Strategic Analysis: Apple, Inc.

Introduction

            The U.S based multinational technology Company is the most valued company worldwide with a net worth of USD1.3 trillion as at the close of 2019.  Apple Inc. was founded in 1976 by Steve Jobs, Steve Wozniak and Ronal Wayne to develop personal computers. In the global market, Apple serves four critical sectors with innovative products and services through physical and online stores. These include computer software, computer hardware, digital distribution, and consumer electronics. Apple’s iPhone is the most profitable product accounting for over 54% of total sales followed by service segment at 17% and mac products generating 9.8% of revenue (Apple Inc 2019).  The services sector is comprised of Apple Music and Apple store while wearable, iPad, iPod, and accessories. With total revenue of $262 billion and $59 billion in net income, Apple is the most profitable company worldwide (Sherr 2018). Apple is ranked among the big four technology firms together with Google, Microsoft, and Amazon.

The strategic analysis is focused on market environment comprising macro and micro business condition impacting Apple performance. In particular, Porter’s five forces and PESTEL tools are applied in assessing Apple’s market environment (Dockalikova, & Klozikova 2014). The second area of focus is resource and capability analysis based on VRIO and core competency model. The final part is the strategic fit analysis to fit the strength and weaknesses of Apple into presenting opportunities and threats. The strategic analysis leads to making a conclusion and suggesting recommendation to improve the strategic management of Apple Inc.

Market Environment Analysis

Market environment consists of internal factors and external forces affecting the firm’s ability to succeed in the market. Macro environment refers to the wider forces that influence opportunities and present threats to the organization. Micro refers to the immediate factors within the industry which shape the performance and can be controllable by the firm. The following section evaluates critical success within the market environment of Apple Corporation.

Micro Market Environment Analysis

The microenvironment of Apple is analyzed using Porter’s five forces strategic tool to assess the effects of industry factor on Apple performance (Karagiannopoulos, Georgopoulos, & Nikolopoulos 2015). Even though all the five forces shape the performance of Apple, the bargaining power of customers and competition are the critical factors that have a significant influence on the success of Apple in the market.

Competitive rivalry is rated high due to the moderate switching cost of customers, high aggressiveness, and low product differentiation. This means that Apple is faced with cut-throat competition in the industry.  Google, Samsung, LG, and Microsoft, among other competitors, have adopted rapid innovation, product imitation, and aggressive marketing to compete with Apple in the market (Chen, & Ann 2016). For instance, popular Apps are found on both iOS and Android operating systems. Based on this analysis, Apple strategic managers should accord high consideration for competitive rivalry.

The bargaining power of customers is another critical force to reckon in Apple’s strategic management. The strong effect is attributed to the moderate cost of switching, small-sized individual buyers, and high buyer information (Grundy 2016). With several similar brands in the market, buyers can easily switch Apple brands for others. However, Apple is using complementary products ecosystem to mitigate the risks of switching to other brands.  The availability of detailed information to the buyers makes it easy to compare Apple product features with competing ones in the market, thus empowering customers. The bargaining power of customers is moderately strong and must be prioritized by Apple strategic management team.

The threat of new entrants depicts the potential of new players entering the market. The threat of new entrants in the technology industry is rated moderate (Burke, van Stel, & Thurik 2010). The high capital outlay and the high cost of developing a brand to the level of Apple are the key barriers to new entrants. However, the effect is moderated by the high capacity of potential new entrants with substantial financial resources and technology. An example is Google’s Nexus smartphone. Based on this factor, remaining competitive in the market against moderate threats from new entrants would require sustained innovation and marketing. The supplier power is weak due to the average number of suppliers in the market, high ratio of the firm to supplier concentration and moderately high supply in the market. Apple has access to numerous suppliers of input from around the world and also purchase in bulk hence can dictate terms.

The threat of substitutes is also weak due to the low propensity of buyers to substitute products, the low performance of substitute products, and a moderately high number of substitutes available in the market. Despite availability, substitutes like the digital camera, cannot perform multiple functions like iPhones. Besides, the iPhone is not only convenient but also have advanced features for advanced functions compared to substitutes like the digital camera (Flores et al. 2012). Overall, the threat of substitutes is not a priority for Apple’s strategic management.

Apple Macro Market Environment

PESTEL model is relevant in evaluating Apple’s wider external environment based on the political, social, economic, technological, legal, and ecological factors (Yuksel 2012).

Political forces: The political aspect in Hong Kong and global environment is favourable and present more opportunities than threats to Apple performance. The major political forces impacting Apple performance include improved free trade policies, stable global and HK politics, business-friendly regimes in HK and China in general. However, trade disputes between China and the United States is a significant threat to the success of Apple HK and Mainland China (Mozur 2016). If not resolved, China can impose high tariffs on consumer electronics and other products used in making Apple product assembly. Overall, Apple stands to gain much from political opportunities in the macro-environment.

Economic factors: Apple can exploit several economic opportunities in the global and HK business environment. These include rapid economic growth in developing nations and increasingly middle-class population with purchasing power to buy Apple products. However, the outbreak of novel coronavirus has negatively affected the global economy, thus reducing the purchasing power of the worldwide population. Apple can increase revenue through sales in rapid economic growth countries of Asia, such as China and Hong Kong.  High disposable income makes high-priced Apple product affordable to the growing middle-class population. Apple must move with speed to capitalize on economic opportunities before their competitors.

Social and cultural factors: Social factors influence the behaviour and expectations of consumers. The rising popularity of smartphones and increasing use and reliance on digital systems offer great opportunities for Apple. These social factors such as dependency on digital systems and use of smartphones have increased demand for Apple products and services such as MacBook, iPhone, and digital services such as Apple Music and Apple store (Cherney 2018). However, the anti-Apple sentiments around the world for using child labour in assembly factories and smuggled materials from DRC are negatively affecting Apple sales.

Technological Factors: Current and advancing technologies in the remote environment present opportunities to Apple. The most significant technologies are the increased demand for cloud computing, technological integration, and mobile market growth. Apple is offering cloud services on a limited extent and has an opportunity to expand cloud services to capitalize on the growing demand for cloud services. However, Apple must be wary of the growing technological capabilities of competitors. Apple also has opportunities to exploit in the ecological environment in terms of growing trends in business sustainability and energy efficiency.

Resource and Capability Analysis

Despite challenges in the global market environment, Apple Inc. has maintained a successful performance in the technology market. The sustained success record underscores the use of core competencies by the company, as they would be revealed by VRIO analysis. The VRIO framework is used to assess the value, rarity, imitability, and business organization (Su-ying et al. 2013). Ultimately, the VRIO model establishes competitive advantages and core competencies by analyzing the organization’s internal environment.

For many years, Apple Inc. has successfully exploited its core competencies to gain and sustain competitive advantages in the technology market. Apple’s strategy and plans are focused on developing business in areas where rivals are weak. The best course of action is based on VRIO analysis to strengthen business based on either its competitive advantage against competitors and core competencies to satisfy all variables of VRIO model ((Lin, Tsai, Wu, & Kiang 2012). Apple’s four corner framework based on Porter’s model can be used to generate related information.

VRIO Table and analysis

            The long term competitive advantage of Apple constitutes vital resources and capabilities that can be checked against the four variables of the VRIO framework. The table below shows Apple’s core competencies in terms of resources and capabilities. Each factor is evaluated based on VRIO variables.

Table 2: Apple’s VRIO Table

Non-Core Competencies

The VRIO internal analysis framework reveals core and non-core competence resources and capabilities within Apple (Knott 2015). These are the factors not met all the variables of VRIO model. Example of non-core competencies in the above table includes automation of the business process. However, a valuable element, it is common in the technology industry and also other markets and industries. A competitive employee package is another non-core capability that aids Apple to attract and retain the highly talented workforce needed to support rapid innovation. However, other technology firms such as Amazon, Microsoft, and Google are also offering similar packages to the employees. Besides, the human resource is also capable of supporting innovation at the company. This capability is evident across other companies offering consumer electronics, computing technology, and digital services. Product mix diversity is increasing at Apple as an indicator of strategic efforts aimed at reducing business exposure to market risk. Overall, the non-core resources and capabilities are vital but not a priority as per the VRIO internal analysis framework of Apple Inc.

Core Competencies

            The VRIO table has identified six resources and capabilities that Apple is using to gain and sustain a competitive advantage in the market. These factors satisfy all the four variables of VRIO model and are classified under Apple’s core competencies or long term competitive advantage (Chatzoglou et al. 2018). The global popularity of Apple brand is a core competent because it provides value, rare to find, hard to imitate, and Apple business is organized around the brand capability to gain a competitive edge in the market over competitors. The popularity of Apple brand has helped in maintaining a high level of innovation that is typical in hardware products such as the iPhone. An ecosystem of complementary products is another core competent capability identified by the model. The complementary products mutual support and foster each other in the market. An example is a cross-device compatibility such as the iOs and Apple computer, purchasing digital products and apps and iTunes for customers with MacBook or iPhone and so forth (Ohrt, & Turau 2017). With complimentary product capability, Apple has managed to keep away competitors from acquiring customers who own Apple products.

Access to user information is another capability exploited by the company to gain and maintain a competitive advantage. Depending on the privacy settings of the user, Apple can gain access to information about the type and model of a device, the app being used, the geographic location of the user, and so forth. The valuable information is acquired and used by Apple to support innovation and developing new products as well as marketing strategies, formulate a strategic plan, and business management. Artificial intelligence is another critical capability for gaining competitive advantage through efficient and convenient service delivery based on AI functions. An extensive network of distributors across the world was identified as a core resource used by Apple to gain a competitive advantage in the market. The company’s global network with strategically located distributors and retailers authorized by the company has helped in maintaining Apple’s competitiveness in the market. The network is used to streamline the strategic plans and efforts of Apple to reach its target customer anywhere in the world.

In summary, the core competency VRIO table provides a picture of how Apple managed to gain and maintain a competitive advantage in the market despite industry challenges and internal problems. The competencies are tools the company has used over the years to address current challenges to ensure a successful future. For instance, Apple has relied on rapid innovation and brand capability to overcome aggressive competition in the consumer electronic market from the likes of Samsung, LG, and Huawei, among others. The VRIO analysis further moves the attention to diversification of the business and a possible change in strategy towards sustainable competitiveness based on technological innovation.

Strategic Fit Analysis

Apple has key strengths that can be utilized to exploit opportunities and mitigate threats in the market. Key strengths and critical success factors include access to user information, artificial intelligence capabilities, global distribution and sales network and a system of rapid innovation as well as product diversity, reputable brand name, and a complimentary product system (Rockman 2018).  These strengths are essential in exploiting opportunities such as growing purchasing power in emerging economies, increasing demand for smartphones and digital services, and stabilizing political condition around the world.  However, the main threat to Apple is the cut-throat competition and high bargaining power of consumers in the market as well as low sized individual market and rising demand for business sustainability.

Given the product mix diversity and varied tastes and preferences, no single strategy fits all the product and regional markets. Based on the analysis, several approaches are fit to grow and sustain the competitiveness of Apple going into the future. Based on Porter’s generic strategy, broad differentiation is the most relevant strategy for maintaining competitive advantage (Dobbs 2014). By adopting this strategy, Apple will be able to focus on critical features to differentiate Apple brand and products from others in the market. Furthermore, Apple products are sold expensively to the high middle and high-end market, hence the significance of this strategy over cost leadership strategy. Besides, the strategy will allow Apple to penetrate and exploit the growing middle-income population in emerging markets with its products.

Cut through competition in the market can be addressed through significant investment in research and development to design innovative products. Apple is known to bring in the market a wide range of innovative products such as Ios, Mac OS, iPhones, MacBook, iTunes, and iPads, among others. Each year, customers around the world are looking upon the company to develop a highly innovative product. Research and development is the key driver to Apple growth and competitive advantage in the market. In 2018, Apple invested %11.24 billion in R&D, about 5% if sales revenue and this generated unprecedented growth in Apple’s brand.

Product development strategy is essential in exploiting rising demand for digital services and Smartphone use in the global population. Currently, Apple is offering iCloud services on a limited scale, and thus present an opportunity for Apple to develop and expand cloud services to meet the rising demand in the market. As noted by Gershon (2015), it is high time for Apple to shift focus from hardware services such as iPhone and Mac computers whose sales are falling to a digital service business that encompasses TV streaming, Apple store, iTunes/Apple Music/Books, Apple Pay, and iCloud services. The subscription-based service development is a promising future for Apple if it wants to retain its competitiveness in the technology market.

Strategic Option

Analysis has revealed several strategic options Apple can adopt to gain and sustain competitive advantage in the market. While all the strategies are essential, accelerating to services and software is the best strategic option for long term growth. While product differentiation, investing in R&D and product development is critical in competing in the hardware market, most devices market has reached peak rates of adoption. In many countries, the penetration of smartphones has attained 90^th percentile, while PC sales are no longer growing. Considering the durability and quality of PCs and smartphones, getting a consumer upgrade has become increasingly difficult. Therefore, it is becoming increasingly difficult for any technology company firms to navigate and report growth in the saturated market.  Overall, over the many strategic option options available to Apple, moving into software and services business segment is the most relevant in sustaining the competitiveness of the company in the market.

Conclusions and recommendations

The strategic analysis was focused on Apple Inc., covering the micro and macro market environment as well as a strategic fit for the company. Undoubtedly, Apple has been successful in the technology industry. Still, the bargaining power of customers and competition are critical factors with significant influence on the success of Apple in the market. Competitive rivalry is rated high due to the moderate switching cost, high aggressiveness, and low product differentiation. Apple strategic managers should accord top consideration for competitive rivalry. The bargaining power of customers is another critical force to reckon in Apple’s strategic management. The bargaining power of customers is moderately strong and must be prioritized by Apple strategic management team. The analysis has further revealed that the external environment presents more opportunities than threats for Apple Inc. The VRIO analysis highlights the need to shift attention to diversification of the business and a possible change in strategy towards sustainable competitiveness based on technological innovation.

The strategic analysis has shown that Apple is mainly focused on digital and consumer products as the primary source of revenue. For this area, Apple is required to intensify research and development to aid the development of innovative products and services that can complement the iPhone and other existing products. However, the majority of the company’s strategic plans need to exploit opportunities in other markets and industries that are gaining ground such as artificial intelligence, self-driving autos, and robotics markets. These would only take the use of Apple’s core competencies to position strategically to offer tech advanced products and services and become first movers on these lucrative markets.

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