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Samsung’s disaster in answers on Corporate Objectives, Growth or Organisation Culture.

What happened?

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No one outside Samsung knows exactly, but it wasn’t a battery fault. Perhaps the phone was crammed over-full of clever components so the battery couldn’t dispel enough heat and over-heated till it blew up; perhaps the internal wiring was under-insulated, again over-heating the battery; perhaps a faulty 10 cent component in a $900 phone (see Toyota’s disaster below); perhaps a combination of factors.

Part of Samsung’s strategy is outstanding product quality. Wouldn’t the designers have flagged a problem? Wouldn’t Samsung test, test and test again to prevent disasters like this?

Corporate Objectives and Growth

Think about Corporate Objectives and Marketing and Operations strategies. Suppose chasing Growth led them to cut corners in designing, testing and making the phones?

 

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Apple, #1 competitor in high-end smartphones, launch a new phone every September.   Samsung would get a major boost to growth by bringing their new product to market first, especially as many experts think the Note 7 beats the iPhone 7. It seems they accelerated design and manufacture to launch the Note 7 before the iPhone 7. In the dash to become market leader in this market, speed to market came first, quality came second.

You’d think the first reports of exploding phones would bring them to their senses. But no, they made some mods and went on selling the phones. Too much hurry again – the modified phones blew  up too.

Toyota’s lethal accelerators

It isn’t the first time a business has let growth beat good practice. Do you remember the sticky accelerator that made some Toyotas impossible to stop?

 

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“The Toyota Way”, an obsession with high quality over decades, earned Toyota the reputation for making the world’s most reliable cars. But it seems Toyota’s bosses got excited that they might overtake VW to become the worlds biggest car maker so switched their main objective to increasing sales volume. Factories and suppliers switched too. Way down the supply chain, a tiny roller bearing, the proverbial “10 cent component”, was manufactured from less than top quality steel which should not have rusted but did. Result, accelerators stuck down, and the great investor Warren Buffet was proved right again. “It takes twenty years to build a reputation and five minutes to ruin it”

Organisational Culture and Leadership.

Samsung is a great example to use. Professors at two Asian universities have commented:

“Samsung’s top-down decision-making process did not allow any sort of feedback from its engineers in the development process”, and

 

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“Samsung’s workers move in tandem without asking any questions once they get an order from the top. So they had to meet the deadline even if they needed more time for quality checks”

 

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Consequences for Samsung?

This huge firm produces and exports about one-fifth of all South Korean business. It makes 300 million mobile phones every year, though only 10m for the high-end market. It makes other consumer products like TVs and fridges; it makes computer chips, displays, even supplying Apple;  it is the world’s 2nd biggest shipbuilder, 13th biggest construction company, 14th biggest life insurance company and 15th biggest advertising agency.

Short-term: Samsung Electronics has completely withdrawn the Note 7 and perhaps the entire range including tablets. They forecast lost operating profits of $5.3 billion in Q1 next year. They have lost a good year in competing with Apple and others.

Long-run: the consequences are hard to forecast, but “it  takes twenty years to build a reputation and five minutes to ruin it”