Samsung Electronics Co. Ltd.

(Samsung),
Market entry of new or emerging technologies and the disruption in an industry caused by a new technology
Key takeaways from the case:
∙ Analyze the reasoning required when making new R&D investments as a technology company.
∙ Recognize the complexities that exist for a giant industry incumbent trying to innovate and compete with smaller
start-ups.
∙ Understand the IoT and its large-scale implications for consumers and businesses.
∙ Analyze how and why technology firms try to employ platform strategies.
∙ Understand and apply the concepts behind “escalation of commitment” and the “sunk cost fallacy”— two major
issues in the technology industry.
∙ Analyze the technology industry and its inherent fast-paced competitive dynamics.
∙ Identify and recognize the issues that arise when developing a new technology as a business in an increasingly
technologically dependent world.
Assignment Questions

1. What is the IoT, and what value does it create for consumers?
2. What are some of the key challenges that the IoT represents?
3. What opportunities does the IoT offer Samsung?
4. What resources and capabilities will Samsung need to succeed with IoT? What does success look like?
5. How might the concepts of the “escalation of commitment” and the “sunk cost fallacy” influence Samsung’s
decision? What can Samsung do to address any issues that may arise?
6. As Yoon, what course of action would you take concerning the IoT for Samsung?
Iot video-10 min.
• https://www.youtube.com/watch?v=NnB-iSrqbFY
 IoT explained
• In 2014, faced a new disruptive technology called the Internet of things (IoT) (in infancy stage, then).. The IoT was a technological
concept based on the interconnection of electronic devices with computing power embedded in everyday objects, enabling them to
work together to create novel solutions for everyday life.

• Over the next two years, the IoT matured and represented a considerable amount of uncertainty for the entire global consumer
electronics industry

What exactly is IoT

“Internet of things” was coined in 1999 by Procter & Gamble Company (P&G) employee Kevin Ashton.
• Although the actual idea of connected devices has been around for decades, IoT has been known as the “Internet of things” only since
the turn of the millennium. Earlier, the idea was associated with embedded or pervasive technology.
• Today, the IoT refers to a technological concept about the interconnection of computing devices embedded in everyday objects, enabling
them to work together and create novel solutions.
• The giant network of interconnected “things” establishes technological relationships between people and people, people and things, and
things and things. Through connectivity and interoperability, the technology brings innovative solutions for everyday life to consumers,
the industry, and the world at large.
IoT Challenges (in general and with Samsung)

• Lack of interoperable standards: many devices cannot communicate coherently and therefore cannot work cohesively.
The problem is that most consumers purchase their home electronics from different brands, so unless the industry
becomes open-source, interoperable standards will remain an issue
• Consumer adoption issue: many people are still wary about the data that IoT devices collect about them.
• Security issues: IoT devices are susceptible to hacking.

In March 2016, AT&T Inc. released its Cybersecurity Insights Report, which surveyed over 5,000 enterprises worldwide. The
survey found that “85% of enterprises were in the process of or planning to deploy IoT devices but only 10% felt confident
that they could secure those devices against hackers.”
Samsung itself also faced security issues. In May 2016, researchers at Microsoft Corporation and the University of Michigan
discovered multiple vulnerabilities in the security of Samsung’s SmartThings home platform.11
These data breaches can prove very costly for firms. For example, Sony Corporation, one of Samsung’s main competitors, was
hacked for customer data twice, in 2011 and 2014, which ended up costing the firm $271 million.
The most expensive cyber-attack in history was the 2011 data breach at Epsilon, the world’s largest email marketing firm,
which resulted in damages estimated between $225 million and $4 billion.13 The real possibility of a hack on the
SmartThings platform could cripple Samsung, stifle it with legal issues, and lead to irreparable damage.
 SAMSUNG AND THE INTERNET OF THINGS

“Samsung CEO Outlines His Vision for the Internet of Things”: https://www.youtube.com/watch?v=Jqmc0j7a600
In the video, Yoon outlines the company’s vision with respect to what applications and opportunities the IoT can provide.
Given the necessary infrastructure and distribution channels for IoT market penetration for number of samsung devices were already in
place, adding IoT capabilities to these devices was not prove operationally difficult.
The global market for the IoT in 2015 was estimated at $743 billion, and it was expected to grow at an approximate rate of 88 per cent to
$1.4 trillion by 2018.
Samsung’s purchase of SmartThings, the current market leader in smart homes, is another benefit, which can potentially provide
Samsung with first-mover advantage over competitors and new entrants.
IoT’s current potential is accredited to Advances in computational power and the cost efficiency of chips. Therefore, Samsung is in a
position to seize the many opportunities for cost savings through vertical integration.

Samsung Group, the company’s parent organization, currently operates in numerous industry verticals, so advances attained
from R&D in the IoT can have further applications in other verticals such as industrial applications in the organization’s
engineering businesses, thereby increasing the total value of IoT initiatives.
 Resources and capabilities Samsung needed to succeed with the IoT

• Samsung operates within the consumer electronics industry, which is currently in a very mature stage. In 2015, the global
market for consumer electronics was estimated at $685 billion, but it was projected to grow no more than 5 per cent
over the next three years.

• Samsung is a market leader in virtually all segments of the consumer electronics market (including communication,
entertainment, and business—both at home or in the office).

• Constant technology innovation is must in this industry to remain competitive. Therefore, the company has to dedicate a
considerable amount of financial resources and human capital to ensure that it can be successful in the development of
enticing IoT applications.
• In the case, Yoon has already announced that Samsung products will use open-source systems and that the company
plans to work with all competitors to integrate the IoT across all devices. Yoon has also promised that all Samsung
devices will be IoT enabled by 2020.
• If Samsung is able to deliver on all of its promises, and to successfully integrate the IoT into its products for seamless
and smooth interoperability, it can become the market leader in this segment and capitalize on its first- mover
advantage, having already established a place in the market with its acquisition of SmartThings.
 Challenges with Implementation of IoT
How might the concepts of the “escalation of commitment” and the “sunk cost fallacy” influence Samsung’s decision?
What can Samsung do to address any issues that may arise?

The two key concepts could influence Samsung’s managerial decisions concerning its strategy for R&D investment:

1. Escalation of commitment refers to “the tendency for decision makers to persist with failing courses of action.” It arises in situations where additional
investment could either remedy the situation or lead to greater loss.

Here Samsung had 2 possibilities:

The investment could also fail to deliver the results Samsung is seeking,
Investing $1.2 billion in the IoT will result in strategic and financial success
as was the case with Microsoft and with Nokia Corporation (Nokia).
for the company, which could guarantee its place as the market leader.

2. The sunk cost fallacy is “the decision to invest additional resources in a losing account when better investment alternatives are available. The correct
course of action is to review each decision independent of any cost that has already been incurred and evaluate current opportunities on their merit
only.

Learning: {Managers must ensure that any new funding will not sink the company deeper into financial stress that
could be difficult to overcome. To avoid such a detrimental scenario, managers must be diligent when making investments.
Regular target reviews are essential to ensure that the investment does not derail the company beyond control.}
 Decision regarding investing in the IoT:
As Yoon, what course of action would you take concerning the IoT for Samsung?

• In the case, there are various issues still to resolve related to this technology, such as:

At company level:

• lack of interoperable standards

• possible serious financial
• legal harm from a security breach.
• any flaws in the connectivity and interoperability of its products.

At consumer level:

• trust factors (that their products/homes will be safe n secure before Samsung can be sure about acceptance of its IoT-enabled products)
• fear from manipulation by “big business” based on the data collected.
• security issues present within IoT devices, which can make them highly susceptible to hacking.
 Real Opportunity for Samsung : to capture the projected growth in this new industry, which can be immense

• Yoon has also already made a calculated statement by announcing that all Samsung devices will be IoT connected by 2020.
• As the market leader, the company is now expected to deliver on that promise
• Such an extremely ambitious goal cannot be achieved without the necessary R&D expenditure to overcome the many challenges that
can arise during the development of IoT-integrated products.
• Delivering IoT products that are consistent with the high-quality standard that Samsung customers are accustomed to may require
even more R&D spending than already planned.
• Also, company must be diligent to ensure that its spending produces devices with innovation and the latest technology, rather than
dated and flawed products, despite considerable R&D expenditures.
• Samsung must learn from the mistakes of Microsoft and Nokia without repeating them.
Conclusion: What Happened?
On June 21, 2016, Samsung announced that it would move forward with the planned $1.2 billion investment.Half of this amount was
directed toward investments in US ventures working on IoT initiatives. The other half of the funds was used to further develop
technology in its own US facilities, including the Samsung Strategy & Innovation Center in Palo Alto, California.

• The invested R&D funds helped Samsung resolve issues related to interoperable standards. However, the company still had a
long road ahead to resolve all connectivity problems.
• Security issues remained rampant in the industry, and there was no clear solution in sight. Hackers were targeting common
home devices such as routers and video game consoles.
• Competition increased, as industry giants such as Google LLC (Google) and Amazon Inc. (Amazon) began to vie for market share
by improving and promoting their own devices—Google Home and Amazon’s Alexa.

In 2019, Samsung announced that its expansion in living series of products to include artificial intelligence. It also stated that it had
consolidated all of its IoT applications (apps) into one streamlined SmartThings app, and the number of SmartThings devices had
doubled to include products from, and partnerships with, various competitors including Google and Amazon.

“Samsung SmartThings Powers My Home!”

https://www.youtube.com/watch?v=nn7XxINRGcs This video shows a man using Samsung’s SmartThings to control all of his home appliances. Its a live
demonstration of Samsung’s SmartThings operating in a connected home as of December 2017, which offers a glimpse of the progress of IoT technology.