Apple is one of the most innovative companies in the world, creating products and services that delight millions of customers and change entire industries. But what is the secret behind Apple’s innovation success? How does Apple manage to stay ahead of the competition and keep creating new value? In this article, we will explore how Apple’s functional structure and leadership model support its innovation strategy. We will learn how Apple operates with no conventional general managers, but rather with senior vice presidents in charge of functions, not products. We will also see how Apple fosters collaboration and accountability across functions and levels, and how it empowers experts to lead experts.
Apple’s Functional Organization
When Steve Jobs returned to Apple in 1997, he found a company that was divided into business units, each with its own P&L responsibilities. This structure was typical for a company of its size and scope, but it also created problems. Managers were inclined to fight with one another over resources and transfer prices, and innovation was stifled by bureaucracy and silos.
Jobs decided to radically change the structure of Apple. He laid off the general managers of all the business units in a single day, put the entire company under one P&L, and combined the disparate functional departments of the business units into one functional organization. He also reduced the number of functions from 17 to 10.
The result was a leaner and more agile organization, where senior vice presidents were in charge of functions such as design, engineering, operations, marketing, and retail. These functions were responsible for supporting all of Apple’s products and services, not just one product line or division. The only position on the organizational chart where all the functions met was the CEO’s.
This functional structure may have been unsurprising for a company of Apple’s size at the time, but what is remarkable is that Apple retains it today, even though the company is nearly 40 times as large in terms of revenue and far more complex than it was in 1998. Apple has resisted the conventional wisdom that as companies grow large and complex, they need to shift from a functional to a multidivisional structure to align accountability and control.
The Benefits of a Functional Structure
Why does Apple stick to a functional structure? What are the benefits of this structure for innovation? According to Joel M. Podolny and Morten T. Hansen, authors of the Harvard Business Review article “How Apple Is Organized for Innovation”, there are four main benefits:
- It enables collaboration across functions. By having senior vice presidents in charge of functions rather than products, Apple avoids creating silos and fiefdoms that can hamper cross-functional communication and cooperation. Instead, it encourages collaboration across functions by having them share a common vision, goals, metrics, rewards, and culture. For example, when Apple launched the iPhone in 2007, it required close collaboration between design, engineering, operations, marketing, and retail functions to create a breakthrough product that integrated hardware, software, and services.
- It facilitates decision making at the top. By having no conventional general managers who control an entire process from product development through sales, Apple avoids creating layers of bureaucracy and politics that can slow down decision making and innovation. Instead, it enables fast and effective decision making at the top by having all the relevant information and expertise flow up to the CEO’s office. For example, when Steve Jobs decided to cancel the Newton project in 1998, he did not have to consult with or persuade any general manager who had invested time and money in the product. He simply made the decision based on his assessment of the market potential and strategic fit of the product.
- It aligns incentives across functions. By having one P&L for the entire company rather than multiple P&Ls for different business units or products, Apple avoids creating conflicting incentives that can undermine innovation and quality. Instead, it aligns incentives across functions by having them share the same financial rewards and risks. For example, when Apple launched the iPod in 2001, it did not have to worry about cannibalizing its Mac sales or competing with its iTunes service. All functions were motivated to make the iPod a success because they all benefited from its profitability.
- It leverages economies of scale and scope. By having functions support all products and services rather than specific ones, Apple avoids creating duplication and inefficiency that can waste resources and limit innovation. Instead, it leverages economies of scale and scope by having functions share and reuse assets, capabilities, and best practices across products and services. For example, when Apple launched the iPad in 2010, it did not have to start from scratch. It used the same design, engineering, operations, marketing, and retail functions that had already developed and supported the iPhone and the Mac.
The Challenges of a Functional Structure
While a functional structure has many benefits for innovation, it also poses some challenges that need to be addressed. According to Podolny and Hansen, there are three main challenges:
- It requires collaboration across functions. While collaboration is a benefit of a functional structure, it is also a requirement. Without collaboration, a functional structure can lead to fragmentation and confusion. Therefore, Apple needs to ensure that its functions work well together and not against each other. To do this, Apple relies on several mechanisms, such as having cross-functional teams for each product or service, having regular meetings and reviews with the CEO and other senior leaders, having clear roles and responsibilities for each function, and having a strong culture of trust and respect.
- It demands decision making at the top. While decision making at the top is a benefit of a functional structure, it is also a demand. Without decision making at the top, a functional structure can lead to paralysis and inertia. Therefore, Apple needs to ensure that its CEO and other senior leaders are capable and willing to make timely and effective decisions. To do this, Apple relies on several mechanisms, such as having a small and cohesive senior leadership team, having a clear and consistent vision and strategy, having a high degree of delegation and empowerment for lower-level managers and employees, and having a high tolerance for failure and experimentation.
- It creates pressure on functions. While economies of scale and scope are benefits of a functional structure, they are also sources of pressure. Without economies of scale and scope, a functional structure can lead to underperformance and obsolescence. Therefore, Apple needs to ensure that its functions are constantly improving and innovating. To do this, Apple relies on several mechanisms, such as having high standards of excellence and quality for each function, having a high level of investment in R&D and talent development for each function, having a high degree of competition and cooperation among functions, and having a high sense of pride and ownership for each function.
The Key to Apple’s Innovation Success
Apple’s leadership model is based on the idea of experts leading experts. This means that senior vice presidents are not general managers who oversee products or businesses, but rather experts who oversee functions or disciplines. They are expected to have deep knowledge and experience in their domains, as well as the ability to inspire and guide other experts in their teams.
This leadership model has several advantages for innovation:
- It ensures alignment across functions. By having experts leading experts, Apple ensures that all functions share the same vision, goals, metrics, rewards, and culture. This reduces conflicts and silos among functions and enhances collaboration and coordination across functions.
- It enables decision making at the top. By having experts leading experts, Apple ensures that all relevant information and expertise flow up to the CEO’s office. This enables fast and effective decision making at the top by reducing information asymmetry and agency problems.
- It leverages economies of scale and scope. By having experts leading experts, Apple ensures that all functions share and reuse assets, capabilities, and best practices across products and services. This enables economies of scale and scope by increasing efficiency and effectiveness.
How to Apply Apple’s Innovation Strategy
Apple’s innovation strategy is unique and may not be suitable for every company or industry. However, there are some lessons that can be learned from Apple’s approach and applied to other contexts. Here are some suggestions:
- Think functionally, not divisionally. Instead of organizing your company around products or businesses, organize it around functions or disciplines. This will help you avoid creating silos and fiefdoms that can hamper cross-functional communication and cooperation. It will also help you leverage your core competencies and capabilities across products and services.
- Hire and empower experts. Instead of hiring general managers who oversee products or businesses, hire experts who oversee functions or disciplines. They should have deep knowledge and experience in their domains, as well as the ability to inspire and guide other experts in their teams. They should also have a high degree of autonomy and accountability for their results.
- Collaborate and compete. Instead of creating a culture of harmony and consensus, create a culture of collaboration and competition. Encourage your functions to work together and share information and resources, but also challenge them to compete with each other and with external rivals. This will foster innovation and excellence among your functions.
- Decide and delegate. Instead of creating layers of bureaucracy and politics, create a lean and agile decision-making process. Have all the relevant information and expertise flow up to the top level, where the CEO and other senior leaders can make timely and effective decisions. Then delegate the execution and implementation to the lower levels, where the experts can do their best work.
By following these suggestions, you may be able to emulate some of the aspects of Apple’s innovation strategy and achieve better results for your company. However, you should also be aware of the potential challenges and trade-offs that come with this approach, such as:
- Managing complexity and coordination. By having a functional structure, you may face increased complexity and coordination costs as your company grows larger and more diverse. You may need to invest more in communication systems, processes, and tools to ensure that your functions are aligned and integrated across products and services.
- Balancing centralization and decentralization. By having decision making at the top, you may face a trade-off between centralization and decentralization. You may need to balance the benefits of having a clear direction and control from the top with the costs of having less flexibility and responsiveness from the bottom.
- Developing talent and career paths. By having experts leading experts, you may face a challenge in developing talent and career paths for your employees. You may need to provide more opportunities for learning, growth, and advancement for your experts, as well as more recognition and rewards for their contributions.
Conclusion
Apple’s innovation strategy is based on its unique combination of a functional structure and a leadership model of experts leading experts. This approach has enabled Apple to create products and services that delight customers and change industries. However, this approach also poses some challenges that need to be addressed.
While Apple’s innovation strategy may not be replicable or applicable for every company or industry, there are some lessons that can be learned from it and adapted to other contexts. By thinking functionally, hiring and empowering experts, collaborating and competing, and deciding and delegating, you may be able to improve your innovation performance and outcomes.
Apple’s innovation strategy is not a magic formula that guarantees success. It is a result of years of experimentation, learning, and adaptation. It is also a reflection of Apple’s culture and values, which are shaped by its history and vision. Therefore, you should not try to copy Apple’s innovation strategy blindly, but rather learn from it and apply it to your own situation and goals. By doing so, you may be able to create your own innovation success story and make a positive impact on the world.
