Update on VALUE VAULT; Questions from a Reader; Apple and Strategic Logic

A lot of companies have chosen to downsize, and maybe that was the right thing for them. We chose a different path. Our belief was that if we kept putting great products in front of customers, they would continue to open their wallets.

A lot of people in our industry haven’t had very diverse experiences. So they don’t have enough dots to connect, and they end up with very linear solutions without a broad perspective on the problem. The broader one’s understanding of the human experience, the better design we will have.

Again, you can’t connect the dots looking forward; you can only connect them looking backwards. So you have to trust that the dots will somehow connect in your future. You have to trust in something – your gut, destiny, life, karma, whatever. This approach has never let me down, and it has made all the difference in my life.

An iPod, a phone, an internet mobile communicator… these are NOT three separate devices! And we are calling it iPhone! Today Apple is going to reinvent the phone. And here it is.

And it comes from saying no to 1,000 things to make sure we don’t get on the wrong track or try to do too much. We’re always thinking about new markets we could enter, but it’s only by saying no that you can concentrate on the things that are really important.
–Steve Jobs

Update on the VALUE VAULT

(contact: Aldridge56@aol.com with VALUE VAULT in subject line for the key)

I uploaded 21 videos of 2010 value investing lectures into a sub-folder in the VALUE VAULT.  The VAULT seems cluttered so unless anyone objects, I will place non-videos into folders with sub-categories for easier searching. I will choose a quiet time to work on the vault—probably Sunday.

If you are having trouble opening the folder, please contact www.yousendit.com customer service at 888-535-9442 or (outside the USA) 1-408-385-8491 and email me if the problem has or hasn’t been fixed.  I will #$%^&*! find out the problem. I am having no issues accessing the folder or videos so far.

If anyone has an idea for a more accessible storage option, let me know.

Question from a Reader

I’ve just started digging into the Competition Demystified PDF (in VALUE VAULT) and came across this passage (also mentioned in the “Strategy is Local” PDF) and couldn’t help but wonder what’s changed:

“Apple’s experience stands in stark contrast. From the start, Apple took a more global approach than Microsoft. It was both a computer manufacturer and a software producer. Its Macintosh operating system anticipated the attractive features of Windows by many years— “Windows 5 = Macintosh 87,” as the saying goes. Yet its comprehensive product strategy has been at best a limited and occasional success, especially when compared to Microsoft’s more focused approach.”

This strategy of controlling everything (operating system, hardware, software licenses/developers, content delivery, etc.) is, according to Greenwald, a competitive liability, yet today, as Apple is the most valuable company in the world and the most successful tech company, it is the very reason given for their massive success, and the “special genius” of the recently departed Jobs.

What gives? Is Apple just a fad? Is Greenwald making stuff up? Or is there some other piece of this puzzle I am not considering?

The Reader follows up with: “I thought of another strategic element for Apple. I read this somewhere a few months ago, don’t remember where, but Apple basically made exclusive contracts with its various suppliers such that they guaranteed them large volume up front in return for them not taking orders from competitors, essentially (some arrangement like that).

This resulted in two things:

First, conferred a competitive advantage in supply to Apple because they were able to achieve lowest cost in production.

Second, accomplished the strategic goal of totally denying their competitors access to suppliers of similar quality/cost. This meant that the only way a competitor could create something of Apple quality would be to pay (and charge) a lot more for it. But Apple commanded a brand premium in the market place while the competitors did not. This would be a good example of the Jarillo principle of the premium company charging less than they could, forcing competitors who don’t command a premium to price near cost.

I think normally the issue of “what suppliers do we use and how do we contract with them?” would be tactical. But because Apple interfered with their competitors’ ability to compete by working with suppliers the way they did, this seems to be a strategic consideration as well.

My reply: Like a lecturer before an audience, I was hoping no one would notice that my fly was unzipped. The reader is mentioning the elephant in the room–did Steve Jobs read Prof. Greenwald’s Competition Demystified and just do the opposite–Apple has a closed system for hardware and software. Has Apple been successful?

There are a number of possible answers:

  1. Prof. Greenwald has missed something in his approach to strategy.
  2. Apple may be using elements of strategic logic to be successful like economies of scale, customer captivity, network effect, and patents.
  3. Steve Jobs may be a genius who invented an industry or product beyond the immediate scope of strategic analysis. In other words, you can’t analyze the reasons for success of someone who invents the cure for cancer or a process that turns an element into a resource. You can’t predict genius.

Who said strategic thinking would be easy. Let’s take our time to look at a problem from all sides and go through our strategic logic process. We will soon discuss the Coors case study and then move on to Chapter 6: Compaq and Apple in the Personal Computer Industry or pages 113-136 in the book. Once we have finished the book and all the cases, let’s circle back and study Apple’s current success.

One question that should slap you in the face, “Why does Apple have such a low multiple of earnings and cash flow?” Perhaps the market does not believe that Apple can have real growth and/or the genius of Steve Jobs will no longer drive Apple’s future.

Should the government tell you how to live?

Freedom of choice: http://www.youtube.com/watch?v=A6a9549ZeqQ&feature=g-vrec&context=G22064f2RVAAAAAAAABA

Personal Prejudices

We all have our prejudices. Here is how to deal with them.

Prejudice: http://www.youtube.com/watch?NR=1&feature=endscreen&v=9aVUoy9r0CM

Sensitivity Training: http://www.youtube.com/watch?v=iliNaspGVDg&feature=related

More posts to follow…………

3 responses to “Update on VALUE VAULT; Questions from a Reader; Apple and Strategic Logic

  1. Greenwald is almost embarrassingly wrong on AAPL. However, I think he would say their success is unsustainable. They have been a step ahead of their competitors in terms of design, but in an industry with a swift pace of technological change, it can’t be sustained. “In the long run everything is a toaster. . . ” At this point though, they have been able to introduce product after product that captures the imagination of the public. Their lead has enabled to create EOS and and some consumer habit. I think Greenwald would say that their competitive advantage period has been unusually long but, with aggressive competitors nipping at their heels, it can’t be sustained. The market would seem to agree with him as AAPL gets a low EPS multiple.

    • Well-said Dr. Berger. This is a more articulate way of expressing my concerns over using strategic logic to anticipate genius. I do want to read the recent book about Jobs. He must have been an obsessive person (like George Eastman, his hero.)

  2. I’m sure Jobs was a “talented fanatic”, a term Munger used to describe Jack Welch, Sam Walton and the found of NCR (can’t remember his name and don’t feel like googling).

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