Case Study Individual (20%)

Question:

Apples profitable but risky strategy

When Apples Chief Executive Steven Jobs launched the Apple iPod in 2001 and the iPhone in 2007, he made a significant shift in the companys strategy from the relatively safe market of innovative, premium-priced computers into the highly competitive markets of consumer electronics. This case explores this profitable but risky strategy.

Unlike Microsoft with its focus on a software-only strategy, Apple remained a full-line computer manufacturer from that time, supplying both the hardware and the software. Apple continued to develop various innovative computers and related products. Early successes included the Mac2 and PowerBooks along with the worlds first desktop publishing programme PageMaker. This latter remains today the leading programme of its kind. It is widely used around the world in publishing and fashion houses. It remains exclusive to Apple and means that the company has a specialist market where it has real competitive advantage and can charge higher prices. Not all Apples new products were successful the Newton personal digital assistant did not sell well. Apples high price policy for its products and difficulties in manufacturing also meant that innovative products like the iBook had trouble competing in the personal computer market place.

Around the year 2000, Apple identified a new strategic management opportunity to exploit the growing worldwide market in personal electronic devices CD players, MP3 music players, digital cameras, etc. It would launch its own Apple versions of these products to add high-value, user-friendly software. Resulting products included iMovie for digital cameras and iDVD for DVD-players. But the product that really took off was the iPod the personal music player that stored hundreds of CDs. And unlike the launch of its first personal computer, Apple sought industry co-operation rather than keeping the product to itself. Launched in late 2001, the iPod was followed by the iTunes Music Store in 2003 in the USA and 2004 in Europe the Music Store being a most important and innovatory development. iTunes was essentially an agreement with the worlds five leading record companies to allow legal downloading of music tracks using the internet for 99 cents each. This was a major coup for Apple it had persuaded the record companies to adopt a different approach to the problem of music piracy. At the time, this revolutionary agreement was unique to Apple and was due to the negotiating skills of Steve Jobs, the Apple chief executive, and his network of contacts in the industry. Figure 1.9 shows that Apples new strategy was beginning to pay off. The iPod was the biggest single sales contributor in the Apple portfolio of products. In 2007, Apple followed up the launch of the iPod with the iPhone, a mobile telephone that had the same user-friendly design characteristics as its music machine. To make the iPhone widely available and, at the same time, to keep control, Apple entered into an exclusive contract with only one national mobile telephone carrier in each major country for example, AT&T in the USA and O2 in the UK. Its mobile phone was premium priced for example, US$599 in North America. However, in order to hit its volume targets, Apple later reduced its phone prices, though they still remained at the high end of the market. This was consistent with Apples long-term, high-price, high-quality strategy. But the company was moving into the massive and still-expanding global mobile telephone market where competition had been fierce for many years. (Note that with regard to Figure 1.9, the new iPhone was too new to have made any impact on sales or profitability in 2007.)

As a short term measure, Apple hit back by negotiating supply contracts for flash memory for its iPod that were cheaper than its rivals. Moreover, it launched a new model, the iPhone 4 that made further technology advances. Apple was still the market leader and was able to demonstrate major increases in sales and profits from the development of the iPod and iTunes. To follow up this development, Apple launched the Apple Tablet in 2010 again an element of risk because no one really new how well such a product would be received or what its function really was. The second generation Apple tablet was then launched in 2011 after the success of the initial model. But there was no denying that the first Apple tablet carried some initial risks for the company. All during this period, Apples strategic difficulty was that other powerful com-panies had also recognised the importance of innovation and flexibility in the response to the new markets that Apple itself had developed. For example, Nokia itself was arguing that the markets for mobile telephones and recorded music would converge over the next five years. Nokias Chief Executive explained that much greater strategic flexibility was needed as a result: Five or ten years ago, you would set your strategy and then start following it. That does not work any more. Now you have to be alert every day, week and month to renew your strategy.If the Nokia view was correct, then the problem for Apple was that it could find its market-leading position in recorded music being overtaken by a more flexible rival perhaps leading to a repeat of the Apple failure 20 years earlier to win against Microsoft. But at the time of updating this case, that looked unlikely. Apple had at last found the best, if risky, strategy.

Summary of the case study

Explain THREE (3) strength Nokia

Explain THREE (3) strength Apple

Explain TWO (2) weaknesses of Apple

Explain TWO (2) weaknesses of Nokia

Briefly explain ONE (1) strategy to Nokia and ONE (1) strategy to Apple to overcome their weaknesses.