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Tuesday, March 9, 2010

Deconstructing Apple (by Gary Hamel)

I found this piece by Gary Hamel both interesting and informative, and therefore thought that I’d post it here. Enjoy!


Part 1:
In 1997, or about three centuries ago in tech years, I bought an e-tablet from A.T. Cross, the pen company. Co-developed with IBM, the CrossPad was heralded as a game changer that would open up a whole new product category—Portable Digital Notepads. I’m a copious note-taker, so the idea of turning my scribblings into digital files was too seductive to ignore. Yet within a month, the CrossPad was sharing shelf space with all the other paradigm-busting products that had promised, and failed, to change my life.

Truth is, I’m not so much an early adopter as an easy mark—a sucker for the utopian dreams of technology mystics, no matter how commercially tainted their visions might be. Who was I to argue with “Ozzie” Osborne, head of IBM’s Pen and Speech Business Systems business unit, when he declared the CrossPad would “redefine how users perceive pen and paper?” And why, today, should I question Steve Jobs’ claim that Apple’s soon-to-be-shipped iPad will break open a huge new market for personal media devices? (Though I’m baffled by the idea of a “pad” without a pen—what’s up with that?) As the love child of a Kindle and an iPhone, the iPad is certainly winsome—but only time will tell if consumers come to regard it as an essential gap-filler between a mobile phone and a laptop.

There are many in the blogosphere who are betting against the iPad. Much of the skepticism seems to be a visceral reaction to Apple’s recent triumphs. Apparently it is easier to tolerate jaunty immodesty when a company is a struggling also-ran and not a high-tech juggernaut. Yet despite the alleged shortcomings of the iPad (no camera, no Java, no Flash, no stylus), you’d have to be at least a tiny bit stupid to bet against Apple.

Over the past decade, the pride of Cupertino has produced a mind-boggling parade of accomplishments.

·         Having been dismissed as a footnote in the personal computer industry, Apple is now the market leader in computers costing more than $1,000. In one recent month, its market share in this segment exceeded 90%. 
·         Though it was a late entrant into the mobile phone business, Apple currently makes more money from roughly 3% of the global handset market than Nokia makes from more than 30%. 
·         Within six years of launching its online music store in 2003, Apple had become the world’s largest music retailer.
·         Apple’s first physical store opened in 2001. Five years later, Apple’s sparse, elegant shops were generating four times more revenue per square foot than its big box competitors, and its Fifth Avenue store in New York is thought to be the most profitable retail outlet in the world.
·         At $180 billion, Apple’s market value is currently three and half times that of Nokia, and more than 60% higher than Hewlett-Packard’s—a company with three times Apple’s revenue.

So rather than fretting about the prospects for the iPad, clever Apple watchers and envious wannabes should be asking themselves: How in the world could one company have accomplished all this? How do you build an organization that is capable of reinventing not just one industry but four—computing, music, electronics retailing and mobile phones. How do you do the unprecedented repeatedly?

Some might say you have to start with Steve Jobs, Apple’s prescient and exacting boss. While it’s impossible to imagine Apple without Jobs, the company’s unparalleled success is more than the product of one fertile mind. In his role as CEO, Jobs inspires and arbitrates, but he authors only a fraction of the innovation that permeates Apple’s products.

Competitors and business analysts would probably credit Apple’s gravity-defying success to a contrarian strategy that . . .

·         Focuses heavily on design. For years, Apple’s focus on design and ease-of-use has differentiated it from competitors, who have often seem determined to create products that are as ugly and non-intuitive as possible.
·         Fuses hardware and software. While most of Apple’s competitors have specialized in either hardware or software, Apple has pursued excellence in both. By tightly integrating the hardware and software design, the company has been able to optimize system performance to the benefit, and relief, of its customers.
·         Integrates a broad array of complementary technologies. With the possible exception of Samsung, Apple encompasses a broader array of technological capabilities than any of its competitors. While it does little of its own manufacturing, Apple’s mastery of advanced materials, batteries, power management, component packaging, application development and industrial design gives the company a distinct advantage in launching ground-breaking products—and in controlling its own destiny.
·         Locks up customers with velvet hand-cuffs. Apple has found ways of locking customers in and competitors out—all with the goal of delivering a great end-to-end user experience (and making boatloads of money). That’s why the only place you can buy music for an iPod is at the iTunes store—and why the iPad will probably work best with books purchased from Apple’s own iBook store. Bill Gates would be proud.
·         Harnesses the efforts of independent software developers. The vibrant network of developers that Apple assembled around the iPhone is unique within the mobile phone industry. With more than 140,000 applications created thus far, Apple has again shifted the grounds for competition. Today it’s not just phone versus phone, but ecosystem versus ecosystem. And since Apple owns the channel through which these “apps” are sold, it garners a share of the profits. Undoubtedly Apple hopes to turn the iPad into another developer magnet.
·         Leverages the company’s core competencies into new markets. There is always a risk that a company becomes tethered to a particular product or market (like Kodak). Over the past decade, Apple has avoided this fate by leveraging its core capabilities into new industry segments. The company’s self definition isn’t centered on one particular industry, but on a portfolio of deep competences. It is telling that in his recent iPad pitch, Jobs described Apple as the world’s large “mobile devices company,” ahead of Nokia, Samsung and Sony. A decade ago, no one would have lumped Apple in with these companies—the comparisons would have been with Microsoft and Dell.

But as logical as this analysis may seem, it’s also unsatisfying. It reveals something of the “how,” but nothing around the “why.” Why has Apple been able to rewrite the rules in a handful of industries when most companies struggle to do it in even once? Why does the company seem to take such pride in defying conventional wisdom? And most importantly, why is it able to routinely deliver the exceptional?

Part 2:
Nevertheless, I don’t think it’s a particular strategy that makes Apple Apple. Nor can you attribute all of the company’s success to the executive abilities of Steve Jobs. Instead, I believe the company’s extraordinary run of success reflects an unstinting devotion to a particular set of values. Within the universe of inventors, designers and artists, these values aren’t particularly remarkable; but within the universe of Fortune 500 companies, they are as rare as a rose in winter.

Before going further, I should make it clear that my take on Apple’s signature values isn’t the product of any in-company research I’ve conducted. Steve Jobs lives down the street but he’s never invited me over for a chinwag and I haven’t talked to anyone on Apple’s senior team. Nevertheless, when you ask yourself, “what kind of values would a company have to honor in order to produce the sort of products that have recently been spawned by Apple?” it’s not too hard to deduce at least some of the ideals that have propelled the company forward . . .

·         Be passionate. As I argued in a recent post, great success is the product of a great passion—it comes from the tireless and inventive pursuit of a noble virtue. And for Apple, that virtue is beauty. During his unveiling speech for the iPad, Jobs remarked again and again, “It’s just so amazing to hold.” I can’t imagine Hewlett Packard’s CEO, Mark Hurd, enthusing over a product in that sort of way—taking such joyous pride in a technological coup d’art. It’s hard, I think, for a company to generate years of exceptional returns unless it first devotes itself to the pursuit of an exceptional ideal.
·         Lead, don’t follow. I’m guessing that most of the folks at Apple hate being derivative. Yeah, they’ll sometimes borrow an idea from Microsoft or Amazon, but what gets them up in the morning is the chance to break new ground. I’m guessing no one at Apple has ever defended the proposition that it’s best to be a fast follower. While Apple doesn’t always pioneer a new product category—there were MP3 players before the iPod and smart phones before the iPhone—it always sets out to radically redefine a category with a distinctive product or business model.
·         Aim to surprise. As a company, Apple seems committed to exceeding expectations—to evoking a “Wow!” from even its most jaded customers. That’s why I think the company’s penchant for pre-launch secrecy is more than competitive paranoia; it’s simply the way you produce the same sort of gee-whiz delight that any parent aims for on Christmas morning. (An aside. A couple of years ago I was being interviewed in the UK by a reporter from The Economist. The iPhone hadn’t yet been launched in the Britain, but I had brought one along from the US and offered to show it to my inquisitor. A minute later he was giggling like a happy 3-year-old.) In talking about the iPad, Apple’s head of design, Jonathan Ives says, “When something exceeds your ability to understand how it works, it sort of becomes magical.” Now ask yourself, how many EVPs do you know who wake up every day hoping to do something magical for their customers? Has your bank ever done something magical (rather than diabolical) for you? I doubt it.
·         Be unreasonable. Greatness doesn’t come from compromises, from resigning oneself to trade-offs. It comes when trade-offs are transcended, when either/or gives way to both/and. I think Apple gets this. I think it regularly challenges itself to do the impossible—like producing products that are as sexy as Ferraris and as practical as Hyundais. And it’s more than just the products. Apple is both one of the most innovative companies in the world and one of the most efficient—its lean and agile supply chain gives nothing away to Wal-Mart or IKEA. The folks at Apple seem to understand that you can’t out-perform your competitors if you accept the same trade-offs. Reasonable people don’t produce breakthroughs.
·         Innovate incessantly and pervasively. At Apple, innovation isn’t a thin veneer that’s applied over otherwise prosaic products. Instead it’s the basic material that goes into every product or service. From the wafer-thin MacBook Air to the Apps Store to the Genius Bar, innovation infuses everything Apple does. I think there are a lot of people at Apple who realize that innovation—in products, services and business models—is the only way to create long-term value. If so, they must be relieved that innovation is still a sideshow in so many of their competitors.
·         Sweat the details. Apple is justifiably celebrated for the aesthetic of its products—but great design isn’t just about bold strokes, it’s about getting all of the tiny things right that conspire together to make a product truly exceptional. In Apple’s case, it’s the magnetically-attached power cord on every laptop, it’s the gorgeous packaging that surrounds every iPod, it’s the single billet of aluminum that gives structural integrity to every MacBook—and a lot more stuff you can’t see. “It just works”—that’s another thing you often hear from Apple’s top executives. And when it works rather than aggravates, it’s because hundreds of people were sweating the details.
·         Think like an engineer, feel like an artist. A company can’t produce beautiful products if the bean counters win every argument. That thought occurred to me years ago when I first visited Apple’s Fifth Avenue Store in New York—you know, the big glass cube with the Apple logo floating in the middle. In most companies you’d have a hard time getting that sort of architectural extravagance past the CFO, even if you were the CEO. So why does it happen at Apple? Because there are lots of people there whose cranial cavity contains both left and right hemispheres—and they understand that their customers are similarly equipped. Apple’s executives know that something lovely and sleek and unexpected can provoke a visceral reaction in a customer—a reaction that may not be easy to quantify but can nevertheless be monetized.

Now, before you think I’ve been mainlining Apple PR . . . alright, maybe it’s too late for that, but let me be clear: I don’t think Steve Jobs and Apple have it all figured out. There are plenty of people who will tell you that Jobs is an egomaniacal control freak and that Apple has all the monopolistic tendencies of its competitors. Make no mistake, the man and the company have plenty of flaws. Odds are, Apple will one day fall prey to the same sort of arrogance, nostalgia and denial that has destroyed other once-venerated companies.

Heck, I can’t even be sure whether the values I’ve outlined above are the ones that really drive Apple—but if they aren’t, they should be! For me, the case of Apple is just a convenient and plausible vehicle for driving home a fundamental truth: you can’t improve a company’s performance without improving its values. So don’t get distracted by all the things you hate about Apple. I agree: it’s a company, not a shrine.

With that out of the way, let’s compare and contrast. If the values in the left hand column characterize Apple (or my airbrushed rendering of it), what are the values that characterize your company? I’m guessing it’s something closer to what’s on the right.

Be passionate
Be rational
Lead, don’t follow
Be cautious
Aim to surprise
Aim to satisfy
Be unreasonable
Be practical
Innovate incessantly
Innovate here and there
Sweat the details
Get it mostly right
Think like an engineer, feel like an artist
Think like an engineer, feel like an accountant

Whatever you think of Apple, you have to admit it has outmaneuvered some pretty daunting competitors. My message: Apple’s unique success is a product of its unique passions. And that’s why I don’t think any other company will soon duplicate the kind of run Apple has had over the past decade—whether or not Apple produces an encore with the iPad.

Unlike Apple, most companies have a lot more accountants than artists. Most are prisoners of Management 1.0—of industrial-age management practices that emphasize discipline, focus, efficiency and alignment above all else. They are bound by the shackles of a management model that is utilitarian, antiseptic and hyper-rational. And that’s why they won’t soon mimic Apple’s success.

But what if Apple’s passions were the norm rather than the exception? What kind of world would it be if the values I’ve attributed to Apple were the values that characterized the world’s leading insurance company, or publisher or shipping company or airline or hotel chain? What if they were the cherished ideals of the paper shufflers at the Internal Revenue Service and the Department of Motor Vehicles? OK, now I’m hallucinating. But I still can’t help but dream of a world in which Apple seems a lot less exceptional because every other organization has become more so.

By the way, I’m going to get an iPad as soon as they start to ship. I’ll let you know if it ever ends up on my shelf for unloved toys

Deconstructing Apple by Gary Hamel