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Crisis management: burning questions for Samsung

By Jim Preen.

Samsung, the makers of the Galaxy Note 7 are in a world of pain right now. It’s not only their phones that are going up in flames; so is their reputation. It’s a brand busting fiasco.

They have stopped production, sales and exchanges of their Note 7 and released a statement saying: “Consumers with an original Galaxy Note 7 or replacement Galaxy Note 7 should power down and take advantage of the remedies available, including a refund at their place of purchase.” Which is a smart way of starting a further recall without calling it a recall.

The Note 7 was released in August and was widely praised and purchased. Reports quickly emerged of the phone over-heating and in some instances bursting into flames. In September the Federal Aviation Administration in the US warned travellers not to use Note 7 phones on planes and not to put them in checked baggage.

The company acted quickly; announced a global recall on 2nd September, spent large sums fixing the problem and issued replacements all in the same month. They claimed the problem lay with a damaged batch of batteries from just one supplier. They appeared to be putting customer safety ahead of profits, were quick to fix the problem and were praised for doing so. A seamless, if expensive, text book handling of a crisis from one of the world’s richest companies.

Then the replacement phones started catching fire. The recall is starting again and production has stopped. This leaves Samsung in a very awkward position, do they try to fix the problem and go for a second re-launch? Do they jump straight to a Note 8 phone, or has the Note brand become so tarnished that it has to be dumped for good. These are a brutal set of options for a product that has many fans.

We all want more out of our smart phones; we want them to power more apps, we want them thinner, we want longer battery life. For engineers these conflicting demands are incredibly difficult to resolve but above everything we don’t want our phablets bursting into flames in our pockets.

And there’s another problem coming Samsung’s way. In recent years the battle of the smart phone giants has been between Apple and Samsung. The new kid on the block is the deep-pocked Google, which unleashed its Pixel smartphones last week. Samsung must be asking why Google couldn’t be happy running their search engine and driverless cars!

Getting a grip on the problems facing Samsung is a crisis manager’s nightmare. Replacing a faulty product swiftly is one thing but when the replacement fixes nothing it makes the company look at best unfortunate and at worst incompetent.

To paraphrase Oscar Wilde: to botch one product launch may be regarded as a misfortune, to botch two looks like carelessness.

The author

Jim Preen is head of media at Crisis Solutions. Contact him at jim.preen@crisis-solutions.com

Other comments on this issue

Mark Johnson, Associate Professor of Operations Management, Warwick Business School:

In research that I have conducted with Marko Bastl, of Marquette University, and Mike Bernon, of Cranfield School of Management, we found that firms that have a proactive recall strategy tend to see their share price not hit as badly by investors running scared from the potential costs of the recall. 

In Samsung’s case, the recall was very passive. It was only when the second batch of phones began to fail that they began to show that there were more serious issues at play. Shareholders rightly get twitchy when firms are seen not to care about customers.

Recalls are a fact of modern business. As products and processes become more complex, then the likelihood of them occurring increases. We can’t get everything right all the time. When a recall occurs, be proactive about it – show shareholders that you care about customers and ensure that you have business processes in place to allow you to identify affected products quickly and with minimum hazard to the customer.

The process of the recall seems to indicate that Samsung has very little traceability or integration through the end-to-end supply chain. It was asking customers to identify affected phones in the first round of recalls by examining the colour of the battery signal on the screen. In the 21st century many companies can trace where items are through linking information processes with distributors and vendors.



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