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  • Writer's pictureShelly Albaum

Apple's CFO Will Never Know

I bought a set of Apple Airpods online the other day. But when I went to my local Apple Store to pick them up, they were too busy to help me. I waited around a while, but it looked like it wasn't going to happen, so I went home, canceled my order online, and bought some other headphones.

I mention this because it illustrates one of the most common and pernicious dynamics that hobbles large corporations -- and now it is beginning to hobble Apple -- and it all centers on the role of the Chief Financial Officer.

Apple Stores pioneered an exciting re-think of retail. Retail becomes a social space, a collaborative space, an learning space, and a space for structured engagement between customers and the service teams. There are no cash registers, there are no lines; anyone can sell you a product wherever you are standing.

It turned out to be wildly popular and wildly successful, and wildly profitable.

It also takes a lot of employees to run it -- about 65,000 employees for 400 stores --

because every interaction is a consultation. And because the price of not having a cash register line is that you need to be able to help everybody as they walk in -- or else the store instantly turns into a chaos mob of unprioritizable customer needs.

And that's where the role of the modern CFO (or sometimes COO) comes in.

One of the CFO's jobs is to squeeze all of the inefficiencies out of the organization. They typically do this by challenging managers to make do with less, which results in quarterly budget challenges that force managers to find creative ways of delivering the same or better results at a lower cost.

Good managerial judgment determines who bears the brunt of this quarter's budget challenge:

Maybe employee salaries will get squeezed, and we'll endure more turnover, and/or worse hires, fewer promotions, lower staffing levels, or employees more ambivalent about their job.

Maybe landlords will be forced to negotiate down their leases, suppliers will face more onerous terms, cleaning and maintenance will get cut, or major systems will get outsourced to the lowest bidder.

What the CFO is really doing is adding risk to the business. Backup systems, safety equipment, overflow capacity, good will -- who needs that stuff? Nobody, it turns out, *every* time, and the revenue keeps pouring in, with ever higher levels of profit.

Now, the CFO isn't allowed to remove PHYSICAL safety equipment that is legally required to be there to protect life and property -- things like fire alarms, and safety glass.

But safety equipment for the corporation's BUSINESS MODEL is always on the table, and I've never seen a CFO who wouldn't hack away at it to make some short term bucks and pray that no extreme event occurs on their watch.

So every day, in every corporation, in every city, middle managers go to work praying the thing will hold together after they were forced to remove or impair most of the support structure around their value delivery system. And most days it holds.

Until eventually something atypical happens, and the system goes haywire.

It was a CFO who caused the BP explosion that destroyed the Deep Water Horizon and poisoned the Gulf of Mexico.

It was a CFO who sent a ValuJet 592 crashing into the Everglades. It was a CFO who handed the electric vehicle market to Tesla.

The problem with these CFOs is that the don't understand the intricacies of their company's value delivery system, and so they just squeeze things until they break. Once they have broken, then the CFOs know the actual breaking point, and then they release some budget and the operation stabilizes at a now-documented point of optimal efficiency.

It's small consolation to the now-non-existent Valujet Arielines or to the 110 dead Valujet passengers that an airline CFO discovered which aspects of cargo handling can't be outsourced to contractors without a lot more supervision than they were providing, or else your plane crashes.

It's also small consolation to the Gulf of Mexico that BP now knows the right way to mix cement and monitor valves in deep water drilling operations.

In other words, stress testing operations by budget cuts is a bad idea when the results may be catastrophic and unrecoverable.

But I would argue that it's a bad idea all the time; that it's ALWAYS better to actually understand how your value delivery system works, and where the hidden risks lie. That means senior managers need to spend a lot of time talking to middle managers and actually understanding the details of the business, and then deciding affirmatively which risks are worth taking and which are worth hedging.

Steve Jobs was ridiculed for being fussy and belligerent about the details around product and service delivery, but what was probably going on, and what was so hard for the Business Academy to understand, is that Steve Jobs actually understood his business. That's a rarity in senior executive circles, which are dominated by Harvard MBA / McKinsey mandarins whose only deep understanding involves the flow rates of capital.

Here is Angela Ahrendts, the head of Apple Retail, at last week's Apple KeyNote address telling us about the huge and lavish Apple "Town Square" she has created in Milan, Italy:

Gorgeous. What she won't show us is the scene of chaos she created at my little Apple Store in Santa Rosa, California, where you can't even pick up Airpods. I'm not going to Milan, and I don't care about Milan. But that mess in Santa Rosa actually matters to me, and, she built that, too.

There is no good reason for it to be difficult to pick up products purchased online. Apple could easily set up a line called "Online Order Pickups," and then station somebody at the front of the line to hand out products as fast as they can scan the bar code on my pickup ticket.

But that would screw up the no-lines ambience of the store, and impair Apple's ability to stage a meaningful interpersonal dialogue in the "Town Squares" that used to be known as "Apple Stores."

So instead they broke their model. Nobody was there to meet me at the door, as I stood waving my bar code in vain hopes that a scanner would appear.

Eventually some harried Apple worker dragged me to a table and told me to wait here and "She'll help you as soon as she's available," pointing to a young woman before vanishing back into the harriedness. The designated young woman was trapped in a 30-minute Transaction From Hell involving multiple orders placed in the past two years, and she wasn't about to be done.

Since they couldn't complete the transaction, I left. Nobody asked me why.

When I canceled my order online, the system didn't ask me why.

To Apple, it looks like somebody was going to buy Airpods then changed their mind. Which is true.

But it's only half the story. The rest of the story is that some CFO intent on generating even more insane profits than Apple already generates pressured a local manager to cut staffing levels so low that they couldn't handle the predictable traffic spike that occurs every Monday September 25th at 3:00pm in Santa Rosa.

Who cares how great the Milan store looks if Apple immediately undercuts every promise they ever made about their incredible in-store experience and lost a product sale? Not Apple; they don't even know it happened. Not Apple's shareholders; they don't even know it happened.

Nobody cares. Just like GM didn't care if Tesla wanted to take over the car industry.

But it is a reminder that, although Apple is a great marketing company, they are just as vulnerable to the kind of systemic finance-drive operational flaws that routinely take down other companies in other industries.

What else are they willing to break?

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