thenextwave

Apple and the ‘strategic moment’

Posted in business, digital, future, innovation, organisational, strategy by thenextwavefutures on 13 November, 2007

The excitement over the launch of the iPhone in Europe gives me a reason – or at least an excuse – to mention an interesting interview on strategic opportunity with Richard Rumelt in McKinsey Quarterly (free but requires registration) a couple of months ago. Rumelt – one of the most influential academics in the strategy field – suggested that most businesses confused planning with strategy, and that there was a big gap between most executives’ strategic perceptions of their markets and their behaviour. But not at Apple.

In the article, Rumelt recalls how in the 1990s he had interviewed 20 to 30 CEOs while researching strategy in the global electronics industry. He asked questions about market leadership and so on:

Most executives easily explained how companies became market leaders: some sort of window of opportunity opened, and the leader was the company that was the first to successfully jump through that window. Not exactly the first mover but the first to get it right.

But when I asked these same executives about their own strategies, I heard a lot about doorknob polishing. They were doing 360-degree feedback, forming alliances, outsourcing, cutting costs, and so on. None of them even mentioned taking a good position quickly when the industry changes.

Then, a few years later, he had the opportunity to speak to Steve Jobs, who had returned to Apple and had turned it around. He asked him about Jobs’ long-term strategy as a niche computer company which was never likely to disrupt the Intel/Windows ‘standard.

He didn’t agree or disagree with my assessment of the market. He just smiled and said, “I am going to wait for the next big thing.”… He was waiting until the right moment for that predatory leap, which for him was Pixar and then, in an even bigger way, the iPod. That very predatory approach of leaping through the window of opportunity and staying focused on those big wins—not on maintenance activities—is what distinguishes a real entrepreneurial strategy.

Rumelt observes that the changes which Apple exploited in the music industry were clear to everyone. “You couldn’t pick up a magazine without reading about Napster. And people knew that MP3 players were coming along.” Jobs was perfectly positioned – ‘a bit of an insider’ in the entertainment industry, but without asset positions which were threatened by digital music. He didn’t have to cannibalise his own business.

The comments on Jobs link to a broader observation – that all businesses seek “a pathway to substantially improved performance”, but there are really only two routes to this: inventing your way to success – which is unreliable – or exploiting some change in your environment, “and riding that change with quickness and skill”:

Strategic thinking is essentially a substitute for having clear connections between the positions we take and their economic outcomes. [It] helps us take positions in a world that is confusing and uncertain. You can’t get rid of ambiguity and uncertainty—they are the flip side of opportunity.

Which obviously connects to two of the rationales for futures work: that it enables organisations to contemplate multiple possible futures – and therefore manage for uncertainty and ambiguity – and that it requires organisations to pay much more considered attention to their external environment.

Rumelt’s tips for good strategy: small groups of smart people, and no Powerpoint (“it drives out thinking”). Instead, ask people to write down three coherent paragraphs about what is changing and why. Bigger groups should be engaged later, to get to the best solutions, and earn commitment.

Update [04-12-07]: Adam Penenberg has a recent article in Fast Company on Apple’s prospects which suggests that the iPod ‘moment is unlikely to be repeated. Extended extract here: worth reading the article in full.

It’s worth remembering that Apple lost money in 2001, the year the iPod was introduced, and had smallish profits in 2002 and 2003, when iTunes was created and the iPod took off. In other words, the iPod’s success didn’t come solely from elegant, simple, novel design, but also from the fact that the iPod and iTunes appeared together and, essentially, in a vacuum. The market in MP3 players was small at the time, and there were few legal ways to obtain music for them; Jobs was able to exploit both factors in taking control, then cemented that position by making iTunes available to Windows users. Today, Apple commands about 70% of music downloads.

The iPod-iTunes pairing was the product of a historical moment that may never be reproduced. It was an ideal closed system:an utterly new music machine and something exclusive to load into it, something very hard (or illegal) to obtain otherwise. The device and the service together became the basis of a subculture, an iPod aesthetic. The perfect business storm they generated allowed Apple to build a near-monopoly.

But if iTunes is the driver for iPod sales (which, in turn, boost Mac sales), then Jobs’s chair sits on a floor he doesn’t own. The content that launched the iPod isn’t his. And now the music industry is striking back.

3 Responses

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  1. The future of management « thenextwave said, on 24 November, 2007 at 12:37 am

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