Int. J. Business Excellence, Vol. X, No. Y, xxxx From stale to spicy to superb: a spanking new Apple John Wang* Department of Information and Operations Management, Montclair State University, Montclair, NJ 07043, USA Fax: +1-973-655-7678 E-mail: j.john.wang@gmail.com *Corresponding author Jeffrey Hsu Information Systems and Decision Sciences, Silberman College of Business, Fairleigh Dickinson University, 285 Madison Avenue, Madison, NJ 07940, USA E-mail: jeff@fdu.edu Bin Zhou Department of Management, College of Business and Public Administration, Kean University, Union, NJ 07083, USA Fax: (908)737-4165 E-mail: bzhou@kean.edu Ruiliang Yan School of Business and Economics, Indiana University Northwest, Gary, IN 46408, USA E-mail: ruiliangy@gmail.com Abstract: Once the world took its first proverbial bite into Apple Inc. in the late 1970s, people liked what they tasted and wanted more. Today, they still cannot get enough of Apple, a company that has little to do with fruit, although with every technology product or service it releases conveys the fresh, healthy, appetising image that inspired the company from its origin. Apple, which started out in personal computers and over the years has branched out to revolutionise newer industries such as mobile phones and music devices, is a shining example of a company with exceptional leadership, marketing, and research and development, and which has been remarkably successful at managing its relationships with suppliers, partners, customers, the media and even hackers over the years. This paper will introduce the stunning case of the single most important turnaround in Silicon Valley and go in detail how it achieved tremendous success by overtaking Microsoft. The company was not Copyright 200x Inderscience Enterprises Ltd. 1 2 J. Wang et al. always so successful in the past, but it learned valuable lessons from the years when it experienced a downturn and other challenges. As the world's most valuable technology company, a new king of technology today, Apple and its products are more appetising than ever. Keywords: research and development; business excellence; Apple Inc.; growth; competitive advantage; customers; suppliers. Reference to this paper should be made as follows: Wang, J., Hsu, J., Zhou, B. and Yan, R. (xxxx) 'From stale to spicy to superb: a spanking new Apple', Int. J. Business Excellence, Vol. X, No. Y, pp.000-000. Biographical notes: John Wang is a Professor in the Department of Information and Operations Management at Montclair State University, USA. Having received a scholarship award, he came to the USA and completed his PhD in Operations Research from Temple University. He has published over 100 refereed papers and seven books. He has also developed several computer software programmes based on his research findings. He is the Editor-in-Chief of Int. J. of Applied Management Science and Int. J. of Information and Decision Sciences. Jeffrey Hsu is an Associate Professor of Information Systems at the Silberman College of Business, Fairleigh Dickinson University. He is the author of numerous papers, chapters, and books, and has previous business experience in the software, telecommunications, and financial industries. His research interests include human-computer interaction, e-commerce, IS education, and mobile/ubiquitous computing. He is Managing Editor of the International Journal of Data Analysis and Information Systems (IJDAIS), Associate Editor of the International Journal of Information and Communication Technology Education (IJICTE), and is on the editorial board of several other journals. He received his PhD in Information Systems from Rutgers University, MS in Computer Science from the New Jersey Institute of Technology, and MBA from the Rutgers Graduate School of Management. Bin Zhou is an Assistant Professor in the College of Business and Public Administration, Kean University, USA. He obtained his PhD and MBA degrees in Management Science and Supply Chain Management from Rutgers Business School, Rutgers University. His research interests include theory and application of supply chain management, logistics and transportation, production and inventory systems, and information technology. His research work has appeared in International Journal of Production Economics, European Journal of Operational Research, International Journal of Systems Science, among others. He also serves in the editorial board of International Journal of Information Systems and Social Change. Ruiliang Yan is an Assistant Professor of Marketing at Indiana University Northwest. He received his PhD in Marketing from the University of Wisconsin, Milwaukee. He has published one book and a number of articles in the different refereed journals. He also is serving as referee for many highly prestigious journals. He specialises in marketing modelling, retailing and supply chain management. From stale to spicy to superb: a spanking new Apple 1 3 Introduction Steve Jobs created Apple with his friend Steve Wozniak in the garage of his parents' home in 1976. The company began as a computer company, under the name Apple Computer Inc., but over the years its technology products expanded far beyond just computers, so the company removed 'computer' from its name. Today the company stands with more than 30,000 employees and with quarterly revenues in the billions. It was not an easy path, but part of the reason the company has gotten to where it is today is because with every mistake the company made, Jobs recognised it, learned from it, and made sure it would not be repeated in the future. After several years of failed product launches, Apple, finally, had another hit with the release of the Macintosh in 1984 (Akkad, 2010). In 1985, Steve Jobs lost his managerial duties at the hand of the Board of Directors after he lost an internal power struggle with CEO John Sculley, and would shortly resign from the company to pursue other endeavours (Slind and Yoffie, 2008). In 1989, the company released the first portable Macintosh computers which initially resulted in a failure. With vast improvements to a portable computer, the Powerbook, a modern layout for a laptop computer, was introduced in 1991. Also that year the company introduced the operating system, System 7. This was considered a major upgrade and introduced colour to the interface as well as new networking capabilities. After a period of great success under Steve Jobs, Apple was faced with a downturn as they attempted to expand into new consumer product lines including digital cameras, portable CD players, speakers and other items which were not as profitable as originally considered. They also wasted a great deal of resources in failed ventures that were badly forecasted and led by CEO Sculley. Additionally, their competitor Microsoft continued a strategy of using Windows and giving away software on inexpensive computers which helped them gain significant market share. Apple continued to offer more sophisticated engineered but these expensive products relied on high profit margins to fund its research and development costs. Consequently, after a series of new product failures and a delayed product releases, Sculley was replaced with Michael Spindler as CEO in June of 1993 (Helft, 2010). With Spindler as the head of the company, Apple focused on reemphasising their major markets which were desktop publishing, and the education sector. He also stopped the decision to put Mac operating systems on Intel chips and instead granted licences out to companies to produce Mac clones. They also focused on international growth and cost cutting measures like layoffs. In addition, they moved away from the core competencies that helped them achieve success in the past by effectively reducing research and development spending. All of these changes did not receive the results they had hoped for and by the beginning of year in 1996 they suffered a $69 million loss with more layoffs looming on the horizon (Slind and Yoffie, 2008). Soon after, Spindler was replaced by Gilbert Amelio as CEO. Amelio targeted growth for Apple with products related to PDAs, internet access devices, and servers. Apple also acquired Next Software which they would use for its research and development on a new operating system. Despite all of these changes, Apple continued to lose money, lost market share, and cut its work force. As expected, this led to the ousting of Amelio. During most of the decade in the 1990s, Apple Inc. suffered through a deviation from its core values. Its product lines were getting stale, and failed to capture the attention of 4 J. Wang et al. the public and excite its customer base. The lure of innovative new products was not working like it did I in the 80s, and the company reduced the importance of research and development which is considered to be a primary lifeline in the technology industry. The company had suffered numerous downsizings and reduced earnings over the years. More significantly, the company had lost its image as an innovator that it had attained in the early 1980s. Apple products were not in demand, especially Apple computers. The company would be in serious financial trouble if something drastic did not happen to change its fortunes. Luckily for the company, a drastic change did occur. In August of 1997, Steve Jobs returned and took over as interim CEO of the company. He came in and made swift changes to the overall strategy that Apple employed. For example, Jobs ended the licensing agreement it had for the Macintosh computer because he felt it was taking away sales from Apple's main product line (Yi, 2008). He also reduced the number of company product lines, in order to focus on what he felt was most important to the new product strategies that Apple would slowly reveal in the coming years. In 1997, the company also launched a website to sell its product to the consumer which would signify the beginning of its expansion into online services. Also, the company would retrace its successful roots, embracing those strategies proved to be most successful. In particular, there was a renewed emphasis on investing heavily in research and development as they had in early 1980s under Steve Jobs's leadership. A combination of research and development combined with online expansion would lead to market changing products like iTunes, the iPod, the iPhone, the iPad, as well as host of other innovative products (West and Mace, 2010). Apple had been extremely successful over the years as its creation of innovative products that have brought about a near-cult following, and has helped it turn in remarkable sales and an extremely strong gross margin. In fiscal 2009, the company posted a 40.1% margin, up from 29% in 2006. Apple's net income followed a similar trend, with the company earning $8.24 billion in fiscal 2009, more than quadruple the nearly $2 billion net income Apple had in fiscal 2006. Such growth over the past four years, despite the financial crisis that ripped through the economy in 2008 and early 2009, is truly remarkable and speaks to the ability of Apple to appeal to customers regardless of their economic state. This may be surprising, as Apple's products are priced at a premium compared with its competitors' offerings, but strong demand has proved to be a clear indication that customers consider the premium price worth it. In addition, Apple tended to offer its products at tiered price levels, so the company was able to appeal to the more affluent with its higher-priced offerings, while bargain hunters enjoyed the lower-end models Apple offered. Steve Job's leadership was critical to the change of Apple's Company culture and correspondingly its new image. This leadership, combined with several internal and external factors helped change the company's fortunes. These factors are discussed below in the case description. There is no shortage of publications in business excellence: from The evolution from brand equity to customer relationship equity to trust equity: the new challenge (Lundstrom, 2009) to Quality principles deployment to achieve strategic results (Jalili and Rezaie, 2010) to Mapping organisational innovation - multidisciplinary perspective (Kozlowski and Yamin, 2010); from Who achieves continuous improvement? TQM implementation in a global organization (Tanninen et al., 2011) to An empirical analysis into the reframing approach of organisational behavior (Sridhar, 2011) to Managing From stale to spicy to superb: a spanking new Apple 5 exploration and exploitation of opportunities: an entrepreneurial case study (Meewella and Sandhu, 2011). The list is endless. The main focus of this paper has been the strategic and marketing-oriented decisions and approaches that Apple has taken, also keeping in mind the various challenges and downturns that they faced during their history. 2 How Apple built a competitive advantage Apple's renewed success in recent years was jump-started with the release of the iPod, iPad, and reinvention of its Macintosh personal computer. The iPod music player captured the interest of youth, eventually leading to renewed interest in Apple's flagship Macintosh computer. Creating an improved Mac was the result of Steve Jobs coming back on board with the company and envisioning the need for change. Through his controlling nature, Steve Jobs kept a close eye on all aspects of new product development which paid off for the company. The culture of the company was based on Steve Jobs's close attention to, and influence into, the development and enhancement of each product. Apple can now truly state with confidence that the products it produces are better than the competition. The company strives for high quality design principles to ensure each new product has an enhanced visual aspect. Among the key factors that affect Apple's business, key internal matters to consider include the leadership provided by Chief Executive Steve Jobs, the marketing generated by the company that has led to its unique brand image, and the research and development that was instrumental in the creation of each of the company's products and services. External factors, meanwhile, include Apple's competitors, its partners, its suppliers, its customers, the economy, the media and hackers. 3 Internal factors 3.1 Apple co-founder and CEO Steve Jobs Steve Jobs, Apple's co-founder and chief executive, is often considered synonymous with Apple and is considered by many to have celebrity status. He is a clear influence on everything the company does, and is credited with much of Apple's success for the way he has directed the company with a distinct vision. In turn, Jobs was once described by a past co-worker as having \"a power of vision that is almost frightening. When Steve believes in something, the power of that vision can literally sweep aside any objections or problems. They just cease to exist\" [Imbimbo, (2009), p.70]. Whether it is naming a computer, coming up with the name Apple, or creating a bold, strategic plan for his next gizmo, Jobs seems to think in an unparalleled way and is considered one of the most valuable and important people in the corporate world today. Jobs is highly revered in the business world for his clear sense of vision and his confidence in his gut feeling, which are true leadership traits. While Jobs is not afraid to experiment and take risks, he will not compromise on quality. He is considered a true innovator, always looking to revolutionise the digital world with products that are not only functionally unique, entertaining and useful, but that are also aesthetically and ergonomically pleasing. 6 J. Wang et al. Among the company's early failures: the Apple III and the Lisa, both of which suffered from major oversights in what the products did and whether they would satisfy their targeted audiences. But the Macintosh helped rectify those mistakes, and Jobs was considered one of the biggest influences on the Macintosh's ascent to the market. However, Jobs left not long after the Macintosh's launch due to creative differences he had with then chief executive John Sculley. In his time away from Apple, Jobs started a company called Next, and also acquired what became Pixar (and is now a part of Disney). In the meantime, Apple made a series of missteps and eventually brought Jobs back through an acquisition of Next's software. Apple had gone through a rough period during which its very existence was threatened, but Jobs came charging back with marketing leadership and charisma that restored consumers' and investors' loyalty. Eventually, he was named to the company's helm and in his second time around at Apple, Jobs made a number of changes that showed he had grown over the years and was even ready to become strategic partners with companies that had once been its arch rivals. In recent years, in addition to Jobs's constant commitment to creating the next best thing, he faced a personal battle against pancreatic cancer. When investors and customers saw Jobs's weight dwindle and began to worry about his health, they also grew concerned about the future of Apple, as Jobs's leadership there is considered part and parcel to the company's success. Fortunately for Jobs and the company, Jobs recovered fully although there was a period when he was unable to be directly involved in the company's day-to-day operations. This served as a litmus test for Apple to see if the company could survive without him. What comes to consumers' minds when they think of Apple is innovation, creativity, and 'hip and cool' features. The person behind the brand image is Steve Jobs, a man who may dress simply in a black turtleneck and jeans at most events but whose influence and impact on Apple and the world of technology are immeasurable. To this day it is clear that Jobs continues to be passionate about what he does for Apple and its customers, a drive well articulated in a speech Jobs once gave at Stanford University. Jobs said, \"you've got to find what you love and I'm convinced that the only thing that kept me going was that I loved what I did\" (Stanford Report, 2005). 3.2 Apple's research and development - a small budget but big impact One of Apple's most valuable characteristics is the emphasis the company places on research and development. It is crucial for a company such as Apple, which brands itself as a creative mastermind and the developer of game-changing and life-changing technology and devices, to make ample investment in the research and development that is necessary to lead to such products and services. Otherwise, there would be nowhere for each of its 'next big things' to incubate, become cultivated, and eventually come to market. Nevertheless, Apple had a knack for how to spend its R&D money wisely. It actually spent far less than competitors back in the early 1980s in creating one of its biggest game-changing products - the Macintosh computer. That's because while the company focuses on investing in new ideas, it also tends to consider how to do new things with products and technologies that currently exist. As Gibson (2009, p.26) noticed, \"Where Apple scored big was in combining existing but underutilized technologies - such as the mouse, the full-page monitor and the graphic user interface (which were invented by From stale to spicy to superb: a spanking new Apple 7 Xerox Corp. but not commercialized) - in a cleverly designed and consumer-friendly package\". Today, Apple still manages to maintain a much smaller R&D budget than its competitors. It has just a 5% share of the computer market and just a fraction of Microsoft's $6 billion annual R&D budget, and yet its personal computer operating system is arguably considered the most advanced. Apple has been able to maintain a smaller R&D budget because the core software code behind its operating system, for example, came from the public domain. Where Apple excels is in placing most of its R&D investments in areas where the company can really set itself apart. For example, rather than focusing just on software or just on hardware, as many other technology companies have, Apple often finds ways to make software and hardware that work together so symbiotically, so that competitors' products seem to be no match. In a recent memoir, Apple co-founder Steve Wozniak says the very fact that Apple worked on both (hardware and software) together is one of its biggest reasons for its success. Apple's computers historically worked better than IBM-compatible PCs because of this, and the combination of the iTunes software with iPod hardware followed a similar trend, co-founder Steve Wozniak (2006) noted in a recent book, \"It's only because Apple supplied both sides of the equation - the hardware and the software - that it was able to create a product as great as this...\" (p.299). In addition, Apple puts a great deal of focus on design, ensuring that each new product looks as unique as possible yet is recognisable as a part of the Apple brand. The iPhone, e.g., initially looked \"like nothing else. It took no cues from category norms\" [Murphy, (2008), p.6]. Since then, many competitors have created mobile phones that mimic the look of the iPhone, but when it was first released, the design of the device was unlike any other. Apple also put a great deal of emphasis on the little details other companies often overlook. As reported by Scanlon (2007), one of the secrets of Apple's success is its obsession with the small stuff - cords and ear buds, for example. Every component is held to the same exacting design standards. In turn, these little things have become a big part of Apple's image. The white cords and ear buds and simple, sleek designs of its products are important aspects that help consumers recognise when a product is made by Apple, and they add to their allure. Because Apple's design is so iconic, its designer, Jonathan Ive, has become almost as much of a celebrity as Steve Jobs himself. Ive is considered the mastermind behind the look of the iMacs as well as the iPods that have been largely credited with helping Apple turnaround from the slump it had seen in the late 1980s and early 1990s. Among the things Ive did to find just the right unique recipe for the colourful gum-drop colours of the iMacs, he and his team actually consulted with experts in the confectionary industry to learn more about the colours before they experimented with them in plastics. However, unique was not the only thing Apple was going for with its design. It was also looking to make its products seem more approachable; something the average person could pick up and feel comfortable trying without reading a manual. \"A lot of people at that time were really nervous around computers so one of our clear goals was how we could make the product more accessible, for it not to be intimidating,\" Ive said [Harris, (2009), p.60]. 8 J. Wang et al. 3.3 Thinking differently - marketing and its impact A marketing department is responsible for acquiring and retaining customers for products and services by delivering desired value. The department makes this possible by identifying and creating needs to cater to consumers effectively and efficiently. Apple, through the leadership of Steve Jobs, executed this task brilliantly throughout the history of the company. Jobs recognised the importance of marketing even in the early years of growing the company. For example, when Steve introduced the Macintosh computer in January 1984, he programmed it to tell a joke: \"Never trust a computer you can't lift,\" the machine said. In turn, Jobs \"gave the Mac a personality - cute and funny - and made people think differently about how this machine could transform their lives\" [Imbimbo, (2009), p.79]. This simple joke signified Apple's ability to stand out in the crowd of competitors by being different. Among the many success stories of Apple's marketing department, its marketing of the iPhone product, launched in 2007, really stands out. \"Jobs' announcement was an example of the intelligent use of trade shows and Apple's experience with generating press coverage and buzz about new products through them\" [Mickalowski et al., (2008), p.1]. In doing so, Apple leveraged its previous success of the iPod to jump into a new market. Positioning the device as a wireless smart phone with a built-in iPod gave the company a natural direction for consumers who already owned and loved the iPod. In addition, the device had a strong advantage over the competition due to its innovative touch-screen technology integrated virtual keyboard. Before this, consumers were used to smart phones with a physical keyboard and smaller screens. In turn, Apple's marketing of the iPhone was seen as exemplifying \"Apple's knack for creating excitement about products among its fiercely loyal customer base, who keep attention focused on the company, and then justify the hype by delivering a high-quality, desirable product\" [Mickalowskiet al., (2008), p.6]. And it paid off, as seen through the sales of the iPhone on its first weekend available. In addition, its marketing was recognised by Advertising Age, which in 2007 selected Apple as a runner-up for the annual Marketer of the Year award. Advertising Age is an influential periodical dedicated to advertising, and for a technology-oriented company to be recognised for its marketing efforts is a major achievement. The reasons for Apple's marketing success are numerous. Many point to Apple's ability to control the media by using them to aid their advertising goals. When new products are unveiled, no other company has received as much attention as Apple. This year, Apple released a new product called the iPad. Excitement was stirring about the product long before its introduction, as Apple leaked enough details about it to the press to get them writing about it but left out enough detail that it would keep everyone wondering and build up the hype even more. As soon as Jobs introduced the product to the public, reporters, journalists and bloggers wrote prosaically about the device. The iPad instantly received a lot of what essentially became free advertising. As a result, without even releasing a single ad for the iPad, the product still became widely known due to the excitement over it in the press and the blogosphere. That excitement helped sell 300,000 iPad devices in the product's first day on the shelves. As for the actual advertisements that appear for Apple products, they too are a clear reflection of the company's marketing prowess. A prime example is the Apple MAC computer vs. Microsoft Windows PC television ad in which the young actor Justin Long portrays a MAC while an older man defends a Windows PC. This advertisement scheme From stale to spicy to superb: a spanking new Apple 9 single-handedly gave the public a new outlook on Apple, adding to the public's perception of Apple's products being fun and cool. 4 External factors 4.1 How competitors aided Apple's product-improvement efforts Because Apple's products encompass a number of product lines, one would expect that the company has a great many competitors. But the one that would be considered its fiercest competitor over time is Microsoft, which Apple has had a rivalry with pretty much from the time it was first created. However, while the companies are for the most part still competitors, the fact that they actually work together as partners in some ways, is a clear indication of how much the competitive landscape in the industry has changed. A quick summary of the changing relationship between Apple and Microsoft goes as follows: Microsoft in 1981 developed Windows, \"an operating system that mimicked the look and feel of a Mac\". In 1994, Apple unsuccessfully sued Microsoft for copying the look of the Mac. By 1997, Steve and Gates started working cooperatively. Microsoft partnered with Apple to develop software for the new Macs, which helped fuel Apple's resurgence [Imbimbo, (2009), p.93]. Apple and Microsoft have helped each other directly and indirectly create better products with each release of their operating systems (Mac and Windows). For instance, many would argue that each company copies core features from the other's systems. More recently, one may compare Apple's graphical user interface engine which is called Expose to Microsoft's Aero Peek. Both display friendly graphical environments and contain similar usability features. Other examples include a comparison between Apple iWork and Microsoft Office or even the iTunes media player and Windows Media Player. Even Apple's Front Row application can be compared to Windows Media Center. And it is not just the big software packages offered by the companies that tend to mimic each other; even small features are copied through functionality and implementation. A prime example is the shortcut key combination of Cmd-Tab on a Mac being the same as Alt-Tab in Windows. Regardless of whether these ideas were copied or simply a part of the common evolution of computers over time, both Apple and Microsoft have expanded their offerings as a result of the competitive landscape in the industry. If a company in the technology industry were to stop improving, it would only open the doors for other companies to enter the industry more easily and to take over a portion of the market share. A more recent rivalry has been developing between Apple and Google, a relationship that also has helped the companies advance the state of the cell phone industry as they continue to challenge each other. Without question, Apple's iPhone revolutionised the mobile industry but also opened up opportunities for other companies to create similar products. Google released the Android mobile operating system that is considered a formidable competitor in the operating system on the iPhone, especially because it has the ability to run multiple applications at the same time. This feature has been missing from every iPhone release. To counter this feature, Apple recently announced plans to add this feature in its new iPhone coming out in summer 2010. The fact that Apple is making sure its products now have this coveted feature shows how Apple quickly 10 J. Wang et al. recognises competitive threats and reacts quickly to ensure that its customers stay happy and at the same time to continue to win new customers. In turn, increasing competition in the technology and consumer electronics industries plays a big role in shaping what Apple decides to create and release. Competition is thus worthy of credit for Apple's vast improvements in its products over the years. Without it, Apple might not have gone quite as far as it has to stay on the cutting edge. It is this edge that allows the company to offer premium products at a premium price. 4.2 Apple's network of partners - making the most out of relationships The formation and maintenance of mutually beneficial partnerships is very important to survival in the technology industry, as there are so many areas for specialisation that it is nearly impossible for one company to rely solely on itself and not work with partners. Those companies that do tend to struggle as they waste far too much time, money and energy trying to work on things other companies have already mastered. As a result, Apple has recognised a need for it to nurture positive relationships with other companies that are at the top of their fields. Among the company's key partners, it has AT&T providing the mobile phone service for its iPhones, while it also works with Microsoft, as previously mentioned, so that the companies can leverage the best of each of their worlds to give consumers what they want. In Apple's relationship with AT&T, only three executives at AT&T had seen the iPhone through its development stages, and AT&T gave up nearly all control (Mickalowski et al., 2008). Such an agreement gave Apple the flexibility to develop its product on its own terms and keep its features under tight wraps. In addition, it meant Apple could focus on producing a superior product and did not have to worry about network issues, as that was under AT&T's domain and responsibility. Apple was even able to strike an unusual deal to split the revenue with AT&T. Meanwhile, it was a big benefit to AT&T because iPhone customers would need to commit to a two-year wireless agreement with AT&T, which prompted those customers who wanted the iPhone but were not already AT&T customers to make the switch to AT&T. Still, there are some holdouts who are loyal to Verizon and are hoping that one day the iPhone will also work with Verizon service. Apple's relationship with Microsoft is not only one as a competitor but also now as a partner, as they were able to overcome their bitter past and work jointly to produce Microsoft products for Apple's operating system. In return, Apple made the popular iTunes music catalogue available for Windows users. The relationship between Microsoft and Apple is an excellent example of the fact that in business, there often cannot be clear rivals or friends; rather, alliances can be made if they are beneficial to both parties, and it's as simple as that. However, not every partnership Apple has been in has been a positive one. For example, its partnership with International Business Machines soured because IBM started to give less attention to Apple as it accounted for a smaller percentage of its overall revenue. Still, Apple was in a situation where it needed better processors, so it looked to other providers and ended up forging a new partnership with Intel, even managing to get Intel to agree to special terms. For example, computer manufacturers who used Intel chips typically must display Intel's sticker on their computers, but Apple was able to keep its computers free of Intel stickers under their deal. From stale to spicy to superb: a spanking new Apple 11 Other companies that Apple has partnered with include Viacom, Disney, Google and Yahoo, all of which were strategically selected to bring internet features to the iPhone (Mickalowski, 2008). Apple's relationship with Google is particularly interesting, as Apple uses Google as its default search engine, but as Google continues to branch out from internet searches to other technologies such as mobile phones, the companies are becoming bigger competitors for one another, as previously mentioned. For the iPod and iTunes, Apple reached a deal with record companies in April 2003, which enabled the launch of the iTunes Music store featuring some 200,000 songs in its library. Within a week, more than a million songs were sold (Imbimbo, 2009). The deal was remarkable in that many others had previously tried to get music companies to agree to have their music sold similarly, but it was only CEO Steve Jobs who was able to successfully negotiate a deal with the music-recording industry. 4.3 Apple's suppliers - working together to build game-changing products As creative as Apple's designs and ideas are, the company must rely on the latest technology and available parts to bring them to life. The success of Apple's products and its continued ability to provide them is therefore contingent on the company's relationship with suppliers who can get the company components that are both cuttingedge and reliable. By relying on these companies to provide the nuts and bolts of its products, Apple can then devote more of its time and resources to the design, software and marketing that are to credit for its cult-like following. Part of the reason behind Apple's following is because the firm has shown great prowess in taking ordinary technology components that are readily available on the market and putting them together in such a way that others might have never imagined. As noted by Gibson (2009), \"none of the iPod's essential components are unique and can almost be bought off the shelf\". However, \"what made iPod a hit was the way Apple infused the device with its classic attributes - user-friendliness, cool design, and an iconic brand - and then linked it to the iTunes business model\" (p.27). The very fact that Apple does rely on available parts from a wide variety of global suppliers is part of what helps it focus on what it does best. The Apple iPod, e.g., is designed and marketed by Apple, but it is actually assembled by Taiwanese manufacturers in China, and includes parts from suppliers in Japan and Korea as well as the USA. After Portelligent Inc. dismantled the 30 GB iPod that went on sale in October 2005, it found the device's hard drive was from Toshiba in Japan while its video and multimedia processor came from Broadcom in the USA, it was assembled by Inventec in Taiwan, and its 32 MB of mobile SDRAM memory came from Samsung in Korea (Linden et al., 2009). The relationship between Apple and its suppliers is mutually beneficial, as \"the suppliers are able to benefit through the revenue generated by increased business, and Apple is freed from running complicated, labor-intensive manufacturing operations\" [Mickalowski et al., (2008), p.284]. However, the suppliers can at times get disgruntled by Apple's secrecy when they are trying to assess and provide what the company wants from their parts. Nevertheless, suppliers by and large seem happy to work with Apple and take pride in supplying the parts to some of the most pivotal technology products and devices. Investors often pay close attention to what companies are supplying Apple's devices, and the shares of those suppliers tend to benefit. 12 J. Wang et al. 4.4 Apple's customers and efforts to meet their needs Customers' needs and wants have undergone a dramatic change over the past few decades, with much of Apple's technology helping shape that and then serving as a response to it. When the Apple II was introduced in 1977, people could not imagine a computer at home and had doubts about the use or utility of personal computers (Kendall, 1994). Computers at that time were only associated with banks and big businesses. However, over time people began to realise how computers could make their lives easier, not only at work but also at home, especially when it came to keeping track of personal finances. And many were pleasantly surprised that they did not even have to memorise long commands or think through complex steps to use computers. In the years that have followed, the advent of the internet and World Wide Web acted as an additional catalyst for changing needs and wants among customers, to the effect that today, technology is an essential component of everyday life. In line with Smith (2010), while consumer spending directly accounts for just 10% of total information technology spending, it is an important factor. That's because consumer confidence helps drive consumer spending across the economy which in turn leads to improved business confidence and therefore drives business capital spending. In addition, as PC penetration in the home increases, businesses must invest more in their IT infrastructure to handle increasing demand for e-commerce transactions and other high-tech services. Changes in consumer behaviour therefore can have a huge impact on corporations and how much IT spending they decide to do. Apple's iPod has had a huge impact on consumer needs and wants. It is safe to say by now, with iPods so ubiquitous, that Apple was able to succeed in making iPod a necessity. This is because Apple was able to analyse and discover from competitors' failures what it was that consumers really wanted, and then it was able to apply that to create something useful and novel so that it became something of a 'must have' item. By 2005, Apple held 75% of a more than $4 billion market for digital music players (Peterson, 2007). In addition, the iPhone is considered a prime example of the ways technology and consumer needs and wants have been feeding off of each other in that \"it is explicitly conceived as an intervention into the styles and genre of contemporary culture - notably mobile phone cultures, internet cultures, and the broader scenes of digital culture\" [Goggin, (2009), p.231]. Apple's recently released iPad is now its attempt to help change the habits and lives of those potential users who have not been quite as affected by technology - older generations (Furfie, 2010). The device is known to be particularly user-friendly so that this generation can more easily adjust. As for its potential uses, the idea behind the iPad is that it will be used whenever you choose to do almost anything anywhere. Nevertheless, in a world of ever-changing consumer needs, some needs and wants do stay the same - the need for reliable service, a quality product and the want for it to look and feel pleasing and cool. These are things Apple targets directly in its marketing, as previously mentioned, and it's important for the company to continue appealing to these static needs while it also works to satisfy and create customers' new needs. 4.5 The economy - Apple manages to go relatively unscathed While Apple's products tend to be amazing all on their own, what's particularly remarkable is that while the company's products are priced at a premium to those offered From stale to spicy to superb: a spanking new Apple 13 by competitors, Apple emerged practically unscathed by the recent financial crisis, which sent most of its competitors reeling. According to Asay (2010), as the economy stalled, prices fell to match the increasingly frugal minds of consumers and businesses. During this period, Apple seemed largely unaffected, consistently scoring solid earnings and rising market share, all while keeping prices relatively high. The loyalty of consumers to Apple products despite high unemployment, a downbeat housing market, and other challenges, is quite astounding. It is clearly a testament to the quality of Apple's products. In addition, it speaks to the success of Apple's pricing model, with most products and services available in tiers that appeal to customers of a variety of financial situations. The pricing is based on a strategy referred to as anchoring, in which a company sets a product's price high and then offers less expensive versions of it, so that the lower priced versions appear to be a great value, even if they cost more than competitors' similar offerings. This pricing system has helped Apple attract even the most budget-minded consumers, while those who can afford to tend to find it is worth it to pay up for the upper-level products Apple offers at the higher end of the pricing spectrum. Apple was also formed in a fairly bleak economic period (1970s) and yet Steve Jobs and Steve Wozniak were able to get their business off the ground in what some have said is partly because their entrepreneurial story was particularly appealing to the US public. At the time of Apple's 1977 formation, when newspaper headlines increasingly highlighted the growth of foreign competition and its potential to undermine US business, the public loved the idea of two young men who started a business in a garage and were able to see their dream escalate from there. Corresponding to Butcher (1988, p.112), \"Apple positioned itself as a bastion of hope for American free enterprise.\" Going forward, industry watchers are anxious to see if the release of new devices such as the tablet iPad from Apple or netbooks from its competitors change consumers' purchasing patterns in the PC industry, especially given that tablets and netbooks are becoming less expensive, and consumer spending is still down from where it was just a few years ago. In a recent Standard & Poor's report, Smith (2010) mentioned the variables that could dim or brighten PC industry growth over the next few years are largely \"economic growth factors, such as unemployment levels, energy prices, and the pace of patching up the financial industry\" (p.3). Meanwhile, it will be interesting to see if Apple is able to continue defying the rest of the industry's vulnerability to the swings of the economy or if economic will eventually have an impact on the company. 4.6 Working the media to Apple's advantage While Apple's marketing has helped the company try to control its brand image, the media still wields influence power over public opinion and can easily make or break the success of any product launch by Apple. Consumers rely heavily on the opinions of experts such as journalists, so poor press on a product can have a direct, negative effect on the sales. Because of this, it is important for Apple to maintain close and careful relationships with the various key members of the media as the company tries to influence press coverage to emphasise the positives and help add to the excitement over each of its new products. Because of this relationship, the company often hints at things it might do next, which is something journalists like and often respond to positively, and it is those journalists 14 J. Wang et al. who have become known for predicting Apple's next product or list of features whose reviews can easily sway consumers' opinion on current or future products. Stross (1996) observed, \"Apple is something of a rarity in American capitalism, a company that seems to have the media rooting for its recovery with a passion equal to that of its own shareholders\" (p.19). Apple's success in the media is the result of several brilliant moves by the company. With the company's recent release of the iPad, several media companies were invited to try the device prior to the public release. The Wall Street Journal was even given the opportunity to create an iPad application and be one of the first to present its app during Jobs' initial product introduction. By doing this, The Wall Street Journal gave Apple its endorsement of the product at a key event that was widely followed by the public. The move showed consumers and other media companies that the new product was accepted by The Wall Street Journal and was receiving a fair amount of attention from it. Still, not all the reviews were great. Some critics got their hands on the iPad a week before its official release, and were not afraid to point out what they saw as the pros and cons of the device. Doing such a thing can be risky for a company, as there is always the possibility that none of the critics will like a product. But the company was willing to risk having media coverage on the device before its release and it paid off. The product has been deemed by many as yet another game-changer from Apple, and sales have been quite strong so far. Many now expect the sales of the iPad to be greater than sales of the iPhone were during its first year. 4.7 Hackers take a bite out of Apple's control Apple takes the security of its products to the highest degree, especially for the purpose to keeping away hackers. Hackers are known as those who are able to gain access into a system in an unauthorised manner. The threat of such people not only could leave the products produced by Apple in an unsafe condition but can also reduce revenue for the company. In addition, hackers can keep exploiting systems even through the theft of confidential information about a product's owner for personal gains. In turn, hackers represent a huge potential liability to Apple, which has claimed for years that its systems are more secure than those of any other competitor. To deter this group of criminals, Apple has added many quality control procedures in its development life-cycle for any new product or software programme created. In 2006, USA Today reported that Apple went as far as putting a simple poetic warning to hackers deep in its core operating system. The message in the system read as follows: \"Your karma check for today: There once was a user that whined/his existing OS was so blind/he'd do better to pirate/an OS that ran great/but found his hardware declined. /Please don't steal Mac OS!/Really, that's way uncool./(C) Apple Computer, Inc.\" [Wong, (2006), p.1]. Apple's simple warning was a relatively lighthearted way of reminding hackers that the action is considered stealing, which is illegal and something the company does not treat lightly. The message also conveys that Apple publicly recognises the threat and at the same time ensures that hackers know Apple is already aware of their behaviours and goes to every measure possible to prevent them from being able to break into their systems. Among its most protective strategies, Apple created a closed system for the iPhone in which third-party programmes were not permitted to run on the system. This move was disliked by many and eventually a large number of consumers wanted more options. From stale to spicy to superb: a spanking new Apple 15 Apple listened to the complaints and released a software development kit (SDK) in 2008 that allowed other companies to create applications on the iPhone. Amazingly enough, that led to a whole new market for Apple, with the creation of the AppStore, which enabled developers to sell apps directly and easily to iPhone owners. Apple receives a percentage of the sale. Currently, the main complaint about the AppStore is that Apple must approve the third-party programme first, but that's how Apple ensures that the apps that run on its phones are safe. Still, hackers tend to find their way around virtually anything, and the iPhone was no different. \"Hackers around the world found ways to unlock the phone and add applications. A black market also developed for 'hacked' devices\" (Cusumano, 2008). Apple reacted to the unlocking of the iPhone, also known as jail breaking, with constant updates to its software to ensure the current method no longer works and the warranty is void. And in a particularly brilliant move, owners of the iPhone, iPod Touch and iPad are forced to make appointments with the company to replace the batteries on the devices. If the company finds the device has been unlocked, it will not work on it or do anything to help make it work again. Such protective mechanisms help deter hackers from even attempting to comprise the indented use of Apple's products. They also force their own internal departments to work harder in an attempt to stay one step ahead of this criminal group. As a result, Apple continues to claim that its products are more secure and virus-free than competitors products, an assertion that has helped increase Apple's sales as customers are aware of hackers and will pay for products that help avoid them. 5 Current challenges/problems facing Apple Companies are constantly faced with challenges and for some, overcoming these obstacles are necessary for continued growth. Throughout Apple's history, failures occurred as well as successes but the most important strength of Apple is its ability to learn from mistakes rather than ignore, or to allow them to continue. The fear of losing Steve Jobs, the man that turned Apple into a successful company again, is shared by many stockholders and employees in the organisation. A reality is one day this man will no longer be a part of Apple and the company needs to plan for this by ensuring a strong and innovative leader will take his place. In 2009, Steve Jobs was on leave for medical reasons and the company continued to bring in strong profits while a temporary leader was in charge. This indicates that the company is capable of stepping up to this challenge when that day occurs (Kenney, 2007; Adrian, 2010). In recent years, Apple has become known for delivering innovative products that stand out in a crowd of competition. Customers now have very high expectations for Apple, and it seems inevitable that one day, eventually a product will be released to the masses that will fail. When this occurs, how will Apple ensure that the sales of their other products are not affected, and how will it deal with the negative publicity to prevent future products from being affected? The last thing that the company would want is to start a trend of failed products after having such a successful run in recent years. Keeping the momentum going forward for any company is difficult but the stakes are even higher for Apple since it has had so many ground-breaking products. 16 J. Wang et al. A current challenge faced by Apple is in regard to handling the previously mentioned jail-breaking (unlocking) of iPhones, iPod Touches and iPad devices. Several attempts have been made to protect Apple but even the release of new upgrades still leaves the products vulnerable. Hackers have already devised methods to crack the new core system that will be released in summer 2010. The news spread three days after the beta release of the new system. With speed like that, one must wonder if Apple will ever be able to stop these hackers from using their products in unauthorised manners and releasing instructions to the public to do the same. Each jail-broken device means the control that Apple desires has been compromised. 6 Conclusions While Apple certainly has had its share of rough patches over the years, it is a company that has had remarkable success in creating products and services that not only break the mould and become game-changers, but also transcend consumers' wants to become in a sense, their needs; while at the same time generating record revenues and profits. Apple's evolution from a small, garage-run business to the technological powerhouse that it is today is a testament to the company's ability to do business in any economy and to keep using innovation to give customers what they want. In the meantime, the company knows how to use its marketing savvy to work the media and keep its image as positive as ever. The main focus of this paper has been the strategic and marketing-oriented decisions and approaches that Apple has taken, also keeping in mind the various challenges and downturns that they faced during their history. The directions taken, the changes made, and also the responses to difficulties encountered are all highlighted in this paper. In particular, attention has been given to the ways that the firm was able to achieve success in an extremely difficult marketplace, where technology companies come up with the 'next big thing' on a regular basis, competition is fierce, and technologies change in a matter of months. Apple's strategies have been introduced with a management emphasis, and applied and then examined in conjunction with the introduction of products and services by the firm. While less of a limitation than an approach, the way that this paper is structured focuses on the company and its broad vision, directions, and strategies. The target is on the company and how it could ensure its edge of innovation, especially when they were selling different, however not entirely 'new classes' of products. However, Apple, in many cases, emerged as the leader, enticing consumers to pay a premium to own and use their products. In terms of future research, more detailed analyses could be done from the perspective of products and marketing. Additional work could be done on analysing the market and players for the various products Apple has sold over the years, and doing an analysis using a product-line oriented focus would be a worthwhile possibility. Further analysis of the PC vs. Macintosh from both the technical and marketing viewpoints, understanding the success of the iPod and iPad, and other analyses can be done. 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