Samsung's Next Reinvention Challenge: Itself

As its smartphone sales stutter and a generational leadership succession looms, Samsung Electronics Co Ltd is under pressure to reinvent itself - to be more innovative, but not lose the rigor and focus that made it a global powerhouse.

One effort this summer to foster a more worker-friendly environment and a more creative culture is to allow staff at its main Suwon campus south of Seoul to wear shorts to work at weekends. Working hours are more flexible, and female staff can take maternity leave without worrying about job security.

The flagship of South Korea's dominant conglomerate, or chaebol, is also trying to address shifting cultural values at home by curbing some of the excesses hardwired into corporate Korea. Forced late-night drinking sessions, long a staple of local office life, are out.

"It's 1-1-9 for evening company outings now: one type of alcohol, in one place and only until 9 p.m," said a Samsung employee in his eighth year at the firm. "Younger staff are no longer forced to stay, and the senior workers will be careful not to upset their subordinates," he said, asking not to be named as he was not authorised to speak to the media.

Samsung last month posted an unexpectedly sharp drop in second-quarter earnings, squeezed by falling market share in smartphones, and with no obvious driver in sight to reverse the decline. Chairman Lee Kun-hee, 72, who has famously managed Samsung with a sense of "permanent crisis", remains hospitalised following a May heart attack.

The ascension of his son and heir-apparent, the Harvard-educated Jay Y. Lee, 46, could be a breath of fresh air, but effecting wholesale change in the way the sprawling company operates would be a Herculean task and could prove a mistake.

"The company is in somewhat of a Catch-22 when it comes to changing its culture," said Jay Subhash, a former senior product manager who left Samsung in April. "It desperately needs to adopt a culture that fosters openness, creativity and innovation. But doing so would jeopardise its greatest existing cultural asset, its militaristic hierarchy, which enables it to operate at lightning speed to outpace the competition."

"Soul searching"
Samsung has long emphasized the need for creativity while hiring more foreign talent as it operates in increasingly diverse markets. Along with relaxed rules on work hours, it stresses a "Work Smart" philosophy to reduce unnecessary time spent at the office.

While it's hoped a looser environment will help stir new ideas, some insiders say progress is slow against what's often described as an entrenched culture of rigid, top-down management.

"Samsung's doing some soul searching right now, it's asking itself 'who am I, and what should I do next?" said Chang Sea-jin, a business professor at Korea Advanced Institute of Science and Technology and author of "Sony Vs Samsung".

"In the long term, the company needs to become global and open. Giving employees more autonomy can lead to loss of control, but this will in the long run benefit the company by developing talent that can run the business from a global perspective."

The drop in second-quarter profit triggered some symbolic belt-tightening at Samsung: Handset division managers gave up part of their bonuses and downgraded to economy class for shorter flights - acts of loyalty that are part of Samsung's culture, which emphasizes urgency in action.

While the company is a market leader in smartphones, TVs, refrigerators and memory chips, it's saddled with a perception that it's a "fast-follower" and not an innovator like Apple Inc or Google Inc.

Samsung is hardly alone in the culture struggle.

Many Korean firms deal with the same issues stemming from the legacy of the country's Confucian, conformist culture, which has also fuelled its industrial success. Several Samsung employees interviewed by Reuters said that those who "stand out" from the norm struggle and often end up leaving.

"The core challenge for Korea is that as a Confucian culture that has deep respect for age, hierarchy is very important and so what you'll find is that it's hard to innovate in an environment where challenging your boss is not something you can easily do," said Shaun Cochran, head of CLSA Korea.

Signs of change
Samsung is making efforts to address that.

In July, Chief Financial Officer Lee Sang-hoon asked how Samsung can respond to rapid changes in the tech industry in the first "Grand Discussion", an initiative for more dialogue, through the company's newly launched Mosaic internal message board. The discussion generated 4,221 ideas and comments.

"Samsung takes pride in the creativity and diversity of its talented people and will constantly strive to create an environment where they have the opportunity to grow," the company said in a statement to Reuters. The company did not make an executive available for an interview, but provided Reuters with written material on various initiatives.

Under its "Creative Lab" programme, employees can individually or in teams take a year to develop an idea they come up with if it's deemed worthy of pursuit. Samsung says it had some 14,000 ideas last year through this programme and other company initiatives.

Employees and Samsung watchers say cultural change is inevitable as a younger generation of Koreans increasingly demands more than just high wages.

In a survey this year by job portal Incruit, Korean Air Lines Co ranked as the country's most desirable employer, snapping Samsung's 10-year run at the top. Incruit said Samsung's reputation for imposing a heavy workload and limiting personal time jarred with a growing preference for work-life balance.

That said, some two-thirds of Samsung's nearly 300,000-strong workforce is outside South Korea, and the vast majority of its revenue is generated away from home.

Among leading South Korean firms, Samsung stands out in that it doesn't discriminate on where job applicants were educated, said Im Chan-soo, head of LCS Communications in the southern port city of Busan, which offers private lessons for those preparing for interviews at Samsung.

Staff turnover at Samsung in South Korea was below 3 percent last year, against almost 17 percent at its overseas facilities.

"Samsung looks for honest people who are crazy about the company, people who have only looked to Samsung, who have done a lot to try to get in," said Im.

One former Samsung Electronics employee, an American in South Korea, said top managers are globally minded, though many employees and observers interviewed by Reuters said the core of its culture remains distinctly Korean.

"I think change is inevitable," said the current Samsung employee. "It's not because the company decided to be a trailblazer, but because the societal trends are changing. There's a desire to change the system."

© Thomson Reuters 2014