Samsung Electronics 2017

Cristian Alegria, Whitney Harris, Logan Hughes, Karenna Paul, Kristin Rolle

Team Perspective
Given the recent legal and political circumstances concerning the leadership at Samsung, we will analyze
this case and make recommendations from the perspective of outside consultants. This will allow us to
investigate the case objectively and make unbiased recommendations. Although we are not able to
enforce any of our suggestions, we believe our analysis will be valuable to the Board of Directors in
making potential changes to the executive leadership of the company.

Problem Identification
Many organization leaders today feel the financial pressure to present quick results. These short term
profits are often gained unethically or inefficiently, and prove to be unsustainable. In studying the case of
Samsung from the book Strategic Management: Text and Cases, we found that Lee Jae-Yong, Vice
Chairman of Samsung, created a culture where employees feel pressure to meet demanding goals in very
short periods of time. (1) In the short-run, this seemed to be beneficial to the company as they saw a rise
in sales, as well as in output of new innovative design and technologies by their Research and
Development teams. However, the pressure and speed under which Samsung employees performed
caught up to them in the launch of the Note 7. Samsung raced to beat Apple to market with their new
product, but at a very expensive cost. The new product proved to be an issue for many users, as the
battery was too tightly packed into the phone, and caused the phone to catch on fire. This led to an
expensive recall and the Note 7 was killed. Not only does this present a problem with the product and
technology itself, it also goes back to the root of the problem; Samsung’s focus on “doing the right thing”
rather than “doing things right”. (2) In other words, Samsung was so focused and rushed on getting their
product launched before Apple’s, that the pressure affected the quality of the product.

According to the case, many people claim that Samsung’s culture is based around an atmosphere of
constant crisis. Managers push their teams to constantly work at their top speed, which, as seen in the case
of the Note 7, has detrimental effects. The building where top employees work have dormitories and
showers for employees to take short breaks as they work through the night. This backs up the claim that
goals are incredibly demanding. Employees feel the need to work on problems through the night if it
means that the problem might delay the expected time-line for a product launch. The pressure and
expectations employees face is also hinted at in Yun’s intense boot camp that new managers and
engineers recruits were put through.

Another problem we found with Samsung concerns their ethical issues. Lee Jae-yong, vice chairman of
Samsung, was arrested with bribery charges in February 2017. He paid approximately $36 billion dollars
to the South Korean president in return for government support with inheriting the company from his
father. These types of scandals are devaluing to the brands, thus, changes will need to be made to prevent
public backlash and possible detriment to their future success.
Strategic Analyses Conducted
Samsung is historically known for being a cost-saving brand sold at rather discount outlets than premium
retailers. The brand has made efforts over the past couple of decades to transition its strategy from being
cost-efficient and imitative to more premium and innovative. The company was successful in creating
some value through several activities within the value chain. Nonetheless, other crucial support activities
may have been overlooked along the transition process. As a result, Samsung’s internal environment must
be analyzed as its pressuring and goal-driven culture may be excessively fast and alarming to the
company’s future.

As mentioned above, the problems with Samsung can be traced back to issues within the firm’s internal
environment. In analyzing the support activities in the value chain process, we found inadequacies within
Samsung’s General Administration and Human Resource Management. However, issues can also be
found within Samsung’s relationships between internal teams and suppliers. We also used a Resource-
based View to analyze Samsung’s intangible resources, where we found issues with Samsung’s human
resources, reputation, and culture. Lastly, we evaluated the outlook of Samsung’s future and whether or
not they had a sustainable competitive advantage.

Support Activities within the Value Chain

Technological: Over the past couple of decades there has been an improvement in the technology
development through the employment of over 900 designers and engineers by 2016. From
semiconductors to LCD displays, a wide variety of products were introduced giving them a competitive
edge. Though these technological advancements have led to a more vertically integrated and diversified
firm, the company may have put forth most of its emphasis on one internal area. As a result, the
company’s human capital suffers from the consequences of a poorly-integrated general management.

General Administration: Since the appointment of Yun Jong Yong, Samsung has made crucial
advancements towards progression. Shifting the company’s strategy required extensive focus on research
and development. Nonetheless, the heavy reliance on product development and innovation caused
significant divide within the company’s general management. In fact, Samsung managers who have
previously worked for competitors confirmed that it is relatively easier than standard to push for the
approval of new products, budgets, and campaigns at the company. Although Samsung’s bureaucratic
structure may be convenient for managers to quickly accomplish goals, it is harmful to the company as a
whole. General management supports activities that heavily rely on planning and quality management (3),
thus, ignoring approval stages, potential stakeholders, and plans of action will be deteriorating to the
company’s competitive advantage.

Human Resource Management: Samsung’s management of their human resources has both positive and
negative aspects. The firm does ample research in finding the best fit for hiring new designers and
engineers. However, the choice of Yun to put his new hirees through a “boot camp” is questionable. Does
this give a good impression of the work environment that new hires are coming into? Also, Samsung does
offer merit-based advancement opportunities, but the main way management seems to motivate
employees to perform is through the constant feeling of stress and crisis.
Relationships: When analyzing Samsung’s relationship between internal teams and outside suppliers, we
looked at the scenario when Samsung pitted their own internal production units against the company they
bought supplies from, Sumitomo Chemical Company. The competition encouraged Samsung’s internal
team to work fasto innovate and design new products. This sounds more efficient, but the pressure and
atmosphere of such a competitive work environment can lead to conflict within the company. The idea of
putting an internal producer against an outside supplier is built on a lack of trust on Samsung’s human
resources.

Resource-Based View
Human Resources: With an overnight VIP working center for the firm’s elite, the human capital could be
getting stretched thin and overworked. As mentioned above, the environment of forced competition
between internal producers and external suppliers is indicative of a lack of trust that upper management
has in their employees to perform. Strategies such as internal competition and research centers have been
proven to yield efficient results for the company. However, in regards to human capital, these practices
lead to poor employee development and work-life balance. Human resources support primary and support
activities within the value chain (3). Therefore, tt is pivotal to highlight that human capital is the
company’s asset that allows for the creation of competitive advantages, thus, improper management of
this asset generates internal turmoil that leads to devaluation within the company.

Sustainability with Financial Ratio Analysis

We question how sustainable Samsung’s current business strategy is over the long-run in terms of the
firm’s financial performance. Samsung’s failing business strategy in 1998 was cost-differentiation. Yun
and his team decided to change their business strategy to become a leader in their industry. They began
differentiating the features of their product to stand out from the competition. However, Samsung was
only focusing on the hardware features of their new products, and not software features like other industry
leaders like Apple. Also, Samsung pushes their team to create an advantage of getting products first-to-
market. This combination of attempting both focus differentiation and first-to-market strategy, is proving
to be inefficient.

The longevity of the company as shown by the total debt ratio has stayed relatively low from 2013 to
2016, 0.33 to 0.29 respectively. There is less lending and money owed in 2016 seeing as the ratio went
from 0.44 to 0.37. These ratios imply that not much is happening negatively to the company in respect to
their borrowing, however, when looking at the sales and the total assets there is something worth
mentioning. Samsung had net sales (billions) of $228,693 and $201,866, 2013 and 2016 respectively, as
shown on the income statement. (5) The total asset turnover ratio was approximately 1.07 in 2013 and
decreased to 0.77 in 2016, indicating a decrease in Samsung’s asset utilization. The numbers show a
lower efficiency and productivity over the past few years prior to the fraudulent activity in 2017. There is
evidence of more assets but less sales, what can be done to make the product turnover more efficiently
and increase sales?

When dividing the company’s net income by the sales in 2013 versus 2016 there is a downward swing in
profitability. There isn’t as much revenue being turned into profit as seen by 0.17 in 2013 and 0.11 in
2016. Samsung’s return on assets is also evidence of a company losing its grip in the global market. With
0.19 in 2013 and 0.09 in 2016, the assets are not being utilized properly to increase profits. A higher ratio
would be indicative of a healthier organization. As seen with the return on equity in 2013 with a ratio of
0.28 and 0.12 in 2016, there is a significant decrease. Since shareholders’ equity is equal to a company’s
assets minus liabilities, this ratio can be thought of as the return on net assets. Overall, management is not
creating sustainable growth for the company as seen by the assets. Strategic action needs to occur soon if
Samsung wants to increase profitability in the long run.

Proposed Alternative Solutions

Most of Samsung’s problems can be traced to issues within Samsung’s Value Chain, specifically in its
supporting activities. A possible solution to Samsung’s problems would be to improve their strategies and
performance with the support activities of general administration, technological development, and/or
human resource management.

Proposed Solution through General Management

Samsung should reflect on the style of management that defines the company. Over the years, the
company has taken a top-down management approach to instill goals and objectives within the company.
This style of management ignores employee input, resulting in a corporate culture that’s centered around
pressuring delegation. Instead, Samsung needs to shift its general management to take a bottom-up
approach, this mechanism will result in a more engaging culture that takes valuable employee feedback
into consideration. Adjusting to a new way of management is often difficult as individuals can be hesitant
to change. Nonetheless, the essence of a bottom-up approach boosts employee morale and is well-
received. This alternative could be inexpensive, as the company only needs to develop and train
leadership to adopt new management strategies; however, the cost depends on the scalability of training
or learning that the company wishes to undergo.

Proposed Solution through Human Resource Management

Another area of support activities that needs improvement is Samsung’s management of their human
resources. Samsung needs to realize that their human capital is being overworked to the point of
inefficiency. Their method of keeping an atmosphere of constant crisis in order to motivate employees to
perform faster is not sustainable, and does not encourage a healthy organizational culture. Samsung
should develop their merit-based advancement system to be the focus to motivate employees to perform.
Goals of the merit-based system should be attainable and rewarding. We also suggest that Samsung not
make use of the 4-week boot camp to get their new hires into shape. This seems extreme, and could be
giving Samsung a negative reputation internally and externally, in fact, potentially losing candidates prior
or during the recruiting process. Putting these proposed solutions into practice would be very inexpensive
with many benefits. It would only take a change in the current stressful atmosphere, and instead
management would encourage their employees to an advancement merit-based system.

Proposed Solution through Changes in Business Strategy

Another solution that we propose is for Samsung to narrow their business strategy from being both focus
differentiation and first-to-market, to only one or the other. Samsung’s problems are sourced from
workers being rushed to solve problems, innovate new designs, and build new products to put on the
market before leading competitors. While these processes are all extremely important, Samsung needs to
balance out the priorities of time and effort allocated to each process. For example, Samsung can focus on
innovative research and development, and build new products quickly, but they should not rush through
problems simply to get to market first. Product quality testing should be thorough, and take as much time
as necessary, or else they will end up with another recall like the failed Note 7. This solution of a change
in strategy might be costly in the short term, but prove beneficial in the firm’s sustainable longevity and
competitive advantage.

Recommendations
Samsung must make changes to their general management approach. Instilling and adapting to a bottom-
up style of management will allow the company to discard of the shadowing implications of a rapid and
rigid general management. We have seen a disconnect between leadership and employees at the company
for a long time. Transitioning management mechanisms will result in improved employee-to-leader
relationships that align with the company’s mission and objectives. Additionally, developing a more
engaging culture within the company leads to greater contributions by the employee. As evidence, a
recent study demonstrated that “companies whose workers are the most engaged outperform those with
the least engaged by a significant amount: 16 percent higher profitability, 18 percent higher productivity,
and 25 to 49 percent lower turnover (depending on the industry).” (6) To undergo this approach change,
the company must implement a formal learning program for leadership. The learning program must train
leaders on management practices that are modern, enhancing, and receptive to employees. Bottom-up
management highlights the importance of human capital; thus, it will be a solution that will improve
productivity, company culture, and intellectual capital. In transitioning the general management approach
alongside a strong learning plan, Samsung will have in place a managerial culture that focuses on
employee development rather than constant demanding crisis.

Update on Company
Samsung’s current financial status shows that the company's revenue was over 52 million for the first
quarter, and by the second quarter sales decreased by 11.6%, in 2019. This indicates a decrease in the
company's overall performance. Currently, a major issue for Samsung is their crippling debt. In 2016, the
company stood at about 1 million in debt. They are presently sitting at $2,767,807, in debt. The
significant amount of debt will have major effects on their financial and operating flexibility when
coupled with high principal and interest amounts (7). This will reduce their cash flow that could be used
towards funding working capital. Samsung still relies heavily on the launches of new products which
connects to their issues with company culture and ethics. Samsung still has heavy competition with I-
Phone and Blackberry who have their own operating systems, while the android operating system is used
by four other phone companies. A recent article, written by Jason Cross, shines light on the fact that even
though they have launched the new galaxy S10 and Galaxy fold, their new products are no competition
for Apple (8). Yet again, Samsung’s obsession with launching new products is not an opportunity, but a
hindrance. Samsung still does not have a loyal consumer base who wants to use their applications like
Apple does. Samsung, in the present, is still having the same problems and their revenue is dropping. If
Samsung wants to have a positive turnover they need to focus less on launching new products and more
on differentiating their hardware, software, and service ecosystem.

References

Dess, G.G., McNamara, G., Eisner, A. B., & Lee, S.-H. (2019). Case 25: Samsung Electronics 2017.
Strategic management: Text & cases. (9th ed., pp C-184-C188)
Dess, G.G., McNamara, G., Eisner, A. B., & Lee, S.-H. (2019). Strategic Leadership. Strategic
management: Text & cases. (9th ed., pp. 332-355)

Dess, G.G., McNamara, G., Eisner, A. B., & Lee, S.-H. (2019). Assessing the Internal Environment of the
firm. Strategic management: Text & cases. (9th ed., pp 70-96)

Dess, G.G., McNamara, G., Eisner, A. B., & Lee, S.-H. (2019). Assessing the Internal Environment of the
firm. Strategic management: Text & cases. (9th ed., pp 70-96)

Dess, G.G., McNamara, G., Eisner, A. B., & Lee, S.-H. (2019). Case 25: Samsung Electronic 2017.
Exhibit 2: Balance Sheet. Strategic management: Text & cases. (9th ed., pp C-184-C188)

Dess, G.G., McNamara, G., Eisner, A. B., & Lee, S.-H. (2019). Recognizing a Firm’s Intellectual Assets..
Strategic management: Text & cases. (9th ed., pp 102-133)

Samsung Electronics Co., Ltd. SWOT Analysis. (2019). Samsung Electronics Co., Ltd. SWOT Analysis,
1-7. Retrieved from
http://search.ebscohost.com/login.aspx?direct=true&AuthType=ip,shib&db=bth&AN=139067682&site=e
ds-live&scope=site

CROSS, J. (2019). Apple fans shouldn’t worry about Samsung’s new phones. Macworld - Digital Edition,
36(5), 47-50 Retrieved from
http://search.ebschost.com/login.aspx?direct=true&AuthType=fth&AN=135926528&site=eds-
live&scope=site