It's become a cliche: success creates the seeds of its own demise. Once a company goes public and gets big enough to dominate its markets, the only way for it to keep growing rapidly is if its CEO keeps creating and capturing large new growth opportunities. Most big companies can't do this because their founders are long gone. And the managers that win the internal sweepstakes to become CEO spot have no idea how to innovate.
This comes to mind in considering the imminent departure from Apple of Jony Ive -- who spent 23 years running design at Apple -- to start his own firm. As reported by the Wall Street Journal, Apple's last big innovation was the iPad which was launched in 2010 when Steve Jobs was CEO. Now Apple is shrinking -- with revenues down 5 percent in the March 2019 ending quarter.
When Steve Jobs returned to Apple as CEO in 1997, he unleashed an unprecedented series of innovations. Apple saw a big market with mediocre products and delivered much better ones. Rapid revenue and profit growth ensued. Jobs was able to lead this process in the markets for MP3 players (iPod), wireless handsets (iPhone), and tablets (iPad).
The success of these businesses was a result of factors other than the outstanding design and manufacture of the hardware -- but that hardware was the primary source of profit. In addition, Apple excelled at partnering with providers of killer apps -- manifested as iTunes and the App Store; its marketing and retail presence was outstanding, and so was its supply chain (thanks to current CEO Tim Cook).
Jobs was able to envision the right new businesses. Ive came up with ever-better hardware design ideas to realize the product. As the Journal wrote, "Ive could translate futuristic concepts into physical objects with simplicity and sophistication. Jobs was the inspiration and the editor needed to bring these ideas to life."
But when Cook took over from Jobs, that dynamic ended. As the Journal pointed out, frustrated by Cook's operations orientation, Ive "withdrew from routine management of Apple's elite design team, leaving it rudderless, increasingly inefficient, and ultimately weakened by a string of departures."
Sadly for Apple, Ive spearheaded new products with little help from Cook and the results were disappointing. How so? "The one major new product of the post-Jobs era, the Apple Watch--which made its debut five years ago--and in 2014 fell 75 percent short of its sales targets. Its iPhone business is faltering, and more recent releases like its wireless AirPods haven't been enough to shore up falling sales," according to the Journal.
Here are three takeaways for your business from Apple's loss of its innovation mojo.
1. Know your company's true competitive advantage.
Is your company growing faster than its industry? If so, it enjoys a competitive advantage -- which comes in two forms: creating better products for which customers will pay a higher price or offering good products at the lowest price.
Apple's competitive advantage under Jobs came both from a better product sold at a higher price and from much lower costs. But when Cook became CEO, Apple lost its ability to command a price premium because competitors copied the iPhone and other products and offered the copies at the lowest price.
You need to know where your advantage comes from and make sure that you will still enjoy that advantage if new executives take on the key jobs.
2. Appoint a diverse board to seek the truth.
In too many companies, weak CEOs stack their boards with people like them and push out those who challenge the CEO too often. This happened when Cook became CEO.
"Ive grew frustrated as Apple's board became increasingly populated by directors with backgrounds in finance and operations rather than technology...," the Journal reported.
If you're a strong CEO, you should create a board with diverse skills and encourage them to help you envision how to create a successful future for the company.
3. Develop successors to key executives.
Apple's future became way too dependent on one person--Steve Jobs. Not all great companies with legendary founders allow this dangerous situation to persist.
A case in point is Microsoft which depended too heavily on Bill Gates for its success and struggled after appointing Steve Ballmer to succeed Gates.
Fortunately, Microsoft had a much better successor, Satya Nadella (who created its cloud business), to take over. Nadella revitalized Microsoft. With 14% revenue growth in its most recent quarter, Microsoft's market capitalization of $1.04 trillion now exceeds Apple's by $110 billion.
The ultimate takeaway from Apple's failure to innovate is this: Know who embodies your company's competitive advantages and develop successors who will be ready to step in if needed.