Apple these days runs the tightest ship in the computer industry. In 2007, AMR Research, a market research company, named Apple the number-two company in the world for supply chain management and performance, after Nokia. AMR measured several metrics related to execution, including revenue growth and inventory turns. “Apple’s unparalleled demand-shaping capability lets its supply chain record spectacular results without sweating costs like everyone else,” AMR said. Apple beat Toyota, Wal-Mart, Cisco, and Coca-Cola.8 Dell didn’t even make AMR’s list.
Jobs loves to boast that Apple runs a tighter ship than Dell. “We beat Dell on operational metrics every quarter,” Jobs told Rolling Stone. “We are absolutely as good of a manufacturer as Dell. Our logistics are as good as Dell’s. Our online store is better than Dell’s.”9 However, it should be noted that Apple sells half as many computers as Dell and has a much simpler product matrix.
Jobs has also developed his own share of innovative business models. Take the iTunes music store. Until Jobs persuaded the music labels to try selling songs individually for 99 cents, no one had found a formula for selling music online to compete with the illegal file-sharing networks. Since then, the iTunes music store has become the Dell of digital music.
And then there are Apple’s retail stores, which are so unlike anything else in retailing, they’ve been called “experiential innovation.” Modern retailing is all about the shopping experience, and Apple’s low-key, friendly stores have added a new dimension to the experience of shopping for a computer (more on this later in the chapter).
Where Does the Innovation Come From?
Jobs appears to have an innate talent for innovation. It’s as though ideas occur to him in a flash, a bolt from the blue. The light bulb goes on, and suddenly there’s a new Apple product.
It’s not quite like that. That’s not to say there are no flashes of inspiration, but many of Jobs’s products come from the usual sources: studying the market and the industry, seeing what new technologies are coming down the pipe and how they might be used. “The system is that there is no system,” Jobs told Business Week in 2004. “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.”
He continued, “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.”10
Part of the process is Apple’s overall corporate strategy: What markets does it target, and how does it target them? Part of it is keeping abreast of new technology developments and being receptive to new ideas, especially outside the company. Part of it is about being creative, and always learning. Part of it is about being flexible, and a willingness to ditch long-held notions. And a lot of it is about being customer-centric. Innovation at Apple is largely about shaping technology to the customer’s needs, not trying to force the user to adapt to the technology.
Jobs’s Innovation Strategy: The Digital Hub
The keynote speech Jobs gave at Macworld in San Francisco in January 2001 is remembered for the “one more thing” surprise ending: Jobs dropped the “i” from iCEO and became Apple’s full-time leader. But earlier in his speech, Jobs laid out Apple’s vision—a vision that would inspire more than a decade’s worth of innovation at Apple, and would shape almost everything the company did, from the iPod to its retail stores and even its advertising.
The digital hub strategy is possibly the most important thing Jobs has laid out in a keynote speech. The idea, which seems somewhat obvious now, had far-reaching implications in almost everything Apple did. It shows how adherence to a simple, well-articulated idea can successfully guide corporate strategy, and influence everything from the development of products to the layout of retail stores.
Clean-shaven and dressed in a black turtleneck and blue jeans, Jobs began his speech by painting a rather bleak picture of the computer industry. He noted that the year 2000 had been a difficult year for Apple and the computer business as a whole. (In March 2000, the dot-com bubble began to burst, and purchases of computer equipment fell off a cliff.) Jobs showed the audience a slide of a gravestone inscribed with BELOVED PC, 1976-2000, R.I.P.
Jobs noted that many people in the computer industry were worried that the PC was waning, that its place at the center of things was over. But Jobs said the PC wasn’t waning at all but was on the verge of its third great age.
The PC’s first golden age, the age of productivity, started around 1980, with the invention of the spreadsheet, word processing, and desktop publishing. The golden age of productivity lasted almost fifteen years and drove the industry, Jobs said as he paced the Macworld stage. Then in the mid-1990s, the second golden age of the PC, the age of the Internet, began. “The Internet propelled the PC both in business and personal uses to new heights,” Jobs noted.
But now, the computer was entering its third great age: the age of digital lifestyle, which was driven by an explosion of digital devices, Jobs said. He noted that everyone has cell phones, DVD players, and digital cameras. “We are living in a digital lifestyle with an explosion of digital devices,” he said. “It’s huge.”
Most important, the computer was not peripheral to this digital lifestyle, Jobs argued, but at the very center of it. The computer was the “digital hub,” the central docking station for all the digital devices. And by hooking digital devices to the computer, they became enhanced: the computer loaded music with an MP3 player, or edited video shot with a digital camcorder.
Jobs explained that he first began to understand the idea of a digital hub after Apple had developed iMovie, a video editing application. The iMovie application allows raw camcorder footage to be edited on the computer, which makes the camcorder much more valuable than it is alone. “It makes your camcorder worth ten times as much because you can convert raw footage into an incredible movie with transitions, cross dissolves, credits, soundtracks,” Jobs said. “You can convert raw footage that you’d normally never look at again on your camcorder into an incredibly emotional piece of communication. Professional. Personal. It’s amazing . . . it has ten times as much value to you.”
This all seems obvious now, but at the time, few people were using their computers for such tasks, and it definitely wasn’t mainstream. Jobs wasn’t alone in recognizing that the computer was becoming a lifestyle device. Bill Gates had discussed the “digital lifestyle” the same week during his speech at the Consumer Electronics Show in Las Vegas. Intel CEO Craig Barrett was also giving speeches noting that the computer is “really the center of the digital world.”
But Jobs’s articulation amounted to a mission statement for Apple. The “digital hub” was the recognition of a major trend in the computer industry and a prescription for Apple’s place in it. It allowed him to look at emerging technologies and consumer behavior, and formulate appropriate product strategies. (More on the digital hub in Chapter 7.)
Products as Gravitational Force
Part of the process at Apple is to focus on products, the end goal that guides and informs innovation. Wanton innovation is wasteful. There must be a direction, something to pull it all together. Some Silicon Valley companies develop new technologies and then go in search of problems for those technologies to solve. Take the Internet bubble of the late 1990s. The bubble was defined by this kind of thinking. It was a carnival of worthless innovation—half-baked business ideas pumped into vast money-burning concerns in a misguided attempt to get big quick and beat the competition. Entrepreneurs launched websites for selling pet food over the Net, or built giant warehouses for delivering groceries by van, before there was any inkling customers wanted to shop this way. And it turns out they didn’t. No one wanted to get their groceri
es delivered from Webvan’s automated warehouses. The Internet bubble burst, taking with it businesses that had developed solutions to problems that didn’t exist.
“You need a very product-oriented culture, even in a technology company,” Jobs said. “Lots of companies have tons of great engineers and smart people. But ultimately, there needs to be some gravitational force that pulls it all together.”11
Jobs notes that before he returned, Apple had lost its product-oriented culture. In the late 1980s and early 1990s, there was great technology being developed in the company’s labs, but there wasn’t a product culture to put that technology to work. Instead, the company turned its focus to milking its key asset: the Mac user interface. Jobs noted that Apple had a monopoly on the graphical user interface for almost ten years, which sowed the seeds for its demise. Instead of trying to develop new, breakthrough products, the company concentrated on making maximum profit from its interface monopoly.
“The product people aren’t the ones that drive the company forward anymore,” Jobs said of Apple during that period. “It’s the marketing guys or the ones who expand the business into Latin America or whatever. Because what’s the point of focusing on making the product even better when the only company you can take business from is yourself?” Jobs said in situations like this, the people who built the company in the first place— the product-oriented staffers—tend to become replaced by those with a sales focus. “Who usually ends up running the show?” asked Jobs. “The sales guy.”12
Jobs cited as a good example Steve Ballmer at Microsoft, the company’s chief salesman who took over from Bill Gates, the programmer. “Then one day, the monopoly expires for whatever reason,” Jobs continued. “But by then the best product people have left, or they’re no longer listened to. And so the company goes through this tumultuous time, and it either survives or it doesn’t.” Luckily for Apple, it survived.
Pure Science vs. Applied Science
Money isn’t the key to innovation. Apple spends a lot less than other companies on R&D, yet appears to get a lot more bang for its buck. Microsoft in 2006 spent more than $6 billion on R&D and is on track to spend $7.5 billion in 2007. Microsoft finances several large and well-funded research centers in Redmond, Silicon Valley, Cambridge in the UK, and China. There are some very impressive technologies being developed in Microsoft’s research labs. The company boasts that it is leading research in speech recognition and fast search of massive databases. Each year, Microsoft gives journalists a tour of its Redmond research facility, and it is a treat for those invited to see all the cool toys and clever technologies the researchers are developing. But it is unclear how much of Microsoft’s research is being directed toward its products. Except for speech recognition in Vista, which has been well received, there’s little evidence that the labs are leading major new product initiatives. “You know, our friends up north spent over $5 billion on R&D, but these days all they seem to be copying is Google and Apple,” Jobs said at Apple’s World Wide Developers Conference in 2006. “Shows money doesn’t buy everything.”
In 2007, the management consultancy Booz Allen Hamilton released a study of worldwide corporate R&D spending and concluded that there’s little evidence that increased R&D investment is linked to better results. “It’s the process, not the pocketbook,” Booz Allen concluded. “Superior results seem to be a function of the quality of an organization’s innovation process—the bets it makes and how it pursues them—rather than either the absolute or relative magnitude of its innovation spending.”
Booz Allen cited Apple as one of the thriftiest R&D spenders in tech, but one of the most successful. According to Booz Allen, Apple’s 2004 R&D-to-Sales ratio was 5.9 percent, compared to an industry average of 7.6 percent. “Its $489 million spent is a fraction of its larger competitors,” Booz Allen said. “But by rigorously focusing its development resources on a short list of projects with the greatest potential, the company created an innovation machine that eventually produced the iMac, iBook, iPod, and iTunes.”13
Apple’s R&D spending is like the old distinction between pure science and applied science. Pure science is the pursuit of knowledge for its own sake. Applied science is application of science to particular problems. Of course, pure science is extremely important, and will sometimes lead to the kind of fundamental breakthroughs that applied scientists don’t even look at. But applied science, like engineering, is focused on more practical, pressing problems. The former head of Microsoft’s research labs, Nathan Myhrvold, gained fame for academic papers he wrote about dinosaurs. He may have contributed to the field of paleontology, but did Microsoft invent the iPod?
Jobs uses as his inspiration Hewlett-Packard, one of the first Silicon Valley companies and one that has always had a strong engineering culture—it was driven by engineers who made products. “The older I get, the more I’m convinced that motives make so much difference,” Jobs said. “HP’s primary goal was to make great products. And our primary goal here is to make the world’s best PCs—not to be the biggest or the richest.” Jobs said Apple has a second goal, which is to make a profit—both to make money but also to keep making products. “For a time,” Jobs said, “those goals got flipped at Apple, and that subtle change made all the difference. When I got back, we had to make it a product company again.”14
The Seer—and Stealer
Jobs keeps his eyes peeled for promising new technologies, or existing technologies that Apple can improve, like early MP3 players or, lately, smart phones. Jobs has a reputation as a seer. He seems to have a magical ability to peer into the future and know before anyone else what consumers want. Jobs downplays his reputation as an oracle: “You can’t really predict exactly what will happen, but you can feel the direction that we’re going,” Jobs told Rolling Stone. “And that’s about as close as you can get. Then you just stand back and get out of the way, and these things take on a life of their own.”15
Jobs has said he looks for “vectors going in time”—what new technologies are coming to market, which ones are ending their run. “You try to spot those things and how they’re going to be changing over time and which horses you want to ride at any point in time,” Jobs said. “You can’t be too far ahead, but you have to be far enough ahead, because it takes time to implement. So you have to intercept a moving train.”16
Jobs cited USB as an example. Intel invented the now-ubiquitous Universal Serial Bus (USB), and Apple was one of the first PC companies to build it into its computers. Jobs recognized its consumer-friendly potential: it wasn’t fast, but it was plug and play, and it provided power to devices, eliminating an extra wire and power brick. It seems unremarkable now that USB is wildly popular, but Apple was one of the first companies to adopt it—and it may have never reached critical mass if it hadn’t.
Innovation can—and often does—come from outside Apple. There’s a long list of technologies that weren’t developed at Apple that Jobs or his engineers recognized had innovative potential. WiFi wireless networking, developed by Lucent and Agere, didn’t get much traction until Apple used it across its entire line of computers and built it into its Airport base stations, ushering in the era of wireless laptops.
Some observers note that innovation at Apple has less to do with inventing brand-new technologies than taking existing technologies and making them easy to use. Jobs takes technologies out of the lab and puts them in the hands of ordinary users.
The first and best example is the graphical user interface, which Jobs first spotted at age twenty-four in 1979, during a paid tour of Xerox’s famed Palo Alto Research Center. During his visit, Jobs was given a demonstration of the Xerox Alto, the first computer with a mouse and point-and-click interface. “I thought it was the best thing I’d ever seen in my life. Now remember it was very flawed, what we saw was incomplete, they’d done a bunch of things wrong. But we didn’t know that at the time but still thought they had the germ of the idea there and they’d done it very well and within you know ten mi
nutes it was obvious to me that all computers would work like this some day.”17
But Xerox’s management had no idea what its scientists had cooked up in the lab. Despite dozens of demonstrations, Xerox’s executives didn’t see its potential. “Basically they were copier heads that just had no clue about a computer or what it could do,” said Jobs. “And so they just grabbed defeat from the greatest victory in the computer industry. Xerox could have owned the entire computer industry today.”18
When it comes to innovation, Jobs is fond of quoting Picasso’s famous dictum: good artists copy, great artists steal. To which Jobs adds: “And we have always been shameless about stealing great ideas.”
The Creative Connection
For Jobs, innovation is about creativity, putting things together in unique ways. “Creativity is just connecting things,” Jobs told Wired magazine. “When you ask creative people how they did something, they feel a little guilty because they didn’t really do it, they just saw something. It seemed obvious to them after a while. That’s because they were able to connect experiences they’ve had and synthesize new things. And the reason they were able to do that was that they’ve had more experiences or they have thought more about their experiences than other people.... Unfortunately, that’s too rare a commodity. A lot of people in our industry haven’t had very diverse experiences. So they don’t have enough dots to connect, and they end up with very linear solutions without a broad perspective on the problem. The broader one’s understanding of the human experience, the better design we will have.”19
Apple’s use of magnetism is a good example of how the company takes a technology—something as simple as magnets—and plays with it, putting it to different uses. The first magnets appeared in the latches of Apple’s notebooks. A magnet would pull the latch out of its housing as the lid was closed. Then Apple added magnets to its remote controls, so that they could be safely stored attached to the side of the computer. Newer MacBooks have dispensed with latches altogether in favor of stronger magnets that hold their lids closed when not in use; they also have MagSafe power adapters which stay in place thanks to magnets. They are designed to easily detach from the power cord, stopping the computer from crashing to the floor. It’s an idea Apple took from Japanese rice cookers, which have had magnetic power adapters for several years for the same reason—to prevent boiling water from being thrown across the kitchen if a child snags the power cord.
Inside Steve's Brain Page 15
