Copyright (C) 2011 Apple, Inc.
October 5, 2011
Palo Alto, California, USA
Thursday, October 6, 2011
Tuesday, March 8, 2011
The Apple iPod Phenomenon: Rebooting Coolness, Culture, and Commerce (Part 3 of 3)
... Continued from Part 2
4.0 Entrepreneurship Perspective
4.1 General
For the third perspective of our multi-perspective approach to strategic management, the Entrepreneurship perspective is chosen simply because for each and every business venture, entrepreneurship is necessary.
In Apple’s case, there is no lack of the entrepreneurial spirit and entrepreneurship in the form of Steve P. Jobs, the co-founder of Apple Inc.
Figure 4-1: Apple founders – Stephen Wozniak (left) and Steve Jobs, 1976
4.2 Definition of Entrepreneurship
Kuratko & Hodgetts define entrepreneurship as, “a dynamic process of vision, change, and creation. It requires an application of energy and passion toward the creation and implementation of new ideas and creative solutions. Essential ingredients include the willingness to take calculated risks – in terms of time, equity, or career; the ability to formulate an effective venture team; the creative skill to marshal needed resources; the fundamental skill of building a solid business plan; and, finally, the vision to recognize opportunity where others see chaos, contradiction, and confusion” (2007, p. 33).
Figure 4-2: Steve Jobs introducing the iPhone at MacWorld 2007
4.3 Perspectives of Entrepreneurship
The key perspectives related to the field of entrepreneurship are:
§ To create and increase wealth through profits from an enterprise
§ To develop the enterprise by utilizing the enterprise’s resources and competencies
§ To implement changes by adapting human wants, market situation and the environment
§ To develop innovation through the creation of new products and/or services through self-confidence and self-determination
§ To grow the enterprise through sales and income growth
§ To create jobs by developing job opportunities through entrepreneurial activities To develop positive values via corporate governance and corporate social responsibilities
(Yusof et al, 2005, p. 4)
4.4 Characteristics of Entrepreneurs
Every entrepreneur needs to possess four basic characteristics:
§ Understanding their roles
§ Capability
§ Motivation
§ Change agent
(Yusof et al, 2005, p. 5)
4.5 Integration of Entrepreneurial and Strategic Actions
From the Entrepreneurship perspective, Apple had successfully integrated entrepreneurial actions with the necessary strategic actions in order to realize the Apple iPod, and related iTunes services. Figure 4-3 shows the integration concept.
Figure 4-3: Apple’s integration of Entrepreneurial and Strategic actions
Adapted from Ireland et al, 2001, p. 51
4.6 Entrepreneurship Perspective and the 7C’s of Strategy
4.6.1 Context
Apple has always “Think Different” from its competitors and was a pioneer in understanding the external environment, for e.g. the needs of customers such as ease-of-use, and introduced the Macintosh with a leading edge graphical user interface (GUI) operating system and mouse that was easy to use and intuitive.
4.6.2 Competence
Apple, through the entrepreneurial leadership of Steve Jobs is able to continuously scan the environment for opportunities in the changing market environment and customer trends. It is this ability that enabled Apple to recognize the opportunity in the market between the traditional music industry based on analog music playback devices and digital music technology, resulting in the iPod and related iTunes services.
4.6.3 Corporate
Corporate Entrepreneurship (CE), defined as, “the process by which members of an existing firm bring into existence products and markets which do not exist within the repertoire of the firm” (Venkataraman et al, 1992, p. 488). Kuratko & Hodgetts defines CE as, “a process that can facilitate firms’ efforts to innovate constantly and cope effectively with the competitive realities that companies encounter when competing in international markets” (2007, p. 54). Apple Inc. began life as Apple Computer Co. in 1976. Since then Apple has ventured into the music industry with the iPod, and the telecommunications industry with the iPhone, each time introducing unprecedented innovation.
4.6.4 Competing
Establishing strong entrepreneurial network relationships with its partners enables Apple to gain more opportunities to achieve competitive advantage, for e.g. Apple is the only company licensed by the music labels and recording companies to offer for sale AAC -DRM encrypted digital songs as supporting services infrastructure to the iPod hardware.
4.6.5 Culture
Apple’s organizational culture promotes entrepreneurial behaviour (for e.g. close association with the market to understand customer needs) and innovation as evidence by their ability to introduce products that easily win over customers in terms of “cool” designs, functionality, and innovativeness.
4.6.6 Change
The entrepreneurial leadership of Steve Jobs has always embraced change by being the change agent, for e.g. Apple changed personal computing by enhancing it with a GUI-based operating system and use of the mouse. Apple changed the way people acquired, managed and enjoyed music with the iPod, creating a new “iPod Generation” paradigm.
4.6.7 Control
Entrepreneurial behaviour always strives for higher achievements and can result in bureaucratic controls and ways of doing things. Many articles have been written about Steve Jobs autocratic management style.
No two entrepreneurs are alike, and the unique entrepreneurial capability of Steve Jobs creates a unique competitive advantage for Apple Inc.
5.0 Conclusions
The Apple iPod phenomenon was discussed using three strategic management perspectives i.e. the Industrial Organisation, Network, and Entrepreneurship perspectives.
Collectively, the perspectives explains how Apple identified and developed new opportunities or markets, and attained competitive advantages over its competitors in the market segment of digital music entertainment although it was a late entrant to the market of MP3 devices and digital music.
The key aspects of each perspective contributing to the iPod phenomenon are summarised as follows:
a) Industrial Organisation – The behavior of Apple in the market structure in how it developed and gained market power and performance.
b) Network – Apple’s ability to develop a business ecosystem for the iPod and capitalise on the ecosystem to establish competitive advantages against competitors.
c) Entrepreneurship – The entrepreneurship capabilities of Steve Jobs, and the successful execution of the relationships between entrepreneurship and the seven C’s of strategy.
The critical perspective for Apple to become so successful with the iPod is Entrepreneurship. It is the entrepreneurial ability of Steve Jobs that makes him the visionary, the driving force, and the master innovator of Apple Inc. (Andrews, 2009; Lyons, 2009) to be able to utilize and capitalize on Apple’s resources and core competencies for three critical times in the history of Apple Inc. i.e. the introduction of the Macintosh personal computer in 1984, the iPod in 2001, and the iPhone in 2007 – each a key turning point in Apple’s fortunes, business continuity, and innovation leadership.
To most people in the ICT and related industries, Steve Jobs is not an ordinary person. His extraordinary dreams, which solicited doubts from others, have always been his driving force since his youth, for e.g., he believed that computers should be tools for everyday people at the time (pre-1975) when computers were very complicated and expensive, and huge, requiring the space of several rooms. Few ordinary people could afford or knew how to use a computer then.
User friendly point and click using a mouse device PCs or gorgeous looking PCs with highly intuitive graphical user interface operating systems, super thin notebooks, tablets, portable digital music players, low-priced music downloads, touch screen mobile phones, and digitally animated movies may not have existed or become so popular and desired if not for the dreams of Steve Jobs.
He is not a person that is easily understood due to his many sides. He has been described as charming, egotistical, brilliant, opinionated, charismatic, stubborn, persuasive, critical of others, and even mysterious. Although he is not the actual inventor of all those products, his bold visions, his passion for technology and design, his love for the job, and ability to motivate and inspire others made the creation of those products possible, and in turn created the market demand.
When he and Steve Wozniak started Apple in 1976, many people did not take them seriously because they were too young and inexperienced. They had no money and no office. Four years later, at 25, Steve Jobs was worth over USD200 million. By 30, after losing his job at Apple, he started another company – Next, and later bought Pixar. In 1997, Apple, at the brink of bankruptcy, brought Steve Jobs back, and in a short time made Apple more successful than ever.
However, Steve Jobs’ health issues have been causing concern among its shareholders and Wall Street, should he be unable to continue leading Apple Inc. (Helft, 2011; Can Apple Thrive, 2011; Lohr, 2011; Kane, 2009; Wagner, 2009). This is in part due to Apple’s silence on its key management succession plans (Apple succession call, 2011; Apple board to, 2011; Ante and McGregor, 2009). The multi-billion dollar question is, “Can Apple successfully carry-on without Steve Jobs’ extraordinary vision, passion, innovativeness, leadership and competitiveness?”
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Tuesday, February 22, 2011
The Apple iPod Phenomenon: Rebooting Coolness, Culture, and Commerce (Part 2 of 3)
. . . Continued from Part 1
3.0 Network Perspective
3.1 General
Network perspective is concerned with the understanding of the complex relationships between organisations or companies over a period of time to develop and attain competitive advantage.
In the analysis of Apple’s business network, we can identify that Apple possesses three subgroups or network clusters i.e. the cluster for the Mac personal computer line of business, iPod line of business, and iPhone line of business. Each of the network clusters exhibit its own level of embeddedness. For e.g., in the iPod line of business network cluster, Apple’s first relationship tie or link is to Cheng Uei Precision, whom Apple had thoroughly evaluated and appointed to manufacture/assemble the iPod. With the increasing iPod demand over time, Apple appointed Ji-Haw Industrial as the second manufacturer/assembler (New iPod Maker, 2004).
In turn, Cheng Uei Precision and Ji-Haw Industrial have their respective subgroup network relationships albeit they may also share common parts or component suppliers, for e.g. Seagate, a hard disk drive manufacturer. This network embeddedness is shown in Figure 3-1.
However, for e.g., the network embeddedness does not stop at Seagate, as Seagate will also possess its own subgroup network; and a company known as Komag – one of several manufacturers in the world of the magnetic discs used in hard disk drive manufacturing – would likely be present in Seagate’s subgroup network.
Figure 3-1: Apple’s Network Embeddedness
Furthermore, each tie of link in Apple’s network may exhibit a similar or variant relationship. Figure 3-2 shows Apple’s network relationships. Relationship lines drawn in thick orange colour represents strong network relationships between Apple and the partners. Thin orange relationship lines indicate an arm’s length relationship between Apple and the partners, and the dotted orange relationship lines represent the relationships between Apple’s partners, or second level relationships.
Of significance is a blue coloured thick relationship line between Apple and the music labels and recording companies, such as BMG , EMI, Sony Music, Universal Music, and Warner Music. The relationship is unique and was critical to Apple achieving a competitive advantage because Apple was the only company licensed by the music labels and recording companies to sell digital music encrypted in the Advanced Audio Coding (AAC ) format with Digital Rights Management (DRM) technology to prevent or minimize music piracy. Non-iPod users i.e. Mac personal computer users will require a free iTunes application to download and playback the AAC -DRM encrypted (or protected AAC ) digital music on their Macs. The DRM restrictions on digital music files were removed from January 2009 onwards after Apple reached an agreement with the major record labels.
The digital music is sold online by Apple on its iTunes music store http://www.apple.com/itunes/. The iTunes music store began life in 2003 with an initial 200,000 music files available for download, and prices then was USD0.99 cents per song. Today, typical prices are USD0.69, 0.99 and 1.29 per song. Apple rebranded the iTunes music store to iTunes media store since it now also offers movies, audiobooks, iPod games, Podcasts, etc. Since late 2006, the iTunes media store “accounts for 85 percent of the songs downloaded in the U.S.
Figure 3-2: Apple’s Network Relationships
3.2 Key observations of Apple’s network
3.2.1 Tie Modality
Is concerned about the network from the following aspects:
a) Strength of the Connection
Apple’s network comprises of strong network relationships and arm’s length relationships. Apple’s relationships with its manufacturers/assemblers, design houses, software developers, Apple and iTunes online stores are strong network relationships where the following interaction elements take place:
§ Trust – critical to establish strong embedded ties where the connected parties will not act to each other’s self-interest at the expense of the other
§ Fine-grained information transfer – is implicit and holistic in nature where important product and trade secrets are shared between the parties for critical mutual benefits
§ Joint problem-solving activities – the parties work closely to resolve operational, product and technological challenges, again for their critical mutual benefits
§ Risk taking and investment – with the above elements of trust, fine-grained information sharing and joint problem-solving relationship, the parties concerned are able and willing to take necessary business risks and investment needs within the network
§ Complex or adaptation – with all the above interaction elements, the parties in the network are able to adapt to new market challenges and opportunities
b) Intent of the Connection
This is concerned with the parties of the network coming together for exploration or exploitation objectives.
In the case of Apple, the network it builds with its key partners, for e.g. the manufacturers/assemblers of its iPods, has an exploitation intention where Apple can leverage on the manufacturing and assembling expertise and infrastructure of companies like Cheng Uei Precision and Ji-Haw Industrial, without the need for high capital investments for manufacturing and assembly plants and facilities.
Similarly, Cheng Uei Precision and Ji-Haw Industrial are also exploiting Apple in the sense that by producing high demand Apple products such as the iPod, the business opportunity adds significantly to their company revenues and profitability, respectively.
In other relationships between Apple and its design house partners, the intent takes on an exploration relationship where both parties explore product, design and functionality innovations.
Outside of the United States
c) Nature of the Connection
Nature of the connection questions the cooperation or competition aspects of the relationship. For e.g., Apple can promote competition between its iPod manufacturer/assembler to attain a higher level of production quality and cost efficiency improvements in production methodologies i.e. operational management concepts such as zero defect and Lean Six Sigma best practices.
Among its distributor and dealer channels, Apple can leverage competition to outperform each other in sales and customer support quality. However, Apple will need to exercise proper judgment in promoting competition among its network subgroups or clusters in order to continue maintaining the network equilibrium to optimize mutual benefits.
To this aspect, most of the relationship ties or links are cooperative in nature, so that Apple and its partners leverage on each others’ strengths and balance out weaknesses.
d) Stability of the Network
In Apple’s network, our analysis has shown that there are strong network relationships and arm’s length relationships. Both forms of relationships add to the stability and dynamism of Apple’s network.
In other words, the strong network relationships between Apple and its partners creates stability in the network, while the arm’s length relationships between Apple and other categories of partners which can be changed or replaced from time-to-time, such as distributors and dealers, creates the dynamism of the network.
3.2.2 Network Position
Apple’s position in the network can be considered from:
a) Characteristics of the Position, deals with:
§ The role of the firm over other firms
§ Identity of other firms (direct or indirect)
§ Importance of the firm
§ Strength of relationship
b) Power
§ Differences in power results in different network positions
§ The ability to influence the decisions or actions of others
§ Relationships are asymmetrical with respect to power
§ Power structures dictate the way the network operates and develops
c) Positional advantage
§ Particular positions in the network can serve as a source of competitive advantage
§ Competitive advantage can only be achieved if a particular firm has at least 3 relationships with 3 other firms, and the position held is not too strong
Thus, Apple gains positional advantage from having strong network relationships from:
o Specially selected partners that contribute different or complimentary functionalities and expertise
o The music labels and recording companies providing Apple with exclusive distribution rights to AAC -DRM encoded digital music titles
o Software developers which Apple collaborates with in developing ease-of-use and advanced technology firmware and operating systems
o Apple is able to hold centre-court within its network, deciding on final product and service offerings, and business terms & conditions
o Collaboration and inputs from its Level 2 network partners enable Apple to explore new ideas and technology via its Level 1 network partners
3.2.3 Legitimacy
Apple gains legitimacy through its network performance from the following key areas:
a) Economic
This concerns the economic returns or the creation of shareholder value through revenue generation and profitability. As shown in Section 1.0 – Introduction, Apple’s financial or economic returns are very promising and profitable.
b) Legal
In the area of legality and as far as the iPod and the music industry is concerned, reducing and eradicating music piracy remains a challenge. With the iPod and iTunes media store, Apple has been championing the use of original songs vis-à-vis upholding the intellectual property rights of singers and related parties.
Apple only promotes the sale of AAC -DRM encrypted digital songs on its online iTunes media store instead of the generic MP3 digital audio format. Only from January 2009 onwards, Apple removed the DRM restrictions after having secured the agreements of the major records labels. Thus, the initial AAC-DRM only music files gave Apple a market edge in gaining the confidence of the major record labels.
Furthermore, the AAC encoding technology has been standardized by the International Organisation for Standardization (ISO) and the International Electrotechnical Commission (IEC) as part of MPEG2 and MPEG4 standards (Herre & Dietz, 2008, pp. 137 – 142; Dimkovic, 2001, pp. 1 – 7).
c) Ethical
Apple practices and consistently champions the:
§ Use of legally obtained songs and downloads
§ Use of original software among its customers
§ Sales of original software by its distributor and dealer channels
3.2.4 Structural Hole
A structural hole (Burt, 1995) exists between the traditional music industry (using analog playback equipment, audio cassettes and CDs) and digital technology.
Apple was able to identify this structural hole and the opportunity it presented, and bridged the chasm with innovation on the consumer-side with the introduction of a highly portable, high audio reproduction quality, and cool-looking digital device called the Apple iPod, packaged with supporting services such as the availability of original digital songs at very affordable prices, and a cyberspace platform that provided 24x7 access to buy the digital songs.
For the traditional music industry plague with music piracy, declining sales, and changing consumer trends brought about by the Internet and digital technology, the new revenue channel opportunity presented by Apple was too good to ignore.
3.2.5 Network Effects
The Apple network has resulted in the following effects (some examples):
§ Created an unprecedented economic boom in the way people acquire, listen and manage their music libraries i.e. the iPod Generation
§ Apple has sold over 160 million units of iPods for the period 2001 to 2008 (Boffey, 2008)
§ The 100 millionth iPod was shipped in April 2007 (Cohen, 2007)
§ In the fiscal year 2006, Apple shipped 5.3 million units of Macs, but 39 million units of iPods (Michaels & Moren, 2006)
§ As of late 2006, the iTunes media store accounts for 85% of the songs downloaded in the United States
§ Apple reported a record profit for fiscal Q1 2009 (Dalrymple, Seff & Michaels, 2009)
As networks are heterogeneous, thus, the difficulty of duplicating the uniqueness of Apple’s network relationships, interactions, and advantages creates a competitive advantage for Apple Inc.
Continued in Part 3 . . .
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