Harman International Industries Inc.

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Harman International Industries Inc.

1101 Pennsylvania Avenue N.W.
Suite 1010
Washington, D.C. 20004
U.S.A.
(202) 393-1101
Fax: (202) 393-2402

Public Company
Incorporated: 1980
Employees: 7,929
Sales: $1.17 billion (1995)
Stock Exchanges: New York
SICs: 3651 Household Audio&Video Equipment; 5064 Electrical Appliances, TV&Radio Sets; 5065 Electronic Parts and Equipment, Not Elsewhere Classified

Harman International Industries, Inc. manufactures and markets a wide range of high-end, high-fidelity audio and video system components for consumer and professional markets. Well-known brands sold by the company include JBL, Infinity, and Harman Kardon. Harman was expanding rapidly in the early and mid-1990s, mostly through the acquisition of subsidiaries in Europe, Japan, and the United States.

Harman International was incorporated in 1980 by Dr. Sidney Harman, a politician, philosopher, entrepreneur, and one of the founding fathers of the stereo industry. He formed the enterprise to purchase the JBL loudspeaker unit operated by the mammoth Beatrice Companies, Inc. conglomerate. The roots of the company that Harman created in 1980, though, reach back to a venture that Harman himself launched in the 1950s. Indeed, Harman purchased the JBL division as part of a plan to regain control of the company that he had started and, over the course of nearly three decades, built into a respected developer and manufacturer of cutting-edge, high-fidelity stereo gear.

The predecessor to Harman International was founded in 1953 by Sidney Harman and Bernard Kardon. Both Harman and Kardon were engineers by training—the “Dr.” in Harman’s title, interestingly, refers to a PhD in social psychology that he earned at the Union Institute of New York. The two friends were working together during the early 1950s as engineers at the Bogen Company, which was then the top manufacturer of public address systems. High-fidelity technology that was emerging at the time had caught Harman’s interest, and he tried to persuade his superiors at Bogen to become more involved in the burgeoning field.

Bogen showed little interest in Harman’s desire to pioneer high-fidelity equipment for the home. So, in 1953, Harman and Kardon left the company to form their own enterprise: Harman-Kardon Inc. Drawing from their $10,000 in funds, the pair developed an advanced stereo system that could be used to play records at home. When their friends heard the system, they were amazed. “We knocked the hell out of them; they were trembling with Shostakovich’s Fifth,” Harman recalled in the September 1989 Regardies—The Business of Washington. “Nobody had heard anything like that in his living room,” Harman added.

Harman and Kardon weren’t alone in their quest for the ultimate home sound system. Several European companies—H. H. Scott and Fisher, for example—were both selling amplified home sound systems at the time. But the systems developed by Harman-Kardon differed from the competition in that they were designed with aesthetic appeal, as well as cutting-edge sound. Importantly, Harman-Kardon was the first company to put an amplifier, preamp, and radio tuner in a single unit that actually looked like a piece of furniture, rather than a commercial amplifier. That innovation is credited with bringing high-fidelity to the masses. And it gave the entrepreneurs an edge in the marketplace that would allow them to pursue their goal of developing continually better home stereo equipment.

Kardon retired in 1956 and Harman bought his share of the blossoming enterprise. Harman sold part of his company in 1962. For several years thereafter, Harman-Kardon, under Sidney Harman’s control, operated as the flagship division of an enterprise that owned other high-fidelity products interests. During the next several years, Harman built the stereo company into a leading contender in the high-fidelity industry. At the same time, the innovative and intriguing Harman was involved in a number of other pursuits.

Among the most notable sidelines was his interest in higher education. Beginning in the early 1970s Harman became president of Friends World College, an experimental Quaker school in Long Island that was a sort of school-without-walls. Harman had also been heavily involved in the civil rights movement, and even cofounded and taught at a highly respected “free school” in Virginia (officials in the county had shuttered the local public schools and opened all-white academies to circumvent Supreme Court integration rulings).

Among Harman’s top business ventures during the 1970s was a manufacturing plant in Tennessee that produced automobile side-view mirrors. Harman’s management of that plant demonstrated how effectively he was able to mix his interests in education and business. In an effort that became known as the “Bolivar Experiment,” Harman applied the principles that he taught at the Friends World College to the manufacturing plant. His attempt to enhance worker satisfaction and productivity by creating an employee-oriented work environment earned him recognition as a pioneer in the field of participatory management. Furthermore, his management strategies were considered a driving force in the success of Harman-Kardon during the 1960s and 1970s.

By the mid-1970s Harman-Kardon was a powerhouse in the U.S. stereo industry. Importantly, the company profited by pioneering the concept of separate components; instead of selling stereo systems as integrated units, Harman-Kardon began selling separate receivers, speakers, amplifiers, and other pieces that buyers could purchase separately and wire together to tailor their own home sound system. By 1976 the company was generating a whopping $136.5 million in annual sales and churning out a healthy $9.1 million in annual profits.

Meanwhile, Harman continued to pursue additional interests, including politics. Indeed, in 1976 newly elected president Jimmy Carter appointed Sidney Harman to the post of Undersecretary of Commerce. Harman accepted the job and in 1977 sold his 25 percent stake in Harman-Kardon to Chicago-based corporate behemoth Beatrice Foods. Harman pocketed $100 million from the sale and went on to achieve notable successes in the Carter administration. Beatrice, in contrast, mismanaged its Harman-Kardon subsidiary (one of 200 under the Beatrice umbrella) and promptly ran it into the ground.

Beatrice effectively butchered the company, selling off some chunks of the business and mismanaging what remained. By 1980 only about 60 percent of the organization of which Harman-Kardon had been a part before Sidney Harman exited remained. The original Harman-Kardon division, in fact, had been sold to a Japanese company named Shin Shirasuna, which was later absorbed by the giant Hitachi group of companies. Basically, all that was left of Harman’s original company was JBL (a loudspeaker business) and some international distribution companies. Although Beatrice had damaged it, JBL remained a respected manufacturer of high-end professional speaker systems; JBL, founded in 1946, had helped to pioneer the loudspeaker industry.

Sidney Harman, from his station in Washington, D.C., watched from the corporate sidelines as Beatrice drove his company toward ruin. When Carter was ousted from office in 1980, Harman became determined to regain control of the enterprise and restore its former glory. In 1980 Sidney Harman and a group of investors paid $55 million for what amounted to about 60 percent of the assets of the company that Harman had sold in 1977. Harman established a bare-bones headquarters in Washington, D.C., and began streamlining and organizing the newly created Harman International Industries to compete in the 1980s.

Many electronics industry insiders doubted the wisdom of Harman’s decision to jump back into the now-hyper-competitive stereo equipment industry. Aside from his age—Harman was 61 at the time, and some critics wondered if he lacked the vision to compete in the rapidly evolving, increasingly global electronics industry—the U.S. electronic components industry was experiencing global upheaval. The primary culprit in the downfall of many U.S. electronics and related equipment manufacturers was intense overseas competition, particularly in Japan. U.S. companies had ceded the bulk of their domestic market share to the Japanese, and pressure on companies like Harman International was intensifying.

Despite gloomy predictions, Harman proceeded during the 1980s and early 1990s to build Harman International Industries into a powerhouse in the niche for high-end consumer and professional audio equipment. He achieved that growth largely by acquiring smaller companies, reorganizing their management and operations, and allowing them to run relatively autonomously using his style of management. The strategy eventually proved to be hugely successful, and Harman International became known as one of the few large U.S. audio-equipment producers to prosper during the 1980s and 1990s.

Harman credited the prosperity of his companies to the success of a strategy that emphasized three tactics: 1) all of the company’s products were built in factories that it owned, rather than purchased from companies that contracted to manufacture the goods for Harman; 2) Harman International vigorously marketed all of its products globally; and 3) the company honored its employees and treated them with respect. The success of that three-pronged strategy was evidenced by one of Harman’s first acquisitions, a car stereo company that he purchased in 1982 and dubbed Harman Motive. When Harman bought the small company it was generating sales of about $8 million per year. Before the end of the decade, however, the division was churning out a big $100 million in annual revenues.

Just as important as management strategy was a string of acquisitions throughout the 1980s that pushed Harman International’s sales from about $80 million in 1981 to more than $200 million by 1986, and then to more than $500 million by 1989. Notable among Harman’s early acquisitions was UREI, a manufacturer of professional amplifiers. Of greater significance was the purchase in 1985 of the original Harman-Kardon operation from Shin Shirasuna. That buyout represented one of the few acquisitions of a Japanese electronics company by a U.S. firm during the 1980s. Harman International went public in 1986 with a stock offering on the New York Stock Exchange. Cash from that sale was used to, among many other purchases, buy Soundcraft, a U.K. producer of professional mixing boards, in 1988, and Salt Lake City digital electronics producer DOD Electronics Corp. in 1990.

By 1990 the Harman organization had grown into a loose conglomeration of several autonomous companies, each of which catered to a specific niche in the high-end audio equipment industry—most of Harman’s goods, though, were marketed under the venerable JBL, Infinity, or other top brand names. Harman’s sales topped $550 million in 1990 and net income was shy of $15 million. Although Harman International achieved growth and much success during the 1980s, it became clear to Sidney Harman that major changes had to be initiated if the company was going to compete successfully in the 1990s. That concern was reflected in a disappointing $19.8 million loss experienced by Harman International in 1991, during the recession.

Harman moved away from his family in Washington— interestingly, Harman’s wife (a Democrat from California) was elected to Congress in 1992—and moved to California to get closer to his operations. He sent the president of the company packing and, at the age of 70, took control of Harman’s day-today operations. He merged the 21 scattered divisions into five units and eliminated duplicate departments and operations. He used the cash saved by that effort to intensify marketing efforts. Harman also adopted a new strategy of marketing the company’s products through mass retail channels like Circuit City, because he believed that the consumer market was shifting away from ultra-high-end, “audiophile” products to more mainstream, value-oriented audio devices.

Harman didn’t give his age a second thought. “[I’m] flat out uninterested in being retired,” he said in the March 1, 1993 Los Angeles Times, adding, “I don’t give a damn how old I am. I can run the pants off everybody working in this place.” He was also unfazed by critics who believed the company would be unable to compete in the mainstream audio markets, which were dominated by low-cost giants in Asia.

Harman International bucked criticism with its performance during the early and mid-1990s. The company focused on growing existing operations, but also continued its aggressive acquisition drive. Sales jumped from $604 million in 1992 to $862 million in 1994, while net income rose from $3.5 million to $25.6 million. Harman also continued to streamline and consolidate, reducing its entire operation to just three divisions: professional, automotive, and consumer.

Harman sustained the pursuit of its assertive growth agenda in late 1994 and early 1995. It purchased Becker (a leading German maker of automotive radios and electronics), for example, and took over the respected Mark Levinson and Proceed lines of U.S. electronics. The company also established Harman China (a new unit charged with marketing and distributing Harman products to that massive market), and opened an “Advanced Technology Center” that was designed to focus on developing critical digital audio technologies. Those and other efforts contributed to a rise in sales to $1.17 billion in 1995 (fiscal year ending in June), about $41.16 million of which was netted as income.

Principal Subsidiaries

AKG (Germany); Allen&Heath Limited (United Kingdom); Audax Industries, S.A. (France); BSS Audio (United Kingdom); DOD Electronics Corporation; Harman Belgium NV; Harman Consumer Europe A/S (Denmark); Harman Deutsch-land GmbH (Germany); Harman France, S.N.C.; Harman International Industries, Limited (United Kingdom); Harman International Japan Co., Limited; Harman-Kardon, Incorporated; Harman-Motive, Inc.; Harman Motive Limited (United Kingdom); Infinity Systems, Inc.; JBL Incorporated; Lexicon Incorporated; Lydig of Scandinavia A/S (Denmark); Soundcraft Electronics, Limited; Studer Professional Audio AG (Switzerland); Turbosound Ltd. (U.K.).