Full version Strategic Management And Policy Case Study Of Harley-Davidson Inc

Strategic Management And Policy Case Study Of Harley-Davidson Inc

This print version free essay Strategic Management And Policy Case Study Of Harley-Davidson Inc.

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Autor: reviewessays 12 March 2011

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Strategic Management and Policy

Case Study of

Harley-Davidson, Inc.

August 19, 2006


In 1903, a legendary motorcycle company was formed when William S. Harley and the Davidson brothers, William D., Arthur and Walter, handcrafted their first three motorcycles. In 1909, Harley-Davidson introduced the first V-Twin engine, which is still the company standard to this day. From 1917-1918, the company supplied 20,000 motorcycles for the military during World War I, and during this time major design advancements of motorcycles were made with Harley-Davidson as the leader. By the end of the Great Depression, only Harley-Davidson and Indian (Hendee Manufacturing) were the sole U.S. motorcycle manufactures that survived through the 1930’s. Throughout the 1940’s, Harley-Davidson supplied more that 90,000 motorcycles to the military for World War II, added additional facilities and started to decertify by selling apparel – the classic black leather jacket. After Indian closed in 1953, Harley-Davison was the sole American motorcycle manufacture for the next 46 years. Private ownership ended in 1965 whit their Initial Public Offering and four years later, the company merged with American Machine and Foundry (AMF).

By the early 1970’s, huge numbers of lower-priced Japanese motorcycles were being imported into the U.S., and these firms were able to capture a large portion of Harley’s market share. Additionally, due to Harley’s rapid production expansion, the company was experiencing quality problems. In 1981, thirteen members of Harley-Davidson’s senior management purchased the company from AMF in a leverage buyout and implemented new quality management and manufacturing methods. The company successfully petitioned the U.S. federal government, relying on recommendations from the International Trade Commission (ITC), to impose additional tariffs on imported Japanese motorcycles (over 750cc’s) for five years starting in 1983. Harley-Davidson, Inc. again became a publicly held firm for the first time since 1969 in 1986 and again regained its place in the top spot of the U.S. super-heavyweight market, beating out Honda. At the request of Harley-Davidson in 1987, tariffs on Japanese motorcycles ended one year ahead of schedule and the company was listed on the New York Stock Exchange. By the end of the 90’s, Harley-Davidson fully acquires Buell Motorcycle Company to manufacture American sport motorcycles using Harley-Davidson’s XL 883 and 1200 engines. The company’s stock split for the fifth time since 1986 in 2000, in 2001 the VRSCA V-Rod is introduced for the 2002 model year, inspired by the VR-1000 racing motorcycle, as is Harley-Davidson's first motorcycle to combine fuel injection, overhead cams and liquid cooling, and delivers 115 horsepower. Harley-Davidson, Inc celebrated its 100th year anniversary in 2003 with more than 250,000 people coming to Milwaukee for the final stop of the Open Road Tour and celebration, and Harley gathering and trips worldwide. Harley-Davidson not only survived a difficult time, but it became an American icon.

Key concerns facing Harley-Davidson’s continued growth and financial performance are:

1.Limited availability of motorcycles to consumers

2.Higher cost of ownership

3.Narrowing/aging demographic group

4.Competition from rival companies

5.Tariffs and Environmental regulations

Current Vision, Mission, Goals and Strategies


To dedicate, to grow value and strengthen the brand, Harley-Davidson deliver products and deliver the services that fulfill dreams


To fulfill dreams through the experiences of motorcycling, by providing to motorcyclists and to the general public an expanding line of motorcycles and branded products and services in selected market segments.


-Continue growth in all of its product lines. Harley-Davidson expects the growth rate for P&A revenues to be slightly higher than the motorcycle unit growth rate whereas the General Merchandise growth rate is expected to be lower than the motorcycle unit growth rate. The Company expects the Haley-Davidson Financial Services (HDFS) growth rate to be slightly higher than the Company’s motorcycle unit growth rate.

-The company will continue to realize production efficiencies at its production facilities through the implementation of innovation manufacturing techniques.


-To continue the Motor Company’s ongoing manufacturing strategy design to increase capacity, improve product quality, reduce costs and increase flexibility to respond to changes in the marketplace.

-Continued use of just-in-time inventory principles that allows the company to minimize its inventories of raw materials and work in process, and to minimize scrap and rework costs.

-Continue to establish and/or reinforce long-term, mutually beneficial relationships with suppliers.

-Continue research and development to lead the custom and touring motorcycling market and to develop products for the performance segment.

-Continue to ensure that its facilities and products comply with all applicable environmental regulations and standards.

-Increase HDFS’s competitive advantage ability to offer a package of wholesale and retail financial services.

Internal Analysis




Internal Strengths

1. Strong brand recognition and equity

0.20 4 0.80

2. Strong financials

0.15 4 0.60

3. Strong dealers network

0.15 4 0.60

4. Flat organizational structure to maximize employee involvement

0.05 4 0.20

5. Growing international presence

0.05 3 0.15

6. Sponsorship of Harley Owners Group (HOG) and Buell Riders Adventure Group (BRAG) organizations

0.05 4 0.20

Internal Weaknesses

1. Motorcycle availability

0.20 1 0.20

2. Higher prices than competitors in the heavyweight segment

0.05 2 0.10

3. Change in demographics of purchasers

0.05 2 0.10

4. Narrowness of product line

0.05 2 0.10


1.00 0 3.05

External Analysis





1. Increased demand in European and Asian markets

0.10 4 0.40

2. Increase motorcycle sales to female buyers 0.10 2 0.20

3. Developing countries’ market demand for heavyweight motorcycles

0.10 2 0.20

4. High gasoline prices causing more motorcycle purchases

0.10 2 0.20

5. Differentiating its customers and customize its offerings

0.10 4 0.40


1. Competition from rival companies

0.20 4 0.80

2. Tariffs levied by foreign markets

0.10 3 0.30

3. Environmental regulations and laws

0.10 3 0.30

4. Narrow demographic group

0.10 2 0.20

TOTAL 1.00 3.00

Strategic Option Analysis


Strong brand recognition and equity – Harley-Davidson is one of the most commonly recognized motorcycle brand names in the industry. The image one portrays of owning a Harley is of confidence and freedom.

Strong financials – Harley-Davidson posted gross profits of $2.04 billion for its Motorcycles segment during 2005, an increase of $141.0 million or 7.4% over its gross profits in 2004. Gross profit margin for 2005 was 38.2% compared to 37.9% during 2004.

Strong dealer’s network – Harley-Davidson has approximately 667 independently-owned full-service dealerships in the United States (this includes 318 combined Harley-Davidson and Buell dealerships). Internationally, the company has 634 independent Harley-Davidson dealerships that serve the European region, Asia/Pacific, Australia/New Zealand, Latin America and Canada. Further more; Buell is represented in the European, Asia/Pacific, and Canadian markets by 42 dealerships that do not sell Harley-Davidson motorcycles.

Flat organizational structure to maximize employee involvement – Fosters diversity and contributions from all employees that lead to the company success and their participation is considered an essential component.

Growing international presence – Worldwide retail sales of Harley-Davidson motorcycles grew 6.2% during 2005 over the prior year. Retail sales of Harley-Davidson motorcycles increased 4.2% in the United States and 15.0% internationally, when compared to 2004.

Sponsorship of Harley Owners Group (HOG) and Buell Riders Adventure Group (BRAG) organizations – Harley-Davidsons HOG and BRAG organizations promote a sense of “family” and “belonging” by providing activities and services to keep people active with their Harley or Buell motorcycle and also developed a trademark licensing program which provides income for dealers and the factor while expanding the total experience.


Motorcycle availability – Harley-Davidson has been unable to meet the demand for its motorcycles. Currently people must wait six to eighteen months for a new motorcycle and the price for a year-old Harley is 25% to 30% higher that a new one. As a result of long waiting lists, some customers “get tired of waiting” and switch to a competitor brand.

Change in demographics of purchasers – The average age of a Harley-Davidson buyer has increased over the past decade by approximately 10 years. A decade ago the average was approximately 37, now it has increased to approximately 47.

Narrowness of product line – Rivals, for example Honda, are diverse in strategies, origins and ‘personalities’ to compete and continually run head-on into each other.


Increased demand in European and Asian markets - There is a huge future growth potential in countries like China, Japan, United Kingdom and Europe.

Increase motorcycle sales to female buyers - Demographics indicate that there was a 10% to 20% growth rate of female buyers from 2001 – 2005.

Developing countries’ market demand for heavyweight motorcycles – While consumers in emerging markets tend to purchase small motorcycles, mopeds, and scooters as inexpensive primary transportation, there is a growing demand for the heavyweight motorcycle as their economies continue to improve.

High gasoline prices causing more motorcycle purchases - Due to fluctuations in the general gas price at the pump and the better gas mileage offered by motorcycles

Differentiating its customers and customize its offerings - Based on new abilities to tailor offerings under Customer Relationship Management (CRM) theory


Competition from rival companies - Major competitors are based outside the U.S. and generally have more financial and marketing resources - more diversified with larger worldwide sales volumes

Tariffs levied by foreign markets - Heavy tariffs are placed on HD products which may inhibit current as well as future sales, resulting in a high cost of ownership to the local consumer.

Environmental regulations and laws – The European Parliament and the European Council required motorcycles and scooter manufactures to reduce exhaust emissions by 60% on all new motorcycles produced after April 2003 and an additional 60% reduction on units produced after January 2006. Additionally, motorcycles that produce excessive noise are also under attack in most European countries and in the many U.S states.

Narrow demographic group - Demographics from 2001 through 2005 indicate that the median age of a HD owner is 45 to 47 years old with an average total income range of $78,000 to $81,000 per year.

Financial Analysis

In 2005, the Company’s net revenue and net income grew 6.5% and 7.8%, respectively, marking the 20th consecutive year of records for these categories.

Based on the Income Statement, Balance sheet, and Cash Flow statement, Harley-Davidson appears to be in good financial shape. Income and shareholder equity has increased, and there is a generous supply of cash on hand. This cash provides great flexibility, allowing for future expansion or as a safety net against unforeseen problems that may arise.

Harley-Davidson’s return on equity (ROE) for the last three years was 31.11 % in 2005, 27.64% in 2004, and 25.72% in 2003 respectively. Harley-Davidson had a profit of $.31 for each dollar invested in the company in 2005 and $.27for 2004, and $.25 for 2003. This continual increase each year is a good sign for both Harley-Davidson and their investors.

The company’s current ratio for 2005 was 3.60, 2.79 for 2004, and 2.86 for 2003. This high current ration shows that the company has more liquidity and that they could liquidate assets quickly if the need ever arose to do so. When compared to the Quick Ratio, Harley-Davidson’s liquidity remains high enough that coverage of its short-term debt can be achieved without relying on the sale of their inventory.

Ratio 2005 2004 2003

Current 3.60 2.79 2.86

Quick 3.34 2.59 2.63

Harley-Davidson obviously has a problem with inventory and keeping up with the demand of their motorcycles. Inventory turnover was one of the liquidity ratios used to analyze the company. With an average of around 23.3, the inventory turnover was too high. By increasing their motorcycle inventory and thus lowering their inventory turnover ratio, Harley-Davidson would be within the comparable range of other American manufacturing industries.

Ratio 2005 2004 2003

Inventory Turnover 25.6 22.1 22.3

Total Asset Turnover 1.08 0.91 0.94

Note: Inventory Turnover is based on the total inventory of HDI to include Motorcycles, Parts and Accessories (P&A) and General Merchandise.

Harley-Davidson has been profitable for the last three years with the gross profit margin toping 39% in 2005 and 2004 and 37% in 2003. In the U.S., this is an extremely high number for a manufacturing company.

Corporate Vision

Harley-Davidson, Inc. is an action-oriented, international company, a leader in its commitment to continuously improve our mutually beneficial relationships with stakeholders (customers, suppliers, employees, shareholders, governments 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.

To achieve this vision, it is recommended that Harley-Davidson’s goals should be:

-To increase HDI’s portion of the market share by five percent (5%) each year

-Maintain the company’s strong financial condition.

The following objectives are recommended in order to meet these goals:

-Increase Harley-Davidson’s market share in the European, Asian/Pacific and Latin American markets by engaging in a marketing campaign that is targeted to their unique culture.

-Increase motorcycle production to meet a consumer demand sales projection of 400,000 motorcycles by 2010 by balancing the economies of level production with a more seasonal retail sales pattern.

-Increase retail sales of new Harley-Davidson motorcycles to female buyers from the current 11% to 15% in 2010, by developing a motorcycle that is geared strictly toward them.

-Increase the availability of its motorcycles to independent dealers to provide a wider selections of motorcycles at the manufacturers suggested retail prices so that the company will be better positioned to attract retail buyers that are new to the brand or new to the sport of motorcycling.

-Develop a marketing strategy that will entice an average retail purchaser of a new Harley-Davidson/Buell motorcycle in the United States between the ages of 28 to 35 by appealing to their values and income range.

Strategy Formulation

In reviewing the company’s past performance and based on the Strategic Plan Analysis, it is recommended that the company focus on sales growth for the next two years as outlined below:

For the first year (2007):

-Continue to penetrate the European and Asian markets to reduce the gap between Harley-Davidson and its competitors by continuing its line of the V-ROD and Buell motorcycles that are geared toward the younger generation.

-Harley-Davidson should focus on developing a consumer base/market in developing countries such as Malaysia, India, and China/Hong Kong. These locations have a good infrastructure for production as well as a newly acquired taste for luxury items due to their emerging and growing economies. This consumer base can be generated by appealing to their aesthetic taste as well as their emotional ties with owning goods that reflect the essence of Harley’s mission statement; “liberation and the free spirit”.

-Instigate an R&D project to design a motorcycle that is predominately geared toward women. Based on company demographics, sales to the female consumer have increased approximately 10% from 2004 to 2005.

For the second year (2008):

-Target a demographic age of new purchasers between the ages of 28 to 35. Based on company demographics, the median age is currently in the mid forties for a Harley and 37 for a Buell. This may well be achieved through an aggressive marketing plan that is targeted to the desired demographic age group.

-Focus on the acquisition of customers from the “secondary circle”, namely through the HOG and BRAG organizations, employees participation, suppliers, and the general public by utilizing a referral system.

-Continue to promote its products and the related lifestyle through the Harley Owners Group (HOG) and Buell Rider Adventure Group organizations and associated publications by continuing to provide each new owner a one year membership to these organizations.


Harley-Davidsons ability to meet the targets and expectations noted depends upon, among other factors, their ability to: (1) continue to realize production efficiencies at their production facilities and effectively manage operating cost to include materials, labor and overhead; (2) effectively manage production capacity and production changes; (3) avoid any unexpected and minimize any expected supply chain issues; (4) develop and implement sales and marketing plans that retain existing customers and attracts new customers; (5) avoid unexpected changes and prepare for known changes and requirements in legislative and regulatory environments for its products and operations.

The new generation of global competition makes Harley-Davidson oriented not on the geographical area (country, city) but on the kinds of “tribes” of people spiritually close to their characteristics. No matter where you live or what your profession is, if your life philosophy is close to the one of Harley-Davidson’s, you are the potential customer and Harley-Davidson fulfills that need of belonging.

The Harley-Davidson name alone takes us back a half-century when it comes to the other brands of motorcycles that are on the market today. That’s because no other motorcycle on earth can do for the rider what a Harley can do. What makes the Harley-Davidson product/brand different are some of the following things: reliability, the V-twin engine, their line of motor clothes, custom parts/accessories, resale value, and brand image.

HD differs from other motorcycle producers by its strong branding of the central product and accessories/services accompanying it. Potential customers are ready to spend additional resources to become members of the “family”; the most extreme even become employees or franchise owners.