September 19th, 2011 by Ann Zerkle
Scott submitted an interesting article for us to discuss (see previous post here). The title of the article is “Jobs made Apple great by ignoring profit.” Below are a few quotes to help focus analysis:
As paradoxical as it is that the pursuit of profit is what causes the long-term failure of companies, I believe that Apple’s lack of focus on profitability has actually made it one of the most successful companies in the history of capitalism.
Andy and David both left comments on last week’s post that questioned what exactly the authors mean by profit. This is a great place to start. From the tone of the article, references to Wall Street and the typical mental model most people have about profit, I suspect this author means accounting profit: Total Revenue – Total Costs =Profit. With the reference to Wall Street earlier in the article, it may be they are thinking of quarterly profits. David and Andy both suspected Apple’s focus was on value creation.
Apple’s focus is on making truly great products — products so great that its own employees want to use them. That philosophy has made Apple one of the most innovative companies in the world. Steve Jobs’ legacy isn’t the Mac. It’s not the iPhone. Or the iPad. His legacy is in the creation of Apple itself, reminding us that profit is not the ultimate goal, but rather a consequence of something greater.
This quote makes me think Apple was/is focused on value creation and their profit was/is an indicator of that value. The “something greater” might be value creation (I don’t think people on the outside can know for sure). For analysts who are focused on quarterly profit, it seems outrageous to release a product (iPad) that cuts into one of your most recognized businesses (laptops and computers). However, for a company focused on long run value creation, it seems much less worrisome.
As I read the article, I wondered what other aspects of the organization were in place to allow this attitude (which I believe is a focus on value creation) to emerge. Clearly there were some values and beliefs in play supporting the strategy. This quote hints that folks at Apple may have a point of view on creative destruction:
Despite being perceived as a premium, high-end player, Apple under Job’s leadership has not simply managed to avoid being disrupted by others, it has disrupted entire industries — many of them. Even more impressive, it’s disrupting itself.
It seems to me people working at Apple have a shared value around innovation and believe the cool-factor is important. If the company is solidly focused on value creation, then a clear understanding of their customers, when and how the value is created and other aspects of vision must be in place. Imagine having a company full of people who do not understand value creation AND are ignoring profit.
As David pointed out in his comment, maybe the authors are using a bit of exaggeration. At one point the author says Jobs was “eschewing” profit. Putting aside the specifics of Apple, let’s focus on some big picture ideas. With all these ideas about value creation versus profit, can any for-profit company truly ignore accounting profit? Does MBM suggest we ignore or eschew profit?