The case study: “Harley-Davidson, Inc., Thriving Through a Recession”MGMT 479/Strategic Management

Synopsis

Harley-Davidson is a modern success story of a company that turned itself around by

emphasizing quality manufacturing and image marketing. It was founded in Milwaukee in 1903, by

William Harley and Walter, William, and Arthur Davidson, who built their first three motorcycles in a

shed in Milwaukee. Within a decade built itself into a global business. It survived the Great Depression

by selling to police departments. In 1957, it introduced the Sportster, a sleeker, less expensive

alternative to the company's popular touring bikes and a response to a wave of British imports. The

Sportster's relatively small size made it appealing to women. But by the 1970s, motorcycling had

become a marginalized sport. Its renaissance came in the late 1980s, driven largely by baby boomers'

new affluence. After gaining control of the company from AMF in a leveraged buyout in1981,

management introduced just-in-time manufacturing. From 1992 to 2007, new-bike sales soared from

278,000 to 1.1 million annually. Its patrons grew older and wealthier, but its efforts to cultivate a large

base of female and younger riders have been marginally successful.

Encouraged by the high market demand for Harley's motorcycles in the 1980s and

1990s,competitors increasingly challenged Harley's dominant position in heavyweight motorcycles.

To expand its product offerings, in 1993 the company acquired the Bell Motorcycle Company, a

manufacturer of sport/performance motorcycles. Its attempt at diversification outside of motorcycles

into recreational vehicles with the purchase of Holiday Rambler was reversed in1996 with the

divestment of this business unit. Worrying that the baby boomer target market heavyweight cycles was

aging, managementdecided to introduce the V-Rod in 2001. This was a low-slung, high-powered

motorcycle meant to appeal to a youth market that was interested in riding crotch rockets.

After consistently growing through the 1990s,sales were showing signs of slowing as the baby boomers

continued to age. Safety was becoming an issue, given that riders over age 40 accounted for 40% of all

fatalities. For the first time in recent history, sales and profits declined in 2008 from 2007. After

President James Ziemer reviewed the2007 financial results, he noted that 2008would be a challenging

year for Harley-Davidson given the pending recession and economic analysts wondered how the

company would be affected in a deep recession.

Resources

Harley-Davidson has a wealth of both tangible and intangible resources including Financial,

Organizational, Human, Technological, Innovation and Reputation resources. “Resources are an

organization's assets and are thus the basic building blocks of the organization. They include tangible

assets, such as its plant, equipment, finances, and location, human assets, in terms of the number of

employees, their skills and motivation and intangible assets such as its technology (patents and

copyrights), culture, and reputation (Wheeler and Hunger, 2009).” Supply and demand balanced and

showed improvement between 2002 and 2004. Despite being slammed over the past few years by

credit and liquidity issues due to the receding economy,the company's Return on equity has remained

relatively constant at no less than 20%since 1994 and Harley-Davidson Financial Services generated

income from continuing operations of $960 million during 2005. International sales advanced 2%. with

the largest international markets being Europe, Japan, and Canada. Earnings grew from $417 million in

2001 to $960 million in 2005, growth was fairly steady and strong.

Harley-Davidson has organizational resources which includes a formal structure that works for

the company. The structure of the company includes decentralized, expert teams and

leadership circles that value employee input. They have implemented programs they to plan, report and

track inventory and production such as their web-based Harley-Davidson Distribution supplier network

that provides vendors with a wealth of information about supply and demand within the company.

Harley-Davidson has many technological resources: including many different brand name

Patents, Trademarks, and Copyrights which protect its reputation and image. Trust, Knowledge,

Managerial capabilities, as well as organizational culture are Harley-Davidson’s key, most valuable

human resources. The company culture, as previously discussed, gives Harley-Davidson a major

competitive advantage. Employees and suppliers know their input is valued and take pride in their

work. People involved are passionate about the brand and this adds invisible value to the company.

Employee and supplier, as well as management’s ideas are huge resources for Harley-Davidson,

as these people know the business and know its potential. Harley-Davidson offers value-added services

that are offered at the Harley-Davidson dealership. The company also has joint ventures with Porsche

producing power train components and a strategic alliance with Ford Motor Company. Reputation with

customers, brand name, perceptions of product, and reputation with suppliers are all very beneficial to

Harley-Davidson’s operations, and keep customers loyal to the product. Interactions and relationships

are stressed at Harley-Davidson in order to ensure quality workmanship and mutually beneficial

participation in all stages of production.

Capabilities

Harley-Davidson’s JIT inventory pull system means that it must have streamlined

manufacturing abilities. Harley-Davidson does this by ensuring quality inputs into its manufacturing

plants, flow production methods, and well-maintained equipment. Harley-Davidson manufacturing

plants are capable of producing many different models and base their inventory off of customer pull

demand, reducing costs around the board as well as inventory finished products that sit unsold in one of

five warehouses. JIT inventory management needs good transportation flow logistics. Harley-Davidson

has the capability to reduce lead times and ensure pull delivery through its private fleet of trucks and

contracts with distribution suppliers such as UPS. Harley-Davidson ensures that all processes and

activities throughout its value chain are integrated using web based SMS systems, bar codes, and

reports that enable its JIT inventory flow. This allows production to flow smoothly. Harley-Davidson

also ensures that its employees are trained for all aspects of their job, integrating employee knowledge

in order to ease smooth flow, repairs and transitions. Harley-Davidson empowers their employees, and

in turn Harley-Davidson employees add value to the company which is another capability. Harley-

Davidson believes the key to success is to balance stakeholders interests through the empowerment of

all employees to focus on value added activities. These employees are passionate about their jobs, and

transfer that passion into their work in a functional, professional manner. Harley-Davidson has the

ability to use this passion produced by it's employees to become a Great Place to Work as listed in

Fortune Magazine’s Top 500 Most Admired Companies.

Core Competencies

Harley-Davidson’s core competencies are its JIT inventory flow management/SMS system, its

reputation and brand recognition, its relationship with suppliers, its empowered employees, and its

manufacturing capabilities. A core competency is a collection of competencies that crosses divisional

boundaries, is widespread within the corporation, and is something that the corporation can do

exceedingly well (Wheeler and Hunger, 2009).” Harley-Davidson’s VRIO suggests that because its

culture and niche market are hard to identify and penetrate, the company is sustainably competitive

within its segment of the industry; however, Harley-Davidson needs to continue to innovate and focus

on developing its market and cash flow within the current economy and become a larger presence in the

global market. Another core competency of this company is the ability to develop passionately loyal

customers. Strategies have included moving to single-source suppliers, using technology and

introducing new bikes. For the last twenty years, the company has been remarkably responsive to

customer desires. Examples are used to demonstrate their competencies and their strategies to maintain

a competitive advantage.

Fact Findings

Women and younger riders are increasing becoming interested in motorcycles. Throughout it's life-

cycle, Harley-Davidson represents an image and a lifestyle but must implement strategies to ensure that

it maintains this reputation for years to come. Aging baby boomers form Harley-Davidson’s customer

base. The median age of Harley buyers is 46, compared with an industry average of 38. This could have

a damaging affect on consumer’s perception of a Harley being the old guy’s bike.

Harley-Davidson produces only heavyweight motorcycles, with engine displacements of 750cc or

greater, that are categorized into touring and cruiser motorcycles. Harley-Davidson’s subsidiary, Buell

Motorsports, makes sports bikes, but it only accounted for 4 percent of Harley’s bike shipments last

year. Harley-Davidson needs to continue to give attention to their classical product line that has made

them successful, but they need to focus more activities toward reaching out to new, younger customers.

Only Nine percent of Harley owners are women. This is a market segment that is growing at a fast rate.

To be successful here, Harley needs to provide smaller, easier to handle, comfortable, and good quality

bikes to build up brand loyalty. Market segmentation is a strategic process for achieving alignment

between product offerings and customer need. Mercedes is betting the C-Class will attract younger

drivers. In early 2011, the Daimler AG unit unveiled the updated C- Class, which starts at $34,865 to

attract a younger consumer. Mercedesaverage U.S. buyer is 54, four years older than at Bayerische

Motoren Werke AG, its larger rival, and six years older than at Volkswagen AG's Audi, according to

Market research firm Strategic Vision. This is an example of strategic implementation, “the process by

which objectives, strategies, and policies are put into action through the development of programs,

budgets, and procedures (Wheeler and Hunger, 2009).”

Secondly, they are lacking a strong presence in Europe. European demand for Harley Davidson

is the highest in the international market and represents the single largest motorcycle market in the

world. Harley-Davidson’s vision is to become the most globally recognized and sought after brand in

the industry.To obtain this goal Harley-Davidson must promote growth through increased international

presence and expand to other geographic locations to obtain market share. There are various

opportunities in the market for Harley-Davidson today, especially with the introduction of the new V-

Rod motorcycle. The company has the innovator status advantage in the Performance Cruiser class

market segment. They are expanding their partnerships with various European manufacturers, which

should increase the presence of Harley-Davidson products in Europe. The corporation is well

positioned to attract younger customers, and the company has plenty of room for growth due to the

high demands for its products. Harley-Davidson continues to be a power-house in the industry but

needs to divest itself from unprofitable brands and product line models. Their manufacturing strategy

should include the ability to: increase capacity, increase quality,decrease costs and increase flexibility

to respond to changes in marketplace.

� Although motorcycles are sold internationally, there are three main geographic markets that

comprise the bulk of motorcycle sales. These are North America where the US and Canada account for

60% of the market, Asia, and Europe. Only 16.5 percent of Harley’s revenue comes from outside the

United States. The European market has great potential for Harley-Davidson since Europeans have

higher disposable income and enjoy a higher standard of living. To succeed in this market, Harley-

Davidson would have to modify their products to meet local needs, expand its distribution networks,

and create strong customer service. Although the Japanese producers control the largest share of the

world market, they are notorious for low quality service. Harley-Davidson’s emphasis is good quality

products and after sales service. These qualities could be used to build brand loyalty. Today, as the

feelings of American patriotism are so strong, Harley-Davidson needs to continue to strengthen its

positioning strategy by building on the “Own an American Icon" slogan.

Lastly, the companyfs products are expensive, which limits them to a specific niche in the �

market and makes it difficult to grow their customer base. They also have a wait-list for certain

products, which can create a substitute effect. The company needs, to cut production down until they

have produced a minor back log and eliminate, a top heavy management team. This should enable them

to cut prices across the board, OEM parts and labor costs. For example, Harley-Davidson increased

marketing for it's 100th anniversary in 2003. They ramped up production as consumers and fans were

pre-ordering bikes so that as many in demand were ready by the 100th anniversary. In doing so, they

eliminated the back log but so when the hype of the anniversary declined, sales returned to pre-

anniversary numbers. Now, Buellwas created to compete with more sporty less expensive brands, but

Buelldoes not have the brand or image to compete with such names as Honda, Ducati, Kawasaki and

Suzuki. Harley-Davidson. In recent years, many young people have been drawn to sport bikes by

Honda, Ducati, Kawasaki and Suzuki. Harley-Davidson also owns a line of products under the Buell

brand. But it may make sense to transport some of those products to a new sport-bike line bearing the

Harley-Davidson brand, pricing them at roughly the same point as its Sportster line, or less.

In summary, Harley-Davidson should capitalize on its current reputation and success by rapidly

increasing demand, and by expanding its product line to reach new consumer markets, especially

overseas. It needs to target a younger, technologically conscious and affluent market segment in order

to increase its share of the market. The company is well-positioned to attract younger customers and

they have plenty of room for growth due to the high demands for its products. They also need to set an

appropriate pricing strategy, in order to appeal to a wider market segment.

References

Barnat, R. (2005). Strategy Implementation And The Strategic Management Process. Retrieved on

April 10, 2011 from Http://Www.Strategy-Implementation.24xls.Com/En103

Birnbaum , B. (2009). Strategy Implementation:Six Supporting Factors . Retreived on April 10, 2011

from Http://Www.Birnbaumassociates.Com/Strategy-Implementation.Htm

Reiter, C. (2011). Mercedes Designer Goes `Off The Charts' To Draw Younger Buyers. Retreived on April 10, 2011 from Http://Www.Bloomberg.Com/News/2011-01-10/Mercedes-Designer-Goes-

Off- The-Charts-To-Draw-Younger-Buyers.Html

Wheeler, T., Hunger, D. (2009). Concepts In Strategic Management And Business Policy: Achieving

Sustainability, Twelfth Edition . Prentice Hall: New Jersey.

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