SWOT Analysis of company
Strengths: As many as identified
o Bullet
o Bullet
o Bullet
Weaknesses: As many as identified
o Bullet
o Bullet
o Bullet
o
Bullet
Opportunities: As many as identified
o Bullet
o Bullet
o Bullet
o
Bullet
Threats: As many as identified
o Bullet
o Bullet
o Bullet
o Bullet
PESTEL analysis of organization shows the external factors that shape the company’s
external environment.
Political: A narrative or bullets
Economic: A narrative or bullets
Sociocultural: A narrative or bullets
Technological: A narrative or bullets
Ecological: A narrative or bullets
Legal: A narrative or bullets
Resources:
Bulletized
Capabilities:
Bulletized
Core Competencies:
Bulletized. Must first be listed as a resource or capability and meet all four of the
following requirements: rare, valuable, costly to imitate, non-substitutable
Management:
1-2 sentence strategic management problem statement identified at the end of the
case’s time frame.
Marketing:
1-2 sentence strategic marketing problem statement identified at the end of the case’s
time frame.
Finance:
1-2 sentence strategic finance problem statement identified at the end of the case’s time
frame.
Accounting:
1-2 sentence strategic accounting problem statement identified at the end of the case’s
time frame.
The recommendations/justification section is not required for Case #1.
Case Study Handout
Please utilize the following to assist in the preparation of the case studies for MGMT
479.
Resources. Resources are inputs into a firm’s production process, such as financial
capital, equipment, the skills of individual employees, patents, finance, and talented
managers. Each case study paper will contain the resources identified.
Capabilities. Capabilities is the capacity for a set of resources to integratively perform
a task or and activity. Through continued use, capabilities become stronger and more
difficult for competitors to understand and imitate and usually lead to a competitive
advantage. Each case study paper will contain the capabilities identified.
Core Competencies. Core competencies is a resource and/or capability that service as
a source of competitive advantage for a firm over its rivals. A firm’s functional skills.
What the firm does better than its competitors. A core competency must first be listed
as a resource or capability and meet all four of the following criteria:
• It must be rare and
• It must be valuable and
• It must be costly to imitate and
• It must be non-substitutable
Resources, Capabilities, and Core Competencies are to be bulletized. No
explanation is required. Please utilize the Resources, Capabilities, and Core
Competencies Handout attached to the Welcome Email to assist in the
identification of each.
Findings of Fact. Findings of fact are strategic issues discussed in the case studies and
usually identify potential problem areas for the firm. Additionally, these strategic issues
are facing the firm’s strategic managers at the end of the case’s time frame. Strategic
problem statements. Each case study paper will identify one finding of fact for each of
the four functional areas required for that case study (e.g., management, marketing,
accounting, finance, international business).
Recommendations/Justifications. Recommendations are directly tied to the findings
of fact. For each finding of fact, a thorough, justified, recommendation must be
provided. How are you going to rectify the strategic problems that you have identified
and why. Additionally, this section should also include an implementation discussion.
General statements and blanket conceptual recommendations that are not fully justified
with the facts of the case, are not acceptable. The recommendations/justifications
section of the paper should be one page each in length.
Format for findings of fact/recommendation/justifications.
Management: Finding of fact (strategic problem statement)
Recommendation/Justification: One page in length
Marketing: Finding of fact (strategy problem statement)
Recommendation/Justification: One page in length
Finance or Accounting: Finding of fact (strategy problem statement)
Recommendation/Justification: One page in length
International business: Finding of fact (strategy problem statement)
Recommendation/Justification: One page in length
Finally, ensure you address the specific additional requirements for each case
study assignment as each case study requirements, including the functional
findings of fact, are different.
1
Apple Inc.
Tim Cook paces his office as he reflects on Apple’s second quarter 2017 earnings call. Apple stock
continues to make gains (see Exhibit 1), but even with good news in hand, Apple faces increased risks
and questions from investors.
One issue relates to Apple employees completing a move into its new Cupertino, California headquarters over the summer of 2017. Construction started in 2013 and the cost of the “spaceship”
headquarters is estimated to approach $5 billion and be the home for approximately 14,000 employees.1 Employees began moving in in April 2017, and it was part of Steve Jobs’ vision to inspire Apple
employees to innovate new products.2 Reinforcing the impact of the move, getting construction of the
building approved by the Cupertino City Council was Steve Jobs’ last public appearance in 2011.3
Another question is what Apple will do with an estimated $250 billion in cash that is largely kept
outside the United States to avoid taxes.4 If tax policy changes, the money could be brought back to the
United States and used to give shareholders a special dividend, investing in R&D, making an acquisition,
or a combination of both. When he became CEO, Tim Cook reversed Steve Jobs’ policy of not offering a
dividend in 2012, and in 2016 committed to raising Apple’s dividend annually.5 Still, with $250 billion
available, Apple could acquire leading companies, such as Tesla, Netflix, or Disney.
A related question relates to speculation on whether Apple will be the first $1 trillion company.
While Apple was the first company to ever be valued over $800 billion,6 there are questions whether
Amazon will pass Apple to be the first to achieve a trillion dollar valuation.7 Part of the problem is that,
since its launch in 2007, the iPhone has begun to define Apple with almost 70 percent of 2016 revenue
coming from iPhone sales.8 Meanwhile, under Steve Jobs, the goal was to have a portfolio of three
strong products, or a three-legged stool.9 The increasing reliance on the iPhone represents a strategic
risk that is more evident as the iPhone’s 10th anniversary approaches, and both expectations and
competition for the iPhone increase.
Each issues relates to an overriding concern: What’s next? Where will continued growth come from?
2
A Brief History of Apple
In 1976, Steve Jobs and Steve Wozniak conceived the idea of a personal-computer company and
founded Apple Computer, Inc. “Computer” was dropped in 2007 to reflect Apple’s expansion from the
personal computer market to general consumer electronics.10 At just 21 years of age, Jobs sold his
Volkswagen to fund the start of the company. Jobs and Wozniak, then 26, began to assemble personal
computers in Jobs’ garage with a small group of friends. Soon after, they received additional financing to
spur the growth of the company. In 1978, the Apple II, the first personal computer, was launched and
sold for $666.66.11 In December of that same year, Apple launched a successful initial public offer-ing
(IPO), making it a publicly traded company. Since its IPO, Apple’s market value has risen over an
astounding 50,600 percent.12
By 1980, Apple had released three improved versions of the personal computer, and Jobs and Wozniak
had become multimillionaires. The following year, IBM entered the personal computer market and
quickly became a serious competitor. IBM’s open architecture was easily imitable by other
manufacturers and soon became the industry standard, giving rise to many more computer companies
in the United States (e.g., Compaq and Dell), as well as in Taiwan, Korea, and other Asian countries. Even
more threatening was the consortium among IBM, which specialized in the develop-ment of computer
hardware; the newly formed Microsoft with its DOS operating system; and Intel with its expertise in
memory and processors. By 1982, IBM had increased its profitability and market share substantially, and
Apple’s position was under attack. Apple responded two years later with the Macintosh, which offered
advanced capabilities with an intuitive graphical user interface (GUI), and which they introduced via a
dramatic television commercial during the third quarter of the 1984 Super Bowl.13 In 1985, Steve Jobs
was forced out after a power struggle with CEO John Sculley, a profes-sional manager from Pepsi who
was hired two years prior.14 Steve Jobs had to watch as the company he founded fell on hard times. By
1996, Apple reported a mere $69 million in first-quarter revenue and massive layoffs of 30 percent of
the company’s total work force of 13,400.15
Steve Jobs Returns
After his public firing from Apple, Steve Jobs pursued other interests (NeXT and Pixar). Apple’s purchase
of NeXT on December 20, 1996, for $429 million opened a way for Steve’s return to Apple.16 Jobs
became CEO again in 1997 and took only a symbolic $1 salary. He later reminisced, “I didn’t see it then,
but it turned out that getting fired from Apple was the best thing that could have ever happened to me.
3
The heaviness of being successful was replaced by the lightness of being a beginner again. . . . It freed
me to enter one of the most creative periods of my life.”17 Apple largely survived based on a $150
million investment from Microsoft in August 1997; the intent was to keep Apple and its oper-ating
system viable to avoid monopoly antitrust concerns.18 However, it gave Steve Jobs needed time to have
Apple develop products that shaped future technology and to orchestrate one of the greatest corporate
come-backs in modern-day history.
Steve Jobs firmly believed that Apple could create major innovation breakthroughs that would reshape
future industries. Jobs’ attitude toward innovation as key to a successful strategy and competi-tive
advantage was revealed in an interview with UCLA professor Richard Rumelt shortly after Jobs returned
to Apple in 1998:
I was interested in what Steve Jobs might say about the future of Apple. His survival strategy for Apple,
for all its skill and drama, was not going to propel Apple into the future. At that moment in time, Apple
had less than four percent of the personal-computer market. The de facto standard was Windows-Intel
[later “Wintel”] and there seemed to be no way for Apple to do more than just hang on to a tiny niche. I
said, “Steve, this turnaround at Apple has been impressive. But everything we know about the PC
business says that Apple cannot really push beyond a small niche position. The network effects are just
too strong to upset the Wintel standard. So what are you going to do in the longer term? What is your
strategy?” [Steve Jobs] did not attack my argument. He didn’t agree with it either. He just smiled and
said, “I’m going to wait for the next big thing.”19
Under Steve, Apple reclaimed its status as global icon following the introduction of the iPod, iTunes,
iPhone, and the iPad. See Exhibit 2 for Apple’s stock market valuation and key events, 1975–2017. See
Exhibit 3 for Apple’s key financial data, 2012–2016.
Restructuring Apple When Steve Jobs returned to Apple in 1997, he was ready and eager to shake things
up. In a meet-ing with Apple’s top executives, after hearing all their explanations as to why Apple was
performing poorly, Jobs infamously roared: “The products SUCK! There’s no SEX in them anymore!”20
Jobs swiftly refocused the company that he had helped start and discontinued several products such as
the Newton PDA, the LaserWriter printer line, and the Apple QuickTake camera—all now collector items
for Apple enthusiasts.
During this time of restructuring, Jobs outsourced manufacturing to Taiwan and scaled down the
distribution system by ending relationships with smaller outlets. With Jobs’ savvy insight for what
consumers wanted, he launched a new, revolutionary website to sell Apple products directly to customers online. For the first time ever, he also opened Apple retail stores, tied to his build-to-order
manufacturing strategy. Although these moves seemed risky at the time, all of these operational
improvements helped to boost previously declining sales. For the first time in five years (since 1993),
Apple once again became profitable.
4
Jobs also realized the necessity of making Apple’s operating system more accessible for software
providers. He switched everything to the open-source, UNIX-based operating system, Mac OS X. This
proved to be a more stable operating environment and permitted the company to issue annual
upgrades in response to customer feedback. In 2005, Apple completed this transition by switching from
PowerPC to Intel processors, which meant that Apple computers could run not only the Mac OS X, but
also Microsoft operating systems. This marked the beginning of a truly open era for Apple computers;
they were now the most flexible, as well as the most attractive. As a result, Apple’s stock price went
from $6 in 2003 to over $80 in 2006, surpassing Dell’s market cap, then becoming the number-one
computer maker in the United States.21 Dell’s CEO, Michael Dell, was left retracting the words he had
very publicly spat nine years prior, “If I ran Apple, I would shut it down and give the money back to
shareholders.”22
Beyond changing the operating system, the most visible change Jobs instituted was leveraging
industrial design to produce more aesthetically pleasing computers. Jobs almost instantly revitalized
Apple’s image by pushing the limits of technology and design. He appointed Jonathan Ive, a British
designer, head of Apple’s in-house Industrial Design group (IDg). There have been several distinct design
themes in Jobs’ and Ive’s collaboration over the years: translucency, colors, minimalism, and dark
aluminum. Ive has been credited with being the chief designer of the iMac, the aluminum and titanium
PowerBook G4, the MacBook, unibody MacBook Pro, the iPod, iPhone, and iPad.23 Ive’s work at Apple
has won him a slew of awards and widespread recognition.
Jobs also started to brand Apple as a functionally appealing, hip alternative to other dull, clone-like
computers in the market. Known for his candor, Steve Jobs once accused Michael Dell of making “uninnovative beige boxes.”24 Continuing in the same vein as the well-known 1984 television ad, Apple
launched its “Think Different” campaign in 1997. The aim of the campaign was to reflect the culture of
Apple, which comprised great people who think differently. The television advertisements featured
major artists, scientists, and politicians who were seen as independent thinkers, including Albert
Einstein, Martin Luther King, Jr., John Lennon, Thomas Edison, Amelia Earhart, Alfred Hitchcock, Pablo
Picasso, and Jerry Seinfeld. Similarly, Apple’s print advertisements had less to do with specific prod-ucts,
and everything to do with company image. They simply featured a portrait of one of the historic figures
and a small Apple logo with the words “Think Different” in the bottom corner. In 2002, Apple launched
the “Switch” advertising campaign, which showed various celebrities and non-celebrities talk-ing about
the reasons they switched from Windows computers to Apple computers. The “I’m a Mac, I’m a PC”
commercials in the last half of the decade, which featured young actor Justin Long as a “Mac” and a
middle-aged man (comic John Hodgman) in a suit as a “PC,” helped to fortify the image of the Mac as
young and hip and the PC as only suitable for business and not the creative needs of the younger
generation. These steps helped keep Apple relevant until it could come up with new products.
Apple’s Culture
As early as 1983, Steve Jobs coined the following motto at an offsite retreat: “It’s better to be a pirate
than join the navy.”25 Jobs’ Macintosh team had only 80 employees at the time, but already he sensed
5
that they were developing the group-think mentality that he detested. In response to “Captain” Jobs’
cry, programmers Steve Capps and Susan Kare painted a rainbow-colored Apple eye patch onto a pirate
flag and hung it above the Macintosh building. This iconic image became illustrative of Apple’s unique
corporate culture and also symbolic of Apple’s first inspired slogan in the late 1970s, “Byte into an
Apple.”
According to its website, working at Apple was “less of a job, more of a calling.”26 Apple looked for
employees who were on a mission to “change the world” and create “some of the best-loved technology
on the planet.”27 Apple promoted itself to prospective candidates as “a whole different thing” with
“corporate jobs without the corporate part.”28 Apple looked for people who were “smart, creative, up
for any challenge, and incredibly excited about what they do. In other words, Apple people. You know,
the kind of people you’d want to hang around with anyway.”29 From the start, Steve Jobs had been
more than instrumental in developing Apple’s envied corporate culture. Employees typically worked 60
to 70 hours a week, and no one complained.
Apple has been thought of as putting Silicon Valley on the map with its hard-working but relaxed,
casual atmosphere.30 This characterization would be an impossible contradiction in most other
corporations in the United States, but not at Apple. When Jobs returned to Apple in 1997, he became
famous for his standard black turtleneck and jeans uniform, walking around the campus with, or
sometimes without, his sneakers. Jobs even went barefoot to a 1999 meeting to settle a patent dispute
with executives from Microsoft.31 Jobs was the ultimate example of an “I’m-a-genius-and-I-don’t-care”
attitude. Apple employees embraced their hero and became convinced that, with confidence and
creativity, they too could become rich and leave a legacy—sans suit or shoes. Still, Jobs’ larger than life
persona led to a traditional management structure organized around functions and not products that
keep employees from working on their own ideas.32 For example, Jonathan Ive is the Chief Design
Officer for all Apple products.33
Apple’s rebel spirit not only attracted a long-lasting appreciation from loyal employees but also
created an almost cult-like following among customers who appreciated Apple’s propensity to think
differently. Millions of people wanted to be seen as unique individuals, and hence, millions of people
bought Apple products. The “Cult of Apple” was a group of rumored fanatical followers devoted to all
things Apple, but “while there are many customers who eat, think, and breathe Apple, members of the
Cult of Apple take their devotion one step further and believe in Apple.”34 The result was that Apple
had a conspicuous horde-like following walking down the streets of every major city in the world with
the signature white ear buds of Apple products attached to their heads. Apple products became so
trendy that other companies had to design their consumer electronics like Apple’s to have a hope of
selling. The loyalty of Apple customers has served the company well, and now it is not just the die-hard
fanatics who believe. Even people in the mainstream became Apple converts.
Innovation Ecosystem at Apple: Integrating Hardware, Software, and Services
The one competency that kept Apple on the cutting edge, all the way from startup to survival
and success, has been innovation that others envy. “Innovation distinguishes between a leader and a
follower,” Jobs repeatedly said.35 Jobs believed that innovation is a process that can be cultivated and
6
managed within an organization. It begins with idea generation, then moves to idea adoption and
development, and finally to idea implementation. All the while, the innovation process has been
enabled by effective leadership and a supportive organizational culture.
Apple’s top management was also critical in the effort to nurture an innovative organization
because employees needed to know that they would not be reprimanded for making risky choices when
attempting a creative project. A high tolerance for failure and calculated risk-taking is necessary for
employees to feel comfortable bringing up new ideas in any organization.36 Apple’s work force
appeared to have embraced this attitude fully, as they proudly “[said] NO to 1,000 things.”37
Compared to its competitors, Apple spends less, but an increasing amount, on research and
development (R&D), with expenses at $10 billion, $8.1 billion and $6.0 billion in 2016, 2015 and 2014,
respectively, or consistently below five percent of revenues.38 Comparing the amount of money spent
at Apple with that of other technology giants shows how effectively Apple’s innovation process works,
making possible a significant return on R&D investment. In fact, Jobs was known to say: “Innovation has
nothing to do with how many R&D dollars you have. When Apple came up with the Mac, IBM was
spending at least 100 times more on R&D. It’s not about money. It’s about the people you have, how
you’re led, and how much you ‘get it.’”39
Exhibit 4a depicts Apple’s quarterly unit sales by product category (2012–2017), while Exhibit 4b shows
annual sales by product category (2012–2016).
THE IPOD
The big bang happened at Apple in October 2001 with the launch of the iPod, a portable digital
music player based on the MP3 music format. The sleek design and smart graphical user interface
bewitched consumers. In keeping with its iconoclastic reputation, Apple promoted its iPod as a styl-ish
alternative to archetypal music technology products with the new “iPod People” campaign. Ads featured
several silhouetted people with white headphones in their ears dancing against a colorful background.
Apple advertising had always been creative by design, but its “iPod People” promotion brought in an
unmistakable “coolness-factor” as the essence of the product. The product was an instant hit, selling
over 100 million units within six years.40 The profitability of the iPod was phenomenal, with margins
estimated as high as 47.4 percent before freight, marketing, and other costs.41
In April 2003, Apple provided iTunes as a complement for the iPod. iTunes was the first online
store from which customers could buy songs individually at 99 cents each, rather than purchasing entire
albums for upward of $15 to $20, or downloading songs illegally. Within three days of launch, iTunes
users had downloaded one million songs. By June 2008, iTunes had exceeded five billion down-loads.42
On February 25, 2010, which was coincidentally Steve Jobs’ 55th birthday, Apple achieved the great
milestone of 10 billion iTunes downloads. Apple had seemingly effortlessly established itself as the
newest icon of the digital age, revolutionizing the music industry and holding fast to its leadership
position in the technology race. By 2017, Apple services comprising iTunes, the App Store, iCloud, Apple
Care, and Apple Pay experienced a decade of revenue growth to contribute $4.5 billion in rev-enue
representing a 22.3 percent gain from 2016.43
THE IPHONE
7
In June 2007, Apple launched the iPhone, and soon Apple’s share price passed the $100 mark.44 The
iPhone was a multifunction smartphone that provided the customer with a unique touch-based interface and a revolutionary operating system delivering a computer-based experience. According to Jobs,
the iPhone was “the Internet in your pocket.”45 Apple partnered with AT&T to bring this device to the
market and make it affordable for consumers. AT&T was happy to subsidize the phones, as long as it
could ride the Apple wave of “coolness” and innovation.
One year later, Apple launched the iPhone 3G, which was advertised twice as fast at half the price.
The iPhone 3G supported all Microsoft document formats and had full support for a Microsoft Exchange
server. Apple sold a record six million 3G iPhones in the first year, giving birth to a whole new generation
of smartphones. In the summer of 2010, Apple released the iPhone 4 with two built-in cameras and
higher resolutions. In that same year, Apple captured 17.4 percent of the smartphone mar-ket, with 82
percent sales growth since 2008. It had taken only two years for Apple to jump to second place behind
Nokia, with 32.7 percent market share. The iPhone 4S, an update to the iPhone 4 with a voice assistant
known as “Siri,” was released in October of 2011. The iPhone 5, which had a larger screen and was the
first 4G iPhone, was released in September of 2012. The iPhone 6 represented more of an update and
included the iPhone 6 Plus to better compete with larger phones from Samsung. The larger size enabled
better battery life, and it came with a better camera. However, combined with the thin size, the larger
area has raised problems with the iPhone 6 bending.46 In early 2015, only 15 percent of customers have
updated to the iPhone 6 providing room for future sales.47
Apple introduced the iPhone 7 and iPhone 7 Plus in September 2016, but only 10 percent of sales were
to customers switching from Android-based phones.48 One controversial change with the iPhone
7 was the removal of an ear phone jack, but it became a non-issue49 as the iPhone 7 became the worldwide market share leader at the beginning of 2017 after capitalizing on Samsung’s recalling its Note 7
phone due to problems with its battery.50 Still, while Apple has 40 percent of the U.S. smartphone
market,51 its worldwide market share fell to only 12.5 percent by the end of 2016.52
In 2017, Apple iPhones are available in 155 countries and iOS supports 40 languages. Exhibit 5
depicts global smartphone operating system market share (in %), 2009–2016. Still, Apple iPhone sales
remain dependent on North America and Europe with local competitors
contributing to a 14 percent decline for iPhone sales in China in 2016. China now accounted for 20
percent of Apple’s total sales, down from 25 percent a year earlier. While Apple varies its price internationally somewhat, it normally dumps older iPhones in emerging markets. However, in 2016, the
average price for smartphones in India was only $158 and still too expensive for average citizens.53
Exhibit 6 depicts Apple regional net sales, 2012–2016.
Moreover, expectations for the 10th anniversary iPhone to be released in the fall of 2017 were high
with several new features, including: a curved OLED glass screen, wireless charging, an iris scanner, and
removal of the home button. In fact, they were so high that they negatively affected the sales of Apple’s
latest models, the iPhone 7 and iPhone 7 Plus. Speculations run high that the 10th anniversary iPhone
would be called iPhone X and that it would take smartphones to a new level. Others argued that the
future of smartphones would not be driven by hardware, but software. In particular, they argued that
8
future advances would be coming from augmented reality (AR) and virtual reality (VR). Apple
increasingly relies on the iPhone to generate sales. In 2016, over two thirds of all revenues were from
the iPhone. Yet, the average selling price of an iPhone is close to $700, with some sales still subsidized
by mobile carriers, albeit less than in the past. The new iPhone X (or iPhone 8) is likely to cross the
$1,000 price threshold.54 55 Exhibit 7 depicts worldwide iPhone sales as percentage of Apple’s total
sales (2009–2017).
THE IPAD
On January 25, 2010, Jobs took his biggest gamble yet with the announcement of the iPad, a multimedia, tablet-style computer designed to take the place of a pencil and pad of paper.56 The iPad ranks
among the most successful product launches ever, taking it only 28 days (compared to 74 for the iPhone
3) to sell more than one million units.57 The idea of a keyboard-free, touchscreen por-table computer
tablet had been around for more than two decades. Apple had even launched its own Newton
MessagePad in 1993, which became known less for its pioneering features and more for being ridiculed
in “Doonesbury” for the software’s problem in recognizing handwriting.58 At half-an-inch thick,
weighing 1.5 pounds, with a 9.7-inch “gorgeous, super-high quality display” that was “multi-touch,
super-responsive, and super-precise,” Apple had come a long way since the Newton.59 The iPad offers
Wi-Fi connectivity—enabling wireless access to e-mail, photos, video, music, games, and e-books, as
well as browsing the web. Additionally, the iPad incorporates features like a calendar, photo man-ager,
spreadsheets, and presentations to take on a more multimedia look.
There was concern the iPad would cannibalize sales of other Apple products, but Jobs believed there
was room for a third category between the laptop and smartphone, but he acknowledged that “it must
do things far better than both existing devices.” Jobs argued that if the iPad could not do some tasks
better than laptops or smartphones, it was unnecessary.60 Unlike the iPhone, the initial iPad lacked a
built-in camera for taking photos. While Jobs hailed the iPad as “a dream to type on,” for many it was
not as easy as a typical keyboard with tactile keys to feel.61 This caused many customers to express
disappointment with the iPad doing less than the iPhone, but on a bigger screen. In March 2011, Steve
Jobs, in typical showman fashion, made a surprise visit to unveil the iPad2, a thinner and sleeker but
higher-performing version of the original iPad that also contained two cameras to facilitate online video
chat.62
With the introduction of the iPad, Apple increasingly became a mobile-devices company, compet-ing
against Sony, Samsung, and Nokia. At the same time, Apple faced direct competition from other
computer manufacturers, who were quick to jump on the iPad bandwagon, hoping to undercut Apple’s
price to gain market share. For example, Hewlett-Packard introduced the “Slate,” and Dell, Acer, and
Sony were all refining their own versions of the tablet. In addition, the iPad has faced increased competition from the new mini-laptops or “netbooks” and Microsoft’s introduction of the “Surface” beginning with the Surface RT in 2012.63 By the time the iPad turned five in 2015, competing products in the
form of tablets and larger phones led to the first annual decline in tablet sales, and iPad sales fell almost
18 percent.64 By 2017, iPad revenue had fallen for 12 consecutive quarters as larger smart-phones
cannibalized sales65 (see Exhibits 4a and 4b).
Tim Cook, Apple’s CEO After going on his second medical leave in two years following a liver transplant
in 2009, Steve Jobs
9
put Tim Cook in charge.66 Tim Cook was appointed CEO on August 24, 2011. A few weeks later, on
October 5, 2011, Steve Jobs lost his battle with cancer. Tim Cook is characterized as an “operational
genius” with a focus on playing it safe.
Tim Cook, who holds an MBA from Duke University and a BS in Industrial Engineering from
Auburn University, had been Apple’s Chief Operating Officer (COO) since 2007. He directed the outsourcing for most of Apple’s production in a business where obsolescence can decrease the value of
unsold goods by two percent a week.67 While Tim Cook’s leadership style clearly differs from that of
Steve Jobs, Cook’s attempt to balance things out reflects a keen awareness of Jobs’ impact on Apple.
However, he also signaled someone different was in charge with new initiatives on things Steve Jobs
opposed, including matching Apple employee charitable donations up to $10,000 a year.68
In 2016, Tim Cook had been Apple’s CEO for over five years and, from a financial standpoint,
he has been a clear success with Apple’s revenue, profits and stock price all doubling.69 However,
maintaining innovation at Apple’s without Steve Jobs has been a largely unmet challenge. Tim Cook
acknowledges his largest misstep was the replacement of Google maps with Apple software with the
iPhone 5.70 This led to the firing of Scott Forstall, the head of mobile software. Forstall had clashed with
other executives, and Steve Jobs was not there to mediate.71 Tim Cook continues to face the challenges
of maintaining a management team and continuing to release innovative products. These challenges are
reflected in the fact that Tesla, which promises to maintain a culture similar to what Steve Jobs had
created, has attracted hundreds of former Apple employees, including Apple’s head of self-driving cars
and the director of Apple design.7273 Overall, Apple faces continued challenges to develop innova-tive
products. This is consistent with revolutionary organizations becoming less innovative and more
bureaucratic when visionary leaders are replaced (e.g., Dell, Disney, Ford).
INEXT? Since 2010, with the debut of the iPad, Apple has not introduced a new flagship product.
Introducing
new products to maintain continued revenue growth and profitability is an evident concern for Tim
Cook. He appears to be trying to leverage Apple’s flagship product—the iPhone—as well as developing
new products. Following are brief descriptions of Apple’s current efforts.
BEATS HEADPHONES In 2014, Apple acquired Beats Electronics for $3 billion and will maintain it as a
separate brand.74
Beats was co-founded by rapper Dr. Dre and its headphones and speakers emphasize bass or hearing
music as artists do. Prior to its acquisition, Beats Electronics had over $1 billion in sales. Beats headphones and portable speakers serve as complements to iPhones and iPods by delivering a superior
sound for music. By 2017, buttressed by the loss of a headphone jack in the iPhone 7, Apple’s AirPods
and wireless Beats headphones achieved 40 percent market share of Bluetooth headphone sales.75 Still,
Apple’s “other products” category that includes Beats headphones and the Apple Watch experienced a
7.5 percent fall in revenue in 2016.76
APPLE WATCH
10
In early 2015, Apple announced that it would begin selling the Apple Watch starting in April. Originally
envisioned as a health-monitoring device, many of those functions did not make it in the initial product
and it is unclear what need the Apple Watch will fill.77 The Apple Watch costs $350 for the entry model,
and it only works with an iPhone. The watch’s most obvious function is enabling a more discrete method
of checking who is calling or texting.78 The Apple smartwatch is also positioned to be a luxury fashion
accessory, with the 18-carat gold version priced around $17,000.79 However, by 2017, the promise of
the Apple Watch largely remains unfulfilled with Google Maps, eBay, and Target having pulled their apps
from the Apple Watch.80
APPLE PAY Launched in October 2014, Apple Pay represents Apple’s approach to mobile payment, and it
is a
growing part of Apple’s revenues. Initially, Apply Pay was only accepted by only 15 companies.81 In
2015, Apple Pay accounted for two-thirds of rapidly growing mobile payments.82 By 2016, the vol-ume
of Apple Pay mobile payments grew 500 percent, as it expanded beyond the United States to be
available in Australia, Canada, China, France, Hong Kong, Singapore, Switzerland, and the United
Kingdom.83 Between 2016 and 2017 the number of Apple Pay users tripled, transaction volume grew
another 500 percent, the service became available in 13 countries, and expanded to serve businesses.84
However, Apple Pay remains dependent on people using their iPhones to make payments.
APPLE TV In March 2007, Steve Jobs introduced the first-generation Apple TV to the world, having
referred to
it more as a “hobby” than a mainstream product. The first-generation model was a box that connected
to a user’s television set. It allowed the user to sync and then play his or her downloaded content from
the iTunes Store. The content could be rewound or fast-forwarded, making the Apple TV the equiva-lent
of the modern-day satellite or cable DVR. While the 2011 biography on Steve Jobs that indicated Apple
solved the television interface concept for a dedicated Apple television set, Apple TV remains similar to
rival products, such as Google Chrome, Amazon FireTV, and Roku. In 2017, Apple TV was only present in
five percent of U.S. households.85
The latest (fourth) generation Apple TV product was introduced in 2015 and it incorporated a new
operating system based on iOS 9 to better integrate with Siri and apps. This allows users to watch
movies, play music, show off their videos and photos, and even mirror what’s on their device’s screen to
enjoy games, web pages, and more. Apple TV complements other Apple products to allow users to
access all of the benefits of their devices in their living rooms.
ICAR Since 2015, there have been various reports of Apple working on an electric car project under the
code name “Titan” 86 and car software under the code name “Stark”.87 The software became available
in 2015 as CarPlay and it proves access to Apple apps across dozens of car models.88 By comparison,
Apple has struggled to make progress on manufacturing an Apple Car, and in 2016, dozens of employees were let go and a new executive was brought in to oversee the effort.89 The automobile industry
has lower industry profitability due to higher rivalry. Further, there are multiple companies working on
electric and autonomous cars, including: Tesla, Google, Uber, as well as established car companies. For
example, Ford and Nissan have opened research labs in Silicon Valley.90 Additionally, government
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regulations, questions of liability for crashes, and questions of customer acceptance have delayed
progress on automated cars.
HOMEPOD While Apple pioneered the use of digital assistants with Siri being incorporated in iOS 5 with
the
iPhone 4s, Apple has largely watched as Amazon’s Echo (Alexa) and Google (Ok Google) offered in-home
digital assistants.91 Microsoft is also placing its digital assistant (Cortana) on an in-home device called
Project Evo.92 In response, it is rumored that Apple will offer Siri Speaker later in 2017, or in time for the
holiday shopping season.93 The implications are large as it relates to efforts to create a conversational
user interface that could replace graphical interfaces. Further, these early systems could feed
development of artificial intelligence from collecting information and data on human interactions with
software.
AUGMENTED REALITY Augmented reality (AR) overlays images with the real world, and Tim Cook
attributes the impact
of augmented reality to be as encompassing as smartphones. Apple has formed a team that combines
its strengths in hardware and software with external expertise (i.e., acquisitions) in an attempt to
develop AR products.94Facebook (Oculus) and Microsoft (Hololens) already have products that work
with smartphones and computers, respectively. Pokémon Go was the first commercially successful AR
application, leading to projections that AR will be a $165 billion market by 2024.95 Potential applications for Apple involve adding AR features to the iPhone or developing a set of glasses. Meanwhile,
Google has largely shelved its initial Google Glass, as it continues to develop and refine the concept.96
Current Competitors
While Apple’s exceptional performance, brand loyalty, and innovation capabilities would make any CEO
envious, technology industries continue to evolve and traditional lines between markets blur as
companies compete for market share and dominance. The following companies pose the biggest threat
to Apple and consistently seek opportunities to take market share away from the industry giant.
ALPHABET In 1998, 24-year-old Sergey Brin and 25-year-old Larry Page founded Google. They met as
gradu-ate students in the computer science department at Stanford University where they began
working together on a web crawler, with the goal of improving online searches. What they developed
was the PageRank algorithm, which returns the most relevant web pages more or less instantaneously
and ranks them by how often they are referenced on other important web pages. A clear improvement
over early search engines such as AltaVista, Overture, and Yahoo, all of which were indexed by keywords, the PageRank algorithm is able to consider 500 million variables and three billion terms. What
started as a homework assignment launched the two into an entrepreneurial venture when they set up
shop in a garage in Menlo Park, California.
In 2015, Google became a holding company called Alphabet with Google (Search, YouTube, and
the Android and Chrome OS) representing the core business managed separately from other businesses, such as Nest, with their own CEOs.97 The intent was to allow other businesses to grow outside
Google’s shadow, as the world’s leading online search and advertising company. Google’s operating
system, Android, is used exclusively by Samsung Electronics, a Korean electronics maker, in all of its
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smartphone devices. By 2016, Android’s market share in smartphones worldwide grew from over 50
percent in 2011 to over 86 percent.98
In 2011, Google announced Chromebook, a line of laptop computers running Google’s Chrome
operating system. The Chrome OS is designed to provide the user with the minimal amount of hardware and installed applications needed. The user runs applications from the cloud and uses Google’s
Chrome browser to access these applications. Several manufacturers such as Samsung, Acer, and HP
offer Chromebooks. By 2016, Chromebooks outsold Macs for the first time,99 and Chrome OS gained
over 58 percent market share in the key US K–12 market.100
Google has also introduced Google Home to compete with the Amazon Echo, and its sales are
growing faster than Amazon’s; however, Google has not figured out a way to make money from Google
Home.101 Meanwhile, Burger King created a television add that activated Google Home with the phrase
“OK, Google” to read its Whopper Wikipedia page, leading Google to have to disable the ploy within
hours.102
AMAZON.COM Founded in 1994 by Jeffrey Bezos as an online book retailer, Amazon’s sales grew from
$20,000 in
1995 to over $135 billion by 2016 with year-on-year profit growing almost 400 percent.103 Following its
1997 initial public offering, Amazon rapidly diversified into multiple product areas, undercutting
traditional retailer prices.104 In 1998, Amazon launched its online music and video store and began to
sell toys as well as consumer electronics; it added clothing in 2002. Amazon then engaged in a series of
acquisitions to further expand the breadth of products offered. The firm acquired the number one
online shoe retailer, Zappos, for $890 million in 2009. In 2010, Amazon added both Woot, a social
shopping e-commerce site, and Quidsi, the owner of Diapers.com and Soap.com, to its portfolio. In
2016, Amazon’s efforts in branding its own products began to pay dividends as its products began to be
the leader in many categories.105 By 2017, Amazon grew to over 340,000 employees worldwide with
the firm adding over 100,000 in 2016 alone.106
The Kindle Fire tablet product line that runs Google’s Android software is a direct competitor to
the iPad. While the iPad retained leading market share for tablets in 2016, Apple’s market share continued to slide and Amazon’s Fire tablets experienced the largest growth.107Meanwhile, Amazon’s Fire
Phone that launched in 2014 was not a success.
Apple’s iBookstore competes with Amazon’s Kindle, and Apple set the maximum e-book price at
the cost of printing the book, so publishers were able to charge anywhere from $12.99 to $14.99 for
most titles. Apple retained 30 percent of the sale price and returned the remaining 70 percent to the
publishers. The aspect that appealed to publishers was that they were able to determine the prices of econtent, and this gave them leverage to negotiate higher prices for their content with Amazon. It was
even possible that publishers would withhold titles if Amazon did not agree to raise their prices. As a
result, the competition between Apple and Amazon “is as intense a situation as the industry has ever
had. . . . It’s a huge chess match.”108
Amazon’s Echo and its digital assistant Alexa compete directly with Apple’s Siri to be the central,
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voice-control digital assistant in the home. The Echo creates customer lock-in with an Amazon Prime
subscription, comes with multiple apps called “skills”, and is associated with increased sales.109
MICROSOFT The partnership that Paul Allen and Bill Gates formed in 1975 started out small, but Gates
had a
vision to one day put a computer in everyone’s home. During the next several decades, their company,
Microsoft, revolutionized the way people worked and played on their computers, as Microsoft dominated the technology market with its Windows operating system in the 1990s and early 2000s. The
explosion of mobile devices led by Apple has Microsoft playing catch-up.
To compete with the iPad, Microsoft released its Surface RT tablet in October of 2012 with a large
campaign focused on comparing it to the iPad. The Surface RT had an attachable keyboard/cover, a USB
port, and used the Windows 8 operating system. Microsoft also tried to enter the smartphone market
with an acquisition of Nokia devices and services in 2014 for more than $7 billion. This acqui-sition
returned Nokia’s CEO Stephen Elop to Microsoft as an executive vice president of the Microsoft Devices
Group—the same group responsible for Lumia smartphones and tablets, Nokia mobile phones, Xbox
hardware, Surface, and other products.110 However, the acquisition of Nokia was acknowledged as a
failure with Microsoft taking a $7.6 billion write-off in 2015.111 By 2016, Microsoft had written off
around $11 billion on its Nokia acquisition and laid off over 27,000 employees.112
Like Apple, Microsoft has opened its own stores to sell Microsoft and third-party products that run
Microsoft’s software. Microsoft also updated its Windows operating system and skipped from the
number 8 to the number 10 version in an attempt to emphasize the significance of the upgrade.
Microsoft offered free customer upgrades to Windows 10 in an attempt to boost market share.
However, Windows 7 remains the dominant desktop OS with almost double the market share of
Windows 10.113 This is largely due to reticence in businesses to update. However, Microsoft ended
sales to Windows 7 in late 2016.114 Microsoft has also announced it will provide a new Windows 10S
operating system aimed at competing with Google’s Chrome OS.115
SAMSUNG
On March 1, 1938, Byung-Chull Lee started Samsung, which means three stars in Korean, as a small
export business focusing primarily on fish, vegetables, and fruit. Within a little over 10 years, Samsung
would have its own manufacturing and sales operations. Today, the technology giant sells products
around the globe and is instantly recognized for its innovative, consumer-driven products.
In 2012, Samsung Electronics had become the global smartphone market leader, due mostly to its
extremely successful Galaxy devices that run on Google’s Android operating system. The phone is
comparable in both design and technical features to the iPhone and poses the biggest competitive
threat to Apple. In 2017, following its recall of the Galaxy Note 7, Samsung regained its status as the
largest smartphone company with a world-wide market share of 26.1 percent compared to Apple’s 16.9
percent.116 Samsung announces its new smartphones in advance of Apple and this enables it to help
cannibalize iPhone sales. In 2017, Samsung released the Galaxy 8 with a curved screen, and incorporation of Samsung’s digital assistant Bixby.117
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One of the main drivers of Samsung’s rise has been its pricing structure. Its premium products are priced
similarly to Apple’s in the United States, but the company also heavily discounts the prices of some
phones, sometimes to less than a quarter of the suggested retail price. Additionally, Samsung
manufactures all of its own smartphones, including the components, giving it a cost advantage. Even
Apple uses Samsung to manufacture a portion of its iPhone product line. For the low-end and emerg-ing
smartphone markets, Samsung also provides a competitive lower cost. Still, intense competition
between Apple and Samsung has led to many legal battles, mostly over patent infringement.
CHINESE COMPETITORS Apple is facing increased competition in China for smartphones, and in 2016
Apple’s sales in China
fell by one-third.118 Four Chinese firms — Huawei, Oppo, Vivo, and Xiaomi — account for over half the
Chinese smartphone market and have pushed Apple to fifth place.119 The phones are not simple knockoffs, as Huawei offers a phone with a dual lens camera that is slimmer than the iPhone and Oppo offers
the fastest recharging time.120 In recognition of China developing advanced technologies, in 2016,
Apple opened its first research center in a $45 million facility in Beijing.121 Apple’s Chinese competitors
benefit from lower costs, and in response Apple is nearing a deal to manufacture smart-phones in
India.122 This also recognizes that India is a source of growth with Apple sales growing 51 percent there
in 2016.123
Challenges Ahead Despite Apple’s incredible performance over the last few years, Tim Cook knows all
too well that
Apple faces significant challenges. Perhaps Apple’s greatest challenge involves investors and consum-ers
having big expectations. Past growth largely came from China, but increased competition there has led
to a fall in Apple’s sales there. Additionally, Apple has increasingly become dependent on iPhone sales as
product innovation has stalled. Further, new iPhone sales often go to existing customers upgrading
phones and not to new customers. Moreover, Apple’s success has invited competition that is constantly
looking at new ways to take market share away from the company.
Again, where will expected growth come? Will it involve a combination of products or something
entirely new, or new markets? Given the growth in India, how should Apple compete in this or other
emerging markets? Increased competition from Chinese smartphone manufacturers also begs, how
Apple should respond to increased competitive pressure? Fortunately, Apple has plenty of cash on hand,
but investors are becoming impatient.
Tim Cook has some enormous strategic decisions to make in the short term, while also deciding
where and how Apple should compete in the long term. Given the blurring industry boundaries that
allow competitors to pressure Apple, Cook needs to carefully plan the company’s next moves if he
EXHIBIT 1
Apple’s Stock Appreciation compared to NASDAQ-100 (normalized percentage change), 2007–2017
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EXHIBIT 2 Apple’s Stock Market Valuation and Key Events, 1975–2017
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EXHIBIT 3 Apple Key Financial Data, 2012–2016 (in $ millions, except EPS data)
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19
20
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Endnotes
1 B. Lynn, “Apple’s New ‘Spaceship’ Headquarters Almost Complete,” Voice of America News, last
modified February 14, 2017, http://learningenglish.voanews.com/a/new-apple-headquarters-spaceshipbuilding-is-almost-complete/3722949.html.
2 “Apple’s New $5bn Headquarters to Open in April,” Telegraph, last modified February 22, 2017,
http://www. telegraph.co.uk/technology/2017/02/22/apples-new-5bn-headquarters-open-april/.
3 “Video: Steve Jobs’ Last Public Appearance,” Toronto Star, last modified October 6, 2011,
https://www.thestar. com/business/2011/10/06/video_steve_jobs_last_public_appearance.html.
4 T. Mickle, “Apple’s Mountain of Cash is Set to Top $250 billion,” Wall Street Journal, May 1, 2017, A1.
5 J. Love, “Apple CEO Tim Cook Commits to Annual Dividend Raise,” Reuters, last modified February 26,
2016, http://www.reuters.com/article/apple-dividends-idUSL2N1651M1. 6 J. Swartz, “Apple Market Cap
Tops $800 billion. Is $1 Trillion Text?” USA Today, May 10, 2017.
7 A. Balakrishnan, “Amazon, Apple, and Alphabet Are In a Race To Become the First Trillion-Dollar
Company – Munster,” CNBC, last modified April 21, 2017, http://www.cnbc.com/2017/04/21/genemunster-the-1-trillion-market-cap-chances-for-amazon-apple-or-google.html.
8 A. Cunningham, “Apple Sets Revenue and iPhone Sales Records in Q1 of 2017,” last modified January
31, 2017, Technica: https://arstechnica.com/apple/2017/01/apple-sets-revenue-and-iphone-salesrecords-in-q1-of-2017/.
9 S. Tibken, (2015). “iPhone’s Double-Edged Sword: Big Sales, Big Risk for Apple,” Cnet, last modified
January 28, 2015 https://www.cnet.com/news/iphones-double-edged-sword-big-sales-but-also-big-riskfor-apple/.
10 J. Markoff, “New Mobile Phone Signals Apple’s Ambition,” New York Times, January 9, 2007. 11
“Steve Jobs,” Crunchbase, accessed June 14, 2017, http://www.crunchbase.com/person/steve-jobs.
12 D. Wakabayashi, “Apple: $710 Billion and Counting,” Wall Street Journal, last modified February 10,
2015, https://www.wsj.com/articles/apple-the-700-billion-company-1423602877.
13 “DoubleTwist Remakes Apple’s Classic 1984 Ad With a New Dictator: Steve Jobs,” TechCrunch,
September 29, 2009. 14 J. Sculley and J. A. Byrne, Odyssey: Pepsi to Apple (New York: Harper & Row,
1987).
15 “Apple To Trim Jobs and Its Product Line,” New York Times, last modified March 15, 1997,
http://www. nytimes.com/1997/03/15/business/apple-to-trim-jobs-and-its-product-line.html?mcubz=1.
16 “Apple Computer Inc. Agrees to Acquire NeXT Software Inc.,” last modified December 20, 1996,
http://www. nextcomputers.org/NeXTfiles/Docs/Press_releases/apple_agrees_to_acquire_next.pdf. 17
Ibid.
18 R. Farzad, “Microsoft’s Apple investment: The Worst Deal of Them All?” Bloomberg Businessweek,
December 9, 2013.
22
19 R. P. Rumelt, Good Strategy. Bad Strategy. The Difference and Why It Matters (New York, NY: Crown
Business, 2011) 14. 20 “Steve Jobs’ Magic Kingdom,” BusinessWeek, February 2006.
21 “Dell: Apple Should Close Shop,” Cnet, last modified October 6, 1997, https://www.cnet.com/news/
dell-apple-should-close-shop/.
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