Optimal Choice, Not Either-Or: 30 Years of 'KH New Management'... JY Must Recreate 'New Samsung'

[Samsung New Management 30 Years]
① Chairman JY's First Year... Becoming a 'First Mover'

One year after the late Chairman Lee Kun-hee collapsed due to a myocardial infarction in 2015, Samsung Electronics Chairman Lee Jae-yong said, "People say my father did business by looking at the big picture, but I focus on the details." He added, "My father probably couldn't see the big picture when he was my age." This was an expression of his determination to achieve accomplishments comparable to his father's by carefully understanding even the smallest parts of the organization over time. The beginning of Chairman Lee Kun-hee's New Management myth was the 1993 Frankfurt Declaration in Germany. At that time, the late chairman was 51 years old. Now, Chairman Lee Jae-yong is 55 years old, older than his father was when he declared New Management. The world has begun to expect the blueprint of the grand vision that Lee Jae-yong will draw.

On the 27th, marking the first anniversary of his inauguration as chairman, Lee Jae-yong faces a complex situation where he must maintain the world's top position and discover new growth engines. The market demands that Samsung not only lead in existing businesses such as semiconductors and smartphones but also become a first mover, not just a fast follower, in key Fourth Industrial Revolution sectors like artificial intelligence (AI), electric vehicles, and biotechnology.

Thirty years ago, in 1993, Chairman Lee Kun-hee gathered executives at the Kempinski Hotel in Frankfurt, Germany, and presented a new management principle focused on quality over quantity, calling for innovation. The chairman sharply criticized, "The world is moving entirely toward quality, but we are still focused on quantity." The famous phrase "Change everything except your wife and children" originated then. An incident demonstrating the chairman's obsession with quality occurred in 1995 when, enraged by a high product defect rate, he ordered hundreds of millions of won worth of mobile phones to be burned. This so-called mobile phone bonfire led to a drastic drop in defect rates from 11.8% to 2%.

In fact, 30 years ago, Samsung was the number one electronics company in Korea. However, the chairman looked beyond the domestic market to the world. Samsung won the chicken game (a head-on confrontation to force the opponent to give up) among memory semiconductor companies such as Germany's Qimonda and Japan's Elpida, and engaged in a historic patent lawsuit with Apple. Overcoming numerous crises, he grew Samsung into the world's number one company in semiconductors, TVs, and smartphones.

The core was transforming Samsung from quantity-based management to quality-based management. He emphasized that the goal was not to be number one in Korea but number one in the world. Over the 30 years since the Frankfurt Declaration, Samsung applied various philosophies such as creativity, design, MAHA, and global management to become a first-class company. Throughout this process, Samsung did not follow the traditional management policy of choosing between A and B but derived optimal solutions suited to the situation. A representative example is Samsung's sophisticated management activity of competing with Apple in the smartphone set (finished product) business while supplying components to Apple in the semiconductor (parts) business, verifying overwhelming component quality in the market.

Chairman Lee Jae-yong has taken on the heavy responsibility of making Samsung a first mover. Experts point out that the fast follower strategy, which worked until the late chairman by increasing bargaining power through overwhelming component and product production capacity, no longer applies. Since acquiring Harman, an automotive electronics company, for 9 trillion won in September 2017, there have been no further mergers and acquisitions (M&A). There is also no news of establishing a control tower to oversee affiliates to improve the speed and accuracy of important decision-making. Samsung has not announced a company vision for four years since the "System Semiconductor 2030" plan (aiming to become the world's number one non-memory semiconductor company by 2030).

If Samsung does not decide whether to pursue M&A (to strengthen growth engines), revive the control tower (to enhance decision-making speed), or announce a vision (to resolve uncertainty), and if it does, which should take priority, the market will find it difficult to determine the identity of Lee Jae-yong's new Samsung. On the positive side, after Chairman Lee's pardon and reinstatement last August, announcements were made to hire 80,000 employees and invest 450 trillion won by 2026, and to establish five semiconductor factories worth 300 trillion won by 2042. It is now pointed out that it is time to go beyond investment and employment plans and concretize and communicate a comprehensive strategy for "JY New Samsung Management," similar to the "KH New Management."

If it is difficult to announce a company-wide management vision, another option is to announce a "new business plan" focusing on nurturing specific businesses for 5 to 10 years. Samsung is already losing market share and business portfolio ground to LG Energy Solution in secondary batteries and to Naver and LG in AI. It is necessary to refer to the late chairman's example in 2010, when he specifically announced five new businesses?solar cells, automotive batteries, LEDs, bio, and medical devices?as Samsung's new growth engines. Although there were failures, bio (Samsung Biologics) and secondary batteries (Samsung SDI) are now considered core Samsung businesses.

Kim Kyung-joon, CEO Score CEO, said, "Just as Hyundai Kia judged that internal combustion engine vehicles alone cannot maintain their status in 10 years and accelerated their electric vehicle business, Samsung Electronics must also grow its foundry (semiconductor contract manufacturing) business beyond DRAM," adding, "It is time to promptly announce a company-wide management vision so that the money earned from DRAM can be invested in new businesses to prepare for 10 to 20 years ahead."

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