z Case 6-2 Samsung Electronics Co. 533 ’ > , cr Case 6-2 the South Korean company has begun gearing all it Samsung Electronics Co. ‘The office park in northern New. Jersey hardly looks like a place that plays a role in cutting-edge design Hard by a highway interchange; the two-story building is about as distinctive as white rice. But climb the 18 o the second floor, and you'll see designers from weunsing Electronics Co. studying in pains-taking detail the American consumer psyche. There, engineer Lee Byung Moo watches from behind a’ two-way mirror as three women and two men stuff a stainless steel refrigerator with the contents of a half-dozen bags of groceries. After the five have finished and given their opinions on several potential configurations of drawers and compartments, Lee and two others rush into the room to take photographs and note exactly where the “shoppers” have put the ice cream, chicken, beer, milk, and other food. “We want to know the tastes of American customers because we nced to develop products that fit their lifestyle” says Lee. Half a world away, Choi Won Min sits in a window- Jess room on the ground floor of a Seoul skyscraper— an equally unlikely spot to find the leading edge of design. He spends his days (and often his nights) in front of two piano keyboards, a phalanx of mixing con- s,and dozens of synthesizers, With his headphones ou, he hits a note, listens intently, then tweaks a fow settings and hits another key. His primary mission in the two-year-old lab: coming up with a suite of bells, doings, beeps, and buzzes for digital gadgets that will immediately say “Samsung” to users worldwide. In the past, “simple sounds seemed to be sufficient, but now we realize how important sounds are in user inter- faces,” Choi says. Lee and Choi are foot soldiers in Samsung's con- tinuing assault on the world of cool. In recent years, does, from financing to decision-making to training and labs, to make Samsung a finely tuned receptor of all the things that make its produets must-haves in an increasingly competitive marketplace. Hundreds of millions of dollars have been spent spiffing up the look, feel, and function of everything from refrigerators and washing machines to cell phones and mp3 players. And the focus has been on research of the sort Lee and Choi are doing: finding out what's likely to sell before con- sumers even know they want it. The effort has paid off Samsung has grown from a me-too producer of elec tronics and appliances into one of the world’s leading brands—in large part because of its focus on design, “We want to be the Mercedes of home electronics,” says Yun Jong Yong, Samsung's chief executive. ‘The way Samsung's moving, you'd thinkit wants tobe ‘the Ferrari, This yeat, Samsung won five citation in the Industrial Design Excellence Awards (@DEA\—maling it the first Asian company to win more prizes than any European or American rival. (The competition is spon- sored by BusinessWeek, which publishes the results, but the laureates are selected by the Industrial Design. ers Society) And since 2000, Samsung has cared a total of 100 citations at top design contests in the US. Europe, end Asia Brokerage Hyundai Securi. ties expects Samsung to earn $10.3 billion on sales of $52.8 billion this year, up from profits of $5.2 bil- lion and $39.8 billion in revenues last year. (Although much of that increase comes fiom the semiconductor division, the company’s snazzy consumer products also helped.) “Samsung is the poster child for using design to increase brand value and market share,” says Patrick Whitney, director of the Institute of Design at the Mlinois Tnstitute of Technology. ‘The change started in 1993, when Chairman Lee Kun Hee visited retailers in Los Angeles and saw that ‘Samsung products were lost in the crowd, while those534. Par Six Comprehensive Cates from Sony Corp. and and a few others stood out, So he ordered his managers to concentrate less on cost saving. and more on coming up with unique products. The bot- tom line; Great design could catapult Samsung to the top ranks of global brands, Decade of Determination The boss spoke, Samsung listened. And the company's design push was under way. To attract better, younger designers, Samsung in 1994 moved its design center to Seoul from sleepy Suwon, a small city an hour south of the capital. That same year, Samsung hired US. design firm tbe0 to help develop a computer monitor—the first of many such collaborations with 1p20 and other leading consultancies. Then in 1995, the company set up the Innovative Design Lab of Samsung, an in- house school where promising designers could study under experts from the Art Center College of Design in Pasadena, Calif, one of the top US. design schools. Samsung designers were dispatched to Egypt and India, Paris and Frankfurt, New York and Washington to tour museums, visit icons of modem architecture, and explore ruins. ‘ust as itaportant, Samsung's designers have broken through the barriers of Korea's traditional Confucian hierarchies. Although Korea has loosened up as democ- racy has taken hold inthe last 15 years, respect for elders and a reluctance to speak out of tum are still the norm, and Samsung as a whole still holds lots of meetings ‘where Confucian order prevails, But the design center is different. Located several minutes’ walk from com- pany headquarters, i's a place with no dress code, where some younger staffers dye their hair green of pink, and where everyone is encouraged to speak up and challenge their superiors. Designers work in three- to five-person teams, with members from Various specialty areas and levels of seniority—all working as equals ‘The wrenching departure from tradition has paid off. Virtually all of the 19 1DEa awards Samsung has won since 2000 are the fruit of such teams. Helped by its innovative designs and egalitarian approach, Samsung, has emerged as the best-selling brand in high-end tvs in the US., and the world’s largest Lcb computer monitor producer, with 17% of the global market. And Samsung hhas sold more than 10 million sH=700s—the first clam- shell phone with a hidden antenna—racking up some $1.2 billion in profits since its debut 14 months ago. “Good design is the most important way to differentiate ourselves from our competitors,” says CEO Yun, Many of the new design ideas are coming fiom outside, Last year, Samsung started sending design 18 abroad to spend a few months at fashion houses cosmetics specialists, or design consultancies 10 say current with what's happening in other industries. Lee Yun Jung, a senior designer who works on colors ang finishes, spent last autumn in residence at @ farnture designer in lily, While she gathered plenty of ideas for product surfaces, the real eye-opener was the relaxed culture of the place. “A 23-year-old novice could inter rupt the 60-year-old master,” she marvels. Since return, Jing, Lee has tried to be more open to ideas percolating up from the bottom of her department. Today, Samsung knows it can't afford to let up. Its the first Asian company outside of Japan to use design to vault o the first tier of global companies. But in the Digital Age it not too hard for strivers such a8 Lenovo of China and BenQ to make products that approach the ualty of long-standing industry giants such as Sony, Panasonic, or Philips Electronics. Samsung, af course, was an upstart itself not long ago, It was the transition from analog to digital that gave the Korean company the opening itneeded. “Inthe analog age, Samsung devoted most ofits energy trying to catch up with Japanese lead- ers, but the arrival of digital put everybody on the same starting line,” says Chin Dae Je, Korea’s Information & Communication Minister and president of Semsung Electronics before joining the Cabinet last year. ‘These rivals—whether newcomer or vetefan—aren't standing still, The newbies often hire U.S., Japanese, or Italian design consultancies to help them shape prod- uucts that won't get lost in the erush of goods at Best Buy or Circuit City Stores, And those Asian upstarts are all looking to Samsung as a role model for their own transformation into global brands, The likes of Sony and Matsushita, meanwhile, are also’ placing a renewed emphasis on creating stand-out prodacs. “Sony has been losing some ofits edge in design,” says Makoto Kogure, head of the Japanese giant’s;1v divi- sion. “Now we're drastically changing and (creating a] Sony identity” Front-Loaded Design So Samsung must continue to reinvent itself. Inthe past four years, the company has doubled its design staff to 470, adding 120 of those justin the past 12! months (Exhibit 1). And since 2000, its design budget has been increasing 20% to 30% annually, To keep ari eye on trends in its most important markets, Samsung now hasEXHIBIT 1 A GROWING COMMITMENT a: Samsg 5036 design centers in London, Los Angeles, San Francisco, and Tokyo, and this year it opened one in Shanghai More important, Samsung is changing the processes and procedures in its design department and giving designers more power to influence not just how prod ucts look but also what gets built (Exhibit 2). “Just as a lizard cuts off its own tail fo move on, we will have to break with the past to move forward" says Chung Kook Hyun, the senior vice-president who runs design operations. Samsung’s designers these days no longer have to find a way to put their boxes around the devices thet EXHIBIT 2 Pene Case 62 Samsung Blectronis Co $35 engineers cook up. Instead, they often give concepts to engineers, who, must then bnild the machine inside the box dreamed up. by the designers. James Choe for instance, recently studied research showing that consumers prefer printers in which the paper lies fiat rather than feeding in vertically. Engineers working on the same project, however, preferred a vertical model because it would cut the production cost of a $110 printer by about 10%. Before Choe started at Samsung three years ago, the engineers might have won. But when the desktop liser printer rolled out last year, Choe’s design had prevailed. “The engineers didn’t like it, but in the end management listened to us,” he says, Sometimes the designers come up with entirely new product categories. Keng Yun Je thought Samsung, could do better than its rivals with a sleek, silver, rear- projection Tv sporting a curved back and superthin edges, so that when viewed from an angle it looks as thin as an LcD TV. “When we first came up with the esign, we had no guarantee it could be made,” says. Kang, a shaggy 36-year-old who sports a goatee and ‘wears his shirt untucked, “So I went to the head of engineering, and he said that if I could give him some time and resources, he'd try to do it” ‘Where to get the resources? To make sure designers get heard, Samsung has created the post of chief design officer—something few other companies have bothered ng Samsung Here's how Samsung is continuing to keep its product designs at the leading edge PIPELINE TO THE TOP Desi can now a0 strait op manages ath es naw | rows an avars- | fring rear-projection | Wines deopes by 2 dasigner wo ptchee DesiGN.LED inwovATION Designers longer reve bull bores stone enpnenrs dee tad fegers nov ten fre ayo st ne tghcar nscetie ‘QUESTION AUTHORITY Samsung ig sheding ts {tactonal Confucian chy, encouraging younger designers to Challenge ther superiors ‘when they tink, someting needs to be fashion, ang incustil design houses to keep on top of the atest trends, Shanghal tothe WV uni a Gesigners boxes. cranged. BACK TO ‘SLOBAL ‘BEYOND soHooL REACH HARDWARE Designers ara sontto | since 2000, Samsung | Samsung studies work at urniure, has opened or everything about how expanded design cancers in San Francisco, London, Tokyo, Las Angeles, and tis yearn Gonaumere actualy use products—‘rom owners ‘manuals to packaging, to the beeps, buzzes, and bels that aigtal Sevices make,536 Part Sik Comprehensive Caves to do, And to make sure top execs stay attuned to the jmaportance of the'ishue, ‘cB0‘Yua holds. quaiterly design. meetings; wheve the. chiefs-of all the badiriess units Teview new products and evaluate their designs So Kang was able to simply call Choi Gee Sung, head of Samsung's TV, computer, and audio businesses and chief design officer since Fanuary, to secure backing for the TV project. A few years ago, Kang says, a designer at his level would have had to go through the market- ing department and midlevel execs before reaching top management. Choi liked what he saw and gave Kang the go-ahead on the Tv. Smart move: The Tv, code-named 7, won a silver prize in the 1DEA competition this year and is expected to be a big seller. Samsung's design focus goes well beyond just the look and fee! of its products. The company is working to improve the way people use and control gadgets, and ‘two years ago it opened what it calls a “usability labo- ratory” in downtown Seoul (Exhibit 3). There, across the hall from where Choi Won Min taps away at his synthesizers in search of the perfect sound, engineers and consumers alike test everything from getting prod- ucts out of the box to the icons and menus on screens. “In the past, physical design was the focal point,” says Chief Design Officer Choi (nd relation to the sound designer). “In the future, the user interface will be ‘emphasized more.” ‘The usability lab was built to provide a lifelike forum for tests, It looks like @ typical living room, EXHIBIT 3 to Leader How Samsung 1988 ratcheted up its design emphasis ‘phone. 1995 1996 Seis up in-house design school the Innovative Design Lab of Samsung planning 2001 2002 Yun nites quartety design meetings fr top Los Angeles and London From 1968 Samsung Eaconics _ Samsano ses on undreting Laggard Sstablood as rake ct_iodus ts Saparss ral wn TVs with tchnology borrowed trom Sanyo, ‘auncestrst mabe Lee declares “Year of Design Revolution ‘stes8ing that eesigners. ambitions, design stat should lead in product Samsung's “usability laboratory’ inaugurated 33 awards et top design ‘execs, opens design abs Inn downtown Seu with a kitchen in the corner fpr testing cooking appti. ances. Enteiing the toon}, designers and-engineers kick off theit'SiDeS.jiSEAS the} dosit-a-RGrean-home. Ga 2 recent fall day, one engineer padded around in her slippers making rice in a Samsung steamer, another checked out a washing machine, and a third played with the controls on a computer monitor. Behind a two- ‘way mitror, an engineer controlled four high-definition cameras that can zoom in on any corner of the room to record the sessions and save them for later study. Tes that commitment to research that has given Samsung its edge. Many designers sit in on focus ‘groups and watch closely as potential customers pro- Vide feedback on their new models. And each foreign lab has a researcher on site—umusual in the industry Hwang Chang Hwan, Samsung’s principal mobile- phone designer, faced complaints about the sPt-s2300, a three-megapixel camera phone, Techies and camera aficionados liked the optical zoom lens—a first in a camera phone—but other consumers didn't like: the thickness of the lens. Most of all, young users hated the clumsy keypad, which was laid out in two rows of six keys along the bottom of the screen in order to keep the phone short enough to fit in a pocket. So when it came time to upgrade the phone, Samsung's design- ers listened. The new, five-megapixel successor sports a smaller lens that allows for a slimmer body, and it slides open, exposing a larger screen but leaving room for the traditional layout of three keys by four. 1977 19808 first color TV. Ime-too products, Design isan atetiough 1993 1994 Chairman Lee Kun Heo Hires US. design consult- tals exeesforeinvent ancy IDEO to help develop Samsung through design. computer monitrs 1998 2000 Asian fanciers Samsung once again ents Sansung’s focuses on cesigh and CEO Yun Jong Yong calls for design-ea management ul by 28% 2004 Samung wins total of ‘contests in the U.S, Europe, and AsiaCan Samsung stay on top of its design game? Some skeptics-oay the company stil doesn't have the breadth and depth: in'design 6E:Sony, or the ingrained design culture of Apple Computer Corp. “Samsung has improved, but I don’t see an identity in their desiga that really speaks to consumers,” says lim Wicks, Motorola Inc.'s vice-president in charge of designing cell phones. Still, few would deay that Samsung has managed to inject the importance of design into its corporate DNA. In this era of cutthroat competition, that may be just ‘what it takes to create a lasting advantage. Source: David Rocks and Moon thiwan, “Samsung Design,” JusinessWeek, December 6, 2004, 88-56. Case 6-2 Epilogue Last June a group of 11 Samsung Electronics Co. employees pledged to do the last thing most people desire just as spring bursts into summer: stay inside a drab room with small, curtained windows for the bulk of the next six weeks. The product planners, design- ers, programmers, and engineers had recently entered Sarnsung’s so-called Value Innovation Program (vi) Center, just south of Seoul. They were asked to outline the features and design of the company’s mainstay fiat- sereen TV, code-named Bordeaux. And their bosses had vowed to keep thém posted there until they had com- pleted the assignment. ‘Alter an introductory ceremony attended by senior executives of Samsung's video division, the team joined a dozen or so similar groups atthe vip Center and got down to work. The facility is a sort of boiler room where people fom across the company brainstorm day after day—and often through the night. Guided by one of 50 “value innovation specialists,” they study what rivals are offering, examine endless data on sup- pliers, components, and costs, and argue over designs and technologies. The Bordeaux team hammered out the basic look, feel, ané features of the model by mid- August. Then over the next five months designers and engineers worked out the details, and by February the sets were rolling off Samsung assembly lines, They hit stores in the U.S. and South Korea this April, starting at about $1,300 for a 26-inch set. “For the firs time in our company, we developed a TV appealing to customers? lifestyles” says Kim Min Suk, an official at Samsung's Lop TY Product Planning Group. It’s all part of a new mantra at Samsung: “market- driven change.” In the past decade Samsung has radi- cally improved the quality and design of its products Case 6-2 Samoung Elecronies Co $37 Yun Jong Yong, Samsung's 62-year-old chief executive! now wants the compariy to rival-the likes of Microsoft Corp. and tic a5-a key! shaper oF information techio: logy. By 2010 he aims to double sales, from $85 billion last year to $170 billion. The Korean giant, however, still isn’t an innovation leader on the order of Apple, Computer Inc. or Sony Corp. in its heyday. Yan says Samsung has become “a good company,” but “we still have a lot of things to do before we're a great company” Yun insists that when it comes to manufacturing, his company is second to none. Yet in the Digital Age, when mechanical parts are replaced by chips, Samsung's well-run factories are no longer enough to make it stand out. He points to Mrs players as an example, Samsung rolled out its first players two years before Apple did! But Apple gave consumers the ultimate player—the iPod—and, with the iTunes software and Web site, an easy way to fill it with music. It's time for Samsung 16 start developing similar products, Yun says, that better serve customers. So far, “we don't have the power t6 deliver total solutions.” i Incubation Stage How to make Samsung more innovative? One key init tiative is the vie Center (Exhibit 1). Yun set up the prot gram in 1998 after concluding that as much as 80% of cost and quality is determined in the initial stages of product development. By bringing together every- one at the very beginning to thrash out differences, he believed, the company could streamline its operations and make better gadgets. In the past two years, though, the'center’s primary aim has shifted to “creating new value for customers,” says Vice-President Lee Dong Jin, who heads the facility. Translation: Find that per: fect balance of cost, innovation, and technology that makes a product great If it weren't such hard work, it might almost be fun. The center, at Suwon, Samsung's main manufac turing site, 20 miles from Seoul, is open 24 hours & day. Housed in a five-story former dormitory, it has 20 project rooms, 38 bedrooms.for those who need i spend the night, @ kitchen, a gym, traditional baths, and Ping-Pong and pool tables. Last year some 2,000 employees cycled through, completing 90 projects with names such as Rainbow, Rapido, and Rocky. Other products that have come out of the center include & notebook computer that doubles as a mobile Tv, yet is thin and light enough to be carried in @ handbag, and538 P. EXHIBIT 1 Brainstorming ABCs = ‘A key weapon in Samsung's success is the Value Innovation Program (VIP) Center, where the company’s brightest lights dream up must-have products or streamline operations to trim costs. Here's how they do it LOCK ‘EM UP GUIDING HAND Day routines can interrupt he flow of great | at the Center, helping | ideas, $0 Samsung teams stay focused on the | variety of Isolates ts development | problems at rand, ‘er ‘teams in the VIP Center— | develop various ‘mx’ UP Some 50 specials work | Brainstorming is most successful when a wide | make tough enter painis s | overcome disagreements | that ted. So Samsung | ha can slow down gathers teams of are requires al members | altematve solutions, and | pnginoers, designers, and | gives a tmetabl for SET A DATE D0 THE MATH Deaclnas ore teams to | Team members draw | “valve curves 9 ative sven a6 prguets snune or dilure qualiy ona sale irom 1105. these nei he progress Each team is ‘o work ere tor weeks on reach a consensus wnen | planners from across the | progress and ined date | eam set oriorties anc en, unt the projets | ts time to make & Competes Secsion proaucts Eompany to develop new | for the project's Aifereniate Samsung's completion rogue from als the cuP-500, 2 color laser printer that was built at the same cost as @ black-and-white model. While some teams wrap up their work within weeks, other projects drag on for months, and all division leaders sign a pledge that participants won't return to their regular {jobs until they have finished the project. The Bordeaux team shows how the, vir Center works, The goal was to create a flat-screen TV that vould sell at least 1 million units. But the team mem- bers quickly discovered that they had strongly differ- ing opinions about what consumers want in a TV. The designers proposed a sleek, heavily sculpted model Engineers wanted to pack in plenty of functions and the best picture and sound quality, Product planners ‘were concerned primarily with creating something that would beat the offerings of Sharp Corp,, then the leader in Lco TVs. Every step of the way, team members drew what Samsung calls *value curves.” These are graphs that rank various attributes such as picture quality and design on a scale of 1 to 5, ftom outright bad to excel- lent. The graphs compared the proposed model with ‘those of rival products and Samsung's existing Tvs. The vip Center specialists also guided the team in diseus- sions exploring ideas and concepts from entirely differ- ent industries, picking up hints about the importance of the emotional appeal in the offerings of furniture mak- ers and Hollywood. “We wanted a curve resembling a wine glass, and a glossy back to make the TV ft in with other furniture,” says designer Lee Seung Ho, who worked on the Bordeaux project. One challenge the team faced: Surveys showed that shoppers buy a flat-screen TV as rouch for its look as a piece of furniture as for its technological muscle. Some members went to furniture stores to figure out what made buyers tick, and discovered that the design of the set trumps most other considerations. So the group started shedding function in favor of form, cutting cor- ners on high-tech features to spend more fo make a Tv that looks good even when it’s turned off. The control buttons were placed out of sight on the side, while the speakers were tucked under the screen to create a sleek, minimalist front underlined by a flat, curving V in blue or burgundy. The back and stand got the same high- gloss coating as the front. To keep costs down’ (part of that quest for value), Samsung removed a sensor that automatically adjusts the brightness to the light in the room and decided not to boost resolution to accom- ‘modate the latest high-definition standards. And with the speakers under the screen, the sound quality was lowered even as the TV's silhouette improved. “We tried to make sure consumers get maximum value for an affordable price,” says Kim Dong Joon, one of several senior managers at the vir center. ‘The initial response is encouraging. In the last week of May, Samsung inched ahead of Sony to become the No, 1 Lop tv brand in the US., gamering market share Gin terms of value) of 26.4%, compared with Sony's 24.6% and Sharp's 8.2%, according to researcher NPD Group. In January, Semsung was No, 3, with just 12.1%. Yon now says he wants to become the top maker of digital Tvs, including those using plasma and rear- projection technologies, in the US. this year Pretty grand ambitions. But Yun has a strong récord of setting stretch goals and achieving them. Under his stewardship, Samsung has transformed itself from enCase 6.3 General Elecric Appliances 539 industry also-ran into the richest electronics maker in the Bordeaux and really fire consumers’ imaginations ‘Asie, Now it could also become the coolest if Yun can _It just might mean spending the summer inside. reinvent Samsung owt more time and get higengineers, Source: Moon thiwan, “Cap Samiung’ Buainesdvcdi aye designers, and marketers to dream up products such as 3, 2006, 46-48. Case Questions 1 Discuss the role of marketing research in guiding Samsung’s products. itiatives in designing new . Based on your group’s opinion, which NPD test (concept testing, product testing, market testing) is most critical for Samsung? Trace the connections between differentiation strategy, core capabilities, and positioning strategy. How are they relevant to Semsung’s new product planning? . How should they (e) assess the quality of product design, and (b) effectively conduct their prototype tests. Make recommendations for how Samsung can further improve its NPD strategies. How would you implement each recommendation?