Innovative Strategic Management Honda Business Essay

Executive Summary

Honda motor company is not an average Japanese car manufacturer. Through its innovative strategic management Honda is one of the best as well as leading companies in automobile industry, which is producing well with the help of all the latest and innovative technologies. Apart from automobile, Honda is one of the best and the largest producer of engine including motorcycle. It’s been argue that Honda’s success seems to be of a series of fortunate coincidences or are those fortunate coincidences well planned in the first place.

In this report, we will thus,

Examine Honda’s strategic position within a given business and industry internally and externally by using SWOT and PEST analysis.

Critically evaluate the process of ‘reconciling dichotomies’ at Honda motors with reference to Whittington’s school of thought

Explain advantages of international trade and its possible impacts of restrictions on global automobile industry.

Evaluate the implications for strategic management of each of the Stacey’s four loops.

Question One

In the context of the process of strategic analysis, outline what PEST and SWOT techniques are, and explain their practical relevance to strategic planners at Honda Motors.

PEST and SWOT analysis are the most accepted useful techniques to develop their strategies and plans for organization’s objectives. Basically, PEST stands for “Political, Economic, Social and Technological analysis” and describes a framework of macro-environmental factors used in the environmental scanning component of strategic management. Next technique which is SWOT analysis is scan of the internal and external environment factors. Internal to the organization can be classified as strengths(S) or weakness(W) and those external to the organization can be classified as Opportunities(O) or threats (T). (Stephen P. Robbins, Mary Coulter 2007)

Honda is one of the leading companies in automobile market as well as in motorcycle market. Their business is not only limited to domestic market but also global market. Since its inception, Honda has expanded their business area to power product including engine and become one of the best and largest engine manufacturers in the world. Analyzing internal and external factors as well as macro-environmental factors will be crucial for Honda to attain better and productive results in today’s complex and competitive environments. Both factors can be analyzed by PEST and SWOT analysis as below:

PEST Analysis

Political factors

Limitation on the number of cars being sold in many countries

Higher taxes or tariffs on imported cars

Stricter environmental regulation that requires cleaner emissions – It will add more advantage to Honda since Honda has advanced technology in producing cleaner emission engine.

Economic factors

Exchange rate – Recently Yen become very strong against major currencies (USD/EUR/GBP). Honda’s cars become more expensive.

Level of employment and GDP – Unemployment rate and credit default rate has been gone up. People tend to spend lesser.

Cost of fuel – Honda is producing more economical and eco-friendly cars than any other car makers.

Socio-cultural factors

Attitudes to foreign products and services – Some country’s car industry are dominated by their own manufactured car. Honda needs to develop special strategies to penetrate into this kind of markets.

Desire for smaller and economic cars – Honda needs to introduce newer models

Strong opinion on green issue – Honda should spend more on R&D to invent hybrid or emission free cars.

Technological factors

Safety requirements – Honda has to develop significant safety features like auto brake system and so on.

Intelligent car developments – Lots of German cars have intelligent systems like satellite navigation system and auto pilot. Honda should catch this up in their newer versions.

Environment friendly car – Honda invented i-vtec that has fuel economy, clean emissions.

SWOT Analysis

Strengths

Good reputation as reliable and fuel efficient.

Advanced technologies supported by strong R&D

Business diversification (Motorcycle/Automobile/Power products)

Weakness

Higher prices (for non-luxury vehicles)

Limited types of models (no commercial vehicles)

Weak interior &exterior designs

Opportunities

Increasing demands in intelligent and high technology vehicles: Use Honda’s strong R&D and advanced technologies to produce such cars.

New product developments such as commercial vehicles, alternative power sources and low emission vehicles.

Penetration in emerging markets like China and India.

Threats

Economic crisis – rising in oil and raw materials prices.

Competitors are catching up with better technologies and even lower cost.

All external changes – taxes and tariffs, politics, regulations changes on international trade policy and so on.

Critically evaluate the process of ‘reconciling dichotomies’ at Honda Motors with reference to the product-related core competencies versus process-related core capabilities dichotomy.

Honda had very different way of thinking and approach on its management compare to western managements. Honda’s success is resulted from its innovative and pioneering management strategies, known as ‘reconciling dichotomies’. For instance, western management has assumed that trade-off between product quality, cost and delivery which means that high cost more and took longer. However, Japanese management developed different approach to manage these dichotomies by concentrate on the method that reduce costs through making less waste and downtime, and rationalize production with minimal stocks, hence reducing delivery lead times too.

Honda was trying to integrate the best way of benefiting from both sides rather than trade-off or rejects the other.

Honda’s strategic innovation process, reconciling dichotomies can be seen at Honda across a wide range of activities as follows.

Category

Dichotomies

Honda’s Solution

Organizational process

Individual – Group

Individualism and competition were not stressed. Honda push in a way that maximize the contribution each individual can make while minimizing negative impacts of overemphasis on either individual or group.

Organization structure

Vertical – Horizontal

Honda pursues web-like organizational forms mixing group and individual processes that cut across vertical and horizontal structures, formal and informal relationships.

Product strategy

Product related competencies – process related capabilities

Technology vs Design

Honda’s organizational approach to the product development process based on team work reduces development lead times and its particular model replacement system.

Efficiency vs Dignity

In assembly line, Honda seeks to combine the advantages of the Western model with the advantages of the Japanese model.

Large-lot mass production vs one-piece-flow

‘Small batch’ production system based around the key number of 60 and its factors.

Push system vs Pull system

Honda’s approach is the simultaneous operation of pull and push based production planning systems.

Buyer-Supplier relations

Relationship with components makers

Vertical integration vs market relationships

Honda make a relationship with component makers based on close control and open, commercial relationship, creating structure which defies the polar types in traditional views of buyer – supplier relationships.

Dual/multiple vs Single sourcing strategy

Honda’s sourcing strategy is based on elements both. It induces suppliers to expand their markets due to indirect competition.

Core capabilities constitute a competitive advantage for a company in a given market. They have built up over time and cannot be easily imitated. As it shown in above table, Honda’s process-related core capabilities in managing the whole value chain from raw materials to dealer networks via product design and production process were very different from other competitors.

On the other hand, Honda concentrate on product related core competencies in mechanical technologies by combining high quality cars with low cost product design and production processes. Honda management did not focus on all activities of the business but they did focus on competencies that really affect competitive advantage. Also, their product related core competencies change in response to changes in the company’s environment. For instance, Honda tackled conventional dichotomy and associated trade off which is fuel economy versus engine power by inventing VTEC engine that gives both fuel economy and engine power.

Explain the main advantages of international trade and the arguments for restricting trade in the context of the global automobile industry.

International trade is simply explained as exchange of goods, services and capital between different countries or regions in the world. With the help of industrialization and globalization, international trade is growing and spreading very fast and it becomes essential part for growth of country’s economy particularly for developing countries like China and India.(University of Sunderland 2005)

International trade can be beneficial for all countries since it has a lot of advantages as below;

Enhance the domestic competitiveness

Extend sales potential of the existing goods

Increase sales and profits by gaining a global market share

Stabilize seasonal market fluctuations

Easy access to goods and services that not available in their own countries

Allow a country to use their resources more efficiently

Give an opportunity to participate in a global economy

The benefits of international trade have been the major drivers of growth for the world economy particularly automobile industry but the restrictions to international trade on the global automobile industry such as imposing tariffs or introducing import quotas would cause lots of significant problems. It will limit the availability of cars to domestically own manufactured cars and it is possible to cause a shortage in car supply. Those countries that do not manufacture a car will have serious problems in balancing the supply and demand of cars and it will lead to other problems in the country’s economy since a car is one of the most important means of transportation. Also, it will affect economic growth for some countries that have a high dependence on international market like Germany, Japan and Korea. For these countries, exports in automobile industry account for large part of country’s GDP and by having significant impacts on a country’s economy, it can be linked to a global economic crisis and recession. It’s like a chain reaction.

International trade on automobile industry opens up lots of opportunities for economic growth and quality life for many countries in the world and it will be beneficial for each individual and country. Benefits of international trade on automobile industry can be reaped further, if there is a considerable decrease in trade barriers between countries. People should consider more about the benefits and advantages of international trade rather than just protecting their own manufactured products.

Question Two

Explain your understanding of Whittington’s Evolutional’ and ‘Systematic’ Schools of Thought in the context of strategy development at Honda Motors.

Honda became one of the leading automobile manufacturers in the world after the company entered the automobile industry. However, some people argue that Honda’s success is by fortunate circumstance rather than by well planned strategy. This argument can be explained by two approaches in Whittington’s theory which are evolutional and systematic approach.

Whittington identifies four main approaches of strategy formulation which are classical, evolutionary, systemic and processual. He differentiated these approaches in terms of outcomes of strategy and processes.

In terms of outcomes, the evolutionary approaches view the profit maximization as the outcome of strategy, whereas the systematic approaches allow for additional outcomes other than profit (Whittington 2001). The evolutionary approach has as its objective survival in the market. It takes a more fatalistic view of the world. Companies are seen to be unable to predict and react to environmental changes. Not only do managers fail to set output at the theoretically profit-maximizing level where marginal costs exactly equal marginal revenue, but most managers have no idea what their marginal cost and revenue curves are. With this view of the world, it is the market that makes the choices not the company. The best outcome is to optimize the current fit between the company and the business environment.

In terms of process, the Systemic approaches agreeing that strategy may be deliberate while Evolutionary theorists see strategy as ’emerging from processes governed by chance, confusion and conservatism (Whittington 2001). The systemic school of thought is more contemporary, and more optimistic in its outlook. While it recognises plurality in desired outcomes, it also recognises that these are sociologically sensitive, that cultural influences will play a major part in their determination. These cultural influences affect the means and the ends of action, defining what is appropriate and reasonable behaviour for their members. Thus, personal histories which include educational background, religion, gender, family position, and ethnicity all shape economic activity.

Honda’s main strategy is to create sales and value through expanded sales via innovation in research and manufacturing. Honda has a great commitment for future by spending huge amount of funds into R&D. They did not only focus on profit maximization but optimization of its resources by satisfying customer’s and employee’s needs which are something more than profit. As a result, Honda’s strategic management practice becomes a guide line of successful management of corporations in the world. I believe that Honda’s innovative strategic management was not just come by a chance or fortunate circumstances but their well planned strategy that beyond the competitors’ thinking. This Honda’s strategy is well known as ‘reconciling dichotomies’.

Outcomes

Classical

. Evolutionary

-Profit

-Emergent

-Pluralist

-Deliberate

Systemic .

Processual

Critically evaluate how you might apply the two Schools of Thought to Honda Motors. Explain and explore which school of thought you prefer, and why?

Honda motor company is not just average Japanese car manufacturer but Honda is one of the best as well as a leading company in the market. Originally they start the business in motorcycle and now they manufacture cars, motorcycles and power products like lawnmowers and small boat engines. Honda’s success can be attributed to its corporate culture which includes elements from the Japanese model as well as the western model, and also its strategic managements which known as reconciling dichotomies.

Honda was the first Japanese manufacturer to make its products in Europe and North America. Honda took the risk of entering into a long term strategies with a European company that considered one of the least capable automobile manufacturers in the West, British Leyland. Only 25 years later from its business inception later Honda becomes one of the world’s top ten producers.

[Growth of Honda’s world-wide automobile production, 1960 – 1995]

Honda’s success is not just come by a series of fortunate circumstances but its good strategic management. In the view of evolutionary approach, competition is not overcome by detached calculation and analysis but by constant struggle for survival (Cuizon, 2009). It calls that Honda’s successful strategies only emerge as the process of the natural selection delivers its judgment and it suggests that differentiation or diversification is a way to survive in the market. Originally, Honda was involved in only motorcycle business until 1963, but they started to expand their business area to cars and power products. Also, Honda did not limit their business area to the domestic market, Japan but they expose themselves to global markets such as U.S., Europe and UK which means that Honda accepted early and rapid internationalization than other global and domestic competitors. Honda’s management tried to optimize their fit between the company and the business environment by product and business area diversification and it leads to a great success of Honda.

(*Source: Honda’s Annual report 2010)

However, Systematic approach has a relativist position. It believes that organization is able to plan and act effectively. It is much more optimistic than evolutional approach about its ability to define strategy regardless of market forces (Whittington, 2001). The approach argues that strategies must be sociologically efficient to understand the company’s environment. This means that there should be no separation between economic activities and social factors to ensure success. Honda’s success resulted from its innovative strategic management described as reconciling dichotomies. Honda took the different view of management school of thought compare to Western management school of thought that assumed trade-offs between product quality, cost and delivery. In fact, Honda focuses on how to build in quality to products rather than test in quality. They try to maintain a global point of view with the dedication to supply the highest quality products at a reasonable price for worldwide satisfaction. Their organizational structure and process were very innovative and well planned. Through all of these activities and plans, Honda has been survived since its inceptions of business and now become one of the top ten automobile manufacturers in the world.

These two strategic approaches have pros and cons. In my point of view, however, systematic approach is more preferable approach than evolutionary approach in rapidly changing environment. It will be difficult to imagine a successful strategy without understanding of market environments and understanding of market environments is not all about a successful strategy. There should be a clear guide map to plan and achieve goals for development and growth rather than leave it to market environments and let them decide the company’s future and survival. The systematic approach to position and fit the company into its environment will lead to success and protect the company from any sudden change. In Honda case, it can be said that Honda’s success was by its strategic management which is differentiation and diversification of its products and business area. However, if Honda did not have the innovative strategic management which is reconciling dichotomies and its corporate culture, no one can guarantee their success. It will be crucial for company to analyze the internal and external environment and make an effective plan and strategy for its success.

Question Three

“Stacey’s(1996) integrated model of decision-making and control comprises of four loops: the rational; the overt politics; the covert politics; and the culture and cognition.” (Stacey, R.D. (1996) Strategic Management and Organizational Dynamics, Second Edition, Pitman, London, cited in SIM336 Module Workbook, 2010. Unit 6 page 156)

Using your understanding of Whittington’s (2000) ‘Processual School of Thought’, critically evaluate the implications for strategic management of each of the four loops.

Processual approach is similar to evolutionary approach in the sense that it doubts the value of rational long term planning but it does not agree of leaving the profit-maximizing outcomes to the market since market is full of mess and confusion (Cuizon, 2009). It adopts a realistic view aiming to make the sophisticated processes simple in light of the fact that the environment is not ideal or perfect. The strategy is seen to be the result of the processes of political activity among interested managers and stakeholders and it believes that people are too different when it comes to interest, knowledge, attention, rationality and can therefore not agree on an optimal plan and accept pluralism.

Implications for strategic management of each section of Stacey’s integrated model of decision-making and control are as follow:

The rational loop

discover-choose and act or classical or incremental approach

many different world views; bounded by rationality; unitary loop

strategy therefore unfolds over time.

The overt politics loop

choose possible courses of action; bargaining for resources to achieve its goals through different functional activities

people may exert their power individually to influence events

scarcity of corporate resources

The culture and cognition loop

discovery process or shared mental models

for example, different strategic planners newly appointed, challenge the culture or approach with different models of how the world works.

unitary (shareholder) begins fragment into pluralism (stakeholder)

The covert politics loop

how individual respond to contradiction and conflict; organisational defence routines; coping mechanisms

the new &threatening situation provokes anxiety and responses are made largely unconscious

organisational defense routine – people covertly form alliances to feel safer

Stacey’s strategic management is start from the rational loop. Initially, they discover about organization in relation to its environment and generate the necessity to choose from many possible way of action. However, as processual approach believes that environment is not ideal and perfect, their assessment should not be based on its environment. The choice and actions are should be supported by rational and logical argument and evidence and related to company’s objectives. Also, should not be limited to unitary strategy but accept pluralism since each individual has different view and opinions on strategy or plan.

In the overt politics loop, they believe that when there are scarce organizational resources, the rational loop can be undermined because every individual has strong rationale on the possible courses of action or plan. People may exercise their power individually for their own interest. The management’s judgment and assessment should be based on appropriateness and rationality of its proposal rather than individual power or personal relationship.

In the cultural and cognition loop, it states that if there are changes in the environment, the stability of the culture is disturbed. It’s the time that the unitary organization starts to split into pluralism. Learn about different and possibly more successful ways of conducting business is will be beneficial for company since the environment is not the main determinant of organization’s position and future.

Stacy has mentioned about organizational defence routines in the covet politics loop where people covertly form a group or alliances and take action to make themselves feel safe. Organizational defence cannot be healthy in terms of strategic management. There should be a clear leadership and guide line in response to conflict and contradiction, so that people can move forward with real understating of what is an appropriate strategic management.

Conclusion

In presence of various schools and approaches to strategy, there is a demanding need to a unifying approach to simplify the understating of strategic practice and make it more feasible and effective for company. Strategies should deeply understand their dynamic business environment and exploit their strengths effectively to remain competitive. In the absence of a unifying theory, strategists should implement innovative measures in adopting a mix of the most appropriate approaches to suit the unique characteristics of its business. To sum up, it is not the strategy which will determine the company success but the company’s effectiveness in using its capabilities and human resources to implement the strategy.