Strategic analysis can be described as the collection and review of information about an organisation's internal processes and resources, together with external marketplace/industry factors, in order to make strategic decisions.
The internal and external environments are very difficult to analyse due to their sheer complexity. According to Porter (1979) the five forces framework allows a firm to identify the key areas that are critical for competition. It permits a company to find strategic innovations to improve profits.
Porter's five forces model is extremely useful in positioning an organisation in its competitive environment. De Wit and Myer (2004) states:
"The ultimate aim of competitive strategy is to cope with and, ideally, to change those rules in the firm's favor."
Threat of new entrants
There is a limited threat of new entrants due to the high capital cost barrier of starting such a business. Honda has no immediate fears of significant new entrants in the near future.
Buyers' bargaining power
The size of the buyer defines the power they command. For Honda, their sales are high and remain so because they listen to and respond to the needs of their customers, who individually do not have much buying power but collectively influence the strategy of the company.
Suppliers' bargaining power
Component suppliers tend to have very little power. In fact, in single supplier arrangements, quite the opposite is true, being at the mercy of the manufacturer. Outside Japan, Honda has addressed this situation in interesting ways. Honda does not organise its own suppliers' association, as most Japanese firms normally do. However, in North America, Honda invested its own capital in some of the smaller early arrival Japanese 'transplant' component suppliers and will directly intervene with internal activities, such as purchasing raw materials e.g. steel and aluminium. Its relationship with suppliers is clearly different from the traditional Western approach.
Competition among firms
Rivalry among the firms in the same industry means that they look for a competitive advantage over their peers. This can be achieved through lower prices, more innovative products and new technology. Honda has maintained competitive advantage over its rivals. One example is including optional extras as standard in its cars to entice new customers.
Threat of substitute
The threat of a substitute within the automobile industry is also unlikely. Perhaps the biggest 'substitute' will be how the vehicles are powered; possible substitutes to petrol and diesel fuels. Honda has been addressing this possible threat by investing heavily in developing gas, electric and 'hybrid' cars. This reflects the growing trend towards more fuel-efficient, safe and environmentally friendly cars that are affordable to the dramatically growing new global middle class potential customers.
The five forces are shown graphically in appendix 1.
Porter's Value Chain
According to Porter (1985), whether providing a service or manufacturing a product, a company will have a series of activities and functions that need to be carried out to fulfil the wants of the customer or consumer. These activities need to be linked together and co-ordinated in a business system. This is frequently known in the industry as Porter's Value Chain. Having a different activity system from a competitor can lead to competitive advantage. A value chain, according to McHardie (2007), can be used by an organisation to find ways to increase profits.
In Honda, strategic and operational variables are factored into the design of the company's global value chain.
The value chain model (Porter, 1985) can be seen in appendix 2.
Critical evaluation of the process of 'reconciling dichotomies' at Honda Motors with reference to the 'positioning' versus 'developing internal resources' dichotomy
According to Mair (1997), Honda's innovative strategic management and planning can be described as 'reconciling dichotomies.' He describes reconciliation as the challenge of making two opposite poles compatible. Examples are, buyer / supplier relations, work organisation and research and development. Strangely, Western managers fail to see the importance of these dichotomies. Honda has a very different way of thinking in evaluating these dichotomies. These are seen to be negative according to the West and that trade-offs are assumed if trying to mix two dichotomous concepts which result in taking some of the benefits of one but sacrificing the benefits of the other. The West believes that they would end up with the 'worst of both worlds´.
Honda has many examples of dichotomy reconciliation. The 'right-first-time' or 'built-in quality' approaches; these principles are advantageous in reducing costs, minimising stocks and reducing lead times. They concentrate on building in quality and getting it right first time, instead of having to test quality afterwards.
Honda promotes both individualism and groupism in the strategic decision making and seeks to get the best of both worlds. Honda rewards individuals and creates competition between its employees but at the same time, stresses loyalty and co-operation. It also promotes group processes and collective decision making.
Market Positioning
The positioning approach, according to Minzberg, Ahlstrand and Lampel, (1998) is where a company establishes a customer market and must constantly be adapting itself to the changes in that environment. Strategic planning, in terms of market positioning is all about responding to external developments and needs of the customers. Positioning is a long-term process. Porter (1985) suggests that organisations target a particular niche market or try to differentiate their products. This is very effective and clearly benefits the company who gain a strong and profitable market share. According to Williams (2009) there are three strategies for market positions: cost-leadership, differentiation and focus.
Cost-leadership means being the lowest cost producer. Differentiation is where the product has extra features and the customers are prepared to pay for them. Honda has focused both on cost and on differentiation, producing not only standard small engine cars but also top end super sports cars. Mair, (1997) suggests that Honda's focus for the future should be developing new low-pollution cars and solar power or electric cars.
Developing internal resources
Honda has focused its attention on developing internal resources within the organisation. De Witt and Meyer (2004, p253) argue that it is important to build up internal resources over time. They also argue that strategies should not be built around external resources. Strategically thinking a company needs to choose what resource base it needs. They also suggest that resources should be leading and that the markets should follow. Developing internal resources can give a company competitive advantage over the long-term.
An explanation of the 'pressures for global integration of activities' and the 'pressures for local responsiveness' in the context of the global automobile industry
In strategic management it is equally important to be responsive to local conditions as it is for the wider integration of activities. According to De Wit and Meyer (2004, p543) global synergy is not always an opportunity, claiming that it is sometimes a competitive demand.
Pressures for global integration of activities
The aim is for globally standardised products and processes because of the potentially huge cost savings.
Honda is especially aggressive to gain a competitive edge and recognises the need for accurate global intelligence to collect and analyse data about competitors.
Intensive business investment is required, in the form of research and development. Global planning is essential to ensure economies of scale and lower cost production, guaranteeing cost reductions. The industry benefits greatly from capturing economies of scale and depending on locations of production will be able to guarantee lower costs.
Access to raw materials and energy has a great influence on decisions regarding production locations.
Global integration should be a priority where the specifications for the vehicles are universal, except for the split between those countries where people drive on the left and where they drive on the right.
Pressures for local responsiveness
De Witt and Meyer (2004) emphasise the importance of a company's capability in responding to local conditions of their customers. There are sometimes conflicts between the synergies of value and the responsiveness to local conditions. A company must be proactive when responding to these conditions. The University of Sunderland, Version 2.0 (2004) pages 196-7 suggests a number of important pressures for local responsiveness.
Local cultures which obviously have differences in customer demands and tastes. The automobile industry, especially Honda Motors, needs to find out about the customers in the West, due to their different cultures. For example in the UK the language is English and the car specifications need to reflect the left hand drive as well as MPH and MPG.
Differences in marketing conditions, distribution, pricing policies. This can affect sales in terms of buying behaviour, marketing and advertising policies and the format of distributing the products. These differences can be challenging because they need to be flexible within each individual host country.
Market structure is locally determined, not multinational, with some countries having significantly different competitive settings.
Differing bureaucratic and governmental demands in host countries. This affects all industries in terms of laws and taxes. These may vary greatly between host countries. The motor industry needs to carefully investigate these demands.
An explanation of Whittington's 'Classical' and 'Processual' Schools of thought in the context of strategy development at Honda Motors
Whittington developed a model for perspectives on strategy. There are four perspectives
This model can be referred to in appendix 3.
Whittington's 'Classical' school of thought
'... The Classical approach, the oldest and still the most
influential, relies on the rational planning methods
dominant in the textbooks.'
Whittington (2000)
The classical perspective on strategy asks three principle questions:-
Where are we now? (Current Position) In answering this question the company needs to use a selection of traditional tools, such as SWOT and BPEST analysis, to establish their current position in the environment. Porter's five competitive forces model is also used to analyse the organisation's position in terms of competitive environment.
Where do we want to be? (Organisational goals) Classical strategists claim the main objective is to maximise profits. In Honda, it is clear from their company philosophy that maximising profits is not their only goal. They also strive to be socially responsible and wish to address environmental and safety issues.
"Dreams inspire us to create innovative products that enhance mobility and benefit society. To meet the particular needs of customers in different regions around the world, we base our sales networks, research and development centers and manufacturing facilities in each region. Furthermore, as a socially responsible corporate citizen, we strive to address important environmental and safety issues."
Honda Motor Co. 2010
How do we get there? (The strategic objectives) Achieving the organisational goals is more of a challenge. A company will need to be unified in its strategic thinking and share company visions and goals. Honda very clearly promotes working as a team and sharing the vision of the company.
The classical school of thought is most used and follows traditional text book theories and models. The classical approach insists that management look for ways of maximising profits by rational long-term strategic planning.
Whittington's 'Processual' school of thought
'... Processualists emphasise the sticky imperfect nature
of all human life, pragmatically accommodating strategy to
the fallible processes of both organisations and markets.'
Whittington (2000)
According to the University of Sunderland, Version 2.0 (2004) p49-51, this school of thought is seen to be as a result of the processes of manager´s activities. This stresses that neither individual nor group preferences will win. The key issues are pluralism, power and political activity. Pluralism means concerning more than one and has always existed in organisations. This school of thought claims that people outside the company such as the stakeholders also have power to influence strategy. Individuals within the company have more influential power, as long as they have a source of power. Some sources of power are from their organisational position which is classed as formal power.
A critical evaluation of how to apply these ´Schools of Thought´ to Honda Motors and explanation into the preferred school giving justifications
It is argued that the basic understanding of the classical model is fundamentally flawed. According to Stacy (1993) this perspective simply ignores real-life observations. Stacy also states that the 'real world' is not always stable and predictable. The constantly changing environment means that success comes more from irregularities. The classical approach is seen as survival in an unpredictable environment. Real, accurate long term planning becomes difficult. A major criticism of the classical perspective is the ´messiness' of the strategic procedures and formulation. Due to the perspective being linear, 'A to B' linear planning encounters problems with resources when not available. Goals are frequently not met due to an ever changing environment.
In considering the application of the ´classical´ and ´processual´ schools of thought to Honda, for classicists'´ profitability is the highest business goal, as the strategic aim of a business is to earn a return on the capital invested in it, through rational long term planning. The implementation of strategy in the classical perspective is a deliberate program of time ordered activities across the whole organisation, to meet the targeted business objectives.
However, the processual approach does not subscribe to rational strategy, propounded by the classical approach. Instead, they believe it is in compromise and adjustments, both internal and external, that matter and from which the most appropriate strategic pathway emerges.
An evaluation would determine if there is a single goal pursued by the whole organisation and that the goal is solely profit maximisation (unitary outcome) or should the approach indicate many different goals and / or ways of achieving them (pluralistic outcome). In Honda's case, more than just profit maximisation is clear.
Further, analysis would establish whether strategies are deliberately, rationally designed and then implemented (deliberate processes) or do strategies arise from various activities and decision making, in a haphazard way, in response to ongoing changes in the business environment (emergent processes). In Honda's case the analysis clearly points to "emergent" processes being most applicable.
The results in Honda's case firmly put them in the processual quadrant of Whittington's generic perspective on strategy, with the emergent processes and pluralistic approaches. This presents a strong case for the processual school of thought being the "preferred" and most appropriate school of thought.
A critical evaluation of the implications of cultural dimensions for international strategic managers at Honda Motors in building productive relationships with the outside world.
Honda's international exposure dates back to its Belgium motor cycle production facility, set up in 1963, followed by automobile manufacturing in Ohio in 1982. By the mid nineties Honda led the field of automobile producers both in international sales and manufacturing output, becoming one of Japan's ´big three´ along with Toyota and Nissan.
This clearly makes the case for the importance of building productive international relationships at Honda.
Systemic School of Thought
'... the systemic approach is relativistic, regarding the
ends and means of strategy as inescapably linked to the
cultures and powers of the local social systems in which it
takes place...'
Whittington (2000)
A systemic approach to strategic management is when the business organisation is described as a system. This approach looks at dynamic processes instead of a static structure. They are open systems that must be fully aware of their internal and external environments. External environments are the things that can affect the business but are out of the control of the business. The systemic approach is made up of complex systems and sub systems. This approach reflects that the organisation is constantly changing and adapting to its external environments. Systemic strategy is seen as deliberate because all those concerned with making productive relationships with the environment are those who make decisions to ensure business survival. A systemic approach is also pluralist. Communication is very open with this approach and according to Boisot (1995) it is called a 'Market.' Competitive advantage can be achieved with this method of effective management of information within the business. Changes are initiated from the system itself, not necessarily from the top of the organisation.
Definition of Culture
Hofstede's definition of culture is as follows:
'..the collective programming of the mind which
distinguishes one group or category of people from another.
Hofstede (1993)
Management is not isolated from its culture and is interrelated and different depending on such things as politics, religion, family and schooling. In order to understand management in a different country it is essential to have empathy with and knowledge of the local culture. People in other cultures may think and feel differently to people from the home country.
Five Cultural Dimensions
International strategic managers need to take into account these cultural dimensions when building productive relationships. In Honda's case, the complexity of this is highlighted by them having over 80 manufacturing facilities with nearly all outside Japan. Operating globally also implies making small changes or adjustments to products to accommodate the needs and tastes of the local market. Hofstede (1995) defines five cultural dimensions
This model can be found in appendix 4.
Power distance
This is defined as the level of inequality a country has. Every country has some inequality but this determines the degree. Small power distance is when there is relatively normal equality in a country's population. When extreme inequality exists this is large power distance. For Honda, the majority of the countries where they operate are developed countries where small power distance exists. However, it does operate in some countries with high power distance too. This power distance is important for strategic planning at Honda.
Individualism
This is the degree to which people in a country prefer to do things individually or as part of a group. Individualism is when people learn from an early age only to think of themselves, fending for themselves and not feeling any need for being loyal. Collectivism is the opposite of individualism. This is where from a young age; children learn to respect groups, having a sense of belonging and remaining part of the group to protect each other. There is also a strong sense of loyalty to the group. Honda promotes both individualism and collectivism, by rewarding individuals for their ideas and efforts, but also for working to a common Honda goal and loyalty to the company. This builds successful relationships to achieve goals with the rest of the world.
Masculinity
The values historically associated with men such as assertiveness, success and competition is called masculinity. In some Western societies the values associated with men and women are very similar with some of the tougher values associated with the women. In Honda, the Japanese culture is tougher with a high level of masculinity.
Uncertainty avoidance
This is where the people of a country prefer structure above uncertainty, where the rules are clear. Countries with a high level of uncertainty avoidance are considered rigid. Countries with lower levels of uncertainty are seen to be more 'easy going' and are considered to be flexible. Honda's strategic planners need to take a flexible approach while dealing with countries which have very clear structures and others which are quite the opposite.
Long-term versus short-term orientation
Long-term values are focused towards the long-term, planning ahead towards the future. Short-term values are forecasts based on the past and the present. In Honda they work towards long-term planning but also they need the flexibility to work with short-term values.
Implications for productive relationships with the outside world
Honda's strategic managers must continue to work on relationships with its outside world. One very important implication for productive relationships with the outside world, from a systemic perspective is that there are real relationships between all parties. These parties include the organisation, its customers, suppliers and stakeholders. The business organisation works as a system and responds directly to its customers and suppliers via continuous communication. There are implications to strategic planners with the different operating languages. It is essential that the organisation and the products it sells are acceptable to the society in the country in which it is located. From a systemic approach this is seen as being 'embedded' in the community.
It is essential that the organisation has a productive relationship with its environment and that business policy and strategy are given equal importance.
The final implication from this perspective understands when operating a business in other cultures and societies that their values may well be different. It is important that being ethical is integrated into the business and is not seen as some kind of add-on. Ethical values differ depending on the country. According to Pitta et al. (1999) it is important to understand the root of ethics in different cultures as frequently there are conflicts.
The international diversification of Honda contributed to sustaining ongoing profitability during the Japanese economic slump, demonstrating in part its successful productive relationships with the outside world, by combining simultaneously both Japanese and Western models to elicit the best elements of both models (cultures).
Conclusions
In Honda's case the analysis clearly points to "emergent" processes being most applicable. There is clear evidence of 'processual' school of thought throughout Honda.
The importance of doing business on a global market requires importance to be given to the different cultures and the ability to be flexible in terms of product and marketing.
The global automobile industry has gone through extremely difficult times over the last few years. In June 2008 bankruptcy filings had been made by General Motors and Chrysler, with Ford being expected to follow. However, the industry has been transformed with General Motors returned to profitability, quicker than expected. Ford has done even better by achieving record profitability and reversing years of declining market share. Even Chrysler has stemmed its losses.
Honda through their strategic planning suffered very little and has continued to excel and thrive because of their truly global diversification. Honda has demonstrated exemplary flexible strategic planning.
Honda continues to find ways of successfully reconciling dichotomies across its business and their corporate strategy clearly seeks to find new solutions in its chosen industries.
Recommendations
According to the 'systemic' school of thought, Honda must continue to work proactively on their relationships with their internal and external customers and suppliers through constant effective communication.
They need to continue investing in developing substitutes as to how vehicles are powered. This strategic 'positioning' is essential, combined with further investment in 'hybrid' car research and development.
In global strategic planning it is essential that within the global automobile industry Honda focus on achieving the benefits of economies of scale due to the pressures of global integration of activities.
Due to the ever changing internal and external environments, Honda needs to continue to plan for the inevitable 'irregularities' that occur and enhance their already extensively flexible strategic planning approach.
Honda must also ensure that both their organisation and its products are seen as acceptable to the countries where it does business taking into account the cultural and ethical differences according to the analysis using Hofstede's Five Cultural Dimension's Model.
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