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How Samsung organized for innovation
How Samsung Organized for Innovation Namshin
Cho
T H E COMINGERA IS characterized by global changes. The change in the environment is so turbulent that some identify it as the "age of paradox", 1 or "global paradox". 2 A primary source of the challenge comes from competitors and customers who act on a global basis. 3 The challenge of competing on a global basis is causing firms to behave in different ways from what had been established. For example, globalized competition requires increased size so the company can compete with other global companies. At the same time, globalized competition requires time-based decision-making which is made possible by decreasing the size of the firm. Another factor such as information technology makes it possible for a big company to communicate efficiently and at the same time for a small company to obtain information from outside networks. Snow and colleagues maintained that competitive pressures demand both efficiency and effectiveness. 4 Firms must adapt with increasing speed to market pressures and competitors' innovations, simultaneously controlling and even lowering product or service costs. Such environmental change is so turbulent and paradoxical that the efforts of the firms to compete are quite diverse. However, the studies in this area have not fully illuminated the innovative efforts that firms have made. Scholars have focused on t e a m s ) lateral structure, 6 learning organization, 7 alliances and networks, 8 and so on. If we borrow Perrow's expression about the organizational literature more than two decades a g o , 9 the recent studies again seem to be going "from topic to topic, without a clear view" of a coherent picture of what is happening in today's organizations. Mintzberg et al. 1° have offered an integrative a p p r o a c h - - " a configurational approach". This conceives an organization type (a configuration) as a set of internally and externally inter-related design Pergamon PII: S0024-63o1(96)00072-6
factors. It has been useful in understanding h o w an organization works as a whole. Following this configuration approach, the present study attempts to examine what is changing in an organization as a whole. This study asks the following research questions: What are the characteristics of the organizational innovations in the era of globalization? What are the consequences of those organizational innovations? What problems do companies face in the course of implementing organizational innovations? What are the remedies to overcome those problems? These questions are closely inter-related and need in-depth examination. Therefore, this study explores one organization rather than undertaking a crosssectional analysis of a number of firms. This approach Long Range Planning, Vol. 29, No. 6, pp. 783 to 796, 1996 Copyright © 1996 Elsevier Science Ltd Printed in Great Britain. All rights reserved 0024-6301/96 $15.00+0.00
is conducive to understanding the whole picture of the organization compared with the analytical (and in many instances fragmented) approach which used to be adopted by structural contingency studies. It examines a Korean firm that is known as a leader in adopting organizational innovations--the "Samsung" Corporation. It focuses on whether this company shows the characteristics that have been found from a review of other studies. This study also attempts to bring up the major issues that the companies face in undertaking organizational innovations and discuss the implications from the issues.
Organizational Innovation in the Era of Globalization
the literature about the vast innovative moves of organizations and attempt to provide an integrative configuration that can illuminate the various organizational innovations.
Innovative Changes of Organizations The efforts of firms for organizational innovations can be summarized in the following three ways: 1. operating teams; 2. flattening of hierarchy and 3. networking. Kreitner and Kinicki 19 summarized the innovative types of organizations as: "cluster" organizations, "hourglass" organizations and "network" organizations. Figure 1 illustrates the characteristics of these organizations.
Operating Teams The concept of teams is not new in organization studies. Elton Mayo has already The main factors affecting organizational life orig- pointed to the importance of teams in the Hawthorne inate from outside of the organization. The influence Study. Actually, teams have been adopted in organof environmental factors on organizational structure izations for decades, perhaps for centuries. But in has been discussed in many studies such as: tech- many cases those teams were task-force teams that nology change, 11 global competition, 12 time based were made to pursue special purposes for a limited competition, 13 quality 14 and customer needs. ~5 period of time. The main part of the organization still Besides, changes within organizations have also remained as functional developments. In practice, exerted influence on organization structure such as however, it becomes more and more important as adoption of information technology 16 and power shift many firms adopt teams as the basic structure of their within organization. 17 We need to understand that operating core. In an attempt to manage cross-unit projects and to many of these factors are often related to each other. For example, technology change accelerates global reduce time-to-market, many firms are increasingly competition, and in turn, global competition accel- relying on multi-functional, multi-unit teams. During the last decade "teams" and "groups" have become erates technology change. The rise of such a complex and turbulent environ- part of the managerial vocabulary and are now viewed ment challenges our most basic assumptions about as a central organizational building block. 2° A key management. Hierarchy is often too cumbersome advantage is their intrinsic flexibility. They can be under these conditions, so the environment requires formed, re-formed and disbanded with relative ease; different systems. The question is how to get scale they can bypass the traditional hierarchy; and their and simultaneously reduce cycle time. It requires new composition can evolve over time in order to blend organizational designs which permit a company to be different skills and address changing priorities. 21 Teams are the primary structural unit in team large when it is advantageous to be large and to be small when it is good to be small. 18 We summarize organizations. In addition to a strategic executive
How Samsung Organized for Innovation
team, there are overlapping teams of technical and operating personnel. Old-style functional departments such as manufacturing and sales give way to cross-functional teams that translate customer needs into promptly delivered products and/or services. Multiskilled employees at all levels will find themselves working on different teams and various projects during the year. Constant change will take its toll in terms of interpersonal conflict and personal stress. Skill-based pay will supplement pay-forperformance.
Flattening of Hierarchy
The delayering and down-sizing trend was initially triggered by the need to reduce costs. However, it also reflects the administrative impact of information and communication technologies. Increased use of information technologies, such as electronic mail, voice mail and shared databases has, over time, reduced the need for traditional middle management. The potential consequences of delayering are intended to be, in part, faster response to competitive and market changes, larger spans of control, increased workloads and a broader range of assignments and roles for individuals and groups. One of the expected benefits of flatter hierarchies is the organization's ability to become flexible and responsive by reducing the time lag between decision and action--enabling faster response to market and competitive dynamics. 22 The flat organization has a wide span of control at the top of the organization. Information technology enables the top manager to coordinate a large number of operating personnel. This eliminates middle-level managers and makes organizations flat. Multiple and broad layers of middle managers who served as conduits for information in old-style organizations become unnecessary in this organization.
Networking Managers who want their companies to be strong competitors in the 21st century are urged to: search globally for opportunities and resources; maximize returns on all assets dedicated to a business; perform only those functions for which the company has, or can develop, expert skill; outsource those activities that can be performed quicker, more effectively, or at lower cost by others. Firms following these prescriptions frequently find themselves organizing into n e t w o r k s . 23 The network organization is a fluid family of several independent organizations whose core tasks are contracted out to other c o m p a n i e s . 24 Reliance on subcontracting has been prevalent in a number of industries for some time. Recently, however, there has been a substantial increase in alliances which affect core business activities--such as product development, distribution and financing. One firm in the network may research and design a product, another may engineer and manufacture it, a third may handle dis-
tribution, and s o o n . 25 A number of reasons have been put forward to explain the rapid diffusion of such "Hybrid" organization forms. These include "changing environmental conditions, the limits of largescale organizations and the importance of speed and information". Collaborative partnerships are a flexible mode of blending capabilities, sharing risks and generating o p t i o n s . 26 In real life, the organization becomes a network of various contracted relationships, joint ventures, partial ownership positions and other strategic alliances. These arrangements lead to a blurring of the boundaries of the contracting f i r m . 27 The above three organizational innovations are summarized in Table 1.
A New Configuration Even though we have described the organizational changes in three ways, they are closely related to each other and very often adopted in a single organization (Figure 2). First the adoption of a team structure can lead to a flattening of hierarchies. Operating teams usually have more autonomy and are more selfcontained than traditional functional operating units. Therefore, they need less coordination with other teams or coordination by a supervisor, which enables a wide span of control, i.e. a flattening of the organization. Second, the adoption of operating teams can also effect networking. Adopting operating team means adopting a market economy within an organization. The team has to be market-efficient and is evaluated and rewarded by its performance. In addition, the size of a "team", by definition, is usually limited to a certain number that can generate group dynamics. This encourages a team to search for a network of its own. These three configurations can be synthesized as Figure 3. At the operating core of the organization lie work teams whose tasks are often overlapping and flexible. These work teams communicate with the top management directly without middle managers. Each operating team develops its own network in order to be market-efficient and organize resources and skills most effectively. We label it a "Clustered Web" organization. It is named a " w e b " organization in that it is linked with other organizations through networks. The web is "clustered" in that each operating team or a group of operating teams develops its own network. Daft and Lewin 28 characterize the n e w organizational forms: "flatter hierarchies, decentralized decision making, greater capacity for tolerance for ambiguity, permeable internal and external boundaries, empowerment of employees, capacity for renewal, self-organizing units and self-integrating co-ordination m e c h a n i s m s . . . l e a d e r s h i p without control". In the following discussion we examine the case of a Korean company that has undertaken a series of Long Range Planning Vol. 29
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Team organization
Flat organization
Network organization
Major driving forces
Customer needs
Information technology
Global competition Time/quality
Organizational characteristics
Team unit Horizontal orientation Cross-functional teams Training top priority Multiskilled employees
Pinched middle Competition for promotion Lateral transfer Skill training Pay-for-performance
Tasks contracted out Entrepreneurial individual or team Small clerical staff Virtual corporations
Major issues
Interpersonal conflict Personal stress
Potential for alienation between the top and the bottom Personal stress
Little job security of small contractors
Solutions
Empowerment
Career development program
Sharing vision
organizational innovations which can be related to the above model.
A Case Study of a Korean Company Samsung Corporation Introduction: the Current Issues In June 1993 the chairman of the Samsung Group, Lee Gun Hee, declared that the Group had entered a new phase of existence. Samsung declared its determination to take a long, hard look at itself and to make sweeping changes and move in a new direction. Samsung Corporation, a member of the Samsung Group, has been involved in the innovation program named "New Management" for 3 years. The program includes the complete change of strategy, structure and processes for the whole group. The strategic change of Samsung Corporation is
How Samsung Organized for Innovation
shown in Table 2. The company has been undertaking a complete change. It focused on quality instead of quantity, and customer orientation instead of company centred management. The change of paradigm demanded organizational innovations such as: downsizing; the intrapreneur-president program, a company-wide programme giving business unit leaders (called "intraprenuer-presidents") full authority to make their own decisions and responsibility for their own performance; market-based flat structures; cultural change. In this section we examine the characteristics and the consequences of the organizational innovations being undertaken in the Samsung Corporation. We also look into the problems that the
Top management team
Before new management (1990-92)
After new management (1993-95)
Increase investment and new business Globalization and localization Increase triangular and domestic sales Business restructuring Increase business with Russia and Eastern Europe Emergency management of textile business Business redefinition
New management Focusing on quality and globalization Undertake cultural change Customer and time oriented management Strengthen international trade Inception of filming and distribution business Increase managerial efficiency • Downsizing • Adopting "intrapreneur-president program" Adoption of market-based flat organization Risk management
company faced in the course of innovation, and the possible solutions.
History and Business (see Appendix for More Information) The history of the Samsung Corporation began on 1 March 1938 w h e n "Samsung General Store" was set up in Taegu. The Samsung Store moved into the foreign trading business and grew rapidly by actively engaging in trade with merchants in Manchuria and Beijing and later by venturing into manufacturing. In 1947 the company's name was changed to "Samsung Moolsan Co." and changed again to "Samsung Co., Ltd" in 1952 amid the chaos of the Korean War. After the war, in an effort to become a truly international trading house, Samsung Corporation began to diversify its overseas markets while strengthening its import capability to provide basic necessities needed for postwar national reconstruction. Ever since, Samsung Corporation has expanded and devoted itself to developing new overseas markets. New overseas branches were established in major foreign cities, information on overseas markets was gathered and new products were developed in an effort to diversify products and markets. Owing to the success of these efforts, Samsung Corporation had become the largest exporter in Korea by the late 1960s. In the early 1970s the Korean government promoted a general trading company (GTC) system to facilitate exports. Under this system, Samsung Corporation became Korea's first officially designated GTC in May 1975, and has since become more prominent worldwide through its overseas marketing activities. As part of the company strategy to localize overseas operations, Samsung Corporation branches and sales offices are increasingly becoming locally registered companies. Efforts are also being made to expand Samsung's involvement in such regions as China, Vietnam, East European countries and CIS member countries where open door policies have been pursued more aggressively since 1990.
In 1983 the Samsung Foundation for Overseas Technical Scholarship (SFOTS) program was established as part of the effort to extend economic cooperation to developing countries. Engineers and managers in industries related to Samsung's business lines in these countries are offered technical training at company facilities in Korea, and trainees from Malaysia, Pakistan, India, Egypt and Hungary have so far taken part. Recently, special education programs have also been conducted in Korea for non-Korean employees of overseas branches. Both programs are opportunities to promote cross-cultural understanding and self-development. At present, Samsung Corporation runs businesses in trading, distribution and textiles. By the end of 1995, it merged with Samsung Construction and has also prepared for automobile manufacturing business. The organizations related with these two new businesses are not included in this paper, for the purpose of longitudinal comparison of the organizations.
Organizational Innovations As we have suggested as a configuration, Samsung Corporation has undertaken a series of inter-related organizational innovations: operating teams, flattening of hierarchies and networking. We have labelled it, as a whole, a "Clustered Web" organization. Each operating team retains a close relationship with contractors of its own to formulate a clustered network.
Operating Teams In 1985 Samsung Corporation undertook a company-wide change of its organization. Before 1985, it had a traditional organization structure which had building blocks of sections and departments. It gave up its old structure and adopted a company-wide team organization (Figure 4). The teams were supposed to have more autonomy and authority to make their own decisions. At first, however, the actual process did not change in one morning. It took a considerable amount of time for this Long Range Planning Vol. 29
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Line personnel Management
1990 (5040 persons)
1996 (5032 persons)t
74.6% 22.3%
81.5% 15.5%
*About 3% of total employees work for development. tThe company merged with Samsung Constructions which consisted of 5,700 employees at the end of 1995. This number was not added in this table for the purpose of comparison.
new organization to be established in the company. Especially, the traditional process of personnel management such as the seniority system has been a barrier to the establishment of a team structure. While the adoption of teams was underway, Table 3 shows that the proportion of staffpersonnel reduced from 22.3% in 1990 to 15.5% in 1996. The adoption of a team organization has reduced the need for corporate staff. As the team organization becomes established, the teams take more responsibility and undertake more functions. For example, a team can take a loan directly from the bank, or it can recruit its own members from outside. Besides, a team can utilize its own networks to get service that used to be provided by the corporate staff. As was pointed out above, it took time for this new structure to be established and the effect to be realized.
Flattening of Hierarchy
The company substantially reduced the hierarchy and the length of the
How Samsung Organized for Innovation
line of command in 1993. As illustrated in Figure 5, the company eliminated division headquarters from the hierarchy. Flattening of hierarchy implies not only the change of organizational shape but also the change of decision making patterns. The company reduced the decision-making steps from 7 to 3. Actually, as is shown in Figure 6, in 1989 a proposal required 7 approvals and 3 a priori cross references. In the example shown, it took 24 days for the proposal to reach the president for a final decision. By contrast, another proposal in 1995 required only three approvals and was decided on the same day. The CEO signed afterwards to confirm that he was informed of the decision. Those who need to know about the decisions w o u l d receive the copy of the form after the decision was made, which is shown as " c o p y to" at the bottom of the form. It shows a dramatic change in the decisionmaking pattern and increase of speed, even though we take into account the possible difference in the type of decision between the two examples. Besides, the proposal form in 1995 is prepared in English which symbolizes the company's effort for globalization. As a result of flattening the hierarchy, the span of control of the CEO increased substantially (Table 4). This necessarily means that the CEO delegated his authority to the head of the division, the so-called "little president". A recent study also compared the span of control of the top managers in five Korean companies affiliated to Korea's five largest "Chaeb61". 29 The study included Samsung Corporation. Of the five companies, the top manager of Samsung Corporation had the
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contractors company-wide and each operating team keeps a close relationship with contractors of their own, this study chose to examine a cluster of networks, the "TechnoValley" network team. "TechnoValley" is a product development team that started in 1991 as the company's first autonomous small group. The team had started as a very informal study group. It has developed many successful products such as the Bio-refrigerator, the Logo-boy Camera, Teletext TV, an "X-generation" pager "X-ing (they call it Sing)", and so on. The team started with 12 young members including the leader Sohn Byung Gun. The members were all under 30 years old. Sohn was the eldest and his rank of hierarchy was manager. He was given full autonomy and authority as a "little president" to make decisions regarding the business of the team. He was supposed to report informally to the CEO without reporting to any other managers in the hierarchy. He led the team with a clear vision to motivate the members whose number grew to 28 at the end of 1995. The team members were highly self-motivated and shared the vision of the team. The team by itself has developed three of its own networks: TechnoValley FAMILY, TechnoValley MEMBERSHIP, and TechnoValley MANIA (Figure 7). They chose very carefully highly qualified and competent specialists (individuals and organizations), known as "the best" in each field. Only the best network could make the best products, and only the best products sell in global competition. The team utilized a network organization of contractors when it developed a pager, "X-ing", in 1994 which was to become a big success. As shown in Figure 8, the TechnoValley team undertook only the planning and marketing of the product. Technology
Span of control Samsung Corporation H Motors L Electronics D Heavy Industry S Industry
25 11 19 15 8
was provided by " S u n w o o " , production by "Daeyoung" and "Nawoo", promotion by "Jeil", the leader of the promotion industry, and distribution by "015 Naretel", a n e w entrant and challenger in the pager service industry. Each of the participating organizations within the virtual corporation formulated by the network was known as the most competitive in its specialized field. The network members were confident that they could make the best pager. They dew~,loped quite a new concept of pager--an artistically designed pager for young generations with many functions such as remote start of automobiles and remote control of home appliances. It was a big success; they sold 220,000 units or 7.8% of the total market of 2,5000,000 units in 1995. The TechnoValley team also developed the Logoboy Camera and Teletext TV through global networks by using the same concept as TechnoValley FAMILY and MEMBERSHIP. In fact, they had their Korean competitor, instead of Samsung Electronics, produce the TV in order to meet the delivery date.
Major Issues We have examined three organizational innovations at Samsung Corporation. However, every innovation or change faces expected and unexpected problems. This study examines three major issues that are related with the three organizational innovations. It also discusses solutions that the company has tried or that have been suggested from consultative meetings. Although we discuss these three issues one by one, they are all inter-related.
Evaluation and Rewards Within and Between the Team Organization The leaders of the team were very concerned about their members' motivation levels. Naturally, evaluation and rewards within and between the teams affect the members' motivation. For example Sohn, the leader of the TechnoValley team, mentioned the difficulties he experienced: "The team worked very hard and made profit. Although we all worked hard, the contributions of each member were different. Some of them were really bright and virtually did all the job, while some others only supported the former. I can only recommend a few for promotion. Do I have to recommend just a
Organizations 13 divisions, 2 division headquarters, 7 offices, 3 officers in charge 8 division headquarters, 2 offices, 1 centre 11 SBUs, 6 offices 7 division headquarters, 2 offices 3 division headquarters, 1 support, 1 lab, 2 offices, 1 centre
Source: 29
Long Range Planning Vol. 29
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vision statement: " T h e Idea Business Group of the 21st C e n t u r y " , a m i s s i o n statement: "Creating HighValued F u t u r e B u s i n e s s " and a c o u p l e of team goals. T h e y s h a r e d those values as a team. In o r d e r to share the values, S o h n gave a party e v e r y F r i d a y night at his home. The m e m b e r s u s e d to stay overnight and w e n t to w o r k together on S a t u r d a y morning. Second, the team was given m o r e a u t o n o m y , b u d g e t and a m o r e spacious office in a r e m o t e place. Third, m o r e o p p o r t u n i t i e s w e r e given for education. S o h n b e c a m e the first beneficiary of this p l a n and n o w stays in the US as a s t u d e n t of a T e c h n o - M B A program. Fourth, m a n y of the m e m b e r s r e c e i v e d special awards, s u c h as " e m p l o y e e of the y e a r " instead of a regular increase in basic salary. It was also c o n s i d e r e d , h o w e v e r , to directly r e w a r d a certain a m o u n t of the profit of the team to the m e m b e r s . In sum, it appears that intrinsic r e w a r d s and group d y n a m i c s based on sharing values are v e r y important, p a r t i c u l a r l y in a team organization, to highly m o t i v a t e the m e m b e r s . H o w e v e r , extrinsic r e w a r d s and equity w i t h i n and b e t w e e n teams are also i m p o r t a n t factors.
few of them? And what for the next evaluation, and the next? What will be the effect on the morale of the team?" On the other h a n d , Choi Sang Jin, Director of Personnel, b r o u g h t up in r e p l y his difficulties in keeping balance c o m p a n y - w i d e . "I agree it is time to reward for performance. But, if we reward TechnoValley team exceptionally higher, it may de-motivate other teams whose existing business is inherently slow. And worse, they are still the mainstream of the company." In an a t t e m p t to resolve these p r o b l e m s , the team has m a d e efforts to self-motivate the m e m b e r s in m a n y ways. First, S o h n and the team p r e p a r e d a How Samsung Organized for Innovation
Career of Middle-to-top Managers As a result of flattening the h i e r a r c h y in 1993, a n u m b e r of executives lost their formal p o s i t i o n as h e a d s of division h e a d q u a r t e r s or divisions. 3° Six of t h e m were assigned to the " P r e s i d e n t ' s Staff", a n e w p o s i t i o n as a top m a n a g e m e n t team w h i c h was m e a n t to s u p p o r t the p r e s i d e n t strategically and to be trained to b e c o m e a future president. At first, h o w e v e r , their role was not well u n d e r s t o o d ; some of t h e m were in fact de-motivated b e c a u s e t h e y were p u l l e d out of the line and were not c o n f i d e n t about their future. S o m e j u n i o r managers were also d i s a p p o i n t e d at their p r e s u m a b l y similar future. T h a t was a critical m o m e n t to d e c i d e w h e t h e r the c o m p a n y c o u l d stimulate the m e m b e r s
of the whole organization or ruin their career vision. Many of them were wondering whether the president's staff were actually working or just "names". The decision was up to the president. Shin Se Gil, the president and CEO, utilized the President's Staff very effectively. First of all, he nominated the most capable of all the executives as the President's Staff. He assigned a company-wide strategic role to them: development of new business, overseas operations, and important ad-hoc projects. The CEO could not take care of each division due to the increased span of control. On the other hand, the division head might lack company-wide strategic perspectives. Therefore, the President's Staff filled the gap. In addition, the President's Staff were supposed to play the figurehead role for the company and a consulting and advisory role for the division heads, and to monitor the division heads informally. The last role of monitoring was particularly important, because it provided them with informal power in the organization. 3~ The CEO asked the opinions of the President's Staff when he evaluated the division heads. Further suggestions were made to establish this new position: the President's Staff are invited to all the strategic meetings held by the president; they share all the information with the CEO; they are given more opportunities of training to become a president; after 2 years of serving with the President's Staff they should be re-appointed as line manager. The President's Staff had front-line orientation 32 in that they played a very important strategic role and sometimes took an active role in pursuing urgent projects. This orientation fuses the strategic and operational roles of the top management team--enabling them to re-calibrate strategies based on real-time information and realistic action plans. :3:3
Sharing the Vision as a Virtual Corporation Sohn Byung Gun of TechnoValley team was looking for ways to have outside contractors willingly participate in the above-mentioned pager "X-ing" business. None of the network participants in the virtual corporation had anything in common except that they all prided themselves on their expertise in their chosen specialized field. Sohn began with promoting the vision of the team; he preached the ideas and possibilities of the new business again and again until they could share the vision. Second, he convinced them that they could be "the best" as a virtual corporation if they cooperated because each of them were the best in their own field. Third, he established a tie and used the term TechnoValley "Family". The business should be a w i n win game for every participant. They shared information, provided technology, consulted management and jointly developed overseas markets. In this case we can see the crucial factors that led to the success of the network organization. The network
organization of TechnoValley "family" operated as a virtual corporation. 34 They shared vision and goals, expertize, information, trust and rewards. 3~
Conclusion We have examined organizational innovations adopted in a Korean company. The company adopted three interrelated innovations: operating teams, flattening of hierarchy and networking. This study suggests the following implications. 1. Globalization and associated environmental changes such as technology change, time-based competition, quality orientation, customer needs and information technology demand organizations to change. The organizational innovations in Samsung corporation which were initiated by the Chairman were also triggered when he faced the poor quality of their products compared with global competitors. In addition, those environmental changes are closely inter-related; some environmental change causes other environmental changes, and so on. 2. The three organizational innovations examined are inter-related with each other. In other words, adoption of an innovation triggers or even demands other innovations. Team organization had more autonomy and less need for coordination between teams. It brought about a flattening of hierarchies. Team organizations also demanded market efficiency, which urged them to develop their own networks. Therefore, these inter-related innovations form a new configuration, a "Clustered Web" organization. 3, It takes time for organizational innovations to be established in a company. An interviewee mentioned that the team organization has not been fully adopted in the organization. We also found that the presumed effect was still being realized after 1 0 years since its first adoption (See Table 3). 4. Organizational innovations can cause expected and unexpected problems. Operating teams were faced with difficulties in evaluating and rewarding staff within and between teams. Flattening of hierarchies jeopardized the careers of middle to top level executives. Networking suffered for lack of shared values and visions. 5. Personnel management practices have to be changed in accordance with organizational innovations. In order to resolve the evaluation and reward problems with regard to the operating teams, a pay for performance system was suggested. It was considered to pay team members a certain proportion of the profit of the teams' business. Besides, other benefits such as more budget and autonomy, spacious offices, opportunities for training and symbolic rewards were provided to Long Range Planning Vol. 29
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exploit the advantages of a global network corporation, US companies with experience managing networks of wholly-owned or majority-owned international subsidiaries must develop the skills needed to manage effectively the ambiguity inherent in such relationships, without hierarchical control. On the contrary, Japanese firms must learn to manage their far-flung operations cohesively as they disperse value activities throughout the world, requiring adjustment to different mores and cultures. Since many Korean firms do not have much experience, more innovative efforts are needed in two ways: both managing external networks of alliances and managing extensive networks of international operations.
Appendix A Brief History of Samsung Corporation
the members. Meanwhile, to address the problem of the jeopardized careers of executives caused by the flattening of hierarchies, new positions entitled "President's Staff" were created. We have confirmed that organizational innovations are never complete without consistent changes of managerial processes and values of the members. Korean companies are in the early stages of preparing for globalization. The case we have examined gives us just a small indication as to the long and u n k n o w n way ahead. Korean companies have less experience than Japanese or US companies. Yoshino and Rangan compared American and Japanese multinational companies (Figure 9 ) . 36 They maintained that US firms were among the first to pursue international markets and are naturally familiar with managing extensive networks of international operations. However, the overwhelming majority of the affiliates are either wholly owned or majority controlled. As a consequence, the relationships are best characterized as hierarchicah 37 Japanese companies, on the other hand, are not familiar with multinationality from their administrative heritage. Their traditional strategy has been to serve international markets from assets and resources based largely in Japan. But Japanese firms, particularly those belonging to the same keiretsu, cooperate extensively with one another affording them a core competence in managing collaborative relationships. 38 Yoshino and Rangan stipulate that in order to How Samsung Organized for Innovation
The 1930s and 1940s--established as a trading company 1938 Started out as the "Samsung General Store" located in Taegu to trade in agricultural commodities. 1948 Moved its operations to Korea's commercial hub, Seoul. The Company's name was changed to "Samsung Moolsan Co." and focused on trade with partners in Southeast Asia and the USA The 1950s and 1960s--emerged as Korea's largest export leader 1952 "'Samsung Moolsan Co.'" became "'Samsung Co., Ltd'" amid the chaos of the Korean War. Its primary business was to provide imports of lifesustaining products and materials needed for postwar national reconstruction. 1953 Established the Tokyo Branch as Samsung Co's first overseas branch, 1962 In response to the Korean government's massive export drive, Samsung devoted itself to developing new overseas markets and was put in charge of handling the export activities of the entire Samsung Group. 1966 Awarded the presidential citation in honor of being Korea's largest exporter. The 1970s and 1980s--designated as GTC and diversified 1975 Samsung Co., Ltd became Korea's first officially designated general trading company (GTC), won a prize as US $200 million exporter and was publicly listed. 1981 Focused on trade in heavy and chemical industrial products. 1985 Diversified its business from trading to overseas natural resources development, triangle trade, and exports of multi-faced products such as plants and projects. 1988-1994--the second take-off revolution 1988 Launched the STEP 11 (Samsung Transformation Efficiency-maximizing Plan for the Second foundation) and with strong activities pursued globalization and diversification. 1989 Increased overseas direct investment such as oil
1990 1993
exploration in Malaysia, established plants for apparel in Southeast Asia and Middle and South America. Extended its business to media such as Dream Box. The Company obtained AA-ratings from the Japan Bond Research Institute. On 55th anniversary Samsung Co., Ltd was changed to "Samsung Corporation" and announced a
1994
1995
"Declaration of New General Trading Company Spirit" concept which put the customer first. Purchased retail company at Seohyeon subway station area and will start operation in 1996. Became the first Korean Company to achieve US$10 billion in exports. Merged with Samsung Construction. Founded automobile manufacturing business.
References 1. C. Handy, The Age of Paradox, Harvard Business School Press, Boston, MA (1994). 2. J. Naisbitt, Global Paradox, Avon Books (1994). 3. T. Hout, M. E. Porter and E. Rudden, How global companies win out, Harvard Business Review, 60, 98-108 (1982); T. Levitt, The globalization of markets, Harvard Business Review, 61, 92-102 (1983); J. Fayerweather, Four winning strategies for the international corporation, Journal of Business Strategy, 25, 37-54 (1984). 4. C. C. Snow, R. E. Miles and H. J. Coleman Jr, Managing 21st century network organizations, Organizational Dynamics, 5-20 (1992). 5. S. Cohen, New approaches to team and teamwork, In J. R. Galbraith and E. E. Lawler,
Organizing for the Future: The New Logic for Managing Complex Organizations, Jossey-Bass, San Francisco, CA, pp. 194-226 (1993). 6. J. R. Galbraith, The business unit of the future, In J. R. Galbraith and E. E. Lawler, Organizing for the Future: The New Logic for Managing Complex Organizations, Jossey-Bass, San Francisco, CA, pp. 43-64 (1993); S. Albers Mohrman, Integrating roles and structure in the lateral organization, In J. R. Galbraith and E. E. Lawler, Organizing for the Future: The New Logic for Managing Complex Organizations, Jossey-Bass, San Francisco, CA, pp. 109-141 (1993). 7. C. Argyris, On Organizational Learning, Blackwell, Cambridge, MA (1992). S. Albers Mohrman and A. M. Mohrman, Organizational change and learning, In J. R. Galbraith and E. E. Lawler, Organizing for the Future: The New Logic for Managing Complex Organizations, Jossey-Bass, San Francisco, CA, pp. 87-108 (1993). 8. M. Gerlach, Alliance Capitalism, University of California Press, Los Angeles, CA (1992); M. Gerlach, The Japanese corporate network: a blockmodel analysis, Administrative Science Quarterly, 37, 105-139 (1992); N. Nohria and R. G. Eccles (eds), Networks and Organizations: Structure, Form, andAction, Harvard Business School Press, Boston, MA (1992); M. Lea, T. O'Shea and P. Fung, Constructing the networked organization: content and context in the developmentof electronic communications, Organization Science, 6, 462-478 (1995); R. E. Miles and C. C. Snow, The new network firm: a spherical structure built on a human investment philosophy, Organizational Dynamics, pp. 5-19 (1995); A. Grandori and G. Soda, Inter-firm networks: antecedents, mechanisms and forms, Organizational Studies, 16, 183-214 (1995). 9. C. Perrow, The short and glorious history of organization theory, Organizational Dynamics, pp. 2-15 (1973). 10. H. Mintzberg, The Structuring of Organizations, Prentice-Hall, Englewood Cliffs, NJ (1979); D. Miller and P. H. Friesen, Organizations:A Quantum View, Prentice-Hall, Englewood Cliffs, NJ (1984); D. Miller, Configuration of strategy and structure: toward a synthesis, Strategic Management Journal, 7, 233-250 (1986). 11. J. R. Galbraith and E. E. Lawler, Organizing for the Future: The New Logic for Managing Complex Organizations, Jossey-Bass, San Francisco, CA (1993). 12. C. C. Snow, R. E. Miles and H. J. Coleman, Jr., Managing 21st century network organizations, Organizational Dynamics, pp. 5-20 (1992); M. Y. Yoshino and U. S. Rangan, Strategic Alliances: An Entrepreneurial Approach to Globalization, Harvard Business Press, Boston, MA (1995). 13. G. Stalk and T. M. Hout, Competing Against Time, Free Press, New York (1990). 14. M. Sashkin and K. J. Kiser, Putting Total Quality Management to Work, Berrett-Koehler, San Francisco (1993); B. A. Spencer, Models of organization and total quality management, The Academy of Management Review, 19 (3), 446-471 (1994). 15. T. Peters and N. Austin, A Passion for Excellence, Random House, NY (1985). 16. J. Harrington, Organizational Structure and Information Technology, Prentice-Hall International, Hertfordshire, UK (1991); H. Bahrami and S. Evans, Strategy making in hightechnology firms, California Management Review, Winter (1989). 17. A. Toffler, Power Shift, Bantam, New York (1990); J. Harrington, Organizational Structure and Information Technology, Prentice-Hall International, Hertfordshire, UK (1991).
Long Range Planning Vol. 29
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18. R. E. Miles and C. C. Snow, Organizations: new concepts for new forms, California Management Review, 28, 62-73 (1986). 19. R. Kreitner and A. Kinicki, Organizational Behavior, Irwin, Chicago, IL (1995). 20. J. L. Bower and T. Hout, Fast cycle capability for competitive power, Harvard Business Review, 110-118 (1988); T. Peters, Get innovative or get dead, California Management Review, 33, 9-26 (1990). 21. H. Bahrami, The emerging flexible organization: perspectives from Silicon Valley, California Management Review, 33-52 (1992). 22. Ibid. 23. C. C. Snow, R. E. Miles and H. J. Coleman Jr, Managing 21st century network organizations, Organizational Dynamics, 5-20 (1994). 24. W. Powell, Hybrid organizational arrangements, Cafifornia Management Review, 30, 67-87 (1987). 25. C. C. Snow et al, op. cit. 26, W. Powell, Hybrid organizational arrangements, California Management Review, 30, 67-87 (1987). 27. J. R. Galbraith and R. K. Kazanjian, Strategy, technology, and emerging organizational forms in J. Hage, Futures of Organizations, Lexington Books, Lexington, MA, pp. 29-41 (1988). 28. R. R. Daft and A. Y. Lewin, What are the theories for "new" organizational forms: an editorial essay, Organizational Science, 4(4), i-vi (1993) 29. S. K. Kwun, (Written in Korean), The organizational characteristics of the large companies in Korea, In Y. K. Shin et aL, The Managerial Characteristics of the Large Companies in Korea, pp. 171-249 (1995). 30. R. Kreitner and A. Kinicki, Organizational Behaviour, Irwin, Chicago, IL (1995) named this an "hourglass organization" in that the middle line of the organization reduces in numbers. 31. H. Bahrami, The emerging flexible organization: perspectives from Silicon Valley, Cafifornia Management Review, 33-52 (1992); H. Mintzberg, Mintzberg on Management: Inside Our Strange World of Organizations, The Free Press, NY (1989). 32. H. Bahrami, op. cit. 33. H. Bahrami and S. Evans, Stategy making in high-technology firms, California Management Review, Winter (1989). 34. K. H. MacDonald, Business strategy development, alignment, and redesign, In M. S. Scott Morton, The Corporation of the 1990s, Oxford University Press, NY (1991). 35. J. F. Rockart and J. M. Short, The networked organization and the management of interdependence, In M. S. Scott Morton, The Corporation of the 1990s, Oxford University Press, NY (1991). 36. M. Y. Yoshino and U. S. Rangan, Strategic Alliances: An EntrepreneurialApproach to Globalization, Harvard Business Press, Boston, MA (1995). 37. D. J. Encarnation and S. Vachani, Foreign ownership: when hosts change the rules, Harvard Business Review, 152-160 (1985). 38. M. Gerlach, Alliance Capitalism, University of California Press, Los Angeles, CA (1992).
How Samsung Organized for Innovation
Cho
T H E COMINGERA IS characterized by global changes. The change in the environment is so turbulent that some identify it as the "age of paradox", 1 or "global paradox". 2 A primary source of the challenge comes from competitors and customers who act on a global basis. 3 The challenge of competing on a global basis is causing firms to behave in different ways from what had been established. For example, globalized competition requires increased size so the company can compete with other global companies. At the same time, globalized competition requires time-based decision-making which is made possible by decreasing the size of the firm. Another factor such as information technology makes it possible for a big company to communicate efficiently and at the same time for a small company to obtain information from outside networks. Snow and colleagues maintained that competitive pressures demand both efficiency and effectiveness. 4 Firms must adapt with increasing speed to market pressures and competitors' innovations, simultaneously controlling and even lowering product or service costs. Such environmental change is so turbulent and paradoxical that the efforts of the firms to compete are quite diverse. However, the studies in this area have not fully illuminated the innovative efforts that firms have made. Scholars have focused on t e a m s ) lateral structure, 6 learning organization, 7 alliances and networks, 8 and so on. If we borrow Perrow's expression about the organizational literature more than two decades a g o , 9 the recent studies again seem to be going "from topic to topic, without a clear view" of a coherent picture of what is happening in today's organizations. Mintzberg et al. 1° have offered an integrative a p p r o a c h - - " a configurational approach". This conceives an organization type (a configuration) as a set of internally and externally inter-related design Pergamon PII: S0024-63o1(96)00072-6
factors. It has been useful in understanding h o w an organization works as a whole. Following this configuration approach, the present study attempts to examine what is changing in an organization as a whole. This study asks the following research questions: What are the characteristics of the organizational innovations in the era of globalization? What are the consequences of those organizational innovations? What problems do companies face in the course of implementing organizational innovations? What are the remedies to overcome those problems? These questions are closely inter-related and need in-depth examination. Therefore, this study explores one organization rather than undertaking a crosssectional analysis of a number of firms. This approach Long Range Planning, Vol. 29, No. 6, pp. 783 to 796, 1996 Copyright © 1996 Elsevier Science Ltd Printed in Great Britain. All rights reserved 0024-6301/96 $15.00+0.00
is conducive to understanding the whole picture of the organization compared with the analytical (and in many instances fragmented) approach which used to be adopted by structural contingency studies. It examines a Korean firm that is known as a leader in adopting organizational innovations--the "Samsung" Corporation. It focuses on whether this company shows the characteristics that have been found from a review of other studies. This study also attempts to bring up the major issues that the companies face in undertaking organizational innovations and discuss the implications from the issues.
Organizational Innovation in the Era of Globalization
the literature about the vast innovative moves of organizations and attempt to provide an integrative configuration that can illuminate the various organizational innovations.
Innovative Changes of Organizations The efforts of firms for organizational innovations can be summarized in the following three ways: 1. operating teams; 2. flattening of hierarchy and 3. networking. Kreitner and Kinicki 19 summarized the innovative types of organizations as: "cluster" organizations, "hourglass" organizations and "network" organizations. Figure 1 illustrates the characteristics of these organizations.
Operating Teams The concept of teams is not new in organization studies. Elton Mayo has already The main factors affecting organizational life orig- pointed to the importance of teams in the Hawthorne inate from outside of the organization. The influence Study. Actually, teams have been adopted in organof environmental factors on organizational structure izations for decades, perhaps for centuries. But in has been discussed in many studies such as: tech- many cases those teams were task-force teams that nology change, 11 global competition, 12 time based were made to pursue special purposes for a limited competition, 13 quality 14 and customer needs. ~5 period of time. The main part of the organization still Besides, changes within organizations have also remained as functional developments. In practice, exerted influence on organization structure such as however, it becomes more and more important as adoption of information technology 16 and power shift many firms adopt teams as the basic structure of their within organization. 17 We need to understand that operating core. In an attempt to manage cross-unit projects and to many of these factors are often related to each other. For example, technology change accelerates global reduce time-to-market, many firms are increasingly competition, and in turn, global competition accel- relying on multi-functional, multi-unit teams. During the last decade "teams" and "groups" have become erates technology change. The rise of such a complex and turbulent environ- part of the managerial vocabulary and are now viewed ment challenges our most basic assumptions about as a central organizational building block. 2° A key management. Hierarchy is often too cumbersome advantage is their intrinsic flexibility. They can be under these conditions, so the environment requires formed, re-formed and disbanded with relative ease; different systems. The question is how to get scale they can bypass the traditional hierarchy; and their and simultaneously reduce cycle time. It requires new composition can evolve over time in order to blend organizational designs which permit a company to be different skills and address changing priorities. 21 Teams are the primary structural unit in team large when it is advantageous to be large and to be small when it is good to be small. 18 We summarize organizations. In addition to a strategic executive
How Samsung Organized for Innovation
team, there are overlapping teams of technical and operating personnel. Old-style functional departments such as manufacturing and sales give way to cross-functional teams that translate customer needs into promptly delivered products and/or services. Multiskilled employees at all levels will find themselves working on different teams and various projects during the year. Constant change will take its toll in terms of interpersonal conflict and personal stress. Skill-based pay will supplement pay-forperformance.
Flattening of Hierarchy
The delayering and down-sizing trend was initially triggered by the need to reduce costs. However, it also reflects the administrative impact of information and communication technologies. Increased use of information technologies, such as electronic mail, voice mail and shared databases has, over time, reduced the need for traditional middle management. The potential consequences of delayering are intended to be, in part, faster response to competitive and market changes, larger spans of control, increased workloads and a broader range of assignments and roles for individuals and groups. One of the expected benefits of flatter hierarchies is the organization's ability to become flexible and responsive by reducing the time lag between decision and action--enabling faster response to market and competitive dynamics. 22 The flat organization has a wide span of control at the top of the organization. Information technology enables the top manager to coordinate a large number of operating personnel. This eliminates middle-level managers and makes organizations flat. Multiple and broad layers of middle managers who served as conduits for information in old-style organizations become unnecessary in this organization.
Networking Managers who want their companies to be strong competitors in the 21st century are urged to: search globally for opportunities and resources; maximize returns on all assets dedicated to a business; perform only those functions for which the company has, or can develop, expert skill; outsource those activities that can be performed quicker, more effectively, or at lower cost by others. Firms following these prescriptions frequently find themselves organizing into n e t w o r k s . 23 The network organization is a fluid family of several independent organizations whose core tasks are contracted out to other c o m p a n i e s . 24 Reliance on subcontracting has been prevalent in a number of industries for some time. Recently, however, there has been a substantial increase in alliances which affect core business activities--such as product development, distribution and financing. One firm in the network may research and design a product, another may engineer and manufacture it, a third may handle dis-
tribution, and s o o n . 25 A number of reasons have been put forward to explain the rapid diffusion of such "Hybrid" organization forms. These include "changing environmental conditions, the limits of largescale organizations and the importance of speed and information". Collaborative partnerships are a flexible mode of blending capabilities, sharing risks and generating o p t i o n s . 26 In real life, the organization becomes a network of various contracted relationships, joint ventures, partial ownership positions and other strategic alliances. These arrangements lead to a blurring of the boundaries of the contracting f i r m . 27 The above three organizational innovations are summarized in Table 1.
A New Configuration Even though we have described the organizational changes in three ways, they are closely related to each other and very often adopted in a single organization (Figure 2). First the adoption of a team structure can lead to a flattening of hierarchies. Operating teams usually have more autonomy and are more selfcontained than traditional functional operating units. Therefore, they need less coordination with other teams or coordination by a supervisor, which enables a wide span of control, i.e. a flattening of the organization. Second, the adoption of operating teams can also effect networking. Adopting operating team means adopting a market economy within an organization. The team has to be market-efficient and is evaluated and rewarded by its performance. In addition, the size of a "team", by definition, is usually limited to a certain number that can generate group dynamics. This encourages a team to search for a network of its own. These three configurations can be synthesized as Figure 3. At the operating core of the organization lie work teams whose tasks are often overlapping and flexible. These work teams communicate with the top management directly without middle managers. Each operating team develops its own network in order to be market-efficient and organize resources and skills most effectively. We label it a "Clustered Web" organization. It is named a " w e b " organization in that it is linked with other organizations through networks. The web is "clustered" in that each operating team or a group of operating teams develops its own network. Daft and Lewin 28 characterize the n e w organizational forms: "flatter hierarchies, decentralized decision making, greater capacity for tolerance for ambiguity, permeable internal and external boundaries, empowerment of employees, capacity for renewal, self-organizing units and self-integrating co-ordination m e c h a n i s m s . . . l e a d e r s h i p without control". In the following discussion we examine the case of a Korean company that has undertaken a series of Long Range Planning Vol. 29
December 1996
Team organization
Flat organization
Network organization
Major driving forces
Customer needs
Information technology
Global competition Time/quality
Organizational characteristics
Team unit Horizontal orientation Cross-functional teams Training top priority Multiskilled employees
Pinched middle Competition for promotion Lateral transfer Skill training Pay-for-performance
Tasks contracted out Entrepreneurial individual or team Small clerical staff Virtual corporations
Major issues
Interpersonal conflict Personal stress
Potential for alienation between the top and the bottom Personal stress
Little job security of small contractors
Solutions
Empowerment
Career development program
Sharing vision
organizational innovations which can be related to the above model.
A Case Study of a Korean Company Samsung Corporation Introduction: the Current Issues In June 1993 the chairman of the Samsung Group, Lee Gun Hee, declared that the Group had entered a new phase of existence. Samsung declared its determination to take a long, hard look at itself and to make sweeping changes and move in a new direction. Samsung Corporation, a member of the Samsung Group, has been involved in the innovation program named "New Management" for 3 years. The program includes the complete change of strategy, structure and processes for the whole group. The strategic change of Samsung Corporation is
How Samsung Organized for Innovation
shown in Table 2. The company has been undertaking a complete change. It focused on quality instead of quantity, and customer orientation instead of company centred management. The change of paradigm demanded organizational innovations such as: downsizing; the intrapreneur-president program, a company-wide programme giving business unit leaders (called "intraprenuer-presidents") full authority to make their own decisions and responsibility for their own performance; market-based flat structures; cultural change. In this section we examine the characteristics and the consequences of the organizational innovations being undertaken in the Samsung Corporation. We also look into the problems that the
Top management team
Before new management (1990-92)
After new management (1993-95)
Increase investment and new business Globalization and localization Increase triangular and domestic sales Business restructuring Increase business with Russia and Eastern Europe Emergency management of textile business Business redefinition
New management Focusing on quality and globalization Undertake cultural change Customer and time oriented management Strengthen international trade Inception of filming and distribution business Increase managerial efficiency • Downsizing • Adopting "intrapreneur-president program" Adoption of market-based flat organization Risk management
company faced in the course of innovation, and the possible solutions.
History and Business (see Appendix for More Information) The history of the Samsung Corporation began on 1 March 1938 w h e n "Samsung General Store" was set up in Taegu. The Samsung Store moved into the foreign trading business and grew rapidly by actively engaging in trade with merchants in Manchuria and Beijing and later by venturing into manufacturing. In 1947 the company's name was changed to "Samsung Moolsan Co." and changed again to "Samsung Co., Ltd" in 1952 amid the chaos of the Korean War. After the war, in an effort to become a truly international trading house, Samsung Corporation began to diversify its overseas markets while strengthening its import capability to provide basic necessities needed for postwar national reconstruction. Ever since, Samsung Corporation has expanded and devoted itself to developing new overseas markets. New overseas branches were established in major foreign cities, information on overseas markets was gathered and new products were developed in an effort to diversify products and markets. Owing to the success of these efforts, Samsung Corporation had become the largest exporter in Korea by the late 1960s. In the early 1970s the Korean government promoted a general trading company (GTC) system to facilitate exports. Under this system, Samsung Corporation became Korea's first officially designated GTC in May 1975, and has since become more prominent worldwide through its overseas marketing activities. As part of the company strategy to localize overseas operations, Samsung Corporation branches and sales offices are increasingly becoming locally registered companies. Efforts are also being made to expand Samsung's involvement in such regions as China, Vietnam, East European countries and CIS member countries where open door policies have been pursued more aggressively since 1990.
In 1983 the Samsung Foundation for Overseas Technical Scholarship (SFOTS) program was established as part of the effort to extend economic cooperation to developing countries. Engineers and managers in industries related to Samsung's business lines in these countries are offered technical training at company facilities in Korea, and trainees from Malaysia, Pakistan, India, Egypt and Hungary have so far taken part. Recently, special education programs have also been conducted in Korea for non-Korean employees of overseas branches. Both programs are opportunities to promote cross-cultural understanding and self-development. At present, Samsung Corporation runs businesses in trading, distribution and textiles. By the end of 1995, it merged with Samsung Construction and has also prepared for automobile manufacturing business. The organizations related with these two new businesses are not included in this paper, for the purpose of longitudinal comparison of the organizations.
Organizational Innovations As we have suggested as a configuration, Samsung Corporation has undertaken a series of inter-related organizational innovations: operating teams, flattening of hierarchies and networking. We have labelled it, as a whole, a "Clustered Web" organization. Each operating team retains a close relationship with contractors of its own to formulate a clustered network.
Operating Teams In 1985 Samsung Corporation undertook a company-wide change of its organization. Before 1985, it had a traditional organization structure which had building blocks of sections and departments. It gave up its old structure and adopted a company-wide team organization (Figure 4). The teams were supposed to have more autonomy and authority to make their own decisions. At first, however, the actual process did not change in one morning. It took a considerable amount of time for this Long Range Planning Vol. 29
December 1996
Line personnel Management
1990 (5040 persons)
1996 (5032 persons)t
74.6% 22.3%
81.5% 15.5%
*About 3% of total employees work for development. tThe company merged with Samsung Constructions which consisted of 5,700 employees at the end of 1995. This number was not added in this table for the purpose of comparison.
new organization to be established in the company. Especially, the traditional process of personnel management such as the seniority system has been a barrier to the establishment of a team structure. While the adoption of teams was underway, Table 3 shows that the proportion of staffpersonnel reduced from 22.3% in 1990 to 15.5% in 1996. The adoption of a team organization has reduced the need for corporate staff. As the team organization becomes established, the teams take more responsibility and undertake more functions. For example, a team can take a loan directly from the bank, or it can recruit its own members from outside. Besides, a team can utilize its own networks to get service that used to be provided by the corporate staff. As was pointed out above, it took time for this new structure to be established and the effect to be realized.
Flattening of Hierarchy
The company substantially reduced the hierarchy and the length of the
How Samsung Organized for Innovation
line of command in 1993. As illustrated in Figure 5, the company eliminated division headquarters from the hierarchy. Flattening of hierarchy implies not only the change of organizational shape but also the change of decision making patterns. The company reduced the decision-making steps from 7 to 3. Actually, as is shown in Figure 6, in 1989 a proposal required 7 approvals and 3 a priori cross references. In the example shown, it took 24 days for the proposal to reach the president for a final decision. By contrast, another proposal in 1995 required only three approvals and was decided on the same day. The CEO signed afterwards to confirm that he was informed of the decision. Those who need to know about the decisions w o u l d receive the copy of the form after the decision was made, which is shown as " c o p y to" at the bottom of the form. It shows a dramatic change in the decisionmaking pattern and increase of speed, even though we take into account the possible difference in the type of decision between the two examples. Besides, the proposal form in 1995 is prepared in English which symbolizes the company's effort for globalization. As a result of flattening the hierarchy, the span of control of the CEO increased substantially (Table 4). This necessarily means that the CEO delegated his authority to the head of the division, the so-called "little president". A recent study also compared the span of control of the top managers in five Korean companies affiliated to Korea's five largest "Chaeb61". 29 The study included Samsung Corporation. Of the five companies, the top manager of Samsung Corporation had the
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widest span of control (Table 5). It shows that Samsung took a lead in flattening the hierarchy. As Table 5 shows, other companies still had division headquarters wh ich Samsung Corporation had eliminated in 1993.
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contractors company-wide and each operating team keeps a close relationship with contractors of their own, this study chose to examine a cluster of networks, the "TechnoValley" network team. "TechnoValley" is a product development team that started in 1991 as the company's first autonomous small group. The team had started as a very informal study group. It has developed many successful products such as the Bio-refrigerator, the Logo-boy Camera, Teletext TV, an "X-generation" pager "X-ing (they call it Sing)", and so on. The team started with 12 young members including the leader Sohn Byung Gun. The members were all under 30 years old. Sohn was the eldest and his rank of hierarchy was manager. He was given full autonomy and authority as a "little president" to make decisions regarding the business of the team. He was supposed to report informally to the CEO without reporting to any other managers in the hierarchy. He led the team with a clear vision to motivate the members whose number grew to 28 at the end of 1995. The team members were highly self-motivated and shared the vision of the team. The team by itself has developed three of its own networks: TechnoValley FAMILY, TechnoValley MEMBERSHIP, and TechnoValley MANIA (Figure 7). They chose very carefully highly qualified and competent specialists (individuals and organizations), known as "the best" in each field. Only the best network could make the best products, and only the best products sell in global competition. The team utilized a network organization of contractors when it developed a pager, "X-ing", in 1994 which was to become a big success. As shown in Figure 8, the TechnoValley team undertook only the planning and marketing of the product. Technology
Span of control Samsung Corporation H Motors L Electronics D Heavy Industry S Industry
25 11 19 15 8
was provided by " S u n w o o " , production by "Daeyoung" and "Nawoo", promotion by "Jeil", the leader of the promotion industry, and distribution by "015 Naretel", a n e w entrant and challenger in the pager service industry. Each of the participating organizations within the virtual corporation formulated by the network was known as the most competitive in its specialized field. The network members were confident that they could make the best pager. They dew~,loped quite a new concept of pager--an artistically designed pager for young generations with many functions such as remote start of automobiles and remote control of home appliances. It was a big success; they sold 220,000 units or 7.8% of the total market of 2,5000,000 units in 1995. The TechnoValley team also developed the Logoboy Camera and Teletext TV through global networks by using the same concept as TechnoValley FAMILY and MEMBERSHIP. In fact, they had their Korean competitor, instead of Samsung Electronics, produce the TV in order to meet the delivery date.
Major Issues We have examined three organizational innovations at Samsung Corporation. However, every innovation or change faces expected and unexpected problems. This study examines three major issues that are related with the three organizational innovations. It also discusses solutions that the company has tried or that have been suggested from consultative meetings. Although we discuss these three issues one by one, they are all inter-related.
Evaluation and Rewards Within and Between the Team Organization The leaders of the team were very concerned about their members' motivation levels. Naturally, evaluation and rewards within and between the teams affect the members' motivation. For example Sohn, the leader of the TechnoValley team, mentioned the difficulties he experienced: "The team worked very hard and made profit. Although we all worked hard, the contributions of each member were different. Some of them were really bright and virtually did all the job, while some others only supported the former. I can only recommend a few for promotion. Do I have to recommend just a
Organizations 13 divisions, 2 division headquarters, 7 offices, 3 officers in charge 8 division headquarters, 2 offices, 1 centre 11 SBUs, 6 offices 7 division headquarters, 2 offices 3 division headquarters, 1 support, 1 lab, 2 offices, 1 centre
Source: 29
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vision statement: " T h e Idea Business Group of the 21st C e n t u r y " , a m i s s i o n statement: "Creating HighValued F u t u r e B u s i n e s s " and a c o u p l e of team goals. T h e y s h a r e d those values as a team. In o r d e r to share the values, S o h n gave a party e v e r y F r i d a y night at his home. The m e m b e r s u s e d to stay overnight and w e n t to w o r k together on S a t u r d a y morning. Second, the team was given m o r e a u t o n o m y , b u d g e t and a m o r e spacious office in a r e m o t e place. Third, m o r e o p p o r t u n i t i e s w e r e given for education. S o h n b e c a m e the first beneficiary of this p l a n and n o w stays in the US as a s t u d e n t of a T e c h n o - M B A program. Fourth, m a n y of the m e m b e r s r e c e i v e d special awards, s u c h as " e m p l o y e e of the y e a r " instead of a regular increase in basic salary. It was also c o n s i d e r e d , h o w e v e r , to directly r e w a r d a certain a m o u n t of the profit of the team to the m e m b e r s . In sum, it appears that intrinsic r e w a r d s and group d y n a m i c s based on sharing values are v e r y important, p a r t i c u l a r l y in a team organization, to highly m o t i v a t e the m e m b e r s . H o w e v e r , extrinsic r e w a r d s and equity w i t h i n and b e t w e e n teams are also i m p o r t a n t factors.
few of them? And what for the next evaluation, and the next? What will be the effect on the morale of the team?" On the other h a n d , Choi Sang Jin, Director of Personnel, b r o u g h t up in r e p l y his difficulties in keeping balance c o m p a n y - w i d e . "I agree it is time to reward for performance. But, if we reward TechnoValley team exceptionally higher, it may de-motivate other teams whose existing business is inherently slow. And worse, they are still the mainstream of the company." In an a t t e m p t to resolve these p r o b l e m s , the team has m a d e efforts to self-motivate the m e m b e r s in m a n y ways. First, S o h n and the team p r e p a r e d a How Samsung Organized for Innovation
Career of Middle-to-top Managers As a result of flattening the h i e r a r c h y in 1993, a n u m b e r of executives lost their formal p o s i t i o n as h e a d s of division h e a d q u a r t e r s or divisions. 3° Six of t h e m were assigned to the " P r e s i d e n t ' s Staff", a n e w p o s i t i o n as a top m a n a g e m e n t team w h i c h was m e a n t to s u p p o r t the p r e s i d e n t strategically and to be trained to b e c o m e a future president. At first, h o w e v e r , their role was not well u n d e r s t o o d ; some of t h e m were in fact de-motivated b e c a u s e t h e y were p u l l e d out of the line and were not c o n f i d e n t about their future. S o m e j u n i o r managers were also d i s a p p o i n t e d at their p r e s u m a b l y similar future. T h a t was a critical m o m e n t to d e c i d e w h e t h e r the c o m p a n y c o u l d stimulate the m e m b e r s
of the whole organization or ruin their career vision. Many of them were wondering whether the president's staff were actually working or just "names". The decision was up to the president. Shin Se Gil, the president and CEO, utilized the President's Staff very effectively. First of all, he nominated the most capable of all the executives as the President's Staff. He assigned a company-wide strategic role to them: development of new business, overseas operations, and important ad-hoc projects. The CEO could not take care of each division due to the increased span of control. On the other hand, the division head might lack company-wide strategic perspectives. Therefore, the President's Staff filled the gap. In addition, the President's Staff were supposed to play the figurehead role for the company and a consulting and advisory role for the division heads, and to monitor the division heads informally. The last role of monitoring was particularly important, because it provided them with informal power in the organization. 3~ The CEO asked the opinions of the President's Staff when he evaluated the division heads. Further suggestions were made to establish this new position: the President's Staff are invited to all the strategic meetings held by the president; they share all the information with the CEO; they are given more opportunities of training to become a president; after 2 years of serving with the President's Staff they should be re-appointed as line manager. The President's Staff had front-line orientation 32 in that they played a very important strategic role and sometimes took an active role in pursuing urgent projects. This orientation fuses the strategic and operational roles of the top management team--enabling them to re-calibrate strategies based on real-time information and realistic action plans. :3:3
Sharing the Vision as a Virtual Corporation Sohn Byung Gun of TechnoValley team was looking for ways to have outside contractors willingly participate in the above-mentioned pager "X-ing" business. None of the network participants in the virtual corporation had anything in common except that they all prided themselves on their expertise in their chosen specialized field. Sohn began with promoting the vision of the team; he preached the ideas and possibilities of the new business again and again until they could share the vision. Second, he convinced them that they could be "the best" as a virtual corporation if they cooperated because each of them were the best in their own field. Third, he established a tie and used the term TechnoValley "Family". The business should be a w i n win game for every participant. They shared information, provided technology, consulted management and jointly developed overseas markets. In this case we can see the crucial factors that led to the success of the network organization. The network
organization of TechnoValley "family" operated as a virtual corporation. 34 They shared vision and goals, expertize, information, trust and rewards. 3~
Conclusion We have examined organizational innovations adopted in a Korean company. The company adopted three interrelated innovations: operating teams, flattening of hierarchy and networking. This study suggests the following implications. 1. Globalization and associated environmental changes such as technology change, time-based competition, quality orientation, customer needs and information technology demand organizations to change. The organizational innovations in Samsung corporation which were initiated by the Chairman were also triggered when he faced the poor quality of their products compared with global competitors. In addition, those environmental changes are closely inter-related; some environmental change causes other environmental changes, and so on. 2. The three organizational innovations examined are inter-related with each other. In other words, adoption of an innovation triggers or even demands other innovations. Team organization had more autonomy and less need for coordination between teams. It brought about a flattening of hierarchies. Team organizations also demanded market efficiency, which urged them to develop their own networks. Therefore, these inter-related innovations form a new configuration, a "Clustered Web" organization. 3, It takes time for organizational innovations to be established in a company. An interviewee mentioned that the team organization has not been fully adopted in the organization. We also found that the presumed effect was still being realized after 1 0 years since its first adoption (See Table 3). 4. Organizational innovations can cause expected and unexpected problems. Operating teams were faced with difficulties in evaluating and rewarding staff within and between teams. Flattening of hierarchies jeopardized the careers of middle to top level executives. Networking suffered for lack of shared values and visions. 5. Personnel management practices have to be changed in accordance with organizational innovations. In order to resolve the evaluation and reward problems with regard to the operating teams, a pay for performance system was suggested. It was considered to pay team members a certain proportion of the profit of the teams' business. Besides, other benefits such as more budget and autonomy, spacious offices, opportunities for training and symbolic rewards were provided to Long Range Planning Vol. 29
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exploit the advantages of a global network corporation, US companies with experience managing networks of wholly-owned or majority-owned international subsidiaries must develop the skills needed to manage effectively the ambiguity inherent in such relationships, without hierarchical control. On the contrary, Japanese firms must learn to manage their far-flung operations cohesively as they disperse value activities throughout the world, requiring adjustment to different mores and cultures. Since many Korean firms do not have much experience, more innovative efforts are needed in two ways: both managing external networks of alliances and managing extensive networks of international operations.
Appendix A Brief History of Samsung Corporation
the members. Meanwhile, to address the problem of the jeopardized careers of executives caused by the flattening of hierarchies, new positions entitled "President's Staff" were created. We have confirmed that organizational innovations are never complete without consistent changes of managerial processes and values of the members. Korean companies are in the early stages of preparing for globalization. The case we have examined gives us just a small indication as to the long and u n k n o w n way ahead. Korean companies have less experience than Japanese or US companies. Yoshino and Rangan compared American and Japanese multinational companies (Figure 9 ) . 36 They maintained that US firms were among the first to pursue international markets and are naturally familiar with managing extensive networks of international operations. However, the overwhelming majority of the affiliates are either wholly owned or majority controlled. As a consequence, the relationships are best characterized as hierarchicah 37 Japanese companies, on the other hand, are not familiar with multinationality from their administrative heritage. Their traditional strategy has been to serve international markets from assets and resources based largely in Japan. But Japanese firms, particularly those belonging to the same keiretsu, cooperate extensively with one another affording them a core competence in managing collaborative relationships. 38 Yoshino and Rangan stipulate that in order to How Samsung Organized for Innovation
The 1930s and 1940s--established as a trading company 1938 Started out as the "Samsung General Store" located in Taegu to trade in agricultural commodities. 1948 Moved its operations to Korea's commercial hub, Seoul. The Company's name was changed to "Samsung Moolsan Co." and focused on trade with partners in Southeast Asia and the USA The 1950s and 1960s--emerged as Korea's largest export leader 1952 "'Samsung Moolsan Co.'" became "'Samsung Co., Ltd'" amid the chaos of the Korean War. Its primary business was to provide imports of lifesustaining products and materials needed for postwar national reconstruction. 1953 Established the Tokyo Branch as Samsung Co's first overseas branch, 1962 In response to the Korean government's massive export drive, Samsung devoted itself to developing new overseas markets and was put in charge of handling the export activities of the entire Samsung Group. 1966 Awarded the presidential citation in honor of being Korea's largest exporter. The 1970s and 1980s--designated as GTC and diversified 1975 Samsung Co., Ltd became Korea's first officially designated general trading company (GTC), won a prize as US $200 million exporter and was publicly listed. 1981 Focused on trade in heavy and chemical industrial products. 1985 Diversified its business from trading to overseas natural resources development, triangle trade, and exports of multi-faced products such as plants and projects. 1988-1994--the second take-off revolution 1988 Launched the STEP 11 (Samsung Transformation Efficiency-maximizing Plan for the Second foundation) and with strong activities pursued globalization and diversification. 1989 Increased overseas direct investment such as oil
1990 1993
exploration in Malaysia, established plants for apparel in Southeast Asia and Middle and South America. Extended its business to media such as Dream Box. The Company obtained AA-ratings from the Japan Bond Research Institute. On 55th anniversary Samsung Co., Ltd was changed to "Samsung Corporation" and announced a
1994
1995
"Declaration of New General Trading Company Spirit" concept which put the customer first. Purchased retail company at Seohyeon subway station area and will start operation in 1996. Became the first Korean Company to achieve US$10 billion in exports. Merged with Samsung Construction. Founded automobile manufacturing business.
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How Samsung Organized for Innovation