Table of Contents Title Page Copyright Page Preface Chapter 1 - Sony and Samsung: Portraits of Two Global Competitors The Fall of Sony and the Rise of Samsung Electronics The History and Business Areas of Sony and Samsung Electronics Sony and Samsung Electronics’ Performance Part 1 Strategic Analysis Chapter 2 - Prince and Pauper in the Analog World Sony, the Prince of Analog The Late-Starter, Samsung Electronics Chapter 3 - Digital Dream Kids and the Digital Sashimi Shop Digital Revolution Sony’s Digital Dream Kids Samsung Electronics’ Digital Sashimi Shop Chapter 4 - New Kids on the Block Sony’s Marketing Strategy: Focusing on New Products The Marketing Strategy of the Latecomer, Samsung Electronics Increasing Bargaining Power of Retailers Chapter 5 - Wannabe Globals Sony’s Global Strategy Samsung’s Globalization Strategy Problems with External Globalization Part 2 Organizational Process and Leadership Chapter 6 - Same Silos but Different Outcomes Sony’s Company Structure Problem with Sony’s Organizational Structure Corporate Culture and Organizational Structure of Samsung Electronics The Problem of Samsung Electronics’ Organizational Structure Chapter 7 - From Founders to Professional Managers Sony’s CEO and Governing Structure Problems with Sony’s Governing Structure Samsung’s Powerful Owner-Centered Structure The Problems with Samsung’s Governing Structure Chapter 8 - The Future of S ony and Samsung Electronics Superficial Crisis and Internal Crisis Lessons Learned by Sony and Samsung Electronics Endnotes Glossary Index Copyright © 2008 by John Wiley & Sons (Asia) Pte. Ltd. Published in 2008 by John Wiley & Sons (Asia) Pte. Ltd. 2 Clementi Loop, #02-01, Singapore 129809 All Rights Reserved No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as expressly permitted by law, without either the prior written permission of the Publisher, or authorization through payment of the appropriate photocopy fee to the Copyright Clearance Center. Requests for permission should be addressed to the Publisher, John Wiley & Sons (Asia) Pte. Ltd., 2 Clementi Loop, #02-01, Singapore 129809, tel: 65-6463-2400, fax: 65-6463-4605, e-mail: [email protected] This publication is designed to provide accurate and authoritative information with regard to the subject matter covered. It is sold with the understanding that the Publisher is not engaged in rendering professional services. If professional advice or other expert assistance is required, the services of a competent professional person should be sought. Other Wiley Editorial Offices John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, USA John Wiley & Sons Ltd., The Atrium, Southern Gate, Chichester PO19 BSQ, England John Wiley & Sons (Canada) Ltd., 5353 Dundas Street West, Suite 400, Toronto, Ontario M9B 6H8, Canada John Wiley & Sons Australia Ltd., 42 McDougall Street, Milton, Queensland 4064, Australia Wiley-VCH, Boschstrasse 12, D-69469 Weinheim, Germany Library of Congress Cataloging-in-Publication Data: ISBN 978-0-470-82371-2 Typeset in 11-14 point, Minion Pro by Superskill Graphics Pte. Ltd. Ltd. Preface This book emerged out of my own curiosity to understand why Sony’s performance, which had dominated the electronics industry for many decades, had dropped so rapidly, while Samsung Electronics, an obscure OEM (Original Equipment Manufacturer) not so many years ago, had emerged from nowhere. I must confess that I was one of the admirers of Sony for its innovative products as well as for its global management. I was fascinated by the late Akio Morita’s book, Made in Japan, and was impressed by his global mindset and business acumen. This had led me to a research project in 1994-1995 to examine the evolution of Sony’s U.S. operation. I had opportunities to meet with many outstanding managers and engineers at Sony including Kunitake Ando, who then was a head of its U.S. operation. Sony was a role model for many Korean companies, including Samsung Electronics, with which I have maintained a close contact through various projects, and a direct comparison between these two would have been inappropriate at that time. Ten years later, however, the fortunes of these two companies changed dramatically. Sony’s performance deteriorated, and Chairman Idei and President Ando had to resign in 2005. On the other hand, Jong-yong Yun, CEO, was applauded for turning Samsung Electronics into one of the most profitable companies in the electronics industry. I felt compelled to find out what had caused their changing fortunes. Faced with the rapid digitalization of the electronics industry, Sony and Samsung Electronics had pursued rather different strategies. Sony tried to create synergies between hardware and contents by using the network. Samsung Electronics, on the other hand, focused on its parts business, and attempted to secure competitive advantages in end products by being a superior manufacturer. As I dug deeper in the analysis, I became more convinced that the performance differences between Sony and Samsung Electronics could not be attributed to their strategies. Rather, organizational processes and executives’ leadership may have made the difference. Sony’s independent business units quickly became silos when its top management leadership was questioned. Internal politics among executives further exacerbated its stagnation. On the other hand, the fit between Samsung’s strategy in responding to commoditization with speed and its militaristic organization may have contributed to its stellar performance. I further examine the challenges that Samsung Electronics faces, despite its remarkable performance, and evaluate Sony’s potential, despite its current struggles. My endeavor to analyze key strategic decisions by Sony and Samsung Electronics during the last decade would not have been successful without the assistance of Myoung-woo Lee, a 20-year veteran of Samsung Electronics, and, more recently, the president and chairman of Sony Korea. With his unique vantage point of both companies, he not only shared his own perspectives, but also introduced me to executives and managers of both companies for further interviews. I was fortunate enough to have personal interviews with high-level executives (including retirees) of both companies, which would not have been possible without Mr. Lee’s introductions. In addition, I had interviews with security analysts and executives of other firms in the electronics industry to get more objective, external opinions. I would like to take this opportunity to thank him for his contributions and assistance. I am also deeply indebted to several other individuals and organizations. I would like to thank Korea University for providing a special research fund for this project to cover my frequent trips to Japan. I also benefited from discussions with my colleagues at Hitotsubashi University, where I spent the summer of 2007 while preparing the manuscript. John Lafkas, Kyung-hwan Yun, Sejung Seo, Sang-hee Lee, Young-jae Koh, and Jung-wook Shim provided very helpful editorial and research assistance for the project. I would like to thank Nick Wallwork, my editor at Wiley, and his fellow staff members including Joel Balbin, Fiona Wong, and Pauline Pek, as well as copyeditor Jay Boggis, who all did a wonderful job of turning the manuscript into a book. Last but not least, I would like to thank the executives and managers at Sony and Samsung Electronics who were willing to share their valuable time to meet with me. I cannot name them all here partly because there are too many and partly because most wanted to remain anonymous. I believe in management education. I believe managers can learn from the experience of other firms so that they will not repeat the same mistakes and they can make better informed decisions. Executives and managers from both companies I interviewed were eager to share their own perspectives. I would like to dedicate this book to them.