Is continued “creative destruction” at Apple a wise business strategy?

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We have seen creativity as an open-ended, self-organizing system, in this post we will explore continued “creative destruction” at Apple a wise business strategy.

Creative Destruction

The dawn of the Neo-liberal society has intensified the need to be creative so as to engage in new innovations that drive profitability and beat the competition. According to Schumpeter (1947), “the fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumer’s goods, the new methods of production or transportation, the new markets, the new forms of industrial organization the capitalist enterprise creates.”(p.83) Even so, when the new is continuously created, the old is incessantly demolished. Schumpeter (1947) in his theory of creative destruction argues that, technological progress is catalyzed by a continuous cycle of destruction and creation of existing entities, which is constantly leading innovation. Apple, as a for-profit structure in a capitalist society encompasses the dynamics of innovation thereby, continually engaging in the process of creative destruction as a business strategy. Whether this business strategy is wise or not will be analysed in this paper.

The crux of every business strategy is to “offer customers exceptional utility at an attractive price, and the company must be able to deliver it at a tidy profit.” (Kim and Mauborgne, 2000, 77) “Since being founded in 1976, Apple has been considered a leading designer and integrator of computer hardware and software. By 2012, it had fundamentally changed the computer, music, mobile telephone, and retail industries through its sleek products, innovative stores, and new business models.” (Thomke and Feinberg, 2012, 1)

This statement reiterates that Apple continuously ventures into new arenas with innovative designs that often are an industry breakthrough. Apple certainly has the dynamics of an innovative industry as outlined by Weil and Utterback (2005); these include:

  1. Entry and exit of firms: Apple’s foray into its different avenues changed the way technology was used. For instance, “computer equipment was typically housed in discrete locations within company headquarters and government facilities, guarded and used only by specialists. The notion of personal computers as a tool for individual work was unimaginable.” (Thomke and Feinberg, 2012, 2) In addition, Apple’s entry into the music industry completely revolutionized the way people listened to music and caused many a great corporations such as Sony to exit or become mere imitators of this new age iPod technology.
  2. Experimentation and innovation: Apple is brave to experiment with their products and in setting new standards; many a times Apple is a prime leader in creating new technology when the competition is still building upon existing technology. For example, “Years ago, the slot for inserting diskettes was eliminated from mac computers (you would have to add an external device); reviewers criticized Apple for its arrogance and omission of must-have features. Other companies soon followed Apple’s lead, however, and external devices were quickly developed to plug into ports that Apple products contained.” (Thomke and Feinberg, 2012, 3);
  3. Technology evolution: Apple has made great strides in this arena where it evolved from a company that made fashionable and good looking products to one that creates products of great use and appeal. “The iPod, as we’ve seen, was resolutely in one material and color in its beginning, and then, as a product, “became” another version in another material and an array of colors…New possibilities seem always available and incorporated, over time. Yet there is one approach that seems to hold steady – in the look of the products and in their use.” (Thomke and Feinberg, 2012, 12);
  4. Improvements in cost and performance: This fluid phase of technological advances leads to continual innovation and an increase in the number of users of the new technology which proportionately improves cost and performance. (Weil and Utterback, 2005) ;
  5. Emergence of standards and dominant designs: Apple has a standard platform strategy that facilitates the architecture of their dominant designs. Standards are important to eliminate uncertainty derived from a wide variety of platforms and designs. Apple did fall into this trap when “there were more than 70 Macintosh Performa (computer) models between 1992 and 1997. Critics noted that the rapid proliferation of models confused customers and increased complexity at Apple” (Thomke and Feinberg, 2012, 6). Nevertheless, Apple learnt its folly and came up with a single major platform. “The OSX operating system, for example, is used in all of Apple’s computers as well as in the iPhone and iPod Touch clearly come from the same platform, as does most of the iPod family, and now comes the iPad. (Thomke and Feinberg, 2012, 7);
  6. Adoption of new technology: Thomke and Feinberg (2005) explain that, “customers benefit from a company’s effective use of a platform strategy. More stable and reliable designs mean products that require less repair, maintenance, and service, in general and particularly for first-time users. Commonality of user interfaces and design elements means that repeat customers face less of a training hurdle; they are applying their knowledge of how the product family works.” (p. 7);
  7. Network effects: Apple has a reputable brand value as witnessed in the emotional connection that millions of its product users present. This because Apple’s desire to develop “insanely great products” is driven by the customer’s needs and meets trend on what the new generation seeks; and
  8. Development of a mass market: “Certainty about standards , greater availability of information, building network effects, declining prices, and improved performance accelerate the development of a mass market.” (Weil and Utterback, 2005, p. 3) This is an achievement that Apple has succeeded in as seen in aforementioned examples. For the very same reason, today Apple stores generated the highest revenue per square foot in the entire retail sector (Thomke and Feinberg, 2012);
  9. Market growth: “On March 15, 2012, the day before its new iPad became available, Apple’s share price reached US$600 for the first time in its history – signaling solid financial strength and future growth prospects as world economies, and businesses, continued to recover from the worst recession since the Great Depression. With a market capitalization of about US$ 550 billion and annual sales exceeding $100 billion, Apple was worth nearly three times the industrial giant General Electric, exceeded the value of Sony Corporation by a factor of 25, and became the most valuable publicly traded company in the world. All the more amazingly, a scant 12 years earlier, when Steve Jobs returned to Apple, the company’s share price had hovered around $5 and the future was uncertain at best.” (Thomke & Feinberg, 2012, p.1);
  10. Market saturation: Apple has become a market leader in all its different ventures from iPhone to computers to music and to the retail industry. Nonetheless, Apple’s ability and desire to engage in continuous innovation has prevented its product from potential market saturation;
  11. Intensity of competition: Although Apple is inundated with intense competition, there exists a high degree of customer loyalty and significant brand value.
  12. Commoditization: Apple’s strategy of simplicity equals sophistication has stunned many a great corporations for their inability to replicate Apples simple design and concepts. Hence, making Apple products free from the threat of commoditization.

Apple repeatedly reinvents its products (Morgenstern, 2012), although “its radical innovations also came with consistency. Anyone who used the Apple II in 1978 and then picked up an iPhone three decades later would find a familiar object. Somehow the new device was the same as the old one: different, but the same.” (Thomke and Feinberg, 2012, 1) “Hence, the innovation process is modeled as a “quality ladder” of innovations, in which each new innovation supersedes the old one.” (Verspagen, 2007, 53)

Verspagen (2007) delineates that, “it is in the quality-ladder model that the Schumpeterian notion of creative destruction is most referred to. In this model, the incumbent monopolist is periodically replaced by a successful challenger. Obviously, this replacement includes, for example, infrastructures and related investment. But the quality-ladder model does bring out the crucial notion that technological change is often a process of sharp competition, in which negative as well as positive externalities exist.” (54)

Conclusion

    In conclusion, Apple, under the dynamic leadership of Steve Jobs, has acquired a bold business experimentation as well as a constant learning and adaptation environment. In the case of Apple, it is clear that its brand value supersedes its exorbitant pricing when compared to its competitors. In the “Apple way” Steve Jobs claims that, “explosive growth is not an excuse to “play it safe. That’s the most dangerous thing we can do. We have to get bolder. . . .”” (Thomke & Feinberg, 2012, p.1). To this effect, Apple’s engagement in continuous creative destruction tenders it a wise business strategy.

References

Morgenstern, D. (2012). Apple customers now on the front lines of creative destruction. Retrieved from http://www.zdnet.com/apple-customers-now-on-the-front-lines-of-creative-destruction-7000004690/

Schumpeter, J. A. (1947). The process of creative destruction (3rd Ed.). The great process of creative destruction in capitalism, socialism and democracy, pp. 81-86. NY: Harper Torchbooks. Retrieved from http://agoraproject.eu/papers/Schumpeter_chapter_7%20-%20Capitalism,%20Socialism%20and%20Democracy.pdf

Thomke, S., & Feinberg, B. (2012). Design thinking and innovation at Apple. Retrieved from http://www.assaabloydss.com/Local/DSS/Americas%20Conference/required%20readings/Apple%20-%20Design%20Thinking%20and%20Innovation%20at%20Apple.pdf

Verspagen, B. (2007). Innovation and economic growth theory: a Schumpeterian legacy and agenda, in Malerba and Brusoni, eds. Perspectives of Innovation, pp. 42-70. Cambridge University Press.

Weil, B. H., & Utterback, J. M. (2005). The Dynamics of Innovative Industries. Retrieved from http://www-innovation.jbs.cam.ac.uk/publications/downloads/birdseye_dynamics.pdf

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