Apple Inc. was founded in 1976 and for many years its development depended on the business strategy that effectively addressed the so-called Porter’s Five Forces. However not always the company was able to take the correct steps in order to stay at the top of the competition. There were several troublesome periods and changes of the CEOs and other top managers in order to respond to the crisis or bad financial performance. Nevertheless, Apple was able to create several competitive advantages that later helped the company to become one of the most respected companies in the computer industry. In this paper two competitive advantages will be discussed in detail. They are optimization with the focus on several standardized core products and selling computer devices at high prices which allows investing more resources in branding, R&D, and product update. These competitive advantages correspond to the theoretical notions that were described in the book Essentials of Strategic Management by Hill & Jones. According to Hill & Jones, a company has a competitive advantage when it performs better than the industry in terms of profitability that may be defined by two basic conditions – production costs and the value that the customers place on the company’s goods (Hill & Jones, 2012, p.84).
Advantage 1 - Optimization of the product portfolio
Apple offers only several categories of computer devices – desktop and portable devices, devices for consumers and professionals (Yoffie & Kim, 2010, p.3). Such a limited product range helps the company to focus on the production of the computers of the highest quality, reduce the production costs, increase the speed of assembly, have better advertising strategies, etc. At the same time, it is hard to judge whether Apple has a sustained competitive advantage that will persist for a long period of time.
The company decided to optimize the product portfolio because of the very high production costs that were necessary for producing the products within 15 product lines. In order to reduce the costs even more, Apple outsourced production to the Taiwanese company Foxconn that has large production facilities in China. This step was very typical for the computer manufacturers in the 1990s, because the American based enterprises could no longer satisfy the demand for the computers and keep the production costs low. In addition, outsourcing of production helped Apple not only to gain the competitive advantage in terms of the production costs, but it let the headquarters focus on the better use of the intangible resources that create the highest economic value, in particular R&D and further launch of the new products. Since the production was subcontracted to the overseas companies, the company received a distinctive competency thanks to the resources that are very difficult to imitate. The company’s capabilities that are needed for coordinating the resources and “putting them to productive use” are also of great importance (Hill & Jones, 2012, p.108). When focusing only on four categories of products Apple was able to improve the organizational structure and processes that are vital for operating in the highly competitive and quickly changing business environment. Now Apple is a distinguished company from the managerial perspective.
The competitive advantage of the optimized portfolio addresses two of the Porter’s Five Forces. First of all, it is the supplier power that has a direct impact on the Apple’s pricing strategies. Four categories of computer products help Apple to keep supplier power at the very low level. In addition, outsourcing partners do not have too much control over Apple because of the increased competition among the microprocessor and complementary manufacturers (Yoffie & Kim, 2010, p.4-5). Secondly, Apple’s optimized portfolio makes the company more distinctive in comparison with the competitors. The company had to cut the number of the offered products from 15 to just 4 in order to look differently in the industry with many strong rivals such as Dell, Acer, Lenovo, and Hewlett-Packard. As the result the competitive rivalry as one of the Porter’s Five Forces has had a very moderate impact on Apple in recent years. In general, computer industry can be characterized by the very large number of innovativeness that computer manufacturers, suppliers and outsourcing companies bring. Apple was able to cope with the pressure of suppliers and competitors by taking the strategically correct decisions. Limiting the product range, partnering with the other strong companies and outsourcing production capacities to the Asian countries had a very positive influence on Apple’s financial performance.
Nevertheless, one cannot judge whether Apple’s competitive advantage is sustainable. According to the case study, Apple started to apply the “digital hub” strategy by offering some other products including smart phones and tablets. It means that the company has been trying to differentiate the products in order to reduce dependence on the sales of the computers and maximize the profits. Apple’s market share did not grow quickly in 2000-2009. In fact it started to grow only in 2007 and in 2009 equaled to 4.2% (Yoffie & Kim, 2009, p. 18). Unless the company is satisfied with such a low market share achieved thanks to the sales of the innovative niche products, the limited product portfolio that does not require high production costs may be regarded as a sustainable competitive advantage.
If Apple expects to grow further, it means that the business strategy related to the computer industry should be adjusted to the current market trends. The computer industry became much more mature and it seems that now Apple’s key strategic objective is to achieve further business growth by focusing more on the other hi-tech products. Several products including iPod, iPad and iPhone made the company popular around the world and much more mass-market oriented. In the meantime, it is hard to judge whether Apple has a dominant position in the computer segment, because it uses the focused differentiation strategy that initially does not allow to have a very large customer base (Hill & Jones, 2012, p.126). Therefore, Apple’s key strategic objective should be the application of the wider differentiation strategy that would let the company offer many unique computer products to many kinds of customers.
Advantage 2 - Value that the customers place on Apple’s goods
Apple has one of the most expensive brands in the world. In 1976 several college dropouts including Steve Jobs and Steve Wozniak decided to establish a company and produce the computer circuit boards, but in just two years they launched the Apple II computer that became the first easy-to-use computer (Yoffie & Kim, 2010, p.2). Since then ease of use, excellent design and technical elegance have always been important for the company and the customers. There were several attempts to offer more models, but the premium-price differentiation strategy seems to be the most effective strategy for Apple. In order to offer the unique products, Apple had to invest a lot of resources in R&D. In comparison with Dell and Hewlett-Packard the ratio R&D/Sales is twice as high and equals to 3%. In 1997-2003 it equaled to 8-12% (Yoffie & Kim, 2010, p.18). In addition, all-embracing marketing and advertising helped to increase the value that the customers place on Apple’s products. When Steve Jobs became the CEO of the company, there were many marketing campaigns that promoted Apple as the alternative to the other computer brands (Yoffie & Kim, 2010, p.4). As the result, having an Apple computer means much more than just having a highly effective device. Because all four blocks of the competitive advantage – efficiency, quality, innovation and customer responsiveness – were improved, the value of the computers significantly increased and attracted the customers despite the premium prices.
The competitive advantage of the high value addresses the buyer power that has some moderate influence on the computer industry. Due to the high competition and low switching costs Apple must always offer the unique products. Therefore it is important to invest sufficient resources into R&D and charge the high prices in order to be able to finance the production of the innovative devices with improved characteristics. Luckily for Apple there are not many other companies that apply a similar business strategy. Moreover, the company has some dominance over the buyers and especially loyal customers, because there are not many substitutes. As the result, Apple can charge very high prices that bring sufficient profits.
The competitive advantage of the high value is relatively sustainable, because the company has paid much attention to building up this competitive advantage for many years. Now Apple offers an ecosystem that consists of the products, software and apps that help to integrate the use of computers and other electronic devices produced by Apple. As the result, the value for the customers has significantly increased and the high switching costs will prevent the existing customers from buying the devices offered by the rival companies. Moreover, it is not only the functionality, but also the image that make the competitive advantage sustainable. Apple’s brand is very powerful and there are no reasons to think that in the short term future there will be the companies that will start producing the products with a similar emotional appeal. Nevertheless, a lot of new innovative companies emerge in IT and computer industry every year. The company should monitor the market so that the threat of the new entrants could be controlled and there was a possibility for the open innovation.
Finally, Apple’s key strategic objective is to stay innovation-driven in the mature computer industry in order to maintain its dominant position. The company has been known for its breakthrough ideas and all Apple’s CEOs, including Cook, Jobs, Spindler, and Sculley strived for differentiation by launching innovative and premium products in terms of technology and design. The aesthetic perspective should remain a vital part of Apple’s corporate culture and business strategy, because it helps to compare favorably with the other competitors and increase the value of the products. By pursuing dominance in the high tech industry the company set up the high standards that will be difficult to reach for the competitors.
References
Hill, C., Jones, G. (2012). Essentials of Strategic Management, Third Edition. South-
Western, Cengage Learning.
Yoffie, D., Kim, R. (1 September 2010). Apple Inc. in 2010. Harvard Business School.
