PPLE'S PROFITABLE BUT RISKY STRATEGY

When Apple's Chief Executive-Steven Jobs-launched the Apple iPod in 2001 and the iPhone in 2007, he made a significant shift in the company's' strategy from the relatively safe market of innovative, premium-priced computers into the highly competitive markets of consumer electronics.

To understand any company's strategy, it is helpful to begin by looking back at its roots. Founded in 1976, Apple built its early reputation on innovative personal computers that were particularly easy for customers to use and as a result were priced higher than those of competitors. The inspiration for this strategy came from a visit by the founders of the company-Steven Jobs and Steven Wozniack-to the Palo Alto research laboratories of the Xerox Company in 1979. They observed that Xerox had developed an early version of a computer interface screen with the drop-down menus that are widely used today on all personal computers. Most computers in the late 1970s still used complicated technical interfaces for even simple task like typing-still called "word-processing" at the time. Jobs and Wozniack took the concept back to Apple and developed their own computer-the Apple Macintosh (Mac)-that used this consumer-friendly interface. The Macintosh was launched in 1984. However, Apple did not sell to, or share the software with, rival companies. Over the next few years, this non-cooperation strategy turned out to be a major weakness for Apple.

Around the year 2000, Apple identified a new strategic management opportunity to exploit the growing worldwide market in personal electronic devices. It would launch its own Apple versions of these products to add high-value, user-friendly software. 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. 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 Apple's 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.

And the leader in mobile telephones-Finland's Nokia-was about to hit back at Apple, though with mixed results. But other companies, notably the Korean company Samsung and the Taiwanese company, HTC, were to have more success later. The world market leader responded by launching its own phones with touch screens.

As a short term measure, Apple hit back by negotiating supply contract 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. But there was no denying that the first Apple table carried some initial risks for the company.

All during this period, Apple's strategic difficulty was the other powerful companies 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. 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. Apple had at last found the best, if risky, strategy.

Source: Adapted from jstor.org

Apple Annual Report and Accounts for 2006 and 2010. www.apple-history.com/history.

QUESTION 1

Using the concepts of Strategic Management, undertake a competitive analysis of both Apple and Nokia. Who is the stronger?

QUESTION 2

What are the problems with predicting how the market and the competition will change over the next few years? What are the implications for strategy development?

QUESTION 3

What lessons can other companies learn from Apple's strategies over the years?

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