This story appears in the Aug. 20, 2012 edition of Forbes magazine.
While there have been many stories criticizing Apple for exporting thousands of manufacturing jobs to China, some say Apple isn’t getting the credit it deserves for keeping innovation in the U.S.
Steve Jobs, in the last months of his life, took time to attend a city council meeting in Apple Inc.’s hometown of Cupertino, Calif. and pitch a new 175-acre campus. Apple’s former CEO talked confidently about his plans for the 2.8-million-square-foot building, wowing the crowd with design details of what will be a giant circle with a courtyard in the middle when it’s completed in 2015.
“It’s a little like a spaceship landed,” Jobs said in his last public appearance, a preserved on YouTube. “There’s not a straight piece of glass on this building. It’s all curved.”
More important, Jobs talked about how Apple Campus 2—dubbed “the mothership” by company watchers—will house 12,000 to 13,000 employees, many now scattered in several nearby buildings in this upscale suburb in Silicon Valley. “We’ve come up with a design that puts 12,000 people in one building,” he said. “Think about that.”
Yes, think about it. Jobs’ insistence on having his teams in one place isn’t surprising. He was a big advocate of face-to-face meetings. When it came time for new digs at Pixar, the animation studio he bought in 1986, Jobs wanted a huge building around a central atrium to encourage people to bump into one another. Each Monday morning at Apple, CEO Tim Cook meets with the other nine members of the executive team, just as Jobs did before him, to review the business, look at how existing products are faring, discuss every new product under development and talk over issues affecting the company. “Creativity comes from spontaneous meetings, from random discussions,” Jobs told his biographer Walter Isaacson. “You run into someone, you ask what they’re doing, you say, ‘Wow,’ and soon you’re cooking up all sorts of ideas.”
What’s odd about the mothership is how outside the norm it is. Apple’s high-tech rivals, including Google, Microsoft, Intel, Adobe Systems and Hewlett-Packard, are proud to say they have engineers working in research sites around the world. Apple, in contrast, has kept almost all its technical, creative and marketing leaders in the U.S., working side by side in Cupertino. All of the product teams responsible for the iPad, iPhone and Mac are here. All the software, including the iOS mobile operating system and the Mac OS, is written here.
Even though there are a few pockets of Apple engineers in offices outside California—Pittsburgh, Seattle, a team in Israel—Cupertino is the focal point. “If a decision needs to be made,” says a former employee, “then the person making it is in Cupertino.”
Former employees, analysts and economists argue that this is a key reason that Apple, unlike many of its competitors, has been able to create products and services that work so well together. (Apple declined to comment directly on the story.) “Decision making can be faster, management can be more involved, and you get better-integrated products,” says another former Apple executive. “The new campus goes right to that point.”
Another result is a remarkably efficient process. Apple’s R&D spending is a mere 2% of sales. Compare that to Google’s R&D spending, which is 13.6% of revenue, or Microsoft’s, at 13%.
While there have been plenty of stories criticizing Apple for exporting thousands of manufacturing jobs to China, some say Apple isn’t getting the credit it deserves for keeping innovation in the U.S., which translates into a bump in jobs in the local economy.
In a company-funded study in March, Apple claimed credit for creating or supporting more than 500,000 U.S. jobs. That includes 47,000 U.S. Apple employees (out of a global staff of 70,000), with 13,000 engineering jobs in Cupertino, 27,350 retail workers and a large support team in Austin, Tex. It also counted 210,000 jobs created by companies developing iOS products for the iPhone and iPad. There are another 257,000 jobs at nine suppliers in the U.S. working on its behalf, including Corning, Texas Instruments, Samsung, Fairchild Semiconductor and RF Micro Devices—as well as the drivers at UPS and FedEx who deliver Apple products to customers.
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While there was some snorting over the inclusion of truck drivers and Apple’s use of oft debated “job multipliers” to gin up the numbers, Enrico Moretti, a professor of economics at the University of California, Berkeley, insists that Apple’s contribution is notable. “If tomorrow Apple decides to outsource engineering and design to Bangalore or Shanghai, [then] Cupertino, and California in general, would suffer,” says Moretti. “We wouldn’t just lose 13,000 engineering jobs but also the thousands of jobs supported by those jobs. An innovation job equals more than one job.”
In his new book, The New Geography of Jobs (Houghton Mifflin Harcourt, 2012), Moretti argues that every high-tech job in a metropolitan area in the U.S. translates into five local service jobs—lawyers, cabdrivers, hairdressers, yoga instructors. In comparison, one job in traditional manufacturing generates 1.6 additional local service jobs.
By his count, Apple’s engineers in Cupertino help support 65,000 additional local service jobs. That’s admittedly small compared to the hundreds of thousands of workers employed in Chinese factories. Rather than lament the loss of those low-paying jobs, the U.S., Moretti argues, should encourage the creation of more innovation jobs here, through things like a permanent R&D credit, because that in turn will support service jobs that pay well.
“I’m not saying Apple is the best company in the world,” Moretti says. “Companies are in the business of maximizing their products, and I wouldn’t want them to do anything else. But what I’m saying is that 65% to 70% of the American workforce doesn’t work in innovation or manufacturing. Most people work in services, and those services jobs are not the cause of employment growth. They’re the effect of those innovation jobs. “
Gary Pisano, a professor at Harvard Business School, also says Apple should get points for creating jobs in the U.S., though he admits they’re hard to quantify. “I’m less interested in how many UPS people are delivering Apple products,” he says. “The bigger picture for me is that these guys changed the trajectory of business, specifically the mobile phone business.”
Before the iPhone was introduced, “everyone was saying there wouldn’t be more innovation; it’s all about driving the cost down,” Pisano says. “If you think about the massive number of jobs associated with the mobile ecosystem—app developers, suppliers, services—it just seems to be a big number.”
And he credits Apple’s ability to be disruptive and innovative precisely to its decision to keep research, development and design tightly integrated in one place. “Apple is making a bet that by keeping things more closely clustered geographically, they can do better on design,” Pisano says. “Others may do something different, but it’s hard to argue with Apple’s approach.”
The four-story Apple Campus 2 will house a restaurant, a gym and other amenities for employees, Apple said in a brochure sent to Cupertino residents in May. Shuttles will transport them to its long-standing address at Infinite Loop, home to another 2,800. Jobs told the city council last year he fully expects the campus to be “the best office building in the world. I do think architecture students will come here to see this.” They won’t be the only ones.