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5 Crisis Management Lessons from the Galaxy Note 7

You may have heard news reports about Samsung’s new Galaxy Note 7 overheating, possibly due to the lithium ion battery. The company has received mixed reviews for its handling of the issue. And with Samsung locked in a battle with Apple for global smartphone domination, it becomes critical to manage any crisis both quickly and correctly. Here are a few lessons from this episode:

  1. Optics Are Everything. There were more than 90 reports of overheating phones relative to global shipment of 2.5 million units. So, the incidence rate is extremely low. However, seeing news images of melted phones and a Southwest Airline flight being evacuated due to an overheating phone leave a lasting impression to the masses. (The phones were ultimately banned from all U.S. flights.)
  2.  Be Humble. Samsung rightly admitted the existence of overheating phones; however, in September it indicated “more than 1 million people globally now using Note 7s with safe battery.” Avoid taking credit for getting product launch safety only “a little” wrong.
  3. Consider All Stakeholders.  When Samsung made its first U.S. safety notification, a week passed before it informed the U.S. Consumer Product Safety Commission (CPSC). However, Samsung was required to do so within 24 hours of identifying a safety risk. This lack of coordination with the CPSC led to confusion among retailers and customers.
  4. Be Transparent, the Right Way. Samsung was relatively quick and open to customers on the issue. However, there were reports of confusion among phone owners about obtaining refunds, rebates or exchanges. The company later issued a recall and offered prepaid, fireproof return shipping boxes to U.S. customers who purchased the phones online from Samsung.
  5. Ace the Solution. Samsung switched battery suppliers, which seemed prudent. However, there were reports of replacement phones overheating. This extended the story for more than a month and created additional consumer doubt about Samsung phone quality.

It’s been estimated that this event has reduced Samsung’s valuation by approximately $14 billion to $19 billion. It remains to be seen what the long-term damage to the brand is.

Natasha Roman is a Consulting Services Group Senior Manager experienced in financial statement audits, SSAE 16 compliance audits, tax preparation, reviews and compilations, and payroll audits.

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