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Apple Computer Corporate and Business Strategy
Apple’s operating and profit margins exceeded industry averages. (See Exhibit 2.) Although 2001 was a dismal year, this was more due to industry wide demand contraction as industry sales declined by over 5%. (See Exhibit 3.) If Apple had maintained its 3 year growth rate, their operating and profit margins would have been competitive with Dell, Compaq, and HP.
Functional Analysis
Using Porter’s value chain analysis, we are able to identify differentiation potential for Apple. Porter’s method divides a firm’s endeavors into 5 primary activities encompassing inbound logistics, operations, outbound logistics, marketing and sales, and service. (See Exhibit 4.) Inbound logistics involve relationships with suppliers and include all the activities required to receive, store, and disseminate inputs. Inputs for an Apple personal computer include an operating system, chassis, memory, CPU, etc. Apple practices horizontal and vertical integration of computer components to a greater extend than any other PC manufacturer. As a result, the firm’s ability to influence quality control of inputs and intermediate processes such as logistics is greater. Apple can specifically define its specifications for product form and features and can logistically control where and when they are manufactured. A higher degree of quality of components and materials is therefore perceived by the end user as a differentiating factor and to the company, a key value added activity.
Supporting activities such as technology development also plays a major role in developing value added activities in the inbound logistic environment. Apple allocates the most amount of capital to R&D when benchmarked against competitors. This allows Apple to produce highly innovate products and technologies. With an R&D rate of 8% in 2001 (See Exhibit 10), Apple has introduced several successful products such as the iBook and iPod, technologies like Fire Wire and Blue Tooth, and a superior operating system.
Historically, Apple hasn’t been on the forefront of integrating efficiencies into the manufacturing process. Operation activities refer to all the activities required to transform inputs into outputs. In general, operation activities refer to production or assembly. It is here where assembly line innovations, inventory management, and supply chain management drive down costs and act as value added activities. However, as mentioned, Apple has made significant improvements to its operations, streamlining them to a great extent. Restructuring efforts such as closing facilities, outsourcing specific manufacturing tasks, and centralizing core functions improved Apple’s operating efficiency. From 1997 to 1998, operating margins improved by 20% and continued to approve in 1999 and 2000. (See Exhibit 2.)
Human resource management plays a significant supporting role in operations. By downsizing, more is expected from workers and productivity has to increase per employee. Training and hiring skilled employees that can immediately contribute their skills to the production process is in itself a value added activity. Jobs also recruited [next page]