January 15, 2013

The Fall of Apple: By the Numbers


Over the last several weeks Apple’s stock has been falling relatively steadily which is interesting given the sales performance of the company, as reported, hasn’t been that bad. However, there is a growing concern that the firm can’t innovate (even Steve Wozniak, Apple’s living founder, has complained of this) and Apple has lost a ton of people including its iconic CEO. Having watched Apple slide the last time very closely (and used it as an educational case over the years), I think it is possible to outline the decline. Be aware it won’t be any more linier this time than it was last, there will be hills where Apple will swing up a bit, and deep valleys but the trend (assuming history repeats) will be down.  

Image Will Go First

One of the things that Jobs got that was unique in the industry was how valuable Apple’s image was.    It was the first thing he moved to fix aggressively when he took the company over and what was at the core of the last slide. You can already see the decline and it was prominent at CES where even Nokia seemed to be pulling more interest than Apple who has, over the last five or six years, been a cloud over that show even though they don’t attend it. This year Apple just wasn’t important and the image of the firm being unbeatable has already eroded.  

While Samsung, who has been aggressively tarnishing Apple’s image through targeted advertising, is part of this degradation and arguably the leading beneficiary, Apple has been doing much of the heavy damage themselves. The worst was probably the announcement of free iPhones at Wal-Mart, which connected the iconic premium brand to the image of the average Wal-Mart shopper which is anything but.  

Executive Panic Will Increase

The iPad Mini looks to be the kind of product a company brings out when its executive staff is panicked and the rumor of a cheap iPhone would be consistent with that trend if true (as would the Wal-Mart example above).   As a company slides the bonuses, and image, of the top executives slide with it and they begin to get desperate for that Hail Mary move that will turn the company around so they start throwing ill-advised and poorly thought out products at the market at an increasing rate.  

This has a tendency to collapse margins first both as a result of ever more value oriented offerings and due to the costs associated with increasingly unsold inventories.   They can play accounting games for a while like channel stuffing to keep the market relatively unaware of the problem but much like taking pain killers to cover up cancer, this only makes the problem far more difficult to solve, and much more catastrophic once it is disclosed. 

CEO Shuffle

Once the problem is fully understood it is likely the board will feel the need to change out CEOs but by this time the company will clearly have become a career ender. What I mean is that often by the time a board takes action on a CEO the problems are near unsolvable by someone who doesn’t know them intimately and an outsider won’t. So the best CEO candidates will avoid the company because they will see the likelihood of success as too remote and that the, to them, likely failure of their efforts will end their viability as a future CEO candidate. This tends to leave those that are either inexperienced and wouldn’t get a CEO nod in any other way, those that are at the end of their careers anyway and want to go out with more money, and those that are so blinded by the potential prestige of the success they won’t see the real problems until too late. None of these groups are mutually exclusive and two or even three conditions could exist for the chosen replacement. 

This typically happens several times with each subsequent CEO being even less connected to the company and often less qualified as well and the board (which often shuffles itself) becomes more and more desperate.  

Decline Accelerates

While, at the time, it may seem impossible to get a new CEO worse than the old one, which is typically what happens at this phase because the old one, at least, knows the company.   The new guy, or gal, will have to learn the problems (typically they are hired from the outside even though an internal hire would be able to hit the ground running) and do so through a bunch of executives who will have be motivated to cover them up in order to protect their own jobs.   This tends to lead to a series of major uninformed decisions based on a combination of misperceptions the new CEO has and misinformation they have been fed.  

This could be either led or followed by a major layoff or downsizing where Apple will bleed even more of its unique and critical talent.    And, from here on, Apple starts looking like Palm or RIM during their declines.  

Wrapping Up: Turn Around or Collapse

Recognize that there are few technology companies that survive 30 years, fewer 50, and only a very small handful has survived 100.   Of the companies I cover, only IBM has put in place a process to assure it could survive a century (and did, but almost didn’t). There is no doubt Apple will decline unless it creates a far deeper long term survival strategy than it has. Now Apple could change and become a different company much like Jobs did when it took it back over. But the issue there will be Jobs’ legacy and the unwillingness to step away from markets or strategies that once worked but are not being correctly implemented.   Ideally, the company should be formed around a rebalanced skill set of strong marketing (with a bit of magic), design, quality control, and engineering.  

This isn’t to say Apple’s slide is unstoppable, in fact at the moment it is relatively easy, but few companies seem to understand a problem like this until it has progressed to become far more difficult and impossible to correct. Apple hasn’t been like most companies, we should know by the end of the year whether this holds true for Apple’s slide/recovery or collapse.     




Edited by Brooke Neuman



Related Tags

Cloud    Microsoft    Apple
IBM       

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