1 © Copyright 2011 Mortensen Consulting Group LLC Session #7 Strategic Management Dr. Mark H. Mortensen Session 211 and 212 M-W PA 407

Mortensen Consulting Group LLC 2 You Will be Prepared for Today Iff You: Studied for the quiz Have read the Apple case study

Mortensen Consulting Group LLC Quiz: Chapters Fall 2010 (c) Copyright 2010 Mortensen Consulting Group LLC

Mortensen Consulting Group LLC 4 Apple Case Study

Mortensen Consulting Group LLC 5 Apple Case Study: Outline Case Study Background – The nature of competitive advantages over time in highly competitive, innovative industries. What should Apple do?  Define the Central Issues  Define the firm’s goals  Identify the constraints  Identify the alternatives  Select the best alternative  Develop an implementation plan

Mortensen Consulting Group LLC 6 Apple: Case Study Background(1): Apple History Competitive advantages in the 1980s made Apple the most profitable PC company in the world (What were they?) But “on a glide path to history” (What? Why?) Four successive CEOs (Sculley, Spindler, Amelio and Jobs) sought to reposition Apple in the PC Industry and to create a sustainable competitive advantage. (What did they try? What succeeded? What did they decide not to do?)

Mortensen Consulting Group LLC 7 Competitive advantages in the 1980s that made Apple the most profitable PC company in the world Ease of use Dominance in creative industries (design, desktop publishing), as well as education Buyer loyalty Proprietary operating system Strong branding Excellent industrial design

Mortensen Consulting Group LLC 8 Why was Apple “on a glide path to history” Low market share, increasing competition and change in the market to a commodities point of view for PCs put Apple’s differentiation strategy at risk.

Mortensen Consulting Group LLC 9 CEOs’ Strategies Sculley – low-cost producer; “hit products” every 6-12 months; Mac Classic vs. IBM clones; Powerbook laptop; Newton PDA; Taligent with IBM for new OS; PowerPC chips from IBM Spindler ( ) – reinvigorate core markets; killed Intel chip; licensed Mac OS to clone makers; killed Taligent; layoffs Amelio ( ) – servers & other high-margin devices; cancelled nextgen Mac OS; ended licensing program; bought NeXT (Jobs) Jobs – iMac; outsourced manufacturing; direct sales via website; image; industrial design

Mortensen Consulting Group LLC 10 Apple: Case Study Background(2): The Mac Business in the 21 st Century Technology & Innovation  Cutting edge experience  High-end  Differentiated from Wintel machines  Intel Chipset  Overhauled Mac OS X in 2001 (UNIX)  Proprietary Apple-developed applications Distribution & Sales  Retail stores

Mortensen Consulting Group LLC 11 Apple: Case Study Background(3): The Evolving PC Industry The dynamics of the PC industry have radically changed in the last 20 years. Buyers Rivalry among suppliers Barriers to entry Complements to the PC industry Supplier vs. Manufacturers balance of power Substitutes

Mortensen Consulting Group LLC 12 Apple: Case Study Background(4): Apple Beyond Macintosh iPod iTunes Apple TV iPhone iPad

Mortensen Consulting Group LLC (c) Copyright 2008 Mortensen Consulting Group LLC 13 Questions for Apple Case Study Has Steve Jobs finally solved Apple’s long-standing problems a. With respect to the Macintosh business? b. With respect to its broader strategic position?  Going forward, what should Steve Jobs do?

Mortensen Consulting Group LLC 14 Doing a Case Study -1 Read the case thoroughly. Read the case thoroughly. Read the case thoroughly.  The first time to get an overview of the industry, the company, the people and the situation.  Read the case again more slowly, making notes as you go. Define the central issue. Many cases will involve several issues or problems.  Identify the most important problems and separate them from the more trivial issues  After identifying what appears to be a major underlying issue, examine the related problems.

Mortensen Consulting Group LLC 15 Fall 2008 Apple SWOT(1): PC Business StrengthsWeaknesses OpportunitiesThreats Fanatically loyal customers who pay for yearly OS updates Domination of niche markets Industrial design expertise - “Cool factor” Apple-owned software applications FLASH technology procurement agreements Mobile Me & Apple Care New Intel architecture Hub for Apple iPod, iPhone, etc. Higher prices Low market share of the PC business Low penetration of business computing High cost of designing, manufacturing, and supporting proprietary computer architecture and OS Many fewer software and peripheral developers provide products for Macintosh than for PCs mean lower value for the “solution” Transition from desktop to laptop Netbook replacement Digital hub strategy Move to solid state disk technology Cloud computing SaaS Price decline Freeware OSs (LINUX) Microsoft juggernaut Jobs’ health Succession Plan Macintosh: MacBook (Air, Pro), Mac Mini, iMac, Mac Pro xServe, Airport, Time Capsule, Mobile ME, Apple Care.

Mortensen Consulting Group LLC 16 Apple SWOT(2): Consumer Electronics Business StrengthsWeaknesses OpportunitiesThreats FLASH technology procurement agreements Integration with Macintosh, but works also with Wintel Device/iTunes integration Mobile ME Excellent user experience Industrial design – “cool factor” Agreements with record labels Open computing environment Higher prices Few video agreements with owners DRM hassles iPhone is more an entertainment appliance than a SmartPhone for business Dependent upon constant product innovation to succeed, not structural attributes Video market explosion Increasing complexity – features and maintenance Proliferation of important files (image, video, audio) by consumers SaaS models and acceptability Myriad competitors (including Microsoft) innovating as fast as they can Open source software (LINUX, Android) coming out Video DRM complexity Jobs rumored sickness iPod, iPhone, iPad, Apple TV, Apple Care, Mobile Me

Mortensen Consulting Group LLC 17 Doing a Case Study - 2 Define the firm’s goals (only if applicable)  Inconsistencies between a firm’s goals and its performance may further highlight the problems discovered in step 2  Identifying the firm’s goals will provide a guide for the remaining analysis. Identify the constraints to the problem (only if applicable)  The constraints may limit the solutions available to the firm  Typical constraints include limited finances, lack of additional production capacity, personnel limitations, strong competitors, relationships with suppliers and customers, and so on.  Constraints have to be considered when suggesting a solution.

Mortensen Consulting Group LLC 18 Apple’s Goals Observation: When you go to the web site, you get information about their products. You have to search – hard – for corporate information! Apple's mission statement Apple ignited the personal computer revolution in the 1970s with the Apple II and reinvented the personal computer in the 1980s with the Macintosh. Today, Apple continues to lead the industry in innovation with its award-winning computers, OS X operating system and iLife and professional applications. Apple is also spearheading the digital media revolution with its iPod portable music and video players and iTunes online store, and has entered the mobile phone market with its revolutionary iPhone. FAQs at Product, Product, Product.

Mortensen Consulting Group LLC 19 Fall 2008 Apple’s Constraints Microsoft Office is the entrenched standard application, although cheap competitors are nipping at its heels, as well as OpenDocs-based free software The Wintel hardware architecture is well entrenched – getting others to build hardware to a new open standard to run OS-X would be very difficult Features to support large business use by IT shops would be very expensive, and time- consuming, to implement for Apple.

Mortensen Consulting Group LLC 20 Doing a Case Study - 3 Identify all the relevant alternatives  The list should include all the relevant alternatives that could solve the problem(s) that were identified  Use your creativity in coming up with alternative solutions  Even when solutions are suggested in the case, you may be able to suggest better solutions Select the best alternative  Evaluate each alternative in light of the available information  Resist the temptation to jump to this step early in the analysis  You will also need to explain the logic you used to choose one alternative and reject the others.

Mortensen Consulting Group LLC 21 Alternatives – PC Business 1. Get out of the hardware business, keep the software business, licensing the hardware to others 2. Keep to the niche with the proprietary software, manage to profitability and expand tactically with the PC as the hub of the home entertainment system as laptops move to silicon storage as hardware running Windows expand iTunes into application downloads for PC users 3. Attempt to Change the Game Further bundling software and hardware support, offering a “total package” for computing, building on the Apple Care program – playing to the people tired of complexity and hassle iPad as a multimedia terminal Build on the Mobile Me offering to offer expanded backup and recovery, SaaS, and cloud computing capability for heavy graphics users. Thus, MACINTOSH/Mobile Me > iPOD/iTunes

Mortensen Consulting Group LLC 22 Alternatives – Consumer Electronics Business Continue with the current consumer-focused strategy, constantly innovating new products (where does Apple TV fit?) Expand into video distribution with Apple TV and iTunes, building the catalog as done with iTunes Expand into gaming segment with Apple-produced and third party games, built on an Apple TV base and incorporating MMPGs via cloud computing infrastructure Expand into the business realm with:  Corporate offerings based on iTunes and Mobile Me technology as a platform  SaaS with major players such as SAP, Oracle, and Salesforce.com

Mortensen Consulting Group LLC 23 Doing a Case Study - 4 Develop an implementation plan  Plan for effective implementation of your decision. Lack of an implementation plan, even for a very good decisions can lead to disaster for a firm and for you  Don’t overlook this step. It is important as a future manager to be able to explain how to implement the decision.

Mortensen Consulting Group LLC 24 Reminder for Next Session Read Chapter 4