The keys to Apple’s transformation

By Prof. Huete and Javier García Arevalillo

In August 1998, Steve Jobs grabbed everyone’s attention with the first major release by Apple since the return of its charismatic cofounder. It was the iMac computer, the flagship of the platform strategy that Jobs and his team would be designing in the following years.

Apple’s brand-new interim CEO had created quite a buzz, which was further heightened as a result of the controversial decisions he had made in just one year at the helm of the company. The iMac, in some way, had to justify all of those decisions and help right a ship that was headed for the rocks 12 years after Jobs’ exit. He went above and beyond that.

Many authors have tried to explain the success of a company like Apple, and all of them have pointed to the central role of Jobs. But what was the essence of his contribution? What did he instill in his company to make it the most innovative in the world? How did he do it? How did he save Apple?

The Birth of Apple

Our aim here is not to do a comprehensive review of the company’s history. However, in order to understand the current success of Apple, we must go back to the initial boost provided by Jobs. Those who had the opportunity to use an Apple II (Apple’s first smash hit, in 1978) surely had a sense of déjà vu when trying out the iMac 20 years later. Same thing later with the iPhone. Where does this sensation come from?

When Jobs and Steve Wozniak designed their first personal computer, the concept itself was revolutionary: back then, computers were seen as a purely business tools, which helped automate certain processes and were controlled by a select handful of technicians. However, from the outset, Jobs conceived them as a potential tool for personal efficiency. Hence, from day one, Apple computers were manufactured with a focus on what an individual user really needed, so that the machine would facilitate their work. This was the foundation of the first Apple, and later (1984), the Macintosh, the first computer equipped with a mouse.

Still, from the beginning, Jobs was aware of one essential factor: selling the first personal computer to the public meant overcoming two giant barriers. The first, of course, was the price; second, the complexity of what the user would have to learn in order to use the device. So, he concluded that future customers needed more than just a handy invention: they had to fall in love with the product to get past those two barriers. Bill Atkinson, member of the Macintosh development team, sums it up nicely:

“Those of us on the [original] Macintosh team were very excited about what we were doing. The result was that people saw a Mac and fell in love with it… There was an emotional connection… that I think came from the heart and soul of the design team.”

Apple has innovation in its DNA. From the start, it designs with the user in mind, and then explores how to make it work. This approach has never gone by the wayside in the organization, not even during the tumultuous years after Jobs left.

The Early Years

Apple was the byproduct of Jobs’ drive and vision, but also his affinity for surrounding himself with the best of the best, people who could support his ideas or complement his visionary approach. Steve Wozniak is a prime example. John Sculley is another, albeit a rather unpleasant memory for Jobs. Tim Cook is one of the more recent names on that rather lengthy list. This tendency to seek out traits that would complement him speaks loudly and clearly about Jobs’ foremost desire: for his company to dominate.

The first major success, the Apple II, shone a bright light on Apple in its glorious early years: it won the gold for innovation, even attracting talents such as Bill Gates, who was highly eager to learn things about the first Mac (while feeling out possible innovations for the operating system he was starting to develop).

Those 5-6 years of initial success had two relatively opposing effects: Apple and Jobs saw huge gains, both money and prestige; but that also sent Jobs’ self-confidence (already lofty) about his own genius. In developing the Mac, which he himself said would be the greatest invention since the telephone, he made a series of arbitrary decisions that would later hurt its sales.

To understand the significance of these decisions, we must consider the context. In the early 1980s, IBM broke into the market with its PCs, which had a decisive advantage: they could be cloned, a factor that opened up the marketing possibilities for the product. Companies began opting for PCs over Macs, mainly for this reason. Given that scenario, Jobs saw the Mac as his ace in the hole for turning the market around, aimed at the monopoly of IBM.

But then came something that none of the competitors had initially foreseen: the advantage that IBM gained by allowing their models to be cloned, which sped up the standardization of the PC, giving rise to a network economy that neither Gates (who was busy developing the first version of Windows) or Jobs had foreseen.

To understand this effect, we can look at another example: the Qwerty keyboard — developed in the mid-19th century with the invention of typewriters — which is still used today. Interestingly, these keyboards were designed for the writing to be slower, so that the machines did not get stuck (which would happen if someone was typing too fast). When a majority of users adopt a standard, it becomes an insurmountable barrier for other possible competitors. In the case of the keyboard, once manufacturers all adopted it and all users got used to it, there was no chance of replacing it with another, more efficient standard. This is the power of a network economy.

Meanwhile, something similar happened with the explosion of IBM computers and their adoption of the first MS-DOS operating system (OS) and, later, Microsoft Windows. The spread of clone computers served as a platform for Microsoft, whose OS became the first adopted by the majority of new PC users and companies. It quickly acquired the status of industry standard, by associating itself with other products such as its Office suite. That was the key: to reel in the first great wave of users and have them adopt the Microsoft operating system as the standard.

Going back to Apple, the Mac was undoubtedly a revolution. It was an aesthetically impressive machine, the first to have different fonts; it was compact and came with a number of highly innovative features… But it failed. In the design stage, Jobs decided that the Mac would not have a fan (the noise bugged him) and its memory would not be expandable, ignoring his team’s technical advice. After the excitement created around the Mac in its first few weeks, sales plummeted and the company stayed afloat thanks exclusively to the sales of its Apple II.

This flop accelerated the formation of a network economy around the ecosystem of competition; because another of the mistakes made by Jobs was to sever ties with Bill Gates while the latter was developing a Mac version of Excel. Jobs wanted exclusivity, and decided to go for Lotus 1,2,3, a program that was supposed to compete with the forthcoming Office suite but ultimately suffered too many delays to pose any real challenge to Microsoft’s product.

So began the quasi-monopoly of the IBM-Windows combination and Apple’s long, arduous trek through the desert. In 1985, the company let go of Jobs and replaced him with John Sculley, who Jobs himself had recruited for his management abilities and who would push him out in order to change the direction in which the company was headed; that was an undertaking that he could not do with Jobs contradicting all of his orders. Just like that, Jobs was kicked out of the company he founded, at 30 years of age and heavily burdened by the failure of his Mac.

Apple without Jobs

During that time, there were two trends that shaped the industry: the unstoppable surge of IBM clones and rapidly advancing technology, as well as a massive influx of venture capital fueling the whirlwind of changes. In the 12 years that he was away from Apple, Jobs was succeeded by three CEOs, each one championing a different strategy. Initially, thanks to the footprint left by Jobs, each new product maintained the essence of Apple: quality, attractiveness, simplicity. But over time, and given the company’s struggle to stay afloat, products were being developed with more of a focus on efficiency and less on design and the quality of the user experience.

The different strategies implemented during that period varied in their approach to two areas: the alternative of giving licenses to clone Apple computers or developing an operating system that was more compatible with IBM machines; and the decision on whether to compete in the enterprise market, where Apple had minimal presence. Thus, in a context of constantly shifting strategies, the number of products expanded without a clear goal, a coherent idea of continuity among the range of projects developed by the company.

The Return of Steve Jobs

What happened with Jobs’ career after his exit is well documented: He created NeXT, the company that developed the software Timothy Berners-Lee would later use for the World Wide Web. He also bought Pixar, which, in partnership with Disney, redefined the animation industry by producing some of the genre’s best movies. In fact, it was Pixar that kept Jobs from drowning when he was on the verge bankruptcy: the NeXT computer was another commercial failure, but the OS (NeXTStep) was 10 years ahead of any other system on the market, including Windows and Copland.

After several attempts to sell the operating system in an attempt to prevent the demise of his company, Jobs was almost resigned to losing…  when John Lasseter, who Jobs had placed at the helm of Pixar, released Toy Story in 1995. It was an unexpected and unprecedented success in the film industry that would prove to be a watershed event. Jobs then jockeyed for Disney to buy Pixar, and he became the number-one individual shareholder of the “Dream Factory.” This gave Jobs some desperately needed breathing room.

Meanwhile, watching from a distance, the Apple founder stayed abreast of his old company, which by that point was headed for the cliffs and expected by leading analysts to disappear altogether. After Pixar burst onto the scene, Jobs was back in the spotlight and, when asked by Apple, said he had a plan to save the company.

In 1997, Gil Amelio, the head of Apple at that time, decided to buy NeXT and, consequently, bring Jobs back to his company. It was the best decision he could have made, although it ended up costing him his job. When Jobs retook the reins at Apple, he made a series of decisions that were hotly debated: He stopped the licensing program (which at that point accounted for 20% of the total sales of Mac computers), moved factories abroad, revolutionized (through newcomer Tim Cook) the company’s distribution and supply system and launched an online store.

He wasted no time: After interviewing numerous employees from different parts of the org chart, he came to the conclusion that there were too many products, and that not even the employees themselves could clearly distinguish between some of them. If employees were unclear about the company’s offerings, what would the customers think?

So what did Jobs counter with? Restoring the company to how it should be, like the one he had established. He was clear on what was needed to take on the competition and revive the company, but to do this he needed to recover the culture he intended to instill at Apple in the beginning. A culture that, years later (in December 2004), he would summarize like this:

“The system is that there is no system. That doesn’t mean we don’t have process. Apple is a very disciplined company, and we have great processes. But that’s not what it’s about. Process makes you more efficient. But innovation comes from people meeting up in the hallways or calling each other at 10:30 at night with a new idea, or because they realized something that shoots holes in how we’ve been thinking about a problem. It’s ad hoc meetings of six people called by someone who thinks he has figured out the coolest new thing ever and who wants to know what other people think of his idea. And it comes from saying no to 1,000 things to make sure we don’t get on the wrong track or try to do too much. We’re always thinking about new markets we could enter, but it’s only by saying no that you can concentrate on the things that are really important.”

In keeping with this idea, he decided to drastically reduce the number of products to be developed: out of the 15 they had in 1997, only three remained. Saying no to concentrate on what is important. The first of those three products was the new line of iMacs. That would be followed by the real Steve Jobs revolution: the iPod and the iTunes platform. Just one year after launching the iPod, Apple could finally breathe a sigh of relief after 15 years of suffering.

Tough Decisions

But there is something that is often forgotten: before wowing people with the iMac, Jobs had to deal with the first conference ever in which he was booed by Apple’s most loyal fans. Shortly after returning to Apple, he wanted to explain some of the moves he had in mind for steering the company in a new direction, one of which caught almost everyone off guard: He publicly made peace with Microsoft by doing a live videoconference with Bill Gates, so he could announce the newfound cooperation between the two companies. This included Microsoft’s $150 million investment in the “new” Apple.

Jobs was no longer the crazy twenty-something given to overblown presentations and arbitrary, imposed decisions. Failure had deflated him a bit and, while he still surrounded himself with talent, he now had an even more important quality: listening to that talent. Plus, Apple’s success was bigger than his ego, so he started to make decisions that contradicted those made in his younger days.

This was the biggest shift in Jobs in his return to Apple: his maturity enabled him to have greater perspective and be a better listener. And that allowed him to succeed when deciding how to approach new ideas. Among the talents he discovered was an unmotivated Jonathan Ive, whose ideas about design were falling on deaf ears by management…  until the arrival of Jobs, the innovator who could sense genius from a mile away. The chemistry would soon develop between the two, and Ive was given free rein to design the iMac, with its colored, translucent case.

Nevertheless, Jobs not only provided that nose for innovation: at Apple it was not enough to make good products that trounced the industry giants (i.e., IBM, Compaq, Dell). He needed direction, a master plan. Because the two barriers facing users of the first personal computers — price and complexity of use — were now down to just the former; however, at Apple, there was an additional challenge: the absolute predominance of Windows and the incompatibility of many of its programs with the MacOS discouraged users from switching over. Jobs was able to turn this situation around by restoring the appeal of Apple products, improving their compatibility with Microsoft applications…  and adopting a product strategy that would set the industry trend for decades to come.

The Key: a platform strategy that melded and gave meaning to the innovative effort of the design team, while much more focused on a select handful of projects. The advantages of this strategy are clear: they bring savings in time and resources because many elements of design and manufacture are common to the entire family of products, while also improving the supply chain and cost structure. For both the company and the suppliers.

And, most importantly, benefits to customers, who do not have a learning curve for new products, and can save time and effort by not having to transfer information from one device to another. Apple also was a pioneer in the cloud platforms to enhance the experience for users, who unwittingly demanded this.

There were still two tough decisions in which the future of the company took precedence over Jobs’ ego. After calling a truce with Microsoft, relations with Gates improved. However, when Apple introduced the iPod, Jobs declared that his device would never work with Windows. Two months after its release, Jobs finally heard his team and realized that he really wished that anyone could have an iPod; so the company developed iTunes for Windows. Sales wildly exceeded forecasts, and Apple permanently regained its aura.

Another tough decision came in 2006 and also sparked some anger (as did the truce with Microsoft) among the diehard loyalists. Jobs, who had been estranged from Andrew Grove and his company, Intel, in the 1980s, announced that Apple was dumping Motorola chips and would now manufacture their laptops with Intel microprocessors. Some people were so outraged by the move that they failed to see how ingenious it was: now any Mac laptop would be able to run Windows. Jobs was opening the door to those who were fascinated with the MacBook but wanted to keep using Windows (the effects of the network economy were still evident); and, above all, the hundreds of thousands who would fall in love with the MacBook Air in 2008.

The Prosperous Years

Marketing for the first iMac was preceded by an advertising campaign that would really stir things up, and which masterfully reflects the culture that Jobs wanted to instill at his company:

“Here’s to the crazy ones. The misfits. The rebels. The troublemakers. The round pegs in the square holes. The ones who see things differently. They’re not fond of rules. And they have no respect for the status quo. You can quote them, disagree with them, glorify or vilify them. About the only thing you can’t do is ignore them. Because they change things. They push the human race forward. And while some may see them as the crazy ones, we see genius. Because the people who are crazy enough to think they can change the world, are the ones who do.”

That’s how Jobs was, and how he wanted his company to be. With this clear-cut set of reasons, he wooed all of those people who identified with the same values as Apple. No one associated Microsoft with nonconformity. When it comes to a purchasing decision, there is always an important emotional element, which often transcends the price or efficiency of the product.

Putting those reasons on the table, backing them up with products that inspired love at first sight and offered a unique customer experience, these were key elements in the success of the years that would follow.

From 2001 (when the iPod was released) to 2011 (when Steve Jobs passed away), Apple lived its glory years as the world’s most innovative company, with the largest market capitalization in 2011 and, since the launch of the iPad in 2010, the leader of the “post-PC” era (according to Jobs’ successor, Tim Cook).

Those years, every product launch was a global event, whose content was the most closely guarded of all secrets. In 2010, Apple rounded out its platform of products: iMac, MacPro, iPod, iPhone, Apple TV, iPad… And each new addition to the list has been revolutionary for the industry.

Although it is a strategy that emerged over the years, back in 1998 Jobs already had his sights set on putting the iMac at the core of an entire ecosystem of gadgets that would provide a unique user experience. This certainly explains the symbiotic relationship developed since then between MacOS and iOS, for example. Or the substantial improvement of being able to connect the iPod to iTunes and have the library automatically sync itself (unlike other devices, which had to be synced manually).

Instead of a strategy built around locking customers in, Jobs decided to focus on the appeal of all Apple products… by making everyone’s experience with the entire Mac ecosystem more enjoyable: for instance, someone picking up an iPod for the first time and being fascinated would be promised a similar experience if they got a MacBook. So the user experience becomes the X factor: once you’ve tried the best, you no longer settle for something mediocre or subpar.

The road had many twists and turns for the company to get where it is now, but one thing has remained intact: the conviction of everyone — from Jobs right down to the last programmer — that Apple could change the world with its products. Hence, after the CEO’s return, the company saw a 50% drop in employee turnover: Jobs’ reputation as a tyrant was outweighed by the prospect of doing great and wonderful things. And time showed they were right.

To put things in perspective, we could conclude by highlighting the following keys to success for Steve Jobs in his return to Apple:

• Putting the company’s best interests above anyone’s ego. Unlike his attitude during his first stint, Jobs returned to Apple with a strong desire to help and a newfound sense of humility born out of the failures of the previous 10 years.
• Surround himself with colleagues that balance out the temperament and the personality of the leader. Jobs’ highly creative nature required that he be surrounded by people who, by blindly trusting the vision of their leader, could bring things down to earth in order to execute his ideas.
• Clearly defined product strategy. As we mentioned before, one of the main contributions made by Jobs upon his return was shifting the focus toward developing a core group of products. This improved customer perception about the company’s offerings and ensure the highest possible quality for each new product.
• Platform vs. network economy. Jobs knew full well that he could not compete with the Windows monopoly by simply offering a better operating system. So, he started to make his system more compatible with Windows (thereby encouraging sales of Apple hardware), and later by developing revolutionary new products within a structured platform strategy, to surge ahead of Windows in new markets and make it easier for anyone who so desired to switch to a new standard, again for the convenience of having all devices operating within the same ecosystem.
• Faculty of invention… and listening: We underscored the importance of being surrounded by people that complement us, but it is just as important — if not more — to listen to them. The new Jobs was a changed man after returning, especially in this aspect.
• Clear vision and an appreciation for beauty: Despite the vicissitudes of his life, Jobs always maintained his desire to change the world and his delight in making things beautiful, not just innovative or useful. And he knew how to convey that vision and appreciation to his company. That may just be his most valuable contribution to Apple, even more important than the successes that helped it achieve.

So, What Now?

This is the lingering question that everyone has been asking since Jobs’ passing. Will Apple survive without him? Just how indispensable was the company’s founder? What did he bring to the company that can’t be found in someone else? Much like what happened in 1985, the baton was handed to someone with an executive mindset. Tim Cook had been the perfect counterpoint since 1998: Jobs came up with the ideas, and Cook made them happen. In other words, he made his boss’ ideas doable. After taking control of Apple, he said nothing would change, that the company would be faithful to the spirit instilled by its founder.

However, in reviewing the history of Apple, we have seen how it was Jobs himself who evolved, matured and knew how to back off on certain decisions that he had previously been dead set on making. While he remained a relentless innovator, not everything he touched turned to gold. Jobs demonstrated on many occasions that he was not infallible. But after his return he was consistent in one regard: his openness to new trends, taking an interest in new ideas (as we saw in the case of Iove) and his incomparable keen eye for separating the wheat from the chaff.

This is perhaps the aspect that the company will miss most: the iPod came into being when Jobs tuned into the changes that Napster was bringing about in the music industry; the development of the iPhone began after Jobs shelved the tablet project when he realized that the more “mature” cellphone industry was ready for a revolutionary product; and so on.

Can the same thing be asked of Cook, who was always seen as Jobs’ more “rational” counterpart? Cook may have made Jobs complete, but can he replace him? What’s more, despite how clearly Jobs may have outlined his guidelines for the future, is it reasonable to follow them no matter what in an industry that is constantly evolving? Even Jobs himself, while maintaining his affinity for beauty at Apple, changed course several times… will his successor be capable of spotting those changes of direction?

Looking back, once again we can compare this situation with that of 1985, when Sculley took over the company. He fixed all the problems with Jobs’ Mac (i.e., memory, fan, etc.) and sales rebounded, saving the company from what looked like an unsurmountable crisis. But in time, he turned Apple into a regular company like any other, focused on the efficiency of its product and following in the footsteps of the competition. As a result, Apple gradually lost the momentum it had gained with the Apple II and the Mac.

Will the same thing happen under Cook? Will he lead Apple to record-setting revenues and then set his sights on efficiency and gradually lose the aura of innovation? Will the company once again follow in the footsteps of the competition?

Only time will tell… it’s anyone’s guess at this point. After the company’s history of releases with incremental innovations, many analysts are clamoring for a “new iPhone” — another revolutionary, new gadget that will turn the industry upside down. Jobs unveiled four, but he also spent several years rehashing existing products with minor updates (later incarnations of the iPod, the iPhone, the new generations of MacBooks, etc.).

It is probably unlikely that Cook will come up with any game-changing innovations, but that doesn’t mean that he can’t foster them within the company. He has tremendously creative teams working for him, and chances are he’s capable of listening to them. Perhaps the key for him is to have someone as a counterbalance, the inverse of what Jobs had. An alter ego that spots trends and churns out revolutionary ideas while he focuses on leading one of the world’s greatest companies. However you slice it, exciting chapters will soon be written about the saga of Apple and the industries it competes in; and once again, the culture of transformation of that Jobs imbued in his company will be put to the test.

 

REFERENCES

• ICHBIAH, D. “Las cuatro vidas de Steve Jobs”, LID Editorial.
• THOMKE, S. and FEINBERG, B. “Design and Innovation at Apple,” Harvard Business School case.