Apple's (not so) Stupid Strategy

2010 January 12

tags: Apple, Innovation, Leadership, Strategy

by Greg

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Apple is one of the most successful companies in the world today by almost any measure, except one.  They seem oblivious to the wisdom of today's business experts.

Sure, everybody loves their products and they are  immensely profitable.  Yet they fail to answer basic strategic questions that management gurus believe are key to running a successful business.

Where's the Blue Ocean?

W. Chan Kim and Renée Mauborgne of INSEAD sold more than a million copies of their book, Blue Ocean Strategy. They point out that many markets are very competitive. Companies battle it out for decreasing profit margins in a managerial fight to the death.  This creates a bloody, red ocean where survival is doubtful.

The solution is clear:  Find a blue ocean without all of those vicious fish.  Here you can be a "value innovator" and offer lower cost and better quality for your consumers.  Their logic is compelling and their argument persuasive.

Apple, however, seems to completely ignore the blue oceans and want to dive into every red ocean they see. They launched their iPod music player years after MP3 players had become commonplace and dozens of companies had been attracted to the category.

Apparently not satisfied with just one strategic misstep they went to the even more competitive mobile handset market.  This category offered entrenched competition from some of the most innovative companies in the world.  The industry appeared to be consolidating while Apple was formulating it's plans to enter.

Surely Apple must not have thought things through or just chose to ignore the advice of respected business experts.  How can they be so stupid?

Of course,  both the iPod and the iPhone have been enormous successes, but that isn't really the point.  The book says that they should look for Blue Oceans, it says nothing about making great products.

What is their Core Competency?

Most management consultants have read Hamel and Prahalad's 1990 paper on core competencies (pdf) in which they point out that successful companies do specific things better than their competitors.  In effect, they argue that companies can be defined by what they're good at.

Many others have built on the core competency concept and use it to define fertile ground for new product launches.  It makes a lot of sense.  Figure out what you're good at and apply it in as many places as you can.

Apple certainly has strong core competencies in areas such as technology and design.  Yet, why do they launch a brick and mortar retail business with an emphasis on customer service?  Apple is famously secretive and it's management is known more for megalomania than for touchy-feely customer coddling.  According to the core competency theory, they have no realistic chance to compete in the hyper-competitive, low margin retail business.

It shouldn't matter if people love their stores.  The wise men say that you should focus on core competencies, not build new ones.

Why Can't They Mind Their Matrix?

Even the most mentally challenged CEO should be able to understand Boston Consulting Group's well known "Growth-Share Matrix."  They separate business units into nice little boxes that tell you what to do with different business units.

Stars: Some businesses are market leaders who grow fast.  These are the good guys.. You should buy drinks all around and make sure the bonus checks arrive on time.

Question Marks: Some business units are growing fast, but aren't beating the competition. You should yell at them, sell them or both; depending on how much you like them.

Cash Cows: The lovable old granddads of industry, Cash Cows are market leaders, often with well know brand names, but their day has come and gone.  They aren't growing as fast as more vibrant upstarts. Keep them happy, but don't give them any money.

Dogs: Unable to achieve significant market share or growth, these mangy mutts should be thrown out in the street!

The matrix is often supplemented with cute little pictures so that even the dullest of managers can get the idea.  Apparently, it was still to complicated for Steve Jobs.  When he returned to the company in 1996, the Macintosh computer unit was an obvious dog.  Instead of getting rid of it, he actually turned it around.

Over a decade later, Apple's computer division remains a question mark according to the BCG matrix because it still hasn't achieved dominant market share.  Of course, the business is growing and makes a lot of money as well, but that's not in the issue.

The matrix is about growth and market share, not profits. Come on Apple, get with the program!

Apple's(not so)  Stupid Strategy

If Apple has any strategy at all, it seems to be the following:

1. Find an established market with entrenched competition (most profitable categories do tend to attract companies).
   
2. Build competencies that you don't already have.
   
3. Make a better product and charge a premium.
   

It seems that Apple wants to be successful by simply building better products.  Unfortunately, they don't teach that in business school so no credit can be given.

Whatever talents Steve Jobs might have as a visionary CEO, he fails as an MBA.

- Greg