Adam Lashinsky: Secrets at Apple's Core [Entire Talk]

TL;DR

Apple runs on principles that contradict standard business school teaching: no general managers, no empowerment of subordinates, total secrecy, and micromanagement from the top. Steve Jobs returned in 1997 to a company 90 days from insolvency, cut 4,000 middle managers, killed most products, and consolidated 16 advertising budgets into one that he personally controlled.

Transcript

Almost exactly a year-ago this week I published an article in Fortune magazine with the same title as you see in front of you, Inside Apple. We decided at Fortune that in Apple we had a company that the entire world thought they knew a lot about because the world knew about Apple's products. And they knew about Apple's advertising and its image and... Read More

Key Insights

• Apple deliberately keeps the public focused on its products rather than on itself, which is why the world knows Apple's brand, advertising, and logo but very little about the company's internal processes. Lashinsky argues a business journalist's job is to report what readers ought to know, not what Apple wants known.
• Apple does business differently from almost every other company and differently from how business is taught in business schools. Lashinsky's challenge to business schools is that if the most successful, most admired, most valuable company in the world breaks the rules, schools should ask whether they are teaching the right thing.
• Studying Apple carries a strong 'don't necessarily try this at home' warning. Entrepreneurs should learn from Apple rather than copy it, and the related Silicon Valley debate over whether founders must behave like Steve Jobs has, in Lashinsky's view, a clear answer: you do not.
• Apple in 1997 was roughly 90 days from insolvency, meaning it was in serious danger of running out of cash. That year the company fired Gil Amelio, Jobs became interim CEO, and Microsoft made a $150 million investment that Apple found humiliating.
• The Microsoft deal was mutually useful: Apple got cash plus a commitment that Office would keep being made for the Mac, without which the Mac would be far less valuable to Office users, while Microsoft kept antitrust regulators at bay and avoided Apple going out of business.
• Simplification is arguably the essential tenet of Apple. Jobs killed the digital camera, the extra computers and printers, and the Newton handheld organizer, leaving essentially four computers: two laptops and two desktops, alongside firing roughly 4,000 middle managers.
• Tim Cook was hired in 1998 as an unknown supply chain executive and fixed Apple's dysfunctional factories and warehouses by closing them and copying Dell's model of contract manufacturers based primarily in Asia and China. Today's questions about labor conditions at Foxconn factories trace directly back to that 1998 decision.
• Michael Maccoby's 'productive narcissist' framework describes how Jobs ran Apple: visionary, demanding followers, indifferent to being loved, willing to take great risks for the company. Maccoby also names the productive obsessive, the detail-focused sidekick who keeps the trains running, a description that fits Tim Cook.

Questions & Answers

Q: What condition was Apple in when Steve Jobs returned in 1997?

Apple was essentially a broken company, roughly 90 days from insolvency and in serious danger of running out of cash. It was losing money. That same year Apple fired CEO Gil Amelio, Steve Jobs eventually became interim CEO, and Microsoft made what Apple experienced as a humiliating $150 million investment. Lashinsky notes it is emotionally difficult for people looking back from 2012 to relate to how close Apple came to failing, given how dominant the company later became.

Q: Why did Microsoft invest $150 million in Apple in 1997?

For Apple, the deal delivered cash plus a promise from Microsoft to continue making Office for the Mac, which was critical because without Office the Mac would be far less valuable to people who needed that software. For Microsoft, the investment helped keep antitrust regulators at bay. Lashinsky also points out that had Apple gone out of business, which was a very real possibility in 1997, that outcome would not have been good at all for Microsoft.

Q: How did Steve Jobs simplify Apple's product line after returning?

Apple at the time made a digital camera that was ahead of its time, multiple computers, printers, and the ill-fated Newton handheld organizer. Jobs eliminated all of those products and pared the company down to essentially four computers: two laptops and two desktops. He also fired about 4,000 middle managers. Lashinsky treats this act of getting rid of products and simplifying as perhaps the core essential tenet of what Apple is all about, not merely a one-time cleanup.

Q: What did Tim Cook do when he joined Apple in 1998?

Tim Cook was hired as an unknown supply chain executive to fix Apple's extremely dysfunctional system of factories and warehouses. He closed them and emulated the model of Dell, which at the time was hands down the best in the world at managing manufacturing. Dell relied on contract manufacturers based primarily in Asia and China, and Cook copied that model. Lashinsky notes that current questions about labor conditions at Foxconn factories in China are a direct result of that 1998 decision.

Q: Why did Steve Jobs get rid of general managers at Apple?

Jobs found that Apple had become a fractionalized, divisionalized company of fiefdoms. He decided there would be no more fiefdoms, only one fief with himself as the feudal lord, wanting one Apple with one company, one brand, and one way of communicating. He rejected the general manager role that remains popular across the corporate world because he did not want people running a business. He wanted people functionally oriented, building products and doing what they do well, while he orchestrated everything.

Q: What happened to Apple's advertising budget under Steve Jobs?

Apple had 16 separate advertising budgets when Jobs returned. He consolidated them into a single budget under his own control, telling executives that if they thought their product deserved advertising support they had to come to him and ask, and he would decide whether to commit the dollars. Importantly, this was not a cost cutting move. Over the following years Apple's advertising spend rose dramatically, and rose even more dramatically as a percentage of revenue, as a long-term investment in the brand.

Q: What is a productive narcissist and how does it apply to Steve Jobs?

The term comes from psychotherapist and business coach Michael Maccoby. A narcissist is someone in love with themself, visionary, demanding that people follow him or her, not necessarily concerned with being loved, and willing to take great risks on behalf of the corporation. Maccoby's insight is that narcissism can be channeled productively in the corporate world, and he coaches executives to capture the best of it. Maccoby eventually identifies Jobs among his examples, and Lashinsky says this is how Jobs ran Apple.

Q: How did Steve Jobs micromanage Apple?

Standard business teaching says leaders should empower the people beneath them, give them room, let them do their jobs, and support their decisions. Apple did the opposite: Jobs micromanaged his people, they micromanaged their people, and he micromanaged their people too. Lashinsky's favorite example is the executive responsible for the customer email announcing a new product during a keynote, who went back and forth with Jobs 15, 16, 17 times over wording, ultimately arguing over whether a comma or a semicolon belonged in a sentence.

Summary

This video explores the inner workings of Apple and how it does business differently from other companies. It discusses various aspects such as the company's focus on products, its culture of secrecy, its attention to detail, and its simplified supply chain. The video also touches on the leadership style of Steve Jobs and the importance of design in Apple's success.

Questions & Answers

Q: What is the reason for the world's limited knowledge about how Apple conducts its business?

The reason for the world's limited knowledge about Apple's internal operations is that Apple doesn't want people to know. The company is primarily focused on promoting its products and brand image rather than revealing its internal workings.

Q: How does Apple differ from other businesses and business schools in terms of its approach to business?

Apple does business differently from other businesses and business schools. The company's unique approach challenges the traditional methods taught in business schools. Apple's success and value as the most admired company in the world raise the question of whether business schools should pay more attention to Apple's methods.

Q: Is it necessary to copy Apple's approach or behave like Steve Jobs to be a successful entrepreneur?

While some argue that to be a successful entrepreneur you need to be like Steve Jobs, it's not necessary or advisable to copy Apple's approach or imitate Jobs' behavior. However, understanding Apple's methods can be helpful in managing a career or a company, and picking and choosing applicable aspects can contribute to success.

Q: What was the state of Apple when Steve Jobs returned to the company in 1997?

When Steve Jobs returned to Apple in 1997, the company was in a dire state. It was financially distressed and on the verge of bankruptcy. Jobs had to make significant changes, including firing middle managers, simplifying product lines, and fixing the dysfunctional manufacturing system.

Q: How did Tim Cook contribute to the transformation of Apple's supply chain?

Tim Cook, who was hired by Steve Jobs as a supply chain executive, played a crucial role in transforming Apple's supply chain. He closed Apple's factories and warehouses and emulated Dell's successful model of using contract manufacturers in China. This decision led to improved efficiency and cost-effectiveness in Apple's supply chain.

Q: Why is secrecy important to Apple?

Secrecy is incredibly important to Apple. While all companies keep secrets, Apple takes it to the extreme. The company has a culture of fear and emphasizes the importance of keeping secrets from both external sources and Apple employees. They believe that maintaining secrecy is crucial to prevent competitors from knowing their plans and to surprise and delight customers with new products.

Q: How does Apple's obsession with details contribute to its success?

Apple is known for its obsession with details and its attention to even the smallest components of its products. This obsession stems from their belief that sweating the details leads to excellence and a superior user experience. Apple's focus on design and user satisfaction drives them to pay close attention to every aspect of their products, resulting in products that are visually appealing and highly functional.

Q: Does Apple conduct customer research before designing its products?

Unlike many other consumer companies, Apple does not conduct outward-facing customer research. Steve Jobs famously believed that customers don't know what they want until they see it. Instead of asking customers what they want, Apple focuses on understanding how customers use their products once they have them. This approach allows Apple to surprise customers and manage their inventory effectively.

Q: How does Apple ensure accountability and responsibility within the company?

Apple has created a culture of accountability and responsibility through the concept of the directly responsible individual (DRI). Each action item in meetings is assigned to a single person, who is directly responsible for ensuring its completion. This culture fosters a sense of ownership and ensures that tasks are not lost or forgotten.

Q: How does Apple simplify its supply chain?

Apple simplifies its supply chain by getting rid of unnecessary components and processes. They focus on working with contract manufacturers in China and outsourcing manufacturing and warehousing, which allows them to streamline operations and reduce complexity. Apple's focus on simplicity and efficiency benefits their supply chain management.

Takeaways

Apple's success can be attributed to its unique approach to business, which differs from traditional business practices. The company prioritizes product development and promotion while maintaining a culture of secrecy and attention to detail. Apple's simplified supply chain and accountability measures contribute to its success. Understanding Apple's methods can provide valuable insights for entrepreneurs and businesses seeking to learn from its achievements.

Summary & Key Takeaways

• Apple in 1997 was essentially a broken company, roughly 90 days from insolvency and losing money. That year Apple fired Gil Amelio, Steve Jobs became interim CEO, and Microsoft made a $150 million investment that also included a promise to keep making Office for the Mac, which mattered to Apple and helped Microsoft with antitrust regulators.

• Jobs had been gone 11 years and returned to a bloated company with far too many products, including a digital camera, multiple computers and printers, and the Newton handheld organizer. He fired about 4,000 middle managers and pared the lineup down to essentially four computers: two laptops and two desktops. In 1998 he hired an unknown supply chain executive, Tim Cook.

• Jobs eliminated Apple's fiefdoms and rejected the general manager model, wanting people building products rather than running businesses. He replaced 16 advertising budgets with one he personally controlled. This was not cost cutting: advertising spend rose over the following years, even more dramatically as a percentage of revenue, as a long-term investment in the brand.