Mid term (apple inc keeping the ‘i’ in innovation)

BUSINESS STRATEGY AND ENTERPRISE
MID TERM
CASE : APPLE INC KEEPING THE ‘I’ IN INNOVATION
CHRISTIAN HAMONANGAN
NIM: 29113025
Program Magister Administration Business
School of Business and Management
INSTITUT TEKNOLOGI BANDUNG
2014

BUSINESS STRATEGY CHRISTIAN HAMONANGAN -2931025
YOUNG PROFESIONAL B
CHAPTER 1
STRATEGIC MANAGEMENT AND STRATEGIC COMPETITIVENESS
Strategic competitiveness is achieved when a firm successfully formulates and implements a value-creating strategy. A strategy is an integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage. When choosing a strategy, firms make choices among competing alternatives asthe pathway for deciding how they will pursue strategic competitiveness.1 In this sense, the chosen strategy indicates what the firm will do as well as what the firm will not do. A firm has a competitive advantage when it implements a strategy competitors are unable to duplicate or find too costly to try to imitate.
Above-average returns are returns in excess of what an investor expects to earn from other investments with a similar amount of risk. Risk is an investor‟s uncertainty about the economic gains or losses that will result from a particular investment. Average returns are
returns equal to those an investor expects to earn from other investments with a similar
amount of risk. In the long run, an inability to earn at least average returns results first in
decline and, eventually, failure.
The strategic management process is the full set of commitments, decisions, and actions required for a fi rm to achieve strategic competitiveness and earn above-average returns(see picture 1).
Strategic management proccess:
 External environment and internal organization are analyzed to determine resources, capabilities, and core competencies ,the sources of “strategic inputs.”
 Vision and mission are developed; strategies are formulated.
 Strategies are implemented with the goal of achieving strategic competitiveness and above-average returns.
 Continuously changing markets and industry conditions must match evolving strategic inputs.
 Rational: the approach firms use to achieve strategic competitiveness and earn above- average returns
 Formulation and implementation: the two types of strategic actions that must be simultaneously integrated to successfully employ the strategic management process

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The Competitive Landscape
 Hypercompetition business environment challenges firms to reconsider which markets to compete in, this positioning is more critical than ever. Characterized by
o Market instability and change
o Rapidly escalating competition
o Aggressive challengers
o Strategic maneuvering to establish first mover advantage
o Technology industries
 Two drivers
o Globalization (emergence of a global economy)
o Technology (rapid technological changes)
 Strategic flexibility - important tool
The Global Economy
A global economy is one in which goods, services, people, skills, and ideas move freely across geographic borders. Globalization is increasing economic interdependence among countries and their organizations as reflected in the flow of goods and services, financial capital, and knowledge across country borders. Globalization is the product of a large number of firms competing against one another in an increasing number of global economies. Highly globalized firms must anticipate ever-increasing complexities in their operations as goods, services, people, etc. move freely across geographic borders.
Globalization has led to higher performance standards in quality, cost, productivity, product introduction time, and operational efficiency. These standards translate and impact domestic- only firms as well. Free flow of resources among global economies, global sourcing for firms, global purchasing for customers, and a global forum for workers all serve as a key source of competitive advantage for firms. Firms must learn that in this twenty-first century competitive landscape, only firms capable of meeting, if not exceeding, global standards, have the capability to earn above-average returns.
Significant time is required for firms to learn how to compete in new markets, and performance may suffer during this time. With globalization, firms may over-diversify internationally, which can have strong negative effects on a firm‟s overall performance. It is

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critical for firms competing globally to remain strategically committed to and competitive in both domestic and international markets.
Technology is significantly altering the nature of competition and enabling unstable competitive environments. Three categories for technology trends.
 Technology Diffusion & Disruptive Technologies
 Information Age
 Increasing Knowledge Intensity
The I/O Model Of Above Average Returns
Grounded in economics, the I/O model has four underlying assumptions
1. The external environment is assumed to impose pressures and constraints that determine the strategies that would result in above-average returns.
2. Most firms competing within an industry or within a segment of that industry are assumed to control similar strategically relevant resources and to pursue similar strategies in light of those resources.
3. Resources used to implement strategies are assumed to be highly mobile across firms, so any resource differences that might develop between firms will be short-lived
4. Organizational decision-makers are assumed to be rational and committed to acting in the firm‟s best interests, as shown by their profit-maximizing behavior.
The Resources Based Model Of Above Average Returns
There are four components to the Resource Based Model (see picture 2):
1. Resources
2. Capabilities
3. Core Competencies
4. Competitive Advantage
There are four criteria that if resources and capabilities fulfill, then they become Core Competencies:
1. Valuable (They are valuable when they allow a firm to take advantage of opportunities or neutralize threats)
2. Rare (They are rare when possessed by few, if any, current and potential competitors)

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3. Costly to Imitate (Resources are costly to imitate when other firms cannot obtain them or are at a cost disadvantage )
4. Nonsubstitutable (They are nonsubstitutable when they have no structural equivalents)
Vision and Mission
Vision is a picture of what the firm wants to be and, in broad terms, what it wants to ultimately achieve.
Mission specifies the business or businesses in which the firm intends to compete and the customers it intends to serve.
Stakeholders
Organizations are not equally dependent on all stakeholders, so not every stakeholder has the same level of influence. The more critical and valued a stakeholder‟s participation, the greater a firm‟s dependence on it, which gives the stakeholder more potential influence over the firm. Three groups of stakeholders:
1. Capital market stakeholders ( Shareholders and the major suppliers of a firm‟s capital)
2. Product market stakeholders (A firm‟s primary customers, suppliers, host communities, and unions representing the workforce)
3. Organizational stakeholders (Firm‟s employees, including both non-managerial and managerial personnel )
Strategic Leaders
Strategic leaders are people located in different areas and levels of the firm using the strategic management process to select strategic actions that help the firm achieve its vision and fulfill its mission. Successful strategic leaders are decisive, committed to nurturing those around them, and are committed to helping the firm create value for all stakeholder groups.
•Deciding what a firm wants to become VISION
•Deciding who it intends to serve and how it wants to serve those individuals and groupsMISSION

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CHAPTER 2
THE EXTERNAL ENVIRONMENT: OPPORTUNITIES, THREATS, INDUSTRY COMPETITION AND COMPETITOR ANALYSIS
The General Environment
The broader society dimensions that influence an industry and the firms within it. Grouped into 7 dimensions or „environmental segments‟.
1. Demographic : population‟s size, age structure, geographic distribution, ethnic mix, and income distribution
2. Economic : nature and direction of economy
3. Political/Legal : laws and regulations
4. Sociocultural : society‟s attitudes and cultural values
5. Technological : new technologies and firms that create them
6. Global : new global markets, existing markets that are changing, and their characteristics
7. Physical : potential and actual changes in physical environment and business practices
The Industry Environment
 Industry Environment
o Set of factors directly influencing a firm‟s competitive actions/responses
 Industry
o Definition: Group of firms producing products that are close substitutes
o Industry environment, in comparison to the general environment, has more direct effect on firm‟s
 Strategic competitiveness and
 Above-average returns
o Intensity of industry competition and industry‟s profit potential are a function of 5 forces
The Competitor Environment
 Gives details about
o A firm‟s direct and indirect competitors
o The competitive dynamics expected to impact a firm's efforts to generate above-average returns

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External Environmental Analysis
An opportunity is a condition in the general environment that if exploited effectively, helps a company achieve strategic competitiveness (see picture 3). A threat is a condition in the general environment that may hinder a company‟s efforts to achieve strategic competitiveness. The 4 components of external environment analysis.
 Scanning : the study of all segments in the general environment
 Monitoring : observing environmental changes to see if an important trend is emerging
 Forecasting : the development of feasible projections of what might happen and how quickly as a result of the changes and trends detected
 Assessing : determining the timing and significance of the effects of environmental changes and trends on the firm
Industry Environment Analysis
Porter‟s 5 forces (see picture 4).
1. New Entrants
 Can threaten the market share of existing competitors and may bring additional production capacity
 New entry is often via an acquisition
 A stronger force when…
 Barriers to entry are weak or nonexistent
 The expected retaliation by current industry participants is low
2. Threat of substitute products
 Goods or services from outside a given industry that perform similar or the same functions (i.e., sugar vs. sugar substitute such as NutraSweet)
 A strong force when…
 Low switching costs
 The substitute product‟s price is lower or its quality and performance capabilities are equal to or greater than those of the competing product
3. Bargaining power of suppliers
 Usually other business organizations that provide the industry with products and services
 A supplier group is powerful when …

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 It is dominated by a few large companies and is more concentrated than the industry to which they sell
 No satisfactory substitutes exist
 Industry firms not significant customer to supplier group
 Supplier‟s goods are critical to buyer‟s success
 High switching costs due to effectiveness of supplier‟s products
 Poses credible threat of forward integration
4. Bargaining power of buyers
 Usually other business organizations that purchase the outputs of an industry
 Customers are powerful when …
 They purchase a large portion of industry‟s total output
 Product sales accounts for a significant portion of seller‟s annual revenue
 Low switching costs (to other industry product)
 Industry products are undifferentiated or standardized and buyers pose a credible threat of backward integration
5. Intensity of Rivalry Among Competitors
 Firms operating in the same market, offering similar products, and targeting similar customers
 A stronger force when…
 Numerous or equally balanced competitors
 Slow industry growth
 High fixed costs or high storage costs
 Lack of differentiation or low switching costs
 High strategic stakes
 High exit barriers
Strategic Groups
 Set of firms emphasizing similar strategic dimensions and using a similar strategy
 Can be useful for analyzing an industry‟s competitive structure
 Can also be helpful in diagnosing competition, positioning, and the profitability of firm‟s within an industry

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Competitor analysis (see picture 5)
 Focused on predicting the dynamics of competitor's actions, responses, and intentions
 Focuses on each company which a firm directly competes
 Seeks to understand each competitors future objectives, current strategy, assumptions, and capabilities
Competitor intelligence
 Set of data and information the firm gathers to better understand and anticipate competitors' objectives, strategies, assumptions, and capabilities
 Follow ethical practices when gathering competitor intelligence
o Obtain public information
o Attend trade fairs and shows and collect brochures, view exhibits, listen to their discussions
 Some practices may be legal, but unethical
 Unethical tactics can include
o Blackmail, Trespassing, Eavesdropping, Stealing

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C H A P T E R 3
THE INTERNAL ORGANIZATION: RESOURCES, CAPABILITIES, CORE COMPETENCIES, AND COMPETITIVE ADVANTAGES
Analyzing the Internal Organization (see picture 6)
• Context of Internal Analysis
o „Global mind set‟
 Ability to study an internal environment in ways that do not depend on the assumptions of a single country, culture, or context
o Analyze firm‟s portfolio of resources and bundle heterogeneous resources and capabilities
 Understand how to leverage these bundles
o An organization's core competencies creates and sustains its competitive advantage
• Creating Value
o Develop core competencies that lead to competitive advantage
o Value: measured by a product's performance characteristics and by its attributes for which customers are willing to pay
• The Challenge of Analyzing the IO
o Strategic decisions are non routine, have ethical implications and influence the organization‟s above average returns
• Involves identifying, developing, deploying and protecting firms‟ resources, capabilities and core competencies
o Managers face uncertainty on many fronts
• Proprietary technologies
• Changes in economic and political trends, societal values and shifts in customer demands
• Environment : increases complexity
o Intra organizational conflict
• Due to decisions about core competencies and how to nurture them
Competitive Advantage (CA) foundation includes (see picture 7)
• Resources
o Bundled to create organizational capabilities
o Tangible and intangible

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• Capabilities
o Source of a firm‟s core competencies and basis for CA
o Purposely integrated to achieve a specific task /set of tasks
• Core Competencies
o Capabilities that serve as a source of CA for a firm over its rivals
o Distinguish a company from its competitors ,the personality
Tangible Resources
• Assets that can be seen, touched and quantified
• Examples include equipment, facilities, distribution centers, formal reporting structures
• Four specific types
Intangible Resources
• Assets rooted deeply in the firm‟s history, accumulated over time
• In comparison to „tangible‟ resources, usually can‟t be seen or touched
• Examples include knowledge, trusts, organizational routines, capabilities, innovation, brand name, reputation
• Three specific types
Criteria and Value Chain Analysis
Two tools firms use to identify and build on their core competencies
• Four specific criteria of Sustainable CA
o Valuable
o Rare
o Costly-to-imitate
o Nonsubstitutable capabilities
• Value Chain Analysis
o Primary activities
• Involved with product‟s physical creation, sales and distribution to buyers, and service after the sale
• Service, marketing/sales, outbound/inbound logistics and operations
o Support activities
• Provide assistance necessary for the primary activities to take place

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• Includes firm infrastructure, HRM, technologies development and procurement
Competitive consequences:
• Focus on capabilities that yield competitive parity and either temporary or sustainable competitive advantage
Performance implications include:
• Parity : average returns
• Temporary advantage : avg. to above avg. returns
• Sustainable advantage : above average returns
Outsourcing
• Definition: Purchase of a value-creating activity from an external supplier
o Effective execution includes an increase in flexibility, risk mitigation and capital investment reduction
o Trend continues at a rapid pace
o Firms must outsource activities where they cannot create value or are at a substantial disadvantage compared to competitors
• Can cause concerns
o Usually revolves around innovative ability and loss of jobs
Internal Organization Assessment and Strategic Decisions
• Firms must identify their strengths and weaknesses
• Appropriate resources and capabilities needed to develop desired strategy and create value for customers/other stakeholders
• Tools (ex: outsourcing) can help a firm focus on core competencies as the source for CA
• Core competencies have potential to become core rigidities
o Competencies emphasized when no longer competitively relevant can become a weakness
• External environmental conditions and events impact a firm‟s core competencies

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C H A P T E R 4
BUSINESS LEVEL STRATEGY
Business level strategy
Integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in specific product markets/industry.
 Purpose: To create differences between position of a firm and its competitors
 Firm must make a deliberate choice to
o Perform activities differently
o Perform different activities
 Impacts how value chain activities will be performed to create unique value
 Contingent on internal and external environment
 Two types of competitive advantage firms must choose between
o Cost (Are our costs LOWER than rivals costs?)
o Uniqueness (Are we DIFFERENT than rivals?)
 Two types of competitive scope firms must choose between
o Broad target
o Narrow target
 These combine to yield 5 different generic business level strategies (see pictures 8)
o Can potentially be used by any organization competing in any industry
Types of Business-Level Strategies
 Cost Leadership Strategy
o Competitive advantage: the low-cost leader and operates with margins greater than competitors
o Competitive scope: Broad
o Integrated set of actions designed to produce or deliver goods or services with features that are acceptable to customers at the lowest cost, relative to competitors
o No frills, standardized or commodity like product
o Must have competitive levels of quality, service, and other features and lowest overall costs
o Continuously reduce the costs / increase the efficiency of value chain activities
o Competitive Risks

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• Innovations by competitors can quickly eliminate cost advantage
• Too much focus on cost reduction versus competitive levels of differentiation
• Competitors may learn how to successfully imitate a cost leader‟s strategy
 Differentiation
o Competitive advantage: Differentiation/uniqueness
o Competitive scope: Broad
o Integrated set of actions designed by a firm to produce or deliver goods or services at an acceptable cost that customers perceive as being different / unique in ways that are important to them
o Targeted customers perceive product value
o Customized products : differentiating on as many features as possible
o Can differentiate in many ways and in many value chain areas
o Risks
• Can charge too high of a price premium
• Differentiation theme no longer valuable to customers
• Over-differentiating
• Customer experience shows differentiation not worth the cost
• Counterfeiting
 Focused Cost Leadership
o Competitive advantage: Low cost
o Competitive scope: Narrow industry segment
 Focused Differentiation
o Competitive advantage: Differentiation
o Competitive scope: Narrow industry segment
 Integrated Cost Leadership / Differentiation
o Efficiently produce products with differentiated attributes
• Efficiency: Sources of low cost
• Differentiation: Source of unique value
o Involves engaging in primary and support activities that allow a firm to simultaneously pursue low cost and differentiation
o Three sources of flexibility usefull for this strategy:

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• Flexible manufacturing systems (FMS)
• Information networks
• Total Quality Management (TQM) systems
o Risks of Integrated Strategies
• Harder to implement than other strategies
• Must simultaneously reduce costs while increasing differentiation
• Can get „stuck in the middle‟ resulting in no advantages and poor performance

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C H A P T E R 5
Competitive Rivalry and Competitive Dynamics
Competitors is firms operating in the same market, offering similar products and targeting similar customers. Competitive Rivalry is on going set of competitive actions and competitive responses occurring between competitors as they contend with each other for an advantageous market position. Competitive Behavior (offensive and defensive) is set of competitive actions and competitive responses the firm takes to build or defend its competitive advantages and to improve its market position. Firms competing against each other in several product or geographic markets are engaged in multimarket competition. All competitive behavior, the total set of actions and responses taken by all firms competing within a market is called competitive dynamics (see picture 9 ).
A Model of Competitive Rivalry
Model of Competitive Rivalry
 Over time firms take competitive actions / reactions
 Pattern shows firms are mutually interdependent
 Firm level rivalry is usually dynamic and complex
 Foundation for successfully building and using capabilities and core competencies to gain an advantageous market position
Competitor Analysis
 Market Commonality
o Each industry composed of various markets which can be subdivided into segments
 Resource Similarity
o Extent to which firm‟s tangible/intangible resources are comparable to competitor‟s in type and amount
Strategic and Tactical Actions
A competitive action is a strategic or tactical action the firm takes to build or defend its competitive advantages or improve its market position. A competitive response is a strategic or tactical action the firm takes to counter the effects of a competitor‟s competitive action. A strategic action or a strategic response is a market-based move that involve a significant commitment of organizational resources and is difficult to implement and everse. A tactical

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action or a tactical response is a market-based move that is taken to fine-tune a strategy, it involves fewer resources and is relatively easy to implement and reverse.
Likelihood of Attack
Three possible likelihood of response actions
1. First Mover Incentives
A firm that takes an initial competitive action in order to build or defend its competitive advantages or to improve its market position
2. Organizational Size
 Affects types of competitive actions encountered
 Small firms – more flexible, nimble, and quicker and more likely to launch competitive actions
 Large firms – tend to initiate more competitive actions but limit the types used
3. Quality
 Customer perception that the firm's goods or services perform in ways that are important to customers, meeting or exceeding expectations
Competitive Dynamics
1. Slow-Cycle Markets
o Markets in which the firm's competitive advantages are shielded from imitation for long periods of time, and in which imitation is costly
o Build a one-of-a-kind competitive advantage which creates sustainability
o Once a proprietary advantage is developed, competitive behavior should be oriented to protecting, maintaining, and extending that advantage
2. Fast-Cycle Markets
o Markets in which the firm's capabilities that contribute to competitive advantages are not shielded from imitation and where imitation is often rapid and inexpensive
o Competitive advantages are not sustainable in fast-cycle markets
o Focus: learning how to rapidly and continuously develop new competitive advantages that are superior to those they replace (creating innovation)
o Continually try to move on to another temporary competitive advantage before competitors can respond to the first one

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3. Standard-Cycle Markets
o Markets where firm‟s competitive advantages are moderately shielded from imitation and where imitation is moderately costly
o Competitive advantages partially sustained as quality is continuously upgraded
o Seek to serve many customers and gain a large market share
o Gain brand loyalty through brand names
o Careful operational control / manage a consistent experience for the customer

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CASE : APPLE INC KEEPING THE ‘I’ IN INNOVATION
About The Company
One of the most well known and respected companies in the world. Design and markets consumer electronics, computer software and personal computers.
History
 1976 :
Creation of the Apple and Computers Inc, Apple I
 1997 :
Partnership
 1977 :
Apple II
 2003 :
Mac OS X iPod & iTunes
 1980 :
Apple III
 2007 :
Changes name to Apple Inc, iPhone
 1984 :
Macintosh
 2008 :
App store
 1985 :
Steve Jobs resign, Next Inc
 2009 :
Steve Jobs 6 month leave
 1989 :
Macinyosh Portable
 2010 :
iPad
 1991 :
Power Book
 2011 :
iCloud, Steve Jobs resignation, iPhone 4S, IOS 5, iPad 2
 1996 :
Next acquisition
 2012 :
iPad 3, iPhone 5
Competition Products Main Competitors PC Dell, HP, Lenovo
iPad
Dell, HP, Amazon Kindle iPod Samsung, Nepster
iPhone
Samsung, Blackberry, Motorola, HTC Operating System Microsoft, Android

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Porter’s Five Forces
Apple’s Competitive Advantage
 Product differentiation : Innovation
 Brand Loyal Customers
 Marketing : Apple Stores
 Skills
 Leadership
 Still the technology industry‟s leader
Challenges
 Stock performance
 Saturated markets
 3 years since Apple launched an industry changing invention
 Asia and emerging markets : China is currently our second largest market
 Forbes dropped Apple to no.5 ranked innovator dor 2012 in the Cook era from No.1 in 2011
Key Success Factors for future
 Managing external forces
 A maturing culture of innovation
 Leaving Apple‟s DNA intact
 Create a new market
Competitive Rivalry within the Industry
(High)
Threat of New Entrants
(Low)
Bargaining Power of Buyers
(Medium) Threat of Subtitutes(Medium) Bargaining Power of Suppliers(Low)

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Exhibit 1
picture 1. Strategic Management Process
picture 2. The Resource Based Model of Above Average Returns

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picture 3. The External Environment

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Exhibit 2
picture 4. The Five Forces Of Competition Model
picture 5. Competitor Analysis Components

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Exihibit 3
picture 6. Component of Internal Analysis
picture 7. Condition Affecting Managerial Decision

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picture 8. Five Business Level Strategies
picture 9. From Competitors to Competitive Dynamics

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