This Is The New Battleground In Business

There’s a new battleground in business.   It isn’t about money, resources, or scale.  It’s not even about brand.

In the past decade, Apple has been very successful at disrupting traditional industries by introducing products that offer incredible experiences to consumers and businesses.

Apple fearlessly took on incumbents such as Sony, Nokia and Blackberry, who were too mired in their past to admit that Apple was a real threat.   When they realized crowds were lining up outside Apple stores and that the iPod, iPhone and iPad were gobbling up market share, these organizations couldn’t get their acts together fast enough to out-execute Apple.

When it came to taking on traditional industries such as media, music and publishing, which have long enjoyed phenomenal profits, Apple’s masterful execution made them into the world’s top content provider, leaving many traditional companies no choice but to share their profits with Apple.

Coming off their Worldwide Developer Conference, it is clear that Apple’s future focus may significantly differ than the past.  Traditionally, the organizations and industries that Apple has disrupted were (for lack of better words) “traditional”.   In other words, they were organized in silos, loaded with politics and bureaucracy, and desperately lacked collaboration.

Consider Sony, one of the world’s top brands.   Sony was behind the wildly successful Walkman, the predecessor to the iPod. As the world’s most successful consumer electronics company, it developed a vision of integration of devices and content long before Apple even dreamt of going into the music business. Sony had all the ingredients to dominate the era of digital music. It had the technology, content, distribution and brand.

So why did this not come to pass? While there are multiple arguments, which include Clayton Christensen’s theory of disruption, Sony could not get key stakeholders within their respective silos to align to one vision. The culture was such that the executives in the music division, film studios and publishing did not see the same opportunities as other parts of the organization.   They didn’t rush to embrace the opportunities offered by new channels of distribution. Instead, they saw new technologies as threats to well established business models in which they had large personal and corporate investments.

When Kazou Hirai took over as CEO of Sony in 2012, he made it clear that cultural change was at the top of his strategic agenda.  “Sony must change. Sony will change.” said Hirai.  Similar motions have unfolded at Nokia and Blackberry, where their cultures were so mired in past successes, that when it came to “do-or-die”, they just couldn’t execute change fast enough.

According to Apple’s recent announcements at WWDC, they see big opportunities in the music streaming business, currently dominated by start-ups like Spotify and Pandora. Among other things, they are also redesigning their newsstand app with a newsfeed aggregator that looks very closely to industry leader, Flipboard.

Why Apple is taking on these topics is very clear. They are looking to protect the dominance of their platform as both music and content are continuing to evolve with new business models that transcend Apple’s own disruptions from a few years back.

For Apple, taking on traditional companies is one thing, but the new competitors that Apple is taking on are far from traditional companies. They are nimble, motivated and purpose-driven organizations.   While the size of Spotfiy or Flipboard may be no more than a tiny crumb compared to the size and market capitalization of Apple, out-competing them may be easier said than done.

Both Spotify and Flipboard obviously have a lot to lose. But they aren’t taking this news sitting down. Spotify was quick to raise $526M to take Apple to task, while Flipboard will likely seek similar alternatives.   While raising money is one tactic, it likely won’t be the sole way for these companies to beat Apple.   After all, Apple is sitting on cash reserves in excess of $178 billion.

The only competitive advantage that these organizations have is their culture.   This will be the new battleground in business. Not money, not resources, not even brand.

In an era where most organizations are taking a second look at flatter organizational structures in lieu of antiquated and failing command and control models, Apple remains a notoriously command-and-control culture where power is held by a very small group of individuals at the helm.

It has been well publicized that Apple can be an unforgiving place, where accountability is strictly enforced, decisions are swift, and communication is articulated clearly from the top.

While there may be a slight shift from the days of Steve Jobs, who led Apple more so as a corporate dictator, every critical decision is still made at the top of the organization. For its size, Apple’s organization is relatively flat as only a handful of VP and SVP ranks exist in the organization, with each role having very clear accountability for either a functional area or a product.

The accountability mindset extends down the ranks. Apple’s leaders uphold a concept called “DRI”, which stands for directly responsible individual. Often the DRI’s name will appear on an agenda for a meeting, so everybody knows who is responsible.

Despite Apple’s size and complexity, Apple’s org chart is deceptively straightforward, with none of the dotted-line or matrixed responsibilities popular elsewhere in the corporate world. A sole person – the CFO, owns P&L. It’s a radical example of Apple‘s different course: most companies view the P&L as the ultimate proof of a manager’s accountability; Apple turns that dictum on its head by labeling P&L a distraction only the finance chief needs to consider.

Apple’s ability to maintain a very strong command-and-control environment has not only helped its ability to execute, but also helped maintain its culture of secrecy. Very few leaks, if any, originate from Apple’s 100,000+ employees.   To maintain this level of order and discipline is nothing short of extraordinary.

One can argue that this was all made possible by having an executive team that is second-to-none in terms of their knowledge and hands-on involvement in all aspects of the business.   It is well known that Steve Jobs had a personal hand in every decision that Apple made, be it from product design to the type of materials used to construct the display cases in Apple Stores. Jobs’ shoes have since been filled by executives such as Jony Ive and other key execs who are very much involved in day-to-day decisions and are very deep in their respective areas.

 Will Apple’s model command-and-control stand the test of time against new competitors?

Spotify, a Swedish music streaming service, launched in October 2008 has experienced tremendous growth and now sports over 75 million subscribers.   One of the keys to Spotify’s growth has been its culture, which is almost a polar opposite of Apple’s.

While tiny in comparison to Apple at 1,500 employees, Spotify organizes for autonomy.  Their internal motto is “Be autonomous, but don’t suboptimize”.   About five years ago, Spotify decided to break their engineering teams into eight-person autonomous squads. Each team works towards a common company mission, but has the autonomy to work on a chosen project.

Allowing teams to choose what they worked on was difficult to manage at first, but Spotify learned how to make it work. Spotify has been able to afford a high level of autonomy by establishing loose boundaries like squad missions. For example, one team’s mission may be “To make Spotify the best place to discover music,” while another may be “To make internal a/b testing as easy as possible for other teams at Spotify.” This aligns the team around a common goal. In addition, team leaders create product strategies and short-term goals that are discussed every quarter. The result is a creative environment and a reliable product — an ideal almost every tech company strives for.

Spotify looks at its autonomy as a key advantage.   One of their agile coaches, Henrik Kniberg, explains the relationship between alignment and autonomy by drawing a grid. On one end of the spectrum you have low alignment and low autonomy: “No high level purpose. Just shut up and follow orders,” as Kniberg says.
spotifyWhile many leaders are good at telling employees what problem needs to be solved they also tell them how to solve it. These companies find themselves in the upper left quadrant. “Low alignment and high autonomy means teams do whatever they want. Leaders are helpless and the product becomes a frankenstein.” Companies with this management style find themselves in the bottom right quadrant of Kniberg’s grid.

At the top right quadrant of Kniberg’s grid is the company that Spotify strives to be.  He explains that high alignment and high autonomy means that leaders focus on what problem to solve and let the teams figure out how to solve it. The result is happier employees and more creative ways of solving a problem.

There are two conclusions and many open questions that will shape the new battleground for Apple and many other organizations, who are either fending off disruptors or are trying to disrupt others.

The first is that we cannot write off command-and-control as an ineffective way to operate organizations. It highly depends on the context of the organization, the industry and the types of jobs that are performed. Clearly, Apple’s success speaks for itself, however, in the usual Apple-esque way, their rendition of command-and-control is very different than one we typically see:

  1. Apple keeps its senior management fairly flat with very clear accountability models.   There are seldom cases where multiple people own the very same topic.
  2. Collaboration is key and it starts at the most senior levels.   Imagine what it’s like to bring a product like the Apple Watch to market. It only takes one department to drop the ball and the entire launch is foiled.   Every aspect of the organization is highly aligned towards the end-goal, but is also extremely accountable for their individual piece.
  3. Having a strong, hands-on executive team is critical. Executives must be closely involved and engaged. Decisions must be made swiftly as many employees rely on the executive’s input in order to execute.
  4. This one is going to cause debate, but looking at Apple’s ratings on Glassdoor and knowing a handful of Apple employees, it is still possible to achieve high levels of engagement and purpose in a command-and-control environment. Many Apple employees are extremely proud to work there and see a clear purpose in the work they do as it relates to Apple’s mission (keeping in mind that Apple doesn’t really have an officially published mission statement).

Second, models of self-organizations or Holacracy may present a competitive advantage in the long run. While the story has yet to be written, organizations like Spotify and Flipboard are bound to give Apple a good run for their money, and may even emerge victorious after an epic David and Goliath type of battle.

The ability to tap into the collective intelligence of an organization, in a day-and-age where complexity continues to grow and the pace of change accelerates, creates unique advantages, such as:

  1. A much higher rate of responsiveness to change.   Teams can see threats and can mobilize much faster than leadership pushing change from the top-down.
  2. The speed of execution can increase dramatically when the organization doesn’t need to rely on a relatively small set of time-constrained leaders to make decisions or instruct individuals on how to execute.
  3. Complex problems are better understood and solved through a distinct team effort.
  4. Strong sense of empowerment, which leads to better creativity, productivity and engagement.

One thing is certain: the next set of competitive battles will be like no other. With strategies looking very similar and differentiation becoming almost none-existent, even the most innovative organizations in the world have their work cut out for them.

While the short-term battles may be about whose product or service dominates the market – or even who survives – those who win the war will win based on a single dimension: their cultures.

While there is no distinct model or a template to leverage, leaders who embrace culture as a competitive advantage and direct their attention towards creating a sustainable advantage are those who will emerge victorious.

 

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