Strategic Management Case Study: Honda
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Published: Wed, 06 Dec 2017
Ever since the days of Henry Ford, the global car manufacturing industry, one of the world’s biggest employers, has blazed the trail in both the product innovation, and perhaps most notably for the Japanese motor industry, the development of leading manufacturing methods. The industry is not unlike many others, with blistering competition on all fronts, which makes strategic planning utterly important for both the sort as well as long term survival of any industry player. The ratification of the Kyoto Protocol for instance, spurred car manufacturing companies into the adoption of strategies such as the “closed-loop-strategies”, in the not only the development of more efficient engines, but also the production, distribution, operation and ultimately recycling of decrepit cars etc.
This report presents a review of a number of strategic alternatives by Honda and other automotive industries both in the West as well as Japan, in an attempt to establish the driving force behind Honda’s success and growth. The first part of the report gives a description of Honda, followed by the reconciliation of several divergent strategies. Discussion of the differences, if any, between the western and Japanese styles of corporate leadership will unearth the myth behind Japan’s corporate culture before ultimately concluding with a discussion of the importance of both corporate governance as well as CSR.
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With over 182,000 employees, Â¥ 10,011, 241 million in annual revenues in 2009 coupled with upwards of $ 1370.1 million$ and 1896.4 in operating profits for the FY 2008 and 2009 respectively, Japan’s Honda is easily the industry’s biggest manufactures of motor cycles, besides being a among the leading automobile producers. Operating across the globe, Honda is involved in the development, manufacturing as well as marketing and distribution of motor cars, motor cycles and a range other power products (Honda Ltd, 2010).
It was founded in 1946, by Soichiro Honda and subsequently incorporated two years later, followed by years of success and growth as a motor cycle maker. Away from its core business, the company’s 105 affiliates and 396 subsidiaries across the world provide financial services to thousands of its clients. It operates a four tier business model which includes the financial services division, motorcycle, automobile as well as power products (Honda Ltd, 2010). Besides multi wagons, Honda also produces a range of passenger cars, SUVs, mini vans, passenger cars, mini vehicles as well as sports coupes among others. Honda’s flagship car and motor cycle models include the Accord, Civic, Legend, Insight, Acura CSX and Acura RL, CR-V, Cross Road, ASIMO Robots as well as the scooters among many others.
The company recorded sales of over 10,114,000 units mainly in Japan, North America and Europe, representing an 8.5% rise over the previous year’s figures. Its sales have been on the rise despite through the global economic down turn that hit its American competitors, and largely driven by Toyota’s PR woes over alleged flaws in the breaking system in its flagship Prius model. This success is largely attributable to the company strategic preparedness. Case in point, in 2002, it launched a hybrid car model to tap into the ever growing environmentally conscious clientele, besides launching the Environmental Learning Center (based in Texas), while in 2004, the company entered into a strategic partnership with GE, that led into the development and production of a trail blazing light jet engine, suited for business jets.
Sethi and Swanson (1984), commencing in the year 2000, the company has embarked on an ambitious program to set up production plants in the emerging car and motor cycle markets, notably China, Argentina, Russia and the motor bike hot spot, Vietnam. The company prides itself with the twin principles of respect individuals and the Three Joys Principle i.e. buying, selling as well creating. These values reflect the company does wish to build on each person’s unique abilities and its endeavor to ensure that everyone who comes by purchasing the products or by other means should have a great/joyous experience. Honda ensures this by relentlessly, lead in the creation of value, innovation, new products at accessible prices.
Honda ltd’s strategic innovation is founded on a process of dichotomies reconciliation which include both learning and planning, positioning on the market vs. internal resources development and lastly, core competencies related to the product against the core capabilities related to the processes. These three dichotomies do representing divergent strategies etc that drive Honda as a company since its establishment and through years of exemplary growth and expansion. De Wit & Meyer (2010), assert that a critical look at Honda’s strategies points especially its successful entry and dominance of new markets raises questions as to whether, Honda’s strategy and subsequent decision making is solidly based on a meticulous, analytical and rational planning or whether its strategies are a direct result of the some decisions/ strategies reached at by the company, which evolved or became modified due to the environmental influences of the industry in which the company operates.
While designing its strategies, the company has consistently followed a rational approach based on a critical analysis of the market and the industry environment. This strategy hinges on and it suited for a seasoned industry player such as Honda, since it seeks to built on, and exploit the company’s immense experience in the automotive industry (Johnson et al., 2005). As a strategy, this is an important bottom up strategy that uses the already gained knowledge to optimize the company’s needs. Planning takes into consideration both the company’s resources as well as the environmental factors, as such will most likely utilize the company’s set objectives within the constraints. Honda’s largely seen as having successfully employed the planning strategy while entering into new markets notably while launching into the US motor cycle industry. Its recent strategic alliances with GE as well as its design and launch of innovative new products and expansion of manufacturing plants, in the ultimate attainment of huge scale economies and extremely law costs represent examples of internal planning.
Planning is largely apparent from an outsider’s point of view. However, interviews with the company’s top management reveal a far different picture that suggests at best a company that is far from an overly rational, academic planning seeking to impose its corporate values and policies on the market and the industry, but rather a company, with a management structure that is at all times willing to learn. It is evident and widely accepted by many observers that Honda’s strategies have evolved, without a clear plan or analysis of the industry. Case in point, the huge success attained by the company’s 50 cc Supercab surprised everyone including the company’s management. Mintzberg et al. (1998) observe that though the company’s strategy may have looked analytical and well thought out, the management did blunder severally up until the market gave them the correct formula.
Rational planning on its own is hardly, suited to many organizations and is in fact removed from the day to day running of a business as compared to learning, which permits management to continually develop and adjust their policies and strategies as they are implemented, in the light of new experience (De Wit & Meyer, 2010). Honda’s development of hybrid vehicles and energy efficient models e.g. the Honda Civic Sedan, in the wake of Toyota’s success in the same field represent examples of learning from the environment. Honda has as well launched joint ventures in R&D with other companies. Using both strategies gives the company an advantage, not least because it only allows the formulation of strategies that best meet both the internal resources as well as the environmental factors prevailing in the industry.
Honda’s positioning helps its brand to be associated with a given market segment. It is an equally helpful guide to the company’s other strategies, particularly the marketing strategy, not least because it does clarify the essence of the brand and the helps the consumers to better identify the goals that the product seeks to meet in a unique way. In positioning a product or brand, managers must make decisions, seeking to appeal a given segment of the population, while at once risking losing the other(s). Honda has placed its various products on the basis of benefit, target, distribution as well as prices. The company offers competitive prices owing to its scale and technology advantages, which in turn permits it to achieve better client franchises. This strategy does however; affect the prestige of the brand, besides reducing the profit margins. Target, distribution and benefit positioning, that has seen the introduction of green models to serve the needs of green conscious clients, coupled by Honda’s expansion into India, China and Vietnam, which was entirely meant at catering for emerging middle class in those countries.
As against, development of internal resources, Honda’s product positioning allows it to use fewer resources but still reach the target markets. It however, has enormous resources in capital, management, cutting production technology as well as manpower, which have driven the company’s expansion across the globe. More investment in R&D is, and has been possible, leading to greater innovation. While other smaller industry players struggle with limited resources constraining their R&D as well as expansion, bigger companies like Honda, Toyota and GM can attain a better edge in the industry. Honda’s has been able to pursue both strategies owing to the availability of niche products that it has successfully positioned e.g. motor bikes in Vietnam (over 400,000 units in annual sales), coupled by its huge availability of resources which allows it rope for R&D, diversification and expansion. This does not entirely hold though, Honda spends just a fifth of GM expenditure on R&D and launches fewer models than the latter, yet it products/models are more successful than GM’s.
Competencies are as a result of coordination of multiple production skills as well as a complex coordination of numerous technologies. They give a company access to newer markets; provide high barriers for competitors to enter the market, besides contributing considerably to the benefits of the end product(s). Honda’s core competencies as regards products are the driving force behind the development of the numerous, innovative end user products. Hamel & Prahalad regard Honda’s product competencies as a brilliant example of how a small company can break into, and establish itself in a mature, stable market. In 2010 alone, Honda has set up a solar H2 station (Los Angeles), introduced the versatile iGX and GX engine series for general purposes. The company has as well produced lithium-ion based batteries intended for the new range of hybrid motor vehicles, alongside an ELC to spear head its green agenda.
Honda is famed for its ability to recycle technologies in all its range of products, affording it R&D efficiency. There are elements of core capabilities associated with its processes, but perhaps far lacking behind Toyota and many other industry players. These include efficient distribution channels, cost effective production processes. It trains dealers, determines shop floor plans and has strict operating procedures among others. Core product competencies in the automobile industry are far superior to the process capabilities and Honda’s success is an outstanding testimony to this fact.
Japanese and Honda’s management styles do differ from the American style in at least six distinct aspects. These include differences in the interdepartmental relationships, communication patterns, and supervisory styles, mechanisms for control as well as existence of, or lack of a paternalistic orientation. According to Hofstede (2004), these differences largely stem from the inherent cultural differences between the two countries, which in turn influence the respective corporate cultures.
Most of the companies in Japan do provide lifelong jobs to their employees, with greater emphasis being laid on not age, but also seniority. Promotions are thus much more difficult, just as there is greater job security for the workers. Many organizations effectively hire employees for the, and are interested in the long term objectives as against America’s corporate world’s obsession with short term goals. Case in point, Honda’s top management i.e. Satoshi Aoki (Chairman), Takanobu Ito, Koichi Kondo and Atsuyoshi Hyogo joined the company in 1968, 1978, 2000 and 1972 respectively, during which time they have risen through the ranks to reach the top management. On the contrary, the western corporate world is characterized by short term contracts for both managers and workers, charged with meeting short term objectives.
In contrast with the Western model where managers are responsible for decision making and subsequently accountable for the decisions reached, the Japanese system recognizes the importance of individual expertise, but the performance of the entire team is more emphasized than an individual’s. In the western corporate world (Germany and American), certain employees have the ‘star’ statuses e.g. in Germany, the engineers play central roles to the success of motor companies. Some elements of convergence exist though. Long apprenticeships and cadres (seniorities in Japan) do exist both in Germany, France as well as the Netherlands. Employees attain positions, promotions etc. through years of internships, apprenticeships or memberships to given classes-attained through education and or experience.
While most western corporations are characterized by top down decision making, the Japanese style of management is largely characterized by collective decision making by individual teams. Honda’s decision making is characterized by the “Ringi” system, where decisions are passed based on a consensus of all the employees in a department or even the entire organization. This management style is identical to that practiced in Holland, except that the latter is anchored on existing contracts or class differences of among the employees.
As against the largely bureaucratic communication, hierarchical channels characterizing western corporations, which is largely effective and efficient, the Japanese channels of communication compromise in large part of face-to-face communication. These comprise everything from provision of information regarding assignment of tasks, responsibilities, organizational goals and the development and rechanneling of feedbacks.
Honda ltd is concerned with building of its relationships with it ‘biggest assets’, the employees. Inspired by its philosophy “Respect for the Individual”, the company always seeks to develop collaborative relationships with each and every employee, where all mechanisms of control and supervision are largely informal. Supervisors work alongside other employees, who are involved, the decision making, which in turn renders decision making, execution of decisions and reception of feedback a lot more expedient. On the contrary, Honda’s competitors run on a rigid, formal control mechanism. This sets goals, measurable, complete with targets that must be met by departments, franchises and individual employees, while the Japanese system is anchored on the management philosophies that all employees as well as managers identify with.
Pascale & Athos (1981), states that attainment of the goals set for a department etc requires inputs not just from the concerned departments, but perhaps most importantly, close collaboration with other departments in the company or even other organizations. Formal (necessary) relationships largely accomplish these goals (characteristic of the western model), while the Japanese style has an extra dimension; voluntary collaboration which is far more productive and results in greater knowledge sharing.
Honda and many other Japanese companies are concerned by the holistic needs of every employee, including the concern for the well being of their families (Culpan, 2009). This imposes a social support role on the managers, a feature which is largely absent in the western world, safe for a limited number of family organizations.
With car markets in the developed world already saturated, most car company’s are looking abroad in the emerging markets notably China, India and Brazil. A recent study by TNS shows that car buyers rate car makers more according to their CSR than those consumer in the first world, thus companies that perform better in this sphere stand a far greater chance of winning the hearts and minds of the new middle class is guaranteed success.
In 2005, Honda was ranked the UK’s best car company based on its social responsibility initiatives, by the foremost research company on automotives, TNS Automotive. It performs equally well in the US, Indonesia, Italy and Spain among other countries alongside BMW, Shell, Malaysia’s Petronas, Michelin and Germany’s Porsche (Nissan Corp., 2010). Honda spent over 2.3% of its annual revenues in 2009, on its CSR commitments, with the environment taking the lion’s share of the budget. The company has undertaken numerous actions in an attempt to meet the challenges posed by global warming and climate change. With the reputation of the automobile industry and fossil fuels already damaged, due to its huge carbon footprints, and the growing fears among the public of air pollution, it is only reasonable that companies act in accordance to the wishes of the consumers. Honda has initiated the LCA system, which identifies and sets targets for the required actions. The company develops energy efficient models, adheres by the 3Rs (in design) and noise reduction etc.
Honda’s corporate governance is a typical Japanese style bottom down structure, characterized by collective decision making and a collective sense of belonging among to the company that in turn reflects on the company’s performance (Honda Ltd, 2010). Any company’s corporate governance does determine the direction that it assumes, which ultimately reflects on its financial performance.
Nissan’s corporate philosophy, governance as well CSR activities are not different from Honda’s. It seeks to bring enrichment of the people’s lives and the environment in which they operate. It has made CSR an important part of its corporate management policies. It has devised its green purchasing guidelines, coupled with Nissan-Renault Suppliers Guidelines, which ensure that the company’s entire supply chain is green and serves the purposes of the policies set by its top management.
Through its charitable arm, Chrysler’s management makes annual donations to needy communities, projects and causes (Chrysler, 2010). In 2009, the company advanced upwards of $100000 to Good Harvest geared at combating hunger. The company’s CSR initiatives are not as extensive as both Nissan and Honda’s partly because the company caters for the luxury market segments that are in the main concerned about the quality and luxury as against a company’s CSR etc.
Honda is largely touted by observers and varied literatures in strategic management. Its strategies have largely been used either rightly or wrongly to back up a number of conceptual dichotomies, with contracting positions i.e. learning v. analytical planning, core capabilities v competencies etc. Most of these assumptions, and evidences have however, proven erroneous owing to empirical mistakes that result into the over emphasis of the companies strengths, while its mistakes go largely unnoticed. Further, strategies and explanations are expressed in form of reductionist, single-sided theories that largely fail to portray the actual strategic orientation of Honda. Honda’s thrives on reconciling dichotomies. Thus many observers in the west have largely missed out in studying, learning from and understanding Honda.
Rohlen (1974), it is evident that capabilities as well as competencies can possibly complement one another, forming into one theory. The latter does focus on the production expertise and technologies while the capabilities serving to improve the whole chain of value. Capabilities are far more visible and easily appreciated by the clients than are product competencies.
Honda’s ability to meet high targets and post tremendous growth rates is largely due to its tendency to set stretched targets, which brings into direct competition with the biggest players in the automotive industry. In order to compete, it uses its resource base to compete by either providing niche products or undercutting competitors on basis of cost advantages, attained through scale economies. This ability to leverage her resources offers the key to its success, as against the widely fabled Japanese management styles. This style is widely different from and more appealing that the western style corporate management is only suitable for the Japanese and Asian environments.
There are aspects in both management styles that could beneficially be, and have largely been adopted by either side to the great advantage of the corporations, but not the complete management packages as they will be utter failures in the other ones environment (Schein, 1981). Finally, this report has demonstrated the importance of corporate governance, policy and CSR is important in the ever changing consumer tastes as well as preferences, and most importantly, increasing consumer awareness.
Increased spending and expansion of Honda’s and other automotive companies in CSR, environmental protection and production of innovative environmentally friendly models should continue as the only way counter changing consumer needs as well as the changing times.
The Western and Japanese styles of corporate management should be blended to suit both the practical and strategic objectives of each organization.
Reconciliation of strategies is crucial for success and helps companies reap the benefits of divergent strategies, thus companies must seek common grounds between strategies rather than opting for only one.
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