HONDA DNA

Honda CEO Hiroyuki Yoshino on the philosophy and the future of Honda

The following speech by Yoshino is very interesting and gives a lot of clues about what is Honda and where is Honda going to:

Presentation by Hiroyuki Yoshino, President, Honda Motor Co.
1999 Automotive Management Briefing, August 4

Honda DNA -- Making Small Smart

Thank you, Dave. And good morning ladies and gentlemen.
When I last spoke at this event eight years ago as president of Honda of America Manufacturing in Ohio, I had great practice making speeches in English. When I joined the company in 1988, we had 5,000 associates. When I left four years later, we had 10,000. Because of this growth, I thought it was important to communicate with our workforce as much as possible.

Every New Year, I would address the entire company. This required speeches to nine shifts at four different plants. I would begin at midnight one day, ending at midnight the following day. By the last speech, I didn't even need to look down at the paper – I knew almost every word. I remember that I began by saying "this is my ninth and last speech." And the associates interrupted me with -- applause.

Since I have been back in Japan now for seven years, I can't hope to be quite as effective speaking in English today, but I wanted to be here. When you consider the challenges we face -- communication within one industry can be as important as communicating within one company.

The auto industry continues on a path of tremendous change. The series of mega-mergers have consolidated the industry and, to a degree, elevated the focus on the customer – rather than politics. This is a positive change.

But, today, many see size as the key to survival. They argue that the challenge of global customer satisfaction is a job description for which only large companies need apply. We believe that success in the future has little to do with size. And Honda is totally committed to pursuing our future as an independent company.

So, even as Honda grows larger in sales and in the scope of our operations, we plan to retain the qualities of a small company. We call this strategy "Small Is Smart" because it combines the speed, flexibility and efficiency of a small company, with the essential elements of a large company – global reach and technological strength.

This approach recognizes that for a company the size of Honda to succeed we must set a new standard in these areas, operating as one team on a global basis. And the only way to accomplish this is to share what we call Honda DNA – the same values, experience and strategy – throughout the world.

DNA is the basic building block of life -- a part of every living thing. I believe this includes a living company. It is DNA that, in part, determines basic human behavior. So, a company that has true DNA will have behavior that is consistent and somewhatpredictable throughout the organization.

There are several basic building blocks of Honda DNA that make our behavior unique. And you could say these make up Honda culture.

First is "Respect for the Individual" -- a belief in the unique capabilities of each human being. Based on our understanding that "all engineers are equal in the presence of technology," associates have the freedom to contribute new ideas.

Over the years, the phrase "customer satisfaction" has been reduced to something of a cliche. For Honda, it is the only challenge that matters. We have always been obsessed with advanced technology. But we see the purpose of technology as serving the needs of people, to make their lives better. Thus, the customer is our true obsession – and the foundation for all business decisions.

Seeking out challenges that focus and motivate everyone in the company – what we call The Challenging Spirit – has led to most of Honda's achievements. The willingness to take on challenges such as racing and producing products in America has always helped our company.

What we now call "Glocalization" is the longstanding philosophy to build and develop products in the local markets where they are sold. Today, we have more than 100 plants in 34 countries. This is part of the "universality" of Honda – making products close to the customer. We don't need to merge with anyone to gain factories around the world.

There are more elements of Honda DNA that would take too much time to explain today. But to understand where we will go in the 21st century – and why we believe independence is not only desirable, but necessary – I would like to explain the part we call "Small Is Smart." By analyzing our efforts to become faster, more flexible and more efficient, you will understand Honda's direction.

An important way to understand Honda is to recognizethe great synergy of our automobile, motorcycle and power products businesses. With these three business lines, we earn more than 10 million customers every year. All of these products are not automobiles, but these customers are all Honda customers. And each product is powered by Honda. The experience gained from our non-automotive business – where we generate profits from lower-priced products with shorter life cycles – is where our DNA for speed, efficiency and flexibility first began.

You can see where our motorcycle manufacturing experience shaped our approach to Honda's global manufacturing strategy. We call it a "Small Born" strategy because we start on a smaller scale with a lower investment. Then we expand as local demand increases and as Honda DNA takes root with our new associates. This approach allows Honda to achieve efficiency and profitability -- even at low production volumes.

Conventional wisdom says an auto plant must have a capacity of 200-thousand units to break even. Over the past few years in China, Brazil and Thailand, we established successful auto plants with capacities ranging from 10- to 30,000 units. Each was based on investments that are many times smaller than the traditional industry requirements for a new factory.

And in each case, we first entered the market with motorcycle production that requires only one-tenth the investment of an auto plant. This serves as an effective stepping stone to auto production. If we are successful with motorcycle production we make a profit and move into auto production using the same resources, people, knowledge of the local community, and positive image gained through our motorcycle business.

But I don't want you to think the Small Born concept applies only in developing nations. The plant in Japan where we produce the Acura NSX and the new S2000 sports car is a Small Born Plant – as we produce profitably, at a relatively low volume. The new S2000 will debut in the U.S. this fall -- with an advanced new engine that achieves very high performance, yet is a low emission vehicle. And the S2000 will be sold at a relatively low price. The efficient Takanezawa Plant is the key -- producing just 100 units per day on two shifts, the S2000 line is already profitable after less than six months of production.

Considering the size of the North American market, even the new auto plant that we announced for Alabama is Small Born. A $400 million dollar investment, we will obtain dual capacities of 120,000 vehicles and engines. Through such efficiency, we will replicate our DNA with the local workforce and determine whether market demand warrants an additional investment – all while achieving profitability. That is what we mean by Small Is Smart.

But as I said before, size alone is not the issue. Achieving such high efficiency, while maintaining speed and flexibility is the key to survival in the auto industry. Local market requirements are changing so rapidly all over the world that it is critical that we respond to customer needs and get our ideas to them quickly.

By separating our global business into four regional operations we effectively created four, smaller companies that are closer to the customer. Instead of maintaining strict centralized control in Japan– which would be ineffective if not impossible – each region has the autonomy to determine how to meet the needs of local customers and communities. These regions provide the speed and flexibility to meet changing customer demands and other local challenges.

Just one example of how this strategy works is the creation of a flexible platform to develop six different versions of the '98 Accord. Each different Accord model has a unique size, shape and features designed to meet the needs of a specific market.

Speed also is important. In Japan, just five to six years ago the segment of the market for multi-purpose vehicles -- that we call RVs -- was around 15 to 20 percent. Today, it is nearly 50 percent. Honda has done quite well in this segment because of our ability to get our products to market at the right time. But we have to get faster. Thus, we plan to shorten the time from the design freeze to the start of mass production – getting products to market before customer demands change.

For companies with global product launches, another 'need for speed' is the time it takes to begin mass production in the first market where we produce a product to the startup of production in the last country where it will be made. For the '98 Accord, we set an industry benchmark by launching the U.S. and Japan versions of Accord simultaneously. Honda plants in other markets followed in just a matter of months.

But the information age, too, has made the world a smaller place. When you launch a product in America, customers know about it the same day in every corner of the world. And they are not happy to buy an older model, while the new model is available in the U.S. and Japan. In the future, we plan to introduce such global models within several months – at every plant in the world that will produce it. Viewed this way, the world is not a series of different markets, but a single global market with unique segments – this requires a single company with a shared approach to the challenge, a single company with the same DNA.

This type of speed will require unprecedented flexibility and efficiency. Toward that end, this spring we announced plans for a new manufacturing system that will begin in Japan and North America and then be expanded worldwide. In Japan, this efficient new system will maintain the same capacity and employment at our two largest plants where we currently produce 22 models. But this $300 million dollar system will allow us to produce many more models on fewer lines.

Key changes in the new system include replacing equipment that is dedicated to the production of one model with general equipment that can – at the push of a button – produce multiple products. Twice over the past three years, demand in the U.S. exceeded our ability to produce a model at one plant, requiring us to re-tool a second plant in order to satisfy our customers.

This new system will increase our production flexibility – and the ability to meet changing market demands. It will provide speed by reducing the time needed to bring a new model to mass production. And it will increase efficiency by cutting much of the investment associated with re-tooling. And we will achieve this through advanced Honda technology developed by our own production engineering company.

You may wonder 'what kind of change can be expected from an investment of $300 million in two plants in Japan?' – it seems small. But some of this new system already is in place on the new second line at Honda of Canada Manufacturing. For an investment of $210 million, we began production of an all-new minivan, at an all-new plant, with all-new processes.

This plant is a model of efficiency. Later this month, we will achieve full, two-shift capacity of 120-thousand units one year ahead of schedule. Today, less than one year after the start of production, before we reach full capacity and before we add production of a second model, this plant is already profitable.

For Honda's future, it is critical that these ideas for achieving high quality and flexibility without huge investment become part of the way of thinking throughout our company. Because true Honda DNA means a system where the ideas come from our associates – a strength that is limitless.

In Ohio ten years ago, my impression was that most Honda associates were impressed by the openness of discussion within the company – but also by what we expected of them. We believe that the associate who performs the same task 700 to 800 times a day, every day will learn more about how to achieve speed, efficiency and flexibility than management.

But back then I felt we needed something extra to transfer Honda DNA to our new American associates. I decided to bring Americans to Japan to study the process that occurred before mass production. Back in the '80s, everything related to a new model launch and product development was prepared in Japan. However, I wanted our American associates to learn how to launch a new model.

Hundreds of U.S. and Canadian associates have participated in this program, living for up to two years in Japan. And we have expanded the program to plants in other nations. The results are impressive. Our Ohio operations have a growing maturity. The '98 Accord was launched in the U.S., with processes developed by Americans, without a "mother plant" in Japan. When production began in Ohio in 1982, engines and many parts were shipped from Japan and assembled here. Today, as part of our complementary global organization, we export V-6 engines made only in the U.S. to Japan for assembly in cars there.

One of the most important and exciting methods of replicating our DNA is racing. Racing is what first took Honda from a local Japanese company into a major global corporation. And Honda's approach to racing is different from most companies. We actually build our own engines and support them from race to race with a team of our own engineers. This might be a little more costly. But the most important thing we get from racing is not victories. It is not even engines. We can't justify the cost of racing simply by the new technology we develop. The most important thing is the growth of Honda DNA.

We did some research on why young engineers joined Honda. Some cited the new jet turbine engine and the advanced humanoid robot. But more than half said they joined Honda because of racing. So many engineers volunteer for racing activities that we now change the team every 3 to 4 years. It would be easier to continue winning if we kept the same team members. But we changed our policy to provide training opportunities to more young engineers.

It is important to give people a reason to care about the company they work for -- racing helps create this passion. Through racing, Honda engineers are forged in the heat of competition. Through their efforts, the entire company captures this racing spirit. And, in this way, our corporate culture lives on.

Speed, efficiency, flexibility and advanced technology all focused squarely on meeting the needs of our customers – that is Honda DNA. And the desire to pursue this course without constraints makes us committed to independence.

Honda is a company that likes to go fast. By following our Small Is Smart strategy, we will continue to do so. Thank you.

Comments: