Making Sense of Apple’s Strategy

Written in response to the article ‘Apple iThrone’ (Jan 29th 2015) in The Economist.

The ‘Four Schools’ of Strategy

Whittington (2002) proposed four categories of strategy: Classical, Evolutionary, Processual and Systemic. With roots from the Enlightenment and a ‘Scientific Method’ approach, the Classical school is a systematic top-down approach whereby rational strategy formulation, performed by senior managers, is then later performed to maximise profits. The implementation is closely monitored to ensure objectives are reached and sufficient resources available and utilised. The Classical school depends on the “rational economic man” and assumes that people are all motivated uniformly toward profitability. The approach inherently separates the formulation of strategy (by a small few) from the implementation (by the many) and with the goal of long-term planning, does not consider that strategy can emerge from trial and error nor must adapt to a dynamic environment.

Whittington describes the Evolutionary perspective where markets determine, in Darwinian fashion, which companies will survive i.e. continue to maximise profitability. As markets determine the strategies companies must adopt, this downplays the value of managers as strategists to concentrating on efficiency e.g. cost control. Similar to Darwin’s Natural Selection, the perspective relies on a diversity of companies/products from which to choose and therefore a company’s default strategy should be to trial as many initiatives as possible.

The Processual approach is a conservative view of strategy that more readily embraces the flaws of people and systems through the notion that ‘rational economic man’ nor the perfection of market determination exist in practice. The focus is internally – organisations are merely collectives of ‘flawed’ individuals with personal ambitions that unsuccessfully attempt to make sense of a complicated world. The approach isn’t completely nihilistic because Processualists argue that strategy emerges, perhaps through incremental improvements in processes, and that success is brought about from leveraging resources and competencies.

The Systemic perspective emphasises the rationale of strategy depends on the sociological context because, as Whittington (2002) states, people are “rooted deeply in densely interwoven social systems”. Therefore the objectives of companies may vary depending on cultural values of local society – especially as the extent of true globalisation (as opposed to “domestic companies with international subsidiaries”) is questionable. The Systemic perspective therefore contests the rationality of profit-maximisation as appropriate for all social systems.

The four perspectives on strategy are illustrated in the figure below:

Figure 1 – Beadle (2015) Illustration of the four schools in terms of processes and outcomes.

Applying the ‘four schools’ to the article.

In the article (Economist, 2015), Apple is described as the “world’s largest company by market capitalisation as well as its most profitable” with a record-beating profit of “$18 billion in its last fiscal quarter”. This description supports the ideals of the Classical approach to strategy – profit maximisation. Additionally, Apple is a US company and the historical development of the Classical school is rooted in American values with the most influential scholars (Alfred Chandler, H. Igor Ansoff and Kenneth Andrews) being American. The article also describes Apple’s strategy as an “old-fashioned business model: selling highly desirable objects at fat gross margins”, which could be indicative of a strategic approach from the Classical tradition where “fat gross margins” suggest the Classical goal of profit-maximisation.

The Evolutionary school could apply to analysis of Apple’s success because the global mobile phone market is large and mature; so perhaps Apple’s approach (for example high quality and attractive design) has naturally selected the business’ success. The Evolutionary perspective suggests that to compete in markets, which themselves determine winners, companies should trial many initiatives and “let the environment do the selecting, not the managers” – Whittingtion (2002). The article mentions Apple’s “introduction of a smart watch”, which supports the notion that Apple is developing and trialling an array of products, arguably within the same “small consumer tech” market.

However, the article does highlight that “Apple’s share of the smartphone market is small”, which contradicts the notion that market forces are solely determining Apple’s strategy. The Evolutionary approach seems to better fit markets where products are homogeneous and almost commodity like so that consumers can easily compare. The mobile phone market is, however, varied with mobile phones costing from £10 GBP upwards of £600 GBP and differing in form-factor and capabilities. Apple’s financial success is apparent despite its low market share.
Apple is widely viewed as the innovator of products whereby the iPod’s inception brought about the digital music revolution as well as the iPhone bringing about the smartphone revolution (perhaps these products did not so much as innovate but facilitated the technologies to ‘cross the chasm’ and become mainstream). The article suggests that in order to “reduce its dependence on iPhones, Apple will need new money-spinning gizmos”. This further contradicts the Evolutionary approach and suggests a level of rational and deliberate planning reminiscent of the Classical school of strategy.
The article does not demonstrate a processual approach to Apple’s strategy despite Apple, as a large tech giant, likely to have a number of resources and capabilities at its disposal. A processual approach may suggest that Apple would simply take a Resource-Based View (RBV) of internal strengths and develop on those. The processual approach may also suggest that Apple’s continued success could be attributed to the poor imitability of its resources, for example, creative design teams or its patents on technologies employed.

It is arguable that the adoption of technologies (e.g. competitors directly copying Apple’s products or using substitutable technologies) is relatively easy compared to the necessary adoption of organisational structure, tacit knowledge or skilled professionals able to thrive in the organisation. This costly barrier to competitors gaining competitive neutrality with Apple is a strong theme in the Processual approach, whereby internal resources are not easily gained or imitated.

The systemic approach would attempt to attribute Apple’s strategy to being a product of the local sociological context of the company. This approach may, unusually, then suggest that as the local rationale for Apple would be American corporate values (firmly rooted in traditional and established business practice) then the strategic approach of Apple would be more akin to the Classical school. The article mentions Apple’s “success in conquering China” and the Systemic approach would therefore alternatively suggest that the local success would be due to Apple’s adaptation to that geography (e.g. culture and government). Although the Systemic approach is more modern that the other three discussed here; in isolation, it is not enable to offer a comprehensive explanation of Apple’s strategy as its focus is only the sociological aspects of the companies’ environment not on its internal resources and capabilities.

Conclusion

The previous discussions lead to the conclusion that potentially as the innovator of new markets through planned and deliberate product innovation (as opposed to merely being a victim or beneficiary of markets determining its fate) Apple’s strategy is best understood through the Classical approach. This is also perhaps more akin to the nature of Apple (and its industry): Technology firms are characterised as being intelligent with strategy planning preceding implementation (technology firms have planned research and development cycles for products prior to marketing).

It is important to appreciate that each school’s perspective on strategy is relatively limited:

  • The Classical approach assumes an idealistic rationale behind a formal strategy, which rarely, if at all, present
  • The Evolutionary school proposes that destiny is controlled by unseen external forces, which contradicts the continued and repeated success of individuals and companies.
  • The Processual approach obsesses about internal political compromises of corporate institutions and has little consideration for the passion and entrepreneurship demonstrated by smaller companies.
  • The systemic approach has little consideration for internal resources or rational planning.

However, although one perspective (the Classical approach) prevailed among the others for its appropriateness in understanding Apple’s strategy; to truly understand why Apple has become, what is commonly regarded as, the most successful company in history today – the best approach would be to use all four perspectives on strategy together because only that way can the analyst be sure to consider all aspects of the company (structure, time and place, environment) and be certain that no detail is omitted. Detail can appear trivial, and indeed it may be, but that small detail could be the result of strategic thinking or lead to strategic consequences. Furthermore, strategy could be the summation of all the details (tactics) about the company and so only with an open-minded holistic approach that considers all the perspectives, can one decipher strategy.

References

Whittington (2002) What is Strategy and Does it Matter? Cengage Learning EMEA

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