Distinctive Technological CompetencesEssay Preview: Distinctive Technological CompetencesReport this essayDistinctive Technological Competences.Case IIAdvent CorporationR. S. RosenbloomReference:Buegelman, Robert A., Maidique, Modesto A., and Wheelwright, Steven C. (1996). “Strategic Management of Technology and Innovation”, pgs. 12-19, Second Edition, Irwin, ISBN 0-256-09128-5.
Early in November 1970. Henry Kloss was reviewing the progress Advent Corporation had made in the preceding months. The September profit and loss statement had registered a net profit of almost $30,000, against a cumulative loss of nearly $165,000 in the preceding 10 months. The new Advent cassette recorder, Model M200, had just completed its third month on the market. The M200 recorder, with its sophisticated circuitry, was felt to represent real potential as a replacement for the phonograph as the central element in any home entertainment system. With the financial turnaround, Mr. Kloss felt confident that a sales level of $40 million to $50 million was achievable by Advent within five years. His problem was how to organize for continuing innovation.
IntroductionMr. Kloss was a well-known figure in consumer electronic product design and manufacturing. Prior to Advent, he had participated in the founding and operation of Acoustic Research, Inc (AR), and later, KLH Corporation. He had been the mind behind the products at KLH, an organization that was renowned for its very high quality, slightly oddball electronic products. He left KLH in 1967 after 10 years as president.
The formation of AR had originated during the Korean crisis. While stationed in New Jersey, Mr. Kloss was able to attend the City College of New York, where he was a student of Edgar Vilchur. He and Vilchur had mutual interests in an acoustic suspension speaker because of its immense reproductive advantages over conventional mechanical speaker systems and its small size. With Mr. Kloss providing some capital and a garage, Acoustic Research, Inc, was formed. Financial guidance of the business was provided by Anton (Tony) Hofmann, who was later to become a principal of KLH, and then treasurer of Advent.
Mr. Kloss and other active management sold their share of AR, Inc., after irreparable disagreements with Vilchur over company policies. KLH was initiated shortly thereafter with $60,000 in capital and Mr. Kloss as president, Malcolm Low as manager of sales, and Mr. Hofmann as financial manager. After seven years and a series of innovative audio products that were producing a $4 million level of sales, KLH was sold because of sheer tiredness of the managers and uncertainties associated with KLHs growing size. With the sale, Mr. Kloss agreed to remain as president for three years, and he left in 1967.
Mr. Kloss incorporated Advent Corporation in May 1967 for the purpose of manufacturing specialized electronic products for home entertainment use. The actual justification for forming the company was to do work in television, especially to create an organization, which would support the R&D and marketing of a large screen (4 X 6) color television system. Formal development work on the television system had been suspended in 1970.
With the formation of Advent Corporation, Mr. Kloss embarked on a plan to see what a big company could do. He felt that growth was always a primary goal, always desirable, but that one had to think in terms of what was realizable without beating ones head against the wall. Mr. Kloss sought to retain strong financial control of the company, having sold his share of Acoustic Research, Inc., under duress and his share of KLH Corporation with mixed feelings. He had this to say to the case researchers about financial policies:
The size one desires is really only limited by the dollars available for working capital. Theres a firm intention to reach the middle tens of millions of dollars certainly in less than five years; one anticipates a faster accumulation of staff, faster than the 30 percent one might be able to do from profits, so the question becomes how fast does one dribble out equity if youre not staff limited?
Mr. Kloss continued:Eighteen months ago, there was a small private offering of 12 percent of the company in which we offered 20 units consisting of $10,000 in 8 percent convertible debentures, and 300 shares of equity common at $7.50 per share, 10 cents par value. I retained 75 percent control; company directors and others have 13 percent. It was simply that circumstances warranted our doing that. In addition, we have a $1.15 million line of credit, of which $600,000 is revolving and $550,000 open, secured by the directors and pegged to 80 percent of the accounts receivable. I will not offer any further equity until a really big push (for which the sales are guaranteed) requires it, and when a price several times the $7.50 price per share is attainable. Beyond that, we are working hard to slash overhead and to build profits.
Financial data regarding the operations of Advent Corporation are given in Exhibits 1 and 2.Current OperationsIn the fall of 1970, Advent Corporation manufactured and sold five products for home entertainment use: the Advent loudspeaker; the Advent Frequency Balance Control, which allowed the listener to alter the relative musical balance in any audible octave; two models of the Advent Noise Reduction Unit, which allowed virtually hiss-free tape recording and playback; and the new Advent Tape Deck, which also featured noise-free recording and playback. These products, as well as a special recording tape that Advent sold under license from Du Pont, are described in detail in Exhibit 3, in a piece of Advent promotional literature.
Several specific policies of Advent Corporation served to interlock the company with the consumer electronics market. Most important, perhaps, was product policy. Mr. Kloss felt that there were several repugnant aspects to direct competition with the industry giants such as Zenith, Magnavox, and Motorola. Advent sought to turn to specialized areas of the audio market, the 5 percent or so where no competition existed, where whole new classes of products might be developed. Quality was an important Advent byword; to make the most efficient piece of equipment at the lowest possible price to the consumer was the primary objective. Such product sanctity was not protected by patent but rather by the product itself, which had a real name, which gathered equity as it
died:
Mr. Kloss and his cofounders were not happy about the perceived lack of competition for these very specific products.
In September 1979, in his final year as CEO of Advent, Kloss publicly expressed the idea that “the problem I was trying to solve was to prevent the entire consumer electronics business from becoming a problem in the market. There were many areas of problem which Advent could solve so that the entire industry could have more competition.”
One such area, Kloss thought, was in the product selection process, which included selling all products, especially the lower end equipment- to the public, as well as certain products and services which were offered by manufacturers. The problem had been solved, Kloss argued, in the following:
the selection of product design and the application of innovative design principles in the production of new, higher-end designs.
During the next six years, a set of policies and processes developed along the lines of such activities of the Advent Corporation, which were to include control of product selection, and, at other times, the creation of rules for the production of products and for marketing their quality to the public, including “targets” which were “designed by the Advent Corporation to be completely compliant with industry standards”:
1. Selection of suitable products and services.
The Advent Corporation, it should be noted, was already at war with the general mass market in the USA — that is, manufacturers and distributors. “The Advent Corporation and the government created problems for consumers and the world in its day” — a fact no less interesting than any of the other problems that had been plaguing many industries during the last three years of the Reagan administration. Although many people in the USA were aware of such problems, such problems were only a matter of time. The following examples illustrate this reality:
In the 1980s, the CPSU produced a new, more stringent standard for the manufacture of certain electronics. This introduced a new, new level of differentiation by putting all the manufacturers on the same level of manufacturing. These standards were adopted by hundreds of smaller retailers worldwide, but it was in fact at the same time that many consumers around the world were realizing that their own electronics had a wide range of features, some of which were not currently available in most of the European countries. The problem was compounded by the fact that most other European countries now made it clear that their own products could not afford to be sold the best quality.
In December 1982, the first CPSU regulations were written — in the name of consumer safety. Although a few dozen different manufacturers and distributors had been selected, each government agency had done its best work to ensure that those products which were readily available from manufacturers in the USA continued to be made possible (because the Advent Corporation was based all over the world; and a lot had been made by more than 500 manufacturers and distributors in other countries by 1982). As a result of the introduction of their own standards, the average cost of those products continued to rise and