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David Flynn
Technology executive

David Flynn

David Flynn is president and chief technology officer of Fusion-io, a leading provider of solid-state technology and high-performance I/O solutions.

Making vertical integration work

In response to the On Leadership question: What is it about Apple's leadership that has allowed the company to stay so effectively ahead of the pack in developing new products?

Of course, the conventional wisdom here is that Apple's continued dominance is a direct result of the strong, charismatic leadership of its CEO, Steve Jobs. I believe that to be true. But, if we stop at that, we don't really learn much. The instructive part is to look into the mechanics of how his leadership has shaped Apple to become the dominant player it is.

We can start with the fact that Apple is a vertically integrated company. They bundle everything from hardware to software, through to online services. And, they do all this for panoply of products that span markets from PCs to cell phones, and now to tablet computers.

This vertical integration allows Apple to control the quality of their customers' experience soup-to-nuts. The attention to detail that pervades their products starts with the packaging and ends with customer loyalty and a globally charismatic brand with unparalleled pricing strength.

If this vertically integrated business model works so well, we have to ask why are there so few other companies successful with it. To answer that, I believe we have to look at the challenges behind running a vertically integrated company.

Companies that are not vertically integrated are exposed directly to market competitive pressures. They must adapt to the competition or die. Groups doing the exact same thing from within a vertically integrated company, however, are not exposed to market pressures directly at all. Their products aren't sold separately, but as part of the whole. This introduces a problem that's also an opportunity - and it's leadership alone that determines if it's the one or the other.

The problem is that instead of being exposed to market pressures, individual groups are exposed to the pressures of internal politics and agendas. Here, poor decisions are easily made, the best ideas don't always win, and time and energies are often wasted building things that don't fit well in the market or into the greater vision and brand of the company.

The opportunity, on the other hand, is that individual groups can be asked to do things that are counter-intuitive, that would never be profitable in the open markets alone, but instead are perfectly aligned to complement the other pieces of the greater whole.

This is where leadership comes in. It takes a strong leader to keep internal agendas in check. It takes respect and trust for groups that don't have a global view to do things that are not politically safe for the benefit of the whole.

In recent years Sun Microsystems, another vertically integrated company, seemed to have lost its competitive edge. Without ample leadership, internal politics prevailed, the organization lost internal alignment and the products became disparate pieces required, but unable to stand on their own.

Perhaps with Oracle's acquisition of Sun, and with the strong leadership of Larry Ellison the pieces will be reassembled and focused once again.

While the jury is still out on that one, with the trust, respect and strong leadership of Steve Jobs, Apple will remain a dominant force -- whether or not the iPad is successful.

By David Flynn

 |  January 29, 2010; 1:26 PM ET
Category:  Corporate leadership Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   Del.icio.us   StumbleUpon   Technorati  
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In order to learn from successful companies, it's definitely important to look at their internal mechanics, not just their charismatic leadership. Otherwise you're left with only ideology - hardly a useful management tool! Thanks for the insight.

Posted by: rebeccainbrooklyn | February 2, 2010 1:12 PM
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Great point! Especially regarding a leader's need for a nuanced understanding of the company's (group's) overall goal and how personal/political problems can derail that. Lifehacker recently republished a Business Week article from 2003 that discusses specifically avoiding such pitfalls in meetings and is interesting example of a concrete application of such leadership: http://www.businessweek.com/smallbiz/content/sep2006/sb20060927_259688.htm

But that kind of attention to detail still has to be executed by trustworthy leadership, which is, I guess, the whole point.

Posted by: kclifford | February 1, 2010 11:06 AM
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Despite Larry Ellison's strong leadership, I feel Oracle suffers growing pains with its product development due to massive amounts of acquisitions and constant enhancement to its product line. Let's hope Apple avoids these pitfalls and continues to keep things smart, innovative, and simple. Great article!

Posted by: LeanneDunn | February 1, 2010 10:53 AM
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Vertical integration is, indeed key to Apple's success as a company. That, coupled with their constant innovation and ability to stay one step ahead of their competitors is a recipe for success. Great insights into leadership and innovation Mr. Flynn.

Posted by: laurensher | January 30, 2010 2:55 PM
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Great post! Looking forward to more insights on leadership and innovation.

Posted by: robertbrumfield | January 30, 2010 2:23 PM
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