Strategic Directions Of The Apple Computer Corporation

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Introduction As I explain the history of the Apple Computer Company, I will give my comments and suggestions as to the strategic directions they could have taken that in my view would have been better than the direction that they took. I will use what I have learned in class to analyze their strategic and operational plans. But, of course, this is easier to do after the fact. No one can accurately predict the outcomes of strategic and operational plans at the exact moment they are implemented. They can only react to their effects. Apple Computer History Stephen Wozniak and Stephen Jobs had been friends in high school. They had both been interested in electronics and both had been perceived as outsiders. When the two first met, Wozniak was 18, Jobs only 13. The pair put their electronics and inventing talents to work making unusual devices, and a few years later purchased a $25 microprocessor with the intention of building a computer. Although this first computer was crude and came without memory, a power supply, or even a keyboard, it was very reliable. Jobs and Wozniak decided on a name that would convey the simplicity of the product's design and use: the Apple. Jobs had a passionate belief in bringing computer technology to everyone. So in 1977, Jobs and Wozniak started a company to build and distribute their invention in a true American-dream fashion, their company began in a garage. To finance their venture, Jobs sold his Volkswagen van and Wozniak sold his programmable calculator to raise $1,300. Weeks later, Jobs secured the company's first sale: 50 Apple I computers at $666 each. Hobbyists did not take the Apple I very seriously and Apple did not began to take off until 1977 when the Apple II debuted at a local computer trade show. The first personal computer to come in a plastic case and included color graphics, the Apple II was an impressive machine. Orders for Apple machines were multiplied by several times after its

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introduction. And with the introduction in early '78 of the Apple Disk II, the most inexpensive easy to use floppy drive ever at the time, Apple's sales further increased. At this time a strategic plan should have been developed. They did not do any market research to see if customers would be interested in buying their personal computers for the price they would be selling them at. They just went ahead and built the first 50. Luckily, they were able to sell them. It could have been possible that nobody would have been interested in buying them. There also could have been a competitor with a better or cheaper product ready to enter the market. With some market research, they could have found the answers to these questions before going ahead and building the product. But luck was with them at this point. With the increase in sales however, came an increase in company size. By 1980, when the Apple III was released, Apple had several thousand employees, and was beginning to sell computers abroad. Apple had taken on a number of more experience mid-level managers and more importantly several new investors, who wanted to take seats on the board of directors. Older more conservative men, the new directors made sure that Apple became a "real company," much to the dismay of many of its original employees. In 1981 things got a bit more difficult. A saturated market made it more difficult to sell computers. And in February, Apple was forced to lay off 40 employees. Wozniak was injured in a plane crash. He took a leave of absence and returned only briefly. Jobs became chairman of Apple Computer in March. Following the historic visit to Xerox in 1979, Jobs and several other engineers began to develop the Lisa, which would redefine personal computing. Jobs, however, proved to be a poor project manager and was taken off the Lisa by Mike Markkula, then president of Apple and one of the major stockholders. Jobs, who owned only 11 percent of Apple decided to

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take over someone else's project and began working with the Macintosh--which had started as a $500 personal computer. Jobs make sure it was much more. In 1981 IBM released its first PC. With the power of Big Blue behind it, the PC quickly began to dominate the playing fields. Jobs' team would have to work very quickly if they hoped to compete with IBM and a personal computer market. Jobs began to realize that Apple would have to become a "grown up" company, and realized he was not the man for the job. At this point in time, Jobs should have done a SWOT analysis with the entrance of a major competitor such as IBM into the PC industry. Many questions should have been discussed such as: What are Apple's Strengths? A distinctive competence? Yes, at the time Apple was the inventor of the home computer. Adequate financial resources? Adequate, but only a drop in the bucket compared to IBM's financial resources. Well thought of by buyers? Yes, they were the first company to introduce a useful, reliable, inexpensive, home computer. IBM was also well thought of by buyers with years of data processing product manufacturing. Weaknesses No clear strategic direction? Apple did not seem to have a clear strategic direction in the early years. Control of the company bounced back and fourth between leaders. A deteriorating competitive position? Yes, the entry of IBM into the market presented high competition. Lack of managerial depth and talent? Yes, Jobs realized that he could no longer run

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the company. In 1983 Jobs began to court John Sculley then president of Pepsi-Cola. In April, he was successful, and Sculley became president and CEO of Apple. Jobs believed Sculley would help Apple "grow up" but had no idea how right he would turn out to be. Eventually, it cost him his job. Although a successful businessman, it soon became clear that Sculley did not know much about the computer industry. He and Jobs were at odds almost immediately. As the announcement of the Macintosh drew closer, Jobs went into hyperdrive. He worked hard to get developers to write programs for the upcoming machine--Jobs had realized that the Mac would ultimately be made or broken by the software industry. On January 22nd, 1984, during the third quarter of the Super Bowl, Apple aired its infamous sixty-second commercial introducing the Macintosh. Directed by Ridley Scott, the Orwellian scene depicted the IBM World being shattered by a new machine. Initially the Mac sold very well, but by Christmas of 1984 people were becoming fed up with its small amount of RAM and, and a lack of hard drive connectivity. Several important key issues had taken place in this timeframe. Job's appointment of Sculley as the new CEO, and the realization that the MAC would depend on compatible programs developed by the software industry. Sculley may not have been the best choice for the new CEO. Although he had great business expertise, he knew little about the computer industry. The available software for the MAC was limited, which is still a problem today. Although the computer itself may be competitive with IBM and IBM compatible machines, it must use software which is specifically designed for it. In most cases it cannot use the software for IBM and compatibles. This leaves the

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customers with a limited choice for programs. It was around the beginning of 1985 that jobs and Sculley began to argue. Sculley believed Jobs was dangerous and was out of control; Jobs believed that Sculley knew nothing about the computer industry and was making a poor effort to learn. In May of 1985 Jobs decided to make a play for control of the company. He enticed Sculley to schedule a meeting in China, and planned to stage a board room coup while Sculley was gone. At the last minute someone leaked the information to Sculley and he decided to confront Jobs. After a heated argument between the two, the board took a vote, and cited unanimously with Sculley. Jobs resigned that day, leaving Sculley as the head of Apple. Sculley became the de facto head of Apple in May 1985. Over the next few months, Apple was forced to lay off a fifth of its work force some 1200 employees. The company also posted its first quarterly loss. All this and the resignation of Jobs served to erode confidence in Sculley's abilities as CEO of Apple. At the same time Sculley became locked in a battle with Microsoft's Bill Gates over the introduction of Windows 1.0 which had many similarities to the MAC Graphical User Interface (GUI). Gates finally agreed to sign a statement to the effect that Microsoft would not use Mac technology in Windows 1. 0--it said nothing of future versions of Windows, and Gates lawyers made sure it was airtight. Apple had effectively lost exclusive rights to its interface design. This would prove to be an important document in future lawsuits between Apple and Microsoft, involving the Windows interface. This was another major blunder by Apple. The Windows program, which was really Apple (GUI) technology, was allowed to be stolen by Microsoft. Windows now runs on virtually every PC in the world, and is responsible for making Microsoft the Mega Company that it is today. If Apple could have retained this

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technology exclusively, they would have been at the top not only in hardware, but also in software. What brought Mac out of the hole were the twin introductions of the LaserWriter, the first affordable Postscript laser printer for the Mac, and PageMaker, one of the first desktop publishing programs ever. These two in tandem made the Mac an ideal solution for inexpensive publishing, and the Mac became an overnight success, again. In 1987 Apple introduced the Mac II. Built with expandability in mind the Mac II made the Macintosh line a viable powerful family of computers. Apple was a "Wall Street darling" again, (Rolling Stone) shipping 50,000 Macs a month. It seemed in 1989 that Windows who would be a flop, and that the Mac would be riding high for the next decade. It didn't. By 1990 the market was saturated with PC clones of every conceivable configuration and Apple was the only company selling Macs. In late May Microsoft rolled out Windows 3. 0 which could run on virtually all of the PC-clones in the world. Apple was in trouble. Apple's top idea for a solution was to license the Mac operating system. While many believed it would erode the quality of the Mac, or that it would create even more competition, it was becoming clear that Apple could not provide both the hardware and software to drive the industry. There was also talk of porting the operating system to run on Intel-based machines. It was Michael Spindler, Apple's new COO, who nixed the idea, saying that it was "too late to license. " If they could have made their operating system to run on Intel-based machines, they could have generated great sales and have entered into new markets. At this time there was an explosion of IBM clones into the market. I believe that they

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should have pursued this venture. This also could have solved their problem of limited software being produced for the apple. If they could have sold their operating system to IBM and compatible users, then other software companies would have had to produce programs that would run with the Apple operating system. Therefor, many programs would have been produced which could run on the Mac. In late 1991 Apple released its first generation of PowerBooks which were an instant success. Work was being done on a new type of a computer, the Personal Digital Assistant (PDA), which Apple called the Newton. Sculley took an immediate interest in the Newton and drove the Newton to completion in August 1993. The first generation of Newtons had extremely poor handwriting recognition, and did not sell particularly well. Sculley began to lose interest in the day to day operations of Apple. Eventually the Apple board of directors decided they'd had enough. In June of 1993, they relieved Sculley of his position as the CEO, putting Spindler in the big chair. Sculley remained with the company as chairman for several months and then resigned. Spindler by all accounts was the wrong man for the job. A fairly impersonal man, Spindler's office was nearly impossible to get into. However, in his two and a half years as CEO, Spindler oversaw several accomplishments. In 1994 Apple announced the PowerMac family, the first Mac to be based on the PowerPC chip, an extremely fast processor codeveloped with IBM and Motorola. The PowerPC processor allowed Macs to compete with, and in many cases surpass, the speed of Intel's newer processors. Spindler also managed to license the Mac operating system to several companies, including Power computing, one of the most successful Mac-clone makers. But many believe the Apple was too restrictive in its licensing agreements, and only a handful of companies ever

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licensed the Mac operating system. But Apple's worst problem wasn't selling computers--it was building them. By June 1995, Apple had $1 billion dollars in back orders--and did not have the parts to build them. Apple's problems were added to by the late-summer release of Windows 95, which mimicked the Mac graphical user interface better than ever. Apple took its worst plunge ever in the winter of 1995-96. Misjudging the market, Apple pushed low-cost Performers over mid-range PowerMacs and failed to make a profit at all. Apple posted a $68 million loss for that quarter. In January 1996 Spindler was asked to resign as CEO and was replaced by Gil Amelio, the former president of National Semiconductor. Apple had a major problem at this time with its manufacturing capabilities. Having back orders of $1 billion and not having the capability of manufacturing. This problem should have been addressed immediately and should have been given top priority. If they did so they may have been able to avoid the $68 million loss in the winter of '95. A recurrent theme in the history of Apple is that their CEO's always seemed to turn out to be the wrong man for the job. More care should have been used by the board of directors in choosing their CEO's. The constantly changing leadership has had a detrimental effect on the outcome of the business. Amelio made a strong effort to bring Apple back to profitability but his efforts would prove to be largely unsuccessful. Following his first 100 days as CEO, Amelio announced broad changes in the corporate structure of the company. The company was to be split into 7 separate divisions, each responsible for its own profit or loss. He also made an effort to keep customers and developers better informed about the day-to-day operations of the company.

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Although the company announced a staggering $740 million loss for quarter 1 1996, they brought that loss down to $33 million for quarter 2, beating all estimates by the best financial experts. In quarter 3 Apple profited nearly $30 million, again astounding financial experts who had predicted a loss of as much. (Apple lost considerably more in quarter 4.) In late December 1996 Apple made an industry-shattering announcement that it would be acquiring NEXT, and that Steve Jobs would be returning to the fold. The merger was brought about in order to acquire NEXTstep, which was to become the basis for Apple's next generation operating system, Rhapsody, which was slated for a 1998 release. The Newton department was spun off into a wholly-owned subsidy, Newton, Inc. In early July 1997, Apple announced the resignation of Gil Amelio following another multi-million dollar quarterly loss. This came as a surprise to nearly everyone and at this time a new CEO has yet to be announced. The Executive Board reportedly felt that Amelio had done all that he could for Apple and that while he had been responsible for a number of improvements at Apple, he could do no more. In the meantime Fred Anderson, Apple's CFO has been put in charge of the day-to-day operation and Steve Jobs was given an "expanded role" at Apple for the interim. Jobs' presence was known almost as quickly as NEXT was acquired. The degree of Jobs' "expanded role" soon became quite clear. With no CEO and Apple stock lower than it had been in five years, there were many decisions to be made and not much time to make them. Jobs began to make striking changes in the structure of Apple including the cancellation of the Newton spin-off (The Newton was discontinued several months later.) The time and place for most groundbreaking announcements, however would be MacWorld Boston in August 1997. Jobs who by now was being referred to as "interim CEO", made the keynote speech

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and spoke of the company's upcoming aggressive advertising campaign, upcoming new Macs, and Rhapsody. He also announced an almost new Board of Directors, including Larry Ellison, CEO of Oracle. But he saved the best for last. In a groundbreaking decision, Jobs announced an alliance with Microsoft. In exchange for $150 million in Apple stock, Microsoft and Apple would have a 5-year patent cross-license and more importantly, a final settlement in the ongoing Graphical User Interface argument. Microsoft agreed to pay an unreleased sum of additional funds to quiet the allegations that it had stolen Apple intellectual property in designing its Windows operating system. Microsoft also announced that Office '98, its popular office package, would be available for the Mac by year's end. These announcements gave Apple new life, but Jobs was not finished. There was one bigger obstacle to tackle-Clones. Jobs felt that Clone vendors such as Power Computing were cutting into Apple's high-end market where they traditionally made the most profit. Clones had failed to expand the MacOS market, instead taking customers away from Apple. Jobs remedied this apparent failure of the clone experiment by all but pulling its plug. In early Fall 1997 Apple announced its intention to buy out Power Computing's MacOS license, and much of its engineering staff. Power went out of business several months later with Apple taking over its product support. Apple also bought out its MacOS licenses from Motorola and IBM. Umax was allowed to stay in the game but with tacit understanding that it would fill the low-end market, with machines selling for under $1,000. Umax sold it's remaining inventory of Macs, and is now selling "Wintel" boxes. Reinstating Job's as interim CEO of Apple was the best choice that Apple has made in recent years. In fact, allowing him to leave in the first place was a big mistake. Although Jobs was not a seasoned businessman, he seemed to understand the computer industry better than all previous CEO's. His decision to

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cooperate with Microsoft was a good decision. Microsoft had become so powerful that competing with them would have led to disaster for Apple. I think his strategy was if you can't beat them, join them. His strategy seemed to work. Apple Today On November 10, 1997 Apple held another press conference, in which Jobs announced further changes to Apple's corporate strategy. Apple would now sell computers direct both over the web and the phone as Power Computing had done so well in the past. Jobs also announced two new Apple machines: the PowerMac G3, and the PowerBook G3. The Apple Store was a runaway success, and within a week was the third largest eCommerce site on the web. At MacWorld San Francisco in January, Jobs announced that Apple for the first time in more that a year, had a profitable first quarter--to the tune of $44 million. This far eclipsed analysists' projections and sent Apple's stock back into the 20's. In April 1998, Jobs announced another profitable quarter ($57 million) which came as a big surprise to everyone. Jobs kept momentum and in early May announced a new PowerBook G3, an educational Apple Store, and an entirely new Mac design--the iMac. The iMac would be Apple's answer to the low-end customer question with more than enough computing power for most people at an affordable price. Later that month in his keynote speech at the WWDC, Jobs announced a dramatic shift in Apple's Operating System direction. Mac OS X would merge OS 8 and Rhapsody--Apple's upcoming version of NEXTstep--into one robust OS with all the features of a modern OS and backward compatibility with most OS 8 applications. In July of 1998 Jobs reported that Apple had profited for the 3rd consecutive quarter--to the tune of $101 million. This helped to push Apple's stock to several 52-week highs in just a few days. The iMac was the best selling computer in the nation for most of the Fall. Jobs announced another profitable quarter, making a full year of profitability. In January 1999 Jobs

Apple Computer announced a 5th consecutive quarter with year-over-year growth and a sleek new PowerMac G3. Although he gets paid only $100 a year Steve Jobs remains at the helm of Apple Computer as its "interim CEO".

Apple at-a-Glance - Fiscal Year 1998 Apple Computer, Inc. 1 Infinite Loop Cupertino, California 95014-2084 (408) 996-1010 (General Public) (408) 974-2042 (Media and Industry Analysts) Apple's home page on the World Wide Web: http://www.apple.com/ Traded Over-the-counter market and listed on NASDAQ National Market under the symbol AAPL, on the Tokyo Stock Exchange under the symbol APPLE, and on the Frankfurt Stock Exchange under the symbol APCD. Quarterly Sales (Dollars in millions) Q1 FY '99 $1,710 Quarterly Net Income (Dollars in millions) Q1 FY '99 $152 Incorporated January 3, 1977 Employees Approximately 8,788 worldwide (Q1 FY'99) Sales to Date Over 31 million Macintosh systems sold Company Profile Apple Computer, Inc., ignited the personal computer revolution in the 1970s with the Apple II, and reinvented the personal computer in the 1980s with the Macintosh. Apple is now committed to its original mission—to bring the best personal computing products and support to students, educators, designers, scientists, engineers, business

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persons and consumers in over 140 countries around the world. Research and Development In fiscal 1998, Apple invested approximately five percent of its annual sales in research and development. R&D sites are located in Cork, Ireland; Cupertino, California; and Tokyo, Japan. Manufacturing Apple owns manufacturing facilities in the United States, Ireland, and Singapore. Distribution facilities are located in the United States, Europe, Canada, Australia, Singapore, and Japan. Apple, the Apple logo and Macintosh are registered trademarks of Apple Computer, Inc. registered in the USA and other countries. Revised 01/99

Apple seems to be heading in the right direction now under the guidance of Steve Jobs who seems to have turned the company around in the last few years. Their major problem in the early years I think can be chalked up to poor management. Very few of the former CEO's of Apple stayed more than two or three years, none of which fully understanding the computer revolution. But this was no easy job for anyone. The computer industry was one on the fastest changing industries due to the rapid changing technology, and is still changing. Steve Jobs has his job cut out for him if he remains as Apple's interim CEO.

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References: Accidental Millionaire: The Rise and Fall of Steve Jobs at Apple Computer, Butcher, Lee, 1988 An Interview with Steve Wozniak, Leyba, John and Wolfson, Jill, http://www.thetech.org/revolutionaries/wozniak/i_a.html Apple at-a-Glance - Fiscal Year 1998, http://www.apple.com/pr/glance.html Apple Computer 1992, Yoffie, David B., Harvard Business School, Aug 22, 1994 Apple History, Sanford, Glen, http://history.eis.net.au/history.html Steve Jobs and Steve Wozniak (1955-, 1950-), The Lemelson-MIT Prize Program, http://web.mit.edu/invent/www/inventorsI-Q/apple.html

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