Camp Samsung

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To develop winning products, the Korean giant isolates artists and techies for months on end

By Moon Ihlwan

Business Week Online
JULY 3, 2006

Last June a group of 11 Samsung Electronics Co. employees pledged to do the last thing. most people desire just as spring bursts into summer: stay inside a drab room with small, curtained windows for the bulk of the next six weeks. The product planners, designers, programmers, and engineers had recently entered Samsung's so-called Value Innovation Program (VIP) Center, just south of Seoul. They were asked to outline the features and design of the company's mainstay flat-screen TV, code-named Bordeaux. And their bosses had vowed to keep them posted there until they had completed the assignment.

After an introductory ceremony attended by senior executives of Samsung's video division, the team joined a dozen or so similar groups at the VIP Center and got down to work. The facility is a sort of boiler room where people from across the company brainstorm day after day -- and often through the night. Guided by one of 50 "value innovation specialists," they study what rivals are offering, examine endless data on suppliers, components, and costs, and argue over designs and technologies. The Bordeaux team hammered out the basic look, feel, and features of the model by mid-August. Then over the next five months designers and engineers worked out the details, and by February the sets were rolling off Samsung assembly lines. They hit stores in the U.S. and South Korea this April, starting at about $1,300 for a 26-inch set. "For the first time in our company, we developed a TV appealing to customers' lifestyles," says Kim Min Suk, an official at Samsung's LCD TV Product Planning Group.

It's all part of a new mantra at Samsung: "market-driven change." In the past decade Samsung has radically improved the quality and design of its products. Yun Jong Yong, Samsung's 62-year-old chief executive, now wants the company to rival the likes of Microsoft Corp. (MSFT ) and IBM (IBM ) as a key shaper of information technology. By 2010 he aims to double sales, from $85 billion last year to $170 billion. The Korean giant, however, still isn't an innovation leader on the order of Apple Computer Inc. (AAPL ) or Sony Corp. (SNE ) in its heyday. Yun says Samsung has become "a good company," but "we still have a lot of things to do before we're a great company."

Yun insists that when it comes to manufacturing, his company is second to none. Yet in the Digital Age, when mechanical parts are replaced by chips, Samsung's well-run factories are no longer enough to make it stand out. He points to MP3 players as an example. Samsung rolled out its first players two years before Apple did. But Apple gave consumers the ultimate player -- the iPod -- and, with the iTunes software and Web site, an easy way to fill it with music. It's time for Samsung to start developing similar products, Yun says, that better serve customers. So far, "we don't have the power to deliver total solutions."

INCUBATION STAGE

How to make Samsung more innovative? One key initiative is the VIP Center. Yun set up the program in 1998 after concluding that as much as 80% of cost and quality is determined in the initial stages of product development. By bringing together everyone at the very beginning to thrash out differences, he believed, the company could streamline its operations and make better gadgets. In the past two years, though, the center's primary aim has shifted to "creating new value for customers," says Vice-President Lee Dong Jin, who heads the facility. Translation: Find that perfect balance of cost, innovation, and technology that makes a product great.

If it weren't such hard work, it might almost be fun. The center, at Suwon, Samsung's main manufacturing site, 20 miles from Seoul, is open 24 hours a day. Housed in a five-story former dormitory, it has 20 project rooms, 38 bedrooms for those who need to spend the night, a kitchen, a gym, traditional baths, and Ping-Pong and pool tables. Last year some 2,000 employees cycled through, completing 90 projects with names such as Rainbow, Rapido, and Rocky. Other products that have come out of the center include a notebook computer that doubles as a mobile TV, yet is thin and light enough to be carried in a handbag, and the CLP-500, a color laser printer that was built at the same cost as a black-and-white model. While some teams wrap up their work within weeks, other projects drag on for months, and all division leaders sign a pledge that participants won't return to their regular jobs until they have finished the project.

The Bordeaux team shows how the VIP Center works. The goal was to create a flat-screen TV that would sell at least 1 million units. But the team members quickly discovered that they had strongly differing opinions about what consumers want in a TV. The designers proposed a sleek, heavily sculpted model. Engineers wanted to pack in plenty of functions and the best picture and sound quality. Product planners were concerned primarily with creating something that would beat the offerings of Sharp Corp. (SHCAY ), then the leader in LCD TVs.

Every step of the way, team members drew what Samsung calls "value curves." These are graphs that rank various attributes such as picture quality and design on a scale of 1 to 5, from outright bad to excellent. The graphs compared the proposed model with those of rival products and Samsung's existing TVs. The VIP Center specialists also guided the team in discussions exploring ideas and concepts from entirely different industries, picking up hints about the importance of the emotional appeal in the offerings of furniture makers and Hollywood. "We wanted a curve resembling a wine glass, and a glossy back to make the TV fit in with other furniture," says designer Lee Seung Ho, who worked on the Bordeaux project.

One challenge the team faced: Surveys showed that shoppers buy a flat-screen TV as much for its look as a piece of furniture as for its technological muscle. Some members went to furniture stores to figure out what made buyers tick, and discovered that the design of the set trumps most other considerations. So the group started shedding function in favor of form, cutting corners on high-tech features to spend more to make a TV that looks good even when it's turned off. The control buttons were placed out of sight on the side, while the speakers were tucked under the screen to create a sleek, minimalist front underlined by a flat, curving V in blue or burgundy. The back and stand got the same high-gloss coating as the front. To keep costs down (part of that quest for value), Samsung removed a sensor that automatically adjusts the brightness to the light in the room and decided not to boost resolution to accommodate the latest high-definition standards. And with the speakers under the screen, the sound quality was lowered even as the TV's silhouette improved. "We tried to make sure consumers get maximum value for an affordable price," says Kim Dong Joon, one of several senior managers at the VIP center.

The initial response is encouraging. In the last week of May, Samsung inched ahead of Sony to become the No. 1 LCD TV brand in the U.S., garnering market share (in terms of value) of 26.4%, compared with Sony's 24.6% and Sharp's 8.2%, according to researcher NPD Group. In January, Samsung was No. 3, with just 12.1%. Yun now says he wants to become the top maker of digital TVs, including those using plasma and rear-projection technologies, in the U.S. this year.

Pretty grand ambitions. But Yun has a strong record of setting stretch goals and achieving them. Under hisstewardship, Samsung has transformed itself from an industry also-ran into the richest electronics maker in Asia. Now it could also become the coolest if Yun can reinvent Samsung one more time and get his engineers, designers, and marketers to dream up products such as the Bordeaux and really fire consumers' imaginations. It just might mean spending the summer inside.