How Jobs made Apple fit for the future

Philip Delves Broughton

ON MANAGEMENT

 

As Apple moves from a period of charismatic leadership under Steve Jobs to more organisational leadership under the more low-key Tim Cook, it is following a managerial tradition that pertains in every successful organisation when the founder entrepreneur retires. As Mr Jobs leaves his chief executive post, attention has rightly been paid to his record as a product and marketing innovator, but less to his management style - which, both good and bad, is inimitable. Along with his enviable aesthetic sense, focus and negotiating prowess, came a readiness to humiliate and embarrass others.

As with many highly effective men, it is much easier to know whether one would like to invest in Mr Jobs or buy one of his products than if one would like to work for him. It would be a case of "yes", to the fascinating demands and the opportunity to succeed on an epic scale, and "no" to the shouting and abuse. I met a Silicon Valley psychologist this year who told me that much of his practice was made up of recovering Apple employees.

To discover the useful lessons of Mr Jobs's managerial legacy, it is worth depersonalising the company he has built. For instance, Apple is not really one company, but three very different organisations lashed together and devastatingly fit for purpose.

At the top is a small company, a decision-making and innovation group made up of senior executives with specialised knowledge, covering Apple's products and functions. They live and work in Cupertino in California and are physically clustered close to the offices of Mr Jobs and Mr Cook. They range from the heads of marketing and finance, to the design group, which occupies its own building and workshop. Members of this group take total responsibility for anything that occurs on their watch and are summarily fired if they fail.

The hierarchy around them looks flat, but when they make decisions and issue orders, they expect them to be fulfilled with little questioning. They have no interest in watching 1,000 flowers of innovation bloom all over the company. Employees are not empowered to make a difference. They are expected to do a clearly defined job and do it as well as they can.

Apple's aversion to big mergers or acquisitions also liberates senior managers from this most tedious, and often disastrous, path to growth.

Within this small group, the principle of "talent density" applies. By having just a few very talented people working very hard you not only get superb work, but also reduce the waste incurred by office politics. It is a principle now very popular in the Valley since it was given a label by Reed Hastings, founder of Netflix. The idea is that one great employee can do the work of five lesser ones, without the need for bickering, cc'd e-mails and interventions from human resources. Mr Jobs has hired consistently along these lines.

The second company consists of most of the 46,000 other full-time Apple employees, most of whom are in marketing and sales. A surprising number of these are the fresh-faced university graduates sweating it out behind the Genius Bars in Apple's stores - highly educated yet counting their blessings to have a job.

The third company is made up of the vast armies of contract manufacturing employees across Asia, at companies such as Foxconn, who assemble Apple's products. This is very much Mr Cook's creation. As a supply chain expert, he pulled Apple out of manufacturing in the late 1990s, and established these contract relationships. No inventory and no unions have been vital to forcing down Apple's costs. But it

has taken a very different kind of management from that required in either the first or second companies.

Mr Cook uses what he calls Apple's "mother of all balance sheets", now stockpiled with $76bn of cash, to exercise control over his suppliers. Rather than owning plants or managing inventory or factory employees, Mr Cook corners the market in existing components, such as flash memory, and finances the expensive and exclusive production of new components so Apple has access to them long before rivals do. Bringing truckloads of cash to the low-margin manufacturing and assembly business buys Apple a lot of loyalty and discipline. Coupled with Apple's knack for forecasting demand, it allows Mr Cook precise control without ownership, the aspiration of supply chain management.

Apple's structure allows for rapid decision-making at the top and unwavering discipline and efficient execution at the bottom, both vital in this era of ever faster product cycles. Despite its west coast cool, Apple has long had more in common with a well-drilled army, with the joint chiefs on top, the privates and contractors down below and a strict chain of command binding them together. For that, the detail-minded Mr Cook makes an ideal leader.

philip@philipdeivesbroughton.com

© FT 2011