Strategic Plan, Part 3: Strategic Evaluation (Paper's title)

October 15, 2018

John Rhome

Strategic Plan Part 2: Internal Environmental Analysis

An internal analysis allows companies to explore their own competencies and competitive viability. The information that is gathered is then utilized to develop strategies that the company believes will help sustain or add growth to the business. Even though the external factors that were previously identified were noted as the reason behind Apple’s success, the internal factors are equally as important to the competitive advantage. This paper will assess Apple Inc.’s internal environment, identify the most important strengths and weaknesses of the company, determine its resources, briefly examine the most important internal environmental factors, and perform a competitor analysis. The paper will also assess the structure of Apple and determine the organization’s competitive position and its possibilities.

Apple’s Internal Environment

Analyzing the internal environment of a company is also a part of organizations’ environmental scanning strategy. As previously mentioned in the Strategic Plan Part 1 for Apple Inc., environmental scanning gathers data on events and assesses its relationship to the organization (Thomas Edison State University, n.d.). The tool that is commonly used by companies to analyze its internal environment is the situational analysis tool, also known as SWOT analysis. A SWOT analysis will summarize the strengths, weaknesses, opportunities and threats in Apple’s business environment and identify their strategic capabilities. According to Smithson (2017), “Apple Inc’s current success is linked to the ability of the company to use its strengths to overcome weaknesses and threats and to exploit opportunities (para. 1). The following is the SWOT analysis for Apple Inc.

The Most Important Strengths and Weaknesses

For the purpose of this paper, the focus will remain on the strengths and weaknesses of the analysis as they examine the internal environment, while opportunities and threats observes the external. Some of the company’s strengths are its strong brand image, high profit margins, its leading innovation in technology, high tech quality and its loyal customer base. The weaknesses that were identified are Apple’s limited distribution network, the high price of their products, how the sales are limited to mainly the high-end market and patent infringements.

Although, each of the strengths and weaknesses are of notable importance, the most significant strengths are the brand’s image, innovativeness, and profit margins. For many years the company has been one of the leading branding companies because of its’ branding image. The status achieving, brand high quality, and capitalizing on the passion and lifestyle of the users does not relate strength in the brand but in the ideology. For this reason, when the company introduces new products, they will continue to make a profit from those who are buying into the brand. Apple is also more profitable in comparison to its competitors and has strong margins. In the fourth quarter of 2015, the company generated an $18.4 billion profit with its margins at 40.1 percent (Popper, 2016). Smithson (2017) also believes that Apple’s profit margins is how the company maintains its premium pricing strategy. The last important strength is Apple’s innovativeness. Technology, along with the needs and demands of consumers, is constantly evolving. Therefore, the lifespan of tech products is having increasingly shorter product life cycles (Hitt, Ireland & Hoskisson, 2015). Apple, Inc. continues to create new markets that change the playing field by continuously produce new products.

Of the weaknesses mentioned, the most important is the limited distribution network, high prices of products and sale limitations. Apple has a comprehensive marketing mix for its network distribution which includes third-party sellers who provide fulfillment services, telecom companies, apple stores and authorized retailors. However, despite the utilized distribution networks, the company has a policy of exclusivity when selecting authorized sellers, which in turn can limit their market reach (Smithson, 2017). The other two weaknesses go hand in hand as its sales are mainly from the high-end market. According to Smithson (2017), “Customers from the lower class, which represents the majority of buyers in the global market, are unable to purchase Apple products because of the relatively high prices” (para. 5).

Apple’s Resources

By way of definition, resources for companies such as Apple are defined as inputs to the production process and includes both tangible and intangible resources (Hitt, Ireland & Hoskisson, 2015). Resources that can be quantified within the company are considered tangible assets. According to Jinjin (2013) this would include “Most of the apple’s manufacturing, assembly work, logistics and transportation planning that was outsourced, resulting in great efficiency and lower costs” (p. 101). Whereas resources that are difficult to analyze, such as Apple’s reputation, are intangible assets.

Internal Factors

How a company responds and competes is influenced by the factors within the general, industry, and competitor (external) environments (Hitt, Ireland & Hoskissom, 2015). The company does not have control over these factors; however, they can manage the factors within the internal environment in which the business is comprised of. Some common internal factors include structural and effective administrative procedures, strategic risks, innovation, financial risks and employee risks (PESTLE Analysis, 2015). The most important internal factors are a company’s leadership and the strength of the company’s employees. One who is in a leadership position impacts the organizations culture and provides a formal structure that is aligned with the company’s mission and vision. According to PESTLE Analysis (2015), “Some cultural implications which result from leadership approaches are value of employees, the positive or negative nature and effectiveness of communication level of family-friendliness” (para. 4). Employee strength is also an essential factor to the internal analysis as it can affect productivity, effectiveness and efficiency. For example, if an employee is motivated and hard-working then they will produce better results than someone who is not.

Apple’s Competitor Analysis

Hitt, Ireland & Hoskisson (2015) stated, “Understanding the firm’s competitor environment complements the insights provided by studying the general and industry environments” (p. 39, para. 3). Porter’s five forces is one method that allows companies to analyze and address competition within the prospective industry. The five forces analysis for Apple is as follows:

· Rivalry amongst sellers (High) – Apple provides a vast number of products and services and continues to focus on expanding their marketing opportunities. However, Apple is confronted by aggressive competition in all sectors of the organization (Apple, Inc., 2013). According to Khan, Alam and Alam (2015), “The impact of highly competitive market can be seen in lesser sales growth 50% to 9% in America, 31% to 4% in Europe, 94% to 27% in Japan (p. 959, para. 5).

· Bargaining powers of customers (Low) – Apple’s constant innovativeness with their products and capability to maintain quality helps the company to maintain its current customer base and steering its competitor’s customers to switch (Khan, Alam & Alam, 2015).

· Bargaining powers of suppliers (Low-Moderate) – This force is low to moderate as the suppliers are competing amongst each other for a contract with the company. There are a vast number of suppliers for Apple to choose from and their switching costs are relatively low. Thus, this factor is not a significant obstacle for the company or its major competitors.

· Threat of substitution (High-Moderate) – Substitutions for some of Apple’s products are limited in its capabilities by comparison, but they are still a high to moderate force from purchasing the Apple product. For example, there is the iPad vs. Samsung tab, Apple app store vs. Google play store, iPhone vs Samsung galaxy, and so many more (Khan, Alam & Alam, 2015).

· Threat of new entrants (Low) – The force of new entrants that could threaten the market share of Apple is low. Maverick (2015) states, “This is primarily due to two factors: the extremely high cost of establishing a company within the industry and the additional high cost of establishing brand name recognition” (para. 7).

The Structure of Apple and Its Influence on Performance

An organization’s structure is a contributing factor to the successful growth and innovation of a company. According to Meyer (2017) Apple’s organizational structure is a traditional hierarchy, but also has some elements of other structures as well. This provides the possibility of a strong control over Apple’s processes. The three structures that Meyer has noted are as follows:

1. Function-based grouping – This is the top tier where senior vice presidents handle their own functions within the company and then report to Tim Cook, the CEO, to address business needs for their sector (Meyer, 2017).

2. Spoke-and-wheel hierarchy - Apple’s structure allows for collaboration among the different parts and teams of the company with the CEO at its center (Meyer, 2017).

3. Product-based grouping – The lower tier of the organization structure is comprised of individuals below the vice presidents that specifically addresses specific products and services (Meyer, 2017).

Apple’s Competitive Position

After assessing the internal and external environment, I believe that for now Apple is currently in a good competitive position. Despite the lesser sales growths and number of major competitors, the company continues to provide consumers with products that are unlike any other through broad differentiation. Although Apple is technically a technology company, it is also a luxury brand that is extremely creative and image driven. The company provides products with elegant design and services that are easy to use. Apple is also the only company that provides a seamless connection among its devices and offers a service such as cloud computing, Cloud computing, also known as iCloud, stores and manages data over the internet and not through a local server. Thus, making everything the consumer needs easily accessible. Lastly, the organization has found a good niche in digital trends with services such as iTunes, which has reshaped the music industry, and Apple pay, which had over one million users within its first 72 hours (AppleInsider Staff, 2014).

Conclusion

Internal environmental factors are equally as important and vital to the success of a company as the external. These factors not only identify Apple’s strengths, but also allows the company to identify and assess its weaknesses. The tangible and intangible assets should also be taken into account, along with leadership styles and employee strengths, as they can affect efficiency in the organization. The final analysis is then performed to evaluate Apple’s ability to compete in the tech industry. Based on the information gathered, Apple can successfully adjust to a structured organization that will have a positive influence on its processes and assist in the company maintaining its competitive position.

References

Apple Inc. (2013). Form 10-K. Cupertino, CA, United States of America: Apple Inc

AppleInsider Staff. (2014). Apple Pay activations hit over 1M in first 72 hours, more than all competitors combined. Retrieved from http://appleinsider.com/articles/14/10/27/apple-pay-racked-up-over-1m-card-activations-in-first-72-hours-more-than-all-competitors-combined

Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2015). Strategic management: Competitiveness & globalization: concepts and cases (11th ed.). Stamford, CT: Author. Pearson. (n.d.a).

Jinjin, T. (2013). Management science and engineering. A strategic analysis of Apple computer inc. & recommendations for the future direction, 7(2), 94-103. Retrieved from http://www.cscanada.net/index.php/mse/article/viewFile/j.mse.1913035X20130702.Z001/4304