Analytical Traps of Case Studies -- The Hidden ... · Analytical Traps of Case Studies -- The Hidden Inconvenient Facts in the FUJIFILM Case -- Prof. Tomoaki Saito & MOT Students

Analytical Traps of Case Studies

-- The Hidden Inconvenient Facts

in the FUJIFILM Case --

Prof. Tomoaki Saito &

MOT Students Department of Management of Technology (MOT), Graduate

School of Innovation Studies, Tokyo University of Science

Copyright 2012 T.Saito, Tokyo University of Scinece 2

Is Case Studies useful or not ?

There are two main arguments about the value of case

studies.

One is Prof. H. Mintzberg’s opinion that case studies are

not an ideal way to learn about business and corporate

management because case studies focus on analysis

and it is not analysis but experiences that develops the

skills of decision making.

The other is HBS’s opinion that case studies a good

ways to learn about business and corporate

management because analyzing the case can reveal the

logic of success.

Risk of Misunderstanding

We will discuss the difficulty in understanding the case correctly

although some readers may be more favorably disposed to case

studies than others.

Authors of case studies have their own interpretation of a success

story; they usually pick out facts that enable them to construct a

story consistent with their interpretation, sometimes neglecting

inconvenient facts.

If readers uncritically believe the interpretation, they may be the

wrong way and gain a mislead picture. The chances of

misunderstanding exist in the case studies here.

Even case studies relating HBS, which has a good reputation, are

subject to this risk of misunderstanding, and readers should

recognize this fact.



Fujifilm Case implies a Success

While the distinguished U.S. company Kodak has declined with the

shrinking of the film market since 2000, the emerging Japanese

company Fujifilm has grown at the same time.

Who is the leader and what is his strategy?

With his “samurai ” and “footballer” style of leadership, Fujifilm CEO,

Shigetaka Komori, successfully shifted the company’s employees

from a highly conservative mindset to an innovative one, invested a

huge amount of money in a new R&D laboratory and M&A, and built

new businesses that could compensate for the decline of the

photographic film business.

The authors of the case study conclude that Komori’s measures

deserve to be called a “second foundation,” but one may ask

whether their logic is convincing.


HBS Case Study “Fujifilm: A Second Foundation”

• This HBS case study describes Fujifilm and its CEO Mr. Komori as follows; 1. “Samurai” and “ Footballer” Style of Leadership

– “One day my father handed me a short sword and told me,…. Do not forget the spirits of the samurai.” p.1

– “Komori cultivated a reputation for being tough,…, I read an article criticizing the dangerous sport (American football) because a student died, … After mastering judo, I began playing American football… it trained my body and soul. … “ p.7

2. Changing Mindset of the Employees – “My biggest challenge is changing the mindset of the employees. … How do I get people to be

more entrerpreneurial?” p.2

– “Fuji’s middle management had not felt a strong sense of urgency to find new opportunities. … He gave many speeches and hold lunch meetings in which he had open-ended discussion s with small groups of middle managers.” p.9

3. Building New Business – “Komori had announced a mid-term plan, “VISION 75,” in 2004, which included building new

business, implementing structural reforms, and investments into new businesses.” p.8

– “Key among these steps was the establishment of the centralized Advanced Research Laboratories” p.8: “He had recently opened a \46 billion centralized research laboratory to spark innovative ideas and signal a dramatic movement away from Fuji’s historically more focused approach toward R&D.” p.1

– “… but diversification efforts began in earnest only after 2000. As a result, in 2006, 70% of sales derived from products introduced after 2000.” p.8

“As a result of these initiatives, … , He felt confident that the company could achieve its target of \200 billion in operating profits for fiscal 2007. … Komori had been quite successful in coping with the sharp drop in film sales, … , He was excited by this challenge of the second foundation and was confident about his achievements.” p.12


The Hidden Inconvenient Facts

• Careful reading of the Fujifilm’s annual reports over the past several

years reveals the following inconvenient facts ;

1. Imaging Segment has been running at a deficit since 2005.

2. The centralized R&D laboratory generates practically no new

business.

3. There is no mention in the reports of the contribution of M&As

to profits, although they did contribute to the sales figures.


1. Is the Structural Reform Successful?

2011

919

327

2010

902

346

2009

948

411

2008

1,110

548

2007

1,029

606

2006

880

690

2005

773 743

2004

760 817

2003

729 831

2002

685 785

2001

640 743

0

200

400

600

800

1,000

1,200

Information Solution Imaging Solution

Sales

If you look at the transition of the sales figures, Fujifilm seems to cope with the

decline of the Imaging Segment successfully.

Ye

n (

Bill

ion

s)


The Reality is…

2011

104

-13

2010

11

-63

2009

20

-29

2008

127

-2

2007

95

-43

2006

79

-76

2005

71

-7

2004

76

43

2003

64

45

2002

83

49

2001

85

65

-80

-60

-40

-20

0

20

40

60

80

100

120

140

Operating Income

Information Solution Imaging Solution

The Imaging Segment still continues to generate the deficits over the past seven years.

Ye

n (

Bill

ion

s)


2. Is New Business Created?

The six business lines and the main products in Information Segment

(2011 Annual Report, p.5-6)

1. Medical System/Life Science – Digital X-ray diagnostic imaging systems (FCR)

– Medical-use picture archiving and communications system: PACS (SYNAPSE)

– Transnasal endoscopes

– Functional cosmetics (ASTALIFT) (started in 2006)

2. Graphic Arts – Materials and equipment for graphic arts (CTP Plates and setters)

3. Recording Media – Magnetic recording tape (LTO)

4. Optical Devices – Lens units for cell-phone

5. Office and Industrial Materials – Electronic materials

6. Flat Panel Display (Materials) – Protective films for polarizes (FUJITAC) *

– Optical compensation film (Wide View Film) *

An already-existed business before Komori era is indicated in red.

* identified as the main products in this segment (2009 annual report (in Japanese), p. 38)

FUJIFILM is still struggling to create a new business even after 5 years of the Komori reform.


History of Product Development

2011 Annual Report, p31

Info

rmatio

n s

egm

ent

Only two product lines started!!


3. Is the M&A effective?

After the periods observed by the case study, further acquisitions in Medical

System/Life Science are going on.

Date Description Investment

Mar. 2008 Acquired Toyama Chemical Co., Ltd., a midsized drug research

and development company

\ 155 billion

($1.45 billion)

Nov. 2008 Acquired U.S-based Empiric Systems, LLC, a manufacturer of

radiology information systems

N/A

Mar. 2011 Acquired a provider of contract manufacturing and development

services for the biopharmaceutical industry, Diosynth RTP, LLC

and MSD Biologics (UK) Limited

\40 billion (est.)

Dec. 2011 Acquired SonoSite, Inc., a pioneer and leader in bedside and point-

of-care ultrasound technology

\77 billion

($0.95 billion)

A clear synergy between the acquired companies and contribution of the

M&As to the profit are not described in the past annual reports for several

years.


Transition of the Operating Margin

13.212.713.1

10.811.0

2.6

6.27.2

7.37.2

13.4

4.1

6.56.5

11.9

13.6

-2

0

2

4

6

8

10

12

14

16

2011

-1.9

2009 2010 1993 1998 1997 1996

10.9

1994 1995

1.5

2008 2007 2006 2005 2004 2003 2002 2001 2000 1999

CEO: Ohnishi

CEO: Komori

1st structural reform 2nd structural reform

Opera

tin

g M

arg

in (

%)

The transition of the Fujifilm’s operating margin shows strong fluctuation after 2006.

The first profit loss in its 78 years history

Not only a second foundation, a third foundation might be necessary?


Conclusion

HBR’s Fujifilm case may be wrong because

1.2006 was too early to judge success.

2.The authors accepted Komori’s opinions uncritically.

3.The results from R&D and M&A were misjudged.

4.Operating margins were not properly analyzed.

Why did the authors make mistakes?

Why could they avoid the risk of faults?

Cnclusion

We will point out two faults in the writing of the case

study.

First, there was a failure of intention.

As the performance of Komori’s “second foundation” got

a lot of publicity in the media, HBS was interested in

contrasting the relatively stable figures of Fujifilm with

the declining figures of Kodak.

It was an honor for the company to be described by

HBS as a success story. As soon as the departments

check the facts and figures of the case, inconvenient

facts come to light, which do not substantiate the claims

that Fujifilm is an unalloyed success.


Conclusion

Second, the author failed to apply logic.

• In developing the story, the authors tend to select facts

according to logic as they see it.

• The logic of the Fujifilm case shows that the strategy to

cope with the decline of core business should involve

the restructuring of those businesses, building new

businesses based on R&D, and M&A investment.

• However the logic fails to find necessary facts.

•


Conclusion

It is easy to fall into the trap of reading this case study

and believing it to be an accurate representation of facts

in the real world.

We don’t all have a built-in mechanism that allows us to distinguish truth from distortion.

HBS may say that logical analysis of the case helps

MBA students to develop the skills of decision-making

even if the case is based on flawed logic and mistaken

interpretations.

What do you think ?


Thank you very much for your kind attention!



Backup


Operating Margins for Imaging and Information segments

-3.9

-18.3

-7.1

-0.4

-11.0

-1.0

5.35.46.2

8.8

11.311.5

9.29.09.210.0

8.8

12.013.2

-20

-15

-10

-5

0

5

10

15

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

-7.0

2.1 1.2

Imaging Solution

Information Solution


R&D Expense vs. Number of Patent Application

4,1864,372

6,3586,293

4,281

2,8992,6972,664

2,5032,489

4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

0 2011

1,653

2010

1,751

2009

1,911

3,182

2008

1,876

2007

1,770

2006

1,822

4,347

2005

1,680

2004

1,733

5,818

2003

1,591

5,262

2002

1,469

2001

791

5,799

2000

817

4,553

1999

847

1998

810

3,207

1997

759

1996

732

1995

337

1994

739

1993

768

# of Patent Application R&D Expense

Centralized R&D Lab.

The number of patent application decreased after the opening of the new R&D lab.


25.727.0

28.527.3

30.430.5

25.525.7

23.524.5

23.623.1

25.524.0

8.0

0

2

4

6

8

10

12

14

16

18

20

22

24

26

28

30

32

1,644

27.5

1,849

2003

6.8 373

2010

-421

2011

1,364

2009

7.5

7.8

2008

6.3

1996

1,334

7.0

1995

493

7.4

1994

1,348

7.2

1993

1,403

7.3

-500

3,000

2,500

2,000

1,500

1,000

500

0

6.3

2002

1,727

6.1

28.4

2001

1,497

5.7

25.4

2000

1,479

6.1

1999

1,653

6.1

1998

1,757

6.1

1997

1,647

2004 2005

704

2,073

1,140

2006

6.6

27.6

1,644

26.7

2007

6.8 6.4 6.6

R&D Ratio SG & A Ratio Operating Income


Updated Revenue and Operating Margin, 1993-2006

10.811.011.9

13.213.612.7

10.9

13.113.4

-2

0

2

4

6

8

10

12

14

16

18

20

2,500

2010

1.5 500

1,500

2,000

-1.9

2009 2011

2.6

7.3

6.2

2006 2008

4.1

0 2007

1,000

3,000

1997 1996 1995 1994 1993 1999

6.5

7.2

1998

7.2

2004

6.5

2000 2001 2003 2002 2005

Yen (

bill

ions)

Opera

ting M

arg

in (%

)

After the case study

http://fujifilm.jp/index.html

http://www.fujixerox.co.jp/

http://www.toyama-chemical.co.jp/index.html

Documents

Analytical Traps of Case Studies -- The Hidden ... · Analytical Traps of Case Studies -- The Hidden Inconvenient Facts in the FUJIFILM Case -- Prof. Tomoaki Saito & MOT Students