[4 Major Groups Control Tower] Voices Inside Samsung Calling for a "Second Future Strategy Office"... "Need to Consider Positive Functions" (Comprehensive)

④Samsung, Lack of Integrated Control Tower... Revival Possibility ↑

"Samsung is the largest global conglomerate in Korea, home to Samsung Electronics with annual sales exceeding 300 trillion won and a market capitalization over 400 trillion won, but it lacks a steering wheel. This is because there is no control tower to determine the group's business direction. Even when some affiliates plead to expand and invest more in their businesses, the reality is that business development is blocked by the four words 'cost reduction.' (Former Samsung Group executive)

Samsung's control tower is in a state of nominal existence. In February 2017, the 'Future Strategy Office (FSO),' which had served as the control tower, was officially disbanded following the political scandal. Currently, three task forces (TFs) operate in tandem to fulfill its role: ▲Business Support (Samsung Electronics) ▲Enhancement of Financial Competitiveness (Samsung Life Insurance) ▲Strengthening EPC (Engineering, Procurement, and Construction) Competitiveness (Samsung C&T). The leadership of these three TFs is held by Vice Chairman Jung Hyun-ho of Samsung Electronics, Executive Vice President Lee Seung-ho of Samsung Life Insurance, and President Kang Byung-il of Samsung C&T’s Construction Division. Since 2017, Samsung Group has effectively abandoned the name 'Samsung Group' and transitioned to an affiliate autonomous management system.

◆Control Tower as Samsung’s Steering Wheel=Samsung was a corporate group led by a control tower. Although the name changed from Secretariat, Restructuring Headquarters, Strategic Planning Office, to Future Planning Office, there was always a control tower that monitored the company’s present and prepared for the future. When Samsung began to take shape as a group in 1959, founder Lee Byung-chul benchmarked Japan’s Mitsubishi and Mitsui, which were strong in organizational management, and created a Secretariat organization led by the first director Lee Seo-gu. Initially, it focused on the chairman’s protocol functions. However, from the 1970s to the 1990s, it evolved into an organization handling overall group management. At that time, the Secretariat established or acquired Samsung Electro-Mechanics (now Samsung SDI), Samsung Corning, Samsung Heavy Industries, Samsung Electronics, Hotel Shilla, and others, driving group growth.

Later, the Secretariat changed its name to the Restructuring Headquarters in 1998 when the late Chairman Lee Kun-hee took office, ending the tenure of Director Hyun-mang Kwan. This organization, led by 'financial expert' Lee Hak-soo right after the Asian financial crisis, spearheaded Samsung’s restructuring and organizational improvement during a difficult management period.

In 2006, the Restructuring Headquarters faced pressure to disband due to the National Intelligence Service X-file scandal. Unable to give up the control tower, Samsung downsized and reorganized the Restructuring Headquarters into the Strategic Planning Office. Although the Strategic Planning Office was disbanded in 2008 following the Samsung special prosecution, Samsung established the Future Strategy Office in 2010 to continue the control tower’s legacy.

The FSO served as the steering wheel deciding Samsung’s future until 2017, passing through directors Kim Soon-taek and Choi Ji-sung, but was dismantled after being implicated in the political scandal. At the time, Chairman Lee Jae-yong personally directed its disbandment, stating, "If the public holds a negative perception, we will abolish the FSO."

The current simplified control tower, led by financial expert Vice Chairman Jung Hyun-ho of Samsung Electronics, has driven Samsung’s heyday. From 2017 to 2022, Samsung Electronics posted an average annual operating profit of about 40 trillion won. During the late Chairman Lee Kun-hee’s era (1988?2014), the average annual operating profit was 8.5117 trillion won. In other words, under the current system, Samsung Electronics has leapt from a world-class company to a global top-tier company. However, the simplified control tower has recently shown its limits. This year, Samsung Electronics’ quarterly operating profit plummeted to the 600 billion won range. Sales are in the 60 trillion won range, with an operating profit margin of only 1%.

◆Growth Limits Exposed Amid Control Tower Absence=Samsung has failed to properly demonstrate timely investment and momentum to discover and secure future growth engines. While the three TFs gather the capabilities of affiliates engaged in similar businesses, they are evaluated as unable to serve as an 'integrated control tower' that unifies affiliates in different businesses, sets the future direction of Samsung Group, and promotes new businesses.

In fact, the semiconductor and bio sectors that Samsung currently promotes as future growth engines were all nurtured at the group level during the era when an integrated control tower existed. For example, in 2010, Samsung selected and announced five new growth businesses: solar cells, automotive batteries, LEDs, bio, and medical devices. Samsung’s current cash cows?semiconductors, bio, and displays?are businesses started at least 10 years ago. Samsung even acquired Korea Semiconductor in 1974. In other words, businesses started nearly 50 years ago are now sustaining Samsung.

Currently, Samsung’s control tower is regarded as financially specialized, indicating a need to strengthen the future planning and strategy division. Recently, voices within Samsung have begun calling for the necessity of an integrated control tower. Lee Chan-hee, chairman of Samsung’s Compliance Committee, said, "Samsung Group needs an overall control tower," signaling consideration of organizational revival.

Experts believe that given the governance characteristics of Korean companies, where many affiliates are grouped into one large conglomerate, an effective control tower can enable efficient strategy setting and business execution. Professor Hwang Yong-sik of Sejong University’s Business School said, "With the rising crisis narrative about Samsung and growing calls for an integrated control tower, now is the right time for its revival." He added, "Since Samsung Electronics Chairman Lee Jae-yong has officially declared he will not pursue succession, even if the control tower is revived immediately, the risk of misuse for succession is low," explaining, "It is time to change the past perception of the control tower as a tool of chaebols and recognize its positive functions."

However, despite its positive functions, reviving the control tower is not an easy task. Professor Shin Jin-young of Yonsei University, who heads the Korea Capital Market Institute, advised, "During the decision-making process at the group level by an integrated control tower, conflicts may arise with shareholders and boards of directors of individual affiliate companies. Even if the group’s decisions are better, conflicts of interest with individual companies may cause legal issues, making this difficult to resolve."

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