Presentation I made for a case competition at GW

1. Apple’s Strategic Goals and
Challenges Moving Forward
Jonathan Diamond wKatie Edwards wNatasha Fong-Cohen
Katherine OgliettiwMustafa OnerciwLeilaniPallares

2. Agenda
I. Current Situation
II. Analysis
III. Potential Strategies
IV. Recommendations
2

3. Agenda
I. Current Situation
II. Analysis • Main Problem
• Apple’s History
III. Potential Strategies • Mission Statement
IV. Recommendations
3

4. Agenda
I. Current Situation • Company Strategy
• SWOT Analysis
II. Analysis • Value Chain
• Financial Analysis
III. Potential Strategies • Product Lines
• Competitive
IV. Recommendations Strengths
• Industry
Attractiveness
4

5. Agenda
I. Current Situation
• Develop new
markets
II. Analysis
• New geographic
III. Potential Strategies markets
• Enter new segments
IV. Recommendations • Improve operations
• Create value
through stock price
5

6. Agenda
I. Current Situation
• Develop new products
II. Analysis
• New geographic markets
III. Potential Strategies • Product lines
IV. Recommendations
6

7. • Main Problem
• Apple’s History
• Mission Statement
I. Current Situation

8. Apple’s main challenge moving forward
How can Apple continue to
increase shareholder value?
I. Current Situation 8

9. Developing innovative products is critical
Personal Computers
Notebook Computer
PersonalMedia Player
Tablet Computers
Mobile Phone
1976 1984 1991 2001 2007 2010
THEN
THEN NOW NOW
• Apple II • Regularlymarket iMac
8gb model • Macbook Air
Powerbook Ignited a updated modelsproduct lines
Different
• 10,000 units Innovative technologiesvideo, wifi
Early adoption of future • 8% market and power
• Industry leader Portability share
Revolutionizedsold Audio,
• Just Competitors • its heelsacclaim for design
• Most
Wozniak the beginning…
listening to music popular smartphone iTunes sales
mobility demandsfor on Still the heart of Apple??
10 billion+
Critical
a generation Sculley and ease of useJobs
/Jobs
I. Current Situation 9

10. The products are the missionfor Apple
Apple Mission Statement
“ Apple designs Macs, the best personal computers in the
world, along with OS X, iLife, iWork, and professional
software. Apple leads the digital music revolution with its
iPods and iTunes online store. Apple reinvented the mobile
phone with its revolutionary iPhone and App Store, and
has recently introduced its magical iPad which is defining
”
the future of mobile media and computing devices.
I. Current Situation 10

11. • Company Strategy
• SWOT Analysis
• Value Chain
• Financial Analysis
• Product Lines
• Competitive
Strengths
• Industry
Attractiveness
II. Analysis
11

12. SWOT Analysis
STRENGTHS WEAKNESSES
• Marketing • Centralized decisions
• Product R&D • Prices too high for some
• Top engineering talents consumers
• Cannibalization
OPPORTUNITIES THREATS
• Emerging markets • Competitors in many
• Telecommuting trend industries
• Intell. property loss
• Trends change rapidly
II. Analysis 12

13. Core competencies along the value chain
Supply
Sales & Profit
Chain Operations Distribution Services
Marketing Margin
Mgmt.
Product R&D, Technology and Systems Development
HR Management
General and Administrative
II. Analysis 13

14. Apple performed well financially
As Percentage of Sales
25% 72%
• Earnings improved 20%
70%
consistently despite the 68%
15%
economic downturn 66%
• Increasing sales 10%
64%
• Increasing operational 5%
62%
performance 0% 60%
2005 2006 2007 2008 2009
Selling, general and administrative (SG&A)
Total operating expenses
Operating income
Net income
Cost of sales
II. Analysis 14

15. Apple performed well financially
• Return on equity did
not improve much
ROE & EPS
30% $7.00
25% $6.00
$5.00
20%
$4.00
15%
$3.00
10%
$2.00
5% $1.00
0% $-
2005 2006 2007 2008 2009
ROE Earnings per common share-diluted
II. Analysis 15

16. Apple performed well financially
Profit Margin Asset Turnover Equity Multiplier
Profit Sales Total Assets
ROE = x x
Sales Total Assets Equity
II. Analysis 16

17. Apple performed well financially
• Free cash flow was around $10B
• Mainly financed debt
• Apple managed to defer its payments
Free Cash Flows
$12,000 100%
90%
$10,000
80%
$8,000 70%
60%
$6,000
50%
$4,000
40%
$2,000 30%
20%
$-
10%
2006 2007 2008 2009
$(2,000) 0%
II. Analysis 17

18. Product Line: Personal Computer
• Shift in preference to notebooks
• Strength in music & graphics processing
• Critical acclaim in design
• Focused differentiation strategy
II. Analysis 18

19. Product Line: Personal Media Player
iPod and Music Services Sales
$10,000
• Dominating market $8,000
position for players $6,000
iPod Sales
and downloads $4,000
• Industry beginning $2,000
Other music
related products
and services
to decline $-
• Live streaming 2005 2006 2007 2008 2009
• Cannibalization
II. Analysis 19

20. Product Line: Mobile Phone
• Phones rebounded strongly from
recession, particularly smartphones
• Developing countries offer most
growth opportunity
• RIM dominates business segment
• Android and Mobile 7 are an
emerging threat; iPhone has
decreasing product differentiation
• High brand loyalty and low price
sensitivity
II. Analysis 20

21. Product Line: Tablet Computer
• Market is growing 37%
annually from 2010-2014
• Apple is the leader
• Competitors starting to catch
up
II. Analysis 21

22. First, these products are competitive…
10 10
9 9
8 7.3 7.35 7.15 8
7 6.55 7
6 6
5 5
4 4
3 3
2 2
1 1
0 0
Personal Computer Personal Media Mobile Phone Tablet Computer
Player
Competitive Strength Rating Cutoff
II. Analysis 22

23. …these industries are most attractive…
10 10
9 9
7.85 7.6
8 7.4 8
7 7
5.95
6 6
5 5
4 4
3 3
2 2
1 1
0 0
Personal Computer Personal Media Mobile Phone Tablet Computer
Player
Industry Attractiveness Rating Cutoff
II. Analysis 23

24. …and together, we create a matrix!
Personal
Computers
High
Personal
Industry
Media Player
attractiveness
Medium Mobile
Phone
Tablet
Computer
Low
Size
=
Weak Average Strong Relative
Revenue
Competitive Strength
II. Analysis 24

25. • Develop new markets
• New geographic markets
• Enter new segments
• Improve operations
• Create value through
stock price
III. Potential Strategies
25

26. Evaluating Apple’s alternatives
How can Apple continue to increase shareholder value?
Through growth Other options
Develop new products Improve operations
New geographic markets Value through stock
Enter new segments
III. Potential Strategies 26

27. Evaluating Apple’s alternatives
How can Apple continue to increase shareholder value?
Through growth Other options
Develop new products Improve operations
• WHAT: Idea generation
• WHY: This is what Apple does!
• HOW: Continue to fund R&D Value through stock
New geographic markets
Enter new segments
III. Potential Strategies 27

28. Evaluating Apple’s alternatives
How can Apple continue to increase shareholder value?
Through growth Other options
Develop new products Improve operations
New geographic markets Value through stock
• WHAT: Emerging markets
• WHY: Growing middle class
• HOW: Targeted products/B&M
Enter new segments
III. Potential Strategies 28

29. Evaluating Apple’s alternatives
How can Apple continue to increase shareholder value?
Through growth Other options
Develop new products Improve operations
New geographic markets Value through stock
Enter new segments
• WHAT: Business-consumer
• WHY: Large market opportunity
• HOW: Custom. products
III. Potential Strategies 29

30. Evaluating Apple’s alternatives
How can Apple continue to increase shareholder value?
Through growth Through increased margins
Develop new products Improve operations
• WHAT: Vertical integration
• WHY: Control of product quality
New geographic markets • HOW: Bring manufact. in-house
Value through stock
Enter new segments
III. Potential Strategies 30

31. Evaluating Apple’s alternatives
How can Apple continue to increase shareholder value?
Through growth Other options
Develop new products Improve operations
New geographic markets Value through stock
• WHAT: Increase EPS
• WHY: Increase sharehold. value
Enter new segments • HOW: Repurchase of shares
III. Potential Strategies 31

32. • Develop new products
• New geographic markets
• Product lines
IV. Recommendations/Implementation
32

33. Apple should continue to innovate
Short term Long term
• Focus R&D resources • Decentralized
on cloud innovation process
• Innovate this new • Stronger relationship
market between R&D and
• Seek out acquisitions marketing
for capabilities • Market research
through crowdsourcing
and developers
IV. Recommendations 33

34. Emerging markets are opportunities
Short term Long term
• Brazil and China • Targeted products
• Increase local (with less
responsiveness functionalities and
• Contracts with cheaper price)
international telecom • Increased brick &
companies mortar presence
IV. Recommendations 34

35. Each product line needs a strategy
iPod Computers
• Develop paid subscription svc. • Focus on notebooks
• Consider reducing # of • Expand in emerging markets
products in the iPod line through focused differentiation
iPad iPhone
• Develop capacity to integrate • Improve differentiation through
PC technology product features/capabilities
• Market is growing 37% • Expand into emerging markets
through partnerships
IV. Recommendations 35

36. Creating a plan for change
• Reinforce culture
• Establish organizational structures to change
• Decentralize innovation process
• Gain buy in from the Board of Directors
IV. Recommendations 36

37. Continuing the SteveJobs Legacy
Increasing shareholder value by…
• Improving current product lines
• Position ourselves long-term for success
• Developing new innovation
• Entering new geographic markets
IV. Recommendations 37

38. Appendix
Competitive Strength
Industry Attractiveness
PC Market Share
Personal Computer Industry
Popup (Desktop) Questions?
Popup (Media Player)
Popup (Mobile Phone)
Popup (Notebook)
Popup (Tablet)
Porter’s 5 Forces
SWOT Analysis (iMac)
SWOT Analysis (iPad)
SWOT Analysis (iPhone)
SWOT Analysis (iPod)
38

39. Appendix: Competitive Strengths
Competitive Strength Measure Importance Weight Personal Computer Personal Media Player Mobile Phone Tablet Computer
Rating Score Rating Score Rating Score Rating Score
Costs relative to competitors' 0.2 1 1 2 0.4 2 0.4 1 0.2
costs
Ability to benefit from strategic 0.2 10 2 8 1.6 8 1.6 10 2
fit with company's other
businesses
Relative market share 0.15 3 0.45 10 1.5 5 0.75 8 1.2
Competitively valuable 0.15 9 1.35 9 1.35 9 1.35 9 1.35
capabilities
Brand image and reputation 0.1 9 0.9 9 0.9 9 0.9 9 0.9
Profitability relative to 0.1 8 0.8 10 1 7 0.7 6 0.6
competitors
Ability to match or beat rivals on 0.05 7 0.35 3 0.15 8 0.4 9 0.45
key product attributes
Bargaining leverage with 0.05 9 0.45 9 0.45 9 0.45 9 0.45
suppliers/buyers; caliber of
alliances
Competitive Strength 7.3 7.35 6.55 7.15
Back to Appendix
39

40. Appendix: Industry Attractiveness
Industry Attractiveness Measure Importance Personal Computer Personal Media Player Mobile Phone Tablet Computer
Weight
Rating Score Rating Score Rating Score Rating Score
Intensity of competition 0.25 10 2.5 8 2 10 2.5 9 2.25
Cross-industry strategic fit 0.2 10 2 8 1.6 9 1.8 10 2
Market size and potential 0.1 8 0.8 3 0.3 10 1 10 1
growth rate
Emerging opportunities and 0.1 3 0.3 2 0.2 7 0.7 8 0.8
threats
Resource requirements 0.1 1 0.1 7 0.7 3 0.3 2 0.2
Industry profitability 0.1 7 0.7 5 0.5 6 0.6 5 0.5
Seasonal and cyclical 0.05 5 0.25 5 0.25 5 0.25 5 0.25
influences
Societal, political, regulatory, 0.05 5 0.25 5 0.25 5 0.25 5 0.25
and environmental factors
Industry uncertainty and 0.05 10 0.5 3 0.15 9 0.45 7 0.35
business risk
Overall weight 7.4 5.95 7.85 7.6
industry
attractiveness scores
Back to Appendix
40

41. Appendix: PC Market Share
Market Share in 2009 Market Share 2005-2009
30,000
25,000
21%
27% 20,000 Hewlett Packard
Dell
15,000 Acer
69,829
8% Apple
Total Shipments
10,000 Toshiba
Others
8%
5,000
24% Hewlett Packard
11% Dell -
Acer 2000 2005 2006 2007 2008 2009
Apple
Toshiba
Others
Back to Appendix
41

42. Appendix: Personal Computer Industry
2009
2005
Desktops
Portables
44%
56%
69%
Back to Appendix
42

43. Appendix: Pop-up (Desktop)
Personal Computers
THEN NOW
• Apple II • iMac
• 10,000 units sold • 8% market share
• Just the beginning… • Still the heart of Apple??
Back to Appendix
43

44. Appendix: Pop-up (Media Player)
Personal Media Player
THEN NOW
• 8gb model • Different product lines
• Revolutionized • Audio, video, wifi
listening to music for • 10 billion+ iTunes sales
a generation
Back to Appendix
44

45. Appendix: Pop-up (Mobile Phone)
Mobile Phone
NOW
• Regularly updated models
• Innovative technologies
• Most popular smartphone
Back to Appendix
45

46. Appendix: Pop-up (Notebook)
Notebook Computer
THEN NOW
• Powerbook • Macbook Air
• Early adoption of future • Portability and power
mobility demands • Critical acclaim for design
and ease of use
Back to Appendix
46

47. Appendix: Pop-up (Tablet)
Tablet Computers
NOW
• Ignited a market
• Industry leader
• Competitors on its heels
Back to Appendix
47

48. Appendix: Porter’s 5 Forces
SUBSTITUTES BUYERS NEW SUPPLIERS RIVALRY
ENTRANTS
Personal MEDIUM-
Computer MEDIUM LOW HIGH HIGH
HIGH
Personal MEDIUM- MEDIUM-
Media Player HIGH MEDIUM HIGH
HIGH HIGH
Mobile
Phone HIGH HIGH MEDIUM MEDIUM HIGH
Tablet LOW-
Computer HIGH MEDIUM MEDIUM LOW
MEDIUM
Back to Appendix
48

49. Appendix: SWOT Analysis (iMac)
STRENGTHS WEAKNESSES
• Critical acclaim in design • Premium pricing
• Strength in music & • Learning curve
graphics • OS Compatibility
• Very cool, trendy
OPPORTUNITIES THREATS
• Halo effect • Most growth driven by
• Growing middle class in low-end portable PCs
emerging markets • Economic recession
Back to Appendix
49

50. Appendix: SWOT Analysis (iPad)
STRENGTHS WEAKNESSES
• High demand • High price point keeps
• Quality design out some consumers
• More functional than • Product limitations
other tablets (can’t make calls)
OPPORTUNITIES THREATS
• International growth • E-readers (Kindle)
• Mobile workforce • Competitors are
productivity catching up
• Leverage cloud tech. • Better microprocessors
Back to Appendix
50

51. Appendix: SWOT Analysis (iPhone)
STRENGTHS WEAKNESSES
• Buyers not price • Increasingly limited
sensitive product differentiation
• Controls launch • Low appeal to business
• Brand loyalty consumers
OPPORTUNITIES THREATS
• Smartphone market is • Android
strong • Windows Mobile 7
• Increasing international
demand
Back to Appendix
51

52. Appendix: SWOT Analysis (iPod)
STRENGTHS WEAKNESSES
• Brand recognition • Diminishing industry
• Quality
• Compatibility
OPPORTUNITIES THREATS
• Live streaming • Live streaming
• Many lower priced
competitors
• Other downloading svrs.
Back to Appendix
52