Nalini Muppala

Analysis, observations, perspectives on mobile space

Using Theories To Understand Apple

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Serial Disruptor

Apple has rewarded its investors with spectacular returns in the past 10 years. An investment of $100 at the start of 2001 yielded over $4200 by the end of 2010. How can big companies keep growing at such an impressive rate? According to the theory of Disruptive Innovation, companies have to continue to disrupt themselves and innovate repeatedly. That is exactly what Apple has done in the last decade.

Clayton Christensen and his co-authors have articulated disruptive innovation at great lenghts. At the time of writing The Innovator’s Solution (2003) and Seeing What’s Next (2004), the authors were not convinced that any company has continued to be a serial disruptor for long.(1) Solution lists Sony as the only example of a serial disruptor that went on to create a string of a dozen disruptive new-growth businesses between 1950 and 1982. In Seeing What’s Next, the authors are less enthusiastic about Sony and concluded there were no serial disruptors to date.(2)(3)

The authors might have a different opinion if they were to revise these books today. Apple is an example of a large firm sucessful at serial disruption. In the past decade, Appple has found three growth engines iPod, iPhone and iPad.

To sustain the growth momentum, disruptive innovations need to start early before pressure mounts from slowing growth and profits from existing products. iPhone came out before the profits from iPod slowed down. iPad came before the profits from iPhone slowed down.

PA Semi Acquisition and Apple A5

According to Value Chain Evolution theory, companies ought to control any activity within the value chain that drive performance that matter most to customers.

Apart from the legendary intergration of software and hardware, what do users value most in an Apple mobile device? It is the snappiness and the elegance of user interface.

By being able to develop processors internally, Apple is able to fine tune the heart of hardware to power what it values most — user experience. By developing the processor in house, Apple was able to bring improvements faster to market. It now has the ability to control, tweak the component capability to suit product features that users value most — A5 sports vast improvements to rendering graphics than to the raw processing power of the CPU. This will go a long way to keep the user interface snappier.

iPad

The original iPad is a disruptive innovation. The iPad targeted non-consumption. It is easier to use. The task can be accomplished with fewer skills. It is more inuitive and does not force the user to adapt to the product to get things done.

It is cheaper than a laptop that would have been used to accomplish tasks that an iPad would now do. This is significant considering how Apple products are considered expensive than competition. Almost a year later, competitors are not able to beat Apple at cost.

15 million iPads were sold in the first 9 months. While that number in itself is huge, it is more significant for a first revision product. Early adaptors and enthusiasts are ready to buy a version 1 product, the mainstream user on the other hand tends to wait a bit. Case in point :  slow uptake of first versions of iPod and iPhone.

It could be claimed that Apple has learned from the iPad and iPhone and got the first version iPad closer to the liking of mainstream, or that even the first version of this product was irresistible for a wait-and-see approach.

iPad2 is a sustaining innovation. Segments of the press have derided the improvements to be too small. When sustaining innovations overshoot customer needs, a firm risks commoditization. When product capabilties exceed what customers can meaningfully use, sustaining innnovations are overshooting. In that sense not adding NFC capabilities is the right thing to do at this time. Tablets are not commoditzed yet, and Apple does not have any incentive to expedite that.

Succession Planning

It is beyond argument that Steve Jobs is a genuis and his knack for elegance in product design will be dearly missed when he eventually leaves Apple. All signals indicate that the disruption engine that Apple has morphed into will keep humming.

Successful disruptors are powered less by the genius of the founders than by the processes and values at the firm that identify, cherish and grow dirsuptive ideas. Processes and values more than people.

Managers who have the experience in identifying and nurturing disruptive innovations have gathered the requried skills and put in place the processes to continue disrupting. So, unless there is a mass exodus of the executives, who have driven the company to be a serial disruptor in the past decade, there is no need to panic.

Notes:

1. The Innovator’s Solution, 2003, ch 10: Notes #2
2. Seeing What’s Next, 2004, ch 6, pg 67 … “We can’t yet point to an example of a firm that actually has become a serial disruptor”.
3. Seeing What’s Next, 2004, ch 6, pg 291 … “To our knowledge, no company has been able to build an engine of disruptive growth and keep it running and running”

 

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Written by Nalini Kumar Muppala

March 11, 2011 at 6:14 am

Posted in Apple, Industry, Theory

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