Business Unit Strategy in Apple Computer Company - Example

Business Unit Strategy Name Institution Date Introduction A corporation is defined as a legal entity, separate from its owners (Chassagnon and Hollandts 2014). Over the years, corporations have been enjoying same rights with human beings, including the right to enter into contracts, borrow money, hire employees, borrow loans, pay taxes, and sue or are sued. The corporation gains these rights through a process referred to as incorporation. Product portfolio refers to a range of items a business sells. A product portfolio may incorporate different product lines, different product categories, and individual products (Bordley 2003). The present paper investigates the iPhone as one of Apple’s strategic business units (SBUs). The study then continues to investigate the external environment that characterizes this SBU. COMPANY ANALYSIS Apple Computer Company represents one of the most innovative companies in the field of technology in the last three decades. The company is popular for introducing a wide range of products into the market, including laptops, Macintosh desktop computers, iPhone, iTunes, and iPods. The company was founded by Steve Jobs. The company has a philosophy of manufacturing technological products that consumers can easily use. Over the years, Apple has had an ever-growing product portfolio, including a wide range of desktop computers and laptops both for business and education markets, SmartPhone (iPhone), iTunes (online music store), and iPod (digital music players). Each of these product lines is characterised by rapid technological changes in both software and hardware. As a result, competitors have devised ways of staying ahead of others via introduction of new products charaterised by among others, competitive prices, performance characteristics, and product features. The competitiveness of Apple as a company rests on its ability to continue improving its strategy across all its product lines. For Apple, SmartPhone (iPhone) product line represents one of the most profitable products in history. The only product in the world that came close to Apple’s iPhone product was the Harry Potter series of books. However, these products only came a distance second having sold less than half the iPhone products sold by Apple. STRATEGIC BUSINESS UNIT A strategic business unit (SBU) represents a profit center whose focus is on market segmentation and product offering (Langfield-Smith 1997). Strategic business units possess a discrete marketing plan, marketing campaign, and analysis of competition, despite being a part of a large business organization. Large and multinational corporations are usually made up of multiple SBUs with each of them having been assigned a responsibility for its own profitability. Apple iPhone is one of the most successful business units in history. As indicated in the previous section, Apple’s iPhone represents one of the most profitable products in history. The only product in the world that came close to Apple’s iPhone product was the Harry Potter series of books. However, these products only came a distance second having sold less than half the iPhone products sold by Apple. Apple’s iPhone took the leadership position in terms of market share, sales, demand, usage, and ownership. It also exceeded other types of SmartPhone in the market in terms of pricing scheme, features, performance, and design. However, current, the iPhone is experiencing increased pressure from the intense competition in the market. Therefore, there is need by this SBU to modify some of its strategies, including price, market, product, place/distribution, and communication among other factors. There is also need for diversification in both related and un-related markets so as to maintain its superior position in the SmartPhone market. This should be accompanied by the enhancement of its design, features, and applications to compete well in the SmartPhone market. Enhancement of these factors will enable the company continue pursuing its aggressive pricing scheme. Other areas of improvement include the distribution networks, including the physical and online stores so as to maximize the sales. There is need to aggressively promote iPhone both in-store and virtual communities in order to generate demand and awareness. To achieve this, the company must engage in extensive market research and development. Since 2007 when iPhone was released into the market, it has been very successful. In 2009, the total number of sales for Apple reached $36 billion which was a huge increase from 2001 when the company recorded total sales of $5.3 billion (Cunningham 2017). This was the product that gave the company the greatest boost it has ever experienced. The company attributed this increase in sales to the impressive iPhone sales. iPhone enabled the company to slowly become a leader in the SmartPhone market. Apple has continued to experienced revenue growth in this this business unit. The revenues that were announced by the company for the first quarter of 2017 financial year were very impressive. The first quarter 2017 revenues beat the 2016 revenues due to the increased demand for iPhone 7 models (Cunningham 2017). Apple’s financial results are heavily dependent on strong iPhone 7 sales. Business Unit Revenue The business unit revenue is identified by the division that is tasked to monitor the revenue gained from the sales of the products and services. There are five divisions, which are the cost, contribution, revenue, investment, and profit centers. Of them all, the revenue center can be stated as highest in the hierarchy of the centers depending with the success of a stated nosiness (West and Mace, 2010). The revenue center is supposed to register the fiscal standings, and therefore, it is responsible for driving the marketing that are deemed exempted from accountability and profitability. The Apple’s revenue manager does not have the responsibility of dictating the product mix nor the quantity of iPhones generated. The technological advancement in this cooperating has led to reduced expenses for the revenue centers. This is done by setting up websites with an aim of offering the iPhones to the suppliers directly, hence reducing the distribution cost, and hence, rebuffed revenues are accrued (Graham, 2007). The largest challenge that Apple Company faces in the revenue center is ignoring of the costs, which as a result reduces the total profit. Therefore, we can define revenue as; Revenue is a product of the total units sold by the selling price. EXTERNAL ENVIRONMENT ANALYSIS PESTEL Analysis Political factors refer to some of those factors that affect business, including changes in legislation such as employment laws, environmental policies, data protection, and legislations regarding products. Technological factors to those factors related to technology and affect the organization, including new innovations and the ways consumers purchase products catching the organization unaware (Canwell and Sutherland 2014). Economic factors that affect the organization include the level of employment, and the way in which a country engages itself with other countries. Social and cultural factors include the balance between the number of men and women, and their ages among other factors. PESTEL Analysis Political Analysis There are many political challenges experienced by Apple Inc. Most of Apple’s major sales are obtained from outside the United States (Apple 10-K). Any political insurgence experienced in the countries Apple operates in poses significant dangers to the company. There have been various challenges that Apple has encountered in these countries including an explosion in one of Apple’s supplying facilities, political pressures, and supplier-worker issues among others. Foreign countries are not the only places that Apple is experiencing political challenges. Apple is also experiencing political challenges in its domestic market. Although it has already restored them, Apple had experienced a ban of some of iPhone parts which had been previously banned by the government of the United States (Apple 10-k). Economic Factors Just like any other organization, Apple has had to experience the heat of global economic recessions. For example, the 2008 global financial crisis affected Apple and these effects continued to be felt as far as 2013. Apple’s American region sales were significantly affected as the sales fell to the low of 9 percent compared to 2012 when the company recorded 50 percent. A similar situation was experienced in Europe as the company recorded 4 percent sales in 2013 compared to 31 percent in 2012. In China, the company recorded 13 percent sales in 2013 up from 78 percent in 2012 (Apple 10-k). Euro crisis has also had a share in contributing to the fall in company’s sales. Other factors that affected Apple’s product prices are related to the problems with the value of the dollar. Social Factors There are many product adjustments that Apple has had to make in order to satisfy the needs of its customers. The company has not experienced significant challenges in relation to social factors. Apple, especially in India experienced impressive sales in 2013 forcing the company to open franchises and make investments. This shows that Apple has a superior growth strategy despite the challenges in other areas. Technological Factors Superior technological advances have made companies stay ahead of their competitors in the past decades. Apple has been one of the companies that have used technology advancements to stay ahead of their competitors. In 2012-2013, the company’s superior technology allowed the company to retain 49 percent of its share market. The company also entered into a deal with China Mobile allowing it to bring into its circle approximately 760 million China Mobile subscribers (Farber 2013). This move enabled the company to gain immense competitive advantage in the largest growing market in the world (Farber 2013). Today, companies are investing more and more in research and development to improve their products for competitive advantage. Apple needs to invest more in research and development (Apple 10-k). One of the technological challenges that Apple may have is the provision of large screen size SmartPhones by Apple’s competitors. Organization’s operating environment may be defined as the factors that surround the organization, including the forces and institutions that influence the organization’s performance, operations, and resources (Ragowsky, Stern and Adams 2000). Some of the elements of the organization’s operating environment include government regulatory agencies, suppliers, customers, competitors, and public pressure. There are two categories of operating environment, including internal environment and external environment. The internal operating environment is composed of the entities, conditions, and other factors influencing activities and choices. Internal environment exposes the strengths and weaknesses within an organization. Factors influencing the internal environment are the leadership styles, mission statement, and the culture of the organization. On the other hand, external environment is composed of conditions, entities, events, and other factors determining the organization’s opportunities and threats. The factors affecting external operating environment include economic conditions, competition, government regulations, public opinion, and customers. Environmental Factors Environmental factors refer to those factors that an organization must be aware of in relation to its surrounding environment. Governments usually set up laws that govern how organizations are supposed to protect the environment (Graham, 2007). Legal Factors Legal factors include changes that in laws that may affect the organization. The law requires that the company files the tax returns and some of the regulations make it hard for the company to conform on time leading to violation, which costs the firm the lawyer’s fee to ensure the smooth flow of the business. Also, the government has imposed laws in some countries where devices manufactured more than ten years ago are prohibited from importation, hence skewing the market niche (Graham, 2007). SOURCE OF SUSTAINABLE COMPETITIVE ADVANTAGE There are different sources of sustainable competitive advantages at Apple Inc. Some of these sources include economies of scale, consumer preference, network effect, and switching costs (Farrell and Klemperer 2007; Lee and O’Connor 2003; Haucap and Heimeshoff 2014; Dube, Hitsch and Rossi 2009). Economies of scale represents one of the most widely discussed among the sources of competitive advantage. The basic tenet behind this source is that the cost per product unit decreases with an increase in output. In the technology sector, customers have strong preference for certain brands. There are various reasons from which brand preference emerges, including consistency of the product, uniqueness, product quality, and status symbol. However, not all brand preference lead to sustainable competitive advantage. To lead to sustainable competitive advantage, the brand preference has to endow its owner with pricing power. The absence of this will make the competitive advantage limited or non-existent. The third source of sustainable competitive advantage is switching costs since they lead to customer captivity. There are various reasons why switching costs emerge (Kumar et al. 2012). Consumers will be needed to spend substantial amounts of money to switch from one organization to another. In such a case, the customers will be unwilling to switch. The fourth source of sustainable competitive advantage is the network effect. This source has been found to justify higher valuations for many organizations. Network effect leads to a specific type of competitive advantage that works under specific conditions. STRATEGIC DIRECTION Strategic direction is considered to be the organization’s roadmap (Needles et al. 2014). Strategic direction is typically established and communicated through tools such as a vision, mission, sustainability statement, value statement, a code of ethics, and business definition. However, it is important to distinguish between the written statements and the firm’s strategic direction. Some organizations do not have a physical mission statement. However, these organizations have a strategic direction. In the mid-1980s, Apple lost considerable market share (Hunter 2016). Assuming Apple was sticking to the normal five-year planning regime, it is appreciated that it would have been a mistake to continue its focus on its commitment to an increasingly outdated product which was Apples version of the personal computer, or PC. Had the founder of Apple, Steve Jobs, not been brought back to lead the company, the more typical response to a decline in the market share would have been enacted (Lusted 2012). The products Apple was dealing in products that would soon become obsolete before they were even fully implemented. However, Jobs came back to the company and refocused the company’s strategy. At that time, the SmartPhone industry was simply moving too fast for Apple and its strategic plan to maintain pace. Faced with the reality of what was happening instead of blind belief in what should have been happening, Apple’s strategic direction seemed to be lurching from one strategic plan to another. It failed to give even a little appreciation to what it should have been doing. The return of Steve Jobs seemed to be all the company needed (Isaacson 2012). Building on a re-energized vision of the future for Apple, Jobs disregarded the strategic direction of his predecessor. Instead, Jobs sought to refocus a long term strategy on the renewal of the business through the application of new forms of technology and new forms of technology delivery. iPhone represented one of these strategies making the SBU one of the most important SBUs of the company. Conclusions and Recommendation Apple should avoid taking a Microsoft-like monopoly of the industry. Instead, it should consider taking a sizeable portion (recommended – 25to 30 percent). Since the company is more focused on innovation and differentiation, the SBU can seek high profit margins via application of the two. As a result, the company will not need an overwhelming market share. Strong profit margins will enable the company to have a high percentage of the industry’s profit share. This SBU needs not make gaining market share one of its primary goals. Rather, it should make it just a means. The reason behind this proposition is that the market share today does not guarantee market share tomorrow. Many competitors wait for such a company to release a product and copy different product features, including the design. For example, in 2007 when Apple released iPhone, no smartphone was previously using touch as its primary means of input (Laugesen and Yuan 2010). However, after this release, smartphones introduced large touch screens resembling those of Apple. iPhone had gained considerably large market share; however, this market share was cut down by Apple’s competitors. Therefore, market share should be used only as a means. References Apple Inc., 2013. Form 10-K. Cupertino, CA, United States of America: Apple Inc. Bordley, R. (2003). Determining the appropriate depth and breadth of a firm’s product portfolio. Journal of Marketing Research, 40(1), 39-53. Canwell, D. and Sutherland, J., 2005. BTEC First Business. Nelson Thornes. Chassagnon, V. and Hollandts, X., 2014. Who are the owners of the firm: shareholders, employees or no one?. 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