Strategy Formulation Midterm
John Michael Chadonic
What is our competitive advantage? How do we monetize it? How do we sustain it in an evolving competitive landscape? Chairman Lee and company has continually strived to answer these questions over the past 30 years. To help shed some light on these fundamental questions, we’ll evaluate the drivers of Samsung’s competitive advantage, analyze its’ value stick relative to the competition and conclude with recommendations for how to proceed in the future.
Exhibit: Samsung’s Value Stick
As highlighted in the above diagram, Samsung has an exceptional ability to both generate and capture price and cost value relative to the competition. In essence, Samsung has superior and sustainable profits, which give it a competitive advantage. This advantage is derived from the following factors:
· Superiority in Product Quality/Reliability
· Supremacy in Product Design/Development
· Market Foresight and flexibility to proactively adapt to a changing competitive landscape
· Organizational culture and intangibles
Superiority in Product Quality/Reliability
The first driver of Samsung’s competitive advantage is their relentless focus on product quality and reliability. By increasing product reliability, P/WTP increased because OEMs were willing to pay a 1% price premium for high-quality and non-defective memory. Furthermore, efforts to burn shoddy products coupled with winning numerous competitions likely further caused an uptick in consumer WTP. In closing, even competitors named Samsung their supplier of choice.
Supremacy in Product Design/Development
Samsung’s biggest differentiator relative to the competition is their ability to develop cutting edge, frontier products. Firstly, devising product development teams who internally competed allowed Samsung to create simple and modular products. For example, during the 1980s, companies faced a critical decision to use ‘stacking’ or ‘trenching’ to fit cells on a tiny chip. Samsung chose to utilize stacking to keep the design simple and modular, making it easier to see and fix mistakes.
Moreover, Samsung created ‘niche products’ using customized architectures and offered ‘legacy products’ to customers after the industry moved on to later generations. The shear ability to produce 1,200 product variations provided material consumer optionality that was unmatched by its competitors.
As it pertains to its’ design philosophy, Samsung used a unique approach. Products were distinctive in certain ways but still had a common core design. Whereas other competitors had scattered manufacturing operations, Samsung’s R&D facility and fab lines were centrally located, which helped to save construction and transport costs. Also, the proximity offered frequent personnel communication and the ability to solve problems faster.
In summary, superior product design,...