Hi everyone. I found an interesting Harvard Business Review blog today on Apple and thought it appropriate given our upcoming discussion. The author uses the iPad as an example to talk about some of the paradoxes of Apple’s business model. Enjoy! http://blogs.hbr.org/haque/2010/04/apples_strategic_iparadox.html
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Case Study: Apple Inc. in 2010 – iPad vs. Kindle
It may be unfair to compare the Apple iPad to the Amazon Kindle. The Kindle is designed and marketed to provide one primary capability, reading ebooks. The iPad is a sophisticated handheld computer with essentially the same capabilities as a laptop or desktop computer. Regardless of this rather obvious distinction, they are still competitors of a sort. The differences between the two really is in the Resources Processes and Values of the respective companies.
The Apple iPad is a tablet computer. There are other tablet computers on the market, some based on the Wintel platform, others on the Android mobile operating system. The iPad however, is an Apple product, with all of the brand recognition and consumer appeal common amongst the Apple product line. This “Appleness” is the first point of discussion when comparing the Kindle and the iPad. The iPad is, quite simply, sexier. Its appearance, feel and functionality are familiar to the millions of iPod and iPhone users around the world. When one buys the iPad, they are buying a piece of technology that has a strong technology product company behind it. Apple’s Resources, Processes and Values are focused on creating these types of devices. Kindle, on the other hand is, by design, decidedly less sophisticated in appearance, feel and functionality.
The iPad can certainly be used as an eReader. It has the capability of reading multiple eReader file formats, and has a host of titles available for download. However, it is much much more than an eReader. It is a full-featured media device, with the capability to watch videos, listen to music, browse the web and author and review documents, spreadsheets and presentations. This device is clearly aimed at a broader market than just the eReader space. The Kindle can note two specific advantages over the iPad, cost and lower eye strain. This is a result of Amazon focusing on its customer demand Value. These two advantages do not seem to be strong enough to overcome the fact that iPads do so much more. Individuals looking only for an eReader may still continue to buy Kindle devices. But why else would someone settle for a clearly less useful device?
iPad’s strongest advantage is the ability to continually add new applications. I case in point is the ability to add the Amazon app for the iPad, which allows you to read all of the eBooks created for the Kindle on your iPad. The Kindle cannot compete at all in this area. As a single function device (essentially), the Kindle will continue to be relegated to its niche market, and will lose market share to the iPad, and other tablet computers, over time.
Amazon’s best move in this space was to develop and market its application for the iPad. With the introduction of that application, Amazon signaled to the market that it was not going to seriously compete in the mobile device market, but was simply going to focus on selling books (and eBooks). Amazon’s management should be commended for focusing on their core capability. The result of this move is that, while the iPad may kill Kindle sales, it will also boost Amazon’s eBook sales. This strategy is a clear indication that Amazon realizes that its Resources, Processes and Values are distinctly different from Apple.
Apple’s strategy with regards to publishers will probably shape the eBook market for the foreseeable future. Apple has allowed publishers to set their own price for their products. This is in stark contrast to Amazon’s $9.99 fixed book price, and is also in contrast to Apple’s own fixed price of $.99 for song downloads. It is possible that, in the future, if Apple captures a much larger portion of the eReader space they may reverse this policy and go back to a fixed price model. The fixed low-price model was a distinct Value that exists at Apple, and while they may shift away from that value for the sake of Market Share, I believe they will return to it in the future.
Apple Inc. in 2010
In 2001 Apple celebrated their 25th anniversary; Steve Jobs presented his vision for the Macintosh in what he called the “digital hub.” He saw consumers utilizing more and more digital devices and felt the Mac could be the preferred “hub” to control, integrate and add value to these devices. Apple’s shift towards a digital hub strategy was initiated by the debut of the iPod in 2001. The iPod was successful in large part because of its storage capacity, sleek, sexy design and Apple’s trademark of being a user friendly device. Although the iPod is available in various prices, it generally costs $50 to $100 more than the competition. Apple enjoys 70% of the MP3 market in the United States. Steve Jobs has successfully turned Apple into a cultural force and broke away from the tired, tarnished image.
In 2003, Apple introduced iTunes desktop software and iTunes Music Store. The iTunes store was the first legal site that allowed music downloads on a pay-per-song basis. Apple set the price at 99 cents per song from its vast library and the user could download the title to his/her computer, burn it onto a cd or transfer it to the iPod. Apple also offered audio books, TV shows and movie titles. To protect the music labels’ intellectual property and the proprietary technology inside of the iPod, Apple created an exclusive “digital rights management (DRM) system called FairPlay which protected iTunes songs against piracy by limiting the number of computers that could play a downloaded song to five. FairPlay was how Jobs lured the music executives to initially support iTunes. No other MP3 player could play a FairPlay song. In 2009, music labels gave up the DRM in exchange for flexible pricing which also allowed consumers to move songs they bought on iTunes among other devices. Apple continued to be a disruptive force when it purchased Lala.com a music streaming service which bypasses downloading music onto digital players.
The success of Apple is due in part to Steve Jobs and the people he hires. He turned a near bankrupt company around to a near market capitalization of $220 billion in the spring of 2010. He continues to be a disruptive force in the industry because he “changed the rules” for Apple and the industry.
In 1990s Wyeth decided to transform itself into a global pharmaceutical company by divesting the unrelated products that it owned. It took some time to execute such a strategy. However, when the divesture was complete, Wyeth was still a collection of independent affiliates, rather then a global firm. The organization consisted of over 40% of sales outside of the United States. Therefore, the new CIO of the organization decided to systematize all the individual units and provide them with the necessary tools to be able to function independently, yet with full support of a multi-national corporation. This synergy was not easily attainable, and at first, the importance of it was completely downgraded by the top management due to the lack of cost savings. The company was mainly interested in the bottom line figures. On the other hand, the IT department was able to illustrate the importance of such project in the long run, especially the long term benefits, thus able to approve a budget to develop a company wide IT infrastructure.
To develop a somewhat universal, yet customizable IT infrastructure for such a huge corporation in many different parts of the world is not an easy task. Each of these countries has done somewhat different based on their culture, legal laws and overall environment. Therefore, the managerial knowledge was not flowing throughout the entire organization. In addition, the performance of different entities was not easily comparable. However, the corporation decided to follow a few steps in designing and implementing such structure successfully.
The initial stage of the development of such system was to create workshops where the top management saw how the different entities are intertwined. At the finale of such workshops, the managers have seen that about 80% of the data was somehow shared globally. The managers began to have the belief after such workshops that “If I get on board, I can likely make something out of this; if I resist, I might get rolled over by others.”
The second stage of this important project was hiring an experienced consulting firm to analyze the issue, and provide necessary recommendations. This stage was the most important stage because it showed experienced outlook on the current situation. The consultants’ first recommendation was to develop a global IT strategy. This is important because it describes the general idea, and ways to accomplish that goal. In addition, the consultants recommended for reorganization of the IT personnel, and have them all report to Mr. Garcia, head of international client support, also another great suggestion.
The following step of the process was to develop Regional Support Centers (RCS), another integral part of the process. The idea behind the RCS was to support specific regions, and build centers of quality around the assets. The corporation was assisting the entities in unionizing them, yet allowing them to cater to the needs of their individual locale.
The IT globalization team was later created consisting of key staff IT managers and the head of the international client support. This team took the show on the road, and visited different entities in order to explain to the top management the need and benefits of such global system. Those managers were previously worried about the possible layoffs and budget cuts. Through the road show, the top managers of different entities realized the possible benefits. They saw that there will be transparency within the system in order to compare performance, see the inventory, and possible cost savings. Yet the system will also be under local control to tailor to the local needs, which is what the appreciated very much.
By the mid 2000s, Wyeth was growing to be a global corporation with global IT infrastructure. The company increased its IT budget tremendously together with its staff. This was not an easy task to accomplish, especially since many individuals were resistant to this change in the beginning. However, proper execution assisted in achievement of such task
Companies with multiple divisions require strong business processes to successfully integrate their core functions. To develop an effective architecture, organizations employ a business model that can be centralized, decentralized, or a hybrid of both. In any of these, Information Technology (IT) is an important tool that can support and integrate the firm’s core functions. These approaches, however, are fundamentally different from an IT-enabled system. For instance, while IT is an important component in both systems for information sharing, efficiency and cost-effectiveness, in an IT-enabled system, the information technology role is strategically aligned with the organization’s mission and vision. It is a critical element to the success of the organization.
During the late 1990s, Wyeth launched an IT-enabled globalization strategy in an effort to create a globally integrated pharmaceutical company. To do so, Wyeth needed to “transform its business processes by changing underlying systems and practices.” This was made possible by a shift in systems thinking. It required transitioning IT from its previous low priority support function to an enabler of Wyeth’s globalization vision. At Wyeth, a mere centralization of the processes and structure would not achieve globalization. To truly become global, the firm needed a comprehensive strategy with information technology at the centerpiece.
Top management recognized the potential of IT as a key enabler of its globalization strategy, and empowered IT to provide the fundamental platform for Wyeth’s global business operations. According to the resources, processes and values (RPV) theory, “organizations successfully tackle opportunities when they have the resources to succeed, when their processes facilitate what needs to get done, and when their values allow them to give adequate priority to that particular opportunity in the face of all other demands that compete for the company’s resources.” To achieve this type of competitive advantage, Wyeth committed to correcting the handicaps of its existing system and enhancing the overall IT function. It developed “formal systems processes such as application development, maintenance as well as IT governance mechanisms, business to IT valuation strategies and prioritization approaches.” The company also invested in the “creation of information management (IM) specialists from the business staff who are responsible for establishing and implementing business requirements and processes.” This would shift focus from technical aspects of the system to IT management. In addition, processes were standardized to facilitate interrelation, connectivity, and information sharing among the business units. These enhancements to Wyeth’s resources andprocesses would help to fulfill the needs of a globally integrated firm.
Wyeth’s centralized globalization strategy allowed the company to streamline and enhance its core business functions to effectively deliver value-added products and services on a global scale. Its success in the move towards globalization was a direct result of its IT-enabled strategy, which is fundamentally different from a centralization strategy. In essence, information technology was a vital catalyst that transformed Wyeth into a global corporation.
 Mandviwalla, M., Palmer, J., The Globalization of Wyeth, (London, Ontario: Ivey Publishing, 2008), p. 6.
 Christensen, C.M., Anthony, S.D., Roth, E.A, Seeing What’s Next: Using the Theories of Innovation to Predict Industry Change (Boston: Harvard Business School Publishing, 2004), p. 6.
 Mandviwalla, M., Palmer, J., The Globalization of Wyeth, (London, Ontario: Ivey Publishing, 2008), p. 6.
Over the past decade, Apple Inc. has been extremely successful in formulating and implementing a coherent and focused strategic vision. Its success is evident not just in the company’s bottom line results but also in it’s attractiveness to investors. Innovation has continued to keep Apple on the cutting edge of the consumer electronics market. One of Apple’s key innovative successes was the integration of its iTunes platform strategy with its overall vision of the company as a “digital convergence company”. This case study will attempt to illuminate some of the key factors which led to Apple’s success with this platform strategy.
Prior to its implementation of iTunes, Apple was loathe to give others access to its software, hardware, or distribution channels. The fear was that open access would allow other developers to create build-on platforms that could prove disruptive to Apple’s proprietary systems. This actually hindered the company’s ability to grow revenue for some time. Apple was also heavily focused and invested in the PC marketplace. As strategy shifted and the company increasingly focused on CE products, Apple actually transformed itself. Apple realized that content was the key to making its platforms successful. In order to gather more content, the company needed to allow developers access to its platforms. Apple’s solution to this conundrum was to open up access to the iTunes desktop software in a very controlled manner.
By entering the market early and firmly entrenching its brand name, Apple was able to leverage a first mover’s advantage with its iTunes Music Store. By 2010, the iTunes store had grown into the world’s largest music store. Apple was able to further exploit this advantage by creating a proprietary technology for the iPod which protected songs downloaded from the iTunes store against piracy. An additional element of this Digital Rights Management System was that no competing MP3 player could play songs protected by it. Hence, Apple was able to gain an important advantage over existing competitors and potential new entrants into the MP3 arena.
Apple also was able to take advantage of its economies of scale in controlling the pricing of digital music content made available through its iTunes store. Music labels were very concerned about the impact of this new a la carte pricing model on their CD sales, but there was little that they could do to stand in Apple’s way in light of its enormous market share of MP3 players. By 2010, Apple held more than 70% of the U.S. MP3 market.
Apple has also utilized this controlled open platform strategy to develop content for its iPhone and iPad product lines. The App Store was introduced to the world as a part of iTunes which already was a hit amongst consumers. Apple once again gained first mover advantage in this smartphone arena by being the first smartphone app outlet that made it simple to distribute, access, and download content directly to its iPhone. In addition, third party developers flocked to have their content distributed via the App Store despite Apple’s strict control over content. Apple reserved the right to refuse content and received 30% of all sales made through its distribution channel. Apple continued to follow the model that made it successful with iTunes and the iPod, by using its market dominance to keep app prices low. Many of the apps distributed via the App Store were free or priced at a mere ninety-nine cents. Once again Apple’s competitors were left to play catch-up. In 2009, Apple pulled in nearly $1 billion dollars in app sales alone.
Apple’s true success lies in its ability to innovate and create new experiences for the customer based upon its ever burgeoning content base. Some would argue that Apple could gain an even greater competitive advantage in the marketplace by removing restrictions on developer access to its platform. The continuing restriction on compatibility with Adobe products is an obvious example. However, Apple has for at least a decade now been able to stave off the introduction of disruptive innovations by adhering to its strategy. As the market leader in consumer electronics, Apple’s future course may be rocky since competitors are vigorously working to create the “magic bullet” which will unseat iTunes dominance as the essential platform for distributing digital music, books, movies, TV shows, and other content. If Apple remains true to its platform strategy, this will be difficult for competitors to accomplish.
Apple has been successful with shifting their business method from PCs into non-PC products. The company’s best-known products are the Macintosh PC, the iPod, the iPhone and the iPad. One of Apple’s well known software computer program is iTunes, a media player created for playing and organizing digital music and video. It can also manage contents on iPod, iPhone and iPad. The key success factors behind Apple’s platform strategy with iTunes were the iPod and the iTunes Store.
In 2003, Apple expanded the iTunes platform by introducing the iTunes Music Store. Before the release of iTunes Music Store, online music suppliers struggled with copyright issues. But Apple was able to negotiate a deal with the music industry to legalize music, while critics predicted the failure of selling online music due to Digital Rights Management. Music was allowed to be downloaded by paying a 99 cent fee. The iTunes Store succeeded and flourished because of their ability to maintain balance between copyright holders and users. Apple maintains stability because they control the technology platform used to obtain and play the protected tracks.
Apple continued their tradition of creating technology easy to use with the iPod. When connecting the iPod to a PC, it communicates with iTunes. Both devices synchronize songs so they are available to listen to on the iPod and on the PC. The synchronization happens without any interference from a user. This convenience was a primary reason why the iPod dominated the portable MP3 player.
In closing, with the invention of digital portable devices, a new revolution has been started in the computer and music industry. The success factors of iTunes can be contributed to the innovation thinking of Apple to start an online music store and to develop a mobile music player that allows users to create a play list of hundreds of songs. iTunes made downloading music legal and a safe way to distribute music over the internet.
IT-enabled globalization is fundamentally different than the centralization or decentralization of companies with multiple divisions; however, they do share many common characteristics. In both cases of centralization and globalization there is an attempt to organize processes in a way so as to better share information throughout the organization and promote efficiency and cost effectiveness. Both methods incorporate some form of central/corporate management or leadership structure; however, these two methods are fundamentally different.
The decision to centralize or decentralize an organization can be implemented and then deconstructed by realigning the business process to coordinate functions and share information, which typically involves overlaying a new structure on top of what has previously existed. While switching from a decentralized to a centralized structure may require a significant investment of time and resources, it is not uncommon for organizations to switch back and forth between the two, or adopt some form of a hybrid. However, when an organization embarks on IT-enabled globalization, the foundation of that process is built using systems thinking. This process entails ripping out the existing “plumbing” of an organization and rebuilding a foundation that intrinsically links the relevant pieces within that organization.
Wyeth was a decentralized organization with region-specific management and a culture and business processes in place that would not easily translate to a globalized structure. In order for the company to roll out its internally developed products in an integrated, cost effective and timely manner, it needed to be able to evaluate timely and accurate company-wide information and do a better job of inventory management. Utilizing systems thinking, IT created an underlying platform that standardized operations, security, disaster recovery, problem and change management, and system development. Wyeth pursued an IT-enabled globalization strategy through which it changed its underlying systems and practices, and ultimately altered its business processes to be in line with that of a globally integrated company.
Wyeth centralized and streamlined much of its IT management and staff functions in support of its globalization plan; however, centralization alone would not have catapulted the company onto the global stage. It was not enough to organize the information, the company needed a better understanding of how its operations impacted and influenced one another. In order for Wyeth to truly become a global entity, it needed to create an IT foundation that systemically gathers and shares relevant information throughout the organization – and the company achieved this through IT-enabled globalization.
In the Harvard Business School case, Apple Inc. in 2010, Yoffie and Kim provide an evolutionary account of Apple’s transformation from a PC manufacturer to a mobile device company. Apple enjoyed success as the industry leader in the late 1970’s and early 1980’s with the Apple II, but IBM’s entrance into the PC market in 1981 and their “open” system strategy disrupted Apple’s proprietary approach. Forced out in 1985, a profound chain of events led to Steve Jobs returning as Apple’s CEO in 1997 with a mission to change Apple from a tired, tarnished company to one of a cultural force.
In 2001, Steve Jobs presented a vision he called “digital hub,” which targeted consumers entrenched in a new digital lifestyle. This vision generated game changing innovation. For instance, a new Mac strategy positioned Apple as the fourth largest PC vendor in the U.S. market by the end of 2009. Others included the iPod, which held over 70% of the U.S MP3 market by 2010; the iPhone, Time magazine’s “Invention of the Year” in 2007; and the iPad, which redefined the tablet industry with its launch in 2010. Arguably, however, iTunes is the innovation spawned by the digital hub vision most responsible for Apple’s growth over the last decade. Key success factors behind the iTunes platform strategy were Apple’s first-mover advantage, an unparalleled user experience, digital rights management, the presence of the network effect –the effect one consumer of a good or service has on the value of that product for another consumer- and consumer lock-in.
The iTunes Music Store launched in 2003, making it the first site to offer music downloads legally. On the wake of Napster’s shutdown on 2002, Apple embraced the music industry concerns around copyright infringement and developed a proprietary digital rights management (DRM) system that limited the number of computers that could play a downloaded song. Although a proprietary DRM meant that no competing MP3 player could play iTunes protected songs, consumers accepted the condition because of the differentiating experience iTunes provided.
Consistent with Apple’s style, the iTunes interface was sexy and intuitive, and the iTunes desktop seamlessly synchronized music between a user’s desktop, their iPod, and the iTunes Music Store. The Apple experience far exceeded any competitive offering, fueling a multi-dimensional network effect. The increased use of iTunes created an increase in value of the iPod and vice versa. An increased usage in iTunes and the iPod increased the value of the Apple digital platform in general, specifically the complimentary Macintosh. The network effect gave Jobs the leverage needed to coax music executives into supporting the proprietary DRM, which was the start of consumer lock-in.
Although Amazon, Napster “reborn”, and Walmart started to offer individual song downloads at competitive prices to iTunes and handset manufactures are bundling unlimited music service, Apple holds a strong competitive advantage –consumers cannot afford to switch. Ironically, or brilliantly, the same horizontal growth strategy that nearly bankrupted the company in the early years is now a disrupter and competitive advantage for them today, guarding them from the innovator’s dilemma.