Archive | November, 2011

The Persistence of the Innovator’s Dilemma

11 Nov

by Scott Anthony, Harvard Business Review

In 1995, a young Harvard Business School Professor co-authored an article in Harvard Business Review, “Disruptive Technology: Catching the Wave.” He and his co-author proposed a new causal mechanism that explained the surprising failure of highly-regarded companies. The most punishing innovations, they argued, were the ones that were easy to dismiss at first blush — simple, affordable solutions that took root outside the mainstream market. The authors called these “disruptive” solutions and provided a straightforward prescription for leaders looking to turn disruption into an opportunity. They suggested that companies should find a customer who loved the disruptive solution despite its limitations and create a separate organization to commercialize it.

Of course, that young HBS professor was Innosight co-founder Clayton Christensen. Since then, he has written over a half-dozen books and many more Harvard Business Review articles, almost all of which touch on disruption in some way. Academic journals have dissected the disruptive innovation theory and hundreds of thousands of students around the world have seen Christensen’s famous model.

Yet, the innovator’s dilemma persists. Just ask executives at Blockbuster Video, Sony, Nokia, Microsoft, Hertz, Kodak, Delta, and nearly all newspaper companies. That’s not to say that there haven’t been success stories. But they’re notable because they are exceptions.

So, why has this dilemma persisted?

Capital markets is one explanation. As this argument holds, the short-term pressure of the capital markets, coupled with management incentives tied tightly to stock prices, make it hard for companies to investment in new growth businesses. Even if companies know what they need to do, their investors won’t let them. Investors aren’t necessarily irrational, since they could presumably back up-and-coming disruptors themselves. There is at least one strike against this argument. In markets such as India, Korea, Japan, and China, companies that have different corporate governance models seem equally likely to suffer from the innovator’s dilemma.

Perhaps the root problem is leadership limitations. Leaders in established companies seeking to drive disruptive growth have to meet the challenge laid down in 1935 by F. Scott Fitzgerald: “The test of a first-rate intelligence is the ability to hold two opposed ideas in the mind at the same time and still retain the ability to function.” Yet, in Chapter 9 of The Silver Lining, I described a stream of research suggesting that only about 5% of leaders have the ability to pass Fitzgerald’s test. Every once and a while a Steve Jobs, a Jeff Bezos, or an A.G. Lafley appears, but perhaps their rarity leads to the dilemma’s persistence.

Maybe the real challenge lies within. Over the past few decades there has been a fascinating set of research into cognitive biases that lead smart people to make bad decisions.* These biases are particularly acute for companies trying to drive disruptive innovation. Consider the “halo effect,” which holds that people who are demonstrably good at one thing are perceived to be good at non-related tasks. The halo effect leads companies to assuming their best operators can seamlessly shift into innovation work. Some can, but many cannot. Confirmation bias, disaster neglect, the fundamental attribution error and many others make it easy to simultaneously discount the need to respond to disruptive threats and overestimate the organization’s ability to step into new markets.

There are surely other explanations — for instance, people don’t always have high levels of interest in transforming a system that confers certain powers on them — but my own view is that the dangerous combination of leadership limitations and cognitive biases makes the innovator’s dilemma an intensely difficult problem to solve.

Perhaps further clarity in the root cause of the persistence of the innovator’s dilemma can help increase the number of success stories. Any other ideas?

* Dan Ariely, Michael Mauboussin, Nobel Laureate Daniel Kahneman, and Duncan Watts all write accessibly on the topic.

The real genius of Steve Jobs

7 Nov


Not long after Steve Jobs got married, in 1991, he moved with his wife to a nineteen-thirties, Cotswolds-style house in old Palo Alto. Jobs always found it difficult to furnish the places where he lived. His previous house had only a mattress, a table, and chairs. He needed things to be perfect, and it took time to figure out what perfect was. This time, he had a wife and family in tow, but it made little difference. “We spoke about furniture in theory for eight years,” his wife, Laurene Powell, tells Walter Isaacson, in “Steve Jobs,” Isaacson’s enthralling new biography of the Apple founder. “We spent a lot of time asking ourselves, ‘What is the purpose of a sofa?’ ”

It was the choice of a washing machine, however, that proved most vexing. European washing machines, Jobs discovered, used less detergent and less water than their American counterparts, and were easier on the clothes. But they took twice as long to complete a washing cycle. What should the family do? As Jobs explained, “We spent some time in our family talking about what’s the trade-off we want to make. We ended up talking a lot about design, but also about the values of our family. Did we care most about getting our wash done in an hour versus an hour and a half? Or did we care most about our clothes feeling really soft and lasting longer? Did we care about using a quarter of the water? We spent about two weeks talking about this every night at the dinner table.”

Steve Jobs, Isaacson’s biography makes clear, was a complicated and exhausting man. “There are parts of his life and personality that are extremely messy, and that’s the truth,” Powell tells Isaacson. “You shouldn’t whitewash it.” Isaacson, to his credit, does not. He talks to everyone in Jobs’s career, meticulously recording conversations and encounters dating back twenty and thirty years. Jobs, we learn, was a bully. “He had the uncanny capacity to know exactly what your weak point is, know what will make you feel small, to make you cringe,” a friend of his tells Isaacson. Jobs gets his girlfriend pregnant, and then denies that the child is his. He parks in handicapped spaces. He screams at subordinates. He cries like a small child when he does not get his way. He gets stopped for driving a hundred miles an hour, honks angrily at the officer for taking too long to write up the ticket, and then resumes his journey at a hundred miles an hour. He sits in a restaurant and sends his food back three times. He arrives at his hotel suite in New York for press interviews and decides, at 10 P.M., that the piano needs to be repositioned, the strawberries are inadequate, and the flowers are all wrong: he wanted calla lilies. (When his public-relations assistant returns, at midnight, with the right flowers, he tells her that her suit is “disgusting.”) “Machines and robots were painted and repainted as he compulsively revised his color scheme,” Isaacson writes, of the factory Jobs built, after founding NeXT, in the late nineteen-eighties. “The walls were museum white, as they had been at the Macintosh factory, and there were $20,000 black leather chairs and a custom-made staircase. . . . He insisted that the machinery on the 165-foot assembly line be configured to move the circuit boards from right to left as they got built, so that the process would look better to visitors who watched from the viewing gallery.”

Isaacson begins with Jobs’s humble origins in Silicon Valley, the early triumph at Apple, and the humiliating ouster from the firm he created. He then charts the even greater triumphs at Pixar and at a resurgent Apple, when Jobs returns, in the late nineteen-nineties, and our natural expectation is that Jobs will emerge wiser and gentler from his tumultuous journey. He never does. In the hospital at the end of his life, he runs through sixty-seven nurses before he finds three he likes. “At one point, the pulmonologist tried to put a mask over his face when he was deeply sedated,” Isaacson writes:
Jobs ripped it off and mumbled that he hated the design and refused to wear it. Though barely able to speak, he ordered them to bring five different options for the mask and he would pick a design he liked. . . . He also hated the oxygen monitor they put on his finger. He told them it was ugly and too complex.

One of the great puzzles of the industrial revolution is why it began in England. Why not France, or Germany? Many reasons have been offered. Britain had plentiful supplies of coal, for instance. It had a good patent system in place. It had relatively high labor costs, which encouraged the search for labor-saving innovations. In an article published earlier this year, however, the economists Ralf Meisenzahl and Joel Mokyr focus on a different explanation: the role of Britain’s human-capital advantage—in particular, on a group they call “tweakers.” They believe that Britain dominated the industrial revolution because it had a far larger population of skilled engineers and artisans than its competitors: resourceful and creative men who took the signature inventions of the industrial age and tweaked them—refined and perfected them, and made them work.

In 1779, Samuel Crompton, a retiring genius from Lancashire, invented the spinning mule, which made possible the mechanization of cotton manufacture. Yet England’s real advantage was that it had Henry Stones, of Horwich, who added metal rollers to the mule; and James Hargreaves, of Tottington, who figured out how to smooth the acceleration and deceleration of the spinning wheel; and William Kelly, of Glasgow, who worked out how to add water power to the draw stroke; and John Kennedy, of Manchester, who adapted the wheel to turn out fine counts; and, finally, Richard Roberts, also of Manchester, a master of precision machine tooling—and the tweaker’s tweaker. He created the “automatic” spinning mule: an exacting, high-speed, reliable rethinking of Crompton’s original creation. Such men, the economists argue, provided the “micro inventions necessary to make macro inventions highly productive and remunerative.”

Was Steve Jobs a Samuel Crompton or was he a Richard Roberts? In the eulogies that followed Jobs’s death, last month, he was repeatedly referred to as a large-scale visionary and inventor. But Isaacson’s biography suggests that he was much more of a tweaker. He borrowed the characteristic features of the Macintosh—the mouse and the icons on the screen—from the engineers at Xerox PARC, after his famous visit there, in 1979. The first portable digital music players came out in 1996. Apple introduced the iPod, in 2001, because Jobs looked at the existing music players on the market and concluded that they “truly sucked.” Smart phones started coming out in the nineteen-nineties. Jobs introduced the iPhone in 2007, more than a decade later, because, Isaacson writes, “he had noticed something odd about the cell phones on the market: They all stank, just like portable music players used to.” The idea for the iPad came from an engineer at Microsoft, who was married to a friend of the Jobs family, and who invited Jobs to his fiftieth-birthday party. As Jobs tells Isaacson:
This guy badgered me about how Microsoft was going to completely change the world with this tablet PC software and eliminate all notebook computers, and Apple ought to license his Microsoft software. But he was doing the device all wrong. It had a stylus. As soon as you have a stylus, you’re dead. This dinner was like the tenth time he talked to me about it, and I was so sick of it that I came home and said, “Fuck this, let’s show him what a tablet can really be.”

Even within Apple, Jobs was known for taking credit for others’ ideas. Jonathan Ive, the designer behind the iMac, the iPod, and the iPhone, tells Isaacson, “He will go through a process of looking at my ideas and say, ‘That’s no good. That’s not very good. I like that one.’ And later I will be sitting in the audience and he will be talking about it as if it was his idea.”

Jobs’s sensibility was editorial, not inventive. His gift lay in taking what was in front of him—the tablet with stylus—and ruthlessly refining it. After looking at the first commercials for the iPad, he tracked down the copywriter, James Vincent, and told him, “Your commercials suck.”
“Well, what do you want?” Vincent shot back. “You’ve not been able to tell me what you want.”
“I don’t know,” Jobs said. “You have to bring me something new. Nothing you’ve shown me is even close.”
Vincent argued back and suddenly Jobs went ballistic. “He just started screaming at me,” Vincent recalled. Vincent could be volatile himself, and the volleys escalated.
When Vincent shouted, “You’ve got to tell me what you want,” Jobs shot back, “You’ve got to show me some stuff, and I’ll know it when I see it.”

I’ll know it when I see it. That was Jobs’s credo, and until he saw it his perfectionism kept him on edge. He looked at the title bars—the headers that run across the top of windows and documents—that his team of software developers had designed for the original Macintosh and decided he didn’t like them. He forced the developers to do another version, and then another, about twenty iterations in all, insisting on one tiny tweak after another, and when the developers protested that they had better things to do he shouted, “Can you imagine looking at that every day? It’s not just a little thing. It’s something we have to do right.”

The famous Apple “Think Different” campaign came from Jobs’s advertising team at TBWA\Chiat\Day. But it was Jobs who agonized over the slogan until it was right:
They debated the grammatical issue: If “different” was supposed to modify the verb “think,” it should be an adverb, as in “think differently.” But Jobs insisted that he wanted “different” to be used as a noun, as in “think victory” or “think beauty.” Also, it echoed colloquial use, as in “think big.” Jobs later explained, “We discussed whether it was correct before we ran it. It’s grammatical, if you think about what we’re trying to say. It’s not think the same, it’s think different. Think a little different, think a lot different, think different. ‘Think differently’ wouldn’t hit the meaning for me.”

The point of Meisenzahl and Mokyr’s argument is that this sort of tweaking is essential to progress. James Watt invented the modern steam engine, doubling the efficiency of the engines that had come before. But when the tweakers took over the efficiency of the steam engine swiftly quadrupled. Samuel Crompton was responsible for what Meisenzahl and Mokyr call “arguably the most productive invention” of the industrial revolution. But the key moment, in the history of the mule, came a few years later, when there was a strike of cotton workers. The mill owners were looking for a way to replace the workers with unskilled labor, and needed an automatic mule, which did not need to be controlled by the spinner. Who solved the problem? Not Crompton, an unambitious man who regretted only that public interest would not leave him to his seclusion, so that he might “earn undisturbed the fruits of his ingenuity and perseverance.” It was the tweaker’s tweaker, Richard Roberts, who saved the day, producing a prototype, in 1825, and then an even better solution in 1830. Before long, the number of spindles on a typical mule jumped from four hundred to a thousand. The visionary starts with a clean sheet of paper, and re-imagines the world. The tweaker inherits things as they are, and has to push and pull them toward some more nearly perfect solution. That is not a lesser task.

Jobs’s friend Larry Ellison, the founder of Oracle, had a private jet, and he designed its interior with a great deal of care. One day, Jobs decided that he wanted a private jet, too. He studied what Ellison had done. Then he set about to reproduce his friend’s design in its entirety—the same jet, the same reconfiguration, the same doors between the cabins. Actually, not in its entirety. Ellison’s jet “had a door between cabins with an open button and a close button,” Isaacson writes. “Jobs insisted that his have a single button that toggled. He didn’t like the polished stainless steel of the buttons, so he had them replaced with brushed metal ones.” Having hired Ellison’s designer, “pretty soon he was driving her crazy.” Of course he was. The great accomplishment of Jobs’s life is how effectively he put his idiosyncrasies—his petulance, his narcissism, and his rudeness—in the service of perfection. “I look at his airplane and mine,” Ellison says, “and everything he changed was better.”

The angriest Isaacson ever saw Steve Jobs was when the wave of Android phones appeared, running the operating system developed by Google. Jobs saw the Android handsets, with their touchscreens and their icons, as a copy of the iPhone. He decided to sue. As he tells Isaacson:
Our lawsuit is saying, “Google, you fucking ripped off the iPhone, wholesale ripped us off.” Grand theft. I will spend my last dying breath if I need to, and I will spend every penny of Apple’s $40 billion in the bank, to right this wrong. I’m going to destroy Android, because it’s a stolen product. I’m willing to go to thermonuclear war on this. They are scared to death, because they know they are guilty. Outside of Search, Google’s products—Android, Google Docs—are shit.

In the nineteen-eighties, Jobs reacted the same way when Microsoft came out with Windows. It used the same graphical user interface—icons and mouse—as the Macintosh. Jobs was outraged and summoned Gates from Seattle to Apple’s Silicon Valley headquarters. “They met in Jobs’s conference room, where Gates found himself surrounded by ten Apple employees who were eager to watch their boss assail him,” Isaacson writes. “Jobs didn’t disappoint his troops. ‘You’re ripping us off!’ he shouted. ‘I trusted you, and now you’re stealing from us!’ ”

Gates looked back at Jobs calmly. Everyone knew where the windows and the icons came from. “Well, Steve,” Gates responded. “I think there’s more than one way of looking at it. I think it’s more like we both had this rich neighbor named Xerox and I broke into his house to steal the TV set and found out that you had already stolen it.”

Jobs was someone who took other people’s ideas and changed them. But he did not like it when the same thing was done to him. In his mind, what he did was special. Jobs persuaded the head of Pepsi-Cola, John Sculley, to join Apple as C.E.O., in 1983, by asking him, “Do you want to spend the rest of your life selling sugared water, or do you want a chance to change the world?” When Jobs approached Isaacson to write his biography, Isaacson first thought (“half jokingly”) that Jobs had noticed that his two previous books were on Benjamin Franklin and Albert Einstein, and that he “saw himself as the natural successor in that sequence.” The architecture of Apple software was always closed. Jobs did not want the iPhone and the iPod and the iPad to be opened up and fiddled with, because in his eyes they were perfect. The greatest tweaker of his generation did not care to be tweaked.

Perhaps this is why Bill Gates—of all Jobs’s contemporaries—gave him fits. Gates resisted the romance of perfectionism. Time and again, Isaacson repeatedly asks Jobs about Gates and Jobs cannot resist the gratuitous dig. “Bill is basically unimaginative,” Jobs tells Isaacson, “and has never invented anything, which I think is why he’s more comfortable now in philanthropy than technology. He just shamelessly ripped off other people’s ideas.”

After close to six hundred pages, the reader will recognize this as vintage Jobs: equal parts insightful, vicious, and delusional. It’s true that Gates is now more interested in trying to eradicate malaria than in overseeing the next iteration of Word. But this is not evidence of a lack of imagination. Philanthropy on the scale that Gates practices it represents imagination at its grandest. In contrast, Jobs’s vision, brilliant and perfect as it was, was narrow. He was a tweaker to the last, endlessly refining the same territory he had claimed as a young man.

As his life wound down, and cancer claimed his body, his great passion was designing Apple’s new, three-million-square-foot headquarters, in Cupertino. Jobs threw himself into the details. “Over and over he would come up with new concepts, sometimes entirely new shapes, and make them restart and provide more alternatives,” Isaacson writes. He was obsessed with glass, expanding on what he learned from the big panes in the Apple retail stores. “There would not be a straight piece of glass in the building,” Isaacson writes. “All would be curved and seamlessly joined. . . . The planned center courtyard was eight hundred feet across (more than three typical city blocks, or almost the length of three football fields), and he showed it to me with overlays indicating how it could surround St. Peter’s Square in Rome.” The architects wanted the windows to open. Jobs said no. He “had never liked the idea of people being able to open things. ‘That would just allow people to screw things up.’ ” ♦

Read more


6 Nov

虽然,这份”答卷”中装了10.3亿港币的利润,股东应占溢利比上个财年增长了42.9%,相比方正亏损3.8亿港币、四通亏损1.23亿港币,杨元庆有理由为自己没有完成370万台PC销售任务辩解,但是,他没有。”在2001年上半年的时候,我还没能力对整个市场有个彻底的判断。””我没经历过如此萧条的市场,也没经历过预期那么大的差距。””我本以为增长放缓是渐进式的,而实际的情况却是急速放缓 。”
最后还应该牢记,面子是别人给的,而不是要来的。2004年6月份,央视著名主持人水均益,因被指在夜总会闹事而丢尽面子,成了许多媒体娱乐版的头条,从而让自己的主持人形象和未来的职业生涯都蒙上了阴影。事情的起因就在于水均益”要面子”,他不满到结账时总经理都没有露过面,认为”太不给面子”了,于是一定要服务员叫总经理来见他。当服务员说总经理已经休息了。该主持人因此大为恼火。这些人都是要”面子”的,你总经理敢不出来见我,就是”不给我面子”。既然你不给我”面子”,那我当然就要生气,于是自己要把”面子” 给挣回来,结果却丢尽了面子。
其实,看看接替万明坚掌管TCL移动的袁信成,同样经历了一番起落:自从1999年加盟TCL,主管 TCL彩电的销售业务并一手设计实施了TCL的渠道模式,被称为TCL内部的”渠道教父”,但此后他也被放到一个虚职上,蛰伏了三四年,但是他一直低调处事,对李东生这样对待他”毫无怨言”,而李也不忍心对如此忠诚的部下不留情面的彻底”打死”,最终重新起用了袁信成接替万明坚。



Steve Jobs Solved the Innovator’s Dilemma

6 Nov

by James Allworth

In the lead up to today’s release of the Steve Jobs biography, there’s been an increasing stream of news surrounding its subject. As a business researcher, I was particularly interested in this recent article that referenced from his biography a list of Jobs’s favorite books. There’s one business book on this list, and it “deeply influenced” Jobs. That book is The Innovator’s Dilemma by HBS Professor Clay Christensen.

But what’s most interesting to me isn’t that The Innovator’s Dilemma was on that list. It’s that Jobs solved the conundrum.

When describing his period of exile from Apple — when John Sculley took over — Steve Jobs described one fundamental root cause of Apple’s problems. That was to let profitability outweigh passion: “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.”

Anyone familiar with Professor Christensen’s work will quickly recognize the same causal mechanism at the heart of the Innovator’s Dilemma: the pursuit of profit. The best professional managers — doing all the right things and following all the best advice — lead their companies all the way to the top of their markets in that pursuit… only to fall straight off the edge of a cliff after getting there.

Which is exactly what had happened to Apple. A string of professional managers had led the company straight off the edge of that cliff. The fall had almost killed the company. It had 90 days working capital on hand when he took over — in other words, Apple was only three months awayfrom bankruptcy.

When he returned, Jobs completely upended the company. There were thousands of layoffs. Scores of products were killed stone dead. He knew the company had to make money to stay alive, but he transitioned the 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 looks entirely different to almost any other modern Fortune 500 company. One striking example: there’s only one person Apple with responsibility for a profit and loss. The CFO. It’s almost the opposite of what is taught in business school. An executive who worked at both Apple and Microsoft described the differences this way: “Microsoft tries to find pockets of unrealized revenue and then figures out what to make. Apple is just the opposite: It thinks of great products, then sells them. Prototypes and demos always come before spreadsheets.”

Similarly, Apple talks a lot about its great people. But make no mistake — they are there only in service of the mission. A headhunter describes it thus: “It is a happy place in that it has true believers. People join and stay because they believe in the mission of the company.” It didn’t matter how great you were, if you couldn’t deliver to that mission — you were out. Jobs’s famous meltdowns upon his return were symptomatic of this. They might have become less frequent in recent years, but if a team couldn’t deliver a great product, they got the treatment. The exec in charge of MobileMe was replaced on the spot, in front of his entire team, after a botched launch. A former Apple product manager described Apple’s attitude like this: “You have the privilege of working for the company that’s making the coolest products in the world. Shut up and do your job, and you might get to stay.”

Everything — the business, the people — are subservient to the mission: building great products. And rather than listening to, or asking their customers what they wanted; Apple would solve problems customers didn’t know they had with products they didn’t even realize they wanted.

By taking this approach, Apple bent all the rules of disruption. 
To disrupt yourself, for example, Professor Christensen’s research would typically prescribe setting up a separate company that eventually goes on to defeat the parent. It’s incredibly hard to do this successfully; Dayton Dry Goods pulled it off with Target. IBM managed to do it with the transition from mainframes to PCs, by firewalling the businesses in entirely different geographies. Either way, the number of companies that have successfully managed to do it is a very, very short list. And yet Apple’s doing it to itself right now with the utmost of ease. Here’s new CEO Tim Cook, on the iPad disrupting the Mac business: “Yes, I think there is some cannibalization… the iPad team works on making their product the best. Same with the Mac team.” It’s almost unheard of to be able to manage disruption like this.

They can do it because Apple hasn’t optimized its organization to maximize profit. Instead, it has made the creation of value for customers its priority. When you do this, the fear of cannibalization or disruption of one’s self just melts away. In fact, when your mission is based around creating customer value, around creating great products, cannibalization and disruption aren’t “bad things” to be avoided. They’re things you actually strive for — because they let you improve the outcome for your customer.

When I first learned about the theory of disruption, what amazed me was its predictive power; you could look into the future with impressive clarity. And yet, there was a consistent anomaly. That one dark spot on Professor Christensen’s prescience was always his predictions on Apple. I had the opportunity to talk about it with him subsequently, and I remember him telling me: “There’s just something different about those guys. They’re freaks.” Well, he was right. With the release of Jobs’s biography, we now know for sure why. Jobs was profoundly influenced by the Innovator’s Dilemma — he saw the company he created almost die from it. When he returned to Apple, Jobs was determined to solve it. And he did. That “subtle difference” — of flipping the priorities away from profit and back to great products — took Apple from three months away from bankruptcy, to one of the most valuable and influential companies in the world.

Apple’s Supply-Chain Secret? Hoard Lasers

6 Nov

The iPhone maker spends lavishly on all stages of the manufacturing process, giving it a huge operations advantage

By  and 

About five years ago, Apple (AAPL) design guru Jony Ive decided he wanted a new feature for the next MacBook: a small dot of green light above the screen, shining through the computer’s aluminum casing to indicate when its camera was on. The problem? It’s physically impossible to shine light through metal.

Ive called in a team of manufacturing and materials experts to figure out how to make the impossible possible, according to a former employee familiar with the development who requested anonymity to avoid irking Apple. The team discovered it could use a customized laser to poke holes in the aluminum small enough to be nearly invisible to the human eye but big enough to let light through.

Applying that solution at massive volume was a different matter. Apple needed lasers, and lots of them. The team of experts found a U.S. company that made laser equipment for microchip manufacturing which, after some tweaking, could do the job. Each machine typically goes for about $250,000. Apple convinced the seller to sign an exclusivity agreement and has since bought hundreds of them to make holes for the green lights that now shine on the company’s MacBook Airs, Trackpads, and wireless keyboards.

Most of Apple’s customers have probably never given that green light a second thought, but its creation speaks to a massive competitive advantage for Apple: Operations. This is the world of manufacturing, procurement, and logistics in which the new chief executive officer, Tim Cook, excelled, earning him the trust of Steve Jobs. According to more than a dozen interviews with former employees, executives at suppliers, and management experts familiar with the company’s operations, Apple has built a closed ecosystem where it exerts control over nearly every piece of the supply chain, from design to retail store. Because of its volume—and its occasional ruthlessness—Apple gets big discounts on parts, manufacturing capacity, and air freight. “Operations expertise is as big an asset for Apple as product innovation or marketing,” says Mike Fawkes, the former supply-chain chief atHewlett-Packard (HPQ) and now a venture capitalist with VantagePoint Capital Partners. “They’ve taken operational excellence to a level never seen before.”

This operational edge is what enables Apple to handle massive product launches without having to maintain large, profit-sapping inventories. It’s allowed a company often criticized for high prices to sell its iPad at a price that very few rivals can beat, while still earning a 25 percent margin on the device, according to the estimates of Piper Jaffray analyst Gene Munster. And if the latest rumors are to be believed, Apple’s operational expertise is likely part of what gives the company enough confidence to enter the notoriously cutthroat television market by 2013 with a TV set that would tightly integrate with existing Apple software like iTunes. The widespread skepticism over Apple’s ability to compete in such a price-sensitive market, where margins are often in the single digits, is “exactly what people said when Apple got into cell phones,” says Munster.

Apple began innovating on the nitty-gritty details of supply-chain management almost immediately upon Steve Jobs’s return in 1997. At the time, most computer manufacturers transported products by sea, a far cheaper option than air freight. To ensure that the company’s new, translucent blue iMacs would be widely available at Christmas the following year, Jobs paid $50 million to buy up all the available holiday air freight space, says John Martin, a logistics executive who worked with Jobs to arrange the flights. The move handicapped rivals such as Compaq that later wanted to book air transport. Similarly, when iPod sales took off in 2001, Apple realized it could pack so many of the diminutive music players on planes that it became economical to ship them directly from Chinese factories to consumers’ doors. When an HP staffer bought one and received it a few days later, tracking its progress around the world through Apple’s website, “It was an ‘Oh s—’ moment,” recalls Fawkes.

That mentality—spend exorbitantly wherever necessary, and reap the benefits from greater volume in the long run—is institutionalized throughout Apple’s supply chain, and begins at the design stage. Ive and his engineers sometimes spend months living out of hotel rooms in order to be close to suppliers and manufacturers, helping to tweak the industrial processes that translate prototypes into mass-produced devices. For new designs such as the MacBook’s unibody shell, cut from a single piece of aluminum, Apple’s designers work with suppliers to create new tooling equipment. The decision to focus on a few product lines, and to do little in the way of customization, is a huge advantage. “They have a very unified strategy, and every part of their business is aligned around that strategy,” says Matthew Davis, a supply-chain analyst with Gartner (IT) who has ranked Apple as the world’s best supply chain for the last four years.

When it’s time to go into production, Apple wields a big weapon: More than $80 billion in cash and investments. The company says it plans to nearly double capital expenditures on its supply chain in the next year, to $7.1 billion, while committing another $2.4 billion in prepayments to key suppliers. The tactic ensures availability and low prices for Apple—and sometimes limits the options for everyone else. Before the release of the iPhone 4 in June 2010, rivals such as HTC couldn’t buy as many screens as they needed because manufacturers were busy filling Apple orders, according to a former manager at HTC. To manufacture the iPad 2, Apple bought so many high-end drills to make the device’s internal casing that other companies’ wait time for the machines stretched from six weeks to six months, according to a manager at the drillmaker.

Life as an Apple supplier is lucrative because of the high volumes but painful because of the strings attached. When Apple asks for a price quote for parts such as touchscreens, it demands a detailed accounting of how the manufacturer arrived at the quote, including its estimates for material and labor costs, and its own projected profit. Apple requires many key suppliers to keep two weeks of inventory within a mile of Apple’s assembly plants in Asia, and sometimes doesn’t pay until as long as 90 days after it uses a part, according to an executive who has consulted for Apple and would not speak on the record for fear of compromising the relationship.

Not every supplier gives in. An executive who works with a major parts manufacturer says that Apple’s bargaining tactics tend to exert downward pressure on prices, leading to lower profits and margins. After months of negotiations, the company declined a $1 billion payment from Apple that would have required the supplier to commit much of its manufacturing capacity to Cupertino’s products. The executive familiar with these talks, who asked not to be named because the discussions were not public, says that while deals featuring $1 billion in cash up front are basically unheard of, his company didn’t want to be too dependent on Apple—and didn’t want to help it deflate prices.

Apple’s control reaches its crescendo in the leadup to one of its famed product unveilings, a tightly orchestrated process that has been refined over years of Mac, iPod, iPhone, and iPad debuts. For weeks in advance of the announcement, factories work overtime to build hundreds of thousands of devices. To track efficiency and ensure pre-launch secrecy, Apple places electronic monitors in some boxes of parts that allow observers in Cupertino to track them through Chinese factories, an effort meant to discourage leaks. At least once, the company shipped products in tomato boxes to avoid detection, says the consultant who has worked with Apple. When the iPad 2 debuted, the finished devices were packed in plain boxes and Apple employees monitored every handoff point—loading dock, airport, truck depot, and distribution center—to make sure each unit was accounted for.

Apple’s retail stores give it a final operational advantage. Once a product goes on sale, the company can track demand by the store and by the hour, and adjust production forecasts daily. If it becomes clear a given part will run out, teams are deployed and given approval to spend millions of dollars on extra equipment to get around the bottleneck.

Apple’s enormous profits—its gross margins were 40 percent last quarter, compared with 10 to 20 percent for most other hardware companies—are in large part due to this focus on operations, which is sure to remain a priority under Cook. The new CEO is known to give colleagues copies ofCompeting Against Time, a book about using supply chains as a strategic weapon in business. According to Martin, the logistics executive, Cook uses a catchphrase to hammer home the need for efficiency: “Nobody wants to buy sour milk.”


The bottom line: Apple plans to double spending on its supply chain, to $7.1 billion, continuing its focus on streamlining and controlling manufacturing.

A Sister’s Eulogy for Steve Jobs

6 Nov

I grew up as an only child, with a single mother. Because we were poor and because I knew my father had emigrated from Syria, I imagined he looked like Omar Sharif. I hoped he would be rich and kind and would come into our lives (and our not yet furnished apartment) and help us. Later, after I’d met my father, I tried to believe he’d changed his number and left no forwarding address because he was an idealistic revolutionary, plotting a new world for the Arab people.

Even as a feminist, my whole life I’d been waiting for a man to love, who could love me. For decades, I’d thought that man would be my father. When I was 25, I met that man and he was my brother.

By then, I lived in New York, where I was trying to write my first novel. I had a job at a small magazine in an office the size of a closet, with three other aspiring writers. When one day a lawyer called me — me, the middle-class girl from California who hassled the boss to buy us health insurance — and said his client was rich and famous and was my long-lost brother, the young editors went wild. This was 1985 and we worked at a cutting-edge literary magazine, but I’d fallen into the plot of a Dickens novel and really, we all loved those best. The lawyer refused to tell me my brother’s name and my colleagues started a betting pool. The leading candidate: John Travolta. I secretly hoped for a literary descendant of Henry James — someone more talented than I, someone brilliant without even trying.

When I met Steve, he was a guy my age in jeans, Arab- or Jewish-looking and handsomer than Omar Sharif.

We took a long walk — something, it happened, that we both liked to do. I don’t remember much of what we said that first day, only that he felt like someone I’d pick to be a friend. He explained that he worked in computers.

I didn’t know much about computers. I still worked on a manual Olivetti typewriter.

I told Steve I’d recently considered my first purchase of a computer: something called the Cromemco.

Steve told me it was a good thing I’d waited. He said he was making something that was going to be insanely beautiful.

I want to tell you a few things I learned from Steve, during three distinct periods, over the 27 years I knew him. They’re not periods of years, but of states of being. His full life. His illness. His dying.

Steve worked at what he loved. He worked really hard. Every day.

That’s incredibly simple, but true.

He was the opposite of absent-minded.

He was never embarrassed about working hard, even if the results were failures. If someone as smart as Steve wasn’t ashamed to admit trying, maybe I didn’t have to be.

When he got kicked out of Apple, things were painful. He told me about a dinner at which 500 Silicon Valley leaders met the then-sitting president. Steve hadn’t been invited.

He was hurt but he still went to work at Next. Every single day.

Novelty was not Steve’s highest value. Beauty was.

For an innovator, Steve was remarkably loyal. If he loved a shirt, he’d order 10 or 100 of them. In the Palo Alto house, there are probably enough black cotton turtlenecks for everyone in this church.

He didn’t favor trends or gimmicks. He liked people his own age.

His philosophy of aesthetics reminds me of a quote that went something like this: “Fashion is what seems beautiful now but looks ugly later; art can be ugly at first but it becomes beautiful later.”

Steve always aspired to make beautiful later.

He was willing to be misunderstood.

Uninvited to the ball, he drove the third or fourth iteration of his same black sports car to Next, where he and his team were quietly inventing the platform on which Tim Berners-Lee would write the program for the World Wide Web.

Steve was like a girl in the amount of time he spent talking about love. Love was his supreme virtue, his god of gods. He tracked and worried about the romantic lives of the people working with him.

Whenever he saw a man he thought a woman might find dashing, he called out, “Hey are you single? Do you wanna come to dinner with my sister?”

I remember when he phoned the day he met Laurene. “There’s this beautiful woman and she’s really smart and she has this dog and I’m going to marry her.”

When Reed was born, he began gushing and never stopped. He was a physical dad, with each of his children. He fretted over Lisa’s boyfriends and Erin’s travel and skirt lengths and Eve’s safety around the horses she adored.

None of us who attended Reed’s graduation party will ever forget the scene of Reed and Steve slow dancing.

His abiding love for Laurene sustained him. He believed that love happened all the time, everywhere. In that most important way, Steve was never ironic, never cynical, never pessimistic. I try to learn from that, still.

Steve had been successful at a young age, and he felt that had isolated him. Most of the choices he made from the time I knew him were designed to dissolve the walls around him. A middle-class boy from Los Altos, he fell in love with a middle-class girl from New Jersey. It was important to both of them to raise Lisa, Reed, Erin and Eve as grounded, normal children. Their house didn’t intimidate with art or polish; in fact, for many of the first years I knew Steve and Lo together, dinner was served on the grass, and sometimes consisted of just one vegetable. Lots of that one vegetable. But one. Broccoli. In season. Simply prepared. With just the right, recently snipped, herb.

Even as a young millionaire, Steve always picked me up at the airport. He’d be standing there in his jeans.

When a family member called him at work, his secretary Linetta answered, “Your dad’s in a meeting. Would you like me to interrupt him?”

When Reed insisted on dressing up as a witch every Halloween, Steve, Laurene, Erin and Eve all went wiccan.

They once embarked on a kitchen remodel; it took years. They cooked on a hotplate in the garage. The Pixar building, under construction during the same period, finished in half the time. And that was it for the Palo Alto house. The bathrooms stayed old. But — and this was a crucial distinction — it had been a great house to start with; Steve saw to that.

This is not to say that he didn’t enjoy his success: he enjoyed his success a lot, just minus a few zeros. He told me how much he loved going to the Palo Alto bike store and gleefully realizing he could afford to buy the best bike there.

And he did.

Steve was humble. Steve liked to keep learning.

Once, he told me if he’d grown up differently, he might have become a mathematician. He spoke reverently about colleges and loved walking around the Stanford campus. In the last year of his life, he studied a book of paintings by Mark Rothko, an artist he hadn’t known about before, thinking of what could inspire people on the walls of a future Apple campus.

Steve cultivated whimsy. What other C.E.O. knows the history of English and Chinese tea roses and has a favorite David Austin rose?

He had surprises tucked in all his pockets. I’ll venture that Laurene will discover treats — songs he loved, a poem he cut out and put in a drawer — even after 20 years of an exceptionally close marriage. I spoke to him every other day or so, but when I opened The New York Times and saw a feature on the company’s patents, I was still surprised and delighted to see a sketch for a perfect staircase.

With his four children, with his wife, with all of us, Steve had a lot of fun.

He treasured happiness.

Then, Steve became ill and we watched his life compress into a smaller circle. Once, he’d loved walking through Paris. He’d discovered a small handmade soba shop in Kyoto. He downhill skied gracefully. He cross-country skied clumsily. No more.

Eventually, even ordinary pleasures, like a good peach, no longer appealed to him.

Yet, what amazed me, and what I learned from his illness, was how much was still left after so much had been taken away.

I remember my brother learning to walk again, with a chair. After his liver transplant, once a day he would get up on legs that seemed too thin to bear him, arms pitched to the chair back. He’d push that chair down the Memphis hospital corridor towards the nursing station and then he’d sit down on the chair, rest, turn around and walk back again. He counted his steps and, each day, pressed a little farther.

Laurene got down on her knees and looked into his eyes.

“You can do this, Steve,” she said. His eyes widened. His lips pressed into each other.

He tried. He always, always tried, and always with love at the core of that effort. He was an intensely emotional man.

I realized during that terrifying time that Steve was not enduring the pain for himself. He set destinations: his son Reed’s graduation from high school, his daughter Erin’s trip to Kyoto, the launching of a boat he was building on which he planned to take his family around the world and where he hoped he and Laurene would someday retire.

Even ill, his taste, his discrimination and his judgment held. He went through 67 nurses before finding kindred spirits and then he completely trusted the three who stayed with him to the end. Tracy. Arturo. Elham.

One time when Steve had contracted a tenacious pneumonia his doctor forbid everything — even ice. We were in a standard I.C.U. unit. Steve, who generally disliked cutting in line or dropping his own name, confessed that this once, he’d like to be treated a little specially.

I told him: Steve, this is special treatment.

He leaned over to me, and said: “I want it to be a little more special.”

Intubated, when he couldn’t talk, he asked for a notepad. He sketched devices to hold an iPad in a hospital bed. He designed new fluid monitors and x-ray equipment. He redrew that not-quite-special-enough hospital unit. And every time his wife walked into the room, I watched his smile remake itself on his face.

For the really big, big things, you have to trust me, he wrote on his sketchpad. He looked up. You have to.

By that, he meant that we should disobey the doctors and give him a piece of ice.

None of us knows for certain how long we’ll be here. On Steve’s better days, even in the last year, he embarked upon projects and elicited promises from his friends at Apple to finish them. Some boat builders in the Netherlands have a gorgeous stainless steel hull ready to be covered with the finishing wood. His three daughters remain unmarried, his two youngest still girls, and he’d wanted to walk them down the aisle as he’d walked me the day of my wedding.

We all — in the end — die in medias res. In the middle of a story. Of many stories.

I suppose it’s not quite accurate to call the death of someone who lived with cancer for years unexpected, but Steve’s death was unexpected for us.

What I learned from my brother’s death was that character is essential: What he was, was how he died.

Tuesday morning, he called me to ask me to hurry up to Palo Alto. His tone was affectionate, dear, loving, but like someone whose luggage was already strapped onto the vehicle, who was already on the beginning of his journey, even as he was sorry, truly deeply sorry, to be leaving us.

He started his farewell and I stopped him. I said, “Wait. I’m coming. I’m in a taxi to the airport. I’ll be there.”

“I’m telling you now because I’m afraid you won’t make it on time, honey.”

When I arrived, he and his Laurene were joking together like partners who’d lived and worked together every day of their lives. He looked into his children’s eyes as if he couldn’t unlock his gaze.

Until about 2 in the afternoon, his wife could rouse him, to talk to his friends from Apple.

Then, after awhile, it was clear that he would no longer wake to us.

His breathing changed. It became severe, deliberate, purposeful. I could feel him counting his steps again, pushing farther than before.

This is what I learned: he was working at this, too. Death didn’t happen to Steve, he achieved it.

He told me, when he was saying goodbye and telling me he was sorry, so sorry we wouldn’t be able to be old together as we’d always planned, that he was going to a better place.

Dr. Fischer gave him a 50/50 chance of making it through the night.

He made it through the night, Laurene next to him on the bed sometimes jerked up when there was a longer pause between his breaths. She and I looked at each other, then he would heave a deep breath and begin again.

This had to be done. Even now, he had a stern, still handsome profile, the profile of an absolutist, a romantic. His breath indicated an arduous journey, some steep path, altitude.

He seemed to be climbing.

But with that will, that work ethic, that strength, there was also sweet Steve’s capacity for wonderment, the artist’s belief in the ideal, the still more beautiful later.

Steve’s final words, hours earlier, were monosyllables, repeated three times.

Before embarking, he’d looked at his sister Patty, then for a long time at his children, then at his life’s partner, Laurene, and then over their shoulders past them.

Steve’s final words were:


Mona Simpson is a novelist and a professor of English at the University of California, Los Angeles. Since 1988, she has held the Sadie Samuelson Levy Chair in Languages and Literature at Bard College. She delivered this eulogy for her brother, Steve Jobs, on Oct. 16, 2011, at his memorial service at the Memorial Church of Stanford University.