Monday, October 24, 2011

Can Apple stay on top without Jobs?

EL SEGUNDO, USA: In life, Steve Jobs’ vision gave Apple Inc. a commanding lead over the competition. But after his death, it will be Jobs’ skills as a manager—specifically whether he built an organization that can carry on his legacy without him—that will determine whether Apple can maintain its advantage. However, no matter how successfully Jobs seeded Apple with his genius, his spark may prove irreplaceable over the long term.

Nothing exemplifies Jobs’ combination of inspiration and business acumen as dramatically as the industry-leading margins generated by Apple’s products. The company’s highest-volume product—the iPhone—generates a hardware margin in excess of 70 percent, according to new IHS iSuppli Mobile & Wireless Communications Service from information and analysis provider IHS (NYSE: IHS). Apple’s products yield a collective average hardware margin in the 60 percent range, as presented in the figure.Source: IHS iSuppli, USA.

These prodigious margins yield the kind of profitability that has made Apple the No. 1 or No. 2 company in the world in terms of market capitalization—and have given the company more cash reserves than the US Treasury.

These stunning accomplishments have entirely been due to Jobs and his laser-like focus, along with his willingness to buck convention and his knack for reinventing existing products and business models. But perhaps most of all, it was Jobs’ uncanny ability to look beyond the nuts and bolts of products, services and technologies—and see the revolutionary impact they could have on people’s behavior and on society as a whole.

The visionary thing
For Jobs and Apple, success started with picking their battles. Focus has been key to Apple’s success, with the company’s strength relying on having a clear vision of what Jobs wanted to do—and avoiding what he didn’t want to do.

Once Jobs decided on a course of action, he wouldn’t allow distractions to keep him from completing his goal.

“Jobs didn’t care about quarterly reports, and he didn’t care what critics and the media said,” observed Lee Ratliff, principal analyst, broadband and digital home for IHS. “He wasn’t paying attention to them, but he cared about implementing his vision. The force of his personality in this regard was enormous.”

Often his vision involved taking existing ideas and reshaping them in Jobs’ transformative image.

“Apple didn’t invent the personal computer, the icon/point-and-click interface, the personal music player or the cellphone—but it did take all these products to a new level by reinventing how people interact with them,” observed Bob Braverman, senior director, communications and consumer electronics at IHS. “This is entirely because of the visionary way in which Steve Jobs saw these markets and their usage models.”

What Jobs left to Apple
Apple’s biggest inheritance from Jobs may be the successful corporate culture he left behind.

“Jobs has been compared to Thomas Edison and Henry Ford,” noted Dale Ford, senior vice president, electronics market intelligence for IHS. “These men were able to carry on their vision and legacy because of the institutions they established that lasted after their deaths. The question now is whether Apple has learned enough from Jobs that it can continue on with its success—like Ford Motor Co. did after the death of Henry Ford.”

Based on Jobs’ track record, Apple may continue in its success, at least in the near term.

“Jobs replicated his success across multiple companies—such as Pixar,” Ford added. “One of Jobs’ major precepts was not to be a slave to the idea that a product had to come out on a certain date. He always made sure the product was ready for primetime before he rolled it out. Even though Jobs wasn’t running Pixar anymore, the people there continued to follow the principle of releasing no movie before its time.”

The long view
However, it’s debatable whether Jobs’ vision can fuel Apple’s success for many years in the future—as Henry Ford did with his car company.

“I would be hard pressed to believe that the products impacting the world in 20 years will be based on Apple’s products of today,” said Jagdish Rebello, principal analyst, communications and consumer electronics at IHS. “The company must come up with new revolutionary products to maintain its lead.”

Lacking Jobs’ vision, that may not be possible.

“While there are clearly very smart people at Apple, I question whether anyone can envision and realize social and behavioral change the way that Jobs did,” Braverman said. “Without Jobs at the helm, Apple’s massive margins have got to wane at some point.”

That moment potentially could arrive in just a few years.

“Apple has a two-and-a-half-year lead, and I don’t see how it could be overtaken,” said Steve Mather, principal analyst, wireless communications for IHS. “However, within three to five years, that lead could start to be whittled down if the company can’t continue to come up with new revolutionary products.”

Source: IHS iSuppli, USA.

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