Hondaism and the art of motorcycle sales: Sam Eilon separates truth from myth in the making of yet another Japanese success story

THE HONDA company, founded by Soichiro Honda and his close colleague Takeo Fujisawa, is a well-known success story. It rose from obscurity as a scooter and motorcycle manufacturer after the Second World War to become a multi-billion-dollar enterprise, with car plants in many countries and a world-wide distribution network. The company is particularly noted for the quality of its vehicles. But it was not always that way.

Although much about the tale is banal or obvious, the Honda success story - as chronicled by Setsuo Mito in The Honda Book of Management, now available in the UK - is perhaps more compelling than most.

This is partly because the company's experience has withstood the test of time and partly because Western commentators continue to be intrigued by the effect of the cultural gap between Japan and the West on their relative industrial performance.

Much is made of the novelty of the so-called management principles adopted by Honda, but if there is anything noteworthy about the company's practices, it concerns the role of research and development, the joint boardroom, the low break-even point (aimed at about half capacity) and the strategy for market penetration.

Honda's attitude to R & D is based on the founders' belief that a significant effort in this area is essential if the company is to strengthen its competitive position.

In Soichiro Honda's view, 'To put short-term results before creative, original effort . . . was to court ultimate downfall.' But it is also drawn from the company's commitment to trial and error. The aim is a relentless series of improvements to products and processes and the ability to respond quickly to threats in the market. The company set up parallel teams competing to find innovative solutions in the areas of design and production.

Honda's ability to be flexible, and to ensure that the top executives not only fully understand each other but act in unison, is attributed to the novel idea of the joint boardroom, which was conceived as 'a forum where Honda executives pit their differences in a constructive way'. This is where top managers - only the most senior have their own desks - work together on all the big problems facing the company.

In reality, the joint boardroom constitutes a perpetual executive committee with an open-ended agenda, and it proved its effectiveness in times of crisis, when swift reactions by the company were called for.

The company's strategy for market penetration is particularly fascinating. Time and again, Honda started at the lower end of the market: with small motorcycles in Britain and the United States and later with small cars, where initially the competitors dismissed Honda as a weak entrant not worthy of much attention.

As its position consolidated and sales grew, cash was generated to develop more expensive products. Honda could use its immense know-how in motorcycles to penetrate the market for mini-compact cars and small vans.

Then attention was concentrated on quality and the range was expanded, to include larger and more luxurious cars with higher added values. The strategy was simply to exploit both economies of scale, where higher volumes generated very healthy profit margins, and economies of scope, where the technical expertise gained in motorcycles could be extended to the design and manufacture of cars.

Honda has undoubtedly been successful. The fact remains, though, that the company was on the brink of total collapse at least once in the past 25 years, and that it was probably more luck than the Honda 'principles' or foresight and planning that saved it from disaster.

'The Honda Book of Management - a Leadership Philosophy for High Industrial Success' is published by The Athlone Press and also by the Kogan Press of London. Professor Sam Eilon is a senior research fellow at Imperial College, London.

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