Mar 20, 2022
Chapter 7. Honda-Yamaha War of Natural Selection
What lessons can we learn from the Eastern approach to strategy when dealing with, for example, the kind of competitive threat Honda posed to Britain’s champions in the US motorcycle industry? Perhaps fortunately we have a case showing exactly what Honda did, a decade later, when their leading position was challenged by an up and coming rival. What became known as the Honda-Yamaha war (or ‘Variety wars’) provides an insight into how the strategic game is played in the East.
In 1981 Yamaha opened an enormous factory, which they announced would — when running at full capacity — make them the world’s largest motorcycle manufacturer. The problem was this position was held by Honda and they weren’t going to relinquish it without a fight. When facing competitive threats market leaders often try to defend, (or conserve) their pre-eminent position: They launch an efficiency campaign to drive costs down and improve profitability, or they lobby the state to seek protections by highlighting their importance as a major employer and tax contributor. However, defensive moves are devoid of a vision for the future, which can hobble the organisation’s ability to attract the right talent or capital it needs to mount an effective response to the threat. Defensive moves also make a company look like a “dead player — incapable of doing new things”[1]. But, as we’ve seen, Honda was a “live player — able to do things they have not done before”. They launched a counter-attack with a war 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 and triggering a potentially catastrophic race to the bottom on price (risking massive layoffs and harming the profitability of the entire industry). Honda did make some direct attacking moves (cutting prices, outspending in marketing, flooding distribution channels) but this came 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 (they’d previously had 60, the same as Yamaha). These new models incorporated ever more sophisticated technology — four-valve engines and direct drive features — but, more importantly, Honda also listened to what users thought about these motorbikes and incorporated those insights into their next iteration. What, in effect, was a massive testing campaign — conducted in almost real-time — not only enabled Honda to learn about customer preferences but to shape them as well: They “succeeded in making motorcycle design a matter of fashion, where newness and freshness are important to customers”[3]. During the same period that Honda launched these 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 of Yamaha’s comparatively ‘drab and unimaginative’ offerings started to ground to a crawl, unsold inventory stocks grew and they even struggled to sell bikes below cost, draining their resources. Eventually Yamaha had to make 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’s ‘Variety War’ launched on Yamaha
Honda’s move had leveraged their previous technology investments in flexible factories to churn out new motorbikes quickly. But (as Pal’chinskii had noted earlier) technology alone is not enough. Honda was also able to manage the increased flow of information coming in from customers to quickly turn these into improved products. They had launched a genuine ‘customer revolution’ — an effective feedback loop between customers and company decision-makers who could quickly identify and select what was working. Honda’s near real-time response to feedback both surprised and delighted customers who started to eagerly anticipate the next iteration of a Honda motorbike — one incorporating even more new ideas. This created a buzz that Yamaha could not compete against, even with its potentially bigger factory.
Yet Honda’s success was not built on speed. Speed by itself is not a competitive advantage. For example, chess grandmasters make more mistakes when playing ‘speed chess’ (where all moves have to be made in a severely limited time span) than they do when playing the longer form of the game. Making moves quicker doesn’t mean making better moves. What Honda had cracked — with its seemingly effortless flow from customer insight to action — was the ability to make multiple moves to every one of Yamaha’s. They had discovered “a strategic weapon [that was the] equivalent of money, productivity, quality, even innovation”[7] — Honda had unlocked time as a weapon: They could try things, fail and learn from them and launch again even before Yamaha had time to respond to the first move. It was though Honda were playing a game of chess where they could make multiple moves to each one of their opponent’s — and in such a game even a grandmaster could lose to an average player.
Pal’chinskii’s principles are, of course, evident again here. Honda’s response to the threat from Yamaha wasn’t to make one big move — for example, trying to make a ‘better’ motorbike — instead they buried Yamaha with a variety of new motorbikes. This variety meant they could risk failure by trying new things, safe in the knowledge that anything customers didn’t like would be discarded in the next iteration, which would be out soon. While anything that was loved by customers would be noted by Honda’s decision-makers and retained — meaning their motorbikes started to evolve through a process of natural selection, becoming an ever-better fit for their customers’ needs.
So, now we have two Eastern organisations (Honda and Fujifilm) that acted in ways consistent with Pal’chinskii’s principles. As it’s unlikely (though not impossible) that these Japanese firms had ever heard of the young Russian engineer and his ideas we can conclude that both may have been tapping into a common source of knowledge: The Eastern approach to strategy. Therefore it’s time to dive a little deeper into this subject to see if we can learn something that may form the basis of a new competitive advantage for us in our more uncertain times.
Introduction to Part One — Why Best Practices Hold 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
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 Competing Against Time. How Time-based Competition is Reshaping Global Markets. Stalk and Hout (1990) p92
