Here’s Why Apple Should Go Back to the Steve Jobs Business Model
Consumer electronics are the fruit flies of the business world.
The tech world is witnessing a turning point. A month ago, Apple saw its first decline in sales and profits in 13 years, triggering a selloff in the financial market that wiped out $43 billion of the company’s market value. Such is the rough-and-tumble play of the high-tech world.
As recent as in Q1 2016, 68% of the company revenue came from the iPhone, while the iPad and Mac each commanded merely 9%. Apple is first and foremost a mobile phone provider, which in turn highlights the danger of overreliance on a single product for growth.
Under Steve Jobs, Apple had a track record of cannibalizing its own products. In 2005, when the demand for the iPod Mini remained huge, the Nano was launched, effectively destroying the revenue stream of an existing product. And while iPod sales were still going through the roof, Jobs launched the iPhone which combined iPod, cell phone, and Internet access into a single device. Three years after the iPhone’s launch, iPad made its debut and raised the prospect of cutting into Mac desktop computer sales. So resolute was Apple’s determination in trading a highly profitable business for an unknown future that Jobs reportedly said, “If you don’t cannibalize yourself, someone else will.”
That mantra has apparently disappeared.
With Tim Cook, Apple has experienced unmitigated growth by exploiting its market position in emerging countries. Revenue from China has grown from 9% of Apple’s overall revenue in 2011 to 29% in 2014. More worrisome is the lack of new products. While the Apple Watch has yet to make significant inroads, consumers saw the proliferation of different models of existing products: iPhone 6s and 6s Plus; iPad Pro, Air 2, Mini 4, and Mini 2. What managers often fear most is a company’s new products and services with lower profit margins directly cutting into the sales of existing ones. Apple is now in danger of falling into the same pattern of thinking.
To be sure, consumer electronics is the fruit fly of the business world. Change is rapid and life cycles are short. In such an environment, there is little room for strategic mistakes. Misreading the market leads to diminished earnings; misread it a few times, and the company is sent packing. Still, the willingness to impose cannibalization as a guiding principle can also be found elsewhere outside the high-technology industry.
The Mahindra Group was one of India's largest corporates. A US$16.7 billion multinational conglomerate, in 2013 it had more than 180,000 employees in 100 countries. In 2012, it won the Financial Times' "Boldness in Business" award in the emerging market category. For more than two decades, the company was the largest tractor manufacturer in India, with its tractors exported to locations such as the United States, Bangladesh, Sri Lanka, Nepal, Zambia, and Zimbabwe.
Early in March this year, Mahindra announced that it was entering the agricultural equipment rental service, with a start-up enterprise named Trringo which will target the rural market area. It aims to do for the tractor market what Uber has done in transportation. Trringo will offer a digital platform to connect those looking to hire tractors and those willing to rent their self-owned machines. A location-based mapping system will bring the two together and guide them to the closest franchise. The twist, of course, is that Mahindra is a tractor manufacturer itself too.
Behind such a bold vision of Trringo is the business necessity. Insufficient and patchy rainfall for the last two years in a row has sapped the demand for products and services in rural India. Farmers are postponing decisions to buy tractors. Rajesh Jejurikar, chief executive for tractor and farm mechanisation at Mahindra, pointed out that the business idea is based on the premise that tractors and other farm equipment are not available when they are needed the most. "The tech-based model will help optimise tractor usage," he said.
And if history is a guide, Mahindra's latest foray might turn out to be big business. Trringo's model is very similar to Mahindra First Choice - the group's used-car sales business, an asset-light model that targets the notorious used-car market.
An inescapable fact when developing a new business is that experimentation and organizational learning are key. A winning strategy is often recognized only after the fact. Which is why Mahindra is trying numerous initiatives to tap the "sharing economy." Rather than picking winners, the company lets a thousand flowers bloom before selecting a champion.
So from Apple to Mahindra, companies have discovered it is no longer an option to simply pursue a conservative strategy of trying to protect and extend existing products. It can only delay decline. One must develop the next growth engine before the core business begins to show signs of maturity. And the best rule of thumb is perhaps to follow Jobs’ footstep of imposing cannibalization as a guiding principle to manage product life cycle.
Lars Sørensen, CEO of Novo Nordisk—the world’s largest maker of insulin—seems to agree. “If we wind up curing diabetes, and it destroys a big part of our business, we can be proud, and you can get a job anywhere,” he said in an interview. “We’ll have worked on the greatest social service of any pharmaceutical company, and that would be a phenomenal thing.”
A shorter version of this article first appeared in Fortune on April 28, 2016. #FortuneInsider
Howard Yu is professor of strategy and innovation at IMD. In 2015, Yu was featured in Poets & Quants as the World's Best 40 Under 40 Business School Professors. He received his doctoral degree at Harvard Business School.
CEO at SOP Technologies
8yGreat article!
Independent Hospital & Health Care Professional
8yEngenuity and creativity of mind with it artistic touch has to come back.
I would add, KISS with customer focus. It is all well in good to have something that is simple, but it it doesn't meet the customer's needs, they won't buy it (or buy again)
President at TekEmergence Solutions, LLC
8yMost businesses would be better off following the KISS methodology. :)
Founder /CEO at Saladtox
8yI like the line - Product line simpler and Better.... Great mind, just amazing ability to FOCUS