The Management Innovation Story by Son Wook

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Value Innovation and Goal-Oriented Management Made Samsung TV The Global No. 1
HANKYUNG BUSINESS, December 21, 2011 By Mr. Son Wook
Professor at Graduate School of Convergence Science and Technology, Seoul National University (Former CEO of Samsung SDI, Samsung Advanced Institute of Technology and Nongshim)

In 1998, Samsung Electronics established a VIP Center, where VIP stands for Value Innovation Program. Professor W. Chan Kim, The Boston Consulting Group Bruce D. Henderson Chaired Professor of Strategy and International Management at the world-renowned INSEAD Business School, played the key role in establishing the VIP Center. Professor Kim, co-author of the famous Blue Ocean Strategy, is an internationally-acclaimed management guru. He visited South Korea in 1996 and gave lectures to many top leaders in Samsung Electronics. Value Innovation (VI) is one of the theories he introduced to them. The core concept of the theory is that all products must be developed and marketed based on what customers recognize and value. For example, the hotel industry has several factors that customers value, such as quietness, cheap price, delicious food, comfortable beds, etc. The VI theory says that these value factors can be identified systematically. The VIP Center was created based on this theory. Since the establishment of the VIP Center, Samsung Electronics has involved all the VIP team members in the formulation of VI strategy during product development, and has provided the VIP team with support, including consulting services when requested. The VIP team members consist of experts from various fields, from value engineering experts who innovate cost structures to professionals specialized in TRIZ, TQM, Six Sigma and VI. With the help of these experts from diverse fields, the project team charged with developing products operated like commandos on the frontline. Since then, the VIP Center has been credited with generating half of Samsung Electronics profit. However, Professor Kim's influence did not end there. Fair Process is also another outstanding innovative approach instituted under his guidance.
Son Wook, former CEO of Samsung SDI

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The VIP Center generating 'half' of the profit of Samsung Electronics

Fair process literally means that any change process should be fair. A very good example of fair process in action is the story of an electronics company that has a plant in Suwon and a second plant in Busan. Both plants have active labor unions. The union in Suwon was very moderate and acted favorably and cooperatively towards company policies and management. On the other hand, the Busan plant was known to have a strong labor union that tended to find fault in the Samsungs VIP Center companys new projects and frequently opposed new policies. Naturally, the company management team thought that Suwon was a good place to work, and Busan was troublesome. In order to improve its processes, the management team decided to introduce the 'cell manufacturing method', a new plant management system that changed the existing conveyor system. The existing system required employees to carry out repetitive work on conveyor belts, resulting in numerous complaints from employees due to tiredness and low selfesteem. Also, some employees who worked hard did not get the recognition they deserved due to the unreasonable performance evaluation embedded in the system. The new cell method, on the other hand, is a technique that increases productivity by having a small number of employees work together in a group. The management team thought that the union in the Busan plant would again oppose the new method and therefore decided to hold several meetings with the plants employees to ask for their feedback in advance before instituting any changes. Since the Suwon plant had always been cooperative, the management team did not feel it was necessary to hold any meetings with the employees there. The management team assumed that the union would not oppose the new manufacturing method, and therefore started implementing the new processes immediately. Soon, Suwon plant employees started spotting people dressed in suits and ties taking measurements near their workspaces. The strangers were consultants for the new cell manufacturing system, and since they were often seen around the plant, rumors started circulating that the company would be restructured or that more difficult tasks would be assigned to the employees. There was even a rumor saying that only the Suwon plant would be penalized for some unknown reason. As the rumor mill churned, the employees put up banners denouncing the new manufacturing system, and this soon led to a labor dispute in the once peaceful workplace. All these problems stemmed from a lack of clear communication between management and employees.

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The Management Innovation Story by Son Wook

Unlike Suwon, the Busan management team had explained and discussed the new cell management system with plant employees from the beginning, which resulted in the employees following the new system smoothly. In contrast, the Suwon plant experienced difficulties in gaining employees acceptance of new innovative ways for several years. This is the key difference between implementing change with and without fair process. In any organization, the management should not neglect fair process, and Samsung Electronics has invested enormous resources in creating fair process in their communication channels. In the Quality Awards ceremony held in the late 1970s, one of the professors from Ajou University said that "LG has been in the electronics industry for more than 20 years, while Samsung has only been around for 10. However, on the walls of Samsung plants, there were posters with the phrase Lets become the world number 1 while on the walls of LG plants, there was not even a single poster with the phrase Lets become Koreas number 1. There should be proper steps in setting goals, so doesnt Samsung need to be the number 1 in Korea first before it becomes the world number 1? Many years later, I met the professor again in the mid-1990s and he said to me. "I was wrong at that time. When I went to the US for a year-long sabbatical, I learned that it is really important to write a goal and always remember it. This is the visualization of a goal. You will get to the goal if you set the goal and keep remembering it. That is when I remembered Samsung Electronics with the phrase on its factory walls and how it has really become the world number 1."

Becoming the Chief Executive Officer (CEO) of Samsung SDI

I became the CEO of Samsung SDI in December 1995 after working for Samsung Electronics for 20 years starting in 1975. Samsung SDI was founded a year after Samsung Electronics and is one of the oldest subsidiaries of Samsung. Lee Byung-Chul, the late Founding Chairman of the Samsung Group, had a dream. He wanted Samsung to become the world number 1 in TV, which is still considered the centerpiece of the electronics industry. He believed that Samsung could be the world number 1 in the electronics industry if it could be the world number 1 in the TV industry. Also, to become the world number 1, Samsung needed to see and learn from the then world number 1. In its early years, Samsung Electronics entered into a strong partnership with Tokyo Sanyo (Sanyo's predecessor) in Japan. At that time, Matsushita was the Samsungs Bordeaux TV best Japanese company, but it already had a

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partnership with Anam. Toshiba had a partnership with Daihan, and Hitachi with LG. For Samsung Electronics, Sanyo was the only company available that could transfer advanced technology through a strategic partnership. I visited Sanyos plant, which was a converted airport warehouse that had an area of about 1.32~1.65 mil m2. It was like a multi-complex where all the work and manufacturing processes were taking place. At that time, most Japanese companies were operating using many small factories spread across the country. It was only Sanyo that operated out of one huge multi-complex. After seeing the Sanyo plant, Chairman Lee said, "Let's build a bigger complex than Sanyos" and the 1.65 mil m2 Suwon complex was built for Samsung Electronics, Samsung Electro-Mechanics, Samsung Corning and Samsung SDI. Today, we emphasize technology convergence, but even at that time, Chairman Lee had an idea that Samsungs Electronics Suwon Plant in 1969. The late geographical closeness will naturally lead to technology convergence. He expressed Chairman Lee implemented the idea of building a much larger complex that its Japanese partner, Sanyo this in the simple and direct phrase, face each other and collaborate. At the time, no one in South Korea thought about using this kind of giant multi-complex for manufacturing factories. Chairman Lee built the CRT (Cathode Ray Tube) manufacturing plant, the core component of TVs at the time, by partnering with NEC of Japan. Then he realized that glass is a key component of CRT, so he partnered with Corning of USA and established Samsung Corning. In 1973, Samsung Electro-Mechanics was established to manufacture key electronic components such as tuners, condensers, and transformers in order to vertically integrate with glass and CRT. Today, Samsung has reached its goal and has made the late Chairman Lees dream of becoming the world number 1 in the TV industry a reality.