The Honda Effect
As reported in their 120-page report, Boston Consulting Group (BCG) outlined a well-laid-out strategy by the executives responsible for the entry and dominance of Honda in the US market in the 1960s. The report is fraught with facts and figures that are almost comical with insight into the real sequence of events as narrated by the executives responsible for the entry of Honda into the US market. The report is a deliberate effort to find a pattern of well-thought-out decisions that resulted in the success realized by Honda in the US market. However, as narrated by the Honda executives, the entry of Honda into the US market and its attendant success are better attributed to miscalculation, serendipity, and organizational learning (Mintzberg et al., 2014).
This narrative sharply contrasts what was reported by BCG which was more adherent to the formal strategy process. This strategy model perspective is common among consultancy firms. Although useful, its focus on figures seems to be done at the expense of the organizational perspective. Explicitly put, the “Honda effect” was not a result of a formally developed plan, but rather a result of the executives’ intuition to exploit what they saw as opportunities in the US market. However, it would be misguided to view the “Honda effect” entirely as a product of decisions made on a whim. Even the non-conformist approach by managers and executives must be guided by some empirical evidence and strategy theory for it to be effective in the long haul (Mintzberg et al., 2014).
One key takeaway from Honda’s case is that over-reliance on formal reports such as the one provided by BCG can be misleading. Although such reports are important for decision-making, they are not always in touch with the realities of the business and they may either be under-informed or even ill-informed upon closer scrutiny (Fisher et al., 2020). Another takeaway is that an intuitive sense of the business by managers is an important ingredient in the recipe for Success. This does not mean ignoring or dismissing indicators of potential risks or hurdles, but rather that managers should be open to the morphing of an initially formed strategy to fit the changing realities of the business or industry (Neugebauer et al., 2016).
The Honda executives saw the opportunity for a market of low-cost motorcycles in the US which was a bold venture given that it was a shift in culture from the luxurious motorcycles that dominated the US market at the time. The intuitive, yet ingenious, response to happenstances by the Honda executives better explains their success as opposed to a formerly developed and deployed strategy.
Fisher, G., Wisneski, J. E., & Bakker, R. M. (2020).
Strategy in 3D: Essential tools to diagnose, decide, and deliver. Oxford University Press.
Mintzberg, H., Lampel, J., Ghoshal, S., & Quinn, J. B. (2014).
Strategy Process: Concepts, Contexts, Cases (5th ed.). Philadelphia, PA: Trans-Atlantic Publications.
Neugebauer, F., Figge, F., & Hahn, T. (2016). Planned or emergent strategy making? Exploring the formation of corporate sustainability strategies.
Business Strategy and The Environment, 25, 323-336.
https://doi.org/10.1002/BSE.1875Links to an external site.
Was the Honda Plan formally developed?
The question of whether the Honda Plan was “formally developed” is a good one, but not so easy to answer. According to Lampel et al (2014), Honda achieved success in the American motorcycle market due to a multitude of factors, some of which seem to be consistent with some of the initial thoughts and ideas of the founders, and some were due to pivot points along the way. In the beginning, Honda was working similarly to other Japanese manufacturers at the time, in the 1950’s and 60’s as reported in 1975 by Boston Consulting Group (BCG), with large-production volumes and cost savings as a result. However, in 1959, Honda established an American subsidiary, which is one action that differed from their competitors. At that time, the plan as stated by the former executives was to see if they “could sell something in the United States” with a “seat-of-the-pants target” of attaining a 10% share of the US import market in several years (p. 155). The exact means of attaining these goals were not necessarily articulated. Therefore, it is unclear if there was a documented, true or clear “plan,” but history does show that Honda had and continues to have economic success. If the plan was simply to see if they could indeed sell something in the United States, then we can say success was achieved. However, formal plan development is not part of that conversation.
Within the discussion of the success of Honda, there are post-event analyses by both the participants of those times as well as the academics of BCG and schools of higher education. According to the participants themselves, they maintained an awareness of the similarities and differences between their home country and America, adapted to changing threats and opportunities, used their strengths and talents effectively, collaborated, navigated the unknown and maintained an openness to novelty. The executives of Honda used a multitude of knowledge, skills and attitudes in making the decisions that were made, both consciously and likely subconsciously, some that may have felt safe and other that may have felt risky. For instance, when it was discovered that the clutch was failing due to the rigorous riding of the drivers in the United States versus those in Japan, the executives decided that the best option was to ship the motorcycles home to a testing center in Japan, and figure out the problem. This was a huge cost, and a risk, as they may not have been able to find a solution. Fortunately, the testing did find the problem, and allowed the team to develop a long-term solution that allowed them to continue building and selling their motorcycles.
In reading the writings of the outsiders looking in and evaluating the success, there is a tendency to make associations of intentionality and causality where none may exist. Additionally, one factor missing entirely from this conversation are the differences in cultural affordances between the Japanese Honda workers and executives, and those of the Western-based authors analyzing the successes. The authors of the BCG report as well as the case writers from UCLA, Harvard Business School and the University of Virginia may be looking at the decisions made through the cultural lenses of their own upbringing, which may be different than those from the workers in Japan. Neumann and Wulf (2022) discuss a variety of ways in which our cultural affordances impact our view of strategy and risk taking, and they found some considerable differences between East Asian cultures and those of western cultures of both Europe and the United States. For instance, they reported that in one study, Chinese managers were found to have a more dialectical cognitive style, compared with German managers, who possessed a more analytical cognitive styles. As a result, the Chinese managers were more easily able to see the positive elements in a challenging situation, and therefore more likely to see this as an opportunity, compared with the German managers that tended to avoid this kind of cognitive dissonance. They report specifically that, “Research indicates that a strategic issue framed as an opportunity fosters an intention to undertake organizational change, voluntary environmental strategies, and a tendency to engage in external oriented actions” (p. 183). Additionally, they report East Asians often demonstrate stronger social networks and financial support, which allows them to show more risk-taking behavior. They conclude that the higher risk-taking tendency seen in East Asians with the holistic cognitive style lends to the interpretation of threats in a more positive, opportunistic way. These characteristics may have been well-developed within the Honda employees already.
In reading the stories of those involved in the decisions, it seems that the cultural affordances of the Japanese workers and executives were likely integral in the success of Honda in the United States. This is intricately tied into the culture of the Honda corporation itself, which would be interesting to read more about. It seems that a lot of the actions, decisions, behaviors, and thoughts at the time were in accordance with what would be expected of those at Honda, based on the lens that they were looking through, and their cultural background. If an outsider wants to further evaluate the success of Honda, they need to ensure that they recognize cultural biases and lenses that may differ between them and the people who were involved in making those decisions, and discuss them as part of the analysis.
So to answer the question if the Honda Plan was formally developed: Honda was successful in achieving their goal of selling something in the United States. The only people that can really state if the Honda plan was formally developed would be those from Honda that were directly involved. From the outside, it does not look like it, as there was no discussion about a clear path, checkpoints along the way, or other formal “plan” items that are tangible. However, they were successful, beyond what they likely had anticipated, which is very impressive.
Lampel, J., Mintzberg, H., Quinn, J. B. & Ghoshal, S., & (2014).
Strategy Process: Concepts, Contexts, Cases (5th ed.). Philadelphia, PA: Trans-Atlantic Publications.
Neumann, F., &Wulf, T. (2022). Intercultural differences in issue interpretation: Effects of emotions and framing. European Management Journal, 40(2), 182-193.
https://doi-org.ezproxylocal.library.nova.edu/10.1016/j.emj.2021.06.007Links to an external site.
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