INNOVATIVE STRATEGIES OF APPLE INC.

Executive Summary

• Innovation is the most important factor which helps a firm survive in competitive environment
• Through innovation, a firm is able to retain its customers and provide them the products in accrodance with their demands and requirementes
• The digital revolution is being led by several industries, including semi-conductor, communications industry, entertainment, consumer electronics, and of course computer.
• Key enabling technologies for the digital revolution include the innovation in the digital communications and the Internet Protocol (IP).
• For the consumer, innovation means more features in a single device, while for the media providers and conglomerates it means remaining competitive in the struggle for market dominance.
• For device manufacturers, the ability to produce innovative devices will increasingly be the driver for retaining customers as penetration rates of devices increase.
• Customers are demanding new functionalities, meaning that manufacturers are responding by developing a range of converged devices, such as mobile phones with mp3 players, cameras and email access, or video recorders with hard drives.
• Technological challenges touch on several areas, including user interface, software, hardware, communications, semi-conductor, and manufacturing.
• Challenges on the hardware, communications, semi-conductor, and manufacturing fronts are the usual – faster, smaller, cheaper, and more reliable.

 

Innovations at Apple iPod

According to Foster & Kaplan (2001) innovation is innovation that has produced economic value. Without economic value there is really no innovation. According to Kuczmarski (1996), a continuous stream of new products and services will be the norm for competition in the 21^st Century. Ultimately, what is most important to the creation of value for organizations is innovation (Gundling, 2000).

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Clearly, new products and services will be the key to corporate prosperity. They drive corporate profits, share prices, market shares and revenues. The innovation game is spreading up as a result of these four innovation drivers (Cooper, 1993).

1. Technology advances
2. Rapidly changing customer needs
3. Shorter product life cycles
4. Increased global competition

According to a February 2000 Economic article, the Price Waterhouse Cooper 1999 study on innovation, revealed that innovation will be the “dominant value proposition for the next Century” (Kuczmarksi, 2000). One of the findings of this study on innovation revealed that there was a relationship between innovation and financial performance. Companies that were generating more than 80% of sales from new products and services doubled their market capitalization over a 5-year period (2000). Few companies measure their innovation efforts. Actually, less than 58% of companies formally measured innovation on any scale within their organizations and fewer than 5% actually measured a return on investments.

While there is agreement on the importance of the relationship between innovation and organizational performance, there is little empirical literature to test the relationship between innovation and organizational effectiveness. There are a number of reasons to explain this. First, there is a void in the literature with respect to studying the constructs related to innovation. Hurley & Hult (1998) introduced two innovation constructs, namely, innovativeness and the capacity to innovate. Innovativeness is the notion of openness to new ideas as an aspect of an organization’s orientation toward innovation (1998). The capacity to innovate, a term first used by Burns & Stalker (1961), is the ability of the organization to successfully adopt or implement new ideas, processes, or products. Innovative capacity relates to what Cohen & Leventhal (1990) call absorptive capacity. This capacity to innovate can be measured by the number of innovations an organization is able to adopt or successfully implement.

In this context, this paper seeks to explore and analyze the innovative measures and strategies adopted by Apple Inc. especially focusing on its innovation of iPod mobile phones

Company Profile

Apple Inc. manufactors and sells personal computers, portable digital music players, and mobile communication devices, as well as related software, services, peripherals, and networking solutions worldwide and has 215 stores where its products can be found and purchased. Previously, the company was known as Apple Computer, Inc.founded in 1976 and its headquarter was in Cupertino, California. The company offers a variety of services and products like devices and peripherals; Mac OS X operating system; and iLife, a suite of software for creation and management of digital photography, music, movies, DVDs, and Web site. Furthermore, Apple Inc. also provides music products and services comprising iPod, portable digital music players and related accessories; online music services, third-party music, audio books, music videos, short films, television shows, movies, podcasts, and iPod games through its iTunes stores; and portable and desktop speaker systems, headphones, car radio solutions, voice recorders, cables and docks, power supplies and chargers, and carrying cases and armbands. The table 1 shows the financial achievements of Apple Inc. during the financial year 2008. As shown in the table the company’s sales have grown to 35.3% during the year 2008 with its employees increasing to 62.5% which shows there are many employment opportunities due to the fact that Apple is always innovative and invites talented people to join the company.

Table 1Financial statement of Apple Inc.

Fiscal Year-End	September
2008 Sales (mil.)	$32,479.0
1-Year Sales Growth	35.3%
2008 Net Income (mil.)	$4,834.0
1-Year Net Income Growth	38.3%
2008 Employees	35,100
1-Year Employee Growth	62.5%
Employees At This Location	2,000

The table 2 presents the quarterly income statement which shows the positive and steady growth in company’s income, sales and its operations.

Table 2Quarterly Income Statement

Quarterly Income Statement (All dollar amounts in millions except per share amounts.)
	Quarter Ending  Dec 08	Quarter Ending  Sep 08	Quarter Ending  Jun 08	Quarter Ending  Mar 08	Quarter Ending  Dec 07
Revenue	10,167.0	7,895.0	7,464.0	7,512.0	9,608.0
Costs of Goods Sold	6,635.0	5,156.0	4,864.0	5,038.0	6,276.0
Gross Profit	3,532.0	2,739.0	2,600.0	2,474.0	3,332.0
Gross Profit Margin	34.70%	34.70%	34.80%	32.90%	34.70%
SG&A Expense	1,248.0	1,163.0	1,091.0	1,043.0	1,100.0
Depreciation & Amortization	158.0	134.0	117.0	116.0	106.0
Operating Income	2,126.0	1,442.0	1,392.0	1,315.0	2,126.0
Operating Margin	20.90%	18.30%	18.60%	17.50%	22.10%
Nonoperating Income	158.0	140.0	118.0	162.0	200.0
Nonoperating Expenses	—	—	—	—	—
Income Before Taxes	2,284.0	1,582.0	1,510.0	1,477.0	2,326.0
Income Taxes	679.0	446.0	438.0	432.0	745.0
Net Income After Taxes	1,605.0	1,136.0	1,072.0	1,045.0	1,581.0
Continuing Operations	1,605.0	1,136.0	1,072.0	1,045.0	1,581.0
Discontinued Operations	—	—	—	—	—
Total Operations	1,605.0	1,136.0	1,072.0	1,045.0	1,581.0
Total Net Income	1,605.0	1,136.0	1,072.0	1,045.0	1,581.0
Net Profit Margin	15.80%	14.40%	14.40%	13.90%	16.50%
Diluted EPS from Total Net Income ($)	1.8	1.3	1.2	1.2	1.8

                                                                 

Consumers are increasingly using their mobile phones to play music and games, gamble and access adult content. As a result, the global market for mobile entertainment is predicted to be worth in the region of $40 bn by 2010.

As well as these entertainment sectors that are driving growth – including music, gambling, games video and TV, and adult content – emerging new markets such as mobile TV, user generated services and personalisation (graphics and visual themes) are forecast to contribute a further $11 bn in revenues by 2010 as the market develops and expands.

By that time, it is also estimated that there will be well over 500 different models of mobile phones and PDAs to choose from. By 2009, just under one billion units will be shipped, up from 743.2 million in 2006 (see Table 2.1).

Table 3: Global handset shipments (millions), 2004-2009

Units shipped (millions)	2004	2005	2006	2007	2008	2009
Global	626.4	686.4	743.2	802.1	876.5	935.1
EMEA	224.0	321.1	242.7	262.3	296.6	323.8
Americas	163.2	171.9	183.4	191.0	199.2	204.8
Asia Pacific	239.2	283.4	317.1	348.8	380.7	406.5

Source: Business Insights

However, today’s consumers want more than just voice services on the move, and they are demanding access to rich content and services, such as data and video on their mobile devices. The development of GPRS networks (2.5G) and, more recently 3G networks, as well as other wireless platforms, such as WiFi and Bluetooth, makes this possible – by providing high-speed wireless connectivity (at near fixed-broadband speeds) that allows consumers to access emails, the Internet, the corporate intranet, and to download new services, such as ringtones, music and games, on their devices wherever they are.

As a result, there are essentially two types of mobile handset emerging that can provide access to these new services; PDAs (or handheld computers) and smartphones.

PDAs are essentially handheld computers, with voice capability. They tend to have large screens (often touch screens), ‘qwerty’ keyboards, but are heavier and bulkier than a smart phone. Examples include HPs’ iPaq (such as the business-targeted hw6500 and hx2000 Pocket PC series) and Palm’s Treo 650.

It is important to note, however, that the lines between the two form factors are increasingly blurring, as evidence by ‘high-end’ smart phones such as O2’s XDA and T-Mobile’s similar MDA series, the popular Nokia Communicator 9300 and 9500 series and Sony Ericsson’s P990i.

A smartphone is an electronic handheld device that integrates the functionality of a mobile phone, personal digital assistant (PDA) or other information appliance. This is achieved by adding voice telephone functions to an existing PDA or putting ‘smart’ capabilities, such as PDA functions, into a mobile phone. A key feature of a smartphone is that additional applications can be installed on the device. The applications can be developed by the manufacturer of the handheld device, by the operator or by any other third-party software developer.

Figure 1: Global handsets by device, 2004 vs. 2010

Source: strategy Analytics, October 2005

Realizing the growing needs of its consumers and market trends, the Apple’s ipod touch is an innovation which has  attracted its customers from across the world due to its design which is a slim and pocketable 4.3 inches by 2.4 inches by 0.31 inch, with an all-metal-and-glass design that feels as expensive as it looks. The ipod is slim, fragile and beautifully desgined to satisfy the aesthetic requirements of the consumers.

Conclusion

As discussed previously, innovation plays an important role in retaining and attracting customers for a product launched by any firm. One of the findings of this study on innovation revealed that there was a relationship between innovation and financial performance. Companies that were generating more than 80% of sales from new products and services doubled their market capitalization over a 5-year period (2000). The same advantage has been shown in the  case of Apple’s ipod touch which has resulted in increase in the company’s sales and growth (as shown in tables above). Apple’s iPod is the innovation at the right time to meet the requirements of the customers and the innovative move which apple has taken. From the deep analysis of the innovative steps taken by Apple Inc. and its product ipod touch it becomes evident that the main objective and aim of its management is to offer its consumers innovative, stylish and  easy to use products. It is the convenience, style, and innovative technology which has popularized ipod touch among its customers and this is the sole innovation that the company has taken.