CASE STUDY: APPLE, INC.

Submitted to the
Ramon V. Del Rosario College of Business
De La Salle University – Manila

In partial fulfilment
Of the course requirements in
BUS835M
Thursday, 6:00 pm – 9:00 pm
Term 3, AY 2017 – 2018
May 31, 2018

Submitted by:
Group 5: Voltes V
Angeli Ronica Buenviaje
Evan Christopher Cotiangco
Agnes Malihan
Kristian Paolo Palenzuela
Chamuel Michael Joseph Santiago

Submitted to:
Prof. Joseph Donato N. Pangilinan
 Group 5
Apple Inc.

I. Case Facts/Synthesis
Apple, Inc. is an American multinational corporation with a focus on designing and
manufacturing consumer electronics and software products. It was established by Steve Wozniak
and Steve Jobs in April 1976 in Cupertino, California. It was considered one of the most rapid-
growing companies in 1978. In September 25, 2010, it operated 317 retail stores (233 in the US and
84 internationally). By August 13, 2011, Apple was the most valuable company in the world.
In August 2011, Tim Cook was announced as CEO. According to the company’s annual
report, Apple is in the Computer Hardware industry and Technology sector. Apple is best-known as a
“first mover” company with a 35-year history of being the first to introduce blockbuster, successful
new products. The company has nine product lines: Mac hardware products, iTunes, iPhone, iPad,
iPod, display & peripheral products, Apple TV, operating system software, and application software.
Apple has been considered one of the most successful companies in the world. However,
rival firms across the globe are getting better and better at quickly duplicating Apple products and
offering those newly enhanced products at lower prices. With a new leader, Apple needs to defend
its leadership in consumer electronics industry.
II. Point of View
The group will take the point of view of Tim Cook, CEO of Apple, Inc.
III. Time Frame
The timeframe that the group will consider will be from 2011-present or the Post-Steve Job Era.
IV. Problem Statement
What strategy should Apple do to ensure continued industry success and profitability?
V. Objectives
A. Strategic Objective
To continue being the most valuable company in the next three years.
To continue developing new and improved products ahead of key rivals
B. Financial Objective
To increase operating profit margin and net profit margin by at least 2% annually.
C. Social Objective
To change the way people live their lives.
VI. Vision Framework
Apple Inc. (2011)

CORE IDEOLOGY ENVISIONED FUTURE

Core Purpose 25-Year BHAG

To bring the best user experience to To design the best personal computers in the world. To lead
its customers through its innovative the digital music revolution and define the future of mobile
hardware, software, peripherals media and computing devices. To impact people’s lives in a
and services meaningful way.

Core Values New Vision with Tim Cook as CEO

● Innovation “We believe that we are on the face of the earth to make great
● Simplicity products and that’s not changing. We are constantly focusing on
● Collaboration and excellence innovating. We believe in the simple not the complex. We believe
 Group 5
Apple Inc.

● Ownership and control of that we need to own and control the primary technologies behind
technology the products that we make, and participate only in markets
● Participating when making where we can make a significant contribution. We believe in
significant contribution saying no to thousands of projects, so that we can really focus on
the few that are truly important and meaningful to us. We believe
in deep collaboration and cross-pollination of our groups, which
allow us to innovate in a way that others cannot. And frankly, we
don’t settle for anything less than excellence in every group in the
company, and we have the self- honesty to admit when we’re
wrong and the courage to change. And I think regardless of who
is in what job those values are so embedded in this company that
Apple will do extremely well.”

VII. Theoretical Framework

Apple Inc. uses broad differentiation strategy. Product differentiation helps Apple maintain a
premium pricing. Apple has designed its devices and platforms to lock-in consumers into its
ecosystem. It starts with hardware lock-in with the devices and then software lock-in with operating
systems, application softwares, and third-party software and apps.
VIII. Areas of Consideration

Apple’s Business Model

Customer value proposition: Products and solutions with superior ease-of-use, seamless integration,
and innovative design.
Profit formula
Revenue Generation: Sales of Apple’s operating system, hardware, application softwares, and
services. Monthly subscription fees from millions of subscribers of its cloud music service. Revenue
sharing agreements with content owners, app developers, and large and independent book
publishers
Cost Structure: Fixed and variable costs associated with designing and developing its innovative
products and services.
 Group 5
Apple Inc.

Profit Margin: Apple’s profitability was dependent on its ability to sell its innovative products at
premium prices to consumers, small and midsize businesses, education, enterprise and government.
It was also dependent on Apple’s ability implement low cost sourcing and product assembly
strategy.

Source: Revenues and Profits (2018)

A. External Environment Analysis

PESTLE Analysis

Effects on Barriers, Effects on 5-

Future Macro Determinants and Factors Forces Conclusion

Political

Increase government Decrease time and cost of Decrease threat of Opportunity

support for globalization entering new markets new entry

Increase threat of Threat

substitutes

Economic

Rapid economic growth of Economic growth stimulates Decrease Opportunity

developing countries and supports changes in bargaining power
lifestyle- becoming more of buyers
digital

Social

Increase awareness and Companies must ensure that Increase intensity Threat
 Group 5
Apple Inc.

support for equal they comply with labor of rivalry

treatment and standards, maintain good
employment image and not be associated
with suppliers who conduct
business unethically (i.e.
child labor)

Device use starts earlier More customers to sell Decrease Opportunity

products bargaining power
of buyers

Technological

Rapid development of Companies must ensure that Increase intensity Opportunity

technology they can cope with the latest of rivalry
development in technology
(i.e. better camera, screen,
processors). Rivals are highly
committed to the business.

High quality of information. Increase Opportunity

Customers can easily bargaining power
evaluate and compare of buyer
products.

Legal

Improve patent laws More protection for key Decrease intensity Opportunity
worldwide technologies of rivalry

Standardization of Decreases quality differences Decrease intensity Opportunity

consumer laws, safety specifically on component of rivalry
standards and labor laws parts
across the globe

Ecological

Increase demand for Customer preferring greener Increase intensity Opportunity

sustainable and options of rivalry
environmental businesses

Increase complexity of Customer preferring greener Increase intensity Threat

waste disposal standards options of rivalry

Demographic

Increase in working class More customers able to Decrease buyer Opportunity

that are dependent on purchase electronic devices power
gadgets

1. Political
Since Apple has presence in various jurisdictions, it has to make sure that applicable rules and
regulations are being observed such as tax rates, labor wages, fiscal policies and trade tariffs.
 Group 5
Apple Inc.

Unstable political condition in countries where Apple conducts its businesses can have an
adverse effect on its revenue.
2. Economic
Labor cost, exchange rate, inflation and economic stability can greatly affect Apple’s business as
it is heavily dependent on manufacturing its products in developing countries. An increase in
wages in China ultimately results in an increase of prices of Apple products in the market.
3. Social
Apple should also consider the demographic and cultural aspects of the company’s market in
order to develop a marketing strategy that will be more effective in each market.
4. Technological Factors
Competitors have exhibited capabilities to duplicate the features of Apple products thus, losing
its uniqueness. However, the products’ reputation for high level of safety against cyber attack
remains to be one of its competitive advantage. The popularity of tablets pioneered by Apple
caused the sales of personal computers to decrease, this will likely be the trend as the demand
for handheld devices continue to increase.
5. Legal
Consumer laws, safety standards and labor laws in each jurisdiction should be taken into
consideration as these factors can affect the business.
6. Environmental Factors
Factors such as pollution, climate change, waste-disposal and energy consumption laws can
affect the operations of the business in each country.
External Factor Evaluation (EFE) Matrix

Weighted
Weight Rating Score

Opportunities

Increase government support for globalization 0.10 3 0.30

Rapid economic growth of developing countries 0.10 4 0.40

Device use starts earlier 0.10 4 0.40

Rapid development of technology 0.20 4 0.80

Improve patent laws worldwide 0.05 3 0.15

Standardization of consumer laws, safety standards and 0.05 3 0.15

labor laws across the globe

Increase demand for sustainable and environmental 0.10 3 0.30

businesses

Increase in working class that are dependent on gadgets 0.15 3 0.45

Threats

Increase awareness and support for equal treatment and 0.05 3 0.15
employment
 Group 5
Apple Inc.

Increase complexity of waste disposal standards 0.10 2 0.20

Total 1.00 3.30

B. Internal Environment Analysis

1. Value Chain Analysis
Impact on Value Chain Effect on Firm’s
Value Chain Analysis Elements Business Model Conclusion

Inbound logistics

Apple exercises an immense Control over supplier is Improves firm Strength

bargaining power in dealing with its high. cost structure
suppliers and as a result, the
company is able to secure cost
advantage in the purchase of
resources.

Operations

Apple manages its business and Operation Improves firm Strength

operations through dividing into segmentation will help cost structure
the following reportable operating Apple focus its
segments: manufacturing
 Americas: North and South operation on a certain
America location based on the
 Europe: European countries, nature, demand and
India, Middle East and Africa. location of its
 Greater China: China, Hong Kong customers.
and Taiwan
 Japan
 Rest of Asian Pacific: Australia
and other Asian countries

Outsourcing of manufacturing units Lower labor cost will Improve firm cost Strength
to locations with lower costs of improve the overall structure
resources product cost

Outbound logistics

Sell products globally through own Wide range of available Improve Strength
retail stores, online stores, and channels for customers customer relation
direct sales force and third-party to purchase apple and perception of
cellular network carriers. products. value.

Stores located in high-traffic Location will have high Improves Strength

shopping malls or urban shopping probability to sell convenience
districts products due to high
foot traffic.

Marketing and Sales

 Group 5
Apple Inc.

Strong brand name. Cult like status. Strong brand helps Improve Strength
work to build customer perception of
recognition and is often value
easier to introduce new
products and services.

Apple sells its products through the Ensuring that all Improve Strength
following sales channels: products and services convenience and
 Apple 317 local and are disseminated in all increase
international retail stores market channels. perception of
 Apple online store value
 Direct sales force
 Third-party cellular network
carriers
 Wholesalers
 Retailers
 Value-added resellers

Conducts Worldwide Developers Enhance marketing and Increase Strength

Conferences to showcase its new sales. Attracts and perception of
products and softwares inform software value
developers on Apple’s
new products.

Place high quality Apple fixtures, Enhance marketing and Increase Strength
merchandising materials and other sales perception of
resources within selected third- value
party reseller locations

Firm infrastructure

Organized functionally with Decisions and Undermine Weakness

financially reportable segments but processes are handled quality
has no President of divisions and no strictly at the central
Strategic Business Units (SBUs). office.

Human Resource Management

Employs experienced and Pool of competent Improve Strength

knowledgeable personnel who personnel to assist the customer relation
provide product advice, service and varying needs of and perception of
training customers. value

Procurement

A number of components in Apple’s Risk that financial and Higher Weakness

operation are obtained from single operations could be production cost
or limited sources. In addition, materially adversely
many components are subject to affected should there
industry-wide shortage and by supplies shortage
significant commodity pricing and price increase.
 Group 5
Apple Inc.

fluctuation.

Information Technology/Systems

Platforms and devices are Customer will be Improve products Strength

continuously being developed by always looking forward and services
Apple to new product
releases

2. Financial Ratio Analysis (See Annex I)

Impact on Value Chain Effect on Firm’s
Financial Ratio Analysis Elements Business Model Conclusion

Liquidity Ratios Apple’s current and quick Increase value Strength

 Current Ratio ratios slightly went down in
 Quick Ratio 2010. However, Apple still has
a capacity to pay-off its
currently maturing debt when
it becomes due because it is
still above the normal level of
ratio which is 1.

 Ave. Collection Apple’s slight increase in Increase value as Strength

Period collection period in 2010 has a Apple allows for
 Ave. Receivable negative impact in the cash more flexible
Turnover Ratio generation cycle of the payment terms for
Company. However, effect is its clients.
only minimal as the average
collection period is still 1
month.

 Inventory Turnover Age of inventory improved in Decrease costs. Strength

Ratio 2010 which is an advantage in Inventory
 Days’ Sales in terms of efficiency in selling immediately turned
Inventory inventories to customers to sales.

Capital Structure Ratios The debt ratio slightly Decrease Strength

 Debt ratio increased to 36% in 2010. cost/finance cost.
However, this increase is not
alarming as the Company still
maintain an average of 60-40
ratio with its debtors.

Asset Management Asset turnover ratio of Apple Decrease cost. Apple Strength
Efficiency ratios is consistently averaging 90% is efficiently utilizing
 Total Asset Turnover in 2010 and 2009. Fixed asset its fixed and non-
Ratio turnover is also stable at 14 fixed assets to
 Fixed Asset Turnover for the last 2 years. generate profit.
Ratio
 Group 5
Apple Inc.

Profitability ratios All segments of Apple Increase value Strength

 Gross Profit Margin worldwide consistently
 Operating Profit positive and exceeds 30% in
Margin 2010. Overall profitability
 Net Profit Margin ratios of Apple in 2009 and
 Return on Equity 2010 is positive and net profit
margin is on or above 20%.

Internal Factor Evaluation (IFE) Analysis

Weighted
Weight Rating Score

Strengths

Strong Supplier Bargaining Power 0.05 3 0.15

Segmentation of business operation to different location 0.10 4 0.40

Outsourcing of manufacturing units to locations with 0.10 3 0.30

lower costs of resources

Strategic location of Apple stores and products are 0.10 4 0.40

available through wide range of market channels.

Strong brand name 0.15 4 0.60

Employs experienced and knowledgeable personnel 0.05 3 0.15

Continuous development of platforms and devices 0.15 4 0.60

Strong financial ratios (Profitability, Liquidity and Asset 0.15 4 0.60

Efficiency)

Weaknesses

Centralized set of decision makers for the different 0.10 1 0.10

reportable segments

Key supplies and components are obtained from single 0.05 2 0.10
or limited sources.

Total 1.0 3.40

 Group 5
Apple Inc.

Application of IE Matrix
Summarized below is the total weighted score which is derived from both the EFE and IFE matrix
based on division external and internal factors weight and rating.

From the IE Matrix, it can be noted that Apple falls into Quadrant I in the “Grow and Build” region.
This means intensive and aggressive tactical strategies. Apple should either focus on market
penetration, market development, product development or diversification. From the operational
perspective, a backward integration, forward integration, and horizontal integration should also be
considered.
IX. Alternative Courses of Action

ACA 1: Product Development with Broad Differentiation Strategy

This strategy capitalizes on the company’s ability to deliver products or services that are unique and
of value to a wide range of customers. Apple will develop more new products targeted to its existing
market segments.
Advantages:
● Able to set premium pricing to products and services that are deemed different
● Higher customer satisfaction and induces loyalty to the product or service
Disadvantages:
● If products are priced at a premium, it may appear to be too expensive for some consumers
● Costly to keep up with taste and preference of consumers which are constantly changing
● Competitors may be able to duplicate the features of the product and offer it at a lower
price

ACA 2: Horizontal Diversification with Focused Differentiation Strategy

This strategy aims to secure a competitive advantage with a carefully designed product catering to a
well-defined group of customers with unique preferences. This strategy is effective when customers
have different tastes and competitors are not planning to specialize in same product or target
segment. Apple will be developing new products and services capable of satisfying the same
clientele, even if these are technologically independent of the existing products.
 Group 5
Apple Inc.

Advantages:
● Relatively high profit margins since the products are priced at a premium
● Customer loyalty
● Limited competition
Disadvantages:
● Limited demand since the target market is relatively small
● belongs to the most risky of the four intensive growth strategies since it requires both
product and market development and may be outside the core competencies of the firm

ACA 3: Concentric Diversification with Best-Value Strategy

The objective of this strategy is to offer products with superior value to consumers at a relatively
lower price than its competitors. Apple will develop new products and services with complementary
technologies to existing products and services.
Advantages:
● Can capture price sensitive customers
● New products and services may attract a new group of customers
Disadvantages:
● It may be hard for the company to offer products with upscale features while managing cost
to a minimum
● belongs to the most risky of the four intensive growth strategies since it requires both
product and market development and may be outside the core competencies of the firm

Quantitative Strategic Planning Matrix

Using the identified key internal strengths and weaknesses from the Value Chain Analysis as well as
the key opportunities and weaknesses from external factors, the three (3) alternative courses of
actions were ranked and rated to identify best winning strategy.

Weight ACA 1 ACA 2 ACA 3

KEY FACTORS
Score Score Score

Internal Strengths

Strong Supplier Bargaining Power 0.05 3 0.15 3 0.15 4 0.20

Segmentation of business operation 0.10 2 0.20 3 0.30 4 0.40

to different location

Outsourcing of manufacturing units to 0.10 1 0.10 1 0.10 3 0.30

locations with lower costs of
resources

Strategic location of Apple stores 0.10 3 0.30 3 0.30 3 0.30

Strong brand name 0.15 4 0.60 4 0.60 3 0.45

Employs experienced and 0.05 2 0.10 2 0.10 2 0.10

knowledgeable personnel

Continuous development of platforms 0.15 4 0.60 4 0.60 3 0.45

 Group 5
Apple Inc.

and devices

Strong financial ratios 0.15 3 0.45 3 0.45 3 0.45

Internal Weakness

Centralized set of decision makers for 0.10 3 0.30 2 0.20 3 0.30

the different reportable segments

Key supplies and components are 0.05 3 0.15 3 0.15 4 0.20

obtained from single or limited
sources.

TOTAL 1.0

EXTERNAL

Opportunities

Increase government support for 0.10 3 0.30 2 0.20 3 0.30

globalization

Rapid economic growth of developing 0.10 2 0.20 2 0.20 3 0.30

countries

Device use starts earlier 0.10 4 0.40 3 0.30 3 0.30

Rapid development of technology 0.20 4 0.80 4 0.80 3 0.60

Improve patent laws worldwide 0.05 4 0.20 4 0.20 4 0.20

Standardization of consumer laws, 0.05 2 0.10 3 0.15 3 0.15

safety standards and labor laws across
the globe

Increase demand for sustainable and 0.10 3 0.30 3 0.30 4 0.40

environmental businesses

Increase in working class that are 0.15 4 0.60 4 0.60 4 0.60

dependent on gadgets

Threats

Increase awareness and support for 0.05 3 0.15 3 0.15 3 0.15

equal treatment and employment

Increase complexity of waste disposal 0.10 2 0.20 3 0.30 4 0.40

standards

Total 1.0

6.20 6.15 6.55

 Group 5
Apple Inc.

X. Recommendation
ACA 3: Concentric Diversification with Best-Value Strategy
After assessing all the alternative courses of action through the use of QSPM and taking into account
all the internal and external factors, the group recommends ACA 3 which is for Apple to develop new
products and services with complementary technologies to existing products and services. As this
will be able to capture price conscious customers and to attract new segment of clients.
ACA 3 which had the highest QSPM score of 6.55 is aligned with the results of the IE matrix that
suggest on penetration and market development. By further strengthening the firm structure,
appointing presidents and strategic business unit heads, Apple could prevent undermining the
quality and this further helps improve its decision-making and other processes.
If the company decides to improve the outsourcing of manufacturing to reduce cost, it could result
to better selling prices to consumers and capturing of bigger market share.

XI. Implementation
The group’s action plan will be based on Mckinsey’s 7-S model. The framework is based on the idea
that effective organizational change is best understood between hard elements (strategy, structure,
systems) and soft elements (style, skills, staff, and shared values):

7S Framework Action Plan/Activities Timeline

Strategy - Apple will develop new ● Focus research and development in Perpetually
products and services with developing products and services for the
complementary technologies to Post PC era = more mobile (smaller,
existing products and services. To thinner, lighter) + communications +
offer products with superior value to apps + cloud services
consumers at a relatively lower price ● Holy War with Google
than its competitors. ● Tie all products together for further
customer lock-in in Apple ecosystem
● Establish presence in new markets

Structural - Reorganize to centralize ● Comparisons with Google, Samsung, Annually

set of decision for the same HTC, Motorola & RIM
reportable segments.

System - Continuous Improvement in ● Conduct regular systems audit. Monthly

 Group 5
Apple Inc.

technology that provides good value

to consumers by outsourcing its key
supplies to multiple sources

Staff - For the research and ● Conduct regular human resource audit Quarterly
development to conduct feedback ● Develop local workforce for retail stores
sessions on what essential added located in foreign countries
values they would like to have and
price range they are willing to cash
out.

Skill - Provide and seeks the best skills ● Conduct regular human resource audit Semi-
that is most suited to the and trainings Annual
requirements of the business ● Hire new talent from other industries
including the better ways to hone and
improve the current pool of talents

Style - Rigorous training for ● Continue producing high end products Perpetually
employees to arrive with the same which will make current customers want
train of mindset or culture they have to upgrade and attract new customers
inside the company ● Ship products ahead of competition
● Probably try launching product lines that
are not priced at a premium
● Establish working relationship with
Microsoft

Shared Values - New Vision with Tim ● Perform culture and values check Perpetually
Cook as CEO are visualized and acted
upon by the management and the
employees
 Group 5
Apple Inc.

XII. References
Apple. (2011). Investor Relations - Financial Information - Apple. [online] Available at:
http://investor.apple.com/secfiling.cfm?filingid=1193125-11-282113&cik= [Accessed 28
May 2019].
MBA Knowledge Base (no date). Internal-External (IE) Matrix. MBA Knowledge Base [online].
Available at https://www.mbaknol.com/strategic-management/internal-external-ie-matrix/
[Accessed 29 May 2018]
MBA Knowledge Base (no date). Intense Growth Strategies - Ansoff Matrix - Product Market Grid.
MBA Knowledge Base [online]. Available at https://www.mbaknol.com/strategic-
management/ansoff-matrix-product-market-grid/ [Accessed 29 May 2018]
Revenues and Profits (no date). How Apple makes money? Understanding Apple Business Strategy.
Research and Profits [online]. Available at https://revenuesandprofits.com/how-apple-
makes-money/ [Accessed 29 May 2018]
Rowland C. (January 29, 2017). Apple’s Vision Statement & Mission Statement. Panmore Institute
[online]. Available at http://panmore.com/apple-mission-statement-vision-statement
[Accessed 29 May 2018]
Thompson, A. A., Strickland, A. J., Gamble, J., & Thompson, A. A. (2014). Crafting and executing
strategy: The quest for competitive advantage: concepts and cases. New York, N.Y: McGraw-
Hill/Irwin.
XIII. Annexes
Annex I: Apple, Inc. Horizontal (Trend) Analysis

Financial Ratios 2010 2009

Liquidity Ratios
● Current Ratio ● 2.01 ● 2.74
● Quick Ratio ● 1.96 ● 2.70
● Ave. Collection Period ● 30.83 days ● 28.59 days
● Ave. Receivable Turnover Ratio ● 11.84 ● 12.77
● Inventory Turnover Ratio ● 9.70 ● 6.47
● Days’ Sales in Inventory ● 37.62 days ● 56.45 days

Capital Structure Ratios

● Debt ratio ● 0.36 ● 0.33

Asset Management Efficiency ratios

● Total Asset Turnover Ratio ● 0.87 ● 0.90
● Fixed Asset Turnover Ratio ● 13.68 ● 14.52

Profitability ratios
● Gross Profit Margin ● 0.39 ● 0.40
● Operating Profit Margin ● 0.28 ● 0.28
● Net Profit Margin ● 0.21 ● 0.20
● Return on Equity ● 1.31 ● 1.00
 Group 5
Apple Inc.

Operating profit per Segment 2010 2009 2008

Americas 30.98% 35.08% 29.61%

Europe 40.25% 36.38% 32.73%

Japan 46.37% 42.17% 31.77%

Asia-Pacific 44.17% 34.60% 27.85%

Retail 24.13% 25.20% 22.78%