Ricoh Canada Inc.

Digital Imaging & Document Management Industry

Report
Tanner Ferreira (500525883)
BUS 800
Professor: Phil Walsh
Nov 20, 2016

Introduction:
The digital imaging and document management industry that RCI competes in is very
competitive, is consolidating, and has shifted towards IT services (6.6). Rapid change in
technology has essentially created new consumer needs, which have suppressed industry profits
in the traditional (printer/copier) market segment (1.5). New needs have been identified as cloud
services, professional services and managed services (2.2). While industry competitors have taken
an initial step towards these services, RCI still finds itself heavily concentrated in the declining
traditional hardware market (8.5). As a result, key financial ratios such as ROA and ROCE have
shown a steady decline, and profit margins have remained the same (9.0). It is imperative that
RCI moves out of its traditional printer business and focus its future growth in IT services. These
services have shown significant growth potential, and are where industry profits have shifted
(2.1). Therefore, how can RCI successfully transition into IT service and capture market share in
that segment will be addressed. Three alternative solutions will be discussed, while also
identifying the most viable one.
Analysis:
Rapid change in technology, such as the advent of digital storage and document management, has
altered the needs of RCIs target customers (2.3). Steady declines in ROA and ROCE, as well as
stagnant profit margins give sign to the increasing shrinkage that is expected in RCIs traditional
business (2.1). Not only have consumers needs changed to IT/professional services and managed
services, but their profile is also morphing rapidly; customers are increasingly changing what
they want (1.3). Major accounts, which show the greatest growth in spending, also require more
customization in products and services (2.4). Hence, the ability to design and develop
products/services that are tailored to Canadian customers is clearly a key success factor in the
new IT service market. However, RCI faces a serious weakness in this area, especially when
compared to competitors (7.0). RCI is currently limited to the products and services developed in
Japan, and therefore, is at risk of not meeting customers expectations or needs (10.2). Serious
repercussions of this inability would be declines in RCIs brand and customer relation strength,
which is proven later to be key in the transition to services. In this case, it appears imperative that
RCI acquires capabilities in product/service design and development to successfully transition
and compete in IT services.
Customers, especially medium-sized businesses who are expected to take up majority of service
spending (2.1), want IT services that meet their needs - at a reasonable cost (4.1). This need for
low cost services, in conjunction with high competition and service homogeneity in the industry,
puts great emphasis on reducing cost (2.7). Moreover, costs of services in general have gone
down to an inclusive price point in the industry (2.4). Hence, providing IT services at a low price
is pivotal in capturing market share and competing with cloud service providers (Xerox, Google,
Microsoft, and IBM) with more experience.
The deterioration of information asymmetry has caused customers to discriminate more when
making purchase decisions (1.3). This means that companies brand have become more important
to consumers, as they associate strong brands with quality and status. Furthermore, brand strength
and customer relations are also important to fast growing markets like IT services where many
consumers are experiencing and purchasing services for the first time. Because RCI lacks service
experience and will be offering services for the first time (10.2), it is critical that they use their
strong consumer brand and customer relationships to push its new services to the market. RCIs
strength in brand and customer relations is clearly unique and valuable to buyers. When
compared to competitors, RCI has the best NPS (customer satisfaction) scores and its brand
instills greater confidence and trust in customers (10.1). RCI has the luxury of deriving

considerable economies from applying its strong brand to a wide range of IT services. RCI could
therefore differentiate its services through its brand and customer service strength. However, such
a differentiation strategy would not work without addressing RCIs organizational weakness in IT
service experience (10.2).
RCIs core strength in brand reputation and customer relations is at risk of being destroyed by
current dealers and employees who lack IT service knowledge (10.2). In particular, RCIs 380person sales team, which has crafted positive customer experiences for the company, would need
training or replacing if the company is to expand into IT services and retain its strong brand
(10.2). Dealers would also have to undergo significant changes to address a large-scale shift to
services (10.2). RCI would either have to motivate dealers to sell RCI services or find new
dealers that specialize in selling services. As addressed earlier, the disadvantageous of not having
domestic engineers to develop and design services for the Canadian market could potentially
weaken RCIs brand and customer relationships. An analysis of RCIs financial statement reveals
that the company is in a good position to make these adjustments. RCIs large Working Capital
and small Debt to Equity ratio means that it has cash available to invest, and the capacity to raise
funds (8.2).
Alternatives:
1. Hybrid
This strategy entails offering a low cost no-frill service that is developed in Japan and
differentiated through RCIs unique brand and customer service. RCI would therefore position
itself in the market as a low-cost, utilitarian service provider and would rely on high-volume
customers who demand low prices. Focus will be on operating effectively with parent company
resources, and using home resources to maintain brand reputation and customer relationships.
CONS:
(1) High dependence on parent company
RCI will be more vulnerable to volatile exchange rates as well as trade conflicts
(10.2)
It also prevents the company from accumulating or taking advantage of local market
knowledge (10.2); services will not be tailored to the Canadian market
RCI will not be able to respond quickly to rapid technology change in the industry
and therefore rapid change in consumer needs
(2) Risk of brand reputation and customer relationships loss
Current workforce is not experienced with IT services (10.2). Sales force and dealers
in particular do not know how to sell services. Hence, cultivating positive customer
experiences could be challenging
PROS:
(1) Establishes a cost advantage
Limits cost and achieves cost efficiency
Improved organizational routines
Able to meet low-cost service needs of many customers (2.5)
Zero cash outlay

2. Vertical Integration (Acquisition) & Differentiation

Growth in IT services through acquisition will immediately equip RCI with the experience and
capabilities needed to transition into services. Domestic design and development capabilities will
confront the rapid change in technology and needs that characterize the industry. Differentiating
RCI services through the companys brand and customer relation strength, as well as developing
tailored and sophisticated services to receive premiums, will be the focus.
PROS
(1) RCI will be able to tailor its services to the needs of Canadians
Major and strategic accounts required more customization in products and services
(2.4)
The profile of customers is morphing rapidly; customers are changing what they want
(1.3)
(2) Competitors have made similar strategic moves in acquiring other IT and Software
companies (6.2)
CONS:
(1) Workforce integration and organization unity problems (10.2)
(2) Most expensive alternative and higher cost
Would have to be funded entirely by RCI
Increases transaction and corporate complexity cost
3. Recruitment, Training & Differentiation
Recruiting valuable people that offer experience and knowledge in IT services, and allow for
domestic design and development is another alternative. RCI strong brand and reputation for
treating its employees well make this alternative appealing and less challenging (10.5). The
recruitment process would also be in conjunction with training current sales force and dealers to
sell new IT services. Differentiating RCI services through companys brand and customer relation
strength will again be the focus.
PROS:
(1) Better use of current assets/resources
RCI possesses the technology and managerial staff to provide professional and
managed services (10.1 & 11.0)
(2) Cost Effective
(3) Tailoring of services to the Canadian market. More adaptable to technological and
consumer changes (10.2)
CONS:
(1) Increase in transactional and organizational cost
(2) Workforce integration problems
Getting recruits up to speed and settling in as a team will be challenging (10.2)

Recommendation:
While each of the aforementioned alternatives is viable, alternative three provides the most
advantages with minimal drawbacks. This alternative provides the strongest foundation for RCI
to build on its core strengths and establish a competitive advantage. Most importantly, alternative
three addresses RCIs weakness in the most cost-effective manner.
Improving RCIs weakness in design and development offers many benefits especially in an
industry where rapid change in technology and customers needs exist (2.3 & 10.2). These benefits
are achieved in alternative three and are the following:
(1) Less vulnerability to volatile exchange rates as well as trade conflicts
(2) Increase in responsiveness to new technology and changes in consumers needs
(3) Better able to tailor services and meet customers needs.
All three benefits are important to capture the rise of middle-size businesses as well as the
increase in service spending from major and strategic accounts (2.1). Although alternative 2 can
achieve these benefits, it does so at a much higher cost. Limiting cost to sell services at an
attractive price is paramount and a key success factor in the industry (2.7 & 4.3).
The differentiation strategy that is pursued in alternative three also achieves a competitive
advantage that is sustainable. RCIs brand reputation and customer relations are unparalleled and
are the companys greatest strengths (10.1). Because these two strengths are highly valued by
consumers and based on RCIs teams of resources and organizational culture, it establishes a
competitive advantage for the company (1.3 & 10.1). Alternative three is able to sustain this
competitive advantage by improving the companys weakness in IT service experience and
knowledge (10.2). While alternative one and two both portray focus towards a differentiation
strategy, both are likely to face challenges in sustaining a competitive advantage. For example, in
both alternatives, dealers and sales force would have to undergo significant changes to protect the
sources of competitive advantage (brand reputation and customer relations) (10.2). Such
adjustments require additional cost, which weakens RCIs cost efficiency.
Therefore, in order to successfully transition into IT services and capture market share in that
segment, it is recommended that RCI pursue alternative three.

Gmail - Your Front End - Well Done!

2016-11-23, 1:31 PM

Tanner Ferreira <tannermilan@gmail.com>

Your Front End - Well Done!

Philip Walsh <prwalsh@ryerson.ca>
To: Tanner Ferreira <tannermilan@gmail.com>

Tue, Nov 22, 2016 at 10:57 AM

Tanner,
I have graded your Front End and wanted to tell you that it was excellent - 100% - 50/50.
Would you be willing to allow me to post this on D2L for the class as feedback - I will delete any personal identification
to this document of course and I have one minor change I will add.
Let me know, it is okay to say no.
Cheers,
Phil
On 11/21/16 11:04 AM, Tanner Ferreira <tannermilan@gmail.com> wrote:

-Dr. Philip Walsh P.Geo

Associate Professor, Entrepreneurship & Strategy
Ted Rogers School of Management
Yeates School of Graduate Studies
Environmental Applied Science and Management
Visiting Research Fellow, University of Winchester Business School, U.K.
Ryerson University
575 Bay Street, Toronto, Ontario M5G 2C5 Canada
Tel. 416 979-5000 Ext. 2553

prwalsh.vcf
1K

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