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Global Corporate Strategy - Honda Case Study

Research Paper (undergraduate) 2011 55 Pages

Business economics - Trade and Distribution

Excerpt

Table of content

1 Executive Summary

2 Introduction

3 Situational Analysis
3.1 Company Profile
3.2 Growth and profitability
3.3 Philosophy
3.4 Goals
3.5 Competitors
3.6 SWOT-analysis of the company
3.7 PEST-analysis of the company

4 Reconciling Dichotomies
4.1 Planning vs. Learning
4.2 Positioning vs. Developing internal resources
4.3 Product-related core competencies vs. Process related core capabilities

5 Japanese management model vs. Western management model

6 Corporate Governance and CSR

7 Conclusion

Appendix

List of references

1 Executive Summary

The report is divided into four parts. The first part will analyse the current situation of Honda, which gives the reader insight in the current state of Honda's business. The second part will presented different dichotomies and analyse how Honda has dealt with them in the past. In the third part, the differences between the western management model and the Japanese management will be analysed and then related to Honda’s management concept. In addition, cultural influences based on Hofstede will be presented. The last part deals with corporate social responsibility and Corporate Governance focussing on Honda, Nissan, and Chrysler.

2 Introduction

Within the automobile industry, there exists a high intensity of rivalry. Automobile manufacturers are seeking for innovative strategies in order to be successful in the long-term. In addition, the highly debate topic “global warming” also puts pressure on the automobile manufacturers forcing them to develop new low emission cars and be more responsible for the society. The Honda Motor Company is a shining example for setting up flexible innovative strategies, which fit into a fast changing environment.

3 Situational Analysis

The situational analysis attempts to address the question „where is the organization now? " The situational analysis contains a vast amount of information and, as the term indicates, is “an analysis of the situation that you are facing with the proposed product or service” (Hollensen, 2003, pp. 652).

3.1 Company Profile

In 1946, the Honda Technical Research Institute, a company focused on the manufacturing of motors for motorized bicycles, became the Honda Motor Company. During the 1950s, the company grew to one of the leading motorcycle manufacturers in the world expanding its business in 1967 by producing automobiles. In 1980, Honda established a manufacturing plant in the United States extending its business on a global scale (Copinath & Siciliano, 2009). Today, with a global network of 492 subsidiaries and affiliates, developing, manufacturing and marketing a wide range of products, Honda became the largest motorcycle manufactures and one of the leading automakers in the world (Honda Annual Report, 2010).

3.2 Growth andprofitability

Global sales as reported were $ 92.21 billion for the financial year ended March 31, 2010, a decrease of 14.3 % from the fiscal year ended March 31, 2009. The main reasons for the decrease were negative foreign currency translation effects and decreased net sales in automobile business. The operating profit was $3.91 billion during 2010, an increase of 91.8 % from the previous year. This was due to decreased selling general, administration, and R&D expenses and continuing cost reduction (Honda Annual Report, 2010). Furthermore, Honda is mainly presence in North America, Japan, Europe, Asia, as well as in other regions such as Brazil or Australia. Please see appendix to find further financial information on Honda.

3.3 Philosophy

Honda’s success is linked to its philosophy, which is based under the basic principles “Respect for the Individual” and “The Three Joys” -expressed as “The Joy of Buying,” “the Joy of Selling” and “The Joy of Creating.” The first principal emphasized on respecting the unique character and ability of each person, trusting each other as equal partner in order to be successful. The second principal expresses that all customers who come into contact with the company should feel a sense ofjoy through that experience (Honda Annual Report, 2010).

3.4 Goals

The main goal of Honda is maintaining a global viewpoint by supplying products of the highest quality, at a reasonable price for worldwide customer satisfaction. In addition, there are management objectives such as it follows:

- Proceed always with ambition and youthfulness.
- Respect sound theory, develop fresh ideas, and make the most effective use of time.
- Enjoy work and encourage open communication.
- Strive constantly for a harmonious flow of work.
- Be ever mindful of the value of research and endeavor.

(Honda Philosophy, 2011)

3.5 Competitors

Honda is competing in many different industries such as in the automobile manufacturing, the motorcycle manufacturing, the hand tools, power tools, the lawn & garden equipment, and the sporting goods & equipment industry.

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Source: Authors' design; databased on annual reports (see appendix). Alexander Berger - Global Corporate Strategy -

Due to this, Honda is facing a lot of competition in those industries. Within the auto manufacturing industry, Honda's main competitors are Toyota, VW, Daimler Group, BMW, Ford, Chrysler and Nissan.

3.6 SWOT-analysis of the company

A SWOT analysis is a technique specially designed to help identify suitable marketing strategies for a company to follow. It encompasses both the internal and external environments of the firm (Hollensen, 2003).

Abbildung in dieser Leseprobe nicht enthalten

Source: Authors' design

3.7 PEST-analysis of the company

A company exists within an external environment consisting of the actions of other players such as the government and competitors who are outside the business. A PEST analysis is a useful tool for understanding the ‘big picture’ of the environment in which an organization is operating.

Abbildung in dieser Leseprobe nicht enthalten

Source: Authors’ design

4 Reconciling Dichotomies

Nowadays global markets are characterized by increasing competition and a fast pace of technological change. This has led to an increasing demand for business improvement philosophies and methodologies in literature. Literature about strategic management often deals with key dichotomies such as planning vs. learning, positioning vs. developing internal resources, and product-related core competencies vs. process related core capabilities. In context to this, literature emphasized that a company has to follow one pole to the exclusion of the other in order to order to be successful (De Wit & Meyer, 2004). Nevertheless, Honda tried to find ways in order to reconcile such dichotomies, which in fact gave Honda a competitive advantage as explained in the next sections.

4.1 Planning vs. Learning

Mintzberg (1978) first made a distinction between planning and learning. In his article “Patterns in Strategy Formation”, he identified two kinds of strategies: intended and realized. These can be combined in three ways as shown in the graphic below.

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Firstly, intended strategies that get realized are called deliberate strategies. Secondly, intended strategies that do not get realized, due to e.g. unrealistic objective setting, wrong judgment about the markets, etc. are called unrealized strategies. Last but not least, realized strategies, which were never intended, perhaps because of unexpected changes in the environment, are calledemergent(Mintzberg, 1978). Alexander Berger - Global Corporate Strategy In this context, De Wit & Meyer (2004) emphasized that deliberateness refers to the quality to act intentionally. It refers to the motto “Think before you act”. Managers are first setting up a goal and then choosing a strategy to get there. The strategy is formulated in a plan, which contains all actions in order to reach the goal. Formulating a plan requires a lot of time including an extensive analysis of the situation. After the plan has been formulated, tasks are assigned, responsibilities are divided, budgets are allotted and targets are set up. A control system also allows to measure results in comparison to a plan, which gives a company a higher degree of control (De Wit & Meyer, 2004). In addition, strategic planning encourages long-term thinking and commitment.

In contrast, a realized strategy, which was never intended, is a result of an iterative process of “thinking” and “doing” (De Wit & Meyer, 2004). It is a pattern of actions developed in a company in the absence of a specific goal, plan, etc. It involves recognizing an opportunity and reacting quickly (Harrison, 2009). Furthermore, an emergent strategy implies that a company is learning what works in practice. Therefore, learning is an essential part in the strategy formation.

There has been many discussions about which approach is more successful. Andrews (1987) argues that that strategic analysis and formulation should be conducted consciously, explicitly and rationally. In addition, he argues that strategic reasoning is a logical activity (De wit & Meyer, 2004). In contrast, Ohmae (1982) argued that the mind of the strategist is not dominated by linear logical thoughts, but by creative and intuitive thinking. Furthermore, he stresses out that logic is insufficient for arriving at innovative strategies (De wit & Meyer, 2004).

Both argument clearly show the paradox of a deliberate and emergent strategy which has led to dichotomies of strategies. Nevertheless, Mintzberg & Waters (1985) created the term “deliberately emergent” in the sense “that the central leadership intentionally creates the Alexander Berger - Global Corporate Strategy - - 7 - conditions under which strategies can emerge” (Mintzberg & Waters, 1985, p. 263) (Please refer to appendix). In addition, Whittington as shown below has classified a deliberate strategy under the classical school of thought and an emergent strategy under the evolutionary school of thought, which share both the same outcome profit maximization.

Abbildung in dieser Leseprobe nicht enthalten

If you take a closer look at Honda, you can see that Honda successfully reconciled both dichotomies. Honda has for instance developed an innovative strategy for the planning of production. The automobile industry is often characterized by a large-lot mass production in which cost reduction is the main goal. However, the rigidity of mass production systems is a disadvantage, which makes any production change costly. Furthermore, the variety of the products that can be produced on the same system is limited comparing to batch production (Dolgui & Proth, 2010, pp. 197). Here, Honda combined the advantages of both (cost reduction and product variety) in developing a “small batch” production system. Through this system, Honda could reduce the production cost but also was able to offer a wide range of products and act flexible. Honda intentionally creates the conditions under which strategies can emerge. The deliberately planned “small batch” production system allows Honda to be flexible in the production forecast. Due to this, Honda can learn from the markets how it should forecast its production. In addition, Honda can react quickly to unforeseen difficulties Alexander Berger - Global Corporate Strategy - - 8 - in the production schedule. Here, strategy is partly deliberate, partly emergent (deliberately emergent).

In addition, on the one hand Honda's collective decision-making processes with a few clear responsibilities reflect a deliberate strategy. Here plans will be formulated. On the other hand, at the beginning Honda penetrated new markets such as the US with an emergent strategy. In context to this Mintzberg argued “if Honda had been in fact rational in its planning it would not have attempted to sell the small motorcycles in the US at all.” Further, he states that “the Honda case thus reveals the necessity of emergent learning alongside deliberate planning”.

4.2 Positioning vs. Developing internal resources

Companies that align their strategies based on the external environment are market-based orientated (outside-in). Market-based research focus on the understanding how the external content of a company relates to strategic decisions (Rasche, A., 2007, pp. 54). In addition, Porter suggest five competitive forces -threats of new entrants, bargaining power of suppliers, bargaining power of customers, rivalry among current competitors, and threat of substitute products and services- which must be analyzed to formulate a strategy on a market-based research focus. The strength of each of the five competitive forces is a function of industry structure or the underlying economic and technical characteristics of an industry (De wit, B. & Meyer, R., 2004, pp. 259). In the contrary, resourced based (inside-out) research focus on the internal capabilities that influence strategic decisions. A common model to identify the internal capabilities is the SWOT analysis. The SWOT analysis determines the current state of the market and outlines the strengths, weaknesses, opportunities, and threats a company faces within its environment. In context to this, a company must ask itself four general questions: What do we have that gives us a competitive advantage? Where can we be attacked and what do not we have? Where are the best markets to generate successful results? What do we need to look out for that would have negative impact on results? (Kern, R., 2001, pp. 3).

In general, not all decisions can be made based on only internal or external influences. Some strategic decisions are influenced by both factors. For instance, a resourced-based company has still to follow government regulations, which might be able to affect the company's capabilities to provide a good or service negatively (Rasche, A., 2007, pp. 54). In the past, literature has provided different views about if a strategy should be based on-either market- based or resourced-based. Drucker (1987), for instance, claimed that “it is more important to do the right things than to do things right”. “What sense would it make to serve a market with a product that is not needed?” He tends more to an outside-in approach which focuses on effectiveness “doing of the right things” rather than efficiency (Rasche, A., 2007, pp. 55). By contrast, the inside-out perspective is more concerned with the allocation of the company's capabilities to achieve efficiency. Miles and Snow (1978) argued that over time an outside-in company might do things right effectively but has lacks of capabilities in other areas such as developing new products. They argue that to strengthen a company's capabilities and being efficient is a precondition for market effectiveness in the long-term. Especially in times of a fast changing environment due to the economic recession, the increase number of competitors, and due to the globalization, managers are challenged to find the right approach to formulate the right strategy.

In this context, Honda tries to reconcile this dichotomy in order to be efficient as well as effective. Honda's core competence is the ability to produce some of the world's best engines and powertrains (Hamel, 1994). Although Honda is nowadays the world’s biggest motorcycle producer and a lead supplier of cars, it has never defined itself either as a motorcycle company or as a car company. Since the very beginning of the company, Honda's strategy has been built around its expertise in the development and manufacture of engines. As you can see from the graphic, this capability has successfully been transferred offering a wide range of products (Grant, 2005). This is considered as an inside out approach first looking at the internal resources and then offering the product to the market.

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Source: (Grant, R. M, 2005, p. 134)

Nevertheless, Honda also put emphasize on doing the right things. The company designed its products and processes according to the need of the markets. Here, it is important not just to be efficient in producing engine but also to meet the market needs in terms of design, safety, price etc. and to position the product effectively which Honda does. Furthermore, in developing new low-pollution power sources for vehicles Honda follows an outside in approach looking at the market needs and then building the capabilities to do it. Following both approaches has led to a competitive advantage for Honda.

4.3 Product-related core competencies vs. Process related core capabilities

In general, according to Day capabilities are “complex bundles of skills and collective learning, exercised through organizational processes that ensure superior coordination of function activities.” Furthermore, Hamel (1994) has identified process related core capabilities as competencies such as quality, just-in-time management, cycle time management, etc. These capabilities allow companies to do things more quickly and flexibly than their competitors do (Birchall & Tovstiga, 2005).

Moreover, according to Hamel a core competence can be identified under the following three questions:

1. Is ita significant source of competitive differentiation?
2. Does it transcend a single business?
3. Is it hard for competitors to intimidate?

(Drejer, 2002, p. 97)

Furthermore, the tangible link between identified core competencies and end products is the core product. In this context, core products are the components that actually contribute to the value of the end product (Prahalad & Hamel, 1990). Please see appendix.

Referring to Honda this dichotomy seems to be false. Honda is focusing on both resources because both matters to Honda's customer in different ways (DeWit & Meyer, 2004). Honda's engines are the core products, which provide high values to its customers in terms of product performance, etc. Nevertheless, Honda's small batch production system, dealer network management system, free flow assembly line, etc. allows Honda to do things more quickly and flexibly than their competitors do.

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Title: Global Corporate Strategy - Honda Case Study