Monday, March 17, 2014

Case Study - Samsung Innovation Strategy – Struggling to innovate, shifting focus to software

Samsung market cap has fallen by over US$ 6 billion recently as the company struggles to innovate new products which the company had been doing successfully for past many years. Samsung Electronics' chairman, Lee Kun-hee decades ago called Samsung management to "change everything except for your wife and children” which led to company not exactly innovating but copying and then tweaking the innovations of others, producing alternatives in the market and add-ons for software rather than developing useful, original features for consumers itself. Its strengths lie in its ability to quickly and cheaply research, develop, and manufacture hardware in an amazing broad range of product categories, but company has trouble in software development for its hardware. Despite the enormous amounts of money Samsung spends each year on research and development, Samsung is struggling to innovate which is having a significant effect on company’s revenues and brand image. Lee said Samsung must "get rid of business models and strategies from five, ten years ago and hardware-focused ways and wants the company's massive research and development centers to "work around the clock, non-stop." A report released by leading global consulting firm Booz and Company highlighted the fact despite Samsung spending US$10.4 billion  on R&D in the fiscal year ended June 2013, that included spend of all business divisions including mobile. Forecast for current year is to surpass $11 billion, and around $10 million or so is said to have been spent on developing Samsung’s flagship smartphone model.

Despite the heavy spending, Samsung ranks third as the world’s most innovative companies, following Apple and Google with Apple being major competitor in smartphones and Google a big software partner as Android is owned by Google and it is operating system for most of the Samsung mobiles. Samsung companies had successfully changed their strategy earlier as they made transition from volume focus to quality focus in the past two decades and they must now transition to upgrade the value and "class" of the products and services they provide to consumers. Samsung chairman pointed out that greater opportunities exist when companies and economies slow down and the conglomerate needs to look beyond competition and innovate new technologies and enter new markets which can only be achieved through convergence of industries and technologies. "There is a great need to build up competitiveness that cannot be copied by rivals. Old strategies, hardware-oriented processes and corporate cultures should be boldly thrown away," the chairman emphasized. Samsung can only overcome uncertainties only through initiatives that will lead to market and technological breakthroughs. Samsung also needs to complete the setting up of a global management system that can fuel change and innovation, he said. Samsung is the world's largest mobile device, television and semiconductor producer, but developing software  is critical for the company to compete with firms such as Apple and Google -- both of which have made a number of acquisitions to improve the software they offer. Samsung CFO Lee Sang Hoon said in November, 2013 that the company will aggressively search to secure valuable startups and SMBs that could improve its own products.


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