Page 26 - DCOM506_DMGT502_STRATEGIC_MANAGEMENT

Strategic Management

Notes performance-production cost, quality, product and process technology, and global market
scope-Apple was greatly inferior to its other rivals, such as IBM. Apple's only opportunity
for survival was to pursue a strategy founded upon Apple's image advantage, while
simultaneously minimising Apple' disadvantages in other capabilities. Apple' new
marketing strategy involved extending the appeal of the Apple image of individuality
from its traditional customer group (tech savvy, graphic designers) to more a general,
young professional types. Protection of the Apple name by means of tougher controls
over dealers was matched by wider exploitation of the Apple name through entry in other
industries such as the portable music business.
Apple's share of the computer market went from 15% in 1985 to 4% in 2005 and lost around
$700 million in only three months in 1997.

However, thanks to the iPod and to the Apple's iTunes music stores, its shares grew 90%
between 2001 up until today, i.e. from a mere $7/share. Apple is today the premier provider
of MP3 players.
Designing strategy around the most critically important resources and capabilities may
imply that the firm limits its strategic scope to those activities where it possesses a clear
competitive advantage. The principal capabilities of Apple, are in design and new products
development; it lacked both the manufacturing capabilities to compete effectively in the
world's computer market. Apple's turnaround from year 2000 followed it decision to
specialise upon design and new product development.

The ability of a firm's resources and capabilities to support a sustainable competitive
advantage is essential to the time frame of a firm's strategic planning process. If a company's
resources and capabilities lack durability or are easily transferred or replicated, then the
company must either adopt a strategy of short-term harvesting or it must invest in
developing new sources of competitive advantage.
These considerations are critical for small technological start-ups where the speed of
technological change may mean that innovations offer only temporary competitive
advantage. The company must seek either to exploit its initial innovation before it is
challenged by stronger, established rivals or other start-ups, or it must establish the
technological capability for a continuing stream of innovations.
The main issue for Apple is to make sure that it takes advantage of this window of
opportunity. Because there are tougher competitors down the road and the more money
it makes, the more companies will enter the market making harder for Apple to sustain
this new found competitive advantage.
In industries where competitive advantages based upon differentiation and innovation
can be imitated (such as financial services, retailing, fashion clothing, toys), firms have a
brief window of opportunity during which to exploit their advantage before imitators
erode it away. Under such circumstances firms must be concerned not with sustaining the
existing advantages, but with creating the flexibility and responsiveness that permits
them to create new advantages at a faster rate than the old advantages are being eroded by
competition.
Question
What lessons can be learnt from Apple's Turnaround?

Source: http://www.bestcxo.com/strategic-management/formulating-a-strategy-following-apple-turnaround/

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