Hyundai, from Bust to Boom
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Hyundai were a hugely powerful auto manufacturer in their native South Korea since 1967. They had the largest car assembly facility in the world and as well as being the sales leader in Korea with significant exports to over 190 countries worldwide. But the main ambition of head of Hyundai, Ju-Young Chung, was to try and copy Toyotas success in penetrating the American market. In Feb 1986, the first Hyundai hit the showrooms of the U.S. But what began as a very promising move with initial sales soaring above what was anticipated to plummeting sales and back again has proved to be a phenomenon in the automobile industry.
Leadership and culture in the organisation were crucial factors in the rise, fall and subsequent rise again of Hyundai. Founder Ju-Young Chung reigned with an authoritarian and dominant approach. Typical of Korean Chaebols, the management was unified and all strategic goals and decision making came from the Chungs with no input from employees. There was no distinction between ownership and management. The embedded culture in the organisation was one of centralised dominance and acceptance. Ju-Young Chung reigned with an iron fist but his strong drive allowed him to achieve his personal ambition, which was for Hyundai to enter the U.S. market. Once this was achieved he handed leadership over to his brother, Se-Young Chung,in 1987 who had a very different style of leadership.
During the late 1980s, the international auto industry experienced considerable restructuring due to oversupply and intense global competition. This resulted in a number of strategic alliances between various auto companies via mergers and business partnerships. These allowed economies of scale and enhanced the companies competitive positions in the international auto market. Hyundai Motor Company formed alliances with Mitsubishi and Ford and with Kia in 1999.
Under the reign of Se-Young Chung, big changes came about in Hyundai. He had distinct goals and objectives outlined for Hyundai and under his reign, there was a complete transformation in the culture, leadership and structure of the organisation. His ambition was to change peoples perception of Hyundai to that of a trustworthy company. His style of leadership was to get the employees involved by delegating responsibility and authority to professional executives and managers and this in turn altered the authoritarian culture that was present in Ju-Young Chungs reign. He changed the organisation structure, from a military type vertically co-ordinated structure, ruled from the top down, to more of a horizontal type structure where more responsibility was delegated to workers. He also widened the span of control which was unheard of in Ju-Young Chungs reign.
There was some resistance to change from Hyundai workers to the new style of leadership. They had become so accustomed to Ju-Young Chungs style of leadership, where their opinion didnt matter, that it took some time for the workers to have confidence in the new leadership approach of Se-Young Chung. Hyundai was plagued with strikes during the late 1980s and 90s. Despite the transformation of leadership styles and organisation structure of Hyundai, it was not enough to dampen the loss of confidence by the public in the quality of Hyundai cars. Se-Youngs dream of Hyundai being perceived as a trust worthy company fared badly. He continued as leader, struggling with ever decreasing sales worldwide until 1996, when he handed leadership over to his son Mong-Kyu Chung.
Mong-Kyu Chungs position as chairman was to be the crucial factor which led Hyundai back on the road to recovery. He had a very similar style of leadership as his father. When he took up his new position the reputation of Hyundai was in tatters. They received very low ratings from J.D. Power & Associates who were the most popular car rating source in the U.S. Strikes still raged. A number of dealerships closed and Hyundai had difficulties in finding lenders to finance consumer loans. The company was in dire straits. They lost key management to competitors and despite advertising, promotions and dealer incentives; they failed to regain the popularity that they originally had. Everybody at Hyundai was pointing fingers of blame. The U.S. blamed Hyundai in Korea for their autocratic management and Hyundai in Korea blamed the U.S. on inadequate marketing strategy.
Mong-Kyu Chung aimed to introduce key changes. His primary focus became “quality, not quantity”. He wanted to change the publics perception of Hyundai products. His goal was to make Hyundai a reliable name not only in Korea but globally. His main strategic focus was on improving brand image and customer satisfaction by producing quality and valued cars in the Korean and Global Market. Teams became a very important part of the Hyundai organisation with everyone striving for the same goal.
One of the key problems with Hyundai was that they were basing their future success on unrealistic ideas based on their early success. Initially, they were using historical benchmarking. Some organisations can become trapped or victims of their successful past. Hyundai refused to invest the necessary resources needed to turn the organisation around. They were not keeping up with the changing environment and faced a strategic flux. But Mong-Kyu Chung initiated rigorous benchmarking of Toyota who had great success in the auto industry through innovation and looking forward rather than into the past.
The Global Market Strategies that Hyundai chose also played a major part in their failure and subsequent success. Hyundai needed to clearly define who their strategic customer was. When they entered the U.S. market in 1986, it was clear that they intended to target the entry level market. They felt that the high end, high priced cars market was already saturated. They targeted first time buyers e.g. students and young couples whose budget was low. They entered the market with what they perceived to be a low price strategy by providing cars with a lower price than competitors while offering similar product benefits. As competition was high in the U.S. market, Hyundai used a closed approach to innovation. They were fully aware of the rivalry and competition in the market that they were attempting to break in to and were aware that rivals would be out to steal any advantage that they could.
Whilst successful for the early years of entry in the U.S., Hyundais tripping point came very fast. When a company reaches tripping point it can be sometimes hard to reverse. It soon became apparent to customers that whilst the price was lower than many competitors the quality was inferior and could be perceived as more of a no frills strategy than a low price