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DESIGN THINKING AND INNOVATION AT APPLE INC

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DESIGN THINKING AND INNOVATION AT APPLE INC., 2008

A Written Analysis of the Case
Presented to the Faculty of College of Business Administration
University of Southeastern Philippines
F. Iñigo Street, Obrero, 8000 Davao City
In Partial Fulfilment of the Requirements for the Subject
Production and Operations Management
Cristyn EnanoriaJay Ace MandiadaJo Anne ManlupigBrandon PalejaroJoan PelicanoEmmanuel James Salas
September 08, 2018
EXECUTIVE SUMMARY
For several years, Apple has been ranked as the most innovative company in the world. It is one of the leading companies that is renowned for its unique products and brand. But how it has achieved such success remains mysterious because of the company’s obsession with secrecy. In the early days, Apple struggled to achieve market success, especially after Job’s departure and increasing competition from other giants such as IBM. Until the company adopted design thinking. Design thinking is a solution-oriented process that is used to achieve innovation with considerations about the consumer at the heart of all development stages. After Steve Jobs returned to Apple, he started to apply design thinking which reflected his vision for Apple products. The vision of Job can be clearly defined in modern Apple products. Although other competitors focus on the features and product capabilities, Apple focuses on a holistic user experience. In addition to the function of the product, the form should be beautiful, which can be achieved through continuous innovation and development. Apple also focused on the materials and manufacturing process and took a bold approach trying new ideas rather than sticking with the ordinary design forms. Apple’s history with innovation provides a clear lesson about how design and innovation can turn company failure to market success and a leading position in a competitive market. Design thinking helped Apple to innovate while placing their consumers at the heart of the process.

INDUSTRY ANALYSIS
Technology Industry has been busy in the previous years, thinking of new products, innovations, and how to become more profitable. In this sense, research and development program has been the key in helping Technology Company to develop products that give people the satisfaction from them. Many companies invest in this program for them to keep their pace in the newest trends. The newest trends helps the company develop ideas that can make their business still running. That is why, when people sees the marketing of other technology company, it has been really highly intense, especially in Malls, TV advertisements, and radio advertisements.
Rivalry
Apple, Inc. has been in the business for decades. It had its own peaks and troughs, but still, it has been strongly operating worldwide. Many competitors challenged Apple, Inc. with the likes of Microsoft, Sony Corporation, and Samsung. Moreover, the technology industry is highly competitive due to its consumer’s low cost in switching to other brands. Costumers wouldn’t obtain huge financial loss if he/she will purchase from another company. Since, competitors has been continuously innovating, giving new features from their products would entice consumers to purchase the item, if, it satisfies their customer’s taste. However, Apple, Inc. firmly compete with its rivals with strong branding– showing simplicity aesthetically but with enormously good features, good investment in research and development, and continuous innovation.

Threat to Substitutes
Apple, Inc. have had plenty of products on hand such as cellphones, laptops, watch, tablets, and etc.. As a whole, the threat to substitute of Apple products are low due to its multifunctional usage. For example, the threat to substitute of iPhone is telephone; telephone is cheaper than cellphone and is easier to use, however, iphone has plenty of features– it can call, send messages, allows people to surf the internet, gives you an easier way to pay bills, and many more. This only means that, consumers will naturally invest to technologies, which can give more benefits and make their life easier.

Threat to New Entrants
Apple, Incorporated is a high-end company, which distributes its products worldwide. It is relatively hard to pass through the levels of Apple, Samsung, and many more, because it requires a large sum of capital and strong branding. Money is the blood of the business, to be in a high end market, entrepreneurs needs a huge amount of capital to pay its suppliers, workers, and general expenses. It wouldn’t be easy for new entrants to through this level; even if new company’s strategy is to start in the lowest level, going up will still be difficult due to the intense competitions in the low-mid end companies. New entrants must also develop their own branding to compete with its rival and money is still involved with this. Furthermore, trust of the customers is also a criteria for them to stay in the business. That is why, the threat to new entrants is low.

Threat of Buyer Power
An individual customer have a little effect on the company’s bottom line, which means, the bargaining power of an individual buyer is low. On the other hand, there is a comparatively high bargaining power of mass consumer due to the company’s high priced product. If the accountant/marketer sums the potential mass buyer’s input in the company’s sales, it will hit the Apple, Inc. badly. That is why Apple, Inc. Innovates and always make their product’s features suit the taste of their customer in order to increase brand loyalty.

Threat of Supplier Power
Apple, Inc. vertically integrates its supplies that is why, the threat of Supplier’s power is low. If in case the company needs a supplier, the bargaining power of Apple, Inc. is still higher due to its good financial standing. Suppliers are competing to be apple’s supplier because they know it is a well established company, and with that, they can expect a high return.

PROBLEM STATEMENT
The case study was written and published 8 years ago at the time when there was less competition from the industry and Apple Inc. is at is peak. With this, the proponents seek to assess on whether Apple’s design thinking and innovation helps them at this present time. Furthermore, the case study aims to answer the following questions:
In retrospect, what are Apple’s Strengths, Weaknesses, Opportunities, and Threats that can help or harm them today?
What strategies can Apple do to strengthen their position, deal with the weaknesses, take advantage of opportunities and deal with the threats at this moment?
Among the strategies identified, what strategic alternative should the group recommend to Apple Inc. for them to cope up with the present competition in the industry?
OBJECTIVES OF THE STUDY
The study aims to:
Identify and analyse in retrospect Apple’s Strengths, Weaknesses, Opportunities, and Threats;
Identify and discuss the implications of the strategies Apple can do to strengthen their position, deal with the weaknesses, take advantage of opportunities and deal with the threats at this moment;
Choose and recommend a strategic alternative that will help Apple Inc. cope up with the present competition.

SITUATIONAL ANALYSIS
A. SWOT
A.1 Internal Factor Analysis Summary (IFAS)
Internal Factors Weight Rating Weighted Score Comments
Strengths S1: Focus on what people need and want. The Apples’ management has a deep commitment to understanding how people used computing devices and a desire to develop “insanely great products”.

S2: Help people love their equipment and the experience. The company often defied conventional business logic and was not afraid to experiment outside its core markets.

S3: Products were rarely first to market and highly interactive.

S4: Consistency in the way the company worked, the “Apple way”, a set a principles with a deep commitment to great products and services at its core: design thinking, clear development strategy and execution, its CEO as chief innovator, and the rational courage to conduct bold business experiments.

S5. Apply a lot of ingenuity on the design side and then pushing the engineers to use the same kind of creativity and innovation to make things happen.
S6: Jobs’ design-sensibility. Simplicity in design and use. “Simplicity is the ultimate sophistication”
S7: Beyond fashion. Goes beyond superficial trends and gets to the essence of customer experience such that its “design” seems to happen from the inside out, while the outside continues to be deeply appealing and, ineffably. “cool”.

S8: Painstaking attention to detail. Apple takes interest in material selection and how things are manufactured plus being completely attuned to customers.

S9: Generated highest revenue per square foot in the entire retail sector. 8%
5%
5%
8%
5%
5%
4%
5%
5%
4
4
3
4
4
3
3
4
4
.32
.20
.15
.32
.20
.15
.12
.20
.20
S1 and S4 had equal rating because it is what Apple is known for. Both were given a rating of 4 because Apple was able to deliver innovation and consistency. However, product idea inception should be non-typical to avoid confusion and complexity.

S2, S5, S6, S8, S9 were given equal weight of 5% because without one of the factors, Apple would not be able to produce and innovative product. S2, S5, S8, and S9 were given a 4 rating because they were able to manage, deliver, and meet the vision and target profit they have set. However, sooner innovative ideas will run out and people’s change will taste over time. S3 and S6 were given a rating of 3 as of now, simple yet highly interactive products are widely produced by competitors and offered at a cheaper price.
S7 was given a weight of 4% as changes in taste of people is inevitable and is strongly tied to Apple’s ability to innovate. Given a rating of 3 because they have moderate control on whether their designs can be used as a basis for the design of competitor products.

Total 50% 1.86 Weaknesses
W1: Firm’s history and co-founder Steve Jobs had pivotal influence on the corporate performance.

W2: Frequent change of CEO
W3: Product idea inception should be non-typical to avoid confusion and complexity.

W4: Closed 2 divisions, Eliminated 70% of new projects, Launched a website for direct sales, Product lines reduced (from 15 to 3), Shut facilities (moved manufacturing abroad).

W5: Jobs’ design-sensibility reinforced hiring like-minded people.

10%
10%
10%
10%
10%
1
2
1
2
1
.10
.20
.10
.20
.10 W1: As the chief innovator, everything rests on his shoulders. His loss would mean loss in the innovative power of Apple.

W2: Frequent changes in leadership causes confusion.
W3: With the products derived from a platform product, the products created and their functions are alike. Redundancy can result to confusion causing one product to be preferred over another.
W4: With the manufacturing outsourced, even with surveillance cams in factories, the secrets of making the product will still go out due to the distance of the factories and the personalities of the management involved. Differences in culture might affect production and management practices.

W5: Innovation comes from different people. If Apple aims to produce a stream of innovative products, diversity should be prioritized by the management.
Total 50% .70 Grand Total 100% 2.56 A.2 External Factor Analysis Summary (EFAS)
External Factors Weight Rating Weighted Score Comments
Opportunities O1: In mid-1970’s, computers were typically housed in discrete locations and only used by specialists.
O2: Level of complexity needed to reduce dramatically.

O3: Rapid changes in technology and an explosion in venture capital-driven investment that fueled new competitors, grappled with which markets to targets-and hence, what products the firm should develop. 15%
15%
20%
3
4
4
.45
.60
.80 O1: Only a group of certain people can only use their products. The products were strategically placed wherein it is patronized by people.

O2: The interface were user-friendly so that everyone in the market can use it.

O3: Being innovative, one should adapt easily to changes in technology in order to produce products that are needed in the market.

Total 50% 1.85 Threats T1: IBM entered the market and though its machines had none of the combined simplicity and pizzazz of Apple’s, they could be cloned.

T2: It had almost zero penetration to Business market (begin to compete in the “cloning space”).

T3: It had nearly 50% of education market and artistic enterprises (e.g. graphics, advertising, movies, animation and music).

T4: Products and projects at Apple proliferated in consequence to the strategies during business market was almost entirely a combination of windows operating system and Intel Processors (then known as Wintel). 10%
15%
10%
15% 4
4
3
4 .40
.60
.30
.60
T1: There is an exact replica of the product that can be bought in a cheaper price that consumers will be attracted to buy it.
T2: Has a weight of 15% since in every business the hardest part is when you cannot penetrate into the market because of the competitors that offers the same quality and design as yours.

T3: Although having almost a majority of the market for the mentioned industries, if these are lost, Apple will also lose a lot of customers.
T4: With majority of the Business market using Windows and Intel, competition in sales is tough as Windows aside from their advantage in the business market can also improvise to add the educational and artistic apps or software offered by Apple.
Total 50% 1.90 Grand Total 100% 3.75 A.3 Strategic Factor Analysis Summary (SFAS)
Strategic Factors Effect on Policy Design and Implementation
A platform strategy envisions a family of products at the early stages of product concept and planning. At this point they think ahead to not only what would be needed for the initial product’s release, but also what would be required subsequently-and when that should happen.

Beyond fashion. The integration of sophisticated features and functionality with no contradiction of trade-offs.

Design with an architecture that will accommodate development and production of derivative products. Apple put premium on design, resources and time invested into the initial product.

Apples innovation approach to streamline product portfolio.

Bold Business Experiments
At Apple, problems were moving targets, not something that was to be solved once and for all.

Job’s envisioned the importance to put individuals (problem-solving works rather than routine) before Organizations, which was radical in early 80’s when companies were looking for “Enterprise Solutions”.

The Open source movement has been ignored by Apple. The company insists on developing, and integrating, its own hardware and software. They are designing their own chips for iPods, iPhones and iPads, a backward migration that appears very much out of step with how computer industry has been evolving.

Apples’ developed and featured a proprietary operating system as well as unique hardware.

Apple eventually embark on a licensing program
In 2006 Apple transitioned its entire computer line to running on processors made by Intel.

Most valuable Publicly-traded company in history.

iMac debuted in mid-1998. iMac is a computer that’s really: Quiet, doesn’t need a fan, wakes-up in 15 sec, best sound system, super-fine display.

Apple’s passion and close attention to new materials and manufacturing process offers new opportunities for product innovations.

Jobs’ goal was to design a computer that both supports and foster individual work instead of enterprise use.

Apple sold 172 million devices rather than PCs
It had 362 retail stores with >1million daily visits
Controversial idea to move into retail.

Internet-based business models “App Store”
Entire industries were forced to accommodate Jobs’ vision.

High levels of sharing and reuse of assemblies, sub-assemblies, and parts, the result is greater reliability and lower costs, benefiting company and suppliers alike.

More stable and reliable designs (less repair, maintenance and service).

Commonality of user interfaces and design elements (less of training hurdle).

Beyond the vision, the drive, the total hands-on involvement in decision making, from strategy to product and service design to packaging, Jobs has been the face of the company.

Apple has “opened” up to outside developer communities, in its own way, and has invented the “App Store”.

Apple suppliers learned a slip of the tongue can forfeit business.

In 1984, they brought out the Macintosh, famously in conjunction with a Super Bowl advertisement that even now remains a stunning feat of promotion and fundamental statement of the company’s commitment. But the cloning continued, and the Apple’s market share (and eventually profits) began a long decline that did not fundamentally reverse until a year after the advent of the iPod.

By 1997 represented 20% of Mac unit sales.

The iPhone, the iPod, any number of iMacs and MacBooks appear in store all over the world.

A.4. SWOT Matrix
Strengths-Opportunities Strategic Options
(Offensive and Proactive Actions) Weaknesses-Opportunities Strategic Options
(Defensive and Proactive Actions)
As the main strength of Apple is innovation, by focusing on its research and design and hiring people from competitors or different industries will help bring about new products.

Hiring of technological experienced but diverse people will help in the innovation process.
Products of competitors should be studied. Whatever product line that are created by the competitor can be modified and made even better. If innovative ideas ran out, improvisation is the next recourse.
Everything should still be a surprise.
Putting a patent on newly created software or products.

Lessen the creation of potentially redundant products.

Strengths-Threats Strategic Options Weaknesses-Threats Strategic Options
Strictly enforce rules or terms to Apple suppliers with regards to the confidentiality of the design and production of the Apple products so as to prevent or at least lessen the possibility of cloning.

Do backward integration – from designing and producing its own chips up to assembling the parts to control the production and to avoid being cloned.

Design products that would cater specific target market such as corporate organizations and educational institutions, and eventually tie up with them.
Establish a new product line fit for the changing demands of the 21st century market using modern designs while maintaining the “simple yet sophisticated” brand.

Implement monthly gatherings among the Apple employees to discuss possible designs for new products. This could eliminate the “Jobs does all the work” notion and allow new innovative minds to contribute to Apple’s product line.
STRATEGIC ALTERNATIVES
Alternative 1: Improve existing operational processes
Improve Apple’s existing operational processes in order to increase the productivity of the company. This alternative involves enforcing strict terms and conditions to the Apple suppliers with regards to the confidentiality of the design and production of the Apple products so as to prevent or at least lessen the possibility of cloning. Also, removing redundant products from the product line is a must.

Alternative 2: Expansion of the product line
Expanding Apple’s product line could satisfy the changing demands of the 21st century market. This could be done through hiring and discovering new innovative minds that could contribute in the development and production of contemporary designs. This alternative also involves designing products that could cater the existing and newly-discovered markets such as corporate organizations, educational institutions, and many more. Creating and launching new products with modern designs while maintaining the “simple yet sophisticated” brand is the goal.

Alternative 3: Backward Integration
Doing backward integration could improve efficiency in terms of Apple’s operational activities. Apple could have an overall control in the production of their products through establishing its own workshop or manufacturing area (factory). This alternative covers designing and producing their own chips and applications, as well as assembling the parts of the products. This alternative strategy could also be used to avoid revealing the designs of the company to a third party and to avoid being copied.
Quantitative Strategy Planning Matrix (QSPM)
The identified alternatives generated from the SWOT matrix above are evaluated quantitatively to find the most attractive set of strategies that would be considered as the optimal choice for DFADI. The weights assigned on the Internal Factor Analysis Summary (IFAS) and External Factor Analysis Summary (EFAS) are the same weights which will be used in the Quantitative Strategic Planning Matrix (QSPM). Each factor will be assigned with scores based on its level of attractiveness which ranges from one (1) to four (4); 1 = not attractive, 2 = somewhat attractive, 3 = reasonable attractive, 4 = highly attractive. The weights and the Attractiveness Scores (AS) will be used to calculate the Total Attractiveness Scores (TAS) which indicates the relative attractiveness of each alternative in relation to the impact of the key external and internal factors. The strategy with the highest Total Attractive Score is the most suitable for the company.

STRATEGY
1
Improve
Operational
Processes 2
Expand
Product Line 3
Backward
Integrate
WEIGHT AS TAS AS TAS AS TAS
KEY INTERNAL FACTORS STRENGTHS 1 Focus on what people need and want. 0.08 3 0.24 4 0.32 3 0.24
2 Help people love their equipment and the experience. 0.05 3 0.15 4 0.20 3 0.15
3 Products were rarely first to market and highly interactive. 0.05 3 0.15 3 0.15 3 0.15
4 Consistency in the way the company worked, the “Apple way.” 0.08 3 0.24 4 0.32 4 0.32
5 Apply a lot of ingenuity on the design side and then pushing the engineers to use the same kind of creativity and innovation to make things happen. 0.05 3 0.15 4 0.20 4 0.20
6 Jobs’ design-sensibility. 0.05 3 0.15 4 0.20 3 0.15
7 Beyond fashion. 0.04 3 0.12 3 0.12 2 0.08
8 Painstaking attention to detail. 0.05 3 0.15 4 0.20 3 0.15
9 Generated highest revenue per square foot in the entire retail sector. 0.05 4 0.20 4 0.20 4 0.20
WEAKNESSES 1 Steve Jobs had pivotal influence on the corporate performance. 0.10 2 0.20 4 0.40 2 0.20
2 Frequent change of CEO. 0.10 1 0.10 1 0.10 1 0.10
3 Product idea inception should be non-typical to avoid confusion and complexity. 0.10 1 0.10 3 0.30 1 0.10
4 Closed 2 divisions, Eliminated 70% of new projects, Launched a website for direct sales, Product lines reduced (from 15 to 3), Shut facilities (moved manufacturing abroad). 0.10 1 0.10 1 0.10 3 0.30
5 Jobs’ design-sensibility reinforced hiring like-minded people. 0.10 1 0.10 2 0.20 1 0.10
1.00 2.15 3.01 2.44
1 2 3
WEIGHT AS TAS AS TAS AS TAS
KEY EXTERNAL FACTORS OPPORTUNITIES 1 In mid-1970’s, computers were typically housed in discrete locations and only used by specialists. 0.15 3 0.45 4 0.60 3 0.45
2 Level of complexity needed to reduce dramatically. 0.15 3 0.45 3 0.45 3 0.45
3 Rapid changes in technology and an explosion in venture capital-driven investment that fueled new competitors, grappled with which markets to targets-and hence, what products the firm should develop. 0.20 3 0.60 4 0.80 3 0.60
THREATS 1 IBM entered the market and though its machines had none of the combined simplicity and pizzazz of Apple’s, they could be cloned. 0.10 3 0.30 4 0.40 3 0.30
2 It had almost zero penetration to Business market (begin to compete in the “cloning space”). 0.15 4 0.60 2 0.30 2 0.30
3 It had nearly 50% of education market and artistic enterprises (e.g. graphics, advertising, movies, animation and music). 0.10 2 0.20 4 0.40 2 0.20
4 Products and projects at Apple proliferated in consequence to the strategies during business market was almost entirely a combination of windows operating system and Intel Processors 0.15 2 0.30 4 0.60 2 0.30
1.00 2.90 3.55 2.60
TOTAL OF ATTRACTIVENESS SCORE 5.05 6.56 5.04
As shown on the table above, the alternative with the highest score is alternative 2 with a Total Attractiveness Score of 6.56 compared with alternative 1 with a score of 5.05 and alternative 3 with 5.04. This means that alternative 2, which covers product line expansion, is the best option for Apple to implement given the current situation of their internal and external environment.

ANALYSIS AND CONCLUSION
The study aims to discover on whether Apple Inc. design thinking and innovation still helps them as of the moment. The proponents conducted a SWOT analysis to identify the factors that made Apple a success in the past and using the analysis, the proponents came about with strategic alternatives that can help the firm cope up with today’s stiff competition. It turns out that Alternative 2: Expanding the product line would be the best alternative as it is in line with their main strength that is innovation. The alternative has a total attractiveness score of 6.56. The implication of this alternative is that it generates a buzz and will catch competitors by surprise. In lieu, high security measures should be implemented as the design and everything that comes with the product can be easily copied. On the other hand, the limitedness of the ability to innovate should direct the firm to studying its competitor’s products and take advantage of whatever weaknesses and opportunities for it to be made better.
RECOMMENDATION TO THE MANAGEMENT
Alternative 2 involves strategies to expand Apple’s product line and cater the existing and new markets in the 21st century. This alternative would allow Apple to maintain their brand while satisfying the changes in demand of the market. Launching new products will be done once a specific market is identified, and their needs and preferences are determined and are put into consideration during the designing and production. Modern designs, a team of innovative minds, and a heart for the consumers will definitely give Apple an edge, and will enable them to adapt and survive changes in the industry. Their innovations could not only attract customers and investors, but also copycats, which might become a problem for the company. And in order to avoid it, Apple needs to enforce strict legal rules and regulations among its employees, suppliers, and manufacturers with regards to the secrecy of the product design. Any violations commited by the said parties will be punishable by law.