I am fascinated by the bipolar swings in sentiment toward Apple Inc. Last September, it was a magical company that could do no wrong. But by mid-April, Apple's share price had plunged more than 40 percent, from a peak of $705 to less than $400. Pundits were darkly warning that the "age of Apple" might already be ending.
The black mood has ebbed a bit in the past week. Apple's quarterly earnings weren't as bad as some had feared, and it announced an epic stock buyback. At the end of April, Apple raised $17 billion at low interest rates through the biggest non-bank corporate bond deal in history.
I make no judgment about Apple's stock value. It may have been overpriced last fall, and it might be underpriced right now. Let the manic-depressives decide.
But I am willing to predict that the age of Apple is far from over. I study companies based on their underlying "dynamic capabilities," their deeply embedded capacities to sense change, seize new opportunities, shape markets, and periodically reinvent themselves.
Dynamic capabilities are about more than a company's operating efficiency, financial strength, or even patent portfolio. They are about its deeper institutional ability to innovate, adapt, and compete in a networked world of constant change and of complex business "ecosystems." Can the company get beyond its first breakthrough success and keep coming back with new miracles? Is it at the center of a robust ecosystem? How experienced is it at reinvention and redeploying its resources?
We all know that tech breakthroughs have a short half-life, and we have seen technological change bring even legendary companies to their knees -- just look at Kodak, Polaroid, Digital Equipment, or, more recently, Sun Microsystems.
By contrast, dynamic capabilities take a very long time to acquire. But here is the key: Once a company has those capabilities, they hold up for a very long time and are extremely difficult to replicate.
Under Steve Jobs, Apple obviously had a system down. It didn't simply create new products. It created and revolutionized entirely new product categories, from personal computing and online music to smartphones and tablets.
It's true that Jobs was an almost sui generis leader. He had blazing vision, aesthetic as much as technological, and a passion that were entirely his own. It's also true that Jobs didn't leave behind a secret recipe. But he did instill an approach to innovation, a set of beliefs about what people really want, and -- perhaps most important -- a hard-won experience about how to implement those values in practice. All that is embedded in Apple's DNA and muscle memory.
Jobs didn't run Apple single-handedly, especially during his last several years. The company was simply too big, and he was too sick. What Jobs did was imprint Apple with strong dynamic capabilities: a powerful management team that understood his approach; a deep institutional knowledge about the process of reinvention; and a powerful ecosystem of business partners, suppliers, and collaborators.
"There is no system,'' Jobs once told an interviewer.
Apple is a disciplined company, and we have great processes. But that's not what it's about. Innovation comes from meeting people in the hallways or calling each other at 10:30 at night with a new idea... It comes from saying no to 1,000 things, to make sure we don't get on the wrong track.
If it were that simple, of course, Eastman Kodak might still be on top of world.
But a few companies, and I would argue that Apple is one of them, have internalized what it takes to stay in front. These companies have organized themselves for constant strategic innovation. They know how to adapt their mission and redeploy their strengths in a quicksilver world.
That is what is so enduring about a company like Apple. Its dynamic capabilities are like a neural network: intricate webs of neurons and pathways that have evolved or been trained over a very long time. It's like the difference between the raw talent of a 15-year-old tennis prodigy and the prowess of a Roger Federer. Federer devoted years to training and experimentation, and his skills are embedded in muscle memory and instinct. It's one reason he remained champion far longer than most people expected.
Organizations can have muscle memory too -- not just of Steve Jobs as a person, but of his values, approaches, and insights into what people really wanted from technology.
Steve Jobs is gone, but you don't have to be sentimental to say that his legacy will last for a very long time. And so will Apple.