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Lee Kun-hee's legacy

Why Lee set fire to over 150,000 mobile phones

Oct 26, 2020 (Gmt+09:00)

This is the first of a four-part series that will delve into Chairman Lee Kun-hee’s New Management initiative that charted Samsung's course to become the leading global brand it is today.

On a Lufthansa flight from Tokyo to Frankfurt on June 5, 1993, Samsung Group Chairman Lee Kun-hee sat in his first-class seat peering into a pile of papers as the flight took off.

A few hours later, he summoned his executive officers – also on the flight – together to address issues raised in a report submitted by the group's Japanese counsel. He noted comments such as these: 

“When Samsung designs a product, management orders us to create a product that combines all of the prototypes despite each design having different starting points and concepts.”

“We are asked to complete a design in just three days.”

“Employees walk around with cords and wires tangled on the floor and no one bothers to organize them.”

After citing these issues and others raised in the report, Chairman Lee asked the other executives for their thoughts, prompting an impromptu seven-hour in-flight huddle on the changes and reform needed at Samsung. 

The next morning, Chairman Lee received a 30-minute video created by Samsung Broadcasting Center with footage of employees refitting a defective laundry machine lid by chafing off the edges with knives. In a rage, Lee called the Seoul office immediately.

“Record this conversation. I have repeatedly stressed the importance of quality management, and this is the result? Fly in everyone – chief executive officers and management executives – to Frankfurt.”

This marked the beginning of Chairman Lee's trademark business strategy, the New Management initiative, credited for mapping the group's transition from quantity to quality and its emergence as a global technology powerhouse.

Chairman Lee's strategy didn't stem from just a few days of pondering. It was a product of passion and deliberation accumulated over a decade of training as successor to the group leadership alongside five years of serving as the Chairman.

His famous quote: “Change everything but your wife and children,” reflected Lee’s determination to bring in change.

Lee Kun-hee lays out his New Management initiative in Frankfurt, 1993
Lee Kun-hee lays out his New Management initiative in Frankfurt, 1993

CHANGE TO SURVIVE

Corporates all cry out for change and reform, and those that neglect change are likely to be left behind. Examples include Sony, which was late in responding to digitalization and Nokia, which fell behind in the smartphone wave.

Chairman Lee’s approach to reform was distinctive in that it did not begin with changing the system, but rather by uprooting the way of thinking. Lee often said: “If you remove self-centeredness then it creates unity, and when forces are combined then we can become No.1 in anything that we do.”

Lee spearheaded the reformation of thought processes by implementing ideas such as: change comes when we trust each other; walk the right path; don’t drag others down; and don't be afraid of criticism. He proposed heading in the same direction when it came to change.

“Chairman Lee knew it wouldn’t be easy to shake up corporate culture in one sitting,” said a company source. “Lee’s call for a change was something like a cultural revolution.”

Chairman Lee also worked on providing systematic changes that would support the overhaul of the corporate culture. In August 1993, Lee introduced working hours from 7 a.m. to 4 p.m. in a period where most Korean employees worked six days a week, from 8 a.m. into the late-night hours.

In 1995, Chairman Lee abolished academic qualifications in the official hiring process which was unconventional at the time, and removed the dress code for female employees to do away with gender discrimination. He also introduced an annual salary system instead of a seniority-based pay system to attract top talent.

PRIORITIZING QUALITY MANAGEMENT

Chairman Lee constantly prioritized quality management: “If we become the world’s leading company then the profits will increase by triple or fivefold. Get rid of defect rates even if it means we shut down.”

Yet, the Samsung organization did not budge as most of the executives were from the golden days in the 1960s and 70s when products were sold immediately upon release. They were fixed on the belief that quantity is foremost.

On Jun. 15, 1993, Chairman Lee delivered a speech of more than 10 hours to reiterate his stance on quality management.

“It’s fine if we lose market share and turn to deficit due to our attention to quality. If we go into deficit, I will use up my personal fortune,” said Chairman Lee.

After his lengthy speech, Lee Soo-bin, his chief secretary at the time, along with other CEOs came to Chairman Lee’s office to convince him otherwise.

“We can’t give up our focus on quantity yet. Quantity and quality go hand in hand like the front and back of a coin.”

Hearing those comments, Chairman Lee threw down the teaspoon in his hands and barged out the door. The executives' faces went pale. This was the infamous "spoon incident" – ushering in an era of quality management remembered by some Samsung executives and employees as the period of the "burning ceremony." 

Samsung employees take a hammer to defective phones in 1995. The banner reads: We will make 100% quality products
Samsung employees take a hammer to defective phones in 1995. The banner reads: We will make 100% quality products

In 1994, Samsung Electronics’ mobile phone division rushed their product release which raised the defect rate of the group's mobile phones to 11.8%. In January 1995, Chairman Lee ordered all of the defective phones to be replaced and two months later, in March, 150,000 defective phones were piled up at the Samsung Gumi factory. 

Around 2,000 employees gathered to watch 10 employees take hammers to the phones, and then set the broken pieces on fire. It was shock therapy, to say the least. But it worked. 

In 1995, Samsung's wireless phone's domestic market share rose to 19%, climbing to the top position from fourth place the previous year.

Chairman Lee’s high standards for quality management served as a foothold for the now globally popular Galaxy series of Samsung-designed mobile devices.

In 2012, three weeks prior to the Galaxy S3 launch, the texture of the phone's back cover did not come out as planned. Some 100,000 covers had already been manufactured and the outbound shipments were loaded on a plane, but Chairman Lee made no exceptions when it came to his zero tolerance for poor quality.

This time around, there was no burning ceremony – 100,000 covers were discarded and replaced.

DIGITALIZE, GLOBALIZE, DEMOCRATIZE

Chairman Lee’s business initiative included an emphasis on globalization, digitization, and democratization. Nowadays, digitization and globalization are the norm, but at the time this thinking was revolutionary. Chairman Lee stepped up global operations saying: “In the 1980s, being a local champion made you a champion. But now, you have to be a global champion to be recognized as one.”

Another priority for Chairman Lee was convergence. He firmly believed that putting together a number of operations in a single location would increase efficiency.

“If people in charge for planning, design, sales and construction are all in the same building, then they can come together for a meeting in just 40 seconds,” said Chairman Lee, who applied the concept not only to buildings but also to factories, hospitals and cities.

Chairman Lee’s idea of multifaceted convergence prompted Samsung to secure large properties in Suwon, Hwaseong and Asan to develop large multi-unit complexes with factories, research centers, hospitals and schools all within the same vicinity. Thanks to its vast multi-complex establishments, Samsung boasts unrivaled speed when it comes to product development and production.

Write to Hyun-suk Kim at realist@hankyung.com

Danbee Lee edited this article.

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