978-1259278211 Case 16 Solution Manual Part 1

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Teaching Note: Case 16 – Apple Inc.: Still Taking a Bite Out of the Competition?

Case Objectives

1. To investigate strategic options in a fast-moving industry.

2. To examine how external and internal forces affect competitive strategy.

3. To discuss the leadership implications for managing innovation.

See the table below to determine where to use this case:

NOTE: This case can be used as a COMPREHENSIVE CASE, covering all the chapters in the

textbook. However, since the primary focus of this case for most instructors is probably

Chapter Use Key Concepts Additional Reading and/or

Exercises

1: Strategy Concept Strategic management; vision,

2: External Environment Industry competition five

NOTE web links, stock price

3: Internal Analysis Value-chain analysis; resource-

NOTE additional reading web

4: Intellectual Assets Intellectual and human capital;

5: Business Level

Competitive strategy; generic

NOTE embedded video, Jobs

6: Corporate-Level

Diversification; synergy; core

NOTE additional reading web

7: International Strategy International expansion NOTE additional reading web

articles

8: Entrepreneurial

Strategies

Opportunity recognition

9: Strategic Control Informational vs. behavioral

NOTE additional reading web

10: Organizational Design Organizational structure NOTE additional reading web

11: Strategic Leadership Leadership; learning

NOTE additional reading, video

12: Managing Innovation Innovation; scope of

NOTE additional reading,

Case Synopsis

Apple, founded by two guys in a garage in 1976, produced the first computer with a graphical

user interface (communicating with the user via icons on the screen), and had continued to

As an example of innovation in digital entertainment, the iPod portable digital music player

introduced by Apple in 2001 became one of its most famous products. This success was linked to

the iTunes software, and subsequently spawned the iPod Touch, Apple’s initial invasion of the

gaming world. The iPhone likewise stole market share from other mobile devices, especially

In October 2011, founder Steve Jobs succumbed to the pancreatic cancer that had sidelined him

from active participation in Apple’s day-to-day activities since 2009. COO Tim Cook, who had

Apple’s ongoing stated strategy had been to leverage “its unique ability to

design and develop its own operations system, hardware, application

Given Apple’s global growth in multiple product categories, and the associated complexity in

strategic execution, would CEO Tim Cook be able to sustain the level of innovation the company

had been known for? Would Apple still be considered a hyper growth innovator, or was it now

just a major consumer products company, like all others in the industry? In the coming years,

would Apple still be able to take a bite out of all competition?

Teaching Plan

1 From the Apple, Inc., 2008 Annual Report, 10-K filing, available at www.apple.com/investor

The Apple case is a good example of vertical integration, and the role of entrepreneurship in

maintaining the pace of innovation within an industry with a volatile product life cycle. This is a

comprehensive case, and so it can be used to illustrate the complete arc of strategic management:

from analysis through formulation to implementation. Since Apple is a well-known company,

If instructors choose to focus on only one chapter, perhaps the question of Business-Level

Used to encourage more advanced analysis among exceptional students, the instructor may

suggest possible external research sources and possible supplemental assigned reading. It may be

especially interesting to initiate a discussion among advanced students to consider whether the

traditional design/Harvard model or the Mintzberg process/emergent strategy model is more

applicable here (Mintzberg, 1990). See the discussion about this in the textbook, Chapter 1. Just

ICEBREAKER

Since probably all students have at least heard of Apple’s products, and probably most of them

have either used or owned one, it might be illustrative to ask:

How many of you own a Mac computer? How many of you have used an iPod? An iPhone or

iPad?

It’s very possible that at least one student is currently using an Apple computer or tablet, and

more probable that many more students own an iPhone.

What do you think of Apple’s products?

Some students might be interested if the instructor asks those who use a Mac computer what they

think of it. The same question can be asked about the iPod or iPhone– whether these products

truly are the best mp3 players or cellphones out there (they are not, but still remain the best-

Here’s where the instructor can click on the link to Apple’s product website,

http://store.apple.com and scroll down to show all the products Apple offers. What does this say

The instructor might want to put a list on the board of students’ responses to the question “what

One interesting discussion might provide further insight: ask students how many have ever

owned an iPod (show of hands), then how many still USE one? (Hands will almost all go down.)

Finally, the instructor can ask

How many of you think Steve Jobs is responsible for Apple’s success?

Probably everyone has heard about Jobs’ death. Ask students who they think is responsible for

Apple’s success. Many may say it was due to Jobs’ leadership, but the actions of Tim Cook since

Before engaging in discussion, you might want to test student’s basic knowledge regarding the

Which of the following statements is most true?

a. The Apple iPhone is the most popular smartphone in the world.

b. The Apple iPhone is the most profitable smartphone in the world.

ANSWER: b. Although the iPhone is Apple’s most profitable product, also beating out Android-

based phones in operating profit, it is not the most popular smartphone in the world. Samsung

Apple manufactures all of its own products.

a. Yes

b. No

ANSWER: b. This is a deceptive question. Apple outsources most of manufacturing to plants in

Summary of Discussion Questions

Here is a list of the suggested discussion questions. You can decide which questions to assign,

and also which additional readings or exercises to include to augment each discussion. Refer

back to the Case Objectives Table to identify any additional readings and/or exercises so they can

be assigned in advance.

1. How does Apple use strategic management to compete?

2. What are key forces in the general and industry environments that affect Apple’s choice

of strategy?

3. What internal resources and assets does Apple have that may give it a competitive

advantage? How does Apple use those assets to craft strategy?

4. What is leadership’s role in Apple’s strategic implementation?

Discussion Questions and Responses

1. How does Apple use strategic management to compete?

To start with, the instructor might want to position the discussion by reviewing what strategic

management really is:

Referencing Chapter 1: Strategic Management

Strategy is all about the ideas, decisions, and actions that enable a firm to succeed. See Chapter

1, Exhibit 01: Strategic management consists of the analyses, decisions, and actions an

organization undertakes in order to create and sustain competitive advantages:

●strategy directs the organization toward overall goals and objectives;

●includes multiple stakeholders in decision making;

Leaders face a large number of complex challenges. Leaders must be proactive, anticipate

change and continually refine changes to their strategies. This requires a certain level of

“ambidextrous behavior,” where leaders are alert to opportunities beyond the confines of their

See Chapter 1, Exhibit 06: The primary role of the organizational leader is to articulate vision,

mission and strategic objectives. Leaders must communicate their initial vision of the

The organizational mission also needs to be considered: a mission encompasses both the purpose

of the company, as well as the basis for competition and competitive advantages. In writing a

Organizations must respond to multiple constituencies if they are to survive and prosper, and the

mission provides a means of communicating to diverse organizational stakeholders. Although

Anticipating that things might change, an organization’s leadership must then establish strategic

objectives to operationalize the mission statement. That is, objectives help to operationalize the

Steve Jobs’ original vision of Apple was as the digital hub of a creative entertainment lifestyle.

(Not in the case. See his keynote address at Macworld Expo in January 2001, described at

http://db.tidbits.com/article/6268.) At least part of Apple’s mission was articulated by Steve Jobs

Now Tim Cook was displaying his single-minded emphasis on pursuing only those projects

where Apple could be the best at making a “significant, lasting difference” (and never

“cheapening” the product offering), where Apple could use this philosophy and vision to attract

These vision and mission statements can lead to strategic objectives that have implications for

how to analyze opportunities, manage innovation, and provide leadership to encourage growth. It

Here is where students can be reminded how the chapters in the book are linked. See Chapter 1,

Exhibit 1.3 for a depiction of the strategic management process. During strategic analysis, the

leader does “advance work” to anticipate unforeseen environmental developments, identify

In strategy implementation, depending on the type of organization structure, the leader might

include key individuals in a discussion around selecting which strategies might be best to

implement at which level within the organization. The leader must ensure proper strategic

The basic question strategic management tries to answer is: How can we create competitive

advantages in the marketplace that are not only unique and valuable but also difficult for

competitors to copy or substitute?

An interesting question that the instructor can ask at this point is: What IS that “marketplace”?

What business is Apple in? Some students might say computers or cellphones, some may say

technology, some may say consumer electronics or digital entertainment. The answers to this

Since Jobs originally envisioned Apple as “the digital hub of a creative entertainment lifestyle”,

Jobs had stressed innovative design coupled with reliable performance that would wow the

Answering this question is essential to proceeding with strategic analysis. Once students have

Referencing Chapter 5: Business-Level Strategy

In order to achieve a sustainable competitive advantage, Apple had to assess its ability to contend

with other consumer electronics products companies. The question of how to compete in a given

business to attain competitive advantage requires an assessment of the types of competitive

strategies, including the three generic strategies:

●Overall cost leadership

oLow-cost-position relative to a firm’s peers

●Differentiation

oCreate products and/or services that are unique and valued

●Focus strategy

oNarrow product lines, buyer segments, or targeted geographic markets

Generic strategies are plotted on two dimensions: competitive advantage and strategic target. The

Given Apple’s goals, low-cost leadership is not an option. Apple has a focused niche strategy,

targeting a differentiated market – first adopters for the new computers, tablets and the initial

NOTE – ADDITIONAL READING, VIDEO INTERVIEWS WITH STEVE JOBS, PC vs

MAC TV COMMERCIALS:

One area where Apple’s differentiation strategy is apparent is in its approach to retail. See this

video interview with Steve Jobs on CNBC on the opening of the Apple Store on 5th Avenue in

New York City in 2006:

http://www.youtube.com/watch?v=y6BFhRkUJEI&mode=related&search=

For fun viewing, here are links to the various Mac vs PC TV commercials, and the original

“1984” Macintosh commercial:

http://www.youtube.com/watch?v=DZSBWbnmGrE

http://www.youtube.com/watch?v=vNy-7jv0XSc

How does Apple’s retail strategy support its overall approach to competitive strategy?

Many people thought Apple’s move into the mobile handset market with the iPhone may have

been a risky one. View this video interview with Steve Jobs at the introduction of this product in

2007:

http://www.youtube.com/watch?v=SX1Lz8PDgg8&NR=1

How important was the introduction of this product into the Apple product lineup? What has this

done to the other handset competitors? What other industries did this product introduction affect?

Regarding Apple’s compatibility with business enterprise software, when Microsoft expanded its

“Enterprise App Store” in 2012, some wondered if Apple shouldn’t have tried harder to woo

business enterprise converts to its operating system, by opening up Apple software to the

corporate market: “The corporate market is far too important to ignore, and it’s not, as Apple

seems to believe, ceding the selection of devices and software to its employees. Bring your own

device (BYOD) may indeed be the future, but bring your own software (BYOS) will not. And

over time, as you will see, Apple will become more insular, while the rest of the market opens

up.”

http://www.forbes.com/sites/markfidelman/2012/08/15/microsofts-enterprise-app-store-will-be-

apples-demise-again/

Do you think Apple should be making a bigger play for business software compatibility?

2. What are key forces in the general and industry environments that affect Apple’s

choice of strategy?

Referencing Chapter 2: Analyzing the External Environment of the Firm

Organizational leaders must become aware of factors in the overall environment that might affect

their ability to create a competitive advantage. So how do managers become environmentally

Environmental scanning involves surveillance of a firm’s external environment to predict

environmental changes and detect changes already under way. It is a BIG PICTURE viewpoint

Environmental monitoring is a firm’s analysis of the external environment that tracks the

evolution of environmental trends, sequences of events, or streams of activities. Leaders need to

What factors or trends might be most important to Apple? To assess how the external

environment might affect Apple’s strategy, it’s necessary to take a look at the factors in the

general external environment. Apple must consider the political/legal, economic and global,

Demographic: Certainly the demographics had changed. Baby boomers were getting older,

Sociocultural: Customers were growing increasingly sophisticated. They knew what they

wanted and didn’t want to pay a lot for it, but they could be seduced by a “sexy” design.

Technological: Technology, especially the growth of the Internet, had created new opportunities

for delivery of content and for promotion. Companies like Intel and Samsung were making many

advances in memory and display technology. The pace and direction of change required

considerable monitoring and possibly risk taking.

Political-Legal: Political-legal issues, especially the issues around copyrights, monitoring of

content distribution (digital rights management), environmental waste, and the possibility of

It’s also necessary to assess the segments of the external competitive environment that include

Help students apply Porter’s Five Forces of Competition to the consumer electronics industry by

drawing a diagram on the board similar to the following, and having students fill in the details.

Based on the external environmental factor analysis, the consumer electronics business has many

Rivalry

High

Substitutes

Buyers’

Power

Med-High

Suppliers’

Power

Med-Low

Suggested: many rivals

compete for market share.

Suggested: corporate

computing customers

demand customization and

Suggested: depending on the

commodity, lots of competition

Suggested: substitutes for

the Mac computer include

Threat of

Suggested: most components are