When Samsung announced Tuesday it was essentially killing its Galaxy Note 7 smartphone, the implications of abandoning the product were immediate and severe. The decision carved more than $17 billion off of the company’s market value in a single day, and opened a big door for Samsung’s competitors that also use Google’s Android operating system.
But Samsung actually had little choice, mainly because it faced the single most debilitating factor when it comes to crisis management: It couldn’t actually identify the specific problem. After Samsung initially tagged the issue as a battery defect that would be fixed by a recall, additional fire incidents revealed that the company really didn’t know what the problem was after all.
There are many different crisis management models, but most tend to come down to three basic steps. First, identify the nature and scope of the problem. Second, fix the problem and make things right with the victims. Third, take actions to ensure the problem won’t happen again.
It’s a relatively simple process, but the sequential progression depends entirely on the first step. If the problem is not quickly and accurately defined, the ambiguity tends to throw a company into a state of bureaucratic panic, where everyone tries to protect themselves from blame. Any underlying internal political tensions suddenly swell to the surface, and dysfunctionality rules.
I experienced that kind of meltdown firsthand back in 1999, when I was working in Coca-Cola’s European operations. When dozens of Belgian school children got sick across various schools around Brussels, their illnesses were captured on local television and attributed to Coke products. Our products were banned nationwide in Belgium, the story dominated European media for weeks, and the Coca-Cola brand took a major hit all over the world.
Our technical staff were baffled, because their many tests failed to identify what was causing the kids to become sick, paralyzing our response. After many months of thorough investigation, the Belgian government concluded that the cause of the crisis was not Coke but in fact “mass socio-genic illness.” In other words, kids were getting sick because they were seeing other kids getting sick, whether it was in person or on television. Many of them had happened to have also consumed Coke products at the time. It was what some of our technical team suspected early on, but they did not have the empirical facts required to confirm their intuitions.
Samsung is still trying to determine exactly what causes some Note 7s to overheat and catch fire. That may take days or, more likely, months. Either way, the company was right to move this week to cauterize the problem, essentially sacrificing a once-promising product for the good of the overall Samsung brand.
That may seem like a draconian decision to some. But contrast it, for example, with the long-running crisis at Takata, where the airbag maker stubbornly refused to admit fault for months while its airbags continued kill and hurt people. It did so because it could not definitively pin down exactly what was causing the errant eruptions, and thus did not want to admit guilt. The company was eventually forced by angry regulators and automakers into a series of massive recalls, and will likely soon seek bankruptcy protection.
Samsung, on the other hand, has taken a tough decision that will ultimately give it the best path forward in restoring trust in its brand. That starts with executing the next two steps of effective crisis management.
Samsung is already moving to make things right with the victims by offering free exchanges, plus rebates to soothe the irritation of having to switch phones.
The bigger challenge comes in taking actions to ensure the problem will not happen again. Samsung obviously needs to make changes to its technical testing processes, because any new malfunctions in the next few years will be seen as a pattern of incompetence. While the ultra-competitive smartphone industry prizes speed-to-market, Samsung has put itself in a position where quality assurance must be the overwhelming priority.
In fact, if Samsung is wise, the successor to the Note 7 will be the most-tested new smartphone in history.
Paul Pendergrass is an independent communications advisor and speechwriter. He is not an investor of the companies mentioned in this article.
