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So what does this week’s launch of the iPhone 5 tell us as auditors?

Well, first I think it tells us that reputational risk, something about which I have long though is mostly overstated and is mostly nothing but fish and chip wrapping, is actually still quite important. Why? Well Apple trades on its brand. This brand is, by its nature, is something intangible, felt, perceived; it is irrationality felt feelings, but ones grounded in fact. The grounded in fact element is important, one very important to any premium brand (whether sold on grand scale or not). For the perceptions of the product must be grounded in reality. i.e. a Louis Vuitton bag must feel and appear to be luxury, to re-enforce the premium commanded by the brand. I think the apparent failure of the iPhone 5’s software (maps) and hardware (scratching easily) both clash with that. Whilst I think it overstates the position to say the damage is severe or even significant (this is no Ratner Plc situation) it does signal a change in either risk appetite or lack of focus on this category of risk.

Second, I think that it tells us something about organisations; in particular organisational culture. Apple had a good reputation for being customer focused; the customer experience trumped organisational needs. The iPhone 5 launch appears to show that the organisational need to launch products to a timescale and a need to compete with Google (by ridding iOS6 of Google maps) could demonstrate organisational myopia. That is, a short sighted focus on Apple Inc’s organisational, rather than customer, objectives has begun to emerge. Whilst this is yet to prove to be a theme (and Apple could and should learn from this experience) I think this is a possible case study for future MBAs on organisations developing a self-serving life of their own. Steve Jobs had a clear role to humble organisational politics to technological and customer requirements. Without that clear leadership does the current Apple leadership have that capability?

Third, it gets me thinking about internal audit’s role in project auditing. The iPhone 5 is no doubt a project, or even a portfolio of projects. It is inconceivable that IA was not involved in the project for the iPhone 5, particularly after the aerial issues at the launch of the 4 version two years ago. So where was IA in this debacle? Had the iPhone 5 project been audited? Had IA looked at the maps issue, or was it a minor part of the overall? Had it been looked at and reported, but the response ignored? Did the iPhone 5 project simply move so quickly and with such short lead times that IA could not get at the issues quick enough? Does IA have the power to challenge and ask these questions in Apple or it is confined to a compliance role? I, as an outsider, will never know. But it would beg that question I hope in Apple executives’ minds. A good, well placed, audit could have prevented a lot of media column inches at present.

So overall is the iPhone 5 launch an Apple debacle? No. Clearly not. It is selling in large numbers. The Apple brand is far from ruined or even significantly dented. It does however, for me as a professional organisational and risk auditor point to a potential problem, and you read it here first.

As Apple is moving beyond being a manufacturer of a phone, or computer, or music player, and more into providing a suite of devices to access a single Apple software eco-system (as the alignment of the iOS, OS and ITunes points to) is that project becoming too unwieldy to maintain the ‘it just works’ mantra. In other words has the whole project become so large and all encompassing that it cannot be sustained even by Apple’s organisational and technical resources? As any Apple-phile will tell you, software updates and downloads seem to take up so much time and are pretty constant over the last few months. The smooth anodised aluminium curves of the devices are not being matched by the smooth, corner free, software. Even taking updates (once a short task, seem now fraught with stages and things that previously worked now have Window–like glitches, even down to the timer for installations not estimating anywhere near accurately). These for me show the beginnings and the edges of an organisation losing control of a disparate and numerous portfolio of products, projects and services.

Is the real message from the iPhone 5 launch and one that their IA should pick up, that Apple needs to slow down, prioritise and control its pace of development or risk losing its biggest asset; its brand reputation?

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