Connecting the Dots in a Jobs-Less Apple

If you're an investor in Apple (AAPL) or just one of the many admirers of this iconic business, you may be closely following news about the health of Steve Jobs. The cliché that people are a company's greatest asset was literally demonstrated as this news surfaced --- AAPL lost 5.7% of its value after his medical leave was announced.

Is this the beginning of the end for the company or just a period of transition during a time of continued leadership? An opinion on the matter is vital to investors - should you be buying on unnecessary weakness or be gradually reducing your exposure? To develop an informed opinion you're going to have to do some diligence.

I'm going to offer an approach toward diligence that uses web connections to define key topics for your assessment. Web connections are links between a story you're following and the endless number of topics that exist in the world. It may sound quite broad and unwieldy but there is a manageable structure we can put around the information possibilities.

Web connections allow us to explore these topics by the degree of their relatedness. Think of it as swinging from vine to vine in a jungle of information. You can build upon a topic of interest by knowing what else is connected to it rather than limit exploration by direct coverage of what you’re reading.

What's useful about these connections is they transcend the obvious information you will find collected in most articles or coverage about a story you're following. As I'll explain later on, that's not a knock on reporters but instead a natural limitation of what's possible for any writer to cover in a single story. Put another way, web connections extend our journey into and behind the story.

Using a few stories about news of Jobs's recent health issue, I decided to build a set of web connections. To seed the analysis, I punched in "Steve Jobs" and "Health" into a search engine, and looked at key topics covered by web results containing these keywords. Analyzing the results can enable us to build connections that represent a semi-organized lens into related content as well as launch pad into an informative set of discoveries. Related topics include: Privacy, Sick, Weight Loss, Succession Plan, Disclosure, Hormone Imbalance, Rumors, Macworld and Pictures.

Weight loss seemed like an interesting connection and triggered a thought in my mind - will slimmed down or unhealthy appearances by other big-time CEO's trigger a spate of speculation? Rumors also caught my attention - I wondered what other stock might face pressure due to unconfirmed reports of executive health loss.

It's true that most of these topics are obvious themes that are centrally connected to the story. There are hundreds of articles covering Jobs and these issues. So, I wanted to dig deeper into one angle to see where it leads. From an investor standpoint, SUCCESSION PLANNING jumped out at me for further detective work. I wondered about parallel situations at other companies and whether there were any rules of thumb around how these situations should be managed. Therefore, I revised my search to a more specific related query -- "Health" and "Succession Planning" and "CEO" (a generalization of Job's role).

The results surfaced the following topics: Announces, Speculation, Leadership Pipeline. Here "Announces" is actually announcements of succession plans at several large companies. In the results related to Announces, I found information about similar scenarios at recognizable companies such as Sunkist, Choice Hotels (CHH), PerkinElmer (PKI), Air Products (APD), and Affymetrix (AFFX). Apparently, AAPL is not unique - unexpected change in health happens to CEO's and other companies have dealt with the issue.

Figure 1

Taking a lens into the matter of speculation, one additional big-time corporation, comes into focus as highly relevant. It's P&G (PG). Articles with titles such as "Speculation mounts over succession plans at P&G" and "Speculation Picks Up over Procter & Gamble CEO Lafley's Plans" bubble-up. How interesting. If you follow corporate America, you know that AG Lafley is a business icon in his own respect. He's had a successful run at P&G and has been credited with turning this very established company into a growth business - no easy task given its existing size and scale.

Should P&G stock fall as a
result of such speculation?

Figure 2

To find out more details, I did a drill-down query using "AG Lafley" and "Succession" and "Health" (these are amongst the most frequently mentioned terms in the two articles I cited about the speculation). Here's where the story gets somewhat interesting. First thing I discover is that Lafley says he's in good health and has no plans to leave soon. "The rumors of my passing are greatly exaggerated," he told analysts in NY. Personally, I believe the guy must be in good health – his diet and nutritional habits are described in an interview where he reveals healthy habits (spinach salad for lunch and a daily 5 mile run).

Reviewing coverage of P&G's succession planning (such as this one How much longer for P&G's Lafley?) reveals that P&G has a "deep bench" like "Florida [state's] football" team. These people include Robert A. McDonald, the chief operating officer and Susan E. Arnold, the president of global business units. Both joined the company in 1980, 3 years after Lafley.

One large investor in P&G says he's not concerned with succession because the next leader will follow the same playbook. "Procter is very good at what they are," said Matt McCormick, a major institutional investor. "They're like the Marines — if they replace the commander of the Marines, that Marine culture remains the same." Another piece of information that comes out is that P&G's board has a formal succession plan though they haven't shared it publicly.

I'm a little entertained by the Marine and Florida state analogies used here in the dialogue of Lafely's succession. They're informative comparisons. I'd personally love "Florida State" to bubble-up as a connected topic when Lafley's health and P&G succession are mentioned. The term tells me what I need to know without having to explain much at all. Talent is institutionalized at P&G.

Figure 3

Let's say you’re a trader making a play on stocks with this perceived exposure. P&G is probably not a good one fit for you! It leaves me wondering about Apple though - why has the public visibility of next-gen leadership been so muted? Should it have done more to get other execs to share the limelight before the health of its CEO became an issue? When AAPL goes Job-less, is our loss of an icon mitigated by the strength of the bench?

So what about building that bench? What's involved and to how good it is across Corporate America? Recall, one topic that came-up as a web connection earlier in our analysis was Leadership Pipeline. I decided to drill down on that using a search like "Leadership Pipeline" and "CEO" and "Succession Planning".

Apparently, this is not a new topic - there are many books written on the subject. And for good reason. 34 percent of Fortune 1000 companies don't have a succession plan for their C-Level executives (other than the CEO), according to Drake Beam Morin, a consulting firm.

One go-to author on the subject is Ram Charan, a well known consultant and business author. One of his contributions to succession planning is the book Leaders at All Levels: Deepening Your Talent. And, in a interesting coincidence, Ram has authored a book with none other than AG Lafely.

Other experts chime in on the topic of building pipelines - which basically comes down to continuously grooming the next generation of leaders at various levels so that you have a strong sequence of talent to leverage when the time comes for fill gaps. The typical advice suggests an organization first identify the skills required at each of these levels since the success factors change as leadership responsibilities and scope grow. Execs who move up the chain need to demonstrate the capabilities and values that define success matching the level of responsibility - all the way up to the CEO gig.

This sounds like reasonable advice, but I'm anxious for insight beyond the generic frameworks. We know the C-level sandbox requires additional skill beyond the EVP role and so and so forth down the chain. A more poignant question - should bench strength carry a different tone and substance at Apple than at P&G? Or for that matter a competitive business such as Microsoft (MSFT) or RIM (RIMM) which have different strategies and market positions than Apple? If we take Jobs as epitome of talent at Apple and work top-down to the next few levels of the organization, should we be seeking a little bit of Jobs in the next tiers of the hierarchy? Vision. Passion. Consumer-savvy. Technical competency. Charisma. Those are the adjectives most offend used to describe Jobs but they seem like a challenging set of skills to find in one executive much less trickle-down in an organization.

So what’s the level of exposure here? Web connections reveal some insights here. Search for "Talent Pipeline" and "Apple" and you'll find that people have more questions than answers. Themes such as "Only Jobs", "Impossible" surface. Add "Impossible" to the same query and you get a topic like "Sequels Rarely as Good" and "Legendary CEO's" which cite examples of poor hand-offs from a founder to a new CEO at organizations such as Starbucks (SBUX), Dell (DELL) and Schwab (SCHW) (Jobs is himself a comeback CEO).

Figure 4

These connections draw contrast between the situation Apple faces and P&G, don't you think? At P&G, a leadership model is somewhat standardized and understood by the investor community and public. At Apple, there no one is counting on a second act to Jobs. In an interesting twist, discussion of Microsoft's methodical approach to succession (eight years in the making) from Gates to Ballmer also surface in these web results.

Not everyone is throwing-up alarm bells, however. A search for "Talent Pipeline", "Iconic CEO" and "Apple" surfaces the phrase "Apple Can Survive" which includes a popular WSJ article and other sources reporting on the other Apple executives and their contributions to its success.

Nonetheless, judging by the majority of related themes and web connections, popular sentiment is that moving beyond Jobs will require a new leadership paradigm for Apple. The leadership formula will have to normalize to a more attainable mix as the legendary CEO transitions.

It's my belief that web connections provide us with a nice encapsulation of the story behind the story. So what is it in this case?

Could it be that Jobs’s greatness is coming full circle on its influence on the business? The company rode his iconic capability to heights and now faces the inverse situation....unwinding its dependency on the penultimate leader for its market opportunity. An impossible comparison, Jobs may just be the culprit of a succession-plan-defying scenario.

Comments

[sheldon1:]

Sometimes these writers just need to use up their alotment of words. There has been concern after cencern raised about APPLE but the vast major of the words are blind to the fact that APPLE is more than job JOBS. Ther as a company have a great consistent, long term consitentcy, towards end use delight with their products. They build products which work, also consistently, and they build products that have a marketing attractiveness, something which operates the way consumers like them to work and they are "cool". On top of they they manage their company exceptionally well and have a ton of cash avaiable for whatever they need. However the key is the future, and for that look at what they have: Best computers vertically integrated to give great margin a nd customers willing to pay a premium fo quality. IPHONE and the expected offsprings. Think about it, take an IPOD add a phone and the kids and adults who don't need a computer now have a path to the next generation of IPOD and they can then carry the IPOD and their phone in one small highly desired packaging. Home and entertainment. Wait and see as APPLE brings all this together. The key to their success is the level of demand, their commitment to exceptional design and quality and features, and their great leadership in running their business. This goes way beyond Jobs and while I expect he will be back, he has built a team a culture well prepared to continue and well prositioned for success. Yes I own APPLE stock and I am biased to theis success. To the writers of doom other than your alotment of words, what is your underlying motivation.

Feb 08 09:39 AM

[Uruz1:]

???
Perhaps my brain is simply disengaged on a Sunday, but I didn't get the point of this corporate Six Degrees of Separation AT ALL.

Feb 08 12:51 PM

[bobthenoob:]

Nothing to read here, here's something more interesting...
What's behind "Mike Abramsky’s bad Apple advice"
apple20.blogs.fortune....

Feb 08 04:36 PM

[Timeline St...:]

I didn't laf(ley) when I saw how long this article was. The author didn't do a good job(s) of making his point succinctly. Another Seeking Alpha author who writes like he was paid by the pound.

PS You may also want to pick a football team other than Florida State when you mean to convey dominance. They haven't been dominant for years, unless you are referring to their dominance in players dismissed for criminal acts.

Feb 08 05:25 PM

[brajaharidas:]

One person does not a whole Company make. Jobs, however, has been instrumental in turning Apple around. But a great CEO like Jobs makes sure that he/she always has a successor who will run the Company with a seamless transition when it is time for him/her to go.

A good manager trains his/her assistant up to put himself/herself out of a job. And CEOs like Jobs love their Companies so much that they want to make sure the COmpanies will continue far beyond their own liftimes.

Feb 09 01:30 AM

[kbear2:]

And the point of this article is...?

Feb 09 06:58 AM

[mollytjm:]

geez... ok...so here's the point. Disney survived Walt... Wal-mart survived Sam... and Apple will survive Jobs... because Jobs has made sure that it will!
Apple is cash rich, has no debt, has HUNDREDS of innovative people, produced top products, has the most profitable retail space per square foot in the country, has multiple streams of income and a wonderful reputation.
and...a stock will lose points initially after any negative news...Apple rebounded and will survive long after a lot of other businesses will be dead in the water.
and...they ARE having other people make announcements and show their faces and are letting the public know that A LOT of people are running the place, any number of whom can manage quite well.

We owe Steve Jobs an enormous amount of gratitude for building a company so financially,intellectu... and philosophically sound that it will survive almost anything...even a crummy economy and its founder taking a leave, no matter the length.

Feb 09 09:58 AM

[bobbobwhite:]

A lot of quasi-egghead blather, to be sure, and not very helpful nor informative.

The only thing Apple needs to do now, with the spector of Jobs' imminent demise at issue along with Apple leadership in the future, is to slowly and gradually bring his selected successor into focus and authority over the next few months, with Jobs full approval and company support, without insensitively blasting it out to the masses that "Jobs is dying and this guy is taking his place today".

A well-planned emergence of his successor into our consciousness will get the public acquainted with him at just the right pace and will serve to cushion the company and the stock when Jobs time there is actually ended. Apple can convince the public by this action that dynamic creativity and leadership will continue to grow unabated "in the Apple way" just as it did under Jobs.

Given enough time for this process to play out at the right pace, the ultimate transition will be totally successful.

Feb 09 11:46 AM

[Mac'em X:]

Apple without Jobs? Imagine the disaster! Just think, if Steve should retire, all Apple will have left is a cadre of skilled managers and awesome designers like Ives, the world's most passionate customers, a top-flight customer service reputation, trend-setting retail stores, the only differentiated products in a commoditized industry, patents galore, tens of billions of dollars, no debt, a lock on music players and distribution, a growing high-margin computer business, the leading smart phone...

I can't go on; this is too depressing. Apple is _so_ doomed without Steve!

Feb 10 10:20 PM

[gator217:]

The author brings to light some key issues. Does the role of leadership affect an organization? In this case, can Apple survive without the leadership of Jobs--surviving a transition to the executive team he has in place? We cannot deny that Jobs' name is entwined with that of Apple. Not only has his leadership created the Apple brand, but public perception and the Apple image can give thanks to Jobs' tenure. Sure, we can assume that companies with effective crisis response will probably see their stock price recover quickly. However, we are living in a time where the market is full of anxiety -- Apple shares shed more than 56% in 2008. Adding to the anxiety of investors is the fact that the company has been silent about its succession plan. It says it has one but won't disclose it.
Taking these few factors into account: 1) our economic state, 2) the silence of the company in question, 3) investor anxiety, and 4) the mark Jobs has left on Apple, how can you not agree with the author's insight on the matter.

Feb 14 12:09 PM