Asia > Eastern Asia > Japan > There’s no doubt we lost our mojo - our way as an engineering company that made Honda Honda

Japan: There’s no doubt we lost our mojo - our way as an engineering company that made Honda Honda

2017/09/08

The driver punched the air as his red and white Honda McLaren roared over the finish line. It was Suzuka, Japan, 1988, and Ayrton Senna had just become Formula One world champion for the initial time. The McLaren racing team and its engine maker, Honda Motor, were unstoppable that year, their drivers winning all but one of the 16 grand prix races.

Off the track Honda had been tasting success, too. In the 1970s, its engineers had raised the bar for fuel efficiency and cleaner emissions with the CVCC engine. In the 1980s, as its engines were propelling Senna to multiple victories, the Civic and Accord cars were redefining the American family sedan. In 1997, Honda became one of the initial carmakers to unveil an all-electric battery car, the EV Plus, capable of conference California’s zero emission requirement.

Jump forward almost 30 years from that Senna moment and Honda is flailing. On the racetrack, the Honda McLaren partnership is in trouble: The team is without a single win this season, and McLaren is losing patience with its engine supplier and speaking of a parting of the ways.

Honda to focus on self-driving cars, robotics, EVs through 2030

On the road, the Honda fleet has been dogged by recalls. Additional 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 for the Fit and Vezel hybrid vehicles due to transmission defects. Honda has lost ground in electric cars to Tesla and others.

Hachigo joined Honda as an engineer in 1982 and became CEO in June 2015. Presently 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, additional 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 as well 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”)border to manufacturing. This culture of incremental development and production line efficiency, called “kaizen”, served the company well in the decades next World War Two, they said, but today’s challenges – electrification, computerization, self-driving cars – request a additional nimble and flexible approach.

Most importantly, they said, over the completed two decades company executives in Tokyo were given too much control over research and development. In their view, this led to shareholder price 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 major 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 us.

Honda’s revenues have grown strongly since 2000 and its operating margin stood at 6.0 % in the financial year ended March 31, 2017, compared with 7.2 % 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.

HONDA CIVIC LOSES ITS SHINE

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 % of revenue allocated to the tech arm, according to the current and former Honda executives and engineers.

At the same time as Takanobu Ito restored 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, whose major automotive center is near Utsunomiya, an hour north of the capital city by bullet train.

Honda’s popular Civic car was one of the casualties of these changes, according to the engineer in charge of the model’s redesign beginning in 2007. With a reputation for outstanding engineering, reliability and affordability, the Civic was one of Honda’s top selling cars.

“Right from the get-go, the program was about making cost savings in real terms,” the chief engineer for the redesign, Mitsuru Horikoshi, told us.

To that end the world automotive business unit, headed at the time by next CEO Ito, and the tech division decided that the redesigned Civic would use a lot of of the same components and systems as the previous model, inclunding the front and rear suspension systems and the front section of the car.

Civic engineer Horikoshi had finished a initial design setting down the basic engineering points by February 2008 and a additional detailed design by April. At the same time as rising gasoline, steel and other prices pushed up manufacturing costs by between $1,200 and $1,400 per vehicle, Horikoshi’s team refined their design to improve the car’s fuel economy. In early July 2008 they sought management approval for their plan at a conference in Torrance, California, Honda’s U.S. sales headquarters.

World automotive chief Ito said he would review the design overnight, Horikoshi recalled. The next morning, Ito came back and told the team to make the car smaller and cheaper to produce, and complete the redesign by the end of that month.

“With one blow of a cost chopping knife, Ito basically told us to take our design back” to the initial plan. “It’s just unheard of. It was unprecedented,” Horikoshi said. Honda was once a leader in innovation. Its engines dominated Formula One and set new standards for fuel efficiency and clean technology. But in recent years the firm has lost its edge. Presently Honda is trying to rediscover its ‘racing spirit.’

To meet Ito’s specifications, Horikoshi used cheaper materials and made the car smaller, cutting its length by 45 millimeters and its width by 25 millimeters. He as well reduced the wheelbase, the distance between the front and rear axle, by 30 millimeters.

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 car.

“I by presently had my pants down to my ankles – nothing additional to shed,” Horikoshi said.

At the same time as the 2012 model year Civic went on sale in 2011, it was met with a barrage of criticism. Influential U.S. magazine Consumer Reports dropped the car from its recommended inventory for the initial time since it began rating vehicles in 1993. It criticized the new Civic for a poor quality interior and uneven ride.

R&D chief Matsumoto said the episode is a lesson that creativity should not be sacrificed on the altar of shareholder price. During previous assignments for Honda in Thailand and India, Matsumoto said he had looked at headquarters from afar and recognized a lack of creativity there.

“We have to be allowed to go wild at times. If you operated a technology center only from an efficiency perspective, you’d kill the place. Which is exactly what happened at Honda. We don’t want headquarters people telling engineers what to do,” he said.

Honda went back to the drawing board. The redesigned model that restored the 2012 Civic was named the 2016 North American Car of the Year by car journalists.

Ito and Fukui did not respond to questions from us about the Civic. A former senior executive said the decision to reduce costs was taken in the context of a world economic slowdown. Honda’s chief spokesperson, Natsuno Asanuma, said the focus on shareholder price under previous management was “for the sake of the company’s next.”

James Chao, Asia-Pacific chief of consultancy at IHS Markit Automotive, said Honda failed to keep up with developments in suspension and transmission during Fukui and Ito’s tenure, but the firm was doing well enough financially, which masked the problem.

“One could argue that Honda nonetheless performed nearly as well with the lower investment , but it was hard not to see that they were no longer leading in some technology areas,” said Chao, who is based in Shanghai. Honda’s rivals, such as Ford, were not reining in costs to the same degree, Chao said.

At the same time as Honda bosses were tightening the budget for the 2012 Civic, they were as well looking for savings in research and development.

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

Fukui, who became CEO in 2003, felt Honda was engaged in too a lot of 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 by presently lost several years to its competitors. Honda finally came up with a competitive plug-in car in 2013, 16 years next its original EV Plus. It is still playing catch up with the likes of Tesla.

Fukui did not respond to questions from us. 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.

FRUSTRATED TALENT

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

Honda’s management team, board of directors and operating officers were until recently all male and Japanese. The company named its initial foreign (Japanese-Brazilian) and initial female board members only three years ago.

In the fall of 2013, Berkman gave a speech in Motegi, Japan, at a conference of Honda engineers and researchers. His message was clear: It was time for Honda to tap the brainpower of all its engineers. Research staff in the United States, some of whom had worked at Honda for additional than two decades, were being treated like students, Berkman told an audience of roughly 500, inclunding the company’s top leaders, according to a transcript of the speech seen by us.

“We don’t want to be ‘indentured servants’,” Berkman said. “My attitude is: ‘This is my company too.’ Increasing diversity within Honda, and specifically Honda R&D, is our path forward.”

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

A lot of of those in the audience at Motegi, inclunding senior managers, congratulated Berkman on his speech, according to Berkman and two other participants at the conference. But in a little while afterwards Berkman was demoted from his role as Honda’s North American technology chief and reassigned to a additional junior planning position in an extra unit. “Maybe it had nothing to do with the speech. In my mind, it did. I kind of bit the hand that feeds me,” he said.

Honda declined to comment on the episode.

Berkman said he decided to retire from the company where he had worked for 33 years. “I had been planning for retirement for a lot of years and felt this was the right time to go,” he said.

Speaking to us, R&D chief Matsumoto acknowledged that Honda’s technology and research staff lack diversity.

“You only see Japanese faces in the place,” he said. “But we are repositioning tech centers in places like the United States, Thailand and China to function additional like satellite centers to our central labs in Japan, so as to encourage exchanges of people. Pureblood-ism doesn’t cut it. That’s our growing consensus.”

SKUNKWORKS

Japan’s manufacturing sector, particularly the auto industry, prospered in the post-war era by harnessing monozukuri principles of steady design development and lean manufacturing that encapsulate the Japanese reverence for craftsmanship in manufacturing. The aim was to produce vehicles with one-third of the defects of mass-produced cars using half the factory space, half the capital, and half the engineering time. Those efforts, honed over years, elevated the quality and reliability of Japanese cars to the point that by the 1980s consumers in the United States began choosing Japanese cars over U.S. made vehicles.

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.

Japan’s auto industry emerged in the post World War Two era by chipping away day in day out to improve products. That’s not going to cut it in the face of the rise of disruptive self-drive, connected car technology and electrification,” Matsumoto said. “The new era calls for a totally new approach.”

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 additional autonomy.

Honda has struck deals with third parties to accelerate evolution on its smart-connected electric car. These include an agreement with Hitachi Ltd to develop and produce motors for plug-in electric cars and a transaction with General Motors Co to produce hydrogen fuel cell power systems in the United States. Honda is as well in talks with Alphabet Inc’s Google to supply vehicles to jointly test self-driving technology.

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’s existence is little known inside the company. The team works out of Kyobashi, a neighborhood near Tokyo Station. Honda bosses declined to share the identities of its members.

They did share some of the ideas it is advocating. These include streamlining Honda’s product development process, which became bloated as the company got bigger, and developing underlying technologies for a range of vehicles to develop cars additional efficiently and respond additional quickly to changes in customer tastes. The group as well 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.”

 

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