement differentiation strategy aimed on
accessibility. They take a strategic approach to accessibility by:
 continuing our longstanding commitment and leadership in developing innovative
accessibility solutions;
 making the computer easier to see, hear, and use by building accessibility into Microsoft
products and services;
 promoting innovation of accessibility in the development community and working with
industry organizations to encourage innovation;

45
 building strong collaborative relationships with a wide range of technology
organizations to raise awareness of the importance of accessibility in meeting the
technology needs of people with disabilities.
Let’s identify Apple’s strengths, weaknesses, opportunities and threats by completing SWOT
analysis:
Strengths Weaknesses
 Established brand name
 Customers loyalty
 Cultural, fashion identity
 Proprietary technology
 Strong research and development
capabilities
 Strong international presence, Apple
operates in 114 countries
 Diversified company, not dependent
on only one industry
 Strong financial position
 Strong product lines in Mac, iPod,
iPhone, iPad
 Dependence on third party provider
 Apple’s market share is far behind
from major competitor Microsoft
 Company’s products are expensive
compared to competitors’
 Higher research and development
costs
 Higher channel costs compared to
major competitors like Dell
 Weak presence in corporate segment
 Apple’s technological products have
short lifecycles
Opportunities Threats
 Apple can develop good relationship
other companies for joint ventures
 Diversification into related and
unrelated business
 Expand horizons of operations with
new countries and industries
 Production of computer anti-viruses,
which are increasing on PC’s
 Increasing online shopping
 Powerful competitor Google with their
Android OS
 Many similar substitute products
 Competitive products are mostly
Windows-base which has a larger
customer base
 Media piracy: iPod users illegally
downloading music for free instead
buying at iTunes

46
 Corporate segment  Very high speed of technology
development
 Apple products are more expensive
than those of competitors, thus Apple
misses a significant share of market
Despite the success of Apple’s strategy, after SWOT analysis several strategies still could
be suggested. One of the strategies is an internal growth strategy, which could be pursued by
opening new stores in existing locations, starting operations in new countries, providing more
of direct contact with buyers and to bring Apple experience to larger amount of customers,
increase online services and sales, etc. Internal growth strategy is good in following ways, it
does not disrupt organizational goals, it will not bring crushes in corporate culture, and it is
relatively cheaper comparing to external growth strategies, especially acquisition. The most
significant disadvantages of this strategy are: it is a quiet time consuming and in some way
risky, for example if start operations in new countries.
Second, strategy is a vertical backward integration, in this case, Apple will be less
dependent on suppliers, and will allow them to manufacture more and better products, ease up
control of all manufacturing processes, and thus improve quality. Vertical integration has
following advantages: improve supply chain coordination, reduce transportation cost, gain
access to downstream distribution channels, give more opportunities to differentiate by means
of increased control over inputs, increase entry barriers to potential competitors, expand core
competencies, etc. It also has significant disadvantages: lock company deeper into same

47
industry, may require drastically different capabilities, poses problems of balancing capacity at
each stage of value chain, etc.
Third, strategy is strategic alliance, which will help Apple to increase its market share
and become more competitive, especially with Microsoft. And of course continue with their
differentiation strategy and being highly innovative. Among the advantages of strategic
alliances are following: gaining capabilities, eases access to target markets, sharing financial
risks, achieve synergy and competitive advantage, enlarge company’s distribution channels,
broaden business and political contact base. There are also some significant disadvantages:
diverse or conflicting operating practices, cultural barriers, clash of egos and company cultures,
time consuming in terms of communication, trust-building, and coordination costs, becoming
too dependent on another firm for essential expertise over the long-term, sharing of future
profits, barriers to future financing opportunities, etc.
Let’s also consider Apple’s performance using key performance indicators in the
following table:
Table 1. Key Performance Indicators Of Apple, 2010 - 2012
Indicator 2010 2011 2012
Earnings per share
(EPS)
$15.15 $27.68 $44.15
Return on equity
(ROE)
29.32% 33.83% 35.3%

48
Return on assets
(ROA) 18.64% 22.28% 23.7%
Current Ratio
(Current
Assets/Current
Liabilities)
2.01 1.61 1.5
Quick Ratio ((Current
Assets-
Inventories)/Current
Liabilities)
1.96 1.58 1.48
Debt/Equity 0.57 0.52 0.49
(Note. Constructed by the author using the data of Apple Inc. Three Year Financial History and
Wikinvest. Year 2012 is based on three quarters of 2012.)
Considering key performance indicators we can see that Apple significant improvements
in their performance during last three years. For example, earnings per share increased almost
three times if comparing 2012 and 2010. Return on equity and return on assets also improved,
on average by 5%. Apple shows a steady improvement in debt/equity ratio, which confirms the
right direction. In addition to improvements, Apple had slight decline in current and quick ratio,
of course the changes are not very significant, but it does not show a good trend.
VIII. Analysis of the Organization—Functional Strategies
Apple as a corporation is well run and is structured properly to optimize their success.
Their marketing, finance, operation, and HR work together for a common goal and that is the

49
problem with some companies, the structure itself makes it impossible for them to realize the
full potential of the company because too many people have power. The financial strategy is to
make money but do it in a way where they don’t lose as much money trying new ideas. They
feel that they can make that money in the having the best and highest priced electronics. In
order to make money, you must invest and in situations you lose money and this also fits into
appealing to the customers because they want to make money by designing cutting edge
technology. Apple focuses on long term employees wanting to create a consistent company as
a result most of their management team was promoted from within. Internal hires produce
better long term returns for investors. Apple’s management avoids the spot light and instead
stays focused on the company.
There a few reasons that Apple runs so smoothly and for years, the question has arisen:
How do they do it? The answer can be complicated and simple all in one. A story written in
cnn.com tries to decipher the secret to this giant of a company and one major reason is the fact
that Steve Jobs ran everything, of course there is a board that can make decisions as well, but in
the end he ran everything. Another positive is that “One of Apple's greatest strengths is its
ability to focus on just a few things at a time, an entrepreneurial trait difficult to imagine at a
corporation with a market value of $320 billion. Saying no at Apple is as important as saying
yes. "Over and over Steve talks about the power of picking the things you don't do," says one
recently departed executive. Obvious? Perhaps. Yet few companies Apple's size -- and very few
of any size -- are able to focus so well and for so long”. A downfall of a lot of companies is that
they tend to focus on too many projects and do not pay attention to the details and that can
cause within the structure of the company itself.

50
IX. Improvement and Change Initiatives
Apple is a company that became successful by differentiating their products and
services from its competitors. Many companies compete on a low-cost strategy, while Apple
offers unique products and services at a premium. In order to offer a product consumers will
pay a premium for; Apple invests a large amount of resources in research and development
(R&D) activities along with marketing and advertisement activities. Apple continually relies on
these areas for success and does not appear to slow down any time soon. R&D costs have
consistently increased over the previous three years (Apple, Inc., 2012).
Apple has developed the iPhone, iPad, Mac, and iPod products over the years and
continuously update and improve these products. R&D and marketing for new and improved
products has proven to be a success for Apple year after year. Apple has strategically developed
software and services for these products and has focused on being the only company that
offers these services. These services include iTunes, App Store, iBookstore, and Mac App store
(Apple, Inc., 2012). These services have been a success over the years that Apple intends to
keep increasing along with their product line.
Despite Apple’s continuous success, they have recognized a growing competition due to
the increasing amount of technological advancements. Apple cannot completely depend on the
product to sell itself anymore. Apple feels that “a high-quality buying experience with
knowledgeable salespersons” is the key to attract and retain consumers (Apple, Inc., 2012).
Focus has been turned to building sales through retail stores and reseller programs. Retail
stores are generally located in high traffic areas. The intent of the high traffic locations is to

51
align the location with the selling experience. Apple feels that this choice of locations will better
position their salespeople to offer a high-quality shopping and service experience. This is also
an effort to allow salespeople to put the products in hands of new and returning consumers,
and effectively show them the full capabilities of the products (Apple, Inc., 2012).
Apple has also entered the education and enterprise and Government markets. Apple
launched iTunes U to offer mobile learning products, services, and programs. This program is
geared towards teachers and students. Apple offers hardware and software to enterprise and
government consumers as well.
These initiatives require investments beyond R&D and marketing. Apple has identified
the need to retain valuable employees. They are aware of the demands for highly skilled
individuals in the industry, and they intend to keep experienced and knowledgeable employees
working for Apple and out of the hands of competitors (Apple, Inc., 2012).
Employees are not the only asset that Apple has to keep from competitors. Patenting
and copyrighting their technology, products, and services is a high concern. Competition in the
industry is increasing aggressively, and Apple has to protect their technology, products, and
services. Apple admits that they file applications for patents to protect products and services
regularly (Apple, Inc., 2012). It is important that Apple protect the investments poured in to
R&D via patents and copyrights. Due to the inclusion of third-party intellectual property in their
products, Apple is looking into new and/or renewal of licenses for these aspects of their
products. Apple has also identified the risk of infringing on others rights and patents during the
development of technology, products, and services. The fierce competition of the industry

52
requires companies to protect themselves from others infringing on their rights and patents.
They also have to establish protection from infringing on others’ rights and patents. Apple has
identified these risks, and aligned measures to do so (Apple, Inc., 2012). Apple experienced
these difficulties in China, where a company threatened to impose a ban on Apple’s iPad
product due to copyright violations (News Under the Sun, 2012).
One main concern of the industry is the constant evolution and shifting of technology
and demands. This can be seen by the historical dominance by Blackberry devices, Nokia, Dell,
and Motorola, who are now fighting to stay competitive in the industry. Apple has seen an
incomparable level of success, and one can only question if they can maintain their competitive
advantage (Investopedia, 2012). It is imperative that Apple continues to create and offer new
and innovative products and services to stay competitive. Many competitors are offering
comparable products at lower prices. Apple has to prove that their products are more advanced
and worth the premium. As seen in many industries, competitors are attempting to gain market
share by offering products at little to no profits, and in some cases, for a loss. Economic
conditions around the world have created a demand for low-cost items. Consumers are settling
for low-cost products that have almost as many capabilities as the industry leaders’ products
and services. Again, Apple has recognized this threat, and they are focused on the continuation
of the development and offering of new and innovative products and services (Apple, Inc.,
2012).
X. Conclusion and Future of Organization

53
Apple’s profile for future competitiveness and success stems from four main factors of
the company as described by Lashinsky (2012); embrace secrecy, focus obsessively, hire
disciples, and overwhelm friends while dominating foes. The company must continue to
operate with a major emphasis on these four factors, and do them right, in order to succeed.
“Secrecy takes two basic forms at Apple – external and internal,” (Lashinsky, 2012, p.
27). External is recognizable as Apple has had success in keeping its products and practices
hidden from competition and the rest of the world. The internal secrecy is more dynamic in a
sense that it must continue in its corporate virtue of being transparent. For instance, Lashinsky
describes how after visiting a company store at the corporate headquarters, a t-shirt for sale
read, “I VISITED THE APPLE CAMPUS BUT THAT’S ALL I’M ALLOWED TO SAY” (2012). Apple has
marketed its ability to keep secrets. Everything at Apple is a secret. The left hand does not
speak with the right hand.
The company has a reputation to overly obsess with size, weight, look, feel, and
operations. These characteristics can describe the devices Apple manufactures to the boxes the
devices are placed. Even on the software side, the look and feel of the software has been highly
honed before being released to the public. “Obsessing over details and bringing a Buddhist level
of focus to a narrow assortment of offerings sets Apple apart from its competitors,” (Lashinsky,
2012, p. 40). The company must continuously strive to be obsessively focused to remain
successful.
In January 2009, when Steve Jobs took his first leave of absence from Apple, Tim Cook
directed a conference with Wall Street analysts following the release of Apple’s quarterly

54
earnings. In order to describe the factor of hiring disciples, it would be best to quote Tim Cook’s
response to Wall Street’s question of whether Tim Cook would succeed Jobs if the CEO did not
return. Tim Cook’s response:
“We believe that we are on the face of the earth to make great products, and that’s not
changing. We are constantly focusing on innovating. We believe in the simple, not the complex.
We believe that we need to own and control the primary technologies behind the products that
we make, and participate only in markets where we can make a significant contribution. We
believe saying no to thousands of projects, so that we can really focus on the few that are truly
important and meaningful to us. We believe in deep collaboration and cross-pollination of our
groups, which allow us to innovate in a way that others cannot. And frankly, we don’t settle for
anything less than excellence in every group in the company, and we have the self-honesty to
admit when we’re wrong and the courage to change. And I think regardless of whom is in what
job, those values are so embedded in this company that Apple will do extremely well. And, I
strongly believe that Apple is doing the best work in its history.”
Tim Cook – January 2011 (Lashinsky 2012, p. 65-66)
Mr. Cook’s response to Wall Street is that of a true disciple, one who is not only
passionate about his role, but who lives and breathes Apple. “To succeed in a company where
there is obsessive focus on detail and paranoid guarding of secrets, and where employees are
asked to work in a state of permanent start-up, one must be willing to mesh his/her personal
ambitions with those of the corporation,” (Lashinsky, 2012, p. 68). These employees are the

55
employees that have been hired in the past and will need to be hired in the future for the
company to remain successful.
Finally, Apple must overwhelm friends while dominating foes. Lashinsky (2012)
describes a story about Steve Jobs and the release of the first edition of the iPhone. Originally, a
company that was acquired by Cisco trademarked iPhone. A senior executive from Cisco fielded
a phone call from Steve Jobs where Jobs stated he wanted to use iPhone for his product. The
senior executive has stated that Jobs was tactful while being extremely considerate. There were
no negotiations or offer, just that Mr. Jobs wanted the name. Shortly afterwards, the Apple
legal team filed suit saying that Cisco had ‘abandoned the brand’ and could not defend its
intellectual property. Apple went forward and released the iPhone while Cisco filed suit. As
soon as Cisco and Apple came to an understanding regarding the name, all correspondence
from Jobs stopped cold. What this story illustrates is Jobs’ ability to overwhelm his competition.
His strategy of consideration while being tactful led to the success of his iPhone campaign.
As Apple has been rough and overwhelming to partners, Apple also has a reputation of
being outright mean with their enemies. Ex-Apple employees have stated that when visiting
suppliers, the only right way is Apple’s way. Meaning, Apple would instruct their suppliers what
they needed, how it is to be manufactured, and the cost Apple will pay for it, an overbearing
attitude to those trying to help. In addition, Apple launched an advertising campaign belittling
PC users and showing how a PC is more virus prone and while Mac is not. The campaign struck
directly at Microsoft and proved to be successful due to the failure of Microsoft’s Vista
operating system. The ad attack is proof that Apple is willing to play hard to get its message out.

56
Expected results in terms of short-term profitability and survival are strong. Apple has
been a performing company in the eyes of Wall Street. In addition, Wall Street has bought into
Tim Cook’s abilities and experience he has under the guidance of Steve Jobs. As far as the long-
term profitability, the company should remain focused on the four factors for future
competitiveness and successes (embrace secrecy, focus obsessively, hire disciples, and
overwhelm friends while dominating foes). In addition, the company should remain committed
to innovations, beating competitors to new ideas in technology while keeping things simple, not
complex.
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