IS their Perceived Innovativeness Score (PIC). The results

 

 

 

 

 

 

 

 

 

IS INNOVATION POSITIVELY CORRELATED WITH
PROFIT MARGIN (IF YES, HOW STRONG? IF NOT, HOW LOSE)? PROSPECTS BASED ON MOBILE
PHONE SEGMENT OF APPLE AND NOKIA BRANDS

 

 

 

CONTENTS

PART
A

ABSTRACT

 

KEY TERMS

 

ACTUALITY OF THE RESEARCH

 

EXPECTED RESULTS

 

INTRODUCTION

 

MAIN
PART

 

CONCLUSION

 

PART B

OBJECTIVE

 

APPLE
COMPANY PROFILE

 

METHODOLOGY

 

POSSIBLE
OUTCOMES

 

ASSUMPTIONS

 

ANALYSES

 

MAIN PART

 

CORRELATIONS ANALYSES

 

PROS
AND CONS ANALYSES

 

CONCLUSION

 

 

 

IS INNOVATION POSITIVELY CORRELATED WITH PROFIT MARGIN
(IF YES, HOW STRONG? IF NOT, HOW LOSE)? PROSPECTS BASED ON MOBILE PHONE SEGMENT
OF APPLE AND NOKIA BRANDS

 

PART
A

Innovation
distinguishes between a leader and a follower. (Steve Jobs)

ABSTRACT

There existed strong argument in Strategic
Management and Marketing about the relationship of innovation and
profitability of business. The aim of the paper is to identify the
strength of the relationship between innovation and profitability based on
correlation analyses. The findings have been analyzed based on correlation at p =.05 level with 2-tailed normal curve distribution.

 

Statistical methods have been used are 1)
descriptive statistics 2) correlation analyses. IBM SPSS 23 statistical
software has been utilized to obtain the results. Most of the data is
up-to-date. However, more advanced methods (such as Partial correlation or covariance) could add additional value
and provide better results. The findings show r = .785 which is significant at p
< .001 (2-tailed) emphasizing the validity of research.   KEY TERMS: Strategic Management, Correlation, Innovation, Apple, Nokia, Perceived Innovativeness Score (PIC), (?) Profit Margin   ACTUALITY OF THE RESEARCH Over 30 years ago, Peter Drucker emphasized the importance of customer thinking to the success of a firm. He said that the purpose of a company is "to create a customer. Therefore, the business has two— and only two—basic functions: marketing and innovation. Marketing and innovation produce results: all the rest are costs." Today, when top management is surveyed, their priorities in order are: finance, sales, production, management, legal and people. Missing from the list: marketing and innovation.   EXPECTED RESULTS Several tests are carried out based on Apple and Nokia mobile phone segment and their Perceived Innovativeness Score (PIC). The results have been tested for significance with NOKIA brand which has less consumer perceived value (Table 1).   Based on results, should perceived innovativeness score and profit margin shows strong correlation, then, assumption that – "More innovative products, provide more scope to increase profit margin" perception will hold true. Such stipulation would lead companies to innovate their brands to increase the bottom line.   On the other hand, if otherwise holds to be true, then strategic management and marketing should allocate austere measures for innovation, and focus more on other aspects of business such as advertisement, marketing channels distribution, training, quality of product or any other business aspects that will add consumer value.     INTRODUCTION Businesses are living in the time of turbulent globalization, change and alteration. Considering the fact that the world is changing faster, ten percent change was enough for businesses to blossom in the past, yet it is not a sustainable solution at the present century.   It has been observed that there are four types of companies:   1. Those that make things happen (market makers); 2. Those that watch things happen and respond (market followers); 3. Those that watch things happen and don't respond (laggards); 4. Those that didn't notice that anything had happened (not vetted companies).   Concerning to Apple its innovation strategy involves terrific new products and innovative business models. Genius ergonomics make Apple products effortless to use. "Design is not just what it looks like and feels like. Design is how it works," said Steve Jobs. Apple has repeatedly demonstrated with its innovation management what a success user friendliness and design can generate. In fact, "The heart and soul of the company is creativity and innovation" says Bob Iger.    Companies are constantly striving to find solutions through creativity, product/service differentiation aspiring to add costumer value to increase the bottom line. But the tasks are becoming so myriad that businesses have been experiencing business myopia and which is the tacit reality of the XXI century.   MAIN PART According to Harvard Business School (HBS) professor Clayton Christensen, each year more than 30,000 new consumer products are launched and 80% of them fail. Furthermore, up to 90% of startups in the consumer packaged goods (CPG) industry fail. Thus, innovation is a safer bet to stand still.   There is no panacea to evil spells that businesses are confronting in the globalization time and the sort of approach that lead to breaking the stone like competition around the world. Such solution would have been too easy but not feasible.   And yet, the XXI century managers seem to have found answer to such difficult dilemma through constant INNOVATION! Business innovation is holistic concept i.e. it considers marketing as a whole. According to Jack Welch – former CEO of General Electric (General Electric (GE) is an American multinational conglomerate corporation incorporated in New York 2 with more than US$123.7 billion (2016) 3 revenue) – change is the cure for all current problems that businesses experience. In fact, he puts it boldly "Change or die!" Mike Lazaridis, president and co-CEO of BlackBerry states, "I think we have a culture of innovation here, and engineers have absolute access to me. I live a life that tries to promote innovation" 5   According to Philip Kotler companies that innovate are market drivers while companies that follow costumer needs are market driven. However, companies must make the first their choice. Gary Hamel holds that innovation can be a strategic capability, just like in some company's quality is a discipline. 6   If businesses do not innovate they are destined to die! Even if they do innovate, there is a small chance to survive. No wonder the average company disappears within 20 years. Of the companies listed as best in the Forbes 100 of 1917, only 18 survived to 1987. And only two of them, General Electric and Eastman Kodak, were making good money. 7   CONCLUSION At the bottom line new technologies stimulate the economy's growth. Unfortunately, the step between innovations an economy must be identified (which is the scope of this research). Understanding the scope of innovation provides advantage over competitors. The innovation process is long run and its value must not be undermined. Companies differentiate themselves in the market through various methods (speed, efficiency, quality of service, after sale service or loyalty programs) which all require certain level of risk, yet innovation is considered to be the safest bet. Thus, companies must instill innovation to the DNA of their existence.           PART B OBJECTIVE Based on the knowledge above innovation has been mentioned a key aspect of survival of any business to gain competitive advantage. It has been long stated the existence of strong correlation between Innovation and business survival on one hand, and an innovation and profitability (the bottom line) on the other. The objective of this paper is to test the hypothesis that "weather innovation and profitability of a business are positively correlated (If yes, how strong? If not, how lose)?" The results have been tasted on two standard deviations (z=±2?) i.e. statistical error at 5% (?=.05) level.   APPLE COMPANY PROFILE Apple was founded by Steve Jobs, Steve Wozniak, and Ronald Wayne in April 1976. It was incorporated as Apple Computer, Inc. in January 1977, and sales of its computers, including the Apple II, saw significant momentum and revenue growth for the company. Within a few years, they had a production line. Apple went public in 1980 with instant financial success. Over the next few years, Apple shipped new computers featuring innovative graphical user interfaces.  In Macworld Expo January 9, 2007 the event saw the announcement of the iPhone 89 and the Apple TV. 10 The company sold 270,000 iPhone units during the first 30 hours of sales, and the device was called "a game changer for the industry".11 Boston Consulting Group has ranked Apple as the world's most innovative brand every year since 2005.12   The following December, Apple's chief operating officer, Jeff Williams, told CNBC that the "$1 billion" amount was "absolutely not" the final limit on its spending, elaborating that "We're not thinking in terms of a fund limit. ... We're thinking about, where are the opportunities across the U.S. to help nurture companies that are making the advanced technology — and the advanced manufacturing that goes with that — that quite frankly is essential to our innovation." 13 14   METHODOLOGY The coefficient in equation (formulae 1 below) is known as the Pearson product-moment correlation coefficient or Pearson correlation coefficient (for a really nice explanation of why it was originally called the 'product-moment' correlation see Miles & Banyard, 2007) and was invented by Karl Pearson.15   To identify authenticity of statistical method, two approaches have been carried out. First, the data has been collected based on questionary in the written form (the form has been attached as an Appendix) asking potential buyers to rate the innovativeness of two brands, namely APPLE and NOKIA. The prospects were asked to rate the product on 0-100 scale on how innovative they perceived the brand to be.   On the first step, profitability and innovativeness scores will be tested for correlation. Secondly, more innovative product - Apple's margin will be compared to less innovative brand Nokia.  The ideal result to accept the theory will be when there will be strong correlation between brand and its margin (as this would have proved the idea of strong correlation between brand innovation and the bottom line). To underline validity of scores of the same test has been carried out for Nokia brand as well. If the results will be identical, then the theory will be strongly supported otherwise it will fail.   According to Deborah J. Rumsey the correlation coefficient r measures the strength or direction of a linear relationship between two variables. The value of r ranges from +1 to –1. To interpret the value following scale may be appropriate: 1.                  –1.  perfect (negative) linear relationship 2.                  –0.70.  strong (negative) linear relationship 3.                  –0.50. moderate downhill (negative) relationship 4.                  –0.30. weak (negative) linear relationship 5.                  0 (zero). No linear relationship 6.                  +0.30. weak (positive) linear relationship 7.                  +0.50. moderate (positive) relationship 8.                  +0.70.  strong (positive) linear relationship 9.                  Exactly +1. A perfect (positive) linear relationship   POSSIBLE OUTCOMES The results may provide an answer to the core research question "Weather innovativeness servers to increase brand equity and the bottom line" Should there be 1) strong correlation between perceived innovation score of the brand and its profitability (correlation analyses), as well as significant difference between brand's profitability of APPLE and NOKIA (t-test), the theory brand equity and profitability will succeed otherwise it will fail. On the other hand, for example, weak correlation and insignificant t-test casts strong doubt to theory.   ASSUMPTIONS 1.      For a Pearson correlation, each variable must be continuous. If one or both of the variables are ordinal in measurement, then a Spearman correlation could be appropriate.  2.      Each participant or observation should have a pair of values, missing values will be eliminated list wise.  3.      Absence of outliers refers to not having outliers in pair variable. Having an outlier can skew the results of the correlation by pulling the line of best fit formed by the correlation too far in one direction or another.   4.      Linearity and homoscedasticity refer to the shape of the values formed by the scatterplot.    Standard Deviations for each brand was calculated based on (formulae 1) Person correlation coefficient was taken as a base due to its aptness with (a=.05 rate).    FARMULAE 1   Where: n-stands for Number of date points x? - the mean of xi xi - Each value of the data   ANALYSES A special form (see the appendix please) has been made to identify consumer perceived value for two brands: Apple and Nokia. Mobile phone market has been targeted at Malika Trade Center.1 15 (fifteen) sales people were asked to rate (based on their experience) "How innovative they perceive the product to be?" Furthermore, they we asked to provide their margin for Apple brand. Then the same procedure was followed for Nokia brand. The data has been provided in Table 1. TABLE 1 Perceived Innovativeness Score for Different Brands ID APPLE ? APPLE (%) Nokia ?  Nokia (%) 1 90 16 80 11 2 85 13 65 9 3 78 14 82 8 4 95 18 74 9 5 99 20 76 8 6 88 20 60 12 7 71 12 66 10 8 85 15 70 6 9 86 17 75 9 10 86 16 71 10 11 93 17 61 8 12 97 21 68 9 13 81 18 67 7 14 78 15 70 7 15 80 14 75 9   Here: APPLE / Nokia– is the brand name ? APPLE (%) – Profitability margin for the brand (compared to sales value) ?  Nokia (%) – Profitability margin for the brand (compared to sales value)   MAIN PART As we can see from the Chart 1 people perceive Apple brand to be more innovative. To be precise, Perceived Innovativeness scores were higher for the Apple brands (x?a =86.1 points) compared to Nokia (x?n =70.7 points).  Apple brand's margin was higher too (Table 2). CHART 1 On the other hand, Descriptive Statistics provides data that Apple to be more volatile (1.1 points more compared to Nokia) with higher margins on average. Yet, volatility of perceived score for Nokia brand is less (that is approximately 18% compared to Apple), and minor compared to profitability (Table 2). TABLE 2 Descriptive Statistics   Mean Std. Deviation N PreScoreInnovAPPLE 86.1333 7.81817 15 MarginAppl 16.4000 2.66726 15 PreScoreInnovNokia 70.6667 6.41056 15 MarginNokia 8.8000 1.56753 15 From Chart 1. One can see that there is a trend that as Innovativeness score increase so is the margin. However, correlation analyses would shed better light.   CORRELATIONS ANALYSES Fifteen respondents were given a form to provide their perception of brands' innovativeness value. They were also asked to provide their profit margin for their products.   Correlation analyses was carried out to identify if there is a relationship between perceived Innovation score and profit margin. Such stipulation will identify the strength of relationship. All respondents provided the form replied. So there are no missing values.   TABLE 3     PreScoreInnovAPPLE   MarginApple     PreScoreInnovAPPLE Pearson Correlation 1 .785**   Sig. (2-tailed)   .001   N 15 15   MarginApple Pearson Correlation .785** 1   Sig. (2-tailed) .001     N 15 15       PreScoreInnovNokia MarginNokia   PreScoreInnovNokia   Pearson Correlation 1 -.100     Sig. (2-tailed)   .724      N 15 15   MarginNokia  Pearson Correlation -.100 1    Sig. (2-tailed) .724      N 15 15 **. Correlation is significant at the 0.01 level (2-tailed).     From Table 3 one can see strong correlation between Apple brand and profitability margin. On the other hand, the same holds true for Nokia brand i.e. one can confidently say that "the more product is innovative the more success of probability to add margin." Apple's margin is 8.4 % more correlated than Nokia's. The results are significant which prove validity of the data. P value was calculated based on 2-tailed normal distribution curve.   In short, the output shows that perceived innovativeness score of Apple brand and its margin are positively strongly related, with a coefficient of r = .785, which is also significant at p < .001 (2-tailed). Furthermore, perceived innovativeness score of Nokia was also strongly related to the bottom line, r = -.724, p < .001 (2-tailed) which reinforces the theory that "The more innovative product is, the more scope to increase its profit margin."   PROS AND CONS ANALYSES Limitations: 1.                  The research has been carried out with only 15 respondents; 2.                  More data would provide better generalization and be consistent with population scores; 3.                  Further, more advanced methods such as Partial Correlation or Covariance analyses would add more value to the research project. Advantages: 1.                  Better future orientation and roadmap to business value addition. Companies will be attracted not to underestimate the value of innovation. 2.                  Emphasize the value of innovation in the business i.e. 3.                  Simplicity of data and statistical methods. The data is 4.                  The findings are reinforced with analyses of two brands. CONCLUSION Companies are always faced with options of budget allocation and constraints ranging from marketing to management, from operation to finance, from new technology to innovation. It is the objective of top management to allocate the right options for different sectors. However, no companies must underestimate the values that innovation adds to the consumer perceived value. It has been proven that the margins for Apple are positively and strongly related, with a coefficient of r = .785, which is also significant at p < .001 (2-tailed). The same also holds true for Nokia brand with r = -.724, p < .001 (2-tailed). The objectivity of current research will move one step forward on underlining the values of innovation, and roadmap future strategic managers to business success!                               REFERENCE   1. Lonny Kocina "What percentage of new products fail and why?"  May 3, 2017 at Market Smart Newsletters  (https://www.publicity.com/marketsmart-newsletters/percentage-new-products-fail/) 2. "Company Search, EDGAR System, Securities and Exchange Commission". header. Retrieved December 21, 2015. 3. Taylor, Harriet (August 30, 2016). "How Apple managed to pay such a low tax rate in Ireland". Retrieved January 9, 2017. 4. Williams, Rhiannon (April 1, 2015). "Apple celebrates 39th year on April 1". The Telegraph. Telegraph Media Group. Retrieved July 9, 2017. 5. Jena McGregor, "The World's Most Innovative Companies," BusinessWeek, April 24, 2006, pp. 6.  See Gary Hamel, Leading the Revolution (Boston: Harvard Business School Press, 2000).   7. Philip Kotler "Marketing Insights From A to Z" 2003. p. 20 8.  "Apple Announces The iPhone". MacRumors. January 9, 2007. Retrieved May 24, 2017. 9. Arrington, Michael (January 9, 2007). "Apple Announces iPhone, Stock Soars". TechCrunch. AOL. RetrievedMay 24, 2017. 10. Oyedele, Akin (March 21, 2016). "Here's how Apple shares do right after the new iPhone launches". Business Insider. Retrieved May 24, 2017. 11. Oyedele, Akin (March 21, 2016). "Here's how Apple shares do right after the new iPhone launches". Business Insider. Retrieved May 24, 2017. 12.  Boston Consulting Group has ranked Apple as the world's most innovative brand every year since 2005. 13. Salinas, Sara (December 13, 2017). "Apple has a $1 billion fund for US manufacturers, but it's ready to spend more, says COO Jeff Williams". CNBC. NBCUniversal News Group. Retrieved December 14, 2017. 14. Miller, Chance (December 13, 2017). "Jeff Williams says Apple is prepared to invest more than $1B in US manufacturers". 9to5Mac. Retrieved December 14, 2017. 15. Andy_Field_Discovering_Statistics_Using_SPSS_(In(BookFi) 16. http://www.dummies.com/education/math/statistics/how-to-interpret-a-correlation-coefficient-r/     APPENDIX A Questionary Form   Name of the store ___________ ID number ___________   1.      How much do you perceive Apple to be (rate it from 0 to 100)? _______________ 2.      How much do you perceive Nokia to be (rate it from 0 to 100)? _______________ 3.      What is the profit margin for Apple? _____________ 4.      What is the profit margin for Nokia? _____________     1 Malika Trade Center is the biggest domestic appliance market in Tashkent, the market has been targeted due to its abundance of consumer choices (in mobile market) and aptness to the posed research form