1. Strategic Analysis of Canon - course: SM3027
1. Canon's strategies have been very effective in balancing growth of market share with
profitability, with the firm controlling a significant share of focused niche markets in the
imaging industry (see Exhibit 1). Cannon's strategic challenges involved identifying the
markets in which it intended to compete and developing competitive advantages to allow the
firm to balance market share and profitability growth within these markets. In the late 1960s,
the firm initially adopted a business-level strategic vision of focusing on the small photocopier
niche that was underserved by its major competitors using a technology that was totally
different than the existing technologies used by competitors. The strategic vision provided
direction for the firm's strategic planning process. At the same time, the corporate planning
process was flexible enough to allow Cannon to recognise and exploit opportunities in related
markets over the long run, with the firm eventually adopting a corporate-level strategy of
horizontal diversification based on the evolution of its core competencies. Over the long run,
the development and application of Cannon's strategy has made the firm a leader in the
imaging industry group.
The strategic planning process at Cannon appears to have relied on a SWOT analysis to
identify opportunities and threats, and the internal strengths and weaknesses of the firm that
would allow it take advantage of the opportunities and avoid the threats (see Exhibit 2). The
strategic planning process at the business or centre level at Canon established the general
planning procedure of identifying markets that were likely to grow in the future and entering
the market if the firm possessed or could acquire core competencies sufficient to obtain a
competitive advantage in the market. These markets represented opportunities. At the same
time, the markets were served by existing firms, which constituted a threat
to Canon because of competitive rivalry. In effect,Canon would be in the position of a new
market entrant with existing firms controlling the market.
The initial application of this planning approach in 1967 led the firm to identify an opportunity
in the photocopier market as likely to grow in the future, which appears to have used an
assessment of industry attractiveness (see Exhibit 3). The firm determined that it had a
weakness in insufficient competencies to effectively compete in this market. At the
time, Canon had core competencies in electronics and fine optical, which were related, but
were insufficient to obtain a competitive advantage. As a result, the firm had to acquire or
develop additional competencies in printing, materials technology, and communications,
which were necessary to compete in the market. Acquiring the necessary competencies
became a fundamental component of the firm's medium-range strategy.
The subsequent evolution of Canon's strategy from the photocopying business to the more
general imaging industry suggests that the strategic planning process has been influenced by
the resources-based view of the firm. This perspective considers the firm as a bundle of
resources and capabilities that can be used to create value by meeting a wide variety of
customer needs (Grant, 2005). Canon's effective approach to matching resources to strategy
conforms to the general theory of the resource-based view of the firm. In this model, the
resources available to the firm are the foundation of the firm's ability to effectively execute
the strategy. The firm began to acquire and develop resources related to the photocopying
industry in the 1970s. This approach involved increasing the depth of a single type of
knowledge resource to achieve sufficient competencies in new product development to enter
a specific niche in the industry. The approach is commonly used by businesses using a
focused differentiation strategy in a single business unit (Wernerfelt, 1984). The resources
developed to enter the photocopier market provided the foundation and strategic
implementation model allowing the firm to increase the breadth of its resources. Over the

2. long run, the firm entered new markets in office automation and video in the 1980s, and the
audio visual, energy savings and information markets in the 1990s. In practise, Cannon
effectively matched its strategy to available resources and used strategic planning to identify
the resources it would have to acquire to reach strategic objectives.
As second aspect of the approach to strategic planning at Canon fundamentally involved
identifying areas in the market that are not well served by existing members of the industry
and allocating resources to exploit the market opportunity. This aspect of the strategy was an
attempt to avoid competitive threats by exploiting opportunities in market niches ignored by
competitors. Strategic groups of firms in an industry constitute a cluster of firms following a
similar strategy with the firms in different clusters not necessarily in direct competition with
each other (Henry, 2008). Firms in the same strategic groups tend to have similar market
share and respond similarly to changes in the external environment, which results in higher
competitive rivalry among members of the same strategic group. Canon's initial strategic
vision involved minimising competitive rivalry by positioning the firm in a strategic group that
was comparatively small with no firm dominating the market. As a result, Canon's initial
strategic vision involved indirect competition with Xerox in the copier market,
with Canon pursuing a market niche in which Xerox chose not to compete. To some degree,
this decision provided additional focus for the medium-range plan by identifying the specific
type of research and development the firm should conduct to occupy the market niche for
small copiers.
A third aspect of the strategic planning process improving its effectiveness was the decision
to independently develop a new technology for photocopiers unlike the existing technologies
available in the market. This decision allowed Canon to differentiate itself from competitors
on the basis of the technology incorporated into its product. It also increased the switching
costs for customers who purchased Canon copiers because the difference in technology
prevents interchanging supplies such as ink with the products produced by competitors. In
addition, it provided a resource in the form of a proprietary technology that could be used to
support future evolution of the strategy. This resource was in the form of dynamic capability
in research and development that could be used in other markets to develop new types of
products, which could be used for vertical expansion in the imaging market (Eisenhardt &
Martin, 2000).
The approach to implementing strategy at Canon over the long run appears to have
incorporated elements the process theory. In the process theory, strategic implementation
involves change, with the employees of the organisation required to make adjustments to
practices and perspectives to conform to the strategy (Whittington, 2001). Firms using the
process approach to strategic implementation make incremental changes to the strategy
rather than radically altering the strategy. The incremental approach allows the employees
responsible for implementing strategy to participate in the process through feedback loops
are every stage of implementation. The feedback loops also provide information to allow
adjustments in strategy based on the alignment of resources with the strategic plan and
changes in the external environment.
Canon appears to have been very effective in its approach to implementation. In the
strategic planning model established by the firm, the centre or corporate strategic planning
unit established the long-range strategic plan, but with input about resources and capabilities
from divisions. The centre provided information about the plan to the divisions, who created
medium range strategic plans at the divisional level that were consolidated at the centre. The
divisions were free to establish the short-range strategic plans based on the medium range
plans focusing on budgeting, which is a resource allocation tool. Feedback to centre occurs at

3. all stages of strategy implementation. In practise, Canon's method of strategic
implementation used a bi-directional communications system to support future planning and
monitoring of implementation rather than a directive approach in which centre established
strategy without input from the managers responsible for executing strategy. The approach
allowed the organisation to continue evolving over time to adjust to changes in the external
environment (see Exhibit 5)
2. While the specific strategies used by Canon may not be applicable to firms outside the
photocopy and imaging industry, the approach used by Canon to strategic planning and
implementation could be used by to firms in other industries. The generic strategy selected
by Canon for its initial penetration of the photocopier market was focused differentiation,
which required the firm to develop the technical competencies necessary to create a new type
of photocopier technology (see Exhibit 6). The focused differentiation strategy gradually
expanded to be general differentiation strategy in the broader imaging market. This strategy
was suitable for Canon's specific situation by matching the conditions in the external
environment with the resources the firm had available or could acquire in a reasonable period
of time. The strategy may not be suitable for other industries because of differences in the
nature of the industry, the conditions in the external environment, and the resources
available to the firm.
The general strategic planning and implementation process used by Canon could be valuable
in other industries, but the value may depend on the organisational structures and cultures of
the firms. Canon adopted a process approach to strategy formulation and execution in which
the business units responsible for implementing strategy had some degree of input in the
strategy formulation process. In this model, strategy formulation and strategy
implementation are a dynamic and interrelated process. This approach, however, may be
viable for organisations with similar structures as Canon, which appears to have had several
product divisions but operating in different segments of the imaging industry. In effect,
adopting the strategy to penetrate the photocopier market involved greater vertical
integration in the imaging industry. The approach used by Canon may not function well for
firms that are horizontally diversified across industries, such as a multidivisional
conglomerate or M-form organisation. The multidivisional structure with divisions functioning
as strategic business units (SBUs) creates a barrier between senior management and
operations because of the differences in the resources and environmental conditions for each
SBU (Whittington, 2001). As a result, a firm can have difficulty with establishing more than a
generic strategy for the organisation as a whole. In addition, the feedback loop used
by Canon to obtain input in the strategy formulation process and to monitor strategy
implementation may increase in complexity to the point of reducing its effectiveness.
Nonetheless, firms in other industries with similar structures to Canoncould use the approach
to strategic formulation and planning.
The strategic planning process at Canon also had two organisation culture elements
contributing to its success in formulating and executing strategy consisting of participation of
product divisions and the acceptability of debate and risk taking among managers (see
Exhibit 7). The firm used a participative process in the formulation of strategy rather, which
contrasts to the approach in which senior managers formulate strategy in isolation and
implement strategy by directive. The participative approach used by Canon separated the
functions of setting strategy, which was performed by the centre, from planning strategy,
which was performed jointly by the centre and the divisional managers. In addition, the
participative or collaborative approach used byCanon for planning strategy fostered a closer
connection between the realities of the internal environment of the organisation and the
ability of managers to execute the strategy (Mintzberg, Quinn, & Ghoshal, 2003). To use the

4. participative approach, however, the organisation must have a two-directional communication
system in which divisional managers are encouraged to provide information and perspectives
to senior managers to support the strategic decision-making process. An organisation with a
highly bureaucratic and authoritative culture could have difficulties using the participative
approach to strategic planning employed by Canon. An additional organisational culture
element necessary to use the participative approach is reward for innovation and risk-taking.
Strategic change often involves the risk that the strategy or the methods used to implement
the strategy will not be successful. Managers from the divisional units providing input to the
strategic plan should be encouraged to develop innovative solutions to the challenges
inherent in the plan such as resource development. The cultural factors suggests that firms in
other industries could use the approach to strategic planning followed by Canon if their
organisations have a collaborative and innovative culture encouraging acceptable risk taking
by managers.
References
Eisenhardt, K. & Martin, J. 2000. Dynamic capabilities: What are they? Strategic
Management Journal, Vol. 21, Nos. 10-11, pp. 1105-1121.
Grant, R.M. 2005. Contemporary strategic analysis. London: Blackwell.
Henry, A. 2008. Understanding strategic management. Oxford: Oxford University Press.
Mintzberg, H., Quinn, J. & Ghoshal, S. 2003. The strategy process. London: Prentice
Hall.
Wernerfelt, B. 1984. A resource-based view of the firm. Strategic Management Journal,
Vol. 5, No. 2, pp. 171-180/
Whittington, R. 2001. What is strategy, and does it matte? London: Thompson Learning.
Exhibits
Exhibit 1
Canon's Percentage of Selected Global Markets
Product Group Percentage
Laser Printer 70%
Bubble Jet Printer 40%
Digital Camera's 24.5%
Exhibit 2
SWOT Analysis: Cannon used this process in its initial assessment of the environment and its
resources.
Exhibit 3
Although the formal Porter methodology for assessing the attractiveness of the industry had
not been developed at the time Canon entered the photocopier market, the firm appears to
have used a formal procedure for evaluating the attractiveness of the market.
Exhibit 4

5. Canon appeared to have used a strategic mapping process similar to the one below to
identify the way in which the firm could leverage its competitive advantage in a market
dominated by Xerox.
Exhibit 5
Canon appears to have addressed the problem of the time lag between environmental scan,
strategy formulation and organisational change by adopting a continuous strategy
formulation and implementation process. The participative approach to strategy management
allowed frequent adjustments to implementation according to changes in the external
environment.
Exhibit 6
Firms establish a generic strategy based on the match between resources and the external
market.
Exhibit 7
The theoretical relationship of strategy to organisational structure and culture suggests there
is an interrelationship in which strategy influences organisational structure and culture, but
organisational structure and culture have a long-term influence over strategy.