[MUSIC PLAYING] SPEAKER: What is
Apple best known for? Easy answer, for its innovation
in hardware, software, and services for a wide range
of products, such as computers, iPhones, and iPads. Now here's what's
less known and equally significant about the company,
its organizational design and the associated
leadership model that have played a crucial role in
driving its innovation success. It all began after Steve
Jobs returned to Apple as CEO in 1997. One of his first
acts on his return, laying off the general managers
of all the business units in a single day, not a move
that inspires a welcome party. But there was a method
to Jobs' madness. Apple at the time had a
conventional structure for a company of
its size and scope. It was divided into
business units, each with its own profit
and loss responsibilities. Jobs believed this conventional
management stifled innovation. He put the entire
company under one P&L and combined the different
functional departments of the business units into
one functional organization. Simply put, a
functional structure divides an organization
into departments based on their function. These departments are headed
by functional managers who are experts in the
roles they supervise. The functional structure, which
Apple retains to this day, ensures that those with the
most expertise and experience in a particular domain
have the decision rights for that domain. Senior vice presidents
at Apple then, are in charge of
functions, not products. As was the case with
Jobs before him, current CEO Tim Cook
occupies the only position on the organizational chart
where the design, engineering, operations, marketing,
and retail of any of Apple's main products meet. In effect, besides
the CEO, the company operates with no conventional
general managers. Apple's structure is
based on two views. First, the organization
competes in a market with a high rate of
technological change and disruption. It has to rely on the
judgment and intuition of technical experts
who can predict which technologies and
designs are likely to succeed. General managers are unlikely
to be able to do that. Second, Apple's commitment
to offer the best possible products would not
be achieved if cost and price targets were the fixed
parameters within which to make design and engineering choices. Instead, R&D
leaders are expected to weigh the benefits to users
against cost considerations. A case in point is the decision
to introduce the dual lens camera with Portrait Mode in
the iPhone 7 Plus in 2016. Paul Hubel, a senior leader
who played a central role in the Portrait Mode
effort and his team were taking a big
risk, if users were unwilling to pay a premium
for a phone with a more costly and better
camera, the team would have less
credibility the next time it proposed an expensive
upgrade or feature. The camera turned out to be a
defining feature for the iPhone 7 Plus. Under a traditional
structure, Hubel would not have been empowered
to take such a risk and the feature
would likely not have been made because traditional
cost and price analysis lack a deep understanding
of users' needs. It's easier to get the balance
right between attention to costs and the value
added to the user experience when the leaders
making decisions are those with deep
expertise in their areas. This explains Jobs' decision
to change the way Apple works, the combination of its
organizational structure and its leadership model
not only saved the company from bankruptcy but
also transformed it into one of the most influential
tech companies in the world.