Why Samsung Failed With The Note 7 – Strategy With RS

It seems that Chairman Lee Kun Hee of Samsung, now nudging 73, will have to return back, despite his frail health and set the defective Galaxy Note 7 on fire.

In 1995, he had categorically told his team, that if they ever made defective handsets he would personally come and set them on fire.

‘In 1995, Chairman Lee was dismayed to learn that cell phones he gave as New Year’s gifts were found to be inoperable. He directed underlings to assemble a pile of 150,000 devices in a field outside the Gumi factory. More than 2,000 staff members gathered around the pile. Then it was set on fire. When the flames died down, bulldozers razed whatever was remaining. “If you continue to make poor-quality products like these,” Lee Keon Hyok recalls the chairman saying, “I’ll come back and do the same thing.’

‘The lesson stuck. In May 2012, three weeks before the new Galaxy S III was to be shipped, a Samsung customer told the company that the back covers for the smartphone looked cheaper than the demo models shown to clients earlier. “He was right,” says DJ Lee, the marketing chief of Samsung Mobile. “The grain wasn’t as fine on the later models.” There were 100,000 covers in the warehouse with the inferior design, as well as shipments of the assembled devices waiting at airports. This time, there would be no bonfire—all 100,000 covers, as well as those on the units at the airports, were scrapped and replaced.’ (Source: Bloomberg – March 29 2013)

As would be apparent, till 2012, Samsung had retained in its organisation memory Chairman Lee’s stern warning; but in the last 4 years, it seems that they have forgotten it.

It is said that those who do not remember the past are condemned to repeat it – and for Samsung, it comes at a very heavy cost – estimated to be $ 2 billion + incalculable loss of reputation.

Why did this error creep into the Note 7?

Samsung decided to prepone the launch of Galaxy Note 7 to counter the impending launch of Apple iPhone 7. Therefore it had to rush its production to ensure its early launch.

Result – Either of the 2 things could have happened (Source: Forbes: The Note 7 Nightmare That Samsung Created)

1. An error in production that could have put pressure on the plates within the battery cells which in turn got the positive and negative poles into contact causing excessive heating culminating in the battery explosion.

Or

2. The phone battery was slightly bigger for its compartment. The tight space in which the battery was squeezed in, which could have caused a short circuit, resulting in an explosion.

Business lesson for us:

1. Be the best, not the first in the market.

2. Do not be competitor driven and attempt to ambush its plan – many at the time it backfires – just as Samsung has realised much to its embarrassment.

 

(image source : droid-life.com )

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About The Author:

rajesh-srivastava-insideiim

In this series, Rajesh Srivastava, Business Strategist and Visiting Faculty at IIM Indore gives you a regular dose of strategy case studies to help you think and keep you one step ahead as a professional as compared to your peers. Rajesh is an alumnus of IIM Bangalore and IIT Kanpur and has over 2 decades of experience in the FMCG industry. All previous Strategy with RS posts can be found here.

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