Report card: Apple a year after Steve Jobs

Tim Cook isn’t Steve Jobs. He doesn’t even play him on TV. And that’s a good thing. One day shy of his first anniversary as CEO, Cook presides over an Apple that lost a leader who was so closely identified with the company that many people had trouble distinguishing between the two. Yet, Apple has defied the doomsayers and is thriving like never before.

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In the last few weeks alone:

• Apple became the most valuable company in history with a market capitalization of $627 billion. (When inflation is factored in, IBM and Microsoft of years past were worth more, but still.)
• A human rights group lauded Apple’s efforts to improve labor conditions in the Chinese factories where many of its products are manufactured.
• Apple reversed a blunder with a humble admission of a mistake — something Jobs would never have done — and rescinded layoffs and cuts in employee hours in its Apple Store retail operations.

Next month, the expected release of the iPhone 5 is certain to create a tidal wave of consumer interest and publicity that advertising and marketing dollars alone could never buy.

It’s become conventional wisdom to say we won’t know if Cook is a great CEO for several years, because he is still executing product and business plans conceived by his predecessor. That’s certainly true, but it’s also true the events of the last few months are evidence that Cook, who had ample opportunities to fail, has not done so. “I’m tremendously impressed by Cook. If I had to design a CEO, it would look like him,” says Robert Sutton, a professor of engineering at Stanford University who has written extensively about management in Silicon Valley.

Asked to grade Cook’s 12 months in office, Sutton, author of “The No Asshole Rule,” demurred. But veteran IDC analyst Bob O’Donnell didn’t, and neither will I. We both believe that Cook rates a solid B+, a grade that would be even higher were it not for the incomplete I have to give him on the issue of product vision, which we can’t know for a few years.

Surprise! Apple admits mistakes Apple, of course, has challenges, and Cook’s 12-month reign has not been flawless. By waiting until the fall to release the next-gen iPhone, the company suffered a sharp and unexpected drop in sales during its last quarter. And interviews with those who know the company well indicate that internal decision making has slowed as the company goes through a wrenching cultural shift.

“I’m hearing that people can’t make decisions now,” says Rob Enderle, a longtime technology analyst. Enderle is not a fan of Cook; he rates the CEO’s freshman year only as a C– performance. But he concedes the decision-making issue may well be the result of that cultural shift. “When people who have been micromanaged lose the micromanager, they can be afraid because they’ve been trained not to be risk takers.”

There have been defections, most notably that of retail boss Ron Johnson, who left to head J.C. Penny. But companies like Apple develop star executives, and it’s no surprise when one leaves, it’s to become a CEO. Cook’s challenge wasn’t to stop that flow — there’s no way he could — but to manage the fallout, which is exactly what he did.

For example, after Apple cut back employees at the Apple Store this summer — a store whose signature appeal is its friendly, knowledgeable staff — Senior Vice President John Browett (likely under instructions from Cook) sent out a memo telling store employees that Apple had “messed up.” Can you conceive of that memo going out under Jobs?

Apple’s China situation is somewhat different. As COO and the man most in charge of Apple’s supply chain, Cook arguably deserves part of the blame for allowing the plight of overworked employees at Hon Hai’s Foxconn factories in China (whch build most of Apple’s products) to fester for so long. But suffering under a barrage of truly terrible publicity following a searing exposé of conditions in the factories by the New York Times, Cook as CEO didn’t just hunker down. He’s pushed to make significant changes.

As a result, Apple and its suppliers agreed to allow the Fair Labor Association to inspect three Foxconn facilities in February and March in “one of the most comprehensive and detailed assessments in the history of manufacturing,” the group said. On Tuesday, the group reported the results of its follow-up investigation: “Our verification shows that the necessary changes, including immediate health and safety measures, have been made. We are satisfied that Apple has done its due diligence thus far to hold Foxconn accountable for complying with the action plan.”

Compare that action to that of Cook’s peers in Silicon Valley and indeed throughout the tech industry (most use Foxconn’s factories, too): Hewlett-Packard CEO Meg Whitman publicly fretted any action might raise HP’s costs. The rest of the industry said nothing, and if they’ve done anything to improve their own China situations, they’ve been silent.

Filling two pairs of Jobs’ giant shoes To say that Cook had enormous shoes to fill when Steve Jobs retired would be trite and an understatement. There wasn’t just one Steve Jobs, the most celebrated CEO in the world — there were two. “There was Steve Jobs, and there was the idea of Steve Jobs,” says Sutton. To his credit, Cook has not tried to be either one.

Both the retail store issue and the much more significant Foxconn situation point to a man who is not afraid to act differently than his predecessor. Even if Cook did not order Browett to change course at the Apple Store division, the fact that it happened at all speaks to the positive changes inside Apple under his stewardship.

On the financial front, Cook issued Apple’s first dividend since 1995. Although both Enderle and Global Equities analyst Trip Chowdhry give Cook a very low grade for that action, saying it will hurt the company’s cash position over the long haul, most of Wall Street disagreed, pushing Apple’s valuation to unheard-of levels: $668.87 a share as of yesterday’s close, with a market cap of $627 billion.

Cook didn’t create that value, but 12 months are more than enough time to inflict real damage, notes IDC’s O’Donnell. After all, former Hewlett-Packard CEO Léo Apotheker knocked HP’s stock price down by more than 40 percent in just 11 months.

Losing control of the reality distortion field Still, there is a legacy issue that Cook has not done well controlling. For years, Apple managed the press more successfully than any other technology company. By jealously guarding access and shutting down internal leaks, while at the same time giving favored publications and reporters early looks at new products, Apple used the press to garner huge amounts of free publicity and build surges of consumer enthusiasm for its products.

But in the last year or so, it’s gotten out of hand. There were so many leaks (real or imagined) of details about the iPhone 5 that consumers apparently backed off from purchases of the current versions. It happened last summer after a crescendo of rumormongering, and again this spring and summer — in a rumor frenzy that lasted even longer, thus depressing sales even more. That phenomenon always happens when a new iPhone is about to be released, but never as drastically and as early as it did this year. As a result, Apple paid the penalty, badly undershooting Wall Street’s sales expectations and denting its halo of market invincibility.

Then there’s the “vision thing.” Given the length of product cycles, we simply won’t know what Cook can really do to propel the product innovation until Apple has cycled through the products born under Steve Jobs. That will take another year or two. (Chowdhry downgrades Cook for not shortening that product cycle.)

There’s also a phenomenon that academics call “regression to the mean.” Or to put it in simpler terms, what comes up must come down. It may simply be impossible for Cook or anyone to keep Apple so far ahead of its competition for many more years.

We’ll see. Cook doesn’t yet merit an A, but as Stanford’s Sutton puts it: “Can you imagine anyone else doing a better job?” No, I can’t.

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This article, “Report card: Apple a year after Steve Jobs,” was originally published by InfoWorld.com. Read more of Bill Snyder’s Tech’s Bottom Line blog and follow the latest technology business developments at InfoWorld.com. For the latest business technology news, follow InfoWorld.com on Twitter.