#431  from Innovative Leader Volume 8, Number 10          October 1999

Prudent Management Rules from the CEO of Honda
by Ira Smolowitz, Ph.D.

Dr. Smolowitz is Professor of Finance and Dean, Bureau of Business Research at American International College in Springfield, Massachusetts (phone 413-747-6369).

Hiroyuki Yoshino is the chief executive of Honda.  In a particularly insightful article in the Financial Times (July 8, 1999; interview with Tim Burt), he describes his management philosophy.  Some of his ideas appear counter-intuitive; however, they certainly have led to Honda’s great successes.  I have taken the liberty of quoting segments of the article, and am highlighting (in italics) what I believe are critical management observations emanating from the interview.

1.  The CEO of a manufacturing company does not necessarily have to come from the traditional corporate path to the top.  Mr. Yoshino was head of research and development at Honda.

2.  Don’t worship market share.  He states: “In today’s global auto industry many companies see size as the key to survival.  But we believe that success has little to do with size….  General Motors is very big but is losing market share.  The issue is not size, but your ability to satisfy the customer.”

3.  Unit sales are not to be worshipped.  Honda is “rolling out new, high-value products on a number of core platforms, while squeezing production costs at 104 manufacturing plants in 33 countries.  In spite of selling far fewer vehicles than GM or Ford, that strategy has produced some of the highest margins in the industry, at around 7 percent.”

4.  Prepare for tomorrow.  “Mr. Yoshino does not want to be judged solely on past performance--even though profits rose 17 percent last year to a record Y305bn ($2.5bn).  He also stresses future growth potential and product strategy.”   “…the company will be investing heavily in new technology and research in engines and power transmissions.”  “...Honda is planning to launch a so-called hybrid car this year that will marry traditional fuel combustion with supplementary electric generators.”

5.  Recognize the value of brand management.  “…Mr. Yoshino has instilled in his management the idea that a Honda motorcycle owner today is a car buyer tomorrow, and brand loyalty must be cultivated.  He also applies that philosophy to Honda’s marine engines and other products, such as agricultural equipment and generators.”  “If a customer is satisfied with our product, there is a chance to win a customer for bigger products.”

6.  Have a broad, yet focused strategy.  Mr. Yoshino states, “We want to strengthen power products, revitalize the motorcycle business and become more innovative in cars.”

7.  Be obsessed with quality.  Mr. Yoshino “…says he is continuing the mission set out more than 50 years ago by Soichiro Honda, the group founder who was famously obsessed with customer satisfaction.  He maintained that every Honda product acquired by a customer, however small, represented the whole company.  Sub-standard products were not tolerated, on the basis that the customer affected by a one-in-a-million defect still had a 100 percent reject product.”

8.  Recognize and respect the organization’s culture.  “In the past year, we have recognised that our culture is based on doing unique things, one of which is a changing spirit,” says Mr. Yoshino.  He points to Honda’s recent decision to develop engines for Formula One motor racing as an example of such change, adding that exposure to the grand prix circuit could prove a useful way of  “forging and retraining our engineers.”  There is no reason, he believes, why an engineer working on a Formula One engine should not apply that experience to family saloons or sports utility vehicles in the future.”

9.  Corporations exist for the customers. “Honda has always been obsessed with advanced technology.  But we see the purpose of technology as serving the needs of the people, “says Mr. Yoshino.  “Thus, the customer is our true obsession and the foundation for all business decisions.”

10. A corporate CEO should articulate and defend his/her corporate strategy.  In my opinion, Mr. Yoshino has done this, and in an exemplary manner.

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