Why do High-End Audio Organizations Require Strategy?
Strategy – it’s everywhere!
The term ‘strategy’ is perhaps most easily conceptualized in military and competitive sport settings. We can understand with clarity how each side needs to identify patterns in the offense or defense that need to be exploited in order to gain an advantage. We also know that strategy is often referenced in corporate settings, and possibly overused. Many large companies have strategic leaders are part of their Executive Team who evaluate and test strategic execution and adjustments. I would argue that business strategy remains poorly understood and/or subject to very loose interpretations. For instance, some will contend that creating near-term and long-term objectives are fulsome corporate strategies. While objectives are necessary to develop your strategy, they are merely components of a complete strategy. Others will argue that a formalized business plan is representative of strategy. While there is some degree of overlap, a business plan is a static document whereas strategy is fluid and dynamic as it evolves and adapts to various inputs and changing conditions.
How do we Define Strategy?
Let’s now address this fundamental question – what exactly is meant by strategy? There are a number of definitions of strategy within the business literature with varying degrees of complexity. Ultimately, there is a very straightforward and common theme throughout these definitions and frameworks. Strategy can be somewhat simply described as business decisions that create a competitive advantage. As a business leader, you must formulate a hypothesis of what actions or decisions will lead to the best outcomes for your organizations based on the available information. These decisions can be endless and involve considerations such as product or service offerings, pricing, markets, geographies, value, differentiation, and scale. The outcomes can be tied to hard corporate objectives such as financial goals including revenue, profit, and financial ratios, or period-over-period growth, market share, or units sold/services delivered. The outcomes can also involve soft goals that are tied to your mission or values and have more of a social purpose.
As an example within high-end audio, an organization may decide to create a new digital network media player, release a line of cables, obtain distribution in North America or China, release a flagship product or value product in a new pricing category, or design an integrated all-in-one active system. All of these scenarios can be viewed as calculated decisions that are inherent to your overall business strategy and designed to improve the health and sustainability of your company.
Why do we need a Formalized Strategy?
Some view the creation of strategy as a task that is reserved for large corporate conglomerates to ensure alignment and cohesive thinking among various subsidiaries, business units, and departments. However, a comprehensive strategy is a crucial exercise for a business of any size including sole proprietorships and boutique organizations targeting a very niche audience such as high-end audio consumers (as a not-so-random example). Strategy serves as your guide to navigate constantly evolving conditions, and to take the most correct course of action to mitigate risk and increase your chances of success. Does an effective strategy completely prevent reduced revenues or declining growth or increased spend or any other financial challenge or adverse business outcome? Certainly not. There is always the potential for difficult conditions that are beyond our control, but effective strategy equips us to weather the storm and reduce the impact of negative or unanticipated events.
What are Strategic Frameworks?
There are a number of best-selling business publications that describe strategic frameworks which can be applied to almost any industry or organization. Perhaps most well-known is the Five Forces Analysis developed by Micheal E. Porter of Harvard University in 1979. This pioneering framework assesses the competitive environment to establish the ‘attractiveness’ of a given industry. There have been subsequent guides and analyses devoted exclusively to Porter’s Competitive Strategy that continue to be taught in business schools globally.
More recently, a landmark publication was released in 2005 by INSEAD professors W. Chan Kim and Renee Mauborgne called Blue Ocean Strategy. Briefly, this book describes the concept of opening new market space by focusing on value innovation rather than competitive offerings.
There are also several other notable strategic frameworks since and after the publications of the Competitive Strategy and Blue Ocean Strategy that offer valuable insights. Ultimately, each strategic framework will provide a different level of benefit depending on your industry and aspirations. Which brings us to the next section.
How do we Formulate a Strategy?
Despite the abundance of information on business strategy, there is no tried-and-true method or ‘best fit’ approach to formulating a comprehensive business strategy. Strategic formulation is highly individualized and dependent on internal factors such as your goals, management style, and organizational structure, as well as external factors such the industry and current market conditions.
As described previously, strategic formulation is dynamic and involves continuous refinement and testing based on new and evolving information.
Strategic Consulting
External consultants can be utilized to facilitate the process of strategic formulation. Their experience and business knowledge can provide insights that would otherwise remain hidden and not considered for future planning.
Some business leaders may have a view of consulting that can be briefly described as follows: strategic experts are tasked with gathering information involving your organizational goals and current challenges, formulating a diagnosis based on this information, and generating a solution. The concern with this approach is that external consultants can never obtain the level of information possessed by the business, and the proposed solution will have collateral impacts due to their limited understanding of the numerous complexities faced by the organization.
My methodology for high-end audio clients involves a consulting model developed by the late Edgar H. Schein in his 2016 publication called Humble Consulting. In this model, consulting is a collaborative approach involving authenticity and curiosity. My desired outcome is to refine the current strategy by working through the most applicable elements of established strategic frameworks to provide the clarity and insights on what is required to achieve your corporate goals and address current and anticipated challenges (rather than providing a transformative solution that may not align with your current philosophy or operational capabilities).
This may be interpreted as a ‘feel free to schedule an initial assessment’ pitch but the intention here is to convey the process and benefits of strategic formulation for organizations in high-end audio. Given the overwhelming evidence of forthcoming challenges impacting our industry, now might be the most important time to develop a comprehensive strategy and establish next steps for the future direction and success of your company.
Cognitive Dissonance and the Experienced Audiophile
Psychology 020
As I embarked on my much longer than anticipated path in post-secondary education (I recently obtained my 6th and likely final degree in what can be described as a bizarre academic journey), I decided that my undergraduate major would be in psychology. Naturally, in the absence of any declared aspirations to become a licensed clinical psychologist or neuropsychologist, my parents were skeptical if a degree in psychology would lead to a desired career progression (they were correct). However, I found psychology course readings to be interesting and decided that this would be the best route to maintain some level of academic discipline at a time when I was self-aware of my limitations on that front.
What is Cognitive Dissonance?
One of the many interesting concepts imparted to me in social psychology was cognitive dissonance. This phenomenon occurs throughout the course of our day much more often than we would expect. Stated very simply, cognitive dissonance occurs when there is a discrepancy between our own thoughts. This results in a feeling of psychological discomfort or stress. As humans, we are highly motivated to eliminate these unpleasant feelings. This is accomplished by resolving the cognitive dissonance. This can occur through a number of adaptive mechanisms such as rationalization or what is known as selective perception (a science-y way to describe ignorance).
Let’s elaborate with a story
At this point, I believe it is probably the right time (maybe even too late) to articulate this concept through an example. I will share a story from my professor in 2nd year university as it was evidently a strong example provided that I can still remember it decades later.
It is universally agreed that stretching can reduce the chances of injury before exercising. A research study was released that conclusively stated that stretching will increase your chance of injury prior to exercise (the point of this article is not to debate the physiological merits of stretching – I am merely retelling a story). For those that engage in a regular and extensive pre-exercise stretching routine, this information would likely be a source of psychological stress. The unlikely response to alleviate the cognitive dissonance would be to put full belief into this new information and abandon our long-held stretching routine. A likelier response would be to rationalize our behaviour (for example ‘I’ve been stretching for years and have not encountered an injury’) or selective perception (‘I’m sure that there is research to support stretching and this was probably a flawed study design funded by companies with ulterior motives who profit from musculoskeletal injuries’).
And how is this relevant for the Audiophile?
Now, this is a blog intended for the high-end audio community and we have read close to 450 words with no mention of audio? How is this relevant? It has been argued that audiophiles ‘convince’ themselves of phantom or imagined sonic benefits with a component upgrade. Why? If there was no discernable improvement to the sound of the system (or if the sound actually got worse), this would create psychological stress based on the time and money that was contributed to the upgrade. To resolve this, we would therefore ‘hear’ an improvement in sound to reduce the cognitive dissonance. As we often have no means of measuring or objectively demonstrating the improvement we are hearing, the true skeptics of high-end audio will describe that this phenomenon is largely responsible for our perceptions of sonic enhancement.
An Anecdote to Challenge this Notion
My counter is a detailed account of one of my most memorable and significant audio purchases. When I graduated from professional school in 2007, I was going to gift myself with a new power amplifier. After hours of online research and several forum inquiries, I landed on two choices. My first choice was well-regarded in the audio press, was described as being musically engaging, and had an extremely appealing visual design (this remains an important part of my audio-related purchases). I proceeded to a local retailer to audition said amplifier in my system. I pre-authorized my credit card for the full value of the amp (equivalent to my savings at that time) and transported the 100-pound amplifier to my home. I will add that this was during a lag period in my employment where I completed my education but was still waiting to obtain my license. I therefore had an abundance of availability.
During the waking hours of the proceeding 72 hours, I listened to hundreds of tracks with this amplifier driving my speakers. Regardless of the type of music or volume, I could not musically connect with this amplifier. How does this contravene the concept of cognitive dissonance for us audiophiles? Well, I wanted nothing more at the time than to LOVE this amplifier. On paper, it had everything I desired in a stereo amp. Additionally, from a practical perspective, I did not want to endure the considerable chore of packing it up and returning it to the store. I was highly motivated for this to be my amplifier for the next 10 years. No matter how hard I tried (and tried and tried), my brain could not resolve the cognitive dissonance with any of the tactics described earlier.
The Role of System Familiarity
Does this example entirely refute the skeptics who believe that audiophiles are merely convincing themselves of better sound? Absolutely not. However, what some cynics fail to consider is our familiarity with our systems. Given our level of exposure, we can detect slight changes to the sounds of familiar recordings. I had low expectations that an audiophile network switch would result in better sound. I was quite frankly blown away by what I’ve heard. Some audiophiles have even experienced changes in sound in the absence of component upgrades. For example, it has been described that superior sound can emerge during late-night listening sessions when consumption is low on the power grid versus mid-day listening during a hot summer day during peak consumption hours. Stated differently, we are hearing changes in our system that are not aligned with expectations or a function of reducing our cognitive dissonance.
Our audio journeys are often characterized by a series of experiments to bring us closer to the recordings. We are constantly testing hypotheses with focused listening sessions. Sometimes the changes are apparent immediately, other changes become noticeable over time. While we can’t always express our evolution in superior sound with numbers or words, we can always feel it in our hearts and minds, even when those changes are unanticipated.
The Ongoing Debate on the Benefits (and pricing) of High-End Audio Cables
Another commentary on High-End Audio Cables?
One of the constants in the ever-evolving world of high-end audio is the debate over the contribution of cables to the sonic picture. Further contributing to this debate is their associated pricing. By cables, I am referring to speaker cables, interconnects, phono cables, power cords and the various types of cables that transmit digital signals such as ethernet or Toslink (I will be mostly referring to speaker cables in the spirit of simplicity). For the non-audio enthusiast, conventional wisdom would suggest that wires create a negligible to marginal contribution to sound quality. Similarly, the non-audio enthusiast may have similar notions across the entire audio chain with the exception of loudspeakers. Within the audiophile community, there are also waxing and waning levels of skepticism regarding the impact of cables, with many objecting to the exorbitant prices. Anecdotally, most ultra high-end systems utilize expensive offerings from various cable manufacturers. It has been suggested that 15-20% of your system budget should be devoted to cables.
These prices - are they for real?
Returning to the non-audio segment of the population (or stated differently, almost everyone extant), the prices of higher-end audio components is quite jolting. I had a visitor to my room several years ago that was the CTO of a medium-sized health technology company. When viewing my 275 lbs Focal Nova Utopia Be loudspeakers, he estimated that they probably cost $8,000. When discontinued in 2007, these speakers retailed for $38,000 (I will immediately add that I purchased the speakers used in 2011 for a small fraction of the retail price, and partially funded the purchase with the sale of my Dynaudio Contour 30’s). With respect to high-end cables, the prices are naturally even more alarming. If you asked a non-audiophile to imagine a pair of speaker cables costing $30,000, they would likely believe that this is a one-of-a-kind product, accented with baguette diamonds and crocodile leather, and created upon request for an eccentric billionaire. Scanning the 2024 product directory in The Absolute Sound magazine, it is revealed that there are 25(!) choices of speaker cables ranging from $30,000 to $106,700 (Siltech Royal Triple Crown for those that are interested). We can advise our hypothetical non-audio friend that this price range is not unusual, and that the prospective non-eccentric non-billionaire audiophile has several choices at their disposal.
Again, do cables make a difference?
Having discussed and debated cost, we have now landed on the question – do cables make a difference in sound? In contrast to other components, we have no standardized or recognized objective measure for cable performance. With speakers, we can measure their sensitivity, impedance, and the inertness of the enclosure. There are similar types of measurable outputs for amplifiers and front-end components. With cables, their sonic influence in a given system is entirely subjective. Some of us can recall the now legendary article where it was reported that experienced audiophiles preferred the sound of lamp wire over audio cables in a blinded test. There were a number of flaws in that report and describing them exceed the scope of this article. Furthermore, if I can speak in general terms, many or most electrical engineers will dismiss the notion that cables can improve or make any material difference in sound quality. However, for those that have compared the sound of cables in a controlled environment, my belief is that most will tell you that there is indeed a difference, and that difference is not small.
I have personally upgraded my speaker cables seven times over a period of 25 years. I approach cable changes with conservative expectations, and those expectations are exceeded every time. On occasion the difference has been so profound that it caused me to laugh out loud (literally, not the LOL variety that has been overutilized in text communication). Now, some readers will state that a listener can be convinced of the sonic benefits when there are none to justify their purchase and prevent the human phenomenon known as cognitive dissonance. More on that in a subsequent article!
Back to these prices!
If we accept that cables do make a difference in sound, we must now return to their pricing (I clearly neglected to follow the standardized essay format that was imparted to me in Grade 7). Many suspect that high-end cables have the highest margins in the industry based on the cost of materials. It has also been suggested that high prices are designed to be aligned with the cost of other components to convey the quality of the product to consumers. There are indeed some audiophiles that will not even consider lower or mid-priced cables for their ultra high-end systems. Another factor that we fail to consider in pricing (for cables and all products in general) is the actual design. How many prototypes were developed before landing on the final product? How many combinations of metals and insulators and terminations were considered? How many hours were involved in testing? As an extreme example, we don’t judge the cost of a painting by the combined cost of canvas and oils (perhaps too extreme but hoping this bolsters my point).
While we can debate the merits of elevated cable pricing to the end of time, it is the consumers who ultimately establish their value. If the well-heeled audiophile feels that the six-figure investment of cables enhances the sound of his or her system to new levels, there is value to that purchase, regardless of the cost of goods sold. Some audiophiles have found that lower priced cables exceed the performance of expensive cables while other will contend that there is a linear relationship between cost and sound quality. These varied opinions are inherent to a line of products with no measurable impact on sound quality.
For those that have experimented with cables in their systems, we can agree that they are a critical component of the audio chain, and invariably require some degree of our attention, and some proportion of our budget.
High-End Audio and the Absence from the Expanded Luxury Market
Luxury Brands Everywhere
One needs to look no further than the escalating prices of used Porsche 911s, the line-ups at Louis Vuitton Boutiques, and the scarcity of Rolex watches to understand that luxury items have become more popular than ever. When I was attending grade school in the 1980s, there probably wasn’t a single pupil in the entire facility that could name a fashion house. Today, children at this age not only have awareness, but some may also covet a pair of Gucci slides after compiling their saving from allowances. This rise in the power and popularity of luxury items can be largely attributed to increasing global wealth and the power of social media. For those that are inclined to demonstrate their acquisitions and obtain the wows and jealousy from others thereafter, this is no longer limited to close friends, neighbours, and family in your immediate proximity. You can now share an image of your bottle of John Walker King George V to work colleagues, acquaintances, and friends from your remote past over the magic of the internet.
Where is Audio?
Despite the rise in almost all segments of the luxury market, the available evidence suggests a decline in the business of high-end audio. For the many with limited awareness, the high-end audio industry targets a segment of the population that have been granted the unfortunate term of ‘audiophiles’. These individuals consume products from small manufacturers with exceedingly low volumes. The products involve heroic levels of engineering and build-quality (with commensurate prices) for large and complex systems designed to be situated in dedicated listening spaces. The overall objective is the re-creation of musical events in their homes with the greatest levels of realism and accuracy. As noted, these manufacturers and products remain largely unknown in popular culture. If one were to state that the made a successful exit from a tech company and planned to celebrate with the purchase of a $375k McLaren of $150k Vacheron Constantin, there would be little surprise. If that same individual described spending their windfall on a $90k low power SET amplifier, we would fear for the mental well being.
This begs the question - why has high-end audio been left behind from the expanded luxury market? I would suggest that the reasons (much like everything else) are multifactorial:
There is no status associated with high-end audio products.
While it would be convenient and perhaps righteous to believe that individuals are spending their wealth on luxury items to enjoy the visual and tactile rewards that they derive at a personal level, it can be speculated that some (much) of this spending is motivated by status. Regardless of discretionary spending levels, only the select few can be placed on the waiting list for a Hermes Birkin bag. Limited runs of hypercars exceeding $2M are already spoken for prior to production. While high-end audio customers are subject to limited quantities and extended waiting times (occasionally exceeding a year for complex products), orders are generally accommodated if the funds are produced. Furthermore, owning the finest turntable/tonearm/cartridge combination is light years away from gaining entry into the Yacht Club de Monaco on the status meter.
Requisite knowledge is required to build a high-end audio system.
A high-end audio system is a complex interaction of electronic components, cables, loudspeakers, AC power, and most importantly, the room(!). Spending large sums of money on higher-priced components will not generate the desired result (excellent sound) if the system is not synergistic or set up properly. In fact, high-end audio products are so revealing that a poorly set up system will sound worse than the shrink-wrapped free earbuds that they distribute in economy class. What do I mean by synergy? At a basic level, some amplifiers are not powerful enough to drive certain speakers. At a complex level, some components inexplicably do not ‘match’ well with other components. Delving more deeply into the room component, speakers need to be calibrated with the room to obtain optimal sound. This often requires placing the speaker two to four feet away from the back wall and some cases up to seven feet to avoid room interactions. For highly revealing speakers, every inch makes a discernable difference. Even experienced audiophiles often neglect the importance of the room when building their system. This level of knowledge and commitment may deter luxury consumers from pursuing a high-end audio system.
Luxury homes are often not designed to accommodate audio systems.
If you are reading this article, there is no doubt that you’ve probably seen countless virtual tours of luxury homes either on social media or from reality realty shows (reality realty doesn’t read well but I’m going to leave it in here). Every room and space is accounted for with imported furniture and meticulous finishings. Common themes include a chef’s kitchen, his and her walk-in closets, a large marble tub placed directly in front of a window for some bizarre reason, and, you guessed it, a home theater. To accentuate your movie-watching experience, these rooms will feature stadium seating with reclining chairs, the inevitable cup holders, perhaps a popcorn maker, and all electronics and speakers are hidden from view and integrated into the wall. While this environment is great for experiencing the full visceral impact of a gun fight or gas explosion, they cannot deliver music in nearly the same way as a well executed audio system.
Okay, we understand, luxury consumers do not care about high-end audio. Why is this important?
Despite the slow death of CD sales and physical media in general, music is still important to us. We may not consume music through top-to-bottom albums as we did in previous decades, but we are still attending concerts, creating playlists, and streaming music during our workouts or commutes or to simply relax. Many of us remain passionate about listening to music and remain current with new releases, have a large online library of classic albums, or both. For those who consider themselves a music enthusiast, listening to a high-end audio system can be a transcendent experience (this is why I named my audio consulting business ‘transcendence’). A good system can create the illusion of instruments and performers present in the room with you. Background details that were previously hidden in a compressed system are now exposed and adding rhythm and meaning of the music. Propulsive bass and explosive dynamics are creating elements of excitement and drive that were not experienced during previous listens. Stated differently, music communicates to us at a much deeper level when heard with clarity and focus. In contrast to a Brioni suit, a music system can deliver a repeatedly rewarding experience day after day after day.
While the financial investment in high-end audio can easily reach luxury car levels and require 500 square feet of devoted space, a simple integrated system from a hi-fi retailer would not interfere with most living spaces or cost much more than a complete Sonos/Television system yet still deliver the musical goods. Fair warning however, good sound is addictive and upgraditis is prevalent in the high-end audio community. And the avenues to improving a given system are endless.
The underlying intent here is to spread to gospel of high-end audio. Many of the core elements of luxury are present: highest levels of craftsmanship, high-quality materials, scarcity, high performance, and pride of ownership. One of my greatest joys is demonstrating my system to guests and observing their surprise to the appearance of my amplifiers and speakers and then ultimately seeing their reaction to hearing their favourite tracks.
If you have an appreciation for the finer things, and you love music, enter ‘local hi-fi retailer’ in your internet browser and you may be on the path to a surprisingly rewarding luxury item.