Samsung Group Struggling to Break Mold

Conducts the biggest reshuffle ever to infuse new blood and make the organization nimble to cope with changes

The recent biggest-ever reshuffle of the Samsung Business Group -- 18 out of 46 CEO-level officers retired and 12 were promoted -- signals the tremendous changes in the way the group's flagship company, Samsung Electronics, and other affiliates will be operated, business analysts said.
The massive personnel change, made on Jan. 16, is construed as the group's desperate countermeasure to cope with the unprecedented management crisis, caused by nose-diving demand in Korea and abroad in the wake of the U.S. financial meltdown and the sagging global economy, they said.
In reality, Samsung Electronics, the group's cash cow, is grappling with the exacerbating business environment as it is expected to post its first loss in eight years for the fourth quarter of 2008 and to face a bleak outlook for 2009.
The reshuffle is expected to send a powerful shockwave throughout the nation's largest conglomerate beyond the retirement of the old guard and the generational transfer. It is seen as the group's move to not only ease the clogging of personnel management in the corporate hierarchy and infuse new blood, but also to explore new strategies in a rapidly changing business environment, as the group did with its declaration of a "New Management Drive" in 1993 and "Global Management" in 2000, according to the analysts. In 1993, the group announced the drive, dubbed the "Second Founding," calling for "Changing all things except their wives and offspring."
The latest reallocation can be summed up as a declaration of the group's "determination to revamp all organizational and manpower management systems except the brand." The move resulted in retiring the "old guard" aged 60 or more, except Kim Jing-wan, president and CEO of Samsung Heavy Industries, and Lee Sang-dae, president and CEO of Samsung C&T Corp., who were promoted to vice chairmen, as well as slimming down the group's mainstay units, including Samsung Electronics. For example, Samsung Electronics has combined its four business divisions into two -- Device Solution and Digital Media & Communications.
Explaining the background of the reshuffle, President Yoon Soon-bong, chief of the group's brand strategy team, said the group has maintained a practice in which Samsung executives aged 60 or over are supposed to prepare for their retirement, but personnel management has been against that unwritten law for the past four or five years, clogging the pace of generational change with the aging of CEOs. Only Samsung Heavy's Kim and Samsung C&T Corp.'s Lee were born before 1948 and were promoted to vice chairmen, Yoon said. The latest reshuffle set a standard for CEOs to retire at aged 60, as most CEOs in the age group expressed their willingness to step down in order to hand over their posts to junior officials, he said.
Describing the key words of the personnel change, he said the group decided to opt for the people who can make faster decisions in the field, not only for personnel management but also for organizational structure, so a minimum of manpower will stay at the headquarters and most staff members will be reassigned to the field. The group's biggest affiliate, Samsung Electronics, has adopted the latest reorganization, and other affiliates will follow suit, he noted.
Former Samsung Group Chairman Lee Kun-hee, who resigned from his post last May, and is now no longer involved in day-to-day operations, reportedly expressed unhappiness over the lax operation of the group. An analysis of the group, conducted by an outside consulting firm, reportedly revealed inner organizational woes and tasks that need to be rectified. Samsung's inner management system turned to out to be too slow to face up to a changing outside business situation.
The reorganization of Samsung Electronics as a nimble two-vision structure is seen as a move to keep a world-class company with annual sales of 100 trillion won from resting on its laurels. The operation of some departments was found to be lax, as the head of Samsung Electronics' auditing team was elevated to a president-level post in order to infuse a sense of crisis into the organization.
In this regard, the group decided to cut executives' annual pay and incentives and the number of executives by approximately 10 percent. It strives to reform its management system as well, while its emergency business plan contains belt-tightening measures.
The group is likely to create a new roadmap for setting mid- and long-term business goals after revamping its operation with newly appointed CEOs and other executives
The public spotlight is on how Lee Jae-yong, the son of former Samsung Group Chairman Lee Kun-hee, will engineer Samsung Electronics in an era of post-Lee Kun-hee. The Junior Lee, who holds the senior executive vice president title at Samsung Electronics, has been engaged in expanding a network of global leaders, including Al Gore and Colin Powell, whom he had met with. nw