Apple Hbr Case Study Questions

Apple Assignment 2007/2008

_________________________

Historically, what were Apple’s major competitive advantages?

• Industrial design/Hardware design.

• Apples focus and vision.

• Integrated approach with software, hardware and service.

• Patents covering technology, “look and feel”, interfaces and methods.

• Strong legal team to enforce the above.

• Dedicated market shares.

• Ease of use.

• Strong brand.

• Brand loyalty.

• Marketing.

• Steve Jobs.

Analyse the structure of the personal computer industry over the last 15 years. How have the dynamics of the PC industry changed?

At the beginning of the 1990s the structure of the personal computer industry changed dramatically after several decades of relative stability. IBM dominance of the PC industry and its role as coordinator of the “IBM-compatible” standard started to erode in the late 1980s. It attempted to regain control of the PC standard by connecting it to IBM-proprietary technology. The strategy failed. By the early 1990s “IBM-compatible” had been replaced by “Wintel” as the dominant standard with IBM�s early partners, Microsoft and Intel, taking the helm as coordinators. The new “Wintel” regime, like its predecessor, was an arena where technical invention was divided amongst vertically disintegrated firms. This market structure, one of divided technical leadership, is a structure in which a number of firms possess the capability to supply interoperable components.

Throughout the 1990s and beyond, thousands of manufacturers built PCs around hardware and software components mainly supplied by Microsoft and Intel. There are two distinct types of supplier to the PC industry. The first type supplies components such as disk drives, chassis�, RAM, peripherals etc. Products in this category are available from a wide variety of sources at highly competitive prices. The other type of supplier provides products - most notably CPUs and operating systems- available from just a few sources .i.e. Microsoft and Intel.

Most firms outsourced the production of components manufacturing contractors carrying out simple manufacturing operations at high-volume plants in low-cost locations. Eventually, these contractors took on more complex tasks, such as design and testing. By the beginning of this century, large contract manufacturers began to build entire PCs for brand-name companies, designing and assembling basic computers in Asia and shipping them to geographic hubs for production to be completed. These full-line distributors dominate the industry with the broadest customer and product base. Many PC manufacturers aimed to streamline their operations by moving from a build-to-stock to a build-to-order model. Reduced inventory led to reduced costs.

The four main types of PC buyer have remained the same since the early 1990s. Namely: business, home, government and education. However, the distribution channels have changed. Business buyers now buy direct from vendors or distributors as opposed to full-service dealers. Consumer markets are serviced by superstores e.g. (In Ireland) Tesco, PC World and web-based retailers can service all types of demand often at steep discounts.

The 1990s saw Moore’s Law holding true and the end of the technological boom has left behind a saturated PC industry with decreasing profit margins. The rate of innovation within the industry has greatly decreased. Highly standardised products, low margins and oversupply characterise today’s market. Suppliers of PCs are struggling to find meaningful differentiation with their competitors. Today, the top three suppliers in the world are Dell, Hewlett-Packard (HP) and Lenova. Lenova acquired IBM’s PC business in May 2005. As a means to increasing sales and decreasing costs, it is not unusual for industry leaders to share R&D with smaller companies, many of whom opt to merge together with their much larger partners, thus creating increased competition between the industry leaders. The cut-throat environment that exists today will surely lead to more consolidation such as this.

“Let us entertain you” has become the new battle cry of the major players within the PC industry . Previously, companies relied on creating technology that increased consumers’ productivity and lines of communication, PC makers are now entering the consumer electronics industry as a means to sharpen their competitive edge. Their theory is based on the grounds that they already have sophisticated distribution channels and currently compete in an approximately related industry.

Analysis of PC Industry using Porters Five Force Model

Degree of Rivalry

• The top manufacturers are engaged in intense competition to produce the most efficient machine at the cheapest price.

• Result is that companies have no room for errors or inefficiencies.

• There is little differentiation between most products.

• It is costly to leave the industry (high exit barriers), so manufacturers fight to stay in.

• Consolidation may seen by manufacturers as a means to stay in e.g. HP-Compaq, Lenova-IBM.

Supplier Power

• Certain suppliers, if they are the only one or one of few e.g. Microsoft, Intel, do have strong position and may dictate terms.

• Particularly so if there is high switching cost for manufacturers.

• Manufacturers