APPLE INC. VALUE CHAIN ANALYSIS

Apple Inc., a consumer electronics firm, is more perceived as a marketing company than

a technology company. This turnaround is brought by the experiences of the company

throughout the years by learning with its business mistakes (Gardiner, 2008), retaining the core

principles, and expanding operations through extensive partnerships. Written here are the

analyses of the firm’s primary and secondary activities that led to a transformative, profitable

company outwitting its competitors’ moves. The primary activities of the company includes the

inbound logistics, operations, marketing and sales while the secondary activities includes

purchasing, human resource management, and technology.

Apple Inc.’s dedication in its own manufacturing operations starts with the right moves in

the acquisition of raw materials. For the longest time, Apple Inc.’s principle of “doing it their

own” had led to failed attempts to seize the market due to overpromising and under delivered

market offerings (Apple Inc., 2008). Recently, the company realized that outsourcing raw

materials that are core ingredients in a product that is otherwise already available in the market

is a step to their competitive advantage. The acquisition itself saves the time that is dedicated

to research, creating a prototype, and testing. Although it cuts down the cost in research,

manpower and technology, the major setback is the high procurement cost of the supply. The

company then turns to look at a long term perspective where the technology can immediately

return the profit at a short period of time. This is of course a gamble to the company who is

starting this strategy. Thus, the company further enhanced the technology that became their

competitive advantage against the other offerings in the market.

Hiring supplies externally raises the issue of control and risk that is equated to a cost to

the company. Since the company will be relying heavily on its suppliers, it had developed a

control system called Suppliers Code of Standard that can measure manufacturing standards,

labor related issues, sourcing of raw materials, and ability to meet deadlines. The company

also requires its suppliers to understand the fast-paced and dynamic operations needing

immediate response time and attention. Further to this, the company takes a step further by

providing training to its suppliers’ supervisors and staff such as academic and life skills (Apple,

Inc., 2008). This helps eradicate the additional costs that Apple will incur if it produces its own

chips or new software and is converted as a value to customers. The expertise of a supplier is

also an advantage since they focus on the quality of a certain product that serves as a raw

material in the packaged hardware that Apple Inc. manufactures.

One move made by Apple is the partnership with Intel that reaped rewards not just for

profit but for the delivery of products. Before, the company’s chips called PowerPC and

supplied by Freescale (previously Motorola) and IBM took years to integrate the

technology and offer to the public. With Intel, the transition period commenced earlier than

expected and had its PCs available to the market before target date. This move is an

advantage for the company where most of its competitors are already using Intel chips and its

latest Intel Core Duo during that time (Apple Inc., 2008). This helps the Apple Macs at par with

its competitors and added value to its customers.

Apple Inc. also made use of vertical integration where it purchased NeXTstep, a

company with the technology of a multi-tasking operating system. This helped in the

development of the now available in the market, Mac OS X. This venture, helped lower down

the cost of developing the same technology and is now readily profitable and multi-branded

(Leopard and Tiger) in the market (Apple Inc, 2008).

Another example is the licensing of Microsoft’s open software for Mac. The open office

of Microsoft helped Mac users who are familiar with Microsoft applications such as Word, Excel

and Powerpoint also use the software in Macs (Apple Inc., 2008).

Another partnership that is laughed about by its major competitor, Microsoft (Trade

Vibes, 2008), is the acquisition of Playforsure (Apple Inc., 2008). Where Microsoft had

developed an ideal media player however quite expensive for the market, Apple Inc. used the

technology of Playforsure to develop its line of music players that is now profiting at a minimum

of 10% quarterly.

The forging of partnerships with meaningful improvements with its suppliers had

contributed to Apple Inc. turnaround from its past failures in the computer manufacturing market.

Investors have responded positively in the new ventures and diversifications of Apple Inc. from

its core computer lines. It increased shares to $14 in 2002 and catapulted to $120 in May of

2007. Winning the trust of the shareholders increases value to its public in a long term

perspective (Apple Inc., 2008).

Apple Inc. is known for manufacturing its hardware and pre-installing the software

needed to run the item (Trade Vibes, 2008). The assembly line starts from its suppliers up to its

office of hardware engineering, software engineering, and industrial design (Apple Inc., 2008).

While competitors sell their products through retailers, Apple Inc. also has their own branded

Apple stores worldwide to help sell their product. Their store operations allowerd 3rd party

branded products of both hardware and software that are compatible with Mac such as Nikkon,

Canon, and Adobe. Further, they are able to hold out other compatible suppliers who did not

meet their standards such as the Dummies book where there was a conflict with the editorial

policy (Apple, Inc., 2008). The seamless control of Apple in these areas of production and

services helps in the implementation of standards and communicating effectively. For example,

a current exchange program for defective batteries were preempted by the company before a

massive outbreak from consumers took place.

To be able to be innovative in Apple Inc.’s product lines, it diversified its Macintosh

earnings and used it as a cash cow to tap the consumer electronics market. Expanding its

production to this new market also requires revamping in the way business works by adding

additional departments as needed such as iPOD division and iPHONE division (Apple, Inc.,

2008). The company also retained its old ways of doing things their own. They see a market

problem also identified by the competitors but instead of following the market leader’s

(Microsoft) moves as so did the whole industry, Apple Inc. made its original and innovative

products answering the same need. The partnership with suppliers with the needed technology

adds to this competitive advantage on how business works with Apple Inc.

The computer revolution in the 1970s, the reinvention of the personal computer in 1980s

and the innovations after that were the steps of Apple Inc. in its production and services (Apple,

Inc., 2008). Their current strategy is horizontal diversification by doing new technology and new

product while targeting the same market segment. Their offensive stance in innovation led them

to become the leader in technology and pioneer in expanding the core industry from merely a

computer firm to become a consumer electronics firm (Trade Vibes, 2008).

Apple Inc., being a marketing company, became very popular with its Superbowl ad in

1980s. Since then, the company had a dynamic team of working with its marketing campaigns

by enhancing the apple logo and making use of catchy slogans such as “Byte the Apple”,

“iTHINK, therefore iMAC”, and “Say hello to iPHONE”. The most popular but retired of which is

“Think Different” that is still associated with the brand. Since there is a high equity in brand,

Apple Inc. is the only brand with a repurchase loyalty users compared to competitor companies.

The target market is also well defined – a creative and educated population with a niche of

youthful subculture. The positioning statement is also clear focusing on the emotional benefit of

“a cool and hip image” in reference to the physical benefit of “a sleek hardware and great

software”. The company also rebrands existing products by using the word “the NEW” such as

in “the new iPOD”. Aside from the umbrella branding of the letter “i” at the beginning of every

word such sa iPOD, iTUNES, and iPHONE, branding also makes use of ordinary words that

become trademarks such Shuffle, Garage Band, and Cover Flow. In the advertisements, target

audiences have easy references for their decision making by giving the right level of

understanding such as equating an 8GIG memory to either 2,000 songs, 7,000 photos or 8

hours of video (Apple Inc, 2008).

Purchasing is one where the company has a list of suppliers as reference for future

expansion. In here, a portfolio of services that complements the companies existing and future

goals are assesses. Making available an equal opportunity for suppliers to submit their services

at their office or online (Apple Inc., 2008 and Trade Vibes, 2008) is helpful for the company in its

canvassing activities and short assessment period. The concept in purchasing is that if there is

already an available technology, the price or value of the technology is estimated in terms of its

long term profit to the company and value to its shareholders. Although the price acquisition is

significant, the company looks into its long term goals to justify the acquisition.

For example, the company had purchased Nothing Real and Macromedia’s Final Cut

software (Apple Inc., 2008). When Apple Inc. diversified into the digital video editing market,

products already available in the market is purchased simply because developing an in-house

video editing software is costly. The company then developed these two software to cater the

basic editing and professional digital video production market.

Steve Jobs, a former founder of Apple Inc. who moved to NeXTSTEP due to a board

conflict, found himself back as CEO of Apple Inc (Esch, 2004). when the Apple Inc. purchased

NeXTSTEP. Before he had stepped in, a number of CEOs had mismanaged and led the

company to failure for many years. The new CEO followed the discussions of Harvard case

studies and took into consideration their suggestion of which helped turn Apple Inc. around.

In his term, the board has an excellent composition ranging from different industries

such as Google, Avon, and a previous Vice President of the United States (Apple Inc., 2008).

The board practiced independence and leadership following strict good corporate governance.

A periodic report of the senior management of various marketing and operations are monitored

and reported to the board. The senior management team handles the different divisions of

retail, counsel, hardware, software, applications, industrial design, iPOD, and iPHONE. The

company was recognized through good corporate governance award for the economic recovery

and sustained long term performance (Bruner, 2000). However there is a fear that after CEO

Jobs retires, the same will not be recreated or there is no definite CEO succession plan for the

continuous growth of the company after Jobs (Esch, 2004).

The business culture of the company is considered non traditional, flat and casual. It is

said that CEO Steve Jobs can be seen walking around barefoot even when Apple Inc. is a

Fortune 500. It has a vertical integration so that a team can focus well and has accountability in

their hierarchy of product or service. This helps in the decentralized decision making process

for their product and is directly involved with the senior management (Bruner, 2000 and Esch,

2004). The advantage here is that a team can closely monitor the profit and loss of a product

based on costs and income.

The Apple brand had fostered individuality and excellence not only in its products but

also in its corporate culture that it drew talented people in the company. It is an equal

opportunity employer and active player in the hiring process of interested applicants. The

company recognizes the people who contributed in the personal computing industry in terms of

technology and leadership through the Apple Fellows program (Apple, Inc., 2008).

The company banked on its innovative ventures that helped shaped why Apple Inc. is

revered as the technology leader of the digital living room. For one, it made continuous

innovation to its product lines such as the new iPOD Nano where it (1) can be shuffled by

literally shaking the iPOD, (2) a long battery life for music and video, and (3) increase in memory

space. Although the company has various technologies in computer, laptops, music players,

and phones, the company practices concentric approach with the individual technologies listed.

For instance, the music technology produced iPOD, improved features, enhanced key benefits,

introduced iTUNES, eradicated the DI technology through partnership with studios that prohibits

transfer of songs to a 3rd party instrument, and the habit of podcasting. Second, the company

outsourced technology through partnerships with suppliers and developers complementary to

the core business as previously mentioned. Third, the company shifted its move to the adoption

of technology standards that was not implemented before. Apple Inc. became the leader in

adopting new technology standards that are widely available such as universal serial bus and

wifi technology (Apple Inc., 2008). These efforts are commendable and recognized by the

British Technology Awards of 2008 as Gadget of the Year, Best Mobile Technology and Most

Stylish Technology for the iPHONE and the Best Music Technology for the iPOD.

Bibliography

Apple Inc. (2008). Various Press Releases and News Articles. Retrieved October 10, 2008, from http://www.apple.com/hotnews

Esch, SV (2004). Apple's Success and Jobs' Succession. Macscope. Retrieved October 10, 2008, from http://lowendmac.com/scope/04/0121.html

Bruner, R. (2000). TI, Apple Get Pats on Back. Bnet Business Network. Retrieved October 10, 2008, from http://findarticles.com/p/articles/mi_m0EKF/is_29_46/ai_63642891

Gardener, B. (2008). Learning From Failure: Apple's Most Notorious Flops. http://www.wired.com/gadgets/mac/multimedia/2008/01/gallery_apple_flops

Trade Vibes (2008) Apple Inc Overview. Retrieved October 10, 2008, from http://www.tradevibes.com/company/profile/apple-inc