Swot Apple Inc Music Entetainment ||

|CORPORATE LEVEL STRATEGY |

|APPLE COMPUTER, INC |

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|PREPARED BY: |

|TETY JUANITA MOHD KAMAL |

|WONG WAI SIONG |

|LAI CHOON HOONG |

|WAN HAZIRA WAN MUHAMMAD |

|WAN HAMIZA WAN MUHAMMAD |

|7/31/2010 |

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INTRODUCTION

The reason of a firm uses a corporate level strategy to become more diversified is to create additional value.

Figure 1: Value Creating Diversification Strategies: Operation and Corporate relatedness

The related diversification corporate strategy help the firm create value by sharing activities or transferring competencies between different businesses in the companys portfolio. Operational relatedness is sharing either

primary activities (such as inventory delivery systems) or a support activity (such as purchasing practice). Corporate relatedness is sharing intangible resources (know how become the foundation of core competency).

Successful unrelated diversification can be accomplished by efficiently allocating or restructuring a target firms assets and placing them under rigorous financial control. Firm that uses the unrelated diversification strategy focus on creating financial economies to generate value.

However, diversification through managerial motives can lead to over diversification and a subsequent reduction in a firms ability to create value.

Decision involving the optimum level of diversification for their company must take into account the firms internal organization and its external environment. Internal resources are important determinants of the direction that diversification should take but the condition of the firms external environment may facilitate additional levels of diversification.

SWOT ANALYSIS OF APPLE COMPUTER INC.

Strengths

Brand Image: The Apple brand is well regarded amongst most consumers. Apple also enjoys a high level of brand awareness and brand recognition for its products throughout the markets in which it operates.

Global Presence: Apple has opened more than 200 retail stores located worldwide. At the time that Apple has opened its first retail stores in 2001, analysts predicted that Apple would report huge losses and shut the store within two years. However, Apples retail stores contributed an estimated $200 million, 15 to 16 percent of its profits its during the past two years. Apple believes that the more people can touch an Apple product and see what it can do with their own eyes, the greater the potential market share. In addition, the stores provide free group workshop, personal training, and personal assistance for Apple customers.

Focus on Innovation: Apple was named by Business Week as the most innovative company for the third years in a

row. Apples focus on innovation has helped it maintain a competitive advantages and marketing prowess over other industry players that have historically been much stronger than Apple.

Good marketing strategies: In 2003, Apple was awarded Advertising Ages Marketer of the Year for its upbeat, original, and, memorable advertisements for both its iPod and iTunes. Apple has been hailed as one of the best marketers by many different sources and has had a reputation over the years of being brand that can gain customer through its well-thought-out and carefully executed marketing strategies.

Strategic Leader (Steve Jobs): Steve Jobs is considered to be the most important person in Apples history and the companys present. Not only has he founded Apple Computers, but he also saved it from the brink of disaster when he returned as CEO in 1997. Steve jobs is essential to the public relations and promotional aspect of Apple, expecially with the iPod. He maintains relationship with the media and has been called the public face and champion of the brand. Jobs also takes action in response to customer feedback to show that he is listening and concerned.

Weaknesses

Incur high R&D costs: Apples ability to compete successfully and maintain attractive gross margins is heavily dependent upon its ability to ensure a continuing and timely flow of innovative and competitive products and technology to the marketplace. As a result, the Company incurs higher research and development costs as a percentage of revenue than its competitors who sell Windows-based personal computers. If Apple is unable to continue to develop and sell innovative new products with attractive gross margins, its results of operations may be materially adversely affected by its operating costs structure

Problems of Apple TV: Some negative hype claims that the Apple TV will be a flop just like the AppleIII and the power mac cube. Such as users are not able to download movie from iTunes directly to their TV; they have to download it to their PC first.

Outsourcing reduces companys direct control over production and distribution: Many of Apples products are manufactured in whole or in part by third-party manufacturers. While outsourcing arrangements may lower the fixed cost of operations, they also reduce the companys direct control over production and distribution. This diminished control will have negative effects on the quality or quantity of the products manufactured, or the

flexibility of the company to respond to changing market conditions.

Apple unable to effectively penetrate the business market: Although Apple was and is successful in penetrating the educational environment, the residual demand for their products in the business environment did not materialize. The development of Microsofts windows interface made the conversion from Apple products to Microsoft based products relatively easy. Apple has become unable to effectively penetrate the business market.

Opportinities

Japan Mobile Markets: Japan is one of the worlds largest and most demanding mobile phone markets, with almost 100 million mobile phones users. Apple already have a positive brand image in Japan related to the Macintosh computer and the iPod and has seven retail stores already in place.

New digital Platforms: Apple is focusing on transforming its mac platform into a digital hub that combines iTunes video content to customers television screens and portable devices. This new platform would enhance Apples rapidly growing digital content business. In addition, it would also integrate the digital content business with Apples Mac business. This is expected to provide stability to the companys long-term growth.

Threats

Strong Competition: ITunes face stiff competition from new and existing online music and video download services both legal and illegal. The iPod, Apple TV, and iPhone all face the threat of lower-priced rivals and possible substitutes.

Illegal download: The problem of million illegal downloads that nearly crippled the music industry and result greater losing money.

BALANCE SCORE CARD OF APPLE COMPUTER INC

The balanced scorecard (BSC) is a strategic performance management tool. It can help Apple Inc. to keep of the execution of activities by staff within their control and monitor the consequences arising from these actions.

Financial Perspectives

For Apple Inc, the firms are planning to have a moderate profit and also try to increase the total market share in consumer electronics category. Apple Inc. had successfully implemented the marketing strategy to help in marketing the Apples products to the markets. Apple Inc. can use their number of units sold to the market as a measures to measures the total market shares.

Customers Perspectives

For Apple Inc, the objectives is to provide a better products that suit to the consumer and also increase the total market shares in the consumer electronics products. Therefore, Apple Inc. need to be very aware of whats the consumer needs and wants. For example, CEO of Apple is listening and concerning the customers needs and provides immediate solution to retain the customers. This can be measure by number of units sold to the market.

Internal Processes

Apple Inc. had a very good cultural environment for their operation and management. The employees are very innovating and allow ideas to be shard and to be incorporated to be developed. Besides that, they manage all their product lines from design, manufacture, sales, after sales support to make sure that all their process are in good performance.

Learning and Growth Perspectives

The Apple Inc is consistently invested and innovated to provide a new-to-the-world products. They also have partnerships with many suppliers and the competitor to know what the current trend of the consumer electronics category is. Beside that, Apple Inc also provides many training to the staff to update with new communication skills and new products updates.

CORPORATE LEVEL STRATEGY OF APPLE COMPUTER INC.

Low level of diversification (1976-1996)

To examine what strategies have been used by Apple, we divided the period into two ages. The first age is in between 1976 until 1996 were we can observe that all the products sold by Apple were computer related. They started with Apple 1 and continuously developed their products up until the evolutionary of Macintosh. However, their development restrained only to computers, chips and software which indicates low diversification applied by Apple at that time.

Apple is considered as a Dominant Business type of diversification where between 70% and 95% of their revenue comes from a single business. From this case, the dominant business is the computer business while the supporting are software and chips businesses.

Impact

Through adaption of this strategy, apple able to penetrate the computers market share at the beginning. This is evidenced by Apple reaching annual sales of $100 million from its 1st computer and in 1984, the new Macintosh pushed Apples sales to $1.5 billion .However, soon Apple faced some competition when in 1981, IBM released its first personal computer and the computer market began to grow with more players come in into the market. Up until 1990, the competition become worst for Apple when Microsoft released Windows 3.0, the first universal software that could run on nearly every PC where it meets the demand of the consumers who wants the compatible operating systems. Loss amounted in 1996-1997 due to demand for standardize software & stiff competition. Due to those problems, adapting this strategy was no longer effective for Apple in generating revenues and conquering the market share.

Moderate to high level of diversification (1976-1996)

When Steve Jobs returned to Apple in 1997, he plans to diversify Apple business from computer to the hub of

consumer digital lifestyle. The new strategy includes the development of new iMac, iBook, iTunes, iPod, iPhones, Apple TV and more. This indicated that Apple have moved forward from being a computer producer into much more businesses including music, mobile phones, video, retail and many more.

The introduction of various digital products by Apple shows that Apple has diversified its computer business into many digital products. Apples adaption of moderate to high level of diversification is classified as Related Constrained diversification where less than 70% of revenue comes from the dominant business , & all businesses share product, technological and distribution linkages. Apple are said to be sharing the product, technological and distribution linkages because Apples products are seen to be closely related and their innovation are coming from the same technology, resources and ideas. Moreover, all products also share the distribution channel through Apple Store.

Impact

The diversification strategy suits Apple very well as being evidenced as follows:

Diversification into music download industry boost the sale of computers, iPods, iPhones and Apple TV. Net sales in 2007 of Desktops increased by 59%, 40% (portables), 17% (iPod), 27% (music related), 29% (peripherals & hardware), 81% (software & services)

Change from only computers to digital product enhance Apples market powers. In 2007, Apple controlled more than 70% of the digital music market. Closest competitors to Apples iPod had only 8% of the market share, leaving Apple with vast majority. In 2008, iPhones stole 1% of the mobile phone market share

SUGGESTIONS AND RECOMMENDATIONS

We will discuss this matter in two sections. First is suggestion for the short term and secondly is for the long term.

Short term

Knowing that the adoption of new corporate level strategy by Steve Jobs in 1997 onwards bring high revenues to the company, we think that Apple should continue with this strategy. By not concentrating only to one dominant business, Apple must introduce plenty of related products. This type of related business should be expanded. By adding more digital product, the company will have the advantage of sharing the activity, technology, distribution linkage and many others. Besides, as stated in the case, the introduction of iTunes is as a means to boost the sale of Applesother products. So, it is hope that, by introducing more new digital product, it may boost the sales of Apples former products. For example, out of the scope of this case, Apple has subsequently introduced iPad, iTablet and Apple may also create their very own iCamera and etc.

Moreover, Apple should make more strategic agreements with well known brands. As we know from the case, Apple has already developed strategic agreements with many well known brands such as Volkswagen of America, Burton Snowboards and etc. All they need to do is just to include Apple products together with their alliances products. By doing this, Apple is at advantage since their product line will become bigger while they do not have to enter into unrelated industry which is new and risky to be explored. Other than that, by creating strategic agreements, Apple can gain consumer confidence as well as exposure through marketing partner advertisements.

Furthermore, we believed that, to increase the level of diversification, Apple may bring their business to global in order to earn extraordinary returns. Since Apple already has a positive brand image in Japan related to the Macintosh computer and iPod and has seven Apple retail stores has already in place, and since Japan is the most demanding mobile phone markets with almost 100 million mobile phone users, we think that Japan would be a good market for Apple to diversify geographically. Apple can also diversify internationally by increasing the number of their retail store worldwide.

As for the short term strategy, for Apple corporate level strategy, it is suggested to implement related constrained diversification strengthen by strategic agreements and international diversification strategies.

Long Term

From the long term perspective, Apple may have to consider limiting the links between its businesses which is also known as related linked diversification strategy. By diversifying into different businesses, it will help firms to create value because the expense of developing a core competence has already been incurred in one of the firms businesses, transferring this competence to a second business eliminates the need for that business to allocate

resources to develop it. Since Apple has already involved in music download industry, it is sensible for Apple to venture into music recording business. This can be done by doing a backward integration with major record labels such as BMG, EMI, Sony and etc. Other than that, Apple may also do a backward integration with the ATNT, the exclusive wireless carrier for the iPhone.