The Samsung Epiphany – How the Family Business Achieved Global Dominance

The Samsung Epiphany – How the Family Business Achieved Global Dominance
Korea.net / Korean Culture and Information Service [CC BY-SA 2.0 (https://creativecommons.org/licenses/by-sa/2.0)], via Wikimedia Commons

Very few of us are ever lucky enough to have that true moment of epiphany – the one moment of absolute clarity when the stars align and the defining idea of one’s life occurs. For Samsung CEO Lee Kun-Hee, this life changing moment took place in the Frankfurt Germany hotel boardroom in 1993. What came from his epiphany transformed Samsung from an also-ran to a global leader in the technology and electronics industry.

Samsung’s origins can be traced back to 1938 when it was founded as a trading company by Lee Kun-Hee’s father, Lee Byung-Chul. The company branched out into the electronics industry in the late 1960s with their very first black-and-white television set.

Through the 70s and 80s Samsung produced a variety of lower-tier electronics such as television sets and stereo equipment, perpetually in the shadow of better performing Japanese rivals such as Sony. But the company still grew at a brisk pace, and it continued this steady trajectory until Lee Byung-Chul’s death in 1987. Two weeks after he passed away, Lee Kun-Hee took over for his father as CEO. It was under his tenure that Samsung started its trajectory to become the global behemoth that it is today.

The Frankfurt Declaration    

In the early 1990s Lee Kun-Hee set out on a global mission to see how his growing company’s products were doing in the different markets around the world. On the California leg of his trip, he was stunned to discover that his company’s television could only be found in the back of the electronics store, gathering dust behind better selling models. The store employees relayed stories of customers’ perception that Samsung products were cheap knockoff’s of Japanese brands and as such, were mainly consumed by lower-tier buyers. As Lee Kun-Hee began seeing similar results throughout his trip, he became incensed and knew that the company had to radically change its ways. And in his hotel room in Frankfurt Germany, Lee had an epiphany. He summoned 200 Samsung executives to the hotel and conducted an intense three-day meeting that forever changed the face of Samsung.

Lee outlined his new vision and philosophy in what he called the New Management, and declared, “Change everything but your wife and children.” Key to this new direction was imbedding a sense of responsibility in every individual to transform Samsung from a lower-tier brand to a top-tier one by focusing on three key areas: design, price, and quality.

Kevin Lane Keller is a professor of marketing at Dartmouth and has been serving as a brand consultant to Samsung for more than 10 years, and in an interview with Forbes, he outlined why Lee developed a ruthless passion for reinventing the three key areas.

“In Samsung’s case, [realizing Lee Kun-Hee’s vision] was a simple, resolute value proposition comprised of three specific planks that kick-started the evolution, the planks being quality, design, and price. The company has been focusing relentlessly on this proposition since then. Now, it’s important to note that from the beginning, the company had all kinds of advantages when it came to the quality piece. A good many of the ingredients that went into their products were actually things they already made. The imperative of management, then, was to ramp up the quality. They wanted to be seen as a premium brand and they’ve been pursuing this course. It’s been a steadfast goal. In terms of design, they established design centers around the world, hired the most talented designers, and put a lot of money behind the endeavor, put a tremendous amount of emphasis on it. Finally, they came in at an aggressive price point as they built the brand and gained share, especially in the retail environment.”

Aggressive Change

Shortly after the Frankfurt Declaration, Lee Kun-Hee held lectures in Samsung office around the world in order to introduce the new company philosophy to his employees. The entirety of his 350-hour lectures were tape recorded and transcribed on 8,500 pages. The most important sections were distilled into a 200-page book that serves as a manual for all new Samsung employees.

His push didn’t end there. Lee Kun-Hee became notorious for his uncompromising dedication to quality, so much so that when he found a line of Samsung phones to be 11.5% defective, he issued a full refund and set fire to the 150,000 faulty phones on the factory floor and had them bulldozed in front of 2,000 employees to send a message.

And now, 20 years later, the results speak for themselves. Under Lee Kun-Hee’s guidance, Samsung has grown into an international conglomerate that employs more that 370,000 people in 80 countries and has accounted for 17% of South Korea’s GDP. Today, it is the world’s largest television and smartphone maker and became the world’s largest electronics maker in 2011. And as for Samsung’s reputation for being an underachieving shadow of its Japanese rivals, by 2009, Samsung recorded an operating profit that was more than two times larger than the combined operating profits of nine of Japan‘s largest electronic companies including Sony, Toshiba, and Panasonic.

All of this because one man’s epiphany that ‘good enough’ was no longer good enough.