Case Study: Reconciling Managerial Dichotomies @ Honda Motors
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Published: Mon, 5 Dec 2016
The global corporate strategy report discusses several aspects of global strategies employed by Honda and similar automobile companies in their management. As can be understood the report based on the case study of reconciling dichotomies at Honda is the core substance of the report. The first part discusses business level strategy and corporate level strategy to understand their basic necessities in attaining the overall objectives. It is considered that Honda has made a different approach to traditional concepts of management style practiced in the western nations known as the trade off strategy. Honda’s product core competency is probed in detail in the literature along with the process related core competency.
Mergers and acquisitions are discussed in the next part of the report and the cases of various companies in the automobile industry are taken up and the risk factors, product synergies and new market potential are discussed. Corporate social responsibility discussion centres on the financial and non financial gains to be achieved through the implementation of corporate social responsibility initiatives. The Honda style of management as well as the western style of management is discussed in the final phase where it is decided that not many companies will be able to achieve the merits of both sides of the dichotomy and at least in some cases certain tradeoffs are necessary in management.
Business level strategy and corporate level strategy.
Strategy is a term used to define the planning of aligning the activities with resources and capabilities for achievements (Cousins, Lamming, Lawson and Squire 2008; Johnson, Scholes and Whittington, 2005). Hence strategy is the master level plan which spans the entire organisation including its investments, resource allocations, product / service offerings, operational aspects, geographies etc (Hitt, Ireland and Hoskisson, 2009). Strategies exist is different levels; and in the case of truly global companies with their own identities wherein which they want to promote their activities in different areas need to have a top level plan which considers the overall scope of the organisation (Johnson, Scholes and Whittington, 2005). Individual units of the organisation in each geography or product / service category need to have its own plans at its level which should be aligned with the top level strategy (Johnson, Scholes and Whittington, 2005). The pan organisational level strategy is referred to as corporate level strategy and the various individual business units whether at geographical level or product / service level is the business level strategy. In the case of Honda which has business interests in different geographies and across various product offerings from automobiles, engines, power products, aircraft and even financial services has to develop its organisation level strategy upon which it will be broken down into different parts to formulate the business level strategies at each geography and each product / service area.
Typical corporate level strategies include geographical coverage, diversity of products total resource allocation between geographies and units, acquisitions, mergers etc (Johnson, Scholes and Whittington, 2005). Hence the organisations scale and scope is defined in the corporate level strategy (Cousins, Lamming, Lawson and Squire 2008). Taking an example Honda with highly successful automobile associated business diversified in to aircraft manufacturing with a subsidiary called Honda Jet (http://hondajet.honda.com/) on the back of a revolutionary innovative design which is a corporate level decision and strategy. The business level strategy involves the particular area whether it be geographical or product / service wise. It takes into account the local situations of the markets, assessment of the internal and external factors, competitor analysis, customer needs etc (Cousins, Lamming, Lawson and Squire 2008; Johnson, Scholes and Whittington, 2005). The business level strategy needs to meet with the overall corporate level strategy of attaining the overall objectives. The pricing structure, discounts, buys or make decisions etc at the unit level will be business level strategy (Floyd, 1997).
Reconciling dichotomies is the main theme of the case study being analysed here. It has been argued in the case study that Honda has been able to defy traditional concepts of management style practiced in the western nations of either or strategy or more widely known the trade off strategy. While Honda’s product core competency is evident from the literature and is widely respected the process related core competency is not convincing from the case study. As per Hitt et. al. (2009), Honda has used its capabilities in bringing engineers, designers and even the frontline sales and marketing teams together to develop innovative product solutions to the automobile market with it’s less polluting CVCC engine and the fuel efficient VTEC engines. According to Keillor (2007), Honda’s success is the competence comes from the passion to be world’s best designers and manufacturers of internal combustion engines. Barnes (2001) quotes Hamel and Prahalad to say that Honda successfully entered the business segments of lawn movers, outboard motors from its traditional automobile segments due to its core competency in engines and power trains. Hence it is unquestionable that Honda has been able to exert its core competence in developing new products into the markets. But one has to identify the real issues of core competency here. Merely developing new technologies may not be the effective way to be a world leader in any segment. There are numerous examples of innovative products failing due to lack of public demand, being ahead of its times or simply because innovativeness has not been marketed fully to the target market.
Barnes (2001) identities that it is not only the product related core competency but also process related in the realms of automobile dealer management by way of training and supporting the network with specific operational procedures for merchandising, planning and service management which helped it enter into new business areas. The important fact of this process related capability was that Honda was able to replicate their efforts in the new business segments it entered. Barnes (2001) suggest that the product design cycle as effectively argued in the case study by De Wit and Meyer (2004) is in itself a process competency as other wise it will not be able to design and develop new and innovative technologies before its competition. The fact that the new innovative products were delivered to the market much ahead of the competition suggests that the process employed in their development also has to play a major role. Again core competency as defined by Prahalad and Hammel (1990) is the combination of individual technologies and production skills that underlie a company’s myriad product lines. Hence it is clear that product and process core competencies go hand in hand.
Mergers and Acquisitions in the global automobile industry:
Mergers, acquisitions and joint ventures are considered as one of the routes by which organisations can expand their presence into new markets across geographies or product segments. Essentially these forms of expansion are external in nature in that they all have an element of foreign presence attached to them (Campbell, Stonehouse and Houston, 2002). These methods of expansion of business have the advantages of reducing risks as there is a new local knowledge or expertise which is added onto the organisation. There are potential for the acquired organisation to bring in new knowledge and synergies to the total organisation which may be valuable in operating in the new market conditions. But along with the advantages to the organisation there are also associated disadvantages also of falling into debt due to the leveraged nature of the acquisition and higher risk of bankruptcy of the organisation. These factors are analysed below.
Debt and Risk of Bankruptcy
The risk of bankruptcy arrives from the leveraged transaction during the acquisitions and mergers of the companies. During such process the acquiring company needs to pay off the existing shareholders and usually they resort to debt taking at interest rates which may not be sustainable if the perceived values or returns were not received after the acquisitions. In such cases the entire organisation might go bankrupt due to the debt it has accrued. The most recent example of such case in the automobile industry is the case of General Motors wherein which it went on a acquisition spree in the heady years of 2000 till the recession struck in 2008 (Hitt, Ireland and Hoskisson, 2009)). GM acquired stakes or majorities in many European and Asian companies to enter new markets or to simply garner up the market share of these companies. It used the debt model to finance these investments and it should be said that these investments gave the returns in the initial years with GM garnering excellent market share and becoming the world’s largest automaker (Hitt, Ireland and Hoskisson, 2009). But during the recession it became unsustainable and GM could no longer get the financial returns to service its debt. It had to sell off some of the assets and US financial aid was required to help it out of bankruptcy (Hitt, Ireland and Hoskisson, 2009). Taking other examples it may be seen that Honda ditched Rover just in time to avoid the failing company’s sickness spreading to it and taking it also down (Hitt, Ireland and Hoskisson, 2009). While it was BMW which suffered due to the acquisition of Rover after Honda unwounded its relationship. According to Grubb and Lamb (2001) BMW’s German efficiency process could not change the constant poor quality and inefficiencies within rover and they failed to synergise and BMW had to suffer financially due to write off of 3 billion dollars.
Potential for Product Synergies
As per Hunt (2009) synergies should come out in any type of merger and acquisition other wise the investment will be wastage. “It is leveraging the combined strength of two parties to a transaction such that adding the individual capabilities of the two companies their sum is greater than their parts” (Hunt, 2009, pp216). The synergies can be capitalised in many different ways and forms and they are available across the diverse structures in an organisation. The synergies can be of operational, financial, enhanced research and development, product / service etc. According to Frensch (2007) the product synergy potential is on consolidation of overheads, restructuring of outsourcing, marketing and sales activities in the new markets etc. As per Spedding and Rose (200) true synergy is achieved only when the acquiring company realises the extent of the core skills of the company and also both the companies are clear with the targets on the integration and optimised combination of the assets whether it is intellectual, physical or informational.
The recent example of acquiring of product synergies is the acquisition of Jaguar and Land Rover by Tata Motors of India. Tata motors through its acquisition of the companies were aiming to enter the UK market as well as to acquire the huge technical and research and development skills available at both the companies.
Access to New Technologies and Emerging Markets
Accessing new technologies and entering emerging markets is also one of the aims of acquisitions or mergers. As given in the above example of Tata Motors acquiring Jaguar and Land Rover new technologies are now available for the Tata motors from the previous fifty or so years research and development activities of both the companies (Hitt et. al., 2009; Outlook, 2008). Tata motors through its acquisition of the companies were aiming to enter the UK market as well as to acquire the huge technical and research and development skills available at both the companies (Bhabatosh, 2009). Honda entered the emerging market of India in 1984 through joint venture with Hero Group. Honda has recently entered into a joint agreement with SIEL Limited to manufacture cars in India (Bajpai, 2009). Through these joint ventures Honda was able to enter the emerging market of India and has shown enormous progress in its sales of its motorcycles in the last two decades. Similarly Suzuki, Kawasaki etc also have made joint ventures with Asian companies and entered the emerging markets in Asia and Africa and has garnered huge sales revenues (Bhabatosh, 2009; Bajpai, 2009). Recently Honda acquired the stake of hero group and it has a solid base no in India. The strategy of Honda and other automobile companies in the Asian continent was to form joint ventures with local companies who had the knowledge of the market to push the sales and marketing activities (Bhabatosh, 2009; Bajpai, 2009). This was also due to the then government regulations in India and other Asian countries that any foreign company to enter their market they need to have an Indian partner with majority partnership. Recently the governments have relaxed these regulations and many companies were able to acquire the stakes of their partners and consolidate the management, technology input etc into these companies to earn more revenues (Hitt et. al., 2009; Bhabatosh, 2009; Bajpai, 2009).
Corporate Social Responsibility
As per Kotler and Lee (2005), “Corporate social responsibility is a commitment to improve community well-being through discretionary business practices and contributions of corporate resources”. Free market economy is spreading around the world being pushed by capitalist countries and multinational corporations for their own benefits. It is an accepted world view that capitalist type of free market economics is beneficial to the up lifting of all classes of people. This has been cemented after the rival communist and Marxist form of economies in many countries collapsed and others in stagnant or in change modes. The efforts of multinational companies, major corporations to enter new markets and make profits are growing and increasing pressure is being born upon developing and third world countries to relax their regulations. But it is also true that many of the activities of major corporations are in the realms of exploitation of people, natural resources, and bribery plain intentions for making profits using any techniques (Bacchus and Crowther, 2004).
The cases on Enron and World.com collapses, the exploitation of low paid labour by Nike in Indonesia, the various cases of bribery in arms dealings of BE aerospace etc are some of them. These activities have tarnished the views of many people in major corporations and organisations as well as the economics they represent and are searching for alternate ways. This attitude of people resulted in a common distrust of many major corporations and to soothe these feelings, at least some of the companies are taking up social causes along with their profit building activities as well. The pet name for such activities undertaken by major corporations is corporate social responsibility.
As per Hopkins (2007), “corporate social responsibility is a systematic approach taking into accounts both internal and external stakeholders, while others define it as purely voluntary”. The organisations can improve their bottom lines and improve their relationship with its stakeholders such as employees, shareholders, suppliers etc. The implementation of CSR activities the organisation’s reputations is increased by the introduction of trust, reliability, quality, consistency, credibility, relationships and transparency. It fosters employee morale, innovation, creativity, better risk management etc (Hopkins, 2007). Financially the performance of the company can be improved as there is better understanding of the company by its stake holders namely the employees and the shareholders. The financial base of companies improve due to better credit facilitates which are a by product of CSR functions. With the improved financial performance within the balance sheet the companies are able to implement their project better than their opponents who have not implemented the CSR initiatives.
Japanese and Western strategic leadership models
The case study gives a contrast of the western style of management and the some what different nature of the management system performed within the Honda organisation. It is argued in the case study that in traditional western systems of management a certain tradeoffs are necessary to perform. The tradeoffs talked about extensively are between taking up one of the two opposing positions which have merits and demerits in its operations. Taking an example the management structure in a company can be individualistic or collectivist. Both of the system has its advantages and it is depending upon the requirements and the specific characteristics that each organisation prefers one form of management to another. Hence as an organisation takes up one style of management structure it totally rejects the other extreme and in its wake looses upon the merits that would have been bestowed if it had taken the other pole.
Traditionally in the west it is thought that firm decisions are required to be made and these decisions need to be seen from outside as firm. Hence when a company decides to have a management structure with a collectivist mentality in decision making it actually shuns the individual’s roles and the responsibility is shared collectively. This has many benefits such as performing in groups, a sense of comradeship etc. But certain demerits of collectivist approach are that the shared responsibility makes the management complacent and there are certain things which cannot be done collectively which can be performed by individuals who are specialist in their areas.
The case study argues that in Honda both the approaches were practices side by side and not only in one case but also in many instances such as product development, design etc. This has given rise to the term reconciling dichotomies in the case study. The term and the case study suggest that Honda has tried to accept both the good characteristics of the opposite ends of the poles in management and has tried to assimilate them in their structure. The good example is its development of new innovative less polluting engine was the traditional dichotomy of increasing the level of one pollutant over another is reconciled. The traditional view or rather the western approach would have been to decide upon one end of the pole and go forward or in other words decide which pollutant they would reduce at the expense of increasing the other. But Honda engineers worked around this developed engines that emits lesser pollutants thereby reconciling the dichotomies. The same is the case with individualism and collectivism wherein they established a board room approach at their top management decision making process but helped individualistic approaches within its product development and design areas to improve decision making and productivity.
It may be argued that Honda’s approach is better than the traditional approach to tradeoffs but it may not be possible to take both the ends of the pole at the same time in many circumstances. My view is that many companies try to take the good qualities in different opposing systems but their success rates are different. In Honda it seemed to have worked well and there may be many companies in the west as well who will be employing such strategies. The new matrix type of management is an example of taking both the good points from different system and fusing it together but experience has proven that it may not work well for all types of companies.
The above report delves into the global strategies employed by Honda and such automobile companies in their management areas. In the first part of the report talks about the business level strategy and corporate level strategy and it is understood that the business level strategy needs to meet with the overall corporate level strategy of attaining the overall objectives. Reconciling dichotomies is the core substance of the case study and this is discussed in detail. It has been argued in the case study that Honda has been able to defy traditional concepts of management style practiced in the western nations of either or strategy or more widely known the trade off strategy. While Honda’s product core competency is evident from the literature and is widely respected the process related core competency is not convincing enough and it has been established that both has to exist together to achieve core competence in the organisation.
Mergers and acquisitions are discussed as one of the routes by which organisations can expand their presence into new markets across geographies or product segments. The mergers and acquisitions of various companies in the automobile industry are taken up and the risk factors product synergies and new market potential is discussed. It has been seen that there are risks in these activities but there are also better product synergies to be achieved and the entering of new markets opens up wider scope for the companies.
In the final part corporate social responsibility is discussed wherein it is seen that there is definite financial and non financial gains to be achieved through the implementation of csr initiatives. The Honda style of management as well as the western style of management is discussed in the final phase where it is decided that not many companies will be able to achieve the merits of both sides of the dichotomy and at least in some cases certain tradeoffs are necessary in management.
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