This report gives an insight into the application of a number of strategic models in relation to the Japanese automotive producer Honda. The report addresses a number of issues considering basic analytical models such as a PEST and SWOT analysis as well as more specific issues such as those related to Honda's international trade operations and how the company has used a strategic approach to manufacturing in order to address key dichotomies which Western companies may have found more difficult to overcome.
1.0 PEST and SWOT Analysis
A PEST and SWOT analysis are two standardised industry analysis tools which help an organisation such as Honda to make strategic decisions in the context of changes within the external environment and the relative strengths and weaknesses of the organisation internally (Grant 2008).
A PEST analysis considers the macro-level factors which affect a firms strategic decisions in the external environment considering political, economic, social and technological trends and issues (Lynch 2009). As such, a firm has not control over these factors however, a company must always seek to react to changes within each of these factors so as to ensure the best outcome for the company. For instance, whilst Honda is unable to affect the economic environment per se the company can react to changes in the environment, for instance the recent economic downturn could see Honda adapt its product portfolio to a mix which emphases value either in sales price or in models which have a greater fuel efficiency and are thus more desirable in current economic climate.
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A SWOT analysis on the other hand considers both the risks and rewards present in both the external and internal environment. In the first case an analyst will conduct an external audit which identifies the relevant opportunities and threats within the external environment. Such analysis my identify both positive elements such as new market opportunities or the availability of new technologies which may be incorporated into processes and products, the analysis will also uncover potential risks such as increasing levels of competition or changing consumer attitudes which may reduce sales. Once an external audit has been conducted an internal audit of the organisation can be conducted, this will identify the strengths and weaknesses of the organisation and may cover a wide verity of issues considering every aspect of an organisation from available financial resources to a company's organisational culture in relation to innovation. Once both audits have been conducted the key is that strategists within the organisation must then match the internal abilities of the organisation so as to best take advantage of the opportunities in the external environment whilst employing strategies to reduce organisational weakness and avoid potential threats presented in the external environment. As such, the SWOT analysis may be seen as a tool for reconciliation of the internal and external environment rather than a purely descriptive tool (Hitt et al 2011). For instance at Honda it can be seen that the organisation has a particular strength in the form of innovation, the job of the strategist is to match this organisational strength to the opportunity for new product developments in the market such as those of the Hybrid engine which delivers costs savings or the consumer.
2.0 Reconciling Dichotomies
In the first instance one may consider that a dichotomy simple represents a conflict of interests between two or more competing interests, interest may be between parties such as supplier buyer relationships or they may be associated with an internal consideration such as cost versus quality. As is indicated in the case study, many in the West manage such dichotomies simply by making a compromise in which there is a trade off and the interests of one or both of the parties are sacrificed to a greater or lesser extent for the good of the whole (De Wit and Meyer 2004). However, at Honda a different approach is taken which sees an overall improvement in performance and results for all parties involved in the dichotomy. The first example given considers that in order to reconcile the quality cost dichotomy Honda has adopted a policy of building in quality into the manufacturing processes from the very start as opposed to testing for quality afterwards and attempting to rectify problems after they have happened. The result has been that what was seen as a dichotomy has actually been resolved, not only does building in quality into the manufacturing process result in a higher quality product, there are also cost savings which are gained through lower levels of downtime and reduced wastage. In effect this has allowed Honda to turn what was previously seen as a trade off relationship into a win-win relationship in which both elements of the dichotomy become reconciled and resolved simultaneously.
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This dichotomy resolution process can be seen time and again at Honda in a wide range scenarios from product related issue to process based dichotomies. For instance, in the product related field one of Honda's objectives has been to develop cleaner burning engines with lower emissions (De Witt and Meyer 2004). However, traditional thought in design has been a "trade off" approach in which designers accept that the reduction in one form of effluent simply results in the increase in another. The job of the designer is then to chose a trade off package which represents the optimum decision for the firm but does not deliver a total solution. By contrast the Honda approach is to consider that such a trade off is unacceptable and that in order to reconcile the dichotomy the company must go back to basics and redesign the product at a more fundamental level which allows for a total solution to be achieved as opposed to merely modifying a product and living with a potential package of trade offs, neither of which presents a total solution.
The second example of a dichotomy resolution can be seen on the process element of the way in which Honda chooses to replace its models. In Western firms the dichotomy is seen as choosing between two separate processes in which a car can either receive a face lift or completely replaced with a new model (De Witt and Meyer 2004). The result if often an elongated and expensive process in which the consumer receives a car which has literally just had a face lift or a new and expensive process of complete redesign is undertaken to create a new model.
Honda however, does not accept either of these processes. Instead Honda has developed a program of implementing a rolling change. Every four years a Honda model is given an official change, at this point the vehicle revives a visual facelift with all exterior components being changed. Two years later, Honda then replaces all of the vital elements of the vehicle including engines and other elements which are technological rather than visually important. As such, Honda has reconciled the dichotomy between the face lift or new product development by implementing a rolling process which sees models being developed in two intervals across a four year period. The result is a much faster lead time on the process of brining new models and developments to the market as well as a lower level of strain upon organisational resources which are used more efficiently across a longer period of time.
3.0 International Trade
From Honda's perspective one may see that the company has largely benefited from increasing levels of international trade (De Witt and Meyer 2004). Despite being a Japanese company, Honda in its early years especially placed a much higher degree of emphasis upon the export market than selling to the Japanese market. This may have been one of the key decisions which allowed the company to successfully develop against the backdrop of other powerful internal competitors such as Toyota, Mitsubishi and Mazda.
International trade however has been an emotive issue for the automotive industry especially in Europe and the US. In many cases exporters such as Honda have been able to deliver better products at lower prices in such markets and the result whilst positive for consumers has seen the large decline of the automotive industry in parts of the US and Europe. The net result may be summed up as lower process and better products for consumers at the expense of jobs in the same countries (Griffin and Pustay 2010).
4.0 Whittington's Models
Whittington's models of evolutional and systemic schools of thought offer two very different models of considering how a strategy is realised. The first of these schools of though considers that an organisation "evolves" a strategy in relation to events in the external environment as opposed to following a planned approach as is often advocated (Johnson et al 2008). As such the emphasis of the model is on considering changes within the external environment and how a company such as Honda will react to these changes.
On the other hand the systemic school of though considers that organisations are not made up of groups of individuals but also social groups with interests which relate to a large number of issues in society. As such a firm will make decisions based upon not just the specific needs of the individual but also in the context of wider social needs and influences.
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As such, the question of restricting international trade in relation to the automotive sector may be seen as an issue in which the competing needs of consumers are pitted against the traditional arguments for trade protectionism, namely the protection of domestic jobs against the back drop of cheap imports which are achieved using a free trade model. Although the free trade model would suggest that the countries which are best at producing a product should be allowed to do so unimpeded by tariffs and other trade restrictions, this can often be a politically sensitive issue especially where a county has a large investment in an industry which is threatened from external sources.
5.0 Whittington's Models at Honda
Ironically one consideration given Honda's model of dichotomy reconciliation may be to consider that neither model offers the optimal solution and that that the company does not necessarily need to choose a singular method of strategic implementation. In considering how a company reaches its strategic choices one option may be to consider that Honda can combine elements of both the evolutionary and systemic model into a single process or explanation as to how strategies are implemented at the company.
On the one hand, systemic elements can clearly be seen in operation at Honda in relation to its decision making process. Despite the fact that the company has a large number of sales and operations overseas the company is in some ways typical of the Japanese business model which makes use of a variety of tools and processes from quality management tools to production techniques which are associated with the Japanese business culture and mentality rather than Western versions (Slack et al 2009). Top this extent a large part of Honda's strategic management may be seen as systemic in nature. In other words the company does not simply react to external opportunities and threats, the culture in which the company operates also has a large influence upon the decisions which are made at the strategic level.
Despite the systemic approach which has been identified one can also see that there are evolutionary elements running throughout Honda's strategic decision making history. For instance, in the very first case Honda's initial decision to enter the international market as opposed to remaining at home in Japan may be seen as an evolutionary reaction to the fact that the Japanese market was already saturated with strong competition from other such as Toyota and Mazda. Further down the line Honda has further developed it product mix to meet the changing demands of consumers who have in recent years placed an increasing emphasis upon the values of green products and engines with lower fuel consumption ratings due to rising prices of oil and derivatives. These are again elements which may be viewed as relating to the evolutionary rather than systemic model of strategic change.
6.0 The Four Loops and the Processual School of Thought
The processual school of though on strategy is similar to that of the evolutionary but with a key distinction. Under this school of thought those who are making a decision strive for the ideal solution but in settle for dealing with the realities of a situation or scenario.
In considering the four loops suggested by Stacey, one may consider that each of these elements of the rational, overt politics, covert politics and the culture and cognition present within an organisation have an impact upon the ability of a firm to implement a given strategy or approach to a problem. As thus, this concept has a good fit with the processual school of thought on strategic implementation which states that strategists whilst trying to move an organisation in a given direction will have to accept at fit which is in line with the realities of a given situation or scenario. The results such an approach my be both positive and negative. For instance, in the case of Honda the company would appear to have an organisational culture which facilitates both co-operation and innovation, both of these are elements which have allowed the company to follow a value added strategy of brining superior products to the market in shorter lead times than that of their competitors. Conversely, the reality according to De Witt and Meyer (2004) is that many Western firms in the automotive sector lack such a culture and cognition thus leading to the trade offs mentality with regard to the addressing of dichotomies within the organisation. Those following the processual school of thought on strategy would simply accept this as a reality of the situation as is and respond accordingly by formulating and attempting to implement a strategy which takes account of the weakness or issue rather than continuing to pursue an unattainable ideal. The problem however with such a method is that those following a processual approach to strategic management may come to accept realties which are sub-optimal and represent an inability or unwillingness to address an issue presented in the four loops rather than the fact that one of the issues presented within the four loops presents an obstacle which an organisation is truly unable to overcome.