Steve Jobs, Tim Cook, and Apple's Innovation Premium

As Steve Jobs steps down as Apple's CEO — and Tim Cook takes over — many folks are wondering whether Apple can keep its innovation engine humming. This is not the first time, of course, that Jobs has left the helm at Apple. He was first shown the door when John Scully and other marketing folks led the charge at Apple — a charge that quickly took a nosedive. During Jobs' absence from 1986-1998, Apple's innovation premium dropped from 37% to negative 31% as the company quit innovating and its investors lost confidence. When Jobs returned in 1998 he restructured his team with senior managers who possessed a rich mix of strong discovery- and delivery-driven skills, and as a result the company churned out hit after hit, from the iMac and iTunes to the iPad, iPhone, and iPad. It took a few years to get things back on track, but from 2005-2010 Apple's innovation premium jumped to 52%.


With Jobs' unexpected exit in 2011, Cook's key task is to not only keep Apple humming but to deliver something surprising. Can he do it?

History suggests Cook's task will be difficult, but not impossible. Any company would face an uphill marathon trying to sustain a streak like Apple's recent run, so we shouldn't be surprised if Apple's innovation track slows down a click or two. But if Cook wants to keep Apple's capacity for innovation going, our analysis of the world's most innovative companies suggests a few things Cook should consider:

• Keep Apple populated with people — including senior managers — who excel at the five skills of disruptive innovators: questioning, observing, networking, experimenting, and associational thinking
• Keep processes that encourage employees to question the status quo, to engage in observations in all types of environments, to network far and wide for ideas, and to experiment on a regular basis.
• Keep encouraging everyone at Apple to "think different" and reward those who do.

But the key question is whether Cook can sniff out technology and market opportunities while knowing intuitively (or with the help of others) what risks to take. Jobs did this when he saw the mouse and graphical user interface (GUI) at PARC. He did this when he saw the computer animation technology at George Lucas' Industrial Light & Magic division, bought the key technology and players from it, and transformed it into Pixar. He did this with the string of Apple "iProducts." Disruptors like Jobs are simply better at "seeing" potential industry innovations, in part, because they apply questioning, observing, networking, experimenting skills, and most important, associational thinking to uncover insights that leap across industries. Most acknowledge Cook as exceptional at execution, but we know little about whether he has the innovator's DNA to "see what's next," the way Jobs did consistently. Apple's innovative future hinges on these critical senior-leadership skills.
It is also unclear whether Cook is capable of attracting innovators. Innovators like to work for other innovators — with people who get it. Can Cook do this? Close colleagues and friends vouch that he can. But a lack of public data calls their conclusion into question. Time will tell whether Cook and his team will actually catch the front edge of the next disruptive innovation.
Apple's transition is not without precedent. When co-founder Akio Morita ran Sony in the 1980s, the company was humming along with a consistent innovation premium above 30%, the same as Apple's during Jobs' initial tenure. With Morita's departure — and Apple's arrival — Sony's innovation premium plummeted to zero. Staying at the top of the innovation heap is not easy but it is possible. Before A.G. Lafley took over in 2001, Proctor & Gamble delivered a solid innovation premium — 20% on average — but when Lafley took the helm P&G's premium jumped to 35%.
CEOs can take a good company and make it better, but it's tough to take a great company and make it better. Clearly, Cook's challenge is daunting. Steve Jobs once said: "Innovation distinguishes between a leader and a follower." We'll soon see whether Cook really is a true innovation leader, or whether he was just a Jobs follower.