...felt the two newcomers had any chance for success. 28 years later, with Gibson producing more guitars than at any time in its history, they have proved the doubters wrong.
Earlier this year, Juszkiewicz took on what was perhaps an even more demanding challenge: acquiring the WOOX consumer audio business from Phillips NV. The WOOX acquisition more than doubles Gibson’s revenues to nearly $2.5 billion. However, like Gibson, the business needs a turnaround. Sales and earnings have been trending down for the past five years.
Juszkiewicz brings considerable skills to the task. A native of Rochester, New York, he studied engineering at the General Motors institute, and later attended the Harvard Business School on a GM Fellowship. He held a variety of posts at GM, culminating in the management of a 6,000-employee electronic component plant. Later he joined Neiderhoffer, Cross and Zeckhauser, Inc., a boutique investment bank. In 1981, he acquired Phi Technologies, which manufactured tape transport and audio systems. In the following columns, he outlines plans for Gibson Brands, now a diversified musical instrument and electronics business.
You’ve spent nearly three decades crafting carefully selected wood into beautiful guitars. What was the catalyst that prompted you to plunge into the very different electronics business?
I define business by satisfying customers and stakeholders, not production processes. Production processes are a means to satisfy customers and stakeholders. Opportunity lies where the needs of customers and stakeholders are unmet or poorly met.
Yes, Gibson has been about craftsmanship, and guitars are made primarily of wood. But the core brand values are about what we deliver to our customers and stakeholders, which can be summarized in three words: Quality, Prestige, and Innovation. Those fundamental human values are what attracted me to Gibson when I was a consumer, and those values are what is sorely needed in the entire music lifestyle industry.
People tend to paint themselves in boxes. Musical instrument manufacturers and musical instrument brands have always been a part of a much larger ecosystem. I never saw boundaries.
Before we get into the WOOX acquisition, I’m interested in your prior ventures into the audio market with the acquisition of Cerwin-Vega, KRK, and Stanton; the investments in TEAC and Onkyo; and the acquisition of Cakewalk software. What was the value in these companies that attracted you and what opportunities did you see? Is there a larger strategy for using these different lines to offer an integrated audio solution for different applications?
I have always wanted to address the entire musical industry as our scale and financial capability allowed. In the ’80s, shortly after acquiring Gibson, I got involved with NARAS (the Grammys) and bought two MIDI-instrument companies. Prior to Gibson I headed a commercial cassette transport business that provided recording equipment that all Muzak was played on, in addition to many other applications. Ironically, Phillips—specifically WOOX—invented the cassette which was called the Phillips cassette, and TEAC was a vendor of ours.
But let me address what I consider in making an acquisition: First, as a prudent business person, I need to know that any venture is sustainable and will be able to deliver an adequate return on investment. However, I do not consider myself a financial investor but a strategic player with a very strong vision of what the world should be like. This vision demands scale to be able to have the resources to deliver the exceptionally better experiences that our customers and stakeholders deserve.
One thing I learned the hard way as we grew is that I could no longer do everything. In my early years with Gibson, I was able to make up for things that fell through and people who did not live up to expectations with extra personal hustle. Several small failures taught me that we had outgrown that possibility. Now I insist on proven and committed management that has demonstrated excellence in the field we’re addressing. All the companies you mentioned had exceptional and committed management teams.
I also need to see that strategically we can become leaders in the market space being addressed. If we cannot get to number one in a market space, it is not interesting. I believe we can be number one in all the product categories in which we are now competing, including the above acquisitions. Finally, as a group of “companies,” our scale allows us to make the investments in research and development and marketing that will allow us to fill our pledge of Quality, Prestige, and Innovation.
Do any of these ventures draw on your pre-Gibson experience was in engineering at General Motors?
All of them do. I am a trained engineer; I went to General Motors Institute and spent several years with General Motors. They allowed me to go to Harvard Business School with a GM fellowship. This gave me a great insight to how Fortune 500-style companies work—and sometimes don’t work. I held virtually every job in a large manufacturing plant. This training allows me to address some very high technology and product development issues. It allowed me to build a world-class manufacturing operation that we are still pushing to ever greater levels.
The consumer audio business is a very challenging environment. Sony lost money in four of the last five years, Panasonic lost money in three out of the last five years, and sales and earnings at WOOX have trended down in the same time frame. What opportunities did you see that prompted you to make the WOOX acquisition?
When I came to Gibson, I had already been involved in turnarounds. Gibson and the previous turnaround situations were all one step away from the grave and the industry consensus was the business segment was dead. People have a hard time believing in a future that is different from what they are experiencing today.
I thoroughly study a situation before I get involved. I have to see clearly the potential of a business and feel I would have the resources to achieve market leadership. The seeds of success in a company with a rich and successful history are in the past.
Philips has been a leader in this home entertainment market for decades. It pioneered most of the technology and products that are used by almost everyone being entertained. Most recently, Philips developed the cassette format, the CD format, the DVD format, the SACD high-definition audio format, the Blu-Ray format, the MP3 format, and the MP4 format [some with partners]. When you look at history and the team that reflects WOOX today, they are dedicated to the same fundamental principles as Gibson: Quality, Prestige, and Innovation. I see with a little time and focus we can be leaders once again.
There are Gibson models that are more than 50 years old and still continue to sell well, yet products in the consumer electronics business seem to change every 18 months. Is it difficult reconciling these very different product life cycles?
Every group of customers has different needs, and those needs very much define the market dynamics and what it takes to succeed. It is true the market dynamics for consumer electronics are different from the current guitar market. It will most definitely require a skill to master multiple markets and consumer needs. But that is the skill that many companies have mastered and been very successful at for decades, one of the best being Proctor & Gamble.
That is why I organized Gibson on a divisional structure, even when we were relatively small: a divisional structure where each division focuses on unique value propositions for a specific consumer. Perhaps one of the best examples of the Strategic Business Unit approach is 3M, but there are many outstanding companies that have led the way. In our own industry we have a company that makes guitars, consumer electronics, motorcycles, and boat engines. They were the biggest company in musical instruments. I think we have the skills and people that can accomplish the same thing and even possibly better.
You mentioned in an interview in Japan that you are planning to secure a 50% share of the consumer audio market. That’s an ambitious goal. Could you elaborate on your strategy for turning it into reality?
We live in a time period with ever-accelerating change. Markets are being disrupted and entirely new industries are being born overnight. The pace at which technology is offering us new possibilities is overwhelming many people. The pace of product evolution you mentioned for the consumer audio business is not an industry phenomenon, but a global phenomenon.
At the same time, the internet is collapsing the boundaries that existed for decades. When I started working, communicating with a different country was done with a teletype, was expensive, and exceedingly difficult. Today, I can talk to people in most countries via Skype and have meetings with elaborate presentations. Google and Microsoft both have real time translation software that allows those tele-meetings to take place in native languages.
Ultimately, in order to have people purchase your product or service when they have increasingly more and compelling choices, we have to offer better choices. Our goal is to significantly improve our customers’ experience, not only beyond that of our direct competitors, but beyond all companies competing for the customer’s leisure currency.
We expect to do that by being better and faster at adopting technologies as they become available. This is what Gibson, Philips, Onkyo, and TEAC have done for decades. Gibson was founded by Orville Gibson, who was convinced he could make a mandolin and guitar that were far better than anything else being made in his day. He did, patented the design, and here we are today. Orville was followed by many great innovators such as Les Paul, who was decades ahead of his time.
At the same time we need to focus on applying technology so it improves people’s life experience in significant and meaningful ways today. That is not easy. We expect to be growing and investing in our marketing resources to make sure we have a true vision of how we can benefit people with our new technologies and products.
When you acquired Gibson in 1987, it was a troubled business that many thought had little chance for revival. Do you see any parallels between Gibson 27 years ago and WOOX today?
These parallels cut to the core of why we were attracted to WOOX/Philips. Yes not only was Gibson thought to be on the road to extinction, but many thought non-electronic instruments were also on their way out. Great brands build relationships with people. Great brands that have succeeded for decades come to mean something well beyond the current product offering or competitive position.
Gibson, Philips/WOOX, TEAC, and Onkyo stand for something and have built millions of human relationships. When you fulfill the expectations for the people you have relationships with, you can succeed. We fully intend to do this.
You used close relationships with high-profile artists, along with creative product placement to elevate the Gibson trademark. Do you see applying similar strategies to the consumer electronics business?
I think artists are opinion leaders. Relationships with high-profile people are really valuable in any industry. Musical artists are enormously important in any music lifestyle market. So the answer is yes, we expect to apply our knowhow and relationship in the new markets we are now a big factor in.
How do you manage operations in different countries and that address different markets? Will the business operate as independent subsidiaries or do you see opportunities to achieve efficiencies by centralizing functions like distribution, R&D, or manufacturing?
One of the great benefits we derive from WOOX/Philips is that they have been a global company for decades. They were often one of the first major enterprises to enter new markets and developing countries. They have outstanding management and a deep bench that is schooled in operating multinational multimarket operations. This will add greatly to our abilities.
Their current state of sophistication is many years beyond ours even at the pace of growth Gibson has been experiencing in terms of the distribution function, R&D and logistics, and manufacturing. WOOX/Philips operates with offices in 43 different countries and has over one third of their business in BRIC countries, which are the fastest-growing economies in the world. We will be taking advantage of this advanced ability, and molding our operations to their level of operating in these areas.
In my view, this is not a change in direction, as much as it is being able to teleport to a place in the future. We were headed in that direction, but now we are there in a flash with our new partnership.
Has your daily routine at the company changed with the addition of a much broader portfolio of operating units, and if so, how?
Every several months my job has changed since 1986 when we were only doing about $9 million in total revenue globally. With a compounded growth rate of over 20%, change is part of life, and adapting to change is critical to success. Yet, this has always been my goal and my dream.
This is perhaps a bigger step in some ways, but every year I need to redefine what I do and how I adapt to our growing enterprise. This evolution is closer to constant revolution.
The Gibson name is synonymous with excellence and quality among guitar players worldwide. Do you see an opportunity to burnish the image your consumer electronics products with the prestige of Gibson?
The short answer is yes. At the same time, I think that culturally, all or the brands and companies that are now a part of Gibson Brands, Inc. fundamentally embrace the same values that are reflected in what our guitar customers expect from us.
I expect Quality, Prestige, and Innovation to be a common thread in every brand in our family. I also expect the marketing approach we have evolved to be used in every brand. Finally, I do expect to use Gibson and other brands in the consumer electronics business.
Conversely, now that Gibson guitars represent just 15% of a larger consumer electronics business, how do you ensure that its image isn’t diluted?
I think culturally, all the Gibson brands resonate with the same values. At the same time, we need to promote each brand to maintain its uniqueness and ability to deliver a tailored exceptional experience specific to its consumer base. Thus product management must be focused and somewhat independent.
This is a balancing act, allowing the efficiency and effectiveness of scale and the entrepreneurial speed and focus of segmenting individual consumer groups. I have studied this at the university level. One great experience was when Jack Welch came to our class to lecture on this. I have also studied and tried various approaches over my career history. I think I have a vision of where that balance needs to be to effect both scale efficiency and effectiveness and giving every single one of our customers the very best they can experience anywhere
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