In recent years, Samsung has been the smartphone market leader. While Apple makes the most profit, Samsung sells the most units. Its unit market share is 22% globally while Apple’s is at 13%. In the spring of 2016, rumors were rampant that the iPhone 7, scheduled to launch in the fall, would lack any real innovation. Samsung smelled an opportunity, moved up the introduction of the Galaxy Note 7 to August 19, and put enormous pressure on its suppliers to beat the iPhone 7 to the marketplace.
A comment on Samsung’s management is warranted to understand what then occurred. Samsung was started in 1938 by Lee Byung-chul (Lee I). He held the role of Chairman of the Samsung Group, which included a growing number of Samsung subsidiaries, until his death in 1987. At that time, the next family member in line, Lee Kun-Hee (Lee II), was made Chairman. He has served in that role for decades and unfortunately, had a severe heart attack in 2014 and remains alive but hospitalized. No one has taken his place as Chairman, since the family tradition is you are Chairman until you die. The Vice-Chair is Lee Jae-Yung (Lee III). The division of Samsung which makes the Galaxy Note 7 is called Samsung Electronics and recently D.J. Koh became the head of that division.
The Galaxy Note 7 was introduced as planned on August 19 and immediately reports began to emerge of it bursting into flames. By the end of August there were dozens of fires. On September 2 Samsung announced it would replace all 2.5 million Galaxy Note 7 phones. This was a decision by the recently appointed D.J. Koh who claimed they spotted a problem with batteries being provided by one of its several battery suppliers. He indicated they’ve taken that supplier offline. Apparently the lead battery supplier was Samsung SDI, an affiliate of the Samsung Group, and rumors were that it was the problem supplier.
Soon after the replacement Note 7 phones hit the marketplace, reports surfaced that they were also catching fire. On Oct. 10, a decision was made by Samsung to remove the Note 7 from the marketplace. Apparently that decision was made by Vice Chairman Lee III.
The lessons are clear:
1.) Don’t Rush Big Decisions – Clearly in early September when Samsung announced it would replace all Note 7’s, they really didn’t understand the core problem causing the fires. They were betting on sparse data that it was a battery supplier issue but that obviously turned out to be wrong. Relatively inexperienced D.J. Koh was probably the source of that bad decision and it’s not clear what role Vice-Chairman Lee III played.
2.) Clear Responsibilities are Essential – Given that the Samsung Note 7 problems involved two Samsung units, Samsung Electronics and Samsung SDI as the lead battery supplier, the key decision maker should have been Mr. Lee II, but he was hospitalized. How the decisions were being made by the inexperienced D.J. Koh and Vice Chairman Lee III, who had no actual authority, is not at all clear.