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How the Legacy of Steve Jobs Could Haunt Apple

Companies / Tech Stocks Oct 10, 2011 - 06:26 AM GMT

By: Money_Morning

Companies

Best Financial Markets Analysis ArticleDavid Zeiler writes: Now that its iconic founder is truly gone, Apple Inc. (Nasdaq: AAPL) must figure out how to remain true to the legacy of Steve Jobs without getting hamstrung by it.

It's not as easy as you might think.


The challenge starts with finding a successor CEO who can carry on the legacy of a founder like Steve Jobs without being intimidated by it.

"Much like Disney, Apple's founder was the brand. He was their Mickey Mouse, he was their Betty Crocker," corporate governance expert Nell Minow of GovernanceMetrics International told Reuters. "They have to replace him in five different ways."

That Jobs himself groomed former Chief Operating Officer Tim Cook to follow him as chief executive reduces Apple's risk, but doesn't erase it.

Companies such as The Walt Disney Co. (NYSE: DIS) and Wal-Mart Stores Inc. (NYSE: WMT) have learned that staying faithful to the ideals of a legendary founder can be fraught with pitfalls. Rigid adherence to old ideas can lead to stagnation, but straying too far from them can undermine what made the company such a huge success.

The Dangers of Devotion...
Apple could learn the most from the experience of Disney after the 1966 death of founder Walt Disney from lung cancer.

Walt Disney and Steve Jobs had much in common. Like Jobs, Disney infused his company with his vision, wasn't afraid to take big risks and was notorious for managing every detail of large projects.

Just as Jobs disrupted the computer, music, and mobile phone industries, Disney changed the world's view of cartoons by creating the first feature-length animated movie, "Snow White and the Seven Dwarfs," in 1937. Disney essentially invented the theme park in 1955 with the opening of Disneyland.

And just as Jobs has left Apple with an array of profit-making products like the iPhone and iPad, Walt Disney left his company in a strong position. The company had expanded beyond film to television, and was doing well in both. Plans were already well underway for the Walt Disney World complex in Florida.

At first, Disney thrived just by following Walt's vision. From 1967 through 1972 the stock rose 200%.

But then the company struggled. Without Walt to promote new ideas and push the company to take risks, Disney stagnated. It lost its box office magic. It even became the target of a hostile takeover attempt.

Stuck in the past, Disney executives reassured themselves by saying "Walt would have liked it" when they approved of a decision.

"Apple can't fall into that," David Yoffie, a professor at the Harvard Business School, told The New York Times. "It's not, "What would Steve have done?' That's a recipe for problems."

Disney did not break out of its doldrums until 1984 when Michael Eisner was named chairman and CEO. Eisner rejuvenated the animation studio and turned Disney into a media conglomerate in 1996 with the acquisition of Capital Cities/ABC. Over the next 15 years Disney's stock rocketed up over 3,000%.

...But Don't Forget Your Roots
As it forges ahead without Jobs, Apple also needs to beware that future executives never discard the fundamental principles that propelled the company to the top of the tech mountain.

That's what happened at Wal-Mart. Founder Sam Walton had built his company from a dimestore in Arkansas into a retailing behemoth.

Like Steve Jobs and Walt Disney, Walton fussed over the details of his business, always striving to improve his stores no matter how big and successful the company became. He ensured that his workers took to heart such slogans as "every day low prices."

In 1988, Sam Walton handed over the CEO title to David Glass; he passed away in 1992 at the age of 74.

As with Disney, Wal-Mart thrived for a time by adhering to their founder's ideals. But as the years went by, the company gradually left those ideals behind. Wal-Mart decided to fight its slowing growth with sales gimmicks and costly store remodeling.

The strategy didn't work, leaving Wal-Mart's stock essentially flat for the past decade. Things have gotten even worse lately, with the company suffering sales declines for nine straight quarters in stores open at least one year.

Recently, Wal-Mart said it is planning to return to Sam Walton's basic philosophy of low prices, with less emphasis on the remodeling and sales gimmicks.

The Route Apple Will Take
Apple seems less likely to follow the path of Wal-Mart than that of Disney, but over time, as new executives replace those that knew and worked with Steve Jobs, the risk increases.

At Apple last week, Cook sent a memo telling employees the company will remain committed to the legacy of Steve Jobs: "Steve leaves behind a company that only he could have built, and his spirit will forever be the foundation of Apple."

And yet Cook still needs to find a way to make the Apple CEO job his own.

"At some level, the company will have to evolve," Yoffie said. "The way it evolves and the types of changes are yet to be understood, probably by Tim himself."

Most analysts agree that Apple will be fine for the next couple of years, but the company's long-term health depends squarely on how well Tim Cook and whoever someday succeeds him manage the legacy of Steve Jobs.

"When companies are so identified with a particular leader there is a vacuum when they leave," John Challenger, founder of executive research firm Challenger, Gray & Christmas, told Investors Business Daily. "Really strong leaders are so dominant and it's hard to find a worthy successor. Nobody can really compare."

Source : http://moneymorning.com/2011/10/10/how-the-legacy-of-steve-jobs-could-haunt-apple/

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