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B School
 
PROF. JAMES L. HESKETT, HARVARD BUSINESS SCHOOL
What’s Apple’s biggest challenge: replacing Steve or Wall Street?
Steve Jobs’ influence on Apple was pervasive – maybe too much. Prof. James L. Heskett of Harvard Business School questions in an HBS working knowledge paper on whether Apple faces an almost impossible task in replacing the visionary founder.
Issue Date - 19/01/2012
 
Discussions of management succession have been triggered once again in boardrooms around the world by Steve Jobs’ demise. Regarding Apple, of course, the question is what will the Jobs-loss mean for its future? If leaders often become “cult heroes,” to use a term coined by Jeffrey Sonnenfeld, Steve Jobs was the cult hero’s cult hero. The assumption is that cult heroes are unique, one of a kind, impossible to replace, and that succession is the biggest challenge facing any company led by one. But is this the real problem confronting the company with the departure of a Steve Jobs?

Apple watchers cite several important contributors to the company’s success: 1) Its product development relies less on finding out what customers want than it does on what its employees think would be “cool”; 2) Its strategy is based on the introduction of a stream of thoroughly tested and proven products and new models, all based on a common platform, that often cannibalise each other, and that are simple, elegant, and easy to use; 3) It borrows good ideas from organisations such as Xerox and Gap but practices secrecy with its own ideas; 4) Its strengths and interests reflect its cofounder’s interest in hardware, not software. Possibly as a result, it relies heavily on partnering with others in the development of application software; 5) Its product development is organised around sometimes competing teams operating under a regime with the philosophy that “The system is, there is no system … (as opposed to discipline and) great processes,” as Jobs put it.

All of this occurred under the leadership of a person who practiced hands-on management, sometimes personally making detailed decisions. Jobs’ influence on Apple was pervasive. As one visitor observed, designers are the most respected people in the organisation at Apple, as opposed to Microsoft where the technical people rule.

In some respects, Apple’s experience with Jobs has parallels with Starbucks’ history with Howard Schultz, also a hands-on, detail-oriented leader who created the innovative concept of a “third place” outside the home and workplace where customers could enjoy an experience that included great coffee. However, after he stepped away from the CEO’s job (in 2000), Schultz watched apprehensively as new competitors entered the market and his successors succumbed to Wall Street’s expectations for even greater success than Starbucks’ had enjoyed under Schultz. Wall Street demanded increasing growth, internationalisation, better productivity, and new products. And Schultz’s successors responded by opening up to 5 new stores per day; extending business to new foreign markets; introducing a faster, higher capacity espresso machine that, because of its bulk, created a barrier between the barista and the customer; and offering new products. In 2008, Schultz had to step back in to save the company.

 
This raises the question of whether Tim Cook, Jobs’ successor, has anything to learn from the Starbucks experience? Is Apple’s biggest challenge that of replacing Steve Jobs or is it that of resisting the inevitable pressures from competition and Wall Street?

The first impression I get from respondents is that Steve Jobs can’t be replaced as CEO of Apple by just one person. Rather the succession must include at least a head of design to go along with Tim Cook, the new CEO, and “a logistics man,” according to Miles Harris (MD, Fresco Limited). Of course, if this were even feasible, it would pose difficult challenges to the continued success of Apple. Tom Dolembo’s (Founder, New North Institute) advice is “Go to Stanford, Alondra Hall… Go to Harvard (College, not HBS)… find a sophomore with out-of-the-box ideas, graphics training, and a master touch with the iPod world, and ceaseless curiosity… Put them in the same room, watch what happens… Get out of the way.” A second line of thought is, as Khurt Williams (an Information Security Professional) commented, “Apple’s biggest threat is Wall Street fickleness and incessant focus on growth.”

Others felt that it is impossible to sort out whether the biggest challenge facing the company is replacing Jobs or facing down the pressures of investors and Wall Street analysts. The real challenges may lie elsewhere, for example “the market place,” as Jasper Ojongtambia (President & CEO, AEC Computer Division) suggests, or competition from companies like Google and Microsoft, according to Philippe Gouamba (VP of Human Resources, Skyline Windows, LLC). As he says, “Apple’s problem is that its detractors are many and they are gaining in strength.”

In total, significant questions were raised about the future of the company under new day-to-day leadership, regardless of Jobs’ presence as Chairman. Clearly, the challenge is magnified by the company’s extraordinary accomplishments and market valuation, creating expectations that may be impossible to meet in the long-term future. It begs the question: Will Apple be the world’s most valuable company five years from now?
Steven Philip Warner           

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