When the smartphones first came up, they only targeted business consumers. However, Apple launched its iPhone and targeted the average consumer. Since then, many smartphones have emerged, especially the phones running on Android, such as HTC, and Samsung. At the same time, competition in the smartphones market has grown increasingly intense. In all this, strategy has been a major drive. For example, while Apple focuses more on value, Samsung has focused more volumes of sales. Samsung’s strategy has promoted it to take a differentiated approach (in both product development and pricing). This strategy has worked in favor of Samsung, seeing it become the world’s leading seller of smartphones. This success has been the result of Samsung’s strategic management. However, Samsung must also now look to become innovative. Innovation is the key to competitive advantage in an increasingly fast-changing technology in the world today, thereby heightening consumer demand for new and better releases.
Samsung in the Smartphone Industry: Executive Report on Integrated Approach to Strategic Management
Different businesses vary in how they formulate and direct their strategic management processes and activities. This is because these businesses may differ in what industries or sectors they deal in; size and financial base; mission, as well as goals and objectives, among others. Besides, strategic management essentially involves making decisions on management on the basis of an organization’s internal and external environments. In other words, a business considers its strengths and weaknesses (including human capital, financial base, organizational culture, etc. in relation to market situation (trends and competition, among others), as well as macro-environmental factors (such as politics, technology, environment, etc.), among others. In other words, while there are general principles or considerations when formulating elements of strategic management, how these processes are implemented vary from organization to organization because of the differences in internal environments and, therefore, how the external environments impact on them (Hille & Jones, 2008).
Samsung has since surpassed Apple as the leading smartphone seller in the world (Olson, 2013). However, the company lags far behind Apple when it comes to innovation. It is important for Samsung to transform its culture from “innovation followers to innovation leaders” (O’Brien, 2013).
This report seeks to make recommendations for Samsung in the Smartphone market. In this regard, this report conducts an analysis of Samsung’s internal and external environments and shows how these influence the suggested strategic analysis.
Samsung’s Position in the Smartphone Market
- Corporate Mission, Short/Long-Term Objectives, and Strategy
Samsung’s mission in its pursuit of its vision (currently set for 2020) is to ‘Inspire the world, create the future’. In this regard, the company aims to inspire communities through the utilization of its “key strengths, creative solutions, innovative products and new technology, as they continue to promote its new values for the company core networks” (Samsung, 2014, p.1).
Figure 1: Samsung’s Core Strengths & Core Networks
Source: Samsung (2013)
One of Samsung’s main objectives aims towards attaining this mission to reach the revenue base of $400 billion and become one of the top five brands in the world by 2020. Samsung aims to use three key approaches of creativity, partnership and talent to attain these goals and objectives. Ultimately, Samsung is dedicated to becoming the “creative leader in new markets and wants to become a No.1 business going forward” (Samsung, 2014, p.1).
However, upon scrutiny, it is not so obvious that ‘all’ these goals are attainable for Samsung. Of course, it might be possible for Samsung to reach its revenue goals. However, whether Samsung is innovative enough to lead the industry on newer creative products remains questionable (See below for better analysis).
Internal and External Analysis: SWOT Analysis
Samsung has a good base upon which to base its strategy; that is, a strong market position. Samsung is selling more phones than its competitors. At present, Samsung leads the smartphone market in sales.
This partly has to do with the fact that most of Samsung’s products run on the same android operating system (OS). iPhone, on the other hand, runs on a different OS. In other words, while iPhone has a restricted its market to a handful, Samsung has at its disposal a limitless market size. Also, this has to do with that Samsung devices run on an open system, unlike iPhone’s closed system. Open systems allow users the freedom to copy material (including music and videos). On other hand, closed systems restrict the source of such material. This has had the same effect as the OS issue. Apple is said to have a strong App store. However, because of the closed-system feature of its unique OS, the smartphones lack customizability, which Samsung enjoys with its open-system OS.
Another one of Samsung’s biggest strengths is that it is the main manufacturer of application processors and other products used in the production of phones. For Samsung, other companies (the competitors) like Apple buy these materials. In other words, Samsung does not have to buy these products because they are produced in-house. This means that Samsung enjoys a comparatively lower cost of production.
This also translates to lower prices for Samsung smartphones, which is another strength and yet another factor that has contributed to Samsung’s higher sales.
Last but not least, Samsung has a successful marketing mix strategy that has made it possible for it to enter newer markets.
Today, it is impossible to speak of the Smartphone market without ever referring to Samsung. As already noted above, Samsung tops the world in terms of Smartphone sales. However, the company still lags behind on innovation. In fact, Samsung has been known as a copy-cat, waiting for others (pioneers) to innovate and go through the troubles that come with promoting new products and only then rushing to cash in. Damaging evidence is the patent case that it lost to Apple (Eadicicco, 2013).
Of course, Samsung’s Galaxy S series has been the most hailed as innovative, and was listed as one of the best smartphones in the market (Eadicicco 2013). However, this should not fool Samsung because the series has not necessarily offered anything new to the consumers. It has only improved what has been there: feature-rich camera, micro SD card; gesture support; among others.
Samsung has not been able to come up with its own unique OS. Sure, the shared android OS has offered many advantages, the biggest disadvantage (weakness) is that Samsung smartphones lack distinctions from other android smartphones. This means that Samsung smartphones are easily substitutable (threat). It makes easy it for other smartphones running on android OS to take over.
The smartphone market is increasingly growing. The emerging markets are, for example, increasingly growing in demand for smartphones- and their devices for that matter. Samsung’s in-house differentiation (that is, Samsung’s wide range of smartphones) means the company is better placed to tap into and exploit these markets.
Samsung, as already noted above, also has the advantage of being the sole main manufacturer of applicators processors used to make smartphones and tablets. This gives Samsung a great opportunity to build on its competitive advantage. The increased demand for smartphone places emphasis on high quality products, which will equally require high-quality application processors. Samsung can use its strategic position to its advantage.
The increasingly growing mobile advertising industry is also another important opportunity for Samsung. This can provide opportunity for Samsung’s marketing ambitions.
Like all other organizations, Samsung also faces its own share of threats- that is, unless it re-strategizes quickly enough.
One obvious threat is competition. At the moment, iPhone is the biggest competition to Samsung smartphones. Most importantly, Apple seems to be changing tact toward producing budget phones as well as it has already done with iPhone 5C. This means that Apple is looking to steal into some of Samsung’s known markets. On the other hand, Samsung does seem without have the capacity to steal into Apple’s traditional markets. In other words, Samsung is at a bigger disadvantage than Apple.
In the same respect, there is room for substitutes to tap into. At the moment, there is indeed a market somewhere between Apples OS and Samsung (or everyone else’s) android OS. That is, consumers may be averse to Apple’s OS for its closed system. But they may also be tired of the ‘common’ android OS. In other words, some may be looking for a different open-system OS from android. This is where newer OSs like Nokia’s window OS has come in. Of course, window OS is nothing new. However, it offers a considerable alternative to the two most-known ones.
Last but not least, Samsung also faces the danger of lagging behind in a context of fast-changing technology. Companies are increasingly under pressure to release innovative (new and better) products faster. Unfortunately, Samsung still lags behind in terms of innovation.
Strategic management for Samsung is to utilize its strengths and take advantage of the opportunities in a way that renders its weaknesses irrelevant and cancels the threats.
The analysis above points to the importance of innovation in relation to new OS, release of new and better products. In other words, as pointed out in mission statement, Samsung should focus on leading the pack in creating innovative products.
Hill and Jones (2008) speak of being ‘first movers’, which refers to companies that develop revolutionary new products. Such products satisfy unmet consumer needs. Indeed, there are always imitators. Samsung has very much been this for the most part, particularly in the smartphone market. However, first movers can be the biggest gainers if they effectively “capitalize on and reap substantial advantages” that come with being a first-mover. Hill and Jones (2008) go further to list the main five advantages that first-movers may enjoy. The opportunity to exploit network effects and positive feedback loops, establishment of significant brad loyalty, ability to ramp up sales volume before rivals enter the fray, which presents advantages associated with economies of scale and learning effects. The ability to create for its customers switching costs, which make it hard for competitors to enter the market; and the ability to accumulate valuable knowledge related to the new product (such as customer needs, product technology; distribution channels and process technology, among others).
In other words, while Samsung has managed to be where it is today by generally being an ‘innovation follower’, leading by innovation means that Samsung will be even better-placed to achieve the 2020 revenues goals it has set itself.
Unfortunately, this is better said than done. Having decided what should be done, the next important question is how to do what should be done; that is, implementation.
Hill and Jones (2008) discuss in detail what the ideal strategic management should entail, what they call an ‘integrated approach’. The integrated approach is very much like holistic management. The two do not necessarily provide a distinct definition of this integrated approach. However, by inference (based on the issues covered), an integrated approach takes into account various factors that may impact in a company’s business, both within the company (internal operating environment) and outside (external competitive environment). In other words, even as a company looks toward innovation, these innovations must be informed and supported by accurate assessment of the mentioned factors (internal and external environment). Figure 2 below summarizes what an integrated approach to strategic management entails.
Figure 2: Integrated Strategic Management Approach
Source: Hill and Jones (2008)
Toward innovation, it is important to invest in research and development (R&D). This will give the company the ability to control its destiny. Otherwise, its plans and strategies will not be very much in its hands. Already, Samsung’s Galaxy S4, for example, has not enjoyed the anticipated sales as it was only a modest improvement of Galaxy S3. This came as a big disappointment to consumers. Moreover, the company failed to gain more market share in 2013, which saw the company record a year-over-year fall in profits for the first time since 2011 (Covert, 2014).
At the close of December 2011, Samsung announced it would spend $41 billion in R&D to solidify its dominance of key businesses (Wunker, 2012). The company has since become the highest spender in R&D globally (Nisen, 2014) but this is only generally. However, the company has not forgotten its smartphone goals. For example, in 2011, the company announced plans to invest 10 trillion won (an equivalent of $9.3 billion) on R&D toward grounding its dominance and improving its market share. This saw the company controlling 100,542 patents globally by the end of 2010. Of these, 4, 551 were registered in the United States, coming only second to IBM (Brian, 2011). Indeed, Samsung seems to have set its sights in the right direction.
To utilize the advantages of first-mover advantages, they must also look to provide the market for its new products. In this regard, Samsung’s current marketing strategy can still play a big role on top of utilizing the smartphone advertising opportunities that are increasingly growing. Samsung currently utilizes a marketing mix strategy: product, promotion, price and place.
In terms of product, Samsung has focused on developing products that meet the needs of their target markets. Apple and Nokia focused on the high-end market in their smartphone operations. However, Samsung came and, with its Galaxy series, provided a smartphone for the low-end market.
The company used the same differentiation strategy it used in product development in pricing. It only makes sense to say that targeting the low-end market had to come with its own disadvantages. For instance, naturally, the low-end market consumers were not going to buy smartphones for the same prices as the high-end market consumers. Otherwise, they would have opted to ‘not buy’ at all. Therefore, by lowering the prices, Samsung acted sensibly and this has reaped big advantages. Samsung is generally believed to provide products at reasonable prices. What Samsung lost in product prices it gained in sale volumes. However, even Samsung handsets targeting high-end markets come relatively cheaper.
To maintain this low-cost strategy, Samsung has always sought out cost-cutting strategies. The plan is to combat the discount schemes of its competitors. While this may be hard to achieve, Samsung has always been of the opinion that brand perception takes time and patience is an important virtue. In the end, this strategy has not stopped Samsung from becoming one of the most recognizable brands in the smartphone market. Samsung conducted aggressive consumer research. This is about matching innovation with the needs of the consumers in the targeted market. This is about ‘place’, also known as context.
Samsung’s marketing has also included aggressive advertising (promotion) of its products with the aim of creating awareness, influencing consumer attitude and provoking their response. In its initial promotion drive, the company sought to communicate the presence of Samsung in the global marketplace and its dominance in the various markets. To help create brand awareness even further, the company used celebrity endorsements.
This paper was an analysis of Samsung’s strategic management. In this respect, this paper has showed that Samsung has a generally good standing in the smartphone market. The internal processes (such as differentiated product development and pricing strategies) have enabled Samsung to rise to prominence in the external environment. Moreover, the external environment so far works in Samsung’s favor, such as the increase rise of the emerging markets. However, not much known for innovation and in the face of rapid technological changes, Samsung must become an innovator if it is to achieve its 2020 goals. In this respect, while the company had invested in R&D, it must do more. Most importantly, these innovations must be strategies; that is, informed by all other factors, both in the internal and external environments. This is what Hill and Jones (2008) call ‘integrated approach’ to strategic management, the consideration of the interrelatedness of micro- and macro-environmental factors.
- Adopt an innovative strategy.
- Take into consideration internal and external environmental factors in its innovative strategy.
- Consider its key strategies in its innovative strategy. For example, R&D can significantly enable the company’s cost-cutting strategy.
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