Apple announced its revenue and earnings Tuesday. While earnings beat expectations, $3.28 per share versus $3.23 per share, revenue disappointed at $75.9 billion compared with expectations of $76.54 billion. Apple's iPhone sales also missed the mark with 74.8 million instead of the 75.46 million expected. CEO Tim Cook told analysts that Apple expected iPhone unit sales to decline in the fiscal second quarter. Similarly iPad and Mac sales also came in lower than expected. What's going on?
Evolutionary rather than revolutionary
Apple executives explain the disappointing sales results on economic weakness around the world. Many believe the real reason is Apple's current inclination to make evolutionary rather than revolutionary products. They think the lower-than-expected sales of the iPhone 6S is a result of a perceived small incremental improvement over the iPhone 6. It seems as if Apple is following Toyota's approach to innovation rather than that of its former CEO, Steve Jobs.
Works for Toyota
Few would argue that Toyota makes great automobiles. In a Harvard Business Review interview, Katsuaki Watanabe of Toyota said,
There is no genius in our company. We just do whatever we believe is right, trying every day to improve every little bit and piece. But when 70 years of very small improvements accumulate, they become a revolution.
Over a 35-year period, Toyota's innovation culture increased the number of annual suggestions per employee 480-fold from 0.1 to 48.
Apple is competing in a different ballpark
Even though Apple is supposedly developing a high-tech automobile, the company needs to travel in a different lane than Toyota. Toyota is competing in the car market where innovation is happening, but at a slower pace than Silicon Valley where Moore's Law sets a higher bar. With cars, safety, government regulations, and sharing of thoroughfares with pedestrians and other vehicles dictate a more conservative approach. That's why Toyota's incremental innovation strategy works really well in its market. When it comes to computers, mobile gadgets, and the IoT (Internet of Things), a more "revolutionary" approach is required to compete.
Apple Watch falls flat
Many believe that the first really innovative product Apple has launched in the post Steve Jobs era is the Apple Watch. By most accounts, this product did not live up to the expectations or standards of Apple new product launches. Since it was the first product shepherded by Tim Cook and Angela Ahrendts outside of Steve Job's shadow, its lackluster performance increases concerns about Apple's ability to innovate after Jobs.
What Apple needs to do
If Apple wants to shake concerns that it has lost its innovative and competitive edge, it needs to find someone that has the ability to push the envelope the way Jobs did. This appears to be what's missing from Apple's skill set. It was the concern when Steve passed away. The past five years have done little to allay that concern. Ive is a great designer and Cook is a talented executive. If the envelope-pusher is already at Apple, the management teams needs to give this person the political power to make things happen. Jobs was in charge and relentless when he wanted to implement his agenda. If this person is not at Apple, Apple needs to find and hire him or her sooner rather than later. Otherwise, incremental innovation is likely to continue. While it works well in the automobile business, it is too slow to win in the fast lane in which Apple operates.