Table of Contents Overview Executive Summary ............................................................................................................. 1 Apple Inc.

Strategy Facts: Scope, Generic Competitive Strategy, and Value Creation ...... 2 Strategic Analysis 1. Industry Forces and Attractiveness ................................................................................ 32. Competitive Landscape and Strategic Groups ............................................................... 63. Key Resources and Capabilities ...................................................................................... 84. Apple Inc. Value Chain and Strategy Implementation ................................................. 105. Trends and Opportunities5.1. General Environment Analysis ............................................................................ 145.2. Diversification ..................................................................................................... 175.3. New Value Creation Opportunities ..................................................................... 196. Recommendations and Conclusion ............................................................................. 21 Appendices A1: Porters 5 Forces Analysis .......................................................................................... A-1A2: Strategic Group Maps ............................................................................................. A-2.1A3: Key Resources & Capabilities..................................................................................... A-3A4: Value Chain Analysis ............................................................................................... A-4.1A5: General Environment Analysis .................................................................................. A-5 Resources Works Cited ..................................................................................................................... R-1

Executive Summary Apple Inc. (Apple) has managed to create substantial value in the highly competitive personal computer industry, by innovating and forging a path considerably different from those of the largest competitors in the industry, successfully differentiating its products from those of the competition by choosing to focus on quality, design elegance, and superior customer service, while outsourcing actual manufacturing to trusted original equipment manufacturers. Yet, despite the advantages Apple has created for itself, the stiff competition within the industry and other external factors present formidable challenges to the firm. The personal computer/notebook market is becoming increasingly commoditized, leading to intense rivalry among competitors within the industry, driving prices down and creating potentially destructive price wars. Utilizing key resources and capabilities including industry-leading design teams, talented software and hardware engineers, backed by a sizeable research and development budget, which is responsible for a portfolio of thousands of patents, and under the strategically brilliant stewardship of CEO Steve Jobs, Apple has successfully innovated its way to a comfortable market position commanding premium prices. Unfortunately, Apple cannot rest on its laurels. The position is not permanent and Apple must continually find new ways to maintain profits and create value for customers and shareholders. The maturing personal computer market is becoming saturated, leaving fewer new buyers and more replacement buyers. To continue to grow, Apple must also look to new and expanding markets as sources of revenue. After considering Apples strategic war chest; the firms core competencies, key resources, and capabilities and given its current situation within the industry and the compounding factors in the form of trends from the general environment, it is clear Apple stands to create considerable value through continued related diversification. The firms history of category-defining products like the iPod and iPhone provide sufficient evidence that it is well-equipped to continue its path of innovation, by creating a digital lifestyle convergence device that bridges users on-the-go digital lives and their at-home digitals lives. The proposed device will be powerful and feature packed, while leveraging the Apple system of seamless integration to create a compelling user

experience, presented in an elegant package showcasing the firms industry-leading industrial design capabilities, to create the next must-have consumer electronics product. OVERVIEW

Apple Inc. Strategy Facts Scope The focus of this project is the Mac portable personal computer line of Apple in the United States, a part of its Americas division. Apple is a publicly owned Fortune 100 company based in Cupertino, California. The firm operates primarily in the personal computer industry of the wider technology sector. Apple designs, produces, and sells a line of personal computers as well as mobile phones, portable digital media devices, software, and related peripherals and accessories. The firm sells internationally though a mix of direct sales, online and retail stores, wholesalers, and resellers.

Generic Competitive Strategy Apple is pursuing a broad differentiation strategy. Apple differentiates by offering high quality, exceptional design, and personalized service. The scope of their strategy is broad targeting customers ranging from unsophisticated beginner users to specials needs power-users.

Value Creation Apple outsources the basics of production to third-party original equipment manufacturers(OEMs) that can achieve cost savings through vast economies of scale while inhousing elements of design to attract and retain users. Apple excels in the areas of industrial design and user interface and focuses on these areas to deliver a product that is both highly stylish and at once ergonomically natural and useable. Apples people-friendly devices and highly personalized one-on-one customer service create a one-of-a-kind value proposition that commands a higher-than-average price. Apple Inc. Industry Forces and Attractiveness Analysis and Conclusion For the purpose of illustration, the industry analysis of Apple Inc. will focus specifically on the portable personal computer manufacturing and sales and on the United States market, although

many of the firms involved in the industry produce, market and sell internationally. Considering the threats faced by firms operating in this industry the industry is moderately attractive overall. Many firms within the industry have thrived, but competition is very high, while suppliers and buyers have moderate influence over the competitors. There are several avenues by which new competitors may enter the market, but they face substantial hurdles in successfully establishing a viable brand. Finally the threat of substitutes is credible in some use-cases, but will not completely usurp personal computers in the foreseeable future. See Appendix A1 for accompanying template.

Rivalry Between Competitors While once an industry defined by few large companies and extremely expensive products, pursuing a niche audience, the advent of the personal computer (PC) has caused an industry explosion which now includes dozens of manufacturers pursuing many millions of customers in the United States. As a result of the penetration of computers into everyday life and business the PC is becoming more and more a commodity product. For most users, and business economy is more important that performance specification and other bells and whistles. The result has led many manufacturers to pursue low-cost and best-cost provider strategies. Those at the lowest end compete on rock-bottom prices foregoing all but the most basic features. Those in the middle range including Dell, HP, and Lenovo compete for customers offering a range of options for varying prices. The similarity of their products due to industry standard setting also leads to price competition that drives down prices and squeeze margins. The desire of companies to buy large numbers of PCs for the lowest bid available also exercises considerable downward pressure on prices offered by these firms .The nature of technological development also imposes increased competition on the members of the industry. The technology behind many key components of PCs continues to become more efficient with increased processing power and less energy consumption. Moores Law predicts that the number of transistors on a processing chip roughly doubles every eighteen to twenty-four months. While is more an estimate than a law industry leaders like Intel, Inc. have kept this pace for decades. This perpetual innovation and development puts pressure on computer manufacturers to streamline production and refresh products at a pace largely unseen in business for centuries.

Supplier Power Suppliers have considerable leverage over the manufacturers of portable personal computers. While many industry standards like universal serial bus (USB) and wireless of technology are open and issued by independent or collaborative standards bodies like the USB Implementers Forum (USB-IF, universal serial bus) and Institute for Electrical and Electronics Engineers (IEEE, wireless standard 802.11n) manufacturers also rely on privately owned standards. Often the technology must be licensed or requires entrance to a paid-membership industry group for use. For instance, for the specifications and use of the PCI-Express/Express Card standard, which is present in nearly all personal computers, membership to the industry group PCI-SIG is required. In addition, the relative concentration of suppliers for some inputs puts pressure on competitors. Within the personal computer industry, central processing units (CPUs) are sourced from a duopoly, Intel Corp. and Advanced Micro Devices, Inc. (AMD). Despite having two options, the semi-conductor market is dominated by Intel, with AMD licensing technology from Intel for use in production of their CPUs. Despite having compatible chip technologies; these two companies use proprietary chip designs that require different motherboard socket designs. Because of this incompatibility in design, for a PC manufacturer to switch suppliers of CPUs they must also switch to a new type of motherboard, which drives up switching costs. Despite this power the chip manufacturers hold, they are not present in the PC manufacturing business and therefore are reliant on PC manufacturers for a bulk of their business. This leads to discounts for bulk purchasing and exclusivity agreements, which alleviates some pressure from the dominant suppliers. Buyer Power As in all industries buyers have the final say and exercise considerable influence over manufacturers. The variety of buyers with many, widely varying needs directly impacts PC makers who must adapt and react by offering broad product lines. The marked distinction between power users seeking the latest and greatest and average users who need a product hat is just good enough poses an obstacle to manufacturers who want to tap as many customers as possible. Manufacturers are benefited by the wide acceptance and use of PCs which causes high demand for products. Proprietary systems and brand loyalty are also used to keep customers coming back. Highly compatible closed-systems are routinely used to keep customers within a circle of products provided by single companies.

Threat of Potential Entrants There are many avenues by which a new entrant may enter the portable personal computer market; however there are several hindrances that may prevent successful entrance. Currently in the market there are several large, well entrenched players that have substantial brand recognition and loyalty, including Dell, HP, Lenovo, and Apple among others. Developing a successful brand among many others is difficult. These players also dominate and keep costs down with economies of scale, which cannot easily be achieved by a new entrant without substantial capital investment.

Despite obstacles there are still possibilities for entrance. New entrants may come from newly established lean organizations which rely primarily on third -party original equipment manufacturers (OEMs) for production. Established OEMs often operating in Asia have already achieved economy of scale and can pass these savings onto new firms that practice re-branding as a market entrance plan. The increasing convergence of mobile devices resulting from the push of smart-phones and netbooks is bringing phone makers into the portable personal computer market. Nokia, a well established phone maker, has fired its first test shot by planning to release a netbook of its own. Another mode of entrance is a result of forward vertical integration by OEMs. This trend has increased in popularity over the past decade, bringing companies like Acer, Inc. into direct competition with well-known industry giants. Formerly an unknown, by 2005 Acer had revenues of over $1 Billion in the United States, $8.17Billion worldwide. Today Acer has over $16.5 Billion in revenues worldwide and oversees brands such as eMachines and Gateway.

Threat of Substitutes The consumer technology sector has grown substantial over the past decade with the advent of alternatives to personal computers growing from PDAs and now feature-rich smart phones The increase in technology in the average American living room. These developments result in the spread of consumer technology dollars away from PCs. However, despite the spread it is unlikely that smart phones, like the iPhone or Blackberry, will significantly diminish the

importance of PCs in the near future. This diversification of consumers digital lifestyles presents an opportunity for diversification of PC manufacturers, a step many are already taking. Recommendations Based on the industry analysis, I recommend: Create a differentiation strategy: The commodity PC market presents a perpetual downward pressure on prices, which erodes firm profitability. Developing and brand image that separates the firm from the competitive rat race will reduce the effect of destructive competition and pad margins. Develop close relationships with suppliers: Because there are few suppliers of key components required in PC manufacturing developing close relationships with suppliers is of utmost importance. Rather than searching for the supplier of lowest cost, maintaining a collaborative and exclusive business relationship will help mitigate the power of suppliers and help to lock in attractive component prices. Consumer electronics diversification: While the PC market has grown increasingly crowded with competitors and customers saturated other areas of consumer electronics continue to grow. Developing complementary products in other categories provides broader sources of revenue by accessing more customers in markets with less intense competition. 2. Competitive Landscape and Strategic Groups Analysis and Conclusion The portable personal computer industry has many viable and successful competitors who, for the most part, offer similar products. While considering cost alone there are several groups that generally define the industry competition. Firms compete in groups at the low-end, middle range, upper-middle range, and high-end. Within these competitive groups price typically equates to number of features or capability. At the highest-end firms offer specialized products with certain consumer groups in mind. These firms compete on the basis of what the computer is designed to be used for, while firms at the lower end of the price spectrum compete essentially on price-value.

Extrinsic Dynamics

Price, Design, Quality, and Support Comparison of firms operating in the industry on the dimensions of price and design(ranging from functional to elegant) reveals a linear relationship Those firms commanding the highest prices for their products opt for elegant (Apple) or intricate(Alienware) designs, while firms competing on low price offer basic functional designs(eMachines) to keep costs down. This paradigm remains true when considering build-quality and support as metrics as well [See Figure A2-2]. Apple offers portable computers constructed of solid aluminum blocks and strong polycarbonate plastics. Voodoo PC use sturdy well-designed computer cases with intelligent and efficient internal cable routing layouts to promote airflow and keep the computer running well. Other firms offering mid-range and low-end computers opt for more inexpensive plastics and materials while paying less attention to internal layout details. The comparisons of Price to Design and Design to Build Quality show similar relationships. Support is the final toplevel extrinsic measures by which firms in the industry compete. The two extremes of high-price and low-price reveal similar support policies. Firms commanding the highest prices offer comprehensive support packages. Apple offers in-store one-on-one support to all customers and further warranty support. The premium price of their portables allows for the extra expense in providing this service. Intrinsic Dynamics Customizability, Gaming Capability, Out-of-the-Box Features,System/Peripheral Integration Those firms that emphasize customizability on the part of the customer tend to offercomputers built for high-performance applications, such as gaming. Gaming is an importantdriver of computer technology and the degree of customizability in features and specification aswell as appearance is a driving force for manufacturers focusing their brands on gaming, likeAlienware and Voodoo PC. The relationship between customizability and gaming capabilityremains linear [See Figure A2-4]. Firms have chosen their positions on these competitivedynamics and those not taken do not represent attractive segments to target.System/Peripheral Integration is a polarizing metric. Apple stands alone with its Mac portables They ecosystem theyve developed provides seamless integration between their computers,

software, iPods, iPhone, and other devices. Windows based PC manufacturers also makecompatible peripherals, but they do not have the same level of integration as Apple. Whenconsidering out-of-the-box features some other, relatively large groups emerge. Brands likeDell, Lenovo, Vaio, Gateway, eMachines, and HP offer standardized functions built intoWindows while Alienware and Voodoo PC offer a variety of pack-in games and features. Applealso ships copies of their iLife suite of programs including iPhoto and iMovie among other usefulprograms with every Mac. The ability for a user to do more than go online after setting up aMac or Alienware PC is in significant contrast to other competitors [See Figure A2-5]. Recommendations Based on the strategic group map analyses, I recommend: Focus on differentiated lifestyle branding: Apple has successfully developed adifferentiated lifestyle brand and must continue to build on this foundation whileresisting pressure to move to the middle to directly compete with Dell and HP. Design innovation: Put additional emphasis on design development with internalresource allocation to continue to lead the industry in design. Research user interface possibilities: As a mode of setting Mac computers apart fromother PCs Apple must continue to innovate in user interface focusing on easy-of-use andintuitive menu functions. Expand Apple store locations: Providing more points of direct contact with buyers willenable Apple to provide better service to customers and bring the Apple experience tomore people.

STRATEGIC ANALYSIS3. Key Resources and CapabilitiesAnalysis and Key Insights Apples most important resour ces and capabilities are Steve Jobs, the CEO, and theintegrated system of hardware and software that the firm has developed and successfullymarketed to derive value. Steve Jobs brought Apple back to tremendous success following adecline in relevance and heads the continued creation of billions of dollars of value. While

Apples designers, programmers, and engineers each represent key resources the ability of the firm to exploit their abilities to create their entire software/hardware ecosystem is the fir ms key capability. Taken each individually, the resources only represent competitive parities andtemporary advantages. The combination is their key capability that has established asustainable and ongoing competitive advantage and above average performance within theindustry. See Appendix A3 for accompanying template.

Steve Jobs Apple founder and current CEO Steve Jobs is an incredibly valuable resource to the firm.His unique vision and approach to business established Apple as an industry leader in thebeginning and he saved the firm from a downward spiral when he returned in the mid-1990s. 9 Under his guidance the firm has rebounded and excelled in many markets, often definingcategories of products. To Apple Steve Jobs is a valuable, rare, inimitable, and nonsubstitutableresource. Apple Stores Retail Locations The introduction of Apple stores has provided the company with an important physicalpresence to act as both a sales location and an advertisement. The stores allow Apple to tightlycontrol the image of the brand and provide excellent customer service. Apple tops manyretailers in in-store sales, generating $4,032 per retail square foot per year, beating otherretailers like Tiffany & Co. at $2,666 and Best Buy at only $930. 10 This resource is of incrediblevalue to Apple and a success that is a relative rarity in the industry. Matching success andimpact like the Apple store model is difficult for other firms to achieve. Past experiments likeGateway stores have failed, while Sony Style stores founder in mediocrity. Relationship with OEMs

Apple has outsourced all of its manufacturing processes to OEM partners in China, likeFoxconn and Hon Hai Precision Industry while focusing on design internally. The relationshipsbetween Apple and their OEM partners are very close to provide Apple with excellent serviceand high quality products. Mutually beneficial business relationships are time-consuming anddifficult to develop and maintain is of considerable value to Apple and puts them ahead of other manufacturers who may decide to outsource some production. Industrial Design Capability Apples incredible industrial design capability is a function of their innovative design teams, led by Jonathan Ive, senior vice president of industrial design, and the firms prioritization of design and outsourced production. Ive and the Apple design team hold manyawards, with products being shown in permanent collections at various museums. 11 Thiscombination is valuable to Apple, rare among competitors, and difficult to imitate. Talented Software Development Teams Apples software developers are carefully selected and talented programmers. Theyve produced industry award winning software and the highly regarded iterations of Macintosh OSX operating system. T heyve provided Apple with important products, but developers of their caliber are not rare within the industry, nor are they difficult to imitate. Other firms candevelop staff as talented or hire them away from Apple. Tailored Hardware/Software Systems One of Apples most important capabilities is their ability to develop and build highly integrative systems with software designed specifically for the hardware it runs on. The closedsystem style of Apple is unique in the industry which typically reli es on third-party software(i.e. Microsoft Windows running on a Dell computer). This capability comes from a combinationof the design teams, software development teams, and hardware engineers employed byApple. No other firm in the industry has a system l ike Apples and it would cost millions or billions of dollars to imitate, not regarding success. While other systems work for PC

manufacturers they cannot achieve the same results as Apples integrated system.

Recommendations Based on the analysis of firm resources and capabilities, I recommend: Continue the expansion of Apple stores: The stores represent an important source of revenue for Apple and serve as an interactive advertisement for the Apple brand. Their success has been unmatched by any other industry player.

Emphasize the integrated system in advertisements: Apples integrated system holds a significant advantage over other industry systems relying on Microsoft Windows, yetsome customers have not experienced the seamless interoperability of all Appleproducts. This marketing angle will result in cross selling of more products to new andexisting customers. Seek exclusivity arrangements with OEM partners: Continue to build relationships withthe closed Asian OEM partners and enter into exclusivity arrangements to lock outcompetitors and gain favorable business deals.

MGT 440, December 2009

Masi

Strategic Analysis

Apple Inc.

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STRATEGIC ANALYSIS

4. Apple Inc. Value Chain and Strategic ImplementationStrategic Implementation Based on analysis of Apples practices, policies, and procedures the firms s trategy for itsportable personal computer business is one of broad differentiation targeting a range of customers from sophisticated power users to inexperienced new users and from individualbuyers to bulk purchasers like schools and businesses. The firm differentiates on exceptionaldesign, consistent quality, and outstanding customer service. The real evidence of Apples strategy reveals that their commitments are directly in linewith their stated goals and strategy. Apples goal is to provide customers with the bestpersonal computingexperience by offering products with s uperior ease-of-use, seamlessintegration, and innovative industrial design and a high-quality sales and post-sales supportexperience. 12 See Appendix A4 for accompanying template. Risks to Apples System

While Apple has been successful in implementing its strategy in the marketplace, some of the firms practices could be seen as risks and potential liabilities threatening future success.Most of Apples risk center around the firms near absolute dependence on OEMs and foreign factories for manufacturing and assembling their products. Although Apple gives their OEMpartners guidelines for sourcing materials to be used in production they do not have directcontrol over procurement. The OEMs that derive profit from high volume with low margins willcontinually seek to reduce the costs of inputs to reduce pressure on their margins.

Gradual slipsin quality will adversely affect Apple if the low quality inputs begin to show in the finalproducts. Customers who begin to notice reduced quality will not be able to justify thepremium prices that Apple commands for its products. Similarly, quality control slips during themanufacturing processes carried out by OEMs can negatively affect Apple. More defectiveproducts making it through to endusers will hurt Apples image as a supplier of premium lifestyle products. Risk-Mitigating Factors Despite the inherent risks of establishing a value chain completely reliant on foreign,nonsubsidiary firms, Apple has had tremendous success in implementing a lean manufacturing structure. Because Apple is committed to the equitable treatment of workers in their partners factories and developing mutually beneficial relationships with their suppliers OEMs are morelikely to work cooperatively with Apple regarding pricing and sourcing, rather than acting onlyself-interestedly.As long as quality control issues remain relatively few and far between, Apple can easilypatch up any holes in perceptions their overall quality. Because Apple is fortunate to have large,highly padded margins on their products, they can afford to do full replacements of defective devices. Apples reputation for having sterling customer service and their ability to take quick and decisive action to fix issues may leave customers with even higher regard for the firm,despite some issues. General AdministrationA greener Apple Apple redesigned packaging for many of its popular products to bemore lightweight and take up less space in shipment. This means reduced emissions duringtransportation and results in a savings for the firm. Apple has also made moves to reduce thenumber of harmful chemicals used in the production of its products. Strong cash position

Apple maintains a large cash reserves and carries a comparativelysmall amount of long-term debt. 13 This enables Apple to finance expansion, capital purchases,and development internally with little reliance on third-party creditors. Human Resources ManagementSelective hiring process Apple follows selective hiring practices to recruit and hiretalented individuals. Generous employee benefits program Apple offers a variety of attractive employeebenefits to complement direct wages. 14 The benefits system is used to entice, and retainindustry-leading talent to benefit Apple. Technological DevelopmentResearch and development Apple increased research and development funding bynearly 66% from 2007 to 2009, in 2009 Apple spent $1.33 Billion on research anddevelopment. 15 This is a commitment to continue to push innovation forward to keep ahead of competition. Patent filing Apple believes in the importance of protecting its intellectual capital byfiling patents in the United States and worldwide for its inventions and innovations. Applecurrently holds a portfolio of several thousand patents. 16

ProcurementPositive relationships with suppliers

 Apple works closely with its key suppliers tobenefit all parties involved. Apple is a member of the Electronic Industry Citizenship Coalition(EICC) and works to ensure fair treatment of workers in OEM factories. 17 Apple has alsodeveloped its own Supplier Code of Conduct to govern the actions of its suppliers. 18 Thesebeneficial steps foster positive relationships with suppliers.

and decisive action to fix issues may leave customers with even higher regard for the firm,despite some issues. General AdministrationA greener Apple Apple redesigned packaging for many of its popular products to bemore lightweight and take up less space in shipment. This means reduced emissions duringtransportation and results in a savings for the firm. Apple has also made moves to reduce thenumber of harmful chemicals used in the production of its products. Strong cash position Apple maintains a large cash reserves and carries a comparativelysmall amount of long-term debt. 13 This enables Apple to finance expansion, capital purchases,and development internally with little reliance on third-party creditors. Human Resources ManagementSelective hiring process

 Apple follows selective hiring practices to recruit and hiretalented individuals. Generous employee benefits program Apple offers a variety of attractive employeebenefits to complement direct wages. 14 The benefits system is used to entice, and retainindustry-leading talent to benefit Apple. Technological DevelopmentResearch and development Apple increased research and development funding bynearly 66% from 2007 to 2009, in 2009 Apple spent $1.33 Billion on research anddevelopment. 15 This is a commitment to continue to push innovation forward to keep ahead of competition. Patent filing Apple believes in the importance of protecting its intellectual capital byfiling patents in the United States and worldwide for its inventions and innovations. Applecurrently holds a portfolio of several thousand patents. 16

ProcurementPositive relationships with suppliers Apple works closely with its key suppliers tobenefit all parties involved. Apple is a member of the Electronic Industry Citizenship Coalition(EICC) and works to ensure fair treatment of workers in OEM factories. 17 Apple has alsodeveloped its own Supplier Code of Conduct to govern the actions of its suppliers.

18 Thesebeneficial steps foster positive relationships with suppliers. Inbound LogisticsAutomated receiving systems Apple has implemented sophisticated automatedreceiving systems to speed up the receiving process and reduce facility footprint and storagespace requirements. 19

Delegate raw materials acquisition Apple works with its OEM partners to delegate theraw materials acquisition process but provides some supervision for quality control purposes. Operations Utilize OEMs economies of scale Apple outsources production to third-party OEMpartners to utilize their economies of scale while removing the burden of productionmanagement from the firm. Internal design The design and conceptualization of current and future products isdone internally at Apple, utilizing industry-leading industrial design teams and engineeringknowhow. Outbound LogisticsEconomical/stylist packaging In order to save money on shipment and enticecustomers Apple uses eye-catching packaging that takes up less physical space and weighs less.This reduces shipping costs and envi ronmental effect while attracting customers to the firms

products. 20

Apple Stores/Authorized retailers To control the firms brand image Apple sells through first-party retail establishments and through authorized retailers. Apple Stores act asadvertisements for the brand and provide a human point of contact between the firm and its customers. Authorized retailers are held to certain standards to protect Apples brand image.

Direct shipment Apple.com online orders are shipped directly to consumers fromstorage facilities in China. This minimizes inventory buildup in more costly warehouse locationsin the United States. Marketing and Sales Get a Mac Ads Apple uses a series of television advertisements comparing the firms products to competitors using a variety of direct and indirect methods to build a lifestyle brandimage. The ads are humorous and do not emphasize cost or feature-by-feature comparisons, opting instead to develop the firms image.

Retail locations/Flagship stores

Apple stores across the United States serve as livingadvertisements for the company promoting the brand and lifestyle image. Flagship stores, likethe 5 th Avenue New York store are an attraction drawing visitors on novelty hoping to convertthe visits into sales. Secretive and selective unveilings By keeping secrets about product releases andholding invitation-only press events for product unveilings, Apple creates hype and suspensionaround product launches. ServiceApple Genius Apple stores house the Apple Genius Bar where customers can talkwith an Apple specialist known as a genius about problems with their device. This human interaction with a first party service provider builds a rapport with customers and offers a starkcontrast to endless phone service calls. 21

Included and extended warranty Apple offers an included 90 day warranty againstdefects and issues with its products. Customers can also purchase extended warranties through Apple Care to protect their product.

Free consultation

Customers can bring in their device for a free consultation regardingissues problems with no commitment, whether it is in or out of warranty. The customer thenhas the option to pursue different avenues of resolving the issue without an upfront charge.Etc. Recommendations Based on the value chain analysis, I recommend: Implement first-party quality checks in OEM factories: Despite working closely withOEM partners, Apple must always protect its image of quality. Implementing random quality check sampling and quality audits in OEM facilities will ensure issues are caughtearly and that Apples OEM partners stay honest with their own quality control processes. Make productive use of unused cash: While having a large cash buffer is important to afirm, idle cash is not being used effectively. During the yearly capital budgeting processApple should set aside a sizeable portion of unused cash for investment. Unused cashdoes not create value for Apple, investing it in the near-term will provide benefits in thefuture to finance expansion and large capital purchases. Continue a wise expansion of Apple Stores: Apples retail stores have been massively successful, that success can be furthered in new locations within the United States andabroad. During the expansion process Apple must practice extreme caution to avoidover-saturation, the Starbucks effect, to retain the halo surrounding the stores andmaintain their status as a destination 5. Trends and Opportunities Although firms worldwide are facing the possibility of restrictive carbon emissionsregulation, Apple is uniquely positioned to lead the electronics industry in promoting green production, while taking full advantage of opportunities arising from new technological trendssurrounding convergence devices and sociocultural preferences concerning the fullyintegrated,mobile digital lifestyle.

5.1. General Environment Analysis Despite Apples considerable resources and capabilities, various trends within the General Environment pose considerable threats to the ongoing success of the firm. Properplanning and action will allow the firm to marginalize these threats while leveraging corecompetencies to take full advantage of emerging opportunities to create value for customersand shareholders. See Appendix A5 for accompanying template.

Economic EnvironmentRecovering economy 22 While the economy in the United States has shown someimprovement and there are signs of full recovery looming the outlook is not certain currently.The uncertainty leaves consumers weary of big-ticket purchases like computers. Apples premium pricing position leaves the firm at a disadvantage to less expensive competingproducts. However, when consumers directly feel the improving economy and spendingincreases Apple will we ll positioned. Consumers seeking to treat themselves following theeconomic upturn may be attracted to Apples premium portables, viewing them as luxury goods. Apple, known for its quality, dependable machines, and excellent customer service mayalso be seen as presenting a better value than the competitors with fewer frills at lesser prices. Demographic EnvironmentFlattening of wages -- leveling affluence Over the past several years the Americanmiddle class has experienced increasing costs across many indicators including, healthcare costsand the CPI, but wages have remained relatively stagnant.

Apples high prices may sendpotential customers into the hands of competitors when they are unable to justify Apples high price tags. Counter-intuitively Apples perceived value has directly benefited them during the economic downturn; theyve continued to experience growth while other competitors suffered. 23

Political/Legal EnvironmentPotential FCC Internet Regulation The debate ove r Net Neutrality has entered the political arena, with bills being drafted in Congress and the FCC waiting in the wings to impose regulation if need be. Changing the way the Internet operates may de-incentivize newinnovation which could reduce future value to be derived by Apple. 24 New and innovativetechnologies are routinely iterated on by hardware companies who strive to offer the bestmethods of integration in their new products. Reducing this innovation may stifle new valuecreation for Apple. Healthcare reform The push for modernization of the American healthcare system inproposed reform legislation would provide government money for infrastructure development and implementation by care providers. Adaptability of Apples key portables in innovati vehealth-centric ways could provide new sources of revenue. Technological EnvironmentDevice convergence

The possibility that ordinary personal computers (and portablepersonal computers) will become less relevant through increased device convergence is veryreal. Apples products laptops will be less important in users daily use as their multi -functiondevices meet most of their needs. Apple stands currently as a leader in innovation and portabletechnology. They are conveniently positioned to become a market leader in convergencedevices by iterating on their current portable devices and mobile devices like the iPod Touchand iPhone. Shortening product lifecycle An ever increasing pressure to innovate because of shortening product lifecycles could result in missed opportunities due to market entry times and losses on obsolete inventory. Apples lean manufacturing value chain is adapted to rapid turnover and can be leveraged to combat the threat of inventory obsolescence. Apple currentlyinvests billions of dollars in research and development which can be leveraged to positionApple at the head of industry innovation, staying ahead of competitors in lifecycles shifts. Sociocultural EnvironmentIncreasing desire for on-the-go devices The importance of the Internet andconnectivity is driving a demand for access anywhere, using high-speed wireless technologies.Smartphones, and other ultraportable connected devices, that allow users to carry access tothe Internet wherever they go are fast-growing compared to traditional personal computers.Apple and other manufacturers face a loss of relevance in the new technological landscape, driven by consumer preference. Again, Apples substantial investment in research and development in highly popular devices like the iPhone place Apple at the forefront of thistransition. Greater concern for the environment

 The production and shipment of Apples devices are considerable sources of carbon emissions and pollution, which may come under scrutiny asconsumer concern for the environment continue to grow. Apple has already made commitments to greener manufacturing practices as well as implementing the use of eco -friendly components, and packaging. This proactive step can be used as a marketing tool togarner greater respect from concerned customers Developing Chinese economy The Chinese economy continues to grow despiteworldwide economic contraction. As the economy becomes more developed, increased wagesnationwide will increase the costs of production for Apple and its OEM partners. The increase inquality of life and disposable income to Chinese citizens will provide a larger customer base forApple to tap into. Potential world-wide climate regulation It is possible that the Copenhagen talks willresult in real commitments from the international community regarding emissions caps andtaxes. Strict Carbon emissions regulations will impose a considerable financial burden on the production of Apples products, driving up costs and sh rinking margins. Again, Apples initiativein implementing green practices sets them apart from many competitors who will also feel the burden of regulation. Recommendations Based on key trends in the general environment discussed above, I recommend: Emphasize value for consumer dollar:

Apple is known to provide considerable valueregarding quality, satisfaction, and service for its products. These traits should beexpressed explicitly to convey the value of their products when compared tocompetitors. Campaign for real network neutrality: The debate over net neutrality is being muddiedby moneyed interests to obscure the issues. To protect innovation and future value forApple, the firm should advocate for open networks without packet or contentdiscrimination. Convergence devices within the Apple system: Apple is already a leader in thesmartphone market and should shift competencies to new, innovative, convergencedevices that take advantage of Apples system of simple, easy to use, integrated devicesand applications 5.2. Diversification Apple already has a well-positioned diversified strategy, but can continue to broaden itsscope while creating value in related and unrelated markets including eBooks and medicalequipment. Current Diversification Apple has already implemented a successful strategy of diversification, both related andunrelated. Beginning as a company which produced full-sized desktop computers Apple nowoffers a line of desktops, notebook computers, mobile digital media players, and a mobilephone, among many other devices. Apple has also entered the content distribution business,selling music and applications for its devices as well as renting digital video, playable acrossmany of its most popular devices. Despite this broad range of diversification, there are stillopportunities for Apple to further diversify. Related Diversification As discussed in the General Environment Analysis above, the world of consumerelectronics technologies is converging on a point of highly portable, rich media, Internetconnected devices. Apple has already entered this market with the highly popular iPhone,which performs many of the most desired functions. The growing consensus is that a tabletformat device may be the next step, bridging the divide between laptops and smartphones. Apples patents dealing with touch screen technology and experience developing the iPhone and iPod Touch will translate perfectly to a larger form, highly functional tablet device.A growing category in digital tec

hnology is the eReader device, which allows consumers to transport and read books in a digital format. While the Amazon Kindle is currentlythe leading product in this market, the category is still young and could be redefined. If Applecould incorporate an e-book reader into a convergence device, or develop a successfulstandalone device it would be wise of them to diversify the iTunes store to include ebookdownloads in addition to music, movies, TV shows, and podcasts among other types of contentalready available. This is one of the next logical progressions of the iTunes store which hascome very far from its initial offering of music only. Unrelated Diversification In the United States medical equipment and devices are a growth area of the economy.As new healthcare legislation is enacted the importance of modernizing our system will come tothe forefront. Apples high quality portable devices would provide excellent platforms for care providers to utilize in streamlining care. In order to gain the most value from this growth areawithout considerable risk or heavy capital investment Apple should work with medical equipment manufacturers and care providers to establish Apples devices, particularly a future tablet, as a standard for medical technology platforms.Using a combination of new digital medical technologies developed by medicalequipment manufacturers and current technology for connectivity Apple could open itsportable and mobile platforms open for development of unique and efficient medical tools.Examples of potential products would include digital thermometers and blood pressure monitors that connect via USB or the Apple proprietary Dock Connector to an Apple device toautomatically log measurements and do real-time analysis based on historical values to identifytrends that may pose health risks. Recommendations Based on the above, I recommend: Capture convergence device markets: Utilizing research and developmentcommitments and market head starts including the iPhone, Apple should work to definethe approaching market for convergence devices that bridge the gap between portablecomputers and mobile phone. iTunes Store eBook distribution:

Apple should add affordable eBook options to thevariety of digital media available through the iTunes Store, compatible with all Appledevices. Medical equipment platform: Work closely with established medical devicemanufacturers to create a digital medical device platform designed to become anindustry standard in modernization through state-of-the-art care administrationsystems. 5.3. New Value CreationInternational New Value Creation Currently the Apple iPhone uses a single cell network radio compatible only with GSMnetworks (i.e. AT&T and T-Mobile in the United States). While GSM networks are implementedworldwide, CDMA networks (i.e. Verizon and Sprint in the United States) a competing standardare also widespread and used by millions of people. Introducing a new model of the populariPhone device utilizing an innovative Qualcomm cell phone radio chip that combines GSM andCDMA capabilities for a fully capable smartphone that can be used worldwide on any networkwould expand the number of potential customers Apple could target worldwide.Despite the immense popularity of the iPhone in the United States and worldwide,many customers, unwilling to switch cell providers, cannot use the device, despite desiring aphone of its caliber. Currently there are over 500 million users on CDMA networks worldwide. 25 Ma king one small change in the iPhone would allow the phones use on all CDMA networks and open it up to millions of potential users. In the United States it can be assumed that manycurrent iPhone users would re-buy the phone in order to switch to the Verizon network, whichreceives top marks in customer satisfaction, while AT&T comes in last, despite the popularity of the iPhone. 26 If the United States is a model that can be used to interpret CDMA user desire forthe iPhone worldwide, there is a potential for substantial value creation by implementing thedual-band iPhone model. Socially Responsible and Green New Value Creation

Apple has already implemented the Apple Recycling Program , which allows customersto recycle old computer systems and peripherals with the purchase of a new Mac 27 and offersincentive to recycle old mp3 player and mobile phones through the program. 28 The programhelps to reduce the amount of electronic waste put into landfills. Electronics recycling isimportant because there are many toxic and environmentally harmful chemicals in electronicsthat can leech into the ground if improperly disposed of.Samsung, a preferred supplier of Apple, recently announced an initiative to promoteelectronics recycling while raising funds to benef it San Francisco Bay Area public schools lunch programs. Proceeds from the recycling program will be matched by Samsung to help feedhungry children through the free and reduced-price lunch programs and expand meal options. 29 Apple should join its partner in encouraging education about environmental issues whilepromoting electronics recycling and benefiting local schools. In addition to the money forimproved lunch programs provided by Samsung, Apple can match contributions with computersfor Bay Area schools to help children learn and become better equipped for the technologicalfuture. As the program grows more successful similar initiatives could be rolled out in othercities in California, the home of Apple, and across the country, where children most need help.

MGT 440, December 2009

Masi

Strategic Analysis

Apple Inc.

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This program will not only benefit the environment by reducing electronic waste andpromoting sustainable practices by educating the public about the importance of conservation,but it will make a direct impact in the lives of young children, and benefit Apple in the future. The publicity associated with the charitable program will foster goodwill and promote Apples image of a socially responsible company. Further, introducing children to the firms products is likely to have a positive effect on product sales in the future. Recommendations In summary, I recommend: Dual-band GSM/CDMA iPhone worldwide: Offering a new model of the iPhone using aninnovative dual-band chip will make it compatible with all cell networks worldwide anddramatically increase the potential user base. Collaborative recycling benefit with Samsung: Join and enhances Samsungs charitable efforts to promote electronics recycling while benefiting children in public schools. 6. Recommendations and ConclusionThe Ultimate Convergence Device Given the external environment and sociocultural and technological trends and Applesunique strengths including the firms resources and capabilities , including unmatched industrialdesign teams, talented device engineers, patents and innovation dealing with user interfaceand usability a logical next step for Apple is to develop a market defining convergence device,likely a tablet.The firm should leverage its close OEM partnerships and internal knack for design and usability to develop an innovative device that fits into Apples unique system of seamlessly integrated devices and applications to bridge the gap between consumers

 personal computersand their mobile phones. Apples internal engineers will use what the firm has learned from its iPhone, iPod, andMac lines to develop an intuitively usable device packed with useful functions leveraging Apples iTunes Store content including the ecosystem of third -party applications developers tounleash the full potential of the platform. The award winning design team can leverage itstalent to create the next must-have product regarded for its design simplicity and elegancemaking it not only a functional device, but a fashion statement. Finally, Apples close wo rk withits preferred OEM partners will make the tablet a reality, focusing on build quality anddependability. Modern Medical Device Platform Once developed the Apple convergence device will provide a wide range of functionsand powerful processing capability that can be applied to the field of medical care to enhanceefficiency and modernize the industry. Apple should work with medical device companies andcare providers to develop a set of criteria for necessary capabilities for consideration indeveloping the platform.The device will function as an integral part of an overhauled recordkeeping, care giving,and medical administrative system modernized for the twenty-first century. The device andsoftware it runs will make use of compatible equipment to measure, document, and filemeasurements, symptoms, and diagnosis in an easily accessible and fully-portable medical filessystem. The system will help to streamline care giving, administration, and claims filing, byeliminating mountains of paperwork and cumbersome filing systems. Partner with Samsung to Benefit Children and Environmental Education As a smaller, yet important initiative Apple should partner with Samsung to further theSan Francisco Bay Area electronics recycling and environmental education program whileworking to directly benefit children of local public schools by improving the school lunchprogram and providing better technology to enhance learning.