Chapter 6. Honda B: Miscalculations and Mistakes
The West seems to be reluctant to learn from the East. During the CoVid pandemic the more successful strategies of Asian nations were ignored by western leaders[1]. This ‘reluctance to learn’ may be down to the eastern approach to strategy being so fundamentally different that it baffles those educated in the western tradition[2]. To make sense in the West, eastern successes are recast into a language westerners understand, even though the act of translation means important insights get lost. This is what happened with another famous case study — one beloved in western 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 this defeat of their national champions by contracting Boston Consulting Group (BCG) to provide them with ‘strategic alternatives’. BCG’s 120 page report started by describing how this upstart Japanese firm had outcompeted its more 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.The narrative was so compelling that it was turned into a Harvard Business School (HBS) case study and taught in business schools as “best practice” for a market entry strategy.
However, some years after this success the six Japanese executives responsible for Honda’s successful entry into the US market 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 that 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]. He published the findings from these interviews in a paper that would become known as ‘Honda B’ (to distinguish it from ‘Honda A’ — the HBS case study). 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.
Honda had become the market leader in Japan’s post-war domestic motorcycle industry with a reputation for making powerful motorbikes. But the chaotic environment of that time had taught them to continually seek out other valuable niches they could also exploit. 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 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 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 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 thought was needed. To save money in the US the Honda executives had shared an apartment, with two of them sleeping on the floor, and rented a run-down warehouse at the edge of town where they stacked the motorcycles themselves to save on labour costs. They commuted back and forth on their Supercubs, which they had bought with them in order to get around more cheaply. Then their problems really started. Honda’s powerful motorbikes, which they believed were their best chance of cracking the US market, developed mechanical failures. The Americans, it turned out, drive further and faster than the Japanese and were driving Honda’s flagship product into the ground. The Executives had no choice. They suspend further sales until their R&D team back in Japan could find a solution to the mechanical failures.
It was when they were at their lowest point that the Honda executives received a phone call from a potential new buyer. The call came from a sporting goods chain — not Honda’s typical distributor — and they had no interest in Honda’s powerful (but now flawed) motorbikes. Instead they enquired about the Supercubs the Honda executives had been seen whizzing around town on. At first the Honda executives hesitated as 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 now 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 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 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 case study — 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”
In response to Pascale’s ‘Honda B’ paper some commentators 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 had not been bound by a single plan, prepared in advance, far from the field of action. The executives did not have to focus on rigorously implementing a plan that could not have predicted the accidents (happy or otherwise) that afflicted them. They were free to learn as they went and make the next best moves in front of them, whatever they were. This was one of the 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 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 — to make progress you need to learn as you go. Here again we see echoes of Pal’chinskii’s Principles:
- Honda leveraged their success in a chaotic Japan to enter the US to increase the variety of markets they operated in and protect them from failure in their domestic market
- They sent a small team to the US with a limited amount of resources, meaning that failure there would be survivable for the Honda group
- Having no fixed plan to implement the Honda executives could respond to opportunities as they arose and select what worked (or didn’t) in the local context.
A ‘light-touch’ strategy — simply setting a direction and adapting along the way — can appear insufficiently rigorous to those educated in the strong strategic planning traditions of the West. But instead of re-writing history to satisfy the expectations and assumptions of western audiences (as BCG and the HBS case study did) it would be more beneficial to learn from this approach to strategy (for those who can). So let’s explore this further in the next chapter.
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
Introduction to Book One — Why Best Practices Are Holding You Back
Chapter 1 — Forget Strategic Plans!
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
