Canon may follow Xerox's Acquisition trail –Awaiting Disaster?

- related to P3 (BA)

P3 (Business Analysis, ACCA) Paper in action
Many businesses failed to ask a simple basic but paradoxically difficult question, “What business are we in?” using visions, mission statement and corporate objectives are mere tools to communicate but they fail when Board lacks the commitment and drive. Worse yet, according to Sally Yeung and Andrew Campbell, such statements made are mere ‘lip-service’.

The case study below shows how a distressed company, Canon, tries to re-identify itself. It didn’t want to sell boxes of Information Technology equipment but takes a step further in saying, “Why customers need us?”

In P3 (Business Analysis, ACCA) Paper, there is a real chance of this type of question tested. So familiarise yourself with this topic from the excerpt edited report. Enjoy...

Following the Joneses : Canon’s re-positioning process
Recall Porter’s critique that acquisitions generally destroys shareholders’ value. Well, despite empirical evidence, many firms never learn.

Canon operation in Singapore is "open" to opportunities to acquire suitable business process outsourcing (BPO) companies, as well as to strengthen partnerships to boost its imaging business, according to senior executives based here.

Alan Chng, South and Southeast Asia vice president of Canon's business imaging solutions, noted during a media gathering here Wednesday that the Japanese company "has intentions" to make market moves similar to its rivals in order to gain entry to the BPO market.

Following Xerox’s model
Competitor Xerox announced it would acquire BPO player Affiliate Computer Services for US$6.4 billion. The transaction helps Burns expand into a market Xerox values at about $150 billion and gives her a foothold in managing administrative operations for multiple arms of the U.S. government. The number of workers at the world’s largest maker of high-speed color printers will increase to about 128,000.

“With this combination, our tool box just got a lot bigger,” Affiliated Computer CEO Lynn Blodgett said in an interview. Blodgett, 55, will run the business as a unit of Xerox. Almost 90 percent of Affiliated Computer’s new business contracts last year came from outsourcing, or managing operations for other companies. Total sales rose 5.9 percent to $6.5 billion in the year ended June 30, 2009. Xerox has posted sales declines for three straight quarters, with analysts projecting a fourth, according to the average of estimates compiled by Bloomberg. Global spending on technology products will fall 8 percent this year, Goldman Sachs Group Inc. said this month. Xerox has about 54,000 employees, and Affiliated Computer has 74,000 workers. Xerox said annual cost savings from the deal will increase to as much as $400 million in three years.

Exam Note: The following highlights that must be in your answer script!
But the downsides are it doubles Xerox debts, cause Shareholders uncertain and selling off its shares, took over Affliated Computer much larger employees head count and causing internal integration problem. (please note that Porter’s famous Golden Triangle theories are much applicable here)


Canon’s expansion mode
"Definitely, it's time for us to go into this area," said Chng, adding that candidates suitable for acquisition could be businesses in Asia that have synergies with Canon.Lim Kok Hin, Singapore senior director and general manager of Canon's business imaging solutions and business solutions, added that the company may also strengthen or expand its partnerships to include such services in its portfolio. "At the moment it looks like we're wide open to [both] options," he said.

Customers, explained Lim, often do not expect a single company to do able to do everything, and are "comfortable enough" to approach Canon as a "turnkey operator".

The drive toward a "solutions" approach, or packaging software and services along with hardware, has been intensified over the last few years as companies were no longer interested in "buying a box". Instead, Lim said, they want to solve business problems. For instance, Canon recently worked with a large tour operator in Singapore to implement on-demand printing based on personalized customer itineraries. The initiative helped minimize wastage as it eliminates the need to store as well as produce standard travel brochures in bulk.
As part of its shift toward "solutions" rather than device sales, Canon officially unveiled a free audit service, where it provides a "health screen" of a customer's imaging environment, said Chng. The company has so far conducted an audit of its own office premises in Singapore, as well as a few other companies in the island-state. Canon will continue to expand the service to other markets in the region, he added.

Verdict: All the best, Canon. There are much divorces (de-mergers) but that didn’t stop people from marrying (Mergers exercise), did they?