In a recently published book called Driving Honda, the author makes the case that Honda is one of the most innovative companies in the world. That innovation has certainly played out in the financial results of the company in that it has never posted a loss in its history. Honda’s operating profit ratios of about 5% consistently top the industry. Its stock price has just about doubled since September, 2008 when the economy crashed. Most impressive is that 75% of its cars and trucks sold in the last 25 years are still on the road.
The leadership at Honda believes strongly that the following three principles are the secret to their success:
Delegation of Responsibility – Each manufacturing facility operates as an autonomous unit. They take the standardized chassis, drive train and body that is being implemented globally for a model and then, via a dedicated engineering staff located at each facility, they incorporate features based on local conditions and customer behavior. Also, within each manufacturing facility, as problems arise or opportunities emerge, they are to be handled by small team assigned to that particular area of the operation.
Continual Paranoia – The attitude that is pervasive in the company is that it is every employee’s job to poke holes in the status quo. The author of Driving Honda describes the spontaneous meetings that occur throughout each day called “waigaya” where current practices are questioned, reevaluated and often dramatically changed with the hope of generating improvement. A Honda executive described it this way; “waigaya to me means perpetual dissatisfaction. At our company, self-satisfaction is the enemy.”
A Technical Culture – Honda is basically an engineering company, and they take great pride in that. Since the company was founded in 1949, all of its CEO’s have been engineers. The company’s strengths lie in product and process innovation. For example, when the U.S passed the Clean Air Act, the 1974 Honda Civic was the first car to meet the stringent new emissions standards. At the time, other manufacturers were claiming the standards were impossible to achieve. Today, Honda is the only manufacturer capable of changing a given manufacturing line from one model to another within hours. Other manufactures require costly shutdowns for weeks or even months in some cases.
Honda is a great lesson in leadership. These three principals have been the foundation of a very successful company.