Please read the attached article from the November-December 2020 issue of Harvard Business Review.
The article makes some important statements about organizational structure, using Apple as an example. The main point here is that the company is organized around functions, and expertise aligns with decision rights. Leaders are cross-functionally collaborative and deeply knowledgeable about details.In a 500 word essay with an original title, please do the following:Summarize the article.Discuss the difference between the 1998 structure and the 2020 structure.Describe the significance of the three leadership characteristics mentioned in the article.The final paragraph of the article asks: Why do companies so often cling to having general managers in charge of business units? Answer it to the best of your understanding.
86 Harvard Business ReviewNovember–December 2020 PHOTOGRAPHER MIKAEL JANSSON How Apple Is Organized for Innovation It’s about experts leading experts. ORGANIZ ATIONAL CULTURE Joel M. Podolny Dean, Apple University Morten T. Hansen Faculty, Apple University AUTHORS Harvard Business Review November–December 2020 87 W EL L K NOW N FO R IT S innovations in hardware, software, and services. Thanks to them, it grew from some 8,000 employees and $7 billion in revenue in 1997, the year Steve Jobs returned, to 137,000 employees and $260 billion in revenue in 2019. Much less well known are the organizational design and the associated leadership model that have played a crucial role in the company’s innovation success. When Jobs arrived back at Apple, it had a conventional structure for a company of its size and scope. It was divided into business units, each with its own P&L responsibilities. General managers ran the Macintosh products group, the information appliances division, and the server products division, among others. As is often the case with decentral- ized business units, managers were inclined to fight with one another, over transfer prices in particular. Believing that conventional management had stifled innovation, Jobs, in his first year returning as CEO, laid off the general managers of all the business units (in a single day), put the entire com- pany under one P&L, and combined the disparate functional departments of the business units into one functional organi- zation. (See the exhibit “Apple’s Functional Organization.”) The adoption of a functional structure may have been un surprising for a company of Apple’s size at the time. What is surprising—in fact, remarkable—is that Apple retains it today, even though the company is nearly 40 times as large in terms of revenue and far more complex than it was in 1998. Senior vice presidents are in charge of functions, not products. As was the case with Jobs before him, CEO Tim Cook occupies the only position on the organizational chart where the design, engineering, operations, marketing, and retail of any of Apple’s main products meet. In effect, besides the CEO, the company operates with no conventional general managers: people who control an entire process from product development through sales and are judged according to a P&L statement. Business history and organizational theory make the case that as entrepreneurial firms grow large and complex, they must shift from a functional to a multidivisional structure to align accountability and control and prevent the congestion that occurs when countless decisions flow up the org chart to the very top. Giving business unit leaders full control over key functions allows them to do what is best to meet the needs of their individual units’ customers and maximize their results, and it enables the executives overseeing them to assess their performance. As the Harvard Business School historian Alfred Chandler documented, U.S. companies such as DuPont and General Motors moved from a functional to a multidivisional structure in the early 20th century. By the latter half of the century the vast majority of large corpora- tions had followed suit. Apple proves that this conventional approach is not necessary and that the functional structure may benefit companies facing tremendous technological change and industry upheaval. Apple’s commitment to a functional organization does not mean that its structure has remained static. As the importance of artificial intelligence and other new areas has increased, that structure has changed. Here we discuss the innovation benefits and leadership challenges of Apple’s distinctive and ever-evolving organizational model, which may be useful for individuals and companies wanting to better understand how to succeed in rapidly changing environments. THE CHALLENGE Major companies competing in many industries struggle to stay abreast of rapidly changing technologies. ONE MAJOR CAUSE They are typically organized into business units, each with its own set of functions. Thus the key decision makers—the unit leaders—lack a deep understanding of all the domains that answer to them. THE APPLE MODEL The company is organized around functions, and expertise aligns with decision rights. Leaders are cross- functionally collaborative and deeply knowledgeable about details. IDEA IN BRIEF Apple is ORGANIZ ATIONAL CULTURE 88 Harvard Business ReviewNovember–December 2020 WHY A FUNCTIONAL ORGANIZATION? Apple’s main purpose is to create products that enrich people’s daily lives. That involves not only developing entirely new product categories such as the iPhone and the Apple Watch, but also continually innovating within those categories. Perhaps no product feature better reflects Apple’s commitment to continuous innovation than the iPhone cam- era. When the iPhone was introduced, in 2007, Steve Jobs devoted only six seconds to its camera in the annual keynote event for unveiling new products. Since then iPhone camera technology has contributed to the photography industry with a stream of innovations: High dynamic range imaging (2010), panorama photos (2012), True Tone flash (2013), opti- cal image stabilization (2015), the dual-lens camera (2016), portrait mode (2016), portrait lighting (2017), and night mode (2019) are but a few of the improvements. To create such innovations, Apple relies on a structure that centers on functional expertise. Its fundamental belief is that those with the most expertise and experience in a domain should have decision rights for that domain. This is based on two views: First, Apple competes in markets where the rates of technological change and disruption are high, so it must rely on the judgment and intuition of people with deep knowledge of the technologies responsible for disruption. Long before it can get market feedback and solid market forecasts, the company must make bets about which technologies and designs are likely to succeed in smart- phones, computers, and so on. Relying on technical experts rather than general managers increases the odds that those bets will pay off. Second, Apple’s commitment to offer the best possible products would be undercut if short-term profit and cost ABOUT THE ART Apple Park, Apple’s corporate headquarters in Cupertino, California, opened in 2017. M ik ae l J an ss on /T ru nk A rc hi ve Harvard Business Review November–December 2020 89 targets were the overriding criteria for judging investments and leaders. Significantly, the bonuses of senior R&D exec- utives are based on companywide performance numbers rather than the costs of or revenue from particular products. Thus product decisions are somewhat insulated from short- term financial pressures. The finance team is not involved in the product road map meetings of engineering teams, and engineering teams are not involved in pricing decisions. We don’t mean to suggest that Apple doesn’t consider costs and revenue goals when deciding which technologies and features the company will pursue. It does, but in ways that differ from those employed by conventionally organized companies. Instead of using overall cost and price targets as fixed parameters within which to make design and engineer- ing choices, R&D leaders are expected to weigh the benefits to users of those choices against cost considerations. In a functional organization, individual and team repu- tations act as a control mechanism in placing bets. A case in point is the decision to introduce the dual-lens camera with portrait mode in the iPhone 7 Plus in 2016. It was a big wager that the camera’s impact on users would be sufficiently great to justify its significant cost. One executive told us that Paul Hubel, a senior leader who played a central role in the portrait mode effort, was “out over his skis,” meaning that he and his team were taking a big risk: If users were unwilling to pay a premium for a phone with a more costly and better camera, the team would most likely have less credibility the next time it proposed an expensive upgrade or feature. The camera turned out to be a defining feature for the iPhone 7 Plus, and its success further enhanced the reputations of Hubel and his team. It’s easier to get the balance right between an attention to costs and the value added to the user experience when the leaders making decisions are those with deep expertise in their areas rather than general managers being held account- able primarily for meeting numerical targets. Whereas the fundamental principle of a conventional business unit struc- ture is to align accountability and control, the fundamental principle of a functional organization is to align expertise and decision rights. Thus the link between how Apple is organized and the type of innovations it produces is clear. As Chandler famously argued, “structure follows strategy”—even though Apple doesn’t use the structure that he anticipated large multinationals would adopt. Now let’s turn to the leadership model underlying Apple’s structure. THREE LEADERSHIP CHARACTERISTICS Ever since Steve Jobs implemented the functional organi- zation, Apple’s managers at every level, from senior vice president on down, have been expected to possess three key leadership characteristics: deep expertise that allows them to meaningfully engage in all the work being done within their individual functions; immersion in the details of those functions; and a willingness to collaboratively debate other functions during collective decision-making. When manag- ers have these attri butes, decisions are made in a coordinated fashion by the people most qualified to make them. Deep expertise. Apple is not a company where general managers oversee managers; rather, it is a company where experts lead experts. The assumption is that it’s easier to train an expert to manage well than to train a manager to be an expert. At Apple, hardware experts manage hardware, software experts software, and so on. (Deviations from this principle are rare.) This approach cascades down all levels of the organization through areas of ever- increasing 2019 D E S IG N O P E R A TI O N S S A LE S H A R D W A R E E N G IN E E R IN G R E TA IL P E O P LE S O FT W A R E FI N A N C E S E R V IC E S LE G A L M A C H IN E L E A R N IN G & A I C O R P O R A TE C O M M . H A R D W A R