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In this course we will discussthree cases in detail. You have to discuss, Tesla,Apple, and Google,. For each case you have to submit a ½ page to one page document which is 1.5 to double spaced addressing the following question:Why do you think the company (or companies) discussed in the case has the right corporate strategy? & what makes the company profitable or not profitable? You can define profitable or the right corporate strategy by either looking at profits alone or the triple bottom concept (profits, corporate social responsibility, and environmental consciousness). It is important that you use financial data from the case to discuss your point of view. For instance, you need to provide the profit data from the case to back up your assertion that a company is profitable.You have to use only information reported in the case to answer to this question. Do notreport information from external sources (THIS IS FOR INDIVIDUAL WRITE UPS ONLY).The objective of the write-up is to show me that you have read and fully understood the case. You have to submit a printed copy of each case summary at the beginning of the class in which the case is going to be discussed. You do not have to submit an electronic copy of the document.Yet,please keep with you an electronic copy of each document, in case it is needed.
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Apple (in 2013): How to Sustain a Competitive Advantage?
APRIL 22, 2013, 11:23 P.M. After a hectic day, an exhausted Tim Cook is arriving back at Apple’s headquarters in Cupertino, California. The Apple CEO is trying to find some quiet time to look over the day’s events and
handle some e-mails. Having joined Apple in 1998 as Senior Vice President of Worldwide Operations, Cook had
been appointed CEO based on the recommendation of Steve Jobs, who lost his battle with cancer a few weeks
after resigning from the top spot in August 2011. Cook had been filling in as CEO while Jobs had been on medical
leave. Cook was a low-profile, but high-impact executive at Apple who was responsible for restructuring Apple’s
supply chain, which had allowed Jobs to focus on high-profile product launches. Moreover, Apple’s now superefficient supply chain also increased its profitability tremendously.
Steve Jobs had led Apple through a period of innovation that saw the introduction of category-defining products such as the iPod, iPhone, and iPad and disruptive business models complementary to those products, such
as the Apple Retail Store and the iTunes online store. iTunes had started by selling music for Apple’s iPods and
later expanded into books, movies, television shows, and applications for all of Apple’s iOS devices. Apple’s
competitive advantage under Jobs was the ability to continually innovate, but Cook couldn’t help but wonder if
such success was sustainable, especially without Jobs.
Just the previous September, to great fanfare and expectations, Apple had launched the new iPhone 5. In his
presentation to an exuberant crowd of loyal Apple devotees in San Francisco’s Moscone Center that day, Cook
had highlighted Apple’s great performance by focusing on its retail stores and the sales of Mac notebooks and
iPads. In particular, Cook had emphasized the performance of Apple’s 380 retail stores in 12 countries around the
world.1 An astounding 83 million people had visited Apple retail stores in the preceding quarter, which equates to
almost one million people a day, on average. In addition, he had stated that Apple ranked number one in notebook
sales in the United States, with 27 percent market share. That represented a notebook sales growth of 15 percent a
year. Cook had also commented on the iPad, crediting it with creating a post-PC revolution. Having sold
17 million iPads between April and June 2012, Apple claimed 68 percent market share in tablet computers. In
addition, the iPad accounted for 91 percent of web traffic by all tablets, which Cook attributed to the then over
700,000 iOS applications (apps) available to Apple users. A whopping 94 percent of Fortune 100 companies had
begun deploying Apple iPads in the workplace, many with customized apps to provide enterprise-specific business solutions. “To put this achievement in some perspective, we sold more iPads than any PC manufacturer sold
of their entire PC lineup,” Cook said.2 By June 2012, Apple had sold a total of 84 million iPads, a product that had
been introduced less than 2.5 years prior.
On August 20, 2012, Apple’s stock market valuation reached $623 billion, making it the most valuable public
company of all time. The company’s value would peak in mid-September at over $650 billion. Signs of trouble
soon emerged, however, and Apple’s stock price started to fall. Though the iPhone 5 launch was successful, analysts were able to see Apple’s competitors gaining parity. Also, despite Apple’s victory over Samsung in court over
patent infringements, Samsung was outselling Apple in smartphones for the year 2012 and had proven that its
Galaxy S3, which ran Google’s Android operating system, was a viable substitute for the popular Apple iPhone 5.
Professor Frank T. Rothaermel prepared this case from public sources. The author is indebted to Research Associate Alicia Ellberger (GT MBA ’10) for her contributions to an earlier version of this case and Professor Erin Zimmer and Justin Collins (GT MBA ’14) for their contributions to the current version. This case
is developed for the purpose of class discussion. It is not intended to be used for any kind of endorsement, source of data, or depiction of efficient or inefficient
management. All opinions expressed, and all errors and omissions, are entirely the author’s. © by Rothaermel, 2015.
This document is authorized for use only by Huong Vu in Strategic Management- Spring 2018 taught by Farrokh Moshiri, California State University – Fullerton from January 2018 to July 2018.
For the exclusive use of H. Vu, 2018.
Apple (in 2013): How to Sustain a Competitive Advantage?
As Cook sat down at his desk, he wondered what the company’s next move should be, given the increasingly
competitive marketplace for its products. The current company value was $370 billion. (See Exhibit 1 for a look
at how fast Apple’s value had declined in recent months.) Steve Jobs had always looked for the “next big thing”
despite how successful past ideas had been. Cook wondered if Apple would be able to sustain its competitive
advantage or if Apple’s time had passed.
The Creation of Apple, Inc.
In 1976, Steve Jobs and Steve Wozniak conceived the idea of a personal computer company and founded Apple
Computer, Inc. (The word Computer was dropped in 2007 to reflect Apple’s expansion from the personal computer market to consumer electronics in general.3) Only 21 years of age, Jobs had to sell his Volkswagen to get
money to start the company. Jobs and Wozniak, then 26, began to assemble personal computers in Jobs’ garage
with a small group of friends. Soon after, they received additional financing to spur the growth of the company.
In 1978, the Apple II, the first personal computer, was launched and sold for $666.66.4 In December of that same
year, Apple launched a successful IPO, making it a publicly traded company.
By 1980, Apple had released three improved versions of the personal computer, and Jobs and Wozniak had
become multimillionaires. Then, IBM entered the personal computer market in 1981 and quickly became a serious competitor. IBM’s open architecture was easily imitable by other manufacturers and soon became the industry
standard, giving rise to many more computer companies in the United States (e.g., Compaq and Dell), as well as
in Taiwan, Korea, and other Asian countries. Even more threatening was the consortium between IBM, which specialized in the development of computer hardware; the newly formed Microsoft with its DOS operating system;
and Intel with its expertise in memory and processors. By 1982, IBM had increased its profitability and market
share substantially, and Apple’s position was under attack.
“OBSESSED WITH DESIGN”
Nonetheless, in just over 10 years Apple had grown into a $2 billion company with over 4,000 employees.5 In 1984, Apple introduced its finest creation yet: the Macintosh. Jobs’ curiosity and intuition had led
him to become fixated on design and style. This passion began when Jobs dropped out of Reed College at
the youthful age of 17. “The minute I dropped out, I could stop taking the required classes that didn’t interest me, and begin dropping in on the ones that looked interesting,” Jobs remembered.6 He decided to take
a calligraphy class to learn about serif and sans serif typefaces and what makes great typography: “It was
beautiful, historical, artistically subtle in a way that science can’t capture, and I found it fascinating. None
of this had even a hope of any practical application in my life. But 10 years later, when we were designing
the first Macintosh computer, it all came back to me. And we designed it all into the Mac. It was the first
computer with beautiful typography.”7 Jobs firmly believed that if he had not dropped out of college and into
that calligraphy class, the Mac would never have had multiple typefaces and proportionally spaced fonts.
And, “since Windows just copied the Mac, it’s likely that no personal computer would have them,” if he had
not made that decision.8
Although the Macintosh was the first personal computer applauded for unique industrial design and ease of
use, it had a slower processor than IBM PCs and their clones, and very few compatible software programs due
to Apple’s closed proprietary operating system. As a result, the Mac was gradually pushed to the periphery as a
niche player with customers mainly in education and graphic design. Apple’s integrated value chain enabled the
company to produce computers of high quality, but placed the Macintosh at a price disadvantage as the growing
consumer technology industry became increasingly commoditized.
2
This document is authorized for use only by Huong Vu in Strategic Management- Spring 2018 taught by Farrokh Moshiri, California State University – Fullerton from January 2018 to July 2018.
For the exclusive use of H. Vu, 2018.
Apple (in 2013): How to Sustain a Competitive Advantage?
NEW MARKETING GURU
In 1983, Jobs decided to bring in John Sculley to run the company with him. At the time, Sculley was a marketing guru from Pepsi whom Jobs “thought was very talented.”9 Sculley was responsible for the “Pepsi Challenge”
and “Pepsi Generation” ad campaigns that helped Pepsi overtake Coca-Cola in market share for the first time
in the history of the “Cola Wars.” He had also turned around PepsiCo’s failing food division by bringing in new
management, improving product quality, and instituting new accounting and financial controls.10
Apple’s innovative advertising tale started on January 22, 1984. During the third quarter of the Super Bowl
that year, “one of the most famous television commercials of all time” was broadcast.11 The ad was based on
the dystopian society depicted by George Orwell in his novel 1984. Hundreds of identical drones were shown
listening to their larger-than-life dictator, whose black-and-white face was projected onto a screen in the middle
of the room. Suddenly, a beautiful woman, escaping capture from armed guards, threw a hammer at the screen
which exploded in a Technicolor display of dazzling light. The ad stated, “On January 24th, Apple Computer
will introduce Macintosh. And you’ll see why 1984 won’t be like 1984.”12 In this fashion, customers were
introduced to Apple as the revolutionary, subversive, and rebellious company of the 1980s, ready to take on the
tyrant of IBM.
For a while after John Sculley joined Apple, things went well. But Jobs later recalled that “our visions of
the future began to diverge and eventually we had a falling out.”13 Apple’s core identity changed with Sculley
in charge. The business strategy shifted from differentiation based on a premium product with a high price tag
to producing a low-cost product with mass-market appeal. Sculley’s new ambition for Apple was to compete
directly with IBM in the household-computer market. Apple worked on bringing down the cost of manufacturing
and formed alliances with Intel, Novell, and even its old nemesis, IBM. At the same time, Apple moved toward
desktop publishing, multimedia, and peripherals. However, a series of major product flops, missed deadlines, and
unrealistic earnings forecasts destroyed Apple’s reputation. As a consequence, Apple’s profitability continued on a
downward slope. With dismal sales and declining net income, a power struggle erupted between Jobs and Sculley,
who eventually succeeded in convincing Apple’s board of directors to throw Jobs out of Apple in 1985.
HARD TIMES
To add insult to injury, Microsoft released its graphical user interface (GUI)–based operating system, Windows
3.0, in 1990, effectively cementing the Wintel standard with 90 percent market share in the PC industry. Wintel
represented the powerful combination of a Windows operating system running on the x86 architecture chips made
by Intel. Today, the x86 architecture is ubiquitous among computers, and a large amount of software supports
the platform, including operating systems such as MS-DOS, Windows, Linux, BSD, Solaris, and Mac OS X. The
innovator Apple had become a non-factor in the PC industry, retreating to ever-smaller niches of the market.
In June 1993, leadership changed hands again from Sculley to Michael Spindler. Spindler continued the company’s focus on cost-cutting but also made international growth a main objective. By 1995, Apple was spreading
itself too thin across product lines and geographic markets. It had lost any strategic focus and could not stop
operating in the red.
Steve Jobs Returns
During this time, Jobs was starting over. “What had been the focus of my entire adult life was gone, and it was
devastating.”14 Jobs had been fired very publicly from a company he had helped to create, and even considered
leaving Silicon Valley for good. He later reminisced, “I didn’t see it then, but it turned out that getting fired from
3
This document is authorized for use only by Huong Vu in Strategic Management- Spring 2018 taught by Farrokh Moshiri, California State University – Fullerton from January 2018 to July 2018.
For the exclusive use of H. Vu, 2018.
Apple (in 2013): How to Sustain a Competitive Advantage?
Apple was the best thing that could have ever happened to me. The heaviness of being successful was replaced
by the lightness of being a beginner again. . . . It freed me to enter one of the most creative periods of my life.”15
In 1986 Jobs invested $10 million in Pixar Animation Studios.16 Since then, Pixar has earned 12 Academy
Awards, 6 Golden Globes, and 11 Grammys, among many other awards. Pixar created the world’s first completely computer-animated feature film, Toy Story, and is now the most successful animation studio in the
world, with films like Toy Story 2 and 3, Monsters Inc., Cars, Finding Nemo, The Incredibles, WALL-E, Up,
and Brave.
In 2006, Disney bought Pixar for $7.4 billion in a deal that also landed Jobs a seat on Disney’s board of
directors. “The addition of Pixar significantly enhances Disney animation, which is a critical creative engine
for driving growth across our businesses,” Disney CEO Robert Iger stated.17 Jobs, the majority shareholder of
Pixar at the time with 50.1 percent, became Disney’s largest individual shareholder with 7 percent.18 His holdings greatly exceeded those of the previous top shareholder of Disney, ex-CEO Michael Eisner, who owned 1.7
percent, and even Disney’s Director Emeritus Roy E. Disney, who owned less than 1 percent of the corporation’s
shares.
Just one year prior to starting Pixar, Jobs had founded a computer company called NeXT, Inc., later known
as NeXTSoftware, Inc. NeXT developed one of the first enterprise web application frameworks for the highereducation and business markets. In a bizarre twist of fate, Apple purchased NeXT on December 20, 1996, for
$429 million.19
Earlier in 1996, Gilbert Amelio had replaced Spindler as CEO of Apple, which was reporting a mere
$69 million in first-quarter revenues. Amelio’s intention was to revive Apple’s former strategy by focusing again
on the premium-product market segment. Amelio made many changes at Apple, including terminating the IBM
alliance and announcing massive layoffs of 30 percent of the company’s total work force of 13,400.20 With the
acquisition of NeXT, Amelio also brought Jobs back as a part-time adviser to Apple. Despite all these measures,
Apple’s market share continued to tumble to just 3 percent worldwide.21
Apple experienced its worst year ever in 1997 and subsequently ousted Amelio due to crippling financial losses
and a low stock price. Jobs was brought back as interim CEO in September of that same year. Thereafter, Steve
Jobs succeeded in orchestrating one of the greatest corporate comebacks in modern-day history. (See Exhibits 2
and 3 for financial performance data.)
Restructuring Apple
When Steve Jobs returned to Apple in 1997, he was ready and eager to shake things up. In a meeting with
Apple’s top executives, after hearing all their explanations as to why Apple was performing poorly, Jobs infamously roared: “The products SUCK! There’s no SEX in them anymore!”22 Jobs swiftly refocused the company
that he had helped start and discontinued several products such as the Newton PDA, the LaserWriter printer line,
and the Apple QuickTake camera—all now collector items for Apple enthusiasts.
During this time of restructuring, Jobs outsourced manufacturing to Taiwan and scaled down the distribution system by ending relationships with smaller outlets. With Jobs’ savvy insight for what consumers wanted,
he launched a new, revolutionary website to sell Apple products directly to customers online. For the first time
ever, he also opened Apple retail stores, tied to his build-to-order manufacturing strategy. Although these moves
seemed risky at the time, all of these operational improvements helped to boost previously declining sales. For the
first time in five years (since 1993), Apple once again became profitable.
Jobs also realized the necessity of making Apple’s operating system more accessible for software providers. He
switched everything to the open-source, UNIX-based operating system, Mac OS X. This proved to be a more stable
4
This document is authorized for use only by Huong Vu in Strategic Management- Spring 2018 taught by Farrokh Moshiri, California State University – Fullerton from January 2018 to July 2018.
For the exclusive use of H. Vu, 2018.
Apple (in 2013): How to Sustain a Competitive Advantage?
operating environment and permitted the company to issue annual upgrades in response to customer feedback. In
2005, Apple completed this transition by switching from PowerPC to Intel processors, which meant that Apple
Computers could run not only the Mac OS X but also any operating systems that used the x86 architecture. This
marked the beginning of a truly open era for Apple computers: They were now the most flexible, as well as the most
attractive. As a result, Apple’s stock price rose from $6 in 2003 to over $80 in 2006, surpassing even Dell’s market cap,
the then-number-one computer maker in the U.S.23 Dell’s CEO, Michael Dell, was left retracting the words he had
very publicly spat nine years prior, “If I ran Apple, I would shut it down and give the money back to shareholders.”24
Jobs even formed an alliance with Apple’s archrival Microsoft to release new versions of Microsoft Office for
the Macintosh. In return, Microsoft made a $150 million investment in non-voting Apple stock.25 Jobs, in a cell
phone call with Gates said, “Bill, thank you. The world is a better place.”26
Beyond changing the operating system, the most visible change Jobs instituted was leveraging industrial design
to produce more aesthetically pleasing computers. Jobs almost instantly revitalized Apple’s image by pushing the
limits of technology and design. He appointed Jonathan Ive, a British designer, head of Apple’s in-house Industrial
Design group (IDg). There have been several distinct design themes in Jobs and Ive’s collaboration over the years:
translucency, colors, minimalism, and dark aluminum. Ive has been credited with being the chief designer of the
iMac, the aluminum and titanium PowerBook G4, the MacBook, unibody MacBook Pro, iPod, iPhone, and the
iPad.27 Ive’s work at Apple has won him a slew of awards and widespread recognition.
Jobs also started to brand Apple as a functionally appealing, hip alternative to other dull, clone-like computers in the market. Known for his candor, Steve Jobs once accused Michael Dell of making “un-innovative beige
boxes.”28 Continuing in the same vein as the infamous 1984 television ad, Apple launched its “Think Different”
campaign in 1997. The aim of the campaign was to reflect the culture of …
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