Lappeenranta University of Technology

Course: 3138 Management of Technology

Case: Innovation Challenges in Established Firms


Student names: Inge Verachtert, Christine Delvaux, Thoralf Czichy

Student email:


Table of Contents

1 Development of Apple Computer, Inc *

2. Innovation Challenges in Established Firms *

3 Matrix Frameworks *

3.1 The Technology Matrix *

3.2 The Market Matrix *

3. Apple’s situation in 1985 - 1988 *

4. Apple’s situation in 1990 *

5. Apple’s situation in 1992 *

6. Further Development of Apple *

1 Development of Apple Computer, Inc

In 1984 Apple made a transition from the Apple II computer to the Macintosh (Mac) which made them the most profitable personal computer company in the world.

The 1985 reorganization

To solidify his control over Apple, Scully reorganized in June 1985.

Apple had a very personalized and informal corporate culture and Scully was determined to preserve the positive elements of this culture, he didn’t want to change the work environment. Therefor he promoted people in the organization who were closely identified with either the culture or the values or were regarded as strong personalities. He was also the one who institutionalized the Silicon Valley traditions of off-site meetings and beer busts.

One of Apple´s characteristics is that they have a very open environment. This is mainly accomplished by a worldwide computer network called Applelink, which provided many services such as a mail system, a central library of company information, database of old presentations, current stock price availability, access to many systems and employees could update the system. But it included also Hotlinks, an informal employee information service. This system enabled the employees to go directly to the top management to express their opinions.

The 1988 reorganization

As the Mac sales exploded, Scully already announced another reorganization in 1988. He created 3 regional sales divisions: the Pacific, Europe and U.S.A. and Apple Products division which was headed by J-L Gassee, who wanted to built elegant PCs at whatever cost. This division was responsible for integrating and coordinating the process of bringing products to market and included all manufacturing, product development, product marketing and the Advanced Technologies Group (ATG). ATG was created to explore revolutionary ideas and high-risk technologies.

Scully also brought in experienced managers from other computer companies and hired more managers at operational levels.

Apple had a very good position entering the ´90s. Its factories were considered among the most automated and modern in the industry where it developed developed its own operating software, applications and peripherals, which interacted in a coherent way and whereby they could give their customers a complete desktop solution. They had also a 2 year lead on vendors such as Microsoft in many core software technologies like multimedia ( integrating video, sound and data).

The 1990 reorganization

But in early 1990 troubles arose. Gassee raised prices but the IBM PCs and clone prices fell precipitously. Apple also wanted to invent and design all their products by themselves which was very expensive and took a long time compared to others who outsource. But they had also mental problems because most employees thought that the organization lacked direction and they were concerned about the development of the management hierarchy.

So Scully redefined Apple when it was still profitable and before a real crisis emerged. Loren and Gassee resigned and Spindler became president and chief operating officer. Scully also appointed himself chief technology officer (CTO) and began to oversee R&D and product development because he realized that he would continue to have difficulty shifting the company’s direction unless he had a deeper understanding of the technical issues and how the bowels of the organization worked.

High margins and proprietary technology were no longer part of the company’s long-term strategy but there were 4 principles driving the company: 1) get customer input upfront 2) time-to market was critical 3) innovate at the lowest possible price point versus the old philosophy of create great technology 4) no scared cows, everything has to be questioned.

In order to regain market share and compete with the clone companies Apple had to create financial discipline, because they had the highest expense structure in the industry. In order to steer Apple toward lower gross margins they cut perks and pushed profit and loss responsibility as far down the company as possible. In the past there had been no limits on resources and that is why they also wanted to improve operations and build accountability into the organization. This was done by having weekly meetings; giving profit and loss responsibility to smaller groups; realigning people to work for the company instead of for themselves and selecting the most experienced managers and establish strong management teams at the operating level with increased responsibility.

The new strategy had 3 key components: 1) reinvigorate the Mac business with a strategy to gain market share 2) expand the Mac business into the world of enterprise computing through greater openness and less emphasis on proprietary systems 3) diversify Apple into new technologies that leveraged Apple´s strengths in software.

Apple in 1992

Apple had a strong team of managers and the work environment was improving but most employees perceived that the company did not "invest" in its workforce, that the executive management was not concerned about career opportunities and that they used no consistent processes. Scully and Spindler also wanted to get the people work more together because they believed that the company was still more technology-rich than field-effective. In order to achieve this Scully and Spindler communicated a lot with the employees. To create better operational systems and clearer organizational structures at Apple, new programs such as Executive Readiness (ER), Apple Quality Management (AQM) and Apple Critical Performance Indicator metrics (ACPI) were designed.

ER aimed to develop critical leadership resources through a disciplined organizational review process that assessed Apple´s management strength. Some people questioned the fact that it were closed-door discussions and that people were already stretched. One surprising result was that all operational divisions identified customer focus as a key capability.

Apple has a history of everyone doing their own agendas but now that the industry has flattened out are the practices of the past that were OK then, no longer acceptable now. AQM tries to improve production processes and product quality but it also focuses on customers and using data to make decisions. Apple implements AQM in 4 simultaneous phases: 1) education and leadership 2) functional process improvement 3) integrating systems 4) policy deployment.

In order to make process improvements in areas that truly impacted Apple, the EMT set goals and measurements around 5 Apple ACPIs:1) employee alignment and commitment 2) core competencies 3) shareholder value 4) market share 5)customer satisfaction. But the big question was how far down management should push this system into the organization.


2. Innovation Challenges in Established Firms

There are three innovation challenges facing established firms :

We can understand the word "opportunities" by "technologies" in those three challenges.

The technology matrix enables a company to assess its competitive position focusing on technology. The company can then balance its portfolio according to its position.

3 Matrix Frameworks

3.1 The Technology Matrix

The technology matrix was developed by Booz-Allen and Hamilton consultants.

The X-axis is the assessment of the relative technological position. Thus not on absolute scale but relative to its competitors. The position on the X-axis is determined by opportunities for development, broadness of application, compatibility with other technologies, etc.

The Y-axis is the technology importance : a high-technology company seeks to compete where its technological strengths are important. The position on the Y-axis is determined by firms know-how and techniques.

The "high-high" cell , "bet" : the company has a commanding technological position in a market where technology is important. It represents the opportunity for the future. The company must invest resources in this opportunity in order to keep its position.

At the opposite, the "Fold" cell with a low technical position and low technology importance . Here the company should consider whether keeping investing in this business is worth or not, if a turnaround is possible or not.

The "Cash in" cell : high relative technological position and low technology importance: those products are desirable because they produce cash and demand little investment because the company doesn’t have to finance a lot to improve the technology which is mature.

If the company has a low relative technological position but the technology is important, the company is facing a dilemma . Thanks to a technological leverage, the company could increase its competitiveness. Yet the technical competence won’t be built unless the company heavily invest in it. So the company must decide if this heavy investment is worth .

3.2 The Market Matrix

The market matrix, from the Boston Consulting Group, is equivalent to the technology matrix but focuses on market instead of technology. It presents an inter-action between market attractiveness and market-share. The four cells : "star", "cash" "cow", "dog" and "problem child" are respectively equivalent to "bet", "cash in", "fold" and "draw".



Those two matrices are not exclusive and they complement each other so high-technology companies should assess their position relative to competitors in term of both technological capabilities and market share.


3. Apple’s situation in 1985 - 1988

Focusing on the market, Apple has one "star" in 1985 , the Mac, because it has a high relative market share and a high market growth rate.

In 1988, the Mac is a "cash cow" , its market growth rate is lower but its relative market share is still high. Its selling price has been raised and it creates a lot of cash.


4. Apple’s situation in 1990

Apple was facing competition from IBM/Microsoft and their latest Windows System. Furthermore "clone" companies were producing Mac - compatible computers. To get out of that dilemma there are two ways – they tried to follow both:

  1. Short term: go into price, quality and marketing competition with other companies (short-term)

  1. Long term: Force development of new technologies and new products through:


5. Apple’s situation in 1992

Basically, the technology position of Apple has been improved. The idea to give John Scully two positions - CEO and CTO - worked well. New ideas from Scully were integrated into new products, e.g. a Remote Access Desktop. A cooperation with IBM and Motorola will soon result in a new high-end processor - the Power PC processor. The advantage in object-oriented systems and pen-based computers led to the development of a new PDA (Personal Digital Assistant) - the so-called Newton. A cooperation with several Japanese companies will guarantee enough production facilities for the Newton. Apple started three programs to create better operational systems:

  1. Executive Readiness: teach managers how to manage
  2. AQM (Apple Quality Management): to improve process and product quality
  3. ACPI (Apple Critical Performance Measures): as some kind of Balanced Scorecard approach

6. Further Development of Apple

Nowadays Apple went back to its original mission: "… to bring the best personal computing products and support to students, educators, designers, scientists, engineers, business persons and consumers in over 140 countries around the world." After struggling through the years 1994 to 1998 they finally went back into good figures. After buying NeXT, Inc. in December 1996 and the return of the co-founder Steve Jobs they build a new state-of-the-art Operating System and introduced a new product line.