Video Transcript: How Apple is Organized for Innovation - The Functional Organization

What is Apple best known for easy answer for its innovation in hardware,  software and services for a wide range of products, such as computers, iPhones and iPads. Now, here's what's less known and equally significant about the  company, its organizational design and the associated leadership model that  have played a crucial role in driving its innovation success. It all began after  Steve Jobs returned to Apple as CEO in 1997 one of his first acts on his return  laying off the general managers of all the business units in a single day. Not a  move that inspires a welcome party, but there was a method to Jobs madness.  Apple, at the time, had a conventional structure for a company of its size and  scope. It was divided into business units, each with its own profit and loss  responsibilities. Jobs. Believed this conventional management stifled innovation. He put the entire company under one PNL, and combined the different  functional departments of the business units into one functional organization.  Simply put. A functional structure divides an organization into departments  based on their function. These departments are headed by functional managers  who are experts in the roles they supervise. The functional structure, which  Apple retains to this day, ensures that those with the most expertise and  experience in a particular domain have the decision rights for that domain.  Senior Vice Presidents at Apple then are in charge of functions, not products, as was the case with Jobs before him. Current CEO, Tim Cook, occupies the only  position on the organizational chart where the design, engineering, operations,  marketing and retail of any of Apple's main products meet. In effect, besides the  CEO, the company operates with no conventional general managers. Apple  structure is based on two views. First, the organization competes in a market  with a high rate of technological change and disruption. It has to rely on the  judgment and intuition of technical experts who can predict which technologies  and designs are likely to succeed, general managers are unlikely to be able to  do that. Second, Apple's commitment to offer the best possible products would  not be achieved if cost and price targets were the fixed parameters within which  to make design and engineering choices instead R & D leaders are expected to  weigh the benefits to users against cost considerations. A case in point is the  decision to introduce the dual lens camera with portrait mode in the iPhone  seven plus in 2016 Paul Hubel, a senior leader who played a central role in the  portrait mode effort and his team were taking a big risk. If users were unwilling to pay a premium for a phone with a more costly and better camera, the team  would have less credibility the next time it proposed an expensive upgrade or  feature, the camera turned out to be a defining feature for the iPhone seven plus under a traditional structure, Hubel would not have been empowered to take  such a risk, and the feature would likely not have been made because traditional cost and price analysis lack a deep understanding of users' needs. It's easier to  get the balance right between attention to costs and the value added to the user  experience when the leaders making decisions are those with deep expertise in 

their areas. This explains Jobs decision to change the way Apple works. The  combination of its organizational structure and its leadership model not only  saved the company from bankruptcy, but also transformed it into one of the most influential tech companies in the world.