)
THE SAMSUNG WAY: TRANSFORMATIONAL MANAGEMENT STRATEGIES FROM THE WORLD LEADER IN INNOVATION AND DESIGN
AUTHORS: Jaeyong Song and Kyungmook Lee
PUBLISHER: McGraw Hill Education
PRICE: Rs 525
ISBN: 9789339218515
Companies with an owner-manager and a conglomerate business structure have various well-known weaknesses. Samsung, however, was able to turn these seeming weaknesses into a source of competitive strength by simultaneously introducing vigorous internal competition and close cooperation.
At Samsung, cooperation and competition are a result of strong leadership based on its owner-management structure. Chairman Lee and the Corporate Strategy Office have striven to optimise Samsung's performance at the group level. They provide support for decision making by each affiliate's professional managers, and they help coordinate the optimization of each affiliate's performance. In particular, Samsung's owner-manager and the Corporate Strategy Office provide favorable treatment for executives who have contributed to optimisation at the group level, resulting in simultaneous competition and cooperation among affiliates.
At Samsung, competition between affiliates is particularly intense because the affiliates are evaluated not only in absolute terms, but also in comparison with their peers. If Samsung had left decisions on the compensation and promotion of affiliates' executives to the boards of the individual affiliates, the company's current level of co-opetition would have been impossible to achieve. The results of these relative evaluations are critical factors in deciding on executives' compensation and career advancement. This rigorous performance-based system enables Samsung to encourage close and voluntary cooperation when it can produce mutually beneficial outcomes. On the other hand, employees are likely to reject cooperation if they are asked to make sacrifices for the benefit of the whole, but receive only some benefit, or if benefits materialise only in the long-term. Such issues have hampered voluntary cooperation among Samsung's affiliates and divisions in developing innovative new products for the long-term.
When cooperation would be mutually beneficial for affiliates, but still does not occur, Chairman Lee and the Corporate Strategy Office can intervene to coordinate action at the group level.
Samsung's conglomerate business structure has simultaneously helped facilitate interaffiliate cooperation to create value on the one hand, while facilitating competition to allocate value on the other. At the unit level, Samsung's conglomerate structure ensures independence for affiliates and divisions, encouraging them to practice autonomous and accountable management. At the group level, Samsung can perform relative evaluations of the performance of affiliates and divisions and use the results to determine the compensation and promotion of executives, resulting in both vigorous competition and cooperation. Unlike its foreign rivals in the electronics business, Samsung has built a vertically integrated business structure that spurs co-opetition, rapidly enhancing its competitiveness to world-class levels.
Introduction of market principles and dual sourcing
Since the late 1990s, Samsung has encouraged parts and materials divisions of its affiliates to raise productivity and product quality and cut costs by applying market principles to internal transactions while reducing the side effects of vertical integration. The company thus built a dual-sourcing system, where it would purchase parts and materials both externally and internally. For example, Samsung Electronics purchases panels for TVs from Sharp, a Japanese company, and other external suppliers in addition to those from its affiliate, Samsung Display.
Affiliates do not receive special treatment when they are making deals with other Samsung companies, and they must be prepared to lose out to external suppliers if they are not competitive in quality, price, and time to delivery. Samsung Electronics, for example, eliminated Samsung Electro-Mechanics from the bidding for electrolytic condensers in 2001. Shocked by this result, Samsung Electro-Mechanics used this setback as an opportunity to improve the quality of its high-value-added product, multilayer ceramic condensers, to world-class levels. Samsung Display produces its own color filters and also procures them from Dongwoo Fine-Chem, a local subsidiary of Japan's Sumitomo Chemical. Samsung Display then compares its own quality and price with those of Dongwoo, and issues reprimands and warnings if they are found to be inferior in either.
AUTHOR SPEAK
Jaeyong Song
Major paradigm changes can give latecomers, such as Samsung, golden opportunities to catch up with incumbent leaders, Jaeyong Song tells Ankita Rai
How did Samsung transform itself into a world-class enterprise in aspan of just 20 years?
The most important factor in Samsung's success was the new management initiative proposed by chairman Lee in 1993. The new management initiative had the ambitious goal of making Samsung one of the leading global companies of the twenty-first century. In order to achieve this, Lee spearheaded a complete corporate transformation of Samsung. In particular, he pushed Samsung to invest pre-emptively in R&D, brand marketing and design capabilities for emerging digital products.
Samsung went from a no-name company in the global market to a world-class corporation because of the success of Samsung-style paradox management. I found three paradoxes in Samsung's management. First, Samsung is very speedy, even though it is a big conglomerate. Second, while it is highly diversified and vertically integrated, Samsung is highly competitive in its core business areas. On top of its conventional strength in manufacturing capabilities, Samsung has developed world-class intangible assets in terms of innovative technology, brand power and design capabilities. Moreover, Samsung has created synergy through systematic cooperation among related subsidiaries.
Third, Samsung successfully mixed and matched the western management system and the Japanese management system. After carefully benchmarking Toyota and GE, Samsung was able to combine the efficiency of the Japanese operations management with effective American strategies and HR systems. Eventually, it took the combination of management styles one step further by successfully re-creating its own management system.
What are a few ideas that entrepreneurs might want to borrow from Samsung?
First, the importance of strategic agility in response to paradigm changes. Samsung emerged as it grasped opportunities in the big paradigm change in the electronics industry - from analogue technologies to digital technologies. The reversal of fortune between Sony and Samsung clearly tells us that major paradigm changes can give latecomers such as Samsung golden opportunities to catch up with incumbent leaders by riding on the emerging paradigm early on.
Second, Samsung's success through paradox management highlights the importance of creating an ambidextrous learning organisation.
Reprinted by permission of McGraw Hill Education (India) Private Limited. Excerpted from 978-93-392-1851-5: Song: The Samsung Way; Rs 525 Copyright © 2014, by McGraw Hill Education.
All rights reserved.
All rights reserved.
