Strategic Issues and Options Facing an Organization - Essay Example

Strategic Issues and Options Facing An Organization Introduction With Apple`s Strategy The competitive landscape of the PC industry is outlined by Apple`s key strategic decisions in 1990’s which include Job`s key strategic actions for accomplishing Apple`s turn around. Apple`s culture, capacity to innovate and approach to strategic human resource management and its deep collaborations all accounts for Apple`s success. The key strategic issue that can be noted is Apple`s strategy for maintaining a proprietary, integrated system of the hardware and software that is in contrast with the technology that is adapted by most of the firms. Past strategic intentions are the indicators of future strategic directions. Strategic investments that are made by the companies are indicative of the strategic direction and intentions. A few years ago Apple Computer was an innovative organization since its founding in 1970`s. However Dell was far superior to Apple on unit cost KSF (Key Factor Success) and inferior to Apple on innovation KSF (Key Factor Success). Over time Dell worked diligently to lower its unit cost structure and its trajectory from past to its present position portrays its accomplishments. Again Apple has continued to push its innovation agenda with the introduction of Cube, Mac Book air and G3. Apple has realized the importance of price competitiveness as a reason of which it has made substantial improvements in its unit cost dimension. To achieve further reductions in the unit cost, Dell can expect that Apple will evaluate a range of strategic options that will help in fulfilling this intention. Since PC manufacturing costs are connected with economies of scale, Apple has the option of making their PC`s more attractive to a larger audience. It is for this reason that Apple developed its own software that enabled the users to run Windows and Windows based software on their Apple computers in 2006. This made Apple`s computing platform viable option for ten millions of computer users who could experience a significant switching cost for using Apple by giving up Windows. The three strategic issues that apple faces at this point of time are What is the next platform and where will it come from for Apple? What is to be done with the growing mountain of cash ($65B)? What is that which will keep Apple`s soul and substance vibrant after Steve Jobs? To elaborate the first question, Apple`s rapid growth has been accelerated by introducing new platforms which they have extended for superior growth and profits. Platform growth trajectories generally decline with age. Apple did a great job by increasing the growth of the Mac platform by shifting the mindset from desktop to portables and lately to Mac Book Air. When the sale of iPods media players went down by 17%, Apple was able to bounce back with the new and more expensive iPod Touch Model. Experts say that by 2013, the market will be dominated by Androids and second generation Nokia/Windows will dominate the market. In such situation Apple will face severe competition because by then the iPhone will be 5.5 years old. While the iPad is 3 years old and without any competition today, it will face severe threat from Android, Amazon, Blackberry, Samsung as the tablet market will be more competitive. It’s time for Apple to introduce its next platform. The question is what are the probable sources? Can the Apple designers create the next new thing?, Should Apple purchase the product ‘embryo’ from outside and bring it to the market?, Should they acquire the next platform service or product? The second question what Apple should do about the growing mountain of cash, is also a statement of concern. It is known that Apple earns more than it spends or returns to the shareholders. When Steve Jobs was the CEO, he discouraged traditional uses such as dividends or stock buyback programs. He stored the stock for strategic opportunities. Apple also continues to lock up supply of critical parts and make small acquisitions. The acquisitions that Apple makes are mostly talent and technology such as the resources and technology that are behing ‘Garage Band’ and “Final Cut ‘software. The third question is what will keep the soul of Apple vibrant after Steve Jobs? COO Tim Cook, Retail lead Ron Johnson and top designer Jonathan Ive are all worthy executives as shipping of 32 million units of iPods, iPads and iPhones that took place in the last quarter did not occur of Steve Jobs. A major acquisition can help Apple to define the next platform and apply cash strategically. The acquisition can also become a major vehicle that can facilitate a leadership transition. The next CEO should direct towards Apple 3.0 Strategic Risks Facing Apple 1. Going Ever More Proprietary- The primary risk that is associated with Apple is the moving to proprietary chip technology. It is directly related to the company`s core chip technology. Apple feels that the whole semi industry is willing to cut them out. Experts say that Apple`s Anorbit deal indicates that the next major area that Apple is going to squeeze out its margin is in Flash. 2. Flash/SSD margins- The primary drivers of margin for Apple`s iPhone and iPads are its ability to upcharge for more memory. Apple garners a large margin for reselling Flash/memory, especially reselling the incremental SSD in each iPads that has more memory. It sells the 16 GB iPad at $529 and the 64 GB iPad at $729. Apple keeps a hug profit of $200. It is the same for iPhone. This amount of upcharge or margin for reselling Flash can become more constrained. 3. Carrier Subsidies- Apple maintains a high level of subsidy which can be a competition, technology disruption or a mix of things. 4. Competition Especially from Ultrabooks- Apple has seen Android Smartphone move from 0 to 50%. Android tablet have also taken the 40% of the market. If we leave aside these two areas, Apple has continued to meet high expectations of meaningful share gain in almost all product line especially in terms of industry profit share. However with the Ultrabook wave that is coming, Apple is going to be hit. It can slow Apple`s share take in laptops, iPads and MacBook Air. 5. Pioneering Risks- Pioneering risks are taken by firms that blaze trails and create and innovate new markets for their products by consistent and extensive spending on R&D. They take the risks and understand that failure often accompanies success. As a pioneer, Apple possesses the R&D skills and the internal processes to develop new product and services and also marketing ability to open up new markets. They have sufficient resources to support heavy R&D expenditure and fund market developments. However although Apple pioneered in personal computers, IBM PC`s and its clone swamped the market. Again Palm dominates Personal Digital Assistance although Apple pioneered it with Newton. The big question is although Apple pioneered paid music downloading with iTunes and iPods, it is really difficult to sustain its early lead The Possible Options for Apple The Apple Wallet- Incorporating credit cards, identity, applications and specifically banking into the cell phone, the digital wallet is a question of how and when rather than if. Apple can also buy eBay to get to PayPal. Apple can spin off the auction business to pay for PayPal and leverage the 120 Million iTunes credit cards, iPhone user base and Apple brand. Adding field communication technology to the next iPhone, promoting PayPal reader to merchants and leaders can put Apple back to the game. When Apple conceived the iTunes, it was viewed as a smaller and complementary player. Today with a market cap next to Exxon, they are now considered to be a threat. Banks, credit card companies and cellular service providers all want a piece of the digital wallet. In addition the complexity, scale and regulatory requirements of the merchant banking network are larger than the issues that Apple faced in the recording industries. Enlarging the Apple Cloud- Apple can introduce cloud based iTunes subscription. Apple has been reported to have brought the iCloud domain name for $4.5 million. Today cloud primarily serves the corporations that are looking at reducing costs through the hosted services. Google and Amazon have a strong foothold in this area but they lack Apple`s understanding of users expectation and needs. Apple can start by merging the cloud, media content and the Apple TV. It can also introduce its own flat panel hardware at the high ends. Social Networking- success in social networking has been tough for Apple. Apple should figure out Social 2.0 by assessing how a company built on iconoclastic behaviour and a rich minimalist design ethos can lead to success. If the traction behind Social continues to grow and is carried on by a generational gene pool led by younger leaders, then Apple can think of buying into Social. The strategies that Apple have to adopt should ensure that it continues to grow and innovate in the current market, generate steady revenues and high margins in the long term, analyze strategic options about the organic growth that Apple can pursue, which includes acquiring another company or diversification, and also analyze the strategic decisions that Apple should make to control costs. Apple`s success has been attributed to its ability to grow and innovate. It has been largely successful because of the risks that it has taken in developing new product and marketing it. Experts say that there are three stages of a product that has affected iPods or iTunes. They are Product Power, Position Power and process Power. First Apple gained significant product power by introducing the iPod generation and accompanying it was the iTunes. Because of the quality of the product, the ease of use and the catchy marketing, Apple had the first movers’ advantage in the market which it capitalized. With the iPods and iTunes Apple gained position power in the market. The innovation in the product helped Apple gain brand loyalty and recognition among the non Apple users as sales were high. It made difficult for Sony and other companies in the digital music player industry to gain the market share. The process power will be determined if Apple is able to sustain the organic growth which ensure continued market power. The infrastructure should be expanded for pursuing further areas such as media including movies and televisions. It should take its current economies of scale and scope and its momentum in the DM industry for being the chief distributor of all the digital media films. It should sign contracts with the movie studios and television contracts. It should also try to secure the rights of the play streaming television shows directly into the iPods. Surveys shows that there is demand for it and Apple is better positioned than any other company. Apples channel of distribution is the vital cause for the success of iPads and iTunes. Apple`s new notebook and digital music product succeeded because of the retail stores around the world. This strategic vertical integration helped Apple to choose its own store location, price its own product and educate customers on the specifics of the product. As most of the goods that Apple sells are experience or what is called credence goods, the customers have an urge to touch, see, lay and hear the product for determining if they want to buy it. The customers who are less savy can connect to Apple with the retail stores. The opening of the stores in Europe, Asia and North America has helped Apple in it global presence. Since the iTunes is internet based, Apple has been able to expand will low marginal costs and people who are far from the stores can also access it. PC market also shows large growth opportunity. Experts believe that Apple has the potential to reach 10-15% market share. The strategic issue becomes how Apple can get its product in the hands of more customers. Firstly Apple has a distinct product advantage in the PC market for its hardware and software. It should try to grab the market in before it gets saturated with Dell, HP and Microsoft. Apple will lose its first movers advantage when people will be reluctant to switch their purchasing trends. When Apple will establish its superior products in the demand markets that has not been established. Apple should also try to get its product in the hands of the kids. Apple should also extend its distribution channel of PC into the financial markets. It should establish an enterprise and financial services in terms of its operation. It should continue to install computer labs in schools across the nation. Apple has an advantage both in primary and secondary education software and it should familiarize kids with their products at an early age since kids are more likely to get attached to the Apple products (Bamford & West, 2010, P.125) Apple should also look into a programme that allows potential consumers to lease or rent a computer at no charge for a period of time. It can also invite people to take computer home. For some time for deciding if they want to buy. Apple`s aesthetically pleasing design and graphics will make the people interested in experimenting with the computers. Apple has just released software that is compatible with Windows and the Androids. Apple should emphasize more on these programs because of its historically rigid proprietary architecture. Apple should also continue to restructure its architecture so that it becomes flexible to pursue drastic growth strategies like diversification and acquisitions. Under the guidance of Jobs Apple has already created an ecology of recreation and innovation and it has shown that it can withstand downturns that has occurred in the past (Blumberg, Renery, Bundgaard , 2006, P. 36)This ecology has created an architectural process for Apple that contains five key components that are aesthetics, media savy, consumer electronics, ergonomics and information technology. It is the intervention of these five structures that are responsible for the creation and success of new products like iPods and iTune. It is this process structure that has enabled the long term success of the previous products of Apple and has helped in continued innovation and introduction of products that is required to meet the shifting needs of the customers. Technology and demand are rapidly changing in PC industry and in the digital music industry. The inertia of other companies with added research and development is bound to erode Apple`s market power. So Apple should use its internal structure to stay ahead in the competition. To do this Apple should expand their architecture and pursue opportunities of acquiring Pixar and Disney. Apple also has an opportunity to create revenue synergy by providing a unique distribution medium to channel the DM and PC. They should analyze their strengths and weaknesses for this venture. The distribution channel will make the synergy successful and provide guidance about the various avenues that needs to be explored (Capon & Hulber, 2007, P. 192) Apple should also pursue its entry into the communication industry. Apple has already begun the production of its own phone and has branched out its iPod line that will be included in Cingular phone. Apple can seize the communication more than other entrants by cross selling its phone with music and streaming media. It already has its hardware manufactured and its media distribution is also under control. As it already has its technology for streaming media, it easier for Apple to create its own communication channel. Apple has successfully managed the cost that rises as a result of growth and expansion. References Blumberg, E. M, Renery, A & Bundgaard, T. 2006. Strategic Report for Apple Computer Inc. [Available at] [Assessed on 12 Mar. 13] Capon, N & Hulber, J. M. 2007. Managing Marketing in the 21st Century. New York: Wessex Publishing. Bamford, C. E & West, G. P. 2010. Strategic Management. U.S.A: Cengage Learning Read More