Honda: rejects mediocre

At its core, Honda is a rebellious and alternative company. It is reluctant to follow the mainstream and disdain to play the second best in the market in order to be safe. However, its success is not inferior to Toyota whose personality is quite different.

Since 2002, Honda's operating income has increased by about 40%. Not only that, its operating margin of 7.3%-9.1% is also rare in the automotive industry. A report released by Honda on January 30 this year showed that In 2007, its global production and sales both set a new record. Among them, the sales of automobiles reached 3.767 million and the sales of motorcycles reached 13.476 million, with year-on-year growth rates of 6% and 7% respectively.

The lean manufacturing and the spirit of continual improvement process are considered to be the key to Toyota's success. So, what are the underlying factors of Honda's success?

Honda / Acura are my favorite auto brands

Mountain climbing from the best route

It should be said that Honda and Toyota, which are also deeply affected by Deming's management, still have similarities, but in many ways they can be described as different. Unlike Toyota's predominance, Honda has a strong personality. Some people have described it as The company that honestly climbs the mountain step by step, but likes to find the best climbing route.

Honda's personality is influenced by its founder Honda Soichiro, and it is also related to its growth environment. Among the major automobile giants in Japan, Honda was the latest to enter the industry, and at the time it was in terms of manpower and capital not as good as the opponent--if it follows the conventional development path, it will be difficult to surpass. Therefore, Honda decided from the beginning to take a different approach.

In the strong North American market, Honda's mavericks are particularly obvious. When other automobile companies are competing to develop pickups and SUVs, Honda stands by and refuses to develop V-8 engines or traditional frame-body light trucks; when other companies are developing high-power vehicles while taking advantage of low oil prices, Honda was also unmoved, and still adhered to its consistent philosophy, devoted to the development of smaller and more efficient four-cylinder and six-cylinder engines; when most automobile companies do not willing to develop alternative products for internal combustion engines, Honda is fully committed to being the first to carry out research on alternative products such as clean diesel engines and hydrogen power...

This unique personality of Honda is reflected in many aspects such as production, research and development. Although people do not use the words "Honda system" or "Honda model" to describe it, they do have a more obvious Honda color.


Like Toyota, Honda also has its own unique production system, and its core idea is to achieve the highest efficiency with the least resources. Honda attaches great importance to stamping and mold work (such as injection molding and die casting), because it thinks that in a resource-poor country like Japan, a company that wastes a lot of raw materials will not succeed. Because of this, unlike many companies' efforts to streamline and decompose processes to promote process standardization, Honda has done the opposite, by concentrating as many tasks as possible into one process, thereby streamlining the production line and the component Integration. This not only helps to use resources more efficiently, but also facilitates the transportation of products.

Honda's strategy is also adapted to its production system. Compared with other automobile companies, especially American automobile companies, Honda's models are significantly fewer. For a long time, Honda's main market in North America mainly relied on Accord and Civic, which the two models used to make for more than half of Honda ’s sales in the U.S.. At present, Honda has 15 models in the U.S. and Toyota has 28. This strategy is not only conducive to improving the effectiveness of marketing, but also to tap production in potential.

While trying to keep the number of models as streamlined as possible, Honda uses the same basic design to design most of its models, with the goal of reducing component differences and reducing the number of suppliers and production lines. One of the prerequisites for reducing the number of production lines is the increase in production flexibility. It is reported that Honda has realized the production of 8 different models on one assembly line many years ago. Taking the Accord as an example, as early as 1997, Honda achieved 5 production lines on one platform, and it can be adjusted according to different markets.

The standardization of processes also contributes to the efficiency and flexibility of production. Honda implements global standardized workshops in its factories. At present, all Honda Civic production plants have adopted standardized processes. As long as there is unique production in a certain factory, these non-standard processes will be evacuated from the main production line and transferred to the sub assembly line area.


Honda's production technology has earned respect, including in the United States, which gave birth to Ford's mass production model. On November 1, 1982, Honda produced the first Accord in the United States. Now, the plate number is "USA 001" silver-gray sedan was placed in the Henry Ford Museum. Some American management scholars pointed out that the production of this car was a turning point in American manufacturing.

It should be said that Honda's production is similar to Toyota in many aspects, however, there are still significant differences between the two in some details: Toyota often gives a rigorous impression, and Honda shows more boldness. For example, Honda used a new product development center to develop a new car, and also used a new production system for production. This is a risky approach that most auto companies are reluctant to try rashly. Of course, Honda also enjoyed the joy of success. At present, this car is produced in 12 countries and is the best-selling car in the United States, which its most important market.


Seeking a win-win situation with suppliers

A management scholar who researched Honda summarized Honda's model as the BP model:  the best position, best productivity, best product, best price, and best partner. Among them, it has established a good win-win situation with suppliers. The partnership is not only considered to be an important factor for Honda's success besides the production method, but also a solid foundation for the well-functioning Honda production system.

As early as the 1980s, American auto manufacturers began to learn Japanese auto companies' production experience, but so far the three major American auto giants still have problems. Thomas Choi, professor of supply chain management at the Carey School of Business at Arizona State University, who has spent nearly 20 years researching the supply chains of Honda and Toyota, pointed out that the reason why this happens is very important because American auto companies are not good at handling relationships with suppliers.

At least 3 years ago, about 70%-80% of Honda's manufacturing cost was determined by the supplier, the importance of the supplier to Honda's manufacturing can be imagined. By developing a close relationship with suppliers, Honda can effectively reduce costs while maintaining product quality (many suggestions for reducing costs for Accord are made by suppliers), and it can also shorten production time and accelerate the step of new product launches.


Honda's relationship with suppliers is summarized as a win-win situation. Its main practices include: working with suppliers to improve mutual learning; selectively strengthening information sharing; improving supplier technical capabilities; supervising suppliers with guide; hostility between suppliers becomes opportunity; understand the operations of suppliers, co-innovate with suppliers, etc.

Honda's suppliers are composed of multiple tiers. Tier 1 suppliers work with smaller, lower-tier suppliers to produce parts according to Honda's requirements. The supplier grading system can not only protect Honda from supply accidents, but also develop long-term development for both, close partnerships create the situation.


To strengthen relationships with suppliers, Honda often sends engineers (sometimes senior managers) to suppliers to conduct research on supplier operations and culture. At the same time, Honda has also developed a relatively complete supplier evaluation system to supervise suppliers. Monthly supply chain reports are required to cover supplier product quality, delivery conditions and accident reports, etc.

The price issue is the most sensitive, and dispute often arises between auto manufacturers and suppliers. But at Honda, this issue is not obvious, because it is not pursuing absolute low prices, but both are profitable. When setting the target price, Honda will do its work first to understand the market's affordability of the price, and then push back to gradually reduce the cost. Honda knows the capabilities of suppliers, such as whether the supplier can still profit at a certain price? For those suppliers that are temporarily unable to reach the target price but are important to Honda, Honda will set a schedule for suppliers to gradually lower the price to a predetermined target within a certain period of time (such as 3 years). However, if a supplier attempts to lower the net cost sale of certain parts, Honda will refuse to buy.

In addition, Honda will provide assistance to suppliers to improve their product quality and expand production capacity. However, although investing a lot of time and money in suppliers is conducive to fostering stable long-term relationships, in some cases, side effects. Honda has worked with a supplier for 3 years to help them improve the production technology of a certain product, but in the end the supplier was still unable to meet Honda's technical requirements, and Honda had to give up.


Finding fun in challenges

Honda believes that the strength of Made in Japan lies in people, so it is necessary to give employees full authority and enhance their sense of responsibility, so that they work consciously and hard rather than taking orders from the "steps" of the organizational pyramid.

Honda employees' salaries are not particularly high, but employee loyalty is high, which can be said to be a characteristic of Japanese companies. However, since its inception, Honda has a strong non-Japanese color. As Honda Soichiro puts it: "Everyone should work for himself, and people will not sacrifice themselves for the company. They come to work for the company to get fun from it. "This is different from most Japanese companies.

Honda's uniqueness is also manifested in the combination of rigor and rebellion. In terms of production, its principle is to create a unified vision under strict control, while in terms of R & D and corporate cultural aspects, it is quite rebellious compared to most Japanese companies.


In terms of R & D, Honda's characteristics are particularly outstanding. Honda's research and development are similar to Google to a certain extent, and its vision of innovation is very broad. The company's areas of involvement are in addition to engines, motorcycles, automobiles and ultralight aircraft. In addition, it also includes robots, clean energy batteries, etc. It is said that Honda engineers have also studied cockroaches and bumblebees. Now, they are studying the use of DNA strings to develop nano cars. These are related to the freedom of innovation obtained by Honda's R & D department.

Honda R & D is affiliated with Honda Motors. Since the establishment of Honda, every CEO of the company has worked in the R & D department. The current president and CEO, Takeo Fukui, has been in the R & D department for nearly 20 years. However, Honda executives have no intention to directly lead the R & D department, but maintains the full independence and freedom of the R & D department. Takeo Fukui only meets with the R & D department management once or twice a year. He said: "I have no right to order the engineers in the R & D department ... Let them do it themselves, they can create different values. "In terms of external relations, Honda insists on its own research and development, and is unwilling to alliance with outside parties. Of course, today, as the difficulty of innovation becomes more and more difficult, some people doubt Honda's model can continue.


Sometimes over-independence can also cause problems, such as the development of products that are too advanced, such problems have occurred in the history of Honda. Later, Honda carried out an organizational adjustment to its R & D department, while maintaining the initiative of innovation as much as possible, appropriately strengthening control to ensure that  R & D will not deviate from market needs.

The organization of the Honda R & D department also has its own characteristics, it is a flat organization. It is said that no one has its own office in the Honda R & D department. Engineers organize the project according to the project. The project may start from the top down (arranged by the superior), or it may be bottom-up (proposed by the engineers themselves). The power of the person in charge of the project is basically equivalent to that of the project president, and the engineers independently participate in the research of the project. However, Honda prohibits engineers from conducting research on multiple projects at the same time, and does not allow them to conduct cross-project flows, because Honda believes that time and energy are limited. Only the concentration of time and energy can achieve the maximum effect. Therefore, a group of Honda engineers specializes in the development of only one new model. This is also different from many automobile companies.


In fact, some management scholars believe that Honda's entire organizational structure is an organization that is conducive to innovation, resource allocation, and cross-functional sharing and collaboration. The internal boundaries of Honda, especially the boundaries between product development, production technology, manufacturing departments, procurement, are not particularly obvious. This makes it easier for Honda to achieve cross-departmental collaboration, which is conducive to problem solving and the rapid introduction of new products.

Such an organization is also the fundamental guarantee for the prosperity of Honda's corporate culture. Honda claims to have a racing spirit, which is actually the core of Honda culture:

  • It all starts with ambitions and attempts to achieve goals, so look for challenges proactively;
  • Even if a good car is successfully manufactured,  it won’t win the race if it ’s too late, so time management is crucial;
  • To win the race requires not only good drivers, but also good collaboration among coaches, technicians, engineers and managers;
  • Develop the willingness to win, find the cause if you fail, and do your best to solve the problem before the next round;
  • Be flexible, as the conditions of each round are different, you must be flexible to adjust and change yourself.


A few examples can illustrate Honda's racing spirit culture: In order to reduce risk, most auto companies tend to adopt a new car with an old engine or an old car with a new engine, and Honda insists that every new car must be equipped with a new engine. The spirit of challenge is also manifested in the pursuit of perfect quality. The door gap of the Civic in the 2000 version is 5 mm, and it has been reduced to 3.5 mm by the 2001 version. The distance between the front panel and the bumper is in the 2000 version It is 3 mm, and it has been reduced to 0.5 mm by the 2001 version.


However, as the company becomes larger and larger, Honda ’s racing spirit may be gradually lost. Therefore, after Fukui became president, Honda re-entered F1 racing. Fukui ’s purpose is twofold: one is to improve the brand image of the company, two Is to attract outstanding employees, and use the racing as a training ground to improve the talent of the employees. The racing is not only challenging, but also can quickly and more intuitively test the company's technical capabilities (including the ability to continuously improve), because regardless of success or failure, every time after the competition, a comprehensive and in-depth analysis must be carried out, and corresponding improvement measures must be taken, then the new technology developed from this can be applied to a new round of competitions and the development of enterprises. More importantly, it is cultivated in this "devil training" the talents can often become the driving force for Honda's development.

Sam Harpest, director of Honda's Marysville Motors, once said:
"Honda always takes a different approach, and I think that's the key to our success."
This is a company that rejects conventional and mediocre.

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