Canons Sustainable Competitive Advantage - Case Study Example

Student: Tutor: Course: Date: Canon’s Sustainable Competitive Advantage: Case Study Analysis A firm is said to have a competitive advantage when it has a factor or combination of factors that makes it more efficient and effective in several core areas than its rivals in the industry[Rob91]. Competitive advantage should translate into such benefits as efficient production, large market share, higher sales and revenue volumes[Bar07]. It follows then that, sustainable competitive advantage is the establishment of a long-term strategy to out-perform competitors in a manner that is difficult to replicate and implement by rivals in an industry. Such an advantage ensures the business survives and achieves its core objectives including profitability and growth targets (Harrison and Caron 19; Barney 102). In light of this understanding, this paper concerns itself with analyzing Canon’s case study (Canon: Competing on Capabilities), to establish whether and how Canon generates sustainable competitive advantage using its resources and capabilities. Canon had initially focused its efforts to manufacture of cameras for both Japanese and selected international markets. Its core area of specialization was in optics, but it later diversified into microelectronics and precision-mechanical technologies. These diversifications set the stage for Canon’s success in camera, copiers and facsimile machines (C 1044). Canon’s entry into the copier business in the 1960 was in the background of a hugely successful Xerox with more than 5000 patents that acted as major barriers to new entrants. However, Canon combined its resources and core capabilities to challenge Xerox’s market dominance in the copier business (C 1039). In order to successfully implement a resource based competitive advantage strategy, a firm’s internal resources and capabilities must provide the primary strategy direction. Secondly, the resources and capabilities must be the primary source of profit for the firm (Stacey 142; Grant 118). Canon’s core capabilities and resources are in optics and fine chemicals led to the development of high-performance movie cameras and mid market cameras. Canon entered into a whole different field of microelectronics when it introduced a calculator in the market and micro-chip semiconductor production equipment (C 1040). In 1975, Canon was able to produce the first laser printer in the market that proved to be a successful product under the Canon brand. Canon later introduced a bubble jet printer that was of superior quality and silent. It was also cheaper to produce. This translated into more profits and expanding market share for Canon. Canon utilized it existing distribution networks to market its new products all over the world (C 1046). It is clear, therefore, that Canon’s basic expertise in optics and acquired knowledge in microelectronics provided the base for establishing a competitive advantage through production of the laser and bubble jet printers and personal copiers. The resources such as patents and research labs as well as capabilities in the mentioned areas translated into huge profits for Canon for more than 15 years. Canon had already established a cost effective and efficient method of production over the years. This is captured in Canon’s goal of producing the best quality at the lowest cost and the best delivery. To achieve this, Canon implements a stable production and material planning process. The company maintains a close relationship with suppliers; in fact, over 80 % of Canon’s copiers in 1990 were assembled from purchased parts. This allowed the firm to concentrate on its unique technologies and benefit from the expertise of suppliers in other areas. Canon’s waste management program also increased its efficiency in cost reduction by 177 billion Yen between 1976 and 1985. Canon copiers had 60% commonality between different models. Commonality saves costs considerably in terms of standardization of production technology as well as product servicing[Bar07]. Canon utilized its experience in international trade to establish manufacturing activities of its copiers in markets such as Germany, USA, France and Korea. This reduces Canon’s exposure to trade and investment friction with the government and regulators in such markets (C 1047). Canon used its existing capability in efficient and cost effective production to produce cheap, but high quality copiers that were able to compete successfully in the market. Canon’s specialty and research in fine chemicals and optics led to the introduction of the ‘New Process’ (NP) towards the end of 1968. This was an alternative to the PPC by Xerox. Canon soon protected the NP process with more 500 patents. Canon used this technology to produced its first Canon-branded NP1100 copier in the Japanese market. Soon the copier was available to international markets. Canon released the second generation of the NP system that was more economical, compact and reliable than Xerox models. Canon could generate profits from the first generation NP system by licensing the technology to Saxon, Ricoh and Copyer. Licensing generated more than $32 million for Canon from fees charged to license holders. Having achieved success in production and marketing of cameras and NP copiers, Canon had accumulated extensive expertise in manufacturing to optimize material usage through a focused, cross-functional project team. Canon had also automated its assembly line considerably to cut costs and standardize quality. These core capabilities led to the new focus on personal copiers for small offices in Japan and other international markets (C 1048). The manufacturing know-how and accumulated innovations in the line of printing and copier technology ensured that Canon could produce a low volume ‘value for money’ copier machine. This core capabilities and resources allowed Canon to service the small offices and homes segment that had long been ignored by the market leader, Xerox (C 1048). By focusing on its core capabilities in optics and fine chemicals research, Canon was able to come up with a new technology that it could use to overcome the patent hurdle that Xerox used to protect its market dominance. This combined with manufacturing efficiency, and market knowledge gave Canon a sustainable competitive advantage. Canon could generate high revenues from licensing its new technology and introducing a new product to a new segment in the market. The personal copier and the NP copier were reliable, economical and high quality. Most competitors including Xerox could not easily replicate this advantage in the short run. Canon identified what it could do better than its rivals and built on this to generate a competitive advantage. In 1970, cannon had established Canon sales to handle the sales activities of the Canon brand. The sales arm was able to implement market penetration strategies that took advantage of Canon’s existing supply stores to sell directly in the market. This allowed Canon to test consumers’ reaction to its new copier. Canon had also mastered a way of learning from the Japanese market faster so that it could upscale market coverage to the international level within a few months. This is a relatively strong competitive advantage where Canon utilizes its existing resources in the distribution channel and market knowledge to launch new products successfully in an environment with less risk or exposure to market entry constraints. Independent dealers could also be influenced by the success of Canon’s personal copier sales in its stores to stock the brand. Canon was able to expand the distribution channel to include mass merchandisers. Canon had considerable experience in mass merchandising from its camera business. Canon’s dealers are an integral part of the firm’s marketing and sales efforts. By 1980, Canon copiers were sold almost exclusively through its dealers’ channel. The dealers received training, incentives and social outings to motivate and equip them better to sell and service Canon copiers (C 1046). This close relationship allows a firm to learn and understand the customers’ needs and respond appropriately and in time[Har131]. Clearly, Canon utilized its resources in the distribution channel in the form of existing wholly-owned stores and established distribution partners to push its copier in the market. This combined with expertise in marketing new products at a global level ensured Canon had a competitive advantage that it could utilize to acquire and retain a section of the copiers market with a revolutionary printing technology. Canon adopts an intra-preneurship focus towards managing its business units. Teams are expected to be as creative and autonomous but at the same time work closely to benefit from each others core competency. As a result of this focus, Canon’s diversification strategy has been a success with more than three business units that are dedicated to a single product or mandate. The business units have clearly outlined growth objectives and profitability targets. Canon sales, Canon components are some of the many wholly owned subsidiaries of Canon to be spun off by the firm in an effort to make them more autonomous (C 1049). This allows business units and subsidiaries to be operationally efficient and effective in meeting goals (Stacey 211). From the analysis presented in this paper, it is justifiable to conclude that Canon has been able to generate sustainable competitive advantage in different ways to open up new markets and challenge the market share of existing players. Canon has been able to utilize its innovations, manufacturing efficiency and knowledge in optics, microelectronics and fine chemicals to develop better cameras, copiers and printers to rival the market share of Xerox at the global level. Licensing of technology ensures Canon benefits from revenue made by part of its competitors indirectly. Canon also utilizes its marketing networks and knowledge particularly in Japan to introduce and test new products in the market. This unique distribution channel reduces the risk of failure and acts as a marketing function for the company. The elaborate organizational structure allows various departments such as sales and research and development to work together in developing customer-oriented products such as the hugely successful personal copier. Canon’s business units also have close collaboration in meeting customer needs despite their autonomous nature that boosts organizational effectiveness. Works Cited Barney, Jay. "Firm resources and sustained competitive advantage." Journal of management 17.1 (1991): 99-120. Rob91: , (Grant 116), Bar07: , (Barney and Clark 58), Bar07: , (Barney and Clark 245), Har131: , (Harrison and Caron 173), Read More