query_builder June 20, 2015

Evaluating Canon’s strategies

It is essential to consider the position at Canon where the company has successfully established itself in both the camera and photocopier businesses. Many of the strategic assets which underpin these respective strategic business units (SBUs) cannot be shared directly. The dealer networks and component manufacturing plans are largely specific to each SBU. But in the course of its operations producing and marketing cameras, the camera division has extended this initial asset stock by a mix of learning-by-doing and further purchases of assets in the market. As a by-product of this asset accumulation process, the camera business also developed a series of competences like knowledge of how to increase the effectiveness of a dealer network, how to develop new products combining optics and electronics and how to squeeze better productivity out of high-volume assembly lines (Lynch, 2006).

Because Canon is in two businesses, cameras and photocopiers, where the processes of improving dealer effectiveness, speeding up product development or improving assembly-line productivity are similar, it can improve the quality of the strategic assets in its photocopier business, by transferring competences learned in its camera business and vice versa. This type of strategy, associated with similarities in the processes required to improve the effectiveness and efficiency of separate strategic assets in two businesses, opens up opportunities for asset improvement.

Another strategic advantage of Canon is its ability to utilize a core competence developed through the experience of building strategic assets in existing businesses. For example, in the course of operating in the photocopier market, and building the asset base required to out-compete rivals, this SBU also accumulated its own, additional competences that the camera SBU had not developed. These may have included how to build a marketing organization targeted to business, rather than personal buyers, and how to develop and manufacture a reliable electrostatic printing engine (Lynch, 2006).

When Canon diversified into laser printers, this new SBU started out with an endowment of assets, additional assets acquired in the market and arrangement to share facilities and core components. But even more important for its long-term competitiveness, the new laser printer SBU was able to draw on the competences built up by its sister businesses in cameras and photocopiers to create new, market-specific strategic assets faster and more efficiently than its competitors (Lynch, 2006). This kind of strategy, where the competences amassed by existing SBUs can be deployed to speed up and reduce the cost of creating new market-specific strategic assets for the use of a new SBU, we term the ‘asset creation’ advantage of related diversifiers. Again, only where the processes required to build the particular strategic assets needed by the new SBU are ‘related’ in the sense that they can benefit from existing core competences, will this type of diversification advantage be available (Mintzberg, 2005).

Yet another strategy used by Canon is where in the process of creating the new strategic assets required to support diversification into a new business (like laser printers), the corporation learns new competences that can then be used to enhance its existing SBUs. For example, in creating the assets required to support the design, manufacture and service of the more sophisticated electronics demanded by the laser printer business, Canon may have developed new competences that could be used to improve its photocopier business.

Alternatively, by combining the competences developed in its photocopier and laser printer businesses, may have helped it to quickly and cheaply build the strategic assets required to succeed in a fourth market: that for plain paper facsimiles. This kind of advantage over single-business firms or unrelated diversifiers, we term ‘asset fission’ advantage.

Once the Canon top management (with the help of divisional and SBU managers) has identified overarching competencies, it must ask businesses to identify the projects and people closely connected with them. Corporate officers should direct an audit of the location, number, and quality of the people who embody competence (Printz, 2003).

This sends an important signal to middle managers: core competencies are corporate resources and may be reallocated by corporate management. An individual business doesn’t own anybody. SBUs are entitled to the services of individual employees so long as SBU management can demonstrate that the opportunity it is pursuing yields the highest possible pay-off on the investment in their skills. This message is further underlined if each year in the strategic planning or budgeting process, unit managers must justify their hold on the people who carry the company’s core competencies.

Elements of Canon’s core competence in optics are spread across businesses as diverse as cameras, copiers, and semiconductor lithographic equipment and are shown in Table 1
‘Core Competencies at Canon.’ When Canon identified an opportunity in digital laser printers, it gave SBU managers the right to raid other SBUs to pull together the required pool of talent. When Canon’s reprographics products division undertook to develop microprocessor-controlled copiers, it turned to the photo products group, which had developed the world’s first microprocessor-controlled camera.

At Canon, divisional manages come together to identify next-generation competencies. Together they decide how much investment needs to be made to build up each future competency and the contribution in capital and staff support that each division will need to make. There is also a sense of equitable exchange. One division may make a disproportionate contribution or may benefit less from the progress made, but such short-term inequalities will balance out over the long term.

The positive contribution of the SBU manager should be made visible across the company. An SBU manager is unlikely to surrender key people if only the other business (or the general manager of that business who may be a competitor for promotion) is going to benefit from the redeployment. Cooperative SBU managers should be celebrated as team players. Where priorities are clear, transfers are less likely to be seen as idiosyncratic and politically motivated.

2. Debate whether companies outside this industry sector can draw any useful lessons from the strategies used by Canon in this industry.

Competencies are the key to competitive advantage. This conclusion is based on two lines of argument. First, several authors argue that past experience of the successful companies should be utilized by organizations striving to improve their operations (Printz, 2003). The second line of argument is the increasingly persuasive case examples of successful organizations, such as Canon, that appear to have developed strategy around their existing and future competencies rather than simply market and competitor analysis (Prahalad & Hamel, 1990).

Typically, a core competence is defined in relation to the competitive impact of its output; that is, a core competence provides the firm with (sustainable) competitive advantage via the way it is executed (Prahalad & Hamel, 1990), or via its attributes; for example, a core competence is firm-specific and hence difficult to imitate (Printz, 2003). However useful these definitions are in terms of competition and strategy; they are not operational, which creates some serious difficulties in identifying and developing the core competencies of a firm (Drejer & Riis, 2000).

It is reasonable to expect a business that has surrendered core skills on behalf of corporate opportunities in other areas to lose, for a time, some of its competitiveness. If these losses in performance bring immediate censure, SBUs will be unlikely to agree to skills transfers next time.

Furthermore, Canon’s experience shows that there are ways to persuade key employees that they do not belong to merely one business division. Early in their careers, people may be exposed to a variety of businesses through a carefully planned rotation program. At Canon, critical people move regularly between the camera business and the copier business and between the copier business and the professional optical-products business. In mid-career, periodic assignments to cross-divisional project teams may be necessary, both for diffusing core competencies and for loosening the bonds that might tie an individual to one business even when brighter opportunities beckon elsewhere. Those who embody critical core competencies should know that their careers are tracked and guided by corporate human resource professionals. In the early 1980s at Canon, all engineers under 30 were invited to apply for membership on a seven-person committee that was to spend two years plotting Canon’s future direction, including its strategic design.

Strategic management

For all practical purposes, core competencies seem to be the same concept as critical capabilities and resources that all advocate the building of competitive advantage based on “something” internal to the firm. Strategic management is concerned with the overall direction of the firm and with those issues that require a substantial portion of the organization’s resources to deal with and play themselves out over a long period. Strategic management is also about ensuring the success and survival of the organization by adapting the organization to changes in its environment and making sure that the organization is competitive. Therefore, it is possible to say that strategy is the link between the organization and its environment and that the task of strategic management is to determine how the organization should deploy its resources in the environment and adapt the organization to satisfy the long-term objectives of the firm.

It is important to note that strategic management deals with several time spans. The organization needs to be more than just competitive today. The competition for industry leadership is just as crucial to firms as is the competition for developing the right competencies in the right time. Thus, strategic management is also about integrating time horizons and activities related to all three kinds of competition. This often means finding those issues that should be kept invariant for the time being and adjusting other activities and issues accordingly. For instance, a company could choose to maintain its current customer base and then develop new products and competencies to account for changes in customer demands. Or a company could choose to stick to its current product portfolio and find new markets and customers for that portfolio.

As opposed to strategic management, operational management is about the short-term operation of the activities in the organization within the context of strategic management. In operational management, strategic decisions are executed and short-term results created. But this happens within the confinements of the current strategy of the company. This also implies that strategic management is about innovation for firms. Innovation, in short, breaks with the assumptions of how things are currently done and, hence, always points toward the reformulation of the strategies of a firm. Therefore, strategic management is also about innovation. In summary, the role of strategic management is:

• To guide the organization in the long term.

• To provide context for the operational management and daily activities of the firm.

• To balance the three forms of competition by choosing what is to be kept invariant.

• To secure innovation in the activities, markets, products, or competencies of the firm (Mintzberg, 2005).

In general, the new competitive situation has important ramifications on how firms operate and are managed, as the many different fads on management theory all offered with a rationalization in competition show (Mintzberg, 2005). In the new competitive situation as shown by the Canon’s case, there seems to be near universal agreement among theorists that the focus on product-market competition no longer suffices (Printz, 2003). Product-market competition needs to be supplemented with other forms of competition with different time horizons and characteristics in order to cope with the hypercompetitive dynamics of the new competitive landscape.

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