Case study - Canon by Lubaid Khan

Case : Canon, competing on capabilities : 

Case : Canon, competing on capabilities Lubaid Ah K’han Roll no : Mba 105

The case describes how Canon has sustained a very high growth rate by continuously building new capabilities and exploiting these capabilities. In particular, the case focuses on the company's organizational structures and management processes that support its ability to build and leverage competencies. : 

The case describes how Canon has sustained a very high growth rate by continuously building new capabilities and exploiting these capabilities. In particular, the case focuses on the company's organizational structures and management processes that support its ability to build and leverage competencies. Area of concern: What are the forms of competitive advantage on which canon’s success is based?

What is Competitive Advantage? : 

What is Competitive Advantage?

Slide 4: 

Competitive advantage (CA) is a position that a firm occupies in its competitive landscape. Michael Porter posits that competitive advantage, sustainable or not, exists when a company makes economic rents, that is, their earnings exceed their costs (including cost of capital). Specifically, it is your company's unique skills and resources working to implement strategies that competitors cannot implement as effectively. Analyzing and Studying the substance, expression, locale, and effect of competitive advantage allows the firm to better utilize the advantage Competitive advantages vary from situation to situation and from time to time Some basic examples of CAs can be: Cost: Low-cost operations Quality: High quality, Consistent quality Time: Delivery speed, On-time delivery, Development speed Flexibility: Customization, Volume flexibility, Variety

Evolution of CA in-between Canon and Xerox : 

Evolution of CA in-between Canon and Xerox

Slide 6: 

XEROX!! When Xerox introduced its innovative plain paper copying technology in the 1950s, it created a whole new market and protected its position with more than 500 patents. This gave the company a ten-year head start over the competition. The company used its initial technological lead to build a rapidly growing base of centralized copying installations generating a growing stream of leasing and service revenues, which in time gave rise to significant economies of scale in marketing and manufacturing. Xerox increased its sales 40% per year from $ 40 million to $ 1.7 billion and after tax profit to $ 187 million (C263 line 4-6) Increasing revenues and margins helped to fund a level of R&D investment which exceeded the combined revenues of the competition( c 265,line 21-25), while allowing Xerox to support the industry's largest and most sophisticated sales and service network, strengthening its brand and market dominance and keeping the cycle going. By the time its original patents ran out, Xerox had a massive 93% share of a $2B industry and a brand synonymous with photocopying (C263 line 7 and 8). Many large resourceful firms, like IBM, Kodak and Pitney Bowes, entered the industry only to retreat some years later having lost significant amounts of money (C265 line no 37)

Slide 7: 

CANON!! The outstanding exception was Canon. Unlike the others, Canon did not try to compete with Xerox head-on using a similar value chain configuration built around high-speed centralized copying. Rather, it saw the opportunity to create new value based on a more decentralized model. The company challenged its engineers to come up with a high quality, highly reliable, easy to maintain, personal copier for less than $1000, which represented a quantum leap in the price/functionality relationship of the time. This copier was designed to appeal to the many small to medium businesses for which the Xerox offerings up to then were not affordable thus canon avoided competition as a new entrant. This product also appealed to many people in larger corporations seeking an alternative to queuing up for much of their photocopying needs. By value innovation, Canon created a new surge in market demand and captured the lion's share of the growth. It also re-configured the industry's value chain in ways that played to its strengths, including wider and more diverse distribution that Xerox was used to, and skills in the design and production of high-volume, low-margin, and precision-engineered production

Competitive Advantage strategy!! : 

Competitive Advantage strategy!! (i) Corporate level strategy: The core logic that canon competed with was rooted in developing a portfolio of capabilities. These capabilities were embedded in their internal processes and routines tat cut across several organizational functions and levels. As the company developed into a multi-product and multinational corporation, the corporate level strategy remained the vehicle through which the global organization was managed and integrated.

Slide 10: 

(ii) Differentiation: The dominant generic competitive strategy adopted by Canon was differentiation. The company deployed its technological capabilities and know-how in fine optics, precision mechanics, microelectronics and fine chemicals to develop innovative and differentiated copiers (C263, line 21-24) One of Canon's main strategy thrusts was to decentralize R&D - a move that was to ensure a high volume of patents. Its researchers and engineers further developed new expertise in microelectronics (to produce the electronic calculator), the new process (NP process for copiers, (C267, line 04-08), cartridge based technology (for the personal copier and later the desktop printer) etc Canon was quick to see what worked in the Japanese market and to export it elsewhere, cutting the gap between a product launch in Japan and its counterpart overseas launch to a matter of a few months. These enabled the company to diversify its range of products; which was one of the reasons for its growth and success.

Slide 11: 

(iii) Strategic value of partnerships and joint ventures: Canon effectively used these for acquiring technologies, developing markets, mitigating foreign trade tensions and reducing costs. By the end of the 70s Canon had put in place a major distribution network in the US to take care of sales and after-sales of its photocopiers. The dealer channel was responsible for rapid growth in copier sales (C272, last Para). Seeking to avoid the friction involved in transferring its manufacturing base abroad, the company was quick to reinvest profits in overseas operations and transferring technology (C271, line 12-14).

Slide 12: 

(iv) Manufacturing: Canon exercised cost leadership and enjoys that advantage. Its goal was to produce the best quality at the lowest cost with the best delivery. Canon placed strong emphasis on tight inventory management through a stable production planning process, careful material planning, and close supplier relationship. Additionally a formal waste elimination program saved canon 177 billion yen between 1976 to 1985 (C273, last Para).

Slide 14: 

………………Continuation by yawar