In this assignment, Honda case study will be used to analyze the several strategic thinking process and philosophies taught in the business schools. In the first part, the several paradoxes on strategic thinking will be discussed. In the conventional business thinking, trade-offs are inevitable, and a manager should choose one of the philosophy to be applied in formulating the strategies of the firm. However, such thinking is not accurate, as there is virtually no trade-off in terms of business management. As will be shown by the Honda case study, Honda management did not have such limiting mindset that they can only choose one course of actions to achieve success in the marketplace. Instead, Honda had reconciled the seemingly dichotomies and emergence as one of the leader in the global automotive industry. In the second part, such issues will be further investigated. The differences between the Japanese management models (derived from Honda case study) to the western management models will be outlined. Understandings on such differences can enable the strategists to understand that there are many possible ways to craft practical strategies, whereby conventional frameworks may not be the only answers to a good strategy. Then, in the last part, the corporate governance as well as the corporate social responsibilities issues of Honda, Nissan and Chrysler will be discussed.
Paradox of Strategic Management
In the context of strategic planning, ideas can be so contrast that two set of paradoxes can co-exist in the management literature at the same time. For example, one argument that is hotly debated is about how a company should go about in formulating the strategic actions to be taken in the future. Effectively, one side of the argument argues that a proper, top-down planning approach is bets to conduct strategic evaluation and should be used in the strategic planning process. In such view, it is asserted that strategies can be formulated after details planning process (i.e., after collection of data, interpretation of the situation, applications of framework such as SWOT, PESTLE, Porter Five Forces, i.e., as how the strategic planning process that is taught to business student in most of the business textbook). However, from another perspective, which is often referred to as the emergent or incrementalist strategic planning approach, it is asserted that formal planning cannot be useful in the strategic formulation process. Instead, a learning curve is required before the best strategy can be formulated. For this, Mintzberg et. al. (1998) argued that strategies can only be crafted (or improve along the learning process), but cannot be planned in advance. It seems that both the views are paradoxes, as they refer to different opposing directions on how strategy can be formulated. In the words of the many western researchers, these are trade-off. A person can either choose to use proper planning to formulate strategies, or to learn first, and then only to discover the best strategies to be applied. However, both these methods are simultaneously used by the Honda Japanese management. For example, Japanese is famous for executing pre-planned strategic plans in committed manners. Before Honda enters into the market of United States, Honda has been collecting information, analyzing, planning and determining the best possible strategies to penetrate the market of United States. However, it is also found that Honda is a learning organization. Information is collected continuously by the front line workforce, and being feedback to the top management for further decision making process. It can be seen that both deliberate planning strategies as well as the learning and emergent strategies are applied in Honda from time to time. Depending on the situation, Honda had been able to select the more relevant strategic formulation process.
The second paradoxes to be discussed here is about the issue on what is the key factors contributing to a leading and superior position in the marketplace. From one end of the story, it is said that positioning is the key to company performance. This is similar to the concepts articulated by Porter Generic Strategic Framework, where to achieve competitive advantages, a company can either position itself as a low cost leader, differentiator or the focus/ niche player. According to such kind a perspective, a firm should firstly identify the opportunities in the marketplace, and then to tap into these opportunities through an advantageous position in the marketplace. However, from another perspective, it is said that a company should investigate its internal resources first before the firm can find out which route they can rely on to achieve superior performance in the marketplace. For example, it is important for a firm to understand the distinctive capabilities or skills that it possesses, and to continuously sharpening such core competencies to emerge as the powerful and leading player in a particular market. This is also reasonable because if the competitors do not have the ability to compete effectively against the core competencies (e.g., superior product quality, excellent services and etc.) of that firm, the competitors will lose out in the competitive game. Thus, apparently, both of the key factors leading to superior performance of a company are trade-off. A firm should either choose to position itself well in the marketplace, or to start from its unique capabilities to emerge as the leader in the competitive market. However, as can be seen from the Honda case, both of these factors are simultaneously contributing to Honda success. Firstly, it cannot be denied that Honda is well positioned to serve the mass market (i.e., the market that has the largest potential). Then, Honda was also able to leverage upon its internal resources for superior product quality in the market place (for instance, the middle size motorbike in the case study). For instance, Honda is good in managing efficient supply chain. In Honda, both market positioning as well as internal resources are crucial and mutually supportive to enable Honda in obtaining superior competitive advantages in the marketplace. The successes achieved from strengthening the internal resources and core competencies feed to the success in the market position. The strengthened market position of Honda in turn pump in more financial resources and opportunities to further enhance the internal core competencies.
Yet, another paradox is about product competencies and process capabilities. This is yet another trade-off (as perceived by many western managers), in the strategic thinking process. Specifically, people are arguing if product competencies are more important or the process capabilities are more crucial in competing in the competitive market. In the first perspective, a company is assumed to be able to compete successfully in a competitive market with superior products. Such competencies can be achieved when the products delivered to the marketplace is of better quality, and thus preferred by the customers. For example, the iPhone marketed by Apple is a superior product, with a lot of useful features, nice looking and trendy. This enables iPhone to take away a lot of market share from the competitors such as Blackberry. From another perspective, it is argued that process capabilities can be more important, as efficient operation process or responsive value chain is the source of profitability of a firm in the marketplace. Such a view emphasize on efficiencies, as it enable the process flow in a firm to become as low cost as possible. However, depending on the situation, Honda has been found to employ the two seemingly opposing methods to compete in the marketplace. For example, Honda able to produce better engines, fuel efficient engines that are highly demanded by the customers. On the other hand, Honda also able to diffuse the process competencies across the many product lines, with its special dealer management program, dealer network as well as lean manufacturing flow.
Japanese versus Western Management Models
There are many ways in which the Japanese and Western management models or culture can be very different. In this section, how the culture as well as the management models of the Japanese are diametrically opposed to that of the western one will be articulated.
Firstly, we shall consider the cultural differences about Japanese and the western culture. According to Hofstede, Japanese and the western culture (remark: the culture in the United States will be sued as the benchmark for western culture) have many differences. For example, the Japanese employees are pretty loyal to a particular organization. Life-long employment is something very common. The Japanese employees have strong mindset to serve the corporation he is working, and the corporation instead will become the identity or life of the employees. Effectively, the employees belong to the corporations; while the corporations assume the responsibilities to take care of the employees’ welfare. In contrast, employment in the United States is more contractual in nature. Life-long employment is not something common. Instead of talking about belongings or association between workforce and corporations, performance in workplace is given greater emphasize. In times of recessions, the corporations can retrench the many workers. Besides, the Japanese is argued to have a collective culture while it is individualism culture that dominates the public in United States. In Japan, team work, peer pressures as well as common objectives are emphasized more. In contrast, individual performance is rewarded and emphasized in the western culture.
Perhaps due to the thinking culture, and hence different mindset, assumptions as well as ways of thinking between the Japanese as well as the westerner, the Japanese management model is diametrically opposed to the western management model. The most obvious example is that western management models have been assuming trade-off between different strategies and options. It is implicitly assumed that it someone focus on A, they should not focus on B. Concentration is important, as to fully direct the available resources to achieve A is required in the competitive marketplace. To simultaneously working towards both ends will end up stuck in the middle. In contrast, Japanese management models do not have such assumptions. The Japanese firms are famous for wanting both. However, the many Japanese firms did not become those stuck in the middle, but emerge as the winners at both ends. Perhaps the Japanese were more hard working and thus, they can work towards both ends at short time period, as compared to the western people.
Besides, it is also found that the Japanese management model often take a longer time frame in strategic planning and execution process. As argued by Mair (1998), the Japanese did not cut losses once a market become highly competitive. Instead, they posits, until the fall or retreat of the competitors. When that happens, it is then possible for the Japanese to recoup the losses incurred earlier. From the other hand, the western managers tend to cut losses to leave the game once the game is becoming more competitive, when the profit margins dropped. Perhaps that is due to the Japanese tendency to work for spiritual or social achievement, while the western managers are guided by profitability. The Japanese is famous to work to enhance the images and reputation of Japan, and they may not easily give up, or persist even when suffering financial losses, as they are determined to fight to the end to build up strong Japanese brand name around the world. However, the western management tends to seek profitability, and may find other ways to growth a business when some of the product lines suffer from decreasing profit margin.
Apart from that, Mair (1998) also argued that western management models often suffer from reductionism. This led the many theories to adopt only one-sided perspective. Several examples are given in the case study by Mair (1998). For example, western managers believe that either model renewal or no changes at all is possible. In contrast, Japanese able to deliver constant changes to the car model via ‘facelift’. Besides, the western managers perceive that the work team can be only in either to promote individualism or group work, but the Japanese able to reconcile the dichotomies via the individualism-groupist work team. Not only is that, the western managers believe that a company can either choose to produce something in mass quantity, or to concentrate in variety of products. However, the Japanese able to achieve both via a small-bath production system. In fact, there are still many more examples that can be discovered from the Honda case study.
Overall, it seems that the Japanese does not suffer from major limiting beliefs in the strategic decision making process. They are not relying on the simple models to make strategic decision, but rather, they are more flexible and attention to details. In contrast, the western management models are often relying on certain set of assumptions or frameworks, which make them sometimes not as effective as the Japanese in real business world. One good example is the usage of low cost leadership of becoming a differentiator to achieve success in the marketplace. Before the Japanese, such framework can be useful to determine the best possible strategies in the automotive industry, when those supposed low cost players focus on low cost production while those differentiators focus on differentiating their services or products. However, the simultaneously great improvement in quality products marketed at a lower cost by the many Japanese firms shattered the entire automotive landscape in the western countries. All these indicate that both lower costs and quality is possible, where a philosophy of continuous improvement as well as hard work and persistency could be more important for a firm to achieve success in the marketplace.
Corporate Governance and CSR
Apart from the cultural related issues on strategic management, another hot topic widely discussed in the recent years is about it good corporate governance or corporate social responsibilities by a firm can truly contribute to the company performance in the competitive business landscape today. According to the proponent of corporate governance as well as the corporate social responsibilities, it is argued that firms that exhibit good practices on these areas tend to have better performance in the marketplace, be it financially or not financially. There indeed are some researches supporting such a view. For example, several researchers found that good corporate governance practices in a firm can contribute to the financial performance of a firm. These researches include the following: Lara et. al. (2007) as well as Shah et. al. (2008).
However, from another perspective, it is argued that corporate governance as well as corporate social responsibilities activities may not yield the intended rewards as argued by the researchers. This is not hard to understand, as people have been witnessing that doing charity may not necessary be rewarded with greater benefits in the future. After all, if doing charity is scientifically proven to be highly rewarding towards a person, everybody will soon become highly ethical and any fraud or wrongdoing will surely be eliminated. From such view, it is doubt if the corporate social responsibilities related activities performed by a firm can truly beneficial to the company performance.
As can be discovered from the corporate website of the three automotive players, namely Nissan, Chrysler and Honda, all of these companies are exhibiting certain degree of Corporate Social Responsibilities. However, a deeper review on the corporate website found that Honda perhaps is the leader in the areas of corporate governance as well as corporate social responsibilities activities, followed by Nissan and Chrysler. For example, Honda has been stressing the importance of the fuel efficient hybrid car, to protect the environment, through lower carbon dioxide emission. That is true as well for Nissan, whereby it is emphasized that the company has three targets to be achieved, namely: “reducing carbon dioxide (CO2) emissions; cleaner emissions to preserve the atmosphere, water and soil; and recycling of resources”. However, that is not so clear if Chrysler is having such grand objectives in terms of preserving the environment or other corporate social responsibilities (i.e., it is not explicitly stated in the corporate website).
Although it is found that Honda and Nissan have been the so-called socially responsible companies, their financial performance suffered badly in times of economic recessions in the year 2009. This means, no matter how socially responsible you may be, you will suffer badly as long as the economy go south (particularly for big players such as Honda). The evidences on the drop of financial performance are shown in Figure 1 as follow.
Figure 1: Financial performance of Honda in the past 5 Years
Source: Honda’s Annual Report 2010
From the evidences presented above, it is obvious that the issues of corporate governance or corporate social responsibilities are not the only factors affecting corporate performances in the turbulent business environment today. There are many issues to be considered, for instance: if the company is strategically positioned in the competitive business world, if the products and services able to fulfill the customer requirement, or of the company is doing a great job to enhance the efficiencies of the value chain or process flow in the company and many others. However, we cannot reject the notion that corporate social responsibilities do not have impacts against the financial performance of a company, as the evidences provided above are insufficient. To investigate such issues, more rigorous and time consuming researches are required.
This assignment has shown how the strategic formulation and thinking process can be so complicated in real world. It suggested that traditional frameworks or models can only be used as guidance on decision making process, as there may be inaccurate assumptions on these models. Depending on the situations, the models, theories or ideas may be useful or practical, while they may become irrelevant in another different scenario. After all, strategy is about human beings, and human beings are evolving creatures, and so must the strategy. The traditional frameworks must be adapted to fit the environment, as without that, they may be fast to become irrelevant. This is not surprising, as we can see many theories comes and goes in the strategic management context. In the past, we can see the shareholders theories are replaced by stakeholder theories, the Porter Generic Strategies to be replaced by the Blue Ocean Strategy, or the traditional financial management framework to be replaced by the Balance Scorecard concepts. Besides, it is also shown that there are huge cultural differences between people from the East to the West. As argued by Hofstede (1993), those western management practices may not be relevantly portable to be applied in the eastern countries, when people in the eats exhibit different tendencies or believes. In turn, the best practices should be changed to fit the perceptions of these people in these eastern countries. Lastly, it is also discussed on if a socially responsible corporation will be able to achieve better financial performance in real business environment. This is yet another challenging and controversial topic. In fact, nobody can truly know if the socially responsible corporations are truly able to derive better revenue from the enhanced images in the customers. Perhaps, in different industry, the impacts of good corporate governance or socially responsible behaviors may vary. In different situation, different things matters, and it is not proper for researchers to over-generalized any single idea, for the application to all situation, without understanding the in and out of the particular scenario.
Chrysler Corporate Website: www.chrysler.co.uk.
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