Francois Baranne | September 14th 2010 | MBA Program - 2nd year Operations Strategy Case Bang & Olufsen Introduction It seems important to begin this case analysis with a evaluation of the company in order to underline some of the key points to keep in mind for this case. Appreciated First of all, we can say that Bang & Olufsen have developed, through a differentiation by the design, a sustainable competitive advantage in the high-tech audiovisual market which have allowed the company to increase the willingness to pay of the customers. Normally, this solution, the design-differentiation, should not have last or generate this increase but this is where B&G has done great by developing the design to the point of it has become the core competency of the firm. Every function of B&O (supply chain, manufacturing/quality... ) gravitates around the design function. Thus, such as Toyota, B&O has succeeded to developed a operations-based strategy quite impossible to reproduce because based on a philosophy. Secondly, it is interesting to note that B&O has tried to reach the last phase of the Sand Cone The company, which deliver a great quality (long product lifetime, handwork manufacturing), has a good flexibility (specialized workers, integration of top-technology by the engineering department) and is relatively fast regarding its products (delivery in 5 days, concentration of the resources, accelerating cycles), is now looking for cost-reduction. As we can see it in the documentation, the reduction of the number of employees (which had surely helped to increase profits) and the implantation of a new factory in the Czech Republic have probably been decided in that perspective. Development Now that we have defined what we consider as the key points of this case, it is time to think about the critical issues B&O is facing. Concretely, B&O is a producer of high-tech audiovisual products with great design. The problem is that, nowadays, with the emergence of new products such as the Ipod, people have extended their quality expectations about the audiovisual to the virtual level. To satisfy what B&O supposed to be the customer needs, the company has begun to think about this topic, even creating a new entity, Idealab, for this purpose. Until now, B&O has not take the risk to develop this approach to the next level and the influence of Idealab on the products in development is quite limited. Nevertheless, this situation could evolve with a new project for a digital audio/video product. In definitive, this project raises for the company the questions of the integration of more great software and network-based interaction in its products and, consequently, the importance it should give to Idealab in its organization. These issues are critical because they could change radically the way B&O is doing business. We will now see in the following development that every options has its pros and cons. To begin with, we could imagine that B&O would decide to integrate more software and network applications on its products, to reach the “50% software, 50% physical product” mentioned by Sorensen for its products, for instance. By making such decision, B&O would make a bet which could have serious consequences but could lead to new incomes. First of all, B&O would have to reconsider its process by integrating upstream some resources about the integration of virtual content, more than they did recently. Among other actions, that would mean to develop a closer relationship between designers and Idealab, but also maybe the creation of entire “back-office” systems and some technical support, the development of new partnerships with R&D labs specialized in IT... The rewards ould be important, if B&O is able to maintain high standards in design: anticipation of the customer needs, potential conquest of new customers attracted more by the software side than the physical product side or seduced by the combination of the two, potential reduction of the launch cycle by reducing the influence of designers, diminution of the “design-dependance”, potential mid/long-terms savings (re-utilization/update of a software), increase of the willingness to pay... On the other side, the risks are quite important too. Indeed, B&O does not have a long experience in software and they do not have all the resources so they would have to invest time and money. They also would have to change quite a bit the process which could lead to delays, quality problems, difficulties to define a good balance between the different services, resistance from the designers... The design of the products in development could suffer of this situation (potentially less resources allocated) which could hurt the image of the brand. The design is what makes B&O products luxury goods; without that, they just are good quality high-tech products. And, last but not least, the competition could be totally different for these type of products. In the case of B&O decided to keep to the minimum needed the integration of software and network-based products, it would be objectively safer. This choice would preserve for sure the competitive advantage of B&O, and if the company chooses to collaborate with a new IT partner, instead of working with Idealab, for the projects which need software integration, they could allocate the potential remaining resources to new projects such as diversification or new partnerships or they could just save the money. But with this choice, they take the risk to see their customers leaving for a competitor able to fully satisfy their virtual needs. Also, it would perpetuate the long-term dependance of the company towards the designers (especially a few of them such as David Lewis) which could be a problem in terms of delays, appeal of the products (a product could be not welcomed very well by the customers) or will to lower the costs. We can add that this immobility is damageable in a certain way because they loose the long-term opportunity to develop new types of products based on network technology and software that could be able to educe a new clientele. Indeed, nowadays, the kids and the teenagers, the buyers of tomorrow for B&O, are raised in a environment where the virtual technologies are omnipresent. Conclusion My personal point of view of this situation is that B&O has to continue its integration of virtual content into some of its products but I do not think that the current organization, with Idealab, is a good solution and I do not think either that the virtual input should be too important, especially for certain products. About the organization, I think that Idealab should be developed at the image of the engineering department, with the same type of relationship with the designers and the same method of work (partnerships with R&D labs for instance). The intervention of Idealab, at the early stages of a project, should be limited at a few category of products, such as the phones and eventually the TV. By doing that, B&O does not deny its identity, gives itself the time to determinate the value added by the software implementation on its products (customer satisfaction) and tests a new process. Thus, the risk is quite limited and according to the results, B&O will know if it is necessary to take the virtual integration to the next level. Anyway, this topic would not be my top priority if I were the CEO of B&O. I would rather focus on the reduction of the costs despite the fact that B&O is a company which sells luxury goods.
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