17 Jan 2012 | Technology

Apple culture in the post-Jobs era 

Baillie Gifford’s portfolio managers see investing in Apple as an opportunity to share in the success of a business that creates highly desirable, emotive products, which it sells at premium prices. Seems simple. But, to be confident that this attraction is sustainable, we need to constantly review the investment case.

This involves delving into the softer factors that influence Apple’s culture in order to determine the extent to which it is, as has been claimed, the corporate embodiment of the company’s founder and CEO Steve Jobs, who died in October 2011.

This culture has frequently been described using phrases such as ‘innovation’, ‘(obsessive) secrecy’, ‘(ruthless) attention to detail’, ‘(overly) intensive work ethic’ and ‘casual dress code’. Not perhaps the most glowing of character reviews, but it somehow seems to work for the company. The products in all their clean-cut splendour, the slick marketing, the trendy Apple Stores with ubiquitous glass staircases and technical wizard help sessions are visible to all. These are the obvious signs of a company on song, confident and comfortable.

Having previously filled the top role on a temporary basis during Jobs’ illness-enforced absences, Tim Cook has now been appointed on a permanent basis. An authorised biography, published shortly after the founder’s death, points to the fact that Jobs had the final say on most issues. However, Cook’s leadership, in conjunction with contributions from his lieutenants, Philip Schiller and Jonathan Ive, brought stability at important times and suggests that there is an ingrained, highly-centralised mode of decision making – the backbone of the Apple culture – which remains in place and should provide stability. 

So what is Apple’s secret? What drives the innovation? And how does that sit with the clinical management of the supply chain and the apparently ruthless efficiency with which they ensure that the latest ‘must have’ offering is available in the shops as the desire and hype build?

It is certainly not by being like other companies. Apple doesn’t conform to the popular management approach where the CEOs spend much of their time keeping their workers happy – a look at the cultural profile confirms that. While that style of management works for many technology companies (Google for one), Apple is more in the mould of the traditional autocratic engineering firm, the top tier of management keeping tight control and micromanaging every facet of its products and services from design all the way through to persuading customers to pay up for a better experience. Jobs was famously demanding of his staff, but inspired loyalty. Those who worked with him argue that his immense drive and charisma countered any ill feeling that his autocratic leadership style might otherwise have generated.

Cook, who joined from Compaq in 1998, revolutionised Apple’s supply chain and inventory management, abandoning direct manufacturing and warehousing for a preference to build partnerships with external contract suppliers. This has led to a reduction in Apple’s inventory of goods holding period. Apparently, Cook has said that inventory is “fundamentally evil,” and he likens its management to being in the dairy business – “If it gets past its freshness date, you have a problem.”

Add to that the fact that Ive led the design of products including the iMac, iPod, iPhone, and iPad, plus Schiller’s contribution to the marketing of Apple products over more than twenty years, and a picture emerges of an organisation that has a depth of senior talent capable of maintaining the culture of innovation with the same attention to detail for many years to come.

At Baillie Gifford, our research includes seeking out a range of views from a company’s former employees and industry gurus, as well as trying to learn from the fortunes of others. In our conversations with those who have worked for Apple, the word “passion” is used persistently – passion permeates everything in the company from design, through development, to the delivery of “insanely great products”

The Apple environment fosters new ideas, strengthening the sense that the culture allows for mistakes as well as rewarding successes. Apple’s headquarters at the Cupertino campus are deliberately designed around chaos theory, whereby autonomous teams, who may work on their project for several years, get to design their part of the campus. The result is that Apple is a cause that matters to its employees; it is a (sometimes difficult) way of life, but brings them together into one very supportive, extended Apple family. Despite the outside world’s focus on Steve Jobs and his legendary obsession about every detail of every product, Apple’s unique culture seems to be so well embedded that there is no reason to think that it will not be able to create and develop exciting new products for many years to come.

Please be aware that investments can go down as well as up and you may not get back the amount originally invested.

The views that are expressed in this article should not be taken as fact and no reliance should be placed upon these when making investment decisions. They should not be considered as advice or a recommendation to buy, sell or hold a particular investment.

This article contains information and opinion on investments that does not constitute independent investment research and is, therefore, not subject to the protections afforded to independent research.

Pete Cooke
Pete graduated BSc in Electronics and Electrical Engineering from Edinburgh University. He spent four years working in industry and qualified as a Chartered Accountant in 1992.  Pete joined Baillie Gifford in 1993 and is a Director in the Institutional Clients Department with responsibility for international clients.  He became a Partner in 2003.