Lessons learnt from Samsung’s Galaxy Note7 crisis

In the second of our monthly series ‘Lessons Learnt’, Jennifer Janson explores Samsung’s Galaxy Note7 going up in flames and what businesses can take away from the episode.

In this SmallBusiness.co.uk monthly series ‘Lessons Learned’, Jennifer Janson, author of The Reputation Playbook and managing director of Six Degrees, will assess how a company recently in the news has handled a crisis, and provide top tips for small businesses to avoid making the same mistakes.

Last month, Jennifer looked at Sports Direct’s speedy fall from grace, as the conditions of its factories were scrutinised and the behaviour of its CEO called into serious question, which has only escalated since the firm tried to bug visiting MPs.

This week we’re diving into Samsung’s recent explosive reputational blunder. Back in September, it launched the Samsung Galaxy Note7 – a product dubbed by some as ‘one of the best smartphones released this year’. Two weeks later everything was up in flames – literally – as reports began to flood in that the phone batteries were catching fire. Immediately Samsung announced a worldwide recall, and provided replacement handsets for customers. Unfortunately, the replacement phones also had the same serious safety issue.

So far, there have been over 2.5 million faulty devices across the world, and as of October 11, the Galaxy Note7 is dead – Samsung ceased production altogether of the temperamental model and has gone back to the drawing board.

Jennifer, what is your view on how the company has handled this crisis?

In terms of crisis management, Samsung has acted swiftly and decisively in a manner which appears to prioritise customer safety over profit.

Earlier this year, Samsung was in the news announcing plans for a company culture and vision revamp. It wanted to move away from its well-known rigid corporate structure to operating more like a start-up – creating a more open and communicative working environment. This latest crisis put those words into action.

As soon as the first defective phones were bought to its attention, Samsung took quick action and highlighted a faulty battery. However, further investigation found that the fault lay in the phone’s battery management system. Throughout, Samsung was transparent and took full responsibility and brought a solution to the table – offering appropriate replacements to its customers and taking out full page ads to print an apology. I do wonder what action – if any – could have taken place to ensure the replacement handsets were completely safe. It seems like there was a failing in the process and I’m curious to know whether it occurred in the rush to ‘do the right thing’ by its customers.

I feel sorry for Samsung. At a time where research shows there are more mobile devices in the world than people, Samsung has been leading the way since the 1960s and this is a devastating blow to the industry and its reputation.

With a tagline like Rigorous Testing, I imagine that before a phone is released, a lot of time and money goes into verifying every product complies with all the relevant safety regulations. That said, no matter how much you prepare, there is always a chance that technology can malfunction, and it’s important to be ready.

The company’s woes were heightened just last week as allegations of corruption prompted a raid on the company’s offices. It seems now would be a good time for Samsung to revisit its values and to ensure that every process throughout the business is set up to encourage alignment with those values. Good communication becomes irrelevant if it does not reflect what is actually going on in the business.

What would your advice be if you were brought in to help clean up its reputation?

From the way Samsung dealt with a global recall to the statements issued to press, it’s clear that the company already has a thorough crisis management plan in place, as you would expect of a large global brand. Samsung should continue to be open and transparent – giving regular updates on the model, and when they are able to – share exactly what went wrong and how the company is going to avoid any similar occurrences in the future.

One thing I would advise them to do is perhaps take a closer look at the pressure they place on their engineers, who were tasked to create the Note7 as the best phone ever made, with significantly faster charging time than previous models. They could also make more effort to educate consumers about the limits of their technology. If they are going to move forward, they need to have absolute faith in the products they are putting in the hands of their customers.

Now is the time for Samsung to restore faith in the people that matter the most. Continue to be transparent and human. You made a mistake – we all do – own it, learn from it, and move forward.

What can everyone else learn from this mismanagement?

It’s becoming more and more apparent that whether good or bad, reputation has a significant impact on the bottom line over the long term.

In the case of Samsung, news of the recall initially wiped $11 billion off the company value, some analysts predict that it could cost it $5 billion (US) in revenue and furthermore, others suggest that scrapping the Note7 will result in lost sales of 19 million phones (equal to £13.8 billion). No matter what size your business is, companies need to take their reputation seriously and put mechanisms in place to protect it, otherwise it could disastrous for their profit.

For a small business, that might simply mean taking the time to think through various scenarios and writing down a process should an incident occur. Who would be on your crisis team? Who do you need to communicate with? Who takes operational responsibility? Who monitors social media? Who is allowed to respond? Think ahead and write it down. Then make sure everyone who needs to know, knows where it is.

Remember to keep talking to your customers. Despite the fact that those affected by the Samsung issue took to social media in droves, apparently 90 per cent of Galaxy Note7 customers chose to replace their device rather than obtaining a refund. There’s even another twist in the tale, where some consumers are refusing to return their Note7 altogether and Samsung is now working with mobile operators to disable the devices. It’s great to see customer loyalty prevail in a crisis that could have quite easily been debilitating. Acknowledging that loyalty will be critical to maintaining it.

Businesses should not underestimate the power of goodwill. Building a solid positive reputation takes time – it is an investment. But when something unexpected happens, you will have ambassadors that will stick by you and even jump to your defence.

Are there any companies out there at the moment doing a good job of handling crises?

One company that has done a brilliant job recently is Ford. During one of the US election campaign speeches, President-Elect Donald Trump proclaimed that Ford was leaving the US to move to Mexico and China and that thousands of jobs would be lost.

Within minutes Ford had responded on Twitter to strongly reject his announcement and spent the rest of the debate fact checking many of Trump’s outlandish claims.

A crisis is always going to be uncomfortable. All you can do is have a plan, and then make decisions based on the information you have in the moment. When you look back, no matter how a crisis unfolds, if you believe you would have made the same decisions, with the same information available at that point, then you can know you have handled it to the best of your ability.

Ben Lobel

Ben Lobel

Ben Lobel was the editor of SmallBusiness.co.uk from 2010 to 2018. He specialises in writing for start-up and scale-up companies in the areas of finance, marketing and HR.

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