BUS 800 RICOH CASE

Holistic Analysis of Ricoh Canada: Appendix

APPENDIXHolistic Analysis of Ricoh Canada Inc.

Industry: Digital Imaging and Document ManagementCase: Ricoh Canada Inc.

ByLarisa Saplys 500 526 893

Sec. 131

SubmittedTo

Doctor Ann DulhantyTed Rogers School of Business Management

in partial fulfillment of the requirementsfor

BUS 800 Strategic Management

October 24, 2016

Ryerson University

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Table of Contents

Part I. External Analysis – Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Part II. Internal Analysis – Company a. Holistic analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8b. Financial Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Reference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

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1. PESTEL Forces Analysis1.1 Political forces:

1.1.1 Partnerships/parent companies commonplace; can stifle organic growth of affiliate companies

1.2 Economic forces:1.2.1 Cost of services came down “to an inclusive price point…medium-sized

businesses could take advantage of the market” (Ensign & Fast, 2016, pg.2)1.2.2 “42% of services spending was going to be made by medium-sized

businesses in 2013” (Ensign & Fast, 2016, pg.2) – sign of deflation: allows for increased cost-efficiency

1.2.3 Traditional printer/copier market: downward trend of 3% by 2016 (Ensign & Fast, 2016, pg.2)

1.2.4 Opportunity in services: Services market worth US$24 billion in 2012, hardware market worth US$4.5-5 billion (Ensign & Fast, 2016, pg.2)

1.3 Social forces: Consumer factors affecting shift towards services and digital storage:

1.3.1 Cost efficiency, productivity and information optimization – cloud storage more cost-effective than upgrading an in-house server network

1.3.2 Growing interest in environmental sustainability – print is wasteful1.3.3 Information security and compliance – ability to apply IT infrastructure to

improve security and comply with industry standards1.3.4 Business process streamlining – most efficient companies are those that

choose path of least resistance – less resistance in digital services1.3.5 Change management – adaptability is an asset – market is evolving, need

change management capabilities to compete1.3.6 Knowledge:“57% of consumers are well informed”(Ensign & Fast, 2016, pg.3)

1.4 Technological forces:1.4.1 Shift towards digital storage/systems - faster workflows, greater

accessibility, ease of information sharing1.4.2 Cloud/IT services: drop in cost allowing medium-sized businesses to take

advantage of “inclusive price point” (Ensign & Fast, 2016, pg.2) 1.4.3 Cloud services handle IT infrastructure for the company, maximize

flexibility and achieve economies of scale (Ensign & Fast, 2016, pg.2) 1.5 Ecological forces:

1.5.1 Digital storage: more resource-conscious – reduces waste 1.6 Legal forces:

1.5.2 Mergers and acquisitions (M&A) commonplace 1.5.3 Service Level Agreements - increasing demands from customers

2. Industry Economic Traits Analysis2.1 Size: Medium-sized: 4 major players (Canon, Xerox, Ricoh, HP), 3 others

(Konica, Lexmark, Sharp) mentioned - shrunk due to M&A’s2.1.1 Printer/copier market expected to shrink by 3% by 2016 (Ensign & Fast,

2016, pg.2) - faces extinction2.1.2 Digital technologies and services market: new area of growth

2.2 Structure: Customer-centric: demands drive strategic direction2.2.1 In period of consolidation: companies search for scale economies and

innovative technologies

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2.2.2 Shift towards digital increasing the geographic scope of companies2.3 Customers: “57% of consumers are well informed” (Ensign & Fast, 2016, pg.3)

2.3.1 Demand for greater accessibility, cost-efficiency, environmental sustainability, IT infrastructure for ease of use

2.3.2 “Internet of things” (IoT) facilitated demand for IT services 2.4 Technological Innovation/ R&D – utmost importance in industry’s current stage

2.4.1 Growth of industry sensitive to capabilities in tech innovation2.4.2 IoT created more options for consumers, putting pressure on producers

and suppliers to differentiate – use of R&D is tool for this2.4.3 High rate of change in production and business models for industry

2.5 Scalability: industry susceptible to scale; drives strategy towards cost efficiencies and information carrying capacity2.5.1 Small companies losing ability to compete due to M&A’s and increasing

price competition 3. Porter’s 5 Forces

3.1 Supplier Power3.1.1 Suppliers of services and innovative digital engineers = high level power -

high value for customers; suppliers of traditional markets have less power3.1.2 Shift towards digital puts value in software manufacturers that supply

document management organizations IT tools – allows for markup3.1.3 Competition between industry members increases price sensitivity

3.2 Threat of Entry: low – significant barriers to entry3.2.1 No formal restrictions to entry; increased competition make entry difficult 3.2.2 Barriers to entry:

3.2.2.1 High capital costs of establishment 3.2.2.2 Large-scale operation required - research-intense industry 3.2.2.3 Access to distribution channels critical but time-consuming 3.2.2.4 Absolute cost advantages due to acquisitions 3.2.2.5 Intellectual property barriers: monopolization of processes3.2.2.6 Greater environmental and safety standards can incur more costs

3.3 Industry Rivalry: high – facilitates price wars and exits3.3.1 Concentration of competitors high due to presence of M&A’s3.3.2 Diversity of competitors is low - similar cost structures and strategies3.3.3 Low product differentiation, high price competition

3.3.3.1 Objectives, costs and strategies are similar across industry3.3.4 Excess capacity = result of declining demand for certain core services

3.3.4.1 Drives competition to innovative initiatives3.4 Threat of Substitutes: substantially high – low differentiation, high competition

3.4.1 Internet provided greater amount of consumer choices - greater access to information and ability to grow informed

3.4.2 Existence of close substitutes exists - entities competing for sustainable competitive advantage to establish brand loyalty

3.4.3 Customers will switch to other providers in response to changes in price – high price elasticity

3.5 Buyer Power: high3.5.1 Price sensitivity = high

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3.5.1.1 Differentiation of products is low, competition high3.5.1.2 Accessible and flexible document storage critical in on-demand,

digitally expanding world 3.5.2 Informed customers, threats to traditional market segment, and growing

ability to integrate vertically increase buyer power*Industry is not very attractive: in a transitional period. Unwise to try and penetrate it

unless entrant acquires key success factors for innovative processes and technologies *4. Driving Forces

4.1 Demographics4.1.1 Shifts in consumer needs: accessibility and affordability in IT services4.1.2 Millennial generation: accustomed to digitalization - drives industry to

innovate digitally in preparation for current and future demands4.1.3 On-demand society: need for flexibility and adaptability

4.2 Technology4.2.1 Rise of IT services and infrastructure: increased demand for cloud services4.2.2 IoT and net neutrality created platform for knowledge-sharing - substantial

demand for innovative technologies to keep up with Information Era’s speed

4.2.3 Development in mobile and tablet technology –drowned traditional market 4.3 Global markets

4.3.1 Influence of foreign market and consumer demands 4.2.4 Responsibility to adhere to more legislation 4.2.5 Necessary to monitor market fluctuations

4.2.5.1 Requires tight communication, data monitoring, and sustainable business relationships

4.4 Environmental sustainability 4.4.1 Increases pressure on companies to digitalize their processes

4.4.1.2 Decreases waste and promotes recyclable processes4.4.3 Threat of global warming is exponentially increasing with population

growth - emphasizes importance of decreasing wasteful processes5. Strategic Group Map: X Axis = Reputation/Brand Strength Y Axis = Technological Innovation5.1 Hewlett-Packard (HP): Leader in IT hardware, brand

and customer network (Ensign & Fast, 2016, pg.3)5.1.1 Similar in size to its primary competitors –

Canon, Ricoh, and Xerox5.1.2 Acquisition of EDS for combined hardware

and services (holistic) offerings -early move into service market

5.2 Xerox: Expanding into cloud services – technological innovation on par with Ricoh (RCI)5.2.1 Well-known through major accounts in

healthcare and government, but brand strength not as strong as HP or RCI5.2.2 Similar to Canon in brand development; similar to Canon and RCI in size

5.3 Canon: Similarly positioned to Xerox and RCI in technological innovation

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5.3.1 Acquired Oce N.V. -increased market share in digital space and R&D (Ensign & Fast, 2016, pg.2) -investment in R&D aids in innovative positioning

5.3.2 Well-known to public as a leader in performance, but current brand strength not as high as Ricoh or HP

5.4 Konica Minolta: Smaller player – brand not as widely recognized as Tier 1 competitors (Canon, Xerox and HP)

5.4.1 Leader in image quality - differentiated by A3 colour lineup (Ensign & Fast, 2016, pg.3)

5.4.2 Will need to commit investment in digital services to compete with others 5.5 Ricoh: Similar in technical innovation to Xerox, less investment than HP/Canon

5.5.1 Focus on retention of customers - leader in reputation, above Canon and Xerox, below HP due to its reputation in IT hardware

5.5.2 Acquired IKON for US $1.6 billion to strengthen North American sales network (Ensign & Fast, 2016, pg.1) - Canon relied heavily on this; reason for Canon’s lower brand strength

6. Key Success Factors6.1 Service Quality

6.1.1 Growing importance: focus of customers - image quality and digital capabilities 6.2 Cost-Efficiency through Economies of Scale

6.2.1 Large-scale operation, smaller per-unit costs and more process integration increase efficiency and meet affordability needs – achieved through cloud

6.2.2 Cost efficiency increases with cloud storage - no need to upgrade in-house server network, faster information sharing

6.2.3 Greater market share = greater cost efficiencies and larger ROI6.3 Digitalization/Technological Innovation

6.3.2 Consumers interested in digital storage – faster and more accessible 6.3.2.1 Consumer preferences drive direction and determine success

6.4 Reputation/Brand Strength - instrumental in choosing a company for services6.4.1 Consumers want to choose a name that they know others have been

successful with, increasing the chance that they will be satisfied too6.5 Integration Strength - ability to acquire and integrate processes without affecting production levels or efficiency

6.5.1 Trend towards M&A’s proves this a source of competitive advantage7. Industry Life Cycle

Industry is in the maturity stage7.1 Historically, printing and copying was main source of revenue (traditional market)

7.1.1 Demand has become obsolete; customers knowledgeable and price sensitive7.1.2 Shakeout phase for those that cannot adapt to changes

7.2 Search for tech innovation, M&A’s and exits characteristic of this stage7.3 Strategic issues characteristic of maturity stage: excess capacity, declining number of

concentrated competitors, increased price competition, and instability of process technology

7.4 Trends: Restructuring for adaptation to digitalization, greater accessibility and efficiency for customers, commoditization in low product differentiation7.4.1 Firms distinguishing themselves with quality improvements and technical innovation - concerned with keeping overhead costs low to win customers

8. Company Outlook based on Assessment of the Industry

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8.1 Impact of macro-environmental forces: “Advances in technology, user behaviour, and corporate behavioiur” pushed RCI

towards services (Ensign & Fast, 2016, pg.1) Cost-advantage for medium-sized firms – RCI has 2% market share in mid-sized

business (Ensign & Fast, 2016, pg.2) Informed consumer shifted focus at RCI away from information sharing to

building positive relationships with customerso Pressure for adaptation to the changing market trends spurred acquisition

of IKON Office Solutionso Strengthened direct sales network and control over dealer

network – initiated competitive advantage over Canon, which relied on this network (Ensign & Fast, 2016, pg.1)

8.2 Fit with the economic traits: Refocused resources on penetration into services market – shifted towards process

integration and professional services Managed services allow RCI to digitally record information - easy retrieval

o Managed Document Services software designed for ease of information transfer

Adheres to industry’s structure with programmed rules that allows it to extend across an organization’s geographic limits

Concept of continuous improvement adapted to facilitate innovation and critical analysis of processes

Executives travel to Japan (parent corporation origin) for meetings to discuss global business outlook and facilitate relationships with their network -

Net Promoter Score (NPS) - used to measure emotional connection of consumers and employee performance

o Builds trust in brand; 80% sales are focused on repeat customers (Ensign & Fast, 2016, pg.6)

8.3 Ability to make above-average profits: Revenue affected by exchange rate fluctuations due to foreign production partners

in Japan and US (Ensign & Fast, 2016, pg.6) Ability to make large profits due to reputable brand name and commitment

towards tech innovation - requires investment in training and development of sales force to facilitate successful shift to services (Ensign & Fast, 2016, pg.5)

8.4 Company’s competitive advantages: Employee satisfaction, sales and support channel, acquisition of IKON and

control over dealer network, Managed Document Services (MDS) software, shift towards cloud services, use of Net Promoter Score system, reputation

8.5 Current position in the market: Major player along with Canon, Xerox, and HP; just above Xerox and Canon in

brand strength, just below HP and Canon in tech innovation – 2 main KSF’s8.6 Prospects for success:

Industry trends suggest prospect for success high, if integration of services is executed successfully and company maintains its reputation for customer and employee satisfaction alike – industry has become very consumer-centric and digitally-oriented

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9. Present StrategyMain Strategy: Integrating IT services, and quickly, to move with competition9.1 Shift to managed and professional services9.2 Business-to-business model for sales

9.2.1 89% sales directly to business customers (Ensign & Fast, 2016, pg.3)9.2.2 11% sales by independent dealers (Ensign & Fast, 2016, pg.3)

9.3 Treating its salespeople well 9.4 RCI categorizes customers into four classes based on client size:

9.4.1 Geographic accounts (Ensign & Fast, 2016, pg.3)a. Smallest customers, generally one location, 10% success rateb. Targeted through cold-callingc. Accounts for over half of new business every year

9.4.2 Key named accounts (Ensign & Fast, 2016, pg.4)d. Small – medium sized entities, 5-6 locations, targeted through

cold-callinge. Sales reps have more experience, higher success rate (relationship-

building opportunity higher) 9.4.3 Major accounts (Ensign & Fast, 2016, pg.4)

f. Large customers, definitive of GEM market (government, education, medical)

g. Customization in products/servicesh. Resource-intensive, ~6 months to close i. Used to leverage government relationships

9.4.4 Strategic accounts (Ensign & Fast, 2016, pg.4)j. Largest customers, also definitive of GEM market, hardest to close

(+6 months), require much attention Ex. banksk. High formality –RFP’s produced and decisions bid-basedl. “Offer exposure into the broader public sector” (pg.4)

9.5 Trends in accounts currently, 2016: (Ensign & Fast, 2016, pg.10)9.5.1 Greatest projected spending growth in healthcare (6%) and legal (5%), least in government and education (3%)

9.6 Services in 3 segments, supported by teams of consultants & solution architects to “own customer relationship” (Ensign & Fast, 2016, pg.5):

9.6.1 Technical (Ensign & Fast, 2016, pg.4) Based on legacy business – printing/copying Greatest revenue, 2012 – US $193 million (Ensign & Fast, 2016, pg.11) Limited growth potential – negative in print services (-5%), lowest

margins except in legal document services Field technical team is “backbone of service agreement” – highly

trained 9.6.2 Professional (Ensign & Fast, 2016, pg.4-5)

For streamlining and integration of processes Revenue = US $12 million (Ensign & Fast, 2016, pg.11) Offering: MDS (Managed Doc Services) -increases ease of transfer

Controlled under professional, listed as managed service

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Projected to include IT services – cloud and disaster recover support

9.6.3 Managed (Ensign & Fast, 2016, pg.5) Imaging, online services and litigation services Revenue total = US $40 million (Ensign & Fast, 2016, pg.11) Growth potential significant, esp. in BaaS Highest margins

9.7 Sales & support channel – RCI able to improve workflow efficiency and solutions9.8 Success of Strategy: currently successful, but could be cause for future caution from financial analysis9.8.1 Greatest growth potential in IT services, where RCI intends to focus investment

46% margin in IT/Professional Services and 56% in cloud services (Ensign & Fast, 2016, pg.4)

Addresses need for more cross-government collaboration 9.8.2 Use of NPS addresses need for customer profiling, services &support teams help promote positive customer relationships and facilitate change

o Need more investment into product and service development from proactive approach i.e. R&D for innovative ideas and addressing customer demands more accurately

9.8.3 Expenses, debt, and inventory are increasing, CAGR = 1.84%, 16.13%, 4.32% respectively

9.8.4 ROA and margins are decreasing ROA CAGR = -8.71%, Gross margin CAGR= -2.13%, Net margin CAGR =

-3.37%Therefore: Need for sustainable growth strategy to proactively plan for long-term market change; currently strategy is working, but could pose financial risk in the future

May have to scale back on some investments if they do not pay off11. SWOT Analysis

SWOT Analysis Discussion: Customer demands ever-changing

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Strengths Weaknesses Strong direct sales network Control over dealer network Sales & support channel NPS – Net Promoter Scale Reputation as trusted brand Strong culture/internal satisfaction

Manufacturing & inventory financials

Leadership turnover Slow integration after

acquisition of IKON Absence of B2C line

Opportunities Threats Cloud services Customization and personalization of

offerings Training and development of sales

force: service-orientation Hedging of currencies

Shifts in technology Unpredictable user behaviour Costs of training for service

integration Unskilled staff for integrating

new technology Future financial position


11.1 Is the company able to seize market opportunities and nullify external threats? RCI has leverage over sales network & is maintaining control over dealer network Responding to technological advancements in mobile devices and IoT

o Adopting a digital and services market presence Opportunity for training & development of sales force to increase success of

service implementation Threat of high cost may hinder ability to properly train

Partnerships with Japan for manufacture and US for inventory organization are weakening company’s financial position in exchange rate fluctuations

o Opportunity to hedge currencies: better stability and business planning 110% turnover in executive team; leadership crisis (Ensign & Fast, 2016, pg.6) Should improve integration practices for future M&A’s Stronger than Tier 2 rivals, weaker than HP, on par with Canon and Xerox

holistically12. Competitive Strength Analysis

Top Resources and Capabilities in the Industry:12.1 Technological innovation

12.1.1 Need for innovation to keep customers interested 12.1.2 Fast globalization and “smart city” expansion putting pressure on technological advancement - customers demanding greater digitalization

12.1.2.1 Tied to R&D capabilities1. Canon has invested in R&D expansion, placing it higher in

technological innovation, although still growing2. Xerox and Ricoh both moving towards greater service

integration 3. HP is a leader in its early advantage in technological

innovation4. Konica lags behind with no stated commitment for digital

or service offerings12.1.3 HP is leader in IT services; earliest entrance into service market

ii. Canon investing R&D to increase market share in digitaliii. Xerox also expanding into digital, esp. cloud servicesiv. Konica – lagging in IT innovationv. RCI – commitment to digital shift but still in process

1. Require more skilled team to deliver services successfully2. Early commitment to IT with acquisition of conglomerate

IKON12.2 Quality of service offerings

12.2.1 Imaging, accessibility, customer experience, service infrastructure12.2.2 Konica is leader in image quality, but offerings not as holistic as HP

vi. Quality of Xerox, Canon, and RCI comparable12.2.3 Brand strength

12.2.3.1 Reputation amongst customers, brand recognition12.2.3.2 Development of loyal customer base12.2.3.3 HP has greatest brand strength due to customer network & IT hardware

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12.2.3.4 Xerox strong in healthcare and government accounts12.2.3.5 Konica only strong brand in printing segment12.2.3.6 Canon has strong brand name but in process of transition for

restructuring channels12.2.3.7 RCI has very high retention of customers and strong brand

recognition - 80% sales focused on repeat customers (Ensign & Fast, 2016, pg.6)

12.2.3.8 Customer satisfaction steadily between 50-70%, fluctuating but increasing slowly (Ensign & Fast, 2016, pg.15)

12.2.4 Cost-efficiency through economies of scale12.2.4.1 Larger scale = lower per-unit costs, greater process integration12.2.4.2 Helps company better tailor to customer needs12.2.4.3 Economy of scale = increased cost savings with greater level of production

12.2.5 Efficient supply chain management12.2.5.1 Great impact on expenses for manufacturing and inventory of products/services12.2.5.2 Impacts product/service quality if not efficient12.2.5.3 Canon had to rebuild its channel after RCI acquired IKON – on

which Canon relied heavily; established, so able to rebuild12.2.5.4 RCI struggling with flux in exchange rates (Japan, US

manufacturers/inventories)12.2.5.4.1 Lack of B2C line

12.2.5.5 Xerox and HP have established and stable sales channels12.2.5.6 Konica – not much mention; smaller competitor, likely less

extensive supply chain with less sales capability12.2.6 Integration Strength

12.2.6.1 Very important for M&A’s; increasing in occurrence12.2.6.2 As price competition increases, this capability becomes more important and in further maturity of industry

12.2.6.2.1 Gives a company competitive advantage in timely change management

RICOH XEROX CANON HP KONICAImportance Weighting

CS CR CS CR CS CR CS CR CS CR

Tech. Innovation 0.30 8 2.40 8 2.40 9 2.70 10 3.00 5 1.50Service/Image Quality

0.20 7 1.40 7 1.40 7 1.40 9 1.80 8 1.60

Brand Strength 0.20 9 1.80 8 1.60 8 1.60 10 2.00 7 1.40Integration Strength

0.15 7 1.05 9 1.35 9 1.35 9 1.35 4 0.60

Efficient Supply Chain

0.15 6 0.90 9 1.35 7 1.05 9 1.35 7 1.05

Total 1 7.55 8.10 8.10 9.50 6.1512.2.6.3 Canon, Xerox and HP seem to acquire quickly and successfully12.2.6.4 Konica has no mention of acquisitions; smaller player

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12.2.6.5 RCI has acquisition ability, but integration process not fast enoughCS = Capability Strength, CR = Capability RatingRicoh Appraisal of Strengths and Weaknesses

13. Key issue Identification(s): How should Ricoh address its rapidly changing customer profiles and the need to keep innovating, going forward, to maintain a competitive advantage in the digital imaging and document management industry?

o Morphing customer profiles are the main issue for major players in the industryo Information era and the ‘internet of things’ contributes to the “informed

customer” Less emphasis on information sharing for sales, and more needed

on developing positive customer relationshipso RCI uses the NPS to track emotional connection to their brand, but will need to

continue thinking of innovative ways to meet the changing demands of customerso Innovation is critical for growth – all major players are struggling with how to

maximize their innovative practices, especially in the digital spaceo Related issues to incorporate into solution for monitoring customer profiling:1. Corporate shift to digitalization for accessibility, speed, cost-efficiency and waste

reduction a. Emphasis on Professional and Managed services, fall-out of Technicalb. Must tailor to both individual and business customer needs to prevent

brand erosion2. Sustainable growth strategy

a. Efficient supply chainb. Economies of scale

i. Both will cater better to consumer preferences of accessibility and affordability

ii. Could aid in flexibility of services’ use as well

Relative Strength

Strategic Importance

LTSC

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Superfluous strengths Key Strengths

Zone of Irrelevance Key weaknesses


Template for Financial Analysis (in thousands of dollars)

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Balance Sheet 2010 2011 2012Current Assets 172,305 188,647 205,496Current Liabilities 71,650 85,485 85,276Inventory 38,056 42,562 41,417Fixed or Non-Current Assets 57,802 85,892 87,579Long Term Debt 17,960 21,428 24,223Shareholders Equity 140,496 167,625 183,576Retained Earnings 56,248 67,108 87,958Income StatementSales or Revenues 461,497 477,313 497,016Operating Expenses 29,261 29,858 30,348EBITDA 27,873 29,136 28,047G&A 23,843 24,330 23,283R&D N/A N/A N/AGross Operating Margin ($) 154,538 158,386 159,467Net Operating Margin ($) = EBITDA 27,873 29,136 28,047Net Income (Profit): closest to 'bottom line' = Operating profit 27,873 29,136 28,047COGS = Revenue - Gross Profit 306,959 318,927 337,549

Cash Flow StatementCash from Operations 27,873 29,136 28,047

Key MetricsNet Working Capital (Current Assets - Current Liabilities) 100,655 103,162 120,220

Key RatiosProfitabilityReturn on Assets (net income/Total Assets) 0.12 0.11 0.1Return on Equity (net income/ Shareholder’s Equity) 0.2 0.17 0.15EfficiencyAsset Turnover (Revenues/Total Assets) 2.01 1.74 1.7Return on Capital Employed (net income/Shareholder's Equity+ debt) 0.18 0.15 0.13LeverageDebt to Equity 0.13 0.13 0.13LiquidityCurrent Ratio (Current assets/Current liabilities) 2.4 2.21 2.41Quick Ratio (Current assets-inventory/Current liabilities) 1.87 1.71 1.92Interest Coverage (operating income/interest expense) N/A N/A N/AOther Financial RatiosInventory as a % of Current Assets 22.09% 22.56% 20.15%Gross Margins as a % of Revenue 33.49% 33.18% 32.08%Net Margins as a % of Revenue 6.04% 6.10% 5.64%Other Industry Specific RatiosInventory Turnover (COGS/Inventory) 8.07 7.49 8.15Total Services 228508 232226 245615

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IT/PS as % of Services (PS/Total Service) 2.90% 3.53% 5.05%Managed Services as % of Services (Managed Services/Total Service) 15.93% 15.93% 16.56%Technical Services as % of Services (Technical/Total Service) 81.17% 80.53% 78.39%

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14. Can Ricoh pay its bills?14.1 Balance Sheet and Cash Flow Statement prove current financial health with positive values and cumulative annual growth rate trends

14.1.1 Liquidity current ratio > 1 means that RCI able to meet current financial obligations 2.4, 2.21 and 2.41 between 2010-2012

CAGR of current ratio = + 0.21%14.1.2 Liquidity quick ratio/”acid test” >114.1.3 Quick ratio < 1 would mean the company does not have liquid assets

to pay current liabilities 14.1.3.1 Almost at 2:1; assets can be quickly converted into cash to

cover current liabilities 14.1.3.2 Not much lower than current ratio, so not too inventory-

dependent14.2 Gross margin and net margin as % of revenue have downward trends; potential for future problems with bottom line

14.2.1 CAGR = -2.13% and -3.37% respectively Likely related to money put into digital advancement, R&D, and

other investments pertaining to changing market conditions14.3 CAGR of cash from operations = + 0.31%14.4 Profitability ratios further proves caution for future bottom line – downward trends in return on assets and equity: -8.71% and -13.40% respectivelyTherefore: current financial health sound, but caution for future and for creditors15. Does the company have capacity to raise capital?15.1 Yes; CAGR Shareholders’ equity= +14.31%, CAGR Retained Earnings =25.05%15.2Net Working capital measures current financial position: assets-liabilities

CAGR of NWC = +9.29%, therefore capital is being raised15.3Debt to equity is small; suggests a cushion for absorbing income losses15.4ROE has downward trend; may be able to raise the capital but rate of return

is at risk15.4.1 Further backed by values for Return on Capital Employed; signifies inability to

meet required rate of return [CAGR Return on Capital = -15.02%]16. Do the financials provide a competitive advantage? How?16.1 No competitive advantage in cost-efficiency - low ROE implies low ROI, which

limits per-unit cost cutting 16.2Declining CAGR of ROE and ROA most likely relate to money put into R&D and

innovative products/services; market changes forced restructuring Potential for competitive advantage in innovative practice

16.3 Inventory as % of Current Assets: declining at -4.49% Signifies move towards IT services and digital storage

16.4 CAGR increase of IT/PS and Managed services shows commitment towards digital services and potential for competitive advantage; 31.96% and 1.96% respectively 17. What are the implications of the financials for future strategy and execution of strategy? What is increasing? What is decreasing? 17.1Cash flow statement is most important for future growth – currently stable

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17.1.1 Positive cash flows evident and a +0.31% CAGR of cash 17.2Strategy only somewhat successful; not all required factors present 17.2.1 Expenses, debt, inventory increasing; CAGR = 1.84%, 16.13%, 4.32%

respectively17.3ROA and margins are dropping – bad for sales growth 17.3.1 ROA CAGR = -8.71%, Gross margin CAGR= -2.13%, Net margin CAGR = -

3.37%17.3.2 Dropping ROA can leave company overinvested in assets it can’t sell17.3.3 Dropping margins can be related to low prices, intense industry competition, high

supplier costs17.4Revenues = CAGR of +3.78% -may signify payback of investments starting 17.5What to address:

o Better systems and process integration may help save money in improving efficiency

o Alternative supply chain management in which exchange rate fluctuations are not an added expense could be considered

o Scale back on investments, analyze pricing for optimal price point18. How does the company perform compared to its competitors?18.1 Printer market share 2009-2012: HP industry leader with market share {MS} of 37% (2012), increasing quickly (Ensign & Fast, 2016, pg.9)

18.1.1 RCI: steadily increasing, 2012 MS= 10% (Ensign & Fast, 2016, pg.9)18.1.2 Lexmark and Xerox decreasing shares; 21% and 10% (Ensign & Fast,

2016, pg.9)18.2 Multifunction product market share 2009-2012: Xerox industry leader with 21%, steadily increasing (Ensign & Fast, 2016, pg.10)

18.2.1 RCI next with increasing 25% (Ensign & Fast, 2016, pg.10)18.2.2 Canon and Sharp decreasing with 16% and 6% shares (Ensign & Fast, 2016, pg.10)18.2.3 Konica Minolta remaining at 8% shares (Ensign & Fast, 2016, pg.10)

18.3 Conclusion: HP seems to be the leader holistically speaking, with RCI positioned most closely to Canon and Xerox19. Is the company in a healthy or unhealthy position? 19.1 Currently healthy, but requires changes for sustainability of financial position (mentioned above)20. What are the spreads – revenue/costs, revenue/EBIT, revenue/debt? Outstanding trends?20.1 Revenue is increasing disproportionately to expenses

o CAGR [Rev.] of 3.78% vs. [Exp.] 1.84%20.2 Debt increasing disproportionately to revenues

o CAGR of [Debt] 16.13% vs. [Rev.] 3.78%20.3 Revenue increasing disproportionately to EBIT

o CAGR of [Rev.] 3.78% vs. [EBIT] 0.31%20.4 Outstanding trends:20.4.1 Expenses, debt, and inventory are increasing20.4.2 ROA and margins are decreasing 20.4.3 Cash and net profit = slowly increasing in growth, Revenues growing steadily

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Reference

Ensign, P.C. & Fast, J. (2016). Ricoh Canada Inc. Ryerson University Campus Store: BUS800 Cases, Fall 2016. Case Study #2, Thunderbird School of Global Management.

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Documents

BUS 800 RICOH CASE