1. Samsung Electronics: Innovation and Design
Strategy
Introduction:
The case study commences with the integration of innovative design and brand
management by Samsung Electronics which started a new trend in the electronics industry.
As discussed in the case, initially Samsung was not much popular and lacked design
identity but later it relocated itself by:
y Improvement in the product development processes
y Increasing their investments in R&D and product design i.e. R&D globalization.
y By adopting right innovation strategies.
y By mastering the less tangible, more intuitive qualities of superior design.
y By diversification of products and step by step or continual improvement.
y Implementing Global localization strategy.
y Achieving Vision of leading in digital convergence by using e-processes (electronic
integration of processes by going online).
All these methods were implemented by Samsung in order to improve its productivity and
to gain competitive advantage over its competitors like LG Electronics, Sony, Apple
Computer Inc., etc. Despite this, Samsung is facing the challenge to stay ahead in
competition in the near future. Consumer electronics industry is facing a tough competition
and the need of the hour is to optimize the R & D costs, having relevant information
regarding the IPR (Intellectual Property Rights) while design outsourcing and using
appropriate product design followed by appropriate market strategy.
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2. Case Analysis:
As mentioned in the case, the background of Samsung can be discussed in a tabular form:
y Started by Byung-Chull Lee in 1939 as an exporter of agricultural products.
y Samsung Electronics established in 1969 followed by product diversification.
y Strategic Joint Ventures with NEC, Sanyo and Corning Glass work in 1970
y Brought 50% stake in Korea Semiconductor Inc.
y Acquisition of Korea Semiconductor Inc. in 1978 followed by the successful implementation of
reverse engineered product design
y Vertical integration by developing their own IC s DRAMS(Dynamic Random Access Memories
in 1985
y Focus on qualitative growth than quantitative growth in 1990
y Loosening of import restrictions by South Korean government
And Samsung achieved price competitiveness in 1991.
y In 1992, Samsung established R&D center in European markets.
y In 1994, Samsung established R&D center in US markets.
y In 1997, Samsung cuts its Korean and overseas workforces due to Asian Financial crises.
y In 1999, Samsung was regarded as world s premiere consumer goods and services industry By
Forbes.
y In 2000, Samsung embarked vision to convert itself into a Digital- e company.
y Increased design staff and R&D in 2004
y In 2005, Samsung increased its design budget by 20%-30%
y In 2006, Samsung registered 17,377 patents worldwide
y In 2007, Samsung held dominant worldwide market share
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3. Samsung Electronics integration of brand management, product design and investment in
R&D provided them advantages over its competitors. Hence, they improved step by step
with the product diversification, Mergers and Acquisitions, vertical integration and
implementation of new technology. They were aggressively involved in marketing and
improving their brand image in the minds of their customers.
The Samsung s learning and leveraging matrix can be explained as:
Dedicated business units e.g. New venture department or
Informal technology transfer division, e.g. skunkworks(
Investments in R&D s)
Independent business unit, e.g. Direct integration or business
Predivestment or potential team ( Vertical Integration by
spinout developing their own IC s)
Low Leveraging existing competencies High
Innovation and product Design at Samsung Electronics
Samsung Electronics leading position was contributed by the enlisted factors:
y Creative people in the organization which contributed in the development of
technology.
y Co-operation between the business partners throughout the supply chain
y Firms ability in exploring end penetrating into the new markets
y Speed of innovation and product development.
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4. Along with this Samsung also increased the investments in their R&D centers. After doing
the trend analysis for the Exhibit 3 which shows the Samsung R&D budget and
percentage sales,
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9
8
7
6
5 R&D budget
4 % sales
3
2
1
0
2003 2004 2005 2006 2007
We arrive at the conclusion that the Samsung s R&D budget increased till the year 2007
linearly. But there is decline in the percentage of sales in the year 2007, which suggests that
the Samsung will need to rethink this strategy. There is an urgent need to optimize the cost
related to Samsung s R&D expenditure to prevent the decline of sales in future.
Samsung globalized their R&D network worldwide to develop technologies which can be
commercialized in the future. Basically the main idea behind the globalization of R&D
network is to:
y Focus on innovation and generating new products for global market.
y There is a huge scope of product improvement.
y This provides an access to the emerging markets.
y Leverages the market opportunity for the firm.
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5. User- Centric Design Philosophy
Samsung s philosophy was to strike the balance between the reasons and feelings. This was
done by them with the rationalization of the design of product by using geometric and
technological parameters and enhancing the design to the product so that it can make the
emotional connection with the user.
Emotional
Reason Feelings
Connection
Their global localization strategy helped them to become a top class consumer electronics
company.
Marketing
Samsung used electronic processes to achieve their vision of leading in digital convergence.
The Convergence and integration between manufacturing, promotion & distribution of
electronics included releasing, promoting and marketing. This thing helped Samsung in
improving:
y Brand Image
y Helped in product differentiation
y Better value propositions or bundle of benefits to the customers.
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6. This graph shows net sales and operating profit of Samsung Electronics 2007
30000
25000
20000
15000
10000
5000 Net Sales
0 Operating Profit( in $)
Samsung Electronics E-processes comprised of:
Component R&D management
suppliers process
Supply chain Customer
management Management
process
The SCM, R&D management and Customer management processes were integrated with
ERP (Enterprise Resource Planning). ERP implementation provided them a wider access to
the Samsung Electronics operations.
This improved their overall processes and improved efficiency.
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7. Competitive Landscape:
Landscape Samsung Apple LG Nokia Corp. Sony Corp. Motorola
Electronics Computer Electronics Inc.
Inc.
Product Consumer PC s, portable Consumer Leading Electronic Mobility
Offered electronics music players, Mobile games, solutions,
Electronics
Comm.
(LCD TV s, Mobile Motion mobile
( mobile Company
communicatio pictures, services,
Microwave handsets,
n devices, etc. ( started as
Financial cellular
Ovens, PC s, Front loading wood pulp
etc.) washing services, etc. comm.
producers)
machines, Devices ,etc.
AC s, etc.)
Innovation Focuses on Occupies Concentrate Adopted Creates value Focus on two
& Design Reason and feeling zone d on 5 areas: telecom. as added criteria s for
Feeling to and emphasis Mobile its core products by design the
create a on the comm., digital business & doping 4 products for
design and simplicity of appliances, designing principles of their
used global products in digital was based design: consumers:
localization terms of displays, on 3 Originality, personalizatio
strategy to design and Digital media principles: Lifestyle, n and
establish as a usability. and home Simplicity, Functionality socialization
first class networking Relevance and Usability
consumer and design and
electronic their products Experience
company by using 4
(user centric) values:
Theme, style,
interface and
finish
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8. Digital Improvement Originally Product Do not rely on Paid attention
Marketing convergence in design and produced categorizatio customer on
using E- product electronics for n is done by: surveys and development
Processes and features mass Explore create value of new
efforts in consumption Live classic, added user revenue
improving but later classic, experience generating
design by transformed achieve and through services and
investing in to produce entry and feature technologies
R&D premium communicati design, and enabling
consumer ng brand concept customers to
products for value to the development experience
attracting customers and eco- media
premium friendly mobility.
customers sustainable
and to gain design
brand image
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9. Comparison of percentage sales
It is clear from the graph that both Nokia and Motorola are ahead than Samsung in terms
percentage of net sales. This means that Samsung needs to redesign and reform their
business network to gain competitive advantage from its competitors. Moreover in 2007,
there is a slight decline in sales for Samsung which is a cause of concern. Though, Samsung
is relatively doing well as compared to its competitors Apple, LG and Sony.
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12
10
2003
8
2004
2005
6
2006
2007
4
2
0
Samsung Apple LG Nokia Sony Motorola
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10. Conclusion
We can analyze the whole case by using Porter s legacy which deals with innovation
strategy. There are five forces to develop a competitive innovation strategy:
The five forces are :
Relations with suppliers: It means that Samsung needs to improve their relations
with the suppliers. This can be done with Suppliers relationship management and
by bringing the suppliers on a single platform.
Relations with buyers: Customer is the king. There is a need to improve their
relationships with the buyers or customers by developing appropriate marketing
strategy, timely delivery of the products and supply chain management
New entrants: It is important for Samsung to analyze the threats from new
entrants in the consumer electronic market.
Substitutes: With the emergence of chinese products in the market which can act
as the substitutes for Samsung products . Hence, it is important for Samsung to
implement Generic technology strategies which includes:
y Cost leadership (e.g. Lower/cheaper material input, logisitics)
y Differentiation (e.g. Enhance features, deliverability)
y Cost focus (minimum features)
y Differentiation (niche markets)
Rivalry among established firms: There is a strong competition between the
already existing firms like Nokia, Sony, Apple, LG, etc. Therefore ,Samsung will have
to improve its competitiveness in the market.
In order to sustain its position in the near future Samsung will have to consider all the
above mentioned points.
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