Samsung Organisational Structure

Samsung was named by Lee Byung-chul, founder of Samsung Electronics when he established the Samsung Trading Company on March, 1938. Sam in Samsung is defined as strong, abundant and big; while “Sung” means high and bright. (Chnag, J. H., 2010) Interestingly, Samsung’s origin was not involving electronics. Initially, Chairman Lee set up a trade export company in Korea that sold fish, vegetables, and fruit to China. Start from 1958, Samsung began to expand into other industries such as media, financial, ship building and chemicals and Samsung Electronics was established under subsidiary of Samsung Group in 1969. (“Samsung History”) The company then expanded to semiconductor business and became the first chip-making facilities in the country during that time. Samsung Electronics focused on four areas which are digital media, semiconductor, telecommunication network and LCD digital appliances. (“Wikipedia”, 2012) In 1993, the “lightest” mobile phone of its era was developed. (“Samsung History”) Finally, it surpassed Sony to become world’s twentieth-largest and most popular brand. Samsung was the world’s largest manufacturer of OLEDs with 40% market share worlds wide and 90% share of global AMOLED market. More than 600 American patents and 2800 international patent are owned by Samsung Electronics in 2006 that makes it as the largest owner of AMOLED technology patents. The company also became the second-largest mobile-phone maker beating Motorola in 2007 for the first time. In 2009, it became world’s largest technology company overtaking Hewlett-Packard measure by sales. In 2010, it produces 30 nm-class DRAMs and 20 nm-class NAND flashes which were the first time in the world. At 2011, it is the world’s largest mobile phone maker and second-largest semiconductor chip maker. Samsung Electronics became the largest smartphone vendor due to sales of Galaxy SII and Galaxy Note devices. (“Wikipedia”, 2012)
Contents:
Mechanistic organization is a bureaucratic organization which adheres to the chain-of-command principle, with each person controlled and supervised by one superior. The structure of this organization is taller than organic organization. Also, many rules are developed and the decision making process is centralized. Each employee has fixed duties and the communication channels are formalized in such rigid hierarchical relationship.
Samsung Electronics is a type of mechanistic organizational structure because it has rigid hierarchical relationships.
Figure 1 and figure 2 show the chain of command in the company, which extending from upper organizational levels to lower level that clarifies who reports to whom. Figure 2 shows that there are lots of departments under the control of Chief Executive Office. Employees have their fixed duties in respective department. For instance, employees who are specialized in producing chips are working under chips manufacturer whereas employees who are highly skilled in producing mobile phones are working under mobile phone manufacturer. (Robbins, DeCenzo, and Coulter, 2012) These two figures also clearly show that Samsung Electronics is composed of tall organizational structure. All of the powerful authorities are held by the top management of the company which is Lee Kun Hee , the chairman of the Samsung Electronics with the help of the Office of Secretaries and sometimes referred to as “emperor management” or “dictatorship”. (Chang, S. J., 2008) Office of Secretaries helped chairman to control and direct the individual affiliates. Their main function are finance and accounting, auditing, planning, public relations, and human resource management, including the hiring and firing of all executives within the organization. Even the important strategic decision and sizable investment decision have to be examined by the office first. The percentage of decision made by the chairman is 20%; by Office of Secretaries is 40%; by affiliate presidents is 40%.(Chang, S. J., 2008)In other word, all of the important decisions are decided by the chairman, Office of Secretaries and affiliate presidents. As such, Samsung Electronics implement centralized decision authority.

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The communication channel of Samsung Electronics is formalized. Formalization describes how an organization’s jobs are standardized and the extent to which employee behavior is guided by rules and procedures. This element makes the process of succession routine and regular. Thus, there will be minimal disturbance to an organization function if there are people being replaced. In Samsung, the personnel function is under CFO while CFO reports to and receives orders from CEO. (Chang, S. J., 2008) For instance, when the company needs to make an investment, the proposal is written by the related business unit. Then, the proposal is reviewed by the finance department, which is then passed to finance team of Office of Secretaries after CFO reports the proposal to CEO. Finally, the proposal is approved by Office of Secretaries and Chairman. (Chang, S. J., 2008)
Many rules could be found in Samsung Electronics and this match with the characteristic of mechanistic organization. According to Samsung Electronics Global Code of Conduct, all the employees should follow the codes and the business principles to comply with laws and ethical practices as well as to express their commitment to social responsibility. (Samsung Electronics Co., Ltd. [SECL], 2006) The global code of conduct is served as behavioral guidelines and judgmental standards for the employees, which encompass the elimination of nationality or gender discrimination, transparent disclosure of business information, customer information protection and partner collaboration. For example, according to principle 2-2-2 from the Global Code of Conduct, the company will ensure that any proprietary information acquired through its business activities shall be recorded and safely kept and managed as intellectual property. In 2011, zero-tolerance principle was declared in all cases of misconduct and unethical business on “Law Day”. All employees and executives have to sign a pledge of compliance to agree of taking responsibility for any violation or misconduct. (Soung, S. S., Eui, H. J., Dae, S. P., Jin, Y. L. & Yun, J. S., 2012)
Planning:
Planning includes defining goals, establishing strategy, and developing plans to coordinate activities. In Samsung, their vision is set by the top management that is “Inspire the world, create the future”. This vision 2020 shows that their commitment in inspiring the world by improving their three key strengths which are “New Technology”, “Innovative Products”, “Creative Solutions” and also promotes Samsung Electronics’ core network which are industry, partners and employees with the effort to contribute a better world and with lot of experiences for all. Besides, Samsung also aims to achieve one of the top five brands in the world by 2020 and established three strategic approaches in management which are creativity, partnership and talent. (“Vision”, 1995-2012)
Leading:
Leading includes motivating employees, directing the activities of others, selecting the most effective communication channel, and resolving conflicts. Office of Secretaries takes the leading role in Samsung as they carry out coordination whenever there are conflicts happen. (Chnag, J. H., 2010) However, the synergies may be created via involuntary cooperation or fiat as the business units have to accept its resolution. (Chang, S. J., 2008) Also, the Secretarial Offices spread company philosophy and improve business coordination and information, which are shared among affiliates. (Chnag, J. H., 2010) The employees of this company are motivated by the philosophy of living by strong values is the key to good business. Those values encompass people, excellence, change, integrity and co-prosperity, together with the Samsung code of conduct are the radical for them to make every decision. (“About Samsung”, 1995-2012)
Organizing:
Organizing includes determining what tasks are to be done, who is to do them, how the tasks are to be grouped, who reports to whom, and who will make the decisions. Samsung Electronics has a strong business division structure that is managed independently by business unit managers. The company is divided into five sectors, which are Digital Media, Semiconductors, Telecommunications, Digital Appliances and LCDs. Within these sectors, there are 13 Global Business Managers (GBM) who responsible to organize the firm along major product divisions in terms of personnel, sales, and production within their respective divisions. (Chang, S. J., 2008) Employees are divided according to their specialize and skills into different tasks to increase work output. (Robbins et al., 2012) Any proposal of investment that is written by GBM should be reviewed by the finance department, followed by CFO. Then, CFO reports to CEO. Finally, the proposal is approved by Office of Secretaries and Chairman. (Chang, S. J., 2008)
Controlling:
Controlling includes monitoring performance, comparing it with goals, and correcting any significant deviations. In Samsung, the overall performances of BOD, CEO and employees are controlled by Audit Committee, which has a broad range of audit right from top to bottom. (“Ethics Management”, 1995-2008) For example, they have the right to inquire about financial reports from the BOD and employees at any time, the right to claim to suspend illegal activity of the company BOD member, the right to call a general shareholders’ meeting and so on. There are also separate audit teams that under the direct control of CEO with the responsible of encouraging employees to adhere to the practice of management by ethics. (“Ethics Management”, 1995-2008)
A) What seem to be the most important things leading to the success of the Samsung
Electronics?
To be successful, Samsung Electronics is going global. Samsung Electronics is pushing the Galaxy S smartphone to challenge Apple Inc.’s iPhone and narrow the gap with leader Nokia Oyj. It helped Samsung Electronics quadruple annual revenue to139 trillion won ($ 116 million) in the 10 years that ended in 2009. Samsung Electronics shares rose 10-fold during that time. (Lee, Y., 2010)
Also, Samsung Electronics has the good planning skills as they able to see the business opportunity in the industry and set the particular goals to pursue. They able to spot the areas, which are small but growing fast. (“Samsung”, 2011) Such areas that spotted by Samsung are capital-intensive. Thus, it is difficult for their rivals to keep up. First, Samsung will tiptoe into the technology in the industry to get familiar with it. Then, they will wait for the suitable moment that the ‘window of opportunity’ opens. For example, in 2001, Samsung catch the opportunity of rapid growth of the liquid-crystal displays that cause the dive of the price. They turned the liquid-crystal displays into televisions. (“Samsung”, 2011)
Samsung Electronics is innovative in software and David Yoffie, a professor at Havard Business School in Boston said “Leading radical innovation in the technology world today requires strength in software, not just hardware.” (Lee, Y., 2010). Samsung Electronics has grown by studying their rivals to improve manufacturing and design. Samsung electronics also hired a group of Japanese Design Consultant to evaluate Samsung designers. Besides, their experienced designers are sent to work abroad in diverse industries. By doing this, Samsung design strategy could involve several initiatives and they began to implement a global brand communication strategy. As new technologies are being constantly introduced to the market, Samsung engineers strive to understand what customers need ahead of competitors and adjust their thinking to develop original and innovative products that will meet those needs as well as new technologies to lead the future market. Thus, the new markets had pioneered continuously by them. (Samsung Electronics: Success By Design, 2008)
B) What do you see as the major challenges facing by Samsung Electronics over the next
five years?
The major challenge that will be faced by Samsung Electronics over the next five years is how to build a stronger and better global brand. This is why the Samsung’s global marketing director need to assess in how to build the global brand reputation of the company further and upgrade the company’s worldwide brand image to compete with Apple brand which has dominated the market share especially in Western Europe. The challenge of Samsung’s marketing director is the branding strategies in global markets and the marketing team has to examine the organizational dynamics to develop a stronger global brand that recognized by worldwide.
Another challenge that will be faced by Samsung Electronics is the competition over the market share especially in smart phone. In this fast paced economic conditions, Samsung need to continue produce more and more of the smart phone with improved version and attractive design to meet with the rapid economic growth. The company needs to invest and introduce more of the new technology and incorporate the software and application into the new gadgets so that it will not lose out to another competitor. Innovation and creativity are important in this to attract the gadget lover and if the company fails to come out with a new and appealing product, they will be overcome by another competitor such as Apple, HTC or Nokia.
Findings:
Samsung electronics have a centralized structure making the top management own the authorities and powers over all the important decisions. This make the decision making process fast and swift and can carry out quickly. In this way, organization is more efficient as implementation of any plans, ideas or policies can be carried out quickly without any delay and this is very important especially to deal with the fast paced economic and competition in market. This is supported by a study in journal by Choong Y.Lee. (Choong, Y. L., 2012) However, overly centralization in organization is also not good for the company. All of the important decisions are made by the top management while the middle and first line management cannot voice out their opinions but to follow the order of the top. If the decision made by the top management is incorrect, it can affect the company business and thus lowering the company profits. Therefore, a good leadership is important to lead the company. This is supported by the professor Chang Sea-Jin which stated there is no guarantee that good leader will sustain and even they can make mistake as well in his book review. (Chang, S. J., 2008)
Samsung Electronics are having hierarchical management structure which reflects the importance of seniority in the Korean culture. The hierarchical structure brings synergy when things are going well but could potentially be disastrous if one part of the process goes away from planned. (Kim, J.C., 2012) This is supported by Professor John Kotter in his article “Havard Business Review” that hierarchical organizational are often inflexible. Hierarchical organization work in standardized processes but does not useful in dynamic environments. They are slow to react to new opportunities, which often require transformative change. (Basu, C., 2012)
Also, according to researchers G.M. Stalker and T. Burns, mechanistic organizations use hierarchical top-down structures while organic organizations use more flexible structures and work best in fluid and unpredictable business climates. Organic structures depend on personal interactions rather than a formal chain of command that allow the organization to respond quickly and effectively to changing circumstances in ways that the hierarchical structure cannot. Samsung Electronics should make it business to understand such structure so that it can have the benefits of both. (Thompson, S., 2012)
Samsung Electronics has many rules and regulations that are governed by the top managers of the organization. When the top managers are unable to control the lower-level activities, they themselves will substitute the rules and regulations. Since they have the authority to hire and fire the executives and employees in the organization anytime, the employees have to accept the tasks given by the managers and follow whatever they said. Employees are constantly observed and monitored by top managers during their working period to ensure that they are not making any mistakes or violating the rules. Consequently, fatigue are accumulated when employees are working under such great pressures that known as organizational fatigue.
Moreover, employees of Samsung Electronics have to comply the Global Code of Conduct, which consists of a number of principles. (SECL, 2006) For instance, under principle 1-4-1, it stated that ’employees shall not attribute their personal political opinions and conduct to the company, or cause such opinions or conduct to be attributed to the company’. Besides, principle 2-4-3 showed that ‘the company will not allow its officers and employees, while in office, to act as number of boards of company with conflicts of interest or participate in competitive business activities.’ (SECL, 2006) There are still a large amount of rules and principles that the employees should comply with and that can be referred from the Global Code of Conduct, 2006.
The management of Samsung Electronics is known as ‘fear-based management’. The employees have to be loyal to their company in order to stay in the company. However, organizational fatigue will bring negative effects to the company. If the employees or executives are dismissed against their wills for any reasons by the top managers such as the chairman or the Office of Secretaries, their anger will lead to their betrayal and loss their loyalty. (Chang, S. J., 2008) There were several cases on which the employees of Samsung Electronics tried to sell the proprietary technologies to Samsung’s competitors and to other companies. (Chang, S. J., 2008)
Conclusion:
In a nutshell, Samsung Electronics has a mechanistic organizational structure as it has rigid hierarchical relationships and tall organizational structure. In the company, each employee has fixed duties and they have to follow lots of rules. Also, the decision making process is centralized and the communication channel is formalized. In Samsung, the goals or visions are planned by the top management. Office of Secretaries takes the leading role as they responsible to solve the conflicts as well as help the chairman to control and direct the individual affiliates. Besides, they also spread the company philosophy to motivate the employees. Samsung Electronics is divided into Digital Media, Semiconductors, Telecommunications, Digital Appliances and LCDs, which are managed by business unit managers. The overall performances of Samsung Electronics organization are controlled by Audit Committee.
In this assignment, we have learned the characteristics of the two types of organizational structures, which are mechanistic organization and organic organization that concern the work specialization, departmentalization, authority and responsible, centralization and decentralization, span of control and formalization. After analyzing these factors and searching all the related information of Samsung Electronics, we could conclude that this company is a mechanistic organization. Thus, our analyzing ability could be strengthen when carry out this assignment. Besides, we have a better understanding to recognize and differentiate these two organization models. Furthermore, more knowledge about this company could be gained during the research.