Canon strategic analysis case study

This report examines the competitive strategy that enabled the "camera company from Japan"1 not only to break down the monopoly enjoyed by Xerox in the copier business in the 1970s but also to grow into a highly diversified, multi-product and multinational premier company.

Specifically, the report considers (1) the competitive strategy of Canon (2) the major resources and capabilities of Canon (3) management of the development and transfer of capabilities throughout the organisation (4) Canon's strategic perspective (5) is Canon successful? (6) conclusion and key learning points

Competitive strategy

The dominant generic competitive strategy adopted by Canon is differentiation.

The company deployed its technological capabilities and know-how in fine optics, precision mechanics, microelectronics and fine chemicals to develop innovative and state-of-the-art products, which were of better quality than those of its competitors. These products resulted mainly from the strong, decentralised research facilities of the company and the incredible ability of its engineers to convert research findings to new products and technological innovation. Although Canon succeeded in manufacturing products at low cost, it did not deliberately compete on the basis of low price.

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The quality of its products combined with significant amount of marketing and deliberate brand development efforts have established a sound reputation for Canon in the market and these underlie the competitive advantage of Canon.

Resources and capabilities

The major resources of Canon are as follows:

(1) Financial capacity: product innovation and attendant growth in sales and profits enabled provided Canon with the finance required for additional
research and product development which resulted in further increases in revenue in a virtuous cycle.

(ii) Decentralised R&D and new product development: in addition to the company's main research centre which supports state-of-the-art research in optics, electronics, new materials and information technology, each product division has development centres (manned by its own R&D personnel) where 80% to 90% of the company's patentable inventions are discovered. Three corporate research centres are responsible for applying the research findings to new products development. The company also introduced programmes to reduce the time for taking new technology to market by 50%. Innovative products provide the company with competitive advantage through new sales and patents, which serve as entry barriers to competitors.

(iii) Marketing expertise: the strength of Canon's marketing expertise derived from an effective product introduction strategy, a strong dealer network, large advertising spend and brand development. New products are first introduced in the home market before they are sold overseas in order to enable the learning and experience from the home market to be transferred to international markets. Even then, new products are only introduced into the market through proven, existing channels, to minimise the risk of failure. The Company also built up a strong dealer network which supported both sales and service of copiers. Dealers had to complete a service training course before they are allowed to sell copiers. Canon regards dealers as a vital asset through which it is able to understand and respond to customers' needs on a timely basis. Brand development efforts are undertaken through advertising, corporate sponsorship and a deliberate effort to only associate unique and quality products with the brand. This was demonstrated when Canon decided not to market the inferior CPC technology licensed from RCA under the Canon name.

(iv) Partnerships and joint venture relationships: despite Canons strong technological capability, it acknowledges that it has neither the resources nor the time to develop all the technologies needed for its products. This resulted in the development of strategic alliances and joint ventures in Europe and in the US, with companies such as CPF Deutsch, Eastman Kodak and Texas Instruments. These relationships were not only sources of required technology, they also served as strategic tool for market development for the company's products and for mitigating foreign trade tensions.

(v) High quality, low cost manufacturing: Canon has a philosophy of producing quality products at the lowest cost. Strong emphasis is placed on inventory management, waste reduction, material and production planning. Continuous improvement in productivity was achieved through automation and innovative process improvement. The commonality of parts between adjacent copier models also contributed to low cost of manufacturing due to standardisation. High quality, low cost manufacturing combined with premium prices provide Canon with an opportunity to earn good margins.

(vi) Highly motivated work-force: employees are held in high regard at Canon. This was applicable to both business unit managers as well as production line workers. The business unit managers were empowered to act as surrogate CEO of their units and to make quick business decisions. A number of initiatives were implemented to motivate production workers. These include the "stop and fix it" programme (which empowers any employee to stop the production line if he or she believes there is a quality problem), responsibility for maintenance of own machine and on-line feedback on quality and production targets. The level of motivation was reflected in the suggestion programme implemented by the company which resulted in more than 70 suggestions per employee per year, with a 90% implementation rate of suggestions offered. These resulted in significant corporate savings relative to the cost of the programme.

(vii) Visionary leadership: the company's president, Mr. Kaku, was a very effective and visionary leader. He introduced the diversification drive, corporate entrepreneurship and was very focused on the long term direction of the company.

(viii) Suppliers relationship: the long-term relationship developed with suppliers enabled the company to outsource the manufacturing of over 80% of
copier parts to suppliers.

(ix) Long-term approach: Canon always takes a long term view when making management or strategic decisions. This was demonstrated for instance when the company developed the bubble jet printers which was capable of cannibalising its well established laser jet printer. This approach enabled a consistent and focused implementation of strategic choices rather than short term panic reaction to crisis and challenges.

These resources and capabilities are extremely important for Canon's competitive advantage over its competitors.

Management of development and transfer of capabilities throughout the organisation

As Canon grew into a multi-product, multinational corporation, the company's management took the following steps to ensure the continued development and transfer of capabilities throughout the organisation:

(i) Implementation of independent entrepreneurial business units: independent operating units were created for cameras, office equipment and optical instruments. The business units were empowered to act on their own but were given clear profitability targets and highly ambitious growth objectives.

(ii) Functional committees: three functional committees were established by management to oversee the company-wide administration of new technology and product development, manufacturing and marketing. These committees were chaired by members of Canon's management committee, which gives them the ability to ensure consistency and communicate improvements throughout the organisation and into the different business units.

(iii) Development of a global information system: Canon developed the GINGA system to interconnect all parts of the organisation into a global database to facilitate the timely flow of information among managers in all the company's locations around the world.

Canon's efficient vertical communications structure with a lateral one will facilitate direct information exchange among managers across businesses, countries, and functions1.

Strategic perspective

The strategic perspective of Canon has traditionally been inside-out orientated. The company had a product focus whereby it deploys its technological capabilities to develop a diverse range of products, which it then markets on the strength of its brand through a wide range of dealer network and direct sales channel. The advantage of this method for a company like Canon is that it is able to leverage its expertise to develop a wide range of unique products. The costs associated with such developments would relatively be lower as it leverages on existing capabilities. The experience gained in the use of the underlying technology should result in high quality products. There is however the potential danger that the company may be unaware of changing trends and requirements in the market and therefore be unable to respond swiftly, giving competitors an advantage.

It would appear however that Canon's strategy is not exclusively inside-out, but has some elements of market focus. The development of the personal copier market for instance was based on an identified need in the market, with a clear description of the features of the product that would meet the need. This was clearly base on an outside-in approach. In addition, one of the major reasons that Canon values its dealer network is because it enables that company to understand and respond to customers needs.

Diversification into the computer industry

Based on the capabilities of Canon in the early 1990s, the company should have a good chance of doing well if it focused on the computer industry for the following reasons:

(i) The company has demonstrated a strong ability to develop new technological innovations on the back of its existing technologies. With its expertise in electronics, optics, fine chemicals and semi-conductors, Canon has the potential to develop quality computer systems that will compete favourably in the market.

(ii) Canon already has a well-established brand name in home and office automation products through its range of copiers, facsimiles, electronic typewriters, laser printers and word processing equipment. The company will probably succeed in linking these discrete products into a multifunctional system. With the quality associated with the brand, its strong dealer network and direct selling experience, the market is very likely to give such a system a chance.

(iii) Canon has also demonstrated the ability to buy in technology through its strategic alliances. This capability, with its low cost, high quality manufacturing should enable Canon to develop competitive computer systems.

Apart from computers, the company should consider products that can utilise the company's existing technological capabilities and dealer networks, such as DVD, televisions and similar products.

Is Canon successful?

From a variety of perspectives, Canon can indeed be regarded as successful. It effectively damaged the dominance of Xerox over the copier market, developing its market shares during the period. It also successfully diversified from being a camera company into a multinational, multi product company offering a range of high quality products to its global customers. The Canon brand name is well respected across the globe. Financially, the company recorded consistent growth in sales and profits over the review period. A review of the company's financial statements from 1998 to 2002 showed that Canon has continued to grow its turnover and net income.

Conclusion and key learning points

(i) Resource based approach: Canon's success was largely driven by the company's ability to utilise its core competences to develop innovative products as a means of gaining competitive advantage.

(ii) Continuous learning and innovation: Canon demonstrated the benefits of continuous learning. As it succeeded with the AE-1 camera, its researchers and engineers further developed new expertise in microelectronics (to produce the electronic calculator), the new process (for copiers), cartridge based technology (for the personal copier and later the desktop printer) etc. These enabled the company to diversify its range of products; which was one of the reasons for its growth and success.

(iii) Strategic value of partnerships and joint ventures: Canon effectively used these for acquiring technologies, developing markets, mitigating foreign trade tensions and reducing costs.

(iv) Corporate level strategy: as the company developed into a multi-product and multinational corporation, the corporate level strategy remained the vehicle through which the global organisation was managed and integrated.

(v) Strong monopolies can be broken: with over 93% market share in the 1970s and a brand name that was synonymous with copying, it would appear that the positional advantage of Xerox was unassailable. Canon demonstrated that such monopolies (when not imposed by government) can be broken through the introduction of innovative and quality products. By introducing the personal copier, the company also demonstrated the potential impact of one firm to completely change an industry.