Keeping the sound pure

MANAGING a business is like jazz - at least for Daniel Sennheiser. In 2013, the 42-year-old and his brother, Andreas, became joint chief executives of the eponymous German electronics company - famous for headphones and microphones - their family has run for seven decades.

And while the third-generation Sennheiser has eclectic musical tastes, he has a soft spot for the collaborative nature of jazz. "What I like about jazz musicians is that when you put them together, something magical happens," he said. "They are all individual artists but they can also work together. That's exactly how we work as a management team.

"We are individual specialists, but when you put us together for a project, everyone has something to contribute.

"You really need people to have their masteries. But you also have to collaborate. It's not about being the smartest or strongest, but about creating something together when one and one equals more than two."

This sort of fortuitous gestalt doesn't happen in a vacuum, of course. Sennheiser has overhauled its corporate and management structure in the past few years. In 2011, the company restructured itself into three business divisions. When the Sennheiser brothers took over the CEO roles two years later, the 2011 divisional structure remained intact but saw management streamlined. And in 2014, the business divisions were consolidated into just two - Professional Systems and Consumer. Today, Sennheiser's Executive Management Board comprises the two CEOs, three COOs and a CFO.

When Daniel Sennheiser's father, Jorg, stepped down as chairman in 2014, the succession was complete. And Mr Sennheiser set about broadening the perspective of a company that's traditionally been focused on engineering above all else. Founder Fritz Sennheiser, who died in 2010 at the age of 98, was an engineer, as are his son, Jorg, and grandson, Andreas.

Daniel Sennheiser, however, is a design architect, marketer and strategist. He studied product design in university. He has owned his own agency, but has also worked for multinationals such as OgilvyInteractive and Procter & Gamble. He only joined the family business in 2008, where he headed Strategic Innovation before taking on the CEO role.

Learning from the outside

All that outside experience has taught him that family enterprises have much to learn from other businesses both larger and smaller. "What I've personally learnt from owning my own business is what it really means to own a P&L, so it's not only about the great ideas but about running a business," says Mr Sennheiser.

"Then, what I learnt at OgilvyInteractive and P&G is modern professional management, which a family business needs as much as these large corporations.

"Historically, a family business is based on gut feel and impulse and entrepreneurial vision, which is important. But today, and especially in a company the size of Sennheiser, we need professional management structures: the strategies, the systems and the data to be data-driven, which we are today."

Long before Big Data was a buzzword, Sennheiser's engineering endeavours were already focused on hard data. After all, this is the company that invented the shotgun mic - directional microphones now ubiquitous in television and film studios - which isn't the sort of device one can create without technical rigour. "An engineer is data-driven by default," Mr Sennheiser points out. But the company needed to embrace data more holistically.

"The business side had to become more data-driven as well, because otherwise it's just opinions," says Mr Sennheiser. "Today, we try to really look at the facts and exchange ideas, on an eye level."

One of the benefits of a data-driven company culture for Sennheiser has been a more level-playing field for ideas. Proposals are judged on their factual merits rather than accruing recognition from the authority of the person presenting them. Says Mr Sennheiser: "As long as you have supporting data for your point, it doesn't matter where you are in the hierarchy - you can make your point."

And yet, data can fall flat without the business acumen to turn it into a product. Mr Sennheiser's broad experience has shown him that data is "not a self-running system" that can bring an idea to market by itself and monetise it.

"You also need an entrepreneurial vision," he says. "The data doesn't make a decision for you. It just gives you the foundation to make an informed decision. Then, it takes courage to make a decision, and that's the entrepreneurial part."

Daring to be sexy

It's certainly taken courage for Sennheiser to take on what's arguably its biggest threat in the consumer headphone space, Beats.

Beats by Dr Dre headphones initially began in 2008 as a collaboration between Beats Electronics and Monster, and was acquired by Apple in 2014 for US$3 billion. Thanks to savvy celebrity endorsements and eye-popping designs, Beats grabbed a big slice of the global headphone market and spawned a wave of imitators such as Soul and rapper 50 Cents' SMS Audio.

These headphones eschewed functional understatement for bright and bold aesthetics that resonated with young customers. As Beats headphones started appearing in a slew of advertisements, television shows and even films, the trend started to steal something from Sennheiser almost as valuable as sales - mindshare.

In 2012, Sennheiser responded with its first premium headphones that emphasised design, Momentum, which has since expanded into a range. And in 2014, it launched a new Urbanite headphone range specifically targeted at millennials.

"We came from an engineering background and saw sound quality and product quality as the most important things," says Mr Sennheiser. "We had to learn that fashion and design are also important aspects when it comes to choosing a product to buy, and we had to learn that the Sennheiser way - not only fashion, because that wouldn't be Sennheiser, but by marrying substance and style."

The success of the Momentum and Urbanite ranges has effectively ensured a bigger focus on design across its business. Aesthetics are no longer a trend. Customers have become more demanding.

"It's now a need of mainstream customers, who also need to look good," says Mr Sennheiser. "Nobody wants to go back to functional shoes. Of course, shoes have to function but they also have to look good. It's the same with headphones."

That even applies to the company's premium models aimed at purist audiophiles. "It might not be a fashionable portfolio but it also looks good because they have to - design is now an integral part of the buying decision," he explains.

Although Sennheiser's premium products have also benefited from its newfound fashion consciousness, are hardcore audiophiles as important to the company as they used to be, in the face of a burgeoning mainstream market?

"Audiophiles are very loyal customers, and audiophiles are finally a growing breed again, which is good to hear," says Mr Sennheiser. "For many years, we saw that the high-end space was shrinking, ageing and also becomes more complacent. Today, the high end is also appreciated by younger and more affluent, educated young professionals and that's where we can really shine, and it will be an important part of our portfolio in future."

Another reason audiophile products make sense for Sennheiser is that they tend to be expensive, and high pricing is an area Sennheiser's well positioned to play in.

"Sennheiser can only play in the premium-to-high-end space in the long term," says Mr Sennheiser. "We are a small German company so we cannot compete on price," he adds.

"Of course, our products have to be competitively priced and I think we've been able to do that, but if consumers aren't willing to pay much, they have to be prepared to get what they pay for."

A foot in each shoe

The fact that the Beats phenomenon was a challenge at all to Sennheiser was a consequence of Sennheiser's success in both the consumer and professional markets. The company's business is equally divided between pro and consumer. But it's been a mixed blessing in an environment that's forced the company to aggressively innovate for two different customer groups. Still, Mr Sennheiser wouldn't have it any other way.

He says: "It makes a lot of sense because the cycles are different. You stand better on two legs than one leg because you're able to leverage both sides.

"On the consumer side - which is also driven more by fashion, materials and design, and a fast-changing pace - you need to have a faster cycle, and it's also very much dependent on consumer confidence and consumer behaviour."

But catering to the demand for constant product refreshes requires intimate market knowledge. "It makes sense to be here and to be able to create much shorter product cycles and iterations to really understand what the consumer here really needs."

The pro space, however, is more about long-term relationships. "The pro side is very much driven by the investment cycles of the industry, which are usually longer and are also driven more by needs which are more fundamental," he says.

"This also means that you need longer cycles because if a TV studio or film studio makes an investment decision, they want to make sure that the partner they are going with is going to be there for the next 20 years, for replacements and servicing.

"So, it's not only about the sale. It's the service, the replacements, the ongoing support that we provide through our distribution worldwide. Half of our employees work in distribution or servicing." Sennheiser has about 2,700 staff worldwide, almost half of which are outside of Germany.

Combining pro and consumer offerings allows the company to be an end-to-end audio solutions provider. "When I think about our offerings on the input side - you have singers converting audio to electricity with microphones, and then it's the other way around for headphones - we are the interface. So, having both sides not only makes business sense, but also conceptual sense."

But the line between consumer and pro customers isn't quite so clear any more. In the past few years, the rise of prosumers - consumers with professional needs - has impacted electronics sectors ranging from cameras to computers. Sennheiser has found itself catering to home musicians demanding professional monitoring tools, and YouTube podcasters capturing and editing professional footage in their bedrooms and the back of vans. In the process, it's rethinking how professionals use audio equipment.

"Broadcast studios can afford to have specialists for different parts of the production process, but here you have to do everything yourself so prosumer systems have to be very easy to use and understand, and also be able to ensure a very intuitive user experience," he notes.

Balance and focus

Having products for consumers, prosumers and professionals means that Sennheiser has a wider product portfolio today than a decade or two ago. And in the process, it's spread itself a bit too thinly in some areas. But balance and focus is the name of Mr Sennheiser's game now.

"Philosophically speaking, it's almost a yin-yang question. You optimise only for efficiency because then you end up selling only one product to one customer group. It's extremely efficient but extremely risky. On the other side, being everything to everyone isn't financially sound; it just doesn't make sense.

"This is something we're always having to balance and maybe in the last couple of years, we have been a little too dispersed. With the new management structure, and with my brother and I taking over leadership of the company, we now tend to focus on where we're really strong. Not to do everything, not grasp every opportunity, but really go deep into what we can do better and differently.

One opportunity Mr Sennheiser does want to grasp is Asia. The Sennheiser Group's sales in the Asia-Pacific region totalled 132.6 million euros (S$207.6 million) for fiscal year 2014, according to its annual report. "In the last few years, Asia has been our growth driver. Just last year, we grew more than 30 per cent in Asia, which is a very good and healthy growth - and we've done that for many years now," he says.

A strong Asian presence has also been necessary to constantly refresh product lines. "It makes sense to be here in order to be able to create much shorter product cycles and iterations, by really understanding what the consumer here really needs."

Research and development in engineering and product development also needs to be solid in order to act on that market knowledge. "Sennheiser was built on R&D and we still spend roughly 7 per cent of our turnover every year on development and research, and that's significantly more than most companies spend," says Mr Sennheiser. The company's R&D spending in 2014 rose 6.4 per cent compared to the previous year, with 338 staff focused on R&D.

"That's the only way that we, as a small, privately owned company, can remain always on top, and we will continue to do so. R&D today not only happens in Germany. Innovation happens in Singapore, in San Francisco, in Zurich, in Hamburg. It's much more distributed today because we need to be able to take on the knowledge, tendencies and ideas of different areas."

This focus on quality and innovation is how Sennheiser has positioned itself to compete in an increasingly crowded marketplace plagued by short attention spans and an obsession with novelty.

"The flip side of a short attention span is that you go to what you know," says Mr Sennheiser. "This is where the heritage of Sennheiser delivers, and where the 70-year track record of always delivering what we promise, comes in. That makes it easier for you to spend the money. I guess that's what a premium brand is built on."

limchris@sph.com.sg

@ChrisLimBT

DANIEL SENNHEISER

CEO, Sennheiser electronic GmbH & Co KG

Born in Zurich in 1973

Studied product design at the Art Center College of Design in La-Tour-de-Peilz, Switzerland, and in Pasadena, California, US

Founded his own agency, Digani, in Munich

1999-2002: Worked for various communications agencies in Munich and Zurich, including Pixelpark, Concept! and OgilvyInteractive

2003: Joined Procter & Gamble, most recent role being associate director of Design & Innovation, EMEA

2008: Joined Sennheiser electronic in March; headed the Strategic Innovation department

Has been a member of Sennheiser Group's Executive Management Board since January 2011

Became president of Strategy and Finance

2013: Became CEO of Sennheiser Group, jointly with brother Andreas, as of July 1