What Drives Apple’s Innovation Engine?
By: Amit Rawal
Tags: Leadership, Apple, Technology, Innovation, Digital

Source: Apple

What Drives Apple’s Innovation Engine?

How to design an organization for continuous innovation

Over the last decade, I have held roles with complete P&L ownership of a business unit, as a result often believed that greater end-to-end control led to more effectiveness. This of course refers to conventional management wisdom, where business units are run as independent divisions, and GMs have complete accountability and control of the business. I was a staunch believer in the absoluteness of this model, until now.

What changed? I came across this HBR article that presents a case study of an ‘unconventional’ model that Apple has used so effectively to drive innovation. It quotes:

“Apple is not a company where general managers oversee managers; rather, it is a company where experts lead experts”.

This is where expertise is aligned with decision rights. Think of it as vertical ownership of functions rather than horizontal ownership of a product line or business unit. The key assumption here is that it’s easier to train an expert to manage well than to train a manager to be an expert.

Source: Team Analysis

Example:

At Apple, a team of experts creates deep expertise in a given area, where they can learn from one another. For instance, Apple has more than 600 experts on camera hardware technology in a group that is led by Graham Townsend, a camera expert (Source: HBR). Now, since iPhones, iPads, laptops, and desktop computers all have cameras, these experts would have been split across different teams had Apple been organized into business units. This could have diluted their collective learning and ability to make progress towards a singular goal: make the best cameras for all Apple devices. Now this team has pushed the boundaries of the cameras to a level, where cameras have become one of the most beloved features of the devices. This is less likely to have happened in the divisional model.

So why does organization structure matter?

As famous historian Alfred Chandler argued, “structure follows strategy”. Once you have a clear strategy, the structure should enable the execution of that strategy.

Source: Team Analysis

Apple’s structure fuels its strategy flywheel, where the mission of building the best products on earth helps it attract the best experts. The structure then empowers these experts to lead other experts, further fueling their deep understanding and expertise in their respective areas. This translates into the creation of best-in-class products, which delivers great experiences for users and industry-leading profits for Apple. These profits turn into handsome rewards for employees, which further help in attracting and retaining top talent.

The link between Apple’s strategy and structure, and how that drives innovation is evident as Apple’s leaders believe that world-class talent wants to work for and with another world-class talent. As the HBR article says, “It’s like joining a sports team where you get to learn from and play with the best.”

What are the key elements of such an organization structure?

Ownership: functional vs. divisional — fundamentally, you need to ask whether you want to align accountability with control (divisional) vs. align expertise with decision rights (functional). This will then drive your entire strategy of the type of talent you would recruit. Control mechanism: at Apple, one has accountability without control, which means that one’s leadership abilities to influence and collaborate with others are more important than the authority that their title bestows. This also means that one's ability to control the outcomes and influence others to follow her/him is dependant on the reputation that is built by delivering results. Controlling with authority is easy, but accountability without control is real hard work and can be messy. As the article describes — “Good mess” happens when various teams work with a shared purpose. “Bad mess” occurs when teams push their own agendas ahead of common goals. Financial Strategy: Are you in an organization that primarily manages short-term goals, i.e. quarterly financial targets? This means decisions to invest in long term projects are mostly driven by short-term targets managed by GMs who are incentivized to protect these metrics. Conversely, when you have experts making such decisions, they are in a better position to weigh the short-term costs against the long-term value. As per the article — “at Apple, the finance team is not involved in the product road-map meetings of engineering teams, and engineering teams are not involved in pricing decisions.” Decision-making process: This may be the most important enabler for innovation. I have seen far too many times, good ideas not evolving because someone on top didn’t agree. But when most decisions are driven by healthy debate amongst different functions who disagree, push back, promote or reject ideas, and build on one another’s ideas to come up with the best solutions, the results are often better. It requires a different type of leadership — where leaders inspire, prod, or influence colleagues in other areas to contribute toward achieving their goals. Sounds more like democracy, which is often messy, but makes most progress over time. Incentives: If incentives are aligned to win as a team, not as an individual, then team members operate very differently. At Apple, various functions work through their differences with one common goal — build the best products that are commercially successful. Thus, the incentives are aligned to the overall performance of the company, not to the success of individual products.

Closing thoughts:

As large organizations and their business models are being disrupted by technology, it’s time to rethink the “organization structure”. It’s time to challenge the conventional divisional set-up and build a team of experts, led by experts, who have both the expertise and the decision rights, to build best-in-class solutions. It’s not going to be easy, but if Apple is an example to follow, then it could definitely be worth it.

DISCLAIMER: This article represents solely my personal views and interpretations from an HBR article. It does not represent the views of any organization. It is only meant to share my learnings from publically available information and does not represent any confidential information.

Amit Rawal is a Sloan Fellow at Stanford’s Graduate School of Business. He has spent the last decade building and scaling e-commerce ventures for 40%+ of the world’s population. At Stanford, he is focused on bringing together tech, design, and data to create joyful shopping experiences. He is a data geek and loves tracking all kinds of health and wellness metrics. He can be reached at amitr@stanford.edu.

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