Acuity Insight: The Core Issue Behind Apple’s Downturn

Richard Baker, Partner and co-founder at Acuity Advisors, started his career as a strategy consultant for Monitor Group, founded by legendary business strategy guru Michael Porter. Acuity are in regular contact with US acquirers including great face-to-face conversations with a number of the top US tech giants based in Silicon Valley. It’s fair to say we have our finger firmly on the pulse of their corporate strategies, and Richard has some theories on Apple’s future.

 

Five years have passed since Tim Cook became CEO of Apple and in that time it has become the world’s largest company by market value, with net income last year of US$53bn. That is greater than the combined earnings of Facebook and Alphabet Inc, Google’s parent company; indeed Apple recently sold its billionth iPhone but growth is slowing and its stock price has stagnated this year, at odds with its fellow US tech giants. 

Why is this happening at Apple, and what are the other US tech giants doing differently?

Apple is renowned as a true technology innovator and a serial disruptor in new segments – the iPod in 2001, followed by the iPhone in 2007 (which generates over 60 per cent of Apple’s total current revenue) and subsequently the iPad, launched in 2010 and currently cornering a quarter of the tablet market. All have pushed boundaries and captured imaginations.

The combination of this culture of innovation, exceptional brand awareness and fervent brand loyalty, with the frequent development and release of next-gen hardware upgrades has seen Apple transition into the big corporate incumbent we see today, with all the challenges this brings… 

Specifically, how do they simultaneously focus on the existing business whilst continuing to innovate?

Apple devotees invariably don’t have to wait long between new product launches and next-gen releases. Just weeks after Apple’s latest iPhone was released alongside Series 2 of the Apple Watch, the new MacBook Pro was launched on 27th October. Apple describe it as “ground-breaking” and “the most advanced notebook ever made”. It’s been positioned as the direct rival of Microsoft’s brand new Surface Book i7, with some tech connoisseurs scoring the Surface Book higher for design, build, display and battery life in their initial critiques.

However, the iPhone 7 has been increasingly beset by various challenges; the iOS 10 software roll out caused valid security concerns, and a lawsuit has been filed by disgruntled upgrade program members. Apple is also fielding other distractions – the European Commission ruling ordering Ireland to reclaim EUR13bn in tax benefit it illegally applied to Apple. And then there’s the Patent Act showdown rumbling on between Apple and Samsung in the US Supreme Court, not due to conclude until June 2017. In his analysis the BBC’s Dave Lee quotes Dr Andrea M. Matwyshyn: “The fact that Apple is pushing for full damages is a strategy that suggests extreme confidence in its ability to stay ahead of the curve in technology”.

Of course Apple isn’t alone in its technical, legal and tax issues – no tech company is immune in such a fast-paced and competitive industry – but the affect it’s all having on Apple’s stock price and growth is notable. Are these corporate distractions to blame?

Moreover, Apple is still very much a hardware producer – but they are providing the now non-differentiated platform for other brands to get rich on. One could say that they are becoming the new BT.

Or perhaps Apple is following an ill-advised and historically flawed strategic path – prioritising profit over user satisfaction and consumer engagement. Even the strongest brand loyalists will lose fervour if their consumer and user experiences are no longer top notch. 

Is Apple’s engagement model outdated?

It would appear that Facebook, Google and Microsoft have different strategic approaches to that of Apple.

On my recent visit to Silicon Valley I was impressed by Facebook’s clear commitment to Zuckerberg’s 10 year roadmap – clear, concise, workable and available for all to see. Strategy to me means “informed choice, timely action” and Facebook clearly has a distinct frame of reference from which every employee can make decisions day-to-day. They have a ‘strategy on a page’. Their mission is “…to give people the power to share and make the world more open and connected.”

Google are less clear about their plan, but their actions are all consistent with a business that is sure about where it is heading – Google has a very nimble and innovative approach to trying new things. Additionally, and equally as important, is their company philosophy – top of the list is “Focus on the user and all else will follow” – with customer experience overriding their own internal goal or bottom line.

Microsoft is obviously making a big play to own the business segment using the cloud, and it is working hard on customer service to achieve this. CEO Satya Nadella’s new mission statement was outlined in his company-wide email last summer: “to empower every person and every organization on the planet to achieve more.” The full statement talks about commitment to customers, passion for technology, accountability and high quality. The company has since got on with making some bold strategic decisions, for example moving on from the failed Nokia acquisition, and its recent purchase of LinkedIn which will show us whether they can achieve a successful integration. Nadella is laser-sharp in his articulation of Microsoft’s mission, worldview, strategy and ambitions – and how they feed into the company’s ultimate goal by being “customer-obsessed”.

In Apple’s case, Steve Jobs was famously skilled in producing impactful and quotable soundbites with recurring themes around innovation, excellence, courage, creativity and making an impact on the world. It’s strange then that Apple doesn’t appear to have an official statement of its missions or values; indeed there are many conversation threads and blogs discussing this fact, and debating what they might be.

In a recent Washington Post interview Tim Cook has hinted at his five year vision for Apple, and the focus is on commercial partnerships, revitalised core technologies (think AR and VR), ramping up their AI (Siri) and processor game, cracking emerging markets and growing revenue from its service offerings (iCloud, Apple Music, iBooks etc.) In terms of customer engagement there is an acknowledgement that “what the customer wants from us is a user experience that is seamless”, and how a company that admits its mistakes as Apple does will do better at retaining its employees and customers. There is also emphasis on corporate social responsibility and environmental initiatives. 

And yet, no Mission Statement

A clear company strategy helps align employees, customers, suppliers and very importantly shareholders on where the company is going next and gives a frame of reference to innovate and make informed, consistent day-to-day decisions. I have over 20 years of experience working with many different companies, and with this perspective I can confidently say that a defined strategy – one that is well communicated and easy to articulate – is the single factor which differentiates between future winners and losers.

I think this lack of a cohesive mission statement or core values beyond the early talk of great products, saying “no” to low quality, and learning from mistakes, demonstrates that Apple’s strategy is not clear and without clarity, momentum inevitably slows.

Innovation to fuel future growth requires engagement with all stakeholders, and a company cannot rest on its laurels and assume that brand loyalty will endure indefinitely, without nurturing and attention.

All the signs are there that Apple’s growth has crested and it will take a significant amount of energy to address this. 

Final thought

During Acuity’s tour of the US – where we enjoyed meetings with Google, Facebook and many other major tech players – engaging discussions were had about company strategy and values, as well as their M&A appetites…

…Apple could not find the time to meet us.

Richard Baker Acuity

Richard Baker, Partner

 

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