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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.




                                                                                         1
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


                                                                                          2
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.




                                                                                        3
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,

  10
   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.




                                                                                             4
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.




                                                                                          5
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.




                                                                                              6
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


                                                                                                    7
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




                                                                                                  8
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.




  14


  12


  10

                                                                                         2003
   8
                                                                                         2004
                                                                                         2005
   6
                                                                                         2006
                                                                                         2007
   4


   2


   0
         Samsung       Apple          LG          Nokia         Sony          Motorola




                                                                                         9
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.




                                                                                         10

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37364004 samsung-electronics-innovation-and-design-strategy

  • 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. 1
  • 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 2
  • 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. 3
  • 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, 10 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. 4
  • 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. 5
  • 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. 6
  • 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 7
  • 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 8
  • 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. 14 12 10 2003 8 2004 2005 6 2006 2007 4 2 0 Samsung Apple LG Nokia Sony Motorola 9
  • 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. 10