Professor Phil Walsh

BUS800 Section071

RICOH
CANADA INC.
APPENDIX
Digital Imaging & Document Management Industry
1.0 PESTEL Analysis

1.1 Political Factors

Trade agreements and negotiations on tariffs and duties and entry mode
regulations between Canada and other nations are of critical importance to this
industry. (pg. 1)
1.2 Economic factors
Healthcare, legal, government, and education sectors increased projected spending
in the range of 3% to 6% and these are managed services which total $920.1
billion global market. (pg. 10)
Rampant mergers and acquisitions activity in the market by companies wanting to
enter the IT services sector. (pg. 2,3)
Medium sized businesses are expected to be responsible for 42% of services
spending in 2013. That is an improvement of 7.4% year-over-year. (pg. 2)
Improvements in cloud services allowed for economies of scale and flexibility.
(pg.2)
Saturated market with an expected shrinkage of 5% in print, fulfillment and
imaging segment. (pg. 11)
US Federal Reserve policy impacts interest rates which affects exchange rate
fluctuations that are very important when exporting and importing. (pg. 6)
1.3 Social Factors
Modern businesses are changing attitudes and behavior towards a paperless office.
(pg. 2)
57% of customers are well informed as information asymmetry is narrowing. (pg.
3)
Consumers now demand unification of services at a reasonable cost. (pg. 2)
1.4 Technological factors
Technological improvements in cellular networks are disrupting traditional market.
(pg. 2)
New resources made available like cloud computing and remote monitoring allow
for more affective workflows. (pg. 1,2)
1.5 Ecological factors
There is popular attitude towards the environment as modern businesses strive to
become paperless. (pg. 2)
1.6 Legal factors
Specific compliance and industry governance measures that must be fulfilled. (pg.
11)
Laws and regulations governing how businesses operate in Canada are very
different from those in other countries. (pg. 1)
So What?
Large firms are feeling the pinch as they are buying out smaller companies to protect
profits. Companies in this industry must now understand the customer better and should
be more willing to adapt to a more informed customer so they can provide the right
product and remain competitive. Prices for services are lower because of technological
 advancements and medium sized businesses are taking advantage of these
improvements. Medium-sized businesses are more demanding since there is more
information available to them and they are increasing their usage. The economy is not
like it used to because there are many external influences that shape the way firms do
business. The stakes are higher in this dynamic industry especially for companies that
import and operate globally. Successful firms adapt their strategies earlier than the
competition to take advantage of market changes. There are several economic influences
that must be taken into account when devising strategic goals. Firms in this industry
allocate their resources based on the direction of the economy and consumer attitudes
while carefully considering the laws and policies that affect their operations.

2.0 Dominant Economic Features

2.1 Market Size & Growth Rate

Currently the market segment for delivery and maintenance of printing/copying
devices is stagnant. In the next five years, there will be a rapid decrease in this
market segment. (pg. 1, 2)
The Canadian market for services in the digital imaging and document managing
industry was valued at US$24 billion in 2012. (pg. 2)
Changes taking place in the services area as medium-sized businesses will
represent 42% of spending in 2013 which is a healthy increase of 7.4% year-over-
year. (pg. 2)
Global market for consulting, IT, cloud and remote backup services valued at
$920.1 billion in 2012. (pg. 11)
2.2 Capital Requirements
Heavy capital investment required and companies maintain multi million dollar
accounts in their books. to remain competitive in the industry. (pg. 6, 14)
2.3 Technology and R&D
Advent of internet caused an accelerated growth in digital documents and a
paperless era where companies are moving away from traditional printing. (pg. 2)
2.4 Economies of Scale
The cloud services segment achieved economies of scale after the high demand
from small and medium-sized companies. (pg. 2)
2.5 Absolute Cost Advantages
Companies with low a cost per page can disrupt the printing segment. (pg. 3)
2.6 Buyer Needs and Price Sensitivity
Modern businesses striving to become paperless offices. (pg. 2)
Consumers are interested in a provider who can unify services at a reasonable cost.
(pg. 2)
Deterioration of information asymmetry in industry as 57% of customers are well
informed. (pg. 3)
Cost reduction requirements in public and higher education. (pg. 10)
Using cloud from consumer perspective was much more effective than upgrading
the in-house server network and corresponding support resources. (pg. 2)
 A shift towards cloud based storage for customers in healthcare, legal and
government. (pg. 10)

So what?
Firms may be able to earn a higher rate of return if they understand the most important
economic features that shape the industry. Theres acceptable growth in global demand
for all IT services but there are significant capital requirements to tap into this market.
Several advantages exist for those that that are able to achieve economies of scale as
they become more competitive in the industry. Some companies have found innovative
ways to reduce their customer costs which played to their benefit and others were able to
adapt to the changing buyer needs as many customers are now more informed. These
examples show that a new phase is completely altering the entire industry and companies
that respond with flexibility can gain a strong foothold.

3.0 Porters Five Forces

3.1 Competition from Substitutes

Digital storage and document management technologies that allowed for faster and
and more effective workflows. (pg. 2)
Improvements in tablet and mobile device networks are enabling those who dont
print. (pg. 2)
3.2 The Threat of Entry
High rate of mergers and acquisitions as large companies were threatened by
smaller innovative firms. (pg. 2)
Companies that are able to adopt cloud services can compete at a similar level to
established firms because of the widespread adoption of these services. (pg. 2)
3.3 Rivalry between Established Competitors
All segments of the industry are extremely competitive with 7 large and established
companies and several smaller companies competing. (pg. 2,3,9,10)
Large companies like Ricoh Company Ltd., Xerox, Canon and HP acquired service
companies to expand their operations. (pg. 1,2,3)
3.4 Bargaining Power of Buyers
Find new dealers if they are not willing to sell services. (pg. 5)
More demanding customers in technical services segment. (pg. 4)
57% of customers are more informed, decline of information asymmetry in
industry. (pg. 3)
High margins from smaller businesses. (pg. 3)
Increased share of wallet from small and medium-sized enterprises. (pg. 4)
More control over dealer network with the acquisition in 2008 of IKON Office
Solutions, largest independent provider of document management systems and
services. (pg. 1)
3.5 Bargaining Power of Suppliers
Supplier is the parent company of RCI which sells it the hardware based on a
transfer pricing system. (pg. 1)
 So What?
The industry is somewhat attractive given the fact that there are increasing pressures on
companies to compete against each other by for example, offering the latest products
and services, improving customer service and decreasing prices. Buyers are posing a
dilemma to firms because they are more informed and have various options to choose
from. Disruptions have plagued the industry mainly from advancements in technology as
the internet with its cloud service and tablets and mobiles began to take over what is left
of the market. The threat of entry is low because large investments are needed but
companies like Google, Amazon and IBM may seize market share as the industry shifts
away from traditional offerings. Existing companies compete with some differentiation
and they do face a limited threat from substitute products that originated from
advancements in technology.

Accelerating growth in IT services can be seen as a sign of relief and an opportunity for
firms because the traditional segment has been tapering off.

4.0 Driving Forces

4.1 Globalization market/demand global

$920.1 billion global market includes $900 billion IT hardware, remote monitoring,
and deployment services. Cloud based services like software as service (SaaS) is
worth $14.5 billion while cloud backup as a service (BaaS) is $5.6 billion global
market.
4.2 Technological change, innovations
Faster and more effective workflows as well as greater accessibility with the advent
of digital document management and storage over the internet. (pg. 2)
Several resources that support business operations infrastructure are improving the
services segment like cloud computing, remote monitoring, and other innovations.
(pg. 1)
Paperless offices are where the modern business are heading towards as a result of
improved electronic automation, cloud-based storage and sharing, mobile workflow,
and e-learning. (pg. 2, 10)
4.3 New products, services
Tablets and mobile devices paired with advancements in telecommunications allow
for new services and products to be developed for users. (pg. 2)
Cloud services is paving the way towards cost effective remote sharing. (pg. 2)
 4.4 New market entries, exits
Cost of services has decreased so medium-sized businesses can take advantage of
what is offered and usage is increasing. (pg. 2)
Google, Amazon, and IBM are offering cloud services. (pg. 3)
4.5 Internet, apps, etc.
Faster internet provides better access to solutions using mobiles and tablets. (pg.
2)
So What?
The industry is rapidly evolving and moving away from traditional services as new
products and innovations penetrate the market. Firms should rethink their strategies and
adapt to the changes or else they may witness a sudden drop in their competitiveness. In
the digital imaging and and document management industry, the Canadian economy
mimics the global economy therefore, companies that are successful in deploying their
resources to take advantage of the global demand for IT and cloud based services should
be able to do so in Canada as well.
5.0 Strategic Group Map Analysis
Printer Market Share (2012)

>30%

>20%

<10
%
So What?

RCIs position is not very competitive when compared on a market share basis in the
printers segment. HP is well known in this segment and RCI has not placed a heavy
emphasis on competing. They are doing much better in the expensive, multifunction
printer segment but are behind Xerox. RCI must understand that its competitors have
entered the services segment shortly after it did and they are catching up to its strategy
very quickly. RCI should look into migrating quickly to another competitive position as
depreciating old ones, and matching rivals.

6.0 Key Success Factors

6.1 What do our customers want? (Analysis of demand)

Most customers want services to be unified and available at a reasonable cost. (pg.
2)
Customized product and service offerings to large customers like the GEM market
(government, education and medical market). (pg. 4)
High demand for cost-effective solutions to share information in an organization.
(pg. 2)
Cloud and electronic based storage and shared hubs for healthcare, legal,
government and educational firms with large spending budgets. (pg. 10)
6.2 How do firms survive competition? (Analysis of competition)
Many firms are increasingly spending resources on mergers and acquisitions in an
effort to expand into the services segments. (pg. 1,2,3)
Firms are striving hard to secure large contracts with heavy spenders like the ones
in the GEM market (government, education and medical market). (pg. 4)
6.3 Key Success Factors
Unify services at a reasonable cost. (pg. 2) Offer a one-stop-shop for consumers to
depend on.
Shift to services and IT faster than the competition. (pg. 1) Acquiring successful
tech startups is an easier way to offer services.
Improve efficiency and customization and offer better value. (pg 2,4)
Differentiation is strategically important when there is heavy competition. Standing
out by having a unique advantage helps companies become successful.

So What?
Companies facing relentless competition should set relevant business goals and be
able to measure their success in accomplishing them. The key success factors in this
industry look into products and services that offer what customers demand, firms that
develop innovative ways to differentiate themselves from the competition, and firms
that plunge into every opportunity that brings them closer to the IT services segment.
7.0 Industry Life Cycle
The industry has entered the maturity stage as new technologies have been introduced to
the market and other major changes are expected to take place. These changes are
driven mainly by the forces of technology and consumer needs. Consequently,
management of almost all companies in the industry have adopted strategies to fit the
dynamic process for a competitive advantage. The internet caused a surge in disruptive
services like cloud computing, electronic automation, remote monitoring and paperless
technologies. (pg. 2) During the past several years, large companies have been gobbling
up IT document management service providers to fend off the threats of this new era.
(pg. 2) The industry may be unrecognizable in the coming years as services take over the
space that was once heavily dependent on traditional, document management. (pg. 1)

8.0 Industry Outlook and Profitability

1.0 Financial Analysis

Can the company pay its bills?

Yes, RCI can cover its short term expenses and have plenty left over because current
assets are more than double the current liabilities which provides improved liquidity.
2012 2011 2010 CAGR Trend
Net Working Capital (Current $120,220 $103,162 $100,655 9.29%
Assets Current Liabilities)

Does the company have the capacity to raise capital?

RCI has taken on some debt but mostly in the form of short-term rather than long-
term which is mostly for accounts payable. The company improved its debt to equity
ratio over the past two years so there is less risk for the shareholders. The return on
capital employed is decreasing meaning RCI is not using its capital efficiently like it
previously did.
2012 2011 2010 CAGR Trend
Debt to Equity 59.65% 63.78% 63.78% -3.29%
Return on Capital Employed 16.77% 18.86% 21.57% -11.83%
(EBITDA/Shareholders Equity+
Long Term Debt)
Do the financials provide a competitive advantage? How?
Given that there is no information on the competitors financials, there can be no
comparison made. RCI is experiencing a decline in the return on assets because assets
are growing at a faster rate than income before interest, taxes and amortization.
2012 2011 2010 CAGR Trend
Return On Assets (EBITDA/Total 10.50% 11.52% 13.17% -10.71%
Assets)
What are the implications of the financials for future strategy and for the
execution of strategy?
Management should be concerned about the drop in return on assets and asset
turnover ratio over the past 3 years because there is a problem in how the company is
employing its assets and if it has too much assets that are not yielding an enough
return. The decrease in asset turnover ratio shows us that it is in fact not selling
enough inventory compared with previous years.
2012 2011 2010 CAGR Trend
Return on Assets 10.50% 11.52% 13.17% -10.71%
Asset Turnover (Revenues/Total 1.70 1.74 2.01 -8.04%
Assets)
Net Promoter Score 56.10% 54.30% 46.50% 9.84%
 How does the company perform compared to its competitors?
RCI is lagging behind its competitors in this area of the printer business. It needs to
look into what HP has done if it wants to be successful and gain market share.

Printer Market Share: Laser, A4, A3, Color, Mono, Dealer and Direct
2009 2010 2011 2012
HP 0% 0% 2% 37%
Lexmark 27% 29% 24% 21%
Xerox 12% 15% 13% 10%
Ricoh 8% 7% 9% 10%
What is increasing? What is decreasing? What are the implications?

RCIs inventory as a percentage of total assets decreased during the past two years
which points to improvements in inventory management or a decreased reliance on its
hardware sales. Cash has also decreased but this is not necessarily a good sign as it
may mean customers are not paying on time or more cash is being used to pay for
expenses. Accounts payable is decreasing which is a positive sign that RCI is paying for
its supplies quicker. Retained earnings increased and that is expected because RCI is
planning on investing more into services. Inventory turnover in 2012 was 8.15 meaning
so they were able to sell all their inventory more than 8 times that year while it takes
them almost 45 days to sell it one time. These figures represent a similar performance
over the past two years as RCI was not able to improve their inventory performance.
Is the company in a healthy or unhealthy position? Implications?
RCI is in a worse off position than it previously was. Many important observations
point towards decreasing performance in terms of net margin, return on assets,
return on capital employed, and asset turnover. RCI had some success with
increasing operating income, reducing risk with reducing debt to equity, improving
liquidity and increasing its total assets but it did not use these achievements
successfully.
What are the spreads? Revenue/Costs, Revenue/EBIT. Revenue/Debt
2012 2011 2010 CAGR Trend
Revenue/Costs 1.05 1.07 1.06 -0.47%
Revenue/EBIT 17.72 16.38 16.56 3.44%
Revenue/Debt 4.54 4.46 5.15 -6.12%
RCI is barely capable of covering its costs because there has been a drop in revenues
relative to costs. The spread in revenue over operating income is improving because
RCI was able to improve its efficiency. Revenue over debt has dropped quite a bit
since 2010 because the companys total liabilities increased faster than revenues.
Outstanding trends in data
Net promoter score has improved substantially meaning customers are happy with
RCI and approve of it as a company however, to remain competitive customer
satisfaction is not enough because RCI is experiencing a decline in major returns
while it has invested more in fixed assets and was not able to to improve its asset
turnover.

So What?
RCIs overall financial strength and position has flattened or dropped. Efficiency
measured by return on assets and
2.0 How well is the present strategy working?

2.1 Vision: To become leaders in the B2B areas of managed and professional services.
(pg. 6)
2.2 Mission: We provide and maintain high-quality products and services in the digital
imaging and document management industry. (pg. 1)
2.3 Objectives: Our strategic objectives include reducing dependence on traditional
sources of revenue that will experience a decline in a saturated market. To introduce
managed services in the fields of IT that will feature the latest, relevant technology like
cloud computing and mobile workflow. These strategic objectives should be in accordance
with our financial objectives that aim to improve sales revenues and decrease our
operating expenses.
2.4 Business Strategies: RCI is planning on moving most of its offerings to the services
market and take advantage of the favorable market conditions that have shaped the
evolving industry.
2.5 Functional Strategies: RCI will focus its efforts on offering improved services while
it distances itself with traditional segments in the document management industry.
2.6 KPIs: RCI enjoys several key performance indicators such as, excellent customer
satisfaction, improved net working capital and the spread of revenue/EBIT.
2.7 Financial Strategy: In the short term, RCI will look to make substantial
improvements in increasing sales and decreasing cost of goods sold by improving the
asset turnover ratio. In the long term, RCI will be better suited to tackle issues with
increasing operating costs and lower net profit margins.

3.0 SWOT Analysis

Strengths:
1. Excellent access to key named accounts
that are in a contract with RCI. (pg. 4)
2. Full control over direct sales network
dealers which Canon, the largest
competitor relied on. (pg. 1)
3. Strong brand and reputation in the
industry. (pg. 6, 16)
4. 16 years in Canadian business
environment. (pg. 1)
5. Very strong ERP system and 550 well-
trained personnel. (pg. 4)
6. Control 25% of sales in high end
multifunction segment in FY2012. (pg. 1)
Weaknesses:
1. Overreliance on Japan head office for
innovations in services. (pg. 7)
2. Lacks spending on training sales team
and almost half the sales force is used
in geographic/key named accounts. (pg.
5, 12)
3. Unstable cash flows because of lack of
currency hedging. (pg. 6)
4. Inexperience in services market. (pg. 4)
5. Lack of volume in Professional Services
and Managed Services. (pg. 4)
6. RCIs recruitment process is inadequate
and is need of an overhaul. (pg. 5)
7. Workforce from the large acquisition of
ICON was not integrated rapidly. (pg. 1)
Opportunities:
1. Cloud computing and remote monitoring
services. (pg. 1)
2. Improvements in disaster recovery support
and cloud services which provide 56% of
profit margins. (pg. 5, 11)
3. Advancements in technology, and changes
in user behavior and corporate behavior
that maximize effective workflows with
greater accessibility. (pg. 1,2)
4. Expanding services offerings in mobile
workflow, shared cloud hubs and e-
learning, as this is where the most growth
will be. (pg. 1, 10)
5. Increased spending by the government,
education, and medical market. (pg. 10)
Threats:
1. Strong brand and customer network
increases HPs influence on the industry
as it creates holistic offerings. (pg. 3)
2. Disruption in RCIs legacy business
because of technological advancements
in table and mobile device networks.
(pg. 2)
3. Exchange rate fluctuations can hinder
revenues in the rare case of a large
currency drop. (pg. 6)
4. Innovative companies gaining market
share like Canon and Xerox. (pg. 2,3)
5. Competitors acquiring profitable
companies to consolidate their efforts.
(pg. 2)

3.1 Is RCI able to seize opportunity and mitigate weaknesses?

RCI may continue to exceed customer expectations and increase share of customers wallet
from key named accounts. However, its business practices are not sustainable in the long-
term even with its excellent reputation because there are several internal obstacles in the
way that may hinder growth. It must consider investing in relevant opportunities that have
arisen as a result of technological advances and shifts in industry standards. Major and
strategic accounts are integral to RCIs success because they are heavy spenders and there
is a lot of potential given the fact that there is growth in their spending. There is
considerable competition that is working hard to gain an advantage in this industry and
several competitors already began to improve their offerings. Some enjoy an excellent
brand image while others invested in IT services to enhance and diversify their operations.
4.0 Is RCI competitively stronger or weaker than the competition?

RCI falls below average when compared to the largest competitors in the industry. These
companies were able penetrate the services segment before RCI and their product
development strategies are more effective. Several competitors have capitalized on
technological advances and consequently diversified their offerings to customers. They built
on previous brand image and this gave them a competitors advantage as they were well
known their field.

5.0 Managerial Issue

RCI is made several mistakes that need to be mitigated. It first did not make any proactive
steps in the right direction when the rest of the companies in the industry were investing
and acquiring other companies to increase and improve their IT services (pg. 2,3). Demand
for cloud computing, information security and remote monitoring has been increasing
tremendously but RCI made little effort to add these resources to its portfolio (pg. 1). There
was a rapid shift in the market after the widespread adoption of the Internet affected digital
imaging and document management (pg. 2). RCI never saw this unique opportunity coming
and it relied more on its legacy business which is currently shrinking (pg. 1). The industry is
not simple to understand and the heavy competition increased the risks