Case Study: SAMSUNG GALAXY NOTE 7 DEBACLE

I. Executive Summary
Every business faces its own problems and adversity which challenges them
both externally and internally. These challenges might either be coped or
covered-up by the company or not and for which, it may lead to either success or
failure. One thing is certain, in every success or failure of a company, their
reputation is affected: either positively or negatively.
One of the growing and rapidly expanding business fields today is the
electronics industry. The electronics industry encompasses a wide range of
different manufacturing processes and products. The most visible products of
the electronics industry are consumer goods such as television sets, music
reproduction systems and computers. Specifically, this case study is centered on
smartphones. Among all of the smartphone companies all over the world, the
top ten (ten) key players are as follows: Apple, Samsung, Huawei, Xiaomi, OPPO,
LG, Lenovo, ZTE, vivo, and Sony.
Samsung Electronics Co., Ltd. being one of the top companies of their
industry has established a good facade and image in the public for producing
high-quality, trendy, and certainly innovative products at a reasonable price.
Their good reputation has been known for long because of their many years of
service and negotiation. Because every business faces its own problem, Samsung
had been struggling to solve their unprecedented reputational crisis: The
Samsung Galaxy Note 7 Debacle. The issue was about the products’ failure of
safeness: overheating and catching fire. This caused the Samsung Electronics Co.,
Ltd. to stop and cease all the production and sales of Galaxy Note 7.
The central problem of the company is on how to gain back the trust of its
buyers and customers which has been lost because of the unfortunate event.
There were two (2) minor problems found. If central problem will be solved, the
two existing minor problems will be solved also.
 Three (3) situational analysis where used to help find the best alternative
course of action to the said problem. The three situational analyses are VMOST
analysis, SMART analysis, and Porter’s five forces. These three where chosen
because the team believed that they are the most relevant and suitable to the
company’s situation.
After the situational analysis, the team was able to find six (6) alternative
courses of action and in which three (3) of them were chosen to be considered.
Out of the remaining three, the best alternative was yielded. The best action to
take is to have Project Managers to inspect the accomplished work to ensure
alignment with the project scope (Rigorous Quality Control).
This alternative is trusted to be the most feasible and relevant to the central
problem. The timeframe of the project implementation was also considered and
it was found out that it will take approximately a year to do the plan of activities.
With a genuine trust and confidence to the consultants’ recommendations,
Google Electronics Co., Ltd. will surely bring back the eminence and honor they
once had.
II. Strategic Case Profile

With the ever changing world we live in, technology nowadays is getting better and
advanced. We almost depend the way we live today with the technology. This
technological advancement without a doubt is a positive thing to the human race for it
makes our daily activities easier and faster. For that reason, different and diverse
technological companies are doing its best to surmount the challenges in the global
market.

Among all of the existing technological companies around the globe, the most
popular and prominent in the field are the companies namely Apple, Huawei
Technologies Co., Ltd., and Samsung. However, as the demand goes higher, the pressure
within every company to innovate within a span of time becomes higher also which then
leads to product crisis. This phenomenon is what happened to Samsung’s supposed to
be “innovative and ingenious” Galaxy 7 where the company battled for its reputation
after receiving various allegations with their products’ safeness. The reason behind the
said unprecedented reputational crisis for Samsung is device overheating and catching
on fire. And with that, many customers are now afraid of purchasing product from the
Samsung which resulted to a gigantic problem.

Samsung, before the said incident happened, had an excellent reputation. In 2016, it
was the leading global manufacturer of smartphones by volume and was the second
most profitable smartphone vendor after Apple. Samsung’s relationship with its closest
competitor, Apple was not just about competition and legislations because Samsung has
been the Apple’s main supplier of the Iphone’s core-processing ship. However, after the
dramatic failure made by the company, it impacted into several adverse situations. The
overheating batteries caused substantial damage to both consumers and the company
with 186 per cent (%) increase in the negative public sentiment toward the company.
Therefore, the Samsung Electronics Co., Ltd, should make the most necessary move to
gain the lost trust of its customers. By then, they will be able to get their prestige name
on top.
 Central Problem:

Samsung Electronics Co., Ltd. is rectifying its Galaxy Note 7 Debacle to retrieve back the
trust and loyalty of its customers.

Minor Problems:

1. Samsung’s competition in the global market

2. Samsung’s losses from the Galaxy 7 Debacle

III. Situational and Key Analysis

A. VMOST Analysis – is an internal environmental analysis that will ensure that the
Samsung Electronics Co., Ltd. is well-aligned to the four or five attributes or factors
that is essential to any organizations.

Vision

“Inspire the world, create the future”, Is Samsung mission statement in its vision
2020. With this new vision, Samsung commitment is to inspire its communities by taking
advantage of its key strength, creative solutions, innovative products and new technology,
as they continue to promote its new values for Samsung core networks. This includes
industry, partners and employees. Samsung hopes to contribute a better world and rich
experience for all, using this efforts. Also as part of its vision, Samsung has a plan to reach
$400 billion in revenue and be classified as worlds’ top five brands by 2020.

Mission

Samsung’s mission seems focused in building its brand and becoming a creative
leader in new markets. It looks like Samsung is set to change its reputation of being fast
followers, a company that succeeds through watching others pioneer new technologies and
markets and then rush in behind. This was seen when Samsung lost a high profile case to
iPhone after being accused of the company’s phones were iPhone’s rip-offs that violated a
number of patents. In spite of its success, Samsung still lags behind Apple in terms of which
is the most innovative company. In its mission to capture the title of being creative leader in
the Smartphone market, Samsung leaders believe they must fundamentally transform the
company’s culture and strategies. By doing R&D, Samsung will be able to control its destiny.

Objectives

One of Samsung’s leading objectives is the attainment of a leadership position in the

electronics industry. The other objective that the Samsung Electronics Company pursues is
the manufacture of high-quality products, and to ensure that such products are safe and are
availed in the latest technology all over the world. These objectives are consistent with not
just the expectations of the costumers but also the success of the firm’s main goal: higher
profits. Delivering high quality of goods, utilizing the latest technology, and taking
leadership position in the technology industry are the objectives that ensure that the firm
retains customers and increases sales.

Strategies & Tactics

 Samsung Marketing Mix Pricing Strategy involves two pricing strategies: Skimming
price and Competitive pricing.
 Placing in Samsung Marketing Strategy wherein Samsung uses channel marketing in
its industry.
 Promotion in the 4 P’s of Samsung
 Sponsorship
 Advertising

B. SMART Analysis – is used to guide Samsung Electronics Co., Ltd.’s development of

measurable goals.

Specific – The specific goal is to gain back the trust of the customers.
Measurable – Within a year, Samsung should have implemented the plan which is to have a
rigorous quality control. But as of the moment, Samsung Electronics Co., Ltd. should make
an initial plan while developing the best alternative.

Achievable – Within 12 months or within a year, Samsung Electronics Co., Ltd. should bring
back their position as the leading global manufacturer of smartphones by volume and
should place at the top spot in the electronic industry in terms of profit, quality, and value.

Relevant – Having a stricter and rigorous quality control, the Samsung Electronics Co., Ltd.
would lessen its margin of error (sell defective and unsafe products) which would solve the
main issue: gaining the trust back of the public.

Time-Bound - Project Managers to inspect the accomplished work to ensure alignment with
the project scope (Rigorous Quality Control) would take approximately a year to be
implemented effectively.

C. Porter’s Five Forces – is a tool for analyzing Samsung Electronics Co., Ltd.’s
competition in a business.

Bargaining power of suppliers:

Suppliers are the sources from which the companies obtain raw material for making
products. They are an important group and their bargaining power an important force
affecting the position of a company. If the suppliers have higher bargaining power, the
competitive strength of the company will remain low and vice versa. In the case of
Samsung, its suppliers’ bargaining power is low because of several important factors. First is
their small size due to which their bargaining strength is low. Next, these suppliers are
scattered all over the world and Samsung can easily switch to a new one. However,
Samsung being a major source of income for these suppliers, they cannot easily switch to
another brand. So, Samsung makes the rules that the suppliers are required to follow and it
conducts regular investigations to see if the suppliers are adhering to the rules and
regulations. From labor welfare to product quality and sustainability, the suppliers are
required to follow the set rules in all these areas. Thus, you can see that all these factors
keep the overall bargaining power of suppliers minimized. If some of the suppliers are able
to exercise some bargaining power then it is because of their size and financial clout.

Bargaining power of customers:

Increased access to quality information has led to a continuous rise in the bargaining
power of the customers in the 21st century. The overall bargaining power of customers is
moderately high in case of Samsung. The reason is that while the switching costs are very
low for the customers and they can easily switch to any of the competing brands, customers
can easily compare brands and their products and read feedback from other customers.
Higher competition, prolific use of technology and other reasons too are behind the rising
influence of the customers. Brands are investing a lot in marketing and advertising to attract
new customers. Every competing brand is so aggressive about marketing to hack into its
rival’s customer’s base. All these factors mean higher bargaining power of the customers.
The factors that moderate their influence include the market image of a brand, quality of its
products and financial clout as well as similar more factors.

Threat from substitutes:

Substitute brands and products pose a moderately high threat to the Samsung
brand. The brand has several competitors. The most important ones are SONY, LG, and
Apple. Apart from these there are other local and international brands too that pose a
competitive threat. So, overall customers have several substitute brands and products
before them. The switching costs are also low. A good brad image, technological innovation
and similar other factors moderate this treat to some extent.
Threat of new entrants:

The threat of new entrants is low for Samsung. Building such a large brand is not
easy. There is a lot of financial investment plus marketing and a need for highly skilled
human resources. So, the barriers to entry are high. One can enter at a smaller scale and
raise a local brand, but then the level of competition from the well-known brands is very
high. Moreover, legal and regulatory pressures also act to raise the barriers to entry.

Level of Rivalry in the Industry:

The electronics industry sees intense competition because of the large number of
competing brands and their size and financial strength. From LG to Apple, Apple, SONY,
Toshiba, there are several brands that are competing for market share. It is also why entry
for new brands becomes difficult. These large players are well known brands with an
established brand image. Technological innovation becomes the primary differentiating
factor. Overall, the level of competitive rivalry in the electronics industry remains high.
 IV. Financial Analysis

Samsung Electronics Co., Ltd.’s Financial Statements for the last three-five years:

Financials
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Key Ratios
Margins % 2007- 2008- 2009- 2010- 2011- 2012- 2013- 2014- 2015- 2016-
TTM
of Sales 12 12 12 12 12 12 12 12 12 12
Revenue 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00100.00
COGS 71.95 74.00 69.39 66.40 67.97 62.98 60.21 62.21 61.54 59.58 54.84
Gross
Margin 28.05 26.00 30.61 33.60 32.03 37.02 39.79 37.79 38.46 40.42 45.16
SG&A — — 7.28 5.11 8.54 8.90 11.04 11.53 11.38 11.32 9.96
R&D 6.17 5.82 5.42 5.88 6.03 5.73 6.26 6.98 7.40 7.33 7.11
Other 12.76 14.51 10.34 12.04 7.98 7.94 6.41 7.15 6.52 7.29 7.06
Operating
Margin 9.11 4.97 8.01 11.19 9.48 14.44 16.08 12.14 13.16 14.49 21.03
Net Int Inc &
0.67 0.45 0.93 1.31 0.94 0.43 0.69 1.38 -0.23 0.73 0.58
Other
EBT Margin 9.78 5.42 8.94 12.50 10.42 14.88 16.78 13.52 12.94 15.21 21.61
2007- 2008- 2009- 2010- 2011- 2012- 2013- 2014- 2015- 2016-
Profitability TTM
12 12 12 12 12 12 12 12 12 12
 2007- 2008- 2009- 2010- 2011- 2012- 2013- 2014- 2015- 2016-
Profitability TTM
12 12 12 12 12 12 12 12 12 12

Tax Rate % 17.75 10.45 19.94 16.46 19.96 20.29 20.56 16.07 26.58 26.01 24.51

Net Margin % 7.53 4.56 7.02 10.22 8.32 11.53 13.04 11.19 9.32 11.10 15.97

Asset Turnover
1.13 1.22 1.25 1.25 1.14 1.19 1.16 0.93 0.85 0.80 0.84
(Average)
Return on Assets
8.49 5.56 8.80 12.82 9.47 13.77 15.09 10.39 7.91 8.89 13.40
%
Financial Leverage
1.82 1.82 1.62 1.57 1.60 1.55 1.48 1.42 1.40 1.41 1.46
(Average)
Return on Equity
15.39 10.11 15.05 20.43 15.03 21.63 22.83 15.07 11.17 12.49 19.25
%
Return on
12.50 7.86 12.61 18.10 13.15 18.64 20.19 13.41 9.93 11.14 17.31
Invested Capital %
144.5
Interest Coverage 17.31 10.81 23.78 34.26 27.64 108.80 121.14 48.01 46.77 88.50
2
 The consultants have summarized all the given key values for the analysis of the
finances of the company. They have come up to these analyses:

Samsung generates its revenues through three business units: Information Technology
and Mobile Communications (IM), Consumer Electronics (CE), and Device Solutions (DS).
During 2016, these three divisions generated net sales of ₩100.3 trillion (IM), ₩47.05
trillion (CE), and ₩78.15 trillion (DS), respectively. The IM division generated the most
revenue, but the DS division was the most profitable business unit generating 54% of
Samsung’s 29.24 trillion operating profit during the year 2016. Samsung Group had grafted
business practices onto its essentially Japanese system, combining merit pay and
promotion, and placing younger professionals in position of authority over their elders. It
may have been incompatible, but the Group was able to complement traditional, low-cost
manufacturing prowess with an ability to swiftly bring high- quality, high- margin products
to market increasing in revenue.

On October 11, 2016 Samsung Electronics Co., Ltd. ceased all production and sales of
the Samsung Galaxy Note 7s smartphones Because a month earlier, Samsung voluntarily
recalled 2.5 million Galaxy Note 7s after reports of overheating and catching on fire. And on
September 15, 2016 Samsung’s Strategy Analytics had estimated after recalling 2.5 million
units, the sales loss would be as high as 10 Billion Dollars.

The year 2016, Samsung had reported 50% of year- on- year growth with an operating
profit of 7.92 Billion Dollars on total revenue of 44.60 Billion Dollars. Profit growth was
driven by Samsung’s business components, mainly memory and display panel business
units. In the meantime, the Galaxy Note 7 recall resulted in a 96% year- on- year decline
operating profit in the IM division in the same year totaling 5.3 Billion Dollars. Despite the
losses, sales from mid- to-low- end models also contributed to the company’s year- over-
year earnings.
 V. Strategic Formulation and Alternatives

Alternatives:

1. Release a new product

2. Advertise the company through television commercials and mobile application ads
3. Focus on manufacturing Samsung’s flagship products such as Galaxy S7
4. Work collaboratively with United States Consumer Product Safety Commission’s
rules and regulations
5. Extend the timeframe of product release
6. Project Managers to inspect the accomplished work to ensure alignment with the
project scope (Rigorous Quality Control)

Strategy Formulation (Alternative Courses of Action):

Release a new product

This alternative means that the Samsung Electronics Co., Ltd. should manufacture a
new set of product which is more advanced that the previous Galaxy Note 7 in a reasonable
price. This action could gain back the loss from the Galaxy Note 7 debacle for the company
would be selling a new innovative product and will receive revenues in return. However,
this does not totally mean that the company could now bring back the trust of customers
for they only substituted and covered the problem instead of solving it.

Advertise the company through television commercials and mobile application ads

Advertising the company to the general public is a nice idea. People would tend to
believe in a commercial when there are personalities and eye-catching visual effects.
Commercials could bring back the trust of the costumers because Samsung’s message and
platform would be conveyed but it will be time consuming and costly for the company’s
perspective.
Focus on manufacturing Samsung’s flagship products such as Galaxy S7

Instead of making a new model, why not focus on the already successful one?
Galaxy 7 is an example of Samsung’s product which is a success in terms of sales. If the
company would focus on enhancing products such as these, it would be easier and better.
However, the company’s innovation would be limited.

Work collaboratively with United States Consumer Product Safety Commission’s rules and
regulations

It was stated in the case that although the Samsung Electronics Co., Ltd. complied
with regulations set by the United States Consumer Product Safety Commission, it had still
caused costumer’s unsafety. Why? Because the company didn’t worked collaboratively and
genuinely in the Commission that is why in this alternative, there is a need for a stricter
collaboration between the company and the commission so that such debacle instance will
not happen anymore.

Extend the timeframe of product release

There is an existing pressure within Samsung and its competitors in making and
releasing their innovative products annually. Maybe this pressure could cause the
company’s significantly accelerated launching. This accelerated launching might cause
defects on the products because there wouldn’t be ample time for the company to measure
its safety and quality control. This alternative might reduce the unwanted incidents such as
battery explosions and over-heating because the company now is going to take every step
and process diligently. This alternative can have a negative effect on the company because
the company has the possibility to not compete with its rivalry and to the booming industry
anymore.

Project Managers to inspect the accomplished work to ensure alignment with the project
scope (Rigorous Quality Control)
 The quality control is what the company fails to meet. Because of the existing pressure
on making products and releasing it on time, project managers tend to loosen their
standards in checking the quality of the products thus; such products that are defective are
being included and sold to the public. Samsung should take an action regarding their
process of quality control because this process is important for it ensures the products’
safety.

VI. Strategic Implementation Plans and Strategies

Exhibit I
Alternative Timeframe
Advertise the company through television 1 year
commercials and mobile application ads
Work collaboratively with United States 6 months
Consumer Product Safety Commission’s
rules and regulations
Project Managers to inspect the 1 year
accomplished work to ensure alignment with
the project scope (Rigorous Quality Control)
The Exhibit I above shows the three (3) best alternatives chosen from the six (6)
alternatives listed on the Strategy formulation and Alternatives section. The criteria upon
choosing these three are feasibility and relevance to the central problem, and the
alternatives should be timely and practicable.

Exhibit II
Best Alternative:
Project Managers to inspect the accomplished work to ensure alignment with the project
scope (Rigorous Quality Control)
Activity/Task Timeframe
Decide which specific standards the product 1 month
must meet
Quality Control Actions must be determined 1 month
(Consider: the percent of units to be tested
from each lot)
Real-world data must be collected (Example: 3 months
The percentage of units that failed)
Report the results in management personnel 1 month
Corrective Action must be taken (Defective 4 months
units must be repaired or rejected if poor
services repeated at no charge until
costumer will be satisfied)
Plan devised to improve the production or 2 months
service process and then put into action
Total 12 months/ 1 year
Consider: Quality Control must be ongoing
The Exhibit II above shows the best alternative selected from the three (3)
alternatives shown at Table 1 that will best address the central problem. In addition, the
table shows the eight (8) specific tasks and their timeframe in terms of the time it takes for
them to be implemented.
 1 20 11 31 20 8 28 17 5

Decide which specific standards the product must m...

Quality Control Actions must be determ...

Real-world data must be colle... Start Date

Duration
Report the results in management perso...

Corrective Action must be t...

Plan devised to improve the production or service process and then put into ac...

Exhibit III
The Exhibit III shows a Gantt chart representing the timeline of the activities of the chosen
best alternative.

Note: The dates used are only assumptions. The company can implement the activities/
tasks anytime of their convenience.
 VII. Conclusion

Samsung Electronics Co., Ltd. being one of the top companies of their industry has
established a good facade and image in the public for producing high-quality, trendy, and
certainly innovative products at a reasonable price. Their good reputation has been known
for long because of their many years of service and negotiation. Because every business
faces its own problem, Samsung had been struggling to solve their unprecedented
reputational crisis: The Samsung Galaxy Note 7 Debacle. The issue was about the products’
failure of safeness: overheating and catching fire. This caused the Samsung Electronics Co.,
Ltd. to stop and cease all the production and sales of Galaxy Note 7. Therefore, the
Samsung Electronics Co., Ltd, should make the most necessary move to gain the lost trust of
its customers. By then, they will be able to get their prestige name on top.

The central problem of the company is on how to gain back the trust of its buyers and
customers which has been lost because of the unfortunate event. There were two (2) minor
problems found. If central problem will be solved, the two existing minor problems will be
solved also.

After the three (3) situational analyses, the team was able to find six (6) alternative
courses of action and in which three (3) of them were chosen to be considered. Out of the
remaining three, the best alternative was yielded. The best action to take is to have Project
Managers to inspect the accomplished work to ensure alignment with the project scope
(Rigorous Quality Control).

This alternative is trusted to be the most feasible and relevant to the central problem.
The timeframe of the project implementation was also considered and it was found out that
it will take approximately a year to do the plan of eight (8) activities. With a genuine trust
and confidence to the consultants’ recommendations, Google Electronics Co., Ltd. will
surely bring back the eminence and honor they once had.
 VIII. Recommendation

The consultants recommend the remaining five (5) alternatives tackled above and for
which they strongly recommend the fourth (4 th) alternative and that is for the Samsung
Electronics Co., Ltd. to work collaboratively with United States Consumer Product Safety
Commission’s rules and regulations. The consultants believe that if the best alternative
chosen is not effective enough to solve the problem, then the fourth alternative must be
taken into action by the company.

IX. References
 https://www.businessnewsdaily.com/5446-porters-five-forces.html
 http://www.businessinsider.com/samsung-corporate-strategy-2013-3
 https://www.cnet.com/news/galaxy-note-8-samsung-hopes-to-
smother-note-7-battery-debacle/
 https://www.statista.com/statistics/271496/global-market-share-held-
by-smartphone-vendors-since-4th-quarter-2009/