Gresham's Law
The ID Group president and senior executive meeting was held at the historic and quaint Cavallo Point Lodge at Fort Baker, north of the Golden Gate Bridge. Preparations for the meeting had begun several days earlier. The hotel handled most of the arrangements, while ID Technology's technical support team managed the technology-dependent elements such as video conferencing. Everything was perfectly prepared, so Yoo Jae-won had nothing to concern himself with. He simply needed to arrive at the business meeting room on time.
"Chairman, we are entering," Kim Dae-seok announced. Yoo Jae-won strode to his seat at a measured pace, arriving precisely on schedule. The presidents and senior executives already seated rose and greeted him with applause. This was his first time participating in such an event, and Yoo Jae-won felt distinctly awkward, though not displeased. Being looked up to and receiving such enthusiastic applause naturally lifted his spirits. Still, he remembered the principal's admonition to guard against arrogance. Ever mindful of that advice, he focused on maintaining a composed expression as he took his seat.
Once seated, he found the room quite agreeable. The meeting room, large enough to accommodate twenty people around a long table, was decorated in early nineteenth-century American style—comfortable and cozy. The view through the large windows was excellent as well. The Golden Gate Bridge and San Francisco Bay spread out like a painting.
"Well then, shall we begin?" With Yoo Jae-won's words, the ID Group president and senior executive meeting officially commenced. The agenda was straightforward. The presidents and any executives with separate reports would rise in turn and present on 1993 performance. Afterward, they would move to the restaurant for a meal and to build camaraderie among the presidents and executives. Camaraderie—that was the most important point of today's meeting.
Until now, performance reports had typically been received via ID Talk, and year-end settlements could be concluded the same way. The reason for arranging this cumbersome offline meeting was to foster personal connections. In the early days of the company, Yoo Jae-won had roughly known what everyone was working on. That made it natural for even independent teams to collaborate on pressing tasks. Now, however, with thousands of employees, such cooperation had become rare. Each person's scope of responsibility had grown sharply defined, and many found themselves pouring all their energy into their own work. Moreover, helping another department brought no particular benefit to oneself. This was not the kind of culture Yoo Jae-won desired.
Of course, maximizing organizational synergy required institutional procedures and support. If responding to another department's request for cooperation produced better results, participants should receive bonuses or personnel benefits. Such a system was already being diligently developed by the Strategic Planning Office under Yoo Jae-won's direction. Yet even among the presidents themselves, a certain awkwardness lingered within ID Group. Beyond that, few people truly understood the group's vision or direction. Through this event, Yoo Jae-won hoped to instill a sense of unity and strengthen organizational cohesion.
"Then, we will begin the year-end report with ID Technology President Remington Sting," Kim Dae-seok announced. Remington rose with a slightly tense expression and stepped onto the podium. A projector was connected to a NewEgg 2, and a high-quality speaker system had been prepared. The presentation materials had already been transferred to the NewEgg 2, allowing him to begin smoothly. Tension was clearly visible on Remington's face. Presenting before such a large audience was still unfamiliar to him. At least he had gained some experience assisting Yoo Jae-won at events like Comdex and completing the Stanford EMBA program. Holding a microphone in his left hand and a laser pointer firmly in his right, Remington began with a greeting.
"Boss—rather, Chairman Yoo Jae-won. And distinguished presidents and executives of ID Group, good afternoon. I am Remington Sting, in charge of ID Technology. It is both nerve-wracking and exciting to be the first to present at ID Group's 1993 year-end settlement. Since this is my first time giving such a presentation, I would appreciate your understanding if any mistakes appear."
Remington's greeting was unmistakably Korean in style. He concluded the greeting by bowing deeply at the waist. Immediately afterward, the slides he had prepared appeared on the screen. They offered a simplified icon-based overview of ID Technology's operating business units. ID Technology's business scope was as vast as Yoo Jae-won's capabilities. Even after major divisions such as the Android operating system and the gaming sector had become independent corporations, they remained substantial. The icons for ID Technology's business units appeared to be arranged by employee count. Consequently, the first unit Remington mentioned was ID Display.
"I will begin with the current status of ID Display." ID Display employed a total of one thousand staff. Of these, approximately nine hundred were production workers at the Daejeon factory, while the remaining one hundred belonged to the R&D department in Silicon Valley researching LCD display technology. This was a project into which hundreds of billions of won had been invested—a veritable black hole even when viewed across the entire ID Group, not merely ID Technology.
"Factory construction is now complete, and equipment training for production staff is being conducted with assistance from engineers of Japan's Sharp Corporation. Key components such as polarizing film and ITO electrode glass substrates are being smoothly prepared through partners including 3M and Corning. Pilot production is scheduled to begin in February of next year, with mass production slated to start in the summer following yield stabilization. The product lineup ranges from 14-inch SVGA-resolution panels to compact mobile-phone displays, enabling us to respond to diverse market demands."
Remington advanced the slides in sync with his remarks, clearly displaying visual materials including the ID Display Daejeon factory, the Silicon Valley R&D laboratory, and photographs of prototype products. Yet because the project had so far consumed only funds with no actual revenue, his voice grew somewhat quieter than at the start. Additional spending was not a concern. Yoo Jae-won generally outsourced production of most products through OEM or licensing arrangements. From the Egg series, which the public mistakenly believed were ID Group products, to the mobile phones currently undergoing intensive improvement, he intended to rely on other companies for mass production. Displays, however, were an exception. In devices from mobile phones to monitors and televisions, the quality of the display module was paramount. Mobile processors and displays were businesses he would never relinquish.
After finishing his explanation of ID Display, Remington's slides advanced. "Next is the Flagship Store." Dozens of small photographs had been arranged in a mosaic. Each tiny image depicted one of the Flagship Store locations scattered around the world. There had been minor controversy over whether the Flagship Stores should transfer to the independent Android business unit or remain under Technology. The outcome was as Remington now presented: they remained under ID Technology. Originally, Yoo Jae-won had operated only three Flagship Stores—in Seoul, Silicon Valley, and Manhattan. After absorbing Microsoft, however, all large retail outlets among Microsoft's global dealerships had been converted into Flagship Stores, bringing the current total. From the United States, United Kingdom, and France to Japan and Russia, they had grown into a valuable distribution network supplying ID Group products across many countries.
Logistics from factory to Flagship Store had not been fully vertically integrated worldwide. Existing logistics companies were utilized for intermediate segments. Yoo Jae-won had no intention of maintaining this arrangement indefinitely. Although logistics was a classic smokestack industry, it was also a field capable of generating significant synergy with IT. He planned to launch an internet version of the Flagship Store in the near future. Naturally, it would not sell only ID Group products but would operate as an open marketplace accessible to anyone. Delivery would be critical. A fast and accurate delivery system was the very essence of online shopping. This required building a large-scale logistics system, and if such a system were to be created, linking it with the Flagship Stores to generate synergy would be even better.
"Flagship Store sales rose approximately 30 percent year-over-year to $312 million, with net profit after various expenses reaching $33 million. The NewEgg 2 series and ID Office 3.0 contributed to this year's sales growth. Game software sales also continue to expand steadily." One could not simply rejoice at the emergence of profit, however. Flagship Store profits were offset by the cost of goods sold, most of which were the company's own products. Still, the earnings resulted from distribution innovation and strong sales rather than any exploitation of employees, so they were nothing to belittle.
"I trust everyone is already aware of ID Office's remarkable performance." ID Office was setting new records thanks to the blockbuster success of version 3.0 released at the beginning of the year. Designed to fully leverage the capabilities of high-performance computers, it remained competitive even in the HPC era. Competing programs failed to adapt to HPC, resulting in minimal performance gains, whereas ID Office 3.0 improved efficiency in proportion to hardware advancements. By boldly discarding compatibility below the 486 and optimizing for 586 and higher systems, the results were evident. Consequently, ID Office had grown to the point where it could be said to have unified the global office software market. Four million bundled copies had been sold with complete computer systems alone, while retail packages on CD and floppy disk exceeded 800,000 units. With the addition of ESD.com, the electronic software distribution site that had recently become independent and was conducting aggressive marketing, the five-million-unit mark seemed within reach. Only a few years earlier, selling 370,000 copies had been cause for celebration; now they were selling more than ten times that amount.
With a confident expression, Remington advanced the slide. Enormous figures in the hundreds of millions appeared prominently. "Thanks to this, ID Office division's projected 1993 revenue totals $480 million, with net profit of at least 50 percent." The full ID Office package retailed for $120, and with 4.8 million units sold this year, a simple calculation suggested $570 million in revenue. However, that $120 price applied to the large retail box sold in stores. The majority of sales actually came from bundled versions that computer manufacturers produced themselves. For bundled copies, the storage media such as floppy disks or CDs were prepared by the computer makers, while ID Technology merely issued certificates containing activation keys. This lowered the unit price, and volume purchases received substantial discounts. The difference amounted to nearly $100 million. Yet discounts were not necessarily negative; had they sold only at full price, such large-scale revenue might never have materialized.
Thunderous applause erupted at Remington's presentation. It was understandable—within ID Group, where many new business units existed, generating revenue and profit in the hundreds of millions was a rare achievement. Yoo Jae-won did not hesitate to join the standing ovation. The only regret was that ID Office represented the final major cash cow for ID Technology. With ID Office 4.0 scheduled for release at the end of 1994, only outflows remained. This was because ID Technology was structured not as a profit-generating enterprise but as a vehicle for developing future growth engines. In addition to the mobile processor development team, it encompassed Lightning Bolt, the display technology research institute, and promising Silicon Valley venture companies—yet aside from Lightning Bolt, none had produced clear results. The POS terminal business, which combined the Flagship Store inventory management system with barcode readers, was stagnant outside Korea. The SI division, which built ERP systems tailored to individual companies' needs, also remained minimal. At least in Korea, Yoo Jae-won's personal network had generated meaningful results. POS terminals and delivery management systems had been supplied to Yoo Kyung Group, while mobile communication and customer management systems had been delivered to TG Mobile. The future was not uncertain, however. If TG Mobile succeeded in operating ID Group's systems, potential customers in the United States and Europe would line up for numbered tickets as well.
"Finally, the New York data center construction project has been added. It accommodates ten thousand Intel HPC computers, with approximately $20 million in project costs. It will serve as an excellent forward base for expanding our group's internet business in the eastern United States." Another round of applause followed the closing remark. Given the breadth of ID Technology's businesses, the presentation had been lengthy—nearly thirty minutes by the clock. Yet there had been no boredom. For Yoo Jae-won, it was a valuable opportunity to directly confirm matters he had initiated and then set aside. Moreover, although funds were being dispersed in many directions, there was no deficit. Thanks to ID Office's remarkable sales growth, ID Technology's 1993 settlement showed a surplus of approximately $50 million. Yoo Jae-won viewed the situation simply: two-thirds of the earnings from the Flagship Store and ID Office were being reinvested. Consequently, ID Display would generate substantial profits next year or the year after, posing no problems whatsoever.
"Next is Vincent Greenhill, President of ID Investment." Following ID Technology naturally came ID Investment. Technology and Investment formed the twin pillars supporting ID Group, and their standing within the organization was considerable. Yet compared with Technology's thousands of employees, Investment had only a few hundred. Furthermore, its primary stage of activity was Manhattan in the east, giving it the air of an independent franchise within an ID Group whose business sites were mostly concentrated in the west.
"Good afternoon. I am Vincent Greenhill of ID Investment." Consequently, although Vincent Greenhill rose to the podium and offered his greeting, the applause was smaller than it had been for President Remington. Vincent Greenhill paid it no mind. Aside from Chairman Yoo Jae-won and President Remington, everyone present was a stranger to him, so it was only natural that they would find him unfamiliar as well. He was confident, however, that once his presentation concluded, the reaction would reverse completely. "Unlike President Remington, I am not particularly skilled with computers. Therefore, I required my secretary's assistance in preparing this presentation. Mr. Belfort."
Vincent introduced his secretary, Belfort. For today's event, Vincent Greenhill had flown to San Francisco with a small entourage. The ace among them was the young man Belfort. Although they had arrived only the previous night and must still be feeling the effects of travel, both appeared full of vitality. Belfort, being in his early thirties, could shake off fatigue after a brief rest. Yet Vincent Greenhill, considerably older, looked remarkably fit for his age. Part of the reason was the long-term leased business jet Yoo Jae-won had sent as a courtesy, but the greatest factor was the fact that he himself was in charge of the enormous investment bank that was ID Investment. Vincent Greenhill had spent his entire career as an SEC broker before retiring; he had never dreamed he would be resurrected in this way. Moreover, everything he touched turned into a resounding success, making each day thoroughly enjoyable.
"ID Investment currently has $6.8 billion under management, invested in IT companies, natural resources, and the entertainment sector." Having worked with Yoo Jae-won for so long, Vincent Greenhill had begun to adopt his style. He moved straight to the main point. A murmur rippled through the meeting room. It was understandable—many had not realized ID Investment was managing a full $6.8 billion. The investment drive, dubbed the Third Investment Round and launched last year, had begun with a total of $6 billion: $4 billion of Yoo Jae-won's personal fortune remaining after the Comcast acquisition and other ventures following his Japanese windfall, plus $2 billion raised from Korean investors. As Vincent Greenhill stated, the invested sectors were IT, resources, and entertainment. Ten billion dollars had been set aside as a liquidity reserve for contingencies, while the remaining $5 billion was fully invested. Thanks to favorable stock market conditions, returns had already exceeded 10 percent. Compared with the first investment in oil futures or the second in the Nikkei index, the rate of return was lower, yet the absolute profit amount was impossible to ignore. Furthermore, although generating large returns becomes more difficult as the investment scale grows, ID Investment was not merely cruising but accelerating. Interestingly, its reputation on Wall Street was even stronger than in Korea. In Korea, the expectation had risen after two previous instances of spectacular multi-fold returns, making the current 20 percent return appear disappointingly low. On Wall Street, however, where most investment products had already been developed, ID Investment's ability to achieve 20 percent returns in a short period was simply acknowledged as impressive. While large IT stocks such as IBM, Cisco, and Oracle occupied significant positions, substantial investments had also been made in resources, insurance, and investment companies including Berkshire Hathaway, GEICO, Exxon, and Mobil. Although the portfolio appeared eclectic at first glance, the returns were outstanding. The immediate, powerful impact from the very beginning sharply increased everyone's focus on Vincent Greenhill.
"Next, I will report on the status of Shin-Nihon Investment Bank." Satisfied with the atmosphere, Vincent Greenhill moved on. Belfort operated the computer to advance the slides accordingly. Then, against a background of a Japanese map, the logos of various companies floated into view.