Strategy Formation

INTRODUCTION AND DEFINATION

Definition Of Strategy Formation:
Strategy formation creates strategy, designing new businesses and organizations to carry out those businesses. Formation involves exploration, the search for new advantages and business possibilities. Strategy formation creates a theory of business and its accompanying hypotheses. Strategy formation, or creation, is an aspect of strategic management. The BAi strategic management construct labels this aspect create art.

Meaning Of Strategy Formation:

Strategy Formation or Strategy Formulation both mean the same. It involves doing an analysis of

the current position of where the Organization is now; deciding what are the objectives to be achieved; how to reach these objectives.

To know our present situation where we are now, the Organization must study both the internal (micro) and external (macro) situations. In other words both the strengths and weaknesses (Swot). The greatest thing in this world is not so much where we are, but in which direction we are moving Oliver Wendell Holmes. Oliver Wendell Holmes (1809-1894) was an American physician, professor, lecturer, poet and writer. He was considered one of the best writers of the 19th century. Like he says strategy formation means the direction in which the company is moving. Strategy Formation should indicate the right course of action for attaining the companys objectives, and thereby succeed in attaining the companys or organizational objectives. The Strategy Formation should take into account the environmental conditions, and lead to the fulfillment of companys vision and objectives. Based on the above analysis, the objective or goals are formulated. Both short term and long term objectives are formulated. In this the Organizations `Vision Statement` (long term), and `Mission Statement` (short term) should be the yardstick in formulating the objectives. The next obvious step is to find the ways and means or the process by which to reach these objectives. The Organization has form a `strategy` and a `plan`, i.e. strategic plan.

Page 1 of 34

Strategy Formation
Paul R Niven, a leading Management Guru and author in Strategy Formation says it should be simple and easy to understand statements among competing alternatives, to make informal decisions and most importantly to align the people in the Organization around a common set of priorities.
Thus `Strategy Formation ` is formulated. From here the Organization moves to the implementation stage next.

Page 2 of 34

Strategy Formation

BUSINESS VISION AND COMPANY MISSION STATEMENT

While a business must continually adapt to its competitive environment, there are certain core ideals that remain relatively steady and provide guidance in the process of strategic decision-making. These unchanging ideals form the business vision and are expressed in the company mission statement. In their 1996 article entitled Building Your Company's Vision, James Collins and Jerry Porras provided a framework for understanding business vision and articulating it in a mission statement. The mission statement communicates the firm's core ideology and visionary goals, generally consisting of the following three components: 1. Core values to which the firm is committed 2. Core purpose of the firm 3. Visionary goals the firm will pursue to fulfill its mission The firm's core values and purpose constitute its core ideology and remain relatively constant. They are independent of industry structure and the product life cycle. The core ideology is not created in a mission statement; rather, the mission statement is simply an expression of what already exists. The specific phrasing of the ideology may change with the times, but the underlying ideology remains constant. The three components of the business vision can be portrayed as follows:

Core Values

Core Purpose

Business Vision

Visionary Goals

Page 3 of 34

Strategy Formation Core Values

The core values are a few values (no more than five or so) that are central to the firm. Core values reflect the deeply held values of the organization and are independent of the current industry environment and management fads. One way to determine whether a value is a core value to ask whether it would continue to be supported if circumstances changed and caused it to be seen as a liability. If the answer is that it would be kept, then it is core value. Another way to determine which values are core is to imagine the firm moving into a totally different industry. The values that would be carried with it into the new industry are the core values of the firm. Core values will not change even if the industry in which the company operates changes. If the industry changes such that the core values are not appreciated, then the firm should seek new markets where its core values are viewed as an asset. For example, if innovation is a core value but then 10 years down the road innovation is no longer valued by the current customers, rather than change its values the firm should seek new markets where innovation is advantageous. The following are a few examples of values that some firms has chosen to be in their core:

excellent customer service pioneering technology creativity integrity social responsibility

Core Purpose
The core purpose is the reason that the firm exists. This core purpose is expressed in a carefully formulated mission statement. Like the core values, the core purpose is relatively unchanging and for many firms endures for decades or even centuries. This purpose sets the firm apart from other firms in its industry and sets the direction in which the firm will proceed. The core purpose is an idealistic reason for being. While firms exist to earn a profit, the profit motive should not be highlighted in the mission statement since it provides little direction to the firm's employees. What is more important is how the firm will earn its profit since the "how" is what defines the firm. Initial attempts at stating a core purpose often result in too specific of a statement that focuses on a product or service. To isolate the core purpose, it is useful to ask "why" in response to first-pass, product-oriented mission statements. For example, if a market research firm initially states that its purpose is to provide market research data to its customers, asking "why" leads to the fact that the data is to help customers better understand their markets.
Page 4 of 34

Strategy Formation
Continuing to ask "why" may lead to the revelation that the firm's core purpose is to assist its clients in reaching their objectives by helping them to better understand their markets. The core purpose and values of the firm are not selected - they are discovered. The stated ideology should not be a goal or aspiration but rather, it should portray the firm as it really is. Any attempt to state a value that is not already held by the firm's employees is likely to not be taken seriously.

Visionary Goals
The visionary goals are the lofty objectives that the firm's management decides to pursue. This vision describes some milestone that the firm will reach in the future and may require a decade or more to achieve. In contrast to the core ideology that the firm discovers, visionary goals are selected. These visionary goals are longer term and more challenging than strategic or tactical goals. There may be only a 50% chance of realizing the vision, but the firm must believe that it can do so. Collins and Porras describe these lofty objectives as "Big, Hairy, Audacious Goals." These goals should be challenging enough so that people nearly gasp when they learn of them and realize the effort that will be required to reach them. Most visionary goals fall into one of the following categories:

Target - quantitative or qualitative goals such as a sales target or Ford's goal to "democratize the automobile." Common enemy - centered on overtaking a specific firm such as the 1950's goal of Philip-Morris to displace RJR. Role model - to become like another firm in a different industry or market. For example, a cycling accessories firm might strive to become "the Nike of the cycling industry." Internal transformation - especially appropriate for very large corporations. For example, GE set the goal of becoming number one or number two in every market it serves.

While visionary goals may require significant stretching to achieve, many visionary companies have succeeded in reaching them. Once such a goal is reached, it needs to be replaced; otherwise, it is unlikely that the organization will continue to be successful. For example, Ford succeeded in placing the automobile within the reach of everyday people, but did not replace this goal with a better one and General Motors overtook Ford in the 1930's.

Page 5 of 34

Strategy Formation

OJECTIVES AND GOALS

Objectives:
Objectives represent a managerial commitment to achieve specified results in a specified period, of time. They clearly spell out the quantity and quality of performance to be achieved, the time period, the process and the person who is responsible for the achievement of the objective. Objectives are end results of planned activityObjectives state what is to be accomplished by when and should be quantified if possible. Example Objectives Minnesota Mining & Manufacturing (3M)Financial objectivesTo achieve 10% growth in earnings per share.To achieve 20% - 25% return on equity.To achieve 27% return on capital employed. Characteristics Objectives form a hierarchyObjectives form a networkMultiplicity of objectivesLong and short range objectives. Areas of objectivesMarketsProductivityInnovationProductProfitabilityFinancial resourcesPhysical facilitiesOrganization structure and activitiesManager performance and development Employee performance and attitude Customer service Social responsibility. Importance of objectivesObjectives help to define the organization in its environmentObjectives help in coordinating decisions and decisionmakerObjectives help in formulating strategiesObjectives provide standards for assessing organizational performance. Objectives of BSNLNational Plan Target of 500 million subscriber base for the country by December 2010.Broadband customers base of 20 million in the country by 2010 as per Broadband policy 2004.

Factors affecting ObjectivesForces in the environmentInternal forces The value systems of the top executives.

Page 6 of 34

Strategy Formation Goals :

GoalGoal is defined as an intermediate result to be achieved by a certain time as part of the grand plan . A plan can, there for have many goals. Goals are short term (one year or less) milestones or bench marks that organizations must achieve in order for long term long term objectives to be reached. Goals should be measurable, quantitative, challenging, realistic, consistent and prioritized. A set of goals is needed for each objective that is established in an organization. Goals have the following featuresThey:Are derived from objectivesOffer a standard for measuring performanceAre expressed in concrete termsAre time bound and work oriented. Goals are important in Strategy implementationObjectives are in strategy formulation.

Goals are an expected or desired outcome of a planning process. Goals are

usually broad, general expressions of the guiding principles and aspirations of an organization. Objectivesare precise targets that are necessary to achieve goals. Objectives are detailed statements of quantitatively or qualitatively measurable results the plan hopes to accomplish.

Page 7 of 34

Strategy Formation

ENVIRONMENTAL SCAN
Organizational environment consists of both external and internal factors. Environment must be scanned so as to determine development and forecasts of factors that will influence organizational success. Environmental scanning refers to possession and utilization of information about occasions, patterns, trends, and relationships within an organizations internal and external environment. It helps the managers to decide the future path of the organization. Scanning must identify the threats and opportunities existing in the environment. While strategy formulation, an organization must take advantage of the opportunities and minimize the threats. A threat for one organization may be an opportunity for another.

Internal Environment :
Internal analysis of the environment is the first step of environment scanning. Organizations should observe the internal organizational environment. This includes employee interaction with other employees, employee interaction with management, manager interaction with other managers, and management interaction with shareholders, access to natural resources, brand awareness, organizational structure, main staff, operational potential, etc. Also, discussions, interviews, and surveys can be used to assess the internal environment. Analysis of internal environment helps in identifying strengths and weaknesses of an organization.

External Envioroment :
As business becomes more competitive, and there are rapid changes in the external environment, information from external environment adds crucial elements to the effectiveness of long-term plans. As environment is dynamic, it becomes essential to identify competitors moves and actions. Organizations have also to update the core competencies and internal environment as per external environment. Environmental factors are infinite, hence, organization should be agile and vigile to accept and adjust to the environmental changes. For instance - Monitoring might indicate that an original forecast of the prices of the raw materials that are involved in the product are no more credible, which could imply the requirement for more focused scanning, forecasting and analysis to create a more trustworthy prediction about the input costs. In a similar manner, there can be changes in factors such as competitors activities, technology, market tastes and preferences. While in external analysis, three correlated environment should be studied and analyzed

immediate / industry environment national environment broader socio-economic environment / macro-environment

Page 8 of 34

Strategy Formation
Examining the industry environment needs an appraisal of the competitive structure of the organizations industry, including the competitive position of a particular organization and its main rivals. Also, an assessment of the nature, stage, dynamics and history of the industry is essential. It also implies evaluating the effect of globalization on competition within the industry. Analyzing the national environment needs an appraisal of whether the national framework helps in achieving competitive advantage in the globalized environment. Analysis of macro-environment includes exploring macro-economic, social, government, legal, technological and international factors that may influence the environment. The analysis of organizations external environment reveals opportunities and threats for an organization. Strategic managers must not only recognize the present state of the environment and their industry but also be able to predict its future positions.

Page 9 of 34

Strategy Formation

STEPS IN STRATEGY FORMULATION

Strategy formulation refers to the process of choosing the most appropriate course of action for the realization of organizational goals and objectives and thereby achieving the organizational vision. The process of strategy formulation involves ten main steps.

Step One Be the best.

The result of a well-developed and executed strategic plan is to develop a competitive advantage. Just what is a competitive advantage? Business lingo aside, it is simply the answer to: What can your company potentially do better than any other company? Understanding your competitive advantage is critical. It is the reason you are in business. It is what you do best that draws customers to buy your product/service instead of your competitors. Extremely successful companies deliberately make choices to be unique and different in activities that they are really, really good at and they focus all of their energy in these areas. You may decide to incorporate your competitive advantage into your mission and/or vision statements.

Step Two State your purpose.

A mission statement is a statement of the companys purpose. It is useful for putting the spotlight on what business a company is presently in and the customer needs it is presently endeavoring to serve. It also serves as a guide for day-to-day operations and as the foundation for future decision-making. To write a mission statement, answer the questions: What is our business? What are we trying to accomplish for our customers? What is our companys reason for existing?

Step Three Visualize the future.

A strategic vision is the image of a companys future the direction it is headed, the customer focus it should have, the market position it should try to occupy, the business activities to be pursued, and the capabilities it plans to develop. Forming a strategic vision should delineate what kind of enterprise the company is trying to become and infuse the organization with a sense of purposeful action. Think big! To write a vision statement, answer this question: What will our business look like in 5 to ten years from now?

Step Four Take an inventory.

The SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis helps you look critically at your organization. It is a tool to help produce a good fit between a companys strengths and its opportunities. Assess your strengths and weaknesses by answering these questions: What do we do best? What do we not do best? What are our company resources assets, intellectual property, and people? What are our company capabilities (functions)? Assess your opportunities and threats by answering these questions: What is happening externally that will affect our company? What are the strengths and weaknesses of each competitor? What are the driving forces behind sales trends? What are important and potentially important markets? What is happening in the world that might affect our company?

Page 10 of 34

Strategy Formation Step Five Profile your customers.

If you want to move your company from being successful to wildly profitable, you need to meet your customers needs and wants better than your competitors do. Develop a customer profile by answering: What are our customers needs, motivations, and characteristics? How do we uniquely provide value to our customers? What should we improve to grow our customer base?

Step Six Write your goals and objectives.

Goals and objectives are like stair steps to your mission and vision. Realistic goals and objectives are developed from the SWOT analysis and customer profile. Objectives set the agenda, are broad, and global in nature. Write two to five objectives that give action to your mission/vision and will take a few years to achieve. Then, develop goals to achieve each objective. Goals should be measurable, quantifiable, and support your objectives. Think about achieving them in a one-year timeframe. Effective goals must state how much of what kind of performance by when is to be accomplished and by whom. Make sure both your goals and objectives build on your strengths; shore up your weaknesses; capitalize on your opportunities; and recognize your threats.

Step Seven Assess your resources.

Now that you have completed your goals and objectives, it is time to do a resource assessment. One of the biggest stumbling blocks to all well laid strategic plans is time and money. As with every business, budgets are never big enough to do everything you want to do. Prioritize key goals by asking: Do implementing the goals make financial sense? Do you have the human resources to achieve your plan?

Step Eight Take action.

Tactics set specific actions/action plans that lead to implementing your goals and objectives. Basically write a to-do list for each goal. A quick way to develop your tactics is to answer this question: What roadblocks exist to achieving my goal? Use the answer to develop action items for each goal. Assign responsibilities and deadlines to ensure implementation. A great method to get buyin from your staff is to assign a goal to each employee. Ask him/her to write the action plan and be responsible for making sure each task is accomplished.

Step Nine Keep score.

In step six, you wrote goals that were measurable. Put these measurements and targets on a scorecard (in Excel), which acts as an instrument panel guiding your company towards achieving your vision. With the scorecard, you can actively track your progress on a monthly basis.

Step Ten Make strategy a habit.

A leader devoted to the successful implementation of the strategy and plan is key. The plan needs to be supported with people, money, time, systems, and above all communication. Communicate the plan to everyone in your organization. Hold a monthly or quarterly strategy meeting to report on the progress toward achieving the goal. Dont forget to take corrective actions when needed and adapt as the environment changes.

Page 11 of 34

Strategy Formation

DIFFERENCES BETWEEN STRATEGY FORMULATION AND STRATEGY IMPLEMENTATIONStrategy Formulation Strategy Formulation includes planning and decision-making involved in developing organizations strategic goals and plans. In short, Strategy Formulation is placing the Forces before the action. Strategy Formulation is an Entrepreneurial Activity based on strategic decision-making. Strategy Formulation emphasizes on effectiveness. Strategy Formulation is a rational process. Strategy Formulation requires co-ordination among few individuals. Strategy Formulation requires a great deal of initiative and logical skills. Strategic Formulation precedes Strategy Implementation. Strategy Implementation Strategy Implementation involves all those means related to executing the strategic plans. In short, Strategy Implementation is managing forces during the action. Strategic Implementation is mainly an Administrative Task based on strategic and operational decisions. Strategy Implementation emphasizes on efficiency. Strategy Implementation is basically an operational process. Strategy Implementation requires co-ordination among many individuals. Strategy Implementation requires specific motivational and leadership traits. Strategy Implementation follows Strategy Formulation.

Page 12 of 34

Strategy Formation

SWOT Analysis
SWOT is an acronym for Strengths, Weaknesses, Opportunities and Threats. By definition, Strengths (S) and Weaknesses (W) are considered to be internal factors over which you have some measure of control. Also, by definition, Opportunities (O) and Threats (T) are considered to be external factors over which you have essentially no control. SWOT Analysis is the most renowned tool for audit and analysis of the overall strategic position of the business and its environment. Its key purpose is to identify the strategies that will create a firm specific business model that will best align an organizations resources and capabilities to the requirements of the environment in which the firm operates. In other words, it is the foundation for evaluating the internal potential and limitations and the probable/likely opportunities and threats from the external environment. It views all positive and negative factors inside and outside the firm that affect the success. A consistent study of the environment in which the firm operates helps in forecasting/predicting the changing trends and also helps in including them in the decision-making process of the organization. An overview of the four factors (Strengths, Weaknesses, Opportunities and Threats) is given below1. Strengths- Strengths are the qualities that enable us to accomplish the organizations mission. These are the basis on which continued success can be made and continued/sustained. Strengths can be either tangible or intangible. These are what you are well-versed in or what you have expertise in, the traits and qualities your employees possess (individually and as a team) and the distinct features that give your organization its consistency. Strengths are the beneficial aspects of the organization or the capabilities of an organization, which includes human competencies, process capabilities, financial resources, products and services, customer goodwill and brand loyalty. Examples of organizational strengths are huge financial resources, broad product line, no debt, committed employees, etc.

2. Weaknesses- Weaknesses are the qualities that prevent us from accomplishing our mission and achieving our full potential. These weaknesses deteriorate influences on the organizational success and growth. Weaknesses are the factors which do not meet the standards we feel they should meet. Weaknesses in an organization may be depreciating machinery, insufficient research and development facilities, narrow product range, poor decision-making, etc. Weaknesses are controllable. They must be minimized and eliminated. For instance - to overcome obsolete machinery, new machinery can be purchased. Other examples of organizational weaknesses are huge debts, high employee turnover, complex decision making process, narrow product range, large wastage of raw materials, etc.

Page 13 of 34

Strategy Formation
3. Opportunities- Opportunities are presented by the environment within which our organization operates. These arise when an organization can take benefit of conditions in its environment to plan and execute strategies that enable it to become more profitable. Organizations can gain competitive advantage by making use of opportunities. Organization should be careful and recognize the opportunities and grasp them whenever they arise. Selecting the targets that will best serve the clients while getting desired results is a difficult task. Opportunities may arise from market, competition, industry/government and technology. Increasing demand for telecommunications accompanied by deregulation is a great opportunity for new firms to enter telecom sector and compete with existing firms for revenue.

4. Threats- Threats arise when conditions in external environment jeopardize the reliability and profitability of the organizations business. They compound the vulnerability when they relate to the weaknesses. Threats are uncontrollable. When a threat comes, the stability and survival can be at stake. Examples of threats are unrest among employees; ever changing technology; increasing competition leading to excess capacity, price wars and reducing industry profits; etc.

Page 14 of 34

Strategy Formation

ADVANTAGES OF SWOT ANALYSIS

Advantages of SWOT Analysis
SWOT Analysis is instrumental in strategy formulation and selection. It is a strong tool, but it involves a great subjective element. It is best when used as a guide, and not as a prescription. Successful businesses build on their strengths, correct their weakness and protect against internal weaknesses and external threats. They also keep a watch on their overall business environment and recognize and exploit new opportunities faster than its competitors. SWOT Analysis helps in strategic planning in following mannera. b. c. d. e. f. g. h. It is a source of information for strategic planning. Builds organizations strengths. Reverse its weaknesses. Maximize its response to opportunities. Overcome organizations threats. It helps in identifying core competencies of the firm. It helps in setting of objectives for strategic planning. It helps in knowing past, present and future so that by using past and current data, future plans can be chalked out.

SWOT Analysis provide information that helps in synchronizing the firms resources and capabilities with the competitive environment in which the firm operates.

SWOT ANALYSIS FRAMEWORK

Page 15 of 34

Strategy Formation Limitations of SWOT Analysis

SWOT Analysis is not free from its limitations. It may cause organizations to view circumstances as very simple because of which the organizations might overlook certain key strategic contact which may occur. Moreover, categorizing aspects as strengths, weaknesses, opportunities and threats might be very subjective as there is great degree of uncertainty in market. SWOT Analysis does stress upon the significance of these four aspects, but it does not tell how an organization can identify these aspects for itself. There are certain limitations of SWOT Analysis which are not in control of management. These includea. b. c. d. e. Price increase; Inputs/raw materials; Government legislation; Economic environment; Searching a new market for the product which is not having overseas market due to import restrictions; etc.

Internal limitations may includea. Insufficient research and development facilities; b. Faulty products due to poor quality control; c. Poor industrial relations; d. Lack of skilled and efficient labour; etc

Page 16 of 34

Strategy Formation

STRATEGY FORMATION HONDA COMPANY

Type

Public company (TYO: 7267) & (NYSE: HMC)

Industry

Automotive. Aviation

Founded

24 September 1948

Founder(s)

Soichiro Honda Takeo Fujisawa

Headquarters Area served Key people

Minato, Tokyo, Japan Worldwide Takanobu Ito (President, CEO, &

Representative Director)

Products

Automobiles Motorcycles Scooters Electrical Generators Water pumps Lawn and Garden Equipments Tillers Outboard motors Robotics Jets Jet Engines Thin-film solar cells

Revenue

7.948 trillion (2012)

Page 17 of 34

Strategy Formation
Operating income Net income Total assets Total equity Employees 231.36 billion (2012) 211.48 billion (2012) 11.780 trillion (2012) 4.402 trillion (2012) 179,060 (2012)

Subsidiaries

Acura Li Nian (Everus) Honda Aircraft Company

Website

world.honda.com

Page 18 of 34

Strategy Formation
From a young age, Honda's founder, Soichiro Honda (, Honda Sichir) (17 November 1906 5 August 1991) had an interest in automobiles. He worked as a mechanic at the Art Shokai garage, where he tuned cars and entered them in races. In 1937, with financing from an acquaintance, Kato Shichir, Honda founded Tkai Seiki (Eastern Sea Precision Machine Company) to make piston rings working out of the Art Shokai garage.After initial failures, Tkai Seiki won a contract to supply piston rings to Toyota, but lost the contract due to the poor quality of their products.After attending engineering school, without graduating, and visiting factories around Japan to better understand Toyota's quality control processes, Honda was able, by 1941, to mass produce piston rings acceptable to Toyota, using an automated process that could employ even unskilled wartime laborers. Tkai Seiki was placed under control of the Ministry of Commerce and Industry (called the Ministry of Munitions after 1943) at the start of World War II, and Soichiro Honda was demoted from president to senior managing director after Toyota took a 40% stake in the company.Honda also aided the war effort by assisting other companies in automating the production of military aircraft propellers.The relationships Honda cultivated with personnel at Toyota, Nakajima Aircraft Company and the Imperial Japanese Navy would be instrumental in the postwar period.A US B-29 bomber attack destroyed Tkai Seiki's Yamashita plant in 1944, and the Itawa plant collapsed in the 1945 Mikawa earthquake, and Soichiro Honda sold the salvageable remains of the company to Toyota after the war for 450,000, and used the proceeds to found the Honda Technical Research Institute in October 1946.With a staff of 12 men working in a 172-square-foot (16.0 m2) shack, they built and sold improvised motorized bicycles, using a supply of 500 two-stroke 50 cc Tohatsu war surplus radio generator engines.When the engines ran out, Honda began building their own copy of the Tohatsu engine, and supplying these to customers to attach their bicycles.This was the Honda Model A, nicknamed the Bata Bata for the sound the engine made.The first complete motorcycle, both frame and engine, and made by Honda was the 1949 Model D, the first Honda to go by the name Dream.Honda Motor Company grew in a short time to become the world's largest manufacturer of motorcycles by 1964. The first production automobile from Honda was the T360 mini pick-up truck, which went on sale in August 1963.Powered by a small 356 cc straight-4 gasoline engine, it was classified under the cheaper Kei car tax bracket.The first production car from Honda was the S500 sports car, which followed the T360 into production in October 1963. Its chain driven rear wheels points to Honda's motorcycle origins. Over the next few decades, Honda worked to expand its product line and expanded operations and exports to numerous countries around the world. In 1986, Honda introduced the successful Acura brand to the American market in an attempt to gain ground in the luxury vehicle market. Honda in 1991 introduced the Honda NSX supercar, the first all-aluminum monocoque vehicle that incorporated a mid-engine V6 with variable-valve timing.Later, 1995 gave rise to the Honda Aircraft Company with the goal of producing jet aircraft under Honda's name.

Page 19 of 34

Strategy Formation

Corporate profile and divisions

Honda headquarters building in Minato, Tokyo. Honda is headquartered in Minato, Tokyo, Japan. Their shares trade on the Tokyo Stock Exchange and the New York Stock Exchange, as well as exchanges in Osaka, Nagoya, Sapporo, Kyoto, Fukuoka, London, Paris and Switzerland. The company has assembly plants around the globe. These plants are located in China, the United States, Pakistan, Canada, England, Japan, Belgium, Brazil, Mxico, New Zealand, Malaysia, Indonesia, India, Thailand, Turkey, Taiwan and Per. As of July 2010, 89 percent of Honda and Acura vehicles sold in the United States were built in North American plants, up from 82.2 percent a year earlier. This shields profits from the yens advance to a 15-year high against the dollar. Honda's Net Sales and Other Operating Revenue by Geographical Regions in 2007 Geographic Region Japan North America Europe Asia Others Total revenue (in millions of ) 1,681,190 5,980,876 1,236,757 1,283,154 905,163

American Honda Motor Company is based in Torrance, California. Honda Canada Inc. is headquartered in Markham, Ontario, their manufacturing division, Honda of Canada Manufacturing, is based in Alliston, Ontario. Honda has also created joint ventures around the world, such as Honda Siel Cars and Hero Honda Motorcycles in India,]Guangzhou Honda and Dongfeng Honda in China, Boon Siew Honda in Malaysia and Honda Atlas in Pakistan.

Current market position

With low fuel prices and a weak U.S. economy in June 2008, Honda reported a 1% sales increase while its rivals, including the Detroit Big Three and Toyota, have reported double-digit losses. Honda's sales were up almost 20 percent from the same month last year. The Civic and the Accord were in the top five list of sales.Analysts have attributed this to two
Page 20 of 34

Strategy Formation
main factors. First, Honda's product lineup consists of mostly small to mid-size, highly fuelefficient vehicles. Secondly, over the last ten years, Honda has designed its factories to be flexible, in that they can be easily retooled to produce any Honda model that may be indemand at the moment. Nonetheless, Honda, Nissan, and Toyota, were still not immune to the global financial crisis of 2008, as these companies reduced their profitability forecasts. The economic crisis has been spreading to other important players in the vehicle related industries as well.In November 2009 the Nihon Keizai Shinbun reported that Honda Motor exports have fallen 64.1%. At the 2008 Beijing Auto Show, Honda presented the Li Nian ("concept" or "idea") 5door hatchback and announced that they were looking to develop an entry-level brand exclusively for the Chinese market similar to Toyota's Scion brand in the USA. The brand would be developed by a 5050 joint-venture established in 2007 with Guangzhou Automobile Industry Group. Following the Japanese earthquake and tsunami in March 2011 Honda announced plans to halve production at its UK plants.The decision was made to put staff at the Swindon plant on a 2 day week until the end of May as the manufacturer struggled to source supplies from Japan. It's thought around 22,500 cars were produced during this period.

Leadership
Name Soichiro Honda Kiyoshi Kawashima Tadashi Kume Nobuhiko Kawamoto Hiroyuki Yoshino Takeo Fukui Takanobu Ito Years 19481973 19731983 19831990 19901998 19982004 20042009 2009

Page 21 of 34

Strategy Formation Products Automobiles

For a list of vehicles, see List of Honda vehicles.

2011 Honda Jazz (Indian rampart)

2008 Honda Accord (USA spec)

Eighth Generation Honda Civic (Asian Version)

Honda's global lineup consists of the Fit, Civic, Accord, Insight, CR-V, CR-Z, Legend and two versions of the Odyssey, one for North America, and a smaller vehicle sold internationally. An early proponent of developing vehicles to cater to different needs and markets worldwide, Honda's lineup varies by country and may feature vehicles exclusive to that region. A few examples are the latest Honda Odyssey minivan and the Ridgeline, Honda's first light-duty uni-body pickup truck. Both were designed and engineered primarily in North America and are produced there. Other example of exclusive models includes the Honda Civic five-door hatchback sold in Europe.

Page 22 of 34

Strategy Formation
Honda's automotive manufacturing ambitions can be traced back to 1963, with the Honda T360, a kei car truck built for the Japanese market.This was followed by the two-door roadster, the Honda S500 also introduced in 1963. In 1965, Honda built a two-door commercial delivery van, called the Honda L700. Honda's first four-door sedan was not the Accord, but the air-cooled, four-cylinder, gasoline-powered Honda 1300 in 1969. The Civic was a hatchback that gained wide popularity internationally, but it wasn't the first two-door hatchback built. That was the Honda N360, another Kei car that was adapted for international sale as the N600. The Civic, which appeared in 1972 and replaced the N600 also had a smaller sibling that replaced the air-cooled N360, called the Honda Life that was watercooled. The Honda Life represented Honda's efforts in competing in the kei car segment, offering sedan, delivery van and small pick-up platforms on a shared chassis. The Life StepVan had a novel approach that, while not initially a commercial success, appears to be an influence in vehicles with the front passengers sitting behind the engine, a large cargo area with a flat roof and a liftgate installed in back, and utilizing a transversely installed engine with a front-wheel-drive powertrain. As Honda entered into automobile manufacturing after World War II, where Japanese manufacturers such as Toyota and Nissan had heritage before the war, it appears that Honda instilled a sense of doing things a little differently than its Japanese competitors. Its mainstay products, like the Accord and Civic, have always employed front-wheel-drive powertrain implementation, which is currently a long held Honda tradition. Honda also installed new technologies into their products, first as optional equipment, then later standard, like anti lock brakes, speed sensitive power steering, and multi-port fuel injection in the early 1980s. This desire to be the first to try new approaches is evident with the creation of the first Japanese luxury chain Acura, and was also evident with the all aluminum, mid-engined sports car, the Honda NSX, which also introduced variable valve timing technology, Honda calls VTEC. The Civic is a line of compact cars developed and manufactured by Honda. In North America, the Civic is the second-longest continuously running nameplate from a Japanese manufacturer; only its perennial rival, the Toyota Corolla, introduced in 1968, has been in production longer.[31] The Civic, along with the Accord and Prelude, comprised Honda's vehicles sold in North America until the 1990s, when the model lineup was expanded. Having gone through several generational changes, the Civic has become larger and more upmarket, and it currently slots between the Fit and Accord. Honda produces Civic hybrid, a hybrid electric vehicle that competes with the Toyota Prius, and also produces the Insight and CR-Z. In 2008, Honda increased global production to meet demand for small cars and hybrids in the U.S. and emerging markets. The company shuffled U.S. production to keep factories busy and boost car output, while building fewer minivans and sport utility vehicles as light truck sales fell. Its first entrance into the pickup segment, the light duty Ridgeline, won Truck of the Year from Motor Trend magazine in 2006. Also in 2006, the redesigned Civic won Car of the Year from the magazine, giving Honda a rare double win of Motor Trend honors.

Page 23 of 34

Strategy Formation
It is reported that Honda plans to increase hybrid sales in Japan to more than 20% of its total sales in fiscal year 2011, from 14.8% in previous year. Five of United States Environmental Protection Agency's top ten most fuel-efficient cars from 1984 to 2010 comes from Honda, more than any other automakers. The five models are: 20002006 Honda Insight (53 mpg-US or 4.4 L/100 km; 64 mpg-imp combined), 19861987 Honda Civic Coupe HF (46 mpg-US or 5.1 L/100 km; 55 mpg-imp combined), 1994 1995 Honda Civic hatchback VX (43 mpg-US or 5.5 L/100 km; 52 mpg-imp combined), 2006 Honda Civic Hybrid (42 mpg-US or 5.6 L/100 km; 50 mpg-imp combined), and 2010 Honda Insight (41 mpg-US or 5.7 L/100 km; 49 mpg-imp combined).The ACEEE has also rated the Civic GX as the greenest car in America for seven consecutive years.

Motorcycles
For a list of motorcycle products, see List of Honda motorcycles.

Honda is the largest motorcycle manufacturer in Japan and has been since it started production in 1955.At its peak in 1982, Honda manufactured almost 3 million motorcycles annually. By 2006 this figure had reduced to around 550,000 but was still higher than its three domestic competitors.

2004 Honda Super Cub

The second explanation was offered in 1984 by Richard Pascale, who had interviewed the Honda executives responsible for the firms entry into the U.S. market. As opposed to the tightly focused strategy of low cost and high scale that BCG accredited to Honda, Pascale found that their entry into the U.S. market was a story of miscalculation, serendipity, and organizational learning in other words, Hondas success was due to the adaptability and hard work of its staff, rather than any long term strategy. For example, Hondas initial plan on entering the U.S. was to compete in large motorcycles, around 300 cc. It was only when the team found that the scooters they were using to get themselves around their U.S. base of San Francisco attracted positive interest from consumers that they came up with the idea of selling the Super Cub. The most recent school of thought on Hondas strategy was put forward by Gary Hamel and C. K. Prahalad in 1989. Creating the concept of core competencies with Honda as an example, they argued that Hondas success was due to its focus on leadership in the technology of internal combustion engines.[39] For example, the high power-to-weight ratio engines Honda produced for its racing bikes provided technology and expertise which was
Page 24 of 34

Strategy Formation
transferable into mopeds. Honda's entry into the U.S. motorcycle market during the 1960s is used as a case study for teaching introductory strategy at business schools worldwide.[40]

Power equipment
Production started in 1953 with H-type engine (prior to motorcycle). Honda power equipment reached record sales in 2007 with 6,4 million units.By 2010 (Fiscal [43] year ended 31 March) this figure had decreased to 4,7 million units. Cumulative production of power products has exceeded 85 million units (as of September 2008). Honda power equipment includes:

Engine Tiller Lawn mower Riding mower Trimmer Mower Blower Sprayer Hedge trimmer Snowthrower Generator, welding power supply Pumps Outboard engine Inflatable boat Electric 4-wheel Scooter Compact Household Cogeneration Unit

Engines
This section requires expansion. (April 2009)

Honda Outboard motor on a pontoon boat

Honda engines powered the entire 33-car starting field of the 2010 Indianapolis 500 and for the fifth consecutive race, there were no engine-related retirements during the running of the Memorial Day Classic. Honda, despite being known as an engine company, has never built a V8 for passenger vehicles. In the late 1990s, the company resisted considerable pressure from its
Page 25 of 34

Strategy Formation
American dealers for a V8 engine (which would have seen use in top-of-the-line Honda SUVs and Acuras), with American Honda reportedly sending one dealer a shipment of V8 beverages to silence them.Honda considered starting V8 production in the mid-2000s for larger Acura sedans, a new version of the high end NSX sports car (which previously used DOHC V6 engines with VTEC to achieve its high power output) and possible future ventures into the American full-size truck and SUV segment for both the Acura and Honda brands, but this was cancelled in late 2008, with Honda citing environmental and worldwide economic conditions as reasons for the termination of this project.

Robots

ASIMO at Expo 2005

ASIMO is the part of Honda's Research & Development robotics program. It is the eleventh in a line of successive builds starting in 1986 with Honda E0 moving through the ensuing Honda E series and the Honda P series. Weighing 54 kilograms and standing 130 centimeters tall, ASIMO resembles a small astronaut wearing a backpack, and can walk on two feet in a manner resembling human locomotion, at up to 6 km/h (3.7 mph). ASIMO is the world's only humanoid robot able to ascend and descend stairs independently. However, human motions such as climbing stairs are difficult to mimic with a machine, which ASIMO has demonstrated by taking two plunges off a staircase. Honda's robot ASIMO (see below) as an R&D project brings together expertise to create a robot that walks, dances and navigates steps. 2010 marks the year Honda has developed a machine capable of reading a user's brainwaves to move ASIMO. The system uses a helmet covered with electroencephalography and near-infrared spectroscopy sensors that monitor electrical brainwaves and cerebral blood flowsignals that alter slightly during the human thought process. The user thinks of one of a limited number of gestures it wants from the robot, which has been fitted with a Brain Machine Interface.

Page 26 of 34

Strategy Formation Aircraft

Honda HA-420 HondaJet

Honda has also pioneered new technology in its HA-420 HondaJet, manufactured by its subsidiary Honda Aircraft Company, which allows new levels of reduced drag, increased aerodynamics and fuel efficiency thus reducing operating costs

Solar cells
Honda's solar cell subsidiary company Honda Soltec (Headquarters: Kikuchi-gun, Kumamoto; President and CEO: Akio Kazusa) started sales throughout Japan of thin-film solar cells for public and industrial use on 24 October 2008, after selling solar cells for residential use since October 2007.

Mountain bikes
Honda RN-01 G-cross

Honda has also built a downhill racing bicycle known as the Honda RN-01. It is not available for sale to the public. The key feature of this bike is the gearbox, which replaces the standard derailleur found on most bikes. Honda has hired several people to pilot the bike, among them Greg Minnaar. The team is known as Team G Cross Honda.

Motorsports
Honda has been active in motorsports, like Motorcycle Grand Prix, Superbike racing and others.

Automobile
Honda Racing F1

Rubens Barrichello driving for Honda

Honda became an official works team in the British Touring Car Championship in 2010.

Page 27 of 34

Strategy Formation

PROMOTION STRATEGY
Advertisement

The company tried to communicate the unique message in every advertisement that its products have a good quality to customer. For example, Honda Freed; it can carry many persons in its body, they will feel like family condition. So this product is appropriate to each quite big family. So the company used pull strategy in attracting customers because from the above advertisement the company showed the abilities of its product and also it meaned that how the company's products was different from others.

Personal Selling

The company had coorperated with its representative seller under its three philosophy they are joy of buying, joy of selling and joy of creativity. This has an objective for making many satisfaction of customers as highly as the company can do. and also this is a good strategy of Honda in increasing its sale to be higher and higher in the future.

Public Relation

Page 28 of 34

Strategy Formation
Every advertisement of Honda tried to make its picture in form of more good quality than others into customer's mind.

Promotion

The company gives a service after selling to customer. For example, Honda Freed the company had provided some gift for customer such as first class insurance, film lamina etc. So this is one means of pull strategy in attracting customer's mind and make them become the company's royal customers.

Page 29 of 34

Strategy Formation

FINANCIAL AND STRATEGIC ANALYSIS REVIEW

Honda Motor Co., Ltd. (Honda) is a leading global automobiles manufacturer. It is principally engaged in developing, manufacturing and marketing small and general purpose engines, motorcycle, and passenger and specialty sports cars, among others. The company also provides financial services to its customers and dealers. As of March 31, 2009 Honda operated through 396 subsidiary companies and 105 affiliate companies. The company operates its business in four segments namely, Automobile Business, Motorcycle Business, Financial Services, and Power Products and Other Businesses. Honda Motor Co., Ltd. Key Recent Developments Jul 20, 2010 Honda To Introduce Environmental Technology Vehicles Apr 14, 2010 Honda Plans To Begin Sales Of EV-neo In December 2010 Apr 14, 2010 Honda EV-neo Sales To Start In December 2010 Apr 13, 2010 Toshiba's SCiB Rechargeable Battery Being Selected For Ev-neo, Honda's New Commercial-Use Electric Motorcycle Apr 13, 2010 Honda Plans To Begin Sales Of Commercial Use Electric Scooter, EV-neo, In December 2010

The profile contains critical company information including

Business description - A detailed description of the companys operations and business divisions. Corporate strategy - Analysts summarization of the companys business strategy. SWOT Analysis - A detailed analysis of the companys strengths, weakness, opportunities and threats. Company history - Progression of key events associated with the company. Major products and services - A list of major products, services and brands of the company. Key competitors - A list of key competitors to the company. Key employees - A list of the key executives of the company. Executive biographies - A brief summary of the executives employment history. Key operational heads - A list of personnel heading key departments/functions. Important locations and subsidiaries - A list and contact details of key locations and subsidiaries of the company. Detailed financial ratios for the past five years - The latest financial ratios derived from the annual financial statements published by the company with 5 years history. Interim ratios for the last five interim periods - The latest financial ratios derived from the quarterly/semi-annual financial statements published by the company for 5 interims history.

Page 30 of 34

Strategy Formation

HONDA ANNOUNCES FUTURE BUSINESS STRATEGY

Published: 7/20/2010 Honda president and chief executive officer Takanobu Ito has revealed the company's future business strategy, aimed at sustaining financial growth in the long term.

IHS Global Insight Perspective Significance Honda president and chief executive officer Takanobu Ito has revealed the company's future business strategy. Implications The strategy includes Honda's plans for vehicle production in its key markets, including Japan. There is also a focus on emerging markets and the launch of fuel-efficient and alternatively fuelled models aimed at reducing carbon dioxide emissions. Outlook This latest business strategy highlights the automaker's ongoing commitment to ensuring long-term financial growth amid a changing business environment, tightening emission standards, and a shifting focus towards alternatively fuelled vehicles. Honda president and chief executive officer (CEO) Takanobu Ito has announced the automaker's future business strategy, aimed at ensuring sustained growth in its financial performance amid the changing business environment. Ito revealed that in order to deliver low-priced quality products with reduced carbon dioxide (CO2) emissions, the company needs to focus on three core areas: advancement of environmental technologies; the strengthening of manufacturing systems and capabilities; and the strengthening of business operations in emerging nations. He said that, "What I think is most important, and the message I conveyed strongly to all Honda associates, was to provide good products to our customers with speed, affordability and low CO2 emissions."

Advancing Environmental Technologies

Honda will accelerate the widespread market introduction of integrated motor assist (IMA) hybrid technology by launching several small-sized models equipped with the IMA system in Japan before the end of 2011. The first of these will be a hybrid version of its Fit subcompact car, which is scheduled to hit the market by the end of this year. It will use an advanced, high-output, and compact lithium-ion (Li-ion) battery in its future hybrid models, starting with the next-generation Civic hybrid, production of which will begin before the end of this year. It will launch a plug-in hybrid vehicle (PHV) and an electric vehicle (EV) by 2012, first in the United States and Japan, followed by other key markets over the next 10 years. It will continue focusing on upgraded technologies to improve the fuel efficiency of gasoline (petrol) engines and will start renewing its engine and transmission line-up from 2012 in order to achieve improved fuel efficiency in its vehicles. It is accelerating its efforts to develop a smaller diesel engine, and a model equipped with this engine will be introduced in Europe in 2012. It will continue accelerating its efforts to develop hydrogen-powered fuel-cell vehicles (FCVs) and hydrogen refuelling systems.

Page 31 of 34

Strategy Formation Strengthening Manufacturing Systems and Capabilities

Honda's domestic facilities will focus on three key goals: firstly, upgrading production methodology in order to accommodate production of small-to-medium-sized low-priced fuelefficient models; secondly, efficient production of the products to be sold in Japan; and thirdly, strengthening the support functions for Honda plants outside of Japan. Honda will resume construction of its new factory in Yorii, Saitama Prefecture. It will build hybrid vehicles and fuel-efficient subcompact models at this facility when it becomes operational in 2013 (see Japan: 15 July 2010: Honda Abandons Plans to Build Minivehicle Plant in Japan, to Focus on Hybrid Vehicles InsteadReport). In response to the global shift towards smaller vehicles, Honda will begin production of minivehicles at its Suzuka factory in 2012. However, it has decided to stop construction of a new 50-billion (US$576-million) minivehicle factory in Yokkaichi, Mie Prefecture. Honda will accelerate its efforts to either increase localisation rates or localise production in emerging and strategically important markets. It will strengthen its cross-factory/cross-border supply system by increasing the flexibility of its manufacturing system.

Strengthening Business in Emerging Markets

In order to remain competitive in emerging and high-growth markets, Honda will continue its efforts to localise vehicle production by increasing local sourcing of components. Honda will launch its "new small car" in India in 2011 as scheduled, priced at under 500,000 rupees (US$10,618). It will also launch the same model in Thailand during 2011 as part of its Thai "eco-car" production plans. The Thai-made model will also be exported to the Association of Southeast Asian Nations (ASEAN) countries.

Page 32 of 34

Strategy Formation

CONCLUSION
My last word of advice is a plan is a living document. It does not have to be perfect or 100 percent complete to start using your strategic plan. A business without a plan is like a car without a steering wheel. A rough draft is better than no plan at all. Put your plan on paper so you can look back on 2004 and celebrate your well-earned success. Happy Planning!

Page 33 of 34

Strategy Formation
BIBLOGRAPHY (Reference)

www.wikipedia.com

www.google.com

Page 34 of 34