On June 11, 2012, Tim Cook graced the cover of Fortune Magazine, in a hagiography
about the man with perhaps the hardest job in America: to succeed the legendary
Steve Jobs who Fortune had already lionized as “the best CEO of the decade” and
“the best entrepreneur of our time”
As the Fortune piece noted: “Considering the widespread handwringing over how rudderless
Apple would be without Jobs, it is remarkable how steadily the company has sailed along without him.” Time Magazine also weighed in with similar praise: “Highly ethical and always thoughtful, he projects calmness but can be tough as nails when necessary. Like the great conductor George Szell, Cook knows that his commitment to excellence is inseparable from the incredible ensemble he leads at Apple.”
Such plaudits certainly seemed warranted at the time. When Fortune’s story appeared, Apple was trading at $571 per share, 52% higher than when Steve Jobs stepped down 10 months earlier. Apple’s stock and was well on its way to cresting at over $700/share in the coming months, prompting Forbes and the New York Times to speculate that Apple — already the most valuable
company in the world — was well on its way to becoming the first trillion dollar market capcompany.
These were heady times indeed, and Apple and Tim Cook apparently could do no wrong.
Or could they?
Apple’s fall from grace
Less than four months after the Times wondered how soon Apple’s market cap would break the trillion dollar mark, the Wall Street Journal ran a story under the headline “Has Apple Lost Its Cool to Samsung?” CNN had already scooped the Journal, with its own version of: “Is Apple Losing Its Cool Factor?”
And what about Tim Cook, the Szell-like conductor of Apple’s innovation band? In mid-January,The Motley Fool asked “Is Tim Cook The Next Steve Ballmer?” which was not meant as a compliment. And two weeks later, Forbes Magazine weighed in with “The Problem with Tim Cook“, raising serious questions about whether Tim Cook was up to the job!
What’s going on here?! Sure, there were a couple of missteps with Apple Maps, perceived missing features in the iPhone 5 and the still-unfulfilled promise of Apple iTV. But these events hardly seemed damning enough to signal a cataclysmic reversal of fortune.
Can Tim Cook and the company he leads really go from a heavy dose of smarts to serious ineptitude in just four months? Has Apple really lost its mojo and its cool to Samsung, who for so long toiled in the obscurity of Apple’s giant shadow?
The Halo Effect
Earl Weaver, the Hall-of-Fame manager of the Baltimore Orioles twenty-five years ago opined an answer to these questions, which is as true in business as it is in baseball:
“You’re never as bad as you look when you’re losing, nor as good as you seem when you’re winning”
There is actually considerable academic research validating Weaver’s sage advice, that falls under the rubric of “The Halo Effect”. In IMD Professor Phil Rosenzweig’s excellent book of the same name, the Halo Effect is defined as the consistent tendency for people to ascribe positive ratings (particularly on subjective assessments like “executive vision” or “leadership”) when the overall measurable performance of a company is good, while tending to be overly critical of management when business outcomes display signs of weakness.
One can see this for example in the glowing praise of successful business leaders (such as Reed Hastings of Netflix, Fortune’s 2010 CEO of the year) as “visionary, dynamic and customer-focused”, only to have the very same CEO widely vilified as “complacent, arrogant and unwilling to respond to customer preferences” one year later when the company’s financial performance stumbled. The Halo Effect probably hit bottom for Hastings when SNL parodied him in a bitingly funny skit in 2011. ABB’s Percy Barnevik, GE’s Jack Welch and Groupon’s Andrew Mason are other examples of executives who have felt the sting of hyperbolic punditocracy.
It’s fair to say that Tim Cook is the latest victim of the Halo Effect – neither worthy of his early sanctification, nor deserving of his asserted fall from grace. As usual, the business press has been too quick to praise and condemn a man who, in reality has not changed the very essence of his being in just four months!
Let’s get real
So what can we expect from Apple in the months and years ahead? In my view, there are two parts to answering this question:
But as good as any of these products are, the simple fact remains that over time, continued improvements yield marginally decreasing utility to consumers.
Take Apple’s biggest success to date for example, the iPhone. When the first generation iPhone went on sale in the summer of 2007, it was received with unprecedented global enthusiasm, teasingly dubbed by The Economist as “The Jesus Phone”. And no wonder…it’s design, user interface, functionality and apps support were so radically different and better than any other smartphone on the market that it appeared to many to be miraculously conceived!
By the time early adopters’ initial two-year contracts were up, Apple had unveiled its next generation iPhone, the 3GS with faster digital download speeds, an improved camera and considerably more apps.
And in every year thereafter, Apple continued to enhance the iPhone. The iPhone 4/4S/5 got progressively, thinner, lighter, brighter (displays), faster, better (cameras), and eventually marginally bigger. While each new version was better than the last, none had the breakthrough market impact of the initial iPhone.
Economists have long recognized the marginal decreasing utility – more prosaically, the “wow” factor — associated with virtually every product in the market over time.
For example, except for the most extreme technophiles, most consumers hardly notice the latest generation PC, home printer, digital camera or even automobile these days – a far cry from when the first primitive versions of these revolutionary products first hit the market.
Seen in this light, the fact that Apple’s latest iPhone lacks NFC capability or the best-in-class
screen size or the highest megapixel camera does not necessarily signal the end of their
innovative spirit. Even if an iPhone 6 were released tomorrow with all of these features, it would fail to create the buzz of the first “Jesus Phone”.
Relatedly, it’s entirely to be expected that Samsung and others have largely caught up to Apple on most of the features and functions that define state-of-the-art smartphones. If you have any doubt whether this is a unique failing of Apple, just ask BMW how they would compare their vehicles to the best Hyundai has to offer today vs. ten years ago. Competition happens, and no one is suggesting that BMW has lost its edge.
So what will it take for Apple to continue to be, well, Apple? Its unique challenge is not just to stay abreast of the relentless demands for continuous improvement in its current core products — daunting enough against competitors like Samsung, Google and Microsoft. It is to find thenext breakthrough product category that will once again disrupt a large business value chain to Apple’s profound benefit. A rumored rendition of an Apple “iTV” home entertainment ecosystem is probably the most likely possibility.
Critics of Apple should realize that epic business disruptions do NOT operate on a predictable product release timetable, and it is clearly premature to condemn Tim Cook for not pulling another blockbuster rabbit from under his hat during his eighteen months as CEO.
Expecting Tim Cook to continue Apple’s growth to unprecedented levels on an arbitrarily imposed timetable is simply not a reasonable standard by which to judge CEO performance.
While it is still too early to pronounce judgment on whether Apple’s astonishing string of revolutionary product launches has run its course, the clock is definitely ticking.
After 40 years in management consulting and venture capital, I joined the faculty of Columbia Business School, teaching courses in business strategy and corporate entrepreneurship
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