Samsung Electronics: Innovation and Design Strategy Introduction: The case study commences with the integration of innovative design and brand management by Samsung Electronics which started a new trend in the electronics industry. As discussed in the case, initially Samsung was not much popular and lacked design identity but later it relocated itself by: * Improvement in the product development processes * Increasing their investments in R&D and product design i. e. R&D globalization. * By adopting right innovation strategies. By mastering the less tangible, more intuitive qualities of superior design. * By diversification of products and step by step or continual improvement. * Implementing Global localization strategy. * Achieving Vision of leading in digital convergence by using e-processes (electronic integration of processes by going online). All these methods were implemented by Samsung in order to improve its productivity and to gain competitive advantage over its competitors like LG Electronics, Sony, Apple Computer Inc. , etc. Despite this, Samsung is facing the challenge to stay ahead in competition in the near future.
Consumer electronics industry is facing a tough competition and the need of the hour is to optimize the R & D costs, having relevant information regarding the IPR (Intellectual Property Rights) while design outsourcing and using appropriate product design followed by appropriate market strategy. Case Analysis: As mentioned in the case, the background of Samsung can be discussed in a tabular form: * Started by Byung-Chull Lee in 1939 as an exporter of agricultural products. | * Samsung Electronics established in 1969 followed by product diversification. * Strategic Joint Ventures with NEC, Sanyo and Corning Glass work in 1970| * Brought 50% stake in Korea Semiconductor Inc. | * Acquisition of Korea Semiconductor Inc. in 1978 followed by the successful implementation of reverse engineered product design| * Vertical integration by developing their own IC’s DRAMS(Dynamic Random Access Memories in 1985 | * Focus on qualitative growth than quantitative growth in 1990| * Loosening of import restrictions by South Korean government| And Samsung achieved price competitiveness in 1991. * In 1992, Samsung established R&D center in European markets. | * In 1994, Samsung established R&D center in US markets. | * In 1997, Samsung cuts its Korean and overseas workforces due to Asian Financial crises. | * In 1999, Samsung was regarded as world’s premiere consumer goods and services industry By Forbes. | * In 2000, Samsung embarked vision to convert itself into a Digital- e company. | * Increased design staff and R&D in 2004| In 2005, Samsung increased its design budget by 20%-30%| * In 2006, Samsung registered 17,377 patents worldwide| * In 2007, Samsung held dominant worldwide market share| Samsung Electronics’ integration of brand management, product design and investment in R&D provided them advantages over its competitors. Hence, they improved step by step with the product diversification, Mergers and Acquisitions, vertical integration and implementation of new technology. They were aggressively involved in marketing and improving their brand image in the minds of their customers.
The Samsung’s learning and leveraging matrix can be explained as: Dedicated business units e. g. Informal technology transfer | New venture department or division, e. g. ”skunkworks( Investments in R&D’s)| Independent business unit, e. g. Predivestment or potential spinout| Direct integration or business team ( Vertical Integration by developing their own IC’s)| Low Leveraging existing competencies High Innovation and product Design at Samsung Electronics
Samsung Electronics leading position was contributed by the enlisted factors: * Creative people in the organization which contributed in the development of technology. * Co-operation between the business partners throughout the supply chain * Firms ability in exploring end penetrating into the new markets * Speed of innovation and product development. Along with this Samsung also increased the investments in their R&D centers. After doing the trend analysis for the Exhibit 3 which shows the Samsung R&D budget and percentage sales,
We arrive at the conclusion that the Samsung’s R&D budget increased till the year 2007 linearly. But there is decline in the percentage of sales in the year 2007, which suggests that the Samsung will need to rethink this strategy. There is an urgent need to optimize the cost related to Samsung’s R&D expenditure to prevent the decline of sales in future. Samsung globalized their R&D network worldwide to develop technologies which can be commercialized in the future. Basically the main idea behind the globalization of R&D network is to: * Focus on innovation and generating new products for global market. There is a huge scope of product improvement. * This provides an access to the emerging markets. * Leverages the market opportunity for the firm. User- Centric Design Philosophy Samsung’s philosophy was to strike the balance between the reasons and feelings. This was done by them with the rationalization of the design of product by using geometric and technological parameters and enhancing the design to the product so that it can make the emotional connection with the user. Their global localization strategy helped them to become a top class consumer electronics company. Marketing
Samsung used electronic processes to achieve their vision of leading in digital convergence. The Convergence and integration between manufacturing, promotion & distribution of electronics included releasing, promoting and marketing. This thing helped Samsung in improving: * Brand Image * Helped in product differentiation * Better value propositions or bundle of benefits to the customers. This graph shows net sales and operating profit of Samsung Electronics 2007 Samsung Electronics’ E-processes comprised of: The SCM, R&D management and Customer management processes were integrated with ERP (Enterprise Resource Planning).
ERP implementation provided them a wider access to the Samsung Electronics’ operations. This improved their overall processes and improved efficiency. Competitive Landscape: Landscape| SamsungElectronics| Apple ComputerInc. | LGElectronics| Nokia Corp. | Sony Corp. | MotorolaInc. | Product Offered| Consumer electronics(LCD TV’s,MicrowaveOvens, PC’s, etc. ) | PC’s, portable music players,Mobile communication devices, etc. | Consumer Electronics( mobile handsets,Front loading washing machines, AC’s, etc. )| Leading Mobile Comm. Company( started as wood pulp producers)| Electronic games,Motion pictures, Financial services, etc. Mobility solutions, mobile services, cellular comm. Devices ,etc. | Innovation & DesignMarketing| Focuses on ‘Reason’ and Feeling to create a design and used global localization strategy to establish as a first class consumer electronic company(user centric)Digital convergence using E-Processes and efforts in improving design by investing in R&D| Occupies ‘feeling’ zone and emphasis on the simplicity of products in terms of design and usability. Improvement in design and product features| Concentrated on 5 areas:Mobile comm. digital appliances, digital displays,Digital media and home networking and design their products by using 4 values: Theme, style, interface and finishOriginally produced electronics for mass consumption but later transformed to produce premium consumer products for attracting premium customers and to gain brand image| Adopted telecom. as its core business & designing was based on 3 principles: Simplicity,Relevance and ExperienceProduct categorization is done by: ExploreLive classic, classic, achieve and entry and communicating brand value to the customers| Creates value added products by doping 4 principles of design: Originality,
Lifestyle, Functionality and UsabilityDo not rely on customer surveys and create value added user experience through feature design, concept development and eco- friendly sustainable design| Focus on two criteria’s for design the products for their consumers: personalization and socializationPaid attention on development of new revenue generating services and technologies and enabling customers to experience media mobility. | Comparison of percentage sales It is clear from the graph that both Nokia and Motorola are ahead than Samsung in terms percentage of net sales.
This means that Samsung needs to redesign and reform their business network to gain competitive advantage from its competitors. Moreover in 2007, there is a slight decline in sales for Samsung which is a cause of concern. Though, Samsung is relatively doing well as compared to its competitors Apple, LG and Sony. Conclusion We can analyze the whole case by using Porter’s legacy which deals with innovation strategy. There are five forces to develop a competitive innovation strategy: The five forces are : * Relations with suppliers: It means that Samsung needs to improve their relations with the suppliers.
This can be done with Suppliers relationship management and by bringing the suppliers on a single platform. * Relations with buyers: Customer is the king. There is a need to improve their relationships with the buyers or customers by developing appropriate marketing strategy, timely delivery of the products and supply chain management * New entrants: It is important for Samsung to analyze the threats from new entrants in the consumer electronic market. * Substitutes: With the emergence of chinese products in the market which can act as the substitutes for Samsung products .
Hence, it is important for Samsung to implement Generic technology strategies which includes: * Cost leadership (e. g. Lower/cheaper material input, logisitics) * Differentiation (e. g. Enhance features, deliverability) * Cost focus (minimum features) * Differentiation (niche markets) * Rivalry among established firms: There is a strong competition between the already existing firms like Nokia, Sony, Apple, LG, etc. Therefore ,Samsung will have to improve its competitiveness in the market. In order to sustain its position in the near future Samsung will have to consider all the above mentioned points.
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