Analyzing Apple’s Financial Strategy Through Resource/profit Model

Analyzing Apple’s financial strategy through Resource/Profit model

Name

Course

University

Professor

Date

Introduction

The resource/profit model has always been considered as a great framework for operation management but the framework also has great implication in analyzing financial strategy of any organization. Within a business environment this structured model has three major components; foundation for success, components of value and managing resources to create value. It describes the relationships among value, profitability, cost, processes, and capabilities of any company. It serves as an organizational model to put operations in a business context and help to gain better financial standing. According to Finch, B. J. (2008) a better financial success for a business is only achievable when all three components harmonized with each other. This paper will focus on different component of resource/profit model and then try to implement the model to analyze one of most financially successful company in modern history.  

Apple is one of the twinkling examples of successful financial operation of modern time. Rated among the most valuable global brand, Apple has conquer incredible success in last two decades. Their innovative product design, incredible product promotion, aggressive marketing strategies and structured distribution system turn the company from almost Bankruptcy in 1997 to become the most valuable brand in 2011 taking over Google (Apple Inc., 2016). But at the core of Apple’s financial success lies their ability to analyze different components of value, to differentiate between the resources that create value through understanding of changes in the business environment and their impact they have on both internal and external forces.

Analysis

The following section will analyze three major components of resource/profit model to reveal the financial success strategy of Apple Inc.

Foundation for success

There are mainly three crucial elements that create the base for successful organization. They are: profitability, strategy and value and process. Though all three are totally different component but they are interconnected.

Profitability: The term profitability is a combination of two different process; profit and ability. Profit is the unit return from any investment and ability indicates the capacity of a business unit to earn profits. So, profitability can be defines as the ability of an entity to enhance it earning capacity through their operating performance (Tulsian, 2014). As Tulsian (2014) argued profitability is an excellent tool to assess the organizational productivity and operational efficiency. This article will try to take a different approach and will try to explain Apple’s profitability through their product innovation and business strategy.

As the ‘Blue Ocean Strategy’ explains, “Apple created future profits and growth not by exploiting existing demand, but by reconstructing industry boundaries to create new market space and unlock latent demand” (Kim et al., 2016). Before Apple launch there iPod, customer around the world did not has any idea what to expect from a music device. They were quite happy with what they had and felt like their expectation being met. But the introduction of iPod has created that craving desire in every music lover’s mind to own the music system, which was completely latent before the introduction. They have introduced new and innovative business model to create completely new value proposition to the market through their iTunes and iPod (Kim & Mazumdar, 2016).

Strategy: Each business has to identify their strategies from three different prospective (i) who are the customers (ii) what are their demands and (iii) how they are going to be satisfied (Harrison & John, 2016). This article will discuss Apple’s strategy from three different perspective; market segment strategy, product design strategy, promotion strategy.

Markets are not homogeneous and especially for technology based and knowledge intensive industry. So, it is impossible for any business to serve all customer bases and meet all their demand. As a result, identifying target market for the business becomes so crucial in modern day business (Jain & Haley, 2009).

Apple has cultured this art to the perfection. They have targeted the highest tire of the customer segment and presented their product as a matter of prestige. Apple’s main strategy is differentiation, through their product planning and design. Their innovative product enables customer with superior features and service under new product or upgraded current product (Apple Inc., 2016). A prime example would be the introduction of iPod that almost shattered all other rival specially The Sony Walkman. A further example would be their innovation of iPad that control more than 70% of the whole market share (Ferrell and Hartline 2014).

Sales forecasting is another important tool contributes greatly in developing Apple’s financial strategy. It assists their decision maker to take crucial decision more with confidence and preciseness (Staelin & Turner, 1973). It not only helps them to predict short-term demand but also assist them to analyze long-term business performance. Apple use previous sales data, business trend, industry-wide comparisons and economic trends to make their forecasting as accurate as possible. It further allows the higher management to predict achievable sales revenue, efficiently allocate resources and plan for future growth. Their future critically depends on things like capital asset, employees, inventory, and financing; they all are determined by its future sales level (TrackMaven, 2017). All those factors come into play to achieve sales target or boost sales and assist them to make better strategy to manage their workforce, cash flow, and resources (Staelin & Turner, 1973).

Value: Value is always determined from customer perspective, whether the product means anything to customer or not. Finch, B. J. (2008) describes value as the basis of decision making based on which a customer decides whether to purchase a product or not. For a successful business operation or project the outcome should worth more to end user than what it cost to complete it or make it.

Apple gets the most value of it product from customers. Apple had succeeded to their brand image to a different elevation, this exemplify the value of their product to the customer. There are very few companies around the world has customers base as loyal as Apple. They wait all the year anxiously for September, when apple will launch their new version of iPhone. Not only that they spent the whole night inline sleeplessly, outside of apple stores to buy the latest devices before someone else does. That really depicts a good picture of the value of Apple’s product to the customer (Ferrell & Hartline, 2014).

Components of value

Cost: Cost is a very important component of value and it has an immense impact on customer’s perception of value. Finch, B. J. (2008) describes cost as the total quantity of resources required to achieve a specific objective. It is usually calculated by monetary value.

In an interview with Bloomberg Business week, Apple CEO said, “We never had an objective to sell a low-cost phone. Our primary objective is to sell a great phone and provide a great experience, and we figured out a way to do it at a lower cost” (Nielson, 2014). So, it is clear that Apple never tried to put the cost down. Rather their business strategy is to take the quality up to that level that the customer never hesitates to buy even with such premium pricing.  

Quality: Product quality is another curial component that creates or enhances the value of a product to their customer. Apple has always maintained a superior product quality to attract their customer. This is one of the deciding factors when customer decided to buy Apple products. Though Apple has never competed over price, their quality and sustainability of the product made the customer to buy again and again even with much higher prices (Harrison and John 2014). Apple has placed innovation and quality at the core of their business strategy (Karim, 2016).

Timeliness: Timing is very important in technological innovation. As Katila and Chen (2006) urgued discovering the technological knowledge earlier that rivals will allow the company to introduce innovative product through new knowledge. There is two main indicator for timeliness; financial performance and value to the customer (Finch, 2008). Considering both indicator, no one understands and adopted this tool better than Apple in modern day industry. They do not wait for perfect timing to introduce their product rather they create the plot to make the timing perfect. The introduction of iPod, iTune or iPad is a perfect example of this. They have created a hidden desire and a customer niche through their innovation and introduced it that made the time, perfect (Ferrell & Hartline, 2014).