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Honda puts 'Japan First'

Management chaos is in the rearview mirror as new framework takes hold

Honda plans to release the Civic in Japan for the first time in six years.

TOKYO -- As the dawn of the new year opened, Honda Motor Executive Vice President Seiji Kuraishi said the automaker would concentrate on energizing Japan, its home turf. Kuraishi's remarks indicate that reforms led by President Takahiro Hachigo have entered their final stage.

Hachigo became president in June 2015, and his project -- called "Team Honda" -- aims to clarify the roles and powers of each department for total optimization.

"An all-star team comprised of cleanup hitters from each department did not work as well as we'd hoped," Hachigo said. "Everyone does not need to be a superman. A team in which diverse people understand and complement each other's strengths and weaknesses will work."

Hachigo has steadily restructured his company to make such a team. He has endeavored to run the company efficiently by incorporating regions and the functions of each department, such as development, production and procurement, in a balanced manner, like a tapestry.

He placed senior managing or higher directors at the top of each region and section in a move to delegate power. The president refrained from attending meetings in order to have directors in charge report to him about each transaction through close dialogue instead.

"It is important for senior executives to delegate more to their subordinates," Hachigo said.

After management plunged into chaos for allowing too much freedom in each region in the past, he crafted a brand-new framework.

Shake it up

This is why Honda is putting more emphasis on Japan. One executive stressed that although the automaker is promoting localization worldwide, its focus is on Japan. "Each employee in Japan must understand the aim of the reforms and raise awareness to improve our ability as a team," the executive said.

There are concerns that the top-down efforts will reach their limits sooner or later. Now, Hachigo's reforms have entered a phase where each employee's ability is being put to the test.

In addition to adopting a new management framework, Hachigo also dropped Honda's policy of "closed innovation." In an about-face, the automaker has actively partnered with other companies in advanced technologies, such as electric and self-driving cars, under the slogan of "open innovation."

Honda partnered with Waymo, the self-driving-car unit of Alphabet, on fully self-driving cars. It joined forces with General Motors in the development and production of core systems for fuel cell cars. And earlier this month, the automaker tied up with Hitachi Automotive Systems, a unit of electronics maker Hitachi, on electric car motors.

Amid a paradigm shift of technical innovation in the auto industry, Honda is sorting out which technologies they will develop on their own and which they should partner on with other companies. Hachigo said the process is almost complete.

Takaki Nakanishi, CEO of Nakanishi Research Institute, said open innovation is the right direction for making research and development efficient, but warned the idea may be pie in the sky unless employees fully adopt it into their corporate culture.

Honda's employees, particularly its engineers, are known for being strong-willed and independent. Unless the spirit behind the reforms is shared by all employees, the hoped-for synergy from tie-ups cannot be expected.

Winning formula

Honda's earnings are recovering. Its net profit is expected to jump 58% on the year to 545 billion yen ($4.79 billion) for the fiscal year through March. The automaker's operating profit margin of 5.7% is below its recent peak of around 7% to 8%, but has risen by more than 2 percentage points from the previous year.

Honda's global sales are expected to top the 5 million mark for the first time. Its global models -- such as the Civic and the CR-V SUV -- are likely to boost revenue in North America and China. Honda is bringing back its old winning formula of narrowing down global models and selling them worldwide efficiently.

Stock market players have responded positively to Hachigo's reforms, sending the automaker's stock price 3% higher than the end of last year. That is a stark contrast with other Japanese automakers, whose stock prices have tumbled due to concerns over U.S. President Donald Trump's protectionist policy. Mazda Motor's share price has tumbled 21%, while shares in Toyota Motor and Subaru maker Fuji Heavy Industries have been down 9% and 11%, respectively.

Locally produced cars account for 70% of Honda's U.S. sales, second only to Ford Motor, according to Kuraishi. Investors value Honda's high local production ratio, betting that the automaker is insusceptible to Trump's wrath.

It is important to energize reforms in Japan to give a boost to the current upward trend. However, Nakanishi remains skeptical. "Current Honda employees have not seen their company falling into a critical condition. They should not forget about the past," he said.

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