How Honda lost its mojo - and the mission to get it back
Sept. 7, 2017  Norihiko Shirouzu


... Honda is trying to rediscover its ‘racing spirit.’ TOKYO – ...

Jump forward almost 30 years from that Senna moment and Honda is flailing.
On the racetrack ...

On the road, the Honda fleet has been dogged by recalls. More than 11
million vehicles have been recalled in the United States since 2008 due to
faulty airbags. In 2013 and 2014 there were five back-to-back recalls ...
due to transmission defects. 

Honda has lost ground in electric cars to Tesla and others.
“There’s no doubt we lost our mojo – our way as an engineering company that
made Honda Honda,” Chief Executive Takahiro Hachigo told Reuters.

Hachigo joined Honda as an engineer in 1982 and became CEO in June 2015. Now
he wants to revive a culture that encouraged engineers to take risks and
return to a corporate structure that protected innovators from bureaucrats
focused on cost-cutting. To help him achieve this, he says he has tapped
into the ideas of a small group of Honda engineers, managers and planners.
This group is modeled on the freewheeling “skunkworks” teams that drove
aircraft development at Lockheed Martin, computer design at Apple and
self-drive technology at Google.

In interviews, more than 20 current and former Honda executives and
engineers at the company’s facilities in Japan, China and the United States
recounted the missteps that they say contributed to Honda’s decline as an
innovator. They also revealed new details of the firm’s efforts to
rediscover its creative spark ...

They said Honda had become trapped by Japan’s “monozukuri” (literally,
“making things”) approach to manufacturing. This culture of incremental
improvement and production line efficiency, called “kaizen”, served the
company well in the decades after World War Two, they said, but today’s
challenges – electrification, computerization, self-driving cars – demand a
more nimble and flexible approach.

Most importantly, they said, over the past two decades company executives in
Tokyo were given too much control over research and development. In their
view, this led to shareholder value being prioritized over innovation. There
was a reluctance to draw on talent from outside Japan. In its quest to
deliver for shareholders, Honda sought to maximize volume and profit and
match the product range of its main Japanese rival, Toyota.

“The upshot was, as we obsessed about Toyota and beating it in the
marketplace, we started to look like Toyota. We started to forget why we
existed as a company to begin with,” Honda R&D President and CEO Yoshiyuki
Matsumoto told Reuters.

Honda’s revenues have grown strongly since 2000 and its operating margin
stood at 6.0 percent in the financial year ended March 31, 2017, compared
with 7.2 percent at Toyota. But Honda’s cars have slipped down quality
rankings, from seventh in market research firm J.D. Power’s initial quality
study in 2000 to 20th in 2017.


Striving to satisfy shareholders meant controlling costs. Honda’s chief
executive from 2003 to 2009, Takeo Fukui, broke with the firm’s tradition of
giving tech managers discretion over how to spend the roughly five percent
of revenue allocated to the tech arm, according to the current and former
Honda executives and engineers.

When Takanobu Ito replaced Fukui as CEO in 2009, he further tightened
control over the design phase. He did this, the sources added, by moving
several senior posts in the tech division to corporate headquarters in Tokyo
from the research and development unit ...

A former leader of Honda’s R&D unit said the firm “lapsed deeper into a
bunker mentality, and that translated into our products. It was cut, cut,
cut, and it cheapened our cars.”

By the end of 2008, Horikoshi’s team was wrapping up the Civic design. Half
a year behind schedule, they were still $200 short of the cost target per

“I already had my pants down to my ankles – nothing more to shed,” Horikoshi
said ...
Honda went back to the drawing board ...

Other car firms were investing heavily in green technology, an area where
Honda had already established itself as a leader with the unveiling of its
EV Plus battery car in 1997, one of the first electric vehicles from a major
carmaker. But just as its competitors were investing more, Honda began
holding back.

Fukui, who became CEO in 2003, felt Honda was engaged in too many areas of
research, four current and former executives and engineers said. As a
result, Honda scaled back work on plug-in battery electric vehicles and put
its faith in the hydrogen-fueled car. By the time Honda turned back to
plug-in cars in the late 2000s it had already lost several years to its
competitors. Honda finally came up with a competitive plug-in car in 2013,
16 years after its original EV Plus. It is still playing catch up with the
likes of Tesla.

Fukui did not respond to questions from Reuters. Two former engineers said
Fukui was calculating that advanced battery technology would become
commoditized and so Honda would be able to buy it in if necessary. This
assumption was correct, the former engineers said ...


For too long Honda has overlooked the potential of its workforce outside
Japan, and that has harmed the firm, said Erik Berkman, a former head of
Honda’s technology unit in the United States, the carmaker’s biggest market

Berkman told Reuters in an interview that many capable engineers and
researchers in the United States had left Honda over the years out of
frustration at being disregarded. “Many associates (in the U.S.) felt Japan
bosses were too controlling and unwilling to take on what we thought were
reasonable risks,” said Berkman ...


Today the industry is facing new challenges, however. Artificial
intelligence and self-drive cars are forcing carmakers to rethink the way
they design and produce vehicles ...

Some changes are under way at Honda to address these disruptive forces.
These include moving tech management jobs out of Tokyo to give the
technology division more autonomy ...

Honda has struck deals with third parties to accelerate progress on its
smart-connected electric car. These include an agreement with Hitachi Ltd to
develop and produce motors for plug-in electric cars and ... in talks with
Alphabet Inc’s Google to supply vehicles to jointly test self-driving

A key force for change inside the company is the small group of engineers,
managers and planners who are working quietly behind the scenes to revamp
the company, according to Hachigo and Matsumoto ...

The group also wants to increase the use of virtual engineering tools, such
as computer aided design, to speed up development, and it is working on an
improved design for plug-in battery cars.

Matsumoto is hoping the group will be transformative. But he doesn’t expect
change to be instant.

“Almost always change – any change – starts on the fringes,” he said. “This
group is evidence that we still somewhere inside this company have the mojo
we lost. There is that DNA left in us.” ...

Racing Spirit
By Norihiko Shirouzu
Pictures: Thomas White
Graphics: Jin Wu
Design: Catherine Tai
Edited by Janet McBride and Peter Hirschberg 

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