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How Samsung Transformed Its Corporate R&D Center

Article  in  Research Technology Management · July 2006

DOI: 10.1080/08956308.2006.11657384

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 HOW SAMSUNG TRANSFORMED ITS CORPORATE R&D CENTER

A strategic transformation allowed Samsung to leapfrog from technology

follower to leader.

Sangmoon Park and Youngjoon Gil

Publication:

 Park, Sangmoon and Youngjoon Gil (2006), “How Samsung transformed its
Corporate R&D center,” Research-Technology Management, Vol.49, No.4, pp.24-29

[Author Bio at bottom

Sangmoon Park is a full-time lecturer at the Department of Management, College

of Business Administration, Kangwon National University, Chuncheon City,
Korea. Previously he worked for the Samsung CTO office at the Samsung
Advanced Institute of Technology (SAIT). He received his M.E. and Ph.D. from
the Graduate School of Management at the Korea Advanced Institute of Science
and Technology (KAIST). His research interests include management of
technology and entrepreneurship in technology-intensive industries.
venture@kangwon.ac.kr

Youngjoon Gil is the president of Samsung Information Systems America in San

Jose, California and worked for Samsung Advanced Institute of Technology since
1987. Before that he was a vice president of the Samsung CTO office at SAIT in
Korea. He received his B.S. in mechanical engineering from Seoul National
University and an M.S. in mechanical engineering and Ph.D. from the Graduate
School of Management at the KAIST. yjgil@samsung.com
OVERVIEW: A study of the strategic transformation of Samsung’s corporate
R&D center (SAIT) shows how the R&D center transformed its organization and
processes to align the company’s business units for value creation. In the early
days, SAIT struggled to find a position between a development-oriented and a
research-oriented center. During the transformation, SAIT enhanced its R&D
capabilities by aligning with business strategies and integrating R&D processes
with Design for Six Sigma(DFSS). Key drivers of the transformation included
consensus on the need for organizational change, strong leadership from top
management, close alignment of R&D and the business units, and actionable
planning and performance management.

KEY CONCEPTS: corporate transformation, R&D performance, technology

follower, technology leader.
 Technological capability is recognized as a key engine of both short-
term business performance and long-term survival (1, 2, 3). In a difficult
environment for global leaders, technological followers have scarcely derived any
better performance from their technological capabilities. However, Samsung’s
recent success has shown how important product development and
manufacturing have been in the face of fierce market competition.

Samsung has become one of the big players in the global electronics business,
which it entered in 1968. Total sales of the Samsung Group and its 63 affiliates
reached $122 billion in 2004, up from $102 billion in 2003. This accounted for
20.7 percent of Korea’s total exports in 2004. The conglomerate has become a
global leader in such technology-intensive businesses as DRAM semiconductors,
LCD (Liquid Crystal Display), and handsets.

In 2005, Samsung Electronics had total sales of Won 57.46 trillion (US$ 58.24)
and net profit of Won7.64 trillion. Compared to other global leaders with huge net
losses or flat growth in recent years, Samsung has seen its total sales triple and
its operating income increase five-fold since the Asian financial crisis. This
performance resulted from Samsung’s commitment to technology management
and stable R&D investment aimed at enhancing the competitiveness of existing
business areas and identifying new business opportunities.

The high level of uncertainty in R&D has made it difficult to manage corporate
research centers and R&D departments in business units (4). Previous studies
have suggested numerous management practices, including close alignment of
R&D strategy with business strategy, balance between corporate research
centers for long-term projects and R&D departments in business units for short-
term development, and cross-functional integration between R&D and marketing
department (5, 6). However, most of these practices are derived from the
experiences of technology leaders. There are few studies of how the corporate
R&D centers of technology followers can conduct R&D activities that create value
for their business units.

Consequently, this paper investigates how corporate R&D centers of

technological followers can transform their major R&D management systems.
More specifically, it examines the development of the Samsung corporate R&D
center--Samsung Advanced Institute of Technology (SAIT)--and its
organizational transformation processes.

Samsung Corporate R&D Center

Samsung’s rapid growth has resulted from the development of

technological capabilities adhering to the philosophy of its founder and top
management. In 1987, the company established a corporate R&D center to
develop technology capabilities for value creation in diverse business areas and
provide the next growth engines for global competition. This R&D center has
pursued the development of basic technologies for new businesses and applied
technologies for product development and manufacturing problems in the
business divisions. However, unlike the corporate R&D centers of global leaders,
which focused on basic technologies, the Samsung R&D center struck a balance
between basic research areas and applied technologies. It was also expected to
support diverse business divisions with different levels of technological
capabilities. For the competitive business divisions, it would develop more basic
technologies and transfer them to business development groups for
commercialization. It also provided research support for technologically
inexperienced business areas.

These mixed roles allowed the R&D center to implement management

systems characteristic of both research and development labs. However, they
also made it difficult for Samsung to adopt the advanced R&D management
systems that were used by the corporate research centers of global leaders. Still,
although there were many problems in the development of mission,
organizational processes, and accumulation of technological capabilities after
inception, close ties between the corporate R&D center and business divisions in
Samsung were created through organizational transformation.

Evolution of the Corporate R&D Center

Transformation of the Samsung corporate R&D center (SAIT) took place

over four periods:

1. 1987 to Early 1990.-- SAIT was founded in 1987 to prepare future businesses
and support existing ones by developing advanced technologies. Despite the
high expectations, SAIT had difficulty in maintaining its unique status among the
company’s other R&D centers, which were focused mostly on short-term and
applications-oriented R&D projects. Under uncomfortable relationships with the
business units, SAIT invested significant resources in short-term R&D projects to
satisfy the needs of business units. Eighty percent of R&D projects were
allocated to applied development. This created conflict between SAIT and the
business unit R&D centers.

2. Early and Mid 1990s.-- The Samsung Group adopted a new management
philosophy and redirected its cost-oriented management to quality-oriented
management. Since 1993, this new management philosophy has penetrated into
all business lines and given SAIT an opportunity to improve the uncomfortable
relationship with business units and focus on the organizational mission.
However, with inefficient R&D management systems and relatively low levels of
technological capabilities, SAIT had difficulty carrying out its primary mission of
increasing the competitive advantage of existing business lines and pursuing
new business opportunities.

3.Mid and Late 1990s.—To improve its technological capabilities and upgrade
its R&D management systems, SAIT initiated various organizational innovations
and changed how it allocated resources. For example, the organizational
structure was changed to research laboratories around major research fields,
focusing on long-term and basic R&D projects, rather than short-term and
development-oriented R&D ones. In addition, SAIT paid more attention to
recruiting talented R&D employees. Nevertheless, although these organizational
changes made the R&D management system more efficient, it remained
inefficient in increasing technological capability and creating new business
opportunities.

4. 2000 to Present.—Concentrating on value creation for customers, SAIT

adopted many innovative management programs like knowledge management
and DFSS program, and initiated them concurrently. SAIT was designated a key
engine of Samsung businesses and a global R&D center with advanced
technological capabilities. As the Samsung corporate research center, it focused
on the key technological areas and upgraded the R&D process from one of
planning to commercialization.

Recently, SAIT developed close relationships with the business units and
increased R&D performance as measured by the number of R&D projects
successfully transferred into business lines and the number of patents. In
2004,80 percent of SAIT’s R&D projects reached commercialization, compared
with 61 percent in 2002 and 18 percent in 1997. Also, applications for U.S.
patents increased from 19 percent of 380 total applications in 1997 to 85 percent
of 1,400 patent applications in 2004.

Transformation of the Corporate R&D Center

Since 2000, SAIT has transformed its organization and R&D processes
in the following principal directions:

Visioning and restructuring

Although SAIT aimed at advancing beyond technology follower, it

encountered difficulty in managing a corporate research center because of the
low level of technological capabilities and inexperience in early R&D
management around basic technologies. To create new businesses and enhance
Samsung’s competitive advantage in existing businesses, SAIT assessed its
R&D projects and core technology areas. It found that the initial research areas
and technology capabilities were hardly adequate for the organization’s mission,
and that fundamental transformation around top management teams and
business divisions was needed. Through formal and informal discussions with
researchers and communication with business units, top management teams
developed specific action plans for becoming a global R&D center. Principally,
SAIT rearranged its overall R&D projects around core technology areas. It
restructured its R&D areas and projects to focus on such key technologies as
digital technology, nano technology, optoelectronics, energy, and biotechnology.
These areas are closely linked to existing businesses and new business
opportunities for Samsung.

However, the transformation process was so painful that many

researchers decided not to adopt these changes and some of them left the
organization. Nevertheless, by recruiting and promoting talented researchers,
SAIT built up a global level of technology capabilities. To create world-class
products and valuable research results, it developed sophisticated R&D
management processes based on DFSS (defined as the design of new products
and services with a Six Sigma capability and performance). It also enhanced
knowledge management and network infrastructures for close collaboration
within research laboratories and between SAIT and the business divisions.

Excellence of product

During the organizational transformation, research and development

projects were aimed at developing state-of-the-art technologies. Each project
targeted specific goals to develop the first or the best technological innovations
through fundamental patents or state-of-the-art technologies. In the planning
stage, each R&D project assessed the technological development status of
leading global organizations on key technologies and set high goals for project
performance. These world-class targets evoked research challenges on the new
R&D projects and motivation to achieve the expected results. Samsung invested
in continuous improvement in existing technological and business areas.

To survive and grow in the competitive world market, Samsung needed

to develop key patents on basic technologies, actively participate on global
standardization committees, and create more value. This realization made
researchers set top-notch targets for new R&D projects and motivated them to
make greater efforts to achieve differentiated technologies and radical
innovations. In addition, SAIT built close relationships with business divisions by
sharing business strategies and technology roadmaps to increase the successful
commercialization of developed technologies. R&D projects for
commercialization in the near future should specify business strategies and
coordinate responsible roles for technological success and value creation.

Excellence of process

To increase the efficiency of R&D processes, SAIT adopted the quality-

oriented philosophy of DFSS. There was some criticism of this because DFSS
programs were developed for quality improvement in manufacturing rather than
R&D where creativity is important. Despite the criticism, however, the basic
DFSS goal of customer value creation is similar to the purpose of R&D.
Consequently, the philosophy and methodology of DFSS were customized into
the overall R&D process from project planning through stage-gate processes to
commercialization.

DFSS programs were utilized across the development stages of R&D

projects (see Figure 1). At the planning stage, the project manager aligned
technological roadmaps with the business strategy of business units and
analyzed diverse customer needs by using value curve and QFD methods. For
ongoing projects, the main processes include review of project milestones,
relevance of project objectives in changing environments, and key problems and
potential obstacles to progress. At the final stage, all R&D projects are assessed
in terms of accomplishment of project objectives, technology transfer to business
divisions, and the next R&D plans.

==================================================
Figure 1 about here
==================================================

Excellence of people

To respond to rapid technological change and converging technologies,

SAIT was reorganized as a matrix organization of technology groups and
projects. Technology groups emphasize developing core technological
capabilities around key technologies and identifying emerging technologies and
new business opportunities. Project managers are responsible for developing
specified R&D activities and commercializing technological advances.

In addition, SAIT has made significant efforts to recruit talented R&D

employees and develop individual skills and careers. Beyond the traditional
recruiting of graduates from Korean universities, SAIT has made extensive
efforts to recruit talented researchers with technological capabilities in the global
market.

Project managers and researchers have also learned to use tools for`
project management, technology management and business development, and
to develop balanced perspectives on the efficient management of R&D activities
and commercialization of R&D results. SAIT expects all researchers to become
professionals armed with technological expertise and business acumen in their
R&D activities. Each researcher reaches a certain level depending on the
experience and expertise, from entry to the highest level. These levels are used
to organize new project teams, recruit new researchers, and plan career
development. For example, only experienced researchers above a certain level
can become R&D project leaders.
 The evaluation and performance measurement systems were also
changed to assess both the R&D project results and potential capabilities in key
technology areas, so as to support researchers’ career development as experts
in the related fields. Currently there are approximately 1,000 researchers in the
SAIT, 86 percent of whom hold graduate degrees.

Organizational transformation

The painful organizational transformation contributed to the improvement

in R&D performance, and the subjective satisfaction of business units with the
SAIT R&D results grew rapidly. Among 133 R&D projects conducted up to 1997,
only 24 (18 percent) were successfully transferred to business units and
contributed to commercial business value creation. The other 109 R&D projects
contributed hardly at all to value creation. Only 32 R&D projects were technically
successful, while 77 R&D projects succeeded technically but failed commercially.
Foreign patent applications comprised 19% of all patent applications in 1997.

The organizational transformation was intended to increase the R&D

performance of the corporate R&D center in terms of both the commercialization
of R&D projects and the generation of important patents. That performance
increased dramatically. Among 79 recently completed R&D projects, 33 were
transferred successfully to business units and contributed to commercial value
creation. Another 15 R&D projects are now in the process of commercialization.
The other 28 R&D projects succeeded technically but not commercially. More
surprising was the change in patenting-- foreign patent applications reached 85
percent of all patent applications in 2004, about four times the 1997 figure of 19
percent.

Key Drivers of the Transformation

A number of factors accounted for the successful organizational

transformation, including a consensus on the need for organizational change,
strong leadership of the top management team, close alignment with business
units, stable corporate investment, and actionable planning and performance
management. Most of all, however, the initial success of the transformation can
be attributed to the clear strategic direction as a corporate R&D center and the
close relationships with business divisions, from planning through ongoing
management to commercialization of R&D projects. SAIT developed Samsung
R&D management practices by integrating research methodologies such as
technology roadmapping and scenario management and development
methodologie like robust stage-gate processes.

At the initiation and planning stage, each R&D project was aligned with
the business and technology strategies of the business units through sharing
technology roadmaps. The strategic alignment between SAIT and business
divisions was regarded as a key success factor for R&D projects and
performance maximization. Also, this clarified roles and responsibilities in the
successful commercialization of projects. Through technology roadmapping,
SAIT and business divisions coordinate roles and allocate resources, make
specific plans for R&D activities and commercialization, and develop the next
technology roadmaps.

To develop world-class technologies, SAIT identified key technologies

and relationships among core technologies by using the technology tree
technique. These analyses had an influence in assessing the importance and
priority of R&D projects. Also, SAIT adopted TRIZ methodology to find new and
creative solutions by predicting evolution trajectories of specific technologies.

Traditional R&D project management focuses on the management of

stage-gates to review the progress of projects and make decisions to proceed.
The R&D management at SAIT focuses on project review and discussion, called
design review, among technology experts and business professionals. These
design reviews facilitate knowledge management and discussions between SAIT
and business experts on critical issues and potential problems. They can be held
any time there is a need for discussion, rather than at specific times or events
according to formal schedules.

To increase the success rate of technological commercialization, SAIT

project teams collaborate with business divisions before the projects are finished.
During these periods, R&D teams transfer technological results and know-how
related to the projects and find solutions potential commercialization problems. In
addition, SAIT and the business lines in the development and manufacturing
groups, can communicate with each other efficiently by sharing the same DFSS
methodology, including documentation forms and terminology.

Emerging Challenges

Despite the improved R&D performance, Samsung’s corporate R&D center faces
many challenges. First, Samsung is rapidly leapfrogging from a technological
follower to a global leader. During the last three decades, Samsung has been
focusing on the imitation and internalization of key technologies developed by
global leaders. Now, however, as a global leader it has to develop its own
technological innovations and change the role of the corporate R&D center.
Instead of pursuing a catching-up technology strategy of imitation and acquisition
of advanced technologies, SAIT must create new business areas and drive
technological innovations by investing in emerging research areas with a high
level of uncertainty, such as nanoelectronics, energy and intelligence. It must
develop a balanced strategy between exploitation in existing businesses and
exploration in new businesses.
 Second, many business units have asked the corporate R&D center to
upgrade technological capabilities for existing businesses and create disruptive
technologies for new businesses. In response to the increasingly competitive
environment, companies need to build core competencies based on sustainable
knowledge and capabilities. For example, the corporate R&D center should
consider how to exploit the accumulated knowledge base and explore new
technological knowledge, combining internal investment and strategic alliances.
Although SAIT improved R&D productivity and efficiency through the adoption of
DFSS programs, these management systems may be insufficient to develop new
and innovative research fields. SAIT needs a more systematic approach to
efficiency in development-oriented projects and effectiveness in research-
oriented projects.
Finally, globalization of R&D is another challenge facing Samsung’s
corporate research center. As R&D boundaries extend from local and regional
areas to other countries, it becomes increasingly important to coordinate local
R&D centers and distant global R&D centers. To adapt to the rapidly changing
environment, global R&D networks and management systems are needed to
monitor global technological changes and to develop key technologies in
emerging areas. The management of global R&D and strategic collaborations
with other global leaders is an upcoming challenge in terms of strategic human
resource management, global recruitment of talented researchers, and the
management of these global researchers within the culture of Samsung.

Example for Others

The strategic transformation of Samsung’s corporate R&D center from a
technological follower to a technological innovator can be an example for other
technology followers and leaders. For followers, managers who have an interest
in establishing their corporate R&D center can transform their corporate R&D
centers between research and development centers and build close alignment
with business units for existing businesses and new opportunities. For
technological leaders, they can learn some lessons on how to transform their
corporate R&D centers for value creation and to strengthen alignment with
business units.
References
1. Christensen, C.M. The innovator’s Dilemma, Boston: Harvard Business School
Press, 1997.
2. Foster, R.N. Innovation: the attacker’s advantage, Summit Books, 1986.
3. Utterback, J.M. Mastering the dynamics of innovation: how companies can
seize opportunities in the face of technological change, Boston: Harvard
Business School Press, 1994.
4. Buderi, R. Engines of Tomorrow: how the world’s best companies are using
their research labs to win the future, Simon & Schuster, 2000.
5. Roussel, P.A., Saad, K.N. and Erickson, T.J. Third generation R&D: managing
the link to corporate strategy, Boston: Harvard Business School Press, 1991.
6. Miller, W.L. and Morris, L. Fourth generation R&D: managing knowledge,
technology, and innovation, John Wiley & Sons, 1999.
<Figure 1> Integration of R&D management and Six Sigma methodology in
Samsung
 An Application of Samsung R&D Processes

The development of MPEG-4 technologies exemplifies a successful application

of Samsung R&D practices. MPEG-4 is an international standard developed by
MPEG (Moving Picture Experts Group); the committee developed MPEG-1 and
MPEG-2 standards for interactive video on CD-ROM and Digital Television. The
MPEG-4 is the next-generation multimedia compression standards to deliver
high-quality audio and video streams for digital television, interactive graphics
applications, and interactive multimedia.

To respond to the rapidly changing competitive environment, Samsung

investigated recent technological progress and developed technology roadmaps
in multimedia areas in cooperation with business units including digital
television, mobile handsets and display. As only standardization patent holders
can gain competitive advantage in this area, Samsung actively participated in
international expert forums and standardization meetings. It also updated
technology roadmaps regularly and coordinated the development schedules
with the standardization meeting schedules.

To develop specific technologies for the new standards, Samsung used

technology tree techniques to identify major functions and explore alternative
technologies for each function. The new technologies in the technology
roadmap specified main functions, and key technological characteristics
cascaded from generic functions to sub-functions and sub-sub functions. For
example, the performance of video compression is specified by the color
transformation and compression functions. At the sub and sub-sub-function
level, Samsung investigated existing technologies and developed new
technologies for each function.

As a result, Samsung developed key technologies for the MPEG-4 and became
one of the leading members in MPEG-4 standardization and its related
industry.—S.P. and Y.G.

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