Is Management to Blame for Samsung’s Slump?

A heated debate over the Samsung group’s organizational management culture has engulfed the nation’s leading group. The core of the debate is whether its organizational management – once touted as Samsung’s strength – compromises its creativeness and becomes a burden to the future success of the group. Its lackluster performance in the second quarter of this year ignited the debate.

In contrast, Samsung is not ready to give in to such arguments saying that management and creativity are complementary, not contradictory. It blamed its low performance on unfavorable business conditions, such as the strong won, and added that the electronics business is sensitive to cyclical factors. It also explained that the semiconductor business has already hit rock bottom.

The current debate surrounding Samsung is not confined to the electronics giant. After the 1997 Asian financial crisis, more and more businesses showed a tendency to adhere to a centralized corporate culture that prefers strict management and stability over growth and expansion.

Samsung Electronics (SEC) posted operating profits of 910 billion won in the second quarter of this year, far below its expectations. It is also the first time in five and a half years since the last quarter of 2001 that the company achieved a quarterly operating profit below 1 trillion won. As a result, the SEC handed over its throne as number one in quarterly operating profits to POSCO two and a half years since the last quarter of 2004.

In response to the series of disappointing results, doubts are bubbling up over the group’s future. Some have pointed out that Samsung’s future will remain dim if it sticks to its current business structure, which is sensitive to cyclical factors, especially at a time when its competitors are fast catching up. Moreover, others say creative management, which Chairman Lee Kun-hee emphasized last year, may seem miles away with the current management system, often portrayed as stifling by employees.

The same voices can be heard within the group. In his recent book called “Exploring Samsung’s Corporate Culture,’ adviser Lee Dae-won of Samsung Heavy Industries said, “Samsung is faced with a corporate culture that is hardening everyday.”

In response, Samsung argued that all the allegations ignore the essence of creativity and management. The essence of creativity in management defined by the group is comprised of the following features: differing from others (arts), verifiable and sustainable (science) and related to wealth creation (money). In other words, not only ideas but also a skillful management that can sift grain from chaff is essential.

Samsung group went on to argue that businesses should entirely change the concept of management. An official from SEC said, “Disney World, the most creative corporate in the world, works under the slogan ‘Attention to Detail.’ What we mean by management is not about ‘control.’”

Business professor Lee Dong-gi of Seoul National University also pointed out, “The semiconductor industry has an indispensable relationship with economies of scale, and it easily affected by cyclical factors. So the industry needs more than creative industry. Samsung’s success really lies in how to minimize trial and error in coordinating creativity and management.”

Recently, some Samsung affiliated companies have banned working overtime or on holidays altogether, and have extended employees’ free time. Will such notable changes in Samsung’s culture spread to the entire group? The answer remains to be seen.

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