HARLEY-DAVIDSON STRATEGIC PLANSubmitted byStacey WagnerPrepared forProfessor Don LooneyBusiness Policies and StrategiesSpr...
SPACE MATRIX ............................................................................................................ ...
Honda and Yamaha are the other leading competitors, next to Harley-Davidson, in theU.S. market. Market value is expected t...
(HD). Nevertheless, the new tariff policy was valid only for the five years period which reducedannually thereafter. Thus,...
by making the owners feels as their part of the Harley family. Thus, currently Harley group hasmore than 450,000 members.F...
riders, women, and the older riders. Further, most importantly the riders who could not afford theexpensive HD motorcycles...
1“Motorcycles in the United States,” DataMonitor, November 2006. 4Future market value is expected to increase 4.4% from 20...
7 The U.S. population increased 1% from 2004 to 2005, while thepopulation over age 62 increased more than 2.5%. The median...
The U.S. veteran population has increased by 1.1%.9 Veterans tend to bemotorcycle owners, and an increasing veteran popula...
Technology is constantly evolving. The widespread use of the Internet haschanged the way business is done. Communication a...
2007.13Environmental Protection Agency, <http://www.epa.gov>, accessed on April 17, 2007.14“Company Spotlight: Harley-Davi...
over 30%.19 Touring motorcycles are the most luxurious and easiest to ride of all models.These models often include radios...
Sheila Seger (Lehman Trikes), personal interview, April 20, 2007. 7released for sale on July 31, 2006. Harley entered a si...
21Sheila Seger (Lehman Trikes), personal interview, April 20, 2007.22“Company Spotlight: Harley-Davidson Motor Company,” D...
segment in the U.S.; however there are several opportunities that Harley is not using to itsfull advantage. Very strong gr...
27 The readily available substitute products to motorcycles are the biggestthreat to the industry and to Harley-Davidson.C...
Yamaha in global market share of motorcycle products. In addition, Harley motorcyclesare not as competitively priced as ot...
as 80% of Harley’s net revenue comes from U.S. sales.30Harley worked to improve its image over the years. In the 1960s, Ha...
2007. 11Harley-Davidson also introduced water-cooled engines, fuel injection, and catalyticconverters to improve exhaust e...
33Jim Burgess (Black Hills Harley-Davidson), speech given at Black Hills State University, March 27,2007.34Ibid. 12Financi...
Activity RatiosInventory Turnover 24.29 25.31 24.42 10.69 8.26Fixed Assets Turnover 6.08 5.57 5.12 5.83 N/ATotal Assets Tu...
3.542004 2005 2006Current RatioQuick RatioLiquidity ratios measure a firm’s ability to turn short-term assets into cash.35...
Fred R. David, Strategic Management: Concepts and Cases, 11thed., Pearson Prentice Hall, New Jersey,2007. 14Leverage ratio...
Harley is doingespecially well in inventory turnover, but falls below average in accounts receivable.36Fred R. David, Stra...
Profitability ratios measure the effectiveness of management.38 Again, Harley isdoing much better than the industry and Ho...
1. Customer retention .20 4 .802. Number of domestic dealers .15 4 .603. Domestic market share .15 4 .604. Product selecti...
3. Product selection4. U.S. market share5. U.S. dealer networkWeaknesses – W1. Dealer inventory system2. International mar...
1. Balance inventory levelsto meet demand (W1, O2)2. Pursue foreign marketsmore aggressively (W2,O4, O5)3. Expand product ...
competitors (W4, T3)2. Open foreign factory togain international marketshare and lessen reliance onunions (W2, T1) 18SPACE...
Market share -2Loyalty -1Product life cycle -1Product quality -1ConclusionES Average (-13/4) -3.25CA Average (-5/4) -1.25I...
-6 Defensive         ES CompetitiveHarley-Davidson falls into the aggressive quadrant of the SPACE Matrix.Aggressive strat...
Slow Market GrowthHarley-Davidson is in Quadrant I of the Grand Strategy Matrix because of itsstrong competitive position ...
To ensure Harley-Davidson’s long-term objectives are achieved, annualobjectives are matched to long-term objectives.44 To ...
anticipated this objective could be modified slightly for each of the next three years asneeded to strengthen Harley’s num...
Finance Receivables held for sale      547,106 550,000 550,000 550,000Finance Receivables held for investment 1,554,260 1,...
on.com>, accessed on March 13, 2007. <http://investor.harley-davids Source:Table 9Pro Forma Income Statement2006 12/31/200...
ExpectationPrimaryResponsibilityCustomersIncrease number of female buyers 20% of totalHarley salesMay 2008 Sales/Marketing...
but desired by employeesReview currentbenefits offeringswith employeesMay 2008 HumanResourcesForm a team to evaluate forei...
Document eachfunctionalprocessJuly 2009 OperationsSupervisorsImprove U.S. dealer network byimplementing a computerized inv...
Donate percentage of profits tocommunity charitiesDeterminecharities in citiesof operationsDecember2007ManagementImplement...
Comply with noise regulations Comply with allnoise ordinancesJuly 2009 Research andDevelopmentConduct annual audits in acc...
to every department to ensure accountability for each department’s goals. Progress meetings willbe conducted every quarter...
Motorcycle Industry Financials, <http://www.reuters.com>, accessed on March 13, 2007.Sheila Seger (Lehman Trikes), persona...
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  1. 1. HARLEY-DAVIDSON STRATEGIC PLANSubmitted byStacey WagnerPrepared forProfessor Don LooneyBusiness Policies and StrategiesSpring 2007 2TABLE OF CONTENTSVISION STATEMENT .................................................................................................... 3MISSION STATEMENT ................................................................................................. 3EXTERNAL ASSESSMENT ........................................................................................... 3External Audit ................................................................................................................. 3Porter’s Five Forces Analysis ......................................................................................... 7External Factor Matrix .................................................................................................... 8Table 1 ................................................................................................................ 8Competitive Profile Matrix ............................................................................................. 9Table 2 ................................................................................................................ 9INTERNAL ASSESSMENT .......................................................................................... 10Key Internal Forces ....................................................................................................... 10Financial Ratio Analysis ............................................................................................... 12Table 3 .............................................................................................................. 12Internal Factor Evaluation Matrix ................................................................................. 16Table 4 .............................................................................................................. 16SWOT MATRIX ............................................................................................................. 17Table 5 .............................................................................................................. 17
  2. 2. SPACE MATRIX ............................................................................................................ 18Table 6 .............................................................................................................. 18GRAND STRATEGY MATRIX ................................................................................... 20Table 7 .............................................................................................................. 20LONG-TERM OBJECTIVES AND STRATEGIES ................................................... 21ANNUAL OBJECTIVES ............................................................................................... 21PRO-FORMA FINANCIAL STATEMENTS .............................................................. 22Table 8 .............................................................................................................. 23Table 9 .............................................................................................................. 25Table 10 ............................................................................................................ 26BIBLIOGRAPHY ........................................................................................................... 283VISION STATEMENTWe at Harley-Davidson are a worldwide manufacturer of motorcycles and relatedproducts and focus on providing a unique lifestyle for our customers.MISSION STATEMENTAt Harley-Davidson, we provide our customers around the world with anaggressive outdoor lifestyle through superior products and service. Through moderntechnology, we provide the latest in safety and environmentally friendly engineering inour products. We focus on safety and harmony within the workplace. At HarleyDavidson, we do notsimply sell motorcycles; we improve our customers’ lives throughrecreational opportunities.EXTERNAL ASSESSMENTExternal AuditAn external audit assesses the industry that Harley-Davidson operates in. TheU.S. motorcycle market value grew 7.7% from 2001-2005. Market volume grew 6.4% inthe same time. The U.S. market accounts for 25% of the global motorcycle market.
  3. 3. Honda and Yamaha are the other leading competitors, next to Harley-Davidson, in theU.S. market. Market value is expected to grow 7.1% from 2005-2010. Market volume isexpected to grow 7.5% in the same time period.1The motorcycle market value in Europe declined .8% from 2001-2005. Marketvolume also decreased 1.6% in the same time period. More moped products are sold inEurope than motorcycles. Honda and Yamaha have the largest market share in Europe.Harley Davidson is an organisation which had made the consumers to adopt its culture and theconsumers find the organisation as part of their life style. Further, it is a movement that inspiresowner to embrace their own special language. Thus, the organisation success is nothing a shortstory of innovation. Harley Davidson has competed successfully with the Japanese rivals such asHonda, Suzuki, Yamaha, and Kawasaki producing low cost, low quality bikes throughout thepast years. Further the market share declining from 80% to 20% during the period of time.Therefore, the report shall discuss the concepts of innovation and the change process involvedwith Harley Davidson in comparison to the case study provided.Innovation can be defined as ‘an idea must be replicable at an economical cost and must satisfya specific need. Innovation involves deliberate application of information, imagination, andinitiative in deriving greater or different value from resources, and encompasses all processes bywhich new ideas are generated and converted into useful products’ (businessdictionery.com,2007) It is crucial to identify the four elements of innovation. In order to, analyse the conceptsof innovation of Harley Davidson. The four elements are as follows as shown in the Table 01.The above discussed four elements of innovation are highly relevant for Harley Davidson inmaking innovation the key strategy to make the organisation successful. As in 1983 the USPresident Ronald Reagan’s decision in increasing tariffs on the Japan’s motorcycle importhelped the motorcycle industry of US which was a positive development for Harley Davidson
  4. 4. (HD). Nevertheless, the new tariff policy was valid only for the five years period which reducedannually thereafter. Thus, HD had to make successful progress, and improvement in the marketto survive in the long run. HD took up the challenge in been innovative and in order toimplement the strategy of innovation within the organisation to beat the competition of theJapanese rivals. The innovation became the key tool in improving the performance level of theorganisation at all the levels such as marketing and customer relations, organisational changes,process and manufacturing practices. (icmrindia.org, 2007)HD was generating all the innovative ideas in all the areas of the organisation in implementingthe innovative strategy in gaining the positive outcomes. HD had to think and generate theideas at each time in competing with the Japanese. As in 1980’s the organisation was notcapable in meeting the production targets on time. Since HD adapted the batch process ofmaterials in the plant floor. (industryweek.com, 2002)The materials were tooled in large batches at different locations in the plant and workers hadto make use of forklifts in order to move the materials around the factory which resulted inhigh set up times. Meantime, the Japanese adapted Total Quality management in theorganisation. Therefore, HD has to think innovatively another approach in maximising thebenefits therefore the organisation implemented the Just in time approach (JIT). This helpedHD in dropping the cost level significantly. As a result of the JIT production approach thecompany only sold 35,000 bikes instead of 53,000 in order to breakeven. Further, theorganisation adapted effective marketing strategies as 75% of Harley customers made repeatpurchases through effective brand campaigns and advertising. The organisation was capable ingaining the customer loyalty form its customers again.As part of the innovative strategy HD developed ‘Harley Owners Group’ which is stated as oneof the creative and innovative strategies that had helped in creating an excellent experience forthe product. The management of HD generated ideas in converting their product into anexperience. Further, organisation organised rallies in order to strengthen the bond or therelationship with dealers, members, and the employees and at the meantime promoting Harleyexperience to the consumers. Consequently, Harley Owners Group become immensely famous
  5. 5. by making the owners feels as their part of the Harley family. Thus, currently Harley group hasmore than 450,000 members.Further, organisation made changes to the working environment as the HD developed a healthyrelationship with its employees. The culture of the organisation adapted innovation as theemployees were given the opportunity participates and it was more open. HD communicatedand interacted with employees more effectively in the shop floor as it helped the organisationin practising new strategies. Further, the work unions were based on harmony and trust.Further, HD eliminated the positions of senior vice president in marketing in operations asthese positions didn’t add value to the final product. The people were auditors, the checkers.The organisation has teams who are in charge of producing having a product supported team.(webpronews.com, 2005)Accordingly as part of innovation HD focused on new product development. HD focuses on newproduct developed resulted on new product such as V-Rod. Further company adopted newtechnology such as CPPDM methodology in achieving the new product developed. Also, theorganisation spent more financial resources on research and development in order to beinnovative and flexible towards the volatile business environment.Consequently, the above discussed innovative procedures were implemented by HD to beat theexcessive competition in the US market.Moreover, the company focused on cost effective approaches comparing to HD as Hondaconcentrating on smaller, faster, and less expensive bikes. Honda adapted a step by stepapproach where the company moved from one region to another and from light motorcycles (50cc) to heavy motorcycles (250 cc). As, a new organisation to the US volatile and highlycompetitive environment the organisation become successful through the sales level as one outof every two cycles sold during the particular year was from Honda. (scribd.com, 2006)The successful beginning of the Japanese rival Honda allowed the other Japanese competitors toenter the market such as Yamaha, Suzuki, and Kawasaki. All these competitors followed thesame concepts and strategies used by Honda. This helped the organisation to attract the younger
  6. 6. riders, women, and the older riders. Further, most importantly the riders who could not afford theexpensive HD motorcycles.Consequently, the Japanese competitors changed the motorcycle industry in US specially the sizeof the motorcycles. The Japanese competitors were able to increase the annual sale rate of 33%.Moreover, the Japanese competitors were skill full in producing the products mass fully. TheJapanese were also innovative as they were constantly producing the innovative products asresponse to the existing marketing threats. Further, the companies had the best technologies inproducing the new products and launching the new models at the shortest possible time period.Further, the companies were able to manage the financial resources of the organisationeffectively as the funds were generated appropriately in been innovative. Also, the consumerswere provided with customised products with the technological advancement in making it moreeffective.The strong performance level of Japanese competitors lead the fall down in HD as the sharesand the profit of the organisation reduced at a higher volume. Since HD was transferred in to‘niche’ player. Even though HD was transformed from private ownership to public it was notcapable in driving enough funds to continue the organisation successful as the company facedimmense competition and pressure from the Japanese competitors. However, HD was able tosurvive with the takeover of AMF.The Japanese competitors notice that HD was imitating its techniques and recovering thepressure and the competition of the Japanese companies. As a result the organisation targetedHD. Honda use innovative strategy at its best by producing new motorcycle named asGoldwing. At that period the product was named as one of the technologically sophisticatedand complex heavy weighted motor cycle. Since expected HD heavy weight motorcyclesegment started to decline. Further, at the meantime the economy was falling down byreducing the demand for motorcycles. The Japanese kept on competing effectively with HDthrough introduction of new products each time. Therefore the Japanese were using all thecompetitive approaches and strategies in order to maintain the achieved market share in theUS. As John Bleustein the senior vice president stated that ‘the Japanese … were just bettermanagers…. and they understood how to do manufacturing a hell of a lot better, with lessinventory and high quality.’
  7. 7. 1“Motorcycles in the United States,” DataMonitor, November 2006. 4Future market value is expected to increase 4.4% from 2005-2010. Market volume isexpected to increase 4.5%.2From 2001-2005, market value for motorcycles in the Asia/Pacific region grew9.2%. Market volume grew 8.3%. Two-thirds of products sold there are motorcycles;one-third are mopeds. Honda has the largest market share. It is expected that marketvalue will increase 13.2% from 2005-2010, while market volume increases 9%.3Other external factors that may affect Harley-Davidson include the economy.Economic factors include the stock market, interest rates, inflation, and unemploymentlevels. In the past year, the Dow Jones Industrial Average has risen 16%.4 Interest ratesincreased only marginally in the same amount of time.5 Unemployment remainedunchanged at 4.4% in the last year. Inflation was up 2%.6 Overall, these factors indicatea fairly strong U.S. economy and based on recent trends, this expected to continue.Other external factors affecting Harley-Davidson include social, cultural, anddemographic changes. The average Harley owner is 47 years old and makes over$80,000 per year.
  8. 8. 7 The U.S. population increased 1% from 2004 to 2005, while thepopulation over age 62 increased more than 2.5%. The median age of the U.S.population increased from 36.2 to 36.4 in the same time period. The number of marriedcouples without children under the age of 18 stayed constant. The mean householdincome increased over 4% to $62,556.8 As aging couples with excess income are Harley-2“Motorcycles in Europe,” DataMonitor, November 2006.3“Motorcycles in Asia-Pacific,” DataMonitor, November 2006.4CNN Money, <http://money.cnn.com>, accessed on April 17, 2007.5Federal Reserve, <http://federalreserve.gov>, accessed on April 17, 2007.6Bureau of Labor Statistics, <http://www.bls.gov>, accessed on April 17, 2007.7Harley-Davidson Investor Relations, <http://investor.harley-davidson.com>, accessed on March 13,2007.8U.S. Census Bureau, <http://factfinder.census.gov>, accessed on April 17, 2007. 5Davidson’s target market, the aging population growth and income growth are good signsfor the company.
  9. 9. The U.S. veteran population has increased by 1.1%.9 Veterans tend to bemotorcycle owners, and an increasing veteran population may be sign of market segmentgrowth for Harley.10 Another area of untapped segment of growth for Harley is women.Over four million women have owned a motorcycle in the past, but only 635,000currently do.11 Only 11% of Harley’s current buyers are female, but they are increasingby .5% per year.12Political, governmental and legal changes are important as well. TheEnvironmental Protection Agency (EPA) regulates automobile and motorcycle emissions.These regulations were most recently revised in 2004.13 Future revisions couldnegatively impact the motorcycle industry. Another concern is the price of raw materialsfor motorcycles. Steel prices increased 57% from 2003 to 2004, and aluminum increasedby 24% in the same time period.14 Further increases could force motorcycle companiesto pass the cost increases on to consumers, thus raising the price of the product.
  10. 10. Technology is constantly evolving. The widespread use of the Internet haschanged the way business is done. Communication across continents is easier andcheaper than ever before. Computer-based inventory control systems could play a role inmanaging motorcycle inventories. Currently Harley does not allow for transfer ofproduct between dealers, but a centralized computer system could make for an easyHD was did not give up its operation rather took the competition of the Japanese as achallenge. HD was strong in meeting the challenge through effective approaches in beating thecompletion of the Japanese. Firstly, HD started to imitate the Japanese. As the organisationclearly identified the loop wholes and where the organisation went wrong and how theorganisation can be back in the tracks. HD was taken over by AMF where AMF provided thenecessary financial resources in increasing the production. There were drawbacks of thisprocedure as less skilled employees were part of production resulting to low quality products asit was identified by Richard Teerlink Firm’s CFO where the reputation of HD for quality wasdeclined and the domestic market share dropped to 23%.HD adapted different methods of production such as craft method in reaching the best quality.However, few employees were able to achieve the quality but it was not successful overall. HDfound out in order to be successful it had to benchmark the performance of Honda in relationto HD. Senior managers had tour in Honda plants in US and identified where the company needto change in order to be successful.9U.S. Census Bureau, <http://factfinder.census.gov>, accessed on April 17, 2007.10Jim Burgess (Black Hills Harley-Davidson), speech given at Black Hills State University, March 27,2007.11Sheila Seger (Lehman Trikes), personal interview, April 20, 2007.12Harley-Davidson Investor Relations, <http://investor.harley-davidson.com>, accessed on March 13,
  11. 11. 2007.13Environmental Protection Agency, <http://www.epa.gov>, accessed on April 17, 2007.14“Company Spotlight: Harley-Davidson Motor Company,” DataMonitor, October 2006. 6transition.15 Technology also impacts design. Today’s motorcycles are more reliablebecause of technological change. Modern motorcycles also are relatively free of oilleaks, vibration, and are more comfortable than those of the past.16Although Harley-Davidson has many competitors, its main competitors are Hondaand Yamaha based on their world-wide market share. Because Harley’s competitors aremore diversified, they are less vulnerable to industry changes. Honda and Yamaha alsooffer products that sell well in the international markets compared to Harley.17 Harleyproducts are more expensive than its competitors, but are known for service andsalability.18Models of motorcycles available include custom, touring, performance, andstandard models. Custom is the largest market segment in the U.S., with 53.9% of allmotorcycles on the road. However, touring bikes have increased in popularity with eachyear, now comprising 27.2% of registered bikes. From 2004 to 2005, this increase was
  12. 12. over 30%.19 Touring motorcycles are the most luxurious and easiest to ride of all models.These models often include radios and cruise control. Victory, Honda, Suzuki, andHarley have expanded their touring line of motorcycles to cater to the aging market.Harley offers eight variations of the touring motorcycle.20Victory entered into an agreement with Lehman Trikes to produce three-wheeledmotorcycles under the Victory brand. These products will be fully supported by Victorywarranty, and will be marketed to aging adults as a safer way to ride. The “Pit Boss” was15Jim Burgess (Black Hills Harley-Davidson), speech given at Black Hills State University, March 27,2007.16Sheila Seger (Lehman Trikes), personal interview, April 20, 2007.17“Company Spotlight: Harley-Davidson Motor Company,” DataMonitor, October 2006.18Sheila Seger (Lehman Trikes), personal interview, April 20, 2007.19Harley-Davidson Investor Relations, <http://investor.harley-davidson.com>, accessed on March 13,2007.20
  13. 13. Sheila Seger (Lehman Trikes), personal interview, April 20, 2007. 7released for sale on July 31, 2006. Harley entered a similar agreement with LehmanTrikes on September 1, 2006.21Porter’s Five Forces AnalysisThe overall attractiveness of the motorcycle industry is average. The threat ofnew competitors or supplier power is low, but consumers have the power to switchbrands and substitute products easily. There is also competition for market share amongrivals in the motorcycle industry.22Rivalry among competing firms is fairly high in the motorcycle industry. Brandimage is very important in the industry and products frequently compete directly with aproduct of another manufacturer. Potential entry of new competitors is somewhat low inmotorcycle manufacturing because of start-up costs and loyalty already established byexisting firms. It would be a difficult task to gain market share from the existing giants inthe motorcycle business. The bargaining power of suppliers is a relatively small threat asthere are more suppliers than manufacturers.Potential development of substitute products is a threat to the motorcycle industry.Replacement products for motorcycles include boats, snowmobiles, and RVs becausethese are all luxury recreational items. Motorcycle consumers are likely to weigh apurchase decision against a substitute product. Motorcycle consumers tend to fit aspecific demographic profile and have discretionary income; therefore, the entirepopulation is not a potential buyer. Thus, the bargaining power of consumers is also athreat to motorcycle companies.23
  14. 14. 21Sheila Seger (Lehman Trikes), personal interview, April 20, 2007.22“Company Spotlight: Harley-Davidson Motor Company,” DataMonitor, October 2006.23Ibid. 8External Factor MatrixTable 1EFE MatrixKey External Factors Weight Rating Weighted ScoreOpportunities1. Aging U.S. Population .20 4 .802. Strong U.S./Canadian market growth .20 4 .803. Increasing number of women riders .10 2 .204. Very strong growth in Asia .03 1 .035. Very strong growth in Mexico .03 1 .03Threats6. Aging U.S. Population .04 2 .087. Competitors are more diversified .10 1 .108. Union relations .05 2 .109. Declining European growth .05 2 .1010. Availability of substitute products .20 1 .20Total 1.0 2.44Harley-Davidson excels at focusing on the baby-boomer motorcycle market
  15. 15. segment in the U.S.; however there are several opportunities that Harley is not using to itsfull advantage. Very strong growth in the motorcycle industry is occurring in Asia andMexico, yet Harley-Davidson has not fully taken advantage of this market.24 Increasingnumbers of women ride motorcycles and yet only ten percent of Harley riders arewomen.25 These could be areas of potential growth for Harley.Threats to Harley-Davidson include an aging U.S. population. While this factor isconsidered an opportunity as well, it is a threat as the population ages and is eventuallyunable to operate a motorcycle, thus extinguishing Harley’s largest market segment. Thecontract with Lehman Trikes could counteract some of this effect. Though not asignificant threat because of Harley’s limited market share, the European motorcycle24“Motorcycles in Asia-Pacific,” DataMonitor, November 2006.25“Company Spotlight: Harley-Davidson Motor Company,” DataMonitor, October 2006. 9industry is suffering from declining growth. Harley-Davidson competitors are morediversified into markets other than motorcycles, which makes them less vulnerable tofluctuations in the motorcycle industry.26 Also, relations with union workers are a threatto the industry.
  16. 16. 27 The readily available substitute products to motorcycles are the biggestthreat to the industry and to Harley-Davidson.Competitive Profile MatrixTable 2Competitive Profile Matrix Harley-Davidson Honda YamahaCritical Success Factors Weight Rating WeightedScoreRating WeightedScoreRating WeightedScoreMarket share .15 3 .45 3 .45 3 .45Financial position .05 4 .20 3 .15 3 .15Price competitiveness .10 1 .10 3 .30 3 .30Customer loyalty .20 4 .80 2 .40 2 .40Global expansion .20 2 .40 4 .80 4 .80Product quality .10 3 .30 4 .40 3 .30Product selection .15 2 .30 4 .60 4 .60Management .05 4 .20 4 .20 4 .20Total 1.0 2.75 3.30 3.20Customer loyalty is Harley-Davidson’s strongest competitive advantage. Inproduct quality and financial position, Harley is also strong. However, Harley is not asstrong as its competitors in some critical areas. Harley falls far behind Honda and
  17. 17. Yamaha in global market share of motorcycle products. In addition, Harley motorcyclesare not as competitively priced as other brands. Product selection is another area of26“Company Spotlight: Harley-Davidson Motor Company,” DataMonitor, October 2006.27Jim Burgess (Black Hills Harley-Davidson), speech given at Black Hills State University, March 27,2007. 10weakness at Harley. While offering many products in the 1000cc+ category ofmotorcycles, Harley lacks an array of smaller bikes. Also, Harley is not diversified intoother recreational lines such as watercraft and ATVs as many of its competitors are and isthus more susceptible to fluctuations in the motorcycle market.28INTERNAL ASSESSMENTKey Internal ForcesTo determine Harley-Davidson’s strengths and weaknesses, an internalassessment is required. Areas to be evaluated include: management, marketing, finance,production and operations, research and development, and management informationsystems (MIS).Harley-Davidson offers a broad selection of 32 product models, has 650 dealers inthe U.S., and has the largest market share in the U.S. However, Harley only has 7.7% ofEuropean market share (the second largest motorcycle market in the world), and 25.3%of the Asia/Pacific region.29 Clearly, Harley-Davidson’s strengths are in the U.S. market,
  18. 18. as 80% of Harley’s net revenue comes from U.S. sales.30Harley worked to improve its image over the years. In the 1960s, Harley wasviewed as sub-par when compared to British motorcycles. In the modern market, Harleyhas a reputation for style and quality. Credit for this is due to the research anddevelopment department, who implemented the trend towards quality for the company.HD spend fund on R&D to become more competitive in introducing innovative products to themarket faster. The market share of the company increased to 97% after implementing thesuccessful approaches. The organisational structure changed as teams were introduced incompleting a product. The teams were effective for the organisation to improve. Further,organisation focused on treating its employees at the very best through pay for performanceschemes. The employees were given necessary training if they require and the employees werehighly motivated in the organisation. Further the line workers were exposed to the companysales and profitability. Moreover the employees were given the understanding on the how cashflow and production affect the financial success. There were many changes implemented onthe employee’s job descriptions, responsibilities, and on the production processes.Also, HD was much more effective as it valued the stakeholders of the organisation which madehuge difference between the Japanese competitors. HD provided many different serviced tothe social groups as HOG was formed. Accordingly, the organisation kept on becominginnovative as the organisation introduced a new product name as V- Rod. HD focused on theyoung and the women segments in attracting them to HD products through effective marketingcampaigns.28“Company Spotlight: Harley-Davidson Motor Company,” DataMonitor, October 2006.29Ibid.30Harley-Davidson Investor Relations, <http://investor.harley-davidson.com>, accessed on March 13,
  19. 19. 2007. 11Harley-Davidson also introduced water-cooled engines, fuel injection, and catalyticconverters to improve exhaust emissions.31Brand image is critical in the motorcycle industry, and Harley’s strength in thisarea is largely due to its marketing abilities in the U.S. market. Harley customers areextremely loyal to their brand and 90% of Harley owners intend to purchase anotherHarley. The production and operations department at Harley-Davidson has consistentlybuilt reliable motorcycles for Harley customers. This consistency has helped sustainbrand image.32Harley’s internal management and finance department is strong. Harley is afinancially sound company, largely due to effective management.33Management information systems could be used to more effectively manageinventory at Harley. Instead of allotting a certain number of products to each dealer,Harley could use an enterprise-wide system to match inventory levels to demand. This iscurrently one of Harley-Davidson’s few internal weaknesses.3431Jim Burgess (Black Hills Harley-Davidson), speech given at Black Hills State University, March 27,2007.32“Company Spotlight: Harley-Davidson Motor Company,” DataMonitor, October 2006.
  20. 20. 33Jim Burgess (Black Hills Harley-Davidson), speech given at Black Hills State University, March 27,2007.34Ibid. 12Financial Ratio AnalysisTable 3Financial Ratio AnalysisRatio HarleyDavidson2006HarleyDavidson2005HarleyDavidson2004Honda2006IndustryAverageLiquidity RatiosCurrent Ratio 2.23 3.6 2.79 1.07 2.04Quick Ratio 1.56 2.18 1.37 .81 1.45Leverage RatiosDebt to Equity Ratio .62 .39 .40 .87 .45Long Term Debt to Equity Ratio .32 .32 .25 .39 .32Times Interest Earned Ratio N/A N/A N/A 2.37 7.15
  21. 21. Activity RatiosInventory Turnover 24.29 25.31 24.42 10.69 8.26Fixed Assets Turnover 6.08 5.57 5.12 5.83 N/ATotal Assets Turnover 1.15 1.06 1.02 1.00 1.25Accounts Receivable Turnover 3.09 3.67 4.34 4.90 10.56Profitability RatiosGross Profit Margin 39.50 N/A N/A 28.60 41.82Operating Profit Margin 25.91 N/A N/A 8.70 15.60Net Profit Margin 16.86 N/A N/A 4.89 10.17Return on Total Assets 19.34 17.87 17.05 4.87 12.28Return on Stockholders’ Equity 35.72 30.45 28.73 15.29 23.72Price Earnings Ratio 15.81 N/A N/A 12.36 20.30Growth RatiosSales 9.02 N/A N/A 14.95 5.67Earnings Per Share 15.25 N/A N/A 36.18 14.30Dividends Per Share 1.33 N/A N/A .76 1.84Source: <http://www.reuters.com>, accessed on March 13, 2007. 13Liquidity Ratios00.511.522.53
  22. 22. 3.542004 2005 2006Current RatioQuick RatioLiquidity ratios measure a firm’s ability to turn short-term assets into cash.35Harley-Davidson is doing better than the industry average in this category andsignificantly better than its main competitor, Honda.Leverage Ratios00.10.20.30.40.50.60.72004 2005 2006Debt to Equity RatioLong Term Debt toEquity Ratio35
  23. 23. Fred R. David, Strategic Management: Concepts and Cases, 11thed., Pearson Prentice Hall, New Jersey,2007. 14Leverage ratios measure how much a firm is financed by debt.36 HarleyDavidson is fairly close to the industry average on this measure, and is doing better thanHonda.Activity Ratios0510152025302004 2005 2006Inventory TurnoverFixed AssetsTurnoverTotal Assets TurnoverAccounts ReceivableTurnoverActivity ratios measure how well a firm uses its resources.37
  24. 24. Harley is doingespecially well in inventory turnover, but falls below average in accounts receivable.36Fred R. David, Strategic Management: Concepts and Cases, 11thed., Pearson Prentice Hall, New Jersey,2007.37Ibid. 15Profitability Ratios05101520253035402004 2005 2006Return on TotalAssetsReturn onStockholders’ Equity
  25. 25. Profitability ratios measure the effectiveness of management.38 Again, Harley isdoing much better than the industry and Honda in almost all of these measures with theexception of the price earnings ratio and the gross profit margin, which fall a bit belowindustry standards, although still ahead of Honda.Growth ratios measure growth over a period of time.39 Harley is doing better thanthe industry average in sales and earnings per share growth, but Honda is doing evenbetter. In dividends per share growth, Harley beats Honda, but both fall below industryaverage. Clearly Harley-Davidson has financial strengths, but there are some areas to betargeted for improvement.38Fred R. David, Strategic Management: Concepts and Cases, 11thed., Pearson Prentice Hall, New Jersey,2007.39Ibid. 16Internal Factor Evaluation MatrixTable 4IFE MatrixStrengths Weight Rating Weighted Score
  26. 26. 1. Customer retention .20 4 .802. Number of domestic dealers .15 4 .603. Domestic market share .15 4 .604. Product selection of +1000 cc motorcycles .10 4 .405. Financial position .10 4 .40Weaknesses6. International market share .10 1 .107. Number of international dealers .03 2 .068. Product selection in other segments .10 1 .109. Dealer inventory system .05 2 .1010. Product cost .02 1 .02Total 1.0 3.18Harley-Davidson has a large number of repeat buyers. Harley has a large volumeof dealers in the U.S. and a large share of the U.S. market of motorcycle sales. Thecompany also offers several different products to suit different needs in the over 1000cccategory. However, Harley is much weaker in both Europe and Asia in number ofdealers and market share. One of the likely reasons for this is Harley’s limited offeringof smaller bikes that are more popular in international markets. Also, Harley’s brandimage in the U.S. is much more powerful to consumers than it is internationally. 17SWOT MATRIXTable 5SWOT MatrixStrengths – S1. Customer retention2. Financial position
  27. 27. 3. Product selection4. U.S. market share5. U.S. dealer networkWeaknesses – W1. Dealer inventory system2. International marketshare3. Expensive product4. Product selection5. International dealersOpportunities – O1. Increasing # of women riders2. U.S. industry growth3. Aging population4. Mexico industry growth5. Asian industry growthSO Strategies1. Continue to expandU.S. market share (S4,O2)2. Expand marketing tofemale riders (S1, O1)3. Expand marketing tobaby boomers (S1, O3)WO Strategies
  28. 28. 1. Balance inventory levelsto meet demand (W1, O2)2. Pursue foreign marketsmore aggressively (W2,O4, O5)3. Expand product line tocater to female and agingriders (W4, O1, O3)Threats – T1. Union relations2. Aging U.S. population3. Competitor diversification4. Declining European growth5. Availability of substitutesST Strategies1. Focus on securingnew markets as babyboomers age (S4, T2)2. Focus market growthin the U.S. rather thanEuropean markets (S4,T4)WT Strategies1. Expand product line tocompete directly with
  29. 29. competitors (W4, T3)2. Open foreign factory togain international marketshare and lessen reliance onunions (W2, T1) 18SPACE MATRIXTable 6SPACE MatrixRatingsFinancial Strength (FS)Leverage +6Liquidity +4Return on investment +3Working capital +4Industry Strength (IS)Growth potential +5Profit potential +4Capacity utilization +4Ease of entry +5Environmental Stability (ES)Competitive pressures -4Risk -2Price range of competing products -5Demand fluctuations -2Competitive Advantage (CA)
  30. 30. Market share -2Loyalty -1Product life cycle -1Product quality -1ConclusionES Average (-13/4) -3.25CA Average (-5/4) -1.25IS Average (18/4) +4.50FS Average (17/4) +4.25x-axis (CA + IS) +3.25y-axis (ES + FS) +1.00 19 Conservative FS Aggressive +6 +5 +4 +3 +2 +1 XCA -6 -5 -4 -3 -2 -1 +1 +2 +3 +4 +5 +6 IS -1 -2 -3 -4 -5
  31. 31. -6 Defensive ES CompetitiveHarley-Davidson falls into the aggressive quadrant of the SPACE Matrix.Aggressive strategies include market penetration and development, product development,backward, forward, and horizontal integration, related and unrelated diversification, andcombination strategies.4040Fred R. David, Strategic Management: Concepts and Cases, 11thed., Pearson Prentice Hall, New Jersey,2007. 20GRAND STRATEGY MATRIXTable 7Grand Strategy MatrixRapid Market Growth Quadrant II Quadrant I XWeak StrongCompetitive CompetitivePosition Position Quadrant III Quadrant IV
  32. 32. Slow Market GrowthHarley-Davidson is in Quadrant I of the Grand Strategy Matrix because of itsstrong competitive position in the motorcycle market as well as the market’s stronggrowth. The motorcycle industry is growing world-wide, and in some markets, growth isquite strong. Harley has a very strong competitive position in North American markets,and has a presence in international markets. According to this matrix, Harley would be 21wise to pursue market development strategies, market penetration, product development,forward, backward, and horizontal integration, as well as related diversification.41LONG-TERM OBJECTIVES AND STRATEGIESLong-term objectives will attempt to sustain Harley-Davidson’s competitiveadvantage and keep it a viable competitor in the motorcycle industry.42 For the next threeyears, Harley should use its current strengths to expand its U.S. market share throughmarket penetration, expand sales to female riders through market development, revise theU.S. dealer network to allow for transfer of units between dealers to improve marketpenetration and expand its product line to cater to aging riders through productdevelopment.Market penetration seeks to increase market share for present products in presentmarkets through greater marketing efforts. Market development introduces presentproducts into new markets. Product development increases sales by developing orimproving products.43ANNUAL OBJECTIVES
  33. 33. To ensure Harley-Davidson’s long-term objectives are achieved, annualobjectives are matched to long-term objectives.44 To expand U.S. market share throughmarket penetration, Harley will set an annual objective to grow U.S. sales by 15% byMay 31, 2008. Also, $5,000,000 will be allocated to marketing efforts to ensureattainment of this goal. Although this is an annual objective, it is anticipated this41Fred R. David, Strategic Management: Concepts and Cases, 11thed., Pearson Prentice Hall, New Jersey,2007.42Ibid.43Ibid.44Ibid. 22objective could be modified slightly for each of the next three years as needed to achieveU.S. market penetration.To expand sales to female riders through market and product development, Harleywill set an annual objective to double the number of female Harley buyers in the U.S. to20% of total buyers by May 31, 2008. Also, Harley’s marketing budget for targetingfemale riders will be increased by $5,000,000. Again, this is an annual objective, but it is
  34. 34. anticipated this objective could be modified slightly for each of the next three years asneeded to strengthen Harley’s number of female buyers.Harley will aim to improve its U.S. dealer network to allow for transfer of unitsbetween dealers to improve market penetration. The date for this objective to becomplete is by December 31, 2007. Enhancements will be made to the current inventorymanagement system as needed until this goal is reached. Input will be largely based ondealer and management input.To expand its product line to cater to aging riders through product development,Harley will set an annual objective of introducing one new product for aging riders byMay 31, 2008. This product may be built through the contract with Lehman Trikes.PRO-FORMA FINANCIAL STATEMENTSIn order to implement objectives, Harley-Davidson will need to determine the costof implementation for each objective. Expanding its U.S. market share will increasegross profit by approximately $400,000 annually. Repairing the U.S. dealer network willresult in $50,000 less inventory on hand each year. Expanding the product line to cater toaging riders will contribute to increased operating expenses of about $90,000 but willalso contribute to the increase in gross profit. 23Table 8Pro Forma Balance Sheet2006 12/31/2007 12/31/2008 12/31/2009 (Values in Thousands) 12/31/AssetsCurrent AssetsCash and Equivalents 238,397 250,000 250,000 250,000Short Term Investments 658,133 660,000 660,000 660,000Net Receivables 143,049 145,000 145,000 145,000
  35. 35. Finance Receivables held for sale 547,106 550,000 550,000 550,000Finance Receivables held for investment 1,554,260 1,500,000 1,500,000 1,500,000Inventory 287,798 250,000 200,000 150,000Other Current Assets 121,890 120,000 120,000 120,000Total Current Assets 3,550,633 3,475,000 3,425,000 3,375,000Long Term InvestmentsFinance Receivables held for investment 725,957 750,000 750,000 750,000Other Long-Term Assets 1,255,560 1,250,000 1,250,000 1,250,000Total Non-Current Assets 1,981,517 2,000,000 2,000,000 2,000,000Total Assets 5,532,150 5,475,000 5,425,000 5,375,000Liabilities and Shareholders’ EquityCurrent LiabilitiesAccounts Payable 763,186 760,000 760,000 760,000Current Portion of Finance Debt 832,491 1,000,000 1,100,000 1,200,000Total Current Liabilities 1,595,677 1,760,000 1,860,000 1,960,000Non-Current Liabilities 24Finance Debt 870,000 870,000 870,000 870,000Postretirement Health Care Benefits 201,126 200,000 200,000 200,000Other Long-Term Liabilities 108,610 100,000 100,000 100,000Total Non-Current Liabilities 1,179,736 1,170,000 1,170,000 1,170,000Total Liabilities 2,775,413 2,930,000 3,030,000 3,130,000Total Shareholders’ Equity 2,756,737 2,545,000 2,395,000 2,245,000Total Liabilities & Shareholders’ Equity 5,532,150 5,475,000 5,425,000 5,375,000short-term funds to increase es will increase by borrowing e new inventory adjustment system isimplemented. Liabiliti Notes: Inventory on hand will decrease by $50,000 per year when thsales and marketing efforts in the U.S. at $100,000 per year.
  36. 36. on.com>, accessed on March 13, 2007. <http://investor.harley-davids Source:Table 9Pro Forma Income Statement2006 12/31/2007 12/31/2008 12/31/2009 (Values in Thousands) 12/31/Total Revenue 5,800,686 6,670,000 7,670,000 8,821,000Cost of Revenue, Total 3,567,839 4,102,000 4,717,000 5,424,000Gross Profit 2,232,847 2,568,000 2,953,000 3,397,000HDMC Operating Expenses 818,490 900,000 990,000 1,090,000Corporate Operating Expenses 22,561 23,000 24,000 25,000Total Operating Expenses 841,051 923,000 1,014,000 1,115,000HDMC Operating Income 1,414,357 1,668,000 1,963,000 2,307,000HDFS Operating Income 210,724 217,000 223,000 230,000Operating Income 1,602,520 1,885,000 2,186,000 2,537,000Total Other Income/Expenses Net 21,720 22,000 22,000 22,000Earnings Before Interest and Taxes 1,624,240 1,907,000 2,208,000 2,559,000Income Tax Expense 581,087 680,000 788,000 913,000Net Income from Continuing Operations 1,043,153 1,227,000 1,420,000 1,646,000Net Income 1,043,153 1,227,000 1,420,000 1,646,000of revenue. Operating expenses will increase 10% to cover new R&D e of 15%. COGS will stay fixed at61.5% crease by 15% because of sales volume increas Notes: Anticipated total revenue will intax rate will stay fixed at 35.7%. per year to cover inflation. Income to cover inflation. HDFS willincrease 3% expenses. Corporate expenses will increase 3%on.com>, accessed on March 13, 2007. <http://investor.harley-davids Source:Table 10Balanced ScorecardObjectives Measure orTargetTime
  37. 37. ExpectationPrimaryResponsibilityCustomersIncrease number of female buyers 20% of totalHarley salesMay 2008 Sales/MarketingIncrease U.S. market share 15% salesincreaseMay 2008 Sales/MarketingPursue foreign markets 10% salesincreaseJuly 2009 Sales/MarketingManagers/EmployeesImprove management/union relations Completenegotiationsbefore contractexpirationBy end ofnextcontractexpirationManagementConduct an employee benefits reviewand add programs currently not offered
  38. 38. but desired by employeesReview currentbenefits offeringswith employeesMay 2008 HumanResourcesForm a team to evaluate foreign factorylocationsFormation ofteamDecember2007ManagementOperations/ProcessesNegotiate supplier contracts to gainfavorable terms and exclusivity wherepossible (if not already in place)Set up contractswith currentsuppliers andrenegotiateexisting contractsJuly 2010 ProcurementConduct an operations process analysisto look for efficiency improvements
  39. 39. Document eachfunctionalprocessJuly 2009 OperationsSupervisorsImprove U.S. dealer network byimplementing a computerized inventorysystemAllow fortransfer ofproduct betweendealersDecember2007Management/MISCommunity/Social ResponsibilityOffer volunteering opportunities foremployeesImplementvolunteeringprogramDecember2007HumanResources
  40. 40. Donate percentage of profits tocommunity charitiesDeterminecharities in citiesof operationsDecember2007ManagementImplement corporate recycling of allmaterialsInstitute bins forproducts notcurrently beingrecycledDecember2007HumanResources 27Business Ethics/Natural EnvironmentMeet or beat all emissions standards Comply with allcurrent and futureemissionsstandardsMay 2008 Research andDevelopment
  41. 41. Comply with noise regulations Comply with allnoise ordinancesJuly 2009 Research andDevelopmentConduct annual audits in accordancewith the Sarbanes-Oxley Act of 2002Conduct yearlyauditDecember2007FinanceFinancialIncrease U.S. sales 15% salesincreaseMay 2008 Sales/MarketingIncrease sales to female riders 20% of totalHarley salesMay 2008 Sales/MarketingIncrease international sales 10% salesincreaseJuly 2009 Sales/MarketingThe Balanced Scorecard allows for a balance of priorities between short and long termgoals, as well as among stakeholders and management.45 A copy of the scorecard is distributed
  42. 42. to every department to ensure accountability for each department’s goals. Progress meetings willbe conducted every quarter with all accountable parties in attendance. Executive managementwill be responsible for ensuring that all goals are implemented in a timely manner.45Fred R. David, Strategic Management: Concepts and Cases, 11thed., Pearson Prentice Hall, New Jersey, 2007. 28BIBLIOGRAPHYBureau of Labor Statistics, <http://www.bls.gov>, accessed on April 17, 2007.CNN Money, <http://money.cnn.com>, accessed on April 17, 2007.“Company Spotlight: Harley-Davidson Motor Company,” DataMonitor, October 2006.Fred R. David, Strategic Management: Concepts and Cases, 11thed., Pearson Prentice Hall,New Jersey, 2007.Environmental Protection Agency, <http://www.epa.gov>, accessed on April 17, 2007.Federal Reserve, <http://federalreserve.gov>, accessed on April 17, 2007.Harley-Davidson Investor Relations, <http://investor.harley-davidson.com>, accessed on March13, 2007.Jim Burgess (Black Hills Harley-Davidson), speech given at Black Hills State University, March27, 2007.“Motorcycles in Asia-Pacific,” DataMonitor, November 2006.“Motorcycles in Europe,” DataMonitor, November 2006.“Motorcycles in the United States,” DataMonitor, November 2006.
  43. 43. Motorcycle Industry Financials, <http://www.reuters.com>, accessed on March 13, 2007.Sheila Seger (Lehman Trikes), personal interview, April 20, 2007.U.S. Census Bureau, <http://factfinder.census.gov>, accessed on April 17, 2007.

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