Apple Inc. Case Study

Joseph FeldmanBrandman University

Strategic Management of Human ResourcesHRCU 650

December 12, 2015

Introduction Since its inception in 1976, Apple has grown from a relatively small company to one of the

largest companies in the U.S. and world in 2015.

At first glance it may be difficult to identify major problems that Apple has in 2015 as the company has the largest market cap in the U.S. ($626.33B), annual revenue of $233.7B, and a net income of $53.4B (Yahoo Finance, 2015, p. 1).

Part of Apple's founder Steve Jobs philosophy was pushing the idea that Apple was building something much greater than a computer.

In one instance Jobs explained to his team in the early 1980s that the Lisa Computer project was about making “history” (Hill et al., p. C-271).

Introduction In another example, Jobs persuaded Pepsi's Vice President of Marketing John Scully to be

Apple's CEO by telling him “do you want to sell sugar water for the rest of your life, or do you want to change the world?” (Hill et al., p. C-272).

Apple's current income statement is quite different than their income statements in the early to late 1990s when the company experienced “low gross margins and continuing costs” (Hill et al., C-274).

The following describes major changes that Apple implemented when Jobs came back in 1998 and turned Apple's company financial iotation for the better (Hill et al., p. C-276- C-282):

• Created a line of innovative products that customers responded well to

(iPod, iPhone, iPad). • Spent an increased amount of money on R&D to update the iMac.

Made a transition of replacing their slower chips with Intel chips.Sold computers on-line and opened retail Apple Stores.

Created apps and programs (e.g. iTunes and iCloud) that enhanced Apple's hardware, and attracted new customers, and drove revenue upwards with paid subscription plans.

Case Study Issues Hill suggests with the departure of Jobs in 2013 that Apple was at “the top of its game,” that

the company may have difficulties going forward without their visionary Jobs.

Hill asks if the company can continue designing new innovative products with the likes of Tim Cook at CEO, and their lead marketing/product designer John Ive.

In addition, Hill suggests that new competitors (e.g. Google and Microsoft) have moved into the computer/phone/ app. industry, and may encroach on Apples future revenue and growth (p. C-282).

Hill also asks how Apple can appease shareholders expectations when Apple is “the world's largest computer company” (Hill et al., p. C-282).

Case Study Issues Hill's Case 20 Apple Inc., 1976-2013 study presents both opportunities and potential issues

at Apple.

Many problems that Hill described in the case study occurred when Apple was a small company.

This is an important concept to understand as many issues that Apple had in the past may not be prevalent in 2015 when Apple's market cap is above $600B, annual net profit is north of $50B, and the company’s balance sheet holds $200B in cash.

Apple's transformation may have invited new problems (e.g. outsourcing) that was not present in the 1990s..

Is Apple experiencing employee friction, and how will this affect the company?

As Apple moved towards outsourcing manufacturing, what type of issues or problems does Apple have (if any at all) with their new supply chain process?

What does Apple’s corporate social responsibility look like, and are there any issues?

Key Questions Asked

Three Areas That May Cause Concern For Human Resources

Data suggests that Apple has experienced difficulties in selection and retention of employees. There are two major groups of Apple employees that include (1) retail store and (2)

corporate employees.

Data suggests there are major labor and safety and compliance issues with Apple's outsourcing partners in China.

One example came in 2010 when “fourteen workers killed themselves at Apple's biggest supplier, Foxconn” (CompareCamp.com, 2014, p. 1).

Apple's major opportunity, selling more products, requires using more resources. This may be seen as a “tug of war” as the company’s purpose of achieving higher market share and profit level conflicts with causing additional harm to environment.

In 2014 Apple produced 34.2 million metric tons of greenhouse gas emissions, of which 72% came from manufacturing (Apple Inc., 2015, p. 4).

Selection and Retention Analysis

A 2013 New York Times article wrote “Apple [AAPL] is an exploitative hell: it richly compensates its C-suite, while offering stressful low-paying jobs and disposes of its employees after a short time, once they are burnt out” (Denning, 2012, p. 1).

A 2012 Apple employee survey in retail stores shows high levels of employee dissatisfaction.

Two key areas that were a concern included lack of pay, and the ability to move up in the organization.

According to Denning, the average Apple retail employee earned $25,000 in 2012, which is roughly $12 per hour (p. 1).

A former part-time Apple salesperson, Graham Marley, explains that “the disillusionment settles in not because of pay, though pay is part of it. What happens is you realize that they want you to spend the years, but there is no actual career path” (Denning, p. 1).

Denning adds “there are only a handful of different jobs at Apple stores and the most desirable are invariably sought after by dozens of candidates. And a leap to the company headquarters is highly unusual” (p. 1).

A former Apple store manager in Chicago, Shane Garcia, states “managers often tell new employees that they hope to get six years of service, but the average tenure is two and a half years” (Denning, p. 1).

Labor and Health and Safety Analysis

Key labor/human rights and health and safety areas audited by Apple and an independent third party in 2011 and 2015 include (1) antidiscrimination, (2) wages, involuntary labor, (3) juvenile worker protections, and (4) health and safety compliance (Apple Inc., 2015, p. 1).

According to Apple, the company uses various tools in conducting and assessing compliance.

Tools that Apple uses includes third party auditors, surprise audits, balance score cards, and direct contact with employees at manufacturing plants.

The founder of leading advocacy group China Labor Watch (CLW), Li Qiang, explains that Apple is performing “more-thorough inspections than competitors, but the company still fails tremendously at this process” (Piltch, 2012, p. 1).

Qiang claims that Apple clearly states what the issues are better than competitors, but “appears to be less concerned about factory conditions than its competitors, because of the company's unwillingness to talk with advocacy groups like China Labor Watch and Students and Scholars Against Corporate Misbehavior” (Piltch, p. 1).

Part of the problem as Li explains is “bribery of auditors is common at Chinese factories, because it's less expensive to make a pay-off than to fix an unsafe condition” (Piltch, p. 1).

Sustainability Analysis In a 2015 Apple Environmental report the company states “and while we’re constantly improving, we’re also

constantly reporting—even when our numbers aren’t as good as we’d like them to be” (Apple Inc., 2015, p. 4).

As Apples CO2 emissions increased from 2013 to 2014 the company reasons that their carbon footprint increases because more products are being made.

Other notable uses of energy includes 845 million kilowatt hours (electric consumption), 9.2 million pounds of trash disposed in landfills, and over 480 gallons of water in 2014 (Apple Inc., 2015, p. 28).

In 2014 Apple electricity use was equal to 20 percent of Vermont’s total household electricity (Point Click Switch, 2013, p. 1).

The following chart displays Apple's top 5 suppliers in 2014 by country and amount of suppliers (CompareCamp.com, 2014, p. 1):

Recommendations

1. Offer Apple retail store employees coaching and establish training and development programs that gears towards upward mobility within the Apple organization.

2. Create stronger compliance policies that would hold all suppliers and manufactures more accountable for their actions.

3. Collaborate with NGOs and competitors with the purpose of creating higher levels of sustainability (including life cycle analysis).

Strategic Human Resources Models Job equity theory is defined as “when a person compares himself to his coworkers and finds the

results to be fair, he will be more motivated. (Vogt, 2015, p. 1).

Training and development of retail store employees would fit in with Peter Drucker’s philosophy of “the purpose of a business is to create a customer" (Kotler, 2009, p. 3).

Apple retail store employees may be considered the first people customers come into contact with, and serve a pivotal role in not only selling products, but in technical support role as well.

Werner & DeSimone (2012) state ‘an HRD department has three distinct roles to play with respect to continuing education- enabler, resource provider, and monitor” (p. 317).

Strategic Human Resources Models According to Hill et al. (2015) , functional- level strategies “aim at improving the effectiveness of a

company’s operation and its ability to attain superior efficiency, quality, innovation, and customer responsive” (p. 117).

The supply chain is vital part of Apple's operations as the company brings in the majority of its earnings from selling products (not services) that are primarily made in China.

Part of what creates an effective value chain is supporting activities within the value chain.

One job of the human resource function [is] to ensure that people are adequately trained, motivated, and compensated to perform their value created tasks” (Hill et al, 2015, p. 93).

Strategic Human Resources Models In collaboration with NGOs and competitors, Apple could adopt and follow The Coalition for

Environmentally Responsible Economies (CERES) codes.

A Plan-Do-Check-Act process may be used in conjunction with a HR Balance Scorecard.

Farver states “leading sustainability companies develop a balanced scorecard to prioritize and rate their own progress along the path to sustainability and to chart their own progress regarding their sustainability footprint” (p. 57).

“When sustainability concerns are included in the vision and the mission of the company, sustainability may become a part of the whole strategy through the balanced scorecard” (Farver, 2013, p. 138).

Conclusion

A few benefits that Apple and its employees may realize by implementing a training and development

program at the retail store level include (1) higher productivity, (2) less turnover, (3) potential cost savings

through internal hiring, and (5) changes in corporate culture that improves upon employee morale.

Coaching and training and development create transparency, builds trust between employers and employees,

and shows that management cares about their employees.

A study conducted by Matthew Bidwell, an assistant professor at Wharton, reveals “in addition to scoring

worse on performance reviews, external hires were 61% more likely to be fired from their new jobs than

were those who had been promoted from within the firm” (Adams, 2012, p. 1).

Saratoga Institute reports show that in 2012 “the average cost of finding and hiring someone from outside

the company is 1.7 times more than an internal hire ($8,676 vs. $15,008)” (Schawbel, 2012, p. 1).

Data suggests that training and development costs for approximately 30,000 Apple retail store employees

would equal $26.5 million each year.

A competitive advantage could be realized if Apple is known as a company that ethically manufactures its

products, and this directly relates to management ensuring that labor and health and safety compliance is

fully reached at their manufacturing plants in China.

Conclusion

China Labor Watch's Li exerts that NGOs influence labor violation outcomes by sending in undercover

workers to factories and create channels of communication where workers feel comfortable reporting

violations (Piltch, p. 1).

“Companies who approach their supply chain as a value chain from the perspective of all three areas of

responsibility (environmental, social, and economic) can distinguish themselves from their competitors and

create real, lasting value for their stakeholders” (Farver, 2013, p. 160).

China Labor Watch, “estimates that if Apple’s suppliers were to improve working conditions and abide by

China’s labor laws, its profits would decrease by only 11%” (Dodson, 2015, p. 1).

The 11% cost appears to be a reasonable and essential cost as history has shown that consumers can become

disenfranchised with loved products and brands when companies are associated with bad labor practices.

One notorious example occurred at Nike in the mid 1990s as Nike customers boycotted the company “when

it was revealed the company's products were assembled in sweatshops” (Kahney, 2002, p. 1).

Conclusion Benefits of collaboration with NGOs and competitors may include improved innovation processes,

increased sustainability, and increased profits.

“Digital communication has enabled individuals and nongovernmental organizations (NGOs) to observe

almost every activity of a business, to rally support against it, and to launch powerful global campaigns very

quickly at almost zero cost” (Browne & Nuttall, 2013, p. 1).

Tetra Pak’s director of environment and government affairs, Elisabeth Comere, discusses how collaboration

has led to a better (1) product-to-packaging ratio, (2) greater use of renewable energy, and (3) use of

resources that equates to a competitive advantage (Comere, 2012, p. 1).

Key areas that could be measured include manufacture closure rates, total quality management (e.g.

defective product rates), and productivity levels.

Conclusion Key areas that could be measured include manufacture closure rates, total quality management (e.g.

defective product rates), and productivity levels.

Data from HR Scorecards may be used in conjunction with SIGMA guidelines.

Under SIGMA guidelines accountability occurs in three stages that includes “transparency, responsiveness,

and compliance” (Farver, 2013, p. 113).

According to Farver (2013) a Likert Scale can be used in developing a “prioritization tool for sustaining

aspects for SMS planning” (p. 150).

Acting responsibility will most likely secure good relations with a number of stakeholders that includes, but

is not limited to, employees, customers, investors, and the public at large.

References

Adams, S. (2012, April 5). Why promoting from within usually beats hiring from outside. Retrieved from http://www.forbes.com/

sites/susanadams/2012/04/05/why-promoting-from-within-usually-beats-hiring-from-outside/

Apple Inc. (2012, January). Apple supplier responsibility 2012 progress report. Retrieved from https://www.apple.com/anzsea/

supplier-responsibility/pdf/Apple_SR_2012_Progress_Report.pdf

Apple Inc. (2015, May). Environmental responsibility report | 2015 progress report, covering FY2014. Retrieved from

https://www.apple.com/environment/pdf/Apple_Environmental_ Responsibility_Report_2015.pdf

Apple Inc. (2015, January). Supplier responsibility 2015 progress report. Retrieved from http://images.apple.com/supplier-

responsibility/pdf/Apple_Progress_Report_2015.pdf

Browne, J., & Nuttall, R. (2013, March). Beyond corporate social responsibility: Integrated external engagement. Retrieved

from http://www.mckinsey.com/insights/strategy/beyond_ corporate_social_responsibility_integrated_external_engagement

Comere, E. (2012, June 19). Value chain sustainability: Collaboration the key to success. Retrieved from

http://www.environmentalleader.com/2012/06/19/value-chain-sustainability-collaboration-the-key-to-success/

CompareCamp.com (2014, September 14). How & where iPhone is made: Comparison of Apple’s manufacturing process.

Retrieved from http://comparecamp.com/how-where-iphone-is-made-comparison-of-apples-manufacturing-process/

Denning, C. (2012, June 25). Apple's employees have a hell of a ride. Retrieved from

http://www.forbes.com/sites/stevedenning/2012/06/25/apples-employees-have-a-hell-of-a-ride/

Dodson. L. (2015, September 24). A time to reflect on U.S. role in Chinese workers’ exploitation. Retrieved from

http://www.aflcio.org/Blog/Global-Action/A-Time-to-Reflect-on-U.S.-Role-in-Chinese-Workers-Exploitation

References

Farver, S. (2013). Mainstreaming corporate sustainability. Colati, CA: GreenFix, LLC

Hill, C. W. L., Jones, G. R., & Schilling, M. A. (2015). Strategic management an integrated approach (11th ed.).

Stamford, CT: Cengage Learning.

Kahney, R. (2002, December 4). Apple: It’s all about the brand image. Retrieved from http://www.wired.com/2002/12/apple-its-

all-about-the-brand/

Kotler, P. (2009, November 20). Peter Drucker, the grandfather of modern marketing. Retrieved

from http://druckersociety.at/repository/201109/Grosser_Festsaal/1530-1615/10.0.1%

Piltch, A. (2012, February 3). Labor activist: Apple best at auditing factories, still not doing enough. Retrieved from

http://www.laptopmag.com/articles/labor-activist-apple-best-at-auditing-factories-still-not-doing-enough

Schawbel, D. (2012, August 15). The power within: Why internal recruiting & hiring are on the rise. Retrieved from

http://business.time.com/2012/08/15/the-power-within-why-internal- recruiting-hiring-are-on-the-rise/

Vogt, C. (2015). What theory can management apply in the workplace for motivation? Retrieved from

http://smallbusiness.chron.com/theory-can-management-apply-workplace-motivation-13145.html

Werner, J. M., & DeSimone, R. L. (2012). Human resource development (6th ed.). Mason, OH:

South-Western Cengage Learning

Yahoo Finance (2015). Apple income statement. Retrieved from http://finance.yahoo.com/q/is?s= AAPL+Income+\

Statement&annual