Samsung Has Got It Right

I was captivated by a recent article in the New York Times Sunday Business section with the headline: “Samsung: Uneasy in the Lead” (15 December 2013).   The lengthy article goes on to discuss how Samsung (KRX) has emerged as a leader and why this has been an uncomfortable position for it to find itself in.

Samsung’s chairman is 71-year-old Lee Kun-hee and he is responsible for creating this $288 billion giant that according to the Times is “among the most profitable in the world.”  He transformed Samsung from maker of cheap household appliances to into a global powerhouse conglomerate with an enormous electronics business.

A pivotal product in the article is Samsung’s smartphones.  Last year Samsung shipped 215 million units—40% of the world’s market—and this year plans to ship 350 million units.

So amidst such success, why this uneasiness?  Most companies would bask in the glory of worldwide domination of such a lucrative product category.  But not Samsung.  CEO Lee sent a message to his 470,000 employees: “You must do better.”

Mr. Lee last June sent a company-wide e-mail:  “As we move forward, we must resist complacency and thoughts of being good enough, as these will prevent us from becoming better.”  In another correspondence to management, Mr.  Lee told them they “must start anew to reach loftier goals and ideals.”

Samsung and Mr. Lee are obviously quite mindful of the perils of leadership.  Smartphones have been the major driver of Samsung’s growth, and it doesn’t take a genius to see the life cycle of other former leaders in the category that have reached the summit and then fallen off the cliff such as Nokia (NOK), Blackberry (BBRY), Motorola (MSI), and Ericsson (ERIC).

Moreover, China threatens to enter this market with smartphones costing hundreds less than Samsung’s Galaxy S4 or Apple’s iPhones.  Some of these Chinese brands have export ambitions, and one company, Xiaomi, recently brought on board a top Google executive, Hugo Barra, to lead its international expansion.

So life at the top of the smartphone world is uneasy for Samsung.  Mr. Lee is to be congratulated for his perspective.  It seems much easier to be an underdog striving to reach the summit.  Once you reach the summit, the challenge is to stay there.  I have always maintained that once you develop a breakthrough innovation, you should spend your research and development resources to try to make your own breakthrough product obsolete.  You should do it before your competitors.  Resting on your laurels and getting by on the strength of your past accomplishments is an open invitation for your competitors to usurp your position.  Just ask Nokia or Blackberry.