Samsung Electronics- Innovation and Design Strategy

Samsung Electronics: Innovation and Design Strategy  Introduction: The case study commences with the integration of innovative design and brand management management by Samsung Electronics El ectronics which started a new trend in the th e 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

y

By adopting right

y

By mastering the less tangible, more intuitive qualities of superior design.

y

By diversification of products and

y

Implementing Global localization strategy.

y

Achieving Vision of leading in digital convergence by using e-processes (electronic

design i.e. R&D globalization.

innovation strategies.

step by step or continual improvement. improvement.

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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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

y

In 1997, Samsung cuts its Korean and overseas workforces due to

y

In 1999, Samsung was regarded as worlds premiere consumer goods and services industry B y

1994, Samsung established R&D center in US markets. Asian Financial crises.

Forbes. y

In 2000, Samsung embarked vision to convert itself into a Digital- e com pany.

y

Increased

y

In

y

In 2006,

y

In 2007, Samsung held

design staff and R&D in 2004

2005, Samsung increased its design budget by 20%-30% Samsung registered 17,377 patents worldwide 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:

Dedicat ed

business

unit s

Informal t echnology transf er

e.g. New

venture

division,

depart ment

e.g.

or

sk unkworks(

Invest ment s in R&Ds)

Independent business unit, e.g. Direct Predivest ment spinout 

Low

or

int egration

or

business

pot ential t eam ( Vertical Int egration by developing t heir own ICs)

Leveraging existing compet encies

High

Innovation and product Design at Samsung Electronics

Samsung Electronics leading position was contributed by th e 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

y

Speed of innovation and product development.

exploring end penetrating into the new markets

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 percent age 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

net work  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.

Reason

Feelings

Emotional 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 Net Sales

5000

Operating Profit( in $)

0

Samsung Electronics E-processes comprised of:

Component suppliers

R&D management process

Supply chain management

Customer 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

Electronics

Comput er

LG

Nok ia Corp. Sony Corp.

Electronics

Motorola Inc.

Inc. Product  Off ered

Consumer electronics

PCs, portable

(LCD TVs,

Mobile ( mobile communicatio handsets, n devices, etc.

Microwave

music players,

Ovens, PCs, etc.)

Consumer Electronics

Front loading

washing machines, ACs, etc.)

Leading Mobile Comm. Company ( started as wood pulp

Electronic

Mobility

games,

solutions,

Motion

mobile

pictures,

services,

Financial

cellular

services, etc.

comm.

producers)

Devices ,etc.

Innovation

Focuses on

Occupies

Concentrat e

Adopted

Creates value

Focus

& 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

on two

Marketing

Digital

Improvement 

Originally

Product 

Do not rely on

Paid

attention

convergence

in design and

produced

categorizatio customer

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

on

brand image

8

Comparison of percent age 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

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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 wit h 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 wit h 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 entrant s: It is important  for Samsung to analyze the threats from new

entrants in the consumer electronic market. 

Substitut es: 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 est ablished 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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