The Value Chain at Apple Inc - Case Study Example

Table of Contents page 1.0. Introduction……………………………………………………………………2 2.0Apple’s value chain framework………………………………………………....3 2.1 Idea generation……………………………………………………………...3 2.2 Idea conversion……………………………………………………………..4 2.3 Idea diffusion…………………………………………………………….....5 3.0 Present contribution to adding value………………………………………….5 4.0 Competence in separate value activities………………………………………..6 5.0 Managing sequence within the value chain…………………………………….7 6.0 Recommendations………………………………………………………….......8 7.0 Conclusion……………………………………………………………………..9 8.0 References……………………………………………………………………..10 Introduction The innovation value chain can be defined as a sequential three-phase process that involved idea generation, idea development and diffusion of developed concepts (Morten and Birkinshaw, 2007). In all the three phases, managers are tasked with different responsibilities such as internal sourcing, cross-unit sourcing, external sourcing, selection, development, and companywide spread of idea. All the above tasks form links in the innovation value chain (Morten and Birkinshaw, 2007). It is important to take into consideration the fact that in the innovation value chain, a firm may excel in one of the links. This becomes the firm’s strongest link in the innovation value chain. In the same perspective, there might be one or more activities that a company struggles with in the innovation value chain (Morten and Birkinshaw, 2007). This becomes the weakest link in the firm’s innovation value chain. Innovation value chain is an important approach to innovation strategies in the organizational setting because it provides managers with an end-to-end view of their innovation efforts (Morten and Birkinshaw, 2007). It also eliminates the habit of importation of innovation practices that may address a part of the innovation value chain but not necessary the one needed in the organization to improve most of its products and services (Morten and Birkinshaw, 2007). The innovation value chain is an important approach because it helps managers to realize that a perceived innovation strength could turn out to be disastrous and hence a weakness in the value chain (Morten and Birkinshaw, 2007). The purpose of this paper is to explore the value chain at Apple Inc. The specific purpose is to identify the primary and support activities (value chain) that exist in the company. The organization’s value chain In order to improve the rate of innovation in the company, executives view the process of transforming ideas into commercial outputs as an integrated flow rather than viewing the process of transforming ideas from raw materials to finished goods (Morten and Birkinshaw, 2007). In this regard, the organization’s value chain begins with idea generation. The second phase is conversion of ideas into products that can be accepted widely by the consumers in the market. The third phase is diffusion of products. Idea generation Idea generation is the primary activity in the company’s innovation value chain. Executives in Apple Inc. understand that idea generation is the basic step towards effective innovation. In this phase, managers explore avenues for generating ideas. Internal sourcing of ideas is evident in the company as managers look first inside their own functional groups or business units for creative ideas and sparks (Morten and Birkinshaw, 2007). Fragments of ideas held by different people in different business units and departments are brought together (Heyne, Boettke and Prychitko, 2010). This is undertaken through brainstorming sessions where individuals from different business units in the organization come together and exchange ideas. It is important to realize that the centralized structure in Apple Inc. makes it possible for cross-unit collaboration where different units coming together to combine insights and knowledge in the process of developing new products and services (Heyne, Boettke and Prychitko, 2010). After exploring ideas internally, the company turns to sourcing ideas externally by looking for goods ideas from outside the company and outside the industry. This entails tapping into the insights and knowledge of the customers, end users, competitors, research facilities such as universities, independent entrepreneurs, inventors, investors, suppliers and scientists (Heyne, Boettke and Prychitko, 2010). The company undertakes external sourcing of ideas in order to avoid missing opportunity and lower innovation productivity (Heyne, Boettke and Prychitko, 2010). For example, the company ensures that its engineers do not become insular. This helps in avoiding the “not invented here syndrome” (Heyne, Boettke and Prychitko, 2010). The belief that outside ideas are not as good as inside ones is therefore eliminated from the company in order to avoid missing opportunities particularly in software development (Heyne, Boettke and Prychitko, 2010). All the generated ideas are stored in the company’s database. Conversion of ideas Idea conversion is another primary or support activity in Apple’s innovation process. After lengthy periods of generating ideas internally and externally, the next phase in the company’s value chain is conversion of ideas. This step is undertaken from the realization that generating lots of ideas is one thing and how such ideas can be handled or mishandled is another thing (Salge and Vera, 2009). This phase is also undertaken in the company from the realization that new concepts cannot prosper without strong screening and funding mechanisms because such concepts may create headaches and chaos in the organization (Salge and Vera, 2009). In order to make the process of converting ideas a success, the company’s management allocates enough funds to the innovation process. This helps avoid the problem of tight budgets, conventional thinking and strict funding which are some of the key issues that threaten most novel ideas in many organizations (Salge and Vera, 2009). Hence, enough funds for high-risk projects are set aside to encourage technological innovation in the organization. Proper screening of ideas is also undertaken in this phase to ensure that new ideas are not understaffed and underfunded (Salge and Vera, 2009). The purpose of conversion of ideas in the company’s value chain is to turn the diverse ideas generated into processes, products and services that can generate revenue in the company (Salge and Vera, 2009). To ensure that ideas generate the anticipated products, processes and services, the company’s management zeroes down on such ideas in order to ensure that their potential is exploited. For example, the introduction of iPod and iPad begun with both internal and external generation of ideas. To realize the full potential of the two technologies, the company zeroed down on the two technologies to exploit their full potential. This gave Apple Inc. the advantage of being the early mover of iPod and iPad technologies that have been emulated by other competitors in the market today. Diffusion of ideas After sourcing for ideas externally and internally, vetting the ideas, exploring mechanism for funding and developing them for the benefit of the organization, the third phase in the company’s value chain is idea diffusion (Christensen, 2002). Relevant constituencies within the organization are identified to spread new products developed across the desirable channels, geographical locations and customer groups (Christensen, 2002). For example, after development of iPod and iPad technological devices, the product was diffused to organizational customer such as media houses and other technologically driven organizations. The ultimate authority for launching the company’s products is placed on the shoulders of the national brand managers (Christensen, 2002). Present contribution to adding value As explained above, the three primary and support activities in Apple’s innovation value chain include idea generation, idea conversion and idea diffusion. Each of the three activities adds value in the whole innovation value chain process. The phase of idea generation where ideas are sourced internally and externally helps in reducing the time and money spent in developing ideas. Hence, mediocre products are also eliminated in the company’s value chain. External idea generation helps the company to explore numerous opportunities outside the organization and industry (Christensen, 2002). "This helps the company to emerge as the early mover of products and services in the market. All these opportunities add to wider acceptability of the company’s products in the market and hence increase in sales revenues. Similarly, the conversion phase adds value to the company’s innovation value chain in different ways. Conversion of ideas helps in screening and developing ideas properly. Hence, ideas do not die in the process due to shortage of funds. Better screening capabilities result into better idea development and thus high quality products that penetrate the market with minimal competition from other products offered by the competitors such as Microsoft Corporation (Thomke, 2003). Diffusion of ideas helps in monetising the ideas generated and screened in the company. Diffusion helps in bringing the ideas to the market and eliminating the “not-invented here” notion. New products are properly rolled out across geographical location, customer groups and distribution in order to reach a wide market niche. Competence in separate value activities Apple Inc. does not gain through separate value activities. It is important to take into consideration the fact that Apple. Inc. operates in a technologically driven environment characterised by intense competition from other industry players such as Microsoft Corporation (Thomke, 2003). Hence, separate value activities leads to fixing of poor ideas. Separate value activities lead to shortage of new ideas due to inadequate networks because managers fail to forge quality links with others outside their company. This means that the company misses the opportunities that would help in gaining competitiveness in the market by being the early mover of new products (Thomke, 2003). Additionally, Apple does not gain through separate activities when people decide to talk to their immediate colleagues in the same department or units rather than building cross-networks in and out of the organization in order to create a wide base for idea generation (Thomke, 2003). Hence, separate activities in the value chain lead to delay in idea generation and hence do not lead to any meaningful gain. Managing sequences within the value chain Managing sequence within the value chain leads to meaningful gain in Apple Inc. The reason is that managing sequence aids in conversion of goods ideas into products and services (Khan, 2009). This is made possible by identifying the number and diversity of people required in the conversion of ideas. Bureaucratic and risk-averse processes are eliminated in execution of ideas. For example, in order to market an idea quickly to the rest of the colleagues, an individual undertakes the responsibility of marketing the idea him/herself rather than using the formal process (Thomke, 2003). Hence, managing sequence helps reduce delay times and faster execution and implementation of ideas for the financial benefit of the organization. Recommendations From the explanation provided above regarding Apple’s innovation value chain, several recommendations can be made. First, the value chain framework currently used by the company that comprises of idea generation-idea conversion and idea diffusions should be maintained. However, in order to avoid missing key opportunities that would help the company become an early mover of software products and services in the market, both external and internal sources of idea generations should continue to be upheld. Second, balancing between internal and external sourcing of ideas should be strictly observed in order to avoid frustrating the efforts of the company’s internal engineers. The reason for this is that relying heavily externally generated ideas would end up frustrating the efforts of internal engineers which might not augur well for the company in the long run. Third, the central structure of idea diffusion should be maintained in the company. This would go along way into avoiding unnecessary delays during product roll out. This comes from the realization that decentralised structures produce unnecessary delays due to the wide network of the company’s subsidiaries. Fourth, the company should enhance it strategy of managing sequence because it leads to greater gains than undertaking separate value activities in its value chain. Conclusion Apple Inc. is one of the perfect examples where the value chain framework is evident in the company’s processes. The company’s innovation value chain starts with idea generation. It then moves to idea conversion and later idea diffusion. This has not only led to the company becoming an early mover of several products such as iPod and iPad in the global market but it has also led to increased profitability. Both internal and external sourcing of ideas is undertaken in the firm to avoid missing out any potential opportunity that presents itself in the wider market. References Christensen, C. (2002). "The Rules of Innovation". Technology Review 105 (5): 32–38. Heyne, P., Boettke, P. and Prychitko, D. (2010). The Economic Way of Thinking in Apple Inc. New York: Prentice Hall. Khan, A. (2009). Innovative Firms: Types and Characteristics. Management Science, Vol. 35, no. 5. Pp. 597–606. Morten, T., & Birkinshaw, J. (2007).The Innovation Value Chain. Harvard Business Review Salge, T.O. & Vera, A. (2009). Innovativeness and organizational performance: The case of Apple Inc., Management Review Journal, Vol. 34, Issue 1, pp. 54-67. Thomke, S. (2003). "Experimentation Matters: Unlocking the Potential of New Technologies for Innovation through value chain framework". Harvard Business School Press. Read More