Apple co-founder Steve Jobs had an illustrious early career. By the age of 30 he had played an integral role in the personal computer revolution, and had helped launch the Apple II and the Macintosh, the latter of which introduced the graphical user interface to the general public. In 1985, Jobs was pushed out of Apple after a power struggle with then CEO John Sculley.
Jobs started NeXT the same year, a computer platform company targeted at the higher education and professional markets. NeXT was a middling success, but it produced good software. In 1997, Apple acquired NeXT for its next-generation operating system.
In an illuminating anecdote in the book Good Strategy, Bad Strategy, author and business professor Richard Rumelt describes the following story, shortly after Jobs’s return to Apple.
By September 1997, Apple was two months from bankruptcy. Steve Jobs, who had cofounded the company in 1976, agreed to return to serve on a reconstructed board of directors and to be interim CEO. Die-hard fans of the original Macintosh were overjoyed, but the general business world was not expecting much.
Within a year, things changed radically at Apple. Although many observers had expected Jobs to rev up the development of advanced products, or engineer a deal with Sun, he did neither. What he did was both obvious and, at the same time, unexpected. He shrunk Apple to a scale and scope suitable to the reality of its being a niche producer in the highly competitive personal computer business. He cut Apple back to a core that could survive.
Steve Jobs talked Microsoft into investing $150 million in Apple, exploiting Bill Gates’s concerns about what a failed Apple would mean to Microsoft’s struggle with the Department of Justice. Jobs cut all of the desktop models—there were fifteen—back to one. He cut all portable and handheld models back to one laptop. He completely cut out all the printers and other peripherals. He cut development engineers. He cut software development. He cut distributors and cut out five of the company’s six national retailers. He cut out virtually all manufacturing, moving it offshore to Taiwan. With a simpler product line manufactured in Asia, he cut inventory by more than 80 percent. A new Web store sold Apple’s products directly to consumers, cutting out distributors and dealers.
(…) In May 1998, while trying to help strike a deal between Apple and Telecom Italia, I had the chance to talk to Jobs about his approach to turning Apple around. He explained both the substance and coherence of his insight with a few sentences:
“The product lineup was too complicated and the company was bleeding cash. A friend of the family asked me which Apple computer she should buy. She couldn’t figure out the differences among them and I couldn’t give her clear guidance, either. I was appalled that there was no Apple consumer computer priced under $2,000. We are replacing all of those desktop computers with one, the Power Mac G3. We are dropping five of six national retailers—meeting their demand has meant too many models at too many price points and too much markup.”
This kind of focused action is far from the norm in industry. Eighteen months earlier, I had been involved in a large-scale study, sponsored by Andersen Consulting, of strategies in the worldwide electronics industry. Working in Europe, I carried out interviews with twenty-six executives, all division managers or CEOs in the electronics and telecommunications sector. My interview plan was simple: I asked each executive to identify the leading competitor in their business. I asked how that company had become the leader—evoking their private theories about what works. And then I asked them what their own company’s current strategy was.
These executives, by and large, had no trouble describing the strategy of the leader in their sectors. The standard story was that some change in demand or technology had appeared—a “window of opportunity” had opened—and the current leader had been the first one to leap through that window and take advantage of it. Not necessarily the first mover, but the first to get it right.
But when I asked about their own companies’ strategies, there was a very different kind of response. Instead of pointing to the next window of opportunity, or even mentioning its possibility, I heard a lot of look-busy doorknob polishing. They were making alliances, they were doing 360-degree feedback, they were looking for foreign markets, they were setting challenging strategic goals, they were moving software into firmware, they were enabling Internet updates of firmware, and so on. They had each told me the formula for success in the 1990s electronics industry—take a good position quickly when a new window of opportunity opens—but none said that was their focus or even mentioned it as part of their strategy.
Given that background, I was interested in what Steve Jobs might say about the future of Apple. His survival strategy for Apple, for all its skill and drama, was not going to propel Apple into the future. At that moment in time, Apple had less than 4 percent of the personal computer market. The de facto standard was Windows-Intel and there seemed to be no way for Apple to do more than just hang on to a tiny niche.
In the summer of 1998, I got an opportunity to talk with Jobs again. I said, “Steve, this turnaround at Apple has been impressive. But everything we know about the PC business says that Apple cannot really push beyond a small niche position. The network effects are just too strong to upset the Wintel standard. So what are you trying to do in the longer term? What is the strategy?”
He did not attack my argument. He didn’t agree with it, either. He just smiled and said, “I am going to wait for the next big thing.”
The rest, as they say, was history. Apple introduced the iPod in 2001, iterated on it for the next five years (culminating in the iPods Nano and Video in 2005) followed by exploitation of the iPod platform for another 15 years. Jobs signed off on the iPhone project in 2004, three years after the iPod’s launch. Apple then launched the iPhone in 2007, and rode it for the next 15 years (and counting, as of this writing).
Jobs clearly understood the nature of the game he was playing in consumer tech. He organised his approach accordingly, and executed innovation and exploitation cycles for the rest of his career at Apple, until his death from pancreatic cancer in 2011.