Has Apple Finally Grown Too Big To Micromanage?

Earlier this week, a Japanese magazine claimed that Steve Jobs had it with Japan. In the apocryphal story, officials refused to let the Apple (AAPL) CEO bring ninja throwing stars onto his private plane. Supposedly Jobs then said that he'd never return to the country.

Apple has dismissed the report as "pure fiction." What made it so appealing was the reputation Jobs has for being a control freak and the conflict between that and a bureaucrat forbidding him to bring something onto his own plane. But the question of control at Apple is important managerial one. At what point does the characteristic that helps a person or organization get ahead become a liability? Apple is at reached the point where Jobs, his management team, and the board need to consider whether the company is about to hit an operational and organizational brick wall.

One of Apple's strengths over the last two decades has been its single-minded pursuit of strategic advantages. The company looks to where it thinks the market will go, not at the position of competitors, and it strives to control as much as it can around products to deliver a specific experience to consumers.

You only need to look at Apple's earnings reports one quarter after another to see how successful the approach has been. But any strategy eventually runs its course, because the world changes, and yesterday's tactics will no longer deliver the same results. IBM once focused on its own hardware and software to the point that it risked becoming an anomaly. If it hadn't been for CEO Lou Gerstner shifting the company's direction to services, it would still be foundering.

Microsoft is another example. In the 1980s and through much of the 1990s, control of the desktop was key to its dominance. The company thought of everything in relation to how it further locked the company onto someone's desk. As the Internet began to grow, it took Microsoft years to recognize how disruptive the change was. Microsoft now seems to recognize how the combination of cloud computing and its current poor position in mobile are a massive threat, when Windows and even Office become options, not default choices, but the realization may have come too late to take effective action.

Ironically, what threatens Apple is the combination of its desire to control everything and the success that inclination has brought. The company dwarfs its size of even a few years ago. Revenue in its 2009 fiscal year was $42.9 billion. Compare that to the $19.3 billion of FY 2006.

Look at the change in how many units of shipped product Apple reported, without differentiation by type, as a way to examine the exploding complexity of its operations. In 2006 it sold 44.7 million units. By 2009, that number hit 85.3 million (and a variety of products, including iPhone accessories and Apple TVs, aren't included). At the close of September 2006, there were 17,787 employees. By the same time in 2009, there were 34,300. Apple roughly doubled in size over a three year period.

There are more units out the door, more to be manufactured, more product lines, more stores, more customer support calls, more people, more ... everything. Including complexity. Rapid growth is a management problem for any company. Unless executives were unbelievably lucky or foresighted, they create management structures and processes that simply cannot scale up. But when did you last see a company doing almost $20 billion a year double that quickly? I cannot think of another company that has sustained this combination of revenue size and growth rate. And strategic tip of the hat to Jobs aside, no one could have conceived of this level of advancement and established the necessary operational mechanisms to smoothly handle it.

Apple has never been a "perfect" company, as that would be an impossible achievement. But this growth has taken a toll in the increasing number of mistakes, and their severity, the company has made over the last couple of years:

• the PR debacle over antenna problems
• products overheating and even exploding as Apple tried to hush it up
• various regulatory compliance issues including passing off Jobs's liver transplant as a "hormone imbalance" and sharing multiple directors with competitor Google (GOOG)

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