How on earth do they do it? If Steve Jobs was the linchpin holding these contradictions together, can it possibly surive his passing? Adam Lashinsky suggests not, along with a whole lot of detail about what’s been going on at Apple, in his terrific new book, Inside Apple: How America's Most Admired--and Secretive--Company Really Works (Business Plus, 2012).
Lashinsky: Steve was the linchpin
To support his pessimistic conclusion that Apple [AAPL] won’t prosper for long without Steve, Lashinsky cites Geoffrey West, the Santa Fe Institute physicist, who studies the life span of organizations. His conclusion was that companies bear an uncanny resemblance to humans. They grow for fifteen or sixteen years, then live another fifty stably. Then they die.
In this perspective, Apple, born in 1976, was already approaching premature old age in 1997 when Steve Jobs’s unexpected return gave the firm 14 years of “youthful startup energy”. But with his passing, the tentacles of hierarchical bureaucracy, which are already becoming noticeable at Google, will re-emerge and Apple is destined to resume its inexorable path to senescence and death.
One strand of this thinking reflects “the great leader” view of organizations. The idea that a firm is successful because of the guy at the top was of course was propagated by Steve Jobs himself. He presented himself, as a unique visionary, designer, artist, salesman and communicator, who single-handedly made Apple great. “He is a bigger person than many people understand,” wrote Fred Hickey in Barron’s. The problem with this argument is that, as Lashinsky’s book itself shows, Apple was always much more than a one-man band. Apple’s management for instance mastered the art of enabling highly productive and innovative teams.
Lashinsky’s negative conclusion about Apple’s likelihood of thriving without Steve also reflects the view that management thinking is in permanent stasis. Now that the visionary founder has gone, there is no option but to re-introduce traditional hierarchical bureaucracy to run the firm. The firm will steadily go on defense: the salesmen and the money-men will take over. In time, the managers will cease to understand either the firm’s products or its customers and the firm will start its inevitable descent towards death.
A radically different way of managing
What’s interesting is that Steve Jobs lived long enough to show us at Apple that there is another way to manage a firm. He showed what can happen when a firm opts to keep playing offense and to focus totally on adding value for customers. The result? The firm makes tons and tons of money. In fact, much more money than the companies that are milking their cash cows and focused explicitly on the goal of making money. Other companies like Amazon [AMZN], Salesforce [CRM] and Intuit [INTU] have emulated Apple’s success and shown us that this is something that any firm can learn. It’s not rocket science. It’s called radical management.
Apple’s future therefore depends on understanding the management principles that Steve Jobs used to make it successful, while also recognizing his shortcomings. Those principles are eminently replicable business practices that, once understood, any firm can implement. It doesn't require "a great man".
In other words, senescence and death are inevitable results of traditional management and and hierarchical bureaucracy, but not necessarily of the radical management principles that Steve Jobs introduced at Apple.
Thus Steve Jobs’s most important--but least recognized--contribution to the world was, not as a visionary, designer or a salesman, but rather as a management innovator. If his successors at Apple understand and implement the principles of management that he pioneered, then enduring success at Apple is possible.
A new goal for the firm: delighting the customer
As James Allworth argues in his HBR article, Steve Jobs Solved the Innovator’s Dilemma, the most profound contribution that Steve Jobs made was in demonstrating a radically new way of a running a company: the goal of the firm shifts from making money for the shareholders to delighting the customer. As Jobs said: “My passion has been to build an enduring company where people were motivated to make great products. The products, not the profits, were the motivation. Sculley flipped these priorities to where the goal was to make money. It’s a subtle difference, but it ends up meaning everything.”
When Steve Jobs returned to Apple in 1997 and was given the chance to implement the strategy, it proved to be immensely profitable. Thousands of middle managers were laid off. Scores of products were killed on the spot. Jobs knew the company had to make money to stay alive, but he shifted Apple’s focus of Apple away from profits. Profit was viewed as necessary, but not sufficient, to justify everything Apple did. That attitude resulted in a company that is entirely different from any 20th Century company. Apple had undergone a phase change.
A decade of research by Professor Ranjay Gulati of Harvard Business School, summarized in his wonderful book, Reorganize for Resilience: Putting Customers at the Center of Your Business (2009) showed that firms with a traditional inside-out hierarchy focused on making money were much less resilient than those that adopted an outside-in mindset, like Apple, basing everything on understanding the customer’s problems and what the customer might want or need.
Whether Apple will continue to prosper depends on whether the new management adheres to this shift in goal of radical management or reverts to traditional management thinking.
How Apple practiced radical management
Lashinsky’s book warrants careful study, because it enables us to assess the extent to which Apple has been practicing radical management, i.e. (a) a goal of delighting customers (b) managers working as enablers of self-organizing teams; (c) coordination of work through dynamic linking; (d) values of transparency, continuous improvement and sustainability; and (e) horizontal communications.
1. Delighting the customer: Steve Jobs grasped and implemented the most important principle of radical management: the goal of the firm is to delight customers. Lashinsky’s book documents the myriad ways in which the obsession with getting things right the customer and the way the customer uses the product permeated everything Apple does.
One key to delighting the customer is putting design at the center. “Design is where Apple products start,” writes Lashinsky. “Competitors marvel at the point of prominence Apple’s industrial designers have. ‘Most companies make all their plans, all their marketing, all their positioning, and then they kind of hand it down to a designer,’ said Yves Behar, CEO of the design consultancy Fuseproject. The process is reversed at Apple, where everyone else in the organization needs to conform to the designer’s vision. ‘If the designers say the material has to have integrity, the whole organization says okay,’ said Behar. In other words, a designer typically would be told what to do and say by the folks in manufacturing. At Apple it works the other way around.”
It wasn’t just Steve Jobs. Jonathan Ive, Apple’s design chief, said “The goal of Apple is not to make money but to make really nice products, really great products. That is our goal and as a consequence if they are good, people will buy them and we’ll make money.”
“With a handful of bold steps," says Lashinsky, "such as insulating all but a few employees from the profit-and-loss figures as well as using an extreme form of accountability, Apple has created a work environment where employees are encouraged to think big thoughts yet mediocrity becomes quickly exposed.”
2. Managers as enablers of self-organizing teams: Lashinsky’s book explains how Apple got rid of its middle managers and runs as a very flat set of teams reporting to a central executive team. There are no Dilbert-style middle managers who might be tempted to become mini-empire builders.
Lashinsky’s book talks mainly about Apple’s headquarters at Cupertino. The name Foxconn is never mentioned, nor are the medieval working conditions in its Chinese factories, although a sketchy and somewhat romanticized account of Apple's outsourcing practices is offered.
"The notion of responsibility is enshrined at Apple in a company acronym, the DRI. It stands for “Directly Responsible Individual,” and it is the person on any given assignment who will be called on the carpet if something isn’t done right…"
"When a product is ready to leave the lab, two key people will take control: an engineering program manager, or EPM, and a global supply manager, or GSM. The former dictates what the product should be, and coordinates the work of teams of engineers. The two sides collaborate, sometimes with tension…
"EPMs and GSMs at Apple are based in Cupertino, but they spend much of their time in China, where Apple contracts with Chinese manufacturers to build its computers and mobile devices. Other companies will attempt to perfect design and then outsource the manufacturing. This is the most cost-effective way. Apple takes an approach that often is the least cost-effective. It, too, designs products to be built and then tested at outsourced manufacturing sites. But once Apple is done designing, building, and testing a product it starts designing, building, and testing all over again. This “overt rhythm,” in the words of a former Apple engineer, culminates every four to six weeks with a gathering of key employees at a factory in China. An engineering program manager, whose job it is to pull together the various hardware and software engineers who contribute to a product, will typically bring the latest beta version back to Cupertino for senior executives to see—and then get right back on a plane for China to repeat the process."
"A former Apple engineer broke it down to the nitty-gritty: “Apple is all about integration. The way to get true integration is to control everything from the operating system down to what kind of saw you are going to use on the glass.” Think about that for a moment, because it’s not an exaggeration. Apple doesn’t own the saw, and it doesn’t own the company that owns the saw. It also doesn’t staff the factory where the saw will be used. But it absolutely has an opinion as to which saw its supplier will use. It’s a new form of vertical integration. Where once a manufacturer would own every step of the process, Apple now controls each step without owning any of it."
“If you’re a die-hard Apple geek, it’s magical," says one employee. "It’s also a really tough place to work. You have products that go from inception to launch, which means really late hours.” Another declined to answer whether work was fun and said: “Because people are so passionate about Apple, they are aligned with the mission of the company.”
3. Dynamic linking: Unlike traditional management where work is coordinated by bureaucracy—rules, plans report, in radical management work is coordinated by dynamic linking: iterative work patterns by small teams, with direct feedback from customers or the customers’ proxy.
The approach was pioneered in software development and goes under terms like Agile, Scrum, Kanban as well as Lean. In Scrum terminology, Steve Jobs acted as the supreme “Product Owner”, i.e. the proxy for the customer who made the tough decisions as to what things would delight the customer and hence what would be worked on. This function will obviously be the most difficult skill to replace.
Scott Cook discovered at Intuit [INTU] that the CEO doesn’t have to be the one making all the decisions. The manager’s role shifts from being a controller of individuals to being an enabler of self-organizing teams and providing them with clear line of sight to the customer.
“Focusing is powerful,” Jobs said. “A start-up’s focus is very clear. Focus is not saying yes. It is saying no to really great ideas.” Jobs was famous for saying a thousand times no, in order to achieve the radical simplicity of Apple’s products. Being constantly told no can be dispiriting. For instance when Casey Newton writing in the San Francisco Chronicle, asked an Apple staffer how he felt on presenting idea after idea to one's bosses, only to be told time and again that your idea isn't good enough? His acquaintance cast a withering look in his direction. "How do you think it feels?"
The upside is that you at least get a decision. What is maddening in the eternal loops of a Dilbert-style bureaucracy is that you can’t get any final decision.
The Apple workplace is nothing if not decisive. There is none of lingering indecision of bureaucracy. You make a proposal and it wends it way through various committees and the idea is never killed or accepted. It lingers on a half-life, half-death state. In Apple, you make the proposal and boom, you get a decision. It may not be the decision you like, but at least it’s a clear decision.
And as Lashinsky’s book shows, the answer isn’t always no. He cites one engineer from the mid-2000s: “The way you end any discussion at Apple is: ‘It’s the right thing for the product.’ If you bring the data that proves that, you win.”
The work at Cupertino is done by small teams led by engineers. Staff have very clear goals and responsibilities. Within their field of expertise and within the scope of their team, there is an openness to bold ideas but quick decisions yes or no. There is no openness outside one’s field of activities or field of work. The work is Agile in spirit, if not to the letter.
4. Values: Lashinsky sees Apple’s key values as “clear direction, individual accountability, a sense of urgency, constant feedback and clarity of mission.”
Of the three key values of radical management—continuous improvement, transparency and sustainability—Apple is tops in the first but somewhat lacking in the other two. What is remarkable about its commitment to continuous improvement is its constant willingness to disrupt its own products.
Transparency: The book stresses Apple’s famous secrecy and gives many further details, particularly how most employees have no idea of what is going on beyond their own work team. It dwells on the Draconian measures in place to enforce this secrecy. Yet when it comes to the work itself within the team, there is a considerable transparency. Staff are encouraged to make suggestions, even if they are commonly rejected—on the merits. The limited number of products is a key enabler of working in this compartmentalized fashion.
Sustainability: Although China, where Apple’s products are made, is mentioned only in passing in Lashinsky’s book, Apple is totally dependent on its manufacturing in China. Any disruption of this extended supply chain could cripple it overnight. Its constant oversight of the engineering practices involved would enable it to recover in a disaster, but diversification of its supply chain would make the firm more resilient.
Lashinsky only mentions in passing how Apple runs roughshod over its partners and competitors, while paying little attention to the community, either in the US or in China. A good sign, noted by Lashinsky, is that one of Tim Cook's first acts as CEO was to institute a corporate philanthropy program, matching employees' donations to nonprofits up to $10,000 a year.
Career development: Lashinsky also wonders about the lack of career paths at Apple. “Instead of employees fretting that they were stuck in terminal jobs, what if they exalted in having found their perfect jobs? A certain amount of office politics might evaporate in a corporate culture where career growth is not considered tantamount to professional fulfillment. There are many professionals who would find it liberating to work at what they are good at, receive competitive killer compensation, and not have to worry about supervising others or jockeying for higher rungs on an org chart.”
This wouldn't be a good environment for a get-rich-quick-kid on Wall Street who wants a house in the Hamptons before he’s thirty or an entrepreneur who wanted to have a say in what products Apple works on. It could be a great work environment for "craftsmen" who love what they do.
5. Communications: The book documents the tyrannical top-down communication style of Steve Jobs, which was at odds with the horizontal conversations needed to inspire the workers to delight the customers. But within the teams themselves and their engineering leaders, Lashinsky shows considerable evidence of mutual respect and horizontal communications.
Essential reading for anyone interested in management
Inside Apple is a wonderfully readable book. It gives a remarkably detailed and plausible account of how this famously secretive and successful firm has operated under the leadership of Steve Jobs.
There are a few quibbles. First, big chunks of Apple are missing. The manufacturing side of Apple is skipped over. Apple’s Chinese manufacturer, Foxconn, or the working conditions of its million plus workers, are mentioned only in passing. How its retail stores function is not fully described.
And some of the Steve Jobs mythology is recited uncritically. For instance, we are given the myth that Apple pays no attention to what customers want. “The genesis of most Apple products," writes Lashinsky, "is simply Apple’s desire to make them. Not focus groups. Not reader surveys. Not a competitive analysis. An unwillingness to stick a finger in the wind of customer requirements was one of Steve Jobs’s favorite tropes over the years.” Yet we know from Fred Reichheld’s book, The Ultimate Question 2.0, that Apple’s retail stores make consistent and effective use of the Net Promoter Score methodology in its retail stores to constantly measure customer delight.
The book also tends to endorse the myth that Apple’s creations like the iPhone in 2007 came from Steve Jobs’s unique brain. Although there is a brief reference to “Apple’s appropriation of inventions from the likes of Xerox PARC and others,” you would never guess from this book that a prototype of what eventually became the iPhone in 2007 was presented to and rejected by Nokia’s management in 2004 and probably shared with some Apple staff at the time.
Nevertheless, this is a wonderful book. For once, it’s actually true to say that this book is essential reading for anyone interested in management.
Adam Lashinsky: Inside Apple: How America's Most Admired--and Secretive--Company Really Works (Business Plus, 2012).
____________
Follow Steve Denning on Twitter @stevedenning
Want to delight your customers? Training on radical management in Washington DC in February, April & May 2012.
Join the Washington DC Leadership Breakfast–an informal forum for top executives to discuss challenges, trends and solutions
