Apple Corporate Level and Business Level Strategy, Research Paper Example
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Apple’s Business Level Strategies
Apple is an anomaly in the technology sector because the company has achieved success by literally breaking every success rule in the industry. Not surprisingly, Apple is not afraid to be unconventional, even in formulating its business level strategies. Even though most technology companies focus on one of the business level strategies such as differentiation, cost leadership, or focus (Azriel, 1999), Apple has employed all these three in some capacity.
The company’s most important business level strategy may arguably be differentiation. First of all, the company seeks to differentiate itself on the basis of quality of products. Apple’s commitment to research and design is evident by the fact that the company has introduced several category-defining products including IPod digital music players, iPad tablet devices, and IPhone smart phones. These products have helped Apple gain innovation and technological edge over the competition and have also helped the company gain greater pricing power than the competition. Not surprisingly, the company is now sitting on some $100 billion cash reserve (Koetsier, 2013) that the competition can only dream about. Apple’s focus on differentiation is not only limited to products but also overall user experience. Apple is probably the only company in the technology sector that builds both software and hardware products in-house which is why Apple’s products integrate with each other so well and provide customers with the best overall user experience. One another aspect of business operations in which the company deploys the differentiation strategy is distribution and customer service. Apple’s HR department ensures it only hires people who are passionate about the company and then train them through proprietary training programs (Frankel, 2007). The company has differentiated itself from the competition at so many levels that it is no surprise Apple’s pricing power is unmatched. Needham & Co. estimated that the profit margins achieved by Apple stores are about 26.9 percent while the pre-tax profit margin achieved by Best Buy retail stores is only 1 percent (Kane & Sherr, 2011).
Apple also employs cost leadership as a business level strategy. A great example of Apple’s focus on cost leadership may be its supply chain network which was given the best supply chain network award by the research firm Gartner Inc. for the sixth time in a row this year (DV Velocity, 2013). Even though the company’s supply chain network is both highly efficient and at the leading edge of the technology, Apple also enjoys lower production costs due to high negotiating power against the suppliers as a result of its market leadership status. Similarly, the company continuously strives for cost reduction in its manufacturing and product packaging activities as well. Apple encourages its suppliers to adopt sustainable business practices (Apple Inc.) which not only helps improve Apple’s corporate image but also help reduce costs. Similarly, Apple has continued to reduce product packaging material over the years in order to both reduce waste and lower costs. The packaging for iPhone 4 was 42 percent less than the packaging used for iPhone’s first generation model in 2007 (Apple Inc.).
Similarly, the company also uses focus as one of its business level strategies. Apple’s focused approach may be best defined by the advice Steve Jobs gave to Google’s Larry Page to only focus on products Google is really good at and get rid of others because they will drag down Google in the long term (Giles & Chan, 2011). Apple’s product portfolio shows that the company focuses on products in which it can build market-leading positions even though the company can afford to enter far more product markets it currently operates in, given its tremendous sources. Steve Jobs declared in an interview that Apple doesn’t strive to achieve maximum sales or become the biggest company but to make the best products (Bloomberg Businessweek, 2004). . Even Apple’s current CEO Tim Cook is committed to only focus on products and regions which are a great fit to the company’s core competencies. Cook reiterated his support for Jobs’ vision that Apple’s only wants to produce great products and operate in markets where it can play major roles (Ogg, 2012).
A careful look at Apple’s business strategies over the last decade proves that it places the most emphasis on differentiation on the basis of product quality, design, and overall user experience. Apple could not have chosen a better strategy because not only this strategy is a great fit to the company’s core competencies such as innovation and out-of-the-box thinking but also helps the company achieve pricing power in an industry with intense competition and short product life cycle.
Apple’s Corporate Level Strategies
One of the corporate level strategies used by Apple is diversification and Apple pursues diversification at both product and regional level. We learnt earlier that Apple places a huge emphasis on staying within its core competencies and it is not surprising that the company follows the path of related diversification which means all of the products made by Apple are related to each other in some ways. This strategy has several benefits for Apple. First of all, it allows Apple to take advantage of sustainable core competencies since Apple only pursues products that it believes it is really good at and Steve Jobs gave the same advice to Google’s Larry Page. Another benefit of this strategy is that new products introduced by Apple already have an established market and are readily embraced by the consumers. Not only new products help Apple do more business with existing consumers but it also increases the probability that Apple’s new consumers will purchase other products to enhance their user experience. This is why Apple has achieved phenomenal success with its music and video as well as apps library.
Another corporate level strategy followed by Apple is growth. Apple operates in highly competitive markets with short product life cycles which is why Apple and its competitors introduce upgraded versions if not entirely new models of their products almost every year. This leaves Apple with very short window to not only recover the original investment in the products but also earn profit, thus, growth doesn’t only determine Apple’s short term performance but also long term competitive position. The evidence of growth as one of the corporate level strategies is also evident upon an analysis of the company’s financial statements. Apple’s net income grew by an astonishing 84.99 percent between 2010 and 2011 and 60.99 percent between 2011 and 2012. The growth in annual sales over the same period was 65.96 percent (2010-2011) and 44.58 percent (2011-2012), respectively (Apple, Inc., 2012). Limited growth potential may be the reason why CEO Tim Cook is hesitant to make huge commitments to India. Indian consumers are quite price-sensitive on the average (Anwer, 2012) even though the country is one of the largest and fastest growing economies like China.
Apple’s most important corporate level strategy may be diversification, especially related diversification because it helps the company to focus on what it is best at and do significant business with an average consumer who often buys multiple products from Apple. Related diversification helps Apple protect its client base and make it difficult for them to flock to the competition. By focusing on what it is best at, Apple maintains edge over the competition who may be focusing on too many products and services due to unrelated diversification strategy. Thus, Apple is in a position to protect both its market share and profit margins in product markets with highly competitive environment as well as increasingly shorter product life cycles. Even though Apple produces many products that enjoy multi-billion dollar sales, the diversification strategy hedges the company against material decline in the sales and/or profitability of any single product line/category.
Samsung’s Corporate and Business Level Strategies
Apple competes with different companies in different markets such as Nokia, Samsung, and Motorola in smart phone market, Samsung, HP, Dell, Sony, Toshiba and Lenovo in personal computing and tablet devices market, and Google and Microsoft in software apps market. But overall Apple’s closest competitor may arguably be Samsung whose products compete with some of Apple’s most lucrative products such as smart phones and tablet devices. Apple seems to have lost some of its midas touch after the untimely death of its charismatic co-founder and former CEO Steve Jobs and Samsung has been able to make significant progress over the last two years. For example, Samsung’s Samsung Galaxy S III was the biggest selling phone during the third quarter of 2012 (Evatt, 2012). Similarly, Samsung’s Galaxy line of tablet devices has been priced competitively and has emerged as a serious competitor to Apple’s iPad product lines (Consumer Reports, 2011).
Samsung’s business level strategies are differentiation and cost leadership. While Apple’s focus is on product quality, Samsung attempts to differentiate itself on the basis of product value which means it focuses on achieving a balance between quality and price to expand its market share and the strategy seems to have been working due to declining technological gap between Apple ‘s and Samsung’s products. Samsung also competes on the basis of cost leadership and primarily achieves lower costs through economies of scale. Unlike Apple which strives to achieve high profitability levels through high profit margins, Samsung strives for high profitability through economies of scale. This is why the company has even targeted markets with vast sales potential like India which do not appeal to Apple due to lower profit margins. Canalys, an independent analyst firm recently reported that India enjoyed the fastest smart phone shipment growth rate of all countries during the second quarter of 2013 and the only company that seems to be succeeding in India is Samsung (Protalinski, 2013).
Samsung’s corporate level strategy is diversification but unlike Apple’s related diversification, Samsung follows unrelated diversification. Samsung makes a wide range of products from cell phones and computing products to still and video cameras and home appliances (Samsung). The benefit of this strategy to Samsung is that it is able to target greater number of customer segments than Apple and spreads its risk more widely. Another benefit is that the company is better prepared to take advantage of growth in emerging economies where average income levels may not be as high as developed countries and customers may be more price sensitive but the product markets are still in infancy and mostly untapped. In my opinion, Apple is more likely to succeed in the long term even if Samsung may show better results over the short to medium runs. This is because Apple is developing sustainable core competencies while Samsung is trying to compete on the basis of scale which may help it capture market share at Apple’s expense but sooner or later, new competitors may emerge and copy Samsung’s strategy relatively easily to compete with it. We have already seen several examples of certain product market leaders being dethroned in the technological sector such as Yahoo!, Microsoft, and MySpace because they competed on the basis of scale rather than difficult-to-imitate core competencies. Microsoft did create barriers for the competition due to huge market shares but legislation as well as the customers’ ability to change in the long term has weakened company’s competitive position in the long run.
Slow-Cycle and Fast-Cycle Markets
Apple’s strategy is more suited to fast-cycle markets which is also the nature of the technology industry because companies have only short window the exploit the commercial potential of their products, thus, differentiation on the basis of high quality helps achieve high profit margins. In slow-cycle markets, Samsung’s strategy may be more suitable because companies can expand scale of operations in the medium to long term to significantly bring down costs and earn higher profits through economies of scale. Slow-cycle markets mean companies have long window to recover costs and earn profits, thus, they can afford to price their products more competitively. We are already seeing the evidence that Apple’s strategy is more suitable to fast-cycle technology markets like U.S. and other developed countries while Samsung is achieving greater success in slow-cycle markets like India and other emerging economies.
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