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Honda RBV Case Analysis

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Honda RBV Case Analysis 2013: This is the final presentation prepared after a group collaboratation in OU MBA Strategy course. The case was asking us to analyse Honda's strategy past, present and future utilising the RBV of the firm and attempt to identify Honda's strengths and weaknesses and the resources Honda possess, while evaluating Honda's strategy. We analysed and evaluated Honda's resources and capabilities and matched weaknesses, strengths and oportunities to industry key success factors for the period 2007-2013. A brief analysis of automobile industry market trands is also included.

Published in: Business, Automotive
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Honda RBV Case Analysis

  1. 1. +5% +39% +18% +8% +12% +40% +1% +19% Euromonitor Research 2012-2020, accessed September 1st 2013 2012-2020 This analysis was prepared by Urania Coumis. It is intended as a basis for class discussion and not as an illustration of good and bad practice. © Urania Coumis 2013. Not to be reproduced without permission.
  2. 2. Somboon Advance Technology Pcl (2013) ‘Car Statistics for Japan & Thailand 2013-2018’, accessed via ReportLinker September 7th 2013 This analysis was prepared by Urania Coumis. It is intended as a basis for class discussion and not as an illustration of good and bad practice. © Urania Coumis 2013. Not to be reproduced without permission.
  3. 3. IHS Forum (2013) ‘Automotive Outlook & Review: New Signals of Change’, accessed via ReportLinker September 7th 2013 This analysis was prepared by Urania Coumis. It is intended as a basis for class discussion and not as an illustration of good and bad practice. © Urania Coumis 2013. Not to be reproduced without permission.
  4. 4. 2012 Figures Growth: +8.9% Market Value: $1563,9B Cars Segment: 55.9% , MarketLine (2013) ‘Honda SWOT 2013’, accessed via EBSCO 25th August 2013 This analysis was prepared by Urania Coumis. It is intended as a basis for class discussion and not as an illustration of good and bad practice. © Urania Coumis 2013. Not to be reproduced without permission.
  5. 5. LMC Automotive (2013) , accessed via ReportLinker September 1st 2013 This analysis was prepared by Urania Coumis. It is intended as a basis for class discussion and not as an illustration of good and bad practice. © Urania Coumis 2013. Not to be reproduced without permission.
  6. 6. Key Auto Market Trends 2013-2018 KPMG (2013) ‘Global Automotive Executive Survey 2013’ • Consumers will base purchasing decision on fuel efficiency, they will prefer plug- in hybrids – City dwellers: wider mobility concept, alternatives to car ownership, added value services & design – BRICS go for SUVs & same levels quality, safety & reliability as TRIAD – TRIAD consumers prefer basic cars • R&D: ICE downsizing, plug-in hybrids; 18% do not know how budget is allocated • Rising competition from ASPAC manufacturers, VW/Toyota market leaders – BRICS manufacturers: best growth areas South East Asia & Eastern Europe – BRICS manufacturers: best hubs Mexico & Eastern Europe – BRICS will be major exporters so trade barriers for Honda will rise • Future Success: New product development, corporate JVs, supplier expanding value chains & diversification; vehicle manufacturing • Suppliers: online dealership on the rise, multi-brand dealership, financing key This analysis was prepared by Urania Coumis. It is intended as a basis for class discussion and not as an illustration of good and bad practice. © Urania Coumis 2013. Not to be reproduced without permission.
  7. 7. Example: Rising Demand of Plug-in Hybrids in US LMC Automotive (2013) , accessed via ReportLinker September 1st 2013 This analysis was prepared by Urania Coumis. It is intended as a basis for class discussion and not as an illustration of good and bad practice. © Urania Coumis 2013. Not to be reproduced without permission.
  8. 8. Example: Honda’s Response LMC Automotive (2013) , accessed via ReportLinker September 1st 2013 This analysis was prepared by Urania Coumis. It is intended as a basis for class discussion and not as an illustration of good and bad practice. © Urania Coumis 2013. Not to be reproduced without permission.
  9. 9. Honda Motor Co.: The Firm • Founded in 1948 in Tokyo, Japan • ‘The world’s largest motorcycle manufacturer and one of the leading automakers. The company develops, manufactures and markets motorcycles, automobiles and power products’ (Datamonitor, 2012) • An exemplar of business strategy for the: – Cost-based advantage developed from scale & learning to occupy UK’s motorcycle segment retreat – Competitive product it developed to sell successfully in US, based on superior design & learning from mistakes; ‘Honda Effect’ [1974-1990] – Ability to turn emergent to deliberate strategies based on internal strengths of the firm [1974-mid 90s] • Defines itself around its expertise in developing and manufacturing engines • As of March 31st 2013, 369 subsidiaries & 86 affiliates • In this report, we focus on Honda Automobile business division Honda Annual Report, 2013; Datamonitor, 2012; BCG Report, 1975; Mintzberg, 1985; Hamel & Prahalad, 1990; Rumelt, 1995; B835 DS2 Group 1 wiki Resources Section This analysis was prepared by Urania Coumis. It is intended as a basis for class discussion and not as an illustration of good and bad practice. © Urania Coumis 2013. Not to be reproduced without permission.
  10. 10. Honda Motor Co.: R&D Milestones Source: Grant (2013) Contemporary Strategy Analysis, Chapter 5, p. 114 This analysis was prepared by Urania Coumis. It is intended as a basis for class discussion and not as an illustration of good and bad practice. © Urania Coumis 2013. Not to be reproduced without permission.
  11. 11. Honda Automobile Sales 2007-2013 Honda Annual Reports 2007-2013, Core Business Light Vehicle Sales; Honda SWOTs 2010-2013; B835 DS2 Group 1 wiki Resources Section 0 1000 2000 3000 4000 5000 6000 7000 8000 9000 10000 OperatingMargin(%) NetSales(000s/$) 2 1 3 4 5 6 7 8 0 -2 2007 2008 2009 2010 2011 2012 2013 Economic Crisis Natural Disasters in Japan This analysis was prepared by Urania Coumis. It is intended as a basis for class discussion and not as an illustration of good and bad practice. © Urania Coumis 2013. Not to be reproduced without permission.
  12. 12. Honda Automobile 2007-2013: Expanding in Asia Japan 19% US 38% Europe 7% Asia 28% Other 8% 2010 74.6% Japan 18% US 49% Europe 9% Asia 17% Other 7% 2007 70% Japan 16% US 47% Europe 10% Asia 19% Other 8% 2008 79.1% Japan 16% US 42% Europe 10% Asia 23% Other 9% 2009 76.7% Japan 17% US 41% Europe 6% Asia 29% Other 7% 2011 74% Japan 19% US 42% Europe 5% Asia 28% Other 6% 2012 73% Japan 17% US 43% Europe 4% Asia 28% Other 8% 2013 78% Honda Annual Reports 2007-2013, Core Business Light Vehicle Unit Sales per Region (in thousands): Asia expanding, US/Europe & Japan shrinking This analysis was prepared by Urania Coumis. It is intended as a basis for class discussion and not as an illustration of good and bad practice. © Urania Coumis 2013. Not to be reproduced without permission.
  13. 13. SWOT Honda 2010-2013 Honda Annual Reports 2010-2013; Datamonitor, 2010-2012; MarketLine 2013; ; B835 DS2 Group 1 wiki Resources Section This analysis was prepared by Urania Coumis. It is intended as a basis for class discussion and not as an illustration of good and bad practice. © Urania Coumis 2013. Not to be reproduced without permission.
  14. 14. Honda: Tangible Resources Resources Key Indicators 2010 2011 2012 2013 Tangible Financial Market Cap B US$ Debt/Equity Free Cash Flow Credit Rating 70.7 0.95 -2.81 A1, stable 78.5 0.92 -1.94 52.6 0.93 -3.17 64.77 0.97 -1.81 Physical Market Values B US$ Age Capital Equipment % Scale of Plants 36.33 55.73 39.78 56.63 41.59 56.23 3,660k 45.06 53.7 Net Worth Balance Sheet Annual Reports 2010-2013 B US$ 99.111 94.872 85.887 84.032 Adapted from Grant, 2010 Ou B835 online material; Honda Annual Reports 2010-2013; Datamonitor, 2010-2012; MarketLine 2013; Moody’s 2013; Ycharts.com for Honda; Stock Analysis on Net for Honda; B835 DS2 Group 1 wiki Tangible Resources Section • International Presence: 369 subsidiaries & 86 affiliates worldwide • 47 manufacturing facilities - valuable, organised • 8 R&D centres – valuable, rare, inimitable, organised • Wide, heterogeneous distribution network , keiretsu operated - valuable, organised • Financial assets - valuable, organised • Operating lease property - valuable, organised • Flexibility in fixed assets: Honda insists this is a competitive advantage fitting VRIO criteria This analysis was prepared by Urania Coumis. It is intended as a basis for class discussion and not as an illustration of good and bad practice. © Urania Coumis 2013. Not to be reproduced without permission.
  15. 15. Patents >17, 600 owned + >13,500 applications pending (Japan) >25,300 owned + >16,200 pending (worldwide) Copyright & Trademarks >50 TMs, many registered designs (WIPOs); 2010 Gold Award for N-series mini vehicle Trade Secrets Extended know-how, secrecy may be the reason why Honda does not share production lines with other manufacturers Technology Innovation Building on core competence of R&D which numbers numerous , key innovations since 1948 and boosting new product development with the view to moving from the ‘middle- class, reliable sedan’ brand image, Formula 1 with McLaren 2014; safety aspect 4/5 scoring R&D Staff as a % total R&D Investment as % Sales Number & Location of R&D Facilities Direct Presence (No of Continents) Brand Value (Interbrand/$m) Brand Value (Brand Finance/$m) Ranking Surveys of corporate reputation 2012 Shareholder Return CSR/Ethics Initiatives Corporate Transparency Index 2012 N/A 2010:5.6%; 2011:5.7%; 2012:6.5%; 2013:6% - traditionally the highest in the market 14 centres in US alone, but opening around the world to merge with regional manufacturing, sales and procurement and reduce risks arising from natural disasters in Japan/Asia Pacific; R&D centres as subsidiaries Asia, Oceania, Europe, North America, South America, Japan, Middle East, Africa, China 2008:19,079; 2010:17,803; 2011:18,506; 2012:19,431; 2013:17,280 – Rank 21 from 7 AA+:16,114, versus Toyota AA+:25,979 and Nissan AA+:17,430 Brand Finance Top 500(100): 53; Fortune 500(100):45, for 2013; Interbrand Japan’s No2; Interbrand Best Global Green Brand No3 for 2013 Barron World’s Most Respected Companies No 34; Customer Service Index Rank No 9 Dividend Yield: 2.14% from 1.91%, highest since 2009 Extensive on Diversity, Environment, Community & Education pillars; CO2/heavy metals/rare & valuable metals reduced; 90% recyclable materials used in cars 1.9/10 with 8% ACP, 50% OT and 0% CBC, 3rd from last of 100 companies* * ACP = anti-corruption programs, OT = organizational transparency, CBC= country-by-country reporting Honda: Intangible Resources Adapted from Grant, 2010 OU B835 online material ; Interbrand Top100, 2012: Honda; Interbrand Sector Overviews: Automotive Industry 2012; Honda This analysis was prepared by Urania Coumis. It is intended as a basis for class discussion and not as an illustration of good and bad practice. © Urania Coumis 2013. Not to be reproduced without permission.
  16. 16. • Trademarks, patents, technology innovation and traditional R&D culture all qualify for VRIO criteria and are potential sources of sustainable competitive advantage • To definitively allocate sustainable advantage designation for any of the above resources, information on how they render value for customer is needed • Honda brand equity could also be a source of competitive advantage despite the erosion of brand strength due to SWOT challenges 2010-2012 • However, marketing has been focused on building Honda image as a technology innovator, so there is room to promote other aspects which could qualify as USPs for specific customer segments, e.g. Chinese & Safety aspect; TRIAD & green technologies, etc. Honda: VRIO for Intangibles Honda Annual Report 2013; DS2 Group 1 wiki Intangible Resources Section This analysis was prepared by Urania Coumis. It is intended as a basis for class discussion and not as an illustration of good and bad practice. © Urania Coumis 2013. Not to be reproduced without permission.
  17. 17. Honda: Human Resources • Honda employs 190,338 worldwide • Honda invests on average at least 2% new hires per year and, from their CSR, appears to place much importance in its employees, compared to other stakeholder groups • Employee creativity, participation and opinion sharing are encouraged through the NH circles to support continuous learning • Rate of employee suggestion implemented: 90% • Highly trained employees may be considered a VRIO asset to Honda, which traditionally promotes from within to senior positions • Strong R&D culture, extensive training throughout and collaborative environment leading to hugely successful learning organization • Good employee relations seem to nurture emergence of an "organizational culture" in line with the corporate culture and that can be considered a resource and when this is not the case, like in 2010-2011, it may lead to R&D void and sluggish cash flows – VRIO • Opportunity for more transparency in diversity, employee disputes and female workforce numbers Honda Annual Report, 2013; Honda 2012 Report; 2012 Transparency in Corporate Reporting; Honda SWOTS 2010-2013; B835 DS2 Group 1 wiki Human Resources Section This analysis was prepared by Urania Coumis. It is intended as a basis for class discussion and not as an illustration of good and bad practice. © Urania Coumis 2013. Not to be reproduced without permission.
  18. 18. Strategic Importance Relative Strength Strategy Implementation Traditionally a strong feature of Honda, leading to new market entry, increased profitability and growth ; ability to merge deliberate with emergent strategies to fulfil organizational goals (10) Although still recovering from crisis and natural disasters and coming second to Toyota in recovery, capability in place as evidenced by 2013 sales (8) Manufacturing Impacts efficiency, quality & flexibility which are critical to cost and customer satisfaction (10) Robust, low cost production, but traditional perception of reliability fraught with quality problems in 2012 & 2013; maybe a suppliers’ problem (4) Design Important, but imitable (6) Less than memorable designs (3) Engineering Key for new product development (9) Green fuel efficiency and flexibility of parts, falling behind with market trends for new technologies (5) New Product Development Regular launches relevant to customer needs (10) Strong but slow new product development, not always bringing in the sales (7) Marketing Media presence, promotion & community building important, but imitable (6) Weak, turning around since 2011; has yet to build strong customer community and strong brand equity (6) Distribution & Sales Critical to customer access & bottom line (9) Keiretsu philosophy with suppliers falling behind to Toyota & Nissan; although network robust, sales could benefit from modern supplier business models (4) Customer Service Impacts brand reputation (8) Not as strong as Toyota’s (6), e.g. weak in exploiting financial services to add value Multidivisional Coordination Critical to successful reinforcement of global presence and further expansion (9) Key weakness since Honda grew larger from 90s onwards, turning around since 2009 restructuring to SED model (6) Honda: Capabilities Adapted from Grant, 2013, pp.134-135; Alex Taylor, 2013; Harvard Business Review on Keiretsu: http://hbswk.hbs.edu/archive/4791.html This analysis was prepared by Urania Coumis. It is intended as a basis for class discussion and not as an illustration of good and bad practice. © Urania Coumis 2013. Not to be reproduced without permission.
  19. 19. 0 0 10 10 RelativeStrength Strategic Importance Superfluous Strengths Key Strengths Key WeaknessesZone of Irrelevance Manufacturing Design Engineering New Product Development Marketing Customer Service Distribution & Sales Multidivisional Coordination Strategy Implementation Interbrand Top100, 2012: Honda; Interbrand Sector Overviews: Automotive Industry 2012; Honda Annual Report 2013; Brand Finance Top500 Honda Capabilities: Key Strengths & Weaknesses This analysis was prepared by Urania Coumis. It is intended as a basis for class discussion and not as an illustration of good and bad practice. © Urania Coumis 2013. Not to be reproduced without permission.
  20. 20. Honda: Capabilities Activity Map ‘Keiretsu’ Model Supplier Business Model Time to market Manufacturing Cost Value- added Services Flexibility in Production Lines Own plants for FIT/Jazz High customer recognition This analysis was prepared by Urania Coumis. It is intended as a basis for class discussion and not as an illustration of good and bad practice. © Urania Coumis 2013. Not to be reproduced without permission.
  21. 21. Automotive Market Trends by 2018 Honda Car Industry Key Success Factors Top 5 purchase criteria are cost of fuel, ease of recharging , driving distance, battery lifecycle and battery management and value added services (financial sevices, MaaS, customer service, fast response to product recalls, financing of e- components) In Europe, 5-door Civic hatchback with newly developed 1.6 liter i-DTEC diesel engine , the lightest in its class; plus financial sevices, MaaS, service and warranty options; should leverage finance services to reap opportunities in BRICS ICE downsizing/hybrids Enhanced vehicle lifespan Joint approaches R&D Management & Funding New urban mobility concepts Added value services Brand Management Plug-in Connectivity Solutions Online services Multi-brand dealerships Emerging market expansion Global footprint/expansion Trade barriers Capacity management Module/platform Strategies Plug-in Hybrids, Non Plug-in hybrids, Battery electric vehicles with extender, Fuel cell electric vehicles and Battery electric vehicles Accord Plug-in Hybrid released boasts the highest power economy rating of any plug-in hybrid in the US market; should also invest in Russia for rising demand in e-mobility Highest expected vehicle demand will be in compact, subcompact and SUV vehicles Falling behind in SUVs and small urban green cars Environmental challenges push for ICE downsizing and e-mobility Lightweight and fuel efficiency technology in place Growing urbanization push for innovative urban car design and MaaS Launch of Nbox+ & N-One mini vehicle models in Japan with Emergency Stop Signal and ‘excellent fuel economy’, lightweight technology in place, limited MaaS Changing Customer Behaviour demand new dealership concepts and financial services; online activity on the rise Falling behind compared to other brands, but released Fit EV for lease sales in US and Japan as an electric vehicle with high power economy, declining relevance of current model may be a source of profitability loss Growth & Globalisation require strong presence in emerging markets and overcapacity Strong presence in China & India. How about Russia? • Existing dealership model irrelevant to future success • Joint Approaches in Manufacturing favoured •R&D budget allocation a challenge for automakers • Community building with customers and brand image are key to successful value- added service strategies Tying Honda Capabilities with Market Trends by 2018 and KSFs KPMG 2013 Report This analysis was prepared by Urania Coumis. It is intended as a basis for class discussion and not as an illustration of good and bad practice. © Urania Coumis 2013. Not to be reproduced without permission.
  22. 22. Example: Honda’s Marketing and Distribution & Sales Capabilities Honda’s strong sales in China can be partly explained by the fact that they have tapped into consumers preferences for safety and comfort. This is a classic example of Honda leveraging distribution and sales with marketing capabilities to solidify their presence in China. BrandZ Top100 for Car Industry, Section on Chinese Consumer preferences This analysis was prepared by Urania Coumis. It is intended as a basis for class discussion and not as an illustration of good and bad practice. © Urania Coumis 2013. Not to be reproduced without permission.
  23. 23. Example: Honda Diverse Supplier Network keiretsu Capability Keiretsu means ‘headless combine’, literally layers of organizations linked with business ties, a characteristic of Japanese automakers. Toyota and Nissan have modernized their keiretsu in the last 10 years, while Honda seems to be falling behind. This is an example of how capabilities may come together in supporting the structure and systems to effect a change that would benefit and strengthen supplier networks according to market demands Harvard Business Review, September 2013 on keiretsu This analysis was prepared by Urania Coumis. It is intended as a basis for class discussion and not as an illustration of good and bad practice. © Urania Coumis 2013. Not to be reproduced without permission.
  24. 24. Example: How is Honda poised to face BRICS competition? Market Insights predict that BRICS manufacturers will be major automobile exporters in the next 3-5 years, from Eastern Europe and Mexico hubs. Honda is strengthening its presence in Mexico by opening a new production plan for FIT/Jazz best selling cars to US, thereby being perfectly poised to face imminent BRICS competition. Honda is leveraging market sensing with distribution & sales and manufacturing capabilities to produce superior offering to customers, thereby preparing to face imminent BRICS competition successfully. KPMG 2013 Report This analysis was prepared by Urania Coumis. It is intended as a basis for class discussion and not as an illustration of good and bad practice. © Urania Coumis 2013. Not to be reproduced without permission.
  25. 25. • Honda has tangible assets deteriorating in value 2010-2013 from 99.111 to 84.032 B US $, including 369 subsidiaries and 86 affiliates worldwide as of March 31 st 2013, with the R&D centres fitting VRIO criteria • Intangible assets including trademarks, patents, technology innovation and traditional R&D culture all qualify for VRIO, but to allocate sustainable advantage designation for any of the above resources, information on how they render value for customer is needed • Human resources include 190,338 employees. Honda places high importance on hiring, training and developing staff in an internal environment that fosters creativity, R&D culture, diversity, inclusion and where the opinion of employees matter. Highly skilled employees are VRIO, while senior managers are promoted from within. HRM results in strong corporate culture and a learning organization • Honda capabilities include Strategy Implementation, Manufacturing, Design, Engineering, New Product Development, Marketing, Distribution & Sales, Customer Service and Multidivisional Coordination • Honda’s key weaknesses include Design, Manufacturing, Distribution & Sales and Engineering • Potential activities rendering sustainable competitive advantage if running efficiently are SED business structure, a strong and diverse supplier network and processes favouring low manufacturing cost and customer service Conclusions This analysis was prepared by Urania Coumis. It is intended as a basis for class discussion and not as an illustration of good and bad practice. © Urania Coumis 2013. Not to be reproduced without permission.
  26. 26. • Honda is matching industry KSFs for medium term by expanding its automobile business and by focusing on new technologies and new product development, but seems to be missing out on flexible manufacturing opportunities via corporate JVs and on modernizing supplier business model. Risk should be assessed on not pursuing the latter 2 strategies • New product development should focus promptly on consumers’ preferences of the markets with the highest demand for automobiles, like e.g. SUVs for China. Capabilities like R&D management and budget control, brand management and leveraging sales networks to effectively gauge consumers’ preferences come into play • There are opportunities to market unused product attributes, like e.g. green technologies, safety and awarded design to specific customer segments. There is room to exploit strong brand for developing customer community further in view of successful value- added strategies. Strategies like these will improve customer satisfaction and loyalty and thus lead to increased profitability Recommendations This analysis was prepared by Urania Coumis. It is intended as a basis for class discussion and not as an illustration of good and bad practice. © Urania Coumis 2013. Not to be reproduced without permission.

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