Consider Capabilities

November 17, 2021

Jon Pineau

Intro

A common military concept during war is to “not determine what the enemy intends to do, but focus on what they are capable of achieving”. Focusing on not what is expected of the enemy, but what they could create. This rule is also applicable in other settings. Business leaders have broken this rule by underestimating their competitors by looking only at what they expect from competitors rather than what they can be capable of doing. One of the clearest examples of this misstep is competitors reaction to Apple’s iPhone

History

Apple’s history has a series of ups and downs throughout the ’80s, 90’s and early 2000’s with hits like the Apple II, Macintosh, and the iPod series (1). As well as flops like the Apple Pippin and the Newton (2). Considering Apple’s track record, it was no guarantee what new product they produce would succeed and more likely to fail. Releasing a revolutionary product like the iPhone makes it even riskier to fail. To put it simple Apple was a different company in the early 2000’s compared to the giant it is now.

The Launch

When the iPhone was put on public display. It attracted PR from almost every media source. With the limited exposure to the press from Macworld event, skepticism was high from media regarding the device. Concerns stemmed over the chance of the large screen cracking, the usefulness and accuracy of the touchscreen, and all the phone’s features being ahead of their time. Some of these features were the slow data connections that would rely on phone carriers, not Apple; thus, Apple will have little control over this issue. Also, battery-draining features include the large screen, Wi-Fi, and browsing the Web (4). Although some of these issues with the iPhone would be temporary as the company can create new models with better battery life, and phone carriers’ network speeds are constantly increasing. Once these issues are corrected, it’s clear that the iPhone will become a leader in the smartphone market.

The Competition Responds

the iPhone’s competitors first dismissed the device. Competitor’s business leaders doubted the device’s capabilities and market appeal. Initially, Microsoft’s CEO Steve Ballmer dismissed the iPhone “there is no chance that the iPhone is going to get any significant market share” (5). Citing the smartphone will not diffuse through the market like Microsoft’s products, based on the phone’s high price tag (5). Ballmer did not account for Apple’s capability of marketing the iPhone and consumers the value of the value they receive from the iPhone from its large touchscreen and ease of use. These statements Ballmer now regret (8). Independent media echoed the iPhone’s strengths by reporting how they are astonished at how the little iPhone could do just about everything and its ease of use (3). An advanced product with ease of use lowers the entry barrier for consumers. The remaining entry barrier for consumers is the price of the iPhone; however if Apple can continue to excite consumers with the style of the device and its features. Current smartphone users could see the value of the iPhone offers, fulfilling the device’s high price. Although Steve Ballmer believed the iPhone may make Apple a lot of money (5). Ballmer expects the iPhone to fail without considering how Apple could use its capabilities to market and improve upon the device.

Blackberry’s co-founder Mike Lazaridis also doubted the iPhone’s viability. Mr. Lazaridis claims that the capabilities of the iPhone, its internet connectivity allowing to download videos, music would overload and collapse Cingular’s, the iPhone’s network carrier (6). Without a reliable network, the iPhone’s value decreases. Also, Cingular is a complementor to Apple; therefore, Apple has limited control over Cingular. The limited control increases the threat of an unreliable network becoming the downfall of the iPhone. However, this threat will only become temporary as network carriers improve their speeds and reliability of their wireless networks to attract new consumers. With an attractive and innovative product like the iPhone, carriers would fast-track their work on upgrading their networks. Again, Mr. Lazaridis focused on what he intended to happen with the iPhone rather than what Apple, a company that has made several successful products, can achieve.

How Did Apple Create The iPhone?

Unknown to business leaders, Apple prepared itself well for its release of the iPhone. Apple took their top talent engineers and managers to work on a secret project for the iPhone (7). The iPhone team dealt with adversity to create a device with its expectations and in its short timeframe. However, Apple organized their talented employees, managers, and other business assets to make the team capable of creating a product that revolutionizes the smartphone market.

The iPhone’s price tag created a lot of sticker shock for consumers of the device. Compared to previous smartphones, the iPhone’s $500 price tag appears that the device would not diffuse beyond Apple loyalists. However, the capabilities of the iPhone are far higher than previous devices, thus meaning the value of the device increases along with the price. The iPhone announcement at Macworld focused on the features and ease of use of the device. As mentioned earlier, independent media praised the iPhone, writing over 11,000 articles creating hype and interest in the phone (4). The messaging of the features, ease of use of the iPhone from Apple themselves, and the wave of articles from independent media made the iPhone a product consumers aspired to own. The ease of use of the iPhone makes the phone accessible, overcoming barriers consumers have with the advanced product.

How Competitors Should React?

Hindsight is 20/20, but there were clear examples that Apple could make a play into the Smartphone market. Firstly, Apple is a large electronics company with varied success but recently changed the music market with the successful iPod. Also, Apple sold a high-priced iPod to the masses with the original and the iPod Nano.

The best way to estimate if a competitor could create a successful competing product is to conduct a VRIO analysis on an organization’s existing product. If the product is truly valuable and inimitable, the organization is somewhat safe from its competition as it is difficult to replicate or surpass in technology.

Next the organization should conduct two more VRIO analyses but on a competitor’s brand and talent of the organization. These two analyses determine if a competitor is capable of producing a viable rival product. If a competitor’s talent passes the VRIO analysis, they can organize themselves to create a rival product that threatens the host companies product line. Branding is important to test with a VRIO analysis as it will test the competitor’s ability to gain market share with their competing product. Simply if they can effectively market themselves, they are capable of effectively marketing their new product. With these VRIO analyses, it’s crucial that the focus of the analysis isn’t what the competitor is believed to do but on what they are capable of achieving.