Sunday, March 3, 2013
The secrets Apple keeps
FORTUNE -- Among the many amazing things about Apple is how scrutinized it is. Rarely have a company, its products, and its top executive -- the late Steve Jobs -- been so thoroughly examined. And yet, for a corporation so frequently discussed, Apple is poorly understood. Its products are ubiquitous, but information about the institution is scarce -- which is exactly how Apple wants it. Apple steers the conversation to its gadgets -- for sale at an Apple store near you! -- not its modus operandi. In Inside Apple:
How America's Most Admired -- and Secretive -- Company Really Works, I hope to shine a light on how this company labors to keep the world from knowing what's going on inside its walls, with secrecy, both external and internal, being one of Apple's key tools. It's ironic, really. The business world keeps nattering on about the importance of corporate transparency, yet the most successful company in the world is beyond opaque. Born from a feature I wrote for Fortune last year, Inside Apple dissects Apple's covert ways and provides a road map for less-buttoned-up companies to follow. --Adam Lashinsky
Apple employees know something big is afoot when the carpenters appear in their office building. New walls are quickly erected. Doors are added and new security protocols put into place. Windows that once were transparent are now frosted. Other rooms have no windows at all. They are called lockdown rooms: No information goes in or out without a reason.
The hubbub is disconcerting for employees. Quite likely you have no idea what is going on, and it's not like you're going to ask. If it hasn't been disclosed to you, then it's literally none of your business. What's more, your badge, which got you into particular areas before the new construction, no longer works in those places. All you can surmise is that a new, highly secretive project is under way, and you are not in the know. End of story.
Secrecy takes two basic forms at Apple -- external and internal. There is the obvious kind, the secrecy that Apple uses as a way of keeping its products and practices hidden from competitors and the rest of the outside world. This cloaking device is the easier of the two types for the rank and file to understand because many companies try to keep their innovations under wraps. Internal secrecy, as evidenced by those mysterious walls and off-limits areas, is tougher to stomach. Yet the link between secrecy and productivity is one way that Apple (AAPL) challenges long-held management truths and the notion of transparency as a corporate virtue.
All companies have secrets, of course. The difference is that at Apple everything is a secret. The company understands, by the way, that it takes things a little far; there is a hint of a sense of humor about its loose-lips-sink-ships mentality: A T‑shirt for sale in the company store, which is open to the public at 1 Infinite Loop, reads: I VISITED THE APPLE CAMPUS. BUT THAT'S ALL I'M ALLOWED TO SAY.
Apple's airy physical surroundings belie its secretive core. From above, it appears that an oval football stadium could be plopped down inside Infinite Loop. Through the doors of the buildings, in the core of the loop, is a sunny, green courtyard with volleyball courts, grassy lawns, and outdoor seating for lunch. The splendid central cafeteria, Caffe Macs, features separate stations for fresh sushi, salad, and desserts and teems with Apple employees. They pay for their meals, by the way, unlike at Google (GOOG), but the food is quite good and reasonably priced. The appearance is collegiate, but good luck auditing a class. Unlike Google's famously and ridiculously named "Googleplex," where a visitor can roam the inner courtyards and slip into an open door as employees come and go, Apple's buildings are airtight.
Employees can be spotted on the volleyball courts from time to time. More typically, visitors gaping into the courtyard will see a campus in constant motion. Apple employees scurry from building to building for meetings that start and end on time.
For new recruits, keeping secrets begins even before they learn which building they'll be working in. Many employees are hired into so‑called dummy positions, roles that aren't explained in detail until after they join the company. "They wouldn't tell me what it was," remembered a former engineer who had been a graduate student before joining Apple. "I knew it was related to the iPod, but not what the job was." Others do know but won't say, a realization that hits the newbies on their first day of work at new-employee orientation.
"You sit down, and you start with the usual roundtable of who is doing what," recalled Bob Borchers, a product marketing executive in the early days of the iPhone. "And half the folks can't tell you what they're doing, because it's a secret project that they've gotten hired for."
The new employees learn that first day of work that they've joined a different kind of company than any they've worked at before. Outside, Apple is revered. Inside, it is cultish, and neophytes are entrusted with only so much information. All new employees attend a half-day of orientation, always on a Monday -- unless Monday is a holiday. Much of the orientation is standard big-company stuff: a welcome package with stickers saying you've joined Apple, HR forms, and the like.
Apple quickly makes the employees of the relatively few companies it acquires understand they are now part of the Apple family. Lars Albright, who became director of partnerships and alliances in Apple's iAd mobile-advertising business when Apple bought his startup, Quattro Wireless, recalled the delight when a bevy of shiny new iMacs showed up almost immediately following the close of the transaction: "People felt very quickly like you were part of something special," he said. Orientation Monday brings another rare treat. "There's only one free lunch at Apple, and it's on your first day," said a former employee.
Another highlight of an employee's first day at Apple is the realization that there's no one to help you connect your newly issued computer. The assumption is that those smart enough and tech-savvy enough to be hired at Apple can hook themselves up to the network. "Most people are expected to be able to connect to servers," said an Apple observer. "People say: 'That shit was hard, but I figured out who to talk to.' That's super-smart. It's a clever way to get people to connect with each other."
Apple does toss one bone to new recruits. An informal "iBuddy" system provides the name of a peer outside the primary team who can serve as a sounding board, someone for the bewildered new employee to ask questions of. Many have said they met with their iBuddy once or twice at the beginning of their tenure -- before they became too busy to meet again.
Reality sets in at the security briefing, the one element that no Apple employee forgets. Call it Scared Silent. Borchers, the iPhone marketing executive who had worked at Nike (NKE) and Nokia (NOK) before joining Apple, recalled the scene. "Whoever headed up security came in and said, 'Okay, everybody understands secrecy and security are incredibly important here. Let me just explain why.' And the rationale is that when Apple launches a product, if it's been a secret up until the launch, the amount of press and coverage and buzz that you get is hugely valuable to the company. 'It's worth millions of dollars,' I remember her saying." So there's no confusion, the penalty for revealing Apple secrets, intentionally or unintentionally, is clear: swift termination.
Apple's design perfection
The aversion to prerelease publicity is a constant at Apple. Phil Schiller, Apple's powerful senior vice president of product marketing, has been known to compare an Apple product launch to a blockbuster Hollywood movie opening weekend. There is tremendous emphasis on the product's first few days, akin to a film's opening weekend. Releasing details ahead of time would dampen the suspense. Indeed, Apple fanboys camp out in front of Apple stores in anticipation of new Apple product releases in a way that is reminiscent of the lines that once greeted a new installment in the Lord of the Rings or Star Wars franchises.
That is precisely the effect Schiller desires from the day one burst of activity. "I still remember him drawing the spike over and over," said a former Apple executive who worked in Schiller's organization. Another reason Apple wants new products to remain in stealth mode until their release dates is so they don't steal the thunder from existing products. If consumers know exactly what's coming, they may hold off on a purchase for fear it will be superseded by the next generation. This dulling of demand renders products already on retail shelves or in warehouses awaiting purchase worthless. (Indeed, even imperfect information can damage sales: Apple said expectations of a new iPhone in the summer of 2011 hurt sales of the existing iPhone 4.)
Most important, announcing products before they are ready gives the competition time to respond, raises customer expectations, and opens a company up to the carping of critics who are bashing an idea rather than an actual product. Companies that fail to grasp the power of secrecy do so at their peril. Hewlett-Packard (HPQ) committed this product-marketing sin in early 2011 by announcing it would have an ill-defined "cloud" offering later in the year. Unfathomably, HP later "pre-announced" the sale of its PC business, inflicting immeasurable damage on a unit that accounted for nearly a third of its sales. (HP's board fired its CEO, Léo Apotheker, shortly after the announcement about the PC unit.)
Secrecy at Apple is strictly enforced from within. Valley engineers love to swap stories about their work, but Apple engineers have a reputation for keeping to themselves. "I've had friends who've been reprimanded for talking too much," reported a former engineer. "It's best in general not to talk about work." The mentality makes Apple stand out in the tech world.
For example, a Valley engineer who plays poker regularly with a team of Apple employees said the understanding is that if Apple comes up at the card table, the subject will be changed. Being fired for blabbing is a well-founded concern. People working on launch events will be given watermarked paper copies of a booklet called Rules of the Road that details every milestone leading up to launch day. In the booklet is a legal statement whose message is clear: If this copy ends up in the wrong hands, the responsible party will be fired.
Apple goes to great lengths to maintain discipline. "There were just these things that were kept very, very secret," said a former senior executive. "There was a project we were working on where we put in special locks on one of the floors and put up a couple of extra doors to hide away a team that was working on stuff. You had to sign extra-special agreements acknowledging that you were working on a super-secret project and you wouldn't talk about it to anyone -- not your wife, not your kids."
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The stress from keeping such secrets becomes too much for some. Jobs made a habit of personally conveying to employees the confidentiality of all-company broadcasts. Recalled one ex‑employee: "He'd say, 'Anything disclosed from this meeting will result not just in termination but in the prosecution to the fullest extent that our lawyers can.' This made me very uncomfortable. You have to watch everything you do. I'd have nightmares."
For the most part, Apple counts on its employees to censor themselves. But in some cases it pays attention to what employees say when they are out of the office -- even when they've only walked across the street for a beer. BJ's Restaurant & Brewhouse is tucked so close to Apple's Cupertino campus that insiders jokingly refer to it as IL‑7, for "Infinite Loop 7," a building that doesn't exist. Company lore holds that plainclothes Apple security agents lurk near the bar at BJ's and that employees have been fired for loose talk there. It doesn't matter if the yarn is true or apocryphal. The fact that employees repeat it serves the purpose.
Steve Jobs once said that not talking about the inner workings of the company is something he borrowed from Walt Disney. The creator of the original Magic Kingdom felt the magic the public attributed to Disney would be diminished by excessive focus on what went on behind the scenes. What's more, Disney enforced strict internal secrecy. When it was planning Walt Disney World in Florida in the 1960s, for example, the company (DIS) formed a committee to work on a "Project X." Internal memos about the plans for the new theme park were numbered so they could be tracked, according to Neal Gabler's exhaustive biography, Walt Disney: The Triumph of the American Imagination.
It's one thing to pressure employees to keep information from falling into the wrong hands. Apple's twist is that those wrong hands happen to include one's own colleagues. It is, in the words of a former employee, "the ultimate need‑to‑know culture." Teams are purposely kept apart, sometimes because they are unknowingly competing against one another, but more often because the Apple way is to mind one's own business. This has a side benefit that is striking in its simplicity: Employees prevented from butting into one another's affairs will have more time to focus on their own work. Below a certain level, it is difficult to play politics at Apple, because the average employee doesn't have enough information to get into the game. Like a horse fitted with blinders, the Apple employee charges forward to the exclusion of all else.
Apple created an elaborate and unnerving system to enforce internal secrecy. It revolves around the concept of disclosure. To discuss a topic at a meeting, one must be sure everyone in the room is "disclosed" on the topic, meaning they have been made privy to certain secrets. "You can't talk about any secret until you're sure everyone is disclosed on it," said an ex‑employee. As a result, Apple employees and their projects are pieces of a puzzle. The snapshot of the completed puzzle is known only at the highest reaches of the organization. It calls to mind the cells a resistance organization plants behind enemy lines, whose members aren't given information that could incriminate a comrade.
Jon Rubinstein, formerly Apple's senior hardware executive, once deployed the comparison in a less flattering but equally effective manner. "We have cells, like a terrorist organization," he told Business Week in 2000. "Everything is on a need‑to‑know basis."
As with any secret society, trustworthiness is not assumed. New additions to a group are kept out of the loop for a period of time, at least until they have earned their manager's trust. Organization charts, typical fare at most big companies, don't exist at Apple. That is information employees don't need and outsiders shouldn't have. (When Fortune magazine printed an Apple org chart of its own design in May 2011, visitors to Apple told tales of employees becoming nervous merely being seen with a printed copy of it on their desks.) Employees do have one important source of information, however: the internal Apple Directory. This electronic guide lists each employee's name, group, manager, location, e-mail, and phone number, and might include a photograph.
Apple employees don't need an organization chart to know who is powerful, of course. The executive team, a small council of advisers to the CEO, runs the company, assisted by a cadre of fewer than 100 vice presidents. But rank doesn't always confer status at Apple. Everyone is aware of an unwritten caste system. The industrial designers are untouchable, as were, until his death, the cadre of engineers who had worked with Steve Jobs for years, some dating to his first stint at Apple. A small group of engineers carries the title of DEST, distinguished engineer/scientist, technologist. These are individual contributors with clout in the organization but no management responsibilities.
Otherwise, status fluctuates with the prominence of the products on which one works. As the success of the iPhone and iPad grew, the coolest faction of the company was the software engineers working on Apple's mobile operating system software, known as iOS. Hardware engineers and product marketers connected with the devices ranked high in the pecking order, followed by people in the iTunes, iCloud, and other online services organizations. Employees associated primarily with the Macintosh, once the cocks of the roost, were considered second-rate in the Apple hierarchy by this time. In terms of corporate coolness, functions such as sales, human resources, and customer service wouldn't even rate.
Apple: World's Most Admired Company
With silos being the norm at Apple, the surprise is the silos within silos. "There are no open doors at Apple," said one former employee. Security badges allow people into certain areas only, and it isn't uncommon for employees to go places their boss cannot. Some areas are even more secret than others, and it has nothing to do with special projects. An example is the famous industrial design lab where Apple's designers work. So restrictive is access to the lab that few Apple employees have ever seen inside its doors.
In his bestselling book Incognito, neuroscientist David Eagleman writes about the deleterious impact of a culture of secrecy. "The main thing to know about secrets," he says, "is that keeping them is unhealthy for the brain." People want to tell secrets, he explained, and have a strong natural tendency to do so. Apple solves this problem by keeping its employees in the dark as much as possible. But it also raises the question of the happiness of Apple employees.
By and large, Apple is a collaborative and cooperative environment, devoid of overt politicking. The reason for the cooperation, according to former insiders, is the command-and-control structure. "Everyone knows that seamless integration between the various parts is key to making the magic happen," according to Rob Schoeben, a former vice president who oversaw product marketing for software applications.
Apple's culture may be cooperative, but it isn't usually nice, and it's almost never relaxed. "When you're on the campus, you never get the feeling that people are slacking off," said an observer with access to Apple's upper ranks. "The fighting can get personal and ugly. There's a mentality that it's okay to shred somebody in the spirit of making the best products."
The competitive nature of the Apple culture comes into play. "If you're distracted even a little bit, then you slow down the team," said Steve Doil, a onetime executive in Apple's supply-chain organization. Another former executive described the Apple culture in similar terms. "It's a culture of excellence," this person noted. "You don't want to be the weak link. There is an intense desire to not let the company down."
Apple's culture is the polar opposite of Google's, where fliers announcing extracurricular activities -- from ski outings to a high-profile author series -- hang everywhere. At Apple, the iTunes team sponsors the occasional band, and there is a company gym (which isn't free), but by and large Apple people come to work to work. "At meetings, there is no discussion about the lake house where you just spent the weekend," recalled a senior engineer. "You get right down to business." The contrast with the non-Apple world is stark. "When you interact with people at other companies, there's just a relative lack of intensity," said this engineer. "At Apple, people are so committed that they go home at night and don't leave Apple behind them. What they do at Apple is their true religion."
Almost nobody describes working at Apple as being fun. In fact, when asked if Apple is a "fun" place, the responses are remarkably consistent. "People are incredibly passionate about the great stuff they are working on," said one former employee. "There is not a culture of recognizing and celebrating success. It's very much about work." Said another: "If you're a die-hard Apple geek, it's magical. It's also a really tough place to work." A third similarly dodged the question: "Because people are so passionate about Apple, they are aligned with the mission of the company."
If they don't join for a good time, they also don't join Apple for the money. Sure, Apple has spawned its share of stock-options millionaires -- particularly those who had the good timing to join in the first five or so years after Jobs returned. "You can get paid a lot of money at most places here in the Valley," said Frederick Van Johnson, a former Apple marketing employee. "Money is not the metric."
By reputation, Apple pays salaries that are competitive with the marketplace -- but no better. A senior director might make an annual salary of $200,000, with bonuses in good years amounting to 50% of the base. Talking about money is frowned upon at Apple. "I think working at a company like that, and actually being passionate about making cool things, is cool," said Johnson, summarizing the ethos. "Sitting in a bar and seeing that 90% of the people there are using devices that your company made -- there is something cool about that, and you can't put a dollar value on it."
Steve Jobs -- who was uninterested in discussing money -- took a nuanced view of the subject of happiness and enjoyment at Apple. "I don't know anyone who wouldn't say it's the most fulfilling experience in their lives," he once said. "People love it, which is different than saying they have fun. Fun comes and goes."