All Sorts of Things

Random posts on all sorts of things designed to inform and provoke.

Technology: Apple’s Movement to Supply Chain Efficiencies Reflects Lack of Innovative Products

One of America’s most innovative companies is moving from the innovation to efficiency stage. This transition, which shouldn’t have surprised seasoned industry-watchers, seems to have caught the financial markets unawares. Consequently, Apple’s stock price has declined to its lowest level in 12 years.

The reason why this shift shouldn’t have been unexpected is because it took place once before, in 1985, when Steve Jobs resigned from the company. Following the departure of its founder, Apple acquired a number of companies while releasing new versions of its existing products – similar to what it’s doing now.

If this trend continues then one may soon find Apple licensing the iOS operating system to third party manufacturers, akin to what Google has done with its Android operating system. I, however, believe this is unlikely under the current management because they are Jobs’ acolytes and he was adamantly opposed to this policy.

Apple has always been a niche company whose products married style and substance in innovative packages that created new markets. Indeed, rarely has any company generated as many market-changing products in as short a time as the Cupertino-based Corporation.

Jobs understood the exclusive nature of Apple’s products – exemplified by his decision upon his return to cancel the licensing agreements signed by the previous management team.

This exclusivity allowed Apple to charge above-market prices for its products. Obviously, the caveat here is that since Apple’s products (iPod, iPhone and iPad) created and owned the market, there were no above-market prices.

However, as is the case in every industry, new entrants copied Apple’s model and came out with their own mp3 players, smart-phones and tablets. Indeed, corporations such as Samsung (hardware) and Google (operating systems) even overtook Apple in the market share for certain products.

This development wouldn’t have had any major impact on Apple had it not become the most valuable company in the world. As investors poured their money into its stocks, they forgot Apple’s inherently niche nature. As a result, recent developments have sent its stock tumbling even though they are a normal part of a company’s lifecycle.

The challenge for Apple, therefore, has nothing to do with innovation – as it’s new product pipeline is likely quite active – but with management. In that sense, the company is in excellent hands as CEO Tim Cook has a background in supply chain management. This will allow him to recognize and implement the efficiencies necessary to navigate the company through its current lean times.

Obviously, the company could come out with another innovative market changing product; somehow, I don’t think a watch will be that creation. Until that time, Apple’s success will depend on managing expectations, disbursing some of its huge cash reserves, realizing cost efficiencies and wringing every last cent out of multiple versions of its various products.

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This entry was posted on February 13, 2013 by in Technology and tagged , , , , , .
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