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Strategic Management of Technology and Innovation-2-July-Dec-14

Strategic Management of Technology and Innovation-2-July-Dec-14

Section A (20 Marks)

Write short notes on any four of the following

1.      Importance of Technology and Innovation to Business

2.      Process and Tools for Managing Technology

3.      Steps in Strategy Formulation Process

4.      Three C’s of Implementing Strategy

5.      Strategic Control Approach

 

Section B (30 marks)

 

(Attempt any three)

1.      Elucidate the background and structures of technological innovation system.

2.      Discuss about the link between strategy and innovation.

3.      Define generic strategies. What are the various types of generic strategies?

4.      Briefly, explain the various tools for strategic planning and evaluation.

 

Section C (50 marks)

 

(Attempt all questions. Every question carries 10 marks)

 

Read the case “Strategic Planning: The Case Study of Apple Computer Company in 1992.” and answer the following questions:

 

Case Study: Strategic Planning: The Case Study of Apple Computer Company in 1992

 

By Gary Cao

 

Problem Statement

The single most important problem for Apple Computer is the absence of a new vision and a comprehensive strategic plan. Apple is losing its advantage in personal computer (PC) technology.  Rather than focusing on customer's needs, Apple has been complacent and "out of touch".

 

Problem Definition

Apple does not understand its corporate strengths and weaknesses.  Net income in 1991 was $310 million, compared with a range from $400 million to $474 million in the previous three years. 

Return on Equity (ROE) in 1991 was 19%, compared with a range from 32% to 44% in the previous three years.  Apple's market share has been stagnant (8% to 10%) compared with the market size growth (worldwide hardware revenue increased more than 400% from 1983 to 1991) and other fast growing competitors (IBM's market share increased from 6.04% in 1981 to 16.05% in 1991).  Without a clearly defined new vision, strategies and action plans closely linked with its mission, Apple Computer will be "on the glide path to history" and become a victim of the competitive marketplace and its own complacency.

 

Problems and Situation Analysis

1.  Industry Environment

An extremely dynamic industry environment and a highly competitive marketplace have contributed to Apple's problem. 

Direct competition  --  By 1991, the market size was $50 billion for hardware, $30 billion for software, and an installed base of 100 million PC units.  The top 17 PC manufacturers increased their market share to 62% by revenue (45% by units) in 1991 from 39% (20%) in 1981.  The combination of Microsoft OS with Intel microprocessor has a market share close to 90%.  Two major platforms exit in the market:  IBM-compatible PCs (90% of the installed base), and Apple Macintosh (Mac) PCs (less than 10% of the market share). 

New Entrants  --  For the five layers in the PC industry, two of them (microprocessors and operating systems) have relatively higher barriers of entry.  The other three layers (platforms, applications software, and distribution) have low barriers of entry with relatively low capital requirements.  Commoditization is the industry trend, especially for hardware. 

Buyers  --  Three categories of buyers exist:  Business and government (units 60%, revenue 79%), educational institutions (9%, 7%), and individual/home (31%, 23%). 

Suppliers  --  Intel supplies 87% of the microprocessor; Microsoft OS enjoys 88% of the installed base; Independent Software Vendors (ISVs) write application software for the operating systems;  hardware (memory chips, disk drives), peripherals (printers, modems) and service suppliers also participate in the game. 

Substitution  --  Substitutes of PC are workstations of networks, laptop/notebook PCs, and Personal Digital Assistants (PDAs).

Industry Trends

This industry has several trends that deserve attention.  To survive, PC manufacturers must combine lower cost with higher quality.  Large spending on R&D forced companies to form alliances to share risks and make resource-allocation more efficient.  Continuous technological innovation is vital to a company's success, and open systems tend to set industry standards.  The IBM-compatible PC is an open system compared with Apple's highly proprietary, closed Mac PC. 

The Intel/Microsoft alliance set the industry standard for IBM-compatible PCs.

Customer Needs

The market mechanism works in favor of the customer and for open competition.  If Apple continues to separate itself from the market transition, it will lose its popularity, shrink to a small market niche, and possibly go out of business.  The customers, as end-users, have the ultimate power in choosing the best product in each different niche (segment) with the highest performance and lowest price.  Apple has not paid attention to the most important customer need. 

Customers want all of the following attributes in a PC:  user-friendly OS, high performance, low price, suitability to their specific needs.  Before 1990 (when MS Windows came to the market), customers had to make a hard decision between two alternatives:  a lower priced open system with a less user-friendly OS (IBM-clone PC with Intel/MS DOS), or a higher priced close system with a more user-friendly OS (Apple's Mac), for roughly the same performance (speed or capacity).  An open system PC with user-friendly OS would be the ideal product for customers without compromising each of the two items.  Apple once had the most loved, user-friendly GUI OS, but Microsoft DOS had the advantage of the open system.  Furthermore, in 1990, Microsoft Windows went to the market, narrowing the gap between Mac and DOS, and making the trend to Intel/Microsoft IBM-clone PC even more popular. Customers would see a PC as a commodity, not a luxury toy.  Market mechanisms worked as an equalizer: the ordinary people think and act rationally and choose the product/service with the best combination of features.

Open Systems

From the facts that IBM-compatible PC has 90% of market, Microsoft has 88% of the OS market, and Intel has 87% of the microprocessor market, Apple should have learned the importance of an open system.  IBM's entry in 1981 changed the PC industry by offering an open system.  The specifications of IBM's PC were easily obtainable, allowing independent hardware companies to make compatible machines and independent software vendors (ISVs) to write applications that would run on different brands.  Open systems gave customers a big benefit because they were no longer locked into a particular vendor's product, and they could mix and match hardware and software from different competitors to get the lowest system price.  PC consumers' preferences in the major brands (IBM, Compaq, Apple, etc.) show that product compatibility is the most important factor (44%).  An open system meets this need, whereas Apple's Mac does not.

".  To achieve its mission, Apple needs a clear vision on the market trend, a balanced set of objectives, a comprehensive strategic plan, an action plan, and an effective implementation of the plan.  It also must carefully evaluate its strengths and weaknesses using the following four criteria.

Value  --  Apple's performance/price ratio is lower than some of the major competitors.  It did not have major technology breakthroughs for its OS since 1984, even though it had a niche from 1986 to 1990 as the easiest PC to use in the industry with unmatched capabilities at desktop publishing. 

Rareness  --  Apple's GUI OS was once unique and innovative but has been losing this advantage. 

Imitation/Substitution  --  IBM-compatible PCs with Intel chips and Microsoft Windows came to the market in 1990 with the intention defeating Apple's product.

Organization  --  Apple is not well organized for the competition.  It invents, designs, and produces most products it sells.  In this closed system, R&D is not efficient.  Five large dealers sell 80% of Apple's products.

In summary, the industry structure is very unfavourable for Apple to survive.  Apple restructured somewhat in 1990 and 1991 to adapt to the market.  These actions included developing a cost-cutting strategy and "hit product strategy", creating Claris as its software subsidiary, setting up two joint ventures (Taligent and Kaleida) with IBM.  However, the fundamental philosophy remains the same:   Apple believes that by innovation, it can charge a premium price and resist industrial trends toward commoditization.  It has not paid adequate attention to what most PC users really want.  This philosophy has hurt Apple's market share and profit growth.  Before Apple can revitalize itself in the dynamic and competitive PC industry, it must address consumers’ needs.

 

 

Questions:

1.      What was the problem faced by Apple inc.?

2.      Highlight the industry environment of Apple Inc.

3.      What were the industry trends for Apple Inc.?

4.      Give an overview of the open systems in the above case.

5.      Summarise the above case in your own words.

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