Case Overview

Combusting smartphones with a recall, replacement phones that still combust, lack of communication to patrons, and an end to the Samsung Galaxy Note 7 for good. Are these indicators that Dr. Oh-Hyun Kwon, CEO of Samsung Electronics Company has pushed the limits of leading device solutions too far? Samsung has been an innovative company seeking to expand technologies in the electric car industry and autonomous driving technology, while also funding development and research into “smart machines,” and artificial intelligence (AI). Perhaps with the focus on future development, Samsung was hasty in putting out a device in which the interface overloaded the battery causing it to burst into flame. This case is one in which the employees were the scapegoat, indicating that leadership did not have the responsibility of leading or setting examples. Kwon expected the employees to figure the situation out. In turn, the general consumer is still confused on what to do with their Galaxy Note 7 and it is uncertain if they will see refunds or replacements for the defective product outside of South Korea.

Context

Kwon earned a PhD in electrical engineering from Stanford University. He joined Samsung in 1985 and “led the development of the industry’s first 64Mb DRAM” (Boardroom Insiders Inc., 2016) in 1992, making him known for the advancement in the semiconductor (Device Solutions) industry. Kwon later held titles of President, then Vice Chairman and Head of Device Solutions before becoming the CEO of Samsung Electronics Co. in 2012. According to Boardroom Insiders Inc., Kwon stated that escalated competition in smartphones, televisions, and memory chips in 2016 are creating innovative business models which “are weakening traditional hardware values and workers must adapt to maintain leadership in an industry changing at its fastest pace ever…We have to compete in a new way that we’ve never experienced in the past” (2016). He recognized that software and platforms are the area in which competence needs to be heightened in order to stay competitive in the industry. This is exactly the area in which Samsung failed with the Galaxy Note 7.

The Galaxy Note was recalled in 10 countries, including the United States, after discovering the batteries of some of its devices caught on fire or exploded” (Peterson, 2016). The initial investigation found “faulty rechargeable lithium batteries from one of its suppliers were the cause of the fires” (NZ Newswire, 2016) although upon exchange for a new battery, customers were complaining of the same issue. Samsung had switched to a different battery supplier and updated the software but these changes did not appear to correct the issue. One of the replacement phones had caught fire “aboard a passenger jet” (Riley, 2016) prompting the US Department of Transportation to ban the use of Galaxy Note 7s on all flights in September 2016. Passengers had to “disable all applications that could inadvertently activate the phone, like an alarm clock; protect the power switch to prevent the phone from being unintentionally turned on; and keep the device in a carry-on baggage or on their person, not in a checked bag” (AAP General News Wire, 2016). Airlines are now asking that you turn the phones over to flight attendants during the flight.

This was a huge blow to the profits and image of Samsung. Many users (estimated at least 50%) have already switched to using their main competitor Apple’s iPhone 7 and 7 Plus. Greenpeace is concerned about the environmental impact of disposing over 4 million phones that individually contain small amounts of metal elements. “Samsung told customers in South Korea… that they will be able to exchange their Note 7 for another smartphone. It was not immediately clear what customers in other markets could expect in terms of a replacement or compensation” (Riley, 2016). Samsung was criticized for its response. Customers in countries outside of South Korea were confused whether their phones were safe, if they should expect a refund, or if they should exchange them.

Kwon stated that “the company should learn from the Galaxy Note 7 crisis and improve itself… [and] told Samsung employees to look back at the crisis and ask whether they had become complacent in their work” (Chatham: Newstex, 2016). The “company executives issued a slew of apologies” (Riley, 2016) and decided to permanently stop production of the Galaxy Note 7 after failing to correct the battery and software issues.

Theory Inflected Analysis of the Case at Hand

In their case study reviewing the Enron crisis, authors Matthew W. Seeger and Robert R. Ulmer examine corporate responsibility and describe the three kinds of communication-based responsibilities for leaders: (a) communicating appropriate values, (b) maintaining adequate communication to be informed of organizational operations and (c) maintaining openness to signs of problems (59).

Leaders are often visible and publicized and followers take cues from leaders (Seeger and Ulmer, 63). Rather than acknowledging that the company culture and his drive for success were part of the problem, Kwon pointed blame at his employees for slacking by stating that the latest crisis “…made us look back at ourselves and think maybe we have grown complacent,” in a letter sent to employees in November 2016. In the same statement, Kwon pushed for Samsung to have a crisis communication plan ready for times like these. Leadership functions at the apex of the organization’s information system (Seeger and Ulmer 65). If this were the case at Samsung, shouldn’t that have been a directive of Kwon’s long before a crisis plan was needed? Lastly, organizations that ignore messages that signal problems are more prone to the onset of crisis (Seeger and Ulmer 66). Under Kwon’s leadership, Samsung went back and forth on what the real issue was with the Note 7. First it was a bad batch of batteries, then it wasn’t; then it was a manufacturing flaw, then it wasn’t. The recall statements were places on the company’s website but not in a easy to find location. Rather they were buried in the header with unassuming language.

If you were keeping score at home, you can see how Samsung failed to fully meet any of the three responsibilities listed, let alone a single one.

Student Analysis of the Outcome.

Samsung failed to effectively manage the Note 7 crisis and as a result has lost market share and consumer confidence. Corporate culture takes shape based on leadership and under Kwon’s leadership, Samsung’s culture has been described as “militaristic.” This top-down mentality is detrimental to crisis management because rather than taking ownership of the problem and working as a team to move forward, Kwon chose to point fingers and push his team to finish line while leaving quality control in the tail lights. This mentality not only affected the product that was manufactured but the communication that followed as well.

In an article for Forbes.com, contributing author Melissa Agness wrote:

While it’s true that timely and informative communication is one of the secrets to successful crisis management in this day and age, it’s also equally important for those communications to be factual. Taking too long to communicate in a crisis will result in criticism, lack of control over messaging and can ultimately hurt your organization’s reputation and bottom line. But on the other hand, speaking too quickly can have equally damaging repercussions – a harsh lesson that Samsung is in the process of learning.

Agness addresses a  common debate of quality over quantity in communication. Is the obligation to answer quickly, even if you don’t have answers, or is it to provide quality information? Seeger and Ulmer state that responsibility is a fundamental concept in organizational ethics, meaning individuals and groups have morally based obligations to others (60). Samsung began offering exchanges for the Note 7s because they needed to do something but they may have been better of waiting until they knew what the true issue was before offering a solution. Maintaining openness to the problems, and providing more adequate information on Samsung’s findings as they occurred would have been beneficial coming from leadership.

In a day and age where consumers take to Twitter to lodge complaints and expect quick responses, Samsung stumbled in its response to the battery crisis. The rules of crisis communication are easy, in theory: respond quickly and honestly; be accessible; have prepared statements; be able to predict the future. The corporate culture at Samsung did not foster an environment where these rules could be followed and as a result, the Note 7 issue went from a quick recall to a worldwide debacle.

Bibliography (APA format)

Dr. oh-hyun kwon – vice chairman and CEO, samsung electronics company limited (2016). . San Francisco: Boardroom Insiders, Inc. Retrieved from http://libproxy.umflint.edu:2048/login?url=http://search.proquest.com.libproxy.umflint.edu/docview/1808805029?accountid=14584

Peterson, A. (2016). Samsung recalls galaxy note 7 after battery explosions and fires. Washington: WP Company LLC d/b/a The Washington Post. Retrieved from http://libproxy.umflint.edu:2048/login?url=http://search.proquest.com.libproxy.umflint.edu/docview/1816288436?accountid=14584

Samsung calls for urgent end to note 7 use. (2016, Sep 11). NZ Newswire Retrieved from http://libproxy.umflint.edu:2048/login?url=http://search.proquest.com.libproxy.umflint.edu/docview/1818097034?accountid=14584

US: US fed bans galaxy note 7 use on planes. (2016, Sep 16). AAP General News Wire Retrieved from http://libproxy.umflint.edu:2048/login?url=http://search.proquest.com.libproxy.umflint.edu/docview/1819565559?accountid=14584

ValueWalk: Galaxy note 7: How is samsung going to dispose of 4.3 million phones? (2016). . Chatham: Newstex. Retrieved from http://libproxy.umflint.edu:2048/login?url=http://search.proquest.com.libproxy.umflint.edu/docview/1835762429?accountid=14584

Riley, C., & Kwon, K. J. (2016, Oct 11). Samsung kills off galaxy note 7 smartphone. CNN Wire Service Retrieved from http://libproxy.umflint.edu:2048/login?url=http://search.proquest.com.libproxy.umflint.edu/docview/1827600478?accountid=14584

Seeger, Matthew W., and Robert R. Ulmer. “Explaining Enron: Communication and Responsible Leadership.” Management Communication Quarterly 17.1 (2003): 58-84.