Assignment 3: following Class 8
Please read Case 2 in Appendix 1 (The case is copied here for your convenience). Please provide your answers to the questions in thought-out, coherent paragraphs (one to two paragraphs per question) and use complete sentences.
In addition to presenting direct answers, you will also be expected to provide your opinion(s). If possible, please also share any unique insights you may have regarding the issues based on your background and life experiences.
Case 2: Samsung: A Strategic Plan for Success
You’re probably familiar with Samsung. Maybe you have one of the company’s hot new Galaxy smartphones or tablets that track your eye movements to help you navigate the screen. You might be doing your homework on one of its cutting-edge laptops. Or perhaps you’ve seen one of its dazzling new ultra-high-definition curved-screen smart TVs with Nano-crystal technology.
Chances are good that you or someone you know owns a Samsung product. After all, Samsung is the world’s largest consumer electronics manufacturer, producing “gotta have” products in just about every electronics category, including TVs, DVD players, home theaters, digital cameras and camcorders, mobile devices, smartwatches, home appliances, laptops, printers, and LED lighting.
But only 20 years ago, Samsung was little known, and it was anything but cutting-edge. Back then, Samsung was a Korean copycat brand that you bought off a shipping pallet at Costco if you couldn’t afford a Sony, then the world’s most coveted consumer electronics brand. However, in 1993 Samsung made an inspired decision. It turned its back on cheap knock-offs and set out to overtake rival Sony. At the time, no one out-side of Samsung believed that was possible. But the Korean manufacturer passed Sony in just 10 years, and Samsung has been widening the gap that separates it from the former market leader ever since.
The New Management Strategy
How did Samsung move so far so fast? The dramatic shift came about as a result of a top-down mandate to reform Samsung’s business model and culture. In 1993, CEO Lee Kunhee unveiled a new strategy. The goal: Dethrone Sony as the biggest and most desirable consumer electronics brand in the world. Turn Samsung into a premier brand and a trailblazing product leader. To that end, the company hired a crop of fresh, young designers and managers who unleashed a torrent of new products—not humdrum, me-too products, but sleek, bold, and beautiful products targeted to high-end users. Samsung called them “lifestyle works of art.” Every new product had to pass the “Wow!” test: If it didn’t get a “Wow!” reaction during market testing, it went straight back to the design studio.
Beyond just seeking cutting-edge technology and stylish designs, Samsung put the customer at the core of this innovation movement. “Put simply, our differentiation is centered on producing innovative technology that brings genuine change to people’s lives,” said Sue Shim, Samsung’s chief marketing officer. “We do this by bringing a relentless focus on consumer experience and product innovation in everything we do.”
With its fresh customer-centered focus, Samsung made quick work of surpassing Sony. Today, Samsung’s annual revenues of $196 billion are more than two and a half times Sony’s $75 billion. And over the past five years, as Samsung’s sales and profits have seen double-digit growth, Sony’s revenues have declined, and losses have compounded. According to brand tracker Interbrand, Samsung is now the world’s seventh most valuable brand—ahead of megabrands like Disney, Pepsi, Nike, and Toyota—and one of the fastest-growing brands in the world. And Sony? It has fallen from grace as the value of its brand has declined as dramatically as Samsung’s has risen.
But more than growth, Samsung has achieved the new product Wow! factor it sought. As evidence, Samsung is a dominant force at the annual International Design Excellence Awards (IDEA) presentations—the Academy Awards of the design world—which judge new products based on appearance, functionality, and inspirational thinking. Year after year, Samsung emerges as the top corporate winner. Last year, Samsung claimed 10 awards, more than three times as many as the runners-up.
When New Becomes Old
Good companies achieve their strategic goals. Great companies modify their strategic plans as goals are met, always looking to the future and positioning themselves to remain in front. After Lee was named top CEO of the Decade by Fortune Korea, he announced that the “new management” plan was old news. After 17 years of remarkable success, Lee admitted that Samsung’s main products would likely become obsolete within the next 10 years. He then unveiled the underpinnings of a new strategic direction based on the Chinese axiom mabuljungje—meaning “horse that does not stop.” In a memo to Samsung employees, Lee said, “The ‘new management’ doctrine for the past 17 years helped catapult the company into being one of the world’s best electronics makers. Now is not a time to be complacent but a time to run.”
Although Samsung doesn’t claim to know what will replace today’s products as they become obsolete, it is investing heavily to ensure that it is the company that develops them. Even with its new product systems in place, CEO Lee stresses the need for Samsung to completely overhaul its business model or risk losing market share. Fortunately for Samsung, profits have been so good that it has the funds to support its quest to remain at the top of the innovation heap. Year after year, Samsung boosts its innovation investment budget to record highs, even as its competition makes cuts. Its most recent research and development expense of $13.4 billion was second only to Volkswagen’s $13.5 billion and more than double that of Amazon, IBM, or Cisco. Sony, Toshiba, Sharp, and Hitachi—Samsung’s more traditional competitors in the past—didn’t even come close.
The folks at Samsung know that future success will require much more than flashy hardware gadgets. For that reason, Sam-sung isn’t really paying attention to Sony anymore. Samsung knows that it cannot thrive in the long term by merely offering sharper colors, better sound quality, or even “Wow!” designs. Over the past half-decade, Samsung has focused on competing with the likes of Apple for dominance of the mobile device market and for the content and advertising that go along with such devices.
That focus has paid off, and Samsung has surged to the top of the smartphone market. Just a few years ago, Samsung’s goal was to double its share of the smartphone market from 5 percent to 10 percent. But the success of the Galaxy line catapulted Samsung into the position of market leader, besting Apple with a global market share of more than 30 percent. And although Apple has the jump on controlling content with more than 100 billion downloads through its App Store, Samsung’s Galaxy App Store is holding its own.
The Internet of Things
Despite its indisputable success in smartphones, Samsung knows that that success can be short-lived. Although it still maintains the lead in the market, Samsung’s fortunes have waned in the past year as the latest rendition of the iPhone cut its market share in China in half, reducing its global market share to 25 percent. In a saturated and cut-throat market, Sam-sung knows that future growth will not come from a bigger, better smartphone.
Rather, Samsung is again shifting its strategic direction. Samsung wants to take the lead in “the Internet of Things”—a global environment where all electronic devices, appliances, vehicles, and even static items such as clothing will be digitally connected with each other, with the people who use them, and with the companies that make them.
In recent years, Samsung has quietly gone about creating a foundation for establishing an interconnective web between all of its products and linking them with the rest of the world. It already makes products in just about every imaginable category of home devices. Not many years ago, it dove into semiconductors, a business that has been growing rapidly for the company in terms of size, innovation, and profitability. And last year, it purchased SmartThings, a smart-home start-up company.
But at the recent Internet of Things World event in San Francisco, Young Sohn, Samsung’s chief strategy officer, blew things wide open. He unveiled a plan that makes Samsung’s intentions clear. The company is committing a funding pool of $100 million to start-ups that want to help build the ecosystem. Committing to a policy of openness and collaboration, Sohn unveiled a new line of semiconductor chips—state-of-the-art processors that combine hardware and software—that are now available for sale, helping companies large and small quickly and easily build Internet-connected devices. And to meet what it expects will be enormous demand for these and future chips, Samsung is investing $14 billion in a massive semiconductor manufacturing complex.
To accomplish its goal of becoming a leader in the Internet of Things market, Samsung is taking on its biggest challenge yet. For starters, this shift in strategy broadens Samsung’s list of competitors from an already daunting set to one that includes just about every company in every field of high technology and even some beyond that. Adding to that challenge, there are no common standards for technologies required to connect the many devices of the world—technologies that involve networking, software, and hardware. As a result, there are thousands of companies—from Google and Apple to myriad start-ups—trying to move their products toward interconnectivity but not getting much closer to a state of universal compatibility.
To add to this challenge, the many participants in the Inter-net of Things game don’t see eye to eye, a competitive dynamic that makes the process much more difficult. As the many players work toward compatibility, they employ numerous and often incompatible approaches. And whereas Samsung and many others have committed to collaboration and an open ecosystem, others intend to go it alone and develop their own systems. For example, Apple is developing its HomeKit platform—a proprietary system that allows users to command the devices in their homes through Apple TV using Siri. Remember “Intel Inside”? Picture a “Made for iPhone” logo on devices that would ensure shoppers of interoperability under the Apple system.
But these challenges are not dousing Samsung’s fire. The company’s motivations go beyond greater financial performance. According to Alex Hawkinson, CEO for SmartThings, Samsung is trying to lead by example and trying to “do what is right by the customers” by giving them more choice and flexibility. “We will focus on creating amazing experiences in both software and hardware and win through the power of our innovation rather than trying to win by locking others out or limiting choice,” Hawkinson says.
So far as the Internet of Things goes, the ultimate goal is to build artificial intelligence technology that can gather data from smart homes, cars, and wearable devices and turn them into useful insights. That might sounds just a little too Big Brother-ish, but the wheels are already in motion. According to one conservative estimate, the number of networked devices will surge from about a billion today to 26 billion by 2020, representing a $3 trillion market. By that time, Samsung claims that 100 percent of the products it makes will be Internet-connected.
Twenty years ago, few people would have predicted that Samsung could have transformed itself so quickly and completely from a low-cost copycat manufacturer into a world-leading innovator of stylish, high-performing, premium products. But through savvy strategic planning, that’s exactly what Samsung has done. And not so long ago, few if any would have predicted that Samsung would be one of the driving forces behind creating a world that is entirely interconnected. Yet, while that much remains to be seen, Samsung certainly seems to have all the right ingredients. And, based on it record of success, Yoon may have waxed prophetic as he unveiled Samsung’s new strategic direction: “We have to show consumers what’s in it for them and what the Internet of Things can achieve—to transform our economy, society, and how we live our lives.”
Sources: Jared Newman, “Samsung’s $100 Million Internet of Things Bet Is Even Crazier Than You Think,” Fast Company, January 28, 2015, www.fastcompany.com/3041104/app-economy/samsungs-100-million-internet-of-things-bet-is-even-crazier-than-you-think; Parmy Olson, “Samsung Set to Unveil New Chips to Power Internet of Things,” Forbes, May 12, 2015, www.forbes.com/sites/parmyolson/ 2015/05/12/samsung-artik-system-on-a-chip-internet-of-things/; Brian X. Chen, “Samsung Emerges as a Potent Rival to Apple’s Cool,” New York Times, February 11, 2013, p. B1; Laurie Burkitt, “Samsung Courts Consumers, Marketers,” Forbes, June 7, 2010, p. 27; Choi He-suk, “Samsung Renews Resolve to Reform,” Korea Herald, June 8, 2010, www.koreaherald.com/view.php?ud=20100607001598; Max Chafkin, “Samsung: For Elevating Imitation to an Art Form,” Fast Company, March 2013, p. 108; Shara Tibken, “Samsung Launches Artik Chips for the Internet of Things,” CNet, May 12, 2015, www .cnet.com/news/samsung-launches-artik-chips-for-internet-of-things/; and information from www.samsung.com, accessed September 2015.
Questions for Discussion
How was Samsung able to go from a copycat brand to an innovation leader? Explain.
In recent years, how has Samsung achieved its goals in markets where it had little presence, such as smartphones? Explain.
What challenges does Samsung face with such a diverse product portfolio? What benefits does Samsung face?
Is Samsung’s current and future strategy customer focused? Why or why not?
Will Samsung be successful in achieving its goal of becoming a leader in the Internet of Things market? Explain why or why not.
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