Case Study
Strategic Management: A Case Study in Honda

Introduction

In this paper, several issues on global corporate strategy will be discussed. Honda will be used as the company to understand how the many concepts of strategic thinking process were applied in real business environment. In the first part, several managerial dichotomies were being reconciled by Honda, through creativity and breakthrough management concepts. In the second part, the differences between management philosophies between Japanese and western management concepts will be articulated. It is argued that the differences in culture, assumptions and thinking style is the key reasons the management philosophies are different between the two. In the third part, the corporate governance as well as the corporate social responsibilities between for three automotive companies, namely Honda, Nissan and Chrysler will be discussed. It is articulated that good corporate governance practices as well as being a Corporate Social Responsible company will be beneficial to corporate performance in the future.

Part 1: Managerial Dichotomies and Honda

A very interesting managerial dichotomy is about how strategies in a corporation can be successfully formed. There are two opposing views here. The first view is about the notion that strategies can be formulated and executed through planning. Thus, before any actions are taken, proper research need to be performed first. Then according to the research findings, managers are expected to make decision rationally, based on the data collected, and through using the many established and useful theoretical framework. One the decisions are made, the plans as well as the details on the strategies will be communicated throughout the organization. The lower level employees are expected to carry out the plan accordingly. According to such view, it is assumed that as long as the planning is performed correctly, the plan shall work out in the real world. However, from another perspectives, it is viewed that strategies can only be formed, through the so-called ‘emergent strategy approach’. In this view, it is argued that decision makers do not know the real situation, and thus, they have to learn along the way and change the strategies accordingly in the learning process (or when new information is obtained along the learning process). According to such perspectives, the business environment is often complex, fast changing and uncertain. It is argued that plans will not likely to work out accordingly because accurate data may not available to the planners before they start doing anything in the real world (i.e., before someone test the water, it is impossible he know accurately how deep the water is). Besides, in a fast changing business environment, emergent strategies are more relevant, as the planned strategies may not longer relevant after a certain period, as consumer preferences changed, or the competitors have been doing other way round to attack the strategies of the firm. However, as shown in the Honda case study, both the argument can coexist in real world. Effectively, a planner can also learn and adjust accordingly when they learn new lessons in the marketplace. Before entering the US market, Honda management had been planning rigorously before they make any investment. However, as they learned new things, i.e., the small size motorcycle has a huge market, the Japanese are fast to respond to the newly learned facts, and achieve success in the later years.

The second managerial dichotomy is about how competitive advantages in the marketplace can be achieved. The first view is that competitive advantages can be achieved through proper positioning in the marketplace. Under such a view, the firm is supposed to find a best position in the market (i.e., one that is not served by the competitors, or one that has lest competitive forces working against the firm) for attainment of competitive advantage. Such a view perceive that the external environment has a strong influence against the firm, and the firm should find its best strategy by fitting the firm accordingly in the best possible place/ position in the marketplace. From another perspective however, it is argued that a firm should develop internal resources to achieve competitive advantages in the marketplace. Under such view, the firm should understand its unique, special, valuable, non-imitable, rare as well as relevant core competencies, and then to focus on that core competencies to attain competitive advantages in the marketplace. Such a view argued that strategies should look inside; understand how the firm can be unique and special, and then continuously sharpening its special characteristics to beat the competition in the marketplace. If a corporation is a person, such a view argue that it is important to find out the person special character, and then to continuously cultivate the special abilities to achieve success in his career. However, if according to the view that competitive advantages can be achieved by ‘positioning’ it will be argued that it is more important for the person to understand what is lacking in the marketplace, or which career has better prospects, and then the person should work hard to take up that career for his success in the later days. Each of the view has respective logic and relevancy in the marketplace. However, in the Honda case study, it is found that both the ‘positioning’ as well as the ‘development of internal resources’ perspectives had been considered to shape Honda competitive advantages in the marketplace. It is found that Honda has been targeting the biggest market segment (i.e., affordable cars with high quality), while at the similar time, fast to leverages upon it competencies to offer value-added products to the marketplace where it had positioned itself.

The third dichotomy is about developing product related core competencies or to pursue process related core capabilities to achieve success and profitability in the marketplace. In the first view, it is perceived that in order to achieve competitive advantage in the marketplace, managers should focus on developing product related core competencies. For example, manager should focus on developing products with better quality, more features, and better appearance, more reliable and better than those offered by competitors. According to such logic, if the products delivered by a firm are much better than that offered by competitors, the firm can beat the competitors and gain more market share. However, from another view, it is argued that the true competitive advantages of a firm are to be achieved by developing process related core capabilities. That is to say that a manager should focus on redefining, and improving its business process, which include working towards a more effective and efficient supply chain, structuring more responsive to market business model, as well as focus on arranging the resources in the internally consistent and mutually supportive manner. When the process capabilities are properly defined and designed, the firm can achieve lower cost, as well as better quality (for example, through just-in-time process flow), and thus beat the competitors with low cost leadership or better products quality. However, as shown in Honda case study, that two methods to achieve success in the marketplace can be applied simultaneously. They are not dichotomy anyway. For example, Honda able to deliver better products – better engines, better power trains, better fuel efficiencies than the competitors such as Ford. Besides, Honda has also been using effective dealership program to enhance its process related core capabilities. Obviously, Honda did not stick to a single perspective to improve its operations and competitive position in the marketplace.

Overall, it can be found that in this very first part, Honda is not restricted to employ a strategic thinking process from only a single perspective. As long as a strategy is good, viable and practical, Honda will implement it to improve the business performance. The opposing dichotomies are not trade-off, but instead, with the application of creative thinking process, Honda able to reconcile these dichotomies, and emerge as a leader in the automobile industry.

Part II: Differences between Japanese & Western Management Model

According to Hofstede (1993), different people from different part of the world have different culture. Thus, the management theories that are applicable or effective in certain part of the world may no longer relevant in another part of the world. For example, the management theories developed from the western countries, cannot be readily applied in the eastern world. The best practices in western world, for example, to motivate workforce through personal or individual reward system, may no longer effective in Japan. This is because people in the west have individualism culture, while people in Japan have collective culture. People in Japan can be motivated more by peer pressures, instead of providing lucrative incentives to the individuals. From such a simple, example, it is thus not hard to understand that the western management model may not be similar to those of the Japanese management model. After all, management is about dealing with people, and if those target people have different culture, the best practices to manage them would likely to differ; particularly these people have different cultural values or belief systems.

Thus, in this section, the many differences between Japanese management model as well as the western management model will be discussed. However, it should be emphasized that all these differences are derived from the Honda case study. The real world today may be different, as the Japanese may be learning up the western management philosophies, while the western managers had already adopted certain useful aspects of Japanese management style.

Firstly, it is found that the Western management models often assume trade-off, while there is no such assumption in Japanese management model. In other words, it can be argued that the Western management model tend to view a certain subject from a single perspective only, while the Japanese do not have such tendencies. As we had discussed in great details in section above, it can be seen that while Western manager perceived these as trade-off (i.e., planning versus learning, positioning versus developing core competencies, and product related core competencies versus process related core capabilities), the Japanese managers didn’t. There are even more examples shown in the Honda case study. For example, the Western management tends to view quality and costs as trade-off issues, the Japanese don’t. Apparently, the Japanese do not believe in trade-off. There is no such thing as either-or in the management philosophy, as the Japanese seems to want the best out of everything. They think in terms of ‘both’. Thus, while Western management tend to believe that to pursue both low costs and quality as the same time is too greedy and can become stuck in the middle, the Japanese doesn’t. The Japanese rely more on continuous improvement, and working hard toward the best quality products at the lowest costs. Thus, the management directions can go in two directions, and as we had discussed above, often, they able to reconcile the dichotomies through creative thinking process (and end up better performing than those western counterpart).

Besides, it is found that the Western management tends to rely on theories or framework to make decision. The problem with such method is that if the framework is not accurate, then the decision making process will be affected. For example, when someone tries to create a model, he may try to categorize ideas or things into different categories for the purpose of forcefully putting ideas into an easily understandable framework (to be applied in the later day). However, this can be dangerous; as if there is essentially no categories among the things to be modeled, the framework can lead to disastrous decision making process. However, it is found that Honda management style seem more flexible and responsive to the various impulse from the environment. The behaviors of Japanese managers may be harder to predict, as they do not heavily relying on a certain framework to make decision. This can be different from a Western manager, as a rigid manager can be easily predictable – he will either pursue a low cost, a differentiation or a focus strategy. In contrast, it may not be so easy to predict the Japanese management directions, as they keep responding, adapting and learning in the process. It is not known what had they learn, and what is exerting huge influence to motivate them to make certain decisions, and what certain events in the future will affect their world views (and hence the ultimate decisions to be made during running a business).

Apart from that, it is found that Japanese management apparently has a longer term orientation in strategy decision making process, as contrast to those of the Western managers. For example, it is found that the western manager tend to cut losses once a particular business goes sour, the Japanese didn’t. The Japanese instead willing to bear losses in the short run, as long as they believe that there are huge profitability in the future. This can be due to cultural differences between the western and eastern people (i.e., for example, the Chinese apparently also having longer time orientation, as evidences that they have higher saving rates in the country).

Part III: CG and CSR in Honda, Nissan and Chrysler

Today, the public expectations on corporations are becoming greater, as the many stakeholders are expecting corporations to act responsibly, practicing accountability and conservatism in financial reporting, acting with integrity, adopting sustainability development, as well as being socially responsible. Thus, it can be observed that in the recent years, researchers as well as practitioners are arguing that being socially responsive is crucial for a firm to stand out from the competitive business landscape (Caroll, 1979). This means it is better for corporations to proactively go beyond the industry norms by doing good to the society. In this section, two important concepts in this context will be discussed. The first is corporate governance, whereby it is about the existence of risk management and control mechanism to safeguard company assets and stakeholders’ interests from mismanagement of management in a company. The second issue is about corporate social responsibilities (“CSR”). There are many different definitions for CSR, but generally, it means that company policies or practices that take environmental and community issues into account, for corporate development in a sustainable and responsible manner.

Today, large organizations such as Honda, Nissan and Chrysler are aware of the needs for being socially responsible. This is particularly true for industry leaders such as Honda, Toyota or General Motors. It is perhaps now the trendy things to do to enhance the reputation of a corporation. In fact, CSR activities, especially concerning delivering benefits or taking great care on the community as well as the environment, can be observed from corporate website as shown in Figure 1 and Figure 2 below.

 

Figure 1: Honda Being a Socially Responsible Company

honda1

Source: www.honda.com

 

Figure 2: Nissan being a Socially Responsible Company

honda2

Source: www.nissan.co.uk

 

There are a lot of literature concerning the topic of CSR and good corporate governance. One frequently argued point by these literatures is that CSR as well as good corporate governance able to deliver positive impacts to a company financial and non-financial performance. For example, the literatures supporting such a notion include Scholtens (2006), Lindgreen et. al. (2009), Shen et. al. (2009) as well as Mittal et. al. (2008). However, is there a positive relationship between good corporate governance practices and CSR efforts for companies such as Honda, Nissan and Chrysler?

A review of the past five years of financial performance for all of the three companies, namely Honda, Nissan and Chrysler indicates that these companies suffered from a drop in revenue and net profits due to financial crises in the year 2008. Thus, there is no clear relationship between profitability of these firms to the CSR efforts carried out in these years. However, with just such observations, it cannot be concluded that CSR efforts are not useful or beneficial to corporate performance, both from financial or non-financial terms. In fact, it is reasonable to expect that CSR efforts as well as good corporate governance can bring several benefits to these corporations. These benefits will be discussed as follow:

Good corporate governance mitigates the risks faced by investors as well as stakeholders. Firstly, with good corporate governance, the many risks, especially the risk due to agency costs can be mitigated. This is not too hard to understand, as corporations practicing good corporate governance will have better system to oversee the management actions and responsibilities. In fact, it is widely known that poor corporate governance in many of the financial institutions in US is the root causes creating worldwide financial bubble. Thus, good corporate governance is highly important to ensure the corporations are being managed well and in an ethical manner.

CSR efforts fulfill the public expectations. It is not hard to find news or unethical behaviors of corporations in mass media today, and that has been creating a feeling of distrust among the public to the many corporations. That can be detrimental issues towards corporations’ profitability if the corporations are not trustworthy. Thus, it is important for corporations to correct such an image. Those powerful and socially responsible companies are then motivated to practicing CSR related strategies to build a better reputation among the public. By doing so, corporations such as Honda, Nissan and Chrysler may be able to shape the public perceptions, for better corporate reputation.

Good practices of business ethics increase corporate reputations. As mentioned before, practicing CSR related efforts can enhance a corporate reputation. This is very important, as a good reputation is important element that can affect consumer decision making process. This can be particularly true when the other businesses do not have a reputable and trusted brand name.

People are becoming more environmentally conscious. It is found that many of the products manufactured and marketed by Honda, Nissan and Chrysler are designed for fuel efficiencies, low CO2 emission, as well as less harmful to the environment. Not only these products are beneficial to the environment, they also designed to help the customers to save costs. Thus, it is highly likely for consumers to purchase products from these automotive companies, as not only they able to prevent the issues of global warming in becoming more and more serious, they can also benefited from the fuel efficiencies features of these cars.

Conclusion

Overall, it can be deduced that the formulation of strategic directions for a firm is never an easy task. Even at the conceptual level, ideas differ on what should be done, and what constitute the best strategies. It is also shown that the many thinking process traditionally applied and assumed in management may no longer be relevant in a different context. Some theories may make heroic assumptions and hence when these assumptions may no longer valid, the results obtained from these frameworks may no longer be useful in the fast changing business world. There is much to be learned from the Japanese, as they have different mindset, which can be useful to the strategic management process of a company in the increasingly challenging business environment. Besides, it is also found that as the macroenvironment change, corporations must be responsive and act accordingly. Some contemporary issues include the need for better corporate governance as well as the public expectation on more socially responsible corporations. All these demand automotive related corporations to adapt their product portfolio accordingly, such as pushing for hybrid cars for more fuel efficient and environmentally friendly products to the market.

References

Bert Scholtens.  2006. Finance as a Driver of Corporate Social Responsibility. Journal of Business Ethics 68, no. 1, (September 1): 19-33.

Cornelius, N., Wallace, J., and Tassabehji, R. (2007). An Analysis of Corporate Social Responsibility, Corporate Identity and Ethics Teaching in Business Schools. Journal of Business Ethics 76, no. 1, (November 1): 117-135.

De Wit, B. and Meyer, R. (2004). Strategy Process, Content, and Context International Perspective, 3rd Edition, Thomson Learning.

Hofstede, G. (1993).Cultural constraints in management theories. The Executive, 7 (1), page 81.

Honda. (n.d.). Philanthropy. Retrieved from http://corporate.honda.com/america/philanthropy.aspx?id=philanthropy_overview

Humphreys, M., and Brown, A. (2008). An Analysis of Corporate Social Responsibility at Credit Line: A Narrative Approach. Journal of Business Ethics 80, no. 3, (July 1): 403-418.

Johnson, G., Scholes, K. and Whittington, R. (2005). Exploring Corporate Strategy: Text and Cases, 7th Edition, Financial Times Prentice Hall.

Lindgreen, A., Swaen, V., and Johnston, W. (2009). Corporate Social Responsibility: An Empirical Investigation of U.S. Organizations. Journal of Business Ethics: Supplement 85, (April 1): 303-323

Mittal, R. K., Sinha, N., and Singh, A. (2008). An analysis of linkage between economic value added and corporate social responsibility. Management Decision 46, no. 9, (October 20): 1437-1443.

Nissan. (n.d.). Environmental activities. Retrieved from http://www.newsroom.nissan-europe.com/uk/en-gb/EVAndEnvironment/Environment.aspx

Polonsky, M., and Jevons, C. (2009). Global branding and strategic CSR: an overview of three types of complexity. International Marketing Review 26, no. 3, (May 1): 327-347.

Rettab, B., Brik, A., and Mellahi, K. (2009). A Study of Management Perceptions of the Impact of Corporate Social Responsibility on Organisational Performance in Emerging Economies: The Case of Dubai. Journal of Business Ethics 89, no. 3, (October 1): 371-390.

Shen, C., and Chang, Y. (2009). Ambition Versus Conscience, Does Corporate Social Responsibility Pay off? The Application of Matching Methods. Journal of Business Ethics: Supplement 88, (April 1): 133-153.

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