Question

For the publicly traded U.S. company Apple (AAPL), explain how macroeconomic principles, models, and tools created value for the organization.

Answer 1

During the Scully years, the Macintosh was the main focus of Apple. His strategy in a competitive market dominated by giants like IBM, HP, and Dell, was differentiation. Apple created a Mac that allowed its customer to “Plug and Play”. By designing the Mac from scratch, using unique chips, disk drives and monitors, Scully was able to collect a set of loyal customers who were insensitive to the product’s premium price until IBM prices dropped, making the Mac overpriced and replaceable. That’s when Scully decided to move towards a lower cost product and appeal to the masses by making what he mistakenly thought a good alliance with his main rival; IBM. After Scully’s failure to turn Apple’s sales around, Spindler and Amerlio decided that cost leadership/differentiation strategy is vital. Yet they failed at truly differentiating their products from their leading rivals.

In 1997 Jobs felt opportunity lied in differentiation rather than cost leadership. Jobs also saw an chance to diversify Apple’s products offering and create economies of scope through innovation. Perhaps one of his most crucial strategies was the expansion of Apple to the global market. This allowed Apple to capture a larger market share in countries with emerging trends of technological innovation.

Jobs also adopted a more focused strategy where a few products would be the center of attention and slashed the rest of the products that he believed had no potential. Internally Jobs believed that innovation was key to the very survival of his company. This is why he needed to be the leader in the industry in every step of the game. While the industry growth was driven by lower prices and expanding capabilities, Jobs had no choice but to make his products as differentiated and innovative as possible by focusing on the design of the product. In 2007, Jobs introduced the revolutionary iPod that allowed people to store up to 10,000 songs in one device. He complemented this product with the iTunes, which he made compatible with any of his competitors software, a strategy that would prove to be a successful one. He later introduced the world to the iPhone, in an industry Apple knew nothing about. This diversification strategy made Apple the largest company in the world. With the App Store offering more applications than any other competitor, Apple was able to lock its iPhone sales and crush rivals who attempted to replicate this strategy. The App Store was another “first” for Apple that allowed users to download applications straight to their phone. Jobs was not satisfied however. New socio-cultural and economic factors provided Jobs with an opportunity to capitalize on the emerging trend of tablets and the economic downturn which brought the need for lower priced products that can bring similar benefits as that of the Mac but in a device that cost less and was easier to carry: The iPad.

Jobs diversification strategy did not stop there, he went to create the “bookstore” which in turn began to dominate the publishing industry. Even though this was a new industry to tap into, the “bookstore” was able to compete against one of the industry’s leading giants, Amazon. The bookstore was not the iPad’s biggest attribute however. Jobs’ approach to the iPad was different than his other innovations. Jobs began to realize the importance of Cost leadership in the industry and thus decided to increase its gross margin to 25% (compare to 15% in the industry) by using internally developed CPUs. The final and latest notable innovation for apple was the iCloud, which allowed apple clients to sync all of its products using a virtual network called a cloud. The introduction of the cloud reinforced a new differentiation strategy than no rivalry has used. It made switching to substitutes that much harder for consumers because no other company offered such a convenient and easy to use service.