Exam Note - CANON Cases study PDF

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Critically evaluate Barney’s (1995) VRIO framework, and drawing on the Canon case study, evaluate whether competencies are likely to generate sustainable competitive advantage. To what extent is it possible to argue that a firm’s competitive advantage is a product of its competences? Illustrate your answer with reference to the Canon case study. Evaluation of Barney’s VRIO framework The traditional SWOT (Strengths, Weaknesses, Opportunities, and Threats) framework focuses on the importance of both external and internal conditions in understanding the sources of competitive advantage. Most of the studies tend to primarily on analysing environmental opportunities and threats, which are exemplified by Michael Porter’s work on “Five forces model”. To address this deficiency, the VRIO framework of Barney under resource-based view analyses the firm’s internal attributes – strengths and weaknesses – as sources of competitive advantage. Jay Barney (1995): “A firm is said to have a competitive advantage when it is implementing a value creating strategy not simultaneously being implemented by any current or potential competitors” To sustain a competitive advantage a firm must have “unique” resources Key concepts in Barney’s framework: Assumptions: firms within an industry may be heterogeneous with respect to the strategic resources they control; these resources may not be perfectly mobile across firms, and thus heterogeneity can be long lasting. A firm’s resources and capabilities include all of the financial, physical, human, and organizational assets used by a firm to develop, manufacture, and deliver products or services to its customers.

Competencies: bundles of assets and routines which underpin strategic capability (likely within 4 competencies).

A firm is said to have competitive advantage when it is implanting a value creating strategy not simultaneously being implemented by any current or potential competitors, and that competitive advantage become SCA when these other firms are unable to duplicate the benefits of this strategy. To own the potential of sustainable competitive advantage, a firm resource and capability must hold the key to four questions: value, rareness, imitability, and the question of organization. 

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Value: Do a firm’s resources and capabilities add value by enabling it to exploit opportunities and/or neutralize threats? Changes in customer tastes, industry structure or technology can render them less valuable in the future. Rareness – among current and potential competitors: How many competitors already processes these valuable resources and capabilities? Valuable but common resources and capabilities are sources of competitive parity. Some strategies require a particular mix of physical capital, HR, and organizational capital resources to implement (core competencies). Imitability: Do competing firms face cost disadvantage in obtaining a firm’s resources and capabilities? Imitation can occur in at least two ways: duplication and substitution. Depends on three categories: history condition in creating firm resources; the importance of numerous “small decisions” in developing, nurturing, and exploiting resources; and the importance of socially complex resources. Organization: Is a firm organized to exploit the full competitive potential of its resources and capabilities? Complementary resources are components of a firm’s organization that are relevant when answering the question of organization but have limited ability to generate competitive advantage in isolation.

 The RBV is considered as a missing piece in the process of SWOT analysis as it emphasizes a firm’s internal attributes (resources and capabilities) that can create competitive advantage in the market, whilst the traditional tools tend to position the firm among the

market. Consider the Canon case, despite the fact that the industry was challenging with the monopoly of Xerox in PPC technology, Canon created its success and surpassed Xerox. [The resource-based view of the firm emphasizes sustainable competitive advantage; the dynamic capabilities view, on the other hand, focuses more on the issue of competitive survival in response to rapidly changing contemporary business conditions]

Evaluate Canon Case According to Grant, a firm’s superior profitability comes from 2 main sources: industry attractiveness, and competitive advantage (which is more important). Whilst there was no wide opportunities existed in copying industry, the success of Canon indicates its competitive advantage. The company created its strategic capability in producing economic decentralized personal copier by possessing three core competencies: Technology, Manufacturing, and Marketing.

Technology Canon success owed its large percent of credit to the firm’s technology utility and management. Firstly, the company pursued a strategy of decentralized R&D. Each product division has its own development centre which is perform by cross-functional teams. The work of development groups is coordinated by an R&D headquarters group. The personnel in the complex R&D system accounted for 90% of the company’s inventions, proven to be valuable and rare, as well as inimitable. Canon often used joint ventures and technology transfers in order to save time and resources. It had reduced the new product introduction cycle through a cross-functional programme, whose purpose is to cut development time by 50% and classify the optimized time and HR needed for projects. All of those efforts allow Canon to keep up with rapidly changing technology world, clearly reflect its value. While these capabilities is necessary for Canon in the industry – since others firms are likely developing them, they might not be rare. Applying the VRIO framework, Canon’s technological capabilities were in fact creating values. In the long run, technology could be duplicated or substituted, except the Canon’s R&D personnel under its complex management that constantly generate innovation of improvement of products. The same thought extended to its strategy in its orchestrated use of joint ventures and technology transfers that is inimitable. Finally, answering the last question of organization, Canon realized its success depend on its ability to exploited many innovative products into market quickly. Therefore, it organized itself and decentralized the talented R&D personnel, used joint ventures and trade, crossfunctional program to reduce time to market, hence, gained sustainable competitive advantage.

Marketing The second core competence of Canon is its effective marketing. Canon had created a strong dealer network in the US which support both sales and service of the copiers, as well as direct selling mechanism through wholly own sales subsidiaries. The company built relationship with its dealers by sales incentive programs, training and social outings. Its dealer network and owned sale subsidiaries were considered critical attributes that allowed Canon to understand and react timely to customer’s needs and problems. The network is evidently rare and inimitable as the exclusive relationship costs Canon time and trust to build since the time Canon released the first products. Advertising has always been an integral part of Canon’s marketing strategy. Canon believed a corporate brand name which is outstanding to succeed in its diversification effort. Therefore, the

brand image is invested with high advertising expense. Since then, the barrier of cost (20% of price sales) was responsible for the rareness of this attribute, of which not any firms could afford. Under the VRIO, the marketing competence is evidently valuable and rare. The exclusive dealer network of Canon, even thought is inimitable, could be substituted in the future. The rivals could possibly develop their own networks by time or create their own direct selling channels. The similar case happened to advertising, although it is rare and uniquely attached with Canon image, rival firms could imitate its strategies by generously investing on marketing and potentially gaining customer value, or by substituting with different strategy for different brand image (just as Canon redefined the concept of copier during “Xerox’s era”). Hence, this core competence gave Canon a temporary competitive advantage.

Manufacturing The third core competence of Canon is low cost and high quality manufacturing. [[The production system was run under the key philosophy that strongly emphasized tight inventory management through a stable production planning process, careful material planning close supplier relationships, and adherence to the Kanban system of inventory movement]]. The workforce was highly regarded at Canon – with an empowering philosophy of ‘stop and fix it’, which feels individually responsible for the success of the products it manufactures. Canon sponsored a worker’s suggestion program in improving the business. It accomplished an increase in process’s quality and effectiveness, and corporate saving from waste. The attribute is also rare since the philosophy integrated in Canon could be consider as its organizational culture. Canon chose to backward integrate only on parts with unique technologies, while developed longterm relationship with its suppliers for other parts and retained 2 sources for most parts. Another key to Canon’s high quality and low cost is part commonality between models. The attributes were proven valuable as the production cost was significantly reduced and considered rare. While it held the crucial parts for backward production and maintain strong relationships with suppliers, Canon still maintain the discrete for its production from imitation. Applying the VRIO framework, the low cost and high quality manufacturing of Canon is obviously valuable and rare. The Canon’ philosophy of empowering workers could be potentially adopted by other firms however it would require them trade-off with current management and building costs without certain of success. Likewise, the success of Canon is also based on “numerous of small decisions” made by its empowered workers and management during the production process. Moreover, Canon could answer the question of organization by combining its empowerment policy and suggestion programs, it fully exploited the potential of human resources; and by emphasizing the importance of trading partners. Therefore, it can be said that Canon’s core competence of manufacturing is sustainable competitive advantage.

[The success of Canon’s personal copier upset Xerox’s competitive advantage in the market is good example of substitution threat to sustainability. By leveraging core competencies, Canon was able to “design service out of the product”, thereby substituting Xerox’s thoughtto-be sustainable core competencies in centralized high-volume copying and extensive service network.  The question on the stable and sustainability of firm’s strategic

resources and the issue of competitive survival in response to rapidly changing market…  Leveraging Expertise is dynamic capability of Canon.] [However, core competence analysis is not the internal assessment of activities which are performed best but the external assessment of what they are able to do better than their competitors (Zach, 2009; Smit, 2000)]...