The Success Of Honda Business Essay

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Starting from virtually nothing in 1960, Honda had clearly established its lead in both the Japanese and US markets, by creating demands as well as redefined these markets (4, 83). The success of Honda in the 1960s was the efforts of its founder Sochiro Honda, his partner Takeo Fujisawa (p. 84) and their executives accompanied by an abundant number of courageous decisions, though the top executives of Honda didn't attempt to follow any decision making theories or models -might not even know about their existences.

Generally speaking, Honda didn't have any long-term strategy, at least strategies aligned with the theoretical concept as described in numerous books and works (Webster, 1 p.80, Braverman in Harrison 1999: 5, Cornell in Harrison1999:9, etc…refssss). Its executives, including Mr. Honda and Fujisawa, had taken actions as required. Those actions and decisions could be categorized, using decisions making processes and models, as goal-oriented, risky, bounded rationales, personal, non-linear thinking and so on.

I will try, in this report, to associate the decisions that had been taken in the 1950s and 1960s as per Pascale (1996), to some of the concepts and models in the decision making process, though the executives of Honda might not had followed them or been aware of their existences.

Honda: the story

The success of Honda began, when Sochiro Honda teamed up with Takeo Fujisawa in 1949 (84). The inventive geniuses of Honda complemented with financial and marketing strengths of Fujisawa started to shape the elements of a successful enterprise (p. 84). Their goals were different; Honda was driven by his central ambitions in life - to race his motorcycle and win, while Fujisawa was trying to establish an enterprise. Those goals differences could be considered, according to Pondy, in Stage 1: latent conflict (book, 576) of organizational conflicts (book, 574). However, those conflicts helped them in achieving their success as many research suggests that some conflict is good for an organization and can improve organizational effectiveness (book, 394). Their first D-type motorcycle appeared in 1950.

The introduction, in a partitioned industry along with 247 manufacturers, of the D-type, could be categorized as risk-taking decision (book, 211) and bounded rational (book, 21). At that time, when there was no organisation (11, p.85), Mr. Honda and his partner didn't have enough information or data about the market to help them take the appropriate decisions. Therefore, they took a risky decision under unclear information about the market when they decided to introduce their first model. The D-type didn't enjoy great commercial success (9, p84).

In an attempt, to save the flattering company, Fujisawa took another goal-oriented (ref), unstructured and strategic (ref) non-programmed (ref) decision, by requesting Honda to abandon the noisy two-stroke engine and pursue four-stroke design. At that time, the quieter four-stroke engines were appearing on competitive motorcycles threatening Honda to death. But, Honda, taking a status quo decision (Book, xx), preferred to keep things as they are, he hesitated.

Honda took off by innovation and not by strategy. Demand dramatically increased, when Mr. Honda came up with a breakthrough design in 1950 that doubled the horsepower of competitive four-stroke engines (p 85). Even though the plant was chaotic, Honda did manage the mass-production to become one of the four or five industry leaders by 1954 with 15 percent market share (12, 85); by mainly taking operational decisions (ref) that sometimes could be non-programmed (ref) and unstructured (ref).

During the 1950s, Fujisawa sought to establish an enterprise, a goal-oriented (book, p.23) and normative approach decision (book:20).

As having a particular segment in mind, the small commercial establishments in Japan, Fujisawa took another goal-oriented (ref) and non-programmed (ref) decision by pressing Honda to use his innovation technology for a commercial motorcycle (13, p.85). This decision had very specific goal, "to come up with an inexpensive, safe-looking motorcycle that can be driven with one hand to facilitate carrying packages" (p.85). As no marketing analysis were available, this was a bounded rationality (ref) decision based on the observation and intuition (book: 85) of Mr. Fujisawa. However, it was a strategic (ref) unstructured (xx) decision that changed the face of Honda.

As predicted by Fujisawa, the introduction of Supercub in 1958 was a great success for Honda (p.85). Due to the innovation of a lightweight 50cc engine but with high horsepower, the Supercub was affordable. Honda had attracted new range of customers creating "disruptive changes" that brought very different values in the Japanese motorcycle market that had not been available before (Christensen, 1997).

Overwhelmed by demand, the decision to build a new plant through financing would be normal structured (book, xx) and operational (book, xx) decision, especially Honda had, as described by one of the executives, the proprietary technology, the market and the demand was enormous. The plant was completed in mid-1960s. However, before its completion, demand was met through highly costs measures, such as makeshifts in the company-owned assembly and farmed-out assembly through subcontractors. Initially, these decisions were Non-programmed (book, xx), forced by the unexpected demand and later they became operational (Book, ref).

Through another strategic (ref), goal-oriented (ref) and non-programmed (ref) decision, Fujisawa utilized the Supercub to restructure Honda's channels of distribution (p.85). The Supercub, classified as "something much more like a bicycle than a motorcycle", was sold directly to retailers (p.86). As the sales under consignment were no longer appropriate, a cash-on-delivery approach was introduced, giving Honda some competitive advantages with significantly more influence over its dealers than their competitors (p.86).

Exploring the US market

Like the other Japanese manufacturers, Honda didn't have any internationalized strategy. The decision of Honda to explore the US market was primarily due to its great success in Japan, aiming to sell what it was familiar with in the local market (pp.89-90).

The journey started in late 1959, when two Honda executives arrived in the United States. With an itinerary: San Francisco, Los Angeles, Dallas, New Work, and Columbus, they were aiming to learn and sense the market. This was a strategic decision (ref) that can be constituted as part of normative model (book, 20) and long-term linear thinking (book, 93).

With only 1,000 motorcycle dealers, out of 3,000, used to open live days, poor inventory, sales on consignments, financing by the retailers, very poor after-sales service and everyone drove an automobile the situation wasn't comfortable (p86).

Despite the uncertainty of the situation that motorcycle business could ever do very well in the U.S. market, an outrageous decision was taken by the executives of Honda to shoot for a 10 percent of the import market (p.86).

As stated by one the executive, "there was no strategy other than the idea of seeing if we could sell something in the U.S." (p.86), and as the information about the U.S. market wasn't clear at all and the executives didn't have the time to collect and process all required data, this was a clear bounded rationality decision (book, ref). Additionally, due to unfamiliarity with the market and the cultural differences, the decision was unstructured (ref) and very risk-thinking (ref).

The decision was also considered as nice frontier, a new challenge and fit the "success against all odd" culture that Mr. Honda had cultivated making it a personality (ref) and care self-evaluation (ref) decision, small description!!!

Mr. Kawashima, one of the executive that visited the U.S., reported, to Fujisawa, "his impressions including the seat-of-the-pants target of trying over several years to attain a 10 percent share of U.S. imports" (p.86). The targeted 10 percent wasn't' based on facts but it was a quick decision based on gut feeling and intuition (book, ref) making it under the style of non-linear thinking (book, 93). Furthermore, without quantitatively questioning the target, Fujisawa approved $1 million based on "if anyone could succeed, I could" (p.86), a very care self-confidence (book, 203) decision.

Once the decision to explore the U.S. market was taken, seeking financing, from the Ministry of Finance, was an obvious structured (ref), non-recurring (book, ref) decision.

The target of 10 percent of the import U.S. market had put Honda in completion with the European manufacturers. Without studying the external environment, especially the competitors, Mr. Honda, by looking at internal sources of information -his intuition and feelings, rather than considering external facts, was confident that the 250cc and 350cc were good enough as the shape of their handlebar looked like the eyebrow of Buddha, which he felt was a strong point (87). This decision perfectly falls under the non-linear thinking style (book, 93).

The decision of having 25% stock of each of the four models - 50cc Supercub, 125cc, 250cc and 305cc (p.87), was a group (ref) and unstructured (ref) decision, which was taken by the executives. It was followed by a similar decision, the timing of the startup of the whole operation. The timing coincided with the closing of the motorcycle business season of the 1959 (p.87).

However, choosing Los Angeles as the startup, due to the existence of a large second and third generation Japanese community as well as it might be suitable for motorcycle use with a growing population (p.87), was a structured (ref) group (ref) decision, falling under the linear thinking style (ref) and risk-management (ref) approach, as it was relied on external facts and information. Started on the West Coast and moved Eastward over a period of four-five years, Honda followed an incrementation (book, p.21) policy that developed the market region by region (83).

Sharing one apartment by the three executive, as well as renting a warehouse in a run-down section of the city, stacking the motorcycle crates by their hands, cleaning the floor and maintaining the parts bin (p.87) were all structured (ref) decisions falling under risk management approach (ref).

Have learned from the experience with the dealers in Japan, another structured (ref) decision, to directly go to the retailers, was taken.

A risk management (ref), non-programed (ref) decision had to be made when the big machine started to leak oil and encountered clutch failure. The decision was to air freight the faulty motorcycles to Japan as well as to work 24 days bench testing the bike in an attempt to replicate the problem.

Though, the huge success in Japan and the abundant stock - 25% of the initial shipment, Honda decided not promote the 50cc Supercub. This decision was mainly due to beliefs of their unsuitability for the U.S. market, those beliefs were inherited from, firstly in the U.S. market everything was bigger and more luxurious and secondly, the stereotype of the motorcycle was a leather-jacketed, tonnage troublemaker (p.82), labeling this decision as stereo-typing (book, ref) and cultural differences (book, ref) kinds of decisions.

Following on a demand, Honda started to market the 50cc Supercub in the sporting goods stores. Even though the sales of the Supercub were very successful, it was another non-programed (ref) and bounded rationally (ref) decision as it wasn't based on any facts, data or market analysis. In promoting these machines, Honda launched a very impressive advertising campaign, "You Meet the Nicest People on a Honda" (p.88). The decision was a strategic (ref) and non-programed (ref) decision. It was also a group (ref) decision falling under bounded rationality (ref). In this particular case, the group was split as the president and treasurer preferred another advertisement while the director of sales felt very strongly that this was the right one. This might be considered a group decision by minority as the director of sales was the one to implement it (book, 520). As the campaign targeted normal customers and female, the decision could also be also categorized under social (ref) and psychological (ref) decision.

In late 1964, Honda took another courageous strategic decision, bracing itself for revolt. The decision was to cease sales under consignment and replace it by cash on delivery. Even though it seemed risk-taking (ref) and bounded rationality (ref) decision, it was very strategic decision (ref) as none of the dealers relinquished his franchise (p. 89). As it did it in Japan, Honda shifted the power relationship from the dealer to the manufacturer setting the pattern for the industry (p.89).

Conclusion

Honda successes, like other Japanese manufacturers, were not the outcomes of a strong founded strategy as taught in business schools. "On the contrary, most of the success was accounted to its senior managers and executives who didn't dare to take courageous decisions and not to take their initial strategic positions too seriously (p.89).

Though Honda might not follow a specific strategy for decision making process and their senior managers and executives might not made their decisions based on any taught theory or model, I tried, in this paper, to associate, as much as possible, their decisions, in the 1950s and the 1960s, to those theories and concepts.

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