Don't let it get away!
Keep track of the stocks that matter to you.
Help yourself with the Fool's FREE and easy new watchlist service today.
It has been a wrenching six weeks for Apple (Nasdaq: AAPL ) . First, in a not entirely unexpected move, CEO Steve Jobs announced on Aug. 24 that he would step down for health reasons and pass the torch to Chief Operating Officer Tim Cook, who had temporarily taken the helm during Jobs' past medical leaves.
But Jobs was expected to remain a force behind the scenes at the company he co-founded in 1976 and built into a perennial game changer for the entire technology sector. Then, last Wednesday Apple announced that Jobs had passed away from cancer at the age of 56. Rather than a gradual transition, Cook and the leadership team Jobs leaves behind now face a baptism by fire.
"Steve Jobs wasn't just Apple's CEO," Wharton legal studies and business ethics professor Kevin Werbach says. "He was its animating force for most of the company's 35-year existence, and especially after his return 15 years ago. Today's Apple is, in many large and small ways, a reflection of Steve Jobs' vision. That makes it much easier to continue that culture even without Jobs himself."
The Apple that Jobs leaves behind is in an "enviable position, financially and in terms of its influence in the global technology sector," Werbach notes. But can the company sustain its track record of success without the man who was the company's guiding influence? Should Apple continue to mold its culture in the image of Jobs -- or is it time for a change?
"The challenge for Apple is that the Steve Jobs culture is a high-risk endeavor," Werbach says. "Apple is more controlling than its competitors, which puts a great deal of pressure on it to produce things that are truly superior. Apple has to hit it out of the park with virtually every major product release. It has done that for years, as has Pixar. However, the risk is higher than for companies like Microsoft (Nasdaq: MSFT ) , Facebook, and Google, which have more ability to refine and improve their offerings over time, or to leverage the work of partners."
In a letter to employees after Jobs' death, Cook said the company has lost a "visionary and creative genius," but "his spirit will forever be the foundation of Apple." Yet what may be Jobs' more enduring legacy, at least in the short term, is the management team he built since returning to the company in 1996 after an 11-year ouster.
"Apple has done a good job of demonstrating that the leadership team in place is capable of managing the company just fine. A few years back, Apple and Steve Jobs were largely synonymous," notes Kartik Hosanagar, an operations and information management professor at Wharton. "With the decline in Jobs' health in recent years, other executives have been taking on more responsibility in a public way. All this has largely helped convince the community that the management is in control and knows what it is doing."
At Apple's iPhone 4S press event at its Cupertino, Calif., headquarters last week, Cook started with an introduction and then handed off the presentation to Eddy Cue, senior vice president of Apple's Internet software and services products; Scott Forstall, senior vice president of iOS, which powers the iPad and iPhone; and Phil Schiller, the company's head of marketing. Jonathan Ive, senior vice president of industrial design, is another key executive tasked with developing hit products. Cook is considered to be a supply chain expert and CFO Peter Oppenheimer controls the financials.
"All the executives have been with Apple for quite some time," Wharton management professor David Hsu points out. "Many of those executives came with Jobs from NeXT," the computer company he started after being pushed out of Apple in 1985. Apple bought NeXT in 1996 to acquire the operating system that became Mac OS X.
Little is expected to change at Apple in the short run -- for example, product roadmaps are typically set three to five years in advance. "We believe Tim Cook will carry out a long-term (five-year) roadmap that he and Jobs jointly established, including several iterations of Apple's existing products as well as new categories, like an Apple Television as soon as late 2012," Piper Jaffray analyst Gene Munster wrote in a research note.
In addition, "the industrial design excellence embodied in Apple products is likely to persist. The genius behind Apple's industrial design is really Jonathan Ive. He's alive and well," notes Karl Ulrich, an operations and information management professor at Wharton. "While Steve Jobs was clearly a champion for excellent industrial design, the Apple industrial design team is the best in the industry."
But there is no getting around the fact that, as it moves from a company built around one man's vision to more of a team approach, Apple will have to start doing things differently. And beyond any leadership challenges, the company is also operating in a highly competitive and quickly evolving sector where a number of companies are grappling to take the lead on smartphones, tablets, digital music, and cloud storage initiatives. "At this point, Apple has a firm, loyal customer base," says Wharton legal studies and business ethics professor Andrea Matwyshyn. "What happens in two to three years may be different story."
Indeed, the future is not just about what Cook and his team can accomplish. "I suspect the CEO who will have the difficult job at Apple is Tim Cook's successor," Werbach notes.
Teaching companies to "Think Different"
To capture Jobs' keen eye for the intersection of art, technology, and product design, Apple in recent years began a top-secret internal training program called Apple University. The aim was to establish a system that could pick up the slack when Jobs was no longer with the company. In 2008, Apple hired Joel Podolny, former dean at the Yale School of Management, to design Apple University. Podolny specialized in organizational behavior as well as management. The Los Angeles Times reported that Jobs was actively involved with developing Apple University and imparting his DNA into the program.
The effort highlights how important it is to maintain Jobs' ethos at Apple. But Wharton management professor Jennifer Mueller questions whether a training system can truly capture what made Jobs unique. To Mueller, Jobs' biggest feat was coming up with creative ideas and, more importantly, convincing partners, employees, and consumers to buy in. "Apple University is a great idea, but in addition to thinking like Jobs, there's the separate skill in gaining acceptance for creative ideas," says Mueller. "Jobs' skill was to promote himself as charismatic and not crazy."
Wharton management professor Saikat Chaudhuri agrees that it is difficult to capture Jobs' knowledge and intangibles and embed them into Apple's business processes. "The question is whether Jobs' approach was actually captured in a process," says Chaudhuri. "Jobs had a vision and was able to charismatically convey to people what was needed."
For Hsu, Apple University's challenge will be to replicate Jobs' ability to innovate. Case studies only go so far, Hsu notes. "Apple University is an attempt to codify how management worked through challenges. It's quite different for a corporation to try to do that. Ultimately, the question is: Where does the creative spark come from at Apple?"
From vertical to horizontal
Under Jobs, Apple was often secretive about its products and processes, and most information flowed directly through the CEO. Now that the focus has turned more to a group of top leadership, "there will have to be the ability for new ideas to flow horizontally," says Matwyshyn. "A hierarchical organization worked under Jobs, but won't with a team approach."
Matwyshyn notes that Microsoft's leadership handoff from Bill Gates to Steve Ballmer suffered from a change in the way communication was handled at the company. Gates "was hands on with engineering and served as an information clearinghouse," says Matwyshyn. It was he who often connected different product teams and put leaders of certain areas in touch with each other.
But this type of approach is not always the healthiest for companies over the long term, according to Wharton marketing professor Peter Fader. "Apple was so fortunate that it was able to have all their eggs in one basket [with Jobs] and survive," says Fader. "No company wants a situation like that. It's important to let others get the limelight. Cook will yield the spotlight because it's the right thing to do as a leader." Cook seems to understand this: In addition to the way the entire team was showcased during the iPhone 4S announcement, Apple's announcement that it received 1 million preorders in a day for the 4S included a quote from Schiller rather than the CEO.
In many respects, Apple was able to "take a remarkable set of idiosyncrasies, technology, and Jobs' personality" and use them to succeed, Fader adds. "This formula works at this point in history, but it's not clear whether it will work 10 years from now."
Mueller's research illustrates the challenges Apple may face as it transitions from moving product decisions primarily through Jobs to a team of executives and managers. In a study that looked at 212 knowledge workers in 25 teams ranging from three to 19 members in size, she found that larger groups at the top often "experience more coordination loss or difficulty and inefficiency." "It is so hard to get ideas through the pipeline at large companies," Mueller says. "Creativity is viewed as risky and the corporate culture is designed to squash creative ideas. Will the average person rising through the ranks be rewarded for being creative?"
Regression to the mean
But Fader predicts that Apple's biggest challenge will be a regression to the mean, the statistical axiom that says highflyers and breakneck growth rates eventually slow to the industry average. "There's one direction things can go at Apple, and that's down."
According to Fader, some kinks are starting to show in Apple's armor. Although the iPhone 4S scored record-breaking preorders, reaction to the device itself was mixed, with many left disappointed that the company did not introduce a 4G-enabled iPhone 5. Meanwhile, music-streaming services such as Spotify could overtake iTunes; Android-powered mobile devices continue to gain ground on the iPhone, and new entrants to the tablet market, such as Amazon.com, could provide significant competition in that area. "Nothing I've said so far indicates that Apple is stumbling, but there are limits to boundless growth," Fader says. "There are so many things going on in the market that are independent of who is running Apple."
Google and Amazon are fierce rivals to Apple, and it is unclear whether the company Jobs left behind can maintain profit margins in the years ahead. In addition, Jobs landed sweetheart deals from wireless carriers such as AT&T (NYSE: T ) and Sprint Nextel (NYSE: S ) and also schmoozed media executives to procure rights to music, TV shows, and movies for Apple's various platforms. The new executive team may face more challenges dictating favorable terms for Apple. "Steve Jobs was a persuasive personality, and his larger-than-life image was instrumental in getting partners to agree to new business models," notes Ulrich. "My main concern would be whether the current leadership can close similar deals going forward."
Wharton management professor Lawrence Hrebiniak says the biggest wild card facing Apple is how quickly a regression to the mean might occur. "It's hard to stay on top in a competitive environment. Ford, IBM, and Microsoft all had good teams and fell from the top. A competitive environment levels the playing field." But Werbach notes that slowed growth for Apple doesn't necessarily lead to shaky ground financially. "Look at Microsoft: In many ways, it has floundered for a decade since Bill Gates stepped down, but it's still making money hand over fist."
Market shifts aside, Ulrich suggests that it would be a mistake for Apple to attempt to maintain the company as it was under Jobs. "It would be foolish to bring in Tim Cook in a black mock turtleneck sitting on a stool to introduce Apple's next big thing. That approach worked only for Steve Jobs. However, alternative approaches that rely less on a single personality and that focus more on the product and its benefits may be equally effective."
If Apple has institutionalized the Jobs approach with processes, technology, and people, the company should continue to thrive, according to Hrebiniak. "Was it Jobs, or was he creating a culture where brilliance is transferable? That's the big question. Are the culture, structure, incentives, and processes there so that the company can continue?"
Additional reading from Knowledge@Wharton: