During the past few months, two troubling fault lines have surfaced at Apple — one at the top and another at the bottom. Neither bode well for the future.
Fault Line #1: At the Top. Tim Cook took over as CEO in 2011. On the positive side, Cook's smart enough to know that his way is not Steve's way. Jobs was an innovator at heart. Cook an executor. Just read Steve Jobs' official biography and on about every third page you'll find an obvious example of Jobs acting differently and thinking differently.
Jobs' deep multi-industry experience paid profound dividends. First, he tackled the computer industry and then took on the entertainment world (via Pixar). He learned both industries under high-risk conditions where his own wealth was at stake and success highly uncertain. That kind of personal investment pulled Jobs so deep into each domain that he emerged quite capable of connecting the unconnected in industry-surprising ways. Think iTunes, iPod, iPhone and iPad to see how he upset the computer industry apple cart by infusing essential elements of the entertainment industry into an otherwise snoring computer world. The rest is history, technically and financially.
Tim Cook's career followed a very different path. And that's exactly why Jobs poached him from Compaq in 1998. Cook had been running Compaq's supply chain with cutting-edge efficiency when Apple's supply chain was in a shambles. To this day, Cook continues as one of the best when it comes to operational excellence. In a post-Steve Jobs' era, however, Cook's lifetime strength will likely become his Achilles heel. It's fascinating to watch where Cook has spent his time at work so far in 2012. Cook's public face is deeply and publicly connected to Apple operations, ranging from supply chain challenges in China to eating with employees in Apple's lunchroom. Rewind the clock a couple years and you would not have seen so much press connecting Steve Jobs' persona with "private" operational issues and you would not have seen him sharing meals with many employees, as he would have been spending lunch with Jony Ive. Put two-and-two together, and you simply see less innovation with Cook at the top than with Jobs.
Fault Line #2: At the Bottom. Employees on the factory floor and in the retail stores are on the move, and it's not a completely positive journey. Wages and working conditions, particularly in China, have and will continue to receive intense media scrutiny. As a result, issues that Jobs chose to largely ignore publicly are ones that Cook now takes on. Not only is the media pushing Cook to address what were untouchable in Jobs' era, but Cook's personal preference for operational excellence propels him into that space. A supply chain expert at heart, he undoubtedly loves to tackle problems that require moving from A to B more efficiently. Very few of us like to walk away from our expertise, especially when the stakes are high.
On the retail side, Apple's recent record-shattering financial performance meant that each Apple store employee produced, on average, $473,000 in sales. As a recent New York Times article pointed out, that's the kind of sales per employee that consulting firms deliver, not retail stores. No wonder Apple retail employees receiving about $12 an hour are scratching their heads at the obvious inequity. It's not rocket science to figure out that the average Apple retail employee delivers $227.40 per hour in sales ($473,000 divided by the product of 40 hours a week times 52 weeks a year). No surprise then that the 19 to 1 sales to pay ratio feels more than slightly unfair on payday. And with the Jobs' aura slowly wearing off at Apple, that sense of inequity will only increase.
Double Fault at Apple. Put these two fault lines together and it spells trouble for Apple, if not now, certainly in the future. We know from the past, whether at Apple or other companies, that industry-disrupting ideas typically take at least five years to evolve. Assuming that Jobs left a legacy of such ideas for Apple to carry forward in the next five years, all is well — for now. But, the probability that Jobs foresaw entertainment-computer-smartphone-social-media trends beyond five years is close to zero.
As a result, the Apple of the past may still be the Apple of the present, but don't expect it to be the Apple of the future. Clearly, it's a buy or hold stock for the moment, but don't hold your breath. The fault lines are there. Keep an eye on where Cook spends his personal time at work and what problems (or products) he associates himself with. Ignore the Apple PR spin that Cook doesn't need to innovate; research shows that innovative companies are led by innovative leaders. And the Apple of the future is not likely to be an exception to that rule. It hasn't been and won't be, so watch well and be ready to sell.
Full Story at Hal Gregersen