[4 Major Groups Control Tower] To Create or Not... Samsung at a Crossroads of Revival

④ Samsung Faces Strategic Gaps Due to Lack of Integrated Control Tower

"Samsung is the largest global conglomerate in Korea, with Samsung Electronics boasting annual sales exceeding 300 trillion won and a market capitalization over 400 trillion won, yet it lacks a steering wheel. This is because there is no control tower to determine the group's business direction. Even when some affiliates plead for more business expansion and investment, the reality is that business development is blocked by the four words 'cost reduction.' How desperate must it be for Chairman Lee Jae-yong to be called 'Jjae-jjae-yong'?" (Former Samsung Group Executive)

Samsung's control tower is in a state of nominal existence. Since the official dissolution of the 'Future Strategy Office (FSO)' in February 2017 due to the political scandal, three task forces (TFs) have been working in tandem to fulfill its role: ▲ Business Support (Samsung Electronics) ▲ Enhancing Financial Competitiveness (Samsung Life Insurance) ▲ Strengthening EPC (Engineering, Procurement, and Construction) Competitiveness (Samsung C&T). The leadership of these three TFs is held by Vice Chairman Jung Hyun-ho of Samsung Electronics, Vice President Lee Seung-ho of Samsung Life Insurance, and President Kang Byung-il of Samsung C&T's Construction Division. Since 2017, Samsung has effectively abandoned the name 'Samsung Group' and transitioned to an affiliate autonomous management system.

Samsung was a corporate group led by a control tower. Although the name changed from Secretariat, Restructuring Headquarters, Strategic Planning Office, to Future Planning Office, there was always a control tower that monitored the company's present and prepared for the future. When Samsung began to take shape as a group in 1959, founder Lee Byung-chul benchmarked Japan's Mitsubishi and Mitsui, known for strong organizational management, and created a secretariat organization of about 20 people led by the first director Lee Seo-gu. Initially, it focused on the chairman's protocol functions. However, from the 1970s to the 1990s, it evolved into an organization handling overall group management. At that time, the secretariat established or acquired Samsung Electro-Mechanics (now Samsung SDI), Samsung Corning, Samsung Heavy Industries, Samsung Electronics, Hotel Shilla, and others, driving group growth.

Later, the secretariat changed its form to the Restructuring Headquarters in 1998 when the late Chairman Lee Kun-hee took office, ending the tenure of Director Hyun-gwan Kwon. Led by 'financial expert' Lee Hak-soo right after the Asian financial crisis, this organization spearheaded Samsung's restructuring and organizational improvement during difficult management times. Samsung Electronics carried out massive spin-offs and sales, reducing its workforce from about 47,000 to 38,000.

In 2006, the Restructuring Headquarters faced pressure to disband due to the National Intelligence Service (NIS) X-file scandal. Unable to give up the control tower, the former Restructuring Headquarters was downsized and reorganized into the Strategic Planning Office. The organization and personnel shrank from 147 people in five teams to about 100 people in three teams: Strategic Support, Human Resources Support, and Planning & Public Relations. Although the Strategic Planning Office was dissolved following the Samsung special prosecution in 2008, Samsung established the Future Strategy Office in 2010, continuing the control tower's legacy.

The FSO served as the steering wheel deciding Samsung's future until 2017, passing through directors Kim Soon-taek and Choi Ji-sung, before being dismantled due to involvement in the political scandal. Chairman Lee Jae-yong personally directed the dissolution, stating, "If the public holds negative perceptions, I will abolish the FSO."

The current simplified control tower, led by financial expert Vice Chairman Jung Hyun-ho of Samsung Electronics, has driven Samsung's heyday. For example, from 2017 to 2022, Samsung Electronics posted an average annual operating profit of about 40 trillion won. During the late Chairman Lee Kun-hee's era (1988?2014), the average annual operating profit was 8.5117 trillion won. In other words, under the current system, Samsung Electronics has leapt from a world-class company to a global top-tier company. However, recently, this simplified control tower has begun to show its limits. This year, Samsung Electronics' quarterly operating profit plummeted to the 600 billion won range. Sales are in the 60 trillion won range, with an operating margin of only 1%.

There is an assessment that Samsung has failed to properly demonstrate timely investment and momentum for discovering and securing future growth engines. The global industrial environment is changing so rapidly compared to five or ten years ago that, especially in advanced industries, support and cooperation at the national level are strengthening beyond corporate competition to secure technological superiority and market preemption. Yet the group is not adequately empowering its affiliates' businesses.

Some affiliates complain that businesses that should be expanded with group-level support are no longer progressing and are stuck. While the three TFs play a role in pooling the capabilities of affiliates engaged in similar businesses, they are evaluated as failing to serve as an 'integrated control tower' that unifies affiliates in different businesses, determines the future direction of Samsung Group, and promotes new businesses.

In fact, the semiconductor and bio sectors, which Samsung currently promotes as future growth engines, were all nurtured at the group level during the era when an integrated control tower existed. For example, in 2010, Samsung selected and announced five new growth businesses: solar cells, automotive batteries, LEDs, bio, and medical devices. Samsung's current cash cows?semiconductors, bio, and displays?are businesses started at least ten years ago. Samsung even acquired Korea Semiconductor in 1974. In other words, businesses started nearly 50 years ago are now sustaining Samsung.

The main functions of a corporate control tower are broadly twofold: strategy to design the future and finance to strengthen the company's fundamentals. Currently, Samsung's control tower is regarded as finance-specialized. This implies a need to reinforce the future planning and strategy division. Recently, voices calling for an integrated control tower have begun to emerge within Samsung. Lee Chan-hee, Chairman of Samsung's Compliance Committee, signaled consideration of organizational revival in a media interview, stating, "Samsung Group needs an overall control tower."

Voices calling for a new organization to serve as an integrated control tower to prevent Samsung from falling behind in global competition and missing investment timing are growing louder inside and outside Samsung as time passes. Challenges that the control tower must address are accumulating, including new businesses, investments, restructuring Samsung's governance, and nurturing successors to Chairman Lee who will be responsible for Samsung Electronics' future management.