Will Apple's Hired Guns Flame Out?

Apple (NASDAQ: AAPL  ) made a big splash recently by recruiting Angela Ahrendts, the CEO of Burberry  (LSE: BRBY  ) , to lead Apple's retail operations. This is the highest-profile new hire by Apple, but Ahrendts is only one of a pack of outsiders that Tim Cook has brought into Apple's senior management ranks. It raises the question: Will these outside hires be effective? Academic research and Apple's recent history suggests that the odds are stacked against these newcomers.

Academic studies suggest challenges ahead
A study by Matthew Bidwell of the Wharton School compared outside hires to internally promoted candidates. He found that on average, outside hires were paid substantially more and had better experience and education, but typically performed worse and had had higher exit rates, especially during the first two years on the job.

Another study, co-authored by Nancy Rothard of Wharton, suggests that outside hires, particularly those with extensive experience, often struggle to adapt to the culture of the new company. She concluded that rather than paying a premium for experienced outsiders, companies should invest in training and developing internal candidates.

Jim Collins and Jerry Porras conducted a six-year research project at Stanford, which culminated in the best-selling book Built to Last. Among the successful companies they studied, very few relied on hiring top outside talent. They concluded: "[O]ur research shows why it is extraordinarily difficult to become and remain a highly visionary company by hiring top management directly from outside the organization."

The sad stories of John Browett and Mark Papermaster
Apple's recent track-record with big-time outside hires has several black marks, namely John Browert and Mark Papermaster. Both came with sterling credentials, and neither lasted very long at Apple.

In 2012, Apple hired John Browett away from his post as CEO of Dixons Retail, the U.K. electronics retailer, to become Apple's SVP of retail. Browett has degrees from Cambridge and Wharton. He advised retail clients as a consultant at the prestigious Boston Consulting Group, he served served as CEO of Tesco.com. During his tenure as CEO of Dixons Retail, he received high marks for improving the company's customer service and financial position. Browett lasted only six months at Apple before being fired. According to Browett, it was a problem of cultural mismatch: "I loved working there. The issue is I just didn't fit with the way they ran the business. "

In 2008, Mark Papermaster was hired as Apple's new SVP for devices hardware engineering, with responsibility for both iPod and iPhone hardware. Papermaster has a bachelor's and master's degree in electrical engineering. During his 26-year tenure at IBM, he gained a reputation as one of the leading chip designers in the industry. He was a driving force behind the development of the PowerPC chip. He led two different hardware development groups at IBM. Apparently his knowledge and expertise were important enough that IBM and Apple engaged in a extended legal battle over his non-compete agreement. Despite his impressive experience and technical prowess, Papermaster lasted only 15 months at Apple. His departure was initially blamed on iPhone antenna issues, but later Apple insiders confirmed the cause was broader cultural issues. He couldn't navigate the internal politics. Steve Jobs didn't respect him. He simply didn't fit in at Apple.

Foolish bottom line
Obviously, time will tell if Apple's outside recruiting strategy works. Academic findings and Apple's recent history suggest it might not, but I'm hoping that Apple defies the odds. After all, I'm an Apple shareholder, and I'd like to see these new executives succeed. Ahrendts, in particular, has impeccable credentials. Perhaps this will be the exception to the rule -- either way, I'll be monitoring the situation closely.

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  • Report this Comment On December 22, 2013, at 1:12 PM, JaredPorter wrote:

    I think this is a brilliant hire. Ahrendts did a fantastically orchestrated turnaround of Burberry's worldwide fortunes, opening (I believe) over one hundred premium stores in China alone. (Apple only has about six stores in China currently.) China is Apple's leading opportunity of course. And Apple as a brand positioning is most similar to Burberry. There is a lot of cross functionality involved in all aspects of premium retailing. Also, Apple will probably be rolling out even more premium offerings in such things as wearables or watches in its future. And Ms. Ahrendts has a track record of bringing bleeding edge high tech in her merchandising presentations at Burberry. No wonder she was the highest paid CEO in GB last year. And at the rate the company spews out revenues, Apple can well afford to "take a chance" (if you want to call it that), with such a proven entity as Ms. Ahrendts. Their retail stores are extremely important to the company. Even without a leader at the moment, Apple retail enjoys the highest sales-per-square-foot of any US retailer, about $6,000 per sq ft, practically doubling the number two, Tiffany's!

  • Report this Comment On December 22, 2013, at 3:21 PM, johnestromjr wrote:

    Wharton is a business school. Most there are academicians and have ZERO real world experience. They're very good at theory and very good at writing papers. I'm sure Apple has many in-house candidates that are earmarked for advancement but many times outsiders can offer a fresh set of eyes and ideas that those in-house just don't see. It's a bit about not being able to see the forest for the trees. Apple seems pretty good at what they do so I wouldn't put too much faith in some college professor, Wharton or not, telling Apple what the best approach is. I would also point out that there are [likely] several totally new product lines coming. They will be entirely new and different from what Apple is now making. One such product line I've read about is medical appliances. They are VERY expensive and there is a high margin in them. With Apple's blue chip name I would imagine getting a doctor or hospital to try these [potential] products would be much easier than from some unknown company trying to do the same. Times are changing and I'm sure Apple will develop entirely new products and systems to grow the company.

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