How the LG Group revamped itself

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How the LG Group revamped itself

Although LG had a clear vision of where it wanted to be and had begun to develop realistic action plans for transformation, a key question remained as to how the organization would be able to fuse the favorable attributes of the existing local traditional Korean corporate culture with the necessary characteristics of more cosmopolitan organization. A successful transition could create a unique corporate culture and an enduring source of competitive advantage.

The LG Group developed three growth models to outline the characteristics and requirements in each context. By identifying the skills, strategic approach, growth vehicles and evaluation criteria the group began to deal with the complexity of managing growth across industry dynamics in the context of geographic competition.

Organizational transformation is a tough process for a company with deeply entrenched culture and processes. The LG Group outlined an intensive process to redefine its corporate culture.

The revolution program was appropriately titled Leap 2005. Under this program the group would strive to become the world’s best in both quality and quantity; attain group wide revenue of Won300tn (approximately $400bn); reach highest profit-ability in each industry; establish a brand image renowned for customer satisfaction and create a fulfilling workplace for employees.

Leap 2005 systematically outlined measures the group should take to achieve global leadership. To accomplish these changes under Leap 2005, LG went about redefining its strategy, making difficult portfolio choices, changing its people management systems, outlining core competencies etc.

On January 1, 1995 the group formally changed its name to LG Group from the original name Lucky-GoldStar and embarked on a new corporate identity program. The new ‘face of the future’ logo symbolized the five concepts of world, future, youth, humans and technology, which the group believed were significant elements for growth and development.

models for growth

LG needed to achieve growth under three primary, but different conditions ie South Korean, regional and global context. LG developed three growth models to outline the characteristics and requirements in each context. By identifying the skills, strategic approach, growth vehicles and evaluation criteria the group began to deal with the complexity of managing growth across industry dynamics in the context of geographic competition.

reshaping organization and people

Few corporations of comparable size and complexity had ever attempted a transformation as radical and a growth objective as ambitious as Leap 2005. So there was little by the way of precedence or existing best practice to learn from. Yet, from the experiences of other companies – particularly that of General Electric – it was clear that LG’s strategic ambition could not be achieved without a fundamental change in its culture and people. This was the most important dimension of the second managerial revolution.

To fully understand how ambitious Leap 2005 was some perspective on the existing culture is necessary. As John Koo expressed, “The first challenge is addressing the distance between where LG Group is now and the goal described in Leap 2005.” Although the country and the company is emphasizing globalization our environment and cultural back-ground are not conducive to globalization’ … ‘To truly globalize the Korean people we must change their ideas about our business, ourselves and our nation. Potentially, globalization could create turmoil and confusion.’ LG’s historical culture was defined by a set of attributes that were internally consistent and mutually reinforcing. These were:

stability: the formerly protected national environment and the fact that LG Group had a conservative strategic approach had served to develop a view of the group as an unfaltering entity. Because of LG Group’s role as ‘leading second’ within the chaebol community, it had not developed a reputation of ‘high risk’ or fierce competition that its archrival, Samsung had.

people harmony: the founding chairman believed strongly in this philosophy. He endeavored to create an environment where group consensus was strong and where there was little conflict between people. Employees spoke of the group as a ‘mild’ environment. Such opinions were developed in part due to LG’s non-aggressive market positions as well as its forgiving approach to under performance. Individuals who do not perform well are not punished per se, but given opportunities in lateral directions.

respect for seniors: as Confucian values are highly influential in Korean society, respect for hierarchy and authority figures has been integral to many chaebol management structures. In addition, in stable environments past experience is highly valued. Experience, therefore, played a strong role in determining how highly individuals were esteemed. In contrast, as both the South Korean and the group environment become increasingly dynamic, qualities such as intuition or creativity will need to play a greater role in how individuals are assessed and rewarded. This in turn, posed a severe challenge to the seniority based recognition and compensation systems that have historically served as the key anchor of LG’s institutional framework.

teamwork: collectivism is a key Confucian value. Employees at LG Group work in teams (both formally and informally) and responsibilities are balanced within the teams. Socializing mechanisms insure that individuals pull their weight in teams in order to survive within the workplace.

individual recognition through opportunity: employees at LG explained that even though they performed work within teams, individual recognition was key within the culture. Due to the overriding atmosphere of equity, such recognition did not spur jealousy or rivalry, rather mutual respect. The chosen form of recognition was opportunity. Individuals who performed well were given better and more meaningful work. Throughout the group individuals were able to cross numerous functions and develop both specialized and generalist skills.

Remuneration was not viewed by employees as a key reward. It was noted that LG Group was amongst the highest paying employers within Korea. As a result, individuals knew they were well compensated in general, but actual rate of pay or changes in compensation per se did not hold significant meaning.

paternalistic management style:
employees at LG Group trust their bosses and the group as a whole to do what is best for them. As SM Oh, Deputy General Manager, Planning Team, PVC Division, LG Chemical Limited, explained, “LG is like a father, even though at times you may be asked to do things you do not like, you understand that un-equivocally, it is in your own best interest. In the long term the company really cares about you.” Such feelings have contributed to a high level of trust, loyalty and commitment within the LG Group.

high commitment and loyalty: ‘forced’ and ‘voluntary’ loyalty: loyalty within LG Group is derived from both environ-mental or ‘forced’ sources and organizational ‘voluntary’ influences. In explaining the impact of ‘forced’ loyalty Young Il Jin, President & CEO, LG Securities, described the commitment of employees to the chaebols as, ‘similar to that in a religious cult. At LG there is a strong identification with the company. Many employees feel a deep personal attachment to the company.

This is in part due to the fact that after the Korean war there was a limited labour market. People felt lucky to have jobs.’ Such feelings were reinforced by the lack of any social welfare system in South Korea. Wan Sup Sung, Executive, LG Electronics, said, “I think the national environment was influential in creating commitment and trust. Over our history people had fear: fear of not getting jobs.”

There was much that was good in that culture that needed to be protected and enhanced. And yet, there was much that needed to be changed. The challenge for the company was to be able to protect the baby while throwing out the bath water. As John Koo expressed, “The first challenge is addressing the distance between where LG Group is now and the goal described in Leap 2005.” Although the country and the company is emphasizing globalization our environment and cultural back-ground are not conducive to globalization’ … ‘To truly globalize the Korean people we must change their ideas about our business, ourselves and our nation. Potentially, globalization could create turmoil and confusion.’

LG focused on developing characteristics that were a sharp departure from some elements of its cultural heritage. Therefore, a massive culture change became the pivotal point of Leap 2005 – the make or break factor that would determine the results of other initiatives. There were four key characteristics that LG focused on…

first it had to embed a sense of challenge throughout the group. How would the organization move from being a ‘leading second’ to an excellent first? Clearly defined stretch goals were set, based on management’s belief that ‘if our people know how to achieve a target before-hand it is not a challenging goal’. LG set a target that could not be achieved by progressive improvement, the group would have to ‘leap’ to achieve it.

second, a commitment to speed was essential. The company strived to design efficient decision making processes and management activities. It believed that developing a fast moving organization was essential to take full advantage of increasingly rapid environmental changes.

third, was a focus on simplicity. LG tried to make everything simple. This was manifested by removing complexity from management echelons, simplifying communication as well as simplifying the use of parts in engineering.

fourth, LG It decided to become boundary less. It tore down organizational boundaries that fragmented people and processes across businesses and geographic units, across hierarchical levels, and from the outside.

renewing people

The primary recipients and key drivers of the transformation process, were LG’s existing work force. The group undertook substantive programs to develop its existing high performing individuals and, in time, its more latent leaders.

global leadership program the purpose of this program was to provide participants with global perspectives in business, cross cultural awareness and competencies such as managing complexities, high performance multi cultural teams, managing business relationships and managing self effectiveness. The focus was to develop the global business leaders.

change leaders’ program this was a structured program that LG undertook in alliance with GE, EDS and Arthur D Little. It used a change model, which helped individuals learn to challenge authority in order to learn. Consultancy and communication skills were also taught.

coaching program: HJ Lee, Chairman, LG Academy, under-took the role of coach. He explained, “I am serving as a mentor to all six target Cultural Unit leaders. Concerning our change toward globalization, mentally and intellectually we understand its implications. Physically we do not understand. How it will be manifested is still not entirely clear. To guide the process I am going to be a counselor and coach to the CEOs and Presidents of the Cultural Unit’s. To be a mentor you have to convey the best things you have to your people. You let them understand and discover things by themselves. For the process to work you must be someone they respect.

I usually select two or three immediate tasks they have to solve. Training, IT, HR, developing R&D – these are our most immediate problems. I use these project tasks as a tool for mentoring. After they solve these problems the managers have self assurance. For the organization to grow quickly, power must be delegated. You have to trust your managers. If they fail you cannot blame them. It is up to the mentor to assess the subordinates carefully. Once the mentor has ascertained their capability they must fully empower the subordinate. If the managers fail, the mentor is to blame – not the manager.”

To achieve cultural change, the group’s human resource policies also came under review and transition. The new human resource ‘philosophy’ emphasized three criteria: highest capability, highest performance and highest compensation. LG sought to secure people of the ‘highest capability’, regardless of race, nationality and gender. It then utilized and developed them by providing these individuals opportunities to achieve ‘highest performance’. In return LG provided ‘highest compensation’.

The primary shift in the philosophy from some of the tolerant aspects of ‘people harmony’ to a performance-orientated culture was a difficult transition to make. LG recognized that moving from a seniority based system would not be easy. Yong Nam explained, “In the past we have not been in a competitive environment. There were no incentives or “fast tracks” per se. So to some extent everybody was happy. Making the change is necessary, but difficult.”

Based on this philosophy the conglomerate sought to hire highly talented people who possessed the ‘world’s highest competitive power’. Creating a culture to induce high degrees of ‘voluntary’ loyalty became more important for achieving necessary levels of commitment in the workplace and developing a reputation as ‘a great place to work’. LG hoped to recruit and retain personnel who possessed the following attributes: people who continuously change themselves and cope well with the constantly changing environment around them; people who liked to take risks and would aggressively pursue ‘breakthrough’; people who would lead innovation and devote their enthusiasm to cultivating people of the highest talent and people who conduct business with honesty, fairness and sincerity.

To help create an environment that would attract foreign nationals LG began to use English as the company language of choice, provide high quality living accommodation and conditions for non-Koreans and instituted career development programs that paired high potential individuals with accomplished senior executives while giving exposure to top management.

the high wire act

In 1995 28% of overall revenue at LG was generated overseas. Of LG’s 200 ‘Global Business Leaders’ only thirty were foreigners. In the next ten years LG aspired to have 50% of all revenue generated overseas and 1,400 ‘Global Business Leaders’ of which half would be foreigners. It is also planned that three to four of LG’s divisional presidents would be non-Koreans, that 20% of the executive positions in the Seoul office would be filled by foreigners and that local managers would serve as heads of all of the group’s overseas operations.

Although LG had a clear vision of where it wanted to be and had begun to develop realistic action plans for transformation, a key question remained as to how the organization would be able to fuse the favorable attributes of the existing local traditional Korean corporate culture with the necessary characteristics of more cosmopolitan organization. A successful transition could create a unique corporate culture and an enduring source of competitive advantage.