Chapter 6. Honda B: Survivability

Success stories about organisations from the East haven’t traditionally been so popular in the West. This may be due to a number of factors (or combination of factors) such as, a lack of awareness as to what Eastern organisations have done, or a belief amongst Western organisations that they have little to learn from the East. This book proposes an additional factor to consider: The Eastern approach to strategy is so fundamentally different from the Western approach that it simply baffles those educated in the Western tradition. Therefore, whenever there’s an Eastern success story it has to be retold in Western terms so those in the West can make sense of it. This certainly seems to explain the Honda case, which details the success the Japanese firm had in the US motorcycle industry.

British companies, like BSA, used to dominate the lucrative US motorcycle market. But, in the 1960s, their fortunes suffered a dramatic decline in the face of competition from a new rival — the Japanese firm, Honda. The UK government reacted to the defeat of their national champions by commissioning a report from Boston Consulting Group (BCG) to provide ‘strategic alternatives’. The 120 page report firstly detailed how the upstart Japanese had managed to outcompete its more illustrious British rivals. Honda had leveraged its position as the ‘low price leader’ in Japan to “force entry into the US market” creating a bridgehead from which they could expanded aggressively by targeting new market segments. This narrative was so compelling that it was written up as Harvard Business School (HBS) case study and has been taught in Western business schools for decades as a “best practice” market entry business strategy.

However, some years later, the six Japanese executives who had led Honda’s entry into the US market accepted an invitation to discuss how it had happened with an American management consultant — and a rather different narrative emerged. Richard Pascale was something of a rarity at the time; he believed US companies should “look at what it was that Japanese companies were doing better than them, and to learn their lessons”. His invitation to the Honda executives was an attempt to do just that. His published findings from these discussions — what would later become known as the ‘Honda B’ paper — were revelatory. Instead of having the “streamlined strategy” that had been lauded by BCG, Honda didn’t appear to have had a strategy at all — not in the Western sense of the word. Their success, Pascale surmised, was more the result of “miscalculation, serendipity, and organisational learning”. But it had worked.

In the 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 the time had taught them to continuously seek out other, new 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 became “engulfed by demand”. This success emboldened them to try and enter the US motorcycle market. Following an exploratory visit by two Honda executives the following year Honda made the decision to enter the US market — but “in truth”, one of the Honda executives revealed to Pascale, we “had no strategy other than the idea of seeing if we could sell something in the United States”.

Honda’s market entry went badly. They had difficulties obtaining a currency permit from the Japanese Ministry of Finance, which meant available funds for the venture turned out to be only a fraction of what they thought they needed. In order to save money the executives had to share an apartment in the US, with two of them sleeping on the floor. They could only afford to rent a run-down warehouse at the edge of town, which they commuted to on their Supercubs which they had bought with them to get around cheaply. And they had to stack the motorcycles themselves to save on labour costs. But then their problems really started. Their powerful motorbikes, which they promoted hard as their best chance of cracking the US market, started to develop mechanical failures. The early bikes they had sold were being driven into the ground by their American customers, who drive further and faster than the Japanese. Their flagship product was looking like a dud and the Executives had no choice but to halt any further sales until their R&D team back in Japan could find a solution.

At this lowest point, the Honda Executives received a call from a potential new buyer. It wasn’t their usual type of distributor but a sporting goods chain who had no interest in the usual order Honda expected to fulfil in the US (for their powerful, but now flawed, motorbikes) — they wanted Supercubs. The Honda Executives had been seen whizzing around town on their Supercubs and this was a product that the sporting goods chain thought would fit a need their customers had. The Honda Executives hesitated. Their assumption was that, as Americans love powerful motorbikes, selling the Supercubs would undermine the Honda brand amongst ‘serious’ motorbike enthusiasts. But they were desperate. Reasoning that the sporting goods retailer was catering to a different market segment, which wouldn’t impact Honda’s core market they agreed the deal. Then, to their delight and surprise, sales of the Supercubs rocketed. Just 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 sell Honda’s powerful flagship motorbikes, but this had been de-railed by mechanical failures. They also 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 was sent to Honda’s advertising agency by the student’s teacher. The Executives, again, merely had the good sense to go with the flow.

Fig 11. “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”. 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”. 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. For the danger in such an approach is that the Executives, busily focused on rigorously implementing the plan, may have failed to either see or take advantage of the opportunities that arose. No plan could have predicted the accidents (happy or otherwise) that afflicted them so, rather than ‘sticking to the plan’, the Executives were encouraged to learn as they went along and make the next best move in front of them. This was one the key lesson Pascale wanted US firms to learn: “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”. — The Honda Effect. R.Pascale. (1996)

Honda’s approach provides a glimpse of the Eastern approach to strategy in action: A broad direction is set, but the moves needed to become a success have to be made locally by those closest to the action. That’s because the situation (an unfamiliar market to them) is fraught with uncertainty and to make progress they’re going to have learn as they go (rather than sticking to a pre-cooked plan that lacks these learnings). We can see how this approach echoes Pal’chinskii’s Principles: Honda used their recent success in the Japanese market to enter the US market (increasing their variety of markets); they sent a small team to the US with a limited amount of resources (meaning any failure would be survivable for the Honda group); and the lack of a fixed plan forced the Executives to become more aware of opportunities as they arose and learn how to 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 both 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 the HBS case study did — for it’s better by far to learn more about this approach to strategy and see if there is something we can learn also. And this is a key question for Russian businesses today: Do their historic-cultural traditions with the East mean they are more capable of absorbing important insights from the Eastern approach to strategy and deploying them to gain a competitive edge over their Western counterparts?

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: Requisite Variety