Tuesday, June 10, 2014

Steve Jobs on firm dynamics

From Isaacson's biography of Jobs, which is truly fantastic:

I have my own theory about why decline happens at companies like IBM or Microsoft. The company does a great job, innovates and becomes a monopoly or close to it in some field, and then the quality of the product becomes less important. The company starts valuing great salesmen, because they're the ones who can move the needle on revenues, not the product engineers and designers. So the salespeople end up running the company. . . . When the sales guys run the company, the product guys don't matter so much, and a lot of them just turn off. (568-9)

Is this a natural characteristic of the firm maturity process? We do think that the firm extensive margin--new firms or at least new establishments--is a key driver of productivity growth, but within-establishment productivity growth may contribute more to aggregate improvements. That said, Jobs isn't talking about productivity as traditionally measured; I suspect he is referring to product (rather than production) innovations.

There is also this:

I hate when people call themselves "entrepreneurs" when what they're really trying to do is launch a startup and then sell or go public, so they can cash in and move on. They're unwilling to do the work it takes to build a real company, which is the hardest work in business. That's how you really make a contribution and add to the legacy of those who went before. You build a company that will stand for something a generation or two from now. That's what Walt Disney did, and Hewlett and Packard, and the people who built Intel. (569)

It occurs to me that the kind of startups that are designed for acquisition are really just a form of within-firm innovation for acquiring incumbent firms. Maybe the reason Jobs is so obsessed with the concept of a "company" is that, as he has said, all the products he developed become obsolete rapidly; he cared about creating a company that could develop new products in perpetuity. He certainly created an incredible company in addition to a lot of incredible products (and I say this as someone who has never felt inclined to buy any of them).

One more thing on Jobs. Here is a paragraph from Acemoglu, Akcigit, and Celik (2014):

Societies and organizations that impose a set of rigidly specified rules, discourage initiative and deviations from established norms, shun or even ostracize rebellious behavior, and do not tolerate those that 'move fast and break things' will significantly lag behind their more open, "individualistic" or "risk-taking" counterparts in creative innovations--even though they might still be able to function successfully with existing technologies.

Now watch this video of Jobs from 1994:


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