Canon stategy


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Canon stategy

  1. 1. Strategic Analysis of Canon - course: SM30271. Canons strategies have been very effective in balancing growth of market share withprofitability, with the firm controlling a significant share of focused niche markets in theimaging industry (see Exhibit 1). Cannons strategic challenges involved identifying themarkets in which it intended to compete and developing competitive advantages to allow thefirm to balance market share and profitability growth within these markets. In the late 1960s,the firm initially adopted a business-level strategic vision of focusing on the small photocopierniche that was underserved by its major competitors using a technology that was totallydifferent than the existing technologies used by competitors. The strategic vision provideddirection for the firms strategic planning process. At the same time, the corporate planningprocess was flexible enough to allow Cannon to recognise and exploit opportunities in relatedmarkets over the long run, with the firm eventually adopting a corporate-level strategy ofhorizontal diversification based on the evolution of its core competencies. Over the long run,the development and application of Cannons strategy has made the firm a leader in theimaging industry group.The strategic planning process at Cannon appears to have relied on a SWOT analysis toidentify opportunities and threats, and the internal strengths and weaknesses of the firm thatwould allow it take advantage of the opportunities and avoid the threats (see Exhibit 2). Thestrategic planning process at the business or centre level at Canon established the generalplanning procedure of identifying markets that were likely to grow in the future and enteringthe market if the firm possessed or could acquire core competencies sufficient to obtain acompetitive advantage in the market. These markets represented opportunities. At the sametime, the markets were served by existing firms, which constituted a threatto Canon because of competitive rivalry. In effect,Canon would be in the position of a newmarket entrant with existing firms controlling the market.The initial application of this planning approach in 1967 led the firm to identify an opportunityin the photocopier market as likely to grow in the future, which appears to have used anassessment of industry attractiveness (see Exhibit 3). The firm determined that it had aweakness in insufficient competencies to effectively compete in this market. At thetime, Canon had core competencies in electronics and fine optical, which were related, butwere insufficient to obtain a competitive advantage. As a result, the firm had to acquire ordevelop additional competencies in printing, materials technology, and communications,which were necessary to compete in the market. Acquiring the necessary competenciesbecame a fundamental component of the firms medium-range strategy.The subsequent evolution of Canons strategy from the photocopying business to the moregeneral imaging industry suggests that the strategic planning process has been influenced bythe resources-based view of the firm. This perspective considers the firm as a bundle ofresources and capabilities that can be used to create value by meeting a wide variety ofcustomer needs (Grant, 2005). Canons effective approach to matching resources to strategyconforms to the general theory of the resource-based view of the firm. In this model, theresources available to the firm are the foundation of the firms ability to effectively executethe strategy. The firm began to acquire and develop resources related to the photocopyingindustry in the 1970s. This approach involved increasing the depth of a single type ofknowledge resource to achieve sufficient competencies in new product development to entera specific niche in the industry. The approach is commonly used by businesses using afocused differentiation strategy in a single business unit (Wernerfelt, 1984). The resourcesdeveloped to enter the photocopier market provided the foundation and strategicimplementation model allowing the firm to increase the breadth of its resources. Over the
  2. 2. long run, the firm entered new markets in office automation and video in the 1980s, and theaudio visual, energy savings and information markets in the 1990s. In practise, Cannoneffectively matched its strategy to available resources and used strategic planning to identifythe resources it would have to acquire to reach strategic objectives.As second aspect of the approach to strategic planning at Canon fundamentally involvedidentifying areas in the market that are not well served by existing members of the industryand allocating resources to exploit the market opportunity. This aspect of the strategy was anattempt to avoid competitive threats by exploiting opportunities in market niches ignored bycompetitors. Strategic groups of firms in an industry constitute a cluster of firms following asimilar strategy with the firms in different clusters not necessarily in direct competition witheach other (Henry, 2008). Firms in the same strategic groups tend to have similar marketshare and respond similarly to changes in the external environment, which results in highercompetitive rivalry among members of the same strategic group. Canons initial strategicvision involved minimising competitive rivalry by positioning the firm in a strategic group thatwas comparatively small with no firm dominating the market. As a result, Canons initialstrategic vision involved indirect competition with Xerox in the copier market,with Canon pursuing a market niche in which Xerox chose not to compete. To some degree,this decision provided additional focus for the medium-range plan by identifying the specifictype of research and development the firm should conduct to occupy the market niche forsmall copiers.A third aspect of the strategic planning process improving its effectiveness was the decisionto independently develop a new technology for photocopiers unlike the existing technologiesavailable in the market. This decision allowed Canon to differentiate itself from competitorson the basis of the technology incorporated into its product. It also increased the switchingcosts for customers who purchased Canon copiers because the difference in technologyprevents interchanging supplies such as ink with the products produced by competitors. Inaddition, it provided a resource in the form of a proprietary technology that could be used tosupport future evolution of the strategy. This resource was in the form of dynamic capabilityin research and development that could be used in other markets to develop new types ofproducts, which could be used for vertical expansion in the imaging market (Eisenhardt &Martin, 2000).The approach to implementing strategy at Canon over the long run appears to haveincorporated elements the process theory. In the process theory, strategic implementationinvolves change, with the employees of the organisation required to make adjustments topractices and perspectives to conform to the strategy (Whittington, 2001). Firms using theprocess approach to strategic implementation make incremental changes to the strategyrather than radically altering the strategy. The incremental approach allows the employeesresponsible for implementing strategy to participate in the process through feedback loopsare every stage of implementation. The feedback loops also provide information to allowadjustments in strategy based on the alignment of resources with the strategic plan andchanges in the external environment.Canon appears to have been very effective in its approach to implementation. In thestrategic planning model established by the firm, the centre or corporate strategic planningunit established the long-range strategic plan, but with input about resources and capabilitiesfrom divisions. The centre provided information about the plan to the divisions, who createdmedium range strategic plans at the divisional level that were consolidated at the centre. Thedivisions were free to establish the short-range strategic plans based on the medium rangeplans focusing on budgeting, which is a resource allocation tool. Feedback to centre occurs at
  3. 3. all stages of strategy implementation. In practise, Canons method of strategicimplementation used a bi-directional communications system to support future planning andmonitoring of implementation rather than a directive approach in which centre establishedstrategy without input from the managers responsible for executing strategy. The approachallowed the organisation to continue evolving over time to adjust to changes in the externalenvironment (see Exhibit 5)2. While the specific strategies used by Canon may not be applicable to firms outside thephotocopy and imaging industry, the approach used by Canon to strategic planning andimplementation could be used by to firms in other industries. The generic strategy selectedby Canon for its initial penetration of the photocopier market was focused differentiation,which required the firm to develop the technical competencies necessary to create a new typeof photocopier technology (see Exhibit 6). The focused differentiation strategy graduallyexpanded to be general differentiation strategy in the broader imaging market. This strategywas suitable for Canons specific situation by matching the conditions in the externalenvironment with the resources the firm had available or could acquire in a reasonable periodof time. The strategy may not be suitable for other industries because of differences in thenature of the industry, the conditions in the external environment, and the resourcesavailable to the firm.The general strategic planning and implementation process used by Canon could be valuablein other industries, but the value may depend on the organisational structures and cultures ofthe firms. Canon adopted a process approach to strategy formulation and execution in whichthe business units responsible for implementing strategy had some degree of input in thestrategy formulation process. In this model, strategy formulation and strategyimplementation are a dynamic and interrelated process. This approach, however, may beviable for organisations with similar structures as Canon, which appears to have had severalproduct divisions but operating in different segments of the imaging industry. In effect,adopting the strategy to penetrate the photocopier market involved greater verticalintegration in the imaging industry. The approach used by Canon may not function well forfirms that are horizontally diversified across industries, such as a multidivisionalconglomerate or M-form organisation. The multidivisional structure with divisions functioningas strategic business units (SBUs) creates a barrier between senior management andoperations because of the differences in the resources and environmental conditions for eachSBU (Whittington, 2001). As a result, a firm can have difficulty with establishing more than ageneric strategy for the organisation as a whole. In addition, the feedback loop usedby Canon to obtain input in the strategy formulation process and to monitor strategyimplementation may increase in complexity to the point of reducing its effectiveness.Nonetheless, firms in other industries with similar structures to Canoncould use the approachto strategic formulation and planning.The strategic planning process at Canon also had two organisation culture elementscontributing to its success in formulating and executing strategy consisting of participation ofproduct divisions and the acceptability of debate and risk taking among managers (seeExhibit 7). The firm used a participative process in the formulation of strategy rather, whichcontrasts to the approach in which senior managers formulate strategy in isolation andimplement strategy by directive. The participative approach used by Canon separated thefunctions of setting strategy, which was performed by the centre, from planning strategy,which was performed jointly by the centre and the divisional managers. In addition, theparticipative or collaborative approach used byCanon for planning strategy fostered a closerconnection between the realities of the internal environment of the organisation and theability of managers to execute the strategy (Mintzberg, Quinn, & Ghoshal, 2003). To use the
  4. 4. participative approach, however, the organisation must have a two-directional communicationsystem in which divisional managers are encouraged to provide information and perspectivesto senior managers to support the strategic decision-making process. An organisation with ahighly bureaucratic and authoritative culture could have difficulties using the participativeapproach to strategic planning employed by Canon. An additional organisational cultureelement necessary to use the participative approach is reward for innovation and risk-taking.Strategic change often involves the risk that the strategy or the methods used to implementthe strategy will not be successful. Managers from the divisional units providing input to thestrategic plan should be encouraged to develop innovative solutions to the challengesinherent in the plan such as resource development. The cultural factors suggests that firms inother industries could use the approach to strategic planning followed by Canon if theirorganisations have a collaborative and innovative culture encouraging acceptable risk takingby managers.ReferencesEisenhardt, K. & Martin, J. 2000. Dynamic capabilities: What are they? StrategicManagement Journal, Vol. 21, Nos. 10-11, pp. 1105-1121.Grant, R.M. 2005. Contemporary strategic analysis. London: Blackwell.Henry, A. 2008. Understanding strategic management. Oxford: Oxford University Press.Mintzberg, H., Quinn, J. & Ghoshal, S. 2003. The strategy process. London: PrenticeHall.Wernerfelt, B. 1984. A resource-based view of the firm. Strategic Management Journal,Vol. 5, No. 2, pp. 171-180/Whittington, R. 2001. What is strategy, and does it matte? London: Thompson Learning.ExhibitsExhibit 1Canons Percentage of Selected Global MarketsProduct Group PercentageLaser Printer 70%Bubble Jet Printer 40%Digital Cameras 24.5%Exhibit 2SWOT Analysis: Cannon used this process in its initial assessment of the environment and itsresources.Exhibit 3Although the formal Porter methodology for assessing the attractiveness of the industry hadnot been developed at the time Canon entered the photocopier market, the firm appears tohave used a formal procedure for evaluating the attractiveness of the market.Exhibit 4
  5. 5. Canon appeared to have used a strategic mapping process similar to the one below toidentify the way in which the firm could leverage its competitive advantage in a marketdominated by Xerox.Exhibit 5Canon appears to have addressed the problem of the time lag between environmental scan,strategy formulation and organisational change by adopting a continuous strategyformulation and implementation process. The participative approach to strategy managementallowed frequent adjustments to implementation according to changes in the externalenvironment.Exhibit 6Firms establish a generic strategy based on the match between resources and the externalmarket.Exhibit 7The theoretical relationship of strategy to organisational structure and culture suggests thereis an interrelationship in which strategy influences organisational structure and culture, butorganisational structure and culture have a long-term influence over strategy.