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The blue-ocean strategy refers to a relatively new business diagnostic and management tool initially proposed by Kim and Mauborgne (2005). The authors recognize the traditional business practice, where firms attempt to gain competitive advantage in an already crowded environment. They refer to this conventional business environment as the red ocean, before explaining how companies can move beyond such a setting toward an unchallenged market space hence the blue ocean. These scholars lay out a procedural framework through which a firm can inspire its workforce’s confidence and foster innovativeness and new growth. Key among the steps that an organization should adopt as suggested by Kim and Mauborgne (2005) include: reconstruction of market boundaries, greater focus on the bigger picture, looking for ways to exceed customer demand, being inventive in overcoming challenges, and integrating all these elements into a consistent and functional strategy. Companies that succeed in this strategy tend to benefit considerably from their value innovation objectives. This is because the approach is highly customer-oriented thus attracting a loyal and growing customer base. One of the companies that have exemplified successful implementation of the blue ocean strategy is Apple, Inc., as demonstrated in the subsequent discussion.
Apple, Inc. Company Background
Since its inception in 1976, Apple has developed into one of the most recognized brands in the personal computers and peripherals industry. The company’s innovativeness has seen it prosper not just in computer and computer hardware manufacturing, but also in development of software, production of unique consumer electronics and in digital distribution. Analysis of the company’s operations shows that Apple, Inc. currently operates in more than 120 countries throughout the globe. These operations stem from production of its signature items and online distribution to actual retail stores in diverse locations worldwide. Given the Company’s expansive value chain, Apple, Inc. presently has more than 100,000 workers directly or indirectly linked to its operations. Financial reports show that Apple, Inc. earned estimated revenue of between $49 and $52 billion, which represents a gross margin of 37.5% compared to the previous year (Apple Newsroom, 2017). It is undeniable that the Company faces significant competition, particularly from Samsung Electronics. Competition between these companies is especially intense in their premium smartphone segment. In spite of the acuity of this competition, Apple, Inc. continues to dominate market leadership, by appealing to its broad customer base with diverse devices and services specific to its needs.
Apple, Inc. Blue Ocean Strategy
Apple’s corporate strategy is largely characterized by blue ocean strategic moves, which explain its high and sustained growth over the years. The strategy is evident from the Company’s dedication to transforming the consumer electronics market by continually developing innovative devices. The innovative stance has made it possible for Apple to bolster its innovative strengths, while creating uncontested markets. It is also this inventive trend that has enabled Apple to disengage from flooded industries and serve as a market leader that other related companies strive to emulate. The blue ocean strategy is best understood from evolution of Apple, Inc.’s distinctive products over the years. These range from the iPod and iTunes software in 2001 to the launch of the iBook Store in 2010 as well as the consistent transformation of the Apple PCs and smartphones.
iPod and iTunes Software
The late 1990s were characterized by an upsurge of digital music making gadgets such as hard drive and flash MP3 players popular. However, these gadgets could not meet all customer needs simultaneously. For instance, the flash mp3 player was affordable and small hence easy to carry, yet had limited storage capacity. On the other hand, the hard drive player offered big storage space, but was expensive and too bulky to carry comfortably (Islam & Ozca, 2012). In recognition of the market need for a device that not only offered sufficient storage space, but was also easily navigable, comfortable to carry and affordable, Apple launched its iPod. The Company targeted both the traditional mp3 market comprising of tech-savvy individuals in their 20s to 30s and the noncustomers beyond this age group. Several features made the iPod a distinctive product; essentially creating a new market space. Some of these characteristics included: large storage capacity, portability, and simple user interface. In addition, the iPod had iTunes software app that allowed management of a customer’s digital music collection and transfer to another device. Finally, the iPod adopted a sleek look unlike traditional electronic devices, creating the impression of a luxurious gadget (Benj, 2011).
iTunes Music Store
After revolutionizing the digital music player industry in 2001, Apple, Inc. did not cease its blue ocean strategy there. Rather, the Company ventured into the digital music retail sector in 2003. At that point in time, the predominant methods of digital music distribution were through subscription or P2P or file sharing networks. Subscription services allowed for legal distribution of high quality music, but with challenges like limited selection, complicated pricing structures and restricted rights. File-sharing although easy to use and allowing for large selection, was illegal and customers often ended up with poor quality music (McElhearn, 2016).
As part of its blue ocean strategic thinking, Apple sought to make the best of the subscription and P2P positive aspects thus offering potential clients a solution that would not involve trading up or down between the two strategies. Therefore, the Company identified unexploited demand for legal digital music distribution channels, with a broad collection and at a price appealing to many prospective customers. This led to development of the iTunes music store, which aimed at eliminating piracy incidents and complex pricing mechanisms. The Apple music store also targeted a raise in the selection of music, music quality and ease of platform use. Through this product, Apple further attempted to reduce limitations in use of purchased music, while creating special provisions for customers to sample music, pay per song obtained, and automatically synchronize with its mp3 player (McElhearn, 2016).
Mobile Phone Industry: IPhone
The mobile phone sector is one of the key areas that Apple experiences competition from other industry players. Since the early 2000s, mobile phone manufacturers have engaged in a research and development race toward making the most technologically advanced handsets. This has led to incorporation of numerous add-ons like calendars, clocks, and cameras, among others; the higher the number of add-ons in a phone, the higher its price. This means that companies like Apple have experienced considerable pressure to make the most sophisticated handsets at the most affordable price, especially on the smartphone front.
In response to the preceding demands, Apple developed the iPhone in 2007. With its unique smartphone, the company’s primary intention was to eliminate the variety of smartphone models, to raise internet connectivity, simplicity, and style, and to reduce the integral business applications, physical buttons, and PC-like operation by incorporating a more advanced operating system (Grabham, 2017). Apple further aspired to create the freedom for customization; through its App Store launched the subsequent year. This shows concerted effort by Apple to shift from a competitor-filled red ocean to a virtually new market space. Apple, Inc. has been keeping up the pace through production of a more technologically advanced model of the iPhone yearly. In addition, dominance of the iPhone in the market is strengthened by Apple’s App Store, which allows the smartphone users to customize it as they wish. The application programs available on the platform range from books to entertainment, thus giving iPhone users access to a wide range of services. Moreover, the applications are easily downloadable, convenient to buy and the seamlessly synchronize with the iPhone. These aspects have made it possible for Apple to generate constant income from the rising number of iPhone users and subsequent rise in app sales (Grabham, 2017).
The other area in which Apple, Inc. operates, and one that has seen unprecedented change is the personal computer (PC) industry. Following the emergence of smartphones and increased competition amongst computer manufacturers worldwide, the late 2000s were characterized by low growth in sales and price wars. The popularity of the netbook, a low-end laptop that fulfilled people’s computer needs, further spelt virtual doom for the premium PC sector (Richmond, 2012).
Apple’s blue ocean strategy in the PC context is evident from its decision to create the iPad. The latter is a gadget that was meant to fulfill customers’ PC needs but was neither a smartphone nor an actual PC. Development of the iPad meant that Apple would not segment the PC industry further, but instead create an entirely new category that met clients’ requirements (Richmond, 2012). It was also a viable option for Apple to exit the crowded PC market, by allowing it to provide value for PC buyers rather than focusing solely on lower-priced netbooks or high-priced laptops. The iPad got rid of unnecessary hardware features while improving navigability and ease of use as well as viewing. In addition, the iPad brought about non-PC functions like e-book reader and gaming at hand. This device further improved technical specifications such as memory, speed and storage capacity, in addition to integral software applications. Other elements that positioned the iPad as a novel and unique device are hardware peripherals such as physical keyboards and SD card readers. Finally, just like the iPhone, the iPad can be customized via Apple’s App Store (Nations, 2017).
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Other Developments and Reinforcement of Apple Blue Ocean Strategy
Even though the iPod, iPhone, iTunes, and the iPad are Apple’s most distinctive products that best demonstrate its adoption of the blue ocean strategy, there are others that bolster this strategic outlook. Examples include the iBook Store, the Apple watch and the MacBook Pro, among others. The iBook store makes it possible for Apple customers to read e-books via designated apps. It also allows one to own a collection of books on the platform, with benefits such as full audio and video support, coupled with customization options. In all of these examples, it is apparent that Apple recognized the fact that there were significant developments in the industry. Rather than stay put and compete for the already existing customers that had been bombarded with nearly similar electronic gadgets with comparable quality and price, Apple took the bold step to deliver radically different offerings. This enabled has the company to create new market spaces, which translates to the company’s greater competitive edge, market leadership, product diversity, wider customer base, and ultimately a greater market share and profitability (Lindic et al., 2012). Without the blue ocean strategy, the Company would probably be struggling to get all the aforementioned perks, while competing at the same level with other industry participants.
With a blue ocean strategy, a company creates demand in new industries and market. The strategy largely focuses on the needs and preferences of customers. Also integral to this strategy is radical change that could involve an overhaul of the business model, in order to increase the value of products availed to customers. The primary consideration is value innovation hence the need for a company to put emphasis on innovation and the value it generates. Apple has clearly demonstrated the efficacy of the blue ocean strategy, as is apparent from its focus on customer-oriented innovation. The company’s commitment to identifying specific customer wants and needs and proactively working to fulfill them is an exceptional indicator of this unique strategy. The successful progression from the development of the iPod and iTunes to that of the iPad and others, explicitly shows that with the blue ocean strategy Apple, Inc. is poised for even greater achievements as a leading market innovator. After all as Kim and Mauborgne emphasize, “competing in overcrowded industries is no way to sustain high performance, the real opportunity is to create blue oceans of uncontested market space.”
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- Benj, E. (2011).The iPod: How Apple’s legendary portable music player came to be.
- Grabham, D. (2017). History of the iPhone: 2007-2017.
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- Kim, C. K. & Mauborgne, R. (2005). Blue Ocean Strategy: From Theory to Practice. Cambridge, MA: Harvard Business Review Press.
- Lindic, J., et al. (2012). Higher Growth through the Blue Ocean Strategy: Implications for Economic Policy. Research Policy, 41 (5), 928-938.
- McElhearn, K. (2016). 15 years of iTunes: A look at Apple’s media app and its influence on an industry.
- Nations, D. (2017). The History and Evolution of the iPad.
- Richmond, S. (2012). iPad: how Apple started a tablet revolution.