Chapter 6. Honda B: Miscalculations and Mistakes

Success stories from the East don’t appear to be popular in the West. The West seems to be reluctant to learn from the East — as seen in the CoVid pandemic, where the more successful strategies of Asian nations were largely ignored by Western leaders⁠[1]. Maybe this is due to the Eastern approach to strategy being so fundamentally different that it tends to baffle those educated in the Western tradition[⁠2]. Eastern successes therefore, in order to make sense to those in the West, have to be recast into a language Westerners understand, even though important insights get lost in translation. This certainly describes the story of another famous case study beloved of business schools — how Honda beat the British in the US motorcycle industry.

British companies, like BSA, used to dominate the lucrative US motorcycle market. But in the 1960s their fortunes experienced a dramatic decline after being out-competed by a new rival — the Japanese firm Honda. The UK government reacted to the defeat of their national champions by contracting Boston Consulting Group (BCG) to provide them with ‘strategic alternatives’. BCG’s 120 page report included a description about how this upstart Japanese firm had outcompeted its illustrious British rivals: Honda had leveraged their position as the ‘low price leader’ in Japan to “force entry into the US market⁠”[3] and then expanded aggressively from this bridgehead to target new market segments. This narrative was so compelling that it was turned into a Harvard Business School (HBS) case study and has been taught in business schools ever since as market entry strategy “best practice”.

However, some years after Honda’s successful entry into the US market six Japanese executives responsible accepted an invitation from an American management consultant to discuss what had really happened — and a very different narrative emerged. Richard Pascale was something of a rarity at the time as he believed US companies should “look at what it was that Japanese companies were doing better than them, and to learn their lessons⁠”[4]. His invitation to the Honda executives was an attempt to do just that. He published his findings in a paper that would become known as ‘Honda B’ (to distinguish it from the HBS case, or ‘Honda A’). Honda B was revelatory: Instead of having the “streamlined strategy” that BCG had lauded Honda didn’t appear to have had a strategy at all — at least not a strategy in the Western sense of the word. Their success, Pascale surmised, was more the result of “miscalculation, serendipity, and organisational learning⁠”[5] — and this was intentional.

In post-war Japan Honda had become the market leader in the domestic motorcycle industry with a reputation for making powerful motorbikes. But the chaotic environment of that time had taught Honda to continually be seeking out other valuable niches they could exploit as well. One such niche was the growing need small Japanese businesses had for a lighter, less expensive motorcycle to make deliveries on. So in 1958 Honda launched the 50cc Supercub and soon became “engulfed by demand”[⁠6]. It was this success that had emboldened them to try and enter the more lucrative US motorcycle market. Following an exploratory visit by two executives the following year Honda made their decision to go in but, “in truth” one of the Honda executives had revealed to Pascale, they “had no strategy other than the idea of seeing if we could sell something in the United States”[⁠7].

Honda’s initial market entry went badly. They had difficulties obtaining a currency permit from the Japanese Ministry of Finance, which meant the funds available for the venture were only a fraction of what they needed. To save money in the US the executives shared an apartment with two of them sleeping on the floor. They also rented a run-down warehouse at the edge of town where they stacked the motorcycles themselves to save on labour costs. And they commuted back and forth on their Supercubs, which they had bought with them in order to get around more cheaply. It was then that their problems really started. Honda’s powerful motorbikes, which they believed were their best chance of cracking the US market, started to develop mechanical failures. It turned out that Americans drive further and faster than the Japanese and they were driving Honda’s flagship product into the ground. The Executives had no choice but to suspend further sales until their R&D team back in Japan could find a solution to the mechanical failures.

At their lowest point the Honda Executives received a call from a potential new buyer — a sporting goods chain. This wasn’t Honda’s usual type of distributor and they had no interest in Honda’s powerful (but now flawed) motorbikes. Instead they wanted the Supercubs they’d seen the Honda Executives whizzing around town on. These — the sporting goods chain believed — would meet a need their customers had. At first the Honda Executives hesitated. They’d been operating on the assumption that, as Americans love powerful motorbikes, selling the Supercubs could undermine the Honda brand amongst ‘serious’ motorbike enthusiasts. But they were desperate. Reasoning that the sporting goods chain was catering to a different market segment, which wouldn’t impact Honda’s core market, they agreed. Then, to their surprise and delight, sales of the Supercubs rocketed. Five years later nearly one out of every two motorbikes sold in the US was a Honda.

Honda’s success, as the six Executives freely admitted later, didn’t come from the ‘focused strategy’ attributed to it by BCG. Their focus had been to see if they could sell some of Honda’s flagship powerful motorbikes in the world’s biggest market — but this had been de-railed by unexpected mechanical failures. They never intended to sell the little Supercubs — they merely agreed to an offer that came to them at a time of need. Even their successful, award-winning ad campaign (“You Meet the Nicest People on a Honda”) — lauded in the HBS business case — turned out to have been a happy accident. The catchy slogan had been created by a student for a course assignment at a local university and sent to Honda’s advertising agency by the student’s teacher. The Executives merely had the good sense to go with it.

Fig. 13: “You meet the nicest people on a Honda”

Some Western commentators, responding to the findings in Pascale’s ‘Honda B’ case, later argued that “Honda has been too successful too often for accident and serendipity to provide a persuasive explanation of its success”[⁠8]. But this reveals some of the confusion those versed in the Western approach to strategy often face when coming into contact with the Eastern approach. As Pascale explained, the “Japanese are somewhat distrustful of a single “strategy” … for any idea that focuses attention does so at the expense of peripheral vision”[⁠9]. Honda’s strategy had been to enter the US market with the intent to “sell something” but the Executives were not bound by a single plan, prepared in advance, far from the field of action. If the Executives had been focused on rigorously implementing this plan they may have failed to either see or take advantage of the unexpected opportunities that arose. No plan could have predicted the accidents (happy or otherwise) that afflicted them but the Executives were able to learn as they went and make the next best move in front of them, whatever that was. This was one of the key lessons Pascale wanted US firms to learn from the East: “how an organisation deals with miscalculations, mistakes and serendipitous events [is] crucial to success over time”:

“Rarely [in Japanese firms] does one leader (or a strategic planning group) produce a bold strategy that guides a firm unerringly. Far more frequently, the input is from below. It is this ability of an organisation to move information and ideas from the bottom to the top and back again in continuous dialogue that the Japanese value above all things. As this dialogue is pursued, what in hindsight may be [seen as] “strategy” evolves”[⁠10].

Honda’s approach provides a tantalising glimpse of the Eastern approach to strategy in action: A broad direction is set, but the moves needed to be successful have to be made locally by those closest to the action. Entering an unfamiliar market is fraught with uncertainty so to make progress you need to keep learning as you go. Here we can again see echoes of Pal’chinskii’s Principles:

1. Honda leveraged their success in Japan to enter the US (to increase the variety of markets they operated in, which would protect them from failure in any one of them)
2. They sent a small team to the US with a limited amount of resources (so any failure would be survivable for the Honda group as a whole)
3. The lack of a fixed plan forced the Executives to be aware of opportunities as they arose and respond accordingly (selecting what works in the local context).

This ‘light-touch’ approach to strategy — setting a direction and adapting along the way — can appear insufficient and baffling to those raised in the strong strategic planning traditions of the West. But that is no reason to re-write history (as BCG and the HBS case study did). Instead, it may be far more beneficial — for those who can — to learn more about this different approach to strategy and see if we can also use it to navigate better routes in uncharted waters.

Introduction to Part One — Why Best Practices Hold You Back

Chapter 1 — Forget Strategic Plans!

Chapter 2 — Adapt or Die

Chapter 3 — Pal’chinskii’s Principles

Chapter 4 — Ashby’s Law of Requisite Variety

Chapter 5 — FujiFilm: Innovating Out of a Crisis

Chapter 6 — Honda B: Miscalculations and Mistakes

Chapter 7 — Honda-Yamaha War of Natural Selection

Chapter 8 — The Eastern Approach to Strategy

Chapter 9 — The Western Approach to Strategy

Chapter 10 — An Approach to Strategy for an Uncertain World

1 By June 2022 Asia, despite having a population 4 times bigger than the combined West (Europe + US + Canada + Australia + New Zealand) — 4.7 billion vs 1.15 billion — had just half the total cases (159 million vs 300 million) and lost half the amount of people to the disease (1.43 million vs 2.93 million).

In percentage terms only 3% of people in Asia caught CoVid compared to 26% in the West. And only 0.03% of the Asian population died from this, compared to 0.3% of those in the West.

This suggests that, despite the pandemic breaking out in the East first — offering those in the West examples about how to deal with CoVid — these lessons were ignored.

https://www.worldometers.info/coronavirus/#main_table

2 This is the central hypothesis of Derek M.C. Yuen in ‘Deciphering Sun Tzu’ (2014). We will make more use of this work in chapter 8.

3 The Honda Effect. R.Pascale. (1996) California Management Review, Vol 38, №4 p84

4 https://www.economist.com/news/2008/12/12/richard-pascale

5 The Honda Effect. R.Pascale. (1996) California Management Review, Vol 38, №4 p84

6 The Honda Effect. R.Pascale. (1996) California Management Review, Vol 38, №4 p85

7 The Honda Effect. R.Pascale. (1996) California Management Review, Vol 38, №4 p86

8 Obliquity: Why our goals are best achieved indirectly. (2011) John Kay p95

9 The Honda Effect. R.Pascale. (1996) California Management Review, Vol 38, №4 p80

10 The Honda Effect. R.Pascale. (1996) California Management Review, Vol 38, №4 pp89–90