1.
Olympus introduced new product “Compact Cameras” that was manufactured by the use of advanced technologies. The uses f the product were larger than existing product especially SLR cameras. The new product was quite compact with multiple uses, and it was expected to derive potential profits to the organization. However, the company got into trouble because of declining sales of SLR cameras. The company through sales of SLR cameras generated the substantial revenue. The automatic exposures of features and autofocus zoom advantage of compact cameras dropped the sales of SLR cameras.
Olympus Optical Company, Ltd. suffered big loss due to the declining sales of SLR cameras and lack of leadership position in the arena of a compact camera. The change in consumer preferences allowed them to switch towards new technological product had resulted in huge losses for the company in the mid-1980s.
The response of Olympus was appropriate that the losses were due to some internal and external factors. The top management of the company endorsed three internal causes that resulted in the critical situation for the company
• Poor Product Planning
• Lack of “hit” products
• Quality issues
The company was manufacturing the product beyond the average quality of industry. The new products of the company were relatively feasible than the existing products. The market for the new product had sluggish the existing product sales in the market. The quality issue was the main reason for the losses suffered by the company.
However, the Olympus Optical Company, Ltd. also recognized some external factors including:
• Continuous appreciation in the currency against dollars
• Fall in prices due to low growth in the industry.
The appreciation of currency against dollars reduces the number of Yen collected by the company. The declining profit of Olympus Optical Company, Ltd. was due to the declining in the price of products due to the competition in the industry .
2.
The top management of Olympus focuses on the losses and identifies that new strategy are essential to recapture the business. The company starts a three-year program to flourish the camera business with three simple and practical objectives. The goals include plans to regain the market share, improve the service and product quality of the company, and to reduce the costs of the products.
The strategy of the enterprise is to recapture the lost market share. The management of Olympus focuses on introducing, manufacturing, and marketing new and more innovative 35mm SLR and other cameras. The strategy is to differentiate the product with the use of latest technologies and to gain the competitive advantage in the business. The approach is excellent as it helps the business to compete in the market and differentiation of the cameras provides the opportunity to fluctuate the prices of the products. The company also plans to introduce new cameras to the product line and the time duration for the launch is also changed (to 18 months). The sources for the strategies include the corporate plan of the business, review of the technology, analysis based on the environment of the enterprise, quantitative and qualitative information, and finally the analysis of competitive environment of Olympus.
The management decides to manufacture the best quality cameras for the clients at affordable prices to cater a huge number of customers. The strategies of the business will influence/help to recapture the market share as the customers would appreciate the efforts of the company. The final policy for the management of Olympus is to reduce the cost of production. The administration put forwards a new and aggressive cost reduction plan that focuses on manufacturing products at low costs, limits the additional expenditure, improvement in production engineering, support innovation in manufacturing processes, and finally to shift some cost of production to overseas clients/producers. All the three strategies of the business are effective and efficient as they are designed to improve the quality, innovations, and limit the costs of production.
3.
The product of the firm is innovative and technical that needs to upgrade with new technology. The profit generation is also important for the industry because the entrepreneur analyzes the generation profit structure of the industry before entering in it. The industry depends upon the profits of the firm. The high-profit generation of the firm can result in the growth of the overall industry. The individual firm’s profitability will contribute substantial part in the overall profit of the industry.
The quality of the product is essential to gain competitive advantage within the industry. However, it is also mandatory for the growth of the industry. The company cannot compromise on the quality and should develop their products according to the preferences of consumers. The improving quality of the product will allow the firm to compete in the highly competitive market. The company organized quality improvement program to manufacture the best quality product in the overall industry. It is helpful in capturing large market share. It is only possible when the consumers of the products are satisfied with the reliability of the product. It can also reduce production cost by using advanced technological machinery to manufacture the product. The high-quality product is also mandatory for the industry. It will allow an industry to attract investors, consumers, and other stakeholders to make growth in the sector.
The price points of these types of product remain constant for several years unless there is a possibility to increase the functionality of the existing product. The ability to increase the functionality of the existing product will enable the company to reset price pointing in the future. The increasing functionality will attract customers and allow them to purchase upgraded product at the relatively high price. The company could generate high profits if it manages to add functions in the camera. The upgraded product will allow the industry to grow as it is related to the manufacturing of new innovative products .
4.
The firm shifted the responsibility of product planning from R&D to marketing as it is the task of marketing. The product planning is the assignment of the marketing department that provides details to the leaders regarding the product that is to be introduced in the global market. The senior management persons of marketing conducted a meeting with product planner to work on the product planning of the product. The aim was to ensure that new product can be sold in the international markets.
When the planning was completed, it was entitled to a comprehensive review to ensure its practicality. The approval was given at the meeting where the head of the departments reviewed the entire plan made by the marketers. The reason for blaming marketers was to recognize them that their responsibility was to check whether the product will provide expected outcomes or not. In fact, they had reviews the expected sales of volume, the burden on different divisions, and the price of each model before presenting it to the meeting of heads of departments.
The firm shifted the responsibility from R&D as there was not an adequate reason for blaming R&D persons. Their work was to conduct research on new demanded technological product. The marketers are responsible for analyzing the factors that are considered important in launching the new product in the global market. Their task is to demonstrate and advertise the product in the targeted market. The marketers collect information from the consumers and recognize whether the product is eligible for capturing a wide market. The acceptance was made by the head of departments of each division as the issues were all reviewed by them in the meeting. The marketers were entitled to provide relevant information with extensive research regarding the preferences of consumers towards the new technological product. Their failure resulted in the huge loss for the company, so the firm shifted the entire responsibility on the marketing persons .
5.
The firm decided to set a price point for multiple products to regain its position in the international market. When the firm recognized that the losses occurred due to inefficient planning, it introduced a cost-reduction program. The first step in the program was to reset price point that was determined in 1991. The company started to change its price point to compete in the industry. The motive was to gain competitive advantage within the industry. The pricing strategy was focused to allow firm is making an abnormal profit and retain its market share.
The company place price point by extensive research and competitive analysis. It was decided to align prices of each product because the prices set by the leader fewer than the plan were inappropriate according to the current research and competition in the industry. The decision was effective as it would be helpful in analyzing the current position of the firm in the market and new products would amount to increase the profitability of the business in future. Price pointing is widely prepared by firms to gain competitive advantage within the industry. Olympus Optical Company, Ltd. practiced the approach to get out of the critical situation and make profits to recover the loss caused due to the lack of planning and research .
6.
The low-cost product strategy is achievable with the use of a target costing system by Olympus’s management. The initial step of the method is to set the selling price limit for the new and innovative cameras. The prices for different cameras vary according to the distribution channel, in the United States, the price of the new compact camera is $80 which means that the products are sold in between $70-$100. The price point was also set according to the different features a compact camera possess (e.g. option of magnification, zoom options, and size of lens/camera). The target costing system focuses on the constant reduction in prices of the products due to the improvements in technologies. The prices of the products were set at constant levels by adding latest/new features to the cameras. The target costing system also helped the management of Olympus to maintain the prices of the cameras for a longer duration of time and also contributed to increasing the prices for compact cameras. The price points set by the company increased over years which provided an opportunity to expand the product line/offerings of the business. The decision of a corporation to become a full line producer was based on two distinct beliefs. Firstly, the manufacturers believe that the consumers in Japan use to trade up with the passage of time and secondly that a full line manufacturer can obtain a balance in the Japanese camera/technology market .
The technological advancements for the manufacturers were so complicated that if a firm works in the low-end market was not able to attain/achieve the high-end technological advancements and vice versa. Olympus’s management also took advantage of developing some price points for some models/products. The decision/strategy of the business was based on the observation that the products were mostly beneficial to gather/recapture the market share of the company. The company also used the plan to identify and establish new target customers from a large population and focus on maintaining the target market by launching new and innovative products.
The overall cost reduction process for Olympus was achieved by firstly reducing the number of parts required for the production. Secondly, the cost system eliminated the expensive and labor intensive processes to minimum levels and finally, the management decided to reduce the costs of metal and glass components and switched the parts to new and cheaper plastic parts for their cameras. The overall analysis of the target costing system reveals that significant changes are done in the process to make it more effective and efficient with competitive environment of the market in mind .
7.
The assessment of the target Costing System by Olympus signifies three significant changes. Before the year 1976, the system constituted of a single overhead rate but in 1977, the management updated the overall cost system. All the separate values were calculated separately including different procurement costs and other expenses of production. In 1983, updates were again made in the target costing system the major change was done to the allocation rates, and now multiple rates were calculated to identify the cost of processing within the production lines. The overall production process was split into ten (10) different centers and all the overheads for separate centers were calculated individually to identify the costs for various centers. The company also started to shift its production processes to other firms to maintain the costs for the business. The outsourcing of production changed the calculation for overheads. The costs for general suppliers and contracted suppliers were done differently. The calculations replaced the single procurement rate computed before 1977 .
The evaluation of the system highlights that the process is more complicated as compared to the previous production costing system implemented by management. The process needs to be simple and easy to understand, and the price point created by the company must be dissolved in the future. The new models must be priced based on the features and must be given different names to distinguish them from others. The process will help to calculate the costs and prices for the products separately and hence the target costing system would be more efficient and beneficial for Olympus.
Reference
Harvard Business School. (1997). Olympus Optical Company, Ltd. (A): Cost Management for Short Life-Cycle Products. Harvard: Harvard Business School.
