Galaxy debacle exposes Samsung dilemma

Esther Park, Oct. 19, 2016, 9:41 a.m.

In the eyes of Donald Woo, a retired businessman in Hong Kong, incidents of the Samsung Galaxy Note 7 catching fire and its subsequent departure seemed not just about a technical error, or faulty batteries.

Calling himself a loyal customer of the South Korean tech giant, Woo said he began to wonder about the cause of the crisis. What disappointed him the most, he said, was the way Samsung Electronics, the world’s largest smartphone maker, was handling the case.

“It is clear that there was a very serious problem with their internal communication channels, from the battery factory to the phone company to the group headquarters,” he said in an email sent to The Korea Herald. “My question is whether this has always been the case, or is (it) a new phenomenon after the chairman fell into a coma and the son (replaced him)?”

Woo is one of many avid Samsung fans around the world starting to ask such questions about Samsung, its structural problems and their impact on product management.

Such concerns have existed for years. But the Note 7 incident has surfaced the problems that Samsung faces today, at a critical time when the conglomerate is moving forward with a generational transition.

Some former Samsung employees and experts link the cause of the crisis to Samsung’s deeply rooted top-down culture.

Samsung Electronics, like many other companies in Korea, is a workplace where saying “no” is virtually forbidden, they say.

The severity of the consequences may even be harsher at Samsung, where it has more “obedient elites.” Consulting superiors about hardships may even equal tendering a resignation there, according to the former workers.

“When a boss gives a deadline to subordinates, even if the schedule is technically too tight to meet, they cannot say no,” said an engineering professor who used to work for Samsung Electronics.

“They just do whatever they can and squeeze out to meet the deadline. The Galaxy incident may have partly come from such culture,” he said on condition of anonymity.

The rigid hierarchy also exists between Samsung Electronics and its affiliates, as was exposed when the former shifted the blame of the smartphone’s explosions to a batch of batteries produced by Samsung SDI when it announced the first round of the global recall of the Galaxy Note 7 in early September. The battery-maker has remained silent on the issue.

“(Samsung Electronics and SDI) are not on the same level. SDI is just one of many suppliers,” said a former worker at Samsung Electronics who now works for a US firm in Seoul.

The militant hierarchical culture in Samsung, however, has diminished over the years, partly due to changes in society where individual choices are more tolerated these days, and also due to the company’s voluntary efforts to create a horizontal relationship among its employees.

As part of a new corporate strategy, Samsung Electronics plans to simplify seven job titles into four starting from March next year. The Korean suffix “nim” will be added to every employee’s name, instead of calling them by their job positions. The plans are devised to promote lateral communication and to increase work efficiency, the company said in June.

But despite such efforts, questions remain over whether Samsung will manage to turn the entire organization into a western-style, global tech firm where creativity comes before loyalty.

“It is hard to define a uniformed culture of the Samsung Group because every affiliate and division has a different work atmosphere,” said a Samsung Group official, adding that while the company is aware of such outside concerns, they cannot comment on it.

“But, in terms of Samsung Electronics, the company is making efforts to innovate their work culture and to make it horizontal such as by collecting suggestions from the employees and establishing a task force after deciding internally that there have been some problems.”

The time is ripe for change at Samsung, according to another professor who works on diverse projects with Samsung Electronics. He said that the company, as a market leader, has reached a point where the traditional system that worked well when it was a fast-follower does not work anymore.

“Samsung Electronics, as a fast follower in the market, has mobilized a top-down management for a long time, and they have been successful so far,” said the professor who also requested not to be named.

“Now, as a market leader, Samsung’s management patterns of setting deadlines first, developing products fast to meet the deadline and manufacturing the products in Vietnam after that, no longer work. It is not a follower anymore.”

However, citing Samsung’s militant culture as the origin of the Galaxy crisis is contradictory and dangerous, said Park Joo-keun, co-founder of CEO Score, a local corporate tracker.

Such a streamlined and neat work system has long been the backbone of Samsung’s success.

“There is no answer for what work culture a company should have. But Samsung’s way of managing the organization has been its strength, and it is contradictory to say that it was the cause of the problem just because it doesn’t seem to fit into the latest industrial trend that focuses on creativity,” he said.

“I think it was rather a problem with quality control that happened in the midst of Samsung’s transitional period. It will find its own way.”

Samsung has been under growing market pressure to come up with innovative products and to become a company that meets global standards with clearer governance and shareholder-friendly measures.

But Samsung beating Apple, for instance, is out of the question as the two are not in the same category, said the former Samsung employee currently working for the US firm.

Samsung by nature is a hardware maker, not a software giant like Apple and Google. And Samsung’s dilemma is that it wants to be like them.

“As a hardware company, you can never be as innovative as a software company. Samsung lacks in original content and technology. But a software company is what Samsung wants to be,” he said, adding that Samsung’s focus on Tizen, an open-source operating system, artificial intelligence and the Internet of Things, are examples.

One noteworthy step that Samsung took in such endeavors was the 2008 appointment of Choi Chi-hun, a former GE board member. Since joining, Choi has stood at the vanguard of making Samsung’s printer business reach the world’s top. He is now the head of the construction unit of Samsung C&T, the de facto holding company of Samsung Group.

Indeed, transforming a hardware company into a software firm is a tremendous challenge, a task that awaits Samsung’s new leader. And he is already faced with some resistance from within.

Samsung downsizing its structure through the selling of underperforming units in recent years has dealt a blow to its streamlined organization that consisted of loyal employees.

A current employee at Hanwha Techwin, who used to belong to Samsung Techwin, said many of his colleagues felt abandoned.

“(When Hanwha bought Samsung Techwin), it was very disappointing because we learned it through news reports, not from the company management. They made no efforts to explain it to us,” he said. “We were upset because it contradicted how we were encouraged since entering the company that Samsung is a family and a being a loyal worker is a must.”

The confusion within the organization is being amplified as the group is gearing up for a leadership transition.

Lee Jae-yong, currently Samsung Electronics vice chairman, is set to join the boardroom after a shareholders’ meeting on Oct. 27, a move seen as him tightening his grip on the company after the smartphone crisis.

But Lee appears to have a long way ahead to prove his leadership, as the Galaxy debacle has opened up public debate over Samsung’s leadership and management styles.

Woo said his disappointment came from years of having watched Samsung grow from a fledgling business to reach the top. But he said he still believes Samsung is the best.

“Back in 1996 or earlier, when Hong Kong was still using the old Kai Tak Airport, I remember seeing the passenger luggage carts bearing Samsung advertisement. I wondered who would buy such an unknown Korean brand? Now, almost 25 years later at my home in Hong Kong, I own a TV, refrigerator, and a smartphone made by Samsung,” he said.

“I have used Samsung, LG, Google Nexus, HTC and Lenovo, but have always returned to Samsung for consistency, quality, and ease of operations. Of course, Android and its open system is a big factor in my choice, but I think even among the Android makers, Samsung is the best.”
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