Bloomberg report blames Note 7 fiasco on rush to beat Apple

The Galaxy Note 7 was supposed to be a triumph, a demonstration of Samsung’s technological superiority over Apple. But in the rush to one up its archrival, Samsung created the conditions for the devastating Note 7 battery recall.

That’s the gist of a new report from Bloomberg that cites multiple sources familiar with the events leading up to the global Galaxy Note 7 recall.

According to the report, in early 2016 Samsung’s leadership saw an opportunity to outshine Apple. Samsung brass, led by the newly installed CEO DJ Koh, realized that the iPhone 7 wouldn’t bring any significant innovations or even a redesign, and decided to pull out all the stops in developing the Galaxy Note 7. That included packing the device with new features like the iris scanner, increasing battery capacity up to 3,500 mAh, and accelerating the release schedule, so the Note 7 would hit the market well ahead of the iPhone 7.

This quote from the report is telling:

When Samsung became aware that Apple didn’t plan any major design changes, the Korean executives saw an opportunity. After a select group of top managers got their hands on early versions of the Note, they gushed over the upgrades and praised each other’s work, according to one of the people. If Apple wasn’t going to offer consumers anything exciting, Samsung certainly would.

Sources told Bloomberg that Samsung pushed its suppliers to work faster, in order to finalize the Galaxy Note 7 in time for its August 3 launch date, which was ten days earlier then the Galaxy Note 5’s.

Samsung’s suppliers also had to contend with orders from other clients. For instance, Samsung SDI, the Samsung group affiliate blamed for the Galaxy Note 7 fire incidents, makes battery cells for other clients, including Apple.

With the tighter release schedule and high orders from other clients, the pressure on Samsung’s supply chain was said to be stronger than usual.

One supplier said it was particularly challenging to work with Samsung employees this time, as they repeatedly changed their minds about specs and work flow. Some Samsung workers began sleeping in the office to avoid time lost in commuting, the supplier said.

Bloomberg’s report also reveals an interesting detail about the way news of the Note 7 fire incidents was received inside Samsung. One employee wrote on the company’s internal bulletin board that the situation was “humiliating” and called for an immediate recall. The employee even said he was willing to sacrifice his bonus in order to solve the problem. His plea was echoed by hundreds of employees. Reportedly, DJ Koh himself responded, apologizing and promising swift action.

Another interesting revelation is the motivation behind Samsung’s decision to conduct a full recall. The company analyzed how other companies, including Toyota, responded to similar crises in the past. Some executives favored limited measures, like a battery exchange program, but in the end, the camp that called for Samsung to move “quickly and dramatically” prevailed.

Did Samsung really push itself beyond breaking point in order to outshine Apple? That’s what the Bloomberg story seems to surmise and it’s a tempting narrative. That said, the evidence is circumstantial. After all, the stakes have always been high when it comes to the Galaxy Note series, regardless of what Apple or any other Samsung competitor launched at the same time.

What do you think?