Apple’s Functional Organization Is Not a Problem: It Is the Solution

Apple’s functional organization has taken a lot of heat these days. This approach is kind of unusual for a company the size of Apple, with more than 100.000 employees worldwide. But it is very frequent with startups.

Some people are having a problem with this corporate structure, ignoring the facts that make it suitable for Apple’s needs. Let us have a look at this topic and analyze the reality and reasoning behind Apple’s functional organization.

A Divisional Organization

Large corporations tend to organize in divisions. Each division specializes in one product under the same management. This management has several executives in charge of each aspect of a product:

  • Finance.
  • Marketing.
  • Production.
  • Human resources.
  • Accounting.

And so on. Effectively, it is a company within a company. The advantages of this kind of organizational structure are evident. Accountability is one of them, since every manager in the division is responsible for the product’s performance. Either good or bad.

There are strong incentives within the division to perform as good as possible. And when market forces change, a divisional structure can rearrange itself quickly without bureaucracy from the Mother Company. Things get done. Fast.

Or heads roll.

Divisions tend to be very efficient in their realm. Despite its advantages, the divisional structure also creates disincentives that need to be taken into account. The most relevant is that they see other divisions of the same company as competition.

Maybe not as real competitors but as entities that can thwart their goals by collecting vital resources of the company. Money, people, mindshare from top executives.

As a consequence, divisions abort projects that are not immediately profitable, that require investments over large periods of time. Even worse, divisions will kill on sight any project that can, at some point, disrupt their own business and be positive for the company as a whole.

As we’ll see in the next section, this is what makes Apple’s functional organization so interesting.

Divisional Organizations Failures: Sony and Microsoft

The best way to understand Apple’s functional organization is to have a look at some examples. The tech market has abundant cases in which divisional organizations failed in a moment of critical change.

One of the most well known is Sony in 2000. The Japanese company had all the elements required to build an iPod:

  • Strong brand in the consumer market.
  • A popular music player under the Walkman line.
  • Technology.
  • Operational know-how.
  • A music label as Sony Music.
  • Laptops and desktop PCs under the brand of VAIO.

These are all the elements required to build the iPod even before Apple did in 2001. Sony even had a music label in-house, something Apple didn’t!

But Sony didn’t launch the iPod. Apple did.

Another example of the limits of the divisional organization: the iPhone. Years before it debuted in the market, Microsoft had all the odds in creating a brand new market with its Windows Mobile division. But instead, they wasted their significant head start and let Apple take the lead in the smartphone revolution.

Two examples. Two missed opportunities. Billions of dollars lost. One common player: Apple.

Why?

Apple’s Functional Organization is Stronger Where It Matters

Divisions are great for managing established products. It is a structure made for peacetime, but it is not suitable for waging war.

Sony and Microsoft at their respective times represented the pinnacle of divisional organizations. Efficient and profitable companies envied by competitors. But when an apparently unprepared enemy shot an arrow to their knee, the giants crumbled.

Divisional structures fail because they are unable to look beyond their own product. Their vision is shortsighted and dances to the tune of Wall Street’s quarterly mating ceremony.

This attitude is perfectly normal. Executives are held accountable for the performance of their division, which creates an incentive to pursue its own benefit above all else. And at all costs.

However, Apple’s functional organization is stronger where it matters most. It is prepared to ditch great products in order to embrace new paradigms that revolutionize the market.

Functional organizations create so-called ‘functions’ that are common to every product line.

Apple's functional organization

A quick look at Apple’s executive members reveals what this really means. There are executives in charge of design, marketing, software, services, hardware and retail. But not a single mention to iPhone, iPad, Mac, Apple Watch or Apple Music, despite its strategic importance.

That means Phil Schiller is managing the marketing strategy for all these devices. Dan Riccio and Craig Federighi are in charge of software and hardware for all of them too. As a consequence, each one specializes in their own function, avoiding the inherent duplicities of a divisional structure. There aren’t four executives of hardware, software or marketing, on per product line.

As a result, Apple’s functional organization doesn’t hesitate when they have to develop and release a new product that can negatively impact their current business. Apple’s willingness to cannibalize itself is designed to make the ultimate sacrifice. No questions asked.

The Limits of Functional Organizations

The functional approach that Apple makes also has its limits. Just like the divisional one. Despite being able to tackle problems in new and innovative ways, Apple’s functional organization tends to suffer from lack of collaboration.

In 2012, iOS VP Scott Forstall was fired from Apple. His roles were rapidly redeployed in other executives domains while Tim Cook argued that this move would make collaboration easier within the company.

That is a subtle way of saying that Forstall wasn’t that good of a team player.

Steve Jobs knew the limits of functional organizations too well. That is why, one of his last projects was the development of Apple Camus 2. A circular building where collaboration was embedded in its design.

Another consequence of this kind of organizations is that, apparently nobody is responsible for a single product performance. The company focuses on the function instead of the product, something that some people have quickly pointed out.

Apple can’t walk and chew gum at the same time, meaning, the iPhone gets all the attention while the Mac is ignored. These claims are of course ludicrous, since Apple is positioning the Mac to fight its own disruption.

It is true that the iPhone is more important than the Mac. Of course it is! But that doesn’t mean that Apple is ignoring it altogether. A quick look at it shows us how much care Apple has put into the Mac: Touch ID, Touch Bar, thinner, lighter design.

This is Steve Jobs true legacy: a company that addresses problems in a unique way and that has the ability to stand the test of time.