Samsungs Organizational Change Effort - Research Paper Example

? Samsung’s Organizational Change Effort 27 June Company Overview: From Selling Dried Fish to World Electronic Leader On March 1, 1938, founding chairman Byung-Chull Lee began a business in Taegu, Korea, with 30,000 won, and called it Samsung. The business focused on trade export, by selling dried Korean fish, vegetables, and fruit to Manchuria and Beijing (Samsung, 2011). After ten years, Samsung had its own flour mills and confectionery machines, manufacturing and sales operations, and already evolving to a company with diverse products and services (Samsung, 2011). During the 1970s, Samsung invested in the heavy, chemical, and petrochemical industries. The company also posed competitively for the world's textile industry, through vertical integration of manufacturing processes from raw materials to end products (Samsung, 2011). In 1978, Samsung Semiconductor and Samsung Electronics separate into two entities (Samsung, 2011). During the mid-1990s, Samsung radically changed its business through a renewed commitment to making world-class products, giving total customer satisfaction, and being a good corporate citizen – following the vision of “quality first” (Samsung, 2011). At the same decade, Samsung already offered 17 different products, such as semiconductors, computer monitors, TFT-LCD screens, and color picture tubes (Samsung, 2011). It had successfully climbed to the ranks of the top-five products for global market share in their industries and 12 others also achieved top rankings (Samsung, 2011). The 1997 financial crisis negatively affected almost all Korean businesses. Samsung was one of few companies that grew and not so much scathed, due to its leadership in digital and network technologies and its diversified portfolio in electronics, finances, and related services (Samsung, 2011). The digital age continues to bring competition and opportunities in the global business, and Samsung has focused on providing advanced technologies and innovative and competitive products (Samsung, 2011). I chose the company Samsung, because in a period of one decade, it changed its image from being a producer of cheap but low-quality goods to a maker of world-class products. It is now considered a successful global company with diverse sub-brands. Samsung now has the No.1 global market share for 13 product types, including semiconductors, TFT-LCDs, monitors and CDMA mobile phones (Samsung, 2011). The company is active in pursuing research and development (R&D) for their overall semiconductor line, such as flash memory and non-memory, custom semiconductors, DRAM and SRAM, best-in-class LCDs, mobile phones, digital appliances, and other products (Samsung, 2011). Samsung is presently one of the biggest players in the global electronics business. Samsung's flagship unit is Samsung Electronics, which is one of the world's top makers of DRAMs and other memory chips. Samsung also makes and sells various kinds of electronic gear, including LCD panels, DVD players, and wireless phones. Some of its affiliated companies include credit-card unit Samsung Card, Samsung Life Insurance, Samsung SDS (IT services), Samsung Securities, and trading arm Samsung C&T Corporation. In 2009, the revenues of Samsung were $119 million, but the revenue growth rate actually decreased with 21% change from previous year. Samsung has 277,000 employees and has an employee growth rate of 0.40%. As stated in its new motto, Samsung Electronics' vision for the new decade is, "Inspire the World, Create the Future." It strives to constantly innovate itself through leveraging its corporate R&D center (SAIT). This paper analyzes the organizational change effort of SAIT and evaluates its leadership of change using Kotter’s suggestion on effective changes. The kind of change that happened to Samsung is that it turned its R&D operations around by aligning it with its business strategy. From there operational and cultural changes took place, which accompanies the organizational change stages presented by Kotter in his book The Heart of Change. 2. Description of Problem and Change Effort: Need for Innovation The founders of change came from the Samsung corporate R&D center—Samsung Advanced Institute of Technology (SAIT). Since Samsung operates in a highly competitive electronics and electrical business, SAIT faces high levels of uncertainty (Park & Gil, 2006, p.24). It had been difficult to manage the various corporate research centers and R&D departments that were all running autonomously (Park & Gil, 2006, p.24). This prompted SAIT to consider how best to maximize its R&D strengths without sacrificing flexibility and customer responsiveness (Park & Gil, 2006, p.24). The need for change is based on the need of Samsung to further enhance its technological capability that will drive short-term business performance and long-term survival. This paper studies the development of SAIT and how it transformed itself and the whole organization in the process. The organizational strategy of SAIT is that it wanted to integrate R&D management and Six Sigma methodology. It is appropriate for the environment that thrives in aligning R&D activities and business strategy, especially for knowledge industries that require constant creativity and innovation. The changes, however, were not entirely smooth and without problems. SAIT wanted to be more than a technology follower, but it had problems in managing its corporate research center because of the “low level of technological capabilities and inexperience in early R&D management around basic technologies” (Park & Gil, 2006, p.25). This indicated human resource problems and poor technological skills and resources. Samsung wanted to introduce new products and improve its R&D resources, and so SAIT evaluated its R&D projects and core technology areas (Park & Gil, 2006, p.25). It discovered that the preliminary research areas and technology capabilities were not enough for the organization's mission, and that there had to be underlying changes in the top management teams and business divisions (Park & Gil, 2006, p.25). Formal and informal discussions with researchers and communication with business units were undertaken and the results of the discussions were used by the top management teams to devise particular action plans that can turn Samsung into a “global R&D center” (Park & Gil, 2006, p.25). SAIT changed its R&D projects and had then revolving around fundamental technology areas (Park & Gil, 2006, p.25). It changed the structures of its R&D areas and projects to emphasize on basic technologies, such as digital technology, nanotechnology, optoelectronics, energy, and biotechnology (Park & Gil, 2006, p.25). These areas are interconnected to present businesses and presented new business opportunities for the company (Park & Gil, 2006, p.25). The transformation process had been difficult, nevertheless, because many researchers did not agree to these changes and they resigned (Park & Gil, 2006, p.25). Samsung recruited and promoted talented researchers in order to ramp up its technology capabilities according to the organizational changes it wanted to achieve (Park & Gil, 2006, p.25). Samsung devised a “sophisticated R&D management processes based on DFSS (defined as the design of new products and services with a Six Sigma capability and performance)” (Park & Gil, 2006, p.25). It also improved its knowledge management and network infrastructures by enabling a closer collaboration within research laboratories and between SAIT and the business divisions (Park & Gil, 2006, p.25). The organizational structure was changed to research laboratories around major research fields, focusing on long-term and basic R&D projects rather than short-term and development-oriented R&D ones. This means that the structure is more horizontal than functional only, and R&Ds worked as matrix departments. As mentioned, SAIT encouraged closer collaboration within research laboratories and between SAIT and the business divisions (Park & Gil, 2006, p.28). SAIT realized that a matrix organization of technology groups and projects can more speedily respond to swift technological change and converging technologies (Park & Gil, 2006, p.28). Technology groups stress the importance of developing core technological capabilities around basic technologies and determining new technologies and new business opportunities (Park & Gil, 2006, p.28). Project managers are accountable for developing particular R&D activities and marketing new ventures and products (Park & Gil, 2006, p.28). The matrix-horizontal structure is appropriate to the technology and environment, since Samsung operates in an electronic and electrical environment. The environment is rapidly digitalizing, which means more automated and digital processes are in demand than before. The shift from analog to digital technology can be abrupt to organizations, so it is essential to have a horizontal structure that interconnects important departments and research centers. The matrix-horizontal structure also fits the size, since it works with functional departments. There is still some level of functionalism, but a more horizontal SAIT integrates crucial information across departments and research centers. Finally, the matrix-horizontal structure is appropriate for the strategy of integrating R&D and business strategies, because this cannot be achieved without a “horizontal” form of communication and relationship. This can be related to removing the “boss barrier” that Kotter identified (p.104), since people will be communicating and interacting as partners of change and not as between subordinates and superiors. Definitely, the Korean culture remains respectful of authority and chains of command, but through a horizontal organizational structure, all levels of employees and the management understand that in order to be the best company in the world, they need to set aside power politics and focus on collaborating with each other, so that they can use their SAIT to respond to changing customer demands and preferences and to fight back the hypercompetitive competitors in its diverse industries. The new kind of culture that was created thrived on collaboration and focused on becoming a learning organization. The new assumptions are that 1) people no longer have to be guarded as R&D employees; their co-employees are not threats but partners of success; 2) collaboration is key to success and open and timely communication is the right process to collaboration; and 3) the management is not the judge, and instead, they are the facilitators of the change effort. The new values are expressed in the Samsung’s website: 1) People- Quite simply, a company is its people. At Samsung, we’re dedicated to giving our people a wealth of opportunities to reach their full potential. 2) Excellence- Everything we do at Samsung is driven by an unyielding passion for excellence—and an unfaltering commitment to develop the best products and services on the market. 3) Change- In today’s fast-paced global economy, change is constant and innovation is critical to a company’s survival. As we have done for 70 years, we set our sights on the future, anticipating market needs and demands so we can steer our company toward long-term success. 4) Integrity- Operating in an ethical way is the foundation of our business. Everything we do is guided by a moral compass that ensures fairness, respect for all stakeholders and complete transparency. 5) Co-prosperity- A business cannot be successful unless it creates prosperity and opportunity for others. Samsung is dedicated to being a socially and environmentally responsible corporate citizen in every community where we operate around the globe. (Samsung, 2011). These values embody the intertwining of changes and driving people to excellence, without foregoing the principles of integrity and co-prosperity. The norms are represented by collective decision-making and Six Sigma values and practices. SAIT is focused on capturing mistakes and fixing them as they occur. The artifacts of the culture are its open working environment and model of its new SAIT structure and approach. See Figure 1 below. This model shows that idea generation is based on the value curve, world-class goal setting integrates the value curve, technology roadmap and QFD, milestones and planning includes the Technology Tree and TRIZ, R&D uses TRIZ and DOE/Robust Design, Technology Transfer fuses DOE/Robust Design and Quality Management, while the Customer Business Unit focuses on Quality Management. The figure shows the flow of processes that interconnects with each other and uses the results of the original analytical tools to make the right business decisions. Figure 1: Integration of R&D Management and Six Sigma Methodology Source: Park and Gil (2006, p.27) The nature of technology is considered as routine, because the same R&D Management and Six Sigma Methodology are used across all R&D centers. The matrix structure ensures that the technology analysis and development approach is standardized across the organization so that the same results for all R&D centers can be attained. The results are non-routine, because the aim is innovation. The HR systems are focused on hiring, maintaining, and developing talented professionals. It is quite important that the right employees are hired during the change effort, especially as some of the researchers already resigned. They could not cope with the widespread cultural and organizational changes. Samsung needed to hire researchers who are open to collaboration and are not afraid of systemic changes. Furthermore, it needed to focus performance on delivering results from these changes. HR is also concerned of developing researchers further so that they can respond to the vastly changing environment of Samsung and so that they can deal with the diverse portfolio of the company. 3. Leadership of Change SAIT led the organizational changes by stressing the urgency of change and how the changes can benefit the bottom line of the company. If R&D can be aligned with business strategies, the products and processes of the former will be more geared to creating innovative and competitive ideas and products/services. Based on the general assessment, Samsung has weaknesses in empowering people and communicating buy-in. The first step in Kotter’s effective change process is increasing urgency. Kotter stressed: “…the first step is making sure sufficient people act with sufficient urgency—with on-your-toes behavior that looks for opportunities and problems, that energizes colleagues, that beams a sense of “let’s go” (p.15). SAIT created that kind of urgency from the start. It communicated to all employees that Samsung needed to align its R&D and reorganize, if it wanted to stay competitive as a global leader in electronics and other industries. Samsung also clearly expressed the changes that will be made and how they will impact individual R&D centers. The second step of effective organizational change is creating the right team that will facilitate the changes. Kotter mentioned: “the feeling of urgency helps greatly in putting together the right group to guide change and in creating essential teamwork within the group” (p.37). Samsung did not identify the guiding team for change in the article used for this paper. Still, it is discerned that Samsung did have a steering committee for its organizational changes, which was composed of the top management and researchers. The process of organizational changes, after all, defined collaboration in its practices. Kotter underlined that “a powerful guiding group has two characteristics. It is made up of the right people, and it demonstrates teamwork” (p.43). Traditional R&D project management concentrates on the management of stage-gates to assess the progress of projects and make decisions (Park & Gil, 2006, p.29). The R&D management at SAIT stresses on project review and discussion, called design review, done by technology experts and business professionals (Park & Gil, 2006, p.29). These design reviews smoothened knowledge management and discussions between SAIT and business experts on important issues and possible problems (Park & Gil, 2006, p.29). The third step of effective change is getting the vision right: “in successful large scale change, a well-functioning guiding team answers the questions required to produce a clear sense of direction” (Kotter, 2002, p.61). The article that also assessed the success of SAIT stressed that the “success of the transformation can be attributed to the clear strategic direction as a corporate R&D center and the close relationships with business divisions, from planning through ongoing management to commercialization of R&D projects” (Park & Gil, 2006, p.28). This means that stakeholders are clear on the direction of the changes and how these changes will impact work relationships, processes, and outcomes. The fourth step of effective change is communicating for buy-in: “…direction of change is widely communicated, and communicated for both understanding and gut-level buy-in. The goal: to get as many people as possible acting to make the vision a reality” (Kotter, 2002, p.83). The extent of buy-in is not measured by Samsung. It is clear from the researchers who resigned, however, that buy-in is not widespread. It is inferred that there had been some problems in communicating the individual-change effort levels and the widespread organizational structuring needed to achieve the business strategy for this change effort. The researchers were not fully prepared for upcoming changes. The fifth step of effective change is empowering action: “…remove barriers in their paths. You take away the tattered sails and give them better ones. You take a wind in their faces and create a wind at their backs” (Kotter, 2002, p.83). It is assessed that the people are empowered to change, because there were tools provided to help them participate in these changes. For instance, SAIT used TRIZ methodology to create new and creative solutions by forecasting evolution trajectories of several technologies (Park & Gil, 2006, p.28). TRIZ combines different personnel and empowers them to add inputs that will help generate accurate and meaningful trajectories. However, there are still deficiencies in technological capabilities, which will inhibit the leadership of Samsung in its highly-technological industries (Park & Gil, 2006, p.28). The sixth step of effective change is celebrating short-term wins: “victories that nourish faith in the change effort, emotionally reward the hard workers, keep the critics at bay, and build momentum” (Kotter, 2002, p.125). Samsung celebrates short-term wins through its performance management system that continues to reward researchers for their efforts and helps them build their careers. The seventh step of effective change is not giving up: “In successful situations, people build on this momentum to make a vision a reality by keeping urgency up and a feeling of false pride down; by eliminating unnecessary, exhausting, and demoralizing work…” (Kotter, 2002, p.143). For now, Samsung is not declaring early victories. It realizes the challenges ahead, especially as the competition heightens. The last step of effective change is institutionalizing change: “We keep a change in place by helping to create a new, supportive, and sufficiently strong organizational culture” (Kotter, 2002, p.161). Samsung sticks the change in place by following its rigorous R&D-Sox Sigma model. It also conducts discussions of its approach regularly, in order to understand emerging problems and weaknesses. 4. Recommendations The change effort is effective, because R&D had driven revenues, where “total sales of the Samsung Group and its 63 affiliates reached $122 billion in 2004, up from $102 billion in 2003. This accounted for 20.7 percent of Korea's total exports in 2004” (Park & Gil, 2006, p.24). Kotter’s phases of changes are also generally followed, except for communicating changes and empowering people. It is assessed that the company is in the youth of its changes. It is still experiencing problems in empowering resources and ensuring that changes are constantly communicated in terms of rewards and directions. It is also in its youth, because there continues to be several more challenges needed to be overcome to make changes stick for the company. The recommendations are first; SAIT must develop new business areas and pursue technological innovations by “investing in emerging research areas with a high level of uncertainty, such as nanoelectronics, energy and intelligence” (Park & Gil, 2006, p.29), and second, Samsung should also develop new technological capabilities that can support its divergence from being an imitator to an innovator (Park & Gil, 2006, p.29). Samsung should invest in high-core technologies that can make it a leader in all its industries. This can empower its people more in pursuing its change efforts. The company should also invest in new research areas, so that it can expand further and increase the competitiveness of its products. It should continue reviewing its change efforts and communicating short-term triumphs, so that it can constantly motivate employees to support its vision and mission. References Kotter, J.P. 2002. The heart of change. Massachusetts: Harvard Business School Press. Park, S. & Gil, Y. 2006. How Samsung transformed its corporate R&D center. Research Technology Management, 49: 24-29. Samsung. 2011. Samsung’s History. Retrieved from, http://www.samsung.com/us/aboutsamsung/corporateprofile/history06.html Read More