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Honda has long been a pioneer in the global automobile industry in the development and application of leading edge environmental technologies that improve fuel efficiency and reduce vehicle emission (www.Honda.com). During the 70's the firm successfully penetrated European and North American markets. This paper takes a critical analysis of 'reconciling dichotomies' at Honda Motors. It argues about the different strategic approaches employed by the company.
The paper is organized as follows: It discusses the relevance of Porter's Five Forces and Porter's Value chain in the context of strategic analysis and a critical analysis of the company's process of positioning itself in the market. Then it builds on finding the right balance between global integration and local responsiveness. It is followed by a discussion on the power of the company's ability to integrate relevant perspectives in the area of strategy.
TABLE OF CONTENTS
Porter's Five Forcesâ€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦Pg 5-6
Porter's Value Chainâ€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦..Pg 6-8
Positioning vs. Developing Internal Resourcesâ€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦.Pg 8-10
Pressures for Global Integration of activities
And Pressures for local responsivenessâ€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦.Pg 10-11
Understanding of Whittington's Classicalâ€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦..Pg 11-12
And Processual School of Thoughtâ€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦Pg 12-13
Application of the two schools of thoughtâ€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦.Pg 13-14
Systemic School of Thoughtâ€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦Pg 15-17
References â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦..Pg 19-20
One can argue that strategies must be planned and executed for it to work while another may argue that being deliberate is a waste of time as new strategies emerge over time. Was Honda Motors strategies deliberate or emergent?
It's important for any company to analyze its current position in a competitive environment by using methods such as Porters Five Forces analysis and the value chain analysis.
Once an understanding of the industry and the environment is clear; and appropriate tools deployed the most appropriate strategy is then chosen. The resulting strategy is based on the personality of the strategist and models used. Strategy development will depend on one of Whittington's School of thought.
Globalization has brought about tremendous benefits to countries around the world but it has been affected by the global financial crisis. How was Honda Motors able to survive during these trying times?
The core of formulating competitive strategy is relating a company to its environment. The choice of competitive strategy can be challenging because it determines if an organisation survives or die within an industry. In any industry the rules of competition and process of strategic analysis is embodied in Porter's five competitive forces: (Michael Porter, 1980)
Figure 1: Porter's 5 forces model.
Threat of new entrants: Identifying new entrants is important because they can threaten market share of existing competitors. Due to brand loyalty and high capital it's difficult to enter the industry although Honda entered easily. However when Honda opened the Ohio plant in 1982 the competition began and the strategic planners were able to form a strategic alliance with Rover for an opportunity to gain market share.
Bargaining power of suppliers: The stronger the power of suppliers in an industry, the more difficult it is for firms to make a profit because suppliers can determine prices. Because suppliers are susceptible to the demands of Honda they hold very little power.
Honda maintained long term relationships with its suppliers and benefited in price and quality.
Bargaining power of buyers: Powerful buyers in an industry can influence prices and reduce a firm's profits. To reduce costs, buyers bargain for higher-quality, better service, and lower prices. To stay competitive Honda strategic planners changed models every 4 years and produced fuel efficient, safe and quality automobiles at a cheaper cost.
Rivalry among competitors: Measures the degree of competition between existing firms. In the automobile industry rivalry is intense. In 1980 Honda Japanese auto maker entered the US market and has been focused on achieving market share. The company diversified from just manufacturing motor bikes, to automobiles, jet and power equipment (http.//corporate.honda.com/products_services/details.aspx?id=sites)
Threat of substitutes: Measures the ease with which buyers can switch to similar products. In many nations the need to own personal transport is not as great. However by going global Honda are working on the premise that all will own a vehicle. Differentiating a product along a dimension that customer's value such as price, quality and service reduces a substitute's attractiveness and that is why Honda remodels their vehicles ever four years.
The goal of competitive strategy is to find a position where the company can conquer these competitive forces or influence them in the industry's favour.
Competitive advantage also stems from the activities a firm performs in designing, producing, marketing, delivery and supporting its products cheaper than its competitors (Michael Porter, 1980). These activities can be represented using a value chain. The value chain framework is a handy tool for analysing the activities in which the firm can pursue its distinctive core competencies, in the form of a low cost strategy or a differentiation strategy. Value activities can be divided into two broad types, primary activities and support activities. Primary activities are the activities involved in the physical creation of the products and its sale & transfer to the buyer as well as after sales service (Michael Porter, 1985)
Support activities are divided into four categories; procurement, technology, accounting, human resource management and infrastructure (see figure 2). Within each category of primary and support activities there are three types of activity which play a different role in competitive advantage and they are direct activities, indirect and quality assurance.
Figure2: A generic value chain A2
Direct Activities: Honda was able to create new value for their customers through its flexible manufacturing system. The workers were given a sense of control over the production process since they could have made decision concerning the task at hand. Honda was able to achieve a heightened level of speed and flexibility in meeting customer's demand through the efficient exchange of products and components. Through it flexible manufacturing system in plants worldwide Honda was able to quickly and efficiently shift production within and between plants both regionally and globally based on market demand. (http://www.scribd.com/doc/13754548/Supply-Chain-Management-Of-Honda-Toyota). The process and activities in re modeling and re design of automobile is also done to create value by giving modern images to boost customer interest. As part of Honda's innovative strategy for production planning a 'small batch' production system was established. The workers executed their task and the components were delivered in batches to the assembly line. This resulted in quality assurance and less likelihood of error. Many of the value activities contributed to quality.
Indirect Activities: These are activities that make the direct activities possible. Honda maintained an inventory system which dealt with unforeseen difficulties in production. They also maintained relationships with their suppliers which help in the supply chain. The process eventually leads to lower priced quality vehicles. Value activities are related by linkages within the value chain. Linkages lead to competitive advantage by optimization and co- ordination.
'Reconciling dichotomies' at Honda Motors refers to the process of its innovative strategic management. A number of dichotomous categories were considered but we'll look at the 'positioning' versus 'developing internal resources' dichotomy
Positioning is how a firm wants their products to be viewed by customers in term of value, appearance and benefits in comparison with the competition. It is based on customers' experiences rather than awareness based on promotions and advertising. Strategist focus on pricing, promotion, channels of distribution, and advertising to chose their positioning strategy. (http://ezinearticles.com/?Product-Positioning-Strategies&id=474245). Positioning requires strategic perspective because greater markets are hard to attain but once achieved is a sense of sustained profitability.
By developing internal resources and capabilities and meeting the standards of global competition, firms create value for customers. They are resources and capabilities that serve as a firm's source of competitive advantage and emerge overtime through a firm's process of learning how to deploy different resources and capabilities. Core competences are the activities a firm performs better than their rivals and through which the firm adds unique value to its products or services over a long period. (http://www.webbooks.com/eLibrary/ON/B0/B58/033MB58.html).
Honda's source of competitive advantage was in its combustion engines. The technology and design of Honda's products delivered immediate competitive advantage. But how valuable was this resource when it posed a threat to the environment in terms of pollutants. Once a resource poses a threat it does not enhance the competitive position of a firm. Yet on the other hand it created opportunities for improvement and Honda was still best known for its technologically innovative engines.
Honda made high quality goods which resulted in reduce cost and reduce delivery lead times; a competitive strategy for product positioning. How did Honda develop their employees to sustain competitive advantage? The value of human capital in developing and using capabilities and, ultimately, core competencies cannot be overstated. Employees worked in group and there was co- operation in the product development but Honda did not create an environment that allowed its people use their individual knowledge together so that, collectively, they possess as much organizational knowledge as possible. Knowledge must be managed in ways which support activities to create value for customers.
Market structure alone does not play a key role in positioning. Organizational structure is also important. (De Wit, B and Meyer, R (2004). Tadashi Kume created initiatives which prevented bureaucracy so the decision making process was faster. Yet on the other hand the structure created problems because the technical staff wanted promotion without management responsibility. Again, there was no proper management of the key competence of human capital and knowledge.
Honda's official slogan ' the power of dreams' has never been used to market their products as Mr. Honda believed well built products would sell themselves (www.Honda.com). But in order to successfully and competitively perform, there are those support activities that must take place internally to create that value for customers.
As part of their positioning strategy Honda maintained relationship with their suppliers and component makers that resulted in advantages in price and quality. Yet this relationship required close control which was only possible through structure which defies relationship between buyer and suppliers.
In order for a firm to gain competitive advantage should they select that esteemed position in the environment and learn to adapt or should they learn to maximize their competences to take them there? (De Wit, B and Meyer, R (2004).
Globalization is the process by which regional economies and cultures became integrated through a global network of political ideas through communication, transportation, and trade. (http://en.wikipedia.org/wiki/Globalization). For globalization to work firms must be capable of responding to local conditions. Managing this is all about determining the right balance between global integration and local responsiveness. Global integration helps in managing risks and driving down enterprise costs while local responsiveness facilitates efficient integration with local economic conditions and partners (De Wit, B & Meyer, R (2004)
Pressures for global integration in the global automobile industry includes
Consumer trends and universal needs. -Offer the same vehicles that appeal to customers everywhere. Standardization is important for achieving economies of scale.
Co-ordination - Firms can align their various activities in different countries by means of cross border co-ordination. This is influenced by the need to serve border crossing clients in a coordinated manner. Global coordination is necessary to monitor and respond to competitive threats in foreign and domestic markets. (De Wit, B and Meyer, R (2004).
Centralization- Firms can integrate their activities in one central location to achieve economies of scale and also be due to the competitive advantage of a particular country e.g. production cost may be lower in one country while quality is higher in another (De Wit, B and Meyer, R (2004).
Global competitors- Make the use of media that reaches customers in multiple markets. Take advantage of the internet and cross-national television to simultaneously advertise offerings in numerous countries.
Pressures for local responsiveness in the global automobile industry includes
Consumer tastes and needs - In the Asian region, motorcycles are the primary vehicles for everyday transportation. To meet these needs more motorcycles will be produced.
Traditional practices - In different countries cars drive on different side of the roads.
Distribution channels -Customer needs vary by region. To deliver products that satisfy customers in all regions, Honda established a manufacturing system that rapidly and flexibly responds to customer requests at all production bases around the world.
Government regulation -Trade barriers or complex business regulations, can halt or reverse the competitive threat of foreign firms (Johnson, K Scholes and Whittington, R 2005)
Market structure - The automobile industry is quite competitive and if the various competitors do not adapt to local needs they will have difficulty gaining market share.
Firms within the global automobile industry must be able to find the right balance between global integration and local responsiveness in order to convert their strategy into superior value (De Wit, B and Meyer, R (2004).
The process of strategy in the 'Classical' perspective is deliberate. Classical strategy development consists of a series of steps:
establishing a mission statement and key objectives for the organisation;
analyzing the external environment (to identify possible opportunities and threats);
conducting an internal organizational analysis (to examine its strengths and weaknesses and the nature of current management systems, competencies and capabilities);
setting specific goals;
examining possible strategic choices / alternatives to achieve organizational objectives and goals; adoption / implementation of chosen choice
regular evaluation of all the above
Classical strategy places great confidence in the readiness and capacity of managers to adopt profit maximization techniques through long term planning.
A deliberate strategy was Honda's collective decision making which was symbolized by the open office plans that encouraged the free exchange of conflicting views and helped in faster production (http://rogercostello.wordpress.com/category/collective-decision-making/). The "un Japanese" system was consistent with Western principles of equality and reduced obstacles to managerial authority.
Through its value chain workers were given a sense of control over the production process and this increased efficiency. Honda was also able to achieve competitive advantage through it core competence in technology which improved product development process
Honda maintained department goals and corporate goals to guide them in their strategy.
The 'processual' approach is different on the profit-maximization perspective where managers are not clear about what the 'optimum' level of output is or should be. A high degree of confusion and complexity exists both within the organisations and in the markets; strategy emerges incrementally from a practical process of learning, negotiating and compromising instead of clear series of steps. The outcome is a set of 'satisficing' behaviours, acceptable to the 'dominant coalitions', which is the reality of strategy-making (Legge, 1995: 100).
Honda's achievement for technology was well recognized and due to this, strategies emerged. Honda made fuel efficient cars and they were ideally located to exploit global markets during the recession. Their competitive strategy of focusing on quality reduced costs and delivery lead times helped in product positioning (http://www.intelli-zen.com/?p=9)
Strategy is not unitary and there's normally conflicting viewpoints. The foundation of Honda was built by two CEO with unique ideas; the use of best technology and organizational structure.
Learning was encouraged and employees were praised for their success. There was continuous improvement and experimentation which revealed that Honda was a learning organisation. The team members were co-operative and assertive and able to confront their differences and propose positive solutions to develop the strategy.
There is a contradicting view of deliberateness and emergence of whether being deliberate provides the organisation with a sense of direction and emergent implies that the organisation is learning from the environment. (De Wit, B & Meyer, R 2004).
One can argue that strategies must be planned and executed for it to work while another may argue that being deliberate is a waste of time as new strategies emerge over time. Honda had to consider what market to enter, how to position their products in the market and how to build relationships with dealers and manufacturers
Strategizing gives direction. In the classical perspective the company used models to analyze their current position in the environment and they used goals to define where they want to be in the market by improving quality and cutting cost. In answering the question, how do we get there? - Honda took a few strategic options by joining with the Rover group and by diversifying; moving from just manufacturing Motorcycles to manufacturing trucks, sport cars and power equipment. (http://corporate.honda.com/products_services/). Honda's competitive strategy was one of cost leadership which was gained from preferential access to raw material and proprietary technology.
In the processual perspective Honda Motors was a learning organisation. They focus on customers' need and the leaders maintained the system thinking skill. The strategy was shaped by Soichiro Honda and Takeo Fujisawa; different view points helped shaped Honda's strategy. In dealing with conflict the employees were co-operative and unassertive and they worked towards the wishes of their superior. In the process of decision making and control using Stacy's model Honda was part of the culture and cognition loop. The organisation sustained a unitary approach with one leader while the other encouraged pluralism and collectivism. Each manager challenged the culture and approached issues with different models.
I prefer the processual school of thought because:
Its emerging strategy allows strategists to think, explore and piece together a consistent set of behaviour over time.
The future is unpredictable and organisations must be prepared to grab opportunities to their advantage as they emerge. The ability to play the field is an important factor in strategy formulation. (De Wit, B & Meyer, R 2004).
Strategy emergence is about learning by experimentation. Different people within an organisation will have different ideas. Managers may benefit from new innovations when new ideas are discovered.
Sometimes to get things done in the workplace, building coalitions, blocking rival and confronting differing ideas are needed. (De Wit, B & Meyer, R 2004).
In the 'systemic perspective the organisation is dependent on the environment. This approach emphasizes the significance of larger social systems, characterized by factors such as national culture, national business systems, and demographic composition of a given society and the dominant institutions of the society within which a firm is operating. Systemic strategy formation is deliberate (SIM 336, handbook, 2004)
Technology has brought the world a lot closer together. People of different cultures are working together and communicating more and more. That's exciting and interesting, but it can also be frustrating and fill with uncertainty. How do you relate to someone of another culture? Are there cultural taboos you are not aware of? (http://www.mindtools.com/pages/article/newLDR_66.htm)
Apart from building connections with people from around the world there are also issues like motivation, structuring projects, and developing strategy. (http://www.mindtools.com/pages/article/newLDR_66.htm)
Geert Hotstede came up with five cultural dimensions that served to distinguish one culture from the other:
POWER DISTANCE: This refers to the degree of inequality that exists among people and is accepted. In societies where this exists there will be centralized companies, strong hierarchies and large gaps in compensation, authority, and respect. In Malaysia, where there is high power distance reports will only be sent to top management there'll be closed door meetings where only a select few, powerful leaders were in attendance (http://en.wikipedia.org/wiki/Geert_Hofstede#Hofstede.27s_Framework_for_Assessing_Culture). An implication for strategic managers at Honda is fewer people will be involved in the decision making process. People prefer to relate to one another as equals regardless of formal positions. Subordinates demand the right to contribute to and critique the decisions of those in power.
INDIVIDUALISM Vs COLLECTIVISM: This is the degree to which people prefer to act as individuals rather than as members of group, which is called collectivism (SIM 336 handbook, 2004). In societies with a high degree of individualism there is a lack of interpersonal connection and little sharing of responsibility. This implies that there will be a respect for privacy, personal challenges and an enjoyment of challenges. Strategic managers will have to encourage debate and expression of own ideas and acknowledge accomplishments. While in collectivism there would be loyalty and respect for members of the group. There'll be a greater emphasis of becoming masters of something. Managers will have to respect traditions and implement change slowly. (http://www.mindtools.com/pages/article/newLDR_66.htm)
MASCULINITY VS FEMININITY: This is the value placed on traditional male and female roles. (http://en.wikipedia.org/wiki/Geert_Hofstede#Hofstede.27s_Framework_for_Assessing_Culture). In cultures where low value is placed on gender roles women do anything a man does. Powerful successful women are respected and admired. Strategic managers at Honda will ensure job design and practices are not discriminatory to either gender. According to Hofstede's analysis, in Japan, there'll be greater success if you appointed a male to lead the team whereas in Sweden, you would aim for a team balanced in terms of skill rather than gender.
UNCERTAINTY AVOIDANCE: Preference for structure and explicit rules rather than flexible rules (De Wit, B & Meyer, R 2004). Members of a society are anxious about the unknown, and as a consequence, attempt to cope with anxiety by minimizing uncertainty. In cultures with strong uncertainty avoidance, people prefer explicit rules and formally structured activities, and employees tend to remain longer with their present employer. What this implies is that managers will have to be clear and concise about expectations. There must be regular communication of goal. In cultures with weak uncertainty avoidance, people prefer implicit or flexible rules or guidelines and informal activities and are more receptive of risk. Employees tend to change employers more frequently. Managers will have to restrict unnecessary rules. Hofstede's Cultural Dimensions imply that when discussing a project in Belgium, the options are investigated then a number of choices are presented but very detailed contingency and risk plans communicated.
LONG TERM VS SHORT TERM ORIENTATION: Refers to how much society values longstanding as opposed to short term traditions and value. In long term oriented societies, people value actions and attitudes that affect the future: persistence/perseverance, thrift, and shame. In short term oriented societies; value is placed on actions and attitudes that are affected by the past or the present: immediate stability, protecting one's own face, respect for tradition, and giving of greetings, favors, and gifts. In cultures of high long term orientation there is a strong work ethic and high value placed on education and training (http://www.mindtools.com/pages/article/newLDR_66.htm). By showing respect for these traditions international strategic managers at Honda will have to reward perseverance and loyalty, and not display extravagance. They must avoid doing anything that would cause another to 'lose face'.
Despite the fact that Honda's global sales were severely affected by the global economic downturn in 2009 the company was able gain profits through it efforts in cost reduction and maximization of its production resources using its flexible manufacturing system. They continue to develop and launch exciting new products that create new value for customers worldwide. (http://www.hondanews.com/channels/corporate-worldwide-operations/releases/worldwide-operations-overview). Does that mean Honda Motors is doing the right thing the right way at the right time?
DE Wit, B and Meyer, R (2004) - Strategy Process, Content, and Context
Johnson G Scholes, K and Whittington, R (2005) Exploring Corporate Strategy: Text and cases, 7th Edition
Michael E Porter, Competitive Advantage: Creating and sustaining Superior Performance (1985)
Michael E Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors (1980)
Cultural Dimensions for management cited in SIM 336 handbook, 2004 - Unit 7 pg198
SIM 336 Module Workbook (2004)
Archive for the 'Collective Decision Making' Category : dated 27/12/07 (20/12/10) :
Developing strategy through internal analysis; no date (03/12/10)
Globalization, dated 05/01/11 ( 05/01/11) http://en.wikipedia.org/wiki/Globalization
Hofestede Cultural Dimensions- Understanding workplace values around the world; no date (22/12/10): http://www.mindtools.com/pages/article/newLDR_66.htm
Hofestede Framework for Assessing Culture, dated 03/01/11 (04/01/11) http://en.wikipedia.org/wiki/Geert_Hofstede#Hofstede.27s_Framework_for_Assessing_Culture
www.honda.com; 2010 (20/11/10)
http://www.hondanews.com/channels/corporate-worldwide-operations/releases/worldwide-operations-overview ; 2010 (28/12/10)
Honda Products Web Sites ; 2010 (25/11/10) http://corporate.honda.com/products_services/details.aspx?id=site
Product positioning Strategies; dated 02/03/07. (8/12/10) :
Strategic Management at Honda; http://www.intelli-zen.com/?p=9 dated 08/04/10 (01/12/10):
Supply Chain Management of Honda & Toyota; no date (03/12/10) http://www.scribd.com/doc/13754548/Supply-Chain-Management-Of-Honda-Toyota
Automotive Industry; (25/11/10) : http://en.wikipedia.org/wiki/Automotive_industry
Automotive Industry Crisis of 2008-2010; (03/12/10): http://en.wikipedia.org/wiki/Automotive_industry_crisis_of_2008
Porter's 5 Forces Analysis (04/12/10): http://en.wikipedia.org/wiki/Porter_five_forces_analysis