Image source @ Visual China
Wen 丨 Mu Sheng
3 trillion US dollars is equivalent to about 19 trillion yuan. What concept? This is equivalent to the fifth largest economy in the world. Apple, on the other hand, accomplished just that last month — the world's first company to surpass $3 trillion in market capitalization.
The organizational model of the ancient times
In fact, after years of development, organizational forms such as the linear system and the functional system have been gradually replaced by the BU (Business Unit) system.
The functional system emphasizes the centralization of power and directs the operation of the first line with various functional lines. Therefore, the strategy/investment decisions are mainly in the hands of functional Leaders, and product decisions are also controlled by functional experts. Obviously, this type of organizational model belongs to the typical pyramid organization, focusing on vertical communication, but the problem may be "one tube is dead".
The BU system, that is, the division system and the M-type organization, emphasizes the authorization of the front line, and uses BU to keenly perceive market demand and make rapid response. Therefore, BU Leader makes local strategy/investment decisions, and for areas such as product development iteration, the cross-functional core team of BU makes collective decisions and responds to customer needs. This type of organizational model belongs to the very flexible category of pyramid organizations, emphasizing horizontal communication and joint operations, but due to excessive decentralization of power, the problem may be "chaos as soon as it is released".
Figure 1: The difference between functional system and BU system
Source: Noel Sobelman, Mu Sheng Consulting
At a time when the market is rapidly iterating and information is flowing rapidly, many companies have adopted buoyant structures to respond to market demands, and even began to think about how to transform into a more flexible platform-based organization to solve the dilemma of "one tube is dead, one is chaotic". But seeing Apple's success seems to make people who are not determined doubt the transformation of the organization. So, let's dissect Apple's organizational logic.
Apple's counter-trend choice
When Steve Jobs returned to Apple in 1997, Apple was an organizational structure of different business units that focused on their respective profit and loss (P&L) responsibilities, typical of buoys. After Jobs returned to the helm, he carried out drastic reforms of the company. He disbanded almost all the business unit managers in one day, merged the various business units by function, gave decision-making power to functional experts, and let professional knowledge direct the operation of the enterprise, and this functional system has been used ever since.
With the expansion of enterprises, in the face of the increasingly complex market environment and user needs, Apple's functional genes have not been reduced, but have become stronger and stronger. In 1998, Apple still had only 8 functions, and in 2019, Apple's number of functions more than doubled to 17 (Figure 2). New functions such as Design, Machine Learning & AI, and Services have emerged. For example, the newly established service department has become the hub of product operation, covering many businesses in the years of development, such as the iTunes store, OS X operating system, iCloud and other services, becoming an important extension of services in addition to the core products, greatly expanding the commercial space of Apple's empire.
In addition, in 2006, before the birth of the iPhone, Apple had 17,000 employees and 50 VPs. In 2019, the number of employees has increased to more than 8 times, and the number of VPs has only doubled, and it is the centralization of functions that has achieved this. Imagine if it were a BU system, every time you add a BU, or each BU increases some size, the number of executives will multiply.
Figure 2: Apple's functional system Source: HBR
So, why did Apple adopt a functional system? What are the benefits?
First, Jobs focused on long-term benefits, not short-term benefits.
He believes that in the past, organizations in the logic of profit and loss appraisal of their respective departments, naturally tended to prioritize short-term profits and costs, which will also become the primary criterion for judging whether the technology field is improving. Apple, then, can't put the best products to the market first. In the functional system, companies can place all functions under a profit and loss statement, and link functional executive bonuses to the company's performance figures, rather than the costs or revenues of specific products.
Second, we will uphold the leading strategy of experts and drive innovation.
The change in organizational form provides a good space for "professional knowledge" to play. Apple's desired leadership is characterized by a thick sense of professionalism, a focus on functional details, and active collaboration in collective decision-making. It can also be seen from the executive leadership model that leadership emphasizes professional ability and learning ability, and the proportion of empowerment and empowerment is small. This allows managers to focus more on professional innovation.
Figure 3: Discretionary Leadership Model for an Apple Executive Source: Apple, HBR
The logic of the choice of Apple's functional system
No organizational model can be tested, and every business's organizational choices must be highly adapted to the business. Apple's anti-trend choice is precisely because of some of its particularities. Let's take a look at what makes Apple different. If your business wants to benchmark the functional system, you may wish to see if you have these conditions.
1. From the perspective of the industry background, who will lead the product decision?
Apple is in a market competition with a high rate of technological change and disruption. Therefore, before obtaining market feedback and reliable market forecasts, product decisions must rely on the professional judgment of technical experts, even "intuition".
2. From the perspective of market position, can your product decisions make the market buy it?
The data says it all:
Market share - smartphone market share of the world's top three, PC market in the world's top four, tablet market accounted for the world's first!
User retention rate - iPhone user base of 1 billion + people, retention rate of 74.5%!
The market recognition that most companies can't hope for is enough to prove that the Apple brand has strong bargaining power and many followers, and is a company that can lead user preferences. Why worry about the market not buying it?
3. From the perspective of product distribution, can the functional system support the development requirements of different products?
Apple products are concentrated in smart electronic products (mobile phones, computers, etc.), with small differences in product attributes and high degree of user overlap. The extension of the product matrix is mainly based on the huge iPhone user base and strongly related software services. Therefore, the main factor driving business development lies in the key technical elements of the next generation of products. This also makes the company only need professional improvement and deep functional cultivation to cope with product development demands.
4. From an organizational point of view, can the functional system adapt to Apple's culture and attract the talent needed?
On the one hand, for a long time in Apple has a product, technology-oriented "Jobs faith", Jobs brought the functional system, and the authority and concentration of the functional system are conducive to inheriting this belief, strengthening the pursuit of innovation, attention to details of the cultural atmosphere.
On the other hand, the functional system focuses on professional deep cultivation, and the management is more centralized than the BU system, giving technical talents a greater career space, coupled with the advantages of the industry's leading brand, Apple's attraction to elite talents is unmatched, and naturally forms a huge talent team advantage.
Why are we still pursuing organizational transformation?
After all, Apple is one of the few industry-leading cases, and most companies are still facing common development pain points. First, the market share of most enterprises can certainly not be like Apple, so it cannot be strongly negotiated, and it is inevitable that product design will be pulled by customer needs; second, in the current society, customer needs to change very quickly, and enterprises need to be very keen to perceive this change, so that information flows rapidly and makes decisions within the enterprise, but the slow operation of the organization is a blockage.
Judging from the organizational transformation demands received by Musheng Consulting over the years, most enterprises abandon the functional system, which is bound to be its fatal drawback:
1. The functional system is not flexible enough, and the department wall and insulation layer are serious.
The organizational characteristics of the vertical division of labor and vertical communication of the functional system lead to the towering and firm walls of the departments and the inefficient upload and release of information. Communication can be said to be mainly dependent on the willingness and ability of individuals to communicate and cooperate. When the organization is small, this deficiency may be just a hidden danger that can be solved by individual ability. However, with the development of business, the scale of the organization will inevitably expand, the functional modules and levels will gradually increase, the organization will become more bulky, and the hidden dangers will become shackles.
2. Management and decision-making rely heavily on Leader's capabilities.
Under the functional system, each department and each level is independent and manages a section, and the information transmission efficiency is inefficient. When the huge amount of information reaches the decision-making level, it has been dissipated step by step, which is a test of the ability of the big Leader. Even Apple is facing serious challenges with this problem.
Apple had Jobs, and one of the reasons he called it a legend was his industry-leading innovative ideas.
Dr. Mu Sheng said in "Superimposed Experience: Designing Business Models with Internet Thinking" that Jobs is a typical super product manager, if the general enterprise is "user participation iteration", Jobs is "God iteration", and his energy is enough to define a new market. In the book "Platform-based Organizations: Unleashing the Potential of Individuals and Organizations", Dr. Mu Sheng further explained: "Jobs did not pay attention to user needs, but had his own logic when dealing with user needs; Jobs did not interact with users, but he turned himself into a superuser. The so-called super user is to push the user's needs to the extreme, as a standard, he naturally requires the product to be perfect. For example, when reviewing internal apps, three clicks can not find what they like, Jobs will delete it, this harshness once made all Of Apple's product managers scared. ”
Under his strong integration, experts in various functions are responsible for implementing the implementation and focusing on the profession. In the post-Jobs era, Apple has been criticized for lack of innovation, and even began to lag behind the pace of innovation of competitors.
Our recommendations
Enterprises that want to implement the functional system may wish to ask themselves two questions:
1. Look in the mirror – is our boss the Jobs of the industry?
2. Look at the endgame - is our market suitable for "big items" to eat the world?
If the answer to both questions is Yes, then, benchmark Apple. If there is a No, and the enterprise meets three conditions:
1. It has fallen into the entanglement of large enterprise diseases because of the natural drawbacks of the functional system, and the enterprise has the risk of "one tube and death";
2. Do not dare to over-authorize in the BU system, resulting in enterprises "chaos as soon as they are released";
3. The market is unpredictable, and a flexible organizational model is needed to respond to users and combat risks.
Prepare your organization for transformation as soon as possible– towards a platform organization.
First, build the front desk. Under the common mission of the customer-first enterprise, let the flexible cross-functional small front desk quickly respond to and explore the changes in user needs, so that information can flow quickly between functions, thereby driving the efficient operation of the organization. Under normal circumstances, the front desk will have no decision-making power and it is difficult to mobilize back-end resources. At this time, it is necessary to "revitalize" through the sinking of power, and to "maintain stability" through the form of BP sinking.
Second, build a middle office. The middle office is to integrate resources and rules from the back office to create common parts required for the front office business, realize standardized fire support, and improve organizational efficiency. Rely on the power of the platform to empower the front desk, such as providing professional empowerment for the business middle office, and organizing the middle office (a team composed of finance and human BPs) to provide business empowerment.
Third, build a backstage. Backstage clear strategic and cultural cornerstones, responsible for designing the rules of the game and building a pool of resources to create a real engine of the organization.