Companies
grow and are increasingly making its way into the global business environment.
However, there are profound challenges being encountered, necessitating these
companies to focus on developing effective strategies. Hence, these challenges
are requiring organisations to explore the various opportunities available to
them in the global business setting. Strategies are key in achieving
sustainability thus contemporary organisations are working at either growing fast
ahead of the competition, growing in line with the industry where it belongs or
catching up and defending an existing status. In developing key strategies to
combat the threats imposed by the internal and external environment, Honda
Strategy and managerial dichotomies
Business
level strategy vs corporate level strategy
There
are strategic choices that can provide an organisation bases for its decisions
on what approaches, directions or methods can be used for achieving business
level and corporate level objectives. Business level strategies create an environment
of better competition since this is a core strategy that the company forms to
describe how it intends to compete in a certain market (Hough, 2006, p. 47). In
business level strategy, integrated and coordinated set of commitments and
actions are used to gain competitive advantages by exploring core competencies
(Mankins and Steele, 2005, p. 68). Choices of business level strategy are
important as it impacts long term performance of the firm. Nonetheless, given
the complexity of successfully operating in the global economy, these choices
are typically difficult to decide upon. Hough (2006) noted that the purpose of
a business level strategy is to create differences that will distinguish the
firm’s position with that of its rivals.
As
firms move beyond their traditional business level focus, corporate level
strategies are developed. These strategies specify the actions the firm takes
in gaining the competitive advantages. This requires that the firms should
adopt a long-term perspective and how the changes taking place within the
industry will affect its current business model, its future strategies and its
sustainability (Bowman et al, 2002, p. 676). As such, the purpose of having
corporate level strategies is central on enabling the company to sustain and
further promote its competitive advantages as well as profitability. Simply,
corporate level strategies are created to drive the business model over time
and determine which business and functional level strategies should be created
to drive long term profitability. Corporate level strategies therefore deal with
plans for the entire organisation and change as the industry and specific
market conditions warrant.
Reconciling
dichotomies at Honda Motor
Mair
(2004, p. 671) presented various dichotomies relating to Honda Motor’s
operations. Nevertheless, Honda Motor is keen in developing internal core
competencies and capabilities by virtue of products and processes. Product-wise,
Honda is known as the engine leader because of its technological innovation
named the compound vortex controlled combustion (CVCC) engine and the variable
valve timing and lift electronic control (VTEC) family of engines. In
leveraging the core competency, Honda understands that there is a need to
combine engine with efficiency, and efficiency for Honda meant to integrate
‘environmental’ element. Such an element is evident on engineering engines that
do not create pollutants while not also sacrificing the performance (power) of
the engine. These technologically innovative engines enabled the creation of
excellent products in a variety of markets.
As
agile as a company can get, there are two reasons by which Honda delivers
superior engine designs. First, is because of its organisational approach to
developing products with the sales-engineering-development (SED) teams as the
key driver. Although not all processes are in-housed, the SED teams are
performing different functions from marketing, product engineering down to
manufacturing. Such a practice enables Honda to correlate the functions
together, reducing development lead times in the process. This is crucial
especially because of the ever-changing requirements of the consumers and
nature of the automotive industry itself.
To
address the changing needs of the consumers while also tapping on new
technologies, Honda is making use of a model replacement system. Honda was able
to provide consumers with different versions of car models every four years,
allowing new technologies to be incorporated into the new versions such as new engines,
gearboxes and braking systems. The model, however, was criticised by global
competitors, saying that what Honda is making could only pass as ‘cosmetic
facelift’ of modern-looking old car models (Mair, 1996, p. 452). Honda refutes
these criticisms, arguing that components of old models including the lights,
exterior body shape and internal design are officially replaced. To wit, the
model is an iterative process -- and also a proactive process -- whereby
manufacturing systems and whole model design configurations are already
pre-planned, allowing expected evolution on components and models. Iteratively,
model evolution is time-bounded, practiced laterally and geographical wherein
new models are offshoots of old models being roll out to places where old model
were initially offered.
Not
only that Honda had a core competence on engine designing, Honda is also
critically capable of manufacturing and associated processes. Within Honda’s
production chain such as logistics, planning and marketing, there are
systematic processes. From its free-flow assembly line, Honda had combined
productive efficiency and being humane where the dignity of the workers was
uplifted. Workers are dignified in the manner that they are given sense of
ownership over production processes. Further, Honda reduced cost while also
maximising product variation through the combination of large-lot mass
production and one piece flow production system. While Honda is making its production
even more productive internally, externally, the firm is successful in more
product development for consumers and in creating workplace effectiveness for
the workers. This would be difficult considering that the operational and
people aspects of an organisation are not easily reconcilable.
For
Honda, the key is to integrate both the push and pull systems which can be
regarded as fusion of Westernised and Japanese business ideals. Westernised
because it deals with the market and marketing orientations and Japanese since it
small-scale planning system. Although it cannot be said that Honda is veering
away from its Japanese roots through Westernising the internal processes, it is
unJapanising specific processes. Basically, if Honda is going to compete
globally it has to discard culture-based management of operations especially
since it seemed that the Japanese model is a direct opposite to the Western
model. Honda combated the adversities of culture-oriented operation by striking
a balance on both models dichotomously.
Global mergers and acquisitions (M&A)
Too
much debt and risk of bankruptcy
When
it comes to capitalism and interdependencies, the differences is primarily evident
on the type of debt used rather than the relative importance of debt. The
financial aspect of any organisation includes financial distress cost, moral
hazards, tax deductions, profitability and growth and size among others.
Financial distress states that in the presence of bankruptcy there is a higher
cost in earnings. As such, the higher risk of bankruptcy leads to less debt.
Also, there are dangers of engaging in risky investments or under investments
after acquiring debt. Nevertheless, the high expenditures on intangible assets
such as research and development (R&D) are supposed to decrease long term
debt (Rugman and Verbeke, 2005, p. 151).
Further,
presence of tax deductions other than those related to debt may reduce firm
level needs for tax deductions through debt. Higher profitability is expected
to lead to lower debt. Firms with high sales growth are also assumed to use
less debt. Larger firms, nonetheless, may face lower transaction costs when
issuing long term debt than their smaller counterpart and can therefore be
expected to have higher debt (Rugman and Verbeke, 2005, p. 151).
While
this may be the case, capital reserves typically provide a financial buffer in
the organisation (Anderssen, 2006, p. 17). It is therefore utilised to absorb
the adverse economic impact of exogenous shocks especially those imposed by the
unexpected event such that the most recent financial tsunami. Critically, these
unexpected events that affect the conduct of the business particularly at the
international level, firms should be able to reduce variability in periodic
cash flows and reported earnings so as to veer away from debt and eventually
being bankrupt.
This
is active risk management which can lower the business risk in general
(Anderssen, 2006, p. 17). All the same, there is a need for firms to provide
management with an opportunity to increase financial risk associated with a
higher debt load. As such, when firms are able to impose effective risk
management practices in reducing the volatility of corporate earnings, there is
a reduced need for capital reserves. Basically, effective risk management
reduces the risk of bankruptcy and makes it possible to increase financial
leverage.
It
was in the 1953 when Honda was on the verge of bankruptcy. While the company’s
manufacturing systems were being refined, there was a major change in the way
Honda sold its products. Honda halted all sales of engines to outside
motorcycle assembly makers, pushing distributors that sell the company’s
products into purchasing finished motorcycles. As it is a decision that
strangled several rival companies’ production lines, the move drew angry
reactions and distributors abandoned the Honda brand. Honda reacted by
establishing new network of excusive distributors. Aside from the fact that
purchasing exclusive retail territories was rather difficult then, Honda
products often met with complaints from the users resulting to poor sales and
piling up of inventories. Honda responded to this by securing advance payments
while simultaneously deferring payments (Alexander, 2009, pp. 115-123).
To
analyse, there are two ways the actions of Honda can be explained. Firstly,
Honda demonstrated an effective risk management capability which was then
associated to eventual higher financial leverage. Secondly, Honda demonstrated
the capability which was then resulted in eventual higher economic performance.
However, the problem had dampened the volatility of Honda’s corporate cash
flows thereby increasing the potential of financial distress. This affects the
unimproved debt capacity of the organisation hence they came up with
alternative risk transferring solution. In this way, Honda can diminish the
need for capital reserves. What had happened is that the funding available for
payments was readily extended thus making it more attractive to engage in good
incremental business activities. Plainly, improved risk management capability
within Honda tends to reduce under investment problems (Andersssen, 2006, p.
18).
Potential
for product synergies
Synergy
is simply defined as the joint effect basing on the assumption that the process
of combining resources may yield an output that is greater than the sum of
those input resources. Being positive, the achievement of synergy is one of the
key objectives of business development strategies. Synergy could be also
achieved by increasing the capital or resource base of the enterprise. Some of
the examples of positive synergy is scaling effect or moving down the
experience curve, enhancing capability for competing in wider markets, entering
markets that were hitherto inaccessible, employing more highly specialized and
productive capacity personnel and increasing investments in knowledge
management, competence development and R&D (Morden, 2007, p. 557).
Generally
speaking, the opportunity to create synergy is reduced when an acquisition
combines firms or business units that are both strong and/or weak in the same
business activities. Newly created firms exhibits same capabilities although
the magnitude of either strength or weakness is greater. Synergy leads to
integration of value-enhancing activities. Operations synergy and marketing
synergy would be able to link strategic activities including management
synergies which then result in increased competitive edge (Hitt et al, 2001, p.
395).
As
such, the word synergy is irrelevant when applied to a firm that makes only one
product or offers a single form of service. The advantage is comparatively with
competitors who do not have that particular attribute. Considering that Honda pursued
a related diversification strategy, it is able to synergise across a range of
products such as motorcycles, diesel generator sets and gardening equipments
among others. The internal combustion engine is the common denominator of its
operation. Competitors engaged in each individual product line would be able to
capture this synergy and thereby would have a disadvantage while competing with
Honda (Phansalkar, 2005, p. 108; Harrison and St. John, 2009, p. 118).
Access
to new technologies and emerging markets
There
is an increasingly accepted view that technically appropriate technologies
should be widespread. But the problem is that these technologies are not
available everywhere. While there are modernisation projects in corporations,
the integration strategy is costly and often fails and the necessary additional
funding is required (Tallman, 2007, p. 87). Noteworthy is the fact that new
technologies will be indispensable. However, while new or emerging technologies
are critical, few of the needed new technologies are available to those who need
them most.
When
it comes to accessing emerging markets, the question is beyond their still
developing home market how they can become globally competitive. With the
advances of technologies, for instance, corporations can quickly displace
domestic companies from the segment of emerging markets. Because emerging market
companies often cannot access experienced research talent from their home
markets, it is difficult for them to invest in large sums such as R&D which
is a critical investment if these companies aim to effectively compete against
global giants (Khanna et al, 2010, p. 129).
For
Honda, before 1969 it was believed that the only way to reduce the impact of
internal combustion engines on the environment was by means of end-of-pipe
technology. Car manufacturers widely believed that there was a trade-off among
the various pollutants emitted from internal combustion engines (as cited in
Nel, 2007, p, 428) which could only be solved by means of the add-on process of
catalytic conversion. Honda, however, designed the CVCC engine during the years
1969-1971. With this engine, Honda engineers tried not to produce pollutants in
the first place, thereby reducing the need for later clean up. In similar way,
Honda overcame the traditional trade-off between fuel economy and engine power
by means of their VTEC technology.
Belonging
to an emerging itself in itself, Honda’s considered home market is Japan Japan
Corporate social responsibility (CSR) and
competitiveness
CSR
in the global automotive industry
Kotler
and Lee (2005, p. 3) define corporate social responsibility (CSR) as a
commitment to improve community wellbeing through discretionary business
practices and contributions of corporate resources. They continued that corporate
social initiatives are major activities undertaken by a corporation to support
social causes and to fulfill commitments to CSR. Kotler and Lee (2005, p. 4)
also noted that they key trends in CSR include increase in corporate giving,
increase in corporate reporting on social responsibility initiatives,
establishment of a corporate social norm to do good and an apparent transition
from giving as an obligation to giving as a strategy.
Anderson
(1999, p. 7) further noted that the concept of “doing good by doing well” or
progressing from “doing good to doing better” in area of CSR simply means that
social responsibility is and should be handled as a corporate investment that
will result in a long-run corporate profit and not a corporate expense. While
most businesses would probably like to achieve this goal, for many businesses
this may be easier said than done. As such, as Hawkins (2006) put it, CSR has
become a watchword for ethical governance in different industries that has its
roots on sustainability, encompassing social responsibility alongside
environmental and economic drivers (p. 256).
CSR
in the global automotive industry means actively safeguarding jobs while
assuming social and ecological responsibility at every production site. The
industry manufactures a product that is associated with various environmental,
social, health and safety impacts. All manufacturers, regardless of their
country of origin, thus face a number of challenges in managing such a product
responsibility (Richter, 2010).
Since
the automotive industry is also consisting of a complex network of global
suppliers, uniform standards must prevail for all suppliers within the supply
chain which is a difficult endeavour. Issues of fuel economy takes on increased
significance against the backdrop of a climate change, rising oil prices and
the r\rowing dependency on politically unstable oil exporting countries
(Richter, 2010). Nevertheless, whether an automotive company will succeed in
the future depends largely on how well they perform in balancing conventional
product requirements such as performance, safety and comfort on one side
against ecological and social challenges on the other (Richter, 2010).
Comparison
of Japanese and Western strategic leadership models
Since
Honda is an international organisation, it is exposed to different management
systems: western management and the Japanese management system. The western and
Japanese management systems differ in many ways. One of the aspects that
western management and Japanese management vary is in terms of leadership
aspects. Leadership comprises the aptitude and ability to inspire and influence
the thinking, attitudes, and behaviour of other people. Leadership is a process
of social influence in which one person is able to enlist the aid and support
of other individuals in the achievement of a common task. The achievement of
corporate success can only be accomplished by people who have broader knowledge
in leadership.
In terms of leadership styles, it can be said that the
western management system uses authoritarian style of leadership. This states
that the leader in western industries has the authority over his
subordinates. In this manner the authority have the right to do the
decision making without asking the opinion of the followers. The leader
in this type of leadership tends to tell the followers what must be done in
order to achieve the goals or objectives of the organization. On the other
hand, the leadership styles used in Japanese management system is the
democratic style of leadership. In this type of leadership, the leader
and the selected subordinates are involved in the process of the decision
making. Herein, the subordinates have the right to voice out their ideas and
thought which they think would be helpful for the leader in making the final
decision. On the other hand, in this style of leadership the leader is still in
control or has the authority for the final decision.
In line with the mission of Honda in providing quality
products at an affordable cost in the world market, the company must be able to
have strategic decision making for the future to continuously sustain the
strength of the company. Good decision making can be attributed as one of the
vital factors that will help the business to achieve its core mission and
objective. This alternative is helpful in a way that it can make the company
more competitive and survive in the marketing environment.
This can be done by choosing the most appropriate
leadership style for the company and ensuring that this style reconciles with
the production process of the organisation. Strategic decision making refers to
the activity of an organisation which involves generating alternative
strategies and choosing particular strategies to pursue. The degree of
discretion or strategic choice an organisation has will be determined to a
large extent by leadership style, national culture, commitment to past and
continuing strategies, the success of certain symbolic actions, and the nature
of its systems and processes. The perspective of strategic choice reverses the
emphasis by concentrating on the responsibilities of the management teams in
shaping the conditions and processes of the strategic management from both
internal and external environment of an organisation.
In addition, strategic action draws upon the social
activities and strategic management concept to improve the view that any
managerial actions can influence or affect performance in the world
market. The range of strategic actions is very broad. In environmental
context, strategic choice comprises the selection of the product/market realm
in which a certain organisation will engage in the future like what is expected
for the year 2006 for Honda.
Conclusion
Successful
strategy requires the firm to choose the markets in which its
distinctive capabilities yield competitive advantage. But the adaptive,
incremental nature of strategy means that the starting-point is where the
firm is now. Strategy is the direction and scope of an organisation over the long term: which achieves advantage for the organisation through its configuration of resources within a changing environment, to meet needs of the markets and fulfil stakeholder expectations. Hence, it can be concluded that through this analysis, it shows that Honda has been able to use a unique and effective strategic management system along with its core competencies. This management system has been the key factors for the success of the organisation both in the domestic and international market.
distinctive capabilities yield competitive advantage. But the adaptive,
incremental nature of strategy means that the starting-point is where the
firm is now. Strategy is the direction and scope of an organisation over the long term: which achieves advantage for the organisation through its configuration of resources within a changing environment, to meet needs of the markets and fulfil stakeholder expectations. Hence, it can be concluded that through this analysis, it shows that Honda has been able to use a unique and effective strategic management system along with its core competencies. This management system has been the key factors for the success of the organisation both in the domestic and international market.
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