Table of Contents

Table of Contents..................................................................................................................................1 Introduction ..........................................................................................................................................2 Theory and Analysis.............................................................................................................................3 The PC industry analysis............................................................................................3 Apple Sustainability & competitive advantage in the PC industry.......................................8 Strategic advice....................................................................................................................................10 Conclusion and Reflection..................................................................................................................10 References

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I.Introduction In 1976 Steve Jobs and Steve Wozniak founded Apple Computer Inc. together with a group of 20 other people and started out in Steve Jobs garage. Apple started making computer circuit boards and followed that with an easy to use computer in 1978, through the years it focused on the PC business and developed applications for their own Macintosh computers. They created laptops called the Mac-book in 1994 and even entered the MP3 player industry with the iPod brand in 2001 and more recently the mobile phone industry with the iPhone in 2008. Through the years Apple has changed from being the worlds largest producer of PCs controlling almost the entire market at the beginning of the 1980s, to only controlling a small share of the industry after several circumstances which left the company in crisis. Its market share had declined significantly to a current 3% market share, still Apple is a successful business due to its other products and its Macintosh computers are still profitable. Currently Apples PC Business is on the rise again, but is this only temporal or can Apple reclaim its original market leader position in the PC industry. Report review In this report we review the current state of PC industry and that of Apples PC Business and we review the future of Apples PC business. We started this report by giving a small introduction of the company in which showed some of its history and some of the products that are developed by Apple. We continue our report with our analysis which we conduct by answering the following research questions: What distinctive competencies has Apple built over the years to achieve its competitive advantage? Comment on the nature of competition in the industry in which Apple is operating. How sustainable are the distinctive competencies of Apple? What are the drivers of competition in the computer technology industry? How would you guide Apple to build its capabilities necessary for continued successful performance? We answer these research questions through the application of the theories we have found in the articles we used to solve these research questions.

We continue the report by giving our strategic view to assist the company in attaining sustainable competitive advantage within the PC industry. We end this report with our reflections and our conclusion on the subject and the limitations of the theories we have used in this report.

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II.Theory and Analysis

1. The PC industry analysis We start our analysis by examining the nature and the drivers of competition in the PC industry, to answer this question we use Porters Five Forces Model as it is and effective method to create a clear picture of a business environment.

A. Five Forces Model The Five Forces Model by Porter (Wit & Meyer, 2004, pp. 258-262) determines the attractiveness of an industry. There are five different forces that determine whether the profits in any given industry will be high or whether competition drives profits down. The profits are essentially determined by these forces because they influence prices, costs, and required investment of firms (Wit & Meyer, 2004, p. 259). The five different Forces by Porter that embody the rules of competition (Wit & Meyer, 2004, pp. 258-262) are as shown in figure 1:

Now that we have illustrated the theory we can apply it to the case as to determine the nature of the PC industry. B. Five Forces Model Analysis i.Suppliers force The Company has entered into certain agreements for the supply of key components including, but not limited to, microprocessors, NAND flash memory, DRAM and LCDs at favorable pricing, but there is no guarantee that the Company will be able to extend or renew these agreements on similar favorable terms, or at all, upon expiration or otherwise be able to obtain favorable pricing in the future. (10-K, 2008, P, 17) Sometimes quality components can become a struggle within the PC industry as competitors try to obtain these components and make sure that others cannot use these technologies. Considering this, a suppliers power could be changed because of this situation. These days, declining average selling prices(X-bit, 2009) are problematic for the suppliers, which in turn could lead to a decrease in new technologies as these suppliers will have lower incomes and thus less revenues to spend on R&D. ii.Buyers force There are a number of different entities to which Personal Computer industry caters: large
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companies, normal households, governments and so on. However, Apples target includes people who have special demands for a computer. For example, in the publishing industry; Apples computer was the only effective machine as it allowed companies to edit things digitally. Apple still remains in that industry, because of the fonts, the system, and options it brings. Many companies continue to use Apples computers as it is expensive to change the entire system, thus companies are afraid to switch to other systems. However, average sales continue to decline. Combined, HP, Dell, Lenovo and Apples unit sales decreased only 5% year-over-year, however, their collective ASP dropped 13%, causing an 18% decline in PC revenues.(X-bit, 2009).Needless to say, Apples competitors have control over Apples former market share. iii.New entrants force More than 60% of the market share is occupied by Hewlett-Packard, Dell, Acer, Lenovo, Toshiba (PC Market Still Strong in Q4 with Solid Growth across Regions, According to IDC, 2008). Brand identity is a large enough barrier to make it difficult for new companies to enter this market. Producers continue to lower their prices to try and attract new customers. This is a large barrier that makes sure that new entrants cannot easily start a business. Hence, Entry Barriers are so high that threat of new entrants entering the market is low. iv.Substitutes force Other PCs from other companies are treated as substitutes for Apples computers, the same is true the other way around. Thus in this market there are a number of substitutes which have an influence on the sales of each producer. v.Industry competitors force Combined, HP, Dell, Lenovo and Apples unit sales decreased only 5% year-over-year, however, their collective ASP dropped 13%, causing an 18% decline in PC revenues.(X-bit, 2009) Competition has always been fierce within the personal computer industry and this is only increasing. Cutting costs is required to survive in this a situation. Moreover, Apple is facing three aspects of conflict in the Personal Computer industry: a. PC hardware Needless to say, there are many companies which provide PC hardware. In 2007, Apple had only 2.6% share in global personal computer market (PC Market Still Strong in Q4 with Solid Growth across Regions, According to IDC, 2008). b. Operating System Mac OSX has minor share comparing to Windows OS. Some important applications do not support Mac OSX. c. Software

Apple provides software for Mac OS, but most of Apples software and the software developed by third-parties for Apple could only be used on an Apple Computer in the past. Apples computer used to play a role as digital creative tool, but now, other software producers have reached same level and these software programs can be used on multiple operation systems and competition has occurred. For example, Final Cut Studio 2 Adobe Creative Suite 4 Production Premium, i-Work 08 Microsoft office, i-Life 08 Blog, Adobe Dreamweaver, flicker, and picasa, and Logic Studio DTM software. Considering this output of five force analysis, two strong forces could be found: a strong decrease is price and severe competitive environment in PC industry. Especially, a conflict of software is important because existence of similar software as all competitive software can be used with the Windows OS, means that there is nothing we can only do with Apples computer.

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2. Sustainability & competitive advantage in the PC industry A. What distinctive competencies has Apple built over the years to achieve its competitive advantage? To answer this question it is important to first define the distinctive competencies. And discuss the key resources and capabilities that apple build over the years to achieve its competitive advantage.

Figure 2: Model of competitive advantage

i.Distinctive competencies definition: Distinctive competence of a firm refers to a set of resources or capabilities that a company is able to perform better than its competitors and which gives it an advantage over them. (Barney, J. (1991)) Question should have been discussed such as: What are Apple's Strengths? Is it a Distinctive competence? Yes, at the time was the inventor of the home computer.

ii.Apples Strengths: Technical savvy Product lines are easy to use and stable. Recent integration with Microsoft products lines and Intel processors demonstrate ability and willingness to adapt to a diverse customer base. (Mossberg) Such innovation, however, would not be sustainable without a

learning environment tolerant of mistakes. While the pure technical expertise alone is not a valuable or rare resource, it becomes very costly to imitate when it exists within the socially complex, entrepreneurial culture of Apple. Financial vitality Cash reserves remained robust and stable despite stagnant market share growth in the computer hardware and software arenas. Apple exploited this by resisting market pressures to reduce costs, tightly integrating product packages, and forming strategic alliances (i.e. securing the backing of all major music distributors in the support of iTunes). Brand loyalty The only way that Apple could maintain the financial vitality described above is via a fanatical, almost cult-like, affair with its customer base. Such brand loyalty is extremely costly and time-consuming to imitate. Steve Jobs Jobs proved to be a vital component to Apples success. During his absence (19851996), Apple experienced the most turbulent (financial and innovative) timeline in its history. Immediately upon his return, he replaced most of the Board of Directors, pruned and focused the new product ideas, and delivered seven consecutive quarters of positive earnings to shareholders. (Farrell, 2009) As such, Jobs is certainly a valuable, rare, and hard to imitate resource that Apple fully exploits. iii.Distinctive Competencies: Apple has been the leader of the Consumer Electronics industry and has maintained a distinct image in PC manufacturing and Music too. The Core competencies responsible behind the success are mainly the Unique resources and Differentiation strategy. It offers the best designed hardware and incomparable software in its products. The Apple has been giving Plug and Play solutions. The hard drive based player called iPod has a stunning design which has become the icon of the digital age. Apple has a Think Different motivation and it believes in Value Creation. The success of some products like iPod and iPhone cannot decide its sustainable competitive advantage because the industry has intense rivalry and imitation is also a threat. Hence, Innovation plays a key role to remain the leading company in the dynamics of fast-growing markets, and Apple definitely can withstand the changes with its innovative skills. Apple has been
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able to command a premium in market and gain above average returns owing to its innovation and differentiation of technologically superior products.

B. How sustainable are the distinctive competencies of Apple? Now that we know what Apples resources are and how it can be used to achieve competitive advantage, lets see how apple can sustain competitive advantage from those distinctive competencies. The problem with Apple and every other PC producer is that none have rare resources as the parts used in building PCs are largely standardized. Another problem is that there is always a substitute for a certain PC. Non-substitutable resources are also limited as the products mainly need to have the same functions. Thus companies need to largely rely on brand name and quality, but quality increases price. This is a problem for Apple as its high quality products are more expensive than computers from other companies. Currently Apples share in the PC business is relatively small, thus it can be concluded that they do not currently possess as sustainable competitive advantage and the current resources are not enough to create a sustainable competitive advantage. However it does seem that Apples PC Business does currently have sustainable growth. Part of this growth can be attributed to the Halo effect of the I Brand, which has been extremely successful due to products like iPod and iTunes and thus increase the interest in Apple products including the Macintosh computers. The other part of the growth can be attributed to the changes Steve Jobs implemented in recent years including restructuring of Apple and improving the image of Apple. So currently Apple has sustainable growth and if this growth continues it can change into competitive advantage.

III.Strategic advice

Apple could build up its market share by using its resources more effectively. However Apple does not possess a lot of resources that could provide a sustainable competitive advantage. The resources are the creativity to differentiate itself, brand recognition and the Apple Stores. These differentiated products can be patented and protected. Brand recognition must be used to rebuild market share that is partly based on this brand recognition. This recognition has been enhanced by the i-Brand that has emerged in the last decade. Apple Stores can also be used to further enhance the brand

recognition and offer Apple PCs. Another option to regain market share would be to lower the prices of the PCs and at the same time try and retain the quality of the products as this is currently one of the larger problems Apple faces as its competitors all have cheaper products.

IV.Conclusion and Reflection From our analysis and research we can derive the following: Despite superior products, Apple has lost a significant part of its market share over time. This can be explained by a changing standard from Apples OS (Operating System) standard towards the standard of an Intel CPU with Windows OS. Furthermore, the high competition has been a problem. This was supported by the standardization of PC components. Furthermore distribution of PCs became easy and information about PCs was more widespread than it was before. This made it easier for consumers to compare functionality and prices of PCs. Apple could not benefit from these declining costs because of its special PC structure, with special components.

The Theories we used to develop our conclusions had their uses, but all theories, concepts and models were developed to explain and describe certain phenomenon. However, in the process of trying to explain this phenomenon to others, facts will be simplified and will lose their detail. For example in Porters five forces model, the model has split reality into five rough pieces; when in reality this is not so simple and there would be more forces at work in shaping a business and the surrounding market. But without simplifying these theories and models it would become difficult to implement these theories.

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References
Articles & books:
Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of Management (17), 99 120. Bingham, C. B., & Eisenhardt, K. M. (2008). Position, Leverage and Opportunity: A Typology of Strategic Logics Linking Resources with Competitive Advantage. Managerial and Decision Economics (29), 241-256. Collis D.J., Montgomery C.A., (2005). Corporate Strategy: A Resource-Based Approach. McGraw-Hill: Boston. Stahura, J., DeVaney, A., & Win, Y. (2005). Determinants of Household Expenditure on Computer Hardware and Software. The Journal of Consumer Affairs (39:2), 254-275. Wit, d. B., & Meyer, R. (2004). Strategy Process, Content, Context An International Perspective (3rd edition ed.). London: South Western Learning. Yoffie, D. B., & Slind, M. (2008). Apple Inc., 2008. Boston, MA: Harvard Business School.

Websites:
Apple.com - Press Release Library. (2009). Retrieved September 21, 2009, from Apple.com: http://www.apple.com/pr/library/ Apple.com - Investor Relations - 10-K Annual Report. (2008): http://library.corporate-ir.net/library/10/107/107357/items/315133/AAPL_10K_FY08.pdf. Accessed 21. Sep. 2009. X-bit laboratories Average Selling Prices of Personal Computers Collapse. (2009).

http://www.xbitlabs.com/news/other/display/20090306064622_Average_Selling_Prices_of_Persona l_Computers_Collapse__Market_Research.html .Accessed 21. Sep. 2009.