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Strategic Analysis: A Case Study of HARLEY-DAVIDSON

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 Strategic Analysis: A Case Study on HARLEY-DAVIDSON

Mohammadhasan (Amin) Moghadasi

Ershad Damavand Higher Education Institute

1.1. CORPORATE GOVERNANCE POLICY

The Harley-Davidson Board of Directors (the “Board”) and management believe that the
Company, in the interests of its stakeholders, should embrace corporate governance
practices in keeping with our leadership position in our business and current legislation
and rules. The Company’s policies of corporate governance must be rooted in and
consistent with its Business Process.

Process

The Nominating and Corporate Governance Committee of the Board has been
empowered by its charter to continuously review corporate governance practices of the
Company and to make recommendations to the Board to assure the Company’s
leadership in this area. The Nominating and Corporate Governance Committee reports
its findings and recommendations to the Board for action.

Practices

The Company will maintain the following policies to continue its leadership in the
corporate governance area:

• Board Independence. A majority of the Board will be comprised of independent

directors. These directors must meet the independence and other requirements
of the New York Stock Exchange (“NYSE”) and other applicable laws, regulations
and rules.

• Committee Independence. The Audit and Finance Committee, Human Resources

Committee and the Nominating and Corporate Governance Committee must be
comprised entirely of independent directors. All committee members must meet
the independence and other requirements of the NYSE and applicable laws,
regulations and rules.

• Committee Structure. The Board will maintain four committees: a Nominating and
Corporate Governance Committee, a Human Resources Committee, an Audit and
 Finance Committee and a Sustainability Committee. The Board will maintain a
written charter for each committee that will state such committee’s duties and
responsibilities.

• Committee Operation. Each committee chair, in consultation with respective

members of his or her committee, will determine the frequency and length of their
committee meetings, as well as any additional agenda items.

• Board Structure. The Nominating and Corporate Governance Committee will

review and make recommendations on the size of the Board, the frequency of its
meetings and the operation of the Board, including director qualifications. The By-
Laws contain additional provisions relating to director tenure, which the
Nominating and Corporate Governance Committee administers, including director
retirement following a director’s 75th birthday (except as the Board may otherwise
approve in advance of such election), the required submission of a director’s
resignation upon a substantial change of the director’s employment, occupation or
affiliation or if any conflict of interest develops or based on votes withheld in an
election of directors.

• Election of a Presiding Director. A Presiding Director will be elected by the

Nominating and Corporate Governance Committee when the Chairman is not
independent. The Presiding Director will serve for a one year term, unless the
Nominating and Corporate Governance Committee, in its discretion, sets a longer
or shorter term. The term of the Presiding Director will automatically expire upon
the appointment by the Board of a Chairman who is an independent director.

• Role of the Presiding Director. The primary roles of the Presiding Director are to
assist the Chairman in managing the governance of the Board of Directors and to
serve as a liaison between the Chairman and other directors. The Presiding
Director will: (i) preside at all meetings of the Board at which the Chairman is not
present, including all executive sessions of the non-management and/or
independent directors; (ii) have the authority to call meetings of the non-
management and/or independent directors; and (iii) serve as a contact for
interested parties who wish to communicate with non-management directors. If the
Company does not have a Presiding Director, but instead has a Chairman who is
an independent director, the responsibilities of the Presiding Director set forth
above will be performed by the independent Chairman.

• Board Meeting Calendar, Agendas and Materials. With input from the Presiding
Director, the Chairman of the Board will establish the annual Board calendar and
meeting dates, establish agenda items and schedules for each Board meeting and
determine the materials and information to be presented to the Board. Agenda
items to be considered by the Board at each of its meetings will be included in the
Board materials distributed in advance to Board members. At each Board meeting,
 there will be an executive session of the Board with only non-management
directors present.

• Board Orientation. An orientation program will be provided for each new director
to acquaint the director with the business, the financial picture, compliance
policies, corporate governance and other policies relevant to directors.

• Continuing Education. Directors are encouraged to continue educating

themselves with respect to various matters, including by way of example,
accounting and finance. If directors choose to attain such education by a third
party provider, the Company will bear the cost of a director’s attendance at one
continuing education course annually.

• Officer and Director Compensation and Equity Ownership. The Human Resources
Committee annually will approve the compensation of the Chief Executive Officer
of the Company (“CEO”) and the Nominating and Corporate Governance
Committee will annually review and provide input regarding the CEO’s total
compensation and will also periodically review the compensation of directors. The
Human Resources Committee annually will review and approve the total
compensation of the other executive officers. The Board, upon the
recommendation of the Human Resources Committee as to executive officers and
senior leaders and the Nominating and
Corporate Governance Committee as to directors will approve Stock Ownership
Guidelines for directors and executive officers and senior leaders. A director who
is also an officer of the Company and an employee of the Company does not
receive additional compensation for serving on the Board.

• Director Access to Management and Independent Advisors. Directors will have

access to senior management of the Company. The Company also maintains an
environment that permits senior management to contact directors. The Board
encourages the CEO to involve in Board presentations, where appropriate, senior
2 management or other employees who can provide expertise on and insight into
the matters being discussed by the Board. Directors are authorized to consult with
independent advisors, as necessary and appropriate, with or without consulting
senior management.

• Certain Responsibilities. Each director is expected to attend meetings of the Board

of Directors and any Board committee(s) of which he or she is a member and to
review all meeting materials circulated prior to each meeting. Unless a director
has a conflict in his or her schedule, all directors are expected to attend the annual
meeting of shareholders.

• Management Succession. The Nominating and Corporate Governance Committee

will establish goals and objectives with the CEO and evaluate at least annually the
 performance of the current CEO in light of these goals and objectives. The
Nominating and Corporate Governance Committee will also review the Company’s
management overall to develop a CEO succession plan for recommendation to
the Board.
• Annual Performance Evaluation of the Board. The Nominating and Corporate
Governance Committee will manage the annual Board and Board committee
evaluation process.

Adopted by the Board of Directors: December 7, 1995

Date of Last Revision: November 29, 2016

1.2. STAKEHOLDER GROUPS

Harley-Davidson’s prioritize stakeholders groups as follows, arranged according to

significance:

 Customers. Harley-Davidson gives top priority to its customers as a major

stakeholder group.
 Communities. This stakeholder group is interested in Harley-Davidson’s
contributions to community development. Communities are significant stakeholders
because they affect the company’s reputation and brand image.
 Environmentalists. Harley-Davidson has become increasingly sensitive toward the
interests of environmentalists as a stakeholder group. These stakeholders are
significant because they push businesses to contribute to environmental protection
and conservation.
 Suppliers. Harley-Davidson’s suppliers are significant stakeholders that influence the
company’s production capacity. The company addresses these stakeholders’
interests to ensure business resilience and adequate production capacity.
 Employees. Employees are significant stakeholders because they influence Harley-
Davidson’s output quality and capacity. The interests of this stakeholder group include
fair treatment and career opportunities.

2. Ethic Values

These are our values. They are the heart of how we run our business. They guide our
actions and serve as the framework for the decisions and contributions that our
employees make at every level of the Company.
 Tell the Truth
 Be Fair
 Keep Your Promises
 Respect the Individual
 Encourage Intellectual Curiosity

3. PESTEL ANALYSIS

PESTEL analysis is a strategic tool to analyze the macro environment of the organization.
PESTEL stands for - Political, Economic, Social, Technological, Environmental & Legal
factors that impact the macro environment of Harley-Davidson, Inc.

 Political Factors that Impact Harley-Davidson, Inc.

Political factors play a significant role in determining the factors that can impact
Harley-Davidson, Inc.'s long term profitability in a certain country or market. Harley-
Davidson, Inc. is operating in Recreational Vehicles in more than dozen countries and
expose itself to different types of political environment and political system risks. The
achieve success in such a dynamic Recreational Vehicles industry across various
countries is to diversify the systematic risks of political environment.

 Economic Factors that Impact Harley-Davidson, Inc.

The Macro environment factors such as – inflation rate, savings rate, interest rate,
foreign exchange rate and economic cycle determine the aggregate demand and
aggregate investment in an economy. While micro environment factors such as
competition norms impact the competitive advantage of the firm. Harley-Davidson,
Inc. can use country’s economic factor such as growth rate, inflation & industry’s
economic indicators such as Recreational Vehicles industry growth rate, consumer
spending etc. to forecast the growth trajectory of not only --sector name-- sector but
also that of the organization.

 Social Factors that Impact Harley-Davidson, Inc.

Society’s culture and way of doing things impact the culture of an organization in an
environment. Shared beliefs and attitudes of the population play a great role in how
marketers at Harley-Davidson, Inc. will understand the customers of a given market
and how they design the marketing message for Recreational Vehicles industry
consumers.

 Technological Factors that Impact Harley-Davidson, Inc.

Technology is fast disrupting various industries across the board. Transportation
industry is a good case to illustrate this point. Over the last 5 years the industry has
been transforming really fast, not even giving chance to the established players to
cope with the changes. Taxi industry is now dominated by players like Uber and Lyft.
 Car industry is fast moving toward automation led by technology firm such as Google
& manufacturing is disrupted by Tesla, which has stated an electronic car revolution.
A firm should not only do technological analysis of the industry but also the speed at
which technology disrupts that industry. Slow speed will give more time while fast
speed of technological disruption may give a firm little time to cope and be profitable.

 Environmental Factors that Impact Harley-Davidson, Inc.

Different markets have different norms or environmental standards which can impact
the profitability of an organization in those markets. Even within a country often states
can have different environmental laws and liability laws. For example in United States
– Texas and Florida have different liability clauses in case of mishaps or
environmental disaster. Similarly a lot of European countries give healthy tax breaks
to companies that operate in the renewable sector.
Before entering new markets or starting a new business in existing market the firm
should carefully evaluate the environmental standards that are required to operate in
those markets.

 Legal Factors that Impact Harley-Davidson, Inc.

In number of countries, the legal framework and institutions are not robust enough to
protect the intellectual property rights of an organization. A firm should carefully
evaluate before entering such markets as it can lead to theft of organization’s secret
sauce thus the overall competitive edge.

4. FIVE FORCES ANALYSIS (PORTER'S MODEL)

Following is the quick overview of porter’s five forces of Harley Davidson.

1. Competition or competitive rivalry – high
2. Bargaining power of customers – high
3. Bargaining power of suppliers – low
4. Threat of substitute products – moderate
5. Threat of new entrants - moderate

 Competitive Rivalry
This force of porter analysis identifies the competition against a company in the
specific industry. When we talk about Harley Davidson, what are the external factors
creates a high competitive power or competitive rivalry for it?
There are three major factors to consider in this regard, for instance, the large number
of firms manufacturing motorcycles, the high availability of firms as well as the
moderate firm's variety. There are lots of firms with which the Harley Davidson
competes, including local to international markets. Other than this, the high availability
of public transportation also affects the company sales. In this regard, Harley
 Davidson needs to maintain as well as improve product quality to stay strong and to
stand out in this high rate of competition.

 Bargaining Power of Buyers

When we talk about the Harley Davidson's bargaining power of suppliers, its strong.
What are the external factors that serve as a basis for it? These are the high
availability of substitute products, the high knowledge of customers as well as the low
switching costs. The low switching costs for the customers makes it really easy for
them to switch to other available substitutes as they are given a variety of options in
this regard. So, if Harley Davidson raises the prices, the customers are going to switch
easily for the reason that they have enough knowledge to judge the better option for
them so they can make best decisions in this regard.

 Bargaining Power of Suppliers

This force of porter analysis determines the effect of suppliers in the industry. When
we talk about the bargaining power of suppliers of Harley Davidson, it’s weak. What
are the external factors that serve as the basis for it? Minimal forward integration is
the major reason for which the suppliers bargaining power is considered weak in this
regard. The other factor is the high stability of supply for the suppliers. Also, the
moderate size of a number of suppliers allows them to have an effect on the company
but not so high but moderate.

 Threat of Substitute Products

This force of porter analysis tells us about the substitute product's threat for our
company. When we talk about the Harley Davidson, the threat of substitute products
is moderate. What are the external factors that serve as a basis for the moderate
threat of substitute products against Harley Davidson? These factors are the
availability of a number of substitute products, the moderate substitute variety as well
as the low switching costs. For instance, the availability of cars, as well as the public
transportation, is being utilized by the people much that have a huge effect on Harley
Davidson sales. But the motorcycle is something really personal as well as cheap so
the customers can't be getting attracted by these available substitutes so for Harley
Davidson, the threat of substitute products is considered moderate. However, if the
company raises the prices, the customers can switch to other substitutes like motor
scooter etc.

 Threat of New Entrants

The analysis of this force tells us about the threat of new entrants against a firm. For
instance, when we talk about the Harley Davidson, the threat of new entrants for the
company is medium. What are the factors that serve as a basis in this regard? These
factors are moderate economies of scale, moderate costs for switching as well as the
high costs required for brand development. As a matter of fact, the first and foremost
thing to consider in this regard is that the Harley Davidson is considered to be a
 recognized brand around the world. The brand development and to gain the
customer's trust isn't so easy task for the reason that high costs and enormous efforts
are required for this. So, this is the major barrier for any new entrant to enter into this
industry. But at the same time, there is one more important thing to consider that it is
really very easy for customers to switch from one brand to other if that is proffering
the same quality motorcycles at the much low prices. So, the Harley Davidson needs
to address this issue as the threat of new entrant for it isn't low but medium.

 Conclusion
As discussed above, based on porters five forces analysis, the Harley Davidson
necessitate focusing on the first two forces i.e. high competition in the industry as well
as high bargaining power of suppliers. Both these aspects should be addressed for
sake of maintaining the top position in this market so Harley Davidson needs to take
appropriate steps in this regard. For instance, increasing the developmental efforts as
well as reasonable investment in technological improvement can bring the positive
results for the company.

5. VALUE CHAIN FOR COSTUMERS

Information
Dealer Network
Gathering (e.g. price, Selecting Purchasing Customization Maintaining
Visit
f ue l price)

6. VISION & MISSION

 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.

 Mission
We fulfill dreams thorough the experience of motorcycling, by providing to motorcyclists
and to the general public an expanding line of motorcycles, branded products and
services in selected market segments.
7. SWOT

Harley-Davidson is the fifth biggest motorcycle manufacturer in the world. The company’s
success is hinged on its ability to address the issues pointed out in this SWOT analysis.
The SWOT analysis indicates the internal strategic factors (strengths and weaknesses)
and external strategic factors (opportunities and threats) most relevant in the business.
In Harley-Davidson’s case, these factors support potential expansion and a stable
performance in the global motorcycle market. However, this SWOT analysis indicates
changes in expansion strategies to improve the company’s standing. Harley-Davidson
can benefit from more aggressive expansion to negate the effects of aggressive
competition.

Harley-Davidson’s Strengths (Internal Strategic Factors)

Harley-Davidson’s strengths are primarily linked to the company’s brand image and the
chopper motorcycle market culture. This element of the SWOT analysis identifies the
internal strategic factors that contribute to the firm’s capabilities for growth and
development. In Harley-Davidson’s case, the following are the most significant strengths:

 Strong brand image

 Strong base of loyal customers
 Expertise in custom/chopper motorcycle production

Harley-Davidson has one of the strongest brand images in the motorcycle market. This
brand image is especially notable because of the custom/chopper biker culture, which is
strongly associated with the Harley-Davidson brand. This condition has also established
a stable base of loyal customers. Moreover, more than a century of experience creates
the company’s strength of expertise in the business. In this element of the SWOT
analysis, Harley-Davidson’s strengths ensure business stability despite aggressive and
low-cost competitors.

Harley-Davidson’s Weaknesses (Internal Strategic Factors)

Harley-Davidson’s weaknesses are based on the current limited focus of the business.
This element of the SWOT analysis tackles the internal strategic factors that prevent the
company from maximizing its performance. The following are Harley-Davidson’s most
notable weaknesses:

 Narrow product mix

 Limited market reach
 Limited supply chain
Harley-Davidson’s narrow product mix is a weakness because it prevents the business
from reaching more market segments. For example, the company focuses mainly on
chopper motorcycles. Harley-Davidson is also weak because most of its sales are
generated in North America. The company has insignificant or nonexistent sales in
developing countries. In relation, Harley-Davidson has a limited supply chain that
hampers potential expansion in the global motorcycle market. In this element of the
SWOT analysis, it is shown that Harley-Davidson must overcome its weaknesses to
support global growth and expansion.

Opportunities for Harley-Davidson (External Strategic Factors)

Harley-Davidson’s opportunities are related to the global motorcycle market’s potential.

This element of the SWOT analysis identifies external strategic factors that can facilitate
business growth and development. Harley-Davidson’s most significant opportunities are
as follows:

 Global expansion
 Product diversification
 Alliances with complementary businesses

Harley-Davidson has the opportunity to expand, especially in developing markets. Also,

the company can broaden its product mix to include a more diverse array of motorcycles
and related products. In addition, Harley-Davidson has the opportunity to establish
business alliances to increase its market reach, similar to its partnership with Lehman
Trikes. As shown in this element of the SWOT analysis, Harley-Davidson has significant
opportunities to grow its business, especially internationally.

Threats Facing Harley-Davidson (External Strategic Factors)

The threats facing Harley-Davidson are based on market trends and legal structures. This
element of the SWOT analysis covers the external strategic factors that could reduce the
company’s performance. The following are notable threats against Harley-Davidson:

 Aggressive competition
 Imitation
 Increasing preference for electric vehicles

Aggressive competition threatens Harley-Davidson. For example, Toyota and other

motorcycle manufacturers are aggressive in selling low-cost products. Harley-Davidson
also faces the threat of imitation, especially now that other companies are also offering
custom/chopper bikes. Moreover, the environmentalism trend has a negative impact on
Harley-Davidson, whose products and brand are known for internal combustion engines.
In this element of the SWOT analysis, Harley-Davidson must implement product
innovation strategies to address the threats to its business.

Harley-Davidson’s SWOT Analysis – Recommendations

The SWOT analysis of Harley-Davidson reveals the need for reforms in the business.
The global motorcycle market presents opportunities for growth. However, Harley-
Davidson has a narrow product mix, a limited market reach, and a limited supply chain.
The company also needs to address the environmentalism trend. Thus, the following are
the recommendations for Harley-Davidson to further grow its business:

 Broaden the product mix through innovation and diversification

 Globally expand, especially in developing markets
 Globally expand the supply chain
 Innovate to make Harley-Davidson brand and products environmentally friendly

8. PORTER’S GENERIC STRATEGIES

According to Porter’s Generic Strategies, Harley Davidson’s has a Focus-Differentiation

Strategy: differentiate within just one or a small number of target segments.

Focus

Differentiation Cost
Advantage
Focus Strategy

Focus on Heavyweight market with customers who consider their motorcycle a luxury
product.

“Basically, we do not believe in the lightweight market. We believe that motorcycles are
sports vehicles, not transportation vehicles. Even if a man says he bought a motorcycle
for transportation, it’s generally for leisure time use. The lightweight motorcycle is only
supplemental.”

- William Davidson, President of Harley-Davidson

Differentiation Strategy

Differentiation based on customers ‘social and psychological needs:

 Harley-Davidson is in the business of selling lifestyle, not transportation

 Internal and external product integrity – critical factor in such differentiation:
Ability of employees and customers to identify with one another
E.g. management wearing biking leathers!
 Differentiation advantage by careful examination of activities customers undertake:
o Test ride facilities
o Owner‘s club activities (Harley Davidson Owner Group – HOG)
o Various sponsored events for Harley riders

10. BCG MATRIX

The BCG matrix classifies business-unit performance on the basis of the unit’s relative
market share and the rate of market growth.

Products and their respective strategies fall into one of four quadrants. The typical starting
point for a new business is as a question mark. If the product is new, it has no market
share, but the predicted growth rate is good. What typically happens in an organization
is that management is faced with a number of these types of products but with too few
resources to develop all of them. Thus, the strategic decision-maker must determine
which of the products to attempt to develop into commercially viable products and which
ones to drop from consideration as Harley did with the Buell Blast. Question marks are
cash users in the organization. Early in their life, they contribute no revenues and require
expenditures for market research, test marketing, and advertising to build consumer
awareness.

If the correct decision is made and the product selected achieves a high market share, it
becomes a BCG matrix star. The Harley-Davidson company is made up of multiple
business units, its corporate strategy focused on decisions which can increase sales and
allow the company to gain competitive advantage by maximizing the potential of their
core competencies and the resources both financial and non-financial.

As stars have high market share in high-growth markets they generate large cash flows
for the business, however they also need large inputs of finances to maintain growth.
They required large expenditures for advertising, research and development continuously
improve the product which would enable it to establish a dominant position in the industry.
The company’s strategic arrangement with the US Army together with the exceptional
features and capabilities RoadKing and Sportser allowed the company to gain high
market share and high market growth.

The diversity of their products is considered in terms of its related and unrelated
diversification. However, performance at the business level of the company suffered
leading to workers striking as a result the company was then sold to thirteen investors
strategically lead the company.

The “Fat Boy” though in the 1990’s was a market leader and cash cow for Harley
however, its market share was high and low-growth as the product reaches its maturity
stage of the product life cycle. This product was a well-established product with wide
consumer acceptance and as a result sales revenues were high.

The strategy for such products is to invest little money into maintaining the product and
divert the large profits generated into products with more long-term earnings potential,
i.e., question marks and stars which Harley did with their FXR models.

Dogs are businesses with low market share in low-growth markets. These are often cash
cows that have lost their market share or question marks the company has elected not to
develop. The recommended strategy for these businesses is to dispose of them for
whatever revenue they will generate and reinvest the money in more attractive business
such as into the Fat Boy.

A more stringent approach, but still one with weaknesses, is a competitive assessment.
A competitive assessment is a technique for ranking an organization relative to its peers
in the industry. The advantage of a competitive assessment over the BCG matrix for
corporate-level strategy is that the competitive assessment includes critical success
factors, or factors that are crucial for an organizational to prevail when all organizational
rivals are competing for the same customers.
11. STRATEGIC PARTNERSHIPS

 (Alliance Strategy) Ford and Harley Davidson: Trucks

Ford and Harley-Davidson delivers a new standard of "custom cool," combining the
smooth handling and legendary durability of America's best-selling truck with the
authentic styling of Harley-Davidson.
 (Alliance Strategy) Bell & Ross and Harley Davidson

Luxury watch maker Bell & Ross have teamed up with British bike customizers Shaw
Harley Davidson (the most distributing) to create this custom chopper: the Bell & Ross
inspired Nescafe Racer.

 (Alliance Strategy) In USA: Shell and Harley Davidson (joint communication)

It offers about mapping oil-pit stations through the HD ride planner.

 REFERENCES

Harley-Davidson at One Hundred: An American Story by Wally Bock

Case Study on Harley-Davidson by Josef Schinwald

Harley-Davidson Business Practices by Reginald A. Bruce

Harley Davidson Review by “How Stuff Works”

Annual Report of Harley Davidson by Company’s Website

Various Links from the Company’s Website

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