STEVE JOBS AND STRATEGIC FLEXIBILITY

BADIBANGA SAMY (A275688X) B301 TMA 04_10/06/2013 FOR TUTOR LOYKIE LOMINE
‘With reference to arguments advanced by Hitt et al. in Reading 10
from B301 Readings for Book 3, explain what you understand by
‘strategic discontinuities’ and how ‘strategic ﬂexibility’ might be
developed to counter the difﬁculties strategic discontinuities create.
Illustrate your answer with suitable examples from B301 and/or your
own experience.
Modern markets defer from yesterdays on the principal factor of speed. Speed in fact relates to the
incredible pace of change to which companies different industries are subjected to. Hitt et al (1988)
actually advance that the main factors which cause this increase in pace are technological revolution
and ‘globalization’ (The OU Business School, 2010). On one hand, it has become increasingly easy for
companies to operate in different markets at the same time whilst competition has intensified as
barriers for entry have been lowered and industry boundaries have been blurred. In addition, the
mushrooming of the processor and IT technologies in the late 80s has meant that technological add-
ons, improvements in design, efficiency and capability are introduced at a much higher frequency
(Viney et al., 2010, p. 126). Different forms of strategic flexibility allow for reactively adapting to
different changing environments and proactively driving change. It is therefore becoming increasingly
important for decision makers to not only possess marketing capabilities, but also the capabilities for
strategic flexibility in its various forms (Combie and Greenley, 2003, p.3). Moreover, those industries
which boast a high level of technology as a determinant for competitive advantage best demonstrate
the furious pace of change in market conditions. Taking the idiosyncratic of Apple, we shall proceed
to examining how the company has sought to incorporate strategic flexibility to its modus operandi.
Hitt et al (1988) argue that the best way that a company can cope with the uncertain and fast
changing competing environment is for that company to develop an ever evolving strategy, bearing
in mind that the speed of evolution (in resources and capabilities) should at least match that of the
external environment and in some cases, even anticipate future changes. This is known as ‘strategic
flexibility’ (B301, the OU Business School, 2010, p. 135-163).
Resources may be defined as the pool of assets and talents that a company may employ in order to
position itself favorably in relation to competitors. A resource cannot in itself provide a sustainable
competitive advantage; this only occurs when a number of interdependent resources have been
synchronized so to develop a ‘capability’; in relation to this, the concept of ‘strategic flexibility’ was
developed in reference to the need for constant strategic rethinking and the acquisition of new
resources in order to improve existing capabilities or create new ones (Viney et al., 2010, p. 137). In
fast changing high-tech industries, it is therefore imperative to apply constant upgrades to
compensate for fast obsolescence and the tough competition (Pandora Group, 2006).

In relation to this, exploring the change of fortunes at Apple since 1997 illustrates well the issues that
an uncertain environment imposes, and the resulting need to develop strategic flexibility. Research
has shown that Apple suffered a lot in the 90s, so much that it prompted the return of Steve Jobs
after nearly 15 years. The issue with the company was that it was unable to cope with competing
innovations and did not possess a coherent product strategy which enables it to withstand
challengers. First, the company exclusively sold premium computers which ran a unique operating
system. Whilst Apple typically classified its products as ‘PCs’, the general consensus saw it as an
absurdity since Mac OS was incompatible with Windows and could not run MS Dos. Put simply, Apple
was unable to predict, and second withstand the exceptional Microsoft run PCs offered by Dell and
Packard and could no longer grow because Microsoft literally monopolized the market through the
Windows software, especially when we consider that the company had always been averse to
collaborating with a competitor until then. Households and Companies were all seduced by Windows
and DELL/HP computers whilst the Mac OS platform was limited to the selective professionals who
bought MAC computers ( Lashinsky, 2011, p.114-123).
This situation shows that the company was struggling to cope with ‘discontinuities’, a term which
refers to the changes in the outer environment (PEST analysis) or industry structure (Five Forces)
which can directly affect the effectiveness of an existing strategy (B301, the OU Business School,
2010, p. 135-163).. In the computer and software industry, product life is extremely short as
companies constantly innovate in order to stave off the competition and copiers. In this case, Apple
was losing ground simply because its strategy was until then focused on hardware (MAC OS) and
hardware (MAC computer) which did not appeal to households and there was no answer to the
convenience in price, power and Window compatibility that other computers offered. In the 90s,
Microsoft took over the software segment with the easy to use and efficient applications that
Windows offered its superior rate of innovation and contracts secured with all the main PC
manufacturers so to combine evolving processor technology and bind it to the Windows software.
Greater flexibility in the company’s strategy was thus required so that future changes in the industry
were less of an impact on company sales. Three shortcomings were apparent:
-Poor marketing capability; the company clearly did not understand consumers well enough since a
selective few could or were interested in purchasing the products. Products were incompatible with
the most popular software on the market and the Mac OS software simply was not at the same level.
-Poor products; the company marketed the wrong products since they were not compatible with
Windows and Macs were no substitute for the fast growing PC segments. There lacked a consistent
product strategy to guide the numerous projects that were underway. It is reported that Steve Jobs
reduced the hundreds of products under development down to just four, designed to target both the
wider household segment and the narrower professional segment.
-Poor market exposure. In comparison with Dell (PC) and Microsoft (software), the company lacked
exposure especially considering that the two other companies enjoyed first mover advantage.

In stark contrast, the 1997-2011 period were the greatest years for the company; it has
revolutionized the industry and has reached a level of success in branding, quality and consumer
loyalty that it is now referred to as ‘the most admirable company in the world’ (FORBS). This has
been carefully prepared through the acquisition of new resources and the development of a strategy
based on continuous innovation within a closed ecosystem between hardware and software
designed to induce a ‘lock in’ effect on consumers (Figure 1).
Apple’s main resources are the late charismatic leader Steve Jobs, the highly skilled staff (i.e.
industrial engineers and designers), its culture of extreme secrecy and the vast pool of reserves
which help fund its leading R&D capability. When synchronized, these have developed into three
distinct capabilities which are:
-the integrated hardware/software system that the company has managed to market; this closed
ecosystem locks out the competition as Apple’s operating system is made to be incompatible with
products made by the competition
-creativity and design both at the level of software, hardware and also manufacturing;
-the close relationship it has built with its OEMs (low cost, flexible Chinese manufacturers)
-incredible foresight in the person of Steve Jobs who was more concerned with “teaching consumers
what they need” rather than fulfilling exiting needs. Top level engineers, designers and programmers
underwent a thorough assessment before they could go on to become team leaders and entrusted to
supervise innovation to the liking of Jobs.
The reason for Apple’s success is strategic management at its best. A thorough understanding of the
concept of strategic flexibility and the role of strategic leadership in developing competitive

advantage helps us understand that the Apple success is not a miracle; Figure 2 is a diagram which
explains well how competitive advantage was enabled through strategic flexibility (Hitt et al. in B301,
the OU Business School, p.138).
Figure 2 (Open University, p.138, 2010, B301)
Figure 2 illustrates the process that Steve Jobs initiated upon his return in 1997. Hitt et al. (1998)
argue that the strategic leader must be a ‘catalyst for change’ and that the leader must consecrate
his time to the development of capabilities which can provide long-term competitive advantage. In
relation to this, Apple is the perfect illustration. Through visionary talent alone, Steve Jobs was then
able to discern the four product types that project teams should concentrate on. He had an already
proven knack for materializing his vision when he created Pixar and pretty much created the
computer-animated films industry.
In the highly modern computer and software industry, it originally comes as a surprise that a very
top-down organizational structure was imposed in the most successful years of the company. In this
case, this architecture revealed itself to be adequate in the sense that the undisputable visionary
talent, industry expertise and understanding of consumers that Jobs possessed gave a direction and
alignment to employee’s efforts throughout the company. Steve Jobs exuded the aura of success,
expertise, passion and aggressiveness.
This gave the company and the many often individualist minds of computer nerds. In this respect,
Steve Jobs is known to have simplified hundreds of ongoing projects in favor of a four product matrix
designed to target both the professional and the consumer segment. It is reported that Jobs was very
unceremonious in his rejection of the stupid and unnecessary projects that were underway (Lavinsky,
2011, p.147). He went on to remind his programmers, engineers and designers that they were some
Building dynamic core competencies
Effectively use human capital (expertise), industrial engineering, programming and
design both towards innovation at manufacturing and product level
Engage in valuable strategies- Exploit exposure offered by the scale of Global
Economy + cooperation with OEMs and Microsoft towards compatibility with
Windows
Development of new top-down organisational structure and a culture of continuous
innovation and extreme secrecy.
Strategic flexibility
Competitive advantage
Strategic
Leadership
Steve Jobs

of the smartest people on Earth and that they could “change the world”. It was argued that stupid
products were not the work of smart people and this started by shifting the emphasis away from
hardware and towards software development. In fact, Jobs has early on understood that the demise
of Apple in the 90s was mainly due to the fact that the company did not have any respectable
operating system that was compatible with Microsoft users or could even replace Windows
(discontinuity). After creating the product matrix (Figure C), Jobs went on to force Apple into the
acquisition of Next, in order to access important software platform technology that he knew had
great potential. This was the birth of the successful Mac OS X software that the company still uses
today to interlock all its products from the iPod to the iPhone, to the iPad and to the iMac. Finally the
last major change initiative initiated was to force the company into cooperating with a competitor-
Microsoft- for the first time in their industry. Jobs in fact understood that ongoing anti-monopoly
regulation were suing Microsoft in relation to its Windows operating system; this presented an
opportunity for both, and Apple now could undo the handicap of being incompatible with Windows.
These tactical moves were made in order to develop ‘dynamic core competencies’ or ‘capabilities’ by
synchronizing existing resources and newly acquired ones and later secure ‘competitive advantage’
which Viney et al. (2010) define as “an advantage that a firm has over its competitors allowing it to
generate greater sales or margins and/or retain more customers than its competition” (Viney et al.,
2010,p134). By providing a clear product matrix and by using intimidation in order to command
respect and ensure complete secrecy, the Jobs managed to use effectively the rich human capital at

his disposal (Figure 2). These include programmers, designers and industrial engineers who are
known to have helped its Foxconn supplier in making manufacturing more flexible so that product
numbers produced remained in line with demand and costs were reduced. Besides this, talent has
been used to make the most elegant and convenient products in the industry.
Talent, secrecy, and overall company commitment to ‘change the world’ has meant that the
company has been able to see innovation from an angle that competitors cannot access. This angle is
to ‘show the customer what he needs as well as give him what he wants’ through superior passion
and knowledge of IT technologies and consumer ergonomics. At Apple, strategic leadership also
secured a new incredible asset- Apple retail stores which have helped exploit the exposure offered by
the scale of the Global Economy (Figure B). The introduction of Apple stores has provided the
company with an important physical presence to act as both a sales location and an advertisement.
The stores allow Apple to tightly control the image of the brand and provide excellent customer
service. Apple tops many retailers in in-store sales, generating $7, 000 per retail square foot per year,
beating other retailers like Tiffany & Co. at $2,666 and Best Buy at only $930. This resource is of
incredible value to Apple and a success that is a relative rarity in the industry. Matching success and
impact like the Apple store model is difficult for other firms to achieve. Past experiments like
Gateway stores have failed, while Sony Style stores founder in mediocrity (apple.com). Still relating
to marketing, many believe that the company essentially owes its success thanks to a better
understand of consumer psyche and a most honest commitment to “reengineer, rethink and re-
everything” (apple.com/macbookpro/design.htm, 3/06/13). Steve Chazin (2007) also comments that
the company actually uses the cloud of secrecy and media scrutiny to gain advertising and is in fact
the “best marketing machine” which it is said, operates on five principles- ‘products don’t sell, people
do’, ‘Never be first on the Market’, ‘make something good greater’, ‘Empower early adapters’, ‘Make
your message memorable’ and’ Go one step further by surprising and delighting customers ( Chazin,
2007). Coming from an ex-Apple Marketing executive, this provides great insight into the inner
workings of the company.
As explained above, strategic management should be used to develop a set of unique core
competencies which enable one to withstand the uncertainty and speed of change in markets caused
by discontinuities. In this case, the core competencies are innovation and engineering excellence,
HRM policy, creativity and design (high-end marketing and products). The topic of strategic flexibility
and strategic discontinuities were described through a specific case study on purpose in order to
explore the concept in a context which is very familiar to the reader, allowing for quick assimilation.
Applied to the “the most admired company in the world”, we can now conclude that the uncertainty
of markets and strong competition can only be tamed by harnessing existing resources, learning from
competitors (benchmarking) and understanding the needs of the consumer even to the point of
creating new needs. This otherwise refers to the voluntary induction of strategic discontinuities
which are often used to put the company in an offensive rather than a defensive position; as Steve
Jobs would say “ Stay hungry. Stay Foolish (the Economist, 7/10/2011).
In the Essential Organize with Chaos, Rowley and Roevens (2011) explain strategy form an emergent
point of view. Through the ‘Enhance to Perturb to Attract to Excite’ (EPAE) Change lens, they explain

how an organization can induce ‘voluntary discontinuities’ inside the company, and how this can help
it be run more effectively by getting the company used to discontinuities and progressively learn the
art of constant innovation. Through examining the history of human evolution, evolutionary change
has always occurred ‘from chaos to order’, namely through four distinct steps. Having said this, the
role of the Leader should therefore be to act as a catalyst for ‘the wheel of change’:
-Enhance: A change in the environment (internal in this case) occurs and a need for internal change
is made clear
-Perturb: The routine way of doing things is disturbed and employees are encouraged to experiment
on ways of developing new products in more efficient ways. At this stage, management’s role
issimply to encourage continuous experimentation yet the direction of projects are always made
clear before the process of change begins (i.e. the four products matrix)
-Attract: out of all the experimentations, only the ‘fittest’ of adaptations to the industry environment
are employed. In fact, the market is seen as Nature and industry variables such as competition (and
others) select which methods and products survive
-Enhance: The surviving best-practice is standardized across the company.
The process should then be repeated regularly especially when employing a strategy of anticipation
in order to gain first mover advantage. Instead of being a threat that requires a change in strategy,
discontinuities here are seen as opportunities to enhance the company through the process of
‘voluntary chaos’.
Throughout this essay, we have explored the concepts of discontinuities, strategic flexibility and how
these are linked to competitive advantage and the need for continuous improvement imposed by
very uncertain markets. Discontinuities were defined as environmental changes which impose a need
for change at the level of the company strategy and its organizational structure. In response, we
proposed the concept of strategic flexibility which is about making current strategy less rigid and
more receptive to change. As explained above, strategic management should be used to develop a
set of unique core competencies which enable one to withstand the uncertainty and speed of change
in markets caused by discontinuities. In this case, the core competencies are innovation and
engineering excellence, HRM policy, creativity and design (high-end marketing and products). The
topic of strategic flexibility and strategic discontinuities were described through a specific case study
in order to explore the concept , in a context which is very familiar to the reader which allows for
quick assimilation. Applied to the “the most admired company in the world”, we can now conclude
that the uncertainty of markets and strong competition can only be tamed by harnessing existing
resources, learning from competitors (benchmarking) and understanding the needs of the consumer
even to the point of creating new needs. This otherwise refers to the voluntary induction of strategic
discontinuities which are often used to put the company in an offensive rather than a defensive
position; as Steve Jobs would say “ Stay hungry. Stay Foolish (the Economist, 7/10/2011). The
solution is to train the company to getting itself used to discontinuities and learning to harness

resources so to see them as opportunities rather than threats. This is encompassed in the EPAE
model (Roevens and Rowley, 2011) and in Steve Jobs’ ‘i-strategy’.
WORDCOUNT: 2726
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The Open University Business School (2010)’Making sense of strategy-Readings for Block3’, The Open
University, Charlesworth Press, Wakefield
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files.pomona.edu/jlikens/SeniorSeminars/pandora/reports/apple.pdf> [Accessed on 1/06/2013]
Steve M. Chazin, 2007. Marketing Apple [pdf] Available at:
<http://www.marketingapple.com/Marketing_Apple_eBook.pdf>, [Accessed on 2/06/2013]
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[Accessed on 8/06/2013]
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