The Emperor’s New Strategy

The Honda Effect

I heard Henry Mintzberg say in a recent interview that one of his heroes is the little boy from Hans Christian Andersen’s story The Emperor’s New Clothes.

“Not because he had the guts to say that the emperor was wearing no clothes, but because he had the wherewithal to see it, because he was naive. And maybe i’m naive”.

Mintzberg has played this same role many times himself, calling bullshit on strategy and management ‘best practices’ which he considers “nonsense”.

His first book The Nature of Management (1973) broke with convention by actually going inside companies to observe real managers in action. He was spurred by the feeling that academics writing about management were too detached from the realities of the very work they were writing about.

He took aim at business schools with his book Managers, Not MBAs (2004) in which he argued that you can’t create a manager in a classroom anymore than you create a swimmer in a classroom. He subsequently launched executive programs (impm.org, imhl.org) wherein practicing managers go back and forth every few months between classroom and their workplace.

“Thoughtful reflection on natural experience, in the light of conceptual ideas, is the most powerful tool we have for management learning.”

But most of his publications over the years have focused on strategy. And again, his observations often run contrary to much of the conventional wisdom. He argued early on that most strategies don’t come out of a formally planned process, but emerge over time. (You can read more about emergent strategy here).

When asked why he has always been such a trouble maker, he replied “I look at what goes on, and I just see so much nonsense, and I just talk about it thats all…It bothers me. There’s so much silliness around, I can’t help but challenge it”.

The Honda Effect

One of the best examples of this is the story of Honda’s expansion into the United States motorbike market.

From the outside

In 1959 the Japanese manufacturer entered the US motorcycle market. At the time British manufacturers combined had 49% of the total market. But by 1966, Honda had quickly stolen the market, capturing a 63% share alone.

They beat the American and British manufacturers in selling big bikes to the leather wearing bikers. And they created a new market for small bikes driven by ordinary people, which they were already selling at home in post-war Japan.

With their market share down to a mere 9%, the British Government hired the Boston Consulting Group to help them understand how this happened, and what could be done about it. BCG issued their 120 page report in 1975, in which they explained in rich detail how the Japanese had positioned it’s bikes and won a beachhead with new customer segments using low-cost production. It was full of BCG parlance with experience curves and growth matrixes. It became the basis for popular case studies written at business schools including Harvard and UCLA.

“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 market share.”

From the inside

A few years later Richard Pascal, who was somewhat of an expert on Japanese manufacturing and who had recently co-authored The Art of Japanese Management (1981), became curious about this narrative. He flew out to Japan and interviewed the six Honda managers who had orchestrated this success, and discovered they told a very different story.

“In truth, we had no strategy, other than the idea of seeing if we could sell something in the United States”

Pascale published the Honda managers’ take on events in the California Management Review in 1984 with a piece entitled Perspectives on Strategy: The Real Story behind Honda’s Success. In it, the managers contradicted much of BCG’s version of the same story.

The Japanese government, from whom Honda had to obtain a currency allocation, were “extraordinarily skeptical” and only issued them $100k cash to invest. Honda’s chief—Sochiro Honda—was more confident, because the bigger bikes in which they set out to sell to US bikers had handlebars that “looked like the eyebrows of Buddha, which he felt was a strong selling point”.

They entered the market at the wrong tail end of the season that year. They rented a cheap apartment, in which two of them had to sleep on the floor. They swept the floors of their rundown warehouse, and stacked the bikes themselves to save money. According to Mr. Kawashima, who went on to became the first president of American Honda, the small Japanese team who arrived could barely even speak English.

The next year, when the season picked up again and their big bikes started selling, “disaster struck”. The bearded bikers in leather jackets—who were the whole market in the US—did longer journeys at faster speeds than Honda’s ordinary customers back in Japan, and the bikes quickly started breaking down.

Honda had only tried to sell their big bikes (250cc and 305cc) in the US because their smaller bikes, despite popular in Japan, seemed “wholly unsuitable to for the US market where everything was bigger and more luxurious”. However the managers had been using their own 50cc ‘Supercubs’ for personal use.

“We used the Honda 50s ourselves to ride around Los Angeles on errands. They attracted a lot of attention. One day we got a call from a Sears buyer. While persisting in our refusal to sell through an intermediary, we took note of Sears’ interest. 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 bikes started breaking, we had no choice. We let the 50cc bikes move”.

The rest is history. Sales rose dramatically. Everyday American’s started buying the smaller bikes, and later the bigger ones. And Honda was away with the market.

Richard Remult was one of the professors who used to use BCG’s initial Honda case in his strategy course at UCLA. He later asked his students about cars:

“In 1977, my MBA final exam on the Honda motorcycle case asked ‘Should Honda enter the global automobile business?’. It was a giveaway question. Anyone who said ‘yes’ failed. Markets were saturated, they had no experience in automobiles, they had no auto distribution system, efficient competitors existed globally…..In 1985 my wife owned a Honda”.
Source: Commodity trade statistics. Taken from Strategy Safari. Mintzberg, Ahlstrand, Lampel.

Disputes

Over the next few years various rebuttals went back and forth between BCG authors of the original report like Michael Goold, and Pascale, and others. But as time went by the gap only grew bigger, with British imports plummeting to one million dollars the same year as Japanese imports broke the one billion mark.

Goold conceded that despite, what he referred to as the report’s “analytical power”, it “was not able to come up with a strategy for saving the [British] industry”.

You should have been here yesterday

Mintzberg also had his take on the Honda story of course. By now Mintzberg had long been arguing this notion that—despite what business schools said—in real life strategies emerged through learning, just like the Honda managers exhibited in this case.

Read [BCG’s] report and the implication is that you should lock yourself in your office and do clever competitive analysis. Honda never would have produced it’s strategy that way. Read, instead, Pascale’s account of the Honda executives’ own story and you get the impression you should sell your Rolls Royce, buy a pair of jeans, and start riding motorcycles around Des Moines, Iowa.

Mintzberg now claims to use the term ‘the Honda effect’ to describe “western consultants, academics, and executives preference for over-simplifications of reality and cognitively linear explanations of events”.

He recently recalled a funny story from around this time when he was attending the Strategic Management Society ’s annual conference in 1982 to accept an award. It was a two day event, and on the first day Richard Pascale, fresh from his recent trip to Japan, presented his new insights on the Honda case.

The next day Michael Porter, the pre-eminent expert on strategy, was presenting. As Mintzberg tells it, Porter only arrived at the conference “3 minutes before his presentation, and left 4 minutes after his presentation, as he usually did”. And, of course, he presented on Honda. Elaborating on BCG’s initial report, and on the case he had written based off it in his capacity as professor at Harvard Business School.

For Mintzberg, it “was kind of a high point in the conference because everybody was sitting there thinking ‘Mike, you really should have been here yesterday’.”


References

Pascale, R.T., “Perspectives on Strategy: The Real Story behind Honda’s Success”, California Management Review, 26, 47–72, 1984, Link

Boston Consulting Group, “Strategy Alternatives for the British Motorcycle Industry”, 1975, 2 vols. Link

Rumelt, Richard P., “The Many Faces of Honda”, 1995. Link

Case Study: The “Honda Effect” Revisited. 1996. Henry Mintzberg, Richard Tanner Pascale, Michael Goold, Richard P. Rumelt. Link or accessible here

Case Study: Honda (A). 1983. Evelyn T. Christiansen. Richard Tanner Pascale. Link

Case Study: Honda (B). 1983. Evelyn T. Christiansen. Richard Tanner Pascale. Link

Case Study: British Motorcycle Industry at a Crossroads. 2003. Jan W. Rivkin. Link

Michael Goold, “Learning, Planning, and Strategy: Extra Time”, 1996

Mintzberg, Henry. (1996) Reply to Michael Goold. California Management Review, 38, 96–99.

YouTube video “SMS Presentation — Henry Mintzberg — Funny Story of the First ‘Honda B’ Case”. Link

“Strategy Safari: A Guided Tour Through The Wilds of Strategic Management”, 1998, Henry Mintzberg, Joseph Lampel and Bruce Ahlstrand.

“Strategy Bites Back: It Is Far More, and Less, Than You Ever Imagined”, 2005, Henry Mintzberg, Joseph Lampel and Bruce Ahlstrand.