Chapter 7. Honda-Yamaha War of Natural Selection
What lessons can we learn from the Eastern approach to strategy when facing a competitive threat from an up and coming player — the kind Honda posed to the British motorbike manufacturers in the US market? Fortunately — for those who love case studies — we don’t have to speculate. A decade later Honda was on the other side of this challenge when Yamaha threatened their dominance in the domestic motorbike market. The so-called ‘Honda-Yamaha war’ provides insights into how the strategic game is played in the East.
In 1981, Yamaha opened an enormous new factory that, when running at full capacity, would make them the world’s largest motorbike manufacturer. The problem was, Honda already held this title and weren’t going to relinquish it without a fight. When faced with a new competitive threat, market leaders can defend (or conserve) their position by launching an efficiency campaign to cut costs and maintain profitability; or lobbying the government to seek protections, emphasising their importance as a major employer and tax contributor. However, defensive moves lack a vision for the future, hindering the organisation’s ability to attract the talent or capital it needs to mount an effective response. Worse, defensive moves can make the company look like a “dead player — incapable of doing new things”[1] — a damaging image for a market leader. And, as we’ve already seen, Honda was a “live player — able to do things they have not done before”. Instead of defending they launched a massive counter-attack with the battle cry: “Yamaha wo tsubusu!” (“We will crush Yamaha!”).
Direct and Indirect Attacking
Attacking a rival can take two forms: direct or indirect. Building an even bigger factory would have been a direct attack, but this risked oversupplying the market and triggering a catastrophic price war, damaging profitability across the industry and resulting in massive layoffs. Honda did make some direct attacks — cutting prices, outspending Yamaha on marketing, and flooding distribution channels — but these moves were part of a broader indirect attack that created “the opportunity for real growth”[2] at the same time.
In a whirlwind 18-months Honda launched a huge variety of new motorcycle models — 113 in all, nearly double their previous lineup of 60 (the same as Yamaha’s) — with each new model featuring ever more sophisticated technology. Crucially, Honda actively listened to what users thought about these motorbikes and incorporated insights into each subsequent iteration. This massive, real-time testing campaign not only enabled Honda to learn about customer preferences, but to start shaping them as well. Honda had “succeeded in making motorcycle design a matter of fashion, where newness and freshness [were] important to customers”.[3]
Yamaha simply couldn’t keep up. In response to Honda’s 113 new models, Yamaha launched just 37 and soon, “next to Honda’s motorcycles, Yamaha’s bikes [began to look] old, out-of-date, and unattractive”.[4] Sales plummeted and they even struggled to sell motorbikes below costs, leading to soaring inventory costs. Eventually, Yamaha made a humiliating public climb-down,: “We want to end the H-Y war. It is our fault” declared Eguchi, Yamaha’s president. “We cannot match Honda’s sales and product strength. Of course there will be competition in the future, but it will be based on a mutual recognition of our respective positions”.[5]
Honda’s successful indirect attack came at a cost and significant investment would be required to get them back on a ‘stable footing’. However, “so decisive was its victory that Honda effectively had as much time as it wanted to recover. It had emphatically defended its title as the world’s largest motorcycle producer and done so in a way that warned Suzuki and Kawasaki not to challenge that leadership. Variety had won the war”.[6]
Fig.14: Honda Pushed the Frontier of the ‘Requisite Variety’ of Responses Needed to Crush Yamaha
For years, Honda had embraced new ideas and technologies, while experimenting with new practices (like flexible factories) that enabled them to respond swiftly to the threat posed by Yamaha’s enormous new factory. However, Honda also understood (as did Pal’chinskii before them) that new technology alone is insufficient for victory. Their success over Yamaha also came from harnessing increased flows of information from customers through an effective feedback loop, enabling decision-makers to quickly select what was working in their local context (Pal’chinskii’s third principle). Honda was continually customising new motorbikes to better satisfy evolving customer needs, resulting in each new motorbike launch being more eagerly anticipated than the last. This created a buzz that Yamaha could not compete against, despite its bigger factory.
In response to Yamaha’s competitive threat, Honda’s didn’t rely on one big move, such as building a bigger factory. Instead, they overwhelmed Yamaha with variety, introducing new ideas and technologies at a pace Yamaha couldn’t respond to. However, the introduction of so many new components meant the risk of failure was high. Therefore, (and in line with Pal’chinskii’s second principle) Honda did things on a small enough scale that, not only was failure survivable, but they could also learn from it: features customers disliked were dropped from the next model, whilst successful features were retained. This process of natural selection accelerated the evolution of Honda’s motorbikes, making them a better fit with customers’ needs and enabling Honda to “bury” the competition that couldn’t keep up.
Time as a Strategic Weapon
Most organisations understand the importance of labour, knowledge and financial capital in building competitive advantage. Yet Honda’s rapid ‘crushing’ of Yamaha wasn’t achieved by deploying these resources more efficiently or quickly. Speed alone doesn’t guarantee success: chess grandmasters, for instance, make more mistakes in speed chess (where moves must be made in a limited timeframe) than in traditional games. Similarly, telling soldiers in a battle to fire their weapons faster[7] won’t lead to victory if their opponents know where to aim, no matter how quickly they fire. Faster moves aren’t necessarily better moves.
Instead, Honda unlocked a far more powerful resource: they used time as “a strategic weapon [that was the] equivalent of money, productivity, quality, even innovation”.[8] Honda excelled at turning data into action. Rather than suffering from ‘paralysis by analysis’ trying to determine the ‘one right answer’ from the massive flows of customer information in, Honda experimented with a variety of ideas. They learned more quickly — through effective feedback loops — what the market wanted (or didn’t, as failure became a learning opportunity) and launched new iterations before Yamaha even had time to respond to the previous one.
Honda wasn’t playing speed chess; they were rewriting the rules of the game by using time as a strategic weapon, enabling them to make several moves to each one of Yamaha’s. In such a lopsided game, even an average player could defeat a grandmaster.
Both Honda and Fujifilm acted in ways consistent with Pal’chinskii’s principles. While it’s unlikely[9] either of these Japanese firms were directly influenced by the young Russian engineer, their unorthodox moves were drawing on a shared foundation — the Eastern approach to strategy. This powerful way of creating a competitive advantage in uncertain times is what we’ll explore in the next chapter.
1/ https://samoburja.com/live-versus-dead-players/
2/ Time — The Next Source of Competitive Advantage. by George Stalk, Jr. HBR JULY 1988 ISSUE
3/ Richards, Chet. Certain to Win: The Strategy of John Boyd, Applied to Business. Kindle Edition. Location 349
4/ Competing Against Time. How Time-based Competition is Reshaping Global Markets. Stalk and Hout (1990) p136
5/ Competing Against Time. How Time-based Competition is Reshaping Global Markets. Stalk and Hout (1990) p136–7
6/ Competing Against Time. How Time-based Competition is Reshaping Global Markets. Stalk and Hout (1990) p137
7/ See chapter 1 — Forget Strategic Plans.
8/ Competing Against Time. How Time-based Competition is Reshaping Global Markets. Stalk and Hout (1990) p92
9/ Though not impossible.
