Jobs made Apple great by ignoring profit

By Clayton Christensen
August 29, 2011

By Clayton Christensen and James Allworth
The opinions expressed are their own.

Steve Jobs retires as the CEO of Apple with a reputation that will place him amongst the pantheon of history’s great global business leaders. Many people have written about what makes Jobs and Apple special, but I think they’re missing what truly set him apart. Jobs has succeeded by eschewing the one thing that most people view as the raison d’être for companies — profit.

When I left the industry to come to academia 22 years ago, it was driven by a set of questions that had troubled me for some time. Why was it that the best run companies in the world — companies that have had incredibly smart leaders, following carefully detailed plans and with tremendous execution ability — reliably seem to come unstuck? The answer to this question is what has become known as the theory of disruption.

In a cruel twist of irony, the pursuit of profit — something that Wall Street pushes so hard — is what leaves companies open to being displaced. As they grow, their ability to find opportunities that are big enough to sustain their growth is reduced. They become myopic; they listen only to their best customers. They focus disproportionately on their most profitable products, and strive to improve these the fastest.

The American auto manufacturers have suffered at the hand of disruption in the past few decades; they focused on their most profitable vehicles, and abandoned less profitable markets when low-cost entrants emerged. The Japanese came along with their smaller, cheaper vehicles; the Big 3 retreated upmarket all the way to SUVs and trucks. It was not long before Toyota was winning the sales race. Now, the Japanese are going through the same process, fending off the Koreans.

In short, disruption describes how the incumbents move upmarket, and leave the bottom of the market completely open for scrappy upstarts to enter. It explains the rise and fall of many great companies.

But there has always been one company that doesn’t follow that pattern. At some point in my class every year, a student raises his or her hand and asks: “What about Apple? Aren’t they a high-end, upmarket player? Why haven’t they been disrupted?”

It’s a great question. 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.

I have come to the conclusion that what has made Apple so different is that instead of having a profit motive at its core, it has something else entirely. Many big companies like to pretend this is the case — “we put our customers first” — but very few truly live by that mantra. When the pressure is on and the CEO of a big public company has to choose between doing what’s best for the customer or making the quarter’s numbers… most CEOs will choose the numbers.

Apple never has.

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.

The iPod was the first indication that they were, in fact, thinking different. Here was a personal computer company, used to selling $2,000 computers, willing to take a risk on a gadget that would sell for a fraction of that price. Most big companies would not invest the time and energy to develop a device that was not nearly as profitable as their existing products, in a market that did not even exist yet. This sort of endeavor is typically the domain of start-ups. If Apple had done what most big companies do: sit down, hire some consultants to do a profitability analysis, and relied on that to make the decision, I seriously doubt that the iPod would ever have been built.

Yet build it they did, and it was the first in a string of successes where Jobs tore up the usual management playbook that leads to companies losing to disruptive competitors.

But what may be most notable is how Apple is in the process of disrupting itself right now. You almost never see this happen. The iPad — Apple’s most recent success — is disrupting the PC industry, and by extension, its Mac business. The tablet computer is going to do to the PC what the PC did to the minicomputer. Most companies cannot bring themselves to make decisions that result in the market for their existing core products being completely destroyed. When they consider it from a financial perspective, it just doesn’t make sense to create new products at the risk of jeopardizing your profitable, existing products. Don’t do it. It’s exactly that fear that has led many great companies to leave themselves vulnerable to disruption from others.

But it hasn’t affected Apple because that’s not how the company sees the world. Profitability isn’t at the center of every decision. 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.

53 comments

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By reading these comments, a lot of you don’t get the jest of the article and others have your facts wrong. Apple did not almost fail under Steve Jobs. It almost failed under Sculley. Apple almost failed because it was working on too many projects at once and lacked focus. They became a different company when Jobs returned. Cost cutting was of course necessary. The article is not suggesting that Jobs has no interest in profits,, quite the opposite. Apple puts out what it perceives to be premium products. Some of these products sell at a premium, others at market prices. Apple ignores profit in the sense that they do not compromise quality to increase sales volume. They put out products at a margin that works for them. They refused to put out a $500.00 netbook as they don’t believe in the product. Even though they recently reported record mac sales, they only sold 4 million computers last quarter. That’s 16 million a year whereas companies like Dell will sell in excess of 40 million per year. Apple might have a higher profit margin but they sell far fewer units. Look at Iphone, high margin. Android has a higher market share because Apple wont put out a cheaper product,,, has fewer models and fewer carriers. Apple is not compromising their business model. They want all of their users to have a consistent experience and are able to do that by controlling the hardware. They aren’t after the biggest market share, just the best products. They don’t sell the largest amount of phones yet they makes the highest profits,,, why is that? It is because they focus on user experience. Many companies focus on volume and cost. They would rather make $100.00 dollars a phone on 1 million units than $200.00 a phone on half a million units. Apple focuses on selling what they feel are the best quality products and will not compromise that belief to increase volume. What the author is suggesting is focus on the top line and the bottom line will take care of itself. Of course the company wants to make money. This isn’t a charity. Remember that Jobs has no business training. He is a college drop out. He had a vision and passion. Tim Cook keeps the company lean and profitable. Jobs ignores the lessons of traditional business and focuses strictly on the consumer. This concept is obviously working very well for Apple, but makes a lot of people who don’t get it angry. The tech guy feels Apple users are snobs and fools because they pay more for a computer. They can’t see spending $1,500.00 for a laptop when you can buy a non apple brand with similar specs for $900.00 . These are the same people who think this article is suggesting the apple doesn’t want to make a profit. Again, the article is stating that profits come because Apple focuses on the consumer first

Posted by gregb11 | Report as abusive

I agree with this article’s point of view. Jobs did not start the project by counting profit but ending the projects by counting profit instead.

There is one analogy I draw after reading the story.
Option A: Is it better to sell high-end products, with high profit margin, but getting little customers to buy. Option B: sell low-end products with low profit margin, but get lots of customers to buy. Simple analysis may say that B choice will bring in more profit cause low-end product has low cost in R&D while can sell in large quantity. Despite concerns of expensive R&D and failure to expand market concentration, Apple proceeds with plan A. It innovates at the risk of high cost in R&D, and risks of reaching only a small pool of customers. The message is : Don’t sacrifice innovating at the fear of losing money/fear of not being able to get your investment back. It is worth taking the risk cause at the end you will make more money by over)charging high price for innovative high end product.

Posted by LianSom | Report as abusive

There is actually nothing “great” about Apple. The company is neither particularly innovative (non of the “i”s revolutionized the world like internet, TV, PC, phone, car, cell phone etc. did) nor successful. The real success is actually the last 5 years. The overpriced stock price mostly reflects Fed’s monetary policy and has nothing to do with Apple. The company is indeed very good at marketing playing nicely on white Americans’ newly-discovered insecurities of increasing class divide. It helped that the Apple management (Steve Jobs) had a real story behind their marketing (enhanced by his health condition). All in all, it is a very successful company. But you know what? There has always been some successful companies! Always! And we always make the mistake of explaining this success as something unique and extrapolating companies’ short term success infinitely to the future. My guess: in 10 years time Apple will be what HP is now.

Posted by tk2 | Report as abusive

I can’t help but reply to the last comment, which is wrong all around. The fact that you feel the stock is overpriced shows you have zero business experience. How do you define overpriced? Is because its $390.00 dollars a share? The stock trades at 11 times earning which is a discounted to the S&P. You will have to research what that means. Its nothing to do with fed policy. Apple isn’t innovative,,, if they aren’t who is? They did invent one of the first PCs so yes they did revolutionize the world. The government invented the internet, but Apple made it easily accessible via an easy to use intuitive interface. Innovation isn’t just about invention but also making the existing world around you easier to navigate. The company doesn’t even have a huge budget for marketing considering its size. So many can’t grasp the concept that Apple is just a successful company that fulfills consumers needs. They must come up with excuses as to why Apple is successful, any excuse except the fact that the company is just run well and putts out great products in an innovative way. It cant be that, the company must be number one in revenues by mistake,,, that’s it

Posted by gregb11 | Report as abusive

Some of the ideals I would not agree.It is true that everything will meet a failure one day.Apple had done aserels of right measure at the right time.But everyone will make a wrong step.

Posted by purplelove | Report as abusive

Apple is not a perfect company. They experienced years of miss-steps, failed products and near bankruptcy. Jobs philosophies on business did not create an overnight success. Its last 10 yeas are its most successful. Apples learned from its mistakes. Jobs created his own vision of management and it took years and years to refine his style into something that works. They are now in a strong position. They have plenty of cash on hand. It would really take a stupid bad move to affect their growth. The question is whether Jobs style of management carry on in his absence. Me sense is yes, I believe he was able to instill his style in Apples culture. It doesn’t mean Tim Cook or anyone else will mimic Jobs, but it does mean the thought process that got the company where it is,,,,, is instilled in the company.

Posted by gregb11 | Report as abusive

One of the comments above said that “an Apple iMac almost always costs around twice as much as a factory-assembled Windows PC.” But, as the many comments in this article show, profit and price are not the same. Apple machines cost more because they’re made of metal… because they last longer… because the company invests huge amounts into R&D so that their materials and manufacturing methods will set their devices apart from the flood of cheap plastic “me too” devices. Watch the documentary “Objectified” for some insight. Subjectively I feel that any additional cost is fully justified, you can’t compare a Dell to an Apple because there’s more to the machine than the technical specs.

Posted by Nullcorp | Report as abusive

I completely agree. So many are merely focussed on tech specs and ignore build quality and components used to create the unique products they put out.

Apple may set a price but its the market that dictates whether price is justified or not. Very simple,, if its priced right, it will sell, if its not, it won’t. Windows people don’t get it, people who buy by and love their products do. No, they aren’t under a magic spell that Apple put out and no, they aren’t handcuffed using inferior technology in an effort to be cool. Just maybe, and this is a hard concept to get,,, but just maybe, the products fulfill their needs.

Wow, what a concept.

To close, it goes back to the windows/Apple argument, Windows people are concerned with features, whether or not they actually need them, Apple focuses on less features but superior user experience.

Posted by gregb11 | Report as abusive

This article is laughable… Not even worth a reply, but here I am… Oh, by the way, Steve. Now that you have billions, could you spare a penny in dividend? NO ! But, alas, it is not about profit, is it? Oh, and certainly not about stock options… LOL.. What a crock this writer has churned out for cyberspace !

Posted by gambler69 | Report as abusive

Well, the only thing I do not agree in this article is when they say about their own employees want to use it. What employees? The development ones right? Because in China where the products are made they are totally out of the blue, no social life, just slaves shift of 12 hours job 7 days a week.And don’t tell is not true, I’ve been there I saw and many of them are committing suicide. Nonetheless, Yes Apple is a Great Brand and for sure a good Company to work for.

Posted by rinacio | Report as abusive

In my humble opinion I wish to point out what has made me in my own small way both succesfull and very happy. I believe that what the authors were trying to get accross is well summed up in the old adage – What came first, the chicken or the egg? Most , if not all the people around me seem to live for money or profit at the expense of passion or lifestyle. With Steve Jobs it seems that passion, not money or profit came first. This does not mean that money or profit did not exist, but that simply, it is pushed into second place. His focus was passion and product first, profit secondary. An article I read recently on the
“Lifestyle Entrepeneur” summed up my outlook on life. At any stage in life, one can choose a certain way to live, with dreams, goals and a lifestyle. Then work hard to earn the required funds necessary to live that chosen lifestyle or passion. Most people I know seem to let the pursuit of money and profit dictate their lifestyle, goals, passions and dreams and relegate these into second place to the extent of ignoring them. Therefore in conclusion, it is not whether profit, money, passion or dreams is what makes us exist, like it made Steve Jobs exist,
or work towards, but the way we prioritize them. Passion and dreams should always trump money and profit…

Posted by timeormoney | Report as abusive

Amazon never has.

You will see the rise of AMZN in the next decade.

Posted by sinzone | Report as abusive

I agree this is so hard to do. Apple grew into this in the big, iPod, iPhone, and iPad, but in many small ways dumping the Mini-iPod for solid state Nano-iPod, dumping the floppy drive in iMacs, dumping ADB for USB, dumping SCSI for Firewire, dumping ethernet for WiFi [remember Apple first Airport was 5X cheaper than competitors], dumping CD/DVD drive for MacBook Air, not jumping on Blueray, etc.

In other words, in a host of small ways Apple made the choice to disrupt itself – this helped build the culture. When you look at Apple’s competitors, they never never make that leap. Whether in a big or small way and then later try mimic Apple or in the case own SAMSUNG be a quick follower, but even there they can’t make the break, stylus on a fat cell phone?

Where I run into a problem is understanding the job to be done that Apple consciously or unconsciously does. Is it “build the stuff we want” the way to think about jobs to be done in a practical sense?

Posted by gprovida | Report as abusive