LG: Defying Gravity

Nam is anything but traditional. He's shaken up the top management team, pressed LG employees to generate new ideas and streamlined operations. "We've got a CEO who believes in taking aggressive action and living with it," says Bradley Gambill, LG's chief strategy officer. "Once he decides that it makes sense to move down a path, he doesn't look back."

That fortitude proved especially important during the Great Recession. Even as the global economy shrank, Nam continued to shovel money into crucial aspects of the business, such as R&D and marketing. Instead of laying off workers, Nam reassigned 4,000 employees — about 20% of the headquarters staff — to new tasks such as devising strategies to penetrate underperforming markets. Some 100 people were given the assignment to find ways to reduce travel costs and other expenses, an effort that saved $350 million over a year. While its competitors often slashed ad budgets, LG boosted marketing in key countries. Its ad spending in Russia, for example, doubled in 2009. In fact, according to data from Nielsen, LG was the only major electronics or mobile-phone brand to increase ad spending last year. (See TIME's tech buyer's guide of 2009.)

To better monitor these initiatives, Nam set up a war room at LG headquarters, where each department was required to post its promised targets for sales, product releases or cost savings. Teams that met their goals got a green sticker; those that failed were publicly humbled with a red one. "We didn't think about profit too much," Nam says. "To show some profit [in a recession] is important, but not as important as long-term sustainable profit. This is a time to really come up with long-term competitiveness rather than short-term profits."

To that end, Nam hired Thomas Linton in 2008 as chief procurement officer and gave him a mandate to beat savings out of the purchasing operation. The IBM veteran found LG's buying was wasteful and convoluted. Each product division maintained its own purchasing staff and bought similar components independently. There had been so little effort made to coordinate that when Linton first called a meeting of circuit-board-procurement officers, he found to his surprise that they exchanged business cards. Even though they all bought the same thing, they had never communicated with one another. (See pictures of office cubicles around the world.)

Linton smashed the bureaucratic barriers within LG by coordinating procurement from HQ and standardizing components across product lines. That enabled LG to buy parts in bulk and extract better deals from suppliers. In 2009, Linton saved $6 billion.

Linton isn't the only outsider Nam brought in. Nam has pursued a recruitment strategy that has made LG's senior-executive team highly unusual in Asia for its diversity. Asian firms typically select top managers from within their own ranks and rarely include anyone from outside their home nations. Nam has ditched those habits, believing such practices would deprive LG of the skills and experience it needs to compete. His multicultural executive team, Nam says, "is a real demonstration to the entire world that LG is serious about globalization, so we can create an environment to attract the best people to our company." (See pictures of the history of air communications and in-flight entertainment.)

Nam will need all the help he can get to hold onto the gains he made during the recession. In mobile phones, for example, LG is launching its first full line of smart phones later this year, called Optimus, repairing a glaring weakness in its portfolio that led to slimmer margins in its handset business. That deficiency may result in lower profits for the company in 2010.

But having caught up in the arts of designing and marketing gadgetry, LG has set its sights on a new goal: transforming itself "from a device-only to a device-plus" company, in Gambill's words. That means not just adding features and applying updated technologies to its mobile phones and TVs but also meshing its products with content and services that keep bringing in dollars after a sale has been made. To get there, Nam has more than tripled the share of R&D spending on "disruptive" research — areas that may not show results for years. "Going forth, we really have to come up with breakthrough solutions," Nam says. "We're going in Apple's direction — coming up with the solution rather than just the device." That task won't be easy, but don't expect Nam to flinch.

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