Wednesday, February 16, 2011

Blue Ocean Strategy (BOS) – LG Mobile Communications & Handsets – Performance Review 2006-2010

BOS Initiative:LG Electronics headquartered in Yeouido, South Korea is the world's second-largest manufacturer of Television sets and third-largest producer of mobile phones. In mid 2006 LG launched Blue Ocean Strategy campaign. The campaign, entitled ‘BLUE OCEAN 2 BY 10’ represented its aim to be among the world's Top 3 mobile communications player in three years, and Number 2 player by 2010. Other objectives included focusing on high end products, focusing on emerging markets like China, India, and Middle East & Africa. The initiative was launched by CEO Nam Yong. LG has invested considerable amount of resources on this initiative and planned to achieve the goals by 2010.

Mobile Communications: No3 position in the world but still short of No2LG had announced that LG Chocolate and the Black Label series are Blue Ocean operational strategy in action in 2006 in mobile communications category. The company also launched the ultra premium fashion phones Shine and Prada in 2008. In 2009 LG launched high end handsets Arena, Viewty Smart, Crystal GD900 and GM730, featured the S-Class touch screen user interface. According to Gartner LG market share in the mobile sales during this time is as follows in 2006(6.3%), 2007(6.8%), 2008(8.4%), 2009(10.1%), 2010(7.1%). BOS is seen working for the company between 2007 and 2009 as the market share highlights. LG suffered a major setback in 2010 as the market share shows.

Dull Performance in China, India & Middle EastChina is another market where LG failed to make an impact with paltry market shares as the local operators have dominated the market. But in India LG has been able to gain the No3 position in the market. LG India launched around 40 models of hand sets from entry level to smart phones and also roped in star brand ambassadors in the Indian market to promote the brand. Even in the Middle East LG has been constantly captured No3 position. LG launched high end jewellery phones and ultra premium phones in the Middle East market with not a great success.

2010: Fall of CEO and Record Mobile Phone losesIn October 2010, LG Electronics replaced its chief executive officer Nam Yong after a record loss at the flagship handset business. LG saw a significant fall in the market share in mobile handsets in 2010. The exhibit below highlights the fact the LG Electronics suffered loses due to the bad performance in the Mobile communications and handsets division. All the other divisions have performed well with double digit growths.

The reason for the failure lies in LG smart phone strategy. LG entered into agreement with Microsoft to use Microsoft Windows Mobile OS which was not up to mark as its platform for 50 types of smart phones by 2012 and had no solution for the Windows OS's lack of applications. Another mistake was LG believed the User Interface (UI) will be the key trend. The UI is focused more on how one uses a handset, rather than on what to use, due to its focus on making usability easier. Delay in launching the smart phones as compared to peers and the company was rushed to launch new smart phones in the later half of 2010. LG stressed on the one hand a more user-friendly interface and more aggressive marketing rather than focusing on smart phones strategy.

The new CEO aims to more than double smart phone shipments and will focus on expanding premium products to catch up with bigger rivals. The android phone Optimus One is LG’s best selling smartphone.
Exhibit: Consolidated Sales & Profit by DivisionCurrency: KRW bn                   3Q'10  QoQ       4Q'10     YoY       FY10          YoY
Home Sales                               5359   15.80%      6205     4.70%     22082     12.50%
Enterment Op.Income 123 -122 211
Mobile Sales 3224 10.90% 3576 -14.70% 13841 -23.90%Comm Op.Income -326 -274 -709Handset Sales 2971 12.00% 3328 -15.20% 12811 -24.90%Op.Income -304 -262 -658Home Sales 2750 2.50% 2819 13.70% 10673 11.90%
Appliances Op.Income 67 78 538
Air Sales 1107 -17.60% 913 50.50% 4820 12.20%
Conditioning Op.Income -52 10 60
Business Sales 1192 1.90% 1215 -7.80% 4832 4.30%
Solutions Op.Income -7 47 59
Discussion Point:1. Blue Ocean Strategy highlights the critical factors for the success very elaborately but how did LG management fail in this regards?
2. What should LG Electronics do to revive the Mobile handset and communications division?
3. What are the key learning from the LG Electronics failure to adopt the BOS strategy successfully.
4. Impact of the Key economic and other external environment factors on the LG electronics that affected the BOS strategy implementation.


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