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OCTOBER 12, 2004

VOICES OF THE INNOVATORS

The Seed of Apple's Innovation

CEO Steve Jobs says among other practices, it's "saying no to 1,000 things" so as to concentrate on the "really important" creations

In an era when most technology outfits have tightened their belts to adapt to a slower-growing market, one company stands out for forging ahead on innovation: Apple Computer (AAPL ). Others have slashed R&D and focused on incremental advances to existing product lines. Not Apple.

By combining technical knowhow with a new concept for how to sell music online, Apple's iPod music player has become the most influential new tech product in years. At the same time, Apple has maintained its reputation for making the most elegant, easy-to-use desktop computers as well.

Much of the credit for this performance is attributed to Chief Executive Steven P. Jobs, who founded Apple in 1976 -- but was ousted in 1985 before making a triumphant return in 1997. BusinessWeek Computer Editor Peter Burrows recently talked about the nature of innovation with Jobs, who is back to work part-time after recovering from pancreatic cancer surgery. Here are edited excerpts of their conversation:

Q: Apple has long been an innovative place with lots of smart, passionate engineers. But it seemed to fall off the map in the years before you returned in 1997. What happened?
A:
Let's start at the beginning. Both [Apple co-founder] Steve Wozniak and I -- and I think I can speak for Woz -- got our view of what a technology company should be while working for Hewlett-Packard (HPQ ) in the late 1960s and early 1970s. And the first rule over there was to build great products. Well, Apple invented the PC as we know it, and then it invented the graphical user interface as we know it eight years later [with the introduction of the Mac]. But then, the company had a decade in which it took a nap.

Q: What can we learn from Apple's struggle to innovate during the decade before you returned in 1997?
A:
You need a very product-oriented culture, even in a technology company. Lots of companies have tons of great engineers and smart people. But ultimately, there needs to be some gravitational force that pulls it all together. Otherwise, you can get great pieces of technology all floating around the universe. But it doesn't add up to much. That's what was missing at Apple for a while. There were bits and pieces of interesting things floating around, but not that gravitational pull.

People always ask me why did Apple really fail for those years, and it's easy to blame it on certain people or personalities. Certainly, there was some of that. But there's a far more insightful way to think about it. Apple had a monopoly on the graphical user interface for almost 10 years. That's a long time. And how are monopolies lost? Think about it. Some very good product people invent some very good products, and the company achieves a monopoly.

But after that, the product people aren't the ones that drive the company forward anymore. It's the marketing guys or the ones who expand the business into Latin America or whatever. Because what's the point of focusing on making the product even better when the only company you can take business from is yourself?

So a different group of people start to move up. And who usually ends up running the show? The sales guy. John Akers at IBM (IBM ) is the consummate example. Then one day, the monopoly expires for whatever reason. But by then the best product people have left, or they're no longer listened to. And so the company goes through this tumultuous time, and it either survives or it doesn't.

Q: Is this common in the industry?
A:
Look at Microsoft (MSFT ) -- who's running Microsoft?

Q: Steve Ballmer.
A:
Right, the sales guy. Case closed. And that's what happened at Apple, as well.

Q: How did Apple recapture its innovative spark?
A:
I used to be the youngest guy in every meeting I was in, and now I'm usually the oldest. And the older I get, the more I'm convinced that motives make so much difference. HP's primary goal was to make great products. And our primary goal here is to make the world's best PCs -- not to be the biggest or the richest.

We have a second goal, which is to always make a profit -- both to make some money but also so we can keep making those great products. For a time, those goals got flipped at Apple, and that subtle change made all the difference. When I got back, we had to make it a product company again.

Q: How do you manage for innovation?
A:
We hire people who want to make the best things in the world. You'd be surprised how hard people work around here. They work nights and weekends, sometimes not seeing their families for a while. Sometimes people work through Christmas to make sure the tooling is just right at some factory in some corner of the world so our product comes out the best it can be. People care so much, and it shows.

I get asked a lot why Apple's customers are so loyal. It's not because they belong to the Church of Mac! That's ridiculous.

It's because when you buy our products, and three months later you get stuck on something, you quickly figure out [how to get past it]. And you think, "Wow, someone over there at Apple actually thought of this!" And then three months later you try to do something you hadn't tried before, and it works, and you think "Hey, they thought of that, too." And then six months later it happens again. There's almost no product in the world that you have that experience with, but you have it with a Mac. And you have it with an iPod.

Q: What's the CEOs role in all of this?
A:
I don't know. Head janitor?

Q: Seriously, a lot of people give you much of the credit. How much of it is you?
A:
Look, I was very lucky to have grown up with this industry. I did everything in the early days -- documentation, sales, supply chain, sweeping the floors, buying chips, you name it. I put computers together with my own two hands. And as the industry grew up, I kept on doing it.

Not everyone knows it, but three months after I came back to Apple, my chief operating guy quit. I couldn't find anyone internally or elsewhere that knew as much as he did, or as I did. So I did that job for nine months before I found someone I saw eye-to-eye with, and that was Tim Cook. And he has been here ever since.

Of course, I didn't tell anyone because I already had two jobs [CEO of Apple and of movie maker Pixar Animation Studios (PIXR )] and didn't want people to worry about whether I could handle three [jobs]. But after Tim came on board, we basically reinvented the logistics of the PC business. We've been doing better than Dell (DELL ) [in terms of some metrics such as inventory] for five years now!

Q: With the iPod, Apple moved beyond the PC into consumer electronics. But you're still considered a niche player that picks its spots in bigger markets. Will you try to expand to become a more full-line player, like a Sony (SNE ) or Samsung?
A:
The fact that you're comparing us to Sony is a statement in itself. I'm flattered. We really respect those guys and what they've accomplished over the years. But we're just trying to make great products. We do things where we feel we can make a significant contribution. That's one of my other beliefs.

I've always wanted to own and control the primary technology in everything we do. Take audio. For years, the primary technology was the [marking mechanism] inside a CD or a DVD player. But we became convinced that software was going to be the primary technology, and we're a pretty good software company.

So we developed iTunes [Apple's music jukebox software that later morphed into the iTunes Music Store]. We're a good hardware company, too, but we're really good at software. So that led us to believe that we had a chance to reinvent the music business, and we did.

Q: Many people say we're in a period in which advances in various digital technologies -- from drives to chips to screens to networking gear -- is going to change the nature of innovation. Rather than inventing something from scratch, innovation will be the art of putting all of these capabilities together in new ways.
A:
Of course, you're never going to invent everything. But what's the primary technology? And what's the concept of the product? Where does the conceptualization come from? I guarantee the 1.8-inch hard drive was not invented for iPods. But that's not the primary technology in an iPod.

Q: How do you systematize innovation?
A:
The system is that there is no system. That doesn't mean we don't have process. Apple is a very disciplined company, and we have great processes. But that's not what it's about. Process makes you more efficient.

But innovation comes from people meeting up in the hallways or calling each other at 10:30 at night with a new idea, or because they realized something that shoots holes in how we've been thinking about a problem. It's ad hoc meetings of six people called by someone who thinks he has figured out the coolest new thing ever and who wants to know what other people think of his idea.

And it comes from saying no to 1,000 things to make sure we don't get on the wrong track or try to do too much. We're always thinking about new markets we could enter, but it's only by saying no that you can concentrate on the things that are really important.

Q: How much do you have to do with Apple's innovations?
A:
We go back and forth a lot as we work on our projects. And we've got such great people [in the top executive team] that I've been able to move about half of the day-to-day management of the company to them, so I can spend half my time on the new stuff, like the retail effort. I spent and continue to spend a lot of time on that. And I meet weekly for two or three hours with my OS X team. And there's the group doing our iLife applications.

So I get to spend my time on the forward-looking stuff. My top executives take half the other work off my plate. They love it, and I love it.

Q: So the key is to have good people with passion for excellence.
A:
When I got back here, Apple had forgotten who we were. Remember that "Think Different" ad campaign we ran [featuring great innovators from Einstein to Muhammad Ali to Gandhi]. It was certainly for customers to some degree, but it was even more for Apple itself.

You can tell a lot about a person by who his or her heroes are. That ad was to remind us of who our heroes are and who we are. We forgot that for a while. Companies sometimes forget who they are. Sometimes they remember again, and sometimes they don't.

Fortunately, we woke up. And we're on a really good track. We may not be the richest guy in the graveyard at the end of the day, but we're the best at what we do. And Apple is doing the best work in its history. I really believe that. And there's a lot more coming.

Q: You're back at work on a part-time basis. Are you going to come back full-time?
A:
Yes. That was one of the things that came out most clearly from this whole experience [with cancer]. I realized that I love my life. I really do. I've got the greatest family in the world, and I've got my work. And that's pretty much all I do. I don't socialize much or go to conferences. I love my family, and I love running Apple, and I love Pixar. And I get to do that. I'm very lucky.





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