Readers of this blog know my lifecycle references. We start out in the Wellspring of ideas. To be successful we have to find the Rapids of high growth. In the Rapids life is beautiful as we make money and everyone wants to give us more. When growth slows we hit the Flats – where we keep paddling like crazy trying to figure out what happened to the Rapids. But because we’ve slipped from the Rapids to the Flats, pretty quickly we drift into the Swamp where growth is really hard to come by. We end up spending all our energy fighting the ferociously competitive alligators and mosquitos, often forgetting our real objective. In the end something happens the business isn’t planning for, and like pulling the drain on a sink the Swamp becomes a final Whirlpool sucking the organization away.
The most important time for management to make the right decisions is in the Flats. It’s the Flats where leaders have to steer the company back into the Rapids, or else drift into the Swamp. So let’s compare General Motors and Honda.
GM saw it’s growth start slipping almost 30 years ago. Roger Smith tried to steer the company back into the Rapids by creating a stand-alone company called Saturn that would learn to act like a "Japanese" car company. He also bought Hughes Electronics and EDS to diversify GM into very high growth markets (electronics, avionics, aircraft and IT). But Smith was often maligned by analysts and fellow executives who wanted GM to remain a "car company." Eventually GM sold Hughes and EDS to raise money to shore up its declining auto business where it was mired in the Swamp. GM leadership even abandoned the idea of an independent Saturn, and eventually forced the White Space project to start using common components with other GM autos, common functions like procurement, common systems and even common dealers. Now Saturn is just anther GM nameplate.
Today, GM is starting to hear the sucking sound of the Whirlpool. The company is constantly trying to stave off rumors of an impending bankruptcy. Meanwhile, the company equity value today is less than it was 50 years ago – meaning an investor would have nothing to show for a lifetime of ownership except dividends. And today those were halted – a key indicator that GM is heading into the Whirlpool. Cost cuts now are center stage as the company closes capacity and is even whacking salaried employment 20%. Management keeps saying it has enough liquidity to survive 2008 – whoopee! – which is only another 6 months. So it is looking to shut down nameplates (like Hummer), more plants and sell as many remaining assets as possible. It’s hard to see how anything good will happen for GM’s investors, employees, suppliers or customers as the business keeps churning faster toward the Whirlpool of failure. (Read more about current actions being taken at GM here.) GM is claiming it could not predict the auto market changes being created by higher priced oil – even though this "crisis" has been emerging for 3 years and is unerringly similar to the market shift which happened during the oil price shock of the 1970s.
Meanwhile, Honda sales have grown 4.5% this year. Right, while we keep hearing about the total market declining, Honda sales are growing (read article here). Management at GM, and many analysts, like to portray this as luck. Hardly. Honda and GM compete in the same markets. They just took very different management actions.
Honda never tried to develop a plan to do one thing and dominate the market. Market domination was never its goal. Instead, growth in sales and value has remained #1. In it’s quest to grow, Honda did not merely remain an automobile company. Rather than eschewing other businesses as diversions, Honda successfully developed profitable growing businesses in everything from lawn mowers to lawn tractors to electic generators to boat motors to motorcycles to quadrunners to snowmobiles to snowblowers to robots and jet airplanes – and cars. Of course, in cars they make small cars, luxury cars, all-purpose vehicles and even a full size pick-up. They sell products directly from Honda to end users in some markets, they sell through dealers in other markets to distributors who wholesale products to retailers in other markets and even to large mega-retailers like Home Depot in other markets. No single distribution system. And they sell products in almost every country on earth – including being the #1 motorcycle supplier in India with it’s Hero-Honda joint venture. (Unlike GM which has long maintained an overt focus on North America blinding its opportunities elsewhere.)
As markets shift, Honda is preparing for those shifts. It doesn’t let "focus" make it overly dependent on any one market – or any one sub-market within a single market. In motorcycles, for example, it offers everything from a small scooter for the urbanite to dirt bikes for leisure use to cross-over bikes that can be used on trails and roads to small motorcycles for short-riding to large motorcycles for long riding to crotch rockets for testosterone driven young men to huge, oversized Gold Wing bikes for 50 year old highway touring riders. It does the same in autos, where it offers everything from a hybrid to the high-mileage traditional Civic small car to multi-person mini-vans to full size pickups and even luxury cars under the Acura brand. While GM is trying to be big, Honda has mastered the art of growing and making money by constantly bringing out new products in new markets and learning from those experiences so it can migrate its Success Formula.
Far too many management teams think their job is to "focus" and be #1 in some defined market. Of course, all those definitions are arbitrary, and being #1 doesn’t mean anything if you can’t make money. GM has been huge, but it has been unable to generate enough profit to replace its capital for decades. Now Honda, who is #1 in some markets, but not in most, is showing that by being agile and nimble, by avoiding Lock-in to old-fashioned notions of market share, it can be more competitive. As individual markets struggle, from product markets to geographic markets, Honda keeps using its White Space to bring new technologies and products to customers. It evolves its older businesses toward what works, selling big trucks when people want them where they want them and small motorcycles where demand for them is growing. It’s this ability to look to the future rather than the past, keep a sharp eye on competitors and always be at the front of new products, maintain Disruption to get into new markets and keep White Space alive so new Success Formulas develop which allows Honda’s leaders to keep the company steering toward the Rapids rather than finding itself being driven right into the Whirlpool of disaster like GM