Honda Motor was not spare from the continuous economic slowdown that hit automobile industry. Honda felt that the conditions would be worsening by next year 2009.
Honda has already decided to come out with the plan in reduction with the productions in Japan. For the year ending March 31 the company has lowered its financial forecast. The company has forecasted that the sales will be down by 13 percent from previous year (expected sales to be $118 billion in yen by the current the exchange rate). An expected profit to be about $ 2 billion, which was very important for the company, was down by more than two-thirds from the period of year ago.
The year ending dividend was called off by Honda Company. Company decided to declare dividend only after the fiscal year is forecast completes. Honda also took step in cutting down monthly pay by 10 % for directors starting from next year. In fact it was like cutting down 119,000 units from across it's all over North American facilities. Earlier in October this year affected a 38,000 - unit cut and again it made an additional reduction of 18,000- unit in November.
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Honda has production cuts in US followed with those in Europe and Japan. It would see an additional reduction of 54,000 units. In countries such as India and Turkey the capacity expansion plans was freeze, which came along with a plan to put a plant opening in Yorii, Japan. Plans to launch Acura in Japan are expected to delay and would be rolled only after 2010.
Honda's Five Forces Analyses and Porter's Value chain techniques and its relevance to strategic planners at Honda's Motors:
Porter's Five Forces is a good framework to analyze the business and industries of a company. It helps the strategic marketers and manager to only look outside the current competitors but also has a concern with potential competitors. Moreover, it helps the company understands what its customers want and control its supplier more effective. And it's practical relevance to strategic planners to analyse the following:
The Threat of substitute product:
It is defined as the existence of close substitute products may make customers to switch to alternatives due to increase in price. This mean that when Honda' competitors can produce a product with high performance and lower price than Honda's products; this will replace and reduce Honda's market by simultaneously reducing market share and profit.
The threat of the entry of new competitors:
Marketing with many competitors existing, the profit of each would be lower than the maximum level. In American market as an example, Ford and Honda aggressively compete together in this market. Due to the policies from American Government protecting domestically Company, Honda cannot get the maximum profit in this market. Additionally, Honda has to spend money on accessing to distribution in American market. Moreover, it also finds it difficult in adjusting the culture differences, etc.... those reasons will reduce the Honda's profit level.
Rivalry among existing competitors:
Competitive rivalry is an important characteristic to the automobile industry. Three main rivals that Honda has to compete fiercely are Toyota Motor Corp (TM), Ford Motor Co (FM), and General Motor (GM). Whatever change in strategy of one of these competitors can have influence on Honda's performance.
The bargaining power of customers:
In business, if a company wants to exist it must create a good relationship with customers. Honda is a global company, it meant Honda have a lot of competitors. So customers will confuse when they make decision for what brand will be the best choice. It not only depends on the company's brand image but also price and quality.
The bargaining power of suppliers:
One of the factor help the company competes against with other companies is the ability to reduce the cost. Therefore, suppliers play an important role to make the company's success. Suppliers may refuse to work with the firm or increasing prices for unique resources. Honda purchases its raw materials, certain components and parts from numerous external suppliers.
Always on Time
Marked to Standard
Competitive advantage can be created by the information resources given by the five forces Model which provides a better way to think.
By using Porter's Model, strategic planners at Honda Motors:
It helps to enhance their competitive position against competitive threats by helping in identifying the proper uses of resources.
It helps in identifying key sources of competition a company faces.
It helps to considering the correct competitive threats over time which is likely to be change.
Honda' Value Chain:
Porter's Value Chain Model looks focus at increasing competitive advantage by reorganizing the activities related to create, support and deliver a firm's product or service in proper time.
The Value chain model suggests that competition can come from two sources:
Reducing the cost to perform an activity.
And increasing value of the product or service by adding more utilities so buyers will be willing to pay more for the valued product.
The firm possesses information on the competition's costs only by lowering costs which can be achieves as a competitive advantage.
Which products are valued? Where can be improvement be made? Can be said as adding valve in strategic advantage if company have accurate information regarding its customer wants.
Its practical relevance to strategic planners at Honda Motors is as follows:
It is quite obvious that Honda possesses some competitive advantages over competition, enabling them to be the largest two-wheeler maker in the world for the year in row and which is greatly affected by the Auto mobile industry crisis.
Critical Evaluation of Honda's Reconciling Dichotomies:
Honda's approach to the individual group dichotomy in the strategic decision making process is an exemplary of Honda's to innovation in management. Honda appears to have implemented a systematic approach to revolving some of the great dilemmas of management.
Traditional dichotomies pairs of concepts are used in the West as an underlying framework to think about the management.
Right - first time v/s Build in Quality
Right first time:
Operations management can be said as deliberate change process. It includes a various steps of transformation activities/ tasks to changes its inputs (resources) into outputs (finished products/service) which are ready for market consumption.
The principle of these states that the outcome of any process should be error free so that same tasks do not need correct errors or wait for rework because it will affect production delays, and also will increase operational costs whereas it will also loose of opportunities of sales. Thus it allows more proper inventory control which further saves costs.
So it aimed more in process which is connected with capabilities.
Build in Quality:
The Quality principle builds focuses on making the impact on the performance of outcome from the sub transformation activities / tasks. This can be achieved by breaking down the aggregate standards of performance measures as expected by customers to be more granular in sub task so that value adding can be aimed at every step. It only saves the costs but also exceed the customer's expectation.
It gave importance more on product connected capabilities that are ultimately valued more by the customers.
Doing things right in the first time saves all the time and the cost as it also helps to eliminate the waste and rework which in return helps to have more margins and reduces prices which in turn could attract more customers to switch over from rival brands.
The notions of right first time v/s build in quality is not divergent in nature are shown by Honda manufacturing strategies and it does not exist in isolation but are rather convergent and complementary processes if the pull strategy is adopted placing customer ahead.
And hence Honda can Position through developing its internal resources with its product in the market with good quality product and low prices giving less chance to switch to competitors in the market.
The 'pressure for global integration of activities' and the 'pressure for local responsiveness' in the context of the global automobile industry:
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Global Integration refers to co-ordination of the firm valve chain which can take maximum advantage from cross fertilization, synergy and achieve worldwide efficiency from the similarities across countries.
Objectives of Global Integration:
Its gives more effort on economic efficiency on a worldwide scale, promoting learning and cross fertilization within the global network and reducing redundancy.
The need to monitor competitors on a global basis by citing converging demand patterns spread of global, diffusion of uniform technology and available media.
More likely in global industries
Home replication strategy
More likely in global industries
More likely in multi-domestic
More likely in multi-domestic
Economies of scale: It is important for the automobile industry to concentrate its manufacturing on mass production on economic bases only by selecting the few location.
Capitalize on consumer trends and universal needs: Due to the automobile industry crisis it is more important for the company to capitalize on global consumer trends and needs and target mass market to survive the global competition.
Uniform service to global customers: It is important for the industry to have centralized delivery and creation so as to ease on service standardization.
Global sourcing of raw materials, components, energy and labour: The important for the automobile is to beat its cost of production which can be achieve easily by reducing raw materials, components, energy and labour cost to minimal. Honda has very strong chain for supplier which helps them to maintain the cost and position in the market.
Global competitors: As crisis and increase in the fuel prices, it is very important for the automobile industry to co-ordinate global competitors threats in foreign and domestic market.
Automobile industry may need to adjust practices such as promotion strategy, employee training, compensations, merchandise mix and more.
In the context of the global automobile industry:
Unique resources and capabilities available to the automobile industries, each country has national endowments that the foreign firm should access. There is a diversity of local customer needs. It is also important to adapt to local customer needs which require targeting market. Nowadays Industries are using local differences in distribution channels so as to understand local customs and needs.
It is important to adapt to the local needs in order to compete against numerous Local competitors in the local market. Automobile industry should understand the needs and preference in regards to cultural differences in the local market by adapting the product and marketing.
The competitive threat of foreign firms can be halt or reverse only when the government impose trade barriers or complex business regulations.
Whittington's 'Classical' and 'Processual' School of thought in context of development strategy at Honda motors:
According to Ungson, Gerardo R., and Yim-Yu Wong. (2008), Classical / rational school is characteristized by deliberate planning and a belief in the primary of markets as clearing mechanisms that lead to efficient transactions. This schools views managers as deliberately rational, if not purposeful decision makers. Nowadays Honda is seen as acting to maximize profits. It is generally assumed that relatively efficient markets emerge over time in a free market economy. Rational / classical analysis helps to make a difference in determining the long term success and failure of the firm. However Honda is seen as monolithic entities.
Strategic opportunities and requirements with appropriate structure, processes and corporate cultures are conceived as co- aligning with strategic implementation. For many firms, this represents mainstream thinking and it continues to influence the development of thought and practice to the present time.
According to Fifeild, Paul. (1998), Processual school regards as a formal planning as important but only as one of many analytical and political events that combine to determine overall strategy. This school agrees that strategies rarely result as originally conceived or intended. Patterns may appear without preconceptions and plans may go unrealized.
Total strategy is usually arrived by fragmented, evolutionary and largely intuitive. It sees more of proactive managers. Managers usually use a series of incremental processes such as pieces of formal strategic analysis rather than using a complete design for their overall strategy in a formal planning cycle. The eventual strategy evolves as internal decisions and external events come together in the minds of managers.
Critically evaluate the two school of thought to Honda motor's and which school of thought you prefer and why?
Below are the two schools of thought that can be used at Honda motors
Classical approach can be used at Honda motor's in identifying a sequential approach as a basis for their theory the planning process influence internal and external environment and resources the plan can affect the planning process, the information plan determines implementation and the efficiency of implementation effects alignment. Classical approach focuses on profit maximisation.
This use of strategic approaches is hardly effective in the chaotic, dynamic and post modernist environment of the market. Problems are logical and policies are different from operations to a point where the fuzziness of social, cultural and political issued is to remove. The techno - functionalist paradigm is not questioned. The complexity of the today's business world requires more different approaches to management. An expanded theoretical base is required. Classical approaches may suit the preference of management for formal methods and non - messy problems.
Processual approach was an alternative to classical approach. On the other hand, success from the result is view as opportunism and foresight as well as luck as strategy of Processual approach. The evolutionary approach is more pessimistic than Processual approach in consideration with what manipulative effect will managers have on the surrounding environment. Actions and decisions are seen as a pattern of a stream. After the event it emerges can only be clearly. Being consistency but there is still an absence of well - defined, prior intents. There is no division between formulation and implementation. Strategy is born out of action in response to current and anticipated events.
Processual theorists may focus on the context and process within the organization. Strategy may come out from interactions between cultural and political issues. Distribution and use is the key power of importance. These core competencies are obtained by distinctive use of assets such as reputation, skills and knowledge.
I would prefer Classical approach of school of thought for Honda Motors which depends more on being clear business strategy and identifiable link between implementation and business results and a future which can be predicted and responded to through rational planning. As Honda motor has a systematic and rational approach towards its business and its environment to face the competition in the world market.
Critical Evaluation of Implications of Culture Dimensional for International strategic managers at Honda Motors:
Theory of culture in Management:
"National culture is embedded deeply in everyday life and is relatively impervious to change". National culture theory becomes one descriptor of human behaviour. According to Hofstede, national culture distinguishes the inhabitants of one country from those on another. Along with organization and structure component, process plays an important role in company's achievements. Process is the set of continuous activities of company in achieving its goals. Hofstede's national culture theory defines five national culture elements to describe the preferences for certain behaviours by a country's inhabitants.
Five Dimensions of National Culture:
According to Landy, Frank J., and Jeffrey M. Conte (2010) The Cultural dimensions model of Geert Hofstede is a framework that describes five sorts (dimensions) of differences / value perspectives between national cultures:
Individualism / collectivism: The degree to which individuals are expected to look after themselves versus remaining integrated into groups.
Power distance: The degree to which less power members of an organization accept and expect an unequal distribution power.
Uncertainty avoidance: the extent to which members of a culture feel comfortable in unstructured situations.
Masculinity / femininity: The distribution of emotional relies between the gender with the masculine role being seen as tough and the feminine role as being tender. Masculine cultures tend to emphasize accomplishment and technical performance while feminine culture tends to emphasize interpersonal relationships and communication.
Long term versus short term orientation: Long term values oriented towards the future like saving and persistence, short term values oriented towards the past and present, like respect for tradition and fulfilling social obligations.
In global business environment, Honda's processes uphold the Honda's competitive advantages; two important processes of Honda are Organizational Culture and Innovation Management.
International strategy managers in Honda Company would involve exploiting parent company knowledge and skill, capabilities through its worldwide diffusion and adaptation. Firms give more preference to professional management and the transfer of technology and enterprise knowledge to subsidiaries.
Top management follows tight systems for strategic control and gives concentration on executives coordinate activities. Also, the extension of the home market strategies into subsidiaries market does not ensure responsiveness to local pressures and differences. National culture in Honda will play an important strategic choice.
Honda Company competing in the international markets must decide whether to compete in all or some of the world markets or regions.
Competing in many markets may enable the firm to achieve economic of scale because of the size of the combined markets, but only if consumer preferences in multiple markets are similar. It will also help to focus the firm to understand cultures, legal and social norms and other factors that may be important to achieving strategic competitiveness.