Why Olympus swapped cameras for colonoscopy machines
Olympus Corporation has long been synonymous with microscopes and digital cameras. But those companies are no longer areas of focus as Japanese society turns to medical technology. Today, most consumer contact with Olympus products occurs during a colonoscopy or an ear, throat, and nose examination performed with one of its machines.
This radical reinvention took place under the leadership of veteran Olympus CEO Yasuo Takeuchi, who worked to change the company’s product offerings, culture and corporate governance. Olympus in August sold its profitable microscope business, on which it was founded in 1919, to private equity firm Bain for $3 billion. Two years ago, the company ditched its money-losing camera business after years of struggling to compete with smartphones.
This transformation was charted in early 2019, when Takeuchi took the reins of a company bloated from chasing too many markets but at least stable after a huge corporate scandal in 2011 over accounting regularities. In 2012, the Japanese-born Takeuchi was called home from a three-year stint at the Olympus offices in Hamburg, Germany, where he had been executive managing director, to help stabilize the ship under the leadership. of his mentor, Hiroyuki Sasa, whom Takeuchi later succeeded. as CEO.
Takeuchi, who spent a third of his 42-year career at Olympus outside of Japan, understood that the company had to become more nimble and more internationally oriented to succeed in this reengineering.
“One of my main tasks was to further globalize the business, not just in geographic terms,” he says. Fortune.
While Olympus was a typical Japanese company, with the head office in charge, Takeuchi wanted broaden the scope and influence of international perspectives. To do this, he added the heads of Olympus’ European and US operations to the C suite.
Takeuchi also restructured the board, bringing in more foreigners, similar to Western companies, to help reset Olympus’ culture. One of his board appointments included US-based activist investor Value Act.
Under Takeuchi’s leadership, the company’s stock tripled and the CEO said Olympus was now ready to tackle the competitive health technology sector.
This interview has been edited and condensed for clarity.
Fortune: You are now the leading manufacturer of machines used in colonoscopies and you plan to move more forcefully into medical technology with a focus on surgical devices and various video endoscopes. Why is healthcare where Olympus lands?
Takeuchi: The GI (gastrointestinal) endoscopy business originated about 70 years ago, but it has grown gradually and steadily. Around mid-2010, Olympus’ core business changed from medical technology business to gastrointestinal endoscopy business. Not only for the selling price but also for the profitability.
GI is a stable, profit-generating business, and we had to grow and develop the new business when our digital camera business began its steep decline. We had to move before it was too late and these businesses became obsolete.
Selling the camera and microscope businesses meant getting rid of the units that were core to Olympus’ identity. What was the thought process there?
They have the right to survive commercially and have the right owner. It was unfortunate for them to have Olympus as their owner, and now they can have another future.
You dominate the endoscopy equipment market, with approximately 70% market share in your key markets. Do you think you can have similar success elsewhere in the medical technology market?
We started the endoscope business nearly 70 years ago. The origin of the business was very similar to how we started the microscope business 104 years ago, based on customer demand. At the time, many Japanese were dying of stomach cancer, so a professor at the University of Tokyo approached manufacturers for a device to look inside the stomach. This was the start of the endoscopy business.
Diseases keep growing and changing, and we must continue to provide medical solutions. The core functionality of our GI solution is critical to many procedures and diseases. Previously, people relied only on open surgery, and endoscopes offered the option of avoiding open (exploratory) surgery.
You have spent several years working in the United States What did you learn from this experience?
My first years in the United States opened my eyes. Olympus America workers were very professional and had a clear career path. In Japan, the system of recruitment and employment put in place after the Second World War was essentially based on lifetime employment; if you were young, you had to be patient. You had to listen to me, a manager, and comply with my requests. Only if successful can you move on to the next stage, which takes at least three years. So I thought the American system was much more competitive.
You then went to Europe (2009-2012), where the stereotype is that the corporate culture is much more consensus-building.
Before going to Europe, I thought the American way was the best standard in the world. But when I went to Europe, I learned a whole different way of building teams and implementing product strategy and management. But that’s when we made a big mistake in the management team and the corporate scandal happened. I was called back to the motherhouse in January 2012.
How did these overseas experiences inform your vision of the direction Olympus was to take at that time?
In April 2012, I was number two and my predecessor, Mr. Sasa, was elected president. Our management team was somewhat mature and we had to learn a lot before changing companies, as we planned in 2019. During these seven years, Mr. Sasa gave me a lot of education and learned how to strategize, plan financially, and how to further globalize the business.
One of the standout changes you helped bring about is a board structure with more outsiders and outsiders, much like those found in the United States. Why ?
The main reason was that in a traditional Japanese governance system, the board is a decision-making entity, so we spent a lot of time making proposals that would get board approval. Many of these board members were former Olympus executives. We have decided to ensure that the majority of the members of the board of directors are external to the company and to give it more of an oversight role than a quasi-executive
And in another rare move for a Japanese company, you invited an activist investor – and a foreign one at that – to your board in 2019. What was he thinking?
When I started working with Mr. Sasa to transform the business, one of my main actions was to increase diversity of thought. But how do you do that? That was my biggest motivation to change the board structure. My management team was only Japanese and the board was also to become international. I learned a lot from Rob as a private investor. We also have an old frame of [Olympus rival] Johnson & Johnson. We must continue to increase the diversity of nationalities and expertise.
Get to know Takeuchi:
- He took up sports when he was young but didn’t get the chance to explore hobbies as he would have liked. “But I was born 10 years after World War II and society was relatively poor,” he says.
- Takeuchi spent four years as chief financial officer before being named CEO in 2019.
- He became president of Olympus’ European and American operations after returning to Japan to help the CEO fix the company.