Honda By The Numbers

Value Proposition, Part 3: Let’s see how Honda’s obsession with metrics is reflected in an effective mission statement — and how superior performance results.

By Ned Hill, A One-Handed Economist, and Professor of Public Administration and City & Regional Planning at The Ohio State University’s John Glenn College of Public Affairs, powered by The MPI Group

Honda has always been known for its precise management style; in fact, you could say they literally do everything by the numbers:  The 3 Joys, the 3 Fundamental Beliefs, the 5 Management Policies, and the 5 Components of Racing Spirit, to mention just a few. Let’s see how Honda’s obsession with metrics is reflected in an effective mission statement — and how superior performance results.
 
Honda’s official name is Honda Motor Car Company, honoring its roots and largest product group. But that moniker doesn’t really describe the company; Honda is a global manufacturing organization that produces and sells far more than automobiles:

• The company’s motorcycles and scooters are globally competitive, selling more than a quarter billion since 1948.
• Honda Jet in North Carolina delivered its first plane in late 2015, using an engine developed with GE Aviation.
• The power-equipment group produces general-purpose engines, generators, boat engines, lawnmowers, and yard equipment. This division is also moving into household natural-gas-powered cogeneration, and the company as a whole is a leader in fuel cells.
• Honda is also developing a presence in industrial and mobility robotics.

All in all, it’s worth asking, as we consider mission and values: Is there something that ties this company together, or is it just another industrial conglomerate linked by shared financials?  More philosophically: How does Honda identify value propositions for customers and owners across its broad platform of products? What is the firm’s corporate connective tissue and source of competitive advantage?
 
I’d suggest that two competencies unite Honda:

• The first competency is technical and product-oriented; common to all of Honda’s products and divisions are engines and propulsion systems.  These are present in each of its product lines, and serve as technical sources of competitive advantage.
• The second competency and source of competitive advantage is the company’s culture. 

The Seven Tests of Mission Relevance and Effectiveness

For any company, seven statements provide guiderails to its current operations and a path to its future:

1. Statement of purpose explaining why a company exists.
2. Statement of the company’s competitive advantage and core competencies.
3. Value Proposition for customers.
4. Value Proposition for owners.
5. Vision statement that frames the company’s future direction.
6. Values and ethics statement that defines the company’s culture, describes the organization as a place to work, and is directed at employees.
7. Strategy proposition, founded upon the value propositions, that ties together the vision of the future with sources of competitive advantage and the values of the workplace.

I’ll rate each component of Honda’s culture-setting statements with a ranking from 1 (low) to 5 (high) of the company’s white coveralls (all associates wear them, for anti-utilitarian (dirt shows easily, emphasizing a clean work environment) and egalitarian (everybody looks equal) purposes).
 
Let’s go through them step by step.
 
Test One: The Statement of Purpose
 
The statement of purpose should explain the reason why a company exists. To find Honda’s statement of purpose, we have to draw from three of its cultural documents.
 
First of all, the foundation of Honda’s culture is its statement of philosophy[1]:

"Driven by its dreams and reflecting its values, Honda will continue taking on challenges to share joys and excitement with customers and communities around the world to strive to become a company society wants to exist."
 
Honda’s overarching philosophy recognizes that its survival depends on customers who value its products and communities that value its locations and associated jobs. The philosophy is not tactical, was not developed by marketing, and is timeless. As such, it is partially a statement of purpose.

The company’s mission statement is global, reflecting the realities of the company’s footprint, and focuses on providing value to its customers:
 

"Maintaining a global viewpoint, we are dedicated to supplying products of the highest quality, yet at a reasonable price for worldwide customer satisfaction."

 
APPLAUSE!  This mission statement is a value proposition for customers.
 
Lastly, the outward-facing messages of Honda’s philosophy and mission are implemented by The Three Joys. The Three Joys of buying, selling, and creating are corporate norms; all are part of the company’s value proposition to its customers. [The emphasis in this section is mine].

1. The joy of buying is “achieved through providing products and services that exceed the needs and expectations of each customer.”
2. The joy of selling is the reward from selling and servicing products and from developing “relationships with a customer based on mutual trust.” In Honda’s vision, selling links the company’s employees, dealers, and distributors together with their shared customers.
3. The joy of creating occurs when Honda’s associates and suppliers are involved in the design, development, engineering and manufacturing of Honda products that “exceed expectations [of the customer].” Then “we experience pride in a job well done.”

APPLAUSE again! The Three Joys provide a set of norms that implement Honda's mission statement and recognize that the corporation’s future is rooted in business practices. No social workers or frustrated marketers were involved in the mission’s creation.
 
Honda’s philosophy — combined with its mission statement and operationalized by the Three Joys — satisfies the first and third of the seven statements of purpose and value propositions. Give them four pairs of Honda white coveralls for my first criterion on the purpose of the company.
       
 
Test Two: The Statement of Competitive Advantage
 
My second criterion is a statement of competitive advantage, and you cannot find an explicit statement. Perhaps making such a statement is too bold and boastful for the company. Instead, the company’s source of competitive advantage is evident in its product lines and dependence on applied research. Honda’s competitive advantage rests in its research expertise in engine and propulsion systems and the development of products around its research.  
 
An example comes from one of the company’s newest product lines, Honda Aircraft Company. This business unit is the outcome of a 30-year effort to create a disruptive light passenger jet, and it demonstrates the connection between the company’s guiding philosophy and its product development. Michimasa Fujino, an engineer who was part of the original research team in the mid-1980s, is now the President and CEO of the business unit. He helped the investment survive technical and economic setbacks by tying the project to the company’s efforts to rekindle innovation, or to dream. The division exists because of the initiative and skill of Fujino, and it survives because of the strategic support of the company, especially through the Great Recession and the crash of the private aircraft market. “A company has to have longevity,” he said of his strategic mandate. “We look at 20 years or even 50 years of Honda’s growth in the long term. In order to have that kind of longevity, we have to invest [in] our future.”
 
Honda earns five coveralls for meeting the second criterion through its actions and investments; not through its words.
         
 
Test Three: The Value Proposition for Customers
 
Couple the mission statement with the Three Joys and a clear value proposition is made to customers:  Providing products and services that exceed the needs and expectations of each customer at reasonable prices that generate worldwide customer satisfaction. Five white coveralls on Honda’s ability to present a value proposition to its customers, which is the third test.
         
 
Test Four: The Value Proposition for Owners
 
There is no explicit statement about the value proposition that Honda offers to its owners. This is left to its direct communications with shareholders.[2] However, the awarding of coveralls comes later, because Honda hints at that value proposition in its statements.
 
What is the company’s vision for its future? It is not a specific list of products, technologies or investments. Instead, it is timeless guidance for management and investors in its five Management Policies, which are a mix of Eastern and Western value statements:

1. Proceed always with ambition and youthfulness.
2. Respect sound theory, develop fresh ideas, and make the most effective use of time.
3. Enjoy work and encourage open communications.
4. Strive constantly for a harmonious flow of work.
5. Be mindful of the value of research and endeavor.

The management policies are a mixture of guidance on how to perform today’s job by supporting open communications and promoting a harmonious flow of work, and of paying attention to tomorrow’s job. Tomorrow’s job is to be approached with “ambition and youthfulness” and based on research, development, and risk-taking: “Respect sound theory, develop fresh ideas” and “Be mindful of the value of research and endeavor.” The emphasis on tomorrow’s job is reinforced by the joy of creating.
 
While the Management Policies’ language is not familiar to a North American, its intent is pitch-perfect. It addresses the accomplishment of today’s job in the third and fourth precepts—encouraging a harmonious workplace based on open communications. This is part of a values and ethics promise to Honda’s employees.
 
The other management policies are about tomorrow’s job: Be ambitious and develop new ideas that rest on research and risk-taking. Honda expects itself to be an innovation company.  I award three coveralls on the fourth criterion of making a value proposition to ownership because Honda only hints that it is a company built for the long run; it is not solely focused on next quarter’s return.[3]
     
 
Test Five: The Vision Statement
 
The fifth test is explicitly about the future orientation of a company. In Honda’s case, the foundation comes from three of the Management Policies and the tactics come from a set of principles closely associated what the company’s founder, Mr. Soichiro Honda, called The Racing Spirit.
 
The Racing Spirit is directly connected to Mr. Honda’s early experience in motorcycle racing. He observed that passion is part of every competitive racing team and he wanted that same passion to be at the heart of his company. There are five components to the Racing Spirit:

1. Seek the challenge: Seeking competition improves the performance of both individuals and the company.
2. Be ready on time: All races have a starting time—be ready before the gun goes off.
3. Teamwork: Races are won by teams, not just the driver. Honda defines this as togetherness: the driver, staff, and machine are all vitally important.
4. Quick response: Be ready to solve unpredictable problems at all times.
5. Winner takes all: The only goal is winning.

The future orientation of the company begins with seeking the Racing Spirit’s challenge, followed by the Management Policies of ambition, respecting sound theory and fresh ideas, coupled with respect for research. All of this is powered by the dreams that are mentioned in the company’s overarching philosophy.  Five overalls for the fifth criterion.
         
 
Test Six: The Values and Ethics Statement
 
The sixth test focuses on the company’s workplace values and business ethics. Honda’s Fundamental Beliefs add to the company’s Management Policies that relate to its workforce. The Beliefs are a trinity of statements about the company’s relationships with its employees. Honda states that these three norms sum to respect for individuals:

• Initiative to act is encouraged, along with taking responsibility for the results of those actions.
• Equality is defined as recognizing and respecting individual differences and rights to opportunity.
• Trust is action-based: “helping out where others are deficient, accepting help where we are deficient, sharing our knowledge, and making a sincere effort to fulfill our responsibilities.”

Honda values initiative, ambition, equality, and trust in a harmonious workplace built around open communications. Five coveralls awarded for meeting the sixth criterion on values and ethics.
         
 
Test Seven: The Strategy Proposition
 
A cornerstone of Honda’s corporate culture is a commitment to continuous improvement and lean operations. Yet, this is not directly reflected in the company’s philosophical statements.  The Management Policy supports a “harmonious flow of work,” making effective use of time, along with a fundamental belief in each associate taking responsibility for their actions. These are all elements of lean production.
 
How well does Honda do in building a useful strategy proposition that is supported by a strong set of management values? This is the last, and summative measure, of the seven criteria I proposed in the first post in this series. Honda’s Philosophy, The Three Joys, the Fundamental Beliefs and The Racing Spirit, are all guiding principles that are all closely associated with Mr. Honda. They are critical components of what could be called the company’s origin story or foundation myth, and have been used when the company appeared to have lost its way. Mr. Honda built his company around an enduring strategy proposition—the racing spirit. It is only fitting to drape this criterion with four and a half pairs of Honda’s enduring white coveralls. After all, there is always room for improvement.
      
 
OK, But Why the White Coveralls?
 
Why the white coveralls? They are part of the company’s culture and derive from its fundamental beliefs about equality. Honda does not have reserved parking, its employees are called associates, and all workers — even its CEO, research and development associates, and its accountants — wear white coveralls with covered buttons. This was a shock to US workers when Honda Americas Manufacturing started production.
 
Honda offers three explanations for the tradition:

• White jumpsuits make physical statements about the work environment, modern manufacturing, and the quality of the finished product. White uniforms stain and easily show dirt. They serve as a check on Honda’s belief that “good products come from clean workplaces.”
• They are symbols about the manufacturing work environment at Honda. The covered buttons prevent scratches on the finish of the products — and highlight the importance of detail in quality.
• Finally, the uniform is a statement about equality and team. Honda states that the white outfit symbolizes the equality of all at Honda in pursuit of the company’s goals.[4]

When Honda opened its U.S. manufacturing operations in Marysville, Ohio in the 1980s, the jumpsuit and lack of managerial perks made one other statement to potential workers: Honda was not the same as a US-headquartered car company. At the time, this was a very good thing — though others have since learned from Honda’s example.

See more of Ned’s work — including Part 1 and Part 2 of the Value Proposition series — at his blog, A One-Handed Economist.

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