Objective of Paper The purpose of this business analysis paper is to correct and re-enforce the many discrepancies and lessons I’ve found during my research of Apple Computer, Inc. and their respective industry. I hope to shed light on the many issues facing this company and the ways in which they’ve failed and succeed in tackling them. At the very least, I merely want my readers to walk away with an open mind and a new outlook on their choices in personal computing.
This paper begins by examining the industry in which Apple competes, detailing the competitive strategies and globalization along with the importance of Information Technology. The next section describes the unique environment within the organization by providing insight into their history, personnel, strategy and financial performance. Following this section is a detailed look at the information systems at Apple. This portion of the paper examines the success factors and roles/relationships which make the systems at Apple Computer Inc. so impressive. Finally, the paper concludes with a detailed critique and commentary on the future of the business.
Table of Contents
Section I [Analysis of the Digital Hub Industry]
Porter Model Evaluation
Importance of Information Technology
Section II [A byte out of Apple Computer]
Significance of Information Systems
Strengths & Weaknesses
Section III [Information Systems at Apple]
Strategic Option Generator
Roles, Roles and Relationships
Section IV [Parting Comments]
Profile of the Digital Hub Industry:
The personal computer industry is not as it once was. A market once filled with competition, marked with diversity and sparked by innovation is now dominated by stagnation, near monopoly and the status quo. This new environment is quite difficult to become accustomed to, resulting in the displacement of many industry staples. As such, the latest push for technology companies is into a burgeoning segment of the electronics market known for its glamorization of the “digital hub.”
The idea behind the digital hub is quite simple. Your personal computer becomes the middleman for communication between all your electronic devices. The cellular phone, the portable music player, the PDA, the digital camera and the DV camcorder -- all of these devices have important application in the computer industry, yet it was only until very recently that this market was tapped.
The competitors in this “digital hub” industry [which will, henceforth, be designated as the DHI] are not easily distinguished. They are medium and large manufacturers of personal computers who actively develop accessories and electronics which compliment the system as a whole. For instance, a competitor in this industry would have a product selection consisting of desktop and laptop computers along with digital jukeboxes, digital cameras, displays and other assorted electronics. The idea behind this strategy being that when all these goods are tightly integrated around the PC it will be easier to sell them with the PC.
The DHI is not merely a segment of the personal computer industry, where companies -- such as Dell -- dominate through undercutting prices and mass quantity. It is an industry unto itself which many companies are now trying to enter and thrive in. Attempting to rank the industry leaders would be an exercise in futility due to the wide variety of products and services involved, so some clarification is in order.
The major competition in this industry is provided by two personal computer manufacturers who actually wind up working together more than against each other. The first company, the Sony Corporation, is perhaps the most well-known of the two leaders. They have a long history in the production of electronic goods, known best for their innovative Sony Walkman which dominated the portable music market for years. They produce a great line of WinTel PC’s, such as their VAIO laptops and desktops, and a number of high-performance displays and televisions to complement both their PC’s and their consoles. In the mid-90’s Sony jumped into the Console Gaming Industry with their critically acclaimed PlayStation, soon dominating the industry which used to have only two major competitors: Nintendo and Sega. Within 10 years they became the market leader with the PlayStation 2 and have positioned themselves to remain as such for a good while.
The other major competitor in this industry would be Apple, who until recently was known best for their eclectic but nonstandard personal computers. Once the leader of the personal computer industry, Apple has shrunk to only about 3% of the world market share as a result of both internal and external forces. [see next page] During the 1990’s it looked as if Apple might be bought out by any number of companies; the list included Disney, Sun, Sony, IBM and even Microsoft. It even took a huge investment from Microsoft just to keep the company afloat -- the cost of said investment being the bundling of Internet Explorer with new Macintosh computers. Yet today it is not a bleak outlook that hangs around Cupertino, CA [the home of Apple] but one of great hope and joy. The reason for this is quite simple: the iPod. Apple, who once considered jumping into the console market like Sony did, decided that if there was one thing it could do to spur the sales of their computers it was to develop some goodies for it. The iPod was an MP3 player of excellent quality surrounded by scattered devices with lousy capability. Apple combined a large storage capacity with a small form factor and had a hit, sealing their fate as a player in the DHI.
The DHI does not only include these two major competitors but also a number of smaller competitors as well. Companies like Dell, HP and Gateway are all involved in the industry in one way or another, yet it’s very difficult to say they are a direct, major competitor to Apple. According to the latest market share data available1[detailed on the following page] the worldwide PC industry can be summed up as a battle between the two largest sellers: Dell at about 15%, HP-Compaq at 14%. The next largest market share would be IBM, who hovers right around 5% followed by Gateway at about 3.5%. The point of this being that this is not an industry Apple or Sony can really compete in. They both sell somewhat expensive personal computers and cannot do anything to entice consumers when compared to the minimalist pricing found in the PC industry. Yet while Apple and Sony cannot compete with Dell and HP with regards to PC sales, they can with regards to their digital hub. Dell produces PDA’s and digital jukeboxes; HP just recently inked a deal with Apple to sell an HP-branded iPod along with their own line of cameras, scanners and printers; Gateway sells discount Plasma televisions. All of this adds up to a digital hub industry filled with choice, innovation and competition -- a welcome change for weary analysts.
Competitive Strategies within the Digital Hub Industry:
There are five major areas of competition within this young industry, some of which are disregarded entirely by certain competitors. Nevertheless, these are the specific criteria by which major DHI players adhere.
Audio Devices Video Devices Image Devices PDA Devices
Young Adults, Middle-aged folk, IT organizations
College Students, Families, Business
Artists, Musicians Senior Citizens Professionals
Retail POS System Supply System Business Systems
Online POS System Inventory System
Digital devices lead the list of competitive strategies because they are the backbone of the industry. The sales of devices like the iPod, Sony Clie, Sony Ericsson P900 and HP iPaq may not look like much on the balance sheet of these competitors, but it is certain that they are taken seriously. Digital devices push consumers towards personal computers, an area of the industry where great profit margins are found. Not only that, but digital devices are inexpensive products which help sell a brand identity.
One of the most important lessons to learn in this industry is that no matter how wonderful the hardware is, the user interface is what moves your product. In this case, the software is what sells the hardware. The Digital Hub Industry is geared toward tech-savvy consumers who know what they want to do and merely need something that does it with minimal fuss. Producing great software to interact with digital devices is perhaps more vital to the success of the product than the hardware’s functionality.
The next area of direct competition in this industry is the very belly of the beast: personal computers. This category is an industry unto itself, dominated by large players wielding heavy-handed influence. It is a very difficult area to compete in, but one that must be addressed by all digital hub companies as it is essential to the overall success of the product line. To try and stand out in this dreadful market, DHI competitors tend to focus on product differentiation -- better known as sticking out like a sore thumb. Apple, for instance, lacked the price point and hardware capability to run neck-and-neck with PC industry leaders such as Dell; To correct this they made their product stand out. This thinking led to amazingly successful products, in this case the iMac.
Yet another area of competitive focus for this industry is in the services department. By going that extra mile a company can gain customer loyalty, something Apple has been able to do for years now. Providing helpful and efficient tech support; supporting the sale of digital music; publishing hardcover-bound photo albums for photo users. These are just a few services in which a company could compete. The most important notion behind these extraneous services is that they support the digital hub strategy. The consumer ought to get the most out of their hardware and facilitating their imagination and creativity is a great method for attracting customers.
Another focus of competition is on customer strategy: who are you selling to and how do you market to them. This area comprises of market segmentation and analysis. A DHI competitor must focus on three notable types of customers: The “new generation,” representing young people, artists and students is one of the more important groups. This is the important 18-35 demographic which is so highly sought after by many companies in many industries. This segment seeks products that are hip, powerful and aesthetically appealing; Families and aged consumers make up another segment of this market. This group focuses mainly on price and ease-of-use. They want a product which lasts a long time and costs as little as possible; The third segment would be the business world. This comprises of IT executives looking for servers and business executives seeking laptops or desktops. A company attracts this group through discounts on mass-quantity purchases.
One of the least important strategies in the current incarnation of the digital hub industry is the manufacturing strategy, although it is still worthy of note. There are only two ways for a company to compete in this department, one of which being outsourcing all manufacturing and the other being in-house production. This choice is dictated by a company’s internal strategy and desire for control. Some may find benefit in controlling all areas of production; others may find another company can do this job better than they could.
IS strategy can play an important part in the competitive ability of many companies. There are many different systems available, all of which provide functionality that may not be necessary to compete but will provide added efficiency with regards to certain business processes. This, in turn, leads to a company being more effective in areas affected by the information system. A poorly run information system, however, can have detrimental effects to a company beyond measure. It is very important to analyze exactly what results are being sought after when planning for IS expansion.
Lastly, but most certainly not least, in this list of competitive strategies is sales. As is widely known, sales are how revenue is generated; if companies cannot maintain a reliable revenue stream they will not be successful. This is why a strong sales strategy is extremely important in this industry. The three major sales arenas -- education, retail, online -- provide customers with a number of choices with regards to purchasing products. A well-designed online store allows twenty-four hour shopping which can yield many impulse purchases. A widespread brick-and-mortar retail experience can get products directly into customers hands, allowing for them sample before purchasing. Most important to any Digital Hub Industry player is the attention they pay to the educational market. Schools are perhaps the largest consumer of multimedia around, meaning they have use for a great number of your digital devices along with servers, laptops and desktop computers to facilitate their use. Services, such as online disk access and web-based e-mail, are also vital to the educational market where the end-users [students] are constantly coming and going.
Porter Model Evaluation of Industry Forces:
Bargaining Power Potential New Entrants
The Porter Model is a way to define the five forces which influence competition within the Digital Hub Industry. These five forces are intra-industry rivalry, bargaining power of suppliers, bargaining power of customers, substitute products and services and potential new entrants.
Intra-industry rivals have a very noticeable effect on the industry as a whole due to the rather common practice of “jumping on the bandwagon” practiced by nearly all competitors. If Apple starts offering computers with color schemes, so will the other manufacturers. If Sony starts writing software which makes video editing easy for the non-tech-savvy consumer, everything will write software which makes video editing easy for consumers -- or they will at least try. The major issue with regards to rivalry is the advantage held by Sony and all Wintel manufacturers. x86-based hardware is usually less expensive and that leaves pricing as less of a challenge. On the whole, however, rivalry in the digital hub industry is not nearly as cutthroat as in the personal computer industry. There are too many different arenas to explore that it becomes very difficult to corner the market, therefore it’s up to the individual competitors to carve out their own niche.
The digital hub industry is a bit perplexing when considering the bargaining power of customers, especially with a PC Industry feeding into the notion of volume determining power. Buyers in this industry have a very strong leg to stand on due to the wide variety of devices supported by the two major competitors (Apple and Sony), so it’s very important to note how much sway they truly hold. An example of this is the iPod, Apple’s flagship digital device. Apple entered the digital device market with a product that blew all the competition away in terms of ease-of-use and capacity. Within months competitors had gone to great lengths to mimic the iPod, yet nothing could end its dominance. Very recently, Hewlett Packard inked a deal with Apple to sell HP-branded iPods which would still carry the Apple logo on the system software startup screen. What this illustrates is the power the consumers wield, since HP dumped their own MP3 player in favor of the proven market leader2. Buyers hold a great deal of sway in this industry, dictating what the latest craze is and how it ought to be addressed. This is perhaps the most importance force of all.
Understanding the nuances of the bargaining power of suppliers with regards to this industry is very difficult. All the major manufacturers involved deal with many of the same suppliers, all of which are capitalizing on the large quantities being ordered (such as low-profile hard drives). These suppliers have a great deal of power in this industry, yet they don't seem to exercise it much. Most of the time it’s the large semiconductor firms which are hindering this industry, especially in Apple Computers’ eyes. Motorola, one of the suppliers of PowerPC processors used in Macintosh computers, is a very unreliable supplier who has -- on numerous occasions -- left Apple high and dry with unsatisfactory chip development and shipment schedules. This lack of respect dictates an imbalance in their relationship favoring the suppliers. While they do not command nearly as much attention as customers, when they speak out they are most certainly listened to.
Following closely behind bargaining power of customers in terms of effect on the industry is potential new entrants. It is extremely difficult to try and guess who will adopt a competitive strategy which focuses on the digital hub. The line that divides a PC industry player and a DHI player is very fine. In other words, there is a lot of wiggle room. One may argue that Dell is most certainly in the industry because they produce digital jukeboxes and PDA’s along with their huge line of personal computers. There is issue to take with this idea, however, since Dell is in the business of selling computers. They sell computers and hope that their customers pick up these extra products on the side. Apple sells these products and hopes that the customers picks up a computer on the side -- the same goes for Sony. As this is the case, it’s easy to see that new entrants are always casting a shadow over the industry. Any day now a large player is going to step up and try to compete with Apple and Sony; they’ll probably do a good job of it, too. The most obvious choice at the moment seems to be MicroSoft, who with their massive software monopoly have the upper hand in developing great software to interface with Wintel PC’s. Potential new entrants are always monitored by DHI competitors if only to have a chance to construct new barriers to entry.
The least relevant of the five competitive forces mentioned in the Porter Model is easily distinguished as substitute products and services. These substitute products are almost irrelevant since a major portion of the digital hub strategy focuses on supporting a wide range of devices. The services and products which could displace the industry leaders are nowhere near the level of integration with which Sony and Apple have already achieved. Simply put, why have chopped liver when you can have a filet mignon? Substitute products and services are of little threat to the digital hub industry and that will probably remain the case for the near future. It’s very difficult to penetrate a market where the competitive strategy dictates innovation and product differentiation, therefore it can be safely assumed that devices such as CD and MiniDisc players are not direct substitutes for the products of a DHI competitor.
In conclusion, the Porter Model reveals that the major forces behind competition in the DHI take for in bargaining power of customers and potential new entrants. Focusing on both of these categories is vital to any company hoping to be successful in this burgeoning industry.
The digital hub industry is quite focused on spreading the growth of their products across the globe, resulting in a push/pull effect. The field is full of multinational corporations, all of whom put serious thought into competing both locally and globally. It takes a very large effort to fully integrate your product line for a foreign market, especially since certain language barriers are very difficult to overcome. In certain regions, such as Asia, the digital hub strategy is a complete success; people buy new electronic gizmos everyday in Japan, Hong Honk and Singapore. In other regions, such as Africa, there is almost no market for such products, especially when considering the basic notion of the digital hub: the PC being the middleman for inter-device communication.
This merely illustrates the need for a company to be intelligent about where it tries to expand. No amount of ingenuity or technical prowess will allow a competitor to overcome certain impenetrable barriers to entry, as such it no surprise that the three major markets for digital hub industry competition are Europe, Asia and North America. All three regions consist of developed nations with a wide and varied technological infrastructure. Most importantly, these three areas have an economic outlook which provides them with large amount of spending cash. You cannot be successful globally if you do not target suitable revenue streams wherever you set up shop. This is the lesson that must be learned.
Importance of Information Technology:
Information technology plays a major role in nearly all business activities a DHI competitor engages in. It is the driving force behind the notion that is the digital hub: the integration of multiple systems using technology. Without systems to keep track of the huge array of products offered it would be very difficult to remain competitive. This is why IT is almost a barrier to entry in the DHI. However, due to falling costs and increased competition, the purchase and implementation of such systems has increased rapidly within the last decade. This results in increased productivity for the company, advanced knowledge of any financial shortcomings, and a sincere advantage with regards to strategic planning
Through the use of computer and networking resources, front-office [for the retail outlets] and back-office [for manufacturing and corporate headquarters] software has never been easier to implement. Using tools such as point-of-sale transaction systems, inventory control systems and E-commerce systems, retailers can simplify and out source tasks that would have previously swallowed up many more resources if done without IS/IT assistance. Other important uses for information technology lie in transaction processing systems for credit card purchases and computer-aided design for product refinement.
To elaborate, the importance of information technology to the DHI is grounded in a value chain with firm infrastructure, HR [human resource] Management, Research & Development and procurement providing support for the primary activities of the business. These primary activities include (but are not limited to) inbound logistics, operations, outbound logistics, sales and marketing and service. The support activities help receive, store and disseminate input to the people who require it; this input is processed by way of the system so it can be easily stored and distributed in the future. This information (along with other useful data) is used to segment the market and identify potential opportunities. All preceding functions lead to a focus on service, which is one of the most important interactions with customers. The notion to walk away with is that only by noting and understanding the value of information systems can they be used to gain efficiency, effectiveness and competitive advantage.
Apple Computer Inc.
A History3 Steven Wozniak and Steven Jobs had been friends in high school. They had both been interested in electronics, and both had been perceived as outsiders. They kept in touch after graduation, and both ended up dropping out of school and getting jobs working for companies in Silicon Valley. (Woz for Hewlett-Packard, Jobs for Atari). Wozniak had been dabbling in computer-design for some time when, in 1976, he designed what would become the Apple I. Jobs, who had an eye for the future, insisted that he and Wozniak try to sell the machine, and on April 1, 1976, Apple Computer was born.
Hobbyists did not take the Apple I very seriously, and Apple did not begin to take off until 1977, when the Apple II debuted at a local computer trade show. It was the first personal computer to come in a plastic case and include color graphics, the Apple II was an impressive machine. Orders for Apple machines were growing by several orders of magnitude after its introduction. With the introduction in early '78 of the Apple Disk II, the most inexpensive, easy to use floppy drive ever (at the time), Apple’s sales further increased.
With the increase in sales, however, came an increase in company size, and by 1980, when the Apple III was released, Apple had several thousand employees, and was beginning to sell computers abroad. Apple had taken on a number of more experienced midlevel managers and, more importantly, several new investors, who opted to take seats on the board of directors. Older, more conservative men, the new directors made sure that Apple became a "real company," much to the dismay of many of its original employees. In 1981, things got a bit more difficult. A saturated market made it more difficult to sell computers, and in February Apple was forced to lay off 40 employees. Since Wozniak had been injured in a plane crash. He took a leave of absence and returned only briefly. Jobs became chairman of Apple computer in March.
Following the historic visit to Xerox PARC in 1979, Jobs and several other engineers began to develop the Lisa, which would redefine personal computing. Jobs, however, proved to be a poor project manager, and was taken off the Lisa by Mike Markkula, then president of Apple, and one of the major stockholders. Jobs, who owned only 11% of Apple, decided to take over someone else's project, and began working with the Macintosh--which had started as a $500 personal computer. Jobs made sure it was much more. In 1981, IBM released its first PC. With the power of Big Blue behind it, the PC quickly began to dominate the playing field. Jobs' team would have to work very quickly if they hoped to compete with IBM in the personal computer market. Jobs began to realize that Apple would have to become a "grown-up" company, and realized he was not the man for the job. In early 1983, Jobs began to court John Sculley, then president of Pepsi-Cola. In April, he was successful, and Sculley became president and CEO of Apple. Jobs believed Sculley would help Apple "grow up," but had no idea how right he would turn out to be. Eventually, it cost him his job.
Although a successful businessman, it soon became clear that Sculley did not know much about the computer industry. He and Jobs were at odds almost immediately. As the announcement of the Macintosh drew closer, Jobs went into hyper drive. He worked hard to get developers to write programs for the upcoming machine--Jobs had realized that the Mac would ultimately be made or broken by the software industry. On January 22nd, 1984, during the third quarter of the Super Bowl, Apple aired its infamous 60 second commercial introducing the Macintosh. Directed by Ridley Scott, the Orwellian scene depicted the IBM world being shattered by a new machine. Initially, the Mac sold very well, but by Christmas of 1984, people were becoming fed up with its small amount of RAM, and lack of hard drive connectivity. It was around the beginning of 1985 that Jobs and Sculley began to argue. Sculley believed Jobs was dangerous and out of control; Jobs believed that Sculley knew nothing about the computer industry, and was making a poor effort to learn. In May of 1985 Jobs decided to make a play for control of the company. He enticed Sculley to schedule a meeting in China, and planned to stage a boardroom coup while Sculley was gone. At the last minute someone leaked the information to Sculley, and he decided to confront Jobs. After a heated argument between the two, the board took a vote, and sided unanimously with Sculley. Jobs resigned that day, leaving Sculley as the head of Apple. Sculley became the de facto head of Apple in May 1985. Over the next few months, Apple was forced to lay off a fifth of its work force, some 1,200 employees. The company also posted its first quarterly loss. All this, and the resignation of Jobs, served to erode confidence in Sculley's abilities as CEO of Apple.
At the same time, Sculley became locked in a battle with Microsoft's Bill Gates over the introduction of Windows 1.0, which had many similarities to the Mac GUI. Gates finally agreed to sign a statement to the effect that Microsoft would not use Mac technology in Windows 1.0--it said nothing of future versions of Windows, and Gates' lawyers made sure it was airtight. Apple had effectively lost exclusive rights to its interface design. This would prove to be an important document in future lawsuits between Apple and Microsoft, involving the Windows interface. What brought the Mac out of the hole were the twin introductions of the LaserWriter, the first affordable PostScript laser printer for the Mac, and PageMaker, one of the first Desktop Publishing programs ever. These two in tandem made the Mac an ideal solution for inexpensive publishing, and the Mac became an overnight success, again.
In 1987, Apple introduced the Mac II. Built with expandability in mind, the Mac II made the Macintosh line a viable, powerful family of computers. Apple was a "Wall Street darling"4 again, shipping 50,000 Macs a month. It seemed in 1989 that Windows would be a flop, and the Mac would be riding high for the next decade. It didn't. By 1990 the market was saturated with PC-clones of every conceivable configuration, and Apple was the only company selling Macs. In late May, Microsoft rolled out Windows 3.0, which could run on virtually all of the PC-clones in the world. Apple was in trouble. Apple's top idea for a solution was to license the Mac OS. While many believed it would erode the quality of the Mac, or that it would create even more competition, it was becoming clear that Apple could not provide both the hardware and the software to drive an industry. There was also talk of porting the OS to run on Intel-based machines. It was Michael Spindler, Apple's new COO, who nixed the idea, saying that it was "too late to license."
In late 1991, Apple released its first generation of PowerBooks, which were an instant success. Work was being done on a new type of computer, the Personal Digital Assistant (PDA), which Apple called the Newton. Sculley took an immediate interest in the Newton, and drove the Newton to completion in August 1993. The first generation of Newtons had extremely poor handwriting recognition, and did not sell particularly well. Sculley began to lose interest in the day to day operations of Apple. Eventually the Apple Board of Directors decided they'd had enough. In June of 1993, They relieved Sculley of his position as CEO, putting Spindler in the big chair. Sculley remained with the company as chairman for several months and then resigned. Spindler, by all accounts, was the wrong man for the job. A fairly impersonal man, Spindler's office was nearly impossible to get into. However, in his two and a half years as CEO, Spindler oversaw several accomplishments.
In 1994 Apple announced the PowerMac family, the first Macs to be based on the PowerPC chip, an extremely fast processor codeveloped with IBM and Motorola. The PowerPC processor allowed Macs to compete with, and in many cases surpass, the speed of Intel's newer processors. Spindler also decided to license the Mac OS to several companies, including Power Computing, one of the more successful Mac-clone makers. But many believe the Apple was too restrictive in its licensing agreements, and only a handful of companies ever licensed the Mac OS. Apple's worst problem wasn't selling computers--it was building them. By June 1995 Apple had $1 billion dollars in backorders--and did not have the parts to build them. Apple's problems were added to by the late-summer release of Windows '95, which mimicked the Mac GUI better than ever. Apple took its worst plunge ever in the winter of 1995-96. Misjudging the market, Apple pushed low-cost Performas over mid-range PowerMacs, and failed to make a profit at all. Apple posted a $68 million loss for that quarter. In January 1996, Spindler was asked to resign as CEO and was replaced by Gil Amelio, the former president of National Semiconductor.
Amelio made a strong effort to bring Apple back to profitability, but his efforts would prove to be largely unsuccessful. Following his first 100 days as CEO, Amelio announced broad changes in the corporate structure of the company. The company was to be split into 7 separate divisions, each responsible for its own profit or loss. He has also made an effort to keep developers and customers better informed about the day-to-day affairs of the company. Although the company announced a staggering $740 million loss for Q1 1996, they brought that loss down to $33 million for Q2, beating all estimates by the best financial experts. In Q3 Apple profited nearly $30 million, again astounding financial experts, who had predicted a loss of as much. In late December 1996, Apple made an industry-shattering announcement that it would be acquiring NeXT, and that Steven Jobs would be returning to the fold. The merger was brought about in order to acquire NeXTstep, which was to become the basis for Apple's next-generation OS, Rhapsody, which was slated for a 1998 release. The Newton department was spun off into a wholly-owned subsidy, Newton, Inc.
In early July 1997, Apple announced the resignation of Gil Amelio, following another multimillion dollar quarterly loss. This came as a surprise to nearly everyone, and at this time a new CEO had yet to be announced. The Executive Board reportedly felt that Amelio had done all he could for Apple, and that while he had been responsible for a number of improvements at Apple, he could do no more. In the meantime Fred Anderson, Apple's CFO, had been put in charge of day-to-day operation, and Steve Jobs was given an "expanded role" at Apple for the interim. That pretty much leaves us where we are today. This dramatic and rich history, best explained through the online soap-opera known as “As the Apple Turns,”5 crafted this company from a small manufacturer of hobbyist products to a major manufacturer in the digital hub industry.
Since then, Apple has been under the helm of CEO Jobs who has released blockbuster products such as the iMac, iPod and iTunes Music Store. He can be considered the guiding force behind nearly all of Apple’s vision and strategy, and while the company may not be as powerful as it was when Jobs had departed it is most certainly on strong financial footing. While Steve may be the man in charge of Apple’s business plan, the internal systems organization is spearheaded by another great man: Avadis “Avie” Tevanian, Jr. This gentleman is the Chief Software Technology Officer at Apple and is focused entirely on setting the direction of companywide software technology. He was appointed to this role in 2003 by Steve Jobs and has done a great job thus far. Mr. Tevanian holds a Ph.D. and a Masters of Science in computer science from Carnegie Mellon University while also possessing a Bachelor of Arts degree in mathematics from the University of Rochester. While this may be the typical resume of an IS executive, Avie tends to be very business-oriented and is considered by Mr. Jobs to be his right-hand man. This close connection between CEO and IS executive is the major factor leading Apple’s success in recent years.
Competitive Strategy at Apple Computer
As mentioned earlier in the paper, the digital hub industry is not one focused around least-cost but around product differentiation. The colorful iMacs and miniPods, the white iPods and iBooks, the Power Macintosh -- these are products which stand out amongst the competition. The .mac internet service establishes a brand identity in the service market, something few other competitors (besides MicroSoft and AOL) are able to accomplish. These are all spokes on Apple’s strategic wheel. The other areas Apple hits hard with regards to competitive strategy are innovation and alliance. Apple is a member of a number of trade alliances, including the well-known PowerPC alliance between such large corporations as Motorola and IBM. Apple is also allied with Sony Ericsson with regards to developing a next-generation smartphone. In terms of innovation, Apple was the creator of the first consumer-oriented GUI (graphical user interface) along with the creator of the first PDA (the Newton). They are a company focused on providing value to their customer -- an important strategy for any company who seeks profitability and customer loyalty.
Apple Computer originally focused on third-party retailers selling their products -- the mark of a manufacturing company. Recently, Apple has become much more. They are a full-service digital hub industry player and as such have opened a large number of retail stores in order to attract new customers. This quote from Apple explains the purpose of these retail stores:
“At the Apple Store you can experience the complete line of
Macintosh computers and an amazing array of digital cameras, camcorders, the entire iPod family and more. Whether you’re a
longtime Mac user or just getting started, the Apple Store is the
best place to learn about the Mac. Come to our free interactive
workshops and meet Mac specialists who demonstrate products,
answer your questions and provide technical service and support.”6
Apple has opened up 65 retail stores in the United States, including more than fifteen just in California. As such, their profitability hasn’t been spectacular; compared to their intra-industry rivals, however, they are the jewel of Wall Street. The following is a five-year analysis of Apple’s financial history:
Most recently, however, Apple has shown amazing growth through increased revenue. Year-over-year revenue is up 36% for Apple according to their first quarter earnings of January 14, 2004. The company posted a net profit of $63 Million which resulted in a per-share gain of 17¢ as opposed to the first quarter of 2003 which saw a loss of 8% or 2¢ per share.
Here’s a look at Apple’s performance over the last 12 months:
As can be seen, Apple is most certainly on the rise in terms of stock performance which is reacting to the sustained profitability and increased revenue. Important elements of this graph to note are the ‘valleys’ near the end of 2003. There was a noticeable drop in price during the holiday season due to [unfounded] speculation that Apple did not have enough iPods to meet consumer demand. While there were a few iPod shortages in major urban areas, such as Los Angeles and New York [the location of two flagship Apple Stores: SoHo and The Grove], the rest of the country scooped up more iPods than any quarter thus far.
Apple has a very turbulent relationship with its employees, one which is readily apparent while reading through the aforementioned history of the company. Layoffs are very common, as are the ousting of a CEO. While this is not something to be proud of, it does add weight to the importance of Steve Jobs as CEO. The cofounder of the company, fired by the man he brought in to help lead, returned to bring his child back to life. It’s quite an amazing story. But what about the employees who are not members of Apple’s Board of Directors?
According to Apple’s 2003 10k report, there are 1300 people employed by Apple just for their retail stores. As of September 27, 2003, Apple and its worldwide subsidiaries employed just shy of 11000 people full-time and 2654 temporary employees and contractors. Taking into account 2003 revenue of over $6 Billion dollars, the result is a revenue-to-employee ratio of about $444,000. Pretty impressive for a company that has been predicted to go bankrupt for the last decade and a half.
To conclude, the financial performance of Apple is quite strong, due mostly to the increased sales of the iPod which has 30% of the digital jukebox market. The reasoning behind their excellence is found in their ability to attract new consumers to new markets. While CD players are a substitute good for MP3 players, Apple makes the case that the iPod will allow you to completely revamp your audio capabilities -- all at the low, low cost of $250 - $500. The iPod feeds demand for personal computers as well, driving up revenue even higher. All things considered, the outlook of Apple Computers is quite positive and ought to be for the foreseeable future. It takes demanding leadership and a powerful vision to do what Steve Jobs has done in turning a very unprofitable personal computer manufacturer into the world leader of the Digital Hub Industry.
Significance of Information Systems at Apple
Apple prides itself on the ability to mechanize and automate the tedious and wasteful business processes engaged in on a day-to-day basis. For instance, the Apple retail stores employ an all-Apple order processing system which combines credit card transactions, cash transactions and inventory control all in one system with an iMac as the interface. The entire business process is sped along through wireless networking, resulting in the tracking of all purchases, returns and repairs concluded at the location. This information is batch processed and sent nightly to Cupertino, CA -- Apple’s headquarters.
Apple’s online store is perhaps their greatest asset in terms of information systems. The store is constantly updated and is laid out in one of the most efficient and attractive formats available. Products are listed in terms of category and price, but users can also search for specific products, manufacturers and prices which suit their needs. The online store supports consumer purchases, educational purchases and developer purchases, all of which necessitate separate pricing and support. This is no simple task, yet it is one Apple excels at.
The third and most relevant indicator of IS significance at Apple is their support system. Apple has a world-renowned tech-support department which handles all sorts of issues around the globe. If a computer at a retail store requires replacement, the store sends the machine to Cupertino and the service department either completes the necessary repairs or supplies the customer with a refurbished replacement. This process requires a detailed and constantly changing system which would be a nightmare for any other company. Instead, Apple has turned their support system, dubbed AppleCare, into a profitable entity. Apple offers a $300 3 year extended AppleCare warranty with every PC purchase and a $100 3 year extended AppleCare warranty for every iPod purchase. Nearly all users purchase these warranties due to the overwhelming praise gushing from the mouths of those who have experienced Apple support.
Apple has been very successful at combining information technology with savvy employees in order to provide the best customer experience possible. There is no reason to doubt that this will remain the case as long as Steve Jobs is at the helm.
Strengths and Weaknesses
To better understand the environment both surrounding and within Apple Computer, Inc. it is important to grasp the most notable strengths and weaknesses affecting them. Only through honest and accurate reflection can the true power and worth of a company be ascertained, and in this case the overwhelming strengths of the corporation shines through the somewhat bleak weaknesses.
The strength of Apple Computer, Inc. lies in its history. Apple was perhaps the first personal computer manufacturer that focused on user experience as a means of competition. They have always had a penchant for a great interface and a strong product line, the exception being the early 1990s. As such, certain observations can be made regarding their particular strong points.
For instance, Apple is the world leader in digital jukeboxes, commanding over 30% of the market with their iPod. Having now released their miniPod, Apple is poised to compete with the makers of small-capacity flash players who’ve, until now, been able to avoid competing directly with Apple in the digital hub industry. Another area Apple excels in is alliance. The PowerPC alliance is now paying off, with IBM producing the new G5 processor in massive quantities (with both 130 nm and 90nm wafers). This processor is the future of Apple computers and due to the shunning of Motorola, Apple is now poised to have a reliable supplier of high-performance processors. But that’s not all.
Apple also produces some of the worlds most eye-catching personal computer products, many of which appear in movies and television shows regularly. 24 (a FOX drama), for instance, features a nearly all Mac IT department. This brand identity plays a very important role in grabbing new customers. Customer loyalty is one of the key factors to Apple’s success. Without the dedication of loyal customers, Apple would most certainly have gone under during the horrific 1990’s. Yet another area of strength for Apple is their server market. The new Xserve product (and it’s companion, the Xraid) fits in very well with many educational and small business customers. It is one of the more affordable products on the market in terms of performance per dollar, which is perhaps why the U.S. Navy recently purchased hundreds of Xserves for deployment in their submarine fleet.
Lastly, the current focus of all of Apple’s will is in their software. At Macworld [in] San Francisco, the mecca of Apple events, Steve Jobs revealed the new iLife suite7 . This software package, which ships free on new Macs, comes with a wide variety of consumer-oriented applications all revolving around the idea of the digital hub. There’s iMovie for digital video, iPhoto for digital images, iTunes for digital music, iDVD for portable archival and the latest and greatest application: GarageBand. GarageBand is Apple’s new application focused around music creation, rather than organization (the focus of iPhoto). It allows anybody with a creative spirit to sit at their computer and make music. This is going to be a huge selling point for many families who would like to have music be an influence on their children. As such, Apple has postured itself to rely on the strength of its software as an interface to its exceptional hardware. This is a very appropriate strategy for a major competitor in the DHI.
Unfortunately, every rose has its thorn. Apple has a number of weaknesses which allow for their strengths to be completely undermined, the first of which is pricing. Apple is known as a “luxury” brand in the personal computer industry. They charge a premium for their hardware, much like BMW does, which can be a very meaningful deterrent for consumers. It’s hard to justify paying $3000 for a top-of- the-line Mac when a top-of-the-line WinTel machine costs around $1500.
Another major weakness is in its decision to stick with the PowerPC architecture. With only a few semiconductor suppliers available, there is a real limit inherent in their production scheme. In recent years, Motorola has caused a great deal of strife at Apple due to their mismanagement of processor orders. As a result, Apple’s market share has been continually dwindling.
In the end, the future of the company depends on vision and leadership which can only be harnessed through the top-tier management. If the leaders of the company wish to expand their influence in the Digital Hub industry, they will.
To quote Steve Jobs:
“The Mac-user interface was a 10-year monopoly. Who
ended up running the company? Sales guys. At the
critical juncture....when they should have gone for
market share, they went for profits. And then their
monopoly ended with Windows 95.”8
at Apple Computer
Through the deployment of information technology and their corresponding systems, Apple Computer has significantly altered their business processes to compete in the highly competitive Digital Hub Industry. The reasoning behind the decision to invest greatly in information systems can best be explained by James O’Brien9:
Investment in information technology enables a
firm to build strategic IT capabilities that
allow it to take advantage of strategic
opportunities when they arise. In many cases,
this results when a company invests in advanced computer-based information systems to improve
the efficiency of its own processes.
To better understand why such an investment in IT/IS would be made, it would be prudent to explain the goals of such an investment. Improvements to a company’s information systems are implemented in order to provide improved efficiency, effectiveness and/or competitive advantage; to act directly with a minimum of expense, to have the intended response, and to gain the upper-hand with regards to your competition. These are the backbone of IS deployment, upgrading and maintenance.
Apple’s most public venture into information technology is their online retail store, one of the most effective means of purchasing a number of products both supported by and/or manufactured by the company. This store keeps track of a users purchases, monitors the progress of an existing order, maintains a persistent shopping cart, lists the most recent top-selling products and informs users about product releases through electronic mail. The store has stayed very consistent with regards to user interface, an important factor in customer loyalty and ease-of-navigation.
Yet another major system within Apple would be the hugely successful brick & mortar retail locations which were just recently opened. The front-office of these retail stores are controlled by a mixture of Apple hardware [typically iMacs and AirPort base stations] and IBM transaction systems. These units are located at the entrance to the store and act as the Point-of-Sale data mining which Apple greatly treasures. The retail employees ring up the purchases on these machines, record the customer information and send it to the back office for batch processing. The back-office of these retail locations tend to be very secretive, but recently leaked information has indicated the presence of an advanced Inventory Control System which is linked to the Online Retail Store and the company headquarters in Cupertino, California. The other back-office system that the public is made aware of is the batch processing system mentioned earlier. This system records all the purchases made throughout the day and sends them in one large heap to company headquarters. The success of the retail stores is due in no small part to these well-planned and properly implemented information systems.
The third and by the far the most veiled information system at Apple Computer, Inc. is located at the aforementioned company headquarters. Located in the Silicon Valley city of Cupertino, CA, the Apple HQ’s can be thought of as the Pentagon of the Digital Hub Industry. This campus controls the payroll systems of the entire organization, manages the business transactions of all the retail locations, and it is believed that there exists a highly sophisticated enterprise resource planning application which facilitates Apple’s world-renowned ability to innovate. Lastly, the most neglected of all the information systems at Apple Computer is involved in the interaction with third-party retailers of Apple products. In past years, Apple had a wonderful relationship with these retailers. Apple would provide them with ICS free-of-charge in the hope of furthering sales growth and more accurately gauging supply and demand. However, recent years have seen the decline of such retailers due to the presence of large electronics retailers (such as Best Boy and Circuit City) and Apple’s own retail stores. The once-common extranet Inventory Control System is dwindling down to nonexistence as Apple has realized that they are better equipped to handle sales and distribution themselves.
These systems all culminate to provide Apple with enormous gains in the areas of efficiency, effectiveness and competitive advantage. As they are so intricately tied to the important business processes which make up the day-to-day operations, it is of great importance to understand who designed, implemented and eventually saw them through to completion.
The men who can most easily be credited with the success of Apple’s retail-based information systems is Ron Johnson, the Senior Vice President of Retail who joined Apple in January of 200010 and Avie Tevanian, whose duties were mentioned earlier. Reporting directly to the CEO, Johnson leads the development of Apple’s retail strategy and is responsible for its overall performance and execution. He directed the successful launch of Apple’s first two stores in McLean, Virginia and Glendale, California in May 2001. Ron’s experience with Mervyns and Target made him perfect for the job, especially since his task with Mervyns was the responsibility of inventory management across the entire business.
Mr. Johnson and Mr. Tevanian are not nearly alone, however, as two other major figures had a huge impact on the deployment of the most recent of Apple’s information technology. Both men, having been mentioned in section II [history], need no introduction but perhaps a bit of elaboration on what their position means and what impact they had on these systems. The first man, Fred Anderson, is credited as both the Executive Vice President and Chief Financial Officer at Apple. These titles, however, hardly do him justice. Having been with the company since 1996, Mr. Anderson has a wide range of duties to attend to. In his capacity as CFO, Anderson oversees the controller, treasury, investor relations, tax, information systems, internal audit, facilities, corporate development and human resources functions. He reports to the CEO and serves on the company’s executive committee11. The second man exemplifies the idea of “the buck stops here.” Steve Jobs, Apple’s Chief Executive Officer, has the pleasure of hearing directly from both Ron Johnson and Fred Anderson. Being the top man at Apple means that he makes the final decision and go-ahead for all the aforementioned systems, therefore it would be hard to not give him credit where it is due.
To conclude, the role of information systems and technology within Apple Computer, Inc. is directly comparable to a central nervous system . It controls all the appendages [retail units] within the body [organization] in order to get the best possible view of the present into the hands and minds of those who need it. These systems facilitate the needs behind Apple’s manufacturing demands, store inventory, payroll and business transactions. Without these important organs, Apple Computer would be impotent. It is very difficult to compete in an industry which is just emerging as a viable alternative to the Personal Computer Industry -- Apple, and most importantly the top executives, understands that without viable information systems they have no way to defend their territory against large competitors with great ambitions. These executives sought efficiency, effectiveness and competitive advantage and that is most certainly what was delivered.
Strategic Option Generator
The Strategic Option Generator identifies business opportunities via a conceptual model. This model, shown below,
can specifically be used to identify strategic opportunities involving the use of information systems, which is why it’s now being introduced.
The strategic target focuses on what area a company is going to focus their efforts on in order to gain a strategic advantage. The three choices [customer, supplier and competitor] dictate who is to be focused on as a means of strategy. If customer is chosen, a company is trying to position their strategy to address the users of the system. If supplier is chosen, this would indicate a strategy of outsourcing or the deployment of an EDI (electronic data interchange). Lastly, if competitor is chosen the company ought to focus their strategy on finding ways to outmaneuvers the competition.
This element of the SOG (strategic option generator) focuses on a direct business strategy and the ways it is positioned to compete. The five choices are a bit deceiving as it’s really a choice of two more strategies within two separate categories. Differentiation is competition through separating your product or service from a competitor. Uniqueness is important in many industries, but with regards to information systems it’s a bit difficult to position your strategic options around this. Cost is perhaps the most addressable strategy available since it’s intrinsically related to efficiency and effectiveness. A company would implement an information to save time through automation, and as the old age goes: time is money. These two strategies cannot both be addressed; only one can be chosen. The three remaining choices -- innovation, growth and alliance -- are supporting strategies which are chosen in addition to either Cost or Differentiation. Innovation emphasizes a focus on the introduction of something new, usually indicative of a service or product; Growth is a focus on expanding the information systems to accommodate larger and more taxing projects; Alliance is essentially teaming up with another business entity to achieve some sort of symbiotic advantage. Unlike Cost and Differentiation, the last three choices are not exclusive.
This category is quite simple: is the strategy designed to lead or is it being introduced in order to follow? The ideas to weigh when exercising the options of Offensive or Defensive are the risks involved in being first and the folly in not jumping at the chance to expand.
The term direction could be considered a bit misleading as this portion of the SOG focuses on the users of the information system. If the users are within the boundaries of the specific company, then the answer is use. If the use of the system extends beyond the boundaries of the company that is providing the information system, it is provide12. However, if the boundaries of the system prove to be a bit murky the SOG allows for both provision and usage to be selected as options.
An example of an information system at Apple Computer, Inc. relating to the SOG is as follows. To address the growing segment of customers who wish to purchase goods online, Apple sought to develop an Online Retail Store which provided a number of services to four types of users: Enterprise [business], Education [schools], Development [technology] and Consumers.