Executive Summary
Honda Motors is the leading automobile company which spreads its operations all over the word and best known for the quality of products they make. A Honda motor follows an excellent approach in their marketing in international business by reconciling both cost and differentiation. Even though they had faced various challenges in business due to recession, they adopted excellent business strategies by improving the quality of their product and by integrating the managerial dichotomy. In this assignment their global strategies along with their policies would be discussed.
Strategy and Managerial dichotomies
Q1.a)
Organisation has to adapt two levels of strategies to compete with other organisations to survive in their business sector and those two levels of strategies are business level strategy and corporate level strategy. Business level strategy is how the organisation is integrating and coordinating their commitments and actions to gain the competitive advantage by using their core competencies (Trevor Slack and Milena M. Parent, 2006). On the other hand, corporate level strategy is consisted of “synergies among the business units and with the corporation” (Yavitz and Newman, 1982) and it deals with the overall strategy of the entire organisation in business. Business level strategy is short time one and corporate level strategy is a long time one.
Business level strategy is developed to increase the competitive advantage of organisation’s products and services and it is not the strategy of the whole organisation. However this assists the organisation to achieve their targets using their core competency (Bob de Wit and Ron Meyer, 2004). Honda adopts various business strategies on different locations by considering the geographical differences and thus business level strategies are in a way to support the corporate level strategy. Other automobile companies such as GM Motors and Toyota too are using market oriented business strategies to explore the markets and they are using core competencies in their business level strategies. Those core competencies in their business strategies make them unique and distinguish them from others.
Corporate level strategy is the overall strategy of the organisation where vision, mission and other objectives of the organisations are integrated in a long term perspective. The type of business and the methods of doing business along the methods to improve their operations are dealt in the corporate level strategy. It can be considered as the big picture view of the organisation whereas business level strategy is only a part of it (Grant, 2005). Corporate level strategy is based on the great scope of the organisation in a long term to sustain in the industry and organisation is creating values through their corporate level strategy by organising their business portfolios. They can increase their values by important decisions for mergers, acquisitions and equal distribution of resources to their business sectors.
Corporate level strategy of Honda is “to enhance corporate value through a major expansion of sales within each of its three product lines -- based on accelerated innovation throughout the company, including manufacturing and research and development” (Honda, 2000). Once the company is successful in achieving its business level strategy, it means that they are stepping towards to achieve their corporate strategy. However both strategies are corresponding and inter depended as well.
Q1 (B)
Reconciling dichotomies are just paradoxes and it needs to be solved for the success of any business and some suggests this as a perfect solution for some of the problems faced by the organization in their strategy. Organisation can reconcile dichotomies through product related core competency or process related core competency and both. Honda used to introduce their products by considering the geographical differences and cultural variations and it yielded them good results in their business as well (De Wit, B. and Meyer, R., 2004).
Organisation should integrate both product related core competency and process related core competency to gain competitive advantage in their business sector. Product related core competency is mainly based on their product engineering. Honda is well known for their internal combustion engines and it in a way reduces pollution and the latest technology they introduced in their product is CVCC. Even though Honda introduces less new models compared to GM and Ford, Quality of Honda’s products is one of their competitive advantages. Honda reuses their innovate technology in all their product lines (motorcycles, automobiles and other power products) and thus they are having an “unmatched R and D efficiency” They have transferred their technology from engines and power trains to their other products such as cars, tractors, generators and marine engines (Andrew Mair, 1999).
Process related core competencies of an organisation denote the capability of their production. Normally product related core competency represents the quality and process related core competency represents the quantity. Honda can introduce their product in a large scale. They are specialised in low polluted and less fuel consumption auto and power engines.
Honda believes the right-first time principle and thus the outcome would be the right one without with errors. Thus they are very much keen to avoid wasting time to resolve the errors if there are any in their products. Suppose if there are any faults or errors, it will automatically result in the increasing of operational cost and they could not release the products on time. This will force the customers to shift from this brand to another one. Thus the product cost depends on the effectiveness of operations. Honda invests more on R and D to make their inventions accurate and it will save their time and money. They are frequently testing their products to make it error free and to reduce the time of delivery as well. Thus Honda adapted the process related competency of right-first time.
Another competency of Honda is that of built-in-quality and this is gained through various sub transformational tasks in operations. Effectiveness of the product is analysed by the degree of customer satisfaction on that particular product. Honda analyse their performance standards into various parts to evaluate to know the customer satisfaction and thus every parts of their product is tested and quality ensured. Thereby they are making sure that quality products are reaching at the hands of their customers. This is one of the product related core competencies of Honda.
Honda is successfully integrating their core competencies in product and process to reconcile the dichotomies. Honda perspective is different from western management where they look at their business and operations from manufactures’ point of view. However Honda adapts dual perspective of both customer and manufacturer. As they are releasing their product right-first time, it enables them to save the cost of operation and rework. Thus they are getting higher profit out of less operational cost and they can sell the products for affordable prices to their customers. They are not only maintaining the quality of product, but also keeping their promise to deliver the product on time. Competitive advantage of the organisation is thus depended on quality of both product and process. Suppose the product is of high quality and it is affordable, however if it is not delivered on time or it takes longer time to reach at the hands of the customers, it would definitely create a bad customer experience. Honda through their right-first-time and build-in-quality is trying their best to deliver the quality product on time to their customers. Honda successfully integrated both these features in their operations and strategy.
Honda is giving more priority to assembly line of production. They are adapting both manual and automatic operations in their assembly line of production. They had designed newer developing method “mass size production” and “one piece flow system”. Thus they are combining both these methods to improve their quality in products by delivering the products on time. Honda is following the advanced process where it is the integrated both push and pull system and they are reconciling both western methods in production along with traditional Japanese production process as well.
Honda is successfully integrating both their right-first time feature and build-in quality features in their production and processes. They are combining both these features to provide maximum satisfaction to their customers. However this analysis shows that Honda successfully integrated quality to speed up their delivery of products to their valuable customers. They believe in both quality and timely delivery of products. For instance, Honda manufactured approximately ten million engines during 2000 and not even a single machine was reported to have any problems. It indicates the successful implementation of reconciliation of dichotomy.
Global Mergers and Acquisitions
Q2 (a)
Organisations are adapting network level strategy to improve and gain competitive advantage in their business sector. Organisations finds very difficult to compete with their competitors by themselves and thus they go for mergers and coalitions to better and gain more advantages in their respective businesses. Some of the mergers and acquisitions are successful and strengthen the organizations. However some are utter failures due to improper evaluations and analysis and these failures result in the collapse of the organizations as well. That is what Porter indicated through his statement, “Alliances are rarely a solution no firm can depend on another independent firm for skills and assets that are central to its competitive advantage. Alliances tend to ensure mediocrity, not create world leadership” (Michael Porter, 1990). However some mergers and acquisitions lead to debt and bankruptcy too.
Some organizations are failed to recognize the depth and impact of debt before mergers and acquisitions. They never evaluate the financial stability before making proper decision to have a coalition or acquisition of another company to gain more competitive advantage. Such sort of mergers and acquisition may lead the organization to have huge loans or larger debt in their account books (Boocock, 1993). Toyota Motors had met a great loss in the year 2009 due to the certain factors such as high oil price and economic recession. They were forced to ask loan or grant from Japanese national government. However some acquisitions are successful as well. Tech Mahindra had undertaken Satayam, a company accused for financial fraud and that acquisition was beneficial for both organizations. Now Satayam came back to the right track of profit generating as well.
Some mergers and acquisitions lead the organization to sell the later one as well. Two big automobile companies such as Daimler AG, the makers of Mercedes-Benz and Chrysler, an American automobile company merged into one in year 1998 and it was announced as “the merger of two equals”. However after a great loss Daimler AG sold Chrysler to Cerberus Capital to survive in the business sector. High debt after mergers or acquisitions will result in the profit margin of the organization and it would reduce their annual earnings. It is the fact that if the annual balance sheet of the organisation is filled with too much debt, then it reflects in their market share and it will degrade organisation’s market share as well.
One of the underlying effects of acquisition is that of debt. Debt happens when the organization is undertaking an organization which is facing heavy loss and financial liabilities. If the organization is undertaking another organization which is affected by the debt, then it will affect the free cash flow of the parent organization. In most of the cases debt may lead to bankruptcy and the downfall of the organisation as well. Thus discharge in debt can be considered as one of the reasons for bankruptcy. Recent economic recession forced some of the automobile companies in the state of bankruptcy as companies like GM met heavy loss of 15.5 billion dollar in the market. Honda had undertaken Tohatsu, a domestic motorcycle company when it was announced as bankrupted. However Honda benefitted from this acquisition by getting more profits from the markets. GM had undertaken bankrupted Daewoo in 2002 after they had met debt-equity swapping.
(http://blog.cleveland.com/business/2008/11/auto_industry_bailout_may_be_w.html (accessed on 18-09-2010))
Q2 (b)
Mergers used to provide better competitive advantage for both companies in any business. It is evident that “Mergers among two companies helps them to expand their product line as both the companies can have access to the allies’ product and helps them to access their technical expertise” (Brealey, 2008). Merger of two companies would enable them to achieve synergy. Organisations get more power, efficiency and value after the mergers and they can perform better than when they were alone. It is proved in business scenario that two plus two is always five and it means that organization gets double power when they are merged. Thus both mergers and acquisition assists the organization to increase their value by attaining synergy.
“By taking "wastes" from one company and using them as raw materials for another, industry can turn a negative into a positive - for the environment and shareholders” (Andrew Mangan and Gordon Forward, 1999). Product line synergy can be denoted as how the organization is going to expand their product line and the resources and power needed to expand their product line from one to another. Synergy is a sort of force which enables the organisation to make cost savings when they are doing new businesses those assist the organisation to generate more revenue and this synergy will help them to save time and make cost savings as well. If two companies who are producing entirely different products or service are merging, then it would create product complexity as it is the integration of two products and two companies. However they need to have a new product to make use of synergy. Suppose if companies who are having same products are merging, then product synergy can be easily achieved. For instance, if two companies are merging and one has the expertise in marketing and distribution and another one is lacking both and they are very poor in marketing and distribution, merger of these companies will create greater synergy by combining the expertise of both companies. Thus it is very much clear that merger and acquisition will create product synergy to the organisation.
Organisation can attain product synergy by mapping and the assessment by evaluating and identifying both companies’ expertise. They should come up with new product portfolio by integrating each one’s specialties. Cost of production also be measured during the new product portfolio development. The merger of Chrysler brand seems to be useful for the organisation as the new products; Pacifica Sports Tourer and crossfire sports car are the best example for product synergy. This product synergy improved the quality of these models and it assists the organisation to reduce the cost of production and they are able to deliver product in the market on time as well.
Q2 (c )
One of the great features of mergers and acquisition is that the organisation is having the access to new technology and they can explore new business horizon as well. If a foreign company is merging or undertaking an India company, they can easily exploring the Indian market and expand their business. Mergers and acquisitions enable the organisation to access each other’s technical advancement. Rover, British Company was having problem with their quality control engineering and at the same time Honda was having high quality mechanism. In order to explore European market, Honda made an alliance with Rover and thus Rover got access to Honda’s advanced technologies and Honda got the opportunity to make a great presence in Europe. Thus it is noteworthy to state that “Every company has different technologies in which it is good in and every company has leadership in some geographical regions, by mergers and acquisitions merging companies can leverage and take advantage of technologies and markets of other company and benefit overall” (Perella and Bruner, 2004)
Merger and acquisition enable the organisation to extend their business in the new market or they can make their presence stronger in the existing markets by sharing their advanced technologies. If an organisation which is very weak in their market is merging with a big company, then that big company is getting the chance to explore that market and they can share their technology with the merger organisation as well. Company with advanced technology can provide training to the merger company to gain competitive advantage. A company cannot directly extend their operations into a new market due to various reasons like trade barriers, political decisions and cultural barriers. However they can extend their business into a new market by mergers and acquisitions. Organisation can share vital technologies after mergers and acquisitions as well. When Daimler undertook Chrysler, both of them shared their vital information on their technological expertise. In the same way GM had undertaken Saab and they came up with new range of products using their advanced technologies. Thus both the companies are benefitted from this.
Any company in automobile industry can survive in the market only if they have advanced and innovative technologies and they should have an effective R and D. However mergers and acquisition increase the competitive advantage of an organisation by having access to newer technology and newer market as well.
Corporate Social Responsibility and Competitiveness
Q3 (a)
The term corporate social responsibility has been discussed among the business community and it is given priority in the boardroom agendas now. However it is not a new thing that business organisation should show some sort of “ethical behavior and moral management”. Now these organizations are forced to practice “corporate social responsibility” (Carroll, 2000). The figures show that automobile industry is the largest industry after construction and grocery industries on capital and investment ratios. However it can be considered as the largest industry on technological perspective. The main objective of companies in this industry is to produce more cars. They should follow social responsibilities while making profit from their products. However some companies are neglecting their social responsibilities (Flores, 2001). CSR is one of the integral part of corporate strategy and companies have certain social responsibilities as they are the part of society and making profit from the society.
An organisation has to consider their stakeholders and their demands. Organisations who are following greater CSR are noticeable and recognized as the better companies. CSR consists of social, economical and environmental aspects. However most of the organizations try to avoid social and environmental aspects and cope up with economical aspects only. Honda strictly shows its commitment towards society by taking initiatives in environmental issues. Honda Civic, a new model of Honda was introduced with clear air test using Muskie Law and it was to follow the American environment regulations.
“CSR should not be considered as an ethical add on to the existing business, but it should be considered as a part and parcel of corporate strategy itself. Adoption of CSR activities eventually leads to prosperous company and society” (Crane, Matten and Laura, 2007). CSR assists the organisation to build an good name among the consumers. It helps the organisation to build a good relationship with their employees, clients and other stakeholders. This good relationship will improve the performance and thus the organisation can gain more profit out of following CSR. If they are not following CSR, it would affect their business as well. If an organisation is not following CSR and if the media highlights those things, it would affect the good name and will of the company and it may result in the reduction of business. Thus CSR is vital in the corporate strategy to build a good rapport with the customers in their respective businesses. By the introduction of environmental friendly engines with low pollution helped Honda to increase their revenue. It created a good name among its consumers as well.
CSR is also influencing the non financial areas of the organisation as well. It has direct influence on the selection and recruitment process of organisation. Employee motivation and employee retention are the part of CSR in an organisation. Innovation is the key for success in any organisation. Environmental factors and ethical factors force the organisation to come up with innovative products and these innovative products increase company’s overall profits as well and assist them to sustain in market for a long term by making better quality cars for their customers. Reputation of the company would increase. CSR enables the organisation to get rid of risks and errors from their production and operations by realising the upcoming issues. CSR are thus result in giving more competitive advantage and profit by marketing positions. As automobile companies are going greener and environmental free, cost of production may reduce and it will improve their performance in the market (Hill and Knowlton, 2006) Toyoto Prius is a new model which is a hybrid car which runs using electricity and gas. Even though it is not fuel effective, it is sold in great numbers as they are eco friendly. Honda too introduced Hybrid cars and it attracted more customers as well. Thus it shows that companies who are following CSR can generate great profit. Toyota showed their CSR when one of their hybrid car models faced brake failure in the market and the same thing happens to Ferrari in the year 2010 as one of their model exploded. Honda was chosen as the top CSR Company in UK during the year 2006.
(http://www.marketresearchworld.net/index.php?option=com_content&task=view&id=672 (accessed on 19-09-2010)
Q3 (B)
Western perspective is mainly based on the perspective of “large lot mass production” and they are giving emphasis on larger number of production. Only a few alternatives are available to the customers. For instance Ford introduced their Mode T in a large quantity with same colour and it assisted Ford Corporation to reduce the operational and manufacturing cost as well the manufacturing time. However Japanese perspective based on the flexibility of production and they have given more important to innovation too.
Japanese companies recruit their employees from schools and they are given importance to the general characteristics of the person rather than their technical skills. Japanese companies are hiring people for a long period. However Western companies give priority to technical skills and they are hiring people for a short time period. Promotion in Japanese organisations is based on seniority and merit is the promotional criteria in western organisations. Japanese model considers human resources as fixed assets whereas western model considers them as semi variable assets. Overall welfare of the employees is considered in the Japanese model. Japanese offices are open plan and employees are worked as groups whereas western offices are filled with cubicles and employees are work as individuals. Oral communication is the form of communication used in the offices between the employees and the management whereas Western management communicates through memos.
Japanese management encourages taking decision in group whereas Western management encourages to make decision individually. Wages are given considering seniority in Japanese model where as efficiency is considered in Western model. In Western management style, employees are stick with predefined task on the other hand Japanese style gives more independence to their workers. In Honda factories, they are performing free flow of assembly line system where employees are taking decision to send the product to the next level.
Western style gives priority to production process rather than testing. Japanese model follows “Right-First-Time” in which they can remove all the errors in production. Japanese model gives priority to built-in-quality and thus they are able to reduce their cost of production and delivery time. In western management style, decisions are taken by the top management and those are implemented by the other staff in lower hierarchy. However decentralized management is the speciality of Japanese model and they follow round table discussions. Thus western organisational structure is vertical and Japanese is horizontal.
Even though both models are effective in one way or other, they have their own shortcomings as well. Both seem to be successful in either ways. Japanese management model is proved to be very effective especially to maintain quality and participation of employees in the decision making processes. As there are lots of choices available for customers, quality is given priority. As there are no hierarchy of management, responsibilities would be shared in Japanese model and it is good to deliver the best from all the employees.
Conclusion
This case study clearly indicates that Honda successfully managed the dichotomy in their business to breed success. They are given important to both Right-First-time and Built-in-quality. They are generating success in their respective business by managing dichotomy. The success story of Honda continues as their management strategies are successful in generating them more income.
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