Apple is starting to look like a train wreck this quarter. We have iPhone 8s falling apart, we have iPhone Xs that are already running into parts shortages and they aren’t even available yet, and we have iOS 11 problems that are making us think the new tag line for that platform should be “bugs are us.” Realize that a lot of the advantage that Apple has with regard to perceived quality is that the company, unlike Google and Microsoft, has a closed ecosystem and defines its hardware. Not only that, it is a premium vendor, which suggests higher, not lower, quality in the result. Basically, the stuff costs more and has less complexity, both of which, everything else being equal, should result in higher quality. Yet, at the moment, much of its high profile new offerings appear to be badly broken.
So, what is going on?
Excessive Margin Focus at Apple
Because of Apple’s excessively high valuation, the firm is pounded on top- and bottom-line performance. Top-line performance, sales volume, has been growing exceptionally slowly, with most revenue growth coming from Apple raising prices, not increasing unit sales (which isn’t sustainable because it will eventually price itself out of the market), of late, which typically focuses management on the bottom line like a laser in order to prevent a market correction. This means that even though the Apple products are high priced, Apple has put massive cost pressure on suppliers and this means these suppliers are cutting back on staff (volume and quality), and pushing down on their suppliers, who do the same thing, and reducing reliance on functions like quality control. This is because quality control slows time to market and has the appearance of increasing cost. In one instance, where I saw a company kill quality control for similar reasons, the firm argued that engineering already knew what quality control reported and it was redundant. After killing the group, quality plummeted because everyone else is focused on shipping. QC is focused on making sure it doesn’t break.
Distractions and Office Moves
I’ve heard of something referred to as the “curse of Silicon Valley,” which is tied to firms that got huge new customer showcase offices and then immediately fell into decline, often going out of business. Apple just built one of the largest and most impressive office buildings in history, and employees detest it. But behind this “curse” is the reality that when you move a major portion of a company, you disrupt it badly for weeks and months while the firm is in transition. Systems change, every employee has to get situated in the new office, and there are generally unanticipated problems with common services and even where people meet that have to be resolved. Key executives, instead of being focused on products, are instead focused on aspects of the move. This includes perceived slights for office locations, changes in traffic, commute and living locations. And these people are also likely dealing with subordinate problems associated with all of these things with an impressively high probability that a significant number of these folks won’t be happy with the solution.
This is the foundation of the curse. It isn’t from some kind of magical attack, but a massive headquarters moves, and Apple is experiencing one of the biggest in history.
CEO Skill Set
Apple was designed around Steve Jobs, who used the old Sony (pre-2000) and Porsche as models. This is a product first, form over function, type of concept. The reason this model worked for him was that he was a product guy. He lived and breathed product and he was a micro-managing perfectionist.
Tim Cook is an operations guy with a background in supply chain. This suggests a very different kind of approach, one that focuses on production over quality, numbers over excitement, and specs over passion. This means that while Jobs really fought shipping a product before it was ready, Cook is far more focused on schedules, costs and stock performance than he is demand generation, excitement and quality.
This is somewhat analogous to when Steve Ballmer took over from Bill Gates at Microsoft, and while Cook has held valuation far better than Ballmer did, the trend between the firms, while slower, is similar as a result.
Wrapping Up: Apple’s Problems Are Avoidable
The number of quality problems for Apple, particularly this close to the end of the year, is nearly unprecedented. They result largely from three things: a massive shift in focus to cost containment, distractions connected to a massive office move, and moving from a product/marketing/demand focused CEO, to one who is more operationally and numbers focused.
You’re seeing a set of changes that often happen to firms as they age, avoidable mistakes, and their effect in products you touch. This same kind of pattern can happen to any company, avoiding it should be something more executives, and especially CEOs, should be far more aware of.
By the way, there is also another lesson here. When it comes to any brand-new product, there are folks who have to be the first and folks who are smart and wait until the initial problems are fixed. The old saying is that prospectors get the arrows, settlers get the land. Or early adopters get the problems and folks who wait get a far better experience. Particularly if you are an Apple customer, you may want to shift to more of a settler strategy going forward.
Rob Enderle is President and Principal Analyst of the Enderle Group, a forward-looking emerging technology advisory firm. With over 30 years’ experience in emerging technologies, he has provided regional and global companies with guidance in how to better target customer needs; create new business opportunities; anticipate technology changes; select vendors and products; and present their products in the best possible light. Rob covers the technology industry broadly. Before founding the Enderle Group, Rob was the Senior Research Fellow for Forrester Research and the Giga Information Group, and held senior positions at IBM and ROLM. Follow Rob on Twitter @enderle, on Facebook and on Google+