Harley Davidson Strategic Management -- Harley Davidson

Harley Davidson

Strategic Management -- Harley Davidson

This work examines the strategic management of Harley Davidson Company and seeks to answer specific questions relating to this company's management through conduction of a Porter's Five Forces analysis and a review of the literature on this company.

The specific research questions examined in this study are those as follows: (1) What are the primary competitive forces impacting U.S. motorcycle producers in general and producers like Harley Davidson? (Porter's 5 forces analysis) (2) What are the driving forces in this industry and are they likely to impact the industry's competitive structure favourable or unfavourable? (3) What type of Strategy has Harley Davidson followed? Which of the 5 generic strategies is Harley Davidson employing? Is there any reason to believe that Harley Davidson has achieved a sustainable competitive advantage over its competitors or over many of motorcycle industry rivals? If so, what type of competitive advantage does Harley Davidson enjoy? (4) What are the specific factors accounting for why Harley Davidson has been successful over the past decades? Do these factors have more to go with great strategy execution or great leadership? (5) What recommendations would you make to Keith Wandell?

Introduction

The Harley Davidson Company began in 1909 when William S. Harley and his two brothers, Walter and Arthur, built their first three motorcycles in a shed in Milwaukee, Wisconsin. The company introduced its trademark bike described as a "2-cylinder, v-twin engine, able to reach speeds of 60 mph." (Nariman, nd) During World War I, more than 90,000 cycles were built for the military "which elevated their production to record levels and earned them the coveted Army-Navy 'E' award for excellence in war time production." ( ) Following the war, the company shifted from the production of military to recreational bikes. (Nariman, nd, paraphrased)

I. Porter's Five Force Analysis

Conduction of a Porter's Five Force analysis includes examination of: (1) The bargaining power of suppliers; (2) The bargaining power of customers; (3) The threat of substitutes; (4) The threat of new entrants; and (5) Competitive rivalry within the industry. (Recklies, 2001) The following is an illustration of the conception of the five forces analysis of Porter.

Figure 1

Porter's Five Forces analysis

A. Competitive Rivalry

It is reported that the market for heavyweight motorcycles is "fair concentrated" as there are "only four major firms producing these motorcycles" which includes "Honda, Suzuki and Yamaha" all of which are Japanese companies. (Melief, Bundagaard, and Hathaway, 2006) Harley Davidson has been the traditional leader in the market with a 50% market share. Harley Davidson company traditionally held a larger share of the market however, less differentiation of its product is attributed as the reason for the fall in Harley Davidson's market share.

B. Threat of Entry

The heavyweight motorcycle industry is described as "very capital intensive" since there are "significant economies of scale involved in building motorcycles." (Melief, Bundagaard, and Hathaway, 2006) While there are small-scale producers of motorcycles with a business formulated on the basis of reputation, these primarily completely customized motorcycle producers do not have a high enough production to threaten the market position of Harley Davidson. (Melief, Bundagaard, and Hathaway, 2006, paraphrased)

C. Threat of Substitutes

There are few substitutes for heavyweight motorcycles that pose a serious threat for Harley Davidson company. The other three companies, Yamaha, Suzuki and Honda, are manufacturers of smaller and quicker bikes and these are the closest possible substitutes followed by passenger cars. The smaller bikes require a different riding style in which the rider is hunched over while riding rather than sitting straight up. Passenger cars are reported to be "weak substitutes for heavyweight motorcycles" since customers rarely if ever purchase heavyweight motorcycles to "satisfy transportation requirements." (Melief, Bundagaard, and Hathaway, 2006)

Fuel price is highly relevant in view of heavyweight motorcycles in that when the price of fuel is high then consumers are less likely to purchase a heavyweight bike. However, it is reported that when consumers pay between $8,000 and $25,000 for a luxury items such as a heavyweight motorcycle then they are likely not worried about a slightly higher gasoline price. (Melief, Bundagaard, and Hathaway, 2006, paraphrased)

D. Buyer and Supplier Power

Since there are so many suppliers for Harley Davidson company "there is very little that any single supplier can do to exact rents from Harley." (Melief, Bundagaard, and Hathaway, 2006) The customers of Harley Davidson are reported to be "largely individual consumers, making it difficult for them to seriously affect Harley Davidson's financial situation by refusing to cooperate." (Melief, Bundagaard, and Hathaway, 2006) In addition, the Harley Davidson dealerships are owned independently and the customers its licensed dealers however, "the sheer number of dealers that Harley Davidson has throughout the world makes the situation for dealers not much better than individual riders." (Melief, Bundagaard, and Hathaway, 2006)

II. Three Success Factors

There are three success factors reported for the Harley Davidson Company, which include those of: (1) management; (2) Continuous improvement; and (3) management involvement. (Nariman, nd) In relation to management as a success factor, it is reported that the new owners of Harley Davidson Company came to the realization that if they were to make the improvements required that they had to come to a determination of what had gone wrong.

III. List of Practices -- Reasons Company Experienced Problems

The following list of practices was developed by the management team as being the primary reasons that the company experienced previous problems: (1) Corporate management's focus was on short-term returns; (2) Management failed to list to the company's employees or to give the employees responsibility for the quality of items they produced; (3) High inventories of parts diminished productivity greatly; (4) Quick fixes were used for problems including such as "throwing in computers and state-of-the-art machinery to improve productivity; (5) High break-even point that left the company vulnerable to fluctuations in a market characterized by unpredictability; and (6) Management that was too late to realize the threat of foreign competition. (Nariman, nd)

IV. Lifelong Learning

It was the realization of the new management team of Harley Davidson Company that the company had a new to become "a perpetual learning and improving organization." (Nariman, nd) There was a need for open communication and for all employees to understand their role and most importantly, the employees needed to understand the business environment of the corporation better. The Harley Davidson Company desired the capacity to develop "processes and people, which would ensure that employees would have the capability for rapid, effective change based on an understanding of the whole business environment in which they operated." (Nariman, nd)

Other realizations of management included that "individuals need to have a shared vision of the company values: tell the fact, be fair, keep your pledge, respect the individual, and encourage brilliant curiosity." (Nariman, nd) Management further needed to earn the employees respect and trust. The company created the Harley-Davidson Learning Centre dedicated to lifelong learning for the purpose of serving employees who desire to keep their skills current. (Nariman, nd, paraphrased)

In terms of productivity, the Harley Davidson Company uses the following: (1) just-in-time inventory (JIT); (2) employee involvement (EI); and (3) statistical operator control (SOC). (Nariman, nd) It is reported that Just-In-Time Inventory was the "driving force of Harley's quality improvement program. Very simply, as you operate with lower and lower inventories, it becomes essential that all your inventory is usable." (Nariman, nd)

It is reported that Harley Davidson previously used a complex inventory system, which was inefficient as it failed to address the manufacturing process problems. JIT exposed these problems and after renaming JIT to MAN or 'materials as needed to differentiate from ineffective) the processes of JIZT implemented by other companies concentrate on setup reduction, focus flow processing containerisation, parts control and operator preventive maintenance" there was impressive improvement noted by the Harley Davidson Company including the following improvements: (1) Inventory turn up from 5 to 20; (2) Inventory levels down 75%; (3) Percentage of motorcycles coming off the line complete dup form 76% to 99%; (4) Scrap and rework reduced by 68%; (5) Productivity up by 50%; (6) Space requirements down by 25%. (Nariman, nd)

Continuous improvement is stated to demand employee involvement and the Harley Davidson Company employees are reported to "take part in a gain-sharing program and paid cash incentives for attaining and maintain quality, profitability and product delivery goals"…which serve to "foster employee's personal growth and develo9pment." (Nariman, nd) Included in this initiative is teambuilding at all levels of the Harley Davidson Company including team building for "union leaders, negotiation committees and stewards." (Nariman, nd) Management must necessarily demonstrate "continuous improvement of quality and efficiency as a way of life, not just another 'program'. (Nariman, nd)

V. Nine Guidelines for Successful Employee Involvement

The following nine guidelines have been set by the Harley Davidson company for employees to follow to ensure successful employee involvement: (1) Management, through its words and actions, must demonstrate that continuous improvement of quality and efficiency is a way of life, not just another 'program'; (2) Management must be firmly committed to the people-building philosophy that is, the belief that employees are thinking, rational human beings and therefore should be encouraged to developed and grow; (3) All management must be totally committed to the E1 Program and by demonstrating that commitment foster a mutual trust between employees and management; (4) Employees must be thoroughly trained in specific problem-solving and quality control techniques; (5) Managers must encourage participation from everyone; (6) Employees must be given responsibility and authority for production, quality, preventative maintenance and other aspects of their jobs; (7) Individual employees must help each other develop and grown; (8) Employees must attack problems, not each other or in other words there should be no finger-pointing when things go wrong; (9) Creativity must continuously be encouraged through a free non-threatening atmosphere. (Nariman, nd)

In May 2009, Keith Wandell became CEO of Harley Davidson following the first decline in revenue since 1984 as well as a decline in shipment of motorcycles. Employees were laid off and amalgamate plants cut capacity. These problems were in the opinion of Wandell to be cyclical in nature. The heavyweight motorcycle segment was the fastest growing world motorcycle market between the years of 1990 and 2007. Harley Davidson is reported to have "consolidated its market leadership" in North America which accounted for approximately fifty percent of bike sales but overseas the story was quite different. The management team at Harley Davidson set out to broaden the market appeal of the product.

Reported as central to the product strategy of Harley Davidson was the idea that "every Harley rider would own a unique, personalized motorcycle as a result of the company offering a wide range of customization opportunities." ( ) However, the reconciliation of product differentiation with scales of economies is reported to have been an ongoing challenge for the Harley Davidson Company. The solution is stated to have been offering "a wide range of customization options while standardizing on key components." ( )

Wandell is reported to have focused on the short-term problems that the company was facing in July 2009 on a conference call and specifically that of a depressed demand and the responses of the company to cost reduction and cutbacks in production. Wandell expressed confidence that Harley would "emerge from the 2008-2009 recession in strong shape." ( ) Wandell was encouraged by the fact that Harley's 2009 sales demonstrating "greater resilience than those of its main competitors -- as a result Harley's share of the U.S. heavyweight market had jumped from 50 to 58%." ( ) It is reported that the longer-term threats were "more troubling." ( )

It is reported that opportunities that Harley Davidson has presented include that the international heavy weight market is larger than the U.S. heavy weight market and it is still growing. Furthermore, the demand for Harley Davidson in Europe is the highest demand in the international market and is representative of the largest world motorcycle market. In addition, interest rates are historically low and women and younger riders are potential customers as their interests in bikes is growing. Threats to Harley Davidson include the fact that the average buying age for a Harley Davidson is the age of 42 years and increasing. Furthermore, the motorcycle noise standards in Europe are tougher than the EPA regulations in the United States. Environmental protection laws are also a consideration that must be addressed and the shifts in buyers needs and the tastes of buyers is also considered as a threat. (External Analysis of Harley Davidson, 2008)

Harley Davidson Third-Quarter 2010 Earnings

The third quarter 2010 earnings of the Harley Davidson company showed that the company is continuing in its progress. The earnings were reported at $93.7 million compared to $56.4 million from the same quarter last year. It is reported that the third quarter earnings were "drive by continued performance improvement at the Company's financial services unit, Harley Davidson Financial Services as the company recorded operating income from financial services of $50.9 million, compared to a loss of $31.5 million in last year's third quarter. (Harley Davidson Company Report, 2010) Wandell is noted to have stated as follows:

"Despite the continued challenges in the economy, we are making solid, steady progress at transforming our business. With our strategic focus on future growth initiatives and continuous improvement, we are positioning Harley-Davidson to succeed at today's volumes, as well as to grow and restore greater profitability longer term. The results we are seeing stem directly from the actions we are taking to restructure the business, driven by the creativity and extraordinary efforts of our entire team. From manufacturing and product development to marketing, international operations, dealer capabilities and across the entire enterprise, we are transforming Harley-Davidson with a focus on delivering unparalleled customer experiences and value." (Harley Davidson Company Report, 2010)

Wandell also stated that the Harley Davidson brand "…has remarkable strength globally. Few products or brands rank as highly in terms of awareness and affinity on the part of customers and non-customers alike. We have continued to gain market share in the U.S. And Europe. Since 2008, we also have been the U.S. leader in new motorcycle sales to young adults for the entire on-road motorcycle category. Going forward, we will continue to build on this brand strength and leadership position." (Harley Davidson Company Report, 2010)