Introduction

The recent trends in the increasing competitiveness of the global market place with its
accompanying threats to the survival of many industries has forced several managers to rethink
the way they do business. There has been a paradigm shift from the yester years philosophy
where by apart from the recurring operational level planning for finances and basic forecasting,
strategic management was relegated to the bench on most corporate level discussions on growth
and success to a modern thinking where most managers now consider strategic management as
an effective weapon in their arsenal for securing sustainable competitive advantage in their
operational markets. The rise and fall of many businesses either through very good effective
strategies or through a deficiency in sustainable strategy only go to reiterate this point further. In
order to fully comprehend the many benefits of strategic management it is necessary that we
understand what the concept means. Strategic management in its basic form comprises of the
many intended and emergent initiatives taken by the management of a company involving the
usage of its resources to enhance the performance of the company in its external environment
(Lynch 2011). It involves a careful study of an organisations internal environment and its
interactions with its external environment (customers, competitors, suppliers, macro
environment) all with the aim of maximizing the positive influences of its environments whilst
minimizing their negative effects. Central to the theme of strategic management is the need for
business leaders to be in touch with their business environments so as to be in a better position to
respond to varying stimuli. This need for greater environmental awareness can be as a result of a
deliberate plot by the business to shape its future through a series of well thought out initiatives
for the realisation of a specific end or as a means of continuous survival evolution without a
concrete end (the end of one journey begins another). Irrespective of the approach that a business
takes to realising its strategic potential, all strategic planning initiatives consist of three distinct
stages namely strategic analysis of the businesss environment, strategic development of options
and the strategic implementation of one or a combination of the developed options.
Figure 7: Summary of Industry Threats (Computer Equipment and Entertainment Distribution)
Type and Organization
Severity of

Examples

Threat
Entry

Verizon

Streaming audio and video with V CAST.

High
Threat
Amazon

On demand online services to purchase music (similar to

iTunes).

Google
The

They make everything.

Next New entrants with disruptive technology.

Google
Rivalry Microsoft

Windows Operating System, Windows Media Player for

High

playing music and video.

Threat
Linux

Competition to Mac OS X Operating System.

Napster,

Online music sources alternatives to iTunes Music Store.

Rhapsody
Dell, HP, Lenovo

Alternate sources for computer hardware.

iRiver, Samsung, Small, stylish MP3 Players.

Creative

Substitute
s

DreamWorks

Animated movies.

YouTube.com

Online video.

XM, Sirius

Satellite Radio for music.

XBox, PS2

Entertainment Media, Media and Music.

Various

Internet Streaming Radio and Podcasts.

Moderate
Threat

Music

CDs, Alternative means to acquire music.

DVD-Audio and

SuperAudio CD
Broadcast, Cable, Alternative sources for video.
Satellite, NetFlix,
TiVo, Theatres
Suppliers

Motorola,

IBM, Suppliers of Processors and computer memory.

High Intel, Samsung

Threat
Microsoft

Strategic Alliance / Supplier of Office for Mac.

The Big Five - Sources of music. Will they raise prices and break the dollar
BMG,

EMI, per song model? Some in the record industry resent Apples

Sony, Universal, distribution model. Apple reaps billions from selling its hit
and Warner

music player, but there are sparse profits from the songs being
sold over the Net. (Burrows, Grover, and Green)

Disney,

ABC, Suppliers of Television and Movies. Will they sign exclusive

NBC, CBS, Fox, contracts with other online services? Note that this threat is
Pixar, Sony
Buyers

Consumers

reduced for Disney / Pixar.

and Consumers share music using peer-to-peer networks without

Moderate

Illegal

peer-to- paying for music.

Threat

peer file sharing

Distributors

Apple retailers may pressure for lower prices or better terms.

For example, the release of the Apple Store in 2001
infuriated longtime independent Apple retailers that didnt
appreciate Cupertino cannibalizing their sales. (Linzmayer,
300)

Consumer

Consumers or businesses may reduce spending on personal

Attitudes

and computers or non-essential (potentially high elasticity of

Behaviors

demand) music players if they fear economic downturns.

Consumer

Consumers and businesses may continue to use previous-

Refresh Cycles

model iPods and Macs rather than upgrade to current iPods,

iMacs, or OS

The total industry threat for the industry space that Apple occupies (computer equipment and
distribution of entertainment) is a high threat industry. Apple must continue to pursue product
differentiation (i.e. the style and ease-of-use of an iPod) and economies of scope (i.e. offering
ABC television shows on iTunes) to maintain their sustained competitive advantage in this
industry.

leadership of Apple
The perceptions of senior management about their internal and external environment often than
not contribute a great deal to shaping the strategies of most organisations. The important role
management assumptions play in shaping strategy can be seen through an example of a company
that fails on various occasions at introducing a new product to the market being very unlikely to
get management support for the reintroduction of similar products because of their past
experiences of failure. A companys held assumptions may be based on a number of factors.
Apple views itself as the producer of very innovative high quality products which usually sets
the pace in which ever market they compete in. Due to this, most of Apples products are
premium priced to match this perception of higher added value to the customer. This sense of
innovation translates into:
Leadership in the PC hardware and software for the creative arts consumer market through its
reputation as being the developer of the worlds first desktop publishing software (Page Maker).
Leadership in the personal music player market through the IPod.
Leadership in the digital music purchasing market through its online music store ITunes

Strategic Changes
Apple started off as a maker of PC products having picked up ideas from a visit of it soon to be
founders to the research laboratories of Xerox. This visit inspired them in the development of its
first wave of innovative easy to use PCs that were applauded market over. The sway its first
generation products had on the market was short lived once competitors were able to imitate
them. Learning from this experience, Apple has since tried to be on the front foot of which ever
market it do decide to participate in. Its hallmark has been to bring positive disruptions through
innovation and thinking differently. Apple over the years has learnt that products and
technologies can be copied once they are launched and whatever first mover advantage they
possess at product launch will erode as the product matures. Constant product innovation to them
is the only way they can stay ahead of their competition.
1.5 Industry Trends
The perception of a companys management about the industry in which they operate in affects
the kind of strategies they will deploy in their battle for supremacy. According to Michael Porter
(Porter, 2008) the competitiveness of any industry can be assessed through five key determinants
which include the ability of new entrants to break into the market, the bargaining power of
buyers to drive up value and lower product cost, the bargaining power of suppliers to drive up
their returns, the availability of products from other markets 9 | Page that offer similar functions
and the intensity of the rivalry between existing competitors. In an industry where the odds have
always been against new entrants will see existing market players placing very little emphasis on
the threat from a new entrant. A companys held views about the industry in which it belongs can
be its advantage as well as its demise. Correct views held by an organisation about its market
may help determine where the companys efforts should be channelled to gain advantage whilst
an organisation with a wrong perception about its market may be blind to possible threats which
can affect its survival.
Apples perceptions about the PC industry in its initial foray into business led to its loss to
Microsoft, with the latter growing to become the market leader in Personal Computing software.
Apple has since moved on from its initial setbacks in becoming a force to reckon with in varying
markets. Nokia as a market leader had always seen itself as insulated from the threats of new
entrants in the mobile telephone market, after all, existing competitors were already struggling to

compete in the market. This oversight allowed Apple to foresee a strategic gap in Nokias
product offering and take advantage of that.
The strategic capabilities
A companys strategic capability can be defined as the key resources and competences needed by
the company for its survival and prosperity (Johnson, et al., 2008). An understanding of a
companys capabilities is useful in understanding how it might respond to a competitive attack. A
companys strengths usually lie in its resources and the way it utilizes these resources
(competencies) to counter threats and secure opportunities. A companys resources can be both
tangible (physical assets such as workers, factories, and equipment) and intangible (non-physical
assets like information, intellectual rights) and comprises of physical, financial, human and
intellectual resources (Johnson, et al., 2008).
1.6.1 Apples Strength
In accessing the strength of Apple, it can be seen that Apple is a company with a strong brand
name, a leader in the online music download market, possesses a strong vision led by the
charismatic Steve Jobs and has a solid financial base. Apple by offering exclusive contracts on
their mobile phones maintain their identity as a premium brand producer. Apples ability to offer
innovative but yet easy to use quality products coupled to its skill in product design contributes
to its strength. Apple is known within the industry circles to be very cost efficient.
1.6.2 Apples Weakness
Apples weakness lies in its pricing strategy which has the tendency to discourage potential
customers whose selection is based on low pricing. Also Apples history shows that although the
company has always been a first mover through innovation, its competitors have always been
able to imitate this over time. This presents a challenge to them staying competitive over the long
haul. Further the companys preference for direct distribution or limited partnered distribution
chains as was in the case of the IPhone means that the company will be missing the benefits of a
broader exit through multiple channels for its products into the market. Currently in comparison
to Nokia, it holds a smaller share of the mobile phone market. This means any open

confrontation with the market leader may be to its disadvantage since Nokia can count on its
market position.

Value Chain Analysis

To determine where Apple developed distinctive capabilities, Porters generic value chain
model provides a systematic framework for identifying Apples utilization of resources. Primary
activities for Apple include Technology and Product Design, Production, Sales and Marketing,
Customer Service, and Legal Services.
Technology and Product Design
This component represents the true core (no pun intended) of Apples capability. From
being the first platform to run an electronic spreadsheet (VisiCalc on the Apple II Plus) to the
first to establish a digital lifestyle hub (the Macintosh product lines), Apples history is rich
with cutting-edge technology development. (Linzmayer) Apple drives to be the best, no simply
the first. The Apple operating system is universally regarded as more stable and reliable than
Windows, while the desktop publishing software bundles (iMovie, iPhoto, iTunes, etc.) are the
most comprehensive available to end users. Ives best summarizes the entrepreneurial culture
within Apple by saying that its very easy to be different, but very difficult to be better.
(Linzmayer, 301)
Production
Because Apple had long refused to license its operating system to external entities, the
bundled packages of Apple-developed hardware and software became the cornerstone of Apples
production process. Apple achieved unparalleled performance via 64-bit architecture, integrated

distinctive styling with the multi-colored translucent iMac cases, and redefined intuitive
operation with the iPod. While every product introduction has not been a success (Lisa, Newton,
etc.), Apple treats component production as a natural extension of the design process.
Sales and Marketing
We could simply title this section Steve Jobs. Since his return as CEO in 1997, Jobs
personally unveils all new product introductions, reviews corresponding marketing campaigns,
and approves new product development guidelines. In a departure from their turbulent history,
Jobs entered into patent cross-licensing and technology agreements with Microsoft.
(Linzmayer, 290) After years of unimpressive market share growth and cannibalization of a
loyal consumer base, the door to the expansive PC market was now more accessible to Apple
than ever before. Apple continued to command a market premium for producing a better
mousetrap throughout its history.
Customer Service
How has Apple retained substantial cash reserves during the explosive growth and
dominance of PCs worldwide? Apple created a virtual love affair with their customer base by
delivering technically superior products (iPods vs. other MP3 players, Macs vs. PCs, etc.), and
aggressively pursuing hardware and software updates. Apple integrated their primary activities
so well that it is transparent to the consumer where one activity begins and the other ends. A
perfect example of this is Apples willingness to develop software to run Windows XP on its new
Intel-based iMac and then post it online free to iMac users. (Wingfield) In such an environment,
customer service merely becomes the realization of receiving a little more than expected.

Although Apple employs many resources and capabilities to support their primary
activities (human resources, supply procurement, etc.), the most strategically relevant would be
Legal Services.
Legal Services
In a market climate of constant change and innovation, it is inevitable that the drive to
expand product and service offerings will subject Apple to patent and copyright infringement
claims. The dispute over the Apple logo on its iTunes Music Store, for example, continues
despite a previously reached settlement with Beatles Apple Corps Ltd. in 1991. (Dow Jones
Newswires) While such litigation as Microsofts Windows infringement on Mac OS patents has
been highly publicized, use of legal guidance to drive acquisition versus internal development
strategies for such products as GarageBand and iMusic have proven highly valuable.
(Linzmayer, 172-4, 250) Intellectual property is sacred to Apple. There was a recent attempt to
uncover the identities of internal sources who leaked confidential information about an
unreleased product to online media outlets in 2004. (Wong)

Apples strategy Variation over the years

Apple has varied its strategies very little over the timeframe of the case recovering from its
initial upset in the PC market where by it employed a non-cooperative approach to an emerging
market although it had first mover advantage in contrast to Microsofts strategy of building
advantageous relationships with key suppliers and promising distribution channels. Microsofts
strategy ensured that its products set the taste and requirements for this new market. Since then
Apple have had to play catch up to Microsofts market share. Irrespective of this setback, Apple
stayed true to its vision of organic growth by building a vertically integrated process chain opting

to develop both the hardware and software components of its PC line different to the approach of
its competitors.
Since then Apple have been more open to cooperation with key market players when it sees the
possibility of forming a strategic Alliance with no direct threats to its business ambitions. This
can be seen in its approach to the development of the ITunes Music Store by partnering with five
of the worlds biggest record labels for the creation of one of its very successful business
endeavours.
Apples strategy to market development described using Porters generic strategies (Porter, 1980)
is based on a focus approach where by it targets a section of the market with varied needs from
the general population and provide tailored solutions. By leveraging on its ability to provide a
product different to what its competitors offer, the company is able to arouse in their customers
that feeling of uniqueness. This ability to create the perception of only providing premium
products enables Apple to command higher prices on their products.
Apples strategy to growth and expansion is through diversification into new markets with new
products although ensuring that the potential for a relationship with its existing products exist.
By developing products that can be integrated in a way although for different markets, apple
capitalise on the potential to cross sell existing products to buyers of the new products. This
strategy falls in line with Apples strategic direction of not just developing standalone products
but rather an ecosystem of functionally related consumer products which work in harmony to the
ultimate satisfaction of the customer.
Apples core strategic principles in its business endeavours can be summarised to be:
1. Focused strategy to market development through product differentiation.
2. Related diversification taking advantage of strategic gaps in surrounding markets.
3. Vertical integration taking control of its up and down stream supply networks.
4. Achieving cost efficiency so as to increase profit margins.
5. Form strategic alliance when beneficial.

6. Seek first mover advantage where possible.

The fuel behind apples strategies is its ability to rapidly innovate to match the requirements of
the competitive markets in which the company operates in. its in-house technological know-how
working in tandem with its strong product design skills have enabled Apple to churn out market
defining products time and time again.
Personal Computers A Shift in Strategy
Apple has historically taken a far different path than the traditional Windows and Intel
combination.

Microsoft provides the Windows operating system to separate downstream

hardware producers such as Dell. Apple vertically integrated both the operating system software
and hardware completely under Apple. A consumer running Microsoft Windows can choose
from a myriad of systems based on the Intel processor, while a consumer running Apples OS X
must purchase Apple hardware. Apple continues to retain a strategic option to license its
technology to clone makers such as Dell. Past attempts at licensing Apple technology (to IBM,
Gateway, and others) failed on accord of Apples rigid demands.
Apple is adjusting this strategy by migrating their microprocessors from IBM and
Motorola PowerPC to Intel. Analysts believe that the Intel-based Macintosh may be able to run
Microsoft Windows applications by the end of 2006. (Burrows)
In addition to switching processors, Apple positioned their computers as an immediate
option for the traditional Microsoft Windows user. With Apple Boot Camp, users may now use
Mac OS X or Windows on an Apple computer. (Sutherland)
Strategic Alliances and Entertainment

Jobs had the early strategic vision to complement computing with movie entertainment.
After founding NeXT, he personally acquired a majority interest in the young movie company
Pixar in February 1986. (Linzmayer, 219) Jobs went on to invest of his personal wealth into
Pixar. The alliance between Pixar and Disney has tremendous potential for economies of scope.
Opportunities include combining the animated movie expertise of Disney and Pixar, as well as

sharing the content of Disneys ABC or ESPN networks over Apples digital offerings. (Burrows,
Grover, and Green)

Lessons that can be learnt from Apples strategies

Apples strategies over the years have taken it from a small maker of PCs to a global giant in the
personal consumer electronics market. There are many lessons that other companies can learn
from Apples strategies:
3.1 The benefits of learning from ones failure
No company ever wants to fail but in todays ever changing markets, failure might come. Apple
lost its first competitive battle to Microsoft which most industry pundits would have based on to
signal the end of them. However being gracious in defeat, Apple saw its lost as an opportunity to
learn. The company went back to the drawing board recooked its strategies and its subsequent
products were hits. Irrespective of its new found success, some of its products like the Newton
personal assistant still struggled to make an impact on the market and was hence dropped. This
tells us that even very good companies do fail sometimes and there is no golden rule to strategy
but learning.
3.2 The ability to take risk through innovation
The fuel to Apples fire is its ability to innovate and not just innovate but innovate rapidly. With
the ever changing demands of todays modern markets, a companys ability to meet the demands
of the market will be the determinant of its survival or demise. Innovation is the way through
which companies can gain advantage in very competitive markets. Apple realised this fact early
in its life and made it its guiding principle (Apples slogan: Think Different). Innovation has the
ability to breathe new life into stagnant markets and allows companies to reap profits from
otherwise barren markets. However despite all the benefits innovation can bring to a company
there is no escaping the fact that innovation is a risky choice albeit it pays off when done right.
The prospect of conservative markets rejecting new products is high. In spite of this fact, Apple

have taken this gamble over and over again winning most of the time when its competitors have
preferred to rather sit and watch.
3.3 The benefits of understanding your consumers and their needs
Apples focused approach to market development means that they only develop a product when
they have identified a strong need to be met. This limits the chances of failure as there will be a
market ready for the product when launched. This approach to market and product development
can be rather tedious as it requires really getting to know your market segment. The niche market
approach has been shunned by many businesses since this requires tailoring products to suit a
small section of the general population which goes contrary to popular perceptions of production
like economies of scale. The ability of a company to serve such markets may lead to increased
returns since niche markets usually command higher prices. Apple is able to charge premium of
its products by way of being able to provide to its customers just what they want.

3.4 The benefit of having a keen eye for opportunities

Apples ability to recognize strategic gaps between already existing markets and capitalize on
them is profound. The music industry was not a product of Apples creation neither was the
mobile phone market, however the companys ability to identify a strategic gap in the offerings
of existing market players and capitalize on that was what really set them apart. The IPod and the
ITunes music store helped the music industry solve an existing issue with piracy and the IPhone
set the standard for a new way users interacted with their phone. This gave the company first
mover advantage in already existing markets something very rare in hyper competitive markets.
Strategy is about the way and manner companies take advantage of the opportunities in their
environment. Being attentive to detail will help managers pick up on opportunities their
competitors might have ignore