"Samsung Without Arrogance Displeasing" Lee Kun-hee's 'New Management Declaration' Behind the Scenes

[Asia Economy Reporter Kim Hyewon] "We are blinded by arrogance and do not recognize a crisis as a true crisis. We do not realize our own shortcomings. We are feeling the crisis that we might fail with our whole being. I am breaking out in a cold sweat."

Lee Kun-hee, Chairman of Samsung Group, was displeased with Samsung in the early 1990s for being complacent as the top domestic company. His diagnosis was that to survive the drastic changes in the global business environment, Samsung needed to become a first-class company recognized worldwide, but Samsung’s level was not there yet.

Until then, Samsung had been caught up in a custom of valuing appearance over substance. The frontline management’s focus was on how much more was produced and sold compared to the previous year. Each division was so preoccupied with achieving immediate quantitative targets that qualitative factors such as added value, synergy, and long-term survival strategies were neglected.

Samsung’s products had only partial success in some markets like Southeast Asia, but in advanced markets such as the U.S. and Japan, they were treated as cheap goods. Chairman Lee could not shake off the concern that at this level, Samsung would not only fail to become a world-class company but might not even survive in the global market.

Finally, in February 1993, Chairman Lee presided over a local comparative evaluation meeting of export products from the electronics division in Los Angeles, attended by key executives from Samsung’s electronics affiliates. The purpose was to see firsthand how Samsung’s products, which they proudly made, were treated in the world’s largest market, the U.S.

At local stores, Samsung products were ignored by customers and left covered in dust in a corner. Walking around with executives, Chairman Lee lamented, "We should return the name Samsung. Why use the name Samsung when the products are thrown into a dusty corner? Among the products displayed, some have broken lids or do not work, right? This is an act of deceiving shareholders, employees, the public, and the nation."

Chairman Lee urged all employees to share the desperate sense of crisis that Samsung might fall to third-rate or fourth-rate status and possibly collapse if things continued as they were, and to choose a path of radical change. It was a choice between quantity and quality, between remaining the best domestically or advancing to become a world-class company in the global market.

June 7, 1993 New Management Declaration: "Change Everything Except Your Wife and Children"

On June 4, 1993, Chairman Lee held a meeting in Tokyo with Japanese advisors who had been guiding Samsung’s management to discuss Samsung’s problems. During the meeting that lasted until dawn, Chairman Lee expressed his concerns about how to improve design standards. Fukuda, an advisor who had led the design department of Samsung Electronics’ Information and Communications division and worked there for four years, shared his observations: "First-class products require not only design but integration of product planning and production technology, but Samsung’s product planning is weak. Even when development is done, it takes too long and the timing to launch products in the market is missed."

The issues raised in the report were chronic work habits that Chairman Lee had repeatedly pointed out and urged to be corrected. On the flight from Tokyo to Frankfurt, he shared this with the presidents on board and had them discuss the reasons. The discussion continued in Frankfurt. Upon arrival in Frankfurt, Chairman Lee was further shocked after watching a company internal broadcast video showing employees on a washing machine assembly line cutting the washing machine lid with a knife and assembling it because the lid did not fit properly.

On June 7, 1993, with a solemn determination, Chairman Lee gathered about 200 executives and overseas staff at the Kempinski Hotel in Frankfurt to hold a meeting to open a new Samsung. Since becoming chairman, he reportedly had many sleepless nights due to expectations and anxieties about the changes at the turn of the century. Sometimes he was excited by brilliant visions and hopes, and sometimes he was chilled by the overwhelming sense of responsibility. Such changes could be a new leap forward for Samsung but could also mark the beginning of an end that would take everything away.

After holding meetings with the presidents and visiting several advanced countries, Chairman Lee concluded that nations, companies, and individuals cannot survive without change. He decided that he himself must change first. He judged that Samsung must endure the painful process of self-transformation and declared the new management philosophy of Samsung on June 7, 1993, in Frankfurt: "Samsung must now thoroughly shift from a quantity-oriented mindset, constitution, system, and customs to a quality-oriented approach." This was the moment when his famous saying was born: "In the era of globalization, if you do not change, you will forever be second or second-and-a-half class. Even if you do well now, you are only 1.5 class. Let’s change everything except your wife and children."

After the new management declaration, key executives were urgently summoned to Frankfurt. From then on, meetings and training sessions to spread the new management philosophy proceeded rapidly. Until June 24, meetings and special lectures presided over by Chairman Lee continued in Frankfurt, Lausanne in Switzerland, and London in the UK. From July 4, the meetings and lectures moved to Tokyo, Osaka, and Fukuoka in Japan and continued until August 4. Through this two-month-long journey following the Frankfurt declaration, Samsung’s new management philosophy spread in the field of globalization.

From June to early August 1993, spanning from Frankfurt to Tokyo, Chairman Lee conducted meetings and training sessions for about 1,800 executives, domestic and overseas staff, and resident employees. The time spent in dialogue with employees totaled 350 hours, which, if transcribed, would amount to a massive volume equivalent to 8,500 A4 pages.

"Defects Are Cancer" Transition from Quantity to Quality-Oriented Management

"For over 20 years, I have said 'defects are cancer.' Gastric ulcers can heal, but cancer evolves. If not removed early, it metastasizes throughout the body within 3 to 5 years and kills the person. Samsung is at risk of entering the terminal stage of cancer if it makes a mistake. Cancer can be cured if operated on early, but no one can cure it once it reaches stage 3."

The core of Samsung’s new management was a structural transformation from quantity-oriented to quality-oriented management. It was a commitment to break the vicious cycle of quantity-focused management that had persisted and to realize a virtuous cycle management structure where quality is central and quantity harmonizes with it.

Chairman Lee deeply felt the limitations of quantity-oriented management and pointed out defects resulting from quantitative thinking as a chronic problem. Using the metaphor of defects as cancer, he emphasized the harmful effects of defects that could ruin the company.

He stressed, "I am not saying to shift the balance of quantity and quality to 5:5 or 3:7. I am saying to go completely from 0 to 10." He said it was acceptable to sacrifice quantity for quality. To raise the quality of products, services, people, and management, he even said it was acceptable to halt production lines or factories if necessary.

Samsung began innovation starting with product quality to eliminate defects. Even if production lines had to be stopped, they aimed to reduce defects to advanced levels and decided to make at least one world-class product. To improve the quality of people, they reformed personnel systems and created a creative and autonomous organizational culture. To enhance management quality, they built an information infrastructure that could provide practical help rather than formalities and advanced the business structure.

A vivid example demonstrating Samsung’s painful determination to shift to quality-oriented management along with the line-stop system was the defect wireless phone burning ceremony held in March 1995. At that time, Samsung Electronics’ wireless phone division pushed to produce finished products prematurely without proper quality, resulting in a serious problem with a defect rate soaring to 11.8%.

Despite a year passing since the new management declaration and the commitment to abandon quantity and pursue quality, there was still public outcry over defective products. Chairman Lee strongly criticized the seriousness of the issue, saying, "What kind of spirit is it to make such bad products and sell shoddy goods even after the new management? Why do business that runs at a loss, loses customers’ goodwill, and receives bad reviews? Making substandard products at Samsung is a sin. Even if it means closing the company, it must be corrected."

In January 1995, Chairman Lee reviewed quality accident countermeasures and future plans, and took extraordinary measures to unconditionally exchange defective products for new ones with an apologetic heart toward customers. Along with this, he proposed burning the collected products to also burn away the employees’ defective mindset. About 150,000 units worth approximately 15 billion won were collected and completely destroyed in the burning ceremony. Watching the products they had painstakingly made burn, employees were moved to tears. The defect product burning ceremony became an opportunity to unite the hearts of all employees.

Through these visible measures and efforts, the awareness that "defects are cancer" took root in the hearts of Samsung employees, and a culture of finding and fixing hidden weaknesses in every corner of the field spread throughout the entire group.

This content was produced with the assistance of AI translation services.