INNOVATION: THE CASE OF

SAMSUNG ELECTRONICS

TABLE OF CONTENTS

Title Page………………………………………………………………………………1

Table of Contents……………………………………………………………………..2

Introduction………………………………………………………………………….....3

The Concept of Innovation……………………………………………………………3

Sources of Innovation…………………………………………………………………5

Diffusion of Innovation…………………………………………………………………7
The Role of Individual in the Process of
Innovation………………………………..8
The Role of Empowerment and Learning Organization…………………………...11

Recommendations…………………………………………………………………….14

Conclusion……………………………………………………………………………...15

References……………………………………………………………………………..16

Introduction

Innovation has been widely recognized as the major goal of economic activities and one

of the most significant aspects through which organizations sustain competitive advantage in

globally competitive marketplaces. Organizations create novelty through better and attractive

products and services due to the demands of the consumers from them. However, innovation is

not necessarily science and technology, but value. It is not something which takes place within

the organization but rather a change outside and must be market focused.

For one, not all innovation entails technology. Innovation in terms of changes in process,

strategies and organizational structures are becoming more important of today’s organizations
along with new product development. The case of Samsung illustrates how the company

succeeded through changing its strategy from low cost to a technology leader. It has proved to be

successful not only in product innovation but also in involving the employees in the process of

innovation. The following section will discuss the relevance of innovation in organization and

will seek to explain the role of marketers in affecting such process. Also the approaches to

innovation are discussed based on the experience of Samsung.

The Concept of Innovation

Innovation organizations know that innovation is not science or technology but value. It

is not something that takes place within the organization but a change outside. The measure of

innovation is the impact in the environment. In the neoclassical economics, innovation is equated

with independent technological and less frequently organizational changes which are considered

to be changing the position of production functions by replacing the labour factor with capital.

Changes alter the productions functions including output and costs changes. The neoclassical

understanding of innovation represents a ‘both and why’ way of thinking. At one level,

innovation is understood as a variable in economic laws as a form of Natural Law theology

which generates efficient outcomes. At another level, that of industry, innovation is understood

as a choice that organizations make to secure temporary monopoly and maximize their profit

goals (2002).

A very different way of thinking is found at the evolutionary economics. According to 

(1934), innovation must be understood in terms of both the entrepreneur who performed a role

and innovation which is an outcome of the entrepreneurial activity in organizations. For him, the

entrepreneur played a critical role in the process of development. He further addresses the issue
of innovation implemented in a systematic way. That is, an innovation could be a new output that

the organization placed in its environment, a new input it has received from its environment or a

new way of arranging its internal relations including the psychological attributes of the

individuals ( 2002).Thus, innovation is not just the creating or inventing products and services.

Innovation is an outcome, a new product or service and a process of organizational and

managerial decisions.

Innovation can be enabled by technology but it is not a prerequisite. For some industries,

innovation may depend on technology. However, quicker production process, accurate targeting,

cots reduction and improved brand awareness are results of innovation without or minimal

investment in technology. While technology can be used to enable innovation, these are actually

minority. Less than 20 percent of innovation involves technology investments because the

majority is focused on improving processes, strategies and organizational structures tot deliver

new products and services. None of these are implicitly connected to technology (2002).

Sources of Innovation

Companies over the past twenty years have sought to drive innovation and continuous

improvement throughout their organizations. Firms all over the world adopt different techniques

and approaches to improve their performance in innovating and to benefit from new ideas. For

many, innovation is about making changes in the products and services to align them with the

needs of the customers. Real innovation is more fundamental rather than incremental innovation

since it concerns new ideas and not updated versions of old products. It stimulates new thoughts,

processes, creates new organizational structures and enables new strategies to be realized (2002).
 There are two main sources of innovation. In the linear model, the traditionally

recognized is the manufacturer innovation. This form of innovation involves an agent (person or

business) that innovates so as to sell the innovation. Another source of innovation is the end-user

innovation which involves the agent (person or company) developing an innovation for its own

use because the existing products or services do not meet its needs. This form of innovation is

identified as the most important and critical source of innovation.

Innovation may be acquired in many ways even through less formal on-the-job

modifications of practices through the exchange of experiences and by other routes. The more

radical and revolutionary innovations are results of R&D while more incremental are results of

practice (2007). These forms of innovation are reflected by the Samsung Electronics which has

moved from being a market follower to a market leader. It has innovated through its investment

in R&D and the restructuring of the organizational structure and culture. There are six factors

that help in making the Samsung Group maintain and improve its competitiveness in the global

market: (1) nurturing talents and putting them at the most significant positions (2) company’s

culture (3) investment in R&D (4) constant operation innovation and structure adjustment (5)

operation at fast speed (6) leadership of CEO.

Samsung Electronics Co. (SEC) has made significant world leading shift from a follower

to a leader in the introduction of innovative new products. From the start, the objective of the

company was to enter a large scale production of key products with the initial route through the

manufacture of imitation products. Many of which are based on its Japanese competitors (2002). 

It gradually moved forward introduced new technologies. To date, Samsung has been recognized
as a global name in electronics and communications products. It aims to maintain its position by

embarking in further developments and innovation of its key products. 

Diffusion of Innovation

Upon the occurrence of an innovation, it spreads from the innovator to other individuals

and groups. This illustrates the linear model which is characterized by invention-innovation-

diffusion. This model though has been challenged over the past decades and a more appropriate

model was introduced. It was proposed that the life cycle of innovations take on the ‘s-curve’ or

the so called diffusion curve. This curve maps the growth of productivity over time. During the

early stage of the innovation, the growth is relatively slow as the new product establishes itself in

the market. At some point, the demand for the product increases rapidly. Towards the end of the

life cycle, the growth may slow and start to decline. Thus, there is the assumption that new

products are likely to have a product life ( 2007).

                                    Figure1. S-Curve Model

ones. Successive s-curves will come along to replace the old products and continue to drive the

growth upwards. The first curve in the above figure shows the current technology while the

second curve shows the emerging technology with a lower growth that will eventually surpass

the current technology. This model of innovation diffusion is illustrated by the continuous

development of products at Samsung. It has pursued a goal of developing its resources to

Sigma for designing new products. These initiatives have led to the recent growth of the

company.

In 2004, Samsung has received five citations from the Industrial Design Excellence

Award (IDEA)-more than any European and American competitors- and 33 total top design

awards in the United States, Europe and Asia. These designs have fostered increasing value and

market share. Undeniably, Samsung has made progress during the previous years. Its future will

depend on the ability to continually anticipate the changing demands of the customers and

maintain the advantage over its competitors.

Role of Individual in the Process of

originate in the mind of the autonomous individual. The individual is assumed to be produce

innovative ideas through the process of rational, deductive reasoning about the market needs and

the goals that the innovation must satisfy those needs. These goals are concerned about attaining

the optimal to satisfy the market needs. The second thinking contests that innovation originate

from the individual, a heroic entrepreneur who challenges the existing ways of thinking and

doing and even subverting legitimate structures. The individual formulates the innovative idea

and engages in political process to make the vision realized ().

            The facilitator of the innovation is important for companies that are making significant

changes from some strategic alignment because people within the organization need to change
attitudes and learn new skills and behaviors. Education, execution and communication

approaches are created from scratch and the facilitator may need to be involved for the change

process. The chief innovator is the one who is responsible in managing the entire process of

innovation. They are the ones who make decisions regarding the necessary trade offs. However,

chief innovators of not do everything themselves but clear bottlenecks if necessary and gets

involve in the strategic and tactical approaches of the company ().

            The CEO or chairman of the company often plays the role of the chief innovator

especially when the company is undergoing changes from a business strategy. As the case may

be, the CEO is often the only person who makes significant decisions to change the alignment of

the company’s present focus towards innovation. One of the chief innovators at Samsung was 

president and chief financial officer of the company. Several years ago, Samsung was known to

be a me-too producer of low and medium quality electronic products. Samsung was not

considered to be a brand but was seen as a mere Asian template. The move from the cost cutting

strategy to innovation has led the intense involvement of President Choi to play the role of a

chief innovator (). Companies that do not have a chief innovator or whose chief innovator lack

knowledge of the innovation process are less likely to succeed. At Samsung, the languages of the

employees are unified. The chairman sets the strategy and all the employees in the company

understand it.

            Organizational structure is also related to innovation simply because it provides the

formal and internal context through which the innovation will proceed. Formal structures

determine who has the authority to make decisions regarding the innovation and the degree of

autonomy and flexibility that individual managers have to initiate ideas. Structure also affects the
direction and the amount of information exchanged between participants in the innovation

process. Organizations wanting to be successful must also direct and control the process.

Informal controls can be effective methods of motivating and directing the solution of

unstructured problems ( 1990).

            The Samsung group already has an industrious and able management teams but the

Confucian organizational culture dominates the authoritarian management style that stifle

creativity and innovation. Chairman Lee then wanted to change the style by allocating more

authority, encouraging more risk taking, rewarding innovation and transforming the

organization. In effect, he wanted the hierarchy upside down which abandons the inward looking

approach to the management. Recognizing that the change must begin at the top, Lee began

delegating the authority to his subordinates. The chairman also emphasized the major strength of

the company lies on the people. He ordered every CEO in the company to hire the best people in

the world so brought in some people who are paid more than their CEOs. He believed that

having the right person in the organization can change everyone in those areas. Hiring the right

people is important but it is more important to put the right potential people at the right places ().

The Role of Empowerment and Learning Organization

            One of the characteristics of innovation is that it is an organizational and management

process. From this view, the emphasis is moved from introducing new ideas to the general

organizational process to generate, consider and act on the insights that will lead to significant

improvements in terms of business services and internal processes. The variety of viewpoints

fosters creativity which becomes the basis for innovation and innovation is the result of the

implementation of creative ideas within and across the organization ( 2007).

processes and its way of thinking. It proclaimed that it could become number one in the world if

it strove for innovation in everything and well become known as the leader of change and

innovation. At Samsung, all employees, not just product designers and engineers, think of

innovation being their central role. The willingness to change and keep changing and to innovate

was embedded in the minds of the employees. They are made to believe that everyone can make

contributions to innovation not juts those developing products (2007). The company pushed

innovation into all aspects of its business and made it everyone’s job. Each employee is called

upon to become a team player, a pioneer and an innovator.

            Dedicated innovation leaders and innovation focused groups play a crucial role in the

company’s goals but it is also important that they understand and believe in the innovation

process to be able to contribute to its achievement. This is beyond providing ways for non

managers and employees and line employees to make suggestions for improvements. More so, it

is about the development of a language of innovations that everyone can speak. This is

something which Samsung had done by aligning all its activities around the innovation ( 2007).

The ‘New Management’ policy it has implemented in 1993 marked the complete overhaul of the

company and turnaround on how it approached its business globally. It started to implement a

full scale quality drive and best world strategy. The policy was implemented by encouraging the

employees to make changes in themselves to strive to care for others and behave ethically. To

date, the performance at Samsung is based on qualitative outcomes rather than quantitative.

Another approach to innovation was to promote a learning organization.  The most recent

and widely accepted notion of learning organization today is one which is characterized by an
organizational culture that fosters the improvement of the employees, their productivity and the

overall operation and performance of the business through continuous learning (2000).

Theoretically, they maintain a significant capacity for the renewal and the competitive readiness

of the organization learning. Continuous learning and change is valued through learning

organizations. The main concern is about the market share, productivity and profitability and it is

understood that learning is a key element in acquiring these business results (2000)

The creation of capabilities that are previously not established is the idea of learning.

Moreover, the principle assumption of the learning organization is that the improvement of the

learning capacity of the individual is congruent to that of the organization’s performance.

According to Bae and Kim (2004) Samsung’s Six Sigma Academy was established to educate

the employees and build up the team of quality specialists with problem solving abilities ().

Under the quality certification system there are four degrees of quality specialists: master

black belt (MBB), black belt (BB), green belt (GB) and white belt (WB). This quality certificate

is an important factor in determining promotion. For instance, an employee must acquire a GB to

be promoted as an assistant manager. If the employee acquires a BB or MBB more promotion

points are collected. As a result, the employees have achieved white belts. The number of

employees with GB has risen from 710 in 1998 to 1228 in 1999 and 1565 in 2000 ( 2004).

Samsung spent 3.6 percent of payroll costs on education and training, a very high

percentage as compared to firms such as Xerox, NUMMI, Saturn, IBM and Motorola. It does not

only make investments in education and training but also create incentives to motivate individual

and organizational learning. Under the evaluation system, each employee is given the

opportunity to set the learning objectives and learning themes with the consent of the supervisor
( 2004). Periodic interviews are carried out to assess the progress and discuss the steps to

accelerate the learning before a final evaluation is given by the end of the year. The evaluation

will determine the learning points and promotion of the employees.

Recommendations

            Today, innovation leaders are striving to take the next step in the evolution which is

increasingly fast, diverse and complex. Thus, innovation capabilities will continue to push

boundaries and challenge the firms to reinvent themselves.

 Promote an organizational environment that enables innovation. That is, to form strategic

structures that will engage individual further to the benefit of the organization. Innovation

must be promoted through intrinsically motivated individuals within a supportive culture

 Increasing focus on the needs of the customers will enable the company to acquire

psychological and behavioral inputs to the innovation process. Use innovation to

differentiate products and services from competitors.

 Continuous research and development projects must be conducted to create new products.

Collaboration with the marketing would enable the projects to become more focused and

achievable. Additionally, new products and services could be planned for greater synergy

between the technological capabilities and needs of the core markets.

 Strengthen core competencies and exploit new opportunities in other markets

Conclusion
            The competitiveness of the global marketplace has required organizations to become

innovative not only in the products and services they create but as well as in their strategies and

approaches. Indeed, Samsung’s success manifests the substantial returns from innovating within

the organization. This involved the styles of the senior marketers to effect the innovation by

encouraging participation and involvement of the employees. Samsung recognized that the

innovation lies in its most important asset – the people. Hence, it must continue to drive

innovation by shifting from a hierarchical culture to one that recognizes the creativity of each

individual employee.

The company must to strive to become the world leader in the electronics and

communication industry by innovating through its products. It must focus on developing

products that meet the changing needs of the consumers. Increased focus on the specific needs of

its markets will help the company differentiate its products against its competitors. This can be

done through continuous R&D activities that are implemented in coordination with its

marketing. By strengthening its competency in bringing cutting edge technologies, the company

will have the opportunity to exploit other markets.