Samsung's crisis culture: Pros and cons

2012-09-03 12:40
Samsung's new Galaxy Note 10.1 tablet is demonstrated in New York. (Mark Lennihan, AP)

Samsung's new Galaxy Note 10.1 tablet is demonstrated in New York. (Mark Lennihan, AP)

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Seoul - In his 1997 book, Samsung chair Lee Kun-hee wrote that a successful company needs a "heightened sense of crisis", so that it always looks ahead even when it's doing well, and needs to be able to respond to change.

It's a credo that has driven Samsung Electronics to become the world's biggest technology firm by revenue - it sells more televisions, smartphones and memory chips than anyone else - and makes the group a must-visit case study for a stream of Chinese firms seeking to tap the secrets of Korean success.

But, in the wake of last month's damaging US patent ruling, which Samsung has said it will appeal - the Korean group was fined more than $1bn after a jury found it had copied key features of Apple's iPhone - the group's top-down command structure and decision-making process are blamed for stifling creativity.

What's been good for getting things done quickly, such as making bold decisions on big investments in chips and display screens, may not now best suit a company that needs to shift from being a "fast follower" - quick to match others' products - to an innovator.

Within Samsung, where some designers feel overlooked and undermined, there are calls for a change of tack.

Reputation

The "constant crisis" has worked well, helping Samsung overtake Japanese technology brands Sony, Sharp and Panasonic in chips, TVs and displays, end Nokia's decade-long supremacy in handsets and overtake Apple in smartphones.

But that has come with a big reputational hit - that Samsung makes knock-off products.

"It's a crisis of design," JK Shin, head of Samsung's mobile division told staff in February 2010 as Samsung worked on its first Galaxy phone in a panicky response to the iPhone's smash-hit debut, according to an internal memo filed to a US court as part of Apple's lawsuit.

"Influential figures outside the company come across the iPhone, and they point out that 'Samsung is dozing off'.

"All this time, we've been paying all our attention to Nokia, and concentrated our efforts on things like 'folder', 'bar', 'slide,' yet when our UX (user experience) is compared to the unexpected competitor Apple's iPhone, the difference is truly that of Heaven and Earth."

The sense of crisis and urgency to catch Apple drove Samsung designers and engineers to opt for a concept that best matched the look and feel of the iPhone, according to one Samsung designer, who isn't authorised to talk to the media and didn't want to be identified.

Innovation

"Designers have lots of unique and creative ideas, but these have to be loved by the top decision-makers. The problem was, because they were so fascinated by the Apple design, these ideas weren't really satisfactory to please the top level," said the designer.

"I think elsewhere top managers respect their chief designer's decision, but at Samsung, they overrule designers and have the final say about what design we go with. That limits our capability. To be better than a good fast follower, Samsung needs a more horizontal culture and to empower designers."

A Samsung executive, who didn't want to be named, countered that the group had started out with little innovation - it struggled even to make simple black and white TVs - but now drives new ideas internally through incentives and bonuses, with Lee himself very interested in new technology and design.

One recent example of that top-heavy command structure came less than a fortnight before the launch of Samsung's Galaxy S III smartphone in May, when vice chair Choi Gee-sung ordered half a million blue phone cases to be thrown away as the design, with thin, silver stripes, was unsatisfactory, according to a person familiar with the matter.
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