Inside Apple

by Adam Lashinsky

  Jobs then treated Yang and his executives to some Apple-style honesty. “Yahoo! seems interesting,” he said. “Yahoo! can be anything you want. Seriously. You have talented people and more money than you could possibly need,” he continued. “I can’t figure out, though, if you’re a content company or a technology company. Just pick one. I know which I’d pick.” Said a former Yahoo! executive who was in the room: “It was humiliating. We knew he was right. But we also knew we were incapable of choosing.” (Yang didn’t last nearly as long as a second-time CEO as Jobs did. He gave up the job again in 2009, and Yahoo! has continued its steady decline—in part because of its inability to choose.)

  For its part, Apple has chosen to say no repeatedly. It didn’t make a phone for years, often protesting—arguably disingenuously—that it didn’t want to be in the phone business. Apple actually started developing the iPad before the iPhone, but it switched gears out of a sense that the timing wasn’t right for a tablet. (The iPhone debuted in 2007; the iPad came three years later.) After having struggled to maintain a significant business selling to corporate customers over the years, Apple deemphasized the “enterprise” altogether. Today, Apple has sales teams that service businesses. But even sizeable companies will buy from Apple resellers, who can offer business-oriented customer service.

  Sidelining business-to-business sales is a significant omission in a big tech company’s strategy. Jobs explained it away by saying that Apple preferred to sell to users, not IT managers. What’s more, with the popularity of its mobile devices, Apple has been succeeding in big corporate environments by marketing to employees rather than information systems professionals. As a result, Apple says 92 percent of the Fortune 500 is testing or deploying iPads anyway, just as if Apple had crafted a major initiative to sell to them. In effect, employees have dragged their employers into buying the technology the workers want, a phenomenon called the “consumerization” of IT—a trend Apple has led.

  Tim Cook used to say that Apple could put its entire product line on a conference room table. That’s a result of the winnowing process that occurred in the post-1997 era. Where once there were multiple computers for sale by Apple, the new team sold only four: two desktops and two notebooks. To this day, Apple offers essentially four versions of its iMac: two sizes of screens, two sizes of processors. (To appreciate the tightness of this assortment, compare the current roster of iMacs with the multiple, horribly named all-in-one PCs Hewlett-Packard offers on its website.)

  Simplicity is in the DNA of the company, but also in its lean organizational structure. “Apple is not set up to do twenty amazing things a year,” said a former executive. “At most it’s three projects that can get a ton of attention at the executive level. It is about editing down. The executive team is always looking at picking technologies at just the right time. The minute you’re doing a hundred things, you can’t possibly do things the Apple way. Most companies don’t want to focus on one thing because they could fail. Winnowing ideas from twenty-five to four is horrifyingly scary.”

  Saying no is a shock to the system for newcomers to Apple. An executive whose company was acquired by Apple described the process of getting used to turning down deals that didn’t meet strict financial terms, shunning attention from the news media, and adhering to rigid pricing schedules. “[The power of restraint] probably gets instilled into you as much as anything else, the minimalist approach of not overreaching on deals, not overreaching with PR, not overreaching in your conversations, not overreaching on anything,” the executive said.

  The art of refusal extends to the products themselves. Internal critics often pointed to Jobs’s inability to bless more than a handful of projects with his attention. But avoiding “feature creep” is a hallmark of good product design that’s taken seriously at Apple. On the plus side, this is what leads to a music player with one button or a desktop computer that isn’t littered with the “crapware”—a favorite Steve Jobs put-down—that other PC makers inflict on their customers. On the downside, the focused mind-set delays the introduction of features that everyone knows customers want and that Apple has every intention of giving them. “How long did it take to get ‘cut and paste’ into iOS?” asked one frustrated former executive—an iPhone user, obviously. As a point of fact, it took two years; iPhone 3GS, introduced in June 2009, was the first in which Apple’s mobile operating system incorporated the basic computing ability of cutting and pasting text. The first iPad had no camera, giving customers a reason to buy an iPad 2 when it came out a year later.

  Perhaps Apple’s most radical act of refusal is the way executives at the highest ranks will not chase revenue for revenue’s sake. It’s not that Apple isn’t interested in making money, naturally, nor that it hasn’t done a good job at it. The point is that the Apple culture doesn’t begin with an exploration of how to make the most money. “Steve’s talked about the goal of Apple, and the goal of Apple is not to make money but to make really nice products, really great products,” said Jonathan Ive, Apple’s design chief, at the Art Center College of Design’s Radical Craft conference in 2006. “That is our goal and as a consequence if they are good, people will buy them and we’ll make money.” Indeed, Apple’s behavior is littered with examples of downright revenue avoidance. PC makers put crapware on their computers—antivirus software, subscription offers, and so on—precisely because the revenue is lucrative. Apple forgoes such opportunities time and again, convinced that high-quality products will ultimately generate more profits. It’s a classic long-term approach.

  Even the way Apple does collect money from its customers reflects its minimalist mind-set. Recognizing that waiting in line is a major downer for customers, and one that slows the sales process, Apple figured out how to empower its “sales specialists” in retail stores to check out customers from the floor. Anything at all to speed up and simplify the experience was a good idea. “We measured how fast could we turn around something at the Genius Bar, because that made people smile,” recalled George Blankenship, a former top executive in Apple’s retail unit. “How fast can we get people through the register? Well, let’s get rid of the register. Why do we even need a register?” (Apple retail employees take credit cards or iTunes account numbers from anywhere on the floor.) In the words of Rob Schoeben, the former product marketing executive: “Apple obsesses over the user experience, not revenue optimization.”

  4

  Stay Start-Up Hungry

  When Steve Jobs rejoined Apple in 1997, it looked like big companies everywhere. Like other companies is precisely what Jobs did not want Apple to be.

  The company had grown bureaucratic under the professional managers who supplanted the co-founder. Apple had factories in the United States and around the world. Multiple committees existed to address various corporate imperatives. Among its managerial ranks, fiefdoms had arisen, each with budgeting power and sometimes-competing agendas. Among the things the Apple of the mid-1990s lacked was a cohesive mission.

  From the moment Jobs returned, the corporate culture changed. Now it would move in unison, fiefdoms would be banished, and employees would focus on whatever it was they did best—and nothing else. To this day, graphics runs graphics; logistics controls logistics; finance worries about the bottom line. Today’s corporate structure makes for a marked contrast with what Jobs encountered upon his return from NeXT.

  Apple’s approach to advertising at the time of Jobs’s return is indicative of how it had lost the tight focus and the entrepreneurial oomph of a start-up. Jobs would tell the story of confronting sixteen divisions at Apple, each with a divisional advertising budget. He put an end to that quickly, declaring that from that point onward, there would be one advertising budget; divisions would compete for ad dollars. Jobs would later brag that Apple’s overall ad spending rose in short order. Despite the company’s difficult financial position, the consolidation was about a renewed commitment to promoting Apple and its products, and not out of any sense of obligation to one division
or executive—nor even to save money. The hottest products commandeered the most ad dollars. The focus obviously paid off, and Apple continued the practice of heavily promoting fewer rather than more products. Once things really picked up, a virtuous halo effect took hold: Heavy promotions of iPods brought people into retail stores, where customers were exposed to Macs. iPod advertising indirectly drove the sales of computers—even if Apple wasn’t currently pumping huge ad dollars into the category.

  The ailing bottom line exposed the need for a healthier corporate structure. Apple was losing money in the mid-1990s despite operating what looked like profitable businesses. An example was its printer division, which according to Apple’s accounting at the time delivered a positive “contribution margin” to the company. Apple printers offered nothing differentiated to customers, however, and a more honest accounting of corporate overhead revealed the division to be a dog. Printers were among the products that Jobs summarily killed. (The Newton handheld computer, famously, was another.)

  What emerged over the years, as Apple transformed itself from a fallen idol to a world beater, is an organization that tries as hard as any big company can to embrace the ethos of a start-up. The benefits are not always obvious to those outside 1 Infinite Loop. With a handful of bold steps 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.

  Jobs often told audiences that there were no committees at Apple. Ex-employees have questioned this assertion, pointing to entities that looked and sounded like committees, including an international pricing committee and a brand committee. What they don’t dispute is that Jobs fostered a culture that eschewed standing, task-oriented groups that deflected attention from the primary and single-minded goal of executing Apple’s plans. “The reason you have committees is that you have divided responsibilities,” Jobs said. “We don’t. At Apple you can figure out exactly who is responsible.”

  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. Interestingly, the term DRI predates the return of Steve Jobs. For him, responsibility was part of Apple’s culture, not a word in an acronym. Employees many rungs down the ladder from the CEO echo the sentiment. “When you talk to people at Apple, they can tell you in general what they do,” said a former senior hardware executive. “When you interview people at other companies it is amazing how few of them can say what they do.” Reported another departed employee, this one from Apple’s marketing ranks: “There’s no confusion as to who’s going to do what. It’s very detail-oriented. I tried to bring this to other places, and they were like, ‘What do you mean?’ They wanted two to three people to have responsibility.”

  The DRI is a powerful management tool, enshrined as an Apple corporate best practice, passed on by word of mouth to new generations of employees. “Any effective meeting at Apple will have an action list,” said a former employee. “Next to it will be the DRI.” Typical is the way Apple’s event marketing group prepares a document called “At a Glance,” a detailed schedule for the production of events. Each item, along with the time and place it will occur, includes a DRI. Similarly, in the weeks and months leading up to a product debut, the manual known internally as the Rules of the Road has DRIs assigned for even the smallest items. “When we’d go through a launch, each task would have a DRI listed,” said an ex-employee. “That’s the person who’s on the hook.”

  Just as Jobs made committee a dirty word at Apple, he also snuffed out that standby of managerial power, the “P&L.” In the rest of the corporate world, to say one manages a profit-and-loss statement is to proclaim one’s domain. I run my own P&L, therefore I am. The executive with a P&L has the authority—and the burden—to make profits for the company. Hiring and firing decisions, strategy, and resource allocation belong to P&L-wielding executives, often those with general manager in their titles, in addition to some variant of vice president.

  Under Steve Jobs, only one executive “owned” a P&L, and that was the chief financial officer. By creating a system whereby only a financial executive would mind the budget, Jobs forced functional executives to focus on their strengths. Managers at all levels of Apple said they rarely were pressed for any kind of financial analysis or to defend decisions based on potential return on investment. Said a former marketing executive: “I can’t recall one discussion when the conversation was about dollars or expenses.” It’s a common refrain when talking to ex–Apple people. The reason they didn’t discuss expenses is almost certainly because their bosses didn’t, either. Jobs held that authority himself and monitored it solely through his CFO. Apple managers and their employees almost behave like talented rich kids: They have access to unlimited resources to do interesting things. They do not have to think about what ideas, components, and experiences might cost. They are only limited by what their “parents” will give them.

  Aside from this removal of profit-and-loss concerns, another way that Apple is at odds with many corporations is in organizing along functional lines rather than by product groups or other structural conceits. Few big companies are able to organize along functional lines. That’s why above a certain size, big corporations carve themselves up into divisions. Yet the functional nature of Apple’s management is key to its success. When Ron Johnson left Target to lead Apple’s retail effort, he was not given control over retail inventory. Tim Cook, then Apple’s senior vice president for worldwide operations, held this. Johnson didn’t choose which products to put in the stores. He put all Apple products in the stores. Johnson controlled plenty, of course, including site selection, design, real estate acquisition, training, and so forth. In most companies, the executive who runs the commerce website would control the photographic images on the site. Not at Apple, where one graphic arts team chooses images for the entire company.

  In this alternative management structure, executives have limited power but also aren’t expected to have skills that check some all-star management box. You’re hired and appreciated for your ability on the field, not your ability as a coach or manager. Jonathan Ive, widely admired for his design ideas, is considered to have little grasp of finance. This could be seen as a negative: One of the most powerful executives at Apple, one who had the ear of Steve Jobs for years, isn’t viewed as having business chops. The upside, however, has served Apple extremely well. Ive is known to make seemingly unrealistic demands on the manufacturing and operations teams in pursuit of his design vision. Paying for his vision is someone else’s problem, and Apple’s products have been the outcome. Ive’s dreamy insistence on a stainless-steel bezel for iPhones and industrial-grade glass for iPads, for instance, paid off in a way that managers worried about making a budget never could have achieved. If he were handcuffed to a spreadsheet, would Ive have insisted that the Italian marble being considered for Apple’s first Manhattan retail store be flown to Cupertino for him to inspect?

  The very concept of general management—the notion of promoting well-rounded, left-brain/right-brain types who can toggle from real estate to supply chain to marketing to finance—constitutes an organizational third rail at Apple. This approach contradicts about a century of business school teaching in the industrialized world, particularly the general-management concepts taught in the post–World War II era at the Harvard Business School. Befitting his bias toward the vibe of a start-up, Jobs was long disdainful of general management. While building Apple in the 1980s, he denigrated big companies such as Polaroid and Xerox for having lost their way. “Companies, as they grow to become multi-billion-dollar entities, somehow lose their vision,” he told Playboy in 1985. “They insert lots of layers of middle management between the people running the company and the people doing the work. They no
longer have an inherent feel or passion about the products. The creative people, who are the ones who care passionately, have to persuade five layers of management to do what they know is the right thing to do.”

  When Jobs returned to Apple, he was disgusted to find that it had become one of those companies he had disparaged a decade earlier. “What was wrong with Apple wasn’t individual contributors,” he said. “We had to get rid of about four thousand middle managers. Good technical people stepped up to become managers.” Jobs was well aware that Apple’s approach stood apart. “The way you grow at Apple is not the same as at GE,” he said. “We don’t send you on assignment to the Congo. We don’t have this notion that a manager can manage anything.”

  The Apple approach to management and talent development is top-down. It begins with an all-knowing CEO aided by a powerful executive team—the “ET,” as it is known throughout the company. “The purpose of the executive team is to coordinate things and set the tone for the company,” Jobs once said. This ten-member group, including the CEO, comprises the heads of product marketing, hardware and software engineering, operations, retail stores, Internet services, and design, all of whom directly have a hand in Apple’s products. They’re joined by the heads of finance and legal.

  The executive team meets each Monday, with the main action items being a review of Apple’s product plans. It may seem like a typical corporate function, but it’s unusual in the depth of the attention paid to the granular aspects of product development. Because Apple has so few products, the executive team is able to review all of them over the course of two weekly meetings. The company may be top-down, but the executive-team format engenders a system of managing up. Teams throughout the company are in a constant state of preparing their boss or their boss’s boss to present at an executive-team meeting. Indeed, individual groups throughout the company have their own meetings to prepare for the ET and other top-level meetings. (When he ran operations, Tim Cook convened his pre-ET meeting by telephone on Sunday nights.) “Everybody is working toward these Monday presentations,” said Andrew Borovsky, a former Apple designer. “There is executive review of every significant project.”