Transcript

Wade Roush: Hello, and welcome to The Persistent Innovators, a special miniseries from Innovation Answered, InnoLead’s podcast for corporate innovators. 

I’m Wade Roush. I’m a technology journalist and podcast producer based in Boston, and I’ll be your guest host for the next four episodes.

If you were watching the business news on January 3rd, the first day of trading in 2022, you might have noticed something interesting happen.

Audio Montage Voice 1: Meanwhile, know that Apple just hit the $3 trillion mark in total market cap. This is the first $3 trillion company trading in the U.S. Probably trading in the world.

Audio Montage Voice 2: Apple finally hits, finally hits the $3 trillion mark in market cap value. The magic number was $182.86.

Wade Roush: There are only 10 countries on Earth with a gross domestic product above $3 trillion. 

carles-rabada-NXP7wGyUDeY-unsplash

Apple headquarters in Cupertino, Calif. Photo by Carles Rabada on Unsplash.

Which makes Apple into something like a distributed micronation, with over a billion people using its devices worldwide, and a Capitol building in Cupertino that’s so large it could swallow the Pentagon.

It’s hard to remember a time when Apple wasn’t so dominant. But the truth is that the company formerly known as Apple Computer didn’t take off on its rocketship growth trajectory until it got into the business of making phones.

When Steve Jobs returned to Apple in 1997 after 12 years of exile, the company was nearly bankrupt. When the iPod music player came out four years later in 2001, Apple’s ranking in the Fortune 500 list was still only 236. Way behind rivals like Microsoft.

But then came the iPhone. And since 2012 there hasn’t been a single quarter when Apple sold fewer than 25 million of the magical glass slabs. 

I’ve been arguing for a while that the iPhone is THE signature innovation of the 21st century. It’s the one thing you can point to, to prove that new technologies are still transforming our culture, in the same way that innovations like automobiles or jet travel transformed life in the 20th century. 

So the vast spaceship at Apple Park really is the House the iPhone Built. In fact, I’ve been arguing for a while that the iPhone is THE signature innovation of the 21st century. It’s the one thing you can point to, to prove that new technologies are still transforming our culture, in the same way that innovations like automobiles or jet travel transformed life in the 20th century. 

But of course, Apple couldn’t have created the iPhone if it hadn’t already mastered the art of building and selling consumer-friendly computing devices like the Macintosh and the iPod. So if you want to understand Apple conquered the world with the iPhone, you have to start much earlier in the story. 

That’s what I’m going to do today. I’m going to talk with people who’ve worked at Apple or who’ve spent years observing it from the outside. And I’m going to zoom in on some of the people and stories and ideas that made Apple… Apple. And I think if we do that, we’ll start to build a general understanding of how people create change inside large, established organizations. 

Which, not coincidentally, has always been the central question here on the Innovation Answered podcast. And that’s why we’re doing this special miniseries. Because we think there’s a lot to learn from big organizations that manage to keep innovating across multiple decades.

In addition to Apple, we have an episode coming up about one other American company, Disney. And later in the series, I’ll hop over to Europe to look at The LEGO Group and the pharmaceutical giant Novartis. What I’ll be looking for, throughout the miniseries, are the common elements that made these big companies into what we’re calling Persistent Innovators. Because I think there are common elements that everyone can learn from.

But before we dive in, I want to point to a couple of tensions or questions that I think are going to come up over and over.

The older and bigger a tech company gets, the more they wind up boxing themselves in creatively.

The first question is about how many companies actually get a shot at joining the Persistent Innovators club. Because I think the membership list is pretty darn short. The older and bigger a tech company gets, the more they wind up boxing themselves in creatively. The more vulnerable they become to crises that open up space in the business ecology for smaller rivals. Sort of the way when the asteroid hit, the dinosaurs lost out to the mammals hiding in the underbrush. 

That’s exactly the pattern diagnosed by Harvard business scholar Clay Christensen in his 1997 classic, The Innovator’s Dilemma

Clay Christensen Audio Clip from Harvard Business Review: Yeah, so the dilemma is, a disruptive innovation generally has to cause you to go after new markets. It was very hard for the pioneers of the industry to catch these new waves. Most of those were created and dominated by new companies. 

Wade Roush: I think Christensen was pretty much correct. All that said: Even Christensen acknowledged that there are successful long-term survivors. They’re the companies that figure out how to bounce back after a metaphorical asteroid impact. Somehow they grow and age without becoming fossils. 

That’s why we’re looking at Apple and Disney and Lego and Novartis. Because all of these companies have figured out how to out-innovate the Innovator’s Dilemma and keep dominating their ecosystems over a span of decades. From these companies, we know that it’s at least theoretically possible to become a persistent innovator. 

After all, the Earth today is still home to something like 9,000 species of birds. And what are birds, if not dinosaurs that learned how to fly?

Now, here’s the second question or tension we’re going to run into a lot. When you look at the big companies that did become persistent innovators, did that happen because they had visionary leaders? Or did it happen because they had built a culture of innovation that transcended any particular leader?

Now, to me, this is part of what makes Apple’s story so interesting. Obviously, a lot of the company’s biggest innovations, including the iPhone, get attributed to the company’s legendary co-founder, Steve Jobs. And it isn’t possible to imagine the story of Apple without him. But Jobs died more than a decade ago, and Apple is still pretty innovative. At least the stock market thinks so, or it wouldn’t be a $3 trillion company. 

Even at Apple, innovation has seen both peaks and valleys.  There’ve been periods when the company was exploding with new products, followed by years of relative quiet when the company was mainly just elaborating on its previous advances. 

So maybe that means Apple figured out how to build a culture of persistent innovation. But as we get into the story, we’ll see that even at Apple, innovation has seen both peaks and valleys.  There’ve been periods when the company was exploding with new products, followed by years of relative quiet when the company was mainly just elaborating on its previous advances. And you can argue that those ups and downs track pretty well to whether Steve Jobs was around or not.

So there may not be a simple answer to the leadership-versus-culture question. But today I’m going to try to unwrap some of the complexities. And I’ll focus almost exclusively on Apple in the 1980s and 1990s. The company’s story during those years isn’t as familiar to the public. But it’s exactly when the decisions were happening and the ideas were forming that made Apple what it is today.

But before we get into all that, a word about our sponsor. 

Wade Roush: The Persistent Innovators is sponsored by PatSnap, the connected innovation intelligence company, and their online courseware site Innovation Academy. 

Later in the series, I’ll talk with PatSnap about how they can help innovative companies understand the R&D and intellectual property landscapes in their fields. And I’ll ask them how they perceive the challenge of persistent innovation. 

But for now, I just want to say thank you to PatSnap for their support. You can learn more at www.patsnap.com and academy.patsnap.com.  

Wade Roush: Let’s start our story in 1982. That’s when a young software engineer named Jeff Zias graduated from UC Berkeley and got a job inside Apple. 

At that point, the company’s groundbreaking Apple II had already been on the market for about five years, and it was proving that there was real consumer demand for personal computers.

In fact, the Apple II was selling so well that the business giant IBM had decided to enter the market with its own PC. 

But Jeff Zias soon learned that conditions inside Apple were … messy. 

Jeff Zias: I think what people probably don’t realize, even at that time, it felt like the company was going to go out of business every six months. So it was crazy. There would be layoffs every six months. There would be new divisions forming and folding and big articles in the press about how Apple’s done or not, IBM’s entering, so Apple has no chance. It was really quite a roller coaster, but it was very exciting…I was in my early 20s. And that was almost typical for the company at that time. Of course, the founders were in their mid to late twenties, so they were the old guys.

Wade Roush: Zias has a great story that shows how young and flat the company still was.

Jeff Zias: The manager of the Dallas factory…You know, the manufacturing was based in Texas at that time, interestingly enough…he flew out and he said, Yeah, we’re having a lot of problems with this floppy drive….Can you fix this? And, you know, being an inexperienced engineer, I said, Of course, I can. And it was all assembler code. …I was looking at this code and it was it was the worst software I’d seen in my entire life. It was just what we call it spaghetti code….nothing but go to statements like going from one place to another, just complete spaghetti. And, you know, I tried to control myself, but I had some, you know, gripes about what I was working on, wondering, like, what’s wrong with this, this software developer who wrote this? ..Could it be that it was somebody who really didn’t know what they were doing? And the manager of the factory says, Yeah, you know, it’s … Steve Wozniak, he’s a hardware genius, and that’s for sure. But he just rolled up his sleeves and did it. So he wrote this code himself…. that was quite an eye-opener.

Wade Roush: So Jeff’s chance to rewrite Steve Wozniak’s code was his first encounter with one of the two Steves. 

And he says he also has vivid memories of going to all-hands meetings presided over by the other Steve.

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Steve Jobs with a Macintosh computer in January 1984. Library of Congress, Prints & Photographs Division, photograph by Bernard Gotfryd.

Jeff Zias: We would start to have company meetings at Apple in the Century Theaters down the street in San Jose because the company had begun became big enough where we couldn’t really fit in any conference room on campus. And he would stand up there and I had never seen anything like it in my life. … he was the most motivational speaker anybody could hear. Like he had this obviously very clear vision. The future clear vision of how important computers were for humanity, wheels for the mind, and he would stand up there and pace back and forth on the stage and talk about how important what we’re doing, where we were going, how it was going to shape the future of humanity. And it was unbelievable. That was his primary strength in life and he could do that kind of talk. And I believe I really think these weren’t even practiced, you know, at the time. You just had that talent and he can do that for thousands in front of thousands of people, no problem, in a very, very compelling way.

Wade Roush: Zias had spent his first few years at Apple working on peripherals like floppy drives. But then in early 1985 came a big moment, when the peripherals team merged with the operating systems group. Zias thought this would finally be his big chance to work directly with Jobs. 

It was just about the most exciting moment of my life. I thought, ‘I’m going to now I’m going to get to work on Steve Jobs’ team with all these amazing, more experienced software engineers.’ What I didn’t realize was it was also right at the time that he was being fired by the board. 

Jeff Zias: It was just about the most exciting moment of my life. I thought, ‘I’m going to now I’m going to get to work on Steve Jobs’ team with all these amazing, more experienced software engineers.’ What I didn’t realize was it was also right at the time that he was being fired by the board. So I actually had a cube. They had moved him into a cube next to me, and at first, I didn’t understand the situation. So I was very excited about that. And then I realized that was an insult for him and he didn’t do anything other than park his motorcycle in that cube. So I never saw him. I just saw his motorcycle.

Wade Roush: And he literally parked a motorcycle indoors at his cubicle?

Jeff Zias: Yeah.

Wade Roush: That’s a very Steve Jobs story. 

Jeff Zias: Yeah, it’s very Steve Jobs.

Wade Roush: Now this moment, in 1985, turned out to be one of the first big turning points for Apple. The company’s board had decided that for Apple to keep growing, it needed to jettison Jobs, its founding visionary, and put a real manager in charge, namely former PepsiCo president John Sculley.

In a lot of tellings of the story, this was the moment when Apple began to outgrow its youthful overconfidence. But it may also have been the moment when it began to forget how to innovate.

Here’s Jeff Zias again. 

Jeff Zias: There was a bit of arrogance to the culture, which was every other company is pretty stupid. And the way things are traditionally done is stupid and we’re different and we’re going to do things differently. … like literally their brand was was being renegades …So there is a real sense of, you want to be bold. You want to be doing things that are new and new ways. Otherwise, you might as well be working over at HP…My feeling, and probably a lot of people’s feelings, is it’s that willingness to ignore the status quo and only focus on what’s very different that can enable innovation.

There was a bit of arrogance to the culture, which was, ‘Every other company is pretty stupid. And the way things are traditionally done is stupid and we’re different and we’re going to do things differently.’

Wade Roush: Did that start to feel like it was changing at all after Steve left? 

Jeff Zias: Yes, it immediately changed completely. And the change had been coming, though, because with hiring John Sculley as a CEO, that was an interesting situation because that was going basically what that did was reach out to the traditional world of product marketing… But the culture had already shifted towards, Look, …we’re in the big leagues now. We’re fighting against IBM and, you know, Microsoft operating systems. And basically, we have to get mass appeal and ratchet up our game and have this balance between the corporate world and this renegade company.

Wade Roush: But like a lot of stories, this one is complicated. It wouldn’t be right to say that Apple stopped innovating the moment Steve Jobs rode away on his motorcycle. I know that partly from talking to an old friend of mine who was also at Apple in the 1980s. 

Ellen Leanse: I’m Ellen Petry Leanse. I’m a technology veteran with 40 years of experience in Silicon Valley. I also am an author and educator on the topic of applied neuroscience, and I have taught the neuroscience of creativity and innovation at Stanford University. … I joined Apple in 1981 as an international communication specialist. And then from there I went on to found a new role at Apple as its first user evangelist and in so doing brought Apple online in 1985, making it the first company in known history to have forged a digital connection with its global users. 

Wade Roush: Back in 1985, of course, “online” had a very limited meaning. It basically meant connecting your computer to a telephone modem and dialing up a bulletin board system, or BBS. Ellen looked at that technology and saw an opportunity to change how Apple communicated with its customers. 

Ellen Leanse: When you bought an Apple computer in the United States, you would open it up and the box would contain a card. You would go find a pen and fill it out. Check all the boxes and mail it back to Apple. Someone at Apple or at some sort of processing house would key that into a database. And that’s how we knew you were an Apple user. So nothing was online. However, some of our users, namely people at NASA and MIT and JPL and, you know, companies across America, educational institutions, were sharing information, helpful information with each other through the proto-Internet, through BBS nodes. And one of them challenged me to open up a node for Apple. And I knew nothing about the Internet, because who knew anything about the internet? I knew nothing about digital, because who knew anything about digital? However, I knew enough to say this is a whole lot better than mailing things.

Wade Roush: The thing is, almost nobody inside the company thought this was a worthwhile idea. Except for one person.

Wade Roush: How did you pull it off in the end? I mean, how many people did you have to convince, and was it grudging in the end? 

Ellen Leanse: No, it wasn’t grudging at the end because basically we just ignored all the naysayers and just did it. I spoke to John Sculley about it, and he said, I think we should give it a try. And after that, I was like, You have a problem, you go talk to him about it. And so it took a big fight and a lot of plowing through obstacles because very few people wanted me to do it. But I did get support from the very top….And I opened up this first node and once it opened up, so many things began to change at the company and we became one of the first companies to really, you know, sort of push out a digital way of connecting a digital alliance with not only users but with each other and then with markets.

Wade Roush: The first time Ellen told me this story, what surprised me is that it wasn’t Steve Jobs who gave her the green light to get Apple online. It was John Sculley, the supposed anti-Steve. 

Wade Roush: I’ve read transcripts of Steve Jobs talking about that era and he says something like, yeah, we hired a bunch of managers from different companies thinking that they could bring some professionalization to Apple. And it turned out they, you know, they were just bean counters and they didn’t have any ideas. And it was it was a big mistake. And so I mean, no, no, I’m not trying to denigrate anyone, including John Sculley, but it sounds like it wasn’t necessarily a time when …you were being pushed to innovate and bring your best ideas to work. 

I think there are two ways to lead. Two ways to build a company. Maybe two ways to live your life. One is to follow maps, and one is to use your compass. And the thing with the maps is they’re charted paths of courses that have already been traveled. …Any time something is on a map, by the time that map is printed, something about the terrain has changed.

Ellen Leanse: You’re right. It was operations, implementation, and my favorite word for all of this execution, which I always find such an ironic word. Here’s the thing. I think there are two ways to lead. Two ways to build a company. Maybe two ways to live your life. One is to follow maps, and one is to use your compass. And the thing with the maps is they’re charted paths of courses that have already been traveled. And not to push the metaphor too far, but you know, any time something is on a map, by the time that map is printed, something about the terrain has changed. …And I think that Apple did at that time bring in a bunch of people who had gotten various companies here and did not have that, you know, sort of that sort of wavering compass needle of what there was really supposed to be. And if there was anything that I think Steve Jobs should be, you know, celebrated for, remembered for, he trusted his compass needle more than he trusted anything else. He knew that some of his intuitive sensibilities, his gut sense, his instinct, the way he felt about something was every bit as important as the data, the logic, the maps that, you know, pointed to a way to do things.

Wade Roush: So I think what Ellen is saying is that Apple didn’t lose its compass the very moment Steve Jobs left. But the compass got gradually demagnetized and started pointing in the wrong direction.

Wade Roush: The reason I’m so interested in the history you’re telling us about this era, you know, in the mid-’80s, like before and after Steve Jobs left Apple is that I think it’s a perfect case study. It’s like a natural experiment. I’m wondering how much of the sort of meteoric growth of the company, the creation of the Apple II, the Lisa, the Macintosh, that era in the early 80s, how much of that came out of the brains of, you know, Steve Jobs and Steve Wozniak and how much of that momentum … faded away after he left.

When we get ‘a-ha’ moments, they tend to be kind of when a slight shift in an environment allows new connections to be formed in the brain…And those moments tend to occur in times where we are not running routine thoughts. 

Ellen Leanse: Well, you know what comes to mind, Wade, is really how the brain creates new ideas…When we get a-ha moments, they tend to be kind of when a slight shift in an environment allows new connections to be formed in the brain…And those moments tend to occur in times where we are not running routine thoughts. So when we’re running routine thoughts, remember, the brain is largely an efficiency machine. It’s looking to save all of the energy it can to help you fight and run when that saber tooth tiger jumps out from behind your laptop case over there, right? … If we think about that, what’s going to happen is the more normalized things get, the more routine things get, the more efficient things get, the easier it is for us individually and collectively to just go into routine thought and just act on that. 

Ellen Leanse: Things were very chaotic, or maybe a better word is disordered, at the time leading up to Steve’s dismissal. So remember, all of that was seen as bad. There was a lot of complaining. There was a lot of frustration. You know, the numbers weren’t doing what the numbers were hoped to have done. And so when Steve went, of course, there’s that obvious reaction where, oh good, now it’s going to be better.

Ellen Leanse: I’m reminded of that old adage about the frog in water. You know, if you throw a frog in water boiling water, it’ll leap out. But if you simmer it until it comes to a boil, you have a cooked frog. And there was a little bit of that sort of process of sort of normalization of this is what a grown-up company should operate like. And you know what, it probably was in some ways what a grown-up company should operate like. It probably was more executional, you know, efficient, more predictable. You know, all of those things. But it did lose that edge, largely, of raw think-different creativity.

Wade Roush: To be fair, there’s probably no other corporate leader in recent history, with the possible exception of Elon Musk, who shares Steve Jobs’ brand of raw, think-different creativity. So it’s not an attack on John Sculley or any of Apple’s subsequent CEOs to say that they didn’t share Jobs’ expansive vision of the future of computing. 

But they did have management experience. And as we’ve heard, things were pretty chaotic at Apple prior to Jobs’ dismissal. So chaotic that it’s reasonable to ask how long the company would have survived if Jobs hadn’t been pushed out.

Tim Bajarin is technology analyst at the Silicon Valley market research firm Creative Strategies who’s been following Apple since 1981. And he says the Steve Jobs of those years knew how to inspire people, but he didn’t know how to lead them. 

[Steve Jobs] was the marketing expert, and to some degree, a creative genius…He really did not have the legitimate management skill…He would yell at people.

Tim Bajarin: He was the marketing expert and to some degree, a creative genius…He really did not have the legitimate management skill…He would yell at people. His managing style was just, you know, almost abrasive and which is one of the reasons that in the end, Sculley and the board had to make a serious decision regarding Apple’s future. Because they could not they could not lean on Steve’s…managing skills to grow the company. And of course, Steve never did, he did not see that.

Wade Roush: Now, if the great visionary leader theory of innovation were true, then maybe Apple might have become more disciplined and organized after Jobs left, but it also would have totally lost its ability to innovate.

And that’s not exactly what happened. We saw that from Ellen Leanse’s story. And that’s also what I heard from another former Apple exec named Nilofer Merchant. 

Today she’s an influential innovation guru and author, but back in 1989 she was just getting out of college, and she landed her first job at Apple.

Nilofer Merchant: I started at the lowest end of the totem pole, which is an admin as a contractor admin. So not even like a full-time employee. And they saw, you know, me as being someone who was like resourceful and so on and brought me on and… I ended up … in this sort of business operations role where the story of my career really took a new turn.

Wade Roush: One day Nilofer ran into an Apple president, we’ll just call him Jim, who’d been carrying a spreadsheet around the Apple campus trying to get people interested in helping him with a project.

The spreadsheet showed that there was only one product in the Apple lineup that was growing in revenue. And that was the first Apple Internet server. It was basically a Mac with a server label slapped on it, along with some software for serving Web pages. And Jim wanted to know why it was selling so well and how to make it even more profitable.

The spreadsheet showed that there was only one product in the Apple lineup that was growing in revenue. And that was the first Apple Internet server. 

Nilofer Merchant: I said, Oh, well, I’ll still try to figure it out. And I started calling around and trying to figure out what the problem was. I ultimately put together a deck of what the problem was and what the solution could be. And I even said at the time, like, I know shit about this, so you should find somebody who does. And that this is the problem, this is the solution, like find somebody who’s willing to come build this. And Jim said to me, No, no, no, you, you build it. And I looked at him like he was a crazy man. And I remember the meeting. It was all guys around a conference room and this tiny little young person wearing an Ann Taylor suit just scared out of my mind, you know? And but trying so hard to like, show up and help and he says, No, you do it. And years later, I asked him, like, why in the world would you have made that call? … And he said every other person in that room had already told me why it wasn’t possible. And you were the only person who had ever said it was…So the only person I could bank on was you. And that business ended up growing to be $180 million.

Wade Roush: Ok. And what was the sort of the insight that cleared the way for that to become $180 million product?

Nilofer Merchant: It turns out that there were Apple resellers who were serving the design market that, you know, the creative advertising agency kind of market, and they were selling the server basically saying, Well, of course, you’re going to have to create websites for all your clients. And so the thing that you need is an Apple server in order to help do that. And the people who were actually creating that sale were people who loved Apple. I had actually just called the people who are making sales. So I had found the spreadsheet of the sales and said, OK, if we have 18 years of sold last week who sold those, and I called those people and I got the admin in the region and then the region person got, Oh, you know, Corey was the one who sold it. Ok, let me talk to Corey. Corey, what’d you sell and then how did you sell it and so on until I actually traced it back to some reseller who just loved Apple products. 

Wade Roush: So from Nilofer Merchant’s story we know that even in the early 90s, when Apple was being run by bureaucrats, it was still the kind of place where an idea from a junior employee who wasn’t afraid to pick up the phone and start calling people could grow into a big business. 

But she does say that stories like hers were more the exception than the rule.

Wade Roush: In your writing and in your speeches, you’ve talked a lot about how power and status basically determine who gets heard inside organizations, who gets attention, who gets to innovate. So I just, looking back at Apple during that time, do you think it was like the kind of company where there was a lot of support for original ideas? Or was it predominantly the kind of company where only the powerful players, you know, only the white guys at the table were allowed to speak or contribute original ideas? In other words, was your experience kind of a fluke, or?

Nilofer Merchant: It was a fluke, and I’ll tell you a story that kind of brings that to life….One day a bunch of us were sitting in the office going where all the guys like someone was just … like where all the leaders were, all the men in the organization, they’re all gone. And. And somebody said, Let me just go, ask the admins because maybe they’re all having a meeting and we’re going to learn something. And it turns out they were all playing golf. … Whatever day was they were having the official meeting and what they would do the day before is go play golf for four hours, solve everything between themselves and then come back and have the official meeting. But all the decisions were on the golf course…. And the colleague of mine that I remember saying, Gosh, well, maybe we should get ourselves invited to the golf session because that’s where all the work is happening. She actually went into golf lessons for six months, got ourselves a pair of custom, you know, set of clubs, so on and so on, and actually then approached them. So she showed up…. And they stopped going and doing golf the minute they had to invite someone new. And that was Apple’s culture to a tee at the time, a bunch of people in a backroom kind of having that conversation. And by the way, it’s the culture of a lot of places…And so it was not inclusive to new ideas. I think I just sort of lucked out.

Wade Roush: So the late 1980s and early 1990s were the years on the Apple timeline when the company still had a lot of diehard fans, but its managers were focused mostly on cutting costs and raising prices, and hitting the golf course.

Apple coasted on its profits from the desktop publishing revolution and failed to introduce much of anything that was new and exciting. 

Except maybe the Newton. That was an early handheld device that kind of hinted at what Apple would be able to accomplish many years later with the iPhone. But it was so far ahead of its time that the technology wasn’t there to make it work. The Newton quickly gained the wrong kind of fame for its janky handwriting recognition, and it never really took off with customers. 

But it’s not like things were going any better at NeXT, the computer company Steve Jobs founded after he left Apple.

Nilofer Merchant: If you moved Steve Jobs outside of Apple, it wasn’t him. And the reason we can point to that and actually say some pretty good confidence it wasn’t him is because he went and started NeXT, and it was a miserable failure…And you could start to go, Oh, so it wasn’t him.

Wade Roush: But again, here’s where the story gets even more complex. Because it’s indisputable that Steve Jobs’ return to Apple in 1997 was the company’s next big turning point. It was the beginning of the long run of innovations that made Apple into the $3 trillion titan it is today.

Here’s Tim Bajarin.

Tim Bajarin: And when Steve went to NeXT, I will tell you that that was, in my mind, his business school experience….In the beginning, he just took his similar style over to NeXT. But what happened there, it next is he didn’t have the same level of success as he had at Apple, and that was more of a humbling experience to him. The good news is he created a great piece of software that eventually Apple ended up using, but he then had a lot of better managers under him at NeXT who he started to rely on. When Jobs came back in 1997, I got to meet with him the day after he came back, the second day on the job and I saw a different Steve Jobs. I remember walking into the room and see me, and just his presence had changed. He was less confrontational. He was more subdued in style. He had, but he had gotten married during that period of time. I think he’d already had one or two of the kids by then. But I remember thinking initially after being with him is that this is a very different Steve Jobs.

I got to meet with [Jobs] the day after he came back, the second day on the job, and I saw a different Steve Jobs. I remember walking into the room and see me, and just his presence had changed. He was less confrontational. He was more subdued in style. 

Wade Roush: Now, it wasn’t like Jobs was a totally new person. In fact, Nilofer Merchant wound up leaving Apple around that time as the result of a run-in with Jobs in one of his classic confrontational moments. 

It happened during a meeting about Apple’s relationship with resellers, known in industry lingo as “the channel.” And it’s an interesting story, not just because it confirms that Jobs could be a total jerk, but because it shows how much he relied on argument and debate as a form of management.

Nilofer Merchant: So I had been asked on behalf of my business unit to be the one to present. You know, here’s what we’ve been working on, and here’s the growth and here’s the margins and blah blah blah….and so I’m standing up there and my again sort of navy blue and Taylor suit and Steve comes in the room wearing flip flops that hadn’t been thrown away in 20 years and old Lisa T-shirt ratty jeans puts his feet up on the table. Bare feet. Kind of gross. And says to me with my slide behind me saying something like channel management or something, I can’t remember, Apple server stuff. And but it had the word channel in the title. And this is how I know it, because Steve’s first words to me…and I’m about to use a swear word… “Fuck the channel. No one needs the channel.” And I’m like thinking to myself, Well, since I’m managing the channel and you don’t think we need them, I pretty much should go back to my computer and answer that, you know, email that’s sitting in my inbox right now to say, Would you like this vice president job at this little startup called Go Live that had been doing the web authoring software? …and I went right back to my desk. Well, yes, I would definitely like to pursue this conversation because I was pretty sure I was going to get fired from my day job.

Wade Roush: Merchant did leave the company for the new job at GoLive. But here’s the thing: Her successor in the channel manager role told her later that she had actually won that argument with Jobs.  

Nilofer Merchant: And so then I ran into that guy and I’m expecting to have like a sympathy conversation like, Oh, you must be really getting ready to be fired. And he says, No, no, no. We took everything that you had, including your five-year plan, and invested in it. And I’m responsible for it now and it’s going great. And I’m like, that doesn’t match the conversation of fuck the channel. Right. And so as I sat there and listened to him, what I realized Steve had been doing was basically saying…I’m going to challenge every single assumption here, and then I’m going to make you prove to me what’s actually valuable. The thing I think that’s important from an innovation perspective is …Steve was actually incredible at one thing that I witnessed upfront a bunch of times and nobody really talks about it. So I’ve written about it and talked about it because I think it’s so important for people to realize he actually makes his team have fights. He sits there and says, We’re not leaving this room until we thrash this out. He basically allowed that friction to happen. And that friction creation process is something that, by the way, most organizations hate. They’re scared of it because they think that, like the fact that we’re in agreement will actually cause innovation to happen. And that’s not actually true, right? Because that just leads to homogeneity. And so they don’t know how to have those good fights. And so they’re scared of it, and Steve, actually, because of his family of origin and a series of other issues, never was afraid of a fight. He actually kind of welcomed it because he is kind of a little bit of an ass. And I mean that in a good way. But he let himself do that at work, so he didn’t have an idea of a professional guy. He just thought, like, I don’t want to leave this room until we figure this thing out.

Wade Roush: Jobs spent his first year back at Apple figuring a lot of things out. Merchant likened it to somebody finding the embers of a campfire and figuring out how to rekindle the hot spots.

I think what [Jobs] was looking for is, where is there still heat? And that has less to do about numbers, and more to do about energy and who’s actually starting to create value here right now.

Nilofer Merchant: Here’s a keeper of a flame coming back in the organization, and he’s like, what’s still lit around here, and how do we get some of those hot spots more organized, and then how do we get those hot spots some oxygen so they can figure out how to grow? And that’s the process of that resurgence. But I think when we think back to the culture metaphor, that’s exactly what he was doing. And for a lot of people, that was terrifying because he was challenging convention. But I think what he was looking for is where there’s there still heat. And that has less to do about numbers and more to do about energy and who’s actually starting to create value here right now.

Wade Roush: In some ways the fire Jobs restarted is still crackling along today. I’m not going to dwell in detail on the years from 1997 to the preset. That part of the company’s history is much more familiar since it’s the part that made the company into a global giant. I’ll just have Tim Bajarin sum it up. Starting with that meeting he had with Jobs on his second day back at Apple.

Tim Bajarin: At that particular time. In 1997, Apple was about a billion dollars in the red. I don’t know if people knew at the time, but they were real close to bankruptcy within about an eight-week, nine-week period…. And I said I asked him, I said, Look, Steve, what are you going to do to save Apple? He actually said three different things. He said one. I’m going to go back and take care of the needs of our core customers. What he said is, look, my core customers were just top publishers, the engineers, the creatives. I’m going to do my best to take care of their needs. So that was priority number one. Number two is I want to bring more structure to the business, which coming from him, I thought was kind of funny, but, you know, structure. But the third thing he said turned out to me to be his most important visionary statement. He says I’m going to focus on industrial design. And I remember afterwards walking away and thinking, how was industrial design going to save Apple? …And of course, a year later, he came out with the candy-apple-colored iMacs, which struck a nerve in consumers and took off. And then he came out with the iPod, which, you know, was a big hit, very different from what was a traditional PC business. And then, of course, iPhone and iPad and I watch, you know, Apple Watch and all these different things. And that’s where Jony Ives became critical. The second other big decision he made that was so I believe, believe important was he put, which, by the way, was one of their biggest problems, which was the supply chain in the hands of Tim Cook. Tim completely revamped the supply chain to make it extremely efficient. But what was really, I think the big, big part of this for Apple was the fact that Steve learned to delegate responsibility. By the time he came back, he had been humbled and he knew now he couldn’t do it all.

Wade Roush: Obviously Apple functions just fine today without Steve Jobs in charge. But I think that’s because Jobs delivered on all three of the things he described to Tim Bajarin. 

He took care of Apple’s core customers. He invested in better design. And maybe most importantly, he brought more structure to the business. 

It’s worth looking quickly at two parts of the structure question.

The first part has to do with what Steve Jobs called “concurrent engineering” and what other management thinkers call “functional organization.” That’s definitely business-school nerd talk, but it’s important. 

Apple doesn’t have separate divisions in charge of separate products and their bottom lines, the way most giant companies do. …Instead, Jobs rebuilt the company around areas of expertise. 

The way Jobs reorganized things after 1997, Apple doesn’t have separate divisions in charge of separate products and their bottom lines, the way most giant companies do. There isn’t a Macintosh division or an iPhone division or a Music division. Instead, Jobs rebuilt the company around areas of expertise. And to lead each unit he chose people with the most smarts and experience in those areas.

So, for example, there’s a software division that’s responsible for the operating systems and apps on all of the companies’ various hardware devices. And there’s an Operations unit that makes sure the company has the capacity to manufacture all the products it designs.

The company still has product managers who are the evangelists for their projects, whether that’s something as small as the camera in the iPhone or as big as the $5,000 Pro Display XDR. But these managers succeed or fail based on how well they collaborate with all the other players it takes to get a complex, integrated product to market. 

If you want to understand how a huge company like Apple innovates, I don’t think you can overlook this functional structure. And if you’re curious about that, I’ll just direct you to a remarkable Harvard Business Review article by Joel Podolny and Morton Hansen from November 2020.  

Apple is notoriously secretive about almost everything. But Podolny is the dean of an internal training academy at Apple called Apple University. And so the HBR piece is a rare case of Apple itself giving business readers a look behind the curtain. It’s totally worth reading, and I’ll link to it in the show notes.

The second part of the structure question has to do with Tim Cook. Tim Bajarin thinks that even before Jobs got his first cancer diagnosis in 2003, he’d begun to prepare Cook to step into his shoes as CEO.

Everyone at Apple is committed to Steve’s vision to innovate, to make things simple, and to be the best software-hardware company they can be. And I don’t think that that that will change… I expect Apple to grow in the future, not decline.

Tim Bajarin: Look, the big thing that Steve did is he spent 10 years preparing Tim Cook to take over, and that’s extremely unusual for any CEO to put that much energy and effort. And it is accelerated. You know, I don’t know if in 90, in 97, 98, when he gave Cook the role of taking over the supply chain, I’m not sure he had picked Tim as his successor, but by 2003-ish when he was diagnosed with the early cycle, it was 2004 when he’s diagnosed with his first case of or the original cancer, it was very clear at that point he had already realized that Tim Cook is the one he needed to tutor and or make sure he would, you know, basically be ready at some point. Amazingly, from the initial time that Steve was diagnosed, he still had seven or eight or nine years, I guess, or eight years with us, which gave him a lot more time to work with Tim. But in ’11 after Steve passed away and I was asked this question, I said, “Look, Tim Cook is not only capable, he’s been trained for this job, and I don’t believe Apple will skip a beat.” Everyone at Apple is committed to Steve’s vision to innovate, to make things simple, and to be the best software-hardware company they can be. And I don’t think that that that will change, and I expect Apple to grow in the future, not decline.

Wade Roush: Bajarin was right. Apple hasn’t really skipped a beat.

If you were in a skeptical mood you could point out that the company hasn’t introduced a big new product since Jobs died. Certainly nothing with the scale or impact of the iPhone. Though I’d argue that the Apple Watch is pretty amazing. And the company does keep plugging away on existing bread-and-butter products like the iPhone, the iPad, and the Mac. It finds ways to make them faster and more capable every year without substantially increasing their prices.

And it’s worth remarking that Apple is in the process of abandoning Intel and gradually transitioning to its own faster, more power-efficient Apple M1 chips. Which is leaving competing semiconductor makers in the dust. 

Tim Bajarin: You could, in fact, if you think about it, that may be one of Tim’s greatest contributions, partially because he understood the supply chain much better than Steve did. But the M1 chipset and that that they’re building themselves, that’s a huge differentiator. And I got to tell you it’s causing real problems for their competitors. The M1 especially has incredibly high power, but yet uses lower energy than anything you can get from Intel or anybody else. And I remember when they showed it to me. The most recent ones and I remember walking away thinking, wait a minute, how do you do that defies, you know, just a lot of physics laws. How are you doing it? And their customers, their competitors are all struggling with the exact same thing. They do not understand quite how Apple got that level of efficiency in power.

[The new M1 chipset] may be one of Tim Cook’s greatest contributions, partially because he understood the supply chain much better than Steve did. 

Wade Roush: And on top of all that, Bajarin says he’s sure that Apple has a few more big innovations up its sleeve, whether that means the first cool and practical augmented reality glasses, or maybe a self-driving car, or maybe AIs that are a lot smarter than Siri.

In the end, making technological leaps that catch everyone by surprise is what Apple is famous for. Justifiably, I think. It’s what vaulted the Macintosh over every other PC in the 80s. It’s what differentiated the iPod from every other music player and the iPhone from every other cell phone. And I think maybe you can say that this hunger to do the seemingly impossible, this unwillingness to take no for an answer, was Steve Jobs’ final gift to Apple. 

Ellen Leanse: What Steve did, he was sort of fueled by a very edgy type of curiosity that wanted to sort of rebel in the face of resistance and say, What do you mean it’s not possible?

Wade Roush: That’s my friend Ellen Leanse again.

Ellen Leanse: So what Steve did is, …he would look at something that he saw as a better way or an improvement or something that really answered a human craving or longing. And he would look at it and just go, how like, it wasn’t a question of, Oh, we can’t do that. The question was, how do we do that? How do we get from here to there? And Steve often said things like, you know, the solution to that problem already exists. It’s just we haven’t moved through time enough to where the point where we can see it.

Steve often said things like, you know, ‘The solution to that problem already exists. It’s just we haven’t moved through time enough to where the point where we can see it.’

Wade Roush: Right, and so…the difficulty wasn’t the hurdle. Maybe, in fact, difficult things are more worth taking on because of the reward at the other side.

Ellen Leanse: So well said. The difficulty was actually the invitation. And there was this thing in him that I think was really unique. And really, it does set him apart as I think back at him. And that is, you know, anything was possible in a world where you could create the future. And he felt that…part of human purpose was to create the future.

Wade Roush: Apple is a much bigger company today than it was when Jobs stepped down as CEO. But it still acts as if it’s organized around that singular desire to create the future.  

I guess you have to call that culture. But you don’t get culture without leadership. 

So if you’re asking which is more important for persistently innovative companies, I think the answer is both. 

It could be that the combination of great leaders and a strong cultural compass is what you need to take on hard challenges and succeed.  

Maybe leaders and employees jointly fashion a culture that can rescue a company the next time its leadership fails or changes.  

And that’s one of the questions we’ll keep exploring in our next episode, about the Walt Disney Company.

The Persistent Innovators is a miniseries from Innovation Answered, InnoLead’s podcast for corporate innovators. 

It’s written and produced by me, Wade Roush.

Music in this episode by Lee Rosevere.

Thank you to my guests Tim Bajarin, Ellen Petry Leanse Nilofer Merchant, and Jeff Zias for sharing their time and insights.

I recommend that you check out Ellen’s book, The Happiness Hack; Nilofer’s book, The Power of Onlyness; and Jeff’s book, The Intrapreneur’s Journey. We’ll put links to all three books in the show notes.

I’d like to thank Scott Kirsner, Kristen Krasinskas, and Collin Robisheaux over at InnoLead for all their help. 

And a special thank you to our sponsor PatSnap

I hope you’ll join us in two weeks for our next episode.

Until then, stay safe, and thanks for listening. 

Further resources on Apple:

Joel Podolny and Morton Hansen, How Apple Is Organized for Innovation, Harvard Business Review (November-December 2020) 

Wade Roush, I Have Seen the Future of Displays, Soonish, August 7, 2019

And here are a few links where you can learn more about our guests and their work:

Tim Bajarin, Creative Strategies

Ellen Petry Leanse on Medium

Ellen Petry Leanse, Happiness by Design, TEDxBerkeley, 2016

Ellen Petry Leanse, The Happiness Hack: How to Take Charge of your Brain and Program More Happiness Into Your Life (Simple Truths, 2017) 

Nilofer Merchant 

Nilofer Merchant, The Power of Onlyness: Make your Wild Ideas Mighty Enough to Dent the World (Viking, 2017)

Nilofer Merchant, 50 Ways to (Change Your Culture), Fully Alive @Work, December 6, 2020

Jeff Zias 

Hugh Molotsi and Jeff Zias, The Intrapreneur’s Journey: Empowering Employees to Drive Growth (Lean Startup Co., 2018)