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Honda's New CEO Is Also Chief Innovator

As Honda Motor (HMC) announced plans in mid-July for its 2010 hybrid vehicles, the company introduced a leader with a hybrid role: Takanobu Ito, its new president and chief executive, is also Honda's director of research and development. The decision to take on multiple roles while steering the automaker through the worldwide downturn is strategic. "The direction of the business and the direction of the technology need to be aligned as early as possible [in my tenure as CEO] so that we can maximize efficiency and effectiveness," Ito told BusinessWeek.

The business/engineering role seems to work at other companies. Apple (AAPL), which on July 21 announced a 15% jump in profit and record non-holiday revenues, is known for having a CEO—Steve Jobs—who is deeply involved in the design of the company's products. The revenues of BlackBerry maker Research In Motion (RIMM), whose co-CEO and founder Mike Lazaridis is an engineer, rose 53% in its first fiscal quarter of 2009. And now Honda, whose sales have plunged since the worldwide recession began, will try a similar path of right brain/left brain leadership.

"In an economic downturn, the available resources and our development capacity [have decreased]," says Ito, 55, a 31-year Honda veteran. "We need to make a good selection. [Doing both jobs] is a very good and rational solution." In other words, having knowledge of materials, engineering, and hands-on experience designing inventive products can help Ito make smarter business decisions about investments in new technologies and products.

Aiming for Affordability Ito's multitasking job is unusual for the world's major carmakers. "The big auto companies are so big, they tend to segregate duties," notes David Whiston, an analyst at Morningstar (MORN). The new arrangement could give the Japanese company the nimbleness of a startup, he says.

"He'll know without consulting anyone else what the capabilities of the company are. Plus, there won't be any arguments between the head of R&D and the CEO," Whiston says. "That will be a big benefit" in hurrying inventions to market.

In Ito's news conference on July 13, his first in the new role, he delineated how he will steer product development: Find out what customers want, and then cater to those desires as quickly and affordably as possible. He cited Honda's new hybrid car, the Insight, which could turn into the toughest challenger yet to Toyota Motor's (TM) Prius, as the type of product that consumers are looking to buy. The gas-electric car begins at $20,510, which is $1,240 cheaper than the lowest-priced Prius.

"From the very beginning, we wanted to aim for affordability. That was part of our development process," Ito told reporters. For instance, Honda engineers reduced the price tag of the hybrid system to just $2,000, which allowed Honda to trim its sticker price.

Dual Roles May Be Temporary Honda needs a boost. The 65-year-old company forecasts it will sell 200,000 Insights worldwide this year. But since the new model hit the U.S. market last January, it has sold 7,524 in America through June, and total sales in June in the U.S.—Honda's biggest market—were down 32.4% from last year. In its fiscal fourth quarter, which ended on Mar. 30, Honda lost $1.9 billion.

But even if sales don't immediately measure up, the Insight could pay off indirectly. Ito said Honda will use the Insight's hybrid system in its sporty CR-Z and compact Fit next year, "much earlier than planned," he said. The technology transfer should reduce development costs.

Ito has had a long history in both engineering and management at Honda. He joined the Tokyo-based company in 1978 as a 25-year-old engineer; he was first assigned to Honda R&D. In that role, one of his most noted innovations was designing an all-aluminum chassis, or body frame, for the NSX sports car. It was the first to be mass-produced by any automaker.

Over the years, Ito held a variety of posts at Honda. He was executive vice-president of the Honda R&D operation in the Americas from 1998-2000, broadening his perspective. More recently, he had been chief operating officer of Honda's automobile operations.

Although he's certainly had experience on both the business and design fronts, Ito makes clear that he's aware that wearing two hats will be challenging. He told BusinessWeek that the strategy behind the dual appointment might be temporary. That is, once he gets Honda back on track financially, he might pass the R&D post onto someone else.

"Both [jobs] are quite demanding, so I don't think I can do both for a long time," he says. "So once the direction of these two organizations is well aligned, then I will be dedicating myself to just being president [and CEO] of Honda Motor."
Rowley is a correspondent in BusinessWeek's Tokyo bureau.
Jana is the Innovation Dept. editor for BusinessWeek.

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