Car recall issues in Honda and how the company has been successful in addressing such

Author: Iloka Benneth Chiemelie

Published: 20th February 2014

1.0 Introduction: issue of break-failure in Honda

Just like every other auto-maker, Honda positions its self as being safe by it also differentiates the value with its logo of “power of dream,” which is designed to communicate the idea that the company is all about innovation and constant change for the purpose of meeting consumed needs (Honda, 2013). This study aims to analyse how the Honda’s recall of its cars for break related issues influenced consumers’ trust and what the company did in response.

1.1 Appreciation of the issue

The company alerted all affected brands via email (Honda, 2012) and even designed a website where customers from across the world can check to determine whether their cars were amongst the affected brand.

Figure 1: Honda’s official website for checking recalled brands

The figure 1 above is a clear demonstration of how the company appreciates the importance of the recall. This is also a sort of customer relationship management designed to assure customers that the brand is always watching for issues that might influences their overall service experience negatively and it is always committed towards ensuring that such issue are mitigated.

1.2 Causes of the problem/issue

In accordance with CNN News (2012), the ignition switch issue is cause because the key can actually be removed while the car is not yet in the park mode. This means that the car can actually roll away and causing potential damages to properties and lives around. As noted earlier, there have been cases of this issue causing injuries in people across the world and it make sit significance for Honda to address it in order to reduce such cases.

1.3. Effects of the problem/issue on organisation's performance

From the CNN News review (2012), it was noted that this issue has negative impacts with respect to consumers’ trust and loyalty towards the brand. This is because automobiles are very sensitive products and consumers can easily be peeved off by cases that reflect company’s incompetence to deliver high level of trust in the brand.

Figure 2: impact of recall on financial performance of Honda

Source as adapted from: Honda (2013)

Besides the reflected discussions presented by CNN, the above financial analysis shows that the net sales, operating income, and net income all experienced negative outcome. Thus, it can be stated that the negativity of this outcome is due to the poor performance of the company as influenced by low demands due to the associated level of insecurity and fear that might be in the consumers’ mind following the recall that sent signal of associated risk with using the brand.

1.4 Approaches adopted by Honda to address the issue

From the above discussion, it can be seen that it is very significant that the company undertakes necessary actions in order to ensure that this issue is actually revolved before it transforms into the expected negative outcomes. Forbes News (2012) also noted that once the company noticed the issue, it was quick to address it by recalling the affected cars and fixing the issue as discussed above. 

1.5 Success of these approaches

Service recovery has been described as important when it comes to addressing consumers’ complaints and regaining their trust (Bolton and Drew, 1991; Churchill and Suprenant, 1982; LaTour and Peat, 1979; Oliver, 1980; Yi, 1990). The approaches adopted by Honda can be described as successful because the company has been able to identify the issue with its cars and recalled it for fixing. Thus, it creates a sense of security for the users that Honda will always address any potential issue with its cars. The outcome is a subsequent increase in trust towards the brand.

2.1 Appraisal of the approach used

In the course of any decision making process, past researches has made known that the kind of solution adopted depends on the issue that the company expected to solve with such solution. In the case of Honda, the company adopted a more rational solution of recalling back all affected cars in order to fix the issues that has been reported in these cars.

3.1. Appropriate decision making techniques

In order to ensure that the right strategy is adopted in terms of decision making, the company is advised to adopt the SAF model as described below.

Figure 2: safe model

Source as adapted from ACCAGlobal (2010)

3.1.1. Suitability of the strategy– the suitability model tries to analyze all the business environment in relation to the political, economic, socio-cultural, technological, legal, and environment factor that can impact on the success of the business. As such, it will seek to understand the business environment of the new business proposal in relation to its market size, the fact that the business is actually legal under the law and can actually be run by an individual and not a government agency.

3.1.2. Acceptability of the strategy– the acceptability measure seeks to understand the level of how the business strategy is acceptable to the company in terms of the level of investment required and how the company will source for such. Thus, the company will only be able to adopt the strategy if it can shoulder the investment needed.

3.1.3. Feasibility of the strategy – the feasibility measure is used to determine the possibility of the business actually becoming successful. This factor measures the resources in the company in relation to the workforce, available capitals, materials needed and the level of investment required.

3.2. Appropriate third development opportunity: expand business line

From the above analysis, one could argue that the company might have omitted the most significant approach for increased growth in the form of expanding its products and service lines. Although the increases in automation and expansion into new markets have been proven to increase business profitability when properly managed (Jones, 1991; Weber, 1996; Douglas et al., 2001; Kish- Gepnant et al, 2010), expanding the product range is actually the easiest and best approach. This is because by expanding its product line, the company will attract more markets in the same UK and France, thus eliminating the challenge associated with expansion into foreign markets due to differences in culture and also the issue of sacking employees as these employees can actually be shifted into the new product lines.

The benefit of this approach is that it not only solves the issues associated with the two choices made by the manager, but it actually creates room for more opportunities such as:

3.2.1 Increase in sales – the company will be able to increase its sales in the same market by providing other products and services that meet other needs of the market.

3.2.2 Enhancement of employees’ skills – by shifting some of the employees into the new business line, they will be able to acquire more skills and it will increase their proficiency.

3.2.3 Increased competitiveness – through the expansion of its product line, the company will be able to increase its competitiveness in the market as it will be leveraging possible losses in one segment with gains from another segment

3.3. Issues with the three business options: expansion into foreign markets

Another plan that the company has is to expand its business operations into foreign market. This is very strategic due to the fact that will be able to increase its customer base and as such increase sales in the process. Researches have shown that as the world increasingly become globalized; business expansion is something that companies need to look into as they can no longer rely only on their local market (Everwijn et al., 1990; Nutt, 1992; Barnard, 1992; McFadzean and Money, 1994; McLeod et al., 1995). The understanding from such analysis is that expansion will increase the sales and profitability of the business due to an increase in customers’ demand; it will also increase the managerial competence of the company as a result of its management of businesses in different markets; and it will also increase brand awareness, competitiveness and talents in its workforce. Thus, it is expected that the company will benefit all these features but this also comes at a huge price in terms of challenges to be faced and these challenges include:

3.3.1 Differences in culture can create differences in demand and workforce performance – cultural differences are the main issue that companies face when it comes to business expansion and that is because what is obtainable or acceptable in one culture could be different from the obtainable norms in another culture (Guzzo & Dickson, 1996; Jehn et al., 1999; Milliken & Martins, 1996; Pelled et al., 1999; for a review, see Williams & O’Reilly, 1998). For instance, the company currently maintain business operations in the UK and France, which are both masculine countries; competition is deemed necessary for survival; people are individualistic; and employment is based on contract that can be terminated nay time. Thus, if the company expands into another country that is feminine in nature where the focus is on nurturing the environment and people are employed more on life-term bases such as Sweden and Japan, they could be facing huge employee relations issues that can have both negative influence on its profitability and brand image. Additionally, while toys are demanded heavily in the UK and France, it might not be the case with African countries and expanding in such places where demand is low will definitely mean a decrease in sales due to low demand.

3.4. Further information needed in order to make the business decisions

In order to provide business solutions that have some level of assurance as t the success of the new ideas, a number of information need to be put together and they include:

3.4.1 An understanding of the consumers’ needs through market research – the company need to understand the different needs of consumers from the different market and this can be obtained with market research. They will then make use of such understanding to create products and/or services that are tailored for these needs, thus increasing the chances of demand and other success of the new business in these foreign markets.

3.4.2 Availability of competent management system – another factor that can have direct impact on the success of the new business establishment is the competency of the management system and the company need to ensure that they have such within its stream, or make recruitment in cases where they are not available.

The above two information are the most significant when it comes to measuring the success of the company in international markets because they revolve around the ideology of understanding what the market needs and having the right network of management and staffs to address these needs effectively and efficiently.

3.5. Implementation strategy for expanding business live

First, the company need to identify the business line (product and/or services) that maintains higher chances of success in the foreign market, as well as understand the changes needed by customers in this product line. Based on the identification, the company will then adopt the second strategy as to innovate this product lines with new and innovative products and services that customers can easily differentiate from existing ones. The final approach is to monitor the level of success gained with the new product line as well as control the sales volume in order to ensure that these products lines are in line with the corporate value and culture and intended outcome from the business process. The above approaches will ensure that the company maintains sustainable chances for success in the new business development as differences can exist between consumers’ needs and market environment.

4. Conclusion

From the above discussion, it has been demonstrated that strategic decision is the right key for sustainable development and business growth. This is because it combines all elements of decision making process and scrutinizes them in order to determine the right approach that a company will adopt to solve specific problems. Thus, the discussion has shown that instead of laying off 500 works in order to automate its system and expanding into foreign market, the company can actually ensure sustainability by expanding its product lines in the same market where it has worked for years and gained brand awareness as well as managerial competence in the process. This is the best solution as it eliminates the issue of low motivation from lay off and cultural differences in foreign markets.