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Interdependence of Resource,
Capabilities and
Competencies in determining
Company’s Strategy and
Performance
A case of “HERO HONDA”
Submitted by
Derrick Vijayan
2009
CONTENTS
Contents.................................................................................................................2
Abstract .................................................................................................................3
Phase 2:1994-1999...............................................................................................11
Phase 3: 1999-2009..............................................................................................16
Strategic Shift.......................................................................................................19
Conclusion............................................................................................................23
References............................................................................................................24
ABSTRACT
We have taken the case of Hero Honda. Hero Honda started its motorcycle
business in 1984 after collaboration with Honda, Japan. They started with the
production of CD-100 first 4 stroke bike in India. In the last three decades they have
undergone sea change in their strategy. We will study the change management in an
agile firm like Hero Honda.
The Last three decades have been divided in three phases. During first phase
of 1984-1994, they stressed on resource view of Strategic development. During the
phase two of 1994-1999, they made their Business strategy as market penetration and
Consolidation. During this phase they launched their most successful Bike
“Splendor”. During third phase of 1999-2009, they have strategic focus on market and
Product Diversification in the wake of increasing competition from external market.
The study carried out in this report comprises of views from various Literature
including Firm resources and Sustained competitive advantage (1986,’91) by jay
Barney, Competitive strategy (1980), Competitive Advantage (1985) Why are firms
Successful? (1990) by Michael Porter, Resource based view of manufacturing
strategy (2002) by Roger R. Shroeder, Kimberley A. bates and The Resource-Based
Theory of Competitive Advantage: Implications for Strategy Formulation by Robert
M. Grant.
HERO HONDA AND HERO GROUP
The prime motive of the Hero Group is "Engineering Satisfaction" and it has
become a way of life and a part of the work culture of the Group.
From now on, we would mean Hero Honda Motors Ltd. whenever we state
either “Hero Honda” or “HHML” and the Hero Group in totality when we state
simply “Hero”.
Phase 1: 1984-1994
During this Period, they launched first 4-stroke bike CD-100. They stressed
more on Developing dealer and supplier network, they had focussed on operational
efficiency. They followed market diversification strategy as their Business strategy
with campaign “Fill it, Shut it, Forget it”.
Phase 2:
Phase 3:
In the wake of outside competition from Bajaj, TVS, Honda, they started with
Business strategy of Aggressive Marketing and Market Diversification. Their
campaign during this period was “Har Gaon – Har Aangan”. At Resource
development level, they stressed upon Product Innovation and Product Diversification
3. Cost Competitiveness: Although the variety is enough in market, yet the sub
125cc vehicle segment is very much cost competitive. Also India is fast
becoming low cost manufacturing hub.
4. Increasing consumer demand: It has been mainly driven from high Income of
Indian market. Other factors are easier financing, Lower interest rates,
urbanization, Poor public Transportation system.
RESOURCE BASED VIEW OF STRATEGY DEVELOPMENT:
Phase 1: 1984-1994
During This period resources developed by hero Honda can be seen from
various frameworks point of view.
Strength:
1. Operational: They stressed upon Six sigma, Just in time, ERP. Through
Anciliarization, they achieved close virtual Integration with suppliers.
They developed very good Distribution and after sales Network.
4. Financial Strength: with Zero debt, They had their say in decision making
capability. Also they have shown double digit growth till date.
The manufacturing Capability and resources of Hero Honda can be seen under the
framework developed by (St. John and Harrison, 1999). The resources and
Capabilities are divided under three categories namely proprietary Process and
Equipment, Internal learning and External learning.
CLASSIFICATION OF RESOURCES
The Resource of Hero Honda can be classified under three heads namely
Physical capital (Williamson, 1975), Human Resources (Becker, 1964),
Organisational (Tomer, 1987).
Resource based view developed by jay Barney (1986, 91) take the assumption of Firm
resource heterogeneity and Firm resource Immobility. To achieve sustainable
competitive advantage, an organisation should have its resources as Valuable, rare,
Imperfectly Inimitable and Organisational capability.
Increased loyalty
2. Rare
Anciliarization
3. Inimitable
Distributor network
Brand value due to Honda “It’s the Honda that makes it Hero”
4. Organization
Good HR policy
CSR activity
8.2 Competencies:
1. Technical Superiority
2. Manufacturing Excellence
5. Visionary Leadership
Strategy
Based on These resources and Competencies, The strategy developed was to strive for
synergy between technology, systems and human resources, to produce products and
services that meet the quality, performance and price aspirations of its customers and
to maintain the highest standards of ethics and social responsibilities.
Impact on performance
The sales in terms of number of Motorcycle grew from around 40000 in 1985-86 to
around 180,000 per annum in 1994.
PHASE 2:1994-1999
Business strategy
Marketing strategy
• Focused on Market Consolidation across country with punch line
“Desh ki dhadkan”
• Sub125cc became Star (BCG matrix)
BCG Matrix:
• Splendor launched in this phase became star and till date they are
reaping maximum benefits from it.
• CD 100 had crossed breakeven phase and it got the position of Cash-
Cow from star, now it was profiting the company without any investment
required.
• Street that was launched in last phase became famous in overseas
market but it was not liked in domestic market and so they had to divest this
brand which got position of question mark in BCG matrix.
• Sleek was the dog in matrix and hence they had to kill it.
Value Chain Analysis
Value Chain Analysis
Primary Activities
1. Inbound logistics
3. Outbound Logistics
“Fill it, shut it, forget it” - To show value for money
5. Service
One of the best after sales service in Industry
PHASE 3: 1999-2009
Competitors are
Product diversification: In this phase Hero Honda has launched 5-7 new
models almost every year. They diversified their product based on target customers
groups
Branding strategy: They have launched new bikes keeping in mind needs of
various segments of customers like family, office-goers, youths, girls etc.
Market
Apr-Jun Apr-Jun Growth (%) Share %
STRATEGIC SHIFT
Product Diversification
They launched on an average 6-7 models per yr for last 5 yrs (2004-09). Some
of the Successful models are Hunk, Glamour, Karizma, Pleasure, Hunk, and
Glamour. They cater to various 125cc+ Range.
With changing scenario in international market, they have come up with
collaboration with Ultra to produce Electric Vehicle named “Hero Ultra”.
R&D Expenditure Increased
In this phase, R&D base has been developed for “Hero Honda” in India in
collaboration with “Honda”. Now the engineers collaborate in bringing out better
products to suit Indian condition for different segments.
Market Diversification
They have now started targeting to High End Niche segment also, which means
that they have moved from sub125cc segment.
They have also launched first Scooter for Women
Branding
During December 2007, They came up with campaign Har Gaon – Har
Aangan to cover 25000 villages. They have found that sub125cc segment market is
there in villages.
They have roped in cine stars Hrithik Roshan, Priyanka Chopra as Brand
ambassador. These efforts have given them better Brand visibility than earlier phase.
They have even roped pulled in Cricketers like Virender Sehwag, Harbhajan singh for
advertising.
Positioning for Different Segment
• Young ladies - Pleasure ad “Why should boys have all the fun”
• Young and Brash - MTV Roadies - Brand Association
• Family oriented segment – “SA RE GA MA PA” Association
In the first phase they have mainly targeted only the office-goers middle class
customers and they were mainly emphasized the technical efficiency of Honda and
robustness of CD-100 bike through fuel efficiency.
• Differentiation
• Uniqueness
• Broad target
• Differentiation Strategy
• For each range separate products
• Hunk, Ambition, Splendor NXG, Karizma, CD100, Pleasure
• Differentiation based on Quality and features
• No cost leadership
• Positioning for each segment done separately
Financial performance
Sales performance
CONCLUSION
While in Phase 1 &2, Hero Honda adopted the Resource driven strategy to
have sustainable competitive advantage. During phase 3, its strategy was Environment
Driven Strategy. Hence, we see that as these variables changed, Hero Honda changed
its strategy. Which shows agility in Strategic approach of Hero Honda?
3. J B Barney, 2001, Is the resource based view useful perspective for Strategic
management research? Yes, Acad of Mgt review 26, 41-56
6. Hero and Honda — Fill it, shut it, forget it? By Raghuvir Srinivasan Business
Line
7. Swaraj Baggonkar / Mumbai July 12, 2009, Hero Honda aims for 25% growth,
Business Standard
8. J F rayport, JJ Sviokla, Exploiting the virtual value chain
9. C. K. Prahalad & Gary Hamel, Strategy as stretch & Leverage
10. WWW. Herohonda.com
11. www.herogroup.com
12. www.indiatoday.com
13. www.businessweek.com