Strategy, 4th Edition Solution Manual

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STRATEGYProcess, Content, ContextAN INTERNATIONAL PERSPECTIVEFourth Edition

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CONTENTSPAGEIntroduction4Preface13CASETITLECase 1London Heathrow14Case 2Honda Motors20Case 3Apple27Case 4Gucci36Case 5UPS43Case 6DSM54Case 7Ferrari58Case 8COSCO66Case 9Starbucks73Case 10Pep Stores80Case 11Nestlé88Case 12Aditya Birla Group95Case 13Air France – KLM101Case 14BT – Group108Case 15NCR/Wi-Fi114Case 16VION129Case 17HP137Case 18BP145Case 19Wal-Mart152Case 20Kentucky Fried Chicken158Case 21PHARMAC169Case 22Nike177

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STRATEGYBOB DE WIT AND RON MEYER, 2010TEACHINGNOTE1:LONDONHEATHROW:THEAIRPORTSEXPANSION DILEMMACase by Prabhu Sethuraman, and Abdul Samad Syed (ICFAI Business School)Teaching Note by Marcel van Gils and Geert Jan KnegtCase SynopsisLondon Heathrow is the world’s third busiest international hub airport. It operates as a hub betweenEurope and Latin America and forms a gateway to Europe. BAA is Heathrow’s hub operator. BesidesHeathrow, BAA also operates other airports like London Gatwick, London Stansted, Glasgow,Edinburgh, Aberdeen and Southampton in the UK.London Heathrow carries around 68 million passengers per annum and is an important economic assetfor the British and global economy.Right now, London Heathrow is operating at 99% of its permitted runway capacity. This lackof spare capacity threatens UK’s competitiveness as a global hub. An obvious solution to this problemis expansion by adding an extra runway and terminal. This case is about the dilemma concerning thisexpansion.In this dilemma, there are two parties with each their own interests. On one hand, there are theenvironmentalists that worry about the additional pollution and question Britain’s role in climatechange. On the other hand, there are the BAA and the broader business lobbies who think thatexpansion will increase the airport’s competitiveness and importance as an economic asset.Because passenger-traffic forecasts suggest that short after the opening of the third runway,the airport will burst at its seams again, four other alternatives for the lack of spare capacity aredescribed in this case too. These alternatives are the mixed mode operation of existing runways (1),moveHeathrowawayfromtheheavilypopulatedneighborhoods(2),thedevelopmentofanintermodal strategy that focuses on the limitation of air-passengers by encouraging the travelers to useother forms of transportation (3), and expand and use London-Gatwick for both short and long-haulservices (4).It is up to Gordon Brown (Britain’s Prime Minister) what Heathrow’s future will be.Teaching ObjectivesIf used in conjunction with Chapter 1, this case can be employed to meet the following teachingobjectives:Introduction of organizational purpose and several major strategic issues. The London Heathrowcase has a broad scope, touching on a variety of the major strategy topics in the book. This allowsfor a broad discussion on the major themes of strategic management (link to Introduction).Understanding the concepts of strategy. The case questions are aimed at testing the students’ability to distinct, define and work with complex strategy issues, paradoxes, conflicting demands,as well as strategy perspectives (link to Introduction).Understanding of organized complexity and wicked problems. London Heathrow’s owner (BAAwhich is part of Grupo Ferrovial) is faced with a complex set of stakeholders with divergentperspectives on the role and future of Heathrow. Secondly the information on future developmentsis highly uncertain. The issue is not tame and cannot be dealt with by employing simple problemsolving tools. Issues are interrelated: dealing with one means dealing with related issues too (linkto Introduction and Reading 1.2 Mason and Mitroff).Ability to recognize strategy issues. As in real life strategy matters, some issues could be morepresent than others. Despite the wickedness of these issues, students are asked to distill andcategorize the most important issues from the case.

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CASE 1: LONDON HEATHROWUnderstanding the nature of strategy paradoxes. This case can be used to illustrate that there areno straightforward ‘right’ solutions to strategy issues, but that strategists must deal with tensionsbetween opposite demands. The tension between economic and ecological perspectives is veryprominent in the London Heathrow case. As such this case can be used to illustrate the approachtaken in the rest of the book (link to Introduction).Teaching GuidelineAs the chapter coverage table indicates, the Heathrow case touches on a variety of strategy issues. Ifthe teacher wishes to focus on one issue, it might prove difficult to avoid class discussion going off ona variety of tangents. However, if an integral coverage of all aspects of the case is intended, then thecomplexity of drawing together a variety of elements within a short period of time might prove quitedaunting. Whatever the objective, usage of this case requires strong directing by the teacher anddisciplined discussion by the students. The case breadth can be exploited in three ways:Introductory case. The case can be used at the beginning of a course (as we suggest using itdirectly in conjunction with Chapter 1), to give students an overview of issues to come. The centralissue of several chapters is dealt with in the case, which makes it possible for the teacher toillustrate the topics that will be dealt with throughout the course.Wrap-up case. The Heathrow case can be used as a final wrap up case for the course, because itchallenges the student to integrate the issues discussed during the course.Exam or assignment case. Again because almost all issues are touched on in this case, anassignment or exam based upon this case will ensure that the most important elements of thecourse can be covered.Case on nature of strategy issues (wicked problems). The wickedness of the issues in the caseperfectly allows a course on wicked problems and the strategic management thereof. Analyzingstakeholders, perspectives and relations proves essential for understanding wicked problems.Generating options to tame the wicked problem helps students to think about managing these.A vital part of Chapter 1 is the distinction in strategy between organizational purpose, process, contentand context. The organizational purpose is central in this case and will serve as the first question. Thelast two questions will provide the students with the opportunity to dive more into the content of thebook, introducing strategy issues, underlying tensions and strategy perspectives. In Case 2 on Hondathe students will focus further on the nature of paradoxes and the paradoxes related to strategy process,content and context. The last two questions also provide the teacher with the handholds to add a bit ofpolarizationtoencouragedebate,especiallybyaskingthestudentsabouttheirownstrategyperspective. Sometimes we even ask the students to physically split between the two perspectives thatare handled: have each group sitting on one side of the classroom. This will add even morepolarization, debate and a lot of fun for the students, too.While the following cases in this teaching guide generally focus on one particular issue, thiscase will serve to test students on their skills to recognize the important strategic issues themselves. Beaware of the fact that the exhibits in this case can be linked directly to the case questions, adding greatdepth to the case analysis. Furthermore, even though the focus of the case is on transportation, weadvise you to expand the focus towards showing that the entire strategy context has been (and still is)very important for London Heathrow from the start. The first question therefore provides an ideal wayto start the case discussion.Case Questions1.Describe the context of London Heathrow’s strategy. What were the circumstances that BAAencountered?2.What is the main paradox encountered in this case?

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3.What are the main stakeholders with regard to Heathrow’s expansion plan and what is theirperspective?4.What are the other main strategy issues for BAA? Why?5.How could Gordon Brown resolve the paradox? Is there a win-win alternative for BAA and itsopponents?Case Analysis1.Describe the context of London Heathrow’s strategy. What were the circumstances that BAAencountered?Growth in air transportation and lack of capacity.Global air transportation has been rising rapidlytill the end of 2007. Heathrow has become overused, also because it is cheaper for airlines. Therapid growth in transit and transfer passengers has made that the airport served around 68 millionpassengers per annum in 2007, operating at 99% of permitted runway capacity. Passenger trafficforecasts showed at that time that the growth will continue. UK transport secretary Ruth Kelly,said: “If nothing changes, Heathrow’s status as a world-class airport will be gradually eroded – jobswill be lost and the economy will suffer”.Deregulation.Heathrow capitalized on various national and international deregulation measures.Government airline industry deregulation permitted the development as international hub for theNorth Atlantic Gateway and Latin America.Globalization of businesses.While individual people and organizations expanded their globalscope,themovementofpeopleacrossnationalboundariescreatednewdemandsforthetransportation. Clients asked for a global hub and spoke system, of which Heathrow has becomethe major European hub and third largest hub in the world. In 2007, Heathrow served 180destinations (in 1990 it served 227 destinations).Increasing competition.While Heathrow was one of the first large international airports serving allcontinents (mainly due to early deregulation in the UK), throughout the next decades a growingnumber of others discovered the possibilities of being an international hub in the Hub and spokenetwork of the larger airlines. Airports such as Paris Charles de Gaulle, Amsterdam AirportSchiphol, Frankfurt, Madrid and Dubai do have a truly global network of destinations that reachesbeyond Heathrow’s network in terms of destinations. These airports do have more runways andcapacity available for further growth.2.What is the main paradox encountered in this case? Why?The main paradox in this case is ‘profitability versus responsibility’.The London Heathrow clearlyillustrates a classic debate between economic and ecological purposes. On the one hand all kinds ofstakeholders are representing the economic case. They argue that the UK’s entire economic directionwould come into question. Investments could prevent Heathrow from gradually eroding as a world-class airport, where jobs will be lost. On the other hand environmentalists do not think primarily fromprofitability for the economy, they stress the societal impact of a huge airport. The environmentalistsargue that expansion of the airport runs contrary to the growing evidence on the impact of aviation onclimate change. The greenhouse-gas emissions will increase.3.What are the main stakeholders with regard to Heathrow’s expansion plan and what is theirperspective?Economic perspectives:1.BA British Airways, Willy Walsh indicates: “If fears about climate change are allowed tofrustrate the overwhelming case for extra runway capacity at the national hub, the country’sentire economic direction would come into question”.

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STRATEGYBOB DE WIT AND RON MEYER, 20102.BAA Limited; BAA does not stand for anything, it is widely and erroneously referred to asBritish Airport Authority.3.Department of Transport, UK Transport Secretary Ruth Kelly.4.“Future Heathrow”, lobbying for expansion, Lord Soley claims that “Heathrow is criticallyimportant to the economic prosperity of west London and the Thames Valley”.Environmental perspectives:1.London Mayors, Ken Livingstone and Boris Johnson: “I am firmly opposed to this expansionas it runs contrary to all the growing evidence we now have on the impact of aviation onclimate change”.2.Environmental Agency; the EA is disputing the idea that extra flights are bearable sinceaircrafts are getting quieter and cleaner.3.Greenpeace, executive director John Sauven: “If everybody took trains to Manchester, Paris,Scotland and Brussels rather than flying, a third runway would not need to be built”.4.Residents in the community of Sipson. They are saving their village and believe that currentnoise and air pollution already amount to an environmental disaster that will increase. Theyalso fear accident rates to go up.4.What are the other main strategy issues for BAA? Why?The issue of industry development.How should Heathrow relate to its environment? In 2007,BAA has to deal with various situational changes, such as fierce competition and economicdecline. Somehow, Heathrow should comply with the demands these changes pertain. However,its competitors will probably adapt to the new industry rules, too. Instead, maybe Heathrow couldalso try to set the ‘rules of the game’ themselves, for example by no longer focusing on volumesbut on added value. In other words, Heathrow has to deal with the paradox of compliance andchoice.The issue of international configuration. How should Heathrow organize that internationalactivities are locally embedded? In 2007, Heathrow served 180 destinations around the world. Onone hand, Heathrow can try to increase capacity to attract as much cross-border passengers andleverage on the expenses for consumer goods at the airport f.e. On the other hand, Heathrowshould stay attuned to the specific demands of each their local environment, answering to thedemand for local responsiveness (in terms of decreasing pollution and noise). Thus, Heathrow isconfronted with the paradox of globalization and localization.The issue of competitive advantage. How can Heathrow organize its business system to createsuperior value for its buyers? Its buyers ask for more and more services, Heathrow has to move,as their bargaining power increases. This exemplifies the demand for market adaptation. Also,Heathrow has strong limitations in terms of resources. Its two runways and limited infrastructuralcapacity pose limits to the volumes that can be dealt with. This illustrates the company could alsoadhere to the resource-base as starting point for its strategy. Hence, Heathrow faces the paradoxof markets and resources.The issue of strategic renewal.How should Heathrow design its change path when dealing withthese strategy issues? In 2007, Heathrow is standing at the brink of a major decision. Heathrowcould for example decide not to choose for extending the runway capacity, but focusing on addedvalue within the current set of runways. Some structures, processes and cultures could be rootedso deeply that the company needs to break from the past in a ‘big bang’, illustrating the demandfor revolutionary change processes. Alternatively, the organizational system could hold certaincharacteristics that need to be saved in order to build new unique assets, so the Heathrow needs tomoderate change gradually. This demonstrates the demand for evolutionary change processes.Accordingly, Heathrow also has to handle the paradox of revolution and evolution.

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CASE 1: LONDON HEATHROW5.How could Gordon Brown resolve the paradox? Is there a win-win alternative for BAA and itsopponents?For the dominant strategy issue the two perspectives were outlined. This question gives an opportunityfor class discussion: what do your students think? Do they really take a stand, or are they ready tocongregate two seemingly conflicting viewpoints? When asking this question for exam purposes, theyshould give a solid foundation why they employ a particular perspective or synthesis of twoperspectives. This would be a great way to test their grasp of the material. The question asks forcreativity to overcome a dilemma between two seemingly contra dictionary viewpoints. Are they ableto get from a dilemma to a trade-off or even a win-win situation (see also p. 16 Chapter 1)?The case outlines four alternatives for Heathrow’s expansion, besides the construction of the new2,200 meters long runway, plus an additional passenger terminal with direct access to rail services.The four alternatives are;Mixed mode operating of existing runwaysMove Heathrow away to less densely populated areasIntermodal strategy; more passengers in trainExpand Gatwick.In the end Gordon Brown has chosen for expanding Heathrow with a new runway (see below ‘WhatHappened After the Case’). He has chosen for the economic stake, but within strict environmentalboundaries. Brown has clearly chosen for representing the economic-environmental discussion as adilemma, in which a choice is made between the two poles. He has also done some kind op trade-off,where he has done concessions to the environmentalist by imposing strict rules for the expansion.The tension seems not to be conceptualized as a paradox, where multiple innovative reconciliationscould have been made. An example of getting the best of both worlds would have been looking atHeathrow from a perspective of added value. Airports can generate higher added value with fewerpassengers. This gives the economic actors a fair deal because they can generate more money withfewer passengers. For environmentalists this means fewer passengers, fewer flights, which meansnoise, air pollution and the risk for accidents become lower. Some major (air)ports have now adoptedthis approach (f.e. port of Rotterdam around new port expansion) and this has completely changed thedebate between the economic actors and the environmentalist actors and citizens living close to theexpansion areas.What Happened After the Case?In 2008 Heathrow, the third biggest airport in the world and BAA’s largest, registered traffic of 67million passengers. The opening of T5 in March 2008 was the first step in the transformation of theairport. The investment program planned until 2013 will involve the construction of a new terminal(Heathrow East), to replace T1 and T2, and the refurbishment of Terminals 3 and 4. When all theseprojects have been completed, 70% of passengers will be using new terminals and the remaining 30%will have been refurbished.In January 2009, the British government approved the construction of a third runway, representing acrucial step in the development of Heathrow airport. BAA is committed to ensuring compliance withstrict environmental limits before increasing the number of flights at the airport.

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STRATEGYBOB DE WIT AND RON MEYER, 2010Heathrow•Operations.Passenger satisfaction levels have risen from 3.64 to 4.06 (5=excellent; 1=poor), andrepresents the airport with the greatest increase this year (+4%). In 2008 the security queues were lessthan 10 minutes for 95% of the time.•Terminal 5.The opening of this new terminal is just the first step in the transformation of the airport.T5 has been selected as the best terminal in Europe in terms of customer satisfaction (Airline CouncilInternational’s Airport Service Quality).•Approval of the 3rd Runway (*).Permission to construct a third runway and sixth terminal wasofficially granted by the UK government on 15 January 2009. The project will take several years in bothplanning and construction phases to complete. It represents a crucial step forward in the strategy forinvestment and growth developed by Ferro vial’s Airports division.Beginning April 1 2008, BAA has won the right to raise passenger charges at London’s Heathrow andGatwick airport to help pay the cost of needed infrastructure improvements. The extra fees could comeas a blow to airlines and passengers already suffering the effects of record fuel oil and rising ticketprices. But for Ferrovial, whose 2007 net income fell by 48.5% to €733.7 million ($1.1 billion), theadditional revenue could not come at a better time.The Spanish company is trying to refinance at least $8.2 billion in debt related to its 2006acquisition of BAA. The company was recently forced to sell off its duty-free shops, and speculationcontinues that it may be forced to divest further assets, including possibly an entire airport, to meetrepayments on more than $46 billion on net financial debt.In August 2009, BAA unveiled that is aims to spend $1.65 billion renovating Heathrow’s overcrowdedTerminal 2, which will enable it to handle 30 million passengers a year. BAA said the development ofT2, which will be home to Star Alliance airlines, was crucial for Heathrow to remain competitive.The airports operator also gave a much-needed tonic to the aviation industry when it reportedthat the falls in traffic figures seen in recent months had slowed at all of its UK airports in July. TheJuly performance figures were announced only two weeks after BAA said losses at its three Londonhubs – Heathrow, Gatwick and Stansted – had hit £546m in the first six months of the year, with 7.4percent, or 4.4 million fewer passengers, using the airports. Underlying earnings in the period were up28 percent, helped by BAA’s unpopular decision to raise the fees it charges airlines to use its airports.Industry experts warned that BAA’s July numbers were likely to be boosted by seasonal traffic andthat aviation is still struggling.In October 2009 UK airport operator BAA has reached an agreement to sell Gatwick airport inLondon to an entity controlled by Global Infrastructure Partnership for 1.51 billion pounds ($2.46billion). BAA has been ordered by Britain’s Competition Commission to also dispose of LondonStansted airport and either its airport in Edinburgh or Glasgow in Scotland. The company is allowed tokeep London Heathrow airport. The sale will enable BAA to reduce its net debt and strengthen itsfinancial position. The agreement with Global infrastructure Partnership completes the sale processthat commenced in September 2008, before the end of the Competition Commission’s UK airportsmarket investigation. After divesting Gatwick, BAA will own six airports in the UK (Heathrow,Stansted, Glasgow, Edinburgh, Aberdeen and Southampton) and one in Italy (Naples). GlobalInfrastructure Partners, based in New York, also owns a 75 percent stake in London City Airport. Thesale, subject to clearance by regulators, is expected to be completed in December.Referenceswww.baa.comwww.ferrovial.comBusiness Week, March 11, 2008, August 11, 2009 and October 23, 2009Associated Press, October 21, 2009The Economist, October 22, 2009.

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TEACHING NOTE 2: HONDA MOTORSCase by Andrew MairTeaching Note by Ron Meyer and Claudia CoxCase SynopsisHonda is a popular company to use as a strategy case study in a pedagogic setting. The company firstrose to prominence as a strategy example when Boston Consulting Group (1975) published its analysisof the declining British motorcycle industry, in which the competitive threat posed by Honda’sadvance along the so-called experience curve was highlighted. A well-known essay by RichardPascale (1984) took issue with one particular aspect of the BCG version of events. This essay isfrequently invoked to argue that there may be more than ‘one best way’ to create strategy, and morespecifically that learning from experience, together with luck, may be more important than analyticalthinking. Another well-known case study of Honda is by James Brian Quinn (1991, 1996), in hisstrategytexteditedwithHenryMintzberg,inwhichhedescribesHondaasanidiosyncraticentrepreneurial firm, much in line with Pascale’s portrayal. The summer 1996 issue ofCaliforniaManagement Reviewpublished a lengthy debate on the so-called ‘Honda effect’ between the BCGcamp, for which Honda remains a company best understood as an analytical planner, and thePascale/Mintzberg camp, which stresses the incrementalist approach.Besides this strategy process debate, Honda is also at the center of discussion in strategycontent issues. Hamel and Prahalad (Reading 6.2) lay claim to Honda to argue the importance oftechnical core competencies, while others propose instead that Honda’s success is best explained bybroader core capabilities. Honda, in other words, has - unwittingly - become embroiled in some of themajor controversies of the strategy field.ThiscaseattemptstoexplainhowHondacanappeartosupportopposingtheoreticalperspectives at the same time. The case describes that while many companies, when faced withstrategic and other managerial choices, select one option, or trade off one against another, Honda hasacquired a strategic capability to reconcile management dichotomies - and hence achieve solutions tomanagement challenges that are denied to other companies.Teaching ObjectivesIf used in conjunction with Chapter 1, this case can be employed to meet the following teachingobjectives:Understandingtheconceptofstrategytensions.Thiscaseexplainshow organizationsareconfronted by tensions between opposite demands that need to be dealt with. In the case thesetensions are referred to as managerial dichotomies (link to Introduction).Understanding the concept of strategy paradoxes.In the case it becomes clear that while Hondamanagers accept the existence of the tensions/dichotomies, they constantly seek to find innovativeways of reconciling them. In other words, they do not see the tensions/dichotomies as falseopposites (a puzzle) or as mutually exclusive demands (a dilemma). Nor do they accept thatmeeting one demand is always at the expense of meeting the other (a trade-off). Honda managersbelieve that opposites can be bridged (a paradox), but that this transcending of the tension requirescreative thinking (link to Introduction).Discussiononthereconciliationofopposites.Thecasegivesmanyexamplesoftensions/dichotomies that Honda managers have successfully bridged. Less attention is paid to thecognitive and organizational processes required to achieve successful reconciliation. This allowsfor a discussion on the use of dialectics and argumentation as creativity enhancing methodologies.This discussion is important as the entire set-up of the book rests on dialectical inquiry and

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CASE 2: HONDA MOTORSargumentation to stimulate students’ critical thinking abilities (link to Introduction and 1.2 Mason& Mitroff).Discussion on the nature of strategic thinking.The case continuously makes clear that Honda’ssuccess rests on its ability to break through existing trade-offs and to creatively find new ways fordealing with enduring strategy tensions/dichotomies. This makes the step to the discussion in thefollowing chapter on the nature of strategic thinking quite easy (link to Chapter 2).Discussion on cross-cultural management differences. The case also clearly brings forward thetraditional differences between stereotypical Western and Japanese management. The questionthat can be asked is whether these historical differences still exist and whether they will continueto influence how managers from each nation will develop strategies (link to Introduction and 1.4Hofstede).Teaching GuidelineThe Honda case is not a traditional strategy case study in the Harvard Business School sense. Whilemost case studies attempt to be theory-neutral, so as to provide empirical materials upon which courseparticipants can practice the application of the theoretical strategy perspectives and models they arelearning, this case study definitely has a point of view to get across. This case illustrates howmanagerial dichotomies can be reconciled in a way that the ‘best of both worlds’ is achieved.Where the opening case particularly focused on the different issues of context, content and process,this second case encapsulates the pedagogical philosophy underlying the book, as in the Honda case,studentsareencouragedtounderstandthetensionsposedbyoppositepressuresplacedonorganizations. And according to this students must find the most effective way of dealing with theseopposites. In Chapter 1, four alternative ways of viewing dichotomies are given – as puzzles,dilemmas, trade-offs or paradoxes. The case illustrates that at Honda the dichotomies are viewed asparadoxes – two opposites seem contradictory but can be reconciled through creative thinking. Andthis is exactly what the book challenges readers to do in all further chapters.The case is designed to work as follows. After providing a broad background to the company, itpresents its fundamental story - that of ‘Mr. Kawamoto’s Reforms’. This story nicely illustrates twoissues. First, the issue of reconciling the individualism-groupism dichotomy at senior managementlevel is examined, which gives valuable insights into managing the strategy process. More subtly, thestory also illustrates how easy it can be to misinterpret this reconciliation process as an attempt at arevolutionary swing from one extreme to the other (as is visualized in Figure 1). The bulk of the casethenreviewsaseriesofeasy-to-understandmanagementdichotomiesandpresentsHonda’s‘solutions’. There is no attempt to explain how the solutions were arrived at. The principle behind thispedagogic structure is that of Thomas Kuhn: a young child shown a duck and a goose may not be ableto explain the difference between them theoretically, but will certainly recognize the next gooseencountered. The Honda goose is shown against a series of different backgrounds in the hope that itssilhouette too will be recognizable in front of new, unanticipated backgrounds.While the dichotomies and constant reconciliation described in the case make the fundamentalphilosophy of the book clear, they do not pre-empt the debates that follow in the next chapters. This isbecause the focus in the Honda case is primarily on the functional level of strategy – in particular,production operations and product development - and organizational issues. Only at the end does thecase raise some strategy dichotomies as discussed in the book, but whereas previously Honda’sreconciliatory management practices were fully described, for strategy they are only hinted at.A good way to start off the case discussion is to draw attention to Figure 2, which incorporates a trade-off line, upon which all types of dichotomies can be mapped. The top right hand corner is the neo-classical economists’ unattainable area - which suggests that innovation will have been achieved if itcan indeed be reached. The next step is to ask students to create lists of dichotomies through aclassroom discussion, carefully managing it to bring out relevant dichotomies and set aside ideas thatdon’t work. It can be very difficult for some course participants to understand this concept if they arenot adept at thinking abstractly, so it is worth spending some time on this. One approach could be thefollowing:

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CASE 2: HONDA MOTORSFirst, create a list from the Honda case (e.g. humane vs. efficient work).Second, develop a list of other dichotomies drawn from their own work experience (e.g. whatappeartobecontradictorypressuresontheirbehavior,suchasteamworkcombinedwithindividualized reward systems).Third, review and get course participants to explain the broad strategy dichotomies.Fourth, if a counterpoint might prove useful, Reading 5.1 by Michael Porter can be used. Cost anddifferentiation can be presented as polar points on Figure 2 of the Honda case study. Porter isinteresting because his points are not at the extremes (firms following the cost strategy must beardifferentiation in mind too). He is also interesting because he does not permit a sliding trade-off;any attempt to do so leads to ‘stuck in the middle’, the bottom left hand corner of Figure 2. ForPorter, the top right hand corner is unattainable (despite his typical caveats; see Porter, 1996, forhis admirable defense of this – we believe fundamentally flawed – approach).Fifth, only at this point would we attempt to get course participants to isolate the strategicdichotomies their (former) firm faces - indeed this may best be left until later in the course in thecontext of the in-depth chapters of the text. The Honda case should nevertheless have made thistask less daunting.Of course, the Honda case can also be used in shorter courses and one-off seminars as a tool to quicklyintroduce the concept of ‘reconciling managerial dichotomies’ without participants having read thebook. This leaves participants the freedom to focus on the dichotomies that they find most interestingand/or relevant to their practical situation.Case Questions1.What are the major strategy tensions/dichotomies that Honda has attempted to reconcile over thepast 50 years?2.DoHondamanagersviewthesetensions/dichotomiesaspuzzles,dilemmas,trade-offsorparadoxes? Explain.3.Whattypeoforganizationandmind-setdoyouthinkareneededtoreconcilestrategytensions/dichotomies in the way Honda has?Case Analysis1.What are the major strategy tensions/dichotomies that Honda has attempted to reconcile over thepast 50 years?The case describes many tensions/dichotomies that Honda has attempted to reconcile, but mostly theyhave been framed as general management issues or dichotomies at the functional strategy level (e.g.production and product strategy). Yet, with a little discussion, many of these dichotomies can bereframed as the fundamental strategy conflicting demands discussed in this book:Deliberateness vs. emergentness. In the case this tension is identified as the dichotomy of planningvs. learning.Revolution vs. evolution. While describing Kawamoto’s reforms, it is argued that Honda did notradically switch to a new mode of doing business, nor where the changes gradual and gentle.Honda’s approach to change combined revolutionary and evolutionary characteristics.Markets vs. resources. In the case this tension is only mentioned in passing as the dichotomy ofmarket positioning vs. developing internal resources.Responsiveness vs. synergy. At the beginning of the case the dichotomy between individualismand groupism is discussed in depth. At the corporate level this issue is translated into the tensionbetween individual business units responding to the demands of their own businesses, whilerecognizingthegroup’spotentialforachievingsynergiesthroughtheleveragingofcompetencies/capabilities.

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STRATEGYBOB DE WIT AND RON MEYER, 2010Competition vs. cooperation. In discussing the relationship with its component suppliers, thisdichotomy is brought forward.Globalization vs. localization. This tension is raised in a slightly different way, as the generaldichotomy of Japanese vs. Western management. Looked at differently, the question for Honda isto become a nationless company versus one with a strong Japanese identity.At this moment the professor might want to complete the full list of 10 tensions, to give students anoverview of what is to come, and ask whether students think these additional tensions are also relevantfor Honda.2. Do Honda managers view these dichotomies as puzzles, dilemmas, trade-offs or paradoxes?Explain.InthecaseitbecomesclearthatwhileHondamanagersaccepttheexistenceofthetensions/dichotomies, they constantly seek to find innovative ways of reconciling them. In otherwords, they do not see the tensions/dichotomies as:A puzzle. If Honda managers would view the tensions/dichotomies as a puzzle, this would meanthat they would strive for the one optimal solution for bringing together the two sides. In otherwords, seeing a tension/dichotomy as a puzzle means viewing the two sides as false opposites,which logically can be brought together into one best approach.A dilemma. If Honda managers would view the tensions/dichotomies as a dilemma, this wouldmean that the two opposites would be mutually exclusive demands. Honda managers would haveto choose for an ‘either-or’ solution.A trade-off. If Honda managers would view the tensions/dichotomies as a trade-off, this wouldmean that meeting one demand would always be at the expense of meeting the other demand. Inother words, Honda managers would accept a static zero-sum game between the two opposites.Rather, Honda managers believe that the tensions/dichotomies should be viewed asparadoxes, that is,as seeming contradictions. They believe that the two opposites can be bridged, in other words theparadox can be transcended. However, every new reconciliation is not the final resolution of thetension, but merely a better solution than previous ones. This leads to a constant drive to find evenbetter ways of getting the best of both worlds.A follow-up question to gain more depth would be:Is it likely that Honda managers and employeesthink precisely in the way the case suggests, or is this in fact just another Western interpretativeimposition?This is an open question to which we can give no definitive answer. There is some clear evidence thatHonda managers and engineers think more or less explicitly in terms of reconciling dichotomies. Thecase study presents two examples. Figure 3 is Honda’s own figure, showing the relation between fuelconsumption and the power of the VTEC engine, and Exhibit 4 (‘we aren’t interested in trade-offs’)with its overt dichotomy-resolving language. Mito1(1990), while less analytical, suggest otherexamples. Moreover, Honda’s ‘revealed strategy’ can be coherently interpreted in this way. On theother hand, some Western managers from Honda, as well as senior Japanese executives at thecompany, have seemed somewhat bemused when asked about this way of thinking. Wherever the‘truth’ lies, simply posing the above question to course participants - particularly in tandem with ashort discussion on explicit and implicit forms of knowledge (link to Chapter 2) - can generate usefuldiscussion in class. Of course, it might be that the ‘revealed strategy’ at Honda described in the casestudy reflects what is in fact an implicit mode of thinking, possibly tied to Japanese culture, which thecase study has misrepresented. Yet, it might still be valid to make this mode of thinking explicit, as thecase study does, in order to communicate the underlying conceptual framework to a Western audience(link to Reading 1.4 on cultural diversity).1Mito, S. (1990)The Honda Book of Management, Kogan Page, London.

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CASE 2: HONDA MOTORS3.Whattypeoforganizationandmind-setdoyouthinkareneededtoreconcilestrategytensions/dichotomies in the way Honda has?This question is intended to lead the discussion towards the issues in the following chapters, strategicthinking and strategy formation. The issue of mind-set refers to the discussion that will take place inChapter 2: how much logic and creativity does the strategic thinker need to be able to reconciletensions? It can already become clear in this discussion that it is necessary for strategists to understandthe nature of the strategy tensions, but that analytical reasoning is probably not enough to breakthrough dilemma or trade-off thinking. A certain measure of innovative ability is needed, whichsuggests that creative thinking probably is an important ingredient of a strategist’s art.The discussion on the organizational characteristics needed to encourage dichotomy reconciliation willanticipate the debates that will take place in Chapters 3 and 4, where questions of experimentation andlearning are on the agenda.A follow-up question to gain more depth would be:Is it really practicable to resolve strategicchallenges by first formulating them as dichotomies and then attempting to reconcile them?In the answer to this question a distinction needs to be made between using this method as a classroomteaching approach or as an in-company strategy problem-solving approach. This issue is alreadydiscussed at more length in the introduction to the teaching guide, of which this teaching note is a part.However, we would like to add the following reflections on the first version of the case (published inBaden-Fuller and Pitt, 1996) in which Martyn Pitt and Peter McNamara report on how the reactionswere to the first classroom usage:Overall, students tend to polarize around three positions over the [...] issue. One group, theless experienced, tend to miss the point completely and will need help from the instructor tohelp them through the issues. A second group argues that it is ‘academic tosh’, while a thirdgroup argue that Andrew Mair is ‘really onto something here’. An example of a debate inone executive MBA group illustrates how polarized this debate can become. Individual A,who believed the [dichotomy reconciliation] idea to be valuable, lambasted individual B,who believed the idea to be academic tosh, saying that he believed the relative decline of B’sfirm over many years was largely the result of the inflexible, collective black-or-white butnever grey mind-set so well exemplified by B’s reaction in class!”This diversity of reactions indicates that the case study is a potentially challenging one, for two groupsof students. Even so, the value of the case in the context ofStrategy: Process, Content, Contextas awhole is that it permits some of the book’s key issues to be brought out, debated, and rehearsedthrough a single, encapsulating, case, towards the beginning of a course. As such, the case cangenerate enthusiasm and/or be rewarding for some participants - those who were already implicitlyconverted (the third group above), and those (the first group above) who can thus be more gentlyshepherded into the daunting intellectual world presented in the book. As ever, the existence of a fewskeptics (the second group above) willing to voice their views permits the enthusiasts to deepen theirown understanding and sharpen their thinking by defending the case study’s analysis of Honda.Meanwhile, the first group can be encouraged to follow the debate in hopes of an intellectualbreakthrough. As for the skeptics - sometimes ‘hard’ managers used to making ‘tough’ decisions’ -they can only be converted to at least accepting such different and ‘non-natural’ ways of thinking attheir own pace. Although this can perhaps be accelerated, if you are working in a traditional academicsetting, by a requirement to answer an examination question on the subject.

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STRATEGYBOB DE WIT AND RON MEYER, 2010What Happened After the Case?The reconciling strategy of Honda, as clarified in the case, seemed to be very successful at the timethis case was written. But did they manage to continue this strategy in the years after and if so werethey successful?The Company has grown to become the world’s largest motorcycle manufacturer and one ofthe leading automakers. Honda incorporates a global network of 396 subsidiaries and 105 affiliates byMarch 2009. Honda develops, manufactures and markets a wide variety of products, ranging fromsmall general purpose engines and scooters to specialty sports cars, to earn the Company anoutstanding reputation from customers worldwide.Honda and the automotive industryInthepastdecadetheautomotiveindustryfacedastrongforcetowardsconsolidation.TheDaimlerChrysler merger created a new giant and the acquisition of Volvo by Ford and the alliance ofNissan Motor and Renault were signs of this trend. The reason for this radical move to consolidationis the strong belief that in the future there is only space for tiny boutiques and giant sellers. ‘There willbe room for niche players with strong brands. Otherwise you’ve got to have volume’. This is a quoteof the president of GM North America in 1999.But Honda was and is not willing to choose between these two strategies and tries to survivein the middle between the ‘goliaths’ and the ‘dwarfs’ (niche players) in the market. In order tooutperform their competitors, Honda introduced flexible manufacturing systems. In this way they canproduce up to 8 models on 1 production system and by doing so Honda strives to manufacture as cost-efficiently as possible. The positive side effect is that Honda is able to respond quicker on marketchanges than their competitors. Not a trade-off is made between these two elements, but Hondacombines both of them.Did this way of dealing with this dichotomy pay off for Honda or were they wrong and wasscale the most important aspect in the automotive industry? To show this, the stock prices of Hondawill be compared with Ford and Daimler Chrysler, two giants in the automotive business.Source: tools Morningstar.comThe figure before shows that Honda outperformed two of the biggest competitors in the market in thepast ten years. The figure also shows an intensive increase in return for Ford in the years 2004-2005.As a reason for this success, Ford states it reduced overheads, cut product expenditures, and slashedwarranty costs. At the same time, it boosted revenues by targeting incentives and increasing theproduct mix. Apparently they were not able to continue this track since the returns decreased to the oldlevel after 2005.International contextHonda states they are following a ‘glocalization’ strategy, because they have a global focus but stilluse local knowledge, combined with effective operations. In practice this means for Honda that they

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