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