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The Honda Effect

The Many Faces of Honda
Richard P. Rumelt
July 10, 1995
There is something special about the Honda Motor Company. Like General
Motors, IBM, and General Electric, this company has joined the elite club of firms
that are used, or have been used, as exemplars of successful business strategy.
General Motors' system of decentralized implementation of a centrally directed
coherent product policy (1921-1980) was carefully studied by several generations of
business-school students. IBM's commitment to a common operating system for all
its computing platforms and its apparent ability to control the evolving
hardware/software standards for the industry was source material for thousands of
lectures on effective competitive strategy (1960-1984). And General Electric (1965-
1980) was the central source for the "strategic management" concepts central to the
planning style of the early 1980s-the PIMS-based relationship between market share
and return, the use of a two-dimensional grid for allotting cash-flow and growth goals
to business units, and the full delegation of strategy-making to relatively low-level
"strategic business units."
But what is special about Honda is that it has served and continues to serve as the
exemplar for three very different views of strategy:
• The first is the BCG Report [1975] story of Honda's cost advantage,
developed (the story goes) by the successful exploitation of scale and
learning, and of the "segment retreat" response of British and American
competitors. Anyone who received an MBA between 1979 and 1985 was
almost certainly exposed to this version of history.
• The second, explicated by Pascale [1984], offers a revisionist account of
Honda's motorcycle success.' According to Pascale's interview with six
Honda executives, the company's early scale in Japan came from its having
a better product, flowing from design skills. Furthermore, Honda did not
"target" specific market segments in the U.S., but rather showed an...