Happy Apple Labor Day

It’s Labor Day in the US (and Canada, though not anywhere else where it’s celebrated on May 1st.) This would be a good time to discuss Apple’s primary challenge. 

Writers whose unfortunate job is to cover Apple inevitably put forward lists of “challenges” faced by the company. It really is not possible to write or speak about Apple without manufacturing one’s own list of problems, obstacles, difficulties, rising competition, inevitable transitions, strategic failures, and the lack of innovation.

For instance, as recently as a week ago, in an article announcing the change in CFO, a pundit noted that “[the new CFO] Parekh’s main challenge will be navigating ongoing antitrust lawsuits. ‘These are challenging times for Apple on multiple fronts’, citing increased regulation, EU scrutiny, and growing competition in China.” Challenging times for Apple. Surely not like previous times which were not challenging at all.

I Googled “challenges facing Apple” and top hit was a list from CNN dated January 25, 2024. The tag line “It’s only a few weeks into 2024, and Apple’s year ahead is paved with trouble.” A discussion of its doom in China is followed by an Apple Watch ban challenging Apple “reputation”. Surprisingly, being behind on genAI and the existential crisis AI will bring only showed up third. Then came “revenue concerns” because of reasons and finally, being a regulatory target around the world rounded out the top five.

Clearly, repeating this exercise every few weeks would allow an entirely new list to be created with a completely fresh dose of dread. As the previous list fades in memory a reminder on your iPhone should get the list generation started on time. [AI only makes this easier.]

But what none of these lists seem to include is what I consider to be Apple’s primary worry. I believe this is the one thing that keeps Tim Cook awake at night. This being the preservation of employee morale. 

As evidenced by what I get as questions and what is enumerated endlessly, what most people don’t understand is that Apple is exceptional because of the combination of culture and talent and not the particular circumstances it finds itself in. Listicles of circumstances are easy to generate but a good management system is resilient to circumstances and indeed anticipates them or makes their own. The thing that Steve Jobs built was a mechanism that converts the talent and dedication of great people into product that is genuinely adored by the people who use it. That mechanism is beyond a set of rules. It’s culture. 

“Build” culture sounds far too vague and simplistic, but the reality in almost all other (large) organizations is that almost all talent is wasted. That primary asset, its employees, is perhaps less than 10% applied to the benefit of users. Much of it is wasted in politics, frictions, pointless disagreements, burning out, and what I call “creative inefficiency”. If Apple could just waste only 60% of its employees’ contributions it would be four times better than average and probably be the most effective company in the world.

Culture is what makes the application of talent effective and efficient. It is the magic sauce. And losing that culture would be the greatest existential threat to the company.

So on Labor Day our reflection should be on how to keep what is now a very, very large organization meaningful to each and every employee. The CEO’s efforts should be prioritized on customers first but employees second (and shareholders at best, third). This means inducing employees to be creative and productive and keeping them in that state of “flow” for the duration of their employment. For top management it’s even necessary to keep their loyalty and dedication *after* their employment ends.

The methods vary and are some of the most secretive aspects of Apple. As I said many years ago, many want to copy Apple’s products but few want to copy being Apple. That is mostly because few even know what Apple is and how it works. Having said that, I would like to put forward some observations on “the Apple way” of management.

1. Provide incentives for employees to stay in the same functions as long as they continue to improve their skills. This means focusing on becoming better at their craft rather than “grooming” them for climbing the corporate ladder. 

2. Preserve a functional organization. Obviously this means avoiding market-driven or matrix org structures.

3. Tap individuals to become managers only if they exhibit management skill. This is far harder than it seems. Few highly talented individuals in a particular area of expertise want to give up practicing in order to become a general manager. 

4. Avoid political in-fighting by maintaining separations between functions and deciding budget allocations through a centralized process. This avoids “empire building” (and its corollary of back-stabbing) through budget and headcount accumulation. 

5. Top management should be deeply aware of all aspects of the business. This means keeping the business fairly narrow, with a short list of products and services. Narrow focus needs to be coupled with a wide base of applications. In other words, pick products and services which have broad appeal but keep their number low.

If you read this correctly, you will note how diametrically opposed this is to the modus operandi of corporate entities. It really is asymmetrical to how management is practiced and that leads to an outsized competitive advantage for Apple.

We’ll be exploring this topic further as part of a broader examination of the regulatory impact on Apple at WWIC on Sept 19th. Hope to see you there.

→ WWIC – Apple Worldwide Investor Conference, Sept 9, Livestream worldwide