Cut-free zone: a company to copy in a slump

Paul Rodgers reports from Tokyo on why it's all systems go at Canon because it didn't chase growth

The robot trolleys scooting around Canon's Toride photocopier assembly plant quietly beep a little melody – "Toryanse", a traditional folk song – to warn workers that they're coming. The lyrics translate as: "Unless you are going to the shrine, don't take this path", a typically obtuse Japanese way of saying, "be careful or you'll meet your maker". It's an appropriate choice for the famously conservative company; Canon hopes to sidestep the deadly economic juggernaut that is bearing down on its rivals in the electronics sector. Yet it's doing so in a typically conservative way.

Japan's economy is already officially in recession. Along the road from Tokyo to Toride, yards full of parked cranes and earthmovers are emblematic of the weakness in the construction industry. Financial institutions have laid off newly recruited staff or put their hiring plans on hold. Exporters have been hit by the rising yen, which has added 30 per cent to their costs in a matter of months, while their global markets, from Arkansas to Vladivostok, have been credit crunched.

Panasonic revised its annual profits forecast down by 90 per cent last week, from 300bn yen (£2bn) to ¥30bn. Sony and Toshiba both said last month that they had suffered dramatic profit falls in the previous quarter, Sony by 93 per cent year-on-year, Toshiba by 210 per cent. Canon, too, has felt the pain – but not the agony. Its third-quarter results show a mere 21.1 per cent decline to ¥83bn.

So Canon sees no reason to grasp for cost-cutting lifelines, like other, more troubled companies. It has no plans to close factories, at home or abroad, and is sticking with its rather quaint employment-for-life policy. If it tightens its belt at all, that will probably be through reducing the number of casual workers supplied by agencies. At worst, it may cut its intake of engineering graduates this year.

Besides, the imaging firm could teach Gordon Brown a thing or two about prudence. Canon eschewed recent trends for leveraged growth and is in the enviable position of having no net debt. Instead, it is sitting on a yen yama, a cash mountain, of ¥737bn. Tsuneji Uchida (pictured below), the president and chief operating officer, says the firm is looking for "complementary" businesses to acquire, though he has ruled out hostile takeovers.

That Canon is in such a strong position going into this downturn is the result of the reorganisation begun by Mr Uchida's predecessor, Fujio Mitarai, after he became president in 1995. Crucially, he shifted the group's focus from the usual Japanese obsession with sales and market share to old-fashioned profitability. Mr Mitarai, now the chairman, says proudly: "I closed eight divisions and grew the profit-making ones." Those that remain mainly produce cameras, copiers and printers. Niche segments where Canon is still active include medical imaging, such as x-rays and scanners. It also makes the large optical devices used to miniaturise and etch complex circuit diagrams on to silicon chips. And if you watched the Olympics, there's an 80 per cent chance the television images you saw were shot using Canon optics.

Mr Mitarai also changed Canon's production methods, dramatically. Out went 20km of conveyor belts as the company introduced cell-based production – a return to a system used before Henry Ford popularised mass production nearly a century ago. The green floors of the Toride plant are now marked with white tape into U-shaped areas where copiers are assembled by groups of up to six workers dressed in the company jacket (beige, with blue and orange vertical stripes). The (staff-designed) musical trolleys deliver a full set of parts to the team members, who are responsible not only for assembling the copiers but for thinking up better ways to do their jobs. Almost everything is mounted on wheels, and workers are encouraged to shave fractions of a second off their times for each task. One employee deftly pushed away a stool with his foot as he rose, while his left hand reached for a part and his right swivelled the chassis he was working on into a new position. Top assemblers, designated "super meisters", can build a copier, single-handed, from more than 3,000 parts, using instruction manuals that stretch to 10 volumes, in less than three hours.

This system is more flexible, more efficient and less wasteful, says Canon, though it is unable to quantify the improvements because so many other factors were changed at the same time. But one clear benefit is job satisfaction, with workers rating their jobs twice as highly as they used to, despite not being allowed to chat with their colleagues or listen to music.

The company that was to become Canon was founded in 1937 as Precision Optical Industry. It soon changed its name to match that of its first camera, Kwanon, named after the 1,000-armed Buddhist goddess of mercy. Like most Japanese companies, Canon started by taking foreign technology, improving it and making it cheaper. But by the 1960s it was innovating in its own right: it produced the world's first 10-key digital calculator, the Canola 130, in 1964. The company now prides itself on its inventiveness, and especially on being ranked second highest (after IBM) among companies applying for US patents, with more than 19,000 granted in the decade to 2007.

But that does not mean it is always the first out of the starting gate. It was slow to move into digital photography, mainly because it did not want to have its name attached to an immature, hence inferior-quality, product.

When Canon did enter the market in 1996, it quickly rose to the top, though it is now engaged in a bitter battle with Nikon for dominance, and just last week was reported to have fallen into second place in the UK market for 35mm digital single-lens reflex cameras – the kind used by professionals and serious hobbyists. Mr Uchida is confident that the market for mid- and high-end digital cameras will continue to grow, and sees the mobile camera phone market as a junior league, inspiring its future customers, rather than as a rival.

Canon also has its eyes on other sectors. It is working, for example, on robots and particularly robotic sight, though mostly for in-house use at first. It already has automated camera systems to do visual quality checks on more than 200 points on its finished copiers in a matter of seconds. Potentially more dramatic is its interest in flat-screen displays. Pending the final settlement of a long-running legal battle over licensing rights, it could soon enter the television market with a technology called surface conduction emission display, in essence putting a miniature cathode ray tube (like the one that drove your old TV) behind each pixel in a flat screen.

Canon's big strategic buzzwords are "globalisation" and "diversification". But it is well established as a global brand now and recently it has focused on core competencies rather than branching out into new fields. Perhaps more telling is its ambition to be one of the world's top 100 groups, against stiff competition from faster-growing new businesses in other fields. Its role models, says Mr Uchida, are the likes of Du Pont, Procter & Gamble and Siemens, which have been around for over a century.

Longevity like that requires constant innovation, he argues. And if that means conservative manufacturing techniques, so be it.