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[answered] BSTR/228 IBS Center for Management Research Samsung Electro

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BSTR/228 IBS Center for Management Research Samsung Electronics: Success by Design


This case was written by Sachin Govind, under the direction of S.S.George, IBS Center for Management Research. It was


compiled from published sources, and is intended to be used as a basis for class discussion rather than to illustrate either


effective or ineffective handling of a management situation. 2006, IBS Center for Management Research. All rights reserved.


To order copies, call +91-08417-236667/68 or write to IBS Center for Management Research (ICMR), IFHE Campus, Donthanapally,


Sankarapally Road, Hyderabad 501 504, Andhra Pradesh, India or email: BSTR/228 Samsung Electronics: Success by Design


?An enterprise?s most vital assets lie in its design and other creative capacities. I believe that the


ultimate winners of the 21st century will be determined by these skills.?1


- Kun-Hee Lee, chairman, Samsung Corp., in 2006.


?We want to be the Mercedes of home electronics.?2


- Yun Jong Yong, chief executive, Samsung, in 2004.


?Good design is not simply about aesthetics or making a product easier to use. It?s a central part


of the business process, adding value to products and services and creating new markets.? 3


- Tony Blair, prime minister, UK. INTRODUCTION


In the 2006 IDEA (Industrial Design Excellence Awards)4 competition, Korea-based Samsung


Electronics Co. Ltd. (Samsung) won a gold (for a touch messenger 5) and two silver (for a portable


digital projector and a digital presenter) awards. With these wins, Samsung held on to its number


one position as the company that had won the most IDEAs in the last five years.


Samsung had made the decision to adopt design as a source of competitive advantage in the 1990s.


Earlier, the company?s products had been uninspiring and undifferentiated. In the early 1990s, the


Group chairman, Kun-Hee Lee (Lee), initiated Samsung?s transformation from a low-end OEM6


into a world-class electronics company. Sharpening the company?s design skills was a significant


part of the initiative. However, this required major changes in culture, processes, and systems


within the company.


The decade-long initiative proved to be successful and Samsung came to be perceived as a


company with an exciting product portfolio. The IDEAs and numerous other awards that Samsung


won in the 2000s reaffirmed the company?s newly-acquired design prowess. With stylish products


in its portfolio, the company was able to record higher sales and higher profits. Interbrand 7, a


leading branding consultancy firm, named Samsung as one of the fastest growing brands in its


2005 brand survey. The top management attributed the company?s success to a great extent to its


new design capabilities. 1






4 5


6 7 Luke W., ?Design vision: In Korea,?, February 19, 2006.


David Rocks and Moon Ihlwan, ?Samsung design,?, November 29, 2004


Roberto Verganti, ?Managing design-driven innovation for competitive advantage,?, 2006.


IDEAs, sponsored by BusinessWeek, are given away each year to the best industrial designs from across the world.


The entries are judged by Industrial Designers Society of America (IDSA) and the results are published in




A touch messenger helps the visually impaired to send and receive text messages.


OEM or Original Equipment Manufacturer refers to an entity that manufactures products which are then sold by


other companies under their brands.


Interbrand Corp. was established in 1974 in London. Its services include brand research, brand valuation, brand


strategy, naming and verbal identity, brand design, internal brand alignment, integrated marketing, digital brand


management, and brand protection. 1 Samsung Electronics: Success by Design However, as of 2006, several small and big companies were following in Samsung?s footsteps, and


hiring design houses and consultancies to improve their product designs. It seemed that in the


future, design itself was in danger of being commoditized. BACKGROUND NOTE


The Samsung Group was founded by Byung-Chull Lee (Byung) in 1938, in Taegu, Korea, as an


exporter of dried fish, vegetables, and fruits. Byung later established flour mills under the


Samsung name (Korean for three stars). He also produced confectionery machines in this period


(Refer Exhibit I for the companies under the Samsung Group as of 2006).


In 1951, Samsung Moolsan, a holding company, was established, which later became Samsung


Corp. In 1953, Cheil Sugar Manufacturing Co. was set up, which later became an independent


company. In 1958, Samsung acquired Ankuk Fire and Marine Insurance (later renamed Samsung


Fire and Marine Insurance) and DongBang Life Insurance in 1963 (later renamed Samsung Life


Insurance). In 1966, the Group founded Joong-Ang Development, an entertainment (theme parks)


and services company, which was later renamed Samsung Everland.


In 1969, Samsung Electronics Manufacturing Co. (SEMC) was incorporated. In the 1970s, the


Samsung Group forayed into the shipbuilding, chemical, and petrochemical industries. In 1974, the


Group8 acquired a 50% stake in Korea Semiconductor Co., a joint venture between Korea


Engineering & Manufacturing Co. and Integrated Circuit International. SEMC started exporting its


products in the 1970s. In 1978, the Group?s electronics exports crossed the 100 billion won mark.


In February 1984, SEMC was renamed as Samsung Electronics. In the mid-1980s, the Samsung


Group began to concentrate on R&D activities. In 1986, the Samsung Economic Research Institute


(SERI) (which later became an independent entity) was set up, while the Samsung Advanced


Institute of Technology (SAIT) was set up in 1987. The SAIT R&D center helped the Group enter


other technology-intensive industries in later years.


Byung passed away on November 19, 1987, after having managed the Group for almost fifty


years. After Byung?s death, his son Kun-Hee Lee (Lee) became chairman of the Group. In 1988,


on the 50th anniversary of the Group?s founding, Lee announced the ?Second Foundation? of the


company, with the aim of directing the Group toward becoming a modern world-class corporation.


The 1990s saw a series of technological innovations at Samsung. The company developed the


world?s first 16M DRAM9 in 1990, a 10.4 inch TFT-LCD10 panel in 1992, the world?s first 64M


DRAM in 1992, an ultra-light 100g mobile phone, a digital video recorder (DVD-R), the world?s


first 8mm VCR in 1993, and the world?s first 4X (four power) zoom camera in 1994. In 1995, it


developed real-time MPEG-III technology and a 22-inch TFT-LCD panel. In 1996, it developed a


1 GB DRAM and in 1999, a 1 Gigabit flash memory prototype and a 24-inch TFT-LCD panel.


Samsung?s technological innovations continued in the 2000s as well.


By 2006, Samsung had grown to become a leading player in the semiconductor,


telecommunication, digital media, and digital convergence technologies. The company earned


revenues of US$ 56.7 billion and a net income of US$ 7.5 billion (in 2005). It employed 113,600


people in 90 offices in 48 countries. It was estimated to be the largest manufacturer of memory


chips, TFT-LCDs, color TVs, and color monitors in the world. 8 9 10 Unlike most other industrial conglomerates, the Samsung Group does not have a holding company and is more like


a web of companies, subsidiaries, and affiliates, where each entity owns shares in other companies in the Group. In


2006, the Korean Fair Trade Commission, Korea?s top trade regulator, criticized Samsung for its corporate structure


and asked it to create a holding company.


DRAM or Dynamic Random Access Memory is a type of RAM (the primary storage in a computer) that stores each


bit of data in a separate capacitor.


Thin-Film Transistor LCDs are a variant of Liquid Crystal Displays (LCD). They are believed to be an


improvement over ordinary LCDs. 2 Samsung Electronics: Success by Design SAMSUNG?S FOCUS ON DESIGN INNOVATION


Samsung?s journey toward design excellence started in 1993. That year, Lee reportedly visited an


electronics store in Los Angeles, USA. He noticed, to his dismay, that the Samsung products on


display looked unattractive, while the products of Sony and some other companies looked much


more appealing. He found too that the sales personnel at the store were themselves ignoring the


Samsung products. Lee realized that Samsung was paying too much attention to volumes and the


cost of production, while ignoring customer value. He recognized that in order to survive,


Samsung would have to make high quality, exciting products. Lee said, ??having taken


responsibility for the management of the group for five years, I have come to realize that Samsung


has reached a turning point where it simply has to change. We are not yet adapting ourselves to the


new economic environment. Our management is still maintaining a policy that puts priority on


quantity rather than quality. We have to change if we are to survive. That is our only chance.?11


Lee came to the conclusion that apart from using cutting-edge technology, Samsung could create


value through design. He then communicated his vision for Samsung and the role that design


would play in the future, to his managers.


Lee was not sure, however, whether his designers were capable of delivering designs that would


appeal to a global audience. Therefore, he hired a Japanese design consultant to evaluate


Samsung?s designers. The consultant came to the conclusion that the designers were top notch; the


problem lay in the processes and systems in place. As a first step, Samsung?s design center at


Suwon, a small town, was shifted to Seoul.


In 1994, Lee announced major plans to secure a new competitive advantage for Samsung through


design innovation. Samsung set aside US$ 126 million for its design initiatives till 2000.


Soon, Lee sent a group of 17 designers from Samsung to the Art Center College of Design


(ACCD)12, Pasadena, California, to broaden their ideas about design. Samsung later engaged the


services of Gordon Bruce (Bruce) and James Miho (Miho), design consultants and members of the


faculty at the ACCD. The design consultants helped establish a design school ? Innovative Design


Lab of Samsung (IDS) ? close to the company?s headquarters in Seoul, to train the designers.


Around US$ 10 million were spent on setting up the eight-storied design lab.


Samsung?s determination to excel in design inspired the government of South Korea to announce


the beginning of a ?Design Era? in the country, in an effort to encourage businesses to recognize


the importance of design and use it as a competitive advantage.




The Japanese consultants who had initially evaluated Samsung?s design team had also suggested


that the company should incorporate Korean values in its designs. However, Samsung found it


difficult to arrive at a uniquely Korean identity. Company officials were asked to travel the length


and breadth of the country in search of places and objects which could represent Korea.


Eventually, it was believed that Lee himself chose Seokguram, a remote mountain cave that


housed an 8th century Buddha, and the phrase ?Balance of Reason and Feeling? as the design


philosophy for Samsung?s product design and graphic communications (Refer Exhibit II for a


graphic representation of ?balance of reason and feeling?). ?It is very Oriental


not black and


white, but a balance of things. It states that we will meet the emotional needs of our customers


with the technological solutions we have,?13 said Hyun-joo Song, executive in charge of design






12 13 Les Echos, ?Samsung challenges Sony?s stronghold?,, March 12, 2002.


The ACCD was established in 1930 in Los Angeles by Edward A. Adams. It offers undergraduate programs in


advertising, environmental design, film, fine art media, graphic design, illustration, photography and imaging,


product design, and transportation design, and graduate programs in film, art and industrial design.


Frank Rose, ?Seoul machine,?, May, 2005. 3 Samsung Electronics: Success by Design ?Reason and feeling are opposites, but they are essential to each other. In design terms, ?reason? is


rational, sharp-edged, and very geometric. ?Feeling? is soft and organic ? it makes an emotional


connection with the user. Taken together, reason and feeling give us a way to frame our design


identity, which is always evolving,?14 said Sangyeon Lee, head of Samsung?s San Francisco design




The Reason and Feeling approach was to have six ?guiding principles? such as ?to balance


consistency with variety?, ?harmonize with the environment?, ?design for experience?, etc. Every


Samsung product was to have consistent characteristics and a common ?design language? which


were to provide real as well as emotional benefits to customers. All products were required to have


outstanding features and high levels of convenience.




Samsung?s design strategy involved several initiatives. To begin with, the company decided to


create a global brand identity. Therefore, in 1993, the Samsung ?wordmark? 15 was launched16 (See


Exhibit III for the Samsung wordmark), and later in 1999, Samsung began implementing a global


brand communication strategy.


In an effort to communicate the importance of design, Lee declared 1996 as the ?Year of Design


Revolution? for the Samsung Group. The same year, Samsung engaged Tom Hardy 17 as the


Corporate Design Advisor to guide its efforts in improving its design capabilities.


In order to maintain high levels of creativity, Samsung began sending its more experienced


designers to work abroad in diverse industries such as furniture, cosmetics, and fashion for periods


ranging from six months to two years. This enabled the designers to think out-of-the-box. On their


return, they were encouraged to share their experiences with other designers so that the knowledge


could spread across the company. Around 20 designers were sent on such programs every year.


In 2001, Samsung inaugurated the new Design Management Center at Seoul. In 2003, Samsung


opened a usability lab in Seoul where engineers, designers, specialists from the social sciences,


and consumers tested everything right from taking the products out of their boxes to the icons and


menus on screens. Findings from such observational research were used to help the designers


improve their designs.


Samsung created world-class design infrastructure, including design labs and research centers, to


improve its design capabilities. In an effort to get a global perspective and secure talent from


different cultural backgrounds, it established design centers in the US (San Francisco, Los


Angeles), the UK (London), Italy (Milan), Japan (Tokyo), and China (Shanghai). In addition, it


improved its facilities at the Corporate Design Center in its home country. BRINGING CULTURAL CHANGES


Although Samsung had no problems in funding and creating the design infrastructure, it faced a


more difficult task in convincing the rank and file at the company that design was necessary for


survival and growth. Most of the employees were more concerned about costs and volumes than


design. ?Samsung was a technology company whose management thinking came out of exporting


rice,? said Bruce, ?There was no design involved. It was all about keeping the price down and


outselling the other guy.?18






16 17 18 Bill Breen, ?The Seoul of design,?, December 2005.


The new ?wordmark? replaced individual logos for over 44 brands across the Samsung Group?s businesses.


Lee had engaged the services of Lippincott & Margulies, world-renowned brand consultants, in the early 1990s to


develop the wordmark.


Tom Hardy, a well-known design consultant, served as corporate design advisor at Samsung between 1996 and




Bill Breen, ?The Seoul of design,?, December 2005. 4 Samsung Electronics: Success by Design Consequently, when Lee communicated his design vision to his managers, most of them were


clueless as to what their chairman meant. ?Most of us didn?t understand what he was talking


about,?19 said Kook-hyun Chung, senior vice president, Corporate Design Center, Samsung.


Therefore, efforts were made to first create a design-friendly culture at Samsung. The IDS was to


be a major part of that effort.


Initially, the ACCD curriculum was to be used at the IDS. However, Bruce and Miho, who were


brought in to develop Samsung?s design capabilities, soon realized that the curriculum just did not


suit the culture at Samsung.


Bruce and Miho found that they were up against deeply held cultural beliefs. South Korea, despite


its capitalistic economy, was essentially an oriental culture and employees at Samsung held strong


Confucian beliefs20. Fostering creativity required breaking away from some of the traditions and


behavior patterns. For example, South Koreans, like people belonging to other oriental cultures,


respected their elders and teachers and dared not question them. However, at the IDS, designers


were encouraged to question their superiors and express their opinions. All employees were


encouraged to speak their mind, irrespective of their age or position. Bruce said, ?In the beginning


of the program, designers cared a lot about their positions (like assistant designer, designer, senior


designer, or principal designer) and were unable to discuss their ideas with those in other positions.


However, as they went through the IDS program, they opened their minds to others and changed


their attitudes.?21 Also, in another departure from convention, there was no dress code at the IDS.


The trainees were also paid their usual salary while they attended full-time classes six days a week


on subjects as varied as engineering, marketing, and design.


The consultants also noted that though the designers were expected to design products for


international markets, most of them had never traveled outside Korea. ?To understand who you


are, you need to get out of your environment,?22 pointed out Bruce. Therefore, Bruce and Miho


took the designers on a worldwide tour in an effort to expose them to various cultures and thus


expand their horizons. The team visited Egypt, India, Italy, Greece, USA, and the UK.


From the fourth year onward, marketers and engineers also started attending one-year programs at


the IDS along with designers, so that communication and understanding between the different


functional groups would improve. SYSTEMIC AND PROCESS CHANGES


Samsung redesigned its systems and processes to improve the design delivery process. First, the


company modified its product creation process. Samsung earlier was an engineering-driven


company and there was very little interaction between the company?s engineers, marketers, and


designers. The designers only took orders from engineers and product planners. However, this


arrangement was done away with, and designers began to enjoy as much, if not more, authority as


engineers and marketers. Collaboration between different departments became a key aspect of new


product development.


All designers at the Corporate Design Center worked in a common four-storied design lab, in large


open halls, with hardly any segregation. For example, designers in the consumer electronics and


computer products division worked alongside appliance and mobile handset designers. The design


department also started a ?design bank?, where designers saved designs so that they could be used






20 21


22 Frank Rose, ?Seoul machine,?, May, 2005.


Confucianism refers to a system of thinking based on teachings of Kong Fuzi (popularly known as Confucius), a


sage and a philosopher, who lived between 551 and 479 BC in China.


?Samsung?s lessons in design,?, September 2001.


?Samsung?s lessons in design,?, September 2001. 5 Samsung Electronics: Success by Design Samsung also began holding design meetings on a regular basis where the heads of all business


units assessed new products and evaluated their designs. In 2004, the company created a new




Chief Design Officer. This was done to give greater voice to the design department and


to ensure that the senior management had closer ties to design.


From 2000, Samsung increased its design budget by 20 to 30 percent annually. It also doubled the


number of its design staff from 230 in 2000 to 470 in 2006, adding 120 designers in 2005-06




Samsung had a string of design successes in the 2000s. For example, the Syncmaster series of


LCD monitors was lauded for its simple design and went on to win several awards.


In the 2000s, LCD TVs and Plasma TVs were gaining in popularity, while the popularity of the


much bulkier projection TVs was waning. Therefore, Samsung?s design team started work on


developing a slim projection TV based on digital light processing (DLP) 23 technology. The result


was the highly acclaimed HLP series of DLP TVs, which had the processing engine standing


upright and functioning as a pedestal base. The HL-P5685W, a 56-inch high-definition DLP TV,


(Refer Exhibit IV for a photograph of the model) was particularly successful. Samsung also


designed a DVD player and a home theater system to go with this model. With the HLP series,


Samsung became the number one DLP TV brand in the US.


Samsung was also one of the best-selling brands in large high-end TVs (other than DLP TVs) in


the US, a position which it managed to achieve primarily due to its emphasis on design. The


Samsung Bordeaux LCD TVs, whose design was inspired by wine glasses, were a huge hit in the


US and in Europe.


In an affirmation of its design prowess, Samsung began to be a regular fixture in the annual lists of


IDEA winners. In 1997, it was ranked 15th in the list, but by 2001, along with Apple Computers, it


had moved to first place, a position it continued to hold even in 2006 (See Exhibit V for the list of


IDEA winners). Through the 2000s, Samsung won several awards (Refer Exhibit VI for a list of


some of the awards won by Samsung).


In August 2005, BusinessWeek/Interbrand placed Samsung at the 20th position in terms of brand


value in their Top 100 Global Brands survey. In that year, the Samsung brand had recorded a


186% increase in value over the previous year. In contrast, Samsung?s rival Sony had seen a 16%


drop in brand value and was ranked behind Samsung, in the 28th position.


Convergence Products


In addition to providing great-looking products, Samsung?s designers also strove to offer ?real?


benefits to consumers. For instance, Samsung launched several hybrid products (or digital


convergence24 products) that combined the features of two or more products, thus providing


greater convenience to customers. In fact, Samsung?s vision was to ?lead the digital convergence


revolution?25, and design was to be a significant contributor to achieving this (Refer Exhibit VII for


photographs of some convergence products from Samsung). 23 24 25 DLP technology was originally developed at Texas Instruments in 1987. In this technology, the image is created by


microscopically small mirrors placed in a matrix on a semiconductor chip. Each mirror represents one pixel.


Digital convergence refers to the merging of technologies of three industries ? Computer (hardware & software),


Electronics, and Telecommunications.


According to 6 Samsung Electronics: Success by Design Samsung launched 5 mega pixel and 7 mega pixel camera phones in 2005, followed by a 10 mega


pixel camera in 2006. These models combined a full-feature digital camera with a mobile phone. It


also launched the i730, a mobile phone that could be used to read and send e-mail and browse the


Internet. In mid-2006, Samsung launched the SGH-i310, a mobile phone with 8 GB of storage




enough to store around 2,000 MP3 files. The Samsung Extiva, a DVD player that


could also play video games, the X series notebook computers that doubled as mobile TVs and yet


were thin and light enough to be carried around in a handbag, and Zipel, a refrigerator that had a


digital photo album and a TV receiver, were some of the other innovative products developed by




Some critics commented that even if Samsung?s design capabilities had improved greatly, the


company still lacked a coherent design. ?Samsung has improved, but I don?t see an identity in their


design that really speaks to consumers,?26 said Jim Wicks, vice-president (in charge of designing


cell phones), Motorola Inc. According to some other critics, the company still did not have the


design culture of Apple Computer Corp., or the breadth and depth in design that Sony possessed.


In spite of the improvements in the design process, the design of some of the products that


Samsung introduced was still poor. For example, the Samsung Q1, a tablet PC launched in 2006,


was panned by critics for its lack of features, small screen, and high price. One critic had this to


say: ?W...


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