Strategic Opportunities and Decision Making – A Case Study of Apple Computers

By: David Rogers and Roger Lee

David Rogers is a director of Insync Supply  Chain Management and chairman of Asia Pacific Logistics Federation (APLF), and Roger Lee is the director of the Singapore Institute of Materials Mgt (SIMM) and the vice chairman of the Asia Pacific Logistics Federation ( APLF).

Strategic Opportunities and Decision Making

A Case Study of Apple Computers

Founded on 1 April 1976, Apple Inc. is an American multinational technology company headquartered in Cupertino, California that is concerned with the design, development and sales of consumer electronic products, computer software and online services.

Its best-known hardware/software and services products are:

• Mac PC.
• iPod portable media player.
• iPhone smartphone.
• iPad tablet PC.
• Apple Watch (the SmartWatch).
• Apple’s consumer software, including OS-X and iOS operating system.
• iTunes media player.
• Safari web browser.
• iLife and iWork creativity.
• Productivity suite.
• Its online services, including iTunes Store, iOS App Store and the Mac App Store.

On 25 November 2014, Apple was the largest publicly traded company, exceeding US$700bn. It employs 115,000 employees, its annual revenue in 2014 exceeded US$182bn, and has been voted the most valuable brand in the Best Global Brands report.

Steve Jobs’ strategy in transforming Apple

Steve Jobs was ousted from Apple Computer and he set up NeXT computer. In 1997, Gil Amelio, the head of Apple at that time, decided to buy NeXT and, consequently, bring Jobs back to his company.

Steve Jobs appointed Tim Cook to improve

the company’s distribution and supply system and launched an online store. Steve Jobs reorganised the product mix of the company and restored the system.

Previously it had 15 products, but Mr Jobs subsequently developed only three product lines. These included:

a. A new line of iMacs.
b. A new product, the iPod.
c. A new iTunes platform.

Steve Jobs’ innovation strategy

Strategic alliance with Microsoft

Steve Jobs and Bill Gates agreed to have powerful strategic alliances, whereby the iMacs can also use Microsoft Windows software, and that Mircrosoft would invest $150 million in the ‘new’ Apple Computer company. This is an important and potent alliance.

Innovation

Steve Jobs needed to build an ‘economy’ around the Apple products, and he realised the power of ‘cloud computing’ – using the ‘cloud’ to create an economy for all Apple products.The cloud platforms would provide the vehicle for success in innovation.

Supply chain effectiveness

The key advantage of Apple is its supply chain effectiveness, and it is clear that this strategy brings about:

• Savings in time and resources through synchronisation of its design and manufacturing processes.

• Savings in cost structure over the product lifecycle of its products.

• Ability to execute speed to market in a fast-moving consumer product company.

• The ease of implementation of strategies through the alignment of business strategy that can ensure high business performance.

Apple is able to utilise an efficient supply chain, whereby the market that has intense competition is unable to compete with Apple. Hence, the other competitors will need to compete with Apple on price; however, Apple will be able to charge a premium over its price, because of the efficiency of its supply chain. It is well known that businesses that compete solely on price will not be able to survive in the longer term.

Jim Cook’s strategy in transforming Apple

What follows is an analysis of Tim Cook’s strategy in the transformation of Apple Computers.

Disruptive acquisition technology strategy by Tim Cook

Jim Cook is constantly reminded of Steve Jobs as an innovator. However, Jim Cook realised that the mobile phone is mature and he will need a new paradigm shift to keep the company’s innovation spirit.

The financial results have proven that Jim Cook is able to set record revenues after Steve Jobs had passed away, and Jim is constantly looking into the aura of innovation, as Jim will need to establish whether the company will still be the best designer globally.

Jim Cook’s relentless strategy to ensure innovation through acquisitions is reflected in the following after Jim Cook’s taking over from Steve Jobs: as of 3 May 2014, Apple had completed 24 acquisitions in various technologies.

Acquisitions focused on big data, mapping technology, display production, digital publishing, and voice technology. Examples: PA Semi, a semiconductor-technology company, whose team went on to develop the proprietary chips used in iPhones and iPads; Siri, a voice-recognition start-up; and a series of mapping start-ups that formed the basis of Apple iMaps. Beat Electronics, “so we can continue to create the most innovative music products and services in the world.”

Tim Cook’s acquisition strategy brings to Apple:

• Forward innovation: consistent innovation across all the products.
• Potential customers: bringing in customers using the Apple ecosystems.
• Ability to compete with competitors in technology: putting apps in Android Systems.

Competing on capabilities

Apple’s move to Apple2, to iPhone, to iTunes and the App Store gave it the ability to overtake Blackberry with the innovative features of the iPhone and the best of supply strategies.

Apple’s strength is the ability to sell its mobile phone at a profit and succeed in all its capabilities. Apple’s capabilities ensure that:

1. The capability-led transformation will succeed with a clear business outcome.
2. The value chain will be endowed with the ability to gain market share and increase quick product innovation and introduction.
3. The reduction in time-to-market is ensured by the capability-led transformation.

Apple’s value chain under Tim Cook

The keys to Apple’s value chain is based on important stages.

The design stage encompasses product design and includes research in raw materials, the way the design is manufactured, and how the distribution network would impact upon the ‘cost model’.

The integration of the processes at Apple ensure that Design – Procurement – Production – Global Distribution – End User are integrated.

In the ‘target segment’ analysis, Apple’s unique selling point is to market to those customers who look for customer value proposition, resulting in great customer experience.

Apple’s recurring revenue model is highly successful: the company generated $70bn (2014) through replacing devices and upgrading subscriptions. More than 40% of Apple profits were generated returning loyal customers.

The differing strategies of Steve Jobs and Tim Cook

The table below illustrates the difference in the leadership and strategic direction between the two CEO:

These strategies augur well for a company like Apple in the different stages of its lifecycle. We believe that Tim Cook’s strategy will bring Apple forward in the midst of intense competition, and the main direction of Tim Cook is intensive technology acquisition.

Up to May 2014, Apple had successfully acquired 24 companies. The companies included big data, mapping technology, display production, and digital publishing. The strategy will add value to the company and also fend off strong technology competitors, as the landscape is very fierce in the technology war. This will further result in Apple being able to expand and improve the features of existing products, and, at the same time, develop new products.

The consolidation of the Apple model

Based on the earlier discussion of Steve Job’s and Tim Cook’s strategic directions, this is the model that Roger Lee has developed following the analysis of the future strategic opportunities for Apple Computer.

As Figure 1. illustrates, the integrated supply chain strategy is an important part of the model, bearing in mind that Tim Cook was the senior vice president of logistics and supply chain before he became the CEO of Apple Computer.

Integrated supply chain strategy

For Apple to be successful, it must consider the integrated supply chain model. Owing to high levels of seasonal demand during the December shopping season, Apple has focused on outsourcing its products so that there is a ready pool of suppliers.

The suppliers are of top-notch quality, and replenish Apple’s stocks under a continuous flow supply chain model. This fast supply chain model can help Apple to anticipate demand and also help in the synchronised sales and operations planning (S&OP) process.

Apple develops only a few strategic products, hence it can use ‘standardisation’ of raw materials and achieve economies of scale for cost reduction. Apple can thus sustain a quick turnaround owing to a fast product life cycle. Batch sizes are large and Apple can manufacture several batches using the same SKU during the production process.

The ‘continuous supply chain’ model adopted by Apple can help ‘make to stock’ and accordingly, competitive positioning is based on offering a continuous replenishment system resulting in competitive positioning, owing to 1. high customer service levels; 2. low inventory levels at warehouse facilities, and 3. it will result in the achievement of optimisation of costs relevant to optimised inventory.

Apple utilises the ‘agile supply chain’ model, in which it is useful for companies that manufacture products using the ‘make to order’ system for each customer. This will avoid manufacturing products that will become obsolete inventory in the future.

Business model innovation (BMI)

Apple Computer is very systematic in terms of business model innovation, especially in the areas of digital music through the iTunes development. Its success in iTunes has disrupted many brick-and-mortar businesses that have gone out of business, such as Virgin Records and HVM labels.

The ability of Apple to design products that are ‘simple’, known for their ‘simplicity’ in the ability for users to be able to use the products without the need for any training or ‘how-to’ manuals. The product is so simple that whoever gets hold of Apple’s product, they can use it instantaneously.

Vertical integration for competitive advantage

The power of Apple Computer is that it has all five companies wrapped into one single, powerful thrust company.

Apple’s vertical integration of five industries with multi-segmentation consists of:

1. The hardware company with iPhone, iPod, iMac and iWatch.
2. A software company.
3. A services company.

4. A retail company.
5. A finance company, with Apple Pay.

Most technological companies have only one or two businesses that are vertically integrated; however, Apple Computer has five different verticals in the industries. The power of Apple being vertically integrated is in that it does control the value chain that makes and sells the products.

Apple builds hardware to power up its own hardware system, and it owns the core software that can be developed into its own economy. Apple is able to optimise its hardware and software, with which it can create millions of subscribers to be linked to iTunes and iCloud. The final Apple control system is selling through its retail stores.

Apple competitors that are vertically integrated include Dell, Motorola and Samsung, and they are using Microsoft or Google software such as Windows or Android, and other added carrier services. Apple competitors then market their products through other distributors or retail stores, such as Amazon or Walmart. In this regard, Apple has no competitors in having such a vertically integrated system.

Figure 2. reflects on Apple’s vertical integration and those aspects of its strategy that enable the implementation of outsourcing. The success of Apple’s processes depends largely on how they manage integrated supplier relationships.

Apple’s integrated supplier relationship involves the following sequence:

1. Apple’s early supplier involvement (ESI).
2. Close relationship in the whole value chain, especially suppliers from around the world.
3. The reverse logistics program, which ensures customer satisfaction.
4. The warehousing system, with 3PL and 4PL.

5. Outstanding results, causing Apple Inc. to be dubbed the “King of Outsourcing”.

The future of Apple Computer

For Apple, the future of the personal computer and all the Apple products is creating a big economy within its ecosystems. This is reflected in the Apple Watch and also the Apple TV, and the newly developed Apple Car (yet to be released).

The premise is that the bond between the smart device and its user will disrupt all existing technologies available, and therefore car manufacturers, watch manufactures and TV manufacturers are now very nervous.

Every product Apple sells is now linked to all of its other products, e.g. the Apple Watch to the iPhone, and in future the Apple iTV will be linked to the iPhone and Apple Watch, and the payment gateways are all linked to the iPads, iPhones and iPods. All the accessories of Apple will now work together seamlessly, offering a value chain with which no other company can compete.

The high reliance of integration and sourcing partners would provide high risks for Apple. The risks include:

Integrating suppliers risks

Global economy: The global trade and currency fluctuations could affect the company.

Distribution: re-sellers may also distribute products from competing manufacturers.

Inventories: the danger of obsolesce, and inventory exceeding the anticipated demand.

Customised components: danger of single sourcing.

Disaster: supply chain disruption by disasters that can affect production.

Logistics issues: the company depends on logistical services provided by outsourced partners.

Apple has the iCloud platform set up in the cloud, and its machines are always faster, better, lighter, sharper and mostly sexy in their designs, and hence it is indeed so very difficult for others to compete with Apple Computer.