How Audio Giant Harman Broke Down Silos to Spark Innovation

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Noted turnaround specialist Dinesh Paliwal is transforming Harman International, an audio solutions company behind such iconic brands as Harman/Kardon, JBL and others. As Harman’s chairman, president and CEO, his mission in the digital age has been to transform the company from a founder-run, top-down culture to one that is customer-centric and driven by innovation. Paliwal has instituted major changes, including breaking down silos, adopting elements of a startup culture and setting up internal crowdsourcing — all with a relentless focus on reinventing the business. Innovation, he says, is not just about breakthrough scientific ideas. It’s about processes, too, such as making customer service better and running projects more efficiently in a new way.

Knowledge@Wharton recently interviewed Paliwal to talk about Harman’s transformation. What follows is an edited version of that conversation.

Knowledge@Wharton: Tell us a bit about Harman. When you came in, this was a very different company. You have really made a transformation happen. So talk to us a little bit about what it was, where it is today and where you see it going.

Dinesh Paliwal: In the past eight years, Harman has totally changed. I joined the company eight-and-a-half years ago and it had excellent brands like Harman/Kardon, JBL and many others. However, innovation had completely stalled, and there was nothing happening. We had about 1,700 patents, but they were also getting dated and there was nothing new coming out. You cannot [rest] on your laurels. After a while, those patents and brands [become less] relevant. To keep our business relevant and also to understand where the technology was going, we needed to do something. We were known as an audio company. I still get introduced as the CEO of Harman Kardon, which is not correct. We are Harman. Audio is only $3 billion out of the $7 billion of the company’s revenue.

So what did we do? I said the first thing we need to do is to create a structure where people can talk. I always believed if you cannot collaborate around your ideas, you cannot create. That means communication has to be, first and foremost, the platform. We had nothing but silos. Each brand was a company. They were so silo-driven that they had no standard email exchange. Different business cards, different email service. It was like the United Nations — the countries didn’t talk. United of nothing.

The first thing we said was destroy the silos. Put [everyone on] one unified email and communication network. I started writing letters to every employee, every week: a company-wide letter to bring them up to speed on what we were doing. I told them how bad certain things were. I also gave them respect for the company’s legacy. The No. 1 thing I said was this: if we don’t innovate, you can cut costs and live for another two or three years, but you will die because cost [reduction as a strategy] has a limit. In the end, it’s innovation [that will propel us forward].

If we don’t innovate, it means we do not create value. It’s value that customers are willing to pay for. Twitter  So I said, value-based selling starts with innovation. You need to give our sales people, our customers something they can say “wow” about. That’s the wow factor.

How do you start innovating? Well, I had a lot of things to take care of. So I’ll be honest with you, innovation wasn’t the first priority. The priority was, let’s destroy these silos. We then said, now we’re going to invest in R&D, in new innovation centers. We installed a chief technology officer. Then we put rewards in place. Innovation is not just about a new scientific idea. Innovation is about processes. Innovation is about how you do customer service better. How do you run projects more efficiently in an innovative [way]?

Countries like China and India are traditionally blasted for being copycats. “They don’t know how to think.” This is completely wrong. Today, fast forward, one-third of our early filings and patent early identification filings are from China and India. This is quite remarkable. I’m very happy.

 “If we don’t innovate, it means we do not create value. It’s value that customers are willing to pay for.”

This year, we finished with nearly 6,000 patents versus 1,700 eight years ago. We have been monetizing our patents. We sell patents to Samsung and Bay Area companies — Google, Apple and many others.

How did we get there? A number of things. It starts at the top — with me. I go on worldwide town-hall meetings and I always talk about the fact that if we don’t innovate, we have no future. I repeat [legendary former CEO of GE] Jack Welch’s mantra: You’ve got to be the cost leader to be the profit leader. These two things have something in common. You have to keep reinventing yourself.

So now we have an innovation studio. We have crowdsourcing. We have internal crowdsourcing. We have the power of 27,000 people. So we’re getting ideas. Initially people thought they won’t care. When they started to see that we select (the best ideas), the funnel gets shorter and shorter. We actually announced, ‘These are the top 100 ideas, the top 50 ideas.’ Then we started rewarding the people who were coming up with ideas.

The third thing we did was the Shark Tank idea [TV show in which entrepreneurs seeking funding pitch their business ideas to a team of angel investors]. At Harman, we have hungry tigers and hungry cubs.

Knowledge@Wharton: I hadn’t heard about the cubs.

Paliwal: Hungry cubs is the feeder for hungry tigers. Tigers are already middle managers. You have to step on a few toes; it hurts. You are a hungry tiger because you are brave, you have courage, you have risk appetite and you’re asking for change. Otherwise, you will leave. Basically, I want to know these people because I don’t want to lose them. I want to give them opportunity, more space, more money and the freedom to do things. So the hungry tiger program is working.

But the innovation process is a continuation. I think we have just started scratching the surface. Other than that, we joined Singularity University (an institute that aims to educate people about technology to beneficially impact society). Four times a year, we send our people — five people each time. They come back as changed people. And we’re a lot more outward customer-centric, listening to the market, and allowing people to take risks.

Knowledge@Wharton: So to help the reader understand this a little, your customers are a mix of individuals as well as businesses? I can understand it’s easier in many ways to innovate to a consumer, the Joe on the street, but how do you bring your business consumer along?

Paliwal: We have four businesses in Harman. Out of $7 billion, our largest business is the $3 billion plus connected-car division. This is the whole cockpit electronics and software in the car, which we do. That business has been under development for two years. Then it gets into the car and you see it. So it’s already three years old by the time you and I, the consumers of the car, will see it.

“Innovation is not just about a new scientific idea. Innovation is about processes. Innovation is about how you do customer service better.”

Then we have the audio business, including car audio and consumer audio. Consumer audio has a lifecycle of 12 months. So you have to always innovate and, every 12 to 18 months, you have to have a new product. Car audio has a longer shelf life, and there we talk a lot about a system on a chip. We implement changes in the audio listening experiences, providing individual sound zones, providing different experiences in the car, in the home, on the go.

Our third business is professional solutions, including pro-audio, video controls, automation and lighting. We do banks. We do entertainment venues.

Our fourth is connected services. We work with Microsoft, Intel and Cisco on cloud-based applications and analytics, understanding the customer/consumer data and analyzing it. So the spectrum of innovation is very short-term innovation. It may not be a lot of radical, fundamental research for consumer audio. But the radical fundamental game-changing research has to happen for our long-cycle business of connected car and connected audio.

This is where we want to get in the minds of BMW and Audi and Tesla and Daimler. I just came back from Munich where we celebrated 100 years with BMW. The theme was not the past 100 years but the next 100 years. So they talked about what the future-generation car would look like. They actually shared that with us. And we want to be the player in that car.

So we’re trying to bridge Silicon Valley and the car companies. There’s a huge divide. Silicon Valley is ‘let’s do it today, let’s try it.’ Car companies want to deploy technologies which are well proven over three, four, five years because technologies in the car can mean life or death. But now the shift is so seismic that you don’t have four years to prove it. Consumers will say, “I have my ecosystem whether I use Samsung, Android phone or iOS or Blackberry. But my lifestyle encompasses my home, office and car. It can’t stop at the car.” So that’s where Harman is playing and investing.

At the Geneva auto show recently, we launched our car, which had personalization, the highest productivity and a fully autonomous driving experience. This requires artificial intelligence for machine learning. And once you free up a lot of time from driving, you need to bring in all the office productivity. So we launched Office 360 in the car, Microsoft, audio/video conferencing, your Outlook calendar, totally synced. You now have an intelligent assistant with you in the car, keeping you on track and interactively working with you. So this is where our research is going – cognitive load.

… Five years from now, you will have the choice. You can drive your car or you can let the car drive you. So cognitive load is very important – as well as the bunch of sensors, because a lot of data is being collected. We’re going to be in the middle of managing the data.

So picking the right partners, making those choices is going to determine winners and losers. I’m very happy that we are actually collaboratively working with Google, very tightly in a strategic partnership with Microsoft, with Silicon Valley vendors like Intel and many others, and the car companies as well.

“It starts at the top — with me. I go on worldwide town hall meetings and I always talk about the fact that if we don’t innovate, we have no future.”

Knowledge@Wharton: You’ve talked about Google, you’ve talked about the autonomous car. What will happen if a big accident happens? How will the industry react? Who takes the liability? I think that whole area is open for discussion. Where do you stand on that?

Paliwal: We just saw Google come out and say, “Listen we own this. We’re responsible.” I think we’re going through a complete phase shift. It’s not incremental. There are 35,000 to 37,000 deaths on the road today. They’re all due to human errors for a variety of reasons. There are 800 million cars today on the road. They’re all human driven and they’re not ready to be deployed to be called autonomous driving because they don’t have the right sensors and software and technology. These cars will be on the road for the next 10 to 12 years. The cars in the production line will continue to come out for the next three to five years; they’re also traditional cars with some intelligence. So you’re definitely in for 15 to 20 years (with traditional cars).

Then the shift will happen. In the green lane in big metropolitan cities, you can have autonomous cars drive literally inches apart. They know each other; they’re talking to each other; they’re totally smart. But the accidents or liability part is very tricky.

Knowledge@Wharton: What do you think are the key drivers for Harman, for the industry, for the U.S., for the world? What are some of the key drivers that are going to shift the way we work and exist and innovate?

Paliwal: I’m going to start with a cliché. I’m sure you’ve heard it hundreds of times. IoT, right? Internet of Things. … IoT for us means a lot — in the connected car, connected driving. It means a sense of fusion in the car. The lighter and the laser, the ultrasonics and the night visions, a lot of safety, vehicle to vehicle, vehicle to infrastructure, vehicle to cloud, which is infrastructure. That’s where I think we are doubling down.

In the past two years, we at Harman have made five acquisitions of more than $1.5 billion, which is a lot of money for our size of company. We have acquired 9,000 software engineers and architects. We have now phenomenal capability in cloud-based applications and analytics. We have acquired three companies in Israel in safety.

“We’re trying to bridge Silicon Valley and the car companies. There’s a huge divide.”

The next thing is cyber security. Imagine the implication of connecting these cars to a big pipe, whether it’s Vodafone or AT&T or Verizon. You have network vulnerability. So we have been acquiring expertise in-house as well as externally in cyber security.

Knowledge@Wharton: It’s interesting because you’re talking within the context of Harman. But also it’s across health care [and other areas].

Paliwal: Across industries. Across health care. I sit on the Bristol Meyer board. We see the same thing — data management [and] how wellness, how patient care will be totally seamlessly integrated, all the way through the pipeline.

Knowledge@Wharton: The flip side of that, what keeps you up at night?

Paliwal: A number of things. It’s not the technology, it’s not that we will run out of cash or the challenges of competition. It’s finding the people, those who can move with the speed that I want to move.

I am generally paranoid. My communications people tell me I should not say paranoid; say healthy paranoia. The same thing applies to our business. To drive that sort of healthy paranoia in innovation, in watching who might disrupt our value chain, who might disrupt our product line or our technology direction. That keeps me awake. But finding people, those who can do something about it, there are not too many people, unfortunately. It’s a talent war. With our immigration policy as stupid as it is right now, we’re struggling. It is becoming a crisis.

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