Is Samsung doomed to be the next Sony?

By Ajith Ram October 18, 2016

Fear that Samsung's management is losing focus
Company could end up as a 'former great' like Sony

HAVE you seen the latest Samsung Galaxy Note 7? It is the phone with the built-in heater.

Or what is the best way to use the Note 7? Definitely underwater as it is water resistant.

All internet jokes aside, does Samsung now have an image problem? Or more importantly, has the company become too big to steer safely past the next iceberg?

Samsung has now confirmed that it has permanently shut down the Galaxy Note 7 production line, bringing to an end the saga of the troubled, fire-prone handset. But the consumer giant has a long way to go to win back the consumers' trust.

This is hardly the first time that a mega corporation has been caught flat-footed by a defective product. It is reminiscent of the recent Volkswagen diesel fiasco.

Just one major product recall is bad enough. But two recalls of the same product within weeks look suspiciously like inept management. From a purely revenue perspective, Samsung has already lowered the revenue projections by over US$5 billion. If the consumers stay away, the contagion could very well spread to other Samsung products such as refrigerators and washing machines.

The real problem with Samsung could be that it has become too big. Samsung, like South Korean manufacturing giants, Daewoo and Hyundai, belong to the 'chaebol' or family-owned group of companies that make up a huge chunk of the country's economy.

Since 2014, Samsung's founder, Lee Kun Hee, has been not at the helm due to a heart attack. His son and heir-in-waiting, Lee Jae-yong, has been making moves to consolidate his power base within the company.

According to the reports, this transition is far from complete. There is still a sizeable senior management contingent within Samsung that looks to the company's ailing founder for guidance. And this could be one of the reasons for the company's lethargic response to the Note 7 fiasco.

It is not just Samsung customers who were left scratching their heads. Normally, Samsung through its various PR agencies, inundates the media with various press releases about the company's products and accomplishments. This was strikingly absent during the recent exploding Note 7 saga.

Even Samsung store managers seemed clueless about the company's strategy. Even after the company had advised customers to return the Note 7, many Samsung stores were still selling the device as they had received no directives from headquarters. Samsung's own website still advertises the Note 7, although it now includes an 'updated guidance' for customers.

Samsung is now a true conglomerate that has its trunks in areas beyond just consumer products. The company is now a major competitor to Intel with its chip manufacturing facilities. It is also now heavily involved in the construction industry. Employing hundreds of thousands of people both directly and indirectly, the company's influence is felt not just in South Korea.

Even if the family succession goes smoothly, has Samsung become too big to steer?

The company's management would do well to remember the lessons of history. It was not too long ago that Japanese consumer electronics giant Sony stood on the same pedestal as Samsung today.

During its heyday in the 1980's and 90's, Sony could do no wrong. Along with the launch of the iconic PlayStation, the company had gone on an acquisition spree that included Hollywood studios, Columbia Pictures and MGM.

As Sony became fat, diverse and debt-ridden, the management lost focus and it stopped innovating. Famously, the company that brought us the Walkman and Trinitron TVs, got overtaken by Apple with the iPod and other LCD TV manufacturers. Today, the company's main lifeblood is its PlayStation division as it struggles to remain afloat.

To avoid a fate like Sony, one solution for Samsung could be a split into completely separate autonomous units which do not require constant guidance from a single over-burdened CEO. Recently, HP did the same by splitting its consumer and enterprise divisions.

While this might be a long-term solution which could take years, Samsung could take other measures which would be effective immediately.

To begin with, since most of the Note 7's customers are early adopters or true Samsung fans, the company should go beyond just a refund or a device replacement. It should really roll out the digital red carpet for these avid fans by offering free extras like accessories. In order to keep them loyal, Samsung should be ready to go the extra mile - or more if necessary.

Secondly, in future, it could also try to be a bit more honest with its customers and the media. Instead of blaming a third party battery manufacturer or remaining silent, the company should have just come forth and admitted its mistake. Believe it or not, at times of crisis, honesty is usually the best policy.

Finally, the company needs to revamp its entire global PR strategy. As the Note 7 fiasco exposes, Samsung now comes across as a 'faceless' leviathan based in an opaque foreign country. It needs to hire senior managers and brand managers who are comfortable facing the media and the public.

Despite the Note 7 debacle, unlike Sony, Samsung is in no imminent danger of becoming a 'former great'. It has over US$60 billion in the bank and the company can afford to spend its way out of trouble.

But can it continue to grow or will it stagnate? This requires a steady supply of products that the consumers will want to buy. Time will tell if the new management can deliver truly innovative products in the years to come.

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