Corporate Level Strategy of Apple
Apple is considered as a Dominant Business type of diversification where between 70% and 95% of their revenue comes from a single business. From this case, the dominant business is the computer business while the supporting are software and chips businesses. Impact Through adaption of this strategy, apple able to penetrate the computer’s market share at the beginning. This is evidenced by Apple reaching annual sales of $100 million from its 1st computer and in 1984, the new Macintosh pushed Apple’s sales to $1. billion . However, soon Apple faced some competition when in 1981, IBM released its first personal computer and the computer market began to grow with more players come in into the market. Up until 1990, the competition become worst for Apple when Microsoft released Windows 3. 0, the first universal software that could run on nearly every PC where it meets the demand of the consumers who wants the compatible operating systems. Loss amounted in 1996-1997 due to demand for standardize software & stiff competition.
Due to those problems, adapting this strategy was no longer effective for Apple in generating revenues and conquering the market share. Moderate to high level of diversification (1976-1996) When Steve Jobs returned to Apple in 1997, he plans to diversify Apple business from computer to the hub of consumer digital lifestyle. The new strategy includes the development of new iMac, iBook, iTunes, iPod, iPhones, Apple TV and more. This indicated that Apple have moved forward from being a computer producer into much more businesses including music, mobile phones, video, retail and many more.
The introduction of various digital products by Apple shows that Apple has diversified its computer business into many digital products. Apple’s adaption of moderate to high level of diversification is classified as Related Constrained diversification where less than 70% of revenue comes from the dominant business , & all businesses share product, technological and distribution linkages. Apple are said to be sharing the product, technological and distribution linkages because Apple’s products are seen to be closely related and their innovation are coming from the same technology, resources and ideas.
Moreover, all products also share the distribution channel through Apple Store. Impact The diversification strategy suits Apple very well as being evidenced as follows: • Diversification into music download industry boost the sale of computers, iPods, iPhones and Apple TV. Net sales in 2007 of Desktops increased by 59%, 40% (portables), 17% (iPod), 27% (music related), 29% (peripherals & hardware), 81% (software & services) • Change from only computers to digital product enhance Apple’s market powers. In 2007, Apple controlled more than 70% of the digital music market.
Closest competitors to Apple’s iPod had only 8% of the market share, leaving Apple with vast majority. In 2008, iPhones stole 1% of the mobile phone market share SUGGESTIONS AND RECOMMENDATIONS We will discuss this matter in two sections. First is suggestion for the short term and secondly is for the long term. Short term Knowing that the adoption of new corporate level strategy by Steve Jobs in 1997 onwards bring high revenues to the company, we think that Apple should continue with this strategy. By not concentrating only to one dominant business, Apple must introduce plenty of related products.
This type of related business should be expanded. By adding more digital product, the company will have the advantage of sharing the activity, technology, distribution linkage and many others. Besides, as stated in the case, the introduction of iTunes is as a means to boost the sale of Apple’sother products. So, it is hope that, by introducing more new digital product, it may boost the sales of Apple’s former products. For example, out of the scope of this case, Apple has subsequently introduced iPad, iTablet and Apple may also create their very own iCamera and etc.
Moreover, Apple should make more strategic agreements with well known brands. As we know from the case, Apple has already developed strategic agreements with many well known brands such as Volkswagen of America, Burton Snowboards and etc. All they need to do is just to include Apple products together with their alliances’ products. By doing this, Apple is at advantage since their product line will become bigger while they do not have to enter into unrelated industry which is new and risky to be explored.
Other than that, by creating strategic agreements, Apple can gain consumer confidence as well as exposure through marketing partner advertisements. Furthermore, we believed that, to increase the level of diversification, Apple may bring their business to global in order to earn extraordinary returns. Since Apple already has a positive brand image in Japan related to the Macintosh computer and iPod and has seven Apple retail stores has already in place, and since Japan is the most demanding mobile phone markets with almost 100 million mobile phone users, we think that Japan would be a ood market for Apple to diversify geographically. Apple can also diversify internationally by increasing the number of their retail store worldwide. As for the short term strategy, for Apple corporate level strategy, it is suggested to implement related constrained diversification strengthen by strategic agreements and international diversification strategies. Long Term
From the long term perspective, Apple may have to consider limiting the links between its businesses which is also known as related linked diversification strategy. By diversifying into different businesses, it will help firms to create value because the expense of developing a core competence has already been incurred in one of the firm’s businesses, transferring this competence to a second business eliminates the need for that business to allocate resources to develop it.
Since Apple has already involved in music download industry, it is sensible for Apple to venture into music recording business. This can be done by doing a backward integration with major record labels such as BMG, EMI, Sony and etc. Other than that, Apple may also do a backward integration with the ATNT, the exclusive wireless carrier for the iPhone.