Strategic analysis can be described as the collection and review of information about an organisation's internal processes and resources, together with external marketplace/industry factors, in order to inform strategy definition.
There are many strategic analysis tools, for example SWOT, PESTLE, BPEST, critical success factor analysis and scenario planning, to name but a few.
The internal and external environments are very difficult to analyse due to their sheer complexity . Michael Porter has developed a model for analysing the key features of the competitive environment called "Porters Five Forces" According to Porter (1979) the five forces framework allows a firm to identify the key areas that are critical for competition. It also allows the company to find strategic innovations to improve profits within the organisations.
Porter's five forces model is extremely useful in positioning an organisation in its competitive environment. De Wit and Myer (2004) states:
"The ultimate aim of competitive strategy is to cope with and, ideally, to change those rules in the firm's favor." Don't change the spelling here! - it's a quote!
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Threat of new entrants
The threat of new entrants to a market affects all the firms within the same industry; not only your own company. Within the automobile industry there is a limited threat of new entrants due to the high capital cost barrier of starting such a business. Honda along with the other car makers has no immediate fears of significant new entrants in the near future.
Buyers' bargaining power
The size of the buyer defines the power they command. For Honda their sales are high and remain so because they listen to and respond to the needs of their customers, who individually don't have much buying power
Suppliers' bargaining power
Component suppliers in the car industry tend to have very little power. In fact, in single supplier arrangements, quite the opposite is true as they are at the mercy of the manufacturer. Outside Japan, Honda has addressed this situation in a number of rather interesting way. Honda does not organise its own suppliers' association as most Japanese firms normally do. However, in North America, Honda has invested its own capital in some of the smaller early arrival Japanese 'transplant' component suppliers and at times will directly intervene with internal activities, such as purchasing some of their raw materials e.g. steel and aluminium. Its relationship with suppliers is clearly different from the traditional Western approach.
Competition among firms
Rivalry among the firms in the same industry means that they look for a competitive advantage over their competitors. This can be achieved through lower prices, more innovative products and new technology. Honda has maintained a competitive advantage over its rivals. One example is including some optional extras as standard in its car to entice new customers.
Threat of substitute
The threat of a substitute with the automobile industry is also unlikely. There will always be a demand for forms of personal transport. Perhaps the biggest 'substitute' will be how the vehicle is powered; possible substitutes to petrol and diesel fuels. Honda has been addressing this possible threat by investing heavily into developing gas, electric and 'hybrid' cars. This reflects the growing trend towards more fuel-efficient, safe and environmentally friendly cars and that are affordable to the dramatically growing new global middle class potential customers.
The five forces are shown graphically in figure 1.1 below.
Threat of new entrants
Competition among firms
Threat of substitutes
Buyer's bargaining power
Supplier's bargaining power
Figure 1.1 Michael Porters five competitive forces model
Porter's Value Chain
According to Porter (1985), whether providing a service or manufacturing a product, the company will have a series of activities and functions that need to be carried out to fulfil the wants of the customer or consumer. These activities need to be linked together and coordinated in a business system. This is frequently known in the industry as the Porter's Value Chain. Porter's Value Chain can be grouped into the following primary and support activities. Having a different activity system from a competitor can lead to a competitive advantage. The categories for primary activities are the following: Inbound logistics, operations, outbound logistics, marketing and sales and service. The following are the types of support activities: procurement, firm infrastructure, technological development and human resources management. A value chain, according to McHardie (2007), can be used by an organisation to find ways to increase profits.
Always on Time
Marked to Standard
In Honda, strategic and operational variables must be factored into the design of the company's global value chain.
Figure 1.2 The value chain model (Porter, 1985)
Critical evaluation of the process of 'reconciling dichotomies' at Honda Motors with reference to the 'positioning' versus 'developing internal resources' dichotomy (450)
According to Mair (1997) Honda's innovative strategic management and planning can be described a 'reconciling dichotomies.' He describes reconciliation as the challenge of making two opposite poles compatible. There are many categories for example in buy-supplier relations, work organisation and research and development. Strangely, Western managers fail to see the importance of these dichotomies. Honda has a very different way of thinking from that of the West in evaluating these dichotomies. Ehese are seen to be negative according the West and that tradeoffs are assumed if trying to mix two dichotomous concepts which result in taking some of the benefits of one but sacrificing benefits of the other. The West believes that they would end up with the worst of both worlds.
In Honda they have many examples that characterise dichotomy reconciliation. The 'right-first-time' or 'build in quality' approaches; these principles are advantageous in reducing costs, minimising stocks and reducing lead times. They concentrate on building in quality and getting it right first time, instead of having to test quality afterwards.
Another interesting dichotomy is in the organisational structure where the company approaches individual-group dichotomy in the strategic decision making. Honda promotes both individualism and groupism at the same time. Honda seeks to get the best of both worlds. Honda rewards individuals within the company and creates competition between its employees but at the same time it stresses loyalty and cooperation. It also promotes group processes and collective decision making.
A very interesting dichotomy to critically evaluate is the 'positioning' versus 'developing internal resources. Honda has had difficult challenges with this dichotomy. They have not been able to with stand the image of a designer of sporty and technological innovative cars
The positioning approach according to Minzberg, Ahlstrand and Lampel, (1998) is where a company establishes a customer market they must constantly be adapting itself to the changes in the environment. Strategic planning in terms of market positioning is all about responding and changing to external developments and needs of the customers. Positioning is a long-term process. Porter (1985) suggests that organisations frequently direct themselves to a particular niche market or try and differentiate their products. This is very effective and clearly a benefit to the company who thus gain strong and profitable market share and position. According to Williams (2009) there are three strategies for market positions. Cost-leadership, differentiation and focus strategies.
Cost-leadership means that you are the lowest cost producer. Differentiation is where the product has extra features and the customers do not mind paying for them and focus strategy is the niche market.
Honda has had a lot of difficulty to change its image from being a manufacturer for the over sixties. It has focused both on cost and on differentiation producing standard small engine cars but also top end super sports cars. Mair (1997) suggests that Honda's focus for the future is for developing new low-pollution cars and considering solar power or electrical cars.
Developing internal resources HELP NEEDED WITH THIS PART PLEASE
Honda has focused its attention to developing internal resources within the organisation. De Witt and Meyer (2004) argue that it is important to build up internal resources over time. Strategically thinking a company needs to choose what resource base it wants to have. They also suggest that resources should be leading and that the markets should follow. Developing internal resources can give a company competitive advantage long-term.
An explanation into the 'pressures for global integration of activities' and the 'pressures for local responsiveness' in the context of the global automobile industry (300)
In strategic management it is equally as important to be responsive to local conditions as it is for the global integration of activities which is especially important in the context of the global automobile industry. According to De Wit and Meyer (2004) global synergy is not always an opportunity. It is sometimes a competitive demand especially if global rivals have implemented a global strategy beforehand.
Pressures for global integration of activities
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Multinationals aim for standardised products and globally standardised process because of the huge cost savings.
The global automobile industry is very competitive to gain competitive edge the need for global intelligence to collect and analyse data about competitors.
In the global automobile industry intensive business investment in the form of research and development is required. In order to meet these costs it is important to then a global strategy is required to sufficiently large markets.
Global planning is essential to ensure economies of scale and low cost production guaranteeing cost reductions. The automobile industry benefits greatly from ensuring economies of scale and depending on locations of production will guarantee low costs
Access to raw materials and energy would have a great influence of decisions regarding location and the location of markets.
Global integration should be priority if the specifications for the vehicles are universal in the car industry. The specifications will be the same except the only major difference will be split between the countries where people drive on the left and where they drive on the right.
Pressures for local responsiveness
To cope with local responsiveness it is vital that the responsiveness is not on in the form of adapting but also be fast at reacting.
Local cultures with obviously have differences in customer demands and tastes. The automobile industry especially Honda Motors that is from Japan needs to find out about the customers in the West.
Differences in marketing conditions, distribution, pricing policies.
Market structure locally determined, not multinational.
Differing bureaucratic and governmental demands in host countries. (please help re-write these)
An explanation of Whittington's 'Classical' and 'Processual' Schools of thought in the context of strategy development at Honda Motors (300)
Whittington's 'Classical' school of thought
'... The Classical approach, the oldest and still the most
influential, relies on the rational planning methods
dominant in the textbooks.'
The classical perspective on strategy asks three principle questions.
Where are we now? (Current Position) Answering this question the company needs to use a selection of traditional tools such as SWOT and BPEST analysis to their current position in the environment. Also making use of Porters five competitive forces to analyse the organisation's position in terms of competitive environment.
Where do we want to be? (Organisational goals) Classical strategists claim the main objective is to maximise profits. Whereas that is obviously one of the main goals. In terms of Honda, it is clear from their company philosophy that maximising profits are not the only goals. They also strive to be socially responsible and wish to address environmental and safety issues.
"Dreams inspire us to create innovative products that enhance mobility and benefit society. To meet the particular needs of customers in different regions around the world, we base our sales networks, research and development centers and manufacturing facilities in each region. Furthermore, as a socially responsible corporate citizen, we strive to address important environmental and safety issues."
Honda Motor Co. 2010
How do we get there? (The strategic objectives) Achieving the organisational goals is more of a challenge. A company will need to be unified in its strategic thinking and share company visions and goals. Honda very clearly promotes working as a team and sharing the vision of the company.
The classical school of thought is most used and follows traditional text book theories and models.
The classical approach insists that management look for ways of maximising profits by rational long-term strategic planning.
Whittington's 'Processual' school of thought
'... Processualists emphasise the sticky imperfect nature
of all human life, pragmatically accommodating strategy to
the fallible processes of both organisations and markets.'
According to University of Sunderland,(2004) This school of thought is seen to be as a result of the processes of the managers activities. This stresses that neither individual or group preferences will win. The key issues are pluralism, power and political activity. Pluralism means concerning more than one and has always existed in organisations. This school of thought claims that the people outside the company such as the stakeholders also have power to influence strategy. Individuals within the company have more influential power, as long as they have a source of power. Some sources of power are from the organisational position which is classed as formal power from positions within the organisation.
A critical evaluation of how to apply these Schools of thought to Honda Motors (450)
Advantages and limitations of each school of thought compared to Honda
Explanation and exploration of which school of thought is preferred giving justifications
No one school of thought is preferred with both schools of thought having both advantages and disadvantages with relation to Honda Motors. The company
A critical evaluation of the implications of cultural dimensions for international strategic managers at Honda Motors in building productive relationships with the outside world. (750)
Grant, Robert. (2005) Contempory strategy analysis, Fifth Edition, Blackwell Publishing
M Porter, Competitive Advantage, Free Press, 1985.
Pascale, R. (1996) Reflections on Honda., California Management Review, 38, 4, 112-117.
Williams, Kevin. Strategic Management, First American Edition, 2009
Whittington, R. (2000) What is Strategy and does it matter? Thompson Learning.
Dawson, P. (1994) Organizational Change: A Processual Approach. London: Paul Chapman.
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