LG’s Michael Ahn on Becoming a Global Player in the Consumer Electronics Market: Knowledge@Wharton ( http://knowledge.wharton.upenn.edu/article.cfm?articleid=2667)

LG’s Michael Ahn on Becoming a Global Player in the Consumer Electronics Market
Published : January 06, 2011 in Knowledge@Wharton

In 2000, executives at South Korea-based LG Electronics set the goal of becoming a top-three player globally by the close of the decade. One year early, in 2009, the company achieved its goal. Meanwhile, revenue has jumped from $5.6 billion in 2004 to more than $13 billion in 2010. Michael Ahn guided the branding effort for LG Electronics North America before stepping down as regional president and CEO last year to become a senior adviser at LG Electronics USA. In a recent conversation with Knowledge@Wharton, Ahn -- who was visiting the University of Pennsylvania to make a speech as part of the Wharton Leadership Lecture series -- named patience, consumer-targeted marketing and achieving synergy among the firm's different divisions as the factors catapulting LG Electronics from a relatively obscure maker of commodity goods to a premium global brand. An edited version of the conversation appears below.

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Knowledge@Wharton I would love to start by talking about the consumer electronics industry. Competition in the industry often seems to focus on finding the next big blockbuster product, such as the iPod or the Wii. Is it possible for all electronic firms to create such products? And, if not, how should they position themselves in this market? Michael Ahn: The consumer electronics industry [was previously] divided [into] hardware, software and content. However, there is a trend to combine hardware, software and content in [products] like in a smartphone or "smart" TV.... The trend is providing total service to consumers ... so that consumers can get information anywhere, anytime.... I know that smartphones have become so popular and the next generation of television could be a "smart" TV. Knowledge@Wharton: Do you believe that the next big blockbuster product will be a smartphone or smart television? Ahn: Yes. Knowledge@Wharton: How will it change the competitive dynamics of the consumer electronics market? Ahn: In the consumer electronics industry, the next blockbuster will be smart TV at home and smartphones for consumers [outside] the home. So far, the company was [divided] content wise, software wise or hardware wise. But in the future, the three areas will be combined, so we need a big corporation [covering] the different industries -- content, software as well as hardware. And consumers will buy and shop for service [accordingly]. Knowledge@Wharton: I would also like to ask you about the evolution of Korean multinationals. When large Korean companies like LG and Samsung emerged on the global stage, other Asian companies, specifically Japanese companies like Sony, Matsushita and Hitachi, were already established. How did the globalization strategy of Korean companies compare with those of the previous generation of Japanese multinationals?

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LG’s Michael Ahn on Becoming a Global Player in the Consumer Electronics Market: Knowledge@Wharton ( http://knowledge.wharton.upenn.edu/article.cfm?articleid=2667)

Ahn: Over the last few decades, we have learned a lot from Japan and Japanese companies. Even 10 years ago, a Korean company's revenue and status were much smaller than Japanese companies. Nowadays, we are competing with each other and in some areas, Korean companies are doing a little bit better than Japanese companies -- [for example, in] some mobile phones, televisions and home appliances. The world has been changed dramatically in such a short period. Maybe the Chinese will be next. Who knows? Knowledge@Wharton: If we look at Asia today, multinationals from China and India are trying to enter the world stage. What lessons can they learn from the globalization of Korean companies? Ahn: The most important area would be developing products based on customers' needs, behavior and trends. For example, American consumers are very different from Asian consumers; European consumers are different from American consumers. So we better find out the different points and develop the right products for those markets. That's the key for success. Knowledge@Wharton: Can you explain what you mean when you say consumers in different parts of the world are different? How are they different and how does that drive your product strategy? Ahn: In home appliances, a consumer's needs are different market by market, even region by region. So we do better if we ... develop new products based on those differentiation points. But with mobile phones, it's almost the same all over the world. Television sets are also very similar, but the timing of [how they are rolled out] is different country by country and market by market. Knowledge@Wharton: Coming to LG Electronics, under your leadership, the company saw its revenues increase 20% year on year, from $5.6 billion in 2004 to more than $13 billion in 2010. Could you explain your strategy in driving this performance? Ahn: When I came to the U.S. in 2004, the LG brand was almost unknown and I thought that without having a premium brand, growth would be limited and we couldn't make a profit with a low-end brand like GoldStar. So we thought that building a premium, well-known brand was the most important [factor] for future growth. We have focused on building LG as a premium brand over the last several years and we were very successful in brand management. Knowledge@Wharton: What is the role of leadership in brand building? Ahn: The leader's role should be consistent in brand management and brand building. Brand building takes a long time and costs a huge amount of money. Building consumers' perception ... takes a long time. That's why we should be consistent in strategy and philosophy. If not, consumers [can get] very confused.... Knowledge@Wharton: What were the main obstacles you faced in building LG's brand in the U.S. and how did you overcome them? Ahn: We talked about that issue with colleagues. Most obstacles [involve] people in the company who are not patient about brand building. It takes a long time. But they were not so patient. They needed big revenues and volumes in a short period. That was a big obstacle for us to overcome. We needed patience to [become] a premium brand. Knowledge@Wharton: How did you overcome that obstacle? Ahn: We tried to get a consensus. We tried hard to [convince] people to be more consistent and very patient about achieving results.... Even sales people wanted to sell big quantities at low prices because they were compensated by incentives based on sales volume. So they didn't [care] about brand building. They [cared about] their incentives. That was an issue. Knowledge@Wharton: You also realigned LG's North American operations into a single, consolidated structure. What was your objective in doing that and how did the streamlining of operations fit into your overall strategy for LG Electronics in the U.S.? Ahn: Before I came to the U.S., the North American operation was divided into three groups -- the mobile phone business, the consumer electronics business and the home appliance business.... With All materials copyright of the Wharton School of the University of Pennsylvania. Page 2 of 3

LG’s Michael Ahn on Becoming a Global Player in the Consumer Electronics Market: Knowledge@Wharton ( http://knowledge.wharton.upenn.edu/article.cfm?articleid=2667)

such a structure, we couldn't create any synergy. That's why we combined the three groups into one under me. Synergy generation is very important. Knowledge@Wharton: Almost every company swears by innovation. What was your approach to encouraging innovation at LG Electronics? How do you ensure that the best ideas surface and are implemented? Ahn: If we want to build a premium brand, we need to be different and have innovative products and services. Without innovation and differentiation, we cannot build a premium brand. So we challenged the R&D center, the design center and the product-planning group to develop differentiated, innovative products every year. We not only challenged but also encouraged those people and supported them. Some years later, we have seen the result. For example, washing machines. We came to U.S. with our differentiated washing machine about seven or eight years ago. And in front-loading washer dryers, we became No. 1 four years ago, with 24% market share. We are still No. 1.... That was possible with innovation like the steam washer dryer and the self-diagnostic washer dryer. Knowledge@Wharton: Do you have any other examples? Ahn: Yes. Even refrigerators. We were one of the first companies to introduce a French three-door refrigerator. In the case of four-door refrigerators, we were the first. We have about 23% market share [in terms of] the brand. Knowledge@Wharton: During the course of your career, what has been the biggest leadership challenge you have faced? How did you deal with that challenge and what did you learn from it? Ahn: There are a lot of [different parts of a] leader's role, including providing a vision and strategy, upgrading an organization's capabilities and coaching people. Among them, upgrading capabilities was really difficult [when] the brand was unknown. But when the brand was well known in the market, recruiting top talent was much easier. Knowledge@Wharton: What is your personal definition of success? Ahn: Have we achieved our vision. Then we believe we are successful. We set our vision in 2000 to become a top three global player by 2010. Our company achieved that vision in 2009. Now, our new vision is that to become the No. 1 company by 2020.
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