SAMSUNG
How Lee made Samsung a world leader Chairman
Kun-Hee Lee's mantra: better product quality and market perception
IN the summer of 1993, Samsung chairman Kun-Hee Lee took 300 company executives through intensive strategy discussions in three cities: Frankfurt, London and Fukoka (Japan). Earlier that year, Lee and the executives had pounded the streets of Los Angeles, visiting shop after shop. "He would run his fingers on the Samsung products and show us the thick layer of dust on each of them," says K.S. Kim, currently president and CEO, Samsung South-west Asia regional headquarters. "Our stuff wasn't moving."
The problem lay in Samsung's business model. In the 1970s, Samsung outgrew the small domestic Korean market and began focussing abroad. But it became clear that the low margin-high volume game wouldn't work for Samsung in markets like Europe, the US and Japan, where it would need to take on big, established brands. At the same time, customers in those markets were more discerning. So, Lee's message in 1993 was simple: it had to upgrade product quality and perception. This would change the company forever.
The Samsung group began as a rice trading company in 1938, and then kept adding businesses to its portfolio. In 1969 it entered the electronics business and in 1975 it exported the first batch of CTVs. Like the Japanese Sony and Matsushita, Samsung initially focussed on low-end manufacturing and exports. It opened its first offshore production facility in Portugal in 1982, making low-end CTVs.
Samsung did many things to reinvent itself after 1993. It deliberately kept existing capacity idle to control the flow of low-end goods into the market, got rid of poor inventories (it closed down the Portugal plant), improved cash flow management, etc. Most importantly, it carried out the most fascinating changes in its organisational culture.
"We used to say, you can change everything except your wife," says Kim who worked closely with Lee. Many of the changes made were symbolic, and were meant to create a deliberate break from the past. So, for starters, the company changed its working hours. While earlier, the official working hours were between 8.30 a.m. and 5.30 p.m., after 1993 they changed to 7 a.m. to 4 p.m. Samsung executives were encouraged to pick up a new hobby, or chuck a bad one. So Kim learnt tennis, while many of his colleagues gave up smoking and drinking.
Then, Samsung turned its energies on creating a global cadre of managers. So it started the Regional Specialist Programme. Every year, between 300-400 Samsung managers, typically between the ages of 28 and 34 were sent for year-long familiarisation programmes to a foreign country. The idea was to acquaint them with the culture, the language and so on. It wasn't about working in the local subsidiary.
This was no fun junket. Samsung didn't even allow its managers to be accompanied by their wives, girlfriends or significant others, for fear of them being distracted. Today, there are literally a few thousand country experts within the Samsung system. These experts could be located anywhere, but when important assignments crop up in their country of specialisation, they usually get the first right of refusal. There are 50 India experts already within Samsung. For China, the number is slightly higher, around 200.
Much could have gone wrong in Samsung's journey. The 1997-1998 Asian crisis could have tripped it, but Samsung used that opportunity to launch the 3P initiative on product, process and people. Samsung vice-president, Digital Media Network Business, David Steel says that the bets they took on technologies could have gone wrong. "But the scale of these bets was so big that the industry followed them as a trend."
With global sales of around $40 billion and a market capitalisation of $70 billion - Sony Electronics' market cap stands at $38 billion, Matsushita at $34 billion and LG at $8 billion - it is a colossus. McKinsey's Jayant Sinha, Dominic Barton and Tsun-yan Hsieh argue (See 'Becoming A Global Champion', page 46) that Samsung is one of the best examples of a global champion from outside Japan, Europe and the US. All because of a CEO's new way of looking at opportunities, and his team's determination to follow through. Maybe that's what globalisation is all about.
