Honda’s global strategy? Go local.

Wow, excellent read.

Soichiro Honda(right), founder of the Honda Motor Company, laughs after Chrysler Motor Company Chairman Bennett Bidwell (not pictured) told Honda that he would have less gray hairs if he had not started tinkering with motorcycles, and not threatening to become the third largest automobile company in1989. Honda was a perfectionist who embraced mistakes as a way to learn and improve. (Blake J. Discher/ASSOCIATED PRESS)

by Kelly Johnson of www.washingtonpost.com

When financial journalist Jeffrey Rothfeder set out to understand why globalization has failed, he got pulled into the story of Honda, a company that has thrived as a multinational. In more than 60 years in business, Honda has never lost money. Its profit margins are the highest in the industry and its factories among the most productive. Rothfeder talked with The Washington Post about “Driving Honda,” in which he explores the enduring culture established by company founder Soichiro Honda, a perfectionist who embraced mistakes as a way to learn and improve. He also goes inside Honda’s plant in Lincoln, Ala., a model of flexible manufacturing. The following was edited for length and clarity.
 

How did this book come about?
 

I didn’t think I’d be writing about Honda or even a specific company. What interested me more was the issue of why globalization is failing, because for two decades now it’s been the guiding principle that runs U.S. economic policy — that there is going to be free trade and we’ll lose the borders and there’s no difference between General Electric here and General Electric in China. And essentially globalization was going to lift all boats economically.

But it isn’t working out the way people had hoped. Most multinational companies do not make money in their globalized operations. Classically, General Electric will say that they make more than 50 percent of their revenue outside the U.S., but they are losing money in many parts of the world.

Riding on a Honda, Brazilian soccer king Pele poses with Soichiro Honda during a press conference in Tokyo on Jan. 20, 1976. (K. Mori/AP)

So I was wondering, what would it take to make a successful multinational? I was also interested in the auto industry because it is such a global industry.

Why Honda?
 

Because it is one of the few multinational companies that has succeeded at globalization. Their profit margins are high in the auto industry. Almost everywhere they go — over 5 percent profit margins. In most markets, they consistently are in the top 10 of specific models that sell. They’ve never lost money. They’ve been profitable every year. And they’ve been around since 1949, 1950. And it’s a company that really does see the world as its market and thinks very hard about what it takes to be successful at that.

Everything it does — from corporate culture to its operational principles to the way it globalizes — was different from any other company I’ve ever looked at.

Tell us about Soichiro Honda, the founder of the company.

In “Driving Honda,” financial journalist Jeffrey Rothfeder explores the enduring culture established by company founder Soichiro Honda. (Courtesy of Penguin/Courtesy of Penguin)

You cannot look far into the company without meeting Soichiro Honda. He died in the early ’90s. He was so colorful. He emblemizes what the company is, and the company emblemizes what he was.

He was one of the world’s greatest engineers. And yet he never graduated college. He believed that hands-on work as an engineer is what it takes to be a great manufacturer.

When he was not even 10 years old, a car came through his hometown in Japan — a Model T. They’d never seen a car before. He talked about how the car dripped oil as it came through town. And all the kids were chasing it. His first reaction was to bend down and smell the oil because there was something about it that intrigued him. He tinkered with bicycles. His father was a bicycle repairman. But this was real heavy metal.

That moment changed his life. He knew he wanted to manufacture big items that used oil, that required heavy machinery and that provided mobility. He was amazed at seeing this car ride through town effortlessly.
Within 20 years, he started to make pistons for Toyota. He invented them.

He created one of Honda’s first great principles. It is “to be there.” Whatever you’re going to design or develop, they call it sangen shugi, you have to be there on the ground. You have to know how are things made from the moment they are a slab of metal to when they come out as a piston. How do people make it?

How does the car use it? What are some of the distinctions you can make for it? All of that can only be determined by asking the right questions and being curious and observant. And that’s one of the precepts of Honda Motor.

Soichiro was a tempestuous man. He was a perfectionist. Yet he understood — because he watched the way factories operated and didn’t just learn about it in school — that the process was messy and that something was bound to go wrong.

Honda Motors stands out in the same way because it reflects him. There’s a real cult of personality around him that exists even though he’s been gone 20 years.

So all of that makes me think of another famed perfectionist, Steve Jobs. I wonder if Soichiro Honda had the same eye for design as being core to innovation? Do you see any comparisons between the two?

 

Honda and Jobs — if you worked for them, you would say that both were hard-charging people, critical of mistakes, perfectionist. But really that whole design aesthetic, it’s interesting when you see that in a technologist. If you would, say, compare Jobs and Bill Gates, certainly the way one views Microsoft is not as a great design firm. But Apple, the design is really where the innovation is.

Soichiro Honda had all those same traits. He would say that if you’re to sell products that people want to buy they have to be beautiful, products that people enjoy looking at and enjoy using.

I uncovered a great set of writings in which Soichiro Honda talked about how he views design. One thing I loved was that he would visit Buddhist temples to get the spirit and essence of natural design to put into his machines. In the ’50s, when he was still just making motorcycles, he had gone to a temple, and looking at the statue of the Buddha, he saw that the line from the eyebrow to the bridge of the nose was beautiful — one he said does not exist anyplace else. And so he designed the fuel tank for his motorcycle to have that line.

Probably none of the users of the motorcycles know that. As with anything else in the design aesthetic, the best designs are the unobtrusive designs. He really got that.

For such a perfectionist, he seemed comfortable with and even embraced mistakes. I guess this speaks to the paradox you just mentioned.

 

Soichiro didn’t mind mistakes, if you learned from them. He had no patience for people who made mistakes and hadn’t been there and did it in a lazy way by not going to the site.

Soichiro entered Formula One races. Honda the company and Honda the man believed that racing for engineers is the greatest experimental lab because you’re trying to push these machines further and further and you really get a chance to experiment on what you’re making.

One of the early Formula Ones, Honda was embarrassed because the car they put out went up in flames. It turned out, when Soichiro investigated it, that the pistons had caught on fire. The pistons were not built for the heat that they were going to take on a race course.

So he went back to the man who designed it and interviewed him. This guy had never tested these pistons, had never talked to race car engineers, never been on the ground to test pistons in the conditions they would, never even talked to race car drivers to find out how the car felt. He didn’t go to the spot, as Honda would put it. That kind of intellectual or design laziness really bothered him. And he embarrassed this man completely. He made him go around and apologize to everyone in the company one after another, holding the burnt piston.

Now this man, however, also went on to design the next year’s cars, and those cars came in first place. And this man became head of Honda in North America. So Honda could be hard on you. But he also felt if you learned from it, you could be the next president at a unit of his company.

What is waigaya? And can you talk about the role of argument at Honda.

 

Honda believed that you have to argue all the time. You have to see both sides of every issue. Most companies have a difficult time with this. Even a company like Toyota, which famously talks about continuous improvement and that workers should be empowered to say, “This isn’t working right, let’s fix it.” While Toyota does that, it’s not so deeply ingrained in the company that everybody does that.

These argumental discussions, which go on at every level of the operation, from the assembly line to the CEO’s office, is what Honda calls waigaya, which is a word they made up. Which in English would be “blah blah blah.” It’s the sound of people chattering. These waigaya can last two minutes or two years.

I’ve been at factories where suddenly you see a group of workers standing together and not so much yelling but talking over each other. You ask what’s going on. They say, “The dashboard isn’t fitting right,” so they started a waigaya. They argue over every little piece of why it’s not fitting right, what they’ve seen in other places, what they could do better. Even the CEO doesn’t make decisions without something like that happening.

Is there an example of how that’s shaped a decision?

 

When Honda first decided to come make automobiles in America, the CEO had to decide what he wanted to do. This was the early ’80s. And everything dictated against it: They weren’t going to make money for a few years, they didn’t understand the American market, they’d never manufactured outside of Japan. Most other companies would have said, “We’re not going to do it.” In fact, the first foreign company that tried to make cars in America was Volkswagen a few years before. They failed. They lost so much money they just gave up on it.

So for Honda, it was not an easy decision. And one that, as the CEO said, he was inclined to say no to. He kept asking people, “Why should I do it?” These waigayas would occur. Really spontaneous, someone would jump in and say, “Hey, I thought of another reason we shouldn’t do that.” He focused people on, “Just give me the positive reasons. The negative are so overwhelming.”

In the end, he felt the enthusiasm for doing it was strong in the company. By looking at the opposite side — they’re a dialectical company, everything has two sides to it — they’ve made some of their best decisions. Honda became the first Japanese company to make cars in America and beat Toyota by 10 years.

What do you think was his most enduring legacy?​

 

I believe that you need to have a culture of risk-taking and culture of paradox to do what Honda does so well.

So today the thing that stands out is that Honda can make any number of cars on the same assembly line, one after another. They can have a Civic and then an Odyssey or Pilot follow on the same assembly line. No one else has a flexible assembly line like that.

How did that come to be?

 

Honda is a decentralized operation. You have to be willing to let the guy who’s building the factory in the United States dictate to Japan that this is how we’re going to build the factory.

So every time Honda does something, like build a factory, they’re building from scratch. Again, it’s on the ground: Go look at what we’ve been doing. Learn from it. Then build something else. Almost by definition, if you follow that approach you’re going to have a much more flexible factory each time you build one.

I talk in the book about the Lincoln, Ala., plant, one of their newest plants. That is one of the most productive and flexible auto plants in the world. Uniquely, instead of setting up assembly line stations, where one person puts in the dashboard, the next station will put the radios in, and the next one will put the steering wheel in, at Honda they have zones of workers, so the zones put in five or six things. Those zones are also required to look at quality control.

Also, every car can be built to zone specifications. Whether it’s a Civic that’s come down the line or an Accord, if you’re putting in a dashboard, it’s going to be the same process. So workers are agnostic about what car is there.

Are the plants especially high-tech?

 

Because of the flexibility, they are one of the least automated factories. Because they need human beings to work on these cars. If you’re going to have a robot put in a dashboard that has differences from one car to the next, you have to change the arms of the robot for every car. That can take hours.

Some would say that Honda not being automated and having more workers would hurt productivity. But it just shows what they make up for in flexibility. Again, their profit margins are better than anyone in the industry.

They do automate things once they feel like it has become a commodity. But once you automate, you can never improve anymore. A robot will never tell you, “Hey, I could do this better.” You’re limited by the technology, ironically.

What is localization? And to what end does Honda use it?

That’s really the globalization story, in terms of Honda. Most companies, when they globalize, will set up operations in other countries. But they cannot decentralize their most critical operations. Where in most cases R&D, design, engineering, all of those critical aspects of the vehicles are still determined at the home office.

Honda sets up an autonomous subsidiary operation wherever it goes. So, Honda China, Honda of North America, Honda Europe are each independent. They’re run by local people, so Honda China is led by Chinese people. They get input from Japan. Quickly, they’re running on their own and developing cars and designs for the local market.

They once found that people in Saudi Arabia are very concerned about the cleanliness of the cars on the outside because of the environment, with so much sand. When they started selling cars there, they got all these complaints that this car doesn’t work. It’s not as promised. The dealers thought it was mechanical. It turned out that the real complaint was that it gets dirty. So they had to create ways that it kicks up and throws off dirt to fix it for that market.

Each market determines for itself which cars it’s going to sell, which new designs they want to make. How they’re going to run their operations. How they’re going to build their factories. To the point that Honda becomes a local company wherever it goes.

What does Honda’s research and development strategy teach us?

 

Around every major factory they have a research and development team and an engineering team. So that if they need something designed, or if they make a new model, and the factory is beginning to produce it, the R&D team is right there through the whole process of the production of the car.

In most companies, R&D designs the car and it gets passed to manufacturing and R&D is out of the process.

Supply chain issues have plagued the Big Three. Honda seems to have different relationship with suppliers. How would you describe that?

Honda never owned its suppliers.

Honda demands that its suppliers reflect all the risk-taking, all the paradox, all of the mistake-making of its culture. The continuous improvement that they demand of every worker, they want their factories and suppliers to do the same.

Unlike other companies where the metric is: Can they cut costs on a component every year that they make it? Honda’s metrics are more based on quality, on improvement, what changes have they made, how have they shaped corporate culture?

Honda doesn’t want their suppliers to be exclusive to Honda. That would only create a sense of “give Honda what it wants.” What Honda wants instead is to get new ideas all the time — not the ideas they know about but the ideas they haven’t thought about yet.

What will it take to revive manufacturing in the West? Is Honda showing us?

 

That’s a tall order. Honda, I think, points to a lot of the ways. Young engineers all want to go work in Silicon Valley. None of them want to work in a Honda plant in Alabama, frankly. Honda’s done a lot more with that by putting R&D at the factory, engineering at the factory, so that the great next generation of designers will see that this is the place they want to be. Working in an auto factory can be cool. It could be just as much fun as designing an iPod.

Manufacturers need to stop disdaining their own business and pretending like you can just ship it off. We need as a society to talk about manufacturing as something of real value. We certainly did that in the ’50s and ’60s. That was the real growth of the middle class, through manufacturing.

So you have to rebuild its image. Bring plants back here. Be innovative.

The government’s role in all this doesn’t have to be social or economic engineering. It’s more about the R&D and basic R&D the government is supporting.

Finally, the tax structure needs to be changed in a way that encourages money coming back here, encourages setting up businesses, discourages outsourcing and encourages in-shoring. Like Honda, you can be a local company wherever you go. And you don’t have to feel like you’re playing multinational games with your money wherever you go.

Source;
http://www.washingtonpost.com/business/how-honda-makes-globalization-work/2014/08/07/b84f16be-1cd0-11e4-ab7b-696c295ddfd1_story.html?tid=hpModule_a2e19bf4-86a3-11e2-9d71-f0feafdd1394&hpid=z18