Professor of Strategy and Entrepreneurship; Academic Director, Institute of Entrepreneurship and Private Capital
Samsung didn’t invent the mobile phone – that honour goes to Motorola – but it took a transformative new technology and ran with it. “Innovation isn’t just about doing something new. It can also be about doing something better,” says Julian Birkinshaw, Professor of Strategy and Entrepreneurship at LBS and Academic Director, Deloitte Institute of Innovation and Entrepreneurship.
Even when Samsung is in the news for the wrong reasons – the company has recalled the Galaxy Note 7 smartphones on safety grounds after some of the devices caught fire – its fortunes are expected to recover. "Samsung has drawn a line under this problem now. I expect the company to bounce back, just as Toyota did following its faulty accelerator issues five years ago."
This is a company after all that’s been growing and innovating since 1938, when it started out as a food exporter shipping dried fish and flour from Korea to China. In the 1950s it got into life insurance and textiles. Samsung Electronics was founded in 1969. In the early 1990s Samsung started producing processors and hard drives for PCs, exporting them to companies including today’s smartphone rivals Apple.
In 1983, when Motorola launched the Motorola 8000, Samsung was still proudly making black-and-white TVs. Today, the Motorola brand name has all but vanished: only the “Moto” product name is left as a small reminder of what was once a pioneering company at the forefront of innovation.
Samsung, on the other hand, has become a dominant force in consumer electronics. It introduced its first Android phone, the Galaxy S, in 2010; the Galaxy S8 looks likely to launch early next year. How has it achieved its success?
“Samsung’s strategy has been essentially to read the markets,” says Professor Birkinshaw. “Samsung figures out where the world is heading in terms of mass-market consumer electronics products, sees what is selling well and what is growing and moves into that space with a better product than the original offering.”
Every time Apple launches a new product, Samsung brings out its own version a year or so later: think of the touchscreen phone, the tablet, the smart watch. And it isn’t just Apple that has been Samsung’s inspiration: twenty years ago, Sony was first to market, Samsung was close on its heels.
Samsung is the classic fast follower: they’re attuned to what competitors are doing and what other people are bringing to market first. They watch like a hawk as others gain traction and then very rapidly come up with their own version. This emphasis on speed usually pays off, but it can also backfire – as the problems with the Galaxy Note 7 highlight.
Don’t think that this fast-follower approach to innovation is easy: it still requires enormous creativity and skill. Samsung invests heavily in training its engineers to systematically innovate. It has had a close working relationship with the Russian Academy of Science since the 1990s, tapping into the country’s scientific expertise at relatively low cost.
One result of this is that it uses a Russian problem-solving methodology for innovation and new patents called TRIZ. In 2004 one project alone, a DVD pick-up innovation, saved Samsung more than US$100 million. “Innovation is critical to a company’s survival,” Samsung states.
Remember too that Samsung is a company with a vast amount of technological expertise. They make about 50% of the world’s microprocessors in some sections of the market. They’re one of Apple’s biggest suppliers, providing memory chips, touchscreen glass and other components. The reason they’re able to move so fast is because they already have so many other general-purpose technologies that underlie consumer electronics. So moving quickly is about bundling together new and existing technologies.
“Samsung is playing a very savvy game, though they are pushing the boundaries of what’s legal,” says Professor Birkinshaw. Indeed, Apple has had a long running legal dispute with Samsung over patent infringement, and in December 215 Samsung paid out a US$548 million fine to resolve the matter.
“The creative efforts of others may provide the inspiration but Samsung always puts a unique twist on its products. They’ve developed a number of different products that are selling incredibly well. Yes, Samsung is copying but it’s also enhancing. And it builds on all of its other strengths in order to create a high-quality, low-cost product that can undercut Apple.”
Samsung spends lavishly on its outrageously bold advertising. In 2013 Apple funnelled 0.6% of its revenue into advertising. Samsung spent 5.4% of its revenue, a staggering US$14 billion, on marketing and promotion. To put this into perspective, Coca Cola spent US$3 billion on similar activities in the same year. Samsung sponsored the Olympics and The X Factor. And it’s not afraid to directly take on its competitors, with ads that send up the hipster geek stereotype of the typical Apple customer.
Samsung isn’t the only fast follower in the consumer electronics industry. Professor Birkinshaw points to the newer companies that are now moving into Samsung’s territory on mobile, notably the Chinese players such as Xiaomi, Huawei and ZTE that similarly take existing products made by other companies and improve and refine them to produce something they can call their own. “They’re playing Samsung’s game but Samsung invented it.”
This new competition seems to be prompting a change in strategy at Samsung. CEO Kwon Oh-hyun told his staff recently that Samsung was now aiming to become leaner and meaner: “We should adapt ourselves to the new environment instead of sticking to our success in the past. I believe now is the time for us to turn ourselves into a first mover from a fast follower.”
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