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The Book
“Voted among the top three best
business books in 2008.”
The Author “I believe in
management education. I believe managers can learn from the experience of other firms so that they will not repeat the same mistakes and they can make better informed decisions.”
Sea Jin ChangPhiladelphia
February 2008
The Author- A Kumho Asiana Group
Endowed Chair Professor of Business Administration at Korea University
- Received B.A. and M.A. in economics from Seoul Nat’l University
- Ph.D. in strategic management from the Wharton School of the University of Pennsylvania where he was a Dean’s Fellow
The Author-professor at the Stern School of Business of New York University-leading researcher on the management of multinational firmsResearches on strategies for corporate growth through joint ventures & acquisitions, foreign direct investment & corporate management studies of Japan Korea and China.
The ObjectivesTo understand why Sony’s performance, which had dominated the electronics industry for many decades, had dropped so rapidly, while Samsung Electronics, an obscure OEM (Original Equipment Manufacturer ) not so many years ago ,had emerged from nowhere.To compare key strategic decisions by Sony and Samsung with respect to technology, marketing, globalization strategies & organizational infrastructure.
When did it start?
The Turning Point: as of December, 2006Points of
DifferenceSony Samsung
Electronics
CEO’s Howard Stringer & Ryoji Chubachi
( Succeeded Sony’s Chairman Noboyuki
Idei & President Kunitake Ando by
2005)
Jong –yong Yun (since 1997)
Market Capitalization -lower than Samsung
Twice that of Sony & 400% increase since
2000
Profitability Declined after Play station was
introduced (in1997)
Higher rate of profitability
The Evidence
Best evidence of Samsung’s rise and Sony’s fall: from the changing tones of Sony’s top management (CEO’s):
Noboyuki Idei- Samsung was merely one of the suppliers rather than a potential threat.
Kunitake Ando- asked for a report on what Samsung is doing every week.
Howard Stringer- Sony openly acknowledge that Samsung Electronics has now become its competitor
Response of Media to Sony’sFall:
Based their evaluations superficially and focused only on a short term performance.
REAL CHALLENGE:“To compare Samsung Electronics and Sony’s business structures, technology, brands, organizations & management systems and to explain why these two giants have met with such drastically different fates during the past ten years.”
Comparison of Sony and Samsung Electronics
Points of Difference Sony Samsung Electronics
Age in the business Older firm (1958) Younger firm (1969)
How it emerged into the electronics industry
Start-up company Subsidiary of the Samsung group
Cultural distinction Japanese Korean
Missions To make consumers lives more convenient by
developing & producing innovative products
Long-standing identity: manufacturer of key
parts that are essential to the electronics
industry
Key Businesses Devoted significant resources not only to
electronics business but also to music, movies
and software
Produces & sells parts to other firms in w/c its
products are centered to the electronics industry
Business structure B2C ( Business-Consumer)
B2B( Business-Business)
Shared characteristics
Simultaneously compete & cooperate with each other.Adjustment to rapid technological developments in the electronics industry and how they effectively respond to such changesRepresentative of Asian companies.Both have global ambitions
PART 1: STRATEGIC ANALYSIS
PART 1: STRATEGIC ANALYSIS
Technology Marketing Globalization
Analog Digital
LP Records CD’s
Analog signals- continuous electrical
impulses
0 & 1 signs
Convergence – The merging of various devices that were
once distinct
Broadband- involves the instantaneous
transmission of massive amounts of digital
information via high speed internet
Technology
Analog WorldSony, the Prince of the Analog World- They developed remarkable products such as Walkman,
Camcorder and the CD- Emphasized the creativity of its employees and made new
product development as its founding principle.
What they did Consequences
They did not imitate what other people might have done/ Originality
Source of imitation and treated as ‘guinea pigs’
The internal R& D helped in pursuing its goals in innovation
Costly
They created products in a variety of fields
Created a wide range of rivals in different fields
They attempted to set the industry standards
Risky
Samsung Electronics, the Late Starter-was once merely an OEM company with limited
technology and product development skills-it produced cheap, low quality products by
borrowing technology from overseas- Succeeded in the DRAM (Dynamic random access
memory)business by aggressive investment, ruthless cost-cutting and focusing on new product development ( during1973- Oil crisis)
- Applied this kind of practice to similar products such as flash memory and LCDs.
Digital technology (mid 1900’s)
- a ‘disruptive technology’ (from Clayton Christensen’s, Innovations Dilemma- disruptive innovation) ‘cause it eliminates differences among end products
- shorter life cycles of electronics products- difficult to monopolize a standard- enabled specialization and standardization- increases competition & puts downward pressures on
prices and profitability- allowed sharing of several features Narrowed the technological level and new product
development capabilities between the two.
Response to the change:
SONY- “Endless innovation”- emphasized its network & continued promoting the development of new products and services to avoid commodity trap
SAMSUNG- “ Speed”- comes up with products quicker than its competitors
Sony’s Digital Dream Kids
- to utilize digital technologies to create fun and unique products that fulfill the dreams of the customers who’ve grown up in the digital age (Idei’s strategy)
- To actively respond to digital revolution
Sony’s Problem
They failed to invest in Flat Panel Display TVs such as LCDs and PDPs because they tried to develop their own display such as OLEDs.
Reason:-They show a strong Not-Invented-Here syndrome
Confusions around Digital Music Player- Why did Sony fail to develop a digital player similar to iPod?
Reasons of Failure:- Organizational structure deferred cooperation with
other music and hardware sectors- Political power struggles among top executives of
Sony’s businesses
Samsung’s Digital Sashimi shop
Speed- their strategic response because the
products they sell are commoditized so quickly.
-Jong-yong Yun warns employees not to relax-Started during the production of DRAM, for
which prices drop very quickly “Speed is the key to all perishable
commodities…inventory is detrimental and speed is everything.”
- Digital Sashimi theory by Jong-yong Yun
Problems of Samsung
Imbalance in the memory (eg. DRAM) and nonmemory (eg. microprocesssors) businessWeak in consumer electronics-except for LCD TVs , LCD monitors and mobile phones.Not competitive in products for which creativity and software matterLacks the ability to develop new technology and products when there is no clear trajectory or another firm for it to benchmark.
Brand Value assessment:
Marketing
Year
Company
2000 2006
SONY 18th 26th
SAMSUNG 43rd 20th
The shift was made possible due to Digital Revolution. Capitalization in
marketing and technology were made possible even though Samsung was a
‘late starter’.
Components Sony Samsung Electronics
Product Development
According to what consumers truly crave.
-strategic product system- tight time schedule
Product design -Design Division-unified design and advertisement
-IDS ( Innovative Design Lab)- hired professors to teach design courses
Distribution -Paid less attention to distribution channels
-Allocated strategic marketing budgets for each channels.
Advertisement Centered on newly released products
-invested money for the products and especially those products identified as having the highest ROI
Brand Value -Resulted from a constant release of new products instead of intentional promotion
- Result of constant investment in advertisements
Focused on globalization efforts which means producing goods in a country with the cheapest cost, selling them in the most profitable places and operating businesses all over the world.
Globalization
SonyA Global Localization-Mr. Morita Americanized the company-He established Operational Headquarters in Japan,
US, Europe and SE Asia-“Think Globally, Act Locally”Losing Control Overseas Subsidaries-Mickey Schulhof- revolted against Sony HQ’s
decisions-Conflicts happened between Sony America and
Sony HQ because of the incapability to control the local subsidiaries and limitation to offer a global control
-Morita and Ohga- managed locally based on personal relationships
Samsung Electronics
Chairman Lee started to pursue globalization in 1993 and also built factories / HQs in different countries to pursue global localization
Excessive Localization-some were unprofitable and too expensive to continue production at their current locations
Problems in localization led regional HQs to be dissolved and they restructured it into Global Product Manager in 1998 (but changed again into Global Business managers
Point of Views Sony Samsung
External Globalization
Lacked infrastructure to manage the challenges of
globalization
Perceived globalization merely as building overseas factories
Securing Global
Managers
Has lots of local managers which might be difficult to be managed by the main
HeadQuarters
Korean-centric bias local operations
PART 2: ORGANIZATIONAL PROCESSES AND
LEADERSHIP
PART 2: ORGANIZATIONAL PROCESSES AND
LEADERSHIP
Organizational Structure
Sony
Field managers were allowed to make decisions
SamsungOnly the chairman, who’s also assisted by his group of secretaries make the decisions
Management & Employees
Sony
AutonomyFamily-based ownership but was managed professionally other than the Japanese .
SamsungEmperor management or dictatorship- allowed swift & effective implementation of commands. Family-based ownership yet still owned by the family of the Korean founder.“Fear-based management“- which caused organizational fatigue
Recruiting and Training
Sony
“Internal recruiting system”OJT ( On-the-Job Training)1988- began hiring mid-career people- and foreigners
Samsung
Heavy investmentFocus on creating agents of changeExpertise in technology and marketing
Corporate Culture
Sony
“Freedom and Open-mindedness”
“ Let’s make a company where everyone feels happy to work”
- by IbukaBased on Western organizational principles ( Idei’s time)
Samsung
Corporate culture- emphasizes integration and efficiency with talented employees; loyalty; disciplineThey do what would benefit the most for the company
Samsung’s Challenge
What they need to change:Excessive centralization- decision making is only based on the Chairman and his group-level staff organization
-No measures to check decisions even if they take the wrong direction.
-but could execute commands swiftly and effectivelyFear- based management
-Cause organizational fatigue due to heavy work loadLack of CreativityHiring non-KoreansTransition from founder to professional management
Sony’s Challenge
-Chairman Stringer admitted that Sony’s problems have resulted from strategic and organizational failures
What they need to change:The divided organization- “Sony United”Centralize the decision making processDevelop new products
Behind Successes and Failures
1)Marketing strategy What made Samsung a global brand was it’s strategic “
selection and concentration”• They selected a product with the highest ROI (return
of investment) like the mobile phone• They actively invested in marketing compared to Sony 2)Technology• The firms (Samsung)corporate culture of obedience
and execution and its strong financial orientation may be rapid and efficient , but new product development and creativity may be hindered.
• Sony has fallen not because of Idei’s network strategy was ill-advised but because the organization was incapable of executing strategies.
3) Corporate governance• Sony got into trouble under Noboyuki Idei because his
leadership did not complement Sony’s corporate culture and organization.
• Charisma is one factor which people would follow you.• Company succession needs planning and evaluation of the
candidates .
4) Globalization• Adoption of Western titles such as CEO or COO may have
been unwise for Sony’s employees for they perceived their president as CEO. There is a mismatch and confusion for who held the ultimate power.
• Sony’s globalization might have been too rapid but Samsung's procrastination about globalizing might be a bigger problem
• Samsung should discard their Korean bias and hire more creative talent
Conclusion
The major decisions made by Sony and Samsung Electronics during the past decade did not simply originate from the differences in these firms strategic content. They were deeply rooted in their organizational processes and their executives political behavior.
Reviews
Sea-Jin Chang has produced that rarity in a business book--one that is as valuable to practicing managers as it is insightful to academic researchers. In this fascinating comparison of two modern global giants, he applies his high resolution research microscope to their changing fortunes by dissecting their contrasting strategies, and providing interesting insights into their divergent organizational processes and management practices. This is a very valuable contribution to the international business literature. It will end up in as many corporate boardrooms as faculty seminars.
--Christopher A. Bartlett Thomas D. Casserly Professor Emeritus,
Harvard Business School
“ I enjoyed this book because I enjoy learning about how large companies operate but I don't think that this book will interest the majority of business book readers (for example the kind of people who read the biographies of entrepreneurs).
He obviously knows these companies well as he goes into detail about the two companies structure and work ethic and how these affect performance.
Even though this book is quite interesting and isn't a text book but it's probably produced for business students.”
Mr. M. D. Burton Edinburgh
22 July 2009
Source: http://www.amazon.co.uk/Sony-Vs-Samsung-Electronics-Supremacy/dp/0470823712
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