Apple's Masterclass on Resource Allocation
Facing the inevitable questions of when and where to allocate resources
Success (or failure) comes from great (or poor) resource allocation. A truism for management in work and in life.
Apple, one of the greatest allocators of resources in history, has masterfully redistributed internal resources from Mac to iPod to iPhone to Services.
For 20 years I’ve closely watched both the Apple rumor mill and the company’s actual product launches — and noted the discrepancies between expectations and reality.
The company is often credited for being “not the first, but the best” product to enter a new market. Even when everyone knew it was happening, Apple’s timing and direction as they entered those markets was impeccable.
Timing the shift from iPod to iPhone, for example, came at a time when iPod had quickly become 46% of revenue (in the quarter ending June 2007, the same month the iPhone launched). Apple doesn’t get the credit it deserves for putting half the company’s revenue (iPod) at risk by entering a new and complex category (mobile phones) with an unproven product (iPhone).
The strategic direction was equally gutsy. Jobs announced three new products to successively louder cheers from the Macworld crowd: “Three things: A widescreen iPod with touch controls; a revolutionary mobile phone; and a breakthrough Internet communications device.” No keyboard! No stylus! No 3G! AT&T exclusive!
Eventually, the company’s direction had shifted far enough away from the Mac that Jobs thought it suitable to drop ‘Computer’ from the name, becoming Apple, Inc.
Timing and direction. Therein lies the secret of Apple’s resource allocation.
Timing: When?
Apple has accurately and consistently predicted when existing businesses needed to be replaced, anticipating key drivers of future growth.
Phil Schiller once referred to this kind of product transition as a heart transplant: Replacing a functioning (but weakening) product with a stronger one that would last longer and support healthier growth.
I see timing resource allocation as a series of transplants, like waves in succession.
The question of when to deprioritize a driver of growth in favor of something new must consider the confluence of several separate and often unrelated timelines:
When will the enabling technologies be ready?
When will suppliers be ready?
When will the competition be ready?
When will consumers be ready?
When will the product be ready?
Unfortunately, even if you time a shift in resources perfectly, and shift those resources in the wrong direction, certain failure awaits.
Direction: Where to?
Apple has been criticized for the direction of its strategic product changes moving away from beloved products and features like the optical drive, the ethernet port, and the headphone jack.
But new growth awaited.
The MacBook Air, the iPad, and AirPods would not have—could not have?—existed if it weren’t for ambitious shifts in direction on the part of Apple’s product marketing team.
The iPhone needed to be what it was for the shift from iPod to iPhone to make sense. The timing and direction of Apple’s resource allocation were both critical when the company hung in the balance.
Questions for Resource Allocators to Consider
Leaders, managers and investors must consider the risks, rewards, and opportunity costs associated with resource allocation.
We face perpetual questions of timing and direction when it comes to resource allocation.
When should resources currently allocated to a great company (that will not be a great company forever) be reallocated to an emerging great company?
When will you maximize you exit value?
When will you minimize your entrance cost?
Where can these resources be put to work most effectively?
The risk is death. The reward is compounding growth. Either way, you’ll need a heart transplant.