MEMORIAL UNIVERSITY OF NEWFOUNDLAND, FACULTY OF BUSINESS ADMINISTRATION

Apple INC A Strategic Analysis

ABHISHEK SHARMA

201089513

Word Count 1450

Table of Contents

Executive Summary .............................................................................................................................................. 1

Issue Identification ............................................................................................................................................... 2

Analysis ....................................................................................................................................................................... 3

Options ......................................................................................................................................................................... 5

Recommendation ................................................................................................................................................... 7

Appendices ................................................................................................................................................................ 8

Appendix A: Financials

Appendix B: Strategy Components

Appendix C: External Analysis

Appendix D: Internal Analysis

1

EXECUTIVE SUMMARY

Apple Inc grapples with the issue of maintaining a long term competitive advantage arising

from leadership innovation and premium brand image. Although presently the company

enjoys a sound financial performance, rapidly changing technology requires the need for

constant innovation. In light of short product life cycles, sustaining its current strategic

position without brand dilution requires that Apple significantly invest in research and

development over the long run. This task is made easy by the various resources at Apple’s

disposal as well as a favourable organizational structure and suitable management

preference. This also fulfills the expectations of most stakeholders.

2

ISSUE IDENTIFICATION

1. How can Apple balance the tension between increasing growth over the long term

without compromising it premium brand image?

2. Where should Apple Inc invest the deposits of cash on its balance sheet (expansion vs

R&D?) without falling behind in an industry with short product life cycles but high

customer expectations?

3

ANALYSIS

The present strategic orientation of Apple Inc is to sustain it current market performance

by being an industry leader through innovation in technology and by exceeding the

expectations of its customers through unique experiences. This strategic thrust derives

from Apple’s Mission and Vision Statement (Appendix A, Table 4). Apple has struck upon a

strategic fork in its path where maintaining technological innovation and a premium brand

may no longer be adequate to maintain its present financial performance in the long run. As

we can see in (Appendix C, Table 7) there are various threats and uncertainties looming

large in the broader environment that could severely damage Apple’s sustainable long run

performance. The potential tension between the environmental factors and Apple’s

abundant resource availability is exemplified by its cash position (Appendix A, Table 2),

albeit this tension is a benign one. Similarly there could also be a positive tension whereby

Apple needs decide which strategic direction it will choose to finance through its resources.

Here, strategy components like goals of long term profitability and growth vs the strategy

to focus on niche market high income individuals (Appendix B, Figure 3) could be

misaligned. Similarly, the breakneck product and technology lifecycles always makes Apple

vulnerable to obsolescence and displacement by rival firms (Appendix C, Figure 4).

Although Apple currently is in a comfortable financial position with over $40 billion in

profits as of 2012 (Appendix A, Table 1) and has increasing share prices (Appendix A,

Figure 2), close to 72% of Apples revenue stream is generated from smart phone and

tablets (Appendix A, Figure 1), which are two highly volatile product segments with respect

to product obsolescence. However, there are still opportunities in the environment which

Apple can capitalize on using its unique strengths. While, one the one hand there is always

the looming threat of technological change, Apple has a closed ecosystem. While at first

Apple’s closed ecosystem was a weakness for the business, this has now changed. First,

Apple now has a full range of apps, software and products that are interlinked and support

each other. The combination of customer loyalty and a closed ecosystem ensures that Apple

has a competitive advantage even in an uncertain technological climate. The summary of

the threats and opportunities emanating from the environmental factors are succinctly

summarized in (Appendix D, Table 8).

4

A closer examination of the stakeholder analysis is presented in Appendix B, Table 5. Some

the stakeholder expectations are actually contingent upon the others. The shareholder and

financial community’s expectations of sustained financial growth and continued

profitability obviously cannot be met unless customer expectations of experiencing

breakthrough, cutting edge technology are realized. On the whole, most of the expectations

of the internal as well as the external stakeholders are very well aligned. It suggests that

there will be no significant dissonance among the stakeholders if Apple chooses a

particular strategic direction. The organizational structure at Apple is presented in

Appendix D, Figure 1. Apple has a highly command and control structure, where “ideas are

shared at the top” (Lashinsky, 2011) and then percolates down to the rank and file. The

structure at Apple could most aptly be categorized as functional with an entrepreneurial

spirit (Lashinsky, 2011). For a company of its size, Apple’s startup like structure makes it

adept at abrupt course corrections in strategic direction (Lashinsky, 2011), thereby easing

the tension between strategy and organizational structure.

When we examine the value chain analysis (Appendix D, Table 8) it become apparent that

Apple’s core activities lie at end of the primary value chain, namely marketing, sales and

after sales service. Combined, the primary activities of sales and marketing and the

secondary activities of technology development contribute 58% of the value addition of an

I-Phone and form the basis of competitive advantage for Apple (Kraemer, Linden &

Dedrick, 2011). Although present sound financial performance may serve as a source of

temporary competitive advantage, other resources and organizational capabilities like

industrial design capability, innovation and brand consciousness are additional resources

and embedded capabilities that create a sustained competitive advantage leading to an

above normal financial performance (Appendix D, Table 9). This again corroborates our

earlier statement on the high value generating activities in the chain lie in sales, marketing,

after sales service and technological innovation.

5

OPTIONS

Some of the options available for Apple Inc are:

Growth through brand dilution and retail expansion: Apple currently targets a select

market segment. Its products are high end and command premium prices because the

brand is highly valued. However, there are various emergent threats (Appendix D, Table 7):

possible market segment saturation, uncertain macro variables (Appendix C, Table 6),

rapid technology obsolescence and narrowing product lifecycles (Appendix C, Table 6). One

of the ways that Apple can finance for future growth is through brand dilution. Apple can

come up with a cheaper line of products which cater to the general market. To achieve this,

there would have to be distinct market segments and highly differentiated products in the

premium line so that offering ordinary product line would not completely erode brand

parity for the premium market segment. The lower value market segment would act as a

new source of revenue stream. This would also entail that Apple aggressively expand its

distribution channels and retail outlets.

Develop strategic partnerships with suppliers: There are few big manufacturers and

suppliers of key components and electronic items like Foxconn the Taiwanese electronics

manufacturer. Therefore, developing close relationships with suppliers like Foxconn would

not only result in lower cost through economies of scale, but also maintain a collaborative

and exclusive business relationship with the supplier. This would also help mitigate the

power of few big suppliers. However, as we saw in the value chain analysis (Appendix D,

Table 8) manufacturing activity unfortunately does not add significant value along the

chain.

Do not change strategic direction: Continuing with the present strategic direction would

be the path of the least resistance. After all why fix what is not broken? This option would

6

also seem appealing because of the enviable position of Apple vis a vis other industry

leaders (Appendix D, Table 10).

Stay ahead through new product innovation and branding: Another option could be to

foster continuous development of complementary as well as completely new products in

various other categories. This would grant Apple broader sources of revenue and strategic

advantage by building on the existing brand value and cause significant first mover

advantage. It would also resolve the benign tension of abundant unutilized resources and

capabilities (Appendix D, Table 9) with its strategic goals (Appendix B, Figure 3). A strategy

of continuous innovation also addresses the tension between environmental threats

(Appendix D, Table 7) and organizational strategy.

7

RECOMMENDATION

Based on the strategic analysis, I recommend the following option: Stay ahead through new

product innovation. Product innovation has many dimensions. Firstly, Apple would have to

focus on a differentiated lifestyle and product branding and must continue to build on this

exclusive foundation. It must resist the pressure to compete with middle of the road brands

like Nokia, Samsung, Dell and HP. Also, Apple will need to focus on design development by

using its immense internal resources and to continue to lead the industry in design and

innovation. On the software, Apple must continue to innovate in new user friendly

interfaces focusing on easy to use and intuitive menu functions. Apple is uniquely and

favourably placed in terms of its resource capabilities, organizational structure and

management preferences to implement the strategy of product innovation. Additionally,

Apple can maintain brand equity by providing innovative marketing solutions in the

forward links of the supply chain. For instance, more points of direct contact with buyers,

emphasis on product differentiation and unique branding will enable Apple to bring the

unique Apple experience to more people.

Appendix A Financials

Table 1: Apple Inc, Income Statement (All numbers in thousands)

Period Ending 2012-09-28 2011-09-23 2010-09-24

Total Revenue 156,508,000 108,249,000 65,225,000

Cost of Revenue 87,846,000 64,431,000 39,541,000

Gross Profit 68,662,000 43,818,000 25,684,000

Operating Expenses

Research Development 3,381,000 2,429,000 1,782,000

Selling General and Administrative 10,040,000 7,599,000 5,517,000

Non Recurring - - -

Others - - -

Total Operating Expenses - - -

Operating Income or Loss 55,241,000 33,790,000 18,385,000

Income from Continuing Operations

Total Other Income/Expenses Net 522,000 415,000 155,000

Earnings Before Interest And Taxes 55,763,000 34,205,000 18,540,000

Interest Expense - - -

Income Before Tax 55,763,000 34,205,000 18,540,000

Income Tax Expense 14,030,000 8,283,000 4,527,000

Minority Interest - - -

Net Income From Continuing Ops 41,733,000 25,922,000 14,013,000

Non-recurring Events

Discontinued Operations - - -

Extraordinary Items - - -

Effect Of Accounting Changes - - -

Other Items - - -

Net Income 41,733,000 25,922,000 14,013,000 Preferred Stock And Other Adjustments - - -

Source: Yahoo Finance, 2013

Table 2: Apple Inc, Comparative Balance Sheet

Balance Sheet

View: Annual Data | All numbers in thousands

Period Ending 2012-09-28 2011-09-23 2010-09-24

Assets

Current Assets

Cash And Cash Equivalents 10,746,000 9,815,000 11,261,000

Short Term Investments 18,383,000 16,137,000 14,359,000

Net Receivables 21,275,000 13,731,000 11,560,000

Inventory 791,000 776,000 1,051,000

Other Current Assets 6,458,000 4,529,000 3,447,000

Total Current Assets 57,653,000 44,988,000 41,678,000

Long Term Investments 92,122,000 55,618,000 25,391,000

Property Plant and Equipment 15,452,000 7,777,000 4,768,000

Goodwill 1,135,000 896,000 741,000

Intangible Assets 4,224,000 3,536,000 342,000

Accumulated Amortization - - -

Other Assets 5,478,000 3,556,000 2,263,000

Deferred Long Term Asset Charges - - -

Total Assets 176,064,000 116,371,000 75,183,000

Liabilities

Current Liabilities

Accounts Payable 32,589,000 23,879,000 17,738,000

Short/Current Long Term Debt - - -

Other Current Liabilities 5,953,000 4,091,000 2,984,000

Total Current Liabilities 38,542,000 27,970,000 20,722,000

Long Term Debt - - -

Other Liabilities 16,664,000 10,100,000 5,531,000

Deferred Long Term Liability Charges 2,648,000 1,686,000 1,139,000

Minority Interest - - -

Negative Goodwill - - -

Total Liabilities 57,854,000 39,756,000 27,392,000

Stockholders' Equity

Misc Stocks Options Warrants - - -

Redeemable Preferred Stock - - -

Preferred Stock - - -

Common Stock 16,422,000 13,331,000 10,668,000

Retained Earnings 101,289,000 62,841,000 37,169,000

Treasury Stock - - -

Capital Surplus - - -

Other Stockholder Equity 499,000 443,000 (46,000)

Total Stockholder Equity 118,210,000 76,615,000 47,791,000

Net Tangible Assets 112,851,000 72,183,000 46,708,000 Source: Yahoo Finance

Table 3: Apple Inc, Cash Flow

Annual Data | All numbers in thousands

Period Ending 2012-09-28 2011-09-23 2010-09-24

Net Income 41,733,000 25,922,000 14,013,000

Operating Activities, Cash Flows Provided By or Used In

Depreciation 3,277,000 1,814,000 1,027,000

Adjustments To Net Income 6,145,000 4,036,000 2,319,000

Changes In Accounts Receivables (6,965,000) (1,791,000) (4,860,000)

Changes In Liabilities 9,843,000 8,664,000 8,302,000

Changes In Inventories (15,000) 275,000 (596,000)

Changes In Other Operating Activities (3,162,000) (1,391,000) (1,610,000)

Total Cash Flow From Operating Activities 50,856,000 37,529,000 18,595,000

Investing Activities, Cash Flows Provided By or Used In

Capital Expenditures (8,295,000) (4,260,000) (2,005,000)

Investments (38,427,000) (32,464,000) (11,075,000)

Other Cash flows from Investing Activities (1,505,000) (3,695,000) (774,000)

Total Cash Flows From Investing Activities (48,227,000) (40,419,000) (13,854,000)

Financing Activities, Cash Flows Provided By or Used In

Dividends Paid (2,488,000) - -

Sale Purchase of Stock 665,000 831,000 912,000

Net Borrowings - - -

Other Cash Flows from Financing Activities (1,226,000) (520,000) (406,000)

Total Cash Flows From Financing Activities (1,698,000) 1,444,000 1,257,000

Effect Of Exchange Rate Changes - - -

Change In Cash and Cash Equivalents 931,000 (1,446,000) 5,998,000

Source: Yahoo Finance

Figure 1: Revenue breakdown by product lines

Source: http://www.wingsofreason.com

Figure 2: Share Price

Source: Yahoo Finance

Appendix B

Table 4: Mission, Vision and Statement of Principles

Mission Statement: “Apple is committed to bringing the best personal computing experience to students, educators, creative professionals and consumers around the world through its innovative hardware, software and internet offerings." Vision Statement: “We believe that we are on the face of the earth to make great products and that's not changing. We are constantly focusing on innovating. We believe in the simple not the complex. We believe that we need to own and control the primary technologies behind the products that we make, and participate only in markets where we can make a significant contribution. We believe in 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." Apple’s Principles of Business Conduct: Apple’s success is based on creating innovative, high-quality products and services and on demonstrating integrity in every business interaction. Apple’s principles of business conduct define the way we do business worldwide. These principles are: • Honesty. Demonstrate honesty and high ethical standards in all business dealings. • Respect. Treat customers, suppliers, employees, and others with respect and courtesy. • Confidentiality. Protect the confidentiality of Apple’s information and the information of our customers, suppliers, and employees. • Compliance. Ensure that business decisions comply with all applicable laws and regulations. Source:

Apple Statement of Business Conduct

CNN Money.com.

Apple investor relations

Figure 3: Strategy Components:

Crosson, M., Rouse, M., Fry, J., & Killing, J. (2012). Strategic Analysis and Action (8th ed.). Toronto: Prentice Hall

Value Proposition

Goals

Core Activities

Product Market Focus

Leadership in technology and design innovation, bringing forth unique customer experiences, maintaining a sustained long-term customer relationship, profitability and growth

Research, innovation, design, customer service, marketing, supplier relationships

Smart phones, Tablets, I-Pods, Computers, other hardware accessories, music products, software

Young Professional and Students, the creative minded, application developers, trend conscious, high income individuals and households in North America, Europe, Australia and East Asia

Cutting edge, differentiated and innovative products, a unique customer experience, long term satisfactory relationship in a unique digital ecosystem

Table 5: Stakeholder Analysis

Internal stakeholders

Stakeholders Expectations Front Line and Administrative Employees • Satisfactory pay

• Stimulating work environment • Opportunities for training and

professional development Shareholders • Sustained profitability

• Increased share prices • Dividend Payment

Board of Directors • Strong financial performance • Research and development

breakthroughs • Bold and decisive leadership • High performing workforce

Researchers, Engineers and Programmers • Stimulating work environment • Cutting edge research in an engaging

climate • Management support and continued

research and development funding • Recognition of research achievement

Strategic Partners (Suppliers) • Supplier Employee education and development program

• Integrated procurement and supply chain information systems between the Original Equipment Manufacturer (Apple)—Electronics Manufacturing Services (Foxconn)

• Health and Safety and Environmental Audits

Factory Labourers • Safe Working Environment • Fair benefits and compensation

External Stakeholders

Stakeholders Expectations Customers • Breakthrough, cutting edge devices

and technology • User-friendly, multifunctional

environment • Reasonable price • Brand Equity • Superior customer service • Satisfactory repair and warranty

policy Competitors • Technology leadership Financial Community • Superior and sustained financial

performance Consumer and Labour Rights Groups • Fair consumer rights practices

• Healthy and safe labour conditions • Fair labour compensation

Environmentalists • Sustainable environmental practices • Minimized waste and emissions

Government • Positive contribution to the economy • Creation of jobs • Tax payment • Meet the information needs of

society

Appendix C External Analysis

Rivalry Between

Competitors

Threat of Potential Entrants

Buyer Power

Threat of Substitutes

Supplier Power

+ Economies of scale - Outsource to OEMs for production + Several large, entrenched players with well established brand loyalty -Technology Convergence

-Reliance on underlying, proprietary standards - Few chip designers, one dominant player: Foxconn - High switching costs from suppliers + Suppliers reliant on industry for distribution and consumption

+Customer dependence -High demand -Varying needs, ‘latest and greatest’ v. ‘just good enough’ + Difficulty of switching to/from proprietary platforms

The industry is moderately attractive. The established players have a history of success and innovation, but competitors who fall behind the fast moving technological curve, or cannot compete efficiently on price or differentiate effectively are eliminated. While new entrants are possible, the cost in dollars and time of successful branding are a hindrance.

-Price competition in certain product categories - Breakneck product/technology lifecycle pace - Products based on standardized components, -Difficulty in differentiation

- Other feature-rich smart phones, tablets and PCs - Alternate forms of entertainment + Internet hubs for leisure, entertainment, information and work

Figure 4: Porter’s Five Forces

Table 6: PEST Analysis

Threat Opportunity Political/Legal • Political Instability and labour

unrest in China • Intellectual property rights

violations

• Opportunity to shift manufacturing bases to low income countries

• Proceeds from compensation could be used for R&D

Economic • Economic Recovery • Developing Chinese economy

• No signs of immediate economic turnaround, consumers are spending less. Apple’s premium portable devices may be out of consumer price ranges

• The developing Chinese economy will require higher wages for factory workers

• Quantitative Easing 3 in the US may stimulate the economy and economic recovery will raise consumer spending.

• Massive population with increased buying power for Apple’s products.

Socio/Cultural • Increasing taste for cutting edge

portable devices • Greater concern for the

environment

• Apple’s portable computers may lose relevance quickly

• Device manufacturing will be equated with pollution and climate change

• Apple can lead innovation in high tech mobile, PC and Tablet devices

• Apple’s lead in environmentally-sound practices will be a marketing advantage

Technological • Device Convergence • Shortening Product Lifecycle

• Apples broad line of products may

become obsolete • Increased pressure to innovate may

result in missed opportunities to exploit matured cash cow product lines and result in inventory losses

• As a leader in portable devices Apple can innovate and lead the way in technology convergence

• High R&D commitments may propel Apple to lead the industry even in the future by out-innovating competitors as it does now

Appendix D Internal Analysis

Figure 5: Apple’s Corporate Structure (Source: CNN Fortune)

Table 7: SWOT Analysis

Strengths

1. Customer loyalty combined with expanding closed ecosystem 2. Strong financial performance: Apple’s financial performance is one of the best

among many companies.

3. Apple is a leading innovator in mobile device technology: Apple has been chosen as the most innovative company in the world for the 3rd time in 2012.

4. Brand reputation: Apple has a reputation of highly innovative, well designed, and well-functioning products and sound company performance. Apple brand is valued at $87.1 billion and was the second most valuable brand in the world in 2012.

5. Retail stores: Apple’s retail stores ensure high quality customer experience; provide direct contact with knowledgeable staff and increases brand awareness.

6. Strong marketing and advertising teams: Apple can sell pricier products, build superior stores and advertise their products in a compelling manner.

Weaknesses

1. High price: Apple’s products cost much more than its competitors devices. When there’s such a fierce competition, Apple products price becomes a weakness because consumers can easily opt for similar quality but lower price products.

2. Incompatibility with different Operating Systems: The iOS and OS X are quite different from other OS. Due to such differences, both in software and hardware, users often choose to stay with their accustomed software and hardware (Microsoft OS and Intel hardware).

3. Decreasing market share: The less market share Apple has, the less it can influence its potential customers and persuade them to jump into using Apple’s closed ecosystem products.

4. Patent infringements: The firm is often accused of infringing other companies’ patents and has even lost some trials. This damages Apple brand and its financial situation.

5. Changes in management: Apple has lost Steve Jobs in 2012 and Tim Cook became the new CEO and this will have an impact on company’s management.

6. Long-term gross margin decline: Current Apple’s gross margin is one of the highest in the tech industry but analysts fear that due to increasing component prices and competition current margins will not be sustained.

Opportunities

1. High demand of iPad mini and iPhone 5: iPad mini sales will increase Apple’s market share in the tablet market and, will strengthen firm’s competitive advantage.

2. iTV launch: iTV launch will support Apple TV sales and the products’ ecosystem.

3. Growth of tablet and smart phone markets.: Growth of tablet and smart phone markets is a good opportunity to expand firm’s share in these markets.

4. Damages from patent infringements: Apple patents are often infringed by its competitors. Thus, collecting the damages from the companies that do so is a viable opportunity to not only increase the cash reserves.

5. Mobile advertising market: Apple has developed iAd advertising platform, which allows advertising on Apple iPhone, iPad and iPod touch. The growth of mobile advertising market is an opportunity which could be further seized upon.

Threats

1. Rapid technological change: Companies are under the pressure to release new products faster and faster. The one that cannot keep up with the competition soon fails. This is especially hard when a company wants to introduce something new, innovative and successful.

2. Rising pay levels for Foxconn workers: Pay levels for Foxconn’s workers have risen steadily from 2010 to 2012. Foxconn is the main manufacturer of Apple products and the rising pay level for Foxconn’s workers will likely raise the prices for Apple products.

3. Breached IP rights: The companies that breach Apple patents might not be discovered soon and may benefit from it, while weakening Apple at the same time.

4. Price pressure from Foxconn over key components: Due to intense competition over components and no viable OEM-EMS partnership alternatives Apple may be asked to pay even more.

5. Strong dollar. Apple earned more than half of its revenues from outside US. Dollar appreciation against other currencies reduces potential profits from those countries.

6. Android OS growth: Android OS is the main competitor for iOS in mobile device market. The domination of Android decreases iOS power over influencing consumers to join Apple.

7. Competitors’ in online music market: Apple faces threat from online music stores, such as Amazon, Wal-Mart and online music subscription companies, such as Spotify.

Sources:

Fast Company

Forbes Magazine

Macdaily News

Asia Cnet

Forbes Magazine

Apple Press Information

Business Insider

Figure 6: Apple Value Chain:

Table 8: Value Chain Analysis

Primary Activities

Inbound Logistics • Most components are generally available from multiple sources; a number of components are obtained from single or limited sources.

• Hardware products are manufactured by outsourcing partner primary in Asia e.g. Foxconn.

• Delegate raw materials acquisition: Apple works with its OEM partners to delegate the raw materials acquisition process but provides some supervision for quality control purpose.

• Apple has implemented sophisticated automated receiving systems to speed up the receiving process and reduce facility foot print and storage space requirement.

Operation • “Green Apple”: Elimination of toxic substances in Apple products. Every product is claimed to be free of BFRs and other harmful toxins

• Utilize original equipment manufacturers economies of scale:

• Outsourcing production to third party OEM partners to utilize their economies of scale while removing the burden of production management from the firm.

Outbound logistics • Use of a variety of direct and indirect distribution channels: Apple retail stores, online stores, direct sales force, 3rd party cellular network carriers, wholesalers, retailers and value added resellers

• Improve distribution capacities by expanding the

number of its own retail stores worldwide • Economical packing - Apple employs teams of design

and engineering experts who develop product packaging that’s slim and light yet protective.

• Efficient packaging design not only reduces materials and waste, it also helps reduce emissions produced during transportation

Marketing and Sales • Creating and defining the market for innovative new

products • Use of the “Apple Brand” to compete across several

highly competitive markets • Strong focus on customer experience and a specific

demographic group and income group • A Brand Personality that focuses on lifestyle,

innovation, and people driven product design • Retail Locations/Flagship Stores • Secretive & Selective Unveilings: creation of hype and

suspension around product launches Service • Customer friendly environments, intensive training for

employees • Extension of the Apple Culture • Apple Genius: Helpful 1-on-1 interaction and service

on products with 1st party provider. • Included and Extended Warranty: protection against

defects and build positive image. • Free Consultation: In-or out-of-warranty consultation

Support Activities General Administration • “A Green Apple”: Reduction of Energy use in production

and transportation • Strong Cash Position: Internally finance expansion and

invest in Research and development

Human Resource Management

• Promote Apple as a desirable place to work • Selective Hiring to find and attract talent • Generous employee benefits program to retain talent

Technological Development

• Research and development: 32% spike in R&D spending in 2012

• Patent filing: protection of important product innovations Procurement • Positive relationship with supplier’s, primarily Foxconn

• The adoption and implementation of supplier code of conduct

Table 9: VRIO Framework for Resources

Sources for framework: Crosson, M., Rouse, M., Fry, J., & Killing, J. (2012). Strategic Analysis and Action (8th ed.). Toronto: Prentice Hall.

Resource/Capability Valuable Rare Inimitable Organized to Exploit

Competitive Consequence

Performance Implication

Cash Y Y N Temporary Competitive Advantage

Above Normal

Apple Stores - Retail locations

Y Y N Temporary Competitive Advantage

Above Normal

Strategic Relationship with OEMs

Y N Competitive Parity

Normal

Industrial Design Capability

Y Y Y Y Sustained Competitive Advantage

Above Normal

Innovative Product Design

Y Y Y Y Sustained Competitive Advantage

Above Normal

Talented Software Development Teams

Y N N Competitive Parity

Normal

Apple Brand Consciousness

Y Y Y Y Sustained Competitive Advantage

Above Normal

Table 10: AAPL vs. Industry Leaders, Key Indicators

Statistic Industry Leader AAPL AAPL Rank

Market Capitalization Apple 400.96B - 1 / 2

P/E Ratio (ttm) DELL 10.51 9.68 2 / 2

PEG Ratio (ttm, 5 yr expected) DELL 0.95 0.51 2 / 2

Revenue Growth (Qtrly YoY) Apple 17.70% - 1 / 2

EPS Growth (Qtrly YoY) Apple -0.40% - 1 / 2

Long-Term Growth Rate (5 yr) Apple 18.98% - 1 / 2

Return on Equity (ttm) Apple 38.41% - 1 / 2

Long-Term Debt/Equity (mrq)

N/A

Dividend Yield (annual) Apple 2.50% - 1 / 2

Source: Yahoo Finance

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