The term “strategic challenges” refers to those pressures that exert a decisive influence on an organization’s likelihood of future success. These challenges frequently are driven by an organization’s future competitive position relative to other providers of similar products. While not exclusively so, strategic challenges generally are externally driven.
When Apple’s Chief Executive – Steven Jobs – launched the Apple iPod in 2001 and the iPhone in 2007, he made a significant shift in the company’s strategy from the relatively safe market of innovative, premium-priced computers into the highly competitive markets of consumer electronics. By 2007, Apple’s music player – the iPod – was the premium-priced, stylish market leader with around 60 percent of world sales and the largest single contributor to Apple’s turnover. Its iTunes download software had been re-developed to allow it to work with all Windows-compatible computers (about 90 % of all PCs) and it had around 75 % of the world music download market, the market being worth around 1000$ million per annum-and was growing fast. In 2007, Apple’s mobile telephone – the iPhone – had only just been launched. The sales objective was to sell 10 million phones in the first year-Apple sold 6.1 million units over the next five quarters.
The world market leader responded by launching its own phones with touch screens- Here lay the strategic risk for Apple. Apart from the classy, iconic styles of the iPod and the iPhone, there is nothing that rivals cannot match over time. By 2007, all the major consumer electronics companies – like Sony, Philips and Panasonic – and the mobile phone manufacturers – like Nokia, Samsung and Motorola – were catching up fast with new launches that were just as stylish, cheaper and with more capacity. In addition, Apple’s competitors were reaching agreements with the record companies to provide legal downloads of music. All during this period, Apple’s strategic difficulty was that other powerful companies had also recognized the importance of innovation and flexibility in the response to the new markets that Apple itself had developed.
Apple’s competitive advantage relies majorly on the Apple brand name and a user friendly interface (cheap manufacturing contracts with China are not a long term advantage as it used to be) – As competitors are catching up it will be harder to maintain those advantages over the long run – we already see a stronger branding for companies such as HTC or Samsung and the user friendly advantage is almost gone as Android and the iOS are now very similar to operate. Meaning Apple will have to come up with more innovative solutions and basically rely on the employee’s talent-A risky strategy.
Apple’s manufacturing most of its products in China (85% of all iphone 5s are assembled in China) – as China continues to grow much faster the US – ~7.5% against ~2.8 % the low costs of production will get harder to maintain over time -which will decrease Apple’s high profit margin -~20% right now.