Harley Davidson Outputs the Nadler-Tushman

Harley Davidson Outputs

The Nadler-Tushman Congruence Model is used to evaluate organizational outputs. The outputs are evaluated on their own terms, but also in terms of fit. The underlying principle is that the most effective organizations will have a high degree of congruence between the different outputs. That is, the outputs will support tend to support one another. Where outputs do not support one another, the congruence will be lower. The expectation under that scenario would be that the organization's performance would lag the ideal.

At Harley-Davidson, there are several key outputs. These include net income, sales growth, market share, and brand reputation. The net income is the most important output. The primary goal of any organization is to increase shareholder wealth. Shareholder wealth can be measured in a number of different ways, but the most important contributor to shareholder wealth is net income. In recent decades, Harley-Davidson has seen a high degree of fluctuation in its net income. The company exhibited poor performance in the 1970s, only to rebound through the late 1980s and 1990s. In recent years, the company has been consistently profitable. Net income in 2003 was $760.9 million. This increased to $1.043 billion in 2006, then declined slightly to $933.8 million in 2007. In terms of earnings per share, the figures have shown a similar trend, reflecting a lack of significant change in the number of outstanding shares. The company's EPS has thus trended between $2.499 and $3.945 in the past five years. While there is some degree of fluctuation, these figures are strong and do show a defined uptrend.

The second key output for Harley-Davidson is their sales growth. Net income is driven by both costs and sales. For Harley-Davidson, costs have generally trended with sales. This indicates that the company is relatively stable in terms of their cost structure. It also indicates that cost reduction is not a key source of competitive advantage in their industry. Indeed, the premium positioning of Harley-Davidson motorcycles dictates that sales growth is a more important profit driver than cost reduction. Over the past five years, sales at Harley Davidson have demonstrated an upward trend. Revenue in 2003 was $4.903 billion and this increased steadily through 2006, a year in which revenues reached $6.185 billion. There was a slight decline in revenues for 2007. Year-over-year sales figures for the first three quarters of 2008 indicate that sales will decline again in 2008 over the 2007 figures.

Market share is an important output for Harley-Davidson. The company competes almost exclusively in one segment of the motorcycle industry, the superheavyweight class. Attempts by Harley-Davidson to move into other segments of the motorcycle industry have been met with failure. The market views Harley as a producer of just one type of bike. This means that the success of Harley Davidson's operations can be measured by the share of the superheavyweight market that they hold. The market share can also help to delineate the revenue and net income figures that are attributable to Harley's operations from the fluctuations in the superheavyweight segment in general. As of January 2007, Harley Davidson held a 49% share of the heavyweight segment in the U.S. And a 30% share worldwide (Fredrix, 2007). The company indicated in Q2 of 2008 that it had lost market share in the quarter (Reuters, 2008). Over the past five years, the company's U.S. market share has fluctuated in a narrow range, with the most recent figures representing new lows within that range. The Buell line's performance has been stable, so the declines are directly attributable to declines on Harley-Davidson branded heavyweight bikes (Harley Davidson 2007 10-K).

A less quantifiable but critical output for Harley Davidson is their brand reputation. The company generates a considerable amount of its income from sales of branded merchandise. Moreover, the iconic brand helps to drive sales within the heavyweight motorcycle class. The brand also enables Harley to avoid the technology-based competition that many other motorcycle manufacturers engage in, as evidence by the dramatically slower pace of technological innovation at Harley vs. other motorcycle manufacturers. Thus, the reputation attached to the Harley Davidson brand is one of the most important outputs in the organization.

In general, there is a high degree of congruence between these outputs. However, there are some limitations. For example, the strength of the Harley Davidson brand helps to drive sales and market share, but it also creates limitations for the company in terms of expanding revenues by entering new segments. It has also resulted to some degree in an overreliance on the brand to drive profit, causing the company to ignore cost reduction as a means to improve shareholder value. Moreover, while the strength of the brand has to this point allowed Harley to establish a dominant market share, there is no evidence to suggest that it supports the growth of market share. When the company was struggling in the 1980s, the brand was heavily leveraged to improve sales, but improved profits also came with cost reductions. In recent years, the company has been unable to leverage the brand to further market share improvements.

Beyond the brand, there is a high degree of congruence between the other key outputs. Sales growth is a function of both market share growth and of growth in the market. The weakening of Harley's sales in the past couple of years is attributable to not only a decline in the size of the motorcycle market in general but also to declines in market share. In some cases, it is reasonable to state that the company could have succeeded despite declines in the size of the market had they been able to improve market share. This is especially the case in 2007, where the decline in revenue from the previous year was minimal.