Chapter 6. Honda B — Learning from Miscalculations and Mistakes
The West often seems reluctant to learn from the East. For example, many Western leaders ignored the strategies deployed by Asia nations in response to COVID, despite clear evidence of their effectiveness.[1] This ‘reluctance to learn’ may be due to the fact that Eastern approaches to strategy are so fundamentally different that they often confuse those trained in Western traditions.[2] Therefore, to make these Eastern successes comprehensible, they have to be recast into more familiar Western concepts — but this translation often results in a loss of critical insights. A prime example of this can be found in another case study that used to be cherished by Western business schools: How Honda beat the British in the US motorcycle industry.
British companies, like BSA, once dominated the lucrative US motorcycle market. However, in the 1960s, their fortunes plummeted as they were outcompeted by a new rival — the Japanese firm, Honda. In response to this defeat of their national champions, the UK government contracted the Boston Consulting Group (BCG) to provide some ‘strategic alternatives’. BCG’s 120 page report analysed how this upstart Japanese firm had outmanoeuvred its more established rivals: Honda had leveraged its position as the ‘low-price leader’ in Japan to “force entry into the US market”[3] and then expanded aggressively by targeting new market segments. BCG’s narrative was so compelling it became a Harvard Business School (HBS) case study, taught worldwide as “best practice” for market entry strategy.
However, some years later, the six Japanese executives responsible for Honda’s entry into the US accepted an invitation from an American management consultant to discuss what really happened — and a very different narrative emerged. The invitation came from Richard Pascale, who was a rarity at that time as he believed that US companies should “look at what it was that Japanese companies were doing better than them, and to learn their lessons”.[4] He published the findings from his interviews with the executives in a paper that became known as ‘Honda B’ (distinguishing it from the HBS case study — ‘Honda A’). And Honda B was a revelation. Instead of the “streamlined strategy” that BCG had lauded, Honda’s executives admitted they didn’t really have a strategy at all, at least, not in the western sense of the word. Their success, Pascale surmised, was the result of “miscalculation, serendipity, and organisational learning”[5] and this was intentional.
Honda B
Honda had become the market leader in Japan’s post-war domestic motorcycle industry by building a reputation for powerful motorbikes. However, the chaotic environment of that time taught them to continually seek out other, potentially valuable niches. One such niche emerged from the growing need of small Japanese businesses for a lighter, less expensive motorcycle to make deliveries on. So, in 1958, Honda launched the 50cc Supercub and found themselves “engulfed by demand”.[6] It was this success that emboldened Honda to try and enter the lucrative US motorcycle market. Following an exploratory visit by two executives the following year, Honda made the decision to proceed. But, “in truth” one of the executives told 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 into the US went badly. They faced difficulties obtaining a currency permit from the Japanese Ministry of Finance, leaving them with only a fraction of the funds they thought necessary. To cut costs in the US, the Honda executives shared an apartment — with two of them sleeping on the floor — and rented a run-down warehouse on the outskirts of town. They stacked motorcycles themselves to save on labour costs and commuted back and forth on their Supercubs, brought along as a cheap source of transport. Then, their problems really started. Honda’s powerful motorbikes, which they saw as their best chance of cracking the US market, began to suffer mechanical failures. It turned out that Americans drove further and faster than the Japanese and were driving Honda’s flagship product into the ground. The executives had no choice but to suspend sales until their R&D team in Japan found a solution.
At their lowest point, the executives received a phone call from a potential new buyer. A sporting goods chain — not Honda’s typical distributor — enquired about the Supercubs the executives had been seen whizzing around town on. At first, they hesitated, as they’d been operating on the assumption that Americans loved powerful motorbikes and selling the Supercubs might undermine Honda’s brand among ‘serious’ motorbike enthusiasts. But, with their powerful (and flawed) motorbikes temporarily unsellable, the executives were desperate. They reasoned that the sporting goods chain catered to a different market segment, so selling the Supercubs wouldn’t impact their core market. They agreed. And 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 executives later admitted, was not due to the ‘focused strategy’ attributed to them by BCG. Their focus had simply been to see if they could sell some of Honda’s flagship motorbikes in the world’s biggest market, but this had been de-railed by unexpected mechanical failures. They never intended to sell the smaller Supercubs, but simply acted flexibly enough when an offer came through at a time of need. Even their successful, award-winning ad campaign — “You Meet the Nicest People on a Honda”, (also praised in the HBS case study) — turned out to have been a happy accident. Their catchy slogan had been created by a student at a local university for a course assignment and sent to Honda’s advertising agency by the student’s teacher. The executives, once again, simply displayed the good sense to go with it.
Fig.13: “You meet the nicest people on a Honda” Advert
The Lessons of Honda B
In response to Pascale’s ‘Honda B’ paper some commentators have argued that “Honda has been too successful too often for accident and serendipity to provide a persuasive explanation of its success”.[8] But, 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 executives were not bound by a rigid plan, prepared in advance, far from the frontline. Instead, they were encouraged to ‘learn as you go’, making the next best moves in front of them — whether selling the Supercubs, or adopting a slogan from a student’s course assignment. 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 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 B provides valuable insights into the Eastern approach to strategy: A broad direction is set, (cracking the US market) but the moves needed to deliver success are decided locally by those closest to the action. For unfamiliar markets are rife with uncertainty and, to progress, one needs to continually learn and adapt as you go. Here we see echoes of Pal’chinskii’s Principles again:
- Honda expanded into the US to increase their variety of markets and chances of overall success.
- The US team was small and had limited resources, ensuring any failure would be survivable for Honda.
- The US executives responded to changing conditions, selecting what worked (or didn’t) in that context.
To those educated in the strong strategic planning traditions of the West, a strategy of ‘setting a direction and adapting as you go’ might appear insufficiently rigorous. But rather than re-writing history to fit Western assumptions (as BCG and the HBS case study did) might we be better off learning what we can from this very different approach to strategy? In the next chapter, we’ll explore Honda’s strategy when they were the one being threatened by an upstart company — in what became known as the Honda-Yamaha war.
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. John Kay (2011) 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
