Kindly Read the Attached Copies Thoroughly for this project
EXTERNAL ANALYSIS TEMPLATE
In this stage of our analysis, our objective is to understand the major trends and forces that characterize the product-market in which our focal firms competes. This stage is all about the external environment – the context – and has NOTHING to do with our firm or any specific firm. Don’t let your thinking/focus fall back to the firm here…stay at the INDUSTRY level.
One aspect of assessing the quality of a firm’s strategy is to test if it aligns, or fits, with the nature of their market. To assess this, we need to know the most critical things that firms operating in this industry (who we call “producers” since the produce the good or service that defines the industry) must have or do to be successful (i.e. achieve a superior level of performance). We also need to know what factors are or may change the nature of what it takes to succeed in this industry.
FIRST we must get clear on what industry we are analyzing. Defining the industry is critical. Consider the primary products or services your focal firm and its main competitors offer. That often gets you to a good industry definition. If needed, look up the firm’s NAICS classification. Once you are clear on the industry, be sure you are clear on the basic characteristics of Producers, Buyers, and Suppliers.
Producers – the firms that offer the primary industry good/service. Don’t name them but describe their common characteristics (a few large ones? Many small mom-and-pops? Local firms vs international? Manufacturers or just resellers? etc.)
Buyers – describe in broad terms the people (or organizations) that are the primary purchasers of the goods/services the producers offer.
Suppliers – describe in broad terms the major suppliers the producers need for the raw inputs they need to produce their goods/services.
Example: For the Movie Theatre industry: Movie Theatre firms (mostly large national chains, but some local specialty operators) are the producers; Film studios (major and independent) and their distributors are the suppliers as are concession product distributors; Individuals or all types are the buyers.
** Don’t confuse these actors or your analysis will go off track.
What are some important characteristics of this industry? Is it large or small? Growing or declining? Concentrated among only a few firms or fragmented across many?
With our industry defined and generally characterized, we need to develop conclusions about competitive forces, drivers of change, and key success factors.
The objective here is understand the competitive forces that make it difficult for producers to earn higher profits. The five forces framework is very useful here as it helps identify the forces competing over ‘value’ and how they shape overall industry profitability levels. Specifically, the five forces framework helps us identify the factors determining producer profitability…and since our focal firm is one of the producers, this analysis is going to tell us about the challenges our firm faces in the quest to achieve superior performance.
As before, this is NOT about the firm…this analysis is about the INDUSTRY. You must be clear on the industry and the actors (Producers, Buyers, and Suppliers). You also must get clear on what potential SUBSTITUTES are available. Don’t confuse RIVALS (competing producers) with SUBSTITUTES! Substitutes are goods/services from A DIFFERENT industry that can to some extent meet the same need that buyers are filling by purchasing from this industry’s producers. So – think about the central “need” being filled by the producers, then think about how else buyers might be able to fill that need. Again…NOT by switching to a different producer (rival). Be sure you describe any possible substitutes you identify.
Use the Five Forces worksheet to evaluate each of the five forces using the most common indicator variables. BE CAREFUL and thoughtful in your analysis (remember – garbage in- garbage out!). Using the indicator analysis, make a conclusion as to the strength of each of the five forces. STRONG means the force inhibits producer profitability whereas a weak does little to challenge producers. Our focus will be on STONG forces as these must be minimized and overcome if a firm is to achieve superior performance (weak forces are easy to handle and all rivals are most likely already taking advantage of those). So, identify your strong force and use the indicators to explain why this is a strong force.
Drivers of Change
Next we must understand any broad (not industry-specific) environmental issues that are causing, or are likely to cause, change in how our focal industry performs. We call these change drivers…or drivers of change. These are trends and developments that are or may change the level or way the buyers buy or how the producers produce. That is, these are issues with significant implications for industry DEMAND or producer OPERATIONS (costs). There are always MANY such changes going on in most industries, so we need a framework to identify and focus on those that are most critical. This is where the PEST analysis comes in handy.
Remember that this is not about the firm or even the specific industry – you are looking for BROAD issues that are certainly relevant to this industry but that also are broad in the effects across multiple industry. A ‘shortage of trained pilots’ is specific to the airline industry so is WRONG. A correct example: ‘Advances in technology for extracting oil’ affects multiple industries in which oil/fuel is a key issue…thus, it is important for airlines as it affects the cost of fuel (a major cost issue!)
Think through each category (Political, Economic, Socio-cultural, and Technological) and use your general knowledge and your research to identify (and list) all the factors and issues you can. *Some categories may not have anything to list!! For example, there probably isn’t a broad technological development that is affecting demand or producer operations in the dog grooming industry. Try to build a good inventory of issues that are causing or potentially causing change in the near future. Don’t purely speculate and think about all the “what ifs”, though…focus on factors where there is at least evidence that change may occur soon.
Now rank these issues for the focal industry. Evaluate your listed items based on their implications for industry demand and/or producer operations. Which issues are, or are most likely to, really shake things up….good or bad. We’re looking for threats and opportunities. Remember – this is not about how these might affect a specific firm….these should be issues that affect ALL producers in the industry.
When you have a prioritized list…where you can make your argument for the most important 3-5 broad drivers of change, you now must fully develop them. Clearly describe the issue. Don’t generalize! For example, it is not acceptable to say “ technological change” or even “technological advances will change the way people shop and buy”. You must identify and describe a specific issue AND its implications on demand and/or producer operations. Examples: “the pervasive use of social media is changing where and how people access and consume journalism content” or “the social trend toward delaying marriage and having babies will affect negatively demand for disposable diapers”.
Key Success Factors
Key success factors (KSFs) are the things that producers need to have or do in order to succeed in this external environment (i.e. to achieve superior performance). There are two major categories:
With a list of KSFs in these two areas, prioritize them by considering the magnitude of the factor’s implications on producer profitability going forward. You should strive to have a list of 4-5 KSFs. Remember – this is not about the firm. Don’t assess and describe the implications of forces or KSFs for firm XYZ….we are still at the industry-level. KSFs are the same for ALL producers because these are determined by the nature of the external environment.
In summary, this analysis results in the following conclusions and items to be described:
DIAGNOSING ROOT CAUSE
Using your prior analysis of each part of the basic strategic alignment model, you now must analyze how the quality of alignment is related to and affecting the firm’s performance. You are seeking to understand what misalignments are contributing to areas of undesirable performance. That is, you want to connect causes (the underlying misalignment issues) with effects (areas of performance that are not as we would like). In real-world scenarios, firms often are aware of multiple misalignment issues and are trying to address multiple performance issues. But remember that strategic change is difficult, risky, and resource intensive. So, in complex situations, in can be valuable to employ some method to focus the on the most critical issues. For our purposes within our time-constrained course, the goal is to get down to just one issue to address.
Following is one approach to working through the diagnosis in a way that is systematic and logical and that will help you build up a strong argument for your recommended change.
Tip: Constantly remind yourself that you are seeking the CAUSES of performance OUTCOMES (Effects). Don’t name outcome issues as the ‘problem’…the problems are the underlying causes; performance and any other outcome are the results. You don’t fix outcomes – you fix causes/problems to improve the outcomes.
Tip: Avoid slipping into ‘conclusions and recommendations’ too soon. Do the full analysis first. Identify misalignments, evaluate all misalignments, then – and only then – start thinking about ‘solutions’.
Step 1. Specify the primary effect you wish to address – seek the ‘root cause’
Review your analysis of the firm’s performance. What is the nature of how you think performance should be improved? NOT ‘what needs to be fixed, but what aspect of performance is least desirable? Look at your assessments of their ability to create value and capture value. Is the company’s major problem related to weak or weakening growth (i.e. a problem with weak value creation)? Is their major problem related to weak or weakening profitability (i.e. poor ability to capture value)? If profitability, is the issue related to gross margin (which points to pricing and cost of goods sold), operating margin (which points to the operating ‘system’), or efficiency (ROA) (which points to resource allocation, investment efficiency, etc)? Be careful. Be thoughtful. Remember that all the profitability metrics are related as you move down the income statement. For example, the root cause of operating margin or ROA weakness could be because there is not enough value creation (revenue) to cover costs or that the cause of poor ROA could be that gross margins are too low because of excessive discounting (low pricing).
Your objective in this first step is to develop a conclusion that focuses your attention on improving performance in one specific way. Example final statements:
Again, you are NOT specifying what is wrong. Don’t make a recommendation here. You are specifying the ‘target’ of improvement efforts, that is you are narrowing down from ‘improve performance’ to ‘improve X aspect of performance’.
Step 2. Assess the alignment between the firm’s Strategy and their Environment (S – E).
The clearest way to approach this step is to build a simple two-column table. In the left column, list the core components and descriptors of the firm’s strategy (see your strategy template and analysis). In the right column, list Key Success Factors and Drivers of Change for this industry (see your external analysis and analysis). Stop and think about each column. First, how is the firm trying to compete and succeed? Next, what are the most important things required of a strategy to be successful in this industry over the coming years? Now see if the two columns of items (go through each item) are well-aligned. That is, see if there are aspects of the firm’s strategy that DO NOT align well with what it takes to be successful. Here you are assessing the quality of their strategy, broken down into the clear and most critical component parts of their approach, with respect to the most critical requirements of the environment. List all the relationships that you deem not aligned – remember to think ahead over the next 3-5 years based on your Drivers of Change. Your statements on the misalignments should clearly specify what aspect of strategy is not well aligned with what specific KSF or DOC. Examples:
Note: It is quite possible that all aspects of strategy are just fine, that is that S-E alignment is good! If you find this, double check that you are fully considering the 3-5 year outlook. Is there something that might change that would disrupt the current alignment? What part of the well-aligned strategy is most at risk? In other words, if all is good now, you should consider if defending/maintaining that valuable alignment is something that needs attention with adjustments in the future. (This does NOT mean a conclusion of ‘keep doing X’ or ‘improve Y’; a better (albeit simple) example would be “…likely will need to adjust business model to account for the influence of autonomous delivery vehicles…”.
Step 3. Assess the alignment between firm’s Resources and Capabilities and their Strategy. (R/C – S)
Again, make a simple table (or do a combined table as you lay out your data for both steps 2 and 3). In one column, have your components of Strategy again. In the other, list the firm’s most valuable resources and capabilities – the primary ones you analyzed with the VRIN method. Think about each. First, reconsider how the firm is trying to compete and succeed. Next evaluate if they have the resources and capabilities that seem necessary to be able to execute that strategy in a way for success and competitive advantage. In other words, assess if their most valuable resources and/or capabilities you identified in your earlier template and analysis (i.e. their sources of competitive advantage) are aligned with what is needed to effectively execute their strategy. The most effective strategies are built on (or with) strengths, so if the strategy they have seems like it would require a specific resource or capability, but you don’t find it when analyzing the firm – red flag alert: that is a misalignment!
List any misalignments you find. Your statements on the misalignments here should again specify what specific type of resources or capability is not aligned (i.e. weak or missing) with what specific need of the strategy. Note, although it is again possible you may not find anything misaligned here, it is far less likely than finding, in step 2, that all parts of a firm’s strategy are well aligned. Why? Because strategy is just a set of choices whereas resources and capabilities involve humans, trade-offs caused by limited time or funds, investment choices, complexity, etc. In other words, no firm is perfect! There is always room for improving the quality of resources/capabilities to execute a strategy. Example statements:
Step 4. Link causestothe target effect.
From steps 2 and 3 you should have a list of S-E misalignments and/or a list of R/C-S misalignments. Think about each misalignment with respect to your answer in step 1 (the performance area you define as the priority thing to address for improving performance). To what degree does each misalignment seem to explain your top priority performance issue? That is, what misalignments appear to be the most critical CAUSES of the EFFECT? You may have just one relevant cause or you may find several. If you don’t have any, you need to dig deeper in steps 2 and 3. You can always identify the cause of performance in the quality of our strategic alignment model. The outcome of this step is one or more statements describing the cause-effect diagnosis. Examples of misalignment descriptions:
Tip: Wording – a misalignment statement must clearly specify the cause as an inappropriate or missing component of strategy, a weak or missing resource, or a weak or missing capability. These are the three areas of ‘variables’ we can address.
Step 5. Identify just ONE misalignment issue as the MOST IMPORTANT thing to address toward improving long-term performance. (this step is for this course…in the real world you’d likely work to address ALL or at least several causal factors simultaneously)
If you have multiple cause-effect statements from Step 4, now you need to prioritize them. You are seeking the one issue that, if addressed, should have the greatest positive impact on long-term performance. Think of it this way: If you could only repair one misalignment issue, which would make the greatest positive change in overall performance? The criteria for your decision, and thus the argument to support your conclusion, should focus on the impact to operating profit and the ability to sustain performance. That is, you don’t want to just grow sales, you want to do so in a way that drives sustainable ‘bottom line’ results. Nor do you want to specify something this is a quick fix or one-time boost….you want durable, long-lasting improvement.
Also, avoid hedging!! Don’t chicken out and try to argue that you must really address multiple issues…or that there are issues that are interrelated and you can’t just do one. Make a decision. Force your thinking to make an argument for one, specific misalignment to address. **Note that this is a conclusion of DIAGNOSIS and not a specific recommendation of a plan to change. That comes next, after you evaluate various options on how to fix things. For now – just specify the most important cause (i.e. alignment issue) that needs to be improved.
FORMULATING STRATEGIC CHANGE
Now that you have clarity on the primary cause-effect relationship you want to address you must evaluate alternatives on how you might address it. Remember the level we are working at here – STRATEGIC MANAGEMENT, not tactical. We want to pursue long-term competitive advantage…a sustainable superior performance. Don’t fall into thinking about tactics or short-term gains.
A strong argument (recommendation) is built on a consideration of relevant alternatives so that you can support your recommendation as the ‘best’ of the available options. So, the first step in this phase is to think about all the different ways you might address the cause (your #1 issue from the diagnosis phase). Here is where creativity can be useful. Think (brainstorm) ‘expansively’…deeply understand what you are trying to accomplish and then write brief notes on all the different (yet realistic) ways the firm might achieve it. Just as a simple example, let’s say you identify that a women’s fashion retailing firm needs to alter their strategy by expanding their Product Focus to include men’s clothing. How might they do this? Here are a few ways…
TIP – remember that this must stay consistent with your earlier analysis. If the main issue you identified is with strategy, you must be thinking about actions that are changes to elements of strategy. If you determined that strategy is okay but new capabilities are needed, then your alternative solutions must be about how to create that new capability. STAY CONSISTENT throughout your analysis.
Now evaluate the list of possible directions to achieve the change to identify the recommended method.
Recall that it is preferable to formulate strategy based on existing strengths/current sources of competitive advantage. Revisit your earlier analysis of what the firm already does well and consider how your alternative proposals either build on those strengths or will require the creation of all new sources of competitive advantage.
Consider, at minimum, these criteria when evaluating alternatives:
You can evaluate each relevant alternative method with these criteria subjectively and ‘in your head’ or you might try using a rate-rank method similar to how you evaluated resources/capabilities with the VRIN criteria. Or…you might get creative with some other analytical method. Regardless, you will want to arrive at your final recommendation with an argument as to how the specific change you propose appears to offer the most attractive way forward to address the key issue you identified.
Apple Company is a reputable business with good outlined policies. Over the three years, it has performed above the industry average. It has performed accordingly to the set goals, and objectives set dated back as long as its incorporation in 1977. The market keeps changing, and with time, the costs of goods have been on the rise. The cost of sales is a critical aspect of achieving the goals and objectives. Controlling these costs will result in increased profitability. A good option would be having hedged agreement with the different suppliers.
Apple company manufacture, designs as well as markets communication devices. The communication devices include; software, applications, accessories, digital content, and personal computers, established in 1977 in Cupertino, California. It sells various products worldwide through different available markets. It’s one of the biggest companies in the communication industry, offering different products. The fiscal year of the company ends on the last Saturday of September. The following are some of the products the company sells
IPhone is a smartphone product operating on its IOS system. The iPhones include; Touch ID, Siri, which is an intelligent based assistant, Apple Pay, among other standard smartphones. In the year 2018, it introduced new types of iPhones; these are; I phone Xs, Xs Max, and Super Retina. All the three mentioned smartphones have stainless designed glass, high-resolution power, and high processing speed. In addition to the three new smartphones, the company has other quality smartphones, such as; iPhone7and 8. In addition to the high-resolution power and high processing speed, they come with additional features. Some of the extra features include Book Store, digital apps, and iTunes.
IPad is one of the many lines of the company’s products that operates on the IOS operating system. Some of the standard iPads include iPad mini, iPad Siri, iPad Pro, Touch ID, and Apple Pay. During the year 2018, several new products introduced in the market. A 9.7 inch iPad launched in March 2018. The 9.7 inch iPad was pencil compatible, meaning one could type using the keyboard or use the pen. In other words, it was multi-functional. Again, in October, a new version was introduced, which was an improved version of the 9.7-inch pro having a smart keyboard. Besides, an 11 and 12.7 inch added during the same year. The two uses the Liquid Retina feature, which has additional smartphone features such as music and high processing speed and resolution power.
Mac is the personal computers and desktop which operates using the Mac Operating system. Some of the desktop versions include; iMac Pro, Mac Mini, Mac Pro, 27 inch Mac Pro, 21.5 inches, and iMac 21.5 inch with Retina. Portable computers include; Mac Book Air, Mac Book, Mac Book Pro with Touch, and Mac Book Pro. During the last quarter of 2018, a new version introduced. The Mac Book Pro with Air launched, it has a touchpad and high-performance speed.
The IOS is the company’s internal operating system for iOS devices. IOS-based devices are compatible with window-based computers, Apple iCloud, and Mac Book. A new version introduced in September 2018. The IOS 12 is an improved version with high performance, third party applications, communication features, and improved reality programs.
macOS is the desktop operating system providing integrated and intuitive computer support. The operating system built on UNIX, which is an open based foundation. ICloud support built on this operating system where the user’s access quickly required information from; IOS devices, Mac, as well as other supported devices. Besides, it has access to macOS Mojave and iTunes. In September 2018, a new version released with high-quality apps. Such include; stock, news, and voice recognition services. Besides, it adds home-based enhancement such as Finder enhancement.
The watch operating system is specifically for Apply watches, which are intended to keep connected as well as keeping them healthy. It has to attract features such as; running features, face recognition, podcasts, Walkie Talkie, workout detection, as well as third party based applications.
Specifically, the TV operating system is for Apple Televisions. It helps developers develop new applications such as games and consequently deliver them to the relevant customers through this Tv Apple Store. The operating system supports high-quality services through HDR content.
The company has both digital content and services which allow the consumer to access various digital programs, such include entertainment, where consumers download different music and tv programs through purchase. Besides, to purchase, the customers have options for buying or renting these services. The Apple music allows the consumer has access to different music, radio station, and games as they can easily download through the Apple Store. Besides, it offers on-demand listening to radio stations through subscription, which is done online depending on the nature of services the customers need. Streaming on-demand products enhance the subscription. Some of these digital services are; iTunes, Store, The App Store, The Mac App Store, The Book App Store, and The Tv App Store.
The iCloud offers storage services for photos, music, contacts, music, documents, and emails. The primary purpose is keeping the above mentioned updated through the different IOS, windows and Mac computers and Apple Tv. Some of the notable cloud services include; family sharing, Find My iPhone, Notes, Find My Friends, iCloud Photos, iCloud Backup, iPad, iCloud Key Chain, and Mac. The above offers back up for the various content through IOS gadgets.
Apple care offers support to its customers through different services. Standard assistance includes; technical assistance, software products, online and electronic manuals as well as protection plans. It has two primary free services; the APP and AC+, which provide support to phones and hardware. Specifically, the AC+ offers support in cases of damages in different countries for different products. Also, it helps in the recovery of individual products, which may be due to, say, theft of iPhones in the US.
Apple pay is a cashless method of payment to its different customers. It allows its customers to make cashless purchases through the different acceptable stores offering cashless services. Also, it accepts both credit and debit card networks across the globe. Generally, it provides online debit and credit online services as well as offering reward-based programs. A significant version introduced in December 2017; it was updated IOS 11 and Watch operating system 4, allowing peer payment in the United States of America.
The company focuses on both domestic and foreign markets. The primary market includes household consumers, government entities, education, small and medium based enterprises. Also, it sells and resells third-party products directly to its consumers and as well as small and medium enterprises. Its many stores facilitate Apple’s market presence globally, as well as its direct labor force all over the world. In addition to the direct sales and outlets, it also incorporates other selling mechanisms through indirect sales distribution channels as well as third party selling. The critical components of the selling department include wholesalers, retailers, resellers, and network sellers. Net sales for the year ended 2018 were 29% and 71% for direct and indirect transactions, respectively. It is important to note that the vast geographical markets divided into a different segment, which is independent. They help in distributing as well as selling the products to the customers in conjunction with other personnel.
Various methods are used to accomplish the set goals and objectives set: such include, product differentiation and innovation. Numerous salespeople employed by the company have rick skills required in selling and promoting the different available products to the customers. Conveyance of both software and hardware is made possible through the diverse laborforce all over the world. They have the requisite knowledge about the people as having direct contact people with the customers. It is for this reason; the company believes direct selling is of paramount importance as it creates immediate awareness and feedback to the consumers in the different market segments all over the world.
Both domestic and foreign market has a good number of sales forces who are in direct contact with the consumers, and also, they offer the after-sales services. Extra sales support retains the customers as well as attracting new customers. For effective products, the company emphasizes a high customer base through continuing education and service delivery through the various distribution channels such as third party networks, sales representatives, wholesalers, and retailers. Also, retail stores are regularly expanded, thereby creating more outlets and easing distribution mechanisms.
For effective selling, the outlets are strategically located in prime locations worldwide. These locations have high traffic, thereby a top market for the products. Such areas include malls and high-end shopping. The different stores attract more customers as there is high traffic, thus creating more demand through marketing and presentation. The many outlets employ high skilled taskforce who advise the customers on various aspects. Such advice includes software, hardware, and accessories requirements.
The company has invested heavily in different programs in a different location, thereby increasing revenue from the different education stakeholders such as the students. It employs various integrated programs to the stakeholders through multiple products. The distribution mechanism helps in distributing the comprehensive ranged products globally. Additionally, the company sells its products to various governments worldwide. Besides, it deploys multiple products to the numerous markets due to their productivity, easiness, integration as well as performance. There exist quite several compatible with the different applications for various users dispersed throughout the world. Some regions have a separate customized app that requires specialized programs, thereby requiring Apple’s products.
The company targets different customers. Consumers, small, medium businesses, and government are some of the targets. Each category has different attributes, such include the young generation between the ages of 18-35 years. The youth are highly conversant with the current technological trend, thereby having a posh lifestyle. Also, a good percentage of the child, both males, and females, have a moderate level of income as majoring is in the working environment. The majority of this group is in the spending mode rather than investments. Besides, both small and medium businesses are a big part of the target market. Also, the government is an important target market for the company’s products. The government has different departments with different needs. The government plays an important target market for the various products produced and provided by the company. One of the most significant characteristics of the government is high spending due to support from the national resources such as taxes from various sources. The charges provide adequate resources to spend on multiple products. It is essential noting that these products aimed at facilitating service delivery to the citizens. It is, therefore, paramount in spending in actualizing its goals as well as responsibility towards her citizens.
The industry is very competitive; for this reason, the company has invested heavily to remain relevant and competitive in the industry. There is growing technology that plays a significant role in product development, thereby must remain consistent for effective productivity. The tremendous technological development boosts several factors that accelerate the product according to the market requirement. In short, the company, through high research and development, produces high-end products, unlike its competitors, in line with the current market requirement. In line with technological advancement, the company is a notch higher as a result of top research and development programs and teams. Change is inevitable; therefore, Apple Company understands this very well and thus steps higher than her competitors. Due to updated products in the market, the company maintains the current market share as well as attracting new customers, unlike some of its major competitors.
The Apple Company understands the advantages of having quality property rights. Across the world, the company has a vast collection for its; software, services, hardware, and accessories. Some of the essential reasons include; copyrights, patents, service marks, trade dress, and other related rights across the world. Although the company believes in property rights, it also focuses on innovations, market capabilities as well as competent technical expertise. The market capabilities are reflected by the personnel involved, for example, the marketing department, which has high marketing skills, thereby maintaining the current market share as well as attracting new customers.
Apple files regular patents with the relevant regulatory bodies to protect her innovation for its various products, which are a result of design, development, and research. Additionally, it holds multiple copyrights for specific product lines; thereby, competitors find it difficult venturing into specific products innovated by the company, thus maintaining as well as increasing the market share.
Apple Company understands the role the distributors play in achieving the set goals and objectives. It consists of various distribution channels such as direct sales representatives, wholesalers, retailers as well as third party networks. Each part plays a significant role in increasing sales and cumulatively considerable revenue. High-end distribution channels are essential as they avail the products to customers in different places. Availing the product at the right time increases sales worldwide. Also, the promoters help in expanding the market share. Unlike other companies, Apple has the upper hand when it comes to marketing, distribution, promotion, and sales, thereby remain competitive in the industry and thus increasing the market share. All these efforts improve the corporate image of the firm. Increased market share enhances the revenue and thus increasing the net profits of the company.
Apple Company distributes its products through various distribution networks. Examples include retailers, wholesalers, resellers, and network carriers. Each player plays a different role but cumulatively transacts in line with the company’s goals and objectives. It’s important to note that the various players are over the world as the company is a multinational enterprise.
Apple Company produces and provides goods and services in the communication industry. The primary sources of income are the sale of various products. Notable products include; iPhones, iPads, Tv operating systems, watch operating services, iCloud, and Apple pay. The iPhones constitute the most significant portion of income through the different iPhone products. Globally, these products sold by various distribution channels. Such include retailers, wholesalers, resellers, network carriers without forgetting direct sales by the sales representatives. The revenue realized from different quarters. Examples of income include consumers who are the direct market for different products. Individual customers constitute the most significant revenue stream as they independently purchase the products. iPhones being smartphones are personal gadgets which once bought, are owned by these individuals. Collectively, different consumers provide the most significant percentage of net revenues. It is vital noting that, during the last three fiscal years, no single customer accounted for more than 10% of the total revenue. It’s for this reason, and the company has been improving its marketing and promotional services to increase the revenue from different quarters.
All over the world, especially the youths, are attracted to iPhones as they have great features, thereby easing communication utility. The smartphones come with exceptional features such as great music, digital radio, games, and customized application, thereby improving connectivity such as networking. The growing trend of iPhones makes the company produce more iPhones as their demand is very high. The iPhone has been on the market, thereby increasing sales. According to the law of demand, higher demand increases the revenue, thus making the company achieve its primary goals and objectives.
Different government entities provide an excellent market for different products. The main aim of the government is service delivery to citizens. To achieve these noble goals, they require updated products that are offered by the company. Also, the government requires different software and hardware to accomplish their working as all functions of the government require updated means of service. Examples of government requirements include data entry and storage. Different aspects include financial, geographic, as well as services. The changing technology makes the government invest in the current products which are provided by the Apple Company. It’s important noting that the company has numerous contracts with different governments. Settlements depend on the nature of the products in line with varying aspects of the government’s requirements. Additional agreements with various stakeholders increase the revenue base of the business. Existing agreements make sure the products availed to these departments as well as support services to the provided products.
The company does not operate in a vacuum. There are different outlets globally with skilled personnel. The personnel offers various services; such include direct selling, marketing, and promotions. It’s important noting that these outlets are in traffic places such as the mall and high-end urban centers. The high distribution of these outlets makes sure the products are readily available to the customers. The availability of these products makes sure the market has all the demanded quantity. Globally, customers access their preference products at ease without much hustle. Also, the company delivers services to its customers. Some of the services include; Apple Pay, iCloud as well as digital services as and contents. The services provided through many support systems all over the world.
The iPhones constitute the most significant percentage of the total earning due to the factor that individuals purchase their Smartphone’s available. At least a substantial portion of the active population has iPhone Smartphone’s. The increased demand for these products increases revenue. From 2016 to 2018, the iPhone contributed 63%, 62%, and 63%, respectively, in total sales. It’s for this reason, and the company takes this line of business seriously.
A lot of investment is made to maintain this product line without outdoing other revenue generation lines. The resultant production costs are well maintained as they constitute a small percentage. Low cost of production increases the earning of the product while holding other factors constant. Despite iPhones being the primary revenue-generating product line, the company offers other products such as IPad, Mac, operating systems as well as services such as Apple Pay.
|High Financial Base||1|
|High trained personnel||2|
The company has employed a highly trained human labor force. The high skilled labor force is very crucial for the operation of the business. There exist different department which has specific people.
To start with, the company enjoys good developers who develop both software and hardware for the company. Each department has productive skills required. Any given time, the developers come up with new products. Examples include the iPhone line of production. Here, there are different versions developed all year through. In 2018, they produced iPhone XS with Liquid Retina LCD Display, iPhone 8, 7plus as well as eight plus. In other words, they provide different versions according to the needs of the markets. Besides, the varied models are attractive to the customers. Developers are a vital resource as they contribute significantly to the company.
Apple Company has a product innovation team that comes up with new aspects in the different lines of production. One innovated, they combine efforts with the developers to come up with actual products. Innovation is vital as the market keeps changing and need to adjust. A market adjustment is made possible by introducing in-demand products. The innovation team provides adjustment to a different product to remain relevant in the market.
Besides, the company has high trained marketers and promoters. The two groups are significant as they are the people responsible for advertising, promotion, marketing as well as selling the product. They provide information about the different products in the vast geographical locations. Continuous marketing throughout makes it possible to maintain and attract new customers all over the world. Besides, they play a significant role in disseminating information to all prospective and existing customers. Finally, they research the market gaps in different places and thereby utilizing the current market gaps and consequently improving corporate image and profits.
Apple Company has been in existence since 1977. Throughout this period, it has seen a growth of its earning from year to year. High earnings imply that there is the value of an investment in line with profit and wealth maximization. Profit maximization reflected by the high net profits made.
On the other hand, wealth maximization is reflected by the improved share growth over the years. The financial base makes sure there are enough funds to finance various operations, such as current expenditure. Also, the company is in a position in sourcing as well as outsourcing highly trained expertise and meet their financial obligation though right remuneration packages.
Finances play a significant role in running the company in different aspects. Such include recurrent expenditure, which must be paid regardless of the performance or otherwise the company liquidated. Besides, the company has enough finances to invest in capital expenditure, such as innovation hubs, thereby coming up with new products in line with market demand. Again, the dividend issued reflects the financial muscle of the company. Profits are dependent on business performance. The high financial performance contributes to the high dividend, and a significant portion is invested back in the company for future operations.
The company has a competitive advantage in several ways. It has different copyrights, patents, and patents, providing an extended grace period for selling various products. Every product of the company has different rights, thereby preventing competitors from selling various products for a specified period. Apple Company regularly files patents for its various innovation-related products. Currently, it is pursuing different patent rights all over the world. Consecutively, there are accumulated patents globally, thereby having a notch in its operations. Intellectual properties such as patents, licenses, and trademarks help the company have a competitive advantage for quite an extended period, thereby increasing its sales. Some copyrights are very long such that the competitors have no right to sell patented products for a quite long time, thus blocking them from the market.
Apple Company has invested heavily in technical support to drive efficiency and innovation and productivity. The market has been on change. Apple understands this well; it has invested in high-endtechnology and always ahead of the market. The efficiency is a crucial aspect of the business and, therefore, at all-time, maintained as its impacts are far-reaching. One of the notable infrastructures is the network, which is accessed globally. The advancement helps the reduction of the expenses due to efficiency. Also, it helps in building competitive distribution channels and, consequently, high earnings.
|Effective research and development||1|
|Good supply networks||2|
|Good distribution channel||4|
The company operates globally; for this reason, it has built productive distribution channels. Various players help in distributing multiple products. Some of the notable channels are wholesalers, retailers, and sales representatives. Besides, it has store outlets in different regions globally operating differently. Apart from the direct distribution channels, the company enjoys services of third party resellers offering competitive products. Distributors play a significant role as they are the intermediaries between the producer and the final products. The first distribution channels make the company have a competitive advantage. Also, the present distribution channels improve the corporate image, thereby creating an excellent customer-company relationship.
Supply plays a significant role in the production of goods. Without amount, production cannot take place. The company has various suppliers who supply different aspects regularly. In case one supplier fails, the company has alternatives and, thereby, continuous production of the various products. It has entered into separate agreements with multiple suppliers, thereby facilitating continuity of the business. Substantially, all hardware manufactured by the outsourced business partners located in Asia. The company specifies in software and services, leaving the hardware aspect to specific partners such as the Mac suppliers located in Asia. The excellent supply networks are facilitated by amicable agreement, which is a win situation for both parties. Apple doesn’t have to invest in hardware producing machinery since contracted parties supply these products. On the other hand, suppliers increase their revenue by having a regular customer base.
The company has an innovation hub that trains the technical expertise on the requirement as well as innovation skills. The employees are regularly trained, thereby improving their productivity. There exist various training programs all year round. The training impact positively as the employees are conversant with the current market requirements. Practical training helps equip the staff with existing skills and knowledge to enhance maximum productivity. The company has supporting programs where employees are supposed to undertake specific programs. Such include innovation, marketing, and management as well as the production department. Knowledge is power. Well trained employees maximize their productivity and consequently helps in achieving Apple goals and objectives.
Apple Company invests heavily in research and development. The research team conducts regular market research to increase the value of different products. The various mechanism is used to derive value from market research. It helps in evaluating both internal and external environments to maximize value and reduce associated risks. Market data collected from different quarters, such as the age group, consumers, regions, competitors, and third-party feedback. Useful research conducted regularly has helped the company develop new technologies in line with market demand. Notable development includes iPhone 7 Plus, iPhone 8, 8 plus, and iPhone 7 Plus model. As evidenced by the current iPhone models reflects the ongoing growth in the smartphone line of production. Change is inevitable, and technology keeps changing, as evidenced by the different product lines in the market. It has remained relevant by offering products that are a culmination of the development of existing and new products.
Apple company has produced a high level of good and services that its customer wants. They produced unique and differentiating goods and services compared to its competitors. The revenue of Apple company has been growing from $ 251.64 Billion in 2016 to $ 260.17 Billion in 2019. When we compare Apple company to its competitors, the results show that the revenue of Apple company increase in 2019 by 9.36%. the company achieved higher profitability than its competitors. Despite Apple online store, the numbers of apple stores have increased yearly around the world. After using creation value, it shows that the company has better creation value and has superior value creation compared to their competitors.
Gross margin has been on a slight decline from 2016 to 2018 financial years. The gross margin being 39.1%, 38.47, and 38.34%, respectively. The decrease in gross margin is due to the increased cost of sales. Over the period under consideration, the suppliers have increased the value of the supplies. The increased cost of supplies for both internally made products as well as hardware, exclusively outsourced from business partners based in Asia, has resulted in increased loss of sales. The cost of sales affects the gross margin. The higher the cost of goods sold, the lower the gross margin. Apple Company has no control over the loss of sales as the supply cost has been on the rise across the industry. Despite the declining trend, the company is above industry average depicting there is production wide increasing cost of sales
Operating margin is an important performance metric. According to the financial statements for the past three years have seen a decline in the operating margin. The following were the operating margin for the three years in a row, 27.84%, 26.76%, and 26.76% from 2016 to 2018, respectively. There is a declining trend in the operating margin. Higher selling and administration costs, as well as research and development, are attributed to the declining operating margin. Over the period under study, the company has invested heavily in research, construction as well as higher selling and administration to remain relevant in the competitive environment. It is important to note that, despite the slight declining operating margin trend, the industry average is far below the company’s performance; thereby, there is industry declining trend due to the increased selling, administration, research, and development costs.
The company has been investing in the current machinery with a view of creating value. The return on assets has been on the rise, considering the period under study, 2017 had a ROA of 12.89%, while 2018 had 16.28% showing an increase in the investment of assets. The value of an investment in line to income realized as they contribute significantly to income generation. A higher return on assets implies the assets add considerably to the earning, which is quite encouraging. It’s also important it’s not just a small investment but current investment in line with technological advancement. In line with the industry average, the company is performing better than the competitors in deriving value from the venture.
In conclusion, taking into consideration the three performance indicators, the operating margin has seen a slight decline due to the increased cost of sales. Again, the operating margin has also seen a slight decrease due to increased selling, marketing, research, development, and administration costs. Finally, the return on assets has a positive trend. When comparing the metrics, with the industry average, the overall performance is excellent.
In summary – to diagnose and formulate your recommendation to improve long-term performance and competitive advantage: