In August 1997 Microsoft, the world’s leading software company at the time, lent a helping hand to a niche, west coast computer manufacturer by investing $150m in its struggling business. That same year Microsoft released Office 97, scooped up WebTV Networks and Hotmail and invested $1bn in telecoms company, Comcast. Just another deal between two tech companies?
The recipient of course was Apple Inc and from its perspective the cash injection was a lifeline. Steve Jobs, who founded the company with Steve Wozniak in 1976, told this year’s AllThingsDigital conference that “Apple was 90 days from going bankrupt” when he took over again in 1997, having quit 12 years earlier.
Sales $108bn; Net Income $25.9bn; Cash $9.8bn
How does a financial “basket case” in a decade or so become the world’s #1 Tech company and one of the world’s most valuable businesses? Are there things that CEOs and business leaders can learn from what goes on at 1 Infinite Loop, Cupertino, California?
Adam Lashinsky’s excellent book, “Inside Apple” reveals a number of success factors, the majority of which need not be regarded as proprietary to Apple Inc.
Apple started life as a computer manufacturer with the introduction of the innovative Apple I and Apple II ranges. If you categorise desktops, portables and i-Pad as “computers” then its £108bn sales of 2011 may be split as:
Phones 43%; Computers 39%; Music 13% and Other 5%
These 3 product groups comprise a suite of products that have been introduced on a regular basis to a growing army of loyal consumers which started as US-based devotees and are now global with Europe and Asia at 26% share each, and US/Americas at 35% of sales.
Computers Music Phones
Apple l (1976) iPod (2001) iPhone (2007)
Apple ll (1977) iTunes Music (’03) iPhone 3G (2008)
Lisa (1983) Mini (2004) iPhone 3GS (2009)
Mac (1984) Nano (2005) iPhone 4 (2010)
Powerbook (’91) Shuffle (2005) iPhone 4S (2011)
iMac (1998) Touch (2007) App Store (2008)
It may appear a relatively simple offering but it requires a significant effort to ensure products are available where and when needed and at the highest quality. The supply chain engine is turbo-charged, achieving considerable efficiencies as demonstrated by 2011 inventory turns of 83! [$64.6bn Cost of Goods Sold / $776m Inventory]. That’s 4.4 days!
Several core success traits emerge from Lashinsky’s analysis. The first, an obsession with Secrecy, could be regarded as symptomatic of an idiosyncratic Steve Jobs. The message is rigorously managed to ensure that nothing is provided that would assist the competition. If there is to be any external communication it is minimal, consistent, repetitive and handled by very few people, given Apple’s size. When Apple launched the iPhone in 2007 only 5 people spoke about it to the outside world. The cardinal rule is not to announce products before they launch. Note the current “media speculation” about a potential move by Apple into the TV sector!
Secrecy is not simply about the outside world. Apple employees are strictly controlled in terms of buildings they can enter, areas within a building they may access and which teams and data they can interact with. A T-Shirt graphic sums up the code: “I visited the Apple Campus…..but that’s all I’m allowed to say.”
The second success factor, Focus, is one that many companies would do well to adopt, especially those with bloated product ranges. The automotive industry was one such sector where Western companies, with product variations running into the millions, created impossible requirements on their supply chains compared to leaner, Eastern competitors. Things have started to change.
Apple’s foray into printers, peripherals and manufacturing created complexity, excessive cost and hierarchies that stifled innovation. The solution was to strip away unnecessary products and withdraw from processes that were not deemed to be core, such as manufacturing. With fewer products to manage more time may be spent on ensuring the details of a product were right. Tim Cook, the recently appointed CEO, was fond of saying that you could put Apple’s entire product line on a conference room table.
Part l concludes on the third success factor; a Product First approach. New product development (NPD) is Apple’s Nr 1 business process. Everything else hangs from it. Excellent design is where it starts and all other processes integrate with it. From the way a piece of glass may be finished to ensure a smooth surface, to the closing mechanism on a packaging box, attention to design detail borders on the obsessive.
Designers are the most respected people in the organisation and the senior vice president of industrial design, (Sir) Jonathan Ive, reports directly to the CEO. Great design is what sets Apple apart from its competitors and it’s the fundamental reason why it’s the game-changer in a busy tech world.
But there’s more…..in Part ll.