Chapter 7. Honda-Yamaha War of Natural Selection
What lessons can we learn from the eastern approach to strategy for dealing with the kind of competitive threat an up and coming Honda had posed to established industry? Fortunately, we have a case study showing exactly what Honda did, a decade later, when their leading position was also challenged by an up-and-coming rival. What became known as the ‘Honda-Yamaha war’ (or the ‘variety wars’) provides an insight into how the strategic game is played in the East.
In 1981 Yamaha opened an enormous new factory. When running at full capacity this would make them the world’s largest motorcycle manufacturer. The only problem was, this was a position held by Honda and they weren’t going to relinquish it without a fight. When facing a competitive threat market leaders often try to defend (or conserve) their position by launching an efficiency campaign to drive costs down and improve profitability, or lobby the state by highlighting their importance as a major employer and tax contributor to seek added protections. However, defensive moves are devoid of any vision for the future, which can hinder the organisation’s ability to attract the talent or capital it needs to mount an effective response to a threat. And defensive moves can also make the company look like a “dead player — incapable of doing new things”[1], which isn’t a good look for a market leader. However, as we’ve already seen, Honda was a “live player — able to do things they have not done before”. They launched a counter-attack with the battle cry: “Yamaha wo tsubusu!” (“We will crush Yamaha!”).
Attack can take two forms — direct or indirect. Building an even bigger factory would have been a direct attack, but this would have risked oversupplying the market, triggering a potentially catastrophic race to the bottom on price, lading to massive layoffs and harming the profitability of the entire industry. Honda made some direct attacking moves (cutting prices, outspending on marketing, flooding distribution channels) but only as part of a wider indirect attack that also created “the opportunity for real growth”[2] at the same time. In a whirlwind 18-month period Honda launched a flood of new motorcycle models — 113 in all, whereas previously they’d had 60, (the same as Yamaha). Each new model incorporated ever more sophisticated technology (ex, four-valve engines and direct drive features) but, importantly, Honda also listened to what users thought about these motorbikes and incorporated those insights into the next iteration. This was, in effect, a massive testing campaign — conducted in almost real-time — that not only enabled Honda to learn about customer preferences but shape them as well. Honda “succeeded in making motorcycle design a matter of fashion, where newness and freshness [were] important to customers”[3].
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].As Yamaha’s sales declined unsold inventory stocks and they even struggled to sell bikes below cost, further draining their resources. Eventually Yamaha made a humiliating public climb-down: “We want to end the H-Y war. It is our fault” declared their president, Eguchi. “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 indirect attack had not come without consequences to itself — they would require significant investment to get back on a ‘stable footing’ but, “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 increased the variety of offerings beyond Yamaha’s ability to respond
Previously, Honda had invested in technologies, like flexible factories, which enabled it to launch their range of new motorbikes so quickly. But, as Pal’chinskii noted, while technology is often a necessary component for winning, it is not sufficient on its own. Honda’s success was also an outcome of being able to leverage vastly increased flows of information coming in from customers. They had developed an effective feedback loop between customers and company decision-makers who could quickly select what was working. [7] Each new motorbike was custom-designed to respond to what customers said they wanted and each new launch was eagerly anticipated by the market, creating a buzz that Yamaha simply could not compete against despite its bigger factory.
Honda’s response to the threat from Yamaha wasn’t to make one big move — for example, to build a bigger factory or make a ‘better’ motorbike — instead they buried Yamaha with a variety of moves. But trying a variety of new things means some failure is inevitable. However, if done on a small enough scale failure is not only survivable but can also be learned from — if customers disliked a particular motorbike there were another dozens of chances to rectify this in response to the feedback they were getting. This accelerated the evolution of Honda’s motorbikes through a process of natural selection, becoming an ever-better fit for their customers’ needs and enabling them to “bury” the competition who couldn’t keep up.
Honda’s victory over Yamaha however was not built on speed, as speed by itself is not a competitive advantage. For example, chess grandmasters make more mistakes playing ‘speed chess’ (where all moves have to be made in a short span of limited) than in the longer form of the game. Making moves quickly therefore doesn’t mean making better moves. What Honda had done was unlock time as “a strategic weapon [that was the] equivalent of money, productivity, quality, even innovation”.[8] Rather than being overwhelmed by more information they developed the ability to turn these inflows into action. This meant they could try more things, learn more quickly what the market wanted (or didn’t) and launch again — before Yamaha even had time to respond to their first move. It was as if Honda were playing a game of chess where they could make several moves to each one of Yamaha’s. In such a game even an average player might beat a grandmaster.
What we have now are two eastern organisations (Honda and Fujifilm) that acted in ways consistent with Pal’chinskii’s principles. It’s unlikely (though not impossible) that either of these Japanese firms had heard of our young Russian engineer or his principles, therefore they must have been drawing on some other common source of knowledge for their unorthodox moves. So let’s explore what that source might have been and whether we can learn anything that might help us create a competitive advantage for our more uncertain times.
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 Pal’chinskii’s third principle (see Chapter 3)
8 Competing Against Time. How Time-based Competition is Reshaping Global Markets. Stalk and Hout (1990) p92
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
