Steve Jobs and Apple (NASDAQ:AAPL) didn't invent design, but they certainly brought it to the forefront of business. Years before Apple became a household name, one of Job's predecessors, Thomas Watson Jr. of IBM (NYSE:IBM), told Wharton students that "design is good business."
Last week, Apple made a "design" decision that could signal it's ready to make a subtle shift in focus from hardware to software. Apple put star designer Jonathan Ive in charge of "human interface," which was formerly headed by longtime designer Greg Christie. Christie will retire soon and Ive, primarily a hardware guy, will extend his considerable design talents to the software group, which includes the development of iOS 8. Ive designed the iMac, iPod, iPhone and iPad -- all Apple best-sellers. He also made a lot of the changes in the iOS 7, but now he'll call the shots and the development will fall under his industrial design group instead of the engineering group.
Design spurs performance
Recently, Janeanne Rae of Motiv Strategies and the Design Management Institute collaborated to prove the performance of companies that, like Apple, make design a central tenet of their business outperform the S&P 500. In fact, over the past 10 years, they've done so at a clip of 228%.
Fifteen companies made the cut, led by -- no surprise here -- Apple, followed by Nike (NYSE:NKE), Coca-Cola (NYSE:KO), Ford, Herman-Miller, IBM, Intuit, Newell-Rubbermaid, Procter & Gamble (NYSE:PG), Starbucks, Starwood, Steelcase, Target, Walt Disney (NYSE: DIS), and Whirlpool.
How Apple and Jobs made 'beauty' profitable
Beauty was the domain of artists, writers, poets, and filmmakers. However, over the last three decades or so, "beauty" or "design" has become an integral part of successful products. Nike is not just about the quality of shoes, but the look and the feel, as well as the perception of the brand. Starbucks is not just about a cup of coffee, but the experience of drinking coffee. And ultimately, Apple is not just about the computing capability of a device, it's about beautiful design that connects users with hardware. All of this is the domain of design.
The brilliance of Jobs, Apple, and those investors who reaped a huge return over the last 20+ years is they got "design" before anyone else did.
Apple's greatest asset
Apple's courage to throw aside mere efficiency (a business virtue) and create beauty on an intuition that beautifully designed products would create buzz and sell for more than the unbeautiful and forgettable was and is Apple's greatest asset.
It's why Apple eventually reached the pinnacle of the market and has a higher market capitalization than any other company, $463.49 billion, as of April 11.
What the market says about design
Market cap doesn't necessarily tell the real value of a company, but it does reveal how the market (or investors as a whole) value a company. Five of the 15 design-centric companies also rank in the top 25 of U.S. stocks by market cap, including Apple (1), Procter & Gamble (11), IBM (15), Coca-Cola (18), and Disney (24).
Of course, it's difficult to extract "design" from the other qualities that make a business successful, especially a once-in-a-lifetime type of company like Apple. But who would argue that Apple's success is based primarily on "beautiful design" and "brand perception" that sets it apart and allows it to command high margins? These qualities are its durable competitive advantage and what keeps its products from being consumed as commodities. If Apple is to continue thriving, it has to find leaders and designers with the same passion and sincere belief in designing great products possessed by founder Steve Jobs.
The value of Jobs to Apple
A Fool's perspective
The key to Apple outperforming the S&P 500 is its ability to hold on to the vision of its founder. If anyone can bring this to the software division it is Ive. He worked on many of Apple's breakthrough products alongside Jobs -- and is considered the most important person in the company outside of CEO Tim Cook.
Software promises to become a much bigger part of Apple's revenues in the future. Currently, iTunes, apps and software makeup about 9% of yearly revenues, but this segment is also the fastest growing. Revenue increased 25% last year and the iTunes store came close to the $10 billion mark. Apple keeps about 30% of that.
Also, by integrating hardware and software under one head, Ive, the working of the IOS on Apple hardware should be more seamless. And that promises to be beautiful … by design.
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Chris Brantley has no position in any stocks mentioned. The Motley Fool recommends Apple, Ford, and Starbucks. The Motley Fool owns shares of Apple, Ford, and Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.