Recently reports have surfaced that Apple has reduced the orders for parts to make the iPhone 5. There are three theories as to why Apple has taken this action. 1. The iPhone 5 is not selling as well as they had hoped. 2. They have designed a way to produce the iPhone 5 more efficiently. 3. Apple is preparing to roll out another product in the Spring. All three theories have a basis in corporate strategy, each with very different implications.
Is the iPhone 5 not selling as well as Apple had hoped it would sell? The iPhone 5 broke records for opening weekend sales, selling over five million units. However analysts were disappointed because some had predicted that over ten million units would be sold in the first weekend. Were the analysts a little over zealous in their estimates? Forecasting accurate sales numbers can make or break a company. It is also one of the hardest numbers to figure out. How can we expected to predict the future? We’d like to believe the consumers will act in a predictable way, but obviously human behavior is unpredictable. What this all boils down to is that if Apple had over estimated their original sales forecast numbers then it would make sense that they would be tapering off orders for parts to produce the iPhone 5.
Has Apple designed a way to produce the iPhone 5 more efficiently? Jay Yarrow from Business Insider described a theory as “Apple may have put in a bigger manufacturing order under the assumption that the iPhone 5 was going to be hard to make. Turns out it’s not that hard to make, so Apple can cut its order.” Again an important part of creating and maintaining a business strategy would be to accurately predict the resources you will need to produce your product so that you don’t over buy or under buy.
Is Apple planning a new product rollout in the Spring? Apple has recently moved from rolling out products once a year to doing new product rollouts twice a year. This is a significant change in strategy for Apple, and we have to question whether or not it is a good idea for Apple to roll out products at double the pace. Should we follow the old adage “If it ain’t broke, don’t fix it?” Or is it important to try to keep pace with new strategies and try new things?
In class we discussed the challenges businesses face when keeping up with current trends, such as Kodak moving to a digital format and Blockbuster losing out to Netflix. In both cases it was apparent each company was reluctant to change a strategy that they felt was working. These companies were overconfident in their current approach and thought they were so large they could never be unseated from the throne. I started to wonder how these changes in the business environment may affect my place of business.
I work for a company that has been successfully running real estate investment trusts (REITs) since the 70s. My company started with small investments in multi-family housing and later moved to REITS comprised of various retail centers and malls. The biggest concern that my company faces has been the growing number of online sales and internet only retailers such as Amazon.com. Many online retailers offer free shipping and no sales tax. Furthermore they can offer better prices, because their overhead is much lower as they don’t have to pay rent for a customer facing brick and mortar building. So why would anybody shop at retail centers anymore? It is far more convenient and cost effective to shop online.
This is where strategy plays its part in my business. We have recently moved away from centers that feature retailers such as Best Buy or other stores that have been severely impacted by the online sales revolution. We have been focusing more on assets that require a physical presence with customers, or the items that they sell are not as easy to sell over the internet. These are retailers such as grocery stores, discount stores and convenience stores. However, there are already services that may start to reduce sales at grocery stores, such as Peapod from Stop and Shop. Other assets we have been investing in lately are office spaces. Office space can be lucrative, but it has its risks. Recently we were looking to purchase the office buildings of a top tier national printing company. We discovered that they were struggling to keep up with current technology and walked away from the deal because of concerns that they might not be able to pay their rent in subsequent years.
I believe to position ourselves for the future we need to make investments in real estate that is directly associated with technology and the advancements that are made every day. I believe we should invest in assets such as the warehouses that act as Amazon’s distribution centers, or the data centers that house the servers for the massive online companies. These types of assets pop up occasionally for sale, but are very hard to buy because of competition from other real estate investors. I hope that management is not overconfident in our current approach and are willing to change their strategy to keep up with the business environment specific to REITs.