How LG electronics manages technology and innovation

Executive Summary

Innovation is the development or acceptance of processes and ideas that are considered new by the company generating them and the customer that is being targeted. Organizational Innovation is a company trait that is consistent in firms which are truly innovative. Innovative firms exhibit innovativeness over a long period of time. One such firm is LG which has consistently come up with unique innovations.

The backbone of the firms operations is in innovation of new technology with the aim of coming up with new products and services which can meet the customers’ needs. The firm spends its resources on ensuring that new products are regularly released to the market. Commitment to innovation is the culture of LG as it endeavors to satisfy and exceed the customer’s expectations. LG has been a force to reckon with as it is more innovative than most of its competitors (LG Electronics 2009).

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This report aims to analyze LG Electronics innovativeness, the management of its innovation processes and the effect of this on its competitiveness in the market. The report will also highlight the strategies used by LG Electronics in maintaining its position as the market leader in innovation and product development.

1. Introduction

Innovation is one of the most important influencers of organizational success. It is useful for gaining competitive advantage over competitors and enhancing strategic management of an organization. Innovation is the adoption and implementation of fresh approaches and technologies.

Innovativeness is the capacity of an organization to undertake and support innovative ideas. Such an organization encourages experimentation, creativity and other activities which will result in a new service, product or technology. Research and development is also an integral part of innovation. (Salvou 2004)

LG electronics is ahead of its competitors in terms of technologies, digital product growth and market dominance. The company’s products are designed to make the customers life more convenient and pleasant. In order to achieve this, LG has come up with state of the art innovations (LG Electronics 2009).

The development of technology is very important in the electronics industry and therefore LG electronics ensures that innovation and technology of the organization are managed effectively. With increased competition in technologies such as plasma and projection, LG Electronics has to sharpen its innovative capacities if it is to remain competitive in the market. To achieve its objectives in the market, LG electronics recruits high talented and intelligent individuals. (LG Electronics 2009).

This paper aims to review how LG manages innovation and technology. This includes how it uses technology to gain competitive advantage and how it maintains its innovativeness. In addition, an evaluation of the issues and risks faced by the organization will also be carried out.

2. Background of the organization

LG Electronics is a global leader in the production of electronics, telecommunications products and chemicals. The organization was started in Korea with the name ‘Lucky Chemical Industries’ in the year 1947. The focus at the time was on the manufacture of chemicals. However, the organization ventured into the electronics industry and by the year 1958, it was the largest producer of radios, color televisions and fans. In 1959, it changed its name to Goldstar as it began producing plastic items.

Goldstar was the first company to produce a radio in Korea and it went on to produce other household electronic products. In addition, the company produced soaps, detergents and other hygiene products under the Lucky brand. (Pecht 1997)

In the year 1995, the company was named ‘LG’, which was the abbreviation of ‘Lucky Goldstar’. The company also uses the tagline, ‘Life’s Good’ in marketing the products. Today, LG Electronics is a global organization operating businesses in many countries all over the world. The company has a target market of more than 171 countries. LG electronics is one of the biggest contributors to Koreas GNP. It contributes more than 10% of the country’s Gross National Product. It also has exports sales of over 15% (Mathur 2005).

2.1 LG Innovations

LG has been involved in both the incremental and disruptive levels of innovation. Incremental innovation is a change in the technology or a product while disruptive innovation is a change in the consumer patterns. However, LG electronics has been more focused on advancing and developing technology and products. LG Electronics thrives on innovation and has released a number of new technologies and products in the market. (LG Electronics 2009)

2.1.1 Recent Appliance innovations

The new stem washing machine from LG is a very unique product and has received the world’s first NeT i.e. New Technology Certificate. This is because of its dual steam injection system that can remove some harmful substances with the high temperature steam. It provides a sterilization capacity of up to 99.9%. In addition, the machine rinses clothes very effectively. LG has also produced the first cartridge-type steam dryer which can remove creases, static and odors using the Real Steam Module.

The air conditioner unveiled by LG made with special technology which makes users feel cooler faster. It has twin wide-wings on both sides which provides a dynamic three-dimensional cooling effect. It is also beautifully decorated with Swarovski crystals and atmospheric lights. (LG Electronics 2009).

2.1.2 Mobile Phones Innovations

LG has been able to meet the current demand for more advanced and user-friendly mobile phone devices. The firm has developed phones that are unique yet functional for the customer. The PRADA phone is a revolutionary innovation by LG that has a touch-operated handset interface. The phone has a big WQVGA screen which is a unique feature that has attracted many customers.

In addition, this mobile device has no buttons and can easily be operated by the fingertip or a stylus pen. The PRADA phone received the 2007 Reddot and iF design awards. The Viewty phone is an exclusive combination of a phone and a camera. It is 5-megapixel and has both automatic and manual focus settings. It is suitable for use at night and has the ability to record high-speed moving objects. (LG Electronics 2009)

2.1.3 Digital Media Innovations

The Design Art Home Theater is a state of the art product that combines beauty and quality sound. The perfect harmony between the DVD player and speakers produces a superb sound coupled with an impeccable image quality. The Blu-ray drive from LG is the world’s fastest at a speed that is six times as fast as others. This device supports playback, recording of DVD/CD and recording. (LG Electronics 2009)

3. How LG uses innovation for competitiveness

LG has employed innovation as one of the main drives of competitiveness. According to Hitt, Hoskisson and Ireland (2008), LG has been able to enjoy continuous success due to persistent product innovation. For instance, it is believed that Motorola was unable to compete with LG in the fast changing phone industry because LG has been continuously innovative.

Instead of focusing on creating new products, Motorola simply developed sequels to its initial products such as the RAZR phone. Conversely, LG was focused on developing new and distinctive models to offer to the market. To support this, the firm doubled the number of designers and engineers in the mobile phone section so as to ensure maximum and unmatched innovation. (Hitt, Hoskisson and Ireland 2008)

To ensure competitiveness in the market, LG is using its resources, core competencies and capabilities on innovation and technology development. To enhance this, the firm relies on its core competencies which are product leadership, market leadership and people leadership.

Product leadership is the capacity to come up with innovative superior products by developing enhanced technologies. LG is committed to fast innovations and has developed primary and support activities which sustain creativity and innovation. LG is intent on developing 30% more innovations than its competitors. (Hitt, Hoskisson and Ireland 2008)

3.1 How LG Electronics maintains its innovation/competitiveness

3.1.1 Development of new ideas

3.1.2 Research and development

LG electronics maintains its innovation by aggressively engaging in research and development. The firm has come up with a network of research and development laboratories in various parts of the world including Sunnyvale, California, Chicago and Tokyo. These laboratories monitor the alterations in technology and develop high-tech products using advanced research and development.

In addition, this centers look for opportunities to get into strategic agreements with other companies in other companies. The research and development center in Sunnyvale is responsible for designing modern personal computers, high-resolution monitors and display terminals. The laboratory in Chicago deals with telecommunications equipment, HDTV and digital VCR. (Keller & Samuels 2006)

3.2 Technology Alliances

Many Industrial firms have entered into research partnerships so as to enhance their core competencies and acquire technologies which are necessary for competitiveness.

Entering strategic alliances is beneficial to LG electronics because it expands the production ability of the firm. LG entered into a licensing agreement with Hitachi because it was unable to reverse engineer televisions. Although the organization had many years of experience and vast knowledge in radio design, it was necessary to get more knowledge from Hitachi.

This agreement included product specification, parts/components, production technology, training and technical expertise. Basically, Hitachi was to transfer both explicit and implicit knowledge to the employees of LG. Seven engineers and technicians were sent to Hitachi for the purpose of assimilating and mastering technology in television production (Forbes & Wield 2002).

3.3 The technology strategy

LG also maintains its dominance in the market in the terms of innovation because of the technology strategy that it has adopted. LG Electronics is committed to research and development and embraces challenges which will drive it to better innovations and more ideas.

The focus of the LG Electronics innovation is on the customer and the use of Smart Technology is primarily focused on convenience and enjoyment for the customers. LG has developed a customer-oriented approach which allows for communication with customers so as to provide products that they want to use. The principle is a very important for the organization as it is a basis of the firm’s innovation.

The compay compiles the cutomers’ feedback and applys it to the design and development of the products. LG is also focusing on being present in strategic countries such as China and India. The firm has more than 30 research centers around the world and this facilitates open innovation whereby the firm uses external technologies and innovations (LG Electronics 2009)

3.4 The use of core competencies

For LG to be able to use innovation as a competitive tool, it relies on its core competencies. Their competencies are valuable thus this ensures that value is created for the customer. With product innovation, LG is able to exploit the opportunities in the external environment such as the customer needs that are unsatisfied. For example, the sleek design of LG’s Secret mobile phone and its ability to enable customers to make their own music videos has enhanced the competitive position of the firm.

The functions offered by the phone create more value for customers than their competitors’ products. LG also has rare competencies. This means that the competencies LG Electronics possesses to achieve a specific set of tasks are not available to its competitors. LG’s ability to produce innovative and creative models is certainly unique to the firm and gives it a competitive advantage. (Hitt, Hoskisson and Ireland 2008)

LG Electronics possess competencies that are difficult to imitate. Competitor firms often copy other firms which are considered to be market leaders. However, it is has proven to be very hard for competitors to copy LG electronics. For instance, LG’s innovation is a function of the knowledge and skills of the firms engineers and designers and the way they work together.

Being able to figure out and imitate the way LG uses its abilities to develop its core competencies has been a major challenge for its competitors particularly for mobile phone companies such as Nokia, Samsung and Motorola. (Hitt, Hoskisson and Ireland 2008)

3.5 How LG retains talent

Human resources are very important to LG because it is people who come up with innovations that keep the company ahead of competition. Therefore, not only does the company attract talented people but it also works to retain them. According to the human resources director for the LG India division, it is a very difficult task to retain employees. However, the firm has been able to come up with an effective plan which has ensured that the firm suffers very little staff turnover. He states that empowerment, engagement and provision of a career plan have been central in LG’s staff retention program (India Knowledge 2009).

3.5.1 Employee empowerment and engagement

LG empowers employees up to the lowest level of the organization. The employees are included in the company’s culture and have roles in the continuous improvement of the company. In their empowered roles the employees are expected to ensure that their assigned tasks are carried out in a manner that is productive and efficient.

This means that the employees have to be attentive so as to take note of ways they can improve their performance. Being empowered, the employees can make decisions which affect the company according to the jurisdiction given to them. Such a working environment is conducive for creativity and job satisfaction. This will discourage staff from leaving LG Electronics to join competitor firms.

To improve involvement in the operations of the company, the employees of LG have been divided into work groups and teams which ensure that each member of the organization contributes to the company and feels like a part of the organization. Allowing employees to be innovative and autonomous creates a sense of fulfillment in the employees (India Knowledge 2009).

3.5.2 Attractive remuneration

LG retains its talented and knowledgeable staff by ensuring that they offer an attractive pay package. The firm ensures that the employees are adequately remunerated for their service to the organization. There are bonus schemes and rewards in place to ensure that the employees are happy with their salary thus impacting positively on their performance. Since the staff are remunerated in a satisfactory manner, they are less likely to live the organization and join other firms. (India Knowledge 2009)

3.6 How do they encourage staff to be innovative?

LG strives to recruit highly talented and competent individuals who are able to support the firm’s innovation goals. The organization recruits people it considers to be great people and then trains them in the relevant knowledge base. The new employees are provided with education-based opportunities to use technology creatively. This is the foundation for persistent innovation in the future (LG Electronics 2009).

Employees of LG are adequately remunerated to ensure that they are motivated and willing to come up with innovations. There are a number of incentive programs that have been put in place to reward exemplary performance. The engineers and designer are rewarded for their innovative inventions particularly those which are received well in the market and contribute significantly to the profit and sales of the firm.

The participation of unions has significantly improved the performance of the employees LG Electronics and in effect the performance of the entire organization. Despite the global financial crisis, LG has been able to remain innovative and competitive even in the face of a very risky and volatile market (Mani 2002).

The employees are taken for training to enhance their skills and knowledge thus improving their ability to be innovative. A variety of self-development opportunities are offered by the firm to the employees according to the human resources planning and development system.

There are online and offline courses which are offered to support the employees and they are required to attend 40 class-hours per year to learn different skills. The work environment for the employees who are dealing with innovation is very conducive for coming up with innovative products and ideas. (LG Electronics 2009)

4. Issues and risks

An innovative firm like LG Electronics faces certain issues and risks which are unique to companies of this nature. Increasing innovation often dictates that a firm perform some changes in the design and structure of incentives for innovation. The firm needs to create adequate avenues to enhance product development including supportive services such as marketing, design, procurement and manufacturing (Spulber 2004)

Innovation goes hand in hand with risk. Therefore LG has to come up with a responsive and flexible organization structure which will be able to deal with any risky events that may occur. An innovation may not do well in the market. For instance, LG may come up with a product which does not appeal to the majority of customers in the market. This will be a waste of time and resources as the venture will not yield returns for the investment (Spulber 2004).

The innovation process is a very costly venture for LG. Investments have to be made in laboratories, remuneration for technical staff and licensing technology from other firms. The more innovative a firm chooses to be, the higher the expenditure it will face. The innovations made by a firm during a certain period should bring returns in terms of market value and profits.

Research and development programs are usually very costly especially for a firm like LG which has more that 30 research centers. According to Spulber (2004), the research and development costs are usually low in the initial stages of an innovation but rapidly increase as the product matures. (Spulber 2004)

Innovation may be difficult because of hostility in the market. Many times there are cartels that make it very difficult for a new product to flourish in the market. The black market is also a risk to innovation because some firms imitate products and sell them for a much cheaper rate.

5. Conclusion

LG electronics is the market leader in technologies, digital product growth and market dominance. The firm has relied on innovation for its success and market leadership. It has been able to gain competitive advantage in the market because it uses innovation as the strategy for growth and development.

LG should continue employing talented and innovative individuals who are able to create value for the customers. In addition, the firm should invest heavily in research and development as this is the main avenue for getting new ideas and technologies.

Reference List

Forbes, N. & Wield, D., 2002. From followers to leaders: managing technology and innovation in newly industrializing countries. Routledge: New York.

Hitt, M., Hoskisson R. & Ireland, R., 2008. Understanding Business Strategy: Concepts and Cases. Cengage Learning: USA.

India Knowledge 2009. LG India’s Y. V. Verma: A Global Strategy that keeps local people at the top, Available from: http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4285 [Accessed 18 October 2009].

LG Electronics 2009. Experience LG, Available from: [Accessed 18 October 2009].

Mani, S., 2002. Government, innovation and technology policy: an international comparative analysis. Edward Elgar Publishing: Massachusetts.

Mathur, U., 2005. Advertising Management Text And Cases. New Age International: New Delhi.

Pecht, M., 1997. The Korean electronics industry: The electronics industry research series. CRC Press: Florida.

Salvou, H., 2004. ‘The concept of innovativeness: should we need to focus?’ Journal of innovation Management, vol. 7. no 1, pp 33-44.

Samuels, R. & Keller, W., 2003. Crisis and innovation in Asian technology. Cambridge University Press: Cambridge.

Spulber, D. 2004. Management Strategy, McGraw Hill Professional: New York.

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