Bose’s Sound Strategy
Bose says it’s been able to innovate better than public companies.
January 1 2005 by Chief Executive
Screeching tires are not the cool sounds you would expect to hear in the Bose Corp. parking lot in Framingham, Mass. The company known for the music that pours from its world-class speakers is sending cars noisily zipping through pylons to unveil its newest breakthrough: an automotive suspension system. What’s that got to do with noise-canceling headphones, loudspeakers or Wave Radios? Very little, but Amar G. Bose, founder of the audio products company, wants to steer his business down a new road.
It’s an astonishing detour for the acoustics icon. Bose audio systems are used in homes, cars, stadiums, churches, auditoriums, planes and even Humvees in Iraq. But Bose, the man, is a modern-day Thomas Edison. His research instincts drive his company into areas that might seem impulsive or idiosyncratic in other companies.
A key to his company’s success, Bose says, is that it doesn’t have to answer to shareholders. At a time when many public companies are trying to jumpstart their innovation engines, Bose believes privately held companies enjoy an R&D advantage precisely because they are not accountable to Wall Street or federal regulators. That’s why the former MIT professor, who launched his company 40 years ago with a $70,000 stake, can pursue his passion for teaching and research and thumb his nose at conventional business practices.
The new suspension system, an engineering feat that has the potential to transform the auto industry, is a case in point. It uses power amplification and switching technologies that Bose invented for loudspeakers. A 24-year research project in an area outside of its core business would be rare in any publicly traded company. But Bose encourages and funds the type of research to produce a semi-active suspension that smoothes out the wickedest bumps on the roads. The bills produced by the project drove his CFO crazy, Bose says with a chuckle in a rare interview.
Bose, 75, whose father fled from the British in Calcutta as a freedom fighter, was born and raised in Philadelphia. His interest in suspensions dates to 1957, when he bought a ’58 Pontiac with an air suspension system. “I owned the car for 10 years and really got to know its suspension system,” he says. “I spent as much time under the car as I did in the driver’s seat.” He replaced the Pontiac with a Citroen DS 19 featuring a unique air suspension. Driving those cars triggered his quest to quantify the mathematics of car ride and handling. He wondered why a luxury sedan couldn’t handle as well as a sports car and why a sports car couldn’t have the smooth ride of a sedan.
In 1980, he began work on solving the mathematics of the suspension system. He soon took on an assistant in this phase of research that lasted for five years. In 1985, the company started hiring people to work on the hardware and software development. The research team kept growing and now numbers 20. Without taking time from his overall administrative duties, Bose worked on the program almost every day. But he was less directly involved in the actual component development.
Neal Lackritz, a manager on the team for the past decade, notes that Bose kept saying “I can’t wait,” but there were no specific chronological targets for the project. He never came close to pulling the plug and was uniformly excited about the project. Lackritz says the process was incremental, laying building block upon building block. Because the motor and amplifier crucial to the system did not exist in 1985, the development of these components was the key breakthrough. Even though the project was publicly announced last summer, the program continues with the principal goal of reducing the weight of the system by more than half. The system won’t be final until it is optimized for a specific car model.
Making a Lexus Into a Porsche
The Bose suspension produces the best ride and handling qualities of luxury sedans and sports cars, smoothing out bumps but also minimizing the roll, pitch and plowing produced by aggressive driving and braking.
No journalists have been allowed to test the suspension yet, but Bose engineers have driven production vehicles with the proprietary suspension for thousands of miles on roads of all types. And in demonstrations for automotive writers in laboratories and on a specially created course, they observed and felt impressive improvements in handling and comfort that the new suspension produced.
A driver demonstrated that a Lexus LS 400 equipped with the Bose suspension actually handled better than a Porsche 911, one of the best handling cars in the world. Earlier, writers were invited to sit in a test car mounted on a laboratory test rig beside a huge mirror. In a simulated ride over a very rough road, the wheels reflected in the mirror bounced wildly up and down, while the body hardly moved. Occupants couldn’t feel the bumps inside the car.
The same tests with the conventional suspension showed the car body bouncing up and down in the mirror, so that passengers couldn’t wait to escape the punishing ride. The Bose suspension completely isolates car occupants from discomfort.
The suspension looks like four shock absorbers that graduated from a body-building course. But they aren’t conventional shock absorbers. Each tower contains a linear electromagnetic motor that moves a strut attached to the wheels to eliminate the violent bouncing created by bumps and potholes. In tight cornering and braking, the suspension prevents rolling and pitching and uses less than one-third the power used by a vehicle air conditioner. Bose engineers say the bulky suspension hardware will eventually be reduced to half of its current 400-pound weight. It can easily be retrofitted into existing production cars, replacing their front and rear suspensions. But Bose is focused on getting a carmaker to install his suspension in an all-new luxury car. It would have to be a luxury car because press reports have said the system will cost as much as $20,000. That’s close to the average price of a new car, though Bose won’t say how expensive it will be.
A lot of testing and engineering still will need to be accomplished if Bose gets a manufacturer to adopt his system. But if he is able to pull it off, the suspension could open a whole new business sector for him. Bose says he isn’t interested in licensing the technology and intends to manufacture the suspension in a new plant his company will build.
Not needing to worry about investor relations or financial analysts minutely examining quarterly reports gives him the freedom to embark on what financial analysts might consider fanciful diversions. But it hasn’t prevented him from building an enterprise with 8,000 employees while working as a full-time professor at MIT. His academic background influences his decision to drive a large R&D program. In addition to his CEO duties, Bose is also technical director of the company. He invests heavily in research because of his unconventional philosophy that all profits be plowed back into R&D, capital investments and product development to ensure company growth.
Bose is a hands-on administrator who walks the headquarters corridors in his shirtsleeves and wears a photo ID clipped to his belt€¦quot;even though his name is on the building. Employees describe him as an approachable leader; he eats in the company cafeteria with other employees, many of whom he greets familiarly.
Bose Corp., whose 2004 earnings were believed to be about $1.7 billion, is a meritocracy. Those who contribute the most are rewarded with position and compensation, the founder says. To guard against personal bias, Bose retains outside consultants to set salaries, even his own, by comparing Bose salaries with those of competing companies. “That keeps politics out of it,” he says.
The company, which struggled to get by in its early years on government contracts, still does a small amount of government work. “The government is perhaps the most understanding of the benefits that can be derived from research,” he says. “R&D that public companies are not willing to sponsor is very often [backed] by the government. We’ve derived a lot from it and society has derived a lot from it.”
Bose’s first products were high-power amplifiers that converted battery power to AC power in planes and submarines. These military products paid the early bills and allowed the company to fend off venture capitalists that he derides as vultures. Early on, outside investors tried unsuccessfully to seize a controlling interest in the company. Now he takes great pride in having kept his company private. He vows that he will never sell his shares.
Bose Corp. began from a sudden inspiration the MIT professor had in 1956 as he was lying in bed just before midnight mulling over why a recently purchased stereo system performed so poorly, despite its excellent specifications. “Then, like a flash,” he says, “I got this idea for an unconventional loudspeaker that might solve these problems.” He jumped out of bed and called one of his MIT colleagues, Charles Hieken, despite the late hour. “I’ve got an idea that might really work,” Bose told Hieken, who is now the company’s outside patent counsel. Hieken encouraged Bose to follow up on the idea. Months of research led to Bose’s first speaker patent.
More patents followed but they just sat in a drawer until C.Y. Lee, an older MIT professor, advised Bose to commercialize his inventions. Later, Lee helped raise some of the original stake for the startup.
The company opened its door with one employee, a former student at MIT, who earned $10,500 annually, eclipsing Bose’s annual income at the university (which was then $10,000). Bose didn’t draw any salary until four years after the company was founded. The business was shaky until the company made its reputation for premium audio systems with the 901 Direct/Reflecting speaker system unveiled in 1968. It reflects 89 percent of the sound off walls to create a concert-hall type listening experience. Professional loudspeakers were introduced in 1972. In 1975, the 301 Direct/ Reflecting speaker system was introduced and the company claims it is one of the best-selling speaker systems in the world. Amar Bose began putting acoustics systems on wheels in 1982 through General Motors’ Delco Electronics Division.
Bose today is completely focused on long-term results. When the subject turns to R&D, he becomes animated. “Research always brings interesting things and the benefit is enormous in the long term,” he says.
Bose refuses to speculate on whether his company has ever passed up research that resulted in a product that someone else exploited. “Anything that really attracted me I went into, and that was one of the reasons I formed the company,” he says. Justifying long-term research projects that may or may not pan out in creating profitable new products isn’t as important to him as his quest for solutions. “The CEO of a publicly traded company is trying to make his balance sheet look good every 90 days,” Bose says. “Also, the average tenure of [CEOs] is rather short, so getting involved in long research projects that are not going to pay off is most unattractive to them.”
Bose has no such constraints. He says there are several multiyear R&D programs under way, one of which might prove to be commercially viable. Whether this project and the suspension turn out to be gushers€¦quot;and not a dry well like an aborted cold fusion project€¦quot;doesn’t seem to concern him. He is convinced that unfettered research ultimately pays off.