Case 21 Harley Davidson

Case 21 Analysis: Harley-Davidson

By: Joyce Morgan

This case study is about Harley-Davidson, Inc., which is the parent company for the group of companies namely Harley-Davidson Motor Company, Buell Motorcycle Company and Harley-Davidson Financial Services. Harley-Davidson Motor Company, the only major U.S.-based motorcycle manufacturer, produces heavyweight motorcycles and offers a complete line of motorcycle parts, accessories, apparel, and general merchandise. Buell Motorcycle Company produces sport motorcycles and Harley-Davidson Financial Services provides wholesale and retail financing and insurance programs to Harley-Davidson dealers and customers.

Harley Davidson Inc. was founded in 1903 by William S. Harley and Davidson brothers- Walter, William and Arthur and since then the company has produced the most recognized motorcycles in the world and has been named to Fortune's list of "100 Best Companies to work for" and has also been ranked #3 in automotive quality behind Rolls-Royce and Mercedes Benz by Harris Interactive, a worldwide market research and consulting firm.

Looking into the company's history, we see that the vibrations and distinctive rumble of a Harley engine were accepted by the market in the early 1900s and continued to appeal to motorcyclists in the early 2000s. Also by relying on exports and sales to police departments and the U.S. military, Harley-Davidson became one of two U.S. motorcycle companies (the other being Indian) to survive the Great Depression however Harley-Davidson's innovative new models let to the Indian's demise in 1953 at which time Harley-Davidson would remain the sole U.S. manufacturer of motorcycles until 1998, when the Indian brand was revived.

Harley-Davidson continued to win races throughout the 1960's, but its reputation began to erode soon after its acquisition by American Machine and Foundry Company (AMF) in 1969 because they became known for leaking engines, unreliable performance, and poor customer service. As with anything in life, recognizing the problems to any given situation is only half the battle. The development of methods for improvements and gaining company wide support for implementation was a key as well. Some of the issues that were discovered were: Corporate management focused mostly on short-term returns; Management did not listen to its employees or give them responsibility for the quality of what they made; High inventories of parts gobbled up cash and reduced productivity; Belief in quick fixes for problems, such as throwing in computers and state-of-the-art machinery to improve productivity; High break-even point that left the company vulnerable to unpredictable market fluctuations; Management that woke up too late to the threat of foreign competition because of the "it can't happen here" syndrome. By the late 1970's AMF lost faith in the acquisition and slated it for divestiture. When no buyers for the company emerged, 13 executives engineered a leveraged buyout of Harley-Davidson in 1981. Harley-Davidson struggled under a heavy debt load and came within four hours of bankruptcy in 1985, before then-CEO Richard Teerlink was able to convince new creditors to step in and restructure Harley with less costly financing terms.

With the growing global economy, companies are looking for ways to improve their market share and many excellent firms have learned how to beat their competitors through the implementation of new management, marketing, and/or manufacturing techniques. Harley-Davidson is one of those excellent companies whom have challenged traditional ideas and their techniques have lead to excellence.

Five-Forces Analysis:

Rivalry in Motorcycle Industry:

* Lack of products differentiation or narrow product line.

Industry growth is slow, precipitating fights for market share that involve expansion-minded members. Exit barriers are high. Harley has a high loyalty to make the business survive. The rivals, for example Honda, are diverse in strategies, origins and 'personalities' to compete and continually run head-on into each other. Overall it is relatively strong.

Bargaining power of Suppliers and Seller-Supplier Collaboration in Motorcycle Industry:

* The supplier's customers are not fragmented so they have a high bargaining power. Switching cost of changing suppliers is not too high since it doesn't require investing heavily (e.g. machine or heavy system) to be a supplier.

Competitive Pressures from Substitutes for Motorcycle Industry:

* Customers' taste is shifted into Japanese motorbike.

Products with the sophisticated features, high quality and new design have been available in the market to adopt the trend shifting. Overall it is relatively strong.

Threat of Additional Entry into the Motorcycle Industry:

* Requiring high capital investment to enter the business because of the scale economies in production, research, marketing and service of this industry is high. Brand Identification of Harley Davidson has been strongly established for years. The entrants will face a big barrier to overcome customer loyalty of Harley. Overall it is relatively weak.

Bargaining Power of Customers of Motorcycle Industry:

* The product is targeted to individual buyer rather than large-volume buyer therefore buyers will have only small power to force the price down.

The product is differentiated or targeted for niche market therefore the buyer will not easily find the alternative product. Harley also produces parts and accessories as proprietary components for their bikes, which are not produced by other company. Since the product is differentiated, the customer tends not to price sensitive. Overall it is relatively weak.

Brief SWOT Analysis:

Strengths:

* Flat organization structure to maximize employee involvements

* Strong