Lashinksy went in-depth to explore the methods and processes that make Apple the world's most valuable company. Can the company continue its success in the post-Steve Jobs era? Excerpt from "Inside Apple: How America's Most Admired and Secretive Company Really Works," February 15, 2012

ADAM LASHINSKY, Senior Editor at Large, Fortune, Author, Inside Apple
JESSICA VACELLARO, Senior Technology Reporter, Wall Street Journal-Moderator

LASHINSKY: I want to thank Apple for being so wonderfully difficult. Apple is a difficult company to cover, and I admire Apple for its difficultness, if that’s a word, because Apple is incredibly focused, which is part of the thesis of my book. They are focused on what is best for Apple. If you think about it in a corporate sense, or a fiduciary sense – a shareholder’s sense – that’s a really good thing for a company to be. I came to understand that Apple is only interested, professionally speaking, in one thing in terms of dealing with the outside world, and that is Apple’s products. The only reason that Apple wants to engage people like Jessica [Vascellaro] and me is to talk about its products. It is not interested – professionally again – in the topic of how Apple works.

I admire them for that, because that doesn’t necessarily help them sell iPads or iPhones or Macintosh computers and so on, and they do that extremely well. They sell well; they manufacture well; they manage well. They promote well, and part of that is because they promote what is of their choosing. This is a theme that I come back to over and over, and my theme that I’ll leave you with is that in so many ways, Apple is different from every other company in the country and in the world, and in fact the way they do business is different from the way business is taught in business schools. I decided that it would be interesting to ask the question, “Well, if this company is the world’s most valuable company – now we don’t have to keep saying on this day or that day; it is the world’s most valuable company – and if they do everything that they do so well, maybe the business schools should be teaching something different.”

VASCELLARO: Tell the story about how you decided to write the book.

LASHINSKY: People say, “Why did you decide to write about this?” I have a very simple answer: My editor asked me to. It’s interesting; some of this was actually mentioned in Walter Isaacson’s biography of Steve Jobs. Jobs had been in for meetings at Time, Inc., and had mentioned that Apple behaves like a startup, and that Apple has no committees, for example. [Fortune magazine’s managing editor] Andy Serwer said to him, “Gee, that’s interesting. We’d like to write a story about that.” Steve said, “We’ll see. Sometime.” Eventually, Andy decided we were done waiting and he asked me to do it, so I just started doing it. What I came to understand is that I was asking a different question from what other journalists were asking, or other journalists had asked and had been told no. I got told no also, obviously, but I just kept on going.

I believe – and I’d like to see some academic research to back this up – that Apple has just had the most amazing 15- year run of any company perhaps in the history of companies. They’ve done very little wrong – not nothing, but very little wrong – and what little they’ve done wrong has been completely overwhelmed by all the things they’ve done right. I think if Steve Jobs were alive and well, they could not have another 15-year run like the 15- year run that they’ve just had, if for no other reason than because their sheer size and the complexity of the company that they’ve worked so hard to avoid is upon them. There will be changes. We’ve seen subtle changes already. It was symbolically important that the first public act that Tim Cook made was to declare that the company would now, for the first time in years – or ever; I don’t know – match U.S. employees’ philanthropic donations up to $10,000. This was important, because Jobs thought that was a bunch of hooey.

VASCELLARO: – and [Cook] did it right away.?

LASHINSKY: He did it quickly, and he showed that he was listening to employees, because this was something that they cared about. Apple has a fundamental challenge that they will have to grapple with, which is that Steve Jobs was one of the greatest entrepreneurs we’ll ever know, and the people at the top of the org chart – which we published in Fortune – who are running Apple today are not entrepreneurs in their bones the way he was. Meaning no disrespect to him, Tim Cook bled IBM blue for the first 10-plus years of his career. That is not the making of an entrepreneur.

VASCELLARO: What do you think would happen if you have a company that’s been led by a visionary, entrepreneurial type? You said Tim “bleeds IBM blue.”

LASHINSKY: Bled. I mean, let’s be fair to him. He loves Apple – we’ve heard him say that over and over – but his training, his formative years, were at IBM.

VASCELLARO: There’s a great amount of very senior leadership, but all with very different skills. What does this company look like in five years?

LASHINKSY: This is an example of how the company inevitably will change, I think. I’ve described this as what I believe is a religious debate at the highest levels of Apple and among the senior people who have left Apple. You get people with very strong opinions on both sides of this: “Apple’s going to run off the rails; it’s never going to be as great as it was,” is one argument. The other argument is, “This is a company with so much excellence, and so much greatness, and so much process, that it will continue to be great.” I lean in the latter direction.
Number one, there is a ton of excellence in the company. They’ve hired really good people who buy into the mission of the company, which is an important part of the Apple story. Number two, there’s all sorts of functions of the company that Steve Jobs didn’t have his fingers on for several years now, and these are the parts of the company that Tim Cook has effectively been in charge of for 2 years, 3 years, 10 years. The one big intangible was that Steve Jobs made the final decision on anything that mattered. He had this uncanny ability to do that, an almost idiot savant ability to say, “This is where we’re going to go, and we’re not going there.” I have no idea how they’re going to replicate, replace or pivot from that.

VASCELLARO: Despite this being the world’s most valuable company right now, the people who are there don’t think a ton about money. You talk a lot about a culture [in which] people don’t talk about getting rich, and that’s not why they’re in it. At the same time, this is a company that’s known for pinching its suppliers on fractions of a penny for every component down its sup- ply chain, and that clearly has some pretty money-minded folks there. Do you think Apple can maintain the image of the culture and the brand? Not only is the company very operationally minded, but now there’s someone of that mould running it, too.

LASHINSKY: It calls to mind the joke, “Why are rich people so cheap? Well, how do you think they got rich in the first place?” There is an element of that in Apple. These are sort of two separate subjects: There’s the personal mentality about money at the company, and then there’s the company’s relationship with wealth and spending money. Like many things with Apple, there’s a lot of paradoxes at play here.

Jobs had an odd relationship with money. He lived a relatively humble life for a multi-billionaire, and he was openly critical of people who would talk about money, and in particular who would talk about making money as being the goal of business. He never stressed that business was about making money. For him it was about creating great products: “We’re going to do that extremely well, and oh, of course we’re going to make money.”

Another paradox at Apple is that on the one hand Apple people will describe the company as being “resource-constrained.” I had the hardest time understanding what in the world they were talking about. I came to understand that they really were referring to the difficulty of finding enough people to do the projects that they wanted to do. They could never staff up as much as they wanted to.

So they’ll, on the one hand, pinch a sup- plier. On the other hand, when they want to spend money, whether it’s on forward purchases of DRAM or buying the equipment that is necessary for outstanding manufacturing processes or, as I describe in the book, incredibly lavish spending to market a product exactly the way they want to, they’ll spend almost anything. This is something where I’m actually very optimistic for Apple. I think these are cultural attributes of this company, and I think these cultural attributes die hard. On the one hand, where it’s going to be hard to find somebody with this ability to say, “No, we’re not going to do the iPad now; we’re going to do the iPhone first” – incredible decision – that I don’t know, but I think this culture of focusing on product over revenue optimization will persist.

You talk to people who went to Apple in the late ’90s or the early 2000s in the first few years of Steve’s return, long before it was evident that the company was going to be a major financial success again: None of them went there for the money. Their friends told them they were crazy to be joining this loser company, and above a certain level, they all got stinking rich in the process.

VASCELLARO: A couple questions around whether Steve Jobs was a good manager or not, and what should people take away and try, and what should they leave?

LASHINSKY: He was an astoundingly good manager in that he focused on what he thought was important, and he did a very good job of forcing his people to focus on what was important. One of the most telling elements of his management style was... you know, it gets a bit tiresome, but in conversations about Apple, the word “product” comes up over and over and over. They will say that it’s all about product, but they mean it, and the evidence of this is the product review process that Jobs had. Basically, every important product project was reviewed every Monday, unless the executive team couldn’t get to it, and then they reviewed it the following Monday. Many companies have this quarterly product review concept, but Jobs felt, as a manager, that there was nothing more important than paying attention to the product. He would review it obsessively. Middle-level people spend their careers at Apple preparing their bosses, who are preparing their bosses, who are preparing their bosses, for a presentation to Steve Jobs and the executive team, and now Tim Cook and the executive team. I think he managed that extremely well.?

VASCELLARO: What about the “Steve bottleneck” that you refer to in the book?

LASHINSKY: The “Steve Jobs bottleneck” is that, for good or ill, Steve Jobs only concentrated on a small handful of things at once, and he made very shrewd decisions over the last 15 years about what to concentrate on. The upside of his concentration was the iPhone, for example. The downside was – and this is something that Apple people talk about – if you worked in a part of the company that he wasn’t concentrating on, you got no attention. Nothing moved forward on your project; it was very obvious to you that you were not in the cool crowd, and Apple would not move forward on that.

This would frustrate managers of all sorts, and I know people who left the company who would say, “I had my time; I worked on the hot product. The heat shifted; I didn’t. It was time for me to leave, because I knew I wasn’t going to get any attention anymore.” [In] the modern Apple, the management will cure some of those bottlenecks, and they’ll pay attention to more things. You could see that being a good thing for running a $400 billion market cap company, but you could see it being an abandonment of what made them great, too.

VASCELLARO: Which companies do you think are Apple’s biggest threat right now?

LASHINSKY: The most obvious threat is Google, in that Google is culturally the antithesis of Apple in nearly every way, and then Google is coming after Apple in some very specific areas, mobile device platform being the most obvious example. The fact that they’re coming at it from such a differ- ent perspective – of giving away operating software for mobile platforms for many device manufacturers, as opposed to Apple’s “walled garden” approach of packaging its software with its hardware and running its own application ecosystem – is the most glaring example of a head-on fight. They’re fighting for a lot of other things, like talent, mindshare. But it’s only the most obvious one. Samsung is a threat, and you can go down each of Apple’s major product lines, and you could say that a lot of startups are a threat as well.
Apple has never done anything particularly good in social media, so in a sense, Facebook and Twitter are threats. They’re benign threats right now, from a revenue perspective, but...?

VASCELLARO: Apple has about $100 billion in cash right now, which is extraordinary. The company has to figure out something to do with it, shareholders argue, and they probably agree. What do you think will happen??

LASHINSKY: The reason Apple has all this cash is that Steve Jobs was freaked out about running out of cash, because he remembers in 1997 when the company didn’t have much of it. He said they were 90 days from insolvency. He was almost like a Depression Era baby about this issue of cash and debt.
There’s actually very little evidence, Jessica, that they care what investors think about their use of the cash.

VASCELLARO: Particularly with the iPod, they sort of diversified a little bit, went down to some cheaper products – haven’t done that with the iPhone, but bringing the cost down – and today, the Mac. What do you see as the future for the Mac, because it’s fairly premium?

LASHINSKY: When you study Apple, you begin to appreciate what a risky enterprise it is. They have so relatively few product areas for their size that they’ve engaged in these “bet the company” efforts multiple times over the last handful of years. They’ve been very good about their small bets, too. They made a small bet on Apple TV; it didn’t work; big deal. They made a small bet on MobileMe, this email system; it didn’t work; no big deal. They made a big bet on the iPhone, a big bet on the iPad, this huge bet on DRAM memory – knowing what was coming down the pike with the iPad and the iPhone – and it worked. These big bets have worked huge.

The Macintosh business gives them this incredible cushion to take risks, because it is now their cash cow business, and they are milking it. There’s not a ton of innovation in the Macintosh. They have this franchise that is growing faster than the rate of the rest of the industry, that just does nothing but throw off cash that they can invest in other things.