In boom times, when demand is growing, it is no trick for managers to boost their top lines (revenues) and bottom lines (net profits). But in bad times, when demand is contracting, that indeed is a great achievement.  Let us therefore look more closely at Honda.

In America, where high oil prices and the housing bust have mangled consumer spending, GM Ford and Toyota report large sales declines: 18 %, 14% and 7%, respectively. (International Herald Tribune, August 26, 2008, p. 11).

Honda? Its U.S. sales are up 3% this year and it is struggling to maintain inventories, as its cars ‘fly out of the showrooms’. Its U.S. operations remain highly profitable.

Why?

A brilliant combination of what Jerry Porras and Jim Collins, in their classic 1991 California Management Review article, call: “core values and purpose”, and “dynamic change”.

From the time Honda’s namesake founder Soichiro Honda built a fuel-efficient engine with his own hands decades ago, Honda has stuck to its core values of fuel efficiency. When GM, Chrysler and even Toyota chased the high-margin market for SUV’s and trucks, Honda stuck to its core values. Its new FIT hatchback, which uses only 7 liters of gasoline per 100 kms., is a huge hit, and its sales are up 79 % this year! Honda’s CIVIC and Accord models are also selling well. 

I sometimes use a yin-yang diagram to illustrate the key management dilemma, of retaining core values while implementing radical change. This is one of the toughest dilemmas in innovation management: What to keep, what to change. Some companies innovate away their core values. Invariably they self-destruct – GM, once the world’s largest industrial corporation, is diving toward single-digit ($ b.) market value and may be approaching bankruptcy. 

Honda innovates within its core values. And its bottom line proves why this is wise.

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