Friday, October 30, 2020

g-f(1)6 Apple success: Functional organizational design and its associated leadership model

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Apple’s functional organization is rare, if not unique, among very large companies. It flies in the face of prevailing management theory that companies should be reorganized into divisions and business units as they become large. But something vital gets lost in a shift to business units: the alignment of decision rights with expertise.

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  1. Apple is well known for its 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. 
  2. The adoption of a functional structure may have been unsurprising 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. (See the exhibit "Apple's Functional Organization").
  3. 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. 
  4. 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.
  5. To create the 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.
  6. In a functional organization, individual and team reputations act as a control mechanism in placing bets. 
  7. 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 accountable primarily for meeting numerical targets.
  8. Whereas the fundamental principle of a conventional business unit structure is to align accountability and control, the fundamental principle of a functional organization is to align expertise and decision rights.
  9. 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.
  10. Three Leadership Characteristics
    • Ever since Steve Jobs implemented the functional organization, 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 managers have these attributes, decisions are made in a coordinated fashion by the people most qualified to make them.

HBR, Apple's Functional Organization



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References

How Apple Is Organized for Innovation, Joel M. Podolny and Morten T. Hansen, Harvard Business Review, November–December 2020 Issue. 

Joel M. Podolny (WikipediaGoogle ScholarLinkedIn) is the dean and vice president of Apple University in Cupertino, California. The former dean of the Yale School of Management, Podolny was a professor at Harvard Business School and the Stanford Graduate School of Business.

Morten T. Hansen (WikipediaGoogle ScholarLinkedInTwitter) is a professor at the University of California, Berkeley, and a faculty member at Apple University, Apple. He is the author of Great at Work and Collaboration and co-author of Great by Choice. He was named one of the top management thinkers in the world by the Thinkers50 in 2019. Find him on Twitter: @MortentHansen.

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