HarleyDavidson Strategic Analysis

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STRATEGIC MANAGEMENT

CASE ANALYSIS

CASE: HARLEY DAVIDSON, Inc. -2004

By

RICHARD.A.COX

FRANCIS MARION UNIVERSITY

Submitted by,

HARI PRAKASH.N.V


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Harley Davidson, Inc

Mission Statement says:

We fulfill dreams through the experiences of motorcycling, by

providing to motorcyclists and to the general public an expanding line

of motorcycles, branded products and services in selected market

segments

Vision Statement says:

Harley-Davidson is an action-oriented, international company, a leader

in its commitment to continuously improve [its] mutually beneficial

relationships with stakeholders (customers, suppliers, employees,

shareholders, Government, and society). Harley-Davidson believes the

key to success is to balance stakeholders interests through the

empowerment of all employees to focus on value-added activities.


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MISSION analysis

COMPONENTS YES / NO

CUSTOMERS YES

PRODUCTS & SERVICES YES

MARKETS YES

CONCERN FOR SURVIVAL YES

TECHNOLOGY NO

PHILOSOPHY YES

SELF CONCEPT YES

CONCERN FOR PUBLIC IMAGE YES

CONCERN FOR EMPLOYEES NOMISSION STATEMENT EVALUATION MATRIX

PROPOSED MISSION

To be branded as the best motorcycle available in the world.

PROPOSED VISION

The best quality motorcycle, motorcycle products and financial

services will be provided world wide is the commitment of Harley-Davidson.

Customer satisfaction is our motto and the Harley-Davidson customers can experience

the taste of reality of motorcycle dreams by relaying their satisfaction on us. Harley-

Davidson is dedicated to use the advanced technology to produce the most superior

motorcycle in domestic and international markets. Stay competitive and continue

growth worldwide remain profitable and survive is our philosophy. Employees of

Harley-Davidson are the foundation of the company and they are the driving force

behind the Harley-Davidson name. The total team effort of Harley-Davidson

employees is devoted to fulfilling dreams of customers and we believe that there is not

a motorcycle riding experience like a Harley-Davidsons. Excellence is our push

though our Harley-Davidson bar and shield logo that says superior quality. Honesty

and customer loyalty and these morals are the heartbeat of Harley-Davidson

organization. Harley-Davidson do our part in supporting all environmental laws in


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every country we do business. Determination and commitment is the place where

Harley-Davidson intends to stay.

.


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EXTERNAL ANALYSIS

PESTLE

Harley-Davidson is one of the most admired and recognized

companies in the world today.

Academy of Motorcycling for those interested in learning to ride a

motorcycle.

Riders-Edge the motorcycling academy of Harley-Davidson

introduced more than 1000 aspiring motorcyclists to the sport in

2000.

Average purchaser of a U.S Harley-Davidson motorcycle is a

married male in his mid-forties

Average purchasers of a U.S Harley-Davidson have a household

income of $78,600.

Over two thirds of the sales of Harley-Davidson motorcycles are

to buyers with at least one year of education beyond high school.

30% of the Harley-Davidson buyers have college degrees.

Only about 9% of Harley-Davidson U.S retail motorcycles are to

women.

Confidence in economy is directly proportional to the purchasing

of consumer items.

Repeat business is strong as about 42% of motorcycle purchasers

have owned a Harley-Davidson previously.

U.S Government and People are considering Harley-Davidson as

an American icon.

Opportunities in emerging economies [India, China] but uncertain

operating situations.

A new assembly facility opens in Manaus, Brazil, the first

operations outside of the U.S, reduces taxes, make them more

affordable to a larger group of Brazilian customers.


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Harley-Davidson is one of the main manufacturer and user of V-

ENGINE configuration.

Harley-Davidsons have a wide variety of products according to

Standard, Performance, Touring & custom.

Harley-Davidson is facing some legal problems in Asian countries,

in India there is 60% tariff and various other taxes will cause the

price of the bike to double.

Noise pollution and some emission standards of Harley-Davidson

bike is not up to the level of some countries across the globe.


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Five Forces

Internal Rivalry.

Four major competitors are mainly concentrated on theseheavyweight motorcycle segments: in addition to Harley-

Davidson the other three are Yamaha, Suzuki, Honda all are

Japanese companies.

Some of the major competitors of Harley-Davidson have larger

financial and marketing resources and are more diversified

(Example: Yamaha, half of its revenue is only from motorcycles).

Polaris (American snowmobile/ATV manufacturer) producer of

Victory motorcycles priced its motorcycles below the Harley-

Davidson motorcycles.

Strategic alliance between Suzuki and Kawazaki in the areas of

product development, design, engineering, and manufacturing of

motorcycles, this alliance strengthened both companies global

motorcycle businesses.

Honda, the main competitor of Harley-Davidson in U.S eat up

some market share of Harley-Davidson.

Potential entrants

Entry barrier is very high is this segment, because this segment

needs a lot of capital investment and the industry is on a

maturity stage, so that there is only four main competitors.

The economies of scale are low in this segment, which is the

reason why there are only four major players.

There is some small scale producers, who are making these

custom made motor cycles but the amount of their production is

not at all a threat for Harley-Davidson, and they are increasing

the interest of motorcycles among the general public.

Substitute products


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Harley-Davidson motorcycles are a luxury vehicle, so that there is

only a few close substitutes for heavy weight motorcycles that

could seriously affect the market.

Passenger cars, sports bikes, scooter bikes are the main

substitutes of Harley-Davidson motorcycles.

The people who are thinking of buying a heavy weight motorcycle

are not seriously considering one of these options, scooter, sports

bike.

In India Enfield can pose as a small substitute.

Power of suppliers

Steel, basic electrical equipments and shipping of final

motorcycles are the main things Harley-Davidson seeks from

suppliers.

Harley-Davidson has a wide span of suppliers, so that if one

supplier attempted to increase the price, they can easily switch

to the alternate suppliers without any problem in production..

Power of Customers

Consumers of Harley-Davidson motorcycles are individual

customers, so that they cant seriously affect Harleys financial

position.

The numbers of dealers around the globe are also less and they

are also dependent to the individual customers, that cant affect

Harley-Davidsons financial position.

OPPORTUNITIES

The European demand for Harley Davidson is the highest in the

international market and represents the single largest motorcycle

market in the world.


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Women and younger riders are increasing becoming interested in

bikes

The international heavy weight market is growing and is now

larger than the U. S. heavyweight market

Market share increasing in Europe and Asia for the last two years

Increasing demand in US markets for bikes

Customers value quality parts


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THREAT

Harleys ongoing capacity restraints caused a shortage supply and

a loss in domestic market share in recent years

Harleys average buying age is 42 years old and increasing

The European Unions motorcycles noise standards are more

stringent than those of Environmental Protection Agencies in the

U.S and increased environmental stand

Some competitors of Harley Davidson have larger financial and

marketing resources and they are more diversified

Environmental protection laws

Buell division needs to continue to produce a quality motorcycle

under Harleys brand name.


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EFE MATRIX

Key external factors Weight Rating

Weighted

score

OPPORTUNITIES

The European demand for Harley Davidson is the highest

in the international market and represents the single

largest motorcycle market in the world 0.15 4 0.6

The international heavy weight market is growing and is

now larger than the U. S. heavyweight market 0.15 4 0.6Women and younger riders are increasing becoming

interested in bikes 0.1 3 0.3Market share increasing in Europe and Asia for the last two

years 0.1 3 0.3

Increasing demand in US markets for bikes 0.1 2 0.2

Customers value quality parts 0.025 1 0.025THREAT

Harleys ongoing capacity restraints caused a shortage

supply and a loss in domestic market share in recent

years 0.15 4 0.6

Harleys average buying age is 42 years old and increasing 0.1 3 0.3

The European Unions motorcycles noise standards are

more stringent than those of Environmental Protection

Agencies in the U.S and increased environmental stand 0.025 3 0.075

Some competitors of Harley Davidson have larger financial

and marketing resources and they are more diversified 0.025 2 0.05

Environmental protection laws 0.025 4 0.1Buell division needs to continue to produce a quality

motorcycle under Harleys brand name 0.05 1 0.05TOTAL 1 3.2


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CPM

HARLEY HONDA YAMAHA

CRITICAL

SUCCESS

FACTORS Weight Rating

Weighted

Score Weight Rating

Weighted

Score Weight Rating

Weighted

Score

Advertising 0.15 4 0.6 0.2 3 0.6 0.15 4 0.6

Product Quality 0.15 4 0.6 0.05 3 0.15 0.025 3 0.075Price

Competitivenes

s 0.1 1 0.1 0.15 3 0.45 0.25 3 0.75

Management 0.025 3 0.075 0.03 4 0.12 0.05 2 0.1Financial

Position 0.1 2 0.2 0.14 4 0.56 0.335 3 1.005Customer

Loyalty 0.15 4 0.6 0.06 2 0.12 0.15 2 0.3Global

Expansion 0.025 3 0.075 0.05 4 0.2 0.02 3 0.06

Market Share 0.3 2 0.6 0.32 3 0.96 0.02 2 0.04TOTAL 1 2.85 1 3.16 1 2.93


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INTERNAL ANALYSIS

FINANCIAL RATIOS

LIQUIDITY RATIOS

Current Ratio = Current Assets / Current Liabilities

= 2729/956

= 2.85

Quick Ratio = (Current Assets Inventory) / Current Liabilities

=(2729-208)/956

= 2521/956 = 2.63

LEVERAGE RATIOS

Debt to Total Assets Ratio = Total Debt / Total Assets

=994/4923

=0.20

Debt to Equity Ratio = Total debt / Total stock holders equity

=994/2958 =0.34

Long Term Debt Equity Ratio = Long term Debt / Total stock holders

equity

=670/2958

= 0.23

Times Interest Earned Ratio = Profits before interests and taxes /

Total Interest charges

=1149/0

ACTIVITY RATIOS


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Inventory Turnover = Sales / Inventory of finished goods

=4624/208

=22.23

Fixed Assets Turnover = Sales / Fixed Assets

=4624/2194

=2.10

Total Assets Turnover = Sales / Total Assets

=4624/4923 =0.93

Accounts Receivables Turnover = Annual Credit Sales / Accounts

receivable

=4624/1114

=4.15

Average Collection Period = Accounts Receivables / (Total credit

sales/365)

=1114/(4624/365)=1114/12.66

=87.99

PROFITABILITY RATIOS

Gross Profit Margin = (Sales COGS) / Sales

=(4624-3070)/4624

=1554/4624=0.34

Operating Profit Margin = EBIT / Sales

=1149/4624

=0.25

Net Profit Margin = Net Income / Sales


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=761/4624

= 0.16

Return on Total Assets ( ROA ) = Net Income / Total Assets

= 761 / 4923

= 0.15

Return on Equity ( ROE ) = Net income / Total Stock holders

equity = 761 / 2958

= 0.26

Earnings Per share (EPS) = Net income / Total stock holders

equity = 761 / 302

= 2.519

Price Earning ratio =Market price per share/Earning

per share

=39.11/2.519

=15.526

Growth ratio

Sales =Annual % growth in total sales

=(4624-4091)*100/4091=13.029Net income =Annual % growth in profits

=(760-580)*100/580=31.034


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STRENGTHS

Net income of 2003 was $760mn, its more than 30% as

compared to the previous year 2002.

The standard and performance segments of Harley Davidson

make up 70% of the European heavy weight motorcycle market

Harley-Davidson operates in two segments: Harley-Davidson

motorcycles & related products and HDFS (Harley-Davidson

Financial Services).

Harley-Davidson is the only major American heavyweight

motorcycle manufacturer.

Strong brand name.

The HOG (Harley Owners Group), which have a 7,50,000

members world wide is the industrys largest company sponsored

motorcycle enthusiast organization.

Buell Riders Adventure Group (BRAG) was also formed recent

Customization of the bikes, this is Harley-Davidsons major

revenue maker.

Harley-Davidson have a good marketing division and its divided

as dealer promotions, customer events, magazine and direct-mail

advertising, and public relations.

WEAKNESS

High price

Harley-Davidson has problems in gaining more market share in

some European countries (Thats one of the main markets for

Heavyweight motorcycles outside U.S).

They didnt yet start its sales in India, one of the biggest markets.

Required production is not met, analyzing the future of

Heavyweight motorcycle market

IFE MATRIX


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KEY EXTERNAL FACTORS WEIGHT RATING

WEIGHTED

SCORE

STRENGTHS

Net income of 2003 was $760mn, its more

than 30% as compared to the previous

year 2002 0.15 3 0.45The standard and performance segments

of Harley Davidson make up 70% of the

European heavy weight motorcycle market 0.09 3 0.27Harley-Davidson operates in two segments:

Harley-Davidson motorcycles & related

products and HDFS (Harley-Davidson

Financial Services) 0.025 4 0.1Harley-Davidson is the only major

American heavyweight motorcycle

manufacturer 0.1 4 0.4

Strong brand name 0.15 4 0.6The HOG (Harley Owners Group), which

have a 7,50,000 members world wide is

the industrys largest company sponsored

motorcycle enthusiast organization 0.05 2 0.1

Buell Riders Adventure Group (BRAG) was

also formed recent 0.025 2 0.05

Customization of the bikes, this is Harley-

Davidsons major revenue maker 0.025 3 0.075Harley-Davidson have a good marketing

division and its divided as dealer

promotions, customer events, magazine

and direct-mail advertising, and public

relations 0.025 2 0.05WEAKNESS

High price 0.15 2 0.3


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Harley-Davidson has problems in gaining

more market share in some European

countries (Thats one of the main markets

for Heavyweight motorcycles outside U.S). 0.06 3 0.18

They didnt yet start its sales in India, one

of the biggest markets 0.1 3 0.3Required production is not met, analyzing

the future of Heavyweight motorcycle

market 0.05 4 0.2TOTAL 1 3.075


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SWOT matrix

Opportunity Threat

SO Strategy: ST Strategy

EXPAND PRODUCTION TO

EUROPE

INCREASE STRONG BRAND

NAME

Strength

EXPAND PRODUCTION TO

ASIA

INCREASE MARKET TO

YOUNGER CUSTOMER

WO Strategy WT Strategy

IMPROVE EMPLOYEE

RELATIONSHIP

Weakness


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GRAND STRATEGY MATRIX

RAPID MARKET GROWTH

STRATEGY: MARKET DEVELOPMENT, MARKET PENETRATION,

PRODUCT DEVELOPMENT, HORIZONTAL INTEGRATION,

DIVESTITURE, LIQUIDATION.

SPACE Matrix

Financial Strength (FS)

Environmental

Stability (ES)

Return on Investment 2 Technological changes -2

Leverage 3 Rate of Inflation -3

Liquidity 4 Demand variability -6

Working Capital

2 Price range of

competing products -2

Cash Flow

5 Barriers to entry into

market -6

Inventory Turnover 3 Competitive pressure -4

Earnings per Share

3 Ease of exit from

market -3Price Earnings Ratio 2 Price elasticity of -2


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demand

Risk involved in

business -2

Total 24 Total -30

Competitive Advantage (CA)

Industry Strength

(IS)

Market share -1 Growth potential 3

Product quality -1 Financial stability 3

Product life cycle

-3 Technological know

how 5

Customer Loyality -1 Resource utilization 4

Competition's capacity utilization

-4 Ease of entry into

market 6

Technological know-how

-1 Productivity, capacity

utilization 4Control over suppliers &

distributors

-2

Total -13 Total 25


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Average value for FS = 3

Average value for CA = -1.85

Average value for IS = 4.17

Average value for ES = -3.33

Point on X axis = (-1.85+4.17)/2 = 1.16

Point on Y axis = (3-3.33)/2 = -0.165

Strategies:

STRATEGY: BACKWARD INTEGRATION, FORWARD

INTEGRATION, HORIZONTAL INTEGRATION, MARKET

PENETRATION, MARKET DEVELOPMENT, PRODUCT

DEVELOPMENT.


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I.E MATRIX

EFE: 3.2

IFE: 3.075

STRATEGY: BACKWARD INTEGRATION, FORWARD

INTEGRATION, HORIZONTAL INTEGRATION, MARKET

PENETRATION, MARKET DEVELOPMENT, PRODUCT

DEVELOPMENT


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BCG MATRIX

RELATIVE MARKET SHARE: 48%

GROWTH RATE: 13.029

STRATEGY: MARKET PENETRATION, MARKET DEVELOPMENT,

PRODUCT DEVELOPMENT, DIVESTITURE.


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QSPM

J.V EUROPE J.V ASIA

STRENGTH WEIGHT AS TAS AS TAS

Net income of 2003 was $760mn, its more

than 30% as compared to the previous year2002 0.075 3 0.225 3 0.225The standard and performance segments of

Harley Davidson make up 70% of the

European heavy weight motorcycle market 0.045 3 0.135 2 0.09Harley-Davidson operates in two segments:

Harley-Davidson motorcycles & related

products and HDFS (Harley-Davidson

Financial Services) 0.0125 4 0.05 3 0.0375Harley-Davidson is the only major American

heavyweight motorcycle manufacturer 0.05 4 0.2 4 0.2

Strong brand name 0.075 4 0.3 2 0.15The HOG (Harley Owners Group), which have

a 7,50,000 members world wide is the

industrys largest company sponsored

motorcycle enthusiast organization 0.025 2 0.05 3 0.075

Buell Riders Adventure Group (BRAG) was

also formed recent 0.0125 2 0.025 4 0.05

Customization of the bikes, this is Harley-

Davidsons major revenue maker 0.0125 3 0.0375 3 0.0375Harley-Davidson have a good marketing

division and its divided as dealer promotions,

customer events, magazine and direct-mail

advertising, and public relations 0.0125 2 0.025 2 0.025

WEAKNESS 0

High price 0.075 2 0.15 2 0.15Harley-Davidson has problems in gaining

more market share in some European

countries (Thats one of the main markets for

Heavyweight motorcycles outside U.S). 0.03 3 0.09 3 0.09


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They didnt yet start its sales in India, one of

the biggest markets 0.05 3 0.15 3 0.15Required production is not met, analyzing

the future of Heavyweight motorcycle market 0.025 4 0.1 4 0.1

OPPORTUNITIES 0The European demand for Harley Davidson is

the highest in the international market and

represents the single largest motorcycle

market in the world 0.075 4 0.3 2 0.15The international heavy weight market is

growing and is now larger than the U. S.

heavyweight market 0.075 4 0.3 3 0.225Women and younger riders are increasing

becoming interested in bikes 0.05 3 0.15 4 0.2Market share increasing in Europe and Asia

for the last two years 0.025 3 0.075 4 0.1

Increasing demand in US markets for bikes 0.1 2 0.2 3 0.3

Customers value quality parts 0.0125 1 0.0125 2 0.025THREAT

Harleys ongoing capacity restraints caused a

shortage supply and a loss in domestic

market share in recent years 0.075 4 0.3 3 0.225Harleys average buying age is 42 years old

and increasing 0.025 3 0.075 2 0.05The European Unions motorcycles noise

standards are more stringent than those of

Environmental Protection Agencies in the U.S

and increased environmental stand 0.0125 3 0.0375 2 0.025Some competitors of Harley Davidson have

larger financial and marketing resources andthey are more diversified 0.0125 2 0.025 3 0.0375

Environmental protection laws 0.0125 4 0.05 2 0.025Buell division needs to continue to produce a

quality motorcycle under Harleys brand

name 0.025 1 0.025 2 0.051 3.0875 2.7925


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STRATEGY RECOMMENDATION & IMPLEMENTATION:

MARKET PENETRATION

Get some more market share from the existing market, like U.S,

U.K, and Japan etc through more marketing techniques like

advertising. Harley-Davidson has a good brand name so its easy

for them to eat up the competitor market share if they can

provide some more customer benefit.

Competition is high in this segment mostly in U.S so market

penetration can be a good choice for the company.

Expand the HOG (Harley Owners Group) to Asian countries, if the

company can provide the customer satisfaction that they are

providing to the U.S customers to the Asian customers they can

increase the sales.

PRODUCT DEVELOPMENT

Younger generation and female are now coming to this segment

so expand the motor cycle segments to younger generation and

females.

In Europe they can increase or expand the Buells market share

by introducing new motorcycles.

MARKET DEVELOPMENT

Harley-Davidson can bring in their vehicle to Asian countries like

India and China, because these countries have a high population

and the market potential is also high.

The cost to bring in the old vehicles (old product) to India is so

much difficult because there are so much environmental laws are

there which wont allow that type of vehicles to come to India,

and its difficult that taxes and levis are high in India so starting

new plant in India can solve this problem. Negotiations with the

Government can solve these problems.


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DIVERSIFICATION

Bring in new vehicles to new markets like India and China is a

good choice, but its too costly.

Bringing new types of recreational vehicles is a best choice.

RECOMMENDATION

Expand European and Asian market.

Increase the sales of Buell sport bike and Harley-Davidson to

younger customers and females.

Horizontal diversification: acquires or develops new products that

could appeal to its current customer groups even though those

new products may be technologically unrelated to the existing

product lines.

Concentric diversification: Bring in new recreational vehicles.

EVALUATION

REVIEW UNDERLYING BASES OF STRATEGY

Once again prepare all the internal and external analysis (eg: EFE

& IFE)

Compare the already prepared analysis with the one which will be

prepared after the new strategy implementation.

MEASURING ORGANIZATION PREFERENCES

Analyze all financial ratios (current and the future).

If any advantage, then implement the new strategy, otherwise

continue with the present one.

Reference:

Strategic Management Concepts and Cases; Fred R. David, 10th & 12th Edition.

www.harley-davidson.com
http://www.harley-davidson.com/http://www.harley-davidson.com/


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HarleyDavidson Strategic Analysis