Limitless Solutions Consulting Company
TOWSON UNIVERSITY
MNGT 481-Team Assignment
Personal Computing Industry Analysis
&
APPLE INC 2010
Team Members
Chau Tran, Marium Jawed, Glen Rock
Timothy DiNunzio, Oluwatobi Ibidapo, Brandy Butler
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I. Industry.............................................................................................. 3
II. Barriers of Entry ................................................................................ 4
III. Substitutes Products and Services .................................................. 5
IV. Bargaining Power of Buyers .......................................................... 6
V. Bargaining Power of Suppliers ......................................................... 7
VI. Rivalry among Existing Firms ....................................................... 9
VII. Managerial Strategy ..................................................................... 10
VIII. Report Summary .......................................................................... 13
IX. Conclusion .................................................................................... 15
References ............................................................................................. 16
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I.
Industry
NAICS 334111: Electronic Computer Manufacturing
Definition: This U.S. industry comprises establishments primarily engaged in manufacturing
and/or assembling electronic computers, such as mainframes, personal computers, workstations,
laptops, and computer servers. Computers can be analog, digital, or hybrid. Digital computers,
the most common type, are devices that do all of the following: (1) store the processing program
or programs and the data immediately necessary for the execution of the program; (2) can be
freely programmed in accordance with the requirements of the user; (3) perform arithmetical
computations specified by the user; and (4) execute, without human intervention, a processing
program that requires the computer to modify its execution by logical decision during the
processing run. Analog computers are capable of simulating mathematical models and contain at
least analog, control, and programming elements. The manufacture of computers includes the
assembly or integration of processors, coprocessors, memory, storage, and input/output devices
into a user-programmable final product.
Boundaries: For the sake of this analysis we are limiting the industry to what the public is
accustomed to as a Personal Computer (PC). This would include any PC that one would
normally have at their home for things such as web surfing, emails and file storage. Other types
of computers that would be used for things such as computer games would require a different
setup than a standard home PC and therefore would be outside of the boundaries of this case
study.
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II.
Barriers of Entry
The entry barriers for the personal computing (PC) industry make it difficult for any new
startup company to take away any large amount of market share for the current companies in the
industry. The financial strength of the larger companies such as HP, Dell and Apple to go and
buy the most talented workers and give a large amount of their budget to research and
development will always give them a competitive edge in developing the next technological
breakthrough. The second major barrier is the ability to manufacture the PC then distribute
accordingly. There are several different components to a PC that take time to assemble if you do
not have a manufacturing line, also where to sell their product because an issue when competing
with the brand names of the industry.
HP, Dell and Apple are all fortune 100 which means they make the top amount of
revenues and profits in the world. This allows all of these companies with enough financial
flexibility to spend more than any startup company in the PC industry can. If a new company
does arise that threatens to take market share from any of these three companies they have the
ability to buyout the new company or use reverse engineering to come out with their own similar
and cheaper product. The term reverse engineering refers to a company acquiring technology
from a competitor and figuring out how it works to create a newer and slightly different model.
The company then will sell it at a cheaper price and take profits away from the original creator of
the technology.
Buying parts for a PC is fairly simple and easily accessible. It is almost impossible for a
new company to try to mass produce PC’s without having an assembly line like the major
manufactures already do. A startup company would need enough capital to buy a warehouse to
start assembling them. If they manage to receive that amount of capital they would then have to
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then acquire the parts where the buyer power is much smaller for a new company. If the
suppliers raise prices of their products the larger PC makers can compensate for it since they
have the capital on hand. Smaller companies are more affected with the slightest increment of
price change since margins are always thinner for new and smaller companies.
III.
Substitutes Products and Services
In this industry a substitute is any product or service that can replace a personal
computer, which can possibly create threats in the industry. The functions of a personal computer
include, retrieving information, storing data/ information, manipulating data/information,
providing users with information, communication and recreational purposes.
Since the early 2000s, consumer electronic products, such as cell phones,PDAs ,Tv settop boxes, game consoles, started to almost function like a PC. For example, advanced game
devices like Sony Playstation3 allowed consumers to watch DVDs, surf the web, and play games
directly online in addition to playing traditional video games. Also, smartphones increasingly
functioned as handheld computers, allowing users to e-mail, visit websites, and manage their
online live. However, these devices also have some weaknesses. They are small in size and
often rely on battery power. This creates problems for people that need to use the device for a
long period of time. Also, in order to stay portable these devices often lack expandability. They
also don’t have as many functions as a PC and not as close in performance. The PC still remains
as the most versatile device and does not truly have a fully capable substitute. While several
other industry insiders worried about the impact of digital devices on the PC industry, Job had a
different view.
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Apple’s control of both hardware and software made it one of the unique PCs remaining
in the industry. Its premium price is also a strength. In this industry substitute products poses a
low to medium threat.
IV.
Bargaining Power of Buyers
As stated in “Apple, Inc 2010” there are five main categories of buyers which consist of
home, small and medium sized businesses, corporate, education and government. These can be
separated into two categories, those that buy in large volumes, and those that buy for personal
use. Organizations, governments and schools that purchase computers in a large volume have
bargaining power in relation to price, feature and service plans. In this case, this group of buyers
has medium to low bargaining power. Although there are many PC manufacturers to choose
from in the market, and an increasing number of programs and companies to choose from, there
is another aspect that decreases the bargaining power for this group. When any organization buys
and sets-up a large quantity of computers, they have to consider aspects such as installation,
training, and standardization across a particular organization. These aspects greatly increase the
switching costs and limit the choices available to these organizations and corporations- all of
which decreases the bargaining power for this group of buyers. Many of these businesses and
corporations do not only have indispensable data on these computers, they also use standardized
programs for much of their business such as inventory, scheduling and communications. These
programs not only need to often stay with specified vendors, but also needs to be constantly
updated. This further decreases the bargaining power of this group of buyers.
On the other hand, the second group to consider- those that buy computers for personal
use and make up about half the worldwide Personal Computer shipments, this group have a very
different and much higher bargaining power. This is because firstly, personal computer buyers
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are price sensitive and do not exhibit strong brand loyalty since the switching costs are low. This
situation places the buyer power in a strong position that can only be countered by manufacturer
with strong product differentiation that would increase the switching costs. “In recent years
customers have more and more alternative options to the personal computer ... because of the
availability, sleekness, and trendiness of these alternatives, they have become increasingly
popular making personal computers more and more obsolete"(SAR Report). As long as buyers
see little difference in the quality and features of available computers, price will determine their
purchasing choice. Hence, the bargaining power of buyers can be consider as strong in this case.
This idea allows Apple to use a differentiation strategy in which they attract their
customer base with higher quality, and brand loyalty. Although in an overall perspective, buyers
have a medium to high bargaining power, buyers of Apple products tend to exhibit an increased
brand loyalty and switch from different versions of the IPhones, IPads and Apple Notebooks
(internal), rather than switching to other brands (external), such as Samsung that has similar
products and features. However, with the ever growing frustration on Apple’s competitors, there
are an increasing variety of products that have been released that almost can replicate the Apple
product, leaving the buyer once again with higher power to choose among an array of options.
V.
Bargaining Power of Suppliers
The bargaining power of suppliers in this scenario falls into multiple categories. First of
all, there are two categories of suppliers that provide to the personal computing industry: those
that make peripheral products such as memory cards and keyboards, and those that make core
products such as microprocessors and operating systems. Suppliers considered to be in the first
category in this case have medium to low bargaining power due to several reasons. Suppliers of
peripherals such as monitors, disk drives, and even complementary software (graphics programs,
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internet browsers etc.) have considerable competition in the field. PC vendors such as Dell, Acer,
and Lenovo, who are considered buyers in this case, are looking for the highest quality and the
cheapest price for these peripheral and complementary products. Since there are numerous
manufactures of these products all across the globe there is competition on an international scaleall of which significantly decreases the bargaining power of these suppliers. At the same time
however, the fact that many of these are standard products that can be used by any PC vendor
means that these suppliers are able to provide a product which is not exclusive to any one PC
manufacturer. Not only this, but this category of suppliers is also able to market directly to
consumers. Selling unique types of keyboards, memory storage or software programs, these
peripheral and complimentary manufacturers are able to target individual sellers on top of the
large personal computer manufacturers. This significantly increases their bargaining power as
suppliers, putting them at medium power overall.
The second category of suppliers, those are who make products such as microprocessors
and operating systems, have much higher bargaining power. As stated in “Apple Inc. 2010” the
standard known as “Wintel”, which included the Windows operating system with an Intel
processor, became a standard during this time. For this reason, this particular category of
suppliers has very high bargaining power. With minimal to no competition (aside from apple
itself which used its own operating systems and processors), these suppliers are able to have
significant control of the market. Almost all personal computer manufacturers such as HP and
Dell are buying from these suppliers. Apple inc. themselves has high bargaining power over its
suppliers due to the fact they can outsource many of their manufacturing products, and have
enabled themselves to vertically integrate, meaning they can produce some of their own supplies.
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This vertical integration has given Apple Inc. great advantages over competitors in the market as
they are reducing costs while increasing resources.
The final category of suppliers to consider is the PC manufacturers themselves. Although
this category is also listed as buyers above, PC manufacturers market and sell their products
straight to retailers and consumers. Manufacturers such as Dell, Acer, and HP have very low
bargaining power in this case because of the great amount of competition and the demand for
lower priced and higher quality products from consumers. “PC makers are dependent on its
suppliers for microprocessors, memory, motherboard, video adapters, terminals, and hard disks,
etc. In general, the relationship between PC makers and their component suppliers today is just
like bread and butter. One depends on the other for survival. A supplier only possesses the
bargaining power when it has a dominant position in the industry. For example, Intel is almost
the sole supplier for the heart of the PC, its microprocessor. Computer makers have to rely on
Intel for its chips” (Vo, n.d). Therefore, overall the bargaining power of suppliers is low because
the suppliers are in direct competition with each other to obtain exclusive contracts with the
manufacturers to have them use their products.
VI.
Rivalry among Existing Firms
Rivalry among existing firms in the electronic computer market is high. There are many
competitors and the market is very unpredictable. The key rivals within the electronic computer
industry are Microsoft, Hewlett-Packard, Oracle, Acer America, Dell, IBM, Advanced Micro
Device, Intel, Fujitsu and Cisco System. If our rivals were pitted against each other we would
describe them as not being too differentiated and being followers of each others trends. When
one company increases demand through product differentiation or price differentiation, the
others seem to follow. But when comparing our rivals to ourselves, we have come to the
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conclusion that we have been very successful at being innovative enough to make our products
unique and unable to be duplicated. Through all forms of non-price competition, such as product
differentiation, advertising, brand loyalty, and advertising we have been able to stay on top of
this industry. Due to the rise in the tablet market, the once fast-growing personal computer
market is slowing down. Apple would have a high emotional exit barrier if deciding to drop out
of this market. Brand loyalty is the main cause of this exit barrier. Some people would not only
want apple tablets but also the apple Macbook because they have similar features and
usability. If Apple ever decided to drop out of this market they would be disappointing their
customer base.
VII.
Managerial Strategy
Steve Jobs was a person of study during and after his lifetime. He was seen as innovative,
driven, passionate, and controversial, to name a few. However, his leadership and style stands
out amongst the rest and leads us to ask ourselves, was he an effective strategic leader? A
strategic leader is one who has the “ability to anticipate, envision, maintain flexibility, and
empower others to create strategic change as necessary.” (Hitt, 2012)
From the textbook Understanding Business Strategy, a strategic leader is also said to be
one who practices strategic leadership and often holds upper level organizational positions. They
are said to have main actions, of which include; establishing vision and mission, Developing the
management team and succession, managing the resource portfolio, building an entrepreneurial
culture, promoting integrity and ethical behavior, and using effective controls. Steve jobs will be
hard to replace due to his individuality and uniqueness, in terms of identifying trends, and the
ability to develop products that have incredibly high market potential. He brought his own
intense passion, vision, and leadership to Apple, of which he constantly innovated and improved.
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Steve Jobs’ performance as a leader is often not questioned in the early stages of Apple,
however, the era of leadership often examined is late 2000’s, specifically 2010. “According to
one of the most recent brand studies carried out by global brands agency, Apple has overtaken
Google as the world’s most valuable brand.” (China, 2013). Additionally, many employees who
worked for Jobs claimed that he was a stern leader, but understood the importance of long-range
goals and vision. His style was laissez-faire, or hands off leadership that he believed promoted
the creation of successful and creative ideas from employees. A quote from Steve Jobs as “My
job is not to be easy on people”. My job is to make them better. My job is to pull things together
from different parts of the company and clear the ways to get the resources for the key projects.”
(China, 2013). What this shows is his unwavering dedication to get projects the attention they
need as well as to promote an entrepreneurial culture within the company.
His board room tendencies and behavior exemplifies his use of effective controls with
integrity and ethical conscience. For example, despite his unwillingness to do so, he occasionally
admitted that he did not always have all the answers. He would call upon CEOs of Oracle, Intuit,
past presidents, and many others to consult regarding strategy for the company. It underlines the
importance of good networks and influential mentors. Instead of relying on his judgments and
risking the company, he was able to step back from ego inflation to ask those in the best interest
of his company.
Despite his mass praise of being innovative and revolutionary, often individuals argue the
contrary to his leadership. Mark Kardon argues that he can be seen as an ineffective leader in
many regards. For example, he was said to be abrasive, often publicly berating employees,
throwing temper tantrums, and yelling. He wanted things done his way, with zero exceptions
tolerated. It made for a threatening workplace, hostile, for the fear of his over dramatic,
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emotional outbursts. According to the text, an aspect of the definition of an effective strategic
leader is one who can empower others and build culture in the workplace. However, as seen with
the critiques of Jobs, he does not seem to follow by that definition.
Regardless of these violations, in the grand scheme of Apple and Steve Jobs’ leadership,
he can still be seen as a strategic leader. In our opinion, his achievements and strengths can
outweigh the few negative comments made by employees and those looking in. From recent
claims, “Stakeholders are very satisfied with Apple Inc. and a conclusion could be made that
Apple has high organizational effectiveness by meeting or even exceeding the expectations from
the key interest groups.” (China, 2013)
In terms of current leadership, it was said that it would be difficult to replace Steve Jobs and that
his leadership style would linger long after his death. Tim Cook, the current CEO of Apple Inc.
aims to continue innovating and improving the company. Sydney Finkelstein, a Forbes reporter,
believes that Steve Jobs was an outlier and unusual phenomenon in terms of his leadership.
“Let’s make it clear, almost anyone who adopts the Steve Jobs approach to leadership will fail.”
(Finkelstein, 2013)
Tim Cook has been leading Apple during some of the most successful periods of sales
they have experienced. He shifted management during times of importance in order to best fit the
needs of the company. Additionally, Tim Cook is efficient and quick-responding. For example,
when he fired Apple’s retail chief that he had personally hired only eight months into the job, it
showed that he was able to acknowledge his own mistakes and correct them quickly and
objectively.
In terms of performance numbers, comparison of Microsoft’s new CEO, Steve Ballmer,
and Microsoft experienced 4% returns per year over a course of four years. Cook’s performance
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on the other hand was 11% per year, despite having less time on the Job compared to Ballmer.
(Finkelstein, 2013) Cook has not differed from his predecessor in terms of creating innovate
products. Under his leadership, the IPad mini was introduced. While some criticized it for
cannibalizing sales of the IPad, Cook viewed it in a different light. He was smart to make the
decision for the mini because despite the cannibalization of sales, he kept the market share in
Apples pockets. If they were to forego to introduction of the Mini, another competitor, such as
Samsung could have easily released a mini tablet, taking market share away from Apple.
Overall, Cook has an excellent history of successes with companies he has worked with
and will continue to appease shareholders of Apple while improving the brand further. He is in
tune with the needs of consumers and has proven thus far that he can efficiently and strategically
lead a company of magnitude such as Apple.
VIII.
Report Summary
Based on our researches and analyses on the personal computer industry recently, the
domination is still belong to the big four top vendors- HP, Dell, Acer and Lenovo which have
their reputations not only for the qualities of their computer but the brand names. The barrier for
the new entries is still quite high. There are too many factors to mass produce PC and keep the
product at the low cost in order to compete with other brand names. The appearance of
Smartphone has changed the way people use PC because it can handle many functions of a PC
such as email, web surfing or data saving. Moreover, Smartphone is considered to be the biggest
threat to the PC because it is portable, flexible and meets the demands of young generation who
always want to make their own characteristics. However, the size of Smartphone is also its
weakness. Companies and institutions require the capable of storing huge data. Therefore, the
substitutes for PC are ranged as the low to medium threat.
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From the perspectives of buyers and sellers, there is still a mutual supports to each other. Buyers
hope to buy the best PC at an appropriate price, while sellers expect to lower the costs and
increase more profits. We emphasize the strong power of buyers in our analyses because the
competition among the PC manufacturers is more intensive due to the demands of PC seems to
exist in organizations, educational institutions or government. Sellers, on the other hand, have
more options in finding the lower labor cost and willingly to invest in R&D to please their
customers. In the marketing arena, manufactures nowadays tend to sell their products directly to
the users via either online channel or their stores. The relationship between PC makers and their
component suppliers is like “bread and butter” which made their power is quite low compared to
the buyers’.
Although the competition among the PC makers appears calm recently, the reality is
more intensive than its surface. The race in developing the new trends and more advanced
technology among the members of PC industry is fierce. Microsoft, HP and IPM focus more on
developing the security systems that can enhance the trust of customers to their PC. The shadow
of Apple’s success is the marker for the race.
Apple itself conducted the revolution by differentiating their products. Under the Steve
Jobs’ empire, Apple emerged as the pioneer in creating “I-culture” since 2000s’. Jobs’ strategies
have brought Apple up to the new level in the industry. Apple then gave birth to the Mac-new
line of PC products was the transparent step in PC industry. Users who love I-Life (IPhone, IPad,
IPod or ITunes) are getting familiar with the Macintosh. They find the interesting experiences in
using Mac than other operating systems. The most genius strategy of Apple is Mac’s
compatibility with all Apple’s products.
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IX.
Conclusion
The PC industry is raising its barriers due to the risk from substitutes. However, strong
power of buyers is pushing manufactures in general and Apple to either innovate the new
products or develop their customer services which means the closer to the customers, the better.
So far, Apple still keeps the loyalty from its customers. In the Q4 of 2011, the research firm
Gartner reports the U.S. PC Vendor Unit Shipment as “Apple recorded growth of over 20
percent and maintained third place in U.S. computer sales”. (FoxBusiness, 2012). HP and Dell
stand for the first and second with 23.1% and 22.4% of the market shares respectively. The
Apple stores have also distributed in to its success by providing convenient destinations and
support resources for users to the Mac as well as Apple’s new products.
Based on our analyses and Apple’s performance compared to its rivals’, our team
concludes that Apple definitely has the medium potential and sustainable competitive advantage
in the PC industry. The rationale of our conclusion is the distribution and equity of other
manufacturers such as Microsoft, HP, Dell, etc. are currently higher than Apple and
unpredictable. Not mention the probability in changing managerial structure and the merger and
acquisition of those organizations to defeat Apple can happen once the market is saturated with
the PC suppliers.
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