Design Thinking and Innovation at Apple What is Apple’s approach to design and innovation? How did they get to this point? What is important about their approach? Etc.? Conclusion what

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Professor Stefan Thomke and independent researcher Barbara Feinberg prepared this case. This case was developed from published sources. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2009, 2010, 2012 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1- 800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu/educators. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.

S T E F A N T H O M K E

B A R B A R A F E I N B E R G

Design Thinking and Innovation at Apple

Think different. — Apple Advertising Slogan, 1997–2002

On March 15, 2012, the day before its new iPad became available, Apple’s share price reached

US$600 for the first time in its history—signaling solid financial strength and future growth prospects as world economies, and businesses, continued to recover from the worst recession since the Great Depression. With a market capitalization of about US$ 550 billion and annual sales exceeding $100 billion, Apple was worth nearly three times the industrial giant General Electric, exceeded the value of Sony Corporation by a factor of 25, and became the most valuable publicly traded company in the world. All the more amazingly, a scant 12 years earlier, when Steve Jobs returned to Apple, the company’s share price had hovered around $5 and the future was uncertain at best. Jobs, after all, had already been fired from the firm he co-founded almost a decade earlier, and he was coming back when the company was nearly written off. Even so, through that difficult period, the core commitment to product design and development had stayed alive.

Since being founded in 1976, Apple has been considered a leading designer and integrator of computer hardware and software. By 2012, it had fundamentally changed the computer, music, mobile telephone, and retail industries through its sleek products, innovative stores, and new business models. Moreover, the iPad tablet computer accelerated the transformation of the publishing business. Apple stores had some of the highest revenues per square foot in the retail sector. Its applications (App) store had achieved one billion downloads only nine months after launch (in 2007) and reached 25 billion by March 2012. Surprisingly, Apple’s radical innovations also came with consistency. Anyone who used the Apple II in 1978 and then picked up an iPhone three decades later would find a familiar object. Somehow the new device was the same as the old one: different, but the same.

Apple’s success was not just the result of clever strategic moves or an innate sense of market timing. It came from a deep commitment to understanding how people used computing devices and a desire to develop “insanely great products.” The iPod famously arose from the all-pervasive love of music within the firm. At the same time, this enthusiasm remarkably matched the needs, abilities, and dreams of millions of customers. And, for all these new markets that were conquered, Apple kept its eyes on the core computer business.

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As Apple ventured into new businesses and faced an ever-increasing number of fierce competitors, the roots of its success puzzled many industry experts and technology pundits. The company often defied conventional business logic and was not afraid to experiment outside its core markets. It built retail stores when competitors were moving to direct sales and distribution models, and its products were rarely first to market. There was, however, a surprising consistency in the way the company worked. Simply put, the “Apple Way” was a set of principles with a deep commitment to great products and services at its core: design thinking, clear development strategy and execution, its CEO as chief innovator, and the rational courage to conduct bold business experiments.

Design Thinking

Those of us on the [original] Macintosh team were really excited about what we were doing. The result was that people saw a Mac and fell in love with it. . . . There was an emotional connection . . . that I think came from the heart and soul of the design team.

— Bill Atkinson,1 Member of Apple Macintosh Development Team

It was not evident that falling in love with computers was something that made sense at the time

when these were machines for data processing and automation. Moreover, in the mid-1970s, when Apple entered the scene, computer equipment was typically housed in discrete locations within company headquarters and government facilities, guarded and used only by specialists. The notion of personal computers as a tool for individual work was unimaginable. Corporations and governmental agencies controlled how work functioned and, by extension, influenced the creation of tools that were to be deployed to control it. The business processes and systems that evolved were eventually captured in enterprise software, with its emphasis on automating tasks.

To Steve Jobs and the original cadre of Apple developers, however, the goal was to design a computer that both supported and fostered individual work. Moreover, they reasoned, potential customers would have to fall in love with computers if they were to master the machine’s apparent complexity and spend a lot of money to do so. People would have to see how this tool would benefit them and want that benefit for themselves. Apple’s products would target people with this appeal. From the beginning, Apple addressed individual users (“the rest of us”), believing that products that were intended to be useful to people would in fact so be. For that to happen, the level of complexity needed to be reduced dramatically.

Simplicity in Design and Use

Helping people “love” their equipment and the experience of using it animated—and continues to motivate—how Apple products were and are designed today. Cordell Ratzlaff, a major architect of the Mac OS X operating system (circa 1990), noted:

We did the design first. We focused on what we thought people would need and want, and how they would interact with their computer. We made sure we got that right, and then we went and figured out how to achieve it technically. In a lot of cases when we came up with a design that we knew really worked for people, we didn’t know how we were going to build it. We had a design target, and we worked with engineering to reach it. We ended up doing a lot of things that we initially thought were impossible, or would take a long time to do. It was great because we were applying a lot of creativity and ingenuity on the design side and then

pushing the engineers to use the same kind of creativity and innovation to make that happen.2

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From the beginning, Apple products were conceived of as being highly interactive. To that end, said Jonathan Ive, Apple’s senior vice president of industrial design, who spearheaded the iPod’s development (late 1990s), “So much of what we do is worry about the smallest of details . . . [while] I don’t think all the people using the product notice or care in a conscious way about every little detail, I do think in the aggregate it’s really important, and it contributes to why people like the product.”3

Worrying about the smallest detail, which includes even the packaging of Apple products, has helped realize co-founder Steve Jobs’ design sensibility: that simplicity is the ultimate sophistication. Distinct from organizations whose notion of “detail” is often conflated with “features,” Apple products are often noteworthy for what they do not contain. Years ago, the slot for inserting diskettes was eliminated from Mac computers (you would have to add an external device); reviewers criticized Apple for its arrogance and omission of must-have features. Other companies soon followed Apple’s lead, however, and external devices were quickly developed to plug into ports that Apple products contained. In other words, when the smallest detail is scrutinized, it’s possible to discover what can be lived without—and what can be developed elsewhere. Here’s how Paul Mercer, whose Pixo company implemented iPod’s user interface software, characterized the phenomenon:

[T]he iPod is very simple-minded . . . it really doesn’t do much other than let you navigate your music. That tells you two things . . . [first] that the simplification that went into the design was very well thought through, and, second, that the capability to build it is not commoditized. The fact that nobody has been able to duplicate the capabilities . . . means that the building blocks may be difficult to come by, and that the design sense, to create a simple and easy-to-adopt solution, does not exist in most product development organizations

worldwide.4

This “design sense” was evident in the iPod Mini, which actually reduced the amount of music that could be played but took advantage of new hard drive technology. “The mini was designed with exactly the same philosophy [as the original iPod]”, explained Ive:

We were trying to take advantage of and exploit the fact that it was a smaller drive and really understand the difference. We made one model taking an approach [similar to the original], using that design vocabulary and form factor, and it was just completely wrong. Then we started to explore very different materials and approaches. We realized we could make this in aluminum. Unlike with stainless steel, you could blast it and then anodize it—

which is a form of dyeing—and then you could do color in an unusual way.5

Thus the Mini, with a quarter fewer songs that could be played yet with a mere $50 price “reduction” from the original iPod—but it came in colors!—became, against near universal wisdom, a wildly popular product that was both an extension of the original and a unique item purchased for its own sake. Apple’s ability to draw upon exactly the same philosophy but adapt it to new technologies and different materials was equally evident in the Nano and Shuffle, which even further reduced the amount of music that could be played, as well as the size of the product. These, too, took off. The idea was that people would want a “portfolio” of iPods—and so they did. Moreover, an entire industry sprang up to surround the iPod, with accessories, “stations,” and links to other devices.

Beyond Fashion

Given the sleek appearance of iPods, iPhones, the iPad and Mac computers, and all these products’ prominence in media depictions, it’s tempting to attribute their popularity to Apple’s ability to tap into a zeitgeist—a sense of what is popular, fashionable, trendy at the moment. But there

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is more to coolness than fashion. In fact, Apple goes beyond superficial trends and gets to the essence of customer experience such that its “design” seems to happen from the inside out, while the outside continues to be deeply appealing and, ineffably, “cool.” According to Steve Levy, who’s written extensively about Apple, the iPod managed the amazing feat of being deemed individually cool while also being deemed cool for millions upon millions of users.

The appearance of Apple products is thus “the result of painstaking attention to detail,” according to Ive. “The thing that all of our competitors are missing is that they think it’s about fashion, they think it’s about surface appearance. . . . And they couldn’t be further from the truth.” Ive was talking about the vivid iMacs that debuted in mid-1998 and signaled Jobs’ return to the company:

The iMac [wasn’t] about candy-colored computers. The iMac [was] about making a computer that is really quiet, that doesn’t need a fan, that wakes up in fifteen seconds, that has the best sound system in a consumer computer, a superfine display. It’s about a complete

computer that expresses it on the outside as well.6

In fact, Ive could have been citing almost any product the company released in the past decades, including the ones that did not succeed in the marketplace—for example the G4 Cube. Apple CEO Steve Jobs described that product as: “. . . the coolest computer ever made . . . it’s our vision of what technology should be and how it should work and what it can do for you. We make progress by eliminating things. It’s a much more courageous approach, much harder than living with all this

[cheaper] stuff.”7 The outside of the (expensive and ultimately unsuccessful) elegant cube exhibited, Jobs believed, the integrity of the entire product’s design, from its “intention” through its concept development, through the process of making it and, ultimately, to the user’s experience of working with it—such that the simplicity that resulted becomes the ultimate sophistication.

This notion of design-as-product-integrity seems clearly driven by Jobs himself, powerfully suggested by the product his “next” venture created after he was ousted from Apple (in 1985): the NeXT computer workstation, which Jobs targeted to the education market. (Apple bought the company, NeXT Software, in 1996, triggering Jobs’ subsequent return.) Although the product was not a commercial success, the NeXTStep architecture became the basis of Apple’s subsequent OS X computer operating system and the machine ended up being the development platform Sir Timothy Berners-Lee used to create the client for the World Wide Web (in late 1990).

Wrote Berners-Lee: “The NeXT interface was beautiful, smooth, and consistent. It had great flexibility, and other features that would not be seen on PCs till later, such as voice e-mail, and a built-in synthesizer. It also had software to create a hypertext program.”8 At a point when he faced an early decision of reprogramming the Word Wide Web on another system, given the fact that NeXT machines were hardly prolific, Berners-Lee noted, “Trading in the NeXT for some ordinary computer would have been like trading in a favorite sports car for some truck. . . . I decided to stick with the NeXT.”9

Significantly, the beautiful, smooth, and consistent interface didn’t sacrifice features, some of which would not be seen on other PCs until years later. Apple’s vision of simplicity, one that arises from a thorough understanding of elegance and the integration of sophisticated features and functionality, did not imply an inherent tradeoff between these elements. There was no compromise between simplicity of use (beautiful, smooth, and consistent) and functionality, which included “prescient” features (like hypertext), compared to products that, in the guise of simplicity, in fact did only one thing (the “one-button” approach tried for cameras and phones, for example). Rather, the simplicity-sophistication outcome captured in NeXT and Apple products generally stemmed from a critical point: the design team kept on going until they found the key underlying principle of a

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problem—which, in turn, could then be built upon. At Apple, problems were moving targets, not something that was to be solved once and for all.

Innovation, Product Development Strategy, and Execution

You can see a lot by just observing. — Yogi Berra, Major League Baseball Player and Manager

At Apple, innovation, product development, and execution have been deeply intertwined with

the firm’s history and co-founder Steve Jobs’ pivotal influence on it. For instance, the Mac was never intended to be only a computing device; it instead exemplified a way of how people could (and should) work with a computing device. So powerful was this vision that Apple’s computers managed to retain a considerable amount of their design integrity, and fanatical “fan” base, during the tumultuous period between 1985, when Jobs left the firm, and 1997, when he returned to eventually become its chief once again. Nevertheless, Apple floundered during that period.

Jobs and Steve Wozniak founded the company in 1976, and were soon joined by Mike Markkula, Jr., who helped in accessing venture capital. Its first personal computer, the radical Apple II, premiered in 1978, and the firm had a successful IPO two years later. IBM shortly thereafter entered the market and though its machines had none of the combined simplicity and pizzazz of Apple’s, they could be cloned. In contrast, Apple’s were essentially developed from scratch and featured a proprietary operating system as well as unique hardware. In 1984, Apple brought out the Macintosh, famously in conjunction with a Super Bowl advertisement (inspired by George Orwell’s 1984) that even now remains a stunning feat of promotion and fundamental statement of the company’s commitment. But the cloning continued, and Apple’s market share (and eventually profits) began a long decline that did not fundamentally reverse until a year after the advent of the iPod.

In April 1985, the Board axed Jobs’ operational role at Apple, and he left shortly afterwards, to found NeXt and then to co-found the animation production company Pixar Studios. From 1985 to 1993, Apple would be run by John Sculley, PepsiCo’s former CEO and a marketing expert. Jobs had lured him to Apple in 1983, reportedly with the challenge: “Do you want to sell sugared water all your life?” Under Sculley’s tenure, Apple, facing massive competition from IBM-clones, as well as rapid changes in technology and an explosion in venture capital-driven investment that fueled new competitors, grappled with which markets to target—and hence, what products the firm should develop. When those decisions were not successfully resolved, Michael Spindler (an engineer and Apple’s president under Sculley) took over, from 1993-1996. He was replaced by Gilbert Amelio, a PhD physicist and former CEO of National Semiconductor, who reigned from 1996 to 1997. Shifts in strategy accompanied each new regime.

The debates within Apple during this period revolved around not only whether to license the Mac operating system and begin to compete in the “cloning space,” but also about the importance of the business market, which had almost zero penetration by Apple. (By contrast Apple had nearly 50% of the “education” market and dominated “artistic” enterprises, e.g., in graphics, advertising, movies, animation, and music.) The business market was almost entirely a combination of the Windows operating system and Intel processors (then known as Wintel). Products and projects at Apple proliferated in consequence of these various strategies—and failings. Some, like the PowerBook (1990) laptop computer, were big successes, but many others, like an attempt to create set-top boxes for TVs, were flops—as was the Newton, Apple’s personal digital assistant (PDA) entry that became

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the butt of endless jokes for its hand-writing analysis errors. Apple eventually did embark on a licensing program, which by 1997 represented 20% of Mac unit sales.

The creative core of technology development had managed to exist during this period of Apple upheaval, but the process became more “traditional” and resembled approaches found at other companies. Don Norman, a well-known expert on design who worked as vice president of advanced technology at the company from 1993 to 1998, described it this way:

There were three evaluations required at the inception of a product idea: a marketing requirement document, an engineering requirement document, and a user-experience document. . . . These [three documents] would be reviewed by a committee of executives, and if approved, the design group would get a budget, and a team leader. . . . [T]he team would work on expanding the documents, inserting plans on how they hoped to meet the marketing engineering, and user-experience needs—figures for the release date, ad cycle, pricing details,

and the like. It was a consultative process, [but it led] to a lack of cohesion in the product.10

There were, Norman noted, more than 70 Macintosh Performa (computer) models between 1992 and 1997. Critics noted that the rapid proliferation of models confused customers and increased complexity at Apple.

Excellence in Execution

The system is that there is no system. That doesn’t mean we don’t have process. Apple is a very disciplined company, and we have great processes. But that’s not what it’s about. Process makes you more efficient. But innovation comes from people meeting up in the hallways or calling each other at 10:30 at night with a new idea, or because they realized something that shoots holes in how we’ve been thinking about a problem. It’s ad hoc meetings of six people called by someone who thinks he has figured out the coolest new thing ever and who wants to know what other people think of his idea. And it comes from saying no to 1,000 things to make sure we don’t get on the wrong track or try to do too much. We’re always thinking about new markets we could enter, but it’s only by saying no that you can concentrate on the things that are really important.11

— Steve Jobs Jobs took immediate action upon his return to the company in August 1997: stopping the licensing

program, closing two divisions, eliminating 70% of new projects, shutting facilities (and moving manufacturing abroad), changing the distribution system, and launching a website for direct sales. Product lines were drastically reduced (from 15 to 3) and the sophisticated marketing, characteristic of Jobs’ tenure before, resumed. On the design, development, and execution levels, many things were likewise revived: the quest for “insanely great products” was picked up anew, as Jobs put himself back into the innovation process. The iMac debuted in August 1998.

Working alongside Jobs was Tim Cook, Apple’s chief operating officer. Cook joined the company in 1998, having previously worked at IBM and Compaq, with the assignment to “clean up the atrocious state of Apple’s manufacturing, distribution, and supply apparatus,” an effort that enabled inventory to drop from literally months to a few days. According to Fortune Magazine,

Apple routinely pulls off the miraculous: unveiling revolutionary products that have been kept completely secret until they magically appear in stores all over the world. The iPhone, the iPod, any number of iMacs and MacBooks—the consistently seamless orchestration of Apple’s product introductions and delivery is nothing short of remarkable. . . . In 2006 Apple

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transitioned its entire computer line to running on processors made by Intel. . . . Cook’s team . . . made sure there was nary a blip in sales.12

When Steve Jobs took a leave of absence in 2009 to receive a liver transplant, Cook ran the company. The products rolled on, the stock went up, Jobs came back, and the iPad debuted. Significantly, at the same time that “atrocious” operations were being cleaned up in the late 1990s, the core approach to development remained consistent: working intimately with manufacturers and being completely attuned to customers. “Apple [still] takes an amazing interest in material selection and how things are manufactured,” according to Mark Rolston, senior vice president at FrogDesign, which worked closely with Apple in the 1980s. “They continuously [today] ask what a manufacturer

can do for them . . . [they] will change a whole factory’s process.”13

Platform Strategy

Apple has been notoriously tight-lipped about both its strategy and operations—an approach that has turned into marketing magic and high expectations among its followers. But the company’s approach to innovation has been more complex than just designing exciting products: its streamlined product portfolio and extensive reuse within product families suggests that Apple has a clear platform strategy. The OSX operating system, for example, is used in all of Apple’s computers as well as in the iPhone. And the iPhone and iPod Touch clearly come from the same platform, as does most of the iPod family, and now comes the iPad.

Broadly, firms that follow platform strategies envision a family (or generation) of products at the earliest stages of product concept and planning. At this point they think ahead to not only what would be needed for the initial product’s release, but also what would be required subsequently— and when that should happen. With all this in mind to one degree of specificity or another, companies then design the initial product as a platform, with an architecture that will accommodate the development and production of the (derivative) products envisioned.

A platform strategy offers big advantages and benefits to a company, its suppliers, and its customers. For companies, like Apple, who put a premium on design, resources and time invested into the initial product is leveraged across derivative products; these can be developed and ramped up more quickly because they build on and make use of existing design elements in the platform. This is efficient, as well. With high levels of sharing and reuse of assemblies, sub-assemblies, and parts, the result is greater reliability and lower costs, benefiting company and suppliers alike. Company employees benefit too, through the knowledge they gain in designing, producing, and supporting the platform (i.e., initial) product. That in turn can be efficiently transferred to derivatives.

And finally, customers benefit from a company’s effective use of a platform strategy. More stable and reliable designs mean products that require less repair, maintenance, and service, in general and particularly for first-time users. Commonality of user interfaces and design elements means that repeat customers face less of a training

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