I'm happy to be a part of this first panel focusing exclusively on innovation. But I imagine that for many companies, the title of this session sounds a little ominous: "Innovate or die!" But at Honda R&D, it's a little different. Innovation is something of an internal belief-a core part of our culture driven by the spirit of our founder, Soichiro Honda. We all understand that if you want your idea to gain support, and ultimately reach the marketplace, it better accomplish something new.
Mr. Honda's constant order to his engineers was, "Do not imitate others!" And even after all these years, those words still ring in our ears and challenge us every day to innovate and create new value for our customers.
I want to emphasize up front that this is where innovation really begins. Today, I'm going to talk about some of the systems we have established to foster, encourage and guide our research activities in the U.S. But the truth is that to consistently achieve innovation you must have a corporate culture that insists upon it.
Honda has such a challenging culture. From the earliest days of the company, Mr. Honda instilled the importance of challenging new things and pursuing new dreams for the customer. Today, our company slogan reflects this pursuit: "The Power of Dreams." But this is just a new way of expressing Mr. Honda's fundamental belief of establishing big challenges as a way to spur innovation and passion in the company, and the only way to meet the needs of customers.
Many of Mr. Honda's big challenges were legendary, like saying the company would win the world's biggest motorcycle race even though Honda had never raced before. Or entering the auto industry even though the Japanese government opposed it. And taking on the challenge of creating a new type of engine that could meet the U.S. Clean Air Act when the rest of the industry said it couldn't be done. These challenges spurred innovation within the company at those times, and we have continued these challenging ways within Honda R&D by continuing to challenge in new fields of research such as aviation, humanoid robotics and fuel cell technology.
But our commitment to innovation isn't just about creating big new things like HondaJet, the world's most advanced robot in ASIMO, and the only fuel cell vehicle in the world certified by the U.S. government for use on American roads. Thinking about and advancing every product, and every little detail, is the hallmark of Honda's innovation.
Our ability to maintain this commitment to innovation more than 30 years after Mr. Honda retired from the company is actually based on a key decision that came more than a decade before he retired, in 1960. That's when Honda R&D was established as an independent company. At that time, Mr. Honda had the ultimate responsibility for R&D. But his co-founder, a gentleman named Takeo Fujisawa, knew that Honda, the company, would not always be able to rely on the genius of Honda, the man. Mr. Fujisawa recognized that the true source of the company's competitiveness was technology and innovation. He thought it was necessary to secure independent financing for research activities since they would play a key role in creating the company's future.
Our founders also did not think investing in R&D should be based on short term factors like the economy or business performance. As a result, each year we commit a large percentage of company revenue to research activities. Last year, more than $4.7 billion dollars, almost five percent of Honda's global revenue, went to R&D Also, it's important to mention that there are few limitations on how R&D spends this money. Our only responsibility is to produce good products and technologies. I am told that, years later, Mr. Fujisawa would say that making R&D into an independent organization was the turning point of the company.
But the key is not just that our R&D company is independent. Rather, that we promote and protect the ability of our people to think and be creative. Within Honda R&D, we have an expression that "all engineers are equal in the presence of technology." In other words, good ideas have no relation to title or rank. The fact that everyone at Honda R&D, and in Honda factories, wears the same white uniform is a symbol of this equality. Within Honda R&D literally anyone can propose and pursue their own dream. The under-current idea here is that innovation does not come from organizations or systems. Rather, innovation comes through the efforts of each individual. As Mr. Fujisawa said, "We cannot be assured of continued corporate activity unless we have not just one, but many Soichiro Hondas. We must foster experts in various fields." Today, each of the R&D engineers is entitled to choose and register a Research theme and after proper evaluation can pursue that project alone if it is judged valuable enough. The underlying philosophy is to allow the engineers to define the area of their responsibility and enable them to utilize their skills, ambitions and abilities to the fullest extent.
The key is how to create a system where you encourage creativity and achieve the freedom of ideas, but at the same time carefully managing the resources of people, time and money. This is important because many times the very act of managing innovation becomes the instrument that destroys it.
As I previously said, within Honda we have no limit to what research is allowed. For instance we've been known to study the movement of cockroaches and bumble bees to better understand mobility, but we cannot allow study just for study's sake. There must be some accountability in our research activities.
To achieve this delicate balance, we have established a formal research development system with set procedures to enable management to track research with specific timelines and criteria, and to ensure that progress is being made and creative support can be provided on a timely basis. In short, we might let people study bees, and success is never guaranteed, but we need to ensure that the ultimate objective of that research has merit.
In the U.S., Honda is heavily involved in many types of research. We first
established an R&D presence in the U.S. in 1975. Now, more than 30 years
later, the role and responsibility of Honda's R&D operations in North
America have grown tremendously. We have a dozen R&D facilities in North
America focused on the design, development and testing of automobiles, motorcycles
and ATVs, power equipment and marine products.
In Ohio, where I'm based, we handle complete product development including
key areas such as body and chassis design and testing, while also working closely
with suppliers on the development of new technologies and components, and supporting
our various manufacturing operations as we take products we developed into mass
production.
We have two U.S. proving centers at our disposal in Ohio and California, as well as other advanced testing facilities, including one dedicated exclusively to safety; all of these for the research and development of new products and technologies.
Based on these operations, more than 30 percent of the total number of Honda and Acura vehicles sold in the U.S. last year were developed by us, Honda R&D Americas, including four of the seven light truck models we market in the U.S.
In 2003, we also established the Honda Research Institute, which focuses on much longer term research endeavors not tied to our current product development activities. Not too many people are aware of our Research Institute, but it is very active in the fields of material science, computer science, investment in technology venture companies, and collaboration with university research partners.
To guide all of these efforts, we also established a Research Theme committee in the U.S. with a focus on proposing next-generation technology studies and actively applying U.S. expertise to advanced technology that will both create new value for our customers in North America and add to Honda's global technical expertise. The goal of this committee is not to control all R-Themes, but rather to develop strategies to better encourage them, as well as to coordinate the research activities of all our R&D centers globally.
Importantly, whether in the area of advanced research or product development, we don't view innovation as kaizen (or continuous improvement activity). Innovation means a focus on creating new value for our customers.
And innovation can be driven by both needs and seeds. In other words, innovation might be the result of an identified customer need, or a new regulation. Or it could be the result of a new dream from one of our own engineers, a new technology developed by a supplier, or a technology we excavate from academic research or a technology partner.
Regardless of their origin, once research gets past the initial idea stage we have a process that helps clarify the technological approach and direction of the R-Theme. This includes the requirement for a clear objective, the basic structure of the approach including budget requirements, an understanding of the benefit this new technology will bring to our customers, and a comparison with any similar technologies being used by our competitors. Again, we don't want to imitate others.
Ultimately, the R-Themes are evaluated by management of Honda R&D Americas (of which I am a member) as well as technical experts from within the company. And those R-Themes that make it through the evaluation are shared in a global activity that involves all R&D regions collecting and reviewing the themes, and looking at them at a higher level to determine which themes have really good potential to be applied to a mass production development project.
Naturally, research teams want to sell their research to development teams and management, and this is one of the forums that enable them to make their case. Because the leaders of the active product development teams attend these meetings in search of technologies that meet specific targets of new model development.
Over the past decade, I did just that, based on my involvement in several major developments including the Honda Pilot and both generations of the Acura MDX. In fact, my last project before leaving product development was the all-new 2007 MDX. And I want to use that project to share two examples that demonstrate how innovative research themes make it to the real world.
We benchmarked MDX against some of the best performance SUVs in the world and tuned it on the Nurburgring proving ground in Germany because our goal was to set a new standard for performance, handling and traction within the family SUV luxury segment. A critical component of our ability to achieve this is an all-new Active Damper System that provides an elevated level of handling precision, while maintaining a smooth and controlled ride.
And this is an excellent example where a development team accessed Honda's deep archive of active research themes. In fact the engineers who conducted the original research for this damper system had been working on it for 10 years! But no development team had come along to claim the technology and offer to put it on a mass production vehicle. As a result, my sense was that the morale of the R-Theme guys was pretty low.
Then my team came along. Based on our early efforts, we had determined that we couldn't meet all of our dynamic targets with a conventional suspension. When we went looking for an active one, we found this R-Theme in place at Honda R&D in Japan. They had been researching with Delphi for a long time and frankly their research theme was at a very high level, but like many of our competitors in the luxury set, they had tuned their logic for enhanced comfort, while our concept for the MDX required a sporty feel.
We were convinced that their technology could be adapted for our needs. And working together, we re-tuned the damper system. This Active Damper System helps separate MDX from the competition-made possible by the quick response of the dampers and by computer algorithms that keep the dampers a step ahead of the actual body movements. These dampers are built and tuned specifically for the MDX. While other luxury SUVs only try to control comfort, we achieve gross body motion control over pitch, dive and roll. With a push of a button the system provides the driver with vehicle control focused on sporty characteristics-acting like a hard suspension hooked to the ground-or focused on comfort-floating over the road like a soft suspension as if suspended by a hook from the sky.
The R-Theme team was thrilled because their original theme was finally accepted and applied to mass production, and we were happy because their technology helped us maximize ride comfort and handling in one integrated system for the MDX. This technology really helps make MDX the dynamic leader in its segment.
My second example is from inside the MDX. Long trips in automobiles tend to make people tired and dry from exposure to low humidity. You may not even realize what it was that made you feel tired on your drive up here yesterday. But humans don't do well when exposed to the incredibly low humidity levels that are created by auto A/C in an automobile. Auto A/C is typically applied as a luxury feature to prevent window fogging and to maintain temperature levels. The 2007 MDX changes that with the introduction of a new humidity control system, another example of a little innovation that provides a huge impact for the customer.
This R-Theme was underway with a supplier long before the start of the MDX
development. Their goal was to improve quality through enhanced automatic window
defogging, while simultaneously improving fuel efficiency by minimizing the
drag on the power train by the HVAC system.
The team had made their own unique hardware and control algorithms and as we
started MDX development, they saw an opportunity to apply their research to
our vehicle. However, when we took a look at their system, we thought it was
too expensive and we rejected using it. But they were determined-and this
is where you see the importance of a corporate culture that is focused on innovation-through
a challenging spirit.
On their own initiative, the research team made a demonstration vehicle from a previous generation MDX. They soaked the floor of this vehicle and kept it in a humidity chamber overnight, and then they asked us to arrive at 5 am. At the appointed hour, seven of our team members piled into the vehicle and took off. They let the vehicle fog up initially to demonstrate its effectiveness, and within seconds their system had cleared up the windows. We then did the same exercise without this system and we couldn't see; it was un-drivable. Through the team's persistence, we realized the incredible value of the humidity control system.
Imagine yourself here in Traverse City in the winter months. The snow you kick off your shoes inside your vehicle melts overnight in your heated garage soaking the mats. The next morning you get in your car and go out into the cold. As soon as the outside air hits the windshield, humidity fogs the inside. Then you need to hit the defrost button and your eyes dry out, the noise is loud, and the heat is pointed to the windshield instead of keeping your feet warm. With our system, the mats are still soaked, but when you drive out into the cold air, the system detects the ambient temperature, humidity levels and temperature inside the car and automatically starts to bleed air to the windshield before fog can form.
Now our customers have this benefit, the humidity control system in the 2007 MDX doesn't defog the windows as much as it prevents the fog from starting in the first place.
What is truly novel about this humidity control system is that not only is it better for the customer to prevent fogging, but it also has the ability to turn off the compressor when it is not needed, therefore improving real world fuel-economy. This is how it works. As I said, most luxury vehicles have Auto A/C running 100 percent of the time, even though sometimes this is not required. As an example, on a cold day, the incoming air is still cooled by the A/C and then reheated to warm the cabin. This use of the A/C consumes fuel unnecessarily. But, our new system looks at many variables and only runs the A/C when necessary. And the fuel economy benefit can be as much as 4 percent in some conditions.
Additionally, by allowing approximately 30 percent of the humidity to remain in the cabin through an air recirculation feature, we reduce the time that the A/C compressor is utilized, and reduce driver fatigue. Importantly, all of this takes place without any input from the customer.
The development of this new humidity control system by a research team in Ohio demonstrates how we take an R-Theme from the drawing board to mass production: identifying a problem, dreaming of a solution, challenging to overcome initial opposition, and demonstrating the flexibility to design the best system for the customer.
Through a look at these projects from the new MDX, and my description of our R-Theme research process, I hope you can see that at the core of Honda's research activities is a corporate culture with a strong focus on innovation, focused on developing original technology that creates new value for the customer.