Strategic Management and Leadership: An Analysis of LG Electronics

This report provides a comprehensive analysis of LG Electronics, examining its strategic management and leadership approaches. It defines success for the company, exploring measurement parameters like the Balanced Scorecard, financial performance, and customer satisfaction. The report delves into LG's internal analysis, including value chain analysis, core competencies, and the VRIN framework. It highlights the contributions of leaders and reviews the company's strategies, offering recommendations for the future. The analysis covers various aspects, such as product innovation, ethical management, global business policies, modern branding, strategic partnerships, and localized product strategies, providing a holistic view of LG's success factors. The report also includes financial data, customer satisfaction rankings, and a discussion of the company's core competencies and strategic marketing.

Strategic Management and Leadership
TOPIC – LG Electronics
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Table of Contents
Introduction................................................................................................................. 3
1. Definition of Success......................................................................................... 4
1.1 Measurement of success ............................................................................... 4
2. Reasons for Success ........................................................................................ 8
3. Internal Analysis.................................................................................................10
3.1 Value Chain Analysis..................................................................................... 10
3.2 Core Competencies....................................................................................... 12
3.3 VRN Framework ........................................................................................... 13
4. Contribution of Leaders......................................................................................16
5. Review of Company Strategies .........................................................................18
6. Analysis of Company’s Future ........................................................................ 20
6.1 Recommendations for the Future............................................................ 21
Conclusion..................................................................................................................21
References ................................................................................................................22
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Introduction
This report analyses the company LG Electronics Inc which is a Korean company
that deals with the business of consumer electronics, focusing heavily on
technological innovations and distinctively designed merchandise for everyday use.
The company together with the subsidiaries handles several segments which include
The Home Appliance & Air Solution segment provides refrigerators, washing
machines, air conditioners, microwave ovens among others. The Mobile
Communications segment provides mobile equipment. The Home Entertainment
segment deals with TVs, monitors, PCs, among others. The Vehicle Components
segment deals with automobile parts. The LG Innotek Co. Ltd. and its subsidiaries
provide light-emitting diode (LED), optics solutions among others. The final segment
handles the solar energy business and provides display materials.
The current challenges faced by the company are with respect to maximizing
customer value, making the organisation a people company, and becoming a green
company (LG Electronics, 2007). The figure below shows some of the company
range of products and awards.
Figure 1: Range of LG Electronics Products. Source:
http://www.lg.com/global/lg-signature/products
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Figure 2. LG Awards. Source: http://www.lg.com/global/lg-signature/award
1. Definition of Success
As stated by (Certo & KSJ, 2006), success is defined as an engaging, demanding,
and worthwhile expedition to a sought-after objective. Gagliardi, (2006) elaborated on
the term with reference to the business domain. The author explains that success
does not mean that one fights and defeats the rivals. According to the author, such
efforts are expensive. Instead, success is the manner of competing with the rivals, in
a strategic manner, to gain dominance over them.
1.1Measurement of Success
The success of the company can be measured with the help of several parameters
like the Balanced Scorecard, the financial performance report, the shares prices and
the customer satisfaction ratings. These parameters will be discussed below as they
relate to LG Electronics.
a. Balance Scorecard
The Balance Scorecard (BSC) is an efficacious mechanism to metamorphose the
organisational strategies into clear aims and objectives, in four important domains
(Niven, 2010). As discussed earlier, the company aims to provide value to its
customers by continuous technological innovations.
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Financial
Better revenue generation
Expansion in more countries
Generating revenue from multiple sources
Learning and Growth
Talent Management
Technological training interventions
Treat employees as Business Partners
Customer
Provide value
Generate customer loyalty
Provide unparalleled servicing for its products
Business Processes
Improved research methodologies
Focus on innovation
Emphasis on better designing of products
Figure 3: The Balance Scorecard of LG
b. Financial Performance
The company under discussion has witnessed a growth rate of almost 4% in the
latest quarter of the current year, as compared to the same period of the previous
year. This revenue figure is around USD 13 billion (LG Newsroom, 2017). Hence, it
can be assessed that the company is successful. The table below shows the
financials for LG electronics for the past 5 years, showing stable revenues over the
period but a decrease in the net income which may be attributed to the increase in
sales, general and administrative costs
Figure 4: LG Electronics Inc Financials 2012-2016. Source:
http://financials.morningstar.com/ratios/r.html?t=066570
LG ELECTRONICS INC INCOME
STATEMENT
Fiscal year ends in December.
KRW in millions except per share
data. 2012-12 2013-12 2014-12 2015-12 2016-12
Revenue
5095997
8
5814037
6
5904076
7
5650900
8
5536703
3
Cost of revenue
3865291
5
4472066
9
4529912
2
4363506
3
4163029
3
Gross profit 1230706 1341970 1374164 1287394 1373674
5
Strategic
Aims ofLG

3 7 5 5 0
Operating expenses
Research and development 328785 2293373 351848 2377830 2468628
Sales, General and administrative 3780549 8397468 3975919 8017425 8037391
Restructuring, merger and
acquisition 206763
Other operating expenses 7061748 1444197 7378558 1286399 1892958
Total operating expenses
1117108
2
1213503
8
1191308
8
1168165
4
1239897
7
Operating income 1135981 1284669 1828557 1192291 1337763
Interest Expense 321974 413340 420389 452192 418312
Other income (expense) -289940 -294795 -189898 -146974 -197734
Income before taxes 524067 576534 1218270 593125 721717
Provision for income taxes 433246 353830 539761 340154 595402
Net income from continuing
operations 90821 222704 678509 252971 126315
Net income from discontinuing ops -177152 -3828
Other -24047 -45936 -102007 -124749 -76879
Net income 66774 176768 399350 124394 49436
Preferred dividend 7148
Net income available to common
shareholders 59626 176768 399350 124394 49436
Earnings per share
Basic 366 977 2213 686 422
Diluted 366 977 2213 686 422
Weighted average shares
outstanding
Basic 180 180 180 180 180
Diluted 180 180 180 180 180
EBITDA 2157835 2918039 3616861 2978038 2883011
c. LG Share Prices
The company share has been selling at an average of USD 18.4-19.0 and it provides
a dividend of around 0.5 (LG Electronics, 2017). Hence, it can be asserted that it is a
successful company, which is also visible from it’s risk-related rating explained
below.
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Figure 5: Medium credit-risk of LG Electronics (LG Electronics, 2017)
The figure below shows the per-share earnings, actuals and estimates.
Figure 6: Per-share earnings, actuals and estimates. Source: The Wall Street
Journal, 2017.
d. Customer Satisfaction Ratings
According to (Wolf, 2016), the company under discussion has emerged number one
in customer satisfaction surveys, showing clearly that it is a customer cantered
company. Hence, using this parameter of customer satisfaction, it clearly
demonstrates that the company is highly successful. The figure below shows the
customer satisfaction ranking of LG.
Figure 7. Customer Satisfaction Index Ranking. Source: J.D. Power (2017)
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2. Reason for success
a. Unique Products
The company has many innovative electronics products, which have helped it to tap
into the latent needs of the customers, and create a successful market for itself
(About LG, 2017). LG continues to roll out new products, which have been of novel
designs, providing it with first-mover’s advantage (Kotler, Keller, Koshy, & Jha, 2009),
and adding to its success (About LG, 2017), as shown below:
Figure 8. Unique Products Launched.
Year Unique Products Launched
2011 Shutter-Glasses 3-D TVs
2012 84-inch ULTRA HD TV
2013 HomeChat
2014 4K OLED TV, web OS smart TV, G3 smartphone with
Quad HD Display
b. Jeong-do Management
The company follows a distinctive ethical code known as the Jeong-do Management,
and believes that the company’s fairness-oriented procedures help greatly in its
success (About LG, 2017), as shown below:
Figure 9: Strategic vision of the company for success (About LG, 2017)
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c. Multinational nature of the business
The company has an assertive global business policy, which has helped it to be in
charge of around 120 subsidiary companies, and 83,000 workers across the globe,
and this has contributed to the global success (About LG, 2017).
d. Modern Brand Identity
The company’s modern logo, as shown below, and pleasantly chic slogan of Life is
Good resonates very well with the consumers, who view it as keeping with the times,
and this aids in its success.
Figure 10: Modern logo of the LG. Source: About LG (2017)
e. Strategy-Oriented Partnerships
The company is furthering technologically and recognising business prospects by
collaborating with some very big global organisations like Siemens, GE and
Schneider which has furthered its success (About LG, 2017).
f. Strategic Marketing
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The company markets its brands as upscale and advertisements keeping that brand
positioning in focus which makes it another reason for its success (Berger, 2012).
g. Localised Products
The company has learnt that to win globally, sometimes it requires localising the
products to the needs of the people. For example in India, LG recognized there were
16 official languages and so developed manuals for the TV sets in the 16 official
languages and because cricket is a favourite game, they developed TV sets with
inbuilt cricket games (Korea Times, 2010).
3. 0 Internal Analysis
3.1Value Chain Analysis
The value chain analysis is a methodology to recognise all the techniques to
generate increased customer value. It categorises nine such task areas, divided into
main and supplementary ones, which would assist in this value creation (Kotler,
Keller, Koshy, & Jha, 2009). This is shown diagrammatically below:
Figure 11: Michael Porter’s Value Chain Source: Kotler, Keller, Koshy, & Jha
(2009)
Primary Activities
Inbound Logistics
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The company has invested in creating efficiency in the activities under inbound
logistics which include receipt of material, warehousing and control of inventory. The
company uses technology by incorporating the Global Logistics System which
maintains the inventory and tracks the product life cycle. The supply chain
sustainability management program assist the suppliers in being environmentally
conscious with respect to their logistics endeavours, it also creates additional value
for the customers (Staff, 2017).
Operations
This involves conversion of the raw materials in to finished products. The company
increases efficiency by waste reduction. The company has production units in India
and prides in value addition in the operations (About LG, 2017).
Outbound Logistics
By using technology, LG makes use of a system called JDA which estimated demand
and combining with the transportation and distribution. This system has resulted in
reduced outbound costs by around 8%.The company also brags of good dealer
network and superior compact packaging which is modernised and cost effective.
Marketing and Sales
The company has showrooms and service centres across their operations. Customer
focus is also always key and the needs and desires of customers are always featured
in their innovations. The company also stations fully trained sales staff at retail
agencies all across who assist to customers in buying their products (Berger, 2012).
Services
Customer service is key and the exclusive centres spread across the company
operations are meant to ensure all customer and service issues are well handled.
The products have warranty, to protect customer value. Additionally, the products
can be registered on the company website to ensure seamless customer service for
better value (About LG, 2017).
Support Activities
Firm Infrastructure
The structure of the company is shown below.
Figure 12: Structure of the company (LG Electronics, 2007)
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As shown in the figure above, clear demarcated heads provide room for better top
down strategic implementation, hence creating value for the stakeholders.
Human Resource management (HRM)
The company recognizes that people are the biggest asset. It has effective HR
strategies and 360 degree performance review to retain the best employees. In order
to attract the best talent available in the market, the company is now focusing on
employer branding in a big way to retain the best talent (Dawan, 2015).
Technology Development
The company has been investing at least USD 6 billion approximately towards its
research- related efforts, which is an increase from the previous years (Reuters,
2015). It has some innovative designs that are highly regarded in the market
especially of the mobile phones. The company has won awards for innovation.
Procurement
The company has made significant investment in the regional countries like India, so
that procurement-related issues can be sorted by importing the required materials
from these places (Rushton & Walker, 2007). The LG Electronics Compliance Code
of Conduct sees to it that all the procuring related aspects follow all the regulations
set out (About LG, 2017).
3.2Core Competencies
The core competencies of a company provide it with strategic upper-hands. It’s
attributes include that it contributes to consumer advantage, can be implemented
across market scenarios and is difficult to copy by competitors (Kotler, Keller, Koshy,
& Jha, 2009).The three main core competencies for LG include its technological
development, marketing and customer focus and strength in the outbound logistics
which are discussed below.
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