R i f t V a l l e y U N I V E R S I T Y

DEPARTMENT OF MANAGEMENT
INDIVIDUAL ASSIGNMENT
Read the following case and answer the questions given at the end.
APPLE'S RISKY STRATEGY
When Apple's Chief Executive – Steven Jobs - launched the Apple iPod in 2001 and the
iPhone in 2007, he made a significant shift in the company's strategy from the relatively safe
market of innovative, premium-priced computers into the highly competitive markets of
consumer electronics. This case explores this profitable but risky strategy before Nokia had
major problems with smartphones in 2008.
Early beginnings
To understand any company's strategy, it is helpful to begin by looking back at its roots.
Founded in 1976, Apple built its early reputation on innovative personal computers that were
particularly easy for customers to use and as a result were priced higher than those of
competitors. The inspiration for this strategy came from a visit by the founders of the
company Steven Jobs and Steven Wozniack - to the Palo Alto research laboratories of the
Xerox Company in 1979. They observed that Xerox had developed an early version of a
computer interface screen with the drop-down menus that are widely used today on all
personal computers. Most computers in the late 1970s still used complicated technical
interfaces for even simple tasks like typing-still called 'word-processing' at the time.
Jobs and Wozniack took the concept back to Apple and developed their own computer-the
Apple Macintosh (Mac) - that used this consumer-friendly interface. The Macintosh was
launched in 1984. However, Apple did not sell to, or share the software with, rival
companies. Over the next few years, this non-co-operation strategy turned out to be a major
weakness for Apple.
Battle with Microsoft
Although the Mac had some initial success, its software was threatened by the introduction of
Windows 1.0 from the rival company Microsoft, whose chief executive was the well-known
Bill Gates. Microsoft's strategy was to make this software widely available to other computer
manufacturers for a licence fee-quite unlike Apple. A legal dispute arose between Apple and
Microsoft because Windows had many on-screen similarities to the Apple product.
Eventually, Microsoft signed an agreement with Apple saying that it would not use Mac
technology in Windows 1.0. Microsoft retained the right to develop its own interface
software similar to the original Xerox concept.
Coupled with Microsoft's willingness to distribute Windows freely to computer
manufacturers, the legal agreement allowed Microsoft to develop alternative technology that
had the same on-screen result. The result is history. By 1990, Microsoft had developed and
distributed a version of Windows that would run on virtually all IBM-compatible personal
computers. Apples's strategy of keeping its software exclusive was a major strategic mistake.
The company was determined to avoid the same error when it came to the launch of the iPod
and, in a more subtle way, with the later introduction of the iPhone.
Apple's innovative products
Unlike Microsoft with its focus on a software-only strategy, Apple remained a full-line
computer manufacturer from that time, supplying both the hardware and the software. Apple
continued to develop various innovative computers and related products. Early successes
included the Mac2 and PowerBooks along with the world's first desktop publishing
programme - PageMaker. This latter remains today the leading programme of its kind. It is
widely used around the world in publishing and fashion houses. It remains exclusive to Apple
and means that the company has a specialist market where it has real competitive advantage
and can charge higher prices.
Not all Apple's new products were successful - the Newton personal digital assistant did not
sell well. Apple's high price policy for its products and difficulties in manufacturing also
meant that innovative products like the iBook had trouble competing in the personal
computer market place.
Apple's move into consumer electronics
Around the year 2000, Apple identified a new strategic management opportunity to exploit
the growing worldwide market in personal electronic devices - CD players, MP3 music
players, digital cameras, etc. It would launch its own Apple versions of these products to add
high-value, user-friendly software. Resulting products included iMovie for digital cameras
and iDVD for DVD-Players. But the product that really took off was the iPod - the personal
music player that stored hundreds of CDs. And unlike the launch of its first personal
computer, Apple sought industry co-operation rather than keeping the product to itself.
Launched in late 2001, the iPod was followed by the iTunes Music Store in 2003 in the USA
and 2004 in Europe - the Music Store being a most important and innovatory development.
iTunes was essentially an agreement with the world's five leading record companies to allow
legal downloading of music tracks using the internet for 99 cents each. This was a major coup
for Apple-it had persuaded the record companies to adopt a different approach to the problem
of music piracy. At the time, this revolutionary agreement was unique to Apple and was due
to the negotiating skills of Steve Jobs, the Apple chief executive, and his network of contacts

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in the industry. Apple's new strategy was beginning to pay off. The iPod was the biggest
single sales contributor in the Apple portfolio of products.
In 2007, Apple followed up the launch of the iPod with the iPhone, a mobile telephone that
had the same user-friendly design characteristics as its music machine. To make the iPhone
widely available and, at the same time , to keep control, Apple entered into an exclusive
contract with only one national mobile telephone carrier in each major country - for example,
AT & T in the USA and 0, in the UK. Its mobile phone was premium priced - for example,
US$ 599 in North America.
However, in order to hit its volume targets, Apple later reduced its phone prices, though they
still remained at the high end of the market. This was consistent with Apple's long-term,
high-price, high-quality strategy. But the company was moving into the massive and still-
expanding global mobile telephone market where competition had been fierce for many
years. And the leader in mobile telephones - Finland's Nokia - was about to hit back at Apple,
though with mixed results.
But other companies, notably the Korean company Samsung at the Taiwanese company,
HTC, were to have more success later. So, why was the Apple strategy risky? By 2007,
Apple's music player - the iPod - was the premium-priced, stylish market leader with around
60 percent of world sales and the largest single contributor to Apple's turnover. Its iTunes
download software had been re-developed to allow it to work with all Windows-compatible
computers (about 90 percent of all PCs) and it had around 75 percent of the world music
download market, the market being worth around US$ 1000 million per annum. Although
this was only some 6 percent of the total recorded music market, it was growing fast. The rest
of the market consisted of sales of CDs and DVDs direct from the leading recording
companies.
In 2007, Apple's mobile telephone – the iPhone - had only just been launched. The sales
objective was to sell 10 million phones in the first year: this needed to be compared with the
annual mobile sales of the global market leader, Nokia, of around 350 million handsets.
However, Apple had achieved what some commentators regarded as a significant technical
breakthrough: the touch screen. This made the iPhone different in that its screen was no
longer limited by the fixed buttons and small screens that applied to competitive handsets. As
readers will be aware, the iPhone went on to beat these earlier sales estimates and was
followed by a new design, the iPhone 4, in 2010.
The world market leader responded by launching its own phones with touch screens. In
addition, Nokia also launched a complete download music service. Referring to the new
download service, Rob Wells, senior Vice President for digital music at Universal

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commented: 'This is a giant leap towards where we believe the industry will end up in three
or four years' time, where the consumer will have access to the celestial jukebox through any
number of devices'. Equally, an industry commentator explained: '[For Nokia] it could be
short-term pain for long-term gain. It will steal some of the thunder from the iPhone and tie
users into the Nokia service'. Readers will read this comment with some amazement given the
subsequent history of Nokia's smartphones.
'Nokia is going to be an internet company. It is definitely a mobile company and it is making
good progress to becoming an internet company as well', explained 011i Pekka Kollasvuo,
Chief Executive of Nokia. There also were hints from commentators that Nokia was likely to
make a loss on its new download music service. But the company was determined to ensure
that Apple was given real competition in this new and unpredictable market.
Here lay the strategic risk for Apple. Apart from the classy, iconic styles of the iPod and the
iPhone, there is nothing that rivals cannot match over time. By 2007, all the major consumer
electronics companies - like Sony, Philips and Panasonic - and the mobile phone
manufacturers - like Nokia, Samsung and Motorola – were catching up fast with new
launches that were just as stylish, cheaper and with more capacity. In addition, Apple's
competitors were reaching agreement with the record companies to provide legal downloads
of music from websites.
Apple's competitive reaction
As a short term measure, Apple hit back by negotiating supply contracts for flash memory for
its iPod that were cheaper than its rivals. Moreover, it launched a new model, the iPhone 4
that made further technology advances.
Apple was still the market leader and was able to demonstrate major increases in sales and
profits from the development of the iPod and iTunes. To follow up this development, Apple
launched the Apple Tablet in 2010 - again an element of risk because no one really knew how
well such a product would be received or what its function really was. The second generation
Apple tablet was then launched in 2011 after the success of the initial model. But there was
no denying that the first Apple tablet carried some initial risks for the company.
All during this period, Apple's strategic difficulty was that other powerful companies had also
recognised the importance of innovation and flexibility in the response to the new markets
that Apple itself had developed. For example, Nokia itself was arguing that the markets for
mobile telephones and recorded music would converge over the next five years. Nokia's
Chief Executive explained that much greater strategic flexibility was needed as a result: 'Five
or ten years ago, you would set your strategy and then start following it. That does not work
anymore. Now you have to be alert every day, week and month to renew your strategy'.

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If the Nokia view was correct, then the problem for Apple was that it could find its market-
leading position in recorded music being overtaken by a more flexible rival – perhaps leading
to a repeat of the Apple failure 20 years earlier to win against Microsoft. But at the time of
updating this case, that looked unlikely. Apple had at last found the best, if risky, strategy.

Questions:
(a) Perform a competitive analysis of both Apple and Nokia and find who is the stronger?
(b) What are the problems with predicting how the market and the competition will change
over the next few years? Discuss with respect to the strategy adopted by Apple.
(c) What were the strategic implications of Apple's particular strategy?
(d) What lessons can other companies learn from Apple's strategies over the years?

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An assessment of Apple and Nokia's corporate strategy as to determine the strongest

A SWOT and competitive analysis of Apple

Inc
Info: 2449 words (10 pages) Essay
Published: 1st Jan 2015 in Marketing

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History
Apple Computer Inc. was founded by Steve Jobs and Steve Wozniak in April 1976. It began
as a computer software and hardware manufacturers. Apple Computer Inc. has one of the
biggest and most loyal customer bases, who supported the continued growth of the company.
In 2007 Apple Computer Inc. changed the company name to Apple Inc., which reflects the
expansion in the market for consumer electronics while maintaining its traditional focus on
the personal computer. Apple Inc. has evolved from strictly a computer company to a
diversified technology company, renowned for its art, software and design. CEO Steve Jobs
is not only the company leader he is one of its principal visionaries. Jobs latest creations are
the iPhone and the IPad. He refers to it as a “magical device that will change the world.”

Introduction
“To make a contribution to the world by making tools for the mind that advance humankind.”

Steven P. Jobs is Chief Executive Officer and Director of Apple Inc. right now. Apple has
established a unique reputation in the consumer electronics industry. Apple is one of the
largest companies in the world and the most valuable technology company in the world,
having surpassed Microsoft. Apple Inc’s products and services include iTunes, Macintosh
(“Mac”) computers, iPhone, iPad, iPod, Apple TV, Xserve, a portfolio of consumer and
professional software applications, the Mac OS X and iOS operating systems, third-party
digital content and applications through the iTunes Store, and a variety of accessory, service
and support offerings. Apple wants to bring the best user experience to its customers through
its innovative hardware, software, peripherals, services, and internet offerings. In September
2010, the Company had a total of 317 retail stores, including 233 stores in the U.S. and 84
international stores.

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Apple utilizes a variety of direct and indirect distribution channels, for example, the company
sells its products through its retail stores, online stores, direct sales force and third-party
cellular network carriers, wholesalers, retailers, and value added resellers. Teamwork is

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essential for Apple’s success strategy. In order to recognize the best of its employees, Apple
created the Apple Fellows program, awarding individuals who made extraordinary technical
or leadership contributions to personal computing while at the company. Apple Values are
the qualities, customs, standards and principles that the company believes and they help
Apple Inc. and its employees succeed. “They are the basis for what we do and how we do it.”
Taken together, they identify Apple as a unique company.

SWOT-Analysis
Strength
Global presence

Apple derives more than 50% of its revenues from outside U.S., its domestic market. A
balanced presence in mature as well as emerging markets has enabled the company to record
a steady revenue growth.

Brand Image

Apple is one of the most established and healthy IT brands in the World, and has a very loyal
set of enthusiastic customers that advocate the brand. The company’s strong brand
recognition helps to create barriers to entry within the market, and also enables it command a
premium pricing for the products. It gives a competitive edge over regional and other global
competitors.

Strong Media Content

With iTunes they created a success story in recent times. Because of the store where you can
get music, videos, short films, TV shows, podcasts, audiobooks and ebooks they established a
unique position on the digital market exclusive for Apple products.

Weaknesses
Dependency for key components

Substantially all of the Company’s components and products are manufactured in whole or in
part by a few third-party manufacturers. It is uncertain what effect such diminished control
will have on the quality or quantity of products or services, or the Company’s flexibility to
respond to changing conditions. It could also create significant supply and pricing risks.

Recent success correlated to Leadership

Because of the associated relationship between Steve Jobs and their successful products, they
will have a hard time to hold their current image as innovative design and Business Company
without Steve Jobs.

Opportunities
New digital platform

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Apple is focusing on transforming its Mac platform into a digital hub that combines iTunes
video content to customers’ television screens and portable devices. This new platform would
enhance Apple’s rapidly growing digital content business. In addition, it would also integrate
the digital content business with Apple’s Mac business. This is expected to provide stability
to the company’s long-term growth.

Launch of iPad 2 and iPhone 5

These products especially the iPhone 5 are important developments to show, that Apple Inc.
is still innovative and to consolidate the position in these product segments. It is also
beneficial that Apple provides with every new product launch software updates for older
generation products to keep customers.

Threats
Strong Competition

Apple is confronted by strong competition in all areas of its business. The market for the
design, manufacture, and sale of personal computers, portable devices, related software and
peripheral products is highly competitive. This market continues to be characterized by rapid
technological advances in both hardware and software development, which have substantially
increased the capabilities and applications of these products, and have resulted in the frequent
introduction of new products and significant price, feature, and performance competition.

Dependence on third party producers

Decisions by customers to purchase its hardware products are often based to a certain extent
on the availability of third-party software applications and services. There is no assurance
that third-party developers will continue to develop and maintain applications and services
for Apple’s products on a timely basis or at all, and discontinuance or delay of these
applications and services could materially adversely affect the Company’s financial condition
and operating results.

Competitive Advantages
If one uses one Apple product it is most likely that there will follow another product soon.
The link between Apple products is extraordinary, they fit together and one is able to get all
out of the Apple network. Apple created also exit barriers for their customers, because many
software solutions are only available with Apple products. On the other hand software
solutions from competitors are available for Apple products, which create an even bigger
competitive advantage.

The Company continues to develop new products and technologies and to enhance existing
products that expand the range of its product offerings and intellectual property through
licensing and acquisition of third-party business and technology, which is reflected in their
research and development spending.

Porter’s Five Forces Analysis

The threat of the entry of new competitors

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There are a few possibilities of new competitors in certain areas, Verizon for example with
V-Cast. It is a technology to stream audio and video.

On demand online services similar to iTunes are also possible and web apps are compatible
to every device (Android or iOS).

The intensity of competitive rivalry

Although Apple currently has an advantage with its innovative products it must always be
aware of the ease that a competitor can copy its products, especially in the extremely
competitive high-tech field. In the market for personal computers and peripherals, the
Company faces a significant number of competitors, many of which have broader product
lines, lower priced products, and larger installed customer bases. Consolidation in this market
has resulted in larger and potentially stronger competitors. Price competition has been
particularly intense as competitors selling Windows-based personal computers have
aggressively cut prices and lowered product margins. Only Apple is authorized of using Mac
OS.

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The threat of substitute products or services

“The original iPhone, it combines three products in one – a revolutionary phone, a
widescreen iPod, and a breakthrough Internet device with rich HTML email and a desktop-
class web browser” (Steve Jobs 2008). That means a substitute product could be any high
tech product with one of these features. Also the threats about products that combine all
features of an Apple product are acute.

The bargaining power of customers (buyers)

There are huge numbers of buyers. Customers share music without paying for it. Consumers
may reduce their spending on computers in economic down streams. Apple is a premium
Manufacturer of high tech products, so there is a variety of cheaper substitutes, which may
have not all the features and the design but it is an alternative for every customer. The lost of
buyer is not a key threat at this point of time.

The bargaining power of suppliers

Most of Apple’s components and products are manufactured by a few third-party
manufacturers. Many of these manufacturers are located outside of the U.S., and are
concentrated in several general locations. The Company has also outsourced much of its
transportation and logistics management. While these arrangements may lower operating
costs, they also reduce the Company’s direct control over production and distribution.

Financial Analysis

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Net sales during 2010 increased $22.3 billion or 52% compared to 2009. The long-term
obligations are very low; no long term debt during the last five years (ended 2010) is the
reason. The biggest growth is currently in the Asia-Pacific region with 160% (2010 to 2009)

All dollar numbers are in million

The Net Sales split into product shows where the actual net sales are. One can see that the
iPhone shows continuous 93% growth since 2008 that’s more than 350% from 2008 to 2010.

All dollar numbers are in million

Apple expects its gross margin percentage to decrease in future periods compared to levels
achieved during 2010 and anticipates gross margin levels of about 36% in the first quarter of
2011. This decline in gross margin is primarily attributable to new products with higher cost
structures like the iPad. The iPhone on the other hand has a higher gross margin than
company average.

All dollar numbers are in million

One can see the efforts, which Apple puts into research and development. The research and
development spending are 34% higher (2010 to 2009). It was also the result of an increase in
headcount and related expenses.

All dollar numbers are in million

Most of the possible liquidity issues who could occur during the next year are more than
covert, because of Apple’s liquidity structure.

All dollar numbers are in million

One can see on this graph a five-year comparison of cumulative total shareholder return. It
shows in addition the S&P 500 Composite Index, the S&P Computer Hardware Index and the
Dow Jones U.S. Technology Index. So one can conclude a extraordinary stock performance.

stock.PNG

$100 invested on 2005 in stock, including reinvestment of dividends

Summary
With the growth of Apple in the past decade comes a new era of technological giants. The
battle between Microsoft and Apple has been a long and grueling rollercoaster, and it seems
now Apple has the upper hand. With the iPad 2 flying off store shelves (roughly 600,000 sold
on the first day) and rumors of the next iPhone coming out this summer, they have shown
how working through hard times and exploring risky ventures have paid off. But where does
Apple and the mastermind Steve Jobs have its hands dipped in now?

The next step forward in Apple’s corporate strategy will be competing against Adobe and
their Flash based applications and open server networks. This may not go far, but it will stir
up some conversations when talking about the benefits of accessibility into Flash based
programs on the Droid OS products. The biggest down side to all of this, as a consumer, is

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the closed network that keeps an Apple customer an Apple customer. The ability that Apple
has to block third party apps is a great way for them to stay in control and to collect profits.

If we try to imagine what Apple will be like as a company in ten years, it would be very
difficult to give a concise and directed answer given all the factors. Steve Jobs has left, due
from medical problems, and came back over the past several years in order to assist Apple in
making profitable executive decisions, as well as be a renowned face for the public and its
shareholders. Jobs has a quite rare pancreatic cancer and with fears of Jobs not being there
leading them through the next decade, shareholders are preparing for a decline. The flipside
to this is that Apple had announced a 6 billion dollar profit in the last quarter of 2010,
providing the momentum that they need to thrive for years to come. As far as products go,
Apple has most likely researched and developed prototypes for software and advances in
their hardware that are just too costly to mass produce for the current consumer market.
Laptops, tablets, and smart phones are their major products each capturing a great deal of
market share. There is, however, a market that they lack support in, television. Although
Apple has produced Apple TV, it has yet to really push the products capabilities to the
market, let alone get a real significant market share. It’s surprising that even though they have
been selling Apple TV for a couple of years that they really haven’t improved on the concept,
especially with TV’s now applying common applications like YouTube.com and Facebook
and Google’s new product Google TV.

Apple has been serving its new buyers an existing fan base well by coming out with above
average quality products that call on the most trendy and particular buyers. For now, Apple
has a good outlook but their reign can’t last forever. In a monetary aspect, they can last;
holding market share and being the on brink of technology is a cyclical process when
discussing technology and technologies successors.

Introduction
The recent trends in the increasing competitiveness of the global market place with its
accompanying threats to the survival of many industries has forced several managers to
rethink the way they do business. There has been a paradigm shift from the yester year’s
philosophy where by apart from the recurring operational level planning for finances and
basic forecasting, strategic management was relegated to the bench on most corporate level
discussions on growth and success to a modern thinking where most managers now consider
strategic management as an effective weapon in their arsenal for securing sustainable
competitive advantage in their operational markets. The rise and fall of many businesses
either through very good effective strategies or through a deficiency in sustainable strategy
only go to reiterate this point further. In order to fully comprehend the many benefits of
strategic management it is necessary that we understand what the concept means
Strategic management in its basic form comprises of the many intended and emergent initiatives
taken by the management of a company involving the usage of its resources to enhance the
performance of the company in its external environment (Nag, et al., 2007). It involves a careful
study of an organisation’s internal environment and its interactions with its external environment
(customers, competitors, suppliers, macro environment) all with the aim of maximizing the positive
influences of its environments whilst minimizing their negative effects. Central to the theme of
strategic management is the need for business leaders to be in touch with their business
environments so as to be in a better position to respond to varying stimuli. This need for greater
environmental awareness can be as a result of a deliberate plot by the business to shape its future

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through a series of well thought out initiatives for the realisation of a specific end or as a means of
continuous survival evolution without a concrete end (the end of one journey begins another).
Irrespective of the approach that a business takes to realising its strategic potential, all strategic
planning initiatives consist of three distinct stages namely strategic analysis of the business’s
environment, strategic development of options and the strategic implementation of one or a
combination of the developed options. Strategic analysis of the business’s environment is concerned
with identifying the impact on strategy of the environment, an organisation’s strategic capability
(resources and competences) and the expectations and

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