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We live in an uncertain period that is characterised by a difficult economic context. The economic crisis affected all industry sectors in all counties and especially the automobile sector. During this report, we will try to explain the mechanisms used by Honda motors to reconcile dichotomies and come out with efficient strategies in order to become one of the most respected companies in its sector.
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A. Porter's five forces (Porter, 1980) is a framework that analyzes the industrial context in which the organization is evolving to deploy competitive strategies. The diagnosis is based around the five competitive forces that affect the long-term profitability of the organization:
-Buyers' bargaining power which is the ability of customers to make pressure on the firm.
-Suppliers' bargaining power which is the ability of suppliers to make pressure on the firm.
-The threat of new entrants is the possibility that new businesses may enter the industry and dilute the profitability for everyone.
-The threat of substitutes is characterized by products that are not part of the market, but which represent an alternative to the offer and which satisfy the same need.
-The competitive rivalry describes the degree of competition between existing companies in a specific industry.
Buyers: Honda has always been oriented towards satisfying its customers.
In the automobile sector, the majority of buyers don't have high purchasing power and they are willing to buy efficient but cheap cars.
The buyers can easily switch from a producer to another.
Buyers have power over suppliers and Honda is aware of this fact that is why the company is doing its best to recognize and satisfy its customer's needs in every segment.
Suppliers: As explained in the case, in Japan, Honda does not have the same relationship with its suppliers as the other Japanese firms. Only few suppliers are part of its supplier family.
The company also builds long term relationships with its suppliers.
In North America, Honda has a channel of 80 Japanese component makers that supply the firm.
Honda also combines its component maker's network to benefit from the advantages of spatial concentration and spatial dispersal. In other words, the company can do just in time and at the same time keep the local wages at a low level in some regions.
Honda has power over its suppliers.
Competitors: The automobile industry market is controlled by a small group of firms. In this case, the consequences of price competition are not very important.
After the automobile industry crisis of 2008, the competition has increased to attract new customers. The automobile makers and especially Honda offered new deals to attract customers.
New entrants: It is somehow difficult to enter the automobile market for new competitors because of high entry barriers.
The sector requires high investment and capital but also time to build a strong brand.
However, some companies like 'Tata' with high capital and technology entered the market and competed with Honda and other companies who already have strong brand names.
Threat of substitutes: In this case, substitutes are composed of the other means of transportation that can replace a car. The decision to choose an alternative to cars is influenced by many factors such as energy price. Honda has worked on offering affordable cars with low fuel consumption to avoid losing customers that can be attracted by cheaper and more efficient alternatives to its cars.
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Porter's value chain (Porter, 1980) is a systematic approach to examine the development of a competitive advantage. The chain consists of a series of activities that add value. These values lead to the total value provided by a company.
The company's activities are divided into two major groups: 'primary activities' and 'support activities'.
Honda combines the primary activities and the support activities to provide an added value and gain competitive advantage.
The company does quality checking by sending engineers to check the production quality and raw materials which make Honda able to produce high quality cars.
"Honda has built great supplier relationships by following six distinct steps: First, they understand how their suppliers work. Second, they turn supplier rivalry into opportunity. Third, they supervise their vendors. Fourth, they develop their suppliers' technical capabilities. Fifth, they share information intensively but selectively. And six, they conduct joint improvement activities." (Liker, Choi, 2006).
Honda gained a serious advantage by building a strong supplier relationship.
The company also does just in time arrangements with its suppliers to reduce costs and time. Right first time is also used to produce quality products with no errors and therefore reduce costs and time but at the same time keep a high quality level.
The products are also supported by a strong brand name which gives them an added value and a competitive advantage.
Honda also organises an annual ceremony to reward its best suppliers. It contributes in motivating and encouraging them to work hard and to make fewer errors to obtain these rewards and therefore, provide the company with good quality products.
"Honda and its dealers around the world put their best efforts into all stages of customer satisfaction activities from sales to after-sales service." (Honda.com, accessed 2010) Satisfying customers and providing them with an excellent after-sales service builds brand loyalty and can play in favour of the company in order to gain new customers.
"Honda provides global training programs to further enhance service and also by introducing more IT-based tools and equipment." (Honda.com, accessed 2010)
Secondary activities support the primary activities in order to â€¦
B. A dichotomy can be defined as two concepts that are contradictory. The practice of reconciling dichotomies by Honda is a procedure to use two different processes and combine them in order to use their benefits in order to move forward and to be different from the Japanese and Western automobile firms.
The 'positioning' versus 'developing internal resources' dichotomy resulted in a paradox of reducing costs internally and at the same time produce high quality cars and to be well positioned in the market.
Honda had to keep an eye outside the company to create and keep an identity and an image for its brand and its products.
At the same time, Honda had also to look inside the company to be aware of its strengths, to use efficiently its resources and competences.
Honda's progress in developing engines gave the company an advantage to utilize efficiently its core competences which allowed the company to come up with quality products.
Honda started also investing huge resources to come up with low pollution power sources for its cars with the desire to focus its skills on potential breakthrough market positions.
In the last years, Honda made significant progress in this field and developed power sources like 'Electric power', 'Natural Gas' and 'Ethanol'. The company also came up with next generation clean diesel engines and hybrid cars.
The company also focuses on building specific skills and competences through experience to benefit of highly skilled employees that can add value to the company.
Honda demonstrated through its strategy that the two concepts were not contradictory and that they can be combined to gain competitive advantage.
C. The pressures for global integration of activities and the pressures for local responsiveness can be considered as a paradigm which impacts the adoption of an adequate international business strategy within a company.
In the automobile industry, companies are willing to protect their brands and to reduce cost by making standardized products and using similar pieces in the production of many of their car models.
However, companies have to adapt themselves to local needs. First of all, buyer's tastes are not the same and demand can vary from a region to another. Secondly, the regulations and the laws can be different from one country or one region to another.
In this case, the company has to be "Glocal" which means it must think globally but act locally and be able to adapt to local markets.
If we take the case of Honda, the company has been working on reducing its costs but at the same time on adapting to local markets by developing sister models for different segments and use the same components to produce these models even if they are different.
"Honda will further strengthen its efforts to address environmental issues and provide products that accommodate the diverse needs of customers in each region." (Honda.com, accessed 2010) Honda has lately been working on noise reduction but also on cheaper and less pollutant cars with low fuel consumption or diesel cars for the European market and cars that work with ethanol for the Brazilian market for instance. These efforts are made in order to respond to some environmental issues or regulations and to the customer's needs in some regions of the world.
A. The Classical and processual schools of thought are two of Whittington's four approaches to strategy. The classical school is mainly based on some key characteristics: The main objective is profit maximization. The Top managers formulate and control strategies and implement it in the company. The company does a rational analysis which starts from the idea that the environment remains static. The strategy is deliberate and it is based on planning, the strategy makers do not take in consideration unexpected events and changes.
Whilst the processual school is emergent which means that it is developed step by step over time and it changes to react to the environment. One of its key characteristics is collectivism.
It relies on the fact that an ideal environment does not exist and that companies should work with what reality offers and that people within the company have different interests and the aim is to come up with the objectives that are acceptable for them by doing compromises and/or alliances.
As far as strategy development at Honda is concerned, the company tried to combine the two approaches in order to come up with a more efficient strategy which is different from what Japanese companies do.
Honda improved its operations management strategies especially by doing 'Just in time' and 'Right first time'.
By improving these management strategies, Honda could at the same time maximise its profit and reduce its costs.
A clear hierarchy was established at executive level and the management structure was reorganized with direct responsibilities to the top managers. At the same time, 'SED' teams are set up to develop products and to encourage employees to cooperate and do collective decision making.
Concerning the production, Honda uses push and pull production planning system. The first is based on planning which is a characteristic of the classical approach. However, the second is used to plan everyday production to deal with unexpected difficulties which is a characteristic of the processual school.
We can also add that Honda is considered as a learning organisation which is "the term given to a company that facilitates the learning of its members and continuously transforms itself" Pedler, Burgogyne, Boydell, 1997).
"Learning organizations develop as a result of the pressures facing modern organizations and enables them to remain competitive in the business environment" (O'Keeffe, 2002).
To illustrate that Honda is a learning organisation we can talk about the technological changes and innovations in terms of engines and materials used in the car production. The research and development department goals are always progressing with time.
To sum up, Honda lives constantly a series of periodic reorganizations. Each new president brings new changes in the firm. The company's strategy varies between emergent and deliberate but Honda still moves forward despite these changes of direction because each new change builds on the success of the previous.
B. The two schools of thought have many advantages but also several disadvantages.
The advantages of the classical school are the orientation of the company towards a profit maximisation objective, a clear hierarchy is implemented and the establishment of rational long term strategies.
Concerning the advantages of the processual school, we can talk about the awareness of the company within its environment and the collectivism aspect prevailing in the structure. Also, the learning and innovation process that the company does. The company's managers also try to simplify strategies and move step by step.
The disadvantages of the classical school are the refusal to admit that the environment is changing, the limited communications channels within the company and the fact to concentrate on only one objective rather than many.
Whilst the disadvantages of the processual school are shown by Stacey's model which recongnizes some problems that occur when groups of people take decisions. The groups can in some cases breakdown and lead to disorder. This may have bad consequences on the company. We can also add the absence of a stable strategy that the company follows.
As far as Honda is concerned, it uses a combination between the two schools and tries to take advantage of both of them.
Personally, the school of thought that I prefer and I think Honda should apply is the processual school of thought.
First of all, this approach deals with the external environment which is a very important aspect when we look at the actual global situation which is characterised by uncertainty and fast changes.
Long term planning is not as efficient as it used to be because of the fast changes in the environment.
The global automobile crisis of 2008 demonstrated that the fact of not considering the outside environment or assuming that it will remain static before taking strategic decisions can lead to catastrophic consequences for the company.
Secondly, competition is becoming intensive and Honda's competitors are coming up with new cars and attractive deals to gain more market shares.
Decision making process must also be collective and involve the whole company to benefit from synergy and use the full competencies of the company's staff from the lowest to the highest level.
Finally, the company will also have to deal with the threats related to globalisation and also with changing regulations in different countries and regions.
Using a classical strategy in this context will not help the company to move forward in its environment and to be more competitive.
"Systemic theorists believe that the organization is capable of planning and acting effectively. According to them economic activity cannot be separated from social relations such as family, state or religion. These social factors influence the means and ends of a systemic approach and define what is the suitable behaviour for their members.
In a systemic approach, the organization is not just made up of individuals but of social groups with interests. The variables that Systemic contend with are class and professions, nations and states, families and gender. The strategy then depends on the social environment of the firm." (Whittington, 2002)
Hofstede and Pederson state that "Culture is the way you were brought up. It determines what constitutes proper behaviour: in other words, the rules of the social game." (Hofstede, Pederson, 1999)
"Culture is tied to an individual's place of socialization which results in certain values or practices that become the norm for the nation's inhabitants, an organization's employees, or members of a specific occupation" (Hofstede, Neuijen, Ohayv, & Sanders, 1990).
The cultural dimensions that Hofstede uses to examine management behaviour are:
-Power distance is the degree of power that people display but which is tolerated by populations.
In Japan: The country can be considered as a country with high power distance culture. In general, top managers give orders and subordinates have to follow them.
-Individualism is the will that people have to work alone and act individually rather than to work in groups which is called collectivism.
Japan: Japan is not a highly individualist country but it does not mean that the country is collectivist. We can situate it between the two dimensions.
In Japan: Masculinity is high. Men have more responsibilities than women. It is rare to see a top executive woman in Japan for example.
-Uncertainty avoidance is the penchant for planned situations rather than risky situations which is called uncertainty tolerance.
In Japan: Japanese culture is oriented towards planning and has high uncertainty avoidance.
-Long-term versus short-term shows the orientation of a society which can be headed to the future or more oriented towards the present or the past.
In Japan: The country is considered as a long-term oriented country. The Japanese culture is known for patience and persistence.
Concerning Honda, the company has medium power distance which means that company's top managers give orders and want subordinates to obey but at the same time they can consult them and involve them in the strategy.
The Company is at the same time long-term and short-term oriented. For some operations, Honda can set goals that may be achieved in the future whilst for other operations, Honda looks at the present and acts on a daily basis.
Regarding uncertainty avoidance Honda is not considered as a risk taking company. The actual economic situation does not allow managers to take risks, they prefer to set strategies and work gradually by paying attention to every change in the outside world.
Honda can be considered as feminine because managers are intuitive and even though the company comes from a country with high masculinity, men and women can work equally.
There are some aspects of individualism within the company which encourages competition among employees. However, we can also see some aspects of collectivism when it comes to the decision making process.
Concerning Honda in America, Frank J. Landy and Jeffrey M. Conte underlined that: "Honda's plants in Ohio have adopted a collectivist, high power distance, feminine, long term orientation culture much as one might expect to see in Japan. Here is a Japanese culture embedded in the heartland of America. The entire Honda organization, regardless of where a plant may be, applies this culture and trains all of its employees in it, with successful results." (Landy, Conte, 2010).
We can also add that to build productive relationships with the outside world, the international strategic managers should also take in consideration the business ethics that are norms of behaviour. The ethics may vary from a country or a region to another and sometimes the companies have to go beyond the ethics to move forward.
It is very important for a company like Honda to understand the cultural dimensions especially when it is competing on an international and global scale and even though Honda is a Japanese firm, it is not totally influenced by the Japanese culture. The company tries to impose its own culture and involve its employees in it.
To conclude this report, we can say that Honda is a reflection of its founder Sochiro Honda, it is always willing to achieve results but at the same time learning from failures in order to succeed.
Honda has been working hard to reconcile dichotomies that have been considered so far as contradictory. Honda showed that a company can combine the benefits of each strategy without harming the organisation.
However, in the actual economic context, the company has to adapt its strategy in order to keep its position in the automobile market and to maybe see a bright future fuelled by the power of dreams as mentioned in the company's philosophy.