HOW SAMSUNG TRANSFORMED ITS

CORPORATE RnD CENTER

Abstract
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A study of the strategic transformation of Samsung's corporate R&D center (SAIT) shows how the R&D center
transformed its organization and processes to align the company's business units for value creation. In the early
days, SAIT struggled to find a position between a development-oriented and a research-oriented center. During
the transformation, SAIT enhanced its R&D capabilities by aligning with business strategies and integrating
R&D processes with Design for Six Sigma (DFSS). Key drivers of the transformation included consensus on
the need for organizational change, strong leadership from top management, close alignment of R&D and the
business units, and actionable planning and performance management. [PUBLICATION ABSTRACT]

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Headnote
A strategic transformation allowed Samsung to leapfrog from technology follower to leader.
OVERVIEW:
A study of the strategic transformation of Samsung's corporate R&D center (SAIT) shows how the R&D center
transformed its organization and processes to align the company's business units for value creation. In the early
days, SAIT struggled to find a position between a development-oriented and a research-oriented center. During
the transformation, SAIT enhanced its R&D capabilities by aligning with business strategies and integrating
R&D processes with Design for Six Sigma (DFSS). Key drivers of the transformation included consensus on
the need for organizational change, strong leadership from top management, close alignment of R&D and the
business units, and actionable planning and performance management.
KEY CONCEPTS: corporate transformation, R&D performance, technology follower, technology leader.
Technological capability is recognized as a key engine of both short-term business performance and long-term
survival (1,2,3). In a difficult environment for global leaders, technology followers have scarcely derived any
better performance from their technology capabilities. However, Samsung's recent success has shown how
important product development and manufacturing have been in the face of fierce market competition.

Samsung has become one of the big players in the global electronics business, which it entered in 1968. Total
sales of the SamsungGroup and its 63 affiliates reached $122 billion in 2004, up from $102 billion in 2003.
This accounted for 20.7 percent of Korea's total exports in 2004. The conglomerate has become a global leader
in such technology-intensive businesses as DRAM semiconductors, LCD (Liquid Crystal Display), and
handsets.
In 2005, Samsung Electronics had total sales of W57.46 trillion (US$58.24 billion) and net profit of W7.64
trillion. Compared to other global leaders with huge net losses or flat growth in recent years, Samsung has seen
its total sales triple and its operating income increase five-fold since the Asian financial crisis.
This performance resulted from Samsung's commitment to technologymanagement and stable R&D
investment aimed at enhancing the competitiveness of existing business areas and identifying new business
opportunities.
The high level of uncertainty in R&D has made it difficult to manage corporate research centers and R&D
departments in business units (4). Previous studies have suggested numerous management practices, including
close alignment of R&D strategy with business strategy, balance between corporate research centers for
longterm projects and R&D departments in business units for short-term development, and cross-functional
integration between R&D and marketing departments (5,6). However, most of these practices are derived from
the experiences of technology leaders. There are few studies of how the corporate R&D centers of technology
followers can conduct R&D activities that create value for their business units.
Consequently, this paper investigates how corporate R&D centers of technology followers can transform their
major R&Dmanagement systems. More specifically, it examines the development of the Samsung corporate
R&D center-Samsung Advanced Institute of Technology (SAIT)-and its organizational transformation
processes.
Samsung Corporate R&D Center
Samsung's rapid growth has resulted from the development of technological capabilities adhering to the
philosophy of its founder and top management. In 1987, the company established a corporate R&D center to
develop technology capabilities for value creation in diverse business areas and provide the next growth
engines for global competition. This R&D center has pursued the development of basic technologies for new
businesses and applied technologies for product development and manufacturing problems in the business
divisions. However, unlike the corporate R&D centers of global leaders, which focused on basic technologies,
the Samsung R&D center struck a balance between basic research areas and applied technologies. It was also
expected to support diverse business divisions with different levels of technological capabilities. For the
competitive business divisions, it would develop more basic technologies and transfer them to business

development groups for commercialization. It also provided research support for technologically inexperienced
business areas.
These mixed roles allowed the R&D center to implement management systems characteristic of both research
and development labs. However, they also made it difficult for Samsung to adopt the advanced
R&D management systems that were used by the corporate research centers of global leaders. Still, although
there were many problems in the development of mission, organizational processes, and accumulation of
technological capabilities after inception, close ties between the corporate R&D center and business divisions
inSamsung were created through organizational transformation.
Evolution of the Corporate R&D Center
Transformation of the Samsung corporate R&D center (SAIT) took place over four periods:
1. 1987 to Early 1990.-SAIT was founded in 1987 to prepare future businesses and support existing ones by
developing advanced technologies. Despite the high expectations, SAIT had difficulty in maintaining its
unique status among the company's other R&D centers, which were focused mostly on short-term and
applications-oriented R&D projects. In uncomfortable relationships with the business units, SAIT invested
significant resources in short-term R&D projects to satisfy the needs of business units. Eighty percent of R&D
projects were allocated to applied development. This created conflict between SAIT and the business unit
R&D centers.
2. Early and Mid 1990s.-The Samsung Group adopted a new management philosophy and redirected its costoriented managementto quality-oriented management. Since 1993, this new management philosophy has
penetrated into all business lines and given SAIT an opportunity to improve the uncomfortable relationship
with business units and focus on the organizational mission. However, with inefficient
R&D management systems and relatively low levels of technological capability, SAIT had difficulty carrying
out its primary mission of increasing the competitive advantage of existing business lines and pursuing new
business opportunities.
3. Mid and Late 1990s.-To improve its technological capabilities and upgrade its R&D management systems,
SAIT initiated various organizational innovations and changed how it allocated resources. For example, the
organizational structure was changed to research laboratories around major research fields, focusing on longterm and basic R&D projects rather than short-term and development-oriented R&D ones. In addition, SAIT
paid more attention to recruiting talented R&D employees. Nevertheless, although these organizational
changes made the R&D management system more efficient, it remained inefficient in increasing technological
capability and creating new business opportunities.

4. 2000 to Present.-Concentrating on value creation for customers, SAIT adopted many

innovative management programs like knowledge management and DFSS programs, and initiated them
concurrently. SAIT was designated a key engine of Samsungbusinesses and a global R&D center with
advanced technological capabilities. As the Samsung corporate research center, it focused on the key
technological areas and upgraded the R&D process from one of planning to commercialization.
Recently, SAIT developed close relationships with the business units and increased R&D performance as
measured by the number of R&D projects successfully transferred into business lines and the number of
patents. In 2004, 80 percent of SAIT's R&D projects reached commercialization, compared with 61 percent in
2002 and 18 percent in 1997. Also, applications for U.S. patents increased from 19 percent of 380 total
applications in 1997 to 85 percent of 1,400 patent applications in 2004.
Transformation of the Corporate R&D Center
Since 2000, SAIT has transformed its organization and R&D processes in the following principal directions:
Visioning and restructuring
Although SAIT aimed at advancing beyond technology follower, it encountered difficulty in managing a
corporate research center because of the low level of technological capabilities and inexperience in early
R&D management around basic technologies. To create new businesses and enhance Samsung's competitive
advantage in existing businesses, SAIT assessed its R&D projects and core technology areas. It found that the
initial research areas and technology capabilities were hardly adequate for the organization's mission, and that
fundamental transformation around top management teams and business divisions was needed. Through formal
and informal discussions with researchers and communication with business units, top management teams
developed specific action plans for becoming a global R&D center. Principally, SAIT rearranged its overall
R&D projects around core technology areas. It restructured its R&D areas and projects to focus on such key
technologies as digital technology, nanotechnology, optoelectronics, energy, and biotechnology. These areas
are closely linked to existing businesses and new business opportunities for Samsung.
However, the transformation process was so painful that many researchers decided not to adopt these changes
and some of them left the organization. Nevertheless, by recruiting and promoting talented researchers, SAIT
built up a global level of technology capabilities. To create world-class products and valuable research results,
it developed sophisticated R&D management processes based on DFSS (defined as the design of new products
and services with a Six Sigma capability and performance). It also enhanced knowledge management and
network infrastructures for close collaboration within research laboratories and between SAIT and the business
divisions.

Excellence of product
During the organizational transformation, research and development projects were aimed at developing stateof-the-art technologies. Each project targeted specific goals to develop the first or the best technological
innovations through fundamental patents or state-of-the-art technologies. In the planning stage, each R&D
project assessed the technological development status of leading global organizations on key technologies and
set high goals for project performance. These world-class targets evoked research challenges on the new R&D
projects and motivation to achieve the expected results. Samsung invested in continuous improvement in
existing technology and business areas.
To survive and grow in the competitive world market, Samsung needed to develop key patents in basic
technologies, actively participate on global standardization committees, and create more value. This realization
made researchers set top-notch targets for new R&D projects and motivated them to make greater efforts to
achieve differentiated technologies and radical innovations. In addition, SAIT built close relationships with
business divisions by sharing business strategies and technology roadmaps to increase the successful
commercialization of developed technologies. R&D projects for commercialization in the near future should
specify business strategies and coordinate responsible roles for technological success and value creation.
Excellence of process
To increase the efficiency of R&D processes, SAIT adopted the quality-oriented philosophy of DFSS. There
was some criticism of this because DFSS programs were developed for quality improvement in manufacturing
rather than R&D, where creativity is important. Despite the criticism, however, the basic DFSS goal of
customer value creation is similar to the purpose of R&D. Consequently, the philosophy and methodology of
DFSS were customized into the overall R&D process, from project planning through stage-gate processes to
commercialization.
DFSS programs were utilized across the development stages of R&D projects (see illustration, below). At the
planning stage, the project manager aligned technology roadmaps with the business strategy of business units
and analyzed diverse customer needs by using value curve and QFD methods. For ongoing projects, the main
processes include review of project milestones, relevance of project objectives in changing environments, and
key problems and potential obstacles to progress. At the final stage, all R&D projects are assessed in terms of
accomplishment of project objectives, technology transfer to business divisions, and the next R&D plans.
Excellence of people
To respond to rapid technological change and converging technologies, SAIT was reorganized as a matrix
organization of technology groups and projects. Technology groups emphasize developing core technological

capabilities around key technologies and identifying emerging technologies and new business opportunities.
Project managers are responsible for developing specified R&D activities and commercializing technological
advances.
In addition, SAIT has made significant efforts to recruit talented R&D employees and develop individual skills
and careers. Beyond the traditional recruiting of graduates from Korean universities, SAIT has made extensive
efforts to recruit talented researchers with technological capabilities in the global market.
Project managers and researchers have also learned to use tools for project management,
technology management and business development, and to develop balanced perspectives on the
efficient management of R&D activities and commercialization of R&D results. SAIT expects all researchers
to become professionals armed with technological expertise and business acumen in their R&D activities. Each
researcher reaches a certain level depending on the experience and expertise, from entry to the highest level.
These levels are used to organize new project teams, recruit new researchers, and plan career development. For
example, only experienced researchers above a certain level can become R&D project leaders.
The evaluation and performance measurement systems were also changed to assess both the R&D project
results and potential capabilities in key technology areas, so as to support researchers' career development as
experts in the related fields. Currently there are approximately 1,000 researchers in the SAIT, 86 percent of
whom hold graduate degrees.
Organizational transformation
The painful organizational transformation contributed to the improvement in R&D performance, and the
subjective satisfaction of business units with the SAIT R&D results grew rapidly. Among 133 R&D projects
conducted up to 1997, only 24 (18 percent) were successfully transferred to business units and contributed to
commercial business value creation. The other 109 R&D projects contributed hardly at all to value creation.
Only 32 R&D projects were technically successful, while 77 R&D projects succeeded technically but failed
commercially. Foreign patent applications comprised 19 percent of all patent applications in 1997.
The organizational transformation was intended to increase the R&D performance of the corporate R&D
center in terms of both the commercialization of R&D projects and the generation of important patents.
That performance increased dramatically. Among 79 recently completed R&D projects, 33 were transferred
successfully to business units and contributed to commercial value creation. Another 15 R&D projects are now
in the process of commercialization. The remaining R&D projects succeeded technically but not commercially.
More surprising was the change in patenting-foreign patent applications reached 85 percent of all patent
applications in 2004, about four times the 1997 figure of 19 percent.

Key Drivers of the Transformation

A number of factors accounted for the successful organizational transformation, including a consensus on the
need for organizational change, strong leadership by the top management team, close alignment with business
units, stable corporate investment, and actionable planning and performance management. Most of all,
however, the initial success of the transformation can be attributed to the clear strategic direction as a corporate
R&D center and the close relationships with business divisions, from planning through
ongoing management to commercialization of R&D projects. SAIT
developed Samsung R&D management practices by integrating research methodologies such as technology
roadmapping and scenario management and development methodologies like robust stage-gate processes.
At the initiation and planning stage, each R&D project was aligned with the business and technology strategies
of the business units through sharing technology roadmaps. The strategic alignment between SAIT and
business divisions was regarded as a key success factor for R&D projects and performance maximization.
Also, this clarified roles and responsibilities in the successful commercialization of projects. Through
technology roadmapping, SAIT and business divisions coordinate roles and allocate resources, make specific
plans for R&D activities and commercialization, and develop the next technology roadmaps.
To develop world-class technologies, SAIT identified key technologies and relationships among core
technologies by using the technology tree technique. These analyses had an influence on assessing the
importance and priority of R&D projects. Also, SAIT adopted TRIZ methodology to find new and creative
solutions by predicting evolution trajectories of specific technologies.
Traditional R&D project management focuses on the management of stage-gates to review the progress of
projects and make decisions to proceed. The R&D management at SAIT focuses on project review and
discussion, called design review, among technology experts and business professionals. These design reviews
facilitate knowledge management and discussions between SAIT and business experts on critical issues and
potential problems.
To increase the success rate of technological commercialization, SAIT project teams collaborate with business
divisions before the projects are finished. During these periods, R&D teams transfer technological results and
know-how related to the projects and find solutions to potential commercialization problems. In addition,
SAIT and the business lines in the development and manufacturing groups can communicate with each other
efficiently by sharing the same DFSS methodology, including documentation forms and terminology.
Emerging Challenges

Despite the improved R&D performance, Samsung's corporate R&D center faces many challenges.
First, Samsung is rapidly leapfrogging from a technological follower to a global leader. During the last three
decades, Samsung has been focusing on the imitation and internalization of key technologies developed by
global leaders. Now, however, as a global leader it has to develop its own technological innovations and
change the role of the corporate R&D center. Instead of pursuing a catching-up technology strategy of
imitation and acquisition of advanced technologies, SAIT must create new business areas and drive
technological innovations by investing in emerging research areas with a high level of uncertainty, such as
nanoelectronics, energy and intelligence. It must develop a balanced strategy between exploitation in existing
businesses and exploration in new businesses.
Second, many business units have asked the corporate R&D center to upgrade technological capabilities for
existing businesses and create disruptive technologies for new businesses. In response to the increasingly
competitive environment, companies need to build core competencies based on sustainable knowledge and
capabilities. For example, the corporate R&D center should consider how to exploit the accumulated
knowledge base and explore new technological knowledge, combining internal investment and strategic
alliances. Although SAIT improved R&D productivity and efficiency through the adoption of DFSS programs,
these managementsystems may be insufficient to develop new and innovative research fields. SAIT needs a
more systematic approach to efficiency in development-oriented projects and effectiveness in research-oriented
projects.
Finally, globalization of R&D is another challenge facing Samsung's corporate research center. As R&D
boundaries extend from local and regional areas to other countries, it becomes increasingly important to
coordinate local R&D centers and distant global R&D centers. To adapt to the rapidly changing environment,
global R&D networks and management systems are needed to monitor global technological changes and to
develop key technologies in emerging areas. The management of global R&D and strategic collaborations with
other global leaders is an upcoming challenge in terms of strategic human resource management, global
recruitment of talented researchers, and management of these global researchers within the culture
of Samsung.
Sidebar
An Application of Samsung R&D Processes
The development of MPEG-4 technologies exemplifies a successful application of Samsung R&D practices.
MPEG-4 is an international standard developed by MPEG (Moving Picture Experts Group); the committee
developed MPEG-1 and MPEG-2 standards for interactive video on CD-ROM and Digital Television. The
MPEG-4 is the next-generation multimedia compression standard to deliver high-quality audio and video
streams for digital television, interactive graphics applications, and interactive multimedia.

To respond to the rapidly changing competitive environment. Samsung investigated recent technological
progress and developed technology roadmaps in multimedia areas in cooperation with business units including
digital television, mobile handsets and display. As only standardization patent holders can gain competitive
advantage in this area, Samsung actively participated in international expert forums and standardization
meetings. It also updated technology roadmaps regularly and coordinated the development schedules with the
standardization meeting schedules.
To develop specific technologies for the new standards, Samsung used technology-tree techniques to identify
major functions and explore alternative technologies for each function. The new technologies in the technology
roadmap specified main functions, and key technological characteristics cascaded from generic functions to
sub-functions and sub-sub functions. For example, the performanceof video compression is specified by the
color transformation and compression functions. At the sub and sub-sub-function level,Samsung investigated
existing technologies and developed new technologies for each function.
As a result, Samsung developed key technologies for the MPEG-4 and became one of the leading members in
MPEG-4 standardization and its related industry.-S.P. and Y.G.
SAIT built close relationships with business divisions by sharing business strategies and technology roadmaps.
Sidebar
Researchers are expected to become professionals armed with technological expertise and business acumen.
Sidebar
SAIT project teams collaborate with business divisions before the projects are finished.
Sidebar
Samsung is rapidly leapfrogging from technology follower to global leader.
References
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4. Buderi, R. Engines of Tomorrow: How the world's best companies are using their research labs to win the
future. Simon & Schuster, 2000.
5. Roussel, P. A., Saad, K. N. and Erickson, T. J. Third generation R&D: Managing the link to corporate
strategy. Boston: Harvard Business School Press, 1991.
6. Miller, W. L. and Morris, L. Fourth generation R&D: Managing knowledge, technology, and innovation.
John Wiley & Sons, 1999.
AuthorAffiliation
Sangmoon Park is a full-time lecturer at the Department of Management, College of Business Administration,
Kangwon National University, Chuncheon City, Korea. Previously he worked for the Samsung CTO office at
the Samsung Advanced Institute of Technology (SAIT). He received his M.E. and Ph.D. from the Graduate
School of Management at the Korea Advanced Institute of Science and Technology (KAIST). His research
interests include management of technology and entrepreneurship in technology-intensive industries.
venture@kangwon.ac.kr
Youngjoon Gil is the president of Samsung Information Systems America in Sun Jose, California and worked
for Samsung Advanced Institute of Technology since 1987. Before that he was a vice president of
the Samsung CTO office at SAIT in Korea. He received his B.S. in mechanical engineering from Seoul
National University and an M.S. in mechanical engineering and Ph.D. from the Graduate School
of Management at the KAIST. yjgil@samsung.com
Copyright Industrial Research Institute, Incorporated Jul/Aug 2006