APPLE INC.

TABLE OF CONTENT

1.0     INTRODUCTION                                                                   3

2.0     SOURCES OF INNOVATION: APPLE INC. PRODUCTS      6

3.0     BARRIERS TO APPLE INC. INNOVATION                          10

4.0     RECCOMENDATION TO APPLE INC.                                  12

5.0     CONCLUSIONS                                                                     16

          REFERENCES                                                                        17

1.0       INTRODUCTION

Apple Inc. is an American multinational technology company headquartered in Cupertino, California, that designs, develops, and sells consumer electronics, computer software, and online services. Its best-known hardware products are the Mac personal computers, the iPod portable media player, the iPhone smartphone, the iPad tablet computer, and the Apple Watch smartwatch. Apple's consumer software includes the OS X and iOS operating systems, the iTunes media player, the Safari web browser, and the iLife and iWork creativity and productivity suites. Its online services include the iTunes Store, the iOS App Store and Mac App Store, and iCloud.

Apple Computer is involved in the design, manufacture, and marketing of personal computers and related software, services, peripherals, and networking solutions. The company also designs, develops, and markets a line of portable digital music players along with related accessories and services including the online distribution of third-party music, audio books, music videos, short films, and television shows. The company sells its products worldwide through its online stores, its own retail stores, its direct sales force, and third-party wholesalers and resellers.

The company manages its business primarily on a geographic basis. The company operates through five operating segments: The Americas, Europe, Japan, retail and others.

The Apple Computer was incorporated in 1997. It was co-founded by Steven Wozniak and marketed by Steven Jobs. They introduced the first Apple I computer in 1976. The Apple I was a failure but Apple II launched in 1980 was successful. The company offered its IPO in the year 1980.

In the early eighties, competition from the PC market and internal difficulties led to critical management changes. By 1983, Apple encountered danger with the entry of IBM into the PC market, and the failure of its Apple III version computer. Apple introduced its first mouse driven computer, the Macintosh in 1984.

By 1990 the market was flooded with cheap PC clones and Microsoft had launched Windows 3.0. In 1994, the company launched the PowerPC chip based PowerMac. This new chip allowed Macs to compete with the speed of Intel’s PC processors. Apple still had problems though and in 1995, the company had a $1 billion order backlog. These problems were compounded by the launch of Windows 95. The company’s performance nosedived in 1995-96 when it lost $68 million.

In 1996, Apple acquired NeXT and NeXT’s operating system, Rhapsody, became Apple’s next-generation operating system. By 1997, Apple had lost hundreds of millions of dollars. Steven Jobs, the original co-founder returned as interim Chief Executive Officer. Under his leadership, Apple reorganized to concentrate on its more profitable competencies. Apple divested its unsuccessful spin offs, including Newton.

Soon after Steven Jobs returned, an agreement was made with Microsoft, and was subsequently followed with the appearance of MS Office on Mac PCs. During 2001, the company acquired PowerSchool, one of the leading providers of web-based student information systems for K-12 schools and school districts. Also in 2001, the company acquired Spruce Technologies, a privately held company involved in developing and marketing DVD authoring products.

In the following year, Apple, Ericsson and Sun Microsystems formed an alliance to create a standard format for delivering multimedia content to wireless devices, such as smart phones and PDAs. The alliance combined Apple’s QuickTime video creation software, Sun’s content distribution software and hardware, and Ericsson’s mobile infrastructure and services expertise.

Apple launched its iTunes music store, an online store for downloading music tracks and albums in 2003. In the following year, the company signed licensing agreements with three of the largest European independent music labels, Beggars Group, Sanctuary Records Group and V2, adding tens of thousands of additional independent tracks from leading artists to the iTunes music store in the UK, France and Germany. In the same year, Apple introduced its fourth generation iPod portable digital music player.

           

In June 2005, the company made agreement to use Intel microprocessors in its Macintosh computers. Later in the year, the company collaborated with Acura, Audi, Honda and Volkswagen to deliver iPod with their car stereos for 2006 model lines and also introduced mobile phone with iTunes in collaboration with Motorola and Cingular Wireless.

2.0       SOURCES OF INNOVATION: APPLE INC. PRODUCTS

With the world expanding more globally, it’s becoming increasingly harder to not only dominate a particular field but simply to break into a new market. When one begins to talk about examples of successful innovation, Apple is undeniably a significant part of the conversation. Annually recognized as the largest technology company in the world by revenue and profit, Apple is able to continue its success due to three of Drucker’s essential sources of innovation: industry and market structure, process needs, and changes in perception.

In analyzing Apple’s sources of innovation one should look the history of Apple from their first product to the new generation of their innovation. Those sources can be divided into:

1)      New-Knowledge Concept

Over the past thirty years, Apple has been able to become the leader in consumer electronics by revolutionizing their industry and market structure. Drucker states only simple, specific strategies have any chance of succeeding in entrepreneurship. In agreement, Apple began with a very simple vision in 1977: make computers affordable to all people, not just the computer professionals in business and higher education. But as we discussed in class, an entrepreneurial activity is successfully characterized by deliberate execution in conjunction with a good idea. Almost single-handedly, Apple created its own business market in 1977 with the introduction of the Apple II, which came with the VisiCalc spreadsheet program. Because of the program’s compatibility with the office, home users were given an extra incentive to buy the product. Similarly done thirty-three years later in 2010 with the iPad, Apple created demand for its product where demand wasn’t initially present. Steve Jobs’ knack for being able to constantly “push the envelope” has made for a modernized market and continued successful innovation throughout the electronic industry.

2)      Process Needs

Apple has also been able to consistently provide innovative products due to their ability to identify process needs. As Drucker references, necessity is the mother of all innovations. By correctly identifying the consumer demand in the market, any company automatically has an opportunity to succeed.  Apple has taken this notion and applied it to its entire business model. Ironically, Steve Jobs admitted to doing no type of market research while working at Apple. Instead, he pushes Apple to anticipate where the market will be in the future rather than reacting to its current position in society. Chancellor Thorp and Professor Goldstein identify this practice as achieving a sustainable competitive advantage. After his company’s failure with the Apple III in 1980, Steve Jobs’ subsequent visit to Xerox PARC convinced him all future computers needed a graphical user interface (GUI). The next computer model, the Apple Lisa, helped Apple generate more capital, at the time, than any IPO since Ford Motor Company in 1956. By gravitating towards innovation, not emulation, Apple was able to clearly delineate its success before ever attempting to measure it. The company continues to operate on the premises that consumers will express their needs by what they already know they want: a bigger, faster, cheaper product. Apple’s ability to identify consumer demand for their product and execute a strategic plan to address consumer needs has facilitated in its innovative practices.

3)      Unexpected Events

Lastly, Apple’s products are sources of innovation due to changes in the company’s perception. Steve Jobs’ original firing at Apple is well documented, but many overlook the determination and new focus he brought back to the company he co-founded when he returned in 1996. Under Jobs’ guidance, Apple dramatically increased sales by introducing iMac and other products that featured more appealing designs. With the introduction of the iPod, iTunes store, and iPhone, Apple began branching out and improving its digital appliances, becoming known as the multinational corporation it is recognized as today. Simon Sinek, a motivational speaker known for his introduction of “The Golden Circle” concept during a TEDx talk, argues that most companies lead with messages about what they sell. Great CEOs, Sinek advises, take the extra step and communicate why they do what they do. In a masterful way, Steve Jobs and Apple have created a market where people don’t simply buy Apple products because they’re great, but because they are also buying into Apple’s vision of why they’re great. Jobs has been an influential figure in revamping Apple’s image and creating the powerful brand many consumers know and love today.

Renowned as a leader in consumer electronics, Apple Inc. is globally recognized for their groundbreaking practices due to their industry and market structure, identification of process needs, and changes in their company perception.

3.0       BARRIERS TO APPLE InC. INNOVATION

For years, Apple has been a popular company, both among consumers and among investors. Consumers have been raving about Apple’s “cool” touch products that marry art and technology, fueling WOM and buzz every time the company would come up with a new product.  Investors have been chasing after Apple’s stock, creating enough momentum to propel the stock to new highs.

In recent years, Apple’s buzz and momentum seems to be fading away, however, as both consumers and investors have showed little enthusiasm for the company’s new product, the iPhone 6S. What happened? Is the company losing its buzz and momentum?

Though it is too early to say for sure, Apple is facing four immediate challenges that may slow-down its innovation:

a)      Organization Does Not Encourage Innovation.

Judging from the features of iPhone 6S, Apple’s radical innovation machine seems to be running out of steam. And they are late in phablet (big size mobile) market. The new phone is a marginal rather than a radical improvement over its predecessor, both in terms of its physical attributes and technological capabilities. For Apple, any change means a threat that could affect the organizational cultures and procedures, and more importantly their current position as the first full touch screen mobile company.

b)     Insufficient resources / Economy challenge.

Though Apple enjoys a strong brand among consumers that makes demand for its products inelastic, its sales are sensitive to an impeding down turn, especially in Europe.

The Eurozone economy slowed down in 2005. The GDP growth for the year 2005 was

estimated at 1.3%, as compared with 2.1% in 2004. The slowdown was accompanied by higher oil prices and increased unemployment. In the short term, corporate spending in France could be adversely affected with political unrest over the new labor law. Economic activity in the region is further affected threatened by the housing price bubble that may burst. Europe is one of the key markets for the company and continued slowdown and political uncertainties in the Eurozone could reduce spending on information technology products and adversely affect its revenues.

The company has recorded weak returns on assets and investments in recent years. The company recorded average return on assets (RoA) of 4.7%, lower than the industry average of 5.8% during 2001-05. For the same period, the company’s

average return on investment was 6.7%, significantly lower than the industry average of 13.8%. The return on equity also followed the same trend and was 7.4% in the period 2001-05, as compared to industry average of 18.5% in the same period. Low weak return on assets and equity can erode investor confidence and the company’s growth plans.

c)      Traditional Management Behavior / Leadership challenge.

The company is in the middle of a leadership transition that casts a cloud of uncertainty over its future. It will be difficult for Apple to thrive without Steve Jobs, as he was a leader with a strong vision, a man who knew the technology, the market, and the art, and he could combine altogether in blockbuster products; and he had the charisma to develop and spread the message to Apple followers, creating efficient and effective WOM and buzz campaigns.

d)        Competition Challenge

So far, Apple’s barriers to competitors and innovation magic have been formidable, and any company — from Nokia (NYSE:NOK) to Research in Motion (NASDAQ:RIMM) to Hewlett-Packard (NYSE:HPQ)– that has tried to challenge Apple have been trashed. In recent months, however, Apple has faced a serious challenge to two of its blockbuster products, the iPad and the iPhone. On the tablet market, Apple contends with an unlikely challenger: online seller Amazon.com (NASDAQ:AMZN). Last week, the company is expected to announce the release of its new version of the Kindle reader, which some analysts expect to be a serious challenge to Apple’s iPad. On the iPhone side, Apple faces a new challenge from Google’s (NASDAQ:GOOG) Android phones, especially if Google manages to integrate Motorola Mobility (NYSE:MMI) successfully to its organization. In fact, according to a Nielsen Survey, Android phones command a 43 percent market share, compared to 28 percent for iPhones.

The Bottom line: As every rapidly growing company, Apple is facing headwinds that may cool its buzz and momentum in innovation, at least in the immediate future.

4.0       RECCOMENDATION TO APPLE INC.

Many approaches to innovation only address the obvious symptoms of a company’s innovation problem. For example, if scarcity of ideas seems to be the issue, a common tactic is to hold more idea generation sessions. If resources appear to be the problem, then a standard solution is to appoint an innovation team to carry the innovation effort forward. If lack of process is a concern, then firms often implement a stage gate process. While many of these suggestions have merit in their own right, our work has shown that to become a successful serial innovator, you need a systemic approach that addresses all four underlying interrelated root causes of innovation ineffectiveness – leadership and organization; processes and tools; people and skills; and culture and values (see Figure). Without a systemic attack in all four areas, any innovation efforts are likely to fail – or at best to produce a one-time gain that won’t be repeated.

a)      Leadership and organization

Many company mission statements list innovation as a core value. But when executives ask only about daily sales, the latest headcount reduction project, or the improvements in inventory turns, guess what their people focus on? As one of the respondents to our innovation survey said: ‘‘Executives that are serious about innovation think about it, demonstrate its importance through their actions, and then follow through to make sure it gets done. Innovation without follow-through is resources wasted.’’

The CEO of a large aerospace service provider provides a good example of appropriate leadership behavior. He realized that his leadership team was spending too little time on growth and innovation issues. He then ordered the entire senior team to meet over the course of ten days to discuss only innovation and strategy issues until they developed a shared understanding of their growth strategy, understood its implications and resolved associated resource concerns. Since then, the executive team has held regular venture council meetings focused only on growth opportunities, and leaders are evaluated based on their success in meeting growth objectives. The CEO personally holds his leadership team accountable for putting the dollars he has earmarked for innovation to good use.

Of course, ‘‘walking the talk’’ of innovation needs to go beyond the CEO. But that is where it has to start. Without this leadership, innovation efforts are doomed to fail.

b)     Processes and tools

Other companies go to the other extreme by implementing rigorous processes that squeeze the life out of would-be innovations instead of nourishing good ideas into better ones. But for Apple Inc, the best way to nurture good innovation process is by following characteristics:

·         Allow divergence and exploration at the front end. This helps ensure that the new ideas generated aren’t simply a re-hash of what has been done before.

·         Synthesize individual ideas into bigger platforms before selecting individual ideas to develop further. This enables the company to avoid ‘‘betting the farm’’ on one idea without first learning about the larger opportunities at hand.

·         Use experiments to test critical assumptions and refine the business model before locking it in. This helps minimize the risk associated with market entry and incorporate key learning into the business model before it is too late.

·         Adjust evaluation criteria throughout the process to reflect the stage of development of the innovation. This helps ensure that promising ideas are not killed prematurely.

c)      People and skills

Building a sustainable competence for innovation requires an organization to harness the creativity of its employees. In our survey, companies that involved many employees had better innovation results than companies that involved few people.

Though companies often pay lip service to the need to harness innovation talent throughout their organizations, in practice they restrict innovation to a few areas or departments in their company. Numbers are not enough. Diversity matters too. Apple Inc. view innovation as the domain of R&D only, or perhaps of R&D and marketing. But people in manufacturing, supply chain, human resources, finance, service, and other functional areas can be creative too – if given an opportunity. Creativity and imagination are unevenly and somewhat randomly distributed, and one never knows where the next big idea will come from.

d)         Culture and values

Far too often, Apple Inc. minimize the importance of organizational culture when it comes to innovation. As one executive told, ‘‘real and continuing innovation comes about as a result of a deeply ingrained culture of innovation.’’ Many companies we have worked with suffer from a fundamental cultural flaw – a fear of failure. These organizations do not consider failure to be an option and unsuccessful risk takers are stigmatized.

Google is another exemplar in this respect. It reinforces the importance of innovation by letting employees spend 20 percent of their time working on their own ideas and keeping several active e-mail lists to collect ideas from all employees.

Apple Inc. can’t expect to transform their corporate cultures overnight. But they need to create a ‘‘safe zone’’ for innovators and to accept ‘‘mistakes’’ as a necessary part of innovation. If not, fear will prevent step-out ideas from being put forward and companies will remain trapped in their status quo.

5.0       CONCLUSIONS

If Apple Inc. want to stay in business tomorrow but also prosper longer term, they have no choice: they need to proactively improve their organization’s innovation effectiveness. The bad news is that there is no magic bullet to doing so and that it can’t be done overnight. The good news is that companies have succeeded in building an innovation competence. Conducting an innovation diagnostic and acting on its results is a proven way to get started. Acting systemically on all four root causes of innovation blockages will help companies complete the job.

In a nutshell, some innovations are more about the customer. Other innovations focus more on product design. The right business culture doesn’t require a cult atmosphere, but it does require a disdain for concepts like conventional wisdom and status quo. It does have to be built around ideals, employee permission to be creative, and something other than just making profit.

Apple Inc. should know that their sources of innovation; New-Knowledge Concept, Process Needs, and Unexpected Events not only can be well guarded but also can be improve by managing the leadership of the organization, using the right process and tools, encouraging peoples extending their skills and nurturing the correct cultures and values in the company. With all the recommendations put thoroughly in the process the sources of innovation in Apple Inc. can be improve and protected.

Apple, Inc. is known for setting aggressive goals and achieving them. The company believes that they have the opportunity to change the way that people live and work. It is seen as an adventure shared by the company and their customers.

As a company, Apple, Inc. is optimally organized. They use their organization centered on CEO Tim Cook’s ability to create synergy. Apple does an amazing job getting the most out of its employees by empowering them.

ATTACHMENT

REFERENCES

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