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Apple: SWOT Analysis, Value Chain Analysis, Resource-Based View

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The words are printed in such small type on the back of Apple's (AAPL ) tiny new iPod Shuffle MP3 player that you have to squint to read them. But they speak volumes about why Apple is standing so far out from the crowd these days. At a time when rivals are outsourcing as much design as possible to cut costs, Apple remains at its core a product company -- one that would never give up control of how those products are created.

In this age of commodity tech products, design, after all, is what makes Apple Apple. This focus is apparent to anyone who has used one of its trailblazing products. While the Silicon Valley pioneer sells only a few dozen models, compared to the hundreds offered by many of its rivals, many of those "designed in California" products are startling departures from the norm -- and they often set the directions for the rest of the industry. Examples abound, from the iPod, to the flat screen look of the new iMac, to the simple smallness of the new Mac mini PC.

What's the secret? The precise details are almost impossible to get, because Apple treats its product-development processes like state secrets -- going so far as to string black drapes around the production lines at the factories of the contract manufacturers it hires to assemble its products. In one case, says a source who once worked on an Apple project, the outfit even insisted that its wares be built only on the midnight shift, when fewer prying eyes might be around.

"INSANELY GREAT." But the general themes are clear. Most CEOs are focused on achieving their financial and operational goals, and on executing a strategy. But Apple's Steve Jobs believes his company's ultimate advantage comes from its ability to make unique, or as he calls them, "insanely great" products.

Jobs's entire company is focused on that task. That means while rival computer makers increasingly rely on so-called outsourced design manufacturers (ODMs), for key design decisions, Jobs keeps most of those tasks in-house. Sure, he relies on ODMs to manufacture his products, but the big decisions on Apple products are made in Silicon Valley.

Jobs himself is a crucial part of the formula. He's unique among big-time hardware CEOs for his hands-on involvement in the design process. Even product-design experts marvel at the power of the Jobs factor.

FIRST, AN IDEA. "I've been thinking hard about the Apple product-development process since I left," says design guru Donald Norman, co-founder the design consultants Nielsen Norman Group, who left Apple in 1997. "If you follow my [guidelines], it will guarantee good design. But Steve Jobs doesn't want good design. He wants great design, and my method will never give you that. That takes a rare leader, who can bring both the cohesion and commitment and style. And Steve has it."

Many executives believe that outsourcing design allows them to lower the salaries they must pay, and lets them have engineers working on the products across all time zones. Jobs thinks that's short-sighted. He argues that the cost-savings aren't worth what you give up in terms of teamwork, communication, and the ability to get groups of people working together to bring a new idea to life. Indeed, with top-notch mechanical, electrical, software, and industrial designers all housed at Apple's Infinite Loop campus in Cupertino, Calif., the company's design capability is more vertically integrated than almost any other tech outfit.

Typically, a new Apple product starts with a big idea for an unmet customer need. For the original iPod, it was for an MP3 player that, unlike earlier models, could hold and easily manage your entire music collection. Then, Apple's product architects and industrial designers figure out what that product should look like and what features it should have -- and, importantly, not have. "Apple has a much more holistic view of product design," says David Carey, president of design consulting firm Portelligent. "Good product design starts from the outside, and works its way inside."

HALF MEASURE. Already, that's different from the process by which the bulk of tech products are made. Increasingly, tech companies meet with ODMs to see what designs they have cooked up. Then, the ODMs are asked to tweak those basic blueprints to add a few features, and to match the look and feel of the company's other products.

That's where the "design" input might end for most companies. But since it's almost always trying to create one-of-a-kind products, Apple has to ask its own engineers to do the critical electrical and mechanical work to bring products to life.

In the iPod Shuffle, for example, designers cut a circuit card in two and stacked the pieces, bunk-bed style, to make use of the empty air space created by the height of the battery in the device. "They realized they could erase the height penalty [of the battery] to help them win the battle of the bulge," says Carey, whose company did a detailed engineering analysis of the iPod Shuffle.

SCREW-FREE. Even more important, Apple's products are designed to run a particular set of programs or services. By contrast, a Dell (DELL ) or Gateway (GTW ) PC must be ready for whatever new features Microsoft (MSFT ) comes out with, or whatever Windows program a customer opts to install.

But Apple makes much of its own software, from the Mac operating system to applications such as iPhoto and iTunes. "That's Apple's trump card," says one Apple rival. "The ODMs just don't have the world-class industrial design, the style, or the ability to make easy-to-use software -- or the ability to integrate it all. They may someday, but they don't have it now."

Of course, Apple also sets its self apart by designing machines that are also little works of art -- even if it means making life difficult for manufacturers contracted to build those designs. During a trip to visit ODMs in Asia, one executive told securities analyst Jim Grossman of Thrivent Investment Management about Steve Jobs's insistence that no screws be visible on the laptop his company was manufacturing for Apple. The executive said his company had no idea how to handle the job and had to invent a new tooling process for the job. "They had to learn new ways to do things just to meet Apple's design," says Grossman.

TOUGH CUSTOMER. That's not to say Apple is completely bucking the outsourcing trend. All its products are manufactured by ODMs in Asia. Just as it buys chips and disk drives from other suppliers, sources say Apple lets ODMs take some role in garden-variety engineering work -- but not much. "This is an issue for Apple, because the A-team engineers [at the ODMs] don't like working with Apple. It's like when you were a kid, all your dad let you do was hold the flashlight, rather than let you try to fix the car yourself," says an executive at a rival MP3 maker.

In fairness, Apple's reliance on a smaller number of products than its rivals and go-it-alone design means it's always a dud or two from disaster. But at the moment, it's proving that "made in Cupertino" is a trademark for success.

Discussion Questions:

1. Apply the three internal analysis frameworks -SWOT analysis, value chain analysis, and the resource-based view-as a way to explain and evaluate aspects of Apple's internal environment highlighted in the Chapter Case about Apple and the interview with Steve Jobs.

a. What are Apple's strengths and weaknesses, opportunities and threats?
b. Roughly what would Apple's value chain look like, and how might it differ from other companies mentioned in this case?
c. Where are Apple's key resources and capabilities? Which are most valuable? Why?

2. Which is the most meaningful type of comparison you make use of in conducting each approach to internal analysis at Apple?
3. Which approach to internal analysis works best in your internal analysis of the aspects about Apple covered in this case? Why?
4. In your opinion, would it be best to use that approach (your answer to question 3) alone or to use it along with the other two approaches if you were a manager responsible for conducting an internal analysis of your company as part of its strategic management process?

Solution Preview

Applying the three internal analysis frameworks, that is, SWOT analysis, value chain analysis and resource based view to explain and evaluate aspects of Apple's internal Environment.

SWOT analysis:
From the highlighted chapter case about apple, strengths, weaknesses, opportunities and threats of Apple can be clearly noted. Some of the Apple's strengths are: the company has full control of how its products are designed and produced and this has continually maintained the high quality products that it provides its customers. Another strength is the innovativeness of the company's products. These products often depart from the norm in terms of functionality and design setting the direction for the rest of the industry. the company has also develops unique products from the customers unmet needs and instead of using a variety of outsourced designers their team of in-house designers and product architects who develop how the product should look like and the features it should start starting from outside going inside. This is a deviation from common industry practice where companies review what designs outsourced designers and manufactures have come up with. In Apple the design is often customized to be unique integrating critical mechanical and electrical work in the design process and coming up with a unique product that meets customers' needs (Case study).

The products from Apple are also designed to be little works of arts and often target the luxury industry. Apple also makes much of its own software and applications that are stylish easy to use and well integrated in their products. This gives them a competitive advantage over other industry players whose products work with whatever windows programs that customers install. Another strength is its head strong innovative leadership in Steve Jobs who not only gets a hands on involvement in the design process but also does not compromise on the uniqueness and quality of products, and requires the highest innovation even with other business partners they are working with to product their products (Case study).

Some of the weaknesses of Apple as highlighted in the case are they incur higher costs in the design and production process. The A-team engineers in the outsourced design manufacturers (ODM) do not like working with Apple since Apple only gives them little control in the development of their products. This can be discouraging to the engineers who may choose to work elsewhere where their capability is fully exploited and where they can full control of the product design process (Case study).

Some of the opportunities that Apple has as shown in the highlighted case are the ability to continually come up with innovative products in a technologically changing environment. More and more individuals need efficient technology products that meet their needs and as these needs ...

Solution Summary

The solution discusses the SWOT analysis, value chain analysis, and resource-based view.