Student ID: 100369891 University of Derby Course: 7AG517

Risk Management in a Global Context

Student ID: 100369891

Table of Contents
1. Introduction..............................................................................................................................3
2. Case Evaluation........................................................................................................................3
3. Risk Attitude.............................................................................................................................4
4. Risk Appetite.............................................................................................................................5
5. Risk Identification.....................................................................................................................5
6. Risk Consequences...................................................................................................................6
7. Risk Impact...............................................................................................................................6
8. Conclusion................................................................................................................................7
References.......................................................................................................................................8

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Student ID: 100369891 University of Derby Course: 7AG517

Executive Summary
The explosion of Samsung Galaxy Note 7 creates a big scandal in the technology industry. This
report will analyze the factors that led to this explosion. A case evaluation and a background
check will introduce the study. The main five points of this study: risk attitude, risk appetite, risk
identification, risk consequences and risk impact will be discussed, and academic reasons will
be provided to endorse the arguments.

1. Introduction
Risk is identified by Paul Hopkin in his book Risk Management as being an event with a
significant negative impact on an organization which can have a as a result a deviation from the
expected outcomes. (Hopkin, 2013) The aim of this report is to evaluate the case study of
Samsung Note 7 explosion and to identify the risk factors such as risk attitude, risk appetite, risk
identification, risk consequences and risk impacts.

2. Case Evaluation
Samsung is one of the biggest technology company in the world and is most known for its
phones, TV’s and screens. The company was founded in Korea in 1938 as an exported fish, fruits
and goods company in contrast with its advantageous position at this time. (Hartley, 2020)
In 2016 the company released the Note 7 which will turn to have a battery problem causing the
phone to explode. Investigating this issue, it turned out that there were errors both in the
design of the battery and in the manufacture. According to BBC the problem was caused by the
insufficient isolation material and the design which does not offer enough safety room to the
battery. (BBC News, 2017) (Figure 1)

Figure 1 - Note 7 Design Error (BBC News, 2017)

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Student ID: 100369891 University of Derby Course: 7AG517

The company took measures quick and it replaced the phones, providing a fireproof case for
the people to return it. Also, the CEO of the company apologized for not meeting the usual
quality standards of the company. The situation turned out with some financial loses for the
company, but not critical. (Heathman, 2017)

3. Risk Attitude
Risk attitude is defined by David Hillson and Murray- Webster as chosen state of mind with
regard to those uncertainties that can have an impact of the objectives of the company.
(Hillson, 2006)
Furthermore, Hillson believes that the risk attitudes are usually adopted subconsciously, and
this can chance consciously when the person or the group decide to over-ride their automatic
response in order to understand the situation better. The risk attitude can have a starting point
and change from risk advert, risk tolerant up to risk seeking and risk addicted on the spectrum
of risk attitudes. The spectrum of risk attitudes relates how comfortable is with the risk in order
to categorize is the group is risk seeking or risk advert to the given situation. (Hillson, 2016)
(Figure 2)

Figure 2 Spectrum of Risk Attitudes (Hillson, 2016)

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According to Hillson a group can have a default position on the spectrum or this position can be
variable according to the characteristic of the situation. (Hillson, 2016)
In the case of Samsung, the background of the company needs to be analyzed in order to see if
the company have a habit which can denote the position of the company on the spectrum.
Initially Samsung was a fish exporting company which expanded to fruits vegetables and then
further to provide a wide variety of services. (Hartley, 2020) The difference from the initial
activity of the company is that wide, that it suggests the company have a risk seeking
background, which helped to grow and become what it is today. Even if the company was on a
different position on the risk spectrum, that had to change to be able to provide such a big
change.
From a different point of view, Samsung is in one of the most fast-growing industries, with a
very huge dynamic. This king of industry requires a risk seeking attitude for the companies,
otherwise these would not be able to keep up. (Ritchie, 2013)

4. Risk Appetite
Richard Barfield consider that risk appetite if defined well can translate risk metrics and
methods into business decisions and day-to-day discussions. In his vision risk appetite can be
seen as a complex task which require balancing many views about the risk. (Barfield, 2017)
Furthermore, Nadine Boghdadi points out that the risk appetite needs not to be confused with
the risk tolerance. In his argument, while the risk appetite is focused on the pursuit of the risk
and the parameters that the organization must employ, the risk tolerance quantifies the
maximum amount of the risk that the organization can take. (Boghdadi, 2015)
With a risk seeking attitude Samsung is already liable to a high-risk appetite, or a more frequent
high-risk appetite. But for this particular situation, many factors were in place in order to
increase its appetite. Already pushed by the industry to take risks, at the end of August 2016
the Note 7 was ready to be released, followed by the new iPhone in September. The phone
industry has a life cycle of about 11-12 months, time in which the companies competes one
with each other in who did the best phone since last year. (Burakowski, 2016)
On the other side, not only that Samsung had to keep its position against Apple and the other
companies at that time, but Samsung had a lawsuit with Apple which increased the tension
between the two companies. Samsung was accused by Apple in 2012 for infringing Apple
patents covering of the iPhone’s design. (Reuters, 2018)
With an already increased risk appetite, the two above-mentioned factors were the spiciness
that Samsung needed to have an increased appetite at that time.

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5. Risk Identification
Risk identification is the process of identifying and assessing the threats of the company. These
includes identifying both the internal and the external risk that can occur to an organization.
(Safetymanagement, 2020)
Ana-Maria Dinu consider risk identification as the very first part of the risk management,
followed by risk analysis and risk response. She considers that risk identification can be divided
into two categories. The two categories are initial risk identification, which refers to a new
organization or a new project, and on-going risk identification which refers to identifying risk
that did not previously arise. (Dinu, 2012)
The purpose of the risk identification (initial or on-going) is to obtain a list of potential risks to
be managed in a project. These are to be obtained for risk management purpose, which does
not necessarily mean to resolve the issues in advance, but also to be prepared for when it
occurs. (Renault, 2016)
Already pushed by the lawsuit with Apple and being in the time span of releasing the new
phone, Samsung have seen not releasing the Note 7 as an initial risk. The risk of not releasing
the phone would have not only gave an tremendous advantage to Apple by letting them to
release a phone without having a competitor, but also an ego shot to Samsung, as they had to
release this phone that can compete with Apple’s phone regards the lawsuit.
The risk of creating an exploding phone can be identified as an on-going risk which developed
further from the increased appetite of wining the competition against Apple and the other
companies. Being almost blinded by this competition and focused on the risk avoidance of not
releasing the Note 7, Samsung eighter did not seen the risk of creating an exploding phone or
did not considered the magnitude of this event.
From a different point of view, Charles Perrow introduce the idea of normal accidents, which
can happen when all the risks together are coupled one with each other into a complex system.
Considering the above-mentioned risks identified: Apple lawsuit pressure, time span to release
a new phone, possibility of creating an exploding phone, all these together form a complex
system which predict an accident. In the Samsung’s case, the Apple lawsuit put a pressure on
Samsung to release a better phone within the timespan of their product cycle life. All these
together lead to cutting corners and releasing a phone which can explode. (Perrow, 1994)

6. Risk Consequences
According to ISO 31000 the risk consequences can be identified as part of the risk analysis. Risk
consequences and how it impacts the organization (positive or negative) should be considered
in the analysis of the risk once this was identified. Aspects like positiveness, magnitude,
probability are critically in the situation of risk analysis. (theirm, 2018)

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The very first consequence of the event is represented by the financial loss that Samsung had.
Samsung’s equity dropped from 13% to 10%. Although the event had a financial impact on the
company, this did not change the overall company’s performance over time. (Hartley, 2020)
The exploding phones can be considered as a negative marketing for Samsung, creating a bad
reputation, or it can be considered at one time event, putting them into the spotlight, but
either way, on the long run, this event will leave an stain on Samsung’s portfolio.
Last but not least, looking on the past events after the explosion, Samsung have become more
carefully with the batteries, Note 8 having a smaller battery. This can indicate that a change in
the way Samsung manufacture and asses the phones. (GadgetsNow, 2020)
On the other side, if we look forward in the future, Note 9 have an even bigger battery than any
of the previous models. This can be a consequence of the new technology used for the
batteries, but it can also point out that Samsung’s behavioral change was only temporary.
(GadgetsNow, 2020) The theory that the Samsung’s way to operate was temporary is sustained
by Elliott in his paper “Organizational learning from crisis: an examination of the UK football
industry 1946-97”, in which he points out that for a cultural change, restructuration on the
high-management needs to be done. (Elliott, 1998) Samsung did not point out anyone as being
responsible for the explosion, fact that can indicate that no managerial changes were taken, but
on the other side this may have happen, and Samsung may have decided to keep quite about
these.

7. Risk Impact
Risk impact is defined by John Spacey as a potential loss associated with an identified risk. The
risk impact is used in the risk analysis practice along with the probability of a risk to estimate
how dangerous this can be for the company. The analysis of the risk with the impact and the
probability is often associated with the probability impact matrix. (John, 2016)

Figure 3 The Risk Impact / Probability Matrix (Mind Tools Content Team, 2020)

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Student ID: 100369891 University of Derby Course: 7AG517

The impact probability matrix will assess the frequency and the impact of an event and based
on these to metrices, the risk can be catalogized into critical, medium or low risk. (Mind Tools
Content Team, 2020)
John Spacey divide the risk impact into six categories. From his perspective risk impact can be
health and safety, quality of life, sustainability, financial, time reputation. (John, 2016) In the
current case study, the explosion of the phone had an impact over all the six categories. Such a
big event like an explosion of the phone which was distributed to a mass of people can
influence their health and safety and quality of life, which can further impact on the reputation
of the company. This can result in the financial losses and time consuming, and even further, if
the phones are not recycled properly in environmental damages.
Considering the event with an event of such big magnitude this could have destroy the
company. Samsung although handled the situation very well, by replacing the phones with
fireproof cases in order to minimize the health and safety impact and not to harm the quality of
life. The event was time consuming for Samsung as it must ensure the reputation is not
damaged too much, although Galaxy Note 7 leave a stain on Samsung’s reputation. Financial
losses were reported, but the company still register a profit over the full year, although not as
much as the previous years. (Heathman, 2017)

8. Conclusion
Considering the above-mentioned reasons and sections, Samsung’s risk assessment at that time
was under the standards, this being the main reason of the explosion. The company had an risk
seeking appetite promoted by the history of the company and the industry in which they
compete. The risk seeking attitude was only the consolidation for the increased risk appetite of
the company in the event of Note 7’s explosion. The main reasons for this appetite being the
lawsuit with Apple and the leading position on the market.
Furthermore, the company was aware of the risk of not releasing the phone at that time, which
could have led to losing the leading position. Avoiding that risk, they fall into the on-going risk
of creating an explosive phone, event that was as a result of a complex system.
The exploding phone had a financial impact over the company, and it led on stain forever on
their portfolio. The most important consequence could have been an cultural change, which
would have promote a better quality check of the products by Samsung, but this was not
endorsed by any meaningful managerial change, Samsung even possibly moving back to the old
habits with the release of Note 9 which had a bigger battery then ever before.
Finally, the explosion had many impacts on the company, from time consuming financial loss
and health and safety issues regards the customers. Although these could have destroyed the
company, this handle the situation very well, the event not shaking the leading position of the
company on the market.

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References
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Hopkin, P., 2013. Risk Management. 1 ed. London: Kogan Page Limited.
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