Case Study - Samsung Innovation Strategy – Struggling to innovate, shifting focus to software
Analysis & Outlook
Rajesh Prabhakar Analyst Bio @ http://analysiscasestudy.blogspot.com/
Samsung market cap has fallen by over US$ 6 billion recently as the company struggles to
innovate new products which the company had been doing successfully for past many years.
Samsung Electronics' chairman, Lee Kun-hee decades ago called Samsung management to
"change everything except for your wife and children” which led to company not exactly
innovating but copying and then tweaking the innovations of others, producing alternatives in the
market and add-ons for software rather than developing useful, original features for consumers
itself. Its strengths lie in its ability to quickly and cheaply research, develop, and manufacture
hardware in an amazing broad range of product categories, but company has trouble in software
development for its hardware. Despite the enormous amounts of money Samsung spends each
year on research and development, Samsung is struggling to innovate which is having a
significant effect on company’s revenues and brand image. Lee said Samsung must "get rid of
business models and strategies from five, ten years ago and hardware-focused ways and wants
the company's massive research and development centers to "work around the clock, non-stop."
A report released by leading global consulting firm Booz and Company highlighted the fact
despite Samsung spending US$10.4 billion on R&D in the fiscal year ended June 2013, that
included spend of all business divisions including mobile. Forecast for current year is to surpass
$11 billion, and around $10 million or so is said to have been spent on developing Samsung’s
flagship smartphone model.
Despite the heavy spending, Samsung ranks third as the world’s most innovative companies,
following Apple and Google with Apple being major competitor in smartphones and Google a
big software partner as Android is owned by Google and it is operating system for most of the
Samsung mobiles. Samsung companies had successfully changed their strategy earlier as they
made transition from volume focus to quality focus in the past two decades and they must now
transition to upgrade the value and "class" of the products and services they provide to
consumers. Samsung chairman pointed out that greater opportunities exist when companies and
economies slow down and the conglomerate needs to look beyond competition and innovate new
technologies and enter new markets which can only be achieved through convergence of
industries and technologies. "There is a great need to build up competitiveness that cannot be
copied by rivals. Old strategies, hardware-oriented processes and corporate cultures should be
boldly thrown away," the chairman emphasized. Samsung can only overcome uncertainties only
through initiatives that will lead to market and technological breakthroughs. Samsung also needs
to complete the setting up of a global management system that can fuel change and innovation,
he said. Samsung is the world's largest mobile device, television and semiconductor producer,
but developing software is critical for the company to compete with firms such as Apple and
Google -- both of which have made a number of acquisitions to improve the software they offer.
Samsung CFO Lee Sang Hoon said in November, 2013 that the company will aggressively
search to secure valuable startups and SMBs that could improve its own products.
Case Study - Innovation Strategy @ Samsung – Struggling & shifting focus to software