Apple (under Steve Jobs)
Case written by Annick Van Rossem (update 2021)
This case is based on:
Harvard Business School case 9-712-490 authored by Yoffie, David, B. and Kim, Renee
Harvard Business School case 9-710-467 authored by Yoffie, David, B. and Kim, Renee
Harvard Business School case 9-175-456 authored by Yoffie, David, B. and and Baldwin, Eric
Richard Ivey Business School case W12774 authored by Watson, Tom
Insead case BOS022 authored by Oh Young Koo
http://www.apple.com/
http://www.apple.com/supplierresponsibility/pdf/Apple_Supplier_Code_of_Conduct.pdf
https://research-methodology.net/apple-inc-report-2-2/
http://panmore.com/apple-inc-organizational-culture-features-implications
v On October 5, 2011, Steve Jobs tragically died of cancer. Jobs is a legend. The company began
as “Apple Computer,” best known for its Macintosh personal computers (PCs) in the 1980s and
1990s. Despite a strong brand, rapid growth, and high profits in the late 1980s, Apple almost
went bankrupt in 1996. Then Jobs went to work, transforming Apple Computer into “Apple
Inc.” with innovative non-PC products, starting in the early 2000s.
Apple Computer was founded in 1976 by Steve Wozniak (24 years old) and Steve Jobs (20) in the
garage of the latter’s parents. Their first product, the Apple I, was a personal computer kit. In 1979,
Apple Computer introduced the Apple II, provided with color graphics and open architecture. Apple
wanted to wipe out the perception of a computer as something scientific and complex, and make it
easy to use for ordinary people. The Apple II was a considerable success. In December 1980, Apple
Computer went public.
Apple’s competitive position changed in 1981 when IBM entered the PC market. The IBM PC, which
used Microsoft’s DOS operating system (OS) and a microprocessor from Intel, was a relatively “open”
system that other producers could clone, making PC’s cheap. Apple, on the other hand, relied on its
own proprietary designs and refused to license its hardware to third parties.
Apple reacted by introducing the Macintosh in 1984 offering a unique graphic user interface and
allowing to operate the computer by clicking the mouse. The Mac was pushed into new markets,
particularly in desktop publishing and education. Macintosh’s loyal customers allowed Apple to sell
its products at a premium price. However, the Mac’s slow processor speed, lack of compatible
software and oversized price (as IBM-compatible prices dropped, Macs appeared overpriced by
comparison) limited sales.
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After a power struggle between Steve Jobs and John Sculley (CEO of Apple at that time), Jobs left the
company he had founded. During Sculley’s tenure, new computer product lines were developed, in
addition to various models in the Macintosh line. The company had 40 different products, each with
multiple models. This disarray in product lines confused the market and incurred huge maintenance
and inventory costs for the company.
In 1993, Sculley was replaced by Michael Spindler. The new CEO made efforts to turn the company
around by pushing Macintosh lines and making thousands of lay-offs. But the company saw its market
share fall. In 1996, the company appointed another new CEO, Gilbert Amelio. He further instigated
massive lay-offs and brought Steve Jobs back to the company.
The first thing Jobs did was to eliminate 70% of the company’s products. Then he rationalized the
remaining product lines and shortened the product inventory pipeline in order to respond faster to
customers. Furthermore, Jobs sought to bring a new culture to Apple and revisited Apple’s core values
devising a clear statement of what Apple stood for: “being innovative and unconventional” and
launched campaigns as “Think different”. Jobs also believed in market growth, which has been
important to Apple since it went public. Jobs adhered to extreme practices of secrecy, including a
closed door policy and dummy positions for new hires until they could be trusted. Jobs was especially
passionate about industrial design, simplicity, and product elegance.
This approach led to Jobs’s first real achievement — the iMac, introduced in August 1998, an all-in-
one desktop computer in a luminous, candy-colored plastic casing. Although the company remained
committed to the education market, new PC products focused rather on home consumers. Jobs also
opened the first Apple retail store in 2001. Jobs not only wanted consumers to look at the eye-catching
Macintosh designs, but also wanted people to directly experience Apple’s software.
Thanks to creative marketing and several innovative computer products (e.g. the ultra-thin Mac Air
Apple), Apple’s computer sales were growing faster than the industry. Jobs made work to vertically
integrate the company, as one commentator noted later on: “Apple builds great hardware, owns the
core software experience, optimizes its software for that hardware, equips it with web services (iTunes
and iCloud), and finally controls the selling experience through its own retail stores”.
In 2001, on Apple’s 25th anniversary, Jobs presented his vision for what he called the “digital hub.” He
believed that Apple offered a real advantage for consumers who were becoming rooted in a digital
lifestyle, using digital cameras, portable music players, not to mention mobile phones. Apple’s digital
hub strategy was initiated by the inauguration of the iPod in 2001, followed by the iPhone in 2007, and
the iPad in 2010.
On 23 October 2001, Apple introduced the iPod. The iPod was initially one of many portable digital
music players based on the MP3 standard. Thanks to its sleek design, simple user interface, and large
storage , it soon became “an icon of the Digital Age.”
Jobs ’s emphasis for the iPod was simplicity: he stated that “to make the iPod really easy to use—and
this took a lot of arguing on my part—we needed to limit what the device itself would do. Instead we
put functionality in iTunes on the computer… So by owning the iTunes software and the iPod device,
that allowed us to make the computer and the device work together, and it allowed us to put the
complexity in the right place.”
Two features that differentiated Apple ’s iPods were its iTunes desktop software, which synchronized
iPods with computers, and its iTunes Music Store, which opened in April 2003. The iTunes Music
store, offered a wide selection of copyrighted digital music for 99 cents per song. The downloaded
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songs could be played on the user’s computer, burned onto a CD, or transferred to an iPod. The iTunes
music store evolved to offer not only music, but also TV shows and movies.
The iPod could be sold at premium price and was a huge success. Apple started to milk it by spinning
off various product lines and lowering the price.
Despite the success of iTunes, Apple had a tense relationship with content companies. They didn’t like
Apple’s dominance of the digital music market. Music labels also saw their higher-priced CD sales
dropped in favor of low-priced à la carte downloads. Other online music stores such as Amazon.com,
Napster, and Walmart.com offered individual song downloads at competitive or discounted prices to
iTunes. Some had subscription plans that allowed unlimited listening, starting at $5 per month. The
iPod faced other challenges as well. Internet radio sites, such as Spotify allowed users to create their
own playlists, share them, and stream free music like a virtual MP3 player.
On 9 January 2007, Jobs introduced the iPhone to the world by saying: “Every once in a while, a
revolutionary product comes along that changes everything. Today, we’re introducing three
revolutionary products of this class. The first one is a widescreen iPod with touch controls. The
second is a revolutionary mobile phone. And the third is a breakthrough Internet communications
device. . . . These are not three separate devices, this is one device, and we are calling it iPhone.”
Two and a half years of development efforts had been devoted to the phone, guarded under intense
secrecy, even among the company’s own employees. The estimated development cost was around
$150 million.
Entry into mobile phones was a risky move for Apple. At the time, the industry was dominated by
Nokia, Motorola, and Samsung. In addition, products were characterized by short product life cycles
and sophisticated technology, including radio technology, where Apple had little experience. In
distribution, Apple faced powerful cellular carriers such as T-Mobile and Vodafone, which controlled
the networks and often the phones used on those networks.
Equipped with a camera, email and Internet capabilities, and a portable media player, the iPhone did
not stand out from the standard smartphone add-ons. What differentiated the iPhone from the
competition was its simple user interface. A revolutionary 3.5 -inch touch-screen interface placed
commands at the touch of users’ fingertips without a physical keyboard. Users found it intuitive to use
as they could move the content up or down by a touch-drag motion of the finger. The iPhone enabled
users to customize their phones to their own needs and interests (business, games, sports, social
networking) by hosting a marketplace called the App Store. The App Store was launched on 10 July
2008 and allowed iPhone users to browse and download applications developed by Apple and third-
party programmers. Software applications for PDAs and smartphones had been around for years. But
Apple’s App Store was the first outlet that made it easy to distribute, access, and download
applications directly onto the mobile phone. Many apps were free. Even paid apps usually started at
$0.99. The App Store was introduced as part of iTunes, which already had a huge following. Apps
could be also used for the iPod Touch. Mobile apps had turned into a nice side business for Apple as
well.
Apple initially gave the iPhone to only one network operator in most markets. AT&T, the exclusive
U.S. operator for the iPhone when it launched, did not provide a subsidy. Instead, AT&T agreed to an
unprecedented revenue-sharing agreement with Apple, which gave Apple control over distribution,
pricing, and branding. Later Apple’s relationship with carriers changed. In most markets in the world,
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Apple moved from a single carrier to multiple carriers selling iPhones. When Apple added new
carriers, it had a reputation as a very tough negotiator.
Dating back to the early days of Apple, Jobs always preferred to control the critical technologies
that would drive Apple’s differentiation. To grab greater control of mobile devices, Jobs bought two
microprocessor design companies. Falling component costs and design improvements helped to
reduce the iPhone’s cost structure.
In countries such as China, the iPhone just took off in 2012: Chinese consumers were willing to buy
iPhones for prices approaching $1,000 USD. As countries such as China and India moved their faster
3G and ultimately 4Gnetworks, demand for smartphones was expected to continue growing rapidly.
iPhone’s greatest competition in 2012 came from Android, an open and free platform developed by
Google. The Open Handset Alliance, a consortium of 84 handset makers, chips makers, and operators,
backed the platform which became the most popular smartphone OS in 2011. Google’s competitor to
Apple’s AppStore, called Play Store, surged in 2010–2011. The number of Android applications was
rapidly approaching iPhone apps. In addition, leading-edge phones from Samsung, HTC, and others
had larger, brighter screens than the iPhone, some with better cameras, improved audio, etc., are
brought today on the market.
Intense competition in the smartphone industries led to numerous lawsuits on design and intellectual
property. Literally, everyone in the industry sued everyone. Jobs , though, was the most aggressive
CEO in pursuing legal redress.
While reviews of the iPhone were generally glowing, some people complained about its inability to
run on the faster 4G LTE networks in 2012, its limited battery life, as well as its lack of support for
Adobe Flash, which made some websites unusable for iPhone users. At the same time, some carriers
complained about the volume demands and huge subsidies required by Apple.
Jobs saw another opportunity to make a daring move to redefine computing. “Some people say, ‘Give
the customers what they want,’” said Jobs, “but that’s not my approach. Our job is to figure out
what they’re going to want before they do.” That was what he did with the iPad.
While both PC and smartphone makers focused on competing within their respective markets, Apple
thought about creating a third category that was neither PC nor smartphone, believing that there was
untapped demand for an ultra-portable device connected to the Internet at all times, with a screen big
enough for reading and watching multimedia. Apple redefined the industry boundaries by breaking
away from the standard hardware structure of the PC and the smartphone industry.
On 3 April 2010, Apple launched a 9.7 inch (diagonal) tablet PC, the iPad. Using a multi-
touchscreen. Users could listen to music, watch videos, browse the internet, play games, read
e-books, and so on. Its weight and size fell between smartphones and laptops. The iPad was described
by Jobs as “even more intuitive and easier to use than a PC, and where the software and the hardware
and the applications need to be intertwined in an even more seamless way than they are on a PC.”
Like the iPhone, users could purchase apps available in the iTunes App Store and customize their own
iPad. Operators did not subsidize iPads , as they did smartphones . Consumers could choose to connect
to the Internet by paying for access to a carrier’s network or rely exclusively on Wi-Fi.
While electronics makers had been adding more and more functions, targeting a customer base of
tech-savvy, young customers, Apple focused on making its device simple and fun. The finger-driven
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interface was highly intuitive, so that even children and senior citizens could play with the device
without having to read and learn the manual.
Apple’s pricing for the iPad was relatively low compared to the launch of the iPod and iPhone. The
entry retail price of $499 for an iPad was lower than the wholesale price of an iPhone. Despite the
low price, Apple earned an estimated 25% gross margin on the entry model . By using its own CPU,
giving the channel a lower margin, and leveraging its scale in purchasing, Apple had lower cost than
most competitors, which could only make 15% gross margin at the same retail price. Apple also had at
least a one - year lead. While some competitors, such as Microsoft, had not even gotten started in
2012, Apple was on its third -generation product. This provided Apple with opportunities to build its
intellectual property position. For example, Apple had filed patents for its creative magnetic cover for
the second-and third-generation iPads. Yet despite Apple’s formidable lead, at least 20 major
manufacturers of mobile devices, PCs, and eReaders launched tablets by 2011. Android-based tablets
were rushed to the market in late 2010, and by the end of 2011, Android held a 38% share. Apple had
at least three potential serious competitors for tablets: (1) manufacturers using Google’s version of
Android (e.g. Samsung which bet heavily on the Samsung Note, a 5-inch combination tablet and
phone); (2) Amazon, which used an open source version of Android and developed a distinctive user
interface selling its 7-inchtablet, the Kindle Fire, for $199.; and (3) Microsoft-based tablets (Windows
8 tablets).
One of Jobs’ last acts as CEO was to prepare Apple for the launch of iCloud in October 2011. iCloud
allowed users to synchronize seamlessly across multiple Apple devices by storing data, pictures,
music, and so on, in one location on the Internet. Five GB of free cloud storage on iCloud was free for
Mac, iPhone, iPad, and iPod Touch users. Consumers could also pay for additional storage. Notably,
iCloud worked only with Apple products. Following Apple’s lead, OS competitors such as Google and
Microsoft offered their own cloud storage services, while product competitors such as HTC and
Samsung struck deals with Dropbox.
During the years since Steve Jobs’ death, Apple witnessed spectacular revenue growth, driven by
booming iPhone and iPad sales. After Jobs had revolutionizes music, phones and computing, Apple
fans were waiting for the next revolution under Tim Cook. On March 9, 2015, Tim Cook announced
the Apple watch, his first strategic move after the tragic death of Steve Jobs. The Apple watch would
function of course as time pies, but also incorporate fitness tracking features and bring smartphone
application to the user’s wrist. This was Apple’s entry in wearable technology. However, there was
already some competition in this category Pebbles and Google announced in 2014 “AndroidWear”.
Also Samsung and Motorola introduced watches based on the platform.
The same day Cook introduced the Apple watch, he introduced Apple Pay, Apple’s new mobile
payment system. When it was launched major banks and credit card companies had signed to support
it and many store chains had pledged to accept Apple Pay. Apple Pay allows users to pay simply by
holding their iPhone or Apple Watch near a wireless payment terminal while keeping their finger on
the home button. The system uses Touch ID to ensure that the phone’s owner is the one making the
payment.
Almost everything that Apple had touched turned to gold. However, one disappointment was the
Apple TV introduced in 2007. Apple TV sales were paltry comparted to Apple’s other products.
Despite Apple’s success, some observers worry that Apple has become overly dependent on the
iPhone and ponder how long Apple can sustain its growth with the introduction of truly innovative
products. In addition, Apple’s drive to keep its costs down was often controversial. Following the lead
of other electronics companies who used third-party manufacturers in low-cost regions, Apple had
become one of the largest customers of Foxconn in China. After several suicides of Foxconn workers,
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Apple commissioned a study by the Fair Labor Association (FLA), which discovered “serious and
pressing” violations of the FLA’s code of conduct as well as Chinese labor law.
As the New York Times reported in January 2013: “In Apple’s factories (their suppliers), employees
work excessive overtime, in some cases seven days a week, and live in crowded dorms. Some say they
stand so long that their legs swell until they can hardly walk. Under-age workers have helped build
Apple’s products, and the company’s suppliers have improperly disposed of hazardous waste and
falsified records”. On the other hand, one can read on from the Apple website: “Apple prohibits
practices that threaten the rights of workers — even when local laws and customs permit such
practices. We’ve taken action toward ending excessive recruitment fees, preventing the hiring of
underage workers, and prohibiting discriminatory policies at our suppliers. And as the first
technology company to be admitted to the Fair Labor Association, Apple is setting a new standard in
transparency and oversight”.
Features of Apple’s Organizational Structure
Apple is quite secretive of about its organization structure. However, a bird’s-eye view of Apple’s
organizational structure shows considerable hierarchy. In the past, everything went through Steve
Jobs’ office. Jobs made all the major decisions in order to ensure focused realization of his innovative
ideas and clear vision for the business. Apple organizational structure has been subjected to certain
modifications since the leadership role was assumed by Tim Cook on August 2011. Specifically, Mr.
Cook embraced the decentralization of decision making to a certain extent in order to encourage
innovation and creativity at various levels. Nevertheless, the structure remains to be largely
hierarchical.
Now, there is more collaboration among different parts of the company, such as software teams and
hardware teams. Apple’s vice presidents have much more autonomy, which was almost absent under
Jobs. Thus, the company’s organizational structure is now less stiff, but still has a hierarchy where
Tim Cook is at the center and where strong financial control reigns.
Product-based grouping is an important feature of Apple organizational structure. Below the senior
vice presidents, there are many vice presidents for different outputs or products. This aspect of the
organizational structure enables Apple to address specific products or product components.
In addition, Apple’s organizational structure has a function-based grouping. Each senior vice
president (SVP) who reports to Tim Cook handles a business function. For example, Apple has an
SVP for industrial design, an SVP for marketing, and another SVP for retail. In this aspect of the
structure, Apple’s top leaders address business needs in terms of function areas.
The business also depends on cultural support and coherence, which are determinants of
competitiveness and industry leadership, especially in addressing aggressive and rapid product
development. The following are the main characteristics of Apple’s corporate culture:
Top-notch Excellence: Apple’s organizational culture comes with a policy of hiring only the best of
the best in the labor market. Steve Jobs was known to fire employees who did not meet his
expectations. This tradition continues under Tim Cook. Such a tradition maintains and reinforces a
corporate culture that promotes, appreciates, and expects top-notch excellence among employees.
Creativity: This cultural characteristic pertains to new ideas that help improve the business and its
products. Apple’s management favors creativity among employees’ knowledge, skills, and abilities.
This characteristic of the corporate culture enables the company to ensure sufficient creativity,
especially among employees involved in product design and development processes.
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Innovation: Apple’s organizational culture supports rapid innovation. The company is frequently
appraised as one of the most innovative companies in the world. Based on this cultural trait, the firm
trains and motivates it employees to innovate in terms of individual work performance and
contributions to product development processes.
Secrecy: Steve Jobs developed Apple to have an organizational culture of secrecy. This cultural
characteristic continues to define the company’s human resource development. Secrecy is part of the
company’s strategy to minimize theft of proprietary information or intellectual property. Through the
corporate culture, employees are encouraged and expected to keep business information within the
company. This cultural trait is reinforced through the company’s policies, rules, and employment
contracts.
Moderate Combativeness: Apple’s organizational culture has moderate combativeness. This feature is
linked to Steve Jobs and his combative approach to leadership. He was known to randomly challenge
employees to ensure that they have what it takes to work at Apple. However, under Tim Cook’s
leadership, the company has been changing its corporate culture to a more sociable and a less
combative one.
Apple’s corporate culture brings challenges because of the emphasis on secrecy and on the degree of
combativeness. An atmosphere of secrecy limits rapport among workers. Also, combativeness has the
potential to limit or reduce employees’ morale. These cultural issues can reduce business effectiveness
and increase employee turnover.
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