1. © 2011 University of St. Thomas, Opus College of Business
Apple: Strategic Management Case Study
S. Bensen, A. El Haddi, K. Fitzsimmons, A. Hussein, H. Marotske
Strategic Management, UST Executive MBA
December 2012

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3. 3
1. Mac, the best PC’s in the world
2. Digital music revolution leader
3. Reinvented mobile
Mission
4. Defining mobile media & computing devices future

4. 4
3. Intentional
Misdirection
Core Values Revealed
1. No External Agencies
= No Disclosure
= What Life?
2. Internal Teams
4. Innovation
5. Research Driven Strategy

5. 5

6. • Created 600,000 Jobs in the US
• New announcement by Tim Cook
“Assembled in the USA” (Source: NBC News)
• “By itself, Apple’s iTunes and App stores make more money than The New York
Times; Simon & Schuster, which publishes the best-selling “Steve Jobs” biography;
Warner Bros. film studios, which owns the popular Batman film franchise; and Time
Inc., the largest magazine publisher in the U.S. Combined.”
-Edmond Lee
Source: Bloomberg
Recent News: Jobs by Jobs
6

7. 7
Apple, Inc.
Now
• Founded 1977
• HQ Cupertino, Ca. “The Mother ship”
• Largest U.S. company ever
• 72,000 Employees
• 80% of revenue is from new products sold from Mid Sept to M/E Oct
• 34 Patent Applications in October
Competencies
1. Simple, Well Designed, User friendly
2. Innovative Culture of Design
3. Loyal Customers
4. Technology iOS
5. Energy Efficient
Apple, Inc.

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Apple, Inc.
1. Operational Focus - Willing to release incomplete products
2. Wall Street - Engaging to increase dividends
3. Shifting Values - MBA vs. Liberal Arts
4. Relaxed Atmosphere - Leadership quiet yet demanding
5. Highly Ethical ?- Some might question
• Procurement
• Vendors
Internal Assessment

9. Leadership
Source: Mergent Online

10. 10
Governance
$50k per year
Serve one-year terms
3 Committees
Source: Mergent Online

11. Apple's board of directors has three committees:
 The Audit and Finance committee members are Ronald D. Sugar, Ph.D.
(Chairperson), Robert A. Iger, and Arthur D. Levinson, Ph.D.
 The Compensation committee members are Andrea Jung (Chairperson),
William V. Campbell, Millard S. Drexler, and Albert Gore, Jr.
 The Nominating and Corporate Governance committee members are
William V. Campbell (Chairperson), Millard S. Drexler, and Albert Gore, Jr.
11
Committees
Source: Mergent Online

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• Foxconn
• Product Quality
• Privacy
• Sustainability
• Intellectual Property Theft
• Patents
Source: The Telegraph
Ethics

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Management Effectiveness
Revenue per Employee $2,023,349
Net Income per Employee $539,528
RIA % (Net) 28.08
ROE % (Net) 42.15
ROI% (Operating) 55.79
Profitability Ratios
Gross Margin 44%
Operating Margin 35%
EBITA Margin % 38%
Calculated Tax Rate % 25%
Profit Margin (TTM) 27%
Valuation Ratios
Price/Earnings (TTM) 15.19
Price/Book (TTM) 53.3
Price/Cash Flow (TTM) 12.46
Asset Management
Total Asset Turnover 1.05
Receivables Turnover 10.13
Inventory Turnover 112.12
Prop Plant & Equip Turnover 13.26
Cash & Equivalents Turn 14.98
Financial Analysis

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80% 2012 revenue from new products sold Mid Sept to Oct 31 - CNBC
Industry Ratio Comparisons

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Reinvention
Change is Inevitable?

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Release history

19. LEADING INDICATORS
&
DEMAND DRIVERS
19

20. D = f(li1, li2, li3, …, lin)
 Market Share: Stable
 Search trends as an early indicator: Who has it?
 Networking effect
 Sharing
 Social Nets  Social Networking capabilities 20
Demand
And Adoption
Rate
Demand as a F(x) of leading indicators

21. Demographics
World Progress Indicators
21
Economic Leading Indicators

22.  Product Drivers:
22
Leading Indicators: Product Drivers

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ANDROID
iPhone
Mobile browser counter as a leading indicator ?

24. EXTERNALITIES
24

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Smart Phones: Competitors

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iPhone, Droid or Windows Phone ?

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Mobile computing: Laptops & Notebooks

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Banking: $$$$$$$$
Educational Financing
Distribution
• Kiosks
• Digital
• Cloud
• Direct
• Apple Stores
• Retail
• VARS
• Education
• App developers
• Effective Designers
• Infrastructure
• Talent (Well trained
workforce)
• Apple University
• $$$$$$$$$$$$$$$
• Manufacturing,
Suppliers, Partners
(100+)
iPhone
iPad
iCool
Patents
Design
Manufacturing
R&D,
IP Innovation Marketing
Quality
Value Chain & Business Model

29. • Design
• Miniaturization
• Security
• Ease of Use
• Reliability
• Marketing
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Open Systems
Improve + Innovate
“Closed” Systems
Cool! Secure
Reliable
Reduced Cost of production
Improved Sales & Margins
V
A
L
U
E
++
+
$$
$
FreeBSD
Key Success Factors

30. 30
B2B Market B2C Market
BOP $
Enterprise + Government
SMB
$$$$$ Class
$$$$$$ Affluent
Premium Pricing
Education
Target Market
G

31. INDUSTRY GROWTH & MARKET SHARE
Smart Phones: 71% CAGR for the next 4 yrs.
Cloud computing: 20% CAGR
Mobile dev. in general: 25%
31
*nomic
02
*provisioning
Carrying
Capacity ???
Convergence
Value Chain & Business Model

32. 0
10
20
30
40
50
60
70
iPhone Android Other
2011
2012
32
Smart Phone: Market share growth

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X
Apple as a Mobile browser leader In 2010
The mobile worldwide market in 2010

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X X
X
X
X
iPhone Mobile market share 2012

35. • Apple has 68% of the tablet market
• Cannibalization of iPad by the mini iPad?
• Google & Others Tablets
Open source to the rescue?
 App store: Closed platform ?
35
What about the iPad ?

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OPPORTUNITIES THREATS
Rapid Technological Changes
Highly Competitive Market
Continual Timeliness of R&D
Patent/Copyright Violation
Multiple Distribution Network Weak
Outsourcing manufacturing
New Management (Midas touch?)
Growing demand:
Education
Enterprise and Government
Consumers
Mobility & Nomadic computing
Media devices
TV, Tailored Shows, MOD
Growing incomes in ASIA and other
emerging nations.
External Scanning Analysis

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Industry Environment
Sociocultural Forces
Political-Legal Risk
Economies
Technological Factors
Workers at an Apple supplier facility in Shanghai
assemble parts for the MacBook Pro
Societal Constraints

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Niche Market
INNOVATION
High Advertising Budget
Patent Violations
China/others
Strong Brand
FAKE iPhone anyone?
Global Demand
Existing Patents(i.e.
Google’s 17000!)
Supply Costs
Supply Shortages
Price Increases
Outsourcing Process
High Customer Loyalty
High Demand
Uniqueness
Buyers
SubstitutesSuppliers
New Entrants
Industry Competitors
Porter’s Five Forces

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Apple’s Sustainable Product Differentiation
Cost of Apple Product
Apple Pursues Niche Market
Differentiation Strategy –
Defensive
Pass Cost on to Customers
Oligopoly Market (Niche)

40. Capabilities
VISION 2020
Future Goals Current Strategy
Assumptions New Technology
Innovative Products
Creative Solutions
Strong Market Position
Diversified Portfolio
Inspire the World, Create the Future
Robust Top Line Growth
Fluctuating operating & net profits
(S)
(W)
Segmentation
Targeting
Positioning
Promote new Value for Core Networks
• Industry
• Partners
• Employees
Expand Global Penetration (SW Asia)
Promote Top Line Products
Company that goes after its goals
Change = Action
Same Threats as all Competition
• Raw Material Pricing
• Intense competition
• Increasing regulations
Competitive Analysis - Porter

41. TOWS Matrix: Strengths/Opportunities
41
TOWS Matrix: Strengths/Opportunities
External
Scanning
Internal
Assessment
Opportunities
1. Demand in Education
2. Demand in Enterprise & Government
3. General Use Demand
4. Demand for Mobile Communications
5. Demand for Media Devices
6. APPLE Television
7. Strong growth opportunities in emerging nations
8. Rising wages in China
Strengths
1. Global Company
2. Strong Brand Image
3. Diverse Distribution Avenues
4. Design, Manufacturing & Marketing
expertise
5. Wide Market Circle
6. Reputation for Innovation
7. Master with 3rd party digital content
8. Compatible with Windows platform
9. Horizontal and Vertical Integration
10. Financially Sound
11. Entrepreneurial culture
12. Customer loyalty
S/O Strategies: GROWTH
Continue aggressive international growth
strategies S1-O7
Strengthen partnerships with Education S12-O1
Increase APPLE television content S4/S6-O6
Capitalize on the smart-phone revolution S4,S7-
O4,O7
Continue to aggressively develop mobile app
market S6-O4,O5,O7

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TOWS Matrix: Strengths/Threats
External
Scanning
Internal
Assessment
Threats
1. Industry constantly evolving
2. Highly Competitive Market
3. Outsourcing Difficulties
4. Inability to meet R&D requirements
5. Imitation of Apple products
6. Violation of patents and copyrights
Strengths
1. Global Company
2. Strong Brand Image
3. Diverse Distribution Avenues
4. Design, Manufacturing & Marketing
expertise
5. Wide Market Circle
6. Reputation for Innovation
7. Master with 3rd party digital content
8. Compatible with Windows platform
9. Horizontal and Vertical Integration
10. Financially Sound
11. Entrepreneurial culture
12. Customer loyalty
S-T Strategies: External Fix-it
Aggressively pursue new product
development i.e.; wearable & pen
computing S6-T4
Strengthen partnerships with band width
vendors i.e.; international market S1-T1-T2
Evaluate niche market concentration S12-
T1,T2
Eval Backward/FWD Integration (S9:T3)

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TOWS Matrix: Weaknesses/Opportunities
External
Scanning
Internal
Assessment
Opportunities
1. Demand in Education
2. Demand in Enterprise & Government
3. General Use Demand
4. Demand for Mobile Communications
5. Demand for Media Devices
6. APPLE Television
7. Strong growth opportunities in emerging nations
8. Rising wages in China
Weaknesses
1. Subject to supply shortages & price
increases
2. Difficulty controlling outsourcing processes
3. Accusations of infringement upon patents of
other organizations
4. Dependence on iPhone and iPad –limited
variants
5. Lack of different price points with products
6. Dependence cellular network providers
7. Cost of product
W-O Strategies: Internal Fix-it
Improve domestic supply chain (W1-O3)
Aggressively continue to pursue R&D
product development (W4-O1-07)
Continue to develop superior product(s)
at lower cost point (W7-O7)

44. TOWS Matrix: Weaknesses/Opportunities
44
Internal External
Scanning Assessment
Threats
1. Industry constantly evolving
2. Highly Competitive Market
3. Outsourcing Difficulties
4. Inability to meet R&D requirements
5. Imitation of Apple products
6. Violation of patents and copyrights
Weaknesses
1. Subject to supply shortages & price
increases
2. Difficulty controlling outsourcing processes
3. Accusations of infringement upon patents
of other organizations
4. Dependence on iPhone and iPad –limited
variants
5. Lack of different price points with products
6. Dependence cellular network providers
7. Cost of product
W-T Strategies: Eliminate/Survival
Strive to avoid patent infringement within
tech community (W3-T4,T6)
TOWS Matrix: Weaknesses/Threats

45. Relative sales growth rate: g = 100(Sn - S(n-1) ) /Sn-1
45

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Flush with Cash: Lets do Backward and
Forward Integration
Backward Integration: Purchase of carriers
• i.e. Nortel Networks (Done!)
• WiMAX?
• Cable or others with a market cap of
100B?
Forward Integration:
• Kiosks
• Service Providers

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Conclusion

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LOW COST DIFFERENTIATION
Broad
Target
Low cost Differentiation
Narrow
Target
Cost focus
Focused differentiation
Competitive Advantage

49. • Factory Orders Report
• Gross Domestic Product (GDP)
• Housing Starts
• Industrial Production
• Jobless Claims Report
• Money Supply
• Mutual Fund Flows
• Non-Manufacturing Report
• Personal Income and Outlays
• Producer Price Index (PPI)
• Productivity Report
• Purchasing Managers Index (PMI)
• Retail Sales Report
• Trade Balance Report
• Wholesale Trade Report
49
Economic Indicators

50. • Business Outlook Survey
• Consumer Confidence Index (CCI)
• Consumer Credit Report
• Consumer Price Index (CPI)
• Durable Goods Report
• Employee Cost Index (ECI)
• Employee Situation Report
• Existing Home Sales
50
Economic leading indicators: work in tandem!