978-1259278211 Case 16 Solution Manual Part 2

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NOTE – ADDITIONAL WEB LINKS TO FINANCIAL DATA:

Do a search for Apple Inc.’s current financial performance. Start by plotting percent change in

stock price for the last two years, compared to computing competitors Dell, HP, and Microsoft:

http://finance.yahoo.com/echarts?

s=AAPL#chart2:symbol=aapl;range=2y;compare=dell+hpq+msft;indicator=volume;charttype=li

ne;crosshair=on;ohlcvalues=0;logscale=off;source=undefined

Also look at the numbers for a direct competitor comparison:

http://finance.yahoo.com/q/co?s=AAPL

Apple has a very large market cap. To whom should Apple be compared? Originally, as Apple

Computer, certainly Apple competed directly with Hewlett-Packard (HPQ) and Dell (DELL).

Should Apple now be included in the diversified telecommunication industry along with

BlackBerry Limited? Or digital music, competing with San Disk (SNDK), and Singapore-based

Creative Technology Limited (SGX: C76.SI)? Or compared with the diversified businesses of

Korean-based Samsung Electronics (LSE: BC94.L) and LG Electronics (KRX: 066570.KS)? Or

businesses like Google (GOOG) and Microsoft (MSFT)?

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

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

Referencing Chapter 3: Analyzing the Internal Environment of the Firm

When one firm outperforms others by a wide margin over a long period of time, it’s important to

figure out how this could be. The answer may lie in how that firm arranges its activities and

Remember, value chain analysis is a strategic analysis of an organization that uses value-creating

activities. Value is the amount that buyers are willing to pay for what a firm provides them and is

measured by total revenue, a reflection of the price a firm’s product commands, and the quantity

Every activity should add value. Take a look at Exhibit 3.1 to see the value chain activities.

Value chain activity How does Apple create value for the customer? What

challenges does Apple have in its value chain?

Primary:

Inbound logistics (distribution

facilities, material control

systems, warehouse layouts)

Apple supplies its retail stores successfully.

Operations (efficient work flow

Has traditionally been a strength. Tim Cook’s area of

Outbound logistics

scheduling, finished goods

processing)

Distribution is effective, except for certain product

Marketing and Sales (motivated

sales people, innovative

distribution channels)

Multichannel distribution through Apple retail, third-

party resellers, Internet, direct mail, word-of-mouth.

Service (ability to solicit

Many blogs and Apple-related websites provide lots of

Secondary (or support):

Procurement (win-win

relationships with suppliers,

Relying on multiple international partners for sourcing

of some components allows for hedging against

Technology development (state

of the art hardware & software,

innovative culture & qualified

personnel)

Absolutely one of Apple’s great strengths.

Human resource management

After major shake-ups in the 1990’s and 2013, and in

General Administration

(effective planning systems to

establish goals & strategies,

access to capital, effective top

management communication,

relationships with diverse

stakeholders)

Cook seems to excel at this. Witness 2014 financials.

Primary Activities

In terms of primary activities, the key to Apple’s ability to differentiate itself in the market

resided in its operations and marketing. Apple placed a lot of attention on every aspect of

Support Activities

With regards to support activities, a competitive advantage is achieved by developing a strong

general administration that is built around visionary leadership and a culture that pushes for

In addition, see the concept of the resource-based view of the firm, and the three key types of

resources: tangible resources, intangible resources, and organizational capabilities. A firm’s

strengths and capabilities – no matter how unique or impressive – do NOT necessarily lead to a

An important issue to focus on here is the importance of intangible resources like innovation and

reputation. Especially in mature brands, sustaining reputation is essential. Look at resources that

Tangible Resources:

Financial: Financially sound. Cash reserves can fund more R&D.

Physical: Historically adequate.

Technological: Biggest asset here is Apple’s human resource – capable, motivated and highly

Organizational: Jobs’ strategy of focusing on the digital “lifestyle” opened up what may have

Intangible Resources:

Human: Focus on innovation continually revitalizes the workforce.

Innovation and creativity: One of Apple’s major strengths.

Reputation: This is one of Apple’s most significant strengths. The Apple brand is known world-

wide.

Determining whether the internal resources are valuable, rare, difficult to imitate, or difficult to

substitute (VRIN) can help a firm sustain a competitive advantage. See Exhibit 3.6. Applying the

NOTE – ADDITIONAL READING, WEB LINKS:

Responding to the marketing & sales value chain activity, as an indication of how Apple creates

value with this link in the chain, there’s substantial evidence that Apple fans can become true

evangelists for the brand:

See “Brand Loyalty” in “Apple Inc.” at Wikipedia, http://en.wikipedia.org/wiki/Apple_Inc.

For another take on the issue of market share, see

Dilger, D.E. “Market Share Myth 2007: iPod vs Zune and Mac vs PC”, Roughly Drafted

Magazine, March 16, 2007, http://www.roughlydrafted.com/RD/RDM.Tech.Q1.07/FFE4A8E2-

9816-4344-9FB0-61BED246674C.html

and

Dilger, D.E., “Market share vs installed base: iPod vs Zune, Mac vs PC”, RoughlyDrafted

Magazine, March 18, 2007, http://www.roughlydrafted.com/RD/RDM.Tech.Q1.07/9E601E8E-

2ACC-4866-A91B-3371D1688E00.html

Should Apple be worried about computer market share, or should they focus instead on long-

term installed base? What’s the trade-off in terms of the long-term revenue picture? Does the

Referencing Chapter 4: Recognizing a Firm’s Intellectual Assets

See the concepts of intellectual capital, human capital, and social capital, all of which are

intangible assets that a company such as Apple needs to have in order to compete successfully.

Intellectual capital is a measure of the value of a firm’s intangible assets, its reputation,

Human capital involves the individual capabilities, knowledge, skills, and experience of the

company’s employees and managers. This knowledge is relevant to the task at hand, as is the

Success in retaining human capital could also be attributed to the nurturing of the “social ties” or

social capital. Social capital is a function of the network of relationships that individuals have

throughout the organization and beyond. Relationships are critical in sharing and leveraging

Dynamic capabilities involve a firm’s capacity to build and protect a competitive advantage,

which rests on knowledge, assets, competencies, complementary assets, and technologies.

Dynamic capabilities include the ability to sense and seize new opportunities, generate new

Intellectual assets or intangible resources are critical to organizational success. The growing

importance of knowledge, coupled with the move by labor markets to reward knowledge work,

Human capital: does the organization effectively attract, develop, and retain talent? Does the

organization value diversity?

Social capital: does the organization have positive personal and professional relationships

among employees and alliance partners?

Technology: does the organization effectively use technology to transfer best practices across the

organization, codify knowledge, and develop dynamic capabilities for competitive advantage?

Presence of Organizational Capabilities:

Specific Competencies or Skills: Jobs’ initial focus on the design professional, and education

consumer seems to have gotten Apple its initial loyal customer base. Apple’s additional skills

Capacity to combine resources: How to combine the above competencies to continue to

Referencing Chapter 6: Corporate-Level Strategy

Thinking about combining resources to achieve a competitive advantage, corporate strategy

focuses discussion on the questions of what businesses a corporation should compete in, and how

Diversification is the process of firms expanding their operations by entering new businesses. In

related diversification, a firm enters a different business in which it can benefit from leveraging

core competencies, sharing activities, or building market power. Some possibilities include:

●Mergers and acquisitions

●Strategic alliances

Whatever the choice, it should create value for all stakeholders – employees, suppliers,

Companies can achieve synergy through diversification in two ways:

Through related businesses (horizontal relationships)

●Sharing tangible resources

Or through unrelated businesses (hierarchical relationships)

Core competencies reflect the collective learning in organizations – how to coordinate diverse

production skills, integrate multiple streams of technologies, and market diverse products and

Apple diversified through creating horizontal relationships in related businesses: all business

units – computers, music, communication – related to Jobs’ vision of a digital lifestyle, one

Sharing activities means that value chain elements are shared across business units, so that two

or more activities are done by one of the businesses. This allows for cost savings, but businesses

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

maintaining the pace of innovation in the face of a volatile product life cycle industry. Apple’s

1 Fisher, A. 2008. “America’s most admired companies”, Fortune, March 17: 74.

Acquisition is the incorporation of one firm into another through purchase. It can be a means of

obtaining valuable resources that can help an organization expand its product offerings and

Although not in the case, Apple had also quietly pursued many acquisitions of software

companies over the years, and, in 2008, Apple spent a reported $278M to purchase P.A. Semi, a

small U.S. microprocessor design company with an energy efficient chip capable of doing high

Further recent acquisitions include Quattro Wireless, a U.S. mobile advertising firm, in 2010, for

$275M; C3 Technologies, a Swedish 3D mapping firm, in 2011, for $267M; Anobit, an Israeli

flash memory provider, also in 2011, for $390M – this memory was for use in iPhones and iPads;

AuthenTec, a U.S. security firm providing security hardware and software for computers and

Here’s also where advanced students can be asked their opinion of Mintzberg’s (1990) emergent

strategy: does Apple appear to be learning as it goes along, never “sure in advance whether an

established competence will prove to be a strength or a weakness”? After discussing this case,

Referencing Chapter 7: International Strategy

International expansion is a viable diversification strategy – however, before pursuing this, a

firm needs to determine why an industry in a given country is more (or less) successful than the

same industry in another country. When choosing a country to expand into, firms must assess the

There are two opposing forces that firms face when entering international markets: cost

Apple followed a global strategy. Advantages of a global strategy included a unified approach

that allowed users to purchase items that worked in multiple markets (with some changes due to

processing modes, i.e. cell phone signals and voltage differences). Having a unified product line

Entry modes available for international expansion differ based on the extent of investment and

risk, and the degree of ownership and control. See Chapter 7, Exhibit 7.9. In order from low to

high, they include:

●Exporting

●Licensing

Apple wanted to grow cell phone market share in China, India, and Russia, but needed in-

country partners to subsidize the iPhone via the existing wireless networks. Apple lost out to

Nokia in China, presumably because CEO Tim Cook wouldn’t offer better financial terms to the

biggest cell phone service provider, China Mobile. The Asia-Pacific environment, especially, is

UPDATE: For more on the China Mobile story from August 2013, Tim Cook met again with the

China Mobile chairman. Issues appeared to be the degree to which China Mobile is willing to

subsidize the iPhone (deals require cell signal providers to pay Apple a certain amount for the

Referencing Chapter 8: Entrepreneurial Strategy and Competitive Dynamics

Entrepreneurship involves the creation of new value by an existing organization or new venture

that involves the assumption of risk.

For an entrepreneurial venture to create new value, three factors must be present – an

entrepreneurial opportunity, the resources to pursue the opportunity, and an entrepreneur or

Entrepreneurs need to understand the concept of opportunity recognition: the process of

discovering and evaluating changes in the business environment, such as a new technology, socio

cultural trends, or shifts in consumer demand that can be exploited. Changes in the external

environment can lead to new business creation, but the discovery of these new ideas is not

Resources are an essential component of a successful entrepreneurial launch. The most important

resource is usually money, but human resources, strong and skilled management, is also an

Launching a competitive venture requires a special kind of leadership involving courage, belief

in one’s convictions, and having the energy to work hard. Three characteristics of entrepreneurial

leaders are:

●Vision

To achieve excellence, venture founders must understand the customer, provide quality products

With Steve Jobs as the founding entrepreneur, the competitive advantage offered by the resources

he acquired and developed, and the opportunities present in the external environment, could