Engineering Value Chain - Case Study Example

Author’s name: Professor’s name: Subject: Date: Engineering Value chain Executive summary Value chain involves activities that an organization performs in order to deliver valuable products and services to the target market. It is significant in terms of helping an organization achieve competitive advantage of business. The assumption will be justified using the example of Apple. The report is based on analysis of existing literature and also on the sources that refer to “brand as an asset” and “iTunes as a marketplace” principles. The first section will provide a brief history of the company especially in its current state. The next section will include an analysis of the company’s value chain. The scenarios identified will be discussed as well as the benefits and risks using the Porter’s 5 forces. The goal is to explore and identify needs for change and assessment of both negative and positive factors within specific contexts. Introduction Apple is an American multinational corporation that was incorporated in 1977. The company designs, manufactures as well as personal computers, markets mobile communication devices, portable digital music players, media devices, and various related services, networking solutions, software, peripherals, and third-party digital applications and content. The corporation’s products and services include Apple TV, iPad, iPhone, Mac, iPod, iCloud, the IOS and OS X operating systems, and several other services, support offerings and accessories. The corporation sells its products and services through its direct sales force, online stores, and retail stores. It also does the selling through third-party cellular network carriers value-added resellers, retailers and wholesalers. Apple is the world’s second largest corporation that deals with information technology. Its revenue is second to that of Samsung. It is the world’s third mobile phone manufacturer after Nokia and Samsung. It is one of the most admired companies in the US. Apple maintains up to 394 retail stores in at least fourteen countries. It also maintains iTunes store and the online Apple store. By 2012, the company had a total of 72,800 permanent employees and temporary full-time employees that totaled 3,300 worldwide. The worldwide annual revenue was $156 billion in 2012. Apple’s value chain Michael Porter suggested the value chain in 1985. It was meant to depict how the value of customers accumulates along the chain of activities that eventually lead to an end product or service. Porter describes the chain as being the internal activities or processes a company performs to create, produce, market, deliver as well as support its product. He goes further to explain that an organization’s value chain and the means in which they carry out their activities reflect the history, strategy and economics of the activities. He describes two main categories of activities; primary activities and support activities. Primary activities involve transformation of inputs into outputs (IMA 1). They are also involved in delivery and after-sales support. Primary activities include inbound logistics, operations, outbound logistics, marketing, sales, and service. Support activities support the primary activities. They consist of development of technology, procurement, human resource management and firm infrastructure. Activities that are related to the value chain need to be controlled to allow assessment and revision of the various processes in order to improve competitiveness, effectiveness and efficiency. Apple has control over the design of its products as well as the distribution and sales. Apple’s value chain system is represented below: Logistics The management should focus on both inbound and outbound logistics. This means that focus will be on the operations that deal with material handling and warehousing as well as those that deal with the processing and distribution of the finished product. The way in which the inbound activities are handled will greatly determine the status of the product. The management should have good relationships with suppliers, as well. The company has formed an electronic form of communication with its suppliers and consumers. The orders are therefore, made online which cuts the costs of transportation in a great way. Operations The Apple Corporation has a strong management due to the employment of highly reputable managers. An example is Steve Jobs who had an intimate connection with the company. Apple had long declined to license its operating system to the external entities who were interested. This means the bundled packages of software and hardware developed by Apple became the cornerstone of the production process. Apple attained unparalleled performance through its 64-bit architecture, redefined intuitive operation with iPod and integrated unique styling with multi-colored translucent cases of iMac. Component production is treated as a natural extension of the creation or design process. This does not mean that every product turns into a success. Some products have flaws which are tackled in due time. The focus accorded to production was on satisfying users while still maintaining consistency and quality. Their main activity is to produce many products at the shortest time possible. Production time would then be reduced and demands of customers were met leading to customer satisfaction. Marketing and sales The section of marketing and sales for the Apple Company can be given the name of Steve Jobs. This is because the return of Steve saw the unveiling of new products introductions, approval of new product development as well as guidelines on how to, reviews corresponding marketing campaigns. This means that the CEO was aware of all the activities going on in the company. Apple also used “Get a Mac” ads, and various indirect or direct favorable comparisons. The company is concerned with its sales and marketing. This is important because the sales experience for users when they buy products online or when they visit stores is a vital component of the product mix. It keeps the company in the frontline allowing them to better gauge customer opinions, sentiments and change trends in the market. The introduction of iTunes saw increased sales especially from the youth. The innovation boosted the company to a new level through the voluminous sales that were recorded. Service The senior management of the company is responsible for interactions that take place in the external environment. This includes customer satisfaction, quality of products and customer expectations. An online support was made available to assist customers as well as get feedback from them. The corporation created websites that provided adequate information concerning their products and services. Users are also provided, with manuals and guidelines to provide assistance on how the products are used. Company infrastructure Communication is important in any organization. The communication is vital with all the stakeholders. The Apple Corporation has integrated direct interaction with all its stakeholders into the value chain model. The interaction it has with its employees has made decision-making effective and easy to tackle. The involvement of a management accountant ensures collaboration with production, engineering, marketing, service and distribution. The collaboration ensures that focus is geared on the strengths, weaknesses, opportunities and threats, and appropriate action is taken. Increased interaction will enable the company detect changes in consumer behavior as well as their buying behavior (TCGF 9). Human resource management Customer satisfaction and better customer service is fundamental for organizational success. The mission the Apple Corporation is to ensure that the above are met. Their aim is to recruit, train, motivate, challenge as well as promote the most talented employees into their system. The level of expertise for employees will play a major role in the services provided to consumers. Technology and development Apple was among the first to run an electronic spreadsheet in VisiCalc on their Apple II Plus. It was among the principal to come up with a digital lifestyle hub in the product lines of Macintosh. The history of the company is very rich with the best cutting-edge technology development. Its operating system is graded as being better than that of windows. The desktop publishing software bundles such as iTunes are the best available to users. Technology and development are essential as they lead to process and product innovations, encourage creativity and lead to timeliness of technology developments. Procurement This is among the strongest elements for the Apple Corporation. The company was the first software company to negotiate with RIAA in a bid to allow consumers to legally download music on the online platform. Enhancement scenarios for Apple’s value chain Scenario 1: Brand as an asset The success of Apple’s brand is driven by three elements; customers, confidence and competence. The brand was not created overnight, but through careful calculation of even the tiniest of details of the customer experience. Steve Jobs knew what was needed by the world long before the world needed it. He led a company that was near bankruptcy into the world’s biggest manufacturer of computers. Insistence on perfection of products and services and showmanship of the release created a unique brand that was different from the others. The iconic designs by Jonathan Ive’s have been a pillar to the success of the corporation (Brand Finance plo 13). Smart phones and Mp3 devices provided competition to iPhone and produced in accordance to customers’ needs. Its reputation has been on the increase presenting a stiff competition to its competitors. The level at which the brand has reached, will ensure that it remains in the market for many years to come. Apple is a unique brand that puts innovation in the trusted hands of the consumer. The result is the consumers have a love affair with the products and services. The brand is very strong for the reason that it runs right through the core of the corporation. Their retail outlets are alluring, unique and visually fascinating. The employees are approachable and intelligent. The products are user friendly, innovative and stylish, and the management runs efficiently as any Apple product is run (Brand Finance plo 9). It is the most admired brand in the world with its highest brand ever reaching $71 billion. Scenario 2: Outsourcing of materials Apple is not involved in the procurement of the materials used in the production of their products. What they do is purchase semi-conductors from companies in Taiwan and Germany, from Samsung, chipsets from Europe, memory from Japan and Korea, circuitry and display panels from Taiwan and Korea and rare metals from Asia and Africa. The reason for this is that assets needed would not be asset specific. This means that the investment will be huge. Another reason is the uncertainty involved in making use of external suppliers is low due to technological advances. Moreover, the end product is what matters due to its usability of software and unique design. The innovation enhances the degree of interaction between the company and the other parties involved in the provision of material. The managers of all companies must be compatible to ensure good relationships. All sides challenge each other, which is essential for the Apple Corporation (Waters 173). Challenges encourage creativity and constructive developments. The company does not also manage the plants in China directly. 20,000 people are hired in China, and a total of 700,000 people are involved in the assembly and engineering. The reason for the success of this is that production is standardized. This means errors are low, and Chinese factories are very flexible in terms of changes and outputs. Scenario 3: Differentiation advantage The key to approach product differentiation is to identify value-creating processes that help distinguish the company’s products and services from those of the other manufacturers. By so doing, customer value is emphasized. The quality of the image has enabled the corporation to command significant price premium in the volatile market. The distinctive features of the product has enabled the company achieve a competitive advantage over its competitors. The bad publication in the past had an effect in the company. Their effort was therefore, geared at gaining back what had been lost. Steve Jobs made a major contribution to their comeback (IMA 11). New competencies had to be created to eliminate the risk of slow development. The company has managed to differentiate its products, and its brand is easily recognized throughout the world. There is intense in the computer manufacturing industry. Recession is another challenge that usually results in low prices of products. The competitors include Samsung that also have achieved customer loyalty in the world. Price strategy can also be used, as a strategy to achieve competitive advantage (Grünig and Kühn 225). Cost advantage can be used to improve differentiation through the development of products or building of the company image. Benefits and risks of the proposed scenarios through the Prism of Porter’s 5 forces Threat of new entrants If an industry is earning a return on the capital invested above the capital cost, then that the industry will act as a magnet to those firms outside the industry. Entry of new firms should be barred lest the rate of profit fall to the level of competition. The threat of a new entrant can affect the established firms since they have to constrain their prices to the competitive level (IMA 19). Many companies are coming up in the industry giving strain to the Apple Corporation. Other smart phone makers such as Samsung have continued to cut into Apple’s market share. This is especially because of cheaper offerings for similar products. Bargaining power of suppliers Suppliers can generate profits by increasing input costs the same way powerful buyers squeeze profits by exerting downward pressure on prices. Suppliers located near the Apple Company have an advantage compared to the rest. Suppliers have to compete to provide the best service so that they can be chosen. Bargaining power of buyers The organization of logistics by the Apple Corporation has enabled it attract customers as compared to its competitors. Competition is intensive hence, ways to attract as well as retain customers is necessary. The corporation utilizes backward integration. Threats of substitutes Profits in any industry are determined by the maximum price that users of products are willing to pay. This depends mainly on the substitutes available in the market. When substitutes are few, then customers will be willing to pay more for the products. The Apple Company does not have major threats due to the distinct nature of their products. Rivalry among competitors Markets that are experiencing rapid growth are likely to experience less competition. Rival companies can satisfy growth and profitability without taking market shares from their competitors. The hardware and software market experiences intense competition. Apple has been able to outdo its rivals using its distinctive products and services. Research and careful management of the details has boosted the company’s ability to deliver desired products. Conclusion Research is essential in any organization. This is because information about customer behavior and their buying behaviors will be obtained. The company will be capable of dealing with the changes and prevent customers from looking elsewhere. Value chain management is essential and crucial to the performance of the company. Risks cannot be avoided but should be supervised in a way that does not affect the operations of the business. The scenarios show how the company can withstand and outdo competition. Development of new and innovative technologies will be essential if the company wants to remain in the market segment for an extended time. Works Cited Brand Finance plo 2012. Brand Finance Global 500. Brand Finance (2012). Web. 29 April 2013. IMA. “Value chain analysis for assessing competitive advantage.” Institute of Management Accountants (1996): 1-33. Web. 29 April 2013. Grünig Rudolf, and Kühn Richard. Process-bases Strategic Planning. 3rd ed. New York: Springer, 2005. Print. The Consumer Goods Forum (TCGF). Future value chain 2020-building strategies for the new decade, 2011. Web. 29 April 2013. Waters, Donald. Global Logistics: New Directions in Supply Chain Management. 6th ed. London: Kogan Page Publishers, 2010. Print. Read More