Bose: A Better Business, Through Research
A company whose research-driven operating model has helped it build one of the most respected names in electronics.
Founded and led by a 45-year M.I.T. professor, Bose Corporation is more a business built for an operating model, than an operating model built for a business. That operating model, neatly summarized by the slogan, “Better Sound Through Research,” continues to drive the company’s performance fifty years after its founding.
Bose is known for high-end electronics manufactured for travelers, NASA, car companies, the military, aviators, and home builders. The company is perhaps best known for their known noise canceling head-phones[i], and least known for designing seats for truckers.[ii] For their cutting-edge products, Bose demands a high price. In fact, critics have often complained that Bose offers poor value-for-money, particularly on the basis of hardware.[iii] This criticism is born out in Bose’s Quiet Comfort 25 Headphones (QC 25s). Though named best in their class, [iv] reviewers find that better sounding over-ear headphones can be had for half the price. [v]
In exchange for their hefty prices, however, Bose offers an unparalleled customer experience premised on innovative technology, sleek design, and guaranteed quality. Bose products are backed by a one-year repair or replace warranty.[vi] Customers rave about their experience with having their products instantly replaced and upgraded, often at little or no cost.[vii] Critics applaud the QC 25s’ compact, lightweight design as both practical, and luxurious.[viii] Yet reviewers are unanimous in declaring[ix] that it is Bose’s industry leading noise canceling technology[x]—and the research that behind it—that helped to create a cult following for Bose headphones, especially among frequent travelers.
Slick videos like these raise the question: Is Bose really serious about R&D, or is its premium brand perception more a matter of effective marketing? It is no secret that Bose has been at least as successful in marketing their products as it has been in developing them. The company wisely targets unsophisticated consumers with plenty of money to spend. The professional business traveler is perhaps the most compelling archetype. Audiophiles complain that Bose offers poor value, but the truth is they are not Bose’s target segment. This is why Bose sells its products at high end malls and in airports, rather than old record shops or Guitar Centers.
Behind the effective customer targeting, however, is a company with research at its very core. It had been Dr. Amar Bose’s obsession with technical performance that led him to begin testing speakers while a doctoral student at MIT.[xi] This zeal led him to design Bose’s first product, the 901, whose innovative active equalization was met with as much praise as it did scorn. Bose recognized that most speaker systems were designed without the room in mind. As a result, speaker performance would vary wildly from venue to venue. Active equalization was necessary to keep sound quality consistent. The result was a system which critics declared lacked base and treble, but which fans declared produced the “most accurate sound”[xii] they had ever heard. Whatever their initial reception, this product would go on to be the second longest speaker set ever in continuous production.[xiii]
Bose’s commitment to research did not waiver as the company grew. In fact, Bose researchers have at times stepped decidedly outside of the realm of consumer electronics to flex their kudos as scientists and engineers on other problems. In the 1990s, Bose put together a ten-person team that worked for two years to debunk the theory of cold fusion. The company has since committed R&D resources to all kinds of problems, from innovative audio systems, to revolutionary automotive suspension technology.[xiv]
Why invest so heavily in wild and unprofitable projects? At first, Dr. Bose just wanted to, “do interesting things,” he would later confess. Over time, however, research emerged as Bose’s strongest competitive advantage. It would be the company’s dedication to research which would earn it lucrative and prestigious deals such as with NASA, and which allowed Bose to develop active noise cancelation in the first place. Non-commercial projects like these help prove Bose’s technical gravitas to consumers. Perhaps recognizing this, Bose refused to take the company public so that he could, “pursue a risky strategy of long-term research.”[xv]
Today, Bose has earned its place in the market thanks to its research. It is one of the most trusted technology brands in the world, [xvi] renowned for quality, design, and most of all, cutting edge technology. This reputation depends on the company’s consistent ability to produce–and stand behind–high-quality, cutting edge technology. In other words, the company’s competitive advantages are driven by it’s operating model.
[i] http://www.headphonesunboxed.com/best-headphones-for-airplane-travel/
[ii] https://www.bose.com/bose_ride.html
[iii] https://www.youtube.com/watch?v=mglYCktVUUo
[iv] http://www.cnet.com/products/bose-quietcomfort-25/
[v] http://www.cnet.com/products/audio-technica-ath-m50x/
[vi] http://worldwide.bose.com/axa/en_au/web/warranty_information/page.html
[vii] http://vegasgeek.com/why-im-now-a-bose-customer-for-life/
[viii] https://www.youtube.com/watch?v=dBEWR50Mb3w
[ix] https://www.youtube.com/watch?v=6Zh1C0f2hX4
[x] http://www.pcmag.com/article2/0,2817,2468872,00.asp
[xi] http://techcrunch.com/2007/09/19/dr-bose-tells-all-company-sercrets-why-they-dont-publish-specs-and-more/
[xii] http://techcrunch.com/2007/09/19/dr-bose-tells-all-company-sercrets-why-they-dont-publish-specs-and-more/
[xiii] https://www.bose.com/products/speakers/stereo_speakers/901-direct-reflecting-speaker-system.html
[xiv] https://www.bose.com/about_bose/innovations_achievements.html
[xv] http://articles.economictimes.indiatimes.com/2013-07-15/news/40570461_1_bose-corporation-bose-wave-direct-reflecting
[xvi] http://www.businesswire.com/news/home/20060403005099/en/Forrester-Research-Reveals-Trusted-Consumer-Technology-Brands
Awesome article. Many will argue with me by using companies like Apple as an example, but I think R&D-heavy companies that go public are doing a disservice to themselves more often than none. The pressure of being a public company I think over time forces executives to allocate less and less resources towards R&D. Most high tech companies spend less than 5% of revenue on R&D – pharma is I think on average 15%. How much of the tech and innovation that went into the iPhone do you think Apple directly paid for? If you back track all the patents and sources of the IP, I bet it’s less than 1/3. And if those other companies or labs that developed the non-Apple IP that went into the iPhone (more than likely non-public companies) don’t continue to spend on R&D, the pipeline dries up. No new innovations means no new fancy products to sell that maintain the competitive edge for Apple. This will happen to Apple eventually, unless they invest heavily now in R&D (they got the cash to do it too). I think the decision that Amar Bose made to not take his company public was a good one. And I think his action of donating a large chunk of the company to MIT was a clear indicator of his vision for Bose to become something like a Bell Labs. Sadly with his recent passing I’m not certain what the future holds for Bose or if the current President, Bob Maresca, has the same spirit as Amar did. We’ll see!
Thanks, James! I recently bought a pair of Bose earphones as a gift without knowing too much about the company other than that others considered them to be cutting-edge in terms of noise-cancelling technology. I guess I fall into their target customer camp of unsophisticated consumers willing to spend, as you described (or that their branding and slick videos work!) There is certainly a halo effect for being a consumer electronics company known for investing in R&D, as in this increasingly connected market, consumers increasingly expect the best. One question that your post raised was how Bose’s margins compare to those of competitors. Given their premium price (I thought it was pushing it) and distribution model (I know there is e-commerce, along with the high end malls and airports you mentioned), I wonder if that gives them more room to play with R&D $$. Great read, thank you!
Thanks James!
I loved the article and it’s definitely a fascinating insight into the Bose operational model and the culture and values behind it. While I personally love the brand as well, and find its innovation a driver for purchase, I can’t help but wonder how much does the brand suffer by the recent introductions of new brands into the headphones space. Beats and Skullcandy have made headphones “cool” again, are considered, in some cases, superior in terms of quality, and at times are sold at a higher price point.
It will be interesting if Bose, who have been known for clean design and superior technology will invest more in innovative and attractive design to increase their market share on the expense of innovative technologies.
Awesome post!
Hi James, very interesting post. Always good to understand philosophies of highly successful companies.
Bose has indeed targeted the ‘uneducated consumer with discretionary income’, making it some sort of an aspirational product for many. However, my fear has been the emergence of several ‘new’ and ‘cooler’ companies that are in this space. I fear Bose being pushed into the position of a ‘too high quality, even higher price’ product that can be easily substituted by other cooler ‘high quality but for cheap’ products. It is a very interesting challenge for a company that prides itself on cutting-edge research to manage the pricing so that it captures value while also continuing to have a wide consumer base.