Samsung's Balanced Scorecard

STRATEGIC MANAGEMENT ACCOUNTING Samsung Electronics Ltd. (Balanced Scorecard Analysis) Compiled by: Bernardus Alan Handoko Aya Putri Argatika Reza Mediar Novi Prastia

11/311392/EK/18212 11/320288/EK/18685 11/320298/EK/18695 11/320299/EK/18696

SAMSUNG’s Products

Curved UHD TV

Samsung Galaxy S5

Samsung Gear Fit

Samsung Galaxy Note PRO

Samsung SCX-3406FW

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Financial Perspective Samsung’s financial perspective emphasizes the stakeholder concern about how efficient and effective the unit is at using its resources. Its balanced scorecard in the financial perspective serves one objective which is Maximize Return to Shareholders. 

Maximize Return to Shareholders The Company will actively pursue increases in investment return for shareholders by maximizing profits through transparent and sound management. The Company will honor its responsibility to shareholders and interested parties by announcing major financial and corporate information in good faith and in a timely fashion. The Company will accept and sincerely consider legitimate petitions from external shareholders

In increasing the shareholder value, Samsung tends to improve its productivity and revenue growth: 

High Earnings Results by Strengthening Competitiveness Recently, we often heard about Samsung product including Mobile phone, Televisions, Camera, Refrigerators, and so on. By developing and expanding market leadership through electronic products such as Mobile phones, Televisions, and so on, Samsung reaches enhancement in revenue. In 2013, we delivered record sales of KRW 229 trillion, up 14% from the previous year, and both operating profit and net profit increased by 27% and 28%, respectively, over the year to KRW 37 trillion and KRW 30 trillion.

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Developing Key Competitive Advantages Samsung is currently focusing effort in developing key competitive advantages such as technology and brand image, and expanding a foundation for a new growth engines. Amid revolutionary changes recently seen in the IT industry, Samsung focused efforts to enhance the R&D capabilities by increasing R&D personnel and revamping the organization structure. It expanded partnership with external research institutions by establishing an open innovation system, newly built internal research centers including SofTech and Big Data Center to strengthen the software capabilities, and also plan to open a material and future technology R&D center going forward. To expand the base for future growth engines, Samsung is focusing its resources and competencies onto not only existing medical devices, LED, and B2B businesses, but also on Smart Home, mobile health, and other life-care areas, which could improve quality of life.

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Increasing Profitability Currently, Samsung tends to increase profitability through enhanced business competitiveness and sound business management. Not only that, Samsung also tries to solidifying its leadership in IT business. In addition, Samsung also willing to improve efficiency of the company-wide resource management including investment and continue efforts to enhance our global SCM capability.

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Risk Management Capability and Future Competitiveness for Sustainable Growth For a company to continue its growth momentum in the mid to longer term, the key is to have an ability to make prompt response to uncertainties and risks in the business environment. Samsung takes preventive measures. Samsung also participates in making social contribution to local communities as well as enhance communication with stakeholders.

In order to achieve those objectives, Samsung is using several measures: 

Leading – Internal Rate of Return One of the uses of IRR is to compare capital projects. Suppose that Samsung is willing to invest in a new plant project. The choice is whether Samsung invest in a new plant project or expansion in old plant. The calculation of IRR will determine which one is the best investment for Samsung especially because Samsung is an electronic company which is always having R&D department which is requiring investment in some projects particularly short-term one.

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Lagging – Return on Invested Capital and Weighted Average Cost of Capital Samsung is better to use ROIC calculation to determine its efficiency at allocating the capital under its control to profitable investments. Comparing its ROIC and WACC reveals whether invested capital was used effectively.

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Return on Investment Nothing attract shareholders but the number of ROI. The calculation of ROI should be maintained in order to create more value to shareholders. That is, the ROI should be watched because there’s no point if Samsung got good number for IRR and ROIC but not good for ROI, shareholders will mark it as a bad company. In conclusion, financial perspective is the one perspective for Samsung to maintain the value of the

company to the shareholders. It explains about how effective and efficient a company performed. In order to maintain the shareholder value as stated above, Samsung has to invest more capital in product R&D as the process of creating the value. Once the value for shareholders is already made, the invested capital will increase, the company will earn money to maintain its operation.

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Customers Perspective In Samsung’s balanced scorecard, the customer perspective serves one objective, which is: 

Accessibility to new, innovative products Atkinson et al. (2012) stated that the customer perspective should describe how a company intends to attract, retain, and deepen relationships with targeted customers by differentiating itself from competitors. The customer perspective reflects the heart of the strategy. It should contain specific objectives and measures for the strategy’s “scope”—how is the company performing with its targeted customers. It also should represent the strategy’s “advantage”— the unique combination of product features, services, and relationships it has selected to satisfy its customers’ needs better than competitors can. Success in the customer perspective should lead to improvement in the financial perspective objectives for growth in revenues and profits. Therefore, this objective is very important for Samsung as a leading technology company where its customers will wonder what kind of new and innovative products that Samsung can offer. Also as Samsung stated in their website that “SAMSUNG is dedicated to designing products around our customer's needs. In pursuit of our commitment to our customers, we have designed products that are easy to use and have a variety of features. The products and their features are also designed to meet a variety of needs of persons with disabilities.” This statement shows that Samsung is very concern with the accessibility of their customers to new, and innovative products.

Meanwhile, it uses several measures such as: 

Leading - focus groups As a leading indicator, Samsung use focus groups to understand more about what kind of customer reaction, it would get for their new product. Focus group is a demographically diverse group of people assembled to participate in a guided discussion about a particular product before it is launched. But to make a focus group is very difficult, because the truth is that focus group success is highly dependent on the skill of the discussion moderator.

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Lagging – customer’s surveying and reviews As a lagging measure, Samsung uses customer’s survey to understand more about its customers. We all know customer satisfaction is essential to the survival of our businesses. A customer’s survey will help Samsung pin down its customers' likes, dislikes, and the areas of improvement that exist. Also Samsung might to send a survey to figure out why clients stop doing business with it, how it might win them back, and how it can prevent customer losses in the future.

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Lagging - customer retention Then we come to the last measure, which is customer retention. As we know that getting new customers is difficult and expensive so you want to keep everyone you get. So, customer retention is what you do to keep, or retain, customers. And Samsung takes the form of a loyalty program, excellent

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customer service or just regular contact from a representative or only from sample of a population. Customer retention statistics are typically expressed as a percentage of long term clients, and they are important to a business since satisfied retained customers tend to spend more, cost less and make valuable references to new potential customers. Samsung then regularly prepares the tracked report about their repeat customers using the data and information gathered through marketing department. Then the report will be reviewed annually. The report might consist about repeating or supposed to be loyal customers who kept buying Samsung products compare to the other brands because they thought that Samsung has something more (advantage) and has unique style (differentiation) than the other brands. Since Samsung is currently in the top level of market share, Samsung usually only think that Apple (with iPhone) is their main competitor over competing substitutes, so the report might benchmarking the customers satisfaction between this two companies. In conclusion, the customer perspective of Samsung’s balanced scorecard may focuses on improving the customer satisfaction level to get or increase more loyal customers. Meanwhile, the customer perspective’s objective is an important factor that lead to improvement in the financial perspective objectives for growth in revenues and profits and determines the success of the company.

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Internal Perspective Samsung’s internal perspective gives more on all activities and processes in the company in order to maintain the outcomes for customers. Here are the objectives of Samsung’s internal perspective: 

Quality Control As we know, Samsung is a worldwide branch. It is one of the largest brands in the world. Customers are million. From that point of view, Samsung ensures a level of quality of product by examining and testing the quality of product. It is more to maintain or raise the level of products. Samsung ensures the products that are provided meet the specific requirements and characteristics, such as being dependable, safe, and satisfactory.

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Speed to Market Samsung understands the important of market for company. In this objective, Samsung injects new innovations and more commercialization. -

Innovation Innovation is critical to growth. Samsung made more innovations in order to get advantage over the competitors. They understand clearly that one of the ways to speed the market is by giving more innovations into the products. Therefore, Samsung will have lesser competitors by doing that. One of new innovations that Samsung made is new feature on the product S5 Samsung Smartphones.

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Commercialization Business industry is growing rapidly. One of the reasons is because these days, customers rely too much on commercialization. As a big company, Samsung knows the importance of commercialization. With technology developing as quickly as it is across the world, Samsung needs to survive. Knowing that in Asian they are on of the best, now they try to commercialize the brands over Europe and America. As World Cup 2014 is approaching, Samsung moves quickly to become one of the official partners of World Cup 2014. It is the agenda of Samsung that has been planned relying on Balanced Scorecard as well.

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Marketing In few years ago, Samsung was struggling to catch up mostly in smartphone market. Market is important way to increase the number of customers. By increasing the number of customers, it means the revenue will be increased as well. Samsung did a market research in order to compete with the other technology companies. For example, before producing smartphone, Samsung made a research. They found through market that Asian-language speakers in particular wanted a device that they could

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hand-write on, because drawing characters is easier with a pen. The result was combination phone/tablet that has been unexpected hit. 

Distribution Samsung is now focusing on their smartphones. Because Samsung bids to take number one spot in the smartphones. Therefore, Samsung has refined its distribution strategy. After doing a market research, Samsung put its distribution on the stage. In UK, it is understood Samsung has increased its lead over Nokia and now has a market share of around 21%. The distribution of the product must be taking place in the efficient way. This also means Samsung has to be effective in distributing the products all over the world.

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Supply Chain Management (SCM) Samsung has large, complex, and global supply chains in most of the products it manufactures and makes extensive use of SCM solutions and process innovation to support and improve its operations. Despite the extensive use of SCM solutions and process innovation to improve global business operation, Samsung also deploy six sigma which they believed were based on four areas: 1. Project discipline 2. Sustaining results 3. Well-established HR framework 4. Quantitative strength At Samsung, SCM and Six Sigma have been two important enablers for the group’s management innovation and growth.

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Customer Relationship Management (CRM) Customer Relationship Management is a way of using technology to give serve to the customer. For Samsung, CRM is widely-implemented strategy for managing the company’s interaction with customers, clients, and sales prospects. Samsung stringing four processes, namely the process of customer management, process R&D management, and supply chain management process. The process will connect the R&D, production, marketing, and customers. Also to answer the needs of IT infrastructure, and to speed up those four processes, Samsung use ERP system (Enterprise Resource Planning) on the branches throughout the country and abroad.

Meanwhile, it uses several measures such as: 

Lagging – Manufacturing Cycle Time As a lagging measure, Samsung uses manufacturing cycle time to measure the productivity as well as the quality of the product. It is understandable that the one of the goals of Samsung is to raise the quality of the product. Samsung requires one period of time in order to complete one cycle of production.

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Defects per Day Samsung measures the defects per day as prevention for miss-production. By doing that, Samsung could minimize potential fail product. It will increase the efficiency and effectiveness of production.

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Number of Products Return Fail product should be returned. Measuring how much the product is being returned could make another step to prevent another fail product. It is important for both, company and customers. Both, company and customer, would love to have the best products as the outcomes.

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Leading – Critical Path Samsung lists all activities required to complete a project, the length of time each is expected to take and dependencies between tasks. Samsung wants to make everything more efficient by dividing each project into component tasks and mapping out what needs to take place to shepherd it to completion.

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Project Management Samsung project management offers full range of services for complete customer satisfaction. Samsung offers such as, high quality, one-stop manufacturing programs, process and analytical development, clinical phase manufacturing, and full scale commercial manufacturing. Project management is a fully responsible by project manager. It is important that the project will lead Samsung into more stages of growth and expand more products. In conclusion, internal perspective of Samsung’s Balanced Scorecard may focuses on all activities and

key processes in order for company to excel at providing value expected by the customers. Samsung believes that internal processes are lead indicators where management intervention is possible to affect customer and financial outcomes. Samsung undoubtedly preserve the best outcomes as they are considering the best product for the customers.

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Learning and Growth Perspective In Samsung’s balanced scorecard, the learning and growth perspective serves several objectives, including the following: 

Research and development The research and development is very crucial in this company. As we know, Samsung is a large company manufacturing many technological products. It is known as a large gadgets and electronics manufacturer, which the technology used and developed by this company need to be improved in an on-going basis. The research and development therefore is a part of the company that helps to improve the intangible features of the company. Atkinson et al. (2012) stated that research and development identifies the current required intangibles, human resources, and the current organizational culture. This also works for Samsung. The information technology needs to be updated and the company keeps developing new technologies and knowledge all the time. It also applies for the human resources that are encouraged to keep learning and developing their skills. Meanwhile, the organizational structure also needs on-going improvement to cope with the latest situation, to increase the competitiveness of the company, and to increase the effectiveness and efficiency of the current culture, which determines the success of the operation. Therefore Samsung needs to facilitate the research and development activities since it’s an important factors and business requirement for the company to keep its competitiveness in the IT industry.

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New market entry The learning and growth perspective also identifies many ways and solutions for the company to anticipate the competitors and also identifies many ways for the company to enter a new market. As Samsung attempts to enter a new market, it needs more strategy and it needs to ensure that the market keeps growing. The learning and growth may help to improve various processes in the company to anticipate any situation in the market it newly enters. To achieve the new market entry, Samsung will need to identify the environment of the new market it intends to enter and also improve many processes required by the new market. The process itself is dependent on the skills of the employees, which needs to be adjusted by the requirement of the new market. Samsung also needs to analyze the new market segments and product segments, analyze the potential competitors in the new market, and of course increase its competitiveness.

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Identification of current corporate culture As explained in the first objective, which is research and development, the identification of current corporate culture is ensured by learning and growth perspective. The current corporate culture determines the current and future success of the company. It determines how effective and efficient the company operation is and also determines how high the company’s objectives have been achieved.

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Therefore, by identifying the current corporate culture, the company can ensure itself to improve its best practice. To achieve the objective of identification of the current corporate culture, the company has to identify its values and objectives first. Then it can determine the corporate culture, which will direct the company to achieve the determined values and objectives. 

Increase in current market share As the company keeps growing bigger, it also expects to have a growing market share. Market share is one of success determinants of a company in raising revenues. The learning and growth is then also based on the objective of increasing current market share. By increasing the current market share, the company is also required to keep developing its strategy and increasing the effectiveness and efficiency of its various business processes. Therefore, Samsung is required to keep identifying its competitor by doing competitor analysis and increase its competitiveness. It is also required to track the products affordability and desirability in the market and customer needs.

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Increase brand value The brand value is an important factor that can keep Samsung’s customer becoming loyal to its products. The brand value is also an important factor that may determine the level of company’s sales. When the brand value is increasing, it indicates that the customers’ satisfaction and how they value Samsung is increasing. However, to achieve this, Samsung needs to understand what its customers want and the requirements of the surrounding environment.

Meanwhile, it uses several measures such as: 

Lagging – benchmarking As a lagging measure, Samsung uses benchmarking to measure how well it has achieved the learning and growth objectives. By doing benchmarking, the company can identify and measure its competitiveness in the industry, the effectiveness and efficiency of the business operation compared to its competitors, the level of achievement, and also the market share that it has obtained.

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Percentage of sales of new products Another measure is the percentage of sales of new products. As explained previously, sales are an important success determination of a company. Samsung, in this case, needs to measure its percentage of sales to measure its competitiveness, market share, the success in entering new market segments, and also how effective and efficient its business processes are.

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New product sales projections The new product sales projections is a leading factor that may help the company to measure its current and future performance. As Samsung develops more products, indeed it needs to project the sales of the new products. The projections should be the Samsung’s target of achievement, which will determine the success of the new products. As stated by the objectives, such as increasing market share and brand value, and to enter a new market segments with new product segments, the new product sales projections will be a fitted measure.

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Samsung then regularly prepares the benchmarking report using the data and information gathered through marketing and accounting department. The benchmarking report consists of the benchmarking data against the industry and the competitors within it. It consists of the sales benchmarked against the competitors and average industry sales, the budgets comprising the costs, the market share, the staffing, newly developed technology and the existing technologies, the leading products, and many more. In conclusion, the learning and growth perspective of Samsung’s balanced scorecard may focuses on improving the intangibles of Samsung and also the skills of its human resources to achieve the company’s objectives. Meanwhile, the learning and growth perspective’s objectives are important factors that determine the success of the company and the effectiveness and efficiency of company’s performance. It also provides several useful and relevant measures that will measure how well the objectives have been achieved by the company.

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SAMSUNG ELECTRONICS Ltd. Balanced Scorecard

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