mid term (apple inc keeping the ‘i’ in innovation)

BUSINESS STRATEGY AND ENTERPRISE

MID TERM

CASE : APPLE INC KEEPING THE ‘I’ IN

INNOVATION

CHRISTIAN HAMONANGAN

NIM: 29113025

Program Magister Administration Business

School of Business and Management

INSTITUT TEKNOLOGI BANDUNG

2014

BUSINESS STRATEGY CHRISTIAN HAMONANGAN -2931025 YOUNG PROFESIONAL B

CHAPTER 1

STRATEGIC MANAGEMENT AND STRATEGIC COMPETITIVENESS

Strategic competitiveness is achieved when a firm successfully formulates and implements a

value-creating strategy. A strategy is an integrated and coordinated set of commitments and

actions designed to exploit core competencies and gain a competitive advantage. When

choosing a strategy, firms make choices among competing alternatives asthe pathway for

deciding how they will pursue strategic competitiveness.1 In this sense, the chosen strategy

indicates what the firm will do as well as what the firm will not do. A firm has a competitive

advantage when it implements a strategy competitors are unable to duplicate or find too

costly to try to imitate.

Above-average returns are returns in excess of what an investor expects to earn from other

investments with a similar amount of risk. Risk is an investor‟s uncertainty about the

economic gains or losses that will result from a particular investment. Average returns are

returns equal to those an investor expects to earn from other investments with a similar

amount of risk. In the long run, an inability to earn at least average returns results first in

decline and, eventually, failure.

The strategic management process is the full set of commitments, decisions, and actions

required for a fi rm to achieve strategic competitiveness and earn above-average returns(see

picture 1).

Strategic management proccess:

External environment and internal organization are analyzed to determine resources,

capabilities, and core competencies ,the sources of “strategic inputs.”

Vision and mission are developed; strategies are formulated.

Strategies are implemented with the goal of achieving strategic competitiveness and

above-average returns.

Continuously changing markets and industry conditions must match evolving

strategic inputs.

Rational: the approach firms use to achieve strategic competitiveness and earn above-

average returns

Formulation and implementation: the two types of strategic actions that must be

simultaneously integrated to successfully employ the strategic management process


The Competitive Landscape

Hypercompetition business environment challenges firms to reconsider which markets

to compete in, this positioning is more critical than ever. Characterized by

o Market instability and change

o Rapidly escalating competition

o Aggressive challengers

o Strategic maneuvering to establish first mover advantage

o Technology industries

Two drivers

o Globalization (emergence of a global economy)

o Technology (rapid technological changes)

Strategic flexibility - important tool

The Global Economy

A global economy is one in which goods, services, people, skills, and ideas move freely

across geographic borders. Globalization is increasing economic interdependence among

countries and their organizations as reflected in the flow of goods and services, financial

capital, and knowledge across country borders. Globalization is the product of a large

number of firms competing against one another in an increasing number of global

economies. Highly globalized firms must anticipate ever-increasing complexities in their

operations as goods, services, people, etc. move freely across geographic borders.

Globalization has led to higher performance standards in quality, cost, productivity, product

introduction time, and operational efficiency. These standards translate and impact domestic-

only firms as well. Free flow of resources among global economies, global sourcing for

firms, global purchasing for customers, and a global forum for workers all serve as a key

source of competitive advantage for firms. Firms must learn that in this twenty-first century

competitive landscape, only firms capable of meeting, if not exceeding, global standards,

have the capability to earn above-average returns.

Significant time is required for firms to learn how to compete in new markets, and

performance may suffer during this time. With globalization, firms may over-diversify

internationally, which can have strong negative effects on a firm‟s overall performance. It is


critical for firms competing globally to remain strategically committed to and competitive in

both domestic and international markets.

Technology is significantly altering the nature of competition and enabling unstable

competitive environments. Three categories for technology trends.

Technology Diffusion & Disruptive Technologies

Information Age

Increasing Knowledge Intensity

The I/O Model Of Above Average Returns

Grounded in economics, the I/O model has four underlying assumptions

1. The external environment is assumed to impose pressures and constraints that

determine the strategies that would result in above-average returns.

2. Most firms competing within an industry or within a segment of that industry are

assumed to control similar strategically relevant resources and to pursue similar

strategies in light of those resources.

3. Resources used to implement strategies are assumed to be highly mobile across firms,

so any resource differences that might develop between firms will be short-lived

4. Organizational decision-makers are assumed to be rational and committed to acting in

the firm‟s best interests, as shown by their profit-maximizing behavior.

The Resources Based Model Of Above Average Returns

There are four components to the Resource Based Model (see picture 2):

1. Resources

2. Capabilities

3. Core Competencies

4. Competitive Advantage

There are four criteria that if resources and capabilities fulfill, then they become Core

Competencies:

1. Valuable (They are valuable when they allow a firm to take advantage of

opportunities or neutralize threats)

2. Rare (They are rare when possessed by few, if any, current and potential competitors)


3. Costly to Imitate (Resources are costly to imitate when other firms cannot obtain them

or are at a cost disadvantage )

4. Nonsubstitutable (They are nonsubstitutable when they have no structural

equivalents)

Vision and Mission

Vision is a picture of what the firm wants to

be and, in broad terms, what it wants to

ultimately achieve.

Mission specifies the business or businesses in

which the firm intends to compete and the

customers it intends to serve.

Stakeholders

Organizations are not equally dependent on all stakeholders, so not every stakeholder has the

same level of influence. The more critical and valued a stakeholder‟s participation, the

greater a firm‟s dependence on it, which gives the stakeholder more potential influence over

the firm. Three groups of stakeholders:

1. Capital market stakeholders ( Shareholders and the major suppliers of a firm‟s capital)

2. Product market stakeholders (A firm‟s primary customers, suppliers, host

communities, and unions representing the workforce)

3. Organizational stakeholders (Firm‟s employees, including both non-managerial and

managerial personnel )

Strategic Leaders

Strategic leaders are people located in different areas and levels of the firm using the strategic

management process to select strategic actions that help the firm achieve its vision and fulfill

its mission. Successful strategic leaders are decisive, committed to nurturing those around

them, and are committed to helping the firm create value for all stakeholder groups.

• Deciding what a firm wants to become

VISION

• Deciding who it intends to serve and how it wants to serve those individuals and groups

MISSION


CHAPTER 2

THE EXTERNAL ENVIRONMENT:

OPPORTUNITIES, THREATS, INDUSTRY COMPETITION

AND COMPETITOR ANALYSIS

The General Environment

The broader society dimensions that influence an industry and the firms within it. Grouped

into 7 dimensions or „environmental segments‟.

1. Demographic : population‟s size, age structure, geographic distribution, ethnic mix,

and income distribution

2. Economic : nature and direction of economy

3. Political/Legal : laws and regulations

4. Sociocultural : society‟s attitudes and cultural values

5. Technological : new technologies and firms that create them

6. Global : new global markets, existing markets that are changing, and their

characteristics

7. Physical : potential and actual changes in physical environment and business practices

The Industry Environment

Industry Environment

o Set of factors directly influencing a firm‟s competitive actions/responses

Industry

o Definition: Group of firms producing products that are close substitutes

o Industry environment, in comparison to the general environment, has more

direct effect on firm‟s

Strategic competitiveness and

Above-average returns

o Intensity of industry competition and industry‟s profit potential are a function

of 5 forces

The Competitor Environment

Gives details about

o A firm‟s direct and indirect competitors

o The competitive dynamics expected to impact a firm's efforts to generate

above-average returns


External Environmental Analysis

An opportunity is a condition in the general environment that if exploited effectively, helps a

company achieve strategic competitiveness (see picture 3). A threat is a condition in the

general environment that may hinder a company‟s efforts to achieve strategic

competitiveness. The 4 components of external environment analysis.

Scanning : the study of all segments in the general environment

Monitoring : observing environmental changes to see if an important trend is

emerging

Forecasting : the development of feasible projections of what might happen and how

quickly as a result of the changes and trends detected

Assessing : determining the timing and significance of the effects of environmental

changes and trends on the firm

Industry Environment Analysis

Porter‟s 5 forces (see picture 4).

1. New Entrants

Can threaten the market share of existing competitors and may bring

additional production capacity

New entry is often via an acquisition

A stronger force when…

Barriers to entry are weak or nonexistent

The expected retaliation by current industry participants is low

2. Threat of substitute products

Goods or services from outside a given industry that perform similar or the

same functions (i.e., sugar vs. sugar substitute such as NutraSweet)

A strong force when…

Low switching costs

The substitute product‟s price is lower or its quality and performance

capabilities are equal to or greater than those of the competing product

3. Bargaining power of suppliers

Usually other business organizations that provide the industry with products

and services

A supplier group is powerful when …


It is dominated by a few large companies and is more concentrated

than the industry to which they sell

No satisfactory substitutes exist

Industry firms not significant customer to supplier group

Supplier‟s goods are critical to buyer‟s success

High switching costs due to effectiveness of supplier‟s products

Poses credible threat of forward integration

4. Bargaining power of buyers

Usually other business organizations that purchase the outputs of an industry

Customers are powerful when …

They purchase a large portion of industry‟s total output

Product sales accounts for a significant portion of seller‟s annual

revenue

Low switching costs (to other industry product)

Industry products are undifferentiated or standardized and buyers pose

a credible threat of backward integration

5. Intensity of Rivalry Among Competitors

Firms operating in the same market, offering similar products, and targeting

similar customers

A stronger force when…

Numerous or equally balanced competitors

Slow industry growth

High fixed costs or high storage costs

Lack of differentiation or low switching costs

High strategic stakes

High exit barriers

Strategic Groups

Set of firms emphasizing similar strategic dimensions and using a similar strategy

Can be useful for analyzing an industry‟s competitive structure

Can also be helpful in diagnosing competition, positioning, and the profitability of

firm‟s within an industry


Competitor analysis (see picture 5)

Focused on predicting the dynamics of competitor's actions, responses, and intentions

Focuses on each company which a firm directly competes

Seeks to understand each competitors future objectives, current strategy, assumptions,

and capabilities

Competitor intelligence

Set of data and information the firm gathers to better understand and anticipate

competitors' objectives, strategies, assumptions, and capabilities

Follow ethical practices when gathering competitor intelligence

o Obtain public information

o Attend trade fairs and shows and collect brochures, view exhibits, listen to

their discussions

Some practices may be legal, but unethical

Unethical tactics can include

o Blackmail, Trespassing, Eavesdropping, Stealing


C H A P T E R 3

THE INTERNAL ORGANIZATION: RESOURCES, CAPABILITIES, CORE

COMPETENCIES, AND COMPETITIVE ADVANTAGES

Analyzing the Internal Organization (see picture 6)

• Context of Internal Analysis

o „Global mind set‟

Ability to study an internal environment in ways that do not depend on

the assumptions of a single country, culture, or context

o Analyze firm‟s portfolio of resources and bundle heterogeneous resources and

capabilities

Understand how to leverage these bundles

o An organization's core competencies creates and sustains its competitive

advantage

• Creating Value

o Develop core competencies that lead to competitive advantage

o Value: measured by a product's performance characteristics and by its

attributes for which customers are willing to pay

• The Challenge of Analyzing the IO

o Strategic decisions are non routine, have ethical implications and influence the

organization‟s above average returns

• Involves identifying, developing, deploying and protecting firms‟

resources, capabilities and core competencies

o Managers face uncertainty on many fronts

• Proprietary technologies

• Changes in economic and political trends, societal values and shifts in

customer demands

• Environment : increases complexity

o Intra organizational conflict

• Due to decisions about core competencies and how to nurture them

Competitive Advantage (CA) foundation includes (see picture 7)

• Resources

o Bundled to create organizational capabilities

o Tangible and intangible


• Capabilities

o Source of a firm‟s core competencies and basis for CA

o Purposely integrated to achieve a specific task /set of tasks

• Core Competencies

o Capabilities that serve as a source of CA for a firm over its rivals

o Distinguish a company from its competitors ,the personality

Tangible Resources

• Assets that can be seen, touched and quantified

• Examples include equipment, facilities, distribution centers, formal reporting

structures

• Four specific types

Intangible Resources

• Assets rooted deeply in the firm‟s history, accumulated over time

• In comparison to „tangible‟ resources, usually can‟t be seen or touched

• Examples include knowledge, trusts, organizational routines, capabilities, innovation,

brand name, reputation

• Three specific types

Criteria and Value Chain Analysis

Two tools firms use to identify and build on their core competencies

• Four specific criteria of Sustainable CA

o Valuable

o Rare

o Costly-to-imitate

o Nonsubstitutable capabilities

• Value Chain Analysis

o Primary activities

• Involved with product‟s physical creation, sales and distribution to

buyers, and service after the sale

• Service, marketing/sales, outbound/inbound logistics and operations

o Support activities

• Provide assistance necessary for the primary activities to take place


• Includes firm infrastructure, HRM, technologies development and

procurement

Competitive consequences:

• Focus on capabilities that yield competitive parity and either temporary or sustainable

competitive advantage

Performance implications include:

• Parity : average returns

• Temporary advantage : avg. to above avg. returns

• Sustainable advantage : above average returns

Outsourcing

• Definition: Purchase of a value-creating activity from an external supplier

o Effective execution includes an increase in flexibility, risk mitigation and

capital investment reduction

o Trend continues at a rapid pace

o Firms must outsource activities where they cannot create value or are at a

substantial disadvantage compared to competitors

• Can cause concerns

o Usually revolves around innovative ability and loss of jobs

Internal Organization Assessment and Strategic Decisions

• Firms must identify their strengths and weaknesses

• Appropriate resources and capabilities needed to develop desired strategy and create

value for customers/other stakeholders

• Tools (ex: outsourcing) can help a firm focus on core competencies as the source for

CA

• Core competencies have potential to become core rigidities

o Competencies emphasized when no longer competitively relevant can become

a weakness

• External environmental conditions and events impact a firm‟s core competencies


C H A P T E R 4

BUSINESS LEVEL STRATEGY

Business level strategy

Integrated and coordinated set of commitments and actions the firm uses to gain a

competitive advantage by exploiting core competencies in specific product markets/industry.

Purpose: To create differences between position of a firm and its competitors

Firm must make a deliberate choice to

o Perform activities differently

o Perform different activities

Impacts how value chain activities will be performed to create unique value

Contingent on internal and external environment

Two types of competitive advantage firms must choose between

o Cost (Are our costs LOWER than rivals costs?)

o Uniqueness (Are we DIFFERENT than rivals?)

Two types of competitive scope firms must choose between

o Broad target

o Narrow target

These combine to yield 5 different generic business level strategies (see pictures 8)

o Can potentially be used by any organization competing in any industry

Types of Business-Level Strategies

Cost Leadership Strategy

o Competitive advantage: the low-cost leader and operates with margins greater

than competitors

o Competitive scope: Broad

o Integrated set of actions designed to produce or deliver goods or services with

features that are acceptable to customers at the lowest cost, relative to

competitors

o No frills, standardized or commodity like product

o Must have competitive levels of quality, service, and other features and lowest

overall costs

o Continuously reduce the costs / increase the efficiency of value chain activities

o Competitive Risks


• Innovations by competitors can quickly eliminate cost advantage

• Too much focus on cost reduction versus competitive levels of

differentiation

• Competitors may learn how to successfully imitate a cost leader‟s

strategy

Differentiation

o Competitive advantage: Differentiation/uniqueness

o Competitive scope: Broad

o Integrated set of actions designed by a firm to produce or deliver goods or

services at an acceptable cost that customers perceive as being different /

unique in ways that are important to them

o Targeted customers perceive product value

o Customized products : differentiating on as many features as possible

o Can differentiate in many ways and in many value chain areas

o Risks

• Can charge too high of a price premium

• Differentiation theme no longer valuable to customers

• Over-differentiating

• Customer experience shows differentiation not worth the cost

• Counterfeiting

Focused Cost Leadership

o Competitive advantage: Low cost

o Competitive scope: Narrow industry segment

Focused Differentiation

o Competitive advantage: Differentiation

o Competitive scope: Narrow industry segment

Integrated Cost Leadership / Differentiation

o Efficiently produce products with differentiated attributes

• Efficiency: Sources of low cost

• Differentiation: Source of unique value

o Involves engaging in primary and support activities that allow a firm to

simultaneously pursue low cost and differentiation

o Three sources of flexibility usefull for this strategy:


• Flexible manufacturing systems (FMS)

• Information networks

• Total Quality Management (TQM) systems

o Risks of Integrated Strategies

• Harder to implement than other strategies

• Must simultaneously reduce costs while increasing differentiation

• Can get „stuck in the middle‟ resulting in no advantages and poor

performance


C H A P T E R 5

Competitive Rivalry and Competitive Dynamics

Competitors is firms operating in the same market, offering similar products and targeting

similar customers. Competitive Rivalry is on going set of competitive actions and

competitive responses occurring between competitors as they contend with each other for an

advantageous market position. Competitive Behavior (offensive and defensive) is set of

competitive actions and competitive responses the firm takes to build or defend its

competitive advantages and to improve its market position. Firms competing against each

other in several product or geographic markets are engaged in multimarket competition. All

competitive behavior, the total set of actions and responses taken by all firms competing

within a market is called competitive dynamics (see picture 9 ).

A Model of Competitive Rivalry

Model of Competitive Rivalry

Over time firms take competitive actions / reactions

Pattern shows firms are mutually interdependent

Firm level rivalry is usually dynamic and complex

Foundation for successfully building and using capabilities and core competencies to

gain an advantageous market position

Competitor Analysis

Market Commonality

o Each industry composed of various markets which can be subdivided into

segments

Resource Similarity

o Extent to which firm‟s tangible/intangible resources are comparable to

competitor‟s in type and amount

Strategic and Tactical Actions

A competitive action is a strategic or tactical action the firm takes to build or defend its

competitive advantages or improve its market position. A competitive response is a strategic

or tactical action the firm takes to counter the effects of a competitor‟s competitive action. A

strategic action or a strategic response is a market-based move that involve a significant

commitment of organizational resources and is difficult to implement and everse. A tactical


action or a tactical response is a market-based move that is taken to fine-tune a strategy, it

involves fewer resources and is relatively easy to implement and reverse.

Likelihood of Attack

Three possible likelihood of response actions

1. First Mover Incentives

A firm that takes an initial competitive action in order to build or defend its

competitive advantages or to improve its market position

2. Organizational Size

Affects types of competitive actions encountered

Small firms – more flexible, nimble, and quicker and more likely to launch

competitive actions

Large firms – tend to initiate more competitive actions but limit the types used

3. Quality

Customer perception that the firm's goods or services perform in ways that are

important to customers, meeting or exceeding expectations

Competitive Dynamics

1. Slow-Cycle Markets

o Markets in which the firm's competitive advantages are shielded from

imitation for long periods of time, and in which imitation is costly

o Build a one-of-a-kind competitive advantage which creates sustainability

o Once a proprietary advantage is developed, competitive behavior should be

oriented to protecting, maintaining, and extending that advantage

2. Fast-Cycle Markets

o Markets in which the firm's capabilities that contribute to competitive

advantages are not shielded from imitation and where imitation is often rapid

and inexpensive

o Competitive advantages are not sustainable in fast-cycle markets

o Focus: learning how to rapidly and continuously develop new competitive

advantages that are superior to those they replace (creating innovation)

o Continually try to move on to another temporary competitive advantage before

competitors can respond to the first one


3. Standard-Cycle Markets

o Markets where firm‟s competitive advantages are moderately shielded from

imitation and where imitation is moderately costly

o Competitive advantages partially sustained as quality is continuously upgraded

o Seek to serve many customers and gain a large market share

o Gain brand loyalty through brand names

o Careful operational control / manage a consistent experience for the customer


CASE : APPLE INC KEEPING THE ‘I’ IN INNOVATION

About The Company

One of the most well known and respected companies in the world. Design and markets

consumer electronics, computer software and personal computers.

History

1976 : Creation of the Apple and

Computers Inc, Apple I

1997 : Partnership

1977 : Apple II 2003 : Mac OS X iPod & iTunes

1980 : Apple III 2007 : Changes name to Apple

Inc, iPhone

1984 : Macintosh 2008 : App store

1985 : Steve Jobs resign, Next

Inc

2009 : Steve Jobs 6 month leave

1989 : Macinyosh Portable 2010 : iPad

1991 : Power Book 2011 : iCloud, Steve Jobs

resignation, iPhone 4S,

IOS 5, iPad 2

1996 : Next acquisition 2012 : iPad 3, iPhone 5

Competition

Products Main Competitors

PC Dell, HP, Lenovo

iPad Dell, HP, Amazon Kindle

iPod Samsung, Nepster

iPhone Samsung, Blackberry, Motorola, HTC

Operating System Microsoft, Android


Porter’s Five Forces

Apple’s Competitive Advantage

Product differentiation : Innovation

Brand Loyal Customers

Marketing : Apple Stores

Skills

Leadership

Still the technology industry‟s leader

Challenges

Stock performance

Saturated markets

3 years since Apple launched an industry changing invention

Asia and emerging markets : China is currently our second largest market

Forbes dropped Apple to no.5 ranked innovator dor 2012 in the Cook era from No.1

in 2011

Key Success Factors for future

Managing external forces

A maturing culture of innovation

Leaving Apple‟s DNA intact

Create a new market

Competitive Rivalry within the Industry

(High)

Threat of New

Entrants

(Low)

Bargaining Power of Buyers

(Medium)

Threat of Subtitutes

(Medium)

Bargaining Power of Suppliers

(Low)


Exhibit 1

picture 1. Strategic Management Process

picture 2. The Resource Based Model of Above Average Returns


picture 3. The External Environment


Exhibit 2

picture 4. The Five Forces Of Competition Model

picture 5. Competitor Analysis Components


Exihibit 3

picture 6. Component of Internal Analysis

picture 7. Condition Affecting Managerial Decision


picture 8. Five Business Level Strategies

picture 9. From Competitors to Competitive Dynamics

mid term (apple inc keeping the ‘i’ in innovation)

Education