Inside Apple: How America's Most Admired--and Secretive--Company Really Works (7 page)

The iPhone is a classic case in point. Prior to the device’s introduction, Apple executives typically hated their smartphones. “That’s why we decided to do our own,” Jobs said in an explanation that works at two levels: It’s undoubtedly true, but it also sends a compelling message to customers.
We like the dog food so much we eat it ourselves. You won’t be disappointed.

It’s astounding how little has changed philosophically at Apple from its earliest days to the present. Speaking of Jobs, Moritz writes: “He was unwilling to let product planning become burdened with analysis, focus groups, decision trees, the shifts of the bell curve, or any of the painful drudgery he associated with large companies. He found Apple’s prototype customer in the mirror and the company came to develop computers that Jobs, at one time or another, decided he would like to own.”

D
esign is the most tangible way to see Apple’s focus on detail. Apple products are born in another highly secured lab accessible to only a tiny number of Apple employees. It is called the Industrial Design studio, or ID for short. Its master is the designer Jonathan Ive, the closest any Apple executive other than Steve Jobs has ever come to celebrity status. Jobs loved spending time in the design studio,
where he would sample the cookie dough Ive and his team were mixing.

The key to Apple’s design philosophy is that design is where Apple products start. Competitors marvel at the point of prominence Apple’s industrial designers have. “Most companies make all their plans, all their marketing, all their positioning, and then they kind of hand it down to a designer,” said Yves Behar, CEO of the design consultancy Fuseproject. The process is reversed at Apple, where everyone else in the organization needs to conform to the designer’s vision. “If the designers say the material has to have integrity, the whole organization says okay,” said Behar. In other words, a designer typically would be told what to do and say by the folks in manufacturing. At Apple it works the other way around.

John Sculley, Apple’s CEO in the 1980s, has continued to pay close attention to Apple, despite having had no relationship with the company in years. “Everything at Apple can be best understood through the lens of designing,” he told Leander Kahney, editor of the Apple-focused blog
Cult of Mac
, in 2010. He related a recent story about a friend who held meetings at Apple and Microsoft on the same day. “He went into the meeting at Apple [and] as soon as the designers walked in the room, everyone stopped talking because the designers are the most respected people in the organization. It is only at Apple where design reports directly to the CEO. Later in the day he was at Microsoft. When he went into the Microsoft meeting, everybody was talking and then the meeting starts and no designers ever walk into the room. All the technical people are sitting there trying to add their
ideas of what ought to be in the design. That’s a recipe for disaster.”

Once the design is under way, the rest of the company kicks into gear. The two organizations that will be responsible for the product are the supply-chain team and the engineering corps. Thus begins the Apple New Product Process, or ANPP. The ANPP is the step-by-step playbook spelling out everything that needs to get done to make the product. The ANPP wasn’t always unique to Apple. Xerox, HP, and others used a similar playbook in the late 1970s and early 1980s At early . A former Apple engineer described Apple’s process, which began as a manufacturing aid for the Macintosh, as part art, part science. The goal of the ANPP “is to automate the science part so you can focus on the art,” said this engineer. The process elaborately maps out the stages a product’s creation will follow, who touches it, how responsibilities will be assigned across functions, and when assignments will be completed.

When a product is ready to leave the lab, two key people will take control: an engineering program manager, or EPM, and a global supply manager, or GSM. The former dictates what the product should be, and coordinates the work of teams of engineers. So powerful and feared are the program managers that some refer to them as the “EPM mafia.” The global supply manager, working on the operations group that Tim Cook built, figures out how to get the materials to make it. They do everything from sourcing to procurement to overseeing production. The two sides collaborate, sometimes with tension. “The way you end any discussion at Apple is: ‘It’s the right thing for the product.’ If you bring the data that proves that, you win,” said an engineer from the mid-2000s.

EPMs and GSMs at Apple are based in Cupertino, but they spend much of their time in China, where Apple contracts with Chinese manufacturers to build its computers and mobile devices. Other companies will attempt to perfect design and then outsource the manufacturing. This is the most cost-effective way. Apple takes an approach that often is the least cost-effective. It, too, designs products to be built and then tested at outsourced manufacturing sites. But once Apple is done designing, building, and testing a product it starts designing, building, and testing all over again. This “overt rhythm,” in the words of a former Apple engineer, culminates every four to six weeks with a gathering of key employees at a factory in China. An engineering program manager, whose job it is to pull together the various hardware and software engineers who contribute to a product, will typically bring the latest beta version back to Cupertino for senior executives to see—and then get right back on a plane for China to repeat the process.

Integration is the key. Steve Jobs summarized Apple’s approach in an interview published in
Fortune
in 2008. “You can’t do what you can do at Apple anywhere else,” he said. “The engineering is long gone in most PC companies. In the consumer-electronics companies, they don’t understand the software parts of it. And so you really can’t make the products that you can make at Apple anywhere else right now. Apple’s the only company that has everything under one roof. There’s no other company that could make a MacBook Air and the reason is that not only do we control the hardware, but we control the operating system. And it is the intimate interaction between the operating system and the hardware that allows us to do
that.” Jobs was speaking at a conceptual level. A former Apple engineer broke it down to the nitty-gritty: “Apple is all about integration. The way to get true integration is to control everything from the operating system down to what kind of saw you are going to use on the glass.”

Think about that for a moment, because it’s not an exaggeration. Apple doesn’t own the saw, and it doesn’t own the company that owns the saw. It also doesn’t staff the factory where the saw will be used. But it absolutely has an opinion as to which saw its supplier will use. It’s a new form of vertical integration. Where once a manufacturer would own every step of the process, Apple now controls each step without owning any of it.

Integration is also internal at Apple. “Apple is not dependent on other companies to turn its vision into products,” said Rob Schoeben, a former top product marketing executive. “Microsoft was always frustrated that the PC industry didn’t do a better job of making PCs. Vertical integration is such a huge advantage for Apple. It’s shocking that no one has replicated it.” It’s possible Apple’s approach hasn’t been replicated because so few companies are organized the way Apple is.

A
s interesting as it is to understand why Apple chooses to make what it makes, it is equally insightful to study what it decides
not
to make. Saying no is a core tenet of Apple product development and, for that matter, Apple’s approach to doing business. In fact, the ability to say no—to reject features, products, categories, market segments, deals, and even certain partners—is how Steve Jobs explained Apple’s core strengths. “Focusing is powerful,”
he said. “A start-up’s focus is very clear. Focus is not saying yes. It is saying no to really great ideas.”

Jobs preached this message inside Apple. It’s worth noting that he is not the first to have this insight. The observation more typically comes from those in the aesthetic rather than the entrepreneurial realm. Ludwig Mies van der Rohe, the Bauhaus alumnus who went on to design American skyscrapers including New York’s Seagram Building, famously said of modern architecture’s disdain for ornament, “Less is more.” Diana Vreeland, the doyenne of
Vogue
magazine from 1963 to 1971, was fond of saying, “Elegance is refusal.” Steve Jobs, however, worked in an industry that says yes to everything. Microsoft Word is loaded with features no normal user will ever see. Macintosh computers work straight out of the box and are the picture of simplicity.

Predictably, Jobs limited his sermons on the art of saying no to internal Apple audiences. On one occasion, though, he accepted an invitation to opine outside the company. Jerry Yang gathered about two hundred of his top-ranking executives at the Sofitel San Francisco Bay hotel in 2007, shortly after he took back the CEO reins at Yahoo! He wanted to discuss his plans for the troubled company. To boost the sagging spirits of his demoralized executives, he brought in a guest speaker, Steve Jobs. Separated by about a decade in age, Yang and Jobs had much in common. Each had been the celebrated co-founder of a game-changing and wildly successful Silicon Valley company. Each had given up leadership of the company in favor of more seasoned executives. Each had seen his company drift and decline. Now Yang was returning as Yahoo!’s CEO, just as Jobs had done at Apple exactly ten years earlier.

After being introduced by Yang, Jobs recounted the dire straits Apple was in when he returned. He reminded the audience that Apple had about ninety days of cash left. He noted that the Microsoft investment had given Apple some cash cushion, and that Jobs had cut and cut Apple until the iMac was ready to be released. “Strategy is figuring out what not to do,” he told the group. Back then, he went on, he specifically rejected pleas from his executives to create a personal digital assistant like the PalmPilot, preferring to focus on rejuvenating the Macintosh line. His advice to Yahoo!: “Just pick one thing you can do that’s great. We knew it was the Mac.”

Jobs then treated Yang and his executives to some Apple-style honesty. “Yahoo! seems interesting,” he said. “Yahoo! can be anything you want. Seriously. You haven Fly. You talented people and more money than you could possibly need,” he continued. “I can’t figure out, though, if you’re a content company or a technology company. Just pick one. I know which I’d pick.” Said a former Yahoo! executive who was in the room: “It was humiliating. We knew he was right. But we also knew we were incapable of choosing.” (Yang didn’t last nearly as long as a second-time CEO as Jobs did. He gave up the job again in 2009, and Yahoo! has continued its steady decline—in part because of its inability to choose.)

For its part, Apple has chosen to say no repeatedly. It didn’t make a phone for years, often protesting—arguably disingenuously—that it didn’t want to be in the phone business. Apple actually started developing the iPad before the iPhone, but it switched gears out of a sense that the timing wasn’t right for a tablet. (The iPhone debuted in 2007; the iPad came three years later.) After having
struggled to maintain a significant business selling to corporate customers over the years, Apple deemphasized the “enterprise” altogether. Today, Apple has sales teams that service businesses. But even sizeable companies will buy from Apple resellers, who can offer business-oriented customer service.

Sidelining business-to-business sales is a significant omission in a big tech company’s strategy. Jobs explained it away by saying that Apple preferred to sell to users, not IT managers. What’s more, with the popularity of its mobile devices, Apple has been succeeding in big corporate environments by marketing to employees rather than information systems professionals. As a result, Apple says 92 percent of the
Fortune
500 is testing or deploying iPads anyway, just as if Apple had crafted a major initiative to sell to them. In effect, employees have dragged their employers into buying the technology the workers want, a phenomenon called the “consumerization” of IT—a trend Apple has led.

Tim Cook used to say that Apple could put its entire product line on a conference room table. That’s a result of the winnowing process that occurred in the post-1997 era. Where once there were multiple computers for sale by Apple, the new team sold only four: two desktops and two notebooks. To this day, Apple offers essentially four versions of its iMac: two sizes of screens, two sizes of processors. (To appreciate the tightness of this assortment, compare the current roster of iMacs with the multiple, horribly named all-in-one PCs Hewlett-Packard offers on its website.)

Simplicity is in the DNA of the company, but also in its lean organizational structure. “Apple is not set up to do
twenty amazing things a year,” said a former executive. “At most it’s three projects that can get a ton of attention at the executive level. It is about editing down. The executive team is always looking at picking technologies at just the right time. The minute you’re doing a hundred things, you can’t possibly do things the Apple way. Most companies don’t want to focus on one thing because they could fail. Winnowing ideas from twenty-five to four is horrifyingly scary.”

Saying no is a shock to the system for newcomers to Apple. An executive whose company was acquired by Apple described the process of getting used to turning down deals that didn’t meet strict financial terms, shunning attention from the news media, and adhering to rigid pricing schedules. “[The power of restraint] probably gets instilled into you as much as anything else, the minimalist approach of not overreaching on deals, not overreaching with PR, not overreaching in your conversations, not overreaching on anythile,ng on ang,” the executive said.