In week 8 of AMBA 640, we will be analyzing the Apple case located in chapter one of Management Information Systems: Business Driven MIS Inc from an information systems management perspective. Our analysis will look at some of the common tools used to analyze competitive intelligence such as Porter’s Five Forces Model, the three generic strategies for choosing a business focus and the value chain analysis. We will also discuss why and how data, information, business intelligence and knowledge are important to Apple.
This analysis will also include how Apple identified areas where it achieved a competitive advantage using management information systems and why competitive advantages are temporary. ? Introduction Apple was launched April 1, 1976 by Steve Jobs, Ronald Wayne and Steve Wozniak and is considered to be one of the most innovative technologies companies in the world. The company is responsible for products and services such as the Macintosh desktop and laptop computers, iTunes, iPod, iPhone, iTouch, iPad, Apple TV, and iCloud.
Apple also develops its own software to run on its computers, its philosophy “has always been to create products that consumers find easy to use and marry innovative technology to work productivity and personal entertainment” (Mallin & Finkle, p. 49, 2011). This accomplished company faces constant challenges from a competitive market to a technology lifecycle that is continuously being shortened and thus must make key decisions on which products to build or discontinue in order maintaining its competitive edge. This analysis will look at several analytical tools that can be used to evaluate Apple’s competitive intelligence.
The tools are; The Five Forces Model, the three generic strategies, value chain analysis, SWOT analysis. This analysis will also look into evidence of Apple’s usage of business intelligence, enterprise resource planning (ERP), customer relationship management (CRM), data mining and, intelligent systems. ? The Five Forces Model The five forces model, developed by Michael Porter of Harvard Business School in 1979, provides methods in which corporations can evaluate their competition and determine strategy. The model looks at the strength of five competitive forces and, when combined, determines long-term profitability and competition.
Baltzan (2011) lists the five competitive forces as buyer power, supplier power, threat of substitute products or services, threat of new entrants and, rivalry among existing competitors. Buyer Power Buyer power is important because buyers can force lower prices, demand better quality product or services and play competitors against each other (http://www. referenceforbusiness. com/management). Buyer power can be measured by the number of buyers for the product, their sensitivity to price, the size of the order, difference between competitors and, the availability of alternative products.
However in the case of Apples’ introduction of the iPod in October of 2001, buyer power was not a strong force because the limited amount of digital players available to the market that contained a proprietary digital media service specifically designed for the player. Apple is a forward thinking company and recognized very early that people will be listening to more music through their computers rather than purchasing compact discs. This forward thinking resulted in the introduction of iTunes, a media player program, before the iPod in January of 2001 (www.
wikipedia. org). Supplier Power Baltzan defines supplier power as “the suppliers’ ability to influence the prices they charge for supplies (including materials, labor, and services. Factors used to appraise supplier power include number of suppliers, size of suppliers, uniqueness of services, and availability of substitute products” (Baltzan, 2012, p. 17). Apple uses suppliers for key components from Japan, Korea, and U. S. and completes the assembly by a Taiwanese manufacturer in China (Linden, Kraemer & Dedrick, 2009).
Due to their market share in smart phone users, Apple is in better position to negotiate the prices it will pay for these components. Threats of Substitute Products or Services Substitute products or services are a result of competition and can limit the profitability in that industry. Threat level is considered high when there are multiple alternatives for the product or service. The threat level for Apple is high due to the numerous options that consumers have to choose from. Amazon and Android both offer buyers the ability to download digital content, i. e.
books, music, movies, and etcetera through its online store. Samsung, Sony, Motorola and Microsoft sell various products (tablets, mp3 players, cellular phones) that directly compete for the same consumers as Apple. Threat of New Entrants The threat of new entrants into an industry is largely dependent on the barriers to entry. Baltzan defines an entry barrier as “a feature of a product or service that customers have come to expect and entering competitors must offer the same for survival (Baltzan, 2012, p. 17)”. Porter identified six barriers (http://www. referenceforbusiness.
com/management/Or-Pr/Porter-s-5-Forces-Model. html): •Economies of scale, or decline in unit costs of the product, which force the entrant to enter on a large scale and risk a strong reaction from firms already in the industry, or accepting a disadvantage of costs if entering on a small scale. • Product differentiation, or brand identification and customer loyalty. • Capital requirements for entry; the investment of large capital, after all, presents a significant risk. • Switching costs, or the cost the buyer has to absorb to switch from one supplier to another.
• Access to distribution channels. New entrants have to establish their distribution in a market with established distribution channels to secure a space for their product. • Cost disadvantages independent of scale, whereby established companies already have product technology, access to raw materials, favorable sites, advantages in the form of government subsidies, and experience. Apple charges a premium on the products that are available to consumers however, based on the barriers listed above, this price premium does not equate to a high threat level of new entrants to Apple.
When the iPad 2 was launched in March 2011, it was estimated that 500,000 units were sold on the first day of availability. There have been many tablet competitors that came to market that year and Apple still retained almost 73% of the market share (Olenick, 2011). Rivalry among Existing Competitors Rivalry among existing competitors is considered to be high when there is strong competition in the same market. The life cycle in the technology sector is short and there are new products that come out every year. Apple stays ahead of the competition by developing products that exceed the needs of their consumers.
The business strategy has kept them leaders in their sector for the past decade. Customer Developed Applications and the Five Forces Model Through its customer developed applications, better known as the App Store, Apple has addressed the three of the five forces of Porter’s model. As of March 2012, there is approximately 585,000 available applications in the App Store with more than 25 billion downloads. In comparison Google Play, which offers applications for the Android operating system, has 15 billion downloads and a total of 500,000 applications.
According to an article dated December 2011 in the NY Times online, there are more phones being sold with the Android operating system than Apple’s iPhone. Android offers its operating system for free and a host of manufacturers such as Samsung, HTC, Motorola, LG, and Sony Ericsson are currently using it. Apple has fought these threats with lawsuits. Apple and Samsung have engaged in 21 different lawsuits in at least 10 different countries. Apple sued Samsung in the U. S. claiming patent violations and unlawfully copying design and feel of its iPhone and iPad.
In turn Samsung has sued Apple in South Korea, Japan and, Germany for wireless patent violations. Apple has won temporary injunctions forbidding the sale of the Galaxy 10. 1 tab in Germany and Australia (O’Rourke, 2011). Porter generic strategies are ways to gain a competitive advantage. They can be broken down into broad cost leadership, broad differentiation and focused strategy. Broad strategies are designed to reach a large market and focused are designed to reach a smaller group through cost or differentiation. Apple’s generic strategy suggests a broad differentiation strategy.
This strategy involves making your products or services distinctive and more appealing (Baltzan, 2012). The targeted consumer of is not price sensitive to the products or services of this generic strategy. To be successful in the differential strategy, the company needs to have good R&D and innovation, the ability to deliver high-quality products or services and a successful sales and marketing team that knows how to reach its market and effectively communicate the benefits of product or services over the competitors. Value Chain Analysis
Value chain analysis is a tool that companies can use to identify competitive advantage. Competitive advantage is the trait or traits of a product or service that a buyer would place a greater value on over similar items from a competitor. The analysis can be broken down into three steps. The first step is activity analysis. This involves identifying the actions needed to deliver the product or service to the market. The second step is value analysis. At this step you must think about what needs to be done to add value for your buyer and the last step is evaluate and planning.
The third step requires you to evaluate whether or not the changes are worth it and then plan for action. Apple greatest strength in the value chain is its innovation. Apple products are ascetically appealing to the eye and their integration of service across all product lines helps them maintain a dominant market share. SWOT Analysis SWOT analysis is an excellent tool to use to identify strengths, weaknesses, opportunities and threats (www. mindtools. com). There are several questions that you should be able to answer when using this tool. • What advantages does your company have (strength)?
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