This post was going to be part of my new book, , but was cut for length or continuity. Over the next week or so, we will be publishing several more sections that were cut, focusing mostly on geeky details of Apple’s manufacturing operations.
Apple is a functional organization. It’s not organized along business lines, split into divisions like the iPhone division, the Mac division and the Apple TV division, the way, say a company like Ford has the Lincoln division for its luxury cars, a trucks division, a parts division and so on.
Instead, Apple is organized around functions: design, hardware, software, internet services. In this way, Apple operates like the biggest functional organization on the planet: the military.
Functions versus divisions
It’s easy to imagine Apple being split into the iPhone/iPad division, the Mac division, an accessories division. But instead, the hardware group works on all the hardware products, from the iPhone to Apple Watch. Apple is unique in this among big companies. Small companies and startups tend to be functional, and then split into divisions as they grow, because it makes it easier to manage big, diverse organizations. A company like Procter&Gamble manages each of it’s brands like autonomous businesses, each with its own P&L, marketing department, customer service, and manufacturing operation.
“We are organized like a startup,” Steve Jobs explained at the D8 conference in 2010. “One person is in charge of software. One person is in charge of Mac hardware. One person is in charge of iPhone hardware engineering. Another person’s in charge of worldwide marketing. Another person’s in charge of operations. We’re organized like a startup. It’s the biggest startup on the planet.”
In traditional companies, the bigger, most successful divisions accrue the most power. A division that is making a lot of money for the parent company will get more budget, headcount, machinery and R&D spending.
But as a functional organization, Apple doesn’t allocate resources like that. The iPhone is Apple’s biggest product, but there’s no iPhone division to suck up all the money and headcount.
For Cook, Apple’s functional organization creates some unique challenges.
Deirdre O’Brien, Apple’s vice president of people, said the functional nature of the company allowed it to feel like a much smaller company.
“Apple is run like a small company,” she said. “It’s functional, not divisional … because the company is structured in a really simple way. The fact that we have a functional organization and Tim is the owner of the P&L of the company, it’s very straightforward.”
“We don’t get fiefdoms. And also because it’s very clear that each one of the teams has a role to play. But the great part about I think how that works is that we all know that we have to help each other. And so it creates this really neat environment here and it really does make it work and so it feels small… To me it feels like it’s a small company. It means you can influence things. In big companies, employees end up feeling like they can’t influence. They don’t have a voice. And I feel at Apple what you do every day matters. You’re empowered. And so to me that equals a small company. That’s one of the reasons why I love working here for so many years. I think that’s why Apple’s been so successful.”
Internally, Apple operates like the biggest functional organization on the planet: the military.
In the military, most personnel are experts: snipers, gunners, jet pilots or divers. Likewise, inside Apple, everyone is a specialist, an expert in their field: mechanical engineer in charge of interconnects, a UI designer that specializes in iOS, a technical writer that creates online knowledge base documents. And once assigned to that role, the Apple staffer sticks to it. There’s little or no moving across the organization into a different job. Staffers may get promoted to be a manager, but they usually stay within their specialty.
“The analogy that works best is the military,” said Horace Dediu, an Apple analyst who has been dubbed ‘King of Apple Analysts.’ “The military is a hierarchical, very structured, functional organization. Meaning that everyone has essentially a role. There isn’t this, well today I’m a pilot, tomorrow I’m going to just transition into being a Navy captain. You have to because it’s life and death. You have to focus on the one job and you have to become essentially an expert in it and stick with that job. And you don’t move. You can rise up and become the leader of others who do the same thing. But you cannot cross into another domain entirely.”
Apple’s functional nature is reflected in the highest ranks of the company. Apple’s executive team consists of 11 executives, all in charge of a different function within the company: Jony Ive in charge of design; Phil Schiller in charge of marketing; Dan Riccio in charge of hardware; Craig Federighi in charge of software; and so on.
Dediu recalled meeting an Apple staffer a few years ago:
“I said, ‘What do you do?” He says, “Oh I do technical documentation.’ So he writes manuals. And I said, ‘Really? Fascinating.’ And this was like three years ago, I think, or so. And I said, ‘So how long have you been with Apple?’ He said, ‘Oh I joined way back, I was like before Jobs came back or something in the 90s.’ Seriously? Wow you’ve really been there a long time. He said, ‘Yeah.’ And so what did you do back then? ‘Oh I was in documentation,’ he said, almost like a strange question. But that means this guy’s been doing documentation for 25 years or whatever. It’s nothing unusual about that, because if you go back and say, ‘Well what does Phil Schiller do? He does marketing. What did he do when he started? He did marketing. He did nothing else there. And no one ever does anything else.”
Like soldiers, Apple staffers operate on a need-to-know basis. The engineers building the iPhone designed the hardware without ever seeing the iPhone software until Steve Jobs showed it off at Macworld. A procurement manager I talked to worked for an entire year getting factories to build internal components for the iPhone without ever realizing they were going into a phone. They only realized what they had been working on when Jobs held up the iPhone at Macworld.
“The soldier doesn’t know why they’re on the mission,” said Dediu. “ He doesn’t need to know. He’s supposed to just execute on his on his task and work shoulder-to-shoulder with others, fighting.
“The thing about Apple is that it feels very much like that,” he added. “You just execute brilliantly on whatever it is that you have to do. So you just do what you’re told and don’t ask why … You’re a piece of the machine, and get used to it.”
Apple staffers might remain within their roles, but they frequently get assigned to different projects. Engineers working on the iPod were reassigned to build the iPhone. Software experts who designed Mac OS X were tapped to design iOS.
Jobs and Cook are different
The two exceptions to the rule are Steve Jobs and Tim Cook. Jobs was the only all-rounder in the whole organization. Jobs worked with a variety of teams across the organization: hardware, software and marketing, to name a few.
“There’s only been one generalist at Apple, and that’s Steve Jobs,” said Dediu. “It’s fascinating, right? Because everybody else is an absolute domain expert. Decades of preparation for that one domain. Skilled in that one area, and nothing else … Jobs was the ultimate Renaissance man who could sort of like stretch across everything.”
Likewise, Cook has had several different roles during his career at Apple. Cook was hired as an operations specialist, but Jobs soon put him in charge of sales, and then sales and support. Then he ran the Macintosh division before becoming COO. In hindsight, it looks like Cook’s job hopping was training to be the next CEO.
Problems with politics
Functional organizations are a way to prevent internal power struggles, but they create some special challenges for Cook.
Steve Jobs was the victim of a coup in the mid-1980s, when he tried to oust the then-CEO John Sculley in a boardroom coup but was outmaneuvered. Dediu thinks Jobs structured Apple as a functional organization to prevent it happening again. A functional organization prevents executives from building strong power bases within the company.
“Steve wanted to kill any politics in the organization,” Dediu said. “He understood because he was a victim that politics destroys the organization. Politics destroys everything at the end. And companies die within. By creating the structure he created, he was essentially taking away the means of power that that was wielded before.”
Internal power based on money and budget and headcount has been removed. Everything at Apple is project oriented — the way that Hollywood is project oriented – and that also makes it hard to consolidate power. As Apple’s vice president of people Deidre O’Brien noted above: “We don’t get fiefdoms.”
“My hypothesis is that this is very carefully planned by Steve Jobs,” Dediu said. “He created this organization and he said we have to destroy the ability of managers to become ambitious. We have to destroy the ability, because ambition is at the root.”
But Dediu noted that executives at Apple have sometimes been able to build power bases based on the skills and talents of the individuals working underneath them. That’s the new power base.
Dediu thinks this is why Cook fired Scott Forstall, the software executive who was responsible for the software that powered the iPhone. As the iPhone took off, Forstall’s star rose. He became very powerful internally, and had a public profile that pegged him for the role of CEO. Dediu said he heard rumors that Forstall was starting to run his own projects internally – recruiting hardware engineers for his own projects – without involving Cook or Apple’s other executives.
Forstall didn’t respond to requests for comment.
“As much as he was contributing, as much as he was doing right, the capitol offense at Apple is that you disobey and you overstep your boundaries. You have a boundary. And if you try to play games and say look I want to recruit the hardware guys to my scheme, or you want to do this and that behind the scenes. Then, that’s it. That’s an offense that is an inexcusable offense, a Capitol offense.”
Dideu likened it to President Truman’s firing of General MacArthur in 1951 during the Koran War. MacArthur was a WWII war hero who headed the army in the Pacific and helped defeat Japan. He rebuilt the country after the war, and reorganized Japanese society. He was then put in charge of defeating the communists in North Korea and wins against all odds. But Truman fired MacArthur because of disobedience. MacArthur went behind Truman’s back trying to enact a policy in Korea that was more aggressive against China. Truman fired him for ignoring the chain of command.
Dediu said he’s doubtful Forstall got fired for screwing up Maps — a widely-reported reason for his dismissal — because Apple tends to have a culture that is forgiving of mistakes.
But if Forstall refused a direct order from Cook to make a public apology, it was this defiance that doomed him.
“Tim felt that, ‘Hey I’m being tested,’” Dediu said. “’These guys are starting to exercise power. I need to be very decisive.’ And I think partly his reasoning was like, ‘I’ve got to do this public execution, in order for others to take me seriously.’”
Dediu noted that since firing Forstall, he seems to have had no further trouble from his executives.
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