1

Bang & Olufsen

DEBASISH KAUSHIK

492135

SYSTEMS ENGINEER

TATA CONSULTANCY SERVICES

Electronic copy available at: http://ssrn.com/abstract=2198199

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Table of Contents:
1. Introduction..4
2. Business Line.................4
3. Product Line .7
4. Distribution Strategy..8
5. Financial Figures of Bang & Olufsen (2010-11).9
6. Marketing Strategies11
6.1 The Competitive Approach .12
6.2 The Quality Approach..12
6.3 The Differentiation Approach.12
7. Strategic Analysis.13
7.1 PESTEL Analysis....13
7.1.1 Political Aspects..13
7.1.2 Economic Aspects..14
7.1.3 Socio-Cultural Aspects.15
7.1.4 Technological Aspects....16
7.2 Porters Five Forces.17
7.2.1 Bargaining Power of Suppliers..17
7.2.2 Bargaining Power of Buyers...18
7.2.3 Threat of New Entrants..19
7.2.4 Threat of Substitutes.20
7.2.5 Competitive Rivalry..20
7.3 Core Competencies.21
7.4 Porters Generic Strategies22
7.5 BCG Matrix23
7.5.1 Question Marks...24
7.5.2 Stars..24
7.5.3 Cash Cows....25
7.5.4 Dogs..25
7.6 Conclusions from SWOT Analysis..26
7.6.1 Strengths27
7.6.2 Weakness..27
7.6.3 Opportunities.28
7.6.4 Threats28
7.7 Analysis of the Leaner, Faster, and Stronger Strategy (2011)29

Electronic copy available at: http://ssrn.com/abstract=2198199

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8. My Suggestions For B&O (using ansoff matrix)..31

8.1 Market Penetration.32
8.1.1 Collaboration with Successful Organizations..32
8.1.2 Increase Sales by aggressive marketing.33
8.2 Market Development.35
8.2.1 Business Jets Market...35
8.2.2 Forming partnership with High-end cars in developing countries..36
8.3 Product Development...36
8.3.1 Collaborating with Academic Institutions ...37
8.3.2 Collaborating with Freelancers....38
8.4 Diversification....41
8.4.1 Airbus & the US...41
8.4.2 Venture Capitalist.....43
8.4.3 Spinning off a Low Cost Product Company..44
8.4.5 Productive Paranoia....47
9. Conclusion....48
Bibliography..51
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1. Introduction:
Bang & Olufsen is one of the oldest manufactures of home entertainment. Established in 1925,
its products are seen as a synonymous with art. The technology is rarely ground breaking but
the quality of materials, the user interface and the design is second to none. In its 85 year
history, it has faced many challenges and has overcome most of them to establish itself as a
unique brand. Its product range is small and the prices are generally seen as high. The company
has won innumerable design awards and a number of its product has earned a place in the
museum of modern art, New York. The companys future may not result in the same growth
and profit leading up to the financial crisis. B&O is faced with uncertainties as it faces as it
encounters troubles with due to higher cost, competition, economic crisis, and management
problems. A lot has to do with how B&O manages innovation and how it implements its
innovation and marketing strategies. Lets discuss what are the problems facing B&O and how it
can be resolved in the current scenario.

2. Business Line:
There are many competitors of B&O and many among these are leading players have their own
domain specialization. There are many players in the home entertainment sector. But most of
them make either audio or video products with a fewer of them are having an actual presence
in both.

B&O chief competitors in audio sound systems are (these also includes the Car Audio systems
manufactures)

1. Voxx International Corporation.

2. Boss Corporation.
3. Altec Lansing
4. Sony
5. Panasonic
6. Boston Acoustic Inc.
7. Harman International Industries.
8. Blaupunkt.
9. Pioneer Corporation.
10. Alpine Electronics.

In the video product market segment B&O is facing competitions from

1. Samsung.
2. Philips
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3. Sony
4. LG
5. Apple Inc
6. Loewe
7. TCL
8. Sharp.

But B&O is not in direct competition with most of them. This is because B&O does not target
the mass market. B&O mostly appeals to customers who have a taste in luxury and lifestyle and
who appreciates the finer aspects of art and technology. B&O has in its 85 years from inception
has brilliantly positioned itself to be the manufacture of high-end audio/video products.

So, the companies which are a real concern for B&O are

1. Loewe
2. Sony
3. Samsung
4. Blaupunkt.
5. Apple Inc.
6. Boss Corporation.
7. Harman International Industries.
8. Boston Acoustic Inc.
9. Panasonic
10. Pioneer Corporation
11. Voxx International Corporation
12. Alpine Electronics.

Loewe: This is a German company which manufactures home entertainment systems for
premium customers. Established in 1923, they like B&O also stresses on the design aspects of
the product. B&O faces a good threat from this company as like B&O it does most of its
business in Europe.

Blaupunkt: This is also a German company. It is a 100% subsidy of Robert Bosch GmbH. It
competition to B&O is in the car audio system market. Like B&O, they also make audio system
for notable companies like GM. Though doesnt compete directly with B&O in the premium
market, but has the potential to eat into its market share. Its advantage is its long presence in
Europe and the knowledge of the market dynamics.
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Sony: With its commitment to quality and consistent dedication to customer satisfaction. Sony
is recognized as a benchmark for New Age technology. Sony adapts Digital Signage, which is a
powerful tool to influence Customer behavior, both at point of purchase and at point of sale.
Sony always responds quickly to catch the popular lifestyle accepted by most of the people.

Samsung: Samsung catches up with any new product very fast. They have a history of rolling
out a similar product, which has appealed to the customers, fast with some enhanced features.
Its threat to B&O is limited by the fact that Samsung intends to do only mass marketing. On the
flipside, Samsung produces much tech savvy equipments and with the global economic crisis,
people are finding their products much appealing as customers are becoming much opposed to
spending.

Apple Inc: This is another company that must be taken seriously by B&O. Recently they have
become a $500 billion company by market capitalization. They have more than $100 billion
with them in cash reserve. This means they can spend more in R&D and come up more quickly
with some new disruptive innovative product that will reduce customers focus on home
entertainment. An example is the iPad which has to some extent shifted people attention from
traditional Laptops.

Panasonic: This is a Japanese company. It competes with B&O in every front. Although they do
not restrict themselves from premium customers in home entertainment segment, but are a
direct competitor to B&O in car audio system market. Panasonic sells audio products for cars
and light trucks under the Panasonic brand (aftermarket) and as OEM equipment in automobile
brands including Honda, Subaru and those of General Motors and Volkswagen.

Harman International Industries: It is an American audio and infotainment equipment

company. The company designs, manufactures and markets audio and infotainment products
for the car, the home, theatres and venues, as well as electronics for audio professionals.
Harman's automotive division sells branded audio systems through several car makers,
including Mercedes-Benz, BMW, and General Motors. Its most famous brand JBL has an
exclusive agreement with Toyota to have its audio systems in all of its products.

Voxx International Corporation, Alpine International, Boss Corporation, Pioneer Corporation,

Boston Acoustic Inc:
These are all companies which make car audio systems for different manufactures. Some sell
them as OEM to leading car companies. They are big challenge to B&O if B&O wants to extend
its footprint as a car audio system manufactures for luxury cars without doing so as an OEM.
Some like Boss Corporation also makes loudspeakers which have high quality sounds which are
a direct competition to B&O sound speakers like BeoLab series.
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3. Product Line:
B&O is a producer of high-quality, stylish and expensive audio and video products. Soon after
its inception, significant technological innovations and the use of unusual components soon
established a solid reputation for the company, as reflected in their first slogan: B&O the
Danish Hallmark of Quality. Later, the company followed a strategic reorientation that
associated style and design with technical quality, and a new marketing strategy based on the
identification of a global segment of customers interested in their highly differentiated product.
In differentiating Bang & Olufsen in the marketplace, conscious and consistent efforts to
communicate the essence of the product were considered as important as technical quality.
The products offered by Bang & Olufsen are therefore regarded as lifestyle products. Each of
them is manufactured to the highest standards, and that last 15-20 years instead of the
industry typical 24 months. Bang & Olufsen conducts a niche marketing strategy by operating
under a completely different margin scheme than any of the large, well-sourced players like
Sony, Philips, Samsung, Panasonic and Thompson, who all need market share to be visible and
profitable.

Their main products range from audio devices, televisions, telephones, loudspeakers, digital
media, and home integration. Additionally, B&O, among others, equip hotels and exclusive
property projects with audio/visual products through their Enterprise department. B&O focuses
on sales to hotels and the companys products are currently represented in more than 200 five-
star hotels across the world. B&Os partnership with these international hotel chains
worldwide as well as the highly individual niche hotels guarantees quality entertainment
solution that adds unique value and differentiation to the world class interior design. They also
develop Car-HIFI for Audi, Mercedes, BMW and Aston Martin in their Automotive department,
and benefit from patents on special technology developed by B&O, e.g. the compact digital
amplifiers managed in the ICE power subsidiary. The B&O brand was the Best Brand 2012 in
the Car-HIFI category by Auto Motor und Sport.

Bang & Olufsen develops and markets a unique range of audio/video, communication and
multimedia products. All the products are integrations of design, quality, aesthetics, and
functionality, which are easily differentiated from the products of other companies. According
to the feature of target customers, Bang & Olufsen discovers that their clients usually do not
know what they really want. They desire something that could stand out of the mass, or lasts
and represents something appeals to them, but not just follow the fashionable style. Bang &
Olufsen always keep the concept to produce groundbreaking products to satisfy its customers
needs and update their products more frequently in the dynamic environment. To ensure that
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all the products are in the highest standards, Bang & Olufsen only concentrates on fewer
product categories.

Bang & Olufsen has identified areas of core competencies that are central to innovative product
development and the engine of new business development. Areas in which B&O excels include
picture, sound, user interface, design, product integration, materials and finish. The main
factory of B&O is in Struer, Denmark where new ideas and concepts are first refined to the last
testing of finished goods occurs. Some of the important processes taking place in Struer include
plastic molding using B&O designed and manufactured tools, the milling, polishing, brushing,
other specialist surface finishing of aluminum, and the silk-screen and sublimation printing and
UV-lacquering of plastic and aluminum parts. B&O aluminum anodizing facility is one of the
most advanced in the world. Both sub-assembly and final assembly of the products are carried
out at the Struer facility and B&Os new factory in the Czech Republic.

4. Distribution Strategy:
Sales take place through two types of dedicated Bang & Olufsen shops -

B1 Shops, which mainly sell Bang & Olufsen products

Shop-in-Shops in which a substantial area of the shop is designed for, and exclusively
dedicated to, Bang & Olufsens products.

Irrespective of where customers purchase Bang & Olufsen products, they will encounter well-
trained personnel especially as Bang & Olufsen invests substantial sums in training shop staff.
Bang & Olufsens products are currently available from 690 B1 shops and 265 Shop-in-Shops.
The B1 shops accounted for 83 percent of turnover, with the Shop-in-Shop outlets accounting
for 17 percent in 2011. Bang & Olufsens strategy is to continue to focus on these two types of
shops with the B1 shops as the most important, and the Shop-in-Shop outlets as a significant
distribution channel in areas where the demographics do not justify a B1 shop. Bang & Olufsen
owns 42 B1 shops directly, mainly in Australia, the US and the UK.

Bang & Olufsens products are available around the world and 91 per cent of the companys
turnover derives from outside Denmark. In a number of markets, operations are handled by
Bang & Olufsens own subsidiaries, c.f. overview note 48, while sales and distribution
development in certain overseas markets is organized by highly qualified business partners.
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5. Financial Figures of Bang and Olufsen:

The Groups turnover for the 2010/11 financial year totaled DKK 2,867 million against DKK
2,762 million the year before, which equates to an increase of 4 per cent. This is in accordance
with previous guidance of a turnover level of DKK 2,850 million. But the turnover of B&O in
2007/08 was DKK 4,092 million. With the advent of the 2008 financial crisis, the sales of B&O
dropped. Adding to the problem is the fact that other companies are able to provide the better
and smarter technology with some competitive design aspects in a lower price. Although the
figures have improved than the last year still it is a long way from the pre-crisis figures
of2006/07 and 2008/09.
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The turnover in the branded business totaled DKK 2,787 million (see last fig) in the 2010/11
financial year against DKK 2,695 million last year. The increase in turnover was due to the
automotive business area(see fig below), which continued to grow and increased its turnover
from DKK 268 million in the 2009/10 financial year to DKK 452 in the 2010/11 financial year.
The Groups turnover for the audio-video division for the 2010/11 financial year was DKK 2,335
million against DKK 2,427 million last year. This goes on to show that the high-end deals with
BMW, Audi, Aston Martin and Mercedes are actually paying off in a great way.

6. Marketing Strategies:
Bang & Olufsen have tied with e-commerce giant Amazon to influence their customer behavior,
wherein products purchased by the customers will be provided with warranty registration
forms which allows customer to register the purchased products for support throughout the life
of the product.

Bang & Olufsen targets the elite group, which can be explained as upper class customers who
are educated, well-to-do, cultivated in their interests and highly individualistic and self-
motivated. These consumers are normally wealthy with high income and good taste. Most of
them have luxury houses/flats and cars. They would like to spend large amount of money to
achieve the same quality for their audio and video equipment, long before design-widescreen
TVs became fashionable. Bang & Olufsens designs attract both men and women with a
combination of high-end technology, spectacular and often audacious Danish modern styling,
excellent performance and extremely functional integration into the typical upper middle class
home (Austin and Beyersdorfer 2007). In addition to the luxury offers, Bang & Olufsen had
introduced a new range of smaller products (such as Serene) with relative lower prices to
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attract the wealthy fashion-conscious youth market. In a word, these customers are persons
who are willing to sacrifice a lot to get the very best in some particular area.

6.1 The Competitive Approach:

Bang & Olufsen always had a more 'high-brow' approach. It competes for upper middle-class
discretionary dollars. In the fact, there are no any direct competitors of Bang & Olufsen in the
high-end electronics industry, because it does not want to make mass-market products with a
broad appeal like its competitors products without any regard for the preferences and needs
of the individual end-users. Bang and Olufsen locates the showrooms close to its potential
customers residence. In addition to the normal working hours, all the services and showrooms
are made available to customers by appointment. Resources are selectively employed to serve
its end-customers intelligently. Bang & Olufsen highlights customization and personalization. It
charges premium price to makes individual products for individual people. Basically, all the
products share the same Bang & Olufsen qualities, but each of them has a specific design
profile that works individually to serve the end-customers in the market. The integration of
unique designs and high qualities are notable selling points of each product.

6.2 The Quality Approach:

In parallel with the design and quality, Bang & Olufsen, therefore, developed a marketing and
communication strategy - a "lifestyle" oriented strategy aimed at a smaller, but more
international target group. The targeting strategy was best encapsulated in the advertising
slogan of the period: "Bang & Olufsen is for those who consider taste and quality before price."
The products offered by Bang & Olufsen are therefore regarded as lifestyle products. Each of
them is manufactured to the highest standards, and that last 15-20 years instead of the
industry typical 24 months. Bang & Olufsen conducts a niche marketing strategy by operating
under a completely different margin scheme than any of the large, well-sourced players like
Sony, Philips and Samsung etc who all need market share to be visible and profitable.

6.3 The Differentiation Approach:

Bang & Olufsen is not built on a low cost structure. The advantage of cost leadership does not
exist. Each of the products from Bang & Olufsen is unique in the market. Product lies not only in
the way it looks, but also in the way it works. Intelligent technology, advanced features and
unconventional solutions are what set Bang & Olufsen apart. Under this strategy Bang &
Olufsen strengths and skills are used to differentiate the companys electronic products from
those of its potential competitors. The differentiation strategy creates, or emphasizes, a reason
why the target customers should buy from Bang & Olufsen rather than from its competitors. It
also creates a market-based advantage. In this way, Bang & Olufsens products can command
higher prices and margins and thus avoid competing on price alone. In addition, this strategy of
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B&O is hard for potential competitors to imitate, because the differentiation is integrative. All
the products are integrations of design, quality, aesthetics, and functionality.

7. Strategic Analysis:

In a static world, an analysis of the past accounts of a company would give enough clues to
project the financial developments of that company in the future period to come. However, the
business world is never static. But there is always a need to analyze the causes behind the
development of a company, in order to be able to make reasonable projections of the future
and set realistic budgets. The strategic analysis always helps to draw a profile of the companys
strength and weaknesses, which can be used to evaluate a companys possible opportunities
and evaluate the realism in the budget in accordance to its strategies. Now lets analyze the
external environment of B&O through the PESTEL-analysis and Porters Five Forces model in
order to see how external factors are affecting B&O and their strategy. Furthermore, an
internal analysis of B&Os core competencies and product portfolio will be carried out as well as
a determination of their strategy.

7.1 PESTEL-Analysis:
While analyzing the external environment there are a lot of issues to be taken care of, which
make it difficult to reduce the analysis to the environmental factors that are actually influencing
the company. To facilitate this problem the PESTEL-analysis is used to direct the attention
towards the political, economic, socio-cultural, technological, environmental, and legal aspects
of the external environment. Some of the aspects mentioned might have comparably little
relevance for a company at a moment in time. For B&O it has been decided to concentrate on
the political, economic, socio-cultural, and technological aspect. The legal aspect and the
environmental aspect is left out. The legal aspect can be related to other categories in the
analysis, especially the political and economic aspects. In addition, the environmental aspect
will be covered in the changing trends in the socio-cultural aspect.

7.1.1 Political Aspects:

National and international political decisions often affect companies greatly, since it is the
outcomes of these decisions govern the conditions and laws that the companies have to
operate under. One of the examples is the signing of the Treaty of Rome and there through the
introduction of the Common Market, which nearly extinguished the Danish radio industry.
Furthermore, the work of the World Trade Organization towards fewer trade barriers has
created a more liberal trade environment and has thus opened for an increased competition
from Asia in the European and American markets.
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The political decisions that will affect B&O most significantly in the near future will be the Spain
banks rescue plans that politicians in Europe are deciding. The sovereign policies obtained by
Germany keeping the Euro-Crisis in mind. Also to keep in mind, the policies the Denmark
government would take or have taken to counter a Euro-break up, which would be disastrous.
Moreover, due to this uncertainty, it would be difficult for B&O to raise more funds for
expansion or research.

U.S. lawmakers signaled deadlock in Congress over how to tackle critical fiscal deadlines
looming at year's end, including deciding whether to extend tax cuts for the wealthiest
Americans. A scenario known by economists as the "fiscal cliff" could unfold at the end of the
year. Historically low tax rates first enacted under Republican former President George W. Bush
in 2001 and 2003 are set to expire at the end of the year if Congress fails to act, as are jobless
benefits for the long-term unemployed and a temporary payroll tax cut. The policies relating to
this will be taken only after the elections in US, so this only fuels the uncertainty. The plan
adopted regarding the tax cuts will also affect B&O as America is one of B&Os important
markets. Hence the success rates of these rescue plans will through improvements in the world
economy boost the sales of B&O. This influence can be expected to be extra strong in the case
of B&O since they sell luxury items, whose sales is greatly dependent upon economic
conditions.

7.1.2 Economic Analysis:

As mentioned above, the current economic crisis has affected B&O in a negative direction. A
large part of this effect comes from the decrease in purchasing power that an economic
downturn brings with it. Especially companies selling high-end products are sensitive towards
these kinds of up- and downturns in the purchasing power.

However, as 91% of B&Os turnover is derived from outside Denmark, the economic trends
have also affected B&Os cash in and outflows through the movements in the exchange rates
and the decrease of PMI(Purchasing Managers index) of the respective countries. The foreign
currency that B&O by far deals most in is the Euro. The Danish krone is pegged to the Euro. So,
the krone is also pulled down with the euro in the euro-crisis. Being an exporter, this might be
helping B&O, but in the scenario of a euro break up or the euro losing too much of its value, the
consequences would be devastating for Denmark economy, which might affect B&O dearly, as
krone would than lose value very quickly which would dent B&Os purchasing power of raw
materials across the globe.

Other currencies which are of importance to B&O are British Pounds and Swiss Franc, which
have a net cash inflow, and US Dollars, which has a net cash outflow. So, the fall in the value of
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the British Pound has affected the cash inflow of B&O in a negative way. On the other hand the
negative trend in the value of the US Dollar has helped B&Os cash outflow. Looking at the
development since the ending of the financial year of 2010/11, the British Pound has
strengthen approximately from 8.45 DKK to 9.45 DKK its fall in value compared to the Danish
Krone, and the US dollar has strengthened approximately from 5.3 DKK to 6.1 DKK. For now, it
is helping B&O and will continue to do so if, B&O can keep buy its raw materials and OEMs
locally or from Europe, somehow circumventing the US.

7.1.3 Socio-Cultural Aspects:

The boom that was seen in the world economy before the financial crisis increased purchasing
power of consumers and increased focus on luxury design and status symbols. This indicated a
favorable ambience for companies like Bang & Olufsen. However, this also urged many of
B&Os competitors to focus on design as well, which could be seen in Apples iPods and
Samsungs flat screen TVs. These products are increasingly in sync with the type of style and
status symbol that consumers have been demanding, but at a fraction of the price of B&Os
products.

Another trend that should affect B&O in a positive direction is the increased awareness of the
environment and green production. Within this area B&O have continuously been trying to
improve their performance by e.g. reducing the stand-by electric consumption, changing their
packaging, and working on Corporate Social Responsibility.

Bang & Olufsen products primarily use energy efficient amplifiers from Bang & Olufsen ICE
power. In conventional amplifiers, only around 20 per cent of the input power is converted to
output power. The remaining approx. 80 percent is converted to heat. As a result, amplifiers are
normally equipped with large cooling plates to conduct the heat away from the amplifier.
Under normal conditions, Bang & Olufsen ICE power reduces power consumption by 70 per
cent. In addition to the fact that Bang & Olufsen ICE power amplifiers reduce power
consumption when the appliance is switched on, resource consumption is also lower because
no materials are needed for large cooling plates.

Lifecycle analyses of Bang & Olufsen products show that the greatest environmental impact
derives from the customers home. It was, therefore, natural for Bang & Olufsen to focus its
environmental efforts on reducing standby consumption. The launch of new products with a
low standby consumption and the fact that some of the products that had a high standby
consumption have been withdrawn from the product portfolio is a testimony to this fact.
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BEOenergy is an energy saving project that was initiated because Bang & Olufsen wishes to be a
green, energy saving company with an environmental target to reduce energy consumption by
5 per cent per year. Bang & Olufsen also considers disposal in the design of new products. All
plastic parts are labeled so that waste receivers can identify the type of plastic. The disassembly
tests show that between 75 and 86 percent of the material parts of a Bang & Olufsen television
can be recycled

The question is however, whether B&O is communicating this clear enough for consumers to
see B&O as an environmentally responsible company, and how much it matters when their
products are in a much higher price range then their competition in Samsung and Sony.

7.1.4 Technological Aspects:

The consumer electronic industry is a very turbulent industry with fast and innovative
developments. In the days of the radio B&O was among the first with the new technology.
However, the Asian companies are today in the forefront with the development of new
technologies. An example of an area where B&O is behind the competition is in the
development of Full HD flat screen TVs. B&O was not been able to introduce this technology
before the first half of 2009, after the TV stations began using the format. On the other hand,
B&O is still one of the frontrunners on other aspects of technology and owns profitable patents
on for example digital amplifiers in their subsidiary ICE power.

Another threat for B&O can be found in computers, mobile phones, and mp3 players, which to
a greater and greater extend get more technologies integrated. Especially the functions that are
core to B&O are in focus. Examples of this trend can all be found in the mobile phones which
are developing into devises that can play music of a high quality and display TV programs
through the wireless internet.

The most important challenge to B&O is that now-a-days an average person is using a less
amount of his time in front of a TV or listening to music as he is kept busy in other things like
internet and gaming through devices like PC, Laptop and Smartphone. So, the total percentage
of time given by a person to TV or music is decreasing on a whole. Adding to the other tech
giants are really coming out of the age to appeal to premium customer with new designs and
cutting edge technology.
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7.2 Porters 5 forces:

The general environment has been analyzed through the PESTEL- model. It is now beneficial to
have a look at the competitive industry environment.

One of the frameworks widely used to analyze a given industry is Michael Porters 5 forces,
shown in above figure. This framework identifies the 5 basic forces which can influence the
competitiveness of a company

Bargaining power of suppliers

Bargaining power of buyers

Threat of new entrants

Threat of substitutes

Competitive rivalry

The analysis is done in order to discover opportunities and threats in the environment which
the company needs to take into consideration when forming a strategy for the future.

7.2.1 Bargaining Power of Suppliers:

The first force is the bargaining power of suppliers. Like every company B&O tries to keep a
good and close relationship with its main suppliers which also able to provide B&O with
knowledge and skills for the development of products. Hence, it is indicated that B&O
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cooperates with its suppliers and form partnerships. This mutual understanding can be
assumed to be beneficial for both parties, and will therefore decrease the incentive for
suppliers to bargain. In audio/visual industry, there are large amount of suppliers of electronic
goods. Many companies produce each of the small components needed to make one of B&Os
products. This actually mitigates the bargaining power of a supplier, as it is easy for a company
like B&O to find an alternative source of supply for a small component. On the other hand, a
company like B&O has special requirements when it comes to product quality. This may
decrease the number of possible suppliers and thereby increase their bargaining power.
Suppose, China, the biggest supplier of rare materials, tomorrow cut off its supplies to many
players in the industry or increases its tariff. This would pose a difficult situation for B&O.
Suddenly, it might find itself without a supplier, or the cost of products from OEMs might
increase, giving the supplier more bargaining power.

Other factors that might affect the possible no of suppliers is the level of customization. Since
B&O's components are unique, the switching costs of going from one supplier to another would
be high. The risk of suppliers conducting forward integration and thereby undertaking and
learning the value adding strategy of the organization is a great risk in some industries, as soon
the supplier might come up some sort of its own product to rival the original product. This risk
is however substantially less in the audio/video industry because of the large number of
different components required for manufacturing an audio/visual product.

So, it would require a very large investment, as most suppliers produces only a small part of
what is required to make a complete product. Overall the bargaining power is a minor threat in
the audio/video industry, especially for B&O as they produce products for high-end customers
where brand appeal and product quality has got to do a lot which takes years to perfect.

7.2.2 Bargaining Power of Buyers:

The next category in Porters model is the bargaining power of buyers. When analyzing this,
there comes two customer segments of B&O - private customers and the enterprises buying
B&O products in the Automotive and Enterprise subsidiaries of B&O. In the consumer market,
the customer can negotiate with the seller to get a good deal (supply demand from
microeconomics), especially in these days of the financial crisis, generally for B&O's product the
bargaining power is low. This is because B&O products are differentiated from other brands
through its design and quality, which gives them a possibility to charge a premium price. The
bargaining power might increase in the future as it is getting harder to pursue a differentiation
strategy in the audio/video market, because all the players in this industry are increasing its
focus on design and quality aspect.
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In the Automotive and Enterprise sections, the case looks a lot different. As of today, B&O is
working in partnerships with four major car manufacturers, Audi, Aston Martin, BMW and
Mercedes AMG. This means that each of these customers will have substantial importance both
financially and image wise for B&O Automotives future. Thus giving them a huge bargaining
power at hand. B&O will therefore probably be willing to make compromises in order to retain
the good relationship. Moreover, tomorrow if a company like Apple whose products like iPads
and iPhones are hugely popular, forays into the car-hifi business, then it would be a huge threat
for B&O, as there Apple's products will be more integrated with its other product. Thus, all the
Luxury car manufacturers will go for an Apple's car audio sound system bowing to the demands
of its customers. The answer to this from B&O will be diversification of its product portfolio.
That will be discussed later.

7.2.3 Threat of New customers:

The third element in Porters model is the threat of new entrants. When looking at the
audio/video industry, it is obvious that it is very difficult for a new company to penetrate the
market starting from scratch. The amount investments required for producing such products
are immense and the time required to break even is high, so it is required to have a very deep
pockets. Moreover, the competition in the market is fierce it will definitely be a hard task for a
new brand to be established along the companies which have existed in the business for
decades.

But the actual threat to B&O as a company is from the companies which are already established
in the audio/video industry and are among the top players or the companies who are in the
electronics industry for a long time and can run deep R&D development process to
manufacture a disruptive innovative product, which will grab the attention of B&O's customers.
There is a potential threat that these companies which to a great extend currently are focusing
on other segments than the high end consumers, will in the future pursue a differentiation
strategy and thereby enter the high end niche market which B&O is focusing on for decades.

Now-a-days consumers are focusing more on intangibles like design and the experience. It is
the whole experience of the product that matters and small, intangible elements is now what is
separating one brand from another. The focus on the experience of the product, both when it
comes to design and technical aspects, is what has been keeping B&O in front of the
development for a number of years. However, the other brands like Apple, Samsung and Sony
now seem to catch up with B&O by increased focus on design and innovation. Companies like
Apple have changed the way people listen to music by providing excellent portable devices
through i-Pods. It has been years since B&O has made something innovative and been the first
mover in the market. In addition B&O has really pushed to the wall by companies like Samsung
 20

and Sony in the design element of products. These huge corporations have large marketing
budgets and are able to provide high-end products at a lot lower price than B&O. All in all this
indicates that the threat of totally new entrants is small in the audio/video industry, but the
threat of other existing companies entering B&Os niche market is increasing.

7.2.4 Threat of Substitutes:

Another substantial threat is the one of substitutes. Lately the selling point of the electronics
industry has been the multiple functions being included in a single device. Today there are
numerous products which can serve as a mobile phone, computer, mp3 player, camera and TV
all at the same time. As B&Os products have single functionality products, they are in a bad
position if the consumers in the future will prefer having one multifunction product. Moreover,
B&O doesn't produce products where new applications can be installed developed by third
party. This trend seems already to have started as people are watching more videos and TV
online in you-tube or other live streaming sites and through mobile devices and also believe
they watch less TV as a result of it. The substitutes are shadowing B&O because people like
have a product on the move, in today's fast-running world. B&O on the other hand treats its
product as furniture. B&O must therefore in the future have an open mind when considering
their product development as their competitors are and act according to changing consumer
habits.

7.2.5 Competitive Rivalry:

The last of the five forces is the extent of competitive rivalry. One of the factors which influence
this rivalry is the number of competitors in the industry. In the audio/video industry there is a
fairly large number of actors of which most are based in Asian low cost countries as these helps
them decrease the labor and manufacturing cost. The fact that there is no clear market leader
makes the large international companies like Sony, Phillips and Samsung constantly fight for
market share in order to survive. Another aspect which makes the competition intense in this
market is the difficulty of differentiation of the products. The technology is developing in such a
high speed that none of the companies have technology which will give them a competitive
advantage for a longer period of time. For example, Samsung introduced OLED TV, now to
reduce their share both Panasonic and Sony has joined hands to come up with a new OLED TV.
B&O was able to differentiate itself because of its design and the functionality of its products,
but as other companies have realized this opportunity, they have also started giving interest in
the design aspects. One example is Sony's Bravia Series.
 21

7.3 Core Competencies:

According to Kotler and Keller core competencies have three distinct characteristics:

They are a source of competitive advantage that contributes to perceived consumer

benefits.

They are applicable in a wide variety of markets.

They are difficult for competitors to imitate.

Thus a company needs core competencies in order to gain advantage over competitors.

According to the annual report for the financial year of 2010/11, B&O's core areas of expertise,
includes picture, sound, operation, mechanics and design. Other areas include several
knowledge areas of basic acoustics, electro-acoustics, signal processing, highly effective
amplifiers and psycho-acoustics. B&O has specialization in also aluminum processing and
mechanics. These competencies are in sync with their focus on design and quality, which both
gives the consumer a superior experience when their products are turned on and when they
are turned off. Quality has been the most focus area since the very inception of B&O, and is a
necessity for B&O to be able to charge premium prices for its product. Furthermore, quality
gives the consumers extra value by letting the products live long. Each of them is manufactured
to the highest standards, and that last 15-20 years instead of the industry typical 24 months.
Design has also for a long time been a focus point for B&O and the classical aluminum panel
design started by Jacob Jensen has become a clear mark for B&O products. It was this simple
design was what really separated B&O from the Asian black plastics TVs and stereos. However,
this core competency is today being challenged by companies such as Apple, Samsung and
Sony, and might in the future change from being a competitive advantage to a qualifier for
B&O's product. On the contrary, these qualifiers will deter B&O from targeting middle class
customers.

The final and the most important core competency of B&O is their brand value. It is a brand
that has been built for 85 years. By building well designed products of a high quality and at a
high price, they have established a brand which functions as a status symbol. B&O by many is
regarded as a company which helps customers to boost their conspicuous consumption. So, this
immaterial asset (the brand value) might allow B&O to still charge significantly higher prices
than the mainstream players in the market even though their other competitive advantages are
becoming weaker. However, the quality and design will still need to be superior for this to last.
 22

7.4 Porters Generic Strategies:

In order to determine B&Os present market value, it is essential to consider the companys
future strategy in addition to the historical financial information and performance. When
evaluating B&Os strategy and predicting the effects of the implementation, a classification
using Michel Porters Generic Strategies Model might be beneficial. In this model Porter
distinguishes between three different generic strategies, which offer a good starting point for a
company strategy: cost leadership, differentiation and focus strategy (fig below). This section
will analyze the strategies B&O is pursuing, the advantages and disadvantages connected with
such a strategy.

B&Os source of advantage is differentiation of its products both in quality and design. Bang &
Olufsens overall strategy is to develop integrated audio-video solutions and market these
globally to the luxury segment through a network of dedicated retailers (Bang & Olufsen Group
2011: p. 3).

The disadvantage for B&O is related to the fact that the company is situated in Denmark where
the labor costs are significantly higher than in Asian countries where many of the rivaling
companies are located. The labor costs make it a difficult task for B&O to be a market leader on
price. Although B&O outsources some of its business to Asian countries, but the most of the
integration process happens still in Denmark. The company is therefore aiming to achieve a
higher price through making special products for which the customers are willing to pay a
premium.

The problem for B&O today is however that the premium the customers have to pay for their
products might be too high considering the global financial conditions which have reduced the
 23

purchasing power of many across the globe. On the other hand, B&Os competitors have
improved in areas like design, leading to them offering equally good looking products. So,
people might be tempted to think that B&O prices are not justified for its products. A
disadvantage of the differentiation strategy can therefore be the difficulty of maintaining a
competitive advantage for a long period of time. In order for B&O to stay differentiated from its
competitors, it will have to be ahead of the development, keeping innovating new products
with exquisite design and not let the competitors copy the ideas and steal market share.

7.5 BCG matrix:

In order to get a clear and complete view of a companys future possibilities for success it is
important to analyze the companys product portfolio. The exquisite products are the basis for
B&Os success and the company will have to keep on producing innovative and appealing
products in order to maintain their position in the market and their brand value. A widely used
framework for analyzing product portfolios is the Boston Consulting Group Matrix. This model
provides a tool to analyze whether the product portfolio is put together in an adequate way by
defining which products are weak and which products have got potential for the future. The
model consists of two axes where one is the total market growth and the other is market share
relative to the market share of the companys strongest competitor as shown in figure above.

B&O has an enormous range of products in various product groups. In order to limit the
analysis and make it more feasible, we will use product groups as the basis for analysis instead
of each of the individual products. This will be limiting in one sense, as there might be huge
differences within a product category example in TVs there is 3D TV and plasma TV. It is
assumed that a better overall picture about the current state of a company will be provided by
focusing on the product groups instead of individual products.
 24

The product groups that will be analyzed are as follows:

TVs (Integrated TV/DVD players will also be included),

home audio players,

portable media players & mobile phones (production being stopped for both),

telephones,

And in-car media players (speakers included).

When performing this analysis, an assumption is made that high growth markets are markets
with a yearly growth above 10%. If we were to place these different product groups in the BCG -
matrix, the results would the following.

7.5.1 Question Marks:

These are growing rapidly and thus consume large amounts of cash, but because they have low
market shares they do not generate much cash. The result is large net cash consumption. These
are considered development projects where a lot of money will have to be invested in order to
make the product succeed, and will therefore put a pressure on the liquidity of a company. A
question mark has the potential to gain market share and become a star, and eventually a cash
cow when the market growth slows. If the question mark does not succeed in becoming the
market leader, then after perhaps years of cash consumption it will degenerate into a dog when
the market growth declines. Right now the there are no such product categories that fall into
this category. But before the implementation of the new strategy in 2008, B&O had two
products which could be placed in this category, the MP3 player and the mobile phones. These
markets showed high growth 2006-07 in these two sectors. B&Os relative market share in
these markets were very low, as they have no possibility to compete with huge international
corporations like Apple and Nokia which have captured large shares in the market through their
innovative products and huge marketing product. Right now the Beoplay V1 might just fall in
this category. It is the latest television product from B&O which can be connected to an Apple
set up box. This is a huge gamble B&O has taken. Its success would depend on how it fairs in
comparison to the Apple TV due to hit market next year.

7.5.2 Stars:
Stars are products which are also in high growth markets, but where the relative market share
is high compared to its competitors. The hope is that stars become the next cash cows.
Sustaining the business unit's market leadership may require extra cash, but this is worthwhile
 25

if that's what it takes for the unit to remain a leader. At the moment B&O seems to have one
product group in this category, namely the B&O Automotive section. This years in-car media
players (speakers included) turnover increased sales by DKK 184 million, or 69 per cent,
compared to the year before. The growth was partly owing to a general increase in the sales of
cars from Bang & Olufsens partners Audi, Aston Martin and Mercedes AMG and partly owing
to the launch of the first models from BMW with Bang & Olufsen sound systems.

The stars require liquidity in the same way as the question marks as they operate in high-
growth markets where investments are required to enhance the product and maintain the
differentiating features in order to capture a share of the growth. These products are
considered an important part of the companys future and are expected to eventually move
into the cash- cow category where they will provide liquidity to invest in new question marks.

7.5.3 Cash Cows:

Cash cows are products where the market growth is low but where the company has a high
market share. The requirement for investment in cash cows is low due to the limited expansion
opportunities and the profit margin is high. Basically these are units with high market share in a
slow-growing industry. Hence, these products are expected to produce liquidity to finance stars
and activity in the high growth market. For B&O televisions and home audio products belong to
this category. During the year, Bang & Olufsen launched a range of new audio and video
products e.g. the acclaimed speaker dock BeoSound 8, the companys first 3D television
BeoVision 4-85 followed by BeoVision 4-103 and a new in-wall or in-ceiling integrated speaker,
BeoVox 2. Despite these launches, Bang & Olufsen saw a fall in audio-video sales. The turnover
declined by DKK 92 million or 4 per cent. But this could be understood from the fact that the
world in right now in a financial uncertainty with Euro-crisis at its helm, the slowdown in China,
the Iran oil crisis and the stagnation in the US. Moreover, B&Os market share for TVs is
considered to be high in its niche, especially in the European market. The market share of B&O
in the overall TV market is though not very high, as they are targeting such a small niche of the
overall consumer electronics market.

7.5.4 Dogs:
Dogs are products placed in a market where both the market growth and the market share are
considered to be low. The market is therefore very static and the company is not able to take
significant market share from its competitors. These markets do not require significant
investments nor do they produce substantial liquidity, so unless the products have a strategic
importance for the company or compliments other products in the portfolio they should be
excluded. At this moment of the analysis, B&O has only the telephone products that can be
 26

considered to belong to this category. Although, wireless telephones serve as complement to

B&Os other products to give customer a whole B&O experience, but in reality its sales have
decreased by 17 percent. Moreover, since more and more customers are switching to mobile
phones, the sales have dropped. Moreover a telephone last longer than a mobile phone, so
thereby not helping in increasing its sales. The call whether should telephones be continued
should be on the fact whether the marginal revenue is greater than the marginal cost
(microeconomics terms).

7.6 SWOT analysis:

Before going any further, let's first do a SWOT- analysis of B&O. SWOT analysis is a strategic
planning method used to evaluate the Strengths, Weaknesses/Limitations, Opportunities, and
Threats involved in a project or in a business venture. This is a useful way of reviewing the
companys current situation, and help in the strategic analysis of B&O. A SWOT analysis can
done to analyze whether the strategy opted by the company is the right one. In order for a
strategy to be successful, the strengths and weaknesses of the company must match the
opportunities and threats for a company.

SWOT analysis Diagram

 27

7.6.1 Strengths:
The first in the SWOT analysis come the companys internal strengths. One of the most
important strengths of B&O as a company is the brand value. It has been on a 85 year period.
B&O is a well known company which through the years of producing excellent innovative
products has established itself as a top brand. The brand value has also been increased by the
numerous awards the company has received for great design and technical solutions. Its
product has earned a place in the museum of modern art, New York. Quality and design are
other aspects which can be considered to be B&O's greatest strengths for the company. The
company always focus on superior design and has been establishing development centers,
where technicians works with architects and designers in order to manufacture beautiful
innovative product to keep the company's product superior relative to its competitors.

The company has also got some strong core products and some usable patents which both have
been and will be essential for the company in the future. B&O's specializes in surface finishing
of aluminum, and the silk-screen and sublimation printing and UV-lacquering of plastic and
aluminum parts. B&O aluminum anodizing facility is one of the most advanced in the world. The
core products are bestsellers for B&O and make it possible for the company to invest in new
development projects. The patents held by the company give some time to develop and gain
from their innovation. In an industry with such rapid technological changes, it has been
essential for B&O to prevent their competitors from copying their products. Taking patents has
proven a good way of achieving this. But its the design and quality of B&O's product that
differentiate it from the market. The last strength is the good and well matured relationship
that B&O has fostered with its suppliers and some of its buyers especially in the car-HIFI
segment like Audi, BMW, Aston Martin and Mercedes. The company tries to establish a
cooperating relationship by developing products that would complement the buyer's product
and in the process increase its brand value.

7.6.2 Weaknesses:
When it comes to B&Os weaknesses as a company, an important issue is the fact that 91% of
the turnover is in foreign currency. This creates a great currency risk and makes it difficult for
the company to maintain complete control of the financial situation. This is especially true in
the current global financial scenario. Most of its income is in Euro or Swiss Franc. So, with the
ongoing euro-crisis, the euro has grown unstable. Fluctuations in the currency rates will
therefore affect the company a lot. Another weakness is the fact that B&Os products are not
competitive when it comes to price. One of the reasons is that B&O doesn't involve in mass
marketing and focus on the creating high-end product, which gives maximum user experience.
Moreover, the labor costs in Denmark is pretty high as it so in all the euro-zone countries.
 28

Although, B&O has outsourcing its business to low cost countries, but still most of the
integration process happens in Denmark. The increased focus on design and functionality from
the competitors has meant that B&Os products are no longer as special and unique as they
used to be. It is now possible to get a TV with a great design to a lot lower price than a B&O TV,
which makes it difficult for the company to sell its products. In addition to the above, the
company has never been the first mover in the company. Although it has been in the market, it
has almost never been able to manufacture a disruptively innovative product. This has
prevented the company from producing new bestsellers, which might be a problem in the
future. It seems like the company has focused too much on enhancing developed products in
the market. Its like unless a company decides to swim in turbulent water, it will be never be
able to discover the unknown shore. The point is although, B&O has been in the market for the
last 85 years, it has not been able to grow at a speed the industry or the other players in the
electronics consumer market has been growing in the last 20 years.

7.6.3 Opportunities:
One of the opportunities for B&O is the fact that in the future is the consumers increased focus
on design. The consumers now-a-days seem to value electronic equipment which not only has
got high technical abilities and functionality, but which also looks stylish and can symbolize a
high social status. This can be termed as conspicuous consumption, which is increasing day by
day. B&O has always been known for its great design, and it therefore looks like the market is
adjusting to and appreciating B&Os core values. Other opportunities for B&O are in the
companys B2B sections like enterprise and automotive which is only tending to go in the future
in one direction, i.e. up. During the last few years both the enterprise and automotive section
has had a major increase in turnover. This is promising for the future, and as there are still a
large number of hotels and luxury car brands to cooperate with, there should be potential for
future growth for B&O.

7.6.4 Threats:
At the moment the biggest threat for B&O is the financial crisis affecting the world economy.
The most prominent issue facing B&O is the euro-crisis. Since most of B&O is in the Europe and
a recession or slowdown in Europe means less sales for B&O. Moreover, since most of B&O
cash inflow is in euro, there is also a threat of Euro-breakdown and the fact that Denmark
Krone is pegged to the Euro is not helping the matter. Most of the governments in Euro-zone
countries are putting up austerity measures. This means people purchasing power has reduced
suddenly. This will indirectly hit on B&O sales as they target the premium customer segment.
Euros fourth biggest economy, Spain has imposed a $65 billion austerity cut program for the
next two and a half years. Moreover, euro-crisis is expected to last another 2-3 years and
 29

thereby affect B&Os turnover in the next few years. Moreover, companies will find it difficult
to raise cash for different operations as there is been a drop in liquidity and will have to face
large write-downs. Moreover, the upcoming new Basel III will add more incentives to drop
decrease their lending and prepare to meet the criteria set by Basel committee. The extent to
which B&O will be affected however depends on whether the company is able to keep its brand
value through the crisis.

Other threats to B&O are from its competitors. At the moment, it seems like B&Os competitors
in the industry are ahead when it comes to technological development. This leads to B&Os
products might seeming outdated in comparison to Samsung and Sonys product. When the
competitors at the same time seem to be acknowledging the consumers desire for superior
design, it makes it difficult for B&O to stay differentiated. And differentiating ones product
seems to be the key for success in the consumer electronics market. These aspects contribute
to a very competitive environment which in itself is a threat to B&O. The last threat is the one
of new substitute products. Although B&O has faced this before from the Japanese companies,
but never before it has faced competition like now-a-days from existing brand which are able to
manufacture products cutting edge technology and exquisite product. B&O competitors
pockets run deeper than any time before which allows them to spend lavishly in R&D and
buying useful patents. B&O has been specializing in in-home products, and the development
towards using more portable products for audio/visual entertainment will be a challenge for
the company in the years to come.

7.7 Analysis of the Leaner, Faster, and Stronger strategy 2011:

B&O is considered to be a company with a high brand value, but unfortunately the company is
at the moment not able to produce high earnings. B&O had been greatly affected by the
financial crisis when its sales had been almost reduced by 31 percent and after that is not able
to reach those heights again. So, a new approach is required for the company to prosper in the
future. Even last year (2010-11) B&Os sales increased just by 4 percent compared to the year
before. Now, B&Os management is aware of this, and on 17th August, 2011 announced its new
strategy Leaner, Faster, Stronger. The strategy, which includes significant strategic changes, is
aimed at unlocking the full potential of Bang & Olufsen. Bang & Olufsens overall strategy is to
develop integrated audio-video solutions and market these globally to the luxury segment
through a network of dedicated retailers. The most important elements in the five-year strategy
are:

Increased focus on sound and acoustics by B&O. This will increase the focus on sound and
acoustics development and thereby leverage and further strengthen the companys world-class
skills and market position within this area, e.g. through a deeper vertical integration of the ICE
 30

power engineering teams and a stronger knowledge sharing with the Automotive acoustics
teams. Working on this strategy and working in the Idea Land concept, B&O should hopefully
be able in develop many new exquisite products.

B&O is also committed to strengthen its portfolio on Automotive even further. In the coming
years, Bang & Olufsen will have a continued focus on creating outstanding value to existing
partners through the development of innovative sound systems, which will support the
partners brand image and maximize their car-fi businesses. Moreover, B&O should also try to
increase its number of vendors to more than just four, keeping with its policy of serving only
premier customers and also associating with brands that would enhance B&Os brand value.

B&O also wants to keep on launching a new product category and expanding the distribution
through complementary channels with the aim of attracting new customers to the brand. The
product category will consist of both stand alone audio/visual products, which also comply with
the companys quality standard along with design, sound, connectivity and user-friendliness.

B&O needs to restructure the retail network. Bang & Olufsen will initiate a restructuring of the
retail network for increased customer focus and profitability. The goal is to create a dynamic
and engaging customer experience where customers can try products, seek advice on
integrated solutions and where everyone feels welcome also to simply check out what's new
from Bang & Olufsen. This is a very good initiative from B&O as a good hospitality makes a
customer want to come back and in the process, the customers buy the product.

Expand the business in BRIC markets. With Europe in crisis and the US in stagnation, the only
market left and open for B&O is the developing countries. The activities in the growth markets
needs be expanded, which includes an aggressive growth strategy in the Chinese market and
the developing countries. As a consequence of this, the company will establish a national sales
office in Shanghai and take over sales of Bang & Olufsens products in Hong Kong and Southern
China. With this strategy, there is a good chance that the company might improve its sales
figure and improve its supply chain in these places from the previous couple of years.

Leveraging partners for audio-video development and sourcing. External competencies will be
used to a significantly larger extent than is the case today to ensure more effectiveness in
product development and to be able to launch more successful products in the future. For
example cooperating with a high end luxury car would expose B&O to knowledge of how these
cars actually manage their marketing and what strategy they are going to implement to stay
ahead in the market. Also B&O can learn and use their from their expertise in surface finishing
of aluminum and sublimation printing and UV-lacquering of plastic and aluminum parts.
 31

The main aim of B&O for the year is to create a lean and more agile organization with a global
outlook. The ambition is to build up an organization which is agile and its response to changes
in the market is quick and to be able to reallocate resources to focus on areas that offer the
highest growth opportunities. The company key strength is in the audio/visual area which it has
been perfecting for decades. This would help them in innovating new products in this market
segment.

The main motto of the new strategy is to increase profitability, boost sales and to create a
stronger and more focused product line. By changing its strategy, B&O will attempt to improve
some of its strengths and remove some of its weaknesses. When relating the new strategy to
the strengths discusses in the previous section, there is reason to believe that the new strategy
will increase the brand value. If B&O succeeds in developing new technology platform in the
audio/visual industry and thereby increase the number of product launches, this will give B&O a
stronger image as an innovative company and help it increase its portfolio. Some of B&Os
weaknesses will be dealt with by implementing the new strategy as well. One of the most
important improvements will be its supply chain in developing countries, especially in Hong-
Kong and Southern China. Moreover, B&Os new focus on the BRIC nations would help it
increase its sales, as Europe has gone into recession in the last six months. B&O has also
decided to improve its sales in the automotive industry. Thus will looking to develop new
products which will become indispensable parts in the automobile industry and will be looking
for new partners. B&O has also attempted to increase the focus on their core product. This will
enable the company to focus on developing the core products of their portfolio. This increased
focus on a narrower portfolio will facilitate B&O to develop new bestsellers and also do it in a
comparative less amount of time within their core products which will hopefully increase
turnover in the years to come.

8. My Suggestions for B&O:

Now since the strategic analysis of B&O is completed, I would like to suggest some ways or new
areas where B&O can venture into which will help them to be competitive. I would like to do
that with the help of an Ansoff matrix. I would like to add diversification is the key for a good
mature business to maintain its lead and momentum. Diversification seeks to increase
profitability through greater sales volume obtained from new products and new markets.
Diversification is part of the four main growth strategies defined by the Product/Market Ansoff
matrix (figure below). I would like to suggest how B&O can make a mark in all the four squares.
 32

8.1 Market Penetration:

Like every company B&O needs o penetrate the existing market, i.e. it needs to sell more of its
product in the existing market. Although B&O has been successful over the years in reaching its
targeted customers, but its sales had hugely decreased since the aftermath of the financial
crisis, 2008. It needs to take back its sales to that level. I would like to suggest a couple of ways
through which B&O can increase its sales:

8.1.1 Collaboration with Successful Organizations:

B&O must collaborate with companies of other Industries and sectors in Europe and outside.
B&O can collaborate with these companies to acquire specialized skills and distinctive
competencies that these companies are known for. How can B&O accomplish this?

Google and P&G: this odd couple thinks they have something to gain from one another -- so
they've started swapping employees. So far, about two-dozen staffers from the two companies
have spent weeks dipping into each other's staff training programs and sitting in on meetings
where business plans get hammered out. Closer ties are crucial to both sides. P&G, the biggest
advertising spender in the world, is waking up to the reality that the next generation of laundry-
detergent, toilet-paper and skin-cream buyers now spends more time online than watching TV.
 33

P&G desires to learn from Google on online marketing. The increasingly growing scenario of
online distribution channels as well as online marketing through social media etc. may have
prompted P&G with this move. Google wants to learns from P&G one of its distinctive
capabilities - brand management and also craves a bigger slice of P&G's $8.7 billion annual ad
pie as its own revenue growth slows.

Google or P&G may have initiated this unique program, but it illustrates some trends and facts
worth noting:

1. Large corporations understand the need for external collaboration to develop skills and
capabilities that are not in the company

2. There is a willingness among two non-competing companies to collaborate.

3. When the initial collaboration is successful, the two companies may go on to exchange more
skills.

For example, in the next phase, P&G may request Google to share insights on Analytics as well
and Google may learn from P&G on the secret of growth in new markets.

B&O must identify the skills it must improve drastically to further strengthen and expand its
business. It will then have to identify companies that abound in those skills. B&O then may
need to think about what skills it has to offer the other companies that they are desperately in
need of. B&O and the collaboration partner may then exchange employees and hence there is
exchange of insights and skills. I am sure the skills required by B&O should be many. It may
range from Talent Marketing to even sub-skills like design, aluminum finishing and polishing
etc. In exchange, B&O can provide its share its expertise in aluminum anodizing for which B&O
has one of the most advanced facilities in the world

8.1.2 Increase Sales by Aggressive Marketing:

B&O should focus on aggressive and innovative marketing. B&O sales high-end products and
charges a premium price for it. But there are only 5% of the people in the world who are super
rich. So, if B&O charge elite prices in actual it is eliminating 95 percent of its customers. So, B&O
should market aggressively in these people segment and give them more reason to buy B&O
product. B&O can look at companies who have applied the same strategy and have still got
increasing sales year on year. One example is Virgin airlines. Most of the airlines have major
financial troubles. At a time when most of the airlines had a rough going forward and had
negative balance sheet, Virgin airlines became a mega success. Like B&O instead of like all
Virgins competitors fighting for prices, cutting cost and trying to survive and get some
 34

profitability, Richard Branson airlines is charging premium pricing and become super successful.
Virgin airlines is positioned not a means of transportation or fast transportation, but as a means
of luxury. The only difference between B&O and Virgin is its way of marketing, where Virgin
does it a lot more aggressively. Marketing is also about fun and make a lasting memory on
peoples mind. Lets cite an incident:

There was an occasion where British airways decided to sponsor a giant wheel opposite to the
houses of commons in London, England. The giant wheel was lying flat on the ground. British
airways got all the press together one morning where they were going to lift the wheel up.
Branson got a call soon that British airways could not get the wheel up, they had technical
problems and the whole press was waiting. Branson sent an aero plane which flew over the
wheel carrying a banner which said "British airways cant get it up". Virgin airways got more
coverage for that than many of the other things they have done before. That stood out than
rest of the campaigns and gave them a front page free advertisement.

The biggest mega event on earth, the Olympics is held this year in Great Britain. Lets discuss
how companies use this opportunity to market their products. Eleven global sponsors (known
as top Olympic Partners or TOPs) pay fat sums to the International Olympic Committee (IOC) for
the right to use the Olympic brand. Only one TOP sponsor is allowed in each commercial
category: Coca-Cola for soft drinks, Panasonic for televisions and so on. ATOS, a French
consultancy, is a top-tier sponsor. It also manages the information technology for the games.
This year in its command room overlooking Londons Docklands, 450 technicians and support
staff hunch over screens. Among other things ATOS handles the accreditation system for all
250,000 athletes, trainers and hangers-on. This means creating a big database for personal
information for people from all parts of the world. It has to hook up with the immigration
authorities, so everyone who needs a visa gets one. The pay-off for ATOS comes from proving it
can do all this. Its the only project of this magnitude that has a deadline you cant change at
all, says the management team lead of ATOS. There is also no room for serious errors, he says:
You cant ask Usain Bolt to rerun the 100 meters because the technology didnt work. So
every system has backups: some have four. All this is costly. But it lets ATOS boast to potential
customers: if we can handle both the summer and winter Olympics, we can probably handle
your project. The Olympics generate hundreds of millions of euros of new business for ATOS
every year. Most top-level sponsors, such as McDonalds, Omega, Panasonic and Procter &
Gamble, are not trying to prove their prowess. They are just trying to look noble and global by
association in a way that wows and woos customers. Because the games are truly global, they
offer a plausible springboard for regional brands that want to conquer the world. Samsung is
perhaps the best example. It was once a big dog only in its native South Korea. In 1997 it pipped
Motorola to become a global Olympic sponsor. The American mobile-phone maker, a longtime
 35

second-tier sponsor, wanted to upgrade but demanded a big discount. The IOC was so annoyed
that it turned to Samsung, which quickly agreed to pay full whack. Motorolas managers
realized they had been supplanted only when they read the headlines. Samsungs sponsorship
covers just mobile phones. But if the Olympics burnish the Samsung brand, that should help the
Samsung Group sell televisions, ships and insurance, too. It is now the second-most-valuable
Asian brand (after Toyota), according to Interbrand, a consultancy. Being seen alongside Coke
gives them global credibility. It shows they are at the top table, says Clifford Bloxham of
Octagon, a consultancy.

B&O must refine its strategy. It should give user more reason to buy. One of the ways is to
make the company a whole lot popular by marketing aggressively. It should also relate itself to
other mega events like other companies do. This may not increase B&Os sales directly and
instantaneously, but will increase their brand value and also its sales over a period of time. But
then why will people buy? Well, people have a habit of conspicuous consumption, so in order
to maintain a status quo, people who can afford to buy a B&O product, but chose not to due to
a variety of reasons will get an incentive to buy.

Once in Denver post, there was a great article about the Bob Dylan. It was not about his music
or his activities as a singer but it was about his marketing skills! Bob Dylan was the first to figure
it how to market his old albums to people of all ages and he does that not by pitching them as
golden oldies but as good music. It worked!

8.2 Market Development:

In Finland where Nokia is based, Nokias market share in smart phone is 41 percent, where
Apples is 21 percent. In Canada where Research In Motion is based (RIM-blackberry smart
phone maker), its market share is 32.6 percent and Apples share is 31.2 percent. In America,
where Apple is situated, the iPhones market share in smart phone category is 28 percent,
blackberrys share is 19 percent and Nokias share is insignificant in the US. The reason Apples
iPhones are successful both at home and in foreign market is dedicated to its market
development strategies. B&O must also learn from such companies in strategy formation and
how to appeal to customers of certain geography. Another example of a company who failed to
develop market and even failed to penetrate the existing ones was motorla. I would like t
suggest a few ways for B&O do so:

8.2.1 Business Jets Market:

B&O has been producing high-end products for a century now. So, it has been a natural move
for B&O to move into the hospitability sector. The companys products are currently
 36

represented in more than 200 five-star hotels across the world. B&Os partnership with these
international hotel chains worldwide as well as the highly individual niche hotels guarantees
quality entertainment solution that adds unique value and differentiation to the world class
interior design. Having said that, now I would like to suggest now that it would be a very
strategic move for B&O to move into the Private Jets sector. People use Private jets are mostly
for luxury and passion. B&O with its enriched experienced and knowledge would be able to
make many high-end In-Flight Entertainment systems. Moreover, it has been one of the fastest
growing industries. In the business jets division, industry groups the jets into five loosely-
defined classes. The most expensive type of private jet is the heavy jet type, which is designed
for the ultimate in large capacity luxury air travel. So, these heavy jets should be naturally being
B&Os target. Moreover, there are only three companies that manufacture majority of jets of
this type: Airbus, Boeing and Embraer. The question is why would the business jet
manufacturing companies be interested in such a deal? The reason is same as that of B&Os
customer in the automotive segment. The business jet industry is almost by itself now more
than a $100 billion USD market and competitors would like to go to associate with a brand like
B&O to increase its own brand value. Since these customers naturally seek luxury, they would
indeed appreciate B&O product and may lead to purchase of more B&Os product for personal
use.

8.2.2 Forming Partnership with High-End cars in Developing Countries:

With the fall of sales in Europe and the US, it would be smarter for B&O to focus on the
developing Asian countries. Although B&O has not been much present in these geographies,
they ought to be now as crisis is taking a toll on B&O sales and the company needs to find new
avenues for sale. It can also form partnership with existing premier brands in the developing
countries, and thus could appeal to the elite customer segment.

8.3 Product Development:

Eastman Kodak, the 131-year-old film pioneer that has been struggling for years to adapt to an
increasingly digital world, filed for bankruptcy protection early on January, 2012. Kodak has
become the latest giant to falter in the face of advancing technology. The Borders Group
liquidated last year after having failed to gain a toehold in e-books, while Blockbuster sold itself
to Dish Network last year as its retail outlets lost ground to online competitors like Netflix. The
reason for Kodaks filing for chapter 11 under US laws was its apparent failure to change its
product line to integrate digital photography. When Kodak finally realized its mistake, it was a
little too late for them as competitors like canon have had the majority of the market and had
also developed the technology to such a height that from then on, it was always a catch up
game for Kodak.
 37

Toyota when first came to US, General Motors and Ford was in a dilemma how to deal with it.
Whether they should go to make on bigger SUV or come down recapture the market from
Toyota which was eating to its least profitable products. But GM and ford chose the first. This
allowed Toyota to capture the US market and later Toyota also foray into the. On July, 2011
General Motors field for bankruptcy. Today, the same is being done to Toyota by a Chinese
company and Toyota is in a dilemma whether to compete with this Chinese company or
whether to go against companies like Mercedes. What GM should have done and Toyota needs
to do today falls in the Product development category of the Ansoff matrix.

B&O should learn from this and try to develop more products its portfolio to diminish the risk of
getting obsolete. For this B&O must learn new technologies and must venture into new
domain. I would like to suggest a few ways of doing so.

8.3.1 Collaborating with Academic Institutions:

As innovation cycles shortens and research & development (R&D) strategies become more
closely tied to demands of the market, tech industry is keen to forge much closer ties with
leading technology institutes. B&O should be behind in these. Research and Academic
institutions have often proved to be the genesis for the 'ideas of the future' and many of these
ideas have went on to create wealth in billions of dollars in the form of new companies or new
offerings of established companies who are able to quickly identify and make use of this
research.

Similarly, we can take the example of 'Disruptive Innovation' - a research by HBS Professor
Clayton Christensen for citing the importance of business research. This research has led to
many companies spotting entirely new opportunities. Intel venturing into the low-end
processor market with its offering of the 'Celeron Processor' had its inception in a meeting
between Clayton Christensen and then Intel CEO Andy Grove. The Celeron consisted of x86
microprocessor models that were targeted at budget computers - the low-end market where
Intel did not have a foothold.

B&O already have affiliation with Aarhus University, Denmark, and may be having with many
more. But B&O should also have affiliation with the leading universities of Europe as it is these
places where majority of the talented bunch of students. This would also give B&O a chance to
implement new technology and features in its products and in the process increase the
consumer experience. Who knows B&O might stumble upon some new technology, which
might be setting the pace for the next generation of tech instruments. Remember, most of the
tech companies today were born out of tech schools. Recently, internet major Yahoo! reached
out to the Indian Institute of Technology Madras (IIT Madras) to facilitate research on big data
 38

and cloud computing. This cluster of high-end servers at the lab will allow researchers to
conduct research on big data and cloud computing systems, ultimately leading to Web
innovations coming to the marketplace. Yahoo! India R&D had previously established a similar
lab at IIT Bombay campus, which conducts research in data management and natural language
processing. Companies like Google, Yahoo, Sony and Facebook has affiliation with many leading
institutions. And working together they thrive to discover something new. Thus, leading to
produce more quality consumer experience and finally increase in revenue and profitability.

I believe the following are the steps B&O should follow:

Maintain a database on the many issues and institutions. This must list the most critical
research issues that B&O must focus on as well as the latest research. It must have the list of
institutions and professors that TCS must target for collaboration. It should list the names of
companies and competitors who are using the research and the positives due to the research.

Have a focused academic research relationships team. The relationship team should be
dedicated to identify the best institutions and professors and to build relationships with
institutions and professors. They can decide which research areas must be given high
precedence.

There must be optimum knowledge transfer of Research Insights. The Insights and knowledge
derived through the research must be transferred to all the relevant associates who are
essential in exploiting the research.

8.3.2 Collaborating with Freelancers:

Freelancers are fast becoming an important part of the co-innovation process in many
companies' products and services. Threadless.com, an apparel retailer pioneered one of the
most unique business models. They post competitions on their website inviting T-shirt designs.
The winner gets $500 plus some coupons and the design is then printed on T-shirts which the
company sells. It is estimated that the company earns millions of dollars and is hugely popular.
This business model has effectively blurred the lines of who is a customer and who is an
employee!

The following two things must be noted:

1. Threadless is facilitating a mobilization of the best of the designs and fresh ideas -ideas that
may not come from within the company.

2. They are able to acquire great designs at a very less cost.

 39

Fiat produced Mio - a Brazilian car which was the first crowd-sourced car! They implemented
over 10 thousand of the numerous suggestions that piled up for this purpose. Interestingly,
even management ideas and design ideas can be crowd-sourced. MIX or Management
Innovation Exchange is an open innovation project dedicated to reinventing management of
the 21st century. Their website would frequently post challenges and contain a list of
groundbreaking management thoughts and ideas. They recognize and reward three top
management case studies every year.

Another company worth mentioning and which is in fact a major pioneer in open innovation is
Innocentive - which was a spinoff of the company, Eli Lilly created in 2001. This open-innovation
company takes on R&D problems in a range of domains including math, engineering, business,
physical sciences, life sciences etc. They frame problems in the form of challenges and invite
answers and solutions. They have a vast 'solver network' of 250,000 people and is said to have a
reach of 12 million people. From 2006, they have started posting 'grand challenges' - which
carries a purse of 1 million dollars. Resources for R&D are scarce and Innocentive is a great
platform to source the best ideas from outside the company.

B&O can in my view use this strategy to great advantage. In my opinion, B&O can use this
freelancer strategy both in creating exceptional new management strategy and new design
ideas. B&O can tap the huge freelancer network in two different ways:

1. By collaborating with websites which freelancers populate and frequently visit. B&O can then
post its challenges.

2. Create a specialized and focus freelancer network and popularize the platform such that
many top quality freelancers get to know about it.

B&O must deploy both strategies. I strongly suggest that B&O have a focused free-lancer
network of its own. The advantage of an own network is that the attention of participating
freelancers will be focused only on the problems of B&O which may not be the case in other
websites which B&O does not have control over. But there is a problem that the reach may
actually not be that large and many talented freelancers may not know that there is a free-
lancer platform for B&O. So, B&O must first also publicize its freelancers website portal and
also provides some points based on qualities of the ideas. The points could be redeemed when
it reach a certain point for some B&O product or cash. Writers of the implemented ideas should
be rewarded handsomely, which will not only encourage him to work more, but also boost
competition.
 40

Where can B&O find talented freelancer? The top talent in b-schools and art-schools around
the can act as freelancers for B&O and can be designated as what I would call - 'Freelance
Business Associates' or a 'Freelance Design Associates'. I propose the following framework:

1. B&O must conduct case studies and competitions and challenges in the top b-schools
exclusively. It can conduct different design competition of some of its new product. How can
the products be in the future? And why would people love that piece of design? This will help
them to get better designs and that too quickly.

2. B&O will have to create a portal or a collaboration tool and create login IDs and passwords
for these selected top students. The students will then post their ideas, thoughts and
experiences and proposals on the portal which will add value to B&O.

3. A team inside B&O needs to be monitoring these portals and the thoughts and ideas that are
shared. They will have the responsibility to evaluate and study these thoughts and ideas. They
can assign points to the idea depending on the impact and innovativeness of the idea - higher
the expected impact, more the number of points. The students at the end of the year can
exchange the points that they have accumulated for cash awards. On implementation of their
idea, B&O should reward the associate handsomely, so that it can stir further competition.

The benefits of this proposal are immense:

1. It creates a platform for the top talent to contribute.

2. It creates a convenient way for the talented students to post ideas from the comfort of their
own accommodation in college without ever having to visit a B&Os office

3. The fact that compensation will be based on the number of points accumulated and the fact
that if the ideas are implemented the huge bonus they will receive will provide incentives to
this the students to post more and better ideas

4. Ideas can occur to the mind anytime and not in a structured manner. Giving the students a
tool to post ideas anytime of the day enables capture of the best thoughts

This is a very unique way to tap the top talent of the best b-schools. B&O can pioneer it also in
art schools. As B&O, needs great designs for its new product. This will give them a lot of designs
in a short amount of time. The best design must be selected and further work can be done by
B&Os designer on it. Thus, leading to relatively quick implementation of the products rather
than waiting for B&Os designers to come up with something completely new. This will also
limit B&O time lag between B&O introducing new products. A lot of effort must be taken to
select the right students.
 41

8.4 Diversification:
As I have mentioned before diversification is the key in any business. If you stay in the same
business for a long time without much diversification, your competitor will catch up with you.
And it might also happen that competitor might just sough to neutralize your product. For
example: When Netscape introduced its navigator web browser, Microsoft decided to
neutralize it. What Microsoft did was to knock navigator out of the market by making it
obsolete. The tactic it used was to give away its own internet explorer. So, a good business
must always diversify its business and reduce the risk. I would like to suggest a couple of fields
where B&O can venture into and diversify its business.

8.4.1 Airbus & US:

Panasonic is the only dominant player in the In-Flight Entertainment industry. It specializes in
every aspect from navigation system designs to back seat monitors. B&O being a experienced
and specialization in this product can venture into this industry. One good lucrative deal for
B&O will be to form partnership with Airbus, another fellow European company. It can form
partnership in designing In-Flight Entertainment products.

Airbus will also have a incentive to form this partnership as it is in a neck to neck competition
with Boeing, the American air manufacturing giant. This will also help airbus to win new
customers as people will get a firsthand experience of the B&O products, which will B&O to
gain more new customers.

This will also increase the popularity of B&O's product without any mass marketing strategy.
Airbus planes sales in every corner around the world, and thus would help to increase the
consciousness in general and help B&O in penetrating new markets.

Airbus has announce plans to build a plant in Mobile, Alabama for its single-aisle A320
passenger jet that will begin producing four planes a month in 2017.Over the longer term, the
facility is also expected to attract a number of key suppliers to the region, including jet engine
makers and companies that produce key aircraft components. With this deal it is clear that
Airbus popularity in US is bound to grow. B&O is having a difficulty in penetrating the US
market. This might be one of the solutions by pegging B&O brand value on Airbus.

There might be numerous technical and business issues that B&O might face, while going to the
In-Flight Entertainment business. The biggest might be from Panasonic itself, as it has already a
developed market. B&O in this scenario should look to forge partnership or take over
companies which have been out done by Panasonic in the long run. Although they may not
 42

have won the competition, B&O can use their experience to avoid the pitfalls and also learn
how to approach such murky waters initially.

B&O appeals to premium customer segment, so it would be actually in favor of B&O to design
its product for only the business class or in other words try to avoid making products for low
cost aircraft. B&O can also forge alliance with luxury airplanes in some countries as this would
help them to reach out to more potential customers and would give the customer a chance to
interact with B&O's product and get the experience without coming to a B&O's store. Why
would the airlines be interested in the starting the relationship. To start with we can take the
example of Virgin Airlines.

Virgin Airways have higher standards in terms of the in-cabin experience. They have brand-new
planes that have leather seats, great entertainment, and the most recent survey from showed
about 70% of the people were extremely pleased or pleased with their food. The neon purple
lighting has replaced the dreary and dull white/yellow lighting which planes usually have.
Second, all the seats were jet black and actually of Virgin Airways are made out of leather. This
made the plane look a more luxurious and definitely went well with the neon purple lighting.
Third, the first class and economy class were separated by glass, definitely adding a bit of
uniqueness. These are the small things which allow Virgin to charge premium prices and also
retain the loyalty of their customers. A company like B&O will be a ideal candidate for B&O.
Other potential customers of B&O might be Singapore airlines, British Airways, Emirates, Swiss
International Airways and Qatar Airways. These airlines try to provide maximum luxury to its
customers. So, collaborating with such airlines will only increase the brand value of the
company. These companies will also look hopefully to B&O collaboration as B&O have the same
motto as them, i.e. t give its a very good end to end experience.

Why can B&O afford to venture into this territory more smoothly than other electronics
product manufactures? The reasons are as follows:

1. A huge talent pool of resources at B&O disposal.

2. Vast experience in many streams especially audio/video and the integrated systems.
3. An exquisite design of its products which can only enhance the luxurious cabins of these
airlines.
4. A strong brand image and brand value that has taken years to build.
6. Expertise in fields like surface finishing of aluminum, and the silk-screen and sublimation
printing and UV-lacquering of plastic and aluminum parts will make B&O a strong contender as
it would be able to design products specially needed these airlines need. By the way B&O
aluminum anodizing facility is one of the most advanced in the world.
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8.4.2 Venture Capitalist:

In the beginning of August 2011, I read various news articles on the investment of US$ 25
million by Sequoia Capital, the US Venture Capitalist Firm in Mu Sigma, the Decision Sciences
and Analytics Services Company. Then on researching a bit, I found Google, Intel are also into
the venture capital industry. I propose that B&O too also have a Venture Capital Division.
Venture Capital is different from acquisitions. B&O through its acquisitions will have the great
chance to expand and grow in its existing businesses, but having a Venture Capital arm will truly
give TCS an opportunity to taste new businesses. Why would tech companies do that? In fact to
put it precisely why should B&O have a venture capitalist arm? The advantages and benefits
would have been in plenty:

Investment in the right startups has the potential to earn B&O billions of dollars in the long run.

To understand a new business, which if provides great incentive B&O might later venture into
either by raising its stakes in the company or by providing it with its brand name and try to
forge some kind of alliance.

No need for direct involvement or focus. Thus, saving a lot of time and resources of B&O to
focus on B&Os own product line. The founder of the startups who have conceived the business
plan will be in a better position to run their startup than any other company.

Different geographies bring different risk and opportunities with them. Suppose, a company
under B&Os venture arm is operating in a whole new geography B&O is not associated with.
Now, B&O can learn the culture and mindset of people in that area from the company under
B&Os venture capitalist wing. Thus, help B&O in better formulating the strategies for B&O to
venture into that geography with its own product line.

In the long run B&O will be able to learn from the company, B&O is acting as a venture
capitalist into. Suppose, the company is a consultant firm or is a tech company. In the first case,
although initially the consultant company will try to learn from B&O, but later B&O can really
uses its expertise while drawing different strategies. Similarly, B&O can actually learn a lot from
a new technology or product, the startup company have created. Thus, it is the long term
reverse transfer of knowledge that would help B&O tremendously.

Some of the aspects of this B&Os Venture Capital Unit will be as follows:

The Venture Capital Unit will invest in only Technology startups, consultancy services,
marketing companies, design companies etc. In fact it should focus on areas where B&O wants
to develop its knowledge base.
 44

The Venture Capital Unit will function as a completely independent division and will have its
own divisional head and will only concern the CEO and the CFO. It can form partnerships with
Banks for funding. B&O must allocate a certain amount of funds for the Venture Capital Arm
every year.

The Venture Capital unit initially must have consultants and management professionals from
within B&O. It can go into recruitment in the subsequent years. It must also focus on the
management potential of the Startup team apart from the potential of the Business plan.

The VC unit must market its services to the top academic institutions in the respective countries
and invite business proposals.

The VC unit must have a robust business review process which will review the performance of
startups every quarter and forecast the returns and also for taking crucial decisions. It must
invest preferably in an innovation and a new field where there is very less competition.

It should be remembered that all tech giants like Apple, Facebook, and Google were all funded
by some venture capitals. Imagine the leverage for B&O had it been the venture capitalist of a
firm like Facebook or Google. The marketing tools B&O would have had in its hands, and also
the return of investment from investing in such companies. Over all it would have also helped
the people in general too!

8.4.3 Spinning off a Low Cost Product Company:

B&O is a brand associated with Luxury Products. The B&O brand has been built in a time span
of 85 years. People, who have bought its products, feel proud to be associated with it. This is
B&O strongest point.

On the other hand, company like Apple, Nokia, Sony, Philips, Panasonic are product based
companies who aim at mass marketing. Their aim is to be the first mover in the market with its
innovative product line, unleashed a big mass marketing campaign, gain the advantage and get
impressive sales figures and try to focus on the next product.

But lately, it seems this plans seems to be working out well. Apple last year became the latest
company to have a market capitalization of $500 billion. Samsung sales have also increased.
Samsung's latest creation is the OLED HDTV and has unleashed a huge campaign for it. Lately
Sony's financial standing has also increased! Thanks to the decreasing value of Yen (The
Japanese currency)!

These product based tech companies along with competing also form alliance to compete
against a strong third party. Recent partnership has been between Nokia and Microsoft to take
 45

on Apple's iPhone. The most mentionable among the others has been among Samsung and
Android in the smart Phone category. Similarly, in Japan Sony and Panasonic (both Japanese
companies) have joined hands to develop the OLED HDTV technology to prevent Samsung from
running away with the sales. Many a times companies join hands to develop a product in a
short amount of time to reduce its innovator's first mover's advantage.

These companies also have waged a price war among themselves. Recently in November, 2011
Amazon released a tablet Kindle fire for $199. Google also recently on June 7, 2012 announced
its new Tablet Nexus 7. Its prices start at $199. Right now, Apple has the largest share in tablet
market. It had a market share of 68 percent in the last quarter. An iPad presently cost $399. But
with the advent of cheap tablet, it is rumored that Apple is churning in high gear toward an iPad
mini. The new Apple tablet has a screen size smaller than eight inches. Currently, the iPad has a
9.7in screen size. This move is clearly to neutralize the competition an seize the tablet market in
lower price category.

Now, returning to focus on B&O, we find that B&O has never competed in the low price
segment category and have never tried to forge any kind of partnership in R&D with any other
company leaving out Philips with whom B&O formed an alliance once. One reason of
competing in the only premium market segment is for B&O to maintain its brand value. As I
have said earlier that customers of B&O take pride in associating with its product, so competing
in the lower price market or mass marketing might cause a dent to the pride its customer have
to be associated with B&O. The reason for the other problem of almost never forging any kind
of partnership with other tech companies in R&D is seldom the target customer segment of
both the companies is same. So, the expectations from the research also differ. Also, B&O
emphasis more also on the design aspect which B&O's partners may not encourage much.

To counter, I would suggest B&O to take a leaf out of retail companies. I would suggest B&O to
spinoff a totally different product line in the low price market segment. This needs to be done
by acquisitions and mergers. A company like Coke introduces different products which actually
compete with rival's product and also its own. The basic idea behind that is that if you have
three companies with each having a product in a market with market share of 33 percent (given
all three products are equally popular), now on introducing another product by one of this
companies would make the market share of that company increase and the other two
companies to decrease to 25 percent (given all the four products are equally popular). Their
view is if a product of their company is losing market share, it is better to lose it to their own
companys product than to their rivals. This line of thought is very popular in the retail industry.

B&O should not give its brand name to its child company, but should allow it to make one for
itself by supporting the child company externally. This would help B&O improve its figures and
 46

also allow them to compete in the mass market directly. A good aim would be the Altec
Lansing. The company was sold twice in the last decade and moreover, it is an OEM supplier to
many computer makers such as Asus, Dell, Compaq, Hewlett-Packard and Gateway, where B&O
is not present rightly. Thus, it is already having a brand name in the low price market segment.

Why should B&O do this now?

1. B&O have great experience in the product manufacturing in audio/visual products. The
experience would come in handy for the child company.

2. B&O has access to most of the recent technology.

3. It has already built a great research unit. It already takes up various R&D works. So, the R&D
spending of the child company can be saved.

4. B&O makes any way lots of design for its product. Some can used in products of its child
company without to do much new research into it.

5. In 85 years, B&O has implemented various strategies. This gives B&O the advantage of
knowledge of feasibilities of these strategies. So, the child company can just implement the
time tested strategies and make a quick growth in the market.

6. The 85 years of deep understanding of people's physiology would help the new company in
positioning their products in the audio/visual market.

The question now arises is which companies B&O must target for? These are some of the traits
the trget company must have.

1. The target company must be from the audio/visual industry.

2. It must have a good reputation in the market, although the products portfolio of the
company may not be that good.

3. It must also have a presence in some other territories, where B&O is no forayed into.

4. It is better to have a different business line, which B&O can venture into on acquiring.
Reverse knowledge transfer.

Thus, I feel the time is apt for B&O to start a new inorganic growth process and then reboot the
acquired companies for more market penetration.
 47

8.4.4 Productive Paranoia:

Morten Hansen is a management professor at UC Berkeley and ISEAD and author of book
"Great by Choice". In an interview with Harvard Business Review, he talks about great leaders
do to make their companies thrive in moment of chaos and uncertainty. One of the skills during
the research the great leaders had is called "productive paranoia". Bill gates always worries
about what going to happen to his company next. Bills Gates wrote something called
"Nightmare Memo". It contains "What can go wrong in his company?" Its the hyper vigilance
on what can go wrong and to actually channel them into action so that you can make actually
build buffers and take care and prepare yourself for the storm. Thats by being productive and
also a little paranoid.

Another conception on which the professor did research on was "Is Great leaders are lucky".
Here the authors discuss the perception of great leaders that they were just lucky that why they
won so big. The author's team studied the luck events. The good events and the bad events that
have happened out of your control and have a significant impact on the companies. That's a
luck event. The author's team found that the good luck event and the bad luck event, for the
winners and the comparison companies had comparatively the same no of good luck events
and bad luck events happening to them. So, it was not that the winners were luckier, but it was
something else. What the research found that winners had a higher return on the luck that they
got. One of doing that was to prepare for a bad luck event. Herb Kelleher as CEO of southwest
airlines always did this. He always thought about what was coming next to make sure they were
running lean, because there would be a storm out of nowhere and he bets on that the airlines
stays prepared. Then there are good luck events. To know they are coming and see they are
come your way, not just the one thing you are doing today, but when they come see it and
seize the moment. And then is to brilliantly execute the good luck event and not to squander
the opportunity. That's how you get a higher return on luck. So, the companies they were not
just lucky but they got a high return on their luck.

Mike Lazaridis, previous president and founder of Research In Motion, hosts an innovation-
themed, invitation-only "Vision Series" session in the Waterloo (Ont.)-based company's 100-
seat auditorium each Thursday. The standing-room-only meetings focus on new research and
future goals for the company that gave us the BlackBerry. Lazaridis is likely the only chief
executive of a publicly traded company who has an Academy Award for technical achievement.
He won it in 1999 for an innovative bar-code reader that he helped invent that expedites film
editing and production. As the Business Week-BCG survey demonstrates, it is a life every
manager around the world must embrace.
 48

With regard to the above, I would suggest B&O to form a team named "Next big thing". The
work of the team must to constantly look out for opportunities and threats facing B&O. The
following I feel should be noted features of the team:

1. It must consist of minimum 3 and a maximum of 5 members.

2. The people must be from different background namely finance, marketing, design, and
engineering.

3. The team must report to directly the CEO or COO of B&O. This would help in a fast reaction
from the company's top brass based on what the team has reported. This will also increase the
motivation level of the team.

4. Only people who want to work in this team should be given an opportunity to work and if
someone working in the team wants out, he should be let out without any gray shades in his
track record. This ensures only a bunch of enthusiastic people work in the team.

5. The team members should be placed in the team for a period of time, after which he should
return to his previous responsibilities. This allows new members with fresh perspective to come
in. I would suggest the period should be between 15 to 20 months. This would give them ample
time to settle down and also to give some productive output, or see through their plans, if
agreed by the board, is implemented properly.

9. Conclusion:
B&O most significant strength is the companys brand value which has been developing through
years of launching unique products with a focus on design and quality. Other strengths are the
companys strong core products as well as useful patents and beneficial relationships with its
business partners.

On the other hand, B&O has got some significant weaknesses, where the most relevant is the
lack of ability to compete on price. The companys products are no longer exceptional enough
for B&O to charge the massive price premiums that they do. B&O has also been lacking focus is
diversity, especially with the competition cutting in, in its designs advantage. Especially the
global economic turndown is boosting this process.

In order to post financial figures like that in 2004/05 to 2006/07, the company must be more
aggressive in market penetration, market development, product development and also
diversification. The reason for this is that no one knows when the crisis will end. There is
therefore a reason to believe that B&O is sensitive to the length of the crisis.
 49

I suggest B&O to start focusing on developing countries, along with the rich developed
European countries. The management at B & O needs to radically change the business model to
be effective in following a radical innovation strategy, and this has a lot to do with their
understanding of the differences between incremental and radical ideas so that potential
breakthrough ideas are not discarded prematurely. Moreover, they need to acknowledge that
there is immense value in the fragmented ideas that can be put together to create
breakthroughs.

In 3 years:

I envision B&O to start diversifying it product line and creating more innovative and beautiful
products. It should start in focusing on every new opportunity lines along with maintain their
existing product line. It should form partnership with new academic institutions, and start
researching in fields of B&Os interest. It should also be ready to spin off a child company
targeted to the low price market in the developing countries, as it is difficult for people there to
afford B&Os premium product.

In 7 years:

After 7 years, B&O should start its march to the top by cashing in the opportunities B& created
for themselves in the next four years. Nothing can be better for B&O other than breaching the
In Flight Entertainment market in these 5 years. This would give B&O a lot of wing to continue
its further quest for superiority. I also envision B&Os child company to start being one of the
leading companies in the low price market.

In 12 years:

I envision B&O to be tech giant in next 12 years. Although, its a long way, I would like to see
B&O having a huge market share of the some of the leading products of that time like Apple is
today in the smart phone and tablet market, Sony and Microsoft (Xbox) are in the gaming
market.

Finally, it should be appreciated that every organization is unique and there cannot be one
prescribed approach to managing innovation. In todays highly competitive and dynamic
market, innovation has to be planned, structured and implemented through clear analysis and
assessment of the internal as well as external environments.
 50

Remember!!
In December 1996, Apple was days away from bankruptcy when Steve Jobs joined Apple and
turned the company to have more than $500 billion company by market capitalization in 2012.
Its stock has increased from $22 in December, 1996 to more than $600 in July, 2012. B&O right
now is in a way better position than Apple in 1996!!!!
 51

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