Harvard Business Review
Harvard Business Review
Harvard Business Review
Ans. Couple of years back, few people would have predicted that Samsung could transform itself from a low-cost original equipment manufacturer to a world leader in R&D, marketing, and design. Fewer still would have predicted the success of the path it has taken. For two decades now, Samsung has been grafting Western business practices onto its essentially Japanese system, combining its traditional low-cost manufacturing prowess with an ability to bring high-quality, high-margin branded products swiftly to market. For seven years, we have traced Samsungs progress as it has steadily navigated this paradox to transcend its initial success in its home markets and move onto the world stage. It is a story we believe holds many important lessons for the current generation of emerging giants seeking to do the same. Samsungs origin hails from Japan. When the company was founded, South Korea was a Japanese colony. Samsungs first chairman, Lees father, was educated in Japan, and the company built its corporate muscle in industries consumer electronics, memory chips, and LCD panels that Japan once dominated. Accordingly, Samsung rose to prominence in its home market under the Japanese model of unrelated diversification and vertical integration in pursuit fo synergies. Diversification suited South Koreas weak external capital markets because it allowed the company to rely on internally generated cash from one operation to fund the others. The Japanese hierarchical labor model also suited the Korean context. The institution underpinning South Koreas managerial labor markets were underdeveloped, making mobility across corporations rate. The absence of a well- developed stock market and of sufficient competition for talent, combined with a strong Confucian tradition of respect for elders, led to a seniority based compensation and promotion system. Founded in 1938, the Samsung Group is the largest corporate entity in South Korea, with $227.3 billion in revenue in 2010 and 315,000 employees worldwide. Best Known for its flagship, Samsung Electronics (SEC) producer of semiconductors, cell phones, TVs, and LCD panels--the groups highly diversified businesses span a wide range of industries, including financial services, information technology services, machinery, shipbuilding, and chemicals. By 1987, when Lee Kun-Hee succeeded his father as only the second chairman in the companys history, Samsung was the leader in Korea in most of its markets. But its overseas position as a low cost producer was becoming untenable in the face of intensifying competition from Japanese electronics makers which were setting up manufacturing plants in Southeast Asia, and rising domestic wages in South Koreas newly liberalizing economy. In the early 1990s, Lee spotted an opportunity in the reluctance of Japanese Companies the analog market leaders to adopt digital technology,
which consumers were flocking to in cameras, audio equipment, and other electronic products. This opened the door for Samsung to surpass its rivals. Agility, innovativeness, and creativity to succeed which Lee looked to the West. In 1993, he launched the New Management initiative to import Western best practices related to strategy formulation talent management, and compensation into Samsungs existing business model. The aim was to markedly improve marketing R&D, and desingn while retaining core strengths in manufacturing, continuous improvement, and plant operations, Execution of this mix and match strategy took three broad forms: A formal process to identify, adapt, and implement the most appropriate Western best practices. Steady efforts to make Samsungs culture more open to change by bringing outsiders in and sending insiders abroad. Intervention by Lee to protect long-term investments from short term financial pressures. In this way, slowly and steadily but not always smoothly, Samsung has built its hybrid management system as a series of experiments, first in SEC and eventually throughout the Samsung Group. Lees long-term focus has been essential to his most recent initiative: the development of Samsungs design expertise, a capability the chairman believes will be critical for the companys continued growth. Just as many never imagined that Samsung could become a dominant global player.
JAPANESE
SAMSUNGS HYBRID SYSTEM Strategy Diversification but more focus within businesses Ability to tap into both internal and external capital markets. Focus on continuous improvement and applied R&D but also on innovation, marketing, and design to establish brand and premium pricing. Long-term cooperative supplier relationships but with some level of competition
WESTERN SYSTEM
Diversification strategy
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Focus on innovation, marketing, and design to establish strong brands and premium pricing Contingent relationships with suppliers based on market pricing Dependence on external labor market attracted by market based compensation
Human resources interweaving of internal workforce with outsiders attracted through market based compensation Annual recruitment for entry level position; open recruitment for experienced specialists
Limited recruitment, mostly once a year, and only for entrylevel positions
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Coexistence of seniority based and merit based promotion and compensation; mostly standardized but some individualized incentives.
Bringing outsiders In : Cultural fit is a hard nut to crack. Of the 208 non-Korean MBAs hired into GSG since it was created, 135 were still working for Samsung as of December 2010. The most successful are those who have taken the greatest pains to fit into the Korean culture. Still, the rate of acceptance has been steadily rising. Before GSG, no non-Korean MBAs worked at SEC for more than three years, but fully 32% of the non- Korean MBAs recruited to SEC the year GSG was established were still with the company three years later. Over the next 10 years, employees on the organization has been something like that of a steady trickle of water on stone.
As more people from GSG are assigned to SEC, their Korean colleagues have had to change their work styles and mind-sets to accommodate Westernized practices, slowly and steadily making the environment more friendly to ideas from abroad. Today, SEC goes out of its way to ask GSG for more newly hired employees. Sending Insiders Out : The Japanese imperial government sent its elite officers overseas to study successful Western practices and institutions in the 19th century. They brought back, among other innovations, the British postal system, the French judicial system, the American system of primary education, and the German military of organization, adding innovative features of their own to suit the local environment. Samsung acts similarly, sending high potentials to Japan for advanced degrees in engineering; to the United States for further education in marketing and management; and to Singapore, Hong Kong, and New York for training in high finance. Squarely in this tradition is Samsungs regional specialist program, arguably the companys most important globalization effort. Each year for more than two decades, Samsung has sent some 200 talented young employees through an intensive 12 week language training course followed by one full year abroad. For the first six months, their only job is to become fluent in the language and culture and to build networks by making friends and exploring the country. In the second six months, they carry out one independent project of their choice. Initially sent mainly to developed countries, in the past 10 years theyve gone more often to emerging regions, especially china and, most recently Africa. Like their colleagues who have trained abroad, the specialists come back to major posts at headquarters or in the business units at home and abroad. In those roles they disseminate information about how successful foreign companies operate, and the advocate for and experiment with best practices. Globalization : Samsungs globalization efforts have taken substantial investments of time, money, and executive will. Some S-level Hires took the IRos 10 years to recruit. SEC spends about $100,000 over and above annual compensation to train and support each regional specialist, not to mention the opportunity costs and turnover risks the company incurs by taking elite employees away from key positions for 15 months. These investments which require fundamental trade offs between the short and the long term. Five years after the launch of the S level recruitment program, support for it from Samsung Group affiliates CEOs was distinctly lukewarm and would probably have remained so had Lee not tied so much of their compensation to its success.