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Integration of Business Functions 201 6 Business and Financial Analysis of Apple Inc Think Different By Siddra Nazar University of The West of Scotland London Campus Page 1 Integration of Business Functions 201 6 B00302915 Table of Contents Choice of Organization…………………………………………………........... Leader...

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Integration of Business Functions 201 6

Business and Financial Analysis of Apple Inc

Think Different By Siddra Nazar University of The West of Scotland London Campus Page 1

Integration of Business Functions 201 6

B00302915

Table of Contents Choice of Organization…………………………………………………........... Leadership: Types, Practices and Changes in Past 10 Years…………………..  Steve Jobs’s Style………………………………………………….........  Tim Cook’s Style………………………………………………….......... Impact of Leadership Changes at Apple Inc…………………………………… Organizational Culture of Apple Inc…………………………………………… Organizational Structure of Apple Inc…………………………………………. Stakeholders of Apple Inc……………………………………………………… Internal and External Analysis of Apple Inc……………………………………  SWOT Analysis ………………………………………………………….  STEEP Analysis …………………………………………………………. Role of Business Functions in Apple Inc………………………………………..  Human Resource Management……………………………………………  Finance Managerment…………………………………………………….  Operations Management………………………………………………….  Marketing Management…………………………………………………..

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Integration of Business Functions 201 6 Conclusion……………………………………………………………………… References……………………………………………………………………….

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Integration of Business Functions 201 6 Choice of Organization: Apple Inc, a pioneer in innovation is US based multinational company which is headquartered in Cupertino, California (Apple.com). It was established by college dropouts named Steve jobs, Roynal Wayne and Steve Wozniak on April 1, 1976. The company got incorporated on Jan 3, 1977 as Apple Computer, Inc but the word Computer was taken down on Jan 9, 2007 because it was no more limited to computers (Gibbs, 2016). Apple Inc, introduced radical changes to the whole world thus completely transforming the way people used to communicate, entertain and obtain information. Apple has captured world’s attention by introducing consumer electronic products like iPhone, iPad, iPod, iTunes, Mac and Apple TV as well as operating systems like iOS, OS X and iCloud alongside other professional software applications (Editorial, 2016). Apple Inc is an obvious choice for me for carrying out my research because it has established itself as the most recognizable and reliable name in the field of innovation and technology. Apple’s products are now part of the day to day life. One’s life seem to be incomplete without it. Apple is definitely enjoying customers’ loyalty. Changes at Apple: I am required to trace changes which have occurred at Apple Inc in past ten years and their influence on the organization. Past ten years at Apple cover the era of legendary co-founder and CEO Steve Jobs who died after a long battle with cancer on Oct 5, 2011 and Tim Cook who is the successor to Steve Jobs. Since Steve Jobs apple has changed a lot. Leadership: Types, Practices, and Changes in Past 10 Years Leadership: Leadership is about leading other people influencing their actions and inspiring them to perform exceptionally. Leaders set goals and direction for people and motivate them to put their full competency, expertise, dedication and commitment

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Integration of Business Functions 201 6 to achieve goals (Văcar and Miricescu, 2013). Different organizations adopt different approaches in different times and this is true for Apple Inc as well. During past 10 years, Apple Inc had been under the leadership of well known controversial genius Steve Jobs who is highly respected for the worldwide success of the company and his successor current CEO Tim Cook. Steve’s Style: “The company used to be known as the ‘Ship that leaks from the top’ due to its relaxed management style”, Paradox of demand for control and chaos (de Wit et al., 2010) is the best possible introduction to Steve’s leadership style. Steve jobs enforced discipline on the Apple Inc, a quality which it was lacking for years. Soon after Steve’s return, Apple Inc culture was tightly controlled and integrated. Leaders can not only rely on the position power for convincing people to be led by them for this an additional power known as Personal power is also required (Pfeffer, 1992). Steve Jobs acquired position power by being CEO of Apple Inc and personal power from his God gifted drive for design and visions as well as from his ability to attract the best minds in his team. He was described by his colleagues and others as brilliant, visionary, egoist, influential as well as a perfectionist and demanding. He was inspirational and temperamental who was not scared of direct personal criticism (BBC, 2011). Through these two opposite comments on his personality, we can say his leadership style was combination of ‘Autocratic’ and ‘Charismatic Leadership’ (Chapman, Johnson, and Kilner, 2014) Autocratic style is about having tyrant style which means having a lot of power over employees whereas Charismatic is about inspiring enthusiasm in teams and motivating them to move forward (Poon Teng Fatt, 2000). Jobs possessed these opposed leadership styles. He criticized his employees until they were burst into tears; his remarks as excellent work were enough to motivate employees and to try hard for the best. Steve jobs leadership is “role model” because he is simply a great leader with extraordinary vision and instinct; the world would not have transformed without him. His role is credited as “role of designer” because he was

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Integration of Business Functions 201 6 the one to redesign core values and competencies at Apple Inc. He was truly a transformational and exceptional leader with amazing vision (Steinwart and Ziegler, 2014). It is said that “few acts of leadership have a more enduring impact on the organization than building a foundation of purpose and core values” (de Wit et al., 2010). Tim Cook’s Style: After Steve Jobs, strategic leadership at Apple Inc was replaced by Tim Cook who possessed different leadership styles. Unlike Steve Jobs, Tim Cook is taking a collaborative approach and practicing democratic leadership (Lashinsky, 2012). Contrary to visionary leader Steve Jobs, who only craved for employee productivity, Tim Cook seems to be interested in friendly and cooperative environment at Apple Inc. Tim Cook has commitment of million dollars to a philanthropic cause whereas his predecessor had no intention to support such causes (Eleftheriou-Smith, 2014). Second best was never an option for obsessive perfectionist; he used to fire employees who fell short of his expectations (Yarow, 2014) which is an indicator of poor retention rate. However under Tim Cook’s democratic leadership in 2015 Apple Inc recorded employee retention rate of 81% which was never possible in under Steve Jobs (Renfrow, 2016). Tim Cook was not as visionary as Steve Jobs so he did believe in identifying market trends and customer demands and made them available, iPhone 6 and iPhone 6 plus screen sizes of 4.7 and 5.5 inches were actually identified by need pull (Murgia, 2015). Change of leadership and implications on Apple Inc: Due to falling health, Steve Jobs could not continue as the CEO of Apple Inc. The position was presented to Tim Cook on August 2011 whereas Steve Jobs continued to work as chairman until his death. After Steve’s leaving top management position Apple faced changes in culture. Firstly Power culture where everything flowed through the Steve Jobs slightly began to move to the task culture (Handy’s Model of Culture, 1993 cited in Cacciattolo, 2014).

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Integration of Business Functions 201 6 However, power culture is effective when leaders are highly competent and exceptional. Apple’s current leaders may not reach the skills of Steve Jobs so Company is considering the more collaborative approach. Following Steve’s death stakeholders paid dubious attention to Cook’s ability to be the successor of highly talented but he proved effective, introduced Apple watch. In addition, the stock price rose from split-adjusted $54 to $126 which resulted in the market capitalization of $700bn making Apple Inc first company to ever to cross this level (Lashinsky, 2012). According to Fortune Magazine (2012), when Tim Cook took over as CEO, Apple Inc exceeded Wall Street’s expectations by reporting 31 billion dollars in profit and shipping 89 million iPhone and 38 million iPad respectively this is phenomenal by quantitative measure. Unlike Steve Jobs who opposed dividends, Tim Cook expressed his interest to pay a quarterly dividend on March 19. Employees at Apple Inc seem to be more satisfied with Tim Cook as he randomly mixes with them, has lunches with them and makes them feel part of Apple Inc (Lashinsky, 2012). The following diagram simplifies leadership styles of Steve Jobs and Tim Cook.

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Integration of Business Functions 201 6

Steve Jobs = Autocratic Leadership= Success Tim Cook=Democratic Leadership=?

Organizational culture: According to Schein (2004), organizational culture is a dynamic phenomenon which surrounds employees all the times; it is created by mutual interactions and fashioned by leadership. It is set of structures, rules, norms, values and beliefs that guide and constrain behavior (cited in Iljins, Skvarciany, and Gaile-Sarkane, 2015). Apple Inc is an organization which has a blend of different cultures. When Steve jobs was leading world’s most innovative company he imposed his own rules and regulations which can be called power culture (Handy’s Model of Culture, 1993 cited in Cacciattolo, 2014). Steve Jobs had a strong presence at Apple Inc and he held decision-making power. Apple Inc has an innovative culture which is claimed

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Integration of Business Functions 201 6 as DNA of Apple Inc. Steve jobs as a leader was highly creative person himself and encouraged innovation culture at the Apple Inc. When it comes to innovation, Apple Inc does not know any limits (Eran Dilger, 2012). At Apple Inc, things are kept highly confidential. Apple is highly devoted to keep products under the curtain until they are launched. Brad, former Apple intern spoke to full-time employee at Apple Inc who informed Brad about his work on 9.7-inch display for two years without having any idea whether it was a big phone or small laptop until the product was called iPad at the launching ceremony by Steve Jobs. This shows Apple’s highest level of inclination towards a Secretive culture where even employees do not know what is going on (Eadicicco, 2015). Apple Inc never compromises its standards. Apple’s culture is committed to attract and hire the exceptional minds across the globe. Steve Jobs is well known for firing employees who did not fully meet his expectations and now this tradition of Apple Inc is nurturing under his successor Tim Cook (Meyer, 2015). Organizational Structure of Apple Inc: Organizational structure is defined as a system which represents hierarchy within the organization. It is a mechanism of linking and coordinating employees within the context of their roles, power, and authority (Kanten, Kanten, and Gurlek, 2015). Mechanistic/Hierarchical structure best describes the organizational structure of Apple Inc which shows Apple Inc is highly centralized under upper hand domination of Steve Jobs at all operations. He held strong presence at Apple. However, as leadership changed certain modifications in corporate structure are observed. Under Tim Cook, a certain level of decentralization is seen for encouraging innovation at various levels. However, organization structure of Apple Inc will mainly remain hierarchical (Dudovskiy, 2016). Apple Inc also falls in Mintzberg’s framework of organizational structure where business is divided into six basic parts.

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Integration of Business Functions 201 6      

Strategic Apex Middle Line Operating Core Technostructure Support Staff Ideology which refers to the culture of organization (Open, 2011)

Source: (Open, 2011) In the case of Apple Inc, decision-making power is highly centralized and is in the hand of the strategic apex. In Fortune magazine, Adam Lashinksky wrote "He …makes every critical decision … from the design of the shuttle buses that ferry employees to and from San Francisco to what food will be served in the cafeteria.” This proves Steve Jobs is corporate dictator who dictates everything at Apple Inc. He held the ultimate authority of every decision at Apple which used to flow down

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Integration of Business Functions 201 6 towards low level. However, Current CEO Tim Cook, Apple is taking collaborative approach (Lashinsky, 2012). Organizational structure at Apple Inc has attributes of:  Product Based Grouping  Function Based Grouping Product Based Grouping: This represents lower tier of the organizational structure of Apple Inc. Under the supervision of senior vice president, many vice presidents are responsible for different products which mean it has one vice president for iPad, one for iOS etc (Dudovskiy, 2016). Function Based grouping: This represents upper tier of the organizational structure of Apple Inc. Every senior vice president has a special function like Apple Inc has SVP for different functions like finance, marketing and retail etc (Meyer, 2015). The following diagram depicts the organizational structure of Apple Inc where Steve Jobs had a central authority. However, now irreplaceable Steve Jobs has been replaced by Tim Cook.

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Integration of Business Functions 201 6

Source: Fortune Magazine

Steve Jobs = Mechanistic Approach= Success Tim Cook=Collaborative Approach=? Stakeholders of Apple Inc:

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Integration of Business Functions 201 6 According to the Freeman (1984), stakeholders can be groups or individuals who can affect or be affected by company’s goals and objectives (cited in Pesqueux and Damak‐Ayadi, 2005). Apple’s success is also credited to its ability to meet its stakeholders’ expectations. Reflecting on the dignified value of brand Apple Inc keeps on considering stakeholders in its strategies and policies. Stakeholder at Apple Inc can be classified as internal and external stakeholders. Customers, suppliers, media, political parties, government, investors, trade unions and competitors represent external stakeholders whereas owners (every shareholder is stakeholder but every stakeholder is not a shareholder), employees, software engineers and developers are an internal stakeholder of Apple Inc (Heather, 2012). Apple exists to make a difference in this world as Tim Cook say, "We do a lot of things for reasons besides profit motive." This quote reflects Apple’s commitment to the corporate social responsibility and philanthropic thoughts which are expected by stakeholders (Eleftheriou-Smith, 2014). The diagram represents some stakeholders for Apple Inc.

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Source: (appleanalyses.com)

Internal and External Analysis of Apple Inc SWOT Analysis: SWOT analysis is used for overall evaluation of business internal strengths and weaknesses and external opportunities and threats (Fine, 2009). SWOT of Apple Inc is given below

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Strengths: Apple Inc’s captivating brand image, higher profit margins, continuous innovation strategies and customers loyalty are regarded as the main strengths which in turn give Apple Inc competitive edge. Its ability to uphold premium pricing strategy cultivates higher profit margins. It has been ranked by Forbes as number 1 brand with the value of $154.1 billion in 2016. Flexibility and speed of iOS (Apple’s operating system) is admired globally. Apple continues to use its iOS in products lines without paying any royalty to others (Harrer, 2015). Weaknesses: Apple Inc is not in Blue Ocean but still, has high price than its competitors who are offering similar features like Samsung. Apple phones come with high restrictions

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Integration of Business Functions 201 6 like no Bluetooth, no memory card and non-removable battery which are annoying most of the customers. Apple Inc sticks to consistent design in iPhones which is causing customers to switch to competitors because they are not getting required variety. Incompatibility of Apple’s hardware and software with other company’s systems is causing inconvenience. Apple’s biggest attraction was Steve Jobs; now with no Steve Jobs, some of the magnetic power of Apple is lost (Bhasin, 2016). Opportunities: Recently launched Apple PowerBook, Power Mac Products as well as newly updated MAC OS X and Apple Watch are insanely in demand by customers which will be contributing factors in boosting Apple’s market share. Apple has the opportunity to address global customers by expanding its distribution network. Apple can diversify its product to support continuous company growth as it recently did by introducing Apple Watch. Apple can increase compatibility of its products with other products by doing so it can retain customers from switching to competitors (Smithson, 2015). Threats: Apple is earning almost 70% of revenue from iPhone sales which indicates too much dependency on one product which is a major threat in the long run. Apple Inc owes $53.2 billion in long-term debt in the United States whereas it owns 93% of reserves in overseas which are subjected to high tax rates in an attempt to bring to United States (marketwatch.com). Android operating system is viewed main threat because it is free for everyone. Apple’s reputation is damaged due to tax scandal. In addition, the rise in labor cost in countries where Apple plants are located presents another challenge. Without Steve Jobs, Apple’s shine is at risk because it failed to introduce any major innovation (cnbc.com). STEEP Analysis: In order to externally analyze Apple Inc, STEEP Analysis of innovative giant is given below

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Integration of Business Functions 201 6 Social: Apple has its manufacturing plants in China due to low labor costs whereas by having manufacturing plants in the United States, it can create job opportunities. So, on social grounds, many customers may avoid using Apple. In certain regions, costly and stylish products are not encouraged as marketed by Apple (Contributor, 2015). Many countries have a harsh approach towards gay propaganda, which can leave to the negative image of Apple due to the public acknowledgment of Tim Cook being a gay (Bloomberg.com). Technological: Apple’s worst competitors Samsung and Google possess insane ability to copy Apple products for example Payment app Apple pay was copied in less than 1 year to launch Android pay with similar features. This means Apple’s products are no more unique. Similarly, an increasing number of cyber crimes are threatening Apple’s reputation for high security and safety levels. Apple invests a lot of money in R&D with little more effort it can keep on changing and bringing new products to maintain differentiation and competitive edge (Contributor, 2015). Economical: Rising labor cost in China is a major economic concern for Apple as it can lead to negative revenues and take cost advantage for Apple. High inflation rates in the United States not only negatively affected Apple but also led David Einhorn to sue Apple for $137 billion dividend payments (Reuters.com). Due to...