978-1259732782 Case 20

subject Type Homework Help
subject Pages 9
subject Words 1996
subject Authors Arthur, John Gamble, Margaret Peteraf, Thompson Jr

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TEACHING NOTE
CASE 20
Ricoh Canada, Inc.
Overview
Ricoh Canada Inc., headquartered in Toronto, Canada, was a fully owned subsidiary of Japanese technology
giant Ricoh Company, Ltd. The case’s core problem stems from the fact that the perpetual success of a
business model based on selling and maintaining digital print solutions was coming to an end. Ricoh
Canada Inc. was at the front lines of a company trying to change its appearance. For so long, Ricoh had been
known as the printer guys; however, within three years, the market that Ricoh Canada Inc. had so long relied
upon was going to contract. With strong cash flow from its legacy business, Ricoh Canada Inc. had to decide
where to invest to ensure returns for the future; services such as IT support and document management seemed
to be the obvious answer, but the question of how Ricoh Canada Inc. should grow in these new markets was not
so obvious.
Glenn Laverty, President and CEO of Ricoh Canada Inc., was well aware of the changing market dynamics and
had made it his team’s objective to create a services strategy, although he was a bit disappointed that they were
being reactive to the market. He said it best with this quote:
“The market is shifting towards services and we must not be left behind. We know that figuring this out
raises more questions than answers. But the important question is still ‘How can we grow in the area of
services?’ We must examine our strengths and come up with a sustainable growth strategy, one that we
can put in place that will move us forward over the next three years.”
Suggestions for Using the Case
This case is designed for use in the international component of your business strategy module and best assigned
after your lecture on Chapter 7. The prevailing theme in this case is how to grow a corporation when its main
revenue driving market is stagnant and soon contracting. For RCI, this seems to involve using legacy cash flow
to invest in new business, but the questions of how much, into what areas, and how to manage the change require
analysis and recommendation. The case is open-ended and allows students to operate from the same position
as Glenn Laverty, the head of RCI, to fully simulate real-world decision making. This case is a modern take
on the issue of technological advancement and its necessity in today’s business environment. Technological
innovation continues to increase exponentially, and destroys many business models in the process. Discussions
of process innovation and entrepreneurial action are possible. Since the time frame of the case is early 2016, it is
still unclear how RCI’s chosen strategies will play out over the long term, but the thought process used to make
decisions can provide tremendous
Case 20 Teaching Note Ricoh Canada, Inc.
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Videos for Use with the Ricoh Canada case. There are two YouTube videos that can be shown on the day
you cover the Ricoh Canada case in class (or that you can have students watch on their own):
A 3:37-minute 2015 video entitled “Ricoh Americas Corporation Interview” that can be accessed at
https://www.youtube.com/watch?v=jlTCCHzGgQ8.
A 4:05-minute video from 2012 entitled “Ricoh-Business Transformation” that can be accessed at
https://www.youtube.com/watch?v=tMQAdk6AHu8.
The assignment questions and teaching outline presented below reflect our thinking and suggestions about
how to conduct the class discussion and what aspects to emphasize.
It is really very difficult to have an insightful and constructive class discussion of an assigned case unless
students have not only read the case but also conscientiously worked their way through a set of well-conceived
assignment or study questions before they come to class. In our classes, we expect students to bring their notes
to assigned study questions to use/refer to in responding to the questions that we pose. Moreover, students often
find having a set of assignment or study questions useful in helping prepare oral team presentations and written
case assignments—in addition to whatever directive questions you supply for these assignments.
To facilitate assigning study questions and making them available to students, there is file of suggested study
questions for the Ricoh Canada case that is posted in the Instructor Resource Center of the Connect Library;
these study questions correspond to the assignment questions that appear in the next section of this TN. (As a
point of information, there is a set of study questions posted in the student section of the OLC for each of the
31 cases included in the 21st edition.)
Utilizing the Guide to Case Analysis. If this is your first assigned case, you may find it beneficial to have
class members read the Guide to Case Analysis that appears at the end of Case 31 and is posted in the Instructor
Resource Center of the Connect Library. The content of this Guide should be particularly helpful to students if
your course is their first experience with cases and they are unsure about the mechanics of how to prepare a case
for class discussion, oral presentation, or written analysis.
Suggested Assignment Question for an Oral Team Presentation or Written Case Analysis. We
heartily recommend use of the Ricoh Canada case for a written assignment and oral team presentation. Our
recommended assignment question is:
Ricoh Canada management has become impressed with your business acumen during your internship
with the company and has involved you in a strategic level project. The company’s managers have
tasked you with assessing the printer/copier hardware and IT services segments of the IT industry and
making strategic recommendations to improve the company’s competitiveness in the IT services market.
Your report should be between 5-6 pages in length and include whatever tables, charts, and exhibits you
believe appropriate.
Assignment Questions
1. What are the macroeconomic conditions affecting the IT industry?
2. Does the global nature of the industry economic characteristics present unique challenges? Should Ricoh
Company, Ltd. hedge the Canadian dollar against the Japanese yen and American dollar?
3. What is competition like in the printer/copier hardware industry? What is the competitive strength of buyers
and suppliers? How strong are the threats of substitute products and new entrants to the industry? How
strong is rivalry among competing firms? Explain.
4. How does competition in the IT services industry differ from the printer/copier industry? Prepare and
compare Five Forces Models of Competition for the two IT industry segments.
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Case 20 Teaching Note Ricoh Canada, Inc.
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5. What was Ricoh Canada Inc.’s strategy in the past and why is it no longer sustainable?
6. What is Ricoh Canada Inc.’s situation? Prepare a SWOT analysis to analyze its internal strengths and
weaknesses and its external opportunities and threats? How attractive are its specific market opportunities?
7. What recommendations would you make to Ricoh Canada Inc. to more effectively compete in the services
market?
Teaching Outline and Analysis
1. What are the macroeconomic conditions aecting the IT services industry?
PESTEL
Political New Liberal federal government policies:
Commitment to fiscal stimulus, and middle class tax cut.
Investigating the tax rules surrounding small businesses.
Streamlining and expanding the immigration system in Canada.
ITAC (Information Technology Association of Canada) actively promoting and supporting
the expansion of the IT services industry in Canada.
Economic Weak economy with low GDP growth of flat to 1% for 2016.
Low oil prices ($20-$30) causing turmoil in business investment in western Canada (oil
sector represents about 1/3 of private sector investment in Canada).
Weak Canadian dollar (.65-.75/USD) makes the cost of importing more expensive.
Printer/copier market is expected to contract 3% annually by 2019.
Canadian IT services market worth US $24B, hardware/break and fix market worth
US $4.5-5B.
More flexible core technology platforms that allow for the integration of third party
applications
Trend towards digital workplaces that are connected by services over the internet instead
of physical documents.
Environmental Provincial green policies, such as the following from the Government of Ontario: 27%
Various import laws, such as restricted material and sourcing partners, must be actively
managed by all global manufacturers.
Anti-Spam Legislation (CASL) is changing the way corporations interact with their customers
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Case 20 Teaching Note Ricoh Canada, Inc.
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2. Does the global nature of the industry economic characteristics present unique challenges?
Should Ricoh Company, Ltd. hedge the Canadian dollar against the Japanese yen and
American dollar?
This question is purely a teaching point to get students to think about Ricoh Company, Ltd. on a macro scale.
RCI’s investment capital came from income generated by its legacy business. The current CFO, Richard
Perri, said, “The issue RCI presently faces from a financial perspective is how to allocate these funds to
generate the best returns.” Laverty and Perri wondered how realistic it was for RCI to invest in services
growth given RCI’s current financial position. Laverty said, “We have to make sure we have the internal
3. What is competition like in the printer/copier hardware industry? What is the competitive
strength of buyers and suppliers? How strong are the threats of substitute products and
new entrants to the industry? How strong is rivalry among competing firms? Explain.
Five Forces Model of Competition—Printer/Copier Hardware and Break/Fix Market
Threat of Entry:
Relationships are well established, with a large proportion of revenue being repeat customers.
Threat of
Substitutes:
Moderate
There is no direct substitute for printing and copying machines, or the subsequent
maintenance activities. However, companies are moving towards a paperless office that
utilizes cloud technology and digital documents.
By 2019, the printer/copier market was estimated to shrink by 3 percent annually, and this
downward trend would accelerate after that point.
the high degree of skill required to manufacture these products.
Buyer
Bargaining
Power: High
Buyers generally face low switching costs because there is not a significant technology gap
between companies, however maintenance services can increase switching costs because
they are often bundled with hardware at better prices.
There is a large buyer market, but it is shrinking and consumer tastes are shifting towards
With the shift to a paperless office companies are now buying a printer/copier that serves its
basic function versus ones that are feature rich.
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Case 20 Teaching Note Ricoh Canada, Inc.
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Competitive
Rivalry: High
Market is shrinking by 2016, and it is unclear how much more it will contract after that point.
Increasingly difficult for competitors to gain a competitive advantage through innovation and
4. How does competition in the IT services industry dier from the printer/copier industry?
Prepare and compare Five Forces Models of Competition for the two IT industry segments.
Analysis of the IT and services market should yield results similar to the following when running market
models:
Porter’s 5 Forces—IT and Services Market
products, and the market requires specialist knowledge.
Market size and growth is massive (Canadian market alone is about $24B and some
segments have growth rates up to 40%).
Threat of Substitutes:
Low
The only real substitute to using some form of this technology is to maintain storage
and transportation of all documents as hard copies.
- To create a workforce that is innovative in this industry corporations have been
providing substantial benefit packages and on-the-job perks, leading to companies
like Google, Amazon and Microsoft obtaining top tier talent.
Buyer Bargaining
Power: Medium
Buyers have a plethora of firms to select for their IT and services systems, however
once a firm is selected switching costs can be very high if they want to switch
very costly and just doesn’t make sense for most firms.
The ability to collude and drive down prices is very difficult given the number of
businesses buying IT and services, and the necessity they are in today’s business
world.
Competitive Rivalry:
Several established competitors have already made a name for themselves in this
Based on consumer studies, the number 1 thing that buyers are looking for is cost
effectiveness, which threatens long-term profitability.
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Case 20 Teaching Note Ricoh Canada, Inc.
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The IT and services industry is highly competitive, but several profitable niche areas exist because of the
number of idiosyncratic products that customers are continually demanding. These segments represent ‘Blue
Ocean’ areas in the sense that a company entering these areas could gain traction swiftly because of the lack of
established competition. However, the technology industry also frequently experiences convergence, where
previously unrelated technologies and markets come together, so competitive dynamics are always shifting.
Ricoh is currently operating in a strategic group that contains Xerox and Canon, where it is continually
competing for notable market segments such as GEM (Government, Education, Medical). However, to
effectively enter the IT and services market Ricoh will have to assess different segments and their relative
5. What was Ricoh’s strategy in the past and why is it no longer sustainable?
Ricoh Canada Inc. relied on what was called the lease and service model. The essence of this business model
was that equipment was leased on a term period, and maintenance services were provided during that time.
The model had provided long-run success since RCI’s inception because it enabled them to maintain cash
flow between hardware cycles with maintenance services and then up-sell clients to new technology at the
Value Proposition
Maintain high quality products and services that exceed customer expectations and never
compromise integrity.
Goals
Hard
Maintain strong cash flows from legacy business.
Increase revenue through investment in diversified products.
Product Market
Focus
High quality printers and copiers designed for some business but mostly corporate use.
Maintenance of Ricoh equipment in the field.
RCI’s services could be broken into three segments: Technical Services (traditional break
and fix), Professional Services, and Managed Services. Technical Services was the largest
in terms of revenue, producing $193 million, or 39 percent of revenue in 2015, but the
Sales recruitment and incentive planning.
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Case 20 Teaching Note Ricoh Canada, Inc.
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6. What is Ricoh Canada Inc.s situation? Prepare a SWOT analysis to analyze its internal
strengths and weaknesses and its external opportunities and threats? How attractive are its
specific market opportunities?
SWOT
Strengths
Strong NPS scores.
Strong ERP system that tracks key performance indicators.
Strong brand awareness both in the Canadian market and worldwide.
Weaknesses
Viewed by the market as the printer guys.
- Heavily invested in legacy business, and only beginning to diversify (Currently very little
exposure in IT and services market).
No presence in the B2C printer/copier market.
Further cost-cutting initiatives.
Reputation for providing quality products can be leveraged.
Potential growth through acquisitions, partnerships and alliances.
Threats
Demand for high-end printers/copiers is slowly contracting, and future success is highly
Several of Ricoh’s long time competitors have already begun to invest heavily in IT and
services.
Weak Canadian dollar hurts import of printers/copiers.
RCI was facing saturation in the market segment that was its primary source of revenue—delivery
and maintenance of printing/copying devices to customers. Canon and Xerox were both strong
make customer information more secure, mobile, and personal.
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Case 20 Teaching Note Ricoh Canada, Inc.
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Opportunity Analysis — Market Growth and Sizes
Segment Growth Rate Market Size (000,000) Margin
Break and Fix 2.00% 839.13 36.00%
MDS 3.00% 400.00 21.00%
LDS 2.00% 16.67 60.00%
RDM -5.00% 500.00 20.00%
Source: Internal company documents.
7. What recommendations would you make to Ricoh Canada Inc. to more eectively compete
in the services market?
The transition to the IT and services market will be much easier for RCI than a brand new company because
of its history in the imaging machine industry and administrative heritage. RCI maintains several high-
profile relationships that it has developed from years of working in a business-to-business sales environment
that it can leverage to gain an immediate foothold into the services market. RCI should develop solutions
that are tailored to highly specialized markets such as healthcare or law because of strong margins (60
percent for LDS services) and spending growth rates (six percent and four percent, respectively). Healthcare
RCI’s Two-year implementation timeline was:
2016 2017
Machines in field penetration ($12M) Acquisition
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Case 20 Teaching Note Ricoh Canada, Inc.
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Epilogue
RCI’s 2016 financial forecasts were as follows:
Income Statement 2016 Plan Year over Year Growth
Revenue
Rental & Other 9,727 -3.30%
Affiliate 1,420 -49.72%
Parts, Supplies, & Paper 45,375 -0.77%
Service 202,385 5.11%
Services 19,240 55.14%
Gross Profit
Total Gross Profit 169,778 6.47%
Expenses
Sales 59,598 6.25%
Services (IT/PS) 4,438 21.69%
Amortization 2,739 0.00%
Total Expenses 140,824 7.16%
Operating Profit 28,954 3.23%
Relative Measures 2015 2016 Plan
Gross Profit % 32.10% 31.10%
Strategic Accounts GP% 8.10% 5.30%
Dealer Sales GP% 19.20% 19.00%
Source: Internal company documents

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