[Initial Moment] The Courage to Admit Failure

The person who recommended reading 'The Law of Invincible Ideas,' published by Alberto Savoia, Google's first Engineering Director, was a former CEO of a leading conglomerate. This was during an open discussion about why Samsung and LG brand smartphones and Hyundai Kia Motors vehicles are struggling particularly in China.

Samsung Electronics, which once held an overwhelming number one position in the Chinese smartphone market, began to falter around 2014, losing ground to 'knockoff Apple' Xiaomi. Within just 5 to 6 years, it has become rare to see a Chinese person holding a smartphone with the Samsung logo. Even luxury smartphones, symbols of wealth, are preferred as Apple rather than Samsung. Samsung boasts the number one market share in the global smartphone market, even excluding its largest market, China, but it is uniquely weak only in China. The proportion of China in Samsung Electronics' total sales has shrunk to around 15%. Meanwhile, the Americas (32%) and Europe (19%) account for more than half.

Within some divisions of Samsung Electronics, the Chinese market, which has become a 'chicken rib' (something of little value but hard to discard), was concluded to be like a 'paradox of innovation.' The delayed reflection was that although purchasing power differs, they released good products too far ahead of the market and excessively sincere sales network management actually backfired. Simply put, they failed to read the Chinese consumers’ minds, who are intoxicated with 'gukppong' (nationalistic pride) and only seek cost-effective smartphones, and just kept shouting 'double down.'

What about Hyundai, which served as the people's car when there were no local complete car manufacturers in China? Although the deployment conflict of the Terminal High Altitude Area Defense (THAAD) system was a decisive blow, signs of market elimination due to local brands had appeared long ago. Internally sensing an abnormal atmosphere, the new cars strategically launched one after another repeatedly failed. Hyundai’s production volume in China dropped to 660,000 units last year. The workforce in China, which once exceeded 20,000, is now below 15,000. Its market share in the world’s largest automobile market is around 3%. Samsung and Hyundai are still in a relatively better position. LG and Lotte brands have completely disappeared from China. Although they barely maintain business, it is practically a withdrawal.

In 'The Law of Invincible Ideas,' the author defines this situation as a 'market failure.' This refers to investing in new products but failing to meet market expectations or producing results contrary to expectations. Interestingly, among various outcomes, the author acknowledges that the most probable is 'failure,' and escaping the mindset of 'we never fail' as soon as possible is what somewhat increases the probability of success. To put it extremely, over 90% of new products fail. Savoia published this book from the question, 'Why did our perfect ideas fail miserably?'

So, what should companies do? They must first overcome the fear of failure. This is about creating a corporate culture that is tolerant of failure and even studies failure. The next step for companies is continuous market validation of ideas. Savoia proposed Pretotyping, a method to cheaply and quickly validate ideas conceived in the mind, as the best management technique to reduce the possibility of market failure.

In the case of our companies, the timing was missed starting from admitting failure in China. The discussion suggested that the result was clinging only to numerical restoration, putting aside the fear of accepting failure and taking responsibility. Neglecting to analyze the causes of failure and find new alternatives has deepened the gap of failure. It was also emphasized that courage is needed to return to the stage of undoing the first wrong step.

Kim Hye-won, Deputy Director, Ministry of Trade, Industry and Energy kimhye@