Knowledge Area Module (KAM) I



Master Major Comprehensive Project (MMCP): The History of Apple Inc.Cesar A. MarreroCAPS600 Graduate Project20 May 2014Dr. Randall OttoSouthwestern College Professional StudiesAbstractThis paper will research Apple's rich history of leadership and management, strategic, financial, legal, corporate, and information security challenges, concentrating on four major and logical periods in Apple’s evolution: the startup years (199=77-1985), the classic company era (1985-1996), the renaissance era (1997-2011), and post Steve Jobs (2011 to present). In each of the four periods, the leadership and management styles of Apple’s corporate executives will be identified and described, an assessment of their leadership and management strengths & weaknesses will be provided, and their effectiveness towards their stakeholders will be evaluated. The paper will also identify, project, and explore the leadership and management challenges for Apple, today and for the future. Finally, it will conclude by identifying and explain how this research of Apple’s leadership and management compares with my own experience with leadership and management through my own professional life, and will identify and explain how this research has influenced my thoughts on my leadership and management style and development, along with my plans for continuing professional development upon completion of this degree program.IntroductionApple Inc. is well-known for being one of the most innovative companies to emerge in recent times, helping revolutionize the consumer electronics market in the United States. Originally called "the Apple Computer Company", it was founded on April Fools' Day, 1976 by college drop-outs Steve Jobs and Steven Wozniak, along with a third co-founder, Ronald Wayne (who two weeks later relinquished his 10% stake for only $800). Within the next six months Steve Jobs developed a business plan (with the assistance of Mike Markkula) that predicted sales of $500 million in 10 years (Linzmayer, 2006).The idea of Apple Computer came to Jobs and Wozniak when they teamed together to build an electronic game named "Breakout" in four days, which they sold to Atari for $700. After this quick success they started to attend the "Homebrew Computer Club", a meeting of electronic enthusiasts and hobbyists, where they introduced a working model of a computer (the Apple I) that could display its output on a television set, instead of an expensive computer monitor (Finkle et.al. 2010, pg. 34). Two months later, they sold 200 units of their unique computer, and this device became the vision that they would use when creating the company.Apple Computer: 1977 through 1985The company was incorporated in 1977, driven by the introduction of the Apple II computer, which sold for $1,298 (almost double of the Apple I) and became the first personal computer that targeted the consumer market (Linzmayer, 2006). Once the company was able to sell more than 100,000 units, they decided to go public by the end of 1980. This initial public offering turned out to be the largest since Ford Motor Company went public, thanks to the widespread excitement over the Apple II (Mallin et.al, 2011, pg. 64). However, it was also in 1980 that Apple's leadership would experience its first product flop: the Apple III, which had serious performance issues and was overpriced, between $4,340 and $7,800 (Linzmayer, 2006).IBM introduced the Personal Computer (PC) in 1981, priced at $1,565, and within two years it would overtake Apple in market share. In order to counter IBM, their leadership decided to take advantage of the popularity of the Apple II by monopolizing the educational market. In January 1982, they announced that they would donate a single Apple II computer to each of the 83,000+ public schools in the nation, "contingent on the passage of a federal law which would provide Apple with a tax break", essentially strong-arming lawmakers (Chandler, 1982, pg. 376). Apple's leadership saw the passage of the "Technology Act of 1982" (a.k.a. "the Apple Bill") as a means to increase hardware sales and place a solid foothold onto the educational software market (Kolko, et.al, 2013, pg. 201). The bill (officially known as H.R. 5573) would pass in the House of Representatives by a vote of 323-62, with 47 abstentions, but the Senate passed a variant of the bill that would give corporations a reduced tax break instead. Ultimately, the bill would die in committee and never become law, due to political theatrics (Kolko, et.al, 2013, pg. 204).Once IBM PC's dominated the market in 1983, Steve Jobs convinced John Scully (then CEO of PepsiCo) to replace Mike Markkula and become the new president and CEO. This change in leadership would become one of the most volatile in the company's history, with Jobs and Scully fighting over the company's power structure. Scully would introduce the Apple Lisa, the first commercial computer with a mouse and GUI, but it becomes Apple's second major flop due to its $9,995 price tag, slow speed, and incompatibility with the older product lines.In spite of the hyped introduction of the Macintosh (which was Steve Jobs' prized project) during the 1984 Super Bowl, Apple sustained a 17% net income loss that year due to the Mac's slow processing speeds and incompatible software (Mallin, et.al, 2011, pg. 64). The failure of the Macintosh to wrestle the market away from the IBM PC, along with Steve Jobs' erratic behavior and attempted boardroom coup, forced the Board of Directors to ask him to resign in 1985 (Finkle, et.al, 2010, pg. 35).During this period, Apple's corporate executives exhibited autocratic leadership styles. Starting with its first CEO, Michael Scott personally fired 40 employees (half of the Apple II team) and banned the use of typewriters at Apple. On the day he fired the employees (known as "Black Wednesday" within the company), he gathered the remaining workers and presented his rationale by saying: “I used to say that when being CEO at Apple wasn’t fun anymore, I’d quit. But now I’ve changed my mind -- when it isn’t fun anymore, I’ll fire people until it is fun again” (Brian, 2011). This is an example of callous leadership, where the leader becomes uncaring or unkind, and simply ignores or discounts the needs, wants, and wishes of their followers (Kellerman, 2004, pg. 119). On the other hand, his successor, Mike Markkula, was credited for the success of the company by Steve Wozniak himself, as the person who helped market the first two Apple computers, and was instrumental in providing the company with credit and venture capital (Brian, 2011). Finally, we see the first two years of John Scully as CEO, where the company failed to fight-off the juggernaut that became the IBM PC, and introduced two potentially game-changing technologies (Lisa and Macintosh) with subpar performance issues.In my opinion, this period also provided insight on the lengths corporations like Apple were willing to take in order to dominate in a particular market, such as setting their own terms on how/where their technology could be used. This is one strategy that failed Apple, especially regarding "the Apple Bill", where Mike Markkula and the company executives knew they had a hot product that could have benefited under-privileged schools, but instead opted to place conditions on their so-called "goodwill gesture" for their own benefit. In today's corporate environment, this approach would be considered unethical or simply unsound business practices. I do not think Apple intended to make the issue of computing in the classroom a racial issue (the politicians did that all on their own), but their caveat can be easily perceived as corporate greed veiled under corporate philanthropy.Apple Computer: 1985 through 1996After Steve Jobs' forced resignation, Scully laid off 20% of its work force (about 1,200 employees), posted the first quarterly loss in company history, and began driving down costs by shifting the majority of its manufacturing operations to subcontractors (Mallin, et.al, 2011, pg. 64). During his tenure as CEO, he created the policy of aggressive litigation that the company follows to this day. There are two lawsuits in particular that come to mind during the Scully years: Apple v. Franklin, and Apple v. Microsoft.Apple sued Franklin Computer for trying to sell an Apple II clone. As with any successful tech, Apple had a product that other companies decided to copy, and the Franklin Ace 1000 was the first clone to appear on the market. Franklin was sued because they were caught selling their microcomputers with copies of the Apple II operating system (not the hardware), and the Third Circuit Court of Appeals determined that there was definitely a copyright infringement (Nussbaum, 1984, pg. 292). In 1988 the Apple v. Microsoft trial was one of the most covered legal events of its time (lasting four years). Apple was suing Microsoft and Hewlett-Packard over copyright infringement, claiming that Microsoft stole the idea of using a mouse and a graphical user interface (which we know today as "windows", "icons", "menus", etc.) from their Macintosh line of computers (Costello, 1994, pg. 84). When things got heated between Apple and Microsoft, Xerox stepped-in with their own lawsuit against Apple, claiming that they were the originators of this technology. In 1994 an Appellate Court threw-out Apple's claim, as there was sufficient evidence of prior art from Xerox, which in effect negated Apple's claim against Microsoft (Apple v. Microsoft, 1994). Once Apple's lawsuit was eliminated, Xerox didn't pursue Apple or any other similar software companies. This legal maneuver would guarantee the availability of this paradigm for all computer platforms in service today (thus not a single company would claim it like Apple attempted).Apple's leadership under Scully also saw a meteoric rise in the number and range of products (going from 4 to 38 in 1993), as well as an intense focus on the digital publishing and educational markets. Specifically, they introduced the Mac Plus and LaserWriter Plus products, which were designed for graphic artists, printers, and publishers to create professional documents at very low costs. Unfortunately, Scully's strategy to increase their product line saw an increase in engineering, manufacturing, and marketing costs, not to mention the market confusion with so many varied (and sometimes incompatible) products. The final bad decision Scully made during his tenure was to force the adoption of the PowerPC chipset on all their products instead of the more popular Intel chipset. Due to his track record of bad decisions, John Scully was ranked the 14th worst American CEO if all time by Condé Nast Portfolio (Brian, 2011).After John Scully, Apple had two more CEOs within this timeframe: Michael Spindler (in 1993) and Gil Amelio (in 1996). Under Michael Spindler, Apple dominated the education market (with 60% market share) and the desktop publishing market (with 80%), but the company also saw two massive product failures (the Newton and the Copland Operating System), another round of workforce cuts, and a $69 million loss during the first quarter of 1996 (Mallin, et.al, 2011, pg. 64-65). In 1996 Gil Amelio inherited an Apple that was in chaos. By this time it was an unstructured organization that had a tendency to turn out flawed products, so he decided to revamp their product line, cut unprofitable projects, and abandon the product-based structure that John Scully implemented with a much more simplified structure. Amelio would also become infamous in the company's history thanks to his decision to purchase Steve Jobs' NeXT for $429 million and replacing the Macintosh's operating system with Mac OS 8 (which was based on NeXT software). One year after taking over the CEO position, Amelio saw Apple's stock drop to a 12 year low, causing the company to lose $1.6 billion, leading to his immediate firing by Apple's Board of Directors (Brian, 2011). This period in Apple's history saw serious corporate ineffectiveness, as a rash of diversification endeavors prevented them from focusing on their existing clients and products. For example, under these three CEOs, Apple's product line increased to the highest level in its entire history (43 distinct products in 1994). Scully became the embodiment of an incompetent leader, due to his inexperience in the computer market, his miscalculations and his mismanagement (Kellerman, 2004, pg. 51). Spindler was known as a very impersonal leader who didn't make any efforts to know his subordinates, and Amelio forced broad changes in the corporate structure that placed profit/loss responsibilities on 7 different and separate divisions. Most notably, Amelio was responsible for bringing Steve Jobs back to Apple as a part-time advisor, thanks to his decision to purchase NeXT and ultimately merge that company into Apple.During this period, Apple's saw three different CEOs and different management styles. John Scully showed more of a laissez-faire management style, exemplified by the large number of internal projects the company was juggling concurrently. Michael Spindler had more of a consultative management style, due to his relationship with the rest of the executives: he communicated downward but expected feedback upward. Finally, Gil Amelio had a persuasive management style, due to his insistence on controlling the decision process while trying to convince the other executives why his decisions were better for the company.Apple Computer: 1997 through 2011Steve Jobs was back in Apple, thanks to the purchase of NeXT, and immediately began his ascent to a position of power within the company. After Gil Amelio's one-year stint as CEO, the Board of Directors approached Jobs and asked him to become Apple's 6th CEO, which he held for 14 years until his retirement in August 2011, two months prior to his death from cancer (Finkle, et.al, 2010, pg. 36). Steve Jobs became the longest-running CEO in company history, with John Scully in second place with a 10 year span.Steve Jobs' first actions as CEO was to immediately replace most of the board members with like-minded individuals who he personally hand-picked (Finkle, et.al, 2010, pg. 36), followed by eliminating all of the overhead the company had placed upon itself. For example, between 1985 to 1996, Apple had introduced a total 177 different variants of their flagship products (Apple II, Macintosh, PowerBook, Workgroup Server, Newton, Performa, Power Macintosh). Of note: 86% of these variants occurred after the 1991 alliance with IBM and Motorola as an attempt to compete directly with the Microsoft-Intel alliance (known today as the WinTel platform). Unfortunately, the result was the introduction of too many versions that frustrated their most loyal followers, because many were not fully compatible with their existing product line. Steve Jobs reduced the number of product variants, giving the company the opportunity to focus on a smaller subset of their product line, removing unprofitable products, and introducing new innovative products. Figure 1 illustrates the number of products released before the alliance (yellow), during the alliance (blue), and after Steve Jobs returned (red).Figure 1. Apple Products Released (by Year) - Source: Apple-This particular period for Apple would become the most impactful in its history, as most industry observers would call "Apple's Renaissance Era". During his tenure, Steve Jobs introduced a steady stream of innovative products that would help revitalize the company's financials. He refocused their efforts towards a new consumer-driven philosophy, especially in the area of mobile consumer devices. In addition, he spearheaded a more aggressive marketing strategy that began planting the seeds of what will eventually become their hard-core fanatical followers (Mallin, et.al, 2011, pg. 70-71). Between 1997 and 2000, Apple's new focus was working, as their designers began experimenting with new materials, processors, and reinventing the keyboard/mouse paradigm. First, Steve Jobs introduced the iMac (1998) and the iBook (1999), followed by the first device that would launch the company into the stratosphere: the iPod (2001) would revolutionize the mobile MP3 player market and the entire music industry. In 2002 they reinvented the consumer desktop computer by introducing the flat-panel iMac. The success of the iPod would launch the iTunes music store in 2003, which initially featured over 200,000 MP3 files for 99 cents each (Linzmayer, 2008). Apple didn't rest with the original format of the iPod, and delivered the iPod Mini in 2004, which was the first to feature Apple's new aesthetic design for its line of upcoming new products. When Apple introduced the iPhone in 2007, it became one of its biggest selling devices: by 2010 it sold 129 million iPhones, accounting for 40% of its revenue (Stone, 2011). In 2009 it introduced the iPad, which re-introduced the tablet-style computer that Microsoft had unsuccessfully attempted years prior.In 2010 the company saw its first serious competitor to the iPhone and iPad: Google's Android OS, which was designed to work on any portable device (smartphones, tablets, and embedded devices). The flood of devices based on Android challenged Apple and infuriated Steve Jobs, and since then the company has not been able to successfully counter this emerging threat, losing the sizable smartphone market share it once held to the newcomer OS.Prior to 1997 their financial situation was in a very precarious position, but once they started their new consumer-focused strategy, total revenue would eventually increase from $7.1 billion in 1997 to $65.2 billion, and their company value would explode, from $3 billion in 1997 to $350 billion in 2011 (Stone, 2011). To illustrate this meteoric rise, Figure 2 represents their increasing value over the years.Figure 2. Infographic: Apple's Market Capitalization (Source: Website)Things weren't always bright in Apple under Steve Jobs. Due to his penchant for cutting projects that didn't fall under his famed "view of the company", his staff was constantly living in fear of being alone with him and getting fired. Famously known for being both a rigid and intemperate leader, he was unyielding and was abetted by followers who were unwilling or unable to effectively intervene (Kellerman, 2004, pg. 76, 94).In spite of all of Apple's success under Steve Jobs, he can be considered more of a talented marketer than a manager/leader. While his strong views on visual designs and attention to detail helped popularize their product line, his record as a leader was extremely defective. His management style could be considered directive autocratic, since he made unilateral decisions, closely supervised his subordinates and alienated competent subordinates due to the limits he imposed on their decision-making. There were several problematic areas regarding his leadership approach and management style that definitely should be used as a model for bad leadership. First, he believed that his vision was the only acceptable way, and that customers need to be told what they want, which does not really follow the general advice of "listening to customers". He was obsessed with secrecy and establishing a skunk-works type of work atmosphere, going to extreme lengths that included suing technology industry reporters and even his own employees. Steve Jobs was so charismatic and inspiring, that he often believed in his own skewed vision of reality. Anyone who worked directly with him agreed that he was the poster child for micro-management and resisted collaboration outside of his inner circle of designers and engineers. Finally, he was quite an abusive leader, notorious for demeaning and ridiculing anyone that had differing opinions, being incredibly stubborn, and alienating coworkers and industry peers (Mui, 2011).Apple Computer: 2011 to presentAfter Steve Jobs retired from Apple, the company tagged a familiar player who had many times stepped in to cover for Steve Jobs during his absence recovering from illness (in 2004, 2009, and early 2011): Tim Cook became Apple's 7th CEO in 2011. He is known for being the opposite of Steve Jobs regarding demeanor and behavior, as he is calm, collected, and a quiet man, and has instantly become a lightning rod of criticism from fanatical Apple followers who prefer he continue the path Steve Jobs had already laid out (Gupta & Henderson, 2014). Tim Cook exercises a permissive democratic management style that allows for consensus, two-way communication, and participatory contributions from his subordinates. He is also willing to public admit to Apple's mistakes and attempts to rectify them, and has established a methodical, no-nonsense style of management that is completely different from his predecessor (Gupta & Henderson, 2014). Unfortunately, this style typically causes delays of any product introduction until consensus is reached, allowing the competition to continue unchallenged. This problem is exacerbated due to Apple engineers leaving for rival companies, attributing the exodus to their frustration with Tim Cook's approach (Gupta & Henderson, 2014). Without introducing new products and innovating new technologies, Apple would have to depend on this largest selling product, the iPhone, which is projected to bring-in 68% of the company's profit this year (Richter, 2014). The chart below shows how their product line is expected to perform in 2014.Figure 3. Apple's Projected Gross Profit for 2014 (Source: )The company has steadily been losing ground in the mobile device markets, thanks to the explosive growth of its main competitor, the Android OS, and without a doubt, the company has seen its dominance in the smartphone and tablet markets erode. Recent figures show that during the first quarter of 2014, Android commanded 70% of all smartphone sales, Apple came in second with 22.1%, and Windows Phone came in far behind with 4.4% of the market (Lunden, 2014). In spite of a steady stream of product announcements, they are simply rehashed versions of previous iterations. For example, the latest version of their flagship product, the iPhone 5c, has done little to boost sales volumes. Analysts believe that Apple's decision to limit itself to selling premium devices continues to constrain its share in the market, allowing the Android competition to continue its rapid expansion (Lomas, 2014). Figure 3 (below) displays the impact competition has had on Apple and its dropping revenue growth from 2011 to early 2014 (Richter, 2014).Figure 3. Apple's Growth from 2011 to 2014 (Source: )Apple's attempt to regain dominance in the smartphone and tablet markets has been their most significant challenge. The reason Apple has seen its numbers take such a significant plunge is not solely due to Android's market dominance, but on Apple's inability to innovate as it did under Steve Jobs. Apple has recently announced that it will introduce new products for two upcoming markets: wearable devices and home automation. If they can repeat the same success they had when introducing the iPhone, iPad and iPod, they might actually return to the top of the technology market. Hopefully, Tim Cook will learn from the mistakes they made with the Android competition, attempt to retain their engineering talents, and license their technology to allow other manufacturers to create versions of their products.ConclusionThis paper researched Apple's rich history of leadership and management, strategic, financial, legal, corporate, and information security challenges, concentrating on four major and logical periods in Apple’s evolution: the startup years, the classic company era, the renaissance era, and post Steve Jobs. In each of the four periods, the leadership and management styles of Apple’s corporate executives was identified and described, an assessment of their leadership and management strengths/weaknesses was provided, and their effectiveness towards their stakeholders was evaluated.While researching Apple's corporate history and the influence (both good and bad) of their leadership, I have been able to correlate the different management styles and leadership approaches to the varying levels of success the company has undergone. Not unlike my experience with different leaders throughout my 23-year military career in the US Air Force, I can relate to the cultural shifts that always occur when a new leader takes command of an enterprise, and the effects are always visible through the organization's productivity and the morale of their personnel.Without a doubt, my experience during this final Capstone exercise has allowed me the unique opportunity to implement proper leadership and management styles with my newly-created business venture, by fully appreciating the lessons-learned from such an industry giant. In my new role as the president of a startup software development company of my own, I now understand that expanding one's product line does not guarantee increased sales, establishing a flexible strategy regarding the competition is critical, employee satisfaction, retention and motivation is vital for success, and refactoring or continuously improving one's product is paramount when attempting to stay ahead of the competition.Over my long career as a Software Engineer, I have always taught my subordinates that ours is a career field unlike the medical career field: a Cardiologist will never say "I have learned everything I'll ever need to know about perform heart surgeries", or risk becoming obsolete. Software Engineers must continuously learn new technologies and methodologies, or also risk becoming obsolete. Today, I am moving towards a career that allows me the ability to keep my managerial and technical skills honed while using my innate ability to lead people towards a common goal. This is why I chose to obtain a graduate degree in Management: I want to influence people in this career field to be the best at their trade, to teach them the proper way to manage projects, products and personnel, and to help my organization become highly successful. The knowledge I have learned throughout my graduate-level classes has given me the tools to accomplish just that, and I look forward to putting my knowledge to practice with my business.ReferencesApple Computer, Inc. v. Microsoft Corp, 35 F.3d 1435 (9th Cir. 1994). Retrieved from , M. (2012). Infographic: the most valuable company in the world. Retrieved from , M. (2011): A look at Apple’s CEO’s from 1977 to 2011. Retrieved from , H. N. (1982). Apple, Atari, Dynabyte IBM, PET, TRS-80 -- Which Should It Be? 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Retrieved from , I. (2014). Android remains the outsized giant at 70% of smartphone sales, phablets and iPhone 5c make waves: Kantar. . Retrieved from , M. L., & Finkle, T. A. (2011). Apple Inc.: product portfolio analysis. Journal of the International Academy for Case Studies (17.7), Arden: Jordan Whitney Enterprises, Inc. Retrieved from , C. (2011). Five dangerous lessons to learn from Steve Jobs. Forbes Magazine. Retrieved from , J. L. (1984). Apple Computer, Inc. v. Franklin Computer - corporation puts the byte back into copyright protection for computer programs. Golden Gate University Law Review, 14(2). Retrieved from , F. (2014). Infographic: Apple's growth has all but vanished. . Retrieved from , F. (2014). Infographic: iPhone to account for 68% of apple's gross profit this year. . Retrieved from , B. (2011). Steve Jobs: the return, 1997-2011. Bloomberg Businessweek. Retrieved from ................
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