Olympus case study

Topic: Olympus case study

Case analysis: Olympus Optical Company, Ltd. (A): Cost Management for Short Life Cycle Products

Implementing the current strategy, Olympus is able to employ both cost leadership and differentiation based on a competitive strategy. The strategy is three fold and consists of trying to recapture lost market share through introducing new products, improve the product quality in a dramatic way and lastly reduction of the production costs using an aggressive cost reduction program. Cost leadership is through the cost reduction programs. Through cost leadership, Olympus is able to outperform the competitors by selling at lower price (Cooper, 1994). Labour saving by overseas production will lead to competitive productivity. The cost leadership strategy weakness is cutting costs which can lead to a reduction in demand through deleting vital features from the product (Horngren et al., 2002). Differentiation strategy will lead to production of unique and high quality products which can allow Olympus to charge high costs. The main weakness is the tendency to lower quality as the firms’ lower costs which can affect customer perception of differentiated product. The firm must ensure that cost leadership is a dominant strategy and cost advantage must be maintained.

Shifting responsibility of product planning and marketing to marketing from research and development (R&D) was based on knowledge that market situation and market demand acts as a foundation of entire process. Market and customer information is vital in Olympus planning process. This makes the marketing people to be highly appropriate for the task. The challenge that the market team faces is gathering information and gaining a competitive edge in the market. The firm’ decision to have multiple products in each price point is a great decision. This decision would lead to high number of sales in the market (Cooper, 1994).

The target costing system complemented the target cost system. The system helped in setting production cost for a single item which had to be attained. It helped in value engineering and functional analysis. It also helped in life cycle costing (Cooper & Slagmulder, 1999). The firm was also able to use Kaizen target costing. If Olympus did not have a cost system in place, it would have been hard to determine products which were profitable and which were not. Despite its advantages, the system is time consuming. The system was also not met right at the beginning of production. The cost targeting system by Olympus is a great strategy which the firm should continue with. The three main stages should continue being implemented by Olympus’ Tatsuno plant (Cooper, 1994).

References

Cooper, R. (1994). Olympus Optical Company, Ltd.(A): Cost Management for Short Life Cycle Products, Harvard Business School Case Number 9-195-072. Cooper, Cost Management in a Confrontation Strategy: Lessons from Japan, Casebook, Harvard Business School Publishing, Boston, Massachusetts, 71-84.

Cooper, R., & Slagmulder, R. (1999). Develop profitable new products with target costing. MIT Sloan Management Review, 40(4), 23.

Horngren, C. T., Bhimani, A., Srikant M.. Datar, Foster, G., & Horngren, C. T. (2002). Management and cost accounting. Harlow: Financial Times/Prentice Hall.