Honda and the US motorcycle market in the 1960s -Key Debate

In 1984, Richard Pascale published a paper which described the success Honda had experienced with the
launch of its motorcycles in the US market in the 1960s. It was a paper that has generated discussion
about strategy development processes ever since.

First he gave explanations provided by the Boston Consulting Group (BCG). The success of the
Japanese manufacturers originated with the growth of their domestic market during the 1950s. This
resulted in a highly competitive cost position which the Japanese used as a springboard for penetration
of world markets with small motorcycles in the early 1960s . . . The basic philosophy of the Japanese
manufacturers is that high volumes per model provide the potential for high productivity as a result of
using capital intensive and highly automated techniques. Their market strategies are therefore directed
towards developing these high model volumes, hence the careful attention that we have observed them
giving to growth and market share. Thus the BCG’s account is a rational one based upon the deliberate
building of a cost advantage based on volume.

Pascale’s second version of events was based on interviews with the Japanese executives who launched
the motorcycles in the USA: In truth, we had no strategy other than the idea of seeing if we could sell
something in the United States. It was a new frontier, a new challenge, and it fitted the ‘success against
all odds’ culture that Mr. Honda had cultivated. We did not discuss profits or deadlines for breakeven . .
. We knew our products . . . were good but not far superior. Mr. Honda was especially confident of the
250cc and 305cc machines. The shape of the handlebar on these larger machines looked like the
eyebrow of Buddha, which he felt was a strong selling point. . . . We configured our start-up inventory
with 25 per cent of each of our four products – the 50cc Supercub and the 125cc, 250cc and 305cc
machines. In dollar value terms, of course, the inventory was heavily weighted toward the larger bikes . .
. We were entirely in the dark the first year. Following Mr. Honda’s and our own instincts, we had not
attempted to move the 50cc Supercubs. . . . They seemed wholly unsuitable for the US market where
everything was bigger and more luxurious . . . We used the Honda 50s ourselves to ride around Los
Angeles on errands. They attracted a lot of attention. But we still hesitated to push the 50cc bikes out of
fear they might harm our image in a heavily macho market. But when the larger bikes started breaking,
we had no choice. And surprisingly, the retailers who wanted to sell them weren’t motorcycle dealers,
they were sporting goods stores.

Two very different accounts, yet they describe the same market success. Since the publication of the
paper, many writers on strategy have hotly debated what these accounts actually represent. For example:
Henry Mintzberg observed: ‘the conception of a novel strategy is a creative process (of synthesis), to
which there are no formal techniques (analysis)’. He argued any formal planning was in the
implementation of the strategy: ‘. . . strategy had to be conceived informally before it could be
programmed formally’. He went on to add: ‘While we run around being “rational”, they use their
common sense . . . they came to America prepared to learn.’

Michael Goold, the author of the original BCG report, defended it on the grounds that ‘its purpose was
to discern what lay behind and accounted for Honda’s success, in a way that would help others to think
through what strategies would be likely to work. It tries to discern patterns in Honda’s strategic
decisions and actions, and to use these patterns in identifying what works well and badly.’ Richard
Rumelt concluded that ‘. . . the “design school” is right about the reality of forces like scaled economies,
accumulated experience and accumulative development of core competences over time . . . but my own
experience is that coherent strategy based upon analyses and understandings of these forces is much
more often imputed than actually observed’. And Pascale himself concluded that the serendipitous
nature of Honda’s strategy showed the importance of learning; that the real lessons in developing
strategies were the importance of an organisation’s agility and that this resides in its culture, rather than
its analyses.

Sources: This case example is based on R.T. Pascale, ‘Perspectives on strategy: the real story behind Honda’s success’,
California Management Review, vol. 26, no. 3 (Spring 1984), pp. 47–72 and H. Mintzberg, R.T. Pascale, M. Goold and R.P.
Rumelt, ‘The Honda effect revisited’, California Management Review, vol. 38. no. 4 (1996), pp. 78–116.

Questions
1. Are the different accounts mutually exclusive?
2. Which of the different explanations of strategy development explained in the chapter do you discern
in the Honda story?
3. Do you think Honda would have been more or less successful if it had adopted a more formalised
strategic planning approach to its launch?