Reporters had many questions today! (Apart from the Outpost, which had only one.) Dr. Teresa Frankovich, Humboldt County’s health officer, handled them all in the roughly 20-minute media availability session, as she has been doing since the start of the pandemic
Video above; rough transcript below.
The North Coast Journal asks, “We understand the OptumServe site has been
extended by the state at least through November, but that its status beyond then is uncertain. If
the site were to close, how would that impact overall testing capacity in Humboldt County
and Public Health’s ability to set up mobile testing in outlying areas?”
Well it’s correct. Right now we understand it is going to be operational through November.
It’s been really helpful because it’s allowed us some time to get
our regional testing strategy set up and we expect that to be operational in November,
so I think we’ll have a little bit of overlap regardless of what happens long term with Optum.
I think our capacity is going to be well served between our in-house Humboldt County Public Health
lab and the new regional testing partnership. Between the two we should be able to test
up to 700 people per day and I think that will more than meet our needs going forward
and we’ll be able to do it with the turnaround time that’s 24 to 72 hours. So I think it’ll
actually serve the community really well and the ability to do a mobile testing site will be
really helpful. Our goal in the long term is to have both a stable site centrally as well
as mobile testing capacity, and but we’re starting with just our mobile while Optum is in place and
then we will build from there.
The North Coast Journal asks, “It seems the state’s
new Equity Metric hinges largely on counties’ capacity to test in the lowest quartile of zip
codes under the Health Places Index which includes Hoopa and southeastern Humboldt County locally.
Does the existence of this metric change testing strategies in these areas, and if so, how?”
been working since the beginning of the pandemic really to try and find ways to increase access in
outlying areas throughout the county. We’ve worked really closely with Hoopa and the tribal clinic
there, Dr. Eva Smith and the crew to try and make sure that people did have testing in that area. So
they do have a rapid testing capacity there that is good for symptomatic individuals, not very good
for asymptomatic. So on contact investigations and along the way we provided backup testing for Hoopa
and confirmatory testing. So in addition when Hoopa was experiencing an outbreak,
we worked with them and they were able to bring in testing to do a large portion of the community
really within a week, and so that really helped in that instance as well. Southeastern Humboldt
is tougher um and so we have worked to take our mobile team off site as possible to
you know not only to Fortuna but to Redway into Garberville, the hospital in Garberville,
Jerold Phelps does have some testing capacity and the clinic in Redway does as well, and then
we coordinate with them to try and enhance testing there. Our new regional partnership I think though
will allow us even more latitude and being able to get to some communities that need more access.
The Redheaded Blackbelt asks, “If an office staff member is being isolated at home
due to a confirmed COVID exposure while awaiting test results, what is the recommended protocol
for the office staff who are not directly exposed but are at some risk, and what measures should an
employer take to promote safety in an office setting following a confirmed exposure to the
Well there are a few points in there so I would say at first if there if someone has been
exposed to a confirmed case they are placed in quarantine by Public Health and so they
would not be in the workplace and typically those individuals are tested so that we can
confirm that they actually were not positive in the workplace as well. If we determine that that
individual actually is a positive case, we work with the employer in workplace to ensure that
everyone is identified who may be in exposure, not everyone in the workplace necessarily would be,
because one thing that people sometimes forget is that we really have to look at the infectious
period for the individual, who was on site and who did they have contact with? And so
you know it’s really an ongoing collaboration between Public Health and the employer
and then the employer is able to communicate to the workplace as needed in addition to Public
Health reaching out to individual contacts so that people are well informed.
Blackbelt asks, “Is it appropriate for an employer to restrict inter-office communications between
co-workers regarding a potential exposure or cluster of in-office cases for fear of having
a panic within the workplace? To what degree are individuals obligated to be forthcoming
about their symptoms and exposure scenario taking into consideration HIPPA regulations?”
So to the first question or first portion of the question, you know again I think people need to
understand that if there is a case, part of the case investigation is identifying where
that individual’s been if there’s a workplace exposure then we are working with that employer
to identify cases or potential exposures in that environment and there really ideally
should be good communication so there really isn’t any need for people to be trying to sort
of parse out rumors and figure out what is true. And there I think needs to be a
good understanding among workers that if Public Health has a concern we are communicating that.
Oh I’m sorry. The second part of that question, being forthcoming about symptoms and exposures,
all of us are really dependent on people providing good, accurate histories and
making sure that they protect their co-workers as well as family and friends
by you know identifying who may be at risk so that we can take the appropriate steps.
Redheaded Blackbelt asks, “In a contact tracing scenario involving a third-person exposure,
generally how many people does a single exposure end up affecting
and how often do you see an exponential growth of an outbreak stem from a single exposure?”
Well when we looked at contact tracing over time here we’ve seen a really broad
range of secondary cases related to it. We’ve had everything from cases where an individual
recognized quickly they had been exposed, they quarantined themselves, they were tested,
positive, isolated, and there really was no exposure for instance outside the household.
We have other cases, the gathering we had mentioned earlier this season
where a gathering of 50 people resulted in an additional over 30 cases, and so again,
we don’t track them in quite that way by how many per case and then track rates, but we’ve seen a
broad range. Most cases are in the middle and so it’s not uncommon for us to have four, five,
six additional cases related to a single case as well as all the individuals who are in quarantine.
The Redheaded Blackbelt asks, “Is it required for an open business to keep a register
of visitors/clients/patrons at the front door for recording temperatures, PPE check, and names?
Can you explain why this might be useful to a business owner as well as for contact tracers?”
So all businesses that are able to be open at this time are to have created a plan based on the state
guidance documents and those plans are reviewed and approved by our Joint Information Center.
Many of the components of this are suggested guidances for businesses, but not requirements.
For instance they are not required to take the temperature at the door per se in all business
settings. What I would tell people is that obviously if you’re operating certain types
of businesses, having an ability to identify patrons who are there is extremely helpful
if we know for instance that someone is in a setting where there might be an extended
period of contact. Let me actually mention places of worship because that’s a really
easy example to talk about is, if we have someone who’s ill when they’re attending a
service and gets diagnosed with COVID or is in their infectious period when they attend
and get diagnosed with COVID, if we can have an understanding of who was at that service,
on that particular day, we can reach out to those individuals in a meaningful way
and only the people who would be potentially considered at risk and that really informs
a case investigation. If we have no idea who may have been there at that time it requires
much bigger efforts in terms of contacting many more people or putting out an announcement for
people to contact Public Health. So in those settings keeping a sign-in log for people is
really helpful. In some business settings things like credit card receipts, things like that can
be useful, but it’s very labor-intensive.
Reporter Daniel Mintz asks, “The last week
has seen low numbers of daily cases except for October 14th when eight new cases were confirmed,
the highest daily increase in a month. Did confirmation of all or part of those cases stem
from a specific contact tracing investigation or are they unrelated to each other?”
In that particular case I believe that a number of those new positives were expected in the
sense that they were related to a current case investigation. I can’t say that all of them were,
but I can say that when we get a large number of cases all at a single time, often it’s because
we’re directing individuals in to get tested who have been exposed or we believe have been exposed.
Reporter Daniel Mintz asks, “What are the rates of false positives and false
negatives in local testing?”
I would say that in our local testing, both here in our Humboldt
County Public Health lab and actually for Optum, which sends it out to Quest I believe, it’s a
PCR test which actually has you know very high sensitivity and specificity,
and so we don’t have significant concerns about false positives or negatives in that setting.
What’s more of concern is that people, we are recognizing as we go through the pandemic,
people carry varying levels of virus at different times, and so it may be possible to
be really shedding virus highly at a time, get tested and be positive,
but have very low levels at some point in your course and be harder to detect. This becomes
an issue primarily when we are dealing with rapid tests that are not as highly sensitive
or specific as our PCR tests and there it really there are increasing possibilities
of false positives or false negatives with some of that testing. It’s getting better and using
it as appropriate, for instance using those rapid tests in individuals who are symptomatic,
where you’re more likely to get an accurate test result, improves the performance of the
test. So we look at all of that over time, but as we look at testing strategies going forward
and the the field of choices expands we’re looking for tests that will give us
a good sensitivity and specificity or at least the best that’s available out in the community.
The Times-Standard asks, “Do new cases this week have the potential to
change the state or county’s tier designation?”
Currently looking at our data I don’t anticipate
a change next week in our tier status.
The Times-Standard asks, “Based on Trump’s town
hall comments on masks, is it more effective to wear a mask improperly than not at all?”
Well, I would certainly argue that it’s not difficult to wear a mask properly and everyone
The North Coast News asks, “With the presidential election on the horizon do you think
that the politicization of COVID-19 has affected Public Health’s response to the virus nationwide,
either by inflating or minimizing the impacts of COVID-19? Do you think we could have had a more
effective response without the politicization?”
Well the short answer is yes I think that
it’s again as I’ve mentioned before it’s challenging to try and provide guidance and
navigate this when it’s not simply science driving the process and I think that there has been
difficulties with that from the outset with this pandemic,
and I’m fairly certain that that has had an impact on how things have rolled out across the country.
I think it’s challenging for citizens to make wise choices when again the science is sort of
being pulled and not accepted at face value. For instance facial coverings became very political
and really it should be a simple Public Health measure. Early on in the pandemic we did not
understand the importance of facial coverings in helping to control spread, as we do in science
we watch what’s happening and we study it and then we amend what we do based on what we find,
and what we found was it’s extremely important. We’ve adjusted the guidance and without a
political climate I think it would be easier for people to hear that and move forward.
The North Coast News asks, “With Humboldt County now allowing in-person weddings,
do you recommend couples still only participate in virtual weddings?
Or is it a safe enough bet to host in-person ceremonies with safety modifications in place?
Do you see this guidance changing anytime soon and forcing couples to change their plans yet
again if they choose to host in-person ceremonies now?”
Well again for weddings, weddings themselves
can occur and the new state guidance you know goes into the more of the specifics about how that can
happen. Obviously it is always safer not to have a gathering, we just know that to be true in COVID.
If there is a gathering, making it as small as possible and intersecting as few households
as possible is really important. Under the new gathering guidance a good recommendation would
be no more than three households and then inviting other guests virtually would be the best option.
Personally I would not want to gather, you know as much as I love attending a beautiful, big wedding,
I would not want to gather my extended family, relatives and friends, many of whom may have
underlying vulnerabilities or whom are older, to pull them together into a space where they might
be at risk. And I would further say that even younger individuals we know can have serious
illness with COVID. So bottom line is a wedding service is permitted, reception parties are not,
and the smaller, the safer. If it’s outside, it’s safer and putting all the safety precautions in
place that we’ve talked about add safety as well.
The North Coast News asks,
“Now that case rates based by zip code are being reported are there any data
points that surprise you? Are cases higher or lower in areas that you weren’t expecting?”
I would say no, not from our end, although we haven’t been looking at data by zip code per se
through this pandemic because it’s just not a construct that’s been um really helpful for us,
we’re obviously aware of where cases are occurring and watching that. But as we’ve said
since the beginning of this, the you know it’s really important for people to understand that
cases are assigned by zip code.
You might work in or live in Arcata, you might work in Eureka,
or you may live in Eureka and work in Fortuna and it or you may socialize with someone or have
been with someone who’s in another county or you became ill because you traveled
to Utah or Arizona or Idaho or any other state or within the state of California,
so seeing where the case is assigned to a resident tells you nothing about where
the person was exposed to COVID. And I do worry about people having a false sense
of this zip code is safe, this one is not.
It’s also important for people to recognize that
these are absolute case numbers that we’re reporting and it is completely expected that a
higher density area, for instance Eureka, would have more cases than a very sparsely populated,
remote area. So I just think it’s important, it gives you some sense of where our cases
are but I really think we need to be careful about how we use that to navigate this pandemic.
The North Coast News asks, “Being right on the cusp of moving to the yellow tier
last week, do you anticipate us remaining in the yellow tier or falling back into the orange tier?”
Well as I mentioned just a bit ago I think this coming week we’ll be okay since we’re now sitting
at Friday and the data is calculated on Monday by the state and released on Tuesday. I do want
to mention however that through the pandemic it is very likely that we will bounce between tiers.
Arriving at the yellow tier, we will strive and do our best and with everyone’s assistance we can
work to stay in yellow, but an outbreak of you know significant size, we’ve seen for instance
in neighboring counties, where within a very short period of time you can go from a manageable case
rate to one that is much higher, and so it really is important for people to understand
it is very likely that we will move between tiers and it is incredibly important we do everything we
can so that we can remain where we are as long as possible and for as much of the duration of this
pandemic as possible.
The Lost Coast Outpost asks, “Governor Gavin Newsom recently
suggested that people eating out should wear their mask between bites. With restaurant wait staff
now working long shifts indoors around people spending most of their meals unmasked, do you
agree with the governor’s recommendation?”
Well I think it’s a good question in the sense that
we know as we’re bringing people together into spaces that there is more risk of transmission
and restaurant guidance for instance really does talk about the fact that restaurants need to have
limited capacity so that they’re able to spread out tables and spread out groups from each other
to decrease transmission. There’s also you know hand sanitizer other things in place,
disposable menus for instance to help reduce transmission. I think that wearing a mask
is important to do, I think that the more you can wear your mask,
particularly in an indoor setting, the safer it is, and so I think when people are
you know sitting at their table when they are not eating their food, I think masking is is
really helpful to do as much as possible.
How Apple Is Organized for Innovation
Idea in Brief
Major companies competing in many industries struggle to stay abreast of rapidly changing technologies.
One Major Cause
They are typically organized into business units, each with its own set of functions. Thus the key decision makers—the unit leaders—lack a deep understanding of all the domains that answer to them.
The Apple Model
The company is organized around functions, and expertise aligns with decision rights. Leaders are cross-functionally collaborative and deeply knowledgeable about details.
Apple is well known for its innovations in hardware, software, and services. Thanks to them, it grew from some 8,000 employees and $7 billion in revenue in 1997, the year Steve Jobs returned, to 137,000 employees and $260 billion in revenue in 2019. Much less well known are the organizational design and the associated leadership model that have played a crucial role in the company’s innovation success.
When Jobs arrived back at Apple, it had a conventional structure for a company of its size and scope. It was divided into business units, each with its own P&L responsibilities. General managers ran the Macintosh products group, the information appliances division, and the server products division, among others. As is often the case with decentralized business units, managers were inclined to fight with one another, over transfer prices in particular. Believing that conventional management had stifled innovation, Jobs, in his first year returning as CEO, laid off the general managers of all the business units (in a single day), put the entire company under one P&L, and combined the disparate functional departments of the business units into one functional organization.
The adoption of a functional structure may have been unsurprising for a company of Apple’s size at the time. What is surprising—in fact, remarkable—is that Apple retains it today, even though the company is nearly 40 times as large in terms of revenue and far more complex than it was in 1998. Senior vice presidents are in charge of functions, not products. As was the case with Jobs before him, CEO Tim Cook occupies the only position on the organizational chart where the design, engineering, operations, marketing, and retail of any of Apple’s main products meet. In effect, besides the CEO, the company operates with no conventional general managers: people who control an entire process from product development through sales and are judged according to a P&L statement.
Business history and organizational theory make the case that as entrepreneurial firms grow large and complex, they must shift from a functional to a multidivisional structure to align accountability and control and prevent the congestion that occurs when countless decisions flow up the org chart to the very top. Giving business unit leaders full control over key functions allows them to do what is best to meet the needs of their individual units’ customers and maximize their results, and it enables the executives overseeing them to assess their performance. As the Harvard Business School historian Alfred Chandler documented, U.S. companies such as DuPont and General Motors moved from a functional to a multidivisional structure in the early 20th century. By the latter half of the century the vast majority of large corporations had followed suit. Apple proves that this conventional approach is not necessary and that the functional structure may benefit companies facing tremendous technological change and industry upheaval.
Apple’s commitment to a functional organization does not mean that its structure has remained static. As the importance of artificial intelligence and other new areas has increased, that structure has changed. Here we discuss the innovation benefits and leadership challenges of Apple’s distinctive and ever-evolving organizational model, which may be useful for individuals and companies wanting to better understand how to succeed in rapidly changing environments.
Why a Functional Organization?
Apple’s main purpose is to create products that enrich people’s daily lives. That involves not only developing entirely new product categories such as the iPhone and the Apple Watch, but also continually innovating within those categories. Perhaps no product feature better reflects Apple’s commitment to continuous innovation than the iPhone camera. When the iPhone was introduced, in 2007, Steve Jobs devoted only six seconds to its camera in the annual keynote event for unveiling new products. Since then iPhone camera technology has contributed to the photography industry with a stream of innovations: High dynamic range imaging (2010), panorama photos (2012), True Tone flash (2013), optical image stabilization (2015), the dual-lens camera (2016), portrait mode (2016), portrait lighting (2017), and night mode (2019) are but a few of the improvements.
Apple leaders need deep expertise, immersion in details, and collaborative debate.
To create such innovations, Apple relies on a structure that centers on functional expertise. Its fundamental belief is that those with the most expertise and experience in a domain should have decision rights for that domain. This is based on two views: First, Apple competes in markets where the rates of technological change and disruption are high, so it must rely on the judgment and intuition of people with deep knowledge of the technologies responsible for disruption. Long before it can get market feedback and solid market forecasts, the company must make bets about which technologies and designs are likely to succeed in smartphones, computers, and so on. Relying on technical experts rather than general managers increases the odds that those bets will pay off.
Second, Apple’s commitment to offer the best possible products would be undercut if short-term profit and cost targets were the overriding criteria for judging investments and leaders. Significantly, the bonuses of senior R&D executives are based on companywide performance numbers rather than the costs of or revenue from particular products. Thus product decisions are somewhat insulated from short-term financial pressures. The finance team is not involved in the product road map meetings of engineering teams, and engineering teams are not involved in pricing decisions.
We don’t mean to suggest that Apple doesn’t consider costs and revenue goals when deciding which technologies and features the company will pursue. It does, but in ways that differ from those employed by conventionally organized companies. Instead of using overall cost and price targets as fixed parameters within which to make design and engineering choices, R&D leaders are expected to weigh the benefits to users of those choices against cost considerations.
In a functional organization, individual and team reputations act as a control mechanism in placing bets. A case in point is the decision to introduce the dual-lens camera with portrait mode in the iPhone 7 Plus in 2016. It was a big wager that the camera’s impact on users would be sufficiently great to justify its significant cost.
One executive told us that Paul Hubel, a senior leader who played a central role in the portrait mode effort, was “out over his skis,” meaning that he and his team were taking a big risk: If users were unwilling to pay a premium for a phone with a more costly and better camera, the team would most likely have less credibility the next time it proposed an expensive upgrade or feature. The camera turned out to be a defining feature for the iPhone 7 Plus, and its success further enhanced the reputations of Hubel and his team.
It’s easier to get the balance right between an attention to costs and the value added to the user experience when the leaders making decisions are those with deep expertise in their areas rather than general managers being held accountable primarily for meeting numerical targets. Whereas the fundamental principle of a conventional business unit structure is to align accountability and control, the fundamental principle of a functional organization is to align expertise and decision rights.
Thus the link between how Apple is organized and the type of innovations it produces is clear. As Chandler famously argued, “structure follows strategy”—even though Apple doesn’t use the structure that he anticipated large multinationals would adopt.
Now let’s turn to the leadership model underlying Apple’s structure.
Three Leadership Characteristics
Ever since Steve Jobs implemented the functional organization, Apple’s managers at every level, from senior vice president on down, have been expected to possess three key leadership characteristics: deep expertise that allows them to meaningfully engage in all the work being done within their individual functions; immersion in the details of those functions; and a willingness to collaboratively debate other functions during collective decision-making. When managers have these attributes, decisions are made in a coordinated fashion by the people most qualified to make them.
Apple is not a company where general managers oversee managers; rather, it is a company where experts lead experts. The assumption is that it’s easier to train an expert to manage well than to train a manager to be an expert. At Apple, hardware experts manage hardware, software experts software, and so on. (Deviations from this principle are rare.) This approach cascades down all levels of the organization through areas of ever-increasing specialization. Apple’s leaders believe that world-class talent wants to work for and with other world-class talent in a specialty. It’s like joining a sports team where you get to learn from and play with the best.
Mikael Jansson/Trunk Archive
Early on, Steve Jobs came to embrace the idea that managers at Apple should be experts in their area of management. In a 1984 interview he said, “We went through that stage in Apple where we went out and thought, Oh, we’re gonna be a big company, let’s hire professional management. We went out and hired a bunch of professional management. It didn’t work at all….They knew how to manage, but they didn’t know how to do anything. If you’re a great person, why do you want to work for somebody you can’t learn anything from? And you know what’s interesting? You know who the best managers are? They are the great individual contributors who never, ever want to be a manager but decide they have to be…because no one else is going to…do as good a job.”
One current example is Roger Rosner, who heads Apple’s software application business, which includes work-productivity apps such as Pages (word processing), Numbers (spreadsheets), and Keynote (presentations) along with GarageBand (music composition), iMovie (movie editing), and News (an app providing news content). Rosner, who studied electrical engineering at Carnegie Mellon, joined Apple in 2001 as a senior engineering manager and rose to become the director of iWork applications, the vice president of productivity apps, and since 2013 the VP of applications. With his deep expertise gained from previous experience as the director of engineering at several smaller software companies, Rosner exemplifies an expert leading experts.
In a functional organization, experts leading experts means that specialists create a deep bench in a given area, where they can learn from one another. For example, Apple’s more than 600 experts on camera hardware technology work in a group led by Graham Townsend, a camera expert. Because iPhones, iPads, laptops, and desktop computers all include cameras, these experts would be scattered across product lines if Apple were organized in business units. That would dilute their collective expertise, reducing their power to solve problems and generate and refine innovations.
Immersion in the details.
One principle that permeates Apple is “Leaders should know the details of their organization three levels down,” because that is essential for speedy and effective cross-functional decision-making at the highest levels. If managers attend a decision-making meeting without the details at their disposal, the decision must either be made without the details or postponed. Managers tell war stories about making presentations to senior leaders who drill down into cells on a spreadsheet, lines of code, or a test result on a product.
Of course, the leaders of many companies insist that they and their teams are steeped in the details. But few organizations match Apple. Consider how its senior leaders pay extreme attention to the exact shape of products’ rounded corners. The standard method for rounding corners is to use an arc of a circle to connect the perpendicular sides of a rectangular object, which produces a somewhat abrupt transition from straight to curve. In contrast, Apple’s leaders insist on continuous curves, resulting in a shape known in the design community as a “squircle”: The slope starts sooner but is less abrupt.
An advantage of hardware products without abrupt changes in curvature is that they produce softer highlights (that is, little to no jump in light reflection along the corner). The difference is subtle, and executing on it isn’t simply a matter of a more complicated mathematical formula. It demands that Apple’s operations leaders commit to extremely precise manufacturing tolerances to produce millions of iPhones and other products with squircles. This deep immersion in detail isn’t just a concern that is pushed down to lower-level people; it is central at the leadership level.
Having leaders who are experts in their areas and can go deep into the details has profound implications for how Apple is run. Leaders can push, probe, and “smell” an issue. They know which details are important and where to focus their attention. Many people at Apple see it as liberating, even exhilarating, to work for experts, who provide better guidance and mentoring than a general manager would. Together, all can strive to do the best work of their lives in their chosen area.
Willingness to collaboratively debate.
Apple has hundreds of specialist teams across the company, dozens of which may be needed for even one key component of a new product offering. For example, the dual-lens camera with portrait mode required the collaboration of no fewer than 40 specialist teams: silicon design, camera software, reliability engineering, motion sensor hardware, video engineering, core motion, and camera sensor design, to name just a few. How on earth does Apple develop and ship products that require such coordination? The answer is collaborative debate. Because no function is responsible for a product or a service on its own, cross-functional collaboration is crucial.
When debates reach an impasse, as some inevitably do, higher-level managers weigh in as tiebreakers, including at times the CEO and the senior VPs. To do this at speed with sufficient attention to detail is challenging for even the best of leaders, making it all the more important that the company fill many senior positions from within the ranks of its VPs, who have experience in Apple’s way of operating.
However, given Apple’s size and scope, even the executive team can resolve only a limited number of stalemates. The many horizontal dependencies mean that ineffective peer relationships at the VP and director levels have the potential to undermine not only particular projects but the entire company. Consequently, for people to attain and remain in a leadership position within a function, they must be highly effective collaborators.
That doesn’t mean people can’t express their points of view. Leaders are expected to hold strong, well-grounded views and advocate forcefully for them, yet also be willing to change their minds when presented with evidence that others’ views are better. Doing so is not always easy, of course. A leader’s ability to be both partisan and open-minded is facilitated by two things: deep understanding of and devotion to the company’s values and common purpose, and a commitment to separating how right from how hard a particular path is so that the difficulty of executing a decision doesn’t prevent its being selected.
The development of the iPhone’s portrait mode illustrates a fanatical attention to detail at the leadership level, intense collaborative debate among teams, and the power of a shared purpose to shape and ultimately resolve debates. In 2009 Hubel had the idea of developing an iPhone feature that would allow people to take portrait photos with bokeh—a Japanese term that refers to the pleasing blurring of a background—which photography experts generally consider to be of the highest quality. At that time only expensive single-lens reflex cameras could take such photos, but Hubel thought that with a dual-lens design and advanced computational-photography techniques, Apple could add the capability in the iPhone. His idea aligned well with the camera team’s stated purpose: “More people taking better images more of the time.”
As the team worked to turn this idea into reality, several challenges emerged. The first attempts produced some amazing portrait pictures but also a number of “failure cases” in which the algorithm was unable to distinguish between the central object in sharp relief (a face, for instance) and the background being blurred. For example, if a person’s face was to be photographed from behind chicken wire, it was not possible to construct an algorithm that would capture the chicken wire to the side of the face with the same sharpness as the chicken wire in front of it. The wire to the side would be as blurred as the background.
One might say, “Who cares about the chicken wire case? That’s exceedingly rare.” But for the team, sidestepping rare or extreme situations—what engineers call corner cases—would violate Apple’s strict engineering standard of zero “artifacts,” meaning “any undesired or unintended alteration in data introduced in a digital process by an involved technique and/or technology.” Corner cases sparked “many tough discussions” between the camera team and other teams involved, recalls Myra Haggerty, the VP of sensor software and UX prototyping, who oversaw the firmware and algorithm teams. Sebastien Marineau-Mes, the VP to whom the camera software team ultimately reported, decided to defer the release of the feature until the following year to give the team time to better address failure cases—“a hard pill to swallow,” Hubel admits.
To get some agreement on quality standards, the engineering teams invited senior design and marketing leaders to meet, figuring that they would offer a new perspective. The design leaders brought an additional artistic sensibility to the debate, asking, “What makes a beautiful portrait?” To help reassess the zero-artifacts standard, they collected images from great portrait photographers. They noted, among other things, that these photos often had blurring at the edges of a face but sharpness on the eyes. So they charged the algorithm teams with achieving the same effect. When the teams succeeded, they knew they had an acceptable standard.
Another issue that emerged was the ability to preview a portrait photo with a blurred background. The camera team had designed the feature so that users could see its effect on their photos only after they had been taken, but the human interface (HI) design team pushed back, insisting that users should be able to see a “live preview” and get some guidance about how to make adjustments before taking the photo. Johnnie Manzari, a member of the HI team, gave the camera team a demo. “When we saw the demo, we realized that this is what we needed to do,” Townsend told us. The members of his camera hardware team weren’t sure they could do it, but difficulty was not an acceptable excuse for failing to deliver what would clearly be a superior user experience. After months of engineering effort, a key stakeholder, the video engineering team (responsible for the low-level software that controls sensor and camera operations) found a way, and the collaboration paid off. Portrait mode was central to Apple’s marketing of the iPhone 7 Plus. It proved a major reason for users’ choosing to buy and delighting in the use of the phone.
As this example shows, Apple’s collaborative debate involves people from various functions who disagree, push back, promote or reject ideas, and build on one another’s ideas to come up with the best solutions. It requires open-mindedness from senior leaders. It also requires those leaders to inspire, prod, or influence colleagues in other areas to contribute toward achieving their goals.
While Townsend is accountable for how great the camera is, he needed dozens of other teams—each of which had a long list of its own commitments—to contribute their time and effort to the portrait mode project. At Apple that’s known as accountability without control: You’re accountable for making the project succeed even though you don’t control all the other teams. This process can be messy yet produce great results. “Good mess” happens when various teams work with a shared purpose, as in the case of the portrait mode project. “Bad mess” occurs when teams push their own agendas ahead of common goals. Those who become associated with bad mess and don’t or can’t change their behavior are removed from leadership positions, if not from Apple altogether.
Leadership at Scale
Apple’s way of organizing has led to tremendous innovation and success over the past two decades. Yet it has not been without challenges, especially with revenues and head count having exploded since 2008.
As the company has grown, entering new markets and moving into new technologies, its functional structure and leadership model have had to evolve. Deciding how to organize areas of expertise to best enable collaboration and rapid decision-making has been an important responsibility of the CEO. The adjustments Tim Cook has implemented in recent years include dividing the hardware function into hardware engineering and hardware technologies; adding artificial intelligence and machine learning as a functional area; and moving human interface out of software to merge it with industrial design, creating an integrated design function.
Another challenge posed by organizational growth is the pressure it imposes on the several hundred VPs and directors below the executive team. If Apple were to cap the size or scope of a senior leader’s organization to limit the number and breadth of details that the leader is expected to own, the company would need to hugely expand the number of senior leaders, making the kind of collaboration that has worked so well impossible to preserve.
Mikael Jansson/Trunk Archive
Cognizant of this problem, Apple has been quite disciplined about limiting the number of senior positions to minimize how many leaders must be involved in any cross-functional activity. In 2006, the year before the iPhone’s launch, the company had some 17,000 employees; by 2019 that number had grown more than eightfold, to 137,000. Meanwhile, the number of VPs approximately doubled, from 50 to 96. The inevitable result is that senior leaders head larger and more diverse teams of experts, meaning more details to oversee and new areas of responsibility that fall outside their core expertise.
In response, many Apple managers over the past five years or so have been evolving the leadership approach described above: experts leading experts, immersion in the details, and collaborative debate. We have codified these adaptions in what we call the discretionary leadership model, which we have incorporated into a new educational program for Apple’s VPs and directors. Its purpose is to address the challenge of getting this leadership approach to drive innovation in all areas of the company, not just product development, at an ever-greater scale.
When Apple was smaller, it may have been reasonable to expect leaders to be experts on and immersed in the details of pretty much everything going on in their organizations. However, they now need to exercise greater discretion regarding where and how they spend their time and efforts. They must decide which activities demand their full attention to detail because those activities create the most value for Apple. Some of those will fall within their existing core expertise (what they still need to own), and some will require them to learn new areas of expertise. Activities that require less attention from the leader can be pushed down to others (and the leaders will either teach others or delegate in cases where they aren’t experts).
Rosner, the VP of applications, provides a good example. Like many other Apple managers, he has had to contend with three challenges arising from Apple’s tremendous growth. First, the size of his function has exploded over the past decade in terms of both head count (from 150 to about 1,000) and the number of projects under way at any given time. Clearly, he cannot dive into all the details of all those projects. Second, the scope of his portfolio has widened: Over the past 10 years he has assumed responsibility for new applications, including News, Clips (video editing), Books, and Final Cut Pro (advanced video editing). Although apps are his core area of expertise, some aspects of these—among them editorial content for News, how book publishing works, and video editing—involve matters in which Rosner is not an expert. Finally, as Apple’s product portfolio and number of projects have expanded, even more coordination with other functions is required, increasing the complexity of collaborating across the many units. For instance, whereas Rosner is responsible for the engineering side of News, other managers oversee the operating system on which it depends, the content, and the business relationships with content creators (such as the New York Times) and advertisers.
To cope, Rosner has adapted his role. As an expert who leads other experts, he had been immersed in details—especially those concerning the top-level aspects of software applications and their architecture that affect how users engage with the software. He also collaborated with managers across the company in projects that involved those areas.
But with the expansion of his responsibilities, he has moved some things from his owning box—including traditional productivity apps such as Keynote and Pages—into his teaching box.
Now he guides and gives feedback to other team members so that they can develop software applications according to Apple’s norms. Being a teacher doesn’t mean that Rosner gives instruction at a whiteboard; rather, he offers strong, often passionate critiques of his team’s work. (Clearly, general managers without his core expertise would find it difficult to teach what they don’t know.)
The second challenge for Rosner involved the addition of activities beyond his original expertise. Six years ago he was given responsibility for the engineering and design of News. Consequently, he had to learn about publishing news content via an app—to understand news publications, digital advertising, machine learning to personalize news content, architecting for privacy, and how to incentivize publishers. Thus some of his work fell into the learning box. Here managers face a steep learning curve to acquire new skills. Given how demanding this is, only critical new activities should fall into this category. Over six years of intense learning, Rosner has mastered some of these areas, which are now in his owning box.
As long as a particular activity remains in the learning box, leaders must adopt a beginner’s mindset, questioning subordinates in a way that suggests they don’t already know the answer (because they don’t). This differs starkly from the way leaders question subordinates about activities in the owning and teaching boxes.
Finally, Rosner has delegated some areas—including iMovie and GarageBand, in which he is not an expert—to people with the requisite capabilities. For activities in the delegating box, he assembles teams, agrees on objectives, monitors and reviews progress, and holds the teams accountable: the stuff of general management.
Whereas Apple’s VPs spend most of their time in the owning and learning boxes, general managers at other companies tend to spend most of their time in the delegating box. Rosner estimates that he spends about 40% of his time on activities he owns (including collaboration with others in a given area), about 30% on learning, about 15% on teaching, and about 15% on delegating. These numbers vary by manager, of course, depending on their business and the needs at a given time.
The discretionary leadership model preserves the fundamental principle of an effective functional organization at scale—aligning expertise and decision rights. Apple can effectively move into new areas when leaders like Rosner take on new responsibilities outside their original expertise, and teams can grow in size when leaders teach others their craft and delegate work. We believe that Apple will continue to innovate and prosper by being organized this way.
Apple’s functional organization is rare, if not unique, among very large companies. It flies in the face of prevailing management theory that companies should be reorganized into divisions and business units as they become large. But something vital gets lost in a shift to business units: the alignment of decision rights with expertise.
Why do companies so often cling to having general managers in charge of business units? One reason, we believe, is that making the change is difficult. It entails overcoming inertia, reallocating power among managers, changing an individual-oriented incentive system, and learning new ways of collaborating. That is daunting when a company already faces huge external challenges. An intermediate step may be to cultivate the experts-leading-experts model even within a business unit structure. For example, when filling the next senior management role, pick someone with deep expertise in that area as opposed to someone who might make the best general manager. But a full-fledged transformation requires that leaders also transition to a functional organization. Apple’s track record proves that the rewards may justify the risks. Its approach can produce extraordinary results.
A Hotelier’s Guide to Surviving the Pandemic: 10 Ground-Breaking Technologies |
“The timeframe over which demand recovers—especially in the U.S.—is less important than the manner in which we’ve prepared to continuously adapt to whatever conditions we face.” – Hyatt Hotels Corporation President and CEO Mark Hoplamazian
The hospitality industry is evolving. Customers are nervous and concerned about health and safety, top quality customer service can no longer be achieved exclusively through in-person interactions or even to the degree that they are accustomed to, and many guests are choosing to stay home and not travel, meaning occupancy rates are at historic lows.
The pandemic has exposed a technology gap within the hotel industry, and for many, it’s time to sink or swim. Even after the pandemic has passed, a vaccine is successful and widely distributed, we reach herd immunity, or simply when travel normalizes to pre-pandemic numbers, the hotel industry may never look the same again.
Here are 10 ground-breaking technologies which can make hotels contactless and safer for employees and guests, competitive and more efficient, and prepared to meet new technology standards in the industry.
Into the Future: Tech with a Personality
In the past, “novelty” items such as hotel cleaning and service robots have become a realistic and practical solution to the challenges presented by the pandemic. The Relay, manufactured by Savioke, has been in circulation since before the pandemic but experienced an increase in demand in early 2020. These bots allow contactless deliveries and check in/out services. They allow employees to maximize their efficiency by delegating tasks, and guests have responded positively to the spectacle. Other robots, such as the XENEX, are actually able to use UV light to attack bacteria, disinfect rooms, and prevent the spread of COVID-19. The Westin Houston Medical Center was the first to utilize this technology and they have since been followed by Hilton, Marriott and others.
The implementation of robots has the potential to provide a contactless, sanitary environment and experience, not only making guests feel more at ease, but also protecting employees and saving on staff costs.
While not all robots can sing and dance, a customer service chatbot can answer nearly any question a guest may have, as well as provide check-in/out and booking services. Chatbots are not entirely new technology, and they’ve been implemented by The Cosmopolitan in Las Vegas, Aloft Hotels, Hilton, Marriot, Holiday Inn, and AccorHotels’ Mercure brand since 2017. The Four Seasons has implemented a hybrid technology that provides a digital experience including real-time translation technology in order to connect human customer service representatives with guests.
In a 2018 Humley survey, two-thirds of respondents said that they would find a chatbot useful or very useful to improve their online travel experience. In the wake of the pandemic, this demand will only increase as people begin travelling again. Customers today are looking for a hotel which can guarantee their safety by reducing unnecessary human interactions. The Hilton has recently introduced its own chatbot, Xiao X, in response to this rising customer demand.
Hand-Held and Hands-Off
3. Contactless Check-in and Payment
Not ready to invest in a chatbot but desire online check-in and payment options? Offering an application for customers to download and use throughout their stay is an attractive option. According to a recent study by Criton, 80% of hotel guests would download an app to check in and out and only 8% feel comfortable using a kiosk. These apps offer a COVID-friendly experience and prove to be more effective when it comes to upselling because they can use highly targeted information based on the user to offer upgrades that are helpful, rather than irritating. They can also provide automated room-assignments during the check-in process and are more capable of balancing all requests (including pending reservation requests) in order to best serve every guest.
4. (Nearly) Contactless Hotel Restaurants
While room service and robots are excellent ways to limit contact points, guests will continue to seek social-distanced in-person services like restaurants. Maestro PMS and SilverWare POS have released a contactless ordering and payment platform that allows guests to browse the menu, order, and pay all inside the restaurant via digital QR code. This platform allows guests to split the cheque, add a tip, and redeem gift cards. It also allows managers to track guest spending, identify meal preferences, apply discounts, and manage loyalty points. In a recent study by Criton, 48% of survey respondents said they would be more likely to go to the hotel restaurant if the hotel would give them the option of ordering food via an app. With many non-hotel restaurants and bars adopting this worldwide due to the pandemic, customer expectations will shift to expect hotels to also offer this option.
5. IoT Tracking Technology
IoT technology is being used to track employees and monitor and record sanitary efforts, assisting in social-distance measures, and ensuring regular sanitation of shared spaces. This technology improves accountability and efficiency and allows employees to focus on doing their job without having to balance and track various cleaning duties. It also increases transparency and allows hotels to ensure their visitors’ safety. Managers are able to track all activity and should there be an employee who tests positive for COVID-19, it becomes simple to trace their interactions and stop the spread. Managers can also use these applications to supply safety checklists and manage PPE inventory. Are they also used for employee management/resourcing i.e. they use it to figure out how many staff they need at certain times? Several companies have released variations of this technology, such as CLEANtracker, SmartRefill, TraknProtect, ALICE, PurpleCloud, Smart Wearable, and StaynTouch.
6. Video Tours
Traditional face-to-face interaction and charm are harder to rely on in a time when people are reducing their in-person interactions. This can make securing a group of guests or event bookings difficult as you can easily be lost in a sea of emails. Video tours are a way to offer personalized tours to your guests without having to secure a phone or video call appointment. The key to this strategy is personalization, because virtual tours can be available on the website for many hotels, but a personalized walk-through of the property and its amenities as they apply to a potential client is unique.
How Will I Pay For This? Budgeting Tech
7. Outsourced Room Service
Hotels need to find ways to cut unnecessary and wasteful costs in order to keep profit flowing in this reduced market. Room service can often be a costly amenity to offer as it has to be available 24/7 but if often under-utilized. Brands like Hilton, Marriott, Hampton Inn, and Holiday Inn are already using outsourcing technology to trim cost and increase revenue. As guests return to hotels after the pandemic, fast and affordable room service will become an essential service as people are wary of restaurants and public spaces. Companies like Butler Hospitality create local hubs so that four kitchens can service 119 hotels and a number of other “ghost kitchens” exist too.
8. IT Infrastructure
Hoteliers are looking to cut unnecessary costs without compromising quality of service, especially as guests will expect more from their stay as the market changes. IT infrastructure can determine where money will be best spent and actually save hotels money while providing better coverage and services for guests. Companies like Jet Hotel Solutions offer cost-saving services that promise to reduce operating costs, mitigate risk, and provide the best solutions for guests and staff. They won’t just focus on upgrading, but will also focus on can be reused, ensuring that all safety and franchise standards are met.
9. Revenue Management
M3 is a cloud-based financial and data management platform and Avero is a restaurant revenue management software company. Together, they have launched a cloud-based accounting service for the food and beverage industry. This new integrations and revenue management software will allow users to create and change menus, reduce food cost and waste, and improve server performance. This software can be integrated with over 50 F&B POS platforms to merge seamlessly with your business.
10. Guest Room Design and Renovation
While brand-mandated renovations and PIPs have been delayed to give hoteliers some space whilst managing the impacts of the pandemic, some have taken advantage of low occupancy to move ahead with renovations, and other new builds or conversions have continued on, and there will be a time when they are part of a hotel’s requirements again. There is also a perception from guests that a newer hotel is a cleaner hotel. Still, hoteliers cannot afford to spend any more time or money than they need to. HotelFurniture.com offers a new, more efficient way to conduct renovations and new builds that will soon become the new norm. They offer an all-in-one platform with brand approved designs and brand approved items that streamlines room renovations and new builds, so owners can focus on their guests. They seek to amaze hoteliers by innovating the design and procurement process and hotels can complete their projects online and on time with a simple, stress-free process. Their digital platform provides an end-to-end experience, from design to procurement to delivery of furniture, fixtures, and equipment. They help hotels design and preview guest rooms with clear, 3D renderings, expedite project timelines, minimize duplicate and redundant work, manage brand submission approvals, streamline FF&E procurement, and track projects with convenient vendor transparency and delivery details.
Contactless, Competitive, Efficient
By implementing a combination of these ground-breaking technologies, you can save the money you need to invest in the upgrades your customers want. By providing a fast and contactless experience from start to finish, your hotel can become a safe haven for health-conscious travelers to relax and enjoy their destination.
The customer’s focus has shifted from aesthetics to safety. Have them walk into your lobby and think “this is safe, this is clean, this is a place where I can relax and trust that I am in good hands.”
Managers can keep track of their guests and employees’ safety and satisfaction more easily and in-real-time than ever before with IoT and POS services. These advancements in the industry are not only about adapting to the health concerns and practicalities of travelling in a pandemic, but streamlining the entire customer service experience and creating a more profitable business in any market.
It may seem daunting to make a large investment in a down market, but these technologies will bring profit and reduce cost, helping your company to thrive.
Leslie Fabian is the Director of Business Development at HotelFurniture.com. To see a free demo, please click here. Having years of experience at the hotel and property levels as well as a design and procurement firm, she is dedicated to giving outstanding service and understands and anticipates the day-to-day needs and challenges of her clients, and loves sharing new ways that hotels can save time and money.
Are you an industry thought leader with a point of view on hotel technology that you would like to share with our readers? If so, we invite you to review our editorial guidelines and submit your article for publishing consideration.
How Rich Investors And Ex-Cons Fit Through A ‘Small Business’ Program’s Loopholes
Loopholes in a federal pandemic relief program allowed the approval of millions of dollars in “small business” assistance for Chicago-area companies tied to notoriously corrupt suburban contractors, the richest member of President Donald Trump’s cabinet and a wealthy Republican congressional candidate in next month’s election, a WBEZ investigation has found.
In late March, soon after the coronavirus pandemic led to shutdown orders in much of the country, Congress and Trump began the Paycheck Protection Program. Intended to save jobs, the forgivable PPP loans quickly channeled more than half a trillion federal taxpayer dollars to more than 5 million companies across the country at a time of spiking unemployment.
Trump and other proponents touted PPP as an effort to help struggling small businesses make payroll. The eligible companies were defined primarily as businesses with fewer than 500 employees.
The loan-application process also included safeguards to keep the money out of the hands of business owners with criminal pasts.
But the U.S. Small Business Administration, which administered the giant program, faced widespread complaints that corporate interests and politically-connected players got PPP loans, even as minority-owned businesses and truly small companies had to wait longer for the money — or never got any.
And WBEZ’s investigation found the companies in Illinois that were approved for PPP loans included:
- The Palumbos, a family that was banned from bidding for federally-funded contracts due to corruption convictions in 1999. Now, a Palumbo family business has come up again in an ongoing government corruption investigation.
- A Chicago tech firm listed for years on the personal economic disclosure statements filed by Trump’s education secretary, Betsy DeVos. She has invested in a private-equity fund with an interest in the company.
- The ice cream shop chain of Republican congressional candidate Jim Oberweis — even though he has boasted during the campaign that he employed more than 1,400 people. The free-market conservative has previously spoken out against sending Americans more COVID-19 stimulus checks, even though his family’s business took roughly $6 million from a PPP loan.
The PPP rules are riddled with language that cleared the way for the approval of those loans and others that might appear to contradict the spirit of the initiative, which was a key part of the $2 trillion federal coronavirus aid package known as the CARES Act.
For example, the program’s application form required companies to disclose only felony convictions in recent years or ongoing criminal cases involving their owners.
Nothing stopped companies that have received money from wealthy private-equity funds from being approved for PPP loans.
And there was a long list of exceptions to the cap on the number of people that PPP recipients could employ, including a loophole that opened the way for even big restaurant chains to get millions of dollars each.
“The program had a number of loopholes,” says Aracely Panameño, co-leader of the small business lending team and director of Latino affairs for the Center for Responsible Lending, a national organization based in North Carolina.
She noted that many of the smallest businesses encountered great difficulty accessing PPP loans because they lacked preferential status with the banks processing applications for the funding. That was especially true during the crucial first few weeks after the shutdowns began and the program went into effect.
The rules permitting relatively big companies to participate in the program also were harmful to many businesses that have no employees besides the owner and other “microbusinesses” with less than 20 workers, she said.
“There’s an unfair advantage to those who are well-connected and a disadvantage to those who don’t have the connections,” Panameño said. “It is particularly pernicious to business owners of color.”
The SBA has refused to release the exact amounts of each PPP loan in the taxpayer-funded program. But a WBEZ GFN of SBA data found none of the 250 companies in Illinois approved for the largest loans — between $5 million and $10 million each — identified their owners as people of color.
Out of more than 1,100 companies in the state that got PPP loans of between $2 million and $5 million, only six said they were owned by African Americans, six by Hispanics and six by Asians, according to the data.
Those findings echoed similar reports on the racial inequities in the PPP initiative nationwide.
But the SBA’s regional administrator for the Great Lakes states, including Illinois, told WBEZ much of the data is incomplete and does not reflect all of the loans that went to minority-owned businesses.
“Could we have done a better job? Yeah,” Robert Scott said Monday. “But the goal of the program was to get the money out as fast as possible — save as many businesses and jobs as fast as possible.”
Scott noted that the program began taking applications within a week of getting bipartisan approval from Congress and from Trump.
“We were flying the plane and building it at the same time,” Scott said.
Many rules were added, he said, as the program developed, and that meant some loan money went to businesses that should not have been eligible for PPP assistance.
One of Illinois’ most notorious corruption schemes
The Palumbo family built many of the expressways in the Chicago area but found itself at the center of a notorious corruption case in the late 1990s. Three members of the family — Peter Palumbo and sons Joseph and Sebastian — were sentenced to prison terms for fraud after two of the family’s companies admitted overbilling for construction materials on road projects.
A state employee also got a prison term for taking bribes in the scandal, and the Palumbos promised to pay a total of $15 million in restitution and fines.
When the judge in their case said even those penalties were too little for what they had done, the top federal prosecutor at the time, Scott Lassar, replied that the plea bargain was actually good for the government.
That was partly because it avoided a lengthy trial, Lassar said. And according to news reports at the time, Lassar said the Palumbos agreed to a permanent ban from bidding on road projects funded with federal money.
But more than 20 years after the Palumbos were convicted and did their time, that ban has not kept the family’s current companies from raking in as much as $5.35 million in PPP money from Washington, according to federal and state documents.
Orange Crush LLC has 73 employees and was approved for between $2 million and $5 million on April 8. The managers of the company, which is based in west suburban Hillside, include Sebastian Palumbo, state records show.
A second PPP loan of between $150,000 and $350,000 was approved two days later for Palumbo Management LLC, which has 16 employees and is in northwest suburban East Dundee. Joseph Palumbo is a manager of that company.
The Palumbos did not respond to messages left at their companies.
Another entity involving Joseph Palumbo, PAL Land LLC of East Dundee, also has found itself at the center of a burgeoning corruption scandal this year.
William Helm, a longtime Chicago political operative and city Aviation Department official, has been charged with paying a bribe to a state senator to help win approval for an East Dundee project involving Helm’s consulting client, PAL Land LLC, according to court records and a source close to the investigation. But the Palumbos have not faced any allegations of wrongdoing in the case.
And neither their old criminal records nor the ongoing federal investigation prohibited the Palumbos from getting federal PPP aid.
The blank application forms for prospective PPP borrowers state that applications will not be approved if an owner of the company is “presently incarcerated” for a felony or is currently facing “formal criminal charges.”
The only other ethical problems that could disqualify an applicant are committing a felony such as fraud in a federal loan program during the last five years or getting in trouble for any other felony in the previous year.
The SBA has rejected WBEZ’s requests for copies of completed, successful applications for PPP loans from Orange Crush and other Chicago-area companies, saying privacy exemptions in the open-records law prevent greater transparency.
Scott, the SBA administrator, said the rules limiting the eligibility of ex-offenders were loosened recently to allow for PPP loans to business owners who reformed themselves after criminal convictions.
“Our country, we’re all about second chances,” Scott said. “I understand there’s a lot of public corruption cases in Chicago and Illinois and elsewhere in the country. But there’s also a lot of people who had felonies … that reformed themselves, and started a business, and they’re successful now and turned their lives around.”
DeVos’ profits from Chicago company
DeVos, the federal education secretary, hardly fits the description of a struggling small business owner.
Her net worth was estimated at $2 billion, which meant she had twice as much money as the rest of Trump’s cabinet secretaries combined, according to a 2019 report in Forbes magazine.
The daughter of a successful business owner from Holland, Mich., DeVos married into the family that runs Amway, the multilevel-marketing company headquartered near Grand Rapids, Mich. Her father-in-law was a founder of Amway and her husband was its chief executive.
After Trump was elected in 2016, he appointed DeVos to lead the U.S. Department of Education, and that required her to file an annual public financial disclosure report.
Each year since she joined the Trump administration, she has listed her investment in a private-equity firm in Grand Rapids called Bridge Street Capital Fund I LP. DeVos also has disclosed each year that the fund “owns interests in” several companies, including Callpod Inc., which is based in Chicago’s Greektown. According to DeVos’ statements to government ethics officials, Callpod is a company that “sells universal cellular phone adapters, accessories, software and power modules.”
DeVos reported investing at least $351,000 and as much as $765,000 in the fund. She said the investment yielded no income “or less than $201” in 2016, 2017 and 2018. But in her latest disclosure form, filed on May 14, she said the fund that invested in Callpod had earned her more than $44,000 last year.
Callpod was among the wave of companies that got help from the first round of PPP funding. Federal data show Callpod got approved for a loan of at least $2 million and as much as $5 million to help it meet payroll for 138 employees on April 6.
The SBA disclosed that loan among more than 27,000 in Illinois when it first provided some data on the PPP program in July. But in subsequent data released in August, Callpod was no longer listed among the recipients of active loans.
Nobody at the company would answer questions about its loan application and approval, and federal officials refuse to comment on individual cases.
But the SBA’s Scott said many businesses that had other access to funding, including the Los Angeles Lakers basketball team and the Ruth’s Chris Steak House chain, gave back PPP money.
“You can’t fault the businesses for trying to navigate and trying to grab anything that was available to try to keep their employees paid,” Scott said when asked about Callpod. “But as we issued those rules, folks began to give the money back. … The situation you provided me, I’m sure that’s what happened. I don’t know that for a fact but certainly we have several cases where that occurred.”
Darren Guccione is co-founder and CEO of Callpod, and he also leads another company at the same address and office suite where Callpod is based. His other company, called Keeper Security, created “one of the most successful password-security apps out there” and had “earned millions of dollars in profit,” according to a Crain’s Chicago Business story in 2015.
Through a spokeswoman, Guccione declined to comment on the PPP application from Callpod or on the investors in that company.
The founder and managing director at the Michigan investment management firm in which DeVos has a stake did not return WBEZ’s calls. The fund began in 2004 with nearly $30 million, records show.
Private equity firms inherently have big advantages over small businesses and the companies they profit from should not have been able to tap PPP funding, said Don Wiener, a researcher with the left-leaning Center for Media and Democracy in Madison, Wis.
Private-equity investors “can go into capital markets and raise money with the enormous amount of cash they hold as collateral,” Wiener said. “Small businesses have no such ability.”
On her disclosure form, DeVos also reported income last year from a firm called Renaissance Acquisition Company LLC. That business is in Indianapolis and also got a PPP loan for between $2 million and $5 million, according to the SBA data. DeVos’ disclosure statement described the company as “the largest independent philanthropic solutions provider in North America.”
The Department of Education’s media office declined to comment “since this relates to the Secretary’s personal finances,” and DeVos did not reply to WBEZ.
“The franchise loophole”
In addition to his many runs for office as a conservative, free-market candidate, state Sen. Jim Oberweis, R-Sugar Grove, is best known as chairman of his family business, Oberweis Dairy.
Now, Oberweis is challenging first-term Democratic U.S. Rep. Lauren Underwood in the November general election. He again made reference to his success as a milk and ice cream magnate after winning the seven-way GOP primary in the 14th Illinois Congressional District in March.
In an interview on a conservative radio program on WIND-AM on March 31, Oberweis talked about how he built up an investment firm that had “$1 billion under management” and later bought the family dairy, now based in North Aurora.
“Since then, we’ve grown it from 50 employees to about 1,400 employees,” Oberweis told the show’s host, Steve Cortes, who later quit his Chicago talk-radio gig to work for Trump’s re-election campaign.
Eight days after that interview, Oberweis’ dairy business got approved for a PPP loan, according to federal records. A spokesman for Oberweis has said the loan was worth between $5.6 and $6 million.
In getting the loan, Oberweis Dairy took advantage of what experts say is perhaps the largest loophole in the PPP rules. Businesses that are in the “accommodations and food services” industries can work around the employee limit if they have “more than one physical location” and have fewer than 500 employees per location.
According to the Oberweis Dairy website, the chain includes dozens of locations in the Chicago area and additional outlets in the suburbs of Detroit and St. Louis.
Panameño, the advocate for small business lending, said many fast-food chains capitalized on what she called “the franchise loophole” in the SBA rules for PPP loans.
“They have access to capital that microbusinesses did not have,” she said. “A Black barbershop, an Asian nail salon, a Latina bodega owner who employs their own relatives and a couple other people from their community — they are not associated or affiliated with a large franchise company that provides access to capital. Those are the people that were left out.”
Like Oberweis Dairy, another chain company in Illinois that got a major PPP loan was Potbelly Sandwich Works LLC of Chicago. The chain of sandwich shops initially won funding, then gave it back after a public backlash — only to accept $10 million, after all, on Aug. 7, records show.
The only other companies in Illinois that took advantage of that same loophole in the rules were three Burger King, Marco’s Pizza and McDonald’s franchisees. On its website, the McDonald’s franchisees say they own and operate 24 restaurants with more than 1,200 workers.
Scott, the SBA official, defended the loophole, arguing that it helped low-wage workers in the restaurant industry who could have lost their jobs.
“The PPP program, when it was provided to these franchises, was not only a lifeline to the businesses but also to those employees,” he said.
Oberweis’ congressional campaign aides say he no longer takes a salary from Oberweis Dairy and his son runs it. But the candidate is the company’s chairman, did receive income from Oberweis Dairy last year and owns the “Oberweis Truck Barn” in North Aurora, according to his economic-disclosure filings as an Illinois lawmaker.
Aides to Oberweis did not respond to WBEZ’s questions about how he would vote on future pandemic-relief proposals, if elected next Tuesday.
But in his radio interview in March, Oberweis said he strongly opposed another key component of the CARES Act — the program that sent $1,200 checks from the federal government to many Americans. He told Cortes he opposed any aid of that sort because he thought federal help should have gone just to those who are jobless.
“People who have kept their jobs and are continuing to work are going to be OK,” Oberweis said. “Just issuing people checks — I don’t think that works so well.”
Disclosure note: Chicago Public Media, the nonprofit that operates WBEZ, received $2.8 million in PPP funding that a spokesperson said enabled the company to avoid layoffs or furloughs for the first few months of the pandemic. Chicago Public Media ultimately laid off 12 employees.
Dan Mihalopoulos is an investigative reporter on WBEZ’s Government & Politics Team. Follow him @dmihalopoulos.
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