Samsung Electronics’ Management Strategy
Keywords: samsung management strategy, samsung change management
Samsung Electronics is a Korea-based consumer electronics company. The case describes Samsung’s journey from a company focused on manufacturing to one known for the excellence of its product design. It discusses how the company came to use design as a differentiator and for competitive advantage. It describes the steps that Samsung took on the people, process, and system fronts to improve its design capabilities. The case also talks about Samsung’s design philosophy, and ends with a brief discussion on the use of design as a competitive advantage.
Like all companies in the business of high tech, Samsung must bring innovative products to market faster while ensuring high quality and holding down costs. It is also faced with the challenge of working with global business partners and its own geographically dispersed facilities. Samsung’s strategy for meeting its mission of “technology-based value innovation” relies heavily on what it calls a digital convergence revolution. This revolution features two parts: a digital product development infrastructure (involving design, validation and manufacturing) and digital collaboration.
During the period covered by the case study Samsung underwent significant change. How would you characterise the type of change that it underwent? Balogun & Hope Hailey’s analytical framework may be useful for this purpose.
According to Balogun.J and Hope Hailey.V there are four types of strategic changes namely Adaptation, Reconstruction, Evolution and Revolution. During the changes that Samsung underwent it will be highlighted exactly the way in which to company changed, whether the change was done over time or whether the change was suddenly implemented.
Samsung shows signs of Reconstruction. Reconstruction is a rapid change and it may involve a great deal of confusion but it does not require a fundamental paradigm shift in the way the company does things. (Balogun.J and Hope Hailey.V, 1999)Reconstruction may be a turnaround situation where there is a need for a major structural change or a major cost cutting programme to deal with declining financial performances or changing market conditions.
Yun and his management team decided to take steps that would push Samsung out of it a precarious financial position. Therefore he reconstructed the company by layoff of 30,000 employees which represented a third of its entire workforce. This major cost cutting programme was done so that they could get out their debt. Yun and the management team also decided to close down many Samsung factories for two months in order to get rid of their excessive inventory that did not sell.
Yun and the team also made major changes when they sold off two billion dollars worth of businesses, like pagers and electric coffeemakers, which were perceived to be marginal significance for the firm’s future. These types of changes helped the company regain their losses which was a major structural and financial need for the company. Yun wanted to implement a strategy that would separate Samsung from their competitors. Therefore he pushed the firm to develop its own products rather than coping these products of other firms that had been developed.
Yun placed a lot of emphasis on the development of products that would impress the customers with their attractive designs and advanced technology. Therefore Yun was reconstructuring the way Samsung has been doing business and wanted the company to reach higher standards where they can be seen as a quality brand and compete with the bigger companies. As a result Samsung reconstruction underwent a major design turnaround from a poorly designed product to a product that will be an in-house design.
The next major step that Yun took was to recruitment of new managers and engineers, many of whom had developed considerable experience in the United States. The recruitment of managers and the engineer’s had a major turnaround due to the fact that it allowed them to start developing their own products and be innovative. He then also discarded Samsungs seniority-based system to a merit-based system for advancements.
A merit-based system are based on one’s performance meaning that the employees could feel more open to expressing their ideas to help the company reach its goals with the knowledge that they will be rewarded for it. Therefore this turnaround helped the company to have a better relationship with their employees and create a system that would allow them to feel open to express their ideas and creativity.
Another major change that Yun made was to hire a marketing whiz, called Eric Kim, which worked hard to create a more upscale image for the company and its products. Eric implemented a major turnaround when he moved Samsung’s advertising away from 55 different advertising agencies around the world and then he placed them into one firm. The reason for this change was to create a consistent global brand image for Samsung’s product. He therefore got Samsung out of big discount chains and placed more of Samsung’s products into more upscale specialty stores.
Reconstruction of the firms bureaucratic was implemented in order to reduce it to get faster approvals for new product budgets and marketing plans, thus speeding up their abilities to seize opportunities. Because of the bureaucratic turnaround situation it allowed Yun to make heavy investments into key technologies and it allowed them to push out a wide variety of digital products.
How significant was Jong- Yong Yun’s role in the change process?
Samsung’s CEO Jong-Yong Yun’s philosophy of continuous improvement has helped Samsung get out of their financial crisis and making it stronger than ever. Yun specifically applied an industrial engineering concept to Samsung in order to cut production times and increase workers’ productivity. Although he initially met resistance in implementing industrial engineering in the firm, Yun sponsored in-house training sessions for workers. He also trained 1,550 managers in Industrial Engineering concepts. Yun’s plans involved product innovation, process innovation and personnel innovation.
Samsung Electronics not only shot to the front of the pack internationally but also lifted its parent Samsung Group to the number one spot in South Korea’s all-important business rankings. Therefore because of Yun’s efforts, which drew heavily on industrial engineering concepts, Samsung Group stood at the top of South Korea’s giant industrial conglomerates.
At the heart of Yun’s strategic plan for Samsung Electronics were the three Ps: product, process, and personnel innovation. In the area of product innovation Yun moved quickly to extract Samsung from those businesses that were marginal or no longer producing an acceptable rate of return for the company. As a result Samsung Electronics reduced its television output and did away with such marginal product lines as dishwashers, electronic pagers, and juicers. These products were replaced with such high-tech, high-margin goods as flat-panel displays, MP3 music players, and advanced mobile phones.
Among the processes streamlined by Yun was the global supply chain, which was changed from a monthly to a weekly system. Under the new system the company changed their focus from make-to-stock to make-to-order production. With the reduction in inventories cash flow improved. In the area of personnel innovation Yun instituted a system of global product management under which each of Samsung Electronics’ 14 divisions was directed by a global product manager who was responsible for every phase of that division’s operations. (Pedler, M., Burgogyne, J. and Boydell, T. 1997.) Yun also decided to give his subordinates greater autonomy meaning he empowered the employees.
Yun’s role played a major role for the success of the company and increased their profits. Yun’s achievement in masterminding the sharp turnaround at Samsung Electronics is the reason why the company is successful. Yun’s role in the change process was important as he made major changes to the system. Yun changed the momentum of the company; he changed the bureaucratic system to allow the employees to express their ideas which lead to Samsung been innovative.
Yun role in the change process allowed the Samsung’s products to be viewed as a higher-priced brand rather than before where it was perceived as a lower-priced appliance. It also became an established low cost supplier of various components to larger and better-known manufactures around the world. Therefore Yun’s role helped the company to tap into their resources that they had and to use them to change how processes were done. Yun also changed the process by recruiting the managers and the engineers.
Yun laid the foundation for the new change that was implemented and without the guidance and standards that was set by Yun the change processes would not have been successful. Yun played a role in each aspect of Samsungs change and help the company get of their financial problems. Yun was very dedicated to his work and risked a lot for the company. Yun and his management team took time to make sure that the changes they were implementing would be successful and that it would speed up the research and development of new products.
Yun’s role in the change process gave the customers a better impression on the firm’s products. His role also allowed Samsung to reduce complexity in the early stages of the design cycle. This then resulted in the firm been able to get the products to the manufactures quickly with minimal problems and at the lowest possible costs. Therefore Yun truly played a significant role in the change process and he helps advance Samsung in digital technologies.
Yun’s strategy to focus on the higher-end products has clearly enhanced the firm’s brand image and has led the company to be profitable. In fact many executives in the industry of US have said they are astounded by the ability of the firm to generate a superior brand image. This would not have been possible if Yun was not playing a part in the change process as it was his thinking that allowed this to happen.
What methods did Samsung use to promote innovation and the diffusion of ideas across the organisation?
Firstly Samsung promoted innovation by deciding to push the firm to develop its own products rather than to copy those products that other firms have developed. Yun placed a great amount of emphasis on the development of products that would impress the customers with their attractive designs. Yun also reoriented the firm and helped it develop new capabilities by recruiting the managers and engineers.
Yun put the new managers and engineers through a four week boot camp that was intended to create incentives for new talent. Samsung rigid seniority/based system was replaced with a merit base system that allowed advancement to take place, it also allowed the employees to know that their efforts and ideas are not overlooked and that good ideas are rewarded. As a result the above efforts Samsung started launch an array of products that was designed to make a big impression on the customers.
Another large part of the success of Samsung’s innovation and ideas was that they regularly got information from the retailers about the new features that customers wanted to see in their electronic devices. This close link with the retailers helped Samsung to come up with best selling products and to create the digital products that the customers were looking for and the actual design preferences of the products.
Samsung managers who have worked for competitors say they have to go through far fewer layers of bureaucracy than they had in the past to win approval for new product, budgets and marketing plans, speeding up their ability to seize opportunities. Therefore Samsung reduced the bureaucratic obstacles. Because the bureaucratic obstacle was reduced it allowed Yun to make investments into key technologies that allowed the innovative products to be designed.
Samsung claims that it has been able to reduce the time that it takes to go from a new product concept to rollout to as little as six months. Due to the above ideas of how to better run the business it resulted in allowing the efforts of the firm’s top managers, engineers and designers to be expressed and to be acknowledged for their ideas. It allowed them to better communicate with the top managers about their ideas.
Samsung advances in digital technologies have helped with them increasing their chances of getting a better position in the market. They have promoted their innovation by combining their computers, consumer electronics and communications to be the prime leader. Samsung had also created the post of chief design officer to make sure that designers can get their ideas to the top managers.
The engineers are pushed to find ways to work with the designs that are presented to them. Yun has also worked closely with Chin to summon engineers and designers from across the firm to mix wireless, semiconductor and computer expertise in order to pursue its vision of domination of the digital home. Samsung had even opened or expanded design centres to help the designers observe the way that consumers actually use the various products.
Therefore by giving them this opportunity they know how to be innovative when it comes to designing the products. The designers were able to watch from behind a two-way mirror to see how the customers responded to a particular design. With this the designers were able to go back and work on the necessary things that needed to be implemented in order to make sure the products are what the customers want.
This forced the designers to think out of the box and be creative and come up with ideas that would impress the customers. The designers are basically rewarded when they see their hard work and ideas been appreciated by the customers if the product is up to their standards. Samsung at the end of the day relies on the attractiveness of its products therefore Samsung ensures that the employees are happy and are able to express their ideas.
To what extent is Samsung a ‘learning organisation’?
A learning organization is the term given to a company that facilitates the learning of its members and continuously transforms itself. (Pedler, M., Burgogyne, J. and Boydell, T. 1997). Learning organizations develop as a result of the pressures facing modern organizations and enables them to remain competitive in the business environment. A learning organization is characterised by five main features namely: systems thinking, personal mastery, mental models, shared vision and team learning. (Peter Senge,1990)
An approach of Samsung was to be innovation and to promote a learning organization. The most recent and widely accepted notion of learning organization today is one which is characterized by an organizational culture that fosters the improvement of the employees, their productivity and the overall operation and performance of the business through continuous learning (Gilley & Maycunich, 2000, p. 5).
Theoretically, Samsung maintained a significant capacity to renew all the processes and they remained competitively ready to create products that the customers wanted, therefore the employees got opportunities the identify the customers need because of Samsung been a organization learning. Continuous learning and change is valued through learning organizations. The main concern for Samsung is about the market share, productivity and profitability and it is understood that learning is the key element in obtaining these business results.
The creation of capabilities that are previously not established is the idea of learning and Samsung has allowed its employees to be exposed to learning. Moreover, the principle assumption of the learning organization is the improvement of the learning capacity of the individual is similar to the organization’s performance. According to Ruffa Morato,( 2009) Samsung’s Six Sigma Academy was established to educate the employees and build up the team of quality specialists with problem solving abilities.
Samsung spent 3.6 percent of payroll costs on education and training, a very high percentage as compared to firms such as Xerox, NUMMI, Saturn, IBM and Motorola. (Type Pad, 2007) Samsung does not only make investments in education and training but it also creates incentives in order to help motivate each employee and organizational learning. Each employee is given the opportunity to set the learning objectives and learning themes with the consent of the supervisor (Bae & Kim, 2004, p.188).
Periodic interviews are carried out to assess the progress and discuss the steps to speed up the learning before a final evaluation is given by the end of the year. (Ruffa Morato, 2009).The assessment will decide the actual learning points and promotion of the employees. Samsung also provided the employees with advance technologies so that the employees are able to do their work. The fact that Samsung also sent their designers to boot camp to find creative ideas, it shows their interest to their employees and their interest in trying to ensure that they reach their potential.
Samsung had learned as an organisation to be more innovative and creative to reach their goals and to grow. Samsung has invested in their employees to come up with ideas that will “wow” the customers. They have brought the right employees to work together to create a quality brand image. Therefore Samsung is a learning organisation to the extent that it invests in its own employees as one of their main focuses.
The competitiveness of the global marketplace has required organizations to become innovative not only in the products and services they create but as well as in their strategies and approaches. Indeed, Samsung’s success manifests the substantial returns from innovating within the organization. This involved the styles of the senior marketers to effect the innovation by encouraging participation and involvement of the employees.
Samsung recognized that the innovation lies in its most important asset – the people. As such, it made innovations in the workplace to empower the employees. This includes training the employees and providing incentives for them. The company has been and continues to strive to become the world leader in the electronics and communication industry by innovating in each and every aspect of its business.
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