Apple SWOT and Competitor Strategy, Research Paper Example

Apple’s success has been due to the fact that the company has done a great job of being aware of its strengths and weaknesses and effectively identifying the opportunities and threats in the external environment. The company has also created core competencies that have been difficult to imitate by the competitors, providing Apple with considerable pricing power and high degree of consumer loyalty. Apple’s management takes a systematic approach to designing competitive strategy but there have been few failures along the way including Apple TV. This paper doesn’t only focus on Apple but also offers suggestions as to how a competitor could successful position itself in the intensely competitive computing industry through careful analysis of both internal and external factors.

Last month, Apple’s stock price reached a price of $660 per share, giving Apple a market cap of $619 billion which is the largest market value of any company in history (Russolillo, 2012). It is not a surprise that Apple is the envy of every company, even those operating outside the technological sector. The company doesn’t only lead the highly intensive technology sector but also manages to earn record profit margins in the process. Apple’s success is not the outcome of luck but carefully strategy development and intense focus on core competencies. SWOT analysis enables us to better understand our competitors and utilize the lessons to develop an effective competitive strategy.

Strengths

Apple’s greatest strength is probably its brand name. According to WPP Plc report last year, Apple overtook Google to become the world’s most valuable brand with a net value of $153.3 billion (Culpan & Cho, 2011). A brand name is important because it communicates the brand personality to the consumers and increase customer loyalty. A strong brand name also serves as a differentiation point from the competition and gives some pricing power to the brand owner. Apple’s second strength is its company culture which emphasizes innovation and doesn’t compromise on product quality. This may be why Apple continues to stay ahead of the competition in terms of innovative products and has a reputation of products that are vastly superior to competitors’ offerings in terms of quality. A company culture is important because it establishes the norm and expected behaviors in the company. It also provides guidance to new recruits and ensure that all the employees work together efficiently to achieve organizational objectives. Apple’s strength also includes visionary leadership. Apple’s Steve Jobs had an unmatched ability to see emerging trends before the competition as well as understanding what consumers really wanted. Now Tim Cook has effectively established himself as rightful heir of Steve Jobs and under his watch, the company has become the most valuable ever company in history. Leadership is important because it sets the strategic direction of the company and makes decisions regarding capital allocation.

The company has huge financial resources including about $100 billion cash (Wingfield, 2012). Huge financial resources mean Apple can undertake profitable projects as soon as it identifies them and doesn’t have to delay investments during tough economic conditions. Apple’s fifth strength is its business model which emphasizes smooth integration between hardware and software. This is why Apple is able to provide better user experiences to its consumers. Business model can be a source of strength when it is built on core competencies and is difficult to replicate by competitors.

Weaknesses

Apple’s business model is also its weakness. One of the reasons why Google Android has emerged as a serious competitor is because Google has been generously licensing it to the cell phone manufacturers while Apple refuses to license its operating systems to third parties. This is a weakness because it limits the growth potential of Apple’s share of smart phone sector. Apple’s weakness also includes its pricing system which puts its products out of reach of a significant proportion of consumers. While Apple enjoys record sales, its pricing structure means it may not realizing the full potential of its brand power. This is a weakness because premium prices limit the growth potential of a company. Apple’s third weakness is its distribution network. While Apple’s retail stores are rumored to be highly profitable, company-owned retail stores require considerable capital investment. This is a weakness because Apple cannot grow its distribution network as fast as it could if it had extensive distribution agreements with third parties. Another Apple’s weakness is its weak position in the business market (Knowledge@Wharton, 2012). This is a weakness because businesses usually replace products more often and tend to be less sensitive to prices than individual consumers. Apple’s weakness is also its dividend policy despite having the largest cash reserve in the industry. Huge cash reserve is a weakness because it may indicate lack of investment opportunities and thus, results in high opportunity costs because Apple stockholders’ could invest it more profitably if given dividends.

Opportunities

Apple has a huge opportunity to make gains in the business market through its products such as iPad and iPhone. This is an opportunity because businesses tend to be less sensitive and replace products more often. Apple also has an opportunity to introduce lower versions of its popular products in emerging economies like China and India. This is an opportunity because emerging economies such as China and India have huge populations and Apple could benefit from scale. Third opportunity for Apple is to license its mobile operating system and earn revenues through licensing fees just as Microsoft does with Windows operating system. This is an opportunity because manufacturing costs of another copy of operating system are almost negligible, thus, it will be an inexpensive source of additional revenues. Fourth opportunity may be to strike exclusive partnerships with academic institutions to eventually replace textbooks with iPads. Ebooks have demonstrated a real potential to be an effective substitute and they are cheaper as well as more environmentally-friendly, too. This is an opportunity because this will help Apple conquer education industry as well and help build another lucrative source of revenues. Apple’s fifth opportunity is to build research facilities in India and China. This is an opportunity because it will give Apple access to high-quality talent pool at low costs and local researchers may also have a better understanding of local markets.

Threats

Apple’s first threat is Android operating system. This is because Android helps Google grow rapidly since it is open-source while Apple doesn’t license its operating system to any third party. This is a threat because Android has been eating into Apple’s market share at both local and global level and could significantly reduce iPhone’s future sales if Android smart phones become even more affordable. Second threat is legal environment, especially in international markets that may make it difficult for Apple to compete and/or protect its intellectual assets. This is a threat because legal requirements can limit growth potential or increase production costs. Third threat is rising production costs because a significant proportion of Apple’s products are manufactured in emerging economies in Asia where labor costs have been rising. Average minimum wages grew by 22 percent in China last year (Rabinovitch, 2011). This is a threat because rising labor costs reduce profit margins.

Fourth threat facing Apple is potential loss of focus. This is because Apple is facing intense competition in many product categories including Amazon and Barnes and Noble in tablet devices market, Samsung and Nokia in smart phones market, and HP and Dell in personal computing market. Even though Apple has been managing well so far, the competition will only get more intense over time and it may become difficult for Apple’s management to focus on so many product categories. This is threat because as companies grow in size, monitoring and control become more complex processes. The fifth threat is economic conditions because U.S. continues to experience high unemployment rates and the situation is even worse in many European economies like Spain, Italy, and Portugal etc. When consumers are struggling, they are less likely to spend on technology products such as computing devices. This is a threat because it results in lower sales and profits.

Good and Bad Business Practices in Strategy Design

One of the most important things in effective strategy development is to research the external environment including political, economic, social, and technological forces that may affect the company’s competitive environment. Closely monitoring the external environment often reveals opportunities and threats that could have significant impact on the company’s future whether negative or positive. The organizations do not exist in a vacuum, thus, cannot afford to ignore external factors. Another important thing is to choose what opportunities to follow because a narrow focus allows the organization to utilize its limited resources more efficiently. Most organizations have limited core competencies and they cannot be good at everything. Thus, the management should identify opportunity that match the organization’s strengths and core competences and target them (Ihnatowycz). Limited focus also prevents unnecessary distraction. The companies should also closely monitor their competitors’ actions as well as anticipate their reactions to own strategic moves. The success of a competitive strategy is not only determined by the design of the strategy but also the ability of the competitors to respond to it. When a company takes into account the competitors’ behavior, it can prepare better plans to counteract competitors’ moves.

An effective strategy is only as good as the actual implementation. The management should ensure it has the resources to implement its competitive strategies. If the strategy is implemented without adequate resources, the failure may worse the company’s competitive position in the market and may also demoralize its workforce. The organization should also communicate its strategy to all the stakeholders within the company so that they understand their roles and are on the same page (Brigham Young University). If people who are supposed to implement the strategy have different understanding of the strategic objectives, their efforts may be in conflict with each other and will only lead to confusion.

The strategic plans should include both short-term and long-term goals. The short-term goals are often designed to strengthen the organization’s long-term competitive position. The organizations should also ensure their strategic plan is flexible and can be adapted to changing circumstances. No organization can completely understand its external environment or potential future trends and surprises may occur along the way, thus, the organizations should be willing to modify their strategy according to the changing circumstances.

Another important factor behind successful strategic implementations is commitment to strategic initiatives at the highest levels of the organizational hierarchy. The management should lead by example because it will communicate the importance of strategic plan to the subordinates. The management should also listen to those who will be implementing the strategy to ensure they have all the tools and use feedback from them to modify strategies where necessary. Last but not least, the management should continue to monitor the progress of strategic implementation so that mistakes could be dealt with in time and more resources could be allocated if the strategic implementation may be falling behind.

Apple’s introduction of iPod was a great example of an effective strategy design. The company scanned the external environment and noticed that music piracy was a major issue faced by the music industry. In addition, the company also believed it had the technology to produce a better product than the ones being offered by the competitors. It also went to great length to design a quality product and created difficult-to-imitate core competencies through seamless integration between the software and the hardware in the iPod digital music devices. The company knew its strengths and took advantage of them to take advantage of the opportunity it identified by carefully scanning the external environment.

A bad example of strategy design by Apple was the introduction of Apple TV. Apple seemingly released the product in hurry and assumed that the success of other products such as iPod and iPhone will make consumer enthusiastic about Apple TV who will embrace it in numbers. The consumers had difficulty in understanding what unmet needs were meant to be solved by Apple TV. The company also did a poor job of communicating Apple TV’s benefits which demonstrated lack of marketing plan by the company. The company didn’t realize that even the best of the brands cannot support a product which offers little value to consumers.

Competitive Strategy to Compete with Apple

Our company’s competitive strategy will be lower prices accompanied by exemplary customer service and we will focus on both the consumers and the business market. We will take several steps to ensure we can offer lower priced computing products to our consumers. First of all, we will outsource manufacturing to economies in Asia with low labor costs such as China and Indonesia. In addition, we will not invest in any company-owned retail establishments. We will set up an online retail store and will form distribution partnerships with independent retail networks such as Best Buy. In order to benefit from economies of scale, we will only produce limited consumer models who specifications meet the computing needs of most of our targeted market segments. We will offer customization option to business consumers only because they tend to bring higher average revenues.

We will differentiate ourselves through an exemplary customer service so that our consumers, especially business clients are comfortable relying on our products. We will regularly conduct market research on our consumers to better understand their changing preferences in order to change product specifications as well. We believe that economic conditions will remain difficult in developed economies including the U.S. in the foreseeable future and moreover, our pricing structure will provide us with tremendous growth opportunities in emerging economies.

The benefits of our strategy will be that we will not competing directly with Apple which is a positive thing given our limited resources and Apple’s brand power. In addition, our pricing structure will have universal appeal since economic conditions are expected to remain difficult even in developed countries. The potential shortcomings of our strategy are that we will be exposed to supply chain disruptions due to global events such as natural disasters and terrorist activities that could result in significant loss of sales. But we also know that this is a threat faced by almost every computer manufacturer, thus, we are not alone in facing this threat. Another shortcoming of our strategy is that we will face competition from other established brands such as HP and Dell that also pursue low-price strategy. Thus, the success of our strategy depends a great deal upon our ability to achieve lower production costs than the competition and offer better values to the consumers. We will regularly survey our business and individual consumers through independent research organizations and hope to achieve a minimum of 90 % satisfaction rate in early years. We will also closely monitor our sales trend to evaluate the effectiveness of our marketing strategy.

References

Brigham Young University. (n.d.). Formulating Strategy. Retrieved September 13, 2012, from http://training.byu.edu/documents/t-strategy.pdf

Culpan, T., & Cho, Y.-S. (2011, May 8). Apple Brand Value at $153 Billion Overtakes Google for Top Spot. Retrieved September 8, 2012, from http://www.bloomberg.com/news/2011-05-09/apple-brand-value-at-153-billion-overtakes-google-for-top-spot.html

Ihnatowycz, R. (n.d.). Formulating Effective Strategies. Retrieved September 13, 2012, from http://www.csae.com/Resources/ArticlesTools/View/tabid/110/ArticleId/131/Formulating-Effective-Strategies.aspx

Knowledge@Wharton. (2012, March 20). Strengths, Weaknesses, Opportunities, Threats: The SWOT Analysis. Retrieved September 8, 2012, from http://kwhs.wharton.upenn.edu/2012/03/strengths-weaknesses-opportunities-threats-the-swot-analysis/

Rabinovitch, S. (2011, October 25). China labour costs soar as wages rise 22%. Retrieved September 8, 2012, from http://www.ft.com/intl/cms/s/0/25f1c500-ff14-11e0-9b2f-00144feabdc0.html#axzz25zBVthGd

Russolillo, S. (2012, August 20). Apple’s Market Value: To Infinity and Beyond! Retrieved September 8, 2012, from http://blogs.wsj.com/marketbeat/2012/08/20/apples-market-value-to-infinity-and-beyond/

Wingfield, N. (2012, March 19). Flush With Cash, Apple Plans Buyback and Dividend. Retrieved September 8, 2012, from http://www.nytimes.com/2012/03/20/technology/apple-to-use-cash-for-stock-dividend-and-buyback.html?pagewanted=all