Apple’s Secret Sauce: The Real Ingredients

In Uncategorized on June 14, 2011 at 1:59 am

By Thomas A. Stewart | March 22, 2011

Googling “secret of Apple’s success”–in quotes–gets 29,400 hits. That number will no doubt grow now that Apple has again topped Fortune’s list of the most-admired companies. A rolling stone gathers no moss, but a company on a roll gathers investors, groupies, and explainers. Like docents in a museum, they stand before the object they admire, telling whoever will listen why it’s so great and how it does what it does.

Funny, though, how the explanations vary. To Fortune, the secret is Apple’s “blistering pace of new product releases.” Actually, Apple sets “a deliberately moderate pace” to maximize its profits, says a thoughtful analysis by Christopher Meyer, consultant and the author of a book about speed, Fast Cycle Time. The secret is “staying upmarket” per to Bloomberg BusinessWeek, noting the fact that Apple dominates the market for $1000+ computers. Only: Apple’s hottest product, the iPad, has competitors stymied because it’s priced below other tablets, says the New York Times’s David Pogue.

Some say the secret is vertical integration-but as Saeed Khan notes, that was also the supposed reason for Apple’s failures 20 years ago. Some, like Guy Kawasaki, say Apple invents whole new businesses by anticipating where the market is heading. Others argue that Apple wins because it surfs brilliantly on waves of others’ invention, pointing out that the iPad was neither the first tablet nor the iPhone the first smart phone.

We’re seeing two things here. The first: blind men groping an elephant. Though there are dozens of Harvard Business School cases about Apple, the company hasn’t become a specimen under the management microscope the way GE and P&G have. Instead, writers have focused on the all-important question of whether Steve Jobs is Svengali, Rasputin, or the Second Coming.

More insidious, this is a demonstration of fallacies Phil Rosenzweig skewers in his book The Halo Effect. Very often, Rosenzweig shows, people “claim to have identified the drivers of company performance, but have mainly shown the way that high performers are described.” Confusing causation with correlation, attributing virtues to a company simply because it’s doing well-such errors happen all the time. People with hobby-horse theories are especially inclined to ascribe a hot company’s performance primarily to the fact that it sounds like the horse they’re riding. (Don’t ask me how I know this.)

Forget the gurus.

In fact, the secret of Apple’s success is on file with the Securities and Exchange Commission. Apple’s Form 10K includes a remarkable paragraph under the heading “Business Strategy.” A small masterpiece of clarity and coherence, it states what Apple is trying to accomplish. Then it lists the half-dozen things Apple must do distinctively and well to succeed. Here’s the paragraph. (The italics and comments are mine.)

The Company is committed to bringing the best user experience to its customers

[Strategy starts with an unambiguous view of how a company will create value. This is Apple’s: Let others do what they do; customer experience is how we play. So, if that’s their game, how do they win at it?]

through its innovative hardware, software, peripherals, services, and Internet offerings. The Company’s business strategy leverages its unique ability to design and develop its own operating systems, hardware, application software, and services

[Required capability #1: Everything that a customer touches, we must be able to do ourselves. Corollary: It’s ok–necessary, even–to outsource what doesn’t touch customers directly, like manufacturing and logistics]

to provide its customers new products and solutions with superior ease-of-use, seamless integration, and innovative industrial design

[Capability #2: we must deliver product attributes that improve customer experience. Note the attributes not listed, like bleeding-edge technology]

The Company believes continual investment in research and development

[Capability #3: Plan and manage a research portfolio coherent with the first two capabilities and encompassing both new and renewed products]

is critical to the development and enhancement of innovative products and technologies. In conjunction with its strategy, the Company continues to build and host a robust platform for the discovery and delivery of third-party digital content and applications

[Capability #4: To own the customer experience, we must run a digital store so great that we can compel third-party providers to come through us. No one in the industry–or any industry I can think of–has anything like this]

through the iTunes Store. The iTunes Store includes the App Store and iBookstore, which allow customers to discover and download third-party applications and books through either a Mac or Windows-based computer or wirelessly through an iPhone, iPad or iPod touch. The Company also works to support a community for the development of third-party software and hardware and digital content that complement the Company’s offerings

[Capability #5: Others do this too, of course, with bigger and often more open communities. What people complain about in Apple’s development community is a feature, not a bug; "complement the company’s offerings" is the key phrase]

Additionally, the Company’s strategy includes expanding its distribution to effectively reach more customers and provide them with a high-quality sales and post-sales support experience.

[Capability #6: Elsewhere in the 10K, Apple says its stores "control the customer experience" and notes that they are in desirable (i.e. high-rent) locations and staffed with knowledgeable and experienced (i.e., well paid) people. As for post-sales support, every Apple owner knows that its support is the industry’s best–not perfect, but the best, whether on the phone or at the Genius Bar, which is itself a stroke of genius. If customer experience is your game, customer service is not a cost to be minimized]

The Company is therefore uniquely positioned to offer superior and well-integrated digital lifestyle and productivity solutions.

There you have it: The six ingredients of Apple’s secret sauce. There’s nothing special about them. Here’s what’s special:

First, they work together as a system that is at unity with itself. Each capability reinforces and amplifies the others; and to win the game they play, no other capabilities are needed.

Second, Apple actually does what it says. There’s a long list of ways in which Apple could get distracted from its strategy. (I noted a couple of them above.) What sets Apple apart is the ability to those six things very well and to the relentless exclusion of anything else.


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