By Peter Burrows
"Designed by Apple in California."
The words are printed in such small type on the back of Apple's (AAPL ) tiny new iPod Shuffle MP3 player that you have to squint to read them. But they speak volumes about why Apple is standing so far out from the crowd these days. At a time when rivals are outsourcing as much design as possible to cut costs, Apple remains at its core a product company -- one that would never give up control of how those products are created.
In this age of commodity tech products, design, after all, is what makes Apple Apple. This focus is apparent to anyone who has used one of its trailblazing products. While the Silicon Valley pioneer sells only a few dozen models, compared to the hundreds offered by many of its rivals, many of those "designed in California" products are startling departures from the norm -- and they often set the directions for the rest of the industry. Examples abound, from the iPod, to the flat screen look of the new iMac, to the simple smallness of the new Mac mini PC.
What's the secret? The precise details are almost impossible to get, because Apple treats its product-development processes like state secrets -- going so far as to string black drapes around the production lines at the factories of the contract manufacturers it hires to assemble its products. In one case, says a source who once worked on an Apple project, the outfit even insisted that its wares be built only on the midnight shift, when fewer prying eyes might be around.
But the general themes are clear. Most CEOs are focused on achieving their financial and operational goals, and on executing a strategy. But Apple's Steve Jobs believes his company's ultimate advantage comes from its ability to make unique, or as he calls them, "insanely great" products.
Jobs's entire company is focused on that task. That means while rival computer makers increasingly rely on so-called outsourced design manufacturers (ODMs), for key design decisions, Jobs keeps most of those tasks in-house. Sure, he relies on ODMs to manufacture his products, but the big decisions on Apple products are made in Silicon Valley.
Jobs himself is a crucial part of the formula. He's unique among big-time hardware CEOs for his hands-on involvement in the design process. Even product-design experts marvel at the power of the Jobs factor.
FIRST, AN IDEA.
"I've been thinking hard about the Apple product-development process since I left," says design guru Donald Norman, co-founder the design consultants Nielsen Norman Group, who left Apple in 1997. "If you follow my [guidelines], it will guarantee good design. But Steve Jobs doesn't want good design. He wants great design, and my method will never give you that. That takes a rare leader, who can bring both the cohesion and commitment and style. And Steve has it."
Many executives believe that outsourcing design allows them to lower the salaries they must pay, and lets them have engineers working on the products across all time zones. Jobs thinks that's short-sighted. He argues that the cost-savings aren't worth what you give up in terms of teamwork, communication, and the ability to get groups of people working together to bring a new idea to life. Indeed, with top-notch mechanical, electrical, software, and industrial designers all housed at Apple's Infinite Loop campus in Cupertino, Calif., the company's design capability is more vertically integrated than almost any other tech outfit.
Typically, a new Apple product starts with a big idea for an unmet customer need. For the original iPod, it was for an MP3 player that, unlike earlier models, could hold and easily manage your entire music collection. Then, Apple's product architects and industrial designers figure out what that product should look like and what features it should have -- and, importantly, not have. "Apple has a much more holistic view of product design," says David Carey, president of design consulting firm Portelligent. "Good product design starts from the outside, and works its way inside."
Already, that's different from the process by which the bulk of tech products are made. Increasingly, tech companies meet with ODMs to see what designs they have cooked up. Then, the ODMs are asked to tweak those basic blueprints to add a few features, and to match the look and feel of the company's other products.
That's where the "design" input might end for most companies. But since it's almost always trying to create one-of-a-kind products, Apple has to ask its own engineers to do the critical electrical and mechanical work to bring products to life.
In the iPod Shuffle, for example, designers cut a circuit card in two and stacked the pieces, bunk-bed style, to make use of the empty air space created by the height of the battery in the device. "They realized they could erase the height penalty [of the battery] to help them win the battle of the bulge," says Carey, whose company did a detailed engineering analysis of the iPod Shuffle.
Even more important, Apple's products are designed to run a particular set of programs or services. By contrast, a Dell (DELL ) or Gateway (GTW ) PC must be ready for whatever new features Microsoft (MSFT ) comes out with, or whatever Windows program a customer opts to install.
But Apple makes much of its own software, from the Mac operating system to applications such as iPhoto and iTunes. "That's Apple's trump card," says one Apple rival. "The ODMs just don't have the world-class industrial design, the style, or the ability to make easy-to-use software -- or the ability to integrate it all. They may some day, but they don't have it now."
Of course, Apple also sets its self apart by designing machines that are also little works of art -- even if it means making life difficult for manufacturers contracted to build those designs. During a trip to visit ODMs in Asia, one executive told securities analyst Jim Grossman of Thrivent Investment Management about Steve Jobs's insistence that no screws be visible on the laptop his company was manufacturing for Apple. The executive said his company had no idea how to handle the job and had to invent a new tooling process for the job. "They had to learn new ways to do things just to meet Apple's design," says Grossman.
That's not to say Apple is completely bucking the outsourcing trend. All its products are manufactured by ODMs in Asia. Just as it buys chips and disk drives from other suppliers, sources say Apple lets ODMs take some role in garden-variety engineering work -- but not much. "This is an issue for Apple, because the A-team engineers [at the ODMs] don't like working with Apple. It's like when you were a kid, all your dad let you do was hold the flashlight, rather than let you try to fix the car yourself," says an executive at a rival MP3 maker.
In fairness, Apple's reliance on a smaller number of products than its rivals and go-it-alone design means it's always a dud or two from disaster. But at the moment, it's proving that "made in Cupertino" is a trademark for success.
Burrows is Computer editor in BusinessWeek's Silicon Valley bureau