Business Process Reengineering Project 2:
Innovative Technology Development
HARUO OGAWA

DirectorSenior Executive Managing Officer
Chief Technology Officer
Chief R&D Officer
Olympus Corporation
September 13, 2017

Disclaimer
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This material contains forward-looking statements that reflect management’s current views,
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Agenda・Challenges to current situation, risk and environment change
・R&D Activity Examples
・Innovation Risk Management3

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1. Priority Issues and Response Measures for R&D Group Improve R&D efficiency(Ratio of R&D expenditures to revenue 11%* （FY2017））* Product development expenditures

 Address risks arising from technological innovation (AI, robotics, ICT) Business Process Reengineering (BPR) Project

Prioritization of R&D themes and standardization of R&D processes Innovation Promotion System

Identify risks with potential to impede future growth andadvance initiatives for transforming risks into opportunities4

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2. Ratios of SG&A Expenses and R&D Expenditures to Revenue
Ratio of gross profitto revenue

Ratio of SG&Aexpenses
Operating margin ofmore than 10%

Ratio of gross profit to revenue (%)
Ratio of SG&A expenses to revenue (%)
Operating margin (%)

11%
Enhancement ofdifferentiatedtechnologies

R&D expenditures (¥ Billion, Left)
Ration of R&D expenditures to revenue (%, Right)

 Balanced ratios of gross profit and SG&A expenses to revenue over long-term range whileachieving operating margin of more than 10%
 Increased ratio of R&D expenditures to revenue in conjunction with enhancement ofdifferentiated technologies
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3. Awareness Reforms in Relation to R&D
 Recognize low efficiency of Olympus’ R&D activities→ Restrict R&D expenditures in existing businesses to level similar to that of competitors→ Secure “innovation budget” to prepare for technological innovation

 Leverage strengths of matrix organizational structure→ Generate synergies by utilizing unique development capabilities of each business→ Reflect successes of upstream R&D activities into product development

1,000

10%
Revenue (\ Billion, Left)
R&D expenditures (\ Billion, Left)
Ration of R&D expenditures to revenue(%, Right)

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0%
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4. Four Steps of R&D Expenditure Reform
Business Process Reengineering (BPR)

1

Determine
R&D budgets
in top-downmanner

2Stringently manage
conditions forselecting R&D
themes based onstage-gate process3

Optimize R&D
expenditures
for eachtheme

totalROI
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4

Evaluatepriority ofeach theme

5. Secure of Innovation Budget
 Define R&D budgets in a top-down manner Prioritize R&D expenditures in specific businesses based on the ROI of each theme
 Concentrate fundamental R&D activities on the development of technologies shared
between businesses (maintain differentiated status by strengthening core technologies)
 Secure innovation budget to address technological innovation risks
Innovation budget

Fundamental R&D expenditures

R&D expenditures in Medical,
Scientific Solutions, Imaging
and new businesses

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Expenditures for shared technologydevelopment

BPR

R&D expenditures in Medical,Scientific Solutions, Imaging
and new businesses

6. Four Operating Environment Changes and 10 Risks Brought About by
Technological Innovation
Increased competition
for human resources• Loss of expertise• Rise of substitute /destruction technologies• Commoditization of devices• Decreased relative value ofdevices• Increase of patient influence• Introduction of a pay-peruse model• Change in sales channels• Health care innovation inemerging countries

Lowering of barrier toentry into market

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No data copy / No data transfer permitted7. Development of Scenarios to Change Risks into Opportunities through
Early Identification of Risks

AF and IS
technologies

4K and 3Dtechnologies

AI technologies

Robotics
technologies

ICT technologies

I.

Ⅱ.

Ⅲ.

Ⅳ.

Ⅴ.

Accesstechnologies

Imaging andsensing
technologies

Establish barriers to entry bystrengthening coretechnologies

Recognition andanalysis
technologies

Treatment andtherapeutictechnologies

Report andevidence
technologies

Mitigate innovation risks throughreinforcement of alliances
Create opportunities

Generate new customer value
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8. R&D Activity Examples

Ⅲ. Recognition and analysis technologies :Colon Diagnosis Support(CAD : Computer Aided Diagnosis）

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8. R&D Activity Examples
Ⅲ. Recognition and analysis technologies:
Utilization of AI for Examination and Diagnosis Technologies

In a development
phase

Colon Diagnosis Support（CAD：Computer Aided Diagnosis）

Decrease patient
discomfort (QOL)

Automatically detect potential
polyps in real-time
1. Support discovery by physicians
2. Aid in diagnosis by doctors

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8. R&D Activity Examples
Ⅲ. Recognition and analysis technologies:
Utilization of AI for Examination and Diagnosis Technologies

Utilization of AI (Deep Learning)Takeadvantage of superiority of customer contact points
内視鏡トップシェアによる顧客接点の優位性を活かしachieved through leading endoscope market shareto collect data on endoscopy image data fromaround the world

世界中の内視鏡画像データを集約
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In a developmentphase8. R&D Activity Examples

IV. Treatment and therapeutic technologies :Multi-Jointed, Flexible Robotic Assisted
Surgery System

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8. R&D Activity Examples

IV. Treatment and therapeutic technologies:
Application of Robotics Technologies to Treatment and Therapeutic Technologies
Development and verification testing of multi-jointed,
flexible robotic assisted surgery system(Funding Program for Development and Testing of World-leading Medical Devices)

FY2012―FY2013―FY2014

Therapeutic Support System for Gastrointestinal Endoscopies

Fukushima Subsidy for Development ofMedical and Welfare Devices(Development of high-power endotherapy devices and trainingequipment)

FY2015 ― FY2016

High-Power Endotherapy DeviceExpands functionality oftherapeutic supportsystem for gastrointestinalendoscopies

Electrically Driven Laparoscope with Multiple Degrees of Freedom

Training Equipment
Promotes spread oftherapeutic support
system forgastrointestinalendoscopies

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8. R&D Activity Examples

IV. Treatment and therapeutic technologies:
Application of Robotics Technologies to Treatment and Therapeutic Technologies

Therapeutic Support System for Gastrointestinal Endoscopies:
Realizes Precision Movement of Endoscope Tip
Characteristics:• Effective control of two, multi-jointed
endotherapy devices• Left hand for lifting, right hand for cutting• Capable of delicate motions, such as
peeling of thin surface layers

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8. R&D Activity Examples

Ⅴ. Report and evidence technologies :+ICT Strategy

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8. R&D Activity Examples

V. Report and evidence technologies: +ICT Strategy

Strategic Directives
Target higher earnings by increasing customer value and service level through“+ICT strategy” focused on products embodying Olympus’ strengths(equipment terminals)+ICT Strategy

Medical BusinessProductsScientific Solutions
Business Products

1. Increased Customer Value

Improve efficiency of customer procedures and create newservices by mixing products and ICT in relation to diagnosis
support, work support, training, and other existingprocedures and frameworks
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ICTServices
サービス

2. Olympus Management Reforms andOperational Efficiency

Utilize ICT and IoT to reform and improve efficiency ofOlympus’ manufacturing system, sales support, and otherprocedures and frameworks

8. R&D Activity Examples

V. Report and evidence technologies: +ICT StrategyProvide services from cloud servers through +ICT strategy (images, diagnosis data, equipment logs)
Existing Olympus IT products: Procedure support
services in endoscopic treatment facilities

Hospitals
Endoscopic
diagnosis

Contributions to Quality MedicalTreatments
a. Diagnosis support (utilizing AI)
b. Report preparation support
c. Reprocessing and other worksupport
d. Training support
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Endoscope cleaning

Cloudservices

Division IT system (Solemio QUEV)Contributions to Medical Economic
Benefits
a. Equipment maintenance andsymptom management (utilizing IoT)
b. Appropriate use of consumables
c. Cost optimization through pay-perprocedure model9. Innovation Risk Management

Alliances through Innovation Promotion
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9-1. Innovation Promotion Organization and Fellowship System
Introduce new human resource system
for the specialists(fellowship system for R&D group)

Establish innovation promotion organization on October 1, 2017, under direct
jurisdiction of CTO* and comprised of several fellows and chief fellows, including
Kazuhiro Gono, who was awarded the Medal with Purple Ribbon as part of theCabinet Office’s Biannual Conferment of Decorations in spring 2017 for thedevelopment of an endoscopy system that utilizes Olympus’ NBI technologies(*)CTO･･･Chief Technology Officer (Head of R&D Group)
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