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"The word strategy has been around for a long time. It is a term commonly used in corporate warfare. It is considered the high point of managerial activities and the word strategy is so influential." (H. Mintzberg: 5) What does it mean? Gerry J. et al in their book 'Exploiting Corporate Strategy' defined strategy as "the direction and scope of an organisation over a long-term, which achieve advantage in a changing environment through its configuration of resource and competence with the aim of fulfilling stakeholders' expectation."
This definition is just a guide. Because of the complexity of business environment, firms need to be flexible (adapting to changes) and should be able to respond rapidly to changing markets when developing strategies.
Thus essence of the assignment therefore, is to exploit ways through which CANON INCORPORATED could take advantage of various model of strategy in dealing with business problem posed by turbulent and normal situations.
Canon is known today for its printers, copiers and cameras started in 1930 as a small company called PRECISION OPTICAL INSTRUMENT LABORATORY to produce cameras.
The company's first camera was called 'kwanon' but eventually decided to change the company's product name from 'kwanon' to 'Canon' which meant 'precision' in Latin.
STRATEGY FORMATION PROCESS (MODELS)
Business strategy is used to chart the course of an organisation I order for it to sail cohesively through its environment.
According to Henry Mintzberg et al (1998) says there are ten different school of thought in strategy formulation, and these are broadly categorized into the prescriptive (formulas), descriptive and synthesis (strategy development). Stancy (2007) says the prescriptive school are fundamental and essentially precondition elements on which organisation develops their strategy.
The first three schools are the design, planning and positioning schools. These schools are prescriptive in nature, i.e. they do prescribe strategy for success, a common example is Porter's Five Force and the BCG matrix. The prescriptive school is concerned about 'how strategy is formulated.' The Design school focuses on strategy as a process of informal design, essentially one of conception (organisation structure/design). It provided the ground for which others models were developed. On the other hand, the planning school see strategy as formal planning by organisation (mission and vision statement, budgeting, sales forecast etc.) while the positioning defines strategy as the ability of an organisation to position itself strategically in the industry it operate(cost leadership, product differentiation, market focus etc.)
The next seven school are the called the 'descriptive school' because the less concerned with prescribing ideal strategy for organisation than describing how strategy are made. Schools under this category are; the entrepreneurial school, cognitive school, the learning school, power school, cultural school, the environmental school and the configuration school. While the first six school describes specific areas of how strategy are made, the configuration school combines both the prescriptive and descriptive in strategy formulation, this school describe the process as transformation.
This assignment is more concerned about how strategy is formulated, thus I will be discussing the prescriptive by considering its contributions to strategy formulation and critically evaluating its pros and cons.
THE DESIGN SCHOOL
The design school presents the most influential by which other prescriptive school were formulated. The model place primary emphasis on the appraisal of the internal and external condition of a company. (Sleknick 195)7 introduced the notion of 'distinctive competence' and discussed the need to bring organisation's 'internal state' with 'external expectation.' The former brings to the fore the strengths and weaknesses of the company, while the latter uncovers the opportunities and threats in the environment. i.e. SWOT ANALYSIS.
(Christensen et al 1982) says the design school proposes strategy formulation that seek to achieve a match or fit, between internal capabilities and external possibilities. Thus, 'Establish fit' is the motto of the design school.
2.1.a CANON INC. AND THE DESIGN SCHOOL
SWOT analysis which is a basic proponent of the design school stand for Strengths Weaknesses, Opportunities and Threats. It is an important model often used to analyse where a business or organisation is, and its future ambition. It evaluates the internal capabilities (distinctive competences) and environmental opportunities and threats for the organisation prosperity.
BUSINESS DECISIONS OF SWOT ANALYSIS
Decision to pursue a business ideal,
Decision to acquire a company or a product/service line,
Decision to take a partner,
Decision to expand globally,
Decision to franchise the business, etc.
STRATEGIC OPTION OF SWOT ANALYSIS
STRENGTH (Maintain, Build and Leverage)
WEAKNESSES (Remedy or Exit)
OPPORTUNITIES (Prioritized and Optimized)
THREATS (Defend and Oppose)
CANAON INC has used SWOT analysis to make key business decisions. Between 1945-47 it was able to expand its business locally and delve into the international markets.
2.1.b CRITICAL INCEDENCE IN CANON HISTORY (1945)
In 1945 the Second World War threatened the growth of CANON INC. Part of the company manufacturing facilities were destroyed in Allied bombing and they ceased operations briefly. But after the War, Allied Forces occupying the country were interested in Japanese Cameras and the president of the company found out that the there was plenty of opportunities for the company to succeed in international market. He then re-open the company and called back its former staff. (http://www.inkandmedialtd.co.uk/acatalog/Canon.html)
Limited scope in terms of product lines.
Perception of value 'kyosei'.
Overemphasis on product technology and engineering which raised cost.
Growing pains in international partnerships.
Strong brand name and reputation for quality internationally.
Being market leader and riding high on market niche in technology.
Keeping cost lower than competitors and a proven marketing strategy.
Strong R&D which saw them ranked 4th for patent holder in 2009 with 2204 patents. Etc.
2.1.c. SWOT ANALYSIS OF CANON INC.
Partnering with mobile phone companies in developing lenses.
Mergers and acquisitions, e.g. acquired 89.35 Per cent in OCTOPOL TECH S.A. Poland on Feb 11, 2010.
Large untapped market in the Africa sub-continent.
Global recession in 2008.
Increased competitive intensity by NEW ENTRANTS in domestic and international markets.
Increased customers demand for innovative products.
Competitors patents and lawsuits.
2.1.d. LIMITATION OF THE DESIGN SCHOOL
The design school promotes the thought that strategy formation process is that of concept rather than learning, we can see this clearly in the assessment of strength and weakness of the organisation.
2.2 PLANNING SCHOOL
Whereas the design school focuses on strategy as a process of informal design, the planning sees strategy as a formal analysis of a business procedure. It takes the SWOT analysis for instance, breaks it down into delineated steps, articulate each of these with techniques and checklists and then give priority to objective setting
A major element of the planning school is that it audits both the internal and external environment with a set of techniques (e.g. moving average) to forecast future conditions and then plan ahead to take advantage of situation. Thus 'predict and prepare' became the motto of this school of thought (Ankoff, 1983:59).
2.2.a PEST ANALYSIS
PEST, which stands for Political, Economic, Social and Technological is a model of the planning school. This analysis shows some of the macro environmental influences that might affect the way an organisation do business. The analysis of these factors overtime enables the firm to predict future occurrences and prepare. Example, firms in the U.K. knows that new tax regime begins first week of every year.
Below is a diagram showing how CANON uses PEST analysis to predict and prepare its budget to take advantage of any future changes in business environment.
2.2.b. CANON INC: PEST ANALYSIS
POLITICAL ECONOMIC SOCIAL TECHNOLOGICAL
Democracy in Japan and countries factories are situated.
Liberal tax regime.
Strong government support in R&D.
Low minimum wage in most Asian countries.
Deregulation of national and international trade.
Monetary and fiscal policies
Interest, exchange and inflation rates
Government spending and purchasing power of individuals and consumer's confidence.
Availability of high skilled Labour and cost.
Threats of Global and local competitors
Government support of research
Encouragement of CANON to locate R&D facilities.
Speed of technology transfer and obsolescence.
Industry focused on technological efforts.
Quick adaptation of technological changes
Improved literacy rate and changing life style.
Increased Social mobility and consumerism.
Attitude to work and leisure
The PEST analysis of CANON INC seeks to answer the following questions;
What environmental factors are affecting the organisation?
Which of these are the most important at the present time? And,
Which will affect them in few years?
It is evident that CANON INC. understands the PEST model in planning for the future.
POLITICAL: CANON has built great tiles with government everywhere they have interest. The support of the Japanese government was important for CANON in taking their product global in 1947. CANON supported the government this year to bring aid to the victims of the earthquake and tsunami.
ECEONOMIC: CANON INC. has been able to stem the volatility of the economic aspect of it business in planning for the future. Example, it entered into various Derivative contracts to hedge against interest rate, exchange rate and inflation. (CANON INC. FINANCIAL REPORT 2009:92). But the global recession in 2008 affected its profitability. Net profit drop from a high of Yen488332 million in 2007 to Yen131647 million in 2009, representing a 73.04% loss in profit. This is represented on the graph below.
below shows how firms could select strategy that could lead to competitive advantage.
SOCIAL: The corporate philosophy of Canon is kyosei. Meaning, "Living and working together for the common good," but a broader definition is : "All people, regardless of race, religion or culture, harmoniously living and working together into the future." Unfortunately, the presence of imbalances in our world in such areas as trade, income levels and the environment hinders the achievement of kyosei. (CANON STORY:3)
TECHNOLOGY: CANON is known for its ground breaking innovations. That is why it is the market leader.
CRITICAL INCIDENT: CANON'S EXCELLENT GLOBAL CORPORATION PLAN
In 1995 can launched its Global Excellence Plan which it aims to be a company worthy of admiration and respect worldwide. It was divided into three phases, phases1 (1995-2000) sought to close the century with a healthy financial standing with emphasis on cash flows. The theme "Total Optimization" and "Focus on Profit." Phase2 (2001-2005) emphases product competiveness aiming to become No. 1 in all major area of Canon business. In phase 3 (2006-2010), Canon embark on a mission of bringing sound growth by investing in established business and venturing into new ones. The five key strategies to achieve these are:
5 Key Strategies
1. Achieving the overwhelming No.1 position worldwide in all current core businesses
2. Expanding business operations through diversification
3. Identifying new business domains and accumulating required technologies
4. Establishing new production systems to sustain international competitiveness
5. Nurturing truly autonomous individuals and promoting effective corporate reforms
(the canon story)
2.2.c LIMITATION OF PLANNING SCHOOL
In implementing this model, organizations should be careful not to plan for unplanned trouble. Planning may be too focused which may lead to planning fallacy. People involved in carrying out plans may have little knowledge thereby making the plan to be sub-standard. Also the planning school is all about planning for the future based on economic trends. Other factors could change the trend drastically. Example the credit crunch in 2008, which changed the world's economic in totality. Canon Inc. had to respond rather than continues in its global plan.
2.3 POSITIONING SCHOOL
The design and planning school viewed strategy as open-ended with every business situation. But the positioning school argues that limited key strategies are needed an organisation want to occupy a desirable market position in the industry it operates. Porter in his book 'competitive advantage' discussed strategies firms could use to achieve this position. Example, cost leadership, focused market, product differentiation (viewed as generic) etc. are some of the many models available for businesses. Thus matching the right strategies to the right condition at hand.
Therefore the positioning school states that:
Strategies are generic, specifically common, identifiable positions in the marketplace.
The marketplace place is economic and competitive.
Strategy formation process involves selecting these generic positions based on analysis.
Analysis is key in this process.
Thus, market structure drives deliberate positional strategies that drives organisational structure.
2.3.1 PORTER'S GENERIC STRATEGIES
Porter posited that organisation can only possess one of two basic type of competitive advantage: "low cost or differentiation" (1985:11). Added to these strategies is the scope of the industry which could be broad or narrow.
Although porter argue that firm can either go for low cost or differentiation strategy, Canon Inc. were able to defy porter's argument.
Cost leadership: This strategy aims at being the low-cost producer in an industry (porter, 1985). In the 1970s when Canon entered the global market for copiers, unlike Xerox that produced copiers for large organisation, Canon redefine the price for the market as cheaper, smaller and high quality for small business and personal use.
Differentiation: This strategy involve producing a unique and high quality product and then relying on the brand/customer loyalty. Canon has also held on to this principle when it first created it first camera in 1933. It is Canon Inc. belief that customers who use their product will do business again is they are satisfied. Canon products are today for its higher quality, better performance and unique features.
According to Gerardo and wong, "a company that desires to go global needs to develop sufficient competencies to meet its quest of becoming a global competitor. It must be able to rely on tis strengths and competencies from its business model to the international environment in manner that create sustainable advantages". Canon did exactly what Gerardo and Wong said by investing heavily on R&D. it accounted for over 70% sale in 1970s.
Cost leadership and differentiation can also be achieved through experience curve which Canon is leveraging on to date.
2.3.2 PORTER'S FIVE FORCES
One of Porter's model for competitive analysis is the five forces that are within/internal to the organisation. In order words they can be said to be the internal environment of the organisation.
A critical analysis by organisation could result to a number of strategies. Canon has been able to manage these five forces over a long time. These five forces are; new entrants, suppliers, customers, substitute products and competitors.
Threat of New Entrants: The industry Canon operate (camera, copiers, semi-conductor instruments etc.) has a very high entry cost. The capital requirement prevents potential new entrant. Another factor Canon has been able to leverage on is the experience gathered over many years in the industry which inevitably drive down production cost. Others preventive strategies could include access to necessary input and distribution channels, brand identification. I can conclude the threat of new entrant is low.
Bargaining Power of Firm's Suppliers: The balance sheet of Canon at present means suppliers will be jostling to do business with Canon. Although they been able to integrate backward, its present suppliers could experience high switching cost.
Bargaining Power of Firm's Customer: The uniqueness and level of quality of Canon products automatically put switching cost to be high. Although the products are a little high, its product guarantees repurchase.
Threat of Substitute Products: Canon businesses span through office business unit, consumer business unit and other industry, but its main substitute product organisations are HP, Xerox, Sony and Nikon. But looking at profitability ratio over year indicates that it continues to innovate because the threat of substitute product is high, but relatively.
Industry Competitors: The industry Canon operates in is a technology driven industry. This means that it continues to innovate and invest in R&D. the 2009 top ten U.S. patent holders by company rank Canon 4th with 2,204 patens,. IBM, SAMSUNG ELECTRONICS and MICROSOFT occupied top position. Sony and HP were ranked 7th and 10th respectively with 1,663 and 1,271patent (Canon story). The intensity of rivalry in this industry is very high, thus Canon known for its innovativeness must continue in that path.
PORTER'S GENERIC VALUE CHAIN
The value chain analysis introduced by Porter divided the activities that add value to the organisation into primary and support activities. The primary activities are the activities that directly add values to customers; this includes the flow of products from its raw material to a finished good with marketing and after sale services. Support activities as the name implies is to support the primary activities. Support activities includes the organisation's infrastructure, human resources and technologies etc.
The extent of importance of the value chain activities differ from industry to industry. For Canon Inc. all of this activities are important, but technology is the most critical activity it this industry.
GLOBAL STRATEGIC DECISION
The speed of globalization differ from industry to industry. However, when a firm want to be a global player, it must consider the strategic option in relation to its industry. Although, Canon has been able to set the pace in its core businesses, Canon still go through the same process when searching for opportunities.
What is the market potential for the product?
How strong is the business model?
Should the firm market the product abroad? If so,
What strategy should it undertake? (Gerardo and Wong:158)
To answer these questions, Michael Porter and other strategy scholars have developed models are the core to business success today.
CANON INC. GLOBAL STRATEGIES
After it successes in the local market, and the opportunities that came with World War 2, Canon first adopted Market development strategy. Exporting its product was the focus then. Profiting from its core competence, it later went for product development when Canon included copier machines in the its product line
3.2 ANSOFF'S GROWTH MATRIX
In deciding product and market growth strategy, Ansoff's growth matrix is an important model to. He posited that firms growth depend on if it can markets new or existing products in new or existing market.
The matrix above is a suggestion of a series of growth strategies that put in motion the business strategy of an organisation:
Market penetration strategy is used when the organisation focuses on selling its existing products in an existing markets.
This strategy aims to achieve four main objectives:
â€¢ Maintain or increase the market share of current products. Canon has been successful with this strategy.
â€¢ Secure dominance of growth markets. As can been seen in the financial statements of Canon Inc. and Nikon.
â€¢ Restructure a mature market by driving out competitors; this would require a much more aggressive promotional campaign, supported by a pricing strategy designed to make the market unattractive for competitors
â€¢ Increase usage by existing customers - for example by introducing loyalty schemes
A market penetration marketing strategy is very much about "business as usual". The business is focusing on markets and products it knows well. It is likely to have good information on competitors and on customer needs. It is unlikely, therefore, that this strategy will require much investment in new market research.
Market development is a growth strategy used if the business seeks to sell its existing products into new markets.
There are many possible ways of approaching this strategy, including:
â€¢ New geographical markets; for example exporting the product to a new country
â€¢ New product dimensions or packaging:
â€¢ New distribution channels
â€¢ Different pricing policies to attract different customers or create new market segments
Product development is the name given to a growth strategy where a business aims to introduce new products into existing markets. This strategy may require the development of new competencies and requires the business to develop modified products which can appeal to existing markets.
Diversification is the name given to the growth strategy where a business markets new products in new markets.
This is an inherently more risk strategy because the business is moving into markets in which it has little or no experience.
For a business to adopt a diversification strategy, therefore, it must have a clear idea about what it expects to gain from the strategy and an honest assessment of the risks. (wwwHYPERLINK "http://www.tutor2u.net/".HYPERLINK "http://www.tutor2u.net/"tutor2u.net)
Canon has over the years diversified its business into three segments; the office business unit, the consumer business unit and industry and other business unit. Geographically, Canon has three continental head offices; Japan, America and Europe that coordinate its sub-region independently.
3.3 PORTER'S DIAMOND
The Porter's Diamond describes how organisation can use factors of production to produce products below competitors, thus becoming the low-cost producer in the industry. Canon has achieved its low-cost strategy by investing in R&D. Most recently, Canon is a pioneer company using 3D to test product rather than depending on a prototype. With the cost advantage achieved, firm can then with more market share.
3.4 BOSTON CONSULTING GROUP (BCG) MATRIX
The BCG matrix is another model for analysing the business portfolio of a company expansion. The BCG matrix determines which business of product needs more investment and when to pull a product out of the market. The Boston box describes the portfolio based on its profitability. On the horizontal axis: relative market share - this serves as a measure of SBU strength in the market
On the vertical axis: market growth rate - this provides a measure of market attractiveness
By dividing the matrix into four areas, four types of SBU can be distinguished:
Stars - Stars are high growth businesses or products competing in markets where they are relatively strong compared with the competition. Often they need heavy investment to sustain their growth. Eventually their growth will slow and, assuming they maintain their relative market share, will become cash cows.
Cash Cows - Cash cows are low-growth businesses or products with a relatively high market share. These are mature, successful businesses with relatively little need for investment. They need to be managed for continued profit - so that they continue to generate the strong cash flows that the company needs for its Stars.
Question marks - Question marks are businesses or products with low market share but which operate in higher growth markets. This suggests that they have potential, but may require substantial investment in order to grow market share at the expense of more powerful competitors. Management have to think hard about "question marks" - which ones should they invest in? Which ones should they allow to fail or shrink?
Dogs - Unsurprisingly, the term "dogs" refers to businesses or products that have low relative share in unattractive, low-growth markets. Dogs may generate enough cash to break-even, but they are rarely, if ever, worth investing in.
Using the BCG Box to determine strategy
Once a company has classified its SBU's, it must decide what to do with them. In the diagram above, the company has one large cash cow (the size of the circle is proportional to the SBU's sales), a large dog and two, smaller stars and question marks.
Conventional strategic thinking suggests there are four possible strategies for each SBU:
(1) Build Share: here the company can invest to increase market share (for example turning a "question mark" into a star)
(2) Hold: here the company invests just enough to keep the SBU in its present position
(3) Harvest: here the company reduces the amount of investment in order to maximise the short-term cash flows and profits from the SBU. This may have the effect of turning Stars into Cash Cows. (wwwHYPERLINK "http://www.tutor2u.net/".HYPERLINK "http://www.tutor2u.net/"tutor2u.net)
Canon Inc. operates its business in three segments: the Office Business Unit, the Consumer Business Unit, and the Industry and Others Business Unit. Under these business units they have the following products, digital multifunction devices (MFDs), plain paper copying machines, laser printers, inkjet printers, cameras and steppers. Canon sells its products principally under the Canon brand name and through sales subsidiaries. Canon has manufacturing subsidiaries in variety of countries, including the United States, Germany, France, Taiwan, China, Malaysia, Thailand and Vietnam.
CHALLENGES OF GOING GLOBAL
In going global organisations face a couple of challenges that may include; political, economic, cultural and demography to mention a few. It is important to understand the terrain before proceeding or else the organisation finds itself in a big problem. At this point, I will like to look at some of these challenges faces by Canon and other companies when the decision is made about going global.
POLOTICAL CHALLENGES: Political stability, government policy on foreign investment, incentives for local firms etc. are factor that can affect the success or failure of going global.
CULTURAL CHALLENGES: Culture differ from country to country, what seems right in one country could be considered an abomination. For example, in most of the Arab countries the eating of pork is not allowed by their religious belief.
DEMOGRAPHY: Demography distribution is another factor co consider when going global, because business do not operate in isolation. The need for manpower and market in the country is as important as other factors considered and those not included here.
The various strategic schools that has evolved over time with models has provided top management staff with an important aid to deciding the cause of organisation towards the future. Scholars in management field like Michael porter could be credited for the success of some organisation. CANON INC. has been so successful implement most of these concepts to its businesses.