Will The Alliance Bear Fruit?

When Ronald Reagan opined that we may witness the Apocalypse in our lifetimes, he might not have been entirely off [...]

January 1 1992 by Chief Executive


When Ronald Reagan opined that we may witness the Apocalypse in our lifetimes, he might not have been entirely off the mark. So far, the 1990s have seen the lions and the lambs lie down together in record numbers. James Baker brought the Israelis and the Arabs to the table. Former communist powers are teaming up with Western business interests as they embrace capitalism. David Duke went stumping on Jesse Jackson’s talk show. But pound for pound, one of the strangest revelations has to be the joint venture between Apple Computer and IBM. Wasn ‘t it only yesterday, after all, that Apple founder Steve Jobs was comparing Big Blue to Big Brother?

All that has changed under the stewardship of John Sculley. As chairman and CEO, the former PepsiCo marketing wiz has revamped Apple in ways that had appeared previously only in Jobs’ worst nightmares. In addition to the IBM venture-by far the most ambitious of Sculley’s projects-Apple announced a deal with Sony this past October to build the PowerBook 100, which Sculley says will allow customers to use laptops “in the same easy, empowered way that they had become accustomed to with Macintosh.” Also, Apple will continue its long-time alliance with Motorola, which manufactures Apple’s microprocessors. The IBM and Sony deals represent a major shift in strategy for Apple. Walter Winnitzki, deputy manager of Brown Brothers, says, “Apple is finally delivering what its customers want. Its previous policy had been to dictate to its customers what they should be buying.”

There are four main goals Apple ‘and IBM hope to realize through their collaboration. The big one is the plan to develop “object-oriented” software, which will break down the format barriers that currently prevent large networks of equipment from interacting. Second, they will make it easier for Macintosh and IBM PCs to work together and share software. Third, IBM will license to Motorola the right to manufacture and market its RISC chip for the new desktops. (That’s bad news for Intel Corp., which had a virtual monopoly on the microprocessor market for IBM and other PC manufacturers.) Fourth, Apple and IBM will create a “multimedia” system that will allow PC users to send and receive video and audio programs.

With the alliance, Sculley hopes to move Apple out of the realm of hobbyists and educators and into the corporate world. But will it work? Patty Seybold, publisher of Paradigm Shift and president of Office Computing Group, told CE, “Sculley seems to be making the right marketing and political moves. Whether he’s making the right technical moves is hard to say.”

While both IBM and Apple stand to reap huge benefits if the partnership succeeds, it’s definitely a “must-win” situation for the latter. Sculley’s greatest task has been the transition to corporate computing, which has not gone without snags. In his quest to expand market share, Sculley cut prices 30-40 percent across the board last year, thereby slicing Apple’s margins to the core. In May 1990, the company reduced its workforce by 10 percent. And just when it seemed that things were turning around, Apple posted an 18 percent decline in earnings for its fiscal fourth quarter, and net for the year fell 35 percent to $309.8 million, or $2.58 a share, from $474.9 million, or $3.77 a share. But rather than resolving his company to Armageddon, Sculley is putting his faith in the joint ventures, new technology, and his own marketing savvy.

HARVEST TIME

Once the alliance between Apple and IBM establishes a uniform information highway, what can we expect?

What makes this alliance different than others in the industry is that it really starts with what’s in it for the customer. The most important thing for our customers in the 1990s is going to be the reorganization of work. How do you get people to change their behavior so they’ll work more productively? It’s going to require that computers become a part of the workplace in a far more pervasive way than we saw in the 1980s, which means that the computers have got to he easy to use, which is Apple’s great strength, and computers have got to communicate over large enterprise systems, which is IBM’s great strength.

What we’re doing is bringing together Apple’s core competence with IBM’s core competence, and creating a series of foundation technologies that can dramatically improve the ability of technology to deliver on the productivity promises made in the 1980s but which in many cases were never realized.

Isn’t Apple’s alliance with IBM a bit lopsided given IBM has nothing like the same need as Apple to make the venture a success?

The reason why IBM and Apple joined together was that both of us are systems companies. We’re both capable of creating new technologies, but if we can’t get them to market and get them adopted by the application developers, then the customer will never see the end user value of it. And in order to counterweight the drift that the industry has had towards commoditization, we didn’t think any one company alone, even IBM, could achieve success. That’s why the two companies who had traditionally been vigorous competitors joined together for the common goal, to create new foundation technologies.

Now, at the same time that we’re working closely together, we said we are willing to continue to share technologies, even though we know, as vigorous competitors, that we run the risk of taking sales away from each other. But we would rather take sales away from each other in an expanding, exciting industry that’s driven by innovative technology, than in an industry that’s drifting towards commoditization.

STILL WAITING FOR THE PAYOFF

After all that’s been said and done about office productivity, why hasn’t the PC really changed anything?

If you look at the statistics on productivity in the office, you’re correct that there has been no substantial increase in productivity over the last 10 or 20 years. But it’s not that the technology doesn’t enable people to be more productive. The problem is that we have taken very expensive technology, and we have forced it onto the old way of working. What it really requires is a systemic change in the way the people do their jobs, which means they have to think differently, communicate differently, and work differently.

So the big revolution of the 1990s isn’t just technology, though that’s a part of it, but it’s how people use technology. The problem with the 1980s computers was that they just weren’t easy enough for normal people, nonexperts, to use. They didn’t do enough for people when they had to work together over networks.

How do you bring people closer to how the software should be used?

That’s the central theme of what interests Apple the most in the 1990s. It isn’t just about processing data now, it’s about enabling people to work differently than they have in the past. You’ve got to make he tools that we put in front of people so obviously better than what they had that they’ll want to adopt the new behavior. That’s a marvelous opportunity for Apple, 4 because what we care about passionately is making technology easy to use.

What tool or process do you presently have or will have that directly addresses that?

One of the best examples we have is the new line of PowerBooks that we just introduced. Apple was late to market with laptop computers, but when we finally came, it was with a very different concept of what a notebook computer should be. Other computer companies said that the notebook was an opportunity to make big machines smaller so you can carry them around with you. We said that it should be more than a computer, because when people are walking around they want to do more than just run spread sheets. They want to access information, send information, carry out transactions, and be able to do it in the same easy, empowered way that they had become accustomed to with Macintosh.

What we did was to design a notebook computer that integrated communications into the user interface as successfully as we had integrated the ease of use of computation into our desktop machines. It’s a radical point of departure, but it’s one that is already starting to validate the idea that people will change their culture and behaviors if you give them tools that do things that they find to be really useful. It’s not just about computation.

FROM PEPSI TO PCs

Since coming to Apple from Pepsi, what cultural changes have you had to make?

One of the things that really struck me when I first joined Apple and had been out here five or six months was my first trip hack to the East Coast. I saw some of my old colleagues, and they said, “Tell us what it’s really like out there in Silicon Valley.” I said, “They’ve got this really strange idea that work ought to be fun.” And they said, “Oh, you’ve got to be kidding. You’ve been out in the sun too long.”

The idea that work ought to be fun is incredibly powerful, because people are more likely to be productive, get involved, and be creative if they’re enjoying what they’re doing. The old idea was that if somebody was having fun at their job, they were probably goofing off.

It just shows you how quickly our ideas of success change in about a decade. It isn’t just my change from one industry to another. The whole world has changed a lot as well over the last decade.

How have these cultural changes affected the way you do your job?

The world I came from was very hierarchical. I’ve been at Apple for almost nine years, and when I left corporate America it was still in the command and control concept of management. It’s really only in the last decade that we started to see real decentralizing going on in corporations.

Since I don’t have a large staff, when I have to work on a project that I’m interested in, because I’m also the chief technology officer of Apple as well as the CEO, I do it over electronic mail. I assemble a small team of people electronically to work on a particular project. We may all be in different time zones and working at different times of the day where we are, but we are able to focus on a project until it’s completed. Then this group is dissolved, and the human resources department never knew that organization existed, much less that it was disbanded, because it’s an organization that exists as required over a network.

What makes Apple unique is that we are all tremendous users of our own technology, starting with the CEO and moving right up through the factory workers or the people out in the field. We have a common denominator, typically on our electronic mail systems, which allows us to use it as easily and as intuitively as other people may use telephones.

Do you use a proprietary information bank that is shared only within top management, or does information truly flow outside this circle?

No, information truly flows. Obviously, there is some sensitive financial information that we cannot share because of SEC disclosure rules. For the most part, however, it’s a dramatic change from the soft drink industry, where information was guarded almost religiously. In this industry, information is a perishable commodity; it’s out of date literally in days. There’s far more advantage to making it available to the people who need to use it than to keep it away from people because it’s proprietary.

THE OBJECT OF HIS AFFECTION

Take us into the future when object-oriented software is up and running. How would CEOs use this in their businesses, and how would it change what they’re doing?

The first hurdle that management must cross is not what technology to choose, but what business process to install that will give it a competitive advantage in the global marketplace. More and more, before we even get to the question of technology choice, those business decisions are going to center around the ability to move information rapidly to the right levels of management where decisions can be made and then implemented successfully.

In the case of the snack food industry, for example, the name of the game is to have the freshest products on the shelf and to be able to manage the shelf space so that your bestselling products are always in stock, because if you run out of stock it’s a lost sale. It goes to the competition.

You need to be able to respond to something that your competitor does almost immediately. In the 1970s, we were more than willing to settle for information every two months that would tell us how our market share was doing in soft drinks or snack foods, and that information was not very detailed. In the 1990s, however, you have to have that information by store, by product, and you’ve got to be able to have that information usually on a daily basis.

That’s an incredible change in the business process, to allow you to have that level of detail of information. Clearly you don’t want that detailed information flowing all the way up through the hierarchy of a system that goes up to a command and control executive management in headquarters. It would sink from its own weight. You’ve got to find a way to get very timely information to the appropriate levels of management, which is why so many corporations are leaning toward more and more decentralization. But you’ve got to get the information in the right form to that decentralized management so they can quickly make decisions, and those decisions can get quickly implemented.

It’s not that the things we’re talking about are always new problems. It’s just that we have to have new solutions to these problems, and the big difference in the 1990s is the ability to get far more productivity from people working together as opposed to people working by themselves.

Do you have any plans for products that will make so-called dumb objects such as telephones, automobiles, kitchen appliances, or beepers into smart products?

Absolutely. Every successful computer company today is rethinking its core competence for the 1990s. In our case, we think our greatest core competence is ease of use. That’s what we’re really good at. So why should we just be making easy-to-use desktop computers? We know that the consumer electronics industry is going from analog technology to digital technology. We know that there is a need for a software architecture that enables new kinds of products, whether it’s digital TV or electronic books.

We also know that there are going to be revolutionary new products that will be used in business that are going to be highly miniaturized. That in many ways will include the component know-how and miniaturization skills that the Japanese have learned.

Will we see more alliances with companies such as Sony to go into these other products?

Alliances are really going to be required in the information systems and technology industry of the 1990s, because no one company can afford to do everything by itself. We will be known by the company that we keep. In the systems world, we have a seminal relationship with IBM. It gives us entry into the corporate computing environment with a stamp of approval from the world’s largest and most successful enterprise systems company. In the consumer field, we’ve had a long relationship with Sony, and you shouldn’t he surprised to see Apple work with several different Japanese companies, not just a single company. And in the communications field, we’ll continue our longstanding relationship with Motorola.

How do you answer those who argue that Apple seems to have lurched from strategy to strategy between various shake-ups? How long will you hold your present course? Apple’s vision of empowering individuals with computers that are very easy to use hasn’t changed at all. What has changed at Apple was that we tried to move into the business market and not sell just to enthusiasts and schools, and we’ve had some success with that.

Today, Apple accounts for all of the growth in the personal computer industry. All the worldwide growth is coming from Apple’s products. If we weren’t getting the kind of growth we are from our new products, then we never could have survived in an industry that is going through a slump. You’re rewarded on your ability to quickly adapt to the changing industry conditions. If you don’t adapt, you don’t survive. But what hasn’t changed is we have not abandoned Apple’s original vision, nor do we intend to abandon it during this decade.