Samsung started in 1938 as a small trading company located in Su-dong near Daegu city.

It
was founded by Lee Byung-chul. He had only forty employees and the companys major
business was production and distribution of groceries within the city.

In 1947, as the company began to grow Lee put up their office in Seoul. He soon started a
sugar refinery which also succeeded in a very short span of time. Lee was a very ambitious
person and in 1954 built the largest woollen mill in Korea located in the suburbs of Daegu
city.

Soon he had ventured into various other sectors like insurance, retail and securities. He was
a firm believer in industrialization and wanted that Samsung Group to become the industry
leader in almost all the sectors. In the 1960s the Samsung Group entered the electronics
industry confidently.

It was relying on the huge capital that it had at disposal for making new innovative
products. Very soon Samsung was able to release its first product which was a black and
white television set. By now it has more than 6 divisions each focussing on individual
products like the semiconductor, telecommunications, hardware, etc.

Soon it acquired telecommunications giant Hanguk Jeonja Tongsin in 1980. They started
producing telephone, fax machines, switchboards with great success and created the base
for their large-scale productions in the years to come. In the 1980s all these production
units came under one company named Samsung Electronics Co., Ltd.

With their founder's death they did not lose his philosophy of large-scale expansion and
development. They invested millions of dollars in research for better technology for their
 electronics products. They started building manufacturing plants in places like New York,
Texas, London, Portugal etc.

Samsung also focussed on its construction company and was able to grab big projects like
building the Burj Khalifa, the worlds tallest building and also the Petronas Towers in
Malaysia. In the 1990s they refocused themselves and put electronics, constructi ons and
chemicals on the top of their priority list.

Samsung Group Success Story

Quick Facts

Samsung is a Multi-national South-Korean Company founded in 1938. It was originally

meant to be a trading company. Right now it has a number of holding companies and
subsidiaries united under the brand name of Samsung. It is the largest South Korean
conglomerate.

Apple Inc. Story

Sony Corporation Story

Samsung History
Samsung started in 1938 as a small trading company located in Su-dong near Daegu city.It
was founded by Lee Byung-chul. He had only forty employees and the companys major
business was production and distribution of groceries within the city.

In 1947, as the company began to grow Lee put up their office in Seoul. He soon started a
sugar refinery which also succeeded in a very short span of time. Lee was a very ambitious
person and in 1954 built the largest woollen mill in Korea located in the suburbs of Daegu
city.
Soon he had ventured into various other sectors like insurance, retail and securities. He was
a firm believer in industrialization and wanted that Samsung Group to become the industry
leader in almost all the sectors. In the 1960s the Samsung Group entered the electronics
industry confidently.

It was relying on the huge capital that it had at disposal for making new innovative
products. Very soon Samsung was able to release its first product which was a black and
white television set. By now it has more than 6 divisions each focussing on individual
products like the semiconductor, telecommunications, hardware, etc.
Success in the Following Years
Soon it acquired telecommunications giant Hanguk Jeonja Tongsin in 1980. They started
producing telephone, fax machines, switchboards with great success and created the base
for their large-scale productions in the years to come. In the 1980s all these production
units came under one company named Samsung Electronics Co., Ltd.

With their founder's death they did not lose his philosophy of large-scale expansion and
development. They invested millions of dollars in research for better technology for their
electronics products. They started building manufacturing plants in places like New York,
Texas, London, Portugal etc.
Samsung also focussed on its construction company and was able to grab big projects like
building the Burj Khalifa, the worlds tallest building and also the Petronas Towers in
Malaysia. In the 1990s they refocused themselves and put electronics, constructions and
chemicals on the top of their priority list.

Subsidiary compaies of Samsung Group:

Samsung Electronics
Samsung C&T Corporation

Samsung Heavy Industries

Samsung SDS

Samsung Life Insurance

Samsung Fire & Marine Insurance

Cheil Worldwide

n 1992 it became the sole leader in the production of memory chips in the World and was
second behind Intel in the chip-making industry. In 1995 their years of research paid off as
they were able to create the first LCD (Liquid Crystal Display) screen. This revolutionised
the television hardware industry and brought millions of dollars in profits for Samsung as
all the other companies had to pay Samsung royalties to use their technology.

In 2001 their subsidiary Samsung Techwin became supplier for specific engine parts for
Boeing 787 Dreamliner and Airbus A380. In the beginning of 2012 it created history when
it overtook Nokia as the mobile phone maker with the highest production in the World.
Samsung is the largest conglomerate in South Korea and accounted for nearly 15% of
South Koreas GDP in 2012. Today it has achieved this amount of success because of the
years of patience and dedication it has showed in developing new age technology.

n 2012 its total revenue was nearly $265 billion out of which they earned profits to the
extent of $26 billion. It has more than 425,000 employees and is planning to build the
largest mobile phone factory in Vietnams Nguyen Province starting in 2013. From selling
groceries in 1940, Samsung has multiplied and captured large markets throughout its
existence in the industry.

Samsung has made the work, play and entertainment experience better for each of its
customers. It has been a company that relied on innovation and has become one of the
giants in todays global market.
Samsung success story: More about
marketing than innovation?
Samsung Electronics is spending more on marketing than R&D for the first time in at
least three years, prompting some pundits to warn that the IT giant is sacrificing
innovation at a time when the market is teeming with ever smarter gadgets.
The South Korean firm, which warned on Friday it will not post record quarterly
earnings for the first time since 2011, looks set to spend big bucks on marketing
upcoming mobile devices, including the Galaxy S4 smartphone, to convert more iPhone
and iPad users loyal to arch rival Apple Inc.

While the new Galaxy smartphone, unveiled to much fanfare in New York last month,
will boast a motion-detecting technology that stops and starts videos depending on
whether someone is looking at the screen, and flip between songs and photos at the
wave of a hand, industry watchers say the device would not overturn an industry that
lives and dies by innovation.

"(Samsung) lagged behind in creating a new category. Apple created a new category
with tablets. We are waiting to see something like that happen from Samsung," said
Rachel Lashford, an analyst at research firm Canalys in Singapore.

Samsung spent a record 13 trillion won on marketing last year. That was $1.3 billion
more than what it poured into research and development.

The firm does not provide marketing and R&D spending forecasts. Some analysts said
they expect Samsung to continue spending more on its marketing campaigns than on
R&D this year as it fights the next wave of products from Apple.

Smartphone makers are increasingly just tweaking existing specifications such as

increasing screen sizes. Every gadget launch by a major global tech giant has so far
underwhelmed, lacking the 'wow' factor of old and subsequently pushing their share
prices lower, some analysts said.

Apple has tumbled nearly 40 percent since the stock soared to more than $700 in
September.
Shares of Samsung hit a record in early January but have since fallen nearly 3 percent.
A lack of product lineup in the longer term is also capping their upside, analysts said.

"There is not that much visibility on products next year, but we expect Galaxy Note 3
later this year," said Mark Newman, a senior analyst at Stanford Bernstein in Hong
Kong, referring to the phablet that is closer in size to a tablet than a phone.

The smartphone-tablet hybrid, a surprise hit in 2012, appeals to users who prefer larger
screens to better access visual content.

Samsung estimated its January-March overall operating profit rose 53 percent to $7.7
billion as mid-tier smartphones and sales in emerging markets helped it tide over the
off-peak season.

That marks the end of five straight quarters of record profits for the world's biggest
technology firm by revenue.

"We'll keep boosting our R&D spending, while marketing will be executed flexibly
according to market conditions," a Samsung spokesman said on Friday.

Ahead of Apple
Apple ramped up its R&D expenditure to $3.38 billion in the year to September 2012,
from just $712 million in 2006. Yet that is still far less than what Samsung spends.

"Samsung keeps investing in R&D. They've boosted their smartphone R&D workforce to
25,000 or so from less than 20,000, and I think they have an exciting product lineup
ready, probably in the second half, to upend the market," said Lee Do-hoon, an analyst
at RBS.

That is a significant departure for a company which used to tear apart a Sony television
in 1970s to reverse engineer rivals' products.

Samsung finally overtook Sony to become the world's top TV maker in 2006, largely
aided by slim designs and super-thin displays produced as a result of aggressive capital
investment.
By contrast, Samsung's mobile devices business now generates 70 percent of its total
revenue.

"The Note 3, which I expect to be available in the fourth quarter, will be quite innovative.
It'll have a bended display and the screen size will be bigger without having a bigger
phone," said RBS's Lee.

"I think it'll be pretty cool.

The Birth of Samsung Electronics

On Dec. 30, 1968, Samsungs founding Chairman Byung-chull Lee and other
executives gathered for a meeting where a crucial decision to enter the electronics
business was made. Thus on Jan. 13, 1969, Samsung Electronics was born.
By November 1970, Samsung succeed in producing 12-inch black-and-white TVs,
and just two months after the production it exported the TV sets to Panama.

Mass Production Begins

In 1972, Samsung set up a Braun-tube bulb factory and after extensive investment and
expansion of production lines, it also established two black-and-white TV lines with a
capacity to produce 480 thousand TVs a year.

Line of Products
As Samsung established its own production system and accumulated technology, it
pushed to produce its own TV model. And in April 1973, the first Samsung-
developed TV product was born: the 19-inch transistor black-and-white Maha 506.
Following the success of the Maha 506 TV, Samsung expanded into other electronics
categories such as refrigerators, air conditioners, washing machines, fans, electric
stoves and more.
Samsung reached the 5 million milestone in the number of TVs produced
in December 1978. In May of the same year, Samsung had already expanded its
black-and-white TV lines to become the worlds No. 1 manufacturer. Also in
December 1978, Samsungs overall exports reached 100 million dollars.

Semiconductor Business

Samsung Electronics merged Samsung Semiconductor in January 1980 in a

combination that helped create synergies in production of both electronics and
semiconductor parts. The merger set the foundation for Samsung to become a global
leader that it is today in semiconductors.

Global Expansion
Samsung Electronics America was established in July 1978 as Samsung Electronics
wholly-owned subsidiary and set up its own service system in the country.
Samsung Electronics first overseas manufacturing subsidiary was set up in Portugal
in 1982. The global manufacturing network expanded to include the U.S. in 1984, the
U.K. in 1987 and Mexico in 1988.

Semiconductor Breakthrough
In October 1984, Samsung introduced the industrys first 256K DRAM, just three
months after it successfully developed the 64K DRAM. Production of the 256K
DRAM a technological breakthrough only a handful of companies globally were
able to muster marked a defining moment for Samsung in its growth as a leading
semiconductor manufacturer.

How Samsung became the worlds No.1

smartphone makerand its plans to stay on
top
m in a black Mercedes-Benz van with three Samsung Electronics PR people heading
toward Yongin, a city about 45 minutes south of Seoul. Yongin is South Koreas
Orlando: a nondescript, fast-growing city known for its tourist attractions, especially
Everland Resort, the countrys largest theme park. But the van isnt going to Everland.
Were headed to a far more profitable theme park: the Samsung Human Resources
Development Center, where the theme just happens to be Samsung.

The complexs formal name is Changjo Kwan, which translates as Creativity Institute.
Its a massive structure with a traditional Korean roof, set in parklike surroundings. In
a breezeway, a map carved in stone tiles divides the earth into two categories:
countries where Samsung conducts business, indicated by blue lights; and countries
where Samsung will conduct business, indicated by red. The map is mostly blue. In
the lobby, an engraving in Korean and English proclaims: We will devote our human
resources and technology to create superior products and services, thereby
contributing to a better global society. Another sign says in English: Go! Go! Go!
Samsungs Human Resources Development Center
Photograph by Tony Law for Bloomberg Businessweek

More than 50,000 employees pass through Changjo Kwan and its sister facilities in a
given year. In sessions that last anywhere from a few days to several months, they are
inculcated in all things Samsung: They learn about the three Ps (products, process,
and people); they learn about global management so that Samsung can expand into
new markets; some employees go through the exercise of making kimchi together, to
learn about teamwork and Korean culture.

They will stay in single or shared rooms, depending on seniority, on floors named and
themed after artists. The Magritte floor has clouds on the carpet and upside-down
table lamps on the ceiling. In a hallway, the recorded voice of a man speaking Korean
comes over the loudspeakers. Those are some remarks the chairman made some
years ago, a Samsung employee explains.

Shes referring to Lee Kun Hee, the 71-year-old chairman of Samsung Electronics,
who declined to be interviewed for this article. Despite making headlines in 2008,
when he was convicted of tax evasion, and 2009, when he was pardoned by South
Koreas president, he maintains a low profile. Except within Samsung, that is, where
hes omnipresent. Its not just the slogans over the sound system; Samsungs internal
practices and external strategiesfrom how TVs are designed to the companys
philosophy of perpetual crisisall spring from the codified teachings of the
chairman.

A guide at the Gumi phone complex

Photograph by Tony Law for Bloomberg Businessweek
Since Lee took control of Samsung in 1987, sales have surged to $179 billion last year,
making it the worlds largest electronics company by revenue. That makes Samsung
Electronics the worlds largest electronics company by revenue. For all its global
reach, though, the company remains opaque. We all know the story of Steve Jobs and
Apple, Akio Morita and Sony. But Samsung and Lee Kun Hee? People may bring up
the South Korean governments support of local champions and access to easy capital,
but within the company it all goes back to Chairman Lee and the Frankfurt Room.

It doesnt look like much: early 1990s vintage dcor and a large table with a fake
flower centerpiece. But the Frankfurt Room is to Changjo Kwan as the Clementine
Chapel is to St. Peters Basilica: an extra-special place inside an already special place.
Photography is forbidden; people whisper when inside. Its a meticulous recreation of
the drab conference room in the German hotel where, in 1993, Chairman Lee gathered
his lieutenants and laid out a plan to transform Samsung, then a second-tier TV
manufacturer, into the biggest, most powerful electronics manufacturer on earth. It
would require going from a high-volume, low-quality manufacturer to a high-quality
one, even if that meant sacrificing sales. It would mean looking past the borders of
South Korea and taking on the world.

Samsung is having a moment. Its dominant in TVs and sells a lot of washing
machines, but its smartphones that made Samsung as recognizable a presence around
the world as Walt Disney and Toyota Motor. If Samsung isnt yet as lustrous a brand
as Apple, its finding success as the anti-AppleGalaxy smartphones outsell iPhones.
And Samsung is probably the only other company that can throw a product
introduction and have people line up around a city block, as they did in New York
City on March 14 for the launch of the Galaxy S 4. That never used to happen when
Samsung unveiled a refrigeratoralthough the kimchi-specific models made for the
Korean market are really quite impressive.
Dance-off at the Samsung Dlight showroom in Seoul
Photograph by Tony Law for Bloomberg Businessweek

Samsung Electronics is the largest part of Samsung, a conglomerate that accounts for
17 percent of South Koreas gross domestic product. It employs 370,000 people in
more than 80 countries, but nowhere can its presence be felt more acutely than in its
native country, where its so dominant it may as well be a second government.

A Seoul resident may have been born at the Samsung Medical Center and brought
home to an apartment complex built by Samsungs construction division (which also
built the Petronas Twin Towers and the Burj Khalifa). Her crib may have come from
overseas, which means it could have been aboard a cargo ship built by Samsung
Heavy Industries. When she gets older, shell probably see an ad for Samsung Life
Insurance that was created by Cheil Worldwide, a Samsung-owned ad agency, while
wearing clothes made by Bean Pole, a brand of Samsungs textile division. When
relatives come to visit, they can stay at The Shilla hotel or shop at The Shilla Duty
Free, which are also owned by Samsung.

Conglomerates have been out of favor in most of the industrialized world for decades.
What separates Samsung from Gulf + Western, Sunbeam, and other extinct examples
is focus and opportunism taken to the extreme. Samsung is like a militaristic
organization, says Chang Sea Jin, a professor at the National University of Singapore
and the author of Sony vs. Samsung. The CEO decides which direction to move in,
and theres no discussionthey carry out the order.

Samsungs like clockwork, says Mark Newman, an analyst at Sanford C. Bernstein

who worked at Samsung from 2004 to 2010, for a time in its business strategy
department. You have to fall in line. If you dont, the peer pressures unbearable. If
you cant follow a specific directive, you cant stay at the firm.
Life-affirming chip in Yongin
Photograph by Tony Law for Bloomberg Businessweek

Consider the disciplined way Samsung Electronics moves into new product categories.
Like other Korean conglomeratesLG and Hyundai come to mindthe first step is
to start small: make a key component for that industry. Ideally the component will be
something that costs a lot of money to manufacture, since costly barriers to entry help
limit competition. Microprocessors and memory chips are perfect. A semiconductor
fab costs $2 billion to $3 billion a pop, and you cant build half a fab, says Lee Keon
Hyok, Samsungs global head of communications (and no relation to Chairman Lee).
You either have one or you dont.

Once the infrastructure is in place, Samsung begins selling its components to other
companies. This gives the company insight into how the industry works. When
Samsung decides to expand operations and start competing with the companies it has
been supplying, it makes massive investments in plants and technologies, leveraging
its foothold into a position that other companies have little chance of matching. Last
year, Samsung Electronics devoted $21.5 billion to capital expenditures, more than
twice what Apple spent in the same period. Samsung makes big bets on technologies,
says Newman. They study the hell out of the problem, and then they bet the farm on
it.
Everland: Jung Yeon-Je/AFP/Getty Images

In 1991, Samsung started making LCD panels it sold to other television brands. In
1994 it started making flash memory for devices such as the iPod and smartphones.
Samsung is now the No.1 maker of LCD televisions and sells more flash memory and
RAM chips than any other company in the world. And in 2012 it passed Nokia to
become the worlds largest mobile-phone manufacturer.

As Samsung has risen, others have failed, often in spectacular fashion: Motorola was
split up and its handset business sold to Google. Nokia watched its long-standing
No.1 position erode when it got blindsided by smartphones. The Sony-Ericsson
partnership dissolved. Palm disappeared into Hewlett-Packard. BlackBerry continues
to be on a 24-hour watch and has had its belt and shoelaces confiscated. When it
comes to mobile hardware, today theres only Apple, Samsung, and a desperate crowd
of brands that cant seem to rise above being called the rest.

Lees father, Lee Byung Chull, founded Samsung in 1938. The name means three
stars, which was the companys logo for decades. Lee took over as chairman
following his fathers death in 1987. (Lee Kun Hees son, Lee Jae Yong, is vice
chairman and heir apparent.) The company immediately prospered under Lee Kun
Hees leadership. Between 1988 and 1993, the company had grown two and a half
times, says Shin Tae Gyun, Samsungs president of the Human Resources
Development Center, so executives thought things were working. Lee, however,
didnt just want Samsung to be a successful Korean company. He wanted it to be a
world player, something on the level of General Electric, Procter & Gamble, and IBM.
He even set a deadline: the year 2000. 2000 was not that far away, says Shin. At
that growth rate, could we become a world-class company in time? The answer was
no.

To see how his company was faring internationally, Lee embarked on a world tour in
1993. His findings were not encouraging: A visit in February to a Southern California
electronics store revealed Sony and Panasonic TVs in the front window and Samsung
TVs gathering dust on a low shelf in the back. Lee was not happy.

By June, hed made it to Germany and was staying at the Falkenstein Grand
Kempinski Hotel in Frankfurt. He summoned all of Samsungs executiveswho
numbered in the hundredsto meet him there. He did this at the drop of a hat, and
they all gathered, says communications chief Lee. On June 7 the chairman delivered
a speech that lasted three days (they adjourned in the evenings). The most famous
quote to emerge from the address was, Change everything but your wife and
children, which has Ask not what your country can do for you levels of recognition
at Samsung.

Chairman Lees relentless dissatisfaction and discipline are Samsungs driving forces
Courtesy Samsung

The event became known, formally, as the Frankfurt Declaration of 1993, with all the
United Nations import the name suggests. The content of the Frankfurt Declaration is
called New Management, its principles distilled into a 200-page book thats
distributed to all Samsung employees. A stand-alone glossary was later published to
define the terms laid out in the first book. Workers who werent fully literate were
given a cartoon version. Lee went around the globe, evangelizing his gospel to all
corners of the Samsung empire. He conducted a lot of lectures, recalls Shin. It
comes to 350 hours. We transcribed those events; it took 8,500 pages.

And so, just across from New Management Hall at the HRDC in Yongin, is the
hallowed Frankfurt Room. A tour guide proudly notes that everything in the room
including the chairs, drab pink tablecloth, and a painting of Veniceare the originals
from the room in the Kempinski when Lee delivered his declaration. Samsung had all
the furnishings shipped back to Korea and recreated the room precisely.

New Management is centered around a number of central slogans: Fostering the

individual and change begins with me are commonly heard phrases. Perhaps most
important, it deals in quality control, or quality management, as its called within
the company. All of that is vividly on display at another Samsung holy site, the Gumi
complex, located about 150 miles south of Seoul. Gumi, Samsungs flagship
smartphone manufacturing facility, is where Samsung built its first mobile phone: the
SH-100, a Brobdingnagian handset that rivaled Gordon Gekkos Motorola DynaTac
8000 in tonnage.

The first thing you notice about Gumi is the K-pop. Korean pop music seems to be
everywhere outside, usually coming from outdoor speakers disguised as rocks. The
music has an easy, mid-tempo style, as if you were listening to a mellow Swing Out
Sister track in 1988. The music, a Samsung spokeswoman explains, is selected by a
team of psychologists to help reduce stress among employees.

There are more than 10,000 workers at Gumi. The vast majority are women in their
early 20s. Like most twentysomethings, they move in groups, often with their heads
down as they look at their phones. Workers wear pink jackets, some wear blue
which color is a matter of personal preference. Many of the unmarried employees also
live at Gumi in dorms that have dining rooms, fitness centers, libraries, and coffee
bars. Coffees big in Korea; the coffee shop on the Gumi campus has its own roaster.

Inside, Gumi is surprisingly warm and humid. The factory is part of a global network
of Samsung facilities that, in 2012, produced a total of 400 million phones, or 12
phones every second. Workers at Gumi are not on an assembly line; production is
done on a cellular basis, with each employee standing within a three-sided workbench
that has all the necessary tools and supplies an arms reach away. The employee is
then responsible for the overall assembly of the phone. Computer stations located
throughout the assembly facility can call up real-time manufacturing data from any
Samsung facility in the world.

Samsungs Gumi phone-making campus is staffed by more than 10,000 workers

Photograph by Tony Law for Bloomberg Businessweek

Banks of quality-testing equipment fill one room. Small plastic propellers spin above
the air vents of many of the machines. It was an employees idea, a tour guide
explains. It was difficult to determine if a machine was functioning from far away.
The employee suggested that propellers would be a good indication if the machine
was on. Samsung employees are given incentives to come up with ideas like these. A
cost savings is calculated, and a portion of that is returned to the employee as a bonus.
Such striving for efficiency and excellence wasnt always a priority. In 1995,
Chairman Lee was dismayed to learn that cell phones he gave as New Years 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, Ill 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 wasnt 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 bonfireall 100,000 covers, as well as those on the units at
the airports, were scrapped and replaced.

Besides the Great Phone Incineration of 1995, two other signal acts helped propel
Samsungs rise in smartphones. The first was in 2009, when it bet big on Android,
Googles operating system for mobile. Samsungs first Android device was called the
Galaxy. We were not successful with our first Android phone, says DJ Lee. The
app store was limited. Android was still in its infancy, greatly outclassed by the
iPhones operating system, iOS. But Android was open-source, which meant that it
was available free of charge to any manufacturer that wanted it.

In 2010, Samsung introduced the Galaxy S line, exemplifying its second momentous
decision: using bigger screens. The Galaxy Ss screen was significantly larger than the
original Galaxy and other Android models. We settled on a 4-inch screen, which
people thought was too big, says DJ Lee. There was a lot of argument about that.
But the bigger screens proved to be a major selling point; they grew larger still on the
Galaxy S II and S III. Now, Samsung smartphones come in sizes ranging from 2.8
inches to 5 inches (to say nothing of the companys phablets, which go up to 5.5).
Nobody had any idea what the right screen size was, so Samsung made all of them
and saw which one worked, says Benedict Evans, a researcher at Enders Analysis.

Producing a range of similar devices in various sizes to see which sells best is one of
those high-cost undertakings most companies shy away from. But Samsungs ability
to produce display, memory, processors, and other high-tech parts gives it a flexibility
competitors cant touch. There was this orthodoxy 10 years ago that vertical
integration was pass, says Tero Kuittinen, an analyst at Alekstra, a mobile-phone
consultancy. Then it turned out that the only two companies that took it seriously
[Samsung and Apple] took over the whole handset industry.

Apples approach is fewer models, each of them exquisitely designed. Samsungs is

try everything, and fast. When we released the Galaxy S III, our research showed
that, for some people in some markets, the handset was too big, says DJ Lee. So we
were able to create the same phone with a 4-inch screen, and we called it the Galaxy S
III mini. Getting the smaller device into production took about four to six months,
says DJ Lee. We watch the market, and we immediately respond, he says. The new
Galaxy S 4 is coming out only nine months after the GS3. Samsung has taken
differentiation to a new art, says Michael Gartenberg, an analyst at Gartner. If I
want something in between an iPad and an iPad mini, I cant get that from Apple.

Apples vertical integration has one thing Samsungs doesnt, though: control over the
software. Only Apple smartphones and tablets run iOS, and one of the hallmarks of
the iPhone and iPad is how smoothly the software and hardware work together. Thats
fostered an industry of app makers, and the company gets a cut of every app sold.

Samsung is making efforts to strengthen its position by opening a software

development center in Silicon Valley. It may never have the kind of operating system
control that Apple has. Samsung does, however, use its production depth and
flexibility in ways that are arguably as powerful. It makes the processors, memory
chips, and cameras that are in not only their own smartphones but also in many
othersincluding the microprocessor in the iPhone 5. The express policy of the
company is that the components business is walled off from the set business (its
own finished products, like the Galaxy S 4), and that the one side doesnt know what
the other is doing. But few people who watch the company think Samsung keeps itself
in the dark. New technologies take time to develop, particularly if that technology is
needed in large quantities. Having that early-stage insight into the supply chain has
been one of the key factors to give them an edge, says Neil Mawston of Strategy
Analytics. They can see three years ahead.

This is an extremely sore subject with some of Samsungs customers. Apple sued
Samsung in the U.S. and elsewhere for patent infringement, from the basic shape of
the phone to how a screen bounces back when users scroll to the bottom; Samsung
denies the accusations, and has countersued. The legal war shows no sign of ending.
Apple won a round in August, when a federal jury awarded Apple $1 billion in
damages. That case is now on appeal, and the judge recently reduced the award by
about half.

However the many court cases play out, Samsung wouldnt have to break the law to
use its position as a supplier to its advantage. If a manufacturing customer merely
approaches Samsung with a request for a new kind of processor, that information is
valuable. Having a road map of, say, Apple and knowing what competitors are doing
is pretty useful, says Bernsteins Newman. Its not copying, and its not illegal. You
just know that in 2013, Apples going to need a quad-core processor.

For the Galaxy S 4 unveiling in mid-March, Samsung rented Radio City Music Hall
on a Thursday night. TV trucks were parked outside, and lines of people snaked
around the block. The lobby was packed. As a point of comparison, a Motorola event
in New York six months earlier was held in a party space that had sold its naming
rights to Haier, the Chinese appliance company. Nokias event the same day was
nearby at a low-profile, generic event facility.

At Radio City, Broadway actor Will Chase mastered the ceremonies in between
surreal sketches of actors portraying average consumers using the Galaxy S 4s
features in various situations. Elaborate sets evoking a school, Paris, and Brazil
emerged from the stage floor. An orchestra rose up on hydraulic lifts. A little boy tap-
danced. The whole show seemed inexplicablesave as a metaphor for Samsungs try-
everything mobile business. Samsung makes every kind of handset in every market
in every size at every price, says Evans. Theyre not stopping to think. Theyre just
making more phones.

The Galaxy S 4 doesnt come out until late April. Its fast, has a big, bright screen,
and will probably be another huge hit for Samsung, as will the S 4 mini that will go on
sale soon after. Yet when discussing Samsungs immediate future, Lee Keon Hyok
betrays zero triumphalism. Hes seen this before and knows that its counter to the
principles of New Management to derive pleasure from the success of today. In 2010
it was a banner year for the whole group, he says, sitting in his 35th-floor office in
Seoul. The chairmans response? Our major businesses can disappear in 10 years.

Perhaps Samsung will grow so huge it invites new government scrutiny in Korea.
Maybe iPhones 6, 7, and 8 will prove so beautiful and compelling, not even the
chairman will have an answer. A likelier scenario is that another company, probably
from China, will do to Samsung what it has done to its competitors. The Chinese
look like Samsung did five years ago, says Horace Dediu, an independent mobile
analyst. He identifies Huawei and ZTE as particular threats; other analysts bring up
Lenovo. Samsung makes less profit per smartphone than Apple, Dediu continues.
The Chinese make even less. If the smartphone is going to become a commodity,
how does Samsung play in that game?

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Lee Keon Hyok predicts that smartphones will indeed become commoditized, just as
PCs did in the 1990s. But you have to remember, we make a lot of parts, he says.
The shape may change, but phones are still going to require AMOLED displays,
memory, and processors. We are well prepared to meet those changes. AMOLED
refers to active-matrix organic light-emitting diodes. Its the state of the art and
possibly the only display technology that has its own K-pop song: Amoled, a catchy
2009 number by Son Dam-bi and After School.

When the mobile business ceases to be profitable, Samsung will have to force its way
into some other industry that requires a lot of upfront capital and expertise in mass-
manufacturing. The company announced in late 2011 that it would spend $20 billion
by 2020 to develop proficiencies in medical devices, solar panels, LED lighting,
biotech, and batteries for electric cars. And if Samsung batteries or MRI machines
dont take over the market, maybe the chairman will set a huge pile of them on fire.
The chairman is saying all the time, This is perpetual crisis, says mobile
marketing chief DJ Lee. We are in danger. We are in jeopardy.

3 Successful Open Innovation

Cases: GE, Samsung and
LEGO
Published on November 15, 2014
Featured in: Big Ideas & Innovation
Like3 Successful Open Inn ovation Cases: G E, Samsung and LEGO

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Stefan Lindegaard
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Be competitively unpredictable!
The idea of open innovation is still fairly new, but we are starting to see
a range of companies that are getting value out of their efforts with this
new paradigm shift.

GE, LEGO and Samsung are three companies worth looking into not
only because of their apparent success with their open innovation
initiatives, but also because they seem to be willing to experiment with
the innovation processes themselves.

This is a key requisite for innovation success in the future.

Experimentation needs to go further than just products, services or
technologies; you also need to innovate on how you innovate.

GE:

This leader on open innovation first caught my attention with their

Ecoimagination challenges in which they brought an ecosystem of
partners (mostly VCs) together in order to not only bring out great ideas
on big issues such as the smart grid and healthcare, but also to make sure
that the ideas were actually implemented with the help of GE and its
network.

It is interesting to observe how GE tries out new things with regards to

their innovation processes. After the Ecoimagination challenges had
their run, they went on to partner with Local Motors to launch a new
initiative aimed at co-creating for a new world of home appliances.
The initiative, FirstBuild is an online and physical community dedicated
to designing, engineering, building, and selling the next generation of
major home appliances.

This is global co-creation paired with a microfactory on site, said Chip

Blankenship, CEO of GE Appliances. We will innovate and bring
products to market faster than ever before.

Companies need to know why they are pursuing open innovation and
they need to be strong communicators on their efforts. Those are two
key steps in my framework for open innovation, which I call the 7 Steps
for Open Innovation.

Talking about this, it is worth checking out the open innovation website
at GE, which starts out with this manifesto:

We believe openness leads to inventiveness and usefulness.

We also believe that its impossible for any organization to have all the
best ideas, and we strive to collaborate with experts and entrepreneurs
everywhere who share our passion to solve some of the worlds most
pressing issues.

Were initiating a fundamental shift in the way we do business this is

what well stand for in our open collaboration efforts and how we will
operate.

Customer focus, imagination, courage, expertise, inclusiveness, and

clear thinking will always guide our collaborative effort.
 We will openly celebrate the efforts of lead solvers who have
submitted winning solutions within our public collaborations.

Well collaborate with transparency publishing evaluation criteria,

rules, compensation and IP rights at the launch of our engagements.

We believe ideas should be compensated and compensation pools

will always reflect level of impact, effort, commercialization risk and IP
rights.

Well provide access to pools of IP to enable the Global Brain to create

new and beneficial outcomes.

Well never stop experimenting, collaborating and learning well get

smarter as we go, and the Global Brain will evolve and grow with us.

It is no wonder that GE is an open innovation leader.

Samsung:

In contrast to Apple, Samsung is more active and open about their

efforts on building their external innovation capabilities. The below
snippets are from an interview with Vice-President of Samsungs Open
Innovation Center, Marc Shedroff, in which the journalist would like to
find out more about the ways Samsung wants to innovate like a startup.

OIC has four legs to it, and its sort of the continuum of how you would
partner with talented entrepreneurs. The first is a partnerships team
think of commercial partnerships between us and a third party. The
second is a ventures group, that is, R&D investments in startups. The
third is an M&A team; we think theres an opportunity to acquire small
teams, fit them into Samsung, and have them build products as part of
the company. The fourth involves accelerators, which we have opened in
Palo Alto and New York City.

We can take a group of five or six people per team and give them the
benefits of a small company, which is autonomy, nimbleness, and the
freedom to build the product they want without going through the
approval process. Then we give them the benefits of a big company,
which provides financial support, extensive distribution, and other
resources. After all, we sell 450 million phones a year and 50 million
TVs. The end result, we hope, will be game-changing software products
that can connect all of our devices.

Companies can target different kind of value pools i.e. groups of

external partners for their open innovation efforts. This includes
suppliers, universities, consumers/users and startups.

The latter has become the hottest area of collaboration for many
industries and this example of Samsung is just one of many in which
companies work to develop better co-innovation capabilities with
startups and SMEs.