SWOT and KSF Report on Apple Computers

  SWOT and KSF Report on Apple Computers

1. INTRODUCTION

This SWOT and KSF report on Apple will begin with a brief description and history of Apple. This is important as Apple’s development since its founding in 1976 by Steve Jobs and Steve Wozniak has been erratic, to say the least, and a SWOT and KSF analysis carried out in the early or middle years would look very different from such an analysis today. Apple Computer, Inc is an American computer technology company with annual sales of $13.9billion and 14,800 employees worldwide. Apple develops, sells and supports a series of personal computers, laptops, portable media players and software and hardware accessories. Its most famous products are: the iPod portable music player, the iTunes store and the Macintosh line of personal and laptop computers. The company operates retail stores in the United States, Canada, Japan and the United Kingdom.[1]

1. Objectives

The objectives of this paper are as follows:

1. To give a brief history of Apple since its beginnings in 1976, highlighting key developments and events.
2. To carry out an internal analysis of the company: identify its strengths and weaknesses
3. To carry out an external analysis of the company: identify the opportunities and threats in the marketplace
4. To identify key success factors by industry, organisation and customers.

2. History

On October 6, 1997, Michael Dell, CEO of Dell Computers, was asked what he would do if he owned Apple. He is reputed to have said: “I would close it down and give the proceeds to the shareholders.”[2] On January 13, 2006, Apple’s market capitalisation surpassed that of Dell![3] The financial ups and downs of Apple reflected in this situation require some brief explanation. The beginnings of Apple in 1976, like Hewlett Packard, were in a garage. Jobs and Wozniak sourced components from where they could and sold personal computers at low volumes – the Apple I and later the Apple II. They rapidly became market leaders, however, and began to symbolise the personal computer revolution. Their name initially was built on good colour graphics and high build quality. They were the first to introduce a personal computer on to the market with graphic user interface (GUI), the Apple Lisa and with the advent of spreadsheet software their reputation was enhanced by the association with the then market leaders, Visicalc, which enabled them to enter the business market. Apple more or less invented the DTP (desk-top-publishing) market in the early 1980s with the introduction of the Macintosh but there were technical problems, internal disagreements and Steve Jobs left in 1985 to be replaced as CEO by John Sculley and set up his own company, Next. During this period (post 1985) IBM launched its range of PCs and Microsoft launched Windows – in direct competition with Apple. Apple Lisa never took off in the market due to its high price. Under Sculley’s leadership the Powerbook range of laptops were introduced in 1989 – the first laptops to hit the market - and for two years Apple experienced a boom in sales and profits. Microsoft and IBM were, however, constantly gaining ground and the combination of IBM, Microsoft and Intel were becoming the industry standard. A diversification into consumer electronics – digital cameras and PDAs (personal digital assistant) failed as did the attempt to sue Microsoft for theft of intellectual property. In the mid 1990s Apple seemed to have lost its way. It suffered crippling financial losses and its share price sank to a 12 year low. Continuous attempts to improve the operating system and launch new models – partly in collaboration with IBM and Motorola – failed. In 1997 Apple purchased Next and Jobs once again became CEO of Apple. One year later the highly successful iMac was launched, improvements were introduced to operating systems – based on Unix but with much improved user interface - and in 1998 Apple had its first profitable year since 1993. The following year it entered the digital video editing market with software first for consumers and then for professionals. The first Apple stores were introduced in 2001, as was the digital audio player, the iPod. This was followed by the launch of the iTunes store, which had achieved 1.5 billion music downloads by September 2006. Other consumer applications followed, to be grouped into the iLife suite. Hardware lines were clearly positioned to target consumer and professional markets: white polycarbonates for consumer lines – the iMac and iBook - and metal enclosures for the professional lines. The most dramatic recent development has been the partnership with Intel, its former rival. The first Apple computers with Intel chips were introduced in January, 2006. This has resulted in the launch of a string of new models and further improved operating systems which enable use of Windows and Microsoft Office on Apple machines. In the 2003 – 2006 period Apple’s share price had risen from a low of $6 to a price in October, 2006 of $80.[4]

3. Internal and External Analysis

SWOT analysis is a simple tool, favoured by strategic planners, which enables analysts to explore the linkages between the firm’s resources and its environment.[5] The point is often made by writers[6] that it is difficult to distinguish between strengths and weaknesses and opportunities and threats. Piercy makes the additional point that many SWOT analyses contain little more than self-evident “motherhood” statements which contribute little to the real planning task.[7] He recommends that SWOT analyses be sharply focused if they are to be useful and that they have a clear customer orientation.[8] The analysis below will take this advice to heart. 3.1 Internal Analysis

1. Strengths

I will define a strength as any resource or capability which either has been, or can be, transformed into a benefit for customers and an advantage over competitors. Strengths will be evaluated under the following headings:

• Products and brands
• Technology
• People
• Systems and structure
• Partnerships

Products and brands: In broad terms Apple’s products can be split into computer-related (PCs and laptops) and entertainment-related (iPods and iTunes). Pre 2001 Apple’s sales revenues came almost 100% from sales of computer hardware and software. In October, 2006 sales of iPods made up over 30% of sales revenue, sales in Apple Stores about 15% and iTunes download sales almost 10%. Apple has about 70% of the portable digital audio market and 82% of the music download market.[9] These brands are clear market leaders and their success appears to produce a “halo effect” which has increased sales of laptops and PCs in 2006 (the Mac brand). Apple has moved rapidly from a brand which had a small cult following to one which is now accepted and respected by the mass consumer and business markets. With these strong brands and the success of Apple Stores Apple has the foundation for sustained sales and profit growth. The new “i” brand, iTV, which enables users to download films on to their TV will undoubtedly be a huge success in 2006-7. It was launched in September, 2006.[10] Technology: With the iPod and iTunes Apple is at the leading edge of the digital entertainment business and constantly has been able to introduce product refinements and extensions via in-house design expertise and partnerships with external suppliers. It has since its beginnings in the 1970s had a reputation for technical excellence in the build of its computers and for the ease-of-use of its software(see the History section above). This is now enhanced via its partnership with Intel, which enables it to compete directly for the mass market against market leaders, Dell and Hewlett-Packard. People: Steve Jobs, the co-founder of Apple, has transformed the company from a state of technical bankruptcy in the late 1990s to a money-making machine in 2006.[11] It is difficult to imagine that Apple could have been as successful as it has been without Jobs. He is the clear R&D and Marketing leader. His reputation has enabled him to recruit excellent people in key positions, who have been consistently able over the past 5 years to launch new and modified products on to the market at great speed. Systems and Structure: Apple appears to have an organisation which allows Jobs and his colleagues at the top to move very fast from product conception to market launch. Jobs has the reputation of being a marketing genius and is able rapidly to win the support of his colleagues and partners. He does not have the problem of having to counter the bureaucratic structures and culture of a Ford, GM or Motorola – or even Microsoft. Partnerships: Apple has partnerships with Intel on the computer side, with all the major music companies for iTunes, with Disney, Touchstone and Miramax for iTV. It has recently set up a partnership with a major retail store in the USA, Best Buy, which could “increase its retail footprint by 10%”[12]and it is likely that the ailing Dell Computer will soon wish to add Apple to its portfolio. It is already working with HP, who bundle iTunes software on to their Windows PCs.[13]

2. Weaknesses: Apple’ major weakness in the past has been the incompatibility of its standards and, as a result, its inability to be other than a niche player. This has made distribution difficult. On-line sales, the success of the “i” brands, the partnership with Intel and the Apple stores have removed this weakness. The only other clear weakness is its main strength, Steve Jobs. If he were to go, for whatever reason, market confidence in Apple would probably fade and there would be doubts about its ability to survive.

4. External Analysis

1. Opportunities

In the portable entertainment business Apple is already clear market leader and, via continuing natural market growth, extending into other than the youth market, modifying and extending products to continue and reinforce its hold on the youth market (digital video and the iPhone) and building its on-line movie business it has significant growth opportunities for the future. If, however, as some pundits suggest, the focus of home entertainment in the future will be the PC, it needs quickly to build its base of PCs. “Apple’s problem is that it has only 2.6% of the world market for PCs whereas Windows runs on almost all the rest.”[14] Apple already has managed to boost its PC and laptop sales via its partnership with Intel. Partnerships with BestBuy, HP and Dell and the “halo effect” of the iPod should also enable it to grow computer sales quickly.

2. Threats

Apple appears to be in a very strong position in both of its major markets. It is clear leader in the one and has clearly differentiated products with vast sales potential in the other. The major threat is that it becomes complacent, fragments itself by trying to develop too many products in new markets and thus loses market share in its core product/markets. There is always the additional threat in such fast-moving markets that a new idea emerge which renders current products obsolete overnight. If Jobs and his R&D team stay close to the market, as they have done so far, and maintain their ability to move very fast, this is unlikely to be an issue. Another threat is the problem of continuing to find new partners who will enable them to grow sales. New partners such as Dell (potentially) and HP may see them as competitors and may therefore resist partnership. The same will certainly also be true of the iTV business where major film corporations may see iTV as competition for their cinema and DVD revenue.

5. Key Success Factors

1. Industry

Defining clearly the industry in which Apple competes is not easy, particularly as there is convergence across the different elements. I will simplify as much as I can by classifying the “industry” as having three components: PC and portable computing aimed at consumers, PC and portable computing aimed at businesses and portable and home entertainment.

1. PC and portable computing – consumers

The key to Microsoft and Intel’s success in this sector was that, via the initial links with IBM, they became the de facto standard for the sector. Just as there was no room for VHS and Betamax, so was there hardly room for other than the key players. Compatibility remains crucial if the mass market is to be reached. Niche players tend to remain in their niches. Linked to this is the importance of achieving and, maintaining quality and intensive distribution using quality partners who can offer a high-quality after-sales service. The third crucial factor is that of design. When features become generic the purchase decision is often based on design excellence. If the price is not competitive (Apple’s earlier problem) the above are irrelevant.

2. PC and portable computing – business

Compatibility is even more vital here, as is value for money and the ability to guarantee acceptable, reliable after sales service geared to the particular needs of the industry. Partnership with credible third party resellers (VARS) is also a vital success ingredient, backed up by professional on-line support.

3. Portable and home entertainment

This market is mainly a youth market and is driven by ease of use and design. Despite Apple being market leaders there are many players and many big companies among these players, all keen to differentiate themselves. Differentiation will come from a mix of design, flexible and efficient supply chain management, intensive distribution and imaginative advertising. 4.2 Organisation Apple has a tradition of emphasising the user experience, rather than the technology which delivers this experience. This “total customer orientation” is supported by an informal corporate culture, non-hierarchical structure and casual attire. Creativity and individuality are fostered which results in creative, talented people being attracted into the organisation. The company runs an Apple Fellowship programme which awards Apple Fellowships to staff who have demonstrated extraordinary leadership or who made key contributions to technical developments. Each fellow is expected to act as a leader and visionary in his/her particular area of expertise. This helps to sustain creativity and dynamism within the company.[15] 4.3 Customers Four key customer segments need to be understood:

• Current users in the youth market
• Non-users in the youth market
• Non-users in the older age groups
• Business non-users (there are very few users)

Current users – youth market: the market is driven by image, price and new design features. Growth will come from Apple’s ability to make current offerings obsolescent and to extend the range of products. Growth in the PC and laptop sectors could be accelerated by clearly linking IMacs to the iPod and iTunes. Non-users in the youth market: probably not worth spending a lot of time on. Those interested in the product will probably have bought already. Others may be attracted by lower price but this would cannibalise sales of higher margin products. Non-users in older age groups: the key success factor here may well be the ability to position the entertainment products away from their youth and to stress more the high quality of music and video reproduction. ITunes would need to be extend its listings to more serious music, the iPod should stress integration with home and in-car systems. If the computer ranges are to succeed the emphasis will need to be on compatibility with Windows standards. Business non-users: Business buyers will seek above all reliability and compatibility with current systems. Scepticism could be removed early if Apple were able to convert a few key reference customers. They will need distribution partners who specialise in system selling. As the best ones will be currently tied in with the competition this could well take time to develop. Once reliability, compatibility and distribution issues are solved Apple’s design excellence and user-friendliness could give it clear competitive advantage. BIBLIOGRAPHY Books Grant, R (1997), Contemporary Strategy Analysis, Blackwell Business Piercy, N (2002), Market-led Strategic Change, Butterworth-Heinemann Journal Articles Anonymous article in The Economist, “Apples for Couch Potatoes”, September 14, 2006 Anonymous writer in The Economist, “The Digital Home”, September 1, 2005 Hesseldahl, A (2006), “Record-breaking quarterly sales of the Mac are putting Apple into the running for a top computer spot”, Business Week, October 19 Internet https://en.wikipedia.org/wiki/Apple_Computer https://en.wikipedia.org/wiki/Apple_Computer#Corporate_culture www.apple.com www.CNET News.com, October 6, 1997 www.macobserver.com, January 16, 2006 1

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[1] www.apple.com [2] CNET News.com, October 6, 1997 [3] www.macobserver.com, January 16, 2006 [4] https://en.wikepedia.org/wiki/Apple_Computer [5] Grant, Robert M (1997), Contemporary Strategy Analysis, Blackwell Business, p44 [6] Grant, p44 [7] Piercy, Nigel (2002), Market-led Strategic Change, Butterworth-Heinemann, p543 [8] Piercy, p540-543 [9] Hesseldahl, A, “Record-breaking quarterly sales of the Mac....” BusinessWeek, October 19, 2006 [10] Anonymous article in The Economist, “Apples for Couch Potatoes”, September 14, 2006 [11] Hesseldahl, A, as above [12] Hesseldahl, A in BusinessWeek as above [13] Anonymous writer in The Economist, “The Digital Home”, September 1, 2005 [14] The Economist, as above [15] https://en.wikipedia.org/wiki/Apple_Computer#Corporate_culture

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