Third-generation leader needs to find a new gear

Home > Business > Industry

print dictionary print

Third-generation leader needs to find a new gear

테스트

Euisun Chung

South Korea’s economic development has always been a triumph of audacity and elbow grease. But the challenges facing the country today seem particularly daunting.

The geopolitical risks swell, with North Korean leader Kim Jong-un’s nuclear arsenal growing and Chinese President Xi Jinping determined to forge a “Chinese century.” Korea is no longer a developing country - and doesn’t want to be caught in the so-called middle income trap.

In such challenging times, chaebol heads need to tear up the old scripts and find new ways into the future. Luckily, a new generation is now in charge of South Korean conglomerates - and their decisions will dictate the destiny of South Korea.

The JoongAng Ilbo will spend the next weeks exploring changes at the top of South Korea’s major business groups.


Hyundai Motor Group is transforming, and a major driving force is heir-apparent Euisun Chung. During the 14 months he has been executive vice chairman, he has brought significant change to the rigid corporate culture of the auto-making group.

In May, a Hyundai Motor researcher who wrote a report on the automaker’s future business strategy received an email enquiring about the report. It was an email directly from Chung.

“I didn’t think the executive vice chairman would question things directly [to me,]” the researcher said. “The question was brief, but professional.”

In September, Chung went to the Frankfurt Motor Show in Germany. A Hyundai Motor manager who was also there was surprised to see Chung looking around booths accompanied by just his secretary.

테스트

“It used to be a norm for employees to fawn over top executives on business trips, but I feel like the custom has changed to be more practical and simplified recently,” the Hyundai manager said.

Chung’s efforts to change the group’s culture can’t come fast enough considering the rapid change reshaping the auto industry.

Industry insiders say Chung is accelerating a so-called new Hyundai speed.

Hyundai speed refers to the management philosophy of the late Hyundai Group founder, Chung Ju-yung, Euisun’s grandfather. The founder was known to push ahead with plans without looking back - once he had made up his mind. That helped make Hyundai Motor Group the world’s fifth-largest auto-making group.

With change driven by new auto trends like connected cars, autonomous driving, a sharing economy and electric cars, the Korean auto group has been struggling to get into gear.

In October 2018, the group posted its worst earnings since 2010. An operating-profit-to-sales ratio that used be around 10 percent plummeted to 1 percent, and analysts considered Hyundai in the slow lane in terms of future strategy.

Some questioned if Hyundai would ever rebound from the sluggish performance.

Then the younger Chung stepped on the gas.



Preparing future car strategy

“Next year we will likely see an increase in earnings, due to the base effect of this year’s [low earnings],” Chung told employees right after the earnings were released last year. “But what worries me more is [our performance] in years to come. We need to change into a more efficient and agile organization to survive in the future car industry race.”

According to a Hyundai Motor Group spokesperson, it wasn’t so shocking within the group to see such sluggish third-quarter earnings last year. The group was fixing problems like an oversupply in the Chinese market, excessive marketing costs in the American market and excessive inventory.

“I think Chung meant the [next several years] would be an important time for Hyundai to catch up to a future it has been quite late for,” the spokesperson said.

Soon came a drastic year-end reshuffle.

A number of top decision makers who were close to Hyundai Motor Group Chairman Chung Mong-koo was replaced with executives scouted by the heir-apparent, spurring expectations of an imminent leadership transition from father Chung to his son.

Albert Biermann, a former BMW executive, was named the first non-Korean to lead research and development (R&D) for Hyundai Motor and Kia Motors, taking the jobs of two vice chairmen - Yang Woong-chul and Kwon Moon-sik - who had led R&D for years under the elder Chung.

The younger Chung also brought tech experts to the group, filling the footsteps of the experts in machinery and internal combustion engines who came before.

Chi Young-cho, executive vice president of Hyundai Motor Group and the man responsible for crafting its future business strategies, was promoted to president. The younger Chung was involved in recruiting Chi from Samsung Electronics.

Apart from Chi, key figures from KT and Naver were also scouted under Chung’s lead.

Chung is also deeply involved in the future car business.

The group has invested in Grab, the Southeast Asian operator of a ride-sharing service like Uber. It is cooperating with Chinese IT giant Baidu. In Russia, it is working with the country’s largest portal, Yandex, to offer a pilot service of self-driving robot taxis. In June, the company also invested in Aurora Innovation, a California-based self-driving car company.

Even with its investments, though, industry insiders say Hyundai Motor still lags behind competitors in future car development.

That view started to change in September, when the auto group announced it is injecting $2 billion to establish a joint venture with autonomous driving technology developer Aptiv. Aptiv is a pioneer of self-driving technology, along with Google’s Waymo and General Motors’ Cruise.

The group’s auto parts arm, Hyundai Mobis, said last month that it is investing $50 million in California-based Velodyne Lidar to jointly work on mass-producing Level 3 autonomous car systems by 2021.

From this month, Hyundai Motor is beginning a pilot ride-sharing service using self-driving cars dubbed BotRide with Chinese self-driving technology start-up Pony.ai and U.S. ride-sharing service provider Via, in Irvine, California. It is the first time Hyundai Motor Group is offering self-driving ride-sharing services on public roads.



Accelerating transformation

Euisun Chung’s leadership differs from previous leaders from his family in that he not only has strong drive, but is also sensitive to market trends.

On Oct. 22, Chung discussed the future of the auto business openly with the group’s employees in a town hall-style meeting. The group has been holding such meetings with employees from the beginning of the year.

“I’m expecting [our business to consist of] 50 percent cars,” he said, “30 percent private air vehicles and 20 percent robotics in the future.”

Analysts gave a positive assessment of Chung’s latest comments.

“If you see the recent town hall meeting or press briefing with reporters in New York, Chung’s language has definitely changed,” said Koh Tae-bong, head of research at Hi Investment & Securities. “We can see that he has studied and understood the recent trends in mobility disruption.”

Koh added that while Hyundai Motor Group has always had a powerful drive from management, it struggled to find direction for the past five years.

“The lost five years of the group are being recovered as [Chung] leads [the group] to the right direction,” Koh said.



Chung’s language

“If you communicate via email, you can start talking about what’s actually been in your mind unlike when you are talking face-to-face with someone,” Chung said during the recent town hall meeting. “Just a few sentences in an email is fine if your intention is delivered clearly. I don’t want to have PowerPoint files attached in emails.”

Chung is breathing new life into all parts of the company, including communication and even the dress code.

Last summer, some employees started coming to work in shorts after the group decided to loosen up the dress code in February. Far fewer employees wear suits, and there’s more of a start-up feel.

The group also flattened the management structure for both executives and manager-level workers so there are fewer hierarchical levels between employees.

A manager from Hyundai Motor Group said the flattened organizational structure has actually “led to a change in the way we work.”

Some experts are impressed with Chung’s attitude.

“He has exceptional character among chaebol heirs,” said Kim Pil-soo, an automotive engineering professor at Daelim University. “I’ve seen him listening carefully to other people’s opinions and cross-checking opinions by collecting different ideas.”

Kim added that Chung starts feedback right after someone raises a question about an idea and is willing to listen more.

Kim Ki-chan, a business management professor at the Catholic University of Korea, said the most positive part of Chung’s leadership is “empowerment.”

While business is now being led by ideas and innovation, “it is hard to present ideas to authoritative and scary leaders,” according to Kim.

“Chung’s way of empowering [employees] is desirable in that such a culture was not present in the group before,” he added.

The decision-making process within the group has also gone through changes.

Previously major business decisions were led by the group’s financial administrative office. But today, the future business strategy team led by the company’s President Chi Young-cho plans out the strategies and decides on investment directions. This is cross-checked by the financial administrative office.

A group official said the current decision-making process finds common ground on proposals made by the strategy technology department and the financial department. This is to prevent the company from making rash decisions on investing in only certain fields that could jeopardize the overall Hyundai Motor Group.

The official added that in the past, investments failed to be implemented properly.

Under the new system, the decision-making process from proposal to review and the actual execution have become much faster.

Chung once raised the importance of reading the changing tides.

“During the three years of my high school days, I lived with my grandfather [Chung Ju-yung], and we had breakfast every day at 5 a.m.,” Chung said during a conference hosted by the Carlyle Group, a Nasdaq-listed private equity company, in May. “At the table he would frequently tell me that I should follow current trends, which at the time I didn’t fully understand,” he added. “But now I think I’m getting it a bit.”



Can Hyundai survive?

The auto industry is going through a massive disruption. Analysts say that the time will come when it becomes clear who are the survivors and who are the losers, destined to disappear.

That time is coming soon, they say.

“The auto industry is already facing oversupplies, and in the future, there will be a lot of companies that disappear,” Chung said during the town hall meeting.

Will the Korean chaebol running at the new Hyundai speed be able to survive?

Though the group has teamed up with mainstream player Aptiv in self-driving technology, some researchers still raise doubts.

“Cars are selling less, and R&D costs for future car development are increasing astronomically,” said Lee Hang-koo, a senior researcher at the Korea Institute for Industrial Economics and Trade. “For a partnership to work, companies need to have things they can give and take. Hyundai Motor, yet, does not have a lot to offer.”

“What [the group] now needs is detail,” Koh from Hi Investment & Securities said. “Spending money, anyone can do. But to actually make something out of a strategic investment, [the management] should take care of the details.”

“We will have to see how effective Chung’s leadership is when global demand for cars further shrinks in the years to come,” said Eim Eun-young, an auto analyst at Samsung Securities.

BY LEE DONG-HYUN [kim.jeehee@joongang.co.kr]
Log in to Twitter or Facebook account to connect
with the Korea JoongAng Daily
help-image Social comment?
s
lock icon

To write comments, please log in to one of the accounts.

Standards Board Policy (0/250자)