Strategic Management at Honda

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PARADOX OF DELIBERATENESS AND EMERGENCE

Henry Mintzberg (1987) made a distinction between deliberate strategy and emergent strategy. Emergent strategy originates not in the mind of the strategist, but in the interaction of the organization with its environment. He claims that emergent strategies tend to exhibit a type of convergence in which ideas and actions from multiple sources integrate into a pattern. This is a form of organizational learning, (from its environment) in fact, on this view, organizational learning is one of the core functions of any business enterprise (See Peter Senge’s The Fifth Discipline (1990).)

Deliberate strategy on the other hand is involves intentional planning and predetermined outcomes based on internal and external analysis at a current point in time. Such analysis also involves the study of the historical trend of the organization and industry performance. A flawed assumption where the predetermined outcomes are derived from is that the future will behave as in the past and the macro environment will remain relatively stable. Such is not the case with the magnitude, velocity, frequency and abruptness of change reaching new unprecedented levels daily in the business landscape across the world.

The paradox of deliberateness and emergence is whereas deliberate strategies provide an organization with a sense of purposeful direction, emergent strategies imply that the organization is learning from its environment incrementally. This has led to dichotomies of strategies. However Mintzberg and Whittington says that this is not necessarily so, in fact Mintzberg advocates that firms in today’s highly turbulent business landscape need to be purposeful and resourceful simultaneously. In this sense he coined the term “deliberately emergent”. Whittington is in agreement as he classifies deliberate strategies under the classical school and emergent strategies under the evolutionary school both of which share the same outcome of profit maximization. The strategies may be different but the philosophy behind the strategies are in fact the same.

PORTER’S 5 FORCES ANALYSIS OF THE GLOBAL AUTOMOTIVE INDUSTRY

1. Threat of New Entrants.
In most major western economies with established automotive industry, the threat of new entrants was low in the 1970s and 1980s. In North America for example, it was thought that the Big Three (GM, Ford & Chrysler) were safe. But this did not hold true when Honda Motor Co. opened its first plant in Ohio. The emergence of foreign competitors with the capital, required technologies and better operations management skills began to undermine the market share of North American companies. This was also true when Honda took the risk to enter the British and European markets.

2. Power of Suppliers.
The automobile supply business is quite fragmented (there are many firms) throughout the many regions in the world. Many suppliers rely on one or two automakers to buy a majority of their products. If an automaker decided to switch suppliers, it could be devastating to the previous supplier’s business. As a result, suppliers are extremely susceptible to the demands and requirements of the automobile manufacturer and hold very little power because the manufacturers order in volume.

3. Power of Buyers.
Historically, the bargaining power of automakers went unchallenged. Most customers however, became disenchanted with many of the national car makers and began looking for alternatives with better fuel economy, more stylish designs and better technology. Foreign cars provided these attributes. On the other hand, while consumers are very price sensitive, individually, they don’t have much buying power, as they never purchase huge volumes of cars.

4. Availability of Substitutes.
Besides the threat of someone buying a different car we need to consider other modes of transportation as alternatives or substitutes. We need to look at the likelihood of people taking the bus, train or airplane to their destination. The higher the cost of operating a vehicle, the more likely people will seek alternative transportation options. The price of petrol has a large effect on consumers’ decisions to buy vehicles. Trucks and sport utility vehicles have higher profit margins, but they also guzzle gas compared to smaller sedans and light trucks. When determining the availability of substitutes the following should also be considered; time, money, personal preference and convenience in the auto travel industry. The trend today is towards more fuel-efficient, safe and environmentally friendly cars that are affordable to the increasing global middle class.

5. Competitive Rivalry.
Highly competitive industries generally earn low returns because the cost of competition is high. The auto industry is considered to be an oligopoly, (which helps to minimize the effects of price-based competition. The automakers understand that price-based competition does not necessarily lead to increases in the size of the marketplace; historically they have tried to avoid price-based competition, but more recently the competition has intensified – rebates, preferred financing and long-term warranties have helped to lure in customers, but they also put pressure on the profit margins for vehicle sales.

Created by : stefani ( group 3 )