Aug 25, 2011 8:41 AM

Why Tim Cook Is the Best Choice to Run Apple

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It’s no real surprise that Tim Cook has been tapped to serve as Apple’s CEO following Steve Jobs’ resignation to become Chairman. Cook has spent 30 years distinguishing himself in the industry, spending the first half with IBM and Compaq and the second, more than 14 years, as Jobs’ right hand.

He joined Apple’s operations team as a senior VP and quickly advanced to worldwide head of sales, chief operating officer and head of the Macintosh division. Finally, Cook has served either as official acting CEO or effective head of the company during Jobs’ medical leaves of absence three times since 2004.

At Quora, TechCrunch’s MG Siegler argues that between these three terms, Cook has already proven that he’s ready:

In each instance, not only has Apple survived, they’ve thrived. That’s fairly remarkable when you think about it. Each time, pundits have more or less said it was the end of Apple, and each time Apple ended up ahead of where they were when Jobs left. It was trial by fire, and Cook passed with flying colors.

But Cook hasn’t just been a company caretaker during Apple’s good years. He’s also a product, sourcing and supply-chain visionary. Cook arguably did as much as anyone to turn Apple around after its nearly disastrous fall in the mid-1990s.

In a 2004 interview with Businessweek, Jobs downplayed his own role in Apple’s success, calling himself “chief janitor,” and singling out Cook for praise (emphasis added):

Not everyone knows it, but three months after I came back to Apple, my chief operating guy quit. I couldn’t find anyone internally or elsewhere that knew as much as he did, or as I did. So I did that job for nine months before I found someone I saw eye-to-eye with, and that was Tim Cook. And he has been here ever since.
Of course, I didn’t tell anyone because I already had two jobs [CEO of Apple and of movie maker Pixar Animation Studios] and didn’t want people to worry about whether I could handle three [jobs]. But after Tim came on board, we basically reinvented the logistics of the PC business. We’ve been doing better than Dell [in terms of some metrics such as inventory] for five years now!

Apple’s profits depend on these efficiencies as much as great sales or reviews: Every product or part stuck in a warehouse is a part that costs money instead of making it. It was Apple’s inability to get this part of the business right in the mid-1990s that hurt it as much as product stagnation and a losing war of attrition with Microsoft.

Jobs’ and Cook’s post-1997 mantra, “slash inventory, shut warehouses, run manufacturing close to the bone” became a path back to profit. Along with other innovators like Dell, Apple established a new high bar for the electronics industry:

Inventory, Cook has said, is “fundamentally evil,” and he has been known to observe that it declines in value by 1% to 2% a week in normal times, faster in tough times like the present.
“You kind of want to manage it like you’re in the dairy business,” he has said. “If it gets past its freshness date, you have a problem.” This logistical discipline has given Apple inventory management comparable with Dell’s, then as now the gold standard for computer-manufacturing efficiency.
We know what you’re thinking: Why dwell on the backroom aspects of such a sexy company? Because that seemingly dull stuff is as important to Apple’s success as the gorgeous designs and ultracool marketing. Forecasting demand, for example, and executing against that forecast, are critical in the computer industry, especially when new products quickly cannibalize the old.

As Apple’s products’ popularity exploded, the cautious side of this discipline manifested in periodic shortages and wait times for new products. But these hasn’t seemed to make Apple’s fans any less excited about them.

So, in July, when Cook boasted on an earnings call that “We sold every iPad 2 we could make,” he wasn’t just expressing pleasure with demand or sales, but also that Apple didn’t make or store a single iPad more than it could sell.

Some of Cook’s operations and logistics innovations have become almost as famous in the industry as Jobs’ keynotes are outside it. For instance, in 2005, with the iPod Nano, Apple began prepaying in volume for key components for its hot products like flash memory or screens, locking in prices and guaranteed production — and not coincidentally, locking out imitators and competitors, who’d find that nobody could meet their orders. (Jeff Williams, the senior operations VP who executed the Nano flash memory lockout, will be bumped up to COO.)

But even if he has called himself the “Attila the Hun of Inventory,” it’d be a mistake to treat Cook only as a whip-cracking numbers guy. He’s tough, but by all accounts, he’s the calm, kind, private counterpart to the moody, mercurial Jobs. More importantly, he knows products better than most operations wizards, and he knows how the two fit together.

In 2008, Cook gave a memorable talk at the Goldman Sachs Technology Symposium, mostly about the iPhone. He was candid, funny and open-minded, calling unlocked iPhones “a good problem to have,” dropping hints that Apple was willing to drop its exclusive carrier relationship with AT&T and arguing that it didn’t matter if the then-new iPod Touch cannibalized iPhone sales: “I’d rather Apple cannibalize Apple than somebody else cannibalize Apple.” The next day, Apple’s stock shot up almost 5 percent.

After taking over as Macintosh head in 2005, Cook moved Macs from PowerPC to Intel chips without a hitch. Intel’s mobile roadmap and ability to boot and virtualize Windows opened up Mac to people who would never otherwise have switched. (Disclosure: 2006’s Core Duo MacBook Pro made me one of them.)

We usually think about the second half of the ’00s for Apple in terms of its post-PC iThings, but think about the evolution and growth of the Mac over the same time frame, from white Intel iMacs running OS X Tiger to unibody aluminum and the MacBook Air.

There were strong teams working on every point in that transformation. Much of the Mac growth mirrored and was driven by growth in other device areas. But Cook led and managed all of it. Anyone who writes that “Cook isn’t really a product guy” is implying that none of this counts.

If you just consider Macs, he’s effectively been running a giant, successful computer company for six years, growing its share in every market and holding onto enviably high margins even as the PC industry has soured. That’s on top of handling the business side of every other part of Apple, from smartphones and sourcing to service and retail.

If Cook had massaged a similar performance out of another computer company in this economy, he’d be on the cover of every business and technology magazine at least once a year. If Steve Jobs had been 10 years older with comparable health problems and only slightly less iconic, there would have been calls for him to step aside for Cook in 2009. Seriously, we’re verging on no-brainer territory.

But make no mistake; there are going to be doubts about Cook. In February, shortly after Jobs announced his most recent medical leave, Apple shareholders pushed for a making a detailed CEO succession plan public in the annual shareholders’ letter. Apple’s management resisted this proposal and successfully persuaded shareholders to vote against it, but not before rumors began that ex-Google CEO and ex-Apple board member Eric Schmidt had been asked to become CEO. Schmidt didn’t hurt speculation by refusing to comment on his “private conversations” rather than denying it outright.

In retrospect, the argument with the shareholders wasn’t about formulating a succession plan, but making that plan public, subject to second-guessing and alternative proposals, like hiring Schmidt instead of promoting Cook. Considering how obsessed Jobs and Apple have been with keeping products and internal debates under wraps, you can imagine what Jobs thought of subjecting the future structure of the company to market research and speculation.

The text of Jobs’ resignation letter makes clear that the plan for Cook to succeed Jobs has long been in place. Apple blogger John Gruber argues that the resignation doesn’t suggest a sudden turn for the worse in Jobs’ health, but simply the well-timed execution of this plan, knowing that Jobs’ ability to run the company from day-to-day has long been diminished:

How do you replace the irreplaceable man? Like we’re seeing. An open-ended medical leave, where he retains the CEO title. A continuation of strong new products, including a major improvement to the iPad, the device that is upending the entire computer industry. The ceding of day-to-day operations and leadership to Tim Cook, his right-hand man and chosen successor. Ever-higher profiles during public product announcements of top product-focused lieutenants like Phil Schiller, Scott Forstall, and Eddy Cue.

Less than an hour after Jobs’ resignation letter hit the newswires, Apple’s corporate information page had been updated, listing Cook as CEO and Jobs as Chairman of the Board — a position that didn’t exist at Apple until Jobs asked for it. In short, the company does not seem to have been taken by surprise.

“Tim runs Apple, and he has been running Apple for a long time now,” ex-Apple online store GM Michael Janes told Wired during Jobs’ leave of absence in 2009:

Steve is the face of the company and very involved with product development but Tim is the guy who takes all those designs and turns it into a big pile of cash for the company.

Then again, that’s what industry watchers said about Steve Ballmer at Microsoft, John Akers at IBM or John Sculley at Apple. It’s certainly what Steve Jobs said, and lamented, back in 2004:

People always ask me why did Apple really fail for those years, and it’s easy to blame it on certain people or personalities. Certainly, there was some of that. But there’s a far more insightful way to think about it. Apple had a monopoly on the graphical user interface for almost 10 years. That’s a long time. And how are monopolies lost? Think about it. Some very good product people invent some very good products, and the company achieves a monopoly.
But after that, the product people aren’t the ones that drive the company forward anymore. It’s the marketing guys or the ones who expand the business into Latin America or whatever. Because what’s the point of focusing on making the product even better when the only company you can take business from is yourself?
So a different group of people starts to move up. And who usually ends up running the show? The sales guy. John Akers at IBM is the consummate example. Then one day, the monopoly expires for whatever reason. But by then, the best product people have left, or they’re no longer listened to. And so the company goes through this tumultuous time, and it either survives or it doesn’t.
Q: Is this common in the industry? A: Look at Microsoft — who’s running Microsoft?
Q: Steve Ballmer. A: Right, the sales guy. Case closed. And that’s what happened at Apple, as well.

I think Tim Cook is quite different from these cases, partly from his experience with the Mac and iPhone, and partly because Steve Jobs saw in 1997 that he was quite different. (The two assessments are from the same interview The way Jobs and Cook looked at efficiency was and is very different from the way Dell looked at it then, or Mark Hurd during his tenure at HP. Instead, Jobs and Cook more closely emulated Sony at its apex. Adam Lashinsky wrote about this in his 2008 profile of Cook for Fortune:

“Way too much of the supply-chain world has been about taking the last cent out,” says Blake Johnson, a consulting assistant professor of management science and engineering at Stanford University, who has deep contacts in Apple’s operations group. “Apple doesn’t do that.”

Jony Ive’s lauded designs ultimately wouldn’t mean much if Apple had a COO and operations team who tried to find every way they could to save money at the cost of shortchanging the final product. Cook’s role in operations has been to show that companies can find efficiencies and keep margins high without atomizing every element of production and sacrificing quality to cost at every point. (Paul Miller at This Is My Next has a terrific set of recordings of Cook explaining exactly this part of Cook’s/Apple’s philosophy and strategy.)

This is why things like lean inventory management and aggressive sourcing strategies become so important. Making smart bets here allows a company to go long on component quality and relative cost. Operations isn’t just subsumed to product; pride of operations becomes inseparable from the pride in the product.

In a recent Critical Path podcast, Asymco’s Horace Dediu uses a biological model, positing “corporate antibodies” as the cause of ruin in successful companies. Dediu defines corporate antibodies as “entities — be they people or budgets or processes or rules in binders … that are designed to eat up innovation. To eat up changes to the core business.” In short, these antibodies are everything and everyone whose job it becomes to “take the last cent out” of every product:

They’re paid good money to do that. Their incentives are all very clear: “please do that.” And they go to their boss every year and get a raise because they’ve done that. You have to understand that no matter how much the CEO has that vision, if the organization underneath has not been properly incentivized to absorb the change, it’s almost impossible to build that kind of structure.

The only way long-standing successful companies can continue to develop innovative products is if they have a “champion at the very highest levels, someone who could endure the gestation for a long period of time”:

And that type of person is so rare as a CEO. Which is part of the mystique and magic of Steve Jobs. He’s the only one that we know of really that is able to do these types of schizophrenic things — like maintain a sustaining business and its disruption within the same organization. [Transcription by Fortune’s Philip Elmer-Dewitt]

This may be one trait that makes Steve Jobs different from most other CEOs, and one reason his leadership at Apple has been special. But Apple’s lucky. It’s also one of Jobs’ traits its new CEO just happens to share.

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