Improving Samsungs Competitive Edge through Innovations - Case Study Example

Improving Samsung’s Competitive Edge through Innovations [Name] [Professor Name] [Course] [Date] Table of Contents Table of Contents 1 Introduction 4 Business Model 5 State of smartphone industry 5 Samsung strategies for gaining a competitive advantage 6 Business Plan 7 SWOT Analysis 7 Strengths 7 Weaknesses 8 Opportunities 8 Threats 9 Recommended Strategies 10 Product Differentiation 10 New product development 10 Technology management principles 11 Technology development 11 Technology Improvements 11 Technology Leadership 12 Technology partnerships 12 Technology integration 13 Involvement of new technology 13 Persistent researches and development 14 Development of a new product 15 Conclusion 16 References 16 Improving Samsung’s Competitive Edge through Innovations Introduction Enterprises today face pressures to maximize their short-term profits. This however often seems to be at variance with research and development programs that seek to maintain a company’s value over the long run. A solution to this dilemma begins with acknowledging that the value of the business depends on the growth rate of its cash flow. The company’s ability to maintain an advantage in market value is dependent on whether investors acknowledge that the growth rate of the cash flow is sustainable (Arvand 2012). At this rate, the objective of strategic management is to contribute to the enterprise value by ensuring that the cash flow on which the company depends is sustainable and continues to grow. Presently, enormous challenges of technology management face giant Korean electronics companies. Reliance on importation of technology is an idea that is no longer a practicable strategy for Korean firms that are fast catching up with the rest of the world in developing key technologies. No company has confronted these challenges more strategically than Samsung Group. Having transformed from a highly bureaucratic, conservative and centralized organization with wholly Korea-based production in less than a decade, the company is in the course of transformation into a transnational and flexible organization with sustainable growth of cash flow (Epstein 2013; Kim 1997). From a company that was entirely reliant on overseas licenses and technologies, it is developing research and development capabilities and has developed technology management skills to compete internationally as a technology leader. This essay addresses four elements, namely development of a new product, business model, business models and involvement of a new technology. Business Model Samsung market strategy consists of overflowing its range of products in the marketplace within a short period of time. The company appeals to more markets through provision of a plethora of devices such as tablets, smartphones, TVs among other electronics, all of which are both high- and low-end products with the view that at least one of their products will appeal to a certain marker segment. Samsung has excelled in its low-end market (Epstein 2013). However, it has recently started to expand in the smartphones market with its flagship products, such as Samsung Galaxy S4 (Kim 1997). The company’s rapid growth of smartphone market share could be attributed to its market model of flooding the marketplace with its range of devices, compared to Apple along with other competitors. For instance, the company edged over Apple in the second quarter of 2012 when the company reported double the sale of Apple smartphones. This was attributed to the success of its Samsung Galaxy S3, which sold more than 10 millions gadgets in less than two months. The success of Samsung Galaxy S3 was Samsung’s reaction to Apple’s earlier launch of iPhone (Epstein 2013; Samsung 2013b). State of smartphone industry Analysis of the smartphone market indicates that Samsung is also a market leader with its flagship product Samsung Galaxy S4. However, the sale of high-end smartphones such as Samsung Galaxy S4 seems to be relaxing. The company also seems to be hindered from growing its marketshare because of low profit margins. Samsung’s second quarter results for 2013 show the company has a global smartphone market share of some 52 percent (Samsung 2013b). The report further indicates that the company made a record $6.9 billion in profit, from $51 billion revenue, shipping 72.4 million smartphones worldwide. Despite the profits, the company’s market share reduced from the initial 32.2 percent at the expense of smaller phone manufacturers such as HTC, Nokia and LG (as well as its major competitors such as Apple) that are fast gaining the market share. Presently, Samsungs Galaxy S4 series is its only smartphone ruling the market. This evidences that Samsung is at a precarious position as it faces stiff competition from rivals Apple (Epstein; Osawa). Indeed, Samsung Galaxy S4 series and Apple’s iPhone 5 series are presently the only smartphone market leaders (Epstein 2013). Review of the smartphone market shows that consumers are incrementally becoming more demanding and sensitive to pricing. However, since Samsung has been using price cuts, it is essentially that it seeks another competitive strategy. Samsung should also focus on product differential, specifically of its Samsung Galaxy S4 (Hamka 2012). Therefore, since the real problem that Samsung faces in the smartphone industry is competition, the solution can be anchored in technology innovations (Arvand 2012). Samsung strategies for gaining a competitive advantage Samsung, as a component-based company, has capitalized on the digital age when its previous Asian rivals such as Sony missed out on digital television and music. Being a product-based company, Sony has kept its focus on technology and innovation. However, Sony has failed to uphold and sustain its technological innovation. It has also failed to seize a competitive advantage in the competitive digital goods. Increased control over distributors, gaining market share and research and development to boost innovations are among some of the horizontal and vertical strategies pursued by Samsung. Concerning technology internalization, the alternation, acquisition and application of technologies outside the company’s logistics has highly boosted the company’s technological capacities in smartphone manufacture. In the process, external technology sourcing had provided the company with an opportunity to design and manufacture self-designed and exclusive products such as Galaxy S4. Business Plan To suggest an effective strategic plan for Samsung, there is a need to analyze the company’s strengths, weaknesses, opportunities and threats. SWOT Analysis Strengths Samsung produces devices that can be integrated with most operating systems and software giving it an edge over competitors such as Apple. Samsung has excellence in engineering, and has become a market leader in mobile phone and TV manufacture. The company was ranked second in 2011 as a US top patent assignee. The strength of its patents has positioned its ahead of its competitors such as LG and Apple. Low cost of production allows Samsung to sell products at lower prices. Capacity to market brands globally since Samsung has gained a global reputation for its innovations. Samsung was in 2012 named a leading brand by Interbrands. It is also the number 9 most valuable brand – valued at $33 billion (Samsung 2013a). Weaknesses Infringement of patents such as of Apple has damaged the company’s reputation. Law suits for patent infringements have made the company to pay huge amounts of money in damages. Although the company is the largest in terms of revenues, its profit margins are low. For instance, although its sale of smartphones is marketable, it has consistently sustained a low profit margin due to low sales of semiconductors and substantial reductions in prices. Samsung cannot capitalize on its bargaining power over its competitors since its largest buyers are also its major competitors. These include such as Sony, Apple, HP and Dell. Samsung could easily lose its sales and customers. The company lacks its own software and operating system, making it to be at a disadvantage to its competitors such as Apple and Nokia, which have their own software. Focusing on too many products has made Samsung to be susceptible to competition from its competitors. This is since it cannot compete appropriately in multiple industries and products (Samsung 2013a). Opportunities Growing smartphone market in Africa and parts of Asia is an opportunity for Samsung to increase its sales volumes since it has stronger presence in these regions compared to its competitors such as Apple. Growth of mobile advertisement industry will enable Samsung to develop its advertising platform for mobile devices and substantial benefits from this profitable market. Growth of demand for quality application processes will provide a lucrative market for Samsung to sell its application processors for tablets and smartphones. Growth market for tablets is expected to double digits in the next half a decade. Samsung will gain a stronger position in tablet markets, such as its Galaxy brand of tablets. Samsung can acquire patents through acquisitions. Its key competitive advantage is its extensive portfolio of patents. Discovery of more patents could be discovered through costly R&D or acquisition of other electronics companies (Samsung 2013a). Threats Smartphone markets in developing economies in Asia, African and South America are saturated while at the same time sales growth has stagnated. Samsung faces serious threats of rapid technological change. Hence, it is under pressure to innovate faster. Declined market in hardware production, such as of semiconductors, has made Samsung’s profit margin to be thin, hence weakening the company’s overall profitability. The rapid increase in patent infringements globally has made it difficult to ascertain which companies benefit from Samsung’s innovative technologies. Competitive innovations from competitors have hurt Samsung’s sales. For instance, the launch of iTV by Apple has hurt Samsung’s sale of digital TVs. Price wars are a threat to the company’s sales. For instance, Samsung has low gross profit margin on its electronics, which it sells with substantial price cuts. Competitors such as Apple have been following price cutting measures thus inducing price wars, which could erode further Samsung’s profit margins (Samsung 2013a). Recommended Strategies Based on the results of the SWOT Analysis, Samsung’s price cuts have reduced the company’s profit margin. Samsung also faces stiff competitive from its key rivals Samsung. Towards this end, the company should focus on product differentiation rather than competitive pricing. Samsung should therefore focus on improving Samsung Galaxy S4. It can also focus on developing new products to increase diversity in the market (Grankvist, Kollberg and Persson 2004). Product Differentiation Samsung should focus on making more innovative products. Making the products more appealingly innovative will differentiate them from the competitor brands. Samsung could as a result focus on improving its products by making them more differential. Additionally, it should focus on breakthroughs in technology, or in introducing new products to its market segments (Hamka 2012). New product development Development of new digital products will enable Samsung to lead the digital convergence revolution. The company should gather cutting-edge technologies and its key competences. For instance, it should refocus on innovations such as of Third Generation Display (3DG) technologies. Integrating and diversifying its technologies and products will enable the company to become product innovative. Technology management principles Technology management comprises a set of management principles that enable an enterprise to manage its technologies and to create competitive advantage. Achieving the two strategies would require conforming to technology management principles are discussed below; Technology development In line with the principles of technology management, Samsung’s technology management should focus on creating new products and understanding the phenomenon relating to new technologies and product development. Here, Samsung should improve the features of its flagship products such as Samsung Galaxy S4 and Galaxy tablets to continue being a market leader (Erickson et al 1990). Technology Improvements Technology improvement is concerned with the methods of process improvement, the skills, expertise and the outcome of the improvement (Erickson et al 1990). The process entails improving the performance of technologies through the application of advanced engineering analytic techniques that persistently improve the reliability and capability of a product (Arvand 2012). In consistency with this principle, Samsung should focus on investing more in research and development (R&D) to improve its innovative capabilities. The focus should be in improving the design and capabilities of its Samsung Galaxy S4 series of smartphones (Bakouros 2000). Technology Leadership Technology leadership refers to a technological direction, or more specifically taking leadership in terms of technology innovations and development. Essentially, leadership refers to the process of influencing others to enhance involvement, engagement and motivation and to aim for successful implementation (Erickson et al 1990). Based on this principle, Samsung should provide effective leadership to engage, involve and motivate its employees to improve product quality, in its flagship products. Technology partnerships Technology partnerships refer to collaborations, interactions and engagements of partnerships or supplier participation, where in some instances, the suppliers are considered as partners who can handle a company’s technology activities (Erickson et al 1990). This kind of technology depicts the extent to which a company commits itself to relationships with the supplier or other companies (Ali, Muhammad and Park 2011). Supplier relationship can be significant industrial relationship for Samsung in its functional areas of designing the Samsung Galaxy S4, distribution of the smartphone and marketing of the phone. Through technological partnerships, problems related to technological uncertainty can be minimized through greater information sharing with the suppliers concerning the consumer demands (Hamid, Chew and Halim 2012). This can be essential in acquiring information on ways of improving the design and quality of Samsung Galaxy S4. Technology integration Technology management is basically the practice of integrating business strategy with technology strategy in an organization. The integration demands that co-ordination of production, research and service functions appropriately with the human resource and finance (Erickson et al 1990). In the case of Samsung, technological integration requires integrating technologies of the company’s key functional departments to bring them together under the same umbrella (Arvand 2012). Samsung needs to incorporate issues of technology into its business models. Involvement of new technology Innovation is a critical area of concern for ensuring future prosperity of the company. It is not just an issue of accessing markets or resources as new product designs and improvements have to be made to create and sustain mass markets for products (Ali, Muhammad and Park 2011). As an innovative company, Samsung is more likely to increase its market share in the smartphone market as well as become more dynamic and experience sustainable cash inflow. Innovation is a critical issue for the company because of the competitive smarphone industry and advent of newer technologies, as well as proliferating production processes (Hamid, Chew and Halim 2012). There are three broad areas of research and development that will enable Samsung to strengthen its innovation strategies. These include persistent research and development, radical researches and fundamental researches (Arvand 2012). Persistent researches and development When Samsung’s research development programs are made to focus on commercial objectives, the likelihood of gaining technical success would become a reality. Hence, it should define the benefits and costs of its research and development much more clearly. Ensuring continual researches in the smarphone markets, consumer demands and reliability of the product will ensure that Samsung Galaxy S4 remains a cutting edge product that conforms to consumer needs. It will also make the product more differential. Concerning research and development, Samsung’s research and development programs should be at the forefront of applying particular set-pacing technologies. For instance, Samsung’s R&D should take a bold step in implementing its technologies (Hamid, Chew and Halim 2012). For instance, Samsung has been hesitant on trying its Third Generation Display (3GD) technologies. Radical researches in these areas should be combined with the willingness to try out the new technology in areas where the company has significant share of the market, such as embedding the product in its smartphones. Concerning fundamental research, the R&D programs should be targeted at building new competences. They should also be used to investigate the probable usefulness of a field of scientific knowledge (Bakouros 2000). For instance, the company could investigate the potential of making its Samsun Galaxy S4 waterproof. This could be essential in making the product more differential and pioneering. Development of a new product A range of challenges confronting Samsung’s technology management include strategic timing, innovation, research and development and resource management. Technology has been a major driver reshaping Samsung’s business model. Since the late 1990s, virtual technologies led essentially by ICT has made significant impact on the company until less than a decade ago when hybrid technologies such as biotechnology began to rapidly replace IT with regard to business-model demographics (Arvand 2012). Today, a substantial fraction of the company’s profits are generated from a range of embedded technologies, where a borderline of the three mentioned technologies are ceasing to have an impact (Erickson et al 1990). For instance, Samsung is no longer restricted to making household electronics, it has strove to boost its products’ market value by venturing into virtual IT. The rationale behind the company’s bid to seek embedded technology is to optimize its profitability through creation of complex value chains of different technologies at the same time (Vienna International Centre 2001). Samsung needs to develop new competitive products to avoid reliance on its smartphone products. The company was initially involved in researches on Third Generation Displays (3DG). There is a need to examine the viability of the product to realize its full implementation (Arvand 2012). Third Generation Display (3GD) consists of an embedded technology that requires several interactions among its backdrop technologies, namely chemical, electrical circuit, glass, electronics, plastic, nano technology and information technology. These chain of technologies interact to create a complex structure. Conclusion Effective technology management has the potential to ensure that Samsung acquires and sustains competitive advantage through making significant technological breakthroughs to enhance improvements in quality of products capable of creating new market opportunities. The company faces stiff competition from competitors such as Apple. Among its flagship products facing stiff competition from Apple’s iPhone 4 is Samsung’s Galaxy S4. Despite being a market leader, the company’s profit margins have been low since it has been using price cuts. Therefore, since the real problem that Samsung faces in the smartphone industry is competition, the solution can be anchored in technology innovations instead of price cuts. This is since innovative products will ensure absolute differentiation of its Samsung Galaxy S4. 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