Case 19 Samsung Electronics In January 2009, Samsung Electronics began to slim down its operations into two divisions

from the five separate ones that it had a year earlier. The sets division, called digital media and communications, will focus on consumer products such as television and mobile phones. THe parts unit, called device solutions ,will handle electronic components such as semiconductors and LCD panels. THe firm had already merged its home appliance division, which made refrigerators and air consitioners, with its digital media section over the previous year. The reorganization followed on the heels of a major shake-up of top executives at Samsung electronics. In the aftermath of a tax evasion scandal involving the parent firm, Yun Jong Yong , the electronic firms long term CEO, was replaced in May2008 by Lee Yoon Woo. In addition, the firm has begun to appoint several younger executives to its leadership team and reassign two-thirds of its executives to different positions. There has been a sense of crisis in the company for more than one year, said one senior manager. Radical change is in store. The moves represented a major effort to streamline operations to better address worsening economic conditions. Four years ago, the market value of Samsung had risen above $100 billion, making it one of only four Asian companies to move above that mark. Based in Suwon, South Korea, the firm moved past well- known rivals such as Sony, Nokia, and Motorola on the basis of its revolutionary products.Its feature-jammed gadgets have racked up muscling its way to the top of consumer brand-awareness surveys. However, in spite of these advances, Samsung has not been able to deal with the growing impact of the global economic slowdown. Although the firm has been able to boast of having a lower cost structure than most of its rivals, it was expected to announce its first-ever quarterly loss, for the last quarter of 2008. Much of the downturn could be attributed to an overcapacity in the global production of memory chips and liquid crystal displays, which has forced down prices. This may ease over the next couple of years as many of Samsungs smaller rivals are dropping their plans to expand capacity. Among all the changes that Samsung has been making ,analysts have paid particular attention to the appointment of Choi Gee Sung to head the newly formed digital media and communications unit. Chois appointment signifies a break from the firms tradition of picking top managers with backgrounds in engineering. In fact,Choi is likely to take over as Samsungs next CEO when Lee relinquishes this post. Referring to the shift away from its heavy focus on technology, Kang Shin Woo, chief investment officer at fund manager Korea Investment Trust Management , said Samsungs beachmark is shifting from Japanese companies to innovators like Apple.

Discarding a failing Strategy: The transformation of Samsung into a premier brand can be attributed to the ceaseless efforts of Yun Jong Yong, who was appointed to the position of president and CEO in 1996. When Yun took charge,

Although Samsung was making profits, Yun was concerned about the future prospects of a firm that was relying on a strategy of competing on price with products that were based on a strategies that had been developed by other firms. THe success of this strategy was tied to the ability of Samsung to cotinunely scout for the locations that would allow it to keep its manufacturing costs down. At that same time, it would need to volume of production. In particular, Yun was concerned about the growing competition that the firm was likely to face from the many low-cost producers that were springing up in other countries such as China. Yuns concern were well founded. Within a year of his takeover, Samsung was facing serious financial problems that threatened its very survival. The company was left with huge debt as an economic crisis engulfed most of Asia in 1997, leading to a drop in demand and a crash in the prices of many electronic goods. In the face of such a deteriorating environment , Samsung continued to push for maintaining its production and sales records even as much of its output was ending up unsold in warehouses. By july 1998, Samsung was losing millions of dollars each month. if we continued , we would have gone belly-up within three or four years, Yun recalled . He knew that he had to make sonme drastic moves in order to try and find a way out . They all wrote resignation letters and plesged to resign if they failed . After much deliberation, Yun and his managemnent team decided to take several steps to try to push Samsung out of its precarious financial position. To begin with, they decised to lay off about 30,000 employees, representing well over one-third of the firms entire workforce. They also closed down many of Samsungs factories for two months so that they could get rid of its large inventory. Finally, they sold off about$2 billion worth of businesses like pagers and electric coffeemakers that were perceived to be of marginal significance for the firms future. Developing a Premium Brand Having managed to stem the losses, Yun decided to move Samsung away form its strategy of competition based largely on the lower price of its offerings. Consequently, he began to push the firm to develop Samsung into premium brand that would allow him to charge higher prices. To achieve this, Yun had to reorient the firm and help develop new capabilities. He recruited new managers and engineers, many of whom had developed considerable experience in th United States. Once they had been recruited , Yun got them into shape by putting them through a four-week boot camp that consisted of martial drills at the crack of dawn and mountain hikes that would last all day. To create incentives for this new talent, Yun discarded Samsungs rigid seniority-based system and replaced it with a merit based system for advancement. As a result of these efforts, Samsung begun launching an array of products that were designed to make big impression on consumers. They included the largest flat-panel television, cell phones with a variety of features such as cameras and PDAs , ever-thinner notebook computers and speedier and richer semiconductors. (Exhibit4) The firm calls them wow products,and they are designed to elevate Samsung in the same way th Trinitron television and the walkman had helped to