Often the best way to appreciate an
industry is to compare it to others.
Finding best practices in like industries
helps develop strategy.
|Ira Friedman is the CEO of Bay Audio, a
manufacturer of custom speaker solutions.
He holds an MBA from the Harvard Business
Alas, as we all know, the AV
business is unlike anything else, which
is why there are so many inherent
strategic problems. The AV business
attempts to accomplish two things:
“design” and “build.” Compare this to
architecture, interior design, or any of
the building trades, and you quickly see
the problem. Architects and designers
design. They don’t build. And most
trades–electrical, plumbing, flooring–
build. They don’t design.
I’m hard pressed to find any other
established industry that successfully
accomplishes both. Which leads me to
believe it can’t be done successfully over time.
Look at the strategic arc of most mature service industries and you’ll find
that the early years were a hybrid of design and build. As these industries
matured, however, companies began specializing in either discipline.
For instance, in the early years in America, plumbers were tinsmiths and
metal workers who could design a residential plumbing system, fashion an
appropriate pipe or fixture, and install the metalwork in the home. These
multi-discipline businesses were sought after and paid well for their skills.
Over time, plumbing entrepreneurs saw specialization as a competitive
advantage. Some business owners focused on the design of residential
plumbing systems, eschewing the drudgery of metalwork and installation.
Other companies beefed up the manufacture of standardized plumbing
parts. And other companies specialized in installation. The generalist who
did it all was put out of business by the overwhelming cost savings offered
by his specialist competitors.
The plumbing design specialist became sought after for his intricate
understanding of the system, and his ability to design an elegant solution.
To facilitate his work, manufacturers began establishing standard parts
that a plumbing designer could specify. The plumbing installer purchased
these specified parts, resold them at a modest mark-up, and profited by
selling his labor on a piece-work or hourly basis.
And today, how is the business distributed? There are countless
numbers of designers–highly educated, well-paid professionals working in architectural and engineering firms. There are a consolidated
number of successful (and wealthy) plumbing supply manufacturers and
distributors. And most importantly, there is a multitude of plumbing
installers–hourly-wage individuals selling products at 17 points, happily
earning a modest income.
In an increasing number of jobs, Hollywood, Florida’s Firefly Design Group has served as a design
consultant to a homeowner client, helping introduce potential ESCs, who are then chosen by the
client via sealed bids.
Will the AV Industry Follow?
That is the arc the AV industry will follow as young competitors
come into the market looking for an advantage. Soon we will see the
acceptance (and advanced stature) of design-only operations. These
companies will prepare complete design and engineering documents
for a comprehensive system. Engineers and designers will staff these
companies. Schooled in architecture, design, contracting, audio, video,
control, lighting, and IT, these specialists will make a compelling case for
their work. And because they wash their hands of the installation, they
can act as consultants, selecting the best products and the best installation
team, with no apparent conflict of interest. Today a handful of these
design-only businesses exist, and while they might seem like outliers,
they are but the beginning of a larger shift away from generalists.
Concurrently, we will see a consolidation of manufacturers as the
power of product choice is elevated to the design team. With fewer more
highly educated specifiers, fringe and me-too manufacturers will find it
hard to compete. And, to round it out, we will soon see a horde of hourly
wage installation-only companies.
Look at the “earned price per hour” for an architect, a general
contractor, and any tradesman
on the jobsite, and you’ll see
how dollars (and profit) flow up
toward design and away from
product margin. This points to an
instinctual economic truth: buyers
enjoy rewarding the thinker, but
not the reseller, and because the
AV business is a hybrid of thinking
(design) and reselling (build), the
buyer is confused, agitated, and
annoyed as they pay dearly for
design and product.