Additional Insights for Myth 8
Proper strategies are planned
The Honda Story as learning before planning1
Honda’s strikingly successful strategy in the motorcycle industry in the United States was described by a consulting firm as brilliantly deliberate…until a researcher sat down with the Honda managers to investigate what really happened. This story can be seen as a turning point in the field of strategic management, hitherto fixated on deliberate planning.
After World War II, with their economy devastated, the people of Japan could not afford to buy automobiles. So, Honda developed small motorcycles, to sell alongside their established big ones—with great success. Subsequently, in 1959, the company entered the American motorcycles market, and by 1966 had captured 63% of it, especially with their small motorcycles, at the expense of the established American producers and British importers. The BCG Consulting Group wrote a report for the British government to explain this remarkable success. Essentially, it came down to this:
The Japanese motorcycle industry, and in particular Honda, the market leader, present a [consistent] picture. The basic philosophy of the Japanese manufacturers is that high volumes per model provide the potential for high productivity as a result of using capital intensive and highly automated techniques. Their marketing strategies are, therefore, directed towards developing these high model volumes, hence the careful attention that we have observed them giving to growth and and market share.2
Richard Pascale of the Stanford Business School, who had written a prominent book about Japanese management3, was suspicious, and so he interviewed the Honda managers who had managed this success, to get their side of the story:
In truth, we had no strategy other than the idea of seeing if we could sell something in the United States. … our focus was to compete with the European exports. We knew our products at the time were good but not far superior… after some discussion and with no compelling criteria for selection, we configured our startup inventory with 25% of each of our four products¾[in dollar value terms] heavily weighted toward the larger bikes….
We were entirely in the dark the first year. We were not aware that the motorcycle business in the United States occurs during a seasonal April-to-August window¾and our timing coincided with the closing of the 1959 season… By spring of 1960, we had 40 dealers and some of our inventory in their stores¾mostly larger bikes. A few… began to sell. Then disaster struck.
By the first week of April 1960, reports were coming in that our machines were leaking oil and encountering clutch failure. …we had to dig deeply into our precious cash reserves to airfreight our motorcycles to the Honda testing lab in Japan… But in the meantime, events had taken a surprising turn.
Throughout our first eight months, following Mr. Honda’s and our own instincts, we had not attempted to move the 50cc bikes. While they were a smash success in Japan… they seemed wholly unsuitable for the US market, where everything was bigger and more luxurious. As a clincher, we had our sights on the import market¾and the Europeans, like the American manufacturers, emphasized the larger machines.
We used the Honda 50s ourselves to ride around Los Angeles on errands. They attracted a lot of attention… But we still hesitated to push the 50cc bikes out of fear they might harm our image in a heavily macho market. But when the larger bike started breaking, we had no choice. We let the 50cc bikes move. 4
The rest, as they say, is history, but not just about Honda. Pascale’s story became a turning point in the field of strategic management, which had been so fixated on deliberate planning. While BCG saw what it believed, this vivid example of Honda legitimized efforts to see emergent strategy as a learning process. The company seems to have gotten everything wrong, except the process of learning from its own mistakes.
Now, imagine yourself the manager of a British motorcycle company being handed the BCG report. Read it, and you had better go straight back into your office and do even more clever competitive analysis. Instead, if you were handed the Honda manager’s account, you might sell your Rolls-Royce, move to Milwaukee, and start driving motorcycles around.
- For the full story, including subsequent comments by the authors of both versions, see “The Honda Effect Revisited,” California Management Review (Summer 1996). ↩︎
- Boston Consulting Group, Strategy Alternatives for The British Motorcycle Industry, Her Majesty’s Stationary Office (London, July 30, 1975) ↩︎
- Richard T. Pascale and Anthony G. Athos, The Art of Japanese Management (Simon & Schuster, 1981) ↩︎
- Richard T. Pacale, “Perspectives on Strategy: The Real Story behind Honda’s Success,” California Management Review (Spring 1984, 47-72} ↩︎