Tag: management

The Galaxy Note 7 Crisis

How Did Samsung Botch The Galaxy Note 7 Crisis? It’s A Failure Of Leadership


Mobile chief DJ Koh should have made the decision to stop production of the Note 7 until there was no doubt the battery problem was fixed.

In recent years, Samsung has been trying to “humanize” its image in the U.S. You can see it in the branding, the TV ads, the way the company puts on a show at its product launches. It was making progress at becoming a more likable brand. And the company was having a very good 2016, with sales of the company’s Galaxy S6 and S7 phones booming around the world.

Then in just the last five weeks, ever since the first reports in early September about Galaxy Note 7 batteries bursting into flames, it all started to go downhill, and today Samsung’s brand seems in worse shape than ever. After a month of product recalls, investigations, and damage control, Samsung finally made the stunning announcement that it would permanently discontinue the Note 7 on Tuesday morning. And amid reports that Samsung still doesn’t even really know the source of the problem—hundreds of engineers have been unable to reproduce the exploding battery issue, according to the New York Times—it seems clear that its handling of the crisis has been botched by a failure of leadership.

Soon after the first reports emerged, with 35 cases of phones exploding, Samsung announced that it was halting production of the devices and starting an “exchange program” to get the defective phones out of the hands of consumers. Then lightning struck on September 23 when users began reporting that even the replacement phones Samsung had been distributing through carriers were exploding. On October 5, a replacement Note 7 caught on fire in a man’s pocket on a Southwest plane prior to takeoff. Another Note 7 burned a young Minnesota girl’s hand. Then another explosion in Kentucky. Then another in Virginia.

And as Above Avalon analyst Neil Cybart points out, these Note 7s weren’t just overheating or melting down or imploding—they were exploding like bombs. They were setting whole rooms on fire.

Passengers line up beside a safety warning about the Samsung Galaxy Note 7 smartphone at a check-in counter at the airport in Wuhan, in China’s central Hubei province on October 2, 2016.[Photo: GREG BAKER/AFP/Getty Images]

And it’s when the replacement phones began blowing up that things started to go south for the Note 7 and Samsung. Until then, consumers had a certain amount of good will toward the company. The vast majority of Note 7 owners who returned their phones requested another Note 7 instead of switching to another brand (as Samsung was quick to point out).

People were left to wonder why Samsung didn’t pull the devices off the market and fix the problem once and for all. Instead Samsung rushed to get new devices out to consumers. Then, when the replacement devices began blowing up too, Samsung didn’t immediately halt production again, but rather continued inviting Note 7 owners to come in and pick up one of the replacement devices that were supposedly safe.

Technalysis president Bob O’Donnell points out that recalls of tech products are not unprecedented, but the Samsung recall is something new. “We’ve had other companies that have had recalls, and we always gave them the benefit of the doubt. We always assumed the vendor would fix the problem and it would be okay. Well, this time it’s not okay.”

The Samsung recall is a big one. It’s the first one I know of in which announcements were made at airport gates that the device would not be allowed on planes until they were powered down completely. All those public announcements were like negative ads, and they were heard by hundreds of thousands of people.

So, what happened? How could a sophisticated electronics giant with decades of experience put such a faulty product on the market? Samsung rushed the device to market ahead of the September 7 launch of the iPhone, reported Bloomberg, and several of my sources offered similar accounts. “Samsung . . . did not do the type of quality assurance and testing to make sure the Galaxy Note 7 was designed properly and totally safe,” said Creative Strategies president Tim Bajarin.

“This will have a negative impact on their overall brand and puts in question their ability to create a high-end smartphone that will be safe,” Bajarin says. “This will have an economic impact on them in the $10 [billion] to $14 billion range, and unless handled properly, it could have a serious impact on their overall brand for some time.”

As the months pass in the wake of the Note 7 debacle, it will be the damage to the brand that we should be watching. Phones come and go. Profits come and go. But loss of credibility is a pain that lingers.

From the very beginning, Samsung should have been more honest about the problem. It should have called the thing by its proper name—a product recall. Instead it called it an “exchange program.” This gives the thing a neutral, harmless sound, like a program for getting rid of unwanted gifts at Macy’s after Christmas. Just yesterday, when the news was already out that Samsung had (temporarily) stopped production of the Note 7, the company sent out a statement saying it had “adjusted its production schedules.” It’s this sort of mealymouthed talk that gives the impression that the whole thing is more about spin and share price than the real needs—indeed the safety—of customers.

I was willing to forgive Samsung’s PR errors until the replacement phones began blowing up. I believed the theory that the battery problems could be traced to one supplier and would soon be fixed. That turned out not to be true. It’s still unclear exactly why the Note 7 batteries blew up, and Samsung isn’t offering much insight.

“From questionable actions regarding Note 7 replacement units to the failure of establishing an open communication channel to consumers, Samsung has allowed this situation to deteriorate over the past three weeks,” Above Avalon’s Cybart says.

IDC’s William Stofega points out that Galaxy Note sales typically represent about 10% of total Samsung phone sales, and that half of those customers may defect to Apple.

Cybart says Samsung’s mishandling of the Note 7 situation has to be laid at the foot of the company’s leadership.

“Regardless of the root cause, the only way Samsung will be able to learn from this experience is to have strong leaders address shortcomings found within the company’s culture and processes,” he says. “Without proper leadership, Samsung risks having this crisis begin to impact other parts of its business, and jeopardize its long-term relationship with the general public.”

Why Management By Objectives is an Oxymoron



How a popular management approach introduced by business guru Peter Drucker can create conflict, contradiction and cynicism.

The system of Management by Objectives (MBO) was structured by Peter Drucker in the 1950s. Plentiful and diverse organizations have used the technique, many to this day.

The MBO process involves an employee and his organizational superior agreeing on objectives to be accomplished by the employee, occasionally discussing the means for doing so. This process is executed for every employee under the theory that objectives clarify roles and responsibilities.

Unfortunately, this process rarely provides coordination and focuses individual efforts on sub-optimizing over organizational best interest. Consider this example:

The football coach wants to win games. That is his objective. He believes, based on his experience, that winning teams score at least 21 points per game, and do that by completing at least one pass for a touchdown, running for over 150 yards, and creating a turnover that is turned into points.

The objective of the CEO is profitable growth. He believes, based on his experience, that flexible operations, broad product offerings, and low costs are keys to success.

The football coach and his position coaches then agree on the objectives. The offensive coordinator must ensure the team scores 21 or more points .The receivers coach must ensure that his group scores at least one touchdown. The running backs coach must ensure his players run for over 150 yards. The defensive coach must focus his players on creating turnovers and scoring on them.

The CEO and his executive team agree on the objectives. Operations must provide same-day shipment and marketing will offer at least 10 variations of every product at a gross margin of 40%.

There are now two minutes left in the game. The football team has 18 points and the ball. The receivers have not scored a touchdown and the running backs have combined for 140 yards. The defense has not yet created a turnover.

The big industry show is just 9 months away. Marketing wants to introduce several new products with multiple variations, engineering has not finalized the design, and supply chain wants to source in low-labor-rate countries to assure the margin.

We now have three very different approaches to moving forward: a run, a pass, or a turnover to the other team so the defense can create a turnover and score. Neither the opposing team nor the score matter to those trying to obtain their objectives. Nor do the objectives of their peers.

Marketing contends the date of the show has been known for over a year and insists on moving forward with the introduction there. Engineering wants to delay six months until the next show to execute parts rationalization and modular design. They insist that will reduce costs and increase flexibility. Supply chain needs the final drawings now to negotiate price with potential suppliers and ensure availability.

Where is the management in this?

One can argue that all of them would focus on winning the game over their individual goals, but there is no reason to believe any are not convinced their option is most likely to accomplish that. One could argue that the recommendation of the defensive coach is higher risk, but tell that to the Super Bowl champion Denver Broncos who won because of their defense. If a pass seems safest, ask Russell Wilson whose last second interception by the New England Patriots confirmed the Patriots as Super Bowl 49 champions. The list goes on.

Depending on the score and the number of opponent time-outs remaining, the best option may be the quarterback taking a knee three times. That unfortunately, helps only the head coach reach his goals at the expense of his subordinates. No matter what play he chooses to call, he is reducing the opportunity for some to attain their objectives. Feel the resentment grow.

Being early to market is proven to increase profits over product life cycle. Both parts rationalization and modular design enable flexibility, reduced inventory and product costs, and lowers complexity. In some cases, but certainly not all, sourcing to low-labor-rate countries reduces costs. Supply chain believes this is one of those cases. Finger-pointing thrives.

So MBO creates objectives that seem to make sense at the time, but don’t facilitate optimal decisions as circumstances evolve. MBO appears to provide management, but more often delivers abdication. MBO feeds conflict, contradiction, and cynicism. In an effort to meet individual objectives, we can all find reasons and examples to support why our plan is best.

Each executive objective makes sense. Each executive is trying to do what is best for the company while meeting personal objectives.

True success requires organizational agreement on priorities, understanding of trade-offs and work to eliminate those trade-offs, and cooperative assistance in eliminating either/or constructs in decision-making.

Too often metrics drive behavior. An excellent organization breathes a culture of behavior that provides desired results.

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