Last November, Apple reached a valuation of $700bn; the biggest in corporate history. The tech giant now has a cash pile of $178bn, a predicted revenue that could top Hong Kong’s total GDP this year, and a staggeringly high sales history – in the last quarter of 2014, it sold 34,000 iPhones an hour.
iPhones sold an hour in Q4 2014
It’s hard to believe that less than two decades ago, the same company looked like it was on death row. The computer firm was haemorrhaging money and verging on bankruptcy in the face of fierce competition from cheaper, Windows-running PCs; namely Microsoft. Apple had a mere four percent market share to its name, had suffered the departures of three CEOs in the space of 10 years and was witnessing yearly losses of over $1bn. Board members had failed to find a buyer when they resorted to the idea of a sell-out in a final attempt at reviving the brand. Tech magnate Michael Dell summed up its state when he reportedly declared in a symposium that if it were up to him, he would “shut (Apple) down and give the money back to shareholders”.
Apple’s early years were not all quite so fraught as this; in the late 1970s the company was growing quickly, focusing on the Apple II, an 8-bit computer which had become one of the most popular in the market at the time. But by 1997 its fortunes had taken a U-turn, with shares priced at just over $4 and a market cap of $3bn – somewhat measly in comparison to its current status. That year, founder Steve Jobs returned to the company after resigning in 1985, stepping up to the helm as an interim CEO to save the company haphazardly balancing on its last legs.
Jobs made his strategy clear from the start, stating: “If we want to move forward and see Apple healthy and prospering again, we have to let go of a few things”, Bloomberg reported. He went on to declare that it was time to stop obsessively competing against major competitor Microsoft – which he announced was pumping $150m of investment into Apple – and start focusing more on its own strategy.
With the financial backing from Bill Gates, Jobs invested heavily in advertising – producing the Think Different campaign, which featured old clips of Einstein, Martin Luther King and other iconic figures – and made Apple’s R&D budget leaner, focusing on new Mac products rather than out-there technologies unlikely to take off. He built the iMac, using the operating system produced by NeXT (the company he’d founded) and the new, brightly coloured computer proved a hit.
Jobs took a fierce, forward and at times ruthless approach, attempting to shape the media’s portrayal of Apple and shrouding much of the business in a form of secrecy that helped compound its air of exclusivity. He focused on innovation and simplified everything; from the mouse (which he made characteristically minimalist with just one button) to the floppy disk drive (which he scrapped). Design and, in Jobs’ words, “emotional experiences”, were at the heart of the new Apple branding and it succeeded; by 2000 he’d already made several leaps along the road to turnaround.
When the iPod, and iTunes, came along a year later, a whole new consumer base was introduced to Apple and in turn drawn into its unique concept stores – with its quirky Genius Bars – which innovative retail guru Ron Johnson had set about creating. “With Apple you get to immerse yourself in the experience”, says Dwight Hill, retail analyst at McMillan Doolittle – and that experiential approach proved an essential cog in the creation of Apple’s reputation for stylishness, forward thinking, and exclusivity.
Jobs, despite being diagnosed with pancreatic cancer in 2003, continued to haul Apple into new heights for several years on, bringing out the first iPhone in 2007 and declaring: “Every once in a while a revolutionary product comes along that changes everything”, a prophecy that would gradually become all too true. By 2009, Apple’s share of the smartphone market had grown to 10.8 percent, and a number of other products, including the iPad, saw the empire grow yet further, with total revenues in 2011 almost doubling those of the previous year at $108.6bn.
When Jobs stepped down in 2011 after his health had deteriorated, he left an empire that he’d built up from an almost bankrupt firm in the space of just 15 years, and which has become the pièce de resistance of the tech world. But he also left a wider legacy, redefining the industry, changing people’s perceptions of what a brand is and creating an empire that verges on a religion – through a unique, creative concept that it appears other companies, both in tech and beyond, will forever idolise.
Danish toy mega-brand Lego recently replaced Ferrari as the world’s most powerful brand in a ranking by Brand Finance, beating global superstars to the top spot including Rolex, Coca-Cola and Disney. The company saw sales exceed those of Barbie-maker Mattel (the largest toy manufacturer on the planet) in the first half of 2014, and it posted a net profit of $1.07bn over the year – continuing a trend of consistent growth that by 2013 had seen the company quadruple its revenue in less than a decade.
Lego sets sold every second
The picture hasn’t always been quite so rosy; in 2003 Lego fell from its 90s grace with a bang, suffering a 35 percent plunge in sales in the US (and 29 percent globally) – which led to losses of £217m (over $329m) in 2004. The company was knee-deep in debt – so high it was almost equivalent to its annual sales – and bankruptcy seemed to be waiting to greet the ailing firm with open arms.
Then in 2004, family-run Lego sent outsider and former McKinsey consultant Jørgen Vig Knudstorp, (who’d been with the firm since 2001), to the CEO throne in an attempt to bring the toy-maker back from the brink. “To survive, the company needed to halt a sales decline, reduce debt, and focus on cash flow”, Knudstorp later told Harvard Business Review. “It was a classic turnaround, and it required tight fiscal control and top-down management.” The new CEO embarked on a cost-cutting mission, slashing staff numbers in their thousands and outsourcing certain sectors to other countries.
Over the next few years, Knudstorp succeeded; by 2008, Lego had achieved net profits of £163m (more than $247m), reporting a 51 percent increase in sales in Britain, while other toy makers suffered from the recession and the rise of digital phenomena vying for children’s time.
Knudstorp had moved the focus back to Lego’s core business, which had been overlooked as the company spread its wings a little too far and wide with theme parks, clothes, watches and video games all under its belt. Knudstorp sold off non-essential areas of the business – such as the four Lego theme parks, the firm’s videogames sector and a number of its buildings in Australia, the US and South Korea – and cut the amount of Lego pieces by more than half. He also emphasised the importance of becoming more results-driven and financially focused, speeding up Lego’s production processes and implementing performance-related pay to motivate employees.
And, crucially, he created Lego’s Future Lab, investing heavily in consumer research to see how children play. The firm reacted accordingly, developing experiences around its products to bring the now 83-year-old firm into the modern age – a move that saw Fast Company dub it the “Apple of Toys”. Licensing agreements with major Hollywood names including the Harry Potter and Star Wars franchises, and a strategically planned string of Lego movies, helped to further compound the company’s success.
At a time when the digital arena is playing an increasingly large role in the toy industry – with a number of modern toys now getting in on the ‘internet of things’ game – Lego has retained an element of tradition, continuing to promote its classic plastic, buildable pieces. And it’s working, with seven Lego sets sold every second across the globe. But the brand has managed to successfully fuse that with elements of digital play; this year it’s trialling ‘Ultra Agents’, whereby Lego blocks interact with touchscreens, and last summer it test-launched a line of hybrid physical and digital Lego toys.
Knudstorp has applied forward-thinking innovation to the toy world with a unique strategy. It’s one the likes of Mattel – which has experienced three straight years of falling sales, culminating in a 16 percent plunge last year – would do well to follow, if it’s to bring toys into the 21st century while still retaining those all-important elements of tradition, nostalgia and heritage.
In 1993 IBM, now one of the world’s biggest technology companies, reported what was then one of the largest quarterly losses seen in US corporate history – $8bn. The company was in crisis, about to become bankrupt and widely regarded as having come to its end – until Louis Gerstner, former American Express veteran, entered the scene. “When I arrived at IBM in 1993, there was no inheritable or even extendable platform”, Gerstner later said in an interview with McKinsey Quarterly. “The company was dying.”
Louis Gerstner’s severance package
Gerstner became IBM’s first outsider to be named CEO, sought out by former Johnson & Johnson executive Jim Burke. What he found upon his arrival was a business consumed by crippling costs and bureaucracy, a company culture in tatters and dissatisfied customers suffering from late deliveries of poor-performing machinery. IBM was facing competition from faster and less expensive technologies. Its workforce was crumbling, with internal conflict maiming its operations.
During his first couple of years on the job, Gerstner set about making tens of thousands of job cuts, closing down a number of plants across the world and selling a variety of assets in order to slash the company’s budget by billions and raise much-needed cash.
He did away with plans to split up the business into different segments, in order to unify its hardware, services and software operations – “the most important decision (he) ever made”, according to his book Who Says Elephants Can’t Dance – and focused on improving collaboration within the firm to mend its damaged, competitive culture. With that aim in mind he also scrapped tie-and-shirt dress codes and overhauled the rewards system, basing pay levels on the business’s overall performance rather than the results of its individual sectors. He set “personal business commitments” for employees and measured performance against those targets.
The new CEO also got rid of the multiple ad agencies being used in order to unify its branding, shifted focus away from hardware and onto integrated IT services, and made the company’s software compatible with any hardware, not just its own. He overhauled the traditional model by shifting to a ‘services-heavy’ one and threw the IBM rule-book out the window, bringing an outside perspective that allowed him to disrupt established practices and pump fresh energy into a worn-out company.
The drastic measures gradually paid off; in 1995, IBM sales had hit nearly $72bn, marking an increase of 12 percent from the year before, and earnings per share had soared a substantial 44 percent. In 1999 the company posted a revenue of $87.5bn – despite the threat of the Y2K bug – and its market value had grown by $170bn in the space of seven years. When Gerstner retired in 2002, his impressive turnaround was rewarded with a $189m severance package – one of the 10 largest of the decade.
Gerstner’s strategy throughout centred around a willingness to embrace change and move with the times. “The leadership that really counts is the leadership that keeps a company changing in an incremental, continuous fashion”, he told McKinsey Quarterly. Gerstner, now widely regarded as one of the most important turnaround masters of the century, certainly counted.
Although IBM revenue has been falling recently, the company still has a market cap of around $160bn and ranks among the biggest tech companies in the world. If IBM is to continue growing, current CEO Virginia Rometty might do well to take a leaf out of Gerstner’s book.
In 2006, American car-maker Ford reported a loss of $12.7bn – the worst annual loss seen since its founding over a century before – as more than 10 years of struggle came to a dramatic climax. In the fourth quarter alone it lost a staggering $5.7bn (with North America particularly badly hit) as the firm felt the effects of shifting consumer trends, tough competition, problems over quality and a damaged, non-collaborative culture. Roll on a few years and Ford has brought out a number of hit products, witnessed the recovery of its stock and posted six straight years of profit, with a predicted $8.5-$9.5bn now set for this year.
Annual profit in 2013
The man behind what became one of the biggest turnarounds ever was then-CEO Alan Mulally. New to the industry, he’d rescued Boeing from the dismal state into which it had been plunged post-9/11 and was in a position to breathe fresh air into the ailing auto firm.
He and the rest of the team set the ball rolling for the ‘One Ford’ programme, raising an impressive $23.6bn by mortgaging the majority of its assets in order to fund the ambitious turnaround plans. The aerospace veteran overhauled the company from the inside out. He believed the key to building a successful business lay in supporting staff, encouraging optimism and helping them envisage the firm’s overall goals. “Positive leadership – conveying the idea that there is always a way forward – is so important, because that is what you are here for, to figure out how to move the organisation forward”, he later told McKinsey. “Critical to doing that is reinforcing the idea that everyone is included… when people feel accountable and included, it is more fun.”
Senior employees had been accused of denying accountability; Mulally set about organising weekly meetings where executives would answer his questions and get more involved with the company as a whole. Quality of the vehicles was suffering; he accelerated product development and aligned them more with consumer needs. Ford’s finances had taken a battering; he oversaw restructuring plans and (eventually) brought the firm back into the black.
The strategy didn’t pay off immediately; in 2008 Ford posted losses of $14.6bn, topping its 2006 low, after being dealt an almighty blow by the financial crisis. But in 2009 the car-maker achieved its first annual profit in four years ($2.7bn), while the likes of Chrysler and GM struggled to stay afloat. In 2010 that more than doubled to $6.6bn – its highest in a decade – before growing further to $7.2bn in 2013. Mulally had worked his magic.
For him, honesty and integrity were at the heart of the turnaround. “A big part of leadership is being authentic to who you are”, he told McKinsey. He demonstrated the importance of internal cohesiveness, positive company culture and a can-do attitude, setting an inspiring precedent for businesses both within the car industry and beyond.
Last August, Australian flag-carrier Qantas reported its biggest ever loss – $2.8bn for the 2014 financial year – following a devastating period in which it announced it was making 5,000 job cuts as part of a $2bn cost-cutting programme set for completion in 2017. The airline was dying a painful death on the back of fierce competition and sky-high fuel prices, and had been refused a bailout by the Australian government. “We are facing some of the toughest conditions Qantas has ever seen”, CEO Alan Joyce declared at the time.
After tax profits H2 2014
Then this February, just a year after it first declared the drastic plans, Qantas announced it had achieved after-tax profits totalling $206m (with an underlying pre-tax profit of $367m) for the second half of 2014.
Joyce had hauled the company up from the red in the space of just one year, achieving profitability in every operating sector for the period – including its international segment, which was in the black for the first time since the financial crisis struck. Joyce put the success down to the company’s four-year Qantas transformation programme – whose impact had started to show substantially more quickly than most had anticipated.
Under the programme, the company set about making the planned layoffs, pledged to freeze the pay packets of its employees for 18 months, and cut Joyce’s pay by 40 percent. The strategy started to bear fruit, with Qantas achieving savings of $374m in the first half of 2014 alone.
Where the company goes from here remains to be seen, but ‘The Flying Kangaroo’ appears to have turned a corner at a time when other national carriers are struggling to stay afloat as they battle with budget carriers and other pressures – as most notably demonstrated by the recent collapse of Cyprus Airways.