Individual Project – Research and Innovation at Apple

Telfer School of Management

Marc-Olivier Delisle 300296661

Code: ADM1100[A] (Nour El Kadri)

Date of submission: December 1st, 2024

Table of Contents

Introduction…………………………………………………………………………………..3

Industry Overview…………………………………………………………………………...3

Company Analysis…………………………………………………………………………..4

Managerial Function Analysis…………………………………………………………….. 6

Conclusion………………………………………………………………………………….7

Visuals and Diagrams…………………………………………………………………….. 8

Bibliography………………………………………………………………………………...9
Introduction
As a computer science student, I decided to explore the technology industry. In addition
to being my specialty, I believe the field is uniquely positioned to influence trends in business,
culture, socio-politics, and more, beyond just software engineering. Compared to traditional
domains like business, the tech sector moves at a much faster pace, relying on agility and
disruptive practices. Other sectors are increasingly adopting novel practices originally pioneered
in the tech industry.
For my chosen company and function, I settled on R&D at Apple. This choice stemmed
from my research on company culture for another course, where I frequently encountered the
theme of innovation built by Steve Jobs. While I haven’t delved deeply into this area as of now,
it has piqued my interest, making this an ideal opportunity to explore further. By studying
Apple’s research and development, particularly from a business perspective, I hope to uncover
why their approach to innovation is so effective. From a technical standpoint, Apple has
consistently demonstrated a brilliant playbook for achieving groundbreaking innovation since
their inception. I hope to internalize the findings from this research and apply them throughout
my career.

Industry Overview

The tech industry is currently one of the fastest growing, driven by trillions of dollars in
investments and continuous innovation. Recent advancements in AI suggest we are at a pivotal
moment in the tech industry, with the next 25 years looking extremely promising. These
advancements are not confined to AI; their impact is being felt across numerous fields. Take
clean energy, for example. While the connection between them might not seem direct, there is a
significant link. Artificial intelligence is extremely energy-intensive, requiring far more energy
than a simple Google search. Indeed, the International Energy Agency (IEA) projects that data
center energy consumption will double by the end of 2026 as AI workloads grow more
complex.1 Therefore, investments in different domains, spurred by the rapid growth of AI, are
likely to increase significantly in the near future.

One way this industry is tightly intertwined with what we’ve been learning in class is the
entrepreneurship and start-up culture inherent to it. As discussed in Chapter 4 of the lectures,
identifying opportunities and accessing resources are two essential components for launching a
new venture.2 In today’s technological landscape, abundant opportunities and resources explain
why the industry is so favorable for start-ups. Many of today’s industry leaders began as small
ventures, often launched from garages. This characteristic is both a strength and a vulnerability
of an industry so prone to disruption. While a company can emerge from humble beginnings,
established giants are equally at risk of falling behind, as exemplified by companies like IBM.

1
Amanda Stephenson, "AI Boom Could Spur Large-Scale Investments in Clean Energy, Experts Say," The
Globe and Mail, October 2, 2024, https://www.theglobeandmail.com/business/industry-news/energy-and-
resources/article-ai-boom-could-spur-large-scale-investments-in-clean-energy-experts-say/.
2
Nour El Kadri, "Chapter 4 - Entrepreneurship, Small Business, and New Venture," class slides, 2024.
Whether viewed as a blessing or a curse, this inherent instability makes the technology sector
one of the most fascinating in terms of innovation and advancements.

Company Analysis
History
Created in 1976 by Steve Jobs, Steve Wozniak, and Ronald Wayne, Apple has established
itself as a leader in the tech industry, outliving many competitors by adhering to strong core
values. Early successes with the Apple II series and Macintosh grounded the company in the
personal computing industry. Although Apple is now a leading force, the company has faced
significant challenges that have shaped its resilience in today’s competitive landscape. One
example of these rough patches was the dismissal of its founder and visionary, Steve Jobs, in the
mid 80’s. Twelve years later, in 1997, Jobs returned to revitalize the company, laying the
groundwork for revolutionary products such as the iPhone, iMac, and iPod. This comeback was
extremely well executed and is now part of the reason they shine so brightly to this day. To
analyze them, I’ll delve into their lean product portfolio, their financial performance, their
business strategy, and finally their competition and market position.

Lean Products
Steve Jobs’ philosophy of simplicity in design has been central to Apple’s enduring
success. After being ousted from Apple in 1985, Jobs observed as the company he co-founded
struggled with poor management, a weakened product line, and a lack of innovation. He also
took this period as an opportunity to go out and found a company named NeXT. While some
would see this moment as an insurmountable obstacle, Jobs saw it as a rare opportunity to
challenge and refine his skills, while he was at the height of his success. Upon his return as CEO,
he made very drastic changes to the whole company. He streamlined the product line,
concentrating on a select few products that Apple could design and produce exceptionally well,
as well as completely restructuring the organization.3 This restructuring allowed Apple to
allocate resources more efficiently and improve logistics, both critical factors for an innovation
and manufacturing company’s success.

Financial Performance
Apple’s financial trajectory is a testament to its effective innovation strategy. In 2018,
Apple became the first company with a trillion-dollar market cap. Fewer than four years later,
Apple reached the $3 trillion mark. Analysts are already speculating on when Apple will reach
the $4 trillion milestone. “For Apple to reach a $4 trillion market cap, the stock would need to
gain about 18% from where it is today. How fast could that happen? It's already up 17% this

3
Austin Carr, "Video: How Steve Jobs’s Early Vision For Apple Inspired A Decade Of Innovation," Fast
Company, October 5, 2011, https://www.fastcompany.com/1776369/video-how-steve-jobss-early-vision-
apple-inspired-decade-innovation.
year, and there's still about six weeks left to go.”4 It’s no secret that Apple has experienced
significant financial growth since the release of the iPhone. While iPhone sales are their largest
revenue driver, services like the App Store, Apple Music, and iCloud, along with wearables such
as the Apple Watch and AirPods, also contribute significantly. Their ability to seamlessly
integrate hardware and software has enabled Apple to maintain premium pricing and foster
strong brand loyalty. They have long been a major competitor in the west, and are now looking to
cut into new markets, like the Asian phone market. While this could really boost their financials,
this market is quite hard to get a piece of, with big players like Samsung and Huawei among
others catering more specifically to the Asian market. This demonstrates the impactful role that
culture plays in markets and trade. Also, with possible tariffs imposed by trump and retaliatory
measures from huge markets like China, Apple’s growth in the east might slow be hindered for
the coming years, without mentioning the effect they will have on Apple’s supply chain.5

Business strategy
Apple’s business strategy emphasizes innovation, strong branding, and exceptional
customer experience. While the market for high-volume, cost-effective hardware production is
dominated by companies in Asia, Apple has positioned itself as a provider of premium, user-
friendly technology. They have achieved this by developing an extensive ecosystem that meets
the needs of Western consumers. Consumers are willing to pay a premium and commit to an
ecosystem when they trust the brand and its products, a trust Apple has built through years of
consistent quality and innovation.

Competition and market position

Apple's primary competitors include Samsung in hardware and Google and Microsoft in
software. Despite this competition, Apple has carved out a distinct market segment characterized
by strong brand loyalty and a lifestyle appeal that competitors seldom penetrate. This brand
loyalty has been a significant advantage, allowing Apple to dominate the consumer market for an
extended period. Recently, Google has made ambitious efforts to enter this market with its Pixel
smartphone line, targeting users within the Apple ecosystem. Reports indicate that Google's Pixel
devices have gained market share in the U.S., increasing from 3.6% in 2022 to 4.6% in 2023.
However, Apple's market share remains substantial, with the company holding 51.9% of the U.S
smartphone market in 2023.6 The success of Google's Pixel line in capturing a significant portion
of Apple's market share remains uncertain. While Google's devices have seen growth, Apple's
entrenched brand loyalty and ecosystem present considerable challenges for competitors. The

4
Jennifer Saibil, "Is Apple's Market Cap Going to $4 Trillion?" The Globe and Mail, November 20, 2024,
https://www.theglobeandmail.com/investing/markets/stocks/AAPL/pressreleases/29671581/is-apples-
market-cap-going-to-4-trillion/.
5
Ben Lovejoy, "New Chinese Import Tariffs Could See Apple Caught Up in New Trade War," 9to5Mac, May 14,
2024, https://9to5mac.com/2024/05/14/new-chinese-import-tariffs/.
6
Steven Shaw, "Google Pixel Market Share Grows in US Despite a Decline in Phone Sales Overall," Android
Central, March 21, 2024, https://www.androidcentral.com/phones/google-pixel-market-share-grows-in-us-
despite-a-decline-in-phone-sales-overall.
coming years will reveal whether Google's strategies can effectively attract users from Apple's
established base or if they will encounter obstacles like those faced by previous challengers.

Managerial Function Analysis

R&D Importance at Apple
Apple focuses on applied R&D rather than pure or basic R&D to maximize market value.
This means Apple prioritizes developmental research, refining innovations that are closer to
becoming marketable products.7 As the company has grown, so has its R&D expenditure (see
Figure 1). Recently, their focus has included AI, VR, and the production and manufacturing of
silicon chips, such as their custom M-series processors. Apple is known for its in-house
approach, handling everything from design to an increasing share of its manufacturing
processes.8 A strong focus on design and R&D has enabled Apple to enhance its profit margins.
Apple is driven by innovation, and this innovation is driven by their R&D efforts. They can also
extend to simple design research, as well as market research. These two aspects in particular are
where Apple has had an iron grip on the market.

Strategic Focus Areas

Guided by Steve Jobs’ vision, Apple has meticulously refined the details in its products,
earning a reputation for exceptional design. Apple capitalized on a cultural shift in Western
markets, where consumers transitioned from prioritizing utilitarian technology to valuing
aesthetics. This shift allowed Apple to break into the market by simplifying computer
functionality and offering a more aesthetically appealing experience for broader audiences.
Major computer companies at the time were overly focused on functionality, overlooking the
market potential of strong design. This is perfectly demonstrated with older PC providers, which
would require their users to have extensive knowledge in computer science to operate them.
Apple came around and promised a lower barrier of entry for their users, something that
blindsided big companies like IBM. As mentioned earlier, recent R&D efforts at Apple include
advancements in custom chip design, AR/VR technologies, and AI applications.

Organizational Structure
One way Apple differs from many of its competitors is its organization around innovation
as its core mission. Apple has structured its business to stay at the forefront of emerging
technologies, ensuring it does not fall behind industry trends. This was orchestrated by Steve
Jobs, and still hold to this day under Tim Cook. To quote a document written by Apple on how
they achieve this: "The company is organized around functions, and expertise aligns with
decision rights. Leaders are cross-functionally collaborative and deeply knowledgeable about

7
Ronald J. Ebert et al., Business Essentials, Canadian Edition, 10th ed. (Toronto: Pearson Canada, 2022), 35.
8
Gadjo Sevilla, "Apple Looking to Ramp Up In-House Component Design and Production," eMarketer, January
13, 2023, https://www.emarketer.com/content/apple-looking-ramp-up-in-house-component-design-
production.
details."9 Instead of having all the departments compartmentalized and segregated, where
emerging innovations in one department could fail to be fully exploited by other departments,
they are very cross-functional and lift each other up. They don’t see it as a zero-sum game, where
one departments successes draw the attention or resources away from another. Instead, they have
great alignment towards their shared goal, fostering and augmenting innovation.

Possible Criticism
While Apple’s model has proven effective in the past, many are skeptical about the
company’s future. Critics argue that "perhaps there’s only so much you can do with a glass
rectangle," noting that the iPhone design has seen few major changes since the iPhone X in 2017,
which eliminated the decade-old physical home button.10 With challenges such as the stalled
Apple Car project, some speculate whether this marks the end of Apple’s era of groundbreaking
innovation. Additionally, some argue that Apple has lost its past design quality, pointing to the
release of Apple AI and their VR headsets as potential turning points for the company’s approach
to design.11 One thing is clear: Apple is at a pivotal moment in its history, with all eyes watching
to see if it can prove it still has what it takes.

Conclusion
In conclusion, Apple’s success in research and development stems from a combination of
strategic focus, a unique organizational structure, and a dedication to applied innovation. By
prioritizing consumer-friendly designs and marketable products, Apple has maintained its
position as a global leader in the tech industry and differentiated itself from domestic
competition. However, the company's recent challenges, including stagnation in design
innovation and high-profile project failures, suggest that Apple must adapt its R&D strategies to
remain competitive in an increasingly dynamic market. This is easier said than done, as Apple
has been slashing product projects significantly. Could this be a sign of a major market shift, one
where Apple doesn’t hold the top spot? The upcoming decade will be pivotal in determining
whether Apple can sustain its legacy of groundbreaking innovation or if it will need to reinvent
itself to stay relevant.

9
Joel M. Podolny and Morten T. Hansen, "How Apple Is Organized for Innovation: It’s About Experts Leading
Experts," Harvard Business Review, accessed November 28, 2024,
https://www.apple.com/jobs/pdf/HBR_How_Apple_Is_Organized_For_Innovation-4.pdf.
10
David Meyer, "Apple’s Folding iPhone Plans Are Getting Serious," Fortune, July 24, 2024, 11:03 AM EDT,
https://fortune.com/2024/07/24/apple-folding-iphone-plans-progress-2026/.
11
Mark Wilson, "Apple Is No Longer a Design-Led Company," Fast Company, June 6, 2023,
https://fastcompanyme.com/co-design/apple-is-no-longer-a-design-led-company/.
Visuals and Diagrams

Figure 1 – Apple R&D expenditure Throughout the Years12

12
Mark Sullivan, "Apple’s Dramatic Uptick in R&D May Have Something to Do with a Car," Fast Company, May
13, 2016, figure, https://www.fastcompany.com/4007207/apples-dramatic-uptick-in-rd-may-have-
something-to-do-with-a-car.
Bibliography
Lovejoy, Ben. "New Chinese Import Tariffs Could See Apple Caught Up in New Trade War."
9to5Mac, May 14, 2024. https://9to5mac.com/2024/05/14/new-chinese-import-tariffs/.

Carr, Austin. "Video: How Steve Jobs’s Early Vision For Apple Inspired A Decade Of
Innovation." Fast Company, October 5, 2011. https://www.fastcompany.com/1776369/video-
how-steve-jobss-early-vision-apple-inspired-decade-innovation.

Ebert, Ronald J., Ricky W. Griffin, Frederick A. Starke, and George Dracopoulos. Business
Essentials, Canadian Edition. 10th ed. Toronto: Pearson Canada, 2022.

El Kadri, Nour. "Chapter 4 - Entrepreneurship, Small Business, and New Venture." Class slides,
2024.

Meyer, David. "Apple’s Folding iPhone Plans Are Getting Serious." Fortune, July 24, 2024.
https://fortune.com/2024/07/24/apple-folding-iphone-plans-progress-2026/.

Podolny, Joel M., and Morten T. Hansen. "How Apple Is Organized for Innovation: It’s About
Experts Leading Experts." Harvard Business Review. Accessed November 28, 2024.
https://www.apple.com/jobs/pdf/HBR_How_Apple_Is_Organized_For_Innovation-4.pdf.

Saibil, Jennifer. "Is Apple's Market Cap Going to $4 Trillion?" The Globe and Mail, November
20, 2024.
https://www.theglobeandmail.com/investing/markets/stocks/AAPL/pressreleases/29671581/is-
apples-market-cap-going-to-4-trillion/.

Sevilla, Gadjo. "Apple Looking to Ramp Up In-House Component Design and Production."
eMarketer, January 13, 2023. https://www.emarketer.com/content/apple-looking-ramp-up-in-
house-component-design-production.

Shaw, Steven. "Google Pixel Market Share Grows in US Despite a Decline in Phone Sales
Overall." Android Central, March 21, 2024. https://www.androidcentral.com/phones/google-
pixel-market-share-grows-in-us-despite-a-decline-in-phone-sales-overall.

Stephenson, Amanda. "AI Boom Could Spur Large-Scale Investments in Clean Energy, Experts
Say." The Globe and Mail, October 2, 2024.
https://www.theglobeandmail.com/business/industry-news/energy-and-resources/article-ai-
boom-could-spur-large-scale-investments-in-clean-energy-experts-say/.
Sullivan, Mark. "Apple’s Dramatic Uptick in R&D May Have Something to Do with a Car." Fast
Company, May 13, 2016. Figure. https://www.fastcompany.com/4007207/apples-dramatic-
uptick-in-rd-may-have-something-to-do-with-a-car.

Wilson, Mark. "Apple Is No Longer a Design-Led Company." Fast Company, June 6, 2023.
https://fastcompanyme.com/co-design/apple-is-no-longer-a-design-led-company/.