BUSINESS POLICY CASE # 5

HONDA

Ahmed Ali Dhaku

Hassan Waqas Khan Sial
Hooria Adnan
Shermeen Wasif
MBA-II (B)

Date: May 25, 2015

Submitted to: Prof. Fareedy

Case Overview
This case is regarding strategy and execution, business policy, change management and corporate
strategy. It describes the history of Honda Motor Company from its beginning through its entry
into and subsequent dominance of the U.S. market. The history is explained primarily in terms of
strategic factors and quoted from two sources: an earlier case and Boston Consulting Group
report on the motorcycle industry. Today Honda is a dominant player in the U.S., but its start
could not have been more improbable. It was only by staying flexible to an emerging
understanding of what the opportunities were that Honda succeeded.

Company Introduction
Honda Motors is a Japanese public multinational corporation primarily known as a manufacturer
of automobiles, motorcycles and power equipment. Honda has been the world's largest
motorcycle manufacturer since 1959, as well as the world's largest manufacturer of internal
combustion engines measured by volume. According to recent data, Honda was the eighth largest
automobile manufacturer in the world behind General Motors, Volkswagen Group, Toyota,
Hyundai Motor Group, Ford, Nissan, and PSA in 2011.

Case Setting

Geographic: Japan and United States

Industry: Motorcycle
Event Year Begin: 1948
Event Year End: 1974

Quantitative Information

The two decades from 1960 to 1980 witnessed a strategic reversal in the World
motorcycle industry

Hondas Technical Research Institute was established in 1946

In 1947 Honda introduced its first A-Type, 2 Stroke engine.

Honda expanded its presence in the fall of 1949 introducing a lightweight 50cc, 2-stroke,
D-Type motorcycle

Responding to the threat by the competitors, Honda followed in 1951 with a superior 4stroke design that doubled horsepower with no additional weight.

Beginning in the 1950's Honda begin to depart from this pattern, seeking simultaneously
to offer a multiproduct line, take leadership in product innovation and exploit
opportunities for economies of mass production by gearing designs to production
objectives

In 1958, Honda's market research identified a large, untapped market segment seeking a
small, unintimidating motorcycle that could be used by small-motorcycle businesses for
local deliveries

The 50cc Honda's unit sales reached to 3,000 per month after 6 months on the market

In 1959 Honda Motor Company entered the American market

in 1959, Honda, Suzuki, Yamaha and Kawasaki together produced 450,000 motorcycles
with the sales of $55 Million that year

Honda machines sold for less than$250 retail compared with $1,000 to $1,500 for the
bigger American or British machines

In 1961, Honda lined up 125 dealers and spent $150,000 on regional advertising

Its US. Sales rose from $500,000 in 1960 to $77 million in 1965.

By 1966, Honda, Yamaha and Suzuki together had 85 % of the US. Market

British exports doubled between 1960 and 1966, while Harley-Davidson's sales increased
from $16.6 million in 1959 to $29.6 million in 1965

In 1965, domestic sales represented only 59 % of Honda's total of $316 Million, down
from 98 % in 1959

Over the same period, the production volume had increased almost fivefold, from
285,000 to 1.4 million units

Qualitative Information

The Japanese invasion of the world motorcycle market was spearheaded by the Honda
Motor Company

Honda acquired a plant, and over the next two years it developed enough manufacturing

expertise to become a fully integrated producer of engines, frames, chains, sprockets, and
other ancillary parts crucial to motorcycle performance

Beginning in the 1950's Honda begin to depart from this pattern, seeking simultaneously
to offer a multiproduct line, take leadership in product innovation and exploit
opportunities for economies of mass production by gearing designs to production
objectives

In 1958, Honda's market research identified a large, untapped market segment seeking a
small, unintimidating motorcycle that could be used by small-motorcycle businesses for
local deliveries

In 1959 Honda Motor Company entered the American market

In contrast to other foreign producers who relied on distributors, Honda established a US.
Subsidiary, American Honda Motor Company, and began it US. market by offering very
small lightweight motorcycles

Honda followed a policy of developing the market region by region, beginning on the
West Coast and moving Eastward over a period of four to five years

The Company achieved a significant product advantage through a heavy commitment to

R&D and advanced manufacturing techniques

Honda used its productivity-based cost advantage and R&D capability to introduce new
models at prices below those of competitive machines

Since 1960, Honda had consistently outspent its competitiors in advertising

It had also developed the largest dealership network in the US

The market approach of Honda has certain common features which, taken toegther, may
be described as a "Marketing Philosophy". The fundamental feature of this Philosophy is
the emphasis it places on market share and sales volume

Honda's primary objectives are set in terms of sales volume rather than the short term
profitability.

Hondas success story: A case of Intended and Emergent

Strategies
How organizations make strategy has emerged as an area of intense debate within the strategy
field. Henry Mintzberg distinguishes intended, deliberate, realized, and emergent strategies.
Intended strategy is strategy as conceived by the top management team. The intended strategy is
the result of a process of negotiation, bargaining, and compromise, involving many individuals
and groups within the organization. However, realized strategy (the actual strategy that is
implemented) is only partly related to that which was intended (Mintzberg suggests only 10%
30% of intended strategy is realized).
The primary determinant of realized strategy is what Mintzberg terms emergent strategythe
decisions that emerge from the complex processes in which individual managers interpret the
intended strategy and adapt to changing external circumstances. Thus, the realized strategy is a
consequence of deliberate and emerging factors.

Intended
Strategy

Resource
Allocation
Process

Emergent
Strategy

Honda improved understanding of

what works and what doesnt

Strategic
Actions: new
products,
services,

Actual
Strategy

Unanticipated problems, successes

and opportunities

Analysis of Hondas successful entry into the U.S. motorcycle market has provided a
battleground for the debate between those who view strategy making as primarily a rational,

analytical process of deliberate planning (the design school) and those that envisage strategy as
emerging from a complex process of organizational decision making (the emergence or learning
school).
After WWII, Honda was a supplier of small, rugged Supercub motorcycles. Supercub sales
had grown to 300,000 units by 1959, and management, targeted the North American market for
growth. Since Americans used motorcycles for long over-the-road excursions, rather than the
short urban trips for which the Supercub was designed, so Hondas engineers designed and
manufactured a larger over-the-road bike for the American market.
However, Hondas team had to face many challenges in America. Most motorcycle dealers were
unwilling to accept an untested product line. When the team finally signed up several dealers
who then sold a few hundred units, Hondas inexperience in design for vehicles in highway use
became apparent as engine failures resulted. Repairs on warrantied bikes nearly bankrupted the
company.
One Saturday, a member of the team decided release his frustrations by racing his Supercub
through the hills east of Los Angeles. He invited his colleagues to join him, and dirtbiking
became a regular recreational outlet. The bikes attracted quite a lot of attention from locals, and
one day a buyer from Sears called who wanted to start selling the bikes. Because selling
Supercubs was not the companys strategy, the team declined the opportunity and continued their
focus on trying to make the large, over-the-road bike strategy work.
After nearly three years, the unanticipated popularity of the Supercub and unanticipated
difficulty with large bikes convinced the Honda America team that selling small bikes as
recreational vehicles was a better strategy. They tried to convince corporate management to
support the change. The Honda team subsequently found that traditional motorcycle dealers were
even more reluctant to sell dirtbikes than Hondas larger bikes, because the low price point and
profit margins on the Supercub were unattractive.
The Honda team finally convinced a few sporting goods retailers to carry the product line, and
the popularity of dirtbikes began to soar. Honda started using the advertising slogan, You meet
the nicest people on a Honda. These ads featured grandmothers, teenagers and businesspeople
on Honda bikes, quite different customers than traditional motorcycle clientele.

By 1964 most elements of a winning strategy had emerged for Honda, quite by trial and error.
With this understanding of what worked and what didnt, Honda then aggressively scaled the
business. As production volumes increased, Honda followed a classic experience-curve strategy
by cutting prices to build volume, which further reduced costs and enabled additional price
reductions. Hondas product designers systematically increased the size and power of Hondas
products. Traditional cycle competitors found that they could not compete with Honda in the
lower tiers of the market, and retreated into the high end by emphasizing sales of larger bikes.
Ultimately only Harley Davidson and BMW survived as niche players.
By the 1980s, Honda had become the dominant motorcycle brand in America. In terms of the
model shown above (this model has been taken from the paper by Tara Donovan named The
Process of Strategy Development and Implementation), Honda began its efforts with an intended
strategy. Almost immediately, emergent inputs such as the reluctance of traditional dealers to
carry Hondas bikes and the Sears buyers request were received, but Hondas resource allocation
process filtered out those inputs to its strategy. Finally, Honda members persuaded corporate
management to change their strategy and the elements of a winning strategy emerged. Thus, a
remarkably successful intended strategy process was executed.

Japanese vision
Japanese are somewhat distrustful of a single strategy, for in their view any idea that focuses
attention does so at the expense of peripheral vision. They strongly believe that peripheral vision
is essential to discerning changes in the customer, the technology or competition and is the key to
corporate survival over the long haul. They regard any propensity to be driven by a singleminded strategy as a weakness.
The Japanese have particular discomfort with strategic concepts. While they do not reject ideas
such as portfolio theory or experience curve, they regard them as a stimulus to perception. They
have often ferreted out the formula of their concept-driven American competitors and exploited
their inflexibility.

Conclusion
The lesson of Honda is that a business with a distinctive capability that develops innovative
products to exploit that capability and recognizes the appropriate distribution channels for such
innovations can take the world by storm. And that lesson is valid whether Honda's achievement
was the result of careful planning or serendipity. The Japanese dont use the term strategy to
describe a crisp business definition or competitive master plan. They think more in terms of
strategic accommodation, or adaptive persistence, underscoring their belief that corporate
direction evolves from an incremental adjustment to unfolding events. This is exactly what we
saw in the Honda case.

References
Christensen, C. and Donovan, T. The Process of Strategy Development and Implementation.
Retrievedfromhttp://www.innosight.com/documents/The%20Processes%20of%20Strategy
%20Development%20and%20%20Implementation.pdf