An LG phone in a palm tree.
Four years ago, South Korea’s LG made the decision to quietly shut down its mobile phone business. The move was an admission of what had been obvious for a while: LG had lost the battle for cellphone dominance to Apple, Samsung, and a host of new Chinese competitors.
Losing to its Korean arch-rival Samsung was perhaps the most frustrating point of all. Samsung now competes with Apple for dominance in mobile phones, with around 20% of sales in a market that has since grown to over half a trillion dollars. That performance has helped elevate Samsung to be one of the world’s fifty most valuable companies. Its market cap is more than double that of LG’s.
What happened? Twenty years ago, both LG and Samsung competed head-to-head in mobile devices. Both had developed high-quality component manufacturing capabilities. And both companies were known for world-class execution.
The difference was strategy.
How LG Missed The Smartphone Boat
Both LG and Samsung had thriving businesses in what were called “feature phones”: small phones with simple LCD screens and keypads. Some of us have fond memories of versions that allowed users to send texts using a cumbersome interface (press the 2 button three times to make the letter F…). So when the first glimpses of smarter phones appeared—such as the BlackBerry and Nokia’s flip phones—both LG and Samsung faced the same question: was this a trend worth betting on?
To answer that question, Samsung began a program of innovation and experimentation. It developed its own operating system, called Symbian. It worked with design firm IDEO to imagine new use cases. And it partnered with Jump on a series of projects to develop a new growth playbook. The goal was to take small but deliberate steps into the smartphone space. No one could predict what the future would bring. The goal was to just get in the game and start learning.
For its part, LG turned to McKinsey, a trusted advisor and the world’s dominant management consulting firm. According to multiple sources, McKinsey conducted an exhaustive market study. The results seemed clear: McKinsey assured LG that smartphones were a niche product that would always be too expensive to gain widespread acceptance. Feature phones would remain dominant, they told LG. So the company doubled-down on feature phones, focusing on issues like reducing the cost of manufacture.
Of course, then Steve Jobs launched the iPhone in 2007.
There has likely never been a product launch in our lifetime that has had the immediate impact and long term influence of the iPhone. It sent consumers lining up outside Apple stores to be the first on their block to get one. And it sent every other phone manufacturer back to the drawing board.
Google had acquired a small mobile operating system called Android. Android’s founder Andy Rubin would later recall watching the iPhone launch and realizing he had to start over. Seeing Apple’s touchscreen interface, Rubin turned to a colleague and exclaimed, “Holy crap, I guess we’re not going to ship that phone…”
For its part, Samsung was well-positioned to compete as a fast follower to Apple, having run experiments in the smartphone space. Samsung abandoned its own Symbian OS and began shifting to Android.
LG now realized that smartphones were more than a flash in the pan. So it went back to McKinsey to ask what it should do. McKinsey’s advice was to partner with a company who could supply an operating system. However, they steered LG away from Android. As they saw it, Google had no established competence in mobile operating systems. Microsoft, by comparison, had a long track record in making operating systems.
Windows OS would be the smarter bet. LG hurried its Windows smartphone to market. The product was a dud. Four years later, LG was forced to abandon Windows and shift to Android. It was clear that LG had bet on the wrong horse. It had squandered precious time and energy and the company would never recover.
Breaking Out Of Present-Focused Thinking
It’s too easy to blame LG’s predicament on poor leadership or a lack of vision. It certainly wasn’t a lack of intelligence. Firms like McKinsey are renowned for having some of the smartest people in the room. The problem was that their approach to strategy was fundamentally backward-looking.
Like many consultants, the McKinsey team analyzed markets and technologies based on existing information: hard data, historical trends, and competitive benchmarks. In doing so, it focused on the world as it currently existed, not as it could be. McKinsey had done a thorough job of analyzing all of the facts. They just didn’t imagine any new ones.
This wasn’t the first time that happened. Way back in 1980, AT&T wanted to know how seriously to invest in mobile phones. So they asked McKinsey to forecast the number of cellphone users that might exist by 2000. The consulting firm ran the numbers and advised that mobile phones were too heavy, too costly, and too unreliable to ever attract a large market. They predicted only 900,000 users by the turn of the century. As it turned out, by the time 2000 rolled around, some 900,000 new subscribers were joining mobile phone networks every three days.
Future-Focused Strategy
Successful strategy happens when leaders recognize that present-day data is useful, but only one piece of the puzzle. The best leaders also look at emerging signals, experiment with new technologies, and build capabilities before they’re needed.
That doesn’t mean betting the farm on one outcome. Predicting the future is impossible, but you need to be in the game early enough to adapt. Samsung didn’t go all-in on smartphones immediately. Instead, they experimented. They tested different operating systems, partnered with Android, and learned along the way.
The smartest companies prepare for multiple possibilities. This means scenario planning, investing in flexible capabilities, and being ready to shift when needed. McKinsey’s advice to LG and AT&T wasn’t technically wrong based on the data available at the time, but it failed to account for how markets evolve. Seemingly safe bets can be the riskiest moves of all.
Disruptive changes start at the margins. If you’re only looking out for existing competitors, you’re probably missing the real threats. In the early 2000s, mobile email on BlackBerry was an emerging player. By dismissing it as a niche, LG missed the signal that people were ready for mobile computing. Leaders need to pay attention to their most forward-thinking customers, not just their biggest ones. Only then can they see behaviors that hint at the future.
The same goes for capabilities. Based on current data, it made sense to identify Microsoft as the best OS partner. But that failed to account for Google being a company that both prized learning and set its mind to being a major player in smartphones.
Beyond Today’s Data
The biggest risk for any company isn’t being wrong about the present—it’s missing the future. Many leaders believe that they’re making smart decisions when they rely on real-world data. If that data is only focused on what exists today, they’re effectively trying to drive a car by staring at a rearview mirror.
In times of rapid change, the companies that win are the ones that stay curious, keep learning, and take action before the future is obvious. They don’t just analyze facts; they create new ones. The question isn’t whether smartphones (or AI, or blockchain, or any emerging trend) are a big opportunity today. The question is what you can do to make it a big opportunity someday soon. As Peter Drucker said, the best way to predict the future is to create it.
