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Conclusion Overview, wrapping up and moving forward …
Conclusion
Overview, wrapping up and moving forward
Over time there are going to be things that will occur that just can’t be avoided. In business when these things happen it causes a crisis management response to occur. “Crisis management refers to the identification of a threat to an organization and its stakeholders in order to mount an effective response to it” (Hayes, 2022). Businesses notice these threats and then work hard to address them as soon as possible to protect the business and its shareholders. These major crises can have a lasting impacts on their organization and even the industries that they exist within. “The challenges associated with the responses to crises that affect society have been studied for almost a hundred years” (Frykmer, Uhr, & Tehler, 2018). One crisis can have a large enough impact that sometimes an organization just may not be able to bounce back from it. Most organizations are prepared as they understand that eventually there will come a day where they will have to respond to a crisis. These organizations have plans in place that provide instructions on what to do in the event of a crisis. “A crisis management plan (CMP) outlines how to respond to a critical situation that would negatively affect an organization’s profitability, reputation or ability to operate” (Crocetti, 2020). Orgnizations with these plans in place minimize the damages that come from crisis and also helps reduce the number of things that can occur while dealing with a crisis. In the end, the more you can control when the unexpected happens the better the organization will fare in the end.
On August 19th, 2016 Samsung released their next phone within their Galaxy Note lineup. The release of the Samsung Galaxy Note 7 was met with excitement as millions of the phone was sold in such a fast time frame. The Note 7, had record presales for this devices as a very large consumer base was interested in having this product in their hands. At the time of the release, while everyone was excited to get the new phone and Samsung was celebrating the success of the launch, little did they know they were getting a ticking time bomb that would eventually cause a crisis for the Samsung Mobile team and cause challenges to not only the investors but for each consumer that purchased the brand new device. Less than a week after the official release to the public on August 24th, 2016 the first report of the phone exploding was made. Not long after that report more reports started piling in stating the same issue of the phone overheating and exploding. On September 2nd, 2016 “Samsung announces a voluntary global recall of some 2.5 million Note 7 phones citing faulty batteries. The company offers to either refund or replace the device” (BBC, 2016). Since the recall was voluntary not all consumers took part in the recall and the recall was not looked at as a major concern to all as it was not a mandatory recall of the devices.. Therefore, the United States Federal Aviation Administration and numerous airlines announced that these phones should not be turned on or charged on airplanes due to safety concerns. After the restrictions were announced for aircrafts, the US Consumer Product Safety Commision recommended that consumers stop using these devices and on September 15th, 2016 a formal recall was issued for the devices due to the amount of consumers that were reporting the phone failure. The Note 7 was not only a safety concern in the United States the phone also was having the same problem in China around the same timeframe.
Then a few weeks later on October 1st, 2016, Samsung announced that the sale of the Note 7 would be resuming due to the issues being corrected to the product. Though Samsung may have thought this was the end to the crisis it was not as less than a week later, on October 6th, 2016 the same problem was brought up again as a passenger on a Southwest flight caused an eveaction to occur due to the phone smoking on the plane. The amount of consumers that were facing the same problem with the replacement phone from in less than two weeks sparked concern with the US phone carriers. This caused AT&T and T-Mobile to stop its sales of the Note 7 and to stop issuing replacements for the devices on Octover 9th, 2016. Following this halt in sales from the carriers Samsung announces it would pause sales of the item on October 11th, 2016 as it investigated the concern. Samsung also recommended that consumers stop using their Note 7’s and that they turn them off. To fully get rid of the phone and prevent consumers from using the unsafe device on December 19th, 2016 Samsung’s mobile team released a software update for the devices that once installed would make the device useless to ensure that the consumer would no longer be able to use them as they would no longer charge. This update was created due to around 7% of the devices never being turned in. Samsung considered these devices to be fire hazards and by making them useless it would protect the consumer from the phone exploding. A Having to pull this device off the market had an impact on the company as ot affected the sales for within the mobile device area of the operation and even caused some harm to the mobile device operations brand image.
As far as leadership in place when the Crisis occurred the leader of the Samsung Mobile division was DJ Koh. “Koh became Samsung Mobile’s CEO in December 2015” (Segan, 2017). Koh was very new to his role when the Note 7 crisis occurred as he had to deal with this difficult challenge within the first full year within his position. “Koh said he realized that customer product safety, accountability, and transparency hadn’t gotten the same level of priority within Samsung Mobile as ‘meaningful innovation,’ leading to the new eight-point battery safety check amd the new battery advisory group” (Sengan, 2017). Koh used the crisis to allow for him to select some priorities that he felt was important for his division to be successful within the future as it emerged out of the Note 7 crisis.
This Note 7 crisis had major impacts on the company in terms of it’s finances. Recalling a device cost money and having to recall a device two times can affect the business profits drastically. “Samsung today announced a KRW 5.2 trillion ($4.6 billion) operating profit for the third quarter of 2016, that’s down one-third on the KRW 7.3 trillion that it posted this time last year” (Russell, 2016). Not only did the profit for that quarter drop the revenue also was down by 30 percent. Samsung noted that there was a decline within the IT and mobile business area of their operation and that was due to them having to discontinue the Galaxy Note 7. Having to recall the phone and discontinue sales for the device caused a loss in revenue as the phone was mass produced and they ended up having to scrap the entire project. That means they were unable to sell a lot of their inventory and for the ones that they did sell they ended up having to give the consumers refunds for the devices. “By October it had to recall over 2 million devices and discontinue the product. It’s estimated that therecall will cost Samsung $5.3 billion” (Lopez, 2017). News of this nature not only harms the brand image to the consumer but this large of an unexpected expense on a product that was supposed to make the company money can cause a negative impact on the stock exchange for the company as well. “Samsung Electronics shares fell nearly 7 eprcent to hit their lowest level in two months after the company urged Galaxy Note 7 users to switch off and return their devices” (Kharpal, 2016). The crisis with the phone caused investors to get nervous about spending money on Samsung and it caused them to pull their stock investments out. “Over 16 trillion won ($14.3 billion) was wiped off Samsung’s market capitalization amid increased concern from investors over the potential damage that the recall caused” (Kharpal, 2016). This was a loss that Samsung would have to work on to recover from and find a way to gain not only the consumer confidence back but the investor confidence as well.
In crisis management, there are several factors that play a role in the decision or crisis management plan. The responses often focus on stakeholders´ concerns arising from a crisis, financial outcomes, reputation, and stock market returns. (Iqbal,2022). In general, good crisis responses have three elements, an apology, owning the issue, and communicating. (Stellings,2016) The Head of Samsung´s mobile division at the time DJ Koh followed a plan that involved an investigation and a public apology in the name of the Samsung Mobile Division. However, the time that passed between the first incident and Koh’s discourse was detrimental to their public image. On August 24th the first report of a Galaxy Note 7 exploding happened in South Korea, the Samsung Mobile’s executive decision was to delay shipments to all South Korean carriers. However, on September 1 Samsung commenced sales of the Galaxy Note 7 in China and the international market. (SkyNews,2016).
After examining the issue of phones combusting, Samsung’s tech team determined that the problem was caused by faulty batteries. In response, DJ Koh released a news conference to Hong Kong reassuring customers that the battery used in the defective phones was different from the version released during the phone’s launch in September. As a result, Samsung anticipated no further issues with the Galaxy Note 7. Their resolve was to create a software update for the new Note 7 to tell them apart from the damaged version.
Effective communication during a crisis requires careful timing, as delaying a response can lead to speculation, criticism, and a loss of control over the narrative on social media. However, responding too quickly can result in repercussions due to a lack of sufficient information about the issue at hand.(Agnes,2016) . The problem that resulted from releasing a news statement before the investigation was closed was that Samsung Mobile had to retract their statement after realizing that 500 phones in Honk Kong had defective batteries that also exploded. A week after the Note 7 reached the U.S. market there were 92 reports of batteries overheating, 26 reports of burns and 55 reports of property damage. (Agnes,2016)
On September 9th 2016 he U.S. Consumer Product Safety Commission released a notice “urging consumers who own a Samsung Galaxy Note7 to power them down and stop charging or using the device.” The CPSC stated that they were working closely with Samsung Mobile to recall all the devices from the market. Samsung mobile division had a big image issue to manage and the strategy chosen by Samsung Mobile and DJ Koh was to give the issue a more harmless tone by extending an exchange program to replace the damaged phones.
According to The Wall Street Journal, 60% of the Galaxy Note 7 phones affected in the U.S. were replaced, and 90% of the customers who purchased the device participated in the exchange program to receive a new phone instead of a refund or a trade-in. The exchange program was also extended in South Korea. While Samsung announced a thorough investigation into the battery issue, their exchange program was based on the assumption that the defective batteries were limited to certain models of the Galaxy Note 7. However, Samsung was uncertain of the root cause of the problem before implementing their PR management plan, which prioritized public opinion over customer safety.
On October 9 there were several reports of replacement Note 7 phones catching fire, as a response mobile providers decided to halt sales and exchanges of the device altogether (Samuelson,2016). Senior Vice President Head of Global Brand Marketing for the Mobile Communications Department at Samsung Pio Schunker recalls that at that point their best option was to make things right and take accountability, he stated “For Samsung, it wasn’t just the right thing to do, it was the only thing to do”. Samsung announced a complete shutdown of production for the Galaxy Note 7 and a recall of all units that have already been sold in the market.
DJ Koh, on behalf of Samsung Mobile, addressed the public and presented a 50-minute session regarding the investigation into the faulty battery. Samsung’s mobile leadership decided to be transparent with their customers, stakeholders, and the media in handling the crisis. Koh apologized to all customers, carriers, retailers, and distributors, stating, “First of all, I deeply apologize to all of our customers, carriers, retail, and distribution partners. […] We believe that, as a first step to regain your trust, it is important to provide you with a thorough understanding of the cause behind the Galaxy Note 7 incidents and to implement a comprehensive plan to take preventative measures.”
After making a public apology, it is crucial to promote transparency and accountability by taking responsibility, rather than avoiding it. Acknowledging poor decisions is more important than conforming to corporate culture. DJ Koh acknowledged that the pursuit of a larger battery to compete in the market led the company to rush products without thorough testing, and he admitted that this was a mistake. Taking responsibility was the essential first step in the process. Koh explained that as the events developed they took action by opening up to third party auditors, hiring 700 researchers and engineers studying 200,000 phones in extreme conditions(Dua,2017) In his 50-minute presentation he went into detail about the findings inviting three investigators to present their conclusions.
According to Stein’s research about brand crisis, the second step in addressing a crisis is to follow through on promises and explain progress. Koh stated that they were including an 8-point battery safety check in a new assurance program of safety measures that became the standard for all Samsung Mobile releases since the Galaxy Note 7. All the information was spread in America by Tim Baxter Samsung America President-Chief Operating Officer who apologized on September 16th. One of Samsung´s strengths was giving a human face to the company and recognizing the human side of the business. They shifted their focus to provide the company with a sense of purpose and tried to transform their internal culture to align with the goal of regaining consumers’ trust. Stein points out that companies that go through a PR crisis should be careful when they advertise, and if they do so the crisis at hand should not be ignored. The situation with the Galaxy Note 7 happened close to the release of their new virtual reality gear in partnership with Oculus, as a measure, Samsung added software that disabled support for the Note 7 in the VR device (Stein,2017). Pio Schunker noted that the brand wanted to shift from a fragmented identity which lacked warmth and humanity to tap into their innovation identity and inspire a sense of purpose. Samsung used the catchphrase “Do what you can’t” to release their VR gear.
The primary leadership shortcomings in managing the crisis were related to the timing of news releases. Samsung failed to provide an update immediately after the first incidents in Korea and, at one point, left social media and news outlets to speculate. Instead of relying on a news release, Samsung Mobile should have issued a first response statement to assure customers that they were handling the issue and investigating it. They should have conveyed their commitment to resolving the issue and ensuring customer safety without prematurely guaranteeing the safety of the new phones to be released. The redeeming quality of the situation was that Koh was straightforward with the public and took action when it was absolutely necessary, rather than avoiding the problem or assigning blame.
