Type: Process Essays
Sample donated: Julio Webb
Last updated: April 18, 2019
During late 1960’s, after runaway success of copier’s, Xerox appeared as invincible in its industry as any company ever could. Xerox acquired 93 percent market share world wide and a brand name synonymous with copying. At that time Canon, “the camera company from Japan,” jumped into business.
With less than a tenth the size of Xerox, Canon had no direct sales or service organisation to reach the corporate market for copiers, nor did it have a process technology to by-pass the 500 patents that guarded Xerox.Canon first studied the distribution of offices and than decided to focus on a latent segment the Xerox had ignored. This was the segment comprised of small offices who could benefit from the functionality offered by photocopiers but did not require the high speed machines available in the market.
Its management believed that a low volume “value for money” machine could generate a large demand in this segment.From this analysis emerged the business concept of a “personal side desk” machine which could not only create a new market in small offices but potentially also induce decentralisation of the copy function in large offices. Over time machine even created demand for a personal copier for home use. This was a copier which up to now no one had thought possible, and with in two decades Canon built up an empire with revenues more than $5 billion and rewrote the rule book on how copiers were supposed to be produced and sold.Core competenceBy being in the market with highly technical specifications, Canon’s low cost quality manufacturing and product branding resulted in higher levels of performance. Canon’s Global Information System for Harmonious Growth Administration (GINGA) and powerful functional committees, which coordinates resource based view (which provides technical edge) [See Fig.
1] and market based view (which provides entrepreneurial business units). Their core competency is to bring these two seemingly contradictory sources together with “impressive synergies” (e.g.
GINGA) [See Fig. 2] into the asset that would create competitive advantage in the office equipment market. Through expertise in microelectronics and strong R&D strategy, Canon has worked to build up specialized expertise in areas and then link them to offer innovative, state-of-the-art products, especially copiers.Most product development is performed by cross-functional teams.
A set of powerful functional committees provide the bridge between the entrepreneurial business units and company’s core capabilities in technology, manufacturing and marketing. The structure of Canon was successful as a federative group of independent, small units focused on entrepreneurial freedom, increasing both external market awareness and transparency of costs which would lead to a reduction in the fragmentation of the decision making process. This has led to a set of powerful functional committees which provide the bridge between the entrepreneurial business units and the company’s core competencies in technology, manufacturing and marketing.
This can be seen in such outputs such as Canon is the leader in number of patents world wide.It used joint venture and technology transfer as a strategic tool for mitigating foreign trade tensions. As a result of effective marketing and strong distribution management, Canon achieved rapid growth.
To support this Canon built up a strong dealer network which supported both sales and service of the copier. By developing expertise in the field of microelectronics and optics capabilities Canon acquired capability of new product development.Business ModelCanon’s low cost of production, strong brand, benefit of mass production and technical superiority helped them in obtaining competitive advantage. Canon’s top management favoured an entrepreneurial style of management which empowered unit heads to make quick decisions.
Canon’s business model was focused on ‘economics’ of scale [? (Price-variable cost) ï¿½ quantity – fixed cost (Marketing, distribution, R;D etc)]. By selling large quantity with reasonable price and low cost, canon earned high profit. Canon’s marketing and R&D expenses were common to almost all the products. Technology, organisation structure and R&D acted as distinctive assets [See Fig. 2] for Canon, while production and distribution acted as complementary assets for Canon.Building, Developing and transferring CapabilitiesCanon acquired managerial process synergy by keeping balance between their knowledge and value driven strategy. Canon is admired for its technical innovation, marketing expertise, and low cost quality manufacturing.
These are the result of a long-term strategy to becoming a premier company. Its approach of extensive outsourcing and focused internal development has required consistent direction from top management and the patience to allow the company to become well grounded in one skill area before tasking the organisation with next objective. Canon’s strategy was a balance of inside-out and outside-in approaches.
Ryuzaburo Kaku, President of Canon, feels that there are four basic requirements for the success of diversified business: 1) a level of competence in R;D; 2) quality, low-cost manufacturing technology; 3) superior marketing strength; and 4) an outstanding corporate identity, culture and brand nameIn developing its capabilities, Canon has frequently acquired outside expertise so that it can focus on its internal development of specialized skills. In the technology area, it pursues a strategy of decentralized R;D. Each product division has its own development centre responsible for short- to medium-term product design and other improvements whereas the long-term strategic R;D planning is dealt with by the Corporate Technical Planning and Operation centre.On the manufacturing front, Canon put emphasis on tight inventory management control, close supplier relationships and strong adherence to the kanban system. On the marketing side, it managed the development of its capability through step-by-step, calculated introduction strategies.
It first introduces the new product in the home market before it becomes sold in the international market. Moreover, Canon aims at shortening the time span between introduction in Japan and abroad to as short as a few months.On the other hand, Canon has managed the transfer of capabilities throughout the entire organisation by its unique communications network. Canon has built an efficient vertical communications structure through which the Corporate Centre is able to monitor the performance of its three main capabilities namely technology, marketing and manufacturing. In addition, it has a horizontal structure to facilitate direct information exchange among business units. On top of the above, Canon developed the GINGA in 1987 in order to integrate its worldwide operations.
The GINGA system consists of a high-speed digital communications network to interconnect all parts of Canon into a global database. Therefore, managers in any location are able to access to the flow of information in a timely manner.Advantage and disadvantage of Canon’s approachAs a result of their strategy they were able to leverage brand name, obtained manufacturing expertise and low cost manufacturing capability, created new market segments and barriers of entry, minimised risk, able to do continuous product development, developed strong distribution management system and effective management strategy.
However Canon was open to many risks also. Canon’s differentiation was sustainable only to the life of patent. There was always threat of long term price competition. New potential entrants were also threat to Canon.
Market was also slow in responding and Canon’s business was open to many external shocks also.New business opportunitiesAccording to Mr Kaku, the two prerequisites for launching a new venture are firstly, the operation must be debt-free; and secondly, personnel capable of undertaking such ventures must be secured. If Canon is to enter a new business which requires either a completely new technology or a different marketing channel, the risk will be 50% and if both technology and distribution channel are new to Canon, it will be 100%. Therefore, Mr Kaku foresees that Canon needs to wait until twenty-first century before they are ready for any new venture.Currently, Canon has three joint ventures in the computer industry with namely Hewlett-Packard, Apple Computer and Next, Inc.
All three provide Canon with good distribution channels. However, it has to develop a state-of-the-art technology in computer microchips before it can compete with the already successful computer gurus. Therefore, based on its current capabilities, Canon might not do too well in the computer industry.
Based on Canon’s advanced and innovative technology in precision mechanics, fine optics and micro electronics, there are a number of industries which could be attractive for Canon in its diversification drive. These include medical equipment, laser technology, high resolution lenses for movies, space technology, 3D imaging and DVD industry.