Case study, please give answers to all questions

SAMSUNG ELECTRONICS* Samsung Electronics unveiled its fourth-generation about how it can develop and improve its own products, Galaxy S smartphone on March 13, 2013, capping the allowing it to compete withand sometimes beat-the South Korean electronic giant's yearlong effort to biggest names in industry strengthen its software capabilities to better compete with All of this has led Samsung to gain the reputation of Apple. At a flashy event at Radio City Music Hall in New being a fast follower. However, the emphasis on innovating York City, the firm touted a number of new software fea- within markets that have already been created by others has tures for the new smartphone, including a function that lets not been without problems. Apple has claimed infringe- users control the screen with their eyes. "Market compe- ments of its patents and is battling Samsung in courts tition is intensifying further, and it is important that we around the world. In its defense, Samsung has pointed out are able to deliver a device that has good hardware and that it has offered certain features, such as larger displays software," said J. K. Skin, president of Samsung's mobile on the Galaxy Note, even before they were introduced by communication business. Apple. Minhyoul Lee, from Samsung's mobile communi- Although it makes everything from refrigerators to cations division, said that Galaxy products were byprod- televisions to vacuum cleaners, Samsung's smartphones ucts of years of research and experience. "Galaxy didn't and tablets have emerged as the most potent challenger to just fall from the sky," he recently commented. Apple, the front-running electronics firm. These two com- In fact, the strategy of swiftly pursuing the next big panies are the only ones that have been able to make any thing has been paying off handsomely for Samsung. A few profits in the highly competitive mobile phone industry. years ago, the market value of Samsung had risen above Park Kang-ho, an analyst at Daishin Securities commented. $100 billion, making it one of only four Asian companies Samsung's Galaxy lines are the only major competitors to to move above that mark (see Exhibits 1 and 2). Based Apple's iPhone and iPad at the moment, while the other in Suwon, South Korea, the firm's feature-jammed prod- companies are still struggling to come up with a competi- sets have racked up numerous design awards, allowing it tive device to take on Apple." to move past well-known rivals. "They are beginning to Unlike Apple, which contracts out the assembly of make the transition to where their products are setting the its products, Samsung has been able to develop capabili market pace." said Charles Golvin, a technology analyst at ties in manufacturing. It has even been a major producer Forrester Research of components for other firms, such as Apple, Sony, and Hewlett-Packard. Its flash memory processors, graphic Discarding a Failing Strategy chips, solid-state drives, and display parts have appeared The transformation of Samsung into a premier brand could in Apple's iPhones, iPad, iPod Touch devices, and Mac- be attributed to the ceaseless efforts of Yun Jong Yong. Books. Working with other firms has taught Samsung a lot who was appointed to the position of president and CEO in 1996. When Yun took charge, Samsung was still mak- ing most of its profits from lower-priced appliances that *Case developed by Professor Jamal Shamse, Michigan State Universally with the assistance of Professor Alan B. Eisner. Pace University. Material has been consumers were likely to pick up if they could not afford drawn from published sources to he used for plurposes of class discussion a higher-priced brand such as Sony or Mitsubishi. It had Copyright 2013 Jamal Shamsie and Alan B. Eisner also become an established low-cost supplier of various B E EXHIBIT 1 Income Statement 2 3 Net sales 4 Gross profit 5 Operating profit 6 Net income 2012 201,104 74452 29.049 23,845 C D Income Statement 2011 2010 165.002 154,630 52.857 51,960 15.644 17.300 13.759 16,150 2009 138.994 40,049 11.578 9,649 2008 121.294 31,532 6,031 5,525 Go to library tab in Connect to access Case Financials. Note: Figures in billions of KRW.Years Ending December 31 Estimate E EXHIBIT 2 Balance Sheet B Balance Sheet 2012 2011 2010 3 Total assets 181,071 155 800 134290 4 Total abilities 59,591 54,487 44 940 5 Total shareholders equity 121.430 101 313 29 350 Note: Figures in his of KRW.Yanding December 31 "Estimate Score: San 2009 118.281 25 227 73.054 2008 105,301 47.188 58.117 Go to library tab in Connect to access Case Financials components to such larger and better known manufactur- largely on the lower price of its offerings. Consequently, he ers around the world, began to push the firm to develop its own products rather Although the firm was making profits, Yun was con than to copy those that other firms had developed. In par- cerned about the future prospects of a firm that was rely- ticular, Yun placed considerable emphasis on developing ing on a strategy of competing on price with products that products that would impress consumers with their attrac- were based on technologies developed by other firms. The tive designs and their advanced technology. By focusing success of this strategy was tied to the ability of Samsung on such products. Yun boped that he could develop Sam- to continually scout for locations that would allow it to sung into a premium brand that would allow it to charge keep its manufacturing costs down. At the same time, it higher prices would need to keep generating sufficient orders to main- In order to achieve this. Yun had to reorient the firm and tain a high volume of production. In particular, he was help it to develop new capabilities. Hic recruited new man- concerned about the growing competition that the firm was agers and engineers, many of whom had developed consid- likely to face from the many low-cost producers that were erable experience in the United States. Once they had been springing up in other countries such as China. recruited, Yun got them into shape by putting them through Yun's concerns were well founded. Within a year of a four-weck boot camp that consisted of martial drills at his takeover, Samsung was facing serious financial prob- the crack of dawn and mountain hikes that would last all lems that threatened its very survival. The company was day. To create incentives for this new talent. Yun discarded left with huge debt as an economic crisis engulfed most of Samsung's rigid seniority-based system and replaced it Asia in 1997, leading to a drop in demand and a crash in with a merit-based system for advancement the prices of many electronic goods. In the face of such a As a result of these efforts. Samsung began launch- deteriorating environment, Samsung continued to push foring an array of products that were designed to make a maintaining its production and sales records even as much big impression on consumers. These included the largest of its output was ending up unsold in warehouses. flat-panel televisions, cell phones with a variety of fea- By July 1998, Samsung Electronics was losing millions tures such as cameras and PDAs, Over-thinner notebook of dollars each month. "If we continued, we would have computers, and speedier and richer semiconductors (see gone belly-up within three or four years," Yun recalled. Exhibit 3). The firm called them wow products and they He knew that he had to make some drastic moves in order were designed to elevate Samsung in the same way the to turn things around. Yun locked himself in a hotel room Trinitron television and the Walkman had helped to plant for whole day with nine other senior managers to try and Sony in the minds of consumers find a way out. They all wrote resignation letters and Finally, to help Samsung change its image among con pledged to resign if they failed. sumers, Yun hired a marketing whiz Eric Kim, who has After much deliberation, Yun and his management team worked hard to create a more upscale image of the fimm decided to take several steps to try and push Samsung out and its products. Kim moved Samsung's advertising away of its precarious financial position. To begin with, they from 55 different advertising agencies around the world decided to lay off about 30,000 employees, representing and placed it with one firm, Madison Avenues's Foote, well over a third of its entire workforce. They also closed Cone & Belding Worldwide, in order to create a consis- down many of Samsung's factories for two months so that tent global brand image for its products. He also began to they could get rid of its large inventory. Finally, they sold pull Samsung out of big discount chains like Walmart and off about $2 billion worth of businesses, like pagers and Kmart and placed more of its products into more upscale electric coffeemakers, that were perceived to be of mar- specialty stores such as Best Buy and Circuit City ginal significance for the firm's future. Yun also began a practice of working closely with retail ers to get more information about the specific needs of pro- Developing a Premium Brand spective consumers. Unlike Apple, Samsung has focused Having managed to stem the losses, Yun decided to move heavily on studying existing markets and innovating inside Samsung away from its strategy of competition based them. We get mod of our ideas from the market." said C182 CASE 27 : SAMSUNG ELECTRONICS 1 1 1 1 2 EXHIBIT 3 Global Market Ranking 2012 EXHIBIT 4 Designers Employed Product Category Market Rank 2012 1,000 Memory chips 1 2010 780 LCD TVS 1 2008 600 Flat panel TVS 2006 550 3D TV 1 2004 470 Mobile phones 2002 310 Smartphones 2000 210 Side-by-side refrigerators 1998 170 DVD players 2 Source. Samsung MP3 players Camcorders 3 other. They really press these departments to compete." Digital cameras said Sumitomo president Hiromasa Yonekura. As a result of these steps. Samsung claims that it has been able to reduce the time that it takes to go from new product con- Source: Samsung cept to rollout to as little as five months, compared to over a year that it used to take the firm in 2000, Kim Hyun-suk, an executive vice president at Samsung." In large part, this has resulted from the effort of the The firm has been able to develop strong relationships with firm's top managers, engineers, and designers, who work retailers because of this practice. Over the years, Samsung relentlessly in the five-story VIP center nestled amid the has also been able to attract many wireless carriers because firm's industrial complex in Suwon. They work day and of their willingness to work with them on figuring out night in the center, which includes dormitories and show- what to offer in their smartphones and tablets. er for brief rests to work out any problems that may hold back a product launch. The progress that is made by teams Speeding Up New Product Development that pursue new product designs in the VIP center makes Yun also look many steps to speed up Samsung's new- it possible for Samsung to reduce complexity in the early product development process. He was well aware that the stages of the design cycle. This allows the firm to get its firm would be able to maintain the higher margins only as products to move quickly to manufacturing with mini- long as his firm was able to keep introducing new prod- mal problems and at the lowest possible cost. Kyunghan ucts into the market well ahead of its established rivals. Jung, a senior manager of the center explained, "Seventy Samsung managers who have worked for big competitors to eighty percent of quality, cost and delivery time is deter- say they have to go through far fewer layers of bureau- mined in the initial stages of product development." cracy than they had to in the past to win approval for new The speedier development process has allowed Sam- products, budgets, and marketing plans, speeding up their sung to introduce the first voice-activated phones, hand- ability to seize opportunities. sets with MP3 players, and digital camera phones that send Apart from reducing the bureaucratic obstacles, Yun photos over a global system for mobile communications made heavy investments into key technologies, ranging networks. As an example of the firm's speed and agility, from semiconductors to LCD displays, that could allow it Charles Golvin of Forrester Research talked about Sam- to push out a wide variety of revolutionary digital prod-sung's ability to create four different industrial designs of ucts. Samsung has continuously invested more than any its Galaxy S smartphone for four varying wireless network of its rivals on its research and development, rising in types around the world and deliver them simultaneously 2012 to $10.5 billion compared to $3.4 billion for Apple. "They've had a long history of responding to market trends It has a large force of designers and engineers working with a lot of alacrity," he remarked. in 17 research centers located all around the world (see Exhibit 4). Perfecting a Design Process Yun also forced its own units to compete with outsid- Yun also hoped that Samsung would be able to compete ers in order to speed up the process for developing innova- with Apple on the basis of the irresistible design of its wide tive new products. In the liquid-crystal-display business, range of products, ranging from home appliances to hand- for example, Samsung bought half of its color filters from held computers to flat-screen televisions, that would all Sumitomo Chemical Company of Japan and sourced the be eventually linked to each other. In fact, the firm does other half internally, pitting the two teams against each seem to be well placed to develop attractive gadgets that CASE 27 : SAMSUNG ELECTRONICS C193 1993 1995 1996 EXHIBIT 5 Samsung Milestones 1969 Samsung Electronics established as maker of televisions with technology borrowed from Sanyo. 1977 Samsung introduces its first color television 1981 Samsung begins to focus on undercutting Japanese rivals with me-too products, with little emphasis on design. 1988 Samsung launches first mobile phone. Samsung begins to reinvent the firm through design 1994 Samsung hires design consultancy IDEO to help develop computer monitors. Samsung sets up in-house design school, the Innovative Design Lab of Samsung Yun Jong Yong takes over as CEO He declares "Year of Design Revolution, stressing that designers should lead in product planning 1998 Asian financial crisis dents Samsung's ambitions, forcing it to cut design staff by 28 percent 2000 Samsung once again focuses on design and CEO Yun Jong Yong calls for design-led management 2001 Yun initiates quarterly design meetings for top executives and opens design labs in Los Angeles and London 2002 Samsung's usability laboratory inaugurated in downtown Seout. 2004 Market value of Samsung rises above $100 billion 2008 Lee Yoon Woo takes over as CEO from Yun. 2009 Samsung announces its first loss since 2000. Firm announces major reorganization. 2010 Gee Sung Choi takes over as CEO. 2012 New co-leader team is announced Source straddle traditional technology categories. "We have to of designers to various locations to spend a few months combine computers, consumer electronics and commu- at fashion houses, furniture designers, and cosmetic spe- nications as Koreans mix their rice with vegetables and cialists to stay current with trends in other industries. meats," said Dae Je Chin, the head of Samsung's digital Designers of the latest Galaxy smartphone said they drew media division inspiration from trips to ruins in Cambodia, vistas in Although Samsung tries to pack its products with vari- Helinski, a Salvador Dali art exhibit in London, and even a ous attractive features, it draws on the knowledge of about halloon ride in Africa. 1,000 designers with backgrounds in disciplines as diverse Furthermore, Samsung created the post of chief design as psychology, sociology, economics, and engineering officer to make sure that designers can get their ideas to These designers in turn draw on information that is col- top managers. A successful rear-projection television was lected by 60,000 staff members working in 34 research developed by a designer who pitched it to one of the heads centers across the globe in cities such as San Francisco. of television production. Engineers are pushed to find London, Tokyo, Mumbai, and Shanghai (see Exhibit 5). ways to work with the designs that are presented to them. Inside these centers, designers observe the way that con- As a result of these efforts, Samsung has cumed numerous sumers actually use various products. The wide Galaxy citations at top design contests in the U.S., Europe, and Note phone, for example, resulted from the responses of Asia. After winning 46 awards at a recent U.S. consumer focus groups who wanted a device that was good for hand- electronics show, D. J. Oh. CEO of Samsung Electronics writing, drawing, and sharing notes. Asian consumers said America said, "Samsung strives to consistently lead the that they found it easier to write characters on a device consumer electronics industry in product design and engi- using a pen than typing on a keyboard. neering innovation 12 "The research process is unimaginable," said Chang Samsung has also been relying on the attractiveness Donghoon, an executive vice president of Samsung who of its products to make them the centerpiece of a digital leads the company's design cfforts. "We go through all home. In a showroom in the lobby of its headquarters in avenues to make sure we read the trends correctly. Scoul, the firm shows off many of its latest offerings, rang- Samsung has therefore been sending its growing grouping from tablet computers to digital cameras. Visitors can put on goggles to watch characters jump out on 3-D tele- Samsung has also failed to make any serious invest- visions or shuffle their feet on an interactive LED floor.ments in the cloud that is becoming a vital component Roger Entner, a wireless industry analyst at Neilson said of Apple's strategy. This allows various forms of content about Samsung's efforts, "With its resources and experi- to be stored on remote servers and pulled from people's ence, it's trying to capitalize on the emergence of smart devices over the Internet. The cloud could play a more cru- connected devices. The question is, 'Can they be a cutting- cial role as mobile products shift away from big screens edge trendsetter like Apple?-13 toward wearable devices, like glasses and wrist devices. Samsung is aware of the challenges it faces in an envi- Creating a Sustainable Model? ronment where the technologies are continuously evolv- Samsung recently launched a 10-year Vision 2020 corpo ing, even undergoing periodic revolutionary shifts. The rate goal for Samsung to join the ranks of the top 10 global firm has been making changes to its top management team, companies by achieving $400 billion in sales. Although bringing in executives who are younger and more aware of it already ranks as the largest technology company in the the changing landscape. Samsung is also hoping that all of world by revenue, Samsung is determined to continue to its efforts will eventually lead to the development of game- grab market share from competitors across a wide range of changing products comparable to Apple's iPod or Sony's product categories. In order to reach its targeted sales goal. Walkman. "It's critical for Samsung that the new leader- Samsung has been reorganizing to focus more strongly ship keep investing in new technologies and equipment." on cach of its businesses encompassing visual display, IT said Chang In Whan, chief executive at fund manager KTB solutions, digital appliances, mobile communications, tele Asset Management." communication systems, digital imaging, semiconductors, and LCD Samsung's most intense rivalry, however, appears to ENDNOTES be with Apple, as it keeps launching Galaxy smartphones 1. Lee M. J. & Kim Y.-H. 2013. Samsung hets software can lift now and tablets in different sizes and at different prices. It phone Wall Street Journal March 15: B4 recently introduced a much smaller version of its Galaxy 2. Song -a 2011. Samsung looks to close gap with Apple. Financial Times Online, January 29. smartphone that has a smaller screen that matched that of Apple's new iPhone5. Recent reports have also indicated 3.Yu.R. 2010. Samsung Ctanks up creativity. USA Today, November 16:48 that Samsung may also be working on a digital device that 4. Ibid. could be worn like a wristwatch and performs many of 5. Gibacy. F. 2002. Samsung moves upmarket. Tom. March 25:49. the tasks of a smartphone. This would be similar to the 6. Chen. B. X. 2013. Samsung's strategy to bake Apple juggernaut. iWatch that analysts suspect might be the next product to New York Times. February 11: BI. be launched by Apple 7. Lewis, P. 2005. A perpetual crisis machine. Fortune. September 19 At the same time, Samsung has consistently refused 8. Edwards, Chlwan, M., & Engardio, P. 2003. The Samsung way to consider branching out like Apple or Sony into music, Business Week, June 16: 61 movies, and games. It has decided against such a move 9. Yu. 2010. Samning cranks up creativity even though subscription-to-content can provide a firm 10. Rocks, D. & thiwan, M. 2004. Samsung design. Business Week with additional sources of revenue. Instead, Samsung has 11. Chen 2013 Samsung's strategy chosen to collaborate with various content and software providers such as Apple, Microsoft, and Time Warner. In 12. Wireless News. 2008, Samsung Electronics gets 46 CES Innovations Awards for 2009 November 24 fact, Apple has been one of Samsung's largest customers. 13. Yu 2010. Samsung crunks up creativity although its patent infringement charges are forcing the 14thlwan, M. 2009 Samsung Electronic Same CBO, new leadership producer of iPhones and iPads to search for other vendors. team. Husiness Week online, January 19. 65 December 6: 90 The students should read the Case #27 - Samsung Electronics (page #680) from Dess, G. G., et. al. (2014) and answer the following questions: 1. How did Jong Yong Yun use innovation to revitalize Samsung from 1996-1998? 2. What competitive strategies did Jong Yong Yun adopt to turn Samsung around? 3. What leadership and organization design decisions has Samsung made? 4. What challenges does Samsung face in the future? 5. Discuss the basis of Samsung's competitive advantage and the potential challenges to its strategy. 6. What growth strategies might Samsung pursue