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This assignment is based on case study "Reconciling managerial dichotomies at Honda Motors" which covers various issues form strategies, reconciling dichotomies, mergers and acquisitions, & corporate social responsibility in automobile industry.
This assignment is divided into three chapters. In the first chapter we discuss about the different levels of strategy in a global context and critically evaluate the process of reconciling dichotomies with reference to product-related core competencies and process related core capabilities in Honda motors. Here we discuss about how Honda has used this process of reconciling dichotomies successfully in being dominating certain segment of the market and how this process separates Honda motors from its competitors. In the second chapter we discuss about global mergers and acquisitions and some factors which lead to global mergers and acquisition. And in the third chapter we discuss about Corporate Social Responsibility and its impact on organizational performance in financial & non financial areas also we discuss about two strategic leadership models from Honda case study i.e. Japanese and western models.
STRATEGY AND MANAGERIAL DICHOTOMIES:
Strategy, it's not a science or a profession. The concept of strategy has been around in military it has been for ages, but has penetrated the world (less than 50 years ago) and is comparatively new in field of study and as a discipline. Strategy has been defined as an "integrated and set of commitments and action designed to exploit core competencies and gain a competitive advantage". (Hitt et al., 2003, p9).
Strategies lead an organization in a particular direction which helps the organization to gain advantage with the use of its resources to meet the needs of the market and excel in its objectives. Strategies are broadly divided on the basis of decision taken at different levels and also depending on the type of organization. (Hill, Jones;2009)
LEVELS OF STRATEGY
CORPORATE LEVEL STRATEGY
BUSINESS UNIT A
BUSINESS UNIT C
BUSINESS UNIT B
BUSINESS FUNCTIONSBUSINESS LEVEL STRATEGY
MARKET A MARKET B MARKET C
Corporate level strategy defines and states organizations objectives, goals, purpose and produces principal policies and plan for achieving those goals and defining the range of businesses the organization has to pursue and development and coordination of that portfolio of businesses (Hill, Jones;2009). In an organization of any size or diversity corporate level strategy applies to the whole enterprise along with its businesses units. Corporate level strategy defines the businesses in which the company will compete. The decision makers in corporate level strategy are senior executives, CEOs and corporate staff. The main aim and responsibility in corporate level strategy is to ensure that the strategies of the organization are consistent with maximizing profitability and profit growth and the strategies must meet the expectations of the major stakeholders. Issues like geographical distribution, diversity of products and services or business units are the key areas of decision making in corporate level strategy.
If we take an example of Honda motors, we know that Honda motors has been active in wide range of businesses including Honda cars, truck, SUVs, Acura automobiles, engines, Honda jet, motorcycles, scooters, generators, pumps, lawnmowers, trimmers, snow blowers, home energy, personal watercraft. The corporate level strategy over here would be setting overall goals and objectives, allocating resources among various business areas and also considering of acquiring a new one or divest in any business.
Business level strategy is less comprehensive and defines the choice of product and services and also the market of individual businesses within the firm. Business level strategy is the one which determines that how will a company compete in a particular business and position itself among its competitors. (Hitt, Ireland, Hoskisson; 2009) The decision makers in business level strategies are General Managers of the individual business unit. Business level strategies are concerned with issues about pricing strategy, innovation or differentiation in terms of quality and use of distribution channels (Functions relating finances, purchasing, product and marketing department of business units).
Again if we look at what will be the business level strategy for Honda motors, it is clear that since there are many businesses in which Honda motors operate, the responsibility of taking decisions for individual business such as motorcycles on how to compete in this motorcycle market would be the business level strategy for Honda motors.
1.2 Reconciling Dichotomies at Honda Motors:
The achievements of the Honda motors in terms of technology have been widely recognized in the global automobile industry. The various strategic management practices carried out at Honda in order to become a competitive manufacturer in this industry, and come out successful in its objectives by effectively adapting to the market situation at that time had drawn attention towards its innovative strategic thinking.
In this process, no one particular strategy or principle was followed, instead two different were followed at the same time. And this process or innovative thinking used by Honda was termed as "Reconciling Dichotomies". Dichotomous means two different or opposite concepts i.e. two poles were used in reconciliation or made compatible with each other to be used. This strategy did not hold good for other organizations in the west but was one of the key reason for success of Honda.
Resources, Capabilities & Core Competencies lay the foundation of competitive advantage for any organization. (Hitt, Ireland, Hoskisson; 2009)
Resources are integrated to form capabilities, and capabilities are developed into core competencies.
Core competencies: Core competencies can be defined as an ability of an organization which acts as a nucleus for competitive advantage over its other rival companies in the market. (Hitt, Ireland, Hoskisson; 2009).It separates the organization form other competitors and reflects the nature of the organization. These competencies are developed over a period of time through various processes and proper deployment of its resources. Product related core competencies can be defined as strategy which emphasizes on sensing the market need and developing a new product suiting the customer needs with use of better technology.
Advanced Internal combustion engines have been the core competence, as it powers the whole range of Honda's products. Here the dichotomy lied in bringing the technology together with the thinking behind the development of the product. This process of technology along with distinctive features of the product of Honda products acts as a competitive advantage to the company. This can be easily explained with help of an example which is CVCC (Compound Vortex Controlled Combustion) engine. This engine was designed during 1961-1971and represented Hondas technology to the whole world. The main concern was emission of pollutant from the internal combustion engines. Various attempts were made to reduce the emissions but reducing the emission of one pollutant led to another. Instead of trying to stop pollutant and then other they decided to add a process of "Catalytic conversion" which would clean the pollutants after combustion. And this technology was introduced in VTEC (Variable Valve Timing & Lift Electronic Control) engines in 1989. Using this technology the engine improved fuel efficiency and also did not lose the power. Here both the poles of fuel efficiency and engine power were retained.
Core Capabilities: Capabilities exist when an organization has all the resources integrated for achieving a particular objective or for any process. (Hitt, Ireland, Hoskisson; 2009). They are often used or developed in functional areas such as manufacturing, Research and development & Marketing.
Along with its high achievement in its innovative product Honda's development process has been another core competency, which has been developed by increasing speed in their development process and was started in 1970's. The company's used to launch products every 5-6 years in earlier time which has been reduced to 2 years as there has been tremendous competition in this industry, and this acts as a competitive advantage for the company. The time reduced to launch the product has been achieved mainly because of two reasons or process followed by the company, which are as follows:
Firstly, the approach followed by Honda in its product development process where there is no particular or separate department for marketing, design, engineering, manufacturing and so on which is a very common and traditional practice followed by major automobile companies West. But instead in Honda there is one common SED (Sales Engineering Development) team set for all the processes, where they work together from start till the end product. And secondly is its particular model replacement system, it's a partial combination of two systems 'complete change model' where every compound is changed as the name suggests and 'face lift' in which there are only minor changes to give a modern look to the older models. This dichotomy can be explained by Honda as it did not completely change their model and not just minor face lifts. Honda used to change its model officially after every four years also vital unseen internal components were changed every two years. Thus new product released or the outcome is described as 'Rolling' or 'Iterative' model change programme. This gave Honda a competitive advantage and also gave customers a broad range of products and choices.
GLOBAL MERGERS AND ACQUISTION:
Mergers and acquisitions (Abbreviated M&A) have become one of the most accepted and common strategy to attain corporate growth and diversification, which can be seen in the M&A activity breaking all the records in 1990s. The global value or the international value of mergers and acquisition activity had increased from US$ 462 billion in 1990 to US$ 3.3 trillion in 2000(Thomson Financial Services, 2001).
'Merger' can be defined as two companies coming together to form a single new company. (Reed, Lajoux, Nesvold, 2007). It occurs when one corporation is combined with and disappears into another corporation. Whereas 'Acquisition' can be defined as a move in which a more than 50% of the voting shares of a firm are purchases by another firm. (GCS, Handbook by University Of Sunderland).
Network level strategy has been referred to as highest level of strategy, due to increasing cooperative relation among the organization (Rasche, 2007). It observes the relationship that a company requires to have with other market players, most of the time in so-called strategic networks. And this along with other factors plays an important role in M&A. Following are few factors which have an impact or results in M&A.
Too much Debt and Risk of bankruptcy: The market or an industry is never on a same altitude, there are times when there are some down trends in the market as a whole or an industry, & business tends to lose revenue, sales and growth. Also a possibility that affected company might lose its market share as the competitors will find this as an opportunity to increase their market share, revenue & profit. This affects the company's financial performance negatively. To tackle this negativity, companies go for alternative route of profitability which is reducing on costs. And the first step involves cutting jobs, which leads to elimination of talent who were key factors for the success of the company previously. Because of the loss of this employees, the process is delayed and becomes inefficient and thereby increasing the cost. This turns to a major situation which increases debt on the company and also there is a risk of bankruptcy if this continues for long. To avoid this situation, it is very important to increase the market share which is very low at the moment. An effective way of increasing market share is to merge with another company in the same industry. Thus it is one of an important factor responsible for taking decision about the M&A of a company.
Potential for product synergies: The aim here is to increase the quality of product and to be market leader in sale of that product. The Here each company brings something the other lacks, thereby improving the capabilities of the newly created company. The company expects to capitalize on synergies-efficiencies gained from the two companies working together and producing a better and greater product than either could have produced by themselves-eliminating redundancies and becoming a more capable, efficient and profitable company. The two companies coming together for this reason will expect to financially benefit them from this venture. This newly born organization is expected to position itself better than the previous two companies and perform better in market share, revenue earnings and future growth prospects.
Ansoff's product market strategies for business growth alternatives
Within this framework, companies can use different strategies for growth. Depending on the directions within the matrix, Ansoff (1957, 1965) differs between
Penetration, which implies stronger penetration of current markets product of a firm
Product development or product extension, which implies the addition of related or unrelated products or technologies to the current range of new firm.
Market development or market extension, which implies entering a new markets, such as new geographic markets or new customer segments
Diversification which implies to move into new markets and the addition of new products.
For achieving this target of product synergy an easy approach is either merger or acquisition of the company with the product which could give the company the needed variation or range in its products and services. Thus need for this synergy has given rise to approach of M&A.
Access to new technologies and emerging markets: There has been a tremendous boom in technology as a result of globalization and need to establish competitive advantage. The pace of technological change has generated new business and markets by creating new products and changing the ways in which the market can be served and has also led to a restructuring of established business combinations owing to increasing R&D costs. In the current uncertain technological environment, M&A are adopted to seek out new opportunities to exploit established competencies, and as a risk spreading tactic, partly to cope with rising R&D costs. Similarly companies experiencing difficulties in developing in house R&D, due to time or cost constraint opt for M&A as a means of acquiring technology & human resource.
3.1 CORPORATE SOCIAL RESPONSIBILITY & COMPETITIVENESS:
Companies across the world in modern times have embraced Corporate Social Responsibility. There's no global company in the developed world without corporate social responsibility on their corporate website. CSR has been understood in many ways by different organizations. However, it has been defines as "a concept whereby company integrates social and environmental concerns in their business operations and in their interactions with their stakeholder on voluntary basis" by European Commission. (Griffin, 2008).
Though the businesses are economic entities that exist to further the interest of the owners, it's not their sole concern. Without the balance of multi stakeholder approach, there is a possibility of firms becoming exploitive, anti social & corrupt, losing legitimacy and their ability to pursue the economic goals of owners for long time. This arise the need of corporate social responsibility.
A FIRM'S STAKEHOLDERS
NON PROFITS & NGO's
These three layers of the firm's stakeholders all are included within the larger context of globalized business environment which is a result of revolutionized technology that is raising importance of corporate social responsibility for today's businesses. Economical stakeholders are part of economical concerns of the organization whereas Organizational stakeholders and societal stakeholders are non financial concerns.
Corporate social responsibility is about companies and organizations going beyond the legal obligations to manage the impact they have on environment and society. In particular it includes the organizations interaction with their employees, customer, supplier and communities in which they operate.
MODEL 3: Syncretic stewardship- Balance between economic and non economical interest.
Models and approaches to Corporate Social Responsibility
CSR has been traditionally followed at a huge level in automobile industry. A social and ecological balance has to be maintained while following CSR in automobile industry. The products manufactured by automobile industry are mainly associated with various environmental, social, health and safety impacts. There are many instances where CSR has been followed in automobile industry such as all the production units of BMW and Honda's domestic industries had acquired ISO 14001 certification or validated under EMAS, the European Union's ecological audit system. This gives confidence to the customer in purchasing products from these companies as they are more reliable in comparison with their competitors. Honda had introduced Hydraulic combined anti-lock brake system into sports bike and large displacement motors for the better safety and braking control. Various features like front-side airbag, side curtain airbags, anti-lock brakes, Collision Mitigation Brake System (CMBS) are introduced by Honda to give better control in the vehicle for the safety. Honda has also been involved in various social and community welfare activities like clean campaign, blood donation drivers, disaster relief, earthquake relief, tsunami relief and many more campaigns.
Impact of CSR on organizational performance in financial areas:
Corporate social responsibility has been used as an important strategic tool to achieve its economic objectives and ultimately wealth creation. A positive relationship has been seen in most cases between CSR and financial performance of an organization. (Frooman, 1997; Griffin and Maton, 1997; Waddock and Graves, 1997)
Though approaches to CSR involve high initial investment but it has proved to be financially beneficial in the long run.
CSR branding of an organization helps in attracting consumers from its competitors thereby adding to profitability.
Socially positioned products helps in increasing the sale of products as now-a-days customers are aware of social responsibility towards the environment and are making an effort towards it by purchasing products which are eco friendly thus giving an edge to the organization, which in turn helps in increasing the sale products.
CSR have motivated the organizations to purchase raw materials form IS0 14001 certified suppliers which gives confidence to the organization and customers on using eco friendly products.
With better techniques of reusing and recycle of products, the amount or the percent of wastage has been reduced to great extent which helps in saving production cost and have less wastage. Recycling and reuse of products gives cost advantage.
Proper training and education to the employees in dealing with hazardous waste disposal techniques helps in saving cost which could be incurred as fines/penalties due to inappropriate waste handling techniques.
Impact of CSR on organizational performance in non financial areas:
CSR plays a vital role in organizations performance in non financial areas which indirectly affects the organizations purpose. Financial interest has been of prime importance but it's not the only one. The organization has a major role to play towards its employees which is its internal environment and community welfare, external environment societal goals to name a few.
Steps taken towards CSR in non financial areas helps in building brand image for the organization, creates goodwill in the market. It creates new opportunities and attracts new customers which act as a competitive advantage.
Increase corporate and societal awareness of the organizations field. (Idowu,2005)
Career Development opportunities for employees give them a sense of satisfaction & motivation in their work. Incentives programs to the employees on the basis of their performance also boost their performance. Proper training programs for handling new technology equipments acts as a safety measure and reduces the risk of accidents and injuries.
If the organization is huge they tend to invest more in CSR in non financial areas as they tend to give positive return over a period of time and are beneficial for the organization. (Fombrun & Shanley,1990)
Working for society and community welfare programs not only creates goodwill for the company in the market but also creates a sense of awareness among the employees.
3.2 JAPANESE AND WESTERN STRATEGIC LEADERSHIP MODELS:
Two models have always been compared as to which of them was most practical and reliable so as to be set as standards in this tough competitive world in automobile industry. These two models which are Western management model and Japanese management model have been compared on various features of the organization and processes.
The work process followed in Western Management Model was 'Taylorist' in nature which was based on following five main principles which are as follows:
Maximum job fragmentation
Divorce planning and doing
The divorce of 'direct' and 'indirect' labor
Minimization of sill requirements and job learning time
The reduction of material handling to a minimum.
It preferred unskilled and cheap workers for preparation and servicing task. Minimization of skills reduced the labors control over labor process. The workers had no decision making functions in their hand.
Whereas on the other hand the work process in Japanese model on comparison is exactly the opposite as the process was post Taylorist which followed exactly opposite to this principles. They used skilled workers and the workers had an opportunity to work according to the need, they had the power of decision making in the processes.
PRODUCTION ORGANIZATION & LOGISTICS:
The Western management model was overall Fordist in nature. Fordism had established a long term principle of large-lot or mass production at a reduced cost. (Coriat,1980). Fordism system of mass production was based on few basic principles such as standardization of products, sub-division of the work & extensive use of machinery. Push based planning logistics was followed in western model where production schedule for particular models are set out month in advance and depending on customer demands and focuses on sales strategy. Just in case was followed in WMM which meant to order in large quantities and be prepared to regulate the risk of uncertain demand.
Whereas in Japanese management model it is completely opposite, it followed post Fordist model where they focused on small lot production. Also pull-based system was followed in Japanese model where the automobiles were made as per the customer's order. Here, contrast to Just-in-case, Just-in-time technique was used which refers to narrowly to the way of organizing the immediate manufacturing labor process and buyer-supplier relationship between firms (Sayer & Walker, 1992).
ORGANIZATION & LABOR RELATIONS:
Western management models a vertical approach in its hierarchy and had fragmented duties- duties assigned to different levels of employees (labor level) to increase productivity which was the feature of Taylorist approach. The division of jobs between labor and other workers, as the focus was on to have a better control of job and the employee view was overlooked and this led to discontent among the labor class. Here as a result of vertical organization individuals were responsible with the task assigned. The industries organizations were separated firms or unit.
On contrary, the Japanese model followed horizontal hierarchy as the belief was that rigid vertical hierarchy could lose organizational control and could also lose vitality of smaller units or firms and restrict innovation. They worked in groups which allowed all the group members for their inputs as the duties were broad and not contained to particular part but the whole process. The industry organizations here were Keiretsu families i.e. concerned industries to the organization around a common bank (Melville, 1999). It involves a set of relationship between companies loosely bound together by a continuation of both business and social obligations, as well as a desire to prosper by combining resources.
After a thorough study of both the models i.e. Western and Japanese strategic leadership models and also considering the results of use of this models and changing times I would prefer Japanese Management Model for the following reasons:
The western model was based on Taylorist and Fordist approach. The Taylorist approach was kind of autocracy with little or no importance to the employees. This approach would give no opportunity for the employee to move up in organization and this created frustration and dissatisfaction. Example: In 1913 ford required about 13500 workers to operate factories at one time, and in that year alone the turnover was more than 50000 workers (Beyon, 1984, p.33). Whereas in the Japanese model the approach was post Fordist and post Taylorist where the employee had the power of decision making in the processes, employees felt motivated, attention was given to employee condition. The approach would help the organization as the basic principle for any organizations success is employee satisfaction.
The Japanese model was based on horizontal hierarchy which eliminates many managers and there are more employees on a same level, which eases the communication and decision making process. The duties are broadly classified which doesn't restrict them to individual doing one process only, instead a group working together which creates good team and ideas from many helps in production of a better product.
The production was on large scale basis and was gave standardized product in the western model where no alterations was possible on special request which was its limitation. On the other hand Japanese were very flexible in this approach with small lot production and could meet any alteration giving the company a competitive advantage over the company not following it. They followed just-in-time and pull system approach which helped in maintaining inventories as they did not had to spend much on storage and made the products as per the customers need.