Fourth Mini-Case: Samsung Electronics: Burned by Success?

Rebecca Mills CMR 495 Mini-Case #4

Introduction:

This mini case is concerned with Mini-Case #17: “Samsung Electronics: Burned by Success,” as described on pages 503-508 in the Rothaermel 4e text. The relevant text chapter is chapter 11. The material presented within the mini-case briefly describes the situation that Samsung Electronics has been facing over the past few years. While Samsung $176 billion in revenues for the year 2017, they have been experiencing difficulties within the company that may eventually lead to a downfall. In 2014, their leader, Lee Kun-hee, had a heart attack, which caused a leadership vacuum. In 2016, one of their most popular products, the Galaxy Note 7, was recalled for a catching on fire. In 2017, Lee Jae-yong, their de-facto leader was involved in a political scandal, and was charger with bribery, embezzlement, and perjury. Samsung started off doing well in the industry until Apple created the iPhone, and they have been in and out of court with them since creating their Galaxy S III. They have been playing catch up back and forth with all the new phones. Samsung has also competed with Oppo, which is like the Apple of China. All of these things have caused major issues for Samsung.

Key problems/issues identifiable within the mini-case include:

 Samsung has faced serious leadership issues.  Samsung had a product recall.  Samsung’s leader was caught up in a political scandal.

Thesis Statement:

Upon review of the Samsung Mini Case, it has come to attention that there are a few problems with the way the company is handling its problems, especially with the leadership. Samsung’s potential downfall comes from the leadership vacuum, the product recall, and the political scandal, which all occurred within a four year span.

Background:

The first problem came from completion with Apple. In 2007, Apple produced the iPhone. Samsung spent time and money on research and development and marketing, trying to follow suit. Samsung Electronics ended up leading the market in smartphones, surpassing Nokia, Blackberry, HTC, Apple, and Blackberry. However, they created a phone that was too similar to the iPhone, and have since been dealing with Apple in court. They actually lost to Apply in California, which cost them about $500 million in damages.

The second problem was they ended up losing market share value, and were also competing with Oppo, which was leading technology in China. India’s Micromax had also taken off, and

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between losing to Apple as well as Chinese and Indian companies, Samsung was stuck in the middle, being an underdog on the high and low ends of the market.

The third problem is that they had huge struggles with the leadership that was in place. In 2014, Kun-hee had a heart attack and ended up incapacitated. However, he wouldn’t let any decisions be made without his approval first. This caused a leadership battle within the company and his son, Jae-yong, who served as vice chairman for Samsung, took over. He faces many challenges between keeping up on the want of the family lineage as well as pressure from the U.S. to restructure the way Samsung runs its company.

The fourth problem is that in 2016, Samsung had a product recall. The launch of the Note 7 was followed up with great reviews. Just a few short days after, it was reported by several that the phone caught fire and exploded. The blame was placed on the battery supplier, and Samsung dropped them as their supplier. They issued replacement phones with different batteries, but that didn’t fix the problem. Not to mention, at the time of the recalls. The iPhone 7 was released which ended up the best seller.

The fifth problem was the political scandal involving Jae-yong and South Korean President Park Geun-hye. Jae-yong sought the support of President Park to help influence a merger of two Samsung affiliates. The merger was needed by Jae-yong for the cash, possibly to deal with inheritance transfers, but also to insure his position and help with the transfer of the business through the family lineage. The National Pension service was persuaded by President Park, who in turn lost money anyways. Samsung made a $38 million donation to foundations close to the friend of the president, Choi Soon-sil. In the end, Jae-yong was charged with bribery and spent 5 years in jail.

The future for Samsung is questionable. After dealing with competition, leadership malfunctions, product recalls and a huge political scandal, the leadership vacuum continues. Not to mention, the integrity of the company and its products are questionable too.

Alternatives:

The material presented in the mini-case write-up does an excellent job of identifying the ways that Samsung has been successful, but also shows where the company is seriously struggling and issues are occurring. These issues may end up the downfall unless changes are made. Some of the changes could be:

1. Appoint a new leader that isn’t in the family- while this goes against the norms, having a fresh new face to lead the company could be the only way to get out of the leadership vacuum they are in.

2. Creating a new phone that is all their own- to avoid anymore riff raff with Apple, Samsung could start a new line of phones that could blow the iPhone and their Note, out of the water.

3. Selling out- If finding a strong leader is going to continue to be an option, perhaps selling out and cutting their losses might be an option. Without a stable leader, their company with always be in turmoil.

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It’s possible to reject one of these solutions because it completely defeats the purpose of innovation and fixing the problem, but rather suggests running from it. Based on what they are currently doing, the other two options hold a lot of potential. While innovation within the product line is always important, I would suggest they consider strong leadership as a goal.

Proposed Solution:

At the present time, I would propose to appoint a new leader that isn’t in the family. It is clear that currently worrying about family lineage and money is more important than the success of the company itself. Therefore, if Samsung wants to keep going, I suggest they get someone in the company that knows what they are doing and comes in ready to run the business like it should be. Having someone who is focused on success as a whole rather than personal gain will allow for all kinds of new innovations and opportunities for the company to thrive.

This solution was chosen because it would allow them to completely rework how they want to want to run the company. This would give them time to really work on their products, focus more on research and development, and actually be backed by someone who puts the company first. Recommendations

1. Interview with leaders of large technology companies to find out what is in demand right now.

2. Talk to those working within the company as well as look at data to find out what major areas need improvement.

3. Look for a new leader with strong leadership traits who is familiar with the company, its products, and is ready to come in innovating.

4. Appoint a new leader and start working with them..

Conclusion:

This mini-case has presented an interesting situation for analysis considering that any of the above solutions could work out in the favor of the company, but the last option wasn’t the best. It truly depended on if they wanted to have good leadership, better products, or just quit all together.

References:

Rothaermel, F. T. (2019). Strategic management (4th ed.). New York: McGraw-Hill Education.

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