​Will Samsung commence its biggest reshuffle due to Note 7 debacle?

Samsung's year-end annual reshuffle of executives is being delayed, raising speculation that the scale of reorganization this year may be its highest in years due to the Note 7 debacle, the Harman deal, and the political fallout from the presidential scandal.
Written by Cho Mu-Hyun, Contributing Writer

Samsung's annual year-end reorganization announcement is being delayed. South Korea's largest business group usually announces reshuffles and structural changes within the second week of December. The changes are indicators of what direction and strategy the conglomerate plans to take the following year.

For instance, last year, Samsung Electronics made Injong Rhee, a software expert, the head of mobile division's research team one. Since then, the company has announced the acquisition of Joyent, a cloud vendor, and Viv, an AI-based voice assistant developer, both of which it plans to integrate into its mobile division's services.

The delay for this year is likely caused by the Galaxy Note 7 debacle; promises made by Samsung Electronics vice chairman Lee Jae-yong, the de facto leader of the entire business group; and the Harman deal. There is a wealth of reorganization that needs coordinating. ZDNet looks at what to expect and how it will affect next year.

Post-Note 7: Will Samsung give its mobile boss a second chance?

Current mobile boss DJ Koh came out of nowhere to replace JK Shin, known as "Mr Galaxy" by the local press, to take over a mobile division that was losing ground against Chinese newcomers. The Galaxy S7 surprised watchers by leading the business' high profits and put the division on course for recovery. Until the Galaxy Note 7 debacle turned all that upside down.

It's not all Koh's fault, of course. Making phones is a group enterprise, not that of Samsung Electronics alone, and requires related affiliates, especially Samsung SDI, Samsung Electo-Mechanics, and Samsung Display, to coordinate well under the command of the entire group.

Samsung's leadership believes in second chances, especially under the leadership of chairman Lee Kun-hee, who was generous to CEOs who were ambitious. Koh's counterpart in LG, Juno Cho, was given another chance to lead LG's mobile unit despite the failure of the G5.

If the younger Lee follows his father's principles, it is very likely that Koh will remain in charge, and be given a second chance to turn the business around while also finding out the cause of the Note 7 explosion, which according to the sources familiar with matter, the firm has not found out yet.

On overall strategy, the division will likely stay on course, integrating more software services to existing hardware. Rhee, who is leading the charge in expanding mobile services on smartphones, will likely continue to play an important role in the post-hardware Samsung strategy.

No doubt hardware will remain important -- rumors of bezel-less phones surface -- but specs and design between Samsung and Apple seem more and more similar in a market that is saturated. It is important for Samsung to show that it has software competence and can also integrate that into its smartphones to retain customer loyalty.

Restructuring the group

Vice chairman Lee made some interesting promises during the committee hearing earlier this week that probed what role big businesses played in the presidential scandal that's gripping South Korea. He said that he will disband the Future Strategy Office and make affiliates more "venture-like" to survive on their own.

The Future Strategy Office is the control tower of the entire group. To have such an organization is not a problem; you need a command center to manage a sprawling conglomerate like Samsung Group, which has 60 affiliates in South Korea alone. Including companies abroad, the number exceeds 400. The problem is that the Future Strategy Office is neither a company nor a legal entity.

It exists due to Samsung's complicated cross-share structure, which has its roots in the business attempting to retain control under the changing government regulations over the last decade. There is no one holding company, making accountability for each firm difficult. Also due to this structure, many outsiders consider Samsung Electronics' share to be undervalued. Apple was worth $700 billion at its peak while Samsung Electronics was worth $200 billion. Even taking Apple's higher profitability into account, there is an impression that the South Korean tech giant, which is also a leader in TVs and memory chips, is undervalued.

Lee has a majority share in Samsung C&T, which was controversially merged with Cheil Industries. Samsung C&T in turns own a large stake in Samsung Electronics, making it the de facto holding company.

If the Future Strategy Office is disbanded, Samsung C&T, or a different holding company that will be eventually formed as Samsung continues its restructuring, can take over the command center role, while being totally legally accountable.

Lee's comments on his plan to have each affiliate "more venture-like" and be independent seem to also fit with the eventual transformation to a clear-cut holding company. If each company has fewer cross-shares and are all separately controlled by a holding company, it allows the ruling Lee family and shareholders to monitor each subsidiary's performance transparently.

It's unclear whether the vice chairman will immediately apply these promised changes to this year's reshuffle. But even if the Future Strategy Office stays intact, the reshuffle announcement will show how Lee plans to coordinate the changes going forward.

Harman deal: auto supply push

Samsung Electronics last month announced the acquisition of US auto-supplier Harman for $8 billion, the biggest deal in its history.

The tech giant formed its automotive team late last year, around the time of its reshuffle, and the acquisition is the result of the team's year-long effort.

The division has been led by vice chairman and CEO Kwon Oh-hyun, who also heads the firm's semiconductor business and is an expert in the component level.

Since the deal is expected to conclude next year, it will be interesting to see how much additional support Samsung plans to put into Kwon's team or whether he will again lead next year. It is very likely that the division will be allocated more man power and resources, with appointments from veteran senior executives from key affiliates involved.

Samsung's plan to become a tier-1 auto component supplier involves multiple affiliates. Samsung Electronics makes chips, Samsung SDI makes car batteries, and Samsung Display already supplies displays to other clients.

A wealth of senior executives and personnel may be added to the team from each of these affiliates to better coordinate the conclusion of the Harman deal and to strategize on how to integrate the American firm's businesses with its own to ensure a successful 2017.

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