Annelies: Frugal management and a focus on gas-sippershave served the Japanese carmaker well in the recession

Frugal management and a focus on gas-sippershave served the Japanese carmaker well in the recession.

Summary

Ito Takanobu became Honda Motor's CEO in June. Before he was already working for the company but in the department of motorbikes.

The man is a frugal manager. He comes to work on his motorbike, he works from a plain wooden desk in a room with nearly a dozen other executives. Many management meetings are held nearby at a small round table with four stools.

That kind of frugality has helped Honda in the recent economic crisis. When we compare the financial results of Honda with Toyota or Nissan, than Honda is better off.

It helps that Honda has the right product mix for the times. With its lineup of gas-sippers, it has benefited from U.S. drivers. They have given up the big SUVs in favor of compacts. And Honda is the world's No. 1 motorcycle maker. Motorbike sales are likely to account for half of the operating profit this year. That is partly due to Honda’s success in the developing countries. There, people buy more and more motorbikes.

Honda's recent strength is also due to its culture. The company has a tradition in quick thinking, conservative investments, and a down to earth attitude.

A few years ago Honda managers decided already not to invest in building big pickups. Instead, Honda increased its profits by doing what it does best: building small and midsize vehicles. While bigger cars typically make more money, Honda finds economies by concentrating on four key models.

Another differentiating characteristic is that Honda is relatively unhierarchical and forgoes many of the trappings of corporate success. Most top executives, including Ito, are engineers and seem more energized talking about technology than discussing finance.

Ito Takanobu states that when the economic crisis started, Honda was quick in taking decisions:
· Honda delayed construction of two factories in Japan and postponed expansion of plants in India and Turkey.
· A plan to launch a new sports car was canceled.
· In January all Honda directors took a 10% pay cut and saw bonuses slashed.
· Honda pulled out the Formula One circuit in December.

An other advantage for Honda is that its North American factories make 80% of the cars it sells there.

Honda is criticized for abandoning flashy models, but Ito says Honda will not develop new cars unless they are environmentally sound.

My opinion

I think that Honda has taken the right measures to face the economic crisis. They were conservative in their investments and they gave up making the big SUV cars. Also, I think that Honda is concerned with the environment. As I just said, they gave up making the SUV’s. These cars consume a lot of fuel. Also, the new CEO has said that Honda will not produce new flashy models unless they are economically sound.

What I especially like about the new CEO is that he is a modest, simple man. He comes to work with his motorbike, he has a simple desk and he organizes his meetings at a small table with four stools. If you compare this with the luxurious meeting halls and offices of many CEO’s in the financial sector, the contrast is very large.

Another thing I appreciate is Honda’s culture. They are very down to earth, unhierarchical and many top executives are more interested in technology than discussing finance. I must say that I have more faith in a company were managers are more interested in the products they make than in the profits they can possibly make.

Source: http://www.businessweek.com/magazine/content/09_42/b4151057071523.htm?chan=magazine+channel_what%27s+next

By Annelies Devos