Oral-History:Jorgen Palshoj

About Jørgen Palshøj

Born and educated in Copenhagen, Denmark, Jorgen Palshøj accumulated experiences by working with Lego. He started his career at Bang and Olufsen as advertising manager in 1965. In the company, Palshøj took responsibility for international advertising and was involved in product and graphic design. Currently, he is Director of Corporate Identity at Bang and Olufsen, and he coordinates the communication and design in the company.

In the interview, Palshøj shares information on the history of Bang and Olufsen and explains its huge success in the international market. Bang and Olufsen was established in 1925 by Peter Bang and Sven Olufsen. The company produced its first television in 1950. Inspired by the success of the Danish furniture industry of the 1950s, Bang and Olufsen began to use architects for product design. In the 1960s, the company witnessed large internal and external growth. Along with its interest in design, Bang and Olufsen started selecting and using different materials for its products. The company took into account both invention push and market pull of the industry and set up marketing-oriented strategies. Engineers and designers of Bang and Olufsen closely cooperated to produce high-quality electronics, and the company reacted to changing trends fast. Palshøj talks of the influences of the Japanese consumer electronics on Bang and Olufsen and how the company managed to uphold its own market principles despite the rapidly changing trends.

Palshøj explains big turnarounds for the company, which took place in the early 1990s and the reason the company has decided to concentrate on the European market. The interview concludes with his talk on the current R&D cooperation of Bang & Olufsen and Philips.

About the Interview

Jørgen Palshøj: An Interview Conducted by Frederik Nebeker, Center for the History of Electrical Engineering, 16 August 1996

Interview # 232 for the Center for the History of Electrical Engineering, The Institute of Electrical and Electronics Engineers, Inc.

Copyright Statement

This manuscript is being made available for research purposes only. All literary rights in the manuscript, including the right to publish, are reserved to the IEEE History Center. No part of the manuscript may be quoted for publication without the written permission of the Director of IEEE History Center.

Request for permission to quote for publication should be addressed to the IEEE History Center Oral History Program, IEEE History Center at Stevens Institute of Technology, Castle Point on Hudson, Hoboken, NJ 07030 USA or ieee-history@ieee.org. It should include identification of the specific passages to be quoted, anticipated use of the passages, and identification of the user.

It is recommended that this oral history be cited as follows:

Jørgen Palshøj, an oral history conducted in 1996 by Frederik Nebeker, IEEE History Center, Hoboken, NJ, USA.

Interview

Interview: Jørgen Palshøj

Interviewer: Frederik Nebeker

Place: Bang and Olufsen

Date: August 16, 1996

Bang & Olufsen During World War II

Nebeker:

You were just beginning to tell me that during World War II Bang and Olufsen was bombed?

Palshøj:

Yes, it was bombed by Danes working for the German forces. So it was an attack just before the end of the war, in 1945. These Danes working for the Germans bombed the factory as a kind of revenge, because Bang and Olufsen had resisted working for the German troops. I was not present at that time, of course. The company was asked to produce wireless systems and products that could be used in the war, which the company resisted doing, so we were not very popular with the German troops. Furthermore, one of the leading engineers in the company, Duse Hansen, was one of the prime figures during the resistance movement, and he was never caught. He was searched for all over during the war.

Nebeker:

I see. But he was in Denmark, in hiding?

Palshøj:

He was in Denmark. He was the constructor of a very small telephone transmitter, which was called "Copenhagen's telephone book" because of the size. It was the smallest radio center made during the wartime. And it was copied by SOE in England afterwards. And he got a medal for that of some kind.

Nebeker:

And it was not delivered to the Germans.

Palshøj:

No, no, it was made in secrecy by people connected to the company. And as he was Bang and Olufsen's managing engineer, he was very unpopular with the Germans, because he invented this little machine that could enable the resistance movement in Denmark to work more efficiently.

Nebeker:

Oh, so the resistance was using this transmitter. I see.

Palshøj:

Yes, they used it because it was very small. You could have it in a normal package. All these things were the reasoning for the bombing. So it was a kind of revenge from the Germans that we were bombed. That's another reason why we have very few papers from that time. Everything was burned at that time.

Nebeker:

Was the company pretty much entirely located in Struer.

Palshøj:

Almost entirely, yes. We had a sales department in Copenhagen, where this engineer was the manager.

Family Background and Education

Nebeker:

I see. Before asking more about the company, I wonder if I could first ask about your background and your career. Were you born in Jutland?

Palshøj:

No, I was born in Copenhagen. All my childhood had been spent in Elsinore, north of Copenhagen.

Nebeker:

I see. Where did you go to school? And what sort of schooling?

Palshøj:

In Copenhagen. I went to normal school, elementary school, and then high school, and I was educated as a graphic artist.

Nebeker:

I see.

Palshøj:

I worked with an agency in Copenhagen until I later had different jobs and ended up here in 1965.

Career at B&O

Nebeker:

And how did it happen that you came to work for Bang and Olufsen?

Palshøj:

Well, they were looking for an advertising manager, who should be familiar with international relations. I applied for that job; I was at that time advertising manager with Lego. They make bricks, toys, in Denmark. So I came from there to this place.

Nebeker:

And that was in what year?

Palshøj:

1965.

Nebeker:

Did you start work in Struer here?

Palshøj:

I started in Struer, yes. I've been working ever since in Struer.

Nebeker:

I see.

Palshøj:

Traveling into our city and working together with them, but based in Struer, always.

Nebeker:

And what exactly was your position originally?

Palshøj:

I started here as advertising manager.

Nebeker:

Advertising manager.

Palshøj:

Yes, on the international advertising responsibility. That was changed later on to communication, which also covered public relations, so I've been responsible for communication as a whole thing. Five years ago, I had a period where I was design manager, product design. In Bang and Olufsen we have the idea that product design is also a language, it's a way to communicate. So we didn't distinguish very much between product design and graphic design. Design was a way of communication at that time.

Nebeker:

I see. So the advertising department was not entirely separate from the design.

Palshøj:

The department was, but I as head of it wasn't.

Nebeker:

So you moved?

Palshøj:

I moved from the advertising to design, because we hired a new advertising manager. But I had a kind of coordinating role for advertisement and communication as such. But I was design manager at that time, too.

Nebeker:

I see. And your present title is, Director of Corporate Identity?

Palshøj:

Exactly. Yes. Which, once again, means that I am coordinator of the communication and design in the company.

Nebeker:

I see. All the ways the company makes itself known to people, the products, or the advertising.

Palshøj:

Exactly. Yes. But as a staff function — I'm not responsible for the specific little details of it. That is situated in various areas in the organization. But my job is to try to coordinate these different areas, which I do.

Early History of B&O

Nebeker:

Okay. What can you tell me about the history of the company? You reported on this questionnaire that it was founded in 1925.

Palshøj:

Yes, at this place, almost, a little store. The two founders, you have them here. This is Mr. Peter Bang, who is the name "Bang," and Olufsen. Bang was Peter Bang and Olufsen was Sven Olufsen. They were two young engineers who started together. When they became engineers, they wanted to start their own production. Olufsen's father had a manor house, a big house, outside Struer, and they started there. They were given a free attic, beneath the roof, in this old manor house. I think that was the reason why they started in Struer, in 1925.

Nebeker:

I can see that at least an early product was this receiver Dusnett. What is that?

Palshøj:

"Dusnett" means "Names.” At that time, all radios were used as battery radios. That was the normal radio at that time, at least in Europe.

Nebeker:

Also in the United States. I know that, yes.

Palshøj:

Also in the United States, yes. So they had the idea that they should make a radio that could work on the [range?] instead of on the battery. That was the first product. But actually the first real success they had was the eliminator, which was a kind of power supply for other people's radios. So this was a system that enabled the people to supply the battery radio from the [word?]

Nebeker:

A battery eliminator.

Palshøj:

Exactly. That's what it means in English, yes.

Nebeker:

I think actually this may have been a little ahead of the United States, because I know it was at the end of the 1920s — especially when the AC vacuum tube came in and then radios were plugged in instead of run on batteries.

Palshøj:

I guess that Peter Bang, who was traveling to the U.S. at a very young age before he started, had a lot of inspiration from the American model as well. In many ways, we have been very inspired by American development. I will come to that a little later. He had been there before he started the company. So they started in 1925 by making these eliminators, and after that, because of all the radio types you've see here, very soon after — wasn't it 1925 that we had the first movie with sound?

Nebeker:

I think it was a little bit later: Don Juan in 1927 and The Jazz Singer — "

Palshøj:

With Al Jolson.

Nebeker:

1927, 1928, I'm not quite sure, but thereabouts.

Palshøj:

But thereabouts, anyway. They very soon discovered that sound was an important part of it. So they also started making cinematographic machines for cinemas. I guess that, when you get up to the 1940s, almost ninety percent of any sound equipment in any Danish cinema was made by Bang and Olufsen. So that was a very important part of their success.

Nebeker:

So it was radio battery eliminators connected with radios, and then public address or sound systems for cinemas.

Palshøj:

Sound systems in general. Loudspeakers —

Nebeker:

Also public address systems for train stations.

Palshøj:

Some of it, yes. Not an essential part of it. They made a daughter company, BoFac which produced these cinematographic machines, and they had some address machines as well, but I think it wasn't a big part of it. The main part was for cinemas. They produced all of these things up to the wartime. And during the wartime, as I mentioned, they had this "telephone book" made for the resistance. But of course, it was a joke. It wasn't an official Bang and Olufsen project. It was just made by some people here who had made it. But during the war, not much happened. At the end of the war, 1945, this bombing came. And everything was rebuilt after that. Then they once again had to travel to the U.S. They saw new tape recorders, and that gave inspiration to this one, Bilcord, the "cord" comes from "record," you know. It's a funny thing, I don't know if you people are aware of that. The word "recording" comes from the Trent cord.

Nebeker:

I hadn't thought of that.

Palshøj:

But it must come from there. It wasn't known until then. You couldn't talk about recording — you couldn't record anything. So this was the first machine to make recordings. It's not tape; it's cord. And this was an American inspiration. We even somewhere have a picture of Victor Borge — who's a Dane, as you know — playing with these machines.

Television in the 1950s

Palshøj:

Then came the 1950s. This is the big change in our history. This is the first television made by Bang and Olufsen in 1950. This is the beginning of the Danish television era. We had no television before the wartime in Denmark. We were quite late if you compare it to America. In Europe, television was mainly after the war. Only the British people had some television before 1940. All the other countries got it during 1945, 1946, 1948. And in 1950 the first television started in Denmark. The first sending started there. You were not able to see television until then. So we started together with the Danish television. That was the period of the boom of television in this country. So from 1950, where only a very few people had the first model, till the end of the 1950s where all families had a television set, the market was completely matured.

Nebeker:

Did Bang and Olufsen have Danish competitors in the television market?

Palshøj:

Yes. If you take radio and television in one bracket, there were more than twenty different brands in Denmark. I guess that I can't find the exact number of television models in the market at that time. But I suppose it has been more than ten, maybe even fifteen. You had a lot of different factories — you know, it's the kind of industry where you can buy a component, mix them in your own way, and you can make a design outside it then. So it's not necessarily so that everyone produced a lot of the details themselves. But we had at a certain time twenty-six different brands in Denmark covering radio, television, and speakers. The main part of them produced televisions.

Nebeker:

Do you have an idea of how large a market share B&O had in the 1950s in television?

Palshøj:

No, we have no figures on that. But I know that we at the end of the 1950s might have had quite a percentage of the market share. Not at the beginning, but at the end of the 1950s, because when you pass 1960, only three factories survived. They died like flies at the end of the 1950s because the market was saturated.

Nebeker:

Right, right, that's typical for a new market.

Palshøj:

Yes. And it might be strange for you as an American, but for a European I think it was something that they had never seen before, that a market could be saturated. It was after wartime, and there was a deep need for any kind of product you could get. It's the period where the engineer was a hero, and whatever you could make, you could sell. There were no marketing people, really, in any organization at that time, in Europe at least. I think that it was a very bad surprise to these companies at the end of the 1950s, suddenly to realize the market couldn't take it any more.

Growth of Company & Market Share

Nebeker:

Can you give me some idea of how large Bang and Olufsen was in this several decades-long period, from 1925 through the 1950s?

Palshøj:

It's hard to do it. I can try.

Nebeker:

I'm just curious — whether it's twenty people, or two hundred people, or —

Palshøj:

We're trying right now to find that figure which I had in mind. When you told me that you were coming, I tried to find that. What I can see is that we in 1950-1951 — our fiscal year is always from May, from the first of June to the end of May. So that means that it's from the first of June 1950 to the end of May 1951. At that time we had the number of employees — we don't even know from that period. We have that period from 1968-1969 —

Nebeker:

I see. Two thousand one hundred...

Palshøj:

Then we had two thousand, and I suppose that back in the beginning of the 1950s we had a few hundred.

Nebeker:

I see. Now these are your total sales?

Palshøj:

Total sales in Denmark. In other words, only in the Danish market; at that time it was a small company, still.

Nebeker:

I see. It seems to be holding steady in the early 1930s, and then growing in the late 1930s, and —

Palshøj:

And then comes some inflation also into it. These are rather new figures. I haven't had an opportunity to try to compare them with the inflation rate.

Nebeker:

I see. But there was extreme inflation; there's quite a growth here from four thousand to —

Palshøj:

Yes, that's just after the war. The war ended in 1945. But this is the year where we had half a year with no factory.

Nebeker:

I see. Following here with four thousand, but then all the way up to thirteen thousand in 1950-1951.

Palshøj:

But then comes inflation after the war, and then growth.

Nebeker:

Oh, you've got very good growth there.

Palshøj:

And then comes internationalization, right here.

Nebeker:

Beginning in the late 1950s, it looks like.

Danish Furniture Design and Transistorization

Palshøj:

Yes. I think I would go to the product and show you something there which might be interesting. This is the end of the war, and with the first products after the war, they had learned something about new technology, on the tape side, on the recorder side. They were still very occupied with the television. Once again, here comes the tape recorder. This is the first tape recorder, and the microphone here — so it's a period after the war, where they are trying to find out the new technology and are very impressed by that and interested by that. But at the same time, during the 1950s, they are looking at the Danish furniture industry, having a lot of success in this period. If you look at the Danish furniture industry, the term "modern Danish design" was created during these years. We had some very famous architects working a lot with the chair, THE chair, which has been sold all over the world as a piece of handicraft. Danish modern furniture became well known all over the world in this period. That was of course very interesting to do it from other industries. So Bang and Olufsen looked — I would say with some jealousy — into this business and were convinced by the use of architects. So here you had the first architect working on a design. I don't know who he was.

Nebeker:

And it was 1958, called Capri —

Palshøj:

Yes, at the end of the 1950s they started using architects. And this is a very typical design piece made by an architect. Architects are always very keen on modularization, and this is a funny story, actually. There was room made for a television, but one year later the television had grown two centimeters, so it didn't work, eh? So it was a blunder. But one of the things I think really the company did learn from that was that modules in design don't really work. Still, it was architects working on it. This is a typical architect piece, once again. But at the end of this period, the company changed completely. It was turned around because, I mentioned to you, many companies died in the end of the 1950s. Exactly at this time, we had a new technology coming in, transistorization. The Bang and Olufsen engineers, who'd previously had a great interest in sound and in sound reproduction and speakers, had followed that development. They had been in the U.S. and they knew that transistorization was coming, and that the transistor opened the possibility not only for a new technology — FM, frequency modulation, better, higher quality reception, and all — but they also knew that sound and music had new possibilities as a product. Not the old-fashioned radio, but this was the beginning of hi-fi.

So suddenly they saw the possibility in not only using a designer but in using technology to give a new shape of things. The strange thing is that Bang and Olufsen at that time was the only company in the world to find out or to see that the transistorization not only gives you less room — you know, the old valve had that height, and you had a lot of heat coming from the valve-and in comparison to this, the transistor was not giving any warmth, any heat. They not only saw the possibility of this, but they took the consequence out of it. They were working with professional industrial designers — not only architects anymore. They had a more detailed background in working with engineers. This is Moltenhauer, and this is Acton Friese, working as a designer in 1965, making this little portable radio. Once again, Moltenhauer working on Bilvision, a sort of portable television. You can't see that, but in the top of it there is a hanger, which you can drop up, and you can move it. This is a very small, elegant television at a time where you wouldn't find — normally in Europe, at least — portable televisions. So the company becomes very conscious at this time, about it, and 1965 is the year where I started, so now I remember what happened.

Nebeker:

So there's a very sleek, slender look; it's already there in the 1960s.

Segmentation and International Markets

Palshøj:

Sure. It started in the beginning of the 1960s. At the same time the company became aware of the fact that they couldn't make a product that would appeal to everybody. They almost understood the segmentation policy. From 1965 on, one of the first jobs I had was to try to try to work with an agency that could understand that we were not trying to sell to the whole Danish population. Just to a small niche in this country. Because a niche in this country plus a niche in this, and a niche in that, together that would be big enough to manage. So we started to make kind of a segmentation lifestyle.

Nebeker:

And the niche that you were aiming at was the people who were interested in the design of their TVs and radios —

Palshøj:

Exactly, exactly, yes. Then we elaborated on it and for the coming years we found out that our target group was more international-minded, more culture-minded, more culture facility-consuming, et cetera. Today we know a lot about that. It all started at that period.

Nebeker:

I see. That's interesting that the conscious decision was made not to try to sell to everyone in Denmark.

Palshøj:

Because it's a small country. You must remember, this is the time where the common market, the EEC market, was growing and the EFTA [?] market was another organization trying to balance out the EEC advantages. So it's a period where everybody was talking about what the future would be. We all realized at that time that trade between countries was much more necessary than ever. I think it was even at that time we decided that exporting is not our future; the future is international sales.

Nebeker:

I see. How did the Common Market affect Bang and Olufsen?

Palshøj:

It did the way that we established subsidiaries in these years. We started just before 1965 with the first subsidiaries. I think the export started the way that you had some importers in different countries, looking at this program. It was very interesting. Bang and Olufsen started outside Denmark by showing products at exhibitions. The Hanover Fair, for example, in the beginning of the 1960s, was a very good place to exhibit your products. Then these people who were buyers from other countries came there to see what's new, and they were agents. So they set often an appointment with Bang and Olufsen: "Let me sell some of your radios in my country." So it started. A few years later, these agents were not effective enough. So Bang and Olufsen took over and made their own subsidiaries to exploit the market.

Nebeker:

I see. So they'd set up a sales office in Paris or London or wherever?

Palshøj:

Yes.

Nebeker:

And when did the Common Market become effective? When did it begin?

Palshøj:

Ah, when did we enter the Common Market? Was it in 1973, I think it was? I don't remember exactly.

Nebeker:

So you had large international sales before that.

Palshøj:

Yes, yes, yes. The Common Market influenced Bang and Olufsen in that the subsidiaries we had within the EEC became more effective as a consequence. Everything was easier, especially when Denmark entered the EEC.

Nebeker:

One would think that you would have greater competition from Grundig and other German manufacturers, or, I don't know, English or French manufacturers. Was that a difficult time?

Palshøj:

Well, we had that; that competition had come already in the 1950s.

Nebeker:

But maybe there were tariffs of some kind that —

Palshøj:

No, I don't think so. I think that as soon as they started selling in Denmark, it became clear to Bang and Olufsen that we had to sell outside Denmark as well. So it became one big market. Even already from the end of the 1950s.

Industrial Design and Growth

Nebeker:

So this was very interesting. You said that beginning with this 1958 Capri TV, that that was where you had architects beginning to design products?

Palshøj:

Yes. The company worked with different architects in the period, to try to learn from the Danish furniture industry.

Nebeker:

And who was it, of the founders of the company, who pushed it?

Palshøj:

Actually, it wasn't one of them, I think they were backing it up, of course, but I don't think they took part as much in that. I think that if you had to divide their roles, Peter Bang was the typical technician and engineer, where Olufsen was more the sales organizer. So I think the design was at another level.

Nebeker:

So someone noticed that the Danish furniture industry was doing well, and thought to emulate that.

Palshøj:

And soon in the beginning of the 1960s, came the son of Peter Bang, whose name is Jens Bang. He was educated as an engineer, and he started his career in the U.S. with General Electric, where he was employed for some years. He came back, and he had a lot of knowledge in industrial design. He had met Dick Latham in Chicago. I don't know if you know that name. Richard Latham was an architect and designer, a professional designer, head of one of the big design studios in the U.K. when he was younger. He died two years ago. He had his own design business in Pasadena, and he had been a member of our board in Bang and Olufsen's U.S. for years. Jens Bang was influenced very much by him. I think that he met Jacob Jensen [spelling?], our first well-known designer on the American side, there. Jacob Jensen was working with Dick Latham at the time in Chicago. So, yes, Jens came back to the company as the son of the founder and he was very engaged in design, industrial design, and he became head of design and broad planning to the company, and has been for years. He left the company ten years ago or something.

Nebeker:

I see. Is he still alive?

Palshøj:

He's still alive, yes. Working as a free-lance consultant.

Nebeker:

I see. I assume the founders are not still living.

Palshøj:

No, no, they died, both, many years ago.

Nebeker:

Are there other sons or daughters who entered the company?

Palshøj:

No, not directly. But the chairman of the company today is Peter Scott Olufsen. He is the son of the brother to this Olufsen. He is a nephew of the founder. The family is still a very important part of the company.

Nebeker:

I see. You've sketched out how things went until the 1960s, when industrial design and the transistor made these changes. And I'm just looking here to see how sales were going in that period. Very rapid growth in — what is this called?

Palshøj:

That's the total. The first column is Denmark, and this one is outside Denmark — it's export. This is the total. So you can see the exports grow during the 1960s. This is where we established all the subsidiaries.

Nebeker:

I see. There's large internal growth, at least in some of these years, but also, probably, more of the growth is outside.

Palshøj:

A very strange thing is that we kept the Danish market share very high. We still today have a very high market share. Which is amazing.

Limited Funding from Government & EC

Nebeker:

What's been the relationship between the Danish government and Bang and Olufsen? Have there been special subsidies or programs?

Palshøj:

No. We use these kinds of research support systems. We have used a few of them, but not —

Nebeker:

This is to encourage industrial research?

Palshøj:

Yes, you'll have some support systems of that kind, from time to time. During the later years, everything within the EEC was very restricted at that time. So we have used some research and development assistance [systems?] from the EEC, but no, we have no Danish specific support of that kind. We had to do some development research support earlier, but not very much. The governmental part is the minority of it, not of any importance.

Nebeker:

Of course many American companies like Westinghouse, certainly, and General Electric has the government and the military as a very large customer.

Palshøj:

Oh, no, we have never had anything —

Nebeker:

You've never had large sales to the Danish state or the military.

Palshøj:

No, no. Actually, I think we compared to the rest of the world have had very little support, official support.

Nebeker:

There was never a policy in Denmark of encouraging the state's electronic business?

Palshøj:

No, not really. Works, yes, but money-wise, no. Well, you have a few things, you still have some initiatives of that kind, but it's mainly for small companies, growing-up companies. In this country Bang and Olufsen is of a certain size, and it would be very difficult for us to do anything like that. We use the programs now and then when there is a chance, but it's very, very unimportant I would say. If you compare to, let's say, one of the big French companies, Thomson Watt [sp?], which is mainly owned by the government. We have never been in a situation like that. Never had the chance to.

Nebeker:

And in the Common Market you said there was some support of industrial research which you've been able to —

Palshøj:

Yes, there is some assistance which we've benefited from. One of them was the new television system. I don't remember the details; it's not an area I'm working with, but I know we had been part of the developing of high-definition television. We had taken the sound part of it, and were working on the speaker side. Not on the television, Philips I think was the company chosen for the television development. But for the sound development for that system, we were chosen, together with Bose in England, to do that. But it is a tiny amount, still, not of any real importance.

Structure of Research at B&O

Nebeker:

I see. How important has research, industrial research, been at Bang and Olufsen? Have they been able to support very much of that over the years?

Palshøj:

I think so. We are in a situation where we, due to our size, never have been big enough to make basic research. A company like Bang and Olufsen would never be able to make a new screen television tube. Or even a VHS system, the VCR system, the machinery. We buy things like that. We could never make or develop the basic machinery in these things. You know, you have a CD player, then we buy the whole body from somewhere, very often based on our specifications, so we can specify exactly what we want. This is a business where you can buy almost everything as a component. We buy big shares of components when it makes sense to do so. With a few things like transformers, we have really kept that production until last year, when we found out that on the world market we could buy the transformer we wanted. So we stopped doing it.

Nebeker:

I see. So until then you were designing your own transformers and building them yourself.

Palshøj:

Yes, because the transformer was one of the factors which could limit our design. So then we designed it, not to drop it. But last year, or one and a half years ago, we decided to drop it because at that time we found out that we could buy any transformer in any size.

Nebeker:

I see. So is that typical, that as soon as you find that you can get a supplier who will — or that there are products out there, that —

Palshøj:

Yes. It's a policy today. It hasn't been all the time. I think we far too long have been very dependent on our own manufacturing ideas. Today we say we want to concentrate on manufacturing things that have strategic value for us.

Nebeker:

There must of course have been some R&D in some of these new products you mentioned.

Palshøj:

Sure. We still have a lot of R&D.

Nebeker:

Is there a department, an R&D department? How is it structured?

Palshøj:

Yes. We have about three hundred engineers on R&D today. I can give you a few examples. We're still the only company in the world to combine any kind of operation — audio, video, whatever operation — in one remote control. We have very highly developed knowledge on how to transfer infrared signals, infrared light. This is a kind of area where we have been leading in technology after twenty years. Actually, having integration and coordination of audio and video has been one of our advantages. We have seen this as a strategic point, that we would combine audio and video in a way that almost nobody has done, because we're small enough to do it.

Nebeker:

I noticed this television and FM radio back from 1953. So you've been combining these products —

Palshøj:

Yes. And during many years now we have combined it, so that we can transmit picture or sound from the radio, or sound from the television, anywhere in the house. We can transfer them by link systems, so you can have speakers in different rooms and have a lot of that about.

Selection of Materials

Nebeker:

I see. Well, this is very interesting to me. So this is one area in which Bang and Olufsen has concentrated, and the remote control —

Palshøj:

Heavily, yes. Basically, I think that if you take the design, what is characteristic about Bang and Olufsen seen from the design point of view, is not a style, because I think the style is changing from time to time. But what is characteristic is the selection of materials. We are very keen on selecting materials which we believe in. We use steel, or aluminum, or even wood — earlier a lot of wood, but not very much today. We use glass. We would try to give these materials a very genuine finish, a surface, either by endising [?] or any other kind of process which would give them a finish. These are completely different from the normal industry standard. Due to the fact that we are small, we can keep a handicraft attitude to problems.

Nebeker:

So where other manufacturers would be thinking about principally the picture tube and then some case to contain it, you'd be thinking more of the case.

Palshøj:

We start with the designing. It's pretty close to what you mentioned earlier. The designer is involved with the process from the very beginning. A designer would always start by discussing, "How could a consumer want to have this in any way?" This is a start point for the designer. He may discuss marketing points of view, or technical points of view, for a very long period, before he starts designing. At a certain time, he starts designing.

Nebeker:

It's also interesting to hear what you said about the material, that that's very important.

Palshøj:

Yes. The material is one of the most important parts of it, because we have the ability to handle many different materials. If you go to a very modern and very effective Japanese or Eastern Asiatic factory today, they would always try to minimize the number of materials, because the more materials they have, the more difficult the process is. We think we wouldn't diminish that further, because we want to be able to handle materials which could give emotional value to the product. We have a speaker for example where the foot is cast iron. I think it is the only occasion in this industry where you find material like cast iron used in a product. We use glass — we have the idea that our designs should be nice ten years later, or twenty years later. Should grow old with a dignity. So if you use plastic material, which has a not too delicate surface, you'll get in trouble in time. So we try to let the product grow old in its own natural way, but it should preferably be more and more beautiful somehow.

Nebeker:

It also seems that, like Danish design in furniture, your products had a very simple, sleek design, always.

Palshøj:

Yes. That might be part of the Nordic heritage, I think. We all have that tendency. It's not formalized anywhere. The only formalized things are the materials — we need genuine materials, and we need to give the product a good finish, and, if we can, we want to make it movable. Dynamic mechanics is something we believe very much in. We're very good at it. You know, doors that would open, or lids that could slide off or slide out or back. Things like that are very important to us. You see, that gives the product that kind of human touch. But we can go upstairs and look at the products. I think it might be free up there, now, in the showroom, so I can show you some of them.

Idea Land

Nebeker:

I would like to see that. I'm sure it changes over time and must differ from product to product, but generally speaking, when you want to produce a new phonograph or television or whatever, what is the process?

Palshøj:

We think that half — or we could say, it should be — that half of the projects we've started come from a market demand, and we are told about that from the marketplace, and then we place an order in the idea group, and they have to come up with a concept development which could be brought into a product.

Nebeker:

So the beginning point is, there is a market for a particular type —

Palshøj:

That could be. And in some cases that would be the case. But I would say the majority is not that. The majority is ideas coming from the concept makers. They start out very often; the best products we have would always come from that side. The most characteristic products come from ideas in what we call Idea Land. Idea Land is an area where concept people are working.

Nebeker:

Is this a separate department?

Palshøj:

It's a kind of separate department, yes, connected to the R&D department. But working on its own, so to speak. We have the rule saying that at least half the time should be for its own ideas. So we would never ask them to follow up a demand from the market for more than half of the time. We have the experience that by far the best products, the most successful products we are making, do not come from the marketing survey, or from the market demand, but from ideas from these people working with concepts.

Nebeker:

I see. This is interesting because in the history of technology, people have contrasted invention push and market pull. Some industries respond to the market pull, and others to somebody's idea that this would be a successful product although there's no demand for it yet at all. So you're saying that it's company policy that —

Palshøj:

We aim at 50-50. But in practice, it's very often more than 50% coming from inside. But that doesn't mean that they are not aware of the market challenges, because they also come up now and then with ideas that couldn't be convinced in the marketplace. So they would be rejected now and then. We have examples of that.

Nebeker:

So you have marketing people who consider these ideas — they're part of the team.

Palshøj:

Yes. Sure. And the board of directors is very much involved. We try to say that the whole company ought to be marketing. So even the production manager should be thinking of the customer. We try to turn the whole company toward a marketing orientation. But that means that the board of directors would evaluate a proposal from these concept people also seen from the marketing point of view. We also involve the marketing people from the countries, from the markets, in this process. We have examples where we reject ideas coming from the department; of course we have. Because we see that there's no market for it; it's funny, but not big enough. We very often have seen that they have a very good feeling of coming demand in the market, far better than the marketing people have. Because the marketing people are very much influenced by what they missed last year, or what they would have wanted three days ago. The closer you get to the market, the more difficult it is to get anything about what is available in two or three years' time from now. It's a classic experience — if you go to the dealer, who should know the market better than anyone, being in the front line, and if you ask him about what kind of product you will have two years from now, he will tell you what he could have sold yesterday. So it doesn't give you anything. You can ask him about other things, and you can get a lot of response from that, but don't ask him about the future.

Constraints on Design

Nebeker:

I'm sure there are marketing people and so on involved in the decision — once a decision is made to develop a new product, where do the production engineers, the manufacturing engineers, enter the picture?

Palshøj:

They are partly following the process. There is very tight cooperation between R&D and production. We have a lot of things we have to consider today. If it is has a strategic value to the product to select something special, we do that. We may even train people to handle a new material if it has an importance. But if it has no strategic importance, well, then you have to select materials or processes which are daily, known, and which are common. Otherwise you would add the price to your product, which has no value. We think that any kind of cost added to a product should have value which could be seen by the consumer.

Nebeker:

So the designers or idea people would talk with the engineers and say, "Well, this would be nice, but the price tag is going to be so much."

Palshøj:

Oh, yes. Otherwise, you would run out of sensibility. That doesn't mean that we would select a solution which is very expensive. Let me give you an example. Always, it's easier to talk about a concrete thing. This is a remote control, the one I mentioned that could control almost anything in our products today. The first one was made in 1984. You have had it in your hand for a few seconds — it's cold. It will remain very cold in your hand, because the back part of this is made in zinc. Which is a metal, which takes away heat from your hand. We could make this cheaper, and make easier production by using plastic, but the back part in plastic would be very unpleasant in your hand. So we say, this is the case where we would even increase the price of this product. We could make it cheaper than we do, by having it in plastic, but we wouldn't do that, because we think that the value of using zinc there is high. But we always think that you should justify the cost. It should be a value which is either explainable or understandable to the consumer. If the consumer doesn't see why you do it, it has no purpose.

Nebeker:

Right. And there must also be a kind of back-and-forth with respect to technical possibility. I mean, someone might come up with a very small design for a remote control unit that doesn't allow enough space for what has to be in there, or —

Palshøj:

Today it is almost opposite. In this business you can make almost anything as small as —

Nebeker:

So that's not often a concern then.

Palshøj:

No, I think it is the other way around. The designer wants to make it big enough to make it economic. That's the actual problem.

Nebeker:

Right.

Palshøj:

Otherwise, the product — things in our business — could disappear. What is the radio today, could be a print speaker.

Nebeker:

So I suppose that that means that the design engineer has fewer constraints, at least as far as size goes.

Palshøj:

Size is made from a completely different point of view today. It's a sculpture point of view. We make sculptures.

Nebeker:

Yes, and then you fit the electronics to the sculpture.

Palshøj:

Yes, yes. There's a limit to how small you can make things; otherwise you can't see them or have them in your hand.

Nebeker:

Right. But I mean, early televisions and early radios, generally, you first had the chassis and then a case was put around it. But with solid-state electronics, they're so small and can be arranged in different ways, that —

Palshøj:

But you're right, you still have the problem on the television side. You still have a depth —

Nebeker:

Right. So you can't say, well, we'll have a two-inch —

Palshøj:

No, no. We can make it very look-like, but we can't make a flat screen yet.

Rationalizing Product Development

Nebeker:

So, there of course must be the production engineers as part of a team that sketches out a new product. Is there any sort of formal procedure for steps, prototypes?

Palshøj:

No, unfortunately not. We have had as I mentioned, this turnaround two years ago. Right now we are working heavily on a project which is supposed to halve the process time of development. If we can make the R&D process, the development process of a new product within fifty-two weeks — that's what we try to do now. The funny thing is, that if you try to make an advantage — if you try to improve things by ten percent or twenty percent — there is a tendency that you will always look at the same things as you used to do, then you try to rationalize, a little bit here, a little bit there. But if you say fifty percent of the time, then it's really a challenge. Then you have to look deeper than that. Then you have to find completely new ways to think in. You have to think in another way. Suddenly you find out that something you took for granted could be changed. That's what we are trying right now. But that's the reason why nothing is on paper right now.

Nebeker:

I see. But it's felt to be extremely important to get a new product developed and on the market fast.

Palshøj:

Sure. And one of the things we have learned during the last two years is that we are growing rapidly right now, we have had tremendous success during the last year, financially, and where we two years ago had very big trouble, we have survived them and we are in very good shape now economically. We are growing fast right now. One of the reasons is that we have seen that we have to make a broader program. We are leaving somehow the policy I mentioned that, at a certain time all our products had [alter senses?] and they could do everything in the world and they could be linked up to different rooms, and you could distribute sound or distribute pictures from one room to the other. What we have decided is that not all people want this. We can easily make a quality product without these features which people don't use. Some people would like to have them; okay, they can get it. But other people would like the same standard, the same quality, without these features. That could make it a much cheaper product. We did that with a few products, and especially one of them has been a very successful product during the last year. So we have learned, first of all, that we have a broader variety of products, a broader program, and furthermore, we have learned that we have to be much faster with new products in the marketplace, targeted more directly towards specific consumers.

Nebeker:

This need to be fast, out of the gate so to speak, is that a result of greater international competition, or is it a result of faster change in technology?

Palshøj:

I think it's more to make a profitable operation. It's a strange fact, but one of the facts of life is that the faster you make a product, the less time you have to spend money. It's cheaper, simply. It's a strange point of view, but it's the case. If you have plenty of time, you're examining a lot of things and you're trying a lot of different ways. You're deciding something faster when you don't have that lead time always. So we think that it's simply cheaper to — ah, how to put that? We are rationalizing the development process right now and we think that we can get a lot out of that. We get faster results, we get more results, we get better results, and people seem to be very happy with it, because it's easier to understand the decisions — if you have a process over three years, it's very difficult to keep the energy and the philosophy at a high level. The shorter time you do it in, the more enthusiastic the group works. So there seems to be a lot of advantage in shortening up the time.

Nebeker:

I see. Is the design work done here at Struer entirely?

Palshøj:

Yes. I have to say that we have no designers at all at Bang and Olufsen. We never had. We only work with freelance designers. We've always been doing that. David Lewis was our main designer. He's living in Copenhagen where he has some young people and some students working for him. He has his own studio there. And there they make a lot of the design work. Every Friday he would be there, and he would meet with all the groups. From 10:00 to 11:00 he would meet with the television group for example, and from 11:00 to 12:00 he would meet with the audio people or someone else. So he would be here during the whole Friday, working with different groups of people. Then he'd go back and prepare himself for the next Friday.

Nebeker:

I meant also design as more lower-level, circuit design and case design and so on. Is the whole production process detailed here at Struer?

Palshøj:

Yes. It is, yes.

Nebeker:

You don't have any factories elsewhere?

Palshøj:

No.

Response to Japanese Competition

Nebeker:

How has the rise of Japanese consumer electronics affected Bang and Olufsen?

Palshøj:

When it started, really, in the beginning of the 1970s, we had a very heavy discussion with our dealers. Because the dealers argued that you had to change your design attitude toward the Japanese way, because the Japanese had set the agenda, so to speak, for how hi-fi should be. There were rack systems, a military look, with all of the knobs in front. We had some products at that time which were very decent, and very slim, in 1969. We later had to go to the audio products, these products, which were very smooth, top-operated, very difficult and very different from the Japanese. Our argument was that if we would do the same as the Japanese, we would lose creativity. We had created some kind of responsibility for our way of doing things. So we thought it would be silly to do things the Japanese way.

None of our competitors in Europe at that time went that way. The Norwegians tried to imitate the Japanese companies. The result was some not-genuine Japanese-looking hi-fi set which was Norwegian, which had no meaning at all. Because how should a customer in France or England or Germany evaluate a Norwegian type of Japanese set? What's the meaning of it? So we argued against it, and we were strong enough to keep our style. In the beginning it gave us trouble, especially with the dealers, but not with the customers as such. The customers accepted our style. We kept it. Later on it became an advantage. In advertising, we tried to put it in a way that was advantageous — if you had two styles on the board, you had Japanese and you had Bang and Olufsen, so suddenly we became the alternative to the Japanese world. That gave us a lot of visibility in the market, where our competitors very often didn't really know how to compete with it, and they lost creativity and some visibility at that time.

Nebeker:

I see. So you accepted this sort of oppositional stance to the Japanese.

Palshøj:

To put it in Danish: I think [Danish phrase], so to speak. Do you see what I mean?

Nebeker:

Yes. What about, though, the price competition that the very efficient Japanese production must have caused?

Palshøj:

That was heavy. I would say it was almost killing us five years ago, because we couldn't at all produce or manufacture anything at the prices the Japanese did. Today we still can't do it, but we have learned to sell our difference as an advantage. We try to emphasize our qualities and ask people to take care of these qualities. There seems to be a market for that, still. And maybe even a growing market for quality products.

Nebeker:

Has there been a sort of continuing push up the price ladder with Bang and Olufsen in recent times?

Palshøj:

Yes. Three years ago, before the turnaround, we felt that we were very close to a point where we couldn't work it any longer. The difference became too big. But there were more reasons for that. One of them was, as I mentioned to you, we put all features in our products. They became more and more expensive. So we decided as part of the turnaround to cut down costs of material, to get down to earth in many ways, making everything in a simple way. We reorganized the whole purpose of the marketing operation, saying that we are not interested in having a complete sales operation company in each country. It's just a sales office we need. All these common facilities like bookkeeping and administration, things like that, we can keep at a regional area, not in each country. So we have reorganized the whole organization, we have reorganized the production, and the production has increased productivity during the last year at a very, very high level.

So we are getting down to earth again with prices. And by launching a product last year which was at half of the normal price of a Bang and Olufsen product, we suddenly became interesting again to people. So when I told you before we have had tremendous financial success during the last year, it's mainly because we are in touch with the market again. We have cut our costs down. We are not making cheap products; we are making products which are still much more expensive than the others on the market, but within reach. Now we are arguing very hard for the qualities we have, and trying to only add cost when it can add value. So we're very keen on that today.

Philips and B&O Holding Co.

Nebeker:

Can you tell me about the connection with Philips? What's the history of that?

Palshøj:

Well, the history is that Philips, a few years ago, asked Bang and Olufsen whether we would be interested in selling the company or part of the company to Philips. They may have seen that we needed capital at that time. They may have expected that if we wouldn't work together with Philips we might be forced to work together with some Japanese company. They might even have known that some Japanese companies were interested in buying Bang and Olufsen.

Nebeker:

And did you have indications of that?

Palshøj:

We had some indications of that. Bang and Olufsen had distribution in Denmark — this was of a certain value to many companies outside of Denmark. We had a name and a reputation which could easily be used in our business. So they might have known these things. At least, they reacted, and negotiations ended up that they bought twenty-five percent of the Bang and Olufsen audio-video part. Bang and Olufsen changed the company completely at that time. It was just one company from the beginning. Had a name, Bang and Olufsen, which was quoted on the Danish stock exchange. We then made a holding company, the Bang and Olufsen holding company, which the family moved all the shares into. This company owned Bang and Olufsen AS, which was the audio-video company. Then Philips took over one-quarter of that company, twenty-five percent of the audio-video company. But the mother company, the holding company, is still a Danish company.

Nebeker:

I see. And what else does that holding company hold besides the audio-video?

Palshøj:

Two and a half companies, you would say. The Bang and Olufsen audio-video, which is the main part of it, and then Bang and Olufsen Technology, which is a smaller company we made a few years ago, based on the idea that we should be able to benefit from ideas developed in this company, some specific competencies we have developed, which maybe could be used in other areas; for example, video equipment. This is what we're doing now.

Nebeker:

I see.

Palshøj:

But I can give you an annual report showing these things. Another area is, we have a deox-till [?] communication, which we have in common. We started this company, and then we sold part of the shares to Erikson, a Swedish company. Today Erikson has taken over the main part of it. We only have twenty-five percent there, because it's more and more going into their kind of business area.

Success in Foreign Markets

Nebeker:

What foreign markets have been most successful for Bang and Olufsen?

Palshøj:

Without any discussion, Germany, during the last ten years. Germany is far the biggest market for Bang and Olufsen today. It's very well driven and it's still growing.

Nebeker:

How do you account for that?

Palshøj:

Well, we have a very good manager in Germany, especially. That's the main reason, as I see it. I think we are giving him full credit for what we have been doing. He has created a tremendous group for software. Building up a very solid relationship with the dealers, and very continuous improvement. It's going very well. And it is growing; he's beyond Denmark today. Denmark was the biggest market until two, three years ago, but Germany has taken over now and is still growing.

Nebeker:

What other European countries have been good ones for Bang and Olufsen?

Palshøj:

Switzerland has been good — small, but a good country. France has never been very good, still not good enough, although we know that we have a huge potential in France. We have seen from the target analysis that we have a very big market waiting for us there, but we haven't succeeded so far. England has been very huge, earlier, but has had some very bad years, partly from not good enough management on our side, and partly from a bad economy, of course, which has been the start of it.

Nebeker:

Right. Anything higher in the market is going to suffer in bad times worse than others.

Palshøj:

Yes. And we suffered, really, in England. Then, on top of that, we had bad management, the wrong person at the wrong period. That is changing right now. We have changed management in France and England in the last two years. So we're changing, really, now.

Nebeker:

How has it gone in North America?

Palshøj:

Less than expected. Mainly because we have no television in the [works?]. We have tried to follow the market trend. One of the basic ideas is the combination of audio and video. We tried that in the American market also but didn't succeed really, because the American TV market is a very, very tough market. It's almost an impossible market.

Nebeker:

The American producers have been driven out of it.

Palshøj:

Yes, even. So it's very hard; the competition is sky-high, as you know. There's no real reason to go into that market. So we have decided, recently decided, not to try to make a system for the American market. You know, we have the Power System in Europe, and we have the NTSC system in the U.S. So we tried a couple of years ago to make an NTSC but we lost money on it. It's not profitable for us to do it. So now we have decided to stay with audio equipment for some years. Sometime we may change that, but I suppose that when the American high-definition television is developed, we may be there again. I think we are waiting for that. Until then, we establish a good dealer relationship again and we are selling audio equipment. But it's only part of the program.

Nebeker:

What about the Japanese market?

Palshøj:

That's exactly the same.

Nebeker:

Just audio, pretty much.

Palshøj:

Yes, yes. The Japanese market is as you know a huge market, but it's very complicated to get in. We're not. We have decided, as a part of the turnaround, that we would concentrate on Europe, and make Europe our home market for the coming years. A few years later we will change that; right now we have so many possibilities in Europe which we should learn to exploit. We have a French market waiting for us; we have the British market which easily could be used much better than it is. Spain is growing rapidly right now; Italy is growing rapidly also. We have all the possibilities we could wish for within Europe right now, so we'll come back to the U.S.

Reorganizations in B&O History

Nebeker:

This reorganization of a couple of years ago — is there anything comparable in the earlier history of Bang and Olufsen, or at least in the almost thirty years that you've been with the company?

Palshøj:

Yes, just at the time I came there was a kind of turnaround, with a shift in management.

Nebeker:

What was the big change there? Do you know the story of that?

Palshøj:

It was more a change in management style, things like that. Before I came, some years before, there was a heavy turnaround based on lack of financial control. Then we had a managing director who took over financial control and turned the company around. But in the meantime I think we have had many managing directors with different styles. But the first very deep change in organization happened two or three years ago when Arnst Knosher took over. This is the most dramatic change we've had.

Nebeker:

Has there been any decision to work together with Philips in developing new products?

Palshøj:

Yes, that was part of the package. The twenty-five percent in share was a package where we also tried to — There was actually a part saying that Philips would never take over more than fifty percent, so the independence was secured to Bang and Olufsen somehow. Another thing was that we were free to buy our components wherever we wanted. There are no limitations in our possibilities; we don't need to buy Philips components. But we do buy Philips components for many good reasons. They are good components. We also wanted a component industry in Europe, so it's supported in many ways, to keep them. But they are in competition as everybody else. Another decision was that we should try to get benefit from common development of things. We are developing in close relation to them, mainly also because we have realized that we are very different; they have one market objective, and we have another one. So we don't compete, really, with Philips. We don't think there's a lot of competition.

Nebeker:

So that makes it easier to combine R&D.

Palshøj:

Sure. And we got a lot out of purchasing, for example, in cooperation with Philips. When we use one to two plastic machines, and they want ten, we can buy twelve, and that gives an advantage which we've learned a lot about. So that gave us quite an amount. I think that also we have always been very open with Philips because they have been main suppliers of components to Bang and Olufsen. I think that our engineers are very fond of working with them; they can go to the laboratories to see things which we would never be able to do. We also have Philips engineers now working in the company here, to learn the development process from a personal point of view. We can get some benefit out of that, too.

Nebeker:

I think I've gone through the questions I had. Is there anything you care to comment on?

Palshøj:

No, I think I've covered the main part, haven't I? Immediately, I think I have.

Nebeker:

Thank you very much.