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Ideas for Impact

Apple

Evolution, Not Revolution

August 1, 2022 By Nagesh Belludi Leave a Comment

Innovation often transpires from synthesizing existing ideas in new ways, as the following case study on the iPod will illuminate.

Steve Jobs introduces the iPod---Innovation is Evolution Not Revolution In some sense, the iPod wasn’t a breakthrough innovation at all. It emerged from Steve Jobs’s “digital hub” approach to integrating iMac software for playing, editing, and managing photos, music, and movies. According to Walter Isaacson’s masterful biography of Steve Jobs (2011,) when Apple designers learned that Toshiba had newly prototyped a tiny 1.8-inch hard drive that could hold five gigabytes of storage (that’s about a thousand songs,) they conjured up a digital music player. Apple found that existing gadgets were “big and clunky or small and useless” with “unbelievably awful” user interfaces.

Sony’s Walkman had previously proven the market potential of portable audio players, having sold 200 million units in the two decades before Apple conceived the iPod. Napster had offered digital audio file distribution for over five years. Finger-driven touchscreens were pioneered in the 1960s, and Citibank rolled out touchscreen ATMs in the 1980s. (Apple didn’t offer touchscreens until 2007 with the iPhone.) Hence, the iPod’s innovation was in bringing all these capabilities together in a way that was easier to use and relevant to the consumer. Dartmouth’s strategy professor Ron Adner writes in The Wide Lens: What Successful Innovators See That Others Miss (2013.)

Apple was three years late [behind Creative, SanDisk, Sony, and Samsung, who had previously launched portable music players]. As we’ll see again in the case of the iPhone, Jobs tended to be late for everything because he wanted everything to be ready for him. Reflecting on catching technology waves in 2008, he said, “Things happen fairly slowly, you know. They do. These waves of technology, you can see them way before they happen, and you just have to choose wisely which ones you’re going to surf. If you choose unwisely, then you can waste a lot of energy, but if you choose wisely, it actually unfolds fairly slowly. It takes years.” Jobs’s discipline paid off.

Idea for Impact: Innovation often builds on existing technological competencies or as a synthesis of smaller innovations.

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Filed Under: Business Stories, Mental Models, The Great Innovators Tagged With: Apple, Creativity, Critical Thinking, Entrepreneurs, Innovation, Problem Solving, Steve Jobs

When Growth Stalls: A Case Study of the iPhone

November 13, 2020 By Nagesh Belludi Leave a Comment

If you got an iPhone in the last few years, you don’t really need to rush to replace it with the new iPhone 12.

In a sense, Apple is relying on other businesses to make this new lineup a success. Despite Apple’s assertions that the new iPhone 12 supports fast 5G cellular networks, the prevailing 5G networks in America just aren’t fast enough yet.

Feature Stagnation

When Growth Stalls: A Case Study of the iPhone Arguably, there’s not much further for the iPhone to go. It’s been improved through numerous versions since 2007, and there simply isn’t much left to do. The entire experience is probably as good as it ever needs to be.

Beyond better power, speed, design, battery, cameras, and display, Apple faces the horizon of what’s expectable from a smartphone. After a decade of relentless growth and absolute dominance, innovation has exhausted. Progress will become increasingly inconsequential. Through it all, Apple has successfully sustained premium-position captivity and thrived even as new, low-cost competitors are emerging worldwide.

When Growth Stalls

Apple’s growth trajectory is likely to look different in the future. The bulk of Apple’s future growth prospects will come from existing customers and not new smartphone adopters. Apple has been focusing on newer software and services to expand the user experience and retain customers.

Apple’s core product is ex-growth. In that sense, Apple is now like Microsoft and Alphabet. Faced with product stagnation, both Microsoft and Alphabet responded by pushing into entirely new areas to spawn growth, but with patchy successes. When it’s dominant Windows and Office franchises were stalling, Microsoft pivoted and had big hits with the Xbox and enterprise software but failed with MSN, Bing, and mobile. Google diversified with Android and Apps but repeatedly missed on social.

Idea for Impact: No one, no matter how historically innovative and powerful, is guaranteed immortality

Successful companies—and people—must evolve their competence or risk becoming marginalized. The roots of sustained success lie in being aware, innovative, and adaptable. Don’t become too focused on taking care of today and forget preparing for tomorrow. Your business model could be fragile.

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Filed Under: Business Stories, Leadership Tagged With: Apple, Change Management, Google, Microsoft, Strategy

Three Leadership Lessons from Ron Johnson’s Debacle at J.C. Penney

April 11, 2013 By Nagesh Belludi Leave a Comment

Ron Johnson's Debacle at J.C. Penney

Monday’s dismissal of J.C. Penney CEO Ron Johnson comes as no surprise.

In late 2011, J.C. Penney had hired Ron Johnson from Apple to revive the sagging fortunes of the storied retailer. He was deemed as a retailing genius who had proved himself by creating Target’s hip-yet-inexpensive cachet and then by leading Apple’s highly lucrative retail stores.

During his 17-month tenure, Ron Johnson had poured hundreds of millions into rapidly remaking the retailer. Mostly, his attempt at the high-stakes makeover of J.C. Penney hadn’t worked. Revenue deteriorated sharply, feedback from customers and employees was persistently negative, and the J.C. Penney share price declined by over 50%.

Lesson 1: Don’t disenfranchise your traditional customer base

Over the years, J.C. Penney’s economic moat had declined considerably. J.C. Penney lost customers to higher-end retailers and specialty stores who had started to offer better value at lower prices. At the other end, Wal-Mart and Target wooed price-sensitive customers with better-than-basic goods.

When retailing relatively undifferentiated merchandise, one of the key levers to revenue is discounts and promotions. Like other retailers, J.C. Penney had trained its customers to buy largely when its stores had a sale. Shoppers recognized that J.C. Penney’s tag prices were made-up to be marked down during sales events and were fixated on coupons, discounts, and promotions. Shoppers had come to regard of shopping at J.C. Penney as a treasure hunt for significantly marked-down merchandise.

Discounts and Promotions at J.C Penney

Within weeks of joining J.C. Penney, Ron Johnson observed that three-quarters of everything sold had been discounted by at least 50% from list price. Instead of marking up the tag prices and then using deep discount sales to attract customers, he initiated a new “fair and square every day” pricing strategy. By offering good prices every day he attempted to change customer bahavior and dissuade them from waiting for markdowns. Further, by minimizing sales, promotions, and coupons, Ron Johnson eliminated the thrill of pursuing markdowns, a key characteristic of J.C. Penney’s conventional customer. When the pricing strategy flopped, Ron Johnson reinstated sales and coupons, and even brought back “fake prices.” The successive changes confused employees and customers. Additionally, J.C. Penney stopped carrying some traditional brands that many of its long-time customers had favored and injected trendy brands to appeal to younger customers. Ron Johnson’s team created exciting marketing and advertising that was seen as too edgy and further confused traditional customers.

Lesson 2: Don’t be so hubristic as to wager big on hunches without prototyping

At Apple, Steve Jobs frequently shunned extensive consumer research because he had the exceptional genius to introduce the right products, with the right features, at the right time. Drawing from his success at the helm of Apple stores, Ron Johnson was perhaps overconfident that he had all the right answers and could therefore forego the crucial feedback from employees and customers before embarking to “revolutionize retailing” by “teaching people how to shop on their terms” and “fundamentally disrupting the traditional retailing paradigm.”

The gravest error Ron Johnson made at J.C. Penney was not testing his new pricing strategy in a handful of stores. According to this WSJ article, when a colleague proposed a limited store-test of the new pricing strategy, Johnson allegedly responded, “We didn’t test at Apple.”

Ron Johnson's Debacle at J.C. Penney Clearly, what Ron Johnson thought of value was not what its customers saw as value. As a result, J.C. Penney overlooked the reality that, for its customers, pursuing discounted goods on sale was part of the fun of shopping at J.C. Penney. Ron Johnson set about to tear down an old business model before he had switched over to a new business model without prototyping.

Ron Johnson possibly had a compelling out-of-the-box vision for J.C. Penney. However, he did not stay closely connected to J.C. Penney’s customers and employees before the launch of a radical strategic change. It is challenging to be an effective leader when customers and employees don’t understand and buy major changes.

Incremental improvements to J.C. Penney’s merchandising strategy through extensive prototyping and measured makeover could have provided the opportunity to learn through trialing and encouraged ownership of the strategy by employees, especially those in customer-facing roles.

Lesson 3: Beware of the “Halo Bias” in rating leaders

Halo Bias We tend to attribute a manager/leader’s success to his apparent genius and we overlook the role of the context (team, product, industry, timing, and luck) in his success. Thus, we come to expect him to have the same success in a different context. We anticipate that the very tactics and devices that proved successful in the past would work for him in the new context. (See my earlier article on the halo and horns biases in rating people.)

Ron Johnson certainly proved his retailing genius by first creating Target’s hip-yet-inexpensive brand image and then, for ten years, by leading Apple’s highly lucrative retail stores where he most famously introduced the Genius Bar concept. Nevertheless, his experience with selling premium-priced products at full price all the time with no promotions at the Apple stores did not translate well to J.C. Penney’s undifferentiated merchandise and its customer base of bargain hunters.

In June 2011, J.C. Penney stock spiked by 17.5% when the company announced Ron Johnson’s appointment as CEO. Wall Street saw in him a proven leader with the silver bullet. Investors got overly optimistic that he would remake the embattled retailer and overlooked the fact that J.C. Penney lacked the brand image of Apple and its most-sought-after products. Alas, J.C. Penney stock slid by over 50% during Ron Johnson’s 17-month tenure. The golden boy of retail never hit his stride.

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Filed Under: Leadership, Leading Teams, Managing Business Functions Tagged With: Apple, Leadership Lessons, Winning on the Job

Virus on iPods: Apple blames Microsoft Windows

October 20, 2006 By Nagesh Belludi Leave a Comment

Virus on iPods: Apple blames Microsoft WindowsOn Wednesday, Apple’s iPod support website acknowledged that a small number of video iPods were infected with a Windows virus. In addition to describing the scale of infection and providing instructions to remove the virus, the website blamed Microsoft Windows for the glitch.

“As you might imagine, we are upset at Windows for not being more hardy against such viruses, and even more upset with ourselves for not catching it.”

Apple’s “114,000 viruses? Not on a Mac” advertisements have lately targeted Windows users to ‘Get a Mac’. Presumably, someone at Apple [AAPL] believed that blaming Microsoft Windows for viruses on the iPod could extend its ‘Get a Mac’ campaign. The outcome is a cheap shot at the competition.

The iPods were apparently infected with the virus at one of Apple’s contract manufacturers. There is no reason for Apple to be “upset” at Microsoft for not being more hardy against such viruses.” Microsoft [MSFT] has invested significant resources (money and talent) fighting hackers and improving its software development process. As Jonathan Poon of the Microsoft virus-scanning group pointed out on his blog, Apple should blame its own manufacturing system.

“It’s not a matter of which platform that the virus originated. The fact that it’s found on the portable player means that there’s an issue with how the quality checks, specifically the content check was done.”

Apple should also blame hackers, who were creative enough to get malicious code embedded on an Apple product while it was connected to a Windows machine on Apple’s manufacturing line.

The take-away lessons: (1) possess a healthy respect for the competition, and, (2) blaming the competition without cause constitutes poor taste.

Wondering what to read next?

  1. When Growth Stalls: A Case Study of the iPhone
  2. Three Leadership Lessons from Ron Johnson’s Debacle at J.C. Penney
  3. Bill Gates and the Browser Wars: A Case Study in Determination and Competitive Ferocity
  4. Microsoft’s Resurgence Story // Book Summary of CEO Satya Nadella’s ‘Hit Refresh’
  5. Evolution, Not Revolution

Filed Under: Business Stories, Managing Business Functions, News Analysis Tagged With: Apple, Microsoft

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About: Nagesh Belludi [hire] is a St. Petersburg, Florida-based freethinker, investor, and leadership coach. He specializes in helping executives and companies ensure that the overall quality of their decision-making benefits isn’t compromised by a lack of a big-picture understanding.

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Unless otherwise stated in the individual document, the works above are © Nagesh Belludi under a Creative Commons BY-NC-ND license. You may quote, copy and share them freely, as long as you link back to RightAttitudes.com, don't make money with them, and don't modify the content. Enjoy!