Canon: Strategy Planning

Canon as one of the world’s leading manufacturer of office automation products has undergone many changes and transformations to emerge market leaders in certain product categories. One of the underlying principle of Canon’s success has been its definition and subsequent implementation of corporate strategy and more importantly its strategy making style. Corporate strategy can be broadly summarized as identifying the  purpose of the corporation and means the corporations would employ to achieve its goals and objectives. Corporate strategy is thought out and implemented at two levels namely corporate-level strategy and business-level strategy.  The former seeks to set the goals and objectives of the organization formulated in terms of business it wants to be in and the later seeks to identify its internal capabilities and match it with external agents like customers (Lynch 2003). Strategic planning and decision making process also involves time factors in terms of long term and medium term planning.

The characteristics of strategic decisions normally comprise of the following factors :

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• Strategy is often linked to the long-term direction of the organization
• Strategic decisions are very likely to be limited to the scope of the organization activities
• Strategic decisions tend to concretize objectives in terms of advantages over competition and hence leading to market leadership position
• Business environment factors like expansion into foreign markets, new product development redefine the strategic fit of the organization. In other words strategic fit aims to address the constants shifts in the market environment

Though various types of organization strategies have been developed and analyzed in the field of corporate strategy and decision making, the concept of generic strategies postulated by Porter seems to be supported predominantly in the corporate strategy discussions. Porter (1980) proposed three generic strategies which he deemed as essential components leading to a competitive advantage in the market place. He summarized these three key components as cost leadership, product differentiation and focus.

This paper seeks to analyze the Canon’s strategy and decision making process based on the case study and align it to the existing academic models discussed briefly above. Canon has been enormously successful in its decision making process and has been able to gain market leadership as a result of its strategic fit. One of the main tenets of corporate strategy states that the strategy should be aligned to the scope of the organization’s core competencies and should also reflect its long term and medium term impact. When Canon started to diversify in the 1960s into copier market, it established a clearly defined strategic fit in terms of the market it wants to address, the business model and customer base. Xerox defined the copier market in the 1960s with the introduction of its Plain Paper Copying technology and enjoyed a monopoly in large copier business. With its patented technology, direct sales force and technical support capabilities, Xerox presented formidable barriers for the existing businesses like IBM and it was even more complex for new entrants like Canon.

Canon at that time was not even present in the copier business anywhere in the world. But Canon exhibited a classic example of strategic decision making by leveraging its existing core competencies in microelectronics and optics and imaging and developed a new technology without violating Xerox patents. It also was successful in its scope definition and limited itself to serving small and medium enterprises and individuals. Canon’s strategic positioning relative to its customer market has played a crucial role in its overwhelming success in the copier business. Canon also exhibited the traits of strategic decision making as discussed by Porter (1980).

It primarily achieved its objectives through cost leadership, product differentiation and focus. As an integral part of its strategic fit, Canon clearly delineated itself from the business model of Xerox and built its own business model based small customers. As the customer in Small and Medium Enterprises (SME) did not have needs for large scale copying and hence did not require high prices Xerox machines, Canon competed with Xerox strategically on the price point (Govindarajan & Gupta 2001). It also defined and differentiated its product category and positioned it in the market such a way that it could easily establish market leadership position by creating its own market. Canon also maintained its focus on the market it created by evolving distribution approach catering to the customer segment it served. Canon’s success can be attributed to its selection of unique and well defined strategic position in the industry, where it had a distinctive set of customers, products and activities (Markides 1999).

Strategic management and decision making also places a lot emphasis on the ability of a corporation to change the rules of the game. Game theory especially has contributed significantly towards redefining the rules (Johnson, Scholes & Whittington 2005). Canon has applied this successfully against the existing competition by simply sidestepping the entry barriers of imitation but instead creating a market where the rules have not yet been invented. In other words Canon simply changed the way it engaged with the competition by standardizing components and achieving a cost efficiency enabling to dominate a market segment ( Hamel & Prahalad 1989).

Cooperative and network theories of strategy play an increasingly significant role in corporate strategy initiatives. Cooperative strategies are an integral part of prescriptive corporate strategy and have formal and informal relationship mechanisms as their central tenet. A prescriptive strategy has a pre-defined objective and main elements that constitute the particular strategy are laid out in advance before implementation. In the case study it is very evident that Canon practices cooperative strategy by linking it corporate level decision making to business level decision making process. In contrast to organizations setting strategy at the headquarters level and cascading it down to business units, Canon makes business level groups and functions integral part of the central decision making process.

In this regard the corporate headquarters clearly sets the long term strategy and grants freedom to business functions to set a medium term strategy within a preset limitations. Hamel & Prahalad (1989) argue that decentralization in the organization does not necessarily lead to operational efficiency and highlight that organization are overcommitted to concepts like strategic business units. Shared global brand development and shared core competencies are a defining trait of many Japanese organizations. Canon too exhibits these traits by its emphasis on linkage between various business units and central HQ from a strategy building standpoint.

Corporate culture also is of significance when corporate strategy is planned. Canon like other Japanese companies has a distinct corporate culture when it comes to human resources. The strong people culture where the individuals are encouraged to voice their opinions and insights towards to collective decision making is an integral part of strategy at Canon. It does not imply that the decision making is loose or without reference to central strategy. Canon has a set mechanism in place where the central plays the most important role in strategy and other units support the strategy making within the constraints set by the central head quarters. This actually emerges as distinct spiral of knowledge when the knowledge is moves away from its traditional mooring and gets redefined in a transformational way. In fact Canon encourages a form internal competition in product development and various groups attack the same problems. As an end result company is able to look at an optimal solution and also gains insights into multitude of perspectives. Canon seeks to adopt a similar mechanism, albeit in a limited scope, in its corporate strategy making process.

Canon has been hugely successful in scoping its activities i.e. who are the customers, what is the product that will appeal to these customer group and how will it be achieved. The growth of the company seems to indicate that the company has successfully addressed these questions and emerged with market leadership position. Another defining characteristic of the company has been its ability to leverage from its existing core competency and create a new one from it. This aspect has been evidenced in the manner company took on Xerox and developed a new market. Canon as a company seems to have developed and fulfilled one of the central aspects of strategic planning i.e. it has clearly distinct long and medium term planning capability and more importantly it has been instrumental in such a way that these planning capabilities complement each other and contribute positively towards overall company strategy.

The successful business model Canon has employed and its focus on strategic development are of importance to the companies outside this industry sector as well. Companies can learn from the strategic decisions made by Canon in its success against Xerox in the personal copier business. The manner in which Canon was able to differentiate its product from that of the competitors is an important lesson that can be derived from its successful implementation of strategy. This will especially be beneficial to the niche companies who may not currently possess the bandwidth to taken on competitors in mature markets. Product differentiation necessarily entails product innovation which is beneficial to the companies from a growth and finance perspective.

Canon exhibited all the traits postulated by Porter (1980). Canon’s successful implementation of cost leadership, product differentiation and focus are important lessons for other companies. The product differentiation has been evidenced much later in Hewlett Packard also when it created a new market by developing lower cost inkjet printers. In the tradition of Canon, HP also challenged its own rules of the game and established a new product aimed at totally new market. This enabled HP to gain market leadership in inkjet printer category in exactly the similar fashion Canon did it 20 years ago in the 1960s. HP too adhered to Porter’s principles of cost leadership, product differentiation and focus.

Dell is another technology company that questioned the existing rules of competitive engagement and invented a whole new market aimed at individual customers. Canon has established a completely different product support model by modularizing the product development in its battle against Xerox. In exactly similar fashion Dell also invented a new business model of direct marketing in the personal computer domain. Canon’s focus on long term strategic planning and medium term planning and the synergy between these two are also important factors that may prove beneficial to the other organizations.

Reference

1. Hamel, Gary, Prahalad CK 2005. Strategic Intent  Harvard Business Review Jul/Aug2005, Vol. 83 Issue 7/8, p148-161.
2. Ikujiro, Nonaka, 2007. The Knowledge-Creating Company Harvard Business Review Jul Jul/Aug2007, Vol. 85 Issue 7/8, p162-171.
3. Markides, Constantinos 1999. Six Principles of Breakthrough Strategy Business Strategy Review Summer99, Vol. 10 Issue 2, p1-10.
4. Govindarajan, Vijay, Gupta, Anil K 2001. Six Strategic Innovation: A Conceptual Road Map Business Horizons Jul/Aug2001, Vol. 44 Issue 4, p3, 10p.
5. Allen, Richard,Helms, Marilyn,Takeda, Margaret,White, Charles 2007. PORTER'S GENERIC STRATEGIES: AN EXPLORATORY STUDY OF THEIR USE IN JAPAN. Journal of Business Strategies Spring2007, Vol. 24 Issue 1, p69-90.
6. Marino, Kenneth 1996. Developing consensus on firm competencies and capabilities Academy of Management Executive August96, Vol. 10 Issue 3, p40-51
7. Lynch, Richard 2005 Corporate Strategy Prentice-Hall, Essex
8. Johnson, Gerry, Scholes, Kevan, Whittington, Richard 2005 Exploring Corporate Strategy Text and Cases Prentice-Hall, Essex
9. Porter, Michael 1980 Competitive Strategy  Free Press, New York.

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