How is the corporate structure of Samsung

Samsung's controversial corporate culture : The strategy of the "rich clan"

In Korea there is a term for the system that has apparently become Samsung's undoing: “Chaebol” is the name given to large family businesses that are run with little bureaucracy, but all the more autocratic. The term translated means “rich clan”. Samsung is like a picture book like a chaebol - but what the company benefited from for a long time obviously led to the disaster for the Galaxy Note 7 smartphone in the end.

The business plan must be meticulously followed

The previous strategy of the patriarch and still incumbent company boss Lee Kun Hee: He and a handful of top managers publish a business plan for all divisions that has to be meticulously followed. There is now strong criticism of this corporate culture after the Galaxy Note 7 was completely withdrawn from the market on Monday due to the risk of explosion.

In an interview with the AFP news agency on Wednesday, economist Kim Sang Jo complained that management had insisted on bringing the smartphone to market before the actual schedule in order to keep Apple's new iPhone at bay. Samsung shipped the Galaxy Note 7 on August 18th, Apple announced the launch of its new iPhone 7 on September 7th, but Samsung had to start a worldwide recall on September 2nd after users reported burning devices.

"Lack of feedback"

There was no way for engineers to tell management that they needed more time to test the batteries - not even for the new battery after the recall, Kim suspects. “This lack of feedback is the biggest mistake behind the disaster,” says the South Korean economist.

Samsung was successful for a long time with its chaebol strategy: The company, founded in 1938, is not only the most important corporation in Korea, but also the world market leader for smartphones. But with the growth, the corporate structure became more and more complex, in addition to Samsung Electronics, shipbuilders, construction companies, hospitals, department stores and operators of leisure facilities belong to the Samsung Group, which accounts for 17 percent of the Korean gross domestic product. The more branched the corporate structure became, the more the central decision-making process became a burden, analysts criticize. Kim Sang Jo explained that a group of top managers in the future strategy department had almost unchallenged control over the direction. "Whatever decision the department makes, the engineers and working managers should follow them quietly, even if they think that it is not humanly possible or completely unreasonable."

The leadership is silent at the first public appearance

The management team itself was silent on Wednesday, one day after the complete shutdown for the Galaxy Note 7, at their weekly meeting. The Yonhap news agency reported that senior managers dodged the reporters' questions. Shin Jong Kyun and Koh Dong Jin, who are responsible for the Note 7, apparently did not even come to the meeting - which in turn sparked speculation that they will have to resign.

For Samsung, the Galaxy Note 7 debacle is both a financial and an image disaster. The withdrawal could cost Samsung up to 17 billion dollars, analysts estimate. Samsung had to publish a profit warning for the third quarter. After the breakdown series, only an operating result of 4.2 billion euros is expected, a third less than before. The warning came only after the stock market closed in Seoul, before the share had gone out of trading with a minus of one percent, at the beginning of the week it had lost around ten percent.

Are Apple, Google & Co now gaining further market shares?

With around 77 million smartphones sold in the second quarter, Samsung holds around 22 percent of the global smartphone market, more than any other manufacturer. Apple is in second place with 40.4 million iPhones sold and just under twelve percent. Apple, but also competitors such as Google and LG Electronics, could benefit from the breakdown.

The boss's son is supposed to save Samsung

Samsung must now prove whether it can learn from its lesson. Even before the breakdown, the company was undergoing renovation. J. Y. Lee, son of Patriarch Lee Kun Hee, who has been weakened by a heart attack and is currently Vice President of Samsung Electronics, is to take over. "Depending on how he behaves, Samsung will be an example of how a company reinvents itself through a crisis or goes down in history like Nokia," predicts economist Kim Sang Jo. Perhaps J. Y. Lee will succeed in reinterpreting chaebol. (with AFP / rtr)

Now new: We give you 4 weeks of Tagesspiegel Plus! To home page