Contributor, Korn Ferry Institute
This Week in Leadership (Sept 20 - Sept 26)
Why job switchers aren't getting that much more money. Plus, leadership lessons from Angela Merkel and her very long tenure.
Long before Steve Jobs met Steve Wozniak, or Bill Hewlett met Dave Packard, Peter met Svend and begat Bang & Olufsen from a farmhouse deep in the Danish countryside. Founded in 1925, Bang & Olufsen has long been an icon of high tech wedded to high style, and has sustained a culture of innovation longer than Apple, longer than Hewlett-Packard, longer than just about any other company.
But even giants can stumble. By 2008, when the global financial crisis struck, B&O was poorly positioned, with aging products and a workforce that had grown complacent from years of strong sales at high profit margins. At a time when consumption of music and video was moving rapidly to small portable devices and mobile phones, B&O’s core audio offerings were still compact disk players, albeit beautiful ones, and large-screen televisions, which although undeniably elegant, were priced far higher than products from market leaders like Samsung. The company posted losses for several years.
This was the scenario that confronted Tue Mantoni when he was plucked from B&O’s board to become president and chief executive officer. A former consultant with McKinsey and Co., Mantoni had earned a reputation as a turnaround artist as president and chief executive of Triumph, Great Britain’s revered but long-underperforming motorcycle manufacturer. Though Danish, Mantoni had lived in the United States and the United Kingdom for a number of years. With a young family, he was ready to return home to his roots, and ready for a fresh challenge.
“The opportunity, combined with a sense of responsibility, made me decide yes,” said Mantoni, 37, in an interview at B&O’s headquarters in Struer, Denmark. “Because I’d been on the board, I’d had a peek into the business at that level. But you realize there’s a lot you know when you’re on the board, and a lot you don’t know. I would say now, 18 months into it, that the challenges have been bigger than I expected, but the opportunities are also bigger than I had hoped for. What I saw was a brand with 87 years of heritage and success, which is really unmatched in the industry.”
That heritage is one of serial innovations. The founders, Peter Bang and Svend Olufsen, began by creating the first table radio that could be powered directly by household electrical current, or AC. In the 1920s, a radio was still a luxury item that also required a large set of accumulator batteries to light its many vacuum tubes, which tended to go flat at inopportune times. Peter Bang developed a power supply called the Eliminator, which could be plugged in. Despite competitors’ advertisements showing electric chairs and electrocuted children, the product was a hit.
The young company diversified into gramophones, and through a subsidiary, projection and sound equipment for movie theaters. A Bang & Olufsen radio was the first to offer multiple presets for different stations, and the company also introduced the first phonographs combined with an accompanying wire, and later, tape, recorder. The Danish royal family were steadfast customers, as were theaters throughout Northern Europe. Although Nazi forces bombed the B&O factory in 1943, a tip from the Danish Underground allowed employees to remove key design documents, and they were able to rebuild from the ground up in one year. Despite the devastation, there were no layoffs.
As hi-fi, stereo and television became must-have items for the burgeoning postwar middle class, B&O was ready with products that offered a unique combination of performance and Bauhaus-inspired design. Seven of the company’s sleek audio components earned places in the Museum of Modern Arts’ permanent collection in New York. Standout products included the BeoGram 4002, a turntable whose pickup arm travelled across the record in a straight line, rather than an arc, thus reducing tracking error and distortion. One CD player, the BeoSound 3200, featured doors that magically opened to a wave of the hand, while another, a wall-mounted unit called the BeoSound 9000, mounted six disks at once, with a laser that flitted from one to another in a fraction of a second.
The trouble was that some of these products, launched in the 1990s, were still in the line 15 years later, and cool though they still were, were no longer perceived as cutting edge. Worse yet, for young people, especially Danish young people, there was an element of “your father’s Oldsmobile” about the product line. Aside from headphones, there were no mobile products, nothing for an iPod.
“The direction that most technological innovation takes today has to do with mobility, and an integration between physical space and online social communities or streams of information,” says Jeppe Trolle Linnet, who is researching the intersection of technology and culture at the University of Southern Denmark. B&O “had a connection to the domestic sphere and to the home which doesn’t really symbolize mobility. It’s an association with the parental generations, something slightly bourgeois, striving to show your good taste.”
For Mantoni, who favors Converse tennis shoes with his slacks and blazer, that was a fatal flaw. “When I came in we decided to kill those products, he said. “They were successful for us, but they pointed to the past.” Indeed, there are no CD players in the current B&O line; their place taken by units like the BeoSound 5, a network audio player that accesses digital files in any of the current formats, as well as Internet radio. It also links to DVD and Blu-ray players from other manufacturers. It looks like no other stereo component ever made, and in a typical B&O touch, features a selector knob that spins silently until you slow down to pick a selection, whereupon it emits subtle clicks for each album.
But the company needed more than new products. Revenues had fallen from $853 million to $528 million between 2008 and 2009, dragging the stock price with it from $52 to $8.50. The founders’ families were forced to merge their voting shares with the broader public shares, Mantoni was given a mandate to shake up the management suite, and hundreds of employees were laid off. But don’t call it a turnaround.
“When you talk about a turnaround, that is a quick fix,” said Christian Iversen, vice president for corporate services, who was recruited from Lego, that other iconic Danish company. “But in a company like this, with our brand reputation, it is much more about transforming the company for the future, rather than just getting back to profitability and then continuing business as usual. We didn’t need a turnaround, we needed a transformation.”
Picking Six Battles
Toward that end, Mantoni and the revised senior management team defined six must-win battles. “The ambition was to make very clear what the six areas are where we needed to win, where we needed to be successful,” he said. “These describe where we are today, and where we want to be in the future. We identified key performance indicators and defined a five-year horizon. The first two years are for fixing problems. After that we see significant growth potential.”
Among the six battles, the team determined that acoustics is the hero, meaning loudspeakers for the home, for televisions and in automobiles, where B&O is a supplier to Audi, BMW, Mercedes and Aston-Martin. With a fresh emphasis on acoustics innovation, this is an area where the B&O magic is readily apparent. A visitor is proudly shown to a model listening room, patterned after a typical Danish living room, right down to the shelves full of books and Mid-century Modern furniture. The speakers, initially hidden behind an acoustically transparent but visually opaque black curtain, turn out to be far smaller than their symphonic sound would suggest.
Indeed, project coordinator Jens Rahbek sees a parallel between this illusion and Bang & Olufsen’s market position. “On a worldwide scale, B&O is a small company. But in terms of loudspeakers, we are not small. Only Harman and Bose are larger.”
That relative preeminence allowed B&O to recruit worldwide for acoustics engineers to come work in Struer, a fjord-side hamlet about four hours’ drive from Copenhagen. “We can attract people from all over the world to move here with their families, here in the middle of nowhere,” said Mantoni. “What draws them is the opportunity to innovate, but you have to focus. I’d much rather try to attract 20 acoustics engineers than three each across seven disciplines.”
At the same time it was adding engineers in-house, B&O was not shy about reaching out. A tiny engineering firm in Sausalito, Calif., developed the acoustic lens technology that allows the company’s speakers — large, small and even automotive — to produce a coherent stereo image regardless of the listener’s position in the room or the car. B&O also acquired technology for digital amplifiers that allows it to pack one to three powerful amplifiers in each speaker, delivering up to 2,500 watts per side.
Battle No. 2. was perhaps the most dramatic, the launch of a new product category, indeed a new brand called B&O Play. If B&O had previously ignored Apple to its peril, Play is explicitly Apple-centric, though it is also compatible with Google’s Android technology. Play products include docking stations, including the first one to work with Apple’s new iPhone 5; a streaming audio player styled after the company’s portable radios from the early 1960s; and a new lower-cost television, in 32- and 40-inch sizes. All of these products support Apple’s AirPlay and Google’s DLNA standards, so music can be instantly streamed from mobile devices like iPods, iPads and iPhones and their Android equivalents. In a first for B&O, the Play products are sold online, and through Apple stores.
“Internally, we call the target customers Mr. and Mrs. Mac, but it might just as well be Mr. Android,” said Zean Nielsen, president of Bang & Olufsen U.S.A. “These are individuals who are launched into their careers in their 20s or early 30s. They want fantastic picture and sound, but they want to control everything from their smart phone. We use Apple AirPlay or Android DLNA, so when you walk in the door, the devices recognize each other and then stream wirelessly. Plus whoever comes over can whip out their iPhone and play a track, or play DJ for the evening.”
In a way it’s surprising that B&O ignored Apple for so many years because Apple engineers have often expressed an admiration for the company’s wares, and its co-founders were both known to be B&O owners. And the famous division between Steve Wozniak, computer nerd par excellence, and his design- and marketing-savvy partner Steve Jobs, in some ways mirrors the balance between Peter Bang, an inveterate inventor, and the aristocratic Svend Olufsen, who focused more on marketing the company’s innovations.
“I had Bang & Olufsen equipment in my home in an era when no other hi-fis had remote controls,” said Wozniak, Apple’s co-founder. “I learned a lot about products being simple, and fit to the hand, and thinking for the human touch. B&O has very ‘Apple’ approaches, very right. I applied a lot of this inspiration when I developed products like my CORE remote control,” he said, referring to a universal remote he developed after leaving Apple.
Referring to his Apple co-founder, the late Steve Jobs, Wozniak said B&O was the gear “he would have placed above all others because of how it worked with humans. I’d see a few buttons on the unit itself and hit one, maybe for radio, and then others would light up out of nowhere that were appropriate for radio. So beautiful. Apple gear never quite got to the same quality level in many ways, but Apple was priced better for mass consumption.”
Many years before Apple opened its own retail stores, B&O had pioneered the concept, and for much the same reason. Traditional stereo and TV stores were ill-equipped to sell its more idiosyncratic and inevitably more expensive products, so they tended to languish in a corner. Unlike Apple’s stores, many B&O outlets have independent owners, though they all receive training and support from the parent corporation. By the time Mantoni came on board, B&O had about 700 stores, a unique asset, but they were disproportionately based in Europe and in particular, in Denmark, so battle No. 3 became optimizing the retail network. That means adding new stores in the United States, Asia and South America, but also trimming old, underperforming stores.
“You need to make sure the stores are profitable, because if they’re not they’re going to cut corners, hire people who are less than the best,” said Mantoni. “Of the 700 stores, the bottom 10 to 20 percent are never going to make it, so I’d rather see them go away,” he said. While the corporate-ownership model obviously works for Apple, it is too capital-intensive for a smaller company like B&O, and there is an additional advantage to independent owners, he said. “You should not underestimate the importance of the personal relationships. The guy who installs your BeoSystem is walking around in your bedroom. If you have friends over and there’s a problem with the system, you’re going to get that guy on his mobile phone, and some of these guys have been around for 20 years. It becomes much more than a supplier-customer relationship.”
Battle No. 4 was to increase B&O’s presence in the so-called BRIC countries: Brazil, India, Russia and China. Central to this effort was a strategic partnership with Sparkle A, a Chinese retail distribution network, and A Capital, a China-based financial firm. The new partners were issued new shares that gave them a 6.12 and 1.72 percent stake, respectively, in B&O, in return for a capital infusion of 177 million Danish krone, about $30 million at the time. B&O corporate also took over management of retail operations in Hong Kong and southern China and established a master dealer in India.
No. 5 on the list of must-win battles was to transition research and development processes, with a major focus on bringing new products to market much faster and more economically. Central to this effort was the opening of a new facility in Singapore, chosen for its proximity to suppliers in Asian countries, and the high quality of the local workforce. Although B&O still manufactures many finished products in Struer, it also has a major plant in the Czech Republic and sources components from all over the world. As part of the restructuring, B&O opened a small software-development department in Aarhus, Denmark, a major university town, to take advantage of the engineering talent pool there.
Finally, battle No. 6 was simply to speed up execution throughout the organization. This included the implementation of a trimmed, nimbler workforce; moving the sales and marketing department from Struer to Lyngby, a suburb of Copenhagen; and the consolidation of European sales regions from four to two.
The business logic behind B&O’s transformation is that the new brand, B&O Play, as well as the automotive business, will both drive growth and bring fresh customers to the core luxury brand of Bang & Olufsen. Strategic priorities for the coming year include further expansion of the acoustics product portfolio; to continue building B&O Play with an expanded product line; to increase the number of retail outlets outside Europe and further reduce the European store network to improve quality, customer satisfaction and dealer profitability; continued expansion in China; and to lift organizational skills and competencies, with a particular emphasis on innovation and sales and marketing.
In the United States, Bang & Olufsen looks to expand its sales presence through its new partnerships with Apple and by opening more B&O stores across the heart of the country. Currently, B&O stores are clustered on the coasts, but even here there are notable gaps — no stores in Seattle, for instance. While B&O Play is a cash-and carry-business, the company is building on the custom-installation aspect for its luxury brand, a major differentiator from competing manufacturers.
“We like to sit the customer down and have an interaction while they enjoy a glass of wine or a coffee, and then go to their homes, so the system can be integrated,” said Nielsen of B&O U.S.A. “It’s a custom-installation sale, rather than a retail sale.”
Although audio enthusiasts are notoriously fickle, changing components as their enthusiasms wax and wane, the strong design element helps make Bang & Olufsen a perennial. It consistently scores high on the so-called WAF, an industry term meaning “wife acceptance factor,” which is not to be underestimated.
“B&O has understood for decades a truth that escapes most of the audiophile community — that innovation involves more than advancing circuitry,” says Ken Askew, a San Francisco audiophile and former reviewer for Stereophile magazine. “B&O has done more than its share of that for a very long time, but with the added dimension of producing equipment that insinuates itself into customers’ lifestyles instead of intruding on them. Music and the visual arts are sensual, and that should be the touchstone for equipment design that brings them into the home.”
Design consultant Michael Jager, a partner in Jager Di Paola Kemp Design, said B&O needs to work harder to put a human face to their leading-edge design, the way Apple has made its chief designer, Jonathan Ive, the face of every new product launch. “They need to work on the humanization of the brand, within the ‘maker culture,’ ” he says. “They need to show: ‘We build and make this.’ What does that look like, feel like and sound like? I think they need to telegraph that a lot more graphically.”
Early signs are that the new management team’s efforts are paying off. For fiscal year 2012, which ended in June, revenues were $522 million, up from $487.56 million in the previous year. And B&O is profitable again, with earnings before tax of $18.05 million, compared with just $6.94 million in fiscal 2011.
Mantoni is cautious about the near-term financial outlook, noting that the economic crisis in Europe will weigh on Bang & Olufsen’s results even as the BRIC countries provide new growth. The turnaround is complete; the transformation is still a work in progress.
“Impossible to Objectify”
On approaching Bang & Olufsen’s headquarters in Struer, the glass doors silently glide open in a move reminiscent of the company’s classic BeoMaster 3200 that is by no means coincidental. The executive wing is a transparent structure of aluminum and glass that appears to float above the ground. And the reception area is an oak-floored, high-ceilinged room, devoid of furniture, logos or product, but graced by a black concert grand piano, and, on one wall, the company’s new mission statement: Bang & Olufsen exists to move you with enduring magical experiences.
If as Socrates famously said, the unexamined life is not worth living, for a human being, Bang & Olufsen has long applied the maxim to corporate life as well. To a degree unusual for any company, the company has long paid a high degree of attention to maintaining and advancing a culture that deemphasizes traditional hierarchy in favor of more flexible forms and individual initiatives. Bang & Olufsen has long prided itself on being a values-based organization, a conceit that plays out in a notably flat management structure, which is mirrored in the transparent construction of its offices.
“Contrary to the iron cage, the glass cage suggests the idea of a ‘greenhouse,’ which encourages and inspires personal growth,” Jakob Krause-Jensen, an anthropologist and associate professor at the Danish School of Education, Aarhus University, wrote in “Flexible Firm, The Design of Culture at Bang & Olufsen” (Bergahn Books, 2010). “The glass cage is not the site of an indiscernible, managerial omnivision. On the contrary, in the case of Bang & Olufsen, it is the administrators, the staff, the ‘prison keepers,’ who are exposed to being watched as well.”
For his ethnographic study, Krause-Jensen spent six months working at Bang & Olufsen, primarily in human resources, but also in product development, which is considered the heart and soul of the company. He found an organization that expends considerable time and energy on its culture, bringing in Danish management thought leaders like Professor Majken Schultz of the Department of Organization at Copenhagen Business School, but also the organizational culture guru Edgar Schein from the Massachusetts Institute of Technology.
“There is a clear empirical connection between Edgar Schein and the managerial thinking at Bang & Olufsen,” Krause-Jensen writes. But “the concept of ‘culture’ is not used strategically at Bang & Olufsen,” he adds. “In the most common native understanding, it is ‘the way we do things around here,’ tied to locality and practice, and seen to be almost impossible to objectify.”