15173097 managing innovation bang and olufsen

B H O O S H A N P A R I K H

C B S F T M B A 2 0 0 8 - 0 9

M A N A G I N G I N N O V A T I O N

T E R M P A P E R

2 7 A p r i l 2 0 0 9

Case Study

The paper contains a model-based analysis of

the innovation management scenario found

at the Danish audio-video equipment

manufacturer, Bang & Olufsen. The analysis

is based on information contained in a case

study and does not dwell into the current

situation of the company. The paper takes

into account various aspects related to the

company in terms of balancing radical and

incremental innovation, technology and

business model innovation as well as design-

driven and user-driven innovation strategies

based on relevant theories and models as

applicable to the subject. Finally, the

analysis provides the reader with a different

perspective to the approach adopted by the

Bang & Olufsen that might have the potential

open new possibilities for the company.

Bang & Olufsen: Design Driven Innovation

Bhooshan Parikh CBS FTMBA 2008-09 Managing Innovation Term Paper Page 1

INTRODUCTION

Bang and Olufsen (B & O) is a Denmark based high-end audio-video equipment

manufacturer. The company has a tradition of creating ‘the best’ and ‘the first’ styles of

products in its 80 year history. The company has been targeting fashion connoisseurs and

sells its high-tech televisions, telephones, DVD players, loudspeakers, digital music

players, and other products through some 1,500 stores around the world with UK and

Denmark being the company’s largest markets. B&O also has subsidiaries that manufacture

medical equipment, telephones, and audio components.

Following in line with the Danish reputation in revolutionary design and innovative

products, B & O has won global acclaim as one of the leaders in innovation and product

development. The company has been catering to a very niche market segment and has even

collaborated with some high volume manufacturers like Samsung Electronics of South

Korea. A number of its products have earned a place in the Museum of Modern Art, New

York and the company enjoys a strong loyalty from its existing customer base. Although

an external look at B & O shows a picture of strength and high performance, all is not well

at the company. The company’s future may not result in the same growth and profit that it

has seen in the years leading up to 2004 (Austin, R. D. & Beyersdorfer, D., 2007). B & O is

faced with uncertainty as it encounters troubles due to higher costs, competition, economic

crisis, and management problems. A lot has to do with the way in which B & O manages its

innovation and how it approaches its innovation strategy.

This paper is an attempt to conduct an inside-out analysis of the structure of B & O with

respect to its innovation management strategy with a view to addressing the issue about its

uncertain future. Based on the information contained in the case study (Austin, R. D. &

Beyersdorfer, D., 2007), the paper will provide a critical view of the existing design

oriented structure of B & O using various theories and models pertaining to innovation

management. The paper begins with a description of the basic framework of the Seven

Rules of Innovation (Davila, et al, 2006) with a view to bring out the limitations of the

design driven innovation (Verganti, R., 2006) being followed rather strictly by B & O.

Following from this, the paper covers scenarios on how B & O can create an environment

for a more structured innovation process to create a balance between radical and

incremental innovation (Takeuchi & Nonaka, 1986). It also provides insights into areas


where the current setup of B & O is lacking in terms of both technological and business

model innovation. Towards the end, the paper describes the importance of consumers and

market research in innovation management (von Hippel, 1986; Gruner & Homburg, 2000)

and shows a possible area for B & O to explore. Relevant theories from other subjects have

been applied to act as a bridge between certain aspects to bring about relevance to the

content. However, the paper does not address financial aspects of B & O and provides no

recommendations for improving profitability or performance in this regard.

INNOVATION STRATEGY

The key concern perceived in the case of B & O is that the company does not seem to have

a good balance between radical and incremental innovation and at the same time there is

not an equal focus on business model innovation as compared to technological innovation.

In order to address this concern, the deduction that follows is supported by Davila, et al,

(2006) who have based their arguments on the premise that ‘how you innovate determines

what you innovate’ and have suggested seven rules of innovation in this regard:

1. Exert strong leadership on the innovation strategy and portfolio decisions.

2. Integrate innovation into the company’s basic business mentality.

3. Align the amount and type of innovation to the company’s business.

4. Manage the natural tension between creativity and value capture.

5. Neutralise organisational antibodies.

6. Recognise that the basic unit of innovation is a network that includes people and

knowledge both inside and outside the organisation.

7. Create the right metrics and rewards for innovation.

On the basis of this it may be said that innovation is a structured management task and must

form part of an organisation in order to achieve sustained growth. On observing the

functioning of B & O we can see that the company and the management do not satisfy all

the seven rules, as described in the succeeding text.

The B & O management is clearly influenced by the designers and their perceptions of

innovation. The designers almost enjoy a ‘veto’ in the product development in the


Adapted from Davila, et al, ‘Making Innovation Work’ (2006), Wharton School Publishing.

company and the management is mostly left with facilitating what the designers want.

Evidently, it is not much of an issue for the existing management at B & O as they seem to

be content in continuing with this way of working. However, in order to make informed

decisions relating to the innovation strategy and the product portfolio, the management

should be in a position to exert the required influence on all matters on the company.

Important areas of concern are product portfolio management and the financial implications

of extended lead times and slow product development.

RADICAL OR SEMI-RADICAL INNOVATION?

Furthermore, there seems to be a clear misalignment between the type of innovation that B

& O is following and the existing business model of the company. Clearly, the company

and all those associated with it believe that B & O are the leaders in radical innovation and

that by adopting a design driven innovation policy, they are on the right direction to achieve

breakthroughs over and over again. However, if we look at the innovation matrix below, it

may be noted that B & O has

been actually following only

semi-radical innovation and not

necessarily radical innovation as

implied by the company and its

designers. This is because the

company has not altered its

existing business model for many

years and has only embarked

upon new technological advances

in its manufacturing processes.

Of course, B & O did see a major restructuring in 1992 but that might be attributed to more

of a necessity than a planned event. Again, in keeping in line with creativity and the

orientation on design, the company has not been able to capture optimum value for its

products. At the same time, it has not been able to create a strong network that can provide

further growth and insights into the market requirements. The company has not been

adequately consumer focused and has not created any value for the potential customer. It is

evident from the above discussion that many of the seven rules of innovation are not

fulfilled by the current innovation strategy adopted by B & O.


MANAGING INNOVATION-STRUCTURE AND PROCESSES

Another major issue facing B & O is the competitive nature of the industry and the

requirement of speed and flexibility that are imperative for survival. Based on the theory

proposed by Takeuchi and Nonaka (1986), this is more relevant to the product development

at B & O and the current business model adopted by B & O simply does not work. It may

be pertinent to note at this point that B & O does have a structured approach to innovation

and that it does not need more structure and organising. However, this structure is

inappropriately directed and there is a need to modify and improve the structure to provide

a more holistic view to be able to effectively handle the dynamics of the fast-paced

commercial market conditions.

In view of the above, the following paragraphs analyse the organisation and functioning of

B & O in relation to the six characteristics in managing new product development

(Takeuchi and Nonaka, 1986). B & O has not digressed from its traditional linear approach

(Appendix A) to product development and needs to adopt a more flexible and integrated

approach (Type C). The fact that B & O is taking extended time (up to 5 years in case of

the CD player BeoSound 9000) to get its products into the market indicates that there is a

lack of speed and flexibility in their processes. One strong point is that the freedom for

workers to take decisions regarding quality leads to extremely high quality products. But

this would be possible only if all the workers are equally passionate about their jobs, which

may not always be the case. B & O might find it more appropriate just to have stipulated

guidelines or quality control measures. Moreover, linear approach also restricts learning

through trial and error and leads to a status quo as far as product development is concerned.

Considering the six characteristics, we can say that transfer of learning would be minimal

in an organisational setup such as B & O. There would be no overlapping development

process as the designers are external to the company and consequently, the learning from

experience would be extremely limited. In these times of quick product development and

improved time-to-market, B & O is most likely to lose its edge over the competitors and

result in a decreased market share and future growth. It is clear from the information

provided that this issue needs to be issued by the top management who is in a position to

recognise that a linear and structured attitude towards product development can almost

never be successful. However, with the strong influence of the designers the management is


rendered ineffective in such important matters leading to overall repercussions.

Additionally, such an approach will require that the management provides clear guidelines

and scope for the new product development in order to bring about a change as well as

promote individual growth and knowledge within the organisation.

At this point, one might argue that this is in some sense related to establishing a stage-gate

model where there are various checks and balances in the process of product development.

But where a classical stage-gate approach would tend impede radical innovation (Davila,

2006), the rugby approach (Takeuchi and Nonaka, 1986) provides the required flexibility to

overcome these limitations and helps to achieve radical innovation in the organisation.

MANAGING INNOVATION-DESIGN DRIVEN INNOVATION

When we consider design driven innovation, it is important that we also consider Roberto

Verganti (2006) and his theory that design driven innovation is the approach for the future

and is a necessity to follow a radical innovation strategy. One of the main conclusions

drawn from this theory implies that design does not necessarily entail getting close to the

customer. This can also be seen in the ideology of the B & O chief designer David Lewis.

Lewis follows that every individual is a customer and so why should one ask others when

he can provide the solution himself (Austin, R. D. & Beyersdorfer, D., 2007). According to

Verganti (2006), the functionality of the products is more important than the aesthetics

from the user’s point of view. While B & O believes that their approach in adopting a

design driven strategy is the best way forward, it may be argued that this has the possibility

of giving away too much of the future of the company into the hands of the designers. The

designers at B & O have been creating the objective analysis of the customers based on

their own perceptions, whereas they should be the ones to use their vision to guide the

product development process in the organisation.

Contradicting design driven innovation (Verganti, 2006) with the seven rules of innovation

(Davila, et al, 2006), we can see that the current approach adopted by B & O does not lead

to network creation. In fact, the design driven approach is not well suited for promoting

incremental innovation, which is also important to maintain a balance in the innovation

strategy of the organisation. Davila, et al (2006) argue that sharing of knowledge both

inside and outside the organisation is the basis behind forming a network and that is the

main input for product development and to bring about a balance of incremental and radical


innovation. Moreover, it is not always possible for an organisation to be radically

innovative all the time. There has to be a consistent and systematic process of radical

innovation interspersed with regular incremental innovation based on the user driven

approach.

MANAGING INNOVATION-LEARNING FOR INNOVATION

Taking a quote from ‘Making innovation work’, (Davila, et al, 2006);

You can’t improve any part of innovation-not the framework, strategy, processes,

organisation metrics, or incentives-and expect to see good results unless you make

sure that your organisation knows how to learn and change. (p.211)

An intrinsic part of innovation is learning. Innovation is all about change and

organisational learning and change are closely linked. Takeuchi and Nonaka (1986) have

also talked about organisational transfer of learning as one of the six characteristics that

define the holistic approach that they have recommended. One of the better ways of

learning is through experimentation, which provides a good ignorance management tool

(Davila, et al, 2006). However, we can see that organisations like B & O that are highly

design oriented and are driven by the strong views of the designers, there is little scope for

proper ignorance management. The organisations cannot identify the most important things

that they do not know and this restricts their forward movement. To put it more concisely it

may be said that following a purely design driven strategy B & O is more likely to be

ineffective in its future growth and sustainability and in continuing with its tradition of

radical innovation especially in the current situation of a highly dynamic and competitive

environment.

MANAGING INNOVATION-MARKET RESEARCH

In providing further critical views on the sole design oriented approach, the areas of user

driven approach and the possibility of market research come into play. Identifying the user

needs is essential for radical innovation especially in high technology industry that B & O

is part of. According to Eric von Hippel (1986), ‘lead users’ can serve as a real-time market

research facility that will provide a glimpse of the future as far as such high technology

products are concerned. They can act as ‘focus groups’ to promote interaction between the

organisation and the users and provide insightful designs and concepts. Surprisingly, B &


O has not conducted any kind of market research since 1972 (Austin, R. D. & Beyersdorfer,

D., 2007) and as a result has most likely not been involved with customer interaction as part

of its product development process. The company has been producing products firmly

based on the views and perceptions of its designers and this might also explain why

consumers are buying more from volume manufacturers and not from B & O. There is a

need for B & O to alter its business model in a manner that helps systematically identify

such lead users and to integrate their perceptions and preferences in its products, processes

and services. This will also provide better inputs for physical product development as the

information flowing in through such actions will be first-hand and B & O can come up with

products that would appeal to a larger segment of the market.

MANAGING INNOVATION-USER DRIVEN INNOVATION

Besides the market research data, information gathered from customer interaction is also

important (Gruner & Homburg, 2000). On the basis of this argument we can also say that it

can create a balance between technological and business model innovation for B & O.

Getting accurate information from the consumers will require that the company does not

blindly adopt the design driven strategy. It would be most likely that the user perceptions

and needs differ from the views of the designers at B & O and in order to match these

perceptions, B & O will have no choice but to alter its designs as well as the way it

approaches its innovation strategy. At this point forming functional teams providing

market information as well as involved in product development would channel the flow of

relevant information. If the information indicates that the consumers are not willing to

adopt or change to a different technology, it will be pointless for B & O to develop a

product on such irrelevant technology. At the same time, if the designers are asked to cater

to the actual needs of the users and not implement their own perceptions, it will

fundamentally change the business model that B & O has been following for years. In all

likelihood, this would lead to a more systematic and structured approach to innovation at B

& O. What Gruner and Homburg describe matches well with the theory of von Hippel in

that interaction at different stages of new product development, with customers exhibiting

the characteristics of ‘lead users’, play an important role in the success of new product.

CONCLUSION


It can be seen from the above that there are a number of areas in which B & O can show

improvement that can lead to a better future for the company. This does not mean to

indicate any flaws that might exist in the strategy adopted by the company. Obviously, the

company has been successful for the last 80 years and has earned itself a strong global

reputation of high quality design innovation and durable, high-performance products. But

the scope for further improving upon how innovation is managed should not be ruled out as

has been brought out in the analysis of the design driven innovation strategy. B & O can

always learn through a focus on the Structured Idea Management process (Davila, et al,

2006) that is designed to prevent the two mistakes most commonly made by companies.

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. A culture of

experimentation and prototyping will go a long way in making the best use of resources

available and to get important feedback on the product relevance and characteristics. The

synergy between design and user driven approaches may not be an easy task to accomplish,

but establishing functional product development teams might help resolve these issues.

What the company needs is to recognise the urgency to change (Kotter, 1996) and to create

an environment that facilitates this change in the best possible manner. The management

should look at deeper involvement in the decision making involved with innovation and

implementation of its innovation strategies while the designers should be made to act as

guides and providers of a vision for the products and not as representatives of the end-users.

Finally, it should be appreciated that every organisation is unique and there cannot be one

prescribed approach to managing innovation. In today’s 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. Speed and flexibility in

product development play an important role and B & O will surely benefit from looking

deeper into the aspects mentioned above. If need be, it would be absolutely acceptable if the

company decides to reposition itself as a ‘not-so-niche’ player in the AV market and

thereby gain market share and recognition, and thereafter raise itself a notch higher once

again. Highly radical, but makes sense!


Appendix A

NEW PRODUCT DEVELOPMENT

Extracted from The new new product development game, Takeuchi and Nonaka (1986)


References:

1. Austin, R. D. & Beyersdorfer, D. (2007) Bang and Olufsen: Design Driven Innovation,

Harvard Business School, 9-607-016, September 2007, Harvard Business School

Publishing.

2. Davila, T, Epstein, M.J. & Shelton, R. (2006) Making Innovation Work: How to

manage it, measure it and profit from it, Wharton School Publishing.

3. Gruner, K. E. & Homburg, C. (2000) Does Customer Interaction Enhance New

Product Success?, Journal of Business Research 49, 1-14 (2000).

4. Kotter, J. P. (1996) Leading Change, 1st edition, Harvard Business School Press.

5. Kumar, M. (2005) Bang and Olufsen: The Danish high-end Audio maker’s

restructuring strategies, Case Study Reference No. RTS0062, ICFAI Business School

Case Development Centre, India.

6. Takeuchi, H. & Nonaka, I. (1986) The new new product development game, Harvard

Business Review, Jan-Feb 1986.

7. Verganti, R. (2003) Design as brokering of languages: Innovation strategies in

Italian firms, Design Management Journal, Summer 2003.

8. Verganti, R. (2006) Design, meanings and radical innovation: a meta-model and a

research agenda, Politecnico di Milano, Italy.

9. von Hippel, E., (1986) Lead Users: A source of novel product concepts, Management

Science, Vol. 32, No. 7, July 1986.

10. http://www.bang-olufsen.com/

11. http://www.beoworld.org/article_view.asp?id=29

12. http://www.businessweek.com/print/magazine/content/07_45/b4057057.htm?ch

an=gl

13. http://www.cph127.com

http://www.bang-olufsen.com/

http://www.beoworld.org/article_view.asp?id=29

http://www.businessweek.com/print/magazine/content/07_45/b4057057.htm?chan=gl

http://www.businessweek.com/print/magazine/content/07_45/b4057057.htm?chan=gl

http://www.cph127.com/

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