Review of the Crisis
Samsung Electronics is one of the best brands in the world. It is the preferred mobile phone manufacturers, and its products have been featured in the media across the world. The company’s achievements were remarkable because it primarily focused on home appliances and semiconductors. When it first made the decision to try its hands on the mobile phone business, experts on the industry termed the move as reckless and foolhardy. However, the firm’s investment into the mobile market turned out to be successful. Even though the company has maintained a momentum of its success, it has experienced various issues that need to be addressed. First, competition in the mobile phone market has intensified. This has made the firm to invest in innovation with the objective of introducing high-end mobile phones to rival those of competitors. In 2016, the firm faced different challenges associated with one of its newest mobile phone gadget, Galaxy Note 7.
Samsung Company risks can be grouped into three major categories.
New Manufacturing Risks
Samsung Company could not explain clearly what went wrong with its batteries in both the original Galaxy Note 7 handsets. The Consumer Product Safety Commission assessed the issue and highlighted that the phones’ batteries were faulty. The body claimed that the batteries were too large to fit into the phone’s available space. CPSC pointed out that installing the batteries into the phone would crimp the corners of the Galaxy Note 7. This could result in a short circuit, hence overheating and eventually an explosion. Samsung replaced the SDI batteries and approached the Amperex Technology Limited that is based in China for replacements. However, the batteries from Amperex also had similar manufacturing problems. According to investigators, the issue associated with the explosions was beyond the batteries (Fifield and Barbash 1).
The company failed to explain the issue to the public. It vanished after Samsung started to replace the faulty gadgets. The Amperex’s parent firm also did not comment on the batteries issue. Furthermore, the firm left most of the carriers in the dark concerning the issue. Instead, the company requested partners to share all the testing data. The carriers lacked sufficient information about the whole issue. Therefore, they have no idea of what to share with the customers (Fifield and Barbash 1).
Fast Charging Risks
Another risk is associated with the phones charging. According to Lopez (1), the phone was built with a fast charging feature and this caused explosions. Citing Lopez (1), the risk was due to the tweaks inbuilt into the phone’s processor to increase the charging pace. Charging the battery fast made the Galaxy Note 7 too volatile. In other terms, if the engine is pushed so hard, it is likely to explode. Therefore, from the phones’ batteries, it is clear that one of the components had to be interfered with. Therefore, the Samsung Galaxy Note 7 charging system is one of the risks associated with the explosions.
Risks Associated with Phone’s Design
Galaxy Note 7 was the firm’s most sophisticated mobile phone in history, and according to the industry experts, it was going to challenge the dominance of Apple in the markets across the world. The newest gadget in the market had an iris scanner, edge-to-edge display, and effective waterproofing techniques. Also, the mobile phone had a large battery compared to that of its predecessors. The phone featured a symmetrical curvature. This is one of the key features that the firm was so proud of. This feature might have put pressure in the phones battery packs resulting short circuits hence the dangerous fires (Maheshwari 1).
After the first recall incident, the Korean consumer protection body leaked a documentation that reported that the SDI’s batteries were bigger than the phone’s battery compartments. Additionally, the isolation plates, which separate the cathode and anode, were closely located at the edges. Further citing Maheshwari (1), it is possible that the external pressure could have affected the isolation nodes during the manufacturing process. This could have increased pressure, hence fire explosions.
The Risks Outcomes
As a result of the crisis, on 10th September, the UAE aviation authorities banned the use of Samsung devices on board. Other airlines and aviation authorities such as the U.S Federal Aviation Authority Administration also warned passengers against powering on Galaxy Note 7 in the flights. The Thailand authorities banned the import of the product while the Canadian government recalled it from the market. The company promised to incorporate software update with the objective of minimizing the risk of the phones exploding or catching fire. Additionally, it recommended a maximum limitation charge to 60%.
Following the crisis and the risks mentioned above, in October 2016, the company discontinued manufacturing and supply of the Galaxy Note 7. This is because there were reports of the replaced gadgets exploding or catching fire too. As a result of the Galaxy Note 7 handsets scandal, the firm’s share price started to reduce. The stock price reduced by seven percent. As a result, the financial analysts estimated that Samsung might report a loss of about U.S$ 5 billion of total revenue following the product recalls. By 14th September, Samsung had lost approximately $ 10 billion of its market value. This made the firm to experience a delay in launching new products not only in India but also other major markets globally (Maheshwari 1).
Citing Hutson and Johnson (3), there are different modes of crisis management strategies that a company can use. Samsung Company applied the apology strategy in responding to the crisis. Therefore, the firm took full responsibility and apologized to the stakeholders. The company’s president released a video, and accepted the mistake and emphasized the importance of the customers’ safety. According to Kalpan and Mikes (50), accepting a mistake influences a firm’s reputation positively. However, the company’s crises management system faced both positive and negative criticism from PR practitioners and journalists.
In summary, it is evident that there are different risks from the case that the management should put into consideration while designing a risk management plan. The risks include manufacturing risks, the charging risks and the risks associated with the design of the phones.
Handling the Crisis
The crisis started in August 2016 few weeks after the firm launched the sale of its newest product on the market, the Samsung Galaxy Note 7. There were reports that the product was not only exploding but also catching fire to the extent of causing bodily harm to some users. During the first cases, the Samsung management responded swiftly to its key stakeholders, who are the customers. The firm’s management promised customers immediate action to understand and investigate the issue. There were about 35 reported incidents of the product exploding within a short duration of two weeks following the sales launch. The company’s risk and crisis management were first in their response. The risk management plan was also well communicated, customer centric and focused on bringing all the major players on board (Fifield and Barbash 1).
Nonetheless, as more reports and incidents emerged in several nations, more importantly in China, the firm began to take missteps. For example, Samsung Company applied selective recall of this handset in some nations. Consequently, they failed to communicate the rationale they used in instituting the policy.
There were other reported cases across the world. This made the company to face heightened criticisms from different stakeholders such as regulators, retailers, and customers. The stakeholders complained that the recalls were done inconsistently and poorly; hence phone carriers like Verizon, ATT, and Sprint had no option but bear the brunt of the client crisis without logical support or clear instructions from Samsung Company. Additionally, Chinese customers accused the firm of discriminating them. This was because no customer service was in place, and there was no recall of the product from the China market. In a real sense, the company was not handling the crisis well in China in comparison to nations such as U.S. This caused extra reputational damage. The Chinese customers stormed the social media with complaints an aspect that could contribute to negative implications (Fifield, and Barbash 1).
The Samsung company management stopped the production of the gadget and informed its user through the website on measures to take. The company recommended that consumers should switch off the phone immediately and contact the vendor so that they can get a refund or exchange for a new one. However, it was difficult for the people to see the words. This is because users had to click a link on the company’s homepage. However, there was no urgent label on the link.
Customers complained that Samsung Company provided minimal information. Critics pointed out that the firm could have appointed a spokesperson in the media, especially on television. The spokesperson could have had the responsibility of explaining in detail the real problem to the public. Additionally, through the spokesperson, Samsung could have reassured the public that other Samsung products were good. The firm should have apologized to consumers and explained the measures they were taking to rectify the problem. It should have also stipulated the available compensation options to the affected customers. Therefore, Samsung Company could have adopted effective media campaign and put full page ads in national newspapers not only apologizing but also explaining to the public the measures they have taken to correct the problem and reassure its customers on its products soundness (Fifield and Barbash 1).
The firm failed to use social media effectively. For example, Samsung Company took 42 days following posting of pictures showing the gadgets blazing before it responded or acted on the issue. Citing Fifield and Barbash (1), in the 21st century, it is recommendable for companies to adopt a social media strategy. Samsung was not swift in responding to the problems reported in the social media. The firm’s teams failed to monitor posts about the product on social media; therefore they failed to report the same to the senior managers on time. In other words, there was no constant communication about the crisis on the brand’s Facebook, Twitter, home page and other social media sites.
Samsung Company could have used the product recall experts to recall the Galaxy Note 7 from the market. The experts know how to recall any product from the market without aggravating the situation. The experts can work with the regulators on various strategies including how to issue recall notices and save the brand from damage.
Samsung took the crisis seriously and demonstrated concern and care for the safety of its consumers. It adopted swift response and communication. According to Fifield and Barbash (1), one of the best tools for success crisis management in the 21st century is informative communication. Citing Kalpan and Mikes (53), it is important for the company to provide factual information. If a company takes too long to respond to a crisis, it is likely to result in criticism and lack of control on message circulation an aspect that can affect the firm’s reputation. On the other hand, the swift response has its bad repercussions, one of the lessons that Samsung Company has learned. For example, in Hong Kong, Samsung Company released a statement assuring customers that their gadgets were not affected, because of a different battery used in them. However, the company withdrew the statement the following day after realizing that 500 Galaxy Note 7 phones had been affected after all.
Additionally, the swift response affected the regulators negatively. The regulators were frustrated because the company failed to follow the protocols and guidelines of the U.S Consumer Product Safety Commission. In other words, the firm did not coordinate with the commission while withdrawing the products from the market. This resulted to further criticism from the media and consumers (Fifield and Barbash 1).
The 21st crisis management calls for a balance between accuracy and timelines. The mentioned two elements should be coordinated. Lack of proper coordination can amplify the risk and challenges in managing the crisis. Therefore, Samsung Company could have assembled its team and communicated to them how to attain the required balance in dealing with the Galaxy Note 7 crisis. It is clear that the company was not prepared to handle the crisis, and this caused immense damage to the firm’s market share and reputation. Therefore, it was recommendable for it to adopt immediate measures that could deter further damage. From the crisis, other firms learned the necessity of having a crisis communication plan in place (Fifield and Barbash 1).
Managing the Risks
There are different forms of crisis management models. However, all the models have three basic steps. The first one is identifying not only the nature but also scope of the problem. The second step involves fixing the problems and making things right with the affected stakeholders. The third step entails taking actions aimed at ensuring that the problem will not happen again. It is a simple process; however, its success depends on the first step. If the problem is not defined quickly and accurately, then there is a possibility of the company being thrown into bureaucratic panic. Consequently, there is an inbuilt political tension that interferes with the entire operations of the company.
The firm’s management should adopt a sustainable and adaptable crisis and risk management strategy. Citing Kalpan and Mike (55), it is important for a firm to have a comprehensive, adaptable and sustainable crisis management plan in place. For example, if Samsung Company had a risk management plan, it could have responded to the crisis from the beginning, and sustain the turns and twists of a reputational complex issue. The crisis had additional risks on quality, safety and health of the consumers. Hutson and Johnson (2) add that a firm that is prepared to handle a crisis will have a team and a plan and scenario exercises in place to manage the critical tasks. The Samsung management should consider developing and adopting one to mitigate and manage the future crisis.
Glocalizing of the firm’s Crisis Management plan: According to Kalpan and Mikes, (48), risk and crisis management of a global and complex issue should be local. In other words, the scope should be customized to meet the requirements of every locality that the crisis presents itself. In handling the crisis, Samsung Company risked its reputation in one of its largest and reliable market segment-China. Therefore, it would be recommendable for the management to examine all its modes of operation in China.
Based on the development, there are long and short term steps that the firm should consider
The management should review its risk management plan to ensure it is comprehensive, robust and updated to handle both local and global crisis. Therefore, it should have a sense of culture, media environment and social media of the local customers.
More importantly, the firm’s management should have a better coordination of public relations management, coordination of communication and planning. This should include social media training for all senior management in the concerned country (Lopez 1)
The Long-Term Measures
Identification, expectations analysis and prioritization of the stakeholders- It is evident from the Samsung crisis event that the stakeholders include potential customers, the customers, the regulators, the media, and third parties such as the vendors. The company should conduct a stakeholder’s exercise and expectation to understand reputation opportunity and risk (Fifield and Barbash 1).
The firm should also participate in gap analysis, risk management evaluation, and reform. The mentioned should be coordinated with the executive team, crisis management team, and the board in an actionable manner.
The Samsung Company will perform well if it has a reputation risk and crisis management plan for all the crisis, stakeholder evaluation, reputation including its safety, health, and quality management programs with the objective of establishing or re-establishing sustainable organizational trust and resilience.
The firm’s officials were skeptical about the client’s account of the crisis, and they did not have an idea how to respond to them. The response could be attributed to lack of clarity on what caused the problem. There was a lack of quality management on the problem. The management could have acknowledged the customer’s feedback. This is because feedback is important for successful operation of the business. Additionally, feedback from both stakeholders and consumers should be evaluated, documented and solved immediately. Therefore, it is important for the firm’s management to have
Even though the reason behind the crisis is still unclear, the management should have taken the concerns of the customers seriously. Therefore, the firm’s management should have basic quality management policies and principles that convey the best standards and procedures, which guide the company’s actions in a customer-centered manner.
The management could have used effective techniques to solve the problem. According Lopez (1), the management reported that the explosion and overheating were due to the defective batteries. However, replacement of the batteries did not solve the problem. The entire management could have found the cause of the problem instead of dealing with the symptoms only. The company’s standard quality management system could have focused on finding the cause of the problem and implement effective solutions to prevent reoccurrence. This is because even though Samsung Company had the right to issue a recall, the real problem remained unresolved. After discovering that not all customers will turn in their devices, the firm further introduced a software download that would only allow the battery to charge up to 60% to avoid explosion or fire hazard. The mentioned was just a temporary fix aimed at protecting the consumers.
It is clear that the firm mishandled the recall of the devices. For example, Samsung wanted to use the U.S Consumer Product Safety Commission to supervise the recalls. However, the government entity does not take part in fast tracking recalls where there are complex and technical issues. Therefore, because the company did not reveal the cause of the problem, the device replacement and recall was not well handled. The management should have put in place an effective quality management system with procedures and policies to guide all the responses to the crisis. The management should also adopt protocols and ensure that the consumers’ safety is well handled (Lopez 1).
In conclusion, the technical team should change their testing techniques of all products before the sales launch. This is because future malfunctions will be viewed as incompetence pattern. The quality assurance remains a critical component that the company should deal with to ensure effective crisis and risk management.
Fifield, Anna and Barbash, Fred. “Samsung Galaxy Note 7 crisis deepens. Is it ‘done for’?” The Washington Post, October 10, 2016, https://www.washingtonpost.com/news/morning-mix/wp/2016/10/10/samsung-galaxy-note-7-production-suspended-after-replacement-phone-fires-reports-say/?utm_term=.144e518fb7ee. Accessed on 19 Mar. 2017.
Hutson, Harry and Johnson, Martha. To Recover from a Crisis, Retell Your Company’s
Story. Harvard Business Review, (2016). 2-4
Kalpan, Robert and Mikes, Anette. Managing Risks: A Framework. Harvard Business
Review, (2012). 90(6), 48-60.
Lopez, Maribel. “Samsung explains Note 7 battery explosions, and turns crisis into opportunity”. Forbes, Jan. 22, 2017, https://www.forbes.com/sites/maribellopez/2017/01/22/samsung-reveals-cause-of-note-7-issue-turns-crisis-into-opportunity/#75c0ac7624f1. Accessed on 19 Mar. 2017.
Maheshwari, Sapna. “Samsung’s response to Galaxy Note 7 crisis draws criticism”. The New York Times, October 11, 2016, https://www.nytimes.com/2016/10/12/business/media/samsungs-passive-response-to-note-7s-overheating-problem-draws-criticism.html?_r=0. Accessed on 19 Mar. 2017.
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