Managing for the Future - Apple Inc - Essay Example

?Managing for the Future: Apple Inc Table of Contents Table of Contents 2 0.Introduction 3 2.0.Apple 2003 – 4 2 Technology 4 2.2. Social change 6 2.3. Globalisation 7 3.0.Scenario development 2018 – 2020 9 3.1. Technology 9 3.2. Social change 10 3.3. Globalisation 12 4.0.Conclusion 13 References 16 1.0. Introduction Apple Inc., is a consumer electronics company that designs, manufactures and markets mobile communication and media devices, personal computers, and portable digital music players, and sells a variety of related software, services, peripherals, networking solutions, and third-party digital content and applications (Apple, 2011). Between 1994 and 1997, the company experienced severe financial losses and record-low stock prices, a scenario that was corrected with the re-instatement of Steve Jobs as the CEO in July 1997 (Siegel & Gibbons, 2009). Currently, the company boasts of being the most valuable company in the world with one share valued at US$ 605.38, and a market capitalization of US$ 566.54 billion (WSJ, 2012). Apple’s rise to the top has been attributed largely to the vision of its iconic CEO, the late Steve P. Jobs. Steve Jobs had an unorthodox yet effective management style, in so far as Apple Inc. was concerned. According to Charley (2011) under Steve Jobs’ Apple organizational culture was characterized by the CEO’s micromanagement, staff recruitment focused on expertise rather than experience, assigning of directly responsible individuals for each Apple project, inter and intra-organizational secrecy that ensured employees were only aware of their areas of the Apple campus, and fear of the CEO. In the first part, this paper shall audit the performance of Apple’s management between 2003 and 2010 with regards to the areas of technology, social change and globalisation. In the second part, the paper shall assess Apple’s competence to manage in these three contextual environment areas in the next seven or so years (2018 - 2020). In the final part, the paper shall draw conclusions based on the requirements projected to be of importance in the future against the management competence that has been analysed. 2.0. Apple 2003 – 2010 2.1. Technology The years 2003 to 2010 could arguably be categorised as Apple’s greatest revolutionary years to date that saw the emergence of the iPhone, iPad, revamping of the iMac and iLife suite of products, App Store, iCloud and so on. Apple has a rich history of pioneering in developing cutting edge technology (Siegel & Gibbons, 2009). The company has put technology and product design at the heart of their competitive advantage. For this reason Apple has ensured that it owns and controls the primary technologies behind all its products. To make its research and development on technology and product design more affordable, the company deliberately reduced the breadth of their products portfolio to focus on creating fewer but complete solutions. This way Apple was able to focus on developing only those products and services that emanate from its core competencies. According to Prahalad and Hamel (1990) such core competency based strategies are bound to sustain a company’s competitiveness well into the future. Apple obsesses a lot on the design and appearance of its products such that it seeks to sell not a product but an experience. This is not merely an organizational mantra but a philosophy that has been supported by the company’s investment in technology and product design. Apple is among the few technology companies that have control over both the hardware and software used within its products. This attribute has enabled Apple to deliver cutting-edge and more tightly integrated user experience than its competitors. For example, a report by Hyundai Securities in 2011 stated that Apple’s dominance in the tablet segment as largely attributable to the difficulty other tablet manufacturers such as Samsung have had in establishing a standard operating system and securing content (Hyundai Securities, 2011). Apple’s current major smartphone and tablet device competitors – Samsung, Nokia and LG – rely heavily on third parties to provide the software platform for their devices. Furthermore, Apple iLife suite – iTunes, App store, iBookstore and so on – have forced competitors to imitate similar products to remain competitive. Three key management decisions in Apple stand out as the foundation of the company’s success within the last decade: (1) reducing the product portfolio; (2) focusing on developing only those products where the company owns and controls the proprietary technologies involved (Chaffin, 2009); and developing products that could work with the more popular Windows applications such as Microsoft Office. Reducing product portfolio meant that whereas the company continued to invest more each year in research and development – US$1.3 billion in 2009, US$ 1.8 billion in 2010 and US$ 2.4 billion in 2011 respectively (Apple, 2011) – this money was focused on fewer projects thus ensuring depth rather than breadth of technology. Additionally, Siegel and Gibbons (2009) argued that Apple’s success rarely come from a first-to-market advantage; instead, after studying the consumer response to a product, Apple targeted consumers in ways different from their predecessors. This way Apple is able to save on first-mover R&D costs and instead spend on existing technologies that the company sees to have immense potential to its consumers. Focus on developing products where the company owns and controls the proprietary technologies is in line with the arguments raised by Prahalad and Hamel (1990) that companies aiming to remain competitive in future should compete on the basis of competencies rather than on products and market share. Finally, Apple’s management decision to make their products usable on Windows PCs and vice versa, was a master stroke that offset the longstanding disadvantage of choosing a Mac; the relative lack of Macintosh software (Yoffie & Kim, 2011). 2.2. Social change CliffNotes.com (2012) defines social change as any significant alteration of human interactions and behaviours, cultural values, interrelationships and norms. Society is an interwoven web of social relations thus social change denotes a change in the social system. In the years 2003 to 2010, large parts of the global society have been drawn towards information sharing and collaboration through the use of social media. This has led to the emergence of a new breed of consumers who are proactive. These new breed of consumers, known as prosumers, are not merely satisfied with consumption but are also interested in significantly impacting the success or failure of a product (Gunelius, 2010). These consumers demand to be heard and are willing to share their opinions on all things from products, employers, family to politics. They are also demanding for tools, technologies and devices that will enable them to share their experiences, and the freedom to recommend or not recommend a product. The changes that have and continue to be experienced as a result of the continued rise of social media and its permeation in the society from the youth, to the middle-aged, to the Silver Surfers (over 60 year-old who actively use the Internet) have changed social interactions, information dissemination and reception, recruitment and so on (Pernisco, 2010). This is social change. The forces behind the growth of social media are the increased penetration of the Internet across the globe, emergence of social networking sites and growth of the Mobile Web. Mobile Web refers to using the web on mobile devices such as smartphones, tablets, notebooks and so on (Cui & Roto, 2008). These three forces have made it easier for people to communicate in real-time wherever they are with clarity and limited difficulty. Unfortunately, as Klein (2011) argued, Apple has grossly underachieved when it comes to supporting this global social change. According to Klein (2011) for an organization that boasts of being the most valuable company in the world, Apple’s management need to do more with regards to two key areas. First Apple needs to develop or support development of technology that contributes towards social change. Secondly, it needs to use the reach of its platform or software tools to support the dissemination of the most credible information relating to social issues. Apple’s products and services are not as strong on information sharing and collaboration as some of the products and services offered by its major “platform” rivals such as Google and Facebook. Secondly, Apple’s premium pricing makes it out of the reach of the majority of the people in the developing countries. As such its impact on where social change may be of greatest need remains minimal in comparison to say Google or Facebook. Currently, Apple may benefit from the huge margins it earn out of its premium pricing, however in the long run it may lose out to its Asian device competitors such as Samsung and LG in the vast and potentially influential markets of the developing world. More in-depth discussion on the importance of the developing world is covered in the globalisation section that follows. 2.3. Globalisation Globalisation could be described as the integration of markets in the global economy. In the last decade, globalisation increased immensely due to developments in transport and information and communication technologies, increase in free trade, increase in capital mobility, and growth of multinational corporations (MNCs) such as Coca-Cola, Microsoft and Apple (Friedman, 2007). However, this growth also gave birth to an emergence of new multinationals from the so called “poor world”. These new MNCs have come into the market unencumbered by the accumulated legacies that are burdening their Western rivals (The Economist, 2007). Four countries – Brazil, Russia, India and China – emerged as the strongest contenders with the power to upset the status quo of economic power domiciled in developed economies of North America, Western Europe and Japan. Probably the greatest event in this decade was the global financial crisis of 2008 that resulted in one of the worst economic downturns of the decade in 2009, and whose effects continue to be felt in continental Europe to date. One of the major effects of this economic downturn was the need for many nations to change how they operate in global trade. According to Deloitte (2011) countries such as Germany, Japan and China that have traditionally relied on exports now need to move towards domestic-led growth. On the other hand, countries such as the United States and the UK that have relied heavily on their domestic consumers need to export more. Globalisation helped Apple successfully execute its off-shore contract manufacturing in Asia. Off-shore, contract manufacturing allowed the organisation to lower its cost of production which when coupled with its premium pricing model ensured that Apple benefitted from the largest margins in all its product categories in comparison to its major rivals (Yoffie & Kim, 2011). This way the company was able to record enviable returns that made its share price and market capitalisation to skyrocket. In this regard, Apple’s management come out as being astute strategists especially given that they maintained their premium pricing model at a time when its key markets in North America and Europe were experiencing credit squeeze and a generally reduced discretionary spending among consumers. Under such economic conditions many consumer electronics companies lowered their prices and margins to attract consumers whereas Apple hedged its premium-pricing strategy on the belief that the user experience on its devices would attract consumption regardless of the price. Nevertheless, Apple’s success in the key markets of North America and Western Europe has not been replicated in other regions with the exception of China where there is a rapidly growing middle-class. Apple is over reliance on the US and Western European markets may in future work against it because rivals such as Samsung, Acer and LG that are more aggressive in the emerging markets could leverage their experience and growth in these regions to beat Apple in future. In fact Samsung has used its huge growth in the developing world and emerging economies to surpass both Apple and Nokia to become the world’s largest maker of smartphones and mobile phones respectively (BBC, 2012). 3.0. Scenario development 2018 – 2020 3.1. Technology According to several scientists, Moore’s Law, a key determinant on the continued growth of information technology, will continue to apply right up to 2020 (Dunn, 2011). The debate is whether Moore’s Law will apply after 2020 (Kaku, 2011). Moore’s Law states that transistor density on integrated circuits doubles about every two years. This has enabled device manufacturers to keep coming up with products with greater computing power for example every 18 months, roughly, Apple upgrades its laptops to include new chips in order to increase their speed by roughly two-fold. The Internet is also projected to continue evolving. According to National Science Foundation by 2020 the Internet will have nearly 5 billion users, it will be more geographically dispersed, it will be wireless, more services will be on the Cloud and also more hackers (Marsan, 2010). Under this scenario we would expect Apple to continue heavily investing in R&D in order to better their customer value proposition. This will probably in the form of increased computing power, provision of more services over the cloud, available localised content to meet the needs of a geographically dispersed market segment and better security systems to assure consumers of privacy and confidentiality. In fact IBM (2012) predicts that by 2016 multifactor biometrics – such as retinal scan and voice recognition – will have replaced the use of passwords and there will also be technologies that link the brain to devices making it possible to use the mind to execute electronic controls of devices like smartphones and computers. Given that Apple has thrived on the reputation of being visionary, its management will have to actively scour for new ways to incorporate these futuristic capabilities into their devices way better than any of its competitors. Unfortunately we are yet to fully visualise Apple’s capabilities without its iconic CEO, Steve Jobs. All the technologies that the organisation is currently using have Jobs’ fingerprints on their approval. The key question is whether Apple’s management will be able to retain its current start-up culture in the face of its tremendous success without Steve Jobs. Often, when companies realise the success that Apple is currently enjoying, they tend to adopt corporate culture that stifles innovation as is demonstrated by other tech giants such as IBM and Microsoft (Eichenwald, 2012). 3.2. Social change Three scenarios play out here. In scenario one, demographics will be the controlling factor. The total population in the developing world, 6,663 million, will be approximately four times greater than the population in the developed world, 1,387 million. Most of this growth will be experienced in Africa then Asia; however Asia will still have the bulk of the world’s population (Nygaard, 1994). The developed countries will then be fully facing the triple challenge of reduced populations, smaller working-age population and a big proportion of aged population (Fesus et al., 2008). Under this scenario, on the one hand, Apple management will need to prepare their organisation to increase their presence in Africa and Asia not only to tap their larger markets but also to utilise their more youthful labour force. On the other hand, the company may be forced to modify their current “start-up” culture in order to accommodate for the presence of an aged workforce in the developed world. The latter may include R&D into development of products that shall appeal to this new market segment of an aged working class. In scenario two, we anticipate that by 2020 the UN’s Millennium Development Goals (MDGs) have been achieved. According to the UN System Task Team (2012) the realisation of the MDGs implies that the core values of human rights, equality and sustainability will have been achieved in all regions of the world. Under this scenario, we anticipate women to have a greater voice globally as well as the developing world having greater participation in the shaping of global policies. In this case Apple will need managers who effectively represent the interests of different regions of the world in order to effectively capture and deliver value propositions that are in line with this more participatory global environment. Scenario three predicts the rise of Generation C. These are people born after 1990 in a highly connected generation with access to and knowledge of sophisticated technology tools and gadgets. They are connected, communicating, content-centric, computerized, community-oriented and always clicking (Friedrich et al., 2010). Generation C’s will be comfortable with participating in several social networks, limited privacy and generally living in a centre-less Internet “cloud”. This means that Apple’s current products that we now consider to be revolutionary will be second nature to Generation Cs. Friedrich et al. (2010) project that by 2020, Generation Cs will constitute the largest group of consumers worldwide, making up 40 per cent of the population in the U.S., Europe, and the BRIC countries, and 10 per cent in the rest of the world. This means that ICTs will be more tightly tied into the daily lives of people throughout the world. Under this scenario Apple will need managers who are capable of identifying the complex needs of these well-informed, vocal, connected and content-centric consumers. This may necessitate the company to find a way to sustain its current start-up culture in spite of its present success and the possible challenges outlined in scenario one of an aging workforce. 3.3. Globalisation In 2020, this paper predicts two scenarios playing out with regards to globalisation. The first scenario pictures the forces behind the current globalisation increasing and continuing to convert the world into a single large market place. Under this scenario free-market prevails as trade barriers disappear globally. Multinational corporations increase in size and influence to begin to resemble mini-states. Immigration laws and rules are more flexible as the developed world experiences lower indigenous populations and a large number of the aged population. Also, the rise of multinational corporations (MNCs) originating from the emerging markets coupled with the increased power of their economies lead to an emergence of new business hubs such as Chennai and Shenzen that replace previously powerful hubs such as London from the top of the business hubs’ hierarchy (PwC, 2007). Further, there is increased employee mobility that is supported by the advancements in technology. If this is the scenario that plays out by 2020, then Apple will be forced to distribute its operations across different regions in order to exploit the competitive advantages brought about by these new business hubs and stronger economies from the emerging markets. In this circumstances, the OLI (Ownership, Location and Internalization) paradigm avers that the more immobile, natural or created endowments arising out of these new business hubs, which Apple needs to use jointly with its own competitive advantages, favour a presence in a foreign, rather than a domestic, location, the higher the likelihood that Apple will have to augment or exploit its Ownership specific advantages by engaging in Foreign Direct Investments (FDI) in these emerging economies (Dunning, 2000). When that occurs, Apple’s management will need to have developed competencies required to work effectively in a more culturally, regionally diverse and globally dispersed workforce. Competition from emergent MNCs also implies that continuous innovation is likely to remain one of the primary defences in maintaining Apple’s competitive position. Scenario two predicts reverse globalisation. Here, it is predicted that either the developed world or developing world shall put in place protectionist policies for several reasons such as: to protect emerging industries or their trading blocs, to protect their natural wealth especially Africa, environmental conservation and so on. In an extreme case, nationalism sets in and forces MNCs to breakdown into smaller organisations as consumers identify more with local or locally-produced brands. This scenario may succeed if states in the developing world are able to develop both products and skills that will stimulate internal and external economic growth. In this case, Apple may have to adopt a multi-domestic international strategy. 4.0. Conclusion In our futuristic scenario plays on Apple with regards to technology, social change and globalisation in 2020 the following requirements stand out. Moore’s Law continues to apply therefore devices are smaller, faster, more powerful and feature rich. The Internet is now truly ubiquitous, with wireless connectivity being the norm even in the least developed countries at the time. Most of the services will be provisioned over the cloud thus to enhance security in this highly connected world device makers will have to incorporate multifactor biometrics as the norm and possibly better ways for issuing hands-free commands such as voice, eye movement or mind-based. Apple’s management have thus far shown that they do not need to be first-movers in technology in order to develop and sell game-changing devices. This ability gives weight to us envisioning Apple remaining just as competitive in technology 2020 as it is now. Secondly, we picture other rivals imitating Apple’s strategy of ensuring that the company owns and controls the primary technologies behind all its products in order to produce tightly-integrated technologies. However, Apple management’s ability to stick to their mantra of having a small products portfolio to focus on creating fewer but complete solutions and retaining a start-up culture despite its corporate success should differentiate it from its rivals in future. With regards to social change, the greatest challenge for Apple will be the projection by Friedrich et al. (2010) that Generation Cs will constitute the largest group of consumers worldwide. These consumers will be more demanding than the current generation with regards to their expectations on the devices on offer given that ICTS will be more tightly tied into their daily lives. Finding a balance between Generation Cs and the huge aged population in the developed world may necessitate the organisation to develop niche products for both segments or to specialise in one segment at the expense of the other. Apple’s managers have been effective on meeting the technical needs of their consumers but have not particularly impressed with regards to developing social change tools, especially when one takes into account the company’s brand recognition and status. In 2020, consumers will be more demanding and Apple may lose out to rivals if it fails to better its performance in this area. One of the major challenges that continued globalisation will bring in 2020 to Apple will be the need for the organisation to make foreign direct investments in the new business hubs within the emerging economies. This will be a challenge especially with regards to sustaining the organisations currently effective inter and intra-organizational secrecy. 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