Strategic Analysis of Apple Inc - Essay Example

Table of Contents Introduction 2 2. Answers for Questions `2 Analyze the company’s mission and vision ments against the performance of the organization. Then, evaluate how well the company lives out its mission and vision statement. Provide support from the organization’s performance in your evaluation. 2 .. a. Evaluate how well the company lives out its mission and vision statement. Provide support from the organization’s performance in your evaluation. 3 2.2 Assess how the organization’s strategic goals link to the company’s mission and vision 3 2.3. .Analyze the company’s financial performance to determine the link between the 4. 2.4 Conduct a competitive and marketing analysis of the organization to determine 5 strengths and opportunities. 2.5 Apply the appropriate strategy (low cost, differentiation or niche) that will maximize the organization’s return to shareholders. Provide a detailed rationale for the reason you chose this strategy and state the expected outcome(s). 6 2.6. Create a detailed scenario in which a merger or acquisition would be a viable strategy to implement. Consider who the merger or acquisition would involve, t he market conditions making it a good choice, and the type of strategy that would make it a success. 7 2.7. .If you were a leader in this organization, determine the appropriate rewards that would best motivate employees toward achieving the desired strategy. Review the financial performance of the company to ensure the rewards are appropriate. Justify your selection . 8 2.8. Evaluate how the company’s current strategy supports or discourages ethical business behaviors (or perhaps both). 9 3. Conclusion 11 List of References 13 Your name Subject Professor’s name Date of submission Strategic Analysis of Apple Inc. 1.Introduction. Apple Inc. is one of the largest service provider and computer company in the world. It rose from a humble beginning when two young entrepreneurs thought of assembling personal computers and sold it to their friends and acquaintances. Their strategies, knowledge of technology, drive and ambitions brought Apple Inc to its present status of financially stable company(Company history). Purpose of the study is to analyze the strategies Apple Inc. used in their business to serve as a guide and inspiration to entrepreneurs who want to start their own business. 2.Following paragraphs answer the questions set forth. 2.1.Analyze the company’s mission and vision statements against the performance of the organization. Then, evaluate how well the company lives out its mission and vision statement. Provide support from the organization’s performance in your evaluation. As shown in Apple’s Annual Report, the mission of Apple Inc. is to bring the best personal computing experience to students, educators, creative professionals and consumers around the world through it innovative hardware, software and internet offerings”(Apple Annual Report SEC Filings). Its visions tell a story of what they think of Apple in the future. Steve Job, one of the founders, used a figurative vision when he said,” An Apple on every desk”, at a time when personal computers were not yet very popular and IBM Large frame was the leader in the industry. Apple Inc’s mission statement has both internal and external perspective. Internal, because it describes the products Apple Company is selling. It has external dimension because it tells about its target customers, and also of its market position such as being innovative and the reasons why customers would prefer to buy the products and services from Apple. a. Evaluate how well the company lives out its mission and vision statement. Provide support from the organization’s performance in your evaluation. Apple Inc. lives out its mission and vision as the designs and range of products the company produces is truly a computer experience to all its customers (Apple Annual Report SEC Filing.) It continues to do research to develop new and advanced technologies in line with personal computers and software applications, accessories, service and other offerings. To achieve its vision, it has set no boundaries as the company sells it products worldwide, through various channels of distribution such as retail stores, online stores, direct sales force and third-party cellular network carriers, wholesalers, retailers and value added resellers. It has maintained a competitive advantage because of its business strategy of leveraging its unique ability to design and develop its own operation systems, hardware, application software and services provided to customers 2. 2.Assess how the organization’s strategic goals link to the company’s mission and vision. The strategic goals of Apple Inc is linked to the company’s mission and vision because of its ability to design its own system of computer network and as such the company is able to provide its customers new products and solutions and come up with innovative industrial design. The company has a competitive advantage brought by their continued investment in research and development that enables them to offer innovative technologies and product. As to its link in the company’s vision, Apple continues to expand its distribution network to reach more customers, as they discovered the delivery of third-party digital content through iTunes Store, App Store and iBookstore and leads the industry worldwide 2.3.Analyze the company’s financial performance to determine the link between the company’s strategic goals, strategy, and its financial performance. Detail your findings. Apple Inc.’s financial statement in Fig. 1 Annex 1showed a consistent growth of sales from 2006 to 2010. However, unit sales by product showed only desktops and portables enjoyed a growth of sales while iPod unit sales showed a slow down trend. Reasons for decline were not disclosed in the financial statements. iPhone units showed an increasing trend, while iPad has no comparison having been introduced only in 2010. Ipod, iPhone and Ipads are the latest breakthrough of technology offered by Apple. It will be seen that the latest Apple products contributed largely to the overall sales as new technology overtakes the desktops and portable items. New product offerings are consistent with the company’s mission of providing customers computing experience. The Company is focused on expanding its market opportunities related to mobile communication and media devices. The company was founded in 1976, and during the course of it operations since then, the company had several successes and failures which was due to management’s introduction of different models which were not altogether accepted by customers. There were instances of financial losses for the company, loss of jobs of several employees, but every time, management was able to recover through its insistent technology and innovations. Founded by Steve Jobs and Steve Wozniak in 1976 the two, fashioned making of computer only as a hobby, but their partnership and vision to make it big turned the company into one of the biggest computer companies in the word (Company history). As to its vision of an “Apple for every table”, the company reached out for sales worldwide, such as America, Europe, Japan and Asia-Pacific and retail outlets worldwide. (Fig. 2, Annex 1)As shown in the Financial Statements in Annex 1, the United States is the largest market of Apple Company followed by Europe. It has low sales in Japan which is quite understandable because of the competition from Japanese manufacturers. 2.4.Conduct a competitive and marketing analysis of the organization to determine strengths and opportunities. Annex 2 shows a competitive analysis of direct competitors of Apple Inc. According to Yahoo Finance, direct competitors of Apple Inc. in US are Google Inc, Hewlett Packard, Research in Motion Ltd. and the industry of personal computers. Other competitors are Compaq Computer Corporation; Dell Computer Corporation; International Business Machines Corporation; Microsoft Corporation; Sun Microsystems, Inc.(Company history) Apple Inc. expects competition in these industries to make stronger efforts as they attempt to imitate some of the features of the Apple’s products and applications within their own products or, alternatively, collaborate with each other to offer solutions that are more competitive than those they currently offer. These industries are characterized by aggressive pricing practices, frequent product introductions, evolving design approaches and technologies, rapid adoption of technological and product advancements by competitors, and price sensitivity on the part of consumers and businesses. Competitive Analysis. Strength From among the competitors, Hewlett Packard Company has the biggest revenue, and has the most number of employees more than Apple. P/E is higher than Apple. P/E according to Investopedia is “A valuation ratio of a companys current share price compared to its per-share earnings. In general, “a high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E.”(Investopedia) Apple has higher operating margin and net income meaning Apple has more flexibility in paying its obligations Weakness Market capitalization of non-US competitors are much smaller than Apple Company. Apple has lower price per earning ratio growth. A PEG ratio gives the investor an understanding whether the company’s growth is increasing or decreasing in earning and might be used to compare it with competitors Competitors’ revenue are higher than Apple but Apple has lower net operating margin, meaning competitors are les efficient in controlling costs in operation thereby producing lesser net profit. Opportunities Globalization offers tremendous business opportunities for companies. Advanced technologies brought about by internet and computers bring regional companies closer. Business transactions become easier thru the use of computers. Globalization is a big marketing opportunity for all computer manufacturers and service providers. 2.5 . Apply the appropriate strategy (low cost, differentiation or niche) that will maximize the organization’s return to shareholders. Provide a detailed rationale for the reason you chose this strategy and state the expected outcome(s). I think that the most appropriate strategy that will maximize the organization’s return to shareholders is the low cost strategy. According to Michael Porter (tutor2u), there are three generic strategies that could be used to attain competitive advantage against Apple’s competitors. These are differentiation, cost leadership and focus. In this context, cost leadership is deemed appropriate because Apple’s objective is to become the lowest-cost producer in the industry. They can do his because they have their own research and development system and produces own designs and services and does not have to partner with other companies to make the system. According to tutor 2u, ‘this strategy is usually associated with large-scale businesses offering "standard" products with relatively little differentiation that are perfectly acceptable to the majority of customers.” One of the strategies of Apple, being a low-cost leader, is discounting its product to maximize sales, particularly if it has a significant cost advantage over the competition and, in doing so, it can further increase its market share. 2.6. Create a detailed scenario in which a merger or acquisition would be a viable strategy to implement. Consider who the merger or acquisition would involve, the market conditions making it a good choice, and the type of strategy that would make it a success. A scenario of merger or acquisition between ACER and Apple is proposed. A merger is proposed as a means to generate long term growth. According to Evans, Matt (2000) 96,020 US companies have turned to merger and acquisition to maintain its profitability. A merger is a condition wherein only one company will exist after merger. An acquisition is the process of acquiring the assets of one company by another company whereupon both companies still exists. Strategy. The merger of Apple and Acer will be horizontal merger because they are two firms that have similar products and services.(Evans, Matt200). Evans stated that horizontal mergers are often done by companies to increase its market share. For instance, Acer is doing well in Europe, and by merging, Apple will also increase its market share in this area. It will also increase the value of the company and will be a good target for investment. The underlying reason for this proposal is to increase the firms’ synergy value in terms of increase in revenue of the merged companies than when they operate separately. Further, it will provide cost savings on expenses and lowering of cost of capital. The common process of merger and acquisition as detailed by Evans is the pre-acquisition review wherein Apple would review its own situations, financially, operationally and rewards of the merger. As shown previously, Apple, although financially strong, is undervalued compared with its competitors. Next, comes the screening of Acer and arriving at a valuation whereby it is a long process of assessment that has to be agreed by stakeholders of the company. Here, a process is arrived at wherein values of both companies are determined and last to come up with a negotiation plan. 2. 7 .If you were a leader in this organization, determine the appropriate rewards that would best motivate employees toward achieving the desired strategy. Review the financial performance of the company to ensure the rewards are appropriate. Justify your selection. If I were a leader in the Apple Inc, I would consider monetary and other rewards to motivate employees. The company has sufficient financial resources as shown in its 2011annual report to support this kind of motivation. But in order to have a beneficial rewards and motivation plan, there are things that I should do. First, it is important that I have an action plan that recognizes top performance. This should be clearly communicated to employees to have a better understanding of the objectives. There should also be a plan and culture that motivates the less than top performers. The rule here is people should know the ground rules so that if things are not working well, they will know that they will not get incentives. At times when there is windfall profit, it would motivate employees if companies could give some kind of profit sharing or bonuses. Microsoft.com suggests that employers could be creative in designing a reward system that sometimes does not cost the company monetary considerations. Sometimes a praise for a good job makes an employee happy and motivated, while in other companies, flexible time is given to employees to allow them to adjust their time to their personal affairs before work. Sometimes, a free day for birthdays is allowed and giving of gift certificates is small token of appreciation. Personal concern is appreciated by employees such as group gathering, team building or sports fests. 2.8.Evaluate how the company’s current strategy supports or discourages ethical business behaviors (or perhaps both). The current strategy of Apple in the digital music market is the exclusivity of the iTunes and iPod arrangement. This arrangement is seen by the French government of some kind of monopoly in the music market, as they consider the practice as an unethical business behavior because it prevents competitors from getting similar success. The French government considers the dominance of Apple in the music retail market as an unfair practice and argues that Apple should open up its format to other retailers. (Hammer, Kristin) Apple is faced with a dilemma so that when the French law is enforced, Apple will have to share its “copy-proprietary systems”, and by this they will lose their exclusivity in the digital market and accordingly incur losses. The purpose of the French government, according to Hammer, is to encourage ethical corporate behavior and encourage competition. If enforced, this will lead to other countries’ doing the same thing of ethical questioning of Apple’s “monopoly” of the music industry. On the other hand, Apple has the proprietary rights or copy rights for the patents of their music obtained from the US and opening their code would encourage piracy of their music. The French government contradicts this assertion because they believe Apple is a public company, and “it is powered by the general population. Because of this it has an obligation to work towards the greatest good for the greatest number. I think Apple did not exercise unethical practices in exclusivity because the company is just exercising its rights to patents and copyrights to certain aspects of its iPhone, iPads and other software services and ownership of such patents are important factors of their business. I think competitors will do just the same if they have that kind of ownership. Company is just lucky to have innovative skills, technical competence and marketing abilities of its personnel. 3.Conclusion: As shown in the data analysis, Apple Computer used marketing strategies that gave the company a definite competitive advantage over its large competitors. The company devoted a lot of resources and used the innovative skills and technical competence of its personnel to become one of the largest computer companies in the world. Its mission and vision have been rightly tracked to its operations and have guided the company. The company is facing lawsuits on unethical business behaviors, but I believe that they have not violated any unethical behavior because of the protection of patent law. However, as a public corporation, it is their corporate responsibility to serve a great number of people that will in turn contribute to the profitability of the company in the long run. As the company derives its success from its personnel, motivation and rewards should be given. The recommended rewards are bonus and profit sharing plus non monetary rewards. Mergers and acquisitions are recommended to establish long term growth and strengthen position in the market. At the moment the biggest problem of Apple is the fierce competition in the industry, that companies resort to merger and acquisition to compete globally as globalization presents a wide opportunity for computer companies Annex 1 Fig. 1Comparative Financial performance of Apple Inc for 5 years 2010      2009      2008      2007      2006   Net sales    $ 65,225       $ 42,905       $ 37,491       $ 24,578       $ 19,315    Net income    $ 14,013       $ 8,235       $ 6,119       $ 3,495       $ 1,989    Earnings per common share:                Basic    $ 15.41       $ 9.22       $ 6.94       $ 4.04       $ 2.36    Diluted    $ 15.15       $ 9.08       $ 6.78       $ 3.93       $ 2.27    Cash dividends declared per common share    $ 0       $ 0       $ 0       $ 0       $ 0    Shares used in computing earnings per share:                Basic      909,461         893,016         881,592         864,595         844,058    Diluted      924,712         907,005         902,139         889,292         877,526    Total cash, cash equivalents and marketable securities    $ 51,011       $ 33,992       $ 24,490       $ 15,386       $ 10,110    Total assets    $ 75,183       $ 47,501       $ 36,171       $ 24,878       $ 17,205    Total long-term obligations (a)    $ 5,531       $ 3,502       $ 1,745       $ 687       $ 395    Total liabilities    $ 27,392       $ 15,861       $ 13,874       $ 10,347       $ 7,221    Total shareholders’ equity    $ 47,791       $ 31,640       $ 22,297       $ 14,531       $ 9,984      (a) The Company did not have any long-term debt during the five years ended September 25, 2010. Long-term obligations excludes non-current deferred revenue. Fig. 2 . Comparative performance by operating segment rating Segment:                Americas net sales    $ 24,498         29%       $ 18,981         15%       $ 16,552    Europe net sales      18,692         58%         11,810         28%         9,233    Japan net sales      3,981         75%         2,279         32%         1,728    Asia-Pacific net sales      8,256         160%         3,179         18%         2,686    Retail net sales      9,798         47%         6,656         (9)%         7,292                                     Total net sales    $ 65,225         52%       $ 42,905         14%       $ 37,491                                     Mac Unit Sales by Operating Segment:                Americas Mac unit sales      4,976         21%         4,120         4%         3,980    Europe Mac unit sales      3,859         36%         2,840         13%         2,519    Japan Mac unit sales      481         22%         395         2%         389    Asia-Pacific Mac unit sales      1,500         62%         926         17%         793    Retail Mac unit sales      2,846         35%         2,115         4%         2,034                                     Total Mac unit sales      13,662         31%         10,396         7%         9,715                                     Net Sales by Product:                Desktops (a)    $ 6,201         43%       $ 4,324         (23)%       $ 5,622    Portables (b)      11,278         18%         9,535         9%         8,732                                     Total Mac net sales      17,479         26%         13,859         (3)%         14,354    iPod      8,274         2%         8,091         (12)%         9,153    Other music related products and services (c)      4,948         23%         4,036         21%         3,340    iPhone and related products and services (d)      25,179         93%         13,033         93%         6,742    iPad and related products and services (e)      4,958         NM         0         NM         0    Peripherals and other hardware (f)      1,814         23%         1,475         (13)%         1,694    Software, service and other sales (g)      2,573         7%         2,411         9%         2,208                                     Total net sales    $ 65,225         52%       $ 42,905         14%       $ 37,491                                     Unit Sales by Product:                Desktops (a)      4,627         45%         3,182         (14)%         3,712    Portables (b)      9,035         25%         7,214         20%         6,003                                     Total Mac unit sales      13,662         31%         10,396         7%         9,715                                     Net sales per Mac unit sold (h)    $ 1,279         (4)%       $ 1,333         (10)%       $ 1,478                                     iPod unit sales      50,312         (7)%         54,132         (1)%         54,828                                     Net sales per iPod unit sold (h)    $ 164         10%       $ 149         (11)%       $ 167                                     iPhone units sold      39,989         93%         20,731         78%         11,627                                     iPad units sold      7,458         NM         0         NM         0                                         (a) Includes iMac, Mac mini, Mac Pro and Xserve product lines.   (b) Includes MacBook, MacBook Air and MacBook Pro product lines.   33   (b) Includes MacBook, MacBook Air and MacBook Pro product lines. Source: Apple Inc. 2011 Annual Report. Annex 2 Fig. 3 Non-US competitors Computer Hardware (non-US) Ranked by Sales   Company Symbol Price Change Market Cap P/E Canon Inc. CAJ 43.56 0.86% 52.34B 16.98 NEC Corp. NIPNF.PK 1.75 0.00% 4.54B 97.22 Fujitsu Ltd. FJTSY.PK 25.44 -0.16% 52.65B 98.99 Hitachi Ltd. HIT 53.54 1.08% 24.19B 15.12 Ricoh Co. Ltd. RICOY.OB 40.84 0.00% N/A N/A Seiko Epson Corporation Private - View Profile Fujitsu Technology Solutions (Holding) B.V. Private - View Profile Oki Electric Industry Company, Limited Private - View Profile Acer Incorporated Private - View Profile   Source: Yahoo Finance LIST OF REFERENCES Apple Inc. Company history. (n.d). Funding Universe. Retrieved 21 November, 2011 from Apple Inc. 2011SEC 10-K Annual Corporate Report(26 Oct. 2011) Financial Content. Retrieved 21 November 2011 from http://markets.financialcontent.com/stocks/quote/filings/quarterly?Symbol=AAPL Evans, Matt ,2000. Course 7. Part 1. Mergers and Acquisitions. Excellence in financial management. Retrieved 21 November 2011 from www.exinfm.com/training/course07-1.doc Hammer, Kristin, 2006. Apple’s media monopoly: The ethics of iTunes and iPods http://www.usc.edu/org/InsightBusiness/340articles/fall2006/Apple.pdf. Investopedia. Price /Earning ratio definition Retrieved 21 November 21, 2011 from: Tutor2u. CompetitiveAdvantage (n.d.) Retrieved 21 November 2011 from Yahoo Finance http://finance.yahoo.com/q/co?s=AAPL+Competitors   Read More