BUSINESS POLICY CASE # 5 HONDA
Ahmed Ali Dhaku Hassan Waqas Khan Sial H!ia Adnan She!meen Wasi" BA$II %B&
Da'e( a) *5+ *,-5 Su.mi''ed '( P!"/ 0a!eed)
Case Overview This case is regarding strategy and execution, business policy, change management and corporate strategy. It describes the history of Honda Motor Company from its beginning through its entry into and subsequent dominance of the U.S. maret. The history is explained primarily in terms of strategic factors and quoted from t!o sources" an earlier case and #oston Consulting $roup report on the motorcycle industry. Today Honda is a dominant player in the U.S., but its start could not ha%e been more improbable. It !as only by staying flexible to an emerging understanding of !hat the opportunities !ere that Honda succeeded.
Company Introduction Honda Motors is a &apanese public multinational corporation primarily no!n as a manufacturer of automobiles, motorcycles and po!er equipment. Honda has been the !orld's largest motorcycle manufacturer since ()*), as !ell as the !orld's largest manufacturer of internal combustion engines measured by %olume. +ccording to recent data, Honda !as the eighth largest automobile manufacturer in the !orld behind $eneral Motors, ols!agen $roup, Toyota, Hyundai Motor $roup, -ord, issan, and /S+ in 01((.
Case Setting
$eographic" &apan and United States Industry" Motorcycle 2%ent 3ear #egin" ()45 2%ent 3ear 2nd" ()64
Quantitative Information •
The t!o decades from ()71 to ()51 !itnessed a strategic re%ersal in the 8orld motorcycle industry
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Honda9s Technical :esearch Institute !as established in ()47
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In ()46 Honda introduced its first +;Type, 0 Stroe engine.
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Honda expanded its presence in the fall of ()4) introducing a light!eight *1cc, 0;stroe, <;Type motorcycle
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:esponding to the threat by the competitors, Honda follo!ed in ()*( !ith a superior 4; stroe design that doubled horsepo!er !ith no additional !eight.
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#eginning in the ()*1's Honda begin to depart from this pattern, seeing simultaneously to offer a multiproduct line, tae leadership in product inno%ation and exploit opportunities for economies of mass production by gearing designs to production ob=ecti%es
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In ()*5, Honda's maret research identified a large, untapped maret segment seeing a small, unintimidating motorcycle that could be used by small;motorcycle businesses for local deli%eries
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The *1cc Honda's unit sales reached to >,111 per month after 7 months on the maret
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In ()*) Honda Motor Company entered the +merican maret
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in ()*), Honda, Su?ui, 3amaha and @a!asai together produced 4*1,111 motorcycles !ith the sales of A** Million that year
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Honda machines sold for less thanA0*1 retail compared !ith A(,111 to A(,*11 for the bigger +merican or #ritish machines
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In ()7(, Honda lined up (0* dealers and spent A(*1,111 on regional ad%ertising
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Its US. Sales rose from A*11,111 in ()71 to A66 million in ()7*.
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#y ()77, Honda, 3amaha and Su?ui together had 5* B of the US. Maret
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#ritish exports doubled bet!een ()71 and ()77, !hile Harley;
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In ()7*, domestic sales represented only *) B of Honda's total of A>(7 Million, do!n from )5 B in ()*)
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%er the same period, the production %olume had increased almost fi%efold, from 05*,111 to (.4 million units
Qualitative Information •
The &apanese in%asion of the !orld motorcycle maret !as spearheaded by the Honda Motor Company
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Honda acquired a plant, and o%er the next t!o years it de%eloped enough manufacturing
expertise to become a fully integrated producer of engines, frames, chains, sprocets, and other ancillary parts crucial to motorcycle performance •
#eginning in the ()*1's Honda begin to depart from this pattern, seeing simultaneously to offer a multiproduct line, tae leadership in product inno%ation and exploit opportunities for economies of mass production by gearing designs to production ob=ecti%es
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In ()*5, Honda's maret research identified a large, untapped maret segment seeing a small, unintimidating motorcycle that could be used by small;motorcycle businesses for local deli%eries
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In ()*) Honda Motor Company entered the +merican maret
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In contrast to other foreign producers !ho relied on distributors, Honda established a US. Subsidiary, +merican Honda Motor Company, and began it US. maret by offering %ery small light!eight motorcycles
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Honda follo!ed a policy of de%eloping the maret region by region, beginning on the 8est Coast and mo%ing 2ast!ard o%er a period of four to fi%e years
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The Company achie%ed a significant product ad%antage through a hea%y commitment to :D< and ad%anced manufacturing techniques
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Honda used its producti%ity;based cost ad%antage and :D< capability to introduce ne! models at prices belo! those of competiti%e machines
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Since ()71, Honda had consistently outspent its competitiors in ad%ertising
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It had also de%eloped the largest dealership net!or in the US
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The maret approach of Honda has certain common features !hich, taen toegther, may be described as a EMareting /hilosophyE. The fundamental feature of this /hilosophy is the emphasis it places on maret share and sales %olume
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Honda's primary ob=ecti%es are set in terms of sales %olume rather than the short term profitability.
Honda’s success story: A case of Intended and Emergent Strategies Ho! organi?ations mae strategy has emerged as an area of intense debate !ithin the strategy field. Henry Mint?berg distinguishes intended, deliberate, reali?ed, and emergent strategies. Intended strategy is strategy as concei%ed by the top management team. The intended strategy is the result of a process of negotiation, bargaining, and compromise, in%ol%ing many indi%iduals and groups !ithin the organi?ation. Ho!e%er, reali?ed strategy Fthe actual strategy that is implementedG is only partly related to that !hich !as intended FMint?berg suggests only (1B >1B of intended strategy is reali?edG. The primary determinant of reali?ed strategy is !hat Mint?berg terms emergent strategythe decisions that emerge from the complex processes in !hich indi%idual managers interpret the intended strategy and adapt to changing external circumstances. Thus, the reali?ed strategy is a consequence of deliberate and emerging factors.
In'ended S'!a'e1)
6esu!2e All2a'in P!2ess
Honda impro%ed understanding of !hat !ors and !hat doesn9t
S'!a'e1i2 A2'ins( ne3 4!du2's+ se!i2es+
A2'ual S'!a'e1)
Eme!1en' S'!a'e1)
Unanticipated problems, successes and opportunities
+nalysis of Honda9s successful entry into the U.S. motorcycle maret has pro%ided a battleground for the debate bet!een those !ho %ie! strategy maing as primarily a rational,
analytical process of deliberate planning Fthe design schoolG and those that en%isage strategy as emerging from a complex process of organi?ational decision maing Fthe emergence or learning schoolG. +fter 88II, Honda !as a supplier of small, rugged JSupercubK motorcycles. Supercub sales had gro!n to >11,111 units by ()*), and management, targeted the orth +merican maret for gro!th. Since +mericans used motorcycles for long o%er;the;road excursions, rather than the short urban trips for !hich the Supercub !as designed, so Honda9s engineers designed and manufactured a larger o%er;the;road bie for the +merican maret. Ho!e%er, Honda9s team had to face many challenges in +merica. Most motorcycle dealers !ere un!illing to accept an untested product line. 8hen the team finally signed up se%eral dealers !ho then sold a fe! hundred units, Honda9s inexperience in design for %ehicles in high!ay use became apparent as engine failures resulted. :epairs on !arrantied bies nearly banrupted the company. ne Saturday, a member of the team decided release his frustrations by racing his Supercub through the hills east of Los +ngeles. He in%ited his colleagues to =oin him, and JdirtbiingK became a regular recreational outlet. The bies attracted quite a lot of attention from locals, and one day a buyer from Sears called !ho !anted to start selling the bies. #ecause selling Supercubs !as not the company9s strategy, the team declined the opportunity and continued their focus on trying to mae the large, o%er;the;road bie strategy !or. +fter nearly three years, the unanticipated popularity of the Supercub and unanticipated difficulty !ith large bies con%inced the Honda +merica team that selling small bies as recreational %ehicles !as a better strategy. They tried to con%ince corporate management to support the change. The Honda team subsequently found that traditional motorcycle dealers !ere e%en more reluctant to sell dirtbies than Honda9s larger bies, because the lo! price point and profit margins on the Supercub !ere unattracti%e. The Honda team finally con%inced a fe! sporting goods retailers to carry the product line, and the popularity of dirtbies began to soar. Honda started using the ad%ertising slogan, J3ou meet the nicest people on a Honda.K These ads featured grandmothers, teenagers and businesspeople on Honda bies, quite different customers than traditional motorcycle clientele.
#y ()74 most elements of a !inning strategy had emerged for Honda, quite by trial and error. 8ith this understanding of !hat !ored and !hat didn9t, Honda then aggressi%ely scaled the business. +s production %olumes increased, Honda follo!ed a classic experience;cur%e strategy by cutting prices to build %olume, !hich further reduced costs and enabled additional price reductions. Honda9s product designers systematically increased the si?e and po!er of Honda9s products. Traditional cycle competitors found that they could not compete !ith Honda in the lo!er tiers of the maret, and retreated into the high end by emphasi?ing sales of larger bies. Ultimately only Harley
Japanese vision &apanese are some!hat distrustful of a single strategy, for in their %ie! any idea that focuses attention does so at the expense of peripheral %ision. They strongly belie%e that peripheral %ision is essential to discerning changes in the customer, the technology or competition and is the ey to corporate sur%i%al o%er the long haul. They regard any propensity to be dri%en by a single; minded strategy as a !eaness. The &apanese ha%e particular discomfort !ith strategic concepts. 8hile they do not re=ect ideas such as portfolio theory or experience cur%e, they regard them as a stimulus to perception. They ha%e often ferreted out the formula of their concept;dri%en +merican competitors and exploited their inflexibility.
Conclusion The lesson of Honda is that a business !ith a distincti%e capability that de%elops inno%ati%e products to exploit that capability and recogni?es the appropriate distribution channels for such inno%ations can tae the !orld by storm. +nd that lesson is %alid !hether Honda's achie%ement !as the result of careful planning or serendipity. The &apanese don9t use the term JstrategyK to describe a crisp business definition or competiti%e master plan. They thin more in terms of Jstrategic accommodation,K or Jadapti%e persistence,K underscoring their belief that corporate direction e%ol%es from an incremental ad=ustment to unfolding e%ents.K This is exactly !hat !e sa! in the Honda case.
eferences Christensen, C. and
