Low-growth period for the industry. Both prices and benefits for the industry dropped. Shift in consumer preferences from SSL cameras to compact cameras, which was a weak area for Olympus. We believe Olympus response was inappropriate as coming very late in regards to when their profit started decreasing. Indeed, Olympus started losing money already in the mid-1980 ‘s but they did not take actions till 1987 with the three year program, while the implementations of such programs take time.
Olympus responses were focused on both internal and external factors but they were not designed well enough to counteract the negative consequences listed: Olympus did not take advantage of their tech oenology innovation properly as stated in the case where Olympus has technological superiority in the compact market through the early innovation of compact zoom and outfaces lens. Olympus did not capitalize on this innovation and allowed competitors to capture large market shares in this space thereby cutting into Olympus bottom line.
Olympus failed to predict market preferences and ended up losing out in the compact market to competitors. This coupled with quality problems caused their reputation to suffer. Olympus was slower to react to market trends. This meant that Olympus lagged behind its monitors in areas Of innovation, price cuts and outsourcing. 2. Evaluate Olympus current strategy. The following table illustrates the issues Olympus faced post 1987 and the three-phase strategy approach they employed to respond to both internal and external factors.
Olympus 1987 Three-Year Programmer consisted of a three part approach Recapture Market Share Improve Product Quality Reduce Product Costs Internal Factors Poor product planning leading to lack of product innovation and slower development cycles Development of new Products: New mm SSL – differentiate from competitors” by use of innovative genealogy. New compact cameras models – develop a full line of low-cost cameras Rapid product development cycles Improvements in technology allowed to set different price points enabled to develop a full line and obtain a balanced position on the entire market: from low-end to high-end mm camera market.
Introduce multiple models for some price points. Design of high-quality products that could be manufactured at low cost. If consumers are continuously demanding more quality for cheaper prices, this means the company needs to ensure that the cost cutting systems do not interfere with product quality. Implementing the production cost control and reduction program that focused on reducing costs in all aspects of the production process. Implementing the defective products cost controls. Implement cost reductions targets for all areas of the business. Identified multiple suppliers to get the most competitive prices for raw materials. Plummeted a capacity utilization system to ensure that Olympus was taking full advantage of their resources and workforce. Implemented a program to focus on cutting overhead expenses. As preferences become more demanding, the cost cutting measures mentioned above were designed to ensure quality products are still being produced for the lowest costs possible. Quality problems Improve product quality through a strong focus on reliability and the production process in order to repair Olympus reputation and ensure that We produce the highest quality products and to keep service after sales as small as possible.
Improve production engineering. Increasing the level of automation in manufacturing. Implement cost control systems mentioned above in the planning section. These measures ensured that Olympus produced high quality products for the lowest cost. External Factors Appreciation offend By moving production overseas, Olympus reduced their production cost volatility. Ensure that strong quality control systems are in place because otherwise the product quality would suffer. Olympus needed to ensure that offspring their production was not detrimental to their strong quality focus.
Shift a significant percentage of production overseas (to lower cost manufacturing areas). Extended low-growth period of the industry, prices fell, and profits dropped Successfully recaptured market share by focusing on producing high-quality, low-cost products and ensuring that balanced product nines allowed customers to stay loyal to Olympus and upgrade their products. By focusing on improving quality while reducing prices by changing their designs to utilize cheaper components and implementing aggressive cost controls. Reduce unnecessary expenditures.
Design products that could be manufactured at low cost. External Factors Shift in consumer preferences from SIR cameras to compact cameras Reducing product development times meant that Olympus was able to react faster to consumer trends; especially in an environment where a typical camera shelf-life was now about 1 year. Olympus strategy involved restructuring its 35 mm camera business segment, around three main areas: product line, quality management and cost reduction. The Three Year Programmer involved the implementation of an extensive series of programmed and initiatives in each of these three areas.
These programmed and initiatives addressed the main issues which caused/ were related to the losses verified in camera segment: Failure to follow the market trend and diversify product line Failure to capture the entire customer segments spectrum Failure to pursue new technology, which in turn affected: the quality insistence of the products, meeting Customer demand for products which used the new electronic systems advances, production costs The Three Year Programmer for restructuring the camera business can be considered a relative success since: Was built to address the problems identified; Led to relative, although not full, success in recapturing the lost market share in the camera segment: General camera sales volume increased by almost 70%.
Despite SSL sales continued to fall until 1990, the share for the compact cameras market almost doubled; The aggressive cost reduction program and he quality improvement program became the foundation for further cost reduction and better preparation for future market changes. Olympus strategy today Olympus currently strategy is focus on product and service creation from the customer’s perspective and in improving customer service. Olympus gathers information through manufacturing research and by listening to the comments and views of users of Olympus products. This customer input is then applied to our manufacturing activities. From their website we can see that quality still is the main aspect of the Olympus philosophy and that the core principles are: All actions to reflect a customer-oriented approach. Develop “Win-win” relationships with all partners.
Be disciplined in following the appropriate procedures and, in day-to-day operations, continuously strive for improvement, avoiding complacency. One of the ways in which Olympus ensures that its products and services can be used with confidence by customers is through quality checking, including checks based on various international certification standards (Quality Evaluation at the Development Stage). We have established systems for this purpose, and we are continually working to improve those systems. 3. How important are profit (P), quality (Q), and functionality (F) to the industry and the firm? Profitability (P), Quality (Q) and functionality (F) are essential elements for both the company and the industry Olympus is operating in.
The company’s environment is very competitive and evolving very fast. Innovation and price controls are driving the pace, and Olympus need to react on a timely manner to stay in the game. Through the years, Olympus has always kept a clear priority on those three elements. Profitability appears to be the main driver of the Olympus strategy, and both quality and nationality are tools used by the company to leverage productivity and capture market share. The distinction between the importance of Quality and Functionality can change depending on the targeted market segment. Profit (P): Around 1 987, Olympus profit was negative with significant losses encountered by the company.
At that time point, the company launched a program to reduce production costs via an aggressive set of cost-reduction programs. Profit became crucial for the company, which was establishing target production at management level, to make sure to have sufficient argil and consequently the appropriate profit Regular periodic profitability analysis took place to distinguish between profitable and unprofitable products, to ensure re-engineering or re-design of the unprofitable products to reduce their resource consumption. Quality Prior to the 1987 3-part program, Olympus quality was above the industry standard. However, due to their reliance on new technologies, the products had many defect, which negatively impacted the image of the company.
Due to customer preference trends, Olympus was under a lot Of pressure to produce high quality products for the lowest cost possible. Repairing their image due to early defects in their products also meant that Olympus needed to produce high quality products that required little or no service after sales. Olympus was targeting to produce the highest-quality products in the industry, to position Olympus’ quality as being the best. Functionality In the 1 ass’s, Olympus lost a significant amount of the market share when consumers preferences switched from the mm camera to the compact camera. Olympus used the functionalities as a way to expand their product offering to maintain a full line and cover both the low and high end markets at different prices.
Typically, a given type of camera would be introduced at one price point, stay at that price point for several years but with increasing functionality, and then as the functionality of the next higher price point was reached, drop to the next lower price point. 4. Why did the firm shift the responsibility Of product planning from to marketing? The key indicator that pushed Olympus to shift from a scientific planning approach to a sales planning approach is the fact that Olympus were not leaders in the market and were, therefore, price takers. By implementing target costing, Olympus needed to start from the market price in order to evolve new products.
This meant that new sources of information were needed in order to arrive to a viable product that could be sold at the prevalent market price. These included: 1. Corporate plan 2. Technology review 3. Analysis of the general business environment 4. Quantitative information about camera sales 5. Qualitative information about consumer trends 6. Analysis of the competitive environment As the market and the consumer were the focus of the product planning, development and implementation, Olympus were correct in shifting the responsibility of product planning from R&D to sales and marketing. 5. Evaluate the firm’s decision to place multiple products in each price point. Having multiple products with similar price points is a good approach.
Customers would focus on what product makes more sense for them to buy due to value by focusing on the features, rather than by price. This approach has quality implications since the R&D department would have to focus on delivering certain level of functionality to reach the target price. Implementing cost cutting measures also helped them create new products while still keeping target costs in control. Having more than one product in each price point helped capture different luster within a segment. This is a good strategy that other firms in different industries employ in order to capture more customers within a large segment. Sony, for instance, offers more than one type of TV in each segment.
Increasing the number of products in each segment, therefore, increases Olympus chances to capture more customers in every segment and will help them win against their competitors. Furthermore, Olympus ensured that customers did not migrate to competitors by including different functionalities that would appeal to multiple clusters within the same 6. Evaluate how the firm’s target costing system functions. The target costing system at Olympus is quite aggressive. Every function within the firm, from planning to production to marketing to sales and even service are all connected by the target costing estimates that need to be achieved. The continuous improvement strategy and main focus to always find savings could not have been achieved at Olympus without a major investment in IT systems to support the entire operation.