Case study

What is the 2 Strategies based on the Swot analysis with justification and recommendation.

CASE 25 SAMSUNG ELECTRONICS 2017' On February 17, 2017, Lee Jae-yong, the vice chairman of constantly feel pressured to prove themselves with short- Samsung, was arrested on bribery charges. This drew con- term achievements," said Kim Jin-back, who worked at the siderable attention since the conglomerate is one of the firm until 2010. ' Lee Jae-yong had been trying to change most formidable in South Korea with Samsung Electronics this highly goal-driven culture. But he could not help rush- alone accounting for 20 percent of the country's exports. ing to launch the Samsung Note 7. Lee has been the de facto leader of Samsung since his Driven by the need to prove that it was more than a fast father, Lee Kun-hee, became incapacitated after suffering a follower of Apple, Samsung pushed the Note 7 to market heart attack in 2014. The son was charged with paying $36 ahead of Apple's anticipated iPhone 7 (see Exhibit ]). One million to a secret confidante of the South Korean presi- of the firm's most ambitious efforts, the latest Samsung dent in return for government support for a series of inter- smartphone was packed with new features, like a super-high- nal moves that would allow Lee Jae-yong to inherit control resolution camera, waterproof technology, and iris-scanning of the firm from his father. for added security. It apparently also came with some prob- The charges came at a tough time for the firm, which lems. Experts claimed that the battery was packed too tightly, has been struggling to break from its past and forge changes in order to keep the phone relatively thin. This was borne out to its top-down rigid management approach that pushes its when the Note 7 revealed a tendency to burst into flames. employees to meet demanding goals fast-some say too fast Subsequently Samsung engaged in one of its most extensive (see Exhibits 1 and 2). "In the Samsung culture, managers and costly recalls and eventually had to kill the new product. The highly publicized debacle of the Note 7 suggested to Cais prepared by Jamal Shampic, Michigan State University, with the some observers that Samsung has problems that may stem anjuance of Promewww Alan B. Eisner, Pace University, Material has been from its basic culture. Critics claim that the firm maintains freen from published sources to be used for purposes of class discussion. an atmosphere of constant crisis, which drives employees Copyright C 2017 Jamal Shamsic and Alan H. Elver, to work incredibly hard to the point of overly speeding EXHIBIT 1 Income Statement (billions of KRW) Years Ending December 31 2016 2015 2014 2013 Net Sales 201,866 200,653 206,206 228,693 Gross Profit 79,983 74,920 77.927 90.996 Pretax Income 30.694 24,859 27,532 37,860 Net Income 22,415 18,694 23,082 39.821 Sparc Somwing EXHIBIT 2 Balance Sheet (billions of KRW) Years Ending December 31 2016 2015 2014 2013 Total Assets 262,174 242,179 230,422 214,075 Total Liabilities 69,211 63.119 62.334 64.059 Total Shareholders Equity 186,424 172,876 162,181 144,442 Source Samsung C184 CASE 25 = SAMSUNG ELECTRONICS 2017EXHIBIT 3 Smartphone Sales Worldwide that consumers were likely to pick up if they could not afford a higher-priced brand such as Sony or Mitsubishi. Samsung 2016 Market Shares was an established low-cost supplier of various components Samsung 18.1% to larger and better-known manufacturers around the world. Samsung chairman Lec Kun-hee had called for a shift in Apple 18.3% the firm's strategy; the transformation could not have been Huawei 10.6% possible without the ceaseless efforts of Yun Jong Yong Although the firm was making profits, Lee Kun-hee and OPPO 7.3% Yun Jong Yong were concerned about the future prospects Vivo 5.8% of a firm that was relying on a strategy of competing on low price with products based on technologies that had been Others 40.0% developed by other firms. The success of this strategy was tied to the ability of Samsung to continually scout for loca- Source Statistics, 2017, tions that would allow it to keep its manufacturing costs down. At the same time, it would need to keep generating sufficient orders to maintain a high volume of production. The firm was likely to face growing competition from the EXHIBIT 4 Global Market Ranking, 2016 many low-cost producers that were springing up in coun- tries such as China, Product Category Market Rank These concerns were well founded. Within a year of Mobile Phones Yun's takeover, Samsung was facing serious financial prob- lems that threatened its very survival. The company was Memory Chips left with huge debt as an economic crisis engulfed most of Digital Televisions Asia In 1997, leading to a drop in demand and a crash in the prices of many electronic goods. In the face of such a DVD Players deteriorating environment, Samsung continued to push for NN Washers & Dryers maintaining its production and sales quotas even as much of its output was ending up unsold in warehouses. Camcorders By July 1998, Samsung Electronics was losing millions Digital Cameras of dollars each month. "If we continued, we would have gone belly-up within three or four years," Yun recalled. He knew that he had to make some drastic moves in order to Source: Samsung turn things around. Yun locked himself in a hotel room for a whole day with nine other senior managers to try to find to market. Further, analysts suggest that a related problem a way out, They all wrote resignation letters and pledged to lies with the heavy reliance of Samsung on competing with resign if they failed. its hardware. while other providers, ranging from Apple to After much deliberation, Yun and his management team Xiaomi, offer software and Internet services that set their decided to take several steps to push Samsung out of its products apart because they run only on their devices. precarious financial position. To begin with, they decided Samsung has introduced its own operating system, Tizen, to lay off about 30,000 employees, representing well over a which is unlikely to challenge existing systems though, such third of its entire workforce. They also closed down many as Google's Android of Samsung's factories for two months so that they could Executives at Samsung claim the firm's strength lies in get rid of its large inventory. Finally, they sold off about the diverse line of its products that includes televisions, cam- $2 billion worth of businesses such as pagers and electric eras, laptops, and even washing machines (see Exhibit 4). coffeemakers that were perceived to be of marginal signifi- Although smartphones account for as much as two-thirds of cance for the firm's future. Samsung's profits, revenues are diversified from their other offerings. Furthermore, unlike their rivals, Samsung makes Developing a Premium Brand most of its own components allowing it to offer better prod- Having managed to stem the losses, Yun decided to move ucis with lower costs. The firm can generate profits even if Samsung away from its strategy of competition based profit margins on some of these products continue to decline. largely on the lower price of its products, He began to push the firm to develop its own unique products rather than to Discarding a Failing Strategy copy those that other firms had developed. In particular, Yun Jong Yong was appointed to the position of president Yun placed considerable emphasis on the development of and CEO in 1996. When Yun took charge, Samsung was products that would impress consumers with their attrace still making most of its profits from lower-priced appliances tive designs and their advanced technology. By focusing on CASE 25 : SAMSUNG ELECTRONICS 2017 C185such products, Yun hoped that he could develop Samsung ranging from semiconductors to LCD displays that could into a premium brand that could charge higher prices. allow it to push out a wide variety of revolutionary digital In order to achieve all this, Yun had to reorient the firm products. Samsung has continuously invested more than and help it to develop new capabilities. He recruited new any of its rivals on its research and development, rising to managers and engineers, many of whom had developed almost $12 billion by 2014. The firm's large force of design- considerable experience in the U.S. Once they had been ers and engineers work in several research centers that are recruited, Yun got them into shape by putting them through spread all around the world (see Exhibit 5). a four-week boot camp that consisted of martial drills at Yun forced Samsung's own internal production units to the crack of dawn and mountain hikes that would last all compete with outside suppliers in order to speed up the pro- day. To create incentives for this new talent, Yun discarded cess of developing innovative new products. In the liquid- Samsung's rigid seniority-based system and replaced it with crystal-display business, for example, Samsung bought half a merit-based system for advancement. of its color filters from Sumitomo Chemical Company of As a result of these efforts, Samsung began launching Japan and sourced the other half internally, pitting the two an array of products designed to make a big, and new, teams against each other. "They really press these depart- impression on consumers; the largest flat-panel televisions, ments to compete," said Sumitomo President Hiromasa cell phones with a variety of features such as cameras and Yonekura." As a result, Samsung claims that it has been PDAs, ever-thinner notebook computers, and speedier and able to reduce the time it takes to go from new product con- richer semiconductors. The firm called them "wow prod- cept to rollout to as little as five months, compared to over ucts," designed to elevate Samsung in the same way the a year that it used to take the firm in 2000. Triniton television and the Walkman had helped to plant The firm's top managers, engineers, and designers work Sony in the minds of consumers relentlessly in the five-story VIP center nestled amid the Finally, to help Samsung change its image among con- firm's industrial complex in Suwon. They work day and sumers, Yun hired a marketing whiz, Eric Kim, who worked night in the center, which has dormitories and showers for hard to create a more upscale image of the firm and its brief rests during work sprints to sort out any problems that products. Kim moved Samsung's advertising away from may hold back a product launch. The teams that pursue 55 different advertising agencies around the world and new product design in the VIP center strive to reduce com- placed it with one firm, Madison Avenues's Foote, Cone plexity in the early stages of the design cycle. This allows & Belding Worldwide in order to create a consistent global the firm to get its products to move quickly to manufacture brand image for Samsung products. Yun pulled Samsung ing with minimal problems and at the lowest possible cost. out of big discount chains like Walmart and Kmart and Kyunghan Jung, a senior manager of the center, explained; placed more of its products in more upscale specialty stores "Seventy to eighty percent of quality, cost and delivery time such as Best Buy and Circuit City. is determined in the initial stages of product development." Yun also began a practice of working closely with retail- The speedier development process has allowed Samsung ers to get more information about the specific needs of to introduce the first voice-activated phones, handsets with prospective consumers. Since then, unlike Apple, Samsung MP3 players, and digital camera phones that send photos has focused heavily on studying existing markets and inno- over global mobile communications networks. As an example vating inside them. "We get most of our ideas from the market," said Kim Hyun-suk, an executive vice president at EXHIBIT 5 Designers Employed Samsung.' The firm has been able to develop strong rela- tionships with retailers because of this practice. Over the 2016 925 years, Samsung has also worked successfully with wireless carriers, because of their willingness to work with them in 2014 900 figuring out what to offer in their smartphones and tablets. 2012 850 Speeding Up New Product Development 2010 750 Yun also took many steps to speed up Samsung's new prod- 2008 600 act development process, well aware that higher margins depended on introducing new products to the market well 2006 550 ahead of rivals. Samsung managers who have worked for 200 475 big competitors say they have to go through far fewer layers of bureaucracy than they had to in the past to win approval 2002 300 for new products, budgets, and marketing plans, speeding 2000 200 up their ability to seize opportunities, Apart from reducing bureaucratic obstacles, Yun was 1998 175 able to take advantage of the emerging shift to digital tech- nologies. He made heavy investments into key technologies Source: Samwang C186 CASE 25 :: SAMSUNG ELECTRONICS 2017of the firm's speed and agility. Charles Golvin of Forrester at a recent U.S. consumer electronics show, an executive Research talked about Samsung's having created four differ- said: "Samsung strives to consistently lead the consumer ent industrial designs of its Galaxy S smartphone for four dif- electronics industry in product design and engineering ferent wireless network types around the world and delivered innovation." them simultaneously. "They've had a long history of respond- Samsung's ambition is to leverage the attractiveness ing to market trends with a lot of alacrity," he remarked." of its products to make them the center piece of a digital home. In a showroom in the lobby of its headquarters in Perfecting a Design Process Seoul, the firm shows off many of its latest offerings rang- As Yun was building up the Samsung brand, he was already ing from tablet computers to digital cameras. Visitors can positioning the firm to compete on the basis of the "irre- put on goggles to watch characters jump out on 3-D tele- sistible" design of its wide range of products from home visions or shuffle their feet on an interactive LED floor. appliances to handheld computers to flat-screen televisions Roger Entner, a wireless industry analyst at Neilson, said that would all be eventually linked to each other. In fact, about Samsung's efforts: "With its resources and experi- the firm does seem to be well placed to develop attract. ence, it's trying to capitalize on the emergence of smart Ive gadgets that straddle traditional technology categories. connected devices. The question is, 'Can they be a cutting- "We have to combine computers, consumer electronics and edge trendsetter like Apple?"10 communications as Koreans mix their rice with vegetables and meats," said Dae Je Chin, the head of Samsung's digi- Creating a Sustainable Model? tal media division." Samsung Electronics has been managed since 2012 by As Samsung tries to pack its products with various Kwon Oh-hyun, who helped the firm to become a leader attractive features, it draws on the knowledge of some 900 in memory and semiconductor operations. As chip technol- designers with backgrounds in disciplines as diverse as ogy improves more incrementally, Samsung is one of the psychology, sociology, economics, and engineering. These few companies left that can make the investments into new designers absorb information collected by over 60,000 staff generations of semiconductors. As a result, it could become members working in 24 research centers across the globe one of the biggest suppliers to other smartphone manu- In San Francisco, London, Tokyo, Mumbai, and Shanghai. facturers. It is already one of the major suppliers of chips, The researchers observe the way that consumers actually among other components, for firms such as Apple, Sony. use various products. The wide Galaxy Note phone, for and Hewlett-packard. "Then Samsung will have greater example, resulted from the responses of focus groups who control over the whole ecosystem," said Sundeep Bajikar, a wanted a device that was good for handwriting, drawing. securities analyst. "The benefits of that can be enormous."" and sharing notes. Asian consumers said that they found At the same time, Samsung has been pushing to make it easier to write characters on a device using a pen than to its products more accessible to end customers. It has type on a keyboard. teamed up with Best Buy to create the Samsung Experience "The research process is unimaginable," says Chang Shop, a store-within-a-store which allows customers to test Donghoon, an executive vice president of Samsung who the company's newest products as well as get training in has led the company's design efforts. "We go through mobile products they already own. By the end of 2015, all avenues to make sure we read the trends correctly." these Experience Shops had expanded to over 2,000 Best Samsung sends its growing group of designers to various Buy locations across the U.S. locations to spend a few months at fashion houses, furni- Samsung has acknowledged that Lec's arrest poses a ture designers, and cosmetic specialists to stay current with setback to its reputation. It hopes the more internal-to-the- trends in other industries. Designers of the latest Galaxy business nature of the problem will allow it to fade and that smartphone have said that they drew inspiration from trips the usefulness and attractiveness of its products will remain to ruins in Cambodia, vistas in Helinaki, a Salvador Dali art uppermost in the mind of the buying public. It seems to exhibit in London, and even a balloon ride in Africa. have gotten past the recent problem with the battery of its Further, Samsung has appointed designers to executive smartphone. positions in order to make sure that they can get their ideas Aware that it must continue to search for new opportun to top managers. In 2015, the firm managed to recruit Lee nities, in a marked shift from its past strategy, the firm has Don-tae, who had been a top executive at a leading UK made several acquisitions, It bought start-ups SmartThings, design agency. He joined Chang Don-hoon, who had been a platform for connected devices, and Viv, a digital assis given charge of the firm's design strategy team, which over. tant that can compete with Apple's Siri, Its most aggressive sees the design of products across all of the product lines. move has been into development of connected, driverless In the fall of 2014, Samsung unveiled a slick design web- vehicles via investments in Vinli and nuTonomy, two start- site to shore up its self-proclaimed status as a design pow. ups that make software for connected cars, It followed these erhouse. As a result of these efforts, Samsung has earned up with an $8 billion acquisition of U.S-based Harman a total of well over 200 design awards since 2006 at con- International in November 2016, which is also expanding tests in the U.S., Europe, and Asia. After winning awards into similar services for automobiles. CASE 25 # SAMSUNG ELECTRONICS 2017 C187"We think technology is more critical than being in the 2. Frank Gibney, Jr. Samsung moves upmarket. Time March 25, metal-bending business," said Young Sohn, a strategist at 2002, p. 49. Samsung. "The firm is hoping to sell more of its semicon- 3. Brian X. Chen. Samsung's strategy to brake Apple juggernaut. New York Times, February II, 2013, p. B1. ductors, display panels, and mobile services to manufacture 4. Peter Lewis. A perpetual crisis machine. Fortime, September 19. ers of the new generation of driverless cars, The firm faces 2005. p. 65. competition from several existing and potential entrants into 5. Cliff Edwards, Moon Thiwan & Pete Engardio. The Samsung way this new area. Analysts believe that Samsung's success with Husimess Week, June 16. 2003, p. 61. these recent moves is likely to depend on its ability to trans- 6. Roger Yu. Samsung cranks up creativity. USA Today November 16. fer its expertise in one sort of mobile technology to others. 2010. p. 48. 7, David Rocks & Moon thiwan. Samsung design. Business Week, Change everything except your wife and children. December 6, 2004, p. 90. 8. New York Thees, February 11, 2013, p. BI. -Address to employees from Samsung chairman Lee 9. Anonymous. Samsung Electronics gets 46 CES innovations awards for Kun-hee to push for its transformation to a leading elec- 2009. Wireless News, November 24, 2008. tronics brand 10. USA Thday November 16, 2010, p. 48. I1. Eric Planner. Chip profits help soften other losses at Samsung ENDNOTES New York Times, January 25, 2014, p. B 1. I. Chee Sang-Hun & Paul Morer. A top-down breakdown. New York 12. Jonathan Cheng, Samsung socks auto expansion. Wall Street Journal, Timer, January 24, 2017, p. 85. November 15, 2016, p. AID