[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.