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Augsburger: business, brands and Brazil

In a rare interview, Blake Augsburger talks openly to Dave Robinson about Harman Pro Audio's history, health and hopes for the future; about AKG and AVB and what the company will be acquiring next.

Texas-born Blake Augsburger is executive vice-president for Harman, and president of the professional division (Harman Pro Audio), as well as being Harman North America country manager (including Brazil). Basically, he’s got a lot on his plate: a responsibility for large capital expenditure, major purchase agreements, and human resources issues when things get serious. So, recently, he’s had to handle some controversial and heavy-duty decisions: for instance, managing matters down on the Mexican border, where drugs-related violence has reached new heights of concern; and restructuring in North America, including the shutting down of the Harman-Becker factory in Martinsville, Indiana, and the moving of the consumer unit from New York to LA.

He says his role as Northern American manager means that “pillars that existed between the groups have been knocked down” and now there is increased sharing of technology across the company.

In a “nothing is off-limits” interview with PSNE – conducted on his 47th birthday in July at the Crown factory in Elkhart, Indiana, and available online in its complete form – Augsburger was frank and direct when tackled on the tough issues facing the company.

So let’s start with the manufacturing; in April you moved JBL manufacturing from Northridge, CA, to Mexico, is that correct?

BA: “Sort of, but not really. We’ve been moving our production to Mexico for the last two years – we own a large wood mill and factory in Tijuana. [Harman Consumer] managed this factory for quite a while but did not have the volume to absorb the overhead, so we [Harman Pro] took it over three years ago and relocated all of our production from California to Mexico.

“Now it is much more efficient and cost effective; from a quality perspective we’re really pleased with what we have. You know, it gets to a point in California where you just can’t manufacture, it’s too expensive. It makes you uncompetitive and doesn’t allow you to focus on where you want to be, which is bringing new products to market.

“So we’ve set up Northridge as a Centre of Excellence for marketing and design. All of our Consumer marketing people are in Northridge; on the Pro side it’s engineering, marketing and sales.

“We’ve made a tremendous investment in the Northridge facility; we’ve cut it in [two], given half back to the landlord and renovated the other half. Now we have a great customer showroom where we can bring in large retailers like Best Buy and show them our point-of-purchase displays. We’ve made a tremendous amount of investment in test rooms and equipment for designing acoustics.

Are there other Centres of Excellence then?

BA: “We’ve set up all of our business based on Centres of Excellence now. So Crown is making amplifiers for Pro, but also for Consumer and for Automotive. We’ve really moved away from calling it the ‘Crown business unit’, it’s the amplifier business unit. In the UK, Soundcraft and Studer is the mixer business unit. Brands are applied to whatever vertical market makes sense to them.”

Northridge was an impressive facility in 1999 when you threw open the doors to the press.

BA: “We removed the assembly lines and the custom and lacquer shops, they are all in Mexico. But the power test room, all that sample test equipment, we [are using] in the development of new equipment.

“Let me tell you something: we did this before the [economic] crisis. The professional division did extremely well through that period, and the reason we did so is because we made that decision, and moved, early.

“It got to the point where we could not afford to manufacture in California. I’m not giving you the exact number but you were paying, say, 30 bucks an hour to assemble a box as opposed to six bucks an hour. The differential is massive.

“You will just not find people manufacturing there – unless they are prototyping, or making small volume complex pieces. The high volume stuff just doesn’t make sense to manufacture in a high-cost country.”

But QSC Audio does it in California…

BA: “They’re a little bit bigger than Crown but they are a privately held business, whereas we’re answerable to our stockholders. It’s a completely different business model.

“Harman bought Crown in 2000 and I was recruited to run it and fix it. Crown didn’t make any money – there were 1,200 people and it was run by an evangelistic, religious family. Crown was making tape players for missionaries in South America – that’s what was driving the company. The mission was, ‘we’re gonna take care of people’. They had Bible studies three times a day in the factory, they had the Ten Commandments sitting on the front lawn! But they owned the business and they were allowed to do that. [Now] we’re owned by shareholders and I’ve got to make the best of that. We focus on margin, we focus on bringing good value to the market, but at the same time we’ve got to make money on it. It’s a different mindset.”

So how generally is the health of Harman Pro Group?

BA: “Oh! We’re in the best health ever, hands down. We’ve completed our restructuring efforts, we’ve still got a few projects we’re working on but all the bad stuff’s done. Our cost structure is the best ever. I will tell you, we finished our fiscal year last month and traditionally, some of the businesses have done well and some haven’t. [This time] everyone did extremely well, and the ones I’m most proud of are the European ones. The mixer group and AKG in Vienna made a lot of money last year, and I’m very pleased with that. So across the board we’re in the best health ever. From a product standpoint, we have an exceptional line up and are really focussed on incremental opportunities, of which there are some.

“You know, ‘commercial audio’ for us is a real driver: public address in airports, transit projects, we’re focussing a lot of effort there. But at the same time Crown has the new XLS product out, we’ve got the new iTech product, new products for DigiTech and Lexicon… I think we’re in a very good place – and it’s taken 10 years to get here.
And what Soundcraft are doing with digital consoles, we’re getting Yamaha’s attention and I’m pleased with where that’s heading. AKG, that’s the same thing – we’ve spent a lot of time and effort getting them in the right operational structure and we’ve almost finished.

Let’s talk about AKG specifically. One PSNE contributor suggested to me that Harman has not looked after AKG’s reputation.

BA: “I think that’s wrong. But let’s look at why someone would say that…”

We did hear a rumour that there was some major restructuring going on in Europe. While the JBL/Soundcraft changes were fairly public domain, the status of AKG was not.

BA: “Let’s start from four years ago. Then, AKG was part of the Automotive Division because the majority of sales volume was microphones for cars, headphones for the rear entertainment seats; but also transducers for Nokia, for cell phones. They had grandiose ideas about an OEM business.

“Because of that people forgot about the pro side. So four years ago AKG came into the Professional group and we separated out the Automotive group. Since that time we’ve done a significant amount of work both from the capital investment side and the hardcore marketing side, trying to put AKG back where it should be. We’ve focused on the logo and the packaging and how it fits in the marketplace. We’ve taken the Automotive division back – [those products] are all built offshore – but we were still falling behind in terms of profitability. So last year we put forward a plan to restructure the businesses in Vienna and move the majority of the production to a lower cost environment in Asia.

“Then in Vienna we wanted to focus on a Centre of Excellence for the design of headphones and microphones. We will continue to make higher end pieces there such as the C414; there are a lot of microphones which we may sell only 10 of a year, and we will continue to do those there. But we took the Centre of Excellence model, and moved the production offshore. It’s been a grind, but we’re through it, we did very well last month, we’ll do even better [in August] and by September we’ll be back where we should be. The quality has, to be honest with you, improved.

“Let me give you an intangible perspective to this. Usually when you have manufacturing alongside your engineering and your marketing and sales, [then] if there’s a problem, your engineers get pulled out to tweak that problem. Particularly at AKG, that’s been an issue. By doing the restructuring, one, we’ve lowered our cost which lowers our prices on the street which makes us more competitive and gives better value to our customers. But, two, it also allows us to focus on new innovative solutions. So in terms of not taking care of the brand, I think we’ve done quite the opposite. You’ve got to make the hard decisions and a lot of people might not like that but at the end of the day it’s going to be better.

“To compete with Sennheiser and Shure – to compete with hard wired music mics – you can’t manufacture in Vienna. For a long time people were saying ‘You can’t build in China, it’s inferior’… No way, man! You build it in China, it’s /superior/! They’re very good at repetition; as long as you do your work upfront before the high volume, you’re going to produce something good a thousand times.

AKG is now under Andy Trott’s stewardship alongside Soundcraft/Studer.

BA: “Yes, and Jürgen Bopst is now running AKG as the general manager, he’s moved over from Studer. Vienna will continue to have an active manufacturing component. Marketing for AKG has moved to LA. Having the team in LA puts AKG close to the customer, to the musicians and the consumers, closer than it would if it was in Austria, in fact. And I believe in the US, we are going to take some market share.”

AKG was one of the first companies to produce an app for the iPhone. Has that been useful to you?

BA: “I think it’s cool and something to talk about, it’s testing a new environment for our business. We have a tremendous catalogue of algorithms, for Lexicon and dbx and BSS, and we’re trying to sell those to the marketplace, so yes, we see opportunities here. Is it something that’s moving our business? No, but we have to pay attention to it.

“The biggest deal with these things is not writing the software, it’s delivering it to the customer. Right now we’re in the process of investing a lot of money in e-commerce, and that investment is going to put us in a better position of selling software applications. It’s a topic that is discussed at high level here.”

An interesting similarity between you and Andy Trott is your targeting of Yamaha. Would you care to expand on that?

BA: “Not really. But what I would say is that Yamaha is, in my opinion, the leader in digital consoles and has been since Day One. In all your businesses and everything you do, you have to decide who you’re trying to do better than. So our focus was, how do we take market share from Yamaha. You’ve either got to grow via incremental business or take share. And for us its about taking share from Yamaha, because they are the big guy on the street. I have the utmost respect for the brand and the organisation.”

Soundcraft/Studer are taking considerable steps to be a long-term survivor, with new desks every six months, filling market niches, investing in the CAT centre in the UK and so on.

BA: “What you’re seeing is a lot of time and a lot of money. We’ve been working on this roadmap for the last five or six years. We started at the top with Vista and now we’re moving to these sub-$10k retail pieces. We invested so much in the beginning that now it’s [developing] exponentially; it’s easy to tailor these design solutions for particular market niches, which is what you’re experiencing, and I think we’re in a good place to do this for sometime.

“We all thought digital was going to replace analogue. Hmm, well we still see a good analogue business, and we want to continue to invest there too. Analogue is a big part of what pulled us through last year, because when you can’t afford the premium piece but you want to do the best you can, typically what shows up is an analogue console. So we’ve just been selling the heck out of those!”

Harman bought Brazilian loudspeaker driver Selenium in April 2010. What’s the thinking there?

BA: “There are a couple of points here. To compete in the Brazilian market is difficult if you’re not Brazilian because of the high import duties. We’ve always had business there but typically it’s been confined to touring. What Selenium offered was the opportunity to, one, manufacture Harman product in Brazil and, two, to participate in what I believe is a fantastic distribution channel. We have 29 reps at Selenium and several hundred dealers, as opposed to [what we had before] which was only had a few reps.

“Selenium has a factory in Manaus, which is a tax-free region, where we build our [Selenium branded] line array systems, but we also hope to build Crown, some JBL, some outboard processing and some mixing consoles there. That would drop our price by 50%.

“Now that we have our own distribution network we are going to be able to lower our costs even more. So that’s all been a very important synergy for us.

“Second thing is, we have the World Cup and Olympics there in 2014. Then outside of Professional, half the market is dedicated to after-market car stuff, and we see an opportunity for Consumer and OEM Automotive – Fiat is big there, Ford, and Chrysler. So Selenium is playing for all three divisions; and it’s a geographical play for us, as well as an import duty play.

“On a good/better/best scale, we see VerTec as the best and the complementary Selenium [SLA1P] system as the good. It was a complementary acquisition with very little overlap, and we see a tremendous opportunity to grow it.”

The live/touring market in the US has suffered in the last year. Do you think this will have an impact on Harman’s business?

BA: “Over the last few months we’ve had a lot of tours cancel, but if you look at our business, half of it is installation, a third is portable PA retails, and touring is only about 20% of revenue. So it’s important but what’s more important is that our participation in the touring circuit pulls sales through to the installation and retail market. The guy who sees AC/DC wants the same thing for his own small PA from [music store] Guitar Center.

“So touring is suffering; yes, that sucks. Is it going to hurt me? No, not really. Any professional wants to separate himself from his competition. Any time you can offer innovative technology which allows him to show that separation, he’s going to buy it. Same thing for touring: there it’s all about having less people to work on the tour, fewer trucks, it’s all cash to these guys. So when we launch something like the iTech which is much more power efficient, has better processing onboard – you’ll see rental companies upgrading with that product. And we’ve been doing that with some of the large rental companies for some time. That process goes on even though we’re not adding tours. For us, having launched iTech HD, playing around with new VerTec boxes, that’s how we’re going to drive our business. If someone is totally reliant on touring, they’re going to have a tough time.”

There are eight core brands within the portfolio; what would you say are the top three areas of focus for you?

BA: “I think you have to look at it a little differently. What separates Harman from the competition is the ability to provide a system solution. That’s what’s driving us at the highest level: having the ultimate touring solution, a retail solution, etc. If you look at the brands, they have to continue to provide innovative and value solutions to the customer. For loudspeakers its all about powered solutions; for amplifiers, we’re taking the new chip technology, ComTech DriveCore, and integrating that into our solutions to lower our cost and improve our quality [Editor’s note: Harman’s literature says DriveCore chips offer greater than 90 percent efficiency with no compromise in performance, and report an SNR of 110dB]. If you look at signal processing in Salt Lake City, it’s all about networking and BluLink technology from BSS. Each of these brands has a focus on. I think you’ve got to have it all. If I put all my eggs in JBL’s basket and put nothing into, say, Crown amplifiers, I’m going to lose at the end of the day.”

What’s you commitment to AVB?

BA: “A thousand percent. I’m way too far in to go back. Rick Kriefeldt is president of the AVnu alliance. Let me give you a little different perspective to what the other guys have. What excites me about it is: we’ve invented this audio business of network components, then over here there’s video. Now, if you could create a video network of components, then combine the two into an audio video solution, you could take over the world. [Laughs] OK?

“We’ve been challenged trying to put Ethernet digital solutions on stage, we’re always struggling because of the time sequencing and jitter problems. Ethernet AVB solves that problem. We’re also challenged by cost: we can’t be effective with CobraNet in the retail space, or commercial space, it’s too expensive, we can only do that at the really high end.

“AVB solves all these issues, it allows us to not only pursue Ethernet solutions in the professional arena but also in the car! That’s why Rick [Kriefeldt president of the AVnu alliance] moved [from JBL]: so he can apply things he’s learned at the Professional level and take it to the other divisions.

“The days of components are gone: it’s all about home theatre. If we can network all this audio and video in multiple rooms, plus home networking, AVB allows us to do this. So, how important is it? It’s so important.

“And if we don’t have a solution soon then we’d better have some kind of solution, because the world is evolving and we’re up against this obstacle and we’ve got to get over it!”

And to that end you are looking to acquire a video business.

BA: “We have been looking and we continue to look. We’ve very aggressive in that area and a great deal of my time has been invested in the acquisition side.”

Can you tell me some more about other areas of acquisition?

BA: “I can give you some broad strokes. There are a couple of areas, one geographic: where we believe growth will be in the next couple of years is emerging markets, and that’s where we have made a tremendous investment, both in Asia and China and recently with our acquisition in Brazil. So are continuing to look at opportunities to acquire businesses in these regions, maybe to give us a lower cost manufacturing footprint, as well as opening up a distribution channel to Tier 2 cities. If you look at where we participate today, and our competition participates, it’s Shanghai, Beijing, the larger cities – Tier 1 – but the opportunity is in Tier 2. There it’s going to be about entertainment, karaoke, nightclubs, commercial audio and conferencing. Those are the areas we are spending a lot of time focusing on.

“So that’s the geographic piece, then you have the vertical market piece. Commercial audio is very interesting, we’re looking at other things on the live sound stage. We’re not interesting in going and buying another console or speaker company.”

Would you consider buying a cable manufacturer to literally join up the spaces in your system solutions?

BA: “Cables, cases, accessories is an interesting business. But typically what happens in a retail environment is that the he likes to provide the value added as an extra bump. So if you creep into cables too far you get your hands slapped by Guitar Center or whoever. But that’s not to say that it’s not an area to be looking at. I love cables! There not real exciting but they make a lot of money and they’re easy to manage.”

So you’re at a Harman roadshow and there’s a fire. What are you going to save as you run out of the building?

BA: [Pause] “It’s not that I’m being evasive, it’s just that I have a tremendous amount of pride and love for every one of our brands. We’ve eliminated all the dogs. We’ve taken things like BSS which were in a bad place and made it a great thing again. We’re trying to do the same thing with these consumer pieces. To grab one brand and run out would completely change my business model, completely change the way I go to market, therefore would change Harman professional. If we look at who is really our competition at systems level, there’s Bosch, Loud and Yamaha. And that’s it. Being a full line supplier and a total system solution is a huge advantage and it’s where everybody’s headed. We’re going to see more about solving a problem, not about individual speakers and amps. If I only grab one thing I could not solve that problem.”

When you look at what Avid have done, getting rid of Digidesign for instance. Would you see..

BA: [Interrupting] “No!”

[Laughs]So there’s no value there.

BA: “No. I kind of get why they’re doing it – you only have so many dollars, and you have to invest in branding, and you can’t do that in itty-bitty brands. I’ll save my personal thoughts on it. But the way we’ve done it, is we’ve tagged Harman to our brands. So we have JBL by Harman, Infinity by Harman.. it lets the guy know that’s buying the JBL multimedia docking station for his iPod, ‘Hey guys, this is the same brand that did the PA system for the rock concert’. It’s ‘tagging back’ to Harman. And I think that will do really well for us.”

+ An abridged version of this interview appeared in PSNE September