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Project 3: Internal Environmental Analysis

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September 26, 2022

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Introduction

An internal environmental analysis involves performing an extensive review of various aspects of a company’s internal guidance and operations. The purpose of this project is to perform an internal environmental analysis of Apple Inc. The analysis will help to evaluate the position and strengths of the company through the functional, business, and corporate levels of strategy.

The strategic role of corporate strengths/weaknesses in the internal strategy analysis

The three levels of strategy are functional, business, and corporate levels.

Corporate-level strategies are formulated by the top management using input from the lower and middle management (Ketchen et al. 2013). Apple Inc. competes with various companies such as Amazon, Microsoft, Google, and IBM. Apple Inc. has to develop corporate-level strategies to maintain its competitive advantage. Apple Inc.’s corporate-level strategies include diversification and growth. Apple Inc. has pursued diversification at regional and product levels. The company has expanded its customer base by exploring new regions and introducing new products. Apple Inc. has embraced diversification to promote viability in the industry.

Apple’s corporate-level strategy involves expanding activities into new product lines similar to the current ones. The company has used related diversification to increase its cash flow and profits. Related diversification involves having direct links between various business units of a company. This strategy enabled companies to maximize their resources because they are shared among various business units. Apple Inc.’s core competency is innovation (Wittich et al. 2018). The company has developed innovative products such as iPhone, iPod, and iPad. Apple Inc. has used its core competency to develop its products. The use of the corporate-level strategy has allowed Apple Inc to take advantage of its core competencies.

The corporate-level strategy of growth is also followed by Apple Inc. Apple Inc. operates in very competitive markets. The company introduces upgraded versions of its products yearly. Apple’s financial statements show that the company focuses on growth. Apple focuses on growth strategies such as product development and market penetration (Podolny et al. 2020). The company has increased sales of its products in various existing markets. Apple Inc. attracts new customers by producing quality products.

Partial SWOT table

The partial SWOT analysis shows Apple Inc.’s strengths and weaknesses in the consumer electronics industry.

STRENGTHS

WEAKNESSES

Innovation and technology Apple Inc has a history of technological innovation. There is rapid innovation to keep the products competitive in the market. Apple has been the first company to introduce various innovative products such as Air Pods, iPads, and iPhones. Strong brand Apple Inc. is among the strongest and most valuable brands in the world. The company has many loyal customers across the globe. Apple Inc. is globally iconic.

High prices Apple's products are highly-priced. High prices prevent many customers from purchasing Apple's products. Poor distribution network Apple’s distribution network is limited. Apple has few stores in various parts of the world even though the company has many customers. The limited distribution network makes it difficult for customers to easily acquire Apple’s products. Software and accessories incompatibility Apple’s software is incompatible with other software. Customers who purchase Apple’s products have to purchase everything from Apple. That is because the products are incompatible with software produced by other companies.

Apple’s key strength is innovation and technology. Most customers purchase Apple products because the company is innovative. Apple Inc. ensures that the quality of products is improved frequently. Apple Inc. conducts sufficient research and development to improve its product designs and innovate products. Apple Inc. also has a positive brand image (Wittich et al. 2018). The company is one of the top brands in the world. Apple Inc. has loyal customers because of the quality of its products.

The strategic implications are continuing to focus on growth and diversification by introducing new products. Apple Inc. has to diversify its products using its advantage in producing innovative products. Appel should also focus on growth because it has a positive brand image (Podolny et al. 2020). If Apple Inc. introduces new products, customers are likely to purchase the products because they are loyal to the company.

Apple Inc. can capitalize on its strengths by producing more products. Apple has strength in innovation and technology. The company can; therefore, produce more innovative products. The products would help Apple Inc. to compete in the consumer electronics industry. Apple Inc. should capitalize on its strength of being a strong brand by expanding its existing relationships with customers and other companies. Apple Inc (Wittich et al. 2018). can partner with other companies or acquire other companies to capitalize on its positive brand image.

Apple's weaknesses include high prices, poor distribution networks, and software incompatibility. Apple charges high prices for its products. The company can improve on this by lowering the prices of its products. Apple Inc. also has a limited distribution network. Apple should improve on this by using more retailers and wholesalers. Apple Inc. should not rely only on its shops to sell its products. The company has to trust other distributors to sell its products in various parts of the world (Wouters 2015). Apple Inc. should make its products and software compatible with products made by other companies.

IFE Matrix and Analysis

Strengths	weight	Rating	Weighted score
Innovation and technology	10 %	4	0.4
Management	10 %	4	0.4
Employees	10 %	3	0.3
Strong brand/brand reputation	10 %	4	0.4
Unique products	15 %	4	0.6
Financial ratios	5 %	3	0.15
weaknesses
High prices	15 %	1	0.15
Limited distribution network	10 %	1	0.01
Product incompatibility	5 %	1	0.05
Unethical business practices	5 %	2	0.05
Limited advertising	5 %	2	0.05
Total	100 %		2.56

The ratings are based on the importance of Apple’s strengths and weaknesses in the consumer electronics industry. One multiplies the weight by the rating to get the weighted score. Scores above 2.5 indicate internally strong companies while scores below 2.5 indicate internally weak companies (Wittich et al. 2018). The percentages of various weights indicate how important a certain strength or weakness is in the consumer electronics industry.

The IFE matrix shows that Apple Inc. is internally strong. The total weighted score was above 2.5. Apple Inc., should; however, work on improving on weaknesses such as high prices and its distribution network. High prices are a crucial factor in the consumer electronics industry. Some customers might not purchase highly-priced products when other quality products are available at affordable prices (Ketchen et al. 2013). Apple Inc. should ensure that its products are affordable. Apple should reduce costs such as marketing and the cost of raw materials to make its products more affordable. Apple Inc. should also expand its distribution network to make products easily accessible to customers.

Grand Strategy Matrix

A grand strategic matrix identifies strategic options for companies. The matrix guides crucial decisions in an organization. The four quadrants in the grand strategy matrix are quadrants I, II, III, and IV. Quadrant I is rapid market growth and strong competitive position, II is rapid market growth and weak competitive position, III is slow to market growth and weak competitive position, and IV is slow to market growth and strong competitive position.

Apple Inc. Grand Strategy Matrix

Quadrant II Divestiture	Quadrant I Market development Market penetration Product development
Quadrant III Liquidation/ divestiture	Quadrant IV Joint ventures

Apple Inc. lies in Quadrant I because of its strong competitive position, market growth, good strategic position, brand image or reputation, quality products, and diversification. Apple Inc. can adopt strategies such as product development, market penetration, and market development. The company can modify existing products or bring new products to the market. Apple Inc. can also focus on the market development strategy by introducing its products to new markets (Wittich et al. 2018). The company should sell its products in unexplored markets such as Africa. Apple Inc. could use the market penetration strategy to increase its market share in continents such as Asia and Europe. Apple should increase its sales in various markets.

The strategic implications are to increase sales by creating new products, selling the products to unexplored markets, and increasing the market share in the explored markets. Apple Inc. should differentiate its products through innovation (Wouters 2015). The integrated strategy would help Apple to differentiate products at low costs. Apple Inc. can modify existing products by focusing on the functionality and design of its products.

The strategic role of Internal Resources/Departments/Processes

Product line & target market

Apple Inc. sells products such as the iPhone, iPad, iMac, MacBook Air, Macintosh, iPod, Apple Watch, Apple TV, Beats Products, and Home Pod mini. The iPhone is the best-selling product. It is the main source of revenue for Apple Company. Apple's target market consists of those in the middle-class and upper classes. Apple does not target those in the lower class because it charges high prices (Wouters 2015). Apple Inc. targets individuals who can pay high prices for products with a good user experience.

The target groups include music lovers, professionals, and the crowd. Apple targets music lovers through iTunes and iPod. Professionals are targeted for MacBooks and iPads. Apple also targets the crowd by offering Apple TV and Apple iWatch.

Business-level strategies

Apple Inc. uses the differentiation strategy. The differentiation strategy used by Apple is based on increasing its market share, staying ahead of the competitors, attracting new customers, and keeping the existing ones. Apple Inc. has distinguished its products from the ones offered by competitors. Products such as iPad, iPhones, and MacBooks are highly differentiated (Tian et al 2022). Product design is a crucial aspect of differentiation. Apple’s products can handle different products, and they have different features.

Apple stays ahead of competitors in the consumer electronics industry by being able to influence the market easily. Apple Inc. has a good relationship with its customers. The factors in Apple’s differentiation strategy are product design, pricing strategy, and brand loyalty (Tian et al 2022). Apple Inc. has formed strategic alliances to benefit from shared costs, risks, and economies of scale. Production has been moved to countries such as China to access more markets and raw materials at low prices.

Functional-level strategies

These are the goals and actions assigned to different departments to support the corporate-level and business-level strategies. Apple's functional-level strategies include a focus on research and development, human resources, financial, and marketing strategies. Apple requires all employees to be committed and hardworking. The drivers of Apple's research and development strategy are expanding services, growing the product range, and focusing more on in-house technology development (Wouters 2015). Apple's financial strategy is to maximize its profit margins. The company maximizes its profits by introducing quality products.

Other functional-level strategies by Apple Inc. are improving product and process efficiency, producing high-quality products, and ensuring that there is optimum resource utilization. Apple Inc. does not provide training programs (Wouters 2015). The company encourages employees to develop various skills by doing things on their own. Apple encourages employees to be self-reliant. Employees get grants if they make significant contributions to the company.

Agility is the most crucial factor for Apple’s success. Apple Inc. manages to shift between various products and services. Employees work on new projects. Workers prepare to retool and learn within a short period. Apple company uses several teams to complete one project (Wouters 2015). The teams compete to create an innovative product or solution. Apple has design teams that meet weekly to create innovative products.

Organizational structure & culture

Apple’s organizational structure is functional and hierarchical. In a functional structure, there is a strong emphasis on vertical links and hierarchy (Ketchen et al. 2013). There are different departments to handle various activities. Apple has departments such as human resources, customer service, information technology, production, and marketing. Apple has a hierarchical structure that enables senior management to have tight control. There are promotion opportunities that motivate employees.

Product-based grouping is a key aspect of Apple's organizational structure. Apple divides its operations into groupings such as services, iPhone, Mac, and iPad. Even though a functional structure exists in Apple, the company has a weak functional matrix. There is an effective and intensive collaboration between various divisions and groupings within the Apple company (Tian et al 2022). There are eight members of the Board of Directors. Apple’s organizational structure has been subjected to numerous changes.

The organizational culture of Apple is creative innovation. Apple focuses on maintaining high innovation levels. These are achieved by having creative workers with a mindset that challenges standards and conventions. Apple’s culture is based on integrity, teamwork, excellence, creativity, and innovation (Tian et al 2022). The employees should work together to complete various projects. They should also think outside the box and have a moderate competition to improve their output and drive growth.

Flexibility in manufacturing is very important for Apple. The marketing strategy needs flexibility in manufacturing. Flexibility is achieved through volume, product mix, and new product flexibility. Apple’s factories have to reconfigure to produce new products quickly (Tian et al 2022). Apple has a fast life cycle. The factories should also be able to increase their production levels quickly if demand increases. Investment can be made in the Apple company because it is financially strong. The company has used a non-GAAP accounting principle.

Design and development of products are conducted by senior officials. Quality management is a key area in operations that emphasizes quality controls and standards. Apple's layout design emphasizes customer expectations. The company's supply chain is efficient and streamlined. Apple uses automation to monitor supplies and processes (Tian et al 2022). The FIFO method of inventory management is used.

Research and development is a crucial sector of Apple company. In 2021, Apple Inc. spent $21.9 billion on research and development (Apple Inc. 2022). Apple conducts prototype testing and consumer surveys. Anonymous data collection is done by various employees. The company has various production lines at its manufacturing sites.

Alignment with Apple’s vision and mission statements

Apple’s vision is to make great products while its mission is to bring the best user experiences to customers. The strategies align with the company’s vision and mission statements. Apple’s strategy of diversification, growth, differentiation, and improving product efficiency aligns with the vision of making great products. The company can make great products by differentiating its products through quality improvement. Improving product efficiency brings the best user experience to the customers.

Strategic financial analysis for the last reported fiscal year

	Apple Inc.	Industry
Leverage ratios
Long-term debt ratio (long-term debt/total assets	0.28 (=94 B/336 B)	0.27
The debt-to-equity ratio (total liabilities/shareholders equity)	2.06	1.20
Liquidity ratios
Current ratio (current assets/current liabilities)	1.07 (134,836/125,481)	0.92
Quick ratio (current assets-inventory)/current liabilities	0.82 (106,860/125,481)	0.58
Efficiency ratios
Asset turnover ratio (NET SALES/TOTAL ASSETS)	1.16	1.15
Inventory turnover ratio	41.41	38.94
Profitability ratios
Return on equity (net income/shareholders equity)	153.00 %	156 %
Return on assets (net income/total assets)	28.10 %	11.78 %

Apple Inc.’s 2022 balance sheet and income statements were used to calculate the financial ratios. The long-term debt ratio measures the long-term debt used for financing the assets of a company. The ratio measures the long-term financial position of companies. Apple’s long-term debt ratio was 0.28 while the industry average was 0.27 (Apple Inc. 2022). This means Apple Inc. is in a good financial position compared to other companies.

The current ratio measures the ability of companies to pay their short-term obligations. Apple's current ratio was 1.07 while the industry average was 0.92. Apple is; therefore, in a better position to pay its short-term obligations compared to other companies in the consumer electronics industry. The asset turnover ratio determines the efficiency of a company's assets to generate sales or revenues (Tian et al 2022). Apple’s asset turnover ratio was 1.16 while the industry average was 1.15. This means Apple Inc. was efficient in generating revenue or sales from its assets.

Return on assets indicates how profitable companies are concerning their assets. A return on assets of 5 % and above is good. Apple company had an excellent return on assets of 28 % (Apple Inc. 2022). The industry average was 11.78 %. Apple was; therefore, more profitable than its competitors in relation to total assets.

Conclusion

Apple Inc.'s internal environment analysis was determined by reviewing the financial statements, conducting SW analysis, and analyzing corporate-level, business-level, and functional strategies. Financial analysis showed that Apple Inc. has been performing better than other companies in the consumer electronics industry. The internal environment analysis showed the strengths of Apple Inc. and its weaknesses. Apple Inc. needs to improve on its weaknesses such as its poor distribution network and high prices. Apple Inc. can focus on strategies of product development, market development, and market penetration.

References

Apple Inc. (2022). AAPL. Yahoo Finance. https://finance.yahoo.com/quote/AAPL/financials/

Ketchen, D. J., & Short, J. (2013).  Mastering strategic management. Simon Fraser University.

Podolny, J. M., & Hansen, M. T. (2020). How Apple is organized for innovation.  Harvard Business Review,  98(6), 86-95.

Wittich, W., Jarry, J., Morrice, E., & Johnson, A. (2018). Effectiveness of the Apple iPad as a Spot-reading Magnifier.  Optometry and Vision Science,  95(9), 704.

Wouters, A. (2015). Apple & Google: a comparative analysis of marketing approaches and strategies.  Czech Journal of Social Sciences Business and Economics,  3(4), 31-43.

Tian, W., Wang, M., & Wang, Q. (2022, March). The Core Competentness of Apple Inc. In  2022 7th International Conference on Financial Innovation and Economic Development (ICFIED 2022) (pp. 718-725). Atlantis Press.