Managing Under Uncertainty - the Honda Effect - Case Study Example

Managing Under Uncertainty: The Honda Effect Executive Summary One of the approaches used to analyse decision making is the personality and values perspective. This report analyses critical decisions, using the personality and values perspective, the Honda Effect, in a management case study. The report identifies critical decisions and applies the Big Five Model of Personality and Schwartz’s value theory to analyse the decision-making process. The report then critically evaluates the strengths and weaknesses of the decisions and provides recommendations on how to improve decision making in future. Executive Summary..............................................................................................................1 Table of Contents...................................................................................................................2 1.0 Introduction .................................................................................................................. 3 1.1 The Critical Decisions ........................................................................................ 4 2.0 Personality and Values in Decision Making............................................................... 4 2.1 Critical Decisions from the Personality and Values Perspective........................ 5 2.1. 1 The Big Five Model ........................................................................... 5 2.1.2 Schwartz’s Value Circumplex...............................................................6 3.0 Critical Analysis............................................................................................................ 8 3.1 Strengths of the Decisions................................................................................... 8 3.2 Weaknesses of the Decisions............................................................................... 9 4.0 Recommendations......................................................................................................... 10 5.0 Conclusion...................................................................................................................... 10 References ........................................................................................................................... 12 1.0 Introduction The marketing case study “The Honda Effect” by Pascale (1996) highlights the process of strategy formulation by Japanese manufacturers by focusing particularly on the story of American Honda, the American subsidiary of Honda Motors. Pascale outlines how Honda Motors was able to successfully venture into the U.S. motorcycle industry and capture a commanding market share in a market where Japanese auto manufacturer Toyota had previously failed. According to Pascale (1996), the key to Honda and other Japanese manufacturers’ successes in the American market was not due to a narrowly defined, rigid strategy formulated by management consultants, strategic planning staff and academics. Neither was this success based on empirical models the Americans and their European counterparts used. Rather, American Honda’s strategy formulation was organic, the cumulative impact of information flows within the organization that contributed incrementally towards the company’s strategic direction. In essence, rather than follow a single, predetermined strategic direction, Honda was able to adjust incrementally to unfolding events in the market. This report will analyse the case study on Honda by applying the personality and values perspective on decision making to critically analyse the critical decisions made in the case study. This report will first outline the three critical decisions made from the case study by Pascale (1996) and briefly introduce the sociological perspective of decision making. The report will then use various theories and models of personality and values perspective to critically analyse the decisions in the case study by discussing the strengths and weaknesses of each decision. To conclude, the report will outline several recommendations as to how decision making could be improved in future using this perspective. 1.1 The Critical Decisions Honda’s successful strategy in the American motorcycle industry depended on three critical decisions as presented in the case study by Pascale (1996). First, Honda’s philosophy was based on a domestic strategy  the manufacture of high-volume models that took advantage of economies of scale and production and made Honda a low-cost, low-price producer. This was in contrast to its competitors, who focused on producing larger, more luxurious machines. In hindsight, American Honda’s success can be attributed to their successful segmentation of the American market, which enabled the company to accommodate all market segments and not alienate any particular one. A critical decision the American Honda executives made was to roll out the low-priced Honda 50cc Supercub. This strategy clearly diverged from Honda founder Sochiro Honda’s preferred strategy, which centred on marketing 250 cc and 305 cc models (Pascale 1984: 1996). The second critical decision in the case study was the decision by an American Honda junior sales director to adopt the untested Nicest People campaign, contrary to the wishes of several Honda executives. This enabled Honda to successfully identify an untapped market segment. The third critical decision in the case study was the decision to shift from shipping on a consignment basis to a cash-on-delivery system that risked alienating its dealers. Instead, the decision would set a pattern for the industry (Pascale 1996). 2.0 Personality and Values in Decision Making The personality and values perspective of decision making is used to analyse the impact of decision makers’ personalities and values on the decision-making process (Robbins and Judge 2010). Personalities and personal values shape decision makers’ behaviours, which in turn determine how they go about the decision-making process and achieve the outcomes of the process (Parks and Guay 2009). Several theories and models in the personality and values perspective are used to explain how the output of the decision-making process is influenced by decision makers’ personalities or values. 2.1 Critical Decisions from the Personality and Values Perspective 2.1.1 The Big Five Model The decision to roll out the 50cc Supercub into the American market can be understood by analysing the personality traits of both Mr. Suchiro Honda and the executives of American Honda. The “Big Five” model of personality trait theory can be used to analyse a decision maker’s behaviour on five dimensions: level of conscientiousness, agreeableness, neuroticism, openness to experience and extroversion (Roccas et al 2002; Robbins and Judge 2010). The decision makers’ score or the extent to which they display these traits has a significant impact on the decisions they make. According to the model, a decision maker who is more “open to experience” and an extrovert is more likely to take risks than a conscientious and disagreeable decision maker. From the case study, Mr. Honda’s actions are consistent with a risk taker as he displays a higher score on openness to experience (Conner and Becker 1994; Robbins and Judge 2010). He was willing to commit to entry into the American market despite Toyota’s failure there. Mr. Takeo Fujisawa had also demonstrated a high agreeability score by endorsing Kihachiro Kawashima’s venture into the American market. The eventual decision by Kawashima to let the 50cc Supercubs move into the market is also consistent with openness to experience. 2.1. 2 Schwartz’s Value Circumplex On the other hand, values can be referred to as goals, life guidelines or evaluative criteria for goals, activities or events that a decision maker holds (Robbins and Judge 2010). In addition to personality, values also shape decision makers’ behaviour by guiding their preferences for courses of action in a variety of situations. A decision maker’s values influence his/her decisions in times of uncertainty (Ravlin and Meglino 1987). A model that can be used to explain critical decisions taken by decision makers in the case study is Shalom Schwartz’s value theory. In Schwartz’s value circumplex  values taxonomy based on a circumplex structure  Schwartz identifies 10 meaningful groupings of values clustered together to facilitate the organization of individual values. The 10 value categories or domains with examples of the values for each are: power (social status, prestige, wealth and control), achievement (competence, influential, success and ambition), hedonism (pleasure and self gratification), stimulation (challenges, novelty and excitement), self-direction (self respect, creativity, freedom, independence and autonomy), universalism (tolerance, wisdom, concern for the environment, equality and social justice), benevolence (loyalty, responsibility, helpfulness honesty), conformity (self discipline and restraint of actions that might harm others or violate social norms), tradition (respect for the status quo, acceptance of customs) and security (safety and stability of society) (Schwartz 1994; Robbins and Judge 2010). Schwartz’s value circumplex organizes the values in such a way that those which are opposite each other tend to conflict in the sense that if an individual endorses one, he or she is unlikely to endorse the opposing value, while those adjacent to each other are more similar and are likely to be endorsed in tandem. For instance, the values clustered under benevolence and under hedonism appear diametrically opposite each other on the circumplex, while those representing power and achievement are naturally adjacent to each other (Parks and Guay 2009). These categories are further split into two bipolar dimensions that help illustrate how decision makers’ personal values influence the decision-making process: openness to change versus conservation, and self-enhancement versus self-transcendence (Schwartz 1994). Decision makers who endorse openness to change values are more motivated to pursue innovative ways in marketing. For example, Mr. Honda’s innovation with the two-stroke engine in 1951 can be explained by his stimulation and self-direction. American Honda president Kawachima and his assistant also share the same value systems as illustrated in their decision to ship the faulty motorbikes back to Japan for redesign, and their willingness to allow the 50cc Supercubs to move to dealers despite the risk of compromising Honda’s image in a macho market. The decision by the junior sales director who persisted with the Nicest People campaign can also be attributed to his personal value system through his commitment and conviction to adopt the campaign despite reservations from senior executives (Pascale 1996). In addition to the personal values of decision makers, organization level values also influence decision making. At the organization level, such values include profit making, growth, innovation, creativity, adaptation and survival, attributes that are shared throughout the organization (Payne et al. 1993). These values are also embedded in the organization’s culture and shape how senior managers make strategic choices during times of uncertainty. As demonstrated throughout the case study, Honda’s strategic approach was decidedly different from that adopted by its competitors both domestically and in the American market. The introduction of the Supercub, an innovation, and the restructuring of its channels of distribution established innovation and adaptation as organizational values. This would account for Kawachima and his team’s decision to roll out the 50cc Supercub despite Mr. Honda’s instinct that the 250 and 305cc models would be more profitable. Similar organizational values associated with risk and innovativeness also explain the decision by the junior sales director to commit and insist on the Nicest People Campaign and the decision in 1964 to shift from cash to consignment, which risked alienating Honda’s dealers (Pascale 1996). 3.0 Critical Analysis 3.1 Strengths of the Decisions Various strengths are inherent in the critical decisions made by the decision makers in the case study, according to the personality and values perspective. As the case study shows, the decisions made by Mr Honda and American Honda executives such as Kawashima that were based on their personality and value systems were timely, and enabled them to react faster to changes in the market and adopt more appropriate strategies (Pascale 1984: 1986). Decisions based on the personality and values of decision makers usually require less time than rational decisions or group decisions (Eisenhardt 1989). Therefore, these decisions are appropriate in times of uncertainty when reaction speed may be critical to success. For example, the decision to allow the 50cc Supercubs to move based on organization values was the trigger for American Honda’s success as was the decision by the junior sales director to commit to the Nicest People Campaign (Shimizu 2012). Such decisions are ideal for volatile, time-sensitive situations where success depends on rapid managerial action. These decisions also instil creativity into an organizational culture. Decisions made based on organization values also provide continuity and consistency. By entrenching an organizational culture of innovation and risk taking, both current and future managers at Honda are aware of their expectations and are likely to contribute to organization values such as survival and growth. As Pascale (1996) indicates, this value system consistent with Japanese culture has contributed to more effective strategy formulation, where managers are aware that they constantly need to guide and orchestrate input from below in strategy formulation rather than follow a predetermined course. 3.2 Weaknesses of the Decisions The key weakness of the critical decisions made from the personality and values perspective is that the lack of a rational decision-making process introduces high risk and uncertainty. Since values are not based on facts, the outcome of the decision-making process may be risky and not beneficial to the organization, such as Mr. Honda’s instinct on marketing the 250 and 305 cc motorcycles (Shimizu 2012). Decisions based on personality and values also tend to be more volatile. While this is not to be confused with the consistency discussed under organizational values, personality and personal value systems vary significantly from one decision maker to another and are affected by various factors such as environmental influence and personal experiences. Such decisions may also create conflict when the decision maker’s personal values are incongruent with the values of the group or the organization (Robbins and Judge 2010). When these two values systems in contact are incongruent, the decision becomes incompatible. 4.0 Recommendations To improve decision making in future, two key recommendations are proposed: 1. Articulation of organizational values  this would enable subsequent managers at the organization to avoid making decisions incompatible with organizational values, and introduce more consistency and continuity into the decision-making process (Robbins and Judge 2010). 2. Introduction of autonomous focus groups  as demonstrated in the case study, the autonomy of the American Honda executives and the junior sales director enabled them to make more accurate decisions in times of uncertainty, despite the wishes of their seniors. Therefore, decision making should be delegated to autonomous focus groups that are closest to the market and can react in a more timely and accurate manner rather than waiting for strategic direction from top management (Eisenhardt 1998; Fitzgerald & Ayson 2012). 5.0 Conclusion The personality and values perspective of decision making analyses decision making by examining the influence of the decision makers’ personality and behavioural values, which in turn affects how they make decisions and the outcomes of such decisions. As seen from the case study on Honda, the personalities and value systems of the managers influenced them to make certain strategic decisions, which reacted to the market in a timely manner and accounted for Honda’s success. However, to improve decision making in future, the report recommends that organization values be clearly articulated to introduce consistency in decision making, and that autonomous decision making units be created as an application of lessons learnt. References Conner, P. E., & Becker, B. W. (1994). Personal values and management: What do we know and why don’t we know more? Journal of Management Inquiry, 3(2): 67-73. Eisenhardt, K. M. (1989). Making fast strategic decisions in high-velocity environments. Academy of Management Journal, 32(5): 543-576. Fitzgerald, M. & Ayson, S. (Eds), (2012). Managing under uncertainty: a qualitative approach to decision making. Sydney: Pearson. Parks, L. & Guay, R. P. (2009). Personality, Values and Motivation. 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Shimizu, K. (2012). The Cores of Strategic Management. New York: Routledge. Verplanken, B. & Holland, R. W. (2002). Motivated decision making: Effects of activation and self-centrality of values on choices and behavior. Journal of Personality and Social Psychology, 82(3): 434-447. Read More