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TitleHow Apple Works
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How Apple works: Inside the world's

biggest startup

From Steve Jobs down to the janitor: How America's most successful - and most

secretive - big company really operates.

Editor's note: This article appeared in the May 23, 2011 issue of Fortune magazine. A shorter

version of it originally appeared on Fortune.com on May 9, 2011.

FORTUNE -- Apple doesn't often fail, and

when it does, it isn't a pretty sight at 1 Infinite Loop. In the summer of 2008, when Apple

launched the first version of its iPhone that worked on third-generation mobile networks, it also

debuted MobileMe, an e-mail system that was supposed to provide the seamless

synchronization features that corporate users love about their BlackBerry smartphones.

MobileMe was a dud. Users complained about lost e-mails, and syncing was spotty at best.

Though reviewers gushed over the new iPhone, they panned the MobileMe service. Steve Jobs

doesn't tolerate duds. Shortly after the launch event, he summoned the MobileMe team,

gathering them in the Town Hall auditorium in Building 4 of Apple's campus, the venue the

company uses for intimate product unveilings for journalists. According to a participant in the

meeting, Jobs walked in, clad in his trademark black mock turtleneck and blue jeans, clasped his

hands together, and asked a simple question: "Can anyone tell me what MobileMe is supposed

to do?" Having received a satisfactory answer, he continued, "So why the fuck doesn't it do

that?"

For the next half-hour Jobs berated the group. "You've tarnished Apple's reputation," he told

them. "You should hate each other for having let each other down." The public humiliation

particularly infuriated Jobs. Walt Mossberg, the influential Wall Street Journal gadget columnist,

had panned MobileMe. "Mossberg, our friend, is no longer writing good things about us," Jobs

said. On the spot, Jobs named a new executive to run the group.

Jobs' handling of the MobileMe debacle offers a rare glimpse of how Apple (AAPL) really

operates. To Apple's legion of admirers, the company is like a tech version of Wonka's factory,

an enigmatic but enchanted place that produces wonderful items they can't get enough of. That

characterization is true, but Apple also is a brutal and unforgiving place, where accountability is

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strictly enforced, decisions are swift, and communication is articulated clearly from the top. (After

Jobs' tirade, much of the MobileMe team disbanded, and those left behind eventually turned

MobileMe into the service Jobs demanded.)

Apple's ruthless corporate culture is just one piece of a mystery that virtually every business

executive in the world would love to understand: How does Apple do it? How does a company

with more than 50,000 employees and with annual revenue approaching $100 billion grow 60% a

year? How does it churn out hit after hit? Those are questions Apple has no desire to answer.

This past January, when a Wall Street analyst asked Tim Cook, Apple's low-key chief

operating officer, how far out the company conducts long-term planning, Cook replied with an

artful brushoff. "Well, that is a part of the magic of Apple," he said. "And I don't want to let

anybody know our magic because I don't want anybody copying it."



Apple CEO and co-founder Steve Jobs on March 2, 2011, emerged from a medical leave of absence to introduce the

second generation of the iPad.

Just because a magician doesn't want to reveal his tricks doesn't mean it's impossible to figure

them out. Fortune conducted dozens of interviews over several months with former Apple

employees and others in the Apple orbit to try to explain the phenomenon of life inside Apple.

Few agreed to speak on the record; the fear of retribution persists for years. Once they get

talking, however, the former Appleites paint a picture of a company that time and again thumbs

its nose at modern corporate conventions in ways that let it behave more like a cutting-edge

startup than the consumer-electronics behemoth it is.

Whether Apple's startup ways are sustainable or the result of the sheer will of Steve Jobs is the

great unknown in explaining how Apple works. Every conversation with insiders about Apple,

even if it doesn't start out being about Jobs, eventually comes around to him. The creative

process at Apple is one of constantly preparing someone -- be it one's boss, one's boss's boss,

or oneself -- for a presentation to Jobs. He's a corporate dictator who makes every critical

decision -- and oodles of seemingly noncritical calls too, from the design of the shuttle buses

that ferry employees to and from San Francisco to what food will be served in the cafeteria.

But just as Jobs sees everything going on at the company, he's not blind to the fact that things

will be radically different without him at the top. Jobs currently is on his third medical leave in

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Jobs indoctrinates a culture of

responsibility by hosting a series of weekly meetings that are the metronome that sets the beat

for the entire company. On Mondays he meets with his executive management team to discuss

results and strategy as well as to review nearly every important project in the company. On

Wednesdays he holds a marketing and communications meeting. Simplicity breeds clarity, as

Jobs himself explained in a 2008 interview with Fortune. "Every Monday we review the whole

business," he said. "We look at every single product under development. I put out an agenda.

Eighty percent is the same as it was the last week, and we just walk down it every single week.

We don't have a lot of process at Apple, but that's one of the few things we do just to all stay on

the same page." It's one thing when the leader describes the process. It's another thing

altogether when the troops candidly parrot back the impact it has on them. "From a design

perspective, having every junior-level designer getting direct executive-level feedback is killer,"

says Andrew Borovsky, a former Apple designer who now runs 80/20, a New York design shop.

"On a regular basis you either get positive feedback or are told to stop doing stupid shit."

The accountability mindset extends down the ranks. At Apple there is never any confusion as to

who is responsible for what. Internal Applespeak even has a name for it, the "DRI," or directly

responsible individual. Often the DRI's name will appear on an agenda for a meeting, so

everybody knows who is responsible. "Any effective meeting at Apple will have an action list,"

says a former employee. "Next to each action item will be the DRI." A common phrase heard

around Apple when someone is trying to learn the right contact on a project: "Who's the DRI on

that?"

Apple's core: Who does what

Simplicity also is key to Apple's organizational structure. The org chart is deceptively

straightforward (see link above), with none of the dotted-line or matrixed responsibilities popular

elsewhere in the corporate world. There aren't any committees at Apple, the concept of general

management is frowned on, and only one person, the chief financial officer, has a "P&L," or

responsibility for costs and expenses that lead to profits or losses. It's a radical example of

Apple's different course: Most companies view the P&L as the ultimate proof of a manager's

accountability; Apple turns that dictum on its head by labeling P&L a distraction only the finance

chief needs to consider. The result is a command-and-control structure where ideas are shared

at the top -- if not below. Jobs often contrasts Apple's approach with its competitors'. Sony

(SNE), he has said, had too many divisions to create the iPod. Apple instead has functions. "It's

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Jobs' inner circle includes (from left) Jonathan Ive, Phil Schiller, Eddy Cue, and Scott Forstall, photographed on the

Apple campus in 2010.

The Top 100 meeting is an important managerial tool for Jobs. He and his chief lieutenants use it

to inform a supremely influential group about where Apple is headed. The elaborately staged

event also gives Jobs an opportunity to share his grand vision with Apple's next generation of

leaders. The Top 100 meeting is part strategic offsite, part legacy-building exercise.

Jobs generally kicks things off personally. Each session is as well crafted as the public product

debuts for which the CEO is so famous. For presenters the career stakes are high, and the

pressure is nerve-racking. "The Top 100 was a horrifying experience for 10 or so people," recalls

one former vice president, who took the stage some years ago. "For the other 90 it's the best few

days of their life." Jobs sometimes uses the occasion to unveil important initiatives. "I was at a

Top 100 when Steve showed us the iPod," says Mike Janes, who worked at Apple from 1998 to

2003 and remains close to Apple executives. "Apart from a tiny group, no one knew anything

about it."

To be selected for the Top 100 is to be anointed by Jobs, an honor not necessarily based on

rank. Jobs referred to the group, but not the conclave, in an interview several years ago with

Fortune. "My job is to work with sort of the Top 100 people," he said. "That doesn't mean they're

all vice presidents. Some of them are just key individual contributors. So when a good idea

comes … part of my job is to move it around [and] … get ideas moving among that group of 100

people." Privately Jobs has spoken even more strongly about the Top 100's importance. "If he

had to recreate the company, these are the 100 people he'd bring along" is how one former

Apple executive describes Jobs' characterization.

Though its name isn't to be uttered, the blessed nature of the gathering creates a caste system

at Apple. Inclusion is by no means permanent. According to Jobs' whims, attendees can be

bumped from one year to the next, and being kicked out of this exclusive club is humiliating. For

those left behind in Cupertino, chattering begins as soon the chosen few have departed. "We'd

tongue-and-cheek have a Bottom 100 lunch after we were done preparing the people who'd left,"

recalls one nonparticipant. Says another: "We weren't supposed to know where they were. But

we all knew."

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way: "Microsoft (MSFT) tries to find pockets of unrealized revenue and then figures out what to

make. Apple is just the opposite: It thinks of great products, then sells them. Prototypes and

demos always come before spreadsheets."

Specialization is the norm at Apple, and as a result, Apple employees aren't exposed to functions

outside their area of expertise. Jennifer Bailey, the executive who runs Apple's online store, for

example, has no authority over the photographs on the site. Photographic images are handled

companywide by Apple's graphic arts department. Apple's powerful retail chief, Ron Johnson,

doesn't control the inventory in his stores. Tim Cook, whose background is in supply-chain

management, handles inventory across the company. (Johnson has plenty left to do, including

site selection, in-store service, and store layout.)

Jobs sees such specialization as a process of having best-in-class employees in every role, and

he has no patience for building managers for the sake of managing. "Steve would say the

general manager structure is bullshit," says Mike Janes, the former Apple executive. "It creates

fiefdoms." Instead, rising stars are invited to attend executive team meetings as guests to expose

them to the decision-making process. It is the polar opposite of the General Electric-like (GE)

notion of creating well-rounded executives.

Such rigidity -- coupled with the threat of being called on the carpet by Jobs -- would seem to

make Apple an impossibly difficult workplace, yet recruiters say turnover at Apple is exceedingly

low. "It is a happy place in that it has true believers," says a headhunter who has worked

extensively with Apple to hire engineers. "People join and stay because they believe in the

mission of the company, even if they aren't personally happy." Many of Apple's rank-and-file

technical employees have dreamed of working at Apple since they got their first Macs as

children. "At Apple you work on Apple products. If you're a diehard Apple geek, it's magical,"

says Andrew Borovsky, the former designer. "But it's also a really tough place to work." In short,

it is an environment that shuns coddling. "Apple's attitude is, 'You have the privilege of working

for the company that's making the fucking coolest products in the world,' " says one former

product management executive. " 'Shut up and do your job, and you might get to stay.' "



Apple stores in Beijing (left) and Paris (below) are the purview of retail executive Ron Johnson, but store inventory is

controlled by COO Tim Cook.

Meet Apple's all-stars

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