Apple Strategic Management Case Analysis

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

    1. 1. © 2011 University of St. Thomas, Opus College of Business Apple: Strategic Management Case Study S. Bensen, A. El Haddi, K. Fitzsimmons, A. Hussein, H. Marotske Strategic Management, UST Executive MBA December 2012
    2. 2. 2
    3. 3. 3 1. Mac, the best PC’s in the world 2. Digital music revolution leader 3. Reinvented mobile Mission 4. Defining mobile media & computing devices future
    4. 4. 4 3. Intentional Misdirection Core Values Revealed 1. No External Agencies = No Disclosure = What Life? 2. Internal Teams 4. Innovation 5. Research Driven Strategy
    5. 5. 5
    6. 6. • Created 600,000 Jobs in the US • New announcement by Tim Cook “Assembled in the USA” (Source: NBC News) • “By itself, Apple’s iTunes and App stores make more money than The New York Times; Simon & Schuster, which publishes the best-selling “Steve Jobs” biography; Warner Bros. film studios, which owns the popular Batman film franchise; and Time Inc., the largest magazine publisher in the U.S. Combined.” -Edmond Lee Source: Bloomberg Recent News: Jobs by Jobs 6
    7. 7. 7 Apple, Inc. Now • Founded 1977 • HQ Cupertino, Ca. “The Mother ship” • Largest U.S. company ever • 72,000 Employees • 80% of revenue is from new products sold from Mid Sept to M/E Oct • 34 Patent Applications in October Competencies 1. Simple, Well Designed, User friendly 2. Innovative Culture of Design 3. Loyal Customers 4. Technology iOS 5. Energy Efficient Apple, Inc.
    8. 8. 8 Apple, Inc. 1. Operational Focus - Willing to release incomplete products 2. Wall Street - Engaging to increase dividends 3. Shifting Values - MBA vs. Liberal Arts 4. Relaxed Atmosphere - Leadership quiet yet demanding 5. Highly Ethical ?- Some might question • Procurement • Vendors Internal Assessment
    9. 9. Leadership Source: Mergent Online
    10. 10. 10 Governance $50k per year Serve one-year terms 3 Committees Source: Mergent Online
    11. 11. Apple's board of directors has three committees:  The Audit and Finance committee members are Ronald D. Sugar, Ph.D. (Chairperson), Robert A. Iger, and Arthur D. Levinson, Ph.D.  The Compensation committee members are Andrea Jung (Chairperson), William V. Campbell, Millard S. Drexler, and Albert Gore, Jr.  The Nominating and Corporate Governance committee members are William V. Campbell (Chairperson), Millard S. Drexler, and Albert Gore, Jr. 11 Committees Source: Mergent Online
    12. 12. 12 • Foxconn • Product Quality • Privacy • Sustainability • Intellectual Property Theft • Patents Source: The Telegraph Ethics
    13. 13. 13
    14. 14. 14 Management Effectiveness Revenue per Employee $2,023,349 Net Income per Employee $539,528 RIA % (Net) 28.08 ROE % (Net) 42.15 ROI% (Operating) 55.79 Profitability Ratios Gross Margin 44% Operating Margin 35% EBITA Margin % 38% Calculated Tax Rate % 25% Profit Margin (TTM) 27% Valuation Ratios Price/Earnings (TTM) 15.19 Price/Book (TTM) 53.3 Price/Cash Flow (TTM) 12.46 Asset Management Total Asset Turnover 1.05 Receivables Turnover 10.13 Inventory Turnover 112.12 Prop Plant & Equip Turnover 13.26 Cash & Equivalents Turn 14.98 Financial Analysis
    15. 15. 15 80% 2012 revenue from new products sold Mid Sept to Oct 31 - CNBC Industry Ratio Comparisons
    16. 16. 16
    17. 17. 17 Reinvention Change is Inevitable?
    18. 18. 18 Release history
    19. 19. LEADING INDICATORS & DEMAND DRIVERS 19
    20. 20. D = f(li1, li2, li3, …, lin)  Market Share: Stable  Search trends as an early indicator: Who has it?  Networking effect  Sharing  Social Nets  Social Networking capabilities 20 Demand And Adoption Rate Demand as a F(x) of leading indicators
    21. 21. Demographics World Progress Indicators 21 Economic Leading Indicators
    22. 22.  Product Drivers: 22 Leading Indicators: Product Drivers
    23. 23. 23 ANDROID iPhone Mobile browser counter as a leading indicator ?
    24. 24. EXTERNALITIES 24
    25. 25. 25 Smart Phones: Competitors
    26. 26. 26 iPhone, Droid or Windows Phone ?
    27. 27. 27 Mobile computing: Laptops & Notebooks
    28. 28. 28 Banking: $$$$$$$$ Educational Financing Distribution • Kiosks • Digital • Cloud • Direct • Apple Stores • Retail • VARS • Education • App developers • Effective Designers • Infrastructure • Talent (Well trained workforce) • Apple University • $$$$$$$$$$$$$$$ • Manufacturing, Suppliers, Partners (100+) iPhone iPad iCool Patents Design Manufacturing R&D, IP Innovation Marketing Quality Value Chain & Business Model
    29. 29. • Design • Miniaturization • Security • Ease of Use • Reliability • Marketing 29 Open Systems Improve + Innovate “Closed” Systems Cool! Secure Reliable Reduced Cost of production Improved Sales & Margins V A L U E ++ + $$ $ FreeBSD Key Success Factors
    30. 30. 30 B2B Market B2C Market BOP $ Enterprise + Government SMB $$$$$ Class $$$$$$ Affluent Premium Pricing Education Target Market G
    31. 31. INDUSTRY GROWTH & MARKET SHARE Smart Phones: 71% CAGR for the next 4 yrs. Cloud computing: 20% CAGR Mobile dev. in general: 25% 31 *nomic 02 *provisioning Carrying Capacity ??? Convergence Value Chain & Business Model
    32. 32. 0 10 20 30 40 50 60 70 iPhone Android Other 2011 2012 32 Smart Phone: Market share growth
    33. 33. 33 X Apple as a Mobile browser leader In 2010 The mobile worldwide market in 2010
    34. 34. 34 X X X X X iPhone Mobile market share 2012
    35. 35. • Apple has 68% of the tablet market • Cannibalization of iPad by the mini iPad? • Google & Others Tablets Open source to the rescue?  App store: Closed platform ? 35 What about the iPad ?
    36. 36. 36 OPPORTUNITIES THREATS Rapid Technological Changes Highly Competitive Market Continual Timeliness of R&D Patent/Copyright Violation Multiple Distribution Network Weak Outsourcing manufacturing New Management (Midas touch?) Growing demand: Education Enterprise and Government Consumers Mobility & Nomadic computing Media devices TV, Tailored Shows, MOD Growing incomes in ASIA and other emerging nations. External Scanning Analysis
    37. 37. 37 Industry Environment Sociocultural Forces Political-Legal Risk Economies Technological Factors Workers at an Apple supplier facility in Shanghai assemble parts for the MacBook Pro Societal Constraints
    38. 38. 38 Niche Market INNOVATION High Advertising Budget Patent Violations China/others Strong Brand FAKE iPhone anyone? Global Demand Existing Patents(i.e. Google’s 17000!) Supply Costs Supply Shortages Price Increases Outsourcing Process High Customer Loyalty High Demand Uniqueness Buyers SubstitutesSuppliers New Entrants Industry Competitors Porter’s Five Forces
    39. 39. 39 Apple’s Sustainable Product Differentiation Cost of Apple Product Apple Pursues Niche Market Differentiation Strategy – Defensive Pass Cost on to Customers Oligopoly Market (Niche)
    40. 40. Capabilities VISION 2020 Future Goals Current Strategy Assumptions New Technology Innovative Products Creative Solutions Strong Market Position Diversified Portfolio Inspire the World, Create the Future Robust Top Line Growth Fluctuating operating & net profits (S) (W) Segmentation Targeting Positioning Promote new Value for Core Networks • Industry • Partners • Employees Expand Global Penetration (SW Asia) Promote Top Line Products Company that goes after its goals Change = Action Same Threats as all Competition • Raw Material Pricing • Intense competition • Increasing regulations Competitive Analysis - Porter
    41. 41. TOWS Matrix: Strengths/Opportunities 41 TOWS Matrix: Strengths/Opportunities External Scanning Internal Assessment Opportunities 1. Demand in Education 2. Demand in Enterprise & Government 3. General Use Demand 4. Demand for Mobile Communications 5. Demand for Media Devices 6. APPLE Television 7. Strong growth opportunities in emerging nations 8. Rising wages in China Strengths 1. Global Company 2. Strong Brand Image 3. Diverse Distribution Avenues 4. Design, Manufacturing & Marketing expertise 5. Wide Market Circle 6. Reputation for Innovation 7. Master with 3rd party digital content 8. Compatible with Windows platform 9. Horizontal and Vertical Integration 10. Financially Sound 11. Entrepreneurial culture 12. Customer loyalty S/O Strategies: GROWTH Continue aggressive international growth strategies S1-O7 Strengthen partnerships with Education S12-O1 Increase APPLE television content S4/S6-O6 Capitalize on the smart-phone revolution S4,S7- O4,O7 Continue to aggressively develop mobile app market S6-O4,O5,O7
    42. 42. 42 TOWS Matrix: Strengths/Threats External Scanning Internal Assessment Threats 1. Industry constantly evolving 2. Highly Competitive Market 3. Outsourcing Difficulties 4. Inability to meet R&D requirements 5. Imitation of Apple products 6. Violation of patents and copyrights Strengths 1. Global Company 2. Strong Brand Image 3. Diverse Distribution Avenues 4. Design, Manufacturing & Marketing expertise 5. Wide Market Circle 6. Reputation for Innovation 7. Master with 3rd party digital content 8. Compatible with Windows platform 9. Horizontal and Vertical Integration 10. Financially Sound 11. Entrepreneurial culture 12. Customer loyalty S-T Strategies: External Fix-it Aggressively pursue new product development i.e.; wearable & pen computing S6-T4 Strengthen partnerships with band width vendors i.e.; international market S1-T1-T2 Evaluate niche market concentration S12- T1,T2 Eval Backward/FWD Integration (S9:T3)
    43. 43. 43 TOWS Matrix: Weaknesses/Opportunities External Scanning Internal Assessment Opportunities 1. Demand in Education 2. Demand in Enterprise & Government 3. General Use Demand 4. Demand for Mobile Communications 5. Demand for Media Devices 6. APPLE Television 7. Strong growth opportunities in emerging nations 8. Rising wages in China Weaknesses 1. Subject to supply shortages & price increases 2. Difficulty controlling outsourcing processes 3. Accusations of infringement upon patents of other organizations 4. Dependence on iPhone and iPad –limited variants 5. Lack of different price points with products 6. Dependence cellular network providers 7. Cost of product W-O Strategies: Internal Fix-it Improve domestic supply chain (W1-O3) Aggressively continue to pursue R&D product development (W4-O1-07) Continue to develop superior product(s) at lower cost point (W7-O7)
    44. 44. TOWS Matrix: Weaknesses/Opportunities 44 Internal External Scanning Assessment Threats 1. Industry constantly evolving 2. Highly Competitive Market 3. Outsourcing Difficulties 4. Inability to meet R&D requirements 5. Imitation of Apple products 6. Violation of patents and copyrights Weaknesses 1. Subject to supply shortages & price increases 2. Difficulty controlling outsourcing processes 3. Accusations of infringement upon patents of other organizations 4. Dependence on iPhone and iPad –limited variants 5. Lack of different price points with products 6. Dependence cellular network providers 7. Cost of product W-T Strategies: Eliminate/Survival Strive to avoid patent infringement within tech community (W3-T4,T6) TOWS Matrix: Weaknesses/Threats
    45. 45. Relative sales growth rate: g = 100(Sn - S(n-1) ) /Sn-1 45
    46. 46. 46 Flush with Cash: Lets do Backward and Forward Integration Backward Integration: Purchase of carriers • i.e. Nortel Networks (Done!) • WiMAX? • Cable or others with a market cap of 100B? Forward Integration: • Kiosks • Service Providers
    47. 47. 47 Conclusion
    48. 48. 48 LOW COST DIFFERENTIATION Broad Target Low cost Differentiation Narrow Target Cost focus Focused differentiation Competitive Advantage
    49. 49. • Factory Orders Report • Gross Domestic Product (GDP) • Housing Starts • Industrial Production • Jobless Claims Report • Money Supply • Mutual Fund Flows • Non-Manufacturing Report • Personal Income and Outlays • Producer Price Index (PPI) • Productivity Report • Purchasing Managers Index (PMI) • Retail Sales Report • Trade Balance Report • Wholesale Trade Report 49 Economic Indicators
    50. 50. • Business Outlook Survey • Consumer Confidence Index (CCI) • Consumer Credit Report • Consumer Price Index (CPI) • Durable Goods Report • Employee Cost Index (ECI) • Employee Situation Report • Existing Home Sales 50 Economic leading indicators: work in tandem!

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